Markets Are Reeling, What Should We Do?

Ser Jing - How to No Longer Fear Falling Markets (pic)While getting my daily dose of news on a Saturday morning reading the Straits Times, I saw two articles placed on adjacent pages of the paper with very similar headlines. One read, ‘Effects from QE unwinding may not be even: Analysts’ while the other had the cautious-sounding title, “Asia may reel from US ‘taper’ effect”.

The gist of both articles was on the likely impacts that Asian stock markets would feel if and when the US Federal Reserve starts to quench its Quantitative Easing (QE) programme. And, both mentioned how Singapore’s markets were among the more vulnerable ones in Asia if the US Fed were to stop its US$85b monthly asset purchases.

Indeed, the past few weeks have seen the Straits Times Index (SGX: ^STI) drop sharply by more than 8% to 3,185 after peaking at a 52-week high of 3,465 on 22 May 2012. The decline has also wiped out all the gains and more since the start of the year, when the STI closed at 3,202 on 2 Jan 2013.

Yes, the STI might plunge yet further if the US eventually stops pumping more money into its system – that’s the generally accepted consensus outcome. But, like American billionaire investor Warren Buffett said, watching the US’s QE programme is like watching a good movie, “because I don’t know how it will end.” The true effects will likely be unknown until after the fact.

But, what we can see so far, is that despite the STI being a smidge lower now since the start of 2013, there have been businesses that have been turning in a better report card leading to share price increases.

Defensive businesses like Raffles Medical Group (SGX: R01), Super Group (SGX: S10) and Japan Foods Holding (SGX: 5OI) have all done well even when the STI’s now essentially flat from where it started the year.

Healthcare provider RMG’s shares are up 23% to $3.25 since the start of the year, on the back of a 14% year-on-year increase in trailing-12-month-earnings.

Instant beverage manufacturer Super Group’s shares had an even more impressive 40% jump to $4.58 in the same period, propped by a slew of double-digit percentage increases in profit for its past few quarters.

It was the same story for Japanese-ramen restaurant operator Japan Foods Holdings, whose shares have shot up by 45% to $0.58 after its recent full year results saw profits jump by 72% to S$6.4m.

The key message from observing the performance of these companies is this: The overall market can move up, down or sideways (and really, those are the only three things the stock market can do), but individual shares can move differently, tagging along with the fortunes of the businesses it represents over the long run.

Regardless of what the market’s doing, it pays to hunt for bargains among individual shares and that’s what we should be doing – especially when the markets are reeling.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing owns shares in Japan Foods Holding.