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Exciting Week Ahead With Many Small / Mid Cap Stocks Releasing Results
Perspective | 23 February 2015
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By: Ernest Lim
Articles (134) Profile

Happy Chinese New Year, readers!

The upcoming week is an exciting one as most of the Singapore listed small / mid cap stocks will be releasing their results.

Before I elaborate more on the broad Singapore market outlook, here are the technical analyses on the S&P500, Hang Seng and Straits Times Index’s (STI) charts.

Technical Charts’ Outlook

S&P500 Index

Two weeks ago (6 Feb), I mentioned that S&P500 was fortunate not to breach the strong support region of 1,970 – 1,998 on a sustained basis and it was likely to trade within the range of 1,970 – 2,100.

S&P500 spent the most of the last two weeks within 2,042 – 2,100 before breaching 2,100 and closed at 2,110 on last Friday.

Based on Chart 1 below, S&P500’s trend continues to be up as depicted by its strong rising 21D, 50D, 100D and 200D exponential moving averages.

RSI, at 64.1 on last Friday, is not overbought yet. However, given the low ADX of 18.6 (albeit rising from the low of 17.1), the uptrend does not seem to be strong in the near term.

Near term supports are around 2,080 / 2,068. Resistances are at 2,125 / 2,150.

Chart 1: S&P500 closed record at 2,110

Source: CIMB itrade complimentary chart

Hang Seng Index

Two weeks ago (6 Feb), I wrote that Hang Seng might trade within the range 24,000 – 25,400 given the low ADX of 20.3 on 6 Feb.

From 9 to 18 Feb, Hang Seng traded within the range 24,226 – 24,872 and closed at 24,832 on last Wednesday.

Based on Chart 2 below, Hang Seng has once again tested the resistance turned support level of around 24,300 successfully.

Source: CIMB itrade complimentary chart

Hang Seng’s medium term trend continues to be positive. However, given the low ADX of 17.8 (even lower than 20.3 on 6 Feb), Hang Seng may continue to trade within the approximate range 24,300 – 25,400 in the next two weeks.

It is noteworthy that the underlying positive tone in Hang Seng’s chart may be negated if it falls below 24,300 on a sustained basis.

Near term supports and resistances are at 24,506 – 24,530 / 24,233 – 24,289 and 25,000 -25,050 / 25,180 – 25,250 respectively.

Chart 2: Hang Seng still range bound for the past two weeks

Straits Times Index

Two weeks ago (6 Feb), I wrote that STI trend continued to be positive, notwithstanding intermittent profit taking.

STI closed at 3,431 on 6 Feb and traded within the range 3,406 – 3,449 before it closed at 3,436 on last Wednesday.

Based on Chart 3 below, STI’s medium term trend continues to be up as depicted by its rising EMAs.

However, ADX has maintained at around 21 – 23 for the past two weeks which indicates that the uptrend may not be strong in the short term (i.e. approx next two weeks).

STI may trade within the range of 3,400 – 3,483 in the next two weeks. It is noteworthy that the bullish underlying tone is negated if STI falls below 3,375 on a sustained basis.

See more information on STI supports and resistances below.

Chart 3: STI – medium term trend up, short term may be range bound

Source: CIMB itrade complimentary chart

Personal Opinion On The Deal Lapse Between Thai Chaoren And OCBC & Great Eastern On United Engineer

I have received several enquiries on my personal opinion on the United Engineer (“UE”) deal lapse between Thai Chaoren and OCBC & Great Eastern.

Below is my personal opinion on United Engineer which I have updated my clients on 16 Feb. My personal opinion below has also been quoted in Lianhe Zaobao article which was published on 17 Feb.

Personally, I think that UE has been disposing of its non core assets at good prices to prepare for an eventual sale.

The fact that they are not able to agree on the price may arguably be a good outcome for long term shareholders who believe in UE and they don’t want to sell cheap. OCBC and Great Eastern do not have to sell it cheap either.

Last reported NAV / share is around $2.83. This NAV / share may rise in the upcoming months as UE has disposed of a few of its businesses last year.

UE’s 9MFY14 revenue and net profit soared 134 percent and 89 percent to $2.74 billion and $67 million respectively.

UE has been giving dividends of at least $0.05 / share for each year since FY2010 and it typically tops up with special dividend of around $0.02 – 0.10 / share.

Thus, total dividend to be announced in 4Q each year (likely to be announced end Feb but paid out in Apr / May) amounted to around $0.07 – 0.15 / share.

My personal take is that dividends should not be too low due to UE’s recent disposals, plus future disposals and good results.

In addition, if the eventual intention is to sell out, UE may dish out a higher dividend payout, instead of conserving cash for future growth.

In a nutshell, it depends whether you are a long term shareholder or short term punter.

Personally, I think that there may be buyers with a long term horizon (at least a year) at around $2.50 – 2.71 as an imminent offer for UE is likely given UE’s actions of disposing the assets.

U.S. Market Outlook

Most economic reports indicate that the U.S. economy continues to be on a sound footing.

According to Bloomberg, out of the 88 percent of the U.S. S&P 500 companies that have reported earnings this season, about two-thirds exceeded profit estimates and approximately 56 percent exceeded sales forecasts.

Although analysts have revised downwards their projections at the start of the earnings season, the aforementioned results beat is still pretty positive.

Notwithstanding the positive picture on the U.S. and the “buy” recommendations from several analysts and fund managers, given a horizon of around ten months till end 2015, my personal view is that S&P500 may have limited upside potential around 10 percent, from the current level of 2,110.

It is noteworthy that the U.S. market is approaching its 7th year of the bull cycle and coupled with the possibility of rate hikes in the 2nd half of this year, it is likely to be volatile. Stock selection is key in deriving higher stock returns this year.

Singapore Market Outlook

Although STI inched up 0.1 percent for the past two weeks, the small cap sector (as represented by FTSE ST Small Cap Index) dropped 1.8 percent for the past two weeks which yielded opportunities.

As mentioned two weeks ago, I intended to temporarily raise my percentage invested to >100 percent in the coming weeks to capitalise on companies which are going to release their results.

I have capitalised on the recent decline in the small cap sector to raise my equity allocation from 75 percent (6 Feb) to 102 percent (with the help of leverage i.e. via CFDs) as of last Wednesday.

As mentioned last fortnight ago, I mentioned that Feb is going to be my peak period as most small – mid cap stocks are releasing their results.

The last week of Feb has the most number of results release from the small to mid cap sector. Although my current equity allocation is 102 percent, I am likely to increase it further with the help of leverage this week on a temporary basis to capitalise on these short term opportunities.

Please note that I am putting my equity allocation and selected stocks above just for general discussion purpose. Due to my work nature, I can change my equity allocation and the stocks quickly and without prior notice. Furthermore, I exercise an active approach in portfolio management with a relatively short horizon. Everybody is different in terms of returns expectations, risk profile, portfolio size, commitments, market outlook, stock preference etc. As such, everybody’s allocation in equities differs.

In addition, it is noteworthy that the above is my personal opinion and may not cater to your specific risk profile etc. The question of when to buy / sell and what to buy / sell differs greatly from individual to individual. Furthermore, it is extremely important to bear in mind that the market outlook is never static. It can change suddenly if there are sudden big events unfolding from the market – some events can happen as quickly as a few hours.

STI Near Term Supports And Resistances Are:

Current: 3,436

Support 1: 3,408

Support 2: 3,400

Support 3: 3,385 – 3,388

Support 4: 3,373 – 3,378

Resistance 1: 3,448 – 3,454

Resistance 2: 3,465

Resistance 3: 3,483

Resistance 4: 3,500

P.S: Supports and resistances are not static levels. They may be subject to change daily.

*Summary of Economic Calendar for the Week ahead (SIN time)

23 Feb, Mon: (JPY) Monetary Policy Meeting Minutes; (EUR) German Ifo Business Climate; (USD) Existing Home Sales;

24 Feb, Tues: (EUR) ECB President Draghi Speaks; (USD) CB Consumer Confidence / Fed Chair Yellen Testifies;

25 Feb, Wed: (CNY) HSBC Flash Manufacturing PMI; (EUR) ECB President Draghi Speaks; (USD) Fed Chair Yellen Testifies / New Home Sales / Crude Oil Inventories;

26 Feb, Thurs: (EUR) Targeted LTRO; (USD) Core CPI m/m / CPI m/m / Unemployment Claims / Core Durable Goods Orders m/m / FOMC Member Lockhart Speaks;

27 Feb, Fri: (USD) Prelim GDP q/q / Chicago PMI / Pending Home Sales m/m / Revised UoM Consumer Sentiment;

1 Mar, Sun: (CNY) Manufacturing PMI / Non-Manufacturing PMI;

**All economic data especially China data (if any) are subject to changes without notice. The above list is not exhaustive. I have merely listed the economic data which I feel has more impact to the market.

Please refer to Forex Factory Calendar for a more detailed / up to date list of economic events.

Information sources: Various sources such as Bloomberg, Daily FX, Dow Jones, Forex calendar, Zacks Investment Research, Reuters, SGX, Yahoo Finance, and Business Times etc.

Ernest Lim is a CFA, CA and has worked at GIC Special Investment. He has a solid feel of the markets and financial world and is now a remisier.

Please click here for more information about this author.

United Engineers  2.560 -0.01 -0.39%   
Business: [FY17 Turnover] Engineering & distribution (25%), property development (27.1%), property rental & services (24.3%), manufacturing (15.8%), corporate services & others (7.8%).

Insight: May-18, 1Q18 revenue fell marginally by 0.8% to $1... Read More
Oversea-Chinese Banking Corp  10.950 +0.04 +0.37%   
Business: [FY18 Turnover] Global corporate/investment banking (35%), global consumer/private banking (34.8%), OCBC Wing Hang (11.5%), insurance (11%), global treasury & mkts (7.7%).

Insight: May-19, 1Q19 total income rose 14.7% driven by str... Read More
Great Eastern Hldgs  23.300 -0.06 -0.26%   
Business: Unit of OCBC. Turnover comprised of gross premiums, invs, interest and rental income, fees & other income as well as gain/loss on sale of invs.

Insight: May-19, 1Q19 gross premiums rose 6.5% partly due t... Read More

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