After three years of losses for stocks, will there be a fourth?
13 January 2003
The Singapore stock market, as measured by the Straits Times Index, fell 17.4 percent in 2002, the third consecutive year of loss. Over the three years from 2000 to 2002, it fell 45.9 percent, or almost half its value. Will 2003 be a fourth consecutive year of decline?
Brokerages surveyed by The Business Times recently expressed mixed views. UOB-Kay Hian predicted that the Straits Times Index will hit 2,000 by year-end, a rise of almost 50 percent. DBS Vickers Securities has a more modest target of 1,750 for the index. OCBC Securities, however, sees support only at the September 2001 low of 1,200.
Over in the United States, analysts appear more sanguine. In a BusinessWeek survey at the end of last year, out of 67 investment strategists and portfolio managers polled, only one was outright bearish on the US market for 2003. The rest forecasted either a flat market or some appreciation. On average, the forecast for the Standard & Poor's 500 Index was 1,049 at the end of 2003. The range of forecasts for the index was 800 to 1,250. It had closed at 879.82 on 31 December 2002.
Such a consensus, however, is not a good sign. For stock prices to rise, new investment money has to come into the market to push up stock prices. But if analysts and money managers are already betting on stocks to rise, where is that new money to come from? As Richard Bernstein of Merrill Lynch pointed out: "Money managers are more concerned with missing the turn than preserving capital." Unfortunately, that only makes it less likely for the turn to occur.
Nevertheless, a near-term rally is still possible. Indeed, as of the close on 10 January, the US market has risen by 5.4 percent since the start of the year. In contrast, the Singapore market is up a minuscule 0.5 percent over the same period. No sign of a rally yet.
However, that means that the Singapore market has been on an almost continuous downtrend since its peak in March 2002, with October the only up month in that period. Secular bear market this may be, but that seems an awfully long time for the market to be down without a significant bear-market rally.
No doubt, worries of a war in Iraq -- and now North Korea -- is keeping the market down. But having said that, there has hardly been a war in the past in which the stock market did not rally at some point or other. In fact, the last time the US went to war in Iraq in 1991, the market surged as soon as the first shot was fired.
Furthermore, economists are generally expecting the Singapore economy to start re-accelerating by the second half of 2003. Bearing in mind that the stock market usually anticipates the economy by about six to nine months, that means stock prices should start to rise within the next few months.
It is very early in the year, but my guess is that the coming rally will be enough to help the Singapore stock market end the year with a gain. Whether it will be the start of a new bull market, however, is quite another question.
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