Wednesday, April 25, 2012

Asia property investment

Disclaimer : My rambling thoughts in my mind on what I should be doing in the current market environment. There is no research done for this rambling and it is just what i perceived to be happening and might be incorrectly construed. But I am basing my investment decision on this.

1930s Great Depression - govt has limited ability to stimulate economy with fiat currency as it is tied to gold. Period of Deleveraging and deflation.
1970s Bretton woods, gold peg is removed. Fiat currency is unlimited in quantity and is only limited by the willingness of govt to stimulate and investors to accept. Leverage makes sense because inflation is here to stay.
2009 Bubble burst. What changed? No gold peg, No alternatives for global investors and have to accept global govts willingness to print money and inflate their way out of the debt. Will deleveraging happens? Yes, western corporates are deleveraging, western homeowners are deleveraging. And western govts are deleveraging  thru' Inflating their way out of debt. What to do now? Inflation is here to stay. Property is the way to go in Asia.
Why ? A global rebalancing of funds has been taking place. High networth investors are deleveraging portion of their western portfolio and diversifying and leveraging into asian portfolio. Look for the countries making huge gains with good infrastructure and governance similar to western models namely HK, Singapore and Australia.

Why properties? Why not equities?
Equities will be good. However, properties will be even better because of the leverage effect and we are leveraging up again after the 1997 asian financial crisis. Crisis will never be forgotten by the ones who were affected. Clob shares ..deep mistrust of malaysian equities by those affected investors. Property investors who have leveraged up in the 1997 crisis will never again performed such aggressive leverage. However, History have a tendency to be forgotten by those who have never experienced it. The 20yrs old who were not involved in the crisis have becomes 30s and have investment power and are the new crop of investors leveraging up. Check around and you will see alot of 30ish property investors(and gurus) in Australia, Singapore and HK. If the leverage is increasing in Asia, property will be the game in town for the next decade until it burst. Why not US or Europe? They have experienced the property crash in their home country this crisis(much like 1997 asian crisis, asia property remain in a lull till 2006), the current batch of western investors have learnt their lessons and the new batch won't be coming online till 2019. So, thereotically, asia have another 7yrs before it reached its peak and crashed.

What about Japan? They crashed and never got up. So USA and Europe took over and went up instead. History has shown while one side deleveraged , the other side will take up the slack and leveraged up. Added to the fact that fiat currency is unlimited in supply. Take a look at the Nominal GDP(PPP) of the world based on US Dollars since 1980s.

You can see it is a straight line up even if some countries were deleveraging and others were leveraging. This time is no different. The system cannot deleveraged. Once money gets out into the system , it will stay there in the form of inflation as we see it. GDP as we see it is money supplied into investment and public spending and etc etc. So, it will always be a straight line up , with occasional downturn owing to temporary curb of investment and spending.  However, even then, it will not be deflationary because inflation have meant your $1mil investment in 2007 might now need $2mil to fulfil. We do not need to look at Real GDP as everyone is spending money in NOMINAL Terms. Can you tell your property seller that the real value of the property is actually $1mil , so I am going to give you $1mil. Nope. They take nominal value of $2MIL.

Have you noticed that since 2006, property experienced a surge and since then, property have essentially doubled in value. This is because of the QE by most major economies. Would it doubled again? Depends on how much more QE there is. Looking at it, USA ,Europe, UK and Japan still cannot escape the fate of more QE. There was an article by Krugman that shows the failure of austerity on contracting economies. It is a vicious cycle down. To solve your debt problem, the only way is to inflate your way out of debt. The monetary supply will also find its way into other parts of the economy. Now, the new form of QE might not be to the financial institutions as they might be adequately capitalised. Governments might start QE to infrastructure and public spending to re-invigorate economies. Something similar to what Singapore is doing now. We have public infrastructure projects lined up all the way till 2020.. it's a lot of money going into the economy.

This is the chart I found of how much money there is in the world and you can try overlaying singapore property prices into the graph and see whether it is more or less co-related. Look closely at the figures at the start of 2006 and then fast forward to around 2010. Did you see the figure doubled? It has been continuing on an uptrend ever since. Our market has stagnated abit because of all the property Counter-measures. However, it seems beginning in April, I see more people are going back to the showrooms.

Just yesterday, government have announced it's inevitable we need more PRs and indirectly means more foreign workers(on EP and such). Because if you need 25k PRs, you will have to hope and select from the pool of 250K  100k EPs and foreign wokers(a ratio of 1:10 1:4). Their intention is yearly right? So, 4 yrs, you will have 1 million 400k  more foreign workers(talents/professionals/blue-collar) and out of this, 25k hopefully will convert to PRs and then to citizens.

What does this mean? Barring any global crisis, More demand for housing. The massive supply coming in 2014 will not be a problem anymore. PRs who are carefully selected to be citizens and have more purchasing power will choose private properties and I'm sure condos is good, but LANDED is even better! :) You go drive around Wilkinson Road and you will find a humongous Roman Architecture(some say looked like Indian Taj Maha). You drive around Meyer Road and Goodman Road , you will find new landed spruing up. From what I heard from grassroot chairman, most are bought by PRs turned citizens.

Huat ah!

Tuesday, April 10, 2012

Singapore Perpetual Bonds Comparison

This list is not exhaustive but merely a summary of the key things you need to look out for in Perpetual Bonds. By the way, Ascendas (not the reit, it's the parent company) is launching another perpetual bond with whisper rate 5% now. Also, do note that when going into perpetual, try to get those that have step-up after 5 yrs or 10yrs and not fixed forever like Cheung Kong (CK Bond) even though it has an earlier call date at 2016.