Sunday, August 02, 2009

We will all laugh at Gilded butterflies

Come, let's away to prison:
We too alone will sing like birds I' the cage;
When thou dost ask me blessing I'll kneel down
And ask of thee forgiveness; so we'll live,
And pray, and sing, and tell old tales, and laugh
At gilded butterflies...

-- King Lear to daughter Cordelia, King Lear, Act V, Scene 3

Following our positive call on S-REITs on 20 Jul 09, the sector has continued to re-rate strongly. It is our belief that we are now in a bull leg of a bear market. It is not hard to figure it out why equities are the default asset class for investors today. Are we convinced that there will not be a double dip? No, but alternatives to equities are yielding close to nothing. Cash returns close to zero. Ten year Treasuries give a pathetic two per cent and one bears the risk of capital loss if yields move outwards under inflationary pressures. So, its our view that equities will continue with its sizzling run.

As our title posits, we may all laugh at gilded butterflies. But we still cannot help and admire their beauty nor resist touching them. So for investors who missed out on the strong surge which we pointed out could happen as early as Dec 08, the small and mid cap space should be where opportunities remain. As usual, the strategy would be to buy value and move nimbly.

Also, REITs are, by and large, still very cheap. M-REITs are trading around 9 per cent yield and S-REITs, despite the run-up, still offer a very healthy spread to the risk free rate. Likewise, the property funds in Thailand still offer double digit yields. We continue to be positive on them.