The Straits Times Index (STI) is staging another record high on Monday, January 22, 2018. This time, by closing up 19.07 points to end the trading day at 3,569.43.
Looking closer at the one-year daily chart of STI, the rise in the index for the past one year has been about 500 points from trough to peak. The 14-day relative strength index (RSI) has reached its top most end of 70 which is in the ‘Overbought’ level, while the momentum index shown below is also showing increased volatility, but has since taken a breather by moving down (show on the chart above by the yellow line dipping downwards on the right most end of the chart).
Sembcorp Marine on the major upsurge again
Coming from last trading week where out of the blue, the stock price of Sembcorp Marine came galloping towards new highs. The stock broke above the S$2.00 mark on January 16, 2018 and has not looked back since.
Looking at the one-year daily chart of the Straits Times Index (STI), one might notice that the 14-day RSI has touched the 70 mark ‘Overbought’ level, and the momentum index is also showing various upmoves.
In a research note published by OCBC Securities on January 22, the analyst attributed to some possible reasons for the spike in the share price of Sembcorp Marine. This is mainly due to 1) a potential privatisation or divestment by parent company, Sembcorp Industries; 2) no fine or small fine by authorities over a possible corruption case filed by Brazil against the company; 3) a big order that the analyst thinks could come up.
Moreover, with two transactions including COSCO Shipping divesting its shipyard assets in China, the recent general offer made to Vard to get it privatise, the OCBC analyst does not think that Sembcorp Marine deserves low valuations given its established record and wider range of premium products.
Keppel Corp stock also surged higher
With Keppel Corporation on the tap for its latest earnings announcement on January 25, 2018, the counter staged another upsurge. This time, by moving higher to close the day at a high of S$8.69 per share. It is also a level which has not been seen since the first half of 2015, and there appears to be technical breakout to the upside as shown on the chart.
The impetus to move the stock higher is generally driven by optimism over the state of oil prices which looks set to reach to US$65 – US$70, plus the fortunes of Keppel Land which many have touted to be the next uplift given the general recovery of the Singapore residential market and overseas as well. Moreover, its listed subsidiaries like Keppel DC Reit, and Keppel Infrastructure Trust (KIT) have generally reported good results, though the former could incur high maintenance expenses, and debt leverage levels could creep up.
Then, there is the ongoing talks with Borr Drilling in its negotiations for drilling contracts.
In a follow-up to the earnings announcements by its listed subsidiaries, the parent company, Keppel Corporation reported their final earnings numbers and a general summary is shown by the screenshots below:
Including the one-time US$422 million fine arising from the global settlement of the corruption case in Brazil, the full year 2017 results have fallen by 72 per cent to S$217 million while total dividends for the whole of FY 2017 is 22 Singapore cents from 20 Singapore cents in the previous year.
The free cash flows have risen from S$540 million to S$1.8 billion.
However, on a pro forma basis, Keppel Corporation FY 2017 earnings would have been profitable with net profits rising by 7 per cent to S$836 million.
The earnings results were disclosed after regular market hours. Keppel Corporation closed Thursday’s (January 25, 2018) market session at S$8.58, down 5 cents on a total market volume of 5.07 billion shares traded.
How did the local markets ended trading for the week
The STI fell 5.48 points to close the trading session on Friday at 3,567.14.
There were some notable trading volume leaders including Midas whose stock was relatively active on news early in January that its joint venture (JV) unit secured three metro train contracts worth RM2.68 billion. Its JV partner is China’s CRRC Nanjing Puzhen Rail Transport Co. Ltd, and Midas equity stake in the JV is about 32.5 per cent.
The three metro rain supply contracts include one that was worth approximately RMB1.15 billion awarded by MTR Technology Consultation (Shenzhen) Co. Ltd. The second and third supply contracts were jointly awarded by Hangzhou Metro Group Co. Ltd and Hangzhou Hangfu Rail Transit Co. Ltd worth a total of approximately RMB1.09 billion. Separately, it was also awarded a RMB0.44 billion contract by Hangzhou-Fuyang Inter-city Metro Project.
Midas closed Friday’s trading session at S$0.169, up 0.5 cents or 3.05 per cent intraday on a turnover volume of 115.42 million shares changed hands.
Hong Kong markets rose, but fell towards end of the week
Hong Kong’s Hang Seng Index (HSI) took a breather on Thursday (Jan 25) when the index fell hard by 304.24 points to close the trading session at 32,654.45.
For the week, STI rose 1.73 percent, and the rise in the overall index brought the year-to-date (YTD) returns to close to 4.83 per cent.
Below is the hourly chart for HSI on January 25:
The stock market losses experienced in Hong Kong was also being impacted by overnight losses at Wall Street, and investors cashing out after a seven-day winning streak.
However, by the end of the trading week, HSI rose close to 500 points intraday to close Friday’s trading session at 33,154.12.
Looking at the above chart, we noted the HSI has broken through several key psychological levels and its 14-day relative strength index (RSI) is still flashing ‘Overbought’ conditions. However, using fundamental analysis when comparing HSI and STI valuations, the STI is worth around 13 to 14 times forecasted earnings multiple, whereas the former is worth about 14 to 16 times earnings multiple. This provides some impetus to stay invested in Singapore stocks as the relative low valuations continue to attract investors to ‘pump’ in money to support the financial markets.
However, HSI’s recent climbs to multi-year highs has a lot to do with the amount of capital inflows or ‘hot’ money coming from Mainland China, and investor’s appetite for Chinese ‘H’ shares due to the low valuation multiples as compared to the ‘A’ share counterparts over on the Mainland.
European stock indices rose on optimism over economic recovery
European stocks moved higher during week on optimism about earnings growth, with France’s CAC 40 dominating the major European stock indices. The Stoxx Euro 600 rise was also driven higher by luxury brand makers like LVMH, Christian Dior and Kering.
The Euro has also made some headways when European Central Bank chief Mario Draghi commented this week that there were “very few chances” that the institution would change interest rates this year. The single currency surged to US$1.25 level on Thursday after Draghi’s comments, and is on its way to all-time highs this year.
US stocks continue to charge higher
With a nail biting end to the near US government shutdown, and Treasury Secretary Steve Mnuchin’s downplay of the US Dollar’s strength this week, the major US stock indices managed to end the trading week on a high note as shown by the following market closing summary:
According to CNBC.com, out of the S&P 500 companies that have reported as of Friday morning (January 26, 2018), 80 per cent have reported better-than-expected earnings while 82 per cent have surpassed sales estimates. This is based on data sourced from Thomson Reuters I/B/E/S database.
S&P 500 index is still riding on astronomically high levels
Despite the 14-day RSI showing the S&P 500 stock index is way ‘Overbought’, investors are still feeling optimistic and piling their dollars into it. The volatility index or VIX, on the other hand, fell to the lows of around 11, and there seems to be calm everywhere.
The rise in the major market indices, coupled with low volatility is troubling especially when the 10-year has reached multi-highs of above 2 per cent and was last closed at 2.66 per cent for the 10-year US Treasury yields. The exact scenario was played out about ten years ago when the US has begun to enter a recessionary phase and belt tightening following the collapse of Lehman Brothers.
Nonetheless, favourable economic data also helps to drive US markets higher including a report showing US economic growth for the fourth quarter of 2017 rose 2.6 per cent as compared to consensus estimates of 3 per cent. Although it fell short of consensus estimates, the whole of 2017 was generally one of the best economic growth periods many Americans have experienced. Many analysts think that the economic growth for 2018 could be higher especially with the corporate tax cuts, and US businesses repatriating profits back, making investments, and creating jobs for American workers.
Friday’s market activity was also dominated by the robust showing of US durable goods orders as the data showed orders rose 2,9 per cent in December versus consensus estimates of 0.8 per cent.
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 87.01 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 20.1 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 Nordic (up 63.2 per cent since end June 2017); followed by Ascendas Reit (up 20.9 per cent since November 2016), and SATS Ltd (up 17.9 per cent since December 2016).
The model equity portfolio did experience a shortfall coming from Sheng Siong (down 4.5 per cent since June 2017); followed by Straits Trading Company (down 4.5 per cent since end June 2017), and Singtel (down 4.8 per cent since December 2016).
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
Key economic events coming up
Some of the key economic data release over the next week include the Purchasing Price Index, business confidence, and January’s purchasing managers’ index (PMI). These data releases are key in determining monetary policy decisions come April when the Monetary Authority of Singapore (MAS )meets to discuss about the 1H2018 economic outlook at interest rate direction.
Key economic data releases in China will be the much anticipated January 2018 manufacturing PMI data, as market observers would like to gauge the momentum of China’s economic growth coming from the manufacturing side.
Next week will bring up a whole host of key economic data including manufacturing and non-manufacturing PMI data, home sales figures, and the all-important payrolls numbers where economists are forecasting growth of 195,000 jobs, and unemployment rate for the month of January 2018 stays unchanged at 4.1 per cent.
It is also the week where Federal Reserve Chairperson Janet Yellen will present her final interest rate decision by the committee. She will step down on January 31 2018 and be replaced by incoming Chairman, Jerome Powell.
In summary, the markets are heading higher, and this presents some risks. We urge readers and clients to take stock of their investment portfolios. Do try to evaluate the risk sensitivities, and adopt risk management techniques during this period. Happy and safe investing.
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