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Daniel Loh: How You Can Profit When Markets Crash
Aspire, Thought Leaders | 03 June 2015
By: Vance Wong
Articles (74) Profile

Until only recently, the Straits Times Index (STI) had been staying above the 3,400 mark despite anaemic economic growth. If you follow Daniel Loh, a local investment guru, you would have known that he had anticipated such a correction.

As can be seen from the graph below, the STI is on a decline since April 2015. The question that many investors want to ask now: Will the stock market crash? Daniel Loh shared some valuable advice about how investors can spot impending crashes and what they can do to benefit from them.

Is The STI Crashing?

Straits Times Index (STI); Source: FactSet Fundamentals

We remain bullish about STI, especially for the second half of this year. Although STI corrected from 3550, the highest point reached this year, we do think that STI will come back strongly in the third quarter.

This is especially so when the strengthening of global oil prices in the latter half of the year will provide strength to the oil-related companies. We do expect the oil and gas sector to recover in the third quarter. Currently, STI has a strong support at 3350.

China’s Economic Impact

There is indeed a concern about the China economy now. We feel that the fundamental economy has not grown as fast as the stock market. The stock market is overvalued and I feel the stock market will soon be punished because of the speculation.

It will enter in what we called the second phase of bull market. In the second phase of a bull market, stock prices will need to slow down for a breather, to wait for company earnings to catch up.

Although I think that the China market might correct soon, the Singapore market would not be affected much. This is essentially because the bullish run in China did not actually influence Singapore much, hence when China corrects, Singapore might still remain fine. Anyway since 2011, the influence of China stocks that are listed in Singapore have diminished.

Some investors asked me, “Is it the right time to buy China shares that are listed in Singapore?” Not yet. Like what I mentioned, China’s economy has not really recovered. It needs perhaps one to two years before a more convincing recovery.

Until then, any bullish run in China would not be reflected in our S-chips. Our S-chips need to show good fundamental earnings before confidence in the stocks’ returns.

How Can We Tell If A Crash Is Incoming?

Just before a crash, the stock market is always very active and bullish. Investors will go crazy over the stock market. Speculation is always rife at the peak of the bull market. Some investors may even use margins to buy stocks. More and more speculators buy and sell within the contra period. They tend to ignore inflation rates and the rise of interest rates.

One way to know when the market might crash is to study the US interest rate, the Fed’s funds rate. There will always be what we would call the ‘tipping point’, where the domino effect starts to kick in.

The moment interest rates rise to a point where businesses and investors find it hard to pay their loans because of the high interest, that is when the stock market will have reached a peak.

After the peak, it takes around one year before the government realises something is wrong, then a crash will occur. The job of the investor is to always know when this tipping point might occur.

What Investors Can Do

There are both fundamental and technical ways to know when a market might have bottomed. Fundamentally there is one barometer that I monitor to know when bear market might have reached a bottom.

I study the US economic report by the Institute for Supply Management (ISM) very closely. It is actually a reflection of how good the manufacturing enterprises are doing now. If the figure is below 50, we would call it a ‘contraction’, while ‘expansion’ if it is above 50. In a bear market, most of the months will show a figure below 50.

However, the moment we see that there are three consecutive months above 50, there is a good chance that bear market might have reached a bottom. I like to look at ISM and enterprise reports because enterprise reports are the leading indicator to know how the stock market is. Combining it with other indicators, the chances of spotting a market bottom is high.

And that is where we advise investors to invest in stocks with a long term perspective.

To find out more about what you can do before, during, and after a market crash, sign up for a FREE seminar by Daniel Loh. He will be explaining how to spot a market crash, things to look out for and the common mistakes of investors.

At the same time, Daniel will also talk about the history of market crashes over the past 50 years. His workshop, spread over two days will be in English and Chinese.

Date: 6 June (Sat) English Session
Time: 1pm – 4pm
Venue: Daniel Loh Pte Ltd @ 10 Anson Road, International Plaza, Singapore 079903
With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

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