Thursday 29 June 2023

US is Heading into Recession and That May Be Good News for REITs

Recently financial news headlines are about an impending recession globally. To REIT owners that is good news. This is due to the expectation that central banks will then reduce rates to stimulate the economy

Inverse Relationship Between Interest Rates and Share Prices

The past 1 year has shown how the constant hikes in interest rates had a direct relationship to the fall in share prices of REITs.

Look through any SGX listed REIT and you will find that correlation. The mechanism is simple- REITs are leveraged in balance sheet by nature. They hold properties which are valued by risk free rates. A higher interest rate results in two pains for REITs, all else holding equal; (i) a higher debt financing as the interest cost is higher, (ii) a higher interest rate means risk free rate are higher and this has a downward effect on the valuation of a REIT's property.

What happens is (i) an increase in interest cost and (ii) lower property valuation. For (i) this means unit holders get less dividends and for (ii), it means the leverage ratio of REITs increases, putting them closer to MAS's statutory limit of 50% leverage ratio.

Recession Means Interest Rate Will be Lowered According to Central Bank's Thoughts

Should a recession comes, central banks would attempt to lower interest rates. As said above, a lower interest rates will means REITs profits improve and leverage ratio improves.

Are REITs Similar to Gold?

It is known that Gold is a safe haven asset where if recession comes, investors flock to it. Based on how I have described above, people will assume that REITs are the same.

However, there is one caveat- the financial strength of tenants. In times of recession, companies may close down and if one of them turns out to be a tenant of a REIT, the REIT loses rental income immediately. Therefore, linking recession to improved business of a REIT is not straightforward. Instead, investors should observe the tenant of a REIT properties.

For some REITs, they lease properties to blue chip companies or even to government organisations. This are the stronger REITs. However, markets are not stupid and REITs with a long list of blue chip tenants are leased on a stronger footing (similar companies are like Capitaland REITs or Elite Commercial).

Therefore, as investors, we can think of the macro view first which is prepare for recession and start accumulating REITs now. The second order of thinking will have to come in which is to identify good REITs with a strong tenant composition. Alternatively, if the second order of thinking is too hard for an individual, do consider a REIT ETF which holds SGX listed companies (REIT). There are quite a few and they are relatively easy to be googled out.

Wednesday 21 June 2023

Voting "No" to a Delistng of a Forgotten Company I had- Nico Steel

Received a notification for a delisitng without an exit offer of a cold storage company I invested called Nico Steel Holdings. Due to it not meeting the listing rules for 3 years, the company is now delisting without an exit offer.

My Options

The company provided two options- 1) delisting and I would probably get a paper certificate as memory sake or 2) voluntary liqudation of the company.

Well given that the company is valuable where it was trading at 0.25 times the book value (SGD$0.4 cents) at its last trading price of 0.1 cents. I am inclined to just vote for the company to be liqudated. Even if 50% (0.5 times) of its book value is realised, I still get back some cash over I getting nothing

Its going be a straightforward idea rather than let the company flounder while the management get their pay while we shareholders get a paper certificate.

If there are Nico Steel shareholders reading this, I hope you share the sentiment as I :)

Saturday 17 June 2023

Stronger Sing Dollar Presents a Buying Opportunity For Us

With the Sing Dollar hitting all time highs against the Malaysian Ringgit and even the Japanese Yen, these countries have become attractive for us Singaporeans. However, besides spending for leisure, the strong Sing Dollar is making foreign assets cheap for us investors to purchase.

On the SGX exchange, we have US and Euro denominated counters. The weakening exchange rate is making them an attractive buy.

For example due to the weaker US dollar, the price I paid for Keppel Pacific Oak is now 2% cheaper. I have been accumulating foreign REITs which are yielding 15% and above and with the weaker US dollar, it enables me to collect more.

Personally I dont think the Sing dollar can remain that strong forever as the reason for its strength is to fight against the global inflation. Once global inflation dies down, the Sing dollar will gradually weaken so that the inflation impact is smooth out. Hence I am preparing for that and accumulating foreign assets by changing my Sing Dollar out. Fortunately there is an avaliability of undervalued assets are in foreign countries such as Alibaba, Tencent, the US REITs, Elite commercial. This enables me to find good assets to park my foreign currency in.

Thursday 15 June 2023

China Lowering Rates While the Rest of the World are Raising Rates

Two differing news from the largest 2 economies were announced within the last 24 hours:

- China has cut its one year lending rate from 2.75% to 2.65%

- While US has paused rate hikes, they expect another 2 rounds of 25 basis hikes. Fed rates is now standing at 5%

Contrasting Interest Rate Policies

Its definite China is doing a monetary expansion while USA is doing monetary tightening. Due to the differing rates, it is observed the Chinese RMB is on a substantial decline against the US Dollar. Interestingly, despite the constant devaluation of RMB, China's export has not picked up over the past few months, which points to companies leaving China or the effects of US sanctions.

China's Economic Decline

China's current situation can be summarised as below:

(i) Exports are falling

(ii) Youth Unemployment at Record High

(iii) Physical Consumption and E commerce growth are at low single digit growth

(iv) Policy measures has killed off the Real Estate Industry and Construction no longer boosts GDP

Pretty bad pointers to note especially if you a president who is now trying to run for an eternal reign. While US can be blamed for its sanctions, most of the economic decline faced by China is due to internal regulatory changes by the communist party. This has not inspired confidence across any sector in China which is why we are seeing such declines.

China's Rates are Going to be Much Lower

In my view, the medium policy rates and reverse repo rates for China will go much lower. Unlike the US fed dot plot which gives a clearer view of where interest rates are heading, China does not have one. However, given how bad China's economic decline is going, my view is a "China dot plot" will show medium term 1 year interest rates to be at 2% by end 2025 (US's will be 3.5%)

For investors, REIT investing, if there is in China, may be the way. The Chinese Citizens will be forced to buy lower yielding instruments due to its country's lowered interest rate policy. We may see a similar stock market rally in the shanghai shares, similar to the stages of the share market rally of the USA. No doubt economic shape is declining, but the risk free rate in China is falling as well and this will spur stock investing. 

Ignore residential homes despite the risk free rate because there is an oversupply of houses in China and foreigners entry into China is very tight. The risk free rate may be low but if income inflow is 0 from rental, the output returned is still "0".

Friday 9 June 2023

US Housing Loan Rates 6.4%, Singapore Housing Loan Rates 4.5%; why not Borrow in SGD and Finance Foreign Purchases?

Just a thought. Recently I came across an article where its stated the long term USA housing loan rates are now at 6.7%. A quick search online shows the best mortgage rates in USA is 6.4%.

Looking back to Singapore, banks are offering fixed rates of 3.75% which subsequently floats to 0.8% + SORA (which totals 4.6%).

With online allowing for the ease in transfer of money between countries. why don't overseas property owners in USA utilise Singapore denomiated interest loans, change back to their local currency to finance their home loans? Netting the one way FX exchange (0.2%), it is 1.7% in interest saved per year.

FX Risk of Borrowing in SGD to Finance US Purchase?

Readers may be quick to point out a reason is the foreign currency risk where the Singapore Dollar may appreciate more than 1.7% annually. Let's put it to the test. 

Here is the longest duration FX chart of USD vs SGD I have found online. 

From a high of 1 USD to 1.85 SGD, we have come to 1 USD to 1.34 SGD in 21 years. Annualised that, the appreciation of SGD is 1.52% per year.

Profitable carry trade to borrow in SGD?

Wednesday 7 June 2023

Yangzijiang Financial (YZJ Finance): Review of its Full Year Results

 A year ago, I initiated coverage of YZJ Finance, a spin off from the shipbuilding company. In a sentence, it is a company holding a portfolio of investments across bonds, shares and loans. Its current investments are mainly in China and some in Singapore.


  • Investment Portfolio of $4.1 billion earning $300 million in income (7.5% returns)
  • Market Cap is only $1.35 billion means market is valuing it at one third its investment value
  • Company can do share buyback as it is lowly valued and has the cash resources but is doing it very slowly

Below is my review of the latest full year financial results. For full reference of the financial health, performance and outlook of the company, please refer to its presentation which i find is comprehensive. 

What Makes up YZJ Finance $4.1 Billion Portfoilo?

The infographics done by YZJ Finance is clear. The elephant in the room is the company's large investment into China's debt investment market. Recently there was a large portion (43%) which were non-performing.

The current market cap of YZJ Finance is $1.34 billion and it has $0.62 billion in idle cash. 45% of the company perceived value is in cash, while its remaining investment portfolio of $3.5 billion is valued at only $0.72 billion (a 80% mark down!). One possible reason is that the market is expecting YZJ Finance's portfolio to impair more investments as 43% of debts are non-performing. However, the management has been adamant in writing it entirely down. 

Dividends and Net Income

The company has a dividend policy where 40% of its net profits will be given as dividends.

In FY 2022, due to numerous poor performance in the VC sector and write down in debt instruments, the results were terrible marking a 20% decline in income

With the improvement in China's economy, I expect non interest income to turn positive again. All in all, expect an increase in total income by 10% with a dividends of 2 cents per share (up from its current 1.8 cents)

The company has guided to reduce its debt investments in China from 59% to 30% by the end of this year. To me, this is good as it means taking less risk. However, I wonder if the execution will occur given how bad the Chinese credit market is; to reduce by 29% means YZJ Finance will redeem SGD $1 billion worth of debts. Given how difficult it is to redeem China money, I am quite sure the Management will fail to make it happen and come up with reasons again.

What I Hope to Happen

Besides hoping for better financial results, I sincerely hope the management conducts a more thorough share buyback. Previously it bought back only 6.6% of shares in its last year share buyback.

Large Share Buyback

Given the large cash hoard and impending SGD$1 billion redemption, the company could do a $134 million share buyback, which maximises its 10% mandate as the entire mandate utilises only 8% of its enlarged cash holdings. 

In recent days, the buyback has been slow. A share buyback will mean shareholders obtain a 300% return based on its declared investment value. YZJ Finance's management has to be honest about its investments. On one hand, the market thinks most of the company's investments has soured, while on the other, the management  has constantly assured the market it is not. 

A good way to assure is by doing a share buyback, while the management has constantly done this, the amount of share buy back done is not evident and backing up the management's words. Much is left to be desired.

YZJ Finance could easily triple in value from its current market cap of $1.35 billion or $0.34 share price. Its generating a 7.5% return on its invesment portfoilo and has a large amount of idle cash. Its investment portfolio is still growing. What's left is for management to realise the value for shareholders. 

If the management hires me as their investor relations head/ investing team, I would propose a large buyback to realise value. There is so much value to unlock in this gem and the company has the cash resources to do it; somehow a million dollar salaried investment team seems to be blindly missing the picture. Pay me half the pay and I can do a better job for shareholders : p

Patience, Emotion Whirlwind in Investing- How I deal with it

One of the most difficult thing to do in investing is the ability to do nothing, withstand the volatiltiy.

Personally, I am not able to do that. This is because I am human and have the tendancy to want to trade to "show that I am doing something"; similar to what a few (if not many) office workers are - they need to act that they are doing something to validate to bosses's their worth

Acting in Investing Costs Money

Unfortunately in investing, doing too much leads to a less than optimal outcome. Passive income has been shown to provide a higher returns in the long run compared to the short termism view of trading/ active investment.

Furthermore, the frequent in/out trades incurs brokerage and transaction fees which eats into your return.

How I Overcome It

For me, the answer is that I will do trading to validate that I am "doing something". However, as I know the act of trading is merely to overcome my psychological distress from sitting and doing nothing while waiting for my core positions to reap returns, I have adjusted my habits to combat this.

Due to the creation of Tiger and recently webull accounts, I have been able to make small value of trades to feed the urge. This is because the commission by Tiger/Webull are much lower (2 cents for Webull case) as compared to the $25 fee I would have incurred just a few years ago when only the traditional brokerages were around.

The advancement of these new brokerages has in a way helped to maintain patience and fight the emotional whirlwind while I hold my core positions.

Tuesday 6 June 2023

Oxley Holding - Poor Management where the Company Could be Worth More if Closed Down

Property developers tend to be priced below book value due to their capital intensive business. However, I have come across one property developer which is relatively lower valued.

Oxley is Extremely Undervalued

If one evaluates Oxley purely on its Singapore developments and existing balance sheet, the company is a gem

Thanks to the overheated property sector in Singapore, all of Oxley's projects are sold except for 2 units (worth s$3 million each). Please refer to the table below on Oxley's latest sales progress in Singapore as of 2023.

Oxley's current equity value is $1.02 Billion and with an expected profit margin of 10% from its ability to derive margin from future billings, there is another $100 million in net profits. Do note all 7 projects has TOP'd hence majority of the revenue will be recognised in the upcoming quarter.

In short the relisable net asset value of Oxley is about $1.3 billion (if we factor in the sale of the Singapore hotels it hold)

Oxley Singapore Project Billings

Novotel and Mecure Hotels in Stevens Road 

In 2019, Oxley tried to sell its hotels at Stevens Road for a then $950 million consideration. Since then, property value in Singapore has appreciated by approximately 25% and the value of hotels has moved in line. To make matters worse, Oxley's hotel segment is barely turning around in its reported results and is running only at an occupancy rate of 80-90%. Hence, in my view, Oxley is better off selling off its Singapore hotel portfoilo now. Its hotels are sitting on freehold land which makes it valuable and tourism is picking up.

Signs of Poor Management

After highlighting the positives of Oxley, I will now turn to the recent misteps in the management.

As the saying goes: "All of humanity's problem lies in Man's inability to sit quietly in the room". Oxley exemplifies that. With its Singapore land bank used up and land cost soaring so high that margins for property development is tight, Oxley did the right thing to stop bidding for land to develop residential projects in Singapore. However, management decided to venture overseas which is a terrible mistake.

Foreign Residential Projects Not Selling

Oxley Tower project in KLCC and Riverscape in UK are not selling well, depsite being close to TOP, only 50% or less are sold at each project. With the rising interest rates globally, proeprty sales are slowing even further. If Oxley management is wise, post completion of its Singapore residential projects, Oxley should keep the cash, repay its debts and not invest in new projects locally or overseas. It should raise more cash by offloading its Singapore Hotel as well. 

Slow Movement in Sale of Singapore Hotels

With the hotel segment underperforming, the management should consider a sale of its Steven Road hotels and use the proceeds to pay down liabilities or reward shareholders in the form of a special dividend.

Share Buyback is Slow

Due to poor managing by Oxley's management team in recent times, the share price is now only 0.3 times of the relisable value or 0.5 times the reported book value, this is signs of severe undervalue and market's perception of the lack of faith in Oxley management.

Oxley has tried to stem the sell down by constantly doing a share buyback everyday, however in my view, the volume done is insufficient. What Oxley should do is increase its share buyback speed. The company has adequate cash given that all of its Singapore projects has reached TOP stage. Even buying at 0.8 times the reported net asset value is accreditive to shareholders and not to forget, there are a slew of profitable projects in Singapore which is yet to be recognised ($1.09 billion in revenue, most will be recognised in this quarter)

In Short, Close Down Oxley and Reward Shareholders

Oxley is now akin to the notion of cigar butt investing. If closed down, the company will at least double the value to existing shareholders at the market price of $0.124 ($530 million market cap).

I feel the current management is unable to carry the company further as it does not have the benefit of a roaring housing market given its lack of land bank in Singapore. 

Come next AGM, I implore shareholders to consider doing drastic measures to realise the value of the company. The management has been making poor decisions overseas which is eroding the value proposition; they have been slow in buying back shares which are value accreditive to current shareholders.

Considerations should be done to wind down the company after the early promises it has shown in the early half of the 2010 decade.

Sunday 4 June 2023

Rise of Trust Bank as No 1 Digital Bank- Bad News for Grab and Sea

Recently Trust Bank announced it has attracted $1 billion in deposits. It has one of the largest number of depositors and is now the fourth largest behind by the 3 local banks

How Good is Trust Bank?

They are really good in the combination of offerings.

Bank Account- 1) No minmum (fall below fee), 2) No Monthly Account Fee and (iii) a 1.5% fuss free interest for your first $75,000 which does not have hoops to join (that is even better than DBS).

Credit Card- 1) No fees, 2) No FX Transaction, 3) Downside no credit card rewards

As someone who is not really into miles, Trust credit card is now my second go to card for overseas transactions after the Amaze card. While other cards offer 4 miles per dollar for overseas transaction, they carry in it a 3.5% fee. So effectively people are buying miles with the fees.

The Trust credit card, on the other hand, has no foreign transaction fee for overseas purchase. However, they do not give any benefits. The other downside is that Trust does not have a wallet function to store FX or has a 1% point rebate like Amaze instarem card. Otherwise, overall it is a great product. When compared to specifically Grabpay card which charges a FX fee and gives a meagre reward, the Trust Card is way ahead of Grab.

Rewards- When Trust consumers spend they get NTUC linkpoint, furthermore Trust occassionaly dishes out vouchers or promotions to reward its card users. These rewards are much better than that offered by Grab or Sea

Nightmare to Investors of Grab and Sea Group

The domaniance of Trust Bank in Singapore is scary. Given how good Trust is, it is likely Grab GXS and Sea Group will be fighting for the number 2 spot as the latter two are uncompetitive in terms of bank account and card offerings.

For Grab and Sea, I am quite confident to say their Fintech segment dreams are dashed by Trust Bank. Without the hold of a legion of bank depositors, they are going to struggle to gain traction. Unless these two can innovate to outperform Trust Bank or paratake in cash burn intiatives, I abscribe only a $100 million valuation of each of their Fintech Segment. 

To Grab, this means its company is close to worthless and I would not pay anything above its net cash value of US$5 billion, which is dwindling. Similarly, Sea will only be worth its e commerce segment which has turned itself around and is probably valued at US$20 million.

All in all, Trust Bank is going to kill Grab and Sea. As a personal finance blogger, I would recommend choosing Trust Bank over the other 2 for your banking needs. 

Rich in Singapore Providing Their Children an (Unfair) Headstart and How Can the Less Well Off Keep Up

Stackedhomes provided an interesting analysis on the sale of the Reserve Residence.

For context, the cheapest homes for the Reserve Residence are priced at $1.2-$1.4 million with approximately 20% of homes placed in this price range. However based on data: "22 per cent of (70% sold) were to buyers of profile aged 30 years and below". Stackedhomes added: "This suggests that the younger have financial support from elsewhere, most likely parents"

Rich Parents Help Their Child Get Ahead in Life

While there are a few financial and lifestyle comic/blogs advocating for the inflow of the rich (likely written as sponsored content for certain agencies), what happens is that such flows create a spiralling upward effect on property prices. Rich parents have stepped in to help their young kids to own private homes before prices appreciate further. This is based on what is observed for the Residence sales.

While the middle class can wallow in pity about how unfair Singapore is where the rich act to make themselves richer and the government allows for such inequality to persist without policy intervention, I think it is an opportune time to remind others how we can keep up with the Joneses. 

Hopefully the rich are busy indulging in their indulgent activities and not read this. At this juncture, it might be good for me to caveat this article is not sponsored or politically motivated in any means.

Keeping Up with The Joneses- CPF SA

1.  The CPF Special Account (CPF SA) helps the middle class accumulate wealth for retirement efficiently. The CPF SA currently provides 4.01% interest, which is higher than bank fixed deposit rates. In addition, if you accumulate a large enough SA amount, you can withdraw it at age 65 beyond the retirement minumum sum amount. Hence you can use CPF SA as your main retirement funding. To act on it, top up into your CPF SA early, maxing out the annual contribution limit. What's more, the government even offers tax rebates for top ups. Do read here for more information.

2.  Avoid insurance agents! Use NS Term (avaliable for all Singaporeans and Spouses) + CPF SA. Singapore has a national insurance scheme that is better than any insurance plan agents in Singapore are selling. You do not need those insurance agents on the street to help you retire early (in fact such agents tend to make your retirement situation worse). Read here on how you can DIY your own insurance plan that is superior to most insurance plans sold.

Parting Thoughts

While CPF especially the CPF SA is an amazing tool for us to build our retirement; thus enabling us to devote the rest (most of) our energy to servicing a high housing loan or care for our families needs, I feel the government still has to step in to intervene.

As rich parents are partially financing houses under their child's name, the current government has to review its housing policies. Pherhaps one way is for an individual who has bought a private home, they will no longer be eligible to apply under the BTO scheme. 

After all, since they can afford a private home in their 20s or early 30s, why should they have the opportunity to apply for BTO later in life as they have demonstrated the finanical means. 

Secondly, the government should consider increasing the tax rate for annual value of homes that are $40,000 and above for both owner occupied and non owner occupied. The property taxes in Singapore is one of the lowest in the world. And it presents an opportunity to increase tax coffers.

Thursday 1 June 2023

China Loses Investment Money From Abroad

In the latest string of funds pausing investments in China, a Canadian pension fund has joined in after Singapore did the same. Article here

Is China Uninvestible?

This is an ongoing question among investors as they have seen the likes of Baidu, Alibaba, Tencent, ICBC, CCB, ABC beaten down such that the valuation ratios are at all time lows. 

I would attribute this sell down of China companies to sentiments.

Countries Lost Money Due to China Policies

Due to the clamp down with extreme regulations by the communist party since 2020, many countries soverign funds realised large amount of losses. Singapore soverign funds lost a few hundreds in millions in their investments especially after the regulatory clamp down by Xi Jinping. These led to many countries simply distrusting China due to its erratic system similar to the days of President Donald Trump. This is because their investment team has to add in another dimension of political risk.

With the loss of sentiments, China is seeing less investment money from abroad. Its own citizens too are growing weary of President Xi's regime and since the border reopening, capital flight has occurred. We have read news of wealthy china citizens setting up family offices abroad and renting properties to live overseas. While not openly said, I have noticed some China companies listed, outside of China, facing difficulty in moving money from China to where they are listed.

PMI Not Growing

Manufacturing has not returned to China as its labour cost base has risen. This has resulted in PMI figures contracting based on the latest data. These again is likely due to the negative sentiments to Xi Jinping's rule in China and the lack of faith in the policies of the communist party.

With the move away from relying on China, expansion of factories are now situated in Vietnam and Thailand. This has resulted in China not growing much.

Right now, due to the mismanagement by the President over the past 3 years and companies diverisfying away from China, money is moving out to greener pastures where governments are making better policies. Sentiments towards China is bad and as a result, despite the RMB devalution, no one wants to put money into China.

Until the communist party finds a way to improve the sentiments, the valuation of its companies are going to be low. Companies like TSMC and Nvidia have flown the flag high for Taiwan while on the opposite side of the coast, the sentiments are as low as the low tide. This has made the valuation of the 5 largest companies in China lower than that of TSMC and Nvidia combined.