By Goh Eng Yeow
Markets Correspondent
engyeow1@sph.com.sg

 

AS GOES January, so goes the year, if one is to believe the old stock market adage.

This observation had held true for the past three tumultuous years when the market swung from wild exuberance to deep despair and then wild exuberance again.

For each of the three years, markets had followed the trading pattern set during the first week of trading almost to a perfect fit.

Still, like all seasoned market writer, I cannot resist the temptation to give my two cents’ worth on how the market is likely to perform going forward.

The past two weeks, I had written four columns outlining the great changes which are likely to transform our financial landscape over the new decade that kicks off at the end of last week.

The Singapore Exchange, for instance, will be assailed by fresh competition in the form of dark pools which allow big-time traders to hide their huge transactions by trading in alternative trading platforms which run parallel to those operated by public stock exchanges.

Even though it has decided to flow with the tides by joining up with Chi-X to set up a dark pool trading platform itself, this does not mean that it will be able to stave off the challenge posed by other dark pool operators which are eyeing a slice of the lucrative Asian stock trades.

How it fends off this competition is likely to be the biggest challenge it faces in the decade ahead.

Still, I have no doubts that Singapore Inc will be able to forge ahead and make a name for itself in the new decade, given the formidable achievements it had already made in the past 10 years – as emphasised in the bulls and bears column last Friday and again in this morning’s Cai Jin column.

Even though the US and Europe had been sore about their lost decade, Singapore firms had grown wings and expanded in a big way across the region, rewarding their shareholders with handsome dividends along the way.

In today’s bulls and bears column, I also listed three possible scenarios from the past decade which may offer a guide on market directions. These referred to the start of trading in 2000, 2004 and 2007 when the mood of investors determined the trading pattern for the rest of the year.

On Jan 3, 2000, STI surged 103.36 points, or 4.17 per cent, to surge to a then record closing high of 2,584.94 before suffering a 9 per cent fall over the next three days of trading. It marked the start of a bear market which lasted for three years, as the dotcom bubble burst in a spectacular manner.

Jan 2, 2004 turned out to be a quiet trading day of trading in which STI rose by 26.83 points , or 1.52 per cent, to 1,791.35. It set the trend for a period of market consolidation after the huge gains which had come on the back of widespread relief that Asian economies did not collapse with the Sars scare the previous March.

And Jan 3, 2007 turned out to be yet another creature, with STI hurtling past the 3,000 level for the first time in its history, as it climbed 51.91 points, or 1.74 per cent, to 3,037.74. It turned out to be a spell-binding year. Despite a heart-stopping 9 per cent collapse in Shanghai the following month and the onset of the US sub-prime crisis that August, STI went on to set a record high of 3,865.

How will this year pan out ?

Going by the manner in which STI is behaving, I am inclined to believe that this year will behave more like 2004.

But unlike the three years which I had cited earlier, STI is starting the year on a down-beat note, edging lower in a small way. Currently, it is down 7.77 points, or 0.27 per cent, at 2,889.85.

This seems to suggest that blue-chips will have a difficult time climbing up further, given the resistance it is already facing on the first trading day of the year.

But there is no need for despair. I believe that any correction in prices will be minor and there is still a chance that STI will end the year on a positive note.

Happy trading for the year ahead.