Monday, 27 June 2016

S-REITS, safe haven in the age of turbulence?

Yes. A black swan! BREXIT happened!

Although both sides of the ill-conceived Brexit campaign stood chance to win, according to the reported poll figure before the referendum, the decision"To leave EU" made by the British voters on 24 Jun 2016 shocked the financial market nevertheless. 

Pound crashed over 10% upon the news within minutes to the level that has never been seen since 1980s! And is expected to go much lower. Some started to talk GBP/EUR parity or even GBP/USD parity. Surprised?

Once the disturbing news was out, Asian and European stock markets plunged! Bank and Financial sectors were hit the hardest! Share price for major UK banks were down 20-35% in a day! Hours later, US stock market opened, and behaved in the similar manner. 

Singapore stock market also went down last Friday of course. STI went down about 2%. Not too bad, you may say. Compared to 7% for Japan, 6-8% for Germany, France. 3% for UK ( the Bank of England intervened, it was lower before market close). 3-4% for US stock indexes. 

Meanwhile, safe haven assets went up, including Gold, Japanese Yen, Sovereign Bonds of major stronger economies, such as US, Germany and Japan.  Almost all major economy's national short and medium term bond yield went into negative territory except US. 

To many's dismay, the over-bloated national bond market bubble, far from bursting, is now growing bigger and bigger. Scared money just keep running into these perceived safe haven to chase a little pathetic or even negative yield: You need to pay interest to German, Japanese, or Swiss government to hold their national bond!

The facts just rendered every lesson I learnt in the class ridiculous, for example, time value of money?


Would it be a one time selling off as knee-jerk reaction to bad news, or would it be a start of a long painful bear market?

Right now, US stock market is hovering at several years high after GFC. The US economy is recovering but at decreasing lower rate than ideal. US, EU (UK included) and Japan are all suffering from stubborn and harmful deflation. China is facing tough economic restructuring, impending problems of mounting debts, and the seemingly uncontrollable property bubble. Once burst, it would send strong shocking waves to Asian Pacific, especially HK, Singapore, and Australia where rich Chinese property buyers likes to shop.

It is now supposed by many observers that US Federal Reserve might not increase Fed fund rate at all in 2016. Just in Dec'15 when Fed started first rate rise, market expected interest rate to rise 4 times in 2016. That number was then reduced to 2 times, and 1 time due to the deteriorating US economic data unfolded in 2016 so far. Now the unprecedented BREXIT Event totally destroyed any hope for Fed to raise interest rate in 2016. Some even started to talk about cutting rate in Jul or QE4! 

Is this a replay of Lehman Brother in Sep 2008?

3. S-REITs

S-REITs went up today after Friday's knee jerk reaction of selling off. I was not surprised to see S-REITs went up today.The bond markets had given me a clue of how yield counters would probably perform in short time. The established S-REITs ( A-Reit, CMT, CCT. Mapletree-families,etc) were acting as safe havens again in the time of market turbulence. ( See screen shots from SGX website below). 

However, neither macro conditions nor S-REITs' micro fundamentals warrant continued rising in price. I expect the price volatility to remain heightened until the Brexit situation become clearer. I do not expect S-REITs price to continue going higher. Instead, I am prepared to see S-REITs price dropping down another level if situation changes from bad to worse in future. 

Should investors be too concerned to sell S-Reits holdings and leave the market now? 

Personally, I hold half of my Reits fund in cash and half in Reits now. I would buy more S-REITs should their price go down in sheer panic. Right now, this sort of rising due to risk aversion would not entice me to chase high, but on the other hand I would not sell any of my holdings, as where else to go for a stable income?  

simply believe that no matter what happens, factories needs space to operate although some will die out, companies require office space for their business despite now they are willing to pay less rental, consumers still go to shopping malls for fun after they happily shopped on-line. 

If indeed it is a replay of 2008, I only wish the storm to turn out stronger!

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