Recap on major events that rocked the global financial markets in 2016

It's been quite a while since my last blog post due to my hectic work. Seeing my fellow co-bloggers GoHuat and YoloHuat contributing their pieces, I should do my part too now that I have more time to spare towards the year-end. 

2016 has been an eventful year with lots of surprises. In fact, big surprises that sent markets into a tailspin. In this post, I will recap some of the notable major events which roiled the global market as we wrap up 2016 and for you to ponder what's next for 2017.

Chinese market rout

In January 2016, the global market was badly bruised by the Chinese market crash. The China's stock market fell nearly 18%. The rout sent shockwaves throughout the global stock markets due to China's growing influence and role in the global economy. The Chinese yuan fell to its lowest level since March 2011. This made their exports more competitive and caused alarm on whether it would lead to a currency war between countries. With China becoming an economic powerhouse, how would their assertiveness impact the world? I believe they will continue to grow further and increase their influence in the global stage.

Brexit

In late June, we experienced the UK Brexit which many thought it was logical for them to remain in EU. However, those people who were left behind in the midst of the economic growth resulted in an imbalance which swung towards the vote to leave EU. As a result, the Eurozone markets continues to be mired in uncertainties following Italy's rejection of the constitutional referendum. Will Italy be another casualty to end the EU membership? Italians may evaluate the EU membership using UK as a case study. 

US Presidential Election

In early November, the US electorate was another major bombshell. The unexpected happened - Donald Trump was elected as United States' 45th President. Many thought that it would impact the global markets due to his isolationist policies. Indeed, the market suffered a short-term whammy but it recovered quickly and caused a bull-run when people speculated that the Trump would implement pro-business policies and drive infrastructure spending to boost the US economy. However, there are also many speculations on how US stand to gain after Trump openly rejected the TPP which is supposed to benefit the US, including Singapore. In any case, Trump's presidency heralds a new era of uncertainties come 20th January when he takes office. Maybe it's time to follow Donald Trump on his Facebook or Twitter to get first-hand news? :p

OPEC to cut oil production

In late November, OPEC finally managed to broker a deal with the cartel's members and other non-OPEC countries such as Russia to cut oil output for the first time in eight years since December 2008. This news sent the oil price soaring and led to markets riding on the rally. The decision lifted oil prices to above $50 for the first time since October. Though OPEC's decision was widely welcomed, it remains to be seen if the jump in oil prices would be sustained as US shale production are expected to join the bandwagon and exploit the higher oil prices as well. Will this help to cushion the impact faced by the oil & gas counters in Singapore? For consumers, it just means higher prices such as vehicle petrol, consumer products, inflation. Boo hoo.

FED interest rate hike

On 14 December 2016, the long-awaited FED finally announced to raise the FED's benchmark interest rate by 25 basis points, to a range between 0.5% to 0.75%. While the interest rate hike is bad news to homeowners and investors alike, it is a reflection of the improving outlook of the US economy so as to prevent it from overheating due to the past years of low interest rates environment. Moreover, FED also hinted they could accelerate the increase of rates at a faster pace in 2017 (up to 3 more raises projected). The beneficiaries are the banks while reits would be impacted. Singapore companies with US denominated products will stand to gain. But how much higher will the rates go when Trump takes offices in Jan 2017 remains a big question mark. Is it time to put your funds in the US market as the USD continues to strengthen? Well, it may be prudent to wait and see. 

What will happen in 2017?

With the impending subdued economic outlook next year, I am not so optimistic for sure. The incoming Trump administration will be something new for US citizens and the world. The US-China relationship will go through a new test. The rising oil prices may result in higher cost for airlines and may not help to lift oil & gas counters who were already hammered by the drop in oil prices earlier. The upcoming interest rate hike is going to cause many counters to increase cost, especially reits and utilities counters. 

It seems to me that 2017 will be a more challenging year amidst the slowing growth of the global economy. Challenges are abound so it is timely for you to review your portfolio and tweak accordingly where necessary.

For me, I would likely wait and see how the events unfold, especially, once Trump becomes US President officially and announces his slew of policies which tend to shape the global outlook.

Do you know of any other events which are also major? How will these events impact your investing strategies? Feel free to share your views. 

Thanks for reading and wishing all TripleHuat readers a happy new year 2017!

Regards,

EzHuat

Related posts:

The Year Ahead

Is the current global outlook still favourable to investors? 

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The Year Ahead

The eventful year is coming to a close soon. Kudos to everyone for surviving the rollercoaster ride! President-elect Donald Trump was a total game changer indeed, and we are now facing a stronger US dollar, higher commodity prices, higher bond yields, and lower gold prices. Even the US Federal Reserve has become more hawkish.

For the past 1.5 months or so, the growth strategy has continued to fire on all cylinders and pushed equities in the US up by nearly 6%, while the STI rallied by 5% to ~2,960 within a month of the elections (although it has since retraced by about half of that move). There was a comment in a Bloomberg News article that if one closed his eyes and bought into the market at the start of 2016 and only opened his eyes again at the end of the year, he would never have guessed that events like Brexit and Trump happened. Lol.

With still so little concrete information besides who won the elections and the appointments for the various posts in the administration, one does wonder though whether markets are getting ahead of themselves (especially for us folks in this part of the world - Asian countries are running a $401 billion goods trade surplus with the US this year, according to the US Census Bureau). For investors who did not join the growth trade immediately after the elections, this translates into the question of whether it is now too late to join in.

Some food for thought:

1. Singapore is facing a period of slower growth as it attempts to reorient its economy. GDP growth is trending at about 1%, supported by government spending. 3Q GDP growth was revised upwards to 1.1% year-on-year from the advance estimate of 0.6%, but still a slowdown from 2% in 2Q. The services industries, which together account for around two-thirds of GDP, entered a third consecutive quarter of contraction, led by the external-oriented sectors. The financial and insurance services sector underwent its first y-o-y contraction since the global financial crisis. Singapore banks continue to grapple with a credit cycle. In the property market, concerns remain over the overcapacity in office space, falling retail sales, and a residential market correction.

2. Will MAS come in to support? The latest meeting saw the central bank keeping on hold as it believes its past policy easing will continue to filter through to the economy in the quarters ahead. It probably can ease further if growth does not pick up as expected, but this may get tricky against a backdrop of US rates and the dollar continuing to rise. Furthermore, note that with higher US rates and dollar, Asia (including Singapore) may see reduced support from foreign inflows.  

3. How high can the US Treasury yields go? Market expectations of two hikes in 2017 proved to be too conservative and the outcome of the Fed’s December meeting, with median projections of three hikes next year, caused some repricing. One of the Fed’s most hawkish policy makers has even warned that the Fed may have to raise rates more than three times next year. During the 2013 taper tantrum, the 10-year yields rose to 3%. The US labour market is much tighter now than it was in 2013. Seems like there’s more room to go?

4. Eurozone equities have lagged significantly year to date and suffered from big outflows. The Eurozone business cycle is also at a much earlier stage than the US one. Valuations may therefore be looking cheap, but the election calendar going forward is heavy. Trump’s victory could just be the start of the rise of populism, and this could potentially throw markets off by a greater extent.

Mentioned Europe because I’m considering getting some exposure likely via a low cost ETF. Anyway, I’m generally still on the sidelines, didn’t participate in the rally and hence am more cautious now on the trends going forward. Would be looking for cues on policy direction from the new US administration next year. Plus, I may need some extra cash for a new flat sometime next year (maybe - haven’t even gotten queue number yet), so not much dry powder.

In November I added Singtel and Aims Amp Capital Industrial REIT. For Singtel, being a blue chip name that everyone likes, I needn’t explain more right? Added on the dip during the month, though it was still an average up. I’m also a happy subscriber because now my mobile phone bills are lower by ~$20 per month after I switched to their SIM-only plan (I know this is not good for ARPU though… :p). Aims Amp: averaged down my cost when the price came off after the lower 3Q DPU. I think concerns about the sector are well flagged and management has been pretty proactive. This month, I took profit on Apple, which I held for trading (total return ~24% in SGD terms - some dividends, some unrealised FX gains, mostly capital gains). It rose further after I sold zzz. Anyway, will be keeping the USD proceeds for the next trade.

Merry Christmas and happy 2017 in advance!

Regards

Yolohuat

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A Penny for Your Thoughts on Opportunities related to Singapore-Kuala Lumpur High Speed Rail Project

Singapore-Kuala Lumpur High Speed Rail Project

Last week, the Prime Ministers of Singapore and Malaysia announced one news that caught my attention: Construction of the High Speed Rail (HSR).

The HSR project will have 2 terminal stations in Jurong East and Bandar Malaysia; as well as stations in Iskandar Puteri, Batu Pahat, Muar, Ayer Keroh, Seremban, Putrajaya. It is slated for completion in 2026. The project would have at least 3 joint tenders by both countries. The HSR is expected to cut travel time between Singapore and Kuala Lumpur to 90 minutes. The Customs, Immigration and Quarantine facilities will be co-located at Singapore, Bandar Malaysia and Iskandar Puteri.

During the project HSR annoucement, I took note of 2 key lines from the Prime Ministers’ speeches:

“HSR line will transform the way the two countries interact, socialise and do business, for the better.”

“With hundreds of thousands of people crossing the causeway each day, security was one of the major issues that the two countries discussed before they proceeded with the HSR project.”

Master Plan for Jurong Lake District

Another important information is that URA has already started stage 2 of their request for proposal in Sep 2016, to develop a master plan for the Jurong Lake District. URA also announced their vision for the district to be a ‘District of the Future’ and our second Central Business District (CBD).

So.. How do the Above Points Add Up?

Bringing the above points together, there are many business considerations that are directly or indirectly affected by the projects; and these are what we, as investors, should think about.

Potential Outcome in the Short-Term

In the short-term, the HSR should generate more infrastructure and construction work for both countries. My current view is that 5 main industrial sectors might benefit from the project: (i) Engineering (Rail operator) is likely involved in the construction as they can share their operator experiences to enhance the rail design; (ii) Engineering (Civil/Electrical Engineers) should be involved in the infrastructure such as electrical cables, physical tunnelling etc; (iii) Engineering (Network Providers) is likely to be involved in setting network equipment and laying of network cables; (iv) Engineering (Security) – a major issue for both countries, will require security equipment to be installed; (v) Banks would need to provide loans to all companies involved in the development.

Some food for thought: 
Are there other industrial sectors that you think might benefit from the project? 

Which companies within these mentioned sectors would have the capability to take part in the tenders? 

Which aspects of these companies should you pay attention to for you to make an investment decision?

Potential Outcome after post-HSR completion

After the HSR is ready for operation, I felt that the social trends in both countries would change too. For discussion, my post will focus on 2 aspects: Lifestyle and Properties.

Lifestyle: Currently, both countries are largely connected via Johor Bahru, through the 2 causeways at Woodlands and Tuas. I believed that the HSR would greatly increase the flow of traffic between the two countries. More Malaysians from other parts of Malaysia could travel to Singapore to work. Singaporeans might visit Malaysia more often for shopping, if the prices in Malaysia are indeed much cheaper than in Singapore.

Some food for thought: 
Amidst all these changes in lifestyle, are there any companies/businesses that would be well-positioned to leverage on the increase in spending on living necessities, shopping, weekend getaways, etc in both countries?

Properties: I believed that Jurong CBD would focus on the development of industrial and commercial properties. Residential properties that are near the HSR train stations should experience greater buying demands. More Singaporeans might consider buying a residential property in Malaysia for investment; or for stay as the cost of living is still lower there. In Singapore, more Malaysians might consider renting houses in the Jurong area to minimise their travel to the Jurong CBD.

Some food for thought: 
How will Jurong’s property landscape be transformed by the Jurong Lake District and HSR? 

What will be the potential impact to existing industrial, commercial and residential properties in the region? 

Which companies/business would benefit from all the constructions and developments in Jurong?

My next step..

As the HSR project is still in the preliminary phase with no contracts signed yet, I am likely to monitor its developments closely first instead of buying into any rumoured companies.

I hope that after reading this post, it has helped to spur up some thoughts in you. Feel free to share your thoughts with us!

Together, let us all Go & Huat ah!

GoHuat

Related Posts

Global Outlook: Is the current global outlook still favourable to investors?

Portfolio Management: The "Art" of Asset Allocation (Part 2)

Singaporean Lifestyle: How EzHuat got started...

Information Sources

[1] Singapore, Malaysia sign bilateral agreement for High-Speed Rail project

http://www.channelnewsasia.com/news/singapore/singapore-malaysia-sign-bilateral-agreement-for-high-speed-rail/3363164.html

[2] Singapore-KL high-speed rail deadline ‘ambitious but achievable’

http://www.straitstimes.com/singapore/transport/singapore-kl-high-speed-rail-deadline-ambitious-but-achievable

[3] Singapore, Malaysia sign historic high-speed rail deal

http://www.todayonline.com/singapore/singapore-malaysia-inks-agreement-high-speed-rail

[4] Singapore-JB Rapid Transit System to be linked via high bridge 

over Straits of Johor

http://www.channelnewsasia.com/news/singapore/singapore-jb-rapid-transit-system-to-be-linked-via-high-bridge/3364180.html

[5] Malaysia inks deal on high-speed rail

http://www.thestar.com.my/news/nation/2016/12/14/msia-inks-deal-on-highspeed-rail-bilateral-agreement-signed-with-singapore-project-to-be-completed-i/

[6] Strong industry interest in Jurong Lake District Master Plan

https://www.ura.gov.sg/uol/media-room/news/2016/sep/pr16-58

[7] Components of Conceptual Master Plan and Design for stage 2 of Jurong Lake District RFP

https://www.ura.gov.sg/uol/-/media/User%20Defined/URA%20Online/media-room/2016/sep/pr16-58b.pdf?la=en

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Using Target Price as a strategy to buy/sell stocks!

It was during a routine sharing among my fellow blog writers - EzHuat and YoloHuat that sparked off the inspiration for this post. I would usually ask or share with them my “Target Price” for the stocks that I am interested to buy/sell. It was only when YoloHuat mentioned that “Target Price” has helped her to stay disciplined; that I realised that this could be a good strategy to share with my readers too.

Motivation for adopting “Target Price” Strategy

At the start of my investment journey, I used to buy/sell whenever I think the price is right which is no different from betting on 4D or Toto. I wanted a more systematic approach in buying & selling my stocks instead of relying on “feeling”. After reading many investment books, my conclusion is that every stock has a value; and a price. Ideally, we should buy a stock with a price less than its value. So the first question is really “How do we assess the company’s value?”

Assessing Company’s Value

There are tons of literature out there to explain how we could assess a company’s value. Hence I would not want to go into the technicalities here. A point to note is that the type of indicator (i.e Price-to-Earnings ratio, Net Asset Value, etc) has certain limitations and might be dependent on the type or nature of the business. For example, Net Asset Value might be more relevant to assess companies which rely on assets as their main business model or income source. Such companies include property developers as their business model is dependent on their asset prices (i.e. land and property prices).

In my previous post, I shared that my current focus is to build up REITs/TRUSTs in my investment portfolio. Hence, over here, I shall share my current list criteria to estimate the value for REITs/TRUSTs: (1) Dividend yield is at least 7% return; (2) PE Ratio of 12 and below (with exception of MapleTree Logistic Trust as I assessed that their recent acquisitions could improve the ratio in future); (3) Net Asset Value at 80% and below; (4) Potential upside to its stock price by at least 10% based on ongoing and upcoming businesses in the coming years.

Setting Target Prices

Based on my above list of criteria, I tend to set target buying prices at around 10% lower than its value price. The current investment outlook is highly volatile and the market has passed the 7^th year bull-run. This is one reason why I am carefully selecting the stocks that I would be willing to hold for the longer term. Regardless of the length of my investment time frame, my aim is still to sell the stocks when their selling price is at least 20% of the buy price, depending on the market outlook.

Beauty of “Target Price” Strategy

The “Target Price” strategy has served me well so far. Nowadays, I will only walk into a deal if the stock price meets my Target Price. In my view, the beauty of this strategy lies in its possibility to build up my own set of target prices based on my defined potential value. This would allow investors, who are more conservative, to set target buying price with greater margin of safety; so that their cash would leave their pockets only when the price is right.

Will the “Target Price” Strategy work for you?

There are just so many investment strategies and school of thoughts. My view is that it is important to see whether this strategy could fit well with your investment profile. Over the years, I have and am still improving on my investment skills as I gained more experience and knowledge.

I would love to hear your views on this too so feel free to share with me here!

Together, let us all Go & Huat ah!

GoHuat

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The "Art" of Asset Allocation (Part 1)

Looking at REITs/TRUSTs for a change..

What’s Next after Saving?

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