Sunday, June 26, 2016

Thoughts on Brexit, affected SGX counters and updates

What an eventful Friday morning (SG time)! I was home all day (due to a bad flu) watching the election returns and financial markets. The outcome of the elections was pretty apparent and obvious to a seasoned political observer (a.k.a. myself) within an hour the first votes were announced (SG 8am++), especially when the Newcastle results were announced. However, the financial markets were not as responsive and aware until 11am when the markets started plunging really badly (STI down 50 over points). In short, financial markets are slower to react than political markets, or maybe the STI is behind the curve compared to other markets. It is my strong belief that a good, basic political understanding is important for investors as political events and changes can affect government and business policies which will in turn affect the companies we are invested in.

Brief Recap for the uninformed: As most would know, the United Kingdom (or Divided Kingdom) voted in favour of Brexit 51.89% to 48.11%. This results reflects a divided (non-united) kingdom with Scotland, Northern Ireland and London voting against Brexit. The British Prime Minister has set out a timetable for a transition of power (a.k.a. resignation). The Scottish First Minister has hinted that a second Scottish independence referendum is on the table. All European markets closed in the red (FTSE down 3.15%, DAX down 6.2%, CAC down 8.04%). And the DJIA closed down 610 points/3.39%) last Friday. The only winner is Gold (up 4.43%).

*Note: I am not asking people to buy Gold, although it is true that Gold prices tend to increase when there is fear/uncertainty

As for the impact of this Brexit on my personal portfolio, I remain largely unscathed. In fact, my portfolio is slightly up on Friday. I am glad that after last year portfolio review and performance, I have taken on a more conservative approach. And, I am thankful that ahead of the Brexit vote, I have re-balanced my portfolio towards safer investments and out of more volatile ones. So again, being politically aware does help! My portfolio performance since the start of this year is positive by double digits (unlike STI which is down). I do hope I can sustain (and improve on) my portfolio out-performance and we shall see how it fares at my year-end review.

As for which counters might be affected by this Brexit vote, I think that Comfortdelgro (which has transport operations in UK), property counters like Ho Bee, City Developments (which released an announcement about impact of Brexit on SGX online), Hwa Hong, Guocoleisure with exposure to the UK property markets would be impacted. This is because as the value of pound would likely fall, the earnings and valuation of these properties denominated in pound would be lower, and adversely affect the dividends and NAV of the companies when the pound is converted to SGD.

Personally, I am interested in taking a stake in Guocoleisure, but I am glad that being a politically aware person, I have put off my purchase till after the Brexit referendum. And I am glad I did that, Guocoleisure was down 5.52% on Friday and closed on a YTD low of 82cents.

Conclusion: To be a good investor, we cannot just solely be focused on the share prices and financial reports, we should at least have some awareness of financial markets, business and political, economic and social environments that our invested companies are operating in!