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It becomes rather amusing when the local exchange and regulator deny any knowledge of why the price of the company’s shares have fallen by more than 6% over the past few trading sessions when very often, they are the ones querying companies that have such moves, not triggered by any news. As is often the case, the reason remains a mystery, as stocks have been known to move in mysterious ways! Yesterday’s sell down in the local STI, however, is less so. It has the hall marks of institutional rebalancing. Funds rebalancing, not to be mistaken with redemption, is less of a risk-off move as it is a move signaling that the prospects of making money here pale in comparison to elsewhere in the region. Presumably, North Asian markets continue to draw interest and funds from local equities here. With blue chips like Singtel, DBS, UOB and OCBC dominating the most actives in terms of value traded, and with losses for these names averaging 1.5 to 3%, yesterday’s action suggests that funds are selling into a market place which is devoid of almost any decent-sized buyers. If the above theory is accurate, this could mean that the northbound migration is driven largely by the quest for ‘alpha’ rather than a re-valuation exercise across markets. Interestingly though, this is happening as certain quarters of the investment community have signaled the dangers of an equity bubble in China stocks, with warnings of dire consequences imminently. The irony of the whole sell-off though is that Singapore has in the past, been a proxy hiding place for funds during the worst of ‘risk-off’ times. As we approach the turning point for rates, would the huge beta beaters’ – the Chinese markets’ - bubble burst, sending funds to hide elsewhere? Back here perhaps? Whatever the case may be, the Singapore Free index is off roughly 4% over the past six sessions and is beginning to look decently valued as it tests key support here. Furthermore, the local STI, together with most of its Asean counterparts, is now mostly in negative territory on a year-to-date basis.
CPO and Palm Oil plays
The only bright spot in the local market yesterday was centered on the Singapore palm oil plays. First Resources led the way up more than 3% at one stage with Golden Agri up more than 2% by the close of trading. Spurred on by an almost 10% pop on the price of Crude Palm Oil over the past week - from MYR2138 last Monday to a high print of MYR 2348 last night - this cluster of companies offered a slight reprieve to an otherwise miserable day of selling in the local stock markets here. First Resources trading at a TTM PE of 15.2X stands to benefit the most, as the company - an upstream producer of palm oil engaged in the cultivation and harvesting of oil palms - is the most leveraged to benefit from any price changes in CPO. The chart below highlights a gap between SGD2.15 to 2.20 as a next resistance level possibly for this move up. However, should this thrust lack momentum, we may see the stock retreat to retest key supports at SGD2 and SGD1.93 again.
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