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Seizing Opportunities In The Current Market Sell-Off
Perspective | 14 February 2014
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By: Shane Goh
Articles (99) Profile

In the latest release of economic data, US unemployment rate hit 6.6 percent in January 2014 and inflation rate hit 1.5 percent in December 2013. These were close to the Federal Reserve’s target of 6.5 percent and 2 percent respectively. The figures add weight to the Fed’s decision to commence tapering of its quantitative easing programme in January.

In Europe, Markit’s Purchasing Managers’ Index rose to 54.0 in January 2014, surpassing an earlier flash reading of 53.9 and December 2013’s 52.7. A reading above the 50-point level demarcates growth in the economy.

Emerging Markets Sell-Off
The tightening of liquidity and positive outlook of the West have caused fund managers to pull funds out of emerging markets. In the two weeks ending 7 February 2014, investors removed more than US$12 billion from emerging markets equity funds, the biggest outflow since January 2008, said Morgan Stanley.

In particular, firms which are highly leveraged or require large capital expenditure have been negatively impacted by the sell-off in light of Fed tapering, which is expected to raise interest rates. Companies which carry substantial debt may be hit if their loans are based on floating interest rates.

Two Sides To The Coin
Property developers would rank among the top few firms which take on large loans. As interest rates hike up, higher borrowing costs are expected to squeeze profit margins. Atop, the Singapore government has stepped in to reign in the rising household debt. Its latest cooling measuring, the total debt servicing ratio (TDSR), was introduced in June 2013.

Based on the TDSR, any property loan is not to exceed a 60-percent threshold of the household’s income. This could hamper demand and growth in residential property, which witnessed a tremendous rise in prices since the global financial crisis.

However, there are some industries which would benefit from the interest rate rise. An upturn in the borrowing costs for property developers leads to higher interest income for our three local banks. Based on their latest full year figures, net interest income contributes about 60 percent of all three banks’ total core income. With a large deposit base offering them room for improvements in interest margin, the banks are heading towards greener pastures.

Since the Fed’s tapering decision is based on an improved economic landscape, sectors that ride with increased market optimism stand to gain. As consumers feel better about their financial future, expenditure will rise. This will fuel greater demand in goods, leading to a surge in manufacturing, global trade and eventually, commodity, in particular the oil and gas industry.

According to the Energy Information Administration, global oil demand is expected to grow by 1.2 million barrels per day in 2014, with a similar expansion estimated for the supply side. The increased consumption has bode well with oil and gas related firms in Singapore.

Order books at Sembcorp Marine and Keppel Corporation hit record highs last year. Between the two, Phillip Securities prefers Keppel due to its resilient operating performance, strong execution for its Brazilian projects and attractive dividend yield in excess of 4 percent.

Risk-Free Trades
Nonetheless, it can be hard to concentrate on a sector and company’s fundamentals when facing a broad market selloff. What if there was an avenue for you to test out your strategies without risking your money? The POEMS 2.0 Stock Challenge offers such an opportunity.

Previously only opened to tertiary students, PhillipCapital will run a competition that pits budding investors and traders in around the world against one another. From 3 March to 30 May, investment enthusiasts could choose to join the game using live or virtual accounts or get their feet wet in a Warrants Challenge.

Hosted on their brand new platform – POEMS 2.0, the updated system is built around a widget concept which offers users greater flexibility on their trading needs. A global synchronised watch list enables the investors to keep tabs on his favourite counters while a hot stock feature shows the day’s market sentiment with a quick glance.

Expanding on its array of features, the improved platform allows the user to enter good-till-date orders for Singapore stocks and stop limit orders for the US market. Uniquely, PhillipCapital is the first Asian brokerage firm to offer trading on the Turkish market.

With over $130,000 worth of prizes awaiting participants, register now and put your strategies to the test!

Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.

Please click here for more information about this author.

Sembcorp Marine  1.200 -- --   
Business: Co is a leading global marine & offshore engineering group. [FY18 Turnover] rigs & floaters, repairs & upgrades, offshore platforms (98.8%), ship chartering (1%), others activities (0.2%).

Insight: May-19, 1Q19 revenue fell 31.3% to $810.6m due to ... Read More
Keppel Corp  5.840 -0.12 -2.01%   
Business: [FY18 Turnover] Infrastructure (44.1%), offshore & marine (O&M) (31.4%), property (22.5%), investments (2%).

Insight: Apr-19, 1Q19 revenue rose 4.1% underpinned by high... Read More

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