Ah, there’s nothing like a bit of uncertainty to provide investors with a buying opportunity. Just as the market appeared to be heading up in a straight line, here we are finally taking a breather that provides a buying opportunity to those who missed out on the rally.

Don’t get me wrong, no one wants war in Northeast Asia – not even the regime of Kim Jong Il, which, through its twisted ideology, thinks it is actually preventing a war with its nuclear test. No one wants ordinary North Koreans to starve, or suffer more than they already have over the last fifty years. But if you look at this issue in the cold light of day from the point-of-view of investors in Singapore Exchange-listed stocks, you will soon realise that the 1.3% decline in the Straits Times index this morning was quite unwarranted.
Here’s why:

First, nothing has changed. We’ve known about the possibility of a nuclear test for some days now. What we got this morning was only confirmation. Equity markets trade on speculation all the time. Confirmation usually sends stocks heading in the other direction (which is where the addage “Buy on rumour, sell on fact” comes from).

Second, stocks in the country that has most to lose have actually retraced their declines. The benchmark South Korean index, the Kospi, fell 2.8% but retraced some of its losses during the afternoon. And these guys are right near the action. Sure enough, Singapore’s economy is small and susceptible to shocks in other countries. But if there was a resumption of hostilities on the Korean Peninsular, any detrimental impact on the Singapore economy would pale by comparison to the detrimental impact there. So, if it’s good enough for bargain hunters to come back into the Korean market, it’s good enough for the Singapore market.

If anything, the decline in the Straits Times index is more likely due to investors taking profits after the recent strong run. Investors should be paying more attention to the upcoming earnings season. Its impact will likely be of greater magnitude than North Korea’s nuclear test.

Mark Laudi