S&P 500 rose 2.5% to break its closing record this week. Hang Seng index rose 3.0% too. So, I had been a net seller of my US and HK stocks this week. Despite that, the combined holding of US and HK stocks is still about 23% of my equity portfolio. The reason was that the price increase in the stocks that I am holding managed to make up for the sale of some shares.
The STI index was a letdown again. Despite the rally seen in other markets, STI remained stubbornly at almost the same point one week ago – it is extremely disappointing. So, I did not do many local deals this week except for Manulife Reit. With my purchases of Manulife Reit shares this week, this Reit has now become my largest holding in my portfolio.
Manulife Reit has always been one of my favorites. It has been holding at the price level of about $0.74 for almost 10 months, since its share price recovered from the COVID shock in early March 2020. I have been accumulating it whenever it suffered a dip.
However, in the last few days, I noticed that it started to trend downwards towards $0.715. I am not sure what the reason was. I could only speculate that it might be because of the increase in US Treasury bond rate (YES interest rate is coming up if you have not noticed!!!)
The 10 years bond rate has increased from the bottom of 0.4% in early March to 1.15% today. Compared to end Dec 2020, it has also climbed 0.22%. That is a pretty steep increase in my opinion in a month.
Interest rate increase could be due to the general belief that the global economy is recovering, the optimism boosted by the COVID vaccines and US President Joe Biden’s proposed $1.9 trillion stimulus plan.
Whatever the reason maybe, in general, a higher interest rate doesn’t help Reits as they are highly leveraged companies. Manulife Reit probably bore the brunt as it is the most recognizable pure US Reit on the SGX. Keppel PacOak Reit and Prime US Reit also fell.
So for Reit investors, watch out for the interest rate. The days of low interest rate may be over.
However, like the saying goes, one man’s meat is another one’ poison.
While higher interest rate will hurt Reits, it would benefit the banks as their margins will increase.
Furthermore, with the recovery of global economy, bank stocks seem to be a good position to benefit from it. With the “worst” likely over in most economies, the current restriction on dividend distribution by banks may be lifted – which is extremely good news :-).
I would be watching out for any unexpected dip in the share price of our three local banks to accumulate more.
DBS will be first among the three to report their results next week. I am waiting with eager anticipation that they would increase their dividend from last quarter.
So, look forward to the short Chinese New Year week next week.
Meanwhile, take care and stay safe