Singapore Property Cooling Measures - Buy on Dip?

Current Market Theme:

Mass market residential property to be worst hit given the additional measures aimed to further curb speculation in this category by hot money flowing through the financial system. Measures seem most drastic in the 7th round of property cooling but as with all past measures, it has shown that the government's steps have been well balanced and aimed to prevent a sudden collapse in prices in the near future should monetary easing start to reduce worldwide.

Going by history, as long as hot money is kept circulating in the global financial system (highly likely given the tepid growth experienced in US and Europe), property counters will still enjoy upside albeit less pronounced in the near future. Effects of measures present a buying opportunity to accumulate property counters.

[Previous post: Weekly Update - NOL, Yangzijiang, Swiber]

1. Capitaland

• Gap down on Monday, first day of the week, declining to a day low of  $3.61 before returning to $3.73.
• MACD - positive divergence declining and MACD turned downwards for the first time in 6 months.
• RSI (25w) - hit 70% to face resistance.
• Would be buyers at ~$3.45 after testing $3.42 key support to catch the property momentum.

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2. Keppeland

• Faced key resistance at $4.38 last week. Gaped down opening today at $3.97 to close at same price.
• MACD - MACD turning downwards after peaking at highest levels in 2 years.
• RSI (25w) - hit 70% to face resistance.
• Prices are currently sandwiched in the middle of nowhere between key support and resistances. Would be buyers at ~$3.6 when prices cool down further as that coincides with the 20w average.

3. Ho Bee

• Big dip on first day of the week, erasing almost 6.5% off its share prices. Prices seem firmly support at $1.8 levels.
• MACD - MACD turning downwards with 3 weeks of declining positive divergence.
• RSI (25w) - Overbought RSI finally heading down for some cooling.
• Expect to buy at ~$1.8. Possible to wait for $1.8 resistance to be tested before entering. 

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4. Wing Tai

• Big dip on first day of the week, erasing almost 10% off its share prices.
• MACD - MACD turning downwards after weeks of low positive divergence.
• RSI (25w) - Overbought RSI finally heading down for some cooling.
• Expect to buy at ~$1.7. Possible to wait for $1.7 resistance to be tested before entering. 

Know Your Investment Appetite: A Lesson on Stock Beta

A good investor/trader knows his personality inside out. He also knows his targeted returns and the risks that he is willing to take in order to achieve them. That means doing a lot of homework even better sinking money into an random stock that may look good on pure 'technical analysis'.

One big homework question to ask ourselves, apart from the most rudimentary risk/reward policy but similar, is the expected Beta correlation between the stock daily returns and that of the STI. Remember that buying into a stock entails accepting its market and idiosyncratic risk. 

Idiosyncratic Risk. This risk lies solely on the actions of the company and its operating risks. In other words, there is nothing to do with market sentiments, just stock-based sentiments. To understand this in another light, consider a downbeat market where a stock can still be increasing in price because it just launched a new product. There is an Alpha measure for this risk, as the % improvement in prices whenever something happens could much more than another company's. That is the inherent idiosyncratic risk or volatility we have to stomach. 

Market Risk. The former is the one in discussion today, measured by the stock's Beta value. In a market rally, we expect stocks to be buoyed in prices because market sentiments are improving. That means, we are seeking to profit the most out of this market rally and therefore seeking to harness stocks with high Beta values. That will give our money the highest possible 'virtual leverage'.

Below is a chart provided by SGX MyGateway entailing all the Beta values for the STI component stocks and their YTD total returns. Take note that the prices are correct only until 21st May from year start.

Source: SGX MyGateway

In short, ceteris paribas (assuming all idiosyncratic risks are equal; when in fact they are definitely not, so some stocks with high beta may have a lower total risk/volatility than another that may have a very high idiosyncratic risk)

1. In a market rally, trade highest Beta
2. In a downbeat market, trade the lowest Beta (defensive stocks)
3. For portfolio asset allocation, mix stocks with generally high beta (to outbeat the market) while averaging out their Alpha (idiosyncratic risks)

For the interested, I have included some details on how you can also calculate these Alpha and Beta values yourself using MS Excel, Yahoo Finance (for data)

1. Download stock data as required (daily/weekly/monthly and time period according to your analysis needs) from Yahoo Finance Quotes.
2. Download STI data as required (daily/weekly/monthly and time period according to your analysis needs) from Yahoo Finance Quotes.
3. Tally both closing prices side by side. Remember, we are trying to compare the % returns for the stock in question and the STI across each trading day so the data must match.
4. Weed out days that do not tally. Yahoo Finance usually has data that are missing so there may be a need to match the trading days manually. In this light, it is inadvisable to be dealing with daily prices over a huge range. Even if there is that need, pay attention that a stock beta and alpha may vary over time periods and market psychology so my advice is to keep it to last 2-3 years maximum.
5. Calculate returns in % (in this case, for illustration, I have calculated and compared daily returns)                                                         
6. Insert scatter plot for both data, with the row for STI % returns on the x-axis (considered, in linear regression analysis, as the independent variable since we are seeking to find out how Capitaland moves relative to the STI) and stock in question % returns on the y-axis.
7. Right click any data point on the scatter plot and select add trendline. Check the boxes (lower portion of the new window that opens) to include the equation and regression coefficient. 
8. Ta-da! The graph as it is ready for interpretation.                                                                                                                                               ..
9. For the illustration above, Beta = 1.446, Alpha = 0.004. This means that (over the period of analysis) when the STI moves 1%, Capitaland will move 1.44%, outperforming the market in good times. This should come as no surprise given the weightage of Capitaland in the STI. Let's not forget the inverse is true too! A downbeat market will see Capitaland retreat by 1.44x STI's amount. In this case, the alpha is pretty low but it does not suggest an absence of idiosyncratic risk (this topic is getting more technical) but an absence of it RELATIVE to the STI. To understand this, you must first appreciate the circular argument logic that encompasses this analysis with Capitaland. As it is a big component of the STI, its idiosyncratic risk has also found its way into the STI portion so there is little meaning in finding out that risk value while comparing Capitaland with the STI. A better approach would be to compare Capitaland with Keppeland in order to find out the relative idiosyncratic values and the argument continues here. 
10. A quick check with the recent rally that started on the 4 June for the STI, Capitaland's prices increased 18.7% (4 June at $2.46 til today 4pm, price of $2.88) whereas the STI saw a 7.1% increase in points (4 June at 2700 til today 4pm, of 2962), clearly validating the high market beta that Capitaland enjoys.
11. Rsquared measures the fit of the straight line to the data set where a value close to 1 indicates a very good straight line relationship fit and hence more confidence to work with the straight line equation as an approximation to the data. In this case, the Rsquared value of 0.64 gives some confidence that the straight line equation can solve our risk analysis problem. 

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Focus on the Demand & Supply + Momentum

I have been tuned to the podcasts (via iTunes) provided by JP Morgan Asset Management department where they have frequent updates of speakers who share the core and fundamental principles that the investment bank employs to trade this rocky market. The one most important strategy that stands out has to be emphasis on price momentum and high demand for the asset. 

Fundamental analysis works theoretically but it does not matter if the market works, ironically here, inefficiently and not price that extra value that you see. But with a fundamental thesis, stock market demand & supply as well as price action not only will provide vindication but also ascertains a valid period of entry. This is what I find extremely telling and acute to my own investment strategies. Sometimes what I feel works fundamentally is not replicated by the market no matter how long I wait and I get fed up with it after awhile. Whereas there are some high in demand stocks that always end up moving up (high beta) with the overall market when times are good. 

Convinced or not, there is clearly one important sector that stands out to me over the year start rally and the recent 2-week-premature rally - Property. 

The SGX MyGateway portal has rightly caught up on this trends of activity for the first half of the year and translated it into a nice writeup that you should be able to access via SGX MyGateway pretty soon (the email update for this came 25 June 2012 and my guess is it should be up on the website in a few more days). Meanwhile, check out the article below.

Source: SGX MyGateway

Property is still Singapore's favourite hobby isn't it? Still, they are people thronging to grab these counters at supposedly discounted values especially counters like Capitaland and Keppeland that have done tremendously well YTD. This is where I will put my money obviously where the market fundamentals (overlooking the cooling measures which are supposed to do good than harm to property market) and demand aligns. Clearly, the returns will not lag the market when it rebounds. 

Weekly Stock Call - Ho Bee Properties

Ho Bee has a strong presence in Singapore largely servicing the higher-end residential market with a strong footprint in Sentosa Cove areas. It also has some 40% of is revenue derived from China, mentioned by a Maybank analyst report 21 March 2012. With the property sector leading the rebound in this jittery but yet upward-trended market over the short term (at least), Capitaland, Kepland, Yanlord, Ying Li have all clocked huge gains over the last week. Even Yanlord and Ying Li with huge presence in China have began to see more market buying pressure despite the cooling measures that the market has perhaps already discounted. In that light, Ho Bee, and OUE as well, is presenting a very solid case for continuation of the property rebound given it being still shy of the limelight and trading at considerable value. Is it time to get into a seemingly undervalued property counter to join in the rebound?

Outlook - Buy with a longer time horizon; laggard play. Technical indicators are aligning to put this stock on a upward trajectory at least for the next 1-2 weeks. Good risk to profit ratio observed that makes the plan more attractive. Finally, Ho Bee has been lagging in this property rebound and begins to present a cheaper valuation alternative to the already more expensive peers of Yanlord and even the big guys such as Capitaland and Keppel Land. But do not expect fireworks from this stock as it is still pretty quiet from the public eye; prepare to hold for lasting effect.

• MACD - Is trending upwards for last trading week for both daily and weekly charts.
• RSI (25d) - Just rebounded off the 30% levels and steadily trending upwards to the 50% level.
• Bollinger Bands - Prices have rebounded off the lower bollinger band on 8 June. From today's close to the lower bollinger band is a -4.7% downside. Risk is well managed.
• 20d MA - the 20d MA has clearly stabilised in the downward direction and there is some good suggestion of a local minimum.
• 200d MA - Prices are still 5.7-6% away from the 200d MA as compared to most property stocks that have prices already crossing the 200d MA. In this jittery market, anything can happen and it will be more attractive to pay attention to undervalued peers.
• Major Support - Prices seem to be resisted by a diagonal support line that provides an even better risk management framework to go into the trade with clear stop loss at around -5-6% trade value.
• Volume - A huge surge in volume occured today (18 June) indicating a possible bigger move in time to come.

Weekly Stock Picks - Yangzijiang, Capitaland

The property sector has been rebounding strongly this week, led by counters such as OUE, Keppeland and even s-chips like Yanlord. However, one stock stands out in this property rebound - Capitaland. Instead of following the wide sector consensus, the stock has instead diverged and went against the flow. 

Outlook - Track closely for rebound in the week. Enter and follow market up to around $2.6 and take profit.

• MACD - Dipped to the lowest levels seen in 2 years. Some suggestions that MACD is about to turn upwards (green histogram bars) but still needs more confirmation in the coming week.
• RSI (25d) - Touched 30% firmly. Over the last 6 occasions in the last 2 years, whenever RSI did hit 30%, a rebound in stock price usually followed. 
• Bollinger Bands - Very wide bollinger bands and volatility for profit play. Price of around 2.45 is very close to lower bollinger band providing a greater chance of a near term rebound.

Yangzijiang had been battered badly since March when it reached a high of $1.4. Together with Cosco and NOL, they paint a picture of the malaise that the shipping industry has been facing ever since 2008 without a credible answer to the oversupply situation and more recently, the battering ram of Europe. It is however not difficult to believe that the Baltic Dry, at its current ~1000 levels, as providing one of the lowest support levels of current time. Over 4 years, news have been battering ships - how worse can it get?

Outlook - Buy on the consensus that it is in for a long investment period. Right now there is nothing to suggest that the stock may go any lower than 2011 lows unless incredible mayhem strikes Europe. Risk-defined and just be prepared to hold for a while at current levels. The time where shipping returns again is a guess as good as yours and mine.

• MACD - Well at 2 years low and crossing over the signal line in the week seemingly.
• RSI (25d) - Touched 30% 2 weeks back.
• Bollinger bands - A technical rebound was observed after the stock went below the lower bollinger band to close at around $1 on last Friday.

Property Sector Play Hots Up!

As it seems, property stocks are on the rise given the highly volatile market conditions that have ensued on Wednesday's trading. They have been quite lagging in the blue chip rally last month given the impact of the stamp duties that really brought their prices way down in December. But things seem to be getting rosy for the counters and I have compiled snapshots of Capitaland, Keppeland, Ho Bee, Yanlord and Wing Tai.



Bullish. Capitaland has just broken out of a minor resistance line (of a peak in mid July '11) and is steadily on an uptrend towards 3.25 of a fib projection 100% level.
MACD histogram has been 3 days in green and positive. MACD line is trending up.
RSI is in overbought territory but well supported by the 70 support line (formed by a trough 18 Feb)
Volumes match price action.

Bullish with caution. Keppeland price has been trending very rapidly towards $3.43ish, facing its first test of confidence in a period of a year. Expect some resistance from that resistance line and if it breaks, more upside is expected. For now, it does not seem like a true buy call yet.

MACD histogram has been 4 days in green and positive. MACD line is trending up.

RSI is in overbought territory but well supported by the 70 support line (formed by a trough 6 Feb)

Volumes match price action.

Bullish. Ho Bee has been trending upwards significantly since mid Jan and prices have recently crossed the 200d MA line. Very well supported trend on the diagonal major support so looking very healthy as a clear trend trade.
MACD histogram has been 3 days in green and positive. MACD line is trending up.
RSI is in overbought territory but well supported by the 72 support line (formed by a trough 17 Feb)
Volumes have been increasing but not too significantly.






Bullish with caution. Yanlord has been trending upwards steadily since start Jan and prices have recently broke through a resistance line formed one plus year ago. Very clear uptrend but headwinds lie ahead from a $1.50 resistance line from a year ago as well as being supported by a fib projection of 100%.
MACD histogram has been 3 days in green and positive. MACD line is trending up.
RSI is in overbought territory but well supported by the 70 support line (support has been test on 13and 17 Feb)
Volumes have been increasing but not too significantly.

Bearish. Wing Tai is seeing a crossover between the 12d EMA and the 20d SMA lines as well as a trend reversal seen after hitting a peak resistance at $1.33.
MACD histogram has been 5 days in red and negative. MACD line is trending down.
RSI just reentered the 'safety' zone which is also an indication for many traders as a short call.
Volume on Wednesday has increased to match the bearish candlestick suggesting real price moving down.