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Daniel Loh: 2nd Phase of Bull Now; Invest in Commodities
Aspire, Thought Leaders | 28 October 2015
By: Chen Xushuang
Articles (26) Profile

Stock indexes across the world have seen simultaneous decline over the period of April to October.  For instance, the Straits Times Index (STI), German Stock Index (DAX), Hang Seng Index, and MSCI Taiwan Index, etc., have each seen a drop from its highest point to its lowest point over the period, which accounted for more than 20 percent.

STI Index; Source: Yahoo! Finance

Investment educator Daniel Loh explained that this might be due to investors withdrawing from the market in anticipation of a rate hike by the US Federal Reserve in September. “Hot money has started to move out of the markets as early as half a year ago,” he said.  This is accompanied by China’s slowing economy, which remained weak despite the government’s multiple stimulative measures.

Despite signs of an imminent bear market, Daniel thinks that we are still in the second phase of a bull market. During his speech in the recently concluded Shares Investment Conference, he divided the bull market into three phases, and talked about what each phase means, and what it has to offer.

The Three Phases of Bull Market

Phase One: Speculation Phase

According to Daniel, this stage would only last for about one year. During this phase, the stock index registers steady growth every month, as investors are optimistic after stimulants have been pumped into the economy. However, this does not promise economic recovery.

What Investors Should Do

At this phase, Daniel advises investors to invest in blue chip stocks (i.e. giant companies with solid reputations), monopolies, or companies that are ranked top in their industries. He also recommends investors to pick stocks with high dividend payoffs, and to have a long-term perspective on investments. Investors can look into the real estate industry after this stage, he said.

Phase Two: Correction Phase

As economic weakness persists, investors start to lose confidence in the effectiveness of the economic stimulants.  This phase is characterised by market volatility and turbulence; stock prices can be up for a month and down for the next month. In Daniel’s opinion, the correction phase can last from one to two years.

What Investors Should Do

At this phase, Daniel advises investors to switch to safe-haven assets and defensive stocks, such as REITs and healthcare stocks, which will retain their value even in times of market turbulence. This is the time to choose growth stocks with high return on equity, he said. He also recommends investors to consider investing in small-cap and mid-cap stocks apart from blue chips, and adopt a mid-term perspective.

Phase Three: Supernormal Growth Phase

At this phase, the stock market experiences another rising wave. Inflation starts taking place, followed by the increase of interest rates. Daniel says that the duration of this phase would depend on specific economic data, such as the timing and the magnitude of a rate hike.

What Investors Should Do

This is the time to sell off safe assets, and stop investing in blue chips, said Daniel. He advises investors to choose small- and mid-cap stocks with sustained good performance instead, based on their growth capacities rather than their absolute values. He also cautions investors to prepare for a stock market crash once the interest rate has reached its highest point.

Next Up: Commodities is Key

Daniel believes that stock markets across the globe are at their highest levels, and thus are unlikely to grow much further. On the other hand, he thinks that commodities stocks present the most opportunities from 2011-2016.

“Many commodities have reached their lowest valuations, and perhaps the very fact that Janet Yellen plans to lift interest rates implies that the world economy is in a good state,” he said.

Daniel Loh at SIC2H2015 24 October 2015

Daniel will be giving a free seminar, titled “When Is the STI Going into Bear Market?” on 30 October (Friday), 7pm to 10pm at International Plaza.  In the seminar, he will be talking about the impact of a coming rate hike, and give tips on how to maintain a stable income in a bear market, as well as Singapore stocks to take note of.  The seminar will be conducted in Chinese.

As a Communications Studies graduate specialising in journalism, Xushuang is keen to observe and explore issues that readers want to know more about, and to deliver quality content through engaging writing.

Please click here for more information about this author.

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