Nukes and missiles dominate Korean Peninsula, while STI gyrates

It is the second week that North Korea’s crisis hits the global newspaper headlines and the unsettled issue caused the Straits Times Index (STI) to go on a roller-coaster ride and ended Wednesday (September 06) trading day down 18.79 points to close at 3,232.47.

How did STI perform mid-week so far

Source: Phillip POEMS 2.0 trading platform (One-year daily chart of the Straits Times Index (STI), September 06, 2017)

Looking at the chart depicting the one-year trend of the Straits Times Index (STI), we noted that the index made a precipitous drop from the high of 3,354.71 achieved back in July 27, and is currently below the 20-day (3,266), and 50-day (3,268) moving average (MA) lines. It looks set to break the 100-day (3,233) support line if it fails to hold at current levels.

The moving average convergence and divergence (MACD) chart below is also showing deterioration, with the 9 and 12-day MA showing negative differentials.

We think that there is short-term bearishness shown in the chart, as the overall trend of the chart is still showing an upward trajectory, and is now up 12 to 13 per cent as of Wednesday market close.

S-Reits suffered steep single-day fall during the week

Source: Phillip POEMS 2.0 trading platform (Daily chart of the FTSE ST Real Estate Investment Trusts Index, September 08, 2017)

We noted that in the immediate aftermath of the hydrogen bomb testing over the weekend in North Korea, along with global market rout, the FTSE ST Real Estate Investment Trust Index suffered a steep one-day fall in price, where it hit the low of 800 from an open level of 811.

Source: Phillip POEMS 2.0 Trading Platform (One-year weekly chart of the FTSE ST Real Estate Investment Trust Index, September 08, 2017)

However, when extrapolated on a yearly basis, we noted that the index is still trading on an uptrend as shown in the chart above. The FTSE is up 18.0 per cent year-to-date (YTD), and is much higher than the 12 to 15 per cent YTD returns with the Straits Times Index (STI) on a comparable time period basis.

Sing Dollar strengthens against US Dollar

The Singapore Dollar has been on an upsurge since the beginning of last week following the launch of a missile that flew over the Sea of Japan. The Sing Dollar was last seen trading as high as S$1.33 to one US Dollar. Many had thought that with such hostilities breaking out, the US Dollar should be seen as a safe haven currency. However, some reasons that might have contributed to the drop include the ongoing US debt ceiling which was recently being brokered by the US President Trump and senior Democrat Party leaders, Hurricane Harvey recovery efforts which might prolong the US deficit situation, and the unsettling political environment in the US.

Source: Stockcharts.com (One-year weekly change in USD/SGD rate, September 08, 2017)

Looking at the chart of the USD/SGD quote, we noted that the US dollar has been on a precipitous drop from the peak of S$1.45 to one US Dollar close to end of last year to the current low rate of S$1.342 to the US Dollar. The chart has already surpassed the 200-day moving average (MA) with no consolidation seen.

At the level of S$1.342, it would be close to levels seen in middle of 2016 where the support price level starts to see an uptrend. We think at the current levels of $1.33 to $1.34, it is considered a low point before it starts to move back up.

Moreover, looking at the 14-day relative strength index (RSI), we noted that at a reading of 28.70, it is considered quite oversold given the benchmark reading is 30.

 Oil and Gas (O&G) woes continue to see ebbs and flows

Following the shocking suspension of trading of Ezion Holdings Limited, several oil and gas (O&G) outfits have come out to say that they were also facing looming debt deadlines. One of the examples is Triyards (a publicly-listed firm that has links to the now bankrupt Ezra). The management in Triyards disclosed during the week that there are doubts over its going concern. And they could face potential liquidation orders on them.

Source: Phillip 2.0 POEMS Mercury Trading Platform (One-year daily chart of Triyards Limited, September 08, 2017)

Based on the chart above, we observed that Triyards stock price has been consolidating around $0.08 per share after being heavily sold down from the peak of $0.20 to $0.22 per share in the middle of 2017. The stock is currently suspended.

Other firms like Marco Polo Marine, and Pacific Radiance disclosed in their financials that they have negative cash flows. Nam Cheong which has been suspended, was in the news on The Business Times (BT) dated September 09, 2017 that they have spoken with note holders a restructuring plan during a dialogue session organised by the Securities Investors Association (SIAS). According to the BT article, the proposal involves having the creditors swap 35 per cent, or US$116 million of its unsecured debt for equity with haircut, at 17 new shares for every US$1. For the remaining US$220 million, it plans to repay the sum in full in seven years starting from the fourth year and then progressively stepped up. The stock was suspended and last traded price was two Singapore cents.

Source: Phillip POEMS 2.0 Mercury Trading Platform (One-year daily price chart of Nam Cheong, September 08, 2017)

Hong Kong markets ended the week down on North Korean missile crisis

The Hong Kong’s Hang Seng Index (HSI) ended Friday’s trading at 66 8.47 points, up 0per cent intraday. For the week, the HSI lost one per cent, according to Reuters.com

Source: Phillip POEMS 2.0 Mercury Trading Platform (One-year weekly chart of the Hang Seng Index (HSI), September 08, 2017)

Looking at the one-year weekly chart of the Hang Seng Index (HSI), despite the sell-down week happening in the territory, and globally, the HSI is still trading upwards. We think part of the reason could be continued support of the market coming from Chinese investors. The Hong Kong market could also be seen as one the beneficiaries for safe haven investors seeking to hedge away the risks.

Despite some slight optimism on the US dollar, we think that the Hang Seng Index is not immune the global geopolitics. However, given the index has climbed to multi-year highs, many investors who bought during the start of the year could be in a sell mode, and trying to capture the profits before geopolitics and US Fed policy uncertainties start to cause the index to potentially lose its upward momentum.

The Euro got a big spurt after ECB signals imminent end to QE

Source: Stockcharts.com (One-year weekly chart of EUR/USD quote, September 2017)

The Euro currency got a big boost post European Central Bank (ECB) meetings last Thursday, September 07, 2017, where the central bankers led by its president Mario Draghi decided leave interest rates unchanged, and reiterated their stance in providing ample liquidity through the monetary stimulus programme. Draghi also said that the Governing Council will evaluate on the fate of the quantitative easing (QE) programme in October. This led to many market participants to believe that the ECB is signalling towards a more hawkish move in the coming months with some expecting that it could announce the reduction of its monthly asset purchases. The next meeting is set for October 26.

Back to the charts, the news on ECB might start to end its QE programme sent the Euro currency flying as the common currency surged to as high as €1.20 - €1.21 to one US Dollar when the announcement was made. It was one of the highest gain, and the 14-day RSI showed that the trend broke the 70 level for overbought assets.

We think that between now till October 26, the Euro currency is likely to gain further, though there could be some down moves, and volatility is inevitable. It might be a good time to top-up positions in foreign currencies selectively to take advantage of the change of monetary conditions.

Key European stock index starts to rebound upwards

Source: Stockcharts.com (One-year weekly chart of the Stoxx Euro 600 index, September 08, 2017)

Looking at the chart above, we noted that the weekly chart of the Stoxx Euro 600 index is starting to consolidate itself at 375 – 376 levels, with the 50-day MA line at 369.34. Moreover, the 50-day MA line has ‘cut’ the 200-day MA line on the way up sometime in March 2017. This is quite significant as this signals a recovery of the index.

The 14-day RSI continues to stay stable at 47 to 50, and moving average convergence and divergence (MACD) diagram is starting to turn upwards, though it is still early to tell when the declines will end for both the 12-day and 26-day MA in the MACD diagram.

US markets continue to decline in the second week

This past week has been a favourable turn on events on the political front when President Trump giving up his ego, and to the objections of several key Republican senators, extending an olive branch across the aisle to fellow Democrat Party lawmakers to extend the debt-ceiling for another three months. The President has also put aside party differences in order to offer the necessary resources to cope with the ongoing recovery efforts post Hurricane Harvey. However, the US House of Representatives could still block the deal as they insisted on tying the debt-ceiling extension to spending cuts.

The political wrangling appears to keep markets on the edge, with geopolitical issues, and the oncoming Hurricane Irma all set to barrel down Florida State, just as when Texas State is trying to recover from the devastation of Hurricane Harvey.

According to CNBC.com, shares of major insurance companies including Travelers Insurance, and Allstate Insurance, among others have all fell ahead of Hurricane Irma’s landfall in Florida. Shares of home improvement providers including Home Depot, Lowe’s, and Lumber Liquidators Inc. all rose in anticipation of demand of construction materials for major repair works post Hurricane.

A summary of the day’s closing on major US stock indices:

Source: CNBC.com (September 08, 2017)

The US markets ended mixed on Friday, September 08 as most of the indices were impacted somewhat by the hurricane devastation on companies whose exposures are tied to insured losses, cleanup efforts, and compensation grants, among others.

Source: Stockcharts.com (One-year weekly chart of the S&P 500 stock index, September 08, 2017)

Turning to the charts shown above on the S&P 500 stock index, despite the headlines showing a slew of negative news, the S&P 500 index continues to push ahead of its upward trajectory.

We are still quite cautious about the US markets as valuations have peaked. The above chart of the one-year weekly chart of S&P 500 index, there is an important reminder from investment guru, Warren Buffett that stands the test of time. Rule No. #1: Don’t Lose Monday, and Rule #2: Never lost sight of Rule No. #!. This is quite significant, and a deep question to ask if we should we also cash out.

How did our model investment portfolio perform

Note: Model equity portfolio performance as of September 08, 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 your qualified 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 80.1 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 11.1 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 20.2 per cent since Nov 2016; followed by Ascendas Reit (up 15.7 per cent since November 2016), and Cogent Holdings (up 15.0 per cent since January 2017).

The model equity portfolio did experienced a shortfall coming from Sheng Shiong (down 7.1 per cent since June 2017); Sembcorp Industries (down 6.7 per cent since January 2017); and Hai Leck (shortfall of 6.1 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 September 2017.

International and local economic and earnings data coming out this week

Singapore economic data

Source: Tradingeconomics.com

The two key local economic data scheduled to be released in the coming week are retail sales, and 2Q2017 Unemployment data. We noted that the July retail sales would take into account some of the impacts from the annual Great Singapore Sale (GSS). The consensus forecasts on monthly and yearly comparisons continue to be positive.

On the employment front, the key data will be the employment rate for Singaporeans, and with companies cutting back, especially in the O&G sector, we think that it could tick slightly higher, but not a lot we hope.

China Economic Data

Source: TradingEconomics.com

With the Communist Party Congress scheduled to be held in October 2017, there is information out on Saturday, September 09 that inflation ticks up higher, and it will be interesting to see how significant will the data be over the next few months.

In the United States, some of the key economic data releases next week are the inflation rate, retail sales, and the University of Michigan Consumer Sentiments.

With so much market uncertainties, do take note of your position sizes.

Have a good trading week.

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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