Financial Zones of London: How to get good coffee in Berkeley Square, Mayfair

There’s a troubling question in my mind whenever I’m in Berkeley Square: It’s the mystery of why I can’t find any good coffee here. It’s mysterious precisely because this square is the centre of the world’s largest concentration of hedge funds, and that kind of means the average person walking here commands a salary larger than…well, everyone else in the whole world. So where’s the good coffee?

BERKELEY SQUARE, MAYFAIR

Have you ever wondered what a hedge fund is? I mean, I can tell you that a hedge fund is a company registered in the Cayman Islands, and that people around the world put money into it, and then it uses that money as collateral to borrow a bunch more money, and uses that to bet on various things like company shares, commodities, bonds, and derivatives…

But does that really tell you what a hedge fund is? To know what a hedge fund is, you should try run your hand over the golden plaques on the doors around Berkeley Square. The names seem unfamiliar, but this is a ring of fire, and these companies are sorcerers channeling enormous circuits of cash. The old facades hide computer networks sending orders to transact in every market on the globe. In fact, I’d give you 2:1 odds that there’s someone in that inconspicuous building over there that’s about to execute a trade that will affect the value of Russian mining companies in Siberia.

But where’s my good coffee? I know where it is. Lansdowne House, 57 Berkeley Square, houses one of the world’s largest private equity companies – The Carlyle Group on floor 3. Those guys must have good coffee. Have you ever wondered what a private equity company is? I mean, I can tell you that a private equity company runs private equity funds, registered in the Cayman Islands, and that people around the world put money into those funds, and then those funds use that money as collateral to borrow a bunch more money, and use that to buy and sell companies.

But would that really tell you what a private equity company is? To know what a private equity company is, put on a heavy Russian accent, walk in and tell the Carlyle Group that you’ve got an ailing Siberian mining business that needs restructuring – they’ll take you to their meeting room and give you good coffee.

LANSDOWNE HOUSE, COFFEE SHOP FLOOR 3

Then you can head back to Green Park tube via Berkeley Street. You’ll pass Glencore. It’s Swiss, and it’s one of the world’s largest privately owned companies. The UK office is by the Sainsbury’s on the corner. They’re huge in the global commodity scene, and they’re only about to get bigger, with a gargantuan IPO* planned. They’ve historically not been too transparent, and, word on the street is that commodities can be a dirty business at times, with all that Siberian mining. This area looks posh, but it’s not – it’s all cowboys, assassins, and oligarchs.

*(refers to initial public offering: selling shares of ownership to raise money)

Inflation och resultaträkningar!

För att tjäna pengar på att köpa och sälja aktier är det en del som förlitar sig på tur. Det är naturligtvis helt OK att göra det och en hel del framgångsrika investerare är säkert rika p.g.a. tur. Dock, för de flesta av oss är det nog förmågan att gräva fram någon ny bit information (som få andra tänkt på innan alla andra också inser informationens stora betydelse) som gör skillnad.

En självklar plats att söka information om ett bolag på är naturligvis i kvartals- och års-rapporter. Är man duktig på att läsa balans- och resultat-räkningar har man naturligtvis en edge i investerarspelet. Själv har jag aldrig ägnat mycket tid åt finansräkenskaper och den största anledningen till det är att jag vet att jag inte är speciellt duktig på det hela (jag är ingenjör och nationalekonom, ej revisor). Jag vet alltså att jag inte har någon edge!

För er som är duktiga på redovisning är följande observation inte så spännande. Och för mig som knappt läser resultaträkningar är det inte heller så intressant. Men, för den som kämpar med siffrorna i kvartalsrapporten kan det vara nyttigt att inse att hög inflation försvårar det hela! Och inflation är något vi får leva med ett tag. I BRIC-länderna ligger inflationen redan på tvåsiffriga nivåer och i flera av de utvecklade länderna är inflationstakten på uppgång.

Hur kommer inflation in i bilden? Jo, vid hög inflation kan man inteckna en “vinst” bara genom att köpa ngt för KPI den 1 januari och sälja det för KPI 12 månader senare. Och vips har man en vinst i resultaträkningen. Detta är förstås många medvetna om men frågan är vilka bolag som gör så och hur de gör det. Detta lämnar jag dock gladeligen till andra att bedöma. Som sagt, det är inte mitt område.

Slutsats: tänk på att det inte bara är Finance 101 (inflationspredikterande) som gäller för investeraren i inflationstider, d.v.s. i hög grad vid BRIC investeringar, utan även Accounting 101 (inflationstrixande)!

New Fund: CIMB-Principle Asia Pacific Dynamic Income Fund

On 25th April 2011, CIMB-Principle Asset Management Berhad launched the first Asia-Pacific fund for this year. The fund will invest in dividend-yielding stocks from the Asia Pacific (ex-Japan) region. To brings out the "dynamism" of the fund, a "color-changing dragon" was used. For sure, the company must has placed a lot of hard work to come out with the idea and I think it is a successful example which could attracts the attention of prospective investors.

"Investors are generally back to being bullish. After 2 very good years, valuations have recovered and Asia Pacific ex-Japan markets are up. Looking ahead, slower economic recovery of the developed markets will shift investors' appetite to Asia Pacific and this positive outlook will spur further stable investments. We are confident that markets will perform positively and this Fund will satisfy investors' revived sentiments and lingering concerns", said CEO of CIMB-Principal. 

Investment objective

The fund aims to provide regular income by investing primarily in the Asia Pacific ex Japan region and at the same time aims to achieve capital appreciation over the medium to long term.

How to achieve that?

Under general market conditions, the Fund's investment will focus on high dividend yielding equities of companies. In addition, the Fund may also invest in companies with good growth potential, which may adopt a strong dividend payout policy.

How about in not-so-good time?

The manager may take temporary defensive positions that may detract from the Fund's prescribed asset allocation when the manager believes that the equity markets that the Fund invests in are experiencing excessive circumstances, the Fund may invest all or a substantial portion of its assets in money market instruments and/or other fixed income investments. The manager may also utilize derivative instruments such as futures contracts to hedge the portfolio.

What is an active investment strategy that the Manager will adopt?

• combines top-down country and sector allocation with a bottom-up stock selection process
• reviewing the macroeconomic trends in Asia Pacific ex Japan economies
• analyzes the direction of GDP growth, interest rates, inflation, currencies and government policies to form the view and outlook for each country
• then, assessing their impact on corporate earnings and dividends and determine if there are any predictable trends

Investors profile:

• have a medium to long term investment horizon
• want a well diversified portfolio of Asia Pacifc ex Japan region
• willing to take moderate risks for potentially moderate capital returns over the long term
• seek regular income

What is the targeted return?

The fund is an equity income and growth fund with a target return of 8% per annum over the medium to long term. "We believe this is an achievable target even after the crisis in 2008. The demand for Asia Pacific ex-Japan equities is on the rise, with continued rapid urbanization and accompanying domestic consumption that have fueled high GDP growth in most Asia Pacific countries, which are higher than that of the US and Europe," added CEO.

Click here to download the prospectus

Source: CIMB-Principle website

When is the BEST time to buy House? (25 Apr 2011)

Last year 2010, Malaysia property market recorded the BEST year ever. Will it be another record breaking year in 2011? Many economist and property analysts opine that this year, the property market will appreciates by another 10-15%. So, should we wait some more?

Recently, many of my friends keeps on asking the same bold questions.

• Should I buy house now?
• Or, should I wait some more?
• But, when is the property downturn?

Modern Design: Swimming pool in the house.

Good questions though, but if you ask me when is the property downturn, I really do not know. As a rule of thumb, I will rely on the stock market to give me the indication. Commonly, property market will take a blow one year after the crashing of stock market. Example, the 2008 financial crisis gave us a good timing to invest in property market. For those who buy house during that time, you should know what I am talking about and smile.

So what? How about now?

Before answering your question, I would like to throw you back a question "Are you looking for your first house?". If YES, anytime is the best time to own a house, forget about the timing factor. Your objective to own it, not invest for return. Why bother waiting for the best time? Otherwise, you are renting while waiting, and money still running out of your pocket every month.

But if your answer is NO, and you treat it as an investment, I do not think this is a good time. Why? As you already know, the valuations is rich enough to swallow your future potential return. Given the risk reward profile, it is not worth to invest at current high level to exchange for a reasonable return. If you're renting it out, sure this is not wise move. Please bare in mind that the rental is very hard to go hand-in-hand. Prices are going way too fast for rental to catch up now.

Fun things to do in London’s Financial heartland No.1: Going on Exchange

Last week I took a London-based NGO to the London Metal Exchange. We’re kind of concerned about some issues around commodity speculation, so thought it would be worth a visit. To be fair, I sometimes go with my friend Harry just for fun, because it’s such a darn unique curiosity. If you ever want to do it, go to the LME website, fill in the booking form and send it to them.

Why would you want to go there? Because it’s the largest global exchange in industrial metals, and that makes it an interesting node in the matrix of global trade. It mostly deals with metal derivatives (futures and options contracts for future delivery of metal), but trade in physical metals for immediate delivery also occurs. I spoke to a trader outside when he was having a smoke, and he said that if you deal in the physical ‘spot’ contracts, you’ll have metal waiting for you in a warehouse within two days.

The real choice is what metal you want. There’s no useless precious metal here, it’s all useful base metals, the physical underpinnings of global industrialisation and urbanisation. Most important is copper, used in electronics and construction. Its price is a key proxy for world economic growth, especially of developing countries. Chilean mines are the largest suppliers, and Chinese companies are the largest consumers. We churn through some 50 000 tonnes of this stuff each day.

Second up is aluminum, used for cars and construction and tin foil. Then there’s zinc, mostly used for galvanising steel for the auto and construction industries. Nickel gets used in the creation of stainless steel, and batteries for hybrid cars. Normal car batteries get made out of lead, half of which is mined in China. Rechargeable batteries for mobile phones get made with cobalt, mostly produced in the Democratic Republic of the Congo, but then shipped to China. Other metals include tin, dominated by only four producing countries – China, Indonesia, Peru and Malaysia – and molybdenum, a rare earth used in steel alloys.

Every metal on the exchange is pretty much dominated by China in terms of global consumption, and, frequently, production. It thus seems something of a historical anachronism that the exchange is in London rather than Shanghai. Then again, it’s an open question about how much of the LME trade is actually related to physical metals for real-world use, and how much is purely related to the speculative activities of London-based investors.

So let’s say a hedge fund decides that things in the DRC aren’t looking favourable. They phone their local broker at the office, and request to purchase 100 cobalt futures. The broker at the office phones his floor broker on the exchange, who gives the order to the clerk. The clerk gives the order to a guy sitting on a plush red leather couch in the ring. This is the ring dealer. The ring dealer casually shouts that they want to buy 100 cobalt futures. Some other ring dealer, carrying a different order, casually agrees to sell. Deal done. The clerk relays the info back, and the phone rings at the hedge fund office, telling them that the trade is done. They now own 100 tonnes of cobalt, in a roundabout way, through the derivative.

And this kind of thing goes on all day, and the prices set in the process become the ‘official’ price of cobalt around the world, used as a benchmark for producers and users to set their own prices.

For the most excitement, you probably want to go for the ‘kerb trading’ sessions, the afternoon free-for-all where they shout at each other. The earlier sessions are kind of boring and the ring dealers just sit around and don’t seem that interested in setting the global price of metal. Keep a look out while you’re there for moments of intrigue: See if you can spot JP Morgan trying to corner the copper market.

ACEs are back. Be cautious? (21 April 2011)

Yeah... Our long lost friends are here again. These friends are in the limelight again, conquering the lists of most active counters lately. Punters are trading happily because of their relatively cheap price, higher volatility, and most importantly less coverage by analysts. Normally, investment banks did not cover ACE counters due to their not-so-clear business model, hence very hard for them to project their earnings and setting fair value. No estimated fair value means punters can set the "fair" ground themselves.

Most Active Counters in Bursa Malaysia on 21st April 2011

You Jump... I Jump

Of course, some of those ACE counters are there for certain reason, but many of them are there without any material announcement. For example, Tricubes is very active due to its participation in ETP, by investing RM50mil to develop the 1Malaysia email project. But then, why Omedia, IE, Viztel, TDEX also featured in the most active list today? Don't we have better companies to trade lately? And, even for Tricubes, a PN17 (financially-troubled) company, the future was still bleak. Still, it is a loss-making company. How did Tricubes comes out with a whopping RM50mil?

Why should we be cautious?

ACE market counters presumably are lower-graded companies, which get their ways to list in Bursa Malaysia. In fact, this is true to certain extent as Bursa Malaysia did not required past proven track records for aspirant ACE companies. Alternatively, they can be backed up by a so called "sponsor". This sponsor could be a company, investment banks, or venture-capitalist (VC). The reality is market manipulators are "doing" their job again once they see the opportunity in the market, and it is now - hot and spicy market. Of course, these scenario would not last long, maybe days. Then, they will wait for next round.

Sixth-sense tells Finance Malaysia that the market momentum is dying slowly, which could spark a sell-off in the market soon. Would it happened on Good Friday tomorrow?

New Fund: MAAKL-HDBS Shariah Progress Fund

MAAKL Mutual today announced the launch of the MAAKL-HDBS Shariah Progress Fund, an Islamic equity small-cap fund, that gives investors the opportunity to invest in Shariah-compliant growth companies in Malaysia.

CEO of MAAKL said:"The investment objective of MAAKL-HDBS Shariah Progress Fund is to provide unit holders with steady long-term capital growth at a reasonable level of risk by investing in a diversified portfolio of small to medium capitalized Shariah-compliant equities and equity-related instruments."

Investment Style & Strategy

The fund will invest primarily in a diversified portfolio of small to medium size Malaysian equities which comply with Shariah requirements. The fundamental investment process will be geared towards identifying and investing mainly in growth companies listed on Bursa Malaysia which are not part of the FTSE Bursa Malaysia KLCI Index constituents.

Various tools will be used to facilitate the valuation process, including price over earnings ratio, the discounted cash flow model and enterprise value over earnings before interest, depreciation and taxation. Meanwhile, Islamic money market instruments are only used to maintain liquidity position and also as a short-term alternative should the equity market become extremely volatile. These include term Shariah-based deposits, Islamic repo and short-term cash placements with financial institutions.

Does this fund suits you?
This is an equity fund, and it is suitable for investors who:

• are willing to accept a higher level of risk
• seek to maximize long-term capital appreciation from their investments
• have a low income stream requirement
• have a medium-to-long term investment horizon (3 - 5 years)

Who is the fund manager?

In this collaboration, MAAKL has appointed HwangDBS Investment Management Berhad as the fund manager for this fund.

Source: MAAKL Mutual
Click here to read the prospectus