Friday, August 29, 2008

Astro - We Have Our Own "BP-Russia Debacle"

ASTRO-LIPPO break-up - 'This is truly a mess, a very big one'

'This is truly a mess, a very big one' Alliance of empires turns hostile amid fraud allegations and corporate dissent By Leslie Lopez KUALA LUMPUR: A grand alliance between two of South-east Asia's wealthiest tycoons, Malaysian T. Ananda Krishnan and Indonesian James Riady, has collapsed into an acrimonious face-off that could lock their businesses in a bitter legal battle.

In Indonesia, a joint-venture into a pay-TV business has turned hostile. Allegations of embezzlement and fraud, including charges that unauthorised payments were made to an unnamed family member of former Malaysian premier Mahathir Mohamad, have been levelled.
Relations worsened to the point that at least three employees of Mr Ananda's business units in Jakarta had to flee Indonesia for fear of arrest by the police.

In Singapore, the months-long feuding over how to manage property and hotel company Overseas Union Enterprise (OUE), which Mr Ananda and Mr Riady control jointly, has forced the two parties to the arbitration table to resolve differences. A senior executive of Mr Ananda's business empire, which includes the satellite TV network Astro and cellular phone company Maxis, admitted that the businessman's corporate alliance with the Riadys was in trouble. 'The issues are being worked out, but we are also pursuing legal remedies,' said the executive who asked not to be named.
Mr Riady, who owns the conglomerate Lippo Group, did not respond to queries. A spokesman for Lippo in Singapore said the company could not comment as the dispute is in arbitration. 'This is truly a mess, a very big one,' said a chief executive of a Malaysian bank which has dealings with the two groups and is closely tracking the situation. 'Both sides made wrong moves and the whole issue boils down to the loss of face. There are not going to be any winners here,' he added. Loss of face aside, the collapse of the four-year business partnership shows how inter-regional corporate alliances are hard to forge in South-east Asia because companies and governments are reluctant to yield their markets to outside competition. When partnerships unravel or domestic political problems crop up, nationalistic sentiments are whipped up. In the process, foreign investors can often find themselves on the wrong side of the law, as Singapore groups like Temasek have discovered in their investments in the telecommunications sector in Indonesia and Thailand in recent years.

The following account of the crumbling business ties between Mr Ananda and Mr Riady is based on interviews with bankers, government officials and corporate executives in Singapore, Malaysia and Indonesia, who requested anonymity. The partnership began in early 2005 when both groups agreed to set up a joint venture to operate a pay-TV business in Indonesia through a Lippo subsidiary, PT Direct Vision (PTDV). The subsidiary owned a multi-media licence awarded by the Indonesian government.
The pay-TV tie-up quickly led to other corporate pacts. In April 2005, Ananda-controlled Maxis paid US$100 million (S$140 million) to acquire a controlling 51 per cent interest in Lippo's wholly owned cellular telephone company Natrindo. But rolling out the pay-TV and cellular businesses was not easy in Indonesia's heavily regulated business environment.

The joint venture also came under resistance from other Indonesian telcos and pay-TV players that did not want competition from the new Riady-Ananda start-ups. At the time, bankers say that Astro and Maxis executives would privately gripe that the Riadys, who wielded immense clout during the Suharto years, had lost their political muscle to get things done under the new regime.
'The view among the Malaysians was that the Riadys had not been able to ensure the status of the licences that they had obtained from the Indonesian authorities,' said a senior Malaysian banker familiar with the situation. But that did not deter Mr Ananda and Mr Riady from forging new business tie-ups.

In May 2006, Mr Ananda's privately-held holding company Usaha Tegas and Lippo paid S$1.8 billion to take control of Singapore's premier property and hotel company, OUE, from United Overseas Bank.
It was Mr Ananda's first major investment in Singapore andd at the time both parties trumpeted the acquisition of the highly prized OUE as a major corporate coup in the island's robust property sector. In the meantime, Astro pushed ahead with building its pay-TV business through the Lippo-controlled PT Direct Vision despite numerous unresolved issues over the planned joint venture agreement. Astro employees were seconded to head PTDV, which is currently ranked as Indonesia's second-largest pay-TV operator with 150,000 customers.

In April 2007, Mr Ananda's Maxis bought out Lippo's remaining 44 per cent interest in Natrindo for US$124 million. It would be a deal that would cause irreparable damage to the alliance.
Two months after concluding the buyout of Natrindo, Mr Ananda entered into one of the region's biggest corporate transactions with Saudi Telecom, Saudi Arabia's largest telecommunications firm. He sold a 25 per cent interest in Maxis and another 51 per cent in Natrindo for a whopping US$3.05 billion. The deal stoked anger in the Riady camp. The Indonesians felt that Mr Ananda had already lined up Saudi Telecom as a potential business partner before he concluded the deal to acquire Lippo's remaining interest in Natrindo and in the process deprived the Indonesian group the chance to profit from the Saudi deal. 'The Riadys felt it represented a huge loss of face,' said a Jakarta business consultant who knows the Lippo group well.

But Maxis executives say that negotiations with Saudi Telecom began only after the deal with Lippo was concluded. Relations between the two partners deteriorated rapidly. Lippo then informed Astro that it wanted a non-negotiable sum of US$250 million to sell its interest in PTDV, a demand which the Malaysian group rejected.

The OUE joint-venture also began to unravel.
While both parties held roughly equal stakes in the company, close associates of Mr Ananda claim that the Malaysians were deprived of any real sway in the company's management. Within months, Astro and Maxis executives say that Mr Ananda's operations came under intense pressure. In August last year, a police report was lodged at the Jakarta police headquarters against one Astro employee seconded to PTDV for alleged embezzlement by a director of a Lippo-affiliated company called PT Ayunda Prima Mitra. The director allegedly made payments to a family member of former Malaysian premier Mahathir. The allegations contained in the police report, which Astro insists are frivolous, prompted the Malaysian company to immediately fly Mr Sean Dent, who was seconded as chief financial officer in PTDV, out of Jakarta. Mr Dent continues to perform his duties for the pay-TV company from outside Indonesia.

Malaysian police say that the Indonesian police then requested the Interpol division in Malaysia to arrange for them to interview Mr Ralph Marshall, Mr Ananda's chief corporate lieutenant, over the allegations of embezzlement at PT Direct Vision. Astro executives say that the company had informed the police that its employees, including Mr Marshall, were not aware of any alleged criminal acts in the Indonesian pay-TV company.

So far, no further action has been taken by the police in Malaysia or Indonesia. In late May this year, another police report was lodged against Astro executives seconded to PTDV, including the Indonesian company's president director Nelia Molato, alleging embezzlement and money laundering.

Sources in Astro say that shortly after the police report was filed, the company was informed that several of its several of its executives had been listed on a travel ban to Indonesia, including Mr Marshall, Mr Dent and senior technical advisor Michael Chan. The three now perform their duties from outside Indonesia, including Ms Molato, who left Jakarta in mid-June.

With little chance of both parties reaching an amicable situation, senior bankers familiar with the situation say that Mr Ananda is seriously considering legal remedies to resolve his troubles with the Riadys. Astro has also decided that it will cease its licensing pact with PT Direct Vision when its agreement lapses later this month. That will mean 150,000 unhappy pay-TV subscribers in Indonesia because Astro will cease to deliver programming to PTDV. The Malaysian company also plans to initiate legal proceedings to demand for roughly US$250 million as compensation from the Lippo Group for funds and technical services to PTDV in rolling out its pay-TV business.

Comment: Pretty bad stuff. Analysts will write off almost all value in the Indonesian operation. May push shares towards RM3.00. However, the longer it stays at RM3.00 or below, the higher the chance of just taking the whole thing private. I expect AK to collect heavily at those levels should Astro gets there. Obviously the attraction of being listed gets less and less with these developments.

p/s photos: Jeab-Pijittra Sirivejaphand

Thursday, August 28, 2008

Food Treasures & Nuggets

Its Budget Day, so nothing much to talk about until after the reveal. So, I think I will do something fun. There are certain dishes/food items in selected restaurants which in itself is enough reason to visit them frequently. Here are the food nuggets, feel free to add to them:

Truffle Oil Pasta with Seared Foie Gras, at Chalet Suisse in Ampang. Hope its still below RM50, still the best single dish under RM50 in KL to me.

Oxtail Pasta served with Chilli Padi tapenade, at Cava@Bangsar, Jalan Bangkung. The meat comes off the bone and the chilli padi tapenade (for want of a better word) is exhilarating.

3) Almond Tong-Sui Powder Mix, at Restaurant Ipoh Old Town, Lucky Garden. This is not the Old Town chain, its a stand alone restaurant. The almond powder is done in Ipoh, no preservatives. Just add hot water, it taste like the freshest made almond tong-sui. Comfort food.

Grilled NZ lamb cutlets, at Max Kitchen, Tengkat Tong Shin. Slathered with freshly made but warm mint sauce. Its a simple dish but the pre grilling and timing in and out of the oven gives it a brilliant crispy texture and great juicy lamb in the middle.

Grilled lamb / Grilled fish with great home made chilli paste, at Hing Ket Grill House. Very hard to find but jam packed after 7pm every night. Ask someone who has been there to locate the place: Lot 3569, Batu 3 1/4 Kampung Jawa, Klang.

Over-The-Top Nasi Lemak, at Kopi Time @ Wisma Atria. Even better than the luxe version at Madam Kwan, sambal has got great oomph and depth.

7) I don't know what to call this, but I am there almost every evening when I am back in Ipoh.
Yellow Tumeric Ginger Rice with very excellent curries available. The lady only comes at around 6pm and the whole thing finishes by 8pm. Its the old Umbrella Square in Canning Garden, the middle store - nyonya style, and she also serves great pandan rice as an alternative.

8) Possibly the
best nyonya cakes/desserts around. Pricey. Forgot the name. Its located in the food court area of the Gardens section in Mid Valley. Its the shop next to CIMB Bank as you come up from the premium car park space. Authentic and fresh ingredients... but pricey.

9) I think its very safe to say this place serves the best fried chicken,
Restoran Ayam Kampung Bandaraya, at Jalan Tun HS Lee/Lebuh Ampang. Its also the most expensive piece of chicken with the seemingly little meat. Its very crispy and the marinade is a secret, goes exceptionally well with their sour chilli homemade sauce. I did manage to extract some information from the owners, they soak the chicken in milk overnight, and thats as far as I got. But bloody hell, its nearly RM5 for a piece, be warned.

10) Hands down winner for
best chips in town, at King Pie outlets. The pepper steak pie is also not bad.

11) The
Chinese Homemade Sausages with sweet chilli sauce dip, at The Rib Shop (next to Vintry) at Jalan Kasah, Bukit Damansara, behind Victoria Station. The roast pork is pretty good too.

Roast pork at Uncle Ho is pretty exceptional as well.

13) Best
basic nasi lemak for RM1.50 at this small bakery @ Centrepoint, Bandar Utama. Its next to Bernard's. I think its called Pandora or Panorama. They only have about 30-40 packets, its the sambal, the pandan and the rice. Very basic but sells out by 3pm everyday.

p/s photos: Yu In Yeong

Dengue Rears Its Ugly Head Again

Aug 27 (Bernama) - Four deaths due to dengue fever were reported one each in Selangor, Kuala Lumpur, Melaka and Johor in the Aug 17-23 period, the director of the Disease Control Division of the Health Ministry, Datuk Dr Hasan Abdul Rahman, said in a statement here Wednesday.

He said in the same period 1,003 cases of dengue fever were reported representing a drop of 36 cases from the previous week. "Although there is a drop in cases it is still about 10 per cent higher than the same period last year when there were 910 cases and 31 per cent higher than the targeted figure of 765 cases," he said in a statement Wednesday. Dr Hasan said seven states and the federal territories of Putrajaya and Labuan had recorded increases in dengue cases. The seven states are Perak, Selangor, Negeri Sembilan, Melaka, Johor, Terengganu and Kelantan. He said the states and the federal territories had 74 per cent or 743 cases of the total cases reported and to date a total of 29,942 cases of dengue fever with 71 deaths had been reported. He said inspections by the Health Ministry and local authorities revealed that residences and shops were primary breeding grounds of the Aedes mosquito that spreads the dengue fever.

Ask any doctor, he will tell you there is no cure for dengue. You just have to rest and drink lots of liquid. You also have to take a daily blood count so that the count does not drop. If it continues to drop, you may have to do a blood transfusion. Failing to do so is almost certain death.

The remedies below are not necessarily cures, its unproven, it could be just old wives tale. But I had dengue twice last year, so I guess at least I can comment on their effectiveness. You can take the scientific way and rest and take liquids, or you can try the remedies below, its not going to kill you anyway. I have to reiterate that you have to do a daily blood test count to ensure that the count is not dropping - the remedies below are not in any way a substitute for that.

Public Service Announcement

Deaths from dengue fever in Malaysia have risen by a third so far this year and health authorities said recently that the worst is yet to come. The mosquito-borne virus has killed hundreds in Southeast Asia this year, prompting the World Health Organisation to warn that the Western Pacific region could be at risk from a major dengue outbreak. Malaysia recorded 30,285 dengue cases so far this year (2007) with 65 deaths, up from 20,258 cases and 49 deaths in the first seven months of 2006, said Hasan Abdul Rahman, director of the Health Ministry's Diseases Control Division.

You can ask your doctor till the cows come home and they will tell you that there is no cure. Plus as western educated medical doctors, they cannot bring themselves to tell you the alternative cures. Not that I am forcing them to say anything but I am sure they have heard of traditional remedies, but they will still not tell me anything except check into the hospital and drink 100 Plus. Now I was left with the situation of leaving things as it is and go over my will, or ask around. It was a good survey, what was surprising was that there were the same 3 remedies from asking about 20 friends and contacts.

Now, I am not saying that these are indeed cures but hey, they won't kill you. Do you just want to check into hospital (you should if your platelet count dips below 100) or try something that won't kill you. The few doctors / nurses and even the Health Ministry lady said to go to hospital and get a drip and drink lots of water esp 100 Plus. That's the funny thing, all the western medicine staffers recommend 100 Plus (an isotonic drink). Now that's great marketing information - somebody should try and buy out the drinks manufacturer cause I can see their popularity growing strongly forever.

I took the 3 options for 2-3 days and the rashes were gone by the second day. The fastest working remedy was the soup, I felt "recovery" almost immediately. So, here's the public service announcement about the remedies:

1) Papaya Leaves - Put the 4-6 papaya leaves into a blender plus half a cup of water. You won't be able to blend the fibrous leaves totally, so just filter it and drink a couple of table spoons twice a day. Tastes very bitter but not that bad actually.

2) Replenishing Liquids - Blend bitter gourd, green apples, starfruit with a dollop of honey. Make a liter a day and keep it cold as the concoction will turn brown after a day. Drink throughout the day - it actually tastes very nice. I think Jusco prepares the same fresh juice mix for sale. Naturally also drink lots of water and 100 Plus in between.

3) Bitter Gourd & Frog Soup - To me, this had the greatest immediate relief. Cut up one bitter gourd and boil with three whole frogs (getting fresh frogs from the markets was the difficult thing and get them to de-skin for you). Use 8 bowls of water and boil till you get 3 bowls over low heat half-opened top, season with salt. It actually tastes pretty good and the frog tasted well. Do that once a day. Eat some of the bitter gourd as well.

Most of the remedies are based on the concept of heatiness, which western medicine cannot and do not accept as a valid condition. Like I say, these remedies will not kill you and the fact that friends who have had dengue also gave similar remedies (esp the soup) lends credence to the remedies.

Hey, you are supposed to have a no cure sickness, why not try a no-side-effects remedy!? Of course, you should do that and check into the hospital at the same time as they need to do a blood count thing regularly to see if the count is dropping. If it drops to a precarious level they may have to resort to some blood transfusion - so its not a small matter. With or without the remedies, one MUST take a blood test every day to check the count. If its dropping, its not good.

In my experience, the bitter gourd and frog soup really soothes the body. I could sleep soundly after taking them. I got well both times in less than 2 days after taking the above, it could have been because mine was a mild case, I don't know. But when science gives you zero option, do you lay there to die or at least try something (which will not kill you).

p/s photos: Haruna Yabuki

Wednesday, August 27, 2008

The Investing Advice For Now

The markets are so listless that there is really not much to write about. Times like these, you actually want it to go down a lot faster and quicker rather than the slow Chinese water torture, which nothing happens but gloomy days all the time. In addition its not much point to look at stocks as undervalued stocks are aplenty. Just pick any of the top 30 big caps.

However if our time horizon is 2 weeks, who can ask investors to go and buy? Even if your time horizon is 1 month, its a hard call. But if your time horizon is 1-2 years, you can buy safely ... but then you are talking of lots of serious money to be able to do that.

The best advice I can give now is go and seek out your unit trust salesperson. Use your EPF money to invest. You are looking at 5% return a year with EPF. I am pretty sure you will see average return a lot more than that if you were to buy now and hold for a couple of years. How about 30% over 2 years, or sell the unit trusts when index goes back to 1,350. Surely that's a good bet. Its not even a bet, its a wise investing decision.

Sure, what if it hits 900, so what... using EPF funds, you cannot park all funds in one go. You can only invest 20% of Account 1 that is above RM50,000 each time. You can only do it once every 3 months. Hence if you start now, you will get some decent average cost investing.

e.g. If you have RM200,000 in Account 1. That means you can put 20% of RM150,000 = RM30,000 into an approved fund. Three months later, assuming you have RM175,000 in Account 1, you can put another 20% x (RM175,000-RM50,000) = RM25,000... and so on.

Pick the right company. Stick with Public Mutual or HLG Unit Trust. In my view their portfolio exposure for the various funds looks fine. You can pick from a few funds from each of the company. Ask to look at their fact sheet where you can see the historical price movements - its important that they at least track or outperform the respective benchmarks slightly. It could be the KLCI Index fund, or the growth funds, sector funds, etc. Then have a look at their top 10 holdings where you can assess better if these are the companies you want in your portfolio.

p/s photos: Goto Maki (sounds like a delicious handroll)

Monday, August 25, 2008

Dubious Money Transfers By Merrill Lynch Taiwan For Chen 's Family

Finance Asia: The news that Merrill Lynch may have been involved in possible money laundering by members of the family of Taiwan’s former president, Chen Shuibian, has raised questions about the bank’s internal risk controls. Merrill Lynch has declined to comment on any aspect of this article, apart from to say that “as is our standard policy, we are cooperating with the authorities”.

The facts of the case, as they have been reported by opposition party legislator Hung Hsiuchu and the press in Taiwan, can be summed up thus: former president Chen Shuibian's daughter-in-law Huang Jui-Ching reportedly opened two Merrill Lynch bank accounts in Switzerland (at Merrill Lynch Bank Suisse AG) in February 2007, and remitted millions of dollars from an anonymous Credit Suisse Singapore account in February and March that year into two separate accounts at Merrill Lynch in Switzerland. First there were transfers of US$21 million and US$140,000 respectively.

A Cayman Islands account was set up three months later, and Huang transferred all the funds held in her personal name to this company. Merrill Lynch set up the Cayman Islands company on behalf of Huang, which is owned by Huang with power of attorney granted to Chen's son, Chen Chihchung. It has also been reported that an additional US$10 million was wired from RBS Coutts to the Cayman company account at Merrill Lynch in Switzerland.
Credit Suisse declined to comment.

A spokesperson for RBS Coutts, says: "At this point in time we are aware that there has been numerous media reports and speculation on this issue. However our policy is not to comment on matters related to any individual on the grounds of client confidentiality." The Swiss authorities earlier this year froze the assets in all the accounts and informed the Taiwan government of their investigation. The Taiwan authorities made this public earlier this month.

Conversations with private-banking professionals in compliance and money laundering as well as relationship managers lead to the conclusion that something must have been awry with Merrill’s risk control system for such a situation to occur.
Systems at all leading investment banks are set up with triggers that aim to red flag transactions which are potentially unethical or illegal. These triggers cover the identifying of prospective clients as part of the KYC (know your customer) process; the ‘source of wealth’; and how the client will ‘fund the account’ as bankers say, and why any large sums of money are transferred. All these checks are meant to ensure investment banks are protected from the type of situation Merrill now finds itself in.

In particular, private bankers are trained to watch out for so-called ‘politically-exposed persons’ or PEPs. Any person in a prominent political role (or connected to such a person) normally triggers heightened due diligence.

“Typically, it’s very hard for an Asian PEP, especially (given the corruption in many parts of the region), to open an account. They have to go through a careful and detailed vetting process,” says one private banker, adding that the client profile for a PEP can be up to 40 pages long, twice the length of a normal private banking client application.
“As soon as a PEP said he or she wanted to open an account, the bank checks whether he has enough funds to qualify as a client for their private banking arm. They would, or should, have then checked how that person got that money – whether it was inherited or whether they were corporate dividends or the proceeds of a sale or whatever.

The basic principle is to identify any risks at the outset and then monitor how that risk evolves,” says the head of anti-money laundering at a major bank. “If a bank allows large sums of money to enter their banking systems without checking on its origin, you have to ask: how good was the risk analysis at the outset?” he adds.
In other words, if Huang said she had large amounts of money in a Credit Suisse account, Merrill Lynch would have checked how she obtained that money, especially given it was transferred from a third party account to Merrill Lynch and especially for an obviously politically exposed person.

Based on local newspaper reports, the sums are huge relative to the wealth of the Chen family (Chen himself has always been in public service, first as the mayor of Taipei and then as president) and especially large relative to Huang herself, who is unemployed, and whose husband (Chen’s son) is seeking to go to law school in the US.
Private bankers say that the fact that the funds were being parked offshore should have raised red flags. “You have to ask why the money was being sent to Switzerland, which historically has been a haven for money laundering because of its banking secrecy laws. You then have to ask why that money was transferred to a Cayman Islands company account,” says one banker.

A significant red flag would have been the transfer to the corporate account from the personal account, even within the same bank. “Any transfer to a third party is treated very carefully partly because of the fear it could be funding terrorist activity, or fraud, or money laundering, or – when it comes to PEPs – embezzlement of state funds. Even though the owners of the company were the same as those who had a personal account with Merrill, the key thing is that it is a different legal entity. So that should also have signalled the need for increased due diligence,” says the head of anti-money laundering quoted above.
In particular, the fact that the Cayman company in question, Bouchon, was set up as a nominee company by Merrill Lynch Bank and Trust Company (Cayman) is suspicious. Such a structure hides the shareholders’ names and should have triggered yet another red flag. (Fairfield Nominees and Fiduciary Services, companies owned by Merrill Lynch, are acting as nominee shareholder and nominee director respectively.)

A simple check with the Cayman registrar of companies shows that Merrill Lynch Bank and Trust are also the registered office for Bouchon – the entity which does the administration, record keeping and other corporate services for Bouchon, as well as providing a mailing address.
According to one lawyer with 10 years experience in the Caymans, such a structure is unusual. “Nominee ownership of a Cayman company, intended to hide the actual beneficial owners is very rare. I never saw a single example of this in 10 years working as a Cayman lawyer. The anti-money laundering laws in the Cayman Islands are amongst the toughest in the world. It means that we wouldn't touch such a structure unless there were compelling business reasons to do so, and I can't think of a legitimate reason to hide this much.” This makes Merrill Lynch’s decision to go ahead with the structure surprising. The structure could have been an integral part of any money laundering operation. That’s because the names of the ultimate beneficial owners under a nominee structure are withheld. “Setting up a Cayman Islands entity means that in all public documents, it will list Merrill Lynch’s holding companies as the shareholder and director thereby protecting the identity of the true owners of the company. It also gives the true owners an air of legitimacy since Merrill is acting as registered shareholder and director,” says one private banker. “Given that the documents of a Cayman Islands company are not publicly disclosed, you have to ask why such a structure was required,” he says.

At Coutts RBS the account was in the name of Galahad Management. No clarity is available on who the registered shareholders of Galahad were.
“It seems as if the plan was to consolidate all the funds held in different accounts under the Chen family and its associates, and to consolidate them in one, supposedly safe, place, namely Bouchon – a company on paper controlled by Merrill Lynch but indirectly under the control of the Chen family,” comments a banker.

The Cayman lawyer points out that finding out who really controls the company is very difficult since “shareholder registers of Cayman Islands’ companies are not publicly available – unless you are a director of the company, you have no right to see who is a shareholder. Even shareholders don't have the right to see who the other shareholders are,” he says. What is disclosed is the registered office, which in Bouchon’s case is Merrill Lynch Bank and Trust – a globally respected brand, likely to give comfort to anybody dealing with Bouchon.

Sources close to Merrill say that the bank tipped off the Swiss authorities after the bank got suspicious. A spokeswoman for the Swiss Federal Prosecutor’s office in Bern told
FinanceAsia it is not commenting on the matter. So why the tip off now? We can only speculate, but perhaps they may have decided to come clean after seeing what was happening to UBS in the US, where the Swiss bank is embroiled in a massive tax evasion case. In any case, the system’s triggers are meant to be in place to prevent such situations from arising. Something clearly went awry. One possibility is that a senior person at Merrill Lynch overturned any concerns at the compliance department. “It’s the last thing compliance people want to see happen, but unfortunately, it does occur. Money talks,” says the money laundering expert.

p/s photos: Vivian Hsu

China mulls 370b stimulus package

by KathyWang/The Standard

Monday, August 25, 2008
China's leaders are carefully considering an economic stimulus package of about 370 billion yuan (HK$420.7 billion), including a 220 billion yuan new expenditure and 150 billion yuan of tax cut plan, that may ease the government's monetary policy by the end of the year, China Business News reported.

"Although the details are yet to be sorted out, there is such a plan, and it has been approved by a central finance planning team," state-run Xinhua News Agency said in a report yesterday.

The expenditure part will include the spending of 45 billion yuan on social welfare, 46 billion yuan on agriculture, 38 billion on education, 35 billion yuan on construction, and 28 billion yuan on import of energy and commodity products.

The package will also propose tax cuts of 150 billion yuan in total, including measures to raise the threshold of personal income tax, export tax rebate, and preferential tax packages for small and medium- sized enterprises.

However, concerns over whether to launch the plan within the year rose because officials aren't certain if the country has planned enough budget for it.

This year's snowstorms in southern China and earthquake in Sichuan have already cost China 35 billion yuan.

In the first half, China generated fiscal income of 3.4 trillion yuan, running a fiscal surplus of 1 trillion yuan.

Last week, JPMorgan released a report saying Chinese authorities were considering an economic stimulus plan of at least 200 billion yuan to 400 billion yuan. The controversial news, although unconfirmed by the authorities, helped boost the A-share index by nearly 8 percent in a single trading day.

p/s photos: Pace Wu Pei Ci

Sunday, August 24, 2008

Joanna Wang - Ingenue

Time to talk about music. Made a new discovery when I came across this Joanna Wang. Joanna Wang (王若琳) is a Taiwanese singer/songwriter, daughter of famous Taiwanese music producer Ji-ping "Bing" Wang (王治平). Her debut album, Start From Here, was released in January 2008 as a double-disc set, one in English and the other in Chinese. She is 19 now and was brought up in the U.S.A. She moved back to Taipei when she was 15. She performs regularly in the Taipe Riverside Cafe. Fans have likened her voice to Sarah Vaughn, Norah Jones, Diane Schuur and Teena Marie.

I love her voice, smoky, earthy, and she is a composer as well, contributing 3 songs on the album. However she has been giving interviews saying the debut album was a "product" and not a true reflection of her vision for her music. I think there were some heavy handed production decisions, especially in doing the covers of True and New York State Of Mind - she is much better than that.

Joanna: " I don't really admit that the "debut" was my work because a lot of it was from purposes that were non-musical. also the songs i was forced to sing, in my opinion, are pretty horrible. call me ungrateful, but i'm a jerk. thus concludes my angsty teenage babble..."

I look forward to her second album, which is due out in December, which should showcase more her talents. Still, the debut album is pretty impressive already. I have listed 5 of her songs on the imeem jukebox on the left.

Get her album, and I am sure her subsequent albums will be even better.

Saturday, August 23, 2008

Foreign Funds, Buy Me Please!

What is this fixation among some Malaysians that foreign funds must/should buy Malaysian stocks? Is it a self-esteem issue? That somehow “they love us more” if they buy? And if they don’t, it means “we are not worthy”? Please lose the pre-independence, second-class citizenry, developing country mentality.

A stock market is just a structure where shares are bought and sold. Whether foreign funds come in or not does not mean we are running companies with “world’s best practices/standards” or that we are making strong strides in the respective industry’s competitive landscape. No, it does not mean that at all.

Funds will flow to places where they can make money, be it Vietnam, Indonesia, South Africa, China, Turkey, Egypt, etc. I doubt many of these markets are practising “world’s best practices/standards”, or have credible market openness or strong liquidity.

People buy stocks that they think are going to give good returns. Even if we have very good companies, people may not buy because we may be overvalued already.

There are tons of options for the global investors, and the Malaysian market is just a little thing.

Get over yourself. Do you know how big the Malaysian stock market is? Take any one of the top 10 market cap stocks in the US and you will see that it is bigger than the total market cap of all 1,000-odd companies listed in Malaysia. As a matter of fact, foreign funds ignoring smaller markets can be perceived as a good thing!

Foreign investors will only invest if they think they can make money. If they cannot, maybe the Malaysian stock market is fully valued or overvalued. Or it could mean that the local funds/institutions and local private investors have snapped up all bargains — leaving no room for the good stocks to be “undervalued”.

We could also argue that when foreign funds and research houses issue a Buy on a certain country, it’s because the local funds/institutions and local private investors are not savvy enough to pick up undervalued stocks. So which is which? Do you want a back-handed compliment?

Attracting more foreign funds is not so straight forward. Do you work it out based on a percentage of the market? What level would we be comfortable with? If foreign funds own 10% of the market cap of Bursa Malaysia, is that too low? What about 30%? Too high? Should we put in protectionist policies then?

We don’t even know where our “comfort level” is, and what should be our strategy? So why even bother trying to attract them?

Too often, we are just reactionary in our policy making. We see an issue and we address it, but without proper thinking and strategising over the big picture. And then when it hit road bumps, we react with more policies! But why are we doing this in the first place?

Let’s look at the stocks with the largest foreign shareholdings (as a percentage of the company’s shares):

Public Bank Bhd 11%, IOI Corp Bhd 9.4%, Bumiputra-Commerce Holdings Bhd 9.1%, Sime Darby Bhd 8.4%, Genting Bhd 7%, Tenaga Nasional Bhd 6.4%, Resorts World Bhd 5.3%, Malayan Banking Bhd 5.2%, DiGi.Com Bhd 3.4%, Kuala Lumpur Kepong Bhd 2.8%, AMMB Holdings Bhd 2.7%, Telekom Malaysia Bhd 2.5%, and Gamuda Bhd 2.5%.

I don’t know about you but from the list it appears that foreign funds have basically been exiting a lot of their usual positions. Sime Darby and IOI’s levels may be even lower now following the CPO (crude palm oil) sell off over the last three weeks.

On another point, some companies may not really have foreign investors.

The foreign shareholders may actually be the same family-controlled holdings based in some tax-free island.

When its cheap enough, foreign funds will come back. At the end of the day, foreign funds will gravitate to where there is money to be made. If you have more big cap stocks, it will allow them better liquidity as they can move in and out with size.

If you make your currency fully transactable and convertible globally, that’s good too. If you stop making ad hoc rules that limit the flow of capital, that would be very good as well. If minority shareholders’ interests are aggressively protected by the courts, that would be splendid.

If the regulators are swift to prosecute wrongdoers in listed companies, it improves the integrity and confidence in the market place among investors. If you can find ways to create more free float, that would be good as well. These are measures the regulators should address and constantly improve on — not because they will encourage foreign funds to invest, but because you have to, so as to get closer to world-class standards for the Malaysian exchange.

Foreign funds are not always right. Their presence does not necessarily mean we are doing well economically. Their presence could be inflating values as well. Foreign funds are just as likely to make huge losses.

It is a good thing to compare our performance with other markets to improve our ways, but don’t get emotional about it. They are just stock prices, not the price of your dignity or the price of our children.

Get a better perspective. True worth comes from knowing who we are. We do not need someone from outside to tell us that today we are just RM1.56 or that the next day, we are worth just RM1.10!

Don’t worry about how much foreign funds there are in our markets. Don’t worry about whether they like our markets or not.

We need to build good companies. We need to build great companies. We need to build solid corporate governance and integrity. We need to build and instill professionalism among the regulators, senior management and board of directors.

Just like in the Kevin Costner movie, Field of Dreams: If you build, they will come. But build not to please the foreign funds or to have better market velocity. Do it because that’s the right thing to aspire to for the benefit of shareholders.

p/s photos: Akumsiri Suwansook

Thursday, August 21, 2008

The China Price

Datuk said

...When a ship sailing in a stormy sea with an invisible front side the captain need to apply his common sense that guilded by his previous experiences as well as taking into consideration of the on the spot factors for moving forward to the planned destination.

Thus, the experience (history) and common sense (objectivity of view point) are two helpful gurus for guilding us to sail through the current economy sea.

In my opinion, there were 2 aspects of inter-dependent spending in china, namely consumer spending and infra and capital investments. A strong consumer spending derived from the strong confidence which in turn influence the capital/infra spending and vice versa.

China as we known is a typical export orientated economy. This is to say that the growth factor in CHina for many years has been driven by its "factory of the world" due to it cheapest cost relative to other countries.

However, the comodities boon for the past 3 years had changed this scenario. The external demand has already sunk prior to the olympic games. Apparently, the world is unable to absord and live with this inflation.

lsb said...

Everyone has been wrong on China since Deng opened up including myself. The leaders understood that the strength of a country is in its middle spending class, and China today has over 200m.
China can trade and spend within itself for a period of time while the world stabilized. It has the reserves to do so.
China will continue to confound conventional wisdom.

ash said...

I often wonder. If the world consumption drops, and China is unable to export its products to the US and Europe, then who will buy them? Products made for the US and Europe markets...are they consumable by the Asian and CHinese markets? Factories fitted with the latest technology at high cost and producing high end products, can these expensive products be sold to fellow Asians and Chinese? Will asians and chinese buyers afford them? Will it suit their taste?

Comments: There is the wrong perception as to why China is still barging along head on when the rest of the world is slowing down, in particular US and Europe... the crux is that China is not producing to sell to the world on their own... it is a fact that some 60%-70% of China exports are by these foreign companies producing in China to export back... this is the crux of the globalisation movement.

China's voracious appetite for global commodities is not for their own consumption, but to satisfy the huge amount of FDI that has been flowing in over the past 10-15 years. Of course, the rise of China as a magnet for FDI has also the effect of bringing up a huge new middle class of consumers, and that kind of feeds off each other. This kind of "new demand" is not so easy to erode as the badge of honour is the "China price".

While the FDI is supposed to generate cheaper manufacturing bases, inadvertently these units will also benefit from the much higher demand from the new China middle class. That's a benefit no one wants to shrug off.

The question about higher commodity prices and materials eroding China's advantage is mistaken because to produce elsewhere would incur the same cost structure. What China does well and cheaper is leveraging on their strong economies of scale in almost every manufacturing process. What started as a global factory is also having a huge domestic demand to further squeeze efficiencies and margins. These economies of scale are hard to beat.

The question is then will these foreign companies shift their manufacturing Chinese base elsewhere? Where can they go? The world has to live in the brave new world of "the China price"... if you cannot compete with the same product and services produced by China, you better close shop. Thats what has been happening in a big way for the last 10 years. Thats also partly why big foreign MNCs everywhere has been able to eke out good margins growth by putting a lot of their manufacturing and processes in China.
A slowdown in the US is bad, but not to the extent of shutting their China operations as thats their magic 8 ball. Cuts will be made back in high cost areas back in their local offices. Hence the fear of "who to sell to" is not a China problem.

p/s photos: Melissa Ng Mei Han

Wednesday, August 20, 2008

Emerging Markets Funds Flow & China Post-Olympics Blues

Fund Redemptions - If you remember the rankings of year to date performances of various markets, the emerging markets have been hit pretty hard. Now we know that last week saw fund redemptions from emerging market equity funds totaling US$1.9bn, which was the biggest outflow in 5 weeks. That on top of the 5 weeks of continued outflow of funds. In total the total fund redemptions was almost US$20bn on emerging markets funds.

The situation was reversed for US equity funds where US$13.3bn flowed in over the past 10 weeks. To me, the outflow from emerging was collateral damage from the massive unwinding and deleveraging by speculators, hedge funds and commodity funds. It was not fundamentally driven. As they unwound, the emerging markets were being sold down to cash up for overal anticipated redemptions. The reversal now seen in commodity would establish some platform for emerging markets to find their feet again.

China Post-Olympics' Blues
- The generally accepted fact is that China will see a slowdown following the successful Olympics. Many consider the infrastructure development would slow dramatically. Let's get real for a moment. The total investment in infrastructure which was related to the Olympics totaled between US$40bn-50bn. Now, let's take the China's actual budget for its 5 year plan already announced for 2006-2010:

Transportation Infrastructure US$554bn

Power Grid Projects US$1,000bn

Even if you average it over 5 years, that easily US$300bn a year (or 6x the Olympics related budget on infrastructure). This is one of the main reasons why I think the commodities upcycle is far from over... and this is just China. In fact, infrastructure projects would speed up after the Olympics as these projects may have had to take a backseat to allow the Olympics related projects to be rushed for completion.

p/s photos: Yamasaki Kimami

Misery Needs Company

When everybody likes something and it turns out bad, we can only shake our heads. Was it due to the 100 points lost by the market when they announced open subscription for the IPO, and was it due to it opening to trade at the year's lowest point for the KLCI? Was the outlook for steel very bad, what changed over just 3-4 weeks? Perwaja got us all hot before and now perplexed. Perwaja's IPO was priced at RM2.90, today was the first day of listing: High 2.80, Low 2.34, current 2.52.

Perwaja was the year's biggest IPO with a market cap of RM1.5bn. The public issue was oversubscribed by 31%. Shares for the restricted offer was oversubscribed by just 24.5% while the public portion of just 11.2m shares was oversubscribed by 189%. As a reader correctly pointed out, the rights to buy Perwaja for Kinsteel shareholders traded suspiciously weakishly. Still, you can only call it as the fundamentals presented itself. Who is to say the rights valuation is correct? Of course now you can say the rights were traded correctly, but no one can base their research valuation on just how the rights were trading - that has too much to do with sentiment.
It is a guide.

My wonderful prediction and call on Perwaja: "Perwaja is very likely to hit at least RM4.00 when it comes on, with RM4.20 being the top side. Hence if you have been successful in getting the IPO, good on you. If you are thinking of buying Perwaja in the secondary market, well only if you can get it below RM3.80"

Let's look at fellow research units on what they said on Perwaja:

SJ Securities - Overweight, Fair Value RM3.83, Upstream Steel Play

AmResearch - Fair Value RM4.12, Pure Upstream Play

Aseambankers - Fair Value RM4.50, Subscribe, Forging A New Chapter

Alliance Research - Fair Value RM4.00, Steel Industry New 'Poster Boy'

MIMB - Fair Value RM3.70, Steely Outlook

TA - Fair Value RM4.20, Prove Its Mettle

HLG - Price Target RM4.00, Early Stage DRI Cycle

OSK - Fair Value RM4.90, A Pure Upstream Play

CIMB Research probably breathed a huge sigh of relief as they did not have to write a research report on Perwaja on conflict of interest grounds - lucky bastards.

Well, when you are wrong, you are wrong. Yes, time to mock and make fun of analysts. Part and parcel of the job. Side note, its a great pick up on Perwaja on today's prices... full stop.

p/s photos: Pace Wu Pei Ci

Tuesday, August 19, 2008

Oil Shorts Covered, Go Long Gold & Oil

When did I become a commodities trader? Unlike most commodity traders, I do not trade the volatility or very short term trades. I tend to look at sentiment and momentum and compare that with the "noise" in the market place, all the time assessing the underlying fundamentals.

The first short position on oil was at US$139, the double up position was taken at US$119.90. The shorts were covered at US$112.90. I initially was waiting for US$110 to be broken.

My reasons for covering:

a) The open interest on oil futures was only about 43% when oil was at US$130, now its closer to 70% and mostly on the short side. The hedge funds and index speculators were not only unwinding and deleveraging, but taking the short side as well in most commodities. The fact was much clearer in gold price movements over the last 2 weeks.

b) Despite the cumulative shorts, the momentum does not seem strong at all to push to test the US$110. If things don't look likely, it will move the other way.

c) The US PPI though a lagging indicator is worth considering. It was pretty significant and may take a few more months to ease down.

d) I still hold to the strategy that the upcycle in commodities is still intact. Though we may not test the highs again this year, it will at least gain back some significant ground.

e) My final conviction came from gold price which broke US$800 too easily but almost as quickly retestes the US$800 on the upside. Its been down below that level again. Its a good sign of price movements in an oversold instrument.

f) I was a bit surprised that the Russian-Georgia issue did not prompt a strong rebound, again lending weight to the strong shorts momentum. Now that the selling did not look likely to break US$110 on the downside, more sober minds would dictate that the Russia-Georgia thing is mostly about controlling a very major oil pipeline.

Link to previous trades:

New positions

Long oil futures $113.20
Long gold futures $802

p/s photos: Amanda S (aka Amanda Strang)

Heard Around The Money Jungle

Crude futures have fallen more than 20% from their early July highs on the New York Mercantile Exchange. But at just shy of $114 a barrel, they’re now hovering right around the daily average close so far this year, which is still more than 55% above 2007’s average.

“In a classic bubble pattern, China’s Shanghai Composite is now down 60% since just last October. It is now just 9% above its highs from 2001, and it is on the verge of giving up nearly all of its parabolic gains following its breakout in 2006. Anyone hoping that the Olympics would give ailing Chinese stocks a boost have gotten a rude awakening. Since the opening ceremony on lucky 8/8/08, the Shanghai Composite has had three straight daily declines of 4.47%, 5.21% and 0.52%

“In July, the bet on long commodities and short financials didn’t work as well for hedge funds

“Fund managers are no longer worried about inflation — an extraordinary turnaround in the space of just two months”

“Wall Street has been thinking more of a series of events that would lead to lower inflation. Main Street remains focused on gasoline and food prices”

Traders say that with the slide in the metals markets gaining steam, trading programs that are designed to limit losses are adding to the downward tumble. “Selling came in and triggered a lot of stops below the market

Given that exports played such a significant role in powering the U.S. economy forward in the second quarter, offsetting at least some of the drag from the housing downturn, that is likely bad news for the U.S., and a good reason to question how far the dollar can run. “The combination of deepening weakness in Europe and Asia coupled with an appreciating U.S. currency may jeopardize any hopes of a decent US recovery, especially if protracted dollar strength erodes the vital contribution from net U.S. exports (exports minus imports) on U.S. GDP growth”

Think about that — over two-thirds of the US GDP growth in the second quarter was due solely to the decline in import volumes

p/s photos: Sara Malakul Lane

Monday, August 18, 2008

Markets Compared

Markets Performance Year-To-Date

1) Nasdaq -7.5%

2) Dow Jones -12.4%
3) FTSE -15%

4) Nikkei -15.3%
5) Kospi -17%

6) Straits Times Index -18.7%
7) Hang Seng -23.2%
8) KLCI -23.22%

9) Jakarta Composite -23.3%

10) Shanghai -53.6%

Considering that Chinese mainland companies were supposed to make up close to a majority of Hang Seng index, the correlation has been disjointed between Shanghai and Hang Seng. That indicates that the mainland bourses were dealing effectively with the bubble in the stocks there coupled with feeling the effects of higher interest rates and very tight lending. It also shows that Beijing's mandate to puncture the equity bubble has largely been successful. Hang Seng's resilience has a lot to do with its monetary policy being dictated largely by its USD peg. Bearing in mind that most HK banks were not part of the US credit implosion and sub prime collateral damage, the Hang Seng's worse performance compared to the Dow still showed that Hang Seng index's red chips have been dragging the HSI lower.

Nasdaq's out performance shows that investors are punishing financials generally.
Despite the huge amount of problems faced by the US economy: credit implosion; sub prime; higher oil prices; Fannie & Freddie - the Us markets have performed remarkably well. Are they right, or just deluded? Other Asian bourses seem to be hit harder, and for what reasons? A slowing US economy, easing in commodities, a stronger USD???

The KLCI is obviously in over sold territory as fundamentals would dictate that Malaysia is at a much better position than Japan and Korea at least. It looks like the last 7%-8% of losses has more to do with issues external to business and fundamentals, and more to do with the political premium of investing in Malaysia.

p/s photos: Son Tae Young

Saturday, August 16, 2008

The Top Glove Incident

Many investors were up in arms when they read a certain financial publication’s front-page report on Top Glove Corp Bhd forewarning that its FY08 earnings are most likely to fall short of its earlier projection. Some even remarked that the headline “Top Glove issues profit warning” was somewhat irresponsible journalism.

But here’s a question - Was the executive director of Top Glove wrong to have guided the market that it was not going to be hitting its profit targets?

It’s earnings guidance, silly

Profit warnings are a common practice in the western world. In US, it’s called quarterly earnings guidance (QEG). European companies do not practise it and while it may not be mandatory in the US, it is generally expected of good companies.

When Top Glove was queried by Bursa Malaysia on the newspaper report, the glove maker stated that the headline was the publication’s own interpretation of an interview with its executive director, who in no uncertain terms said it did not expect to meet its target of RM125mil net profit for FY08.

The financial publication defended itself that companies must be encouraged to provide timely information, including any change in projections. Before we get to the “solutions”, let’s look at the developments surrounding QEG in the US.

The US Experience

Increasingly, large listed companies in America are revolting on the practice of providing quarterly earnings guidance (QEG) or in other words, company forecasts. In recent months, the move against quarterly guidance has become all the rage. Organisations such as the CFA Institute, the Business Roundtable, the Chamber of Commerce, the National Investor Relations Institute, members of Congress and Securities & Exchange Commission chairman Christopher Cox have sounded the alarm bell against companies providing quarterly earnings guidance to Wall Street and shareholders.

Needless to say, this kind of short-term managing will result in a difficult operating environment. Long-term objectives and strategy may be compromised to attain short-term goals and targets. QEG will not just affect the top layer of management, but will work itself down to the nuts and bolts of every organisation, especially sales and marketing. Constantly doing, re-doing, re-working, re-stating QEGs will create a damaging focus on meaningless short-term performance and undermine a company’s ability to manage for the long term. This re-working, re-stating, re-doing will have to be re-communicated down the line re-peatedly. Re-diculous!

Even I am concerned for quarterly reporting as I do feel there is an excessive burden on the board and senior management to do board papers, attend board meetings just to ratify and spot “typos” – a lot of constructive hours are lost. If we can maintain quarterly reporting to the bare minimum with no “special announcements or guidance” necessary ... it will save a lot of people a lot of time, money and creative energy.

Companies want to project numbers that will please Wall Street, their shareholders, the bloggers and excessive business programs on television. All company executives, especially those of large public companies, should follow the lead of others who have stopped issuing earnings guidance. Even stock analysts are disenchanted with QEGs as they have to write, comment on trivial things on a too-regular basis. Haven’t European markets and investors functioned just as well without very much forward guidance from management?

The highly respected Committee of Economic Development recently released a report entitled “Built to Last: Focusing Corporations on Long-Term Performance” (The Report). CED is chaired by former SEC chairman William Donaldson. The Report specifically recommends that “companies voluntarily refrain from issuing short-term guidance,” which, the Report notes, represents “both symbol and substance of concerns over companies’ lack of strategic focus on long-term performance.”

The Report observes that about half of listed companies continue to give quarterly guidance, but that “research studies indicate that quarterly guidance is at best a waste of resources and, more likely, a self-fulfilling exercise that attracts short-term traders.” The report cites a study of over 4,000 companies between 1997 and 2004, which found no evidence that guidance affected valuation multiples, improved shareholder returns, or reduced share price volatility. The study did find that the cost of management time and other resources of providing earnings guidance were significant.

The Report also notes that “the availability of information on short-term performance acts as magnet to those who trade based on such considerations,” but that “market pressure to provide earnings guidance may be receding,” since many companies are discontinuing the practice.

Berkshire Hathaway Inc chief executive Warren Buffett said Wall Street’s relentless focus on whether companies hit or miss quarterly earnings targets encourages balance-sheet manipulation and discourages long-range planning. A consensus is growing among CEOs, regulators and analysts to go against QEGs. Many CEOs despise giving such guidance but are afraid to stop because they think they would be punished by Wall Street analysts and shareholders.

Among the biggies who have stopped giving QEGs are Citigroup, General Motors, Ford, Motorola and Intel. Last Friday saw another big boy joining this elite group, Pfizer. Even Merrill Lynch has recommended its global research analysts to discount company guidance when preparing forecasts.

Many companies want to stop and maybe, part of the reason is that more and more companies have been missing their numbers. Particularly if you have had a great quarter, what are you going to forecast for the next quarter? If you are less than optimistic, then even that great quarter’s results will be villified and your stock will be graded down by analysts and business journalists. If you maintain an optimistic forecast, you are just raising the bar every quarter – how often can you raise the bar.

Not everyone has a “General Electric” at his disposal – not that I am bashing GE, GE has been famous for not missing QEGs. When you have a fantastically-run company with super achieving executives, and most importantly, an array of business units – you can “manage” earnings well. Tweaking business units performance on a quarterly basis, recording some sales early and some late – well, wouldn’t it be easy, especially when you have so many well-run units in GE.

CEOs have another quibble about QEGs and that is the increasing focus of class-action shareholder lawsuits. It is too short term in nature and volatile, and if CEOs are held liable for QEGs on a strict basis, it will be too stressful, if it isn’t already.

As in any markets, the top companies get too much research coverage while the rest get zilch. Two-thirds of Nasdaq companies are covered by one or no analyst. Small companies then feel obligated to play the QEG game simply to get attention. The one group who seems to benefit more from QEGs are the hedge funds, as they can have more opportunities to go long/short a stock/industry class based on QEGs. Hedge funds also tend to be more severe in rewarding and punishing short-term happenings. End result, more volatility.

Bursa & SC, Please Read

When QEGs were first proposed, it was based on the premise that they would help lessen volatility, and hence risk and cost of capital would also decrease. It should lead to better information flow and access for shareholders and potential investors. Suffice to say, those who thought so have formed the realisation that they were wrong in that respect.

What the Top Glove ED did was basically an earnings guidance. As things stand, he should not have made such a statement because it was not a regular or expected announcement. If we give the CEOs or CFOs leeway to make “earnings guidance” at any time to their convenience, we will leave a lot of room for possibly unethical intentions behind the timing of these guidance. In this instance, the ED must be warned not to do so in the future.

The SC & Bursa should come out with a set of “notes” on earnings guidance as well. If a company wants to be frank and transparent with their earnings guidance, they will have to announce to Bursa and investors beforehand that they should be doing so at regular and expected intervals. It ought to be clear and known to all – not whenever they feel like it.

Earnings guidance is not immaterial, or simply an opinion. As it comes from responsible senior management of the company, the guidance will have a material impact on share price. Hence Bursa and SC should look to close that gap with proper advice and well defined parameters to make things fair to shareholders as well.

This episode only reveals that this subject is a grey area, which the financial publication has inadvertently stepped into. Perhaps it’s time for more clarity from the regulators on the matter.

p/s photo: Pace Wu at the back, and the incredibly ageless Angie Chiu Ngar Chi in front (try and guess her age, she was the runner up in Miss HK 1973)

Friday, August 15, 2008

CPO Defaults

Well, thanks to the article below, the selling in CPO stocks will reach a climax. Defaults will happen when prices of any commodity falls too fast - who want to pay last week's prices that were 20% higher? Of course, there is the rule of law and contracts, but the news will spark fears and panic. As I see it, this is an EXCELLENT time to buy CPO companies especially when prices dip below RM2,400 this afternoon session. Defaults are not earth shattering, they just want better prices, they still have to buy.

Article from Reuters :

China defaults on 40,000 t palm oil -exporters Fri Aug 15, 2008 10:45am IST

SINGAPORE, Aug 15 (Reuters) - Chinese buyers have defaulted on at least 40,000 tonnes of RBD palm olein after a drop of more than 8 percent in prices on Friday, Malaysian exporters said.

"There is a default of 30,000 to 40,000 tonnes since morning today, but obviously defaults will be much more than that as prices have come down from 2,600 ringgit, to the 2,400 ringgit level," said one dealer at a leading export house.

Another Kuala Lumpur trader added more than 100,000 tonnes of contracts would be washed out as importers would be reluctant to take delivery after the price fall.

p/s photos: Pace Wu Pei Ci

USD Strength Is Temporary

Don't make the mistake of thinking USD strength is responsible for the collapse in commodity prices. The dollar DID NOT cause the collapse. To think like that would bring about the wrong investing strategy going forward.

There is very little to support a bullish dollar going forward.
The connection is reversed, its not a dollar led sell down. Its the deleveraging by index funds and cut-loss by speculators in almost all commodity asset class which has brought about the cashing up. The dollar has been inversely correlated to commodity prices for the past 3 years. Its only natural for the inverse correlation to hold as well.

To many index speculators, to go long on commodities is one trade. If you wanted to enhance returns, you can also short the USD, its a double whammy. Plenty of hedge funds have taken on this strategy, and what we are seeing is the reversal of that. Hence the strength in USD is pretty fake.

Amidst a slowing US economy, the biggest determinant for USD strength would have to be the outlook for higher rates. Fed funds is at 2%. Even though July inflation was at a 7 year high, or was it 13 year high, either way that is expected to come down significantly owing to the sharp drop in oil and other commodity prices since then.

The biggest factor the Fed and the Treasury will be considering when thinking whether to raise rates is the amount of recapitalisation, the amount of mortgage resetting, and the various restructuring that is ongoing to help the smaller and regional banks to survive. Any rate hike would affect the above issues negatively. The Fed and Treasury cannot allow that to happen.

Hence, to me the fed funds rate has almost minimal chance of being hiked for the rest of the year. I see a 60% for it to stay at 2% for the year, and a 40% that it may go lower to 1.75% before the year is over.
That being the case, there is very little chance for USD to maintain its rally.

Once the commodity prices flattens out, the USD should continue its slow downside weakness again. We are getting close to those levels, oil should stabilised just below USD110 and CPO's bottom range is around RM2,450-2,500.
The proper investing strategy taking that in mind is a refocus on strong emerging markets with strong trade surpluses and foreign exchange reserves.

p/s photo: Onjira Lamwilai

Wednesday, August 13, 2008

Bursa Trading Hours & Corporate Announcements

REVISED (Don't know what I was thinking, got some facts wrong, apologies!)

Many are calling for shorter trading hours for Bursa. Right now we are open from 9.00am-12.30pm, and the afternoon session is from 2.30pm-5.00pm. Longer hours does not translate to more business, thats a fact. We need to think properly how things work. Let's look at competing markets for morning session, all local time (MY time):
HK 10am-12.30pm (10am)

Shanghai 9.30am-11.30am (9.30am)

Tokyo 9am-11am (7am)

Taipei 9am-1.30pm

Thailand 9.55am-12.30pm

Singapore 9am-12.30pm (9am)

The important markets to consider are HK, Tokyo, Singapore and Shanghai.
You would not have any value by opening
at the same time as them.

As we all know morning
sessions are basically trying to digest and discount what happened in Europe and the US
markets overnight. Bursa has no advantage to open at the same time. You cannot even think of opening earlier than Tokyo (7am our time). Why do you think Singapore opens at 9am? Because HK opens at 10am, and you serve no purpose to open at the same time as HK.

Though stocks in each exchange may be different, but they all have a high correlation to overnight equity markets. By opening at differing time slots, each exchange can capitalise on what happened in other bourses. Traders can move in and out of certain exchanges at various time intervals - not all at the same time.
Hence 9.30am should be the better opening slot for Bursa, its a very nice spot. I would even advise that the closing time for morning session be at 12.15pm instead of 12.30pm. Yes, you may be opening at the same time as Shanghai but Shanghai is not so open to international traders and foreign institutional investors.

The afternoon session is way way too long. 2.30pm till 5.00pm. HK closes at 4pm, Singapore at 5pm as well. Following the same argument, 4.30pm would be a nice slot. Collectively we are shaving 75 minutes of trading, which will yield much better results all around.


While we are on the hours thingee, Bursa should revamp completely the timing and release of corporate announcements. As things now stand all announcements must be submitted after 5pm for same day release later. However the actual release to the public is all over the place, some are released at 5.30pm, some at 6.00pm some even later, why? Don't give me the bs that the technology cannot handle it, is the Bursa using Windows 92?

Why force journalists and analysts to guess and stay later than they need to to see if there are material announcements?
Do a cut off time for all corporate announcements to be only accepted from 4.30pm till 5.00pm. If you failed to make the time cut, tough titties, yours will be released tomorrow. ALL corporate announcements to be released to the public from 5.15pm till 5.30pm, certainly you cannot jam the page loads with such a wide 15 minute slot right!

Plus at the end of the final corporate announcement, put in a line that says "This is the last corporate announcement for the day", so that we all know we can leave. So no more having to wait past 6.00pm or 6.30pm to see when, if, should there be fresh announcements after that 5.30pm threshold. It allows for better efficiency among people who have to work on the announcements for a living.

p/s photos: Im Soo Jeong