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Basic Knowledge on Trading Singapore Stocks That Every Investor Should Know

Get Started With Trading Stocks?

If you know nothing about stock exchange, here is a quick start kit for you to acquire the basic knowledge that all beginners should comprehend before trading on any stock market.

Indexes

First of all, you need to know the various indexes. There are Dow Jones Industrial Average which is a price-weighted average of 30 significant stocks traded on the New York Exchange and the Nasdaq. America is doubtlessly considered one of the most influential countries that can cause great impact on the overall world economy; hence, the US markets’ performance is largely watched by all investors and traders worldwide.

Next, we have the 3 major European Markets which are France (CAC), Germany (DAX) and London (FTSE).

Finally, we have the Asian major markets which are Hong Kong (Hang Seng), Shanghai (SSE), India (SENSEX), Korea (KRX) and Japan (Nikkei).

Basic Terms That Investors Should Know

• Bull Market refers to stock market is undergoing an upward movement and Prices are going UP.
• Bear Market refers to stock market is undergoing a downward movement and prices are going DOWN.
• Long refers to the action of buying a stock.
• Short refers to the action of selling a stock naked or to sell out existing shares’ holdings.
• Beta stocks refer to stocks that trade in a wide range and movement can be erratic.
• Volatile refers to stock prices changes up and down in an random movement which can be difficult to read or predict.
• Liquidity refers to the degree to which an asset or security can be bought or sold in the market without affecting the asset's price
• Bid prices refers to the best buying prices that investors are willing to pay for a particular stock
• Offer prices refer to the best selling prices that investors are willing to sell for a particular stock.
• Spreads refers to the smallest price change that a given stock can make.

[These are the general terms for you to kick start with. We will  add on more financial terms from time to time.]

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

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.

1. 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 of the STI index.
2. Mid Caps are companies with a market capitalization between $2 and $10 billion. Some examples are Yanlord, IndoAgriculture and Ascendas Reit.
3. Small Caps are stocks with a relatively small market capitalization. Some examples are ECS and Ban Joo.
4. China-related stocks refer to companies that operate most of their business in the Mainland, China.

 

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)

1. CAPITALAND
2. CAPITAMALL TRUST
3. CITY DEVELOPMENTS
4. COMFORTDELGRO CORPORATION
5. COSCO CORPORATION (S)
6. DBS GROUP HOLDINGS
7. FRASER AND NEAVE
8. GENTING INT’L PLC
9. GOLDEN AGRI-RESOURCES
10. HONGKONG LAND HOLDINGS
11. JARDINE CYCLE & CARRIAGE
12. JARDINE MATHESON HOLDINGS
13. JARDINE STRATEGIC HOLDINGS
14. KEPPEL CORPORATION
15. NEPTUNE ORIENT LINES
16. NOBLE GROUP
17. OLAM INTERNATIONAL
18. OVERSEA-CHINESE BANKING CORP
19. SEMBCORP INDUSTRIES
20. SEMBCORP MARINE
21. SIA ENGINEERING CO
22. SINGAPORE AIRLINES
23. SINGAPORE EXCHANGE
24. SINGAPORE PRESS HOLDINGS
25. SINGAPORE TECHNOLOGIES ENGINEERING
26. SINGAPORE TELECOMMUNICATIONS
27. SMRT CORPORATION
28. STARHUB
29. UNITED OVERSEAS BANK
30. WILMAR INTERNATIONAL

 

Different stocks are assigned with different percentage weight, meaning that these 30 stocks movement will directly affect the STI index performance. Certainly, the bigger the percentage weight, the greater the impact it has on the index. To know the percentage weights of individual stock and the price range of stocks, please refer to our blog. 

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 do not happen often but 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 had 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 had declared.

To facilitate better understanding, we have drafted 3 different kinds 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 perform 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 need not 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 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 considered defensive stocks and are stagnate in 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 undesired price which could result 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.

About the Author

SGX Warriors invites you to join us at our blog http://www.sgxwarriors.blogspot.com for daily updates on Singapore Stock Market. Learn how to trade singapore shares with us and know what are our trade entry signals with exact stop loss and take profit level in real time to aid you in your own investment. Subscribe to our blog and be our member today: Subscribe to SGX Warriors by Email