Red Hot Dot Trading Opportunity: Singapore

Perhaps a lot of readers heard of Singapore, also known as the Red Hot Dot in Asia with only 42 years of history. However, you may not be familiar with the Singapore stock market. Let me take this opportunity to provide some guidance about the trading opportunity offered in the Red Hot Dot for education purpose.

Singapore Straits Times Index [STI]

STI is the key barometer of the performance of the Singapore stock market. Currently, there are 48 component stocks in the STI, with different weights allocated to different stocks in different sectors.

If you have Profitsource, you can use the symbol “019.X” to retrieve different charts for STI. For example, Figure 1 is a weekly chart of STI:

Figure 1: Weekly Chart of STI
(Click here for larger view.)

STI had recently hit the all-time high at 3851, which is at the same time when both Dow Jones Industrial Average, and S&P 500 indices hit all-time high. From my experience, STI’s performance mimics very closely to that of the US major indices. To prove this point, I have used the Relative Strength Comparison [RSC] indicator in Profitsource in Figure 2 to show the high correlation between DJX and STI.

Figure 2: High Correlation between DJX and STI

From a technical analysis perspective, STI has traded above the upper Bollinger Band on the Weekly Chart 2 weeks ago, showing the bullish momentum. Many traders still believe that Singapore will maintain its strong economic growth and that the Singapore Government will be able to control the inflation rate and unemployment rate. Moreover, the Singapore property market is so hot right now with lots of new project and en-bloc sales going on. In fact, I have been persuading some of my fellow instructors to consider moving to Singapore and buy properties here. In fact, Singapore does not have capital gains tax regime, and it is an ideal place to buy and hold property with a view to deriving capital gains.

Last but not least, Singapore will soon have two Integrated Resorts [IRs], which will be up and running by 2010: one on the prime area located in the Marina Bay managed by the Las Vegas Sands Corp () from the US, and another on the Sentosa Island, managed by the Genting International Bhd from Malaysia. It is expected that these IRs (with casino facilities) will attract many visitors to Singapore, thereby resulting in an exponential growth of the Singapore tourism industry, and spin-off effects to other sectors.

Let’s look at the daily chart of STI in Figure 3.

Figure 3: Daily Chart of STI

You will see that STI bounced off nicely on the 50 day Simple Moving Average (the red line) sometimes on Sep 18, 2007 (the last FOMC meeting in the US). Since then, the index acted like a north-bound train and moved to close above the psychological level of 3700 on Sep 27, 2007, and on Oct 5, 2007 (i.e. just within a week), closed above the psychological level of 3800. Now, the talk-in-the-town is whether STI will be able to hit 4000 by end of 2007. I don’t have the crystal ball with me so, I leave it to you to find out and ask around for the crystal ball.

How to participate STI?

If you are living outside of Singapore, and would like to participate in the STI, one possible way is to use ETFs. The ETF in this case is ishares MCSI Singapore Index Fund (). Figure 4 is a daily chart of EWS, and I also turned on the RSC in Profitsource to show the high correlation between EWS and STI.

Figure 4: Daily Chart of EWS with RSC on STI

To conclude, Singapore stock market offers some attractive trading opportunities. However, you should note that the Singapore Stock Exchange has just made an announcement this week to restructure the component stocks. From a 48-stock based index, STI will be revamped to become a 30-stock based index effective from Jan 2008. Right now, trial values of the new STI will be published daily on ftse.com/st to enable people to be familiar with it.

I hope this article will bring some useful insight to the readers about the trading opportunity from the Red Hot Dot. Remember, trade smart!

Good trading!

Jack Wong
Contributing Writer
Optionetics.com ~ Your Options Education Site