Notes to myself: Chinese low bond yields and share prices.

 Source: https://x.com/JeffWeniger/status/1823125112326926751

On Cash Changes, Samsonite, Noah Holdings and Yuexiu Services

Cash Changes

Have converted a portion of USD in IBKR to SGD, so as to hedge against USD depreciation. Withdrew the amount and deployed them as followed:

- Half in Manulife SavvyEndownment - 3 year guaranteed 3.4% pa

- 30% to subscribe to this month's Singapore Savings Bond which gives 3% pa for 10 years

- 20% to Moomoo Cash Plus (drop to 3.3% in 7-day yield)

The first two deployment helps to lock in 3+% for longer duration. The last deployment is to park the cash in SGD money market fund for future use. 

Samsonite Noah Holdings and Yuexiu  Services

Sold my Samsonite position at around 10+% loss, as I decide to deploy the funds elsewhere. The funds are used to buy Noah Holdings and add on to my position in Yuexiu Services.

Both Noah Holdings and Yuexiu Services are trading below its net cash holdings. 

Koneko Research has a good piece on Noah Holdings: https://konekoresearch.substack.com/p/noah-holdings-chinas-largest-private

Yuexiu Services (6626.HK) is a China SOE providing property management services. Its 1H 2024 results was released yesterday. Revenue and net profit grew by 30% and 12% respectively. Declared interim dividend of $0.10 HKD per share; payout ratio was 50%. 

Earlier in May 2024, it announced the intention to buy back 2% of its shares. In June and July, it bought back around 0.2% of its shares. Given its current market cap below its cash holdings and its actions to share its profits with minority shareholders, I have increased my position in Yuexiu Services. 

On Reits Leverage

 Based on The Edge report, Keppel Pacific Oak US Reit (KORE) management noted that 35% leverage is not viable. Instead, US Reits standard is 40% for decade.

Well, based on Nareit report, US reits leverage  (debt to market assets) are below 35% since 2012. 

Souce: https://www.reit.com/news/blog/market-commentary/us-public-equity-reits-insulated-mortgage-market-turmoil

This implies that 35% leverage is sustainable. 

However, most S-Reits have leverage ratio >35%. More leverage implies more fees and more funding to take on more assets from their sponsors. 

Hongkong's Link Reit is internally managed and had kept its leverage ratio below 25%. (5-year leverage ratios are available at here)

While higher leverage may potentially provide higher DPU (when interest rate is low), I would prefer lower leverage ratio to avoid regrets down the road. 

On Tencent, China Aviation Oil and Samsonite

Tencent drop 3.3% in US, after it announced 2Q 2024 results -- y-o-y growth of 8% in revenue, 27% in operating profit and 53% in net profit. 

China Aviation Oil reported its 1H 2024 results -- 20% growth in revenue and >100% growth in net profit. But its share price dropped by 1.5cents to $0.865.

Seems that sentiment for China stocks is quite bad. Good results, yet stock price falls.

Anyway, I increase my position in China Aviation Oil, in view that there will be more people flying in and out of China and hence growth in its trading revenue. 

Samsonite reported flat sales growth. In its earnings transript, it guided negative sales growth in Q3 and 1-2% growth for full year. Share price dropped > 12% today; PE ratio is at 8.2. 

In its earning transcript, it noted that 
- China is trending down less premium brand i.e. Samsonite and American Tourister; 

- China retail space had freed up. It is trying to get good locations to set up shops for its premium Tumi brand
- In India, American Tourister is its main product. Its sales had dropped due to competition. In medium run, it will try to steer customers to its upscale Samsonite brand.  

I have a position in Samsonite and will continue to hold the position, given the current PE ratio. Its sales while not great should stabilise in long run. I put in a bid at lower price of $17.90 but may not be filled. 

SRS, CPF OA transactions

 My SRS and CPF-OA are accounted seperately from my stock portfolio

SRS Transaction

Sold entire UOB position on 5 Aug 2024. Turn pessimistic on SG banks, as US Fed rate may be cut starting Sep 2024. 

On the funds from the sale, I am undecided on whether to put them in Singapore Savings Bond (SSB) or Cromwell Reit. 

CPF-OA Transactions

I had monies coming back from the maturity of T-Bills. Had bid 1-year T-Bill at 3.5% ecently but it was unsuccessful.

Also sold AEM at a loss of $1.56. I am scared off by the drop in price. Probably should have cut loss earlier. 

The funds are deployed to 

- NikkoAM-StraitsTrading Asia ex Japan Reit ETF (CFA) at $0.775. Reits will benefit from the upcoming US Fed cuts

- NikkoAM SGD Investment Grade Corporate Bond ETF (MBH) at $0.769. 

I did not use the funds to buy T-Bills, as its yield (on the last 6-mth T-Bill) dropped to 3.4% and the yield may dropped further, if US Fed interest rate drops more in future.

MBH ETF should provide 3+% interest for sometime, given its weighted duration of 5.6 years. Furthermore, its price may benefit from decline in SG interest rate.

Also recently sold index fund holding (Infinity Global Stock Index C SGD), bought using CPF-OA, a few years ago. The monies have not returned to CPF-OA yet.

On US Fed Rates

Current Fed rate is 525-500. Based on CME Fedwatch, Fed rate may decline by 1% at end of the year. I am not certain if Fed rate will decline by this extent. To be conservative, I assume 0.5% cut by end of the year and probably another 0.5% cut by mid-2025.

Source: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

On US GDP numbers

Bloomberg economist, Anna Wong, has an interesting twitter thread, showing 1Q 2001 GDP growth was  2.0% initially and then revised down to -0.6% 4 quarters later. 

Source: https://x.com/AnnaEconomist/status/1820894752759541778

She has an subsequent post (https://x.com/AnnaEconomist/status/1820922117518442501), saying that policymakers need to consider that the economy is slowing down more than the data appear. 

(Of note, 2Q 2024 US GDP growth is 2.8% annualised now.)