Fourth and Two
FALLS CHURCH, Va.–As I’ve warned for the past few months, the next couple of weeks will be the most important of this quarter. They will determine whether the market ends the year significantly up or down.
So this week, I pored over the Fresh Money Buy list and prepped it for the rest of the quarter.
The most important change is that Singapore is now my favorite market. Its strong earnings potential and good valuations, together with the strong economic growth, are what you need now.
The fourth quarter is historically a period of strong performance for Asia. Currently, the markets looks a bit uncertain. But if we clear October bruised—a 10 percent correction or a 30 percent slide—the year will end strongly on the upside.
Buy More in Singapore
As the global economy moves ahead, one of the long-term Silk Portfolio holdings, Singapore-based Keppel Corporation (OTC: KPELY), continues to expand and take advantage of the global economic growth cycle.
Most recently, it secured a new USD1 billion contract in Qatar to build a wastewater treatment and water reuse plant starting in January. After the plant is ready, Keppel will operate it for 10 years starting in 2010.
The most important part of the deal is that the company secured the contract despite major international competition through open biding. This is the second infrastructure contract that the company secures in Qatar, and it helps management’s strategy of aggressively growing this part of the company’s business.
The Offshore & Marine division is also quite close in securing a USD1.4 billion contract with Petrobras for a floating semi-submersible platform further enhancing the company’s global role in the industry. Expect this division to continue strongly as the demand for oil and gas remains strong, something that fits my long-term bullish view on the energy sector.
As a reminder, Keppel is involved in three main business areas: offshore and marine, property, and infrastructure. Its Offshore & Marine division is the largest earnings contributor. The company also holds a 49 percent stake in Singapore Petroleum Company, which owns oil refining assets and is expanding upstream. The company’s Keppel Land subsidiary is one of the major landlords in Singapore’s booming high-end office and residential business.
This last part of its business offers exposure to Singapore’s economic boom as the country transforms into one of Asia’s most important financial centers as well as a desirable place to live and work. This is a rejuvenation process that should take Singapore once again to the next level of economic development. Buy Keppel Corporation.
Singapore’s domestic demand continues to be strong with the most recent retail sales up a strong 6.7 percent year-over-year. It seems that the solid growth in wages and hiring that we saw this past year have been translating into strong spending, which supports domestic demand growth–a long term positive for investing in Asia.
More important, though, is that the financial authorities have been pushing toward a faster appreciation of the Singaporean dollar (SGD). Their actions show clearly that Singapore is confident on its economy and its competitive edge.
As a result, using the currency in a strictly mercantilistic way in order to aid its exports short-term while hurting an economy’s potential in adjusting itself to economic changes long-term, it has become a non-option for Singapore. This is why the 8.6 percent growth year-over-year on GDP growth that the economy registered recently is well-supported.
Source: Bloomberg
United Overseas Bank (OTC: UOVEY) has been another long-held portfolio holding introduced one-and-a-half years ago to benefit from the country’s domestic economic growth and has performed well for a total return of around 70 percent.
It’s the second-largest bank in Singapore and has a market-leading position in private residential mortgage financing and small and medium enterprise (SME) lending, which are among the fastest-growing loan segments.
The main risk is any write-downs associated with collaterialized debt obligations (CDO) and asset backed securities (ABS) held by United Overseas Bank. This could affect second-half earnings, but given the banks relatively small exposure at 0.2 percent of assets, it should be a short term drawback. United Overseas Bank is a buy.
Another country favorite is Singapore Telecom (OTC: SGAPY), which has been a core holding of the Silk Portfolio from inception. The incumbent telecommunications provider in Singapore, it also owns 100 percent of Australian operator Optus, which competes in fixed and mobile markets.
Its main investments in Asia are mobile operators, including Telkomsel in Indonesia (35 percent ownership), Bharti in India (31 percent), AIS in Thailand (21 percent), Globe in the Philippines (45 percent) and Pacific Telecom in Bangladesh (45 percent).
A consistent cash flow generator, Singapore Telecom is the best way to gain diversified exposure to the booming Asian telecom industry. Because of strong growth in all Asian economies, the company’s affiliates have increased their combined net income contribution to about 50 percent of the company’s total from 43 percent one year ago. Expect the company to continue its successful expansion in the region and beyond. Buy Singapore Telecom.
Swedish Blues
Portfolio holding Ericsson (NSDQ: ERIC) issued a warning for its gross and operating margins for the third quarter, which fell to 35.6 percent (43.0 percent last quarter) and 12.9 percent (19.4 percent previously). Promptly, the stock tumbled 24 percent.
Although this is a severe blow to the stock price, the company remains one of the long-term holdings in the global infrastructure area because wireless telecom is one of the best long-term growth stories.
The beauty is that this growth story is applicable to both developed and developing economies. Emerging markets, in particular, are important because they continue to build huge wireless networks with China and India at the forefront. Ericsson is the world’s leading architect of mobile systems–the premium segment in telecommunications–and should be the big beneficiary.
As for the bad numbers, they came mainly from a sudden decline in mobile network upgrades in Western Europe and North America as well as in China where some anticipated sales seem to have been pushed out rather than canceled.
As a result, Ericsson will have some very challenging quarters ahead as it tries to improve performance and persuade investors that its long-term strategy is still on track. The stock will remain in the portfolio for now and is a long-term buy, always in the context of a diversified portfolio, and preferably following–in terms of importance–the advice offered in the Fresh Money Buy list below. Buy Ericsson.
Fresh Money Buys
Because the investment process is constant, if you’d like to add to your positions in portfolio recommendations or allocate new funds in a diversified way, focus on the following markets (consult the Portfolio for details), in order (for both countries and sectors):
So this week, I pored over the Fresh Money Buy list and prepped it for the rest of the quarter.
The most important change is that Singapore is now my favorite market. Its strong earnings potential and good valuations, together with the strong economic growth, are what you need now.
The fourth quarter is historically a period of strong performance for Asia. Currently, the markets looks a bit uncertain. But if we clear October bruised—a 10 percent correction or a 30 percent slide—the year will end strongly on the upside.
Buy More in Singapore
As the global economy moves ahead, one of the long-term Silk Portfolio holdings, Singapore-based Keppel Corporation (OTC: KPELY), continues to expand and take advantage of the global economic growth cycle.
Most recently, it secured a new USD1 billion contract in Qatar to build a wastewater treatment and water reuse plant starting in January. After the plant is ready, Keppel will operate it for 10 years starting in 2010.
The most important part of the deal is that the company secured the contract despite major international competition through open biding. This is the second infrastructure contract that the company secures in Qatar, and it helps management’s strategy of aggressively growing this part of the company’s business.
The Offshore & Marine division is also quite close in securing a USD1.4 billion contract with Petrobras for a floating semi-submersible platform further enhancing the company’s global role in the industry. Expect this division to continue strongly as the demand for oil and gas remains strong, something that fits my long-term bullish view on the energy sector.
As a reminder, Keppel is involved in three main business areas: offshore and marine, property, and infrastructure. Its Offshore & Marine division is the largest earnings contributor. The company also holds a 49 percent stake in Singapore Petroleum Company, which owns oil refining assets and is expanding upstream. The company’s Keppel Land subsidiary is one of the major landlords in Singapore’s booming high-end office and residential business.
This last part of its business offers exposure to Singapore’s economic boom as the country transforms into one of Asia’s most important financial centers as well as a desirable place to live and work. This is a rejuvenation process that should take Singapore once again to the next level of economic development. Buy Keppel Corporation.
Singapore’s domestic demand continues to be strong with the most recent retail sales up a strong 6.7 percent year-over-year. It seems that the solid growth in wages and hiring that we saw this past year have been translating into strong spending, which supports domestic demand growth–a long term positive for investing in Asia.
More important, though, is that the financial authorities have been pushing toward a faster appreciation of the Singaporean dollar (SGD). Their actions show clearly that Singapore is confident on its economy and its competitive edge.
As a result, using the currency in a strictly mercantilistic way in order to aid its exports short-term while hurting an economy’s potential in adjusting itself to economic changes long-term, it has become a non-option for Singapore. This is why the 8.6 percent growth year-over-year on GDP growth that the economy registered recently is well-supported.
Source: Bloomberg
United Overseas Bank (OTC: UOVEY) has been another long-held portfolio holding introduced one-and-a-half years ago to benefit from the country’s domestic economic growth and has performed well for a total return of around 70 percent.
It’s the second-largest bank in Singapore and has a market-leading position in private residential mortgage financing and small and medium enterprise (SME) lending, which are among the fastest-growing loan segments.
The main risk is any write-downs associated with collaterialized debt obligations (CDO) and asset backed securities (ABS) held by United Overseas Bank. This could affect second-half earnings, but given the banks relatively small exposure at 0.2 percent of assets, it should be a short term drawback. United Overseas Bank is a buy.
Another country favorite is Singapore Telecom (OTC: SGAPY), which has been a core holding of the Silk Portfolio from inception. The incumbent telecommunications provider in Singapore, it also owns 100 percent of Australian operator Optus, which competes in fixed and mobile markets.
Its main investments in Asia are mobile operators, including Telkomsel in Indonesia (35 percent ownership), Bharti in India (31 percent), AIS in Thailand (21 percent), Globe in the Philippines (45 percent) and Pacific Telecom in Bangladesh (45 percent).
A consistent cash flow generator, Singapore Telecom is the best way to gain diversified exposure to the booming Asian telecom industry. Because of strong growth in all Asian economies, the company’s affiliates have increased their combined net income contribution to about 50 percent of the company’s total from 43 percent one year ago. Expect the company to continue its successful expansion in the region and beyond. Buy Singapore Telecom.
Swedish Blues
Portfolio holding Ericsson (NSDQ: ERIC) issued a warning for its gross and operating margins for the third quarter, which fell to 35.6 percent (43.0 percent last quarter) and 12.9 percent (19.4 percent previously). Promptly, the stock tumbled 24 percent.
Although this is a severe blow to the stock price, the company remains one of the long-term holdings in the global infrastructure area because wireless telecom is one of the best long-term growth stories.
The beauty is that this growth story is applicable to both developed and developing economies. Emerging markets, in particular, are important because they continue to build huge wireless networks with China and India at the forefront. Ericsson is the world’s leading architect of mobile systems–the premium segment in telecommunications–and should be the big beneficiary.
As for the bad numbers, they came mainly from a sudden decline in mobile network upgrades in Western Europe and North America as well as in China where some anticipated sales seem to have been pushed out rather than canceled.
As a result, Ericsson will have some very challenging quarters ahead as it tries to improve performance and persuade investors that its long-term strategy is still on track. The stock will remain in the portfolio for now and is a long-term buy, always in the context of a diversified portfolio, and preferably following–in terms of importance–the advice offered in the Fresh Money Buy list below. Buy Ericsson.
Fresh Money Buys
Because the investment process is constant, if you’d like to add to your positions in portfolio recommendations or allocate new funds in a diversified way, focus on the following markets (consult the Portfolio for details), in order (for both countries and sectors):
- Singapore (banking, telecommunications, industrial)
- South Korea (electric power, banking)
- Hong Kong (banking, real estate, infrastructure, publishing)
- India (pharmaceuticals)
- China (consumer, coal, power, oil, water)
- Russia (telecommunications, energy)
- Malaysia (ETF)
- Taiwan (technology, telecommunications)
- Europe (pharmaceuticals, industrials, communications equipment, oil)
- Japan (banking, industrials)
- Macau