Sunday, March 29, 2009

Li Ka Shing Says It Is Time To Buy

Li Ka Shing says it is time to buy. Let's not be so cynical on his opinion. At least he didn't ask all to buy 2 months ago, or 4 months ago or even 6 months ago. Hence I would view his opinion with some merit.

New York Times: The oracle of Hong Kong has spoken. And his message: it’s time to consider buying stocks and real estate. Li Ka-Shing reported on Thursday that his companies had severe profit declines in 2008, but he said that “if you buy in a slow market, in the medium term you get good returns,” The New York Times’s Bettina Wassener reported.

The proclamation on Thursday by Li Ka-Shing, the self-made billionaire who controls some of Hong Kong’s largest companies and carries enormous sway among investors throughout Asia, was made at a rare public appearance. Exuding confidence, Mr. Li joked with reporters and looked anything but depressed about the sharp fall in profit his companies reported Thursday.

Whether Mr. Li is proved right about stocks and property — and he certainly has a lot to gain personally if he is right — his comments come at a time when stock markets have rallied on hopes that the economic slump may be bottoming out.

“If you have money in your pocket,” Mr. Li said, consider buying into stocks. As for the property market in Hong Kong, he said, “history tells us that if you buy in a slow market, in the medium term you get good returns.”

Mr. Li advised against borrowing to invest in what remains a shaky and volatile environment. Even though couched with caution, Mr. Li’s comments were enough to echo around the investment world and helped send the Hang Seng index up 3.6 percent Thursday. Mr. Li is the man the local media call “Superman” and liken to the investor Warren E. Buffett, who controls Berkshire Hathaway. Considered one of Asia’s most powerful men, Mr. Li is also one of the continent’s most generous philanthropists.

In the last year, as the economic crisis has dragged on and deepened, Mr. Li has jumped in from time to time to try to restore confidence.

Last September, shortly after the collapse of Lehman Brothers caused the world financial system to convulse, savers in Hong Kong lined up outside the Bank of East Asia, one of the territory’s best-known and biggest banks, responding to rumors that the bank was in trouble. Mr. Li let it be known that he had been buying shares in the bank, an expression of confidence that quickly helped put an end to an old-fashioned bank run.

And this month, HSBC was trying to raise $18 billion in a rights offering, prompting the bank’s shares to fall sharply. A majority of local residents here own shares in the bank, which is now based in Britain but has its roots in Hong Kong. When it appeared that the rights offering might falter, Mr. Li — along with several other Hong Kong tycoons — pledged to put about $300 million of his own funds into the issue.

Still, it has been a difficult year for Mr. Li, and the Superman title sat a little awkwardly on him on Thursday, after Cheung Kong Holdings and Hutchison Whampoa, the flagships of the property-to-ports-to-electricity conglomerate he controls, both reported declines in net profit of more than 40 percent for 2008.

Small wonder, given that the rapid slowdown in the global economy had tipped Hong Kong, along with the United States, Japan and others, into a recession and put a damper on the breakneck growth of neighboring China. Rental and property prices in the territory, a mainstay of the conglomerate’s earnings, are expected to tumble further this year, hitting developers hard.

But the Cheung Kong group is not just any Hong Kong company, and Mr. Li is not just any Hong Kong company chairman. Thursday’s event was not just any annual news conference, but the pinnacle of the Hong Kong earnings season, complete with a boisterous media scrum that regularly lends the bespectacled and affable Mr. Li the aura of a pop star.

The complex network of companies Mr. Li controls — three of them members of Hong Kong’s benchmark Hang Seng index — epitomize the hustle and bustle of entrepreneurial Hong Kong and its roller-coaster economy. And Mr. Li himself has the kind of rags-to-riches history that inspires every Hong Kong resident. The Cheung Kong group and its various interlinked companies grew out of the humblest beginnings imaginable: a plastic-flower manufacturing business the young Mr. Li set up in the 1950s.

Five decades later, Mr. Li is now one of Hong Kong’s leading developers of residential, commercial and industrial properties — about one in seven private residences here were developed by the group. Hutchison Whampoa, of which Mr. Li also is chairman, operates businesses as diverse as ports, hotels, supermarkets and drugstore chains, and is a major telecommunications operator in Hong Kong and abroad.

Cheung Kong Infrastructure, headed by Mr. Li’s son Victor, and HK Electric, one of the territory’s dominant power companies, also belong to the Cheung Kong/Hutchison stable of businesses.

Together, these businesses are a cross section of Hong Kong’s economy and reflect more than any other company the territory’s boom-to-bust character: riding the wave of Asia’s breakneck growth in recent years, and now suffering in line with the slowing global economy.

Mr. Li’s personal fortune has fallen as well, having slipped to 16th in the Forbes annual ranking of the world’s richest people, down from 11th in 2008, with a fortune now worth $16.2 billion — down from $26.5 billion a year ago.

p/s photos: Keiko Kitagawa


Born2Reign said...

If actual history is what matters to you rather than theoretical discussions, unfortunately, we have a long history of what happens with nations in severe economic distress, when they have a symbolic, independent currency (not explicitly tied to another currency). That history isn’t one of those fiat currencies soaring in purchasing power, despite the best efforts of the economically wounded nation to keep that from happening. No, the very well established pattern is that the currency collapses in value (price inflation), even as the purchasing power of assets is collapsing (asset deflation), much like what is happening with Iceland today.

Price deflation means that price of goods are cheaper and a dollar today can buy more goods.

Asset deflation means the investment instrument I save my money in, meaning Savings and Investments, have dropped and now have become poorer.

When we look back to the Great Depression in the years 1929 to 1933 then, for retirees at that time who did not have their savings in the market or in banks that went bust, those were actually good years for them financially, particularly relative to the rest of the population. Monetary deflation redistributes wealth from society at large to many retirees.

That collapse in the value of the currency (asset deflation)necessarily forces a major redistribution of wealth, and the segment of the population that is most devastated by this seems to always be the same. It’s the retirees, and the people close to retirement. When we look to Germany, when we look to Argentina, when we look to Russia – it is the pensioners who are impoverished more than any other group.

Stocks are assets, when stock prices deflate, will there be any price deflation (ie goods becoming cheaper)? No, history shows that price INFLATION goes along with asset deflation - due to govt intervention and debasement of monetary assets.

Li Ka Shing can buy, what's another billion to him (he probably got the bailout toilet papers from several govts).

value investing in malaysia said...

imo, it is now one of the good time to buy stocks - selectively - fundamentally good stocks and those that could overcome this recession and come out stronger (especially those stocks down by 50% or more).

Winston Siew said...

To me the old man is telling us 'his mother is a woman'

Yes, you can make money if you hold a "good" stock long enough and I must add, provided that there's not privatization like what happen to Mr. Li son's PCCW and our Malaysia's IOI prop'.