QE Tapering - How does it affect investors?

Been wondering why the STI suffered a declined for the past few days.. Blue-chips, S-reits all registered fall in share prices in the past week. While there were no fundamental changes to any of the listed companies, what resulted in the fall?

QE Tapering:

It is widely expected that the US Federal will likely proceed with QE tapering - buying less bonds or selling part of the bonds it has bought previously when the US economy and unemployment rate was bad. It is understandable as QE was never intended to last forever - as economy improves there would be a point when Fed would start to tighten things up. But how is this going to affect the markets across the globe?

Previously when QE started a few years back, companies were able to borrow funds more easily, and were capable of coping with lower finance costs to build their business. As for now, Central Bank will be looking to buy lesser bonds or sell off their existing bonds, therefore, money supply would decrease - resulting in potential rising interest rates.  This is likely to slow down economy growth as spending would be reduced as a result of tapering. As we know, s-reits are largely affected by interest rates since it is has a direct impact on the expenses of companies (refinancing cost, existing loan facility cost etc. are all expected to increase). Hence, companies might suffer the backlash of raising interest rates. EPS will be affected and the value of the company would be eroded.

While the minutes of meeting of US Federal has yet to be released, investors are wary of such threat it could potentially pose to the companies. Some traders would then be inclined to play safe and start selling off their shares to protect themselves against possible decline. Bringing in the law of demand and supply, as supply exceeds demand, share prices drop.

In conclusion, QE tapering will affect all markets in the world. But what will you do from the point of view of an investor?

To accumulate more shares while the price is low, or sell off current shares to cut loss?

Pardon if I have stated any incorrect in my write up (i am on a steep learning curve!) Feel free to leave me any comments on my write-up as I look to improve bit by bit!

SGBoy94

Income Stocks

I will be aiming to buy stocks with strong fundamentals and respectable yields once I have some idle cash in bank. This will be the long-term plan as I will be accumulating these stocks to earn dividends to counter against imminent inflation and low bank interest rates.

Below are some of the criteria I am preferably looking out for.

1. Yield on cost >5% and with consistent dividend track record
2. At least 10% discount on NAV
3. Gearing ratio <30%
4. PE ratio <20

Nevertheless, I am also looking at fundamentally strong companies  S-reits would probably best suit the above criteria. However, I am constantly aware that one should not be overly vested in reits. Furthermore, most reits are quite overpriced now. There are not many stocks out there which are under-valued.

I will be looking to build up my portfolio on income stocks first before diversifying when i have more funds.

Fortune favors the brave

SGBoy94

OUE Dividend

Woots

OUE finally annouced its imminent special  & interim dividend - 21 cents per share (date payable early Oct). Even though it is lower than what was expected, it still represents a 7.36% yield on my buying price!

At the same time, Q2 report was also released in SGX. Despite encountering a drop in profits - 63% in 1H, it still enjoyed revenue rise. The drop in profits was mainly due to increase in cost of sales - professional fees and legal fees, and affected occupancy rate in investment property (Shenton way). However, it doesn't really bother me as OUE is in the midst of striking a deal with new occupants. Soon after, related expenses will be reduced as well. So despite the drop in profits i don't think it is something that would make shareholders panic. - it still gave out dividends a few times this year

Will expect the share price to go up tmr despite its weak profits reported for 1H. The dividend yield is far too attractive for investors like me to resist.

Fortune favors the brave

SGBoy94