Pessimism overdone
26 February 2002
A letter published in The Business Times yesterday caught my attention. Entitled "No basis for bearish outlook", the writer criticised The Business Times for being overly pessimistic about Singapore's economic recovery. The reason for my interest is that I feel exactly the same way about some of The Business Times' views on the Singapore economy.
The writer made some very pointed comments. "Your editorial writer and I read the same news reports… [y]et, you drew the wrong conclusion," she wrote. One reason she gave was "your obvious lack of experience in analysing financial reports and sieving out the noise (and there was lots of it after Sept 11) from the fundamentals". The other reason was "your obvious regard for government prognostications without doing independent thinking".
Strong words indeed. I am not sure about her second reason, but the first reason appears quite valid, and is something I have noted myself, especially with regards to the paper's views on the stock market.
On 19 November 2001, I had written an article commenting that The Business Times' Singapore stock market watcher, R. Sivanithy, was reading the stock market wrongly, missing out positive economic indicators and incorrectly attributing the market's rally purely to "kiasu" investors ("kiasu" being a deprecatory term used in Singapore to describe people who are afraid of losing out on something). On the day I wrote that article, the Straits Times Index had opened at 1422.17. Sivanithy had written that "nothing has changed over the past week to justify any substantial change to the fundamentally bearish outlook for either the economy or stocks". Three months later, the Straits Times Index has risen to well over 1,600 -- it closed yesterday at 1,667.67 or 17 percent higher -- and economists are upgrading their forecasts for 2002 GDP growth from less than 1 percent to as high as 3 percent or more.
I am not sure whether Sivanithy also writes for The Business Times' main editorial, but some of these editorials show remarkable similarities to his columns. I addressed one of these editorials entitled "For equities, a better year ahead?" published on 1 Jan 2002 in my article dated 2 January 2002. This editorial questioned the justification for the stock market rally, citing the poor fundamentals but conveniently downplaying the impending economic recovery.
Another editorial with a similar take on the stock market, entitled "Staying realistic in 2002", was published the very next day. This editorial stated: "Already, there are voices warning that the recent gains, which are purely sentiment-driven, cannot be sustained unless supported soon by solid fundamentals. Truth be told, there hasn't yet been any visible sign of a return of such fundamentals, whether in new orders or earnings. In fact, some point out that what's returned is another mini-bubble - inflated more by wishfulness than anything else."
These comments, just like in the earlier editorial and Sivanithy's, can now be clearly seen to be incorrect. The market's gains over the last few months have been in anticipation of the bottoming of the Singapore economy. There is nothing new in this phenomenon. Stock markets the world over lead the economy. And because stock markets often overreact on the downside -- and the upside as well for that matter -- the slightest hint of a recovery is often enough to propel the market upwards. The Business Times has a writer or writers who are either ignorant of this stock market characteristic or are unable to discern signs of an impending economic recovery. In either case, the letter-writer in yesterday's The Business Times appears to be correct with regards to the paper's level of experience and analytical ability.
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