BREXIT and AK the investor.

I just spent the better part of an hour replying to emails from readers and the topic which cropped up the most often was, not surprisingly, BREXIT. Here are a couple of conversations:

Reader: What do you think of the Brexit? Can you talk to yourself on the impact to your portfolio?


AK says: BREXIT will affect me as an investor if:

1. I have income generating assets in the UK.


2. I am invested in companies which export goods and services to the UK.


3. I have exposure to debt denominated in the Sterling Pound.

I think it is none of the above for me.

However, I am worried about the possibility of contagion. The UK is not a member of the Euro (i.e. the currency) but if European countries which use the Euro decide to do their own versions of Brexit, it would affect my investment in IREIT Global. How? I cannot say yet.

Best wishes,
AK

Reader: Given that Brexit is confirmed . The GSS of stock market is likely to happen . Can talk to yourself what spore stocks you are eyeballing?


AK says: Almost everything I have ever blogged about as investments for income, actually. ;p

Best wishes,
AK

Have our shopping list ready, stay calm and buy when our target prices are hit.

Remember, it is almost impossible to get the best deal. If someone else manages to buy at a lower price after we have bought, it might not mean that we got a bad deal. That person got a better deal.

Related post:
Mr. Lee Kuan Yew on Eurozone crisis.

Voices, noises and choices.

The amount of information out there is enough to make one feel somewhat overwhelmed or even faint. I have not been reading blogs as much in the last one week and kept my reading primarily to Channel NewsAsia, The Business Times and Yahoo!Finance. Even so, it probably is enough to make heads spin.

Some proclaimed that the U.S. housing market has bottomed and is picking up! Conventional wisdom says that the U.S. housing market must pick up before we see a return to sustainable economic growth. On the same day, another article claimed that the U.S. economy is sliding back into recession!

Then, the stock markets around the world rallied because European banks can now be recapitalised directly from bailout funds. There are those who then said this is only a relief rally and it won't last. Their advice? Don't believe the rally! Sell the rally!

S&P500                       +2.49%

DAX                              +4.33%

What about the Singapore stock market? Some say that it is being re-rated upwards because stocks here are up 9.8% in H1. Some say that it is because of window dressing in the first half that has pushed the STI upwards. Huh? Which came first? The chicken or the egg?

Hey, don't believe me, go get a copy of the weekend edition of The Business Times today. (Er, in case some are wondering, no, this is not a paid advertorial by The Business Times although you could be helping me a tiny bit as I am a shareholder of SPH.)

OK, if you have not fallen off your chair or reached for a bottle of medicated oil by now, good.

So, what are we to do? Do we join the bullish camp or the bearish camp? Regular readers would have guessed my answer. I would say neither. Stay practical. Stay invested but have a war chest ready.

Staying 100% or mostly in cash is not a good idea. It is unproductive as higher than average inflation chips away the value of our cash on hand. In fact, The Business Times has an article today which says that although the Singapore labour market is tight and although people might receive increments to their salaries, they are seeing little gain due to high inflation. Like what we learned in economics, there is nominal wage increase but not much real wage increase.

Actually, businesses are finding rising costs a struggle to deal with. Restaurants have reduced the size of portions being served and have, in some cases, increased prices.

At Ichiban Boshi, my family like to order soft shell crabs because we find that $5.50 for 2 soft shell crabs (cut into halfs) is not too bad. However, when we ordered it again a month or so ago, we only found 3 halfs on the plate. We thought perhaps 1 half fell on the kitchen floor or something. Anyway, when we ordered it again on a more recent visit, there were still 3 halfs only.  Inflation had spirited away half a soft shell crab although price stayed at $5.50 a portion. Sheesh!

There are many costs of doing business and rent is a big one here. Rental rates in Singapore have been going up and up. Thus far, the only sector that has seen a decline in rent is in prime office space due to more than ample supply. There were signs very early on which is why I have been underweighting this sector in my porfolio of S-REITs. However, we can expect this sector to recover rapidly if the global economy picks up again. Just bear in mind that office tenants are a rather footloose bunch.

SPH's Clementi Mall.

Generally, however, it is a very good time to be landlords. For the vast majority of us who are not financially able to participate by owning shops and buildings directly, investing in selected S-REITs and SPH is the next best thing. In fact, some might say it is even better as we do not have to worry about the day to day operations of the properties. Well, there are pros and cons, to be sure.

There are many voices out there and we have many choices. However, we have to always remember not to be intimidated by all the information being stuffed in our faces. What is worse than having no information? It is to be drowning in too much information.

Know what matters. Everything else is just noise, is it not?

Related posts:
1. Office S-REITs VS Industrial S-REITs (4)
2. Staying postive on S-REITs.
3. Bearish or Bullish?
4. SPH: Better investment than retail S-REITs?

The EU and Asia.

I remember reading as an undergrad that artificial countries will never work out.  Good examples are the former Yugoslavia and Czechoslovakia.  We can never integrate people and their spaces together with other people and their spaces if they are different culturally.  We need very strong leaders to hold such constructs together.

In recent times, we saw problems in China with Tibet and Indonesia with Timor. Now, the problem which is more glaring is the EU. The EU is different in that it is made up of different countries.  These countries have given up their own currencies to embrace a common currency.  This, effectively, surrenders some of the individual countries' control over their economic destinies. This is probably a reason why Baroness Margaret Thatcher, then Prime Minister, refused to have the UK join the EU.

In The Straits Times on 29 April, I read with concern as an article reported that there is little danger to Asia because of our little trade exposure to the EU.  It said that the EU consumes 19.8% of China's exports, 12.4% of Korea's, 11.9% of Japan's, 11.9% of Thailand's, 10.3% of Taiwan's and just 4.9% of Singapore's.  These numbers are based on a 12 month average ending March.

What should be considered, in my opinion, is the missing multiplier effect. If China loses 19.8% of her export market in any substantial way, we can imagine them importing less from other countries and this will impact other countries' trade figures in total.  Same goes for Japan, Korea and also Singapore.  The fallout will have earth moving consequences for us in Asia.

Unfortunately, there is no end in sight to the EU's problems, it would seem.

Blame Germany, Galbraith Says:
"Extreme Brinkmanship" Imperils Europe
Posted Apr 30, 2010 03:43pm EDT by Aaron Task



In sum, the Greek bailout may alleviate the immediate crisis but is far from a "permanent solution," the economist says. European officials will be "fighting fires continuously until they address the constitutional problem" of the EU.