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Is Singapore property under attack of the bear market?

Recently, talks are high on whether we are entering a bear market in face of rising inflation and global plummeting of stocks. This article is an expose on everything you need to know about a bear market to work it from your vantage point as an investor and homebuyer. Without further adieu, let’s dig in!

What is a bear market?

A bear market is a term you often come by when you are buying stocks. When stock values drop below 20% from a recent high, you are said to enter a bear market. 

Some bear markets are short-lived. They arise due to sudden shock in the economy. For example, when the Covid-19 outbreak occurred in early 2020, all markets experienced a temporary bear market when they were reeling from the shock.

But then some bear market effects are much longer. When the stock market crashes, it starts a snowball effect, pulling down other investments as well. The housing market follows suit, dropping property values significantly.

How do you understand when you are in a bear market and how seriously to take it?

Look for global bear indicators

Singapore is a global hub for trade and businesses. Any major global events would affect Singapore either sooner or later. For example, the country has to deal with the oil price shock arising from the Russia-Ukraine war. It experienced an escalating inflation rate as the inflation in the US went sky high.

Similarly, for a bear market, investors and homebuyers should look at how the US market and global businesses are doing and here are the highlights.

As of 21 May 2022, NASDAQ has gone down by 59.99%.

The stock price plunged from its recent high, 16,057.44 to 11,354.62.

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As of 21 May 2022, S&P 500 index has gone down by 30.45%.

The stock price plunged from its recent high, 4,766.18 to 3901.36.

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As of 21 May 2022, Dow Jone Industrial Average (DJI) has gone down by 20.06%.

The stock price plunged from its recent high, 36,338.30 to 31,261.90.

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Stocks close to home have also plunged considerably

Alibaba, the tech giant in China has plunged by 72%. Their stocks went down from $309.92 to $86.79 in less than 2 years. Together, with the surging Covid-19 cases in China, the stocks of the nation have already entered the bear market.

Alibaba shares
Price Earnings Ratio of Tech Stocks dipped

Here is a snap of other tech giant companies whose stocks have plummeted. Mega tech stocks like Facebook’s P/E ratio had an average P/E ratio of 25 during the pre-Covid time which has now come down to 14. Though this is an opportunity for investors to buy these shares cheap, it is also a sign that people are fearing the arrival of a bear market. So they are selling their shares before the share price plunged too low. As a result of fear and oversold shares, the P/E ratio of top tech companies reduced to a concerning rate.

PE ratio of tech giant stocks

How is Singapore affected by the global slide in stocks?

You may think the US stocks falling is in the west and far away from home. But Singapore is heavily invested in international trade. Singapore’s stock has already fallen by 10%. If stocks of giant companies continue plummeting, the bear will find its way to Singapore. 

Is Singapore property under the attack of the bear market?

The global stocks have entered a bear market followed by Singapore’s stock value drop. Some experts say the Singapore property market correlates to stock price. If the stock market continues to fall, how will it reflect our property market? Will the Singapore stock market follow the global bear market?

If patterns are observed, we know that the inflation since the start of 2022 has been haywire due to multiple global events, namely the Russia-Ukraine war which led to oil shocks and China’s sudden surge in Covid-19 leading to supply chain disruption.

In March 2022, the US inflation rate jumped to an alarming 8.5%. Following suit, Singapore’s inflation rate climbed to 5.4%, a record high since 2012. When the inflation rates increase, consumer products and services become more expensive. People have to spend more to buy items. They could buy fewer items for the same amount of money.

Hence, people’s purchasing power decreases. They do not have enough cash to use for investment. And since the stock markets keep dipping, those who are invested in stocks are running even lower in cash as their stock value drops. So, people might decide to hibernate with the money, not wanting to spend further on stocks, causing less demand for stocks which further pulls the stocks down.

On top of it, the US is considering increasing interest rates to combat the rapidly increasing inflation. If this happens, then the effect of the US’ higher interest rate will affect the globe. Singapore’s interest rate will follow suit and its interest rate will also spike. If that happens, it will be a higher commitment for homebuyers as they will have to pay higher instalments on their home loan.

But with the higher interest rate, rental yield is supposed to increase too. If it does, then homeowners can compensate for the higher loan commitment with the higher rental. But if the rental yield does not reflect the higher interest rate, homeowners’ rental income will reduce.

First, take note that Singapore properties have NOT yet entered the bear market. BUT global stocks plunging, tech giants stocks experiencing record lows and Singapore stocks already following suit are red flags. Combined with Singapore’s rising inflation and expected interest hike, are we in the eye of a perfect storm?

What will happen if the bear crashes the gate of Singapore?

How do current international and china markets translate to the Singapore market?

How will it affect Singapore’s real estate?

What should property investors and homebuyers look out for?