Adamant: Hardest metal
Thursday, April 3, 2003

SECOND THOUGHTS: Who cares about the markets now?

Bangkok Post Nikhil B. Srinivasan

Regular readers of this column will note that I have not written about the markets for a few weeks. It should not be too surprising. What's the point? The war _ fed to us non-stop by ``embedded'' journalists _ dominates all trading activity.

It makes predicting expectations and price movements based on anything else virtually impossible. Macro fund managers (the only people making money in markets in the past few months) I know in London and the US all had very light portfolios going into the conflict. And for good reason.

Before the war began, you may recall that everyone had a view. Analysts and fund managers, in Thailand and elsewhere, all had their sound bites to provide. It will be short war'', markets will rally when it starts''.

It was not worth jumping on the bandwagon for a simple reason _ I did not know. I did not feel I possessed any particular edge or knowledge about a situation that was difficult to understand and make a call on. Even US Defence Secretary Donald Rumsfeld _ who knows more than any of us _ has perhaps been wrong-footed.

And as for market rallies, as noted before in this column, when everyone feels the same way about something, it is probably not a bad idea to go the other way. Despite all the talk about war and the market rallying, the SET has not risen since the war began. As I write, it is at 361 _ where it was the day hostilities started.

The war and now the Sars outbreak do help to put things in perspective. First, we live in uncertain political times. The war in Iraq will likely be won soon and with that, oil will drift lower and people may perhaps feel relieved. But there is an equally likely chance the tensions in the Middle East will continue to simmer remaining a distraction for the world. As for the price of oil, whatever happens in the Middle East, problems in Nigeria and Venezuela will mean prices are not going to simply collapse to levels of a year ago.

As for Sars and its impact, it is hard to underestimate the sort of visceral panic that the outbreak is creating. There is no doubt that this is a serious situation compounded by the fact that reaction and preventive measures were slow in coming. Tourism is suffering.

The impact on the markets borders on the irrational, as some would say. Or is it perhaps the most rational behaviour to expect from markets digesting so much simultaneously.

I can tell you this: when it comes to investing in stocks, fundamentals become even more meaningless in such times. I have been harping on this for a while (the fact that uncertain economic situations mean typical methods of stock analysis are not very useful) _ the war and Sars just amplify that point.

It's no use saying a stock is cheap and worth buying _ it just gets cheaper the next day on no particular news. Moreover, earnings numbers for companies become harder to estimate as there are changes in the macro-economic situation _ and if one cannot quickly react to macro changes, the micro picture is not worth looking at. To illustrate: you cannot properly value a stock on an earnings basis if the company itself cannot give you any visibility on its earnings beyond the next, say, six months.

In Thailand, we had good economic data in what was a decent first quarter. The economy can continue to grow at the pace of last year. But for the markets to move out of their current trading range to the upside, two things are required: 1) a return to a more reasonable global environment; 2) some policy move directly affecting the market (e.g. a major privatisation) or a new, large and successful private-sector IPO.

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