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Spencer Li

NDR 2018: High Cost of Living in Singapore A Major Concern?

ndr 2018
ndr-2018

Image source: Mediacorp

During this year’s National Day Rally, Prime Minister Lee Hsien Loong talked about how Singaporeans will have to make some lifestyle changes and adapt to ease the pressures of the high cost of living in Singapore, as well as some of the government initiatives to help citizens cope.

Here are some of the major issues:

1. Cost of Housing

  • Currently, 80% of Singaporeans live in HDB flats, of which the downpayment can be made using CPF, making it affordable for most people to own a house.
  • The Home Improvement Programme aims to improve flats when they are about 60-70 years old, and will be extended to 230,000 flats in various estates. The new scheme is designed to make it easy for authorities to redevelop old estates over a long period, by subsidizing maintenance and repair costs for aging flats.
  • Owners of older HDB Flats will also get an opportunity to go en bloc before their leases run out as part of a new scheme dubbed Voluntary Early Redevelopment Scheme (VERS). Eligible residents will have a chance to decide whether the government can take back their flats once the leases clock the 70-year mark. This will allow the government to buy back their flats earlier, which can then be redeveloped, and the owners can use the cash from the sale to purchase a new house.
  • A 99-year HDB lease is long enough for flats to retain substantial value, and act as a good retirement nest egg for most Singaporeans.
  • For HDB owners whose lease has ended, the government will help them get a new one. Some of the oldest flats are more than 50 years old, which means that there is still 40+ more years before the lease expires.
  • Cooling measures have been taken to prevent excessive speculation of property prices in the private property market.

2. Cost of Healthcare

  • There will be a new health care package that will cater to the needs of people born in the 1950’s. Dubbed ‘The Merdeka Generation’ Package, the new scheme will cover areas such as outpatient subsidies as well MediSave top-Ups, payouts on long-term care and subsidies for MediShield Life.
  • The Community Health Assist Scheme (CHAS) which provides health care services for middle and lower income people will now also cover chronic medical conditions.
  • There will be new polyclinics in Sembawang, Eunos, Kallang and Bukit Panjang by 2020; and in Nee Soon Central, Tampines North by 2023

3. Cost of Utilities

  • With regard to the recent price hikes in electricity, the current prices are actually still lower as compared to 10 years ago.
  • As Singapore is not an oil producing country, fixing electricity tariffs may incur more cost in the long-run, hence is not a viable solution.
  • Instead, government initiatives such as U-Save will help lower-income Singaporeans with their utility bills.
  • Water prices are not expected to increase as ties with Malaysia are good and the ‘1962 Water Agreement’ remains in place

4. Cost of Food

  • The government is planning to increase the number of hawker centres, which is currently the main source of affordable meal options
  • In recent years, there have been 7 new hawker centres built, and we can look forward to 13 more in the coming years.
  • Will there be a new generation of hawkers to take over from the old retiring hawkers?

According to the EIU annual ranking, Singapore has been dubbed the world’s most expensive city to live in (for expats) for the fifth year running.

This could mean a stable economy and high standards of living, but it could also represent income inequality and a struggling lower income demographic.

It is a good sign that the government does not shy away from discussing such issues, and actively comes up with schemes to help citizens cope.

But the bigger question is whether such initiatives solve the root problem, or are merely stop-gap measures.

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Spencer Li

After Crashing 20%, Is Facebook Stock a Good Buy Now?

2018 05 21 16.19.00

Just last month, I made a trip to the Facebook HQ in Silicon Valley, and I was very impressed by the work culture and vibe of the whole community there. It made me glad to be a shareholder of Facebook, and since then, I have been waiting for an opportunity to buy more of it. 😀

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Yesterday, after a disastrous Q2 earnings call, Facebook’s stock has plunged almost 20% so far; is this the start of something really bad, or the long-awaited chance to buy this stock?

facebook-earnings

 

Personally, I am a big fan of the tech sector, and I have been accumulating positions in the US tech giants since I liquidated all my Singapore stocks portfolio in 2015. but I am not going to jump in blindly, so let me sum up some of the key considerations:

  • The comment that spooked investors was the CFO’s prediction that revenue growth rates would continue to decelerate in the “high single-digit percentages” in Q3 and Q4.
  • While the results were not as fantastic as in the past, the disparity to analysts’ revenue and user growth forecast were not very major.
  • Facebook is likely being extremely conservative and has plenty of opportunities to gain back the momentum.
  • They are constantly innovating and acquiring new companies, some of these might turn out to be big winners
  • Its valuation based on PE is still ok compared to other stocks in the tech sector (about 30x)

facebook-280718-1030x655

 

The last time there was a plunge in FB shares due to the Cambridge Analytica scandal, it dropped almost 10% overnight in March. However, prices recovered very quickly, and before long prices were back to hitting all time highs, bringing valuation close to a $1 trillion market cap.

Some of the key risks could include more regulations that will hurt its bottom line, or anti-trust actions that attempt to split up the company.

But there are also upsides, such as the company leveraging on its technological innovations and data to expand to other industries and eat up the value chain.

So, in conclusion, I will not buy in immediately as I do not want to be catching a falling knife, instead I will wait for selling momentum to wane and the dust to settle before scooping up more of this stock. This is to ensure that I can get in at the best price. After all, I am still optimistic for the long run.

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Spencer Li

Will the Stock Market Crash or Continue Going Up for Another 10 Years?

stock market crash

Since the crash of 2008, and the recovery which started in 2009, the stock markets (especially the US markets), have been on a steady uptrend.

Stock Market CrashChart: S&P 500 index (weekly chart)

Many of us have heard about the 10 year cycle, where the market is supposed to crash once every 10 years, for example the Asian markets during the 1997 currency crisis, and the global markets in 2007 during the subprime crisis.

However, in 2017, we did not see any significant crash or correction, which have led many analysts to rethink the theory.

So, in 2019-2020, should we be expecting a delayed crash, or are we experiencing a structural change in the markets?

Stock Market Crash 2

If we observe the supercycles of major human technological innovations, we see that each major wave of progress is driven by a major technological innovation, such as the steam engine in the 1700’s or the internet and IT advancements in the 1900’s.

And based on the cycles, we could be in the early stages of the 6th wave, which is going to be driven by the upcoming huge advancements in applications of big data, artificial intelligence, virtual reality, augmented reality, internet of things, and blockchain technology.

Stock Market Crash 3Source: The Market Oracle

This means that we could be on the cusp of a super bull market, if these technological advancements are able to create a quantum leap in productivity for businesses and a huge jump in the standards of living across the globe. All these would translate into stronger stock prices, which instead of crashing the market, would propel it to new heights.

However, there are also major concerns:

  • Unequal gains across companies: the major tech companies may soon dominate all industries via the application of new technologies.
  • High unemployment: If machines take all the jobs, what are humans going to do?
  • High debt and leverage of US and European economies
  • Political risks: clash of superpowers (US and China)

In summary, many retail investors are wary of entering the stock market now because it is at all time highs and has already “gone up a lot” since 2009, hence they are waiting for a “big crash” before going in.

However, this big crash may not come if successful widespread application of new technologies and innovation are able to drive a quantum leap in productivity.

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Spencer Li

Interview: If You Had $250,000, How Would You Allocate it?

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Recently, during an interview, I was asked this question, to suggest a possible portfolio allocation for people in their early 30s, with $250k of investible cash to start with. Here is my answer in full:

If you only have $250k to start with, I would suggest a diversified approach of various asset classses to maximise returns:

  • 25% allocated to cash (war chest)
  • 10% to wild bets
  • 20% to trading account
  • 20% to commodities
  • 20% to businesses, startups, angel investments
  • 5% to stocks, REITs, ETFs

Currently, the bulk of the holdings is in cash, since the market is pretty “risk-on” at the moment with much political and economic uncertainty about trade wars and real wars. Hence, I only included minimal stock holdings, as the stock markets (S&P 500)are at 10-year highs, so I will wait to buy in at a lower price should the opportunity arise.

One important factor is the 20% allocation to trading account, as this generate monthly cashflow from stocks/forex trading to continue growing the total portfolio size aggressively, which can then be allocated to other asset classes within the portfolio.

10% to cryptocurrencies and startups is considered a “wild bet” which could be a zero or hero; lastly 20% to businesses is for people who have some prior experience to invest directly in businesses, or start their own. Personally, my portfolio includes several businesses, including a cafe and pub.

I have allocated 20% to commodities, as commodities are likely at their cycle low. The GSCI (Goldman Sachs Commodity Index) is one of the main benchmark for commodity prices, and the (GSCI/S&P 500) is used to measure the prices of commodities relative to stock prices. Currently, this measure is at a 50-year low, which suggests cheap commodities as a potential investment.

GSCI

I have excluded real estate from this sample portfolio, as I do not include “own stay” property as an investment asset, and $250k is too small for any major property investment. For my own portfolio, i have invested in several properties as I feel that the Singapore property market will continue to rise for the next 5-10 years.

I have also excluded fixed income, as for Singaporeans, the CPF (SA account at 4%) is pretty much similar to a “risk-free” high-yield bond, hence it serves well as the fixed income component of the portfolio. For my own portfolio, i have hit the minimum sum, which will provide a good safety net for retirement. For non-Singaporeans, any pension/retirement scheme which offers a fixed payout would serve the same purpose.

I hope this has provided you a good template to start building your portfolio, but do keep in mind that ideally you should be looking to rebalance your portfolio every 1-3 months.

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Spencer Li

3 Major Catalysts for Cryptocurrencies in the Future

market cycle

Since the highs in December 2017, Bitcoin and most cryptocurrencies have seen a sharp decline, and agile traders/investors have mostly exited to await better buying opportunities.

This includes myself, and after cashing out my profits in early 2018 (after the double top reversal), I have started to accumulate small amounts of Bitcoin for my long-term portfolio when prices are low.

Despite the volatility, I am still optimistic for the long-term potential of Blockchain and Cryptocurrencies, hence it is important to know which catalysts will likely move prices in the future.

1. Increased Regulation

At first glance, this might seem like a bad thing, as many countries around the world (China, Australia, Taiwan, Philippines, US, etc) start to clamp down on Crypto-related activities, or impose some kind of restrictions and controls. And prices reacted to such news of regulation negatively as expected, with a prolonged downtrend lasting several months.

However, what most people don’t realise is that such regulation is actually a good thing in the long run, and necessary for Cryptocurrencies to become more “mainstream” and widely adopted. Which means that while we can expected prices to fall, it is also a good catalyst to enable us to buy these assets at lower prices in the future. Timing is key.

2. Institutional Funds

Once their is sufficient regulation and prices are low enough, institutional investors (hedge funds, asset managers, etc) are likely to come into the market. This is where the big moves are going to come from, as we saw from the dotcom boom. And recently, we have heard some news/rumours that big names like George Soros, Rothschild, Rockefeller, etc are starting to come into the market.

If we look at the graph below, we can see that a major trend is usually driven by institutional investors, which means that despite the meteoric rise of Cryptocurrencies over the past few months, it is still nowhere near a bubble, since the “real big money” from institutional investors have not started to pour in yet.

Imagine a future where fund managers and pension funds all include Cryptocurrencies as one of the asset classes in their portfolios, together with stocks, bonds, gold, etc. This will definitely create a huge demand for it, and push up prices faster than we have ever seen.

valuation
3. Scale & adoption

One major debate is whether Bitcoin (and other cryptocurrencies) can serve its purpose as a global currency with a stable store of value, and cheap & fast transactions. Currently, it is not there yet, and how fast it can get there will depend on how well the product can be improved. The volatility will naturally decrease over time as the market cap increases, but the speed and cost of transactions will depend on innovations and improvements from developers.

 

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