Don't Wait for Blue Skies
 If you have been following the markets for the past few months, you would be forgiven for thinking we are still in the thick of negativity. In other words, you have the feeling that markets are more likely to continue to fall rather than rise. But according to Wong Sui Jau, general manager of fundsupermart.com, this is not the case. Here's what he has to say in his replies in an interview with Mark Laudi on SIAS Today
Tell us more about why you think that now is actually a good time to start buying into this market.
When we look at the market right now, generally we feel that a lot of the negativity has already been priced into the markets. We have already seen a huge amount of pessimism in the market over the past few months culminating with the sale of Bear Stearns. At that point in time, I feel that more or less, the market was already at a low point.
Now, I don't want to say that we are past the worst, but from a valuations level, generally the stock markets now are really attractive. Not just Asian stock markets, but the within Asia the Taiwan, Thai and Singapore markets are looking very attractive, trading at about a 13 to 14 times forward price earnings ratio for the year 2008.
But everything still feels so gloomy. Are you sure that now is the time to buy?
Well, that's the thing. It is the best time to buy when everybody is feeling gloomy – not when everybody is saying that now is the time to buy, and everybody is saying that all the forecasts are for clear blue skies ahead and there is nothing negative on the horizon.
But, when there has been a certain amount of bad news for a certain amount of time, so that when people bring up bad news it is all the same things. It's higher oil prices, the US going into a recession, sub-prime loans and so on. So, when all these things have been around for a few months, basically most of it are already factored into the markets and in the end things are measured based on valuations.
While pessimism and emotions might cause the markets to overcorrect on the downside, in the end fundamentals will take precedent eventually, particularly when people get calmer. So, the important thing is to look forward.
So, what I am hearing you say is things couldn't get any worse, but what if it's confirmed for example that the US is really in a recession?
Yes, in the sense that the economic data might come in worse. But from a psychological point of view, people have been talking about it for some time. Six months ago, when people were saying, "Maybe the US won't fall into recession." These days, analysts talk about US recession as if it is second nature, that it is a given. The first quarter GDP growth was originally forecast at 0.6% and now it is 0.9%, barely breakeven growth but it's still not a recession.
So, it's still not a recession right?
Yeah, but even if it goes into recession and actually our official view right now is that it will go into a recession, it is not going to be a surprise to investors anymore. That to me, is actually a key factor telling me that perhaps the overall sentiment level has actually reached a certain low, and basically when you have that kind of valuations, any potential downside anyway would be limited, even if there is some bad news because it is the same bad news investors have already been talking about.
But what do you then say to investors that say "No, I'll just wait for the bottom?"
Well, we would say to them that generally it is impossible to get the exact bottom of the market and rather than trying to wait or trying to time where is the exact bottom, as long as you are generally there at the low levels of the market. Then when you are talking about in two years time when the markets are substantially higher and when the recovery is in full swing, you will still be making a lot of money. Rather than you are in the situation where you say, "Ok, I will wait for the bottom" when the bottom might have already been over. Let's say the bottom was one month ago, then you would have actually missed the bottom because maybe from here on markets are slowly climbing a wall of worry, with some pullback now and then but the general uptrend is there. And if you are still waiting for it to crash another 20%, that might not ever happen.
So, you'll miss the boat?
Yeah, you'll totally miss the boat.
Now, the other questions of course is whether this is a so-called dead cat bounce meaning that sure enough we may have some signs of an uptrend but that we could see a further decline for reasons that we don't know about yet.
Well, it is possible, but generally in the end because I am going back to valuations and market fundamentals. For Singapore, the economic growth is going to be very strong notwithstanding the fact that the US is going through a bad patch now. And, in the next two to three years, we are going to get a lot of fixed investment coming in. Even now, despite the slowdown in the US, our first quarter GDP growth has been fairly substantial. I think it was about 6.7% in the first quarter.
Yes, it was a terrific quarter given how weak the U.S. is.
Correct. And our job creation has been very, very robust – actually even stronger than the fourth quarter (of 2007). So, basically a lot of the pessimism is because of the US but the actual reflection of what's happening in Singapore is that things are not that bad. So, I am fairly confident that things are going to actually turn around and get better. Investors will eventually realise that fundamentally, there is a lot going for Asian markets and Singapore in particular.
You are even recommending to take another look at US and European banks, the ones that have been hardest hit by sub-prime woes. Isn't that like sticking your head in the mouth of a lion?
Yes, that is actually one of our biggest investment ideas right now. We are actually fairly excited about it because from our perspective, we remember what had happened in 1997and 1998 when you had the Asian financial crisis. A lot of banks in Singapore and Asia then were trading at very low valuations, but yet that was the time to go in to buy the banks here.
Now, we have a similar situation where you have a big financial crisis going on in the US, there is blood on the streets there; banks in the US and Europe are all declaring billions and billions in losses. Similarly, if you are really taking a fundamental view, you are saying that there might be one or two of them that might fail, get bought over, get sold and son on.
But, there are those that are stronger and more resilient that will come out of this and recover faster than the rest. This is precisely the best time to go in because regardless of whether you are a good or bad bank over there, right now nobody want to own you. So, from that perspective that is why we are actually fairly excited about US and European financials.
Also, from a price/book valuation, when we look at it, right now US and European financial stocks are trading at 1.3 to 1.4 times price to book value. The last time they traded at lower than this is back during the savings and loan crisis in 1990. So you have to go back more than a decade also to a similar time when there was a financial crisis going on before you could find valuations that were even cheaper or as cheap as what you can find in US and European financials at this time.
I'll just add on a bit, now the reason why we would suggest global financial funds would be better from a diversification point of view. And also, what if you want to buy a US financial stock. You go to some overseas US brokerage and put all your eggs into one basket. What happens if it just happens to be that one stock that is the next Bear Stearns?
Whereas, in comparison if you are buying a global financial fund, then because the fund manager will be holding perhaps fifty or eighty to one hundred financial stocks. In the end it is impossible that the entire financial sector all goes bankrupt. So, eventually, it will recover because we are talking about the biggest financial market in the world, the US. When they do recover, those banks that are healthy will go up substantially in price.
Hence, we will buy global financial funds as opposed to just picking a stock and then just putting all your money into that one financial stock because that generates a big amount of risk that during this time of financial crisis.
Interviewed by Mark Laudi, Investor Central, Date: 6th June 2008
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