4 August 2020 will be destiny day for Singtel share price because it will be ex-dividend day for shareholders to be entitled to the final dividend of $0.0545. All eyes are on that day as shareholders brace themselves for a frightening roller-coaster ride of Singtel share price. But this time round, the correction for Singtel share price will likely to be much severe due to changes made to the SGX Securities Borrowing and Lending (SBL) programme.
With effect from 2 December 2019, SGX replaced the fixed rates for SBL programme. The borrowing rates for index stocks had been dramatically reduced from 6% per annum to a low of 0.5% per annum! The rationale for the adjustment was to make borrowing rates attractive for institutional investors. In my opinion, this is an ominous change for Singtel share price because this counter is a favourite among short-sellers.
The reason for the volatility of Singtel share price in recent years could be attributed to its considerably large pool of lending shares, which stood at 25,643,036 as at 15 June 2020. Apparently, a large number of investors had loaned to SGX their shares to earn the lending fee. However, in doing so, the large lending pool of Singtel shares made Singtel share price vulnerable to short-selling attacks by institutional investors.
To rub salt into injury, the borrowing rate is only 0.25% per annum for Singtel shares! At such dirt cheap rate, the big boys will likely to short Singtel short price. For context, it is not a matter of whether Singtel share price would drop but by how much it would plunge after ex-dividend day. Based on past years’ data, Singtel share price never fail to correct between late July to August, the traditional period for the issuance of Singtel final dividend.
Most retail investors buy their way up for stocks. Not many will short their way down when it comes to stocks. If you know that Singtel share price will plunge after ex-dividend day, what are you going to do? Are you going to sit there and wait for disaster to strike? Or hedge your investment against the downside? In this article, I will share my insights on the short-selling process and how it will affect Singtel share price in the coming weeks.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in Singtel before. Whether Singtel share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
Singtel share price braces for short selling tsunami
If you decided to join in the fun with the big boys and short Singtel share price, you need to understand how short-selling works. There are two types of short-selling – naked and covered shorts. In Singapore, naked short-selling (shorting without any borrowed shares) is illegal and you will incur penalties if SGX did not manage to buy-in your trade in time for settlement (naked shorts must be covered within a day). Therefore, if you intend to do cover short, make sure that you have managed to borrow the shares so that you can maintain your short positions for a long period of time.
The focus of this article will be on covered shorts. Note that I am not encouraging investors to do short-selling. Rather, I think short-selling can be an useful hedging instrument for long-term investors. Short-selling is strategy commonly used by institutional players to protect their assets from downside risks.
For example, lets assume an investor bought Singtel shares at $3.00 but intends to hold the shares for the long run because of its dividends. Knowing that Singtel share price may drop to $2.00 after ex-dividend, he could [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
Not a member yet? You may sign up to become a member of SG Wealth Builder. The full benefits and privileges of SG Wealth Builder Membership:
- Access to the latest premium articles of SG Wealth Builder
- Email notifications of latest blog articles
- Participate in SG Wealth Builder campaigns
- Request for coverage on stocks, insurance and other personal financial topics
- Comment in articles and Wealth Forum
SG Wealth Builder Membership
You may sign up for the SG Wealth Builder Membership for only $15 per month. As a member, you can access all the articles, including the premium ones.
Note: After payment is made, you will be prompted with registration form to create your user-id and personal password.