We are into our final week of the year for the Straits Times Index (STI), and it is shaping up to the best year since 2012 when the STI gained around 19 to 20 per cent on a year-to-date (YTD) basis. The index closed last Friday (Dec 22) before Christmas at 3,385.71, and is now up 17.53 per cent on a YTD basis.
Looking at the one-year weekly chart of the STI, and using the Fibonacci Retracement (FR) analysis, we noted that the index is slightly off from the 3,400 psychological level. It could be at risk of falling towards the 3,313.18 level which is the 78.60 percentile level when using FR analysis. However, if it managed to move higher before the year 2017 is out, the immediate resistance level could be in the range of 3,420 to 3,450.
However, with trading volumes that are expected to be subdued due to the various extended holidays globally, and many traders that might still be away from their trading desks, there could be a miss shot at the targeted resistance range levels. It remains to be seen, so stay tuned on Friday, December 29.
Keppel Corporation was fined heavily
The major corporate news that hit the news headlines over the Christmas weekend was the US$422.2 million fine levied on Keppel Corporation for the settlement of the corruption scandal in Brazil that dogged the company for much of last year and this year.
According to a press release by the Company, Keppel reached a global resolution settlement with a trip of regulators including Singapore, Brazil, and the United States. The case involved a corruption case where that company was singled by the authorities for making corrupt payments made by Keppel Offshore and Marine, and its former agent, Zwi Skornicki. Skornicki was one the main suspects involving some of the transactions taken place in 2016.
Nonetheless, the US$422 million turned out to be material, as Keppel Corporation Limited expected to record on its financial books for 2016 a pro forma negative charge that could see its net tangible asset (NTA) declined from S$6.34 (pre-fines) to S$6.03 (post-fines). Keppel’s FY 2016 (financial year ending December 2016) financial statements will also see its earnings per share declined from 43.2 Singapore cents (before the fines) to 11.7 Singapore cents (after the fines). This is quite significant and might hit investor confidence when Tuesday (December 26) trading resumes after the Christmas Day break on Monday.
Looking at the one-year daily chart of Keppel Corporation, we noted that there has been a declining trend for the stock price from its last major high of S$7.83 per share. The stock price of Keppel Corporation ended Friday (Dec 22) trading at S$7.47.
Using the FR analysis on the daily chart for Keppel Corporation, we noticed that the next immediate support price level could be S$7.38 per share. If the US$422 fines proved to cause a material impact on investor confidence, we think that the next level of support could be S$7.35 per share. However, should it be the opposite, the stock price could move higher to possibly hit S$7.50 or higher. (Note: The article was written on Christmas Day, but stock tumbled hard to an intraday low of S$7.09 before scrapping back to end Tuesday, December 26, 2017 trading session at S$7.29).
We think that the latter could be true as Keppel Corporation has reached a global resolution, meaning there is a possibility of them having to pay the fines without any additional legal liabilities. It could be positive for Keppel Corporation if they look past the incident, and move forward in its current state, and possibly expand more into the property market segment, while continuing to make investments in oil-related business especially with the ongoing gradual recovery of crude oil prices.
Winning and challenging sectors
On a month-to-date (MTD) basis, we noted that information technology (IT) sector came out as one of the worst performing sectors with a 4.51 per cent decline for the month, along with industrials with a 4.14 per cent drop.
IT sector remains stable though
Despite the MTD underperformance of the IT sector, we noted from the daily chart above depicting the FTSE ST Technology Index remains quite stable in terms of its price trends. We suspect that it could be the underperformance of Venture Corporation’s stock price that might have contributed to some of the underperformance of the IT sector.
As one might noticed from the one-year daily chart of Venture Corporation’s stock price, we noted that the stock has fallen quite a bit from the all-time high of S$22.34 per share to the latest price as of December 22 at S$20.10. This drop is equivalent to about a 10 per cent fall, but is still higher than the S$9.69 per share price approximately a year ago.
Moreover, despite the shortfall in Venture’s stock price, the year-to-date (YTD) performance for the FTSE ST Technology Index saw an outburst of close to 89 per cent.
Reits and Business Trusts emerged as winners despite rate hike concerns
While the IT and materials underperform on a MTD basis, Reits and Business Trusts, managed to overcome the interest rate hike concerns with the sector eking out a 2.3 per cent rise on a MTD basis.
The FTSE ST Real Estate Investment Trust (REIT) Index has managed to overcome odds of the inevitable interest rate hikes by hitting an all-time high of 857.23. The index closed last Friday (December 22) at 847.67 which is not far off from the all-time high. The index has also overcame the price svolatilities following the US Federal Reserve announcement last week (December 13 – 14) that it has agreed with the third interest hike of the year by 25 basis points (bps).
Energy sector is the major laggard for the year
There is no doubt that the decline and subsequent gradual recovery in global crude oil prices have on the impact of the FTSE ST Oil and Gas Index where the re appears to be some consolidation in the index prices as it hovers around 394.87 with not much a sound coming from a pin drop.
However, despite the sector consolidation, the fall of 5.43 per cent for the Energy sector shown under the one-year column is a reflection of the state of global oil prices as several companies, including names like Ezion Holdings which were once heavily accumulated as their cash flows were positive during the worst of the downturn. Despite being highly noted for its positive cash flows during the tough days, it proved to be otherwise when the company announced this year that it will suspend trading of the company stocks as it seeks to restructure its entire business through various rounds of debt negotiations with creditors.
Bitcoin Mania is on the rage despite big tumble
There have been much hype and news over Bitcoins, digital currencies, and cryptocurrencies, among others in the press that might have caused various distractions among investors who could be in the so-called ‘Fear of Missing Out’ (FOMO) zone. Rest assured! You are not alone, and neither are the thousands of potential and actual investors out there. However, one thing is for sure, Singapore’s Monetary Authority of Singapore (MAS), the de-facto central bank does not recognise digital currencies as legal tender. But, if anyone of you is looking at the price volatilities, please think twice or more before jumping onto the bandwagon.
The daily chart of bitcoin prices looked unstable, and if anybody is thinking about going in the trade, please think twice. The digital currency has no intrinsic value, and do take note that there are so many uncertainties with how the next price trend of the digital currency will look like.
How did the STI end trading for the year
The Straits Times Index (STI) closed on the final trading day of 2017 at 3,402.92, up 0.11 per cent for the day, and 18.13 per cent on a year-to-date (YTD) basis. The total trading volume was relatively heavy with 1.13 billion shares worth S$1.03 billion on Friday. This compares to Thursday’s 1.16 billion shares worth S$664.4 million traded.
Looking closely at the one-year weekly chart of the STI, we noted that at the right-hand corner showed that the index appears to display a hump-like shape with the trend pointing downwards. The relative strength index (RSI) has also turned down slightly at 59 to 61, but is still on the high side at 70. The momentum index has also tipped downwards.
Going into 2018, we see some risks and opportunities with the latter outweigh the former. We do acknowledge that risks are sometimes divided into systematic and unsystematic risk. The systematic risks include macro and market risks which we are unable to control and they will always be present in any markets. For the unsystematic risks, this is where portfolio diversification, and stock picking skills come in handy. We think that in 2018, opportunities are abundant especially in the oil and commodities sector as they have been battered quite severely for the past two years as oil prices plummeted. However, with a gradual recovery in oil prices, this is a sector to keep a close eye on.
Other sectors we are eyeing include consumer oriented stocks like food and beverage where there are some SGX-listed counters that have reasonably good fundamentals, and low valuations. We expect inflation to tick higher, and food prices are expected to rise, but for essential household requirements, we think that consumers are indifferent when it comes to health and wellness in the food. We also expect some consolidation in the industry especially when we are seeing international food companies are putting up their less value-adding parts of their business for sale or spin-offs.
Hang Seng Index rose after an extended Christmas break
While major financial markets Asia-Pacific region like Japan, China, Thailand, Malaysia, and Indonesia operated during Christmas Day, Hong Kong’s Hang Seng Index (HSI) came online only on Wednesday, December 27 to close at 29,597.66, or up 19.65 points intraday.
Though the above chart depicting the daily price movements for the HSI was dated December 22, the overall trend is still rising. Since the deep plunge below the 50-day moving average (MA) line in early December to approximately 28,200, the HSI has made quite a significant comeback to trade close to the next hurdle at 30,000 points.
Moving to the relative strength index (RSI) above the chart, we noted that the overall movement is still in the mid-range of ‘Oversold’ and ‘Overbought’ region.
The HSI is still subjected to volatilities from various fronts including economic growth prospects in Mainland China, and international markets. For example, oil prices rose overnight on Boxing Day following explosions to some oil pipeline in Libya. According to newsfeeds provided by South China Morning Post (SCMP), oil producers like PetroChina rose 0.6 per cent to HK$5.52m while CNOOC rose 0.7 per cent to HK$11.16 (Note: All the per share price quotes are dated December 27, 2017.
The high liquidity and geo-political conditions have resulted in many investors seeking for safe-haven countries like Hong Kong. That has bolstered the index for the past year. Moreover, we think there could be some investors trying to play catch-up after an extended Christmas Day weekend.
How did the Asia-Pacific markets fare overall for the trading year
The best performing Asia-Pacific stock market is Hong Kong’s Hang Seng, followed by India’s S&P BSE Sensex, and Philippines PSEi. The major laggard includes the Colombia Stock Exchange in Sri Lanka.
European markets poised to rally higher
The European financial markets have been impacted all year over complications arising from the ‘Brexit’ negotiations, elections in Germany, independence tussle in Catalonia, Spain, and terrorism, among others. However, for 2017, European investors seem to put them aside and focus on earnings growth, especially with the loosening of monetary conditions.
The optimism among European investors is reflected in the Stoxx Euro 600 index as shown below:
Looking at the one-year daily chart of the pan-European Stoxx Euro 600 index chart, we noted that despite the consolidation of the index around 389 – 390, the chart did move up meaningfully from the lows of 385.12 on the 200-day MA in mid-November. Coincidentally, it was also the period when the intensity of the ‘Brexit’ negotiations got on deeper, coupled with the fallout over talks by German Chancellor Angela Merkel and the rival Social Democratic Party (SDP) to form a government following heavy election losses by the Christian Democratic Party (CDP) to the far-right Alternative for Deutschland (AfD) party.
On the monetary policy front, The European Central Bank (ECB) ended the Year 2017 with a continued policy stance of keeping its ultra-easy liquidity conditions. Mario Draghi, ECB President, maintained the central bank’s stance of keeping rates low for an extended period and even pledging to maintain a pledge to provide more stimulus if needed.
How is the performance of EUR/USD
With two remaining days to the trading year, it appears that the EUR/USD cross rate is heading for a strong finish at around 1.189 to one US Dollar. The US Dollar looks to have gained some strength following the final 25 basis points (bps) hike coming about a week ago from the Federal Reserve. We think that there could be sufficient momentum to take the US Dollar higher over the next few months into 2018 given the recent monetary policy action that seems to paint a brighter economic outlook in US as compared to the European Union.
How did the regional European stock indices perform for the year
The best performer, and with all the hallmarks of consistency every month is Turkey, whose BIST 100 index rose 47.6 per cent on a year-to-date (YTD) comparison. This is followed by Austria’s ATX index which is up by 30.6 per cent. The major laggard is so far weighing on index is Russia’s RTS Index is up 0.2 per cent.
US markets ended last day of trading on the bearish side
The S&P 500 index closed out the year 2017 on a slightly negative reading at 2,673.61, down 13.93 points or 0.5 per cent. However, for the year, the index rose 19.4 per cent, and according to CNBC, it was the best performance since 2013. On the sector breakdown, information technology rose 36.9 per cent, and materials were up 21.4 per cent. On the other end, energy and telecommunications were the only sectors in the negative territory as the Federal Communications Commission (FCC) disbanded the Obama-era net neutrality rules, and the US Justice Department blocking the AT&T’s bid to acquire Time Warner.
Looking at the one-year weekly chart of the S&P 500 index, we noted that the index is still powering ahead to its major highs despite the Friday’s setback. The RSI is still signalling ‘Overbought’ conditions, but the market participants did not seem to care. We do remain quite cautious at the valuations, and will continue to urge investors to take profits, or if you have an unit trust or exchange traded fund tied to the US markets, and are using regular savings plan (RSP) to fund your investment objectives, you may continue with the plan as any premature withdrawal might not beneficial in your interest.
What is the performance of the major US stock indices on Friday
How will 2018 look like for US markets
We think that cryptocurrencies like Bitcoin, the US Federal Reserve’s pace of interest rate increases, and the implementation of the US tax reforms will be some of the key highlights to look out for in 2018. We do recognise that the US markets are a bit on the overvalued sight, but as long as there is economic growth, and the US government is discreet about adding more debts, the economic momentum is expected to keep running.
However, if there should be any spill-over impacts or contagion effects over the possibility of industry-wide collapse in Bitcoin prices, we hope that investors are ready to take the necessary steps to minimise their portfolios’ exposure. There have been a lot of red flags on the rise of the Bitcoin prices, and one is advised not to be too overlevered in the product.
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 86.6 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 17.1 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 47.4 per cent since end June 2017); followed by Cogent Holdings Limited (up 44.3 per cent since January 2017), and Mapletree Logistics Trust (up 30.0 per cent since November 2016).
The model equity portfolio did experience a shortfall coming from Sheng Siong (down 6.6 per cent since June 2017); followed by Singtel (down 5.6 per cent since end December 2016), and Straits Trading Company (down 4.5 per cent since June 2017).
Going forward, we decided to realise profits to Mapletree Logistics Trust (MLT) (Up 30 per cent YTD) and Cogent Holdings Limited (Up 44.3 per cent YTD). Part of the reason why we decided to take down both counters is to enjoy some of our gains realised during the year. Besides, the latter (Cogent) will soon be taken over by COSCO Shipping, and will COSCO management has come out to indicate its desire to delist Cogent once the acquisition is completed.
On the whole, our portfolio enjoyed quite a good year being up 86.6 per cent including dividends. We are glad that we ended in the positive black, and do hope to catch up with all of you soon.
Economic Reports to look out for in the coming week
A highly anticipated economic report that is scheduled to be put out on January 02, 2018 is the advance estimates for the gross domestic product (GDP) for 4Q, and whole of 2017. In fact, Singaporeans might get a glimpse at the forecast range when Prime Minister Lee Hsien Loong delivers his New Year’s Day message on Sunday, December 31, 2017.
Also on the same day, another important set of data that is close to every Singaporean’s heart is the advance estimates of the fourth quarter and full year 2017 property price index (PPI) by both the Urban Redevelopment Authority (URA) and the Housing and Development Board (HDB).
We will be getting the all-important purchasing managers indices (PMI) in China for the whole of next week. The PMI figures are key barometers for investors to evaluate the growth of China. We will also expect the Chinese government to release the advance full-year and quarterly GDP figures next month.
Next week’s set of key economic data include the ISM Manufacturing figures, the Federal Open Market Committee (FOMC) minutes for the final round of rate hike in 2017, and the all-important job numbers that will be out on Friday, January 05. Economists are forecasting growth in the payroll numbers for the month of December 2017 to come in at 191,000, and the unemployment rate remains unchanged at 4.1 per cent.
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