Friday, May 21, 2010

STI down 11.1% from recent peak, bought some Noble Group shares

The STI was 1.9% lower today, after weakness on Wall Street last night. The Singapore stock market has declined over 10% from the recent peak in early April, a sharp drop in just five weeks. Considering the risks known at present, most of them stem from European debt problems and the collateral damage often simplified in the media as the "Greek contagion". 
While throwing into question the risk-free rate of certain developed European economies is certainly unprecedented, systemic risks have been substantially reduced after the huge bailout package put together by the EU and the IMF. We are investing on the basis that a credit market seizure on the scale following Lehman's collapse in late 2008 will not occur again, which means the risks for Singapore stocks will largely be associated with lower levels of consumer demand. This is yet another indication of the growing disparity between emerging economies and developed ones, and Singapore is fortunate to have companies positioned to benefit from emerging market growth, without the tricky corporate governance issues.

The market correction is painful, yet inevitable and long-awaited. Wilmar was sold down yesterday on fears that the Indonesian government would take legal action to reclaim certain unauthorised tax rebates that the company had received over the past three years. The stock has already corrected more than 20% from its recent peak to levels last seen in July 2009, a worthwhile punt, but we will have to study the company in greater detail before making an investment decision.

In response to the market sell-off, we added $10,000 in new money today to the overall portfolio (the portfolio is almost fully invested). With some of the proceeds, we purchased 1910 shares of Noble Group, (one lot at $1.60, 910 shares  at an average cost of $1.624) at  to top up our holdings to 5000 shares. Noble recently did a 6 for 11 bonus issue, which meant that we held 3090 shares from the original 2000. With the shares falling as much as 9.4% this morning (with no negative company-specific news), we decided to add to our position in the stock.  


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