Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Thursday, 28 April 2016

Cheaper European Goods in the Pipeline?

Singapore and China are working together on their third initiative together: Euro-Sino-Singapore Route!
Chong Qing (China) is working with Singapore to create a new freight line which will reduce the cost of transportation between Singapore and Germany by 60%.
Previously, European goods are mostly transported to Asia countries via air freight, which are 5 times more costly than rail freight!

How the Freight will Work:
1) European goods reaches Germany
2) Goods are loaded onto trains in Germany
3) Goods will travel by train to Chong Qing, China in approximately 12 days via Yuxinou Rail
4) Goods will then be sent to countries within 4 to 5 hours flight from Chong Qing (yes, by planes)

1) China and other Asia countries (Singapore, Hong Kong, Bangkok etc) will have access to cheaper European goods because cost of transporting them has fallen significantly.
2) This benefit works both ways: Asia goods in Europe will also be cheaper because of the reduced in overall freight cost. This opens up Singapore companies to a lot more opportunities because we can now sell our products to Europe more conveniently and cost-effectively!

Recommended Post: 5 Issues with China's Growth

In Addition!

For those eyeing to buy European branded goods, there is another good news besides the lower transport costs: Prada creating more mid-price ranged products for sale!

Prada is reducing its product price in order to regain its market share and profitability after overpricing its product and over-expanding to Asia markets.

Prada announced on Monday (18/4/16) that they will make more products priced below 1,400 (SGD 2,130).
Prada will also get on social media and offer more of its products online.

Those who wishes to buy Prada goods can start saving up for the chance to splurge on once prices starts to look reasonable!

Recommended Post: Consolidation of Singapore REITs

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Monday, 18 April 2016

The next hot favourites

We are entering an age of advancement where information flow from places to places instantaneously, connecting people closer. This trend of changes allows some companies to thrive while others to be beaten and become obsolete. I believe we should be seeing more consolidations and reorganisations of the industries. Here are some of my thoughts on the imminent hot and booming industries:

1. Logistics industry

People are either becoming lazier or more efficient and with the advent of e-retailing, there is a worldwide exponential growth in e-commerce. While e-commerce companies such as Alibaba, E-bay and Amazon are already priced in crazy nominal numbers, the valuation of the supporting industries for this technological-support boom has not been justified yet. Global sales of business-to-consumer e-commerce alone are $1.233 trillion. Imagine the logistical support needed to facilitate this global movement of goods. There are 2 of such companies that are listed on the SGX which are in a good position to capitalise on this. They are GLP and SingPost. However, in my opinion, their current valuations are slightly on the high side, hence it is advisable to standby and wait.

Recommended Post: Consolidation of Singapore REITs

2. Healthcare and related industry

As population increases and people live longer, the demand for healthcare will only increase. This is especially when Singaporeans are growing more affluent and are seeking better health solutions. Coupled with the government's assistance to make healthcare more affordable to the mass, the market will expand further with grants and assisting policies, making it extremely favourable for this industry. As mentioned in my previous post, Cordlife is one of such companies. The recent buyout of Biosensors by a private company also shows the potential of this industry.

3. Education-related industry

The global market has become much saturated with bachelor graduates and the demand for higher education is growing as people seek to differentiate themselves with better academic credentials. This has fostered the boom of another industry: Education. While there are not many opportunities to invest in the education sector unless you literally open a school/college, there are many education-related sectors that can benefit from this. One of such examples is providing student accommodation. While there are many factors pertaining to the portfolio of hostels' locations and the perceived popularity of college standards in the area, it is an exciting new investment area.

It is important to notice the changes and trends around us as they might present an opportunity to make money. It need not be a giant macroeconomic view of how the global markets are going to interact but they can be as small as how people are reacting to certain brands or companies. You never know when such observations can lead you to your best investment!

Recommended Post: What to own during rate hikes?

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Monday, 11 April 2016

Consolidation of Singapore REITs

We came across an article on Bloomberg on the 24th of March 2016.
It was an article that said that the smaller REITs in Singapore are going to experience a phrase of a merger in the midst of raising compliance cost.
Full Article Site HERE
We think this presents a good investment opportunity for investors seeking income + potential for a little capital appreciation.

What Are REITs?
Please refer to HERE for a more detailed post on it.

Why would they Merge?

1) Cope with rising regulatory costs 
Monetary Authority Singapore (MAS) is requiring REITs in Singapore to comply with new and tighter regulations which translate to higher compliance costs for REITs managers.
Thus REITs manager would seek to grow their Asset Under Management (AUM), grow their management fees to pay for rising compliance costs.

2) Seek liquidity in the market Singapore is ranked the 6th largest REIT market in the world by market capitalisation.
However, less than half of its 35 listed REITs have a market capitalisation of more than US$1 billion.
REITs that are not listed on indexes (eg; Straits Times Index STI) tend to trade at a disadvantage against their peers listed on indexes.

How would they Merge?

1) Smaller REITs combine to Form a Larger REIT
Smaller REITs may combine to form a bigger REIT
Owners of separate and smaller REITs may soon own 1 bigger REIT

2) Big Fish Eats Small Fish
While I think this type of event is less likely to occur, this is one of the possibility that may play out.
Instead of the big players buying up the small players, smaller players might go to the big players and ask to be bought over.

Investment Insights

1) Continue to own REITs for Income
REITs have become an important part of people’s portfolio – Retirement or Investment portfolio.
It has also become a good source of consistent income stream.
Thus, if you already have it as part of your portfolio, GREAT!
If you do not have it, considering having it as part of your portfolio.
It can be a good source of income, growth and diversification

2) Consider Owning Smaller REITs
If consolidation is due to happen, it will happen particularly for smaller sized REITs.
Smaller REITS also pay decent income.
In addition, because of the regulatory regime in Singapore, they are more likely to merge with another REIT to scale their operations and achieve cost synergies.
Consider owning some smaller REITS (market capitalization of less than SGD$1 billion).
While receiving monthly income, they might also be the next REIT to merge, thus allowing for some capital growth.

Recommended Post: What to own during rate hikes?

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 5 Things to Know about CPF Nomination
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Wednesday, 6 April 2016

5 Issues with China’s Growth

As China enters its new phase of slower growth, it needs to cope with several things
  1. Drop in investments into China
  2. Declining producer prices
  3. Rising wages
  4. Rising corporate debts
  5. Shifting from export-led economy to consumption-led economy

1) China’s declining growth rate would result in less investments (local or foreign) pumping into its economy. Currently, investment rates in China is close to 45% of its GDP. However, as its growth rate starts to decline, such levels of capital investments would no longer make economic sense.

2) Overcapacity and overproduction has led to widespread decline in producer prices. Companies are struggling with lower revenue and slower turnover. Global demand for China’s goods are declining as a result of low global economic growth.

3) The average worker’s wage has doubled since 2004 and is expected to continue rising. This increase in expense has resulted in several factories in China to close down and relocate to cheaper countries like Indonesia or India. Those factories that remain in China face difficulty finding cheap labour to produce cheap goods. This undermines China’s competitiveness and also squeeze their factories of its profit margins..

For more details on point 2 & 3, you can check out the video below:

4) China’s public firms have seen their accounts receivable ballooned to US$590 billion since 2014. This was a result of point 2 and 3. This partly contributed to China’s swelling stock of credit: US$30 trillion as of 2015. Straits Times reported that corporate bankruptcies might be 20% this year after corporate insolvency rose by 25% in 2015.

5) Alibaba founder Jack Ma once said that China’s slowing growth is not actually a bad thing but is a shift towards a more sustainable growth model, one that is led by consumption instead of exports.
Base on World Bank’s data, from 2011-2015, household consumption is an average 36.5% of China's GDP. This figure is expected to rise as China consumers are expected to increase their spending by 10% each year until 2020 according to a McKinsey report.

What is dangerous however, is China’s transition from export-led to consumption-led economy and how global markets perceive the risks involved in its transformation.

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Tuesday, 5 April 2016

End of China?

There have been strong volatility in the local market as we saw big drastic movements in the recent weeks. Daily STI could swing 1%+ up or down. It is evident that the increase in global volatility and swings were caused by the announcements made by key players in the financial world.

One of the announcements came from Federal Reserve Chairperson Janet Yellen who kept interest rates unchanges but remains wary of the fluctuation in oil prices as well as the global economic developments, particularly in China.

With the wide news coverage of China's economic performance, it is not unusual to know that China's economy is not performing as well as it used to and is slowing down at an alarming rate (Although it is still outperforming Singapore's growth; 3% compared to 6.5% in China).
So now what is this big hoo-hah with China's economy that is worrying most of the world's leaders?

China's economic growth engine is slowing down and it is mainly due to one reason: The end of its migrant boom. Its rural population have stopped moving into the cities and those who have moved in the past are returning to their rural towns. The explosive economic boom made possible through the migration of cheap labour from rural cities is starting to face exhaustion from raising labour cost and diminishing productivity returns. This is due to the discrepancy of supply and demand in their labour's skill set. Low-skilled workers are losing their jobs as China moves up the value curve to "middle-skilled jobs and, in many coastal cities, to upper-level sophisticated jobs - competing with the middle-class everywhere.". (quoted from DPM Tharman Shanmugaratnam in View China's economic woes in perspective': Tharman,).

To understand more about the migrant-led economic boom, you can refer to this video which is very informative on the phenomena:

However, I feel that China is not completely buried in the grave; it can still help itself in its current predicament. Firstly, the current situation had been experienced by many developed countries where there is a displacement of labour workers to higher value service workers. Hence, it has some case studies to follow and mimic according to its current situation. It has the resources and power to smoothen and ease the labour transition.

Secondly, the current predicament may present itself as a opportunity for China as workers move back to the rural areas, bringing with them capital and experience. If given the necessary push and policies, a more even growth can be attained, boosting the general economic growth since urban cities usually have a lower growth opportunity due to their inherent peak productivity performance derived from structural benefits.

Singapore, being extremely dependent on China's performance due to its close trading relationship, would definitely experience the impact from China's stance and reactions to its current status. Hence, it is important to know how our neighbouring countries are performing.

Please feel free to drop us a comment below and share on the video or posts to let others be aware of the current region.
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