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These 4 Stocks May Be In Danger With Rising Interest Rates

Back in October 2017, I wrote and published an article that looked at the historical relationship between stock price and interest rate movements based on over 80 years of financial market data. In the piece, I wrote that “the movement of interest rates can’t tell us much (if anything at all) about where stocks would go next.” But, I also added:

“What a sustained increase in interest rates can likely do to stocks, is to make debt more expensive. This would result in a negative impact to the business results of heavily-leveraged companies without a strong ability to generate cash flow. In turn, the stock prices of such companies would then likely fall over the long-term.”

I then went on to share the identities of five companies that had the following traits: (1) A market capitalisation of over S$100 million; (2) a net-debt to equity ratio of over 100%; and (3) negative operating cash flow over their past three completed-financial years. I had explained the importance of the traits in my October 2017 article.

The five stocks with the largest market capitalisations back then that popped up were Cosco Shipping International (Singapore) Co Ltd (SGX: F83), Noble Group Limited (SGX: CGP), Hyflux Ltd (SGX: 600), Moya Asia (SGX: 5WE), and World Class Global Ltd (SGX: 1E6). As the table below shows, the five have, on average, delivered poor returns in the stock market since the publication of my October 2017 article; over the same period, the Straits Times Index (SGX: ^STI) has gained 6.7% including dividends. Hyflux, in particular, has suspended the trading of its shares since 23 May 2018 as it undergoes a court-protected reorganisation of its liabilities.


Source: S&P Global Market Intelligence

With the three-month SIBOR (Singapore Interbank Offered Rate) reaching near 10-year highs in May this year, it suggests that interest rates in Singapore are rising. The SIBOR is a benchmark for the interest rates that banks in Singapore charge to each other. I thus thought it’ll be useful for investors if I once again screened for stocks in Singapore using the three criteria that I had used in my October 2017 article.

Only four stocks came through the screen this time, and there are two familiar names in Hyflux, and World Class Global. The two new entries are Maxi-Cash Financial Services Corp Ltd (SGX: 5UF), and Pacific Star Development Ltd (SGX: 1C5).


Source: S&P Global Market Intelligence

With interest rates in Singapore – and in the US – creeping up, prospective and current investors in the four companies above need to be aware of the risks involved.

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Disclosure: The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Cosco Shipping, Noble Group, and Hyflux.