Adding two Asia-themed ETFs, and realising profits on Singapore O&G

With the month and quarter-end close on September 30, 2016, I decided to realise some profits on Singapore O&G, while adding two Asia-themed exchange traded funds (ETFs) in my model portfolio. The two ETFs are DB X-Trackers MSCI Taiwan UCITS ETF, and DB X-Trackers MSCI China Index UCITS ETF.

What makes me realise some profits on Singapore O&G

Singapore O&G (SOG) is a gynaecological and obstetrics company, and is one of the first healthcare companies that specialise in this space to list onto the mainboard on June 06, 2015 at an initial public offer (IPO) price of $0.25 per share. The stock got off with a premium start when it first opened at $0.455, before ending the market trading session at $0.635. The surge in price was a whopping 154 per cent during the first day of trading. For disclosure purposes, I own 1,000 shares of SOG in my personal portfolio.

I first added 2,000 shares of the stock to my maiden portfolio on August 23, 2016 at a price of $1.155 per share, and sold 1,000 shares on September 30, 2016 at a price of $1.175 per share. This equates to a realised return of about 1.7 per cent over the past one month or so. I continue to hold the remaining 1,000 shares in my portfolio and will consider adding more at a right price.

I took a stake in SOG stock with the understanding that the company has the potential of thriving in a growing demand for maternity care services industry. Moreover, the latest Population Trends 2016 report put out by Singstat showed that there was some slight improvement in the total fertility rate (TFR) to 1.24 in 2015 from 1.15 in 2010. I expect the TFR to fluctuate going forward, but will unlikely fall below 1.

Notwithstanding the threat coming from the prevailing Zika virus that might deformities in the heads of the foetuses, I think that couples will still go ahead with the family planning goals as the Singapore healthcare system is still among one the top among many countries in the region and globally. Moreover, researchers noted that the Zika virus that is happening locally is different from those in Brazil, and is still treatable with some combinations of temporary abstinence, and precautions to guard against the spread of the virus. The Singapore government has also been stepping up vector controls in the affected areas, and many households are constantly being reminded on practising the 5-step mozzie controls to minimise the occurrence of Zika virus.

What does the technical analysis (TA) of SOG show:addingtwoasia-pic1

Source: Phillip POEMS stock trading platform (As of Sept 30, 2016)

The one-year chart showed that the stock had a nice run up since its IPO in June 2015. The current Relative Strength Index (RSI) is at around 61 on September 30, and is not far from the ‘Overbought’ levels of 70. I decided to take some profits while continuing to retain the remaining 1,000 shares.

Moreover, the stock has also touched on 50-day moving average (MA) line, and I think that if it breaks below the 50-day MA line, I might start to enter again to accumulate more stock.

The latest additions of the two Asian-themed ETFs

The latest addition of the DB X-Trackers MSCI Taiwan UCITS ETF, and DB X-Trackers MSCI China Index UCITS ETF is based on the macro analysis of both regions’ economic growth potentials, and some improvements in certain economic indicators, like the Purchasing Managers’ Index (PMI), the Services PMI, and Industrial Production.

China’s Caixin Manufacturing PMIaddingtwoasia-pic2

Source: Tradingeconomics.com (As of Sept 30, 2016)

The Nikkei Taiwan Manufacturing PMIaddingtwoasia-pic3

 

 

 

 

 

 

 

Source: Tradingeconomics.com (As of Sept 30, 2016)

Both the Chinese Caixin manufacturing PMI and the Nikkei Taiwan manufacturing PMI showed some improvements when measured on a monthly basis in August. The Chinese Caixin manufacturing PMI improved to 50.1 in August, compared to 50 in the previous month, while the Nikkei Taiwan manufacturing PMI improved greatly to 51.8 in August, compared to 51.0 in the previous month.

The Chinese manufacturing PMI for the month of September 2016 did indicate flat growth of 50.1, as compared to August 2016. We think that if it can sustain above 50 on a consistent basis going forward, the full-year gross domestic product (GDP) of 6.5 per cent to 7 percent in 2016 is achievable. China is expected to release its advance estimates for 3Q2016 GDP growth in mid to late October 2016.

As for Taiwan, the island nation’s economic growth is driven mainly by the various technological companies, and component makers who are contract manufacturers for major US technology firms including Apple, Qualcomm, and Intel, among others. We think the technology and telecommunications sectors will continue to thrive despite a slowdown in global economies, and the Asia-Pacific region is expected to be one of the major beneficiaries for such growth.

What does Technical Analysis tell us about both ETFs

DB X-Trackers MSCI China Index UCITSaddingtwoasia-pic4

 

DB X-Trackers MSCI Taiwan UCITS ETFaddingtwoasia-pic5

Source: Phillip POEMS stock trading platform

Based on both one-year charts, both ETFs are at their highs recently with the RSI levels for the China ETF and the Taiwan ETF at around 44 and 28 respectively as of September 30. According to a latest SGX ‘My Gateway’ research, the three-year annualised returns for the China ETF and the Taiwan ETF are 6.1 per cent and 8.9 per cent respectively, and this makes them one of the better performing ETFs, apart from other country-based ETFs like the iShares MSCI India Index ETF (12.9 per cent), and the DB X-Trackers MSCI Indonesia Index ETF (10.2 per cent).

Summary

As we transition to the final quarter of 2016, I think that there will be more market volatilities coming from systemic risks coming from the European banking system like the latest concerns about Deutsche Bank’s derivatives exposures, the upcoming US Federal Reserve rate decisions, and the US Presidential elections. In light of these events, I will still maintain some cautiousness in my stock picks for the model portfolio, while adding some selective counters on a timely basis to capture some positive upturns.

Important Notice: Please note that the virtual portfolio is updated as of September 30, 2016.

Disclaimer: This virtual portfolio article is written by Tay Hock Meng and is purely for illustration purposes. Please seek the advice of your financial advisers before undertaking any investments. I am a financial advisory consultant with Phillip Securities Pte Ltd, and my MAS representative code is THM300399401.