Wednesday, September 28, 2011

Foreign Funds Dumping Msia Equities? (Sept 2011)

Local market, view as one of the most defensive market in the world, suffering the same fate as regional market this round. The correction which started early of August had actually hit our shores too. Who say we are in a better position when market downturn? No one raised their hands now. Ha..aaa.


Historically, our local market is very "Dull" if foreigners do not participate here. KLCI shoot up because there is an in-flow of foreign funds into Bursa Malaysia. During that time, we are very joyful and assumed that they're in for long-term (until recently). Don't be "syok-sendiri laa" bro. Investors are here because they want to make profit. After achieving their goals, what would they do? Of course, taking profit (and bring down KLCI) and left our country.

Then, when is the best time to leave?
Now or never. In other words, KLCI went up and go down mainly because of foreign funds. Retail investors definitely do not have the power to muscle the markets. Agree?


Foreign ownership in Malaysia fell to 21.6% in August 2011, as foreigners sold RM3.8bn during that month. Stocks with high foreign shareholding could be vulnerable to a further sell-down in the current negative environment. The said stocks refer to AirAsia, Genting, IJM Corp, CIMB, GenM, Gamuda, in which already seen heavy selling pressure lately.

Source: Excerpt from Credit Suisse report dated 26 Sept 2011

Answering the topic question, YES, foreign funds did sell down on Malaysian equities recently. However, those stocks that were battered down may in for a sharp rebound once foreign funds coming back again. Why? Simply because they selected the said companies for some good reasons, and these reasons would ensure them to re-look again if the pessimism of the market is gone.

Min bokrecension i Ekonomisk Debatt

En resa genom den svenska företagsfinansieringens historia

Så kallade jag min recension av boken Företagsfinansiering: Från Sparbankslån till Derivat av Mats Larsson (Red.).

Recensionen kan ni hitta i Ekonomisk Debatt nr 5 2011 (årgång 39), här. Jag kan rekommendera den som är genuint intresserad av Sveriges finanshistoria (1850-) att läsa denna bok. Den är kanske lite detaljerad ibland men, som sagt, är du genuint intresserad så tror jag nog du blir nöjd med den. Inte minst som det är allmänt svårt att hitta böcker för den historieintresserade finansräven....

Om någon har tips på andra finanshistoriaböcker på svenska eller engelska (eller italienska eller tyska.... :)) så tipsa mig!



http://www2.ne.su.se/ed/pdf/39-5-hb.pdf

Friday, September 23, 2011

Western Debt Crisis: Bursting of Volcano? (Sept 2011)

We cannot deny that we are in for another round of hard times since 2008 global financial crisis. Some experts are saying that we are facing the Great Depression wave coming in the next few months, if no concrete efforts put in by global leaders. Meanwhile, some experts think that opportunities arises again and put off the double-dip recession speculation.



The downgrading of US's AAA rating re-ignite the fears over the sustainability of its sovereign debt. However, please be mindful that US rating remains extremely sound and reflecting a very low risk of default in the long term, still. USD remain the preferred and most widely traded currency in the foreseeable future, and there is no reason to worry about.

Sovereign Risk scaring investors away?
Meanwhile, in Eurozone, the situation remains very complex and greater political will is needed to maintain Euro as regional currency. Between Eurozone breaking up and resolving the situation, which one is easier? Of course, the economic and financial cost of the Eurozone breaking up seems far higher.

Undoubtedly, the "Volcano" is active again now and may burst anytime from now. Unless, we poured ice on it to prevent the crisis. Sorry, we needs ICE-BERG (great efforts) to get through it. Otherwise, we may just let it burst, and start all over again. Not a bad idea though, right?

I can say it that way because I am living in Asia right now. Luckily, Asia is much more resilient comparing to its western friends, partly due to the 1997 Asia financial crisis which make our banking system strong and pro-active now. Our lessons were being taught to western countries this round. Hopefully, they know the root of the problem and tackles it painfully.

Saturday, September 17, 2011

J.P. Morgan's Equity Strategy (Sept 2011)

On Sept 7, J.P.Morgan came out a report titled "Global Markets Outlook and Strategy". Here, we would like to share the equity strategy written, which we think is the most sought after reference for investors to strategize during this uncertain times. Below is the excerpt from the said report:

"We believe perceptions of a US recession will continue to weigh on equity markets and we thus keep a low amount of risk in our equity portfolio and reduce beta to negative."



"The most likely positive catalyst for equity markets in the near term lies with US economic data. This is not happening yet. Our US Economic Activity Surprises Index remains in negative territory, where it has been for 5 straight months (Chart 1). We need to see this index moving to positive territory, and US economic data surprising on the upside, for equity markets to sustain a recovery."

2 reasons why Under-performance
The August market slump saw emerging market (EM) equities and small caps under-performing, exhibiting their traditional high beta during recessions or crises. There are 2 reasons for this under-performance.

  1. During expansion and market rally phase, investors became overweight the assets with the highest beta. The economic turnaround then forces them to get back to neutral, inducing more selling in EM and small caps.
  2. Small caps and EM are both less liquid markets, amplifying the impact of a given amount of selling. This happened even in periods when the crisis emanated clearly from developed markets and not from EM. The beta, position, and liquidity forces dominated the source of the crisis in driving relative performance.

The Strategies...
Rule-based trading strategies tend to perform better in highly uncertain environments. We take more risk on these strategies:

  • A US equity sector trading model based on a combination of sector short interest, a contrarian indicator and 11-month return momentum suggests staying long in Energy and Materials vs. Financials and Staples.
  • Our Cyclical vs. Defensive global sector trading signal based on the monthly change in global PMI is currently recommending an UW in Cyclical vs. Defensive sectors.
  • Our EM vs. DM equity signals based on relative IP growth and 2-month return momentum are currently neutral in EM vs. DM equities
  • Our model for allocating between the US and Euro area equities currently suggests a long in US vs Euro area equities currently hedged


Why chose ASEAN economies vs. China?

  • ASEAN countries are in a sweet spot with inflation below the central bank target zone, strong currencies and healthy growth. Emerging markets for now are a non-BRIC story.
  • We see a high risk of disappointment in China. The consensus view is that growth is the priority. But with wage inflation signaling healthy employment conditions and public concern about the rising cost of living we see a high risk that policymakers focus on price stability rather than growth.
  • China's 2Q fixed asset investment (FAI) to GDP ratio was 53%. The re-acceleration in 2H11 growth is based on affordable housing and FAI projects. The result is FAI to GDP above 60%, a level that could result in more overheating.

UW: Underweight
OW: Overweight

Tuesday, September 13, 2011

New Fund: PB Asia Emerging Growth Fund

Ignoring the volatile and not-so-positive market currently, Public Mutual Bhd launched 3 funds in a row on 6th Sept 2011 to fill investors appetite. They were PB Asia Emerging Growth Fund, PB Bond Fund, and PB Sukuk Fund. Here, we will be only highlighting the equity fund.


PB Asia Emerging Growth Fund seeks to achieve capital growth over the medium to long-term period by primarily investing in the securities of emerging small to medium-sized companies in domestic and regional markets. The fund generally maintains equity exposures within a range of 70% to 98% against its NAV. The balance of the fund's NAV may be invested in domestic and foreign fixed income securities and money market instruments.

Investment Strategy
Generally, companies with reasonable earnings growth prospect are selected. In identifying such companies, the fund relies on fundamental research where financial health, industry prospects, management quality and past track record of the companies are considered. Although the fund is actively managed, the frequency of its trading strategy will very much depend on market opportunities.

What else can the fund invest into?

  • Equity linked Participation Notes (instruments designed to track designated securities)
  • Listed warrants and options to enhance its returns
  • Unlisted equities with attractive potential returns (which are expected to seek listing within 2 years)
  • Futures contracts to hedge against market volatility



Source: Public Mutual website

Monday, September 12, 2011

Why and Why Not Telco pass through the 6% service tax?

Since the very first second the announcement was made, every quarters are fuming on the extra burden they should bare if it goes through. Here, it involves everyone in Malaysia, even foreign workers who are mostly prepaid subscribers. On this topic, Finance Malaysia has some words to say.

Picture taken from bigmacky.wordpress.com


In this modern world, mobile phones has become a necessity to us. Some may say: "I can sleep without pillow, or lost my wallet, but I cannot separate from my mobile phone". As such, does it mean that telcos can held you "ransom" on using their services? Since this is called "service tax", did telcos do their part in providing the good services (if not the best)?

3 Reasons why Telcos should not pass through the 6% service tax?

  1. Coverage is suck in certain areas, still. There are rounds of complaints on line-dropping issues. Yup. They fixed it after that. But, the same old problems come back to haunt consumers after awhile.
  2. Customer service is suck. At least, I am using the largest telco's service in Malaysia. But, I did not proud to say that either. Because, the respond to solve my issue is suck.
  3. Crazily high charges. Comparing with neighbor countries, you will found out why Malaysian are labeled as "rich". Even with the "Value Plans" offered, consumers here are still paying high charges, whereby the really rich telcos boost their profit margin by squeezing consumers.


But...
Does telcos need to get the approval from MCMC first? No.
Does telcos obliged to absorb the 6% service tax at the first place? No.
Then, why not telcos pass the extra burden to end users like us? Emm...

Service tax is imposed by government on all services being offered in Malaysia. No sector constrain. No industry constrain. If we're paying 6% service tax on food outlets or shopping malls, why not prepaid or post-paid mobile services? Who is the main beneficiaries from the 6% service tax? Government or Telcos?

Hey Malaysians, YOU got the answer?

Ska vi tro på fastighetsmäklarna? – Del V

Det har gått nästan två år sedan jag skrev om bostadspriserna (i Malmö) sist så nu är det dags att ta en titt igen. Se Ska vi tro på fastighetsmäklarna? - Del I-IV.
Denna gång hittade jag ungefär 1500 lägenheter till salu i Malmö (1000 i okt 2009). Av dessa hade ungefär 175 (150 i okt 2009) någon gång under den tid de legat ute fått se sitt pris sänkt och 10 (30 i okt 2009) fått se sitt pris höjt (de är alltså fortfarande till salu). Genomsnittsprishöjningen var 10% (12% i okt 2009) och genomsnittssänkningen var -9% (-9% även i okt).

• För det första så har antalet lägenheter till salu i Malmö ökat kraftigt, med hela 50% på två år.

• För det andra så har antalet lägenheter vars pris sänkts ökat något i antal, från 150stk till 175stk, medan de vars pris ökat kraftigt minskat i antal, från 30stk till 10stk.


Min (helt ovetenskapliga) slutsats är därmed att en viss avmattning kan noteras i Malmö vad gäller lägenhetspriserna! Jag har ju tyvärr varit (felaktigt) skeptisk till bostadspriserna en längre tid så jag ska inte längre försöka mig på att prediktera vad som komma skall [jag underskattade grovt myndigheternas vilja att skjuta problem framför sig (läs räntesänkningar etc.) tills de blir radioaktiva]. Mkt tyder förstås trots detta på fortsatta prisfall, inte minst mina egna fynd ovan. Men som Keynes sa ”marknaden kan bete sig irrationellt längre än du kan stanna solvent”.....

Tuesday, September 6, 2011

How to invest during HIGH Inflation era? (Sept 2011)

What is the main risk for Asian economy? None other than Inflation. Across the region, fast-growing countries such as Singapore, Indonesia, India and China are reporting faster than expected price increases in tandem with their economic success.



To fight inflation, many countries already carried out their tools of tightening. We have Singapore who fights imported inflation via stronger currency. Meanwhile, other countries are going for the traditional way of hiking interest rate and increasing bank reserve requirement since last year. At first, Bank Negara Malaysia called it as "normalization", but it seems to be "containerization" going forward to contain inflation.

Who's fault?

There are 2 causes for the problem, which I categorized them into international and national. Among the international contributing factors were:
  1. Loose monetary policies practiced by US and Europe, who slashes interest rate to almost zero and carried out large scale of asset purchases. Yet, it failed to rejuvenate a sustainable economy.
  2. As a result, these easy-money flushing into Asia in search of higher returns is fueling asset bubbles here. Then, we raised interest rates, and this had lured even more money into Asia together with an even stronger currency.
  3. Other then equity, easy-money also flown to Commodity markets, including food staples and basic materials. Also, searching for higher return in view of greater demand by Asian countries to produce or consume more. This had pushed up inflation.

In the other end, we have National factors such as:
  1. Consumer spending has risen much faster than supply. This is very obvious in populated countries such as China, India and Indonesia.
  2. While western countries facing high unemployment rate, our side is not only hiring, but increasing wages too. Hong Kong and Malaysia are implementing a minimum wage for the first time. Thailand is the next to follow. Who is going to absorb the higher wages? Definitely not companies, it's consumers.


So, how to invest during high-inflation era?
Equities. Although higher inflation did not bode well for the economy, but, the revenue and earnings of companies shown in the balance sheet is greater. In other words, inflation can show up in earnings growth for some companies. To protect our investment, we should select those companies that have sufficient pricing power to pass on the additional cost to end clients.

Thursday, September 1, 2011

Should State Government involve in Business?

In Malaysia, we can see a lot of businesses being conducted by state government. Should there be a limit to the extent that state government should involved in? Yes, we know that the state also need money to run their administrations daily operations expenses. But, would it be wise to collect revenue generated by businesses in the state, instead of relying of its own businesses?


Well, doing businesses by state government itself can generate more revenue. This is the case only if the businesses were run successfully and making profits. Otherwise, the businesses' losses were barred by rakyat themselves.

Why we only highlight State Government?

Simply because most of the state government is making losses. In fact, only one state is making profit and still it is highly indebted. By going back to history, we know how that state wrest control of one reputable fast-food chain business, which became its cash-cow now. Then, the money from this cash-cow is spinning around within the group. Is this what we called successful?

Recently, another state government intend to open cafes, convenient shops, and even hardware. There's nothing wrong with that as long as the following criteria was fulfilled:
  1. The right person was being installed into the business

  2. Good governance was being conducted regularly and strictly

  3. Not in conflict with the current and future business owners within the same industry


All Malaysians know that, when businesses were blended with politics, anything can happen (the ugly way). Corruptions, frauds, bureaucracy, is all we already learn from the past. In business, it's very hard to sleep with competitors. To eliminate competition, can I limit the issuance of permit for certain businesses? Can I withdrew the licenses given? Can I stop renewing the licenses when due? Ordinary folks like us cannot, but state government can.




Bush visiting a hardware shops

Fair and Open market is all we want. For me, all the three criteria mentioned above are difficult to abide. If failed, votes will swing the other side. State government should facilitate, understand, and help rakyat to set up their businesses. If all businesses were conducted by governments, we are moving backward to be a communist country.