Keppel wins $280m contract, S&P chart, Senario Analysis

Opportunities  
Keppel (BN4, $10.30) to build accomodation semi-submersible at approx. $280m. 
Comments: Opportunity at almost year-to-date low? Year-to-date low is $10.23. 
 
Chart of the Day 
S&P Daily Chart looks like it is screaming for a rebound. 
However, HSI and STI Weekly Charts show a contrasting picture.  
Decoupling, divergence or are we too short-sighted? 

 
 
Commentary  
Market has sold off before Jackson Hole. Senario for extensive downside = massive tightening. Senario for kneejerk upside = almost everything else. It is times like this when we may wish to choose to bet against the Black Swan when the odds seem to be in favour of that. 

Special: More on Paya Lebar Airbase Plot, Tapering is not Tightening

2 Topics today.  
 
More on the Paya Lebar Airbase Plot 
A look at the map of Singapore shows that Paya Lebar Airbase is as big as Pasir Ris. This gives us an idea of what may be coming. The outskirts of the Airbase have been traditionally zoned for Industrial Land use. 2 senarios may take place moving forward: 
1) Change of plot ratios. Due to uplifting of height restrictions due to presence of Airbase. 
This may present enbloc opportunities in 2 places, i) Areas that can overlook the Airbase at this time (edges of Tampines, Pasir Ris, Bedok Reservoir, SengKang, Serangoon), ii) Areas long the flight path of landing (planes approach from East Coast somewhere above Ford Road exit, past Geylang and Paya Lebar).  
2) Change of land use. The land around the Airbase needs not be Industrial Land. Change of use to either Commercial or Residential may present new opportunities. 
It may not be easy for one to visualise all these points. The best way is to look at a detailed map of Singapore. I welcome anyone who wishes to have a more in-depth discussion. 
 
Tapering is not tightening 
I explained this to a client this morning so thought it may be helpful to explain to everyone. 
Tapering is not tightening. Imagine the economy as a patient with high cholesterol, the Fed is the doctor. Doctor puts the patient on a course of cholesterol pills, say twice a day. Cholesterol pills are like the Fed’s bond-buying remedy. Now, the doctor thinks that the patient is getting a bit better so, he reduces the dosage to once a day. This is tapering. 
The patient eating lesser pills a day won’t die. Similarly, the market won’t die. However, reducing dosage means that the patient may go through a stage of “cold turkey”, similar to the shivers in the market now. Tightening will be taking the course of medication away altogether. In that case, it is obviously negative for the patient. Similarly, tightening at this stage is outright negative. 
Hope everyone has a better idea now. 

Special - Singapore Prime Minister’s New Plans: How it may affect our investments

Prime Minister Lee Hsien Loong announced some new plans last night at his National Day Rally. Here are the highlights that may affect our investments.  
 
Infrastructure  
 
Paya Lebar Airbase to shift to Changi, freeing up land for homes, offices and factories  
Comments: Paya Lebar Airbase plot is big enough to establish a whole new township. Just like how Bidadari will see about another 38,000 units of new homes being created, the new township at Paya Lebar Airbase plot may flood another similar number into the market.  
 
Build a new Air Force air base and fourth runway at Changi East  
Comments: Military aircraft are noisier than commercial aeroplanes. This may affect properties there moving forward. The good news is, it may take the next 2 decades to full realise. 
 
New ‘Jewel’ project at Changi Terminal 1, with shops, restaurants and indoor garden  
Terminal 5 to be ready by mid-2020s  
Comments: This morning CMA (JS8) announced, “CapitaMalls Asia collaborates with Changi Airport Group on project at Changi Airport to jointly develop the concept and plans for the proposed redevelopment of the car park site fronting Terminal 1 at Singapore Changi Airport". They were ready all along. The “Jewel” shall be realised sooner than people think. T5 may still be a decade away so, I shall not be bothered about it too soon.  
 
1,000 ha Southern Waterfront City, after container portsmove to Tuas  
Comments: Questions now are, “Who will build it? Who will own it?” 1000ha = 107,637,000 sqft. Projects here for developers could mean hundreds of millions at the very least. This is something to watch out for.  
 
 
Housing  
 
Build-To-Order prices to remain stable, more help for lower- and middle-income families  
Comments: Ridiculous prices for public housing may be over. This is in hope of putting an end to speculation on public housing.  
 
 
I have no doubt that these plans will be executed flawlessly unless there is political instability.  
 

Special: The situation so far and what we can look forward to next

Commentary  
 
The Situation so far 
 
There has been a lack of “real drivers” for the markets. This roughly explains the volatility all round. Results reporting season has almost come to an end. We have realised that the markets have reacted selectively to company results. This just shows a disconnection between sentiment and reality. 
 
Particularly for the Singapore market, selective small caps have been running and have rewarded the courageous traders handsomely. 
 
What’s next? 
 
I continue to watch technical fronts as the market is fundamentally unstable. Technicals tend towards the bearish. However, sentiment can be the true driver. Look at what happened in Shanghai this morning. It can be reasonable to suspect robotic trading glitches that further spurred more reaction (2nd impulse noted this morning). Chaos Theory would suggest that it can even possibly be a 3rd impulse.  
 
China is having its lunch break as I write this and I would suspect that prices may recover to reasonable levels after humans come back after a lunch discussion. 
 
This may provide us with an opportunity to sell later today or even on Monday.  
 
Why do this? Various index charts will show a 50% Fibonacci retracement in the last selloff over the last few days. However, a proper correction does not happen in 1 leg. It happens in 2, at the very least. So the next rebound may provide opportunity to trade the next leg down. 
 
Feel free to contact me to discuss trading ideas as specific trading ideas are beyond the scope of today’s newsletter.  
 

Special - Shipping and Ship-Building: Is this the worst case senario?

Shipping and Ship-Building  
 
Is this the worst case scenario? Has the industry bottomed? Shall we ride the next decade of cyclical upswing on Shipping and Ship-Building? 
 
The shipping and ship-building industries have been in limbo. There exists oversupply, given that more ship deliveries are coming. There is no obvious turnaround in demand outlook, either from Euro-Asia routes or US-Asia routes. This old story has been told ever since 2008.While there seemed to have been a slight recovery in shipping activity between 2008 and 2013, it seemed to have went unacknowledged. 
 
I received 2 AsiaPac Shipping reports (1 from Standard Charted, 1 from Deutsche Bank) today. Despite the claims, I have yet to see analyst reports that balance the numbers on demand and supply (throughput vs. available container space, TEUs) and also replacement statistics (TEUs destroyed from scrapping of old ships vs. TEUs created from building of new ships). These numbers would be more useful in our decision making than pure claims. Understand that these are just update reports and therefore are meant to be short. My point here is to let everyone know exactly what numbers to look out for.  
 
In addition to shipping numbers, orderbook numbers of ship-builders and profit-margin trends are other indicators to lookout for. Yangzijiang's (BS6) 2Q13 revenues were up 12% yoy to RMB4.4b while net income declined 8% yoy to RMB812m. As at end Jun, the orderbook stood at 71 vessels worth a combined US$3.24b. It has 47 options outstanding (22 containerships and 25 multi-purpose bulk carriers) for contracts valued at US$2.54b. This is strong, in light of bearish sentiment. 
 
As for shipping lines, NOL (N03) reported a 2Q13 loss of US$35m. This was better than consensus. Counter is now trading at about 1.0x P/BV according to various analysts versus trough valuation of 0.79x. 
 
Now for some personal homework I did. Was at East Coast last Saturday, the number of empty ships in the horizon are still not very encouraging. The proximity of ships from the shore is also an indicator of the number of them parked out there. The last time I saw this was in 2008. We can use our waters as a benchmark because ships still pass our waters as the same routes have been used for the last 200 years (refer to Singapore’s Maritime history). 
 

What Next?

Commentary 
 
What next? 
 
It has not been easy to come up with trading ideas in the last few days. The clear opportunities just are not there. Yes we can play on minute price swings and what not. These choices I shall leave to those individual investors whose risk preference puts them more on the adventurous side. Not using the term risk appetite here because even clients with low risk appetites may prefer to look at a penny stock now since those are the only ones that are moving. 
 
Flows have started to turn negative on stocks. Clearly negative but, I am not about to scream, “Sell everything!” Legally speaking, I am not allowed to do so. On the other hand, I am not confident of a crash or even a correction as yet. The climax at a peak has not surfaced. 
 
What may happen next is a relatively long period of consolidation. Worse, if markets drift gradually downwards. Everyone prefers a quick correction so that it is clear what to do next. The market however, is not so straight forward. 
 

DBS results inline, Gent HK sells NCL, Europtron in RTO deal to mine gold

Opportunities 
 
DBS (D05, $16.70) announced 2Q13 results which was in-line with estimates. 16-month attempt to buy Bank Danamon Indonesia has collapsed. Some analysts believe that the end of the saga could spell higher dividends. 
Comments: Good news for DBS. Price may continue to see upward action. 
 
Genting Hong Kong (S21, US$0.440) plans to divest up to a 5.6% stake in Nasdaq-listed Norwegian Cruise Line Holdings for as much as US$352m, according to regulatory filings yesterday. The maximum sale price is US$30.65 per share. Norwegian Cruise shares closed at US$29.76. 
Comments: Positive on Gent HK as NCL was loss making. Now Gent HK gets cash back. 
 
Europtronic (E23, $0.056) in RTO deal to transform itself into gold miner. 
Comments: Possible punt? 
 
 
Commentary 
 
US stocks continue “home bias” as first mentioned yesterday as other global stock markets remain relatively uninteresting. In Asia, the strongest net bought stock market remains South Korea. 
Technically, I think we are in a period of sideways consolidation. After which, I presume anything can happen after this as negative and positive factors exist fundamentally. 
Also, the Fed has to do something as inflation is still below their targets. Anyone can reasonably expect them to continue boosting money supply which may explain why USD continues to be weak and the observation we have above.