Disclaimer

This is to inform that by clicking on the hyperlink, you will be leaving sc.com/sg and entering a website operated by other parties.

Such links are only provided on our website for the convenience of the Client and Standard Chartered Bank does not control or endorse such websites, and is not responsible for their contents.

The use of such website is also subject to the terms of use and other terms and guidelines, if any, contained within each such website. In the event that any of the terms contained herein conflict with the terms of use or other terms and guidelines contained within any such website, then the terms of use and other terms and guidelines for such website shall prevail.

Thank you for visiting www.sc.com/sg


Proceed

How would you like to apply?

I am NOT an existing Standard Chartered Current/Checking/Savings Account holder

*SingPass holders with a MyInfo profile can use MyInfo to automatically fill up the form. By clicking “Next”, you will be re-directed to the MyInfo portal, which is not owned or controlled by Standard Chartered Bank (Singapore) Limited or any member of the Standard Chartered Group (the “Bank”). The Bank bears no liability or responsibility over your usage of the MyInfo portal.

*Please note that MyInfo is temporarily unavailable at the stipulated downtimes:

Mon, Tues, Thurs, Fri, Sat:  5:00AM to 5:30AM. Wed: 2:00AM to 6:00AM. Sun: 2:00AM to 8:30AM

I am an existing Standard Chartered Current/Checking/Savings Account holder

    How would you like to apply?

    I am NOT an existing Standard Chartered Current/Checking/Savings Account holder

    *SingPass holders with a MyInfo profile can use MyInfo to automatically fill up the form. By clicking “Next”, you will be re-directed to the MyInfo portal, which is not owned or controlled by Standard Chartered Bank (Singapore) Limited or any member of the Standard Chartered Group (the “Bank”). The Bank bears no liability or responsibility over your usage of the MyInfo portal.

    *Please note that MyInfo is temporarily unavailable at the stipulated downtimes:

    Mon, Tues, Thurs, Fri, Sat:  5:00AM to 5:30AM. Wed: 2:00AM to 6:00AM. Sun: 2:00AM to 8:30AM

    I am an existing Standard Chartered Current/Checking/Savings Account holder

      City, Metropolis, Urban

      Priced for perfection?

      From the CIO Office

      In financial markets, there is an inherent tug-of-war between themes/stories and valuations. We are seeing one play out in the equity markets right before our eyes, in the semiconductor industry. This reminds me of my formative investment years of the late 1990s. While we should not blindly follow historical examples, this comparison is something for investors to bear in mind when it comes to making financial decisions and sizing investment positions.

      Let me start with a caveat. I am not a stock picker. It is incredibly difficult to consistently pick stocks that outperform. This is borne out by the difficulty fund managers have in outperforming their benchmarks over the long term, especially in the more developed, liquid and efficient markets. Therefore, this article is meant to be more thought-provoking rather than implying an outlook for the stocks mentioned.

      In the late 1990s, the internet was the craze. Truly incredible things were happening. Adding ‘.com’ to the name of your company could lead to a significant revaluation of your stock prices, seemingly disregarding any changes to your business model. Indeed, a privately-owned company I worked for at that time did exactly that, sparking speculation internally that the owners were looking to sell the company.

      There were, of course, companies that actually did have strong internet-focused business models and a very strong competitive advantage. One such company was Cisco Systems, a company that built networks upon which the internet was based. Unsurprisingly, given the hype and its positioning, the stock performed extraordinarily well. At its peak in March 2000, Cisco traded almost seven times the price of just two years earlier.

      Cisco System’s share price soared in the late 1990s during the internet bubble

      Chart, Plot

      Source: Bloomberg, Standard Chartered

      Thereafter, the stock price took a significant downturn, falling 83% in the next three years. The impact was not just short-term. From its peak on the 27 March 2000, it took until September 2021 for the stock to deliver positive returns, even assuming that the investor reinvested any dividends distributed. Today, the stock is trading almost exactly at its 2000 peak.

      Was the stock’s performance a reflection of the company’s fortunes? To some degree yes. Earnings continued to grow into Q1  2001, but then fell into negative territory for the next year. However, by the end of 2002, trailing 12 months earnings hit a new record high and never really looked back. Since then, earnings have grown more than fivefold at a compound annual growth rate of 9-10%.

      After a blip, Cisco’s earnings grew strongly over the next 2 decades

      Chart, Plot, Line Chart

      Source: Bloomberg, Standard Chartered

      The challenge was not the company’s long-term outlook or doubts about the future of the internet, but the fervour with which investors extrapolated that outlook. In Q1  2000, the stock’s price-to-earnings ratio was over 250 times.

      Fast forward to today and there is a risk we are about to see history repeat itself in another technology company. Before the latest earnings release, Nvidia’s price-to-earnings ratio, based on trailing earnings was over 220 times. This is not quite the nosebleed levels that we saw from Cisco (265x), but it is not too far away. Of course, Nvidia earnings blasted above market expectations for the latest quarter and the consensus expects them to grow strongly into the future. Indeed, assuming forecasts for earnings to triple in 2024 prove correct, the price-earnings ratio would be a ‘mere’ 45x.

      Of course, what this does mean is a lot of the forecast growth is in the price already. It is, of course, possible the stock continues on a tear as the company outperforms market expectations. Valuations are rarely a useful predictive indicator for short term market performance. However, it does suggest that investors should be aware of the risks of a semi-permanent loss in value if they invest at current prices. If the company only doubles its earnings next year, let alone they decline, then the sell-off could be dramatic. Remember, Cisco as a company has performed very well over the past two decades, but 20 years is a long time for an investor to wait to get their money back.

      So how should an investor operate in this environment? It is always critical to right-size any investment, but the narrower the investment, the more important this becomes.

      We view investing through two lenses: foundation and opportunistic. I would place single stock holdings, especially stocks with the likelihood of significant volatility, in the opportunistic bucket. Investors should ask themselves, how they would feel if the stock went down, 20%, 50% or even 80% and then recovered only after decades. What would their brain tell them to do? If the answer is: ‘sell’ (which is more likely), then a limited exposure to the stock would make sense. It should not be viewed as part of a foundational portfolio, but more as something on the opportunistic fringes, with the allocation accounting for a small fraction of the investor’s overall diversified portfolio.

      Disclaimer

      This article is for general information only and it does not constitute an offer, recommendation or solicitation of an offer to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This article has not been prepared for any particular person or class of persons and does not constitute and should not be construed as investment advice or an investment recommendation. It has been prepared without regard to the specific investment objectives, financial situation or particular needs of any person or class of persons. You should seek advice from a licensed or an exempt financial adviser on the suitability of a product for you, taking into account these factors before making a commitment to purchase any product or invest in an investment. In the event that you choose not to seek advice from a licensed or an exempt financial adviser, you should carefully consider whether the product or service described herein is suitable for you.
      You are fully responsible for your investment decision, including whether the investment is suitable for you. The products/services involved are not principal-protected and you may lose all or part of your original investment amount. Standard Chartered Bank (Singapore) Limited will not accept any responsibility or liability of any kind, with respect to the accuracy or completeness of information in this article.

      Deposit Insurance Scheme

      Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$75,000 in aggregate per depositor per Scheme member by law. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.

      The information stated in this article is accurate as at the date of publication.