Thursday, July 31, 2008

Hard Times

When I looked at these pictures published in the Newsweek, I was really amazed how resilient is our civilization survived financial crisis after crisis. (Click for larger image)

Recent collapsed of Indy-Mac taken on the same street taken when United Stats National Bank failed in 1931 during the Great Depression.

Tulip Mania, 1637.

The South Sea Bubble, 1720

The Panic 1837, people were jobless and children have nothing to eat.

The Bankers' Panic, 1907. The Fed, Lender of the last resort. Of course many are very critical of them for responsible for may bubble creations and moral hazards.

The Great Depression, 1929. Almost 50% banks closed.

Black Monday, 1987. S & P crashed by 20% in a single day.

The S & L Crisis, 1990. US $ 500 billion bailout.

The Japanese Housing Bubble, 1996. Japan stuck in more than decades long of deflation.

Dot Com bust and Enron scandal.

The Argentina Banking Crisis 2001-2002. One of the most successful South America countries sinks into poverty overnight.


Wednesday, July 30, 2008

Charts of the Day -- Rubber Prices Trend

CPO is under tremendous pressures. CPO future went below RM 3,000, bad for planters but good news for processors.
July 29 (Bloomberg) -- Palm oil futures in Malaysia dropped below 3,000 ringgit ($921) a metric ton for the first time in seven months.

Palm oil for October delivery fell as much as 1.4 percent to 2,958 ringgit on the Malaysia Derivatives Exchange, the lowest since Dec. 21. The contract was at 2,981 ringgit at 12:02 p.m. local time.

``It could drop to 2,800 ringgit soon,'' Ben Santoso, an analyst at DBSVickers Securities (Singapore), said by phone today. ``It depends on oil.''

Vegetable oils tend to track crude oil prices as they can used for making biofuels.

New York crude oil futures have declined 11 percent this month. Oil for September delivery last traded at $125.08 a barrel, up 0.3 percent from yesterday.

Soybean oil traded in Chicago has dropped 12 percent the past month and was at to 59.82 cents a pound in electronic trading at 12:02 a.m. in Singapore. Palm oil is a substitute for soybean oil.

What about rubber?

These two charts are the closest I can get to have a feel of rubber prices trend since January 2007. Sorry you got to imagine by joining the two charts together. The rubber prices beginning to head South. So, ......

Is it a good idea to jump into glove makers? Have the falling knives hit the ground? Not sure as they have another headwind -- natural gas hike -- against them. They said they can pass on the cost increase to their customers -- true? Sit back and relax, wait for my Part II.

(click all for bigger images)

Tuesday, July 29, 2008

Trading days vs Stock Market Corrections

A Chart Speaks A Thousand Words.

Monday, July 28, 2008

PPB(Perlis Plantation Berhad) and WIlmar, Part II

PPB group is a conglomerate involves in sugar refining, grains trading, flour and feed milling and film exhibition and distributions. PPB group supplies 50% of domestic sugar requirements. It is also a market leader supplies more than 40% of Malaysian flour requirements. In the leisure sector, it has 41 screens in 21 locations nationwide. In June 2007, PPB disposed its oil palm businesses to Wilmar International for a 18.3% stake.

Outstanding Shares : 1,185 million
Market Capitalization : RM 11,020 mln ( RM 9.30 )
2007 EPS (exclude one-off gain from disposal of PPB Oil Berhad) : RM 0.54
2007 PE : 17 times

The recent crude oil price corrections caused Wilmar International share price plunged pretty severely, last Friday share price was S $ 4.06, fallen almost 28% from the top. PPB group share has been under-pressure as well even though it has been holding relatively well around RM $ 11.00 during the period of local political uncertainties, the share price fallen by 15% recently. I'm not sure whether the share price will fall further when crude oil fall to US $ 100, most may mistakenly treating PPB = Wilmar = palm oil plantation = crude oil, at RM 9.30, I find it attractive based on the following prospects/assessments:

i. Sugar refining capacity expansion. Capex RM 104 million.

ii. Wheat flour capacity expansion in Northern Malaysia – 360 mt/day by Q4 2008. Will build 220 mt/day plant in Kota Kinabalu starting Q2 2008 and 1,000 mt/day in Indonesia to be operational by 2009. Capacity will increase from 2,750 mt/day to 4,330 mt/day.

iii. Contribution from integrated agribusiness – Wilmar International – which primarily deriving its profit from processing lauric palm oil and oil seeds and grains and acre expansion of oil palm plantation over the next 10 years. CIMB Singapore expects Wilmar to generate net profit of US 1 billion. Based on it’s 18.3% interest, this will contribute about RM 600 million to PPB group's 2008 bottom line.

iv. A respected commodity research outfit like Goldman Sachs recently recommended Wilmar International to be a long term core holding. This will lend some weight to long-term growth potential of emerging markets.

Sunday, July 27, 2008

Important news about crude oil

A couple of important events happening in the crude oil market. WSJ reported over the weekend SemGroup, a private company filed for Chapter 11 due to huge losses in the crude oil future market. Some wonder whether the recent sharp drop of crude oil prices is related to this event.

Over the past eight years, the Tulsa, Okla., private company bought or acquired oil pipelines, trucks and storage terminals across a swath of the oil patch stretching from east Texas to the Kansas-Nebraska border. At least 2,000 producers, big and small, sold their oil to SemGroup, which sent the crude onto refiners across the region. SemGroup filed for Chapter 11 bankruptcy protection on July 22, citing a $3.2 billion loss in the futures market. The top 30 creditors are owed as much as $1.4 billion, with as many as 5,000 others also due money, many from physical oil transactions for which SemGroup never paid.

Looks like higher margin requirements by the CFTC wounded SemGroup badly.

SemGroup in court documents this week attributed its losses to volatility in the commodities markets and tighter margin requirements, or the collateral a trader must post to support its positions.

According to SemGroup's bankruptcy-court filings, the company found itself without enough cash to cover margin calls and on July 16 handed its trading account with the New York Mercantile Exchange to Barclays PLC, a move that forced SemGroup to recognize losses exceeding $2.4 billion. A Barclays spokesman declined to comment. Another $850 million of unrealized losses were incurred through over the counter trading, documents show.

In another separate development, the CFTC also charged another company recently.

The CFTC charged Netherlands-based global trading fund, Optiver Holding BV, two of its units and three employees with manipulation and attempted manipulation of crude-oil, gasoline and heating-oil prices. The complaint charges defendants with 19 separate instances of attempted manipulation on 11 days in March 2007. In at least five of those attempts, the fund successfully caused artificial prices, the CFTC claims.

Though Democrats and Republicans could not agree to anti-speculation bills on Friday to set position limit, some other exchanges already implementing it in June.

ICE Futures Europe, which handles 15% of U.S. crude-oil benchmark contracts, agreed in June to impose position limits on these contracts.

Well, lambs have been sacrificed, the politicians found their way out. The CFTC has been maintaining that demand and supply is the main reason of the price run up prior to their interim report being published. I smelled something was not right and waiting for something to happen when the CFTC enforcement chief quit in July 10, 2008. It's all about political pressures.

(WSJ 10 July 2008)--In the midst of a political battle over its oversight, the nation's futures-market regulator is losing its enforcement chief to a private law firm.

Gregory Mocek, 46 years old, is leaving the Commodity Futures Trading Commission to become a partner in the energy- and derivatives-markets practice of McDermott Will & Emery, in its Washington, D.C., office. He joined the commission in 1998 and became director of the enforcement division in March 2002. He is due to leave in roughly two months.

It's fine that crude oil price is coming down but nobody is solving anything long term if we don't expand supply and developing alternative energy, it will come back to haunt everybody -- projection of US $ 200 oil may come true--when the world economy is humming again.

Saturday, July 26, 2008

Catching a falling knife?

Is every falling stock is an investment opportunity like recent US financial stocks? Not really. Read on.

(WSJ)When bankers themselves have no clue what their own assets are worth, there's no way most outsiders can determine which stocks are undervalued and which cannot be valued.

Graham warned that speculation is most dangerous when you delude yourself into thinking you are investing, take it seriously and risk more money than you can afford to lose. Many people who stampeded into financials over the past few days may end up wishing they had heeded Graham's advice. For many banks, the nightmare has only begun.

Jim O'Neill's View on world economy

Jim O'Neil, head of Goldman global economic research team, a die-hard MU fan, recently shared some interesting views about the world economy on the Bloomberg. He is considered a rock star of Goldman Sachs.

(Business week). A partner and head of global economic research at Goldman, O'Neill has won respect for prescient calls such as the one that accurately forecast that the euro would rise from $1.25 in February, 2004, to $1.30 a year later. He predicted the yen's rise in the mid-1990s and also makes calls on other currencies such as the Swiss franc and the Canadian dollar. At Goldman, a market leader in the $1 trillion-a-day currency market, O'Neill is a rock star. "He has certainly been the top foreign-exchange economist anywhere in the world in the past decade," notes Gavyn Davies, a former BBC chairman and onetime co-head of Goldman's global economics group.

He said crude oil at US $ 140 will hurt worldwide economy. Recent slide of the crude oil is a good news for equities.

On the overall, Euro will have much slower growth. He said US $ rebound to $ 1.20 - US $ 1.40 will not hurt the US economy. He has been watching US trade in the last 27 years said the US export sector has been truly amazing and stronger than ever. It is even stronger than Germany. He thinks the US economy will rebound with the stimulus taken by the policy makers.

On China, they have an interesting call: no slow down post-Olympic, consumption will continue to be strong. He was impressed with the recent YoY retail growth of 23% or 15% inflation adjusted, it is truly amazing. China will be able to maintain 10% GDP growth with low inflation projection of 4% in 2009. 90% of the people he spoke to skeptical about that. When that happen, it will be a very pleasant surprise. I buy into his number on the basis of lower crude oil and food prices(temporary peak), China government will continue to guide the economy around 9-10% to create enough employments.

Some will argue that those looking at export sector are looking at the wrong variable as 70% of the GDP is coming from personal consumption, no matter how strong is the sector -- it will not be able to offset the weakness -- as their wealth has been destroyed due to housing troubles and business are afraid to lend to each other. No credit growth, no economy expansion.

However, the employment data is still very solid compared to year 2001 recession, millions of jobs destroyed after dot com bust but after many months of the housing and credit crisis broke out, the jobs destruction is not that frightening. As long as people still have a job, they got to eat, pay utility bills, using transportation, seeing a doctor and etc. Pessimist will think the worst is yet to come, that's why the data is not reflecting that.

More economists begin to revise their outlook especially with the surprise stronger durable goods.

July 25 (Bloomberg) -- Orders for U.S. durable goods unexpectedly rose in June, and sales of new homes were higher than forecast, easing concern that the economic slowdown will worsen.

Bookings for goods made to last several years gained 0.8 percent and posted the first consecutive monthly rise since July 2007, the Commerce Department said today in Washington. New homes sold at an annualized pace of 530,000, exceeding the median forecast of 503,000 in a Bloomberg News survey. A private report showed consumer sentiment rose from a 28-year low.

``At the end of the day, we are going to avoid a severe recession,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut.

Morgan Stanley economists raised their forecast for second- quarter GDP growth to 2.4 percent from 2.2 percent after the durable-goods report.

For me, I welcome more pessimism to offer me lower price while I know the fundamentals are still OK. I'm however may be preaching to the wrong crowd, those still reading blogs probably are already believers -- the world is still beautiful.

Friday, July 25, 2008

Good Morning Malaysia -- Part II

Good morning Malaysia. Nice stock markets rally around the world, one catalyst: crude oil price drop. Nonsense - why stating the obvious? After a while, the media will create different headlines excitement, slow oil demand = slowing consumption = slowing economy = slower earnings growth, then they will sell again. If I'm trading, I will hold positions and looking forward to sell KLCI around 1,300 ~ 1,350. Enjoy the rebound! If you are a Buffet-type, ignore what I've just said.

Back to China, one big problem when China reduced VAT tax rebate from 17% down to various rates depending on product categories(click image) since 1 July 2007.

The effects of this 1-year old policy can been felt as many of the Koreans and Taiwanese and others begin to pull out their manufacturing base from China. Those stay have been forced to go up higher value added sector or take a whack to their bottom line. By moving away from export oriented sector, China is trying to develop its service and consumption sectors, to move their economy to a more advanced level.

My Korean friend told me it is a very punitive measure and the logic for China as low cost manufacturing base no longer apply. I'll be really careful with any Malaysian or other manufacturing stocks that not producing products for domestic consumptions.

Thursday, July 24, 2008

CFTC: No Crude Oil Market Manipulation

Good morning Malaysia. Just a quick update. CFTC released an interim report saying there is no oil price market manipulation. The below is the excerpt of a 45-page long interim report. You may visit and download the whole report at This is a piece of very important information as the oil price is correcting, it will a good investment idea to make when it has a significant pull back later on. Stay tuned.

In June 2008, the Commodity Futures Trading Commission (CFTC or Commission) formed an Interagency Task Force on Commodity Markets (Task Force or ITF). The Task Force draws on a broad range of government expertise on the fundamental factors and market forces affecting commodity markets. In light of the recent increases in energy prices and the resulting concerns of the public and policymakers, the Task Force has prepared this interim report on crude oil, which offers a preliminary assessment of fundamental and market factors affecting the crude oil market between January 2003 and June 2008.

The Task Force’s preliminary assessment is that current oil prices and the increase in oil prices between January 2003 and June 2008 are largely due to fundamental supply and demand factors. During this same period, activity on the crude oil futures market – as measured by the number of contracts outstanding, trading activity, and the number of traders – has increased significantly. While these increases broadly coincided with the run-up in crude oil prices, the Task Force’s preliminary analysis to date does not support the proposition that speculative activity has systematically driven changes in oil prices.

The world economy has expanded at its fastest pace in decades, and that strong growth has translated into substantial increases in the demand for oil, particularly from emerging market countries. On the supply side, the production of oil has responded sluggishly, compounded by production shortfalls associated with geopolitical unrest in countries with large oil reserves. As it is very difficult to rely on substitutes for oil in the short term, very large price increases have occurred as the market balances supply and demand.

If a group of market participants has systematically driven prices, detailed daily position data should show that that group’s position changes preceded price changes. The Task Force’s preliminary analysis, based on the evidence available to date, suggests that changes in futures market participation by speculators have not systematically preceded price changes. On the contrary, most speculative traders typically alter their positions following price changes, suggesting that they are responding to new information – just as one would expect in an efficiently operating market.

Wednesday, July 23, 2008

Good Morning Malaysia

Good morning Malaysia from South Korea. Have not got a chance of going through details of stock markets. So let me skip stock market commentary for a few days and talk about main street.

Observations from walking down the streets in Seoul. First, you can see Hyundai cars everywhere, most of them are big – 2000 cc and above. You can hardly find Kancil size cars on the road. When I was here a few years ago, there were not many foreign cars. Today, BMW 7-series are quite common. In the past, if anyone caught driving a Japanese car will be considered a traitor but not today, I saw quite a few Lexus on the road. Even more shocking, you can see Nissan showroom. Surprisingly, I saw a Jaguar at the hotel. Quite a bit of change of nationalism definition with greater wealth.

Secondly, you can see a lot of people walking on the streets rushing in and out from the sub-way. Unlike Malaysia, it is always a breeze to use public transportation--comprehensive network, punctual, clean and cheap.

You can see a clear distinguish two classes – those can afford to drive and those cannot afford. US $ 2/liter?, no problem to rich.

As they got hit by high energy import bills, this world's 7 largest oil user have turned to solar and wind as alternative energy. By 2011, they aim 5% of energy supply will come from renewable sources. The initiative started since 2003. They've recently completed a solar and wind farm that can cater for 8,000 households. You can see how far sighted they are. Unlike Malaysia, they stop talking and start doing.

Another big contrast I see how S. Korean evolves. In the past, communications are always a pain. A few years a ago, when I approached strangers for directions, most of them smiled, shook their heads and ran away. Today, their confidence improved tremendously, most of them speak English. Perhaps, what is shocking quite a number of people I met during business meetings speak Mandarin. They can curl their tongues and speak like Shanghainese Chinese. When asked why, they replied – this is a must with the rise of China economic power, necessities to do business with China.

Just something to think about Asian consumerism, alternative energy and the rise of China economic power.

One complain from my business associate about China though.

To be continued...........................................

Sunday, July 20, 2008

My unfinished thoughts on KLCI, Part III

I've been subscribing to economy decoupling theory but not finacial market decoupling. I read an interesting write up on iCapital analysis this week – I must say iCapital did a good job.

Firstly, they downgraded plantation stocks to sell ( IOI Corp, KL Kepong, United Malacca, etc). I wish however, they should have done that in a more timely matter when they cashed out.

Secondly, they admitted that they were wrong for being very bullish on the US stock market. While they keep looking for a rally, S & P index keep heading for a free fall.

Thirdly, they've earned some respects from me for the courage to take a U-turn, this will benefits their subscribers and shareholders.

Fourthly, the most difficult judgement to make is their argument on the US economy. The arguments are valid to some extend. The key points are the US economy is kept above water because of strong export. The export is strong due to strong demand resulted by China-led economic block. The housing trouble has been troubling for quite sometime and hurting the economy but offset by others. This is a stark contrast compared to last tech bubble that sent them into recession because export sector did not come into rescue.

Lastly, assuming they are rightly diagnosed the state of the US economy, slow down and no recession, this will not guarantee the US stock market will not tank. I've been reading on the internet to advise most people to ligten their equities position on rebound. This part is very difficult to judge. In the past, there will be powerful bear rally – 10 to 20% rebound – then hitting capitulation, bottom out before a fresh bull run is born.

My Unfinished thoughts on KLCI, Part II

Found an interesting relationship between foreign shareholding in Malaysia and KLCI. KLCI performance is generally correlated with foreign shareholding, no dispute about that.

However what is interesting is the way foreign investors exited the market. They knew that Malaysian is an illiquid market, they can't rushed out the same door at the same time. If we look at the Asian Financial crisis in 97/98, they did not cut their position heavily even though the market crashed, loss of 50%. They exited gradually over 4 four years as the market begin to stabilize/recovering.

There is no surprise that foreign shareholders did not exit aggressively when KLCI fell off 25% from October 2007. Let me pick a few stocks with high foreign holdings.

Stocks / Foreign holding Dec 07 / Foreign holding Jun 08 / Change

1. MRCB / 40 / 30 / -10
2. Gamuda / 55 / 51 / -4
3. Pelikan / 60 / 60 / 0
4. Bursa Malaysia / 36 / 26 / -10
5. UM Land / 30 / 25 / - 5
6. AirAsia / 50 / 46 / -4
7. SP Setia / 41 / 35 / -6
8. IJM Corp / 50 / 47 / -3
9. Media Prima / 50 / 50 / 0
10. Resorts / 40 / 40 / 0
Source: CIMB, Malaysian Business.

Looking at the changes, stocks with high foreign holders have another foreign holders to take over their positions.

(i) downside risk will be quite limited as foreigners are unlikely to do stupid things selling irrationally to wipe out their wealth. Now I begin to suspect local guys that do stupid things.

(ii) Back to 1997/1998 crisis, Malaysian heavy weights earnings like Maybank, Bumiputra Commerce, Telekom, Tenaga, etc almost fully recovered by 2002. This is coincides with foreign ownerships and KLCI rise.

Public Bank was one of the earliest to recover their earnings. EPS in 1999(17.8 sen) was even higher than pre-crisis level EPS 13.3 sen. As a result, the share price also recovered much earlier. 52 wk High in 1997 $ 3.21 vs 1999 $ 3.31.

Conclusion: earning is KING!.

(iii) Unless companies delivered exceptionally strong earnings, foreign investors may continue to sell on strength. So, don't dream of 1,500 anytime soon, it will take them a while to wind down their exposure. How long of winding down will again depend on company performance. It took them four years to bottom out in 97/98 crisis, I will rule out it will take that long as we are not as screw up as before, we are only going through regular business correction cycle.

Saturday, July 19, 2008

My unfinished thoughts on KLCI, Part I

Looking back on the last two entries I made: (i) OKS's Rocket Science -- Quant Forecast and (ii) The perfect storm and price actions, I need to tidy up my thoughts. I was expecting the rest of the stocks that will benefit from the crude oil fall to offset the plantations sector weakness. The crude oil did fall but the horse is not drinking the water yet. Perhaps, there are two kinds of group out there.

The first group is thinking correction for crude oil is finally here, to be safe take money off the table on plantation stocks. I'm taking a view of crude oil correction had arrived early of this week. The second group is still cautious about the macro-economy and political uncertainty. The consumer and banking stocks are not moving up reflecting most people are thinking the economy will slow down biting into corporate profits.

Lower crude oil prices will not translate into lower inflation expectations immediately. Most think US $ 130 / barrel is what the current worldwide economy cushion can stand. Beyond that demand destructions set in. The real wages and wealth need some time to grow further before absorbing higher crude oil prices. US $ 90 - US $ 100 / barrel will be a nice breathing space to have -- I mean central banks can be a bit more relax on their monetary policy to stimulate the economy again.

As the stock market is a big discounting machine and forward looking, they need to have confidence to price in this or am I missing something?. What could that be or just lack of positive catalysts?

Friday, July 18, 2008

Oil Tumbled US $ 16 from the top

Just an entry of recording a first 10% off from the top for future reference. Oil tumbled after Ben Bernanke commented on the US economy prospect. Investors and speculators took profit fear of demand destructions caused by recessions.

Of late, the Iranian has been sending mixed messages about its nuclear program and direct confrontations with the US. One day they said it is not possible to have direct confrontations with the US and Israel, the next day they tested their missiles, kind of flip flop thinking. The WSJ reported that sanctions did not hurt its oil and gas sector.

Revenue has been on the upward trend benefited from high crude oil prices while production output has been stagnant, telling us no new investment made in the capacity. It's a catch 22 situation, if the prices were continue to fall, the Iranian will have a lot pressures of losing revenue. They may soften their stance on nuclear program, giving less reasons to argue on the supply disruptions.

Traders have been struggling to find reasons of price should move higher -- supply disruptions in Nigeria, strike in Brazil, etc. These arguments have not been strong enough to send price to move up higher.

Stripping all the noises of news flow, the real fundamental of demand and supply will surface soon. Demand destruction argument wins for now, let's see how weak is the demand turn out to be(next 30 - 100 days will be critical).

Thursday, July 17, 2008

Europe's economy takes a hit and investment implications

A Spanish construction group Martinsa-Fardesa filed for US $ 17.7 billion bankruptcy protection on Tuesday. By right, this should not come as a surprise as the strains have been obvious a few months ago.

As ECB taking a hard stand against inflation which is a correct way but it will prolong the downturn.

Questions to ask:
(i) Euro currency has been rising due to rate increase, however, if the economy is slumping, guess what will happen to Euro? Where will the money go if funds are unwinding?

(ii) With US has taken the stimulus package, banks rescue, cut interest rate deeply and latest move to ban shorting 19 financial institutions, will there be a turnaround in the US economy, US dollar and stock market? Or at least one dead cat bounce, just one bounce please, before the market is capitulated?

(iii) There are only a few countries in this world with strong reserves as a percentage of GDP ? Will these countries(see chart) be the favorite investment destinations? But then if financial markets could not decoupled from each other, will economy fundamentals matter?

(iv) Will hard asset like precious metals will be the favorites when central bankers got sick of losing money on soft asset?

(v) I think industrial commodities should turn south. However, I was still bit unsure about crude oil as it has not reached to a very dangerous bullish level yet(compare to past cycle). Remember Soros said recessions in the US and UK ( now potentially Euro zone also) will do a nice job to knock down the oil price?

Nevertheless, I see good opportunity to accumulate when violent corrections set in.

I will be out of town for next few days. Will try to find time to post whenever I can find time. Good luck to all.

Wednesday, July 16, 2008

Some positive remarks from Morgan Stanley, JP Morgan, The Economist

I drafted below before the US markets opened. As of 10.30 pm of 15 July 2008, Penang time, Dow is crashing -- below 11,000. Oil is soaring, Fredie and Fannie scared a lot of people, inflation grows fastest in 27 years, dollar is plunging, GM cuts jobs and suspend dividend and plenty of other bad news. I don't have intentions to change my thoughts about three hours ago.

Despite of all the gloomy news coming from the West, there are some good news coming from them recently. Morgan Stanley who called to sell Asian currencies earlier now said ASEAN-4 economies will continue to do well. They are banging on one premise, the central bankers may still in favor of growth over fighting inflation.

(Business Times- 12 July 2008) Singapore - FOR all the concerns about rising inflation, the major Asean economies will likely deliver higher-than-expected growth in 2008, say Morgan Stanley Asia's economists. But the outlook for the region in 2009 looks 'challenging'.

The investment bank has actually raised - if marginally - its forecast of 2008 GDP growth for the Asean-4 region (Singapore, Malaysia, Thailand and Indonesia) to 5.6 per cent, from an earlier estimate of 5.5 per cent.

A stronger-than-expected global growth backdrop and a relatively slow monetary policy response to emerging inflation risks have resulted in the region's 2008 first-half growth being mostly higher than it had earlier forecast, Morgan Stanley says in a report this week.

While it has kept intact its recently upgraded GDP growth projections for Malaysia (5.7 per cent) and Thailand (5.6 per cent), it has now jacked up the forecast for Indonesia to 6 per cent (up half a point) and slashed Singapore's to 4.3 per cent, from 5.1 per cent previously, following the poor Q2 numbers just released.

JP Morgan is another guy speaks positively about Malaysia, they perceive recent political struggle is part of growing pains -- pursuing maturity path rather than derailing democracy institution. As usual, self-critical Malaysians will have nothing good to say about ourselves(which is not a bad thing but sometimes overdone), we have the third guy, PricewaterhouseCooper says Malaysia ranked top 20 investment destination.

(The Edge Daily) 15-07-2008: M’sia still a favoured destination

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KUALA LUMPUR: Malaysia remains one of the favoured investment destinations worldwide amid the gloom and doom of the United States and global economic outlook, even as daily trading volume on Bursa Malaysia plunged to the lowest level in recent years and stocks continued to decline.

While some analysts are of the view that the plan announced by Prime Minister Datuk Seri Abdullah Ahmad Badawi to transfer power to his deputy Datuk Seri Najib Razak had abated concerns about a government leadership struggle, others feel that political tensions still exist.

While wary of the developments, most analysts believe that the country is on the right track towards political maturity and achieving the appropriate reforms in governance.

They say the companies here are still fundamentally sound, with dividend yields still among the highest in the region.

PricewaterhouseCoopers (PwC) says Malaysia is still ranked among the top 20 most favourable investment destinations for the manufacturing and services sectors.

“The Malaysian market is poised for a bounce,” Bloomberg cited Chris Oh, an analyst at JPMorgan, as saying in a report yesterday. The transition of power announced by Abdullah was an “optimal outcome” and provided a “calming effect” for investors who had “steered away from the market”, he said.

However, Malaysia’s relatively strong position may attract “hot money” inflow, whereby foreign funds may take positions to gain from the strengthening of the ringgit in the event of an interest rate hike.

A well respected magazine like the Economist still speaks positively about AAB even liken him to Mikhail Gorbachev if he has the boldness to reform.

DEFENDERS of Malaysia’s prime minister, Abdullah Badawi, liken him to Mikhail Gorbachev: a statesman who emerged from deep inside a declining, dysfunctional system and yet had the courage to carry out risky but badly needed political reforms. With Malaysians squabbling viciously over improbable new allegations against the opposition leader, Anwar Ibrahim, and Mr Badawi’s own heir-apparent, Najib Razak, the system has never looked in more need of a reforming hero (see article). But is Mr Badawi, who succeeded Mahathir Mohamad in 2003, really up to it?

Malaysia is not in such a terminal mess. Compared with the old Soviet Union’s, its economy is a picture of vitality. Nor is it a totalitarian state; by Soviet standards it is an amicable federation. Its problem is that like other places where one party is so dominant, politics has become ossified and corrupt. It could still be reformed without having to start from scratch; but a lot depends on what Mr Badawi does now.

For Mr Badawi does indeed face a Gorbachev-style choice. He could try to shore up the old system. By discrediting the opposition and using the usual perks, threats and blandishments of incumbency, UMNO and its partners could yet cling to office, at least for a while. Or Mr Badawi could embrace reform, clean the system up and compete for power without the dirty tactics. If he does, he will indeed deserve an honourable mention in the history books.

I'm sure there are guys speak negatively about Malaysia but at least no strong condemnations from a few heavyweight foreign institutions should lend some supports to our market in turbulent times like this.

Tuesday, July 15, 2008

Stop Worrying, and Learn to Love the Bear

I found this lovely article over the weekend while going through my regular the WSJ newspapers. After reading the article, there is still this question on my mind: how longterm is longterm one needs to have to invest in stock market? 10 - 20 years??? Does it means if you must set aside money and leave it untouched for years?


Stop Worrying, and Learn to Love the Bear
Take It From Graham and Buffett,
These Miserable Markets Are
A Gift From the Financial Gods
July 12, 2008; Page B1

When you bought into the gospel of "stocks for the long run," did you have any idea how long the long run can turn out to be? Exactly 10 years ago, the Standard & Poor's 500-stock Index was at 1164; it closed Friday at 1239. That's an annualized average return of 0.63%. At that rate, it will take you 111 more years to double your money in the stock market.

Meanwhile, this newspaper, and most of Wall Street, has declared that stocks have officially entered a bear market now that the Dow Jones Industrial Average is 20% below its record high of last October. I think that's poppycock. We've been in a bear market for years; the Dow was almost 600 points higher in early 2000 than it is today. What about that 10% yearly return that U.S. stocks supposedly provide with near-certainty? To earn a 10% long-term return, according to Morningstar, you need to have bought at least 19 years ago and held on ever since.

Could things possibly get worse? I don't know, but I am an optimist -- so I certainly hope things do get worse. Nothing else should satisfy an intelligent investor.

This May, at the Berkshire Hathaway annual meeting, Warren Buffett boiled down what it means to be an intelligent investor into two startling sentences: "If a stock [I own] goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month." Knowing he owns good businesses, Mr. Buffett wants prices to go down, not up, so he can buy even more shares more cheaply before the bounce back.

In the last long bear market, 1969 to 1982, stocks returned just 5.6% annually; after inflation, investors lost more than 2% a year. That mauling by the bear made stocks so inexpensive that over the ensuing 18 years they went up 18.5% a year, enough to turn $10,000 into more than $200,000.

The people who so far this year have yanked $39 billion out of U.S. stock funds, and $6 billion out of exchange-traded stock funds, do not understand this. But if you are still in your saving and investing years, a bear market is a gift from the financial gods -- and the longer it lasts, the better off you will be. Instead of running from the bear, you should embrace him.

This new column takes its name from the classic book by Benjamin Graham, who wrote that "the investor's chief problem -- and even his worst enemy -- is likely to be himself." I hope to help you understand the chaotic markets around you, and the even more treacherous enemy within. For, as Mr. Buffett has also pointed out, investing is much like dieting: It is simple, but not easy. Everyone knows what it takes to lose weight. (Eat less, exercise more.) Nothing could be simpler, but few things are harder in a world full of chocolate cake and Cheetos.

Likewise, investing is simple: Diversify, buy and hold, keep costs low. But simple isn't easy in a market seething with "free" online trades, funds that promise to transform losses into gains, and TV pundits who shriek out trading advice as if their underpants were on fire. The real secret to being, or becoming, an intelligent investor is bolstering your self-control.

So, in these columns, I will seek to combine the wisdom we can glean from Graham with the latest insights from psychology, neuroscience and behavioral economics. The result, I hope, will be practical advice that can increase your odds of reaching your financial goals.

For now, bear this in mind: That which does not kill investors makes them stronger. Physiologists have shown that minuscule doses of poison may actually make organisms (including humans) healthier, a phenomenon called hormesis. I do not recommend seasoning your food with cyanide.

But the findings on hormesis do remind us that painstaking investors -- literally, those who can take the pain of a bear market that seems to drop another 1% every day -- will ultimately triumph, by patiently amassing greater and greater equity positions at better and better prices. The ancient King Mithridates of Pontus is said to have made himself immune to poison in constant gradual doses, a tale retold by the poet A.E. Housman:

They put arsenic in his meat
And stared aghast to watch him eat;
They poured strychnine in his cup
And shook to see him drink it up....
I tell the tale that I heard told.
Mithridates, he died old.

Monday, July 14, 2008

Review of FY 2008 iCapital Performance


(i) iCapital took profit on the following stocks in FY 2008 ended 31 May 2008.

Stock / Realized profit (RM '000) / iCapital Rating

1. Boustead / 578 / Buy and Hold
2. Integrax /383 / Hold
3. Lion D / 7485 / Buy and Hold
4. Petronas Dagangan / 2635 / Hold
5. Poh Kong/ 186 / Buy and Hold
6. UMW Holdings / 18,887 / Hold
7. United Malacca / 6,569 / Hold

Wonder why iCapital sold down their stakes in United Malacca and UMW while retaining its hold rating. Shall we read all hold = sell ????

(ii) Sold down plantations related and oil and gas stocks. However he is keeping some of the port and transportation stocks which are beneficiary of plantations sector. He is still pretty bullish about retail sector.

(iii) iCapital called for a hold for Mieco Chipboard and he is still keeping it. The value of the stock drop by 60%. It's seems like no cut-loss trigger.

(iv) iCapital is in favor of big cap in FY 2008, roughly about 65% big cap vs 35% small cap.

(v) iCapital lets its winners run as long as it can though many of them already gone up by more than 100%.

(vi) Made 194 trades in FY 2007 with transaction costs of $ 173 k vs 107 trades in FY 2008 incurred $ 284 k transaction costs. This means 17 trades/month in FY 2007 vs 9 trades/month in FY 2008. Turtle is kind of stupid, zero turnover in the last six months -- need to reconsider my yield maximization strategy.

(vii) My best guess of iCapital intrinsic value is around RM $ 2.10 - 2.20/share.

(viii) Watch what they do not what they said! Or let them manage your money!

Good luck to all.

Sunday, July 13, 2008

The Malaysian Social Contract?

I consider myself a liberal person and I don’t care much about politics unless it threatened the stock market forcing me to make flight or fight decision. However, what Dr M posted about the Malaysian Social Contract really put me off. I must air it out. He was lecturing his readers about history. To be honest, I'm not impressed and think it's outright misleading.

19. It was at this stage that the leaders of the three communal parties who had formed the Government of self-governing British Federation of Malaya, discussed and reached agreement on the relationship between the three communities in an independent Federation of Malaya.

20. It was to be a quid pro quo arrangement. In exchange for the one million citizenships the non-Malays must recognise the special position of the Malays as the indigenous people. Certain laws such as the pre-eminence of Islam as the state religion, the preservation of Malay reserve land, the position of the Malay Rulers and Malay customs and the distribution of Government jobs were included in the understanding.

Basically he is saying things should stay status quo because of history(translation of quid pro quo -- you scratch my back, I scratch your back), don't you dare to question your forefathers agreement, understand???. Is this the issue?

I think many still missing the point of last general election results. Table 1 says all three races are not happy with the current government. Majority of the seats lost by BN went to PAS and PKR which I believe predominantly Malays. It also says people are not happy regardless of rich or below average states. See how Bumiputra votes split in table 2? 72% BN-Bumis and 28% non-BN-Bumis. Why then bringing up the issue of social contract fanning racial tensions which is irrelevant!!!! It's Bumis are splitting, if the Bumis votes were to split another 20 - 30%, your nightmare will come true, dethrone of 50 years BN reigns.

My second point, study below alternative budget by DAP presented in 2007. Don't you think it makes a lot of economic sense and relevant? Don't you think it has nothing to do with racism, don't you? Social contract? What social contract?

DAP’s MENUS Budgetary proposals

Two days before the formal budget presentation by the Prime Minister-cum-Finance Minister, Datuk Seri Abdullah Ahmad Badawi in Parliament last Friday, DAP presented its first alternative budget for 2008, themed “Malaysian First: Unity Driven Equity, Growth & Innovation”.

The proposed DAP 2008 Malaysian Budget focuses on the twin challenges of globalisation and the country’s high dependence on oil and gas resources.

With increasing competition from other developing countries and the rapidly evolving technology markets, it is critical that Malaysia puts in place a system which will be able to exploit the opportunities provided by, and at the same time mitigate the negative impact resulting from, globalisation.

At the same time, a 40% dependence on government revenue from the oil and gas sector is of serious concern, especially in the light of oil reserves which will last for only another two decades and Malaysia becoming a net oil importer by 2011.

The proposed DAP Budget is meant as a distinct departure from the current administration’s New Economic Policy (NEP) which is driven by race. The underlying rationale and approach to the proposed DAP Budget is the “Malaysia Economic & National Unity Strategy” (MENUS) which will be based on performance, competence and needs of all Malaysians.

The key policy measures proposed in the DAP Budget should be given full consideration by the government. In fact, a copy of the DAP budgetary proposals was presented to the Prime Minister’s Office in Putrajaya on Thursday, the eve of Abdullah’s Friday presentation.

The key highlights of the proposed DAP Budget 2008 are:

1. Legislating the use of oil and gas revenue to ensure that a substantial portion of the revenue is spent on education as well as research and development to build the necessary economic capacity for Malaysia, to ensure that the increases in productivity and innovation will more than compensate for the expected decline in oil revenues. It is proposed that 50% of oil and gas revenues be invested in human capital and research and development, while another 25% be used to strengthen the social security for Malaysians who are in need. Legislating the utilisation of funds will also prevent the mis-allocation of resources to bailout failed projects or other non-productive sectors.

2. Hence, RM43.3 billion is allocated for education and training, accounting for 26.3% of the overall 2008 Budget. The focus of the expenditure will be to enhance the qualitative elements of education instead of the quantitative elements. Of 250 new schools to be built, 60 and 15 will be Chinese and Tamil schools respectively to resolve the often severe overcrowding faced by these schools. RM3.2 billion has also been allocated for Research & Development.

3. RM13.6 billion is allocated to improve the quality of the nation’s transportation infrastructure, particularly the public transport system. The bulk of the increase goes to development expenditure for transportation, which will increase from RM7.3 billion to RM9.5 billion. Key attention is given to the 3 highly congested urban centres — the Klang Valley, Penang Island and Johor Bahru. A blueprint for the “Valley Circle” rail network will also be developed to improve inter-suburban connectivity, by-passing the congested Kuala Lumpur city centre.

4. Barisan Nasional’s policies of guaranteeing highway toll concessionaires as well as independent power producers (IPPs) extraordinary profits with grossly unequal contracts with little or no risks to the latter are the clearest cases of the Government failing to protect public interest. The impact of these policies are increasingly felt today with rapidly rising toll rates and energy prices. It is hence imperative that the Government renegotiate these contracts to protect the interest of the public within a 6 month period. In the event whereby no significant headway is made in the negotiations, it is proposed that the Government move to acquire the assets of these entities. The resultant savings will then be passed on to consumers or be diverted to other public interest projects, such as the public transport system.

5. When the Government launched the Multimedia Super Corridor (MSC) project 10 years ago, it promised to make every effort to grow and support local MSC status companies. However, despite the rhetoric, the Government being the largest consumer of information technology services in Malaysia has not given preference to these companies. Malaysian MSC status companies should be given specific preference in tendering for the Government IT-related contracts to help nurture these companies into successful regional players.

6. As part of our philosophy that every person or community in need, irrespective of race or religion will receive the necessary government assistance, proposal for “FairWage” Policy. This is a policy to improve the livelihood of low-wage earners above the age of 35, which will at the same time incentivise employers to provide increased employment opportunities. A “Malaysia Bonus” of up to RM1,200 will be granted to Malaysians with income not more than RM3,000 per month. In order to assist the elderly above the age of 60, many who are having problems making ends meet, those qualified will enjoy the “Senior Malaysian Bonus” of up to RM1,000. These bonuses are to be channelled into their respective EPF accounts.

The FairWage policy and Malaysian Bonus will cost approximately RM9.3 billion to administer. It is part of the proposed programme to share the fruits of the nation’s wealth, particularly from the oil and gas sector with all Malaysians in need. In the longer term, more assistance programmes will be carried out in this grant-based mechanisms which are means-tested instead of via subsidies which are distortionary in their impact, and often disproportionately benefiting the wealthy.

7. One of the core pillars of MENUS is that all Government contracts should be tendered in an open, competitive and transparent manner. All qualified companies shall be provided with equal opportunities to secure Government supply contracts and projects. To prevent overwhelming disruptions to the current system, this policy, free from race-based requirements, shall be implemented on a gradual basis, commencing with projects or supply contracts sized above RM10 million for 2008. In view of the challenges brought by globalisation, all tenders shall be made competitive, open and transparent by 2015. Assuming a conservative 10% savings is achieved via the new tendering system, this will result in absolute savings in excess of RM5 billion per annum in conjunction with quality improvements.

8. The transformation of the Malaysian economy into one that is knowledge-based will not succeed without the critical ingredient of innovation and entrepreneurship. Therefore it is proposed that the Government set up a new RM250 million seed fund, STARTUP where we will act as a matching co-investment fund with reputable private investors who will assist in the mentorship of the start up companies. To encourage private investor participation, losses incurred by such investments shall be tax deductible from the investors’ individual or corporate income tax. To further boost entrepreneurship, start-ups shall enjoy full tax exemption on their first RM200,000 chargeable income for each of their first 3 years of assessment.

9. Government revenue from small medium enterprises which constitutes more than 99% of all enterprises in the country has clearly declined with the dependence on oil and gas revenue. To revitalise the SME sector, and to assist many SMEs whose counterparts in many countries in the region enjoy significant tax advantages, it is proposed that the tax rate for SMEs on their first RM500,000 chargeable income be reduced to 18% from the current 20%. In additional a new partial tax exemption threshold will be set at RM200,000 and taxed at 12%. This means that a SME with a chargeable income of RM900,000 will be taxed at an effective rate of 18%, in line, particularly with its competitors across the causeway in Singapore. This measure will help make Malaysian SMEs to be more competitive and at the same time attract more SMEs to set up business in Malaysia, creating more employment opportunities.

10. A 1% reduction of the top tax bracket to 27%. More importantly however, there will be a revision and a simplification of the progressive tax brackets which will result in significant reduction in taxes by all. Most importantly, to assist Malaysians to cope with the rise in living expenses, particularly in urban areas, the first RM15,000 chargeable income will become tax exempt, with the subsequent RM15,000 taxed at 7%. Currently, only the first RM2,500 is tax exempt while the next RM2,500 is taxed at 1%. Based on the new tax structure, a married worker with RM3,000 pay per month, a full-time housewife who looks after 2 young children will pay no taxes, whereas under the previous tax structure, he will be expected to pay between RM55 to RM445 depending on his insurance premiums and medical expenses for his family, including parents.

11. The rate of global climate changes is accelerating and it has become absolutely necessary for Malaysia to play its part in protecting the environment. Hence, a “Green Tax” is proposed to be implemented in 2010 whereby a “carbon tax” is charged at RM25 per tonne of CO2 equivalent, with the exception of methane emissions from the agricultural sector as well as special exemptions for carbon intensive businesses which adopts global best practices on emissions. In addition, a 5% severance tax is proposed on the extraction of metals and forestry products in the country. However, companies which secure certification from The Forest Stewardship Council (FSC) accredited certification bodies will be granted the severance tax exemption for promoting responsible management of the forest.

12. As a part of our new source of revenue as well as to negate the rent-seeking culture, the approved permits (APs) current issued for free by the Ministry of International Trade & Industry to a select pool of “businessman” should be auctioned to the highest bidders instead. Based on an estimated 70,000 APs issued per annum and a conservative RM25,000 market price, the auction will provide an additional RM1.75 billion to the government coffers.

13. Women will also benefit significantly with the proposed extension of paid maternity leave from 60 to 90 days if they have worked for at least 180 days prior to delivery with the employer. Their pay will be shared equally by both the employer as well as the government. This together with other measures proposed in the Budget will play their role in strengthening the bond between the mother and child, promoting strong family values, while at the same time, encourage more women to join the workforce. As at 2004, Malaysian women participation in the work force stands at 47.3%, significantly below that of our neighbours, Singapore and Thailand at 53.9% and 64.2% respectively.

14. Finally, this proposed DAP budget seeks active involvement from the civil society. Instead of attempting to tackle all issues on its own, which the government will not be able to competently and effectively, sizeable grants will be made available to specialist non-governmental organisations (NGOs) to promote, educate and run various social causes and programmes. The sum of RM240 million is proposed to be set aside as partial or full grants for NGOs to pursue environmental causes, eliminating poverty, promote healthy living, managing women issues or assisting the disabled, to be disbursed over the next five years.

(Speech 16 on 2008 Budget in Parliament on Monday, September 10, 2007)

My generation has nothing to lose but how about yours? It's high time Malaysians do something before it's too late.

Ask not what your country can do for you - ask what you can do for your country.
-- JFK

Saturday, July 12, 2008

Value Fund Superstars hunted

I'm not sure whether some of my readers have been puzzled why I claim to subscribe to value investing yet I go on analyzing stuffs on macro-economics, sentiments, commodities, catalysts, politics, stock market indices targets, etc. In short, why doing stuffs traders do? It's because I'm afraid to fall into value trap. Stuffs may look cheap based on book-value, PE and etc but unfortunately fundamentals have deteriorated badly and will take many years to recover, could be never too.

Case in point, there are a few value fund superstars got hunted in the current sub-prime mess.

(WSJ) As financial stocks such as Fannie Mae and Freddie Mac continue to struggle, there is plenty of pain to go around. But those taking a real beating include superstar investors who focus on so-called value stocks.

Several notable hedge-fund and mutual-fund managers -- including Marty Whitman, Richard Pzena, Bruce Sherman and Wally Weitz, among others -- are down about 20% or more this year in certain funds they run, partly because of heavy dollops of financial shares.

"There's a fine line between stubbornness and discipline," said Jeremy DeGroot, chief investment officer at Litman/Gregory, a firm that advises investors and has been having second thoughts about some big names. "We're in the process of reassessing these managers we've had long-term relationships with."

value investors tend to favor financial and retail shares, which have poor outlooks, and have a harder time placing a value on commodities. They also usually aren't comfortable betting against stocks, hurting performance lately.

Many value managers' golden long-term track records in funds they help manage are being erased by the recent decay. Mr. Weitz's $1.5 billion Weitz Value fund now is near the bottom rankings for the past one-, three- and five-year periods. Bill Nygren's $3 billion Oakmark Select Fund also is near the bottom of its category for the past three and five years. Mr. Miller's fund is now among the worst funds in his category for the past three, five and 10 years.

The problem is also contributed by their focus strategy -- taking large concentrated position. Their portfolios will be hurt badly if a handful of them decline sharply. Don't imitate Buffett focus portfolio unless you know what you are doing, even long term successful superstars also grounded - for now.

Friday, July 11, 2008

My view on LKY's views

This is how a well-respected politician trouble-shoot stock market. Some imaginations required to read in-between-the-lines.

Rephrased. Thailand economy is sound but politics is a problem due to corruptions. So stock market is down.

Malaysia is one of the wealthiest countries in the region. The politics is a problem, because of problematic politics the economy is bad – mismanagement of country resources. So stock market is down again. (25% down from the top – added by me).

Singapore is great, I will sue you if you dare to say Singapore is corrupt or mis-managed the country resources. (Stock market is down – 25% from the top - added by me)

Is this what I'm hearing? Come and invest in Singapore -– why go to a corrupt country like Thailand o a mismanaged country resources like Malaysia? These countries stock markets will go down by another 20% if they cannot solve the problem in 1-year time. He sounded positive the problems cannot be solved timely. Great salesmanship, LKY, no wonder FDIs are still flocking into Singapore. Unfortunately your stock market is also down.

SINGAPORE, July 10 — In remarks on recent developments in Thailand and Malaysia, Minister Mentor Lee Kuan Yew said — in response to a question on the future of the Asian region — that he is filled with “dismay” that these two countries have run into severe problems:
“It fills me with dismay because these were potentially promising countries, promising economies, but now they've run into some very severe problems.

“Why? Because in Thailand, they say corruption. So to stop the corruption, they have a coup. Then they have another election. But the election does not solve the problem of getting (former) Prime Minister Thaksin Shinawatra's influence removed. So they have all kinds of new rules and laws to disqualify his party or the new party... So as a consequence, you look at the stock markets, it's gone down. The economy is sound, the politics is a problem.

“You look at Malaysia. The economy. It is one of the wealthiest countries in the region. It's got oil, it's got gas, it's got palm oil. All the commodities it has. It's also got a manufacturing sector.

“But suddenly, it's trapped in some political-cum-personal difficulties of charges and counter-charges which can only be bad for the economy. I think the KL Stock Exchange has gone down by some 20 per cent. I don't track it, but I know it's down.

“If you have confidence that this will be resolved in 6 months or 1 year, then you buy. If it's not resolved and it goes down another 20 per cent, then you've lost...

“But I see all these problems as man-made. It's not economics. It is lack of a certain integrity in the system that you are entrusted with and you therefore run it properly.

“People can say anything they like: Singapore is undemocratic, we trip our opposition down, this, that and the other. But if you say that this government is corrupt or has mismanaged the country's resources, I'll sue you!

“And they still do that. And the Western press supports the people who say that because they want to see us down.

“But because we sue them again and again, nobody in Singapore believes that anybody is doing anything that's criminal, corrupt or improper. So we can make a mistake — and everybody knows you can't be 100 per cent right every time — but nobody has profited from that mistake.” — Singapore ST

Thursday, July 10, 2008

Sir John Templeton

Dedicated to Sir John Templeton.

Last Updated: 12:40PM BST 09/07/2008
Sir John Templeton, who has died aged 95, was a legend in the world of fund management and invested much of his multi-million pound fortune in promoting spiritual and religious progress.

Templeton boasted one of the longest and most successful track records on Wall Street. From its foundation in 1954, his Templeton Growth Fund grew at an astonishing rate of nearly 16 per cent a year until Templeton’s retirement in 1992, making it the top performing growth fund in the second half of the 20th century.

A $100,000 stake invested in 1954, with distributions reinvested, would have grown to $55 million in 1999.

My deepest impression about him: do not be afraid to buy stocks during war. The story practically lives in me, my strong inspirations to draw strength as our country went through the political turmoils last week.

In 1939, calculating that war would kick America out of depression, he ordered his stockbroker to buy $100 worth of all the stocks selling at under $1 a share, including the bankrupt ones. Within four years his $10,000 investment had become $40,000.

We are going to miss you Sir.

Wednesday, July 9, 2008

The Perfect Storm

I don't intend to make a lot of comments today as I've said enough. You can see in the chart above, a lot of stocks have fallen like potato from the top. If they want to test the market faith to the extreme, strong stocks like IOI Corp, Public Bank, TM International, KL Kepong, Digi and etc need to fall. If this last line of defense is broken, I think the market will give up all together. A towel will be thrown. The six million dollar question is: possible?

I'm keeping the below for my future reference, documenting the market sentiment leading to the bottom. KL Composite closed at 1,121 on 8-7-2008.

(The Edge) CLSA Research in a report yesterday downgraded its rating for the 100-company KLCI to underweight from neutral, and slashed its year-end target for the index by 13% to 980 points from 1,150 previously. At the same time, the research house also expected corporate earnings growth to weaken on higher inflationary pressures next year.

Corporate earnings growth is expected to hit 16% this year and anticipated to slow down to 10% next year, the research house said. The reduced forecast is on expectation of a slower economic growth next year of 3.3% from 5.3% this year and inflation increasing from 4.7% to 5.1%.

Driven by depressing sentiment, Citi in a note last Friday stated that one could easily add many companies on the sell list, arbitrarily cutting target prices and earnings.

"Positive fundamental news has, so far, been ignored completely," Citi said. Among the indicators that have been ignored are the trade surplus hitting a record RM15.6 billion and export growth of 22.9%, almost double market expectations, in May. Citi also said that foreign exchange reserves are now at US$125 billion (RM412.5 billion), probably ranked among the top 15 in the world.

The KLCI dropped for the eighth consecutive day yesterday losing 0.6% or 6.88 points to finish at 1,127.26 points. The index was dragged down, mainly, by shares of plantation companies IOI Corp Bhd and Sime Darby Bhd which dipped 10 sen each to RM6.80 and RM8.65 respectively.

At yesterday's close, the KLCI was trading at a price-to-earnings ratio (PER) of 12.11 times, and had declined 21.99% so far this year. For comparison, regional indices like Hong Kong's Hang Seng, and Japan's Nikkei 225 are trading at 12.74 times and 16.49 times respectively. On a whole, Bursa Malaysia saw 262 gainers and 372 losers while 231 counters were unchanged. A total of 412.99 million shares worth RM1.02 billion changed hands.

Citi stated that the substantial drop in the KLCI has pushed the index's valuations close to its historical lows since the 1997-1998 Asian financial crisis. It stated that the KLCI at a PER of 11 times, was trading at the "lowest valuations in history" versus its historical average of 21 times.

Tuesday, July 8, 2008

TM International (ref $ 5.85)

TM International market capitalization shed by almost RM 4 bln due to poor market sentiments and perceived overpaid IDEA Cellular acquisition. Most thinks paying a premium of 37% is too much. I will not go into very details as this stock is well covered by many analysts.

My comments:-

(i) Valuation wise, they paid more or less in line with recent deals done by Vodafone and Maxis. With the acquisition, this will allow TMI to be a serious player in Indian cellular phone market. Market share will increase from 1% to 11%. Some argued you should not follow the crowd even others could be overpaid. Well, everyone's entitles to their opinion, most voted with their feets by dumping their share already. It's a risk-reward to judge whether the company management is able to execute. With IDEA Cellular's ROCE of 17%, I think I will give it a shot.

(ii) Those attracted to invest in TM International need to have faith of their ability to grow subscriber base from a low penetration in mobile phone market of 1.9 billion people. The following table shows TMI assets in the emerging market, I have ommitted Celcom which is 100% owned by TMI with 30% plus market share.

(ii) OSK recently downgraded its share from $ 8.40 to $ 7.90 however iCapital upgraded as long term buy from buy below $ 8.40. Some other investment houses pegged as low as $ 7.20. Most of them cited global valuation compression.

(iv) Most will think IDEA selling for 30 plus times earning is again overvalued. To get PEG around 1.0, we will need at least 30% growth, this is a leap of faith -- you need to make this judgement yourself. You can visit for more information.

(v) Competition-wise is something I'm a little worried as price war could dent everyone's profit. The cake however is big enough to accomodate everyone.

(vi) Net gearing will go up to 0.7 from 0.4.

(vii) Share price could be hammered further given current poor market sentiments. If Sansex or Indonesia Stock Exchange were to continue falling, this may depress share price further, sounds like my Parkson again?

Monday, July 7, 2008

OSK's Rocket Science -- Quant Forecast!

Let's take emotions out of analysis because emotions are highly dangerous in a high stake poker game of stock market. Let's go high tech and let's computer do the job. We have Monte Carlo's simulation for you. To those who are mathematical inclined, we have something very logical for you: Probability. We are using a high tech tool Quantitative Analysis that those hedge fund fellas are using. So trust us. That's what OSK has done for you. If you listened to them consistently, I've only one prediction for you -- lose money big time. Why? When the market topped out in October 2007, OSK was still calling for the highest KLCI target 1,740 but for conservatism sake they picked 1,650. This is what they said, especially on the probability in the second para.

Closer at heart, we believe Malaysia offers better incentives for investors underpinned by a slew of positive catalysts and for its “insulated” nature. Apart from our fundamental target of 1,650, our technical analysis also suggests that the KLCI is poised for an upsurge in momentum with 1,585 as an initial target en route to 1,740.

From our quantitative study, the probability of the KLCI going north is higher at 26% against a 21%, otherwise. Finally, let’s not forget about the ringgit’s strength which we believe would be one of the main draws for investors.

OSK -- January 2008

I think it is fair that nobody could have predicted BN could have lost so badly on 8 March 2008. What happened to those sophisticated computer?

Meanwhile, OSK Investment Bank yesterday joined the growing rank of brokerages that had slashed their year-end target for the KLCI in view of the country's recent political changes.

The investment bank, in its market strategy report, lowered its KLCI's year-end target to 1,340 points from 1,650 previously and recommended that investors focus on large “defensive” stocks.

OSK -- March 12, 2008(The Star)

Speaking of bad luck, in a highly unprobable four-in-one-event happened in a row within one week, (i)Anwar's sodomy case (ii) Najib allegedly mastermind the murdered of the Mongolian model with PI's SD (iii) crude oil hit past US $ 145, a new world's record and (iv) in a very untimely broke down of Bursa's computer, this is what they said, first throw away the fundamental analysis.

Not just yet. While most of us are highly biased towards the fundamental approach in assessing the market, the prevailing developments may discourage such analysis for the time being. In this regard, we are making a brief diversion and attempt to look at things from the quantitative and technical perspective. Although our findings may not be etched in stone, nonetheless it at least enables us to gauge the market’s direction and the level at which the window of opportunity opens for investors to accumulate on weakness.

For those who are already nervous, most likely they will read with half empty view thinking going to 1,000 pt is very likely while the model says it has 22% chance. If a person is bullish, he will read, there is 78% chance will not happen(half full view). Chance of going to 1050 is only like 34%, inversely 64% will not happen. Very bearish thinking. These guys already infected with serious disease - mad bull to chicken bear virus.

Our model also predicts that the KLCI will fluctuate between the 1,000pt mark and our 1,250pt fundamental target for 2008 with a 72.2% probability.

Upside? Forget it, 15% chance KLCI will hit 1300. Their 1250 target? Sh**!, only 20% chance.

If many already feeling more nervous, I'm sure they will have no guts to buy now -- what happen to those preaching buy low and sell high? Guys, come on! ........ Gals, come on!

A classic case of how they torture a model to fit into what they want to see.

Saturday, July 5, 2008

Bursa Technical Glitch, Enough Fears?

Was last Friday sells down reflecting enough fears? I think the retailers were really panic. One of my good barometers in the past was Nestle. I consider this stock almost crisis proof. It has also survived 97/98 Asian Financial crisis. However, when the conservative and "Buffett" like investors begin to dump share was really interesting. See Chart.

The institutional investors were panic but the level of panic was not that bad. Let me pick IOI Corp. The volatility post General Election trading day was almost 10% but last Friday was only like 4%. I would consider less than 5% is normal.

After the post general election sells down, IOI Corp was never been able to climb and moving sideways for the last three month despite of steady rise of crude oils and CPO. I'm taking this a good read of foreign investors could have exhausted selling for the last three months.

The bullish guys begin to be shaken -- revising down and even thinking of 1049 level(the day that Thailand announced to impose capital lock up) from 1220, down 14%. From a contrarian's point of view we should not follow the crowds. We are already down 25% from the peak. At 1134, we are selling at almost a single digit PE, do you think we deserve this s**** despite of political uncertainty? I'm going to stand firm and not bailing out.

Friday, July 4, 2008

Do insiders have advantages?

Sometimes you really wonder whether the insiders have more advantages compare to a know nothing investor like you and me. The management team of Parkson Holdings bought shares in January 2008 and still holding on to them faithfully. They lost almost 45 - 50% of their personal fortunes. Cheng Yong Kim and Cheng Yoong Choong could have easily lost 20 million plus Ringgits by now. They were either damned confidence about their company outlook or just another ignorant pundits.

PARKSON HOLDINGS reported that the following Principal Officers had acquired shares in the Company as follows:
1. CHENG YONG KIM - Jan 15 to 18, 2008 - acquired 5.42m shares at between RM8.40 and RM9.00 per share.
2. CHENG YOONG CHOONG - Jan 15 to 18, 2008 - acquired 4.63m shares at between RM8.40 and RM9.00 per share.
3. KOK WAI HUNG - Jan 7, 2008 - acquired 1,000 shares at RM9.20 per share.

Jeff Imelt, CEO and Chairman of General Electric bought quite a bit of shares in the beginning of this year and I think he is also suffers at least 25% personal loses.

Studies have shown that insiders typically have long time horizon in their investment. I hope they are right.

Change subject on timing the market and bargains. Kirk Kerkorian the seven richest man in American who started from nothing, bought almost 10% of General Motors thought they were a bargain at $ 30. He was shrewd enough to get out in time and now trading at 53 year low, selling for $ 11. 53 year low!

Buy low and sell high sound very simple but we won't know how difficult it is until we do it - even pros get it wrong. Just something to think about.

Thursday, July 3, 2008

A Bloody Day for Parkson

Yesterday was a bloody day for Parkson -- this is one of a very rare day I've not seen for a long time. The whole world just lost faith. The share price slided right from the opening bell. Big boys or small boys are the same, they literally throw out the baby together with the bathwater when the moment it hit around $ 4.66. Some of these guys must be super discipline to cut loss at 10% if they entered around $ 5.00. Loss of 8.4% in one day -- incredible!

I have been hunting for bad news, surprisingly there was none. One good news though, they acquired 9% interest in Xi'an Lucky King Parkson Plaza Co., Ltd. This must be a good news for earnings right? Never mind, if someone dump share again today, I'm going to spend all my money. I'm damn sure this is definitely due to irrationality and nothing else. Silly people.

If I want to be really safe, wait for Shanghai Index to hit 2000 selling for 15 times earning. The current level 2700 plus is around 20 times earning -- reasonable but not at rock bottom bargain yet. Hang Seng Index around 21,000 plus in my opinion already hit rock bottom. However, if Parkson Holding Berhad share jumping the gun, a cart runs way ahead of the horse, it is a worth while risk to take. It's all depend on one's risk tolerance.

For a new reader, you may want to read the whole background, please click the links
(1) Big picture of the Chinese spending

(2) Write up of Parkson and a case for investment

(3) To survive the market, six sense is important. I can feel butterfly in my stomach, sensing storm of irrationality was coming. The following entries capturing my own doubts and how I conquered my own irrationality before I'm ready to take advantage of others irrationality.

(i) Should I cut loss part I,
(ii) Should I cut loss part II,
(iii) Should I cut loss part III.

(4) Technical analysis