With circuit breaker ending, it’s time to take a hard look at stocks

Home Business With circuit breaker ending, it’s time to take a hard look at stocks
With circuit breaker ending, it’s time to take a hard look at stocks

It may not seem like it, but right now would be a good time to start prudent and judicious investing in stocks.

Market downturns often spring investment opportunities that, if missed, will not be coming back for a while.

However, not everyone should be throwing all their money in.

Set aside funds for emergency use – three to six months of your monthly income – and then invest the spare cash.

Deep-pocketed institutional investors have already jumped in, pushing benchmark indexes up from their lowest point this year.

In Singapore, the Straits Times Index (STI) is up about 14 per cent from the March 23 low. But the market is still off 21 per cent since the beginning of the year.

This means that retail investors – individuals with relatively limited amounts to invest – can still make good on what some fund managers are referring to as "an exceptional buying opportunity".

The local index has not rebounded in isolation.

Benchmark gauges of markets from Hong Kong and Malaysia to Japan and the United States have all ricocheted off their March lows.

The upswing has only reinforced an old investment axiom that the stock market is a forward predictor.

Historically, equities give you a peek into what lies beyond the next months and move more closely with the next quarter or two of earnings and economic growth.

Shoppers outside Bedok Mall last week. With shops and food and beverage (F&B) dine-in set to reopen soon, retail real estate investment trusts such as CapitaLand Mall Trust, Frasers Centrepoint Trust, Lendlease and F&B stocks Koufu and Jumbo will benefit – albeit with a slight delay, says the writer. ST PHOTO: LIM YAOHUI

Historically, equities give you a peek into what lies beyond the next months and move more closely with the next quarter or two of earnings and economic growth. So if you wait too long for the complete resumption of economic activity and growth or the availability of a Covid-19 vaccine, stocks would have already climbed substantially higher from their current levels.

So if you wait too long for the complete resumption of economic activity and growth or the availability of a Covid-19 vaccine, stocks would have already climbed substantially higher from their current levels.

Another old market axiom is to never sell into weakness or buy into strength.

For instance, DBS Bank expects Singapore's economy to shrink 5.7 per cent this year, as a phased easing of the local circuit breaker measures starting next month foretells a slower or U-shaped recovery. At the same time, its year-end target for the STI is 2,850 points – around 350 points above the current level.

According to Legg Mason investment strategist Jeffrey Schulze, bear markets tend to go through three stages: a swift decline, followed by an oversold bounce, and then an adjustment period that is frustrating to both bulls and bears.

"We believe the economy beginning to reopen could mark the start of the final stage. As a result, the coming months could be choppy, testing investor resolve," said Mr Schulze.

He means that while the market's upside will be capped in the near term, a retest of the March lows is also unlikely.

Hence, investors will have to use their good judgment to identify stocks in which they can gradually begin to build their positions before the market consolidates and takes off for the next big push some time in the fourth quarter.

For example, most of the medical equipment manufacturing, biotech and pharmaceutical stocks gained an average 37 per cent between the start of the year and May 15.

Biolidics was up 80 per cent; iX Biopharma, 13 per cent; and Hyphens Pharma, 17 per cent.

Some of these stocks may already be fully valued, that is, they have reached a price level that justifies their returns.

For this reason, DBS is advising invesRead More – Source

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