Saturday, January 16, 2016

Straits Times Index Bear Market into 9 months, Sharp Plunge Ahead

If we took April 2015 as the peak and end of the bull market, we are now entering the ninth month that the market has trended down. This is essentially a bear market. As I have written in my previous post, I argued that there has been two distinct phases in the bear market and that there will be one more phase. This is the phase where there will be sharply declines but the mood of the market turns from surprise/disbelief into despair. This is also where the market starts to recover.

I have made some predictions for the first three months of the year and I have been spot on so far. And if history is any indicator, on average, we should see an inflection between one and nine months time or between February and October 2016. In the last financial crisis, the STI was at its lowest around 1,600 points at one level. My opinion is that we will almost certainly (93% +/-6%) not hit sub-2,000 like in the GFC.

This is because the worries behind the stock market are driven mainly behind woes in China and weak commodities prices. Although there is plenty of attention on the Chinese stock market, it is a very localised stock market compared to the US stock market and has limited influence on global equities. Singapore has been affected by the problems in China because we have benefited from Chinese affluence. There is a significant inflow of money from China into Singapore, be it chasing property or stock. The weak commodities price has affected Singapore mainly because of the STI's exposure to the oil and gas sector through Keppel Corp and Sembcorp. My simple view is that Keppel Corp and Sembcorp will reach a bottom soon, but a rebound to previous years' highs of more than SGD 8.50 per share is not going to happen in the next 2-3 years because the super cycle is over. Refer to NOL if you think I might be exaggerating.

Tying everything together, between February and October, I am calling a bottom or inflection point at 2,200-2,400 levels, or 200-400 points slide in the STI. That will be the point where I will be buying into the market, provided have cash sitting on the sides and I still have a job. SingPost remains my target.

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