Wednesday, March 30, 2011

How US Housing Market fares lately? (30 March 2011)

Indeed, there is a insightful write-up by RHB Research today on the US housing market. People are still very curious about the US housing market, but yet to have the courage to BUY. Herd mentality? And, why US housing market is catching the attention of the world? Oh, thanks to Rich Dad Poor Dad, and the world famous property tycoon, Donald Trump.


In fact, I am wondering how did Donald fares these few years? That's why Donald had teamed up with Robert Kiyosaki to publish a book last year? People stop buying property because they're buying books nowadays?

A Double-Dip in the US Housing Market?... by RHB Research (30 March 2011)

US home prices, as measured by the S&P/Case-Shiller composite index of 20 metropolitan areas, declined by 0.2% mom in January vs -0.4% in December, and dipped for the 7th straight month to the lowest since April 2009. Year-on-year, home prices in 20 major cities fell by a larger magnitude of 3.1% in January, the 4th consecutive month of decline and from -2.4% in December. Home prices in these cities climbed up for 8 consecutive months from February until September 2010, before relapsing into a decline again since October last year, suggesting that the housing market is weakening, which will remain a drag to the economic recovery.

In many areas, home prices have fallen to 2003 levels, prior to the start of the housing bubble, due to the glut of supply in the housing market caused by rising foreclosures. This was compounded by potential house buyers' expectations of further drop in house prices, making them stay on the sidelines before entering the market to buy even cheaper houses. As a result, prices may fall further until foreclosures and short sales are cleared. Also, despite the millions of foreclosures and short sales, which is when lenders allow homeowners to sell for less than they owe on their mortgage, many of the homes for sale are undesirable, as the supply of homes that people actually want to purchase or could afford to is much narrower.


As a whole, falling prices and weak home sales would likely pose a drag to the economy, which is showing signs of strength elsewhere. Already, claims for unemployment benefits are at pre-recession lows, consumers are spending more money and manufacturing activity is growing at its fastest rate in 7 years. By contrast, sales of existing homes are coming off the worst year in more than a decade. And new homes are selling at the slowest pace on records dating back to 1963. In part, the weakening prices show how much a home-buying tax credit stimulated sales in late 2009 and early 2010. Once those tax credits expired in April 2010, many markets began a decline that shows no sign of stopping yet. Some economists say the tax credits merely postponed the bottoming out that's occurring now.

So, when would US Housing Market Recovers?
Finance Malaysia has a very general answer, abandoning all those complicated theories and analyst, that the US housing market will recovers once investors can't find any bargain at emerging markets. This year, Hong Kong is expecting a slowdown in property sales, with Li Ka Shing too looking to other vehicles for growth. China is going to increase interest rate again to curb excessive liquidity and inflation. Back home in Malaysia, BNM is hinting for more measures to control high household debt. Soon, investors would re-look and re-position themselves on US once emerging countries can't give them their desired return.

Tuesday, March 29, 2011

Who would be the winner of POS Malaysia?

It's been awhile since the government announcing its intention to divest its shareholding in Pos Malaysia last year. Through Khazanah Holdings, the government owned 32% stake in Pos. Let's re-look at the news with updated info, and hopefully we can have a better prediction on Pos in the near term.


While waiting for a new strategic partner, Pos has declared a one-off final and special dividend of 17.5sen, which provides a dividend yield of 5.7%. However, OSK is maintaining its fair value for Pos at RM4.12 with a BUY call. It closed at RM3.32 yesterday.
On 29th March 2011, Business Times reported unconfirmed sources said that Khazanah had just shortlisted 3 out of 5 parties bidding for its 32% stake in Pos.

Who are they?
The 2 candidates that already failed are:
  1. Scomi Bhd
  2. Tricubes Bhd
The 3 still-in-run candidates are:
  1. Nationwide
  2. MPC-Amanah REIT
  3. DRB-Hicom
The shortlisted parties will make a final presentation today to Khazanah and McKinsey & Co, who is the adviser. Pos' book value per share stands at RM1.54 and it is known that 3 shortlisted candidates are bidding at between 2.2x and 3x. This implies an offer of RM3.38 - RM4.62 per share. It was reported that the ultimate winner will be announced by the Prime Minister during Invest Malaysia 2011 on 12th April (Tuesday).

What is in the offing from the 3 candidates?
Of the names, each has its own niche expertise, with one looking to inject a bank (likely Syed Mokhtar's Bank Muamalat), one with a logistics expertise (Nationwide) and the other a property developer (MPC and Amanah REIT). It was previously rumored that Syed Mokhtar (DRB) is offering RM1bn for Khazanah's divested stake, which works out to be RM5.78 per share. (OSK Research)

What is so exciting about Pos Malaysia?
  • Relaxation of Postal Act, which could allow Pos Malaysia to re-develop some of its land parcels to unlock the value of its land-bank.
  • Expanding revenue from offering shared banking services with RHB and Maybank.
  • Plans to introduce a new direct address mail service soon. Advertisers can channel some of their advertisement spending to direct address mail to target customers.
Recent DRBHCOM share price movement

Finance Malaysia's prediction...
While not able to access the inside information, Finance Malaysia looks at a different angle to predict the ultimate winner, this time via technical analysis. Judging from the past weeks price movements, DRB Hicom is signaling something boiling behind. Today, DRB closed at RM2.16. Would it be the one?

Monday, March 28, 2011

New Fund: HwangDBS Select Dividend Fund

To further leveraging on the signature "Select" series of HwangDBS funds, HwangDBS Investment Management Berhad today added in HwangDBS Select Dividend Fund. Over the years, the Select series of funds have demonstrated strong performance, stability and consistency in meeting their objectives. Through this new fund, investors can access a diversified, yet focused portfolio of quality dividend yielding stocks in Malaysia and Asia-Pacific region.


The fund endeavors to provide a combination of regular income and capital growth over the medium to long term period. To achieve the primary objective of providing regular income, the fund intends to invest in high dividend yielding equities and equities that could potentially experience high dividend pay out growth. The fund's investments will be primarily focused in Malaysian equities with a minimum investment of 70% of the fund's NAV. The fund may also invest up to 30% of its NAV in Asia-Pacific region.


Two-part Approach?
  1. Stable and High Dividend Yielding Equities
    • Invest in already well recognized, stable and high dividend yielding equities
    • Regular income
    • Stability
  2. The "next dividend leaders"?
    • Identify and invest in equities which have the potential to become strong, quality dividend paying equities in the future
    • Those that potentially to start a dividend payout policy
    • Those that potentially increasing current dividends payout levels
    • Dividend plus Capital appreciation
Income Distribution: Semi-Annually?
  • Targeting 8% to 10% returns per annum with moderate levels of risks
  • Semi-annual income distributions which give investors flexibility for cash flow needs plus potentially higher returns than Fixed Deposits or local Bonds

Source: HwangDBS Investment Management website

Click here to read the prospectus

Slaget om Cocos!


En av de roligaste sakerna med att jobba inom finans är att området utvecklas så snabbt. Jag menar inte bara den dagliga prisutvecklingen på allehanda finansmarknader, med dess ultrasnabba feedback, utan framförallt utvecklingen av det finansiella systemet och dess funktioner. Ett av de senaste utvecklingsspåren som fångat mitt intresse är olika nya förslag till hur banker kan finansiera sig (i spåren av finanskrisen).

En spännande innovation på bankfinansieringsmarknaden är användandet av så kallade contingent convertible bonds (CoCos). Villkorade konvertibler blir det på svenska. Cocos är sysslingar till vanliga convertible bonds med den, för oss ganska ointressanta, skillnaden att (det låga) konverteringspriset där man får byta obligationen mot en aktie föregås av ett annat (lite högre, men fortfarande låga) ytterligare pris som måste passeras innan konvertering får ske. Med andra ord, obligationen blir konverterbar (convertible) först sedan något annat hänt (därav tillägget av ordet contingent i namnet).

OK, det jag vill belysa i denna blog är inte detaljerna i ett CoCo kontrakt, som dessutom kan variera en hel del från CoCo till CoCo, men användandet av CoCos av banker som komplement till andra former av kapital, framförallt aktiekapital. Härom veckan emitterade t.ex. Credit Suisse $7bn i CoCos. Idén är förstås att om Credit Suisse behöver mer pengar i framtiden p.g.a. soliditetsproblem så kan de (av den Schweiziska finansinspektionen) tvingas omvandla CoCo-obligationerna till aktiekapital (rekapitalisering) och på det viset göra den Schweiziska finansinspektionen, och i förlängningen den Schweiziska skattebetalaren, lycklig! På bekostnad av investeraren i CoCo-dealen förstås, som står där med skägget i brevlådan.

Det finns säkert flera problem kopplade till detta och ett skulle kunna vara att den exakta trigger-punkt där CoCon övergår till aktier kan vara svår att bestämma. Det finns också utrymme för en hel del godtycke och kanske t.o.m. politisk risk i finansinspektionens eventuella beslut att sätta ner foten och bestämma att trigger-nivån (lämpligen en viss tier-one capital ratio) är överträdd. Det är också tveksamt om kapitaltillskottet vid ett rimligt utnyttjande av CoCos i en typisk krissituation blir tillräckligt stort. Inte minst som räntan som banken kommer att få betala på sina CoCo obligationer kanske blir så hög att intresset aldrig blir riktigt stort.

Ett annat intressant område där dessa CoCos skulle kunna användas är hur som helst som kompensation till bankanställda! D.v.s. i stället för att betala bonus i cash så skulle de kunna betalas med CoCos vars värde (förstås) är mer eller mindre konstant i goda tider, och som dessutom troligen betalar hög ränta, men drastiskt faller i värde vid framtida bank-problem ända till dess de omvandlas till (billiga) aktier som den anställda kan göra vad f-n han vill med…..! Räkna med mer debatt på detta område under 2011.

Saturday, March 26, 2011

Earth Hour by Switching-Off TNB's Nuclear Plan(t)? (26 March 2011)

In conjunction with Earth Hour today, would you do your part by switching off lights from 8.30pm to 9.30pm? I heard people are talking about earth hour since weeks before, and many shopping malls and hotels are organizing some amazing events during this special dark moment. Actually, the idea of Earth Hour came out as a way to showcase a growing global community's commitment to taking environmental action and protecting the planet we are living in.


And, this year, the one-hour is just like a moment for us to remember the lost lives in Japan earthquake and tsunami disaster, which killed more than 10,000 lives. Of course, the nuclear radiation treat are still looming in Japan, and we really needs to evaluate the effects.

But, isn't nuclear power GREEN?

As I know, nuclear power is much more environmental friendly than Coal/Gas power plant. Although Hydro power is renewable, it is devastating to the nature when construction by greatly changes the topography of the surrounding area and sacrificing the habitat of animals.

However, Japan's latest nuclear emergency is a wake-up call for aspirant TNB who is planning to build out nation's first nuclear power plant by 2015. It is likely to be hot debate in parliament and will soon become an "political agenda" in the upcoming general election.

Electricity Capacity as at June 2010. (Tenaga Nasional Bhd)

Do we really need Nuclear Power?
As of June 2010, 91% of Malaysia's electricity is generated by either gas, coal and oil. This is totally not environmental friendly. Hence, in June 2009, the Malaysian cabinet decided to include nuclear energy as part of an energy option for electricity generation particularly in Penisular Malaysia for post-2020. With the treat of climate change and the depletion of fossil fuel resources, it is no surprise that utilities worldwide are putting the nuclear alternative back on the table until the Japan disaster recently.

Other than nuclear, many people think that solar, wind and biomass energy which is renewable is an good alternative. But, it is ridiculous if we are to talk about constant and stable energy production and competitive pricing. Please bear in mind that, the more expensive power produced by TNB will translate into higher electricity tariff to consumers.

www.financemalaysia.blogspot.com

In conclusion, I think Malaysia needs Nuclear power and should proceed with the nuclear power project for sustainable power supply to power up our nation, continue growing in the future. We should not lag behind and must plan ahead for nuclear power because nuclear power plant needs 10 years to build and commissioned. The main concern for Malaysians, however, is the lack of expertise and maintenance of nuclear power. Government should address this problem thoroughly, and once solved, everything would be smooth sailing.
Source: Tenaga Nasional Bhd


Tuesday, March 22, 2011

New Fund: Avenue CARE Fund

On 18th March 2011, Avenue Invest Berhad, a member of the ECM Libra Group, launched the Avenue Canada Australia Resources Economies (CARE) Fund.

CARE fund seeks to achieve capital growth over a medium to long-term period by investing primarily in securities of companies in Australia and Canada. The fund may also invest in equities and equity-related securities, fixed income securities, structured products and money market instruments.


Why Australia and Canada?
Due to their resource-based economies, the manager views Australia and Canada as two of the best-positioned countries in the developed world to benefit from the rapid growth of emerging economies such as China. Both economies have emerged largely unscathed from 2008's global financial crisis and are now buoyed by the resurgence of their resource-based industries.

How to achieve the fund's objective?
Generally, the fund will invest at least 70% of its NAV in Australian and Canadian markets and the balance of 30% in other markets within the MSCI AC World Index which are deemed beneficiaries of resource-driven demand from emerging markets.



List of countries within the MSCI AC World Index as at June 2009.

The Fund may invest in companies across a broad range of industries and/or sectors including but not limited to banking and financial, materials and resources, consumer, health care, energy, industrial, real estate, telecommunications, utilities and infrastructure.




Source: Avenue Invest Berhad


Click here to read the prospectus.

Monday, March 21, 2011

Hemma från Ungern igen!


Jag är nu tillbaks efter mitt besök som gästforskare vid Corvinus Economic University i Budapest (Ungerns förnämsta ekonomiinstitution). Jag hade en jättetrevlig tid i Ungern och lärde mig en hel del både om mikrobankers aktivitet i den delen av Europa och om situationen för vanliga banker i Ungern. Ett givande besök ur forskningssynpunkt, med andra ord.

Jag lovade dock också er blogg-läsare att återkomma med reflektioner över investerarsituationen i Ungern och på den punkten vet jag tyvärr inte om jag blivit så mycket klokare efter min tid där. Jag har lärt mig en hel del om vad (utbildat) folk i Ungern tror om framtiden men det är ju inte alltid det bästa att basera sina investeringar på. När jag var i Ungern sist, 2003, var alla förståsigpåare, såväl inhemska som utländska, väldigt optimistiska vad gällde framtiden och såhär i efterhand får man nog säga att det var fullständigt fel; min egen personliga och oproffsiga bedömning är att den ekonomiska situationen är kärvare idag än för 7 1/2 år sedan. Och då kommer vi till dilemmat; alla jag pratat med har denna gång (2011) unisont uttrycket sin pessimism över Ungerns framtid! Och jag har pratat med allt ifrån taxi-chaufförer via arkitekter, ekonomstudenter, mikrolångivare, Morgan Stanley analytiker till ekonomiprofessorer, ja t.o.m. en gammal OS-medaljör har jag diskuterat ekonomi med! Och alla är de negativt inställda till dagens ekonomiska och politiska situation (läs Fidesz) samt till utsikterna till förändring.

M.a.o., ska vi följa mönstret från mitt 2003-besök så ska vi alltså köpa Ungerska aktier och fastigheter! Aktiernas prisnivå har jag ej kollat in överhuvudtaget men fastigheter i Budapest är mycket billiga. Troligen är kvalitén och intäktsmöjligheterna därefter men jämfört med Sverige är priserna bara en bråkdel (och detta i en fantastisk vacker och historiskt betydelsefull 3-miljonersstad mitt i Europa full med bl.a. en uppsjö av Jugend/Art Nouveau byggnader och boulevarder i Parisisk Haussmann-anda).

-------------------------------------------------

Vad mer, jo jag har som vana att kolla in bilparken i städer jag besöker och i Budapest’s fall var den ej alltför imponerande. Detta kan man tolka på många sätt förstås (som tecken på moderation och som tecken på dålig köpkraft) och jag är ej man att avgöra vilken tolkning som är den rätta. På bilden ovan ser vi dock en Maserati Granturismo -09 (uppskattat värde 1 miljon Skr) och det mest typiska med denna bil är att den som så många andra lyxbilar i Budapest (och de är ganska få) är registrerad i Slovakien! Som en anekdot kan nämnas att huset i bakgrunden är Ungerns Vetenskapsakademi och förutom att få därinne skulle ha råd med en Maserati så var det där jag arbetade en tid som ung ingenjörsstudent på 90-talet!

Sunday, March 20, 2011

New Rules on Credit Cards: NO Credit for LOW Credit?

New Measures on Credit Cards had been announced by Bank Negara Malaysia (BNM) to promote prudent financial management and responsible business practices. Summary on the announcement made:
  • For new credit card holders, minimum income eligibility is set at RM24,000 p.a
  • For cardholders earning RM36,000 p.a and less, the following would be applicable:
    • Cardholders can only hold credit cards from a maximum of 2 issuers
      • Affected existing cardholders are given up to the end of 2011 to select their preferred issuers.
      • Cardholders will also be given at least 2 years to service their outstanding credit card debt for the credit cards that have been canceled for the purpose of meeting this requirement.
    • The maximum credit limit extended to a cardholder shall not exceed 2x their monthly income per issuer.
      • For affected existing cardholders, a grace period of 2 years will be given to them to meet with the new requirement.

Example of Credit Cards
How about credit card issuers?
  • Credit card issuers are required to adopt fair, transparent and responsible approach in marketing and offering of credit cards to consumers
  • Can issuers increase cardholders' credit limit without obtaining their consent? NO
  • Can issuers offer a credit advance in the form of cheque payable to cardholders, if they did not request for it? NO

Ease of comparison and making decisions...
  • Issuers to provide a Product Disclosure Sheet that contains key information on the card's features, fees and obligations of the cardholders.
  • Issuers to display prominently alerts to communicate to cardholders the implications of meeting only minimum and partial repayments.
  • Annual statements will be issued at the end of each year, providing information on how long it will take to fully pay off the cardholder's outstanding balance and the total interest costs if only minimum repayment made.

How to make Credit Card Infrastructure more Secure and Safe?
  • Effective 1 January 2012, transaction alerts via Short Messaging Service (SMS) will be implemented after each transactions are performed
  • Effective 1 January 2015, Personal Identification Number (PIN) verification for all card transactions will be implemented
To make our Credit Card safer

Finance Malaysia have a say
The eligibility starts from minimum RM2,000 per month salary is good. We should not give credit to those lower income group as that will only encourage them to spend with credit. But, the maximum credit limit of 2x monthly income is somehow too conservative. In fact, issuers are giving 3x credit limit currently, which is deemed reasonable. 
Problem arise when we purchase a laptop worth RM2,500 for example, and opt for 0% interest repayment scheme. Even though we are capable to repay, but the credit limit balance is reduced by RM2,500 straightaway, and it left very little only.

Understandably, the measures is introduced when Malaysian households debt is considered very high currently. Overall, it is good for the banking systems, and I believe Malaysians welcome the extra security features to be imposed to instill confidence of public on the usage of credit cards.

Source: Bank Negara Malaysia

Thursday, March 17, 2011

New Fund: RHB Dynamic Oil-Gold Capital Protected Fund

Launched on 11th March 2011, RHB Dynamic Oil-Gold Capital Protected fund is investing in oil and gold, which have the potential to perform in both areas that have great bullish and bearish markets.


This is a 3 years capital protected fund. As usual, it will invests at least 85% of the NAV in zero-coupon negotiable instruments of deposits. Meanwhile, up to 10% of the fund's NAV will invest in an over-the-counter (OTC) option that gave investors returns (if any).


The OTC option will provide exposure to the performance of the Option Strategy, which is an index, maintained by the issuer of the OTC option and is subject to a dynamic risk adjustment linked to the realized volatility of the underlying.

Option Strategy
This Option Strategy is a rules-based strategy computed and developed by the option issuer / counterparty. It aims to tap into the growth of oil and gold through the use of a "momentum" based strategy to capture the trends of the Underlying and also, volatility stabilization to reduce the exposure to the Underlying if the volatility is high.

The theory behind momentum strategy assumes that a leading performer from the last period will continue to be leading performer in the next period, while the volatility stabilization will protect investors against sudden changes in the Underlying prices.

How to determined the asset class?
In determining which asset class to invest into, the Option Strategy will look at the below rations:
  1. (gold price / oil price) spot ratio
  2. 60 days Moving Average (MA) of the Gold / Oil Ratio



To read the prospectus, please click here.
Source: RHB Investment Management

Related Posts:

New Fund: AmAustralia Fund

Looking good on Australia, AmMutual is launching a new fund to capture the potential of Australia. The fund seeks to provide income and long-term capital growth by investing in Australian equities and Australian dollar fixed income securities.
Note: The fund's main focus is on income and to a lesser extent, capital growth.


"Australia's economy is resilient and has posted an impressive positive gross domestic product growth over the last 18 years, even outperforming all other advanced economies during the global financial crisis," said Datin Maznah Mahbob, CEO of Funds Management Division, AmInvestment Bank Group. (Business Times)

Investment Strategy
The fund generally maintains equity exposures within a range of 50% to 100% of the fund's NAV. Then, the balance may be invested in Australian dollar fixed income securities and liquid assets. 
It will derive its income primarily through investments in relatively higher paying dividend stocks and bonds. However, it may also invest in growth stocks to participate in an actual or anticipated stock market rally.

As such, Credit Suisse AG, Singapore Branch has been appointed as the Sub-Investment Manager to manage the fund's Australian portfolio.


Process & Selection of Equity
Process & Selection of Fixed Income Securities


Investor's Profile
  1. Income and Long-term capital growth on their investments,
  2. Long-term investment horizon,
  3. Participation in the upside potential of Australia
Key Data of the fund

Source: AmMutual

Tuesday, March 15, 2011

Post-Japan Disaster: After Timber, it's Glove Sector?

As per our previous posts (How Should Investors trade after the Japanese Disaster?), we wrote about timber counters, and it's proven the right sector investors should look at. And, below is the performance of those mentioned counters.

www.financemalaysia.blogspot.com

All of them outperformed KLCI, which recorded -2.20%. Why WTK outperformed its peers? Simple answer is its cheaper share price and better liquidity. In fact, TaAnn and WTK is the main focus because they export 80-90% of their products to Japan. This puts them in the limelight of stocks investors should look at for the moment.

Why should you look at Glove sector next?
After timber, glove sector should outperformed the generally weak market sentiment. Investors are scared. Those who already bought was stuck-in there. Those who already sold was staying sidelined. And, those who dare to buy now is focusing on timber stocks only - and today glove.

Main reasons were:
  1. Demand for medical glove is expected to increase substantially. After the disaster, Japan should be facing another problem - outbreak of diseases. Because of the wet and dirty condition after tsunami, diseases tends to spread easily and this could intensify the demand for gloves being used by medical personnel and public in general.
  2. Stronger USD. One of the setback for our glove makers is weakening of USD which could harm the export market to US. Post-Japan disaster, USD was expected to strengthen in line with "flight to safety" strategy employed by global investors. This is an advantage, or in fact, the turning point for our glove makers.
www.financemalaysia.blogspot.com

With these two important factors, glove sector should be on investors' radar in the near future. Indeed, you do not have much choice in this kind of market where everything seems going down hill. Either you stay sidelined, or brace the storm to invest in these counters. And, my personal stock-picks would be Supermax due to its attractive valuation and good liquidity.


Finance Malaysia urged all Japanese to stay strong, and we will support you from afar. We are living in the same planet. We are 1 actually.


Monday, March 14, 2011

Pension Obligation Bonds

A short video raising some important questions about pension obligation bonds.

Sunday, March 13, 2011

How should investors trade after the Japanese Disaster?

Special edition from Japanese Earthquake on 11/03/2011 (black Friday?).

Duped as Japan's deadliest disaster in more than a century, 10m high tsunami crushing on the coast line, and yet to be confirmed - world's worst nuclear disaster in 25 years. I'm sitting in front of computer screen, reading the news while monitoring the share market that Friday. The more I read, my heart is bumping faster, and the share market is going downhill.

Modified Tsunami picture

In fact, KL is raining for whole day, signaling the bad situations would appeared somewhere, and it materialized in Japan shortly. In the morning session, KL market is rather quite. I asked myself: "Today, traders are still in bed due to the favorable sleeping weather?".

To recap, below is the performances of major market on Friday.
Bloomberg
What should investors do?
And, how should investors trade going forward?


Personally speaking, I don't think this is a good time to accumulate. We never know the bottom. Catching the falling knife is very dangerous, and it's not worth to take the risks. Let's gauge it with the previous major earthquake in Japan, the 1995 Kobe temblor. According to Macquarie Group Ltd, Japanese stocks fell 8% in the week after Kobe temblor.

Meaning, with 1.72% down on last Friday,  there is another 6.28% to go. But, the aftermath is more serious this round, thus, at least 10% slump is justifiable. Japanese yen strengthen considerably on Friday, as investors pull money out from share market and into government bonds or money market.

Sorry to say that the Japanese outlook is very bleak currently. Being the world's most indebted country, and with a negative growth in 4Q2010, Japan needs time to rebuild and time to restore investors' confidence.


Malaysia timber companies to do well?
However, timber companies should do well in the expense of Japan's disaster. Stocks to watch is Ta Ann, WTK and Jaya Tiasa. Japan is the single most important market for local timber companies. As such, the main catalyst for timber sector now is the reconstruction of affected area in Japan in the coming months.

 

Thursday, March 10, 2011

What is Statutory Reserve Requirement (SRR)?

Everyone is buzzing about SRR lately, since Bank Negara Malaysia's statement which stated its intention to raise SRR in the near future. Actually, what is SRR? And, what is the effect of higher SRR imposed? Why BNM using SRR right now? Finance Malaysia hopes to clear everyone's doubt and would appreciate if you can share this out.


What is SRR?
Statury Reserve Requirement is a monetary policy instrument available to Bank Negara Malaysia (BNM) for the purposes of liquidity management. Effectively, banking institutions namely commercial banks, merchant/investment banks and Islamic banks are required to maintain balances in their Statutory Reserve Accounts (SRA) equivalent to a certain proportion of their eligible liabilities (EL), this proportion being the SRR rate.

Why BNM uses the SRR as its "tool"?
Since SRR is available to BNM to manage liquidity and hence credit creation in the banking system, it was used to withdraw or inject liquidity when the excess or lack of liquidity in the banking system is perceived to be large and long-term in nature. Currently, BNM believes that our banking system is lack of liquidity, thus it may raised the SRR to "store" more money in banks.

Effective 1 March 2009, the SRR rate for banking institutions is 1% of EL. As of 1st September 2007, the EL base consists of ringgit denominated deposits and non-deposit liabilities, net of interbank assets and placements with BNM.

Previous adjustments to the SRR rate
What is the effect of higher SRR?
As explained above, higher SRR means that banks in Malaysia will have to keep more money as their reserve. This translates into lower loans growth for banks. Normally, banks wiould imposed stricter loan approvals for borrowers, because less funds are available for lending.

Normally, higher SRR translates into lower profit growth for banks. Banking stocks are the hardest hit. But, raising the SRR from a record low of 1% is unlikely to have any significant impact on credit growth. Finance Malaysia see this as an opportunity to accumulates banking stocks if they are battered down because of higher SRR.

Source: OSK Research

Source: OSK Research


Source: OSK Research

Source: OSK Research

Source: Bank Negara Malaysia


Related Posts:

My First Home Scheme: Home of Trouble Ahead?

Once again, to address the affordability issues of properties, MyFirst Home Scheme (My1st) was launched by government on 8th March 2011. Thanks for addressing the problem faced by young Malaysians working adults. But, does it really worth to even think about the scheme?

Of course, owning a house at young age is a good start to family planning. In fact, we're living in a society where buying a new house tights closely to starting a family. But, this is not necessary a MUST to everyone of us. We must do proper planning before committing for such a long-term loan with such huge amount. Buying a house is not buying an iPad or iPhone.

Only apartments are likely with less than RM220,000 price tags in Klang Valley now
Highlights of My First Home Scheme...
  • For those earning less than RM3,000 monthly
  • Working in private sector
  • Confirmed employees with a minimum of 6 months in the job
  • Joint applications are allowed (both in private sector and are family members)
  • 100% loan financing for first house purchasing
  • Eligible houses: Between RM100,000 and RM220,000
  • Both under construction or completed properties
  • Repayment period of up to 30 years
  • Monthly loan repayment must be < 1/3 of applicants' monthly gross income
  • 25 participating banks / financial institutions
Burning questions to participating banks...

  1. Does the participating banks offering the same rate as currently practiced?
  2. Does the banks really allocate sufficient funds for such loan?
  3. Would the bank perform stricter credit checks since many borrowers are young and categorized as higher risk group?
Burning questions to borrowers...
  1. Are there any houses out there you still think that is not overvalue? Still berbaloi?
  2. Assumed that you found one, does it fit into your desired picture? Safe surrounding?
  3. Assumed that you also found one, are you quick enough to snap it?
"Trouble Ahead"?
Assuming that loan rates as BLR-2.2% (BLR currently is 6.30%) and a 100% loan amount of RM220,000, the monthly loan repayment is RM1,063. If an eligible guy take the loan with maximum salary of RM3,000 allowed, the take home pay after EPF deduction was RM2,670 only. This translates into 40% of net income!

Example calculations of monthly loan repayment

Do not forget the legal fees, stamp duty, fire insurance, MRTA, cukai pintu, cukai tanah and renovations fees! I think most of our fresh graduates will buy a new car first. Assuming that the car loan installment is RM500 monthly, this would add up to 58% of net income!
To make trouble bigger, please take note of the changing interest rate environment, which means the BLR would possibly revised upward in the future. Then, your loan repayment will be adjusted higher accordingly. Can you afford your loan repayment then?

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Monday, March 7, 2011

New Fund: PB Asia Pacific Enterprises Fund

Looking good on the long-term growth potential Asia Pacific region, Public Bank is launching its equity fund, the PB Asia Pacific Enterprises Fund on March 8. Managed by Public Mutual, the fund will focus on companies with market capitalization of US$ 1 billion and above in domestic and Asia Pacific, through a diversified portfolio of companies.


By investing in mid-to-large corporations, investors would be better positioned to benefit from the resilient activities in the Asia Pacific region. These type of companies tend to perform better given their leading positions in their respective industries and established market shares, especially during challenging market conditions just as now.

What did Public Mutual's CEO said?

"After a strong rebound in 2009, global and regional equity markets continued their uptrend in 2010 amidst improving economic activities. Despite the recent spike in oil prices, regional equity markets are expected to remain underpinned by reasonable valuations and resilient economic growth prospects over the medium-to-long term."

Fund Features
  • The fund may invest up to 98% in selected Asia Pacific markets
  • Equity exposure: 75% - 98%
  • Exclusively distributed by Public Bank
  • Suitable for investors with aggressive risk-reward temperament
www.financemalaysia.blogspot.com

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Berjaya Food: Testing Investors' Appetite?

Listing tomorrow (March 8), Berjaya Food (BFood), through its subsidiary Berjaya Roasters, is principally involved in the development and operation of the Kenny Rogers Roasters (KRR) chain of restaurants in Malaysia. All started when Berjaya Group acquired KRR in 1993, and being the exclusive franchisee in Malaysia, operating 52 outlets nationwide.
Kenny Rogers Roasters
What's in BFood mind?
  • Open 8-10 outlets per annum
  • Emphasizes healthy food targeting increasingly heath conscious consumers
What Analysts say?
The IPO price was set at RM0.51, and Berjaya Group will still be the largest shareholders after IPO with 70.91% shareholdings. OSK Research value BFood with a RM0.57 target price, based on 7.5x PE, which represents a 30% discount to its closest peer in Malaysia, QSR Brands due to its smaller revenue and earnings base. BFood intends to distribute up to 50% dividend payout.

Past and projected revenue. Source: OSK, Prospectus

More "food" for BFood? 
Berjaya Group does not discount the possibility of injecting its other food businesses into BFood once they turn more profitable. I believe this is just the beginning for Berjaya Group to unlock its value in food and beverages businesses. Potential businesses that may injected includes:

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Saturday, March 5, 2011

Hans in Hungary

Since a couple of days I am in Budapest. I am visiting Corvinus University until mid-March.

If I am able to I will come back with some comments on the economical situation here in Hungary, i.e. some observation related to the investment climate.

Friday, March 4, 2011

New Fund: OSK-UOB Capital Protected Sector Strategy Fund

Yet, another capital protected fund for investors by OSK-UOB unit trust management. Following the pump priming efforts by governments around the world during the financial crisis, the global economies have begun to stabilize and signs of recovery are growing strong. The stimulus packages introduced have benefited broad market sectors to a different extent in each sector at each stage of recovery.


"At each stage of the economic recovery, different market sectors will benefit to a different extent. These 4 sectors which are well diversified are expected to capitalize on the different sectors' play", said Ho Seng Yee, CEO of OSK-UOB.

According to Ho, the fund shares a similar strategy with the OSK-UOB Capital Protected Gold Guru Fund that was launched in 2009 and has registered returns of 29%.

Funds' Allocation & Strategy


This is a 4-year close-ended capital protected fund which aims to provide capital appreciation over the medium term whilst protecting investors' capital on the maturity date. To accord for the capital protection feature, the fund will invest primarily in 4-year ZNIDs with the remainder of the capital raised invested in 4-year over-the-counter (OTC) option whose underlying asset is the Multi Sector Strategy ("Sector Option") to generate the returns for the fund.

The Multi Sector Strategy Option
It provides investors an exposure to 4 distinct market sectors represented by exchange traded funds in the Energy, Material, Financial and Consumer Discretionary sectors.

While the Sector Option is denominated in Ringgit Malaysia, the underlying Multi Sector Strategy is based in Singapore Dollars, thus, the Fund's return is subject to exchange rate risk.



Source: OSK-UOB unit trust management bhd

To read the fund's prospectus, please click here .


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New Fund: OSK-UOB Asia Financials Fund
New Fund: OSK-UOB US Focus Equity Fund
Unlocking the Mystery of Capital Protected Funds