Can the STI hold above 4,000?

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Since the Straits Times Index touched 4,000 (+/-) on March 28, this level has provided resistance. As such, 4,000 should provide support during the pull-back move after a breakout. On the weekly chart, directional movement remains low, but weekly directional indicators (DI) have managed to turn neutral after staying in negative mode since the beginning of March. This suggests that the breakout is likely to be sustained despite both quarterly and annual momentum looking a trifle fatigued. This is because the directional indicators on the weekly chart are quarterly indicators and they tend to indicate a change of direction on a quarterly basis.

Since the weekly quarterly directional movement and its main component ADX are trend indicators, and since the 50-, 100-, and 200-day moving averages are positively placed, the weight of the evidence based on technical indicators suggests that the breakout should be "good". If the move above 4,000 is sustained, an upside of 4,400 for the STI is indicated based on the measured move.

The FTSE ST REIT Index (REIT Index) has underperformed the STI for several years. Technically, the REIT index remains in a base formation. However, prices are now at the top of a minor base formation (within a larger base formation), and they are attempting to move above the neckline of the base at 650.

As at July 4, the REIT Index is at 660, which is too close to be defined as a breakout. Nonetheless, the moving averages are turning positive, and annual momentum is rising, forming a positive divergence with the REIT Index, lending weight to an upside breakout. A successful break above 650 indicates an upside of 720.

If the REIT Index breaks out, which REITs are likely to outperform? Based on the table, the top performers this year are mainly the heavyweights, CapitaLand Integrated Commercial Trust and CapitaLand Ascendas REIT. Together they account for more than 30% of all the S-REITs. The REIT Index will not be able to break out without them. CICT and CLAR are also among the top five performers this year in terms of total returns.

The other top performers had idiosyncratic reasons for their outperformance. Frasers Hospitality Trust has a privatisation offer via a scheme of arrangement. First REIT is under a strategic review to consider an offer for its Indonesian hospitals.

Elite UK REIT’s outperformance is due to improving fundamentals.

Sometimes, the worst performers play catch up. Among the REITs, excluding the US office REITs listed in Singapore and the troubled REITs and property trusts, Digital Core REIT, Mapletree Industrial Trust and Mapletree Logistics Trust may recover. CDL Hospitality Trusts and Far East Hospitality Trust could also recover, but they could also remain hostage to geopolitical tensions.

The yield on 10-year Singapore Government Securities, our risk-free rate, ended the week of June 30- July 4 at 2.07%. This is likely to be a tailwind for the REITs, in particular REITs with Singapore assets (because of tighter capitalisation and discount rates, and cheaper debt).

Can the STI hold above 4,000?

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