Sunday, January 31, 2016

Why Singaporeans should not cheer for negative Japanese interest rates?

The Straits Times Index jumped by more than 2% on the last trading day of January after the Japanese central bank announced that a key interest rate would be made negative. Despite this intervention and same-day reaction, I am sticking to my prediction that there will be a tumble to 2,200-2,400 levels before recovery because other central banks have used the same negative interest rate policy with little effect on the stock market. I believe the Japanese central bank's intention is to weaken the Yen than stimulate the stock market.

If anything, that last day jump means we are closer to that last phase of the bear market, where the mood of the market turns from surprise/disbelief into despair. This is because, to steal a movie quote, there can be no true despair, without hope. Japan's central bank intervention represents that hope before the STI tumbles into 2,200-2,400 levels. A quiet recovery, not noticeable by many until after the fact (2-3 months out) will ensue after true despair has set in.

Meanwhile, I have been trawling through blogs, valuebuddies and sharejunction for ideas on which stock to pick up. SingPost remains on my watchlist but I have added Riverstone and NSL and Lee Metal Group for future considerations. The temptation to average down on KrisEnergy however, has become very strong.

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