The Longest August

Image result for trade war

The Longest August
August has been a great month for long term value investors. Barely a month after the trade war came to a ceasefire, the second shots of the Trump Tweets reignited the war and the US, HK, and SG markets were battered. Hong Kong was of noteworthy concern as the fear of TianAnMen cast a shadow over Hong Kong market and there were very clear concerns about the impending recession that will engulf Hong Kong. The discount to equities is evident and the hunt begins.

I was very fortunate to know a friend I met in my CFA level 1 journey, whom introduced me to a community of value investors. This community will meet up every Wednesday on a weekly basis and bounce off analysis and investment ideas of individual stocks to one another. I benefited from the peer analysis and critics to the blind spots that I have, and it is a better platform than a reflection panel in this blog alone. Some of my investment ideas were bounced off to them, and they have provided analysis of stocks / industries that I am unfamiliar with. I hope to gain valuable friendships within that community and learn from the wealth of experience that they have.

Portfolio Analysis
Stock Percent
STI ETF 20.35%
Hong Kong Exchanges and Clearing Ltd. 14.20%
Tencent Holdings Ltd. 9.61%
Alphabet Inc 5.52%

SG Market

I have divested most of my Singtel position at a minute profit, with one lot to go to the AGM. The thesis of the Singtel balance sheet and the minute threat of the IPG entrant has worked out for the past 3 years, but the fundamentals of the industry has drastically deteriorated alongside the cash burn. By releasing the mad dogs (Virtual telcos) to crowd out TPG, the local telcos also lost control of the situation and the price war reached irrational levels.There are now 11 telcos in Singapore, including the mobile virtual network operators (MVNOs) that have since flooded the scene. Two — Grid Mobile and redONE — were announced in the past month.

Companies burning cash just to pursuit consumers is unsustainable. Brian Halim has a legitimate thesis in shorting Starhub. Similarly, the diwosifying tendencies of Singtel in pursuing Cash burning companies like Amoebee, Bharti, and paying out dividends above operating levels suggest that a sharp correction to dividend policy is very likely, and there is no clear winners in this arena anymore. The trade war turned out to be a blessing as I have divested at SGD3.44 and SGD 3.48 to investors seeking refuge in the climate of uncertainty, to channel into my war-chest. Nonetheless, the Singtel story has not ended and there is opportunity to revisit this when the smoke has cleared.

Hong Kong Land
I bought Hong Kong Land at USD 5.45 as an asset play, trading at a 70% discount to NAV. The major revenue of this company is derived from Hong Kong office space, whereby the cash flow is channeled to build buildings across Asia. The cash position is not fantastic, but it can tide through this short term period, and there is no need for any fire sale of buildings in the prime district at Hong Kong. Once you strip out the Hong Kong name from HKL, it has a diversified portfolio of buildings at prime areas in Asia and the long term fundamentals remain intact.

NAV numbers are tricky to navigate due to the notorious reputation about the elevated housing market in Hong Kong. I can only hope that the margin of safety presented can discount the risks. The thesis is that Hong Kong will eventually resolve the differences with the protestors, Hong Kong will retain its relevance for China, and the office space will still be equally valuable in the land scarce island. Due to political risks and potential averaging down opportunities, the Hong Kong space will be continually monitored.

Hong Kong Market

The Hong Kong portion of my portfolio is not in the greatest shape. Retail, Airlines, hospitality and hotel industry will be severely affected as discussed in Investment Moats post. Nonetheless, I am not worried about the long term moat of HKEX and Tencent. HKEX viability exist as long as there are mainland and foreign investors playing tug of war in the Hong Kong market. The IPO revenue of HKEX should be impaired as evidened by the retreat of Aliababa which could be politically motivated.  The major risk is whether ShenZhen Exchange will be reallocated as the gateway by China government and the Hong Kong stock / Bond connect thesis will be severely impaired.

For Tencent, gaming revenue should not be severely impaired, but the investment and Technology holdings arm of Tencent may present massive short term mark to market losses. The long term moat of Wechat is largely untouched and I might seek to average down as the HK struggles continue.

I an looking closely at HK Tracker fund as exposure to China market, as it has been heavily battered now. The real economy implications will be reflected in HK Tracker fund eventually, and I am not in a hurry to average down on it. Political developments will be closely monitored and reflected into this volatile counter.

US Market
Activision Blizzard is a volatile cyclical that I took an entry position in due to the sharp correction in share price. The recent failure of Destiny acquisition as well as no major title releases, coupled with the restructuring efforts to reduce overheads (support staff) drove the stock price to irrational gloomy levels. Investors overlooked the SAAS cash flows from its recent Hearthstone and WOW expansion releases and the large trove of valuable franchises that could be easily relaunched and monitised via smartphone platforms. Although there is no catalyst in the short term (apart from year end sales) , its cash position and debt levels is good and I view it as a long term play until it launches its next big hit (and potential cyclical upswing) .

Due to my continuation on my studies at CFA level 2 and other heightened personal commitments, I will deliberately reduce the frequency of posts to a monthly basis. The main objective now is to document my portfolio decisions rather than granular analysis of my individual stocks. My investment decisions will be active, but my blog will be passive.

Adult-ing is a long and bewildering process. My baseline thought process, refined through scuttlebutt of professional investors and local investors, fine tuned my investing and personal finance thought processes in the modern context. I am grateful to the many contributors in the investment blogger community, whom are willing to share their decisions and mistakes so that I will better navigate the minefields ahead.


Popular posts from this blog

Portfolio Review 2019 - Performance Review