Thursday, May 7, 2015

2 market observations today

A week ago, I went out for drinks with old school friends that I haven't seen for a very long time. There, I had a pretty interesting conversation with a friend. For the sake of anonymity, I shall name my friend "Z". Anyway, as per social norm (or so I'm told), we had a casual chat about what we are doing now.

Me: ... yeah, so that's what I do these days. Where are you working at?
Z: I work in ______! (listed company)
Me: Ooo, I know _____! Wow, is it nice working for big company like that?
Z: It's not too bad...
Me: So, how is it like working for ______? Is work tough?
Z: Actually, not really!
Me: Not really? What do you mean, "not really"?!
Z: I think the company is doing quite bad... there isn't anything for us to do!

Of course, I tried to poke and probe more about the situation at Z's work, but Z was more interested in socializing, so I dropped all the work talk. Work all day, go out still want to talk about work? Don't so loser, right?

After I heard what Z said, it kind of woke me up to the fact that things might actually be a lot worse than what they seem to be!

Z's company is none other than SembCorp.

So when they released their first quarter earnings, I was not surprised at all that it looked horrible. EPS dropped by 24%, ouch. Felix did a nice review of the results. Anyway, it is supposed to look horrible, which is why it is trading near its low, and not its high. I just didn't expect it to look that horrible.

I've been patiently sitting on my hands because I've been targetting for a May low in oil, which ought to have a spillover to companies in the related industries. Perhaps I will be able to finally enter some positions in the O&G plays. Sembcorp to $4, pretty please?

In other news, bonds have been exploding in yield recently. German bunds are slaughtering people.

The 10 year bund went from 0.1% to 0.74%. How's that for an ass-raping? Are bonds really a "safe" asset to be in? At this point of time, I don't think so.

With the jump in yields, other "bond"-like alternatives are getting hit since the risk-free rate is rising and the attractiveness of such alternatives decrease. A good example are REITs. Just look at the top 20 volume today.

2 up, 3 unchanged, 15 down. Ho boy.

CapitaCom, FarEastH, Keppel, Sabana and Suntec are the best looking ones to me. When I say best looking, I mean they look like shit to me, which is why I think they are interesting candidates to explore.

I have taken a small nibble in CapitaCom. I like their brand name compared to the others.

Is the tide finally changing? I sure as hell hope so, I've been waiting ages for some downside action in the markets.

Now, I'm off to try and finish reading my RES notes! If we do have a market meltdown, wouldn't it be nice to pick up a cheap asset and use 5 times of leverage?


  1. Hi GMGH,

    Thanks for sharing :)

    I think Suntec looks attractive to me as well as it has fallen quite abit from it's high of $2 earlier this year with the news of being added into the MSCI SG Index.
    Also looking at CapitaCom. It has a healthy gearing of about 29%, pb below 1, quality offices located around CBD area...yield at a reasonable 5.14% .

    I sold my all FEHT at a small loss last year because their occupancy rates have been dropping and so will affect the distributions.
    Looks like tourism sector will take awhile to recover...

    1. Hey EotS,

      Thanks for your comment!

      Mmm, I do like CapitaCom, Suntec and Keppel. I'm trying to take small nibbles on these guys. I concur with that simple analysis of CapitaCom.

      FEHT decline has tempted me too, but I also think that tourism will be quite muted for a while. Yields are disturbingly low to me, given it's P/B ratio, concentrated strategy and cyclical industry.

      Interesting to pick your brain!


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