The investment clock and honest thoughts

Significant changes in prices of commodities, my mind goes back to the investment clock that some experts believe signifies the economy's clock.

What in the world is this?
The investment clock tells us where we should place more of our assets in a tactical discretionary asset portfolio. Its a bit confusing given that we have a few of the factors at different times while government intervention distorts several natural cycles. Here are my honest thoughts:

1. Boom and bust cycles have shorten indeed - some believe that it moved from 10 years to 5 years.
- The last big recession was 2008. Generally a recession comes every 10 years (I still believe this is the case) - 1987, 1997, 2008, 201?.
- My best guess is that somewhere between 2016-2018 is a very cautious period.
2. Now back to the investment clock - Given the falling commodities environment (we appear to be in a recession at 3 o'clock, in Singapore's case - falling real estate makes it a 6 o'clock)
3. However on the flipside, USA and China are keeping or slashing interest rates to boost the economy thus keeping the economy in the recovery cycle - signified by rising shares.

Application
So here is the key question, what do I invest in or do I stay out?
1. Blue chips that have undergone significant correction
2. Growth story of emerging markets is still intact
3. If everything fails - utilities, infrastructure and non-discretionary consumer staples are your best bet

Asset allocation recommended
I believe an asset allocation of 50% equities (30% quality/growth and 20% Reits), 10% special situation investments, 30% cash and 20% bonds would do well.


And last of all here is my watchlist

1. Boustead - ($1.875)
An interesting play on oil, property, geospatial (mapping) technology, utilities. Basically a mini conglomerate with strong orderbook. I did a investor meeting with the IR team before for a competition and I found them an honest bunch of folks with the CEO being a rather lively man despite his age.
Pros: Strong orderbook, strong partnership with Fortune 500 companies, geospatial technology rather useful and a good cashcow
Cons: Rather cyclical in nature given the building of oil storage facilities, utilities (water - rather unprofitable).
Catalyst: Potential REIT

2. Keppel Corp - Pride of Singapore ($9.17)
Under the new leadership - Loh Chin Hua (Former Fund Manager from GIC), Keppel has make headways into the investment fund business. Rarely making a wrong footing, even long only fund manager Aberdeen is a big fan.
Pros: Strong cash position, market leader in offshore and marine (rig-building), Keppel Land has iconic buildings (Reflectiosn, OFC, MBFC) and unique investment markets such as Myanmar and Sri Lanka. Rather balance conglomerate covering the whole business sphere from - offshore support (rig-building), Property (commercial and residential), Infrastruture (utilities - clean energy and water production), Tele and Transportation (Logistics, Data Centres) and Investments (Krisenergy, K1 ventures, M1, Keppel Reit and Dyna-mac)
Cons: Susceptible to market volatility due to the nature of business being cyclical - Property + Oil.

Catalyst: Triple investment trust structure allows parent to monetize the assets and reuse capital (think Keppel Reit, Data Centre Investment Trust and Keppel infrastructure trust).

3. Sembcorp Industries - The utilities whiz ($4.59)
Once a company that had its hand in everything including the Delifrance franchise, sembcorp has truly come a long way and streamline its effort into the defensive company with a growth strategy.
Pros: Utilities has long been stated as a boring business, but for sembcorp - its ability to produce year on year earnings and strong ROE has made it an industry leader in power and water production playing on a huge market in the global market. Even its subsidiary - Sembcorp Marine (61% stake) is worth a good punt at such a reasonable price.
Pros: Defensive with a growth strategy enough said
Cons: Property and investments (gallant venture) has been quite a damper, also affected by falling oil prices due to sembmarine

Catalyst: Payout of higher dividends, moving into new markets and possibly selling some utilities to Investment trusts structures

4. Soilbuild Reit ($0.790)
With little history and not much investment interests. This stock is purely for a good dividend yield (7.8% expected) with reasonable debt gearing to protect against interest rises and possibly make good acquisitions when necessary
Pros: Low leverage, Good management, Fully Occupied property
Cons: Less growth, Lack of institutional interests, Singapore centric business

Catalyst: Surprises on the upside - rental revisions, moving overseas for deal accretive moves

5. ST Engineering - Singapore's defense machine
The nature of this business is quite interesting. Being a huge conglomerate (>$10 bln in market cap), the company has experience quite strong interests in the Aerospace and Marine industry. Its defensive nature "pun-intended" allows it to be quite steady in an environment where everything fluctuates. It is however pretty dependent on Singapore's defence budget (expected to be around 5% of the annual GDP)
Pros: Defensive nature, strong dividend payout (>60% of EPS), unique innovations allow it to compete and build weaponry for europe and middle east markets
Cons: Possibly slow to new opportunities - not a terribly exciting growth stock

Catalyst: Huge bumper orderbook, increase in SG defence spending, new innovations to sell to new markets

To be honest, stick to REITS and Blue Chips for now - stay safe and happy investing!

Regards

My current watchlist.

With the changing macro environment - value is increasingly attractive in property and oil related companies. Think Keppel Land or Sembmarine. That being said, I don't think the property market is in a good position giving the coming property glut paired with expected interest rate increase. I do still believe that some REITs are well prepared to meet such challenges.

This are the shares that I am looking at now locally. As you can see - I am looking at mainly REITs or special business models that have undergone some correction (except ISEC). Do be cautious about Sino Grandness though - I have not given it much thought - just monitoring.

In terms of crisis investing - I have bought (rightly or wrongly) into 3 Hong Kong Stocks.
1. Tsui Wah Holdings - 2.95 HKD
2. China Cinda Asset - 3.45 HKD
3. Sun Art Retail - 8.70 HKD

The key reasons was that the market has corrected for HK quite a bit. China Cinda and Sun Art are good plays on the chinese market. And with the connectivity Shanghai-HK trading link, hong kong stocks are likely to boom. Just an after thought.

Blumont - an update on its chariman

http://business.asiaone.com/news/blumonts-ex-director-declared-bankrupt

One year on. It appears that James Hong has been made bankrupt by all the Banks that he owes money.

Sometimes its quite tragic, banks, friends the rich and famous all flock around you when you are rich and wealthy. Yet when trouble strikes, they are the first to bail, first to "cut your throat" when you have nothing more to offer i.e. you aren't rich anymore.

While it may not appear fair to comment on this situation since the investigation is underway, I believe this story highlights something - wealth that comes easily, disappears just as quickly. To be a steward of what is given, what you have been entrusted with - it takes courage and it takes strength not to be greed, to take calculated risks and to be wary of fair weather friends who will bail.

Note: Most banks aren't your friends in the hard times.

Cool site on Business Reits

Hi all,

A cool site on S-reits assets across the region. By businesstimes. Enjoy!

http://www.businesstimes.com.sg/bt_files/reits_131115/map/reit_final1.swf.html

One step closer to earning the Charter - Passing CFA level 1!

I was a little shock when I saw my recent result of my CFA level 1. It was quite a challenging exam being almost practically a 6 hour exam. To add on the fact that my work at the bank barely afford me time to study (working from 8.30am - 9pm) on most days...squeezing in about 1 hour from 11-12pm after a 10pm dinner.

It was an amazing journey. I felt I didn't do enough, yet I still managed to pass despite the tough circumstances. I guess some key factors that helped were:

1) My university background as a finance student

2) My passion and continual learning for the capital markets/ financial news

3) My family and friends who were rather supportive during this period of time

One step closer to earning the charter! I made some plans to work on my weak points being Financial Reporting and Analysis and Derivatives. 

Thoughts on the stock market

World Cup fever
Its post world cup. Germany is cheering while Argentina licks its wounds as the world best player (Leo Messi) missed out on his crowning glory as the legend.

The german team is an amazing one. The destructive force that swept aside semi-finalist Brazil 7-1 was by no means a fluke. It was a careful planning of over 10 years of german youth academy. How the Bundesliga paired up with a long term government plan of training up world class youth talent that resulted in players such as Mesut Oezil, Sami Kheidra, Thomas Mueller and Toni Kroos.

Now you may ask me, what has soccer or Germany winning the world cup has to do with the stock market?

One word: Foresight 
Germany has long been at the forefront of engineering. When you think German, you think quality, you think goods that last perpetually forever. When you think of their companies - Siemens, Bosch, Volkswagon, Mercedes Benz, Audi etc. You find a very high quality product at a reasonable cost.

The German economy remains a testament to what makes a good company - strong balance sheet, a good product that people want, good quality, good management, prudent policies etc.

Now for the equity markets.

Here's what I believe is going to happen in the next 6-12 month horizon. The Fed tapering is in October. Singapore property market is going to remain a tad bit bearish (between 15-25% correction is still on the cards). It pays to note that the USA equity market is rather frothy at the moment with values at an all time high with volume falling in addition to tech IPOs like Alibaba about to wipe out a lot of liquidity from the market.

On the Asian markets, we see unclear direction as to what will happen. While the markets look slightly undervalued, there is looming macroeconomic risk with a possible Russian war and the very fact that this bull run is approaching a long period of little or no correction.... That being said, I believe a reasonable equity allocation of 30-50% for the next 3 months would be prudent. Notable stocks that I owe/looking at include:

1. Gallant Venture - Likely to benefit from the increased attention on Bintan, Batam assets paired together with a new indonesian president (Jokowi would be very good for business) - Current Price 0.33
2. OUE C Reit - Likely to benefit from the recent run up in commercial office rental revisions and other REITs movement. Trading below book value and at reasonable dividend yield of 7%. Current Price 0.80
3. Yanlord Land - China has undergone significant correction in the property market. Seemingly this developer still has a strong sales record within the past 2 years. In addition to Peter Lim and Kuok Khoon Hong's stake in the company. This company has a strong branding and strategic location placing that makes its company well valued. Also notable is that Capitaland and CDL (through First Sponsor Group Limited) are seeing the potential in china. Think theme - mass urbanization and affluence growth. Current Price: 1.13

Should you invest in Russia?

by Michael Yoshikami

Quote

Remember Russia is essentially a commodities economy. What will impact Russia more than sanctions is the current consumption rate of energy and other natural resources on a global and European basis. Also look to emerging market manufacturing growth for keys on the future slope for commodity prices.

Sanctions will have an impact on economic growth. Though there is little the global community can really do to Russia on a lasting basis, recent calls to reduce dependence on Russian exports by European Union members will have an impact. If you are buying Russia, you need to buy it based on assumption of slower growth rates.

Be prepared to take profits. Russia is one of the infamous BRIC countries and most strategists have a view, myself included, that BRIC countries are sure to slow as global growth slows. When the overreaction vanishes and valuations return to more normalized levels, that's when you need to carve some of the profit out of this position. You may believe in this country long term, but the short-term profit is what will likely be present for investors to harvest once the headline cease about Russian tanks.

I am not bullish long-term on the Russian economy. A slower-growth world, coupled with technology advances in alternative energy, will slow the Russian economy. Additionally, the level of corruption is so widespread that one wonders how much internal consumption has been soaked away by Russian companies and their chiefs.

But again, we are talking about capturing short-term opportunity. On the short-term, Russian equities have likely sold off more than they should have given current fundamentals and that's the opportunity provided to opportunistic investors amidst a frightening headlines.

Unquote

Fulll article : http://www.cnbc.com/id/101540552

Personal opinion:

The investment story in Russia is rather compelling. Several diversified funds such as RBL and RSX ETF may give some solid exposure to the country facing huge sanctions currently. The holding period should likely be more than one year and the commodities story for China is returning to its track.

In the meantime, hold on to your bullets. It likely be a bumpy ride till things are a little clearer (e.g. what the sanctions are specifically), whether  there are more to come. What is the country doing to mitigate such issues.

Best Places to invest for 2014 (Part3of4) - BRIC

Welcome to Part 3 of 4 of an EdenAdvisors special. In this series, we examine the investment theme coined by Goldman Sachs economist Jim O Neil in "Building Better Global Economic BRICs" - 2001 investment paper. In case you never heard of the term, they stand for the four countries of the emerging markets that could overtake the then G7 - USA, Japan, France, Germany, Italy, U.K. and Canada. The BRIC stands for:
Brazil, Russia, India, China

Even as of 2001, China's GDP was higher than Italy already. Fast forward 12 years, we see the sputtering economy of Italy, France and in some sense U.K while  U.S.A and Japan has crazy ballooning debts. Even then China continues to muscle on.

First up

Brazil
Why an investment there makes sense?
Stable government under Rousef, proximity to a burgeoning latino market that holds much potential to wealth.

Why it does not.

'After making a big push into the South American giant in search of raw materials such as iron ore, as well as a promising market for their consumer goods, Chinese executives have grown frustrated with stagnant economic growth, heavy costs and what they see as a political and popular backlash against their presence.'  - Reuters (Link)

Companies with Brazilian exposure

Commodity supply chain managers/owners - Wilmar intl/ Olam Holdings / Noble group

Shipbuilders/OSV/Oilrig builders - Keppel Corp/ Sembmarine/ Vard Holdings

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Russia

Key statistics

Real GDP growth (2012): + 3.4% 

GDP per sector (2012): Agriculture: 4.4% / 

Industry: 37.6% / Services: 58.0% 

Main exports: Oil and gas, wood and wood products,

metals, chemicals, weapons and military equipment

Main export partners (2011): Netherlands 12.2%, 

China 6.4%, Italy 5.6%, Germany 4.6%, Poland 4.2% 

Why an investment makes sense?

With a stable government in the form of president Vlamir Putin (elected till 2018) and prime minister Dmitry Medvedev. Putin is one solid president who has strong standing with his people (amid some small rebellions and unhappiness), I once recalled a newspaper article where he scolded a billonaire tycoon and forced him to sign some contact 'case in point was that putin was making things right and preventing the tycoon from abusing/mistreating his people'.

Natural Resources - Russia accounts for some 20% of the world’s gas reserves, 18% of the world’s coal reserves and 5% of the world’s oil reserves. Together with its hydrocarbon deposits, Russia is also home to one of the world’s leading mineral industries. From bauxite to iron ore, gold to platinum and a lot of mineral types in between, Russia ranks amongst the world’s top 10 in terms of both production and reserves.For example, Russia accounts for nearly 25% of the world’s diamond production by value. (KPMG - Russia) Special play - Gazprom

Consumer market - the Russian middle-class is expected to more than triple in the next eight years, rising from approximately 20m in 2011 to nearly 70m by 2020. As such, Russia is expected to become the largest consumer market in Europe by 2020, whilst its per capita GDP is expected to 

triple to USD 35,000. To illustrate, the Russian banking sector has been one of the fastest growing of the leading emerging markets over recent years, with a 26% CAGR over 2005-2012. (Source - BOAML, Russia 2020). Special play - Sberbank

Domestic fixed investments - With the winter olympics being held in 2014, as well as 2018 world cup and improving rail systems and Moscow ambition to be an international financial centre, increasingly more investments would be pumped into such areas. 

Silicon Valley? At a planned 400 hectares, Skolkovo will consist of a university and techno park aimed at attracting tech  start-ups and foreign investors with government grants. US companies such as Cisco, IBM and Microsoft have already committed to the project. As a special economic  zone, foreign companies will get tax-breaks and special treatment when it comes to visas and imports. With  construction well under way, the government has pledged USD 4.2bln for the project. (Source - KPMG)

Jim Rogers - Famed investor Jim Rogers suggests the Russian market may be undervalued and could present significant opportunity for investors. Rogers stated that after a recent visit to Russia he came away impressed with progress influenced by the actions of President Vladmir Putin. (Source - Emerging Money – by Steven Orlowski)

What are the risks?

1. Volatility of oil and gas prices/ commodities

2. Institutional framework for businesses 

3. Dynamics of social cohesion - egalitarian society and gini coefficients are things to look at. Citizens buy-in for long term investments are a necessity.

India

A culture strongly embedded with religious hierarchy that ensures that one stays within their own castes. Although the castes systems have been abolished, the underlying tone and adherence to one's roots make it hard for meritocracy to thrive in this country (at least not for a while).

Where to invest?

Specific themes for India would be the growing demographics, rise of middle class (think property, financial firms and luxury items).

Why not?

A country filled with bureaucracy and notably the largest democracy in the world, democracy in its purest form is a style that encourages too much variety of opinions with no proper decision making. 

India was put to the test with their hosting of the commonwealth games in 2010 - Check Out The Worst-Planned International Sports Event Ever. Its not a pretty sight.

A friend who travelled to india also told me that besides skyscrapers there are slums. A report stated that citizens have more handphones in the country than toilets. The whole system and infrastructure of the country is messy. In addition to the horror cases of rape/molest of foreign tourists or even locals.

Personal story - In 2010, I thought that BK Modi, an illustrious investor from India who first came to Singapore and bought MediaRing/Spice i2i (now known as Si2i). I seriously thought he was a serious entrepreneur with the track record. The company had two rights issues which failed terribly. I should have listened to my own voice of rationality that when BK Modi said that a $10m shortfall in valuation in one of the mobile companies he was acquiring didn't matter. If he says 10m doesn't matter, he is not taking the business seriously, I should have dumped all my stock then. In the end, I exited with a $3000 lost (a hefty 80% capital destruction). A seriously big amount for a university student then. It straighten all my thoughts and changed my perspective that I needed to evaluate my portfolio wisely. Today the stock languishes at 0.008 and nobody even cares about this cash burn company.

Outlook - I wouldn't touch any Indian investments with a 10 foot pole.  But some good companies out there include
1. JM Financial (New chairman designate - Former Citibank CEO)
2. Tata Group
3. IDBI bank

China

The best place to invest for the last 20 years. Does the allure still shine?

Jim Rogers mentioned that this century is the time for the Chinese - China to shine. Here's my thoughts on why he is right.
1. The country's population of 1.1bln gives plenty of opportunity for pretty much any industry. Think property, healthcare, retail, F&B.
2. The country has many many brilliant individuals who are returning back to the country (like a seaturtle returning to its nesting ground) - think corporate titans, scientists, engineers.
3. The country has been growing at 7-8++% for many years. It shows no signs of slowing down. Corporate billionaires are being minted almost yearly.
4. One word. Alibaba. The amazon, ebay, paypal and credit line all in one. Amazing.

Why not?
1. The country's ascension to power has left it choking on industrial smog that pollutes and threatens their own livelihood.
2. The one child policy has left a rather slanted population trend of Aging population and overly spoilt single childs (mostly males)
3. Property bubble has been growing and growing. Leaving many ghost towns and capital expenditure just wasted around the corner.
4. Following up point 3, many of the big 4 chinese banks are financing such assets. In addition, they have huge exposure to other forms of debt that the shadow banking system i threatening to create a calamity.

Themes and local SG players
- Yanlord (Pure high end civillian real estate + shopping malls)
- Capitaland and Keppel Land (Chinese property and real estate + shopping malls)
- Capitamall Asia (Chinese retail mall play)
- Mapletree GCC (A small play on chinese office/commercial property)
- K1 Ventures (a small but strong stake in ChinaAuto - the biggest distributor of automotive in china)
- Yangzijiang (Chinese shipyard and ship builder + oil rig building)
- Noble Group (Chinese State investment owns a stake in it) - commodities an interesting play
- Wilmar - Palm oil is highly sought after but price is controlled in China.

Not withstanding a recession/ property bubble bursting (which the authorities are taking prudent steps to control), Liew Mun Leong (Capitaland former CEO) did mention a conversation with Jamie Dimon before - Where is the best place to be building and selling property?
The answer: China. The growing middle class, the creation of the super-rich from tech savvy entrepreneurs and the very fact that increasingly, urbanization of the outskirts of china leaves much room for imagination. That China is a monster of an investment dream as the next global superpower.