One major risk for REIT is rise in interest rate as this will raise its cost of borrowings which is a significant cost element in its books. To mitigate this risk it can discuss with the banks to fix its interest rate on its borrowings (bank lends either in fixed or floating rate) if it thinks that in the near or medium term interest may rise. This hedging is sensible as it removes an uncertainty it its financial planning. For e.g. the following REITs have actively hedged (% of borrowings) - aimsampi (96%), cambridge (82%), cache (70%), Starhill (80%). The selldown is the big funds play and I will use this opportunity to buy quality REITs and enjoy the income. Regards,
The flood of liquidity has sent markets soaring worldwide for several months since december 2013. Many of us are sitting now on handsome gains. The share prices have run up too much, too quickly, and this has driven yields down to below 5%. While these yield s are still fairly decent, they are not compelling on a historical basis.
Last thursday correction is an eye opener. A contraction in China's manufacturing sector and Federal Reserve chairman Ben Bernanke's hint that the US central bank could soon begin tightening sent markets in Asia and around the world into turbulence and tailspin. Share prices in Tokyo, which have seen dramatic gains this year, plunged by more than 7 per cent while stocks also dived elsewhere.
Yield plays fell like clowns in banana-peel shoes yesterday as the Singapore stock market suffered its deepest one-day drop in a year on fears that the US Federal Reserve would rein in stimulus measures sooner rather than later. REITs at these level have limit upside as most of the REITs yield is about 5%. REITs were indeed one of the major casualties last Thursday, heading south by 4.1%. Given that the yields are averaging 5%, it would imply that the dividend income for the year was almost wiped out in a single session.
Today maket correction REITs suffered another deep one-day drop. At 5% yield there is no incentive to become sitting ducks to face market correction. I have sound out earlier that REITs yield at 5% have no more baffle to withstand market correction. For this reason I have unload almost all my REITs holding.
For me, the wobble on Thursday is a useful litmus test for anyone who calls himself or herself an investor. It will help to separate those who understand the benefits of long-term investing from those who buy shares just for the short-term thrill.
When we invest, we need to appreciate the intrinsic or underlying values of the shares that we are buying. We need to remember that any fall in the stock market does not affect the intrinsic value of a business.
The intrinsic value of a business is derived from the value that the company can generate for its shareholders over the long term. So, a few words, from even someone as influential as Ben Bernanke, will not affect the intrinsic value of a business. He might be good but he's not that good.
The event such as the one we witnessed last Thursday is unlikely to be a one-off. As long-term investors we will undoubtedly experience many more like it. But each event should be viewed as just another opportunity rather than an annoying threat.
In January I have hightlighted CORDLIFE a potential muti-baggers when it was trading below 60 cents. Today is has already doubling it prices.
In a bull market everyone will make money but the litmus test is during market correction or market crisis. Remenber the greatest opportunities is during market correction or crisis hit where you can source for gems for a song.
However, to take advantage of those opportunities you will have to be prepared. You will need to do your homework well in advance to know when the shares of the companies you have always wanted to own have fallen below their intrinsic values. Invest wisely, sleep well & see your money trees bear fruits. Let your investment generate passive income yearly. The best part is able to outperform the markets.
The event such as the one we witnessed last thursday and this week's market correction down by another 9.5% will not be the last. I believe more of these to come. DJ had lost another 200 points. Market usually predit on the economy about 6 months ahead. Thus Federal Reserve chairman Ben Bernanke's hint that the US central bank could soon begin tightening may not be far off down the road.
Many of us are already sitting on handsome gains. The share prices have run up too much, too quickly. It's time to review & consolidate our portfolio. There is not much incentive to stay fully vested. Don't waste time and resource as the upside is limited and not worth the risk. Do some pruning after the harvest and future will bear more fruits. Enjoy your fruits in your recent harvest & wait for the next season to harvest again.
I notice the interest level on China stocks. I had invested in red chips in HKSE between 2008 till 2010 and had enjoyed success. Thanks goodness I moved out of this sector in time before some of my picks suffered huge decline (for e.g., Realgold, Charoen, Dynasty Wine, Gome etc). Majority of these cases were due to accounting issues and were eventually suspended. With hindsight, the profitability and financial condition (even though figures were audited) were just too good to be true. Just be very cautious.
At this point of time, I am suprise many Analysts start to issue overweight recomendation on REITs.
Few years back there is hardly any recomendation from the Analysts. When the REITs outperformed the market and yield now is about 5% then Analysts start to issue overweight recomentation. The chances for interest rate to increase is much higher now than few years back. Why overwight REITs now?
Looks like US is recovering well, hence Fed likely to taper QE this yr as anticipated. Interest rate is likely to go up next yr. Don’t know why people buy REITs just for the few % yield ? Won’t it be better to buy shares in a Bull run ? I bet big in a Bull run as it only comes once every decade, but admittedly the best part is now gone as it’d be tough finding a multi bagger now. Cheers.