271,000 Reasons To Invest

I had one of those unwanted internet outages the other day. Welcome to my private hell.

I did all the usual things to get myself back online. I checked the adapters. I rebooted my computer. I even removed the ethernet cable, inspected it and replaced it, as though that would make any difference. It didn’t.

I was within an inch of taking a mallet to my machine, when I decided to give my router a power-recycle. For those who, like me, are not technically trained, it is really quite simple: just unplug the router, wait 60 seconds, and plug it back in again.

It worked a treat. The lights started to flash a welcoming green. I got back my “8” ball. I was back online.

America is back online too, although it has taken it a lot longer than a minute to do so. Its own version of the power-recycle has taken almost nine years to accomplish. But all the signs appear to be pointing to the US getting back its mojo.

Pulling the trigger

At long last, the US economy looks to be back on an even keel. Recently, employment numbers appear to have put to rest any doubts that America is ready to increase interest rates.

Janet Yellen, the chair of the Federal Reserve, is poised to pull the interest-rate trigger.

Some reckon that lift-off could happen in December, after the US announced that 271,000 jobs were created in October. Additionally, unemployment is now down to 5% and hourly earnings are up 2.5% year on year.

We should be delighted that the world’s largest economy is taking its first steps to returning to normality. But many, it seems, are not happy.

Traders are now fretting that an interest-rate rise in the US could suck the life out of emerging economies. That could very well happen, especially if those economies are heavily dependent on commodities.

After all, there is an inverse relationship between commodity prices and the US dollar. As the dollar rises, commodity prices could fall. So, if the wealth of a nation hinges on commodities, then things might not bode too well for them.

More to investing

But there is more to investing than crude oil, natural gas and fresh-fruit bunches. There is an entire universe of stocks out there that we can choose from.

Banks for instance, could benefit from a rise in interest rates. They have been champing at the bit for a hike in the cost of borrowing for some time. Some have even jumped the gun and raised the cost of borrowing money, anyway.

Contrary to popular belief, banks love interest-rate hikes. It means that the difference between the rates they pay savers and the rates that they can charge borrowers will widen.

The wider the margin, the more money they make. So keep an eye on our three local banks, namely, DBS Group (SGX: D05), Oversea-Chinese Banking Corporation (SGX: O39) and United Overseas Bank (SGX: U11).

Export driven

Singapore companies with an eye on exports could benefit from a higher US dollar too, as could any company that earns its keep in greenbacks. As an internationally diverse stock market, we are spoilt for choice.

The Jardine Group of companies, for instance, are significant dollar earners. So they could benefit. For example, more than a-third of Dairy Farm International’s (SGX: D01) outlets are situated in Hong Kong, whose currency is pegged to the US dollar.

Elsewhere, increasingly more companies are exposed to the US economy. City Developments (SGX: C09), for example, generates a-seventh of its revenues from the US, while Fortune Real Estate Trust (SGX: F25U) generates its revenues almost entirely in Hong Kong dollars.

What the doctor ordered

It has been a long time in coming. But America is back. Unfortunately, China is now letting the side, and the world, down. But we can’t have everything.

However, it is important to remember that we do not invest in countries. We invest in companies. There is a massive difference.

A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter. 

Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.