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Is this the start of a bear market? What to do?

Thursday, May 23, 2013

There is really no accounting for Mr. Market's behaviour. Just this morning, share prices were still holding up nicely and in the afternoon, they were all much weaker. It reminds me of Singapore's weather in recent weeks, sunny in the mornings and raining heavily in the afternoons.

If we were to comb the internet for possible reasons for the decline in share prices, we would see analysts putting the blame on China's poorer manufacturing data in May and Ben Bernanke's remarks which have been interpreted as a possible earlier tightening of money supply. As far as I am concerned, Mr. Market was itching to take profit and these are excuses.


Ben Bernanke's statement was made public last night and when I read the papers this morning, what really struck me was his statement that the Fed's current monetary policy is providing significant benefits and that "a premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further." (The Business Times, 23 May 2013, page 18.)

How do you think we should interpret Ben Bernanke's statement?

There is not going to be any change in the Fed's monetary policy, not until unemployment falls meaningfully and inflation is where they want it to be. So, the environment of low interest rates will persist and this bodes well for the stock market.

Now, with the declines in the stock market today, is the bear back? Some people have been waiting for the bear to come back for a long time, staying on the sides with lots of cash. They hope that this is the start of a bear market. Well, is it? Naturally, no one knows.

What I know and would like to remind everyone about is that prices do not go up or down in a straight line. They climb a wall of worries and go down a river of hope. The uptrend is still pretty much intact and pull backs are only normal. Today is another pull back and the worries are China's weaker data and, apparently, Ben Bernanke's statement.

With lower prices, now, we see better value. Of course, this is assuming that there are no material changes which will adversely affect our investments. If the fundamentals are unchanged, a good investment at a lower price offers greater value for money. Then, look at the technicals. If these are benign, we should be buying on weakness.

In a nutshell, if the fundamentals remain good and if the technicals are benign, pull backs are buying opportunities.

For those who are still interested in investing in AIMS AMP Capital Industrial REIT and Sabana REIT, their charts spot long black candles today. Their units are definitely more attractively priced now.

AIMS AMP Capital Industrial REIT.

SABANA REIT.

So, what should we do? Prepare a list of the stocks we are interested in. Determine what are the prices we would like to buy at as well as the reasons backing those decisions. Remember, if we cannot convince ourselves why we are buying at a certain price, we really don't have a good reason to be buying.

Have a plan and follow the plan.

Related posts:
1. Have a plan, your own plan.
2. Help! I missed the boat.
3. Risks and rewards: TA and FA.

36 comments:

AK71 said...

SINGAPORE: Stocks in Singapore closed 1.77 per cent lower on Thursday, in line with regional bourses which dived following weak China manufacturing data.

The Straits Times Index fell 61.20 points to end at 3,393.17.

Volume was 4.6 billion shares.

Losers led gainers 482 to 73.

ComfortDelGro ended 11.7 per cent lower at S$1.925 on news that the Singapore Labour Foundation was selling part of its stake in the company.

CapitaMall Trust was down 5.65 per cent at S$2.17, CapitaLand lost 2.66 per cent to S$3.66, while Golden Agri-Resources was steady at S$0.570.

DBS dropped 0.75 per cent to S$17.15 while Jardine Cycle and Carriage fell 2.5 per cent to S$46.86.


Source: CNA

AK71 said...

Singapore shares fell on Thursday from their five-year high in the previous session, with transport operator ComfortDelGro Corp leading a broad-based decline in the index.

The Straits Times Index was down 1.3% at 3,409.97, while the MSCI’s broadest index of Asia-Pacific shares outside Japan shed 2%.

The index declined amid a broad-based fall in Asian markets after U.S. Federal Reserve Chairman Ben Bernanke’s remarks sparked worries of a reduction in U.S. monetary stimulus.


REUTERS

B said...

Hi AK

Do you have any stock lists in mind for yourself?

blauereiter said...

Hello Mr AK71, I'm one of your frequent readers who once asked you about the appropriate size of one's war chest.

Today after the sudden downtrend I learned the importance of a significant war chest. :] Thanks for the great lesson.

AK71 said...

Hi B,

Well, I don't have a secret list. Most, if not all, of the stocks which I like and invest in are mentioned here in my blog. :)

AK71 said...

Hi blauereiter,

If we want peace, we have to be prepared for war and we cannot go to war without a war chest. ;)

You are welcome. :)

seefei said...

Bought some cmz at $1. And capitaland at $3.72 at pre open price. See whether there are more bargain on Monday but looking at Dow now, doubt the worse is over. Can't predict as market may stay volatile for the time being.

AK71 said...

Hi seefei,

I am looking to possibly adding to my long position in China Minzhong as well. It is an inexpensive growth stock. :)

AK71 said...

Asian markets recovered on Friday after heavy falls a day earlier, with Tokyo surging back from its worst one-day drop since the March 2011 quake-tsunami disaster as investors moved to recoup losses.

Markets moved back up after falling on Thursday on signs the US Federal Reserve could scale back massive stimulus measures and after weak Chinese factory data.

Tokyo, which fell more than seven percent the previous session, had bounced back 2.65 per cent by the break.

Seoul was up 0.13 percent, Shanghai rose 0.43 percent and Hong Kong climbed 0.12 percent.

Kenji Shiomura, strategist at Daiwa Securities, said Thursday's frenzied selling in Tokyo was a temporary correction to recent sharp advances.

"There has not been any grave event that could change corporate earnings outlooks and what happened yesterday should be a correction to the recent excessive rises," he said.

"Looking ahead, the market will likely be on an uptrend on expectations of a recovery in company earnings."

Prime Minister Shinzo Abe's pro-spending, pro-growth policies have weakened the yen more than 20 percent against the dollar over the past six months helping to boost share prices nearly 60 percent.


AFP, 24 May 2013.

AK71 said...

In a sign that many are still spooked by Thursday's eye-watering 7.3 percent Nikkei drop, share markets elsewhere in Asia extended their decline to a fresh one-month low.

Some analysts remained optimistic about its outlook.

"It's just a speed bump, in my view. The Japanese market is due for a technical correction after strong returns we have had this year," said U.S.-based Audrey Kaplan, fund manager of the $656 million Federated InterContinental Fund.

"The economic conditions in Japan are substantially better than they were a few months ago. That will support the market going forward," she said, adding that she has increased Japan weightings in her fund to 20 percent from 14.9 percent at the end of March.

Thursday's dramatic moves followed HSBC's preliminary "flash" survey that showed Chinese factory activity declined in May for the first time in seven months and Federal Reserve Chairman Ben Bernanke hinted the U.S. central bank could soon scale back monthly bond purchases.

Two senior U.S. central bankers have since sought to soothe market fears, saying the Fed will not hastily withdraw its policy stimulus and the pace of bond purchases could be adjusted up or down depending on how the economy fared.


REUTERS, 24 May 2013.

INVS 2.0 said...

Hi Ak71,

Managed to buy a small lot of AIMSAMP at $1.73, reduced from the high of $1.87. Should it fall further down next week, I have a warchest to take advantage. :)

Poh Soon said...

Hope that there are some meaningful retrace in stock price so that the yields will become attractive again

AK71 said...

Hi INVS 2.0,

Having a war chest does not mean that we will win the battle. However, without a war chest, forget about fighting one! ;)

AK71 said...

Hi Poh Soon,

Prices could indeed weaken further and we would have a chance at getting better value for money then. ;)

AK71 said...

MTI says the outlook for the electronics sector is positive as global recovery continues.

The construction sector grew by 16.5 percent on-quarter, reversing a 3.9 percent contraction in the previous quarter, boosted by a strong rebound in private sector building activities.

Looking ahead, MTI said Singapore's economic growth should "improve gradually" for the rest of the year in tandem with an expected rise in global demand for exports, supported by domestic drivers such as the construction and services sectors.

It kept its growth forecast at 1.0-3.0 percent this year, barring downside risks.


CNA

AK71 said...

Asian markets were mixed on Friday in rollercoaster trade after routs sparked in part by fears of tighter US monetary policy, with Tokyo ending higher a day after suffering its worst drop since the March 2011 quake-tsunami disaster.

Regional markets swung wildly after falling on Thursday on weak Chinese data and indications from US Federal Reserve chief Ben Bernanke that the Fed could start reducing its US$85 billion-a-month bond-buying programme at one of the next few meetings.

Tokyo, which plunged 7.3 percent in the previous session during frenzied selling, ended up 0.89 percent, or 128.47 points, at 14,612.45.

The Nikkei had bounced back in the morning but plummeted by as much as 3.37 percent after lunch before regaining ground.

Seoul closed up 0.22 percent, or 4.26 points at 1,973.45. Sydney dropped 1.56 percent, or 78.9 points, to end the day at 4,983.5, after its worst week of trading for a year.

Hong Kong stocks closed down 0.23 percent, or 51.01 points, at 22,618.67, but Shanghai finished up 0.57 percent, or 12.86 points, at 2,288.53.

AFP

JCK said...

Volatility Galore!

AK71 said...

Hi JCK,

In times like this, more so we should have a plan and stick to it.

I can imagine some people confused and some people fearful. To reduce going through emotional roller coaster rides, having a plan will help. :)

Adrian Tan said...

Hi AK

Regarding Sabana, are you concern that management has not may any mention abt the lease renewal issue, and also the fact that this is the first year since IPO that there will not be any guaranteed returns?

Regards
Winnie

AK71 said...

Hi Winnie,

Sabana REIT will pay out at least 90% of its income to unit holders. I am not worried about this.

Your worry about lease renewal is a valid one. I believe that this was mentioned in many of my earlier blog posts on the REIT too.

JCK kindly shared the response from Sabana REIT's management on this matter in an earlier blog post:

See:Reply from Sabana REIT's management.

In a report in The EDGE, it was revealed that rents for high tech industrial space, warehouse space and factory space have been up 15%, 25% and 27% respectively since Sabana REIT's IPO in 2010. There is a chance we could see positive rental reversions if lease renewals take place. :)

Adrian Tan said...

Hi AK71,
Thank you for the feedback and link to the management response. July will be an interesting period for this REIT :)

Regards
Winnie

AK71 said...

Hi Winnie,

My blog gets very high quality comments regularly, I dare say. Thanks to all my readers. :)

You might want to follow comments in my blog too: Following comments in ASSI.

SOLIDCORE said...

Hi AK,

AIMS dropped another 6.1% as at 4.34pm today. Shocked at the sudden turn of events. Mr Market is indeed a fickle minded person.

Could it be due to this? http://www.cnbc.com/id/100771578

Who knows but if so, MPM stands to benefit.

However, crystal ball gazing is always a bad habit of mine. Never been too good at it anyway... :)

AK71 said...

Hi Solidcore,

Well, Mr. Market will be Mr. Market. It is foolhardy to think we can predict his behaviour. ;)

If there is a move into cyclicals, then, cyclicals will benefit and with PER of 5x to 6x, stocks like Marco Polo Marine and ASL Marine could indeed have their day in the sun in the near future.

However, I will say that REITs are still good investments for income especially if their unit prices should correct further.

I didn't add to my long positions in REITs when their prices made new highs but I didn't reduce my positions substantially either. They still provide me with a peace of mind with their predictable property income.

All of us have our own motivations and all of us have our own requirements before we are comfortable with being invested. We just have to find it.

See:
Be comfortable with being invested.

INVS 2.0 said...

AIMSAMP is 1.61 now. I believe the May effect has come into play again.

"Sell in May and go away!"

I failed to heed this warning and got redness over all. :(

Guess this downfall will persist until autumn.

AK71 said...

Hi INVS 2.0,

I have never really paid any attention to the saying.

I just stick to my plan of staying invested for income and having a war chest ready for times like this.

How long will the downturn persist for? I have no idea but I will buy when prices look attractive to me. ;)

INVS 2.0 said...

Bought AIMS, Sabana and CACHE. Although I suffer some losses straightaway as prices fell, they are much cheaper than last week.

But my purpose of buying these REITs is for income, so I don't need to worry much.

Eventually, bullish trend kicks in and prices move up again to recoup my capital losses. :)

AK71 said...

Hi INVS 2.0,

I am keeping an eye on the charts and my war chest is on standby. ;)

If prices do not decline to my target buy prices, no loss to me since my existing long positions will benefit too. :)

Elaine K said...

Hi AK

The last 2 days have been scary! I'm really glad to have you and your readers to calm my nerves!

Would you mind sharing what are your target buy prices? My war chest is not big- thus need to be very careful.

AK71 said...

Hi Elaine,

I am keeping an eye on the longer term MAs, particularly the 200d MA. I think I drew lines in the charts of this blog post too. The 200d MA is supposed to be a strong support in an uptrend.

However, we might all have different ideas as to what are good target buy prices. ;)

Elaine K said...

Thanks AK!!!

AK71 said...

Hi Elaine,

You are welcome but I didn't really do anything. ;p

SOLIDCORE said...

Sabana's yield is at 8.008% now. Very attractive :)

AK71 said...

Hi Solidcore,

I am keeping an eye on Sabana REIT too. I wonder if its unit price would test the 200d MA for support.

INVS 2.0 said...

Glad that I am sharing the same view as you - 200MA.

Although at 100MA, I would buy a small "test-water" lot in case it won't hit 200MA and rebound up. :)

AK71 said...

Hi INVS 2.0,

Technically, there will be a rebound. It is a matter of time.

Fundamentally, in the shorter term, it is business as usual at the REITs.

However, it is obvious to me that we should not be overly optimistic when it comes to industrial S-REITs in the next two years.

See:Never lose money in real estate and REITs?

It is becoming a more difficult time for people investing in industrial S-REITs for income, I believe.

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