Global markets still shuddering over tariff scares

With the implementation of the steel, and aluminium tariffs, along with the potential breakthrough in the US-North Korean diplomatic relations, global markets appear to take some strides in overcoming the many negativities that might inhibit the upward trajectory of the major global market indices.

However, with the increasing frequency of staff changes among the White House staff, the markets have once again fell victim to volatilities, and cautiousness towards making one-sided bets on the markets.

Resumption of uptrend despite shortfall in February

Source: Stockfacts.com (One-year daily chart of the MSCI World Index, March 12, 2018)

Taking a look at the MSCI World Index, we noted that the global markets took a big dive downwards in early February 2018, and the index hit its low at just under 2,000 before resuming its upward trend.

However, the week of selling in early February brought back many bargain hunters, and markets hit higher, but it was abruptly met with the implementation of those metal tariffs. As we speak, we are now witnessing the indecisiveness of the markets as pre-Depression era policies start to return to haunt the minds of investors.

For the local markets, attention is mostly centred on the small counters with names like Creative Technologies, Alliance Minerals, and COSCO Shipping standing out among the crowds as the biggest volume gainers. Even, relatively mixed trading volume counter on any given day such as Boustead Singapore, and Boustead Projects got queries by SGX asking for more information surrounding their trading volumes. Apparently, managements of both counters replied saying that one of its former deputy chairman, and substantial shareholder, Saiman Ernawan sold off his entire stake of the company between March 09 and March 12 at some 76 Singapore cents per share.

COSCO Shipping resumes trading at its highs

After a successful post-merger of Cogent Holdings Limited, the stock of COSCO Shipping is gaining some traction lately and rising as much as 15 per cent intraday on Wednesday, March 14. This is on the back of lower freight rates (makes transportation costs relatively cheaper) and rising international trade flows.

Source: Phillip Securities POEMS 2.0 Trading Platform (One-year daily chart of the Straits Times Index (March 15, 2018)

If one can notice from the one-year daily chart, there appears to have a sharp spike seen on the extreme right end of the chart. Apparently, volume for the counter also surged to S$0.515. The 20-, 50-, and 100-day moving averages (MAs) are also showing uptrends in their respective movements.

Moreover, the 14-day relative strength index (RSI) is also showing signs of ‘Overbought’ conditions at around 70 levels. There appears to be an overexuberance in the stock price.

Key freight benchmark continues to deteriorate

Source: Stockcharts.com (One-year daily chart of the Baltic Dry Index (BDI), March 14, 2018)

Looking at the one-year daily benchmark Baltic Dry Index (BDI) as shown, we noted that there appears to be ‘Dead Cross’ shown when the 50-day MA cuts below the 200-day MA. We think that this can be death knell to freight rates going forward as there is still an overcapacity of ships and a mismatch in demand. Moreover, with the recent implementation of the metal tariffs by the US President, there is a possibility that freight rates are expected to fall further.  Although the reduction will benefit the merchants who might need to transport their goods across the oceans, but it might hit hard on shippers as shipping rates will be impacted on the downside.

Alliance Minerals stock got hit briefly, but managed to rise

Alliance Minerals is one resource-oriented stock that appeared to ride on the craze over the gradual widespread use of autonomous and electric vehicles (EVs). The company itself currently has one lithium mine located in the Bald Hill region in Western Australia. The company has also been signing off-take contracts with two prominent customers, namely Tawana and Burwill Resources.

However, this week, on Tuesday, March 13, the company decided to let go the husband-and-wife board members comprising of Mr. Tjandra Adi Pramoko, and his wife Simone Suen Sze Man. In a SGX statement, the company cited it has “lost confidence” in the abilities of both persons in continuing their duties. However, the company added that the termination is “not due to any fraud or misconduct on (their) part.”

Source: Phillip Securities POEMS 2.0 Trading Platform (One-year daily chart of Alliance Minerals stock, March 15 2018)

We noted that based on the one-year daily chart, the stock went through a brief downtrend last year when Mr. Pramoko was himself embroiled in a legal suit with a fellow shareholder who claimed that Mr. Pramoko has not fulfil his obligations on certain company stocks that he pledged to the shareholder. This results to a forced sale of the Alliance Minerals stock as the dispute went to Singapore’s High Courts for deliberations.

However, the so-called ‘He say, she say’ controversy did not spill over onto the basic fundamentals of the company as the mining operations continue to make progress, including the goal of making its first delivery of lithium to customers sometime by April 2018.

In a series of management presentations to the investor community, Mr. Pramoko expressed confidence that the off-take contracts with Burwill and Tawana Resources are still gathering on track, and the company continue to maintain good relationships with both companies.

How did the local markets perform at the end of the week

Source: Phillip Securities POEMS 2.0 Trading Platform (One-year daily chart of the Straits Times Index (STI), March 16, 2018)

The Straits Times Index (STI) closed Friday’s trading session at 3,512.14, down 5.59 points, or 0.16 per cent lower on continuing fears over possible US trade wars being intensified and  the firing of key staff members in the US White House like former Secretary of State Rex Tillerson.

The drop on Friday took some wind off the continuing run in sentiments, and the year-to-date returns came up to be 3.21 per cent. On a weekly basis, the index rose by 0.76 per cent. Though the returns year-to-date is not exactly spectacular if we were to compare the year-end returns of 18 per cent for the STI. However, it is a far cry from the negative returns in early February where global markets fell, and volatility spiked up.

What key market event investors should look out for next week

Next week on March 21, 2018, all eyes on the US Federal Reserve interest rate announcement which is one of the most critical moments investors will be eyeing on. It is also the maiden appearance in the committee by the incumbent new chairperson Jerome Powell.

According to the Federal Funds Futures prices published by the CME Group, the probability of a 150 to 175 basis points (bps) rise in the federal funds rate is currently priced at a 94.4 per cent probability. The figure is highlighted in pink colour along the row that denotes “3/21/2018” as shown in the chart below:

Source: CME Group (March 16, 2018)

The next chart shows in bar chart form the meeting probabilities. As one might notice, there is a 94.4 per cent probability that the current target rate set after the March 21 meeting is priced with a probability of 94.4 per cent.

Source: CME Group (March 16, 2018)

Hong Kong Markets taking some hits abroad

Despite the continuation of the Chinese leadership under President Xi Jiping whose party cadres overwhelmingly voted an amendment of the constitution that will see President Xi serving beyond the Year 2023, investors were much focused on international events, namely the implementation of the metal tariffs and the growing revolving door of key White House staff members who were forced out of office.

HK stocks are no fallen angels yet

Source: Stockcharts.com (One-year weekly chart of The Hang Seng Index (HSI), March 16, 2018)

Despite the 39.13 points decline in the HIS on Friday, the index managed to stay on an uptrend to close at 31,501.97. The index has also managed to climb out from its lows of 29,000 level and is now trying to retrace to its previous highs. Moreover, the 14-day relative strength index (RSI) is still at the mid-level and has not shown any signs of skewing on any extreme ends yet.

How do we make out of the Hong Kong market ahead

Looking at the chart, and barring any significant circumstances, we think that the overall market trend is still rising. Looking at the chart, we do acknowledge that there will be occasional drops in the index. However, if fundamentals of the market are sound, any volatilities should not impact the index movements too much.

European markets trading flat to up

Source: Stockcharts.com (One-year weekly chart of the Stoxx Euro 600 index, March 17, 2018)

The pan-European stock index, Stoxx Euro 600 index ended Friday’s (March 16, 2018) trading session at 377.71, up 0.22 per cent, but still below the 50-day moving average (MA) line of 385.40. However, if we were to compare the current levels against two weeks ago where there were a relatively long red candle showing the index at its extreme lows, the current showing is slowly recovering.

Friday’s trading session in Europe was largely driven by oil, and mergers and acquisition (M&A) news. Oil prices rose sharply during the week but is within the range of US$60 – US$70 for Brent Crude oil prices. Moreover, the 14-day RSI is showing relatively flat around 52 level.

Source: Stockcharts.com (One-year daily chart of Brent Crude Oil prices, March 17, 2018)

Are there any other events to look for European markets

One of the key economic indicators is the rate of inflation as the European Central Bank (ECB) uses core inflation rates, excluding food and energy, to figure out their interest rate policy setting directions. According to CNBC.com, it was noted that Euro Zone consumer prices grew less than expected in February. The latest February 2018 reading showed a 0.2 per cent month-on-month (MoM) rise and a 1.1 per cent rise yearly.

Source: TradingEconomics.com. Eurostat

US markets ended the week in negative territory

Most of the US market indices ended a on positive note on Friday, March 17 as the so-called ‘quadruple twitching’ (expiration of options) trading session gets underway. However, on a weekly basis, most of the major US market indices ended in the red. Here is the roundup summary of the US markets on Friday:

Source: CNBC.com (March 16, 2018)

The S&P 500 stock index closed Friday’s trading session at 2,752.01, but lost 1.2 per cent for the week, as traders weighed down on potential trade retaliations coming from the European Union (EU), the mass resignations of key White House staff like former Secretary of State, Rex Tillerson, and next week’s US Federal Reserve interest rate announcement.

Source: Stockcharts.com (One-year weekly chart of the S&P 500 index, March 17, 2018)

Looking at the weekly chart of the S&P 500 stock index, we noted that the index is trading at higher highs (HH), and higher lows (HL) despite the sharp correction in February. The stock  index has not seen any major corrections in the double-digit figures and is still on track to break new highs.

If we were to examine the 14-day RSI, the momentum is still relatively stable at around 57 to 58. The February runoff has managed to bring down the feverish pace of rise in the index to a milder move.

How should investors plan ahead with so much volatilities

We think that no amount of preparation can really minimise the depth of volatilities seen in February. As investors, we need to take responsibility in our investment decisions and not put any blame to the markets. It is like saying the dog ate my ‘homework’.

Investors should be prudent, and do due diligence on the counters he/she plans to invest. There is not gambling as real money is involved. If there is a need to attend courses, I urge investors to go for it. You must first of all understand what you are doing before committing.

How did our model investment portfolio perform

Note: Model equity portfolio performance as of March 16, 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 85.61 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 19.98 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 51.3 per cent since end June 2017); followed by Ascendas Reit (up 13.2 per cent since November 2016), and SATS Ltd (up 8.9 per cent since December 2016).

The model equity portfolio did experience a shortfall coming from Straits Trading Company (down 8.2 per cent since June 2017); followed by Singtel  (down 7.7 per cent since end December 2016), and Sheng Siong (4.5 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 March 2018.

Upcoming Earnings News next week

No major earnings announcement next week

Major economy reports to look out for next week

Singapore

Source: TradingEconomics.com

A key economic data release with one month to go before Singapore’s de factor central bank, the Monetary Authority of Singapore (MAS) will make its interest rate decision in April. The forecast for whole of 2018 for the core inflation rate using the Consumer Price Index (CPI) is 1.5 – 1.9 per cent, while for CPI-All Items Inflation is 1.0 – 1.4 per cent.

China

Source: TradingEconomics.com

United States

Apart from the key interest rate decision announcement by the US Federal Reserve, other key data on the tap include Existing Home Sales, and New Home Sales data. Other key information includes the Durable Goods Order.

Meanwhile, have a good trading week

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About Peak Hour 86 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