China Hongxing: Another S-chip bites the dust.

Flipping through the latest issue of The EDGE, I found a full page write up on China Hongxing.  It is rather negative with a title like "China Hongxing unveils plan for cash pile, but analysts fear it is coming too late".

"China Hongxing's fast growing cash pile has been a source of consternation for investors for more than a year.  Some were irked by the company's apparent refusal to invest the money or return it to investors... Some were even concerned whether it actually had the cash reflected in its accounts."

Analysts are downgrading the prospects of the company en masse despite the company reporting a net cash position of 22c per share.  The share price closed at 14c on 5 March.  CIMB-GK and Kim Eng Securities even ceased coverage of the company altogether.

I decided to take a look at China Hongxing's charts.  Looking at the MACD, it is in negative territory, pulling away downwards from the signal line. The MFI has dipped into the oversold region and formed a lower high, signalling negative buying momentum. 

I have drawn the downtrend channel for China Hongxing in light green. 14c is currently at the channel support.  However, if this breaks, the next support is at 12c and a stronger one is at 10c.  Any upmove from 14c is likely to be just a rebound from oversold conditions and would meet with resistance at 16c, thereabouts, which is provided by the descending 20dMA.  If, in the unlikely event that the 20dMA is taken out, very strong resistance is provided by a confluence of the 50d, 100d and 200d MAs, which are at 19c, thereabouts.

Healthway Medical falters while Golden Agriculture shines?

Despite a return of positive momentum, Healthway Medical was unable to overcome the initial resistance of 17c which was identified in my post two days ago.  Instead it closed at 16.5c today, forming a gravestone doji in the process.  This is ominous.  Also of note is that the repeated attempts to overcome resistance is not accompanied by any meaningful increase in volume. The upmove might just falter unless we have an expansion of volume with the next push up.  Finally, the MFI is fast approaching the overbought region and bears watching.

Golden Agriculture's price action formed a white hammer today and closed at 54.5c.  This suggests that a trend reversal is at hand.  This is coupled by a buy signal on the MACD.  MFI has hit 50% which has acted as support on two other occassions in the recent past.  An upmove in price would meet with initial resistance at 57c, followed by 59c. 

Fundamentally, the price of crude oil has been on the rise (currently US$81.93 per barrel) and crude palm oil has risen in tandem, closing at RM2,670 today.  This bodes well for Golden Agriculture.

Saizen REIT: Buy signal.

For the first time in weeks, we have a buy signal for Saizen REIT in the MACD on the weekly chart as the price closed at 16.5c.  We see how the MACD seems to be pulling away ever so slightly from the signal line.  This is a positive sign.

On the daily chart, the MACD continues to pull away from the signal line further away into positive territory.  20dMA and 50dMA continue to rise in their merged form, providing a strong support.  The Bollinger bands squeezed four sessions ago and are expanding now, marking a departure from lower volatility as price sets off in one direction, which is up, in this case.

The MFI has formed a higher high which marks positive buying momentum.  Using the technical tool, Ichimoku, we see that Saizen REIT's price has emerged from the upper limits of the cloud (the translucent blue area) and this means that it has emerged from resistance and is free to move higher.

It might still be early days but the signs are promising.  We will need confirmation next week on whether Saizen REIT's price will continue its positive movement.  Good luck to fellow unitholders.

Genting SP: Stale bulls' second chance?

Genting SP experienced a white candle today on increased volume.  As the price touched 91.5c, approaching the 50wMA (93.5c), it lost momentum and closed at 90.5c.  Volume, although higher, is not significantly so.  The suggestion is, therefore, that the buy ups are half hearted.

The MFI and Stochastics are still in oversold regions and seem to suggest that if a reversal does happen, it is not unexpected.  We might want to remember that in a bearish scenario, MFI and Stochastics can stay oversold for a very long time.  MFI and Stochastics are also more accurate indicators in a trendless situation.

So, the price won't go higher?  If the 50wMA (93.5c) is taken out in the next session, we might see the price rising to the 20dMA, which is descending sharply and should be at 97c then.  All eyes would be on whether the price action would be able to break through the 20dMA to close higher, failing which, a resumption of the downtrend is more likely. I still see strong supports provided by the 100wMA (74c) and the 200wMA (70c) then. 

Do people really believe that the opening of Universal Studios on 18 March would have a huge positive impact on Genting SP in the near term?  The jury is still out.  More likely, this upmove is the stale bulls' second chance to reduce exposure or to get out totally as the downtrend is still intact.  Short sellers should find shorting closer to resistance almost irresistable given the bearish technical indicators.

Genting SP: When is it safer to buy?

On 25 Feb, I wrote the following about Genting SP:

"Genting SP continues to weaken as expected. The highest it got to this week was 98c to give stale bulls a chance to reduce exposure. Closing at 91c today hugs the lower limits of the Bollinger bands. The downtrend seems ready to continue as the MFI continues to decline indicating reducing buying momentum. In the unlikely even that the price moves up in the next session, resistance is at 98c.

"Looking at the weekly chart, we see a precarious situation. Price is hugging the lower limits of the Bollinger bands and the MFI continues to decline just like in the daily chart. However, what is important is that it has closed below the rising 50wMA which is at 92.5c. If price is unable to recapture this support level to close at or above 92.5c in the next session, which is the last trading day of the week, the chart would look very ugly. The ultimate downside target would be 74c, a support level provided by the rising 100wMA. Although there would be intial support at 80c, such a potentially huge fall in price would be too tempting for short sellers to ignore."

Today, Genting SP continued its downward slide, closing at 84.5c.  Momentum oscillators such as the MFI and Stochastics show that the counter is oversold.  The MACD plunges deeper into negative territory.  Longer term MAs are descending with the exception of the 200dMA which now acts as resistance in the event of any rebound.  This is at 98.5c. 

The MFI on the weekly chart is not oversold yet while the MACD is on the verge of plunging below zero.  On a weekly basis, there is a strong suggestion of more downside as well.  Trying to make some money from this counter by punting on the long side is going to require a lot of courage and luck at this juncture.  Having said this, the downside would probably be reaching an inflection point in the near future. 

The proximity of the rising 100wMA and the 200wMA to each other would provide a very strong support at 74c and 70c, respectively.    For investors who really like this counter for some reason, they could consider accumulating then, especially if the MFI and Stochastics indicate heavily oversold conditions by then.

First REIT: This one is for keeps.

You might have experienced deja vu before.  

It has happened to me countless times.  

Psychic?  

Maybe but sometimes, things just fall into place in the strangest ways.

Today, I received a payment voucher from my broker on income distribution from First REIT.  

This is not a very glamorous REIT but I count it as one of the strongest in my portfolio.  

The generous distribution put a smile on my face.

Then, I wondered if I should blog about First REIT, using it as an example of the type of REIT we want to have in our passive income portfolio.  

I got home, checked my blog and found two comments from anonymous readers, both stating that they do not like REITs.  

So, that made up my mind for me.






I first bought some units in First REIT in 2007 for an average price of 75c per unit.  

Through good and bad years, it faithfully distributed income to unitholders every quarter:

In the first year, it distributed 7c per unit for a yield of 9.33%.

In the second year, it distributed 7.62c per unit for a yield of 10.16%.

In the third year, 2009, it distributed 7.44c per unit for a yield of 9.92%.

Throughout the years, First REIT did not have to raise funds from unitholders as its gearing remained conservative at slightly more than 15%.  

The management did not act irresponsibly, expanding recklessly during times when credit was easily available.  






Its NAV today is about 98c per unit.  

It is still trading at a discount to NAV although, at today's closing price of 82.5c, not excessively so.  

At the current price, the yield (assuming a distribution of 7.5c per annum) is still a respectable 9%.

You might remember that I said I bought more units of First REIT at 42c during this last crisis.  

I have received the full distribution of 7.44c per unit for the year 2009.  

This translates into a yield of 17.7% (this plus a capital appreciation of almost 100%)!  

In five and a half years, I would have recovered my capital (everything remaining equal).  

This one is for keeps.





First REIT, I believe, is a powerful example of what makes a good investment in REITs for the purpose of passive income generation.  

Let us leave out the units I bought at 42c as that happened under extraordinary circumstances and is unlikely to be repeated.  

Considering just the units I purchased at 75c, it is more than likely that I would continue to receive 10% yield per annum.

Human beings like to classify things, organising things into groups.  

This is not a bad thing in itself but having a system of classification helps us to think more readily in general terms, making quick generalisations in the process.  

This encourages economy and masks differences, differences which could potentially separate the gems from the trash.  

So, next time, if you see what seems to be a heap of trash and think of passing it by, think again. 





Related posts:
High yields: Successes, failures and the in betweens.
Seven steps to creating passive income from the stock market.
High yield portfolio.

The same three counters.

Healthway Medical touched 17c, the initial resistance identified yesterday with the MACD indicating a return of positive momentum.  However, that the price closed unchanged despite increased trading volume indicates that many holders are making use of the upmove to lighten their positions.  A rising MFI shows increasing buying momentum and this is some way from being overbought, suggesting that there might be more upside.  17c is still the resistance to watch.  17.5c is the XR eventual target, the equivalent of the CR eventual taget of 19.5c.

Golden Agriculture closed at 53c, supported by the 20dMA.  This pullback is on the back of lower volume, suggesting that the decline is due to weaker holders being shaken out and not due to any drastic distribution activity.  However, with the MACD forming a bearish crossover with the signal line and the Stochastics continuing its decline, we might see the 100dMA being called upon to act as support yet.  I would accumulate then.

Saizen REIT formed a rare white candle today as price closed at 16.5c with a relatively surprising large buy up in the last trade of the day.  The rising 20dMA and 50dMA have merged to form support at 16c, suggesting that this is probably a very strong floor for the counter.  MFI has formed a higher low, marking sustained positive buying momentum.  MACD marks a return to positive momentum and the Stochastics has turned up as well.  Is this the beginning of something more interesting for believers of Saizen REIT or is it another red herring?  Time will tell but my investment in Saizen REIT is informed by my FA and I am holding with conviction. 

Initial resistance is at 17c, a recent candlestick support turned resistance.  Ultimate resistance for the week is provided by the descending 100wMA at 19.5c.

Golden Agriculture: Accumulate on weakness.

Golden Agriculture drifts downwards as price moves sideways, supported by the 20dMA.  Low volume is observed with a slight declining bias.  So, there is a chance of the 20dMA support breaking which would see the rising 100dMA providing support at 50c.  I would buy more, closer to the 100dMA.  I would also pay attention to the MFI and Stochastics.  If these are in the oversold territories then, I would buy even more.

Healthway Medical: Turning positive.

Healthway Medical closed at 16c today on low volume.  This is the highest closing price in a month or so.  MACD has crossed above zero, marking the return of positive momentum.  The MFI has crossed 50% and is rising.  This indicates positive buying momentum.  OBV rises ever so slightly, indicating accumulation.  The trading volume has to expand to make any upward movement in price sustainable.

In the near term, any upward movement in price should meet with initial resistance at 17c, followed by 17.5c.

Genting SP: An oasis or a mirage?

Genting SP experienced a white candle day on lower volume.  The MACD is still declining and being below zero, the positive momentum is well and truly over.  MFI has dipped into oversold territory although the stochastics look like it might rise somewhat in the oversold region.  With the momentum oscillators in oversold territory, the counter might attempt a rebound but any rebound should meet with resistance at 98.5c, which is where we find the 200dMA in the daily chart. 

Over the week, we should find resistance at 93.5c, this is where we find the 50wMA on the weekly chart. 

So, on a daily basis, there is a probability that it might hit 98.5c but over the week, 93.5c would probably assert itself as a stronger resistance.  Therefore, expectation is that any upmove to 98.5c, if it happens, would be short lived and would see much selling both by stale bulls and short sellers. 

An upmove this week is most probably not a chance to load up as the downtrend is clear unless the upmove is accompanied by higher volumes which might indicate a budding reversal which remains unlikely.

High yields: Successes, failures and the in betweens.

In this post, I shall share some personal experience with high yielding trusts and provide some numbers in the process for the purpose of illustration.

High yielding trusts which have done very well for me are those which meet the selection criteria I have talked about so many times before for REITs.  Investing in such trusts is mainly about generating a steady passive income (cash flow) and to do this well, we have to look for low gearing, high yield and attractive discount to NAVs. These factors will ensure that the trusts' distributions are meaningful and sustainable.  Here are some which have done well for me:

First REIT:  I first bought some in 2007.  It had low gearing, high yield but did not have a great discount to NAV.  My initial purchase price was in the mid 70c.  The dpu was about 6c per annum.  As prices slumped during this last crisis, I bough more at 42c.  The dpu has risen to almost 8c per annum in the meantime.  First REIT didn't have to issue any rights or do any share placements as its gearing was relatively low and still is.  The unit price of the REIT now is 82c thereabouts.

LMIR:  I first bought some in 2007, not during the IPO at 80c, but after the price dropped to 70c days after.  It had low gearing, an attractive yield and trading at a discount to NAV.  During the last crisis, I bought more and the lowest price I bought more at was 18c.  The dpu is now almost 5c per annum.  It didn't have to issue any rights or do any share placements as its gearing was very low and still is.  The current unit price is about 48c or so.

Suntec REIT:  I always wanted some Suntec REIT units but looked on in amazement as the price hit $2.00 at one stage.  I bought some at $1.03 during the downtrend.  It went on in the coming months to make a new low at 50c or so, if I remember correctly.  As the price recovered, I bought more at an average price of $1.00 or so.  NAV per unit was almost $2.00. So, the discount to NAV was very attractive. The dpu is about 10c and provides a handsome 10% yield for me.  Gearing level is not very low though. 

Hyflux Water Trust:  A business trust, not a REIT.  This is an investment which many of my friends remember because I was talking about it a lot early last year.  They listened politely mostly.  I was always interested in this trust as it has regular cash flow through its exposure to the water sector in China.  In January 2009, I looked at it again in greater detail as the price was so low.  I found the yield to be almost 20% then.  Gearing was non-existent and it was trading at a very nice discount to NAV.  The unit price was 30c or so at that time.  I went on a buying spree.

I did not keep all of these investments bought at low prices. I sold most of them for very nice capital gains, cycling the funds into laggard counters like Healthway Medical to make more money.  I kept, on average, 10% of my original positions in each of these investments to collect passive income in perpetuity.  It would have been nice if I had been able to keep my investments in these trusts in full and yet have more money to invest in laggard counters but, unfortunately, my resources are limited.

As you could probably tell, I was not always rigorous in making sure that all three criteria I talked about were met in choosing a trust.  In part, such trusts did not present themselves all the time and I had to make do with the best choices available.  This last crisis, however, was an opportunity of a lifetime.

It was also because I was not rigorous that in my early years with trusts, I made many mistakes in my choices. What we must always remember is not to focus solely on yields.  Also, do not invest in anything without doing our own FA. Here were some of my mistakes:

MPSF: It just got suspended today. This must have been my worst mistake. I listened to a very young "analyst" who said it gave upwards of 10% in yield and that the yield was sustainable. I invested a five figure sum without doing any analysis of my own. I later found out that MPSF invests in other REITs in Australia and as some of these REITs are private in nature, they could gear up to 80%! MSPF froze all distributions with the credit crisis but what is worse is the complicated situation it is in with so many cans of worms. There is no passive income for unitholders and, as far as I can see, there is no clarity as to its future. Must remember not to be swayed by sweet talking analysts. Always do our own homework.

FSL Trust: A friend introduced me to shipping trusts saying that I should diversify my passive income stream. He also introduced me to Rickmers and PST but I only have a position in FSL Trust. I still get passive income from the cash flow generated by its business and I receive  >8% yield per year based on my average price. High gearing in excess of 100% and the fact that its assets depreciate whether or not the economy does well make this a mistake for me.

CitySpring: This is a business trust. I was emboldened by the fact that this has the backing of Temasek Holdings. It had very high gearing but the management (headed by Sunny Verghese) said that they did not have to issue rights and people who thought they had to didn't understand their business. A few months later, they issued rights. The yield plunged and unitholders became poorer as they subscribed to the rights. It yields an average of 6.5% per annum for me.

There are a few others but the essence of the negative experience is more or less the same. For examples, with FCOT (previously Allco REIT) and MI-REIT (now AMPS AMP Capital Industrial REIT), I overlooked their high gearing levels at the time of purchase.  This is also a reason why I tell people to be cautious with Cambridge Industrial Trust (CIT) which I am vested in as well as its gearing is still in excess of 40%.

As creating a significant stream of passive income is still a very important objective for me, trusts with high yields must still play a part in the grand scheme of things. Rather than remember the pain and avoid these trusts altogether, I choose to remember the pain and find a way to achieve mastery over them. I hope that by freely sharing what I have realised to be the right way to approach REITs (and other forms of trusts) here in my blog, other investors who might not be in the know would not have to suffer like I did.

Conspiracy of the Rich.

On my way home after Chap Gor Mei dinner (home cooked food by my mom and sis is the best!), I made a detour and visited Borders as a friend told me they are having a 20% storewide discount.  The first book I picked up was a book by Robert Kiyosaki, titled "Conspiracy of the Rich".  The title was intriguing and captured my attention.

As I flipped through the book, I was actually thinking of buying it until I reached a section which made me put it back on the shelf.

Robert says that most people are lacking in financial education or do not have the right financial education.  Having the right financial education gives people an unfair advantage.  That, I agree.

Robert went on to say that there are many ways to build passive income, which is true.  He went on to say that running businesses (and by that he meant big businesses with hundreds of employees) to generate passive income requires the greatest financial intelligence.  This is followed by investments in real estate but as most people do not have a high level of financial intelligence, they opt to invest in real estate mutual funds known as REITs.  This is followed by paper investments such as stocks, mutual funds and the likes as paper investments require the least amount of financial intelligence.

Now, I will not discuss his choice of words (stylistics) here although that particular section was somewhat disturbing as I sensed snobbery in the writing.  Maybe, I am too sensitive.  So, I shall just discuss his contention that since most people do not have a high level of financial intelligence, they opt to invest in real estate mutual funds known as REITs instead of actual real estate.

Personally, I think investing in real estate is a good way to build our wealth if we know how to.  I have been very open about it in my blog and I have shared my experience.  Definitely, collecting rent is another way to build passive income.  However, I also enjoy investing in REITs.  Not all REITs, mind you, but REITs which meet certain criteria: low gearing, high yields and trading at an attractive discount to NAV.

Now, let's go through these three criteria one by one:

LOW GEARING
When we invest in a piece of real estate, we put down 20% of our own money and borrow the rest.  The idea is to make sure that we borrow at a low rate of interest and let the rental income cover the monthly repayment of the loan and still have money leftover.  We are talking about a gearing level of 0.8x here in such a case.

REITs would probably have borrowings but for listed REITs and in the current environment, it is hard to find a REIT with a gearing level higher than 0.4x (well, CIT is an exception).

Robert talks about good debts and bad debts.  This is something many of us are familiar with but most would agree that less debt is rarely a bad thing.  Many, in fact, work towards reducing debt in their lives.

HIGH YIELDS
If we decide to buy a condominium, for example, what kind of yield could we expect?  Let's say it is a $1m studio apartment somewhere near town, the yield is probably something close to 3.5% per annum.  Not fantastic and even in a low interest rate environment, the returns would not be attractive.

Now, if we look at some of the REITs available in the stock market here in Singapore, there are some REITs with yields of 10% or so.  Attractive?  You bet.

DISCOUNT TO NAV
When we buy a piece of real estate, we are usually buying it at valuation or above valuation (just look at the COVs being asked for HDB flats!) and during bad times, we might just get a bargain at below valuation.

With REITs, we have an opportunity to own real estate at a discount to their NAVs in most cases.  We do have a few REITs which are trading at or above their NAVs (and I don't invest in those).  I like to ask my friends, if a nice condominium in a good location is valued at $2.9m and is now being sold to you for $1.6m, would you buy it?  The answer is always a unanimous "YES!".  It's a no brainer.

Perhaps, the book is meant for an American audience but I do not know how Robert arrived at the conclusion that people with lower financial intelligence invest in REITs instead of actual real estate.  For me, it's just a simple case of value for money.  I invest in the REITs that I do today simply because they provide extraordinary value for money.

STI: Marching in place in March?

TA is not about predicting price movements.  TA always presents two possible scenarios.  To most people, this immediately means it's as good as not saying anything.  Well, if we had a tool that could tell us if a security was definitely moving up or down, ..............; you fill in the blanks.

Then, why do we still have TA?  Well, knowing the trends, supports and resistance levels could help us make certain decisions when certain numbers are hit.  Is that it?  I am probably not doing the subject justice but for my purpose, in a nutshell, yes.

OK, on to what you are waiting for.  What do I see in STI's charts?

On the daily chart, we see that the MFI is clearly downtrending with lower highs and lower lows.  The stochastics is turning down from the boundary of the overbought region.  These are momentum oscillators and their current patterns indicate weakening buying momentum in the near term.

That the STI re-entered its uptrending channel is quite obvious and it is currently supported by the upturning 20dMA.  This is a positive.  That the rising 100dMA was taken out a few sessions ago suggests that this is not a strong resistance.  Instead, the resistance to watch would be the 50dMA which is still descending, albeit gently, and is at 2,813.  Immediate support is at 2,737.  In case of a breakdown, a stronger support is provided by the rising 200dMA at 2,615. 

If we look at the weekly chart which presents a longer term picture, we see the stochastics upturning.  This is quite different from what we get in the daily chart.  What does this mean?  To me, it means that the probability of a large downward movement in the index is low over the longer term.  The STI has weakened but is showing resilience and is more likely to move sideways for a while than to decline dramatically. 

The bearish divergence observed between index value and volume up to two months ago was corrected as the index retreated for three consecutive weeks accompanied by increased volume.  Subsequent black candle weeks were on lower volumes.  This supports the view that the STI is less likely to decline dramatically.

Remember, technical analysis provides probabilities and not certainties.  Good luck to us all in the month of March.

Passive income: A higher purpose.

Today is the 15th day of the Chinese New Year or Yuan Xiao Jie.  

It marks the end of the celebrations and, traditionally, the Chinese people would spend the evening together with family to have dinner together on this night before starting work in a brand new year.  

During dinner, glutinous rice balls as a dessert is a must.  

Of course, this tradition is more or less diluted or even forgotten in modern day society and most of us would have resumed work before today and some might not even be having dinner with their family tonight.






As if to support my observations, a friend called me out for lunch as I was blogging this.  

Over lunch, I asked if he would be having dinner with his family tonight and he went, "Huh?".  

Well, maybe not this exact word but you get the idea.  

Over lunch, we also talked about time as a form of capital and how when we spend time doing something, it is actually an investment and we must make sure we invest our time wisely because, unlike money, this is a form of capital that we cannot make more of.  






We have less and less remaining time on Earth as we grow older.

Suddenly, I feel philosophical.  

Life is so very short.  

We have only a few decades on Earth.  

Well, there are people who live to a hundred but I don't know if that is a blessing or a curse.  






Do we really mean it when we wish our elders "Chang Ming Bai Shui" (Long life and hundred years old) or is it just plain courtesy?  

I mean if we live to a hundred and have the good health of someone, say, half the age, good, but what is the probability?

Frankly, I don't want to live to be a hundred years old.  I don't want to be full of ailments and be a burden to others.  

When my time comes, I will go.  





So, what am I trying to say?  

We should cherish our loved ones because the time we have on Earth is limited.

I remember this from my primary school days (I went to a mission school):

"We often love things and use people when we should be using things and loving people."  





Overly idealistic?  

Maybe but you get the gist of it.

Humans have short memories and need constant reminders.  

This is especially true for people living in this modern world with all its distractions.  

These distract us from what is really important in life.





When asking myself why am I trying to secure a significant passive income stream in my investments, the answer is quite clear. 

This is so I do not have to spend so much time at work or any time at work at all and, instead, I would be able to spend more quality time with my family. 

In our pursuit of financial well-being, we should not lose sight of the most important people in life, our loved ones.  

I am looking forward to dinner tonight.

Happy Chap Gor Mei! (Hokkien for "Happy 15th evening!")




----
Added on 6 August 2017:

I have been spending every single Sunday with my family and the day started with breakfast with my dad.