The Singapore Straits Times Index (STI) ended the first day of the new second quarter of 2016 with a fall of 22.4 points or 0.79% lower to 2,818.49 on April 1. It is no April Fool’s joke as the STI’s year-to-date performance fell to -2.23%. As the markets enter into a new reporting season, and annual general meeting (AGM) season gets underway, many investors will be busy trying to figure out the direction of the market for the remaining nine months of 2016.
How does the STI fare technically
The above diagram shows a one-year technical chart of STI with the 50-day and 200-day simple moving average (MA) overlays, and trading volume below. The market started entering into a bear territory when the 50-day MA crossed the 200-day MA on a downward direction at around in August 2015. This is known as a ‘dead’ cross in the world of technical analysis (TA). On August 21, 2015, STI fell below the 3,000 psychological mark and ended the day at 2,971.01 points or 1.29% below the previous trading day (August 20) of 3,009.78. Incidentally, August 2015 was the month of high market volatility with China devaluing the yuan currency.
Entering into the new year, with the first quarter just ended, the STI seemed to show some recovery, albeit a slow one. With the latest reading of 2,818.49 as of April 1, the index has moved upwards above the 50-day MA of around 2,700, and is closing in on the 200-day MA of around 2,900. Many analysts and market observers are doubtful that the recent recovery of STI is sustainable as the Singapore economy remains weak, along with regional economies like China showing weakening growth. Most analysts think that the STI might end up range bound at around 2,500 to close to 2,950, with 3,000 as the next major resistance level to break for the whole of 2016.
How does the STI fare fundamentally
The STI is trading at around 13 to 17 times current price-earnings (PE) ratio. It is relatively cheap at current levels, but market volumes have largely remain lacklustre with many investors choosing to punt small-cap or ‘penny’ stocks, rather than investing actively in blue chip names like the banks, transport and property counters that form the main components of STI. These three sectors offer income and stability at a time when growth in major economies like China, Europe, US, and Latin America seems slow, and stock market volatilities remain elevated.
What market events to look for this week (April 4 to 8)
Major market events to look out for this week starting in Singapore with the latest set of 1Q2016 gross domestic product (GDP) being released this week on April 7. The Singapore economy grew 2% on an annualised basis at the end of 4Q2015, and the Ministry of Trade and Industry (MTI) has maintained GDP outlook for Singapore to be in the range of 1% to 3% for the whole of 2016.
On the earnings front, SPH Reit will be among the first group of public-listed companies to report its quarterly results. The company reported 1QFY2016 results last December with revenue rising 2.9% on a yearly basis to $52.1 million and net property income (NPI) rising by 5.9% to $40.1 million. In its January 06, 2016 research report, OCBC Investment Research is maintaining a ‘Hold’ rating with a price target of $0.99 per share. It cited the strong balance sheet, and low gearing ratio of 25.7% similar to the previous quarter.
The US Federal Reserve will be releasing its Federal Open Market Committee (FOMC) minutes for March on Wednesday, April 6. During that March meeting, the Fed surprised the market by cutting its rate hike projection to two times instead of four times this year. Before the 1Q2016 ended, US Fed Chairwoman Janet Yellen had also hinted the possibility of a slow rate hike move this year when she spoke at the Economic Club of New York last Wednesday, March 30.
Several Fed speakers will also be on the speaking circuit, and market watchers will be watching closely on any further directions of rate hikes this year.