\u00a0<\/span><\/p>\n Summary of Continued Portfolio SG Shares: DBS, SG Reits: US Growth: On I think it Demand-side inflation Concurrently, Taken Recessions If View on Real estate 1) With the 2) For 3) The That\u2019s all![](\"https:\/\/blogger.googleusercontent.com\/img\/b\/R29vZ2xl\/AVvXsEgtQ6RBbK8AEuoYZdXVhrfAWh34VTJLQgmJhwx2FwjWErBG1mEZxLXSIuIUZAsDr-n0QMrV_RhCq_NJadLrsJVwWLzXAW8Y7CLJKKew-CDYHn6wZDe9Z-it3AKl-IDTNlHe9DJdu0_9MLHrxDFz3f4NSQoUrakpsHVTG2kp90H04bY7BcE87Jznak36mQ\/s1080\/Jun%2022.png\")
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\ntransactions for June 2022<\/u><\/b><\/span><\/span><\/p>\n
\nto DCA into QUAL (avg. $121) and IQLT (avg. $33). Sold MCT as I was against the
\nmerger with MNACT. Proceeds from the sale remain in cash as I am slightly
\nbearish on Reits \u2013 further explained below.<\/span><\/span><\/p>\n
\nallocation as of June 2022<\/b><\/u><\/span><\/span><\/p>\n
\nSGX, Valuetronics<\/span><\/span><\/p>\n
\nSyfe Reit+<\/span><\/span><\/p>\n
\nBABA, INMD, PINS, PYPL, SHOP, TDOC, TTD, UPST<\/span><\/span><\/p>\n
\nInflation and Recession fears<\/u><\/b><\/span><\/span><\/p>\n
\nis key to understand that these two issues can be self-fulfilling. <\/span><\/span><\/p>\n
\nis driven by expected<\/i> inflation, that is, if you expect prices to be
\nhigher in a year\u2019s time, then you would be more likely to spend now (on
\nnon-perishables), before prices are higher in the future. Which in turn results
\nin actual<\/i> inflation if everyone thinks and acts the same way. <\/span><\/span><\/p>\n
\nif employees expect<\/i> inflation to be high, then they are more likely to
\nask for a pay raise, which increases the cost of production for companies.
\nCompanies, especially those with pricing power, would then mark up the prices
\nof goods and services, in order to pass on some of the costs to consumers. Which
\npotentially results in a wage-price spiral.<\/span><\/span><\/p>\n
\ntogether, if you ask the average person on the street now, expectations of
\ninflation are high, and there is the danger that these expectations results in continued levels of elevated inflation.<\/span><\/span><\/p>\n
\ncan also potentially be self-fulfilling. <\/span><\/span><\/p>\n
\nhouseholds and businesses expect<\/i> a recession to occur in the near
\nfuture, then the likely response would be to reign in spending now. This is
\nalready ongoing, with many companies taking the chance to trim their workforce,
\nand the US Consumer Sentiment falling sharply in June. In a circular economy,
\none person\u2019s spending is another person\u2019s income, and there would be knock on
\neffects when households and business reduce expenditure. This reduction in
\nspending and demand can result in an actual<\/i> recession down the road.<\/span><\/span><\/p>\n
\nReits<\/u><\/b><\/span><\/span><\/p>\n
\nis often touted as an inflation hedge as rents and asset values tend to rise in
\ntandem with inflation. I generally agree with this view, but I see three
\npotential headwinds for Reits in the near term: <\/span><\/span><\/p>\n
\n10Y Singapore Savings Bonds yielding 3%, Reits yielding 5-6% may no longer be as
\nattractive. Prices may have to fall further to maintain a sufficient yield
\nspread, to compensate investors for the additional risk of holding Reits. I am
\ngenerally bearish on Reits with high price to book values, as I believe that
\nReits ultimately represent holdings in physical real estate, thus it makes
\nlittle sense to pay a huge premium over their appraised values (high P\/B ratios) simply for more
\n\u201cliquidity\u201d or \u201cdiversification\u201d.<\/span><\/span><\/p>\n
\nReits with a relatively low proportion of fixed rate debt, the rising cost of
\nborrowing would hit them hard. While the majority of Reits have fixed or hedged the bulk of their borrowing costs to somewhat mitigate the impact of
\nrising rates, there would be a direct impact on future acquisitions and refinancing. If we look at the property level, especially in the Singapore
\noffice\/retail sector, rates rising beyond 3% would mean that financing of most
\nSG Office assets would not be feasible. For example, if a Grade A office asset is
\nvalued at a cap rate of ~3% (NPI yield of 3%), then it would make little sense
\nto finance part of the acquisition with debt as it would be a net negative on
\ncash flows.<\/span><\/span><\/p>\n
\neffect of this is harder to quantify, but a favoured strategy for some Reit
\ninvestors would be to purchase Reits on margin. When margin rates were at 1-2%,
\nit made sense take leverage and purchase Reits that were yielding 5-6% and
\nprofit from the spread. With rising interest rates, it makes this strategy less
\nlucrative, and leveraged investors would potentially have to deleverage. <\/span><\/span><\/p>\n
\nfor this month\u2019s update \u2013 for my monthly portfolio summary, please follow my Instagram
\nPage @alpacainvestments<\/a><\/span><\/span><\/p>\n<\/div>\n