Some folks have asked where my next wanderings will take me, hoping that I may gather some ground-up tips about investing in those countries and share them in this column. They also wonder if I have been here in Singapore all through June. Actually, yes. Since my inspection of Tokyo in mid-May, I’ve avoided travelling over the June school holidays.
The Nikkei remains unabated, with private banks like Bank of Singapore among the latest to join the chorus of bulls on Japanese equities. Besides the potential gain of investing in Japan, Singaporeans paying in yen have enjoyed another 6% advantage since mid-May. With this persistently weakening yen versus the Singdollar, I am tempted to lock in more yen or pre-pay my accommodation and rental car for a trip to Kyushu in November.
Somehow, unless we all go “risk off” — and the Fed, which skipped a June rate rise, has a change of mind and signals a year-end easing instead — the yen carry trades will not unwind so easily, and my holiday may be a tad cheaper by then. When I made my “dark horse” call of the Japanese market in January, it was based on a hunch, for the hypothesis was not well supported by clear data then. What is clear now is that the run is still on.
My other upcoming plans are first to Malaysia in July — not to observe the pre-state election shows, but to see what’s left of the turtles on the east coast of West Malaysia. I was appalled to learn that the leatherback turtles are extinct, but still have a chance to see what’s left of the highly-endangered green turtles with conservationists on the ground. I hope the green turtles will be around for future generations, but somehow, I am as pessimistic about that as I am about Malaysia’s stocks and its economy. Perhaps I will be convinced otherwise by the food and the company.
As a seasoned global investor recently remarked to me, political risk abounds across Asean. Indonesia is heading to the polls next year; Thailand’s still waiting for a new prime minister, more than a month after its polls; old powers have been back in Vietnam since January. Malaysian Prime Minister Anwar Ibrahim, meanwhile, is seemingly best friends with his former colleagues and former nemesis at Umno. Analysts’ crystal balls are all shrouded with grey political mist. The risks of getting it wrong are high, and even if one gets it right, the potential value is much less than long calls in other Asean countries.
Next, a long-awaited trip to Shanghai beckons in August. This is my first trip to China post-Covid, and I am eager to connect with folks on the ground and see how the transition to a new brand of sustainable capitalist “Common Prosperity” is working out. I know I will be long behind Elon Musk and Jamie Dimon, and thought Xi Jinping’s meeting last week with Bill Gates was the reverse of Jack Ma meeting Trump in 2017. Ma’s statesman-like routine, promising to create one million jobs in the US, precipitated Alibaba’s fall from grace. Anthony Blinken’s balloon-delayed trip to Beijing was surprisingly uneventful, but still leaves the world far from a Taiwan thaw, with uncertainty as the only known unknown.
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A trip to Paris in October is also in the works to catch the Rugby World Cup, courtesy of some local friends. I am told that the super wealthy who fled China over the last three years because of Covid and “Common Prosperity” found their way to two other countries besides Singapore: Japan and France.
Perhaps it might change by then, but I will certainly not be looking for Chinese restaurants there. Instead, I may check out the European property assets that are part of Cromwell European REIT and IREIT Global UD1U , to get a feel — kind of like Singaporeans spending the distribution they received from the REITs that own the malls, whilst taking some comfort that their holdings, which remain underwater, is temporary.\
Indeed, the timing for a REIT recovery looks better now than any time since the meltdown last year when rates were hoisted up by the Fed. We may be in the darkest hour now, with forward rates levelling off, and a number of REITs and business trusts have managed to refinance, sell assets or raise equity successfully. The list includes Mapletree Industrial Trust ME8U , CapitaLand Ascendas REIT A17U , Keppel Infrastructure Trust A7RU , AIMS APAC REIT and even EC World REIT, which appears to have gotten a temporary reprieve with long overdue loan extensions.
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The few US REITs listed here have had a torrid time especially those in the commercial market. They now trade at steep discounts to book values — assuming they hold; and at double-digit implied yields — if their tenants pay. Perhaps for the foolhardy, or perhaps not: At current levels, the volatility and potential upside make them attractive as a punt. A current strategy of selling on deal announcements and buying after ex-date for REITs going through placements and rights issues has worked recently. I suspect that will change as SGD rates continue to ease, and in fact those that have successfully recapitalised and refinanced are probably better bets for the recovery that will come.
Going into 2H2023, it is probably too early to be allocating new capital before clearer data emerges, but where I am already stuck in, I have generally chosen to subscribe for excess allocations to dilute the less faithful shareholders.
It doesn’t matter if it’s black or white
Investors generally like data to be black or white so that they can make sensible risk decisions. However, as Katie Martin in the Long View in last week’s Financial Times highlighted, institutional investors have been generally chock-full of “bafflement and extreme caution” even if US stocks are up — as it has to be qualified the bulk of the gain came from just the Magnificent Seven: Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta.
“Reticence”, it was suggested, was the nail in the coffin for WE Soda’s US$7.5 billion ($10 billion) IPO in London that got pulled, as primary market investors allegedly wanted a 30% discount to where the company was looking to price. The London Stock Exchange has garnered a grand total of five listings this year, which is just one more than SGX’s four thus far this year, including the RTO of DTP Infinites Group by 3Cnergy announced on June 12.
One can’t blame investors of UK stocks for shying away and not wanting to look foolish again, given the spate of “burns” by recent new listings: online retailer The Hut Group, which listed on September 2020, is down 90%; online delivery platform Deliveroo has served up a drop of two-thirds since its IPO on March 2021. Dr Martens, a hometown footwear brand, clumped around and has fallen 70% since its February 2021 listing.
The problem with such a track record is that it fuels a sub-optimal risk aversion, especially in supporting local entrepreneurs creating jobs in both the businesses they list and also the ecosystem around the financial centre. It is not driven by black-and-white data, but by herd behaviour leading to unintended consequences. London routinely faces the same criticisms levelled at Singapore: That the market is only good for boring stocks and has not grown versus the spectacular boom and busts seen in the US, whose market enjoys self-fulfilling global liquidity given the more than 60% weight accorded in the MSCI World index. One could even argue that STI-benchmarked portfolio managers in Singapore did not carry down the likes of Grab Holdings which is gradually crawling up to about 45% of its IPO value, so why do they fear allocating to new issues?
Leaving aside the fact that risk-adjusted returns-wise the FTSE 100 and the STI indices have actually done very well, in relative calm over the long-term cycle and especially so during crises including Covid, why then are investors shunning the local markets? Ironically, investors probably prefer higher volatility and risk, and that means a bit of uncertainty, some messiness for one to have decent marine life in the sea, much less an ocean like the US markets. And it’s ok to have some.
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In the first quarter this year, Hong Kong managed to stage a 50% rally from the lows of October 2022. That still puts it at a 40% underperformance relative to the Straits Times Index in the three Covid years. The pickup early this year has revived some excitement, restarting talks again about Hong Kong-bound listings. However, the downdraft of the second quarter has caused some investors to lose their shirts. Dual-listed Centurion Corp, which launched its listing in Hong Kong back in December 2017, is doing an about-turn “for reasons of cost and utility”. Its thinly-traded Hong Kong shares, listed at HK$3.18 ($0.54), last changed hands at HK$2.08 on June 16. Unfortunately, as perceptions linger, such data matters less.
I can see clearly now
This phenomenon may be perhaps best described by a quote from Samuel Johnson: “A second marriage is a triumph of hope over experience.” In the same vein, traders who think they can outperform in more volatile markets often carry the can down and become long-term investors in far-flung markets. What about at home?
Just look at Sembcorp Industries U96 , which rose like a phoenix with its eight-fold gain from pre-Covid. For those who say this is the exception rather than the rule, here are a few others similarly championed by this column. Keppel Corp’s return to the $7 handle meant that the almost-$2 per share given out as Seatrium dividend in specie (which has also risen about 18% since debuting on its own) was a “free” 30% return in four months. Venture Corp and Sats, both highlighted as oversold opportunities two weeks ago, have rebounded over 10%–15% since. As the public bemoaned Singapore Airlines C6L ’ airfares while putting up with less appetising economy-class food in eco-friendly packaging, it has soared by a third in over a month as investors recognise its pricing power. A great way to fly, indeed, but a greater way to punt.
In the meantime, investors with the patience and diligence to search for undervalued gems are being constantly rewarded. The most recent, impending deal, Amara Holdings A34 , which operates hospitality assets such as the Amara Hotel and Amara Sanctuary, enjoyed a 40% growth in its FY2022 revenue as tourism recovery gains momentum. The thinly-traded stock, as at Dec 31, 2022, had an NTA of 67.95 cents per share. It traded at just 39 cents on June 16, before news of the potential “share transaction” was announced.
As the banks have ebbed and flowed in tighter stock ranges this first half, so has our Straits Times Index at around 3,150–3,300 points. Not too hot, and not too cold, just like Goldilocks’ preferred porridge. This market temperature is kind of boring, but if we only look at the top volumes, or to markets and stocks that routinely go through boom and bust, do consider what one has left on the table. To a better 2H2023!
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange, and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore
