Monday 16 November 2009
Stick to trading the large-cap ‘haves’
In local market parlance, the key manipulator behind a stock is referred to as the chng kay, a Hokkien term which loosely translates to a croupier in a casino, who is the person who holds all the cards and deals them. This then means that anyone who trades these pennies runs the risk of the chng kay pulling the plug at any time, or risk unforeseen circumstances like an overseas market crash overcoming the manipulators’ ability to deliver the goods.
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Stick to trading the large-cap ‘haves’
By R SIVANITHY
16 November 2009
Friday’s column described the current market situation here where the focus has narrowed considerably, leaving in the cold dozens of mid-caps and speculative penny stocks.
This has created a ‘two-tier’ market polarised into two extremes, namely the large-cap Straits Times Index components at one end, and a handful of small-cap, penny stocks on the other. One side can be considered the ‘haves’, ie they have plenty of liquidity, while the rest are ‘have nots’, in that they have no liquidity.
In the case of the penny ‘haves’ though, much depends on whether they are in play by house traders, or at the extreme, whether they are the subject of syndicate manipulation.
In local market parlance, the key manipulator behind a stock is referred to as the chng kay, a Hokkien term which loosely translates to a croupier in a casino, who is the person who holds all the cards and deals them. This then means that anyone who trades these pennies runs the risk of the chng kay pulling the plug at any time, or risk unforeseen circumstances like an overseas market crash overcoming the manipulators’ ability to deliver the goods.
Rather than expose oneself to such uncertainty, it’s best that traders stick to the large-cap blue chips, these being the first stocks that the big money buys or sells when sentiment changes. These stocks also offer the added feature of having plenty of research backing which - although although questionable and downright misleading in some cases - at least offers readers some insights into the companies.
Banks are currently in play thanks to their supposedly better-than-expected Q3 earnings, but we suspect that the present play is more laggard-based than fundamental-based since banks are well-known to have lagged many other index stocks over the past four to five months.
Traders should therefore be careful about trading this sector, especially if the effects of central bank stimuli start to wear off (a polite way of saying when the money Western central banks have given to their banks to play the stock market runs out) and their Q4 earnings disappoint.
Traders should also take the Asian discovery/miracle/emerging markets story with a large grain of salt, given that it has been recycled ever so often over the past 16 years by foreign funds as and when it suits them, albeit in different guises.
The first time was in 1993 when a certain big-name foreign fund manager declared himself ‘maximum fed and maximum bullish’ on the region, a declaration that heralded a stampede of money in South-east Asian markets.
It was again the case after the 1998 regional crisis subsided and was repeated once again after the Iraq invasion and the Sars epidemic in 2003. Each time, it led to seemingly big moves for the Straits Times Index thus vindicating those bullish calls, but close scrutiny leaves plenty of room for scepticism.
Few people may remember, but the STI (albeit in a slightly different incarnation) first crossed the 2,000 level back in August 1993. At that time, the Dow Jones Industrial Average was around the 3,000 mark.
Sixteen years later and after the US banks have been exposed for being the fraudulent institutions that they are (one writer has described the US as being ‘a counterfeit economy built on counterfeit money’), the STI stands at around 2,700 for a gain of just 35 per cent, while the Dow stands just above 10,000, a return of more than 200 per cent.
We have very little doubt that when the current bubble bursts, as it will, and when the dust settles again, as it will, we’ll hear the Asian growth story revived all over again.
So the preferred approach is relatively simple - stick to trading the bigger, large-cap ‘haves’ but be cognisant of the hypocrisy that underpins much of what is said about superior performance and potential returns.
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