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Invest in SGX Companies with Exposures in China OR Japan?

Last week for me, is all about a hectic business travels all over China
for me. The trip goes like this,
Singapore-Beijing-Tianjing-Nantong-Suzhou-Shanghai-Singapore. Phew….! While in
China, I read and heard handful of significant economic news about Japan and
China. Hence I decide to blog about the world’s 2nd (China) and 3rd
(Japan) biggest economies, and how it affects some companies listed in SGX with
exposures in these two countries.
Reading papers and enjoying
my coffee on a Saturday morning in China last week
Just two decades ago, Japan is the economic powerhouse with China’s
economy still going through its second stage of infant economic reforms. Today,
the wheel of fortune reversed as China surpassed Japan as the world’s second
biggest economy.
Japan – Short Sunrise! Long
Sunset?
In June, I blogged about Japan positive outlook after GDP grow more than
expected and Nikkei outperformed after tax hike. Read
here. Optimism feels the air
for Japan then. Just a matter of months, the once land of the rising sun
slipped into recession for 3Q. This prompted Prime Minister Shinzo Abe to call
for a snap election to seek a mandate for his decision to delay the sales tax
increases, last week.
Abe and Xi Jinping awkward handshake during APEC 2014
Stocks Still Rally
What stays the same is stocks still rally in Japan due mainly to the
loose monetary policy. Most Japanese listed companies are export-oriented with
overseas factories and dependent on overseas demand. E.g. car giant Toyata and
Honda etc. The weak Yen boost their profits and these companies usually larger
in size are also less affected by rising cost and falling demand within the
country.
Aging Population, Rising Debt and Fading Job Security, Inflation
Japan faced problems of country’s rising debt, aging population and fading job
security. Young Japanese are pessimistic about their country’s future prospect.
The elderly scene clearly outstripped the young due to low fertility rate and
extended life expectancies. 
Today,
about four in 10 Japanese work in part-time or contract jobs with little job
security and scant benefits. For young Japanese, permanent, career-track jobs
are the exception, rather than the rule.
Ever
since the consumption tax was raised from 5% to 8% in Apr this year, real wages
and purchasing power of the Japanese are shrinking. People also queue up at
supermarket when vegetables and fruits are on sale.
Abenomics Missing Targets
It seems like Abe’s economic 3 arrows are missing targets in up to now.
1) Central bank ultra-easy money depreciate yen sharply, export
increased but no real investments into Japan due to the jaded domestic demand.
Import prices increased and local SMEs suffered in Japan as costs surges.
2) Japan’s fiscal policy increasing budgets for public works projects
also faced with difficulty of rising costs of construction.
3) Policy to promote trade and investments, liberalize monopoly
electricity sector, strengthened agriculture and improve career opportunities
for women seems promising, but so far there had not been concrete measures to
push these policies forward.
Pessimistic Public Sentiments
From Yahoo
News:
College student Yuto Tanaka, 19, said he knows that
there’s millions of yen (tens of thousands of dollars) in debt for every person
in Japan. But fretting won’t resolve that problem, and neither would an
immediate tax hike, he said.
“This is our children’s future,” said Mai
Yamaguchi, a 29-year-old trading company employee heading into the gaudy
Shibuya shopping area for an outing with her 4-month-old son and two other
young moms and babies. “Child care, elder care, social welfare are all
going to be even bigger burdens for us.”
China – Consolidates Slower
Growth with Rising Charm
On the contrary, China future outlook seems brighter. Chinese people I
spoke to are very optimistic about the country and most of them are happy with
the efforts of the government so far.
Strengthened Relationships with Rest of World
China President Xi Jinping who started his fearsome campaign clamping
down corruption is showing the softer side of him, busy strengthening relationship
with the rest of the world recently.
Last week, Xi had successful state visits to Australia, New Zealand
and Fiji with agreements to expand
their burgeoning trade relationships.
“I have personally felt very privileged these last
few days to have spent so much time with President Xi, and to have felt so much
warmth personally. These have been some of the most remarkable days of my life.
The transition of China from the third world to the first world is a
transformation unparalleled in human history. It is the greatest human advance
of all time. And we here in Australia are so lucky to have benefited from that
rise.”
– Abbott, Prime Minister of Australia.
Xi Jinping in front of Government House Wellington
Maori nose-rubbing accept
Earlier in
Sep, Xi Jinping visited India’s Modi.
India and China then signed 12 agreements, with China committed investments
worth $20 billion in India over the next five years. Under Xi, USA-China relationship is seeing
improvement too. Xi said, “If China and the United States are in
confrontation, it would surely spell disaster for both countries.”  Xi also developed strong personal relationship
with Russia’s President Vladimir
Putin in the wake of the Ukraine crisis. Both leaders share strong
nationalistic views and are always ready to assert themselves against Western
interests. China has also taken on a more critical stance of North Korea, while improving its
relationship with South Korea. Even
in the light of historical soured China-Japan
relations, the recent Xi – Abe’s “Handshake” though awkward is a huge leap of
improvements between the two nations’ relationships.
Rising Middle-Class driven by Young Population
Oppose to Japan’s aging population, China had a population of rising
middle income class driven by a young population filled with drives and eagerness
for success.
Benefits of Centralized Power
While
Japan is struggling with internal political opposition, China communist party has
centralized power on reforms to ensure continuity. This is especially important
to rule a country with billions of people.
New Measures
Implemented
To boost
growth,
China had also announced interest rates cut just
a few days ago. The lending rate will lowered by 40 basis points to 5.6% and
the one-year benchmark deposit rate lowered by 25 basis points to 2.75%.  
The recent Shanghai and Hong Kong
stock exchanges link is another move aimed to create and facilitate more
investment opportunities within the country.
Rolf’s Summary – How it Affects SGX Companies

It is clear China is having an edge now over Japan in current situation. But it
is only fair to give Abenomics more time before discounting its effectiveness.
One negative quarter does not spell doomed failure. China is not without its own problems as its economy is seeing slow
growth near to contraction, coupled with increasing non-performing loans. This
prompted the cut in interest rate.
Companies with China
Exposure
A more stable Chinese environment should also benefit Singapore stocks
with China exposure. In particular, SGX Capitaland Limited
and Keppel Land Limited who have significant
property exposure in China should benefit from the more liquid environment
resulted from the recent cut in interest.
In view of hardlanding stemming from non-performing loans in China, I am
favoring State Owned Enterprise (SOE) who had a more solid financial backing
from the central government.  Refer to Motley
Fool recent article
here on the best value SOE listed in SGX. 
One stock mentioned to have little room for error is China Merchant Holdings. I added this
stock, months earlier. Please refer to my blog post
here.
Another stock in my portfolio with significant exposure in China is CapitaRetail China Trust (CRCT). Refer here for my analysis on the company. To me, it is
nature within Chinese people to love shopping or eating out in retail malls.
Hence I am longing CRCT.
Companies with Japan Exposure
As for Japan, two SGX companies with comprehensive exposure are Croesus Retail Trust (CRT) and Saizen Reit. The former invests in
Suburban retail malls while the latter place emphasis primarily on
residential-related assets.
In its latest results, CRT reported robust financial performance with
increasing income for distribution by 8.6% yoy. DPU of 2.08c also outperformed
forecast of 1.89c. 
On the other hand, Saizen Reit is seeing yoy revenue decreased by 1.6%,
due mainly to a decrease in occupancy rates and the sale of 2 properties.
Higher repair and renovation expenses as well as the increase in consumption
tax expenses further contributed to the decrease in net property income of 3.7%
One important thing to note is also both companies’ earnings will be adversely
affected if Yen continues to weaken against S$ and economy persists in
recession. However the indicated dividend yield of 7.0% for Saizen and 8.8% for
CRT are still worth the thoughts of to invest.  
This blog and its contents contain the opinions and
views of me. It is not a recommendation to purchase or sell the stocks of any
of the companies or investments herein discussed. If a reader requires expert
financial advice, a competent professional should be consulted. I cannot
guarantee the accuracy of the information contained herein the blog and its
contents. Other than being the shareholders of some of the stocks discussed
herein at the time of writing, I am not in any way related to the company
mentioned within the blog. I specifically disclaim any responsibility for any
liability, loss, or risk, professional or otherwise, which is incurred as a
consequence, directly or indirectly, of the use and application of any contents
of this blog.
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