A Fresh Start to 2018 for STI

Source: Phillip POEMS 2.0 Trading Platform (One-year weekly chart of the Straits Times Index, December 29, 2017)

With a brand-new year 2018, the Straits Times Index (STI) is sitting at quite a reasonable gain of 18 per cent year-to-date (YTD) as trading for 2017 closed last Friday. Most of the standout STI counters include the stock prices of DBS, OCBC, and UOB as the Singapore economy soared to an annualised growth of 3.5 per cent based on the latest New Year’s Day statement from the Prime Minister, Lee Hsien Loong.

As traders start revving their engines before the chequered flag is raised, what will the next 12 months look like for the various companies listed on SGX. It is a question that nobody knows until the actual race begins, so let us start the journey now.

STI has a good run up on first day of trading in 2018

Source: Phillip POEMS 2.0 Trading Platform (One-year daily chart of The Straits Times Index, January 02, 2018)

The Straits Times Index (STI) was off to a roaring start after a long New Year’s Day break on Monday. The index closed on the first day of trading in 2018 at 3,430.30, up 27.38 points intraday, or 0.8 per cent higher. Some of the active counters include small-cap companies like Allied Technologies, Activision Technology, and Rowsley. All three stocks saw total trading volume of about 70 million to 80 million shares traded.

Over at the STI where the crème de la crème crop of high quality stock counters are traded, some of the notable counters have nice increases in their stock prices including Keppel Corporation which fell as low as S$7.09 last week over the hefty US$422 million worth of fines levied on them for their lapse in preventing the corruption at their Brazilian operations, rose as much as 18 cents to close at S$7.53 per share on Tuesday, January 02. This was also more that the S$7.42 per share pre-corruption news two weeks ago.

Other counters that saw heavy buying include Singapore Press Holdings (SPH) and UOB where both counters rose 11 cents and 18 cents respectively to close at S$2.76 per share for the former and S$26.63 per share for the latter.

The total traded volume on Tuesday, January 02 came in at 1.49 billion shares worth S$924.5 million. The volume is higher than the 1.13 billion shares traded on the final trading day of 2017 (Friday, December 29, 2017), but  in terms of share value, Tuesday’s dollar traded volume lagged by a bit to Friday’s dollar traded volume of S$1.03 billion.

Given the level of buying activities, it appears that most traders are back online, though the advance estimates of Singapore’s Gross Domestic Product (GDP) growth did provide some impetus to share market activities. The Singapore economy grew by 3.1 per cent in 4Q2017 on a preliminary basis. This was higher than expectations of 2.6 per cent. For the whole of 2017, based on the New Year’s Day message by Prime Minister Lee Hsien Loong, and the advance estimates from the government, the economy grew by 3.5 per cent in 2017. This is more than double the initial forecasts.

Counters that displayed significant movements

Midas

Source: Phillip POEMS 2.0 Trading Platform (One-year daily chart of Midas Singapore stock price, January 03, 2018)

The stock price of Midas was again the main focus of the week when a SGX filing lodged on January 03, 2018 showing that there has been a movement of its issued share capital in the tune of 1.9 billion shares. The stock price spiked up by 43.24 per cent or 4.8 cents to close the day at S$0.159. There was also a huge trading volume turnover of about 459 million shares.

Moreover, there was also confirmation from management that it has been awarded 2.68 billion shares worth 2.68 billion yuan (S$547.9 million) of new contracts.

The stock has been in the focus for much of December 2017 when it fell to as low as 9 Singapore cents as there was a several bouts of selling following concerns over the awarding of new rail contracts by the Chinese government. However, the company later clarified that their contracts are not at risk for cancellation, and the stock price soon recovered.

Straits Times Index ended the week higher despite weakness on Friday

Source: Phillip POEMS 2.0 Trading Platform (One-year weekly chart of the Straits Times Index (STI), January 05, 2018)

The Straits Times Index (STI) ended Friday, January 06, 2018 trading at 3,489.45, down 11.71 points for the day. The index is up 2.54 per cent and on a year-to-date (YTD) basis. The index also briefly crossed the 2,500 level on Thursday driven by the three local bank stocks.

On Friday, the trading volume dropped to 1.97 billion shares as compared to the trading volume on Thursday which stood at close to 2.63 billion shares. It was also the day when STI crossed the 2,500 psychological mark. On the gain/(loss) ratio, the figure stood at 217/192 and total trading volume in Sing dollars term is S$1.13 billion on Friday, as compared to S$2.00 billion on Thursday.

Looking at the weekly STI chart in detail, we noted that the 21-day relative strength index (RSI) shot up to the ‘Overbought’ region of slightly over 70, and the momentum index did spike up a little. Phillip Securities has a price target of STI of 3,900 for the whole of 2018.

Hong Kong shares rose in tandem

Source: Stockcharts.com (One-year weekly chart of Hong Kong’s Hang Seng Index (HSI), January 05, 2018)

Hong Kong’s Hang Seng Index (HSI) achieved another new high as it made it highest debut in 2018, and went past the psychological 30,000 level mark to end Friday (January 05) trading at 30,814.64. This was a meaningful feat as it broke the 10-year record high, and the index was largely driven by real estate counters.

Hong Kong traders were also heartened by the generally robust economic figures out of China where the manufacturing and service purchasing managers’ indices rose higher and was firmly above 50 level mark in December. This was also followed by the latest gross domestic figure (GDP) numbers which showed China grew 6.8 per cent for the whole of 2018. This surpassed by government’s expectations of 6.5 per cent and it is a testament that economic growth is still alive in China despite inevitable long-term issues like ageing population, and pollution curbs, among others.

Looking specifically at the chart above, we noted that the 14-day RSI surpassed the 70 points ‘Overbought’ level for the first time in several months and the moving average convergence and divergence (MACD) chart below is also showing some optimism and possible continued rise in the index in the coming months.

European markets have an impressive start in 2018

Source: Stockcharts.com (One-year weekly chart of the pan-European Stoxx Euro 600 index, January 05, 2018)

The pan-European Stoxx Euro 600 index has a good start in 2018 as the index rose higher to hit 397.35 and is closing in at the 400 psychological level. The index was largely driven up higher by global economic events like the US job figures and gains in the Asia-Pacific region. Besides, there were also breakthroughs in the ‘Brexit’ talks with the United Kingdom since last year and a follow-up on the next round of negotiations will begin this month.

European investors are also bullish about recent economic numbers in the manufacturing and unemployment side which could prompt the European Central Bank (ECB) to start normalising interest rates this year.

However, other issues like the Catalan crisis in Spain prevail, but could be set aside in view of the common interests by all EU states, apart from UK to remain in unison on achieving a common monetary bloc.

US markets bull run is on an 9-year upside

With the passing of the US tax reforms last year, along with growing positive expectations of positive earnings growth numbers as the corporate reporting season approaches, all the major US stock indices achieved quite a roaring start in 2018 as shown by the following market closing figures for the first week of 2018.

Source: CNBC.com; and their ETFs (January 06, 2018)

The major US indices like the widely headlined Dow Jones Industrial Average (DJIA) Index surpassed the 25,000 level and is quite remarkable even though many have expected an ageing bull run going into the 9th year since 2009.

Friday’s closing market figures were also partially driven by the disappointing US payroll figures for December 2017 which came in at 148,000 jobs, compared to 192,000 jobs expected. The unemployment rate remains unchanged in 4.1 per cent. The weak December 2017 jobs figures was driven by a slowdown in retail hiring though one might think that major retailers would want to hire more workers to cope with the holiday shopping season. But, with the bankruptcy filing of Toys R’Us in US earlier in the year, and shift to online shopping. For the whole of 2017, the retail sector lost 66,500 jobs in 2018.

How did the S&P 500 index trend up in 2018

Source: Stockcharts.com (One-year weekly chart of the S&P 500 stock index chart, January 05, 2018)

The index closed on Friday at 2,743.15 and is another new high and could be on track to hit 2,800 at the next psychological level. Moreover, the 14-day RSI is still showing an ‘Overbought’ state, and the MACD index below highlights a continuing momentum.

How should investors react to such new highs in the major US stock markets

This is often one of the questions investors asked from their financial advisers. Should they sell now, or continue to hold. There is a magical answer to this, but what is important is what are your long-term strategies, and do you adopt a strategic and tactical asset allocation practices. Meaning, strategic asset allocation is more associated with the long-term investing, while tactical asset allocation is incorporated to take advantage of profit opportunities, and cutting losses if the losses exceeded a certain threshold say 10 percent downside.

However, if one thinks that fundamentals are intact, investors should not have any fears as the good financials will eventually speak for itself when the crisis is over. So, investors are advised not to be too greedy, and not to be too fearful. In an another potential ‘Goldilocks’ year, where inflation is subdued, and overall growth is still on an uptrend, investors do have plenty of opportunities to look for good quality stocks to hold. We should not rush into buying or selling unless any serious shifts happen.

How did our model investment portfolio perform

Note: Model equity portfolio performance as of January 05, 2018. For illustration purposes only, and information is not verified by third party. Past performance is not necessarily indicative of future performance. Please seek the advice of your qualified licensed financial adviser before any investments are undertaken.

Since the inception of the model equity portfolio at the end of November 2016, the latest portfolio return this week has shown a major outperformance of 86.2 per cent, inclusive of capital returns, dividends earned, and realised returns earned during the last rebalancing round on July 01, 2017. This compares to the total return of 20.1 per cent for the Straits Times Index (STI) during the same time period.

The top three holdings in total return terms (dividends plus capital gains) include Nordic  (up 48.7 per cent since end June 2017); followed by Ascendas Reit (up 19.1 per cent since November 2016), and SATS Ltd (up 13.3 per cent since December 2016).

The model equity portfolio did experience a shortfall coming from Sheng Siong (down 6.1 per cent since June 2017); followed by Straits Trading Company  (down 5.3 per cent since end June 2017), and Singtel (down 4.8 per cent since December 2016).

For now, we are not planning to make any changes or do any rebalancing for the portfolio. We shall actively monitor the model portfolio till end of March 2018.

Upcoming Financial Results in 2018

Source: KGI Securities

Upcoming Economic Data release

 Singapore

Source: TradingEconomics.com

One of the key economic figures to look out for is the retail sales numbers.

China

Source: TradingEconomics.com

Two key economic indicators out of China include December 2017 inflation figures, and the balance of trade figures.

United States

Some of the key US economic figures released for next week include the inflation rates which provide more information on how the Federal Reserve plan its interest rate hikes in 2018.

Another key data to look out for is the retail sales figures for December 2017 which will provide a good gauge for the state of the US holiday sales figures.

In summary, it is a good start to 2018 on the whole, but it is still early to make any concrete calls. We shall monitor as the weeks progress.

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About Peak Hour 87 Articles
Hock Meng has 12 years of financial industry experience, including three years working as a research associate for a hedge fund company in Wall Street, US, with assets under management (AUM) close to US$400 million during its peak in 2008. Hock Meng is a Chartered Alternative Investment Analyst (CAIA) holder and passed his Level I Chartered Financial Analyst examinations. Hock Meng is licensed to provide investment advisory services in the area of unit trusts, dividend portfolio construction, securities wrap services, and life insurance planning