Wolf Money(Portfolio update for end January 2024)
World Reserve Currency
In world monetary history, very few currencies had the considerable clout to be called the currency of the world. From the Romans’ coins to modern day currency. The strength of the currency co-insight with the military strength of the issuing nations. Spain was the colonial power of the world from the 1500s to the 1800s. The Spanish Silver dollar was the first modern world currency due to the Spanish empire’s extensive reach from the Philippines to the remote corners of South America. From Asia to the Americas, the Spanish silver dollars were widely used. It was the currency of choice for world trade that stretched between Spain and China from the early 1600s to 1800s. The Spanish and the Europeans were in love with Chinese-made porcelain. Fine China was used as a status symbol at dinner tables by rich aristocrats and noblemen to display their wealth. The Chinese in return loved the Spanish silver as years of unregulated and counterfeit printing of banknotes caused huge inflation in China. As silver is literally worth its weight, it was well liked by the Chinese due to the ease of testing. The Spanish discovery of silver veins in Central/South Americas helps facilitate the production of silver, which allowed trade between Spain and Asia, particularly with China to flourish.
The British Pound took over the status as the world reserve currency by the mid 1800s due to the dominance of the British Empire. At the height of the British Empire, the British colonised a quarter of the world’s population. Singapore was a British subject and had its reserve mostly backed by the British Pound till the later part of 1960s. Our brilliant Finance Minister, Goh Keng Swee bought gold and other currencies, sensing the waning influence of the British pound as the British Empire was drawing to an end. The US dollar overtook the GBP as the preferred world reserve currency after World War 2, establishing a US dollar-based monetary system. The dollar were anchored as the currency of choice in oil trade after a deal with Saudi Arabia, First King, Abdul Aziz, in the 70s to use the USD as a base currency for settling oil trade in return for American protection of the Kingdom.
The weaponising of the USD in recent years has many countries worried, especially China which hold a substantial amount of US Treasuries. The trend of de-dollarisation is on a path of irreversible trend. Many countries which don’t have a good relationship with Uncle Sam seek to diversify trade outside USD in fear of US sanction. In a report by BNY Mellon, the USD still dominated the reserve currency status at 62% but the percentage in many countries’ reserves are decreasing, from as high as 72%. China’s US treasury holdings are now at a decade low. China seeks to do trade with other countries in RMB. There are rumours of China aggressively buying gold on the open market, thus pushing up the price of gold. The Saudis and Russians have been conducting oil trades with China in RMB. For the first time in history, RMB trades between Russia and China had surpassed USD-denominated trades in 2023. Will the Chinese Yuan be the de facto World Reserve Currency within the next few decades? Will America’s own goal by “abusing” its printing press hasten the changes to a Chinese-Yuan based monetary system? Only time will tell.
Lone Wolf Fund(LWF)
Portfolio as at end of January 2024
1.) Cash
2.) Valuetronics Holdings Limited
3.) SBS Transit
5.) Ping An Insurance(HKEx : 2318)
Commentary
Our stock market continues its lacklustre sentiment into 2024. The low economic growth in Singapore, had resulted in property launches experiencing poor sales, partly cause by uncertainty in the job market with retrenchment on the rise and personal bankruptcy applications reaching a 18 year high. The high mortgage rate also kept buyers out of the market. The news of developers postponing their launch caused a drop in transaction numbers. Why did the developers delay their launch? Is it because of demand, or is it their pricing strategy? The recent government land sales in Marina. The sole bidder bids at 30% lesser than a plot which was sold last year. It just confirmed developers’ weak appetite for prime land as most of those units are targeted at foreign buyers. With 60% absd for foreign buyers, demand had weakened significantly.
Given our market comprises of mostly old economic stocks in favour of hard asset investments. Any weakness in the property market can affect a wide range of industries that rely on a healthy property market. Banks, property agencies, construction, property developers and REITs will be affected. As we head into Feb reporting season in Singapore, there is a high possibility of a substantial write-down in some of the property companies, especially those who have exposure in the foreign property market. CapitaLand and Ho Bee have warned of asset write-offs in the upcoming reporting period due to rising cap rate and lower demand. Huge write-offs affect the financial ratio of the company, which may lead to the listed companies showing balance sheet stress going into the market for a cash call to boost their balance sheet.
Boustead Singapore
The company’s exit offer for Boustead Projects was done with 99.45% final acceptance without the ability for the company to invoke the compulsory delisting rule. They are just a whisker away from doing it. The stock was firmer due to more certainty about its privatisation offer drawing to a close. Hopefully the combined company can give the desired outcome of higher market capitalisation. Boustead was a cent higher.
SBS Transit
The rail ridership in Dec reached 95% of the pre-Covid level in Dec. The work from home trend which I initially feared, didn’t take a stronger root in Singapore as I expected. The public transport company and office landlords might have dodged a big disruption bullet in Singapore. The WFH trend has plunged many market around the world, affecting office leasing, retail and travel patterns. The company will be reporting full year result by the end of Feb. SBS Transit was marginally up for the month.
Valuetronics
There was nothing new to report for Valuetronics except the company has been actively buying shares in open market with highest price paid of 59.5c. Valuetronics was up 1.5c for the month.
Ping An Insurance(HKEx: 2318)
The valuation of Chinese companies under a normal economic cycle are very cheap. Is China in a normal economic cycle? That is up for deliberation. I bought a token sum for HKEx listed Ping An Insurance. I have no idea whether the price I got was a good price. It does look cheap on paper like many other Chinese stocks. The financial matrix looks fine. The stock is trading at 0.55x p/b to about 5x p/e with a high historical dividend of 9% and ROE. A corrective stock market is negative for them, given insurers within their normal course of fund management business are exposed to the volatility of the stock market. I am expecting a very difficult year for the company given the slump in the stock market. The small purchase adds another sector and diversification to my portfolio. The latest wave of corrections in the Hong Kong market started at the end of Jan last year. It is in its 12th month. A typical bear market can last from 12 to 18 months. I am in with a small nibble to get a feel of what is going on in the Chinese equity market. No serious money is involved. There is a wave of frugality trend emerging in China, saving money is now considered as a good role model. More people bought insurances to save up for raining day. Insurance sales have buck the trend of achieving growth last year, given the uncertainty surrounding the Chinese economy.
I am interested in getting my hands on a couple of more well-established Chinese names, but there are a couple of lingering questions on my mind. First, the world’s top mutual funds are dominated by American and European funds. If the US government imposed capital restrictions on sensitive industries like Tech, AI or any capital flow into Chinese stocks in general. That will effectively stop large amount of liquidity coming into Chinese stocks, which form the bulk of buying that can perk up the Chinese stock market. Can the Chinese funds alone support the share market? I don’t know. So far, the huge stimulus has not been forthcoming from the Chinese government and for a good reason. The rumour $278b stimulus looks big on an absolute basis, but it is only a drop in the ocean given the 6 trillion losses suffered over the past few years. The magnitude of the $6 trillion losses in Chinese equity mirrored those in the dot-com bubble crash in the early 2000s.
The CCP are not in the business of saving the stock market. Their plate is full given they have to prioritise fixing the property market slump with millions of homes undelivered for those buyers that had paid for it. There are needs to support other parts of the economy too. Any big stimulus can cause pressure on the Chinese yuan. Now my question is, does saving the stock market more important than risking a currency crisis? I have no answer. The flip-flopping of some policies also add another layer of challenge when navigating their market. The above considerations have put me off from buying more Chinese shares. Although I am far from optimistic about the Chinese market in the short term but the current slump might represent the entry point of the decade if the right companies are bought. I hope to keep my pessimism in check. 2c worth, just one of my many internal thoughts when I consider the right investments for Lone Wolf Fund.
Summary
As the Chinese Lunar New Year approaches, there is likely new optimism and hope for HK and the Chinese equity market to do better in the coming year. Both market are grossly oversold. For people believing in the Art of fengshui, 2024 will be the year of the Wood Dragon. There is no fire element in the zodiac except for the usual fire in the spring and summer months. Fire element represents stock market joy in fengshui. The fire element will be returning in the year of the snake next year. In the meantime, the waiting game for Chinese equity turnaround continues while I read Alibaba and the 40 thieves to my son, emphasising the need to read the story in full.
The US market continues its bullish momentum with the S&P 500 index adding another 1.6%. As for the Singapore market, many investors had their youth stolen by the market with index experiencing another 2.5% correction since the start of this year. It has been 17 years since we hit the high of 3900. 17 years is a long duration for any investor. I hope common sense will prevail to turn around our stock market soon. If nothing is done to address the slump, lost decades could turned into a lost generation for Singaporean investors which our counterparts in Japan had experienced during their last 35 years slump before the recent upturn in their stock market. I hope we don’t have to wait that long for our market to make progress. Lone Wolf Fund got on to a positive start, portfolio was up 1.5% (exclude dividend and cash yield) for the month due to advances in all LWF’s portfolio stocks. Ping An Insurance was the new addition to the portfolio. The stock enjoyed a strong debut in LWF.
It is always pleasing to start the new investment year with some green. A war is not won with a single battle but many small battles. There will be many difficult battles ahead, one need to prepare for any situation which may throw anyone off balance. Having the right tool during critical times is essential of doing the job well. During downtime, sharpening tools and preparing for war is important to improve one’s chance for a favourable outcome.
工欲善其事，必先利其器
To do a good job, an artisan needs the best tools (idiom). Good tools are prerequisite to the successful execution of a job
I wish all my readers a Happy Lunar New Year. Wishing all a prosperous and healthy year of the Dragon. God bless. 🙏
(Free image credit: Freepik.com)
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All investments is highly speculative in nature and involves substantial risk of loss. We encourage our reader to invest very carefully. We also encourage reader to get personal advice from your professional investment advisor and to make independent investigations before acting on information that we publish. Much of our information is derived directly from information published by companies or submitted to governmental agencies on which we believe are reliable but are without our independent verification. Therefore, we cannot assure you that the information is accurate or complete. We do not in any way whatsoever warrant or guarantee the success of any action you take in reliance on our statements. All information provided are for education only. Buyer beware,do you own due diligence.
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