The spotlight remained on United Engineers for most of the week. Analysts have been going back to their spreadsheets to recalculate UE’s revalued net asset value (RNAV). As at June 30, its book value was $2.79. Following the intention to divest UE subsidiary WBL Corp’s luxury auto business to a Malaysian company for $455 million, CIMB has raised UE’s RNAV from $3.17 to $3.57.
On Aug 28, Churchill Capital suggested that UE could be at the centre of a tussle between its current owners, a consortium consisting of companies related to the Lee family, and Straits Trading, controlled by Chew Gek Khim, granddaughter of Tan Chin Tuan, a former managing director of Oversea-Chinese Banking Corp. While analysts reckon this is unlikely, if there are any hints of a tussle, UE could well meet its RNAV.
Interest in OCBC continued, although the stock traded down to its theoretical ex-rights price by Aug 28. Speculative interest in STATS ChipPAC revived, following a rehash of an old story. In the end, the Straits Times Index was displaying signs of fatigue, closing near the low of the day on Aug 28.
The CBOE Market Volatility Index has met with support and could attempt a rebound. If so, equity markets are likely to turn volatile, and signs are already emerging that the Hang Seng Index and the STI are set to ease.
The Hang Seng Index (24,990) is on the retreat after testing 25,166, a level now viewed as resistance. The index is likely to ease further, following a series of negative divergences between it and both quarterly ROC and 21-day RSI. Support is initially at 24,700. The 50-day moving average is at 24,071, a level that coincides with more meaningful support at 24,000. However, a target of 25,738, indicated from an earlier breakout, would no longer be valid should the Hang Seng Index fall below 24,700.
VIX meets support
The Volatility Index (11.78) has encountered support just ahead of the 10.8 level. In addition, short-term stochastics appears to have bottomed, along with quarterly ROC and 21- day RSI. A rebound is likely to materialise, with the index rising to 14.4.
US markets to consolidate
The Dow Jones Industrial Average (17,122) has been inching higher and is now in a resistance area. Quarterly ROC and 21-day RSI have flattened, limiting the upside. In addition, if the VIX rallies, the Dow may correct. Support is at 16,600. The uptrend remains intact for now, and the target of 17,847 is still valid.
The Standard & Poor’s 500 (2,000) is likely to experience a temporary correction, as it has moved into a resistance zone and both it and its indicators are losing steam. Quarterly ROC and 21-day RSI are beginning to turn down from resistance highs. Immediate support is at the 50-day moving average at 1,964. There is an upside of 2,072, which could still be attained eventually.>
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