A technical breakout for STI

The Straits Times Index (STI) closed at an all-time high on Wednesday, July 19 with a 19 point rise intraday or 0.6 per cent increase to end the trading day at 3,325.07. The three-day gain since Monday, July 17 is worth around 29 points or a 0.9 per cent increase. The latest increase in STI takes the overall year-to-date performance to 15.4 per cent.

STI is rising hard and somewhat strong, but cautiousness remains

Source: Phillip POEMS (One-year daily chart of Straits Times Index (STI), July 19 2017)

Taking a look at the chart above, we noted that the Straits Times Index (STI) rose on a technical breakout to an intraday high of 3,327.8 on Wednesday, July 19. We think that the resistance level of 3,300 will be a test for continued rises given that there might some cautiousness from many investors who think that asset prices have ran ahead of fundamentals.

This caution was clearly exhibited when STI came down by the end of Thursday, July 20 trading day when the index came in at 3,293.13, down by 31 points or 0.96 per cent.

Rowsley was a chart topper, while NetLink Trust fizzles out on start of trading

Rowsley Limited, a S$688 million market capitalisation company, was in the spotlight this week when former remisier king, and billionaire Peter Lim will be injecting healthcare assets worth up to S$1.9 billion into the firm. The assets comprise 100 per cent of Thomson Medical and 70.36 per cent of Malaysia-listed TMC Life Sciences. The purchases will be financed by 25.3 billion new shares issued to Mr. Lim at 7.5 Singapore cents a share. Warrants will be issued to existing shareholders upon completion.

The stock rose consecutively for three days from the pre-announcement price of around S$0.075 to a current high of $0.174 when it closed out on Friday, July 21. The 14-day relative strength index (RSI) is showing ‘Overbought’ status, and had reached an all-time high of $0.198 on July 20 (shown in the chart below).

Source: Phillip Mobile Sales Force (MSF) platform (One-year daily chart of Rowsley, July 21, 2017)

We think that investors could be moved by Peter Lim’s stake in the firm. If we were to take a look at the fundamentals of the company, we noted that the company had two consecutive years of negative earnings despite growth in revenue of about 24 per cent year-on-year to S$103.14 million in FY 2016, according to SGX Stockfacts data.

The company has positive cash flows as of FY 2016, with low debt/equity ratio of 28 per cent and current ratio of 8.3.

We think the latest moves could be due to the previous mispricing of the company’s fundamentals. Apart from that, the stock trades on low volumes throughout the past year and it could be quite challenging to draw any reasons for the spurt in stock price.

NetLink NBN Trust has a lacklustre debut

While Rowsley was the main highlight of the week, NetLink NBN Trust, a Singtel subsidiary that was put up for listing at an initial public offer price of $0.81 per share did not receive an overwhelming response as it makes its debut on the SGX Mainboard on Wednesday, July 19.

The broadband fibre company with a local presence, specialises in laying and fixing broadband cables/fibre networks, opened at 81.5 Singapore cents when trading for the starts at 3 pm on Wednesday. However, by the end of the trading day, the units of NetLink NBN Trust closed flat.

Most investors reacted with disappointment and many had expected a roaring debut given that it has a STI component stock backing through Singtel who will be maintaining a 21 per cent stake in the firm. However, the stock is positioned more as a yield earning asset, rather than a growth stock.

Overall, the two stocks, along with a latest upbeat assessment of the Asian economies by the Asian Development Bank (ADB) helped to generate some interest and volume for the local bourse. The STI ended the week’s trading at 20.99 points up, or 0.64 per cent to 3,314.12.  Singtel, despite having its credit rating downgraded by one notch to A1 by Moody’s, was one of the most active stocks traded, and was up by 0.77 per cent to close at $3.91. This is followed by DBS, which gained 0.14 per cent and UOB rose by 1.35 per cent. The total volume of shares traded was 3.7 billion shares traded, along with a total market value of $1.38 billion.

Local Earnings Front

Earnings results by blue-chip components like CapitalLand Malls Trust (CMT), Keppel Corporation and SATS were generally mixed and mostly down. Shares of Keppel Corporation rose five cents to close at S$6.58. This was on the back of a 4.4 per cent year-on-year decline in its latest second quarter revenues to S$1.6 billion, and a 22.1 per cent decline in net profit to $160.2 million. OCBC Investment Research noted in a research note that profit from the offshore and marine division was S$1.4 million, compared to S$61.4 million a year ago. Profits broke even in 1Q 2017. As for the property, infrastructure and investments division, they continued to deliver health profits. Its asset management business has also thrived and Keppel Capital aims to double its S$25 billion assets under management (AUM).

Source: Phillip Mercury® Trading Platform (One-year daily chart of Keppel Corporation, July 23, 2017)

Looking at the one-year daily chart of Keppel Corporation, we noted that the chart is showing a potential technical breakout since late May with the chart crossing the 20-day, and 50-day moving average (MA) lines. We think that the next level to test the continuation of its latest highs is around S$6.90. However, if it did not manage to break the resistance, the next support level to watch could be around S$6.20 per share. We also noted that the all-time high reached was late last year at around S$7.23 – S$7.25 per share.

Hong Kong’s Hang Seng Index continues its run-up

Despite a halt in the nine-day winning streak for Hong Kong’s Hang Seng Index (HSI), the uptrend is still relatively intact. On Friday, July 21, the HSI ended the day losing 0.1 per cent, or 34.12 points to 26,706.09. However, for the week, the HSI rose 1.3 per cent, and the second week in the black.

Source: Stockcharts.com (One-year daily chart of Hang Seng Index (HSI), July 21, 2017)

Looking at the chart, we noted that the HSI went through a technical breakout and is now close to ‘Overbought’ status as shown by the 14-day relative strength index (RSI). The Moving Average Convergence Divergence (MACD) diagram below also shows the 12-week trend line is moving ahead of the 26-week trend line and this could mean short-term momentum is moving ahead and supported by trading volume and general fundamentals.

Going forward, we think the HSI might show some minor corrections, but we think that it is unlikely to derail the upward moving trend. The Hong Kong regulators, along with Chinese regulators are on the lookout for rouge companies including the latest scrutiny on Dalian Wanda Group, and Sunac China over its joint property developments. This incident caused some jitters among investors, but overall, the HSI managed to overcome the sour incident as it makes its climb towards another high.

European stocks took sharp dives with ECB signalling rate normalisation in September

The major regional equity index in Europe, Stoxx Europe 600 stock index took a sharp dive on Friday, July 21 following comments by European Central Bank (ECB) chief Mario Draghi that interest rate tapering could happen as early as this September. Most analysts have forecasted monetary policy tightening to be in 2018.

The news caught many investors by surprise, thus sending the Stoxx Europe down by about 1.2 per cent to end at 380.16.

Source: Stockcharts.com (One-year daily chart of Stoxx Europe 600 index, July 21, 2017)

Taking a look at the candlestick diagram for Stoxx Europe 600 index, we noted that there was a brief rise in the index to about 385 – 386 last week, and about the hit the resistance line of 387.61 on the 50-day MA. However, CNBC.com reported that Mr. Draghi’s comments on Thursday, July 20 noted that the central bank was seeing signs of ‘unquestionable improvement’ in the Euro Zone growth and pointed to plans for policymakers to begin discussing about possible changes to its quantitative easing (QE) programme in the autumn.

We noted that with the consecutive declines in the Stoxx Europe 600 index since early June,  the 14-day RSI is not showing any significant signs of being ‘Oversold’ as the reading stood at around 40 to 41.

As for the MACD reading, we noted that the fast moving trend line (12-day) is now starting to head down to the 26-day line. If it does cross beyond the 26-day line, and trending downwards, this could be a bearish signal.

Major US stock indices took a brief halt as they climb higher

With US earnings season still in the early stages, the major US equity indices like the S&P 500 index (SPX) continues to climb higher closing at 2,427.54, down by negative 0.9 points, or 0.4 per cent. The market closing numbers for the rest of the equity indices is shown in the following table:

Source: CNBC.com

Friday’s stock market trading was dominated by earnings news that major Dow component General Electric’s (GE) top line growth fell by 12 per cent on a yearly basis largely due to weaknesses in GE’s energy connections business which offsets the growth in its renewables and power units. The bottom line fell that hardest with 58 per cent decline on a yearly basis.

Source: Phillip Mercury® Trading Platform (One-year daily chart of General Electric (GE), July 23, 2017)

Based on the chart above, we noted that GE’s stock price has been declining, with not many opportunities for any reversal against the drops. The stock price of $25.26 reached at one point on July 21 was likely the lowest point for the stock.

GE’s business is impacted partially by the impending exit of  CEO Jeffery Immelt, and weaknesses in revenues coming from its energy connections. The business failed to offset gains from the renewables and power units.

The weekly trends for the major US stock indices

Source: Factset, CNBC.com (Weekly chart of the three major stock indices, Dow, S&P 500, and Nasdaq, July 21, 2017)

We noted that from the diagram above that the three major indices did stage an initial spurt, but faded off during the course of the week, turning flatline till the end of the week.

According to Factset, calendar second-quarter profits have exceeded expectations with 20 per cent of the S&P 500 companies have reported, 73 per cent of them have beaten analysts’ expectations and 77 per cent have beaten on sales. This could bode well for investors’ sentiments as they look to several companies, including the technology companies like Google, Facebook etc. who could be reporting in the coming weeks.

How did our model equity portfolio perform so far

Note: Model equity portfolio performance as of July 21, 2017. 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 a 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 81.01 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 14.1 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 Mapletree Logistics Trust (up 19.2 per cent since Nov 2016); Cogent Holdings Limited (up 14.3 since January 2017); and Ascendas Reit (up 14 per cent since Nov 2016).

The model equity portfolio did experienced a minor shortfall coming from Hai Leck (less 0.9 per cent since June 2017), and Soilbuild Business Space Reit (shortfall of 2.1 per cent since June 2017).

Events to look out for next week

The list of company earnings results in the company is shown below:

Source: Phillip Securities Pte Ltd, SGX

The major STI-component stocks scheduled to report next week include SIA Engineering, Ascendas Reit (A-Reit), OCBC, SGX, SIA, and UOB. The earnings results would be highly anticipated by investors as they try to gauge the overall market sentiments.

On the local economic front, the summary table shall outline the various key dates to look out for

Source: Tradingeconomics.com

Key economic events in US

The key economic events, besides earnings announcements include monthly existing home sales data, new homes sales data, US Federal Reserve interest rate decision out on Thursday, July 27, and US GDP growth rate (Friday, July 28, 2017).

 

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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