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Singapore Stock Market Lessons From 2014 – Charlie Lau
Aspire, Thought Leaders | 26 December 2014
By: Charlie Lau Suan Liat
Articles (29) Profile

The 2015 Stock Market Outlook for Singapore looks to be a punter’s market. Singapore shares – heavy-weights, medium weights and feather weights would be volatile. Speculation profits look easy to come by and just as easy to go away due to high volatility.

Investors might want to take special note that two important changes will take place in 2015. There will be adjustments in lot size to 100 shares per lot instead of the present 1000 shares per lot. At the same time, main board counters must maintain above twenty cents.

I have noticed several interesting lessons that investors might want to really take note this year.

Investment in shares is never wrong based on fundamentals. But the trouble is, interpretations of fundamentals are often misguided, misinterpreted and misrepresented. Investors need to acquire fundamental information and yet be non-believers. They have to commit to some personal diligence as well as use charts to see at what level they would want to buy or sell.

Investors have to look at the volume of a stock traded and figure out if there are players in the shadows. Particularly, institutions with large holdings who basically manipulate market prices by selling and buying through associates (left hand to right hand).

I strongly believe that investors need to look at the traded volumes of a counter, up to one contra period or five days before an announcement or news, to decide if the counter has already been bought at low prices and waiting to dumped to gullible investors.

2014 up to Christmas saw many such examples with penny stocks. The adage on the penny stocks was “pump and dump.” Many inactive stocks in 2014 suddenly came alive with juicy news and heavy volume. Major shareholders or operators of these “pump and dump” counters are now throughly enjoying their Christmas celebrations.

Review of 2014

The Straits Times Index chart

The Straits Times Index [STI] closed 24 December 2014 at 3346 points, near the 52-week high of 3374 points on 31 July 2014. STI gained 179 points or 5.65 per cent from 31 December 2013. Investors should use this 5.65 per cent gain as a yardstick to gauge their own investment performance.

The attached STI chart has The Business Times PE Premium data for a few major markets for investors to consider. The STI PE Premium is 13.52 times at 24 December 2014. Investors can use this 13.52 times as one of the investment yardsticks for stock selections in 2015.

Investing or Punting
Most retail investors with money to buy and keep a good fundamental counter, will have the intention of keeping it for a long time. But there will be temptation within the week or two if the counter moves up ten to twenty per cent, the investor would sell to lock in profit. This make him/her a punter instead.

Really, as long as there is profit it is not wrong to take profit.

2015 would provide many such opportunities but investors need to make sure they buy when the chart indicators are low — this can be based, in my opinion, on the 14-day RSI (Relative Strength Indicator) and the 5-day Stochastic Momentum.

Successful Investing
With so much information on the collapse of crude oil price it does not need an intelligent investor to avoid the oil and gas sectors and to invest in the transportation sector. This simplistic view is too late and to sell in the oil and gas sectors could be misguided or foolhardy. Some of the fundamental oil and gas sector stocks like Keppel Corporation and Sembawang Corporation Industries are now trading near their 52-week low.

Hitherto they do not have order cancellations and their order books can stretch for another two to three years at least. At the close on 24 December 2014, Keppel Corporation was $8.87 with a Price Earning Ratio of 8.5 times and SembCorp Industries at $4.44 trades at the PE Ratio of 10.1 times – both well below the STI PE Premium of 13.52 times as at end 24 December 2014.

To buy the transportation sector like SIA and ComfortDelgro may also be too late. SIA at the close on 24 December 2014 was $11.67. SIA currently trades at the 52-week high with a PE Ratio of 37 times. ComfortDelgro at $2.59 is also near the 52-week high with a PE Ratio of 19.8 times. Both transportation counters are well above the STI PE Premium of 13.52 times.

To invest successfully the investor needs to give thought to other fundamentals like the Dividend Yield (above 2.8%) and Book Value per Share [BVS] higher than share price besides the Price earning ratio (13.52 times).

Crude oil and other commodity prices would affect the business models of different stocks. This aspect is important and needs to be taken into consideration in projecting the business model of a company. Also, there is a need to consider the strength or weakness of the currencies the companies are involved with.

Guidance By Investment Analysts
Investment website “Motley Fool” writer, Hui Leong Chin wrote on 28 November 2014, “Why 2015 Share Market Predictions are Moot” mentioned with references to the Business Week survey and money manager David Dreman that forecasts over the past decade on Wall Street by leading strategists were off by about 16%. Forecasts of the following quarter for company’s profits were wrong by up to 41% over the past thirty years.

Back home in July this year, a team of research analysts made fifteen recommendations at a seminar.Eleven of the fifteen counters as at 24 December are in negative territory. Table attached.

11 of 15 counters recommended by a team of research analysts in negative territory

Investors should not be totally put off on investment talks or articles. There are good ones. In January this year, a boutique fund gave a presentation and recommended seven counters. Six of the seven are in positive territory. Table attached.

6 of 7 counters recommended by a boutique fund in positive territory

While market predictions may be “moot” or investment talks or articles may be misguided or misleading or misrepresented, investors still need to know what was developing in a counter and wait for opportunities to strike. Patience is required.

In the next part of my article, I will talk about possible dangers that the Singapore stock market might face as well as the red herrings.

Veteran remisier and highly sought after speaker in the investment field, Charlie Lau is well known for his invaluable investment strategies.

Please click here for more information about this author.

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