Reaction to news indicator

16 October 2016

Dear Fellow Investor,

Reaction to news indicator

One of the most powerful of market indicators is the reaction to news indicator. If price recovers or stabilizes on bad news it means the bad news is already discounted in the price. 

 

Daily chart of the Straits Times Index as of Friday 11 October 2016

 

 

After 5 consecutive down days the STI washed out the lows going back to June 2016 and then reversed to close higher. There was follow through to the upside following the spring.  This is the classic reaction to news indicator. Price stabilized and then went up on bad news.

The bad news was the Friday 11 October reported negative Singapore GDP numbers. 

 DBS Group Research:

"GDP fell by 4.1 per cent quarter-on-quarter in the third quarter, far more sharply than anticipated. Additionally, second quarter growth was revised down. With these outcomes, (third quarter growth) now stands at 0.6 per cent, the lowest since the global financial crisis of 2008/2009.

 

Based on the latest GDP numbers posted on Friday  Singapore  is now in recession and GDP has hit the 2008/ 2009 recession lows.

Now is a good time to pick up quality issues in this time of market fear, pessimism, doom and gloom and uncertainty. This also holds true for Malaysian quality shares.  Many great companies are trading at value levels.

How do we protect and grow our capital ? It is simple. We buy value at a discount and wait for the cycle to turn.

We are mindful to invest in companies generating rising cash flow, low debt to equity  and trade at historical low valuations. This gives us a margin of safety and allows us to ride out the volatility.

Our Singapore portfolios are heavily weighted towards quality equities that produce dividend income as well as potential capital gains. We have also included selective REITS that produce stabile and rising income. Our cash position is on average 20 %  

How has this worked? Since the beginning of 2016 the STI is down 3.1 % while our average STI returns are 4.3 % in Sing Dollars.  This is in a challenging environment where SGD money market rates are at 1 % and many retired Singapore citizens cannot survive on savings income alone and are forced to work in low wage, menial part time jobs.

Those retirees who had the foresight to build investment portfolios of high quality dividend shares/ Reits  perhaps do not need to work as the dividend income from their portfolios provide for their living expenses.  They can enjoy their retirement visiting the many world class parks, museums and other attractions as well as great nearby Asian destinations.

Invest well and grow your wealth, 

Bill