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!

Market Thoughts

Recently, there have been a lot of ups and downs in the market. The first thing that caught my eye was the falling yuan which broke the seven level against the US dollar, which signaled the current monetary policy in China. The casualties today were Mapletree NAC which dropped 4.48% and CapitaR China which dropped 1.99%. The drop in RMB also meant it dropped against SGD which means it will affect the two reits' profits.

Hong Kong also saw the escalation of protests in the airport where Cathay Pacific got the brunt in the falling HK market. It dropped about 7-8% these few days as flights were blocked.

But interestingly, US market has rebounded today due to simmering of US-China trade tensions and yields and stocks prices are soaring.

I am focusing on Bank of China at the moment which is 2.97 HKD and giving a 7% yield. At point of writing, SGDHKD is 5.67 which might go lower if USD is going to strengthen further this year (assuming if USDHKD peg remains intact).

Moreover, SIA seems to be an interesting point too since the HK airport protests will affect airlines (albeit not as much as Cathay),  but currently at 9.05 and today had a 52-week low of 8.95.

Probably HK market will rebound (briefly) due to the rebound in the US. But I believe in the short term the HK market is probably going to breach new lows as the protests do not seem to be subsiding.

STI and HSI Red Amidst the Trade War

A short read today showed that the STI plunged 2% due to escalating tensions in the US-China trade war. This could be contributed to the tariffs which Trump promised on Friday, which includes a 10% tariffs on US$300 billion worth of goods. On the contrary, the Federal rate cut did not give the expected stimulus to the stock market, which might not be unexpected as based on current market conditions, a rate hike should have been more logical.

As I am very interested in the STI constituents, I decided to see which stocks were bearing the brunt today.

The first stock is SIA which is hovering near its 52-week low of 9.01. At this point of writing, its current price is 9.02.

The second stock (which I have mentioned before) is SATS which is hovering near its 52-week low of 4.55. At this point of writing, its current price is 4.74.

Other notable stocks include DBS which had a 3.2% drop today.

Another point of interest will be the HK market, where today, 5th of August, is notably the biggest strike in Hong Kong's history. I think it is a double whammy for HK as they have to deal with the twin reasons of the trade war and the ongoing protests.

I am currently looking at Bank of China, which has broken its previous 52-week low of 3.19 to 3.05, which makes it even more appealing to go in. (Let us bear in mind that BOC is actually based in China and is just a H-share) I will be looking at other HK banks but I will be probably avoiding those banks based in HK such as the BOC (HK) holdings and Hang Seng Bank etc.

Just a superficial thought.

Tariffs Thoughts

Currently I am in Osaka now but I still have some thoughts about the incessant chain of tariffs by Trump.

But first, a quick snapshot of Osaka Castle!

Now back to my thoughts...

Recently, Trump also labelled Singapore as a currency manipulator which was pretty interesting. It also mentions about high saving rates and low consumption rates in our country. I did some quick research about Singapore policy here and essentially, Singapore uses exchange rate policy to manage the economy instead of interest rates (which is left to the free market) which may explain the huge number of foreign exchange purchases with respect to GDP.

Personally I don't think Singapore will be adversely affected in the short term as we have a trade deficit with the US (momentarily sparing us their wrath) but I think Singapore will continue to be affected by US tariffs on the rest of the world. China is also one of Singapore main trading partners and if poor sentiment ensues, we should continue to see downward pressures on STI.

Going to my previous calls, SIA is at 9.11 and Suntec Reit edged slightly higher at 1.82. Both are still on my watchlist and I am quite tempted to initiate positions.

What do you think?

Trade War Thoughts

As I am writing this, the US market is slightly red and treasury yields are edging down, signifying some flight to safety assets. The drama ensues where the US decided to ban Huawei from doing business with them, which I think will be further detrimental to the unfolding of the trade war. This is extremely likely to further deteriorate bilateral relations between US and China.

Honestly, I think the trade war is indeed room for worry in the short term, but I take comfort in the fact that Trump will not be in office forever (even if he gets re-elected) and someone who is less protectionist and friendlier towards China may eventually emerge in office (maybe an exit strategy then).

Therefore, I see this as a platform to enter battered stocks with good fundamentals. One of which I identified is Suntec Reit, and its current price stands at 1.81 which is still respectfully below its NAV of 2.09.Another stock which looks battered and hovering near its 52-week low (9.14) is SIA and also below its NAV of 10.36.

A quick glance at its recent financial presentation reveals a drop in operating profit mainly attributed to rising fuel prices. But since fuel prices are hedged to some extent in their presentation, the main point we should be looking at is if the volume of travelers will continue to increase and if the trade war will affect the company.

I also picked up a very insightful article here which I felt that some points here were very relevant. The basic premise here is that a trade war will cause incomes to drop which might lead to decreased air travel. Air cargo flows will also be reduced as the demand of air cargo drops due to increased costs.

These two stocks are worth considering in my opinion, but please let me know if you have any insights and/or comments. Another person's perspective is always very welcome.

Happy Vesak Day!