After a few days of selling, STI finally staged a rebound of 69.10 to 2,102.71. This is after the rate cut from several central bank. Although the rate cut is good news, but in the developed market, the market selling continues. The financial and credit crisis is serious, but the real problem is seems to be fear or lack of confidence. If US fall into a deep recession, the stock price is going to fall a lot. Some analyst cautious the use of forward PE at the time when the growth prospect is not clear.
When people are selling, Warren Buffett started buying aggressively. He bought General Electric and Goldman Sachs. His principal is simple, invest in the business he can understand and significantly undervalued for a long term. When the cycle turns up, the investment could be worth much much more. Crisis mean buying time for him. To the others, this principle seems simple yet difficult to apply. The human nature of risk aversion prevent you to participate in bargain hunting, you would cut loss instead.
The growth picture is not going to improve anytime soon, some advocate to wait and see until 2Q 09. I tend to agree with this view point. Even though the market seems to be cheap now, before the sanity returns, most probably we would see more sell off rather than big gain. So, no worry here, waiting for more opportunities. The only question now is whether what to buy, what would give a significant upside when the cycle turns? I am still searching. The strategy is to concentrate on a few best idea and hope for the best in 3 years time.
By the way, there are few interesting events in the market recently.
Guangzhao IFB - Trading suspended now for the company. This is after the company defaulted on one of the convertible note issued. They are waiting for the fresh money to come in to support the bond redemption. This highlights the potential risk of investing in small and unproven company. The business model is very interesting, but the cashflow is negative. Before the real money comes in, they run out of fund and need to pay back debt. Yet to see if anybody come to rescue.
SGX - It is like the barometer of Singapore stock market. So many analysts are calling for a sell now, since the trading volume is going to reduce amid the bear market. This is true without considering the potential of the company on the long run. It is like you sell, I sell situation now. Watch out for it, when the tide turns, analyst is going to come out and call for strong buy again.
Celestial Nutrifood - The tainted milk scandal in China is supposed to boost the soya bean sales. Even starbucks also start using soya milk as a replacement. The other good news is the falling of commodity price. The two factors seem favourable but the stock cannot escape the broad base sell off we are having now. The inevitable down turn might hurt consumer sentiment and reduce consumption. Although the company is poised to do well in the long run.
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