2024 is the year of the Dragon.
Here is what we should anticipate in the upcoming year:
The most significant negative for 2024 is that China faces deflation and double-digit youth unemployment. The country’s leadership hesitates to put in a significant stimulus as they fear this would create more giant bubbles in the real estate sector down the road. Problems in China would trickle down to Singapore as we are seen mainly as an expensive place to travel to. We would not be able to enjoy the boost from Chinese tourism as we have in the past, which can harm our economy as we start seeing the effect of some tech reductions and a higher personal insolvency rate.
A more difficult question is whether the Dragon Year is the beginning of a long-term decline of China that mirrors Japan’s Lost Decade in the 1990s. It will take a while to confirm this – if Chinese firms innovate their way out of this slump, China can avoid this fate. If Chinese households start curtailing their expenses and reducing their debt, the probability of a long-term decline will be very high.
But there are positives in 2024. The best news is that the US Fed is not likely to raise interest rates any further. The first evidence is that inflation in the US is slowly coming down to lower levels, but continuing to raise rates will now have an impact on the 2024 elections. At the moment, the front-runner for the Republicans, Donald Trump, is a wildcard who is very likely to take steps to curtail the freedom of the Fed, which makes creating a sound and happy economy a likely act of survival.
As interest rates are being lowered, we should expect 2024 to be a good year for REITs and a very lacklustre year for local banks, which tend to underperform in a falling rate regime. Investors who invest in banks can expect minimal capital gains but may be in for a treat as dividends yield may increase.
What can we do with our Ang Pao money in the year of the Dragon?
Get an account with a broker to invest in Singapore and US equities
The first step would be to ensure you have a proper platform to invest your funds.
A broker like Interactive Brokers will not only grant you access to both the Singapore and US markets. Fractional ownership allows you to buy more minor positions, such as 0.435 shares of the SPY ETF.So, a $50 ang pao can pick up 0.236 shares of Procter & Gamble (PG).
If you are willing to declare yourself an Accredited Investor, you can enable Complex Leveraged Products to buy cryptocurrency ETFs like the Grayscale Bitcoin Trust (GBTC). This will eliminate the hassle of risking your funds in a cryptocurrency exchange or a hardware wallet.
Purchase SGX REITs and Business Trusts as they will remain a bargain in 2024
It is still relatively early to buy real estate investment trusts and business trusts as we can still witness a steep drop in dividends per unit and lowered real estate valuations. At the same time, interest rates go lower later in the year, which means that yield would remain relatively high as we enter the year of the Dragon. One relatively safe REIT that owns Singapore industrial units is AIMS APAC REIT (O5RU), which generates a dividend yield of about 6.5%. If you like the idea of owning fibre cables on the ground, Netlink Trust (CJLU) can give you a payoff of about 6.1%,
$24,000 into a mixture of blue chips, REITs and business trusts will net you an average of $100 “Ang Paos” monthly.
Take a broad position to capitalise on US equities
With the Fed politically constrained on interest rates and elections around the corner, US equities have already started to rebound since 2023. Between taking very concentrated positions in the Magnificent 7 counters against a diversified ETF of US equities, it may be safer to do the latter as valuations of AI stocks are very high, and there does not seem to be a sustainable competitive advantage as a lot of code is open sourced.
Instead, taking broad positions in the Nasdaq (QQQ) and the Standard & Poor (SPY) allows you to follow the market trend and surf the favourable macroeconomy as momentum surges for US Equities ETFs.
Be ready to pounce into Chinese markets if the opportunity presents itself
Currently, thought leadership on social is very unfavourable, and the gurus seem to be withdrawing completely or doubling down on Chinese equities.
There is no need to take either position. From a valuation perspective, China stocks are a bargain, but lingering fears exist that the Chinese market has peaked and is no longer investable.
The middle ground is eliminating all emotion and letting an algorithm decide whether to invest in China. If Chinese stocks exhibit a higher momentum than their US counterparts or cryptocurrency, we should take a decisive position in China. This scenario can happen as Chinese authorities decide to take a bazooka to stimulate their economies.
But if the authorities stay pat on the economy, our funds will be safely invested elsewhere.
Conclusion
In conclusion, the Year of the Dragon may be when your wealth begins to take flight.
As you receive your Ang Baos, there are multiple DIY opportunities for the savvy investor.
The big question you need to answer is whether you should build up a hoard designed to generate passive income and give you a comfortable retirement. Alternatively, you can build a diversified portfolio of safe global exchange-traded funds that offer a high-risk adjusted return.