STI – Will it head for new YTD high after S&P500 clocked its 7th consecutive day of rally? (6 Jul 2021)

Dear all

S&P500 and Nasdaq clinch fresh record highs last Friday with S&P500 clocking in seven consecutive days of gains in its longest winning streak since August 2020.

Despite the roaring U.S. markets, Singapore Straits Times Index (“STI”) has slipped almost 100 points from its 2021 intraday high of 3,237 on 30 Apr 2021 to close 3,141 on 5 Jul 2021. Can STI exceed 3,237 for 2HFY2021? Most strategists believe so, as their year-end targets for STI are easily above 3,237.

Let’s look at the possible reasons why analysts are positive on our Singapore market.

 

Reasons to be optimistic on our Singapore market in 2HFY21

A) Most analysts are positive on STI with year-end target >=3,400

Based on this website (click HERE), most analysts are positive on our Singapore market, fuelled by re-opening of economies; good control of Covid situation, respectable GDP growth etc.

b) STI has one of the lowest relative valuations among regional stock markets

Based on Figure 1, it is apparent that STI has the lowest FY22F P/BV and highest dividend yield among the regional stock markets. STI’s FY22F PE is also one of the lowest, just slightly higher than that of Hang Seng Index.

Figure 1: STI’s valuations – lowest among regional stock markets

Figure 1_STI valuations among regional markets 25 Jun 21

c) July is seasonally a good month for Singapore equities

According to DBS Research 2 Jul 2021 report, citing price data from 2010-2018 (click HERE), DBS believes that STI may see an up-move in July, followed by a correction in Aug based on seasonality. In addition, institutions have been net sellers of STI for the past five consecutive weeks (click HERE). There is a possibility that these institutions may become net buyers as 2Q results beckon.

d) Chart looks supported

Based on Chart 1 below, STI is testing its downtrend line established since 30 Apr 2021. Most exponential moving averages and RSI are turning higher. MACD has made a bullish crossover. Given the bullish price action seen on 30 Jun 2021, on the balance of probability, STI is more likely to breach the downtrend, rather than break below the uptrend line.

Near term supports: 3,127 / 3,112 / 3,100 / 3,091

Near term resistances: 3,140 – 3,151 / 3,160 / 3,175 / 3,188 / 3,195 – 3,200

Chart 1: STI likely set to breach the downtrend line established since 30 Apr 2021

Chart 1_1 year STI price chart 5 Jul 21

Source: InvestingNote 5 Jul 2021

 

In short, is this a good time to buy our Singapore market?

For myself, I am just like the other investors. I don’t have any crystal ball to foretell the future. However, I’m accumulating stocks which may report good set of results (potentially beating analysts’ estimates) next month on a trading basis and stocks which have recently weakened a lot such that they may trigger some small technical bounce.

For my clients, who have a longer-term horizon and are prepared to accumulate on Singapore blue chip stocks on weakness and via a staggered approach (we will not know where the absolute low is, hence the staggered approach), my personal view is that this is a good time to accumulate based on the aforementioned reasons.

Notwithstanding the above reasons, I hasten to add that

a) It is common knowledge that U.S. markets are trading at high valuations. If U.S. market plummets, it is likely to have an adverse impact on STI;

b) I don’t have any crystal ball to foretell the future hence I will not know whether markets will move higher. What we can do is to use the current available information, coupled with our own outlook on the markets and the stocks that we want to buy and assess whether we are comfortable with the risk reward etc;

c) Furthermore, the answer on whether this is a good time to buy greatly depends on your percentage invested; market outlook; portfolio constraints; opportunity costs; risk profile Thus, for those who are unsure and especially if they have cash flow or time constraints, it is better to seek a professional financial adviser to advise them. There are definitely risks such as high valuations in the U.S. markets and potential resurgence of Covid 19 which may result in major economies to enact national shut down measures again. Furthermore, there is always a likelihood that companies may report lower than expected results or / and guidance in their upcoming results season.

My personal view is that its primarily because of such potential / brewing risks which cause (certain) stocks to be trading at such valuations and levels. With proper risk management in place, I personally think with a 2-3-year time frame, coupled with a disciplined entry via tranches and research into the equities, there are good odds of achieving a reasonable return on investments.

 

What are the stocks to take a look then?

I have sorted some SGX listed stocks by total potential return using Bloomberg data as of the close of 30 Jun 2021.

I have generated two tables below and have appended the top ten and bottom ten stocks for readers. Table 1 lists the top ten stocks sorted by highest total potential return. These top ten stocks offer a total potential return of between 38 – 54%, based on the closing prices as of 30 Jun 2021. (Most importantly, please refer to the criteria and caveats below). [My clients will receive the entire list of my compilation of 99 stocks sorted by total potential return.]

Table 1: Top ten stocks sorted by total potential return

Table 1_Top ten stocks sorted by total potential return 30 Jun 21

Source: Bloomberg 30 Jun 2021

Table 2 lists the bottom ten stocks sorted by total potential return. These bottom ten stocks offer a total potential return of around +6% to -11%, based on the closing prices as of 30 Jun 2021.

Table 2: Bottom ten stocks sorted by total potential return

Table 2_Bottom ten stocks sorted by total potential return 30 Jun 21

Source: Bloomberg 30 Jun 2021

  

Criteria in generating the above tables

a) Mkt cap >= S$500m;

b) Presence of analyst target price.

 

Very important notes

a) This compilation is just a first level stock screening, sorted purely by my simple criteria above. It does not necessary mean that GHY Culture is better than Aztech in terms of stock selection. Readers are still required to do their own due diligence and form their own independent investment decisions;

b) Even though I put “ave analyst target price”, some stocks may only be covered by one analyst hence may be subject to sharp changes. Also, analysts may suddenly drop coverage. Furthermore, Bloomberg may not have captured all the analysts’ target prices and some of these target prices may not be the most updated figures;

c) Analyst target prices and estimated dividend yield are subject to change anytime, especially after results announcement, or after significant news announcements;

d) The above data is compiled using Bloomberg information as of 30 Jun 2021 (closing prices).

 

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Disclaimer

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