Thursday, February 19, 2015

A Secret Bull Market Indicator for the Singapore Stock Market

Why we are not at the market peak and how to identify it
I analysed the number of IPOs floated on the Singapore stock exchange since 1997. What I discovered plotting the data graphically against the Straits Times Index shocked me.

Over an 18 year period, 784 companies were listed on Singapore's stock exchange and this it not including those that were listed via a reverse-takeover. During this period, except for 2004 & 2005, whenever there is above average number of IPOs, the market will subsequently enter into a bear market (see charts below).

On a yearly basis, this number is highly variable. On a monthly basis, the indicator of a market peak seems to be 11 IPOs, with a bear market following 6 months after. Using 10 IPOs as an indicator will create several false alarms.

(yellow line is the STI value for the same year's January, green line is the same year's December)

2004 and 2005 were exceptional years because it was during this period that SGX aggressively courted Chinese companies (S-Chips) to list here. 

I believe that an above-average number of IPO is good indicator of a bull market that has reached its peak, or what some call a late-bull. IPOs are usually issued under "favourable" market conditions as shareholders of the company being taken public wants to maximise gains. There will be a number of IPOs issued in less than ideal conditions but their investment bankers may decide to use share placements to limit the downside. Therefore, when an above-average number of companies decide to go public at about the same time, it indicates excessive optimism or market euphoria.

If based on past performance, we consider this late-bull market indicator reliable, then we are have yet reached a market peak, suggesting more upside ahead. We were close to that point in July 2013, when 9 IPOs were launched. The STI however remains on a slow uptrend, as we try to overcome the proverbial wall of worry

For those who find this indicator interesting or useful, the original idea was from Kenneth Fisher. There are two time-consuming ways which this indicator can be improved. Firstly, you can try to count/sum the dollar amount of shares that were floated to the public, including those being placed privately.

The second way is to then deduct the amount of shares floated to the public by the amount of shares taken private using cash (i.e. Keppel Corp and Keppel Land). This is because cash is returned to the public, which will then feed demand for other listed companies, thereby sustaining a bull market. 

If you do find the time to do increase the indicator's reliability, do email me and let me know. Meanwhile, do share this post as well as give me the due credit. I spent the first day of the Lunar New Year writing it!

Gong Xi Fa Cai!


  1. hi Singapore Stock Picker, thank you for contact me. Happy Chinese New Year to you. I take my hat off for you to go through the exercise of finding the link. The theory make sense that firms wil likely IPO more during times are good. My gripe with this is that the sample size is too small, and this tends to create various exception.

  2. Agreed that this exercise suffers from data availability bias. Along with what I have already suggested, there is one more alternative improve reliability of the data and that is repeat or aggregate this exercise with other stock exchanges' IPOs.

    I still think 10-11 stocks per months should be considered a late-bull indicator. I will do some data drilling later today.

    Thank you for the quick response to my comments.

  3. hi Singapore Stock Picker, there might be exchanges that are so unlucrative to list there but i get the idea. that together with privatization might reveal something.

    a good exercise to see if there are useful indication. i would like to draw attention to the 2004 and 2005 period, since it was sgx push to get china firms to be listed. sgx will always try to do that, and its whether the environment is conducive enough for them to be listed. yet had we use that indicator during end 2004, we might have sold out too early.

  4. I guess the lesson learnt from 2004/5 is that we have to use some discretion. Interestingly, 2015 seems to be a quiet year for IPOs. Would love to track this statistic on my blog on a "live" basis.

  5. wahaha that is a lot of work! I will take it up if i remember there is an IPO!

  6. I agree this is a good gauge of bullish sentiment, but as has been pointed out, it is an argument that would be made stronger with a sample size that were 3x larger. I think this is also at best a qualitative measure. In conversations with friends I always compare this market to the one in the year 2006, when nothing could go wrong, and coffee shop uncle auntie all decide to come out to play also. This study of yours is a great long running project to track the hypothesis. Also good of you to observe that at one point we were courting S chips, and hence acknowledge the outlier characteristic of that market.

  7. Thanks for the comment. I guess I would need to hire a researched to help me churn out those figures but I am not sure my adsense income can cover it!