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Red Herrings And Real Dangers In 2015 – Charlie Lau
Aspire, Thought Leaders | 29 December 2014
By: Charlie Lau Suan Liat
Articles (29) Profile

Veteran stockbroker Charlie Lau’s previous article touched about lessons that can be gleaned from the stock market in 2014. In this separate article, Charlie looks at what are the clear and present dangers that might affect the stock market in 2015 as well as the red herrings.

2015 will see major political issues as non-events, especially in relation to the Singapore stock market.

The Red Herrings Of 2014 Could Possibly Appear In 2015
In 2014, the Russian incursion into Ukraine leading to sanctions by US & Europe does not affect major world markets or the Singapore market. The “staring incidences” by Vietnam, by Japan and by other South-east Asian countries with China for her territorial claims is synonymous to a small boy taking on a sumo wrestler.

The demand in Hong Kong by proponents of Occupy Central for universal suffrage – one man, one vote – from China came to naught. The Hong Kong stock market, Shanghai stock market and Singapore stock market were not affected.

The Occupy Central movement in HK failed to rattle stock markets here

The Singapore stock market and economy will be affected if at home there are security problems; there are natural disasters or disruptions in land, sea or air services. Shares that went up nicely could suddenly collapse in face of the above mentioned scenario. Investors with shares can be prepared to take advantage of the situation and to quickly sell their shares then buy back later.

Along with the collapse of crude oil price from US$110 per barrel in July this year to the present below US$60, many commodities were also sold down. Crude palm oil and rubber prices are now at their lowest. Gold is also at its lowest.

The surprising observation here is, in the past, any collapse of any commodity – that is a drop in price of more than twenty per cent – the stock market would be the next to follow the collapse. But the Dow Jones is now at record high. Most major markets are higher than the pre-crude oil collapse. STI is higher than from beginning this year by 179 points or 5.65 per cent.

Investors should not generalise and be fearful of commodity weaknesses, including the property sector and start to dump all shares. Certain sectors would benefit from certain setbacks. In the stock market there is no one rule that fits all. That said, it is important to be analytical to know how low, is low and what the potential of a particular business model is.

For example most property stocks and commodities stocks are mostly at their fifty-two week low. If the stock has higher book value per share and still shows profitability despite setbacks and can still give sustained dividends, then such a drop is an opportunity to buy.

Real dangers to the stock market in Singapore
Singapore investors are by and large very resilient in investments. There were losses suffered when more than thirty per cent or over one hundred and thirty public listed companies (PLCs) doing businesses in China, registered in the tax haven islands and listed in Singapore that went bust.

These better known as S-stocks claimed massive losses or accounting fraud and were subsequently de-listed. This year saw the mind blogging rise and fall of penny stocks, rising from a few cents to a few dollars and now back to square one.

All said, Singapore investors are still around. One local stock broking company was not so lucky. It was quickly and silently absorbed by another Malaysian stock broking company after being bogged down by huge contra losses in the Asiasons, Blumont and Lion Gold saga.

The real danger now is how publicly listed companies are regulated. Accounting fraud or irregularities are past and lessons learnt. And so are the pump-and-dump operations by penny stocks.

2015 will see the dangers of companies that issued bonds by the hundreds of million dollars. These bonds paying between 5% and 8% were greedily taken up by funds. Funds are always other people’s money.

So the risk is oblivious to the fund managers. The day of reckoning will come when some of these over geared companies are unable to pay even the bond’s interest. It is already happening. Then the companies may be forced to liquidate. Shareholders will lose. Fund depositors will lose. I am hopeful that Singapore investors will be able to survive this round of “collapse” with their prudence in investing.

Veteran remisier and highly sought after speaker in the investment field, Charlie Lau is well known for his invaluable investment strategies.

Please click here for more information about this author.

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