The Straits Times Index (STI) is trading on the flat to upward trend this week following previous weeks of rhetoric between US President Donald Trump and North Korean President, Kim Jong Un. However, there is no guarantee that a full-blown war might bring around the Asia-Pacific region, or the global community itself.
However, the worst scenario did not result in fear most investors, and STI is still able to sustain its 12 to 13 per cent year-to-date return since the start of 2017.
Getting ready to stage another upside for STI
Looking at the five-year weekly chart of the STI above, we noted that the index is slowly moving downwards to the 20-day moving average (MA) line of around 3,233, and we think that there could a rebound to the upside.
We note that throughout the past one year in 2017, based on the weekly chart reading, there have not been any instances where the STI went below the 20-day MA or beyond. We are crossing our fingers that the index does not break the record this year.
As for the relative strength index (RSI), we noted that it is still quite heavily overbought at around 60 to 70 based on a 14-day time frame.
So far, from trough to peak, with the trough being the 2,528.44 reading in early June 2016, the index is now returning close to about 28.9 per cent in total price gains. We noted that in an August 22, 2017 Singapore Exchange Limited (SGX) research article, the STI has generated a weighted 12.7 price return in the 2017 year-to-date (YTD), while generated a 180-day weighted volatility of 8.5 per cent. This is compared to an average of 7.3 per cent in price return for the S&P/ASX 200, Hang Seng Index and the Nikkei 225 index, with average 180-day annualised volatility of 12.1 per cent.
Notable companies in the news this week
ComfortDelgro loosening the pressure coming from ride sharing apps
ComfortDelgro Group Limited, a stock has been battered to close to 52-week lows of S$2.40 at one point has somehow got a shot in the arm when it released a press release on Tuesday evening, August 22, 2017 disclosing that they are engaging in active discussions on a strategic alliance with Uber Technologies Inc. in the United States.
With this news, and even though both parties are still in active discussions with no certainties that a deal can be formed, investors pounced on the stock, and the counter ended the trading day on Wednesday, August 23, up 8.8 per cent to close at S$2.36 per share. The stock was also the third most heavily traded counter with a total of 56 million shares changed hands.
In a research note published by CIMB Securities, the analysts are expecting mild positive sentiment from this potential collaboration as details are still very scant as the discussions have not been finalised.
However, the CIMB analysts think that it is a constructive move by ComfortDelgro’s management to engage in such discussions as it could help to stem the taxi fleet idling rate which increased to 5 per cent in 2QFY2017 as compared to 3 per cent in 1QFY2017. It is also seen as a preemptive move to discourage the departure of its drivers for private hire.
The analysts added that Uber can stand to gain as it could gain access to a large fleet of vehicles where ComfortDelgro is now holding at close to 60 per cent of the market share of Singapore’s taxi fleet in May 2017. This could be achieved without the need for further funding/subsidies. It could also mean that the ride sharing company can continue to attract passengers especially when its reputation has been affected by recent spates of recalls of its defective cars.
The analysts kept their ‘Hold’ rating for ComfortDelgro stock with a 12-month price target of S$2.46 per share.
CapitaLand seals deals with Alibaba and Lazada
Another Straits Times Index (STI) component stock in the news this week is CapitaLand Limited is partnering with US-listed Alibaba Group, and its e-commerce affiliate, Lazada Group. The agreement signed on August 23 was for the management of Alibaba’s Shanghai Headquarters Centre. The property management contract covers four office towers and a retail podium which is set to “reinvent modern retail through the seamless integration of offline and online (O&O) channels”.
As for the agreement with Lazada Group in Singapore, the agreement between both entities is for the real estate leader to help Lazada launch an exclusive online mall on Lazada Singapore, which is part of Lazada Group.
The stock closed up one cent on Wednesday at S$3.74 on 6.8 million shares traded.
We noted that the stock is trading up by 26.4 per cent since the start of 2017.
Small-cap stocks started to record flat momentum
We noted from the above diagram that the small-cap stocks index is kept tightly among the 20-day, 50-day and 100-day moving average (MA) lines on a five-year time line. However, on a peak to trough analysis, the index has fallen by about 39 per cent to 40 per cent. The peak was in mid-May 2013 and the trough is end February 2016. We also noted that the momentum of the index has flatten out.
We noted that small-cap stocks are highly volatile, and sometimes, there are no significant trading volumes to speak of. Investors are advised to be careful while executing their trades in the companies belonging to this sector.
For example, take the case of Rowsley, a diversified developer and lifestyle operator received some capital injections from former remisier and now tycoon, Peter Lim through the purchase of some medical assets of Thomson Medical Centre. The stock price immediately rose two fold to around S$0.16 before it came back now to the current price of $0.11 per share. Such gyrations in the stock price could result in some investors holding back their purchases, preferring to stay out of the markets to minimise risks.
Hong Kong Hang Seng closed out on a high note
Hong Kong’s Hang Seng closed out the week on a better than expected earnings from several Chinese companies. The outperformance was achieved despite a shortened week which was briefly disrupted by Typhoon Haima which hit Hong Kong on Thursday, August 24.
The Hang Seng Index rose 1.2 percent to 27,848.16, and was the highest closing level since August 08. During the week, the index rose 3 per cent.
Taking a look at the five-year weekly chart of the HSI, we noted that the index is trending upwards and is marching towards the all-time high of 28,588.52 set in early May 2015. The moving average convergence and divergence (MACD) diagram shown below the main graph also indicated an upside trend with both the 12-day and 26-day moving averages (MAs) trending higher.
We are quite positive about the pace of growth for many Hong Kong-listed companies, specifically the Chinese-listed names on the Hang Seng. If these companies could consistently report good profits, ensuring transparency in their financials, and expanding their businesses via the ‘Belt and Road’ infrastructure-related projects, we think that many Chinese companies could thrive further.
European stock indices fell despite favourable comments from Draghi
The Stoxx Euro 600 stock index turned flat line on Friday in anticipation of policy comments from European Central Bank (ECB) President Mario Draghi, and Federal Reserve chairperson, Janet Yellen.
On a weekly trend for the Stoxx Euro 600 stock index, we noted a potential uptrend ahead for the European stocks listed on the index as both the 50-day and the 200-day moving averages (MAs) are on an uptrend. However, this could be a false signal as the moving average convergence and divergence (MACD) chart, which is one of the measures for momentum, is trending downwards. The 14-day relative strength index (RSI) is also trending downwards, though still not at ‘Oversold’ level of 30 and below.
It was noted in a market roundup article published by CNBC.com that Mario Draghi was positive about the state of the economy. Draghi also commented that overall economic recovery is on track, with Europe and Japan experiencing significant economic progress. However, many financial companies, and business have warned repeatedly on the demographic changes, and the impact of earnings going forward. This is not something new, but is a good reminder about declining birth rates in many developed countries.
During the week, the German Ifo Business Climate Index was released showing a slight decline of 115.9 in August 2017, compared to July’s figure of 116. Though it was a small decline, the trend of expanding business confidence is a testament of how far European economies have come back after a series of setbacks dating to the Euro Zone crisis back in 2012 to 2013.
Draghi also commented that that significant monetary accommodation is needed and inflation has not reached the target. These comments resulted in some slight pullback on the Euro. However, the trend is still on the upside for the EUR/USD pair currency, albeit an ‘Overbought’ market for the Euros as shown by the 14-day relative strength index which registered a reading of 76.91, far more than the benchmark of 70.
US stocks look toppish, but is still heavily propped up
The US stock markets rose on Friday, August 25, on hopes of a comprehensive tax reform plans will be put through the Congress for deliberations. Most of the major US indices were up on the week. A summary table of the market closing numbers is as follows:
However, the pace of increases, say the S&P 500 large cap index, is getting slower with the MACD showing a convergence between the 12-day and 26-day MAs at around 39 to 40. We also noted that the weekly chart of the index which showed several mild increases, and does not seem to show any instances of any overshoots. The 14-day RSI is still at the ‘Overbought’ situation at 70, though it declined to 60.46 this week.
We recognised that next week, the Trump administration is expected to make a major announcement on tax reforms in the US. However, we are not holding any high hopes of those reforms passing as the administration has not have a consistent record of getting bills passed since it took office in January this year.
We think that earnings momentum, growth and consistency would be some of the factors to look out for.
US retailers in focus with disruptive forces impacting earnings growth
Moving on, we noted that the retail sector has taken quite a bad hit due to disruptive technologies using e-commerce channels to market merchandise online. We don’t think it is a consequence of a sudden drop in consumer confidence, but it could be the differentiating factors that would make or break the US retailers.
As noted earlier, the SPDR S&P Retail Index Fund (XRT) is trending way below the 50-day and 200-day moving averages (MAs), with negative momentum as measured by the MACD index below. However, despite the deep declines in the Exchange Traded Fund (ETF), the 14-day RSI is still not at ‘Oversold’ levels.
US Volatility Index has recoiled back to new lows of 11 to 12
How did our model investment portfolio perform
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 80.2 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 12.2 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 Mapletree Logistics Trust (up 17.2 per cent since Nov 2016; followed by Cogent Holdings Limited (up 15.7 per cent since January 2017), and Ascendas Reit (up 11.1 per cent since November 2016).
The model equity portfolio did experienced a shortfall coming from Sheng Shiong (down 7.6 per cent since June 2017); Hai Leck (down 6.1 per cent since June 2017); and Sembcorp Industries (shortfall of 4.1 per cent since June 2017).
Given the portfolio is at its month-end, we are not planning to make any changes or do any rebalancing for the portfolio. We shall review the overall portfolio at the end of August 2017.
Upcoming economic events to note in Singapore, China, and US
After a major upsurge in Singapore’s industrial production numbers where it achieved a 12.7 per cent growth as compared to the consensus estimate of 14 per cent growth, investors will turn to the local economy’s trade prices to gauge the level of competitiveness. The data will be out on Monday, August 28, followed by bank lending figures on Thursday.
China will also be releasing their industrial profits for July over the weekend on Sunday, August 27, and the official purchasing managers’ index for August on the last day of the month.
Over in the United States, all eyes will be on the unemployment data which is scheduled to be released on Friday, September 01. The expectations are for a total of 209,000 jobs created and the unemployment to stay unchanged at 4.3 per cent.
Local earnings calendar
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