Wolf Money(portfolio update for end Aug 2023)part 2
Lone Wolf Fund(LWF)
Portfolio as at end of Aug
1.) Cash
Commentary
Wall Street was feeling the weight of its gain from July with substantial correction in early August. The comeback towards the end of the month reduced much of the losses. Our market had a weak month, index was down around 4.5%. The Reits market was feeling the impact of high borrowing costs with many local Reits experiencing high single to double percentage losses in distribution income per unit. With the slowing economy in Singapore, the second half is likely to see the full impact of the high borrowing costs and increased vacancy rates. The upward adjustment of cap rates in some problematic commercial real estate segments might be imminent given the substantial drop in npi. The adjustment will have a negative impact on assets held under books and potentially impacting the share price of Reits further. Singapore Inc had a tough month too. Many companies reported much lower earning during the course of the month. The culprit, high borrowing cost, couple with the slowing economy, Singapore Inc will be in for some rough time. Property sales is weakening with some developers experiencing slower sales. In recent month, I observed a marked slowdown in economic activities in Singapore. Malls and CBD were less crowded. With the slowing growth in China, the US economy will be exposed to a slowdown in other parts of the world, which is going to be bad news for its elevated stock market.
Sabana Reit made the headline this month with shareholders voting out their current manager for an internal one. Managers with poor record of delivering returns for reit holders will be watching the event unfolding with great nervousness. A successful exercise by Sabana Reit to internalise their manager will set the alarm bell ringing for those underperforming reits. Coup d’état is on the card for those under-performers. Calls by Reits holders in those underperforming Reits to internalise their Reit manager will intensify. Is it a good or bad move by Sabana Reit to control their destiny? No one knows. Whatever the outcome, it will go down in SREIT history as the trailblazer of internalising its manager. It will changed the fundamentals of the Reits market forever if they can pull it off. I wish the shareholders of Sabana Reit well. Shareholders’ activism wins the day.
The new phase of US-China trade war had started. Biden administration are looking to ban US funds and individuals from investing in sensitive sectors in China. The targeted area included but not limited to semiconductors and AI. This will have a far-reaching impact on China’s tech sector and its capital market. Whether the Chinese like it or not, US still leads in terms of depth and maturity in the capital market. The Chinese capital market is probably decade behind in achieving the same ecosystem similar in depth and breadth. Without the external capital, Chinese tech reliance on Chinese government funding will be critical, making some private tech firms look and feel more like SOE. The US-China trade war is likely to be felt by both capital markets.
On the local front, there was an article on BT sharing the same concern I had about our stock market, coincidentally CNA aired its Money Mind program “Is boring good” for our local stock market? Executives from SGX were passionately defending about the advantages of investing in our stock market, anchoring it’s as a safe haven. I couldn’t agree more on the merits of investing locally. No foreign currency risk is one merit. Home ground advantage is another. I respect SGX’s views but one shouldn’t mix boring with underperformance. It is perfectly fine for any stock or stock exchange to be boring and performing. The last situation any investor wants to be in is a stock exchange that is boring and underperforming. It has been 16 long years since our market index reached 3900 in 2007 with 124 companies heading for the exit during the past 9 years and the total market cap sliding more than 15% from just under a Trillion in 2014 to around 820b during the same period. I totally agree with the commentator on the good performance of our local bank stocks over the past decade. Sadly, one can’t see our stock market performance in isolation based on the performance of the three local banks. There were those “Not So Blue Chip Anymore Membership Club” of SPH, Noble Group and Former Sembmarine to deal with. Comfortdelgro, SingPost, SingTel and StarHub were trading at a much reduced price from its glorious years. If one doesn’t invest in local bank stocks, the returns would have been subpar or even negative. Three banks don’t make a market. Does it look anything like a safe haven? That notion is debatable. If our market can’t make hay when the general market conditions were generally more conducive and favourable over the past decade with Trillions of liquidity sloshing around, I fear the worst for our market going forward when market conditions were less conducive. No one should get into any illusion that our stock market is performing to its full potential. I like to see policymakers walking the ground more regularly, talking to brokers, corporate finance, lawyers and deal makers to get a sense of where we are now. WFH needs to start now. Work For Higher valuation needs to start right away.
The recent changes to the delisting rule is a good start in creating a fair and more equitable stock market for all. I give credit to SGX for taking steps to protect minority shareholders from any undesirable offer to delist their company cheaply. It will prevent companies from heading the exit for a while. The perceived lack of liquidity and an undervalued market have to be addressed in totality. We need the pull factors to attract companies to list in our exchange. The push factor of tightening listing rules can only go so far. I wish the stock exchange well. I am rooting for you to get it right. God Bless 🙏.
Boustead Singapore
Lone Wolf Fund received a nice dividend from the good people at Boustead Singapore in Aug. Thank you. Vietnam’s economy had a nice rebound from the 2H22 slowdown. Vietnam remains a choice destination for MNC to diversify their China exposure. Vietnam’s recent growth after covid was unique, very little debt were added to fund overall growth. The government had been cautious in undertaking too much debt given their painful encounter with the devaluation of Vietnamese Dong many years before. Vietnam’s finances remain in the pink of health where debt to gdp is just under 40%, one of the lowest in Asia. The current foreign account surplus is more than double of external debt. Vietnam’s growth story is one of good quality growth that is not fueled by debts. Foreign direct investment went up 4.5% in the 1st half. The Vietnamese government has been very prudent on spending big on infrastructure. Unfortunately there are downside risks from all those penny pinching. Power generations are insufficient to support their economic growth. Some factories were told to operate half of their capacity to save on electricity due to warmer summer months in Hanoi. Boustead Singapore has a JV with KTG to build and operate industrial parks in Vietnam.
There is also good news coming from the energy engineering business. The company announced a $31m contract to supply once through generators for a FPSO operating in Latin America. The contract is going to have a positive impact for FY24. Order book currently stands at $587m.
Cash
I had applied more SSBs due the good yield. The rest of the capital is sitting in some high interest account.
Summary
Lone Wolf Fund experienced some corrections in Aug due to Boustead turning XD and the overall weakness in our market. LWF’s return is down 1% to 5.5%(excluding dividend and cash yield). LWF received 2.5c from Boustead Singapore. LWF’s return for the month would have been positive if dividends were included.
I sold YZJ Financial after the spike, trying to understand the company is beyond my bandwidth, especially what was going on in China lately with Evergrande seeking bankruptcy protection in the US. The Chinese government had so far steered clear of any big stimulus. For the long term, it is the correct policy. Bailing out reckless property companies will give rise to more risky behaviour. The last thing the Chinese economy wants is to go through another Japanese-style economic stagnation. The harder the economy fall, the stronger it rebounds. If there are no bust, there will be no boom. There will be some hard times in the Chinese economy for the next year or so. Some sectors like tourism and oil & gas are likely to experience better growth than others.
Given the seasonal weakness from Sept to mid Oct, I will adopt a wait and see attitude. The bargain hunter might get hunted instead. I fear the dreadful “Bargain Hunter Killer Market”. Till we meet again. God bless!
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