The SRS Fund Jun 2022 Update

Normalisation of Global Interest Rates

When you have not been exercising for 20 years and suddenly got up for a body pump session, chances are your body will feel excruciating pain after this work out.  For the longest time joints have stiffen and muscles have lost their mass thus this once in a lifetime workout carries heighten injury risk.  Therefore one have to be very careful when picking up an exercise regimen after a long layoff. 

For the past 20 years the world have acclimatise itself to low interest rates.  A sudden series of rate hike is akin to the body pump session.  What damage will it do to the global economy that is so interconnected remains to be seen. 

In an ideal world I like would loves to see inflation at 3-4% level and interest rate at 5-6%.  This would enable savers to earn a real rate of return thus encouraging some forms of savings.  

Further the economic cycle can normalise where companies with bad fundamentals and business models go under during a downturn and not be kept alive by artificially low borrowing rates.  If your business cannot get a return of 6% then it shouldn’t be in business at all!

Well run companies then will be able to make a reasonable level profit (10-15%) with less competition trying to undercut prices.

However with populist governments around the world eager to please their voters, I sure central bank will continue to take the path (lowest possible interest rates) of least resistance.  However with inflation at record level their hands are tied so my ideal scenario may just play out with interest rate overshooting and subsequently subsiding just above the level of inflation. 

I believe market is wrong about the banking sector in Singapore.  The market is forecasting the upcoming recession will bring about a deterioration of loan books with much higher provisions ahead. 

However the local economy is like a bright beacon shining in the stormy global economy.  Foreign direct investments and high net worth individual continue to flow and will certainly benefit the financial sector.  With the expected rise in net interest margin, banks will continue to see earning growth in the year ahead.

As such the SRS Fund will continue to have a substantial weighting for local banks into the foreseeable future.  

SRS Fund Review Jun 2022

There have been no movement for the month of Jun as both banks and REITs continue to decline due the uncertain global environment. Record amount of $4,501.60 dividend was received in Q2 cushioning the impact to the fund. The SRS fund is down 0.7% YTD in line with its benchmark STI index.

With oil price retreating from record high, the fund investment in Keppel Corp will take time to play out and I am expecting very positive results from the group. The fund investment in HS Tech ETF looks to have gathered some steam as China seek to recharge its economy in the 2nd half of 2022.

As the earnings season begins I am very optimistic about the Singapore economy and most of the fund holdings should have improved their performance from a year ago.