As the market turmoil hit a peak last week, we asked Robert Stone, a familiar name to regular readers of NextInsight, to share his views on the market and what he had been doing in recent times. Early this week, he obliged with the following interesting article:
I RECENTLY READ an article with a table that indicated the real interest rates in various Asian countries. Singapore had the distinction of having the highest negative rates on the list. With negative interest rates here of -5% savers are really getting hammered.
I think this situation is likely to continue for some time. MAS policy of strengthening the exchange rate does little to contain domestically generated inflation which is the major component of inflation in Singapore.
At present I’m cashed up, having sold what I think are overvalued shares in Indonesia and having completely exited the Sri Lankan market for the same reason.
For people with cash it is presently a losing proposition to keep it in the bank. It’s not my inclination to keep cash in the bank in any situation but I feel an even greater incentive now to invest it. I’m not interested in buying over valued property here in Singapore or the current hot favorite, commodities and precious metals. The alternative is to buy into businesses that I think should grow in the future regardless of the short and medium global economic outlook.
That means I’m still actively buying shares of S-chips which in Singapore is where I perceive the best value to be. It’s a strategy that I’ve been pursuing for the last 3 ½ years. If I could sell all the shares I’ve bought during that time at current market prices I’d be in the red. This might seem discouraging but during my 35 years of investing its been the pattern for me to spend several years accumulating positions in unloved companies before something triggers the market to suddenly wake up and notice the company.
An example is my largest holding with a business in China, Hong Kong listed Dawnrays Pharmaceutical Holdings. I spent 4 ½ years accumulating shares of that company. In Singapore dollar terms I paid almost exactly the same price per share for the first lot I bought in September 2004 as the last lot in January 2009.
I stopped buying at that point as the share price started escalating and topped out with a 600% rise by the end of 2010. The price has since come down about 30% from the peak but the profit I’d make if I sold it now would just about pay for all the purchases I’ve done of S-chips in Singapore since 2008.
As of now I have never sold a share of Dawnrays but as the price of the company has fallen and its business has improved I’m considering buying again.
Buying Viet shares with high yields
Besides buying S-chips in the last few months I’ve also started buying in Vietnam. This is a change in strategy as I almost completely sold out of Vietnam in 2007 when I thought shares prices were greatly overvalued.
Vietnam is currently suffering from high inflation but I’m betting that the government will get that under control as they have in the past. Valuations of many companies are also becoming very attractive. One feature of Vietnamese listed companies that I particularly like is their propensity to pay generous dividends. It’s now possible to find companies with good track records of growth paying dividends of 15 % or more. The managers of most S-chips could learn something useful from their Vietnamese counter parts in this regard.
On the macro outlook whether there is a world wide recession or not in the near future it won’t affect my investment plans.
It seems likely that inflation world wide is likely to increase. Even so buying gold and commodities now as a hedge is not a strategy I intend to follow. News of central banks buying gold and other precious metals may be a sign of a market top, historically they have proved to be terrible market timers.
The last investment I made in the USA was shorting dotcom stocks in the late 1990’s. I’ve been negative on the American economy for at least 25 years. Now the negativity is so great and so commonly believed that it makes me wonder how much worse it can get.
It seems that the American political system has become totally dysfunctional with no real willingness on either side to address the problems they must correct. However compared to China I am more optimistic in the longer term on the political situation in the US than I am about China.
To my way of thinking, the risk of investing in China is not so much the chance of individual companies going bust, it’s the inherent risk of a one party state becoming unstable. I think it’s a very low risk at present but it’s not one that I ignore.
Previous articles by Robert Stone:
SUNMART: 'Why I became a substantial shareholder'
ANWELL: "My take on its solar biz prospects"
ROBERT STONE reaping the rewards of 3 decades of investing