I shall we review several of my predictions at end of 2014.
Stocks:
1. The US stock market shall power on. This is most definitely true. I added exposure to Fidelity America and made over 15% of return.
2. Tech sector will outperform. I invested in Henderson Tech and made over 12% for 2014.
3. Mining / Energy sector is recovering. This is a large miss. I invested into First State Global Resources at 1.00. Saw it rise to around 1.19 only to cut at 1.03. The mining sector was a miss. But the energy sector appears ripe for a rebound. I'm holding on to 25% of my First State fund since Nov.
4. Chinese stocks will rebound. I made a call to buy First State Regional China. It achieved around 6% return. However, it lagged behind the ETF 2823 HK, which shot up by over 30%.
5. Overall, my CPF OA portfolio is up 6%, and CPF SA portfolio is up 3%.
I was hoping for over 15% of returns after fees for my OA and > 10% for SA. Obviously there's room for improvement but I've managed to beat inflation.
Currencies:
I made over 15% in FX trading. The hits and misses are:
1. I shorted AUDUSD from 1.00 all the way down to 0.80. This trade shocked me because I was not bearish on the AUD until around May 14.
2. I shorted EURUSD from 1.35 in June to 1.219 now. This is the biggest trade that was totally expected.
3. I long USDJPY from 105 to 120 now. Again this trade was totally expected due to the QE in Japan.
4. I long USDSGD from 1.26 to 1.32 now. This is expected as the US announced their tapering last year and the Singapore inflation remained below 3%. No pressure to strengthen SGD.
Property:
1. Negative on Singapore property, but I still bought one in District 14. I had to do it for the collective sale potential in the next 5 years in the area. it was a landed property. I shall be on a look out for deals in Singapore end 15 all the way till 2017. Singapore's property is going to get a lot worse when interest rates start rising from mid 2015 and plunge when we fall into a recession in 2016 or 17.
2. Bullish on London property. Bought 2 units. Only regret is I failed to buy 2 more. Achieved over 130% ROE in 2 years, or around 40 - 50% IRR.
3. I am still not sure about my purchases in Melbourne and Brisbane. I bought them cheap. An apartment with a sea view in St Kilda and a town house 13km from CBD in Brisbane. However, I think there's oversupply in Melbourne and Brisbane CBD for units. Also, the restriction on foreigners buying resale properties meant there's an unfair advantage to locals. I ended up paying 15 - 20% above median for St Kilda and 10 - 15% for Tingalpa.
2015 Predictions:
Stocks:
1. Very little upside left for US and I definitely won't buy Europe.
2. Emerging Market equities look good to accumulate. It has been sideways for the last 4 years since 2010! Valuations are cheap again.
3. Tech sector and Chinese equities are still a strong buy.
4. Be very careful as we approach the tail end of the bull run. At some point I will sell half my equities, even for those that I'm Overweight in! Things will turn even more difficult in second half 2015 as the higher discount rate kicks in and valuations get harder to justify.
Bonds:
1. Asian and Emerging Market HY bonds appear shaky now, but if you buy short tenor ones at 5 - 7%, you should be fine. Chinese developer bonds may be shaky but only around 1 - 5% of them will fail. The Chinese government is rich enough to bail out most. It won't affect the bonds but will affect the stocks due to dilution. This rescue is necessary to prevent a systematic failure of Chinese banks. Do religiously look at credit scores and raise the bar starting 2015, and further from mid 2015.
2. Russian bonds like VTB will almost collapse, but survive for 2015.... Russia has enough reserves to prevent a default like in 1998. It will be a very volatile ride, even more so than China corporate bonds.
3. Oil and Gas sector will recover. Oil will start to rebound above USD60 / bbl, hover between 60 - 70 for the year. Demand should recover, supply won't increase as much as some deep water exploration projects get delayed. I don't believe default rates of HY oil and gas corporates will exceed 5%. Ezion will survive for sure.
4. European perpetuals are a good buy provided you can hedge against EUR currency loss. The old style perps are past their call dates and have to be called in the next 2 years and many are trading below par.
5. Still too soon to buy investment grade bonds. I went along with B rated bonds in 2014, but will up it to BB rated in 2015. By Mid 2015, I will be pushing for BBB rated bonds with short tenors. Most investment grade bonds that are AAA rated will still languish below par if they have long tenors. UST 10 may rise between 2.5 - 3% by end 15. Fed Funds rate probably reach 1.5%. Inflation rate could rise above 2.5% in the US in 2015. No yield curve inversion in 2015 but we could see it in 2016. Fed Funds rate could reach 2.5% in 2016 as rising wages of 2015 push inflation up above 3% in 2016. The UST10 could suddenly dip below 2% momentarily causing the yield curve to invert. The end could start by 2017. But we could see a global peak in stocks in early 2016.
Currencies:
1. A very obvious short will be the EURUSD and EURGBP. The Eurozone is still struggling with a recession and ECB is well behind the curve.
2. AUDUSD could plunge to 0.725, AUDSGD plunge to 1.00. The reason is twofold: the mining construction industry is dead. China is slowing down its demand for mining. Even if China maintains the same demand, the construction phase of mining is over. It is now in the production phase, which doesn't create as many jobs. Unemployment will rise in Australia as it restructures its economy towards more service and manufacturing, away from mining.
3. USDSGD could rise above 1.35. Not much upside left.
4. USDJPY could shoot past 120 towards 130. Until Japan achieves its inflation target of 2%.
Properties:
Ahhhh, my favourite sector. It made me the most money in the last 5 years.
1. Singapore property will continue the drop, especially in second half 2015. Mortgage rates will rise. Shoebox units outside CCR will plunge in price as rentals are weak. OCR rentals will fall another 5- 10%. Prices will fall around 10% as the bulk of the supply is in OCR. RCR will fall 5 - 10%. Rents will fall 5 - 10% %. CCR will see prices will probably fall by 5%. Rents fall 2.5 - 7.5%.
2. Singapore retail rents will continue to fall due to a structural shift to online shopping. The only retail that will thrive are those with F&B.
3. Office rents and price will peak. Time to offload.
4. Industrial will fall as more Singapore companies shift their logistics and low level manufacturing functions to Iskandar (note that these are low value add services).
5. Malaysia: The entire Malaysian property market will fall even more sharply than Singapore. The oversupply in Iskandar is 10x worse than Singapore and we could see around 15 - 25% fall in prices, 10% fall in rental.
6. KL is the second best property market for residential. It will still fall around 10 - 15% in the outskirts and 5 - 10% in the KLCC area. There is much oversupply and speculation.
7. Penang is the best market to invest in. The island is transformed by the opposition party leader Lim Guan Eng. Residential property price will be flat or drop by 5%. But rents will rise by 5% because there is little supply in the mature landscape.
8. Australia will be a mixed bag. I shall not dwell in it because there is already much honest commentaries by analysts. Do NOT buy from exhibition and Spruikers in Singapore.
9. The US market will chug along. The East and West coast cities will rise by 10 - 20%.
10. London will slow down due to affordability issues. It will not fall because the shortage is acute. Time to look west because the East and along the south of River Thames where Battersea is will see large new developments springing up.
11. European real estate, like in Athens, Madrid, Barcelona, Dublin, Milan, Turin, Roma, Lisbon will recover. The upside won't be fantastic due to the weak economy.
12. Overall nothing much to buy in 2015.... I may just add 1 to my portfolio in the second half of 2015 but I haven't decided where to.
Conclusion:
2015 is a good time to cash up, meaning draw some equity out of your property portfolio, liquidate some shares or at least maintain your shareholding, building up cash. Opportunities may present in the second half of 2015 and 2016....
Stocks:
1. The US stock market shall power on. This is most definitely true. I added exposure to Fidelity America and made over 15% of return.
2. Tech sector will outperform. I invested in Henderson Tech and made over 12% for 2014.
3. Mining / Energy sector is recovering. This is a large miss. I invested into First State Global Resources at 1.00. Saw it rise to around 1.19 only to cut at 1.03. The mining sector was a miss. But the energy sector appears ripe for a rebound. I'm holding on to 25% of my First State fund since Nov.
4. Chinese stocks will rebound. I made a call to buy First State Regional China. It achieved around 6% return. However, it lagged behind the ETF 2823 HK, which shot up by over 30%.
5. Overall, my CPF OA portfolio is up 6%, and CPF SA portfolio is up 3%.
I was hoping for over 15% of returns after fees for my OA and > 10% for SA. Obviously there's room for improvement but I've managed to beat inflation.
Currencies:
I made over 15% in FX trading. The hits and misses are:
1. I shorted AUDUSD from 1.00 all the way down to 0.80. This trade shocked me because I was not bearish on the AUD until around May 14.
2. I shorted EURUSD from 1.35 in June to 1.219 now. This is the biggest trade that was totally expected.
3. I long USDJPY from 105 to 120 now. Again this trade was totally expected due to the QE in Japan.
4. I long USDSGD from 1.26 to 1.32 now. This is expected as the US announced their tapering last year and the Singapore inflation remained below 3%. No pressure to strengthen SGD.
Property:
1. Negative on Singapore property, but I still bought one in District 14. I had to do it for the collective sale potential in the next 5 years in the area. it was a landed property. I shall be on a look out for deals in Singapore end 15 all the way till 2017. Singapore's property is going to get a lot worse when interest rates start rising from mid 2015 and plunge when we fall into a recession in 2016 or 17.
2. Bullish on London property. Bought 2 units. Only regret is I failed to buy 2 more. Achieved over 130% ROE in 2 years, or around 40 - 50% IRR.
3. I am still not sure about my purchases in Melbourne and Brisbane. I bought them cheap. An apartment with a sea view in St Kilda and a town house 13km from CBD in Brisbane. However, I think there's oversupply in Melbourne and Brisbane CBD for units. Also, the restriction on foreigners buying resale properties meant there's an unfair advantage to locals. I ended up paying 15 - 20% above median for St Kilda and 10 - 15% for Tingalpa.
2015 Predictions:
Stocks:
1. Very little upside left for US and I definitely won't buy Europe.
2. Emerging Market equities look good to accumulate. It has been sideways for the last 4 years since 2010! Valuations are cheap again.
3. Tech sector and Chinese equities are still a strong buy.
4. Be very careful as we approach the tail end of the bull run. At some point I will sell half my equities, even for those that I'm Overweight in! Things will turn even more difficult in second half 2015 as the higher discount rate kicks in and valuations get harder to justify.
Bonds:
1. Asian and Emerging Market HY bonds appear shaky now, but if you buy short tenor ones at 5 - 7%, you should be fine. Chinese developer bonds may be shaky but only around 1 - 5% of them will fail. The Chinese government is rich enough to bail out most. It won't affect the bonds but will affect the stocks due to dilution. This rescue is necessary to prevent a systematic failure of Chinese banks. Do religiously look at credit scores and raise the bar starting 2015, and further from mid 2015.
2. Russian bonds like VTB will almost collapse, but survive for 2015.... Russia has enough reserves to prevent a default like in 1998. It will be a very volatile ride, even more so than China corporate bonds.
3. Oil and Gas sector will recover. Oil will start to rebound above USD60 / bbl, hover between 60 - 70 for the year. Demand should recover, supply won't increase as much as some deep water exploration projects get delayed. I don't believe default rates of HY oil and gas corporates will exceed 5%. Ezion will survive for sure.
4. European perpetuals are a good buy provided you can hedge against EUR currency loss. The old style perps are past their call dates and have to be called in the next 2 years and many are trading below par.
5. Still too soon to buy investment grade bonds. I went along with B rated bonds in 2014, but will up it to BB rated in 2015. By Mid 2015, I will be pushing for BBB rated bonds with short tenors. Most investment grade bonds that are AAA rated will still languish below par if they have long tenors. UST 10 may rise between 2.5 - 3% by end 15. Fed Funds rate probably reach 1.5%. Inflation rate could rise above 2.5% in the US in 2015. No yield curve inversion in 2015 but we could see it in 2016. Fed Funds rate could reach 2.5% in 2016 as rising wages of 2015 push inflation up above 3% in 2016. The UST10 could suddenly dip below 2% momentarily causing the yield curve to invert. The end could start by 2017. But we could see a global peak in stocks in early 2016.
Currencies:
1. A very obvious short will be the EURUSD and EURGBP. The Eurozone is still struggling with a recession and ECB is well behind the curve.
2. AUDUSD could plunge to 0.725, AUDSGD plunge to 1.00. The reason is twofold: the mining construction industry is dead. China is slowing down its demand for mining. Even if China maintains the same demand, the construction phase of mining is over. It is now in the production phase, which doesn't create as many jobs. Unemployment will rise in Australia as it restructures its economy towards more service and manufacturing, away from mining.
3. USDSGD could rise above 1.35. Not much upside left.
4. USDJPY could shoot past 120 towards 130. Until Japan achieves its inflation target of 2%.
Properties:
Ahhhh, my favourite sector. It made me the most money in the last 5 years.
1. Singapore property will continue the drop, especially in second half 2015. Mortgage rates will rise. Shoebox units outside CCR will plunge in price as rentals are weak. OCR rentals will fall another 5- 10%. Prices will fall around 10% as the bulk of the supply is in OCR. RCR will fall 5 - 10%. Rents will fall 5 - 10% %. CCR will see prices will probably fall by 5%. Rents fall 2.5 - 7.5%.
2. Singapore retail rents will continue to fall due to a structural shift to online shopping. The only retail that will thrive are those with F&B.
3. Office rents and price will peak. Time to offload.
4. Industrial will fall as more Singapore companies shift their logistics and low level manufacturing functions to Iskandar (note that these are low value add services).
5. Malaysia: The entire Malaysian property market will fall even more sharply than Singapore. The oversupply in Iskandar is 10x worse than Singapore and we could see around 15 - 25% fall in prices, 10% fall in rental.
6. KL is the second best property market for residential. It will still fall around 10 - 15% in the outskirts and 5 - 10% in the KLCC area. There is much oversupply and speculation.
7. Penang is the best market to invest in. The island is transformed by the opposition party leader Lim Guan Eng. Residential property price will be flat or drop by 5%. But rents will rise by 5% because there is little supply in the mature landscape.
8. Australia will be a mixed bag. I shall not dwell in it because there is already much honest commentaries by analysts. Do NOT buy from exhibition and Spruikers in Singapore.
9. The US market will chug along. The East and West coast cities will rise by 10 - 20%.
10. London will slow down due to affordability issues. It will not fall because the shortage is acute. Time to look west because the East and along the south of River Thames where Battersea is will see large new developments springing up.
11. European real estate, like in Athens, Madrid, Barcelona, Dublin, Milan, Turin, Roma, Lisbon will recover. The upside won't be fantastic due to the weak economy.
12. Overall nothing much to buy in 2015.... I may just add 1 to my portfolio in the second half of 2015 but I haven't decided where to.
Conclusion:
2015 is a good time to cash up, meaning draw some equity out of your property portfolio, liquidate some shares or at least maintain your shareholding, building up cash. Opportunities may present in the second half of 2015 and 2016....
