Friday, September 30, 2022

2022 Australia Dividend Post - First ever!

As mentioned previously, Poems offer a good screener that is pretty sufficient for our purposes as value investors looking for good stock ideas. Today, we look at Australia, one of the most attractive and yet under-rated markets globally. Australia is the world's 18th largest economy by PPP at c.USD1.8trn which is roughly 6x larger than Singapore's. It took the record for the longest stretch of uninterrupted GDP growth in the developed world (26 years from 1991 to 2017) driven by good policies, growth of its natural resource producers and its strong financial sector. It is also a fertile hunting ground for good value and growth compounders even if we just look at large caps above USD10bn.

Criteria used for ASX's screening

I have almost always used the same criteria for screening (partly due to the limitation of the screen) and the above shows what is being used for today's Australia screen. The criteria are simply ROE at 10%, ROA at 5% and operating margins (OPM) at 10% and we generated a pretty interesting screen. I have not used traditional valuations such as PER and PBR because it will cut out interesting names such as CSL, Cochlear and Resmed etc. 

First section of 2022 ASX's screen

Valuation has evolved over the last 20 years and the way to value growth stocks might be to use Price to sales or PEG because traditional metric like PER and PBR does not work for the super growth companies we have seen like Tesla, Amazon. We also have a few of those in Australia shown on this first section. Aristocrat is one of the largest gaming machines maker and has compounded well over the last 20 years. Australia also has some of the most interesting healthcare names in the world. Cochlear is the company that invented ear implants and cure deafness. If Helen Keller was born in this era in Australia, she would be able to listen and speak. Then she may not become Helen Keller, but that's besides the point. Cochlear has the ability to ensure that no babies will be deaf since its founding, unfortunately government policies and restriction continue to inhibit this reality even though we already have the technology.

Second section of 2022 ASX's screen

The second section has James Hardie, a homebuilder that has compounded double digits for decades and Resmed, another world class healthcare company that cures sleep apnea. But what is worth highlighting today would be Woodside Petroleum. This is one of the pure LNG listed companies that has gone from strength to strength. With today's energy prices soaring, Woodside will continue to benefit. It should have been bought out by big majors but somehow it never happened. Now that is has grown to become a USD 60bn company, it might be too big to swallow, but we never know. Energy security will be ever more important. So glad I kept my global energy names all these years. 

As usual, here's the past lists:

2020 Dividend List
2019 Dividend List
2018 Dividend List - Part 4
2018 Dividend List - Part 3
2018 Dividend List - Part 2
2018 Dividend List - Part 1
2017 Oct Dividend List - Part 2
2017 Oct Dividend List - Part 1

Huat Ah!

Thursday, September 15, 2022

Charts #46: Fed's tightening

We are finally getting back to textbook's environment of risk free rate at 3% after years of QE although it remains to be seen if this can last.

Since Singapore's monetary policy imports rate from the US, do keep buying Singapore T-bills while the interest is still good!

Thursday, September 01, 2022

Singapore Treasury Bills from 1987-2022: Full Analysis

Singapore Treasury bills and bonds (T bills and bonds in short) continue to intrigue me as I studied the recent movements. Things started to get interesting around March 2022 when the US Fed started talking about hiking interest rates. The following table depicts our six month T bill movement - issue date and cut off yield, which is the yield we get when we subscribe, fortnite by fortnite (no gaming pun intended).

  • 20 Jan 0.48%
  • 3 Feb 0.69%
  • 17 Feb 0.76%
  • 3 Mar 0.78%
  • 17 Mar 0.95%
  • 31 Mar 1.22%
  • 13 Apr 1.32%
  • 27 Apr 1.56%
  • 11 May 1.69%
  • 26 May 1.8%
  • 9 Jun 2.04%
  • 23 Jun 2.36%
  • 7 Jul 2.66%
  • 21 Jul 2.93%
  • 4 Aug 2.87%
  • 18 Aug 2.98%
  • 1 Sep 2.99%
As of this writing, 6 month T bill pays 2.99%pa (1.49% over six months). This is risk free. Well, as long as Singapore stands, which I think she should for the next six months. I hope some of you subscribed as previewed in this post c.1 month ago! MAS also issues 1 year T bills but only on a quarterly basis and the latest cut off yields are as follow:
  • 13 Apr 2%
  • 21 Jul 3.1%

Singapore has one the highest home ownership in the world and as such I believe most of us reading this should have a mortgage. Given that mortgage rate is lower 2.99% (about 1.6-2.1% today), we should all draw out maximum mortgage and put into T bills, effective making free money! To illustrate this, if you can borrow at 2% and invest in this, using the 21 Jul 1 year T bill rate of 3.1%, you make 1.1% risk free with no equity. Let's use concrete no.s, say we can borrow $1m from the bank, which is not your capital since you borrowed it, then you buy the 1 year T bill and make 3.1%. After one year, you get back $1.031m, pay the bank $1.02m and voila you just made $11,000 with no capital outlay! 

Okay, you say there is duration mismatch. The mortgage can last 10, 20, 30 years, we cannot guarantee T bills will be at 3.1% for 10, 20, 30 years. The latest issue of our 10 year Gahmen bond has a cut off yield at 2.71% (see below). So technically, it is still doable. In fact, this also works if you can borrow at any kind of facility at 1-2%pa (ie lower than the cut off yield).

Now that we know this wonderful trick, the next relevant question would naturally be - so how much did our Singapore T bills yield over time? Here's the shocking conclusion. Read on. 

The MAS publishes all the data on T bills and bonds since 1987. Anyone can download all the data via the link below. The average 6 month T bill cut off yield has been 2.07% since 1987. While it has been mostly uninteresting at below 1% over the last decade or so, no thanks to QE, it did hit 3.05% in 2015 (and now 2.99%). In Jun 2000, right after the dot-com crash, it was 4.74%!

We spent 16 years discussing on this infosite about investing, taking risk and trying to make 8%pa. We all know someone, aunties or uncles, or even our own parents rushing to banks every few months to hunt for the highest fixed deposit rate and park money there to earn 1.x%pa. But since 1987, the Singapore government provided this ultimate instrument that can make on average 2%pa and in "good times" 3-4%pa. If you can borrow at 1+%pa which most of us could, we can make free money at infinity%pa. 

So, I am shutting down this infosite, thanks for reading folks! (Young Wonder Woman saying goodbye below)

Just kidding.