The Dow Jones Industrial Average (DJIA) recently recorded a seven-day winning streak to bring the US bellwether index to new record territory. Even an onslaught of negative news about US President Donald Trump could not dampen the Dow’s positive momentum.
The US Justice Department served grand jury subpoenas to Donald Trump Jr, effectively signaling its intention to indict the President’s son. Meanwhile, the House of Representatives overwhelmingly voted to approve new sanctions on Russia of which Trump had reluctantly signed. Yet for every episode of negative news against Trump, the US stock market only saw a short-term correction before rallying back.
Investors seemed to have grown disconnect with the worsening US political climate which has become a worrying concern. This “acquired immunity” came as investors simply downplayed all bad news related to Trump as the media’s constant attack on the President. But like “The Boy Who Cried Wolf”, this phenomenon of investors’ “irrational exuberance” may turn sour if more severe events were to unfold.
The recent correction of US stocks was – in a large degree – influenced by earnings news. With the 1H17 results season drawing to an end, news flow could dry up and create short-term pressures on the stock market; so speculators should be more careful.
There is no stock market in this world that only rise and not fall. On 8 August, the Dow corrected shortly after peaking at 22,179 points when Trump ad-libbed “fire and fury” threats to North Korea’s persistently provocative behaviour. In response, Pyongyang immediately threatened to fire four missiles near US-held Pacific territory of Guam.
The “war of rhetoric” between Trump and Kim Jong Un brought the world to a flashpoint of an actual war, prompting investors to take money off the table. It was just like how the US market corrected when Trump sent an Easter message to North Korea, warning the Hermit Kingdom of a pre-emptive US military strike. To put it simply, corrections are inevitable in a bull market and are necessary to tame the “exuberance” of speculators.
On the scale of fear sentiments, the latest episode of escalating geopolitical tension is smaller than the Easter holiday when three US aircraft carriers were deployed towards the Korean peninsula. As at now, no US military action has taken place albeit Trump’s bellicose rhetoric. In the latest development, Chinese President Xi Jinping has also urged his US counterpart to exercise restraint.
Previously, Trump had accused China of “not doing enough” to restrain North Korea’s nuclear ambitions. But on 14 August, China has finally relented to support US-led sanctions against North Korea, as its Ministry of Commerce banned imports of North Korean iron, coal and seafood. The action from China is believed to be enough to keep Kim in check and allow the tensions in the Korean peninsula to subside.
On the policy level, Trump has already executed a number of flip-flops. Not too long ago, Trump had threatened to impose sanctions on the Chinese economy but quickly retracted his words just after three days. This time round, on 14 August, the unpredictable US President ordered the US Department of Commerce to commence a “review” of China’s intellectual property practices against US companies.
Ironically though, Chinese authorities seem to have grasped Trump’s unpredictability and do not seem too concerned with his bravado on sanctioning China. Moreover, the order – which has no timeline stipulated – was only to “review” China’s trade practices and does not constitute an official investigation.
Recently, legendary stock guru Warren Buffett expressed that there are no cheap stocks to buy and is sitting on a huge cash pile. Even after the recent market correction, I concur that stocks prices are still not attractive enough hence investors should continue to stay side-lined and observe.
This time round, the market correction came rather “fast and furious”, but still appear mild compared to a month ago. Although no one knows how deep the correction will go, it is still a healthy thing since it makes valuations more reasonable.
Amidst the current consolidation phase, some are placing their bets on a rebound while some are cashing out. Since the US market rose rather aggressively in the past months, selling away stock holdings will reap rather good profits. As a result, many investors are taking profits before weekends and hoping to buy back at lower prices.
No one can predict when the market will rebound and hence making any move now is simply gambling. Instead, investors should wait patiently for stocks to rally again before considering whether to enter a position. It is a far-better strategy than betting for a rebound to happen.
Over the past few months, Hong Kong’s stock market saw a stronger rally than the US counterpart. Consequently, it is only natural to see Hong Kong stocks going into steeper correction – especially so since July till now.
In retrospect, the latest rally of Hong Kong stocks was rather short-lived compared to the past seven months. Dating further back, the formation of the Hong Kong’s bull market started during the start of 2016 when Chinese securities regulators suspended their circuit breakers of Shanghai A-shares. It was a moment of uncertainty for investors which turned out to be the start of a huge rally.
It might be too early to tell whether the recent technical correction would turn into a major correction. After all, the parties – Trump and Kim – who stirred the global market recently have rather capricious personalities. While US stocks are beginning to show stability, there are no concrete signs that the market correction has ended. Therefore, to have a peace of mind, investors betting on a rebound should not keep their positions overnight.
Malaysia’s mega railway project has begun construction. The 688-kilometer “East Coast Rail Link” (ECRL) project will be built by Chinese-listed China Communications Construction Company. Unfortunately, the project only ends in 2024 and no one knows when the company will recognise revenue and turn a profit from the project.
The ECRL will link the Malaysian eastern region of Kelantan, Terengganu to Pahang, closing in the distance between the east and west coast. On the internet, many people are discussing about this mega project, with some even dubbing it as Malaysia’s “Kra canal”. Despite the exuberance, I do not think it will affect Singapore’s position as a top maritime port city.
The nautical distance to convey around the Malay Peninsula is not significant as compared to conveying around the continent of South America or Africa. As such, merchant vessels will not find significant economical benefits to traverse through the Malay Peninsula. This is the reason why Thailand’s Kra Canal project has yet to materialize despite half-a-century of discussions.
Another more important reason for most ships to make Singapore their port of call is that Singapore’s port runs primarily on the entreport trade model. Under this model, ships come to Singapore because goods are re-exported to another trading partner tariff-free.