In the near term, the outlook of the FTSE REIT Index looks more interesting that that of the STI. The REIT Index has formed an ascending right triangle which is likely to be a continuation pattern in an uptrend. The breakout level is at the thrice tested 717 level - which is near a previous resistance area at 720. Technical indicators appear fair. Quarterly momentum and 21-day RSI are trending sideways. Directional movement indicators are neutral to positive and look set for a positive turn. Against this background, it is possible for the REIT Index to break above the 717-720 resistance area, setting an upside of around 800.
The STI, on the other hand, may continue its consolidation phase. The index is a tad above its 50-day moving average, currently at 4,309. The STI ended at 4,328 on Oct 17, and below a minor support at 4,344. Both quarterly momentum and 21-day RSI continue to weaken and are heading towards their respective equilibrium lines after forming negative divergences with the index. Since the STI fell below 4,344, it may also move below its 50-day moving average, and settle at 4,200, where it may find firmer support than at 4,344, before attempting to recover in the final month of the year.
See also: Rotational interest settles on an unexpected sector
The stocks in table 1 may not be the most stressed stocks on the SGX, but most of the 12 stocks are likely to be financially burdend. We have filtered stocks with the highest net debt to equity, with little or no earnings per share and with market capitalisation of at least $40 million and generally above $75 million.
Although Thomson Medical Group is at the top of the list, it has a strong backer, it is planning a mega project in the JS-SEZ, and it is very tightly held with a free float of less than 11%. Nonetheless, in order to develop the mega project, the group may need to rope in capital partners and/ or equity partners.
Pacific Century Regioinal Development owns an insurance company and doesn’t count as a stressed stock. Tuan Sing has a high gearing ratio, limited earnings, but has assets that have yet to realise their full book value. It may need to monetise an asset for the discount between share price and book value to narrow. Rex International is awaiting earnings from its oil and gas to be ramped up.
