OSK Stock Picks for June 2011

The KLCI performed as expected as a reasonable stream of results provided a stable floor while strong news flow drove up Bigger Caps. For June, while the 4 upcoming IPOs and the KLCI review may draw some attention, OSK believe all eyes will be on the potential tussle between CIMB and Maybank over the control of RHB Cap.

OSK Research

Outlook: Possibly not as quiet as expected

With a total of 4 IPOs going for listing in June and July, it was expected that the market to be somewhat quiet as investors stored away funds to subscribe to the IPOs or buy into them when traded. Despite concerns that the amount of funds raised by the 4 IPOs, namely UOA Development, MSM Malaysia, Axis International REIT and Bumi Armada, would suck the liquidity out of the market, but the amount of funds (RM7.7bn) is far less than that raised in 2010 with the listing of MMHE and Petronas Chemicals (RM14bn). Thus, there should not be much of an issue on the liquidity of the market post the 4 IPOs.

Funds to be raised by IPOs in 2011 (Source: Company Data, OSK)

Together with the KLCI review

Another market's attention factor is the upcoming KLCI review, which are to be announced on 6 or 7 June and become effective in the 3rd week of June. In this review, OSK see MMHE and UEMLand possibly replacing PLUS and MAS, which will be privatized and has fallen below the Top 40 stocks by market cap respectively.

OSK Research, Bloomberg

Banks and Situational

Given what may still be a lackluster broader market in June, we are focusing on a number of situational stocks that should see better news flow during the month.

1. First, we have UEMLand who will likely joining KLCI before end June.
2. We also have KimLun Corporation which may see a pick up news flow on Iskandar Malaysia during the month.
3. Next, we have Khazanah's Pos Malaysia stake sale completed in the 3rd week of June coupled with details of what DRB-Hicom plans to do with the company.
4. Finally, we have 2 smaller banks, namely RHB Cap and Alliance Financial Group that should see sentiment on improved M&A rumors.

Source: OSK Research

Bursa Malaysia: e-Share Payment

Do you know that Malaysia now has two types of dividend? In default, listed companies are giving away dividend in cash. But, this kind of scenario has been changed, whereby shareholders are sometimes are given the "share-dividend" instead. Maybank rocks the market last year by purposing a share-dividend plan, in contrary to the usual cash dividend. Then, few listed companies are following the latest trend. Here, let us know more about scheme.

Similar to eDividend, one of the main objectives of implementing e-Share Payment is to promote greater efficiency of the payment system which is aligned to the national agenda of migrating to electronic payment.

What is e-Share Payment?

It is a service provided by all stockbrokers for the purpose of:

1. payment of share sales proceeds by the stockbroker directly into your bank account; and/or
2. providing an option for you to initiate payment via e-channels (e.g. Internet banking, mobile banking, ATM) or to authorize the banks where you maintain your bank account to allow the stockbroker to debit your bank account for the purpose of share purchases

Why should shareholders subscribes to the facility?

• Convenience of electronic settlement (eliminates the need to collect and issue cheques);
• It eliminates the need to travel to the bank or stockbroker;
• Funds will be made available in your bank account on the same day (T+3); and
• Incidents or misplaced, lost or expired cheque can be avoided

How do I subscribe?

You must complete the relevant prescribed form and submit it together with the required supporting documents to your stockbroker. Your stockbroker would then verify your particulars and signature and update your payment records accordingly in their system under e-Share Payment.

What supporting documents are required?

When providing your bank account information for e-Share Payment, please bring along the following:

• Copy of MyKad
• Copy of your bank statement / bank saving book / details of your bank account obtained from your bank's website that has been certified by your bank.

Which types of bank accounts are allowed?

Any saving or current accounts are allowed. However, investors can only use one bank account for trade settlement for each trading account maintained with a stockbroker.

Can I provide a separate bank account for each of my trading accounts if I have more than one trading account?

Yes, if the trading accounts are with different stockbrokers.

Is there any transfer limit?

There is NO transfer limit for both crediting of sale proceeds and auto debit. For payment of purchase, the transfer limit via e-channels is set by the individual bank. Please contact your bank in the event you wish to request for a higher transfer limit.

Will the stockbroker charge me?

This facility is offered by the stockbrokers FREE. While the auto debit facility is also offered free, stockbrokers may levy a penalty of up to RM10 if the transaction fails due to insufficient funds in you designated bank account.

Can a payment be made to/from a third party bank account?

Or, my own overseas bank account?

No, it must be under your own name and it is a Malaysian bank offering MEPS IBG service.

Can I cancel or terminate my e-Share Payment facility and how do I go about doing it?

Yes, you can do so by contacting your stockbroker and completing the e-Share Payment termination form.

If I close my stock trading account, will the e-Share Payment facility be automatically terminated?

Yes.

Source: Bursa Malaysia

Fun Outings to Crap Headquarters 1: Tesco

An hour or so out of London, in the commuter belt, is a place called Cheshunt. It is home to the world’s crappest corporate headquarters. They belong to Tesco and they're situated in a light industrial zone, next door to Monster Gym, the first American style warehouse gym in the UK (satellite image here and google street view here)

TESCO: A RIGHT SHITHOLE

This photo was taken in 2009, and at the time I was trying to sell Tesco esoteric financial derivatives. I sat in a room with someone from the treasury and suggested she should consider entering into a large transaction which, at the time, I thought to be in both our interests. She didn’t dig the idea, but appreciated the attempt. Innovation, she said, was what Tesco was all about.

Looking back, I feel privileged to have walked the crap linoleum floor of the world’s crappest corporate headquarters, to have seen the crap canteen plonked in the entrance lobby, and the crap cramped desks of the employees that run one of the world’s largest retailers. If nothing else, I was impressed to see a company truly living its values.

I had a reason to be there, but why would you want to go there? I think it’s worth a visit because Tesco is a key node in the global trade in consumer goods, and it’s startling that such an enormous task gets done in such a mundane setting.

Retailers, much like banks, act as intermediaries, but where banks act as intermediaries in investment goods, retailers act as intermediaries for consumption goods. As such, they are key gatekeepers between the world’s producers and us. Globalisation of consumer items, as it were, gets mediated through them.

LET ME INSPECT YOUR GOODS

In particular, globalisation gets sorted out in this warehouse, across the road from the headquarters. It’s where producers bring goods that they want Tesco to stock, to see if they make the cut. My mate Charlie has been in there, once upon a time when he was trying to start a business reliant on the consumer market. He tells of the horrors of that experience, watching a team of four inspectors move along the aisles, looking at proposed products. One is a product specialist. One is a floor layout specialist. One is a lawyer. One is a health and safety professional. Charlie has an entertaining tale, but it ends in tears and personal bankruptcy, which is one reason he ended up alongside me, trying to sell derivatives to pay off his debt.

Tesco may not have bankrupted you, but everyone has their connection to it, from fruit farmers in South Africa to London junkies. So go see Tesco and pay your respects to the most utterly shite, yet perhaps most authentic, corporate headquarters in the world. Take a photo, and if you see Elma, tell her Suitpossum says hi.

New Fund: AmAdvantage Brazil

If you are a football fans, sure you know at least a bit about Brazil - the country of football. Almost everyone in Brazil knows football, male or female. Brazil is going to host the FIFA World Cup. But, did you know that Brazil is one of the top emerging markets in the world currently. BRIC, which comprise of Brazil, Russia, India and China is the main growth engine of the world now. Do you want to invest in the mighty Brazil? This is the only fund available in the market that invest directly and solely in Brazil. Let's check this out.

AmAdvantage Brazil fund is managed by AmInvestment Services Berhad. This is a feeder fund, which will invest a minimum of 95% of Fund's NAV into the HSBC Global Investment Funds-Brazil Equity (Target Fund), a sub-fund of the HSBC Global Investment Funds domiciled in Luxembourg.

The fund is suitable for an investor seeking:

• Long Term capital growth on their investment,
• Participation in the upside potential of the Brazilian market,
• Medium to High risk investment vehicle.

The Target Fund:

It was launched on 22 December 2004 and the total fund size is USD 3.08billion as at 30 October 2010.

The Investment Manager will not, in response to adverse market and other conditions, take temporary defensive positions that are inconsistent with the Fund's investment strategy. This implies that this is a passive fund which mirrors the performance of the Target Fund.

This means that any temporary defensive positions taken in response to adverse market conditions, if any, will be taken at the Target Fund level.

As such, investors need to monitor the Fund's performance to exercise their own discretion on whether to redeem from the Fund.

Download prospectus

 

Source: AmMutual

Is a voluntary debt restructuring really voluntary?

Four years ago, in March 2007, three months before the start of the credit crisis, I tried to make my voice heard regarding the potential impending crisis in the credit derivatives world. I have written extensively about this in earlier entries, see Who listens to academics?, and my message from that blog can be summarized with the passage:

…..I am just not convinced that the typical credit derivative is either (i) traded in a satisfactorily liquid market, (ii) well defined, or (iii) understood by all participants……

Most of you know that the first and last points have come true (clearing houses to replace OTC trading in CDSs and investors such as the commune of Narvik in Norway deafulting on their CDOs) but the second point has not been raised very much in media. The point was raised in my attempted newspaper article however:

…..Moreover, there is evidence of the legal/operational interpretation of the contract-details occasionally being open for discussion. For instance, the exact definition of what should count as a credit event is sometimes debated, and in some cases the CDS owners have even seen their contract suddenly become worthless due to an unexpected total debt-repayment by the underlying firm!…..

Let us fast forward to May 2011! Now, the kind of problem discussed above, exactly, is potentially faced by the CDS owners that have bought protection against a Greek default. In fact, the so-called voluntary debt restructuring that EU-officials talk about might not trigger an actual default in the CDS-contract! At least that is a risk that is dicussed in the CDS community. And that would mean a zero pay-out to the insurance buyer and a disqualification of the entire sovereign CDS market! Ecco, all my three pre-crisis predictions have come true!

I find the whole thing slightly worrying though and I wonder how the CDS traders treat this “problem”. At the moment the Greek sovereign 5Y CDS spread is 13% and one asks oneself how high the spread would be without the risk of a non-payment? I must also question the logic behind the term “voluntary restructuring” and the extent to which such an event is really “voluntary”. I mean, if this was voluntary, why would not bond holders in general gladly extend the maturities of their bonds without any compensation as soon as they have the possibility to do so (such a maturity-extension is most likely what such a restructuring would mean)? To me, such an event is not voluntary at all and simply equal to a credit event!

Government to increase electricity tariff? And, RON95 price? (24 May 2011)

Before Government making the decision on two of the most important necessity of Rakyat, let us make a guess first. I know this would be a hot debate on whether Government should increase the electricity tariff and RON95 petrol price. Actually, both are linked closely with crude oil - the black GOLD.

Electricity Tariff

For TNB, the revise is crucial for its sustainably of the company to continue electrified Malaysia's economy. In fact, this is a long overdue issue, delay and postpone until now. But, why now? I believes that Government, initially wanted to review the tariff once the much anticipated general election. But, the Sarawak state election result could have derailed the early election plan. If we don't review now, TNB may facing financial difficulties which may impact the cash flow and credit ratings of its debts. High natural gas price is affecting the bottom line of the company.

Petrol RON95 price

Comparing to its brother (RON97), we should be more than happy to still pumping at current price. The last review is on December 2010, and the 6 months grace period will end by June 2011. In other words, next month (June 2011) would be schedule to revise the price again. Actually, this is not a surprise move given that the Government had already gradually cutting subsidies since last year. And, he did mentioned that petrol price will be subsidy-free by 2013.

Conclusion by Finance Malaysia

Confidently, we predicts that Government will revise both electricity tariff and RON95 price UPWARDS. Inflation will shot up to 4% this year. BNM will continue its OPR hiking. Believe it? You can watch TV news and advertisements these few days. Government is "previewing" the increase, letting Rakyat to welcome it mentally. Not enough? That's why we saw news from economists saying that "Malaysia will Bankrupt, if Government do not cut subsidies". BNM governor is embracing the increase, saying "We can ride out high costs".

New IPO: UOA Development Berhad

Being one of the most established developer in Klang Valley, UOAD is going to be a darling property stocks for investors once listed. The strong "UOA" brand name as a developer of high end residential and commercial properties, makes it stands out from its competitors.

What's so interesting about UOAD?

Based on the IPO price of RM2.90 per share, the company is listing with a market capitalization of RM3.5bn, which eventually will place UOAD to be the 4th largest property company in Bursa Malaysia. The top 3 are UEMLand, SP Setia and IJMLand.

Don't forget about UOA REIT, which is the real estate investment trust of UOA Group in Malaysia. In other words, whatever properties that was construct by UOAD may inject into REIT one day. With UOAD being granted a "Right of First Refusal" to inject its completed commercial buildings into UOA REIT, it definitely provides UOAD the opportunity to redeploy its capital where the proceeds from asset injections will be re-utilized for future development projects. This would act like a "ready-exit" strategy for UOAD's asset. Not good enough?

Source: OSK Research

By managing its construction works in-house, this gave UOA a very competitive cost advantage, resulting in gross development margins of 50%, which is way above the industry average. They got their own team of architects, planning experts, M&E and civil engineers and quantity surveyor, hence, giving UOAD the edge to respond wisely and promptly to any unforeseen changes.

At last but not least, of course, is UOAD's flagship integrated property development project - Bangsar South. RM8bn, 60-acre located near Federal Highway and Mid Valley. According to HL Research, the land was acquired in 2005 for RM46psf, and its Horizon project has commanded pricing of RM600psf despite its leasehold status. In short, strategic location with huge value enhancement potential.

Fair Value?

OSK gave RM3.57
RHB gave RM3.45

HLIB gave RM2.57

Source: HLIB Research

How to get involved in disruptive finance: The Finance Innovation Lab

Trading floors and paneled offices in Canary Wharf look profoundly hi-tech, and yet they are built on blueprints inherited from the past, in some cases the very distant past. Modern financial institutions like to use the language of innovation, and yet they endorse only a narrow conception of innovation, focused on product innovation. There’s very little tinkering with the base level assumptions from which they are created.

To challenge the deep-level normative status quo requires one to move out of the mainstream salons, and into the fringe coffee shops and covert speakeasies. Close to Moorgate station is one such safehouse, down a small alley, behind an austere wooden door. Enter the Finance Innovation Lab.

The Finance Lab initially started as a joint project by the WWF and ICAEW, asking the question “What does a financial system that serves people and planet look like?” It’s now a forum for an assortment of financial heretics, some outrightly so, others more subtly so. The community is partially centered on an online platform hosted by the Ning social networking architecture, and partly on monthly meetings where ideas are presented and workshopped.

On Friday, I attended the monthly brainstorm. The setting is old English, in a meeting room with gilded portraits, but the content was anything but traditional. The session focused on work by David Braid, showcasing his graphic design visualisations of the financial sector as a tool for altering the way people perceive the sector. Ben Curtis was also there to discuss the PositiveMoney campaign that seeks radical monetary reform. The atmosphere is part collaborative, for people to throw around wacky ideas, and part critical reflection, to bring attention to shortcomings in proposed innovations. Friday’s session saw both impulses in action. For my part, I wanted to see David’s financial maps interpreted by graffiti artists on the walls of the urban downtown, and I wanted to see a more robust proposal by the PositiveMoney guys.

In the end, the sessions are not designed to be prescriptive. Presentations are used to set up loose themes as a backdrop for open-ended explorations. Key topics that have developed over the months include complementary currencies, social finance innovations, methods for dealing with complexity in finance, building resilience and dealing with risk, grassroots finance and mutual credit systems, social enterprise and community investment, behaviourial economics, environmental economics and the art of dealing with externalities, crowd financing, religion and philosophical aspects of finance, alternative conceptions of value, alternative metrics of economic wellbeing, and alternative goals for economic systems.

In part, the specifics of what is discussed doesn’t necessarily matter. More important is the fact that you’re able to do it, and to meet others who are doing it. Ideas have a way of fertilising other ideas and creating mutations. It’s the Silicon Valley effect. You hang out with people like Bertrand, Eli, Tav, Nick, Mary, Timothy, Max, Deeti, Giles, Rachel, Jen and loads of others who are doing similar things, and your own ideas get sharpened and informed in light of theirs. 

There’s also no single objective. Some have a particular agendas. Some frame their goals in utopian or moral terms, whilst others are more hard-edged or pragmatic. There's a general sense of trying to make the financial system better. For me though, the objective is disruption, change for change’s sake. I think the true value of these forums is to workshop ideas that can cause shit, for better or for worse, and see if the resultant disruptions, outcomes not strictly known, could potentially lead somewhere worthwhile. I like the idea of a creative dialectic to keep the system on its toes.

Over the next few months I’ll profile some of the movements I've encountered at the Finance Lab in this blog, some of the fascinating thinkers and some of the shit-stirrers. Keep tuned, and sign up.

New Fund: OSK-UOB Multi-Asset Recovery Strategy Fund

With the ongoing global economic recovery and the various opportunities created from the vast stimulus packages put forth by governments around the world, we are currently witnessing differing levels of economic expansion across all economies. And different asset classes such as equities, bonds, commodities, currencies and cash perform differently under different stages of economic expansion.

Hence, OSK-UOB now offer investors a fund that will capitalize on the potential opportunities arising from the different market conditions resulting from this economic expansion phase by dynamically investing in multi-asset classes that are expected to do well in specific market conditions.

The OSK-UOB Multi-Asset Recovery Strategy Fund is a fund-of-funds which aims to achieve long term capital appreciation by investing in a portfolio of exchange traded funds (ETFs).

The fund aims to achieve its objective through a portfolio of ETFs chosen from 5 major asset classes, i.e equities, bonds, commodities, foreign exchange (currencies) and money market instruments selected from the global markets. The fund's name reflects the fund's strategy that capitalize on the recovery of the global economy by dynamically investing in multi-asset classes through a portfolio of ETFs.

How much return?

This fund is benchmark against an average annual return of 8.00% over the long term. This is the targets of the fund.

Investor Profile?

This fund is suitable for investors who:

• want to capitalize on the recovery of the global economy with an investment that invests dynamically in multi-asset classes through a portfolio of ETFs
• seek capital appreciation
• have a medium risk tolerance
• have a long term investment horizon

Source: OSK-UOB Unit Trust Management Bhd

Click here to download prospectus

New Fund: Am-Mateen Asia Pacific Equity Fund

Launched on 5th May 2011, AmIslamic Funds Management Sdn Bhd presented to investors an opportunity to participate in the growing Asia Pacific region and also investing according to Shariah principles.

The Fund is a Shariah compliant equity fund that seeks to grow the value of investments over the medium to long term by investing in listed equities, equity related investments and other approved instruments across Asia Pacific (ex-Japan) that conforms to the Shariah investment guidelines.

Strategy

The investment style is active and focuses on strategic structuring of the portfolio. Meanwhile, the investment strategy is to select a core portfolio of low volatility and high dividend stocks with a 3 year time horizon coupled with a value approach to identify undervalued companies due to economic cycles which have been ignored relative to historical patterns.

However, the Manager may adopt temporary defensive strategy by maintaining 100% of the fund's NAV in liquid assets/cash weightings that may be inconsistent with the Fund's principal investment and asset allocation strategy.

The countries in which the Fund will be investing includes but are not limited to Malaysia, Hong Kong (including H-shares which refer to companies incorporated in mainland China that are traded on the Hong Kong Stock Exchange), Korea, Pakistan, Philippines, Singapore, Taiwan, Thailand, Australia, Indonesia and New Zealand.

Asset Allocation

• 70% - 95% in equity and equity related instruments
• 5% - 30% in liquid assets

The fund is suitable for investors who:

• want investment exposure to Asia Pacifc (ex-Japan)
• seek steady growth-potential capital appreciation with lower volatility
• have medium to long term (3-5 years) investment horizon goals

Interestingly, the base currency of this fund is USD. As such, the initial offering price is USD 0.2000.

Source: Am-Mateen Asia Pacifc Equity fund prospectus

Click here to download the prospectus.

3 Hints given by BNM (16 May 2011)

Bank Negara Malaysia (BNM) hiked the OPR by 25bps to 3% on 5 May as what some analysts said "Surprising". The OPR hike was a pre-emptive strike on inflation pressures as the output gap closes. Many analysts are expecting hikes to resume only in July as inflation remains largely supply side driven. However, BNM seems to act before demand pull pressures dominate and before the output gap turns positive. In our view, the OPR and SRR hike is indicating two things here.

Hints #1

Inflation is going to threaten the Malaysian economy in the near-term (at least). Recent increase in prices of petrol and sugar will further accelerate the numbers. With ongoing efforts by Government to reduce the subsidies, inflation numbers for sure will gone up.

Citi Research: Regional Policy Rates as at 10th May 2011

Hints #2

Related to inflation also, BNM is trying to reduce the increasing food and resources prices. If we can reduce the import price, by having a stronger currency, this would be a wise move. So, BNM is trying hard to cramp down our money spent on these import items. Not by reducing the quantity of imports, Malaysia are buying at a cheaper price. How to that? Of course, by raising the OPR rates, which will lead to a stronger currency RM.

Citi: Regional Currency Performances as at 10th May 2011

Hints #3

Maybe, BNM foresees that Malaysia economy is going to face some real challenges (Asian financial crisis?). If the situation really turns bad in a year or two, how are we going to reduce the rate to spur economy given the current low rates? We must have room for BNM to decrease the rate by that time. That's why BNM so pro-active now?

The Politics and Culture of Social Finance: Big Society Bank

London is the home to a small but growing ‘social finance’ community. It’s an imprecise term, but in general social finance is seen to encompass finance for social causes, finance for public services, finance for social enterprises, and finance for vulnerable communities. That covers a pretty wide scope, ranging from crackpot schemes to move back to a barter economy, all the way to mainstream debates about alternative finance sources for public services.

On Wednesday I attended PopSe!, a ‘popup think-tank’ on social enterprise. The theme of the day was social finance, and in particular, the issues around the UK government’s plans to set up the ‘Big Society Bank’.

That’s a pretty politicised name for a bank, and gives rise to interpretations of it being the thin edge of a wedge the government is promoting to take the slack from its public service pull-back. To be accurate though, the Big Society Bank is not really a bank. It’s more like an investment fund, and it will start with £100 million, to be used for the purpose of providing wholesale finance to other social finance organisations. In other words, it’s supposed to be a financier for social financiers.

In the grand scheme of things, a hundred million pounds is pretty tiny, but a handful of mainstream banks have pledged to put cash in as well. All this raises fears of it becoming a window-dressing operation for banks’ CSR departments, as well as the government. The murky political undertones, and it’s potential to be used as a means to change in the culture of social services, means there’s a fair amount of skepticism about this new ‘social investment bank’.

At Wednesday’s discussion session, participants expressed concern at the lack of specific detail on what the bank’s remit was. It’s supposed to support social financiers, but will that include credit unions and community development finance institutions – CDFIs? Would it really support existing social finance institutions, or would it actually compete with them, as some fear. We wondered who would get employed there – would it be staffed by jaded ex-public sector employees, or ex-investment bankers carrying sad tales of emptiness in the fast-lane, in search of something meaningful?

All these details will be ironed out in due course. What I’m more worried about is the culture of social finance: The problem is that it’s still so bloody un-sexy, bogged down in public sector buzzword speak, phrases like ‘enhanced service delivery’ and ‘outcomes-based commissioning’. There’s little in the way of hard technology and cowboy venture capitalists. Instead, there’s abstract concepts and social metrics designed by people with concerned looks on their faces. It’s self-conscious, and that makes me suspicious to its potential for overhyping itself.

My last question at the meeting remained unanswered: What relevance does the Big Society Bank have to large-scale housing, health and education needs in the country? A one hundred million fund ain’t even going to come close to touching those issues. Social finance needs to be upscaled beyond being an add-on to the small-scale social enterprise sector. It needs to move beyond Bono sunglasses and Apple Macs. It needs serious realism.

On the trail of the Living Wage: Suitpossum does Centrica

Last week Boris Johnson announced the Living Wage to be £8.30 for London. The Living Wage campaign, started by Citizens UK, recently celebrated its tenth year of trying to boost the incomes of those on the lowest rungs of enterprise. One way to speed up the campaign is through shareholder activism, buying a share and attending the annual general meeting of a company to raise the issue.

On Monday, I attended the Centrica AGM on behalf of advocacy group FairPensions, to see if the board would be willing to commit to the Living Wage. Centrica are the guys that run British Gas, and they have a large number of employees in lower salary brackets, for example, all the call-centre staff.

You’re playing to a tough crowd when you do shareholder activism. Think about who actually attends a three hour meeting starting at mid-day: Most are loyal supporters of the company and many are former employees, now retired. They have a slightly sycophantic edge, especially considering part of their self-identity is wrapped up in their years of service to the company. It’s easy for the chairman to turn them against anyone raining on the parade.

THE GUYS WHO RUN BRITISH GAS

So my strategy was as follows: 1) Wear a smart suit, 2) drop in Boris Johnson’s name to deflect suspicions of left-wing status, 3) suggest the Living Wage is becoming recognised as an important mark of commitment to Corporate Social Responsibility, and that, as such, it’s an important business decision, and 4) that as a shareholder, I believe it to be an issue which needs to be carefully assessed by the board.

Those should prevent you from being seen as a raving radical quack, and forces a serious response from the board. Unfortunately, it doesn’t guarantee you anything of substance: In his response to my question, Chairman Sir Roger Carr gave a true politician’s answer, asserting that the company paid more than the minimum* wage, whilst avoiding direct mention of commitment to the Living Wage.

There was a tea afterwards, in which the directors mingled with the shareholders. I used it to chat to three of the directors, including the head of the American business. Treat them with respect and they’re forced to do the same back. He assured me the Living Wage issue would be brought up at their next CSR meeting.

Shareholder activism is but one method of getting yourself heard, and it has its limitations, but it can be a surprisingly effective way to get up close and personal with senior management of the world’s largest companies.

*(the minimum wage is considerably lower than the LivingWage)

Minjian jiedai på svenska?

Gillian Tett, journalist på Financial Times, skrev en intressant artikel om ett kinesiskt fenomen kallat minjian jiedai för ett år sedan, Grey areas in Chinese loans give pause for thought.

Minjian jiedai är tydligen någon sorts förbjuden ”under-bordet” långivning från förmögna kineser till små och medelstora kinesiska företag. Mestadels är det tydligen kortfristiga lån och själva transaktionen mäklas av en mäklare över mobiltelefon. Anledningen till att denna typ av utlåning florerar (frodas?) i Kina, är de välkända problemen för kinesiska företag att få tag på kapital.

Jag har skrivit om relaterade frågor för mikroentreprenörer i min artikel Structured Microfinance in China Min tanke här och nu, handlar ej om mina strukturerade mikrolån (MiCDOs) utan snarare om de tigerlån jag tjatat om här på bloggen vid tidigare tillfällen, se Är ni trötta på låga bankräntor?

Det finns uppenbarligen en koppling mellan de (hypotetiska) svenska tigerlånen och de kinesiska minjian jiedai lånen i att de båda två undergräver bankernas ”monopol” på utlåning till mindre företag. Tigerlånen fokuserar inte på förmögna investerare utan på vem som helst med sparbehov men det skulle i alla fall vara spännande att få veta om förmögna svenskar i någon större utsträckning lånar ut till mindre företag. D.v.s. existerar minjian jiedai i Sverige?

(Enligt min kinesiska doktorand ska det vara jiedai, inte jeidai som Tett skrev i FT, dvs ”lån bland folk”, men det spelar kanske mindre roll……)

Insurance: New Bank Negara ruling to impact claims ratio? (10 May 2011)

Now, every cars can get covered...

RHB Research:

Bank Negara Malaysia (BNM) announced last week that effective immediately, members of the public will be able to obtain motor cover from all general insurers and their branches as well as at Pos Malaysia and its branches nationwide. All general insurers are committed to provide motor cover to all motorists including the "displaced vehicles" which generally comprise private vehicles exceeding 10 years old and motorcycles currently underwritten by the Malaysian Motor Insurance Pool (MMIP).

Obligation to provide cover with NO excessive loading

Based on this new ruling, general insurance players are obligated to provide cover to all insurance seekers, without excessive loading and cross selling of other classes of insurance to mitigate the risk. Although, general insurance players could still load the policies, albeit at a more reasonable amount and not 200-300% as previously charged by the MMIP for the so-called high-risk "displaced vehicles" or vehicles which are aged 10 years and above.

Finance Malaysia: Good to car owners, Sorry to insurers...

According to analysts, as a whole, this new ruling is negative for the industry. Although, this is good to owners of old cars, insurers is at the losing side. Insurers are facing with a probability of higher claims, coupled with a lower premiums charged. Of course, this would be underscoring the bottom line of insurance companies. According to RHB reseach, they are forecasting a higher claim ratios on insurers as follows.

RHB research: Changes in claims ratio and earnings

Short-term pain, Long-term gain

However, Finance Malaysia believes this is just a short-term disadvantages to insurers only. Do you still remember the new motor framework which will allow insurance companies starting 2012? That will allow insurance companies to increase the motor policy premiums in the long term according to the claims experience of the industry. More or less, this will balanced out the current negative implications once the gradual liberalizations begins next year.

Source: OSK and BNM

Source: OSK and BNM

OSK Stock Picks for May 2011

The KLCI lagged the region in April as it suffered from the fallout ahead of the Sarawak state elections. With that behind us, OSK see the market recovering in May as they believe the 1Q2011 will at least meet downbeat expectations after the past 4 quarters of disappointments. With the potential for reasonable results, we believe the market will shift back to fundamentals and look back at Big Caps.

KLCI was a laggard

With the KLCI recording a total return of -0.25% in April, Malaysia's standing YTD slipped significantly to being the 4th worst performing market from being the 4th best. As mentioned earlier, the key drag on the Malaysian market was the Sarawak state elections. While the market had put in some gains ahead of the Invest Malaysia conference on 12 and 13 March, by these dates concerns that the incumbent Barisan Nasional would fare below expectations in the state elections led to significant profit taking in the Malaysian market. Towards month end, with the BN retaining its two thirds majority in Sarawak, there was a modest recovery given continued strength in global markets.

OSK: Total Returns year-to-date

For April, no sector strongly outperformed or underperformed with the biggest gainers being the Gaming and Consumer sectors driven by Genting and F&N, while the biggest losers were the sectors hardest hit by the Japanese calamities namely Autos and Technology with drops seen in UMW Holdings and JCY International.

OSK: FBM100 gainers and losers in April 2011

Strategy - BUY Big Caps, Trade property

After October 2010 which saw a jump in investors sentiment on property counters spurred by the 3 M&A proposals of UEM Land-Sunrise, IJM Land-MRCB and Sunway-Suncity, news flow on property counters has generally tapered down. We believe this is set to change soon with the likelihood of more announcements on Government land developments around the Klang Valley such as Sungai Buloh land, the Sungai Besi airport and others as well as annoucements relating to developments in Iskandar Malaysia. As such, we would advise investors consider trading in property counters with good Government ties such as SP Setia, UEM Land and Glomac.

OSK: Top Picks for May 2011

Inline with the view that Big Caps could do better in May with the focus back on earnings, we shift our Top Buy calls for May all on Big Caps. We pick our Top 2 banking buys CIMB and Maybank coupled with our Top Telco Buy Axiata. We include our Top Transport buy call AirAsia which just completed an analyst corporate visit in Bangkok and Jakarta in preparation for the upcoming listing of its Thai and Indonesia associates. And round it all off with UEM Land which is an excellent proxy to the upcoming potential news flow in the property sector and also as recognition to its likely inclusion into the FBM KLCI in June. Do note that aside from AirAsia, all the other 4 stocks have been laggards or market performers over the past 3 months.

Source: OSK Research report

Financing climate innovation: WRI and the bounty system

Last week the World Resources Institute (WRI) posted a challenge on Innocentive, the online innovation reward website, offering cash prizes to individuals for solutions to climate change adaption issues. There is a total of $10 000 up for grabs if you can articulate a clear and actionable vision for climate change communication strategies in vulnerable communities.

WRI’s approach adds to the broader debate on how you finance climate innovation. There’s much discussion concerning how to deploy money into existing technologies and ideas, but how do you best put money into creating new technologies and ideas?

In issues of strategic concern, governments have frequently used grants, for example, to support universities and research institutes to develop new ideas and technologies. That has the advantage of giving innovators space to develop ideas without an immediate need for commercialisation. On the other hand, government grants risk being too prescriptive: What if the government chooses the wrong initiatives to support, and sinks money into non-starting technologies and concepts?

An alternative strategy has been to encourage private sector involvement in research and development through establishing intellectual property rights regimes and legal patents. These do protect innovators that sink time and resources into R&D from the prospect of others freeriding on the products of that labour. On the other hand, they only do so at the cost of creating artificial monopolies, which can have very detrimental side-effects when it comes to crucial issues of welfare, for example, in pharmaceuticals.

Perhaps the most underused method for promoting innovation though, has been the bounty system – offering prizes to induce people to solve something. Back in the 1700s, the bounty system was used to induce the creation of the first accurate maritime clock that revolutionised ocean navigation. Prizes needn’t be purely monetary though: Academic prizes like the Nobel Prizes have done much to inspire much cutting edge research, providing innovators with goals to work towards.

CREATED BY BOUNTY

Innocentive is an interesting example of the bounty system. Private companies and institutions post challenges, and offer to pay individuals who can solve the challenges. A lot of the challenges to date have been scientific – how to synthesise a chemical component, or how to make fizzy drinks that don’t go flat. It’s a quick and efficient way to hone in on people who are carrying necessary skills and to harness those skills without having to directly hire them. They can be anywhere in the world, but many come from developing countries, providing a potential source of income for bright PhD students.

The obvious shortcoming of any bounty system is that if a problem seems too complex, individuals might not feel it worthwhile to put in time and effort. Many people simply do not have the luxury to commit large energy to something without any guarantee of being paid, so the bounty system probably works best for relatively less complex puzzles.

The World Resources Institute puzzle seems complex enough, but seeks ideas rather than finished technologies. They want bright ideas for “communication platforms that will connect information about local community needs to public and private sector organizations that can provide solutions and support”, so as to improve community resilience in the face of changes brought on by global warming.

At the time of writing, there were about 200 people working on the challenge, with a deadline in June. That theoretically gives you a roughly 0.5% chance of winning, assuming all were equal in their abilities. If you think you have what it takes to turn the odds in your favour, why not join up? Even if you don’t win, it gives you a chance to develop and professionalise your ideas. And, yeah, I get to take a small commission from anybody who wins after reading this blog post.

After Obama K.O Osama...

In fact, this year's Labor's Day is marred with some terrorist-related news. First, UN successfully bombarded a key area of Libya's dictator Qaddafi, killing his son and injuring scores of his followers and relatives. Then, US troops was successfully and secretly raid the most notorious terrorist leader, Osama bin Laden. The whole raiding process was witnessed by Obama and his key personnel in white house. After several minutes of heart-beating attempts, Obama made an historic announcement on Labor's Day: "Today and finally, we defeated Osama bin Laden, the mastermind behind the 9/11 terrorist attack. We had done the DNA on the body, and it was Osama."

Why Obama, and not Bush?

Through 10 years of hunting Osama, ex-US president George W.Bush launched several military efforts. This led to the Afghanistan war and the Iraq war. When Obama took over, all had been settled down until the Libya attack lately. If you ask me, I think it bodes well for Obama's next election campaign not by winning the war, but in winning the heart of people, rejuvenate the spirit of US citizen, and regain the trust and confidence of the world. Obama is the man, simply because his name is almost same with Osama. Even news reporters sometimes wrongly spell out the name and read: "Obama is dead in the latest raid by US". You see?

Life goes on...

As spoken by Obama himself, the war against terrorists doesn't stop here. We will continue our job to assure the safety of the world, and to safeguard the interest of the world population. Share market rose initially after the news, but succumbed to losing ground later. The victory doesn't bring much joy to the share market. Instead, it spurred up the revenge spirit of fellow Osama's followers. Actually, we are now in a very watchful days. Security alerts are at all-time high, especially for US embassies globally.

Economy sense...

US government now can cut down on its budget deficit, by lowering the military expenses. USD may gain some lost ground, after sliding for weeks. A technical rebound on USD could again ignite the flames of currency trading volatility. Locally, it is likely to be downward biased due to lacking of positive news. Traders are waiting for the upcoming reporting season to gauge the entry level. Coupled with some bad news on several financial distressed counters like Sumatec, DBE, Viztel... and skeptical result for Fitters and Ramunia, everyone is staying sideline.

Finance Malaysia opines that we need another victory to boost the market sentiment. How about the victory against Qaddafi?

All these years, Osama is very famous, below is some arts dedicated to him.