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Short selling on SingTel shares

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On 12 April 2017, SingTel shares experienced heavy shelling by short sellers. On that fateful day, the short sales volume was 21.7 million, with market value of $82.7 million. The heavy attack led to a decline in SingTel share price from $3.84 to the current $3.75. What could have caused the big boys to do massive short selling on SingTel shares?

The short selling of SingTel shares was disturbing because it has been on-going for several weeks. From 3 to 7 April, there was 16.7 million of short sales volume, with total value of $65.4 million. The week before it was 21.7 million short sales with total value of $85 million being shorted. Prior to that, another ferocious attack occurred in the week 13 to 17 March, with 20.4 million short sales volume of $81 million value.

Stock investing

It may sound far-fetched to investors but the reason for the SingTel shares attacks could be attributed to short-sellers plotting to pull back the Straits Times Index (STI), which closed 0.98 percent lower on 17 April 2017. Being the stock market bellwether in Singapore, it makes sense for the big boys to target SingTel in a bid to engineer a stock market correction in Singapore.

Previously, I have posted a series of research on this telco giant in this blog. Readers may refer to the following links:

  1. SingTel shares to rocket on NetLink Trust IPO?
  2. SingTel share price in supreme form
  3. SingTel increased investment moats aggressively

Most investors would view short-selling negatively but nonetheless, such activity is needed to prevent market prices from becoming out of whack.

According to Monetary Authority of Singapore, short selling refers to the sale of securities that the seller does not own at the time of the sale, short selling may either be: ‘covered’ or ‘uncovered’ (also referred to as ‘naked’ short selling). In ‘covered’ short selling, at the time of the sale, the seller has borrowed the securities or has otherwise made arrangements to fulfil his obligation to deliver the securities. In ‘uncovered’ short selling, at the time of the sale, the seller is not in possession of securities or has not otherwise made arrangements to meet his delivery obligation.

Although there are positive effects of short selling, such activity may be disruptive to the market if it spirals out of control. Hence, there are measures by SGX to mitigate the negative effects of short selling. Notwithstanding this, retail investors should exercise caution and it is best to adopt a wait and see approach before investing in SingTel shares.

Another plausible reason for the massive shorting of SingTel shares could be the entry of a fourth telco player. Given the saturated Singapore market, the new entrant is viewed by many investors as an unwelcome competition leading to erosion of profits for SingTel.

However, in my previous article, I have also stressed that SingTel is a regional telco player and that the entry of the new telco would have minimal impact on its long-term business outlook. Hence, the current SingTel share price correction may be a plot devised by the big boys trying to play up fear among retail investors and in the process, make profits out of it.

Given the bearish trend, is it a good time to buy SingTel shares now? As one of the Strait Times Index constituents, SingTel is considered a blue chip in local stock market. In my point of view, the fundamentals of SingTel are still intact and the current correction may represent an opportunity to accumulate this blue chip darling at reasonable price. However, to avoid catching a falling knife, one must have long-term mentality and enter at comfortable entry price for this stock.

Setting an entry price is important because there is always a good time and bad time to buy stock. Apart from market condition, there are big boys’ movements that retail investors must watch out for. This is not about market timing, but more of avoiding head-on clashes with the big boys, who often make big positions to drive up or down the share price of shares they targeted.

In my humble view, the ferocious attacks are unlikely to abate for the next few months because of the overall weak economy sentiments. Therefore, retail investors should not rush in at this juncture and start buying SingTel shares. Instead, one should remain calm and determine an entry price which provides a margin of safety for your investments.

Another thing about investing in blue chips like SingTel shares is that you need to have holding power to withstand the market swings. You are unlikely to hold SingTel shares for the long-term if you need the funds for purposes other than investments. So, if there is 10% or 20% drop in the share price in the short-term, you are likely to panic and sell at a loss.

In my previous article, I have highlighted that the impending divestment of NetLink Trust may be a game-changer for SingTel. I wrote that NetLink Trust IPO could be a windfall for SingTel investors because the management of SingTel may choose to issue special dividend or use the IPO proceeds to pay off its mounting debt. As of now, my view has not changed but given the short-selling attacks, the situation has evolved. As events continue to unfold, I am revising my entry-level for SingTel to $3.20.

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