Wednesday, October 31, 2007
The indicative timing of events leading up to the listing of and quotation for the GOOGLE SW on the Call Warrants Board of Bursa Securities is set out as follows:-
Price fixing date
29 October 2007
Opening of the Offering 30 October 2007
Closing of the Offering at 3.30 p.m.
31 October 2007
Allotment of the SW to placees
9 November 2007
Listing of the SW on the Call Warrants Board of Bursa Securities
14 November 2007
Issue Size : Up to 90,000,000 SW
Entitlement Ratio : Three thousand (3,000) SW shall initially be entitled to one (1) GOOGLE Share
Reference Currency : United States Dollar (USD)
Settlement Currency : Ringgit Malaysia (RM)
Issue Price : RM0.11, being 14.59% of the Reference Price divided by 3,000 x exchange rate of USD/RM 3.3400, rounded up to the nearest sen
Exercise Price : USD680.00, being 100.4% of the Reference Price
As of yesterday's price of US$694, the premium is 12% for the call warrant at 11 sen. At 14 sen, the premium goes to 18%. Gearing would be 5.4x. I would expect a lot of over-eager buyers. Don't chase above 15 sen or when premium breaches 20%. At the current price level of close to US$700, a lot of things has to go right every quarter, even then we may not see US$750 within 6 months. So, beware.
Tuesday, October 30, 2007
Best Poker Movies
Since its a pretty dull day for business, thought I should recommend something for the holidays. Readers who have read my profile will know that I am a fan of poker, well, Texas Holdem to be exact. The game has been growing in popularity over the last 5 years thanks to the World Series of Poker tournaments. The subject matter is so simple yet complex that I am surprised not more movies has been made. There was a very well made series called Tilt, which is available on DVD, that was a blast. Rounders used tobe a cult classic among poker players. Now I am happy to say a better poker movie is available. It stars Drew Barrymore, Eric Bana, Debra Messing and Robert Duvall - it looks at what drives a fanatic poker player and how the game affects everyone around a die hard player. A side note, there are at least 10 big real poker stars in the movie Lucky You as well. Lucky You probably won't be a smash hit but will be thoroughly enjoyed by poker aficionados. Good movies fleshes out the characters well, you feel for them and you understand their motivations, Lucky You does that very well.
Poker is intoxicating as you are playing against others and yourself. Its a lot of ego, self believe and math. Best lesson from the poker table, we all get what we deserve but only the successful will admit it.
Sunday, October 28, 2007
Friday, October 26, 2007
This is largely a repost (with some updates) of some smart-ass definition for financial jargon. Had to do it for the benefit of newer readers of the blog. Some of them are copied and some courtesy of my twisted sense of humour.
Earnings Before I Tricked the Dumb Auditor
Earnings Before Irregularities and Tempering
People with a bit of economics knowledge but scared shitless about accounting
People who knows a bit about accounting but hates fiction
Unusual Market Activity
Something the management and directors always know NOTHING about
Averaging Down Investing
When you totally ignore the fact that you were wrong in the first instance
Doubling Up Investing
Making doubly sure that you are more than fully-invested when the stock eventually tanks
Chief Embezzlement Officer
Chief Fraud Officer
What Second Board???
Shorter rope, tighter noose
"Institutionalised" margin accounts
Normal Andersen Valuation
Never Pay Any Tax
Eventual Prison Sentence
Federal Reserve Board
Bank of Japan on Prozac
As useful as yesterday's newspaper
Hopes no one discovers how average they are
Sponges off the brains of analysts and strategists and call it their own
Unit Trusts & Mutual Funds
People who hope & pray that investors don't realize that more than 90% of them cannot outperform their respective indices
Chartists & Quants With Trading Programs
People who have given up trying to understand the stock markets
Short Term Investor
Someone who is in-and-out within 3 days or less
Long Term Investor
A short term investor who cannot get out profitably after 3 days
A random market movement causing an investor to mistake himself for a financial genius
A 6 to 18 month period when the kids get no allowance, the wife gets no jewellery, and the husband gets no sex
Off Balance Sheet Items
More important than items in the balance sheet, and represent things that really should be in the balance sheet
The fine art of buying high and selling low with the crowd
The art of buying low and selling lower
The percentage of investors wetting their pants as the Market keeps crashing
Someone who should have kept their previous job
Padded walls in broking halls
The day after you buy stocks
The movement your money makes as it disappears down the toilet
Past year investor who is now locked up in a nuthouse
Someone who tells you why their predictions went wrong after every quarter, and proceeds to give a confident prediction for the next 3 quarters
Honing the art of trading warrants with less than 10 days to expiry
Bursa, Lion & Berjaya
Average but lucky buggers
"A" for astronomical & absurd
"H" for hapless & hibernating
Chinese Covered Warrants
Only type of China dolls approved by the wives
Things you didn't know or understood 6 months ago
Super Link Houses
Things that didn't exist a year ago
Thursday, October 25, 2007
Smart & Smarter
Blackstone, riding a booming U.S. commercial real-estate market, has shed at least 62 million square feet out of about 102 million square feet of office space once held by Equity Office. It even managed to sell several properties at record prices. Still Blackstone is left with quite a bit of property on their books, but at least they have a decent buffer. However, the correction over the last three months would have wiped a lot of smiles from Blackstone staffers. So, who is smarter? It would have been very difficult to dispose the entire EOPT by Sam himself. He also needed to have the foresight and guts to sell at the right time. It probably was very difficult for Sam to disassociate himself from EOPT, after having build the company up so successfully. Well, Mr. Zell took the cash and can take his time now to start rebuilding a new REIT with his cash.
The Hunt For Red Petrochina In October
PetroChina's Beijing office declined to comment but Xinhua quoted officials in the Xinjiang Uygur Autonomous Region as saying the Hong Kong and New York-listed giant had discovered 130 billion cu m of natural gas.
The discovery has the potential to be the third largest gas field in Xinjiang, after Kela II and Dina II Gas fields, said Dai Jinxin, a researcher with the Research Institute of Petroleum Exploration and Development affiliated with PetroChina, the country's largest oil and gas producer.
"Gas fields with reserves of more than 100 billion cu m are considered giant gas fields even globally," Dai said. Kela II and Dina II gas fields have proven reserves of 250 and 170 billion cu m. Since more exploration and evaluation are needed at the new field, it is too early to give any specific figures, the source added. "We will drill more appraisal wells to determine the final reserve at a cost of around 200 million yuan (US$26.6 million)," the insider said. The field has an initial estimated daily output capacity of 286,000 cu m.
Although Xinjiang currently lags Sichuan Province in terms of annual natural gas production, the autonomous region has more reserves, Dai said. Reserves in Xinjiang's Tarim Basin are expected to hit around 8 trillion cu m, compared with the Sichuan Basin's 4 trillion cu m, Dai told China Daily.
PetroChina's A-share trading debut is set for November 5. The expected range for first day of trading is 39-45 yuan. Assuming the H-shares stay at HK$19.40, we are looking at a 50% discount. However, in my assessment, I am optimistic that the A-share can reach 50 yuan, because there is only one Petrochina, and the company is the most well known to all manland Chinese investors.
China Shenhua Energy, the latest H-share company to have its A-share listing, sold its A shares at a 17 percent discount to its H-shares. China Shenhua attracted a record 2.7 trillion yuan in its Shanghai IPO on October 9. PetroChina - which plans to issue as many as four billion new A shares to raise up to 66.8 billion yuan - will shatter the record by freezing 3-4 trillion yuan. That may explain why some of the funds are tied up in the application process thus making Shanghai and HK-H shares a bit listless these few days. That's a big contributory factor to the 4.8% slide in the Shanghai index today, coupled with fears of further tightening following the release of the still robust 11.5% GDP growth for 3Q.
Institutional and retail investors can start subscribing today and tomorrow, respectively, while the final A-share price will be announced Tuesday. Beijing-based PetroChina, the mainland's largest oil and gas producer, has said it needs a total of 37.8 billion yuan for five projects to construct oil fields, upgrade technology and expand ethylene capacity. Surplus proceeds from the A-share IPO would be used as working capital. This could suggest the company may cut down the actual number of shares it ultimately decides to issue.
China Oilfield Services (2883), which listed A shares in Shanghai on September 29, trimmed its issued size of 820 million shares to 500 million after the bookbuilding period.
Templeton's baldy Mark Mobius said PetroChina is still a bargain at just 8x estimated five-year earnings. Besides being the biggest in its industry, the prospects for higher profits are there as Beijing will eventually allow oil to move towards global prices.
Current Market Readings & Strategy
Investors in equity globally seem to be in a state of inertia, with the exception for HK and China, I guess. As it stand, on this day October 25, here are my market readings, concerns and strategy:
a) US dollar well underway in a progressive and managed correction since beginning of the year. When a currency goes on a prolonged weaker spell, it automatically boost competitiveness for US companies - that is a necessary evil because the powers to be (Paulson and Bernanke) know that the trade deficit, a slowing economy, correcting property prices and credit crunch could send the US economy into a tailspin.
Since they cannot get the yuan to appreciate faster, they can try to engineer a weaker USD on their own. Central banks everywhere have been reducing their US Treasuries holdings progressively over the last 18 months. Instead, many of these countries have started their own sovereign fund (ala Khazanah and Temasek; Kuwait investment Authority, Abu Dhabi Investment Authority, China's CIC, Norway's Government Pension Fund-Global to name a few) as an excuse to NOT hold bare USD.
When the USD goes lower, the stocks in US markets will gain buying support (perceived relative cheapness with other foreign currencies). If the USD did not weaken the way it did for the last 6 months, I think the Dow would have collapsed to 11,000 easily.
b) A weaker USD will also result in inflationary pressures but that is negated by an overall weaker outlook for the US economy anyway - hence Bernanke will feel comfortable lowering rates further as this will further weaken the USD gradually and managed the US economy into a soft landing. In that sense, the American stock markets are being girded by two thing, a lower interest rates regime and a weakening USD.
c) The Malaysian market seems to be in a standstill. Bear in mind that institutional funds currently really don't see much "value" in holding 100% stocks - in most markets anyway. The one factor sustaining the market at 1,350-1,400 is the outlook for the ringgit.
Currently, the Bursa looks to be an asset play more than anything else, and that's thanks to a more liberal Bank Negara and a fantastic accumulation of reserves. Bearing in mind that for most of the 1990s the ringgit traded around 2.7 against the USD. Ceteris paribus, the Malaysian economy has more structure, better depth and the companies are more progressive and better run. Hence 3.0 against the USD should not dent the competitiveness for Malaysian companies that much (target for 2008).
Having said that, I see current foreign funds holding and buying Malaysian stocks to be persuaded mainly by the ringgit outlook. Because we do not have a deep ringgit bond market, stocks are the next best thing. In addition, Malaysia is one of the very few net beneficiaries of a US$100 per barrel of oil scenario. As long as the outlook is still good for the ringgit, the Bursa could push towards 1,400-1,450 over the next 3 months. Further out, its difficult to say as many things are still fluid - further potential fallout from subprime and the niggling oil prices. Having said that, the best exposure will still be oil & gas, which had a good pause for the last couple of months.
d) As high as the Hang Seng index is now, the outlook is actually the best for HK stocks (inclusive of H-shares). They will be strongly favoured by the weaker USD and lowering of rates by the Fed. Owing to the HKD peg, the HK's monetary policy is basically guided by the Fed's actions. I see 32,000 for the HSI by Chinese New Year. Property and banking stocks to lead from the front.
Wednesday, October 24, 2007
If you examine Gamuda's earnings forecast for the next 3 years, much of it relies on the success of its Vietnam property and construction projects. Vietnam is the new India or Colombia, the really exciting emerging market today. Foreign funds have been piling into Gamuda and other Vietnam proxy plays. The valuations are such that nothing much can go wrong. Vietnam, for many Malaysian property developers, has become the land of milk and honey. Today, almost every big player wants a piece of the action.
Tuesday, October 23, 2007
On first trading day of Zijin-C1, the mother share closed in HK at HKD12.52, exercise price is HKD10.90 (convert to MYR by multiply currency rate 0.435), ratio 20:1, seems like my calculation for Zijin-C1 comes to very high premium 50-53%. Anyone can verify this high premium thingy on the 4 newly issued warrants today?
Hedge Fund said...
Prop desk manipulation. Beware!
ZIJIN-C1 and HKEX-C4 premimu is very high which is more than 50%. I wonder why people is so foolish to chase over it? Why are the market makers not doing their job correctly to set the warrant price relative to the mother share. Overvalued warrant price will definitely hurt those who chase them.
Saturday, October 20, 2007
Me again... just to add on a bit. Since you recommended CNOOC & Petrochina. How about ZC-CIMB (Black Gold)? It is a basket warrent consists of CNOOC, Petrochina, Sinopec, Scomi & Sapcres. Coincidentally, I remembered you recommended at least 4 out of 5 of the stocks above. Furthermore, it is traded at ~4% premium, decent maturity, and above average gearing of ~4. Though Basket Warrant calculation might be harder to maintain...hopefully CIMB investment manager knows how... :p
The constituents of the two basket call warrants comprise highly volatile stocks, making 3 Treasures and Black Gold very attractive to short-term investors. Lim explains: "Call warrants have unlimited upside potential, while the maximum loss is limited to the investment amount."
Ditto for the 3 Treasures - what a name, definitely a dish at every Chinese restaurant. So who got spayed on the issuance of these two Z warrants? Those who got the warrants on distribution (yes, the well connected and rich buggers in town who always get the early placements), they got the warrants at a decent premium, now its lost some of its premium after barely a few weeks... dude, where's my premium?
Friday, October 19, 2007
Hi, Based on CNOOC RM0.44, Premium is 7.8%. Gearing 2.34.Tks
Dali, i think CIMB is really really wrong.. they made on fatal mistake in their calculations..When calculating the premium, they did not convert the warrant price into HKD (multiplied by ~2.25). Thats is why the premium for CCCC-C1 is ~25% on the digest while in actual fact it should be at about 3% at yesterday's closing prices.Sinopec-c1, should actually have a premium of 12% not a discount of 9%. Time to call CIMB and scold them!
Sorry to be such a bother... Had another look at the cimb warrant digest, I think they made a boo boo with the prem info... of chlife c3 and c4 too...
Chlife C3 and C4 are at a prem of 19.5% and 9.1 % respectively. CIMB's fgures were a discount of 8% and 12%. Errors occur becuz warrant cost was not converted to HKD. CCCC-C1 discount is only 2.1%, contrary to what cimb is saying.. Incidentally, for cccc-c1, it is consistently traded at a small discount bcuz of shorter expiry, higher cost (ppl punt the lower cost warrnts it seems..) and as such, more often than not, it is a buyers' market. Holders cld give up on the market and go to osk and exercise, but if the discount is so small, why bother....
A quick scan of my list shows, 90% of the HK warrants are at gearing of around 2 times, so that is not much differentiation on that count.
Incidentally, u rated hscc-c1 as cheap... U are right in a way, basing on price prem, and the fantastic gearing. Underlying stock price although at a low of 13+ times, has not been performing, unlike BOC or ICBC I think. It is still not in the money yet. At yesterday's close of 40.5 sen, underlying stock price must increase to HKD163 to breakeven. While all those china H shares were climbing, HSBC has not caught on. What is the probability of warrnt holders of HSBC-C1 (at cost of 40.5 sen) get back their cost, to begin with???? HSBC-C1 will expire on 4 January 2008 and that is not a long way to go, is it? Could u pls share about the prospects of HSBC??
Your blog is highly respected and your views are being followed. Pls keep up the good effort as you have been a great resource to the investing community.
Thank you readers for highlighting CIMB's errors, about time I draw up my own excel file but very lazy la... CIMB, stop passing the buck of compiling IMPORTANT DATA to juniors, or are we to assume that the Unit Head/Manager also don't know how to calculate??!!
In light of the revised figures, the best H-share warrants to hold would be Petrochina and CNOOC still.
Thursday, October 18, 2007
The HK china cover warrants hve really gone up a lot... I read comments of investors of local cw that they dont make money as the local market is perceived to be more controllable. My question is, with all the money that we hope to collect come maturity, wld it be a big dent on the income statement of the issuers?
I am also curious of the fact that how it will affect the issuer whether the cws rise or fall in price? how do they get the extra cash to pay off the investors if the cw price goes up? i really hope someone will explain to new initiates like us. recently i bought ioicorp-cw and let it expire. I have still to receive the payout from them. i am supposed to get the difference in the mother and exercise price. would the return be more if i just sold the cw just before it expired? I am heavily involved in the H-shares cws, thanks to the recommendations by Salvatore. I sole some last few days but the price kept going up. I think i will just let it ride and watch them very closely. this is once in a life time opportunity to make bucks. the chances of making more far outweigh the unlikely possibility of losing all. i might even go in some of the laggards like sinopec, shenhua and cnooc.
I think the issuer of the CW will do the following for risk management: 1) Keeping or trading part of the issues 2) Hedging by buying similar or more attractive options elsewhere
Wednesday, October 17, 2007
Tuesday, October 16, 2007
The benchmark Hang Seng Index gained 2.44 percent or 702.41 points yesterday to close at a record 29,540.78 after touching an intraday high of 29,562. Hong Kong stocks were led by oil and energy plays on higher crude oil prices. Shares of PetroChina surged 13 percent to a record close of HK$18.78, boosting its market cap to HK$3.36 trillion, eclipsing General Electric's US$420.4 billion (HK$3.28 trillion). PetroChina is now second worldwide in value to Exxon Mobil Corp's US$518.5 billion. Meanwhile, CNOOC, China's largest offshore oil company, gained 9.75 percent to close yesterday at HK$14.86.
The H-share index jumped 671.32 points or 3.52 percent to close at a record 19,752.67. Market turnover was HK$174.46 billion, compared to Friday's HK$195.98 billion. The bull run that has driven the HSI 41 percent higher in less than two months is raising concerns of a bubble. The blue-chip barometer is now trading at 19.69 times earnings - the highest since March 2004. The H-share index is trading at 31.2 times earnings. But some fund managers continued to be bullish on Hong Kong stocks, noting they are still trading at big discounts to mainland shares. The Shanghai Composite Index gained 126.82 points or 2.15 percent to close at a record 6,030.09.
Strategy - While I am still bullish on H-shares, the risks have surged appreciably in just a couple of days. I would rate this a trading market. Lock in profits and look for lower entry prices later when there are mini-selldowns (they will come). I don't think there will be a massive correction despite the mania-like run-ups, but surely the volatility will be exaggerated. Lastly, you may trade but now is not the time to gear up, or go on margin. Still good, but have a healthy profit taking attitude, you cannot make all the money, ... some risks are not worth taking.
Sunday, October 14, 2007
Friday, October 12, 2007
(Last edit: 2007-10-04 02:40:51)