Two weeks into US Reciprocal Tariffs

Two weeks have passed since President Trump's announcement of reciprocal tariff on 3 Apr. And many things have changed since 3 Apr, due to Trump's subsequent announcements.

Currently, electronics goods, pc and smartphones are exempted from the reciprocal tariffs (a change from previous stance). The market may rally on this news on Monday. 

Trump's tariffs are like cha-cha dance; two steps forward, one step back; two steps forward, one step back. 

It's been very tiring to keep up with the tariffs news and its impact on my stock and non-stock holdings.  Given the great uncertainty in US tariffs, I decide to focus less on the tariff news and just wait for things to settle. 

The markets may bounce up and down. It may recover from there or fall further. It does not matter. 

I may miss out buying quality stocks at good prices. I may buy quality stocks when their prices fall to my buy point. It does not matter. 

I just stick to my buy plan; does not matter if my warchest is not deployed. At this moment, 50% of my assets are in equities. So I still benefit, if the market recovers. 

Besides buying quality stocks at good prices, I will change my focus to buying non-US stocks on business that focus on domestic demand. Such business will not be directly affected by the uncertainty of tariffs. 

Seperately, it seems that US treasuries and USD are no longer the 'safest' assets during market crisis, given its drop during Thursday and Friday. I will hold my spare cash in SGD (and not USD) in future, even though the interest rate for SGD is lower. 

Lastly, S&P PE is around 19x NTM PE currently. This is not cheap, relative to its 20-year history (see https://x.com/MikeZaccardi/status/1910819472291639692)

Current Market Crash

The current market crash reminds me of 2 songs:

This is what you came for (by Calvin Harris and Rihanna)

散了吧 It's over (by Terry Lin)

Now, I guess that I'm done selling almost all the positions I don't want to hold throught this crash. (Never, say never though. I am sell if I find myself short of cash or the holding turns out to be more affected by US tariffs than I thought.)

Moving forward, I am waiting for prices to drop further. I will start to buy the quality stocks in my watchlist, in tranches, as their prices dropped to my buy point.

If President Trump does not pivot on his tariffs, the market may be in the doldrums for quite some time. There are potential negative events such as:
- EU imposing tariffs on US

- US re-retaliating tariffs against China / EU

- US impose new tariffs on semicon, pharma, copper

- US entering recession 

- Fed not cutting rates due to high inflation (arising from tariffs)

- Unknown negative events (e.g. Who predicted AIG going under in early 2008?)

I will be very sparing in firing my bullets in this market downturn. 

Safest Asset during Great Depression

There is a very good book on the Great Depression in 1930s - 1940s. The book is 'The Great Depression: A Diary' by Benjamin Roth. 

The book is actually a diary of events during the Great Depression. The author was a lawyer. He 

had months with no income during Great Depression. 

From the book, what was the safest asset during Great Depression? 

It is the treasury bonds (i.e. government bonds). 

Other assets such as equities, corporate bonds, farmland, houses have lower prices. Cash in 

banks may face withdrawal issues during bank runs. 

Another interesting trend during Great Depression was that it become fashionable to save more 

and spend less. People compared with each other on how much they save. 

What I will do during Market Downturn

Raising Cash Level

During market downturn, especially at the start, I will raise my cash level by selling lower quality stocks (even at losses). For this time, I also sell the stock if I am worried by holding the stock, as I prefer to sleep soundly. 

The raising of cash is to increase my warchest for deployment, if the market downturn worsens and quality stocks in my watchlist hit my buy prices. 

I never sell my equity holdings to $0, even during 2008-09 Great Recession. This is because I never know when the market recovers. If I have zero equity, I may miss out the subsequent market upturn. 

Buying quality stocks when they hit my buy prices

I would buy quality (or relatively safe) stocks when their prices fall to my buy prices. I will buy in tranches e.g. First tranche is bought at $X price. Second tranche will be bought 10-15% lower. Third tranche will be bought 25-30% lower. 

For example, during 2020, I bought UOB at $24, $22 and $20. (Note: For this downturn, I am not looking at Singapore banks now, as I prefer to buy SG banks at 1x book value or lower.)

My thinking

My equity portfolio will continue to lose money, as the downturn continue. I will hold the stocks that I want to hold. 

When I buy any stocks during the downturn, the prices of these bought stocks may continue to go lower and I cannot buy at the bottom.

I do not know how long / deep the downturn will be. 

Marco view

I expect the market downturn to continue for some time. S&P peak is at Feb 2025. I don't expect to see any market bottom soon. 

Based on the book 'The Long Good Buy' by Peter Oppenhiemer, event-driven bear market last average of 7 months and has average price falls of 30%. Structural bear market last average of 4 years and has average price falls of 50%. 

On Trump's policies, I think that he is serious in having tariffs to raise revenue for US government. He wants to see lower 10-year Treasury bond yield, as US government has a lot of debt maturing from 2H 2025. 

Mar 25 Update

Purchases

SBS Transit: Bought a small stake at $2.65 in using SRS and CPF-OA

Its regular dividend has increased and at $2.65, the yield is 7.6%. In addition, it has lots of net cash in its balance sheet. The nature of its business (bus company in Singapore) is stable. Given the limited pool of stocks for SRS and CPF-OA, it's a suitable stock for my SRS and CPF-OA. 

Best Mart: Added to my minor stake. Buy price is $1.79

Added more, as it continues to provide >10% dividend, while limiting it's business to Hong Kong and Macau. 

Stella International: Bought a minor stake at $17.40.

I sold it earlier in January at $17.40. Now, I am buying it again, as its dividend (including special dividend) is close to 10%. It will be giving out special dividend of $0.56, likely for three years as part of its capital reduction plan. 

Yangzijiang Shipbuilding: Bought a minor stake at $2.39

Its share price has fallen from $3.30, after US wants to charge up to $1.5m for China ships entering US ports. As China shipbuilding is around 50% of global shipbuilding capacity, there's no way of avoiding such charges. 

Currently, Yangzijiang's order book is 6.5x of its annual revenue. As such, its near-term revenue is relatively secure. At current prices, it's trading at around 8x PE, with 5% dividend, >20% ROE and net cash in its balance sheet. 

Sales

Henlius: Sold all my position at $28

It's trading at higher than my sale price now. I sold it because it's trading at >70% higher than my cost price and I don't really understand the company well. It's safer to sell when the price is high. 

Booking: Sold half my position at $4,800

I decide to reduce position first, because there's increasing likelihood of US entering recession and travel will slow down during recession. I still like Booking and may buy it back at lower prices. 

Tianjin Development: Sold all my position (which is a minor stake) at $2.01 - $2.02

I sold it after its results release, because

-  I am disappointed with its low 28% dividend payout ratio when it has lots of net cash in it's balance sheet

- I want to increase my cash holdings / warchest, so that I can buy more US stocks if US market falls further. 

Yuexiu Services: Sold half my position at $2.92

I am slightly disappointed with its results and I want to increase my cash / holdings.

Current View

US market is in a downturn. I am waiting for US market to fall further, before buying those stocks in my watchlist (e.g. Booking, Alphabet). 

S&P 500 correction

 S&P 500 went into correction territory today, falling 10.13 from its peak.

- Interesting that this correction did not spread to other countries. 

- Currently, P/E ratio of S&P is 26.4 (Source: Gurufocus). Not cheap

S&P 500 show declines with each new or unexpected new Trump tariffs. 

This reminds me of the market in 2008, where market extended declines with each new negative surprises. The market starts to stablize and then bottom in early 2009, when there is no further negative surprises. 

As such, I guess that US market may be in for bumpy ride in April too, as President Trump annuouced the details on reciprocal tariffs and the affected countries retailiate against such tariffs.  

Next, there could be a maturity wall in 2025 and beyond (source), where a lot of US bonds / debt will be maturing. 

US govt would like to issue new bonds (to repay the matured debt) at low interest rate and at longer tenor than Treasury bills. Hence, the new US administration is focusing on lowering 10-year bond yields.

How do you get lower 10-year govt bond yield? 

- If there is higher probablity of recession, the 10-year govt bond yield may go lower, as money flocks to safe haven such as govt bonds in troubled times

- If there is lower fiscal deficit in future, 10-year govt bond yield may go lower.

To me, the current policies of US administration are trying to acheive lower 10-year govt bond yield.

Feb 25 Update

Purchases

Meituan: Bought a minor stake at $150, due to exercise of sold put options

My view on Meituan is found in earlier post.

Trip.com: Added more at $65 (before 4Q results release) and $60 (after results release)

It's a direct play on Asia online travel agency (OTA), which should see continuous growth in coming years, as Asian countries become more well-off and increase their travel expenditure. 

Marco Polo Marine (listed in Singapore): Start a small stake at $0.053. 

- It should see better earnings in 2H 2025 onwards, as it leases out its newly built CSOV (commissioning service operation vessel) and its 4th shipyard in Batam starts to contribute to proifts. The higher income should lower its 2026 PE to 6.x times.

- Downside is that offshore marine industry tend to have uncertainties / unforeseen events. 

- After buying, I realise that I may have bought at too high a price for my liking. Will keep the stake for now. 

Bosideng: Start a stake at $3.88. 

- China brand on down jacket / apparel, with brands for mass market and high-end

- At acceptable valuation with ~6.7% dividend and possible growth of 10% annually over next few years. 

Sales

LVMH: Sold my minor stake at ~$700. 

- Sold probably because luxury sales may be flattish in next few years, given weak China sales, slowing EU / US economy. 

Dream International: Sold a minor stake at $5.70 to lower my position size. 

- I am probably worried that US may impose tariffs on Vietnam one day. Thus I reduce my position a little. Dream Intl has factories in Vietnam.

Oiltek: Sold half of remaining stake at $1.30 to take profit

- Still has 1/4 of my original position left. Will let it run and wait for its 1H 2025 results

Sino Land: Sold all my position at $7.88. 

- A minor profit, as cost price is $7.50

- Sold to raise cash to buy Bosideng. 

China Aviation: Sold all my position at $0.885 (around my cost price)

- Sold after its poorer than expected 2H 2024 results and disappointing dividend payout. 

- While it has low valuation (EV / EBIT < 1.5), I prefer it to provide higher dividend payout and not hoard its cash and do nothing. BP owns 20%; yet it allows CAO to pay disappointing dividends. This suggests that BP is not good in capital allocation; which explains partly the disappointing BP results in recent years. 

Macro Thoughts

Deepseek's release has improved investors' perception of China tech stocks. The future trajectory of China/HK stocks will depends on the upcoming China NPC meeting in March. If there's more supportive policies to boost China consumption, we will see more sustained positivity around China/HK stocks. 

Meanwhile, US President Trump seems to use tariffs to raise tax revenue for US government. As such, we are likely to see more US tariffs on China as well as other countries in 2025. This increases uncertainties in global economic growth for 2025 and 2026.