Dennis Ng says Stock Market Rally likely ends in a Crash

[Dennis Ng]

I was the only person in Singapore to have the view that Singapore stock market will do very well in Rabbit Year but after the rally in stock market, it might be followed by a Global Stock Market Crash, possibly in end year 2011 or year 2012.

Now another Singaporean (based in Hong Kong) though, Prof Chan Yan Chong wrote on 11 Feb 2011, also asks will stock market rally be followed by a stock market Crash?


By Prof Chan Yan Chong


The Year of the Rabbit has finally arrived to the delight of investors, as the last two rabbit years have coincided with major Bull Runs. The start of a major Bull Run usually spells the bursting of the bubble and/or the start of a bear market.

The previous Year of the Rabbit took place in 1999-2000, which was the period that culminated in the bursting of the tech bubble. Before that, we had a major stock market rally in 1987-1988 but that was followed by Black Monday in October 1987.

Will this Year of the Rabbit repeat past euphoria followed by major crashes?

There is every reason for the stock market to rally in 2011 simply because the US government is adamant on pumping liquidity into the financial system with QE II and, possibly even more, QE II and QE IV. The Americans are not alone in trying to print more money to keep the economy going.

When the Americans print more money, these monies will flow to every part of the world including Asia. Singapore will also benefit from the influx of money into Asia hence the stock market and property market will benefit. To put it very loosely, the selling of US Dollars for the Singapore Dollar will lead to an increase in the Singapore Dollar’s supply hence Singapore is also printing more money. Everyone in the world is also printing money.

Take Europe for example, who tried to defend the Euro when the PIIGS came under attack from speculators on the sovereign debt fears. The defense of the Euro came about by printing more and more Euro.

China was the first to understand the impact of printing more money. In November 2008, Premier Wen printed Rmb4 trillion to drag China out of recession. The money, too, came from the printing machine.

Tough times require extreme measures, and this is the favourite phase of global leaders post-financial tsunami. All the leaders believe that the financial crisis was unprecedented hence needed extreme measures to pull the world out of the great recession. The way to get out of the trouble was to print more and more money.

However, President Obama was too optimistic in the Year of the Tiger and thought that it was time to exit from the stimulus measures by draining most of the money away from the financial system. Citigroup repaid the loans from the US government and the money was kept in the treasury. When AIA launched its IPO in Hong Kong, the funds raised from the exercise was returned to the US government because AIG, too, took a huge loan from the US government when it almost went bankrupt.

The repayment of loans to the US government during the first-half of last year also resulted in a lackluster stock market. Fortunately Ben Bernanke spotted the problem that the US could fall back into recession and immediately introduced QE II to inject money back into the financial system.

North Africa and even the Middle East could fall into chaos if pro-US regimes lose control of the situation. Should anti-US governments come into power, a war could break out just like it did many years ago when the Egyptian government order the closure of the Suez Canal that led to a huge increase in shipping costs because ships needed to make a huge detour via the Cape of Good Hope. We should be fearful of inflation but inflation is welcomed by the stock market because it will encourage spending.

The Americans are printing money so that it can induce inflation. When there is inflation, people will spend money and companies will make more money. This is good for the stock market.

Hop for the best 6 Feb 2011 Sunday Times

Dennis Ng was asked to share his views/comments on the Investment Outlook for the year of the Rabbit and what "attributes" of the Rabbit should Investor learn or adopt, when investing. This article is entitled "Hop for the Best" and published on 6 Feb 2011 in Sunday Times.

Year of the Rabbit holds promise for stock markets, but investors should still play it cautious By Lorna Tan, Senior Correspondent


Investors ushered in the Year of the Golden Rabbit last Thursday with much optimism.

According to the Chinese zodiac, 2011 is the Year of the Golden Rabbit.
Financial experts said that the past three rabbit years - 1975, 1987 and 1999 - were generally good years for stock markets, even though 1987 included an infamous crash.


In 1987, stocks also jumped, but crashed in October - on a date known as 'Black Monday' - unleashing a global stock market collapse. And way back in 1975, it was a year of heady gains as the global economy finally recovered from an oil price shock.

So it seems as if this rabbit year may be a year of excitement and surprises, with prices typically jumping and hopping instead of going sideways, said Mr Dennis Ng, founder of financial education portal www.MasterYourFinance. com


Learn from Rabbits by Staying alert and agile
Rabbits have an acute sense of hearing and smell. Mr Ng's tip to retail investors is to be constantly aware of the global economic situation, overall market sentiment and any news events that might have an impact on stock markets. They need to be constantly alert to what is happening in the market.

'Be ready to change your market position as the situation changes. For instance, if the market turns and overall market trend reverses from uptrend to downtrend, we must be ready to 'jump' out of the market and cut losses instead of just staying put and doing nothing,' he said.

For instance, he managed to jump out of the stock market in 2008 by selling most of his stocks, and avoided the stock market crash that followed later that year.

Still, there is a difference between being agile and jumping when you should, and being 'jumpy' and moving in and out of the market at the slightest noise or disturbance. The latter is not encouraged, because if you trade actively you are likely to make only small gains instead of letting your profits ride the trend.

Feb 6, 2011
Looking Ahead


• Mr Dennis Ng, founder of financial education portal, www.MasterYourFinance.com

'Expect the unexpected in the Year of the Rabbit, where both opportunities and dangers abound.

The stock market is the place to be this year because of hot money and the recovery of economies in general. China, which was the worst market last year, might surprise us on the upside this year. The Singapore stock market might hit a new record high and, in terms of valuations, is a better bet compared to other regional countries, such as the Philippines, Indonesia and Malaysia. Still, I believe that global stock markets might crash at the end of this year or next year because I'm doubtful that the recent round of quantitative easing will successfully help the US economy recover.