Reducing stake in ST Engineering, and increasing Gold ETF

With last Friday’s 20 points or so decline of the Straits Times Index (STI) to close at 2,873.33, the index took another beating after the Hari Raya Haji holidays on Monday when STI closed down another 60 points or so to close at 2,818.38 on Tuesday, September 13. Investors appeared to be unmoved by some US Federal Reserve officials where they spoke about their dovish stances on the pace of the next interest rate hike of around 25 basis points (bps) on September 12.

Lately, economists and market watchers polled by Bloomberg have predicted a 22 per cent outcome for a rate hike slated for next week’s conclusion of a two-day US Federal Reserve Open Market Committee (FOMC) meeting on September 20 – 21, and around 55 per cent by this December. These predictions, along with other major central banks including Europe and Japan maintaining their existing quantitative easing (QE) programmes, and negative interest rate policies (NIRP) are causing markets to turn topsy turvy, as bond yields soared, and investors are left guessing what will be the next major move that will bring about more uncertainties. The uncertainties have caused the Volatility Index (VIX) or the so-called ‘fear gauge’ to surge from 13% early in September to around 17% on September 13.

In anticipation of more market volatilities to come, I have decided to lighten some equity portion of my portfolio, with the sale of 1,000 shares of ST Engineering on September 07 at the price of $3.42 per share and added 20 units of the gold exchange traded fund (ETF) called GLD at the price of US$126.12 into the portfolio.

Rationale of selling a portion of ST Engineering

I continue to believe in the fundamentals of ST Engineering (STE), and when I bought 2,000 shares of STE last month, it was priced at $3.32. Subsequently, when a portion of it was sold on September 07, the realised gain was around 3%. I am taking some profits, while continue to hold the remaining portion of STE.

Adding GLD in the portfolio

I am allocating some percentage of my portfolio to a gold ETF or GLD, as I think that with most central bank policy makers still undecided on the timing in the implementation of the necessary monetary policies, the markets are expected to be quite unsettled for a while. As such, I will like to allocate a portion of the portfolio to some ‘safe haven’ assets including gold so as to act as a hedge against the huge market swings. As seen from the following chart, when compared to the STI (blue line), the price of GLD (green line) has risen 20 per cent since early January to close at US$126.12 as of September 14.

reduce-st-increase-gold-pic1

Source: Phillip POEMS Stock Trading Platform

Moreover, the price of GLD has just recently touched on the 50-day moving average (MA) support line, and is still continuing its uptrend move as seen from the chart below:

reduce-st-increase-gold-pic2

Source: Phillip POEMS Stock Trading Platform

Summary

As noted in my maiden blog posting that my year-end target for STI, I forecasted the index to end around 2,800 to 2,900. In light of recent market moves, and policy inactions by global central banks, I am adjusting my range downwards to 2,700 to 2,800 for year-end.

My observations of the markets in recent weeks have changed dramatically after the disappointing revised 2Q2016 GDP growth in US to 1.1 per cent from the previous revision of 1.2 percent, the lack of monetary policy actions coming from Bank of Japan (BOJ), and European Central Bank (ECB) to spur growth, and lingering concerns over the timing of Britain exiting the European Union or ‘Brexit’. There are also news such as the less that inspiring US and Singapore corporate earnings season seen during the most recent quarter with many companies reporting disappointing financial results, the woes arising from the severe downturn in the offshore and marine (O&M) sector, following the troubles at the formerly listed oil entity, Swiber, and the impacts these O&M sector issues will inflict on the local banks’ financials are causing investors to turn increasingly cautious.

In light of these events and market uncertainties, I will be increasingly selective in my portfolio exposures, and continue to maintain a defensive stance.