STI at record high:
A pullback would be healthy for everyone
The new year has started with the way the old year ended: a record high on the Straits Times Index. If there is any truth to the doomsayers, who've been predicting a slower economy this year, and a "coming off the boil" for stock prices, it wasn't to be seen today. But that doesn't mean that it won't be seen this year, or that they should not be seen this year. While it's all well and good for the market to keep rising beyond 3,000, in my personal opinion a pull-back would be healthy for everyone.
Here's why.
First, the Straits Index has gained almost uninterrupted. Even the big decline in May last year, which saw the STI move from more than 2,600 to less than 2,400, now just appears like a blip. And it's the largest blip since the July to October 'flatness' of 2005 and May 2004. Volumes have also been very strong, with around two billion shares traded each day. A repeat of May last year would ensure a reorientation, where speculative money comes out of the market and prices are once again be based on fundamentals.
Second, the market should price in future earnings. It should be a barometer of expectations. Given current concerns about US consumers taking a breather, and other economies plateauing, I don't see such expectations being priced in. I don't sense fear kicking in as it, perhaps, should. Traders appear punch-drunk. I say this because it's increasingly difficult to find bargains. Value investors are likely to sit increasingly on the sidelines. I don't believe trader-driven activity can boost the market ad infinitum. The volumes over the Christmas-New Year break held up remarkably well, suggesting to me that the traders stuck around while the investors were away on holiday. Without fresh money coming in, and strong attractions to draw it here, I don't see how the market can continue like this.
My contention in saying this isn't so much that I think the market will fall. I could well be proven wrong, and the market could rise to 4,000 before a pullback - who knows?! But some consolidation would be the reality check we need, making further record highs all the more stable.
Mark Laudi
ArchivesHere's why.
First, the Straits Index has gained almost uninterrupted. Even the big decline in May last year, which saw the STI move from more than 2,600 to less than 2,400, now just appears like a blip. And it's the largest blip since the July to October 'flatness' of 2005 and May 2004. Volumes have also been very strong, with around two billion shares traded each day. A repeat of May last year would ensure a reorientation, where speculative money comes out of the market and prices are once again be based on fundamentals.
Second, the market should price in future earnings. It should be a barometer of expectations. Given current concerns about US consumers taking a breather, and other economies plateauing, I don't see such expectations being priced in. I don't sense fear kicking in as it, perhaps, should. Traders appear punch-drunk. I say this because it's increasingly difficult to find bargains. Value investors are likely to sit increasingly on the sidelines. I don't believe trader-driven activity can boost the market ad infinitum. The volumes over the Christmas-New Year break held up remarkably well, suggesting to me that the traders stuck around while the investors were away on holiday. Without fresh money coming in, and strong attractions to draw it here, I don't see how the market can continue like this.
My contention in saying this isn't so much that I think the market will fall. I could well be proven wrong, and the market could rise to 4,000 before a pullback - who knows?! But some consolidation would be the reality check we need, making further record highs all the more stable.
Mark Laudi
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