On Feb 15, Keppel Pacific Oak US REIT’s (KORE) manager announced it plans to suspend distributions. KORE share has seen fallen 42%. Since 31 Dec 2023, its down 61%. What is the crux of this catastrophe?
We saw quite a few mergers of SREITS in the past couple of years. There are now 39 SREITS listed in SGX, down from 44 in 2022.
It may shock you that of these 39 SREITS, only 10 are now above their IPO price. Note that this does not take into account of the dividends received.
The Fed met for the last time for 2022, and finally slowed its rate hike from the usual 0.75% to 0.5%. Fed rate is now at 4.25% – 4.5%.
What did I learn from reading various news sources:
- Powell continue to use negative words, such as “We are not done”.
- Fed intends to keep rates higher through 2023.
- In Sep 2022, the Fed’s dot plot showed peak interest rate for 2023 at 4.6%. At present, Fed’s dot plot shows peak 2023 interest rates at 5.1%.
- No reductions till 2024.
- Interest rates projected to stay above 4% in 2024.
- Interest rates is currently at 4.25% – 4.5%. We are close to the ceiling at 5.1%.
- Fed has entered a new phase where they start thinking how much to raise, rather than raising rates at all costs to battle inflation.
Have we seen the worst? If the worst is over, it would mean inflation is on sustained downward path. This is me is the key. We also have to watch out for the world’s economy sliding into recession in 2023 – which may potentially mean a change of direction for the Fed.
With bank borrowing rates high and still creeping up, does leveraging on bonds still make sense?
SGD bond yields now highest since 1988. https://www.channelnewsasia.com/singapore/yield-6-month-t-bill-hit-419-latest-auction-highest-1988-3028411
Am I ploughing more cash into stocks and/or bonds now?
The interest rate of Nov 2022 issue of Singapore Savings Bond (SSB) is at record high of average return for 10 years at 3.21%. The previous record was in Aug 2022 when it hit 3.0%. The maximum allotment size back in Aug was $9,000.
We can expect to Nov issue to be high demand, resulting in low allotment size.
This inflation does not seem to be going away. The Fed has made it clear that interest rates will rise till rising prices are under control. Global stocks and bonds are in bear market, with US recession at 98% probability (https://www.straitstimes.com/business/companies-markets/sell-off-on-wall-street-deepens-on-98-recession-odds) So what do I invest with my spare cash? Recently I invested in a “fixed deposit” at 3.31% annualized, half year maturity. Well, not exactly.
Bond prices have been battered in 2022 because of the rapid rise of interest rates. The bonds most affected are those with long tenor (further maturity) dates.
The main advantage of corporate bonds over unit trust bonds is that most corporate bonds have a maturity date or a call redemption date. It provides assurance for the investor that even if the price of bond drops, it will eventually return to par at the end of its tenor. Long term bond investors caught by the rise of interest rates should just ride it out, as the market eventually will return to mean, or the bonds gets redeemed, whichever comes earlier.
Here are some SGD corporate bond prices that shows the current color of the market. All these bonds can be supercharged (marginable). Note that prices are with commission already included.
The yield on 10-year versus 2-year Treasury bonds is now inverted. Inversion is a helpful signal that there is a greater risk to the economy in the short run, indicating a recession may be on its way.
However, in history, every single time it happens, a recession happens months later.
I read an article from the straits times on 4th July excellently written by Tan Min Lan, who is the head of UBS Wealth investment office. https://www.straitstimes.com/business/economy/how-to-invest-for-a-slump-or-a-bump Unfortunately, it is for subscribers only. I shall attempt to write a synopsis of the article. Hope I interpreted it correctly;-) Here goes:
Despite warnings from our SPF, MAS and Straits Times, people continue to fall victim to pump and dump scheme.
Alas a friend bought HK stock Renco Holding last Thurs and today it fell 64% in a day. Thousands of hard earned money lost in a few days.
Everyone is talking about inflation nowadays. The most common question from my clients nowadays is “Will there be a recession?”.
Every class in every plane is almost fully booked. Aviation and hotel companies are hiring in droves. Demand is way greater than supply.
The desire to travel is taking hold in everyone, including me. Now you must know that I am not someone who craves to travel. But I must admit that I have caught this travel bug.
There used to be 44 REITS in Singapore. Now there are 37 after a number of mergers. Of these 37, personally, only 10 of them are worth investing.
Only 10? Hey, 10 is a lot. Try keeping up to date by digesting 10 reports quarterly for the rest of your life!
I have blogged many times about REITS with rising DPU is more likely to rise in price. By charting the DPU trend of every REIT and selecting the DPU charts that are rising, there are only 10 REITS worth investing in. But today, I shall explain a simple filter to remove 21 of the 37 REITS from your consideration.
- Fed rate hikes
- Eng of QE
- Rising inflation
- Rising commodity prices
- Is this the last leg of the bull market?
- Will corporate earnings continue to rise?
- Will US and China’s economy contract?
How should I position my portfolio in the light of possible contraction of economy? I should
- Buy (0r hold) companies that makes money even in periods of economic recession
- SPGI, Google, Keppel DC, DBS
- Sell companies that is losing money now, and whose popularity is based on future earnings.
- Grab, Sea, Palantir, Cryoto
It is time to be defensive.
Bought 2 of my favorite stocks – Keppel DC and Mapletree Ind Tr (MIT)
Weekly Stochastic Hook is my main method for entries. It helps me to buy low.
After our finance minister’s budget speech, I received a whatsapp message forwarded to me, you know, the usual messages that gets forwarded. I thought its fun and i am sharing part of the whatsapp message with you:
- Petrol pumps will go away.
- Street corners will have power charging stations that will dispense electricity
- Electric cars will become mainstream by 2040. Cities will be less noisy because all new cars will run mostly on batteries.
- Most traditional car companies will doubtless become financially unviable, with their current business models. They will try the traditional evolutionary approach and try to build better cars, while Tech companies ( Tesla, Apple, Google ) will take up a revolutionary approach and build a computer on wheels.
- In 2020, a few self-driving car models were launched. In the next five years, the entire industry will be disrupted.
- You don’t need to own a car. Instead, you will call a car with your mobile phone, it will show up at your location, and it will drive you to your destination.
- You will not need to park your car. You will only pay only for the driven distance, and you can be productive, while being driven in a driverless car.
- Our young generation will not need to get a driver’s license and to own a car. This will change our cities because we will need 90% fewer cars.
- About 1.2 million people die each year in car accidents worldwide including distracted drivers or to drunk drivers. We now have one accident for every 60,000 miles of driving. With Autonomous driving that will probably drop to 1 accident in 6 million miles of driving. That will save almost a million lives worldwide each year
Well I decided to take a closer look at the EV (Electric Vehicle) sector, the related autonomous driving sector, and to understand why its market leader Tesla, keeps rising.
Sea Limited (SE.NY) is probably Singapore largest company in Singapore that many Singaporeans probably have not heard of yet. Here are some interesting nuggets I discovered about Sea Limited.
What to do with my SRS contribution this year?
The mighty STI is officially the worst performing stock index in Asia. Google and you read many post about this. Let me first explain why I think the STI is such a laggard.
- Keppel DC
Old economy businesses
- City Dev
- Jardine C&C
Gov related businesses
- Comfort Delgro
- ST Engrg
- Semb Corp
- Keppel Corp
The banks and the SREITS have done well. Remove these 9 stocks, and the STI chart will look much worse!
Business is not as usual nowadays. It is not easy to make money as in the past. Customers have a lot more choices – online and offline. They expect good service. They expect them cheap or free. And it got to be cool 😉
Companies that succeed are those that create innovative products or services that meets the felt needs of the market. Traditional companies, especially those that employs generals, try as they might, but they cannot duplicate the success of entrepreneurial market leaders.
So how do I invest in Singapore blue chip companies? Invest in Singapore banks and blue chip REITS only! These forms my core portfolio for dividend income.
I shall reveal my top 9 stock holdings by weightage:
The next image shows my equity returns vs the STI since June 2019.
My objective is to outperform the STI by investing in a diversified portfolio of local banks, REITS, tech stocks, and bonds.
The tech stocks I invest are listed in US and HK. I strongly believe we are in an age of renaissance for technology for the next 5 years at least. Look out for my next blog on tech stocks. I shall share about a little known Singapore company that is bigger than DBS!
I have been asked how I select Reits to invest. It also works on dividend stocks. Here are my checklist. It is ranked in order of importance.
The Reits landscape in 2021 will probably see:
- More acquisitions
- More rights issues
- Reits that recover their pre-Covid DPU will increase in price
- Sector rotation plays:
- We have already see taking profit in Industrial to buy Covid affected Retail and Hospitality.
- When vaccinations and air travel about to resume, will see profit taking in Retail to rotate to Hospitality.
- From large caps to small caps
I am now holding the following Reits:
- Ascendas Reit
- Capitaland Retail China Trust
- Capitaland Intergrated Commercial Trust
- Frasers Centrepoint Trust
- Keppel DC Reit
- Link Reit (HK)
- Mapletree Commercial Trust
- Mapletree North Asia Trust
I would like to buy back Mapletree Ind Trust and Mapletree Log Tr this year, having sold them last year. I would also like buy more of the above stocks.
I am intentionally Retail Reit sector heavy, and I also intentionally stay away from tourism related reits.
My preference of reit sector : Retail > Industrial > Office > Hospitality
Personally I think LippoMalls and First Reit are good buys now when the price are near the rights issue prices. However, there are so many other Reits to choose from, and with less risk too. Furthermore, Indonesia will probably be struggling with Covid for some time.
One of my most common confusion among investors is to think that The Centrepoint at Orchard Road is owned by Frasers Centrepoint Trust (J69U.SI). It is not. The Centrepoint is owned by Frasers Property. What are the shopping malls owned by Frasers Centrepoint Trust (FCT)?
Much have been written about Hang Seng Tech Index. But I could not find any blogger clearly explain the methodology, and ETF(s) that tracks it. I did some digging and is now sharing with you my findings.
- STI crashed 33% from the 2020 high of 3270.
- STI has made a 21% recovery over the last 3 weeks.
In the long run, STI at about 2500 level is a great price to buy. But in the short run, its probably too late to buy now.
The market has dropped 30% in less than 1 month. Speed of the fall is the fastest in modern history. Everyday, I am opening new accounts of new investors. The recent trading volume is the highest I have seen in my period as a remisier. Everyday, optimistic retail clients are buying but shares has been falling almost daily.
- Warm weather reduces infections by summer
- Virus mutates and dies out (like SARS and MERS)
- Remdesivir, originally developed for Ebola; and Chloroquine, an old anti-malaria drug; and a few other antiviral medicines, including a vaccine just announced by China, may defeat the Covid-19.
- Co-ordinated decisive actions by countries contain spread
- 1 month Lock down
- vigilance and rapid response with contact tracing
- 8 weeks social distancing
- aggressive quarantining of exposed
- health care products such as ventilators and mask are effective managed
- hospitals not overwhelmed.
I was initially an optimist, but I have now become a pessimist. Here are my reasons:
- President Trump does not seem to be concerned about Covid-19. He is vague with plans to contain the virus.
- Some experts say US is 8 days behind Italy on similar trajectory. They may have the highest deaths soon.
- Some estimates that unprecedented border shutdowns across the world may take out half the world’s carriers. Global recession is now baseline forecast.
- It is doubtful western countries have the political will to carry out draconian policies to stop the spread. China and Singapore now has mainly imported cases. The world as strong as its weakest link. As long as there are countries still suffering, border controls and social distancing will continue to be in place. This seems to be a perpetual cycle.
- VIX, which also known as the fear index, continues to be the highest for past 10 years.
- Recently, as equities fall, gold prices have also fallen, and US Treasuries bond prices have also fallen. USD is now at 1.45. Cash is now king.
- Liquidity crunch has affected local bond markets. Banks are not willing to buy bonds. Investors of local corporate bond are stuck. Silver lining is that SGD corporate bond valuation are still high. How long will this last?
This time may be different. The corrections of the past 10 years were made-man. US-China trade war, crude oil crashes, were decisions made by man. Fiscal and monetary policies such as reducing interest rates and bond buying quantitative easing that has worked in the past, is not stopping the spread of Covid-19.
Covid-19 is a natural disaster and not engineered by human. As long as Covid-19 is not stopped, many companies will continue to suffer very poor earnings. I encourage you to watch this presentation by Vee, a very experienced global macro hedge fund manager, on his view of current market. https://youtu.be/j3vEePL5BvI?t=23
In the long run of 10 year time frame, be optimistic. But in the short run, be pessimistic. We got to survive the short term pain first in order to thrive. Here is my advice for this current market:
- If you are bullish on stocks, slow down your dollar cost averaging. What is cheap now may be cheaper soon.
- If you are holding bonds, it is very tough to exit now in this liquidity crunch. Plan your finances such that you can tide through one year.
- Cash is king, if you are leveraged in your investments, be extremely prudent and conservative in your deployment of money. Make sure you have enough to meet margin calls in worst case scenario.
I wish you safe investing and please take care of your health.
I cannot buy everything, but here is my universe. Revised on 9 Apr.