Dear all

We are two months into 2022. How is your portfolio doing?

With reference to my writeup (click HERE) published on 17 Feb 2022, I mentioned that STI is likely to face headwinds in the near-term and SG banks’ share prices are likely to peak around 7-18 Feb based on past observations.

 

Coincidentally

a) STI peaked on 17 Feb. In fact, STI has tumbled 6.9%, or 239 pts from its intraday high 3,466 on 17 Feb to close 3,227on 4 Mar. Last Friday’s intraday low was 3,208. More about its chart below.

b) Banks – DBS peaked on 14 Feb and OCBC & UOB peaked on 17 Feb.

Based on Table 1 below, all our three local banks have dropped approximately 11.4% – 14.2% from its recent high.

Table 1: Banks’ share price percentage drop from its recent peak

Source: Ernest’s compilations; Bloomberg

Given that markets have dropped quite a bit, what is the near-term outlook of the markets? Let’s take a look at the charts.

 

Chart analysis

a) S&P500 closed 4,329 on 4 Mar

Based on Chart 1 below, it is evident that S&P500 is on a downtrend as almost all the moving averages (except 200D SMA) are sloping downwards with death crosses formations. S&P500 is also trading below its downtrend line established since 4 Jan 22. In addition, since 4 Jan, S&P500 has been forming lower lows and lower highs. ADX is rising amid negatively placed Dis. ADX closes at 32.4. RSI closes at 43.3 which is not oversold yet.

Based on chart, odds are higher for a downwards move, perhaps to retest the previous support around 4,115 – 4,222. A sustained breach of its down trend line (currently around 4,450) invalidates the bearish outlook but this scenario is unlikely in the near-term given the chart setup.

Near term supports: 4,322 / 4,260 / 4,222 / 4,150 / 4,115

Near term resistances: 4,368 / 4,380 / 4,403 / 4,463 – 4,466 / 4,475 / 4,495 – 4,500

Chart 1: S&P500 – Downtrend with lower lows and lower highs

Source: InvestingNote 4 Mar 22

b) STI closed 3,227 on 4 Mar

Based on Chart 2 below, STI closed below its breakout level of 3,240 and also below the closing low on 28 Feb (which was the day where MSCI Singapore index rebalanced). Some of the moving averages have turned down and formed death cross formations. ADX has been rising and closed at 42.1 amid sharply negatively placed DIs. RSI closes at 36.6 which is not oversold yet.

Based on my personal observation, it is likely that STI may re-test the support region 3,138 – 3,200 in the near term, with 3,175 being a good support. A sustained breach above 3,300 invalidates the chart’s bearish outlook.

Near term supports: 3,207 / 3,186 – 3,188 / 3,175 / 3,138 – 3,148 / 3,110

Near term resistances: 3,240 -3,253 / 3,275 – 3,277 / 3,286 / 3,300 – 3,315

Chart 2: STI closed below its breakout level of 3,240 and also its closing low on 28 Feb

Source: InvestingNote 4 Mar 22

Suffice to say that for both indices, odds are higher for a downward move.

How do we scout for potential opportunities?

 

Stocks sorted by total potential return

In line with my usual practice, I have sorted some SGX listed stocks by total potential return using Bloomberg data as of the close of 28 Feb 2022.

I have generated two tables below and have appended the top 10 and bottom 10 stocks for readers. Table 2 lists the top 10 stocks sorted by highest total potential return. These top 10 stocks offer a total potential return of between 47 – 123%, based on the closing prices as of 28 Feb 2022. (Most importantly, please refer to the criteria and caveats below). [My clients will receive the entire list of my compilation of 109 stocks and some highlighted stocks immediately– see important note 4 below.]

Table 2: Top 10 stocks sorted by total potential return

Source: Bloomberg 28 Feb 2022

Table 3 lists the bottom 10 stocks sorted by total potential return. These bottom 10 stocks offer a total potential return of around -42% to +8%, based on the closing prices as of 28 Feb 2022.

Table 3: Bottom 10 stocks sorted by total potential return

Source: Bloomberg 28 Feb 2022

 

Criteria in generating the above tables

a) Mkt cap >= S$400m to potentially capture more market opportunities;

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 Aztech is better than AEM 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. For example, I have previously highlighted in my 7 Nov writeup that even though the average analyst target price for Riverstone is $1.27, odds are likely that analysts may reduce its target price downwards post its 3Q results on 9 Nov (after market). The average analyst target price has indeed been revised 28% downwards to $0.920 post 3Q results;

d) In my list of 109 stocks above, I have highlighted some stocks in green (visible to my clients but not for readers) which my private banking clients and I are looking at. Naturally, as I have a limited portfolio size and bandwidth, I do not intend to buy all the highlighted stocks. However, some of my private banking clients have a bigger portfolio and hence they have the capacity to accumulate 10-20 stocks (not only limited to Singapore) with meaningful quantities. Notwithstanding this, we may change our stocks accordingly as variables change (e.g., newsflow on the specific stocks; prices have moved etc.)

e) The above stock prices and average analyst target prices are rounded to two decimal places.

 

Conclusion

To be honest, i am not sure how this U.S / Russia saga will unfold. Last Fri, Russia launched an attack on Zaporizhzhia nuclear plant, Europe’s largest nuclear plant. On Sat, there were mixed news that Russia has declared limited ceasefire in two Ukrainian cities to allow civilians to flee. According to Ukraine officials, Russia has not fully ceased fire. As per previously highlighted to my clients, newsflow on this front continues to be fluid. This may be exacerbated by the recent change in Russia’s laws to criminalise reporting of “fake news”. Already, Bloomberg, CNN and CBS News said they would stop broadcasting in Russia.

There are reports from the various geopolitical experts who cite various scenarios on how this U.S / Russia saga may turn out. Most reports agree on one point which is that Russia President Putin’s behaviour is unpredictable as he may not act in the most rational way like most people. As a result, outcome scenarios may vary widely.

Furthermore, amid the surge in commodities (e.g. oil, natural gas, coal) to metals (aluminium, nickel, zinc), inflation may get hotter in the next few months. For example, aluminium hit record high and nickel price soared to a 14-year high last Fri. Copper is also nearing its record high. Wheat hit a 14 year high on worries over a global shortage.

Thus, there are indeed several headwinds in the near term to worry about. However, readers who have pared some positions / took profit around the weeks of 7-18 Feb or readers who have little equity exposure can consider to take this volatile period to add equities on weakness via a discipline and staggered approach.

 

My personal view is that

a) On a company specific basis, Singapore and HK markets have several fundamentally sound companies, trading at palatable valuations, and some of these companies are reporting good (and improving) results and increasing dividends. (I have shared some companies with my clients for them to take a closer look);

b) Most analysts believe that geopolitical events typically have a short-term impact on the market;

c) Some market watchers believe that stocks, especially those in banking, industrials and semiconductors (to name a few) outperform, as rising rates typically coincide with an improving economy.

In the short term (i.e in the next few weeks), I believe markets are likely to continue their volatility (likely with a downward bias) as U.S / Russia event plays out and as we approach the FOMC meeting on 17 Mar. From now to 17 Mar, there are numerous U.S. economic data (eg CPI, PPI, JOLTS Job Openings etc), coupled with various central bank meetings (e.g. BOJ, BOE, ECB, FOMC etc).

Importantly, readers have to assess their own % invested, risk profile, investment horizon and make your own informed decisions. Everybody is different hence you need to understand and assess yourself.

 

Readers who wish to receive the entire compilation of the 109 stocks sorted by total potential return can leave their contacts here http://ernest15percent.com/index.php/about-me/. I will send the list out to readers around 11 – 12 Mar 2022.

 

Readers who wish to 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 leaving their contacts here http://ernest15percent.com/index.php/about-me/

 

Disclaimer

Please refer to the disclaimer HERE