Date: November 19, 2018
- Volatility increased but STI managed 6-points rise over the week;
- Turnover was low, twice dropping below $1b per day;
- Wall St was rocked by worries over Apple’s prospects, Goldman’s 1MDB involvement;
- US Treasury yields fell as investors bought into their safe haven status;
- SGX announced it is going from T+3 to T+2 soon;
- Best World was best performer, Genting also in play;
- US Fed released dovish statement on Friday, but semiconductor worries emerged.
Last week’s trading was driven by equal amounts of fear and greed (or short selling and short covering perhaps) as sharp falls and then rises on Wall Street brought increased volatility to bear in the local market.
Still, with the Straits Times Index having started the week already 9.6% down for 2018, whatever selling was relatively well-absorbed – the index managed to add 6 points or 0.2% over the five days at 3,083.6, thanks mainly to Friday’s 29.07 points jump.
Turnover however, remained low – Friday’s rise coming with just $858 million traded. The lowest business for the week was done on Monday when only $809 million traded.
Apple’s earnings and Goldman Sachs’ 1MDB involvement
Over in the US, there were two dominant themes which brought prices down – weak demand for Apple’s products and Goldman Sachs’ involvement in Malaysia’s 1MDB scandal. US stocks fell for five consecutive days before rebounding on Thursday.
In Apple’s case, major suppliers to Apple’s iPhone plunged on Monday as investors fretted that one of the most important product lines in the technology sector was seeing weak demand. The latest warning sign came when Lumentum Holdings cut its second-quarter outlook after one of its largest customers asked to “meaningfully reduce shipments” for previously placed orders. Lumentum didn’t name the customer, but Apple is its biggest, according to Bloomberg supply-chain data.
Shares of Lumentum plummeted a record 33 per cent while Apple dropped 5 per cent that day, contributing to a whopping 602 points or 2.3% loss for the Dow Jones Industrial Average at 25,387 – a weak start to the week that set the tone for the remaining four days.
As for Goldman, its shares had been spiralling downwards for several days as the 1MDB investigation progresses. On Monday, Malaysia’s finance minister said the country will seek a full refund of the US$600m in bond payments that Goldman earned relating to 1MDB, sending the stock crashing 7.5%, after it had plunged 9% the previous Friday.
US Treasuries were safe havens – again
Perhaps not surprisingly given the turmoil in equities, bond prices rose as investors fled to safe havens. The 10-year Treasury yield, which poked above 3.2% at the start of the month, fell back to just above 3.1% last week, while the 2-year yield ended at 3.067%.
SGX to move to T+2
In local news, the Singapore Exchange (SGX) announced on Tuesday that it will shorten its settlement period from T+3 to T+2 where T is the day of the transaction. Moving from a T+3 to a T+2 settlement cycle will harmonise Singapore’s stock market with that of global markets including Australia, the European Union, Hong Kong and the US.
In “Death knell for contra trading as T+2 looms’’, Business Times on Thursday reported that the move will be “the final nail in the coffin’’ for contra trading. The newspaper’s Angela Tan quoted Jimmy Ho, president of the Singapore Society of Remisiers, as saying that the shorter cycle will dampen liquidity.
Contra trading is the buying and selling of shares during the settlement period without having to pay for the original purchase. If the sale price is higher than the purchase price, the investor receives the “contra’’ profit; conversely, if it is lower, he or she will have to pay for the “contra’’ loss. The longer the settlement cycle, the better it is for traders who rely on this type of trading.
“With retail investors actively contra trading over the past 20 years, the practice has contributed much to Singapore’s stock market liquidity’’ said Ms Tan. “A shorter settlement period which dampens contra trading would thus also affect liquidity’’.
Stocks in play – Genting Singapore, Best World
Casino operator Genting Singapore featured regularly at the top of actives list every day. It started the week a $0.95, dipped to an intra-week closing low of $0.925 on Wednesday, and ended Friday at $0.94. In a “buy’’ on 9 Nov, DBS Group Research said the stock deserves better investor recognition and set a target price of $1.55.
“Genting’s share price has corrected over the last few months on the back of slowing gross gaming revenues in Macau and fears over a potential slowdown in China which in turn will negatively affect its VIP business. China is a significant source of customers for Genting. Nevertheless, we believe the majority of these concerns have been priced in given the stock now trades on a EV/EBITDA of 5.5x, below -2SD EV/EBITDA of 5.8x’’ said the broker (EV stands for enterprise value, EBITDA is earnings before interest, tax, depreciation and amortisation, and SD is standard deviation).
Beauty products firm Best World stood out by virtue of its sharp gains, especially between Wednesday and Friday when it rose a total of $0.21 or 11% to end the week at $2.11. The company earlier in the month announced that for its 3Q 2018, it recorded revenue of $92.1 million, which represented a 96.8% increase compared to S$46.8 million recorded in 3Q2017. Net profit rose 145% to $29.9 million.
“While this is attributable to growth in key Direct Selling markets of the Group, it is primarily due to the full commencement of the Franchise segment in China since July 2018. Under the Franchise segment, revenue is recognised at a higher price point compared to Export price’’ said Best World in its earnings press release. The company is paying a special dividend of 1.5 cents per share.
FOMC statement boosts Wall St stocks – except technology
Federal Reserve Vice Chairman Richard Clarida struck a somewhat dovish tone on Friday, at least signifying that the central bank is aware of slowing global growth. The remarks come after the Fed released a statement Thursday afternoon, announcing that policy makers would be reviewing their “strategies, tools, and communications practices”.
As a result, US stocks closed slightly higher on Friday, although the tech-heavy Nasdaq Composite Index finished in the red. Semiconductors were in focus on Friday as chip inventory figures in Nvidia ’s latest report sent the stock crashing.
