SINGAPORE, Jan 3 — Perhaps it is just a coincidence. Then again, it may have something to do with the ox being a domesticated bull that has lost its vigour.
Whatever the case, the bulls tended to stay away from the stock markets whenever the very year dedicated to their kind appeared once every 12 years. It happened in 1973, 1985 and 1997. And now, with economies around the world still grappling with the fallout from the annus horribilis that was 2008, the coming Year of the Ox may prove to be as depressing for the stock markets as the last three Ox years.
Here’s a quick look at the mayhem that visited stock markets the last three occasions the Ox showed up.
Back in 1973 — the year when the Stock Exchange of Singapore (SES) was established — equity markets worldwide crashed following the collapse of the Bretton Woods system over the previous two years.
Losses were exacerbated after the Organisation of Petroleum Exporting Countries imposed an oil embargo in October 1973 in response to the American decision to supply the Israeli military during the Yom Kippur War. As oil prices surged, stock prices continued to slide and it wasn’t until a year later in late 1974, before they began to mount a recovery.
Twelve years later, the Year of the Ox in 1985 saw trading on the SES suspended for three days in an unprecedented move — in the words of exchange chairman Ong Tjin An — “to cool off the market and for the public to digest news” that Pan-Electric Industries had fallen into receivership. The S$230-million (RM830 million) Singapore-based conglomerate had collapsed because a complex web of forward contracts involving its shares could not be unwound.
The Pan-El debacle hurt Singapore’s reputation as a financial centre and also led to prominent Malaysian politician Tan Koon Swan being jailed here for abetting criminal breach of trust.
When the Pan-El crisis hit, the Straits Times Index (STI) was already deep in a downward spiral of a bear market that dated back more than two years to May 1983.
In July 1997, Thailand — saddled by a heavy burden of foreign debt — dropped the baht’s peg against the US dollar, triggering a financial crisis that carved a wide swathe of destruction in regional markets.
Thailand, Indonesia and South Korea were worst hit, with Indonesian President Suharto forced to step down in the following year amid widespread riots sparked off by the devaluation of the rupiah. In Singapore, the STI nosedived from about 2,050 in January 1997 to about 850 points in September 1998.
So the last three Ox years were dreadful for stock markets.
CRISIS OF THE ECONOMIC SYSTEM
Back to the present, where there is no end to the stream of “gloom and doom” headlines emerging every day. The World Bank has warned that a deep global recession could not be ruled out this year.
Forecasting a significant decline in global economic growth in 2009 for both developed and emerging economies, it noted that “following the insolvency of a large number of banks and financial institutions ... capital flows to developing countries have dried up and huge amounts of market capitalisation have evaporated”.
In an interview with CNBC TV, renowned economist Mohamed El-Erian, the co-chief executive of Pacific Investment Management Co, said: “2008 was the year of the crisis of the financial system. 2009, unfortunately, will be the crisis of the economic system. So the news is going to be full of unemployment, defaults, etc.”
At home, Prime Minister Lee Hsien Loong has warned that Singapore’s economy — already in a recession — will likely continue to weaken. “We must therefore prepare for a difficult year ahead, and especially the first half of 2009,” Lee said in his New Year’s message.
“Our economy will probably contract further. More companies will be forced to downsize. So far, we have not seen many job losses, but I expect more retrenchments in the next few months,” he warned. The Government’s focus is on jobs — “keeping people in jobs, helping workers who lose jobs find new ones, and retraining them with new skills. To do this, we have to help businesses ride over this rough period”, he added.
“The outlook is highly uncertain. At each stage of this crisis, events have turned out worse than the experts predicted ... Quite likely the global recession will be followed not by a quick rebound, but by several more years of slow growth,” he said.
The unwinding of the excesses of past years through large-scale deleveraging and fund redemptions have led to massive global asset price deflation over the last year.
The United States government has responded to the weakening economy with unprecedented levels of stimulus and bailouts. The US Federal Reserve has also effectively made money free by lowering the target interest rate to between zero and 0.25 per cent, while Fed chairman Ben Bernanke has asserted that US authorities will print as much money as is needed to keep the economy afloat.
Likewise, Asian nations are embarking on large-scale spending measures. Japan — Asia’s largest economy — has unveiled since last August stimulus plans worth ¥16.7 trillion (RM640 billion); China, the region’s second largest economy, in November announced a 4-trillion-yuan (RM2 trillion) economic stimulus package, while neighbouring Malaysia will spend RM7 billion on public projects to spur growth. Singapore’s Budget is scheduled for Jan 22.
“Governments everywhere have been implementing monetary and fiscal measures, rescuing troubled financial institutions and key corporations and pumping money into the economy,” Lee said.
“But no one is sure how the financial systems and economies will respond, or which policies will work. There is a loss of business and consumer confidence and, hence, one thing is certain: Things cannot turn around overnight,” he added.
Indeed, one would have to be experiencing Panglossian disorder — a tendency to have an extremely optimistic view regardless of circumstances — to think that we can just snap out of the world’s worst financial crisis since the Great Depression, without any pain. The STI lost 49 per cent last year, while the Dow shed 34 per cent.
As we kick off 2009, the question — given that stock markets are forward-looking — is whether all the negative news has been factored into current price levels. Are 1,473 in the STI and 7,449 in the Dow the troughs of the current bear market or will there be new lows?
We don’t know. What we do know is that we won’t be betting against history. — TODAY
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