Why TPG Telecom Is Not A Threat To The Incumbent Telcos In Singapore?

The telecommunication industry is set to change in the near future with the fourth telco, TPG telecom starting business in 2019. However, I don't think this will be a threat to the incumbents in Singapore and I will tell you why in this post. Previously, I spent 6 years in the telecommunication industry working as a telecommunication engineer. Deploying mobile networks was bread and butter for me and I know this industry inside out including the challenges of setting up base stations all around Singapore just to provide the coverage that is needed.

TPG Telecom announced on 19 March 2018 that it will be launching its first mobile product aimed at seniors aged 65 and above, offering several free perks for them. TPG said it will offer this group of customers a SIM card, 3GB of monthly mobile data and unlimited local calls for free for the first 24 months. This is actually a good move to get customers on-board. However, I would think those who subscribe to the new telco will face a risk of poor network coverage. Why is this so?

Why TPG Telecom Is Not A Threat To The Incumbent Telcos  In Singapore?

Mobile Coverage

TPG telecom has to provide outdoor street level coverage for 4G within 18 months from the start of the new spectrum rights. This should be done by December 2018. However, do note that this is only for outdoor coverage and not for indoor coverage so the mobile coverage is expected to be weak in buildings and underground premises all around Singapore.

Under the spectrum rights, they are only suppose to meet 85% of In-building coverage by 1 Jan 2020 and 99% MRT underground stations coverage by 1 Jan 2022. Imagine subscribing and paying for your mobile phone bills and realise you can't use your phone in your office building, shopping malls and while you take the train? This is a scenario which is highly likely.

Outdoor street level coverage

Before I go into In-building and MRT underground stations coverage, let me talk a little bit about outdoor street level coverage. In order to deploy a mobile network which covers outdoor areas, mobile base stations have to be built and connected to an antenna which transmits and receives signals. These base stations are mostly deployed at roof tops of HDBs, private residential buildings as well as commercial buildings all around Singapore. It is said that TPG has to secure spaces for 3000 base stations in order to meet the network coverage required. This deployment will not be cheap or easy at all.

From my own experience of deploying mobile base station, many roof tops in Singapore have already limited spaces to deploy these mobile base stations. There is constantly a need to seek approval from relevant authorities and private building owners for this. There are also requirements to meet safety standards so the antennas cannot be deployed just anyhow. The challenge is there and I'm not sure how TPG is able to deploy their network in such a short time with existing spaces on roof tops of buildings already taken up by the incumbents.

Furthermore, base stations and antennas are not cheap. I will not reveal the actual cost of these materials but from what TPG said that they are predicting to spend between $200 million to $300 million for the rollout of its mobile network here, I really think they will most likely over spend on this budget.

For your information, according to M1, their fixed asset cost for network and related application systems already cost $517M as at end Dec 2017. This is almost double the budget of TPG telecom. For Singtel, they indicated that they spent $150M just to upgrade their network from 3G to 4G a few years ago. In my opinion, TPG telecom's budget of $200M to $300M seems too low to deploy a new mobile network in Singapore from scratch.

In-Building coverage

For in-building coverage, it is even more complicated thus the reason why the authorities gave more time to meet this network coverage. In order for mobile coverage to work in buildings, TPG telecom will have to build a base station inside the building itself and lay cables and indoor antennas all over the building just to provide the mobile coverage. You can look up the ceiling of buildings in Singapore and you'll notice some small cone antennas which has the sticker Singtel, Starhub or M1. These are the antennas of the incumbents and the reason why we can use our mobile phones inside the building.

The deployment of mobile coverage inside buildings is a tedious job. Because of the need to lay cables practically on all areas of the building, the job process is long and costly as well. This can only be done at night when the office building or shopping centres are closed. It takes a few months just to complete one building in Singapore. For bigger buildings, it can take up to a year. Can you imagine how many buildings are there in Singapore?

Singtel has a video to explain how mobile network coverage is deployed in Singapore. You can watch it here below:

MRT underground stations coverage

The next level and the most difficult is deploying mobile networks in MRT underground stations and the tunnel itself. In my work experience, it is practically hard to get the mobile network to be deployed in the MRT underground tunnels. The reason is simply because there is limited time for the company to work in the MRT underground tunnel network.

Most of us should be aware that there is major MRT infrastructure upgrades all across Singapore. There is limited maintenance engineering hours because the MRT runs all the way to midnight and starts early in the morning. As such, there is early closure and late opening of the MRT operations since the end of last year just to cater more time for MRT infrastructure upgrades.

The priority will always be given for MRT upgrading works and track access is always controlled by the operator themselves. I am of the opinion that TPG telecom will have a hard time deploying their mobile network in the MRT tunnels as they compete with the MRT upgrading work projects and the limited hours available. The incumbents took many years to upgrade their mobile network from 3G to 4G in the MRT tunnels and some parts are still not ready yet even until now.

It is unlikely that TPG telecom can have much mobile coverage in the MRT tunnels itself.


Another failure in the making?

It will be tough competition for 4 telcos to exist in Singapore altogether. Especially for the 4th telco, it is exceptionally hard to operate in Singapore itself. In the past, there was also another fourth telco in Singapore but it failed and exited the Singapore in 2001 just 1 year after it started. This company was Virgin mobile.

Besides that, a lot of mobile virtual network operators (MVNOs) have already started their business in Singapore. Some of these operators are Circles life, Zero Mobile, Zero1 and most recently My Republic also announced they will partner with Starhub to start their mobile services. How is TPG going to compete in an already saturated market?

Because of the impending entering of the fourth telco, shares of Singtel, Starhub and M1 were depressed for quite some time now. When Singtel shares went lower to $3.40, I accumulated more along the way and it is currently the largest stock holdings I have in my portfolio. I believe Singtel will be the less affected by the fourth telco even though there are other things to consider when investing in Singtel such as its weaker overseas business.

Ultimately, let's see how the telecom industry develops in Singapore. The future will speak for itself when the time comes.

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How The Weaker Singapore Dollar Affects Our Life?

By now, most of us would have realised that the Singapore dollar is weakening especially against the US dollar. 2 years ago, the exchange rate for USD/SGD is $1 US dollar to $1.22 Singapore dollar. Today, it is close to S$1.40 per US dollar. In laymen terms, this means we who are in Singapore, would require more money to buy the same US goods 2 years ago.

It was reported last week in the news that the Singapore dollar outlook is worst since the Asian Financial Crisis. The Asian financial crisis in 1997 was one which many people in Asia would remember. Stock markets plunged, currencies devalued to extremely low levels and jobs were lost. So how will the weaker Singapore dollar affect us this time? Will we see another Asian financial crisis?

When I was in University taking my degree in Economics, I had to research and write on how MAS conducts its monetary policy in Singapore. Currency movements certainly have impacts in our economy and it will surely affect our lives as we use money every single say. The depreciating of the Singapore dollar definitely signifies that something is happening. How bad and how long is still unknown.


An Asian Financial Crisis all over again?

The Asian financial crisis was triggered by the depreciation of the Thai Bhat and it quickly affected other major currencies in Asia including Korea, Indonesia, Malaysia and also Singapore. In the chart below, it shows the USD to SGD exchange rate. As we can see, the Singapore dollar depreciates against the US dollar during all major financial crisis. The 1997 Asian financial crisis was the worst as seen by the spike followed by the 2008 global financial crisis and also the recently sovereign debt crisis which saw the European region having trouble.

Chart of USD/SGD from tradingeconomics.com

Fast forward to now, it seems like the Singapore dollar is depreciating at a much faster rate than the 2012 sovereign debt crisis and almost similar to the 2008 global financial crisis now. The depreciating of the Singapore dollar just means that more people are selling the currency than buying it. This was partly driven by the data showing the slowdown in China, Singapore's largest trading partner. Investors confidence in the Asian region is shaken.


Why the Singapore dollar is depreciating?

The Singapore dollar has been strong for the past few years in an effort to combat inflation. Singapore adopts an exchange rate policy instead of an interest rate policy. This has been the case since 1981. The primarily objective of this policy is to maintain price stability and sustainable economic growth. The appreciation of the S$ dollar in the past has made it more expensive for foreigners to buy Singapore’s assets and at the same time increase export prices thus slowing down the economy and bringing down inflation.

Inflation has slowed down significantly and MAS said in January that it will slow down the appreciation of the Singapore dollar too. This has led to the Singapore dollar depreciating to what we see now. However, we have to note that our neighbours currencies are depreciating at a faster rate than us. Malaysia and Indonesia both have their currencies weakening for the past few months. If our currency stays strong, we'll lose our export competitiveness as goods in neighbouring becomes cheaper for international buyers.


How the depreciating of the Singapore dollar affects us? 

A strong local currency indicates a strong economy with high productivity growth and high savings rate. A weaker local currency indicates the opposite. The US economy is recovering and money is definitely flowing back into the US now. Apart from all the economic theory, let us take a look at how a weaker Singapore dollar will affect us directly?

Higher prices of import goods

With a weaker currency, importing goods from other countries especially the US would become more expensive. Singapore's top few largest trading partners includes China, Malaysia and United States. While our currency has depreciated against the Yuan and the US dollar, Malaysian Ringgit has depreciated at a much faster rate than the Singapore dollar.

A lot of us in Singapore also like to go online to buy stuff and some are businesses based overseas. A lot of these online shopping websites which are based overseas use the US dollar as their base currency. It'll be more expensive for us to do online shopping now.


Property Price Drop

Property prices in most Asian countries have been rising over the past few years. Singapore too was one of the hot property market places. When the market was bullish on Asia and bearish the U.S. dollar, the Singapore dollar did exceptionally well. Now, its the opposite. 

Property prices will drop mainly due to the increase in interest rates. The spike in interest rates is attributed to expectations of further currency weakness. Think of it this way, when Singapore's currency is expected to weaken, it reduces the attractiveness for people to buy Singapore government bonds. Interest rates need to be pushed higher since investors need more incentive to hold onto the local currency. 

During the Asian financial crisis in 1998, property prices dropped about 40% over a one year period. The government of Singapore also took drastic measures to cool the property market in May 1996. If those cooling measures were not implemented prior to the crisis, it could have been worse. Currently, the Singapore government has also implemented cooling measures to cool the hot property market. I would be expecting property prices to drop further as its only the beginning now. 

Interest rates have been rising but still at a low currently. As seen below, the increase in interest rates has always been accompanied by a drop in prices of properties. Interest rates (3 month SIBOR) have risen above 1% as at 24th March 2015.

No matter what happens, we can always be prepared for any situation which is to come. Being prudent in our finances, having emergency funds set aside and not taking on too much debt would ensure that we do not get into serious financial problems. 

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All About Oil Prices - Who Suffers or Benefits?

The recent drop in oil prices has caused the market to become volatile again. Oil prices have dropped from a high of $100+ to a low of $40+. That's more than 50% drop so far. Those who drive will notice that petrol prices are cheaper now. Instead of seeing the digit $2/litre, we start to see it at $1+/litre.

Crude oil is the most important natural resource of the industrialized nations. It can generate heat, drive machinery and fuel vehicles and air planes.  Its components are used to manufacture almost all chemical products, such as plastics, detergents, paints, and even medicines.

The drop in oil prices seems good for most of us. Petrol prices become cheaper, electricity will become cheaper also. To know which countries will benefit and which countries will suffer because of the drop in oil price, we have to look into which are exporters or importers of oil. Those countries who import most of their oil will benefit while those countries who export most of their oil will suffer.

The 1970s Oil Shock (Price Increase)

Right now we're seeing a drop in oil prices but what if the opposite happens? In the early 1970s, oil prices more than doubled from about $4 to $10 and caused chaos in some countries. One such country was Japan. Japan imports almost all of its oil for consumption and they were badly affected. The government even made a statement that their country would run out of oil in 4 days during that time. The whole country had to save electricity by turning off lights on the streets and buildings also shut down every alternate lifts they had.


The 1980s Oil Shock (Price Decrease)

Fast forward 10 years later, from 1980 to 1986, oil prices declined from a high of $39 to a low of $12. That is a 70% drop in oil price. The rise of Asian economies was evident during the late 1980s and the 1990s as lower oil prices increased industrial production. Saudi Arabia, which is one of the largest exporter of oil, suffered because of the falling oil prices. They did cut their oil production back then but this lead to 16 years of budget deficits that left the country deeply in debt.

Crude oil price chart

What is happening to oil prices now and how it affects our investments?

It seems like history is repeating itself that oil prices have dropped more than 50% now. As investors, we will want to know what is happening so we can better position ourselves in allocating our investment capital.

Let's take a look at some net oil exporters countries which will likely be affected by the fall in oil prices:

Russia

Russia's economy is heavily dependant on oil exports. In fact, oil and gas accounts for 70% of its export income. Russia's currency, the Ruble, has fallen more than 50% against the US dollar. This prompted the central bank to increase rates to 17% in order to limit the negative effects of the depreciating currency.

Malaysia

Malaysia derives 30 percent of state income from energy exports. Malaysia currency (Ringgit) has also fallen substantially. Most of us who live in Singapore will know the exchange rate of the Ringgit and a lot of people have went on to exchange more Ringgit to spend in Malaysia.

Saudi Arabia

Saudi Arabia has the world's largest crude oil production capacity and is the largest exporter of total petroleum liquid in the world. Recently, the previous king of Saudi Arabia passed away and caused a spike in oil prices as investors bet on a change in the country's policy to reduce production of oil which can lead to an increase in the price of oil again. This is how powerful its production capacity and exports are.


Now, let's take a look at some net importers of oil. These are the countries who will most likely benefit from the decline of oil prices:

Japan

Japan is the third largest net importer of oil behind China and the US. Previously, Japan suffered badly when oil prices rose substantially during the 1970s to 1980s. In 1985 when the oil price started to decline and crashing in 1987, Japan still could not recover due to its strong YEN that stalled its economy.

Today, Japan has embarked on an aggressive monetary policy, dubbed Abenomics. This has caused their currency to depreciate  which lead to a boost in exports. With oil prices falling, this will benefit the country as they can import oil at a cheaper rate. Of course, the depreciating currency will offset some decrease in oil prices but I think overall it should still be good for the Japanese economy.

I've invested substantially in the Japan market since last year. You can read my previous post here: The Japan story - Croesus retail trust and Saizen Reit 

China

China may be the largest or second largest net importer of oil before or after the US. It was said that the decline in oil prices now is partly due to the decreased demand of oil from China. It is hard to know what exactly is happening in China. Recently, its stock market also slumped more than 7%. That is a scary decline. I'll choose to stay out of any investment in China until I know what is happening.

European Union

The European Union has been suffering slow growth ever since the sovereign debt crisis in 2012. With the EU importing most of its oil, lower prices will certainly lead to an increase in economic output.

India

India imports 75% of its oil. With its account deficits, lower oil prices will help to ease it. India has also been going through many economic reforms to spur growth.


Industries that will benefit from lower oil prices

Industries that rely heavily on oil for transportation will benefit from the lower oil prices. Airlines and Shipping industries are two examples of it. Previously, airlines and shipping companies have suffered a prolonged period of slow or even negative growth for the past few years when oil prices were above $100. There may be a turn around soon for these companies.

Oil affects all of us and affects the profits of various companies. Having a little knowledge of oil will help us in our investment decisions in times like this. There are also opportunities that we can look out for in the oil and gas industry. Stocks of companies in the oil and gas industry have fallen significantly for the past few weeks. This is a good time to accumulate good companies at undervalued prices. But before you invest in these companies, make sure the company's balance sheet is healthy and they can ride out the tough times. Many companies will go bankrupt during bad times and the few strong ones will emerge out even more successful. Invest wisely and safely.

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A stock market bubble?

We've heard that there is a property bubble in Singapore as well as other parts of Asia like Hong Kong, China etc. How about the stock market? Is the stock market in a bubble too and where will the market head from now onwards? Last week, US markets declined greatly with the Dow Jones down more than 300 points on Friday. With this, Asian markets today also followed suit with major stock market indices on a decline. I have to ask myself this question:"Do i stay invested or do i sell away my stocks". Will the stock market crash? These are the questions which many people would ask.

For me, i cannot predict the market. I also do not care where the market will go from here. Trying to predict the next direction of the market is liken to fortune telling of a person's future. In other words, it is almost impossible. It is also worthless to always wanting to predict the future while you do not do anything to your current circumstances. It's like a poor man trying to predict if he will be rich in the future but does not do anything now. I hope you get what i mean.

I sense that the market sentiment now is still on a wait and see attitude. Many people want to invest only when everything is good and rosy. Among my friends and relatives, very few of them are in the market also. When there are discussions on the stock market, many are afraid of losing money and investing at the wrong time. To me, there is no perfect time and it is futile to time the market.

So if I do not care about the future direction of the market, what do i care about? As a shareholder of a company, i'm interested in the business prospect of the company. I want to see the management keeping their promise, managing the company well and increase shareholder's value. It doesn't matter if the stock price goes up or down unless the fundamentals of the company changes. This is the key point we must focus on.

Singapore has embarked on a series of major infrastructure projects among those are the on going new MRT lines which will continue till 2030, the new changi airport 4 & 5, the new marina bay CBD. Will Singapore stop all these infrastructure projects in the near future? The most probable answer is no. Investing in those companies might be a good choice.

US tapering and interest rates at record low? In the current situation, interest rates can only go up as it cannot go lower any more. The obvious choice is to stay away from interest rates driven sector like companies dealing with properties. The Singapore government really does seem determined to keep property prices stable. A correction is expected if not more people are going to complain that prices are too expensive.

Japan's government on the other hand is determined to inflate their prices with a 2% inflation target. With huge amount of capital injection into Japan's economy, we expect to see prices going up and hopefully this will end the decade long deflationary economy which they have experienced since the 1990s. To ride on this, investing into Japan's property might be a wise choice. Rental of retail spaces as well as residential spaces might also increase as the economy recovers.

Looking at individual company's business is a better choice than looking at their stock prices. Stock prices goes up and down and it doesn't matter as long as the value of the company doesn't change. If the stock price does decline while the company's value remains the same, it is a good chance to accumulate more. The important thing is to buy the company at reasonable value relative to its stock price. For example if i know the company has this amount of assets and cash and i can buy this company at a lower value than what it is actually worth, i would have found myself a good bargain. We all like discounts don't we? We do not have control over the stock price or market movements but what we can do is to use the bad mood swings of Mr Market to our advantage.

Not many people are investing in stocks now. I don't see the uncles and aunties at the coffee shop talking about the latest stock tips and sharing their experiences of making huge fortunes in the market. It doesn't seem like there is a stock market bubble at all when it's not hot at all. For the property market, it's another story. What once happened inside the showrooms was scary as people snap up units after units of million dollars condos. Perhaps some of you have experienced the euphoria of the crowded showrooms. This euphoria will come to an end soon. In fact, it might actually have ended.


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How has the STI performed in 2013 so far?

It's already the end of October now. Only 2 more months to the end of this year. So how has the markets performed so far? 2012 was a good year with the STI up about 17%. How about this year so far? A chart tells the whole story

The first arrow shows the STI performance in 2012. The second arrow shows the performance in 2013 so far. The conclusion? The market has been flat. All the gains in the first half of 2013 were wiped out in just one month and till now, the market has been flat. 

My portfolio has been flat too except for the one US stock which i bought that doubled in value. For the SG market, the returns are very minimal except for the average 5%-6% dividends i'm getting. 

Let's recap. The wiped off were mostly due to the fall in REITs. I've blog about the REITs phenomenon where almost all the reits fall at the same time here. This is due to the fact that the Federal reserve may end QE soon and cause interest rates to rise.

I still keep to my believe that interest rates will definitely rise in the future. No matter how long they delay the end of QE, it will still end. It is a matter of time. Property is still hot in Singapore. Reits were also hot in the market. This will end soon. Very soon indeed. Even our minister says property prices will not keep going up. Have you prepared yourself for what is about to happen? 

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Shipping sector on a recovery

I've posted before that the shipping industry may be on a recovery. First post was on June 20 here and second post was on July 14 here.

I've wrote about the Baltic Dry Index (BDY) and how it is related to the shipping industry. In simple terms, the BDY tracks the cost to transport raw materials. The higher the cost, the higher the index. A higher cost to transport means shipping firms get to earn more on each route.

The BDY has risen by another 25% since the first time i posted about it. Look at the chart here. Dry bulk shipping stocks have already anticipated the move and is on the rise now.

Manufacturing data from the US, China and the Eurozone is showing expansion also. Demand for goods is picking up.

There are 2 shipping stocks listed in the US that have already doubled in price.

The first one is Dryships (DRYS). From a low of 1.49, it has risen to about 2.88 now.

 The second is Diana shipping (DSX). From a low of $6.20, it has risen to about $12.50 now.

How about shipping stocks listed in the Singapore exchange? I've not seen any major movement on shipping stocks listed in Singapore yet. Maybe this would be an opportunity to buy them now at low prices and anticipate the move up. I will never know what will happen. It is purely a speculation. 

Speculation or not? I'll still be watching out for shipping stocks now. There are pretty good fundamental shipping stocks like marco polo marine. Singapore owned NOL may benefit from the recovery also. A caution is NOL has been struggling for many years and we won't be sure whether they can come out of it. 

Let's see what will happen by the end of the year. It is the time to research and watch it carefully now. 

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Market update - Substantial rise in treasury yields

Update of Treasury yields in the US

2yr Treasury Yields - 0.51%
10yr Treasury Yields - 2.98%
30yr Treasury Yields - 3.88%

What do these numbers means? A rise in yields implies a fall in bond prices. If you have investment in bonds,  most likely you'll see a drop in your portfolio value. Short term yields have already more than doubled from 0.24 to. 0.51.

This also means that interest rates are rising. Those with floating rate loan packages will feel the effect of higher interest rates. If you have substantial loans like housing and car loans, do take note of the impact.

The good news is a rise in interest rates usually signify a economic recovery. Money is flowing out of bonds(which is considered a safer asset) into equities and other more risky assets.

Dry bulk shippers have bottomed out from its low and have risen substantially the past one month. Baltic dry index (BDI) is also rising indicating an increase in shipping freight rates. Will Singapore shipping stocks start to recover as well? This will need to be monitored further.

Reits and property stocks will be negatively impacted by the rise in interest rates. Reits generally have high debt to service ratios which means they borrow a substantial amount of money.  Higher interest rates will impact a reit's profit.

There may be an adverse effect as some Singaporeans are overleveraged on debt. Some with debts of more than 60% of their income. Will there be more loan defaulters and bankruptcy? That we'll not be sure and need to see how the situation develops.

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China Minzhong acquired by PT Indofood. Share price shoots up by 112%

China Minzhong has gotten out of its pit. Its trading halt was lifted today and from a low of 0.53, it shot up to 1.12. Reason was because it got an offer from PT Indofood to acquired its shares at 1.12. China Minzhong has offered its shareholders a mandatory cash offer at an offer price of 1.12.

Previously, a negative report by Glaucus Research caused it share price to drop by more than 50%. This caused fear to investors who own China Minzhong shares as they see their portfolio value plummet. There were rumours that China Minzhong could be forever suspended and shareholders could never get back their money. There were many S-chips or so called china stocks which suffered that fate so its understandable that a fear is there.

So what does a mandatory cash offer means? It means all shareholders have to sell their shares and the company will buy it at a price of 1.12. You can sell it now or wait for the mandatory cash offer letter to be mailed to you and accept the offer.

I've received one mandatory cash offer before and it was by the company sakari. It was known as straits asia trading beforehand. It does feel good to see your stocks jump up in value. How to know if a company will be acquired? I have to say there is no sure way to tell but investing in undervalued companies increases the probability by a lot.

Learning how to pick stocks is the best knowledge that you can acquire. In fact, by learning how to analyze a company, i've picked up skills in business management and economics. I've also learnt the skills of accounting. There is so much to learn in the investing world. One can never get bored of learning and lifelong learning is one of the keys to success. It is not just about making money but its about a journey towards financial freedom.

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What is happening to the market?

I'm back from my holidays and time for me to start writing again. It has been a good trip and Taiwan was really fun. Every country i go to, i'll notice that each has its own culture and national identity. You could recognise who are the resident people there. Apparently, it is most obvious from the way they talk. Taiwan people have their own style and tone of chinese. China people have their own different set of style and tone of chinese. Even Singaporeans have their own style of chinese. One common language but different identity.

Just only one week of my holidays and the stock market has declined so much. Today the STI is dropping more than 50 points. Am i worried about my current stocks position? I would say i am not. I could still enjoy my holidays even though i saw the markets declining (well, i still checked the stock market when i'm overseas). This year, i've not invested a lot of my capital in the markets. I still have money to buy in when the opportunity arise. Thus, if it keeps on dropping, i can still accumulate more.

Yesterday, the most talked about stock was china minzhong. It dropped 50% and caused trading to halt on the counter itself. What is happening to this stock? There is a report by Glaucus Research accusing china minzhong of financial irregularities. How true is this report? I have no idea and i'm sure every investor will be clueless as well. We'll have to wait for the official explanation by china minzhong themselves. I do not have any shares in china minzhong as of now. Will i risk to accumulate shares of it? If i calculate my risk appetite, it could be worth it to risk a small amount of money to buy into it. This is money that i would be willing to lose. China Minzhong has been a good company thus far so if the report is not true, the stock price will recover quickly.

The current weakness in the stock market presents an opportunity to buy good companies at lower prices. Value investors do like the stock market to decline. When is a good time to buy? As an investor, i would say there is no perfect time to buy. Nobody can predict the bottom perfectly. You could learn some technical analysis which is chart reading to determine better entry points. But however, technical analysis has its shortfalls too. Losing money is part of investing. But you have to know why you're losing money. If you don't know why, then most likely you're investing blindly.

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Betting on a recovery?

Will the economy recover? This is something that analyst and retail investors alike have been specualting. There has been much discussions on the ending of QE in the US and this means that the low interest rate environment will end soon. It also means that the US federal reserve is predicting that the global economy will recover and QE is no longer needed. To know more about QE, read my previous post: Quantitative Easing - how it affects the economy and the stock market?

Whether the stock market continues to rise or fall will depend on the economy. If the economy recovers, companies will have higher profits and higher profits most of the time lead to higher stock prices. Investors who bought in early expecting a recovery are still waiting for that day to come. The Stock market has been rather flat this year after the correction in June which wiped out most of the gains in the first few months of 2013. REITS which had generated rather high yields for investors over the past 2 years had either declined or remained stagnant at the top with limited upside. Some investors have sold off reits to profit on the returns. Read: why reits are on a downward fall again?

I'm also betting on an economic recovery. I'm slowly buying into cyclical stocks like shipping and looking at construction companies. Food industries are on my list of investments too which I favour more on companies owning restaurants. What if I'm wrong and the economy doesn't recover? I think it will be even better if stocks fall lower so I can buy them at an even lower value. I do not have all my money in the stock market now. Still have another tranche ready to deploy if circumstances changes.

This post is written while I'm travelling back home on the mrt. Its good that we've living in an age where we can access to the internet everywhere. Information is always on our finger tips. This is made possible by mobile network technologies like the 3G and 4G LTE.This was not possible many years ago. Till then, invest safely and profitably. :)

P.S: My blog has achieved slightly more than 10000 page views since i started actively blogging 1.5 months ago in June. Thank you to all my readers for your support and comments. It has been a great journey thus far. Do let me know if there's anything I can improve on my blog.

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Volatile shipping market shows signs of recovery

It was reported in channel news asia today that the shipping market is showing signs of recovery. However, China's economy is still showing signs of slow growth therefore the recovery should be more gradual instead of a sharp recovery.

The Baltic Dry index is an indicator of the state of the shipping industry.  

Investopedia explains Baltic Dry index as:

A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed). 

The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) - Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index's composite measurement.

It is also known as the "Dry Bulk Index".


The index has jumped 68% during the first half of the year. This will benefit dry bulk shippers as they see an increase rate for each trip. 

Select Group secures land to accommodate food business expansion

Saw this news on the straits times. Looks like this company is expanding. Building a new HQ with its central kitchen and R&D centres under one roof just like breadtalk.

Qutoed from the straits times on July 12, 2013:

"Select Group has accepted an offer of direct land allocation from Jurong Town Corporation of a piece of vacant leasehold site of about 64,434 square feet at Senoko South Road.

The company said it would need more space to accommodate its increased production capacity, logistic and office support functions, in anticipation of future business expansion.

Select intends to build a multi-storey building on the site, which will house its central kitchen facility, together with a research and development centre, training test kitchens, storage facilities, cold room facilities and the company's operations and corporate headquarters.

The cost of construction will be financed through internal resources and bank borrowings."

Related Post:
Company in focus - Select Group

Analysing a company - The importance of R&D

Just ended my economics class awhile ago and there were some interesting discussions today. Some of the discussions include

1) the problems of ageing population in singapore, 

2) the restriction of foreign workers by increasing foreign worker levy

3) why singaporeans have to retire later as retirement age is constantly increasing.

All these are big topics and it has been debated for the past few years in our homeland, singapore.

So what has this got to do with our analysis of companies to invest? I think as our economy becomes more competitive and we face a shortage of manpower due to ageing population, companies need to restructure the way they do their business in order to stay competitive.

The restriction on foreign workers has impacted businesses in singapore already especially in the f&b sector, the services sector and construction sector etc. Why is the government imposing a higher levy on each foreign worker hired? Won't this increase the cost of the company and result in lower profits?

Yes, it will impact firms greatly especially those that rely heavily on cheap workers. The purpose of this policy is to increase the productivity of firms especially SMEs. In a way, it forces the company to use technology and rely less on workers. If you study economics, you'll know that for a developed country like singapore,  we cannot increase economic growth substantially by increasing capital or labour as developed countries faced a phenomenon called diminishing rate of returns. Developed countries need to grow by increasing technological change which improves productivity.  That is the direction that the singapore government hopes to steer the country into.

Technological growth is costly. Firms who can outgrow competitors are mostly those who invest in research and development (R&D). If you look at most of the successful firms in the world,  you'll realise that most of them invest greatly in R&D. Google and samsung are such examples. The amount they invest in R&D is enormous.

How about firms in Singapore?  Food and beverage firms face higher manpower cost due to tighter foreign labour policies. Breadtalk for example has invested in a new office building which they just moved into. Their central kitchen is located there together with their offices and they have a fully automated production line for their bakery in that building too. This helps to save cost for them greatly. The new building also house their R&D department which they are focusing a lot into it.

On the other hand, if a company does not constantly innovate and change the way it does its business, it may lose out to its competitors and even big market leaders like Nokia which was considered a giant in the telecom industry, is facing huge losses year after year.

We can have many ways of analysing a company and I think one important factor to look at is how much the company is investing in R&D. This will help the company to continue growing and have a sustainable business model.

Why Singapore REITS are on a downward fall again?

Today REITS listed in the Singapore stock market are declining again. This is a screenshot i took from SGX

This is getting unbelievable as reits has fallen over 20% in the last few weeks. Today the top declining reit is Suntec with a fall of 4.56% in a single day. 

Let's take a look at some charts:

They do look like they are jumping off a cliff and still in a free fall mode. All of the big names like suntec, mapletree are officially below the 200DMA which is the long term trend line. 

Why has it fallen so much? This is mainly due to the concern of an increase in interest rates in the US. In fact if you track the interest rates in the US, it has already risen by a lot. Even interest rates in Singapore are rising. REITS are highly leveraged in a sense they borrow a lot of money sometimes about 30% of their equity. Once interest rates goes up, they are faced with higher loan interest payable. Two rates to track in Singapore is the Singapore interbank offer rate (SIBOR) and Singapore Swap Offer rate (SOR). Bonds are being sold off aggressively both in the US and Singapore causing yields to go up. Bond prices and yields move in the opposite direction. 

Below is a chart of the 3 month SIBOR rate for the past 12 months ending may 2013:

This is the rate that banks lend to each other. Local housing loan interest rates track movements to the SIBOR. If this is increasing, home loans interest rates are increasing in Singapore also. Those taking up a housing loan have to watch out. Either take a fixed rate loan or take a loan from HDB which offer a fix rate at 2.6% currently.   

Below shows a comparison of the 3 month SOR vs the 3 month SIBOR:

This is the average cost of funds used by banks in commercial lending. In Singapore most banks offer housing loan packages either pegged to the SOR or SIBOR. This is like a "cost price" to them and they add a margin to earn a spread.

The essential cost of the rising interest rates globally and in SG is the potential ending of QE in US.

You can read my previous post on QE and why it affects interest rates here: 

Quantitative Easing - how it affects the economy and the stock market?

Elsewhere in the biggest asian country, China, they are facing a possibility of a credit crunch. There are fears that the china banking system may run out of cash soon and face liquidity problems. Shortage of funds cause banks to raise interest rates. China key stock index closes down 5.30% today as reported by channel news asia.

The recent market correction is an opportunity for bargain hunting of good stocks. Choose stocks which are not highly leveraged on debts and have cash to invest and ride on the recovery in the economy. Examples are shipping and industrials. In fact, banks will also benefit from the increase in interest rates as they can charge a higher interest rates on their loans and transfer the risk to borrowers. The only worry is that there will be people who will default on their loans due to over borrowing. 

I have been anticipating this interest rate movement since last year. This is a good experience for me to see what happens and learn from it.   

When will the STI rebound?

I was looking at my charts on the STI and saw some similar trends compared to the past 3 years.

The left circle in red was the decline in 2011 during the European financial crisis. The right circle in red is the decline recently.

Here are the stats:
1 August 2011 to 10 August 2011:    3215 --> 2800 = -415
22 May 2012 to 21 June 2012:    3454 --> 3124 = -330

STI has officially fallen below the 200DMA and this is called a technical bear market. When will a rebound most likely happen? Will stocks continue to decline? This is something that nobody can predict and even the best investors in the world will not be able to know. I can only make the analysis and plan my next step. I have the shorter term EMA(20 and 40) to help me decide on an entry point. The ones i circle in green are occasions where the STI broke below the 200MA and went back up again. The shorter term EMA is able to detect a trend change quite accurately for the past 2 sessions. That being said, it is still unpredictable and this is only a way of minimizing risk. Even if i buy in, i will divide my capital into 2 tranches and buy in half first when the trend changes.

3 things can happen next:

1) Stock market reverses from its correction and resumes the uptrend.
2) Stock market trends sideways for a period of time
3) Stock market crashes and goes down lower.

Remember to have a plan no matter what the outcome will be. If your style is to cut loss then do that. If your style is to buy in and average down later, then do that. Not one strategy will suit everyone. Each person has to find his own suitable strategy and implement it.

I do hope the market will go lower as its still at the top of an uptrend. If it goes lower, then the risk of buying in is even lower. Let's see what will happen the next few weeks and prepare ourselves for the next course of action.

Invest safely and have a great weekend!

Market crash or correction?

DJIA drops more than 300 points

The dow jones index drop 323 points yesterday closing below 15000. This confirms the market reaction to the Federal reserve statement to slowdown bond buying and end the QE by mid 2014. The worst hit are the banks with goldman sachs dropping more than 3.5% in a single session.

Asian markets

Asian markets followed suit with most asian indices declining sharply. Singapore's STI is down -55 points which is a 1.8% decline. Yesterday STI closed down -80 points, one of the worst session after the europe crisis. The worst drop I remembered during the European crisis was STI declining more than -100 points in a single day. There may be worst drops during the 2008/09 crisis but during that time I have not started investing yet.

The next step

So what will I be doing now? I would wait for the decline to bottom out first before I start to buy in. Using technical analysis, we can analyze and choose a better entry point. After years of research, I have developed my own plan of choosing an entry point and also an exit point. Having a plan is important as it helps me to know what I am doing and not be so affected by emotions during the ups and downs of the market. Using a combination of moving avarages (MA) and exponential moving averages (EMA), I can draw out my short term and long term plan. Typically I use the 20 and 40EMA for short term trend and the 50 and 150. When the shorter(20) EMA crosses the longer(40) EMA, it signifies a trend change. Same for the 50 and 150MA.

Technical analysis is not perfect. I choose to make it simple by just using the MAs. There are far more complicated indicators like stochastic,  MACD etc that traders use. I do not use these indicators most of the time.

I find that finding a strong company to invest in is more important.  Reading company's financial statements, analysing its business model, knowing economics and reading news is part and parcel for investors. If you can find a good company and buy at undervalued prices,  the chances of it going up is very high.

Market crash or correction? You decide for yourself.

*PS: Read on my previous post on Quantitative Easing (QE) to find out the opportunities that I discuss on.

*Feel free to leave your comments on what you think about this market situation currently.*

Singapore's PSI record breaking day and the stock market

Today Singapore's haze condition made a record breaking point. It was 290 as at 9pm and 321 at 10pm today. A reading of above 300 is deemed hazardous according to the Singapore's national environment agency. The highest was around 227 in 1997. That was a long 16 years ago. The condition is really bad with everyone feeling the impact. My facebook news feed is all about the haze condition and how people are "excited" over the record breaking history. There are people wearing mask on the streets and public transports and I guess tomorrow there will be more people doing that.

The situation now made me thought about a link to the stock market. In times when the stock market made a new record breaking high, more and more amateur investors will want a part of the game.

When the market is very hot, everyone is talking about the stock market and telling stories of how much they made through investing. Even uncles and aunties at the hawker centre are talking about it.

This is a time when the market is getting irrational and stocks are extremely overvalued. It is also a time when savvy investors start to sell and take profit slowly. Once the euphoria is over, the market crashes and everyone is in a panic.

This has happened everytime throughout history. Every crash begins with extreme optimism. The 2008 financial crisis which caused lehman brothers to fall was also built on extreme optimism.  Housing prices in US kept breaking record levels and everyone got into the game which made housing prices rise to unstainable levels.

Again, when the market crashes,  everyone on the street will talk about it and how bad the situation is. When extreme fear sets in, it is also a time for savvy investors to buy fundamentally strong companies at sometimes extremely undervalued prices.

Are you prepared to profit from the panic and guard against extreme optimism?  Start by improving your financial knowledge and be ready at all times.