The SRS Fund Nov 2022 Update

Chicken or Egg First?

Does low interest rates cause inflation or inflation brings about higher interest rates?  

In a populist democratic world the default will always be lower interest rates as this bring financial comfort to the masses.  The underlying assumption will be price stability as without it any incremental financial comfort one may benefits from low interest rates will be eroded by higher everything prices.

Hence we can conclude that it’s inflation that leads interest rate both higher and lower.

In November with some signs of slowing inflation I believe the stock market had jumped the gun to rally optimistically  in tandem of retreating bond yield.

Like the old saying goes don’t count the chickens before they hatch.  The Fed had sensibly guided to a slow down in rates increases as well as to hold rates high for a reasonable amount of time to tame inflation.

As such more pain is expected throughout 2023 even though the intensity may have dropped.  Just like taking a pain killer it is easy to feel optimistic when the pain is lowered.  The relief rally here will hence likely be short lived. 

As of the time of writing, the China recovery may be well on its way as policy changes made to Covid reopening in China spark a rebound in Chinese equities that are selling at dirt cheap prices. 

We may see the tale of 2 countries play out in 2023 where China takes the lead in driving the global economy while the US takes a back seat fighting inflation.

The SRS Fund Review Nov 2022

In Nov the fund welcome a new counter to the portfolio.  YZJ Financials a spinoff from YZJ Shipbuilding was added.  My investment thesis for this addition is as follows

1. Cheap Valuation 35c to a dollar
2. China reopening to improve value of its portfolio
3. Continuous share buybacks and pledge by owner to acquire more if valuation stays low
4. YZJ Shipbuilding uninterrupted dividend payout bores well for YZJ Financial dividend stability

With this addition cash level dropped to 4.3% with Q4 dividend coming in above the $2k level.  Dividend for 2022 will come in at above $13k for the fund and is expect to climb to record high in 2023 given record earnings from banks and stable returns from REITs.  

Investment into Keppel Corp yielded a nice return as it continue its upward march.  HS Tech also seems to be turning the corner following events in China.  In all however the fund will likely lagged STI in 2022 due to the drag by higher interest rates on REITs in the fund.

Longer term the fund should continue to outperform the benchmark as I continue to seek alpha companies that will grow faster than those in the index.