Tong's Value Investing Portfolio as of December 27, 2018
Wishing all a blessed holiday and Happy New Year
With just a few trading days left (at the point of writing), 2018 is on track to be one of the worst, if not the worst, year for stocks worldwide since the global financial crisis in 2008.
What’s particularly jarring is that most market experts and strategists have predicted a rally at the start of the year on the back of synchronised global economic growth. Well, things certainly didn’t turn out the way they were supposed to.
This time around, analyst outlook for 2019 is a lot more divergent and extreme. Some including Alan Greenspan are forecasting an outright bear market. The former US Federal Reserve chairman advice to investors is to “run for cover”. He predicts that rising indebtedness, interest rates and welfare spending as well as increasingly protectionist policies (such as trade tariffs) will raise prices and dampen growth, with the US economy ending in a stagflation.
Others are less pessimistic. JP Morgan, for instance forecasts the US economy will grow an above average 1.9%, though coming off a fiscal-stimulus high of 3.1% in 2018. Nevertheless, it believes emerging and Asian markets could see cyclical upturn in 2Q2019, a view that is shared by Morgan Stanley. The latter is “outright bullish on markets in Asia” if currencies stabilise and China growth rebounds on expansionary policies.
S&P Global Ratings, on the other hand, says that Asia faces more downgrades to growth and currency pain from higher US interest rates. And despite slashing expectations, Credit Suisse still forecasts double-digit gains for US stocks. Goldman Sachs suggests that it is time for investors to get defensive with high quality stocks.
Little wonder investors are left feeling confused. Given the rally in recent years, such divergent views are to be expected. I doubt we will get mired in a stagflation, thanks to disinflationary effect from digitalisation. But global economic growth will slow next year and markets will likely stay volatile due to uncertainties, especially in geopolitics.
Case in point, outcome of the trade spat between the US and China will be a key factor in dictating the pace of global growth and where stocks are next headed. Yet President Trump has proven to be extremely unpredictable, as underscored by the revolving door of his own cabinet.
Stocks on the Singapore Exchange and Bursa Malaysia too had a dismal year in 2018, in line with selloff in global markets (see Tables 1-6). About four in every five stocks are in the red for the year-to-date, for both exchanges.
Broadly speaking, smaller cap stocks fared far worse than big caps, as is to be expected. For instance in Malaysia, whilst two in three stocks with market caps exceeding RM1 billion are in negative territory, almost nine out of every 10 stocks with market caps below RM1 billion are in the red.
Stocks in my Global Portfolio fell again in the past one-week, but fare slightly better than the benchmark index. Total returns now stand at -19.3% since inception. The portfolio is under-performing the MSCI World Net Return Index, which is down by a lesser -10.3% over the same period.
By contrast, the Malaysian Portfolio finished higher for the week ended Thursday, gaining 1.9%. Total portfolio returns inched up to 48.1% since inception. This portfolio continues to outperform the benchmark index, FBM KLCI, which is still down 7.6%, by a long way.
A Note to Readers
It is my pleasure to share with you my Value Investing Portfolio. However, I must emphasize that it is by no means a recommendation or a solicitation or expression of views to influence you to buy or sell any stocks. I am just sharing openly on what I am doing with my stock portfolio.
Further, I like to remind all investors that investing is not just about the profits or returns. You will inevitably suffer stock losses too. You need to understand your own investment objective, risk appetite and the amount of loss you can afford to bear. So, while many investors talk only about absolute returns, I am also sharing the computed risk-weighted returns of my portfolio.
Tong Kooi Ong