The Straits Times Index (STI) entered February with a continuing run-up despite headwinds coming from geo-political concerns, namely the potential economic slowdown in China, the policy uncertainties from the new President Trump administration in the United States, ‘Brexit’ uncertainties, and the upcoming European elections, among others.
Here at home, Singapore’s manufacturing numbers as measured by the Purchasing Managers’ Index (PMI) came in at 51 in January 2017, an increase of 0.4 point from December 2016. An index reading of above 50 denotes expansion, while that under 50 represents contraction. The January PMI beat consensus forecasts of 50.5 for January. The Electronics PMI also posted an expansion in January with PMI rising to 51.8 in January, or a 0.6 point increase from December.
Nevertheless, the mixed economic news propelled STI with a year-to-date performance of plus 5.6 per cent as of Thursday, February 02, 2017. However, looking at the 100-day moving average (MA) on a weekly STI chart, the trend seems to move downwards, along with the Fibonacci Retracement (FR) starting to hit a major resistance at 3,069.98.
Banks are also looking toppish
All the three major banks, DBS, OCBC, and UOB have been seeing pullbacks since Tuesday, January 31, 2017 with all three stocks down by 0.53 per cent, 0.32 per cent, and 1.67 per cent respectively on an intraday basis as of Thursday, February 02, 2017.
Taking a look at the above chart, UOB (denoted by the green line) seems to taking a greater downward trend, as compared to peers like DBS, and OCBC. Another interesting observation is all three banks seem to take on a similar path upwards until early January 2017 when the DBS chart appears to diverge higher as compared with its peers. The DBS stock never looked back since early January, but is now experiencing some possible profit taking ahead of its earnings release on February 16.
Another possible news that might impact DBS stock price is the latest news about Ezra’s asset impairment woes as reported by The Business Times on February 02, 2017. In the front page news article, the paper talks about Ezra having to face the potential impairments of about US$185 million to US$385 million through its stake in its EMAS Chiyoda Subsea Limited (ECS) joint venture company, and assuming under the best case scenario where the entire US$81.9 million joint venture (JV) impairment on Ezra’s financial statements for FY16 was for its stake in ECS, the group (Ezra) still faces impairment risk of US$103 million to US$303 million. Based on this news, investors might react cautiously on DBS stock given that the bank is one of the principal bankers for Ezra, according to the latest FY2015 Annual Report. At the time of this article, DBS was last traded at $18.67, down 11 cents, or 0.59 per cent intraday.
Commodities staging a short-term breakout
Commodities, especially gold prices have just started to see a short-term technical breakout. The spot price for gold at the time of the writing for this article is US$1,213.36, and is up from the closing price of US$1,204.84 per ounce on February 02, 2017.
Looking at the gold chart above, we noticed that the bar chart has on one occasion managed to touch the 100-day moving average (MA) resistance line at US$1,225.34 before slipping down to US$1,213.67 per ounce. This is the first time in 2017, and a day after the US Presidential elections on November 08, 2016, that gold price has crossed or surpassed the US$1,225 per ounce mark. Would it sustain and break the US$1,225 resistance level? It could if there is across the board market fear, and uncertainties lingering over the politics in US. However, if it fails to break the US$1,225 per ounce mark, the immediate support is US$1,200 on the 20-day MA.
How is the GLD and STI performing
Based on the above chart, we overlap the SPDR Gold Trust ETF (GLD), and STI, and noticed that GLD had a first crossover with STI sometime in mid-November 2016. This trend also coincides with the days following the outcome of the successful election of President Trump when markets were in jubilant mode. The GLD char then started to break down before succumbing to its lows towards the end of last year.
Following that, GLD has since come back up and is now priced close to a positive 5 per cent to 6 per cent year-to-date (YTD), while the STI has also took a similar path as GLD, but on an accelerated mode reaching above a positive 6 per cent YTD at one point. In retrospect, GLD could be seen as trading neck to neck with STI in terms of price performance. However, many analysts are still forecasting gold prices to end the year at around US$1,100 per ounce after taking into account the implementation of fiscal policies by the Trump administration, the expected robust economic growth in US, and the expected three rate hikes by the US Federal Reserve. These events might mute the run-up in gold prices in the long-term.
Hang Seng Index could be consolidating
The one-year chart of Hang Seng Index (HIS) looks like it might flatten out in the mid to long-term basis given the 50-day and the 100-day MA is slowly flatten out. The 20-day MA is still showing an uptrend, and was seen crossing briefly the 100-day MA. The HSI ended Friday (Feb 03) trading day at 23,216.97, and is now up 5.13 per cent YTD, according to Bloomberg. Market watchers interviewed by Reuters was quoted as saying that the HSI was just starting to digest the various controversial policies outlined by the Trump administration as traders returned to their desks after a one-week Chinese New Year (CNY) break. Looking at what is happening abroad, especially in US, the flattening out of the 50-day, and 100-day MA for HSI requires more in depth monitoring. Moreover, when we overlapped both the one-year charts S&P 500 Index and HSI, both indices looked somewhat flattish as well on the extreme right side of the chart.
S&P 500 chart looks flattish near-term
On a four-hour analysis for the S&P 500 chart, we noted that the 20-day MA line is starting to trend downwards while the 50-day and the 100-day MA is starting to flatten. Looking at the 14-day Average Directional Index (ADX), the trend is moving downwards as shown on the bottom of the main chart. This could be a signal of more downward, or sideway directions for the S&P 500 Index. We expect some bearish signals showing in the US markets in the short to medium terms, and will continuously monitor for any significant turn in the charts.
How did our portfolio perform
The STI ended Friday, February 03, 2017 trading day at 3,041.94, and is up by plus 5.52 per cent on a YTD basis. Our portfolio which started in end November 2016 is now up around 3.9 per cent since inception. As noted in my January 2017 month-end newsletter, I have added one of my watchlist oil and gas (O&G) stock, Sembcorp Industries Ltd ($3.18), along with Raffles Medical Group Ltd ($1.455), Venture Corporation Ltd ($10.28), and Cogent Holdings Limited ($0.76). We believe that all the four stocks present value-add propositions in terms of growth potential, and Sembcorp Industries in particular is touted positively by several analysts since the start of the year as one of the core blue chip O&G stock to come out of the bottom. The stock is currently trading at P/B ratio of 1.0 time, along with current dividend yield of 3.1 per cent, and a return on equity (ROE) of 5.5 per cent as of February 02, 2017.
Readers who are keen followers of the O&G industry might want to take note that Singapore Exchange Limited (SGX) has recently published an analysis of the O&G sector saying that their Maritime & Offshore Services (MOE) Index has rebounded 19.7 per cent from its trough on September 01, 2016, and is in tandem with the recovery of the crude oil prices. However, despite the rally, 18 constituents forming the MOE Index are trading at an average current price-to-book (P/B) ratio of 0.7 times, with 10 of them trading below their book values.
On this latest report by SGX, we caution readers that there is still a need to conduct thorough fundamental and technical analysis of the various O&G names. Readers do need to take note that not all the O&G stocks that are trading at below 1 for P/B multiples have strong fundamentals. There is a need to examine the company business models before undertaking any investments in the various O&G names.
We are on a constant lookout for value-add, quality names to put in our portfolios, and do stay tune for more of our weekly summaries.
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.