Monday, 8 February 2016

Markets aren't really crashing, they are normalizing

As much as I think its an extremely bad habit to make predictions on the global outlook/sentiments because

1. you are most likely to be wrong
2. unless you fancy yourself as a global macro trader, there are too many links before your call can affect your stock price (global outlook -> industry outlook -> country outlook -> stock earnings outlook -> stock price)

But, it is fun because for a brief moment I can sound like an 'expert' as the guy who is in the serious business of making money with little or no effort (and also with little or no substance)

1. The problems aren't new, just sentiment has changed
The 3 reasons that have been quoted endlessly on why the market is falling have been
1. China slowdown
2. Falling oil prices
3. US interest hikes

The problem is that all of above were already present in..... 2nd half of 2014. China didn't 'suddenly' slowdown, neither did oil prices 'suddenly fall', and there has been so many articles  analyzing the fed's move and Janet Yellen's words, that these people seriously need to get a life.

No, the big problem is that people are slowly waking up to the thought 'wait why am I paying premium valuation for stocks when the outlook is so gloomy?'

2. About that 'bear market' in the U.S
We are getting closer in technical terms (-20%), the S&P and NASDAQ is already down mid-teens from its all time high. Let me repeat, all time high. Even with the market bloodbath the past month, its still trading AT its 5-year P/E average.

3. About STI's world beating performance
Yes the STI is at 5-year lows, but as stated in the previous post
http://investproperlyleh.blogspot.sg/2015/09/make-sure-you-know-what-sti-etf-is-all.html
thats due to the heavy sector weightage towards, Offshore marine, banks and telcos, which each have their individual problems.

4. This unfortunately means stocks are not cheap enough.
When I mean cheap, I mean recession fear levels where every stock gets beaten down due to sentiment even though its unrelated to the global economy. The problem is that it hasn't happened yet to Singapore OR the US

Singapore
Comfortdelgro (still trading above its 5-year average P/E, -5% this year, hardly a move)
Raffles Med (down 20% in 6 months, and its still trading at......35x P/E)
Sheng Siong (has not budged from 85 cents for almost a year)

US
If you bought into 'momentum' stocks, then I can't help you there. On the blue-chips front, even though stocks like JNJ, Coke, Disney, 3M, PG, Visa have fallen in-line with the market (Well, I mean thats almost half of the Dow) its still trading wayy above its historical averages.

5. Going forward
Any fun market outlook post, isn't going to be complete without fun predictions, here's some of mine

Buy Oil at $30 Sell at $35 or whatever 10-15% gains you are happy with.   
You can do this by buying U.S oil etf's (USO US) or heck even keppel corp or those smaller O&M names. My simple dumb reasoning is

1. Oil is finally forming another support (not bottom, but support). The same thing happened when it was finding its support on $40 and bumped back up to $45 (on middle east troubles, less inventory than expected etc etc)

2. We are finally starting to see mega-mergers in the oil arena, horrible profits and shutdown on rigs.

3. Simple dumb math, if you think oil has a higher chance to go to $40 ($10 gain) than $20 ($10 loss) go ahead

Sell when you see an STI pop
The markets aren't really volatile actually. They're only volatile when you compared to the previous abnormal 2 years (when the banks were easing the market). This current volatility is quite normal-ish which is good news to sell out of some of your STI ETF holdings. 

The banks and keppel corp are going to take a looong time to recover from China slowdown and Oil(which isnt going back up to $60 anytime soon). Get rid of them when there's a pop, put your money elsewhere, or.... you can do the normal retail investor thinking of ('keppel and dbs won't die what, just hold until price recover and collect the dividends lor). Whatever works.
 
Cheap hiding places
Singtel and keppel DC reit, Genting 5.125% perps are the only 3 cheap hiding places i can identify, if you cant stomach the volatility, these counters would fit perfectly due to

Singtel  (Diversified portfolio + 5% yield)
Keppel DC reit  (Data centers, stable compared to office, hospitalility and logistics +6.8% yield)
Genting perps (almost trading AT par. Casino's also have strong cash flows, I mean all they do is to build a casino and sit back and collect cash, no inventory, no R&D, and even with the china tourists slowing down, its still has a pretty big war chest of cash)

4 comments:

  1. Hi Don't anyhow,

    Good logical article! I nod nod nod most of the times as I read on!

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