Tuesday, 30 August 2016

A Paradigm Shift - Innovate or Perish

Singapore's economy is at a turning point. Local businesses are facing challenges such as digital disruption, labour crunch and high operating costs. We are in danger of losing our relevance in a global economy which is undergoing a 'Third Industrial Revolution'. Latest economic data showed falling inflation and exports. Unemployment is rising as more workers are rendered redundant due to technological disruption and lower global demand. The traditional bellwethers of the STI - banks, property developers, rig-builders - are struggling as property sales remain sluggish and oil price is stubbornly depressed. All these talk on SMEs becoming more innovative is mostly paying lip service.
PM Lee speaking at National Rally 2016

Conventional wisdom dictates that a Singaporean resident must invest in property (usually eating up most of his savings), as if property investment is the sure-win method to financial nirvana. A word of caution. What works for our grandparents (pioneer generation) and parents (baby-boomers) might not work for us and the future generations. Moving forward, local residential property prices are unlikely to see exponential appreciation compared to the 80s and 90s. Those times are not returning.
You might be wondering......why so fearful, DK? In the worst-case scenario, the Singapore government can implement expansionary fiscal policies to 'juice up' the economy. That worked before. Unfortunately, our aging demographics meant that social spending will only escalate in the future, thus limiting the amount of support the government can provide. Besides, we simply could not afford to keep dipping into our national reserves.
Wait a minute! How about Temasek Holdings and GIC? Surely they can swoop in as white knights in their shiny armour to save the day! The hard truth is actually more years of expected lower returns from our SWFs.

Wednesday, 24 August 2016

Beware of Valuations When Buying Emerging Markets Bonds & Dividend Stocks

At the start of 2016, emerging markets (EM) were in turmoil as droves of investors withdrew funds in the wake of a long-awaited Fed rate hike in December 2015. Eight months later, funds are flowing back into EM yield assets at a frantic pace once again. Facing negative rates in Europe and Japan as well as near-zero rates in almost all developed nations, yield-hungry investors have no choice but to return to EM.

However, investors are not focusing on growth or cheap labour - the traditional twin attractions EM used to offer in spades. They are simply drawn in by the relatively attractive yield like moths to a flame. This could lead to a bubble in the EM bond and stock markets. Valuations of traditional income stocks like utilities and telcos are approaching bubble levels. This crowded trade will not end well once the Fed hike rates because funds will pull out of EM as fast as they were poured in.

In my opinion, it is never prudent to generate more yield at the expense of taking on more risks. Remember the taper tantrums in 2013?

Balance risk and income

Tuesday, 9 August 2016

Dividend Knight Income Portfolio Update (August 2016) - Building An All-Terrain Vehicle!

No. of Shares
30, 000
10, 000
8, 000
2, 031
Frasers Centrepoint Trust
15, 000
Mapletree Logistics Trust
25, 365
3, 020
Raffles Medical Group
15, 094
4, 000
CapitaLand Mall Trust
7, 000
ParkwayLife REIT
5, 000
12, 000
Keppel DC REIT
10, 000
Suntec REIT
6, 000
Ascendas REIT
3, 000
Sheng Siong
7, 000
Frasers Centrepoint Limited
3, 000

Dividends received in August 2016: S$3,699.96

Total dividends received since Jan 2016: S$10,458.33

Average dividends per month: S$871.53

Average dividends per day: S$28.65

Total portfolio market value: S$363, 438

Unrealised Profits: S$62, 291

For the month of August, I will be collecting a total of S$3, 699.96 in dividends and distributions from my income portfolio. Added more OCBC and initiated a new position in Frasers Centrepoint Limited due to attractive valuations.
  1. SATS: S$400
  2. Singtel: S$856
  3. Starhub: S$500
  4. OCBC: S$453.60
  5. Sheng Siong: S$133
  6. CapitaLand Mall Trust: S$191.80
  7. Frasers Centrepoint Trust: S$456
  8. Suntec REIT: S$150.06
  9. PLife REIT: S$150.50
  10. Keppel DC REIT: S$334
  11. Raffles Medical Group: S$75

Investing is all about looking into the future and thinking backwards. I intend to  build a portfolio for the future economy. So, what do I see when I look into the future? A rapidly aging world with higher discretionary consumption from the growing middle-class and explosive data usage. Data centres, aviation-related and healthcare companies are poised for multi-year earnings growth.  

The future of the global economy is made all the more uncertain thanks to socio-political and geo-political tensions. In the local scene, the Singapore market was thrown into turmoil with the shocking collapse of Swiber. Getting highly-leveraged in a cyclical sector is a recipe for disaster indeed.

People tend to build their portfolios like 'Ferraris' which aim to achieve maximum returns in the shortest time possible. However, this method only works if the economic road ahead is flat, smooth and straight. Unfortunately, I am afraid the road ahead is full of turns, bumps and potholes at best. So, I am building my portfolio like an all-terrain vehicle (ATV) which allows me to navigate the rocky journey ahead and get me to the finishing line. I might not reach the finishing line first but at least I will survive and complete the journey. A 'Ferrari' will not get me to the finishing line no matter how fast it is.

To finish first, first you must finish