Portfolio & Dividend Update : 4th Aug 2024

 Wow! Time flies as my last blog post has been almost 6 months. As we reach the midpoint of 2024, the stock market presents a mixed bag of opportunities and challenges. The landscape has evolved significantly since the beginning of the year, reflecting a complex interplay of economic indicators, geopolitical events, and corporate earnings. Investors are navigating a market that is both promising and unpredictable, shaped by ongoing adjustments in monetary policy, fluctuating inflation rates, and shifting global dynamics.

The first half of 2024 has seen notable volatility in the stock market. After a strong start, equities have experienced fluctuations due to a variety of factors. The market has been moving like a pendulum swing since early of the year and we have started to see some pullback in the last two weeks due to economic uncertainty. I guess the market is just trying to find an excuse (weaker job data/ PMI / consumer confidence) to have such a correction, which I think is quite common since it has been in an uptrend for quite some time, whereas the S&P500 still enjoy a good +12.08% increase in YTD 2024 and 5 years return of +82.35%.

Growth stocks, in particular, have faced pressure as interest rates continue to influence valuations even within the S&P500 you may see the very high concentration of market cap with a few mega-cap stocks. With such high concentration, again it is quite common to see a huge swing in the index, this is a so-called “winner takes all market” and big will become bigger with market-cap index design.

The “extraordinary “performance of the U.S. market is not just about earning, instead, is more on “liquidity “and capital flow after GFC and recent geopolitical events. Alongside the AI-driven optimism, a substantial influx of liquidity from global markets has bolstered U.S. equities. Central banks and financial institutions around the world have injected liquidity into the financial system through various means, such as lower interest rates and quantitative easing after GFC. 

This global liquidity has found its way into U.S. stocks, as investors seek stable and promising returns amidst uncertainties in other regions. The flow of capital into the U.S. market has amplified the positive momentum, contributing to the rise in stock prices. Although the FED is doing the QT, there are still trillions of dollars in excess liquidity created during the pandemic sitting on the FED’s balance sheet. Other than that, there is also a huge budget deficit from the U.S. government, while U.S. government debt plays a crucial role in stimulating economic activity and supporting growth, the enormous $35 trillion debt presents significant risks to global financial stability.

After the GFC, central banks worldwide have implemented aggressive monetary policies, including low interest rates and quantitative easing, to stimulate economic growth. The surge in global liquidity has been a key driver of market volatility. Central banks' extensive monetary stimulus has led to an influx of capital into financial markets, creating an environment of heightened speculation and risk-taking.

In such a volatile environment, substantial drawdowns (i.e., declines in asset prices) are not unusual, in fact it is quite common. Market volatility driven by global liquidity and the potential for substantial drawdowns are inherent features of the current financial environment.

The stock market is like a big “Casino” now with huge volatility as you can see recently a -10/+10 % of trillion-dollar big cap company like Nvidia is common. While one may continue to enjoy the ride/party, these conditions can be challenging, employing effective strategies such as diversification, risk management, and maintaining a long-term perspective can help investors navigate the ups and downs. Remember the famous quote from a renowned economist “The market can stay irrational longer than you can stay solvent !”

In short term, the market will continue to face headwinds from FED's decision-making on interest rates, and geopolitical tension in the Middle East and, US. Presidential election, conflict between China and U.S etc. However, investors should focus on the fundamentals of strong companies rather than short-term political events. The upcoming U.S. presidential election is unlikely to impact long-term investment decisions significantly. While elections can cause short-term market volatility, the stock market's long-term performance is primarily driven by the underlying economy and corporate earnings. History shows that markets tend to grow over time, regardless of the election outcome. Therefore, maintaining a long-term perspective and sticking to sound investment principles is key to successful investing.

Regardless of who will be the next U.S. president, the conflict between the U.S. and China is expected to persist ( this is a bipartisan consensus), resulting in ongoing tech and trade wars and supply chain disruptions. This geopolitical tension impacts global markets, influencing trade policies, tariffs, and regulations. Companies with significant exposure to China may face challenges, while those involved in technology, manufacturing, and international trade could experience volatility. Investors should consider these risks when evaluating investments, focusing on diversification and companies with robust supply chain strategies to mitigate potential impacts from the prolonged U.S.-China conflict, fasten your seat-belt to enjoy this bumpy ride ahead.

Before I move on to update my portfolio, allow me to share some photos taken during our trip to China ( 哈尔滨, 长白山天池) in early February 2024.  😊This holiday experience in Harbin and Changbai Shan is a journey through stunning winter landscapes, unique cultural experiences, and adventurous culinary delights. From the magic of Harbin's ice festival and the invigorating thrill of eating ice cream in freezing temperatures to the serene beauty of Changbai Shan’s natural wonders and the indulgent relaxation of outdoor hot springs in minus 10 degrees during winter, every moment of the trip is filled with wonder. One of the most adventurous culinary experiences on this trip was tasting grilled silkworms. Known for their rich, unique texture, silkworms are a delicacy in the region. 😊

Again, we are planning on our next 10 days trip to 稻城亚丁 in October, hope to share more beautiful photos here.. cheers 😊  

Portfolio & Dividend Update

As of mid-2024, the STI has demonstrated a mixed performance. The index saw a peak in early March, driven by strong performance in sectors such as financials and real estate. However, subsequent months witnessed some correction and volatility. The STI’s performance has been characterized by periods of sharp declines, followed by recoveries, reflecting broader market uncertainties. As of today, banks are still holding well and can see that all big 3 still have double-digit returns.

As for SG-REIT, the index saw a notable uptick in January and February, driven by positive market sentiment and strong earnings reports from several major REITs. However, as the year progressed, the index faced headwinds from rising interest rates and economic uncertainties. By mid-year, the sector showed signs of stabilization, with some REITs maintaining steady returns while others experienced more pronounced volatility. 

Within the sectors, I still preferred Retail and Industrial/Logistics over Office / commercial REIT. Although we may continue to see an uptick in the cost of debt for some counters, the overall +ve rental reversion / DPU seems stabilized. We will not see the ZIRP any time soon even though FED is expecting to reduce the rate in September’s meeting as inflation might be a problem under the current geopolitical tension and supply chain “decoupling”. 

As such, we shouldn’t expect a quick and fast rebound for SG-REIT but rather a slow recovery along with better rental reversion and DPU increase. Some REIT with high gearing may continue to face the increase in cost of debts, it may require better rental reversion to off set it slowly and eventually. I would considered REIT as a high leverage investment/ vehicle which is very sensitive to "interest rate " movement, hence the future FED rate trend will determine the value of REIT, although it may vary from sector to sector depending on supply/ demand ( future rental reversion).

In the first half of 2024, the Hang Seng Index displayed significant volatility, characterized by periods of strong gains followed by notable corrections. The index began the year with a positive trajectory, and it gained almost +15% hitting a high of 19,636 in May, reflecting renewed investor optimism and a rebound from previous lows. By mid-year, the index had fluctuated considerably, with sharp declines attributed to a mix of geopolitical tensions, and changes in monetary policy.  Investor’s sentiment was dampened after the Third Plenum of the 20^th Central Committee meeting without a concrete plan for solving the struggling housing issue or any significant stimulus package to boost the economy (at least on domestic consumption).

The Third Plenary Session (aka Third Plenum), held in Jul 2024, is a significant event in China's political calendar, where key economic policies and reforms are discussed and outlined. Traditionally, such meetings can influence market sentiment, as investors look for signals regarding future economic policies and stimulus measures.

 The decline in the Chinese stock market following the Third Plenary Session of the 20th Central Committee can be attributed to several factors, including the lack of anticipated stimulus measures, ongoing economic slowdown concerns, policy uncertainty, and global market influences. The absence of substantial and immediate support measures led to investor disappointment and market corrections. Moving forward, the focus will likely remain on economic performance indicators, potential policy adjustments, and global economic conditions, as investors seek clarity and reassurances about China’s economic trajectory.

 

Housing : The Mother of All Problems

Housing is still the biggest issue for China’s economy and the weakest link among the 三驾马车. China's housing problem is multifaceted, encompassing high property prices, affordability issues, excess inventory, and speculative investments resulting from a huge stimulus package after GFC. The Chinese government has adopted it’s own way and paths to solve this prolonged issue, a comprehensive approach tailored to its unique socio-economic and political context. Through regulatory measures, affordable housing programs, land use reforms, and financial policies, China aims to stabilize the housing market, ensure socio-economic stability, promote sustainable urbanization, and support long-term economic growth.

The export seems doing well with a strong export figure boosted by 新三样 and hope the strong export may continue to find new markets and avenues.

 

新三样”出口首破万亿，释放出怎样的信号？ <link>

 

As for the “Consumption”, without a huge stimulus package from government spending  ( consumption), the diminishing wealth effect after the collapse of the housing market and a lacklustre stock market dampened the overall private consumption, can see the effect of drops in demand for luxury items in China in recent reports.

Boosting domestic consumption is a critical goal for China as it seeks to transition from an investment-driven (property) growth model to one driven by consumer spending. Enhancing domestic consumption can lead to more sustainable economic growth and reduce reliance on property sectors and exports. While the property sector may take time to heal, it is important to continue to have high growth in exports and to boost domestic consumption. The government will need to come out with real $$ and a concrete policy to address this issue, or else everything will just be a 纸上谈兵.

 

As I mentioned in my previous blog post, investing in the HK/CHN market is very challenging with various domestic issues and capital outflow from foreign funds. Having a diversified portfolio strategy, focused on income generation and fundamental strength, can help you navigate high volatility and geopolitical uncertainty. Regular monitoring and rebalancing, along with a mix of asset classes and geographies, will provide a stable foundation for your retirement investments. Focus on companies ( 所谓轻市場，重公司）with strong balance sheets, consistent earnings growth, and sustainable free cash flow with competitive advantages.

 

Portfolio Update :

Portfolio XIRR :

YTD : +8.4%

Since Inception ( 1998 ) : +13.3%

My portfolio experiences significant and rapid changes in value over short periods, is like a rollercoaster ride, resembling the intense ups and downs from -ve 3% to +ve 11.8% and now decrease to +8.4% because of a big swing in the HKG market. Overall, I am happy with this +8.4% return as I mentioned earlier having realistic expectations on investment returns is crucial in the current challenging market to avoid disappointment, manage risk effectively, and make informed decisions. Understanding market volatility, geopolitical tensions, and economic uncertainties helps investors stay grounded, adapt strategies, and achieve long-term financial goals.

As a long-term investor, it's important to recognize that recent double-digit growth in the S&P 500 over the past 15 years can create a misleading perception of ease in investing. The post-Great Financial Crisis (GFC) era saw significant government liquidity injections, driving markets higher. This liquidity-driven environment can lead to recency bias, where investors expect similar returns in the future, underestimating potential risks and volatility. While the market has performed well, long-term investing requires understanding that periods of high growth are often followed by corrections or slower growth phases. A disciplined approach, focusing on fundamentally strong companies and maintaining a diversified portfolio, is essential. Recognizing the complexities and potential challenges of investing helps manage expectations and build a resilient strategy, ensuring sustainable growth and protecting against overconfidence driven by recent market performance.

 

My portfolio is still very much skewed towards the HK/CHN market with 52.9% of the allocation followed by SGX (30.3% ) and LSE (16%). As highlighted earlier, the HK market has been challenging for the past 5 years and I don’t have a crystal ball to predict what will happen next and am happy to just hold on to my current holdings and wait while continue to receive my dividends. 😊

 Some of the stocks from HKEX are doing quite well in 2024, especially those China Oil companies, like CNNOC ( +57%), PetroChina (+32%), and Sinopec Corp (+23%). Other than that, Tencent is also up by +22% with an aggressive share buyback and better prospects.

You can see that property / REIT are still struggling under the current high interest rate environment. (CLCT -25.3%, LINK REIT -23.5% (which I added recently), ESR -14.1%).

 Among the Top 10, BHP has the worst performance (-21.8%), it dropped from 5^th position previously to nbr 8th now.

 

I reduced my holding in CNOOC / Shenzhen Int and switched to non-oil counters as the % of Oil& Commodity has exceeded the Financial sector in my portfolio. There is nothing wrong fundamentally with CNOOC as I just wanted to do some re-balancing of my portfolio. I added BAT / Vodafone/ Aviva/ M&G/ IG / Ashmore and Burberry from LSE and Perfect Medical (1830)/ Stella Int Holding (1836)/ Fufeng Group (0546)/ Link REIT (0823)/ Bright Smart (1428) and Yankuang Energy (1711) from HKEX.

 

 

Dividend Update :

Total Dividend (collected & announced) : as of 4^th Aug 2023 = $132,841.19

3^rd and 4^th Qtr dividends should increase further as more companies will announce their interim dividend, especially stocks from HKEX and some from LSE/SGX.

As for the total dividend to be collected in 2024, I expect it to be slightly lower as compared to 2023 mainly because in 2023 I received dividends in specie from Keppel Corp (on SCM and K-Reit ), Tencent ( on Meituan) which is valued at $21,395.16

 

 

The Power Of Compounding Effect:

 

 

“Sedikit-sedikit Lama-lama Jadi Bukit”

This is not a chart to “hao-lian” on how much dividend I have collected but to show "the power of compounding effect “over a long period (26 years of investing).  

Sometimes, we often hear people saying that dividend/income investing is only for investors with a “big/substantial “amount of capital that can generate a meaningful amount of passive income. I think this is wrong as you can see, I was just collecting a few hundred dollar dividends in a year in my early days of investing in the stock market and it has grown/compounded over a long period of time.

Remember this chart I posted before, in the long run, there are parts of the equation in your portfolio, one is the total portfolio value which fluctuates according to market sentiment (in the short term) and grows with earnings ( in the long term), up and down subject to market sentiment and "regression to mean". The other part of the equation will be the dividend income you regularly receive from companies earnings/cash flow, this is the part that continues to grow for certain. 👌

Investing early, even with small amounts, offers significant long-term benefits due to compound interest, reducing risk over time, and leveraging market growth. Small, consistent investments establish disciplined habits and make investing accessible. Focusing on income and dividend-paying stocks provides regular income, reinvestment opportunities, and stability from fundamentally strong companies.

Final thoughts:

Investing is a tough game, demanding patience and a long-term view. It's not just about picking stocks; successful investing requires disciplined portfolio management to mitigate risk. Emotions and temperament play crucial roles in determining final returns. Market fluctuations can provoke fear or greed, leading to poor decisions. Those who stay focused on long-term goals and manage their portfolios wisely, balancing risk and reward, are more likely to achieve sustained success. Emotional control and a strategic approach are key to navigating the complexities of the market and realizing consistent, favourable outcomes.

Investing is not a sprint but a marathon, emphasizing the importance of a long-term perspective. In this race, you're competing against yourself, not others. Achieving 1-2 years of good returns doesn't guarantee future success; short-term performance can be misleading. Sustainable investing requires a focus on the long run, where consistent, disciplined strategies prevail. Market conditions fluctuate, and what works in the short term might not be effective over decades. Long-term investing demands patience, emotional control, and a commitment to continuous learning and adaptation. By staying the course and focusing on your personal financial goals, rather than comparing yourself to others, you can build a resilient portfolio that grows steadily over time.

 

 

Learning and understanding financial history, particularly regarding bubbles and bursts, is crucial for informed investing. It helps investors recognize patterns of irrational exuberance and market excesses, allowing them to avoid similar mistakes. Historical knowledge provides insights into the causes and consequences of past market crashes, fostering a more cautious and informed approach to investing. This awareness aids in identifying warning signs, managing risk, and making better decisions. Understanding "regression to the mean" is vital, as it reminds investors that extreme market conditions typically revert to average levels, emphasizing the importance of a balanced, long-term strategy for sustainable growth.

 

Cheers ! Till next update 😊

 

STE

 

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