5 Stages of Stock Market Patient in Pandemic (心中有数)

stock market Singapore US Hong Kong China Europe Germany World Coronavirus

Global stock market so far has experienced 6 months of Covid-19 pandemic (Dec 2019 – May 2020), struggling between greed and fear, falling badly (20-40%) during initial fear of Coronavirus, then V-shape recovery (recover more than half of earlier correction) with support of unlimited QE or stimulus plans by global government, currently uncertain (gradual sideways stock movement) due to uncertain ending of global Coronavirus (especially for US) with worry of historical worst monthly economic data since Great Depression 1929 may become a norm beyond recovery.

There is a mismatch among stock market, world economy and Coronavirus conditions. Main reason is stock market is forward looking (usually a few months ahead of time), past or current news (eg. Coronavirus condition) or predictable outcome (eg. worst economic data during lockdown) has been considered in stock prices.

China is the first country to start and end Coronavirus, restarting economy gradually now, serving as leading indicator for the world (eg. Korea, Europe, US, Singapore, etc, which hope to restart economy as well). World is following similar footsteps of China for both Coronavirus cycle (start, peak to end / minimal), stock market cycle (down and up) and economy cycle (down and possibly up). Likely scenario for world economy and stock market would be 5-Stages models, similar to a patient:

stock market Singapore US Hong Kong China Europe Germany World Coronavirus

1) Early Symptom (Start of Coronavirus Pandemic), Dec 2019 – Jan 2020

During the initial phase of Coronavirus outbreak, the stock market was not fearful due to limited spreading to the world (mostly concentrated in China) and world economy is still not affected. So, the stock correction was limited, mainly within infected Asia countries in Dec 2019 – Jan 2020. US controls over 50% of stock value, was not affected in this period, even achieving high optimism in stock market in Jan 2020.

2) Heart Attack (Lockdown), Feb-Mar 2020

When Coronavirus was spread to Europe and US, which contributes greatly to world stock market, there was a crash (20-40% stock correction) in Feb – Mar 2020 for global stock market, mainly due to the fear with stock market at higher optimism before the pandemic was declared. The global stock crisis was complicated by crude oil price war between OPEC (Saudi) and non-OPEC (Russia), extending the fear from stock market to oil market.

Most of the countries in the world started to under lockdown to stop the spreading of Covid-19, the fear of people and business (not able to operate) is similar to a patient under heart attack without blood supply, falling down suddenly, not able to function at all. Global government have to do blood (cash) transfusion to save the patient (local economy), eg. supporting the salary of employees, giving loans to business in crisis sectors (transportation, F&B, consumer, etc).

3) Wake up from Coma (First light at the end of tunnel), Mar 2020

After experiencing the worst month and worst day (23 Mar 2020), global stock market started to recover, similar to a patient wake up from 1 month of coma, seeing hope in future. There was still no real proof of economy recovery (in fact, still bad) and Coronavirus was still severe but since there was no new fear factor (thanks to world news agency and social media for effort in spreading all possible bad news each day), stock market responded ahead of time with a reversal, hopeful of future, especially with support of local government.

No one is able to predict the future, but stock market prices could reflect the consensus of global stock investors after struggling between greed and fear.  However, the price trend was not smooth, especially for daily stock market which was still volatile.

4) Initial Recovery (Economy Support), Apr-May 2020

Despite Q1/2020 economy data is poor (predictable due to global lockdown for about 2 months for each country), the global stock market experienced V-shape recovery in Apr 2020, as there is clearer light at the end of tunnel, less daily new cases of Coronavirus infection in most countries (US and world are stable at peak cases, having high chance to improve in condition) and more government subsidies for business and individual with financial crisis.

The daily global stock market prices start to cross above 20 days moving averages, the first technical indicator to show at least technical rebound in share prices. This helps to motivate more global traders to start entering stock market again. The stock market (bullish for short term) is deviated from monthly economic data (bearish for short term, eg. GDP, PMI, unemployment rates, etc).  Eventually the gap between stock and economy would be narrower after clearer signals on Coronavirus condition, especially whether it may end in summer 2020.

5) Full Recovery / Economy Restart, Jun 2020 and beyond

When economy is restarted for each country (started for China and Korea, some EU countries, more countries in the world including Singapore will follow), due to low economic monthly data during lockdown period, there would be strong month-to-month relative rebound. Statistics could be an illusion as comparison is between 2 sets of data at 2 conditions (eg. before/after crisis, before/after economy restart, etc), therefore would generate a dramatic difference.

The key is whether a patient could fully recover to function normally. Similarly, whether global stock market could back to full strength again, depends on whether global Coronavirus may end or fade away in summer (hottest period, higher chance to end the pandemic). If yes, economy could be restarted smoothly, global investor confidence could be restored, injured business could recover in a few quarters, even airlines could start to fly again (lower capacity but able to survive on its own).

If not, Coronavirus may continue for another 1 more year until an effective vaccine is developed or more deadly strain may come back in next winter, then the world would need to struggle with slower economy recovery. when dragging over 1 year, world economy may end up similar to Great Depression 1929 as there is limited financial assistance could be given by local government. Although US has “unlimited” QE but this may be a time bomb for bigger future crisis with high national debt.

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There is no need to predict the future which is not predictable in nature. A long term investor could protect oneself with a strong portfolio of 10-20 giant stocks, ideally some could provide stable passive income with dividend to last through winter time and some are supported by growing business (eg. technology, healthcare, etc) which are not affected much by pandemic crisis.

For counter-trend investor, multiple entries strategies may be applied for capital allocation (eg. 10 x 10%, 5 x 20%, 3 x 33%, etc) to take advantage of each major correction in giant stock prices at low optimism due to market fear. A follow-trend trader could also benefit from stock crisis by following the stock market trend (eg. clearer reversal signal from bear to bull, trading timeframe based on personality), protected by S.E.T. (Stop Loss, Entry, Target Prices) plan with position sizing.  As for follow-trend investor, one may integrate giant stocks selection with timing to buy/sell aligned with trading (trend-following), to have the best of 2 worlds (fundamental and technical).

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Opportunity after Brexit to Invest in Li Ka-Shing Portfolio and other Blue Chips

Ein55 Newsletter No 032 - image - Brexit and Li Ka Shing

The Brexit crisis is a blessing in disguise, many people sell away their best stocks out of fear, creating a rare opportunity to buy blue chips at intermediate low prices. People worry about the status of London as global financial center, many bank stocks are affected. Share price of top UK Bank, Barclays, was falling by 30%, while global major banks such as JP Morgan and Citigroup, were corrected more than 10% in share prices.

Many global blue chip stocks with business in UK, become target for speculation.  The richest man in Asia, Li Ka-Shing, suffers the most.  The #1 stock in Hong Kong (Cheung Kong Hutchison Holdings, HKEX: 0001), is severely corrected is stock price, currently at $82, down by about 1/3 from its peak price of $122 (see chart below).  In the last stock market cycle, an investor could apply Optimism Strategy developed by Dr Tee to buy Cheung Kong at $35 (25% Optimism) in year 2009, selling at $105 (75% Optimism) with potential gain of 3 times.  Usually it is hard to wait for the giant stocks to fall down, Brexit has helped to correct the long-term Optimism to 46%, getting closer for an investor to consider again.  At the same time, mid-term Optimism of Cheung Kong is down to 0%, an attractive price for trading.

This is a rare opportunity for investor, share price correction is partly due to Brexit, economy slowdown in Hong Kong / China and major correction in Hang Seng Index (HSI). Optimism is a probability calculator, we could estimate the reward to risk ratio, we could safely consider a good stock if we could wait for the giant to fall down.  However, the short term trend is negative due to bearish global stock market sentiments, an investor could apply trading strategy to buy this stock when sentiment is positive again.

Ein55 Newsletter No 032 - image - Brexit and Li Ka Shing

When Optimism Strategies are combined with Fundamental Analysis (value investing & growth investing), Technical Analysis (support / resistance / trends), and Personal Analysis (mind control of greed and fear), it is very powerful when one is able to take the right action (Buy, Hold, Sell, Wait or Short) at the right time aligning with own personality.

The unique Optimism Strategy developed by Dr Tee provides a special advantage to know which investment (stock, forex, property, commodity, bond, etc) to buy safely, when to buy, when to sell, including option of long term holding.  So far over 10,000 audience have benefited from Dr Tee high quality free courses to the public.  Take action now to invest in your financial knowledge, starting your journey towards financial freedom.

Brexit has created new stock trading and investing opportunities globally.  At the same time, British Pound is severely corrected, one could apply Forex Optimism to maximize the gains in stock market.   The fear factor has supported the bullish gold price and gold related stocks (eg. gold miners), analysis with Commodity Optimism is needed.  Every crisis is an opportunity, provided one knows how to position.