How did Singapore's Cooling Measures Impact Malaysia's Property Sector? (Dec 2011)

On 7th Dec 2011, the Singapore government announced that it would impose an Additional Buyer's Stamp Duty (ABSD) to moderate investment demand for private residential property and promote a more stable and sustainable market. This is needed in view of the stubbornly high inflation rate in Singapore amidst the slowing demand from developed markets. For those who don't know, inflation rate in Singapore was mainly contributed by surging property prices.

The ABSD was effective 8 Dec 2011. After the announcement, property-related stocks slumped last week, following by a slump in banking stocks because of an expected slower housing loan growth. The latest measures are a near-term negative for property developers with an anticipated trend in lower average selling prices and transactional volumes, which will hurt profitability. Nevertheless, most large-cap property developers in Singapore are relatively well diversified, not just across sectors (industrial and commercial), but also geographically.

Under the latest cooling measure, the ABSD will be added on top of the current Buyer's Stamp Duty, and apply to the purchase price or market value of the property (whichever is higher) according to the type of purchase as below:

1. ABSD of 10% for foreigners and corporate entities buying any residential property
2. ABSD of 3% for permanent residents who already own one property, and buying the 2nd and subsequent residential property
3. ABSD of 3% for Singaporean citizens who already own 2 properties, and buying the 3rd and subsequent residential property.

What's the Impact on Malaysian Property Sector and Developers?

Because of our closely linked economies, some of our property players already ventured into Singapore property market, such as Sunway, SP Setia, IOI Corp and YTL Land. According to OSK research report, Sunway has 4 ongoing projects with a total GDV of around SGD1.7bn under its 30:70 joint venture with Ho Hup Group and a small wholly owned project with at GDV of SGD32.8m. Two of the projects, which are under the Executive Condo (EC) and Design, Build and Sell Scheme (DBSS), are exempted from the ABSD. While the remaining three ongoing projects, coupled with another upcoming project (GDV: SGD357m), are under private development (PD) which is subjected to the ABSD. However, with its ongoing PD projects already achieving a strong take-up rate at around 70%, we believe the impact on Sunway will be rather minimal.

Sector wise, Finance Malaysia believes that there will be a in-flowing of money to our shore given its proximity to Singapore, coupled with the attractively packaged Johor's Iskandar Development Region (IDR). This would be a timely process where IDR is gaining traction with basic infrastructures were almost completed. Those developers which had already jumping into IDR may benefits from the announcement. Tebrau Teguh, being one of the most sensitive stocks linked with IDR may see some buying interest. 

Asia property sector to deteriorate?

A combination of excess liquidity, low interest rates and a robust macroeconomic outlook has pushed prices up over the last few years. As a result, housing affordability for low and middle income families has worsened across the region, with low interest rate slightly cushioning the adverse effect of higher prices. Several central banks have intervened and introduced regulatory measures - such as higher minimum down payments (etc. Msia) and more land releases for construction (etc. Singapore) - to cool down the markets and slow credit expansion.

Within a specific market, the prime segment should hold up better than the mass-market segment. Should the real estate market correct instead, steep corrections for the mass segment are unlikely because of the following reasons:

1. Rental Yields still appear attractive in the current low interest rate environment;
2. Residential vacancy rates are low in many Asian cities, especially in Hong Kong and Singapore (not in the case for Msia);
3. Governments are well aware of the potential negative spillover effects of a strong housing market downturn to the overall economy. Thus, they are more proactive in making monetary decision to juggle between tightening or loosing the monetary policies.

New Fund: ASM Syariah Capital Protected Sector Linked Fund

ASM Investment Services Bhd had recently launched its latest fund called "ASM Syariah Capital Protected Sector Linked Fund". It is a close-ended fund with limited subscription period and a maturity of 3 years.

For this Fund, it aim to provide investors with capital protection upon the maturity of the Fund as well as to give investors potential returns higher than the rate of return of the 12-month Kuala Lumpur Islamic Reference Rates (KLIRR), being the selected Fund’s performance benchmark.

Please read on for more information...

To achieve the capital protection objective, the Fund will invest not less than 88% of the Fund’s Net Asset Value (NAV) in 3-year Islamic Negotiable Instruments of Deposits (INIDs) issued by several premier financial institutions in Malaysia. This will potentially protect investors capital, including a sales charge payable by investors.

To realize the potential return objective, the fund will invest up to 12% of the Fund’s NAV in quality Shariah-compliant equities of various sectors in Bursa Malaysia. These equities have been identified as the leaders of their respective sectors under the Economic Transformation Programme (ETP). The Fund’s name thereby reflects the composition of the Fund’s portfolio consisting of INIDs and each sector’s leading equities.

Click here to download the prospectus

Source: ASM Investment Services

Suitpossum's Ecologist article No.2: Four strategies of subtle financial subversion

COMING TO A CINEMA NEAR YOU

Last week I got published in The Ecologist. The article was called A four-step guide to bypassing high street banks. This is my second article for the magazine (my first was on food speculation), and this time the aim was to sketch out how people might engage in financial protest, not by waving placards, but by changing debit cards.

Many people agree in principle that major high-street banks have too much power, and that they frequently abuse that power. Nevertheless, many individuals don't necessarily have the time, or inclination, to protest about it directly in the manner of the Occupy protesters. There's been a lot of discussion about how to make financial protest more inclusive (including this piece by Kenth Gustaffson on a type of ‘virtual occupy movement’), but perhaps one of the most profound (and often overlooked) forms of protest is to distance yourself from mainstream finance by withdrawing deposits and avoiding using the services.

The article is pretty straightforward. It goes through four (UK-focused) strategies:

1. You can move your money to a more socially responsible bank like the Co-Operative Bank, or to building societies and credit unions
2. You can invest savings in socially responsible alternatives, including certain investment funds and specialist investments with environmental or social benefits
3. If you need a loan, you can bypass the mainstream loan system and engage in peer-to-peer (P2P) finance or crowdfunding
4. If you want to go bold, you can try detach from the mainstream currency system and use alternative currencies

THE ANSWER: BREAK MONOPOLY

Bypassing mainstream finance is not necessarily easy or convenient, and it's not a solution to the deeper structural problems of the financial sector. Change though, needs to come from many different angles. Regulatory and policy changes are needed, internal cultural changes are needed, and more competition is needed. Moving your money and getting involved in alternative finance is one way to boost competition, and one way to support sustainable finance innovation. It's an act of protest, but in encouraging financial diversity, it's also an act of creativity.

Please do check out the article. Any comments are most welcome, and I’d dig to hear any other suggestions for alternative strategies that I might have missed.

OSK Strategy and Outlook (Dec 2011)

Essentially, with the uncertainties in Europe continuing amid a potential global slowdown in the economy, we will continue to see market volatility in the next few months. As such, we continue to advise investors to be patient and focus on Defensive counters, while looking out for opportunities to Trade. We continue to advocate Buying into Weakness when the KLCI falls towards the 1,300-pt level, focusing on Banks, O&G and Construction stocks while we advocate Selling into Strength on the same three sectors when the market rallies towards 1,500 pts.

Festive Cheer in December?

While we remain fairly defensive over the mid term, December may still be a bright spot amid the gloom. There is still a possibility of the traditional year-end rally and the just announced joint effort by various central banks, including the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, the Swiss National Bank and the Bank of Canada to provide liquidity may just convince markets that there will indeed be a coordinated global effort to tackle the sovereign debt woes.

These central banks will be reducing interest rates on dollar liquidity swaps by 50 basis points. While we doubt that this will be the magic pill for Europe and the world, there may just be enough optimism and hope left in December to see markets rise towards the year end. As such, we see a possibility that the KLCI may still rise to end the year in positive territory, close to our 1,533-pt year-end target, although ultimately economic woes in Europe should drag it down towards our 1,466-pt 2012 Fair Value.

Asian governments also getting into the act. The efforts by central banks is also being supported by Asian countries with the Chinese government cutting reserve ratios for its banks, while Thailand announced its first interest rate cut since August 2009. As such, there could also be a regional boost to support the global effort.

OSK Stock Picks for December 2011

Throwing in some cyclical names in December

Given our view that the KLCI may possibly rise in December with the coordinated efforts by central banks worldwide to put on a united front (at least till the end of 2011), we introduce more cyclical names into our Top Buy list, such as Maybank (replacing Axiata that has done very well) and Dialog (replacing the ever defensive KPJ Healthcare).

Source: OSK Research Report

RHBRI's Stock Watch (December 2011)

In contrast, the better-than-expected results of Maybank came mainly from lower-than-expected credit cost and minority interest charged, partly offset by weaker-than-expected non-interest income. In addition, the change in accounting treatment for the recognition of profit equalisation reserve also helped lift earnings.

The stronger-than-expected revenue growth of DiGi, on the other hand, came from stronger data and prepaid voice, aided by festivities, as well as improvement in consensus, were above our forecast on account of better-than-expected EBITDA margins on the back of lower other operating costs and supplies & materials expenses, as well as lower effective tax rate.

During the quarter, BAT experienced stronger-than-expected industry volume growth, while earnings of Genting Plantations were boosted by stronger-than-expected increase in FFB production.

The Under-performers...

Sector-wise, earnings of the semiconductor, building materials, construction, motor, transportation, oil & gas and healthcare continued to disappoint. In addition, the insurance sector which reported stronger-than-expected results in the previous two quarters, succumbed to higher-than-expected claims ratio (as in the case of MNRB Holdings and Kurnia Asia) and lower investment income (LPI Capital) and disappointed this time round.

In the semiconductor/IT sector, both MPI and Unisem sufferred from lower revenue and EBITDA margins on account of lower contribution from higher margin chip packages. The results of Notion Vtec, however, were above our forecast due to better EBITDA margins and operating income from the sales of raw material scrap.

Within the building materials sector, steel players continued to suffer from downturn in the industry and margin contraction as a result of lower selling prices of steel products. Out of the five steel manufacturers we cover, two earnings were below forecasts (CSC Steel and Ann Joo Resources), one in line (Kinsteel) and two above projections (Hiap Teck and Perwaja). In addition, the two cement manufacturers (Lafarge and YTL Cement) also experienced lower-than-expected sales volume and prices on account higher cement price rebates.

Of the eight construction stocks that we cover, two results were below our expectations (MRCB and TRC Synergy) and the other six within our forecasts (Gamuda, IJM, WCT, HSL, Fajarbaru and Eversendai). The variance of MRCB’s earnings against our forecast came largely from lower-than-expected billings for both construction and property divisions, and to a ceratin extent, the lower-than-expected margins. The earnings of TRC Synergy, on the other hand, were dragged down by higher start-up costs from infrastructure projects, particularly the RM950m “package A” main contract of the Kelana Jaya LRT Line extension project.

Similarly, results of the oil & gas sector were also below forecasts as four out of the 10 stocks we cover reported disappointing results (MMHE, Wah Seong, KNM and Perdana Petroleum), five within expectations (Petronas Chemicals, Petronas Gas, Wah Seong, Kencana and SapCrest) and one above forecast (Dayang Enterprise). As mentioned earlier, earnings of MMHE were below projection due to a drop in revenue from the E&C division. During the quarter, Wah Seong’s results were dragged down by forex losses on its contracts on hand and higher-than-expected minority interest, while that of KNM by provisions, likely for cost overruns incurred under legacy contracts won in 2009 to 1H FY2010. The earnings of Perdana Petroleum were hit by lower utilization of the company’s vessels and losses from associate,

Petra Energy due to the Kumang Cluster project. In contrast, Dayang’s earnings were above forecast, boosted by better-than-expected margins from the marine charter division and lower-than-expected interest cost.

Market Strategy: Stay Defensive

Despite the deepening euro debt crisis and a struggling US economy, global equities have been more resilient than what we had expected. However, in the absence of a concrete solution for the euro debt crisis and given that US politicians are too divided to resolve a dispute over taxes and spending, concerns are growing that things could turn from bad to worse in the months ahead. Consequently, we believe investors are still in for a volatile year ahead. Under such circumstances, we continue to advise caution, and this is reflected in our top picks, which include companies with stable cash flows and above-market yields.

Source: RHBRI report

Angående mina senaste tre blogg-inlägg

Sedan mina senaste tre bloginlägg skrevs har intressanta saker skett:

1) Sedan jag skrev mitt inlägg om Kina den 27 oktober har Kina sänkt reservkraven (den 30 november) för kinesiska banker, d.v.s. en penningpolitisk lättnad för en ekonomi som uppenbarligen brottas med sjunkande tillväxt. Och de verkar vilja få folk att förstå att de åter transformerats från hökar till duvor.

2) Sedan jag skrev mitt inlägg om Italien den 6 november har, den 16 november, premiärminister Silvio Berlusconi tvingats avgå efter 17års maktinnehav (av och till). D.v.s ett drastiskt försök till lösning för ett land med stora strukturella problem.

3) Sedan jag skrev mitt inlägg om en eventuell stundande bankkollaps den 25 november har de stora centralbankerna (Fed, ECB, BoJ, BoC, SNB, BoE) gått ut i en stor gemensam stödinsats (november 30) där korta dollarräntor sänkts kraftigt för att minska risken för en likviditetskris liknande Lehman Brothers krisen 2008. D.v.s. ett tydligt erkännande att man är fortsatt tvungna att hjälpa överbelånade aktörer.

Vad ska man säga om detta? Å ena sidan kan man förstås tolka dessa tre åtgärder som lösningen på de tre problem jag belyst i bloggarna. Å andra sidan kan man tolka åtgärderna som desperata åtgärder som inte är lösningen på de intrinsiska problemen. Välj själv!

The end of Europe’s liquidity crisis? (Dec 2011)

Well, many people already bored with the on-going Europe debt crisis, and subsequently liquidity crisis. This is like what we have seen in 2008 when Lehman Brothers collapses, which drags down the whole financial systems globally through liquidity crisis. The different is between company and country. Maybe some of us doesn't know how this chain effects rattles the global markets. So, let us start here.

The European Organisation chart of Debts

The root of the problem plaguing the market right now is Europe debt crisis, where Greece and few other European countries were highly in debts. They just simply cannot generate enough revenue (taxes) to support the economy itself. So, they resorted to seek for funding via borrowing by issuing sovereign bonds to finance their day to day operations. However, the debt is piling up intensively after 2008 global financial crisis until recently. Because the government does not have money, their bonds may go into default. So, they were forced to borrow some more, but with higher interest this round.

For them, this kind of measures are simply to prolong the problems and those debts were still there charging higher and higher interest. They are buying time, hoping their economies will survive and growing in the future to repay back whatever they borrow now. What a pretty picture?

Who is the main borrower?

Congratulations, the winners go to French banks. They are the main source of funding for these troubled ladden countries. As long as these banks charges those countries interests, everything is good for banks but bad for countries. What if those countries really go bankrupt? French banks may follow suits too.

So, the pretty solution is to write-off from the book of borrowers (French banks). Why French banks still need to accept the offer? Depending on the % of write-off, banks at least got something better than nothing. Right?

How the liquidity problem set in?

Debt writing-down means that the assets of French banks were being slashed. Last month, there is a 50% hair-cut for Greek debts and the amount will reflects in the books of these banks in the next few quarters. Now, you know why rating agencies are cutting 15 European banks' rating last week?

Sigh... But, not yet ends?

After the hair-cut, banks may having liquidity issues next. They doesn't have enough capital to borrow and this may dampened the whole financial system, thus, businesses and public facing difficulties to finance their expansion or consumption. Don't worry, angels were always by our side.

Angels (not Santa) come before Xmas...

Last week, 6 central banks globally take an important step toward dealing with the problems in Europe by pledging to continue provide funding to global banks (especially European banks). These angels are US Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. They would lower the pricing on US dollar liquidity swap arrangements effectively easing the liquidity problems faced by European banks.

This action dissolves one of the stumbling blocks in global financial system. Risk plays a role when one bank lends to another. In the current environment, banks likely don't believe that they are being compensated enough for the risks they face by lending out. With the dollar swap lines, banks can instead go to their central banks for short-term loans, provided that they have good collateral. Win-win situations? Yup. I think so because one can solve the liquidity problem, while US successfully creates a huge demand for its sliding currency.