June was yet another sluggish month that was overshadowed by the rising trade tensions between the US and China and the recent US dollar strength. STI extended the loss for the second month as it fell -4.65%. Globally, the overall sentiment was also greatly affected by the resurgence of the trade tensions, especially China where the Shanghai Composite Index tumbled -8.00% in June.
The trade tension heated up again in June after the US administration announced that a 25% tariff would be imposed on $50 billion China imports that involve significant technologies. China also responded immediately with a similar 25% tariff on $50 billion US goods.
At the height of the dispute, US raised the stakes by stating a possibility of restricting foreign investment into the US, mainly targeted at China.
After this latest round of tariffs announced in June, the US has doubled down again and revealed a list of $200 billion of Chinese goods subject to an additional 10% tariff. The market reacted negatively initially when the news surfaced on 11 July. However, the recovery came quickly suggesting the market was once again overacting to the negative trade war news. Keep in mind this new proposal for an additional tariff on $200 billion Chinese imports will not be final until after two months of public comment period. In other words, the decision on the amount of tariffs and list of items will only be finalised after August 30. Thus, in the meantime, looking at the current recovery price action suggests the market is expecting further positive negotiation between the US and China to find a win-win outcome.
From the Year to Date (YTD) high of 3641 points (2 May) to the YTD low of 3176 points (6 June), the STI has fallen as much as -12%. Despite the immediate trend turning bearish, we expect a near-term rebound to take place. As mentioned in the “Chart of the Week” on 2 July, there is a chance for the STI to test the 3200 psychological support area if the hammer rejection fails to sustain. Indeed, with the lack of bullish follow through after the last update, the bearish momentum gathered speed and broke below the 3200 psychological round number violently on 6 July as it hit a yearly low of 3176 points.
That sharp selloff of -2% on 6 July was caused by the new cooling measures in the property market. The Singapore government announced that it is increasing additional buyer’s stamp duty (ABSD) and tightening the loan-to-valuation (LTV) limits for residential property purchases to cool the local property market and keep prices in-line with economic fundamentals. Nonetheless, the selloff appeared to be exaggerated as the STI recovered ground the following day and closed back above the important 3200 psychological support area. The subsequent bullish follow-through has also signalled further sign of strength and suggests the bearish break below the 3200 psychological support to be a false bearish break.
Figure 1: STI Daily Chart – 3200 psychological support holding up
Source: Bloomberg, PSR
Red line = 20 period moving average, Blue line = 60 period moving average, Green line = 200 period moving average
Keep in mind the Relative Strength Index (RSI) has been oversold since 14 June as it hit an extreme low of 23 on 25 June. With the recent strong bullish rejection off the 3200 psychological support area, the RSI has also risen back above the 30 oversold region signals the start of a mean reversion higher next. For this rebound, expect the STI to test the 3341 resistance area next followed by 3462. There was also a bullish break above the immediate downtrend line signals further sign of strength.
The 3200 psychological round number to 3190 support area will be critical in keeping the long-term uptrend in the STI intact.
Overall, the performance of the “Phillip 20 Portfolio” did well in June and managed to weather through the storm. The “Phillip 20 Portfolio” was up +1.80% as compared to the STI of -4.65%. The positive performance was mainly propped up by BreadTalk and Sinostar Pec.
New Entries
The huge swing in the general market sentiment has also allowed us to identify a few buying opportunities. We have added the following seven stocks into the “Phillip 20 Portfolio” in June.
Figure 2: new entries in June
Source: Bloomberg, PSR
Losers
In total, seven trades were stopped out in June due to the overall negative sentiment. As a result, the “Phillip 20 Portfolio” booked a realized loss of –3.41%. Figure 3 shows the trades that were stopped out.
Winner
We have also decided to close out our position in Japfa on 27 June due to the bearish price action. The trade in Japfa netted a return of +0.34% to the “Phillip 20 Portfolio.”
Source: Bloomberg, PSR
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
Jeremy specialises in Technical Analysis and has 10 years of experience in studying price action. His areas of expertise include intermarket analysis on the equities, currencies, commodities and bonds market.
He is also a regular columnist on The Business Times - every Monday ChartPoint column.
He graduated with a Bachelor of Science in Banking and Finance from University of London.
