13 SEPTEMBER 2013
Prof Chan Yan Chong’s Column
By Dr Chan Yan Chong
Stock markets plunged in Hong Kong and Singapore after news of a possible attack on Syria by the US and its allies spread. The Americans had invaded Afghanistan and Iraq incurring lots of casualties but with no positive results at the end of the day hence Syria, with no natural resources such as oil and also not a country tagged with the label of a terrorist, is not an “attractive target” for President Obama.
The chaos in Syria has been ongoing for almost a year and, thus, the Americans would have attacked the country if it had wanted to. When the Americans toppled Gaddafi last year, the US ambassador to Libya was murdered and that could have stopped the Americans from attacking Egypt when Mubarak was overthrown last year. Now that the pro-US military government in Egypt has been criticised by the world, the Americans have no choice but to join in the reprimand and nothing more than that. There is no real reason for the US to attack Syria for fear of turning the regime into a terrorist-controlled entity so it has been a “reprimand” at the very best from the outset.
The British rejected in taking military action while the allies of the Americans as well as public opinion polls, too, are against military action. President Obama is now stuck between a rock and a hard place hence he continues to talk about taking action yet, at the same time, is looking for an “exit strategy”. Now his friends among the allies are all using the parliament as an excuse to say no to Obama.
It seems like the perfect excuse not to attack Syria since not many people support the move. The best excuse to prevent a war has been provided by Russian President Vladimir Putin, who has asked Syria to hand over all chemical weapons to be destroyed by the United Nations. Syria has now avoided calamity while Obama has found a wonderful excuse for not carrying out his threats.
With the Syrian war out of the picture, the Dow Jones Industrial Average (DJIA) surged past 15,000 points. On hindsight, the impact of a possible war lasted only one day with the DJIA, the Straits Times Index (STI) and the Hang Seng Index (HSI) resuming the uptrend. The first time Obama said war, stock markets fell but investors soon realized that it was just a bluff and markets surged.
When the DJIA went past 15,000 points, the Shanghai Composite Index (SSE) jumped over 2,200 points while the STI and the HSI joined in the fun without a break in-between. In actual fact, despite the rapid rise in the general market, many of the HSI component stocks fell just as quickly, reflecting a lack of fresh funds in the market as investors are fleeing safe haven stocks such as utilities for high-return stocks that are enjoying attention. When such stocks dominate the headlines, everyone will jump-in and investors should exercise caution.
The SSE found itself languishing at the bottom when it fell below 2,000 points, which saw the A shares trading at cheap valuations but foreigners are not allowed to buy A shares hence ETF were in vogue. When the index went above 2,000 points, plenty of investors traded heavily in the ETF resulting in a huge gap between the share price of A shares and the A shares ETF.
At the start of this year, the SSE went as high as 2,400 points but fell back below 2,000 points yet again. The magical 2,000-figure has now become somewhat of a barometer and, soon, the index rose again to 2,200 points. As a matter of fact, the premium of the A shares ETF over the A shares has narrowed. While other derivatives have a deadline, ETFs have no expiry so if an investor was to buy into the ETF and wait for sentiment to improve, it is a win-win for the investor.
I am an optimist, preferring to buy when everyone is calling for a sell because I have been proven to be correct during the Asian financial crisis, the recent Syria war as well as the management shakeout at PetroChina (HK: 0857). President Xi Jinping has recently reassured investors that black sheep within the company will not affect the long-term fundamentals of a government-owned company of this magnitude. While some people have said that corruption within the company will erode profit, then the honest new management will probably be able to take the company to new heights.
The tapering by the Federal Reserve (Fed) continues to haunt the stock markets in September after dragging the markets down throughout the entire August. It is only a matter of time before Quantitative Easing III ends hence it does not matter if the Fed does not start tapering in September because the uncertainty will continue to loom on October and beyond. Such uncertainties are very bad for the stock market in the long run.
Will there be a war? Don’t know! Will the Fed taper? Don’t know! Markets hate uncertainty because it is difficult to plan ahead with uncertainties abound.
It looks like Alibaba is more interested in listing in Hong Kong than in New York, as it is doing a lot of public relations work here. The management of the company owns a small stake in it but has overwhelming executive powers. The separation of ownership and management is something rather new for Hong Kong but will the stock exchange accept it? Can the stock exchange say no to such a big business?
Publish date: 13/09/13