STI has tumbled 130 points, or 4.5% from an intraday high of 2,882 on 9 Jun 2016 to close 2,752 on 16 Jun 2016. The recent rapid sell off seems to reveal some interesting opportunities especially for those readers who have taken profit and moved to mostly cash (similar to me) since last week. Like most people, I am not clairvoyant and am not always able to catch the lowest level to buy into stocks.
Also, I will not know for sure whether:
1. Brexit will occur;
2. What is the exact impact (short term, medium term, long term etc.) to our Singapore shares if Brexit occurs, especially when STI has tumbled quite a bit?
What I know:
1. Notwithstanding the knee jerk reaction should there be a Brexit, most Singapore companies are pretty resilient and may not have direct impact to UK. Even if the stocks have exposure in UK, one has to look into the specific company in detail to assess (among other factors) whether
a) Its business will be affected and
b) The company has hedged its FX exposure to GBP;
2. Based on Chart 1, STI’s near term supports are at 2,680 – 2,713 / 2,633 / 2,588 – 2,600. Given the current chart’s development, I think it is unlikely to go below 2,588 – 2,600 on a sustained basis. In the worst case, STI is unlikely to go below 2,530 on a sustained basis, even if there is a Brexit. Base case scenario with a Brexit is probably around 2,588 – 2,600. Hence base case potential downside is probably around -6.0% (STI 2,752 vs base case 2,588 in the event of a Brexit);
Chart 1: STI’s near term significant supports are at 2,680 – 2,713 / 2,633
Source: CIMB complimentary chart as of 16 Jun 2016
3. According to DBS Research, STI is trading at around 11.2x forward PE which is marginally higher than the 10.8x seen during the height of the Eurozone debt crisis. Thus, it is likely that some of the fears and concerns have been priced in;
4. If there is no Brexit, the market is likely to experience a relief rally which can be pretty fast. If one (especially those with little % invested) does not accumulate on the current weakness, one has to be extremely nimble to catch the potential relief rally should there be NO Brexit.
What I have done
I have attached a personal compilation of stocks using Bloomberg data dated 14 Jun 2016, sorted by total potential return. I have used the following simple criteria:
A) SGD adjusted market cap >= S$200m;
B) Potential capital upside >= 5%;
C) Estimated div yield >= 2%
Table 1: Top five companies sorted by total potential return
Source: Blmberg as of 14 Jun 2016
Table 1 shows the top five companies sorted by total potential return. It is noteworthy that the potential capital upside and estimated dividend yield are obtained from Bloomberg. I do not know, and am not able to verify the accuracy of the numbers.
Readers who wish to receive the full compilation of the companies and / or be notified of my write-ups and / or informative emails, can consider signing up at http://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider to leave their contacts here http://ernest15percent.com/index.php/about-me/
Brexit, or rather, the fear of Brexit has opened some interesting opportunities. My personal take is that one should relook at his portfolio (especially if he is almost 100% in cash) to consider accumulating at measured pace before, during and after Brexit. Needless to say, one has to take into account of one’s risk profile, percentage invested, returns expectation etc.
Lastly, please read this write-up in conjunction with the following write-ups to have a better picture of my market outlook.
Brexit – which are the companies most exposed to UK? (15 Jun 16) [click HERE]
Ernest’s market outlook (10 Jun 16) [click HERE]
Please refer to the disclaimer here