Saturday, May 31, 2008

Investing in a bear market

The situation

Currently the Singapore stock market is in the midst of a bear market. The STI has fallen almost 30% from the highs of 3800 to around 2800. Compared to the peak, STI has recovered almost 500 points from its bottom, a 50% rebound. This is in line with the DOW theory. Although I am no chartist, I believe the market index will hover frequently between 50-200 points. This provides excellent trading opportunities of financial stocks such as DBS, UOB and SGX.

Trading

If you have the capital to buy and hold the above stocks even when market turn against you, it might be rewarding (and exciting) to trade the financial stocks actively.

DBS is currently a good pick for trading as its valuation is cheaper relative to UOB and OCBC. It has a quarterly dividend payout policy, thus when the day moves nearer to XD, DBS price will go up decently as investors rush in to buy for the $0.20 dividend. Try to sell it 2-3 days before XD for a small profit if you are not investing for the long term.

YEN

Japanese Yen is also a good hedge against the bear market. I do not want to go into the details of Yen carry trade here, but you may make a decent profit if you buy Yen when the exchange rate is S$0.0127 to 1 Yen. Current exchange rate is S$0.01287 to 1 Yen.

The value (demand) of Yen goes up when stock market falls as investors rush to buy Yen by cashing out the stock market.

In a nutshell, Yen is negatively correlated with global stock markets’ movements.

My strategy

As for me, I do not have a lot of time and energy to monitor and trade financial stocks frequently. Hence I prefer to park my money in decent dividend paying companies to improve my cashflow.

Recently I noticed such companies’ stock prices are taking a dive as institutions have been selling them. For instance, SPH has fallen from $4.63 (2nd April closing price) to $4.28; Starhub have fallen from $3.14 (17 April closing price) to $2.86. Singpost was one of the top traded stocks on SGX last Friday. SMRT and Comfort is not spared either.

This only means a sale is going on for dividend lovers. I will definitely buy more when I have more cash. In fact, I am considering liquidating my entire UT portfolio to buy more blue chips.

2 comments:

Paul said...

Hello there,

Can you share with me how to trade japanese yen?

Sgbluechip said...

Hi, for me I go through my relationship manager at SCB. Minimum amount is usually SGD$50k. Online portal of forex allows trading also, but I am not familiar with them.