It has been brought to my attention by many of my clients asking whether it is prudent to be investing in Singapore equities or 'blue-chip' shares now since the market is continuing its upward climb?
They have asked me to comment on it and I am for the first time using this blog site as a platform for us all to be able to share our thoughts and opinions on topics that are important to all of us.
The Singapore Straits Times on Wednesday, December 6th published a front page article saying that the Straits Time Index is about to hit a new record high at the 3,000 level. It also shared with the public that the euphoria could be explained by the following reasons or factors: -
1. Sharp drop in crude oil prices
2. Prospects of US interest rate cuts
3. Property shares on 'tipsters' sheets
4. Upcoming IR at Sentosa Island
We feel that the first two points are mute points. Oil prices can go up and down and for most developed countries the impact is similar. By itself it cannot explain the exuberance in the the Singapore equity market. Prospects of US interest rate cuts has no impact to Singapore this year, besides, the talk about interest rate cuts only started in Q4 of this year and hence, doesn't begin to explain the situation here in Singapore. The only impact to Singapore if the US were to being cutting interest rates next year, is that Singapore may potentially also cut rates which could uplift the Singapore economy then.
Points 3 and 4 suggests an element of 'speculation' which is rather dangerous because it is not founded on fundamentals. What it does mean is that when the 'cloud' on which unenlightened investors are standing on vaporises, guess what, the floor from under their feet will open up!
Singapore will close this year with a GDP of 8.3% and equity prices reflect the strong growth on better earnings by corporates. However, next year growth is expected to be about 5%, this means that future earnings discounted back to net present value will be lower, hence, equity prices will fall to reflect the weaker earnings.
We believe that the euphoria has another 10% worth of upside steam up to the reporting season for corporates which is in March/April 2007.
After that, watch equity prices begin to FALL.
Monday, December 11, 2006
Singapore Equities
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2 comments:
Thanks for the heads up, I was really thinking of jumping into the market since everybody is talking about it. However, what you said really makes sense and it has helped me to decide to stay out of the market till a consolidation has taken place. By the way, I have a property of investment properties, I am thinking of talking to my bankers to do a re-pricing, should I opt for a fixed rate package or a variable rate package?
So if I have invested in the Singapore equity markets since the start of the year, should I sell now? Regards, Thinking Man
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