Volatile markets created some buying opportunities

Markets are pretty volatile in the past few weeks. Yellen is hinting a possible Fed interest rates hike this 15-16 December during FOMC meeting.

The STI index was down 0.89% last friday to 2859.12 points.

Stocks to watch next week:

• ST Engineering - war in middle east may drive demands for weapons
• City Developments - In oversold territory (RSI indicator circled in green, Money flow index circled in red) Recent London land acquisitions showed shift to overseas due to government cooling measures on singapore properties.
  
• Global Logistic Properties - e-commerce driving needs for logistics spaces
• Singapore Post - excellent future prospects with recent acquisitions
• Starhill global REIT - dividend yield of 6.8% at current price of 0.755

20k Portfolio in Blue Chips SGX stocks

My perspective of a $20k blue chip stocks for retail investor. Below are a list of stocks that would construct a retail investor portfolio.

Prices of Stocks

• STI ETF ($3.38)
• M1 ($3.25)

4000 shares x STI ETF = $13,520

2000 shares of M1 = $6500

Total cost is = $20,020

STI ETF provides excellent diversification in the event of a single sector crash. Its top 5 holdings include 3 relatively strong Singapore banks namely DBS, OCBC and UOB.

Source: Bloomberg

Current Dividend Yield 2.75%

Over a 10 year period, the STI ETF provided a return of 9.06% including dividends and 5.89% excluding dividends

Source: STI ETF Annual Report

M1's recent drop in price due to news of a fourth telco had became an attractive buy with a dividend yield of 5.83%.

Source: Bloomberg

Its recent first quarter financial statements, M1 slashed off 16% of its debt. Lesser company debts keep M1's balance sheet healthy. 

19 Jun 15, chairman of M1 bought 50,000 shares at $3.23 each. This could be an indication of a slightly undervalued share value.

Why buying index is good

2 available index funds to buy in SGX

• STI ETF
• Nikko AM STI ETF

These indexes act as benchmarks to the Singapore stock exchange and hold a variety of stocks that mimics the performance of the Straits Times Index.

Diagram 1 below shows a list of stocks that Nikko is holding. The chart indicates a variety of sectors of stocks the fund represents, which is attractive because it is well diversified. A retail investor might not have enough funds to construct a portfolio like this, and therefore Nikko and STI ETF are good index funds to consider investing.

Diagram 1 (Nikko AM STI ETF)

Benefits of Index

• Well diversified portfolio
• Low management fees
• Easy to understand
• Safer than aggressive stock picking/trading

Alan Greenspan, an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006 shared his thoughts on investments "The best strategy for equity investment has always been: Buy and hold and forget it,” he said. “Once you start to try and trade the market – I don’t care how good you are, how smart you are — you will not beat an index fund."

Let's all look forward to index funds :)

STI might be building up for a crash

STI had gone up a fair bit this week while US had stopped its quantitative easing program. Investors are waiting for news of interest rates hike.

If interest rates go up in US and Singapore, banks may have their profits affected as general loans may go down. It is because people find it more expensive to take loans.

While the hike may not be steep, it may take a longer time for the effect to kick in. Meanwhile, enjoy the smooth ride for STI. It may not be a good time to pick up stocks now, i believe there are still stocks that offer discounts.

STI index stocks like DBS, OCBC, UOB have gone up while Jardine C&C is still holding them back a little.

Oil stocks like Sembcorp Marine and Keppel Corp have gone down due to low oil prices.

Generally, now is a time to hold cash while the STI index soar. While the higher interest rate hikes kick in, it will be the time to enter the market to buy.