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Showing posts from August, 2006
Economy & Equity Market - Malaysia

sopskysalat: wonder if you can post your view on us economy going forward as the current slowdown is lingering in everyone's mind. also, i find the equity market also find itself in an uncertain state.

Economy - Excellent, currency is the main issue, then interest rates. If you line up our ringgit against all major currencies, you will find that the ringgit has the highest correlation with the renminbi over the last 10 months. Bank Negara sees being competitive vis-a-vis the Chinese currency as the most important determinant even though US remains our top trade nation. But as a bloc, Asian countries will be increasingly important as a trade bloc and trade partner. No point benchmarking to the US as the dollar has a lot of things they have to rectify with the underlying US economy. Beijing is loathed to raise rates owing to gthe massive credit binge in their system. Beijing will continue to allow the yuan to appreciate and that means the same t…
Pantai, Khazanah, Bailouts?
What's Wrong With The Picture?

As reported in The Edge: "Khazanah Nasional Bhd's move to take control of Pantai Holdings Bhd, which holds two government healthcare concessions, will not hurt investor perception of Malaysia, said Second Finance Minister Tan Sri Nor Mohd Yakcop. “This is not a bailout. This is a market-driven solution to a problem where there is a willing buyer, willing seller. Pantai is seen to be in an industry which is viewed as sensitive as it holds two concessionaires. It (Khazanah's taking control) has resolved the issue of this sensitive sector," he told reporters in Putrajaya on Aug 29.

On Aug 28, Khazanah said its wholly owned subsidiary Pantai Irama Ventures Sdn Bhd had bought a 6.6% stake in Pantai and entered into a deal with Parkway to acquire the Singaporean company’s 134.7 million Pantai shares at RM2.65 each. Parkway would in turn acquire a 49% stake in Pantai Irama, which will have a 35% stake in Pantai. Pa…
US Stocks' Dividend Yield & The Hidden Devil

Recently I posted that as of the end of July, the US equity markets (S&P 500) were trading at a PE of 17.6x, Price/Book of 2.8x with a dividend yield of just 1.9%. International stocks trade at a PE of 15.9x, P/BV of 2.3x and a DY of 2.5%. Emerging markets stocks trade at a PE of 14x, P/BV of 2.3x and a more respectable DY of 2.5%. In effect, there is another point which I have failed to account for, which would bring the US markets' valuation closer to the other two. The hidden devil in disguise is stock buybacks. According to S&P, if you add in stock buybacks to dividends, the S&P 500’s yield jumps to 5.34 percent!

S&P says that companies in its 500 index have spent a stunning US$116 billion on stock buybacks in the second quarter, up 43 percent from 2005 levels and a stunning 175 percent from 2004. Thats about US$2 billion a day. Buybacks are similar to dividends - you are in effect returning money to shareholde…
Zentrader's Question On Analysts

Zentrader asked:
Dear Dali
I think a lot fund managers and analysts are 'visiting' your blog for insider trading idea. BTW, do you think we should trust those analysts employed by firms? As sometimes I think they are writing for the big boys instead of small boys like us.
Zen

First of all, I don't think FMs and ANALs care very much for blogs. Should people trust ANALs. There are those who by virtue of whom they work for, their work will get read and promoted more, e.g. US houses by virtue of their reach and size. Hence they produce market moving reports. But eventually good research has to stand the test of time, so good ANALs do stand out no matter which houses they are from.

Secondly, research is for big boys, fullstop. At times its a two way thing. You look at the top ten volume stocks, everyday, you'd be lucky to find two with research reports on them - this means people are trading blind everyday. How do you expect broking houses to…
Desperately Seeking Talam
Making Sense & Assessing Risk

When things like Talam happens, what do you do? Talam's shares already at a 52 week low of 17 sen, dropped as low as 10 sen today on huge volumes after both Bursa and the company disclosed that Talam has again delayed finalisation of its annual accounts for year ended 31 Jan 2006. Bursa has warned that failure to submit by 31 August will result in suspension and maybe delisting. The knee jerk sellers would theorise that most companies who delay submission are prime candidates for PN4/PN17, or there is a huge writedown, or need to restate losses for previous years, etc...

The company's part of the announcement said:

Talam wishes to inform that it has failed to issue the Talam Group's Annual Audited Accounts for the financial year ended 31 January 2006 ("Audited Accounts") to Bursa Malaysia Securities Berhad ("Bursa Securities") for public release within the stipulated timeframe pursuant to Paragraph…
Oil & Gasoline Back To Reality

Oil prices fell over US$1 yesterday after the US government reported a high level of domestic petroleum supplies and tensions eased with Iran over its nuclear program. U.S. light crude for October delivery slid US$1.20 to US$71.90 a barrel on the New York Mercantile Exchange. In its weekly inventory report, the Energy Information Administration said crude stocks fell by 600,000 barrels last week. Analysts were looking for a drop of 1.2 million barrels. Gasoline supplies posted a surprise gain of 400,000 barrels, while distillates, used to make heating oil and diesel fuel, swelled by 2.3 million barrels. Analysts were looking for a 1.9 million barrel drop in gasoline supplies and a 600,000 barrel build in distillates. EIA said stocks of crude, gasoline and distillates were all above average for this time of year.

Analysts had factored in a loss of 200,000 barrels a day from the closure of 200,000 barrels a day from BP's giant Prudhoe Bay oil field i…
WHY ... Scomi ... WHY???
Silence From Bursa, SC, EPU, FIC - This Is Where You Should Yell Out NO

Oil and gas support services company, Scomi Group Bhd is a company the Malays should be proud of because of its foray in the world market, said Science, Technology and Innovation Minister Datuk Seri Dr Jamaludin Jarjis. He said Scomi was one of the three local companies which had the expertise in offshore oil exploration. "Scomi's expertise is acknowledged by foreign oil companies operating in the country. We have to be proud of the achievement of Malays who have made their marks in the world market," he added.

The proposed listing of Oiltools in Singapore could see proceeds being used to fund more acquisitions, give higher dividends, or even take the group private. Scomi has proposed to list its oilfield services division (OSD) on theSingapore Exchange by the first quarter of next year. It could raise RM400 million to RM600 million. Scomi would also receive RM130 million as set…
Stock-Take Of Malaysian Counters

Weathered the May/June storm pretty well, did not drop as much but rebounded better than most emerging markets. The Securities Commission and KLSE were hell-bent on removing the arms and legs of Coper Aul's team, stocks linked to his group include Iris, Mobif, Satang Jaya, MTD Infra (for a short period, but apparently Coper Aul opted out later), Farm Best, etc... People ask me if the recent huge dumping in Iris and Mobif will affect Coper's fortunes. I think not, in most of the syndicates' strategy, you get in without putting much of your capital, especially with Coper Aul's reputation. Blocks of shares are usually signed off from owners to be pledged for margin facility for financial engineering. More funds are usually obtained via speculative investing groups, highly leveraged hedge funds or funds that do not know what "risk" is. At the end of the day when there is the dump, chances are they would have made a bundle already, …
Important Quotations

In India, corruption is under the table. In China, it is over the table, while in Indonesia corruption includes the table.

I do not know with what weapons World War III will be fought, but World War IV will be fought with sticks and stones - Albert Einstein

A consultant is someone who takes the watch off your wrist and tells you the time.

I'm desperately trying to figure out why kamikaze pilots wore helmets - Dave Edison

I have a degree in liberal arts. Do you want fries with that?

If we knew what we were doing it wouldn't be called research.

One of the symptoms of an approaching nervous breakdown is the belief that one's work is terribly important - Bertrand Russell

If work is so terrific, why do they have to pay you to do it?


The main difference for the history of the world if I had been shot rather than Kennedy is that Onassis probably wouldn't have married Mrs Khrushchev - Nikita Khrushchev

A cubicle is just a padded cell without a door.

Not only is …
A Rebalance Soon
Btw US Stocks vs International & Emerging Mkt Stocks

After the sell down in May and June, and the uncertainty over oil prices and interest rate direction, the markets have regathered itself and moved on. Let's look at where the broad equity markets are at the moment. As of the end of July, the US equity markets (S&P 500) are trading at a PE of 17.6x, Price/Book of 2.8x with a dividend yield of 1.9%. International stocks trade at a PE of 15.9x, P/BV of 2.3x and a DY of 2.5%. Emerging markets stocks trade at a PE of 14x, P/BV of 2.3x and a more respectable DY of 2.5%.

Generally, there is some premium attached to US equity but should not be by that large a quantum. What the comparison shows is that there is more value in International and Emerging markets' equity. This does not mean that US stocks will correct to the other two groups' levels, but rather that the other two groups should move higher to match closer to US levels. Emerging markets with a D…
Microsoft - Private Equity's Biggest Whale

Private equity firms have no problems gobbling huge companies nowadays. One company which is very ripe for a 100% private equity buyout is none other then Microsoft. The crux is whether Gates wants to sell, or better still gates should just sell down till he holds just 5% of the company, because the way the stock is trading, it will just be eroding in value as investors are unconvinced of Microsoft's future. The value is Microsoft is based on its past and legacy, which is reaping beautiful cash flow, cash flows, the most important accounting terminology to private equity people - the next probably be discount to break up value. Microsoft is sitting on US$34 billion cash. The only problem is its current market cap is US$250 billion. To be successful, private equity firms will have to raise around US$300 billion. Assuming Gates would still want to hold onto 5% and you can have a share scheme allowing another 5% to be sold to employees vi…
Things Are-A-Changing At Bursa/SC
Finally, A Query That Brings Consequences

It used to be whenever KLSE or Sc queries a company's erratic share price movements, nothing would ever happen. The company will usually come back with the usual reply "not aware of any reasons why there is abnormal activity in their share price".. or something to that effect, and continue on its merry ways. After flogging Iris the horse till it caved, investors are now more sensitive to any queries or reprimands by the SC pr Bursa. Good thing!

Mobif Bhd, in reply to a Bursa Malaysia query yesterday, said it was not aware of any rumour or report on its business or affairs that could have contributed to the unusual market activity on its securities. In an update to its Aug 3 announcement, Mobif said subsidiary Mobif Wireless Broadband Sdn Bhd targeted to launch trial runs for its wireless broadband technology, iBurst Solution, in Kuala Lumpur next Tuesday. .... Ta-dah... Mobif share price fell nearl…
Even The Best Fund Managers Get Clobbered
Fidelity Got Carried Away

Having risen to the top of the fund management business, you could very well be calling the shots at Fidelity. Even when you have recorded numerous milestones, big boo-boos will make the news to shame you. Many are waiting for them to trip up, sad but true. Just ask Peter Saperstone, Stephen DuFour and other fund managers at Fidelity. Since the start of this year they have made Fidelity the biggest outside investor in United Airlines. And they woke up last Thursday morning, following news of the foiled bomb plots in London, to more red ink. Losses on their shares, in just three days of trading: US$24 million. And that wasn’t the start of the bad news.

Since the end of the first quarter, Fidelity investors have lost around US$200 million as UAL Corp. stock has slumped 43 percent. The Fidelity managers were buying aggressively in February, as soon as the company rolled out of the bankruptcy hangar. Saperstone, who run…
Bypassing The London Stock Exchange
IBs Ganging Up To Bully LSE

The top investment banks are co-operating on plans to build a new system for reporting equity trades that would bypass the London Stock Exchange and other European bourses. Ten banks, including Merrill Lynch, Citigroup, Deutsche Bank and UBS, are working together on the cryptically code-named Project Boat. They are looking to take advantage of changes to the rules governing the reporting of trades due to come into force next year under the EU market in financial instruments directive. At present, all trades must be reported to a recognised exchange whether or not its system was used for the transaction. The LSE and other exchanges charge brokers for this service and also for access to the trading data they then provide.

Under the new directive, brokers will be able to report trades to any registered entity, opening up this area of business to competition. The 10 banks, which between them dominate European equity trading, are…
Snippets, Snipes & Snides
11-15 August 2006

Energy Earnings Pushing Indices Higher
A 44% boost in the energy sector has pumped up operating earnings in the Standard & Poor’s 500 to a record US$199.4 billion, up 13.4% from a year earlier, making it the 17th consecutive quarter of double-digit growth. The percentage could have been even higher were it not for the information technology sector, in which nearly two-thirds of issues were negative. The strong second-quarter results, coupled with projected full-year growth projections are likely to help the S&P 500 finish the year up 5%-8%. The surprising energy sector performance is thanks to near- record oil prices and the closing of BP’s Alaska oil field for repair. It had originally projected a 5.7% rise in the third quarter and a decline in the fourth, but is now predicting a 16.8% boost in the current quarter and an increase at the end of the year.


Short Term Jobs In Korea
Fund managers in South Korea tend to focus on short-ter…
Jesus Is A Democrat
Disillusionment With Christianity

Allow me to indulge in something religious for a while. The alignment of evangelical Christianity in the US with the Republican party irks me no end. For interested Christians, there is a very good book on politics and religion - by an evangelical Christian Randall Balmer. The book is "In Thy Kingdom Come: How the Religious Right Distorts the Faith and Threatens America". Balmer, professor of American religious history at Barnard College in New York, argues that evangelicals have strayed from the teachings of Jesus Christ and their own historical support of progressive causes by aligning themselves so completely with the Republican party.

Back in 1925 in Dayton, Tennessee. William Jennings Bryan was assisting in the prosecution of John Thomas Scopes for teaching evolution in the public schools. That forced the issue out in the open and a taking of party sides came into being. Then there was also the Cold War and the very pub…
UBS Study On Price & Earnings Of Cities
Should I Be Thankful?

Having gone through the UBS study on price and earnings of global cities, I am quite convinced on the validity of the assumptions, methodology and conclusions. Firstly, they weighted according to how much it would cost to buy a basket of goods in each city, the breakdown are as follow:
Food/groceries 18%; Beverages/tobacco 5%; Hygiene & healthcare 7%; Clothing 6%; Household and electronic devices 7%; Home/house 18%; Heating/lighting 5%; Transportation 14%; Miscellaneous 20%.

Cost of living index is calculated on the basket of goods containing 154 items (products and services) - that is then reweighted according to the Consumer price index relevant for that specific country. As for earnings, the wages are calculated across 14 selected industries/job types and only takes data from local people and also the prevailing tax rates.

The following are the rankings of PRICES using data but NOT including rentals. The study is base…
CCB Wants To Buy Bank of America (Asia)
Bank of America Briefly The World's Biggest

China Construction Bank (CCB), China's third largest commercial bank, is interested in buying Bank of America (Asia), after failing to buy out Asia Commercial Bank in February. CCB is apparently reviewing the financials of Bank of America (Asia), an affiliate of the US-based bank, and an offer has yet to be made. A detailed plan is still under negotiation between CCB's newly-established investment banking department and Bank of America. Bank of America, the parent company, is a strategic investor in CCB, with a 9% stake. Early this year, CCB was linked to a possible buyout of 20% of New York brokerage and investment house Bear Stearns. Bank of America (Asia) has 17 branches in Hong Kong and Macau offering a wide range of consumer and commercial banking products and services. This news comes at a time when Bank of America briefly became the world's biggest bank, surpassing Citigroup yester…
Conversations About Landmarks
Between Myself & Doraidd

Doraidd: hi dali, this is from landmarks ann. to bursa:2.2. Pricing of the Placement Shares - The issue price for the Placement Shares will be at a discount of not more than 10% from the five (5) day volume-weighted average market price of Landmarks Share prior to the date on which the issue price of the Proposed Placement will be determined by the Directors of Landmarks. as i understand it, the issue date is not determined yet and it's determined by the directors and will only be determined after all approvals have been obtained. so wouldnt a lower share price, especially if its a hit-down price, actually benefit NS? lower financial outlay to take up the placements? ie. Incumbents'll set issue date after 5 days of low pricing? (assume all approvals obtained) and if the hit-down is done by the four-seasons, wouldnt that play into north's hands? i'm on hols so my mind may not be up to speed. correct me if i'm …
Chinese Yuan To Rise Faster Soon
Malaysian Ringgit To Keep In Step

There are heavy indications that Beijing will allow the yuan on a more rapid appreciation very soon. It also means the ringgit will keep rising in tandem. If we were to plot the ringgit movements over the past 9 months against other Asian regional currencies, and including the USD, British pound and Euro, it correlates closes with the Chinese yuan. That is no surprise as it is pretty obvious to keen observers that Bank Negara governor Zeti knows that you have to compete with China in the race to globalisation. Though the ringgit could have, should have, appreciated more over the last 6 months, Zeti is keener to keep it in check with the yuan to maintain competitiveness, even if that means creeping inflationary pressures into Malaysian economy.

One may wonder why is Beijing so slow to allow the yuan to appreciate despite pressures and protestations from other major trading partners. China has just again recorded a record t…
Landmarks Special Placement

On Aug 4, the company proposed to place out up to 29.53 million new shares to potential institutional investors to raise funds expeditiously to reduce the debt level. Assuming the issue price per placement share is RM1.54, or a discount of about 10% from the five day volume-weighted average market price up to and including Aug 3, of RM1.71, gross proceeds would be RM45.48 million. It is not the amount of money raised, but rather the tactic which will anger the other camp. There are now two camps, one is the North Symphony also controlling the board. The other camp involves Syed, possibly Ong Beng Seng, and possibly CMY. There was a listing of ESOS last week which saw NS buying most of the shares from employees. The strategy to do a special placement stems from another route taken to maintain control by either placing to parties close to North Symphony.

The Syed camp can either continue to mop up shares but is at a disadvantage really, as that would make the …
"Oil" Is The Matter With You?

Oil touched US$76 a barrel on Aug 7 after producer BP shut down the biggest oilfield in the United States indefinitely, while anxiety about Middle East supply continued to run high. US light, sweet crude oil was up US$1.24 at US$76.00. London's Brent was up 98 cents at US$77.15 a barrel. Although I have reiterated that the underlying sentiment for equities is bullish, there will be obstacles and road humps along the way - the biggest being oil.

a) BP Plc shutting down indefinitely the Prudhoe Bay oil field in Alaska woll cut production by 400,000 barrels per day (bpd), or 8% of US domestic oil output. The closure was due to the discovery of severe corrosion and a tiny spill from a Prudhoe Bay oil transit line.

b) Tropical Storm Chris, which at one point appeared set to become the season's first hurricane, has failed to regain strength after being downgraded to a tropical depression late last week. One more obstacle down.

c) Tensions in the …
Enough Already, Stop Bilking The People, Liberalise the KUL-SIN Sector

Both budget carriers, AirAsia and Tiger Airways have been lobbying on their respective authorities to open up the lucrative Kuala Lumpur-Singapore air route, possible one of the top 5 busiest air route in the world. Tiget Airways pleaded to the Civil Aviation Authority of Singapore to once again express its desire to fly to KL. The sector means more to Tiger than AirAsia as Tiger needs the scetor more in order to stop from bleeding red ink, while AirAsia is already profitable without the route. The stupid thing is that even governments cannot automatically dismantle the monopoly, the presigned agreement prevents any changes being made unless they are approved by SIA and MAS. As both are government controlled, the government can easily exert influence to have the monopoly dissolved. The silly return airfare now stands at S$300/RM700.

Back in the middle of 2005, Malaysia said that it will NOT allow more Kuala Lumpur-Si…
Corporate / Government Bonds Yield Spread As An Astute Indicator For Equities
A Most Important Indicator

Corporate bonds has to offer higher yields than government bonds as the latter is deemed as the risk-free rate. The bigger the spread, the higher the cost of capital for companies. It is also a reflection on the returns demanded by corporate bond holders. If investors perceive a higher default risk, they will demand higher rates and yields on corporate bonds. The US bond market is deep enough as solid indicators, and study of the spreads will tell us a lot about whether the market is in a bullish or bearish phase.

The differentials since 2000 has been between 1.5% to a high of 4% (e.g. say US Treasuries is now yielding 4.8% and corporate bonds is yielding 6.5%, the spread would then be 1.7% - as a rule do not look at A/AA rated corporate bonds as they do not budge much, look at those corporate bonds rated BB/BBB). Generally 2.5% is a normal spread in a neutral market phase, as a gener…
KLSE Trading Notes
Palm Oil & Market Themes

Following on my comments that the Federal Reserve seems to have finished with its rate hikes, markets have yet to move ahead. While I am positive on the fundamentals, the timing effect is not there yet. July/August tend to be dull months as many investment pros will be on hols. As explained before, most will gather like a pack of wolves for a push in the final quarter. The setting looks good, we just need oil prices to behave till then, it needs to stay below US$80 pb for the last quarter bull to emerge.

As for KLSE trading activity, the palm oil rally has already been a bit overdone. Its a rally based on palm oil futures, and not a rally based on the biodiesel theme. Investors should be aware that bio diesel is not magic, and is not an avenue that allows for huge margins. Its just one additional sub-sector in the palm oil supply chain. You'd be just as profitable to be in oleochemicals, or producing specialty fats for cosmetics out of…