Monday, November 19, 2018

Why Namewee Is A Humanitarian Genius


Many of my friends were surprised when I told them that I considered Namewee a really smart, musically gifted, funny and noble guy. If you do not share this opinion, well, read on and maybe you will change your mind.

Namewee may ruffle some feathers with his antics, protest songs or even profanity. To me, I am very much like him, except for the musically gifted part.

Namewee is a lot more popular elsewhere in particular, China, taiwan, HK and Singapore than Malaysia. Malaysians again are generally uncertain or take for granted the talents we have until we are told by others outside the country. we tend to under-rate ourselves a lot.

Why "humanitarian"... he fought for most things which resulted in us having a new government, he played his part long before it was safe to do so ...



His latest creation was brought on by his experience being locked up in a cell with loads of illegal Burmese migrants. The new government must find ways and implement effective rules to treat the migrants, legal or illegal, much better. 

Already I am so fed up with the ways some families treat their maids. Malaysians have a long way to go in terms of being empathetic and treating everyone as equal and with respect.

Hopefully Namewee's video will go some way to further highlight the plight of these migrants.






Many of us may not be aware of Namewee's achievements abroad. His biggest feather in his cap has to be the highly moving duet with Wang Lee Hom. Stranger In The North highlighted the desperate plight of the many rural folks who had to move to urban cities to eke out a better living for their families. The angry rant and rap resonated loudly with many in China.

A protest song for the present times. The disparity in incomes, the long time being separated from their loved ones, all for what...

Look at the hits, 140 million and counting ... splendid for a non-Gangnam style song. The song was and is still very popular throughout all Chinese speaking nations. 






and, when he wants to be funny, he can be damn funny... below was the catchy, pun ladened Thai Love song, made into an extended video with storyline.





His Cantonese is better than my Mandarin... accented but damn funny. His pronunciation was so deliberately close to foul language. Big big hit in HK. 

Namewee is highly respected by most music celebrities in the region and has worked with many, including G.E.M., Candy Lo, Meu Ninomiya, Amoi-Amoi, etc..





There are still so many wonderful songs by Namewee. He is still way under-rated. Still misunderstood by many. 

Jack Neo was also featured in Namewee's tribute to Jack's comedy show and the Singapore cultural nuances. 


Sunday, November 18, 2018

Why No Premium - Daibochi & Scientex




TheEdge Weekly asked the question: WHY NO PREMIUM

Scientex is one of the world’s largest producers of stretch films. Scientex also produces BOPP films with an annual production capacity of 60,000 tonnes. 

The company also produces cast polypropylene (CPP) and metallised films with an annual capacity of 12,000 tonnes, the biggest producer in the country. 


“This merger will enable Scientex to offer an integrated range of products to a larger client base and enhance its capabilities in the flexible packaging business through synergistic and complementary products to better serve global clientele.  Scientex also intends to maintain Daibochi’s listing status on the Main Market of Bursa Malaysia, and retain all the management and staff,”  Scientex spokeperson said.

“We believe it is good value for Scientex to acquire Daibochi on [a] PER basis, with about 20 times PER for Daibochi’s FY17 (financial year ended Dec 31, 2017) earnings, 16.5 times for FY19, and 12.3 times for FY20. Industry average PER is about 15 times excluding Tomypak Holdings Bhd.” - TA analyst

Daibochi is a leading flexible packaging provider in the South East Asian region, with manufacturing plants in Malaysia and Myanmar. 




































Rationale:

1) The pricing based on current and forward PER was fair and slightly higher than the industry average.

2) Why should there be a premium??? A premium suggests that current prices were undervalued. Was Daibochi undervalued? Why should there be a premium - Daibochi's share price could have been at RM1.20 or RM1.60 or RM1.80 when the deal is struck... at differing prices you would have called in undervalued, overvalued, etc... why base your opinion on the average price for the last 30 days. Historical prices is but one minor factor. Hence most M&A of established businesses (not startups or tech firms) would use PER or forward PER, as that will show whether the deal was PER accretive to the buying company.

3) Why there is no premium - Probably, I am guessing here, was because there were 14 shareholders in Daibochi. When you have 14 drivers in a Proton you won't get far. Even if you have an appointed leader, it will never be as smooth or as decisive as one person with the substantial block.

4) The main key why there was no premium - Well, it is not a cash sale... it is a swap. A swap means the future fortunes of Daibochi shareholders will be in the merged entity under Scientex. They will be getting Scientex shares. There is really NOT MUCH point to do a "severe deal" for themselves as then it would weaken Scientex share price anyway (which they would be getting shares in). Just a proper arms-length deal that satisfies the regulators would do.

5) Listing Status - Part of the reason for the lack of premium was that Daibochi's listing will be maintained. Everyone knows there is a RM20-40m premium for a Main Board counter. Scientex can sell Daibochi listing status later, which will be reflected then in higher Scientex prices, which would be what current Daibochi shareholders will be holding.

6) Control - That would be the only issue that might give rise to a premium. Losing control. But can the existing G14 move the company to the next level. Control is not everything. Malaysians have this silly over estimation of the need for control. Contro, is only important if you are mainly going to do shenanigans. Otherwise, any deal must be weighed by their accrued financials. Is 1+1 more than 2. If yes, then it is a good deal. 



Friday, November 16, 2018

Assessing "FundMyHome" Concept




Let me say that I think the concept has a lot more merits than the current 'reception' is willing to give it. I am not aligned with anyone or any company dealing with this business segment.








It is very important to note the group of people that the concept is targeting: FIRST HOME BUYERS. More specifically, first home buyers who are having problems buying the said property. It is not for anyone else.























Issues that I have against the concept:


a) Tough for the funders - The 5 year lockup period will actually stave off speculation or that the funders side will get a hefty return on their investment at the expense of first home buyers. In fact, in there is no interest paid to funders, its actually quite a sad deal for the funders.

The funders pay 80% of the property, for what? For a maybe/potentially/ yes-no 20% gain after 5 years. If you put your own funds in a savings account, 12-month automatic rollover, you could get 3% compounded over 5 years = 15.9%. Hence 20% versus 15.9% is nothing to shout about.

Even if you compound it at 2.5% over 5 years = 11.3%. The 20% return is not guaranteed. Funding the project also means you have to take a view on the local property market.

Developers do not get 100% of purchase price but rather just 80%. The 20% is granted to developers only if the property rises above the purchase price at the end of 5 years. Otherwise the 20% will be earning a 5% p.a. and used to protect the downside for investors.


b) Saving the developers - We know we have a lot, a bloody lot of properties that are unsold. If nothing is done, the markets will unwind itself eventually - either developer keep dropping prices till it reaches real affordability levels, or it keeps the properties on their books till the sentiment recovers or the cows come home (bankruptcy). 

The latter has the consequence of suppressing the rest of the property market in terms of prices. The sad fact is that too many Malaysian households have taken on hefty property mortgages. In a flattish or slowdown market, these households will have to crimp their spending or even sell additional properties at a loss.

The Fund My Home project will "save" many developers from "losses" as cited above or eat into their capital for having to keep the properties on their books.

They have overbuilt for sure, they have overestimated the demand and affordability, and in a neutral stance, they have to bear the downtrend and their business mistakes.

While the Fund my Home project has a lot of merits, I do not wish to see first time home buyers being too eager to snap up "substandard" properties that developers cannot sell. To a certain extent, that concern has been mitigated by the "screening process" by TheEdge team. Not all properties will be permitted on the platform.

Why protect the buyer and not the seller? Because we are not here to save the developers. As a matter of fact, we are already helping the developers to sell properties that they themselves CANNOT sell. Hence the developers should not be looking at normal profit margins (judging from the fact they made so many business mistakes such as overbuilding, overestimating demand, etc.). 

The bulk of pain has to be shouldered by the property developers, as explained above.


c) What if the buyer defaults - The developer is supposed to take back only 80% of the property price at the beginning. The remaining 20% will be kept as minimal returns for investors in the home. Hence the funders are protected even if the property were to lose 20% of its value at the end of 5 years.  

However, say within that 5 years the buyer lost his/her job and the property at the end of 5 years has a market price that is 40% below the initial entry price for the buyer? The buyer basically is bankrupt now, so at 40% loss, no party will want to sell into the market. Who bears the additional 20% losses?

d) EPF Account B - Currently Account B takes up 30% of our contributions. I assume first home buyers will be drawing down from Account B to help with the initial 20% payment. I think the government can make the exception for first home buyer to take out the full Account B plus an additional 20% from Account A (if required) for the project. Seriously, its the 20% payment that will be the biggest hurdle. Plus the same person is building equity and not speculating. Same as before, if they were to sell the property, they will have to put back the same sum back to their EPF account.


THE BENEFITS

a) First time home buyers can almost forget about owning a home on a RM4k-5k salary. Hence FundMyHome should be weighed AGAINST the alternative of renting. I need not do a Renting vs owning 101 course here to highlight the miniscule difference to participating in the program vs renting. Or do I?

Say you cannot afford the 20% down payment but you have a salary of RM4,000. The platform will help to try secure a RM100k personal loan. Say the interest payment is 7%. The person would be paying interest RM7,000 a year = RM583 a month. Assuming nothing changes, RM583 in rent cannot even get you a room at Choo Cheng Kay flats. But the family gets a house/unit all their own now.

Even if at the end of 5 years, you decide not to take up up the remainder, you can still sell your 20%, assuming market was flat, and get out. But you got a silly RM375 rental a month for a nice home for 5 years.


b) Catch up - The worst thing for first home buyers is not being to catch up to the property prices. Imagine waiting for your household income to jump from RM5k to RM10k a month. Maybe it will take 5 years but where will property prices be then. Your RM400,000 unit may now be at RM550,000.

You can do the math yourself that you have bought insurance for your affordability. Giving up the initial 20% is not such a big deal, as I have explained that the funder's side have their risks and rewards to be weighed out as well. In this case you are giving up RM80,000 gains and could refinance for the whole unit/house for RM400,000 - RM80,000 (initial payment) + RM80,000 (funders' returns) = RM400,000. 

You will be financing a mortgage of RM400,000 at the end of 5 years for a property that is worth RM550,000. Giving you an equity of RM150,000 already.


c) EPF Account B - After 5 years, the same person with RM4k salary, assuming no increase, would have saved 11% +13% (contribution) = 24% of RM4,000 x 12 x 5 = RM57,600. Thirty percent would have gone to Account B for housing = RM17,280. That amount could be used to pay down further or refinance purposes. 

We should allow another 20% from Account A for this purpose, which would have made for a total of RM28,800 at his disposal. 


MY VIEW

Overall a brilliant idea that tries to balance the risk-return for the interested parties. 

 If the team stay vigilant on the screening process of properties allowed to be on the platform - this will succeed wildly. This proposal should get full support from the government, and property developers should be thankful. Those making noises are those overpricing their substandard properties and probably lamenting why they cannot get on the platform.

Thursday, November 15, 2018

Rethinking About Recycling


This is a damn powerful image. The work he is doing, recycling, is so noble and forward thinking...and yet we know that he is also probably not paid well for it. Something is not right, for something that is so right.
































































Photo: Shen Yu / Imaginechina

Wednesday, November 14, 2018

Stan The Man



Let me state first that I am not a big comic book person. Like it or not, all of us grew up pretending every now and then to be Spiderman, and later The Fantastic Four and X-Men. I also really liked Black Panther, needless to say.



I hope what's not lost amidst the accolades of the comic book guru was his strong stance against racism and discrimination. That to me was very pleasing to know and added loads of character and integrity to his achievement.

Below were some quotes by Stan Lee throughout the ages.



‘If we could only learn that the world is big enough for all of us …’


In 1968, the year Dr. Martin Luther King Jr. and Robert F. Kennedy were assassinated, Lee wrote: “Let’s lay it right on the line. Racism and bigotry are among the deadliest social ills plaguing the world today. But, unlike a team of costumed supervillains, they can’t be halted with a punch in the snoot or a zap from a ray gun. The only way to destroy them, is to expose them – to reveal for the insidious evil they really are.   Now, we’re not trying to say it’s unreasonable for one human being to bug another. But, although anyone has the right to dislike another individual, it’s totally irrational, patently insane to condemn an entire race—to despise an entire nation—to vilify an entire religion. Sooner or later, we must learn to judge each other on our own merits. Sooner or later, if man is ever to be worthy of his destiny, we must fill out hearts with tolerance. For then, and only then, will we be truly worthy of the concept that man was created in the image of God–a God who calls us ALL—His children."



“The bigot is an unreasoning hater – one who hates blindly, fanatically, indiscriminately … He hates people he’s never seen – people he’s never known – with equal intensity – with equal venom … It’s totally irrational, patently insane to condemn an entire race – to despise an entire nation – to vilify an entire religion,” Lee added at the time. 


During a 1971 interview with Rolling Stone,  Lee said: “I think the only message I have ever tried to get across is for Christsake, don’t be bigoted. Don’t be intolerant. If you’re a radical, don’t think that all of the conservatives have horns … I think most people want the same thing. They want to live a happy family life, they want to be at peace, they want no physical violence, nobody to hurt them, and they want the good things that life has to offer. But I think everybody sees us reaching that nirvana by a different path.” 


In the same 1971 interview, Lee added: “I think one of the terrible things in the world is that we are so inclined to think in black and white, hero and villain, good and bad, if you don’t agree with me I’ve got to destroy you. If we could only learn that the world is big enough for all of us. For a guy who wants to wear his hair long, and a guy who wants to be a skinhead. Neither of ’em has to be bad.”


During an interview in 2016, Lee said: “America is made of different races and different religions, but [that] we’re all co-travelers on the spaceship Earth and must respect and help each other along the way.”


Tuesday, November 13, 2018

Mr. Sachs, Show Me MY Money



We tend to take things for granted very easily. With what we know as of today, just imagine if we did not change the government back in May. Many dastardly shenanigans would have continued, the degenerates would have continued merrily stuffing their pockets, the skimming and shaving and loading would have continued unabated.

Plus its not just financial crimes. If anyone stood in their way, things would kautim-ed one way or another, by hook AND crook. Planted evidence, unnecessary audits, the taxman cometh ... or let's take a trip to Kajang.

So, it is in this light that our Finance Minister is asking back the fees paid to Goldman Sachs. It is also good to see the share price of Goldman Sachs being "sold down" in light of the 1MDB issue.




























We are 'lucky' in that the 1MDB fiasco was big enough to make a dent to the behemoth that is GS. Can you imagine if our "losses" were minuscule compared to their market capitalization, reputation, integrity, profits??!! Then 1MDB might not have mattered to them and their shareholders.

Going down 7.2% in a single day is a big deal. Its market cap is around $76bn, a 7.2% drop meant in one day it has lost $5.5bn (RM22.7bn). To put that in perspective: ...the $6.5 billion it raised in 2012 and 2013. Goldman Sachs handled the deals, reaping almost $600 million in fees.

Anyone can see that IT WILL BE CHEAPER TO JUST GIVE US BACK THE FEES. Rich people are not stupid, especially when the figures are staring like that in their faces.


So was what GS did so bad?

Answer: YES, YES ...

a) the corrupt who has the power can only do so much... they need "ideas", shortcuts, devious means and ways to "get the deal done" ... hence the enablers of a crime/CBT should be punished as well

b) GS cannot say they did not know... they knew, otherwise who will pay such exorbitant fees for a simple bond issue... Malaysia is not a third or fourth world country .. the bond rates and fees charged were nothing short of being exorbitant and repulsive

c) Big banks were fined royally for pushing toxic products, and/or money laundering ... this is worse, being complicit and enabling corrupt politicians and influencers to pillage and burn.


Losing $5bn in market cap (with more to come) ... or pay us back $600m, and I am certain Malaysia can sue for at least another $2-4bn for collateral damages, punitive damages, etc...

Wednesday, November 07, 2018

Bohemian Rhapsody - Review & Personal Notes



Movie Review: It is terribly unfair with all the hype surrounding the movie prior to its release. Expectations were high. If you don't know Queen or just a so-so fan, this movie would still rate 9/10. If you are a true blue Queen fan, its way off the charts fantastic.

One thing is clear, Rami Malek will be a shoo-in to win next March Best Actor Oscar. He was so good. You can have voice training and even movement coaches, but you still need to have the ability to assimilate and interpret. After 10 minutes you feel you were watching Mercury.

To be fair, there were some minor tweaks to the real truth (such as how Mercury became the band's singer, etc.), and the focus on the Live Aid concert as the "grand finale". But movie producers need an entertaining movie.

Its a riveting portrayal by Rami Malek, and he did not overdo it. If you were a Queen fan, you'd be amazed at the similarities in expressions and mannerisms. 

The movie uses Bohemian Rhapsody as the anchor as to how it came about and how it conquered the world - but till today most people still have a vague understanding of the lyrics. 

There were incredible moments: when the fans sang back Love of My Life to the band; when Freddie composed the first few lines of the song; when Freddie wrote the first few lines of BH and cried; the sheer amount of love and respect Freddie showed to Mary; etc...

There were no dull moments in the movie, and the selection of songs to be played was well thought out and appropriate. The best thing about the movie was how much more we could see things from Mercury's perspective, in trying to understand his inner demons and unabashed brilliance.

There will be plenty of mediocre reviews by critics because it was not savage enough, or too entertaining, or glossing over facts ... That's all good, this was not meant to be a real biopic but rather a tribute to Mercury and Queen, where we can get to know both much better.

And just like Queen, ... having fun is paramount, which was what the movie did.



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Why Queen Is My Favourite Musical Artiste

I started to listen to Queen thanks to a friend who so kindly recorded the 3rd album Sheer Heart Attack on a wonderful cartridge for me. It was so good, I looked for their earlier albums, Queen 1 and Queen 2. Then came NATO (our fanboys favorite way to refer to A Night At The Opera).


They were not the conventional rock band. They love to evolve and do different things. They were not shy of composing melodies and catchy hooks for rock songs. Plus they have a keen eye for harmonies, for a rock band, that was prissy. They also had no problem embracing technology and did not put rock and roll into a box but rather their music had none of the usual boundaries.

Musicality, Brian May was superb as their lead guitarist and a great composer. May and Roger Taylor's drums were largely responsible for Queen's sound. Roger is a very decent drummer and an even better high pitched harmony singer. Mercury was mercurial, a great composer and his voice was unique and wide-ranging.


My favorite albums in order of preference:

1.  Sheer Heart Attack
2.  Night At The Opera
3.  News of The World
4.  Jazz
5.  Day At The Races
6.  Queen II


I was fortunate enough to catch Queen live back in 86 or 87 in Sydney with Mercury still delivering the goods. Its the only concert where I could be seen singing to every bloody song. It was magical and satisfying.


What about the songs? Here is my recommended list of lesser-known ones, if you haven't heard most of Queen (just go to You Tube):

a)  Brighton Rock - a brilliant catchy rock number with possibly the best guitar solo by Brian May in the middle, play it loud.

b) In The Laps Of The God - An eerie, hymn-like, religious chant that is very melodious. Great harmonies. Listen to Roger Taylor's ethereal soaring harmonies. The song comes in 2 parts.. its the beginning of the inclusion of long play-operatic songs which led to BR.

c) Mustafa/Teo Torriatte - An throwback to Mercury's Persian/Zanzibar roots. Brave and bold. Plus a Japanese song that could have easily be the theme song for a Japan Olympics.

d) Fat Bottomed Girls - I had the huge poster of naked gals riding bicycles from the album. It was so wild.

e) Good Old Fashioned Lover Boy/ Bring Back That Leroy Brown - In their early records, they always insert some sort of vaudeville-like song. Versatility at its best.





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Friday, November 02, 2018

China Evergrande - A Precursor & Harbinger Of Calamity For China Property Markets

If you just brush aside the latest news on Evergrande, you are actually missing the headline for a future newspaper article - China Property Companies Crashed! The news is so smacked right in your face that it is too obvious to not to notice that the emperor is naked... heck, the whole parade, and procession are naked.


In the first half of the year it generated $44bn of revenues and $4.5bn of profits, paying out half in dividends. It has $98bn of debt, $44bn of it due within the next twelve months.


Any first-year business and accounting student can tell you it is highly unsustainable. $4.5bn profits and you pay out half in dividends. The amazing thing is that for 1H2018, it paid out $4.2bn in interest payments!!! If it had no debt, net profits would have doubled.

(owner, Hui Ka Yan)
Assuming you do the same for the second half of 2018, you have $4.5bn to cover the $44bn due over the next 12 months. That's provided the $4.5bn is real net positive cash flow and not gains on revaluation of assets.

The key here was that Evergrande has recorded NEGATIVE CASH FLOW every year since 2010!!! Every bloody year. It has been running on fumes. As long as property markets there remain speculative and robust, the fumes will not be so toxic... but...

So what triggered the calamitous view? Read below:

The owner, Hui Ka Yan, had to put in $1.8bn of his own money to subscribe to the new company fund rasing bond. The coupon rates were 11%-13% p.a.  ... where on earth do you get a company bond with that coupon rate??? I mean, one of the largest listed stock in China/HK.

It means, no banks want to lend any more, they have maxed out usual suspects for fundraising. Look at their net profit ratio to revenue, they barely make 10%. That would not be sufficient to pay the coupon rate even.


Why Care About Evergrande

- It is the largest China property company by revenue.

- It is also the most indebted developer there.

- It still has a market capitalization of $30bn, the potential domino effect should it fail will be catastrophic.

- An implosion of the country's largest developer will see a lot of its property holdings for investments being sold, which will further flood the marketplace. Any signs of weakness in the leader will further exacerbate other property developers in terms of their borrowing cost.

- We may see a "who can get out fastest" among the developers soon.


Evergrande's assets, as suggested above, are large. For instance, its current land reserve, which spans 822 projects, covers a mammoth 305m square meters, close to 120 square miles, a touch below the size of Malta.
We thought we'd turn our attention to a corner of that expanse, $23bn worth of investment properties. According to one equity analyst we spoke to, little attention is paid to these investments which, despite only accounting for 9 per cent of total assets, represents half of Evergrande's equity due to its levered nature.
According to its half-year report, Evergrande's investment properties “include commercial podiums in living communities, office buildings with gross floor area of about 8.43 million square meters and approximately 408,000 car parking spaces”.
Yet it does not look like these investment properties generate much cash. In the past six months, rental income from investment properties amounted to $68m, an annualised yield of only 0.6 per cent. A figure significantly below the Shanghai Interbank lending rate, which stood on Wednesday at 2.49 per cent, according to S&P Capital Markets IQ.
One reason for the low rental incomes is that some of the properties are still under construction, but at the end of 2017, this was the case for just 14 per cent of the portfolio. So unless all are let at peppercorn rents, some must be empty, provoking memories of China's ghost cities, vast unoccupied real estate developments built in the hope of future demand.


Recently it has been borrowing more from China’s trust companies: its loans from those quarters jumped 63% last year to $42 billion. That move showed that the company may be running out of "the usual options" for refinancing. It also shows that Beijing is aware of the importance of Evergrande, and cannot let it fail. Sounds familiar - too big to fail.


Strategy, Views, Opinions... & Catalysts

One can have a view that a certain market is overvalued or overpriced, or vice-versa. That does not become actionable unless we have a sense of timing involved because if you are bearish or bullish long enough, BOTH will eventually be right.

Key then is to note the catalysts, and to me Evergrande has just provided the biggest bullet... excessively high coupon rate with $44bn due over the next 12 months.

























Battling Shorts

It is also the most shorted stock in HK, almost 18% being shorted. The owner has been very combative, engineering sudden share buyback to squeeze the shorts. You cannot squeeze the shorts forever if your balance sheet and cash flow have problems.

Trouble is, the funds you raised will somehow go to more share buybacks to battle the shorts, instead of actually paying down loans. You do the math, something's gotta give...




Hopeful Saving Grace

- If the trade war ended completely, then Evergrande may have a chance to survive the next 12 months. Otherwise, its implosion possible at the cinemas.

Wednesday, October 31, 2018

Why EPF So Good Ah?


The study by the World Bank was timely (I will explain later). Being a government led pension fund puts EPF squarely against other similar funds by other countries. I must say that EPF has been punching above its weight for the longest time.


The Future Challenges 

However, we need to know why EPF did well, or else we will not be able to replicate the past performances. I think its critical that EPF, having done wonderfully, has to reposition and re-strategize because it has gotten too big for certain assets that it has invested heavily in the past.

EPF will also have to contend with how much more inter-related and correlated global markets is nowadays and will continue to be even more so in the future (thanks to the proliferation of ETFs and indexing).

As good as EPF has been, we have to be cognizant of the fact that Malaysia is still a place where there are not a lot of safety nets (e.g. reasonable life term pension scheme, unemployment benefits, free medical, free university education, etc. ... basically, programs that protect their citizens from economic shocks and natural disasters).  

Just looking at the average savings would reveal the first problem - insufficient amount to retire). The second statistic, which is less than half the population actually has an EPF account, is just as alarming. To be clear, both issues are not under the purview of EPF and its management, but rather on the government's blueprint going forward.

























EPF Stats

As at the end-2016 total funds managed by EPF was RM731.1b.  As for the end of June 2018 it stood at  RM814.3b. EPF is the second largest pension fund in the world among developing countries. The fifth largest in Asia and 15th globally. To put into better perspective, Malaysia is number 66th globally in nominal GDP per capita. In terms of working population size, Malaysia is ranked at 36th position globally.

























Success Factors for EPF

Show the above chart to all CPF holders, they will cry. The study by World Bank confirmed that the "success of EPF" was due to:


a) an astute team that developed in-house expertise over the years to make sound large-scale investments over multiple asset classes,



b) strong governance structure - one that is independent and transparent, and free from interference from the ruling government of the day (although the last bit may be open for interpretation on its absoluteness).










The above excerpt is very important. It shows that EPF is very much aware of the ballooning size of funds under management and the need to tweak exposure to certain assets. This is to ensure that EPF does not turn from an investor to a substantive/critical investor in that asset class. The danger of that is that it could distort the market prices, and worse, artificially influence the price.






























Another feather in the cap is that the cost to manage the funds stands at just 0.26%, almost the average cost of ETFs or indexing. Believe you me, that is a great achievement. On a side note, we still need some deep restructuring to the local unit trust and funds management industry. No investor should be made to pay more than 1% or even 1.5% to invest, period. The current practice is ridiculous and eats at short and long-term investment returns substantially.




















If you have ever needed to deal with EPF, its a breeze. It is easily the best-managed government-linked unit in terms of customer service. When it is solid at the top, it transpires to every facet of the company. The same argument can be made with other inefficient and slow government departments when dealing with the public.

I have written often on how wonderful EPF has been, how most of us take for granted the 6%-7% annoual returns for a fund of that size:

https://malaysiafinance.blogspot.com/2018/02/epf-returns-pictureworks-nabs-ocean.html


The Future Challenges II

a) Size per asset class - The Malaysian equity market has been taken up by more and more local funds, esp over the last 10 years. EPF would have been aware of such developments, and wisely, has upped its overseas equity investment side. Nonetheless, we have to careful how "fairly valued" are local equities moving forward. If the bulk of local funds hold substantive stakes in key index component stocks, it could be easy to "manage or maintain" prices regardless of the fundamentals of the said stock. Call it a crowding out effect, call it by any name, it is a big issue.

b) Inter-related/Correlated Investing - The world's investing paradigm has shifted over the past few years with the rise and rise of ETFs and indexing.

https://malaysiafinance.blogspot.com/2018/08/the-future-for-equity-funds.html

The bulk of my arguments lead to the age of normalized returns, the age of reduced alpha and the need to concentrate more on small caps.

c) Safety nets/only half of the working population has an  EPF account/ average sum of savings not sufficient for retirement - These 3 issues are not EPF's problem but the ruling government. Take note.


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