Right timing: Tough call: Buy CapitaLand or City Developments?
What are investors and traders likely to do as CapitaLand hovers around a one-year high and City Developments (CDL) is at a one-year low? For some market players, CapitaLand’s gains have offset the pains felt by CDL’s decline. For others, CDL’s decline is an opportunity. “CapitaLand is too slow. For today, the drop in CDL is too big,” a market punter says, referring to an 11-cent decline in CDL’s share price, coming after a 30cent decline in five trading sessions. Moreover, CDL fell below the $7 psychological bar. Whether this is transitory or not, traders looking for an opportunity may want to “catch” CDL as it falls.
CapitaLand is also at or near a decade high. Investors in CapitaLand may just hang on to their shares till the split into CapitaLand Investment Management and the privatised development business materialises, EGM permitting. CapitaLand’s eligible shareholders are expected to receive $4.102 per share in cash and scrip for every one CapitaLand share they own or $3.969 on a fully diluted basis, assuming all its convertible bonds are exercised. Of this, shareholders will receive 95.1 cents in cash.
Since the announcement in March, CapitaLand has entered into conditional agreements to divest partial stakes in a group of companies that own six of its Raffles City developments in China to Ping An Life Insurance Company of China for the equivalent of $9.6 billion, of which it will receive net proceeds of $2 billion. Year to date, CapitaLand has announced gross divestments of about $11.2 billion. The developer plans to recycle the proceeds into higher-yielding new economy assets such as data centres, logistics and business parks.
Meanwhile, CDL has to bat away some negative news out of China. On July 8, CDL announced that a bankruptcy claim was filed by Beijing Yi He Mercury Investment Co, a Sincere Property joint venture. CDL owns 51% of Sincere Property, in which it had invested $1.9 billion, and impaired $1.78 billion. In its July 8 announcement, CLD reiterated that it has ring-fenced its current financial exposure to its investment in Sincere Property and it will not support the continuing financial obligations of Sincere Property. “Despite the bankruptcy proceedings, the group will continue to strenuously protect its position and limit further exposure,” the statement says.
With traders preferring a punt on CDL, betting that it could rebound from an oversold low, and analysts with a majority of buy calls, CDL should be able to rebound. According to Bloomberg, all the recommendations on CDL in the past three months have been either buy, outperform, overweight or add. On the other hand, CDL’s July 8 statement also says: “The group will closely monitor the situation and embark on the appropriate corporate and legal action as an investor and creditor of Sincere Property.”
Whatever the case, CDL’s prices stabilised after the statement, lending credence to our punter’s trading buy action. However, he is unlikely to hold CDL overnight and very unlikely to hold CDL over the weekend.
Interestingly, despite being on an uptrend since 3Q2020, CapitaLand’s short and long-term indicators are not overbought, although quarterly momentum is somewhat high. Investors may want to hang on to their shares, while traders are likely to keep an eye on the uptrend line and immediate support at $3.69.
The Straits Times Index rose to a high of 3,194 on July 6, before retreating to 3,125 on July 8, almost unchanged week-onweek. Since short-term indicators are trying to turn up, the STI may move towards the higher end of a trading range that it is in the process of forming.
The STI’s initial resistance area around 3,158 was breached albeit briefly during the week of July 1–8. Hence, this level may continue to provide resistance. Support has been established at 3,090.
Directional Movement Indicators are neutral, with ADX flipping downwards, and the DIs turning neutral to positive. Quarterly momentum is relatively neutral. Against this background, the index may trade towards 3,158. A sustained breakout may require too much effort, and volume trends don’t appear to support such a move at present.
Despite the stresses and strains from various pockets, the local banks, CapitaLand and the large-cap REITs are likely to continue supporting the index.