What a wild ride 2023 has been.
With inflation in retreat and interest rates projected to decline (both on FED and market watch), the following are what I think should be playing out.
1. Sovereign bonds - decent yield, reasonable real returns above long trend inflation even at todays 4%. The higher interest rate goes, the higher your duration should be. So for US treasury investors, plenty should have bought in the 10Y to 30Y treasuries given the 5 - 5.2% yield in October.
2. Equities. Not all equities are born the same. The S&P 500 is not even the same as the magnificent 7. Nevertheless, here is what I am observing:
- With the broadening of the markets from 7 to 500, we expect the index to rise another 10-12% to around 5200. Likely to stay in that range for a bit till any next catalyst or crash.
- China did not play out as expected. With 30% of its gdp tied to real estate, the struggle remains as the industry drags down another 500-800 industries with it. Nevertheless, the green shoots lie in EV, solar, retail and domestic tourism. While the Chinese stock market remains horrible for investors, the worse is likely behind. Any investor in Alibaba - including myself can expect some moderate returns (share buybacks, dividends, spinoffs)…I think 7-9% p.a. would be decent and an acceptable rate to hold for next 5-7 years. Emerging market ETFs could also be worth a look with 10% portfolio allocation.
- Singapore. Not a terribly exciting arena but opportunities definitely exist. US reits based in SG structurally enjoy withholding tax exemptions while giving 12-16% returns. Local REITs are also strong holds with monopolistic like positions (CICT, AREIT) enjoying strong rental reversions and occupancy although lower returns at 5%. Financing rates for residential property at 3% is also relatively low considering global conditions, overall this remains healthy for low to moderate wealth growth.
3. Crypto sees its recovery with FTX sorting out its bankruptcy while Binance ceo resigns. Activity in the space sees its spike - higher price attracts higher attention….eyeball attention on a “gambling” sector. Nevertheless, Bitcoin etf and coinbase collaborations with BlackRock could see a further broadening of investor base. The best use cases I see so far are a. Reduction of fees (FX transfers), b. Speculative and volatile asset to boost overall portfolio returns (commodity play like gold), c. blockchain as a ledger record example university degrees (although more from a business angle)
Best ideas for 2024
1. US reits based in SG - United hampshire Reit should see another 20-30% upside (compare to slate us reit in USA). Kep oak reit could also see another 20% upside from here given its business park and generally healthy occupancy as rates come down to 3-3.5%.
2. Emerging market ETF. 10-15% return? After going nowhere for 3 years, EM time to shine could be here as China structurally supports their businesses with low interest rates, liquidity and their people innovate to get out of a sticky situation. Just as you should never “bet against America”, likewise never bet against the Chinese. The strongest catalyst will be when Chinese themselves begin investing in China. India also remains on a strong industrialisation path.
3. Travel and hospitality remains strong. 10-15% return. Wanderlust - is a structural thing. Booking.com and Airbnb are seeing strong numbers for a reason. Certainly money is being spent in this arena and will likely stay that way for many years to come.
