Diversify our investments to protect our purchasing power.

 20 Nov 2021

Dear Fellow Investor,

Inflation is rising world wide.  In the US prices of virtually all necessities including petrol, food, rents, travel, and automobiles  are rising and reached last month  6.3 % a 30 year inflation high. Here in Malaysia prices are more subdued. This is in part due to Malaysia being a net exporter of  commodities including oil and gas. Fuel subsidies and price controls on essential goods help mitigate the impact of rising global inflation. As investors we need to be mindful of negative interest rates as nominal interest rates are below inflation.

We have several ways to protect ourselves.  Diversification is the key. Quality shares paying dividends is one asset class you should consider.  If the dividend is 4 % and earnings growth is 6 % that gives a total return of 10 % That will allow you to beat inflation and protect the purchasing power of your capital. You should select companies with a history of regular and rising dividends and a trend of earnings growth.  Quality well located REITS should be considered.   When I select a reit I always look at the sponsor. The sponsor should have a long track record of rising distributions and growing ROE (return on equity) . Growing ROE over time shows good management. One such example is Parkway Life Reit who own a chain of nursing homes in Japan as well as hospitals in Singapore and Malaysia. The sponsor is IHH healthcare who have a long track record of good management as evidenced by growing ROE. Another way to protect ourselves is via geographic and currency diversification. Parkway Life benefits from their revenue streams of Yen and Sing Dollars, both strong and well managed currencies.

Our Phillip Global Wrap account allows us to invest in Singapore, Japan, US, Vietnam and  virtually any country with a free market.   I recently bought for a client the Sprott Uranium Physical Trust  which trades on the Toronto Stock Exchange. It is a play on uranium which fits into the green energy theme. Nuclear power  is clean, reliable and does not produce a carbon footprint such as fossil fuels. China is on course to build 150 nuclear plants and that will fuel the demand for uranium.  Other countries are planning to build nuclear plants.

Next week  I do not think the Malacca elections  will have much impact on our share investments. The KLSE is well supported at the 1525 level on both the daily and weekly charts which signal a positive outcome. The technology index closed on Friday at 100.47, a new high.   

Take care,

Bill

The below cartoon reflects my view that as long as Joe Biden  runs the show in the US, inflation is on the way up world wide and we must diversify our investments to protect our purchasing power.