Few may remember the 1983 film Trading Places, starring Dan Aykroyd and Eddie Murphy. The story of how an upper-class commodities broker’s life is swapped with a poor street hustler, as part of an elaborate bet to test how each man will perform when their life circumstances are swapped, is ranked by some as one of the greatest comedy and Christmas films ever made.
However, four decades on, the film, with so many inappropriate racial jokes and language, will get the woke brigade up in arms.
I was then fascinated with the big trade in that movie that involved short-selling concentrated orange juice futures inflated by rumour and speculation — which inevitably collapsed. In 2010, the film was cited in US Congressional testimony on market reforms designed to prevent insider trading. The depiction of the commodities trading in Trading Places, much like Michael Douglas’ Gordon Gekko in 1987’s Wall Street, inspired a whole generation of folks adopting “Greed is good” as their mantra. Many joined Wall Street, probably for the wrong reasons, as we all discovered during the 2008 global financial crisis.
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The stories depicted in these movies may have set me off to represent my junior college in 1989 learning to wave my hands trading Nikkei 225 futures in the long-forgotten Simex pits at the World Trade Center. We did not win the competition prize, even though we made the most money in the two sessions of the game amongst all the teams. We did this by being contrarian, deliberately trading against the “news flow” of oil shocks and wars.
The rules of the game required all participants to be net square or receive a penalty for any open interest contracts held. As my team was the only bravehearts to buy when the world was ending, all those who were short had to square with us by the end of the game, and we led the market up by refusing to sell until we made an outsized profit. For not reacting rationally to the economic and political news injected into the trading competition, we were dinged by the organisers, and we surrendered our first place. Ironically, we were offered a job by the professional Simex locals who were our teachers.
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We were not the only ones. Years later at university, the winner of the stock-investing competition literally put a copy of The Financial Times on the wall and threw a dart. He went all in on the stock where the dart landed. The rest of us tried to apply all manner of company analysis and economic rules but came in second.
All these were play money, of course. That’s why we could take illogical risks, and we literally gamed the futures trading game based on its rules. Real life is not like this. In any case, the lesson learnt is that luck often trumps competence. But you can improve your luck with some good homework and reflection and not just react to yesterday’s news.
Bumpy till Halloween
As we’ve identified in last week’s “Silver Linings” column, the fourth-quarter window for IPOs has opened. Traditionally from early October to mid-November, if markets remain steady, IPOs will come ringing. The timing is dependent on a few factors — on top of the market holding steady. Boring but important ones include the completion of accounts for the period ended June (be it half year or full year); and getting the approvals to complete the deal within the next half year, or else most regulators will require a refresh and update if it spills beyond December, which is another half-year.
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Most important would be the level of investor appetite and ability to allocate in time. If anchors, pipes and key institutions are not locked in generally by Halloween, then we will see the bigger deals spill over into March–May. After all, the flippers will be looking to shop by Thanksgiving in late November, and the other investors will be closing books into December, hoping not to have any surprises over Christmas.
This is the time for traders to make their last hurrah in 2023 where there is ample liquidity and volatility before it thins out in the next six to eight weeks. It is therefore typical during this period for news flow to be a tad exaggerated and noise in the markets to mirror. The question is which comes first. Markets first move, and then we interpret news accordingly, or vice versa? It’s probably mutually reinforcing as the wires look for stories to juice up headlines and algorithms picking up positive or negative signals trade in kind to augment their impact.
For the faint-hearted, it’s probably better to focus on the exams of your kids. Take the holidays after and then come back in mid-December to see if there’s some profit-taking (hopefully) and tweaking for January’s Capricorn effect. As shown historically, this season has traditionally carried markets higher on new money being put to work, or just general new year optimism.
Or else, for the brave, it is time to enjoy the ride on the short or long side — even if this period of volatility might be much ado about nothing by the end of November. We have, after all, started October on the Straits Times Index (STI) with a meander to the low end of its 3,100–3,400 range.
Fireworks in the Mid-East
The world, however, continues to be a dangerous place. Israel woke up on the 50th anniversary of the Yom Kippur War to the din of over 3,000 rockets fired from the Gaza Strip, overwhelming its much-vaunted Iron Dome anti-missile system. In well-coordinated multi-prong attacks, Palestinian insurgents invaded Israel by land and sea into its south. Hundreds of Israelis have been killed and Hamas claims to have captured dozens of Israeli soldiers and civilians. Hundreds of Palestinians have been killed when the blows were quickly returned. “We are at war,” declared Israel’s prime minister Benjamin Netanyahu, and so goes the detente that was rumoured to be in the making between Saudi Arabia, the US and Israel — that may have happened at the expense of the Palestinian cause. No longer.
Did Iran have a direct hand in stoking Hamas to be a spoiler — and in the process ensuring the Americans have another distraction on their hands in the region? The escalation of hostilities has enabled oil’s sharp pullback from US$95 ($130) in recent weeks to US$80 to be short-lived — which may be in both Iran’s and its ally Russia’s interest. Falling energy prices, which were cited as a reason for moderating Eurozone and US inflation of late, may not hold. It looks like the windfall profits for the global energy players will continue into 2024.
Or, was this a “wag the dog” moment, with Netanyahu struggling with domestic popularity and protests against his policies now rising to the top of a unity government with just cause to pursue a more militaristic right-wing agenda? Commentators were already calling Israel’s intelligence services as suffering from “colossal failure” for not detecting the massive operation.
Having seen Israel fight constantly with its neighbours since 1948, it is unlikely that the latest war will have an impact directly on equity markets, much like the Serbian pullback from massing its army on the border of Kosovo, or the Azerbaijani cleansing of Nagorno-Karabakh in September. After all, the US, the global policeman, remains distracted by its own culture war, or internecine fighting amongst Republicans on Capitol Hill. This has threatened resources to keep Ukrainians in the fight, as well as the US government itself to be funded with the stop-gap budget, good till Nov 16 only.
If one were to be objective, the sad truth is that the multitude of cross-border conflicts and their impacts on lives and livelihoods has continued unabated throughout 2023. Myanmar, Syria and Sudan may be off the news, but it’s not all quiet on their fronts. Likewise, North Korean missile testing and Chinese war games around Taiwan surface each time we need to explain a seemingly innocuous market correction.
It is best to avoid knee-jerk reactions to buy in greed or sell in panic each time there is an event, as inevitably the market would have already moved when we are reading yesterday’s news — unless you are nimble and trading the broad macro; if so, commodities like oil, gold, forex or global indices are there for the short-term punt. And if you are trading on leverage including using contracts for differences (CFDs), it is best to keep lots of extra margin buffers or stick to strict cut-loss limits. The fireworks this season may light something up in the tinderbox not to your liking, even if it’s just a news story.
The action is in Washington
Perhaps it is not a surprise that the one STI component stock that has stood head and shoulders above all the volatility is Singapore Technologies Engineering, our global defence contractor, which has remained resolute throughout 2023 with barely a trickle in corrections each time the market sells off.
The broader local market has been weak so far in October with the Fed’s higher for longer stance — validated thus far by a “surprise” stronger US employment number on Oct 6. As explained last month, our three local banks, weighing 45% on the index, performed their automatic stabiliser function on the STI by holding steady since higher-for-longer could benefit margins.
That said, the action is really in Washington — whether by the US Fed governors or on the Hill. Whoever the new Speaker of the House will be, a lot more partisan brinkmanship politicising key economic decisions, including funding the government and climate change, will impact all of us. No, it is not just domestic arguments over gun control. One also hopes the usual US presidential election cycle’s “steady Eddie” for the market’s past performance will hold for 2024. In any case, I have no intention of trading places with my Wall Street friends in the US and will gladly stick to safe sunny Singapore.
Chew Sutat retired from Singapore Exchange S68 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
