SIA and Noble descent to new lows, while STI continues to move higher

The new trading week brings gloomy news over Singapore Airlines (SIA) first loss in many years during its final quarter ending March 31, 2017. The beleaguered airline company suffered one of the worst loss during the quarter at S$138.3 million due to competition-related issues, along with total revenues fell due to weaker performances at passenger airlines and cargo division. The airline company has sacrificed yields in pursuit of increase in load factors. This led to major disappointment among shareholders as the stock fell hard on Friday, and the following Monday on May 22. The two-day selloff was worth a massive 9.0 per cent fall from its previous closing price on Thursday, May 18 at S$10.76.

Note: One-year daily stock price chart of SIA (May 24 2017)

Don’t catch the falling knives for Noble Group stock

Noble Group, a well-known Hong Kong-based commodities player helmed by veteran commodities industry insider Richard Elman has seen investors’ fortunes vanished overnight after credit ratings firm, S&P Global Ratings cutting its long-term debt rating three notches to CCC+. In a statement, S&P credit analysts noted, “The negative outlook on Noble reflects the potential that the company will face distress and a non-payment of its debt obligations over the next 12 months”.

To add oil to a fire pit, various news reports by Reuters on Monday, May 22 cited several sources saying that Sinochem could withdraw its proposed investment in the commodity group on concerns that Noble Group might be a risky bet to take on. The stock immediately fell 28.2 per cent on Tuesday, May 23 before the stock was halted at S$0.42. The stock resumes trading on Wednesday after the company came out to deny any speculation that Sinochem is pulling out its proposed investment in the group. Moreover, the company has mandated investment bankers from Moelis & Company and Morgan Stanley to review strategic alternatives and that it continues to right-size businesses and to evaluate further asset sales.

If readers could recall in mid-February 2017, China’s state-owned Sinochem was reportedly in early talks with Noble Group to buy an equity stake.

Noble Group has also underwent a 10-for-1 share consolidation exercise which saw stock rose from pre-consolidated price of around S$0.20 to as high as S$1.36 per share. Following that, with a disappointing earnings report on May 11, and the appointment of new chairman, Paul Brough to ‘shake’ things up, investors will be looking for direction as to the group’s ability to replace a credit facility with a US$2 billion borrowing base facility after its due date next month in June.

Note: One-year daily share price of Noble Group (May 24, 2017)

Looking at the stock price for the past year, and especially in the last few weeks since the 10-to-1 share consolidation exercise, the stock has been in a downward trend, and has not seen any meaningful recovery. This poses deep concerns among investors following last year’s debacles with various short sellers, and most notably research reports by Iceberg Research pointing to questionable accounting methods used in valuing its commodity assets.

Local banks got a credit rating upgrade

Standards and Poor’s (S&P) Global Ratings Team has announced on May 24 that it is affirming the coveted ‘AA-‘ credit rating for the three Singapore local banks (DBS Group Holdings Limited, Overseas-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB)). The ratings agency noted that all three banks have sound financial profiles that offer them a buffer against further pressures on their asset quality, particularly from upstream oil and gas exposures.

S&P has also came out to say that it expects DBS Bank, OCBC, and UOB to maintain adequate capitalisation, namely their Tier-One Capital Adequacy Ratios, sound financial profiles, and adequate provisioning buffers.

S&P is not prepared to be too over bullish on the three local banks, as they noted that the net profits of Singapore banks have lost some momentum due to weakening asset quality and higher provisioning costs. In addition, the ratio of non-performing loans (NPLs) of these banks rose from 1.1 per cent in 2015 to 1.4 per cent in 2016. It thinks that oil and gas (O&G) – related NPLs are not over, and does not think the current oil rally is likely continue. Most analysts are forecasting that oil prices in general are likely to be capped at US$50 per barrel.

How did the FTSE ST Financials Index react to latest rating changes

One-year daily chart of FTSE ST Financial Index (As of May 24, 2017)

Looking that the one-year daily chart for the FTSE ST Financial Index, we noted that the index has been trending higher late June 2017. The index at the close of trading day on May 24 the index climbed to 906.71. Although it is slight retreat from the all-time high of 910.77, we think that there is sufficient momentum to maintain or to rise further, particularly when in a rising interest rate environment. At the time of writing this article on May 25, 2017, DBS is trading at $21.07 (up 6 cents), followed by OCBC at $10.48 (up 6 cents), and UOB at $23.46 (unchanged).

However, for valuations wise, according to SGX Stockfacts, DBS price-to-book (P/B) multiple is 1 times, followed by OCBC at 1.15 times, and UOB at 1.13 times. All three banks’ P/B multiples are still above 1 times. On dividend yield wise, DBS is currently offers a dividend yield of 2.86 per cent, while OCBC dividend yield is 3.47 per cent. UOB’s dividend yield is 3 per cent. A summary table of the valuation ratios is shown below:

Bank Price-to-Book (P/B) Dividend Yield (%)
DBS Group Holdings 1.000 2.86%
Overseas Chinese Banking Corporation (OCBC) 1.148 3.47%
United Overseas Bank (UOB) 1.130 3.00%

Source: SGX StockFacts (May 25, 2017)

Hong Kong’s Hang Seng continues its march upwards

Source: (One-year daily chart of Hang Seng Index (HSI), May 25, 2017)

Hong Kong’s Hang Seng Index (HSI) continues to trend upwards despite news yesterday (May 24, 2017) that China’s debt rating was downgraded one notch for the country’s long-term local and foreign currency issuer ratings to ‘A1’ from ‘Aa3’. Incidentally, the downgrade was said to be the first time in 30 years.

In a statement, Moody’s Investors Service noted that, “The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhere over the coming years, with economy-wide debt continuing to rise as potential growth slows.” China’s Finance Ministry reacted negatively to the new rating by rebutting it saying that Moody’s has overestimated the risks to the economy and was based on “inappropriate methodology”.

Moody’s later came out the next day on May 25 to downgrade Hong Kong’s local and foreign currency issuer rating to ‘Aa2’ from ‘Aa1’. In a statement, Moody’s noted that credit trends in China will continue to have a significant impact on Hong Kong’s credit profile due to close economic, financial and political ties with Mainland China. Moody’s has also said that financial ties between Hong Kong and Mainland China were becoming deeper through platforms such as the Shanghai-Hong Kong Stock Connect Scheme, the Shenzhen-Hong Kong stock connect scheme and the bond connect which is expected to be launched this year.

Despite these two pieces of negative credit rating news on both Hong Kong, and China, investors appeared to be unfazed by it, bringing the total return to about 18 to 19 per cent growth for the HSI since the start of this year. The HSI closed on May 24 at 25,428.50. Later, HSI did extend its gains on Thursday by closing up 0.8 per cent to end at 25,630.78.

On Thursday, the HSI market action was dominated by the strength of market events in Mainland China where the blue-chip CSI300 recorded its best day in 21 months amid growing hopes that the index will be accepted for inclusion in the MSCI indexes. Moreover, the HSI has been dominated by continuing money flows from Mainland China which helped to lift the index despite global jitters about the Trump administration policies, North Korean tensions, and other geo-political issues, among others.

European indices benefit from Germany’s growth rates

The Euro Stoxx 50 index continues to climb higher despite the various terrorist attacks, including the latest one that hit the city of Manchester in United Kingdom where scores of people were injured or died after a concert. However, markets are unfazed by the incident, and instead focus on the fundamentals of the Euro Zone economy, especially the big European economic powerhouse, Germany.

Germany recently recorded one of its best economic growth so far, achieving 0.6 per cent annual rate during the 1st quarter ending March, as compared to the final quarter figure of 0.4 per cent last year. Inflation rate has also firmed up in April rising to 2 per cent from 1.6 per cent previously.

Germany’s trade figures also show some positive growth with total trade amounting to €25.4 billion in March as compared to €20 billion in February, while capital flows rose to €50 billion in March as compared to €9.7 billion in February.

Germany’s Chancellor Angela Merkel was quoted by major news wires saying that the Germany’s growth is on track and she is now savoring the brighter economic performance through her recent election wins in major German regional counties. One of them is the North Rhine-Westphalia (NRW) where her party, the Christian Democrat Union won on exit poll projections. Germany’s general election is on September 24.

EuroStoxx 50 still rising so far

Source: (One-year daily chart of EuroStoxx 50 index, May 25, 2017)

The EuroStoxx 50 index continues to rise without any look back. As this article is being written, European markets are trending higher with major stock indices including the FTSE, DAX, and CAC rising towards intraday highs. The main focus on attention is OPEC meeting in Vienna, and US President Trump’s visit to NATO headquarters, followed by the G-7 meeting of heads of state in Italy later during the weekend.

Despite the EuroStoxx 50 index trading near highs, the 14-day Relative Strength Index (RSI) looks subdued at 53, and lower than the 70 level which denotes ‘Overbought’ level.

Major European indices are also on the rise

Source: (May 25, 2017)

The major European stock indices have also risen on optimism with the fundamentals of European economies despite the terrorist attacks happening in Manchester, United Kingdom during the past week. Greece was also reportedly closing in on reaching a deal with its creditors and the International Monetary Fund (IMF) by June 15 over debt reforms. According to a report, Greece has to pay about €8 billion (S$12.4 billion) to its creditors in July and the current uncertainties over its debt reforms is further delaying disbursements from its current bailout programme. If Greece were to default further on its outstanding loan obligations, there could be further repercussions on markets and investor sentiments.

A 347 point drop in the Dow last week left investors unfazed this week

Source: (May 27, 2017)

All three major US stock indices closed at their major highs despite the slight drop in the Dow Jones Industrials Average (DJIA) at the close of trading on May 26, 2017 before the Memorial Day holiday weekend. Home Depot (HD) was the main lagging stock, while Walt Disney (DIS) outperformed the index.

The S&P 500 rose 0.75 points to close at 2,415.82, while the Nasdaq Composite Index managed to gain 4.94 points to close at 6,210.19.

There were an exchange volume of 682.75 million shares and a composite volume of 2.793 billion at the close of trading on May 26.

Source: (One-year daily chart as of May 26, 2017)

The S&P 500 index continues its ascent, and at 2,415.82, it is about 1.8 per cent from the 50-day MA reading of 2,372.50, and 2.4 per cent higher than the major low last week after the revelation the President Trump might be impeached due to improper disclosures of classified information to the Russians.

The latest week also saw the 1Q2017 release of the Gross Domestic Product (GDP) which showed the economy grew at a slower than expected 1.2 per cent in 1Q2017,but some analysts are not overly concerned as the economy during the first quarter tends to underperform due to difficulties with the calculation of data and the government acknowledged it.

The past week also saw the release of the US Federal Reserve meeting minutes on May 03 – 04. In the minutes, the members agree that the US$4.5 trillion portfolio of US Treasuries, and agency debt needs to be unwind by end of this year. The central bank also sees a system where it will announce cap limits and how much it will allow to roll off each month without reinvesting. Any amount it receives in repayments that exceeds the cap limit will be reinvested.

On its interest rate policy, the central bank chose not to hike rates in May, but hinted that it might do so on June 14 – 15 when they next meet to decide on the interest rate policy. The Fed is on a gradual path of normalising interest rates which are currently 0.75 per cent to 1 percent.

Source: CME Group (Fed Fund Futures data as of May 26, 2017)

The current probability of 100 to 125 basis points (bps) hike during the June 14 – 15 interest rate meeting has risen to 83.1 per cent from 73.8 per cent during the week of May 19, 2017, and 67.6 per cent on April 27, 2017. The latest Fed Meeting minutes did provide strong hints which might probably led to the increase in the probability of a rate hike in June.

With the rise in the probability of a rate hike in June, all eyes will be the next available data in the form of the monthly US jobs data which is due to be released on June 02, 2017. Economists are penciling a rise in non-farm payrolls number for May to be 211,000 as compared to the consensus forecast of 185,000, and the unemployment rate to remain unchanged at 4.4 per cent.

How did our model investment portfolio perform

Note: Our model stock portfolio (As of May 26, 2017)

Our model investment stock portfolio has generated a cumulative total return (including dividends) of 10.5 per cent since the inception at the end of November 2016. This compares to the Straits Times Index (STI) which generated about 11.3 per cent during the same period until May 26, 2017.

Our two biggest counters which generated most of the returns include PNE Industries which gave us a total return (including dividends) of 39.4 per cent since putting onto the portfolio at the end of last year. The next highest return counter is Venture Corporation which generated a cumulative total return of 26.6 per cent since the end of January, 2017 when we took the stock on at $10.19 shares for 500 shares.

Our laggard stock is ISOTeam which lost 10.1 per cent when we took on the stock at the end of March 2017. We continue to remain positive about the stock’s fundamentals, and the operating environment the company is currently in business of taking on town council work projects. We think that management has also been thinking of branching out to specialising in renewable energy projects like solar panel installations, and this could provide more diversified sources of income, along with tapping their expertise in managing the project task well.

We are on a constant lookout for good, fundamentally strong, and diversified businesses. We have also narrowed some stock names for potential future inclusions including Keppel Corporation, Ezion, Boustead, Hai Leck, Nordic Group, and Micro-Mechanics. We think that there will be a good mix of companies with sound profits, and most importantly, are cash flow positive companies.

What economic events to lookout for next week

With the local earnings season winding down, investors will be keenly watching for major economic data releases as shown below:


With the latest revision by Ministry of Trade and Industry (MTI) on Singapore’s GDP growth for 2017 to 2.0 per cent, and April’s factory output soaring to 6.7 per cent, we think that the Purchasing Managers Index (PMI) data for May might show a higher than expected figure. However, there could also be risks that it could be pulled down as a result of a poor showing in the volatile biomedical manufacturing industry.

In the United States, the country will be observing Memorial Day on Monday, May 29, and stock market activities resume on Tuesday, May 30. With traders returning back to work, equity markets could stay volatile as the official summer season begins, and large swings in stock price movements cannot be ruled out.

Moreover, there could be risks of a stock market fallout next week when former Federal Bureau of Investigation (FBI) director, James Comey is due to testify in front of Congress on the events, and memos written during the Trump Administration, and whether President Trump has allegedly asked Comey to hold off the firing of former US National Security Adviser, Michael Flynn.

Overall, we think that US market valuations are at its peak, and will probably stay quite stable to negative downside concerns due to its relative high price-earnings (P/E) ratio of about 14 to 15 times, and uncertain political environment in Washington DC. We also think that the latest weakness of the US Dollar could be a reflection of the lack of market confidence in the economy despite the latest stock market rises. We also think that the latest trend in the weakness of the US Dollar is contrary to what most economic textbooks has pointed out about the positive relationship between the US Dollar and a relatively high interest rate environment.

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.