Running Head: SHARE TRADING 1

Share Trading

Students Name

Institution
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Share Trading

Executive Summary

Historical data and current company information are the elements used to provide
empirical evidence on stock analysis on the Singapore stock market. Stock analysis is simply the
methodology used by various investors to study the current and historical data of a company to
determine the price of its stocks to help them make a sound investment decision. The two
approaches used to predict stock prices are fundamental analysis and technical analysis. In this
case, we used two perfect technical analysis tools: simple moving average (SMA) and moving
average convergence/divergence (MACD) to predict stock prices. We also used two indicators in
the fundamental analysis: earnings per share (EPS) and the ratio of share price to the profit
(P/EPS) to determine the worth of the specific companies. The results obtained from our trading
indicate that fundamental analysis beat the market, even though we only had a shorter investment
horizon. Fundamental analysis is most effective over a longer term while technical analysis is
most effective over the short-term. However, trading based on technical analysis requires
frequent and timely trading. Strategies adopted generate large trading costs that quickly takes any
excess returns gained.
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Introduction

Portfolio management is a complex subject that requires adequate knowledge about how
stocks behave relatively to the market and which strategy will beat the market with the highest
returns. There exist two schools of thought about studying the stock patterns in the market. They
include technical analysis and fundamental analysis. Technical analysis involves analyzing the
stock patterns on the assumption that just like the prices of other products, the prices of stock is
also a matter of demand and supply. Analyst tries to generate charts of the stock prices and
volume histories with the aim of predicting stock movements about the perceived trend in the
market. Fundamental analysis, on the other hand, examines the earning potential of a company’s
stocks on the assumption that shares have intrinsic values which are the function of the
underlying price of the company at large. In this case, analysts and investors try to look at which
shares have been undervalued and which ones have been overvalued. These two approaches have
got different goals.

Literature Review

The concept of Efficient Market Hypothesis (EMH)

This is an investment hypothesis that has the notion that it is not easy to "beat the market"
since securities exchange efficiency means that the stock prices have to reflect and incorporate
all important information constantly. In fact, EMH accepts that stocks take a random walk, all
information easily accesible, and investors are behaving in a rational way. The notion of
information has three forms with fluctuating measures of strength, a strong form of EMH, a
semi-strong form of EMH and a weak form of EMH (Malkiel, 1989). As hypothesized by the
EMH, stocks trade at their fair values on stock exchanges, making it incomprehensible for
investors to either overvalue their stocks or buy underestimated ones. Therefore, it is difficult to
outdo the market using professional stock selection or market timing, as the main way an
investor can get higher returns for his money is by buying high-risk stocks.

The proficient market speculation (EMH) is inconsistent with fundamental analysis due
to its assumptions about the accessibility of information and the soundness of the market.
Fundamental analysis requires an exhaustive assessment of an organization's returns and
financial statements. In light of some expertise combined with the access to information, an
investor ought to have the capability to value every potential investment in order to avoid
purchasing stocks that are undervalued in the commercial center. Under the strong type of EMH,
all available information is shared and promptly reflected in share prices. In this circumstance,
there is no difference between public information and private information, and the stock price is
an exact impression of the anticipated future cash flows of the organization. This form of
hypothesis proves fundamental analysis as pointless because the blend of rational investors and
available information implies that the price of stocks dependably mirrors the intrinsic price.

In the semi-strong type, all available public information in the market is believed to be
integrated into the stock prices very quickly. For this situation, there is a probability of the prices
of stocks to be wrong or obsolete because of the private data that the market has not yet received.
However, the fundamental analysis may not be effective if it highly dependable on private
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sources. Therefore, only public market data is incorporated into the price of a stock. On the off
chance that there is breaking news about an organization, weak frame EMH agrees that it is
processed quickly by the market and stock prices and adjusts precisely to reflect the implications
of such news. Other private and public data is not assumed to be a part of the value, which
suggests that fundamental analysis can work well when it depends on a data benefit. Under all
types of EMH, investors are thought to be splendidly rational, and the valuation of a specific
stock is thought to be exact, given the data accessible. Having the similar information, investors
usually value stocks in the same way.

The efficient market hypothesis (EMH) states that technical analysis is bunk since it
proposes that business sectors are effective. This implies that historical prices and expectations
are evaluated into investments and that it's unrealistic to outdo showcase of normal market
returns by looking at the historic formation. Since technical analysis is based on an idea of using
past information to foresee future value changes, the EMH is theoretically contradicted to
technical analysis. In fact, historical data is the basis of the EMH and technical analysis. Once
known, those patterns can be used to predict future trading opportunities above the market-
normal returns. As per EMH, security prices already show all available data. This incorporates
financial specialists’ opinion about feasible price patterns and all the recurring phenomena that
may create those patterns once more. Moreover, the EMH undermines the fact that past price
and information have no association with future decisions. From the three variants of EMH, we
can note that two of them presume that neither fundamental analysis, nor technical one can be
valuable when settling on investment decisions. Just the weak form of the EMH takes into
account some employment of fundamental techniques.

Rational and Methodology

Twenty stocks from the list of shares in the FTSE ST ALL share index (listed on the
SGX). The stocks were split into ten shares per Portfolio using technical analysis and the other
ten shares using fundamental analysis. Each Portfolio amounted to $50,000. During our trading
tried to put into consideration the impact of the publicly available information that we extracted
from the financial reports of the companies which were listed on the Singapore Stock Exchange.
The final results justify the efficient market hypothesis that all the publicly accessible data is
completely reflected in the prices of the recorded stocks. As we are for the most part worried
about the weak form of the market hypothesis, we have fundamentally centered on the publicly
accessible data. In fact, there is a strong form and a semi-strong form as some trading can be
done and analyzed. This analysis likewise demonstrates that the influences of the efficient
market hypothesis are strong in our emerging market when contrasted with the conduct or
nostalgic opinion of financial investors meaning that other factors apart from technical indicators
and fundamentals still affect the stock prices.

Fundamental Investing. The choice for the portfolio depended on quantitative

examination of the organization's financial reports. Under the fundamental stock analysis,
we started gathering the vital data that will give the premise to the basis for our complete
understanding of the stocks. This information included P/E, earnings per share (EPS), and
return on capital employed. Our fundamental reason was to buy organizations that are
selling (trading) below the intrinsic value (Abarbanell, Jeffrey & Bushee, 2004). The next
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step was to find the average closing stock prices listed on the Singapore Stock Exchange.
The data on average closing stock prices was extracted from the Singapore Stock
Exchange website. The Price-to-Earnings (P/E) and the Profit per share values were
available from the company’s financial reports.

Price-to-Earnings (P/E). When considering the current market price, the most popular
ratio is the Price-to-Earnings (P/E) ratio. As the name suggests, it is the current market price
divided by its Earnings per share (EPS). It is an easy way to get a quick look at a stock's value. A
high P/E shows that the stock is estimated generally high to its income, and organizations with
higher P/E, thus, appear to be more important. Nonetheless, this measure, and also other money-
related proportions, should be contrasted with comparative organizations inside a similar part or
its recorded P/E. This is because of various qualities in different divisions and changing markets
conditions. However, this proportion does not recount the full story since it doesn't represent
development. Ordinarily, organizations with high income development are exchanged at higher
P/E esteems than organizations with more direct development rate. Also, if the organization is
overgrowing and it is expected to keep on growing, the present market cost may not to be so
significant.

Profit per share (EPS). This is the sum that the organization pays out of net benefit to its
investors, communicated as several dollars per share. The organization has the decision of
paying the greater part, some portion or none of the net benefit. It relies upon it, regardless of
whether the organization needs the cash to support development or reimburse obligation. As the
intensive examiners, we didn't simply watch predictable profit installment over numerous years
and after that decide the speculation to be "protected". It was necessary to check if the profits
were paid from the present year's income or held income from earlier years. In order to do that,
we checked the payout proportion or profits/income which indicates what level of profit was
paid out as a profit. The complementary is income/profits which are the profit cover proportion.
Here and there paying out all the profit as profits is not something to be thankful for. For
instance, on account of an organization there is a possibility of having the capacity to get a better
than expected rate of return financing extension or procurement as opposed to paying a profit. At
different circumstances, if the organization has surplus money, it might pay out an extraordinary
profit or report an arrival of capital.

Technical analysis. The analysis depended on the idea of Dow Theory, a hypothesis
about market movements that originated from the early works of Charles Dow. Two essential
suppositions of Dow Theory that underlie all of the specialized investigation are: market price
discounts each factor that may impact a security's price; and the market price movements are not
random, but rather move in identifiable patterns and patterns that repeat after some time (Rhea,
1993). The notion that price discounts everything, means that at any given point in time the
market price of a security precisely mirrors all accessible data, and in this way speaks to the
genuinely reasonable valuation of the stock. This assumption is based on the idea that the market
price of stocks dependably reflects the entirety information of all market stakeholders. Therefore,
we utilized the information caught by the price to interpret what the market is, stating the reason
for framing a view of what's to come. As we really enjoyed buying stocks, we focusedon spotting
bullish situations. To perform the technical analysis, we started with stock charts that
demonstrated the price and trading volume history of a specific security or stock index and also
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the host of other factual measures, for example, maximums and minimums, moving averages,
and percentage changes. The idea behind using graphs and charts was to recognize patterns and
changes in those patterns. There are a few sorts of patterns and examples Bollinger groups,
candlesticks, the MACD histogram and others. Some technical analysts additionally utilize
indicators and oscillators to decipher trading information. In this case, we used the RSI.

MACD. The MACD is a pattern following force indicator which demonstrates the
connection between two moving midpoints. MACD is the contrast between the 26-day and 12-
day exponential moving midpoints. A 9-day exponential moving is normal and called the
"signal" line, is plotted over the MACD to reflect "buying" or "selling" opportunities. A
"buying" flag happens when the MACD transcends its flag line and the other way around
(Rodriguez- Farrar, 2006). The MACD indicator alone was not sufficient to help decide an
investment call, just the way a fundamental analyst cannot give a ‘buy’ or ‘sell’ call using a
single ratio.
Therefore, we used RSI, to confirm any trend.

RSI. The RSI (Relative Strength Index) is a prominent momentum pointer, in some cases
considered to mean of overbought condition (when over 70) or an oversold condition (when
beneath 30). Therefore, it uncovers if a conceivable pattern reversal may be headed. In any case,
being an oscillator, we just considered it to affirm the MAC (Murphy, 1999). In this trading
system, we coordinated the RSI with the moving average cross indicator. For the moving
midpoints, we utilized the 4-time frame and 13-period MAs. We purchased or sold the stock
when we coordinated an RSI overbought or oversold motion with a steady hybrid of the moving
midpoints. We held the position until the point when we got the inverted signal from one of the
two markers or divergence on the charts. Besides, a consistent crossover from the moving
normal was insufficient to leave a market. We additionally sat tight for a light to close the two
lines of the normal moving cross before leaving the market.

Results and Analysis

The fundamental trading strategy beats the market in such a way that the portfolio earned
greater returns than that of the S&P 500 index, which is one of the commonly used benchmarks
of U.S. stock market performance. The MACD and the RSI only demonstrated whether the
purchasing momentum has backed off in the counter and, in this way, the uptrend in the stock
price might be arriving at the end. In similar manner, positive divergence happened when the
stocks made a new low, while its MACD didn't make one. That inferred that selling pressure had
subsided and that the downtrend in the counter may not proceed for a long time. Fundamental
trading strategy beats the market because all available information was incorporated in trading.
The use of dividends and earning per share as a part of our long-term trend and in combination
with other key indicators was essential in analyzing our stock. It did not only improved the
accuracy of the review but also helped to narrow the list of viable investment stocks.

Conclusion

There can't be an ideal method for trading. Everything relies upon the investor’s solace
level in analyzing the fundamentals or utilizing technical analysis tools to take positions. MACD
can be used rather than DMI, RSI can be utilized rather than FastK, Pivot focuses, Fibonacci
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Retracements and so forth. However, it is exceptionally fundamental that any forced

interpretation ought not to be finished. In fact, technical charts can be helpful in such cases as
information has already been mulled over by the price movements. As a result, fundamental and
technical analysis of twenty stocks has been completed. Translation of the supporting
information showed that fundamental analysis is the most favored examination in picking stocks
to get higher returns. This is bolstered by the way that financial specialists know, and are more
situated towards the fundamental investigation as portrayed from the analysis and interpretation
of the essential information.
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References

Abarbanell, Jeffrey S., and Brian J. Bushee (2004). Fundamental analysis, future earnings, and
stock prices. Journal of Accounting Research 35.1 (1997): 1-24.

Malkiel, B. G. (1989). Efficient market hypothesis. The New Palgrave: Finance. Norton, New
York, 127-134.

Murphy, J. J. (1999). Technical analysis of the financial markets: A comprehensive guide to

trading methods and applications. Penguin.

Rhea, R. (1993). The Dow theory: An explanation of its development and an attempt to define its
usefulness as an aid in speculation. Fraser Publishing Company.

Rodriguez-Farrar, H. (2006). The teaching portfolio: A handbook for faculty, teaching assistants,
and teaching fellows. 3rd edition. Harriet W. Sheridan Center for Teaching and
Learning, Brown University.
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Appendix

1. Stocks Selected For the Fundamental Analysis

Total
Market Return Dvd
SGX Price Cap YTD Ind Yld
Name Code S$ S$b % P/E %

Ascott Residence Trust A68U 1.145 2.5 9.8 16.9 6.9

Hutchison Port Holdings Trust NS8U 0.561 4.9 -6.0 20.7 9.8

Lippo Malls Indonesia Retail Trust D5IU 0.425 1.2 19.9 34.8 8.2

Mapletree GCC Trust RW0U 1.095 3.1 19.4 8.2 6.7

CapitaLand Retail China Trust AU8U 1.570 1.4 18.5 12.6 6.4

Frasers Hospitality Trust ACV 0.720 1.3 14.8 19.4 6.8

OUE Hospitality Trust SK7 0.730 1.3 14.9 66.4 6.6

Far East Hospitality Trust Q5T 0.655 1.2 13.0 36.0 6.4

Starhill Global REIT P40U 0.750 1.6 4.7 9.8 6.7

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Total
Market Return Dvd
SGX Price Cap YTD Ind Yld
Name Code S$ S$b % P/E %

Mapletree Logistics Trust M44U 1.195 3.0 21.2 16.2 6.2

2. Stocks Selected For Technical Analysis

Name Current Price RSI MACD Signal DESCRIPTION

AP Oil 0.255 3.3333 -0.04 Macd is Below Signal Line for 17 days and below
International Zero Line for 25 days.
Ltd

Ziwo Holdings 0.026 52.1 -0.001 -0.001 Macd Below Signal Line for 17 days and below
Ltd Zero Line for 25 days.

Asiatic Group 0.013 50.00 -0.004 -0.003 Macd Below Signal Line for 12 days
(Holdings) Ltd

ASL Marine 0.123 35.2941 -0.002 -0.001 MACD below signal line for 12 days and below
Holdings Ltd the zero line for 7 days.

Vallianz 0.013 33.3333 -0.001 -0.002 MACD below signal line for 3 days and below
Holdings Ltd
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Name Current Price RSI MACD Signal DESCRIPTION

zero line for 82 days.

TLV Holdings 0.09 33.3333 -0.002 -0.003 MACD above signal line for 1 day and below
Ltd zero line for 54 days.

Nam Lee 0.37 50.765 -0.003 -0.001 MACD below signal line for 13 days and below
Pressed Metal zero line for 9 days.
Industries Ltd

SBI Offshore 0.072 35.4839 0.007 -0.006 MACD below signal line for 12 days and below
Ltd zero line for 66 days.

United Global 0.345 62.50 0.003 0.002 MACD above signal line for 1 day and above zero
Ltd line for 90 days.

AVIC 0.06 99.00 0.001 0.001 MACD above signal line for 1 day and above zero
International line for 65 days.
Maritime
Holdings Ltd