Recent purchases of SG and HK Stocks

Singapore Stocks Purchase

1) HK Land

Bought tiny amount of Hongkong Land at $4. The thinking is to get some 5.5% dividend while waiting for price to recover. Now HK Land is at $3.74. Will wait it out but not adding, as I am aiming to buy other shares.

2) Mapletree Industrial Trust (MIT)

My first purchase of MIT. It was bought using CPF OA funds at $2.19. The thinking is to earn higher yield compared to CPF OA and T-bill while waiting for share price recovery when interest rate subside in future (hopefully).

3) United Hampshire Reit (UH Reit)

I already have UH Reit since last year. The recent purchase is at 0.43, adding on to my earlier position.

The thinking is that the reit owns stable subhurb / strip shopping space rented to grocery / neccesities outlets (i.e. low rental risk) and pays >10% dividend at current price level. So I will get decent dividend while waiting for share price to recover when interest rate subside in future (hopefully).

4) Keppel Pacific Oak US Reit (KORE)

I bought KORE earlier at $0.36. Adding a bit on to earlier position at $0.30. Its 1H results release later this week.

KORE owns US office but at better locations and probablly the buildings are more well-maintain (but this leads to higher upkeep cost.)

This is a higher risk play given the weak demand for US office space. Nonetheless, its better located and well-maintained offices should mitigate the weak demand to some extent.

I am aiming for higher dividend, albeit at higher risk.

HK Stocks Purchase

5) China Construction Bank (CCB) 939.HK

China banks share prices in HK have declined since its ex-dividend date. The share prices are near its Oct 2022 lows. China banks provide quite decent dividend at 8%-9%, after accounting for 10% dividend withholding tax. My thinking is to get the dividend while waiting for share price recovery.

Why CCB? I have bought CCB before in 2017 and hence is more familiar with it. My position is small, as I am buying the next one.

6) China Tower 788.HK

Trades at 15 PE, based on aastocks.com. Not cheap.

China Tower has 1 core (tower business) and 2 wings ( Smart Tower and Energy).

In its recent earnings call, the management notes that some towers will be fully depreciated in 2024-26 and hence its profits will be higher then. With higher profits, its dividends should also rose. Hopefully the earnings recovery will lead to higher share price in 2024-25.

Conclusion

Looks like my recent purchases are mainly dividend + share price recovery play (i.e. get dividend and wait for share price to recover.)

Comparing Local Banks

Recently, Prof Aswath Damodaran has an video on banks valuations. In final part of his video, he compared US banks using serveral indicators in a table.

I compared our three local banks using the indicators in his table. I did not include the '% of assets held to maturity' as there seems to be little info on it in our local banks' statement and it is probably not material.

From the table, OCBC seems to be cheapest among the three banks, while DBS seems to be dearest due to its higher ROE (or growth). 

If I am interested to buy the cheapest bank, I will probably look at OCBC . Nonetheless, I am not buying bank shares now. 

Thoughts on UH Reit, KORE and Cromwell Reit

 United Hamsphire US Reit (UH Reit)

I started buying last year and added more recently.

Jun 2022	Initiate a position of X shares at USD$0.61
Aug 2022	Dividend of USD$0.025, 4.77% yield on $0.61
Aug 2022	Collect the dividend in shares at USD$0.55 price
Mar 2023	Dividend of USD$0.0297, 4.86% yield on $0.61. Incl Div in Aug2022, total 9.6% dividend yield
Mar 2023	Collect the dividend in shares at USD$0.485 price
Apr 2023	Add X/2 shares at USD$0.465
May 2023	Add X/2 shares at USD$0.43

My thinking is UH Reit holds mostly properties anchored by neccessities/supermarket. These tenants have long lease duration. Hence, its rental income is stable.

The downside is rising US interest rates. And the annual rental increase is likely small.

Its 2023 DPU should be lower, due to rising interest rate. This is likely priced in its current price. If interest rate continues to rise, its DPU will continue to fall. If Fed cut interest rate, its DPU should rise.

Keppel Pacific Oak US Reit (KORE)

Aug 2022	Sold all KORE position at USD$0.65, at slight loss
Mar 2023	Initiate a position at USD$0.37

It's an US office reit. As many know, US office reits are in trouble due to falling physical occupany, falling demand, higher interest rates and tighter lending requirements for CRE (Commercial Real Estate). People expects more trouble for office landlords down the road i.e. slow moving train wreck. 

The upside is that the above issues are likely priced in at its current price. If things are not going to get worse than expected, the current price is pretty ok to me. 

The downside is that things can get worse than expected. 

I will keep my position at KORE small, so that if prices fall further without permanant issues, I can add more. If there are permanent issues with KORE later, the losses will be kept small due to small position size.

So far, KORE office properties have held up better compared to MUST and Prime US Reit. 

Cromwell European Reit

Have not bought into it. 

Similar to US reits, it is facing rising interest rates. Unlike US Fed whose rate tightening is likely ending, the ECB interest rate is expected to keep rising given high Euro inflation and its interest rate is not as restrictive as US's.

We see how rising interest rates affect US reits last year. I expect that rising Euro interest rates will affect Cromwell similarly. 

Cromwell should be interesting to look at, when ECB rate tightening cycle is ending. 

Next decade to be emerging markets'?

I am thinking that the next decade may be the emerging markets's. That is, emerging markets (EM) is likely to have higher returns than the developed markets (DM), as the pendulum favors EM again.

 Source: MSCI

The above shows the performance of MSCI EM vs MSCI World. The 10-year annualised returns for EM is abysmal 2%, compared to MSCI World's 8.9%. Looking at longer term from end Dec 2000 till end Mar 2023, EM annualised return is 7.6% vs DM's return of 5.7%.

As markets move in cycles, EM is likely be due for some outperformance in next decade. (Of course, I may be wrong.)

In last post, I mention EMVL (iShares Edge MSCI EM Value Factor UCITS ETF listed at LSE). It is based on MSCI Emerging Markets Select Value Factor Focus Index.

Source: MSCI

The above shows the fundamentals of the index, which has 8% dividend yield and forward PE of 5.7. 

Emerging Market Value, Anyone?

Recently, I am thinking about buying EMVL (iShares Edge MSCI EM Value Factor UCITS ETF listed at LSE). 

The ETF tracks MSCI EM Select Value Factor Focus Index. 

Reasons:

1) Regression to the mean. 

As at Feb 2023, its 5-year and 10-year annualised return is -1% and +1%. Since Dec 29 2000, its annualised return is however 9.5%. I am guessing that emerging value will do better in next 10 years, given its abysmal return in last 10-years.

(On seperate note, I am guessing that the US market may provide lower returns in 2020s, compared to the emerging markets. Because US has stellar returns in 2010s.)

2) Its value multiples are interesting. Based on index factsheet, its dividend yield is 8%, forward P/E is 5.6 and P/BV is 0.7.

3) Surprisingly, TSMC and Tencent are in its top 10 holdings

Of note, extracted from the index factsheet: 

The MSCI Emerging Markets Select Value Factor Focus Index is rebalanced on a semiannual basis, usually as of the close of the last business day of May and November, coinciding with the May and November SemiAnnual Index Reviews (SAIRs) of the MSCI Global Investable Market Indexes.

I will wait and see for now. Given the current interest rate environment (~4% in T-bills or IBKR account), the safest is still cash and there is some opportunity cost in deploying cash to buy shares. 

Selling and Buying

Have sold 60% of my stake in Booking, as I find that the valuation is a bit expensive. After sale, Booking share price rose by 2+%. Perhaps it is not good idea to sell good companies. Well, we will know about this after a few years. 

Have bought a small position in Semb Marine using CPF OA funds two weeks ago at $0.121. The current price is lower than purchase. I am looking to purchase more if price falls to $0.10. Reason for purchase is that Semb Marine's earnings should be much higher 5 years later given the upcycle/demand in wind structures, LNG carriers etc. 

It may be good to buy stocks with a lot of pessimism, but the company will have higher earnings 5 years later. 

More pessimistic about US market

I am feeling more pessimistic about US market:

1) US interest rate can go higher. 

At best, it will remain high for quite some time to subdue the high inflation rate. Many commented that high inflation rate is persistent and need time to lower it to 2-3%.

The longer the high interest rate, the more it will feed into the economy and businesses. E.g. If Company A need to re-finance its loan in late 2024 and interest continue to be high in 2024, Company A may re-finance its loan at higher interest rate than before.

The longer the high interest rate, the more drag it has on US stock market 

2) What is the likely time that US interest rates will be cut? During recession. When the economy is going into recession, earnings will decline. The declining earnings will affect US stock market S&P negatively. 

Given the above, I should maintian my high cash position and deploy the cash into fixed deposit/t-bills for next few months.

When the market corrects later and people are feeling quite negative, it will be a good time to enter the market again.