12/2015-
After seven years since the depth of the global financial crisis, global markets are indeed showing incipient signs of crawling out from their zig-zag tight trading ranges to post higher highs in 2016, once the Federal Reserve gets its first interest rate increase of 0.25% out of the way, hopefully in Dec 2015.
The Fed and the ECB have saved global financial markets through their unconventional flooding-the-markets with excessive liquidity strategies at the ebb of the GFC in 2008. Henceforth, interest rates have remained near zero all this while. However, have such strategies been efficient and effective?
Many investors would agree that massive liquidity injections were initially effective in unfreezing nervous credit markets and arrested the worst of the global financial crisis.
However, does the panacea lies in resorting to the same strategies year after year? 2016 would face the problem of what will happen when the plug on liquidity flow is finally put in place.
One reason why markets went nowhere in 2015 was the continued onset of the European crisis followed by China’s currency devaluation compounded then by more nervousness pertaining to a possible interest rate lift-off.
So what do I look for for 2016?
The sell –off in 2015 had whet my appetite in investing in unloved, out-of-fashion contrarian stocks. It is such times like these that I find deep-value in such sectors.
In 2012, Sony Corp seems to have lost its way when its shares hit a bottom Yen 789 in May 2012. It hovered at below Yen 1,000 through 2H2012. That was the time that I accumulated for my fund in a big way as many conventional funds were piling up on Samsung (which had gained on Sony) and singing the blues for Sony.
To me then, Sony had deep enterprise value. Despite posting losses, the free cashflows of Sony were not so badly hurt as the slump in its share price would have suggested. Markets do have a habit of penalizing a high-profile stock excessively, especially when it is easy to see its downfall.
Markets do forget that strong corporates like Sony can undergo corporate restructuring, which Sony did in many fundamental ways and values.
With a weakening yen boosting sales, Sony took 3 years to slowly recover. While profits are still far from the heydays of its Walkman era, its stupendous share price lift from Yen1,000 to the current Yen 6,600 have already reaped me great returns.
I have not waited to see if Sony can challenge its highs reached during the Walkman days (as one of my tenets of investing is that share prices move ahead of fundamentals). I have sold my shares at more than 600% return as once-depressed stocks like these get back to normalization valuations, it’s time to use the profits to plough into something unloved or out-of-fashion.
In this respect, REITS have been heavily hit in 2015 due to the uncertainties relating to interest-rate increases. In particular, one of my long-term (I have it since IPO in 2006) favourites, First Reit, was sold off very badly after the CEO of its sponsor Siloam Hospital was quoted as considering a possible listing of First Reit in Indonesia once the REIT framework in Indonesia stabilizes.
Is the REIT framework in Indonesia condusive for such possible shifts?
What would it take to convince First Reit shareholders, who are predominantly Singapore-based investors to vote a YES at EGM if such an eventuality ever happens?
Does First Reit then presents another Sony situation?
As a global investor, one must know how to zoom in on out-of-favour stocks as they do present great buying opportunities and the returns can be stupendous.
Christmas is a time where Santa rode to town on its reindeer sleight, but Christmas is also a good time to be hunting for Dark Horses, the unloved, out-of-cycle and cyclical stocks trading at their darkest valuations.
Merry Christmas!
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