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Sellers pile on the STI

The saying ‘sell in May and go away’ is often misunderstood to mean getting rid of your holdings in the month and buying it back in the next.

Pedestrians walk past the SGX Centre, which houses the Singapore Exchange Ltd.
Source: Bloomberg

It actually refers to selling your stock positions to avoid a seasonal decline in equity markets and come back in November.

By steering clear of the volatile May-October period, it is supposedly to help the profitability of an investor rather than one who stays in equities throughout the year.

I ran some simple checks to determine if this old adage applies to the Singapore stock market. Looking at the returns of ‘investor A’ who adopts a strategy of buying at the end of October and selling his holdings by end of May in the next year, versus ‘investor B’ who stays invested throughout the year.

I checked the performance over the last-seven years from 2008 to 2014. During these seven years, only three out of seven is where investor ‘A’ outperforms investor ‘B’. That is hardly supportive of the old saying.

The Singapore stock market is facing far more serious issues than this oft-quoted stock market phenomenon. For one, waning liquidity has been affecting the Straits Times Index. Trading volume in the STI nearly halved from 96 billion in 2009 to 53 billion in 2014. Interestingly, this coincides with the tenure of the current SGX chief.

The deafening silence concerning the successor to the Singapore bourse is not helping matters, particularly on any substantial plans relating to attracting fund flows in the local exchange. The SGX counter fell almost 3%, to SGD 8.18 as of 3.50pm on Tuesday, following another 3% drop in the previous session.

On Tuesday 2 June 2015, the market did not react positively to the news of more stringent liquidity rules in the STI. The Index fell through the key support level at 3350, to an over four-month low of 3344.66.

The 200-day moving average of 3360.80 was also taken out. STI fell 1.4% at one point and could be set to post the largest one-day decline in five months. Although trading volume has picked up, it is hardly a consolation as the market direction is facing south. Noble Group was among the worst performer, diving over 5%, and was the most active stock.

The MACD indicator continued to show a widening gap, indicating that downside momentum is picking up pace.

ChiNext leads equity rebound

China continues to see a strong rebound on the second day of June, after last Thursday’s sharp fall. Today, technology and smaller-cap stocks led the advance with larger cap shares taking a backseat role.

Around 339 stocks or 31% of the constituents in the Shanghai Composite Index rallied 5% and more, with around 8% closing ‘limit up’ (a 10% maximum daily move in either direction). The ChiNext Index surged 4.9% closing at an all-time high for the second-straight day.

The market is now eyeing 4500 for the small-cap index. Nonetheless, the Chinese equities remain vulnerable to any fresh news of local brokers increasing barriers for retail traders to assess the equity markets through margin financing.

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