Monday, April 20, 2020

Negative Oil Prices

What exciting times we live in... I was on the car when I saw oil prices going to -$37 and thinking to myself what on earth is going on?

In a nutshell, the market has determined that the output cuts by OPEC could not make up for the detrimental loss of demand which by the way was quite a record in its own right- cutting daily output by 9.7 million barrels. Unfortunately, this unprecedented record cuts were soon accompanied by the unprecedented price drop, plunging more than 100% yesterday.

Personally, I don't invest in oil and don't really want the roller coaster ride given that its volatility is very very extreme. But I think the lessons can be carried forward to my areas of interest in the stock market.

Recently, the oil price drops might have found its victims in the oil business- one of which was Hin Leong holdings which were reported to have suffered financial losses due huge drops in oil prices. This in turn led to a flurry of action as banks who have lent $$ to Hin Leong were at risk of losing money. I think what is worrying here is the vicious cycle that is currently happening, where oil prices drop -> lead to oil companies suffering -> banks might then suffer losses if they can't recover the debt.

Secondly, this detrimental loss of demand that the oil market is showing us can be extended to the general market, so I think stocks in general will have some pretty red going forward as less demand should mean less profits and thus lower prices.

Actually I think equity markets are still ok, but I was expecting them to crash every more. But we will see again.

STI 2560.98

P.S. A nice picture of an oil pump to soothe my nerves haha..

Wednesday, April 15, 2020

Circuit Breaker Musings

Hope everybody is doing well amidst some turbulent times we are seeing now.

I was personally quite taken by this scene near my office yesterday night to see so many taxis queuing up the whole night and little customers in sight. I guess everybody is all working from home or driving (if possible) so the lack of supply of customers.

Economy is definitely taking a toll locally in a shutdown as all business are very affected and our government piling in money which is a very nice albeit small comfort in such troubling times.

Yay for this! 

I guess it is a good boost to my war chest now and nice perk to everybody now, press on!

More to the markets: as of now I have been really influenced by this take here, when will we see aggregate demand return to pre-virus levels? I think this is really the fundamental reason coupled with unemployment is why I believe we will see more red in the short term.

But most importantly, let's stay safe!

Thursday, April 2, 2020

Thoughts about REITs

I read the article recently about commercial tenants and restaurants being able to hold off paying rent for 6 months if they are unable to do so. So the proposed piece of legislation means that tenants can defer their payments after 6 months. Although I am fairly confident of a good recovery then, I think it will be bad in the short term. In this outbreak, it is pretty likely that most tenants are unable to meet their rental obligations and they will use this to better manage their cashflow.

Therefore, unless the government comes in to fill this gap by supporting REITs, if REITs are forced to swallow this bitter pill, I think the hit in the short term would be pretty bad.

So far the movement of REITs is quite close to STI but it might deviate towards lower grounds. I am guessing REITs might start to raise cash through new debt or new issuance of units. Either way, not gonna be good in the interim, but nevertheless a good long term bet.

Monday, March 16, 2020

Fear & Greed

Thought this was pretty interesting. Chanced upon the CNN Fear & Greed Index and showing extreme fear here as you can see. (red red red!)

Interestingly, the index is based on a myriad of factors: spread between investment grade bonds and junk bonds, market volatility, stock price strength and breadth, safe haven demand and etc. Notably, during 2008 GFC, the index hit a low of 12 but now it's 3. Looks like a good chance to buy now.

Now is indeed a time of extreme fear, with wild price swings everyday and breaking new records in terms of drops and rises.

P.S. Dow Jones dropped 3,000 points the previous day, best (worst) record ever...

What do you think?

Monday, March 9, 2020

Thoughts on the red market

Monday was a bloody day for STI, having dropped 6.03% (haven't seen this since global financial crisis!) As I am writing this, US markets are down a good 5-6% cos of the double whammy caused by virus fears and oil uncertainty.

But for me, I think this is a good chance to look at stocks that are normally expensive and now relatively cheaper to buy.

I have quite a number of picks but for now I am looking at DBS.

Currently priced at 21.15 (monday’s closing price) and based on a annual dividend of 1.32, dividend yield is a cool 6.24%.

A few factors I am noting for myself:

First: the Federal Reserve announced a pretty extreme rate cut which will affect banks in terms of factors such as Net Interest Margin (NIM). I think this is a pretty good read here, but effectively, a low fund rate at Federal Reserve will reduce NIM and banks can potentially suffer a lower profit as yields on mortgages might be lower. The DBS report states potentially 6-8% lower profit, which can mean that we should not take the current dividend for granted.

Second: the current oil crisis is also another area of concern. I am pretty worried DBS's exposure to the oil and energy sector and crude oil falling to $20-30 levels should not be taken lightly.

Third: of course the coronavirus is the top of the list. This directly affects the economy, consumption will go down and holidays cut. This uncertainty of the damage to the economy should keep DBS's share price even lower in the interim.

I am looking at levels below 20 for now to enter as my bullets are limited, but we will see again!

Lastly, I saw this article and thought it was pretty interesting that the advice now is not to enter due to uncertainty. But perhaps uncertainty is opportunity too. What do you think?

 Take care and trade well! Hoping all your trades are good. ($$$ below for everybody)

P.S tuesday market quite green now

Sunday, February 16, 2020

CPF Top Ups

I took a leap of faith and decided into topping up my CPF Medisave Account yesterday.

Amidst the frenzy market movements so far, I always wonder if giving up this liquidity was actually worth it. But since the button has been pressed, I think there is no need to look back.

Just a few points to summarize my thought process:

1) Was thinking between topping up Medisave and topping up Special Account. To qualify for tax relief, the limit for topping up Medisave is $37,740 minus compulsory CPF contributions. (provided your Medisave doesn't hit the Basic Healthcare Sum of $60,000- as of 2020) Special Account top ups on the other hand is subjected to a limit of $7,000 which we can deduct from our tax bill.

2) I particularly like this point: if Medisave hits the Basic Healthcare Sum of $60,000, any extra money will be transferred back to Special Account. Example: if we have hit this amount, any subsequent Medisave contributions will be effectively channeled into Special Account. Same goes for interest, where at a quick glance we are looking at $60,000 x 4% = $2,400. This gives better flexibility as we have to top up our Medisave as long as we are working and it is better to hit the Basic Healthcare Sum as soon as possible. (we will hit this amount anyway if we work long enough) Since Medisave contributions will be a larger % when we get older, this point will be even more salient.

3) Medisave gives better flexibility as we can effectively use it for medical expenses, whereas Special Account can only be used at least after age 55.

4) Both topping up your Medisave and Special Account reduces your income tax bill. Both accounts have a basic interest rate of 4% so I think this is a pretty safe haven cushion, since the Singapore government has a current rating of ‘AAA’.

But of course, this means giving up some short term cash in the moment, but for now it’ll be just going back to work and working even harder for more cash. Cheers!

Sunday, February 9, 2020

Coronavirus and Thoughts

I haven't been posting in a while because of my new job, but I think it is always good to take a step back and formulate my thoughts about recent news.

The best incident to fall back on while considering this issue would be the 2002-2003 SARS outbreak because both incidents are largely similar: SARS started around November 2002 and ended around May 2004. A quick look at the STI:

We can see that from the period from November 2002 to May 2003 there was a clear downtrend in the STI before rebounding decently into 2004.

Currently, the STI seems to be in the infant stage of a downtrend which suggests some potential buying opportunities. I came across this article which aptly compares the two outbreaks.

Further points to take note:

1) China's economy is much bigger now than it was during the SARS outbreak period so the impact is gonna be pretty painful as trade between China and Singapore is quite extensive.

2) Banks will be affected as they have exposure to China; OCBC has the highest exposure here.

3) Airlines are affected too as flights are being cancelled here and there. Example: Hong Kong Airlines being on the verge of bankrupt. Note to self- SIA.

4) REITs with China exposure are already feeling the pain - Mapletree NAC, CapitaChina, Sasseur.

5) Generally, retail should continue to deteriorate as everybody will most likely be minimizing their outside movements. (CapitaMall, Suntec, Mapletree Com, Starhill)

But otherwise, I think it would be a good time to look at the market to consider entry points. Cheers!

Sunday, October 6, 2019

Recent Market Situation- HK banks

Recently, I have gained interest in HK banks as they are trading rather attractively to warrant an entry.  Here are some statistics which I quickly worked out to have a clearer picture.

We see that HK banks are trading to a premium to NAV and have attractive dividend yields as compared to SG counterparts. However, we must be well aware of the underlying risks that are entailed.

The main risk here is the HK protests which saw an escalation in tensions after a 'mask-ban' was introduced by the government. In my opinion, I think a resolution (at least in the short term) is highly unlikely and we might see more funds pulling out of HK. Perhaps the steep discount of HK stocks might warrant us to have a second thought about buying HK banks.

Naturally, the second risk is the trade war where HK is likely to be hit hard too in terms of exports, especially due to its high reliance on China capital.

This might of course be a good bet, if the tensions do cool down and HK banks will indeed rally hard. But your guess is good as mine.

What do you think? 

Sunday, September 22, 2019

Negative Government Bond Yields- Why?

Recently, I was reading about negative bond yields and how they have swelled to $17 trillion globally. I was quite intrigued by this phenomenon because it essentially means you are paying a premium to park your money in these assets and I did wonder what the rationale behind these acts. Because if you do hold these bonds to maturity, why not just hold cash in a savings account (but some saving accounts are yielding negatively too like Switzerland) or hoard cash under your bed?

As of now, the bulk of negative yields is concentrated in Europe and Japan which means we are talking about currencies such as the euro, yen, swiss franc, krona and etc.

One reason rightfully pointed out for the motivation of buying negative bonds, because the hope that the price of the bonds will appreciate (albeit that means more negative yields coming and probably more than $17 trillion).

Another reason might be cos these assets are safe haven assets, which brings back to the first reason so that the price will rightfully rally in times of economic turmoil.

Personally, I won't be buying these bonds because I think there are better things to buy at this time like Singapore Bonds (especially SSB) but it will be good to hear about insights about why to buy and so.

Are you going to buy a bond with a negative yield?

Wednesday, August 28, 2019

OCBC Scrip Dividend

It has come to the time again where we must decide about whether to take the scrip dividend. This time, I think it is a good consideration to take up the offer which is $9.57 per share, which was cheaper than the last scrip dividend offer. It is also below the current NAV of $10 which looks good. Current price is about 10.49 and the last offer for scrip dividend was $10.55.

It would be great if you can leave a comment if you will be taking up the offer. Cheers!

Thursday, August 22, 2019

Mapletree NAC Thoughts

I am of the view that there will be a short term drop in Mapletree NAC's price.

Chief of all, the growing instability in HK is something to worry about. which impacts its main property Festival Walk, which constitutes 62% of our reit's NPI (based on the most recent annual report). This might lead to lower sales in the mall and lower NPI, which will affect our dividend payout.

Secondly, USD looks poised for a rate cut soon, and if we assume the USDHKD peg to hold, then HKD should depreciate against SGD, which might also contribute to a lower NPI.

Thirdly, the RMB has weakened quite a fair bit to 5.12 against SGD which will also adversely affect the NPI for China properties in the reit's portfolio.

On the other hand, the drop might be mitigated by Japan properties, where JPY appreciated sharply against SGD due the yen being a safe haven currency and everybody flocking to it during trade war concerns. The takeup in yen is so extensive that nearly all of their bonds are now having negative yield which signals the extensive demand for yen.

Of course, let us not forget that approximately 69% of forex conversions have been hedged, so we are dealing with approximately 31% of risk here.

Currently, NAV is at 1.438 which is about a 13 cents premium from its current price of 1.3. I will be looking to wait for it to drop to its 52-week low of 1.07 (although might be too difficult to wait for).

What are your thoughts about the pluses and minuses? Please share!

Negative Oil Prices

What exciting times we live in... I was on the car when I saw oil prices going to -$37 and thinking to myself what on earth is going on? ...