What to do when stocks look expensive

In this issue:

• Picking dark horses in a bull market
• Bitcoin at US$100,000 as Trump aims for ‘crypto capital of the planet’ 

Good morning, BT readers. 

The stock market is booming, and you’re not the only one feeling nervous about where it’s headed. Singapore-based Tesla bull Leo KoGuan thinks that a reckoning is coming. 

“1929 type stock market crash is looming,” the billionaire, who is one of Tesla’s largest individual shareholders, said in a post on X late last month. While he remains a Tesla shareholder over the long term, he’s paring his position and buying three-month Treasury Bills, he said. 

But for every Leo KoGuan, there are scores of investors and experts who see opportunity in 2025, high prices or not. 

What’s happening?

Last week, all three major US indices hit record highs as investors looked for excuses to drive up the market. The Straits Times Index (STI) also hit a 17-year zenith and flirted with an all-time high, powered by bullishness on local banks, Yangzijiang Shipbuilding’s robust contract wins and Hongkong Land’s potential sale of its property developer arm.

If you have money burning a hole in your pocket, hold off on buying your second or even third property. Instead, look at shares of listed property equities, argues BT’s Leslie Yee. You get similar exposure to real estate, without the phone call from your tenant every time the toilet is clogged. 

Property developer City Developments, for example, is trading at a discount of 48 per cent to its end-June net asset value per share as at Dec 2, Yee points out. If it’s yield you’re after, these other property groups – Bukit Sembawang Estates, GuocoLand and UOL Group – provide dividend yields that are better than what you’re likely to get on a private home. 

Both City Developments and UOL Group were also highlighted for their “undemanding” valuations in a DBS Group Research report last week, alongside Thai Beverage and Singtel. All four stocks have a “buy” rating with the research outfit. 

If you haven’t gotten in on any of the Magnificent Seven US megacap stocks, don’t despair even if the basket of stocks has advanced 60 per cent this year. 

Wait for a correction and buy in then, financial valuation expert Aswath Damodaran told Bloomberg Television last week.

“As a value investor, I have never seen cash machines as lucrative as these companies are,” said Damodaran. “And I don’t see the cash machine slowing down.” 

Price volatility is practically a given, seeing how all seven of the stocks – Tesla, Meta Platforms, Microsoft, Alphabet, Amazon.com, Apple and Nvidia – regularly court controversy or scrutiny.

Why it matters

Animal spirits are a-sizzle out there, tariffs and baffling martial law moves be damned. 

Asia, in particular, is heating up. In China, 6.85 million trading accounts were opened in its mainland A-share market in October alone. In comparison, monthly account openings for the first nine months of 2024 only averaged 1.5 million. 

The reason for this bullishness is hard to parse. However, some clues might lie in the rise of online wagering sites this year. Platforms like Polymarket and Kalshi have exploded in popularity, rapidly becoming the most downloaded free apps on the Apple App Store. These apps let you bet on anything from whom US President Joe Biden will pardon next to whether Taylor Swift will have a new album out this year. 

For many, what else is the stock market if not another way to make a bet? In 2021, veteran investor Warren Buffett observed that the Robinhood stock trading app had become “a very significant part of the casino aspect” of the stock market. 

Buffett hadn’t meant it as a compliment but, for better or worse, this gamified stock market-casino is headed our way, with Robinhood Markets setting up its regional headquarters in Singapore next year as part of its expansion in Asia. The online brokerage played a key role in enabling the US retail investor-driven everything-rally in 2021. 

But if you’d like to fortify your animal spirits with some statistics, consider Ken Fisher’s take that the markets – from London to New York to Singapore – aren’t necessarily overbought. There is no need to be nervous about this year’s stock boom because robust gains aren’t as historically abnormal as they might appear, the founder of Fisher Investments wrote in BT last week. 

The big number: US$100,000

Bitcoin is getting friends in high places. Under the incoming Trump administration, cryptocurrency booster Paul Atkins will chair the Securities and Exchange Commission (SEC), the regulatory agency that has long been the albatross around the crypto industry’s neck. His appointment also makes President-elect Donald Trump’s goal of making the US the “crypto capital of the planet” more likely.

News of Atkins’ nomination propelled Bitcoin past the fabled US$100,000 mark late last week. Of course, by the time you read this, the cryptocurrency might have doubled to US$200,000, or be worth absolutely nothing, or might have been renamed ElonDogeCoinTotheMoon – anything is possible in this timeline. 

As you’re battling both vertigo and the urge to jump into the fray, Bitcoin maximalists are staying bullish. Venture capitalist Tim Draper predicted last month that the cryptocurrency will reach US$120,000 by year-end, citing its superiority over fiat currency. If Trump’s promise of a national Bitcoin reserve materialises, the cryptocurrency could hit US$250,000 in 2025, Draper believes. 

Analysts from research firm Bernstein had a slightly more modest target of US$200,000 for Bitcoin by end-2025, but their view was no less unequivocal: “Welcome to the crypto bull market – Buy everything you can,” they said in a report last month. A lot of Bernstein’s bullishness had hinged on Bitcoin having allies in government, which has started to materialise. 

If you’re struggling to justify the macroeconomics of this price surge, just throw up your hands now. A Financial Times columnist best summed up how to make sense of the crypto madness last month: “This rally is about two powerful forces: vibes and vision.”

But if vibes aren’t enough, there’s always the halving to consider. This is when the number of new Bitcoins created is reduced about every four years, maintaining the coin’s scarcity. The latest halving happened in April, and Bitcoin’s price tends to rise in the year following such an event. 

According to stats cited by blockchain data platform Chainalysis, the price of Bitcoin held by long-term investors grew about 73 per cent after the first halving in 2012. “Long-term” here is defined as more than three years.

A word to the wise: before you plough your entire net worth into crypto, beware the Inverse Cramer effect. Late last month, the TV personality and stock-picker Jim Cramer encouraged investors to pick up some crypto assets, much to the dismay of everyone who thinks he’s jinxed it now. 

(Disclosure: I own cryptocurrency as well as shares in Singtel and the Magnificent Seven.)

5 big reads

• Time to revamp and relaunch the STI? Banks and property already account for about 68 per cent of the index, leaving little room for the other sectors.
• Bankers can expect a bumper bonus after standout year Hopefully, it won’t be an obscene sum.
• Hot stock: OKH Global surges 38.9% after proposed acquisition of Chip Eng Seng Construction The company says the deal could help to revitalise the business.
• RHB says Suntec Reit unitholders should reject S$1.16 offer, sees positives for the Reit The offer price is a 44 per cent discount to the Reit’s NAV, says the research house.
• Praemia REIM is said to consider Singapore healthcare Reit IPO The hospital assets included in the Reit may be worth US$2 billion to US$3 billion.