Should we learn from Robert Kiyosaki from now on?

When news broke out that "Rich Dad, Poor Dad now a Bankrupt Dad", everyone was so excited to share it out to their circles of friends. Maybe thanks to the interesting news title created to attract the attention of us. In fact, it succeed (because it reaches Finance Malaysia attention now). Well, since we're a financial related blog, we must blog about this hyped news without second thought. Should we learn from Robert Kiyosaki from now on?

About the Bankruptcy...

According to UK dailymail, "the financial guru behind New York Times bestseller Rich Dad, Poor Dad has filed for bankruptcy on one of his companies after losing a $24 million judgement." Read carefully... It's on one of his companies, not under his own name. Meaning, Robert Kiyosaki didn't bankrupt. Then, what's the difference?

The liability of the debt was limited to the extent of the company only. It's doesn't affect the other business or on Robert Kiyosaki personal either. Doesn't it a smart move by Robert? Should we learn from him on this matter?

No doubt, there was nothing wrong for Robert to do it that way. He saved $24 million by simply closing down one of his companies. However, in terms of business ethic, he should not practice that way. Some more, he was rich enough to pay for it (we assume). Agree? This might be an interesting debate between personal interest and business ethic. Don't you think that we should learn from someone whom can be a role model in good personal value also? This world is not about money only. Let's look at the example below to differentiate it.

This is the activities we did to look for money:

Money with ethic => Being employed or doing business ourselves

Money without ethic => Robbery, burglary, kidnap...

Plantation: Start of a sector 'SELL-OFF' or CPO prices to recover? (Oct 2012)

While CPO prices have declined 20% over the past one-month to M$2,300/t, share prices of our upstream plantation universe have not reacted materially moving by -8% to +3% (-3% to +3% for our top picks) Key question hence is whether this raises the risk of a further sell-off in plantation stocks or will CPO prices recover?

Key reasons for the CPO price fall:

1) High inventory levels amid the current high output season.

2) Some easing in demand (though not materially) mainly from slower bio-diesel production.

3) Softening crude oil prices.

4) Better soybean supply prospects with improved weather.

Will CPO prices weaken further?

CPO’s price competitiveness to soy-oil and crude oil is now at its best since the previous economic crisis in late-2008. CPO's price discount is currently at US$340/t to soy-oil (spot) versus its historical mean discount of US$160/t. CPO at current spot levels of M$2,300/t is also already discounting crude oil prices at US$72/bbl based on the bio-diesel breakeven support (spot crude oil price: US$112/bbl).

Hence, we see limited downside risk at these levels and expect CPO prices to recover by 1Q13 as inventories are drawn down during the low output season by end-2012/early-2013 and with substitution demand likely to kick in given the extreme tightness in soybean supply. This is until palm oil and soybean supply recovers from 2Q13 with prices to ease again from then.

The ratio of CPO price (in US$/t) to crude oil price (US$/bbl) has fallen to 7.3x, the lowest level since the previous economic crisis in late-2008 (historical mean ratio of 9.2x). This reflects palm oil's increased competitiveness versus crude oil in the bio-diesel segment.

Stock recommendations...

We maintain UWs on AALI, IOI, LSIP and GENP and would look to sell these stocks now. Quality stocks like KLK (Neutral) may also be vulnerable short term due to rich valuations. Our key OWs - BWPT, SIME, FR and SIMP are implying 2013E CPO prices of M$2,600-2,700/t at current levels (higher than spot) and could succumb to near term selling pressure – we would look to accumulate on weakness given the support of young plantations and strong volume growth longer term, while SIME remains a defensive large cap play with valuation support.

Source: J.P.Morgan research report

RHBRI Market Outlook & Strategy 4Q2012: Stormier Outlook

RHB research institute (RHBRI) is of the view that it could still be a choppy few months for the equity market in the 4Q given weakening economic fundamentals in the major world economies and fears of an imminent general election on the home front. Whilst more rounds of quantitative easing have been unveiled in the developed world, the big question in investors’ minds is how all these quantitative easing measures will translate to better global economic outlook. Having said that, equity still stands up vis-a-vis the unappealing returns of the alternative asset classes, such as cash and bonds and any good news is still likely to prompt a rally in equities.

How was Malaysia fared?

And, what's the strategy now?

Thus far, Malaysia has fared relatively well in the global financial crisis, and this is partly on account of low reliance on foreign funding of its banking system and more importantly, the progress in the implementation of the Economic Transformation Programme to boost domestic demand and cushion the economy against the downside risk from the external sector. As a result, the economy has bucked the trend and its real GDP growth is projected to pick up to +5.4% in 2013, from +5.0% estimated for 2012. This will translate to sustained earnings growth of around 6.0% in 2013 to create new shareholders’ values for investors.

We believe after a phase of correction and consolidation, the market will come back as the huge bond purchase programmes in the Eurozone and the US will push investors out of low-yielding cash and bonds over time into riskier assets such as equities. As the general election could be delayed to March 2013, our end-2012 FBM KLCI target remains unchanged at 1,690. Assuming global situations stabilize in six to nine months time and the global economic recovery is intact, our end-2013 FBM KLCI target is 1,815, based on 15x 2014 earnings.

Whilst our core strategy remains defensive, we believe investors would still need to accumulate fundamentally-robust stocks on weakness in order to outperform the market. In addition, as the search for yield will likely remain a key driver for both retail and institutional investors in the 4Q, high divided-yielding stocks will also continue to outperform the market, in our view. Sector-wise, our key overweight are telecommunications and banking, although we also have an overweight stance on the utilities and healthcare sectors.

Source: RHBRI research report

FISCUS'12

SIMSREE witnessed cynosures of the industry at FISCUS’12, the annual Financial Summit. The presence of Guest of Honour Dr. Subir Gokarn, Deputy Governor, RBI sparkled the sombre milieu along with Chief GuestMr. Ramesh Chandak Managing Director & CEO of KEC International Limited (KEC) and Keynote speaker Mr Nilesh Shah, Director Axis Direct. It was a lifetime opportunity to listen to veteran Dr. Subir Gokarn speak about “India: 6% Growth, The new Comfort Level?” He very succinctly put forward the analogy between Policy Makers and Managers while elucidating the ingredients of growth. He listed down the various macro factors that needs to be addressed for sustainable increase in growth rate. The intricate concept given by Dr Subir Gokarn was further explained in a very lucid manner by the Mr Ramesh and Mr Nilesh Shah.

Hon' Deputy Governer RBI Dr Subir Gokarn

In his addressal, Mr. Ramesh Chandak spoke about the impact of the Power sector which is one of the most critical growth drivers for a country. He started by talking about the recent major fallacies in the sector including the massive grid failure and Coalgate scam and its implications on the overall health of the country and its economy. He pointed out that in comparison with the global leaders, India stills lags far behind in the per capita power usage with a stark difference in the demand and supply. According to him, for addressing these vital issues we need an integrated energy ministry and a developed infrastructure to reduce distribution losses.

Mr. Nilesh Shah addressed students on the topic of benefits of capital market for growth of Indian economy. He emphasized the point that development of domestic capital market is the need of current economy to encourage entrepreneurship. He also said that we have a deep potential for capital market in India and it will start benefiting the economy if more people start investing in the debentures, equities, bonds, securities etc. instead of creating physical assets in terms of gold, silver and diamonds. Mr. Shah talked about the significant role that debentures would play for sustainable growth. He gave an example of how TUF i.e. Technology Upgradation Fund for textile industry played a major role in sustainable growth of the textile industry in India in the times of inflation.

What followed was one of the most engaging discussions that students of SIMSREE had ever witnessed. The panel discussion included corporate stalwarts like Mr. Gautam Patel, MD Zodius Advisors (Moderator); Mr. Ritesh Kumar Singh, GM & Group Economist Raymonds; Mr. Anay Khare MD-Corp fin-IB, Enam Securities; Mr. Sundarapandian Vishwanathan, VP Capex controlling Head, ACC; Mr. Sidharth Punshi, MD Investment Banking JPMC; Mr. Paresh Patel, Founder and MD Sandstone Capital and Mr. Manishi Raychaudhari, MD BNP Paribas Securities. Each of the panelists while talking about their area of expertise mirrored the sentiments of Dr. Gokarn. They stressed on the need to extend the reforms in retail and aviation industries to infrastructure and other major growth inducers for the economy. They spoke about how targeting untraditional markets for exports and disinvestment by the government to fund infrastructure development in the country can help the economy grow at higher rate and sustain it. The discussion and the  Question & Answer sessions that followed was carried on in a crystal clear manner that captivated the attention of novice in the field of management helping them to grasp the current trend of Indian economy.

Panel Discussion

Fiscus‘12 thus turned out to be a grand success owing to the relentless efforts of the members of the Finance Forum, the constant support and guidance of our Director, Dr. M A Khan and all others who contributed to this successful mega event.

Dr Subir Gokarn with SIMSREE Finance Forum team

New Fund: AmIncome Flexi

In view of current uncertainties still lingering around investment universe, bond was considered as one of the asset class that most investors seeks to preserved their asset value, albeit lower risk. Just as the name of the fund, it's a flexible bond fund which has an interesting early repayment features. Let's have a look.

The Fund is a 3-year close-ended bond fund that aims to provide annual income distribution throughout the duration of the fund. To achieve the investment objective, the fund intends to invest its NAV in a portfolio of domestic and/or foreign sovereign issued bonds and corporate bonds.

• Domestic bonds:
  --> minimum credit rating will be “A” rated by RAM or MARC’s equivalent. 
• Foreign bonds:
  --> minimum credit rating will be “A” rated by their respective local credit rating agencies which denotes strong capacity to meet financial commitments and/or “BB” rated by S&P or Moody’s equivalent at the time of investment.

As this is a close-ended fund, the Investment Manager will purchase bonds which will be held until its respective maturity. These bonds will generally have shorter or similar maturity tenure to the Fund’s maturity. The Fund employs a flexible investment strategy as follows:-

1. The Investment Manager will not actively adopt a trading strategy unless there are changes or expected changes in interest rates resulting in bond price changes, for the purpose of maximizing returns of the Fund over the Fund’s tenure of three (3) years;
2. The Investment Manager may also at its discretion dispose off a bond to mitigate currency risk for the benefit of the Fund; and
3. The Investment Manager may also opt to dispose off a bond when it has achieved at least 15% cumulative return before its maturity, and return the proceeds of the bond (which includes principal and realised gains such as coupons received, capital gains and currency gains) to the investors.

In the event of a credit downgrade, the Investment Manager may liquidate the particular bond affected if the Investment Manager at its discretion feels that there is a likelihood of credit default. Changes in credit rating will have no impact upon the price of the bond at maturity. However, if the Investment Manager chooses to sell the bond prior to the bond’s maturity, it may result in a capital loss and this will be borne by investors of the Fund. A credit downgrade means that credit risk is increased but does not constitute default.

The Fund may be investing in countries where the regulatory authority is a member of the International Organisation of Securities Commission (IOSCO) which include but not limited to Malaysia, Australia, New Zealand, Korea, Hong Kong, Singapore, Philippines, Indonesia and Thailand. As the Fund may invest in foreign currencies denominated bond, the Investment Manager may use derivatives for currency hedging purpose.

Early Repayment Mechanism?

When a bond held in the Fund has achieved 15% cumulative return at any time before its maturity, the Investment Manager may sell down the bond and realize the gains. The proceeds of the bond (which includes principal and realised gains such as coupons received, capital gains and currency gains) will be returned to the investors. In this respect, NAV of the Fund will be reduced accordingly and the units of the Fund will be adjusted according to the proportion of that bond in the Fund. This will result in Unit Holders holding lesser units after Early Repayment. In the case of Early Repayment, there will be no adjustments to NAV per unit of the Fund.

The Fund is suitable for investors who seek:

• an investment that provides regular income and potentially higher returns than the 1-year AmBank (M) Berhad Conventional Fixed Deposit Rate (fixed as at Commencement Date); and
• an investment that provides lower risk than equities.

Source: AmMutual

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Budget 2013: What's the view by Foreign research houses?

Hmmm... Yup, the title is correct. We at Finance Malaysia blog would like to hear the views from Foreign analysts only this time. Why? Because they tend to be more independent (we think), and we know that readers like you can easily access to local research reports. So, we made the decision to only show you what is written by foreign analysts as below:

Phillip Capital Management: An earnest & all-around Budget?

"People’s livelihood, affordable housing and tax issues topped the pre-budget wish lists. Weeks before the announcement, there were many discussions about the Budget 2013 in the media and various conjectures about the budget outcome. Everybody in town was anxiously waiting for the Prime Minister’s speech to reveal the Budget 2013, hoping the wish in one’s heart and mind will come true. TV camera shots have shown that people have been in high spirits cheering for the Santa Claus during the speech. We think Barisan Nasional has successfully drawn up the budget that appears to benefit the majority of people especially the middle-income segment just to keep in voters’ good graces.

However, off the radar of the camera shots, people are debating about the fiscal deficit that has been running for the 15th straight year and the high level of government debts which is approaching 55% to GDP. People expect their money to be used more efficiently to improving the competitive landscape, cutting wastage and leakage, commitment towards more R&D. Although Budget 2013 will bring down the fiscal deficit to 4% of GDP and disclosed that the deficit will continue to narrow to 3% by 2015, people still question if the budget is drafted in earnest. Only time will tell!

Overall, we think there is no big surprise from the Budget 2013 and will not have big impact to the market. However, there are some sectors that will benefit and should get some boosts from the budget such as consumer, construction and oil & gas."

UOB Kay Hian: Reining In Spending...

"The market-neutral Budget 2013 again reaches out to the lower to lower-middle income segments with cash handouts and a cut in tax rates, but reins in the overall deficit with marginally lower government expenditure. Highlights include the establishment of business trusts, a modest real property gain tax (RPGT) hike, and incentives for the oil & gas (O&G) sector. Potential winners are beneficiaries of business trust structures that enable cash distributions, such as BToto and DiGi, selected consumer stocks, particularly BAT (no duty hike), as well as micro-lending institutions like RCE and MBSB, while minor losers are high-end property developers due to modest RPGT rate hikes.

Promoting the establishment of business trusts... A key proposal of Budget 2013 is the establishment of business trusts which add vitality to the capital market (hence making Bursa a minor beneficiary), but more importantly allow a handful of local companies to optimise their capital structure and distribute surplus cash. Potential beneficiaries are cash flow-rich companies with suboptimal capital structures (cash-rich or under-leveraged) that are constrained by a lack of shareholder reserves.

…and O&G investments, which include a 10-year 100% Investment Tax Allowance for investments in refinery activities with regard to petroleum products, and an enhanced 100% income tax exemption on statutory income for the first three years of operations for liquefied natural gas (LNG) trading companies under the Global Incentive for Trading (GIFT) programme.

Strategy: We continue to advocate a defensive strategy amid a peakish market, cautious external outlook and a potentially early general election (GE13). Thematically, we like:

1. beneficiaries of business trust creation,
2. in the O&G sector, beneficiaries of rising exploration and production (E&P) activities, such as Perisai, and significant property owners at Pengerang, and
3. selected beneficiaries in various iconic government developments – Iskandar Malaysia and Tun Razak Exchange (TRX).

Our key top picks are BToto, DiGi, Gamuda and SapuraKencana. Smaller-cap favourites include MPHB, Perisai, Top Glove and Tradewinds Plantation while MRCB is a key situational stock. Meanwhile, we have upgraded BAT to HOLD (target price raised to RM57.70 from RM49.00) as we now foresee a rising momentum in volume recovery without a duty hike."

Budget 2013: Election or Rakyat centric?

General election is around the corner. External environment was not so promising, following the no ending of European debt crisis, world economic slowdown, and recent tension between China and Japan. I believe all of these would be some key factors being taking into consideration to formulate the Malaysia Budget 2013.

Goodies? Bonus? Cash handout?

Themed as "Prospering The Nation, Enhancing Well-Being of the Rakyat: A Promise Fulfilled". Our prime minister, who is also Finance Minister, tabled the 2013 Budget at Dewan Rakyat yesterday. Over here, Finance Malaysia blog would only touches on some key points:

• Economic growth projected to expand between 4.5% - 5.5%
• Federal Government's revenue in 2013 is estimated to increase to RM208.6 billion
• Continuation of BR1M of RM500 to households earning not more than RM3,000 a month and also extended the aid to cover a payment of RM250 for single unmarried individuals aged 21 and above, earnings not more than RM2,000 a month
• RM 16 million a year group insurance scheme for registered hawkers and small businesses for coverage of up to RM5,000
• FM: Once again goodies were dished out to created a feel-good factor for govt and we doubted whether Msia could achieves the 4% budget deficit target in 2013. Anyway, govt could still succeed by increasing the revenue by using these goodies. How? Very simple, that's to entice the non-registered self-employed and businesses to registered so that they are accountable for their earnings.

Spurring retail bond/sukuk market:

• DanaInfra Nasional Bhd to issue retail bonds worth RM300million by end-2012 to finance MRT development projects
• Additional expenses incurred in issuance of retail bonds and retail sukuk to be given double deduction for a period of 4 years from YA2012 to YA2015
• Individuals investors given stamp duty exemption on instruments relating to transactions of retail bonds and retail sukuk
• FM: It's very clear and straight forward that the govt want to see the soon-to-be launched retail bond/sukuk market to prosper, thus, attracting more foreign funds to the country to make it more vibrant and liquid.

Youth-centric offers:

• A one-off rebate of RM200 for the purchase of one unit of 3G smartphone from authorized dealers for youths aged between 21 to 30 years old with monthly income of RM3,000 and below.
• PTPTN loans: 20% discount for full repayment of loan; 10% discount for regular repayment.
• RM250 1Malaysia book voucher for students studying at institutions of higher learning
• FM: It seems too good to be true for PTPTN borrowers. But, it was attractive for probably 1% of them only. Why? We must remember that they borrow because they doesn't have money in the first place, not because they want to leverage. Do you get my meaning? Or, does govt scared if opposition coalition will void all outstanding loans if they took over?

Addressing the skyrocketing property prices:

• RM500 million by PR1MA to build 80,000 houses in major locations nationwide with selling price ranging between RM100,000 and RM400,000 per unit. Among the locations are KL, Shah Alam, JB, Seremban and Kuantan.
• MyFirst Home Scheme will be enhanced by increasing the income limit for individual loans from RM3,000 to RM5,000 per month or joint loans of husband and wife of up to RM10,000 per month.
• Real Property Gains Tax (RPGT) for properties disposed within 2 years will be taxed at 15% (up from 10%) and 10% for between 3rd to 5th year (up from 5%), whereas other term remained unchanged.
• FM: For us, we think that 15% RPGT is still too low if compared to pre-2007, where RPGT for first 2 years disposal was as high as 30% and 25%. Meanwhile, MyFirst Home Scheme was very tough to get it, as far as we concerned. Once again, good luck to those potential property buyers.

Changes to personal income tax:

• Individual income tax rate to be reduced by 1% for each grouped annual income tax exceeding RM2,500 and RM50,000.
• Tax relief on children's higher education scheme (SPNN) increased to RM6,000 per person (from RM4,000 previously).
• FM: The 1% tax reduction seems more effective to help out those mid-income earners, although it's not much. However, we are disappointed once again for the unchanged REITs withholding tax structure which makes M-REITs less attractive compared to regional REITs.

Government servants is the BIG winner AGAIN!!!

• Minimum pension to be increased to RM820 for those who had served the govt for at least 25 years. More than 50,000 pensioners benefited.
• 1.5 months bonus for civil servants.
• FM: Well... Nothing much we can say about it. This is a govt budget. What's wrong if govt servants being the beneficiary? But, should it be again and again? Hmmm...

"Stocks-to-watch" for the coming Monday:

• Genting, GENM, JTI, BAT on the surprise unchanged sin taxes
• Construction companies on the River of Life projects, EPP projects and schools upgrade
• Consumer related players on the expected extra spending by govt servants with bonuses
• Low cost housing developers (etc. Hua Yang) for possible contracts by PR1MA
• Financial institutions with investment banking arm for the launching of retail bond/sukuk market