Friday, June 29, 2012

New Fund: AmDynamic Sukuk

After the spectacular performance of AmDynamic Bond fund, AmInvestment Services Bhd would like to replicate the success of the conventional fund into this newly launched shariah compliant fund.


The Fund aims to provide capital appreciation by investing primarily in Sukuk both locally and globally. To achieve the investment objective, the Fund will undertake active management to enhance and optimize returns from investing in sovereign, quasi-sovereign and corporate Sukuks. The sectorial weightings maybe adjusted to maximize the performance. There is no minimum rating for a Sukuk purchased or held by the Fund.

More about the Fund

Value-add of the Fund is derived from active tactical duration management, yield curve positioning and credit spread arbitrage. Credit spread arbitrage and yield curve positioning is part of relative value approach that involves analysis of general economic and market conditions and the use of models to analyze and compare expected returns as well as the assumed risks. The Investment Manager will focus on Sukuk that would deliver favourable return in light of the calculated risks.


In addition, the Investment Manager may also consider Sukuk with favourable or improving credit outlook that provide the potential for capital appreciation for these investments. The Fund may invest in Sukuk of varying maturities. The Fund’s investment maturity profile is subject to active tactical duration management in view of the interest rate scenario without any portfolio maturity limitation.




The Fund invests globally, including but not limited to Malaysia, Singapore, Indonesia, United Arab Emirates, Saudi Arabia, Bahrain, United Kingdom, Luxembourg, Jersey, Bermuda, Brunei, China, Australia, New Zealand, Japan, Hong Kong, United States of America and Germany. Notwithstanding the above, investments in foreign markets are limited to markets where the regulatory authority is a member of the International Organization of Securities Commission (IOSCO).


AmDynamic Sukuk is suitable for investors who:
  • want steady growth in value by investing in Sukuk as an asset class;
  • have Medium to Long Term investment goals; and
  • are willing to assume additional interest rate risk, duration risk and liquidity risk associated with investing in Sukuks with longer duration and lower credit ratings.

Source: Fund's prospectus

Wednesday, June 27, 2012

The Block-Chain of infinite mystery: What the hell is Bitcoin?



[Note: for my more recent article about bitcoin, see How to Explain Bitcoin to your Granny]

By now many people will have heard about Bitcoin. That’s the global, decentralised, online crypto-currency (check out this Wired Magazine article for some background). You can either buy it on online exchanges, or your can ‘mine’ it by running algorithms that are likely to cause your laptop to catch fire. You can then use it to buy things from vendors who’ll accept it, albeit Sainsbury’s still only accepts British Pounds. There are even mainstream currency traders who actively trade Bitcoin now.

I’ll bet all the Bitcoins I have though, that very few people actually understand what the hell Bitcoin is. I myself do not understand it. Try listen to this guyexplain it, and feel your mind frazzle. More than anything, I have the sense that Bitcoin is a cult. A strange cybernetic cult. An anarchic techno-pirate, quasi-mystical collective on a dystopian mission to subvert the global monetary system. I guess that’s why it attracts me, but I’d still like to know exactly how it works.

The Blockchain
One thing I do know is that the Bitcoin network worships something called the BlockChain. I don’t really know what the blockchain is, but it exists on a huge global network of nodes. It all sounds a bit like the Matrix. My friend @Webistemeunderstands it, and he keeps trying to explain it to me. The other night we were at the Dogstar pub in Brixton and he said various complicated-sounding things like:

1) "It's almost like a section of the blockchain has my signature on it, and then I sign it with your name, and then the whole network agrees that we've done a transaction"
2) "The blockchain is on everyone's computer. The nodes compete to process the blockchain, to create the next piece, which then everyone has to validate again"
3) "The network is so powerful, you'd need at least 50% of the total processing power to override it, and not even the world's largest supercomputer can do that"

I'm not sure if I've quoted him correctly, but I mostly sat at the table and stared at him with a strong feeling of bewilderment. In the absence of a nuanced understanding of the currency though, I come up with my own rough analogy: "Riiight" I say, "So would you say it's a little bit like the Borg in Star Trek?"


Is Bitcoin the BORG?
THE WORLD'S FIRST PICTURE OF BITCOIN'S BLOCK CHAIN
If you’ve never seen the Star-Trek episodes with the Borg, you can check out clips on Youtube. The clips do have something of a negative spin on them, with the Borg being portrayed as an enormous sociopathic cube bent of destruction. The interesting thing about the Borg though, is that it's an entity which has no leader, its direction being rather a function of all the pieces that make it up. According to WikipediaThe Borg manifest as cybernetically-enhanced humanoid drones of multiple species, organized as an interconnected collective, the decisions of which are made by a hive-mind, linked by subspace radio frequencies.” It is perhaps most famous for the phrase “Resistance is futile”. The analogy with Bitcoin is apparent to see: Interconnected collective? Tick. Hive-mind? Tick. Linked by subspace radio frequencies? Hmm... well, I think it uses internet relay chat. Resistance is futile? Yep, the Feds can attack it, but it doesn't exist in one place so they'd have to attack all nodes at once to shut the system down. Wait a minute, Borg and Bitcoin even have two letters in common - a coincidence?

@Webisteme looks at me from the table. “Um… I guess it’s kind of like the Borg," he says, "The network is very resilient but we’re not really cybernetic drones. It’s mostly guys with big computer rigs and powerful graphics processing cards”.

The mojo of Nakamoto
What strikes me most about Bitcoin though, is how it’s managed to capture the imagination of its users. People cite various reasons why it’s powerful, including how it’s managed to overcome double-spendingproblems you find with other online currencies. To me though, the real source of its power comes from its mythical foundation story, involving the mysterious character of Satoshi Nakamoto.

IS SATOSHI ACTUALLY BANKSY?
Let me explain. Imagine a group of researchers at MIT said "Hey guys, we’ve invented a cool new crypto-currency that is decentralised and resilient. Do you want to try it?" Maybe some people would take them up on that, but it would have no mystery, no intrigue, no dark story about mafia and the CIA. Now imagine that instead of that, a mysterious dude with no traceable identity releases strange tracts onto the web, describing a new currency, and then disappears. That’s exactly what Satoshi did, and it’s the very mystery of his story that makes people want to take part in the first place. It gives the currency soul, and that’s crucial because currency that is not legally mandated needs to be imbued with soul in order to start working. That’s one reason why goldcontinues to be viewed as a valuable currency: It shines and you can’t really do anything with it, and for some reason humans take that to be a good indication that it has mystical quasi-religious properties worthy of being valued.

Satoshi Nakomoto basically created crypto-gold, and sent all the miners out to find it. He then departed the earth, leaving disciples such as Gavin Andresen to continue the work in his absence (check out this psychedelic video that visualises the activities of the original developers). The elite nature of that exercise is part of the appeal too. Everyone has the potential to get the crypto-gold, but only those who invest the most time and passion will actually do so. I mean, look at this fanatical maniac who will almost certainly burn his warehouse down with his Bitcoin rig. There’s something about the sheer absurdity of devoting huge amounts of computing power to something that has no physical existence which gives power and reality to the currency.

Getting my piece of the Blockchain

I've decided to buy Bitcoins. I want a file on my computer with a bunch of numbers, created by the mysterious hands of the miners, little keys to the blockchain. If only I could enter the network, jumping from computer to computer, navigating my way through the corridors of the blockchain right to the very core of the entity created by Satoshi Nakamoto himself… or herself… or themselves. I'm not sure I could do that, but I have set up an account on InterSango and have just purchased 3.986 Bitcoins at around £4.15 per coin. Now I need to work out what to do with them. Any ideas?

If you want to learn more about Bitcoin, you can go to the main site here. If you want to work on developing it yourself, check out the Sourceforge site here. If you want to see Bitcoin blocks as they’re created check out Blockexplorer, and if you want to monitor transactions as they occur see here. If you want some free Bitcoins, you can apparently get them from this kind Samaritan here. If you want to check out more general info, see WeUseCoins. Good luck, and keep me posted on how it goes.

How Can A Profit-Guaranteed Investment Be Risky?


Investment professionals love complicating things.
Trust me on that. I was once like that.
You don’t believe me?

The next time you meet people from the investment industry, try asking them to give you a definition of the word “risk”.

Investopedia defines “risk” as “the chance that an investment’s actual return will be different than expected...risk is usually measured by the standard deviation of the historical/average return of a specific investment.” 


Don’t get me wrong. This is actually a pretty good definition of "risk”... that is if you speak finance. But most people don’t, and if you are like most people, you probably struggled to understand even the first sentence (actual return vs expected return...huh?). Good luck attempting to measure risk!


Then, what does RISK mean?
Complicated definitions aside, many investment professionals define “risks” consistent with the above definition i.e. in terms of “uncertainty” (or “volatility”, a fancy word for uncertainty). Professionals refer to a risky investment as one with a “high standard deviation” or “high volatility” (or in our language, high “uncertainty”).

The problem is, people don’t normally think of risk that way. An investment that is “uncertain” or “volatile” may not necessarily be risky. Let me give you an example;

Suppose there is no chance of losing money on this particular investment, but depending on a certain factor (e.g. how the weather turns out to be in a year’s time), you could either make a small profit or quadruple your money, or anywhere in between. We both know that if such an investment exists, it is a no brainer – this investment has no risk (you either win small or win BIG)!

But by definition, this investment is highly risky!  Why?  The outcome is highly uncertain: you could make a small profit (say +1%) or any amount up to quadrupling your money (+300%)! Isn’t it absurd that professionals define this as a highly risky investment? 

This is how I think “risk” should be defined:  The potential for losses.

That’s it! 

Therefore, a risky investment has a high potential for losses.  An example: a share of a single, unproven company in a politically and economically unstable country. A not risky investment has a low potential for losses – like a bank account.


************************************************************************************************************

This guest post was written by Ching, the founder of iMoney.my, a price comparison website for Malaysians. Ching is a CFA charter holder, and was formerly an investment consultant and wealth advisor.

Monday, June 25, 2012

New Fund: OSK-UOB Asian Income Fund

If you have a medium risk appetite and are seeking for an investment opportunity in the Asian region, you may want to take a close look at OSK-UOB Asian Income Fund, a balanced fund which was newly launched by OSK-UOB Investment Management Berhad on 5 June 2012.


The fund is a feeder fund that aims to provide income and capital growth over the medium to long term by investing in one target fund, i.e, the Schroder Asian Income (fund's inception date: 24 October 2011 and is denominated in Singapore Dollar), which primarily invests in Asian equities and Asian fixed income securities.

More about Schroder Asian Income
The Schroder Asian Income can invests in Asian high yield bonds (30% - 70%), Asian high dividend yielding equities (30% - 70%), cash (0% - 30%) or other asset classes (0% - 10%). Cash will be used if necessary to limit downside risk during adverse market conditions. Financial derivatives are also used to stabilize the portfolio of the fund by hedging the fund's exposure to foreign currency.


This strategy allows the Schroder Asian Income to adjust its allocation according to the phases of the economic cycle to deliver more consistent returns.




Source: OSK-UOB Investment Management

Wednesday, June 20, 2012

New Fund: PB Dynamic Allocation Fund

Another new fund for the month of June, Public Mutual launched PB Dynamic Allocation Fund which allows the investor the opportunity to participate in tactical asset allocation strategy where instruments are allocated between the difference asset classes of equities, fixed income securities and money market instruments based on a flexible investment mandate. The fund may capitalize on potential investment opportunities if the market outlook is positive while reducing its equity exposure when weakness in the equity markets is expected.


As such, its equity content may range between 30% to 98% of the NAV of the fund. The balance of the fund's NAV may be invested in fixed income securities and liquid assets which include money market instruments and deposits.

Investment Strategy
Although the fund is actively managed, the frequency of its trading strategy will very much depend on market opportunities. The fund employs both the top-down and bottom-up approach to evaluate its investments. For its equity investments, the fund will invest in a diversified portfolio of blue chip stocks, index stocks and growth stocks listed in domestic and selected foreign stock markets. In identifying such companies, the fund adopts the bottom-up approach which relies on fundamental research.

The fund's investment may include listed warrants and options to enhance its returns. Also, it may consider investments in unlisted equities, particularly in companies that are expected to seek listing on the Bursa Securities or selected foreign markets within a time frame of 2 years.

Equity Linked Participation Notes?
More detail on equities, the fund may invest in equity linked participation notes for selected foreign stocks listed on the Luxembourg Stock Exchange. Equity linked participation notes are instruments designed to track designated securities. The movement of these notes are similar to the underlying shares listed in their respective markets.



Source: Public Mutual

Monday, June 18, 2012

What is Bursa Malaysia Derivatives Local Participant?

Recently, Bursa Malaysia launched its Derivatives Local Participants Recruitment Drive to have more derivatives traders, so that a more vibrant and dynamic derivatives market can be seen in Malaysia. Anyway, what is it actually? I guess many of us, either yourself or investors or traders, also doesn't know the exact answer...


Again, it's time for Finance Malaysia to do Bursa Malaysia a favor to educate the public. A Local Participant (Locals) is a professional derivatives trader who trades for his/her own account. In essence, a self-employed trader. With the recent easing of entry requirements, those who aspire to be a Local Participant are not required to pass the licensing examination, show the relevant academic qualification and industry experience.

What is the benefits of being a Locals?
Locals have grown alongside the Exchange over the years, both in terms of numbers and trading participation in derivatives products. As a proprietary trader, they have unlimited trading potential. They trade as a business and have the option of working flexi-hours from anywhere. Locals also enjoy exchange fee rebates and tax abatement on their income such as below:


  • A Local Participant will enjoy exchange fee and clearing fee incentives if he trades 1,000 contracts per month or more. 
  • A Local Participant will receive a 50% tax abatement on income derived from derivatives trading.



What are the differences between the current and previous admission requirements of a Local Participant?

Effective 3 January 2012, the following  admission requirements of a Local Participants have been removed :- 

  1. Have passed an examination approved  by BMDB or have  been granted an  exemption in respect thereof; 
  2. Possess such qualification as approved by BMDB; and 
  3. Possess sufficient and relevant trading experience.

In substitution of the above admission requirements, an applicant needs to attend a two-day familiarization programme conducted by BMDB.   




What are the products offered by BMDB for Local Participants?

BMDB offers a range of derivatives products for Local Participants, which include the two (2) key products, namely, Crude Palm Oil Futures ("FCPO") and FTSE Bursa Malaysia KLCI Futures ("FKLI").



Source: www.bursamalaysia.com

Friday, June 15, 2012

New Fund: AmConsumer Select - Capital Protected

AmInvestment Bank is launching a new capital-protected fund and it is optimistic of a good take-up rate for this RM100mil new fund. According to its CEO, the launch of the fund is timely in view of the current macroeconomic uncertainties. Since it is capital protected, the fund offers a safe haven for risk-averse investors looking to hedge against the uncertainty in the global market, she adds.


The Fund is a close-ended fund which aims to provide regular income with an investment horizon of 2.5 years (30 months) whilst providing capital protection on Maturity Date. The Fund seeks to achieve its objective by investing in ZNIDs and/or MGS and an over-the-counter option linked to the price movement of a basket of five (5) consumer related stocks.

For the purpose of the Fund, consumer related stocks refer to stocks of companies that produce products/services that are consumed by individuals. Selection of consumer related stocks is based on fundamental strength of the companies through internal research and brands that the Manager considers to be widely known among investors.

The Strategy...

Generally, the Fund will adopt a two-fold strategy to achieve its objective, i.e.



  1. Capital protection* from fixed income portion
    At the Fund’s commencement, a minimum of 85% of the Fund’s NAV will be invested in 2.5-year ZNIDs and/or MGS with shorter or similar maturity tenure to the Fund’s maturity, which upon maturity of the Fund will achieve an amount equivalent to 100% of investor’s initial capital (which includes entry charge payable by investors). A maximum of 5% of the Fund’s NAV will be maintained in cash and/or money market instruments for liquidity purposes.

  2. Fund’s return from option portion
    At the Fund’s commencement, up to 10% of the Fund’s NAV will be used to purchase a 2.5-year USD denominated option with an option counter-party, which is a financial institution carrying a minimum long-term rating of “A” by S&P or the equivalent rating by any other global rating agency. The option provides exposure which is linked to the price movement of a basket of five (5) consumer related stocks.

At the end of each quarter, if the closing price of each of the stock is at or above its respective initial level on any day within the quarter, the option counter-party pays a conditional coupon. The income distribution (if any) will however be paid half yearly to investors.



The basket of five (5) consumer related stocks (indicative selection only) currently identified as
follows:

If the Coupon Payout Condition is met at any quarter, the coupon payout from the option
counterparty is calculated as follows:
Coupon (RM) = (Notional Amount / USD/RMInitial) x coupon rate (settled in USD) x
USD/RMEnd

  • “USD/RMInitial” refers to the USD/RM exchange rate for the determination of the Notional Amount in USD as at Commencement Date.
  • “USD/RMEnd” refers to the actual USD/RM exchange rate for conversion of the coupon (received by the Fund) from USD to RM.





* Investors are advised that the Fund is not a guaranteed fund. Capital protection is provided through investments in ZNIDs and/or MGS and not by a guarantee. Consequently, the return of capital is SUBJECT TO the credit/default risk of the issuers of the ZNIDs and/or MGS and may result in losses.


Source: AmMutual

Monday, June 11, 2012

IPO: Gas Malaysia

Gas Malaysia Berhad (GMB) was established to sell, market and distribute natural gas and Liquefied Petroleum Gas (LPG). GMB is also responsible for the construction and operation of the Natural Gas Distribution System (NGDS), which is a system comprising 1,800km of gas pipelines and stations within Peninsular Malaysia owned by GMB. NGDS is connected to the Peninsular Gas Utilisation (PGU), which is the gas transmission pipeline across Peninsular Malaysia owned and operated by PGB.


GMB’s core business to sell, market and distribute natural gas to industrial, commercial and residential customers in Peninsular Malaysia via NGDS. In other words, GMB purchases natural gas from PGB and sells to GMB’s own customers at a profit margin. There are currently two players in Peninsular Malaysia’s natural gas distribution industry, comprising GMB and PGB. However, both serve different sets of customers, whereby GMB’s customer base consists of users that initially consume less than 2 MMScfd, whereas PGB supplies to PETRONAS customers consuming more than 2 MMScfd. Customers that initially consume less than 2MMScfd but subsequently increase their consumption exceeding 2MMScfd will remain as GMB’s customers.

Like a toll road?
Looking at it from a slightly different perspective, GMB’s business can be compared to that of PLUS i.e. a toll road operator. Basically, consider GMB’s pipeline infrastructure as a highway, while the “toll” is GMB’s absolute gross margins, i.e RM2.02-2.25, while the “cars” represent the volume of natural gas supplied to GMB’s customers. We believe this comparison is fair, as GMB does not bear the risk of volatile natural gas prices as it buys and sells natural gas at regulated prices. As such, further growth in GMB’s sales volume would further improve its economies of scale given that other costs are largely fixed administrative costs.




In February 2012, GMB signed a New Gas Supply Agreement (NGSA) with Petronas whereby effective from 1 January 2013, the maximum limit for GMB to supply to its customers individually will increase from 2 MMScfd to 5 MMScfd. The NGSA has a 10-year tenure with an option to extend for an additional 5 years. In addition, GMB also supplies LPG to consumers in Peninsular Malaysia.


Strong cash pile, 100% dividend payout for FY12. Management indicated that it will spend RM140-RM150m in FY12 for the expansion of GMB’s Natural Gas Distribution System and RM40m p.a. in both FY13 and FY14 for maintenance purposes. We think that it is possible for CAPEX to be funded internally, judging from the group’s huge cash pile of RM327m and retained earnings of RM360m as of Dec 2011. Besides, GMB is also committed to paying out 100% of its FY12 net earnings as dividends and it is targeting a minimum payout ratio of 75% from FY13 onwards.



Source: TA Securities, OSK Research, RHB Research Institute

Ecco là!

There it is! The Spanish bailout I have dreaded since 2008! Yesterday, Spain received a giant (up to 100bn euros) bailout package from its fellow euro-zone countries. The official story is that the money will go to shore up the Spanish banking sector and not directly into the Spanish budget. I believe it when I see it!

In any case, even if the money indeed goes to the struggling banks, I do not think this is the turning point. Unfortunately I cannot see how this emergency knee-jerk reaction will help the European banking sector to stability. Both as an investor (based on gut feelings) and as an academic (based on research) I doubt it will be enough! For my gut feelings I refer to old entries on this blog since I am getting fed up with repeating my negative outlook for Europe. When it comes to research, I have actually studied the correlation among major European banks in the paper Estimating Asset Correlations Using Credit Default Swaps plus Stocks – An Empirical Study of European Firms and one of the results is that the correlation among banks’ assets is higher than previously thought. That means that if the asset value of one of the Spanish banks falls the risk of contagion to, let’s say, German or Swedish banks is higher than many tend to believe. At least if the results in my paper are correct. In a not too distant future I will present my research on a risk management conference in Rome and perhaps they will support me in my analysis.

I have written a lot of pessimistic entries on Spain earlier (on April 4, 2008 I wrote Byggnader är till för att titta på och bo i!), most of it in Swedish. For an English example, you can check this one from November 2010 if you like Sell European Bank Stocks? – Part II.

Sunday, June 10, 2012

Implications of Greece'e exit

In the month of March, there was a lifeline for economy of the Greece when countries like Germany, Finland and others agreed to make a €130 billion bailout for the country. But now when the results of the election have come up on 6th May and both the coalition parties unable to garner a majority and having a hung parliament, there are talks going on for bailout re-negotiation. Greece's euro-zone partners agreed to release only €4.2 billion ($5.5 billion) in previously agreed financing, to be paid out Thursday, holding back €1 billion at least until June. That would be paid only if Greece keeps to pledges it made to secure a bailout.
With talks reaching no resolution Wednesday, the Pasok party, which came in third in Sunday's vote, will make a last stab at building a coalition. But few expect a breakthrough and many observers say parties are positioning themselves for another election in June. "It doesn't look like there is any other solution apart from elections," one Syriza official said.
The next round is shaping up to be a showdown between Mr. Tsipras and New Democracy leader Antonis Samaras, who is expected to make the election a last stand for Greece staying in the euro bloc.
With Athens in political turmoil after a fractured result in weekend elections, and a new vote likely by June, German politicians cautioned that further aid could be withdrawn if Greece abandons austerity targets—even if that pushes the country from the bloc.
The election results have clearly showed that the public there is against austerity drives which are one of the necessary conditions for the bailout package to be given out by the EU. Thus it would be very difficult for any government to approve further cuts of €11.5 billion by June end. Thus the country is imminent to head for an economic emergency again. Technically such comments lead to only one thing- the imminent fall out of the Greece from the European Union. Such fears continue to keep European financial markets on the edge.
Implications of Greece’s exit:
Even before an exit Greece’s banks could collapse if the steady withdrawal of deposits—they are 30% below their peak, according to Credit Suisse—were to develop into an outright run. After an exit debts to foreign creditors would soar as the new drachma fell, leading to further defaults. On strict legal grounds, Greece could find itself cast out of the European Union as well as the euro area, at risk of losing access to the single market.
But the panic would not be confined to Greece (which made up just 2.3% of the euro zone by GDP in 2011). Depositors in other vulnerable economies could take fright and try to withdraw their funds from their banking systems. Even if the European Central Bank (ECB) fought this with massive liquidity support, the crisis would shake already frail banks, especially in Spain. Bond yields will jump in any country that might conceivably leave the euro once such an exit has actually happened, with the rise proportional to the risk. Bad, then, for Spain and Italy. Worse for Ireland and Portugal, which have already needed bail-outs. Last year elections in both countries produced reform-minded governments, but the economic pain they are already undergoing is intense. A referendum on the German-inspired “fiscal compact”, which will insert public-debt brakes into national laws, is due in Ireland on May 31st and many Irish may be tempted to use the occasion to vent their discontent and add to the anti-austerity movement in Europe. An Irish rejection would not prevent the treaty coming into effect, but it would relieve the Irish of any obligations under it, and mean that they would not be bailed out in future. Thus a Greek exit from the euro zone would not just be chaotic for Greece itself but would also invite questions about the status of Portugal, Ireland and others.
The Greek Government bond yields were relatively unchanged with the 10-year quoted at the price of 20-22 cents on the euro, to give a yield in the region of 22%-23% . While the Spanish and Italian bond yields continued to grow higher with Spanish bonds up nearly 0.12 percentage point at 5.915% and Italian higher 0.07 points at 5.68% according to data from Trade web.
Thus the need now is for the policymakers to look for other strategies like a credible commitment to mutualize the debts of remaining euro-zone countries, because as stated by the new French president-elect Mr. Francois Hollande that austerity is not a panacea for the problems. But it is hard to see how such a pledge could be made credible enough in the near future. There is no consensus among Europe’s elites that this is the way to go; and the political journey to that destination would rightly require parliamentary votes and referendums.

Article By:
Prathmesh Limaye
SIMSREE

Wednesday, June 6, 2012

Euro 2012 Football Championship: Poland's Economy Scores

It's football season again. This round we have EURO 2012 Championship which will kick off on 8th June 2012. Are you ready? Before that, let us look at the championship from financial perspective. Don't care who will win the championship, Poland already emerged as the winner financially. Why?



The UEFA European Football Championship has taken place every 4 years since 1960. For the first time in history, Poland and Ukraine have scored the chance to co-host the Euro 2012 Football Championship. Despite high set-up costs for the two emerging economies, both countries are likely to experience long-term economic benefits.

The Statistic and Requirements:

  • Estimated 670,000 football fans will pack into the new stadiums
  • Around 1.5million spectators at fan zones only
  • Minimum requirement capacity of 30,000 to 50,000 spectators for infrastructure and modern stadiums
  • Sufficient parking possibilities, hospitality facilities, luxury hotels and training facilities was needed
  • Required transportation infrastructure linking the host cities must be modern, well developed and meet UEFA's high quality expectations


Challenging Requirements Boost Economic Growth
As a result of the increased government spending, Poland's unemployment rate has improved significantly. In addition to modernization costs, safety costs of almost USD 1 billion will push the total bill for the event to over USD 10 billion in Poland's case. The majority of the modernization bill has been allocated to motorway construction to connect the hosting cities and surrounding countries.



Poland to Benefits from Euro 2012
The investment spending of over USD 10 billion will be beneficial for Poland, as long as the increase in GDP directly or indirectly allocated to the football championship tops the costs. Four main sources of possible additional income exist:

  1. Extra spending by tourists and local population during the event
  2. Extra spending generated after the event as a result of tourists visiting the host countries and cities
  3. Benefits resulting from the upgrade of the various infrastructure programs
  4. Benefits resulting from presenting the country and its economy in a positive light

Based on outcomes of earlier football championships, a study commissioned by the UEFA estimated extra spending during the event at around USD 300 million and USD 250 million thereafter. However, it is likely that, for emerging countries such as Poland, the benefits of major sporting events are much greater than for developed countries. While the publicity from major sport events is the same for developed and emerging economies, the marginal profit is expected to vary substantially. Developed economies are already well known as holiday and business destinations when hosting such events, but emerging countries may attract many more investors and tourists.


Long-Term Benefits for the Equity Market
Since very few major sporting events have been hosted by emerging market countries, the possible impact on the economy and on the stock market is difficult to estimate. However, it is likely that in addition to the attractive fundamentals of emerging markets such as high growth, low debt and favorable demographics, the access presented to a wide range of potential investors and tourists could give the country's economic development a significant boost and result in sustainable long-term growth perspectives. Poland and the Ukraine are likely very much aware of the possible long-term opportunities arising from hosting the UEFA European Football Championship this year and aim to create history together by hosting this major event.

Source: Credit Suisse

Tuesday, June 5, 2012

OSK Research: 1Q2012 Report Card and Strategy (June 2012)

In the recently concluded 1Q2012 reporting season, a similar number of companies under our coverage underperformed, at 31% versus 32% in 4Q2011 and 34% in 3Q2011. The percentage of companies that outperformed fell to 14%  from 17% in the previous quarter (see Fig 1) and 15% in 3Q2011. Surprisingly, there were more earnings letdowns among the big caps, with 27% missing estimates versus 17% in the preceding quarter while among the small caps, more companies trumped estimates - at 20% - compared with 12% in 4Q2011. The notable positive surprises among the big caps were Maybank and JCY while the negatives were from MAS, the Genting Group and MISC.




Steel, plantations and oil & gas disappointed.
The steel, plantations and oil & gas sectors were  dogged  by industry-specific issues and the macro-economic environment. Most steel companies that we cover continued to be mired in losses due to weaker selling prices and high material costs while plantation companies suffered production setbacks and higher input cost. Oil & gas companies were drenched by the monsoon season and the dearth of new contracts, which are only expected to pick up in 2H2012. The Genting group of companies saw earnings skimmed by the poor showing from the domestic and Singapore gaming units as well as its plantation outfit.





But consumer, financials/insurers gave reason to cheer.
As expected, the sectors in better shape were those with relatively more stable and defensive earnings and which had benefited from the Chinese New Year demand. Here, the breweries and retailers stood out. There was also the positive fillip for financial related insurance companies due to the adoption of the Malaysian Financial Reporting Standard (MFRS1) during the quarter.    



Given the potential bugbears in the form of:
  1. the upcoming make-or-break elections for Greece slated for 17 June,
  2. possibility of a Spain bailout,
  3. FOMC’s meeting on 19-20 June, and
  4. the technical violation of the US markets last Friday,
there are enough reasons for investors to stay defensive while positioning for rebound trades in the event of a sharp pullback. The upcoming listing of 2 major IPOs (Gas Malaysia and Felda Global Ventures) should provide near-term catalysts and support for the FBM KLCI. We like the banking, consumer, construction and oil & gas sectors.

In short, market is turning more cautious, so do investors...


Source: OSK Research

Monday, June 4, 2012

Forget postage stamps, let's securitise the Queen


(MBS) MONARCH-BACKED SECURITY

Yesterday's Jubilee caused great jubilation, or at least that's what BBC was saying. I kind of missed it, but I did think it was fitting to at least commemorate the occasion by writing a modest proposal in Bright Green Scotland, entitled Securitise the Queen.

I proposed that the British Government issue Monarch-backed securities. Here's a quote:

"Monarch-backed securities are innovative new financial instruments that will securitise the Queen, using her as collateral against which the government can borrow money... 

...The technicalities of the monarch-backed sovereign debt could be ironed out fairly quickly. We put the Queen into an SPV (a special purpose vehicle, of financial crisis fame), which issues 20-year bonds to investors. The SPV is bankruptcy remote, which means that if the entity defaults, the investors can claim the Queen, but no government assets. Of course we tranche the returns: Risk-averse investors take the upper tranches, backed by the stable cash flows of the Queen’s ordinary tourist revenue. Hedge funds take the risky lower tranches, betting on the volatile residual returns from Royal event licensing rights, such as a wedding or funeral."


Indeed. The only reason I wrote this is because I'm South African, and South Africa is part of the Commonwealth, so apparently I have to have pledge alliegence to the Queen lest the British authorities revoke my visa. I suppose the proposal was slightly unorthodox, but I felt the Queen would take it in the right spirit.

I contacted the Crown office this morning for comment. The Queen was harbouring a cold, and couldn't chat on the phone, but she sent me an email saying: "One thinks that Mr Scott's proposal is very robust and laudable. One's only wish is that one's corgies get their own little SPVs".

Sure thing ma'am.