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Showing posts from April, 2006
Global Rising Rates Repercussions

China's central bank raised lending rates last Thursday for the first time in a year and a half. This was obviously to rein in the world's fastest-growing economy. The action may not be so important if the US did not also do the same. The Fed appears to imply that there might be further increases in US rates. The Chinese action aims to slow a spectacular surge in investment and it may potentially brake China's voracious appetite on world markets for oil and other commodities. With interest rates already climbing in the United States and the EU, and with monetary officials starting to tighten policy in Japan, China seems to be joining the world's central bankers in trying to gain control of speculation that has driven up prices of assets like gold and real estate. From steel mills and auto factories to luxury apartment buildings and plush office complexes, China has been engaged in a nationwide building boom fueled by easy loans from ban…

HK's Missing Legacy Part Deux

Sir Jack Cater's Legacy

The Missing Legacy was first written in a blog of mine dated 7 February 2006 - it was on the passing of Sir John Cowperthwaite, the person most responsible for HK's reputation as the freest economy/capitalism in the world. Cowperthwaite's passing did not get much press coverage at all in HK media, and that kinda pissed me off because a group of people who can forget so easily their "roots" and "how they got here" are doomed to lose the blueprint set by Cowperthwaite.

Now another old gwailo died, and his contribution to HK is no less than Cowperthwaite. Sir Jack Cater died on Guernsey on 14 April 2006 aged 84. He was the founding head of HK's infamous Independent Commission Against Corruption (ICAC), which took radical steps to combat graft in the police force in the 1970s. Cater went on to become HK's Chief Secretary, Acting Governor and Commissioner in London. Bribery had long been endemic in Hong Kong's police and civ…
AirAsia & Tenaga Covered Warrants
Fairly Valued?

Covered warrants have been going great guns in HK and Singapore, and now is only starting to shift out of first gear in Malaysia. Both issues were brought to the market by CIMB. AirAsia's call warrants closed at 28.5 sen, a 6.5 sen premium over its offer price of 22 sen on a volume of 22.91 million. It opened at 23 sen and traded an intraday high of 31.5 sen. Tenaga's call warrants ended the day at 51.5 sen or 5.5 sen over its 46 sen offer price, after being traded at between 47 sen and 62 sen. A total of 8.99 million units changed hands.

At 28.5 sen, AirAsia-CW trades at a premium of 0.18 + 0.285 / 1.78 = 26%, with a gearing of 6.2x. The CW expires in October 2007. On such a healthy gearing, the CW can be termed as fairly to slightly undervalued. The danger is the short time to expiry of about 15 months. Investors should start discounting the premium they would want to pay as the time to expiry gets closer. Generally, avoid …
The Next Big Thing For Asian Exchanges (ex-Japan)
Exchange Traded Funds

ETFs are investment products that hold a pool of securities and are designed to generally correspond with a specific Index. Investors can buy and sell ETFs just like stock, through their broker, throughout the trading day. ETFs offer the advantage of trading an index portfolio with the ease of stock trading. Investors can purchase ETF shares on margin, short sell shares, or hold for the long term. Investors also achieve market exposure consistent with the Index on which they are based, through one security. ETFs are also designed to be cost efficient because they are based on an Index, rather than being actively managed. Designed to follow the NASDAQ-100 Index, QQQ tracks one-hundred of the fastest growing technology and non-financial services companies listed on The NASDAQ Stock Market. It is the most actively traded ETF in the world with 80-90 million shares traded daily.

Other popular ETFs on Nasdaq include: N…
Companies That Are Truly Global

In an article by Gordon Redding, the director of INSEAD's business school’s Euro-Asia Centre, he debunked myths about how a present day truly global MNC should look like. The thing is they come in many different forms now. Culture and historical economic evolution of respective countries have played a big part in shaping what can be termed as global MNCs of today. One main thing about a global MNC is the internationalisation of the brand/image - it has to lose its distinct domestic beginnings. He classifies these truly global MNCs which dominates global business into six broad groups:

1 The large multi-divisional, multinational firm found in Britain and the United States
2 The continental European large-scale business, such as Volkswagen and Nestlé
3 The European industrial “cluster”, such as the textile firms of Emilia Romagna
4 The Japanese keiretsu, the networks of interlinked firms still predominant in the world’s second-largest economy (although the…
The Devil Does Not Wear Prada
Da Vinci Code Reloaded

Thanks to my Baptist background, good in theology failed practical, ... the almost ridiculous but captivating story in Da Vinci Code has brought much warmth and happy thoughts. While I believe the DV is a great story, it is a story, and I am thankful for the interest it has stirred up - at least some will seek more information for the truth. Anyway, that's not why "The Devil Does Not Wear Prada" (isn't that the best headliner... ever) is written. This blurb was written following the article in Wall Street Journal yesterday on the Pope's accessories.

It seems that product placement advertising has overstepped the normal boundaries of TV shows and movies as the Catholic church leader Pope Benedict XVI has been seen spotting many fashionable items as part of his daily fashion wear. The Pope has been seen with an Apple i-Pod, a sexy pair of reddish-orange set of Prada shoes, some walking shoes by Geox and he wears Ser…
Still Got Them Cowboys In West Australia
Old Boys' Scratchback Mountain

I thought these kind of things happened back in 70s or 80s even, but the Western Australian premier has stirred up stuff not seen since Joh B Pietersen days in Queensland. Rio Tinto (giant and well connected) accidentally allowed the lease on Shovelanna iron ore deposit to lapse last year due to a late courier delivery. The tenement lapse was picked up by the young and hungry Cazaly Resources. Cazaly even got funding from the reputable Investec and an offtake agreement from BHP Billiton. Cazaly planned to develop the mine within 3 years and will be giving the state government approximately A$17 million in royalties a year. Naturally, Cazaly's shares shot through the roof from a paltry A$0.29 to a high of A$2.12 over the last 7 months.

Now, Rio Tinto had the bloody thing for 20 years and have not drilled a flrrucking hole there and probably won't for another 10 years because the company's nearest infra…
Danger Ahead, China Real Estate

Property prices in China continued to rise in the first quarter of 2006. In Beijing, prices rose by 19.2% in 2005. The odd thing is that the amount of unsold housing also shot up by an even bigger margin of 31.6% to 13.7 million square meters. Overall, in China the amount of unsold real estate rose by a staggering 23.8% in the first quarter of 2006 compared to the same period a year ago. The area of unsold property developments reached 123 million square meters. Now, 23.8% is only meaningful if we know what is a heart stopping rate for property developers. Generally they would start to check themselves into the hospital once the rate goes past 10%-12%, you start writing the will at 15%. So, we are in very dangerous territory here.

Yes, no one can doubt that the underlying demand is there and will be there for a long time. Its the affordability factor which is ridiculous. Only a very small portion of China residents can afford most of the properties, and t…
Onerous Sarbanes-Oxley To Allow Exemptions

Following from my earlier blogs on Sarbanes-Oxley, now we have the SEC advisory committee with their recommendations on Sarbanes-Oxley. The restrictive and prohibitive Sarbanes-Oxley has diminished the number of foreign companies wanting to list on US exchanges. Inadvertently leading to a boom 24 months period for London Stock Exchange, and the Luxembourg Exchange to a certain extent. The recent negative opinions given by Alan Greenspan, Bob Greifeld (CEO Nasdaq) and The Economist on SOX basically were three additional long nails into SOX's coffin.

These are still recommendations, and it will take a good amount of political and intellectual will to begin implementing the proposals, the most controversial of which exempts many smaller companies from doing full-blown audits of their books and records. The SEC panel is planning to make two broad recommendations. First, companies with a market value of less than US$128 million will be completel…
Short Sellers Get Short Strawed
The Ugly Child Only A Mother Could Love

When the peerless 60 Minutes TV show picks your group as subject matter, you know it cannot be pleasant. The 60 Minutes team in the States did a scathing overview on short sellers and its negative effects on companies and prices. Some companies have resorted to suing short selling funds for the negative publicity and driving down share prices. Online retailer Overstock.com and drugmaker Biovail have both filed lawsuits against analysts and short sellers for allegedly conspiring to push down their company's share prices. Analysts get drawn into the flak as being in cahoots with the short selling hedge funds.

That kind of defensive strategy by management is not laudable. Management fearing short sellers (or that their stock options may get deeper underwater) should just go and produce the numbers to deflect criticism, and not waste resources to do so much PR. There will always be analysts who will call a buy or se…
Single Stock Futures - Great Introduction

This is even better that regulated short selling as it has less variables and outlay, for about the same effect. The difference is the time limit, which still can be overcome by rolling the futures contract. Naturally, the leverage is the big thing. To me, single stock futures are akin to warrants, only less cumbersome. At least we don't have to worry about gearing, beta, time to expiry, in/out of money and volume issues. Mind you, these single stock futures will also have similar variables but they are not as decisive or delicate as for warrants.

It is likely that there will not be any expiry but settlement end of each day. The outlay is likely to be about 20% of normal exposure or a gearing/leverage ratio of 5x. An investor would only have to worry about topping up the required margin as these contracts will be marked to market at the end of each day. Single stock futures could very well decimate the potential for short selling. The KLSE …
A Shift To Small Caps

If we look at the senior employees of General Electric, Intel, Citigroup or Microsoft... they are a sober bunch. What a difference a few years make. The main difference being their sluggish stock options. In the 90s, they were making millions from stock options. However, its a bit mind boggling as these astute big caps are making good profits and even decent growth considering their size. What they couldn't understand is why their share prices haven't moved in tandem. The last 3 years have been "good not spectacular" for stocks in general, surely something must be amiss.

If we take the average 3 year return for big caps in the US, it registered a very decent 17% return a year. However when you compared that to small caps of US stocks, the figure is even better at 27%. What is even more shocking is the spectacular returns of international stocks (which can be termed as small to mid caps) of 32%. When you have these figures staring back at you, what…

Calpers / Wilshire Associates

Dumb & Dumber

Calpers is the California pension fund. Not many would care what they do, but somehow over the last few years Calpers have been very vocal about what they buy and what they don't buy. Calpers practices responsible investing, or so they think. They avoid companies which treats employees or minority shareholders unfairly and stays away from regimes that they do not support. Throwing their weight around, it appears that the people behind Calpers are trying to enhance their jaded lives by living vicariously through Calpers. Calpers can be branded as ultra-conservative and belligerent (my system is the best system), much like the in-your-face Californians who will yell and question why you smoke in public.

In order to throw their weight around, Calpers needed better research and analytics to support their platforms and causes. They hired Wilshire Associates. Based on Wilshire's ranking systems, Calpers have recently decided to return to the Jakarta Stock Exchange. T…
China Construction Bank Eyeing Bear Stearns

After Lenovo's audacious move to buy the PC business of IBM, now we have rumours that China Construction Bank might be buying a stake in Bear Stearns. This is a reversal of normal moves by big investors such as Goldman Sach, Morgan Stanley, JP Morgan and Temasek - who have all been buying small stakes in Chinese banks to obtain a piece of the action in China's financial markets. China Construction Bank, a big boy in China, does the unconventional thing by considering a buy in reverse. Savvy! Hmm... jokes aplenty... A Chinese Bear Stearns ... would a name change to Panda Stearns be in the offing? CCB buying Bear Stearns... gives an entirely new meaning to the term Chinese Wall in investment banking.

Now, what we would not like to see is another blowout like the Dubai Ports World's acquisition of US ports operations. There better not be any over-gregarious US senators voicing displeasure over the potential acquisition. That is highly…

Pirated DVDs/VCDs Tycoons' Operations

A Fictional Account

It is a widely known fact that Malaysia is the production and distribution center for pirated DVDs/VCDs for most parts of Asia, and even as far as Souh Africa (I have a friend who can confirm that the sellers in South Africa got their supplies from Malaysia). If you think about it, to run such an empire is no easy task. I believe the mastermind behind it all would have (could have) been a very successful business person in the legit world too.

Think of all the things to manage:

1) Ensuring master copies are somehow diverted to you by hook or crook. This will mean obtaining the lucrative master copy even before it gets anywhere near the theatres. Not an easy task. Payoffs and important contacts needed to be made globally.

2) Ensuring your production center has the latest technology and speed efficiency in stamping out copies. A link-up post production unit will have to be handy with printing of covers and boxes. May have to outsource the plastic covers and boxes to a r…
The New Corporate Raiders
The Burger King Story

Back in the 80s, when Kholberg Kravis Roberts ruled the world, companies were at their mercy. KKR would usually ante up 10%-30% of their own money and borrow the rest to buy out big companies. KKR would then round up a team of management and give them some equity to turnaround the company, at the same time selling bits and parts of the company to pay down debts to a more manageable level. Usually, they end up taking them private to do this, but not all the time. It will take anywhere from 5-10 years for each project to be completed. While it is easy to rubbish KKR as corporate raiders, they do add value, improve margins and processes before exiting.

Now, the new KKRs are the private equity buyout funds. Only, the strategy they employ is more pragmatic, risky and places the burden more on banks and minority shareholders. This group of corporate raiders tend to be more short term oriented, do not add much value, and exit as fast as they could…
Malaysia-Singapore Ties
Brawling Teenage Kids That Never Grow Up

Friends and regular visitors to this blog have been asking why I haven’t commented on the Malaysia-Singapore bridge situation. Generally, I wanted to stay away from the Malaysia-Singapore thing as nothing ever changes, it’s the same thing over and over again. Its like raising two teenage brats who never grow up. The Malaysia-Singapore thing is like the Sydney-Melbourne rivalry. Back in the 70s, citizens from both countries would take any opportunity to make a jibe at the other on various issues – politics, currency valuation, progress, economic viability, jokes, sporting rivalry etc… That kind of mentality eroded as we stepped into the 90s as citizens from both countries got really tired over the squabbles. Now, we tend to disagree about the belligerent stances taken by both governments in private, and just roll our eyes every time something erupts. Both sides never learn, both governments use the squabbles to score politi…

Reiterating A Bullish Year For Asian Stocks

Just in case some of you may have missed my earlier blogs - I am still bullish on Asian stocks, and not just in 2006 but for the next couple of years at least. The main factors for my saying so:

1) Currency Realignment (Wealth Re-creation) - Bulk of Asia-Pacific have recovered from the financial crisis, and are being rerated by investors. Led by the yuan, other undervalued currencies such as the ringgit, Indon rupiah and baht are being brought up at the same time. Only this time around, there is a bit more room on the upside. The yuan can appreciate another 30% from here over the next 3 years without much dent to its competitive edge. Malaysia's ringgit can easily gain another 10% over the next 2 years without losing steam. An appreciating currency means assets denominated in that currency will see demand as well. Better purchasing power will stifle inflationary pressures, which will further boost stock and property prices. The wealth re-creation process will translate into better …

Sarbanes-Oxley/Nasdaq/LSE

Well, finally Nasdaq has done the smart thing, at least get a foot in with LSE. It has just acquired a strategic 15% stake in LSE. Though not a controlling stake, it is a very smart move as it places Nasdaq at the front of the queue should anyone else wants to sell. This also securitised ties with LSE and would stave off any potential bids from NYSE or Euronext. Nasdaq has had to acquire aggressively because its spate of new listings have been drying up. Much of the blame can be attributed to the introduction of Sarbanes-Oxley law (SOX). SOX was introduced after the Enron and WorldCom scandals in 2002. However, the SOX were more onerous and burdensome and many new listings opted to go via London instead of the US.

SOX itself is more qualitative as an "accounting standard". The actual compliance is not that big, but new wordy introductions and requirements tend to have the effect of scaring companies off. The most troublesome part would have to be the company's regulatory…

Possibly The World's Most Valuable Unlisted Website

If you are older than 30, chances are high that you have never visited YouTube, or more specifically www.youtube.com ... Well, you should, as this could very well be the most valuable website/company next to Google and EBay. It probably would never come close to Google but its going to make the owners billions.

YouTube is just 14 months old, can you believe that... and the founders are probably just a tad older than that!!! The two founders are 20-something ex-PayPal veterans. Chad Hurley and Steven Chen got US$8 million in second round venture capital funding from Sequoia (the same early investors in Yahoo and Google). YouTube's premise is simple but effective, it is a tech-savvy and easy to navigate site for people to upload videos of various antics /mind blowing lip-synching performances / comedy sketches / etc... to share with the world. You are likely to view interesting snippets from TV comedy shows - and the traffic/hits/views are a brilliant indicator of what's hip / f…
Highly Speculative Stocks On KLSE Now
Their Danger Levels

Don't get me wrong, I do not abhorr specky stocks, they are part and parcel of a normal stockmarket. In fact, they are a necessary evil. However, there is good risk and silly risk. Some of these stocks, I have highlighted before ... you can refer to my blog on January 26, 2006 when I said that some hedge funds took up large placements of stocks in Farm Best, Iris and Fonics. Their prices at the time were RM4.08, RM0.26 and RM0.36 respectively. Farm Best went as high as RM5.80 and has now settled at RM4.90 - not bad at all for the buyers. Fonics is a dog, or rather dog with fleas - it had a sharp run up the week prior to January 26 from RM0.24 to RM0.36 - so the placements to hedge funds was more a sell-down by main owners on hindsight as it never breach RM0.39, and is now trading at RM0.32. The leader of the pack is Iris, probably because it has the largest paid up and the volume placed out would probably be the biggest as w…

Global Economics - Generalisations & Hidden Truths

Learning While You Laugh

I am sure some of you have heard about this Heaven and Hell scenario on global economics. Sure, we will laugh, but look deeper and there is an element of truth behind each humourous stab.

HEAVEN is when you have:

An American salary
A British home
Chinese food
A Swiss economy
An Italian body
Japanese technology
An African "tool"
An Indian wife

HELL is when you have:

An American wife
A British body
A Chinese "tool"
Swiss food
Italian technology
A Japanese home
An African economy
An Indian salary

In a rapidly changing global economy, even jokes have to be refreshed every now and then. Things like "British body" and "Indian salary" may not be so funny very soon.

The Parable Of Paternalism

Soon To Be Made Into A CGI Animation Classic By Dreamworks

A frequent visitor to this blog, Rohan888, brought this quote to my notice:

"The combination of excessive paternalism and a reluctance to accept foreign help has left Malaysia sticking out as the new poor man of ASEAN. Its listed companies are generally inward-looking with limited ambition."

This was apparently an opinion of a foreign fund manager, not exactly positive. The quote reminded me of a story/joke which I heard a long time ago, which now I am going to paraphrase and turn it into my own Parable Of Paternalism, enjoy! Its a bit long, but its worth it man! There is good paternalism or not so good ones, the latter abuses the right to decide in favour of some. This parable is about the dark side of paternalism.

I once visited my uncle in the Isle of Putrajaya, it was a nice place, hot and humid, occassional flash floods, plenty of natural resources... in fact very much like Malaysia. He took me around the island sta…