Monday, January 27, 2014

A stock market bubble?

We've heard that there is a property bubble in Singapore as well as other parts of Asia like Hong Kong, China etc. How about the stock market? Is the stock market in a bubble too and where will the market head from now onwards? Last week, US markets declined greatly with the Dow Jones down more than 300 points on Friday. With this, Asian markets today also followed suit with major stock market indices on a decline. I have to ask myself this question:"Do i stay invested or do i sell away my stocks". Will the stock market crash? These are the questions which many people would ask.

For me, i cannot predict the market. I also do not care where the market will go from here. Trying to predict the next direction of the market is liken to fortune telling of a person's future. In other words, it is almost impossible. It is also worthless to always wanting to predict the future while you do not do anything to your current circumstances. It's like a poor man trying to predict if he will be rich in the future but does not do anything now. I hope you get what i mean.

I sense that the market sentiment now is still on a wait and see attitude. Many people want to invest only when everything is good and rosy. Among my friends and relatives, very few of them are in the market also. When there are discussions on the stock market, many are afraid of losing money and investing at the wrong time. To me, there is no perfect time and it is futile to time the market.

So if I do not care about the future direction of the market, what do i care about? As a shareholder of a company, i'm interested in the business prospect of the company. I want to see the management keeping their promise, managing the company well and increase shareholder's value. It doesn't matter if the stock price goes up or down unless the fundamentals of the company changes. This is the key point we must focus on.

Singapore has embarked on a series of major infrastructure projects among those are the on going new MRT lines which will continue till 2030, the new changi airport 4 & 5, the new marina bay CBD. Will Singapore stop all these infrastructure projects in the near future? The most probable answer is no. Investing in those companies might be a good choice.

US tapering and interest rates at record low? In the current situation, interest rates can only go up as it cannot go lower any more. The obvious choice is to stay away from interest rates driven sector like companies dealing with properties. The Singapore government really does seem determined to keep property prices stable. A correction is expected if not more people are going to complain that prices are too expensive.

Japan's government on the other hand is determined to inflate their prices with a 2% inflation target. With huge amount of capital injection into Japan's economy, we expect to see prices going up and hopefully this will end the decade long deflationary economy which they have experienced since the 1990s. To ride on this, investing into Japan's property might be a wise choice. Rental of retail spaces as well as residential spaces might also increase as the economy recovers.

Looking at individual company's business is a better choice than looking at their stock prices. Stock prices goes up and down and it doesn't matter as long as the value of the company doesn't change. If the stock price does decline while the company's value remains the same, it is a good chance to accumulate more. The important thing is to buy the company at reasonable value relative to its stock price. For example if i know the company has this amount of assets and cash and i can buy this company at a lower value than what it is actually worth, i would have found myself a good bargain. We all like discounts don't we? We do not have control over the stock price or market movements but what we can do is to use the bad mood swings of Mr Market to our advantage.

Not many people are investing in stocks now. I don't see the uncles and aunties at the coffee shop talking about the latest stock tips and sharing their experiences of making huge fortunes in the market. It doesn't seem like there is a stock market bubble at all when it's not hot at all. For the property market, it's another story. What once happened inside the showrooms was scary as people snap up units after units of million dollars condos. Perhaps some of you have experienced the euphoria of the crowded showrooms. This euphoria will come to an end soon. In fact, it might actually have ended.

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  1. Hi SGYI,

    Interesting perspective on the Japan REIT. Will you recommend more of Residentail or Retail REITS? Thanks in advance for sharing your thoughts.


    1. Hi Aceirus,

      Residential Reits will be better compared to retail reits. After all, most Japanese live in rental apartments due to the high cost of owning one. Less than half of the houses in Tokyo are owned by residents themselves.

      Retail reits is a choice to ride on the economic growth in Japan. Its still too early to say if Japanese will start spending their money at shopping centres. If inflation does happen, then we should see more spending and this will benefit retail reits.

  2. Hi SGYI,
    Market bubble burst at current pe or pb can be quite shocking.
    Totally agree that we should invest in the business and its bargain value and not only the market prices.

    Property euphoria is definitely gone, but getting a house to stay say Hdb is necessity and maybe not wise to wait. Investment probably leave aside as people had earn enough during the past few years and its time to stop. Prices will drop but probably not more than 10-15% due to scarce land. Can be wise to look at HK.
    Still hope that 2014 horse will be a good year to ride on.

    1. Hi Gavin,

      Good to hear from you. Are you back from your outstation already?

      PB ratio for big property players like capitaland and city developments are at 1 to 1.1. I would say this has peaked. Property counters normally trade between a PB ratio of 0.8 to 1.

      Getting a house to stay is ok. Especially for young couples who do not have high income now, they can take advantage to get a special subsidy from the government. Just heard from my cousin that she got an extra HDB grant of $40k because during that time when they applied for the loan, their combined income was still low.

      There will be chance to invest in properties once the correction sets in. When we know we can buy lower later why buy at the high now right? Sometimes having a little patience is a wise choice. :)

  3. Hi SGYI,

    My personal view is that with the sales tax set to kick in in april this year, I am not sure how the japanese people will react so I think I will adopt a wait and see approach, especially on the retail REITS. Thanks for sharing your views :) I am following your blog post everyday now.


    1. Hi Aceirus,

      There will certainly be impact on consumers once the sales tax kicks in. The prices of Japanese goods will gradually become more expensive which is what the government wants. This will help meet their inflation target of 2%.

      Japanese people have been putting on hold the buying of stuffs due to prices always keep dropping. I would think when prices start increasing, they will buy even more. Just like in Singapore when prices keep going up, people still keep buying. Look at our property, cars, food etc. I guess this is how most consumers behave thinking if I don't buy now, it's going to get more expensive later.

      Thanks for sharing your views too. Its good to discuss more :)