Regulatory, Liquidity And Counterparty Risks

We are rapidly seeing the increase of multiple polarisations of geopolitical blocs and the complicated world order that we may be heading into, and these may amplify some of the risks that most investors tend to overlook. Most of us would associate risks as total loss of an investment due to market and economic forces, but we need to be aware of other forms of risks that, though the probability of it happening may seem be remote. Examples of these risks are regulatory, liquidity and counterparty risks.

Picture generated by Meta AI

Regulatory risks are events where regulations, legislation and/or standards have a negative effect on certain sectors/industries. There are a few examples, one of which is the ever-present government antitrust suits against the technological giants.

Liquidity risk, from the market perspective, is one where a counter could not be sold, or liquidated, in required time, because of low or no demand for it. Some may have experienced liquidity risk when their shares/bonds were suspended on an exchange, oftentimes stuck there almost forever.

Counterparty risk is the failure of the other side (i.e., the counterparty) in carrying out their obligations of a financial transaction, such as the delivery of securities after payment has been made, or the failure of a bond to distribute a scheduled coupon payment.

After having introduced the risks and bringing back to the point said in the first paragraph where these risks are amplified, the growing geopolitical tensions would probably have, or had have, them manifesting as a sequence of events. A famous instance was the SWIFT (pun intended) sanctions placed on Russia the moment they invaded Ukraine, which led to, among others, the severance of the Russian market from Western investors. Regulatory risk (brought about by sanctions), then liquidity risk (unable to access the Russian markets to liquidate holdings) and at the same time, counterparty risk (defaults occurred in the trading of Russian securities individually or by fund houses).

While accordingly investors had gotten back their monies from their respective exchange traded funds (ETFs) that had Russian securities, the period in-between would be harrowing especially for those who may have a huge position in them. This is a clear demonstration that governmental actions could bring about a huge dent in one’s investment portfolio.

The abovementioned scenario could well play out if non-Western region or country is trying to do something funny in the great global game, and I could probably hear murmurs of turning away from global diversification and stick to local companies for safety. However, the best way to manage these risks is diversification itself.

Some may view this blogpost as scaremongering, but I must highlight that all investments carry risks, and it is up to the individual to determine the probability and one’s weightage of each of the risk types happening. Via diversification along the descending degree of asset classes, regions/countries, sectors/industries and then companies, and along with portfolio sizing (in my opinion, not more than 12% holdings for a company or a sector-based ETF), losses can be mitigated and limited in contrast to a wipeout had one instead concentrated. 

Disclaimer

Maximising Returns

Many times, I have been hearing others on the hypotheticals of getting rich from certain assets/securities if he/she had gone in earlier (GameStop, anyone?). Similar for portfolio make-ups, where certain asset allocation provided the best returns for certain periods.

For the above to happen, one’s foresight would truly need to be accurate, but as I had shared countless times, no one can predict right to the exact detail, so there is no point lamenting on missed chances. 

Picture generated by Meta AI

I acknowledge that it is in the interest of every investor and trader to maximise their returns from their investments and positions, but it is near impossible to win all the time. The best one could do is to stick to one’s plan that works, perform due diligence in carrying out portfolio building and fundamental analysis, and realise that ups and downs are inherent in the investing/trading journey.

Though it is good to know about how much returns investing greats and some individuals on social media generate, it is preferable to gain some insights and learning points from them, rather than invoke feelings of envy and jealousy. Everyone’s financial journeys and objectives are unique from one another.

Disclosure

The Bedokian is not vested in GameStop.

Disclaimer

Dark Side Factors That Could Derail Your Investment Portfolio

As part of the Star Wars Day (May the Fourth) special, I will share a post on dark side factors that could derail an investment portfolio.

Picture generated by Meta AI

Dark Side Factor #1: No Diversification/Under-diversification

Imagine an investment portfolio that consists of only one counter, and if anything extreme happens to it, be it a company bankruptcy or a bond default, the whole portfolio goes poof. In non-extreme cases, a price drop of its securities would bring put a big dent, since basically the portfolio equals to that one counter.

Going further, though with the safety of numbers, there is this risk of under-diversification as well, especially if investments are on basically one sector/industry and/or one region/country. Think about an event that affects the entire sector/industry (e.g., airlines and travel during the COVID19 pandemic) and/or country/region (e.g., the Asian Financial Crisis of 1997) and what would happen to the portfolio.

The answer to deal with this would be adequate diversification, and for the Bedokian Portfolio’s case ranks in the following order: asset classes, region/country, and sector/industry. In this way the risks are spread, with the downside mitigated due to the net effects of correlation between the counters.

Dark Side Factor #2: No Rebalancing

Rebalancing and diversification go hand in hand, thus even with diversification done but with no rebalancing performed, there is still a danger to one’s portfolio. Allowing an asset class to deviate from the preferred or designated allocation would create concentration risk akin to #1, lost opportunities to invest in other asset classes at their lows, and not to mention compromising an investor’s risk tolerance when the portfolio moves away from the set make-up.

Rebalancing can be done in two main ways: either passive or active. Passive rebalancing is usually done periodically, e.g., quarterly, half-yearly or annually. Active rebalancing involves re-allocation to the portfolio make-up constantly or within a short period. Either way, if it is done, one will be steered away from the dark side.

Dark Side Factor #3: Getting Emotional

The Jedi practised emotional control so as not to be affected by them, and this extends to how one should manage their portfolios whether during happy and crunch times. Many times, I have had heard of the phenomenon of “buy high sell low”, and dumping everything to “run for the hills”, only for the investor to regret the decision later.

The markets and the economy go through a boom-and-bust cycle, which is part and parcel of the investment journey. As said countless times, stay calm, enjoy the ride, be rational and carry on investing, for its time horizon is long.

 

Dark Side Factor #4: Not Sticking To The Plan

It is good to fine tune a portfolio methodology and make-up to suit one’s preference and risk tolerance, but to do it extremely (e.g., switch totally from equities to cryptos, etc.) and/or frequently (e.g., Bedokian Portfolio this year, 60/40 equities/bonds next year, etc.) would likely bring lower returns and unnecessary risks than one had not made the change in the first place.

When embarking on the journey of investing, it is recommended to know one own’s objectives and risk appetite, and also read up to learn about it, which I had covered here and here respectively. Once these are in place and the investing philosophy and methodology established, it is easier to carry out according to plan, and perform tweaks down the road.

Dark Side Factor #5: Leverage

While using leverage could increase returns based on what some investing books had stated, for the uninitiated it could prove to be a handful when one need to monitor the portfolio and the borrowings simultaneously. With an even greater leverage on leveraged products, where returns and losses are heavily amplified, the risk of margin calls is greater.

When utilising borrowings, it is important that one should have a clear understanding of what he/she is doing, and the advantages and implications behind them. 

 

May the Fourth be with you. 

Learning Points From The Past Two Weeks

The happenings and experiences of investors and traders for the past two weeks, in my humblest opinion, serves as an almost comprehensive trove of learning points to take home with, especially for those who are new to the markets, and for veterans relearning the basics.

Picture generated by Meta AI

While I can pick at least a dozen major and minor points to talk about, for this post I will select four which I deem them as important. I will also provide some links to my previous posts for detailed explanations on the points.

Learning Point #1: Everything Seems To Go Down

In times of market crisis, a common observation was that everything was going down, even safe assets such as gold. There are a few explanations, which I had covered here and here.

In gist, a lot of investors would want to preserve their capital by moving to safe assets, which may include bonds, commodities (gold in particular) and cash. The problem was that the vast quantum and speed of assets liquidated by so many people within a short time had caused demand and supply distortions, which in turn affected prices. Though equities were the hardest hit, there were also investors getting rid of the deemed safe assets, too, like bonds and gold, to hold onto the most liquid of them all: cash, before thinking of their next move.

After “Liberation Day” on 2 Apr 2025, gold went below USD 3,000 per oz before soaring to an all-time high again, which proved somewhat correct the points raised in the linked posts above.

Learning Point #2: No One Is Able To Predict The Markets

There are amateurs (retail investors and influencers), professionals (analysts and economists) and anyone in between that would constantly try to predict the market outcomes, with some backed-up by data and information, but no one is able to do it correctly. By prediction, what I meant was the ability to have the correct outcome at the correct time, right down to the ‘T’, and I dare say it is almost impossible to do it. Read this writeup for more details.

A related note to this point is that since no one knows how things would pan out, the things that was said by people in the media should be taken as opinions, not the truth, hence we should not be blindly following whatever was spoken.

Learning Point #3: Bottom Fishing

Rational investors would know the past two-week period as “the sale worth waiting for” and eagerly biding their time to purchase their targeted counters at their assumed right price. The ultimate prize would be going in at the “bottomest” price before shooting up again. Catching the bottom, though slightly easier than predicting, still requires sheer luck. Personally, I was able to sell a counter at its highest and bought another one at its lowest, both once, in my investing/trading life, and I attribute them solely to good luck, not acumen.

Rather than waiting to fish for the bottom, there are other methods in getting a counter near its lowest, where I had shared here.

Learning Point #4: Keep Calm And Carry On Investing

This is self-explanatory, so I shall not say more. 

Disclaimer

 

The Most Expensive Show-And-Tell

On 2 Apr 2025, dubbed as “Liberation Day” by the current U.S. administration, a “show-and-tell” by the incumbent president on the imposition of reciprocal tariff rates on every possible nation and territory in the world, had wiped off at least USD 2.4 trillion worth of market cap from Wall Street¹.

Picture generated by Meta AI

Apple plunged close to 15.8% over two days, and Amazon’s price down by around 12.6% over the same period, due to their supply chains intertwining closely with China, one of the main targets of the tariff drive. Across the global markets, indices and prices were down in various magnitudes over the uncertainties of the impact that the tariffs would bring.

In this post, I would not delve into the intricacies and implications of the tariff rates, and the main macroeconomic reasons why the U.S. is doing this, as these are factors way beyond our control, I will instead focus from the investor side of things.

Same, But Different, But Still Same

For those who had invested at least for the past six years, this plunging market scenario is like the one that was encountered during the COVID-19 crisis back in Mar 2020. Some may argue that the context of both situations is different, i.e., one was a pandemic where no one could predict when it would end, whereas the other is a deliberate economic event where somebody may know when it could end, these periods marked good moments to enter counters that one may have been waiting for, and/or to average down current holdings due to their relatively cheaper valuations.

And it seems that a lot of investors are learning this “buy the dip”; the day after Liberation Day on 3 Apr, retail and individual investors made USD 4.7 billion worth of net equity purchases (difference between bought and sold), the highest in 10 years². Yes, I am one of them.

Good Companies Tend To Be Resilient

While every equity security is screaming “cheap cheap” now, not all are equal; some may turn out well and become multi-baggers in the years to come, but there are a few whose prices could remain at a low level for longer periods. This is where the concept of company fundamentals come into play, and those with wide healthy financial numbers like good free cash flows, low gearing, etc., and strong moats like reliable customer bases and near monopolistic products/services, etc. would tend to pull through.

Fundamental analysis is needed to see if the companies are resilient. For one’s current holdings, a periodic review may be sufficient, while a full one is necessary if prospecting for new counters to invest in.

We Cannot Tell The Future

Will the tariffs be reduced? How much lower will the S&P 500 go to? What would be the bottom price for Apple?

My only answer to them is four words: I do not know. As oft mentioned by me, predictions, especially the correct outcome at the right moment, are short of impossible to state. In terms of the timing to go into the market, one can use indicators (valuations, price signals, etc.) as a gauge of whether to buy into the company/index exchange traded funds (ETFs). If one is on the path of passive investing with periodic rebalancing, and/or following a disciplined periodic approach of buying into the securities, then just continue with it.

 

The last best time to invest in a dip was five years ago. The second-best time is (probably) now.

Stay calm and invested.

Disclosure

The Bedokian is vested in Apple and the S&P 500 via SPY ETF.

Disclaimer

1 – Wynne, Alan. Lessons from “Liberation Day”: A guide to tariffs. J.P. Morgan Wealth Management. 4 Apr 2025. https://www.jpmorgan.com/insights/markets/top-market-takeaways/tmt-lessons-from-liberation-day-a-guide-to-tariffs (accessed 5 Apr 2025)

2 – Gottsegen, Gordon. Individual investors made a record $4.7 billion in stock purchases Thursday as new tariffs pummeled markets. Marketwatch. 4 Apr 2025. https://www.marketwatch.com/story/individual-investors-net-bought-a-record-4-7-billion-worth-of-stocks-on-thursday-as-new-tariffs-pummeled-markets-a82a4a8c (accessed 5 Apr 2025)

Sell Banks And Buy REITs?

I have had heard of the above mantra from chat groups and online blogs, possibly due to the perception that banks are (deemed) overpriced, and the recovery of real estate investment trusts (REITs) are in progress as observed from price movements and analyst reports.

Picture generated by Meta AI

In portfolio management terms, this is rebalancing, where assets of different asset classes/regions/sectors are bought and sold to maintain the desired portfolio make-up. Within the action of rebalancing, however, there are variations in its execution; on one end some do it passively and periodically, while on the other end some do it actively and opportunistically to capture gains from anticipated events and news.

Back on the action of selling banks and buying REITs, it would be dependent on one’s portfolio, investment strategy and methodology used, and which part of the above described active-passive spectrum one is at. Depending on each investor’s circumstance, it may not be necessary to sell one and buy the other. For our case, as we are still in the accumulation phase, we rebalance by injecting capital, thus we buy both banks and REITs.

Providing more context and detail, we had recently deployed into OCBC when its price showed weakness during the middle of March 2025; this purchase is for averaging up our current holdings. For REITs, we had been nibbling them since interest rates started to spike in 2022, with the knowledge that every asset class would go through highs and lows in cycles (my oft stated “Sunday” and “Monday” moments).

Hence, to sum it all up, an investor needs to take stock (pun intended) whether the advice of “sell banks and buy REITs” is suitable for his/her investment philosophy and portfolio situation. If the advice is sound, then it must be rationally substantiated with reasons such as the purpose of doing so, the justification of fundamentals, etc. Following blind advice without facts and context is akin to listening to jumping into the deep end of the pool blindfolded and with hands tied, which someone with a sane mind would not do in real life.

Disclosure

The Bedokian is vested in OCBC.

Disclaimer

Frasers Centrepoint Trust’s Full Acquisition Of Northpoint City

Frasers Centrepoint Trust (FCT) announced the acquisition of 100% interest of Northpoint City South Wing on the morning of 25 Mar 2025, following up with another announcement of private placement and preferential offering for investors and unitholders.

 

 Screenshot of Northpoint City from FCT presentation slides.

Some Important Points On The Equity Fund Raising

The total acquisition cost is Singapore Dollar (SGD) 1,172.9 million, with the agreed property value of SGD 1,133 million. No less than SGD 400 million will be raised from private placement and preferential offering (the private placement had just ended with around SGD 220 million raised). From the proceeds of the raised equity, around SGD 415.2 million would be used to repay existing debts, and around SGD 6.1 million would be used for fees and expenses associated with the equity raising exercise.

Post-acquisition, it is expected that the distribution per unit (DPU) accretion increase by 2.0%, with aggregated leverage (a.k.a. gearing) increase 1.3% to 39.8%, all on a pro forma basis and on the assumption that the perpetual securities are issued.

The application for the preferential offering units is scheduled to open on 8 Apr 2025 and close on 16 Apr 2025, with the listing of the units indicatively on 25 Apr 2025.

The Bedokian’s Take

A good outcome from this exercise is that FCT is having full ownership of the entire Northpoint City and with it, cementing their place as the true “King of the North (of Singapore)” of suburban malls, complementing Causeway Point in Woodlands. Positioned at the “heart” of Yishun town with the namesake MRT station and bus interchange, and with 100% occupancy to boot (for both wings as of 31 Dec 2024), it is an almost sure-win in terms of having a captive market population through Yishun residents.

The major risk variable to FCT’s hold in the north is the impact of the Johor Bahru – Singapore Rapid Transit System (RTS), which I had covered here and it represented a double-edged knife, i.e., could go both ways. Overall, we would be going for the preferential offer due to FCT’s suburban mall dominance and to keep our holdings from being diluted (anyway, I had disclosed our intention to add more FCT in our previous post, so this offering had partially fulfilled it).

For the preferential offering, the issuance ratio is 54 units out of every 1,000 units owned. As we prefer our holdings to be rounded to the nearest 100, we are likely to subscribe for additional units to make up the number.

Disclosure

The Bedokian is vested in FCT.

Disclaimer

References

Frasers Centrepoint Trust. Presentation in relation to the Proposed Acquisition of 100% interest in Northpoint City South Wing and its Trustee-Manager as an interested person transaction. March 2025. https://links.sgx.com/FileOpen/FCT_SGXAnnouncement_Investor_Presentation.ashx?App=Announcement&FileID=837297 (accessed 28 Mar 2025)

Frasers Centrepoint Trust. Results of the private placement and pricing of new units under the private placement and the preferential offering. 26 Mar 2025. https://links.sgx.com/FileOpen/FCT_SGX_Announcement_Results_of_Private_Placement.ashx?App=Announcement&FileID=837445 (accessed 28 Mar 2025)