The 2002 Johnny To comedy Fat Choi spirit starring Hongkong stars Andy Lau, Gigi Leung and Louis Koo is about to get its annual replay as we edge towards the Lunar New Year.
“Fat Choi” is Cantonese for “get wealthy”. Two decades on, one of the “morals of the story” remains how one should not throw a tantrum if one is having a bad game of mahjong. Tossing the table is a strict no-no because only when one stayed positive and behaved well could the “friends” return to give you a winning hand. It appears luck could be created.
Last weekend, for the first time in all the mahjong games I have played, I threw a tile and gave a friend the “13 Wonders” hand. I confess to being so amazed to see it completed — while emptying my chips — that I kept going. Despite being down and half out after round one, a series of winning “limit” hands including a “self-made” one right at the last draw carried me back above par at the end of the two rounds for a respectable finish.
Tail of the Bull Year?
Global markets have had a tentative start to the year. The seasonal “Capricorn effect” of early January buying petered out after just two days. On top of the lack of window dressing, in December’s close, this relatively muted start to the innings in January had plenty of blame to go around. In the East, Tencent Holding’s sale on Jan 5 of a number of investee companies stocks from JD.com, Meituan and Bilibili Inc brought the Hang Seng Tech Index to its lowest, well below the July 2020 launch level. In the West — the tech-heavy Nasdaq was off almost 6% in the first week. This follows the hawkish pivot from Fed released in its December pivot which continues to weigh on the covid market bubble winners from the past.
Cathy Wood’s Ark Investments is off 10% even though she remains bullishly defiant. Citing the “inevitable”, Bitcoin’s cheerleaders are still rabidly calling for US$100,000 ($135,567) by June 2021, even though it is down some US$8,300 year to date. Sea’s US$187 close is half its US$366 peak on Oct 21, 2021, as it was weighed down by Tencent lightening its stake.
Amid the jitters, the Straits Times Index managed a 2.61% run rate in its first week vs the Hang Seng Index which itself eked out 0.41% as it struggled to redeem itself from the 14% drop it suffered in 2021 — one of the worst major markets last year. Technically, as observed by Goola Warden of The Edge Singapore on Jan 7, a break above three-times tested 3,240 points, could point to a 4,000-point upside target taking out STI’s 3,831 all-time closing high. Conversely, HSI remains stubbornly stuck beneath its 50-, 100- and 200-day moving average.
As postulated last week, a positive rate cycle could fuel the STI this year, given how the three local banks DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank make up 40% of the index’s weight. As we get into the earnings season from late January to February, would a Year of the Tiger rally be on the cards as Singapore defies the odds of global skittishness? A 3% move up in the weighted average in the leadup to or post-earnings season — ceteris paribus — could carry the index through 3,240 points, which is just over 1% above Jan 7’s weekly close. What would be grounds for my irrational optimism as Cassandra’s all around and sceptics of the local markets continue to express disbelief?
New wine in old bottles
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It is true when US markets catch a cold, generally, the rest of the world falls in sympathy. However, an interesting dynamic has been playing out since 2Q2021 in risk assets. Hot air released from the market top in Goldman Sachs Non Profitable Tech Index in May 2021 found its way into a number of thematic marque listings from the paragon of Joe Public’s Robinhood Markets to the mainstreaming moment of Coinbase listing all through the middle of 4Q2021.
A tweet from SmartKarma caught my attention. “Both Coinbase (8.6x) and Robinhood (6.6x) are now trading at a lower price to sales ratio than Charles Schwab Corporation (9.6x).” This is happening slowly but surely due to profit-taking from speculative punts from the early investors. Apart from being deployed into the metaverse, they have found their way into conventional businesses (who have been reinventing themselves) who had previously not been accorded the valuation because by making profits and having “E” in the P/E ratio, they were irrationally discounted as not sexy.
The 50% correction in Sea and corresponding “revenge” revaluation of the traditional Singapore banks are a reflection of the rotation to reality as reflected in the changing leadership of S&P500 winners by the month in the 2H2021 or its relative performance versus the Nasdaq.
Safe and boring Singapore may have been but embedded in it are businesses that can be valued on conventional metrics, many of which have room to be discovered or provide protection in any downside given they have less room to fall and real assets to hold on to.
Back to the Future
The Jan 8 Financial Times’ editorial “How to revive London’s flagging stock market” lamented that Apple’s US$3 trillion ($4.05 trillion) valuation achieved is larger than the entire FTSE100 index. The FT argues that a vibrant equity exchange is a pillar of a global financial centre. It laments that first, there’s the lack of tech leaders; next, the potential of “gold standard” governance entrenching risk-averseness in UK culture is weighing on the underperformance of UK blue chips versus red-blooded US peers. Thirdly, the market structure is one whereby income and pension funds prioritise dividends over value creation through growth equities. Last but not least, there is a need for culture change among its investor ecosystem in order to avoid becoming “Jurassic Park” that sounds all too familiar.
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Now, if we replace FTSE100 with the FTSE STI Index and change Apple Inc’s multiple on market capitalisation to four times, local pundits will normally stop at the first point and direct their finger at the Singapore Exchange, the market operator or the frontline regulator! Interestingly, the second, third and fourth points were part of the three-part series that kicked off this column last September. Instead of throwing all our toys (or mahjong tiles) into a corner, we have an opportunity to make our own win, especially when the environment is in our favour.
A market filled with cyclicals amid a geopolitical realignment between the US and China in a rough neighbourhood in Asean, has its advantages given the macro outlook. In the US, the series of spac listings are taking place in what can be aptly described as the Wild West, where promoters of varying stripes and repute compete for targets. Case in point: Property Guru and Carousell are finding themselves subjects of bidding wars by some 400 spac promoters who need to complete an acquisition this year. This might result in inflated valuations.
In contrast, Singapore has a unique spac structure with a far more balanced spac regime which allows not so “blank cheques” vehicles, where real issues of disclosure, transparency and investor protection are addressed. Here may prove a better alternative to enable good companies to come to market backed by sponsors of repute and experience.
Vertex Technology Acquisition Corporation whose stated aim is to bring to market a “global disruptive and transformational tech business” has got many speculating who its de-spac target might be. Certainly, the trust has been placed in it by an impressive list of 13 cornerstone investors with a decent ticket by parent Vertex Ventures itself, as a vote of confidence for its Jan 21 listing. Together with Tikehau’s Pegasus Asia and Novo Tellus thereafter, this may bring about the future innovative themes of ABC (AI, Big Data and Cyber Security) into our local menu.
Whether it will be spectacular, like our REIT market over time, remains to be seen. If we keep heads level, the spac market here may not be as red-blooded and speculative as the US bubbles (as encapsulated by Trump’s Digital World Acquisition Corp roller-coaster ride) but one thing is certain — staying as a spectator will get us nowhere. As long as one is not down for the count and only betting the entire house on a single horse, staying through the rounds may lead to the “13 Wonders” that these bets (on the sponsors) may bring. But like in mahjong, there will be some hands (promoters) and table rules (markets) you may not want to play on. Leave fomo aside as you do the homework first before enjoying the ride.
Chew Sutat retired from 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
Photo: Bloomberg
