Sunday, May 8, 2022

When I Can Be Wrong About the Market

I have a base case where a worsening global inflationary environment causes earnings to drop for listed companies.

Moreover, Singapore's major trading partners are facing risks of their own:

- Prolonged COVID-19 lockdowns may slow China's 2022 economic growth;
- Europe faces an energy crisis from Russia's threat to turn off its oil supply;
- The U.S. faces a possible recession due to over-tightening by the Fed.

Most equity indices have reacted accordingly. The S&P 500 Index is down 13.5% year-to-date. The MSCI Asia Ex Japan Index is down 16.7%. The Hang Seng Index is down 14.5%. The CSI 300 Index, Nikkei 225 Index and the KOSPI Index are all underwater too.

The only exceptions are Indonesia's JCI (up 9.8%) and Singapore’s STI (up 5.4%).

The STI's gravity defying feat is puzzling. It is as if Singapore has become unhinged to global developments.

One may argue the Singapore bourse is light on tech listings, and hence spared from the carnage. The STI is dominated by banks (45%) and Reits (13%). Banks are beneficiaries of higher interest rates, while Reits are viewed to be good inflation hedges.

The alternative view is local investors are still drunk on the country's re-opening optimism. Increased costs have not hit companies' bottom line and consumers' pockets yet.

Over the past few months, I have trimmed my stake in companies like CapitaLand Investment, TheHourGlass and Singtel as the stock prices rallied higher. I have been waiting for an opportunity to load up when prices retrace lower.

So far, the expected selloff did not materialise. This led me to wonder whether I have been wrong about the market.

A recent Bloomberg article [here] commented investors are turning to Southeast Asia's stock markets as one of the best places to park their money right now. This could explain the resilience seen in the STI.

I may be a fool to hold on to cash as inflation climbs higher. Nonetheless, it is still early days of the downturn (if any), so I am going to bide my time.

This post is to pen down my thoughts, and as much to convince myself on staying committed to my investment strategy.

Thanks for reading!




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