Thursday, 6 October 2016

Looking for Bargains

I have been busy at work during the past 2 weeks and as a result, no postings has been done. So here's some of my latest transactions..

Transactions

Divestments: TTJ & Ezion today.

As of now, cash is the largest component of my portfolio, at 75%; Stocks is at 13.4%, while P2P is 11.6%. I have made no further P2P investments.

Opportunities

Action bias is now a real risk. Being a human, I will have to resist the urge to do something. As Blaise Pascal said: 

“All of humanity's problems stem from man's inability to sit quietly in a room alone.”

Like many, I will be tempted to put my money at work. However with the recent run up in oil & gas penny stocks, my own perceived mis-valaution has disappeared; and along with it - an opportunity to invest. Due to my narrow expertise in SGX stocks, it is difficult to seek out investments. The urge to invest in the current penny rally and idling is something I have to resist as I wait out the current oil crisis which is still ongoing.

Outlook 

No doubt OPEC has struck a deal to cap production and this has pushed oil close to the US$50 range. However two issues still linger: Oversupply and US shale

The global oil oversupply is still happening and the surplus still growing. Until concrete plans are put in place by OPEC, we will see growing inventories. To add to that, some completed oil projects in non OPEC countries are now coming online and this is adding to the oversupply.

The next issue is shale. At about US$60, the shale industry will start pumping again. This caps oil's rise.

On the SGX, we have many listed companies (whose services is dependent on oil's outlook). It is going to be tough on them given declining revenue. In their balance sheet, some of them hold huge amounts of PPE at stated value and have bonds maturing. Wth the public not inclined to purchase new O&G bonds due to Swiber's fallout, how much are these companies' PPE worth? Will it be enough to cover the creditor's principal? 

Rickermer's recent saga is a good example, where the market value of Rickmer's 16 ships are not even enough to cover the bank's loans; let along the principal amount of the bondholders. It is likely the worth e of their ships in the market is only about 20% of the value stated in the balance sheet.

Unless our local banks are willing to refinance these maturing bonds, the process of consolidation and restructuring among our local companies will continue. Perhaps opportunities will present themselves when more companies are closed and jobs are lost.



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