Portfolio strategy: Undervalued high yield counters.

As the stock market seems set on moving sideways with thinning volume, a downward bias is definitely stronger.  Over time, even the most optimistic bulls will turn cautious and every rally attempt will see stale bulls reducing their exposure.  

This is likely to continue until only the really longer term holders remain or when institutional buying interest returns in a meaningful way (read upward price movement with higher trading volume) or both.

As the high beta stocks turn quiet, the more boring high yielding counters might start to look more interesting.  After all, achieving 10% yield per annum is not too shabby.  

I am now looking to increase my investments in AIMS AMP Capital REIT (AA REIT) and Lippo Mapletree Indonesian Retail Trust (LMIR).  It is no secret that I like these REITs.  Their fundamentals are sound and they have attractive yields.

Using TA to look for entry points, it is obvious that the upward momentum in LMIR is over for now.  The 20dMA seems poised to form a dead cross with the 100dMA soon.  MFI has formed a higher low but with volume thinning, it is unlikely that LMIR is about to form a new high in price.  Chances are higher that the price will continue declining and the rising 200dMA (at 44c today) should provide a stronger support.  I would accumulate if price falls to 46c and lower.

For AA REIT, MFI has been going in and out of oversold territory since late January.  Like LMIR, it lacks upward momentum.  However, its low was formed at 19.5c in early December. 

Psychologically, this is very fresh in the minds of investors.  20.5c is a many times tested support and resistance level and I expect this to be a strong support in the absence of selling pressure.  If this support breaks, 20c is likely to be a much stronger support and would be a great price to accumulate more units of AA REIT at.

Saizen REIT tried to rally today as it reached a high of 17c, only to fall back to close at 16c, forming a gravestone doji in the process.  The fact that this attempt to move higher took place on the back of higher volume and failed is not positive.  Nonetheless, with the longer term moving averages still moving up and being in close proximity to each other, together with the absence of selling pressure, the downside is likely to be limited.  As I have a sizeable investment in Saizen REIT already, I would only accumulate further on dips.

Related posts:
Aims Amp Capital Industrial Reit.
Lippo Mapletree Indonesia Retail Trust.
Saizen REIT: Long-term buy.

Japan's debt issue and Saizen REIT.

On 15 Feb, a reader, Robin Lim commented, "I read yr comments about saizen and they are good. But i hv always been concerned about japan's debt/gdp. An article in Forbes Feb issue p62 "Blowup" explained it well. Be careful about Japanese property, because it can be a Greece."

When I returned to Singapore on 17 Feb, I responded, "Japan does have a debt problem but we have to remember that Japan is not only a borrower, it is also a lender. Japan is the second largest lender to the USA. China is of course the largest.


"I have not read the article in Forbes but did they look at debt as a percentage of GDP only? Another way of looking at this is debt per capita. In this respect, Greece is number one in the world at US$ 27,746. USA is 11th at US$ 11,094. Japan does not even come close."

Apparently, Japan is now the largest holder of US Treasury debt as China cut back its exposure in December 2009.  This was revealed last Tuesday by the US Treasury Dept.



This is one factor which sets Japan apart from Greece.  Japan is also a lender, not just a borrower.  When we look at debt, it is important not to just look at gross debt (ie. the total amount borrowed), we should look at net debt which takes into consideration the borrower's status as a lender.  Japan is one of the largest creditor nations in the world.

Also, as Japan is home to many renowned MNCs, a more accurate picture of Japanese debt situation should compare its net debt to GNP, instead of GDP.  Japanese MNCs repatriate earnings from their global operations back to Japan and GNP is a much bigger figure than GDP.

Interestingly, much of Japan's debt is in local hands.  Less than 10% of Japanese debt is funded by foreign bodies.  This is largely due to the fact that the Japanese people have been such big savers.  In contrast, American national debt is, to a large extent, in foreign hands.

Having said all these, I am not glossing over Japan's debt issue which still has to be dealt with.  Borrowings have to be repaid.  An ageing population puts into question the sustainability of Japan's national debt as well. 

There are some difficult decisions which the government must make and as Japan is still the largest economy in Asia, we should all be very concerned whether any progress is made over time.

I am not a politician or some big shot in a global organisation like the Asian Development Bank or the World Bank.  There is nothing I could do about this, obviously.  The question which might be on your mind now is, "How will this affect Saizen REIT?"

I do not see the debt situation in Japan becoming unmanageable in the next few years.  As the Japanese population ages over the next decade, they will start cashing out of government bonds.  The Japanese government might have to sell US Treasury debt gradually then unless it is able to trim expenditure in a meaningful way or get its economy to grow more robustly in time.  As you can imagine, all these will most likely not happen in, say, one or two years.  It's going to take far longer. 

Saizen REIT is still a most compelling buy in the near term and is still most attractive as a high yielding passive income generator over the next few years.