November saw a 382.11 point or 15.8% month-on-month increase in the FSSTI to 2,805.95 points, following optimism on Joe Biden becoming the next US President and news on two potentially viable Covid-19 vaccines, observes CGS-CIMB Research analysts Lim Siew Khee and Jeremy Ng.
Meanwhile, Singapore’s economy contracted by 5.8% year-on-year in 3Q2020 ended September, slower than the 7% decline the government had previously estimated. This follows stronger performance from the export-oriented biomed and electronics segments, observes Lim and NG.
However, the month saw October’s non-oil domestic exports (NODX) making a surprised 3.1%. The CGS-CIMB duo attribute this to sanctions on Huawei and lockdowns in regional trading partners.
Property sales also retreated by 51.7% month-on-month in October, due to a government clampdown on the re-issuing of options to purchases by developers.
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Against this backdrop, Lim and Ng note that there was a “strong earnings season”, with the consumer, telcos and property sectors being among the best performers.
“The prospects of viable vaccines against Covid-19 and a de-escalation of hostile US trade policies were major factors in stock movements,” observe Lim and Ng.
Touching on specific stocks, they note that SIA, SATS and Genting Singapore were the top gainers for index stocks. Conversely, Yangzijiang, Mapletree Industrial Trust and Keppel DC REIT had underperformed.
Lim and Ng have upgraded their markets earnings per share, following “a slew of positive earnings surprises which brought the 3Q20 results season to close on a positive note”.
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Looking ahead, the duo estimate that the straits times index could enter a correction phase as the “bullish momentum is overstretched”.
Based on historical evidence, “the STI tends to enter into a period of correction when the Relative Strength Index exceeds the 70 overbought level,” they note.
RSI is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset.
To this end, Lim and Ng “expect the ongoing correction to take the STI down to the 2,635 – 2,700 support level before the uptrend resumes. The next leg higher into the uptrend will likely see the FSSTI aiming for the 3,000 – 3,044 resistance,” they add.
