Some thoughts on the coming election 3 comments

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Some random thoughts on the coming general elections.

There is no doubt in my mind that the general election is coming soon, probably a matter of weeks before snap polls are declared. The Budget has been announced, the Parliament debate is near its end and the papers are commencing their coverage of the candidates on both sides (including some MPs who have disappeared into obscurity since the last election).

Surely the ground is sweet. The market and the economy has enjoyed a three-year boom and the jobs are back, and --- as Bill Clinton says, it's the economy, stupid --- Singaporeans are likely to go overwhelmingly for the incumbents who are seen to have made all this possible. Look at the opposition with its ageing leaders and one wonders where the challenge is going to come from.

And yet.... I remember the 1990s when Singapore was compared to a company Singapore Incorporated, and to me this analogy today is still quite appropriate, given the prominent role government institutions and affliated companies play in both Singapore's domestic and external economy (despite current attempts to encourage entrepreneurship). To extend this analogy a little further, what the last few years has taught us is the need for checks and balances in companies -- ie. independent counterparts to the executive management. As Prof. Sebastian Chong (you can check out his website Shareowl.com)pointed out in his book Value Investing: A Provocative Guide, the ideal operational scenario for independent directors to exercise their power is when the owner and the management are separate ie. the latter are professional management appointed by the former. Under this model, the independent directors will not feel beholden to the management who appointed them; their responsibility is towards the company substantial shareholders/owners. That, to me, is why the idea of NMPs has never really been convincing to many people as an alternative check-and-balance system.

Turning tangentially to another point, I have always wondered why there should be an "election year stock market rally". Is it due to the thinking that the government will tend to hand out freebies and goodies in such a year such that people have more to spend and hence stimulate domestic consumption? That is giving too little credit to the voters who are increasingly sophisticated and know what democracy is all about. Or is it due to the thinking that the economic growth figures and projections will be presented in a highly optimistic light to promote the "feel-good" factor among the general population? That is giving too little credit to the government who should know better than to massage/distort the figures instead of reporting it as it is --- after all, the man-in-the-street judges the state of the economy by his own well-being, rather than what is reported in the papers. To me, fundamentally, the stocks to benefit most from an election year must be the media companies who will have a field day reporting the proceedings and selling the content. The rest is due to market psychology --- and one must not underestimate that, for if sufficient people believe there will be an election bull, then there will be.

What I intend to do after the elections is to snap up any bargains that might transpire on a "sell after election" market reaction.