A choppy week for Straits Times Index (STI)

With the earnings season approaching, investors are starting to feel jittery of what is ahead for last quarter’s earnings reports which will be released over the next few weeks by companies. Though there has been some positive light seen among the property counters, especially when the latest URA data last week showing a gradual upturn in home sales, there is a continuation of the negativities among several Oil and Gas (O&G) stocks, banks. Global Logistic Properties (GLP) was one of them when it fell as low as $2.70 at the market close on Monday (July 10) on concerns that the remaining two bidders might have cold feet in consummating the deal to acquire the entity.

STI started out the week on a down note

The STI started the new trading week on a weak note with many penny stocks taking the centre stage, especially a lithium mining firm called Alliance Minerals Assets (AMA) Limited. The S$144 million market cap firm is currently mired in a S$7 million writ of seizure lawsuit involving the chief executive officer, Mr. Tjandra Pramoko, and his business partner Mr. Johnathan Lim Keng Hock.

According to a recent The Edge Singapore interview with Lim, it was understood that Pramoko was to transfer 46.1 million shares to Lim and pay Lim an additional sum of $7 million in cash. The payment was made to settle a 50 per cent claim Lim made on an entity called Living Waters Mineral (Australia) (LWMA), which was used by Pramoko and his wife, Suen Sze Man, to hold their shares in AMA.

The stock fell as much as $0.28 or 13 per cent on Monday, but came back up to $0.30 per share before it was halted. At the time of this article, the stock remained halted pending further announcements, and was subsequently suspended a few days later due to a request for more time needed to review one of its mines in Australia.

Global Logistics Properties cratered over FT.com report, then got halted mid-week

Global Logistics Properties (GLP) was one of the main STI component stocks that has been actively traded and in the news since last November when one of its main shareholders, the Government Investment Corporation (GIC) of Singapore has urged management to undergo a strategic review of the company. The stock went as high as $2.90 and over per share when the news broke, but has been came back down on concerns that the privatisation deal might not be consummated.

The latest news that might have caused the GLP stock to tank is over a Financial Times (FT) article questioning whether the privatisation deal. According to FT, two bidders came to the table with their deal amounts, one of them is a consortium led by Warburg Pincus who submitted a non-binding bid, but may withdraw if concerns about the China operation cannot be allayed. The other bid is led by current CEO Ming Mei and a consortium comprising of Beijing’s Hopu Investment, Ping Ann Insurance, and Hillhouse Capital Management. The enterprise value proposed was said to be valued at US$15 billion. However, investors are starting to have negative thoughts on the deal as there were claims that the bidding process is flawed. There are also several private equity groups shunning the deal due to their concerns over CEO Ming Mei’s involvement.

Note: One-year daily chart of GLP stock price (July 12, 2017)

Looking at the one-year chart, we noted that GLP has a long red candlestick pointing downwards on the extreme right-end of the diagram, but overall, the trend is moving up.

However, there is a concern that the red candle stick could fall below the support levels and crash downwards, and far below the $2.72 levels. This is quite critical as we evaluate the viable entry points. We think that the chart should undergo a consolidation level before there is confirmation of entry.

Following the writing of this article, we noted that on Friday, July 14, GLP has narrowed its selection to the Chinese consortium led by current CEO, Ming Mei with a cash consideration of S$3.38 per share. The Chinese consortium includes CEO Ming Mei, Ping Ann Insurance, Hillhouse Capital Management, Hopu Investments, and others. Following the news, the stock closed on Friday at $3.29, up 21 per cent when it lifted the trading halt.

United Engineers finally got a potential buyout offer

After months of negotiations, United Engineers (UEL) got an offer from Perennial Real Estate Holdings and Yanlord Land Group. The agreement was to acquire a 33.5 per cent in UEL at S$2.60 per share. UEL founders, OCBC, Great Eastern and the bank’s founding Lee family. However, stock did not go up as expected, as it is still not finalised yet, pending the appointment of independent financial advisers (IFA) to review the offer

Note: One-year daily chart of United Engineers Limited (July 14 2017)

We also don’t think that a rival bidder might come in, as the owners led by OCBC has more or less narrowed the acquirer earlier. The momentum of the stock has also levelled as shown on the bottom chart. We think that if the stock price were to fall below S$2.60 per share, potential investors might want to evaluate the costs of benefits of entering the trade at possibly S$2.50. However, for existing shareholders, they might need to reconsider whether the price of S$2.60 per share is fair and reasonable, and should the price falls below the offer price, it will be the onus of the management to convince shareholders that they have taken into account all possible reasons for putting the price.

How did the Straits Times Index ended during the trading week

The Straits Times Index (STI) closed the week ending Friday, July 14, 2017 at 3,287.43, up 52 points, or 1.6 per cent. This takes the year-to-date performance to a positive 14.1 per cent. Overall, the historical price-earnings multiples of STI remained at around 14 to 15 times.

The total trading volume on Friday rose slightly to 2.7 billion shares traded as compared to 2.4 billion shares on Thursday. The total market value of transactions is S$1.8 billion, as compared S$1.1 billion on Thursday. The win/loss difference on Friday was 290 winners versus 164 losers. The top highlighted stock is Global Logistic Properties (GLP) whose shares rose 21 per cent to close at S$3.29 per share.

Note: One-year daily chart of Straits Times Index (STI) (July 14, 2017)

Looking at the STI chart above, we noted that there was a spike upwards shown by the long green bar. The spike has broken weeks of consolidation, but we think that it is still early to conclusively determine whether a trend has been formed. We think that there could be periods of volatility before the STI could find a firm footing.

We noted that the 14-day relative strength index (RSI) chart below is showing a sharp rise to the 60s reading. We think that should the RSI penetrate the 65 reading, and exceed the ‘Overbought’ reading of 70, the index could have an opportunity to rise higher, but could face some resistance at around 3.300. At such levels, we think that investors might consider to take some profits.

Hong Kong’s Hang Seng Index (HSI) just goes higher and higher

Note: One-year daily chart of Hong Kong Hang Seng Index (HSI) (July 14, 2017)

Looking at the above chart of Hang Seng Index (HSI), we noted that there is a technical breakout since the start of the week. The momentum of the index has also strengthened as shown in the chart. The 14-day RSI (not shown) has also shown an upward move, and is hovering around the ‘Overbought’ level of 70. The latest all-time high shown is 26,416.68, equivalent to the peak-to-trough gains of 14.9 per cent. The overall HSI index closed out the week at 26,389.23, up 0.2 per cent intraday, and 4.1 per cent for the week.

According to Reuters.com, the trading week in Hong Kong was mainly dominated by incoming capital inflows from Mainland Chinese investors. Moreover, the previous week’s correction was offset by optimism among many investors on the continued economic growth in China.

EuroStoxx 600 index rose after a protracted decline

Source: Stockcharts.com (One-year daily chart of EuroStoxx 600 index, July 14, 2017)

The regional-wide EuroStoxx 600 staged a major comeback with a technical breakout reading of 386.64, and trending upwards towards the 50-day moving average (MA) line of 388.75. The 14-day RSI is also trending upwards, albeit mildly with a reading of 53.36. At the 53.36 reading for RSI, the momentum is still relatively subdued.

In a latest Reuters article, it was reported that unnamed sources were quoted as saying that the European Central Bank (ECB) is keen to keep its asset purchases open-ended rather than to put a target date for an eventual discontinuation. The asset purchases programme was said to be an open-ended operation in order to retain the flexibility. The move, if confirmed, seeks to allay the concerns of investors who have made plans to handle potential huge volatilities, and keep asset prices stable.

The latest news is also expected to allay the concerns of investors who might be anticipating major disruptions to the financial market system. We think that this scenario is unlikely due to the strong financial controls put in place to suppress any major disruptions. However, this does not mean that the financial system is all fool proof as there could occasional market corrections along the way.

Major US stock indices ended the week on an another high note

Source: CNBC.com, Factset (5-minute charts of the Dow, S&P and Nasdaq for week ending July 14, 2017)

The major US stock indices ended the week on a high note, partially driven by robust corporate earnings season from the major financial institutions like Citigroup, JP Morgan, and Wells Fargo. The S&P 500 index climbed 0.6 per cent to close at 2,459.27, while the Dow Jones Index rose 84.65 points to end the week at 21,637.74. The Nasdaq index was a major outperformer with a climb of 0.6 per cent to close at 6,312.47. A summary of the market closing figures is as follows:

Source: CNBC.com

The Federal Reserve chairperson, Janet Yellen, whose first comments on the subdued inflation levels in her semi-annual monetary policy testimony to both houses of the Congress had initially sparked much of the investor enthusiasm this week.

Fed Chairperson Yellen noted in her testimonies that the central bank is concerned about low inflation and would change its policy path if it persists. This is a major deviation from previous Fed comments that the softening inflation is ‘transitory’, and likely due to temporary events like drops in wireless charges or low drug prices.

Yellen’s comments immediately sent US and major global equity indices up. However, the CME Fed Watch Tool does not seem to show much reaction with a96.9 per cent probability of a 100 to 125 basis points (bps) remaining unchanged for the upcoming  meeting on July 26.

Source: CME Group

The Fed also did not mention about their progress of reducing the US$4.5 trillion balance sheet by end of the year during the two-day testimony. We do think that it is still one of the objectives that the Fed has set and is unlikely to be wavered.

How did the model investment portfolio perform

Note: Our model investment portfolio returns (Prices are as of July 14, 2017)

In the above spreadsheet chart showing our model portfolio’s latest returns for the week which is up by 85.8 per cent since its inception at the end of November 2016. The comparable STI gave a total return of 13.2 per cent during the same period.

We noted that the top three best performing stocks in the portfolio since inception include Mapletree Logistics Trust (MLT) (up 18.2 per cent since the end of 2016), followed by Ascendas Reit (up 10.6 per cent), and Cogent Holdings whose stock gained 7.1 per cent since inception at the end of January 2017.

Looking at our worst performing stocks this week, the top three underperformers include Straits Trading Company which fell by 3.7 per cent  since its inclusion at the end of June 2017, followed by Sheng Shiong (down 0.5 per cent), and Sembcorp Industries (down 0.3 per cent since inclusion at the end of January 2017).

We are currently not putting any stocks on our watchlist this week, but will monitor some stocks as earnings season gets underway.

Upcoming market events

For local economic events, the only data that investors might want to keep a lookout is the non-oil domestic exports data which is expected to show a monthly decline of 2.1 per cent during June. However, on a yearly basis, growth is expected to rise by 4.1 percent. The full data is expected to be released on Monday, July 17.

A list of earnings reports for next week is shown in the diagram below:

Source: SGX

We noted that most of the Keppel Corporation’s affiliates will be reporting their respective earnings next week, and the interesting companies are some of the main STI component stock earnings including Keppel Corporation, CapitaLand Commercial Trust (CCT), and SATS. We do not expect any major surprises, but we hope that overall expected earnings growth of 9 to 10 per cent is kept intact, though there could be surprises along the way. Investors do need to keep a lookout, and we shall update all of you accordingly for any significant corporate developments.

Disclaimer: The views/analyses expressed by the author in this article are based on public information sources, and individual analyses. These views do not necessarily represent the views shared by my principal firm. Investors seeking to trade in the stocks mentioned in this article are advised to seek the opinions from licensed financial advisers.

This article is written by Tay Hock Meng (Peak Hour), a licensed financial advisory consultant, and trading representative. For a free financial health check/discussion, please contact taysg76@gmail.com, or +(65)9721 3987.

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About Peak Hour 87 Articles
I am in my mid-to-late 40s, married, and am thankful for my wife for all the things she has done. We do not plan to have kids, but are blessed with the simple lifestyle that we truly cherished with each other. I used to be from the financial services industry, having spent 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. I am currently working as a market analyst with a Singapore-based agrochemicals company. I have a deep interest in equities trading/research and analysis, data analytics, real estate, REITs, forex, and digital currencies. I don't consider myself as an avid writer, but I hope to learn as much possible. I am a Chartered Alternative Investment Analyst (CAIA) holder and passed his Level I Chartered Financial Analyst examinations. I hope to complete my CFA examinations within the next five years. I value all the feedback provided by fellow readers and bloggers. Please provide any feedback on the work I did. Thank you readers.