BT: Not many benefit from bull run (04 Aug 2007)
Not many benefit from bull run
By TEH HOOI LING
SENIOR CORRESPONDENT
BULL market is the time to accumulate cash.'
I was told this recently on two separate occasions in the space of a week by two investors who have shown their astuteness in the market over the years.
One was ex-remisier king Peter Lim, and another was a serial entrepreneur.
Said Mr Lim: 'A lot of people got it wrong. They borrow more and more during a bull market. This goes back to school, which tells us that in a bull market we must gear up in order to get a high return on equity. Of course, if it is a sustained bull market, one can make a lot of money.
'But it is usually hard to tell whether you're at the top, middle or just starting. It's only when it ends, then you know, oh, the end is here.
'Today's bull run can get cut short by a number of things. Just like our recent experience with Sars, or a bomb drops on the wrong person's head. A lot of this, like anything else, the least expected thing happened at the wrong time.'
Their advice could not have been more precient as the market globally was rather badly shaken in the last couple of weeks on concerns of the sub-prime housing loans market in the US and its impact on financial institutions globally.
In the Singapore market, between July 17 and Aug 2, about $60 billion worth of wealth was wiped out from the stock market.
And this came at a time when the number of new investors in the market is at a seven-year high.
For the month of July, just under 6,200 new Central Depository (CDP) accounts were opened. That's the highest since July 2000 when exactly 6,200 new accounts were registered, according to numbers from the Singapore Exchange.
Compared with the previous month, the jump was about 40 per cent, and compared with a year ago, it was a surge of 238.4 per cent.
With 250,000 active accounts, it means that only 7.4 per cent of the adult population are active in the stock market.
Meanwhile, the number of active CDP accounts - this is defined as those that have made at least one buy or sell transaction in the last three months - is at a 71/2-year high.
Some 250,000 accounts were active in the month of July. That's a 6 per cent increase from the month of June and a jump of 60 per cent from a year ago.
The previous high was in September 1999 when about 290,000 accounts were active.
However, the level of active accounts is still a far cry from the peak chalked up in June 1999, when a whopping 486,000 CDP accounts were active.
June 1999 was some nine months after the stock market made its remarkable recovery following the Asian financial crisis which lasted for nearly a year.
It was also after the market had recovered by some 130 per cent.
The number of active trading accounts broke through the 200,000 level only in January this year, after averaging below 160,000 between 2001 and 2005.
The increased interest in the stock market this year came after four years of sustained upmarket, which has seen the general price level rise by 141 per cent.
So it would seem that the general investing public is a step slow in recognising a bull market, and tend to come into the game rather late.
I plotted the SES All Shares Index against the number of active CDP accounts between March 1998 and July 2007.
As can be seen from the chart, the number of active accounts does not rise as quickly as the market price level. For example, in the three years between January 2004 and December 2006, the stock market was on a one-way trek northwards. But, there was no significant increase in the number of active CDP accounts, up till January this year.
Meanwhile, activities do fall sharply, in tandem with the market when prices decline.
There is a saying that when almost everyone is in the market, that's the time to be worried.
But the fact is, with active accounts at 250,000, the percentage of population who has benefited from the 4-5 years of bull run that we've had can't be said to be significant.
Based on the latest government numbers, Singapore now has a population of 4.5 million. This is up half a million from 2000.
The rough estimate is that 75 per cent of the population is above 20 years old. This gives an adult population of 3.4 million. With 250,000 active accounts, it means that only 7.4 per cent of the adult population are active in the stock market.
And if we assume that an average of three adults are in a household, the percentage of households which have been active in the local stock market is only 22 per cent.
Over the long term, stocks provide more returns than cash or fixed income instruments.
With the end of the iron rice bowl era, and increasingly life expectancy, making sure that one has sufficient financial resources to tide through the rough patches and old age should rank as one's high priority in life.
And growing one's accumulated wealth through wise investments is one integral part of financial planning and everyone should take an interest in it.
Definitely more should be done to increase the general public's participation in stocks if the rate is only 20-odd per cent.
Of course, the figures do not include those who might park their money in unit trusts.
Still, in the US, the world's leading financial centre, half the households do not own any stocks, directly or indirectly.
There are many explanations for the low participation rate. One reason is the costs involved. The costs encompass trading costs and time and money spent keeping up with market developments and so on. Another reason quoted is that one does not know enough about the market to invest.
But empirically, wealth is by far the most signicant determinant of households' participation - lower income groups just do not have the excess cash to invest.
However, the recent market turbulence notwithstanding, for those who have savings, however small, taking an interest in growing one's money through wise and sound investments is an imperative in today's world.
The writer is a CFA charterholder. She can be reached at hooiling@sph.com.sg
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
By TEH HOOI LING
SENIOR CORRESPONDENT
BULL market is the time to accumulate cash.'
I was told this recently on two separate occasions in the space of a week by two investors who have shown their astuteness in the market over the years.
One was ex-remisier king Peter Lim, and another was a serial entrepreneur.
Said Mr Lim: 'A lot of people got it wrong. They borrow more and more during a bull market. This goes back to school, which tells us that in a bull market we must gear up in order to get a high return on equity. Of course, if it is a sustained bull market, one can make a lot of money.
'But it is usually hard to tell whether you're at the top, middle or just starting. It's only when it ends, then you know, oh, the end is here.
'Today's bull run can get cut short by a number of things. Just like our recent experience with Sars, or a bomb drops on the wrong person's head. A lot of this, like anything else, the least expected thing happened at the wrong time.'
Their advice could not have been more precient as the market globally was rather badly shaken in the last couple of weeks on concerns of the sub-prime housing loans market in the US and its impact on financial institutions globally.
In the Singapore market, between July 17 and Aug 2, about $60 billion worth of wealth was wiped out from the stock market.
And this came at a time when the number of new investors in the market is at a seven-year high.
For the month of July, just under 6,200 new Central Depository (CDP) accounts were opened. That's the highest since July 2000 when exactly 6,200 new accounts were registered, according to numbers from the Singapore Exchange.
Compared with the previous month, the jump was about 40 per cent, and compared with a year ago, it was a surge of 238.4 per cent.
With 250,000 active accounts, it means that only 7.4 per cent of the adult population are active in the stock market.
Meanwhile, the number of active CDP accounts - this is defined as those that have made at least one buy or sell transaction in the last three months - is at a 71/2-year high.
Some 250,000 accounts were active in the month of July. That's a 6 per cent increase from the month of June and a jump of 60 per cent from a year ago.
The previous high was in September 1999 when about 290,000 accounts were active.
However, the level of active accounts is still a far cry from the peak chalked up in June 1999, when a whopping 486,000 CDP accounts were active.
June 1999 was some nine months after the stock market made its remarkable recovery following the Asian financial crisis which lasted for nearly a year.
It was also after the market had recovered by some 130 per cent.
The number of active trading accounts broke through the 200,000 level only in January this year, after averaging below 160,000 between 2001 and 2005.
The increased interest in the stock market this year came after four years of sustained upmarket, which has seen the general price level rise by 141 per cent.
So it would seem that the general investing public is a step slow in recognising a bull market, and tend to come into the game rather late.
I plotted the SES All Shares Index against the number of active CDP accounts between March 1998 and July 2007.
As can be seen from the chart, the number of active accounts does not rise as quickly as the market price level. For example, in the three years between January 2004 and December 2006, the stock market was on a one-way trek northwards. But, there was no significant increase in the number of active CDP accounts, up till January this year.
Meanwhile, activities do fall sharply, in tandem with the market when prices decline.
There is a saying that when almost everyone is in the market, that's the time to be worried.
But the fact is, with active accounts at 250,000, the percentage of population who has benefited from the 4-5 years of bull run that we've had can't be said to be significant.
Based on the latest government numbers, Singapore now has a population of 4.5 million. This is up half a million from 2000.
The rough estimate is that 75 per cent of the population is above 20 years old. This gives an adult population of 3.4 million. With 250,000 active accounts, it means that only 7.4 per cent of the adult population are active in the stock market.
And if we assume that an average of three adults are in a household, the percentage of households which have been active in the local stock market is only 22 per cent.
Over the long term, stocks provide more returns than cash or fixed income instruments.
With the end of the iron rice bowl era, and increasingly life expectancy, making sure that one has sufficient financial resources to tide through the rough patches and old age should rank as one's high priority in life.
And growing one's accumulated wealth through wise investments is one integral part of financial planning and everyone should take an interest in it.
Definitely more should be done to increase the general public's participation in stocks if the rate is only 20-odd per cent.
Of course, the figures do not include those who might park their money in unit trusts.
Still, in the US, the world's leading financial centre, half the households do not own any stocks, directly or indirectly.
There are many explanations for the low participation rate. One reason is the costs involved. The costs encompass trading costs and time and money spent keeping up with market developments and so on. Another reason quoted is that one does not know enough about the market to invest.
But empirically, wealth is by far the most signicant determinant of households' participation - lower income groups just do not have the excess cash to invest.
However, the recent market turbulence notwithstanding, for those who have savings, however small, taking an interest in growing one's money through wise and sound investments is an imperative in today's world.
The writer is a CFA charterholder. She can be reached at hooiling@sph.com.sg
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
posted by mrmoon at 6:41 AM
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