Markets fall in midst of geopolitical tensions

The Straits Times Index (STI) closed the Wednesday (April 12, 2017) trading session on a positive note and was up 0.35 per cent or 11.26 points to close at 3,186.01. For the week itself, the STI has so far managed to rise about five points or 0.14 per cent. Although there was a small gain so far this week, with the exception of Thursday trading session when the article is being written, the STI has so far managed to gain 10.6 per cent on a year-to-date basis. One of the questions among investors might ask, are we going to see the index continuing rising, or could there be risks of a sharp plunge?

To answer this question, we do need to take a look at technical analysis (TA) on the STI’s performance. The following is a one-year daily chart:

Note: One-year daily chart for STI (April 13, 2017)

The STI’s major high was on April 4, 2017 when STI hits 3,189.41. It is currently trading downwards significantly from yesterday’s close at the current 3,165 – 3,170 level. This could potentially bring the week’s close to a negative territory.

Apart from three major earnings news, SPH Reit, Soilbuild Business Reit, and Singapore Press Holdings Ltd (SPH), geopolitics took centrestage, along with last week’s Fed minutes which indicated that the US Federal Reserve is preparing to pare down its balance sheet of close to US$4.5 billion worth of Treasury, and agency securities. The two major news headlines hit markets hard as cautiousness sets in, with investors staying on the sidelines, and preparing to wait for better news ahead.

Nonetheless, a new quarter and earnings season is about to kick into high gear with major real estate investment trust (Reit) companies reporting their results next week, including Keppel DC Reit, First Reit, Sabana Shari’ah Compliant Industrial Reit, CapitaLand Commercial Trust, and Suntec Reit among other so-called ‘S-Reits’. The Nikko AM – Straits Trading Asia-Pacific Ex-Japan Reit ETF has now turned higher from its launch price of $1.00 to $1.028 now as of Thursday’s close at 3,165.44. This gives a respectable 2.8 per increase capital appreciation since inception two weeks ago towards the end of last month.

According to the latest Singapore Exchange Limited (SGX) press release, the SGX S-Reit index has generated a total return of 9.4 per cent in the year-to-date (YTD), outperforming the S&P Asia Pacific Reit ETF and MSCI World Reit Index, which generated total returns of 2.3 per cent and 1.9 per cent respectively in SGD terms. Although the index is lagging against the over 10 per cent STI returns YTD, the listed S-Reits offer an average dividend yield of close to 5 to 6 per. This compares with the average STI dividend yield return of about 3.7 per cent.

The two company-related events this week were the acquisition of CWT Ltd by HNA Group for S$1.4 billion or S$2.33 per share. The merger talk has been on and off since 2015, but given the offer is about 12.5 per cent from the pre-acquisition price of around S$2.07 per share, it does offer quite a significant premium for existing shareholders to consider cashing out. Moreover, HNA Group is quite a diversified group and does not rely on a single source of income.

Another significant news story was the news that Singtel’s Optus Network might face greater competition as rival TPG Telecom Ltd has announced plans for capital expenditures of close to A$1.9 billion (S$1.4 billion) to build a 4G mobile phone network after winning a government auction for airspace. This news took down most of the stocks of Aussie telecommunication providers, and/or other visitors. Singtel closed on Thursday, April 13, 2017 at $3.77, down 5 cents, or 1.31 per cent intraday.

On the economic front, Singapore’s latest advance estimate of the gross domestic product (GDP) rose 2.5 per cent year-on-year in 1Q2017, and is below the consensus estimate of 2.6 per cent. However, on a seasonally adjusted quarterly comparison, 1Q2017 GDP recorded a pullback of 6.6 per cent, as compared to the 39.6 per cent surge in 4Q2016. The centre of attention has been on the manufacturing number which grew by 6.6 per cent year-on-year in 1Q2017, following a 11.5 per cent growth in 4Q2016. The manufacturing sector was boosted by robust output expectations in the electronics and precision engineering clusters, overcoming output declines in biomedical manufacturing, transport engineering and general manufacturing clusters.

Despite the growth in the electronics and precision manufacturing clusters, the FTSE ST Technology Index showed a consolidation at around 229 to 235 levels and the momentum index below shows that there is a small climb to overcome the breakeven mark. This observation may provide some impetus for potential future index rises. However, as a trade dependent nation, Singapore is trying to liberalise its financial markets, and is constantly being seen trying to advocate for free and open access trade.

Note: One-year daily chart of FTSE ST Technology Index (April 13, 2017)

On monetary policy, the Monetary Authority of Singapore (MAS) has concluded their semi-annual policy meeting and agreed to maintain a neutral stance, and indicated that the stance was appropriate for “an extended period” to ensure medium-term price stability. It also expects core inflation to tend towards but average slightly less than 2 per cent in the medium-term. The dovish signal has led to many economists predicting that the central bank might not make much moves this year. The Singapore Dollar slipped almost 0.3 per cent to S$1.3992 to US$1 in the first minute of the announcement, and based on the one-year daily chart, the USD/SGD pair is seen consolidating around the 1.395 to 1.40 handle, and its Average Directional Index (ADX) appeared to be stable at around 20 to 30.

Source: Oanda Singapore (One-year daily chart of USD/SGD currency pair, April 14, 2017)

Hong Kong markets are in consolidation mode

The Hong Kong’s Hang Seng Index (HSI) ended Thursday (April 13, 2017) and the week’s trading at 24,261.66, down 0.2 per cent for the week. Investors are also expressing concerns over geopolitics especially tensions with North Korea and the Middle East. Market activities were also kept in check following President Trump’s comments in The Wall Street Journal about the US dollar being ‘too strong’, and he prefers to keep rates low.

Looking at the daily one-year chart of HSI, the index appears to be consolidating around 24,200 to 24,300 levels after reaching an all-time high of 24,656.65 on March 21, 2017. The 14-day relative strength index (RSI) is seen hovering around 50 to 50, and is still below the ‘Overbought’ levels of 70 and above.

Overall, the trend is heading upwards, but the recent consolidation has been around the 20-day moving average (MA) of 24,307.315. If it fails to hold at the current levels, there could be risks that the index could fall through the 61.80 per cent level of 23,500 on the Fibonacci Retracement line. However, if it breaches the 20-day MA, the next target level might be to test the March 21 all-time high, or 24,741.06, which is the maximum level of the Fibonacci Retracement line.

Note: One-year daily chart of Hang Seng Index (As of April 13, 2017)

European markets stood flat in anticipation for close finish at the French elections

The Euro Stoxx 50 index, being the benchmark for the so-called European blue chip companies, is still trending higher despite the concerns over the potential victory of the French nationalist party led by right-wing leader, Marie Le Pen. The index ended the week at 3,448.26, down by 1.2 per cent for the week.

Based on the one-year weekly chart of the index, it appeared that the extended breakout is likely to continue, given the ‘Golden Cross’ formation (50-day MA cutting through the 200-day MA) started in April 2016. The 14-day RSI ended the week at 66.40, and is seen trending towards the ‘Overbought’ region of 70. The weighted price-earnings (P/E) ratio of its exchange traded fund (ETF) (SPDR® Euro Stoxx 50) is currently hovering around 18.24 times, and is relatively higher than the STI forward P/E of around 13 times. The volatility level is around 18.04 per cent, and one-year return for Euro Stoxx 50 index is around 6.8 per cent.

Going forward, we expect monetary policy stance coming from the European Central Bank (ECB) to be relatively muted, though there are various calls from economists that ECB chief Mario Draghi should consider hiking rates given that inflationary measures are hovering around the ECB target level of 2 per cent. However, given that ECB is not about to yield to the market demands we think that the Euro Stoxx 50 index could head higher, but not likely to beyond 3,600 to 3,700 level, which could be the next resistance level before it turns downwards to 3,100 level at worst.

Source: (One-year weekly chart of the Euro Stoxx 50 Index as of April 13, 2017)

US markets at risk for major correction

The major US stock indices ended the trading week on a negative note with the Dow Jones Industrial (DJI) Average weaker by 138.61 points or 0.7 per cent lower at 20,453.25. Other broader markets were not immune to the general weak investor sentiments, and concerns about geopolitical issues. This is despite a fairly positive set of bank earnings.

Source: (April 13, 2017)

US stocks fell on Thursday after the US military dropped a mega bomb called the GBU – 43 munitions on a cave complex believed to have Islamic State (ISIS) fighters in Afghanistan. The bomb was said to be used for the first time in combat, according to a Defence Department spokesperson. The S&P 500 index fell 0.68 per cent, with energy and financials leading the decliners.

On the one-year daily chart of the S&P 500 index, it appeared that the index has broken below the 50-day MA of 2,351.91, and it could be a significant move as the index has been maintaining above the 50-day MA since it started the upmove last November following the conclusion of the US Presidential Elections. It now appears that the so-called ‘Trump rally’ is about to end soon.

Going forward, we think that with the current S&P 500 index level breaking below the 50-day MA, the next critical level to watch in the short-term is the 2,250 to 2,300 levels. If those levels are being breached while on the way down, we believe that the S&P 500 index will see a greater correction as this year is close to the eighth year since the bull run started at the end of March 2009. We think that there are not many compelling reasons to move the markets higher unless there is a meaningful recovery in crude oil prices where the Oil and Gas (O&G) sector dominates heavily for much of the index weighting.

Source: (One-year daily chart of S&P 500 index as of April 13, 2017)

The US market action on Thursday was also dominated by bank earnings which showed general robustness and outperformance. However, the rise in stock prices of major banks like JP Morgan, Wells Fargo, and Citibank were short-lived with the dropping of the mega bomb by the US dominating the headlines, and investors were holding back their capital to place into the markets.

Looking at the one-year daily chart of the SPDR S&P Bank ETF (KBE), we noted that the overall downtrend is expected to continue after the index breached below the 50-day MA at US$43.86 sometime in mid-March 2017. The extended red candle was seen as the beginning of more downturn moves. The ETF currently trades at $41.01 at the close of Thursday trading session, and is heading downwards towards the 200-day MA level of US$38.21. We believe that if the index breached the US$38.21 price levels, investors might find that level a bargain.

Source: One-year daily chart of SPDR S&P Bank ETF (KBE) (As of April 13, 2017)

US weekly GDP growth

The US Federal Reserve Bank (FRB) of Atlanta published an interesting report each week analysing the weekly gross domestic product (GDP) of the country. Its GDPNow forecasting model provides a “nowcast” of the official estimate prior to the release, and is believed to be a forward looking measure as the forecast is done on a weekly basis, and market watchers often used the data to estimate the overall economic performance of the US on a weekly basis.

Currently, the FRB of Atlanta is forecasting the real 1Q2017 GDP growth to be 0.6 per cent on April 7, from 1.2 per cent on April 4. According the FRB of Atlanta, the lower forecast estimate for the 1Q2017 GDP was due a lighter set of light vehicle sales performance and the downbeat Institute of Supply Management (ISM) Non-Manufacturing Report on Business and lower than expected US jobs numbers in March where 98,000 jobs were created. The slowdown of these segments is expected to tamper down some of the initial bullishness among some investors. We believe that if the trend of downward revisions of the US GDP growth continues, we think that the performance of the US economy might head downwards, and possibly taking down the stock markets as well.

Source: Federal Reserve Bank of Atlanta GDPNow report (March 14, 2017)

How did our model investment portfolio perform

Note: Our model investment portfolio (As of April 13, 2017)

The overall investment return deriving from our model investment portfolio is up 3.3 per cent since inception at the end of November 2016, and is mostly driven by three stocks, namely Dairy Farm, Venture Corporation Ltd, and Cogent Holdings Limited. Dairy Farm was added into to the portfolio at the end of December 2016, while Venture and Cogent were added at the end of January 2017. The capital returns since inception range from 24 per cent for Dairy Farm, to 20.7 per cent for Cogent. We plan to hold on to these stocks for some time.

We are increasingly monitoring our portfolio for any new opportunities given that the STI is showing some consolidation. We are still keeping tabs on Keppel Corporation, Ezion, and Boustead. We eliminated Micro-Mechanics in our watchlist as the stock has risen quite significantly in the past few weeks. We have also taken an interest in Tat Seng Packaging Group Limited for its relatively good fundamentals, and potential growth coming from e-commerce activities. Tat Seng Packaging is a well-established company that manufactures container paperboard, and carton boxes. The stock is currently trading at 6.8 times historical earnings, and a dividend yield of 4.8 per cent. The company has very little debt as well despite the capital intensive nature of the business.

We are still holding on to two exchange traded fund (ETF) stocks in our watchlist, namely db x-trackers Euro Stoxx 50 UCITS ETF, and db x-trackers MSCI Indonesia UCITS ETF. Although we mentioned that the Euro Stoxx 50 appeared to be quite overvalued with its 18 over times P/E multiple, we remain quite positive on the fundamentals of the European blue chip stocks. For Indonesia, we think that there is a robust consumer story and relatively young demographic landscape in the country. Although the tax amnesty effect has worn off, we think that foreign direct investment (FDI) will still continue, namely in the area of infrastructure building.

Events to watch out next week

It is earnings season and most of the S-Reits like Keppel DC Reit, First Reit, Keppel Infrastructure Trust, CapitaLand Commercial Trust (CCT), CapitaLand Mall Trust (CMT), Cache Logistics Trust, Keppel Reit and Ascott Reit will be reporting. Other non-Reit counters that will be reporting include M1, Qian Hu, China Aviation Oil, Keppel Corporation, and SGX will also be reporting.

The Annual General Meeting (AGM) season will also be starting with major SGX-listed companies scrambling to hold the meetings by the due date at the end of April. Some of the companies holding AGMs next week include Keppel Infrastructure Trust, UOB and ST Engineering.

On the domestic economic front, it is fairly quiet except for the balance of trade figures that is expected to be released on Monday, April 17, 2017. Economists are expecting non-oil exports to rise by 10.4 per cent on a yearly basis in March 2017, after a robust growth of 21.5 per cent in February. On a monthly basis, economists are forecasting a decline of 6.4 per cent in March, as compared to 1.4 per cent in February.

Over in US, investors will be keeping close tabs on more earnings results, along with a host of economic data, including building permits, housing starts, industrial production. On Good Friday, the government will release the latest inflation rates and retail sales for March. The inflation data, and especially the core inflation rate which excludes food and energy prices, is expected to be closely watched by investors as it is one of the key barometers for monetary policy decision. The core inflation rate is expected to rise by 0.3 per cent on a monthly basis, while on a yearly basis, it is expected to increase by 2.3 per cent in March.

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. For a free financial health check/discussion, please contact, 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.