STI Index crashes

A program was written using R and data was drawn from Yahoo Finance that
stretches from 1987 to the present day. This program trawls through historical
data on the STI and records crashes based on the following definition :

 A crash results when markets retreat 30% from an earlier peak. This
earlier peak then becomes recorded as the beginning of a crash period.
 A recovery occurs when markets recovers at least 30% from a trough. The
earlier trough then gets recorded as a market bottom.

Going through the data, the output recorded by the program is as follows :

------
Crash from 1607.1
1990-03-27
to 1079.5
1990-10-11
------
Crash from 2493.7 <- Likely the Asian Currency Crises of 1997
1996-02-06
to 1073.5
1998-01-12
------
Crash from 1698.8
1998-03-19
to 805.04
1998-09-04
------
Crash from 2582.94 <- Dot Com Bubble in 2001
2000-01-03
to 1241.29
2001-09-21
------
Crash from 1808.41
2002-03-19
to 1213.82
2003-03-10
------
Crash from 3875.77 <- Great Financial Crisis of 2007
2007-10-11
to 1456.95
2009-03-09
Key Observations

There are two key observations from this exercise :

a) We’ve not had a crash for quite a while

Our experience with Singapore markets has been positive for far too long with
the last crash in 2007 so much so that quite a few market participants have not
experienced a crash within their investment lifetimes. There is still no threat of a
downturn as our P/E is quite low.

b) Expect a recovery in the STI within 2 years of a crash

None of the data shows that crashes persist beyond 2 years. In fact, a recovery of
30% is likely to occur from a market bottom at within 2 years of a crash
occuring. This means that folks who invest in Singapore equities should be
psychologically ready to withstand a 2 year downturn to profit frommarket
bottoms.

c) Leveraging the STI index is highly dangerous.

Leveraging the STI index without expliciting selecting a low volatility strategy is
highly dangerous as market dips over 30% occurs every 5-6 years. Blindly
leveraring the STI ETF is a disastrous strategy.

d) Stick to dividend plays if leverage must be used.

The STI index does not record dividends that are given out on a regular basis
whhc can be used to support a margin account.

So always stick to high-dividend yielding REITs with a low semivariance picks

and have a ready source of funds to support margin calls to survive a downturn.
If you are able to survive without a margin call in these difficult times, it is highly
likely that you will be rewarded with catching cheap counters when the market
bottoms out.