With all the attention focusing on the North Korean missile firing on Monday, all eyes on how neighbouring countries including South Korea, Japan, and China react. The United States was also monitoring the issue on Tuesday evening (US time) as US Dow Futures fell as much as 100 points after the local markets closed, but recovered soon when the markets opened during the morning (US time) as many downplayed the crisis as no countries and the citizens along the missile flight path were being hurt.
How did the Straits Times Index (STI) perform so far
We noted that there are three red candlesticks at the extreme right-hand side of the weekly STI chart. The decline was before the missile launch this week, and the index has been trading on a weak trend for the past month.
The moving average convergence and divergence (MACD) chart below is trending downwards, but not as steep as one might think.
Singapore Dollar strengthens during the week
It is interesting to note that the USD entered into a so-called ‘Dead Cross’ situation sometime on May 15 when the 50-day moving average (MA) cuts below the 200-day MA. Since the month of May this year, the Singapore Dollar (SingDollar) has been strengthening, and the last quote was around S$1.35 to S$1.36 to one US dollar.
The 14-day relative strength index (RSI) shown above the chart continues to hover around 41 to 42 with not much fluctuations. The MACD diagram is at negative -0.003, indicating that the US Dollar is still not out of the woods in terms on any near-term recovery.
SPH divests interests in Mediacorp
In a securities filing made on August 25, Singapore Press Holdings (SPH) reportedly indicated its intention to sell off its stakes in Mediacorp entities. The stakes comprise of 20 percent of Mediacorp TV Holdings, and 40 per cent in Mediacorp Press will be sold for S$18 million, and SPH expects to record an impairment of approximately S$31 million in its books.
In a separate statement, Medicacorp came out to say that Today Newspaers will be discontinued its print edition and focus its strengths in e-commerce capabilities by end-September. Mediacorp has also retrenched 40 staff members, along with redeployment of staff to various departments, while eligible staff will be offered severance packages and outplacement support.
SPH stock seen free falling
The stock price for Singapore Press Holdings (SPH) fell hard following the announcement made last Friday. Looking at the above chart, we noted the stock is trading below the 20-day, 50-day, and 100-day moving averages (MAs) with no signs of any recovery. Moreover, trading volume is huge with about 13.1 million shares traded on average during the week.
The moving average convergence and divergence (MACD) chart below the main chart re-confirmed what happened to the stock price and the degree of negativity on the counter.
Looking at the fundamentals of SPH’s stock, the historical price earnings multiple, according to the latest data available through SGX Stockfacts, is about 22 to 23 times, while dividend yield is 5.1 per cent per annum. The company generates positive operating cash flows of about 309 million as of end FY 2016 in August 2016.
Despite its generally good financials, the declining advertising revenue is one key statistic to note. According to a latest research note from UOB Kay Hian, it mentioned that total ads for SPH continued to decline (minus 10 per cent) year-on-year (yoy) in 4QFY2016, but at a lower rate as compared to 3QFY2016. However, the brokerage house did a historical analysis and noted that it is still too early to call a reversal to the decline in print revenue, which in the best case scenario, they expect print revenue to bottom out and stay flat.
Hong Kong’s Hang Seng Index on multi-year high
Following the release of the official China’s Purchasing Managers’ Index (PMI) which showed a stronger than expected reading of 51.7 for the month of August 2017 versus 51.4 in the previous month, along with the favourable earnings reports coming from the major Mainland Chinese banks like Industrial and Commercial Bank of China (ICBC), Bank of China, and China Construction Bank, among others, the Hang Seng Index (HSI) scored a huge victory roaring towards the three-year high of 28,588.52
Looking at the five-year weekly chart of the Hang Seng Index (HSI), we noted that the index, at 27, 957.54 has not shown any instances of look backs. Moreover, the MACD diagram below is also showing a rising trend. We think that if things go according to plan, the HSI could test the 28,500 levels in the next few weeks. We think that the Chinese government will be seen intervening in the Mainland markets to ensure that market confidence remains, and stocks will naturally be beneficiaries from such government interventions.
The private-sector manufacturing PMI numbers, also known as the Caixin manufacturing PMI edged up to a six-month high of 51.6, topping analysts’ expectations when most were forecasting the index to slightly dip to 50.9 in August from 51.1 in July. This is an example of the reinforcement to the official manufacturing PMI numbers released a day earlier, and it shows that China’s economic growth is on a upward path to growth. It also clears the path as China’s Communist Party will be gathering in October to select new leaders for the next five years.
The relative bullish sentiment in the private-sector PMI in China has also impacted some of the raw material stocks trading on HSI on Friday. According to Reuters.com, the sector index rose nearly 2 percent, taking its rally so far in 2017 to more than 30 percent. The Mainland raw-materials suppliers like Maanshan Iron & Steel and Angang Steel jumped as they are likely to be seen as beneficiaries from the government’s continuing push towards shutting down inefficient plans, thus reducing both excess capacity and minimising pollution outbreaks.
China’s influence on the HSI will also be closely watched as the Communist Party Congress Meeting is nearing.
Stoxx Euro 600 index continues to be on downtrend
Despite a first-day rebound in the Stoxx Euro 600 index in the month of September, the weekly chart above showed that the index still has some room for correction as it hovers around the 50-day MA. We noted that the 14-day RSI is now in the mid-range area of 30 (Oversold) and 70 (Overbought), and the MACD is showing a decline.
The upcoming elections in Germany and the ongoing discussions with the United Kingdom over ‘Brexit’ are some of the key events to follow. The latest European PMI matches with the forecasted figure of 57.4 for August.
US markets rose despite disappointing payroll numbers
The major US stock indices ended the week on a positive note, despite a disappointing 156,000 new jobs created, and an unchanged unemployment rate of 4.3 per cent. Analysts were expecting 180,000 new jobs created. The breakdown of the closing stock indices figures is as follows:
For the week, according to CNBC.com, three major stock indices rose, with the Dow Jones Industrial Average (DJIA) index rising by 0.8 per cent for the week, followed by the S&P 500 index which rose by 1.3 per cent, and the Nasdaq rose by 2.7 per cent. This was the one of the best week despite the North Korean missile crisis, and cleaning up efforts in the South post Hurricane Harvey.
We noted that the S&P 500 stock index has been steadily rising, and is above the 50-day MA of 2,325.96. Looking at the 14-day RSI above the main chart, there is a tick up in the reading and is close to the 70 mark which indicates ‘Overbought’ conditions.
However, we have also noticed that the MACD diagram below shows that the 9-day, and the 26-day MAs are trending flat to downwards. We are unable to discern the possible causes, but barring any unforeseen circumstances, the index is still on the track to pace higher.
US stock volatility levels are back to new lows
The Volatility Index (VIX) continues to fall, and touched 10.13 after soaring as much as 14 to 14.5 earlier in the week following the launch of North Korean missile strike. The VIX index is also re testing the year’s low reading of 9, and this shows that US investors are generally, complacent. With complacency, greater risks are being built-up.
Will US corporate earnings growth sustain
We noted that that stock price are moving ahead and is higher than the forward 12-month earnings per share (EPS) growth. This could be one of the concerns among investors that the US markets, as it stands, is relatively expensive at around 20 times. There is also a question of whether price growth is sustainable given the lack of strong earnings growth.
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 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 12.8 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 21.2 per cent since Nov 2016; followed by Ascendas Reit (up 13.2 per cent since November 2016), and Cogent Holdings (up 12.1 per cent since January 2017).
The model equity portfolio did experienced a shortfall coming from Hai Leck (down 8.7 per cent since June 2017); Sheng Shiong (down 7.1 per cent since June 2017); and Sembcorp Industries (shortfall of 5.4 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.
Major local and international economic data out next week
The major economic news release for the upcoming week will also include the latest release of the Monetary Authority of Singapore (MAS) quarterly report on recent economic developments. It is scheduled to be released on September 05, 2017.
Over in China, the summary of economic data releases is as follows:
One of the key data for China to look out for will be Friday’s release of the trade data, and the inflation rate data. These information are key to what policies that the Chinese government might come up with as the annual party congress takes place in October.
In the United States, Congress returns from a month-long recess post Labour Day on September 04. Some of the key economic news will be the announcement of the detailed tax reform plans by the Trump Administration, and the US productivity and cost measures. Also, with the ongoing tensions with North Korea, the political situation might not ease in the near-term, but we think that the financial markets are unlikely to be impacted much.
Have a good trading week.
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