Spook by China ?

I'm surprise that China has so much influence on the market. Just one action by China to tighten the liquidity sent the whole world into tail spin. Wow! Most will probably start thinking that is going to slow down their growth. My gut tells me they are going to sustain it at 8% growth to create enough employment. So, this is just a catalyst to flush out weak holders. I think the market will move higher after this round of correction.

Jan. 13 (Bloomberg) -- Emerging-market stocks dropped the most in four weeks, oil dipped below $80 a barrel and the pound rose on evidence central banks are preparing to scale back their emergency support for economic growth.

The MSCI Emerging Markets Index slipped 1 percent at 10:16 a.m. in London and the Shanghai Composite Index lost 3.1 percent, the most in seven weeks. Futures on the Standard & Poor’s 500 Index climbed 0.2 percent while Google Inc. fell in Germany after saying it may exit China. Crude oil declined as much as 1.4 percent in New York, and corn plunged to a two-month low. The pound strengthened and government bonds slid, with the 10-year Treasury note yield rising 4 basis points.

The People’s Bank of China yesterday raised the proportion of deposits banks must set aside as reserves, a move that may herald an interest-rate increase. Federal Reserve Bank of Philadelphia President Charles Plosser said U.S. rates should rise as the economy recovers. The Bank of England’s Andrew Sentance was cited by the Guardian as saying policy makers may have to raise U.K. borrowing costs this year.

“China tightened policy sooner than people were thinking, so that spooked the market,” said Nicholas Field, who helps manage about $11 billion in emerging-market stocks at Schroders Plc in London. “We have now passed that sweet spot where economies are starting to recover and there is a great earnings boost from the low point. This is not a collapse or a crash, but we will get a correction.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=avQVtoV5QBD8&pos=2

Semiconductor Industry Update

If we look at the chart, we can see that the semiconductor firms have been very cautious. They are trying to maintain a very tight inventory, very close to their demand. They dare not even to replenish their inventory to Q4 2008 level though the demand did not collapse until Q1 2009.

iSuppli believes this continued tight management of inventories will help the semiconductor industry to attain double-digit percentage growth in 2010. After a 12.4% decline in 2009, the firm forecast global chip revenues will rise by 15.4% in 2010.

http://www.digitimes.com/news/a20100106PR200.html

There is one catch in that article, mentioning only chip revenues to rise but did not mention about unit volume. We need to look at the volatile DRAM price to figure out the unit volume.



Looking at the trend chart, the price is firming up, but softer than Q4 '09. Taking into the consideration of book-to-bill still above 1, there is a good chance of unit volume to grow between 15-20% in 2010.

Bill Gross - Let's get FISICAL

Bill Gross wrote a piece of provocative investment outlook this month. The main premises of his outlook:-

(1) If 2008 was the year of financial crisis and 2009 the year of healing via monetary and fiscal stimulus packages, then 2010 appears likely to be the year of “exit strategies,” during which investors should consider economic fundamentals and asset markets that will soon be priced in a world less dominated by the government sector. If, in 2009, PIMCO recommended shaking hands with the government, we now ponder “which” government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries.

(2) Additionally, if exit strategies proceed as planned, all U.S. and U.K. asset markets may suffer from the absence of the near $2 trillion of government checks written in 2009. It seems no coincidence that stocks, high yield bonds, and other risk assets have thrived since early March, just as this “juice” was being squeezed into financial markets. If so, then most “carry” trades in credit, duration, and currency space may be at risk in the first half of 2010 as the markets readjust to the absence of their “sugar daddy.” There’s no tellin’ where the money went? Not exactly, but it’s left a suspicious trail. Market returns may not be “so fine” in 2010.

I think most of the big picture guys will get it right on the direction in the long term but sometimes in the short term, the markets may not be behaving according to his hypothesis.

I just came back from S. Korea over the weekend. This news was on the front page but appeared just in a small section of the Star.

(the Star)SEOUL: South Korea’s central bank yesterday froze its key interest rate at a record low 2% for the 11th consecutive month, saying uncertainties remain in the recovery of Asia’s fourth largest economy.


South Korea’s Vice-Finance Minister Hur Kyung-wook took part in the central bank’s policy meeting yesterday, a first since 1999, sparking allegations the government intervened in the bank’s decision-making.

http://biz.thestar.com.my/news/story.asp?file=/2010/1/9/business/5439070&sec=business

The problem is government intervention though they deny it!.

The Japanese minister made a mistake by opened his big mouth to weaken Japanese Yen. Though he retraced his statement but I think they are going to do it anyway.

Tokyo - Japan's new finance minister said on Friday that Tokyo would take action over the strong yen if needed, but added that in general markets should set currency levels.

"Basically, the market determines foreign exchange" rates, Naoto Kan said at a news conference.

As finance minister, however, it was his duty "to take action on foreign exchange when necessary," he added.

Kan's remarks came a day after he rattled markets with a call for a weaker yen, prompting a thinly veiled rebuke from Prime Minister Yukio Hatoyama, who warned him not to publicly comment on currency levels.

"The government basically should not discuss foreign exchange," Hatoyama told reporters. "Regarding foreign exchange, stability is desirable."

http://www.fin24.com/articles/default/display_article.aspx?Channel=News_Home&ArticleId=1518-1783_2566933&IsColumnistStory=False

I think the governments around the world will continue to intervene, of which many of the people pointed out rightly - they are digging into a deeper hole as time goes by. The sign of the things go so badly that you can see people riot on the streets again. At that point, Bill's prophecy will come to pass.

Current Issues Commentary

The recent incidents of church attacks were well handled by various leaders. We have been giving suggestions on how to resolve Israel-Palestine conflicts, which could be easy on paper but extremely tough on real-life. Now we have a real life test case at hand, how do we resolve differences and conflicts, the Malaysian way?

The Christians will have to live up to Jesus's teaching:

But I tell you, Do not resist an evil person. If someone strikes you on the right cheek, turn to him the other also. (Matt 5:39)

Forgiveness, though is very abstract, but is a powerful way of disolving the current tension. I'm glad the church leaders responded well.

(the Star) PETALING JAYA: Leaders of the Metro Tabernacle Church said they do not harbour any ill-feeling against the culprits who set fire to their church and are thankful that the Government has strongly condemn the arson attack.

The statement of forgiveness is made as Christian groups, lawyers of all faiths and politicians from Sarawak loudly protest against any acts done to throw the country into chaos.

http://thestar.com.my/news/story.asp?file=/2010/1/9/nation/5441174&sec=nation

This kind of news will normally create knee-jerk market reaction but since everybody is coming all out to condemn, I'm do not think this is going be a powerful catalyst to sell down in a big way. I remain hopeful that Malaysians can walk the talk as a peace loving nation.

(The Malaysian Insider)Shortly after the attacks, it appeared uncertain how Malaysia would pivot at such a turning point. But yesterday saw many political leaders coming out to condemn the violence.

Prime Minister Datuk Seri Najib Razak, Umno Youth Chief Khairy Jamaluddin and social activist Marina Mahathir, the daughter of former premier Tun Mahathir Mohamad, all visited the Metro Tabernacle Church, the worst hit of the targets.

Marina also started a petition with her friends urging Muslims to unite against violence towards non-Muslims.

Political analyst Ooi Kee Beng from the Institute of Southeast Asian Studies said it was a positive sign that moderate Muslims were coming forward to help.

“I’m glad that so many Muslims are coming out, and I hope the number will escalate to show that the hooligans are not even a minority, they are just a few people,” he told The Sunday Times.

In a surprise twist, the same group of Muslims who had rallied on Friday against the court decision offered yesterday to protect Christians and their churches against further violence.

The 15-group coalition, believed to be taking the cue from top leaders, issued a statement to put on record their opposition to the arson attacks and their intention to foster better communal relations.

Another group, the Malaysian Muslim Consumers Association, offered to work with the authorities to protect churches.

http://www.themalaysianinsider.com/index.php/malaysia/49069-church-attacks-prompt-conciliatory-moves

Emerging Stocks Lose 20% as Mobius Sees IPO Backfire

Mark Mobius has been very bullish about emerging markets when the whole world was so pessimistic, his funds even borrowed money to meet redemption during 2007/2008 crisis. He has also has been hailed as king of emerging markets. With his heavy credentials and sounded cautious right after I posted my optimism about emerging markets yesterday, should I change my mind?. The other Marc, Faber of course, said about 70% of the current buyers are based on algorithm(computer driven) i.e. momentum driven. The trend will remain intact until it is broken. I appreciate his caution however it's too early to fold on what I have bought. For the money that is not invested(10-15% or so), I certainly keep the powder dry. No tips from taxi drivers yet.

Jan. 5 (Bloomberg) -- Emerging markets are attracting more money from initial public offerings than industrialized nations for the first time ever, a warning sign to Mark Mobius that the record rally in the shares may turn into a 20 percent decline.

Faster economic growth may help China, India and Brazil produce the biggest increases in IPOs and almost double sales to $200 billion worldwide, according to Matthew Johnson, the New York-based head of the global-equities syndicate at Barclays Plc. Poland alone may offer more than $10 billion of state-owned companies, according to estimates by UniCredit SpA.

Companies in the MSCI Emerging Markets Index trade at the highest levels relative to earnings since 2000 after the gauge surged 75 percent and IPOs in developing economies raised $77 billion. The 2009 sales exceeded industrialized nations by 160 percent, the first time developed countries attracted less money, annual Bloomberg data starting in 2000 show.

“When you look at the size of some of these IPOs, they’re pretty massive,” Mobius, 73, who oversees $34 billion of developing-nation assets at Templeton Asset Management Ltd., said in a telephone interview from Tokyo. “At the right price, the IPOs will be absorbed, but you’re going to have some hiccups. It’s too much supply coming out.”

Investors snapped up new shares in developing nations as China led the recovery from the first global recession since World War II. The MSCI Emerging Markets Index of 22 countries rebounded from its worst annual performance to post the biggest gain since data began in 1988. The MSCI World Index of stocks in 23 industrialized economies climbed 27 percent in 2009.

Stocks Gain

The gauge for emerging-market equities advanced 1 percent to 1,014.4 at 7:57 a.m. in London, heading for the highest close since Aug. 1, 2008.

Metallurgical Corp. of China, the Beijing-based company that helped build the Bird’s Nest Olympic stadium, sold $5.1 billion in Shanghai and Hong Kong in September. Banco Santander (Brasil) SA, the Sao Paulo unit of Santander, Spain-based Banco Santander SA, held Brazil’s biggest initial offering ever in October. The bank raised a total of $8 billion as underwriters exercised an option to buy more securities in November.

The average developing-nation offering beat the MSCI Emerging Markets Index by 39 percentage points in 2009, data compiled by Bloomberg show.

Shanghai Stock Exchange IPOs may more than double to 380 billion yuan ($56 billion) this year and rise 96 percent to HK$370 billion ($48 billion) in Hong Kong, based on a Dec. 21 report from Ernst & Young LLP and data compiled by Bloomberg.

China’s Sales

The combined value of China’s sales would be more than twice the $40 billion to $50 billion in the U.S. forecast by London-based Barclays last month.

Agricultural Bank of China in Beijing may raise 200 billion yuan this year, Li Fuan, head of the China Banking Regulatory Commission’s banking innovation department, said last month, the Securities Times in Shenzhen reported.

United Co. Rusal, the world’s largest aluminum maker, will sell a 10.6 percent stake for as much as HK$20.1 billion, a statement filed with the Hong Kong Stock Exchange said last week. The company controlled by billionaire Oleg Deripaska would be the first Russian stock sale in Hong Kong. Paulson & Co., the New York-based hedge fund run by John Paulson, and NR Investments Ltd., the firm of Nathaniel Rothschild, will buy shares, the prospectus showed.

Rusal, Alcoa

The HK$9.10-to-HK$12.50 IPO price range would give Moscow- based Rusal a so-called enterprise value, or the sum of its stock and debt minus cash, of 10.6 times to 13.3 times its 2010 forecast earnings before interest, taxes, depreciation and amortization, said two people familiar with the information. New York-based Alcoa Inc., the biggest U.S. aluminum company, has an enterprise value-to-estimated 2010 Ebidta ratio of 9.25, according to data compiled by Bloomberg.

India may raise 256 billion rupees ($5.5 billion) selling stakes in 10 state-run companies to reduce its holdings to 90 percent, according to London-based Standard Chartered Plc. The offerings may include stock in New Delhi-based MMTC Ltd., the state-owned trading company; Hyderabad-based NMDC Ltd., the nation’s largest iron-ore producer, and Neyveli Lignite Corp., a power producer in Chennai.

Poland may raise a record 30 billion zloty ($10.6 billion) from stakes of state-owned companies, estimates by the local unit of Milan-based UniCredit show. The government picked Credit Suisse Group AG of Zurich and New York-based Morgan Stanley to manage the international portion of its IPO of Warsaw-based PZU SA, the nation’s biggest insurer, the Treasury Ministry said last week.

Stock Valuation

Investors are paying the most for profits in developing nations since April 2000, with the 767 companies in the MSCI Emerging Markets Index valued at an average 24.2 times earnings, data compiled by Bloomberg show.

“There are some clouds on the horizon,” said Marc Faber, 63, who publishes the “Gloom Boom & Doom” newsletter. “For sure, the supply of equities will go up because the valuations are up,” he said in a phone interview from Da Nang, Vietnam.

Emerging-market companies are the best stocks for this year because earnings will increase faster than in industrialized countries, said Jeffrey Palma, the head of global-equity strategy for Zurich-based UBS AG.

China’s gross domestic product will expand 9.4 percent in 2010 and Brazil’s will rise 4.75 percent, economists’ estimates compiled by Bloomberg show. That compares with 2.6 percent in the U.S., 1.2 percent for the U.K. and 1.35 percent in Japan.

Profits in the MSCI emerging index may climb to $74.92 per share from $41.83, according to data compiled by Bloomberg, reducing the price-earnings ratio to 13.4.

First-Day Trading

“Emerging markets are really the only place to be,” Palma, based in Stamford, Connecticut, said in a Bloomberg Television interview last week. “The developed markets are really going to lag from a growth and an earnings standpoint.”

Some of last quarter’s sales suggest investors don’t expect outsized gains. China CNR Corp. had the mainland’s smallest first-day trading gain of 2009 last week, as the Beijing-based maker of rail and subway cars rose 2.3 percent on Dec. 29. Shanghai-traded stock of China Metallurgical closed at 5.22 yuan on Dec. 23, 3.7 percent below its IPO price. Its Hong Kong shares have fallen 29 percent since the initial sale.

“There’s a lot more of supply coming from emerging markets,” said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers LLC, a unit of Prudential Financial Inc., which oversaw $641 billion on Sept. 30. “That’s probably going to have a bit of a negative impact upon prices.”

US $, Commodity, Stock Markets

I'm under a bit of time pressure this week due to very tight schedules. Got to keep things very short and sweet.

(1) US $ has been strengthening but S & P 500 has been strengthening as well, positively(economic strength) rather than negatively(fear) correlated.





(2) While US $ is strengthening, the commodity index has been making moves similar to Shanghai Composite Index, rather than going down(taking US $ hedging out of equation). My take: both markets are consolidating before moving higher because of stronger economic recovery anticipation.




Why? My views:

(1) Strong Chinese economy = Strong commodity index = strong economic activities = strong global economic recovery

(2) Strong global economic recovery = stronger US economy = earning growth

(3) Stronger US economic recovery = potential interest hike = stronger US$ index

Some postulated strong US $ index = weak emerging markets because of potential strong profit taking and repatriate them back to the US. I could not subscribe to this view because:

strong economic recovery = strong emerging market(BRIC will be the leader).

Good Morning 2010.

Added $ 888 saving for January 2010.

Good morning 2010.

When I was young, I hope time to pass a lot faster. The logic behind that thinking was as an adult I have financial freedom and do whatever I wanted to do. As time passed by, it's a little scary because I'm getting older, I hope time can pass a lot slower. The logic is completely opposite - too many things to do, too little time left. Now I know why older people are more cautious, they know making mistakes will cost them a lot more when they don't have that much time left.

The book of Security Analysis outlines many things, many are outdated but it leaves some very powerful timeless principles - Mr. Market and Margin of Safety.

I'm applying the margin of safety to as many situations as possible including blogging. Yes blogging. I can put up hell all lot of disclaimers, you alone responsible entering buy or sell activities after reading my blog. Consult your investment advisers, bla....bla.....


When I post certain ideas or stocks, margin of safety is my priority number 1. I'm trying my very best to avoid large or permanent capital losses(in case they act on my writings). If you watch the movie of The Guardian, the legendary Coast Guard Rescue Swimmer did not count how many lives he saved but lost. Despite of I'm trying my best to avoid dogs, I still met a few. My biggest dogs so far are Axiata(-47%) and MUI Industries (-25%) and Parkson (-8%). All are still pretty much undervalued in my opinion. Axiata sellers will soon exhausted themselves, sellers have been selling for almost 1.5 years now. There are many quiet accumulators of MUI shares over a period of 2 years, the pattern that was very similar to PPB before the share price rocketed. MUI cut down their debts from 1 billion to 300 mln, it's a matter of time this debt will go to Zero. Not defending myself but reinforcing my conviction and that's why MUI is still in my portfolio.

The existence of this blog is to prove one point. In order to make money out of the stock markets, there are no short cut. Research, research, research. Period. If we fail to research, we plan to fail. Research does not mean we need a Bloomberg terminal. If you look at my works, all of them are from public domains -- annual reports, on-line news, blogs, 1 or 2 newsletters, Nexus chart(free version) and sometimes stock brokers' reports(90% of them are useless).

I only have two main tools, a financial calculator(mostly arithmetic) and spreadsheet(mainly used to tabulate data).

Don't get me wrong, I'm not tooting my horn on the first day of a new year. My aim is to share, to be one of the 3% survival of stock markets, we need to have passion to do ordinary things well and not doing extra ordinary things.