More in equities or fixed income? Update on my health.

This started out as a reply to a reader's comment but it got pretty long.

I also feel that there are things which many people might want to eavesdrop on.

So, the reply is here as a blog.

Hi yuhui,

I like your phrase "super bloomers" more than "late bloomers."

Before I continue, I want to caution you about having only one meal a day which is the most extreme form of intermittent fasting.

I tried that for a few months last year and lost so much weight that my mom got worried. 

She told me I looked like Chew Chor Meng who was quite ill.

When I met Kenji and Victor, my friends from The Fifth Person, about 6 months ago, they were shocked by how thin I was.

Anyway, I have since gone back to having at least 2 meals a day, eating within a window of 6 to 8 hours each day.

So, I am still doing intermittent fasting but a less extreme form.

I have recovered from being borderline underweight, putting on 5 kgs in the last few months.

Anyway, please be cautious because it is very hard to get sufficient nutrition for a regular person by having only one meal a day.

As for what I have done in the stock market, I did nothing in April.

In January, I bought back some stock of ComfortDelgro.

In February, I sold my investment in SATS.

In March, I bought some stock of OCBC.

I have been mostly focused on increasing exposure to fixed income in the last few months.

The question is whether someone who doesn't have as much exposure to equities should be deploying more funds into equities or fixed income at this point?

To help with the decision making process, look at the prevailing risk free rates.

Please bear in mind that this is only one of many possible considerations and it is just a starting point.

If we have an investment horizon of 10 years, an idea could be to compare the 10 year average yield of the Singapore Savings Bond with the estimated returns from investing in a business.

The risk free rate is around 3% per annum.

So, if we were to invest in a business which is not risk free, we would demand a higher return.

Investing in Singapore's banks is not risk free but they are relatively safe compared to Centurion Corporation, for example.

Therefore, a sustainable 5% dividend yield from the banks would be more acceptable than a 5% dividend yield from Centurion Corporation which has a much weaker balance sheet and less robust asset quality.

A 5% dividend yield from ComfortDelgro is acceptable because they have a very strong balance sheet and, therefore, should be relatively safe.

A 5% distribution yield from a REIT which is highly geared is, in my opinion, undesirable, because a REIT distributes at least 90% of its income to investors.

If by distributing 90% of its income to investors, a REIT is only able to eke out a 5% distribution yield, to me, it is not an attractive investment, especially in today's high interest rate environment.

If I must invest in REITs, for a start, I would look for those with relatively low gearing, a high interest cover ratio and a distribution yield of 7% or more in order to be competitive.

The final mix of equities and fixed income we have in our portfolio will depend on what we believe is right for us.

We can only hope to be approximately right and by using some common sense, we should be able to avoid being absolutely wrong.

"What we do is not beyond anyone else’s competence." - Warren Buffett

This isn't an exact science.

If AK can do it, so can you!

Update on Evening with AK and friends 2023:

A few tickets left. Ticketing: HERE.

References:
1. Retirement adequacy for late bloomers.
2. Saving for income: SSB and T-bill.
3. Building investment in OCBC.
4. 1Q 2023 passive income.

DBS, OCBC and UOB: Another tailwind from China?

For people who do not follow me on YouTube or prefer reading my blogs, this blog is an expansion on the transcript of another recent YouTube video which I produced.

I try to keep all my YouTube videos short with the sweet spot at around 3 minutes per video.

Sometimes, a video runs 4 or 5 minutes because there are more things to share but any video I produce should never be longer than 5 minutes in length.

This blog expands on what I shared in a recent video on money flowing into Singapore and what it means for our local lenders.

Regular readers of my blog know that DBS, OCBC and UOB are three of the largest investments in my portfolio. 

Our local lenders are well capitalized and well managed. 

They are also very attractive to investors for income as they pay meaningful dividends. 

With many major economies around the world most likely heading for a recession, the Monetary Authority of Singapore decided to err on the side of caution recently and not tighten policy even as inflation remains elevated.

Singapore's economy has been slowing down and the Monetary Authority of Singapore sees a higher risk of further downside in the coming months. 

We could see Mr. Market turning pessimistic if the authority's fear comes true. 

In such an instance, DBS, OCBC and UOB could see the prices of their common stock trading lower. 

When the bear emerges from its cave, none is spared as fear ripples through the market.

Indeed, there is a good case to be made as, fundamentally, the local lenders' net interest margins could be squeezed as their higher funding costs catch up. 

So, although we might talk about Mr. Market being pessimistic, it might not all be sentiment driven.

Higher funding costs would affect the banks' net interest income negatively, all else being equal. 

However, we could see an increase in non-interest income which might compensate for the weakness in interest income. 

How so?

With the demise of Credit Suisse, Switzerland’s reputation as a safe place to bank and invest has been affected negatively. 

In contrast, Singapore’s reputation for political stability, transparent government policies and robust business environment is very much intact. 

There is much optimism amongst industry insiders as wealth managers and private bankers expect growth in 2023. 

A growing number of wealthy Chinese people are coming to Singapore, now called the “Switzerland of Asia” in order to escape possible crackdown in China. 

Understandably, this has created some unease amongst Singaporeans who increasingly think that mainland Chinese buyers are driving up the costs of housing and private cars in Singapore. 

In fact, there were claims that the Monetary Authority of Singapore had asked banks here to avoid discussing the source of wealth inflows presumably to put a lid on fanning the negative sentiments on the ground. 

The Financial Times said that it was obvious that the Monetary Authority of Singapore was referring to China with all the news in recent months about family offices setting up here and mainlanders moving over. 

In response, the Private Banking Industry Group said in a statement on 14 April that the Monetary Authority of Singapore "has not issued a directive, tacit or otherwise, for banks to keep quiet about the origins of wealth inflows." 

The group went on to say that while public commentary tended to focus on fund flows from China into Singapore, the sources of overall inflows into Singapore in fact remain diversified. 

The increased fund flows into Singapore were from high net-worth individuals from different markets. 

Therefore, the fact remains that there is a lot of money flowing into Singapore.

How like that?

Well, this is good news for the local banking sector even as it creates a sense of unease amongst the locals. 

As investors, we want to recognize this as another possible tailwind for the local banking sector. 

Staying invested in DBS, OCBC and UOB is probably a good idea even as they are faced with higher funding costs and the prospect of narrowing net interest margins.

What about the global economic slowdown which the Monetary Authority of Singapore is worried about?

Yes, Singapore's economy is slowing down but don't be too pessimistic. 

Of course, don't be overly optimistic either. 

Don't throw in everything including the kitchen sink as dark clouds for the global economy are not dispersing. 

Be pragmatic. 

Keep some powder dry and have a war chest ready. 

If AK can do it, so can you!

Related post:
Recession could hit Singapore!