A pedestrian speaks on a mobile phone as she walks in front of an electronic stock board outside a securities firm in Tokyo, Japan, on Tuesday, Dec. 25, 2018. The Nikkei 225 Stock Average plunged below the 20,000 level and entered bear market territory, as Japanese equities headed for their worst December on record. Picture: Shoko Takayasu/Bloomberg
A pedestrian speaks on a mobile phone as she walks in front of an electronic stock board outside a securities firm in Tokyo, Japan, on Tuesday, Dec. 25, 2018. The Nikkei 225 Stock Average plunged below the 20,000 level and entered bear market territory, as Japanese equities headed for their worst December on record. Picture: Shoko Takayasu/Bloomberg

As a turbulent December in equity markets draws to a close, there’s one thing traders and investors can agree on: these are not usual times, especially for this time of year. 

It’s “completely bizarre”, says Stephen Innes, head of trading for Asia Pacific at Oanda. “It’s incredible just how harmful markets veer when sentiment slides.”

Innes has been taking profit on some winning investments and snapping up blue-chip stocks whose valuations have dropped in the December sell-off, but for the most part he’s keeping his money on the sidelines. Like many other traders in Asia, he’s been watching events play out in the US from a distance, amazed at what he sees.

The S&P 500 Index posted its biggest upward reversal since 2010 on Thursday, a day after the gauge capped its largest advance since 2009. Despite the two-day gain, the measure is still down almost 10% in December alone. “I’m on the golf course,” Innes says about how he’s responding. “As I have been most of the week.”

Mark Matthews, head of Asia research at Bank Julius Baer & Co in Singapore, says two “golden rules” have been broken. First, since 1945, December has produced the highest average gains of any month, he says, but this month is set to be the worst of the year. Second, he says that since the 1970s, the S&P 500 has never slumped when earnings growth was more than 10%. But as a long-only investor, Matthews is planning to ride it out. “I remain invested through good times and bad,” he says. “Not being invested, over the long term, is like betting against the house in a casino.”

Over in Sydney, Sean Fenton is scratching his head. “It’s certainly unusual for this time of year,” the portfolio manager at Tribeca Investment Partners says of the market moves. “You see people take holidays and sort of shutting up shop, not surges in volatility.” Like Matthews, Fenton says he’s hunkering down, betting that the US economy is robust and the sell-off will bottom out.

For this time of year, he’s “probably a little more focused on the market”, he says, but that doesn’t mean he’s got reasons for the moves. “Trying to explain short-term movements in the markets is an exercise in futility because generally it’s pretty random,” he says.

In Tokyo, Hajime Sakai is just staying away from trading. The chief fund manager at Mito Securities admits the whole thing took him by surprise. “I can’t really say I’ve been dealing with it,” he says. “I wasn’t quite able to respond.” That’s partly because of the time lag between when he makes a trading decision and when the trade is executed, which is often a day or two later. In markets this choppy, that gap makes trading close to impossible. “We’re increasingly faced with situations where the price is completely different at the point of execution versus when we made the decision,” he says.

Hold cash

“We have never seen the US market dropping at this magnitude and speed for the past eight to nine years,” says Margaret Yang, a market analyst at CMC Markets in Singapore. Yang’s solution is to go overweight cash for the time being. She expects the volatility to continue until year-end, until investors get a clearer picture from the holiday earnings season.

But longer-term, she doesn’t know if this will prove a “healthy correction” as investors find the S&P 500’s low valuations attractive and earnings come in above expectations, or if it will mark the end of the 10-year bull run. Either way, one thing’s for certain: “The recent movement is definitely unusual,” she says.

In South Korea, Lee Dong-jun agrees. The head of the global investment team at DB Asset Management in Seoul has also been staying as clear of the market as possible this week, tending only to existing investments and keeping away from new trades. “This isn’t normal,” he says of the market turbulence. “Investor sentiment is very bad.”

And while “we don’t think this kind of huge volatility will persist”, he says, “our thinking is that it’s not a good idea to actively trade stocks in a market like this”.

Bloomberg