The Great Stock Market Sale

The Straits Times Index (STI), like many other global market indices saw combined losses of more than 70 points since the start of the week, and this is quite a correction from the peak of 3,431 early this month.

Source: Phillip POEMS 2.0 Trading Platform (One-year daily change in the Straits Times Index (STI), November 16, 2017)

Looking at the chart above, we noted that the 14-day relative strength index (RSI) has fallen off from ‘Overbought’ levels of above 70 to close to ‘Oversold’ levels of 30, but not yet crossed below 30. This is likened to everybody seeking to a narrow exit door when someone shouted ‘Fire!”.

Looking at the momentum chart below, we saw the sharp drop off in momentum after a steady rise. However, the question in most investors’ minds might be is this the market correction that many have been hoping for? However, it is doubtful that a meaningful correction is in place. We shall look more into this question of market correction in the following paragraphs.

Global commodity rout was one of the principal causes

Source: (One-year daily chart of the Bloomberg Commodity Index (BCOM), November 16, 2017)

Looking at the chart above, we noted that there was a sharp reversal of the index this week from the peak of about 88 to the lows of 85 and 86. However, if we were to examine from the start of the market upturn in October 2017, the 50-day moving average (MA) was still below the 200-MA. However, if we were to take the beginning of the October as the beginning of the upcycle, the climb from 84 to 88 is approximately a rise of 4.8 per cent return which is insignificant to declare that the current downturn is anything worse than the previous plunge when crude oil prices fell from US$100/barrel to close to US$30 in late 2015/early 2016.

Oil and Gas sector trebles losses

The oil and gas (O&G) sector has seen unprecedented losses stemming from the plunge in crude oil prices. We continue to observe relentless price deterioration despite efforts by the Organisation for Petroleum Exporting Nations (OPEC) to realign oil prices through a series of production cuts. However, the oversupply situation continues to be one of the many sticking points, and will likely to an impediment to future recovery of the sector.

Source: (One-year daily change in Brent Crude Oil prices, November 17, 2017)

As one can notice from the chart, the Brent Crude Oil prices is declining from the year’s peak of US$64 per barrel, and is hovering just slightly about US$61. Currently, the 14-day relative strength index (RSI) is at 55, and is around the mid-point between 30 and 70. At this level, it is not significantly oversold either.

Although, there is consensus among the Organisation of Petroleum Exporting Countries (OPEC) nation oil ministers to tighten the curbs oil supplies, but that has not stopped crude oil prices to drop further.

In a statement by Saudi Arabia’s Energy Minister Khalid Al-Falih, he was quoted by Bloomberg News that OPEC is expected to announce an extension of output curbs when it meets on November 30. Bloomberg than went on to note that non-OPEC member country, Russia is said to be hesitant to make a commitment before the deal is scheduled to end in March. The lack of consensus among OPEC and non-OPEC countries might be a contributing factor for the decline in oil prices seen lately.

Orders for oil rigs picking up

According to a CIMB Research note published on November 17, it indicated that potential orders pipeline is picking up, and the amount is estimated to be at least US$6.4 billion comprising of non-rigs orders. The CIMB analyst team thinks that these orders could be snapped up by Singaporean and Korean yards. They noted that Yangzijiang (YZJ) is turning more bullish on shipping orders in 1H2018, with the expectation that 2017 momentum to continue. YZJ also targets US$2 billion of new orders.

The following one-year daily chart of the FTSE ST Oil and Gas (O&G) Index sums up quite nicely on how a mini correction can do to overall investors’ appetite for O&G counters:

Source: Phillip POEMS 2.0 Trading Platform (One-year daily chart of the FTSE ST Oil and Gas Index, November 17, 2017)

As one can notice from the chart, both the 14-day RSI and momentum fell and is not surprise to see it happening given the sudden pullout of funds in the sector. This is despite a good run-up of the index from 354 to a high of 415 before pulling back.

How did the Straits Times Index (STI) ended for the week

Source: Phillip POEMS 2.0 Trading Platform (One-year weekly chart of The Straits Times Index (STI), November 17, 2017)

The Straits Times Index ended the week slightly down by 1.1 per cent at 3,382.38. The index broke below the psychological 3,400 level this week with oil and gas, and commodity players like Noble Group, Wilmar, and Golden Agri being badly hit. However, Chinese shipping giant, COSCO did manage to buck the trend, whose stock price managed to trade up by almost double of its pre-acquisition offer for Cogent last week.

Source: Phillip POEMS 2.0 Trading Platform (One-year daily chart of Cosco Shipping, November 17, 2017)

Elsewhere, part of STI’s recovery on Friday could be the robust showing of Singapore’s domestic exports which grew a whopping 20.9 per cent year-on-year (yoy) last month. The increase in domestic non-oil exports was boosted by an increase of both electronic and non-electronic. It added that on a monthly seasonally adjusted basis, exports rose by 12.5 per cent, reversing the September’s 11.0 per cent decline. IE Singapore attributed the growth due to an increase in both electronic and non-electronic exports.

However, if we were to take a look at the balance of trade (exports and imports), the month of October 2017 showed lagging growth from the previous months by more than half of previous months’ balance of trade figures.

Source: (Balance of Trade figures, Singapore)

Latest China’s regulator actions appeared to be non-event for Hong Kong markets

Source: (One-year weekly chart of the Hang Seng Index (HSI), November 17, 2017)

In contrast to the stock market performance in Singapore, Hong Kong’s Hang Seng Index (HSI) continued to climb higher for the week by finishing Friday’s trading day at 29,199.04, up from the previous week by about 0.7 per cent.

Looking at the indicators, although the HSI is massively ‘Overbought’ as shown in the 14-day RSI chart above, the uptrend momentum continues as shown by the moving average convergence and divergence (MACD) diagram below.

Incidentally, reported on Friday that China’s state media, the Xinhua News Group had warned that the Chinese government is concerned about a runaway stock market on the mainland as the top performing stocks like liquor and technology stocks have climbed up significantly higher despite for the past year have became targets for comments by state regulators on their faster than expected stock price climb.

The year’s top performing Chinese stock, Kweichow Moutai Co. plunged 4 per cent after Xinhua News commented that the shares of the liquor maker should rise at a slower pace. The critique also capped the week that saw a rout in sovereign bonds. This inadvertently spilled over to the equity market amid concerns by the Chinese government that the local markets are too over-levered and inflation is rising too fast.

Source: (Kweichow Moutai stock price, November 17, 2017)

Any concerns arising from the latest actions by Chinese regulators

We think that such concerns often arise now and there, but the Mainland Chinese markets appear to emerge relatively unscathed, and largely resilient after some days of selling. We think that this warning is timely, but is unlikely to cause the local markets to fall hard. The Chinese government is trying to adopt a non-interventionist approach, so as not to upset the apple cart, thus causing panic and a run on the financial institutions that are critical to support the already debt-fuelled economy. There is a delicate balance at stake for Chinese regulators.

European markets took a tumble this week

Source: (One-year weekly chart of Stoxx Europe 600 stock index, November 17, 2017)

The pan-European Stoxx 600 index took a tumble by about 1.26 per cent for the week to end Friday’s trading at 383.80. It is now not far from the 50-day moving average (MA) level of 379.14.

The latest drop in European markets came about during a week of mixed economic and company reports. On the economic front, remarks by the European Central Bank (ECB) President Mario Draghi throwed up some confusion among investors. President Draghi was quoted as he was delivering a speech to an audience in Frankfurt that ECB needs to be patient in its deliberation of interest rates as signs of economic improvement are shown throughout the 19-member community, but inflation levels are subdued.

Although the drop in European stock prices this week, but if one were to look at the weekly chart, the Stoxx Euro 600 index is still not in ‘Oversold’ territory, and the upward momentum is still intact.

US markets disappoint on tax reforms impasse, though M&A news gave some respite

Source: (One-year weekly chart of the S&P 500 index, November 18, 2017)

The US S&P 500 index ended the week at 2,578.85, and is now 20 per cent higher than last year. For the week, the index declined by less than 1 per cent.

Looking at the momentum, the index is still massively ‘Overbought’ with the 14-day RSI hovering above the 70 level, and is still showing a strong bullish spark among investors seeking to get a foothold in the US markets.

According to a article that summarises Friday’s market action, trading activities were mostly centred on Washington’s tax reforms impasse where the House of Representatives have gave their nod for approval of the tax reforms introduced by President Trump. However, the bill is still left hanging at the Senate where Republicans indicated that they plan to deliberate the bill post-Thanksgiving.

Treasury Secretary Steve Mnuchin was also quoted as saying that the administration is confident that the final tax bill will be passed to President Trump by Christmas Day. Nevertheless, the markets choose to disregard the hope, and instead focus on the uncertainties.

A summary of Friday’s market action is as follows:

Source: (November 17, 2017)

Volatility stepped up, then fall by end of trading week

Source: (One-year daily chart of the Volatility Index (VIX), November 17, 2017)

The VIX index rose to a peak of 14.5 as markets suffered bouts of selling by investors seeking to exit their trades. The VIX index is an index of implied volatility, and has an inverse relationship with the market indices, meaning when market indices rise, the VIX index falls, vice versa.

Ironically, Friday’s market trading did not lead to the rise in the VIX index as shown in the chart above. We think that investors could be selling the VIX futures contracts with the thinking that the market-wide selling could be overdone.

How did our model investment portfolio perform

Note: Model equity portfolio performance as of November 17, 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 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 16.4 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 Group (up 46.1 per cent since end June 2017); followed by Cogent (up 44.3 per cent since January 2017), and Mapletree Logistics Trust (up 26.1 per cent since November 2016).

The model equity portfolio did experience a shortfall coming from Straits Trading Company (down 4.1 per cent since June 2017); followed by Singtel (down 2.6 per cent since end December 2016), and Sheng Siong (down 2.5 per cent since June 2017).

For now, we are not planning to make any changes or do any rebalancing for the portfolio. We shall actively monitor the model portfolio till end of December 2017.

Economic and earnings reports next week

Singapore Economic Calendar


Some of the important Singapore economic reports to look out for next week include the final estimate for 3Q2017 Gross Domestic Product (GDP) report, inflation rates, and industrial production. The GDP report is perhaps one of highly anticipated report card most investors would be keen to find out, and track if overall 2017 full-year GDP growth rate is likely to hit within or exceed to forecast range of 1 – 3 per cent annualised growth.

As for SGX-listed companies scheduled to report next week, they include Edition Ltd, and Wee Hur Holdings Limited on Tuesday, followed by bankrupted Swiber, and a small-cap O&G player, Vallianz Holdings.

China economic calendar


The latest Chinese property sales data showed a decline, which is regarded by many a success and a relief that the government has managed to tighten some of the regulations governing potential runaway home prices.

US economic calendar

Some of the key US economic numbers investors want to note include Existing Home Sales, Durable Goods Orders, and the US Federal Reserve Open Market Committee minutes. The data will help investors forecast on the level of interest rate/band that the FOMC will apply in the upcoming meeting next month.

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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.