Categorized | Beginning Online Trading

Introduction To Trading Singapore Stock Market: The Basic Knowledge That All Investors Should Know

In this article, we are focusing on Singapore stock market.

If you are new to trading Singapore Shares, here is a quick start kit for you to acquire the basic knowledge that all beginners should comprehend before embarking on their invesment journey.

How To Get Started With Singapore Stock Market?

You have to know what are (1) Blue Chips, (2) Mid Caps, (3) Small Caps and (4) China-related stocks.

Blue chips are nationally recognized, well-established and financially sound companies. They are known to weather downturns and operate profitably even in face of adverse economic conditions. Their strong business structure and well diversification help to contribute to their long record of stable and reliable growth. Some classic examples include Singtel, UOB, DBS and OCBC. Most blue chips are also one of the constituents that made up the STI index.

Mid Caps are companies with a market capitalization between $2 and $10 billion. Some examples are Yanlord, IndoAgriculture and Ascendas Reit.

Small Caps are stocks with a relatively small market capitalization. Some examples are ECS and Ban Joo.

China-related stocks refer to companies that operate most of their business in PRC.

Next, you need to know the constituents that made up the STI index. Constituents may vary with time when there are new stocks included or existing stocks excluded. This is to give the best accuracy of the overall Singapore Stock Market. Currently, we have 30 stocks that made up the STI Index.

STRAITS TIMES INDEX CONSTITUENTS (30 CONSTITUENTS)

CAPITALAND
CAPITAMALL TRUST
CITY DEVELOPMENTS
COMFORTDELGRO CORPORATION
COSCO CORPORATION (S)
DBS GROUP HOLDINGS
FRASER AND NEAVE
GENTING INT’L PLC
GOLDEN AGRI-RESOURCES
HONGKONG LAND HOLDINGS
JARDINE CYCLE & CARRIAGE
JARDINE MATHESON HOLDINGS
JARDINE STRATEGIC HOLDINGS
KEPPEL CORPORATION
NEPTUNE ORIENT LINES
NOBLE GROUP
OLAM INTERNATIONAL
OVERSEA-CHINESE BANKING CORP
SEMBCORP INDUSTRIES
SEMBCORP MARINE
SIA ENGINEERING CO
SINGAPORE AIRLINES
SINGAPORE EXCHANGE
SINGAPORE PRESS HOLDINGS
SINGAPORE TECHNOLOGIES ENGINEERING
SINGAPORE TELECOMMUNICATIONS
SMRT CORPORATION
STARHUB
UNITED OVERSEAS BANK
WILMAR INTERNATIONAL

Different stocks are assigned with different percentage weight. This means that the movement of the above mentioned stocks will directly affect the performance of the STI index. Certainly, the bigger the percentage weight, the greater the impact it has on the index.

In addition, there are many useful links that investors should frequent them to check for updates. You may check for any changes on the % weighting from www.ftse.com on a monthly basis as changes usually happeonly once in a long time.

Next, www.sgx.com is a good website to obtain latest updates on company’s announcements.

Company’s Dividends Payout

There are 2 terms that investors have to know about dividends. One is cum-dividend which has a short form of “CD”. The other one is Ex-dividend which has a short form of “XD”.

Cum-dividend means if you purchase this stock during the period when it is showing “CD”, you are entitled to the dividend payout that the company has declared.

Ex-dividend means if you purchase this stock during the period when it is showing “XD”, you are not entitled to the dividend payout that the company has declared.

To facilitate better understanding, we have drafted 3 different types of situations to illustrate on dividend payout. Please note that the mentioned examples herein are all hypothetical.

Stock A has just announced good earnings and decided to declare 5cents dividends on Monday. Stock A will start to trade “CD” on Tuesday and going Ex-dividend on Friday.

Case 1: You did a fundamental analysis and found that Stock A is a good investment. So you proceed to buy on Tuesday. In this case, you are entitled to the dividend payout.

Case 2: You are an active stock trader and concluded that the chart pattern of Stock A has fulfilled your criteria of a good buy. You buy on Tuesday, however, the share does not performed up to your expectation and you went on to sell your shares on Thursday. In this case, you are NOT entitled to the dividend payout.

Case 3: You are an active stock trader and concluded that the chart pattern of Stock A has fulfilled your criteria of a good buy. You buy on Tuesday and after holding for several days, the stock underperformed but it has yet to reach your stop loss price. Eventually you decided to sell your stocks on Friday. In this case, you are entitled to the dividend payout.

In short, if you buy a stock on “CD” and sell on “XD”, you are entitled to dividends. But if you buy on “CD” and sell on “CD” before “XD”; and/or buy on “XD”, you are not entitled at all.

Things To Note During ED

Pay attention on the amount given as dividends by the company. Large dividends payout might affect the share price once it goes ex-dividend. But you do not need to worry about the sudden plunge in share prices. Follow the 1-2-3 steps and use the information to decide on your next course of action.

1) You need to discount the dividend amount to get the exact trading price that the stocks should be trading for investors who are not entitled to the dividends.
2) If the stock is trading above the discounted price, the stock is therefore considered bullish.
3) If the stock is trading below the discounted price, the stock is then considered bearish.

Example: Stock B is trading $2 and giving out dividend of 7cents. On ex-dividend, Stock B should be trading at $1.93 for investors that are not entitled to the dividends. If Stock B managed to trade above $1.93, this indicates that Stock B is bullish. However, if Stock B falls below $1.93, it is considered bearish.

Stock’s behaviour

Every stock has its own unique movement. Some are volatile while some are pretty stagnant. You need to spend some time observing the share price movement and ensure that you are comfortable with their price range movement before you begin your investment.

For instance, UOB and DBS are considered high beta stocks with high daily fluctuations of up to (but not limited to) 20cents.

ComfortDelgro and SMRT are known to be defensive stocks and stagnate in their price movements. Hence, you do not expect much movement over a short period of time on such stocks.

Some stocks that have wide movements can be hard to trade if you are an active trader. For example, Jardine group stocks which include Jardine C&C, Jardine Matheson and Jardine Strategic. These stocks have erratic movement which can pose substantiate threats to intra-day trading.

Erratic movement can be caused by a few factors such as liquidity issues. When you make a wrong judgment and share prices are moving against you, you would definitely want to exit the market with the least damage done. However, due to liquidity issue, you might be forced by circumstances to sell your positions at an undesirable price which could resulted in heavy losses incurred.

In summary, active day traders should avoid trading erratic movement shares such as Jardine-related stocks or SIA. These shares are more suitable to investors with long term investment objectives.

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