Sunday, September 30, 2012

Are We Setting Up for A Fall? - Weekly Update

Exuberance aside, the market seems to have fully digested the QE3 impact and traders have already began looking for other news sources to fuel their trading activities. In Singapore, the STI has done fabulously well over the last 3-4 weeks, outperforming the Dow and HS indices. 

Market participants that I have generally been speaking with these days seem to have a changed perspective of the upcoming 4th quarter of the year of one being optimistic and rally-like. Reason being: QE3 money will finally find its way into the money system globally and start to push up prices of commodities. Growing tensions in the Middle East and a looming war between Israel and Iran are threatening oil prices to levels past 100$US per barrel. This is still slightly good news for the badly battered commodity stocks and oil counters in Singapore and a rally in these pillars of Singapore economy looks imminent. 

Prices do not lie, don't they? And the fact that they are at their highest levels since the year start rally for most stock markets surely must tell us that people are predicting further upside. 

But wait, things are never as simple as they are usually. Traders know with ample information that the fiscal cliff is around the corner and it may be a rocky road ahead. Very rocky indeed should US politics fail to achieve a sort of consensus and delay action, as we have seen from their polarized political scene over the last decade. 

Technically, the STI (see chart below) seems to be redo-ing a pattern it was familiar with in the year start rally. With prices hanging at high levels and the MACD decreasing, it soon found itself in a huge slide back down to 2700 by June. Chances are people are jumping fervently onto the bandwagon today with smarter traders winding down positions in hordes lately. That explains the relatively unchanged levels since 3-4 weeks ago as well as the high volumes. MACD has been sliding downwards despite being provided a short respite by QE3. In the short run and near term, I am definitely not betting against the downtrend. Just so that I am on the safe side.

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Wednesday, September 19, 2012

Follow the Smart Money - My Investment Thesis Today

I have been asked way too often these days on what's my investment thesis and where the smart money is heading to. 

To answer that, the simplest question to do is to Ask ourselves what sectors are hot today? What sectors have been shaped by news that have constantly grabbed the headlines. Take a look at a YTD chart of the different key sectors on the Singapore exchange (not limited to these sectors though), and it will be clear that Real Estate, Oil & Gas and Financial sectors are outperforming the other sectors. Yes, with a 8 month view of the market, this is what the market has been reacting to. Fundamentally, we ask ourselves also if such trend is validated. In fact, these 3 industries are key to Singapore's economy. The economic restructuring has seen us, over the last 2 decades, move away from over reliance on manufacturing and pure export oriented country. We have learnt our lessons well as a country to avoid the 1997 crisis but have you as an investor made the right call with our simplest state of economy?


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We can take a look at another chart detailing the last 2 months before the turn of the year and 2-3 months after the turn of the year, which happened to be the start of a mega New Year rally. In fact, on closer inspection, Basic Materials (metal, coal) and the Maritime sectors seemed to have been badly battered and then vividly revived. Which draws me to another point: Volatility. Ride it out, what do you get? (See the chart above). After 1 full year, eliminating temporal volatility, in fact, these 2 sectors are the most volatile of late and price swings are huge, as with their 'possible profits'. It is your take if you decide to hang on to this risk returns balance. 


Now, consider the recent rally (chart below), that I am treating to have started since June albeit secretly until the release of plenty of quantitative and monetary stimulus measures from major economies (China, Europe, US and latest today, Japan with its central bank). It is the same old sectors in Basic Materials and Maritime absorbing the volatility but this time in divergence. Basic Materials have been doing tremendously well, helped on by the correlation between China's stimulus package and demand for steel and coal mainly. Maritime has however, gone way too oversold (unnecessarily in my opinion) this time round. But that is the name of the volatility game. You win big or lose big.


What has been performing steadily upwards are still Real Estate, Oil & Gas and Financials. Of course, if you are plotting a long-period portfolio, it is very obvious what needs to be in your portfolio as mainstays. This will allow a steady appreciation in time to come with balanced risks and volatility. Build a core around it and then if you are still cash-rich and ready for more risks, get in to the more volatile industries and make a decent bet. In this case today, the bet is also obvious - Maritime, given its pretty oversold nature. Don't take my word for granted here though, nothing is constant. Very obviously, you know what you should be doing.

HealthyTrading!

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Tuesday, September 18, 2012

Jump on the Oil & Gas Bandwagon? Part 2 - Ezra, Kreuz, Rotary

A favorable news article on the Straits Times on Saturday offered some insights into trading this period of quantitative easing from major economies by targeting the (usual) Oil & Gas sector. However, it was highlighted that the favourite pick was not big cap stocks such as Semb Corp, Keppel Corp or Semb Marine. Instead, the article focused on mid cap stocks with good order books and growth potential such as Ezion, Ezra and Swiber. 

Ezion has definitely caught the attention of many traders over the last 1 plus year owing to a managerial and strategy turnaround that has been yielding very decent cash flows, increasing stockpile of cash as well as orders. It was also mentioned in the article that its strategy to have one of the most innovative fleet of jack-up liftboats that provides for offshore industries was a real gem in its managerial direction. Other players such as Swiber and Ezra are companies that been there and done that, very solidly and stably run over the years with a very localised culture but yet international presence. Swiber has an order book of $1.5billion in the pipeline, definitely more than sufficient revenue to last the next 3-5 years.

Of course, there are many other hidden gems that are Oil & Gas players that were not mentioned in the article such as Kreuz, Swissco and, the almost forgotten, Rotary.

Let's take a look at how you can participate in the Oil & Gas rally that has really mimicked the STI's performance over the last year (as seen from the ST news article on Saturday). Listed are technical charts of Ezra, Kreuz and Rotary. For charts on Ezion, Swissco and Swiber, refer to part 1 of this article here.








Jump on the Oil & Gas Bandwagon? Part 1 - Ezion, Swiber, Swissco

A favorable news article on the Straits Times on Saturday offered some insights into trading this period of quantitative easing from major economies by targeting the (usual) Oil & Gas sector. However, it was highlighted that the favourite pick was not big cap stocks such as Semb Corp, Keppel Corp or Semb Marine. Instead, the article focused on mid cap stocks with good order books and growth potential such as Ezion, Ezra and Swiber. 

Ezion has definitely caught the attention of many traders over the last 1 plus year owing to a managerial and strategy turnaround that has been yielding very decent cash flows, increasing stockpile of cash as well as orders. It was also mentioned in the article that its strategy to have one of the most innovative fleet of jack-up liftboats that provides for offshore industries was a real gem in its managerial direction. Other players such as Swiber and Ezra are companies that been there and done that, very solidly and stably run over the years with a very localised culture but yet international presence. Swiber has an order book of $1.5billion in the pipeline, definitely more than sufficient revenue to last the next 3-5 years.

Of course, there are many other hidden gems that are Oil & Gas players that were not mentioned in the article such as Kreuz, Swissco and, the almost forgotten, Rotary.

Let's take a look at how you can participate in the Oil & Gas rally that has really mimicked the STI's performance over the last year (as seen from the ST news article on Saturday). Listed are technical charts of Ezion, Swissco and Swiber. For charts on Ezra, Rotary and Kreuz, refer to part 2 of this article here.



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Sunday, September 16, 2012

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The Rally is Finally Here? - STI

Finally the long overdue, investor-centric, QE3 was launched by Ben Bernanke for the USA in tandem with monetary easing policies adopted in key economies around the world such as China (last weekend, on restarting rail and infrastructure projects) and Europe (unlimited bond buying programme to stabilise debt markets). Markets have been in rally mood over the last 2 days clearly appreciative of the actions taken by these economies to restart sluggish growth in the world that has been badly plagued by political inefficiency and inability.

Key market movers on Thursday and Friday on the STI included commodity counters such as Wilmar, Noble Group and Olam as well as property stocks such as Capitaland, Ho Bee and Yanlord. Interestingly, it has been mentioned on Reuters that QE3 may 'spur China's central bank' into more action' albeit with a smaller probability of happening. However, that has clearly not stopped investors from punting bets in favour of a China's recovery, hence such attention on key commodities and property counters that will be huge beneficiaries to any further Chinese bank actions. 


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STI Outlook Buy. Singapore will be a key beneficiary when money from US, Europe and China trickles down into the economy, restarting trade activities. Extra cash on hand also spurs investment into Singapore, something at which has already been at a high this year with the Sing Dollar strengthening tremendously due to demand. The STI will also be buoyed by any further Chinese Central bank actions in the coming weeks, if any.
  • MACD - MACD trending upwards and positive divergence is back.
  • RSI (25d) - RSI just rebounded from 50% and headed to 70%. Still room for play.
  • Bollinger Bands - Prices are already closing in on the upper bollinger and possibly pulling the bollinger bands further wide apart for more upside volatility.
  • 20d MA - Prices have just crossed the 20d MA on the back of a huge gap up on Friday.
  • Volume - High volume accompanying the gap up in the STI on Friday, further signalling strong upwards buying pressure from market participants and more potential upside bets being placed.


Friday, September 14, 2012

The Shipping Conundrum - NOL

Today, NOL, on the back of a 2.75% day rise, had been removed as a component of the STI and replaced with the newly SGX-listed IHH trust. Changes will take effect on 24th Sept.

The news for shipping counters really just gets worse and worse, doesn't it? In the public focus is China's slowdown where the biggest hit industry has to be that of commodities. After all, when the biggest importer of goods starts to consume less, the first hit will be raw materials and food that has been fueling its meteoric rise in the last decade. And with Europe in deadlock, and US import/export imbalance swaying without much consensus, it is no wonder that the next most correlated industry - shipping - will also bear the brunt of this economic tide.

However so, it is both good and bad news that shipping industry has been battered since 2008 owing to a supply glut, much far ahead in time than last quarter's China hard/soft-landing quibble. In fact, prices of NOL, Cosco, Yangzijiang seemed so floored that China and US slow down in the last quarter almost failed to decrease its stock prices much further. 

Now, with investors coming in to buy on the cheap, as some people have started to buzz about, shipping counters are soon to be in the spotlight again as the 'cheap buy'. 
Is it really the cheap buy?


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Thursday, September 13, 2012

Third Largest IPO 2012 - Religare Health Trust

So, the anticipated third-largest IPO this year will finally be underway. It is none other than Religare Health Trust, aiming to raise $500 million in a initial public offering on the SGX. [Reuters link; Today online link

Here are some important details about the IPO that are available at the moment

  • $500 million to be raised to reduce debts
  • Medical and healthcare assets
  • End Sept is the rumored listing period
  • Business trust style
  • Minimum dividend yield of 8.5% (impressive number but more details required on its sustainability and conditions)
  • Assets taken from Fortis Health Care Group; aim to buy third-party assets in future
  • Religare Capital Markets, Citigroup, Nomura, Standard Chartered and CIMB are acting as the IPO's bookrunners

Of course for now, details are sketchy and as much as you and I can guess from these few news sources. But on first impression, it does seem somewhat similar to that of Ascendas Hospitality Trust that listed last month in the second-largest IPO this year. Impressive dividend yields but somewhat not a very compelling investment given the IPO proceeds are mainly to service debts. Nonetheless, instutitional response over the next few weeks will give a better indication of its market depth and more details along the way will definitely help to make a better judgement. 

On a side note, it is interesting to note that none of the IPOs that listed on the SGX this year had made a loss on the first trading day. The best performers were Neo Group (Catalist listing) with a first day return of 55% on its offer price and Civmec (Mainboard listing) with a gain of 39%. The worst performer was Ascendas Hospitality Trust with a return of 0% on its first day's closing price.


For more statistics such as the one above on the performance of this year's IPO, do head to the dedicated IPO SG Statistics section of this blog.

Happy and healthy trading!


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Wednesday, September 12, 2012

Weekly Update - of Stimulus and Steel

The market has turned pretty optimistic since ECB's bond buying initiative was announced last Thursday. In response, China also issued a stimulus packaged that was unveiled over the APEC meetings over the weekend that aimed to restart its national rail projects that were in limbo ever since last July due to the Wenzhou rail incident. 

Now, the flooding of money into this global malaise does seem to require some sort of concerted shake given the lengthy 'depression-like' conditions that the world has endured since 2008. Similar to the response in 2008, a flood of money from major superpowers would definitely give the economy a good boost in the short run in order to allow it to prop up and get moving on its own again. Cynics against the stimulus idea must surely take lessons from the 2008 crash that such a organised effort may will be required this time around. We must not forget that all talk but no action on the fundamental restructuring required for our global and local economies to get moving again is going to be a protracted process, cynically, may not even occur in time to come.

Then, surely, Mr Bernanke and his aides, after declaring and hinting that a stimulus package is not far-fetched in their latest Fed meeting minutes, will be putting together their pieces for a follow up to the week's actions. No wonder the market has been responding optimistically, rallying day to day. It is coming, after way too long.


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On a side note, steel play has clearly been dominant again with Midas, a steel producer with strong business foothold in China's rail industry. Its share price has already risen some 16% over the last 5 trading days on the back of very strong volumes. OCBC research has Midas at a TP of $0.435, which was just revised. Maybank just upgraded Midas to Buy with a TP of 0.48. Also, I had written a blog post over the weekend on my own analysis of Midas, with a TP of 0.45.


Monday, September 10, 2012

Steel play heating up? - Midas

Midas is a steel company that comes to direct consideration for more upside given the current resumption of rail development by the Chinese govt. It is a recovering stock that has seen a vast inprovement in its fortunes in the later half of thia year with impact expected in its 2013 FY earnings. It has sealed several successful contract wins over the 2nd half of the year as opposed to a very poor first half of 2012. In fact, a small table below has been compiled regarding its contract wins in 2012. There has been increased optimism too that it will be able to secure more rail contracts given the recovering China rail industry after the recent rail incident.

Midas contracts history for 2012 so far:




Fundamental Outlook - Buy. It is clear that the Chinese government are indeed ramping up rail development once again after a hiatus from the Wenzhou railway incident 1 year ago. Let's not forget that it is in the interest of the Chinese government to link up cities and continue the economic boom, although possibly at a slightly lower pace from before. Nonetheless, resuming of the rail development business is definitely going to be a boon for Midas. 
On top of that, Midas is clearly diversifying in light of their recent troubles to restructure their business to also incorporate power. Their first contract of 2012 in the power industry has been secured in 5 Sept, a few days ago, to positive market acceptance. 

Technical Outlook - Buy. Chart is looking good with a breakout on 7 Sept on the back of news of 2 contracts being secured in the week. Not overly expensive either. TP ~$0.44.
  • MACD - Has just turned upwards again and is in positive territory. Divergence also just turned positive when MACD crossed its signal line.
  • RSI (25d) - Bounced off the 50% level and has some room to maneuver before the 70% levels.
  • Bollinger Bands - Prices have just broken through the upper bollinger band to signify further upwards momentum.
  • Breakout - A large white candlestick appeared on 7 Sept on the back of a breakout through the $0.38 major resistance. Expect this level to form good support for further challenging of the $0.44 levels for Midas.
  • Volume - A huge surge in volume occured on 7 Sept accompanying the major white candlestick. 




Saturday, September 8, 2012

Weekend Alert - Dow Breakout!

Alright, it was coming - a rally that would be based on the ECB's decision. Luckily for the market, it was good news on Thursday when ECB announced an unlimited bond buying programme that will supply liquidity to cash-strapped banks and to restart economic growth in the region. Whether this plan clearly works in the long run or not, or whether structural problems still inherent in the system needs to be weeded quickly, the market has responded quite favourably to this piece of news.

By Friday 7 Sept, Dow Jones index managed to mildly break the psychological 13280 level to close at 13320. Quite impressive given the short span from Thursday's ECB announcements. Market volumes have also returned in anticipation of more uptrend.





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