Is the stock market surge since March a bear market rally, or is it likely to be sustained?
Loh Hoon Sun
Managing Director
Phillip Securities Pte Ltd
THE unprecedented measures taken by governments all over the world should help economies recover. Recent US economic indicators are already showing signs that the pace of recession in some sectors is slowing down, while other sectors have early signs of recovery.
The Singapore stock market dropped 62 per cent in 17 months, from the high in October 2007 to the low in March 2009. This is about the average depth and length of a bear cycle. It has now rebounded more than 50 per cent from the low.
My call is that the market bottomed out in March and should stay above that level. In the coming months, we can expect conflicting economic indicators which will cause market volatility.
Stefanie Yuen Thio
Head, Corporate
TSMP Law Corporation
THE cracks in the world economy started with the problems with collateralised debt obligations (CDOs). The big collapse came when banks started to crumble under the sheer weight of toxic assets. However, it was the panic from watching the fallout that I think really drove markets down. Government leaders, international agencies and CEOs were all quoted as saying that no one knew how deep the hole was, and that caused widespread pandemonium. Corporate frauds that were hidden during bull years suddenly came to light, making matters worse.
We are now seeing a return to some semblance of calm. When investors stare out into the darkness, the outlook is still grim but they don't feel that it's a black hole anymore. Markets seem to think that they have hit bottom, or close to it. More significantly, I think that market participants are just tired of the bad news and believe it is time for some optimism. I think that some of the panic and loss of confidence has been put behind us, and that is what's driving the present rally.
That said, we cannot escape the reality that the systemic problems still have to be fixed. We may have started on that journey but we have a way to go before we can say we have turned the corner.
My concern is that investor memories may be short. We may try to bounce back from this turmoil without having either fully fixed the problems or really learnt the lessons we should have. And those who do not learn from (the mistakes of) history are destined to repeat it.
Matt Beath
Chief Executive, Asia
Talent2 International
AS business leaders we would all like to mark this as the end of the stock market decline that began in late 2007 - perhaps more for the positive sentiment that market rallies bring to the business climate than anything else. However, we are probably still in bear market territory, though my guess is as good as the next person's. Bull or bear, I strongly believe that we will continue to see extreme volatility for the rest of this year at least, as investors flip flop between greed and fear.
The good news is that the employment market has finally begun to demonstrate some of the stability that we have not seen for the best part of a year. It does finally appear that the rapid deterioration in sentiment has bottomed out as fears of a systemic economic meltdown have subsided. Realising this, employers are emerging from a period of paralysis and steadily getting back to business, setting about working through this recession. We are not back to the heady 2007 levels by any means and may never be. However, a prolonged period of sensibility and sustainability would be a good thing for us all.
Philip Seah
Chief Executive Officer
Prudential Assurance Company S'pore Pte Ltd
RECENT rallies have prompted speculation that the worst is over. This might be true, but it is not synonymous with a recovery as we have yet to see emerging data that suggest it. The US stimulus package will take time to show any impact.
Moreover, there is talk that a second stimulus package might be needed to supplement the first. While falling inflation, subdued economic activity and low interest rates augur well for credit markets in the near term, equities and bonds both offer good long-run value. However, I believe more is needed, such as a rally in credits, before we see a sustained equity rally.
Ron Mahabir
Managing Director
Asia Cleantech Capital
YEARS of monetary excess cannot be cleaned up in a matter of months. The current dead cat bounce smells like a technical rally based on dramatically oversold conditions and does not appear to be based on any significant improvement in business conditions or structural improvements to the financial system.
The rate of decline has slowed, but this does not imply a recovery has started or is even near. Global labour markets are still weakening - in the first four months alone, the US lost over 2.5 million jobs - and until we see some signs of stabilisation in employment, I would not get excited about the equity markets.
Lim Soon Hock
Managing Director
PLAN-B ICAG Pte Ltd
WHILE we are seeing some green shoots out there in the economic terrain, I would be cautious as there is currently no rampant new growth to indicate that the stock market surge can be sustained. Moreover, these early green shoots have yet to display any resilience in a hostile environment.
Based on this, I believe that the stock market surge is more of a bear rally. Until more green shoots emerge and can weather the turbulent economic storm, I do not think that the stock market surge is likely to be sustained. All this takes time and should there be any upturn, it would be very slow, if not volatile.
The financial sectors are still not out of the woods, as shown by the stress test reports of the major banks in the US. Elsewhere in the world, major banks are also reporting significant losses. In addition, there are other factors such as the uncertain duration of the current swine flu spread, rising global unemployment, weak consumer spending and a depressed property market that will cause the stock market to remain uncertain.
All these problems would have to be resolved first, in order for the stock market rally to be sustained.
Teng Yeow Heng Michael
Managing Director
Corporate Turnaround Centre Pte Ltd
THE current stock market surge is a bear rally and not sustainable. There are lessons that we can draw from the physical tsunami in 2004. There was a period of calm after the first tsunami wave hit the shores.
The first wave of the financial tsunami was triggered by the sub-prime mortgage problem in the US last year. The current period of calm is the result of liquidity and fiscal stimuli pumped into the financial system by the central banks a couple of months ago. But it will not last.
Watch out for the second wave of the financial tsunami, which is Europe's financial crisis. Several Eastern European countries are going to go bankrupt and default on the loans from Western Europe. The Europeans are going to be slower and less transparent than their US counterparts in solving their economic problems. If the US economy does not recover, there is going to be a loss of confidence in the US dollar and a collapse in US Treasury bills - the third wave of the financial tsunami. This is because there is a price to pay for printing dollars to pump-prime the US economy without any economic and productivity basis.
The second and third waves of the financial tsunami are going to be more deadly than the first. To make matters worse, if the H1N1 flu becomes a pandemic, it is going to be the straw that will break the back of any possible global economic recovery. There is currently no engine of growth left for global demand: US consumerism is decimated with the unemployment rate increasing, the Europeans and oil-rich Gulf states are economically too weak to spend and the Asians are not spenders by culture. There is little hope of a speedy economic recovery in the near term.
Stephen Grundlingh
Regional Head for South-east Asia
Franklin Templeton Investments
WE are now seeing the market react to recent positive economic data as a sign that the downturn is no longer accelerating - as markets tend to lead real recovery by six months to a year. Asia's banking sector, compared to the US and Europe, is not as heavily leveraged and we expect China and India to help lead this region to recovery.
There will be more volatility ahead and market corrections along the way, but we have started to see cash flowing back into equities and we believe that the market is on a jagged upward trend.
Adrian Tan
CEO
The Ad Planet Group
SINCE early March, the S&P 500 has risen 37 per cent and the Dow by over 30 per cent. Asia was more spectacular, with the Nikkei up 34 per cent, and the STI and Shanghai gaining as much as 54 per cent.
These returns would have been remarkable if achieved over a 12-month period but when they occur over two months, it is quite overdone. Although there is a huge amount of pent-up liquidity raring to invest, I will describe this as a sentiment-driven rally rather than a bear or bull rally.
I attribute this huge rally to the amazing power of the Obama PR machine in managing the psyche of the market. They have done a splendid job in taking away fear and injecting confidence (or false confidence) into the market. The real economy is still badly bruised.
When the market comes to its senses and invests in equities based on price-earnings and fundamentals, there will be a reality check and it will become less emotional, which I prefer. Investment decisions would then be more rational. This rally has more downside than upside.
Goh Yang Chye
Managing Director
GYC Financial Advisory
QUESTIONS abound as to whether the current rally heralds the end of the bear market or is just another dead cat bounce that will force investors to face the harsh reality in the next few months that the worst is not over.
In our opinion, the answer to the question, while interesting, is not as important as our belief that the healing process for injured and over-fed global financial markets will probably be completed by the end of the year. By October 2009, it would have been 18 months since we witnessed the collapse of the first victim, Bear Sterns.
When we look at the fundamentals of the US, emerging markets, the Asia Pacific and China; the massive policy stimulus, low valuation and an eventual economic recovery in early 2010; we will look back on a year where global stocks performance will be positive.
Global equities have risen substantially since March 9. It is unlikely that they can continue to climb without any hiccups. The crisis of confidence appears to have simmered down but it will probably be a bumpy ride ahead with most risks already priced into the markets. It is highly improbable that markets will spiral into unknown territory unless new risks emerge.
Liu Chunlin
CEO
K&C Protective Technologies Pte Ltd
THERE is a certain amount of restless pre-emption on the stock market, like a runner too quick off the running block. My sense is that the fundamental problems still need some time to sort out, whether it is detoxing the toxic assets on balance sheets, facilitating credit lines, re-structuring manufacturing companies or pump-priming the economy.
The evidence is that this shakedown consolidation is still taking place and the stimulus effort needs time to work its course. Anecdotal evidence suggests that business is still slow to take off and people are still losing jobs. Hence my take is that the stock market surge will be hard to sustain in the near term.
Anton Ravindran
CEO & Founder
Rapidstart Pte Ltd
THE old Wall Street saying, 'a rising tide lifts all boats' is true.
Bear market rallies are seen as an immediate remedial factor by most policy makers. All stock indicators show a very strong upswing and are lasting longer than initially anticipated by most. It's not an easy call to make at this point whether the rally is sustainable, or whether we are advancing still further into a bear market.
Most analysts believe the sector (banks, homebuilders, commercial real estate, and so on) that started this whole economic mess eventually must lead the market back into recovery.
Bear market rallies are by their very nature powerful and impressive. But in the past, bear markets have collapsed after the initial glimmer of hope. Most analysts feel that the current stock market surge is due to the rally. Time is the only factor that can confirm if the market is ready for a more secular change in trend, thus creating a launch pad for a new bull market.
Until then, it is wiser for investors to believe that we are still in a bear market and be cautious rather than get carried away by the 'green shoots' that bear market rallies offer.
Harish Nim
Chief Executive
Emerio Corporation Pte Ltd
IN my opinion, the surge in the stock market is probably due to external fund managers who are pumping in large amounts of money to drive up the market, take their profits and exit, leaving innocent local punters to suffer more setbacks.
Otherwise, the share prices of some of the companies with the worst fundamentals would not have gone up as they have. There is little change in fundamentals globally and we are all still looking at a bleak 12 to 18 months. Hence, there is no reason for the STI to go up.
Karsono Kwee
Executive Chairman
Eurokars Group of Companies
THIS recent market rally was sparked by earlier positive economic indicators coming from the world's major economies like the US, Europe and China. In the US, pending home sales rose 3.2 per cent in March after a 2 per cent increase in February, while construction spending increased 0.3 per cent in March after five months of declines. US consumer spending also improved in January and February. At the same time, the positive results of the stress test of 19 major banks also brought relief to the markets.
In other parts of the world, Germany's manufacturing orders saw an increase in April while China's Purchasing Managers' Index (PMI) also rose sharply in the same month.
Such positive news coincided with easing fears of a global flu pandemic which set the stage for the rally in equity markets.
While recent economic indicators seem to suggest that the economy may have bottomed out and green shoots of recovery are sprouting in some segments, we should take note that the indices are measured against a very low base. The global housing market is still soft and unemployment rates will continue to rise as companies remain in cost-cutting mode. A tighter credit market will also constrain corporate activity.
Hence, I believe the markets will remain volatile. We are not yet at the threshold of a sustained market rally.
Benedict Soh
Executive Chairman
Kingsmen Creatives Ltd
MOST stocks had been oversold before this recent rally. Investors spoke about the numerous value stocks of good companies, but few had the confidence to take a position. The few weeks of solid gains are a reflection of the herd instinct. The latest quarterly results have led some to think the worst is over. Excess cash, low interest rates and pent-up buying added fuel to the market.
This rally will have to pull back in the coming weeks. However, I am of the opinion that the current uptrend will be the beginning of a bull market that may take many more months to reach its previous peak.
Peter Barge
Chairman
Jones Lang LaSalle
I AM more confident than I have been for some time that the bottom is getting close. I am less confident that a recovery is under way.
To me, the stock market has got ahead of itself with much of the uptick initially being fuelled by the covering of short positions. Seeing an uptick and not wanting to miss the turn, less sophisticated investors have piled in. I am expecting another adjustment downwards and I can see this 'bouncing along the bottom' continuing for the rest of this year.
Gary Harvey
CEO
ipac wealth management Asia
YOU would have probably read my previous discussions about market timing. The latest market rally had investors hurrying into equities over the past weeks, as evidenced by the multi-month peaks in markets from Australia to Singapore and Taiwan. Markets have moved up considerably from their early March level. This would have benefited most of those investors who chose to remain in the markets for the long term, since they would have captured the gains of the recent rally.
The most likely reason for the market's rise is that many investors have been sitting on cash and just as we saw 'Fear' in markets when they were falling, we are seeing the early signs of 'Greed' as people think they might be missing out. As the Dalbar survey from the US shows, most people fail to achieve the market return because rather than staying invested they sell out. Such movement is precisely why we get these results because there are still large amounts of funds sitting in cash.
I would be very cautious about timing the market at any stage. The question of a recovery or a bottoming of the markets remains unanswered and it is only in retrospect that we would be able to identify a market bottom. Ideally, investors should focus their investment strategies on their long-term goals, which would not be affected by the short-term direction that the market takes. The most important thing is to own a plan that is built on advice that complements their personal position and objectives.
Loi Pok Yen
Group CEO
CWT Ltd
IN the Bible, Joseph (viceroy over Egypt) advised the pharaoh that seven years of famine will follow seven years of abundance. Predicting the weather nowadays is a lot more scientific and accurate. Unfortunately, I cannot say the same for stock markets. People are a lot more unpredictable. The two main views are that (1) it is a bear market rally or (2) it is the start of a multi-year bull market. Each side has presented its arguments, supporting data and even 'divine' guidance in the form of feng shui indexes. Frankly, this is all too confusing.
I prefer a simpler approach. The markets cater to a host of participants that include retail investors, corporates, funds, government-linked entities, and so on. The name of the game is to buy low and sell high. For you to sell higher, someone else has to pay an even higher price. Last one out is the 'sucker'. That's why a bear market rally is also known as a suckers' rally. The more money waiting to go into the market, the better your odds of making profits. News flow also affect sentiment and the actions of market participants. The recent sharp jump in prices is probably due to the above reasons and the fact that short-sellers are getting squeezed.
I do not like making predictions since I am not a prophet. However, since I have been asked for my opinion, I think there will be a pullback which could happen at current levels or the market could go higher before it falls. It is unlikely that the market will collapse to the extreme lows that we have seen.
I have too many friends telling me that they missed this 'bull run' and will buy when there is a significant retracement. Don't ask me what 'significant' means - I don't think they know either. The markets could repeat this process a few times but they will probably trend higher in the next few years. There is still a lot of money on the sidelines and there is even more that is going to be printed. It is, however, not important what I think or what the 'prophets' are saying. Just know that some of us will get it right but most will probably be wrong. If you are in the stock market, it is best to have a strategy in case you get it wrong. The same principle applies to running a business.
David Leong
CEO
PeopleWorldwide Consulting Pte Ltd
IS the crisis really averted since we are seeing emerging uptrends on all the global indexes? The temptation is to follow the bull's tail and charge ahead but that would be dangerous. I suspect that this rebound is a bear market capitulation or 'selling the bottom'. Â The Straits Times Index rebounding more than 50 per cent since early March was enough to bring cheer to stock chasers.
Those of us who are deeply underwater will hope that confidence is finally restored and that any market gains will be more enduring than the gyrations we see with each release of economic data. All eyes will be on the earnings and guidance announcements and macroeconomic indicators in the first half of 2009. With that, we should have better visibility on whether the prescriptions of fiscal and monetary dosages and injections by the Federal Reserve are working to thaw credit markets and restore confidence to the US consumer. Any positive upturn there will have ramifications for an ultra-sensitive Singapore which is so plugged in globally.
I see a range-bound market with more upside than downside from here. If the market does show some signs of flagging, my gut feel is that it will not fall back to the March trough.
No need for crystal ball gazing or reading tea leaves. I am just betting with my gut that we are about to have some fresh air and I am not holding my breath anymore.
Dora Hoan
Group CEO
Best World International
THE current bear market rally is a fascinating subject of debate. While no one has seen into the future, we can glean interesting parallels from the past.
An economist has said that we are currently mimicking the 'bad bear' in the 1930s which ended up as the Great Depression. But there are other parallels to be drawn from years past. For instance, the net percentage of rising stocks on the New York Stock Exchange over the last 10 sessions has been noted to be the highest since August 1982. That was the month when the 1980s bull market was born.
I believe that the velocity of negative news has slowed down. Instead, we are seeing the backlash by both investors and consumers to revive the economy. Some may argue that this bear market rally is nothing more than a case of short covering by some investors. But I have observed conditions in new growth markets like Brazil and Russia and how they have had rising stocks. In Asia, China has been holding up pretty well.
The case is this: If we have fallen on really bad times and there is no indication that we are in for a crash, with consumers still buying and investors still confident, then we have reason to hope for a turnaround soon.
I believe that the rules and dynamics of markets in a global world have changed. Markets are no longer dependent on any fixed set of indicators nor reliant on one country's currency to bounce back.
Investment portfolios are also more diversified and companies too have tapped into hidden levers of growth. My hopeful assessment is that the bear may be dying and a new bull is rising.
Ron Sim
Chairman & CEO
Osim International
I DON'T believe anyone knows the answer.
Let's look at facts. If we look at the causes of this structural and systemic financial collapse, it is that the US financial market is over-leveraged, the companies are over-leveraged and the consumers are over-leveraged. A US with a higher cost base and less hungry consumers will take a longer time to recover.
But the Asian markets, excluding Japan, are under-leveraged in terms of their companies and consumers, and this applies especially to China, with its humongous and hungry companies and consumers, and its lower cost base. This might just be the fuel for growth.
I believe that if you put these facts in place, we could very well be looking at a sustainable rally with some corrections along the way.
