Stock Market Outlook
As I ran through my spreadsheets, I noticed some issues with my old model. The EBITDA / EV model is not sensitive enough to the recent pull back of equities. For example, the HSCEI fell by 11% from the peak in May, yet the changes in projected returns has not changed.
I readjusted my mobile and came up with several findings:
1. Global Technology is now the best bet, with projected returns of 28% pa.
2. Russian stocks is 25%. Russia's problem is the fall in projected earnings due to the recession. However, valuation wise, it appears top.
3. Japanese equities is third with 24%. Japan does not score well in valuations but it scores extremely high in earnings momentum due to the QE.
Many countries belong to the NEUTRAL zone where returns are likely to be below 15% p.a. Just to give a few examples,
5. Asia x Japan up 9.6% Low valuations but weak earnings momentum.
6. HSCEI up 9.0% Very low valuations, but declining earnings.
7. MSCI World up 7.2%. High valuations due to the dominance of developed countries, average earnings momentum.
8. Europe up 6.9%. Poor earnings momentum, but very low CAPE ratios.
9. Korea up 6.8%
10. Indonesia up 6.3%. High valuations, average earnings momentum.
11. US up 5.9%.. High valuations, very high earnings momentum.
In the SELL zone are countries that are in trouble.
1. India. Up 3.4%. Very high valuations. Average earnings momentum.
2. Emerging Markets. Down 29%. Low valuations but declining earnings.
3. Shanghai A shares. High valuations and declining earnings.
4. Brazil down 17%.
5. Thailand up 1.6%.
With only three sectors / countries in the BUY zone, I will still be very cautious and not BUY too much on dips. This correction is likely to be deeper than most. We've already seen the Eurostoxx index fall by around 8 - 10%, HSCEI by 11 - 13%. We are likely to see further downside before we can deploy funds to buy again. Meanwhile, for aggressive investors, I'd keep my asset allocation at 60% equities, 30% bonds and 10% alternatives.
Acquisition
I've completed one more acquisition and another will be due next month. Both acquisitions will probably give me around SGD10k in free cashflow and around 50k of capital appreciation a year. My property assets would have reached SGD4.6m and in terms of net equity, I'd probably have around 1.6m. In terms of rental income, I'd be generating 143k with around 35 - 40k of net cashflow a year.
If I assume a conservative capital appreciation of 5% per year, I'd have around 200k per year. I could extract around 100k of equity a year.
In terms of value, I'd be getting close to 350k of incremental value per year. In terms of cashflow, I'd probably get around 140k pa. It's not enough to retire on. I still have to plod on for another 4 years at least.
I'm making plans to venture into commercial assets and forming companies to do it. I'd probably have a private equity arm, and eventually try to publicly list some of my assets in about five years' time.
As I ran through my spreadsheets, I noticed some issues with my old model. The EBITDA / EV model is not sensitive enough to the recent pull back of equities. For example, the HSCEI fell by 11% from the peak in May, yet the changes in projected returns has not changed.
I readjusted my mobile and came up with several findings:
1. Global Technology is now the best bet, with projected returns of 28% pa.
2. Russian stocks is 25%. Russia's problem is the fall in projected earnings due to the recession. However, valuation wise, it appears top.
3. Japanese equities is third with 24%. Japan does not score well in valuations but it scores extremely high in earnings momentum due to the QE.
Many countries belong to the NEUTRAL zone where returns are likely to be below 15% p.a. Just to give a few examples,
5. Asia x Japan up 9.6% Low valuations but weak earnings momentum.
6. HSCEI up 9.0% Very low valuations, but declining earnings.
7. MSCI World up 7.2%. High valuations due to the dominance of developed countries, average earnings momentum.
8. Europe up 6.9%. Poor earnings momentum, but very low CAPE ratios.
9. Korea up 6.8%
10. Indonesia up 6.3%. High valuations, average earnings momentum.
11. US up 5.9%.. High valuations, very high earnings momentum.
In the SELL zone are countries that are in trouble.
1. India. Up 3.4%. Very high valuations. Average earnings momentum.
2. Emerging Markets. Down 29%. Low valuations but declining earnings.
3. Shanghai A shares. High valuations and declining earnings.
4. Brazil down 17%.
5. Thailand up 1.6%.
With only three sectors / countries in the BUY zone, I will still be very cautious and not BUY too much on dips. This correction is likely to be deeper than most. We've already seen the Eurostoxx index fall by around 8 - 10%, HSCEI by 11 - 13%. We are likely to see further downside before we can deploy funds to buy again. Meanwhile, for aggressive investors, I'd keep my asset allocation at 60% equities, 30% bonds and 10% alternatives.
Acquisition
I've completed one more acquisition and another will be due next month. Both acquisitions will probably give me around SGD10k in free cashflow and around 50k of capital appreciation a year. My property assets would have reached SGD4.6m and in terms of net equity, I'd probably have around 1.6m. In terms of rental income, I'd be generating 143k with around 35 - 40k of net cashflow a year.
If I assume a conservative capital appreciation of 5% per year, I'd have around 200k per year. I could extract around 100k of equity a year.
In terms of value, I'd be getting close to 350k of incremental value per year. In terms of cashflow, I'd probably get around 140k pa. It's not enough to retire on. I still have to plod on for another 4 years at least.
I'm making plans to venture into commercial assets and forming companies to do it. I'd probably have a private equity arm, and eventually try to publicly list some of my assets in about five years' time.
