Shipping sector on a recovery

I've posted before that the shipping industry may be on a recovery. First post was on June 20 here and second post was on July 14 here.

I've wrote about the Baltic Dry Index (BDY) and how it is related to the shipping industry. In simple terms, the BDY tracks the cost to transport raw materials. The higher the cost, the higher the index. A higher cost to transport means shipping firms get to earn more on each route.

The BDY has risen by another 25% since the first time i posted about it. Look at the chart here. Dry bulk shipping stocks have already anticipated the move and is on the rise now.

Manufacturing data from the US, China and the Eurozone is showing expansion also. Demand for goods is picking up.

There are 2 shipping stocks listed in the US that have already doubled in price.

The first one is Dryships (DRYS). From a low of 1.49, it has risen to about 2.88 now.

 The second is Diana shipping (DSX). From a low of $6.20, it has risen to about $12.50 now.

How about shipping stocks listed in the Singapore exchange? I've not seen any major movement on shipping stocks listed in Singapore yet. Maybe this would be an opportunity to buy them now at low prices and anticipate the move up. I will never know what will happen. It is purely a speculation. 

Speculation or not? I'll still be watching out for shipping stocks now. There are pretty good fundamental shipping stocks like marco polo marine. Singapore owned NOL may benefit from the recovery also. A caution is NOL has been struggling for many years and we won't be sure whether they can come out of it. 

Let's see what will happen by the end of the year. It is the time to research and watch it carefully now. 

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Related Posts:

1. Volatile shipping market shows signs of recovery

2. Quantitative Easing - how it affects the economy and the stock market?

Market update - Substantial rise in treasury yields

Update of Treasury yields in the US

2yr Treasury Yields - 0.51%
10yr Treasury Yields - 2.98%
30yr Treasury Yields - 3.88%

What do these numbers means? A rise in yields implies a fall in bond prices. If you have investment in bonds,  most likely you'll see a drop in your portfolio value. Short term yields have already more than doubled from 0.24 to. 0.51.

This also means that interest rates are rising. Those with floating rate loan packages will feel the effect of higher interest rates. If you have substantial loans like housing and car loans, do take note of the impact.

The good news is a rise in interest rates usually signify a economic recovery. Money is flowing out of bonds(which is considered a safer asset) into equities and other more risky assets.

Dry bulk shippers have bottomed out from its low and have risen substantially the past one month. Baltic dry index (BDI) is also rising indicating an increase in shipping freight rates. Will Singapore shipping stocks start to recover as well? This will need to be monitored further.

Reits and property stocks will be negatively impacted by the rise in interest rates. Reits generally have high debt to service ratios which means they borrow a substantial amount of money.  Higher interest rates will impact a reit's profit.

There may be an adverse effect as some Singaporeans are overleveraged on debt. Some with debts of more than 60% of their income. Will there be more loan defaulters and bankruptcy? That we'll not be sure and need to see how the situation develops.

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China Minzhong acquired by PT Indofood. Share price shoots up by 112%

China Minzhong has gotten out of its pit. Its trading halt was lifted today and from a low of 0.53, it shot up to 1.12. Reason was because it got an offer from PT Indofood to acquired its shares at 1.12. China Minzhong has offered its shareholders a mandatory cash offer at an offer price of 1.12.

Previously, a negative report by Glaucus Research caused it share price to drop by more than 50%. This caused fear to investors who own China Minzhong shares as they see their portfolio value plummet. There were rumours that China Minzhong could be forever suspended and shareholders could never get back their money. There were many S-chips or so called china stocks which suffered that fate so its understandable that a fear is there.

So what does a mandatory cash offer means? It means all shareholders have to sell their shares and the company will buy it at a price of 1.12. You can sell it now or wait for the mandatory cash offer letter to be mailed to you and accept the offer.

I've received one mandatory cash offer before and it was by the company sakari. It was known as straits asia trading beforehand. It does feel good to see your stocks jump up in value. How to know if a company will be acquired? I have to say there is no sure way to tell but investing in undervalued companies increases the probability by a lot.

Learning how to pick stocks is the best knowledge that you can acquire. In fact, by learning how to analyze a company, i've picked up skills in business management and economics. I've also learnt the skills of accounting. There is so much to learn in the investing world. One can never get bored of learning and lifelong learning is one of the keys to success. It is not just about making money but its about a journey towards financial freedom.

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Related Posts:
1. How to pick stocks (Part 1) - Economic Moats
2. How to pick stocks (Part 2) - The profitability of a business

What is happening to the market?

I'm back from my holidays and time for me to start writing again. It has been a good trip and Taiwan was really fun. Every country i go to, i'll notice that each has its own culture and national identity. You could recognise who are the resident people there. Apparently, it is most obvious from the way they talk. Taiwan people have their own style and tone of chinese. China people have their own different set of style and tone of chinese. Even Singaporeans have their own style of chinese. One common language but different identity.

Just only one week of my holidays and the stock market has declined so much. Today the STI is dropping more than 50 points. Am i worried about my current stocks position? I would say i am not. I could still enjoy my holidays even though i saw the markets declining (well, i still checked the stock market when i'm overseas). This year, i've not invested a lot of my capital in the markets. I still have money to buy in when the opportunity arise. Thus, if it keeps on dropping, i can still accumulate more.

Yesterday, the most talked about stock was china minzhong. It dropped 50% and caused trading to halt on the counter itself. What is happening to this stock? There is a report by Glaucus Research accusing china minzhong of financial irregularities. How true is this report? I have no idea and i'm sure every investor will be clueless as well. We'll have to wait for the official explanation by china minzhong themselves. I do not have any shares in china minzhong as of now. Will i risk to accumulate shares of it? If i calculate my risk appetite, it could be worth it to risk a small amount of money to buy into it. This is money that i would be willing to lose. China Minzhong has been a good company thus far so if the report is not true, the stock price will recover quickly.

The current weakness in the stock market presents an opportunity to buy good companies at lower prices. Value investors do like the stock market to decline. When is a good time to buy? As an investor, i would say there is no perfect time to buy. Nobody can predict the bottom perfectly. You could learn some technical analysis which is chart reading to determine better entry points. But however, technical analysis has its shortfalls too. Losing money is part of investing. But you have to know why you're losing money. If you don't know why, then most likely you're investing blindly.

Related Posts:
1. Why people lose their money during crisis?
2. How to pick stocks (Part 2) - The profitability of a business

Betting on a recovery?

Will the economy recover? This is something that analyst and retail investors alike have been specualting. There has been much discussions on the ending of QE in the US and this means that the low interest rate environment will end soon. It also means that the US federal reserve is predicting that the global economy will recover and QE is no longer needed. To know more about QE, read my previous post: Quantitative Easing - how it affects the economy and the stock market?

Whether the stock market continues to rise or fall will depend on the economy. If the economy recovers, companies will have higher profits and higher profits most of the time lead to higher stock prices. Investors who bought in early expecting a recovery are still waiting for that day to come. The Stock market has been rather flat this year after the correction in June which wiped out most of the gains in the first few months of 2013. REITS which had generated rather high yields for investors over the past 2 years had either declined or remained stagnant at the top with limited upside. Some investors have sold off reits to profit on the returns. Read: why reits are on a downward fall again?

I'm also betting on an economic recovery. I'm slowly buying into cyclical stocks like shipping and looking at construction companies. Food industries are on my list of investments too which I favour more on companies owning restaurants. What if I'm wrong and the economy doesn't recover? I think it will be even better if stocks fall lower so I can buy them at an even lower value. I do not have all my money in the stock market now. Still have another tranche ready to deploy if circumstances changes.

This post is written while I'm travelling back home on the mrt. Its good that we've living in an age where we can access to the internet everywhere. Information is always on our finger tips. This is made possible by mobile network technologies like the 3G and 4G LTE.This was not possible many years ago. Till then, invest safely and profitably. :)

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Volatile shipping market shows signs of recovery

It was reported in channel news asia today that the shipping market is showing signs of recovery. However, China's economy is still showing signs of slow growth therefore the recovery should be more gradual instead of a sharp recovery.

The Baltic Dry index is an indicator of the state of the shipping industry.  

Investopedia explains Baltic Dry index as:

A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product to transport and time to delivery (speed). 

The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) - Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index's composite measurement.

It is also known as the "Dry Bulk Index".


The index has jumped 68% during the first half of the year. This will benefit dry bulk shippers as they see an increase rate for each trip. 

Select Group secures land to accommodate food business expansion

Saw this news on the straits times. Looks like this company is expanding. Building a new HQ with its central kitchen and R&D centres under one roof just like breadtalk.

Qutoed from the straits times on July 12, 2013:

"Select Group has accepted an offer of direct land allocation from Jurong Town Corporation of a piece of vacant leasehold site of about 64,434 square feet at Senoko South Road.

The company said it would need more space to accommodate its increased production capacity, logistic and office support functions, in anticipation of future business expansion.

Select intends to build a multi-storey building on the site, which will house its central kitchen facility, together with a research and development centre, training test kitchens, storage facilities, cold room facilities and the company's operations and corporate headquarters.

The cost of construction will be financed through internal resources and bank borrowings."

Related Post:
Company in focus - Select Group

Analysing a company - The importance of R&D

Just ended my economics class awhile ago and there were some interesting discussions today. Some of the discussions include

1) the problems of ageing population in singapore, 

2) the restriction of foreign workers by increasing foreign worker levy

3) why singaporeans have to retire later as retirement age is constantly increasing.

All these are big topics and it has been debated for the past few years in our homeland, singapore.

So what has this got to do with our analysis of companies to invest? I think as our economy becomes more competitive and we face a shortage of manpower due to ageing population, companies need to restructure the way they do their business in order to stay competitive.

The restriction on foreign workers has impacted businesses in singapore already especially in the f&b sector, the services sector and construction sector etc. Why is the government imposing a higher levy on each foreign worker hired? Won't this increase the cost of the company and result in lower profits?

Yes, it will impact firms greatly especially those that rely heavily on cheap workers. The purpose of this policy is to increase the productivity of firms especially SMEs. In a way, it forces the company to use technology and rely less on workers. If you study economics, you'll know that for a developed country like singapore,  we cannot increase economic growth substantially by increasing capital or labour as developed countries faced a phenomenon called diminishing rate of returns. Developed countries need to grow by increasing technological change which improves productivity.  That is the direction that the singapore government hopes to steer the country into.

Technological growth is costly. Firms who can outgrow competitors are mostly those who invest in research and development (R&D). If you look at most of the successful firms in the world,  you'll realise that most of them invest greatly in R&D. Google and samsung are such examples. The amount they invest in R&D is enormous.

How about firms in Singapore?  Food and beverage firms face higher manpower cost due to tighter foreign labour policies. Breadtalk for example has invested in a new office building which they just moved into. Their central kitchen is located there together with their offices and they have a fully automated production line for their bakery in that building too. This helps to save cost for them greatly. The new building also house their R&D department which they are focusing a lot into it.

On the other hand, if a company does not constantly innovate and change the way it does its business, it may lose out to its competitors and even big market leaders like Nokia which was considered a giant in the telecom industry, is facing huge losses year after year.

We can have many ways of analysing a company and I think one important factor to look at is how much the company is investing in R&D. This will help the company to continue growing and have a sustainable business model.

Why Singapore REITS are on a downward fall again?

Today REITS listed in the Singapore stock market are declining again. This is a screenshot i took from SGX

This is getting unbelievable as reits has fallen over 20% in the last few weeks. Today the top declining reit is Suntec with a fall of 4.56% in a single day. 

Let's take a look at some charts:

They do look like they are jumping off a cliff and still in a free fall mode. All of the big names like suntec, mapletree are officially below the 200DMA which is the long term trend line. 

Why has it fallen so much? This is mainly due to the concern of an increase in interest rates in the US. In fact if you track the interest rates in the US, it has already risen by a lot. Even interest rates in Singapore are rising. REITS are highly leveraged in a sense they borrow a lot of money sometimes about 30% of their equity. Once interest rates goes up, they are faced with higher loan interest payable. Two rates to track in Singapore is the Singapore interbank offer rate (SIBOR) and Singapore Swap Offer rate (SOR). Bonds are being sold off aggressively both in the US and Singapore causing yields to go up. Bond prices and yields move in the opposite direction. 

Below is a chart of the 3 month SIBOR rate for the past 12 months ending may 2013:

This is the rate that banks lend to each other. Local housing loan interest rates track movements to the SIBOR. If this is increasing, home loans interest rates are increasing in Singapore also. Those taking up a housing loan have to watch out. Either take a fixed rate loan or take a loan from HDB which offer a fix rate at 2.6% currently.   

Below shows a comparison of the 3 month SOR vs the 3 month SIBOR:

This is the average cost of funds used by banks in commercial lending. In Singapore most banks offer housing loan packages either pegged to the SOR or SIBOR. This is like a "cost price" to them and they add a margin to earn a spread.

The essential cost of the rising interest rates globally and in SG is the potential ending of QE in US.

You can read my previous post on QE and why it affects interest rates here: 

Quantitative Easing - how it affects the economy and the stock market?

Elsewhere in the biggest asian country, China, they are facing a possibility of a credit crunch. There are fears that the china banking system may run out of cash soon and face liquidity problems. Shortage of funds cause banks to raise interest rates. China key stock index closes down 5.30% today as reported by channel news asia.

The recent market correction is an opportunity for bargain hunting of good stocks. Choose stocks which are not highly leveraged on debts and have cash to invest and ride on the recovery in the economy. Examples are shipping and industrials. In fact, banks will also benefit from the increase in interest rates as they can charge a higher interest rates on their loans and transfer the risk to borrowers. The only worry is that there will be people who will default on their loans due to over borrowing. 

I have been anticipating this interest rate movement since last year. This is a good experience for me to see what happens and learn from it.   

When will the STI rebound?

I was looking at my charts on the STI and saw some similar trends compared to the past 3 years.

The left circle in red was the decline in 2011 during the European financial crisis. The right circle in red is the decline recently.

Here are the stats:
1 August 2011 to 10 August 2011:    3215 --> 2800 = -415
22 May 2012 to 21 June 2012:    3454 --> 3124 = -330

STI has officially fallen below the 200DMA and this is called a technical bear market. When will a rebound most likely happen? Will stocks continue to decline? This is something that nobody can predict and even the best investors in the world will not be able to know. I can only make the analysis and plan my next step. I have the shorter term EMA(20 and 40) to help me decide on an entry point. The ones i circle in green are occasions where the STI broke below the 200MA and went back up again. The shorter term EMA is able to detect a trend change quite accurately for the past 2 sessions. That being said, it is still unpredictable and this is only a way of minimizing risk. Even if i buy in, i will divide my capital into 2 tranches and buy in half first when the trend changes.

3 things can happen next:

1) Stock market reverses from its correction and resumes the uptrend.
2) Stock market trends sideways for a period of time
3) Stock market crashes and goes down lower.

Remember to have a plan no matter what the outcome will be. If your style is to cut loss then do that. If your style is to buy in and average down later, then do that. Not one strategy will suit everyone. Each person has to find his own suitable strategy and implement it.

I do hope the market will go lower as its still at the top of an uptrend. If it goes lower, then the risk of buying in is even lower. Let's see what will happen the next few weeks and prepare ourselves for the next course of action.

Invest safely and have a great weekend!

Market crash or correction?

DJIA drops more than 300 points

The dow jones index drop 323 points yesterday closing below 15000. This confirms the market reaction to the Federal reserve statement to slowdown bond buying and end the QE by mid 2014. The worst hit are the banks with goldman sachs dropping more than 3.5% in a single session.

Asian markets

Asian markets followed suit with most asian indices declining sharply. Singapore's STI is down -55 points which is a 1.8% decline. Yesterday STI closed down -80 points, one of the worst session after the europe crisis. The worst drop I remembered during the European crisis was STI declining more than -100 points in a single day. There may be worst drops during the 2008/09 crisis but during that time I have not started investing yet.

The next step

So what will I be doing now? I would wait for the decline to bottom out first before I start to buy in. Using technical analysis, we can analyze and choose a better entry point. After years of research, I have developed my own plan of choosing an entry point and also an exit point. Having a plan is important as it helps me to know what I am doing and not be so affected by emotions during the ups and downs of the market. Using a combination of moving avarages (MA) and exponential moving averages (EMA), I can draw out my short term and long term plan. Typically I use the 20 and 40EMA for short term trend and the 50 and 150. When the shorter(20) EMA crosses the longer(40) EMA, it signifies a trend change. Same for the 50 and 150MA.

Technical analysis is not perfect. I choose to make it simple by just using the MAs. There are far more complicated indicators like stochastic,  MACD etc that traders use. I do not use these indicators most of the time.

I find that finding a strong company to invest in is more important.  Reading company's financial statements, analysing its business model, knowing economics and reading news is part and parcel for investors. If you can find a good company and buy at undervalued prices,  the chances of it going up is very high.

Market crash or correction? You decide for yourself.

*PS: Read on my previous post on Quantitative Easing (QE) to find out the opportunities that I discuss on.

*Feel free to leave your comments on what you think about this market situation currently.*

Singapore's PSI record breaking day and the stock market

Today Singapore's haze condition made a record breaking point. It was 290 as at 9pm and 321 at 10pm today. A reading of above 300 is deemed hazardous according to the Singapore's national environment agency. The highest was around 227 in 1997. That was a long 16 years ago. The condition is really bad with everyone feeling the impact. My facebook news feed is all about the haze condition and how people are "excited" over the record breaking history. There are people wearing mask on the streets and public transports and I guess tomorrow there will be more people doing that.

The situation now made me thought about a link to the stock market. In times when the stock market made a new record breaking high, more and more amateur investors will want a part of the game.

When the market is very hot, everyone is talking about the stock market and telling stories of how much they made through investing. Even uncles and aunties at the hawker centre are talking about it.

This is a time when the market is getting irrational and stocks are extremely overvalued. It is also a time when savvy investors start to sell and take profit slowly. Once the euphoria is over, the market crashes and everyone is in a panic.

This has happened everytime throughout history. Every crash begins with extreme optimism. The 2008 financial crisis which caused lehman brothers to fall was also built on extreme optimism.  Housing prices in US kept breaking record levels and everyone got into the game which made housing prices rise to unstainable levels.

Again, when the market crashes,  everyone on the street will talk about it and how bad the situation is. When extreme fear sets in, it is also a time for savvy investors to buy fundamentally strong companies at sometimes extremely undervalued prices.

Are you prepared to profit from the panic and guard against extreme optimism?  Start by improving your financial knowledge and be ready at all times.

Sell in May and go away?

The sell in May is a self fulfilling prophesy which happens almost every year. For the past 4 years, this prophesy has happened without fail.

In 2009, DJIA fell from 8675 to 8146 in June.
In 2010, DJIA fell from 11167 to 9974 in May.
In 2011, DJIA fell from 12850 to 11852 in May
In 2012, DJIA fell from 13228 to 12118 in May.

Except for 2009, DJIA all dropped in May. How about this year? Will the same thing happen again? I think it will happen again. If you study the chart of DJIA currently, you'll notice that its at the 5th wave of the elliot wave which is the last. From technical analysis point of view, it has reached the target of 161.8% on the Fibonacci. Traders will start taking profit at the 161.8% point.

From fundamental analysis point of view, the macroeconomic conditions worldwide and in US is still sluggish. Europe is still in trouble, US is still having high unemployment and slow growth. All these factors will contribute to the volatility in the stock market. I reckon that the probability of a sell in may and go away prophesy will happen again this year.

What does that mean for us? Its an opportunity to make money. You can either short the market or buy stocks after the may correction. It depends on individual and their style of trading.

Happy trading to everyone.

Investing in REITS

I've done a lot of research on REITs investing this year. In singapore, a very profitable reit i invested in was suntec reit. I bought at 1.16 and now the price is at 1.62. REITS have generally performed well in the Singapore market this year with an average return of 37.5%.

REITS are actually easier to research on compared to other company stocks. REITS own and manage properties. They collect rental income from their tenants and distribute the income to the shareholders. In Singapore, REITS are required to distribute 90% of the collected rental to shareholders. Average dividend for reits are in the range of 6-7% annually.

The easiest way to value a reit is to look at its Net Asset Value(NAV). This value can be found in most of the reits' financial statement. It is calculated based on its assets - liabilities then divided by the number of common shares the reit has. This will give us the NAV per share. If the reit is trading below its NAV price, then the reit is said to be undervalued and its worth considering to buy.

Of course analyzing companies cannot be based on one component alone. We still have to look at its profit for the past few years, its cashflow and also its business structure and strategy. If a reit has good expansion plan without taking too much debt, then we can predict that its profit will increase over time. This gives us reason to invest in the reit.

What will be the performance of reits for the next year in 2013? From my analysis, share prices of reits have increased a substantial amount this year but some are still undervalued. For exmple suntec reit NAV is 1.97 while its trading at 1.62 now below its NAV. However, historical stock price of suntec reit tops out below 1.80 and seldom breaks above it. In Singapore, property prices are hitting record highs and many analyst have warned that property prices may cool in 2013. However, commecial property prices are still doing good and as long as the Singapore economy continue to be healthy, reits that own retail malls and commercial offices should still do well.

Will the stock market rally continue?

Global markets have been rallying for the pass 2 months. The Dow jones has rallied from a low of 10655 to 12900 currently. S&P from 1100 to 1361. Nasdaq from 2400 to 2950. In asia, Hang Seng has rallied from 16250 to 21478 currently. STI from 2528 to 3002. If you calculate, most indexes has rallied more than 10%. The question is, will this rally continue?

The rally has been going on for 2 months without a decent correction. It has already gone long overdue. After the greek bailout being approved, asian markets did not react positively and remained flat with some indices slightly lower. US markets were slightly higher by +15.82. Now, asian markets are still flat as in preparing for some news to come out. If you look at the market internals for the NYSE and NASDAQ, you'll see that decliners outpaced advancers and down vol was higher than up vol. The VIX went up to 18 points indicating fear may be back on the trade. If there is a reason for short sellers to come into the market, now is a very good time as this market is way overcooked. The bulls are exhausted and the bears are ready. If the correction comes in the last few days of February and February ends lower, we should see a rally from march through april. These 2 months are known to be the best months in a trading year. This is of course excluding macroeconomic factors like EU crisis and the Iran nuclear issue. Any of these problems may trigger another sell off in the markets. 

Stay cautious and trade defensively. My strategy is to wait for the correction and buy the dip, bearing in mind of any macroeconomic issues arising. If the correction comes and i'm able to buy in, i'll most likely be out by mid or end april preparing for the "sell in may and go away" phenomenon which is a very accurate self fulfilling prophesy.