Friday, July 19, 2019

SATS- Trap or Opportunity?

What caught my eye in the market was SATS, whose price took a great hit of 6% due to earnings dropping with a drop of 14.4% in net profit. However, the closing price of 5 on Friday was notably still higher than the 52-week low of 4.55. I previously wrote about SATS here a few months ago and many of the points I mentioned remain salient.

From my previous post:

'A superficial observation would be that SATS derives most of its income from airlines and the Singapore market. The airline industry has not been very rosy too, where higher oil prices have taken its toll in the industry. Airlines will then be forced to save up on costs, where SATS will continue to feel the pressure.'

'The largest risk here would be the trade war between US and China, which might blow up and affect SATS especially in its gateway services (air cargo services) where they will suffer from a decrease in trade volumes due to tariffs. Passengers travelling on business class might also be affected as less trade might mean less flow of passengers for business.'

Based on the UOB report here, main reasons for the drop in earnings include the grounding of Jet Airways, low volume of air cargo and the grounding of the Boeing 737 Max airplanes. I think the low volume of air cargo is an effect arising from the trade war but the first and third factors were pretty unexpected reasons in play.

EPS dropped from 5.7 cents to 4.9 cents but I think dividend payout should remain safe in the short term unless the three factors mentioned greatly exacerbate. At closing price of 5, dividend yield is 3.6%.

For me, the game plan is to enter below 52-week low of 4.55, perhaps at 4.5 levels for a 4% yield. If these factors snowball badly, a higher margin of safety is going in when the price hits 4. We will see if the trade war will still continue to persist or cease to exist.

Tuesday, July 16, 2019

Next US President- How will Financial Markets Fare?

The 2020 US election is coming and I am sure this is important as it will bring about effects to the financial markets.

As much as Trump is controversial, his policies have been beneficial to the US market with the tax cuts that were recently implemented, which brought an influx of corporate money into the markets. He might be lacking in other moral areas such as 'climate change being a hoax' and his womanizing but undoubtedly, his tax cut policies have benefited the stock market. The only risk he is bringing to the US markets is his constant threat of trade wars and his volatility of positions on certain pertinent issues.

Other popular politicians include Bernie Sanders, who is a 'socialist', and advocates for more socialist policies such as Medicare for All and minimum wage. He even proposes high taxes on Wall Street to cover the rising student debt. Morally, I will agree with his policies, but from a financial market perspective, if he is elected, I believe the market will spiral downward due to higher taxes imposed.

I am not too sure about the other candidates, but I believe Joe Biden will just be a mere continuation of the Obama days (which probably means less trade wars) which is good. I am not sure if Bernie will ensue trade wars with China though.

What do you all think?

Wednesday, July 10, 2019

Federal Rate Cuts Possibility

Had a good read today about the current situation. Indeed quite worrying to see the rate cuts persist when the current situation is about trade wars and other factors. 'If trade wars are what’s causing the uncertainty, the only solution is to resolve that uncertainty, not paper over it with cheap money. Neither the price of credit nor the access to credit is restraining the economy, so how does a rate cut help?'

But it looks like the rate cuts will persist due to Trump's pressure, which might further contribute to the increasing amount of debt in the market. This might not look well in the long term.

Another bet will be on gold which has already been trading above $1,400 since the announcement of the rate cuts. Other safe haven assets include Japanese yen and Swiss franc which might be good to hold due to their close to 0% rate policy. By their extension, that also means Japanese and Swiss equities. Lower rates also mean the interest rate spread is lower, which means these assets are more attractive.

This is my opinion now, would to love to hear other comments. :)

Wednesday, July 3, 2019

Treasury Yields Dropping- A Sign?

I was reading an article which mentions the drop in Treasury Yields towards 1.95%. In my opinion, I think this means an inclination towards safe haven assets. Reading this article too hints at a late bull market rally.

My portfolio now is inclined towards Singapore Saving Bonds, and I am thinking if I should up my stake there (however the rates aren't very appealing). Singapore REITs look expensive which might not be a best way to put my money. All my other ideas are pretty high now, therefore I am still holding onto my warchest. I think the closest thing I am interested in is actually Singapore banks and HK stocks at the moment.

Any ideas?

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? ...