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. 

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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A Great Commodity Run? - Olam, Noble, Sakari, Wilmar

Corn prices are hitting record highs; China's industrial production has been rocky lately fueling more chances of a stimulus that can restart the commodities consumption phase that led the 2008 rebound. We are seeing these bets on the badly battered commodities counters on the SGX that the next phase of the 2nd half of 2012 will be focused on stimulus measures which will lift the gloom on our current state of things. Counters such as Olam, Noble and Sakari have been leading a 1 week-old rally into strength, with some overcoming their highs set in late June/July. Wilmar has still been seeing strong selling pressure at close on Wednesday, 8 Aug despite the happenings around it.

The question looms - how to ride on this expectations-led rally? Let's take a look at the stock charts of the 4 mentioned stocks - Olam, Noble, Sakari and Wilmar.

  

Overall outlook

• It is clear that Olam seems somewhat a stronger stock with good buying pressure (albeit, possibly, artificially created from its recently announced share buy-back programme). 
• This can be seen from a higher July local low than its low in June. 
• An uptrend seems to be intact since it was so badly sold down in May.
• Both Noble and Sakari shown a W rebound to retake their early July highs. 
• Both Olam and Sakari are showing signs of a break above their July highs and have closed at around those prices.
• Noble still has some small room to go before hitting its July high.
• All three stocks Olam, Noble, Sakari are showing healthy RSI (25d) cross above 50% and MACD trending up with positive divergence.
• Wilmar still has some unrelieved selling pressure that has keep its prices firmly at $3.23 albeit with lower volumes of trading activity.
• RSI (25d) is around 30% levels which still make Wilmar an attractive proposition for bargain hunters. 
• MACD seems to be reaching a minimum point and turning upwards. Divergence turning positive soon (MACD cross signal line).
• In summary
• Olam
• Good uptrend observed but helped on by internal share buy-back.
• Challenging the 100d MA on friday (10 Aug).
• Noble group
• has not hit June/July high
• only 9.7% away from 200d MA.
• smaller market beta compared to other stocks = lesser volatility and profit.
• Sakari
• good upside potential of 25% towards its 200d MA
• has had a terribly good run so far with good increased volumes.
• Wilmar
• good bargain somewhat compared to the other few commodity counters
• +41.6% upside towards its 200d MA which is the highest among all 4 stocks. Even if its profit variance this time (the last announced quarter) was way off, it should have some risk management and smoothing in place to ensure that at least the 200d (and more) MA gives a good gauge to its future profit levels.
• note that selling pressure is not over so there is somewhat high risks involved in betting for a rebound

Time to be Bullish on Property Counters?

It is of no coincidence that the Straits Times rightly mentioned about 'Property Stocks Outperform(ing)' in the Saturday's (29 June) papers; this is something that I had been highlighting since end May and even more strongly in the last 2 weeks. 

• "Focus on the supply & demand + momentum" - Strong real estate supply and demand 25 June
• "Weekly stock call - Ho Bee Properties" - 19 June
• "Weekly stock picks - CapitaMalls Asia and Ezion Holdings" - 11 June
• "Weekly stock picks - Yangzijiang and Capitaland" - 28 May

Again, acutely pointed by the article is that the FTSE property index is up 20% YTD. I have also plotted all key indices in a plot below that clearly illustrates the outperformance of the property stocks index as well as highlight some other outstanding and (possibly) undervalued sectors. 

If we go deeper into the reasons for this strong showing by the property sector, it is also not difficult to derive its strong fundamentals and technicals (supply and demand).

1. If you buy the fact that the STI is rebounding pretty strongly, with large cap counters beginning to re-challenge its first half of the year highs, there is a strong premise to do so with the property counters as traditionally, they are the leaders of any bull rally/rebound/correction. 
2. Past week of property news have focused on the resilient residential prices, rebounding commercial and industrial rental yields. To put it simply, despite all the cooling measures, demand for property is still very very high from the spare liquidity in the hands of Singaporeans. Some may argue that the commercial sector still faces a tough time ahead while prime residential is still reeling from the recent stamp duty imposed on foreign buyers, they are really just smaller issues in the bigger sphere of this property sector. Here are some of the published articles between 25 June to 30 June on the property market 
1. (iOCBC Research) SG Residential Sector: Upgrade to Overweight - Mass-market prices to stay buoyant
2. (ST) Bigger homes making a comeback after shoebox craze
3. (ST) Healthy demand for good class bungalows here
4. (ST) Private resale home prices inch up again in May
5. (PropertyGuru) Suburban condo prices resilient: NUS study
6. (ST) Industrial sites draw new players
3. Cooling measures are meant to prevent a bubble from occuring and not to cause a huge deterioration in prices (a hard landing). The finance ministry will not allow that to happen either. More importantly, the absence of a property bubble gives further insurance to everyone albeit slower capital yields that the market has incidentally overdiscounted.
4. Over the last 12 months, the overall new and resale property prices are still higher by almost 5%. Source: PropertyGuru

Fundamentally, the sector is strong with key counters having huge diversification across segments (residential, commercial and industrial). They are also big players around the regions with strong balance sheets and cash kitties. Technically, proposition of property counters doing well has been well and truly validated by the stock market over the last 2-3 weeks and there is little sign that they will be headed for a crash as many predicted after the last cooling measures. 

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.

Why Did I Trade When I Said to Be Wary?

I have been learning in the last 5 years of my trading journey and I have often made mistakes - plenty, in fact in the early stages. But having said that, though the frequencies of bad trades are less often now, they have not been completely eradicated. I am still not satisfied with myself. I am not satisfied with my greed and ability to give in to my will.

2 weeks earlier, I posted a key post suggesting a pull back/volatility/consolidation phase in this bull run of 2 months. I said further to stop putting in trades and to ease out on open positions. I did. But I only obeyed the latter despite my strong convictions seeing the very obvious negative MACD divergence on the Dow Jones chart and subsequently a gap down on the STI. Since then, neither the STI nor Dow Jones have recovered to its February highs. 

I saw it coming, I did my homework but guess what. I caved into temptations when the STI tried to stage a swift pull up on the small fall. It was really tempting to bet in the bull direction and say "Hey, perhaps yesterday or my analysis was an aberration" Or like my other post mentioned, "Looks like it can go on further".  Then, in all honesty, that really took over me and I plunged into commodities - arguably the worst buys of the 2nd half of the February month. 

Why did I enter? Greed and impulsive trades without checking technicals nor fundamentals of the sector (commodities). When I look back, I really should not have entered given the pull back was evident on commodities lately (ex crude oil companies which are typically more so classified as oil & gas).

What next? Thankfully to closing quite a lot of my key opened positions, I booked my profits that have almost reached my objectives of this year and that helped a lot in my risk management. Glencore just announced an improvement in their profits for this quarter and I am cautiously optimistic on the cyclical nature of commodities being able to bring me breakeven in 2-3 months. I am also thankful for trading stocks of strong business groundings that should be able to withstand any future shocks while the commodities market starts to pick up again.

Til then, the outlook and momentum still seems slightly downcast together with the STI's.

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.

Weekly Market Review and Perspectives

Week 7 of 2012.

1. STI Performance Review

This week, the STI raced to recapture the 3000 mark. Convincing? Not quite yet. We only saw a short breakout on Wednesday before a fall back below 3000 levels occured with a pretty big dark candlestick. On Friday, STI had closed 3000. 

From both TA and FA point of view, this coming week is crucial. 

First, for proponents of TA, STI's failure to breakout from 3000 is not helping many to make a decision in this seemingly overbought market. Talk to anyone and people will say that they are treading cautiously now since everything 'seems too high'. Too high is relative, at least to me - so it suggests nothing. But translate this to overall market action, it is significant as we want retail and institutional investors to come in and continue the buying pressure. So, this coming week will finally throw more light on the value investors are putting on the STI and if it can breakout successfully, the next target I am putting is 3206, using the height of difference between the low in Dec and breakout in Feb (past 2920). 

Not thinking too far, the uptrend is strongly intact on a weekly chart (I do support a breakout but at least in the next next week since STI should be taking a break this coming week) and the latest week candlestick is still suggesting strong buying pressure with sustainable volumes. RSI and MACD are trending upwards with the MACD crossing 0 for the first time since August. Another bullish indication. MACD histogram is all green for the past few weeks and this suggests momentum is still firmly with the bulls. 

Second, Greece is still on the cards for everyone. So long as its default potential is not put to bed, this market will not ease on cautiousness. We saw how a little indecision in providing the full aid to Greece on Wednesday night caused a market turmoil on Thursday so anything may happen.

2. STI Performance vs other Key Indices

Below are 2 graphs with difference starting dates (used in the computation of the % relative gain/loss). I have chosen 1 Oct and 1 Dec as reference points due to their local lows.

It is interesting to note that the Hang Seng index is a clear outperformer compared to the rest in the basket. Its rise has been nicely sloped and has on every single day after 1 Oct and 1 Dec (except 12-13Dec) reference points outperformed the STI index. This meant that if you went long on HSI and STI on 1 Oct and reviewed your portfolio any day after til date, you would have a better result with the HSI.

However, if we delved into the rise of the STI since 1 Dec, it was not a bad performer. Assuming we went long on the STI on 1 Dec and looked at it today, only doing so with the HSI and Nikkei(slightly) would yield a better result. 

3. Key Sector Performances of the STI

Looking at the performance chart of the key sector indices referenced on 1 Dec, it is clear that the maritime index has been way better than the STI. It is almost a 24% increase in the profits that would have been obtained by longing the STI on 1 Dec and reviewing it today! The next outperforming index is the Oil&Gas sector that has also traditionally been pretty strong given Singapore's fundamentals in this area. Not surprising that these 2 sectors have been leading the charge on the recovery and although the performance of the maritime sector has been way stellar, one contributing factor was the tremendous loss it suffered in late 2011. 

So comes the question of which area to look at? Well of course, this ultimately boils down to your preference, risk appetite, portfolio optimisation and objectives. There are clear outperformers in this market. Will they last the trend? Of course one day they will too become expensive and people will begin avoiding them, seeking for more undervalued ones. Then comes the next question of which undervalued one? As it seems, the real estate index is still recovering from its losses in late last year due to stamp duty legislation. This is one area to look at given key blue chips like Capitaland and Keppeland are solid in balance sheet while reits provide good dividend yield.

Food for Thought

The STI has rebounded by almost 10% since the start of the year, a bull run that was probably overdue. As we savour the current period of market boom, it might be worthwhile to direct your attention to the STI monthly statistics on turnover of the market. 

The graph below shows value/share of each of the key sectors over a period of 3 months. 

Are these what the market is trying to tell us about price reflecting the performance, market psychology, fundamentals of each sector? Utilities has been increasing steadily in value/share transacted over the last three month. Undervalued but up and coming proposition? As expected, consumer services, financials and oil and gas are sectors with high valuations. Could this graph yield us more insights to changes in the stock market to come?