Thursday, February 2, 2012

The disconnect between asset prices and fundamentals

It is weird how asset prices can be so disconnected from the current state of the world economy. If one is to look at the Baltic Dry Index (BDI) which is a good reflection of 2 factors: supply of ships and state of economy ( hence the demand of ships), it is amazing to see how shipping counters like NOL, Cosco, YangZiJiang e.t.c has been rallying like crazy while the BDI has been plummenting like crazy at about the same time. To borrow jargon from the technical analyst's vocabulary there is currently a complete divergence between the BDI and the shipping counters. The current BDI is at 662 and note that this is even lower than it's 5 year low of 663.
Five year Baltic Dry Index Chart

NOL 1 year chart
I still do not believe that this is a real rally but i will be happy if i am proven wrong as i still have 60% of my portfolio in high dividend yielding equities. If the equities market is to rally somemore and become extremely overbought, i would sell some of my equities off. It could rally somemore if china relaxes some lending rules,US print somemore money, EU print somemore money or investors ploughing money into equities as property investing is now too regulated. e.t.c. I really hope that its due to the shifting of money from property to equities as it would fit very very nicely into my strategy.

I believe that the economy will keep on getting worse as the 2 biggest consumers of the world is mired in recession. How can China, Hong Kong or Singapore not be affected? Taking the words of Donald Tsang, Hong Kong's Chief Executive just a few days ago: " I have never been as scared as i am about the world". This speaks volumes. There has also been more retrenchments in the electronic or banking sectors if you were to know industry insiders. Even Mr Tony Tan mentioned that Singapore economy may be threatened in August of 2011 ( Straits times)

Now about property. I am fortunate to know a property developer who made a remark that Singapore property would definitely cool due to the property situation in China as there will be now fewer Chinese buyers snapping up our properties.  From my own experience, I am also of the opinion that Singapore asset prices are laggards. Just look at how the singapore equity market tracks the China equity market and to a lesser extent now, the US market. Whenever there is a big rally in the US S&P the previous night, the STI would rally the next morning.
China property price slide gathers speed - The Telegraph
Are China Properties in free fall - Forbes
China property sector goes from bad to worse - FT alphaville
Hong Kong homes face25% Drop as loans fall in year of dragon.- bloomberg
Singapore home prices fall in December - Reuters
European interest in Singapore Property Markets cooling - Asia Property report.
And the list goes on.......

So what will i do now. Just wait loh. There is a season for sowing and a season for reaping. Now is neither.


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  2. This week we have to be careful in the stock market. STI has start to waver a little last week. It’s probably going to be a week with sudden ups and downs as the market is starting to consolidate from its recent bull run. Primary counters like Jardine C&C, Genting, Wilmar, NOL and a few others have started to show weakness. Banks and property counters are still holding up while the penny counters are fading away. Each and every counters are probably going to go up and down to consolidate in their own respective manners, thus there are days where we can witness some counters still remaining strong while some are sliding. This week is not like the previous few weeks where we saw broad market rally. While its hard to buy now, STI is not that weak yet to short. Probably a good week to rest, clear some positions, hold more cash and wait for a clearer picture to prevail. Stay cool this week, stay aside, and be careful in the stock market.


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