The Straits Times Index closed at 3,076 on October 20, down 142 points week-on-week. Overall, October 20 was a not a good day for the local market. In general, October isn’t a good month for equities as various crashes have taken place in past Octobers, the most notable of which was in 1929.
This year, a conflagration of the Israel-Palestine problem was set ablaze by Hamas on - of all days - October 7, just in time for markets to turn jittery. Middle Eastern conflicts have a habit of unnerving markets because of oil and gas production and pricing. And, now in the era of sustainability, decarbonisation and renewables, the oil and gas sector continues to unsettle markets.
On top of geopolitical woes, interest rates are stubbornly high. The 10-year US treasury yield (UST10Y) is at 4.93%, the highest level since 2009.
Support for the STI is likely to be at the October 2022 support low of 2,969. By then, smoothed RSI which is at 30, could be sufficiently oversold to trigger a rebound.
More importantly, market participants need to keep an eye on UST10Y. Since ADX is at 49, a high level, it could start a negative divergence. The 21-day RSI is at 65, a relatively high level for this indicator.
While markets are likely to remain jittery, they could calm down in November, although possibly at lower levels, as they ready themselves for the Capricorn Effect that usually materialises in December and January.
See also: STI steadies despite overbought US markets and rising US risk-free rates
In the meantime, market watchers may be wondering what is going on at Keppel DC REIT as its smoothed 14-day RSI approaches its 2022 low of 15 which is around the same oversold level attained in October 2022 when Keppel DC REIT’s price was at $1.60. Even if prices fall towards $1.60, significant oversold pressures have built up. It is increasingly likely that KDC REIT’s unit price rebounds in the week of Oct 22-26.
KDC REIT price has been hit by a double whammy. Analysts are flagging that the master lessee of its Guangdong data centres, Neo Telemedia, which contributes around 10%-11% of revenue, made a 1H2023 net loss. The revennue translates into around 16% of KDC REIT’s DPU, analysts have indicated.
More concerning, though are signs that KDC REIT is preparing to acquire a data centre in Genting Lane and another in Beijing, analysts suggest. Acquisitions or even a hint of an acquisition are likely to cause investors and traders to sell units. KDC REIT ended at $1.72, losing 14.8% in four trading sessions.
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