Investment Portfolio Updates- 19 June 2019 (Market Rally In the Face of Imminent Global Recession?)

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The see-saw ride in the global markets continues since my last portfolio update in April’19 with no clear end in sight. The US levying of tariffs on China and a swift retaliation from China leads to a tumbling of many blue-chip companies listed on the Singapore Stock Exchange. However, over the past 2 weeks, the market had rallied strongly despite weakening macroeconomic fundamentals. “Defensive stocks” such as Singtel and REITs have also seen their prices shooting up like a rocket. The surprising aspect of this is that while the Federal Reserve has given some indication of halting of interest rate increase, this does not mean cutting of interest rates but more of mere hinting. Still, the global market rally on optimism that interest rate cuts are definitely coming which will save the global economies.

One point to note, as per the last global financial crisis in 2008, is that defensive REITS or telecom companies will also be adversely impacted by a global recession and their price will also drop drastically albeit at a slower pace than the blue chip counters. The current trade war has already led to slowing down of trade and also higher goods and services prices in US and China. We are already seeing more and more bad news emerging with regard to the status of the global economies. To side track a bit, this time round, I am not sure whether we can still classify Singtel and Starhub as defensive in nature in view of the declining profit margin of their telecom and Paid TV business segments.   

The bulk of my investment portfolio is held in the form of REITs (approximately 69%). However, I am not particularly excited about the current June’19 general rally in REITs prices. I do not have a crystal ball that can peek into the future to know whether this is the perfect time to sell and then wait for the prices to plunge if the global economies really sink into a global recession in the 2nd half of 2019 in order to re-enter into the market to exploit market timing. I have seen too many cases over the past few months whereby a lot of enthusiasts exited most of their REITs investments while waiting for the calamity to befall the human race but sadly, they would have missed out on the quarterly dividend stream and also recent rally in prices. My preference would be to collect the dividends and if the market really tanked, to aggressively raise cash level to buy up any undervalued assets.

Also, I decided to put in my small amount of NTUC Income shares- which I kept forgetting previously- into my portfolio tracker to handover to my next of kin for further action if I ever get into an accident. The only regret which I had was not buying more of the NTUC Income shares before the management call for a halt in new shares issuance to policyholders. The bad thing about NTUC Income shares is that its unit price is always fixed at S$10 per share in the event of resales to another party. 

Some quick highlights of the main adjustments I made over the past 2 months:

(1)        Participated in the rights issue of Fraser Centrepoint Trust

Got my 589 units off the non- renounceable preferential rights issue and on top of that, I found myself lucky to be allocated a further excess rights subscription of 1,511 units. Hence total 2,100 units @S$2.35. Compare to the market price of S$2.59, this is an effective S$500 discount to the current market valuation.

(2)        Accumulated additional units of Netlink Trust and Keppel DC REIT

Netlink Trust has shown good earning capability while Keppel DC REIT has very long leases with its tenants (WALE 8 years).

(3)        Sold off part of Starhill Global REIT

Took profit. Orchard Road concentrated malls are exposed to higher recession risk due to dependence on tourists instead of local consumers. This is to reduce my exposure as I already have significant exposure from Paragon via SPH REIT in view of the worsening economic conditions. My preference is on suburban malls due to local high-density living and relatively controlled supply of retail spaces.

(4)        Sold off most of my Perennial Holdings

This is currently my worst performing investment. I think it is severely undervalued as most of its China concentrated projects are still work in progress and the market slapped it with a super high-risk premium. The recent financial results announced in 2019 is also horrendous with high financing cost of City Hall Capitol buyout of stakes from another major shareholder (to end longtime partnership dispute) as well as slow ramp up in occupancy. Redeployed the cash from disposal into the rapid growing SingMedical group.

(5)        Accumulated additional shares in SingMedical Group

Please refer to my recent posting here. In addition, I noticed that a number of directors have either purchased more shares directly or purchase additional shares via exercising their share options.

(6)        Purchased additional units of FIRST REIT

Accumulated additional units of FIRST REIT when its prices dropped below S$1 per unit. Sponsor Lippo Karawaci has already completed rights issue to raise cash. Also, once the divestment of the shopping mall from Lippo Karawaci to Lippo Mall REIT is completed, it should further shore up the financial position of Lippo Karawaci to avert rental default of FIRST REIT at least till end of 2020.
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