Investment Portfolio Updates- 31 Dec 2018 (Dawn before Global Recession 2019?)

As I have mentioned previously, I am having a strangely familiar vibe similar to the one before the 2008 Global Financial Crisis with the frequent dead cat bounce at the stock market. Investors and consumers sentiment in the economic situation can change very fast and lead to drying up of economic activities with the blink of an eye. Other worrying signs such as low oil prices and narrowing of the 2 year US Treasuries bond yield against long-term 10 year US Treasuries bond yield (indicating the formation of the infamous "Inverse Yield" curve) signs have appeared. Once we entered into a depressive state, the stock market will crash followed by property market. Keeping my fingers crossed that the US-China trade war will be resolved in the upcoming few months so that we will escape any severe economic downturns. 

Who dare wins- Do you dare to invest during an economic downturn?

If that dread recession do come and stock market keep plummeting, the key psychological barrier will be whether you will dare to put in additional money into the stock market or property market amidst the nightmarish scenario whereby news of financial institutions, manufacturing companies, and service firms commence laying off their staff or start cutting pay. Will my firm also start retrenching staff and whether I will be on the "next list to go" will be on everyone's mind. Many folks have old parents, young children and also housing mortgage to service. The stress and fear of sustaining these daily supporting activities along with uncertainty over how long or how severe the economic situation may worsen will prevail in the mindset of most folks.   

One will also be worried about catching a falling knife as the market just keep getting flooded with pessimistic news and stock & property prices keep dropping. No one likes to invest and then ended up the following months with prices still spiraling downwards.

Hence it is easy to say and talk about buying when prices go down. But in real life, it will never be easy. 

What happens if it turns out to be only a correction in the stock market?

Well, this is the best scenario and I am praying that this will indeed be the case. With the US government heavily in debt and the interdependency of global economies, the chain effect may be something akin to the Great Depression of the 1930s. Ben Bernake, who studied and put together papers on the Great Depression, is no longer the Federal Reserve Chairman. His study of the biggest calamity to hit the US and world economies led to his belief in rapid government actions to intervene. Not all economists have such strong beliefs. I do not like the way the current Federal Reserve Chairman, Jereome Powell keep raising the interest rates aggressively based on some charts instead of having a more thorough understanding of the macro economies fundamentals and the wilful disruption of market confidence in such a high handed manner are simply disastrous on the global stock markets. 

Of course, if it turns out to be only a mere stock market correction, then folks who have already exhausted every single available spare dollar on hand to buy into the current stock market would have benefited once the market recovers. 

Companies in medical related fields have more resilient earnings?

This is absolutely not true and one of the greatest myth out there. Medical related businesses are also risky investments to put your money. The usual adage of good management team and the entry price (relative to perceived intrinsic valuation) are more important -which is similar to non-medical related businesses. Raffles Medical Group and Sing Medical are examples of the volatility in share prices as well as earnings growth decline which were previously hit by a decline in medical tourism due to intense regional competition. 

First REIT (which I am vested) is another good example. There are major concerns voiced out by many analyst and investors about (i) the new renewal terms of 2021 expiring lease contracts which will lead to worsening contractual terms such as no longer being able to lock into USD fixed rates and be subjected to IDR exchange fluctuation and also (ii) the credit risk of the major debtor & sponsor,Lippo Karawaci, which is suffering from a worsening financial position. I will probably do another blog on this topic relating to the myth that companies with medical related businesses have more resilient earnings. (Updated: 12 Jan 2019-  "Healthcare Stocks Are Resilient In Earnings? Fact or Myth?")

New year and new hope

I do hope that the current trade war between US and China are resolved amicably so that free trade can prevail. In the meantime, I have made some adjustment in my current portfolio to position it through the current bearish market mainly with the accumulation of Thai Beverage and Singtel.