Gonna be away next week and I figured that if I do not put anything in writing this week, nothing will come out for at least a month. Blogging consistently this year is really going the direction of my dieting plans. Inconsistent is the word.
Correction or not? That is the question. The market momentum has slowed down significant compared to the past two months. March has been a range bound month so far and there are times which you just wonder why the market was even open for trading. We have reached some psychological resistance levels and there have not been any catalysts to push the market higher. The comfort which take from all this is the fact that the market remains resilient and the volatility has been low. Plenty of predictions on a weak April as market participants start to price in a possible "Sell in May and go away" scenario. All I know is, corrections at this point in time is healthy and I do hope it comes. Liquidity driven rallies can get out of hand and as long as there are pullbacks, it still signals some legs to run. Really have no idea when the liquidity will be drained so I am still going to continue to maintain my stance from the start of the year...keep an open mind.
Two large houses came out to call for a "sell" on bonds this week. Now that is some gutsy call because this is afterall an asset class that has thrashed the performance of equities over the past 20 years. This is what I call a generational call and it is something I believe very strongly in. In my investment life, I have never bought a single bond or even bond funds. Even though the returns have been good but I believe that bonds are a negatively skewed asset class where you do not have upside and just be happy with a fixed yield. So if nothing happens you get a coupon payment, if something happens you lose everything. Does not sound like a fair trade to me. Especially when the supply of bonds have increased exponentially this year to date, I am getting really concerned. How much did Genting Singapore raised through its perpetuals two weeks ago? S$1.8 billion. Why would a company that is net cash by more than S$1 billion be raising money with a 5.1% yield? That is because they believe that money is cheap at this moment and going forward, their 5.1% will look like a bargain. Anyway, we shall see whether this generational call will pan out or not. I am in the same camp as those guys, so lets just see.
Since my last post two weeks ago, more has been said about oil prices hurting the economy. We have even seen China raise prices at the pump for the second time in 6 weeks. President Obama has been criticized for not handling the the rise in oil prices, now he is pressurized into speeding up the Keystone pipeline approval. The funniest part of the news flow was the rumor that the US and UK had released supplies from their special oil reserves. Now the question on everyone's head is whether higher oil prices are going to hurt the fragile economic recovery we are currently in. It is really funny when you hear about how one single commodity price can hurt the global economy. Any truth to that? I am sure there are two sides to that story.
From my experience, I would like to say that rising oil prices have not hurt the global economic growth in the past 10 years. Bear in mind we saw 150 dollar oil price in 2007-08 but it was not oil that hurt us, it was the man made subprime problem that hurt us. The last time oik prices hurt the general economy was the oil embargo in the 1970s. Since then, there have not been any oil price related significant slowdown to growth. Important thing to note is the speed of the rise rather than the price it reaches. If there is a nice gradual rise over time, expectations can adjust accordingly but if there is a sharp spike, it will be detrimental consumption.
Did any of you read about the rumor of a coup in China? That was pretty funny I have to say. It did however bring some jitters in the market as netizens on Weibo (China's micro-blogging website) claim to see large numbers of military police in Beijing and the whisper was that the military had moved in to "protect" the much loved Bo Xilai. In the end, there was no truth in the rumors of such a coup. But I would advise not to take this Bo Xilai debacle lightly. What this situation has brought to light is the possibility of China's political party being split into factions. The world has attributed China's rise over the past decade and a half to political stability and the party to stay in power long enough to make long term plans and execute them. The Chinese now have to prove to the world that the stability remains and this issue with Bo Xilai is a one off and there is no deep wedge driven in between the different factions. For me, this is a very important issue to continue to watch because we should not underestimate the possible repercussions that may stem from it.
So the last few picks have started to do well. Centurion is showing some movement, Genting Hong Kong has delivered more than 25% returns (translating into 25 years of interest). Of course, my favourite Sarin and Wheelock have been doing well too. Sarin is really one that I am very proud of, considering it is the only stock I have ever written twice on. I would write a third post on it but I am worried that you guys will just stop reading the blog due to its repetitiveness. Repetitiveness is not a bad thing, especially if it has worked. You will realise that my selection of stocks has always been about valuation and the sustainability of the business. There are still more picks to come but I would advise on adding to more positions in LMA, Genting HK, Genting Singapore and Centurion. For those who love Sarin as much as I do, they can consider adding more of it. I have absolute faith in that company, so I would continue to add to it as long as they continue to lead in the cutting edge of diamond grading technology.
Genting HK's results were sterling and what impressed me most is how they are trying to reduce the share premium to prepare itself for possible distributions going forward. The cashflow generation of the company is now at a different level and I believe this is sustainable due to the turnaround in the Star Cruise ops and their revenue generator in the form of Resorts World Manila. I am looking forward to another 2 quarters of solid earnings over the next 6 months and the stock will clearly be re-rated.
Genting Singapore had a great Friday after the first two licences for junket operations were approved. I do not really care for the junkets because I felt that the stock was undervalued and underappreciated in the first place. What this is proving to be is how analysts love to go where the wind blows. Downgrading a company that generates such cashflows from operations so consistently is just being myopic. I am hoping the stock performance will prove all of them wrong. Continue to like the stock, in fact I am considering selling one of my properties to go "all in" with it. Hahaha. Now that would be radical wouldn't it. I continue to like this company and believe in its long term story.
Currently, I am thinking of a certain company that will be listing in Singapore in the near future and no it is not Cordlife. Will share more as I do more research on that company.
Till then have a great fortnight ahead.
Best,
SVI
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