Recently an advisory committee has came out some CPF flexible schemes to improve on the CPF system in which the Government has accepted the proposal and should be implementing those. After reading once, twice and even the third times, I still couldn't really figure out how those flexibility could benefit me in the long run. As far as I'm concern "if I do not understand upon first glance/look and required complex and sophisticated type of critical thinking to fully understand then it is definitely nothing good to me". With that, I have decided to stick with my trial, tested and workable method -- invest all the CPF money in stocks !
So far I have a Reit, an ETF and a property stock in my portfolio and with the money I still have, I could roughly add in another 1 or 2 depending on the price of the stock. As much diversification as I wanted in my portfolio the sectors that are lacking are Finance and Transportation. Transportation stocks (ComfortDelGro, SBS Transit, SMRT and VICOM) have been on a roar since the plunge of the oil price and that make them very unattractive at the moment in term of valuation (even with the dividend yield included) and that left Finance sector as my only choice. Banking stocks in term of absolute amount is not cheap (to get 1000 shares) and my CPF OA does not have enough amount to pick up 1000 share of it (since majority is being vested in STI ETF). Fortunately, with the introduction of the new board lot size of 100 share from 19th Jan 2015, this has given me an opportunity to buy into the bank stocks. Of the 4 banking stocks (DBS, UOB, OCBC and Hong Leong Finance), I decided on OCBC for the following reasons :-
1. A dividend yield of more than 2.5% what CPF Board gives. According to latest annual dividend is 36 cents/share and that translates to 3.46% yield (with reference to $10.40 price).
2. It can provide good potential capital appreciation in the long run. US Fed will hike interest rate and that will benefit Singapore banks as a whole and further more should Singapore Government starts to ease property cooling measures and the banks will get to benefit in term of loan growth from the developers.
3. Its regional exposure. OCBC has exposure domestically and in ASEAN. While exposure in ASEAN is a must to have given that ASEAN economic integration is going to take place end of this year but this is not enough to grow the bank. With the acquisition of Wing Hang bank, it now has a footing into Hong Kong and China. Hong Kong is one of key Asia finance center and China is the world 2nd largest economy (probably will elevate into 1st next) and this will serve well to grow the bank regionally. In fact OCBC was only one of the 3 local banks not to have exposure in Hong Kong and China before the acquisition of Wing Hang bank.
4. It has lot of other non-financial investment and should that been divested this will be good to shareholders. The latest in which they are keen to offload is United Engineers.
5. It has a strong insurance arm, Great Eastern and that is something the other local banks lack
6. Scrip dividend. OCBC has been providing shareholders the option of either getting cash or scrip dividend since the 2008 global financial crisis and with scrip dividend, am able to perform compound investing.
Despite banks being the backbone of the nation economy, that doesn't mean they do not have downside risk at all. When the nation economy dives into recession, banks will be the first to get hit by credit crunch (loan default). That is the downside risk one must bare in mind when investing in bank stocks. Like the other 2 local banks (DBS and UOB), OCBC has been through couple of bad times in the past 2 decades, 1997 Asian financial crisis, 2001 dotcom bubbles burst, 2003 SARS and the 2008 US sub-prime global financial crisis. Like the other 2 local banks, OCBC is also able to bounce back and strengthen after each crisis. That is some comfort and confidence when investing in Singapore bank stocks.
Vested this month at a price of $10.40 and thanks to the new board lot size, I managed to get a small pie in it. At the price of $10.40 I reckon that it is not dirt but it is also not overvalued either. The willingness for me to invest in this price is ability to start small quantity (due to the reduce board lot size) and practice compound investing by taking the scrip dividend option. In fact, as I have the intention to divest my STI ETF investment, I will able to get back majority of the capital once that is divested and this capital (at least portion of it) will be reserved to buy more of OCBC when it becomes dirt cheap (in the case of recession). While waiting for that opportunity to come, having a small position and start compound investing is never a poor strategy.
OCBC
