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.