The Straits Times Index (STI) started out on a flat note with the index rising to 6.16 points to end Monday’s trading session (April 23) at 3,579.54. It has been quite a volatile month in April, amid trade war tensions, geopolitical confrontations, US congressional hearings on Facebook’s alleged breach of data, and earnings disappointments among some of the technology mavericks like IBM, and Apple.
STI still trying to push above all-time high
Looking at the above chart, we noted that the STI is currently still testing the all-time highs, but is facing a huge resistance to breach the 3,600 level. Although we noted from the chart that the 14-day relative strength index (RSI) is targeting to hit the upper boundary of the ‘Oversold’ territory of 70, we think that the euphoria phase is unlikely in the near-term until market conditions become more favourable to enter.
US 10-year Treasury yields burnishing the 3 per cent mark
One of the key risk factors among market participants is the unexpected spike in interest rates which might cause equity markets to gyrate and/or spiral downwards due to fear. This is what exactly happens in the US bond markets this past week when the US 10-year Treasury yields are seen hovering or flirting the 3 per cent mark, thus causing concerns and uncertainties among investors.
As noted on one-year daily chart depicting the US 10-year Treasury Yield curve, the long-end of the curve shown on the extreme right-hand corner appears to spike upwards. Correspondingly, the widely followed ‘fear’ index or the Volatility (VIX) index has also starting to retrace upwards as shown in the chart below:
Moreover, the VIX has also broken below the 50-day moving average (MA) line if 19.24 for quite a while due to complacency and is now starting to pick up pace. We have seen the prolonged low volatility in the past prior to the February 2018 spike towards the historic high of 50. The gyrations are expected to be the norm going forward, and we can probably kiss goodbye to low market volatilities going forward.
CBOE Equity Put/Call ratio heightened
As noted from the CBOE Equity Put/Call Ratio Chart, we noted that there is a gradual rise in the trading volume of puts which might suggest potential pessimism among investors over the state of the current financial markets. Throughout the past one year, we have seen the Put/Call ratio spiked above 0.90. Once in the second half of 2017, and another in February 2018 where volatility made its big comeback after staying in a lull for many years.
With the current situation of heighted uncertainties, geopolitical tensions, trade wars, earnings disappointments particularly those coming from the technology sector, it is natural for investors to seek the safety of safe haven assets, like Japanese Yen, US Treasuries, US Dollar, Swiss Francs or gold, which interestingly fell due to the recent strengthening of the US Dollar.
Gold as a safe haven asset, or perhaps not
As shown on the one-year daily price chart depicting the price of gold, there has been a relentless pace of sell downs for gold. From the high of US$1,370/ounce achieved in early April amid the geopolitical tensions, the price of gold fell to a low of US$1,317.98 as of April 26, 2018 as risk on trades continue, and investors divert their attention to the equity markets and other currency pairs like the USD/JPY, and the Dollar Index (DXY)
Dollar Index turn up for the better
Since mid-April 2018, after the Dollar Index (DXY) has corrected to a low 69.0, it started to roar back to close at 91.56 on April 26, 2018. This is a huge comeback considering the heavy sell downs we have seen for the US Dollar.
Moreover, as noted in the 14-day relative strength index (RSI) shown above the chart continues to climb higher towards the “Overbought” region of around 69. This could suggest that investors are starting to favour US Dollar despite the huge fiscal deficits the country is facing, investors continue to set their sights on the asset. One of the reasons for the previous sell downs has been the huge public debt incurred by the US government of close to US$20 over billion.
Local technology stocks got sold off
This past week, local technology counters like Venture, Hi-P, Memtech, and Valuetronics got sold down with large cap semiconductor giant, Taiwan Semiconductor announcing less than expected shipment numbers, along with earnings disappointments from Apple.
Among the various technology stalwarts, Venture was the leading counter that got sold off heavily as investors are concerned about last week’s missed shipment numbers to Japan by one of its customers, Phillip Morris International (PM). Most analysts dismissed the disappointment noting that PM forms a mere 10 per cent of global total sales by Venture, but as a diversified player in various fronts, most brokerages took down their 12-month price targets, while maintaining the ‘Buy’ rating.
Looking at the above chart, the STI component counter’s price fell from a peak of S$29.65 to end Friday’s market close at S$21.40. The counter has broken below several technical support levels and is slightly below the 200-day moving average (MA) level of S$20.00.
Moreover, the stock is currently in the ‘Oversold’ territory of 22.36 as of Friday’s close. We think that as diversified technology player in various segments, including medical technology (Medtech) industry, the company should not have many issues being reliant on one product category.
Hi-P is also another casualty of Apple’s overnight price drop
Hi-P being one of the major component suppliers for Apple’s products suffered the brunt of the overall sell-off in the technology sector this week. Two Wall Street analysts came out with negative research reports describing potential earnings disappointments prior to Apple’s earnings announcement in early May. One of the analysts cited channel checks showed supply cutbacks in China. That sent Apple’s stock plunging to lows of US$165 as shown in the following chart, and the stock’s RSI fell close to the ‘Oversold’ territory.
Valuetronics sell down. Is this merely a knee jerk reaction?
The sell off of Valuetronics stock came swiftly on Friday following two research reports from CGS-CIMB and Maybank Kim Eng, cited news about one of its major customers, a Dutch MNC, recently reported weak sales at its home lighting division, mainly in the US. However, the Dutch MNC reassured the investing public that the positive structural trend for smart home lighting remains intact, and they continue to innovate through product design.
Despite the shortfall in lighting sales, the Dutch MNC reassured that the positive structural trend for smart home lighting remains intact. Moreover, the MNC expects sales to normalise in second half of 2018 to attain their full-year target of double-digit growth, as they intensify marketing design and diversify distribution coverage.
Moreover, both brokerage houses noted that Valuetronics possess core strengths in the development of the so-called “Internet of Things” technology products, and automotive electronics.
The company has also come out in response to SGX query, and citing those two research reports that investors are free to form their judgements based on the reports.
How did the local markets perform by the close of the week
The Straits Times Index (STI) closed Friday’s trading session at 3,527.31, up 7.19 points, or 0.2 per cent higher. This brings the year-to-date performance to 5.12 per cent which is commendable given the huge volatility we have seen in February. For the week, the index is up 0.1 per cent.
Some of the factors which brought the market up on Friday include favourable earnings announcements from Facebook, and Amazon. Moreover, the local manufacturing outlook remains intact, and the Monetary Authority of Singapore (MAS) said in its biannual Macroeconomic Review that the local economy is expected to remain on its expansion path for 2018, despite downside risks brought on by trade tensions between US and China. It also noted while the global technology expansion is projected to remain firm, it is expected to continue at a more restrained pace as the global economic cycle matures.
Looking at the index, the STI is already reaching its upper boundaries of the current highs, but is still short of the one-year high of 3,611.69. The 14-day RSI is also climbing higher at 58.96 on Friday. We think that there is some momentum pushing up the index higher, but as it tries to break the 3,600-resistance line, global, as opposed to local driven market news would likely play a major driver in the push towards the higher boundaries.
US markets ended flat as tech stocks failed to ignite
Over in the US with so days of ups and downs, the index managed to break out of its doldrums mid-week with favourable earnings news from Facebook and Amazon, but those gains came to a halt as the week progresses with most of the major US stock indices ending flat to slightly down.
The following is a summary of the key market indices:
S&P 500 index inching out some gains to close higher at 2,669.91, and is seen gradually rising based on the following chart:
However, those gains are getting narrower with earnings season still at its halfway mark. Though we are off from the lows experienced in February, the volatility is not expected to go away anytime sooner. According to CNBC.com, of the S&P 500 companies that have reported quarterly results, 79.4 per cent have topped analyst expectations. Though the first quarter GDP report showed a 2.3 per cent, investors are not exactly driven by the good news to go buy stocks, but instead are watching and treading the markets cautiously.
Going forward, with May on the horizon, and the summer months are around the corner, we believe the volatility of the markets is expected to increase further. The low trading volumes, coupled with any geopolitical tensions intensifying and the impending rate hikes in the next few months are expected to keep many investors awake.
How did our model investment portfolio perform
Since the inception of the model equity portfolio at the end of November 2016, the latest portfolio returns this week have shown a major outperformance of 85.74 per cent, inclusive of capital returns, dividends earned, and realised returns earned during the last rebalancing round on December 31, 2017. This compares to the total return of 23.13 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 42.1 per cent since end June 2017); followed by Ascendas Reit (up 12.8 per cent since November 2016), and SATS Ltd (up 13.7 per cent since December 2016).
The model equity portfolio did experience a shortfall coming from Singtel (down 7.7 per cent since December 2016); followed by Straits Trading (down 9.8 per cent since end June 2017).
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 June 2018.
Upcoming Earnings News next week
Economic Events to note over the week
One of the key highlights of the week is the release of the manufacturing Purchasing Managers’ Index (PMI) for month of April where investors are likely to keep a close watch whether the overall manufacturing momentum that has driven up the local economy for the past year is expected to sustain longer.
Investors are likely to keep a close watch at the manufacturing indices for any continued upturn or stability following the return of US-China trade tensions.
Some of key economic data to be released in US include personal spending figures, manufacturing numbers, employment numbers and the outcome of the US Federal Reserve meetings.
For Friday’s job numbers, economists are expected the creation of 195,000 payroll numbers, and the unemployment rate to decline a bit to 4.1 per cent.
Note: You would like Tay Hock Meng to contact you for such marketing, advertising and promotional purposes via the voice call, SMS, and Fax, overriding any DNC registration.
You understand that you are entitled to withdraw your consent for the collection, use and disclosure of your personal data at any point in time by notifying us at 62644711 or email us at email@example.com.
The information contained in the sharesinvestcoach.com website under ‘Peak Hour’ is provided to you for general information/circulation only and is not intended to nor will it create/induce the creation of any binding legal relations. The information or opinions provided do not constitute investment advice, a recommendation, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person or group of persons acting on this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise.