Investment Strategy for 2016
2016 is expected to be another tough year for investors, according to most analysts out there. With most bad news out there and expected lower corporate earnings for most S'pore listed companies plus lower GDP growth in S'pore, I do agree that it will be another rough year for investors. We have already endured a roller-coaster ride last year but be prepared to tighten your seat belts for another tough ride this year. As usual, stock picking becomes a crucial factor in this kind of market, and therefore I have identified some themes in 2016 that investors can take note of and hopefully pick some stocks that fit into these themes which can enhance your portfolio returns.
1. Transformation of public transport to bus contracting model. Already, LTA had started competitive tendering and awarded some contracts. I expect 2016 to be a transformative year as LTA continues to take over existing contracts to purchase buses and assets from transport operators. SBS Transit is expected to be the main player for this theme though ComfortDelgro as a whole and also SMRT should benefit as well.
2. Raising interest rate. We have seen some of the effects of this theme after Fed raises interest rate last December. REITs are expected to get hit from this theme but selected finance related stocks might benefit from the interest rate spread that they earn from raising interest rate.
3. Delisting and M&A. To play this theme, one have to identify companies which are being acquired or no longer needs the capital market. For delisting, I think it is worth looking at the s-chips space. I know that s-chips are not in favour now but there are a few delisting deals last year in this space and I expect more to come this year. Do look out for those s-chips which had been listed for many years and had not paid dividends for a long time and trading at depressed valuations with low or no volume being transacted everyday.
4. Market mis-pricing due to share consolidation. We have seen some of those stocks that had experienced high volatility after share consolidation. In fact, there are some stocks which had been mispriced immediately after consolidation and one can take advantage of this if he/she is sharp enough to acquire those stocks before they revert back to normal levels. With the deadline looming for stocks trading under 20cts in the MainBoard for the MTP requirement, they will have to consolidate or move to Catalist to avoid being on the SGX watchlist. Expect more share consolidations this year.
5. Commodity prices. It is difficult to play this theme as commodity prices had been very volatile in 2015. I have no idea whether commodity prices will recover this year or continue to go lower. Same for oil price and gold. Therefore, it is best to give this theme a miss unless you have the crystal ball to predict. I certainly do not have it. But for those who have the appetite for it, the pay off could be substantial if you made the right call.
As for my portfolio strategy, it will be as usual as per 2015. I will continue to:
1. Look for deep value stocks and overweight them.
2. Reduce/Eliminate underperforming and overvalued stocks.
3. Reduce the number of AGMs, EGMs etc.
4. Keep healthy.
5. The usuals.
Have a profitable 2016!
1. Transformation of public transport to bus contracting model. Already, LTA had started competitive tendering and awarded some contracts. I expect 2016 to be a transformative year as LTA continues to take over existing contracts to purchase buses and assets from transport operators. SBS Transit is expected to be the main player for this theme though ComfortDelgro as a whole and also SMRT should benefit as well.
2. Raising interest rate. We have seen some of the effects of this theme after Fed raises interest rate last December. REITs are expected to get hit from this theme but selected finance related stocks might benefit from the interest rate spread that they earn from raising interest rate.
3. Delisting and M&A. To play this theme, one have to identify companies which are being acquired or no longer needs the capital market. For delisting, I think it is worth looking at the s-chips space. I know that s-chips are not in favour now but there are a few delisting deals last year in this space and I expect more to come this year. Do look out for those s-chips which had been listed for many years and had not paid dividends for a long time and trading at depressed valuations with low or no volume being transacted everyday.
4. Market mis-pricing due to share consolidation. We have seen some of those stocks that had experienced high volatility after share consolidation. In fact, there are some stocks which had been mispriced immediately after consolidation and one can take advantage of this if he/she is sharp enough to acquire those stocks before they revert back to normal levels. With the deadline looming for stocks trading under 20cts in the MainBoard for the MTP requirement, they will have to consolidate or move to Catalist to avoid being on the SGX watchlist. Expect more share consolidations this year.
5. Commodity prices. It is difficult to play this theme as commodity prices had been very volatile in 2015. I have no idea whether commodity prices will recover this year or continue to go lower. Same for oil price and gold. Therefore, it is best to give this theme a miss unless you have the crystal ball to predict. I certainly do not have it. But for those who have the appetite for it, the pay off could be substantial if you made the right call.
As for my portfolio strategy, it will be as usual as per 2015. I will continue to:
1. Look for deep value stocks and overweight them.
2. Reduce/Eliminate underperforming and overvalued stocks.
3. Reduce the number of AGMs, EGMs etc.
4. Keep healthy.
5. The usuals.
Have a profitable 2016!
Labels: Strategy
posted by ghchua at 2:03 PM
16 Comments:
Hi,
The local market just crashed 55 points today!
What are your views on it?
Hi Dividend Knight,
As I've said in this blog post, be prepared for another rough ride this year. Markets will continue to be volatile.
Why reduce agm visit? As full time investor going to agm should a breeze.
Even when I am working I still take leave to attend arm whenever it is possible.
Hi Unknown,
Reduction of attendance at AGMs/EGMs was because of health issue as detailed in my previous blog posts. Having said that, I still attended around 90 meetings last year which is a reduction but still a decent number. I have also proxy out some of these meetings which contributed to the reduction as well but I do received feedbacks from my proxies and therefore I do know what was going on during those meetings.
Going forward, I will go for quality rather than quantity. In fact, the most number of meetings were held near the end of April and the others are actually quite well spread out and I should have no problem attending some of them. As for April meetings, it will be too much for me to attend a few meetings a day and therefore I will be looking to reduce them and look for alternatives like proxy etc.
Hi ghchua, Happy 2016! I have been following your blog for many years and have learn many insights from you. Thank you so much for your blog.
Understand that there have been rising interest rates but I still dont quite understand the fundamentals of the effects to the stock market. I mean how does rising interest rates affect the stocks and is it healthy in the long run? Hope you could share some deep insight (or maybe write an article?) on the relationships.
Any comment on the current Keppel Corp which the price have fallen to 5.5 range ? Do you see the possibility that marine industry may fall into winter due to low oil price which may long time to raise to 80 - 100 price range ?
Hi David,
Thank you for your support!
A slow and rising interest rate should be ok for stocks but a fast rising interest rate environment might not be good for stocks. Reason being companies might have to cope with increasing borrowing costs and also higher risk free rate which absorbs liquidity out from the markets as investors might park their money in assets which are less risky, since they can earn a higher interest rate. Already, we have seen some REITs with high gearing being aggressively sold down by the market. Also, it will affect property developers as some buyers might not want to enter the market to buy property as they have to pay a higher interest to the banks for their loans.
Hi oradba168,
I think Keppel Corp might have more downside if oil price continues to slide. Market had sold down the stock aggressively lately partly because of this and other bad news, which include a possible bankruptcy filing for embattled Brazilian firm Sete Brasil, which accounts for around 40% of the orderbooks of Keppel Corp.
Therefore, I do think that it is cheap at this level, but it has potential for further downside.
Have you attended the AGM meeting in Keppel in 2015 ? Did the management mentioned about situation in Brazil & what are their action plan to minimize risk if the company Sete Brazil go underbelly ?
hi ghchua,
just wondering what is your view on the possible value unlocking mechanisms for stamford land.
it seems the australian hotel sector is quite hot with so many deals over the past few years and recently for Ascendas H Trust as well. yet at the same time stamford has barely budged....
do you see a takeover or sale of assets as a possibility? or will mr ow hold on till the very end.
thanks
Hi oradba168,
I didn't attend Keppel AGM in 2015, but my proxy did report back to me with some information. Basically, the discussion during last year was mostly focused on the privatisation of Keppel Land and the rationale for doing so. There are some discussion on the offshore business but not so much on Brazil. I think increasing their stake in Keppel Land is one of the strategy for Keppel Corp to diversify their earnings and not to depend so much on offshore and marine.
Hi John,
I guess as a long term investor in Stamford Land, I am happy with the dividend payout every year while they focus on running the business and improving their hotels. Whether there is a buyer for their hotels and whether Mr Ow will sell or not is an extra bonus. From what I understand, there are prospective buyers talking to Stamford Land all the time but I think Mr Ow might not sell those hotels unless it is an offer that he cannot resist.
For unlocking of value in Stamford Land, it might be a long wait but instead of putting your money into volatile stocks, I have positioned my portfolio defensively for quite sometime and therefore Stamford Land is one of the low volatile stock that can protect your capital during market downturn. Anything else is a bonus.
Hi ghchua!
What is your view on Keppel DC Reit?
Hi freako,
I don't hold Keppel DC Reit but I do have Keppel T&T so can maybe share a bit on the REIT.
I think the REIT meets their forecast for DPU since listing but there is concern on Citadel 100, where one of its tenant decided to downsize its take-up. There is also currency risk for this trust as not all of its assets are located in S'pore.
I guess the demand for data centres will still be there with the growth of big data, but the concern is obviously the supply side as more data centres are being built in S'pore.
All in, I think there will still be DPU growth and also the trust had locked in very long term lease for a majority of their assets.
Perhaps it might be wise to invest in stocks outside of Singapore instead?
I've started investing recently and it seems that SG stocks don't seem to have much up-side potential compared to those in HK. Have recorded my trading experience on this website (http://stoxks.blogspot.sg) and would love to have your thoughts on it :)
Hi Me,
I think you are not the first one (and certainly will not be the last) to tell me that SG stocks do not have much upside potential as compared to other developed markets or even Thai stocks. However, do take note that there are still opportunity in SG stocks if you look hard enough, mostly in the mid and small cap spaces. For big caps, SGX listed ones are actually quite decent and they do have good dividend yield.
For other countries, yes, I do have exposure but via unit trusts instead of direct stock investment.
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