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Taking position before the unfolding parallel universe converges

Chew Sutat
Chew Sutat12/8/2022 11:09 AM GMT+08  • 9 min read
Taking position before the unfolding parallel universe converges
China’s tourists are not yet back at their favourite attractions such as “James Bond Island” (pictured) in Phuket, but there are signs of the market and economy turning / Photo: Uljana Borodina via Unsplash
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Last week, I had an opportunity to do a bit of work-related travel — something left behind since my retirement last year. For 18 years as a corporate executive, I was routinely on the road three to four times a month.

As I managed the investments and treasury products globally for a bank, that took me from Taiwan to Pakistan, and from Dubai to Jersey in the Channel Islands. And as I promoted Singapore as a market and a global risk management centre at Singapore Exchange, I helped to set up offices in Tokyo, Shanghai, Beijing, Mumbai, London and New York, so that the exchange can be closer to major customers and partners bringing fund flows and capital back home.

The suitcase lifestyle and globetrotting appeared to be the envy of many, but in truth, it was extremely tiring. There were lots of punishing red-eye flights packed back-to-back. On these trips, there were plenty of opportunities for a good workout — not from fancy hotel gyms, but from running to catch the last flights out back home.

Beijing was a place I visited many times to meet clients and regulators. But it wasn’t until one Golden Week when there was a chance for me to take a proper holiday, since for the most part previously, it was largely the airport or the traffic jams.

There were also the crazy trips. In 2006, I flew to London for dinner to speak at an event alongside Britain’s Olympic star Lord Sebastian Coe, who had just led the city’s successful bid for the 2012 Games. I caught the overnight flight back to Singapore via Hong Kong, and headed straight to the Mandarin Oriental after landing, so that I could help front a press conference for a product launch.

On one occasion, I also experienced what has been dubbed “Asia’s longest day” — flying from Singapore to Mumbai, gaining 2½ hours, only to lose it all to the traffic jam while heading for a late lunch meeting. Three more meetings were squeezed in before a late dinner, and then I caught the 1.30am flight back to Singapore so that I could head straight back into the office at 8.30am on arrival.

See also: Stuck in time, the Mad Hatter lives for another day

Notwithstanding the pain, I gained an invaluable insight into business, cultures and politics of many geographies. Korea, China’s northeast region and Shandong province are adjacent to one another, and over the years, I was inducted into the different drinking cultures of each. I klinked glasses with fellow finance executives, and I exchanged “ganbei” with bosses of steel mills. I made a lot of friends who routinely still give me the pulse on the ground whether in Covid-isolated China, or World Cup- and petrodollars-fuelled Middle East.

This time, I was lucky to participate in a board retreat in Phuket. For 2½ days, I took part in meetings as a member of the investment committee, and debated on the outlook for the coming 12 to 18 months, and how to deploy and manage through some uncharted waters. Given that flights were so full then, I could not fly back right after the meetings.

As a result, I could park myself at the hotel pool, and on Patong beach, which was devoid of Chinese tourists, to write this column. It also meant that with the strong Singapore dollar, malls and markets were filled with Singapore tourists which I avoided. I dread to think about Hokkaido in December, where Singaporeans like to converge to ski, and have elected to skip the year-end trip which another company kindly offered to include me in with their staff as we don’t do the slopes.

See also: Southeast Asia's growth to wane but still outperform

Revenge travel

Apart from diving, golf and the great beaches, Phuket is famed for a number of movies filmed there. Tours to “James Bond Phi Phi Leh” are routinely touted as The Man With the Golden Gun and Tomorrow Never Dies were filmed there. Together with Leonardo Di Caprio’s The Beach, including those featuring the beautiful Phang Na Bay, Bridget Jones’s Diary, Around The World in 80 Days, and even Star Wars: Episode III — Revenge of the Sith found their way here.

Irrespective of inflation, stagflation or recession forecasts, revenge travel is in full force this December. Anyone trying to get last-minute flights will realise how expensive it is to travel, especially with the risk of travel disruptions from strikes in Europe, Covid and airline cancellations (which I experienced a month before my mid-December Egypt trip) resulting in 50% to 100% higher fares.

A Japanese expatriate in Singapore recently said he thought his family coming to visit over the New Year was flying business from Tokyo at a fare of $4,000 — but it was in fact ANA economy! While Singapore Airlines’ CEO Goh Choon Pong recently tried to guide the market to expect lower margins next year, he has proven what a great way it has been for investors who stuck through thick and thin with the carrier despite Covid, by already paying off the mandatory convertible bonds. It has been heartening to see this Singapore ‘S’ soar again. If ticket prices are a guide, not forgetting the crowds in traditional European hotspots, Bali or Bangkok, perhaps it is safe to wade into hospitality-related REITs including CDL Hospitality Trust and Frasers Hospitality Trust, as cash flows and a moderating US dollar could translate to better business and a V-shaped recovery in occupancy and margins.

Another ‘S’ from Singapore is Sats. After the debacle of its bankers in announcing the acquisition of World Flight Services without financing sewn up yet, its stock price has been under siege from a fear of a massive rights issue. However, in the final analysis, it could be the really transformational deal done at a time before full travel recovery — when the economy catches up, and Chinese tourists are unleashed on the world in revenge travel. Perhaps it could be time to accumulate and double-down when the equity fundraising eventuates, at depressed prices and good long-term value.

Circular or secular?

As postulated recently, markets, as anticipated, meandered into December. This was not before Jerome Powell gave the bulls another kicker in signalling that the Federal Reserve is slowing its rate hikes, giving US equities another short-covering boost in early December, as the long end of the interest rate curve, the 10-year, inverted. While that is a signal of a recession to come, corporate borrowers cheered as they could reprice to a higher rate environment but with more stability.

Sink your teeth into in-depth insights from our contributors, and dive into financial and economic trends

Savers who have not locked in longer fixed deposit rates of above 4% in Singdollar after interest rates spiked in October will regret a tad into the new year as the rates ease. Cashheavy institutional investors with liabilities to meet have been scrambling to lock-in and extend the duration of the fixed-income books, leading to bidding up of sovereigns and good long-term credits and rising bond prices in the middle and longer end of the curve. The economy may be slowing, but the prices of some asset classes could have bottomed.

The Straits Times Index (STI), which had been carried by the performance of the three banks, DBS Group Holdings, Oversea-Chinese Banking Corporation and United Overseas Bank, found it tough to crack 3,300 points recently, even though Singapore remains the best-performing stock market this year. A temporary pause for them remains in store till year-end as the market rotates to laggards who will lead the next push, potentially coming a full circle.

Will Thai Beverage, Wilmar International, and the Jardines group of regionals re-rate as the region continues to be underpinned by economic growth? Can the secular trends of energy transition continue to drive Sembcorp Industries’ rebound of 12% from the sell-off arising from its recent unfair “greenwashing” accusations as the market re-appreciates the transformation that had seen its stock price double from its Covid lows? And alongside Keppel Corp, after the Sembcorp Marine deal closes in 2023?

Will the stronger REITs, marked down by the steep recent rate rises, start to accrete closer to their net asset value (NAV) as financing conditions ease? Besides those REITs that are components of the STI, such as the trio of Mapletree REITs and Keppel DC REIT, others that come to mind include Suntec REIT.

The additional wild card for those with a higher nose for risk in this space comes from China. Perhaps due to social pressure sparked by some protests in Shanghai and other cities, China seems to be fast-forwarding its Covid reopening and economic measures.

In these few weeks, China has sent a series of market-positive signals. First, it has freed up local financing conditions by lowering reserve requirements for banks. It has also encouraged its banks to boost lending to the beleaguered real estate sector. On Dec 2, China reportedly nudged its banks to issue offshore loans to help the same real estate players repay a looming wall of maturing offshore debt this coming quarter.

Could this finally enable EC World REIT or Dasin Retail Trust to manage their refinancing? Or remove the cloud hanging over Sasseur REIT, which has performed well operationally since Day One but still trades at near 10% yield plus a significant discount to NAV? Will 2023 see a renaissance for those with Chinese real estate including Mapletree Pan Asia Commercial Trust and CapitaLand China Trust?

Hindsight will always be 20:20, and being early involves taking higher risks. However, as markets move to a different universe from the economy, and individuals express pent-up demand for consumption, perhaps the global recession may be shallower than feared as financial conditions stabilise. After all, it is the uncertainty that makes it difficult for businesses to plan and investors to price. As clarity emerges and the clouds clear, the payoffs will come with appropriately sized early bets. In the meantime, what is certain is I should fast-forward other leisure travel plans before the tourist pandas are freed from captivity.

Chew Sutat retired from the Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore

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