Maybank Kim Eng, Author at MoneyDigest.sg

The Basics of Technical Analysis

A technical analyst’s best friends are charts and patterns. But to the uninitiated, these are hard to make sense of. Once you get a hang of the basics however, your new-found knowledge can be used to search for potential investment opportunities.

The Assumptions

Before we get ahead of ourselves, let’s start from the beginning. What is technical analysis anyway?

Simply put, it is a study of past price movement patterns and market data to forecast future price movement directions that is built on 3 key assumptions:

1) Key factors are accounted for
The company’s fundamentals, broader economic factors and market psychology, are all priced into the stock, removing the need to consider these factors separately.

2) Prices follow trends
After a trend has been established, prices tend to move in the same direction.

3) History tends to repeat itself
This is because market participants tend to react consistently to similar market events over time.

However, it is important to remember that past performance is not necessarily indicative of future results. New factors or market conditions may arise which deviate from past trends and patterns.

Candlesticks as Building Blocks

You can’t think about technical analysis without picturing a candlestick chart. It may surprise you to know that candlestick charts are not a modern-day invention. They have been used since the 1700s, having been introduced by Homma Munehisa, a rice merchant in Japan.

There must be something to candlesticks if they have been able to stand the test of time. And indeed, a single candlestick holds invaluable information which investors can distil at a glance:

Spotting Patterns

Individual candlesticks can be strung together to form charts which technical analysts pour over, looking for patterns which give them trading ideas. However, you will have to understand how to spot these patterns and what they mean before you can capitalise.

Here are two simple patterns to ease you into things:

Putting It Into Practice

These two patterns are just the tip of the iceberg. There are many other technical analysis patterns that you can learn about that may help you spot potential trading opportunities.

But even if you know what patterns to look out for, there is an entire universe of stocks to choose from. If you have no prior interest in any stock, it would be hard to know where to begin. It simply wouldn’t be efficient to look at charts of every single stock and find actionable patterns within.

One possible option is to use stock screeners to identify stocks that meet your own criteria. For example, a stock screener can help you find stocks like the one below that exhibited a head and shoulders pattern, during a specified period of time.

Source: Technical Insight on Maybank Kim Eng’s KE Trade platform

Technical analysis is useful for investors to understand. But like we highlighted earlier, it isn’t infallible and is built on several assumptions. Therefore, it is best to use technical analysis along with other tools in your investment toolkit, like fundamental analysis, and to practice often in order to gain a better understanding of how these strategies could help you meet your investment goals.

Disclaimer: This message is for general knowledge or information only. It is not an offer or invitation to buy or sell securities, futures or other products or services. Our products or services vary in different jurisdictions, subject to their respective terms and conditions and the licences our affiliates and us hold. This message is not an advice or recommendation for any financial planning, investment, legal, tax or other purposes and, accordingly, no responsibility or liability is assumed by us or our affiliates, whether directly or indirectly, from any person taking or not taking action

A Dividend Investing Strategy

Singapore investors love their dividend stocks. According to the Investment Trends Singapore Broking Report 2015, 75% of investors polled stated that they usually invest in dividend stocks when trading on the Singapore market. And they are spoilt for choice! Many companies that list on SGX pay dividends. But with so many dividend-paying stocks out there, which stock would you consider?

A High Dividend Yield Stock: Better than a Low Dividend Yield Stock or?

That is the question. The stock with the highest dividend yield in the industry may look attractive now, but is a stock with 10% dividend yield better than one with 3% in the long run? Does a high yield stock always outperform a low yield stock?

High dividend yield should not be taken at face value. It always pays to dig deeper and find out the real story behind certain attractive numbers before deciding to invest.

Companies with a high dividend yield compared to the market average may not necessarily equate to companies with good financial performance. The high dividend yield could be the result of declining share price due to weak fundamental such as inconsistent earnings, high debt etc. Besides, high dividend yield may not be sustainable. If earnings fall, the management may cut dividends or eliminate the pay-out altogether. Hence, investors should also look at companies with consistent dividend payouts and with the cash flows coming from actual core operations.

A Dividend Growth Strategy

If a stock with a high dividend yield is not necessarily the best choice for long-term investors, then what other strategies are there? A dividend growth strategy for one, is something you might want to learn more about.

To clarify, dividend yield is the dividend amount divided by the share price. Dividend growth meanwhile is how much the dollar-amount of dividends given out increases each year.

Take this hypothetical example which compares the performance of two investors (based on certain assumptions where indicated).

Investor A: Invests in ABC Company which pays 7% dividend yield at the outset and every year after that.

Investor B: Invests in XYZ Company which pays 3% dividend yield at the outset.

XYZ Company has a lower dividend yield because they choose to reinvest some of their earnings into the business. The business grows, and so does their dividend pay-out – to the tune of 8% every year (e.g. $0.03 dividend per share in year 1, $0.032 in year 2).

Assume that the share prices for both of these companies remain unchanged for 25 years and both investors reinvested their dividends every year. Their performance can be found in the table below.

The Results
Investor A, the high yield investor, beats Investor B during the beginning years but the dividend pay-out and portfolio value of Investor B caught up in year 16 and 22 respectively. In the end, the total dividends received by Investor B are more than 3 times that of Investor A.

So, while Investor B received low pay-outs initially, he was rewarded with future growth. This is the underlying principle of the dividend growth investing strategy. Length of the period of investment would also affect the total dividends received.

Finding Dividend Growth Stocks

That will be the next question on your mind if you want to explore using a dividend growth strategy. Stock screeners come in useful here. A stock screener allows you to choose certain criteria, and to find stocks that fit the criteria you have selected.

Here is a set of criteria that could be used to pull dividend growth stocks:

Dividend yield>3%
Market capitalisation>200 million
Dividend growth rate (5-year average)>8%.

The stock screener below, for example, has found 17 stocks that match the above criteria. This provides a good starting point for investors to do further research into these specific stocks. Try to come up with your own set of criteria and see how it works.

Source: Recognia Strategy Builder on Maybank Kim Eng’s KE Trade platform as at March 2016

Disclaimer: This message is for general knowledge or information only. It is not an offer or invitation to buy or sell securities, futures or other products or services. Our products or services vary in different jurisdictions, subject to their respective terms and conditions and the licences our affiliates and us hold. This message is not an advice or recommendation for any financial planning, investment, legal, tax or other purposes and, accordingly, no responsibility or liability is assumed by us or our affiliates, whether directly or indirectly, from any person taking or not taking action

An Investment for Property Lovers and Dividend Seekers

Singaporeans are fixated with buying property – and they don’t just stop at one.

In a report published in June 2016, Maybank Kim Eng’s research team found that approximately 1.1 million households in Singapore own the homes they occupy, but there are another 200,000 housing units are currently held as investments. This demand, coupled with land scarcity, means that property in Singapore doesn’t come cheap.

There is however, a more affordable option for those looking to invest in property: real estate investment trusts (REITs). REITs – Singapore REITs (S-REITs) in particular – have been making headlines recently for offering handsome dividends, made even more attractive by a persistent low interest rate environment. If you are a dividend investor, you may want to learn more about this asset class.

How Have Singapore REITs Fared?

According to a Bloomberg report in October 2016, the 7% yield offered by S-REITs exceeded those listed in Australia, the US and Japan. That’s been the driving force behind an approximately 9% increase in the FTSE Straits Times Real Estate Investment Trust index this year as yield-hungry investors flock to the offerings amid record-low interest rates.

Findings by SGX My Gateway published on 11 September 2016 also showed that the sector logged an indicative average dividend yield of 6.7% p.a. thus far, compared to that of the Straits Times Index (3.9% p.a.) and MSCI World REIT Index (3.9%p.a.).

Compared to fixed deposit rates? The difference is even wider. In September 2016, the 12-month fixed deposit rate – or the average rate compiled from that quoted by 10 leading banks and finance companies – was 0.35% p.a.

What is a REIT Anyway?

A REIT is a trust that owns and operates income generating real estate. The rental income or interest payment that is earned by the REIT is passed on to investors in the form of dividends.

Here are more facts about REITs and S-REITs:

There’s a reason why S-REITs pay handsome dividends. They are required to distribute at least 90% of their taxable income each year in order to enjoy tax exempt status by IRAS, subject to certain conditions.

Investing in one REIT gives you exposure to not just one, but a portfolio of properties, and at a fraction of the price that it would cost you to buy a single property.

The portfolio of properties are not limited to those in Singapore. Some REITs have international properties in their portfolio.

REITs are more liquid compared to property as they can be bought and sold on stock exchanges throughout the day just like any other stock.

What S-REITs are Out There?

There are different types of S-REITs to choose from, and they are affected by different factors.

Maybank Kim Eng’s research team believes that industrial REITs, like Ascendas REIT and Mapletree Industrial Trust, could benefit from public spending’s focus on boosting innovation and productivity. Business parks, science parks and high-spec industrial space will be in demand. So if you are wondering what type of REITs to watch out for, you could consider finding out more about industrial REITs and whether they fit the objectives of your portfolio.

Disclaimer: This message is for general knowledge or information only. It is not an offer or invitation to buy or sell securities, futures or other products or services. Our products or services vary in different jurisdictions, subject to their respective terms and conditions and the licences our affiliates and us hold. This message is not an advice or recommendation for any financial planning, investment, legal, tax or other purposes and, accordingly, no responsibility or liability is assumed by us or our affiliates, whether directly or indirectly, from any person taking or not taking action

The Buzz Around U.S. Interest Rates: 3 Things You Should Know

It has been a story of “will they or won’t they” this entire year.

We are talking of course, about interest rates. The last rate hike in December 2015 was the first since 2006, and gradual hikes were expected in 2016 but the Federal Open Market Committee (FOMC) has ended every meeting so far with the decision to maintain interest rates. Market watchers are at the edge of their seats. The consensus is that a rate hike is looming and it could come as soon as November or December, when the FOMC next convenes.

In preparation for that, here are three things that you should know about a potential interest rate hike.

Will Markets Cheer or Jeer?

Here is a look at how the market has reacted to FOMC decisions lately:

*Prices plotted based on the adjusted close price of the last day of each month

Lately, markets seem to breathe a sigh of relief whenever rates remain unchanged but it is really anyone’s guess as to how the market will react to the next rate hike.

There are reasons why the market could react positively or negatively. Markets could jeer, as higher interest rates mean heftier borrowing costs for companies and consumers. In other words, it could be a drag on the economy. But markets could cheer as well because a hike may mean that the US economy is back on track and that the FOMC is confident enough to remove its crutches.

How Did We Get Here in the First Place?

Interest rates are practically zero as of this moment. The graph below shows how interest rates have fallen to this point over the years:

In the 1980s, to combat double digit inflation and the residual effects of the 1980 energy crisis, interest rates were hiked to about 20%. It stands in stark contrast to our current low interest rate environment. This low rate was a result of the global financial crisis; the US economy was hit hard by the crash in the housing market and banking sector from 2007 – 2009 and interest rates were reduced so that consumers and businesses could continue to spend and boost the economy. Interest rates have been kept low ever since as the FOMC has adopted a wait-and-see approach.

What Investors Should Take Note Of

There are two sectors that investors should keep an eye on – property and financial institutions.

It is easy to see why financial institutions will be affected. Their core business revolves around loans and their performance varies with interest rate levels. As for the property sector, it could go both ways. Higher mortgage rates make home buying more expensive, but the FOMC’s decision to raise rates could signal a healthy economy and a healthier economy could buoy the housing market.

And it isn’t just the US market we are talking about here. As money moves back to the US seeking higher interest rates, in a bid to stay competitive, interest rates in other countries may be increased as well. So do your research and pencil in these dates: 1-2 November 2016 and 13-14 December 2016. The market will be holding its breath as the FOMC convenes to decide whether the time has come to finally hike interest rates.

Disclaimer: This message is for general knowledge or information only. It is not an offer or invitation to buy or sell securities, futures or other products or services. Our products or services vary in different jurisdictions, subject to their respective terms and conditions and the licences our affiliates and us hold. This message is not an advice or recommendation for any financial planning, investment, legal, tax or other purposes and, accordingly, no responsibility or liability is assumed by us or our affiliates, whether directly or indirectly, from any person taking or not taking action

4 Benefits of a Monthly Investment Plan

Based on a Worldwide Cost of Living survey conducted by the Economist Intelligence Unit, Singapore has been ranked as the world’s most expensive city to live in for the third consecutive year. Indeed, many living in Singapore have to contend with the high property and car prices. Healthcare and education costs are also not far from people’s minds.

Investment is seen as a way to potentially amplify one’s wealth to better fulfil these life goals. But what if you do not have a substantial amount of capital or time set aside for investing? A Monthly Investment Plan or what’s also known as a Regular Savings Plan, could be something for you to consider.

Affordable

There’s a common misconception that you need to have sizeable capital in order to start building a nest egg through investing. However, with a Monthly Investment Plan, you can decide how much to invest based on your personal financial situation. You can even set aside just $100 a month, and put that money into blue chip stocks, exchange traded funds (ETFs) and Real Estate Investment Trusts (REITs) listed on global markets to build your portfolio.

Takes Advantage of Dollar Cost Averaging

Monthly Investment Plans follow the principle of dollar cost averaging. By investing regularly every month instead of trying to time the market and find the best time to buy and sell shares, the risk of investing a large amount in a single investment at the wrong time is reduced.

To gain a better understanding of dollar cost averaging, consider this example where two siblings are given $10,000 each, but choose to invest it in different ways.

Luke used the money to buy 1000 shares at $10. Drew, on the other hand, invested a predetermined amount each month, and he ended up buying more shares when the price was low and fewer shares when the price was high.

Drew’s average price per share ($8.90) is therefore lower compared to Luke’s ($10) – this is how dollar cost averaging works and by extension, how Monthly Investment Plans can help you achieve your investment goals.

Automated and Hassle-Free

No one can exactly foresee and predict the behaviour of the stock market. Instead of trying to time the market and finding the right time to enter and exit, Monthly Investment Plans focus instead on long-term gains, and build your portfolio by automatically buying your shares for you every month. Your work is done at the outset. All you need to do is choose your desired shares and set your monthly investment amount. From that point on, you can sit back and watch as your portfolio grows and your shares accumulate.

Diversification

Monthly Investment Plans enable you to diversify your investment portfolio in a couple of ways.

Most of these plans allow you to invest in ETFs like SPDR STI ETF or Nikko AM STI ETF which are funds that invest in the 30 largest companies listed on Singapore Stock Exchange. More conservative investors can go for these ETFs. In addition to these ETFs, your Monthly Investment Plan may allow for investments into REITs. If you are interested in investing in property, then this is something to look out for; REITs don’t just give you exposure to one property – they give you exposure to a whole portfolio of properties. Some Monthly Investment Plans will also allow you to access stocks listed in markets like the US, Hong Kong, Malaysia and Thailand. Expanding your horizons and looking at offerings listed on these global markets is another way to diversify your portfolio.

If any of these four benefits sound appealing to you, then you should find out more about how Monthly Investment Plans can help you along your investment journey.

*Prices plotted based on the adjusted close price of the last day of each month

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