Friday, August 30, 2013

Will it be a Singapore bear market?

The Straits Times Index dipped below the 3,000 mark this week and that got me scrambling. Looking at the chart above, we see that compared to the peak 3 months ago, the Singapore benchmark lost 13%. Is this sudden plunge that will see us enter the bear market phase or is it just a correction? When compared to the S&P 500, the Singapore market has taken a battering. There are of course reasons for the strength in America's stock markets despite possibility of the tapering of QE3. However, I would strongly argue that the next three months are very crucial for those looking at the Singapore market. If  it is just a correction, we should see support at the 2,850 level before the market returns to an upward trend. if it is a bear market, we will see the 2,700 level being breached with a bottom most likely at the 2,500 level. We are unlikely to return to the March 2009 bottom because the fundamentals point towards a shaky recovery. 

Keep in mind that the Singapore property market (private and public) is effectively dead due to the measures implemented by the government. As it is we see private sales down to a trickle and cash-over-valuation premiums approaching zero. What happens next, I would speculate, people are taking their money out of their stock and shares to help cover for their loss of capital gains in property. The amount of money in the Singapore system is being reduced. I am currently accumulating cash and will consider entry into the market once the STI hits 2,700, with 2,500 being the trigger point. Based on my above projections, we should look at buying in at the start of December. Once that happens, I would suggest picking quality dividends paying blue chips as well as commodity stocks. This is a balanced approach.

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