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27 January 2015
An optimist would probably view Keppel Corp’s surprise buyout offer for Keppel Land (KepLand) as indicating a healthy market for corporate activity and, given the generous 25 per cent premium over the one-month volume-weighted average, a huge boon for KepLand’s shareholders. Moreover, the deal has created spillover interest in other property counters, thus helping to keep interest in stocks alive in a market beset by many overseas worries such as a shock Swiss franc appreciation, political turmoil in Greece, a slowing China and persistently weak oil prices.
A pessimist on the other hand, might first point out that according to the Singapore Exchange (SGX) website, there were 33 new entrants last year. As at Friday, these companies had a combined market capitalisation of S$14.6 billion versus KepLand’s current S$7 billion, which means that if KepLand is eventually delisted as planned, the local market will lose almost half the market capitalisation it added from 33 new entrants for the whole of 2014.
Second, the pessimist might also highlight the fact that quite regularly, property companies jump into play from the revival of the by-now familiar privatisation theme but this usually does not last for long, interest fizzling out after a few days.
Third, a market that consistently undervalues stocks thus leading to regular privatisation exercises shouldn’t be classified as healthy and fourth, in the absence of competing bids as is the case with KepLand, it isn’t readily obvious if the offer price really is as attractive as what some observers believe.
An optimist might switch tack and counter that with the new 100-share board lots, high-priced stocks such as Jardine Matheson and the banks have now become more affordable to retail investors and that because 2014 saw a 12 per cent increase in new Central Depository accounts, retail confidence, participation and potential are considerable.
The pessimist’s reply would be that new account openings may be an indicator of interest but are not necessarily an indicator of actual trading, and that anecdotal evidence from dealers in the week since the 100-share lot was introduced was that many of the daily trades in 100 shares - if not the majority - were being done by foreign houses, that is institutions, and not retail players.
If so, then the pessimist’s claim is that all the new board lot has accomplished so far is to enable institutions to shift prices on lower volume and thus lower costs than before.
The optimist might argue that even if this is the case, a volume increase is still a volume increase and this should therefore be seen as a good thing; they could then point to Monday’s 2015-high S$1.48 billion turnover as offering hope that the market is turning a corner and that the year-long period during which liquidity was depressed may soon be over.
The pessimist’s reply would be that the volume jump came mainly from significantly increased trading in Keppel Corp and KepLand whose combined trades accounted for 27 or S$408 million of the dollar total and that once the dust has settled, it’s likely that dollar business will fall back to the more familiar S$1 billion daily average.
It’s possible to go on - the optimist, for example, could say that the Straits Times Index’s 6.2 per cent rise last year suggests the market performed well in difficult circumstances whilst the pessimist’s counter would be that the index isn’t properly representative of a broad market which has actually lagged far behind - but the point is that each individual’s perception of reality is dependent on one’s own, probably selfish, point of view.
The truth is that it is difficult to say with absolute certainty whether the market’s glass is truly half empty or half full. Perhaps what is more important is that efforts are made to ensure that what has gone and will go into the glass is of sufficient quality to attract all investors, and that the glass is set up in such a way that no set of investors is favoured over another.