Singapore under siege

It will not be impertinent to say that Singapore stocks have ‘exploded’ in recent months, and I feel I will not be slammed by the usually unruly and self-righteous netizens for my comments, unlike a publicity stunt for the Call of Duty game.

SGX Building
Source: Bloomberg

Singapore stocks did not join in the rebound with its neighbouring peers, with the Straits Times Index (STI) trading flat on the day. The STI posted another monthly loss at 4.7% in September, the fifth month in a row. Q3 proved to be the worst quarterly performance since Q4 2008. The index lost 16% or 531.2 points in the third quarter.

In the two weeks since the September FOMC meeting on 17-18 September, the STI lost nearly SGD 100 billion. The STI lost SGD 161 billion in Q3. Naturally, investors are wondering if the pain is going to continue in the fourth quarter.

I feel the momentum in the STI remains firmly on the downside. Both technical and fundamental factors alongside market tone suggest we could see further slide in the benchmark index before things get better.

Technically, the STI is trading below most of the common moving averages (20, 50, 100, 200), which implied that bears are in control in the short to medium term. It is clear that the path of the least resistance is towards the downside. In the last 10 weeks, the STI closed lower nine times out of 10. It is clearly in bear territory, having fallen over 20% from the highs of 3544.51 in April.

In terms of macro outlook, Singapore’s growth prospects are not looking really optimistic, due primarily to China’s weakening growth. Recent economic data bear this out with the August industrial production tumbling 7% y/y. August retail sales and exports were also weak, shrinking -2.2% and -4.6% from the previous month and seasonally adjusted.

There are definitely some investors who are looking to buy on bargains, but I feel the STI needs to drop further to yield more attractive valuations. The current price-to-earnings ratio of 12.6x is only the lowest in about two years. In comparison, the P/E ratio was at 7.2x in October 2011, when the STI was trading near 2500 points.

In my trade idea on the STI, I recommended shorting the index, which traders can do it using our Singapore Blue Chip product, which is related closely to the MSCI Singapore Free Index. At the moment, the STI has decisively broken the 2800 level, going as low as 2740. The rebound seen today is not indicative of a trend reversal, it will need to do more for that to happen.

We will need to see a significant improvement in the global growth outlook, particularly Chinese economic activity, before Singapore shares may go on the mend.

 

Cautious Asia

Asian markets ended September and the third quarter on a slightly positive note, after the intense selling seen yesterday. However, the bounce across the region was modest, which highlighted investor caution about the recent selloff. The uncertainty surrounding the timing of the Fed rate hike has belied a market environment where participants are ultra-sensitive to news flows. As my colleague Angus Nicholson noted, it is rare that one sees so many major event-driven selloffs in quick succession.

 

*For more timely quips, you may wish to follow me on twitter at https://twitter.com/BernardAw_IG

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.