L ast weekend, I was privileged to be invited to a phenomenal event held at the six-star Capella Singapore in Sentosa. The occasion was to celebrate the life of the late NK Yong. In 1965, he was the first doctor in Singapore to perform open heart surgery. He was better known and internationally recognised as a respected wine connoisseur who wrote a weekly column in The Business Times on his passion for 30 years.
A generous philanthropist, Dr Yong’s charity wine dinners were legendary. And this one, in his honour, again raised funds for St Andrew’s Autism Centre. Lubricated by 18 tasting wines at the dinner, the event notched up $1.6 million in much-needed funds via a silent auction and a live one led by the best auctioneers from Christie’s in Asia. The principals of many of the top vineyards in Europe were there alongside the great and the good in Singapore — at least the wine lovers.
There is something that links wine and investments. Not just about investing in wine. A liquid asset, if it all goes wrong, one can drink it. But if it goes right, bottles collected for 50 pounds back in the day can be auctioned off for $50,000 some evenings down the road. In stock broking and investment banking, wine often appeared as a facilitator of a deal, an object of envy, or a priceless celebration on completing yet another deal or scoring a 1,000-bagger.
That evening, corporate titans and tycoons we read about in The Edge Singapore were all on parade as guests. Bankers, hedge fund traders, asset and private equity managers, listed company honchos and family office owners joined them. The conclave celebrated the spread amidst the “butterflies” dressed for the occasion, and the charitable cause breathed a new lifeline for its beneficiaries.
A fatal attraction
For the various oenophiles present that evening, the mood was surprisingly optimistic. After all, 2022 was generally a disappointing vintage for public equity markets. Disciples of the traditional balanced portfolio of 60% equities and 40% fixed income have been roughed up as the US Fed raised rates at the most aggressive pace on record. The down rounds in private equity and the flutters in crypto that paid handsomely in 2021 (on paper) dragged portfolio returns down in 2022.
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However, this liquid asset class had continued to accrete in value through and post-pandemic. For one, as the promoters argue, every bottle drunk increases the scarcity of what’s left in each vintage. And this is a crowd with pretty large cellars.
More specifically, there was optimism around the room. With the great reopening of China on Jan 8, international travellers are not rushing to book tickets to China as the virus continues to make its rounds. Nonetheless, there are now some short-term gains (recovery) from the red ink in the Chinese financial assets from years of common prosperity.
To lend further weight to this theme, Jack Ma was sighted. First in Tokyo, and next, almost right after Ant Group announced that Ma is relinquishing control, his beaming photo with Jay Fai was posted on Instagram by the Michelin-starred restaurant she owns.
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The sequence of events probably foreshadowed the Jan 9 announcement of the end of Beijing’s crackdown on Chinese tech companies and a two-and-a-half-year sojourn in the wilderness for international investors that bottomed last October. Tencent Holdings and Alibaba Group Holdings continued their recovery after falling over the precipice in stock price; the Hang Seng Index gained steadily to hit a sixmonth-high the week of Jan 9.
Conversely, Elon Musk’s Tesla continued to sink as the top 10 “hot” stocks market cap as a percentage of the S&P 500 declined from 40% in 2021 to 20%. Relative to valuations in the US for conventional sectors, or Chinese tech stocks, there’s still more room to correct.
Interestingly Singapore, which delivered the best equity return among global indices in 2022 (augmented by dividends and a solid currency to boot), got — at best a passing mention. Yes, a substantial amount of wealth parked here was protected. But “it’s boring”. True, many in the room did not have to nurse red ink on their local blue-chip portfolio, compared to their far-flung punts. Critics charged that Singapore did not drop by the same magnitude as S&P 500, Nasdaq, Cathie Wood’s Ark Innovation ETF or the Hang Seng indices — that’s because the Straits Times Index (STI) didn’t go up as much to begin with. Indeed, this is a counterfactual argument.
Like moths to a flame, the 1987 movie Fatal Attraction, starring Glenn Close and Michael Douglas, comes to mind each time a silver lining opens up elsewhere. We can’t get enough of the rock and roll of stocks and indices with higher volatility because we all think we can do better. We celebrate the Hang Seng regaining 21,000 points from 14,000 — a 50% gain. However, we tend to forget the pain from the fall of 30,000 at the start of the pandemic, which still leaves us about one-third short. Likewise, Alibaba has almost doubled to HK$110 ($18) from HK$63 seen during the October lows, but that still leaves it two-thirds short of the HK$300 peak.
Comparatively, the STI had a four-month pullback of around 20% in 2020 amid the pandemic woes to 2,500 points from 3,250 points. The index is now poised to break out above 3,300 points sustainably. China may be on the run this year with much catch-up to do on relative valuations. The Hang Seng Tech ETF makes a great tradable instrument with daily mid-single-digit percentage gains, but it will take a strong stomach even if the trend is right, as pullbacks can be sharp. The China uptrend this year happens to be your friend, but one has to be pretty handy. For blue chip Singapore you can almost buy and forget, but being investable, you may reap the unexpected reward with less angst.
Likewise, with a new dawn in North Asia, we continue to see local companies exploring the capital markets there. Japfa’s spin-off of its dairy unit AustAsia in Hong Kong has begun public life in a fairly underwhelming manner, as the dividend in specie creates complexities for Singapore investors receiving Hong Kong quoted shares. Those without brokers who will assist in holding their Hong Kong shares may be forced to sell or choose to collect paper scrips. A short-term overhang creates value for the brave investors who seek value and can buy at a discount now from frustrated investors who cannot look beyond the short-term painful corporate action.
Ironically alongside this northern foray, Hong Kong-listed Comba Telecom Systems Holdings, a small cap, joined the string of large companies like China’s electric car maker Nio and Philippines alcohol seller Emperador in a Singapore Exchange (SGX) secondary listing as they eye the continuous fund flow south of private and institutional family and portfolio capital.
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Vision quest
Why are moths attracted to a flame? Or, the lights of a bug zapper that they fly staring into it? And are we similar? Entomologists — or scientists who study insects — aren’t sure. One theory is that they are not so much drawn to the light of a flame or bright lights but are disoriented by it.
Like other flying insects, moths can find their way partly by using light from a distance, such as the sun or moon. Incoming light rays that strike the moth arrive almost parallel to each other. They have evolved to receive light at a fixed part of the eye, known as transverse orientation.
As a moth flies, it tries to hold this visual pattern. But when the source is too close, such as a candle nearby, the angle at which the light strikes the moth’s eye changes quickly as it holds a straight-line course. Since it is evolved by nature to maintain a constant angle to the source, it spirals inadvertently toward the light and burns.
Just like downing too much alcohol, it is entirely possible for investors in a raging bull market, punch drunk in intoxication and full of self-belief, to imagine that this time it is different. Recent gains providing confirmation bias make them think they can do no wrong and leverage up non-stop until the party ends. The thrill of the short sharp contra return, or the soreness about selling too soon as Tesla continued its dizzying hike, makes for a good story and feeds a craving for more.
Indeed, 2022 was a heavy hangover from the dizzy highs of 2021’s fluffy asset boom and busts. This disconnect with the light source from afar, for example, the CDP statement littered with penny stocks that went awry you don’t want to look at anymore, underpins the cycle of Fomo-driven mistakes from disoriented self-validated successes in the near term. As some markets and asset classes gradually recover in 2023, it’s probably good to keep in mind and not repeat the pitfalls of 2021.
An old friend I reconnected with at the Capella dinner whispered that he keeps the script of delisted disaster stocks from the register to remind himself of past mistakes and not repeat them.
With a much clearer mind, sampling the wines on offer that evening, and not actually drinking all 18 glasses or driving after, he was an oddity amongst the crowd. “What’s wrong with a stock market that does not get ridiculously overvalued like Singapore?” he ponders, in between swirling, sniffing and sipping.
The tradable ranges of good, well-run companies like Wilmar International, Venture Corp, local banks and even Singapore Telecommunications allow for good-size positions to pick up 3%, 5% or 10% clips each period as the index constituents rotate. Even if there are rare breakouts — like Sembcorp Industries, which left folks like him who took a profit of 10% “too early” at $2 in the wake, as it doubled off pandemic lows — repeating these clips three to five times a year is a pretty good double-digit return with a two handle annually. He focuses on five and no more than 10 local stocks, so keeping track and “knocking it around the park” from time to time is easy.
I asked him about 1,000-bagger dreams and how he is positioned now. He took another sip, savoured the 1996 Vega Sicilia Unico, and spat it out. Luck, he opined, was always better than smart. However, he may drink his wines a tad young, just like taking profit too quickly on stocks all the time. But with rinse, repeat and recycle with clarity, he has the longevity to enjoy the ride, keep some spare change to buy the rotational dip, or sign up for a good cause ever so often. By avoiding being drawn to the alluring light, he may actually have a better vision.
Chew Sutat retired from the Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore
