ST June 2, 2009Of course, the other view is that the economy is actually recovering. That's something that Anil does not seem to have considered, LOL.
Exuberance in property sector defies economic
indicators
YESTERDAY'S article, 'Private home sellers raise asking prices', raises a vital point that caution is needed, and so far no one in authority has sounded a warning.
Property prices seem to be edging up, and the optimism of sellers seems to be related to the rise in stock prices, which have gone up by more than 20 per cent.
This rise in prices defies economic analysis, as there seems to be no basis to prices going up since fundamentals show that economic growth has been negative. Fourth quarter 2008 statistics show minus 9 per cent and first quarter 2009, minus 14 per cent. So there is no fundamental support for a rise in stock or property prices. Yet most property counters like CapitaLand, City Developments and Keppel Land, as well as other blue chips, have shown appreciation in prices, some as much as 50 per
cent.
This prompts the question why no word of caution has come from any chief executive that there has been no fundamental change in his company's earnings in the past two to three months to warrant such a hefty increase in the prices of its stocks. Perhaps they are just revelling in the increase in their portfolios. There has also been no warning from the Stock Exchange.
Obviously, all market players are making hefty profits from their quick short-term trading, so why should anyone rock the boat?
One banker told me it is simply speculation, as there is excess liquidity, and returns on bank deposits earn a pittance 0.5 per cent interest at best, so there is no point keeping the money in the bank; it is better to pledge the deposit, borrow heavily and play the market.
No one is sounding the warning bell, because any true blue businessman knows that when fundamentals do not support values, it is a matter of time before the collapse happens, as prices will ultimately adjust to reflect realistic values.
This may well happen here, unless a strongly worded note of caution is sounded soon.
Anil Bhatia
It's a widely accepted theory that the stock market is a leading economic indicator. This means that the stock market runs several months ahead of the general economy. The stock market takes a dive before the economy takes a dive, and the stock market recovers before the economy starts to recover. According to this theory, the stock market's current good performance could be a sign that economic recovery is on its way.
Anil's letter almost suggests that there's some conspiracy among market players to prop up the Singapore stock market. Every now and then, I too enjoy a good conspiracy theory. But it's important to note that the current good performance of the stock market isn't limited to Singapore. All around the world right now, stock markets are doing very well, and have been doing very well for the past two or three months.
Two weeks ago, the world saw one of the most spectacular single-day stock market rallies ever. On May 18, the Sensex, India's benchmark stock market index, jumped 17% in a single day. It would have jumped even more, but the heavy buying triggered automatic suspensions, and the "circuit breakers" kicked in to stop trading for the rest of the day.
The Sensex's performance was triggered by the victory of the Congress Party in India's elections. But sometimes what's even more telling is not what the stock markets reacted to, but what the stock markets did not react to.
North Korea, the world's most famous rogue nation, shocked the world by test-firing its nuclear missiles on 25 May. But Asia's stock markets (including South Korea's) continued to rise serenely. Meanwhile, the long-suffering GM Motors announced late last week that it would file for bankruptcy this week. But US stock markets largely ignored this event, and the S&P 500 hit a seven-month high yesterday.