Tag Archives: Stock investment

It’s time to take stock of how our stocks performed this year

Swiber, Z-FINANCIAL EDUCATION, Z-INVESTMENTS, Z-Personal Finance, , ,

At the close of calendar year 2015, the STI ended at 2882.73. And today, the last day of trading for year 2016, the STI ended at 2880.76. In effect, the STI lost less than 2 points or less than 0.07% for the year 2016.

However, if we were to slice the STI movement month-by-month within the year, it tells a different story. In the first two months, namely January and February, the STI actually fell below 2,600, down more than 10% from the beginning of the year following the uncertainties in China due to the sudden devaluation of the RMB. The free-fall that triggered the circuit breakers in the Shanghai stock exchange seemed to instil more fear than stabilising the market, causing even more selling when the market resumed. In the meantime, the oil price that reached a high of more than US$100 per barrel in 2014, had been falling throughout the year 2015 and was heading to below the $30 per barrel by January 2016. There was even a widespread fear that it could even go below $20 per barrel. Needless to say, the two simultaneous events that happened at the beginning of the year caused the Straits Times Index (STI) to dip ferociously from 2882.73 to below 2,600 losing more than 10% in less a month during January.

 

By early March, the oil price had somewhat stabilised at around $30 per barrel and made a u-turn gradually towards the $40 per barrel level. The STI that has been tracking the oil price also climbed gradually passing the 2,800 mark. However, the oil price that had been gradually falling since second half of year 2014, had already brought irreversible damage to the offshore and marine (O&M) sector. The share price of many stocks in this sector was relegated to super penny stocks when it was between 70 cents to a dollar just one to two years ago. Defaults become a commonplace for many bonds that were raised during the good times 3-4 years ago. The default of Swiber bond in the middle of 2016 triggered many O&M bond-issuers to seek bond-holders approval to re-structure the coupon payments. To date, these issues have not been fully resolved and they are likely to snowball into 2017. In the meantime, the bond defaults also spread to other sectors such as properties as well as other asset class such as perpetual bonds. Several short-term bonds and perpetual bonds that like Oxley Holdings, Aspial Corporation and Hyflux that were issued in the first half of this year had the share price fell below their respective issue price. Much to the expectations of stock investors, the surprised Britain-Exit (Brexit) in June 2016 turned out to be a non-event, at most affected a few isolated stocks on the SGX. 

 

Then, of course, the spectre of interest rate hike began to be in the forefront of investors’ mind again by the last quarter of 2016. The widely expected first interest rate hike became a reality in December after the American presidential election in early November. Shocking the political scene was the selection of Donald Trump, who was considered a rookie compared with Hillary Clinton. The interest rate hike in December as well as the expectations of more hikes into 2017 shifted the whole investing landscape. Bank shares were widely favoured while REITs and property shares lost their shine.

 

With the US presidential election behind us, it is likely that the FED has more leeway in calling the shot. Consequently, the fear of more interest rate hikes will continue to haunt investors going into the year 2017. REITs and property developer counters are likely to continue under pressure, although there could be a possibility that the government eases the property curbs especially when the economy is not functioning as expected. Although interest rate hikes are a great boost for banks’ interest margin, it is only good at the beginning of the interest rate cycle. Economic performance and non-performance loans are likely to put a lid on the banks’ profit margin going forward. In effect, the upside on the share price of banks may be limited unless the economy, on the whole, turn for the better going into 2017. Yields, be they bond yield, perpetual bond yield or REIT yield will continue to edge higher in anticipation of more interest rate hikes. This means the bond/REIT price is likely to stagnate or even experience downward bias if FED starts to be more aggressive in hiking up the interest rate. Although many REITs managed to re-finance and to resolve their loan issues for year 2017, they may start to feel pressure again into the years for 2018 and beyond.

 

Whilst the oil price has passed the $50 mark per barrel recently, it is unlikely to go very far beyond the $60 per barrel mark as shale oil is likely to supply aggressively into the oil market, thus putting a ceiling on the oil price. This means that oil rigs and peripheral industries such as OSV suppliers will still not benefit in the short term. Apart from the need for oil price to reach at least $70 per barrel level, it needs to remain sustainable at that kind of price level for at least 9 months before the oil giants can convincingly decide on investing in offshore exploration. This means that the profit visibility is still dicey for the oil and gas counters in general listed on the local stock exchange for the year 2017. For the other commodities, it appears that the worst is over after retreating in the last few years. However, it appears that the stock prices have already run up recently. Thus, I do not expect much upside unless there are some game-changing developments, which could tilt the balance in either way.

With that, let’s look forward to another interesting investing year!

 

Disclaimer – The above write-up is purely the opinion of the author, and it does not constitute an advice to buy or sell the mentioned stocks or the sector. Readers, who buy or sell stocks based on this article, are fully responsible for their own action.  

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Personal finance – Don’t forget about stocks

Z-FINANCIAL EDUCATION, Z-INVESTMENTS, Z-Personal Finance,

Two weeks ago, Singapore was knocked out of the Suzuki Cup, lost two games and drew one. As usual, there were always criticisms especially when we lost, but one of the comments seemed to be extremely common among the critics that we had been playing too defensively. In the first two games, we played defensively because we played with 10 men in the first game and then a much stronger team in the second game. By the time we are in the third game, we no longer found comfort in defending, and when we started to get into the attacking mode, we find our defence too weak to hold the opponents. It exposed our weakness. We ended up in a loss of 2-1 in the game. What lessons can we draw from these football matches. If we have been playing too defensively in these games, the best result is a nil-nil draw. If we are not careful, we can even lost the game, just like what we experienced in the second game when we lost 1-0 to Thailand when the goal came only at the 89th minute. Just like in football matches, playing too defensively in our personal finance may not help us. If we keep saving all the time without any form of investment, we will find ourselves working extremely hard, especially in times of in inflation just like running against the track-mill. (This is also illustrated by my below-mentioned book.)

 

There is also another group of people, who just want to bank on that the market tank to 1800 before starting to invest. Of course, it is possible even if the probability is only 1%. The stock market may hit that in the coming years. However, if we were to look at the our stock market history, we only encounter two occasions that the market tanked more than 50%, during the Asian financial crisis and the global financial crisis. The period between the two of them was about 10 years. Most of the time, a drop of 20%-30% is considered very, very significant. At a current level of 2,900, it would take another significant drop of 38% to hit 1800. Think about this. At the level of 2,800/2,900, I would consider our economy doing badly. If it really gets to a level of 1800, then our economy must be really, really bad. Under that kind of circumstance, I am not sure we have that fortitude to invest. It could mean that any counters, even blue chips, could be in danger of going bust. Furthermore, if one were to think of buying in a big way when the ST Index reaches 1800, I am very sure there are many people out there also think likewise. Consequently, there are bound to be people trying to outsmart the market by taking a position before it reaches 1800, say at 1900 or 2000. So, the point here is that it gets more and more difficult when we try to time the market when it is very far from what we are now. Frankly, in our whole lifetime, we don’t really get many times that the stock market tanks 60%. If it comes, let it come. We do not need to time the market in hope to get a big upside while missing out many smaller opportunities that can happen from time to time. In fact, when the stock market really drop by 60%, we may even be the unlucky few to put our money into those companies which are about to fail.  

At the end of the day, just invest wisely and consistently. Every small step that we take is one step nearer to our long-term objective.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.