A Personal Finance and Investment Arm of The Business Times



By KGI Fraser Securities Pte. Ltd.


“From bear to bull market in 16 days: Oil hits highest level….”

(from a recent business headline)

In this instance, the reference was on Oil gaining 20% in a little more than 2 weeks! Far-fetched as it may seem, the header here is on the '16 days' just as much as the 20% move. In recent times, this range of movement is not unique to Oil. In fact, equities, indices, commodities and even forex have been exhibiting similar degrees of intensity.

Professional traders today have prepared themselves for a faster, wilder and more extreme market movement-more than ever before. The question for the humble retail investor though, is whether they are just as able to stomach the wild swings and the consequences to their P&L that could follow today's new market convention.

Why and how, have we come to accept such new paradigms where market cycles- between the bull and the bear- are now so much more condensed?

Primary Drivers for Change

There are two broad influences that may have caused this new dynamic. The first is due to the globalised nature of our world today, and secondly, because of the technological advancement of processes and systems both to the economy and financial markets.

The world, is a smaller place today more so than it has ever been before. Geographical trade boundaries that was once protected and defended, have been broken down over the years with lines blurred as countries collaborate and cross border business activities becoming busier more than ever. Businesses operating today are no longer dependent entirely on domestic stakeholders-be it from the input end (suppliers) nor on the user (customers/consumers) end of the commerce chain. In general, everyone is interdependent.

Pairing this change with the second influence-which is the advancement of technological processes and platforms-would condense business cycles as the flow of trade and commerce happens much quicker. Take manufacturing as an example, JIT or just -in-time production is a methodology aimed primarily at reducing flow times within production as well as response times from suppliers and to customers. This breakthrough production management process, once popular in the late 80's and 90's, is now trumped by newer production concepts like "lean manufacturing or lean production", which is a system even faster, less wasteful and more 'just-in-time'.

Global markets Intertwined

Breaking this down in stock market terms as an example; if Apple’s Taiwanese supply chain manufacturers were to step out of rhythm for just a beat, Apple may see a knock on impact on their share price. In other words, traders following Apple’s stock, must also have an eagle’s eye trained on electronic manufacturers half way around the globe, in Asia.

Market sentiment from overseas knows no boundaries. This could easily infect the mood of the local markets. Take recent examples like the Brexit referendum in the UK. This was a risk event that went bad (momentary, in hindsight) for the markets in the UK and Europe during late June. The local STI was similarly sold down hard over those 5-day period on fears over the concern of a wider breakup of Europe. Last year when the Chinese economy sneezed, the world caught a cold with worries of a slowdown in Chinese consumption. Stocks dependent on the Chinese consumer suffered huge haircuts.

This mutual affection has always been around, it’s just that with today’s technological advancement, coupled with a heightened sense of global interest by the general public, the pace of infection is often accelerated. With news travelling at the speed of light, informed traders in Singapore were just as ready to strike when the Brexit result became clear. Even despite the timing being off with local stock markets shut (Brexit vote results released in early hours of the morning here) there were still a variety of products that one could have traded on this news.

In this day when online media connects the world instantaneously to every ‘sound bite’ in the financial sphere, a man on the street is just as in-tuned as the best informed institutional investor. What’s more, this same retail client is similarly well positioned to take advantage of these stories-in- play, with modern day trading systems and mobile platforms made available to him or her.

Retail traders today have independent access to trade stocks across borders. They are also just as unrestricted to trade seamlessly across asset classes including Stocks, Indices, Futures, Commodities and Forex. Modern day technological platforms and business offerings bring such access to the retail client.

With this deep interrelationship of financial markets today, a trader solely focusing on one single asset class or one country’s brand of equities, will find themselves a rare breed in time to come. In fact, traders who are blinkered to the markets in other geographies or those who confine themselves only to a single asset class, very often find themselves struggling behind the curve.

Getting ready for this new model

In conclusion market cycles are now more compressed with wilder moves and more extreme volatility. So how should traders prepare themselves to face this new norm? One way is to get with the program! It begins firstly by understanding and accepting this new tradition and to embrace this volatility to seek opportunities within the swings.

Next, to get oriented to new trading skills and methodology like hedging techniques. Learn to use and adopt trading tools and features like automated risk management functions. Look for opportunities across the globe, beyond the asset classes you may think you are most familiar with; and always accepting that you can make money beyond your ‘perceived’ comfort zone too.

Finally, be open to learning new skills not just about products or markets. Instead take the first steps in getting to know the trader in you, and to understand the psychology that you are able to bring to your trading game.

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Gear Up For A Wilder Ride


About KGI Fraser Securities Pte. Ltd.
KGI Fraser Securities is part of the KGI Group, which has a strong presence in Taiwan, Hong Kong and Thailand. KGI Fraser complements the Group's offering by providing a broad range of products and services such as Stocks, Exchange Traded Funds, Real Estate Investment Trusts, Structured Warrants, American Depository Receipts, Contracts for Difference, Margin Financing, Custody Service and Corporate Finance.

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