The Price Of A Thousand Yen

About 20 years ago, I have had heard that the average price for a typical lunch meal in Japan was between 800 and 1,000 yen, which in 2004 terms, was around SGD 12 to SGD 16¹. That cost, in local terms, was reserved for restaurants, not hawker centres and coffee shops where the price then (by my reckoning) was around SGD 2.50 for a meal.

Fast forward today, you could still get a decent meal in Tokyo for between 800 and 1,000 yen, which is now around SGD 7 to SGD 9. Surprisingly, these price levels are almost equivalent to mixed vegetables rice (considered Singapore’s unofficial basic food index) sold at some locations.

 

In a way, we could describe that we had reached Japan’s level of (price) standards, but there is a macroeconomic explanation behind.

 

The Lost Decade(s)

 

Long story short, the meteoric rise of the Japanese economy post-Second World War ended with the burst of the asset price bubble in the early 1990s, sparking what was known as the “lost decade”. However, this decade did not really last 10 years; the economic stagnation lasted well into the 2000s, 2010s and into early 2020s, thus being dubbed subsequently the “lost 20 years” and “lost 30 years”. The Great Recession of 2008/2009, the Tohoku earthquake of 2011 and COVID19 pandemic of 2020-2021 had made worse these “lost” years.

 

Japanese inflation rates since 1991 till 2023, for the most part, never went above 1.5% annually, and with close to half the time went into negative region². On the other hand, Singapore’s inflation rate was at an average of about 1.73% year-on-year, with only 2 years of negative numbers, during the same period³.

 

With this, Singapore had overtaken Japan in terms of inflation, and coupled with the strengthening of the SGD against the Japanese Yen, that 1,000 yen now looked less expensive than before.

 

What Can We Learn From Here?

 

The term “equities will always go up over the long run” did not hold true for Japanese ones, until recently; using the Nikkei 225 index as a gauge, it did not return to its high as of Jan 1991 until around Nov 2020. To add, the highest peak achieved in Dec 1989 was not breached till just last month. 

 

Imagine as an investor who was all-in Japanese equities back then; he/she would not have recovered after factoring exchange rates. Hence it is important that we diversify not only among the asset classes, but also into different regions and countries, if your portfolio is sizable enough.

 

 

1 – Yearly exchange rates, Singapore Dollar per 100 units of Japanese Yen. Monetary Authority of Singapore.

 

2 – Japan Inflation Rate. 1960-2024. Macrotrends. https://www.macrotrends.net/countries/JPN/japan/inflation-rate-cpi (accessed 24 Apr 2024)

 

3 – MAS Core Inflation, 1990-2023. Monetary Authority of Singapore.

What, Me Worry?

The phrase above came from none other than Alfred E. Neuman. In case you did not know this person, he was neither a famous investor nor a historical figure; he is a fictional character created by the now-defunct Mad Magazine, which for those who remembered, was a series of parody-laden illustrated magazines that would tickle your mind.

The significance of the phrase is obvious: the United States (US) and local markets, where most Singaporean investors were vested at, took a heavy beating over the last couple of weeks. Delayed interest rate cuts, drones and missiles flying everywhere, and a slew of other happenings big and small had provided enough bad-news juice to bring the markets down. With all these, do they warrant enough worrying on your end?

Not really for us. This is, to quote a department store’s motto: “the sale worth waiting for is now on!”.

I had said in my previous post that we had gone into some real estate investment trusts (REITs), and we did not stop there; we had added positions to Apple at USD 165, where it was near our next “buy-into” zone. Over the next few days, we would be looking over our holdings and see which had gone into the buy-into zones, provided if the markets are still on a downward trend, and probably initiate positions in them. There could be healthy companies which are being dragged down into the whole generic doom and gloom scenario.

To those who may have regretted not getting into bargains during the COVID period, or even further back in 2008/2009, this may be opportunity knocking again. The markets and the economy go through cycles, so there are Sundays and Mondays happening around.

Keep calm and stay invested.

Going REITs Shopping Again

The markets were reeling from the latest not-so-good United States (US) consumer price index results and geopolitical jitters. With a recent capital injection and the resulting asset allocation skewness of our Bedokian Portfolio, plus a perceived delay of US interest rate cuts, it is time to go shopping again for the real estate investment trust (REIT) asset class.

Back in October 2023 I had shared on which REIT we had entered. This time round I will share what we had gone in or planning to go into, our rationale, and our average and entry prices.

REIT #1: Frasers Logistics & Commercial Trust (FLCT)

Based on the latest business update in January 2024¹, the gearing and interest coverage ratios were at 30.7% and 6.2 times respectively, with 76.8% of its borrowings under fixed rates, which indicated a healthy debt profile vis-à-vis other REITs of the same logistical, industrial and commercial sectors. The logistics and industrial arm of FLCT had maintained a 100% occupancy, though the (still) worrying trend of a not-so-robust occupancy rate for its commercial properties, especially for its United Kingdom (UK) properties, is there. The recent passing of UK law of allowing employees to have the legal right of working from home from the onset of employment could likely exacerbate the commercial space situation there.

Despite the downtrend, we believe that the logistics and industrial part still holds relevance in the future markets and economy, and bring about better rental reversions. We had initiated a position of SGD 1.04, with a total average price of SGD 1.07. 

REIT #2: Frasers Centrepoint Trust (FCT)

FCT need no introduction as being the king of suburban malls in the north, east and northeast. Recently in March 2024, FCT had upped its interest of Nex mall to 50%², funded by private placements and debt financing. Accordingly, the acquisition would provide an accretive 1.5% in the distribution per unit³, and the gearing ratio would be at 37.8%⁴ (assuming divestments of Hektar REIT and Changi City Point were adjusted into the financial statements ending 30 September 2023). 

Overall, FCT’s retail malls enjoyed an occupancy rate of not less than 99%, proving the resiliency and relevance of suburban shopping malls in Singapore. Our current average price for FCT is SGD 2.05, and we are planning to enter it around the range of low to mid SGD 2.10s.

REIT #3: Nikko AM – Straits Trading Asia ex Japan REIT ETF (CFA)

OK, this is not really a REIT per se but a collection of REITs from the Asia ex-Japan region. It is part of our core-satellite strategy of having exchange traded funds (ETFs) forming the core and individual counters making up the satellite portion. When there was only three REIT ETFs back then in 2018, CFA was selected due to its diverse REIT holdings in terms of countries and sectors. We had recently bought in CFA at SGD 0.783, and our current average price is SGD 0.953.

REIT #4: Paragon REIT (Paragon)

Honestly, for this round, Paragon is more of a “want” than a “need” for this round of additions, but I will give an honourable mention in this post. Paragon's low gearing ratio, healthy occupancy rate (at least 98% across properties) and its retail profile provided a form of resilience. Recently in February 2024, after a long period of speculation, Paragon had rejected to buy Seletar Mall from its sponsor as part of its right-of-first-refusal⁵. 

While in my opinion the establishment of another foothold in the Singapore suburban mall landscape (after its foray into Clementi Mall, which to me is a good move) was gone, but with their explanation of that it is a dilutive acquisition, plus the uncertainty of the interest rate situation (their last known interest coverage ratio was about 3.5 times), prudence is key in such conditions.

Conclusion

If you had noticed, Reits #1, 2 and 4 were mentioned in my October 2023 post, so this was just a rehash. Frankly I had been prospecting other REITs to enter but eventually decided to just look at the present holdings and determine their current health and price to enter. It is alright to just add on to one’s existing portfolio and it is not necessarily to look for new ones to enter simply because it is a must to get it.

1 – 1QFY24 Business Updates. Frasers Logistics & Commercial Trust. 30 Jan 2024. https://flct.frasersproperty.com/newsroom/20240130_214656_BUOU_QWI72KXHOX61KRIR.1.pdf (accessed 14 Apr 2024)

2 – Completion of the acquisition of the remaining 49.0% interest in each of Nex Partners Trust and its trustee-manager as an interested person transaction. Frasers Centrepoint Trust. 26 Mar 2024. https://fct.frasersproperty.com/newsroom/20240326_212947_J69U_JBZQX6UOU2EAHM9N.1.pdf (accessed 14 Apr 2024)

3 – Circular to unitholders in relation to the proposed acquisition of the remaining 49.0% interest in each of Nex Partners Trust and its trustee-manager as an interested person transaction, p30. Frasers Centrepoint Trust. 4 Mar 2024. https://fct.frasersproperty.com/newsroom/20240305_225314_J69U_L8NR94BDT0MKA9D7.2.pdf (accessed 14 Apr 2024)

4 – ibid, p32

5 – Lim, Jessie. Paragon Reit rejects Cuscaden Peak Investments’ offer to buy The Seletar Mall. The Straits Times. 29 Feb 2024. https://www.straitstimes.com/business/companies-markets/paragon-reit-rejects-cuscaden-peak-investments-offer-to-buy-the-seletar-mall  (accessed 14 Apr 2024)

 

Windfall And What To Do With It (Investment Wise)?

Sometimes we may have the chance, whether known (e.g., endowment payouts, inheritances, etc.) or by luck (e.g., lotteries), of obtaining a windfall, which is the sudden drop of cash or capital onto one’s lap. It is a pleasant surprise to get one, but the main challenge comes immediately after, which is what to do with it. On a personal level and being materialistic as most humans are, the urge to splurge on things that were both wanted and needed is there, such as the fancy car one desired, a meal at a high-end restaurant, and/or giving money away for altruistic or ego reasons, or both. The examples cited are not far-fetched as I had witnessed them personally, and in some instances the windfall dried up as fast as it came, and the recipients just went back to their normal lives.

One of the etiquettes that I had learnt about personal finance is that finances are personal. Unless being requested, I would not advise in what they wanted to do with the monies and/or capital, and even if they did, it is just an advice and up to them whether to take it or not. Admittedly deep inside me, I may be lamenting on the way how the windfall recipient is spending on some deemed frivolous stuff, but I also remember that those are their monies, not mine.

 

Windfall Planning

Though sounded a bit absurd, I do have a “windfall planning” spreadsheet in place to guide me on what to do should it fall onto my lap. I had initiated this after seeing the aforementioned examples about people not knowing what to do windfalls and then just spend it off, mostly without thinking. Though the numbers vary, but the splitting percentages are about the same across; portions to charity, contributing to family, partial/full settling of long-term loans, etc., and of course, investment. For this post I will focus on the investment part, because gaining a windfall is one thing, holding it sensibly is another.

 

Deploying The Windfall For Investment

The deployment would very much depend on the stage of investment one is at. If the recipient is a total newbie, then the windfall would be better off being in a safe institution such as the government (via Singapore Savings Bonds and treasury bills) or in a bank (as a savings or fixed deposit) for the time being as he/she is learning more about investing.

If there is sufficient investing knowledge obtained, then it could be used to start a portfolio consisting of one’s preferred asset class allocation. This can be done immediately to capture the current characteristics of the asset classes as at a particular economic situation, or done gradually over a year’s time if immediate is not comfortable.      

If an investment portfolio is already in place with the set asset allocation, a windfall would bring in cash injection that would enlarge the cash portion of the portfolio (in terms of The Bedokian Portfolio). Theoretically, it would be preferred to deploy the capital immediately to rebalance back to the desired allocation levels, especially for passive investors like Bob, and to avoid cash drag. However, for an active, active-passive, or passive-active investor with some individual counters and exchange traded funds (like me), he/she could deploy quickly in the latter and keep some for the former, as the counters may not be in the “price is right” range.

Related post:

Gaining And Holding

On The Degrees Of Diversification

Apart from commodities and cash, the Bedokian way of diversification, if it is to be done, is from top to bottom: asset class, region/country and then to sector/industry. Some of you may be wondering, why the further diversification below asset class has to be in that order.

 

Region/Country

Generally, an asset class in a region or country will perform differently from another. For instance, the table below shows the stock market (i.e., mainly of equities asset class) returns of various countries between 2009 and 2023 (Figure 1):

Fig.1: International Stock Market Returns, 2009 to 2023. Source: Novel Investor (www.novelinvestor.com). Click to enlarge.

Looking at some years, we had the extreme case of 2015 where the Danish index gained 24.4% while the Canadian index dropped 23.6%. In the year 2018 which all indices were negative, the Finnish one was only down by 2.2% while the Austrian one suffered -27.1%.

The same goes for real estate investment trusts (REITs). According to data from NAREIT (Figure 2), for the regions of North America, developed Asia, developed Europe and emerging real estate showed different returns for the years 2021, 2022 and 2023.

Fig.2: Excerpted from REIT Performance 2023 Q3, with 2021, 2022 and 2023 YTD shown in last three columns. Source: NAREIT Quarterly REIT Performance Data (www.reit.com). Click to enlarge.

Bonds wise, using another matrix of different regions/countries (Figure 3), the differing results were like that of equities’ in Figure 1:

Fig.3: Fixed Income Country Returns, USD Hedged, 2009 to 2022. Source: Alliance Bernstein and Bloomberg (www.alliancebernstein.com). Click to enlarge.

As what the heading said in Figure 3, no country wins all the time.

 

Sector/Industry

Why and how each region/country’s asset classes behave differently is very much impacted by the next layer of diversification, that is sector/industry. The proportions of the sectors/industries are different in the economies of various regions and countries, and this in turn drives the outcome of returns of that area. Socioeconomic, geopolitical, and regulatory factors also play a part in the overall scheme of things. Thus, Country A’s banking sector may thrive more than Country B’s; Country C’s property market is worse off than Country D’s, and Country E’s government bonds are higher yielding than Country F’s due to the former’s lower ratings.

Putting it to real life examples, Figure 4 shows the comparison between the United States (US) and China healthcare sector, with convergences and divergences throughout a 10-year period. Another reality is on REITs where US office property sector is facing a crisis whilst Singapore’s are having a better outlook, so far.

Fig.4: 10-Year Comparison between US Health Care Select Sector Index and S&P China A 300 Health Care (Sector) Index (USD). Source: S&P Global (www.spglobal.com). Click to enlarge.

 

Exception: Thematic Investing

The main exception to the above diversification order is thematic investing. Blending both region/country and sector/industry, exchange traded funds (ETFs) that use thematic investing tend to bundle in companies from sectors/industries that are part of the theme, regardless of their nation of origin. Using an ETF which we are vested, the iShares Global Clean Energy ETF (ICLN)¹, it contains companies from the information technology, utilities, industrials, etc. sectors/industries from countries such as the US, China, Denmark, India, etc. 

 

Disclaimer

Disclosure

The Bedokian is vested in ICLN.

 

1 – iShares Global Clean Energy ETF. iShares. https://www.ishares.com/us/products/239738/ishares-global-clean-energy-etf (accessed 31 Mar 2024)