Friday, July 31, 2009

Amanah Saham 1 Malaysia - A Boost To Equities?

More funds allocated to local equities, then it should boost equities right!?? Err, well, no actually. The Malaysian exchange is a relatively open exchange, funds can move in and out. If you want to "engineer" a higher market, then do like China, restrict the way foreign funds can move, restrict even more the way locals can invest, make it difficult to invest overseas.

You can establish more local funds, RM5bn here, RM10bn there, but all stocks will fall in line with a certain kind valuation parameters. Say, there is a 30% foreign funds participation now in the market, they are here because of certain growth assumptions relative to valuations offered. If you increase the amount via new local funds, yes it will create more buying, but institutional funds will also have the ability to take profit and seek out less expensive markets. So, say new funds add 5% demand for equities, that could be taking out foreign funds exiting the market by a similar quantum as the move up might look expensive.

The second assumption is that these RM10bn are new funds, these funds are from the public. Who is to say these funds would not have gone to buy equities as well on their own?

There is a danger which no one in mainstream media is saying. You are literally taking out these RM10bn from the economic system. Unless 100% of these funds are in fixed deposits, then the net effect is muted. If these funds come from disposable income, you can argue that the RM10bn is being sucked out of the system. If anyone studied the velocity of money, each RM1 circulating in the economy is actually worth about RM8 to the real economy. Too many of these funds is deflationary and slows domestic economic activity.

Why are ASM PNB funds seemingly being assumed to "guarantee" to return 6%-8% a year? That is not a true certainty. The track record is good though but its not a guarantee.

Think people, think. I do agree that the fund is ok, but we need to be aware of the wider implications and not be blinkered to think at a superficial level only. After all that, I still think this is a "good thing", but we do need to have an appreciation of how the whole thing works.


KUALA LUMPUR, July 31 — Prime Minister Datuk Seri Najib Razak announced the establishment of the Amanah Saham 1 Malaysia (AS 1 Malaysia) fund consisting of 10 billion units on July 11 on the occasion of his 100th day in office. To be managed by Permodalan Nasional Bhd (PNB), the fund is accessible to all Malaysians and follows on the heels of an earlier fund of 3.3 billion units which were speedily snapped up by investors looking for safer investment options.

Long queues formed early last Wednesday for the remaining 1.6 billion units in the state-sponsored Amanah Saham Malaysia (ASM) when the units were offered to all after the Malay and Indian portions were not fully subscribed.

The ASM fund had originally allocated half of the 3.3 billion units to Malays, 30 per cent to Chinese, 5 per cent to Indians, and the balance to “other” races. It is unclear if the 1 Malaysia fund would have a similar allocation. That the remaining 1.6 billion units went in a few hours suggests overwhelming demand for the funds which offer superior returns to fixed deposit rates of 6-8 per cent versus 2-3 per cent.

Although the 1 Malaysia fund is three times bigger than the last ASM, the liquidity in the system is huge and with the pent-up demand still robust, sales could be brisk. Malaysia's biggest fund manager is expected to invest the proceeds back into the local stock market.

“I noticed an immediate spike in volume last week after the remaining units were sold,” said a stockbroker who is confident of a new market surge since PNB would have to invest the proceeds.

Indeed, market players attribute the recent stockmarket rally to government funds and institutions, since most retailers are only starting to nibble. However, some chartists have warned the market has run ahead of valuations.

Over the past weeks, the benchmark index has risen steadily to around 1,160. It comes after a new 30-constituent index — the FTSE Bursa Malaysia KLCI — replaced the 100-company Kuala Lumpur Composite Index in the first week of July. So many contend the improvement is due to the concentration of trade in the heavyweights, especially the top four — Maybank, Sime Darby, Tenaga and Commerce Asset Holdings.

Despite Malaysia being a regional laggard, foreigners remain underweight on its economy. Many still are unaware of recent measures to liberalise the economy, analysts say. In June, foreign funds acquired US$26 million (RM91 million) worth of local shares, less than a fifth a month previously, according to a CIMB Investment Bank report. — Business Times Singapore

p/s photo: Carmen Soo

Negative Bonuses For Temasek's Staff

To be fair, Temasek does have one of the fairer compensation system among "investing companies". In fact someone should recommend to Obama to adopt Temasek's bonus pool policy in his administration's attempt to revamp pay and bonuses on Wall Street.

The Straits Times: Temasek Holdings' portfolio lost more than S$40 billion in value in the last financial year, said chief executive Ho Ching yesterday. The exact figures for the 12 months to March 31 are not available yet, but the headline number indicates how the company has fared in the financial crisis. Temasek's next annual report, due out next month, will shed more light on the portfolio's performance.

In February, then Senior Minister of State (Finance and Transport) Lim Hwee Hua told Parliament that between March and November last year, Temasek had lost S$58 billion. Its portfolio value fell 31 per cent from S$185 billion to S$127 billion. It is unclear if Temasek managed to recoup any of those losses between November last year and March this year. But analysts say Ms Ho's comments yesterday indicate that even if Temasek did narrow its losses, it may not have been by much.

In a speech to the IPS Corporate Associates Lunch yesterday, Ms Ho said that Temasek had reported an amount of S$40 billion as its annual 'value-at-risk' for its financial year between April last year and March this year. This means there is a 16 per cent probability that the portfolio would drop by S$40 billion in the period, she said, adding: 'Indeed, it had turned out to be so, and more.'

Global stock markets plunged to record lows in early March, but have rallied strongly since. Nomura analysts estimated last month that Temasek had recouped a considerable amount of its losses between November and mid-May. They said the portfolio likely rebounded 13 per cent, or S$16 billion, in that time. But it is possible that most of these gains were made between March and May and will not be seen in the latest annual report.

The entire staff of Temasek Holdings are taking personal financial hits, with annual bonuses likely to be slashed in the wake of the investment firm's losses over the past year. Part of every Temasek employee's bonus goes into a pool that is paid out over a number of years rather than at the end of each year. When Temasek meets its internal performance benchmarks with higher-than-targeted returns, the pool of bonuses to be distributed grows and each employee gets a bigger slice. But when it fails to do so, employees get 'negative bonuses': They get no money from the pool, or the value of the overall pool shrinks. This compensation structure is based on a key principle of having staff 'share in the institution's performance, both for positive and negative results', said chief executive Ho Ching yesterday.

In her speech at the IPS Corporate Associates Lunch, she said: 'We share gains and pains alongside our shareholder. This is in essence having an owner's approach to our business and operations. Temasek came in below its targets last year as well as this year, which means staff get 'negative bonuses. From CEO to office attendants, all our staff were allocated negative bonuses last year, and will be allocated more negative bonuses this year,' said Ms Ho.

If Temasek achieves above-target returns, known as Wealth Added and reported in the annual Temasek Review, it will have gains to share with its staff. 'It is a tough challenge to share negative is even tougher to deliver a positive Wealth Added every year,' she said.

p/s photos: Linda Onn

Emerging Markets Bull Run To Continue?

    The sharp outperformance by emerging markets in general compared to developed markets have rankled some experts in the US. They would cite that the outperformance is unfair, that emerging markets are loaded with huge risks - yea.. thanks for the subprime fucking mess dudes ... low risk indeed.

    According to the MSCI Emerging Market Index, emerging markets stocks have gained 80% to July 27 since it reached bottom in November 2008 . High global liquidity, improvements in risk appetite, falling core markets volatility (VIX), rebounding commodity prices and relatively stable emerging markets fundamentals in comparison to past episodes of crisis are behind the recovery. Moreover, EM countries' policy response to the crisis has been relatively aggressive, planting the seeds for a positive domestic demand story.

    However downside risks remain in place due to a bleak corporate earnings outlook, worries over the real economy, revival of global risk aversion, and higher US Treasury yields. So far this year (to July 27), EM equity markets have jumped 47% YTD, while global equities have increased 12%.


  • July 27: "Research by Société Générale's cross asset team argues it is time to sell because the price-to-book value of emerging-market stocks is now higher than those in the developed world. The only other time this valuation measure was at a premium to that of the developed world was from mid-2006 to mid-2007. Emerging-market equities fell by two-thirds in the 12 months to the start of November 2008.
  • July 13: July 13: According to Citigroup equity strategist Geoffrey Dennis and Jason Press “The correction in regional equity markets has reached the expected 10-15 percent range.” “Although the mood has turned sour on worries over the timing of economic recovery, there is little more downside from here and expect regional markets to break out to the upside again later this summer.”
  • The MSCI Emerging Markets Index may climb to 985 by June 2010 from its closing price of 743.72 on June 18th, Jonathan Garner, Morgan Stanley’s chief Asian and emerging-market strategist, wrote in a research note. Profits will rebound 28 percent next year after a 15 percent slide in 2009, Garner wrote. That compares with his earlier forecast for a 20 percent gain in 2010 and a 25 percent drop this year.
  • June 15: Deutsche Bank AG said that Latin American stocks may drop 15 percent this summer (2009) because of increased share sales in Brazil, weaker China bank lending and the unlikelihood of a rebound in the U.S. economy in the second quarter.
  • June 2: The surge in emerging-market equities may last another six months (until the end of 2009) as faster economic growth in developing countries prompts investors to keep shifting out of lower-yielding assets. Emerging-market stocks may keep on gaining as investors shift some of the $3.8 trillion in money market funds into equities.
  • May 26: If the US economy surprises on the upside, Chinese economy surprises on the downside, or the financial sector lead global sectors, developed markets will outperform emerging markets equities.
  • May 18: Emerging-market stocks may gain an average of 20 percent this year as they rebound faster and stronger than their peers in developed countries, according to Black Rock Inc. The global economy has probably seen its worst in the past two quarters, with developing nations already starting to emerge from the recession.
  • April 21: The bulls say that this is just the beginning of a sustainable recovery in global risk appetite, supported by signs that Chinese demand is growing again and hopes that the U.S. economy is not free falling anymore. The bears say that, although the medium-term outlook for emerging markets is appealing, the prospect of a slow and painful global economic recovery will translate into bouts of selling pressure.
  • April 21: There are still significant downside risks and it will be important to differentiate between emerging markets. Asia remains best positioned and CEE and CIS are the most vulnerable.
  • April 16: "Emerging-market stocks will surge a further 39 percent this year as government spending and interest-rate cuts from China to the U.S. revive demand for developing nations’ exports", according to JPMorgan Chase & Co.
  • Regional Performance:

    Asia (ex-Japan): Asia (ex-Japan): Asian equities have outperformed mature markets in 2009 thanks to FII inflows, hopes of economic revival in H2 2009, and fiscal stimulus and liquidity measures that are finding their way into equities. These factors might be making some Asian markets expensive. Markets have gained 48% YTD as of July 27 (82% since October 2008) with China (50%), India (65%) and Indonesia (62%) as the best performers, and Vietnam (22%) and Malaysia (35%) as the worst. Sri-Lanka posted an exceptional 141% gain due to the end of the 26-year civil war, a $2.5-billion loan agreement with the International Monetary Fund and the government's positive stance on reforms and liberalization. Asian markets have recovered 56% of the losses incurred in 2008 (peak to trough, down 59%).

    Latin America: Latin American equities has outperformed the other emerging markets regional indexes by rising 55% YTD to July 27 (92% since it hit bottom in November 2008), with strong performances in Brazil (up 68% YTD) and Chile (up 55% YTD). The laggards are Argentina (up 22% YTD) and Mexico (up 27% YTD). Overall, LatAm equities market have recovered 44% of the 2008 crash (peak to trough, down 68%).

    Eastern Europe, Middle East and Africa (EMEA): EMEA equities market have gone up 36% YTD to July 27 and 69% since it reached bottom in March 2009. Russia (51% YTD), Turkey (44% YTD) and Israel (30% YTD) lead the mark, while Morocco (-0.3% YTD) and South Africa (10% YTD) have underperformed. EMEA stock markets have recovered 35% of the sharp correction induced by the global crisis (peak to trough, down 66%)

    Recent EM market Dynamics:

  • July 28: "I wouldn't want to encourage people to invest in China and India who have never invested before," cautioned Jim O'Neill, Goldman Sachs chief economist. "Wait for a correction."
  • July 28: "Investors around the world have been pouring money into emerging-market stocks faster this year than at any other comparable time on record, despite strategists' fears of a bubble. They plowed a record $35.5 billion into emerging-market stock funds in the first half, according to funds-flow research firm EPFR Global, whose data go back to 1995. By contrast, investors withdrew $61 billion from developed-market stock funds over the same period, EPFR said."
  • July 8:“Risk aversion levels have risen across the board,” said Nigel Rendell, a senior emerging-market strategist at RBC Capital Markets in London. “While sentiment is still uncertain, emerging markets generally will be weaker.”
  • June 24: Overall, regional markets are now in full correction mode. This correction is now the longest and sharpest since the impressive regional rally that began on March 2 and took MSCI Latin America 73% higher in almost exactly three months. This correction is unlikely to turn into a rout due to (1) improving global and regional growth prospects; (2) a likely trough in regional earnings over the next few months; and (3) the low cost of capital, including short rates.
  • June 18: Emerging-market stocks fell for a fifth day, the longest losing streak since January, amid concern credit losses at banks will mount. The MSCI Emerging Markets Index dropped 0.8 percent to 743.41 at 2:10 p.m. in New York, taking the benchmark measure’s five-day slump to 6 percent and trimming the gauge’s 2009 gain to 31 percent.
  • June 10: According to JPMorgan Chase & Co., Latin American equities are poised to climb at least 22 percent by the end of 2009 because shares are cheap relative to history, global investors may increase stock holdings from a near 20-year low and commodities may rally. The investment bank said that the MSCI Latin America Local Index will advance to 73,882 in 2009. The index closed at 60,256.08 on June 9th.
  • June 8: Emerging-market stocks dropped the most in two weeks as Credit Suisse Group AG advised selling Taiwan shares and speculation the Federal Reserve may raise interest rates curbed demand for higher-yielding assets. The MSCI Emerging Markets Index fell 1.9 percent to 772.25, the steepest drop since May 21.
  • June 3: Reuters found that Central and Eastern Europe lagged behind the general trend in the current stock market rallies. Despite rebounding by 30-40% over the past three months to June, CEE bourses still generated rather small turnover and rallies were patchy.
  • June 3: Sub-Saharan African markets have been among the worst performing markets in 2009 struck by domestic conditions of high government borrowing and commercial banks’ exposure to margin lending. South Africa the best performing market in the region has risen by a mere quarter. Sub Saharan Africa is experiencing a slump in private and aid inflows since the onset of the global slowdown which is a prime factor behind the underperformance of its equities.
  • June 3: In late October, EM equities hit a bottom and started to rise. Since then, the FTSE emerging markets index has outperformed the developed markets index by 48.8 per cent.

p/s photos: Rachel Kum

Thursday, July 30, 2009

Planning A Career In Financial Markets

Tickets sold by Ticketcharge: 03-2241-9999

Chinese Equity A Bubble In The Making?

Well, that should not even be a question, its a fact. The question should be for how long. Just because a market is considered expensive, does not mean one should get out immediately. It will be a tug of war. A bubble is usually because there is a concentration of liquidity and a flush of liquidity, as explained numerous times in this blog. Yesterday saw China markets doing a whipsaw, falling dramatically but still regaining some ground back. That is a prime example of a very strong momentum market. It will be volatile but the investors and players are not ready to leave the playground yet. Hence on rumours of possible tightening by the central bank, the markets will take that as an excuse to take profit and take some chips off the table. I don't think the China markets and HK market included will be paralysed so soon. Judging from the liquidity exhibited in recent IPOs in HK and Shanghai, this rally has some legs. Still, one has to react swiftly, in and out, its a traders' market not a buy and hold market.

    After falling 70% from its peak in late 2007, the Shanghai Composite Index is up more than 80% off its low in November 2008 and 70% for the year. China's total market cap has risen 122% in 2009 to more than 10 trillion yuan. Valuations have more than doubled from their lows in November, but are still well below their peak in January 2008. In July IPOs resumed after new rule changes were put in place.

  • July 10: The Shanghai Composite Index is up 70% in 2009, after falling 70% from the peak in late 2007. The Shenzhen index is up 87% in 2009. Trading on the first IPOs in nine months was halted after they jumped more than 20% from their opening price. The Chinese equity markets have rebounded on the back of the fiscal stimulus, expectations of a recovery in property markets and signs of improvement in domestic demand have given markets another boost
  • Some of the new loans extended during the Q1 surge in bank lending likely found their way into the equity market as investors seek better return on assets, this could imply that the lending surge is not being invested in sectors that will boost growth- and that stock market gains are vulnerable especially given that Chinese equity returns have become more correlated with global trends
  • China and other emerging markets have outperformed developed markets in 2009, suggesting that investors believe emerging markets have "decoupled" again. Another view is that emerging markets underperformed on the way down, and are over-performing on the way up—suggesting not decoupling but rather that they are performing like high-beta assets

  • Are Higher Valuations Sustainable?
  • Stocks on the Shanghai Index traded at 28.1 times earnings in early June 2009, more than double the 12.9 factor they traded at in Nov, but below their peak in Jan 2008 at 50 times earnings
  • Citi: Ample liquidity continues to push up asset prices. After strong lending growth through April, the market expects a slowdown in May/June. But May’s volume could be close to April’s (RMB591.8b), and June could see further growth, thanks to the non-seasonal pick-up in economic activities for the summer months
  • DBS: State-owned enterprises' profits track exports more closely than GDP growth, suggesting that profits will remain under stress even as domestic conditions improve. Sticky wages and increasing commodity input prices increase the pressure from the cost side. Further, because inflation is likely to pick up before corporate profits, SOE's will likely face tighter credit conditions before their balance sheets improve
  • Policy responses have boosted confidence and prevented further contractions of consumption and investment. Property, retail, and auto sales are healthy in volume terms, even if prices remain deflationary. The real impact of the stimulus will take time to filter through the economy and will show up in H2 2009
  • The Chinese equity market continues to be speculative because hedging tools are limited (deterring institutional investors) information on the companies is sparse. Level of government meddling in the market makes true transparency difficult Many retail investors (who led the boom in 2007) retreated to demand deposits
  • After a surge of IPOs in 07-08, there have been no new issues since Sept 08, when regulators feared new supply could further damage existing shares. The China Securities Regulatory Commission issued new regulations for listings on June 11 and has taken legal actions intended to ensure that Chinese markets are less prone to manipulation; IPOs are expected to resume soon
  • New listings and release of block shares could drain funds from existing shares, threatening this year’s gains. The rule changes are intended to increase access for retail investors to IPOs, and limit the valuation surges that followed flotations in 07-08
  • In an apparent attempt to reduce market volatility as new IPOs come online, the government is requiring that SOEs that have listed since 2005 transfer 10% of their shares to the social security fund, which will be subject to a 3-year lock-up period
  • In 2007, regulations intended to deflate Chinese equity markets were implemented (stamp tax raised from 0.1% to 0.3% in May 07), these were mostly reversed in 2008 when markets fell sharply (stamp tax repealed completely in Sept 08). In an attempt to boost existing shares, IPOs were suspended in Sept 08
  • The average daily volume on the Shanghai exchange has more than doubled to 13.6bn yuan in May 2009 from a low of 4.4bn yuan in Aug 2008

  • Sectoral Outlook
  • Citi: Consumer-facing sectors could benefit from policy shifts that would help boost domestic consumption. Auto sector profits trail sales growth, banking sector profits down y/y but show q/q momentum, cement and food/beverage sectors should outperform, and insurance sector looks positive
  • UOB: A pick-up in demand in H2 2009 should benefit energy producers. Dropping property inventories and the massive reduction in equity ratio requirement (20% from 35%) for new ordinary residential projects will boost the property sector, in turn boosting demand for steel and aluminum, as well as energy
  • Planned massive infrastructure spending on the mobile network over the next 3 years should boost the telecommunications sector. Export-oriented industries (steel, shipbuilding, coal), despite stimulus spending, are reliant on a pickup in global demand
  • Fidelity: railways, materials and the property companies may benefit from stimulus efforts. Industry leaders may benefit from consolidation. The large scale railway expansion should also boost demand for steel and cement. Conversely financial services and energy companies place more challenges ahead
  • Domestic retail sales continue to grow on the back of government subsidy programs and the wealth-effect of rising asset prices, however exports remain in contraction.
  • Chinese oil demand returned to positive growth in April, and Chinese oil firms were able to use favorable credit conditions to purchase assets abroad when oil prices were depressed

p/s photos: Suzanne Sae

Wednesday, July 29, 2009

Hot Enough For You?!!

Readers of this blog will be aware that I have been saying the unbridled lending in China will need to find its way into assets, be it property of stocks. While I am concerned that this will end tearfully, I do think they will have a rambunctious party time before the sobering after effects. I only see things getting out of hand or collapsing sometime 2H 2010. Now we are seeing definite signs of this liquidity typhoon. Its rearing its ugly head viciously in HK's IPO markets.

That is one part of the equation, the other is the massive amount of liquidity resting by the sidelines for most of the past 12 months, and the equally massive stimulus programs, injections of liquidity and free printing press in the US and Europe ... all tipping their toes into the markets now. What we have been seeing are stock prices running ahead of fundamentals and recovery status.

Most analysts are trumpeting the same mantra: sell into strength, and being proven wrong royally (me included). Sometimes we can be wrong, but can we argue against momentum?
We all have some sort of a "model" for valuing what is "fair price". So called experts (analysts, strategists, fund managers) have a more sophisticated model, in that we take into account in varying degrees ... interest rates, growth rates, bad debt levels, inventory levels, investment into R&D and purchasing, employment outlook, PE bands, breakeven levels for products, etc... many others have their own version, or heck, just when it feels right, its good enough.

The massive diversion of funds away from stocks into cash and T-bills 9 months ago has come back to haunt us in a different way. Just a sprinkling of monies back into funds (including international funds) will cause many fund managers to need to deploy into the markets. Especially if you are managing Asian based funds because the last thing you want is to try and time the market as you could MISS OUT.

Imagine if you were managing an Asian fund of just $150m as at April 2009, then suddenly over the last 4 weeks you see these feeder funds, these feeder channels plowing $50m of fresh funds into your fund each week. What are you to do? You have a strategy and market direction that thinks that stock prices may have run a bit ahead of fundamentals, but you now have an additional $200m added to your $150m, you run the risk of underperforming the Asian benchmark massively if you miss out - heads will roll and your company will suffer. If you put the $200m to work, and Asian markets correct a couple of months later - hey, you will still have a job, you are still marked to your Asian benchmarks. That's the craziness of being a fund manager.

Thats the same kind of craziness we are witnessing in this "hot money" flow. Can criticise them but don't stand in the way. In recent months, flows of hot money into China have accelerated. As a result, China's foreign reserves surged to a record high of $2.13trillion in June, even though it had only enjoyed a smallish second quarter trade surplus of $34.8 billion. Apart from hot money, massive lending by mainland banks is creating abundant liquidity, causing the Shanghai stock market to surge by 88.8per cent this year. In the first half of this year, mainland banks rushed to extend 7.37 trillion yuan in fresh loans. It sparked fears that fresh asset bubbles in China might be forming, as the money was diverted to stocks and property. To cope with such a surge of liquidity, Morgan Stanley said China may 'simply be allowing more hot money outflow indirectly into the Hong Kong stock market'.

Even Malaysia has benefited despite not being the center of the liquidity inflow. Just check out how the big indexed stocks have been performing over the last 3 weeks, and you have a very good idea that many international funds are parking in big index stocks so that they won't miss out: Tanjong, Commerz, Genting, Axiata, Sime Darby, AMMB, Parksons (even), B Toto, KLK, IOI etc.

In the unofficial market yesterday, the mainland cement maker surged 62.38 percent to HK$10.36 from an offer price of HK$6.38. Back to the HK's IPO: new Hong Kong listing BBMG Corp became this year's best performing player on the gray market as it soared more than 60 percent yesterday ahead of its stock exchange debut today. Based on its gray market price, BBMG was also the most profitable initial public offering stock as investors earned a paper gain of HK$1,990 per board lot of 500 shares.

Amber Energy, which saw a rise of 36 percent on the gray market, rose 63 percent on its debut early this month. BaWang International, which increased nearly 29 percent on the gray market, climbed 27 percent on its debut.

A total of more than 404,000 applications were filed by retail investors, worth HK$461 billion. BBMG's shares were oversubscribed 773.6 times. Investors who subscribed for 12 lots of BBMG shares are guaranteed one lot. The company reaped net proceeds of HK$5.575 billion from the global offering.

Meanwhile, mainland firm Sany Heavy Equipment plans to raise at least $200 million (HK$1.56 billion) in the Hong Kong listing market in the fourth quarter. For the mainland market, automaker Great Wall Motor is considering resurrecting plans for a domestic A-share IPO. China State Construction Engineering will list on the Shanghai bourse today after raising more than 50 billion yuan (HK$56.7 billion) as the world's largest IPO this year.

You know things are really getting hot when both Las Vegas Sands (Macau) and Wynn's (Macau) both are filing for IPOs in HK already. Iron is hot, iron is very hot... Las Vegas Sands Corp, controlled by billionaire Sheldon Adelson, plans to apply in Hong Kong for an initial public offering of shares in its Macau casinos in early August. The Las Vegas-based casino operator also seeks amendments to its bank borrowings in Macau, including covenant relief and permission to sell as much as $1.5 billion in new debt, said the person, declining to be identified as the plans aren’t public. Wynn Resorts has submitted an application to list its Macau unit on the Hong Kong stock exchange, hoping to raise between $500 million and $1 billion.
The following are some of the major companies planning initial public offerings
on the Hong Kong stock exchange:
China National Pharmaceutical Group (raising HK$1.3bn)
China Metallurgical Group (raising HK$1.3bn)
China Minsheng Bank (raising HK$2.93bn)

Agricultural Bank of China (raising HK$35 billion) in IPOs
split equally between Hong Kong and Shanghai.

p/s photos: Chrissie Chau

Temasek's Team Under Ho Ching

I guess in an attempt to deflect criticism that it is a one-woman team, the cynical me would try to see through the "approved media blitz" via The Straits Times on the Temasek's senior management team. See how easy it is to twist words and intentions. It can be an exercise in transparency or propoganda to rebuild goodwill.

1 Charles Ong
Senior managing director and chief strategist

Formerly Temasek's chief investment officer in charge of overseeing all investment decisions, he became chief strategist in December 2006 while Temasek was grappling with the fallout from its takeover of Shin Corp earlier that year. Mr Ong, formerly with Lazard Freres & Co in New York, joined Temasek in 2002.

2 Tow Heng Tan
Senior managing director and chief investment officer

A chartered accountant, Mr Tow took over as chief investment officer after Mr Ong's replacement, Mr Jimmy Phoon, quit in 2007. Mr Tow also sits on the boards of Keppel Corp and ComfortDelGro, and was formerly senior director of DBS Vickers Securities.

3 Gan Chee Yen
Senior managing director and co-chief investment officer

The former director of finance for Singapore Technologies, Mr Gan joined Temasek in 2003 and heads the transportation and logistics investment group. He has served on the board of other companies, including Neptune Orient Lines.

4 Manish Kejriwal
Senior managing director, investment, international and India

A former partner at McKinsey and Company, Mr Kejriwal holds an MBA from Harvard University and was named a Baker Scholar, the top academic honour at Harvard Business School. He joined Temasek in 2004 and is in charge of investments in India and in financial services.

5 Cheo Hock Kuan
Senior managing director, corporate development and special projects

She joined Temasek in 2002 from Singapore Technologies, where she was head of executive resources and corporate human resources. A former military officer, she now oversees leadership dynamics, board governance and compensation for executives and board members, among other things. She is also a director of Fullerton Financial Holdings.

6 Leong Wai Leng
Chief financial officer, senior managing director (corporate development)

Appointed Temasek's first chief financial officer in 2006, she studied engineering at Cambridge University. She moved to Temasek after leaving Raffles Holdings - where she was the deputy chief executive and chief executive of Raffles International- after Raffles sold its hotel business.

7 Goh Yong Siang

Managing director, international and strategic relations

The former chief of the Singapore Air Force, Mr Goh retired in 1998 and went to work in the United States, first as president of ST Engineering and then in private equity. He was a partner in and chief executive of a Dallas, Texas-based charter airline, Patriot Air, which filed for bankruptcy less than two years after it was formed. Mr Goh joined Temasek in 2006 and was asked to head the Thai office that Temasek opened following the Shin Corp debacle.

8 Simon Israel
Executive director since 2006

Mr Israel is the chairman of the Singapore Tourism Board and sits on several other company boards, including SingTel, NOL and Fullerton Financial Holdings. A Singaporean, Mr Israel was previously Danone Group's Asia-Pacific chairman and spent 22 years with the Sara Lee Corporation.

9 Hiew Yoon Khong
Senior managing director, special projects

Previously CFO of CapitaLand and CEO of its commercial and financial units, Mr Hiew joined Temasek in 2003 and is now also the executive director and CEO of Mapletree Investments. Prior to that, he was managing director of Temasek's private equity investment funds portfolio.

10 Ng Yat Chung
Managing director, corporate

Less than four months after stepping down as Chief of Defence Force in 2007, Mr Ng joined Temasek in the newly-created position of managing director of portfolio management. A Cambridge University graduate, Mr Ng was also previously Chief of Army.

11 Michael Dee
Senior managing director, international

Formerly a Morgan Stanley investment banker and regional head, Mr Dee was recruited to join Temasek's newly-formed international division last year. He advised Temasek-backed Singapore Power when it bought the Australian business of energy giant TXU for $3.7 billion in 2004.

12 Vijay Parekh
Senior managing director, special projects

After 18 years with American Express, Mr Parekh joined Temasek in 2005 and became a director of Fullerton Financial Holdings in October 2006.

13 Jimmy Phoon
Senior managing director, strategy

Mr Phoon joined Temasek in 1999 but resigned in September 2007, less than a year after he was made chief investment officer following the Shin Corp incident. Formerly from Standard Chartered Merchant Bank Asia, Mr Phoon rejoined Temasek on Nov 1 last year.

p/s photos: Moe Oshikiri

Tuesday, July 28, 2009

No! Not From The EPF Please!

Saw this in Malaysian Insider: KUALA LUMPUR, July 28 — A government agency which is administrating two schemes under the first economic stimulus package is in talks with the employees’ pension fund for a RM5 billion, a business daily said.

The Malaysian Reserve, citing an unidentifed source today, said the Employees’ Provident Fund (EPF) was ready to fund the loan at an undisclosed rate to Prokhas, the government-owned special purpose vehicle.

The source added that Prokhas was also looking at other financing options including government bonds, private debt securities or a term loan that may give more competitive rates. Malaysia announced its first stimulus package of RM60 billion in March to shore up the export-reliant economy against the global economic crisis.

Prokhas manages two schemes under the package and was allocated 5 billion ringgit each, known as Working Capital Guarantee Scheme and the Industry Restructuring Loan Scheme, which is under the Ministry of Finance.

EPF’s talks with Prokhas may draw some criticism, as loans to government agencies and corporations have in the past been called bailouts for poorly performing local companies by critics and the resurgent opposition.

In 2008, the government said it would transfer RM5 billion from the EPF to state owned fundmanager Valuecap to be invested in undervalued Malaysian stocks. — Reuters


I can understand, even though I may not fully support EPF's role in lending to Valuecap, it is still a legitimate usage of funds to invest in equity. The rumours that Prohas is asking for RM5bn from EPF needs to be stopped even before it gets to Najib's desk. Past experiences have told us that the majority of loans to government agencies and corporations did not have a happy ending. History will tell us that in the end, the government will end up making up for the losses, in this case when EPF loses money on the RM5bn causing the public to be in total disgust.

People can understand why they lost money when its in stocks. People will not be so understanding when its used as Working Capital Guarantee Scheme and the Industry Restructuring Loan Scheme. There have been many great and long serving public servants, making damn sure over the decades that the EPF remains an institution of integrity, where the contributors' savings can be managed responsibly for their retirement. DO NOT undo the decades of disciplined investing philosophy by "forcing" EPF to do this - working capital guarantee and loan restructuring... certainly not EPF's forte, and neither do I think Prokhas has an edge in doing this. There is no guarantee of a return, its corporate restructuring, recovery, rehabilitation, valuation & disposal, breakup value assessment, etc .... certainly not EPF's normal mode or channel of investments.

EPF can and should only expose itself to a certain kind of risk (and its usually very very low). What risk are we exposing EPF to when it starts to "lend" this RM5bn?

Even if Prokhas can get the government to guarantee EPF's money and even a decent return... guess whose money is the government using to repay EPF??!! Its still our money. Just because we use different terminologies or canisters, it does not mean the money somehow does not belong to the people. I hope this will remain as just rumours.

If the scheme is solid and has the structure to stand on its own, go raise the funding from overseas banks. Why I don't see the Japanese, US or European banks and investment bankers lining up for this??? If this can only be "sourced locally", ask ourselves why... don't kid ourselves. If the foreign banks will not fund this, ask why. This is NOT to say we should not do this... in fact I think we should... but don't la play-play with EPF's money, its not a standby ATM-piggy bank for all to rape.

Dudes .... please...

p/s photos: Stephy Tang Lai Yan

Marketocracy Portfolio Updated

For the period ended 31 March 2009, my Marketocracy fund beat 97.8% of the participants. Thankfully, the record for the period ended 30 June 2009 saw my fund improving further to beat 99.5% of the participating funds.

The last 3 months saw S&P500 rising by 13.71%, my fund rose by 23.99%.
The last 6 months saw S&P500 rising by 19.29%, my fund rose by 77.88%.

Sigh... I should really get back to fund mgmt ... ok head hunters, email me at

Rankings Report for salvadordali's Mutual Fund July 27, 2009
left curve my fund rankings right curve

For the six month period ending June 30, 2009 your fund outperformed 99.5% of the other funds on our site.

price history right curve

[download spreadsheet]

graph of fund vs. market indexes
SMF m100 S&P 500 DJIA Nasdaq

left curve recent returns vs. major indexes right curve

Beating Today YTD
0.71% 58.73%
S&P 500 -0.21% 10.02%
DOW -0.22% 3.61%
Nasdaq -0.40% 24.66%

recent returns right curve

Last Week 3.99%
Last Month 5.91%
Last 3 Months 23.99%
Last 6 Months 74.88%

Last Week 4.16%
Last Month 8.85%
Last 3 Months 13.71%
Last 6 Months 19.29%

Last Week -0.16%
Last Month -2.95%
Last 3 Months 10.28%
Last 6 Months 55.59%

left curve alpha/beta vs. S&P500 right curve

Alpha 45.75%
Beta 1.22
R-Squared 0.81

left curve turnover right curve

Last Month 21.90%
Last 3 Months 82.87%
Last 6 Months 298.38%
Last 12 Months 371.48%

Symbol Price Shares Portion of Fund Inception Return
BAC $13.02 6,000 6.78% 28.77%
STT $49.25 2,000 8.57% 42.52%
ACTG $8.10 12,000 8.45% 36.81%
MGM $7.81 14,000 9.47% 21.77%
F $6.99 20,000 12.10% 17.38%

BDD $10.15 11,000 9.71% 13.35%
QSII $54.85 1,500 7.17% 11.52%
LVLT $1.70 40,000 5.91% 10.78%
WFR $18.63 6,000 9.66% 5.69%
SXE $30.69 3,000 8.00% 4.67%
JEC $43.02 1,500 5.59% 2.92%
STAR $23.88 3,500 7.27% -0.07%

p/s photo: Chrissie Chau

The New Compensation For Investment Bankers?

This will be a good point of discussion during the Financial Markets Career talk. The present global financial crisis may actually result in some changes in how salaries and bonuses are to be paid. The following are the latest information from Royal Bank of Scotland. Base salaries for 1st- 3rd years bumped by $10K. Their starting pay now will be:
1st year base: $70k
2nd year base: $80k
3rd year base: $90k

3rd years promoted to Associate: Base: $100K- no signing bonus

Numbers out today for Global Banking and Markets. All bonuses are 100% deferred- over 3 years, subject to clawbacks. Terms still not defined.

Bonus Ranges:
1st year: $40k-$50k
2nd year: $50k-$60k
3rd year: $60k- $70k

What that means is that these bonuses are declared only and can be clawed back within a certain period if performance of the unit or company does not match up to predefined criteria.

Example, a second year RBS employee may be on $80,000 a year ... I think their year end is June, so the declared bonus for this employee may be $55,000. The terms are not clear yet but if there is a clawback, it will mean that the employee won't get to see the bonus for a certain period, say 2 years. Within that 2 years, the employee's performance, his/her department's performance and/or company's overall performance must match up to predefined criteria - then and only then will the employee get his/her $55,000 bonus. That amount may be lesser if any of the predetermined criteria were to be not attained.

p/s photos: Kou Shibasaki

Monday, July 27, 2009

A Wonderful Tribute Site To Yasmin Ahmad

A wonderful site just created by some admirers of Yasmin Ahmad. You can watch her movies and commercials, and read the multitudes of tributes pouring in in her memory.

I Don't Chat Online, Pls Note

Here is a warning to all readers. I used to chat online at Fusioninvestor and sometimes at CPCB, but I have stopped for two months already. There are imposters using the "Dali" nick to chat. I have stopped visiting chat boxes for over 2 months. Anyone using that nick is screwing with you all. You can cross out the guy at Bursa-Chat for sure.

Foreign Funds Flow

Suddenly foreign media is picking up on a surge in the flow of funds into Asian markets. Any truth in that?

Foreign fund managers are banking heavily on an Asian earnings upturn and continual growth in China to drive market momentum forward. Following a lull, a sudden leap on Wall Street has boosted foreign investor interest in Asian markets. The psychology of the markets has changed from the fear of losing money to a fear of losing opportunities.

According to EPFR Global fund research, US$137.5 billion flowed out of money market funds and almost a fifth went into Asian and other emerging market funds in the second quarter. The trend has continued in recent weeks, although the size of inflows is subsiding. MSCI Asia ex-Japan rose by 34 per cent year-to- date to July 24 and emerging by 46 per cent in US dollars, but lower gains in euro and sterling. Credit Suisse said there are several positive fundamental factors which support foreign investment in Asia.

Asia is expected to lead the global recovery due to its low leverage and financial flexibility to pump-prime economies. Second, China and India are growth engines. Third, emerging Asia is projected to deliver an average earnings recovery of 33 per cent in 2010, according to the Institutional Brokers Estimate System. Finally, company directors are signaling earnings upgrades.

Recovery leaders include companies which benefit from the massive fiscal stimulus packages in China and selected Asian countries, and technology companies with the largest potential earnings rebound. Credit Suisse advises that the collapse in Asian and global trade was a function of falling final demand and liquidation of bloated inventories.

The Asian stockmarket boom has been a boon to fund managers who had a dreadful time between 2007 and spring of 2009. Over twelve months, MSCI ex-Japan is still down 26 per cent in US dollars. Thus, the 2009 rebound has only profited investors who entered the market this year and reduced the pain of others.

Jason McCay and Richard Evans who manage the Martin Currie Asia Fund, a hedge fund, are focusing on companies that concentrate on the domestic markets. They increased exposure to Chinese banks and have purchased residential Chinese developer Guangzhou R&F Properties. Bullish on coal, they have bought Bumi Resources in Indonesia and have also invested in the Indian property sector through Unitech. They are concerned, however that the market surge has been caused by a surplus of liquidity. 'Valuations are no longer cheap and many companies are already pricing in a meaningful recovery in profits.'

Aberdeen Asia Pacific Fund contends that equities 'appear to have run ahead of earnings and economic fundamentals and a pullback would be healthy.' Longer-term, Asia's sounder economic fundamentals will enable it to bounce back more strongly than the West'. Top stocks include OCBC, Jardine Strategic Holding, Samsung Electronics, China Mobile and Singapore Telecommunications and Singapore Technologies.

Andrew Beal, fund manager of Henderson Asia Pacific Capital Growth, notes that aggressive government policies, loose monetary conditions and a steady improvement in economic activity have all helped to drive markets higher since March. Taking a long-term view, he says there is growing awareness among Asian governments over-reliance on exports to the West has become a structural weakness. It needs to be addressed by stimulating domestic consumption.


I do think stock prices have run a bit ahead of fundamentals. I do think the worst of the global crisis is behind us, although I do think Central & Eastern Europe still has some ways to go. Why are markets so inherently bullish now? You still get the majority of "experts" claiming that things are a bit too much, and yet they still keep running. Not just in Asia but look at the US equity markets in recent weeks.

I believe the answer lies in the massive liquidity on the sidelines. The massive liquidity stem from the government printing presses and various fiscal stimulus programs. Now that risk aversion has subsided somewhat, now that the bigger US banks seem to be on better footing, investors are more willing to place their bets ... no more bloody T-bills.

Naturally in such a situation liquidity would seek out the most liquid of assets. While bashed down property prices in the US might look attractive, its liquidity and gestation period may require a bit more patience. Most investors probably think its a better whack to trade the markets than to buy a depressed property now as you might have some time to wait out the property cycle. Even though many might be getting a bargain in the US property markets, getting a decent rental is another thing, getting a paying tenant that won't turn into a non-paying tenant quickly is another problem. All said, equity seems to be the only channel for these funds to trickle in.

In Malaysia, do not be fooled by the huge surge in the new index since launching because the index is very very skewed. Take the top 10 stocks and see their performance over the last 2 weeks and you will know what I mean. There has been a strategy to make the new index "look good", yes... there might have been some rebalancing by indexed funds as well ... but ... So, local equity market has not been as bullish as the new index would want you to be thinking. Its a rotational market, not entirely convincing... just look at weekly turnover value week by week for the last 6 weeks, you will find a distinctive trend... and you should be able to draw your own conclusions.

p/s photos: Fiona Xie