But many investors saying "bye"
By Mano Sabnani, Business and Financial Consultant
First published in TODAY
8 - 9 Mar 2003

Strangely, though, the market is not paying enough attention to the emerging
breed of well-managed companies with rising profitability and healthy dividend
yields. It appears investors are overlooking individual company
performance, in favour of macro or bigger issues, like the impending second Gulf War and the lacklustre state of the giant US economy. Top-down bear psychology is ruling
over bottom-up bullish stock pickers..

In recent weeks and days, the melt down in the markets has taken on a new momentum, as the war rhetoric emanating from the US and its staunch ally, the UK, gets louder. News on the US economy has not been positive either, with the last bastion of strength, consumer spending, is also seeing slower growth.

Businessmen all over the world are holding back on orders and new projects
until the geo-political situation is clearer, one way or the other.

In short, we are seeing a pervasive lull in economic activity and the
effect of that in the financial markets is to create a vacuum in which the bears and
short-sellers can operate freely. They are able to push stock prices down and
commodity prices up, in thin markets. In Singapore, we have seen the ST Index
break its long-term support in the 1350-1400 region and head down towards the
September 11, 2001 low of 1200. We are almost there, with the index closing a
bad week yesterday (Friday) below 1230.

Will the STI head even lower? Just over 12 years ago, at the height of the
Gulf War in early 1991, the STI retreated to the 1000 level. Then, in the worst
part of the Asian financial crisis, it pulled back to just 800 points in September
1998, when Malaysia moved to protect the ringgit through an unpopular peg
to the US dollar. Markets tend to overshoot during extreme bearish and bullish
phases, so while the 1200 level appears more than sustainable with current corporate
profitability levels, the bears may succeed in punching a hole though it.

Singapore is seen as a small market unable to withstand the gale winds arising
from problems in the US and Middle East. Surprisingly, though, the Malaysian
market is holding up relatively well. Consider that the Kuala Lumpur Composite
Index stood at only 300 points when the STI was hitting a low of 800 points in
September 1998. Today, while Singapore is labouring to stay above 1200,
the KLCI sits comfortably above 600 points. Our closest neighbour can probably take
some comfort from the fact that it is a net exporter of oil and other commodities
like palm oil and tin.