February 2017 - SG Wealth Builder

Month: February 2017

Recently, I partially divested my physical gold for 10% yield amid the rally in gold price. The reason for selling my gold is not because I lost faith in it but solely to consolidate my funds to prepare for the impending Temporary Occupation Period (TOP) for my Executive Condominium.

The average annual yield from my physical gold investment is about 3.33%. Although the return is nothing to shout about, it is still above the prevailing bank interest rates. It is also above the average inflation rate in Singapore for the past three years.

Interestingly, the inflation rate in Singapore has dropped drastically from a high of nearly 6% in 2012 to negative 1% in the middle of last year. Is negative inflation good for Singapore? Absolutely not the case. If negative inflation persists, it may lead to deflation and causes the economy to spiral out of control. Japan’s economy is a classic example. The country has been struggling with deflation for the past 20 years and has to implement Negative Interest Rate Policy (NIRP) to revive the economy.

The slide in inflation rate coincided with a corresponding decline in gold price, which peaked in 2012 and suffered a slump till …

Three things about growing wealth

sgwealthbuilder

February 22, 2017

personal finance

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This will be a short post to capture my thoughts about growing wealth in Singapore. In light of the recent Budget announcements, water prices will hike by 30% in two phases over two years. Thus, it is not matter of choice for Singaporeans to consider growing their wealth to beat the cost of living. All Singaporeans must start the journey as early as possible.

Stop tracking expenses

Early on in my wealth journey, I confess that I did track my monthly expenses and personal income religiously without fail. But I had stopped doing so after three years because I noticed there were no significant improvements in my personal cash-flow. Instead of enhancing my wealth, the quality of life inadvertently dropped as I suffered from guilt pangs whenever there were unexpected expenses incurred from friends’ outings or wedding dinner red packets.

After a while, I began to realize that my life should not be controlled by a spreadsheet. I need to be larger than life and start living a life. After all, we only live once. We are born into this world to enjoy, not suffer. With the change in mindset, I started to empower myself by focusing on how to …

Research report on SIA Engineering Company

sgwealthbuilder

February 21, 2017

Stocks

1 Comment

On 3^rd February 2017, SIA Engineering Company announced 3Q results for 2016/17. It wasn’t exactly an impressive set of results but the data certainly reveals some interesting aspects of the company’s performance against the backdrop of a challenging operating environment for the maintenance, repair and overhaul (MRO) sector. This will be another research report on SIA Engineering Company (SIAEC).

Traditionally, SIAEC has a solid business model because it provides maintenance, repair and overhaul (MRO) of aircraft, engines and related components and offers the complete MRO suite of services. The business is recurring and with its vast network of joint ventures, the MRO stalwart managed to build an impressive investment moat in Singapore, rivalled only by local competitor, Singapore Technologies Aerospace.

However, the emergence of new generation aircraft with high reliability looks set to disrupt SIAEC’s business model because of the decline in demand due to extended maintenance intervals and lesser work-scope. In light of this, the management has started to position itself for the future through several initiatives.

Given that its joint ventures contribute a substantial amount of profits consistently to SIAEC, the management rationalized its portfolio of joint ventures periodically to extract value for shareholders. Some of these …

Will Ezra sink OCBC share price?

sgwealthbuilder

February 16, 2017

Stocks

1 Comment

On 14 February 2017, OCBC reported a net profit after tax of S$3.47 billion for the financial year ended 31 December 2016, a decline of 11% compared to last year. Not surprisingly, the decline in earnings was due to an increase in net allowances for loans, mainly in the ailing Oil and Gas (O&G) sector. The bank has $15.8 billion exposure to this sector and Non Performing Loan (NPL) has crept to $1.3 billion. Will Ezra sink OCBC share price?

Ezra is an offshore contractor and provider of integrated offshore solutions to the global O&G industry. The Group has three main business divisions, namely Subsea Services (“EMAS AMC”), Offshore Support and Production Services, and Marine Services offering a full range of seabed-to-surface engineering, construction, marine and production services globally.

The struggling Ezra recorded a net current liability position of US$887,220,000 for the financial year ended 31 August 2016. It seems that Ezra has miscalculated the business risks and this led to various obligations owed to financial lenders and trade creditors. The troubled company recently flagged that it could possibly write down $170 million worth of investment due to problems with one of its joint ventures, EMAS Chiyoda Subsea.

Amid all …

Why Currency Values Drop After Political Change

Whenever there is political change, there is currency value change. Whether such political change is for the better or worse is often a matter of opinion, but almost every time currency values seem to drop after such a change. Most recently the US dollar has experienced its worst start to a year in decades, mainly due to President Trump taking residence in the White House. There are many reasons why political changes usually lead to a fall in the nation’s currency value.

Elections and Volatility

In the run-up to any election, currency values always fall. This is because traders view it as a time of political instability, with a greater chance of the currency falling leading to a sell-off by many traders. There will likely be different financial policies from all those up for the election, meaning investors and traders will be uncertain about what the future for a currency will hold until the outcome of the election is revealed. Trade can also slow down during elections, further weakening a currency.

Changing Monetary Policies

When a new leader or political party takes charge, there is often a fresh monetary approach. This is a strong driver of a nation’s currency …

Buy gold bullion now?

sgwealthbuilder

February 11, 2017

Gold; portfolio management

6 Comments

In 2016, Brexit set fire on gold and ignited a rally in gold price. In 2017, it was newly elected US President, Donald Trump who ignited an unexpected gold price rally with his controversial policies. Should wealth builders buy gold bullion now?

In my own opinion, every leader is entitled to defend his country’s national interests. Whether Donald Trump’s policies, which have been viewed by many critics as being protectionism, will lead to a stronger United States is subject to debate.

But Trump’s actions certainly create a lot of market uncertainty. And one of the things that investors hate most is uncertainty. Due to this, investors flee for safety and buy gold bullion. Since Donald Trump took office, gold price has rallied to USD1233 per ounce. On the current form, gold price is certainly very bullish and looks to rise further in the short-term.

Based on data released by World Gold Council, gold has a mixed performance in 2016. While the price has recovered from a low of USD1067 per ounce since end 2015, demand for gold bar and coin has dropped by 2% year-on-year. This is because many investors has been put off by the high price of gold …

Loss aversion

sgwealthbuilder

February 8, 2017

Self improvement, Trading

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For many wealth builders, winning $1000 in the stock market is very different from losing $1000 in share investments. In fact, many research studies have demonstrated that the impact arising from losses is twice as powerful as gains. This strange phenomenon is known as loss aversion.

Coined by Amos Tversky and Daniel Kahneman, loss aversion explains why most people prefer avoiding losses to making gains. Understanding this form of economic behavior may help us become better investors because it can shed some light on why people make irrational decisions consistently.

Our brains are geared to hold on to what we own because in ancient times, our ancestors survived by holding on to resources. As a result of such human evolution, our instinct tells us to avoid making losses at all costs. But what we don’t realize is that in doing so, we often make flawed decisions and end up being financially hurt. This is because times have changed and modern day economics have become much more complex, so we cannot afford to apply the same loss aversion mentality when managing money issues in today’s context.

Most stock investors hate cutting losses because most of us has a tendency to be …

Analysis on Suntec REIT

The rationale for this stock research arises from my recent decision to invest in a reputable REIT with a consistent track record of cash distribution per unit (DPU). Another factor of consideration is the quality of the management in strategizing growth for the company. Suntec REIT seems to fit the bill and hence, this shall be my first analysis on this venerable SGX stock.

New chapter for Suntec REIT

Listed on 9 December 2004 on Singapore Exchange mainboard, Suntec REIT is the first composite REIT in Singapore, owning income-producing real estate that is primarily used for retail and/or office purposes. 2016 had been an eventful year as the company expanded its footprint in Australia and navigated through the soft retail market reasonably well. For 2017, the change of CEO of the Manager will herald a new chapter for Suntec REIT.

On 2 December 2016, it was announced that Mr Yeo See Kiat would retire as CEO with effect from 31 December 2016. Mr Yeo has been CEO of the Manager of Suntec REIT for 10 years and has steered the company through significant milestone events through the decade. Some of his notable achievements include overseeing the $410 million asset enhancement …

Analysis of SingPost

On 29 December 2016, SingPost finally unveiled a new Chief Executive Officer (CEO) through appointment of Mr Paul William Coutts who was previously from Toll Global Forwarding, one of the five divisions in the Toll Group. On the basis of the 2Q2016 financial performance, the new CEO will have his work cut out for him. This article contains my analysis of SingPost.

Suffice to say, the business model has been disrupted by digital technologies, which led to declining traditional letter mail volumes in recent years. 2Q2016 financial results revealed that SingPost is a company still “work-in-progress”. Underlying net profit for Q2 fell 27.9% which the company attributed to “transformational investments and challenges”. Total expenses increased by 23.7% due to higher expenses in the eCommerce business and costs related to the new Regional eCommerce Logistics Hub.

As the management embarks on its business transformation journey, the incoming CEO has an unenviable task of leading an institution that has faltered in recent years. While the company is still making profits, operating profits across all its business units declined by doubt digits compared to last year. Its eCommerce unit lost $6.8 million and $10.3 million in Q2 and H1.