Snippets, Snipes & Snides
1 June - 6 June 2006
The Goldman Sachs Factor
We have Paulson being appointed by Bush. Don't forget about Robert Rubin a few years back, also from Goldman Sachs. Forget Da Vinci Code. If you want to get to grips with a real conspiracy, take a look at all the Goldman Sachs staffers taking over important economic positions around the world. The U.S. Treasury, the Bank of Italy and the Bank of England have all recently poached key policy makers from the world's most profitable securities firm. While no one would dispute that New York-based Goldman Sachs is a money-making machine full of alpha-brains, it isn't healthy for so many decision-makers to be drawn from one source. U.S. President George W. Bush has just appointed Goldman Sachs Chief Executive Officer Henry Paulson as his new Treasury secretary, one of the most powerful economic jobs in the world. In January, Goldman Sachs Managing Director Mario Draghi became the new governor of the Bank of Italy. In Britain, David Walton, who was chief European economist for Goldman in London, last year joined the Bank of England's Monetary Policy Committee, which sets U.K. interest rates. In Canada, Mark Carney, formerly managing director in Goldman's Toronto office, is now a senior official in that country's Finance Ministry. It's not just economic jobs, either. Gavyn Davies went from Goldman to become chairman of the British Broadcasting Corp. for a few years. When someone was needed to run London's preparations for the 2012 Olympics, where did they turn? Goldman of course. Paul Deighton, a chief operating officer at the securities firm, was appointed in December. So, the danger is a very powerful "old boys network" is being formed across Europe-US. It could have benefits but the risks are also there for the leverage to be mis-used and abused.
Lion Forest & Lion Industries
The deal has been announced and it was unfortunate that it coincided with a big fall from Wall Street. That does not account for the big fall in both counters. Companies need to wise up on the need to communicate more effectively. The terms of the deal mirrors the announcement to the exchange, nothing more was added. Management have to realise the importance of good PR. The deal provides a lot of cash - what you are going to do with the cash will provide good information for investors. Coming out to say they are looking for good investments only make people think that Lion group will dump money back to the staving Silverstone and steel operations - both highly unattractive to investors. Plus more should be communicated on Lion Forest where they will have to cough up a certain sum to pay back the loan, and how Lion Forest minority shareholders will get a similar cash back. The bigger danger lies in Lion Industries, there is no covenant to force the company to issue a special dividend back to shareholders, Lion Industries can do what they want with the funds, chances are they will keep it in their various capital-intensive investments or the new Kimtrans. There should have been a more clearly laid out plan together with the announcement of the deal on what they planned to do with the funds (knowing full well that investors will fear the worst if they just say "looking for new investments"), shouldn't the companies have planned a bit better to assuage the fears of investors... or they just couldn't care less.
Google To Get Into Spreadsheets
Excel, probably the most important item bundled by Microsoft, will be challenged by Google' new offering. Google will introduce a spreadsheet program, continuing the internet search leader's expansion into territory long dominated by Microsoft. The big thing is that the spreadsheet will be "online". Consumers and businesses basically will get a free alternative to Microsoft's Excel application - a product typically sold as part of the Office software suite that has been a steady moneymaker for years. To avoid swamping the company's computers, Google's spreadsheet initially will be distributed to a limited audience. Google's spreadsheet isn't as sophisticated as Excel. For instance, the Google spreadsheet won't create charts or provide a menu of controls that can be summoned by clicking on a computer mouse's right-hand button. The program's main goal is to make it easier for family, friends or co-workers to gain access to the same spreadsheet from different computers at different times, enabling a group of authorised users to add and edit data without having to email attachments back and forth. That's where Google attempt this time will fail miserably - the indispensability of Excel is its all-encompassing ability to contain the simple stuff to the mind blowing multi-layered figures. The options to convert into charts and tables are so important as its the basis for a powerful presentation on PowerPoint. Google's offering comes nowhere near that - I predict that Google will get eggs on their face this time but they will be back to challenge Excel again later. You have to challenge Excel if you want to dismantle Microsoft's monopoly. But not this time Google, not yet. The one big asset of Google is offering the spreadsheet online and allowing multiusers across various locations to edit, update the spreadsheet. Now Google has to incorporate the other strong points of Excel, and it will be a mind blowing product. Although distributing software over the internet gives more people greater access to programs, the approach requires trusting a custodian like Google to save and protect the information from unauthorized users. That's a leap many security-conscious companies are unwilling to make and something consumers may be reluctant to do amid rising concerns of government snooping. The spreadsheet represents Google's latest software application to be tethered to an internet connection instead of a single computer's hard drive. Google acquired an online word processing application called Writely in March and rolled out a calendar service a few weeks later. All of those free programs pose a possible threat to Microsoft, which established itself as the world's largest software maker by selling its Windows operating system and complementary applications that run on the platform.
Tuesday, June 06, 2006
Cathay Breathes Dragon Fire In SIA's Face
Shares of five companies, including Cathay Pacific Airways and Air China, were suspended from trading Monday amid a pending takeover of Dragonair by Hong Kong's flag carrier, Cathay Pacific. Share trading was also halted Monday for China National Aviation Co, the largest single shareholder of Hong Kong-based Dragon Airlines, as well as Dragonair's other stakeholders, Swire Pacific and CITIC Pacific. Such suspensions are commonplace once rumors of an acquisition or merger begin to affect trading in relevant shares. Cathay, which holds a 17.79% stake in Dragonair, sees the acquisition as a vehicle to grab a bigger share of the fast-growing mainland aviation market. Dragonair at present flies to 23 Chinese destinations from Hong Kong, operating more than 300 flights a week, while Cathay - which especially covets the lucrative Hong Kong-to- Shanghai route - is limited to directly servicing Beijing and Xiamen. Simple logic is Cathay needs a network into China; Dragonair's got one. Its a wonder it took Cathay Pacific that long to buyout Dragonair. Dragonair's other Asian destinations include Bangkok, Taipei and Tokyo, while it also offers freighter services to Europe and the Middle East, as well as to New York and Shanghai.
Cathay will be able to operate mainland and Hong Kong routes, while Air China will be able to expand its international market through holding Cathay's shares. Air China, which holds a 66.36% controlling interest in CNAC - Dragonair's parent company - would likely acquire shares in Cathay Pacific as part of the deal, therefore becoming Cathay's third-largest shareholder after Swire Pacific and CITIC Pacific. Conversely, Cathay holds a 10% stake in Air China, and the cross-shareholding is expected to strengthen ties between the two carriers, helping the Beijing-based airline to gain valuable management expertise needed to compete more effectively internationally. Cathay's long-contemplated takeover of Dragonair will likely involve revamping the shareholding structures of several major players in the regional aviation sector, including Cathay, Air China, CNAC and CITIC Pacific.
To gain sole ownership of Dragonair, Cathay would need to purchase CNAC's 43.29% stake, along with CITIC's 28.5% and Swire Pacific's 7.71%, as well as the 2.71% held by other minor shareholders. Dragonair is estimated to be worth about HK$12.2 billion. Air China is looking at privatizing Hong Kong-listed CNAC after Cathay's takeover of Dragonair. The airline operation from Dragonair and Air Macau will lower the CNAC group's earnings due to high oil prices. However, the problems will be solved if Cathay buys out Dragonair.
Meanwhile, the Hong Kong government would have to rearrange traffic rights owned by two separate airlines if Cathay takes full control of Dragonair. Dragonair's traffic rights would have to be transferred to Cathay Pacific if the operation and management of Dragonair is under Cathay. It is the first matter that the Economic Development and Labour Bureau will need to cope with.
Dragonair might also cancel some money- losing routes after Cathay's takeover. In 2003, Dragonair said only five of its mainland destinations were profitable. Cathay estimates that Dragonair had a 30% profit margin on the Hong Kong-Shanghai run, and 15% on the service to Beijing.
The takeover has the effect of propelling Cathay Pacific as the premier Asian airline at the expense of SIA. Even though SIA would have loved to buy Dragonair, there is no possible way for that to happen with the inter-related China interest affecting China skies. It could only happen if Cathay made its move, and the entire deal would not have happened without the presence and initiative by Larry Yung from Citic Pacific.
Shares of five companies, including Cathay Pacific Airways and Air China, were suspended from trading Monday amid a pending takeover of Dragonair by Hong Kong's flag carrier, Cathay Pacific. Share trading was also halted Monday for China National Aviation Co, the largest single shareholder of Hong Kong-based Dragon Airlines, as well as Dragonair's other stakeholders, Swire Pacific and CITIC Pacific. Such suspensions are commonplace once rumors of an acquisition or merger begin to affect trading in relevant shares. Cathay, which holds a 17.79% stake in Dragonair, sees the acquisition as a vehicle to grab a bigger share of the fast-growing mainland aviation market. Dragonair at present flies to 23 Chinese destinations from Hong Kong, operating more than 300 flights a week, while Cathay - which especially covets the lucrative Hong Kong-to- Shanghai route - is limited to directly servicing Beijing and Xiamen. Simple logic is Cathay needs a network into China; Dragonair's got one. Its a wonder it took Cathay Pacific that long to buyout Dragonair. Dragonair's other Asian destinations include Bangkok, Taipei and Tokyo, while it also offers freighter services to Europe and the Middle East, as well as to New York and Shanghai.
Cathay will be able to operate mainland and Hong Kong routes, while Air China will be able to expand its international market through holding Cathay's shares. Air China, which holds a 66.36% controlling interest in CNAC - Dragonair's parent company - would likely acquire shares in Cathay Pacific as part of the deal, therefore becoming Cathay's third-largest shareholder after Swire Pacific and CITIC Pacific. Conversely, Cathay holds a 10% stake in Air China, and the cross-shareholding is expected to strengthen ties between the two carriers, helping the Beijing-based airline to gain valuable management expertise needed to compete more effectively internationally. Cathay's long-contemplated takeover of Dragonair will likely involve revamping the shareholding structures of several major players in the regional aviation sector, including Cathay, Air China, CNAC and CITIC Pacific.
To gain sole ownership of Dragonair, Cathay would need to purchase CNAC's 43.29% stake, along with CITIC's 28.5% and Swire Pacific's 7.71%, as well as the 2.71% held by other minor shareholders. Dragonair is estimated to be worth about HK$12.2 billion. Air China is looking at privatizing Hong Kong-listed CNAC after Cathay's takeover of Dragonair. The airline operation from Dragonair and Air Macau will lower the CNAC group's earnings due to high oil prices. However, the problems will be solved if Cathay buys out Dragonair.
Meanwhile, the Hong Kong government would have to rearrange traffic rights owned by two separate airlines if Cathay takes full control of Dragonair. Dragonair's traffic rights would have to be transferred to Cathay Pacific if the operation and management of Dragonair is under Cathay. It is the first matter that the Economic Development and Labour Bureau will need to cope with.
Dragonair might also cancel some money- losing routes after Cathay's takeover. In 2003, Dragonair said only five of its mainland destinations were profitable. Cathay estimates that Dragonair had a 30% profit margin on the Hong Kong-Shanghai run, and 15% on the service to Beijing.
The takeover has the effect of propelling Cathay Pacific as the premier Asian airline at the expense of SIA. Even though SIA would have loved to buy Dragonair, there is no possible way for that to happen with the inter-related China interest affecting China skies. It could only happen if Cathay made its move, and the entire deal would not have happened without the presence and initiative by Larry Yung from Citic Pacific.
Monday, June 05, 2006
NYSE / Euronext & Asian Exchanges
NYSE Group Inc. agreed to buy Euronext NV for 7.78 billion euros (US$9.96 billion), forming the first transatlantic stock exchange and edging out a rival bid by Deutsche Boerse AG. NYSE executed a swift swoop for the Paris-based Euronext, Europe's second-largest stock exchange. NYSE Euronext, as the combined company will be called, would unite the 214-year-old New York Stock Exchange with bourses in Paris, Amsterdam, Brussels and Lisbon and Europe's second-largest futures market. The new exchange will handle about US$2.1 trillion in stock trades a month, twice as much as Nasdaq Stock Market Inc. The agreement, which the companies are calling a merger of equals, requires approval by shareholders from the companies and regulators in the U.S. and Europe. Thain (NYSE) said he met last week with regulators from both side of the Atlantic to build support for the deal. ``Both of the regulatory organizations are operating in quite a co-operative way,'' Thain said. ``They are both very receptive. They are both supportive'' of the combination.
The combined company would be based in New York, with European operations run from Euronext's offices. The SEC would have regulatory oversight over only the U.S. equity and options market, while the group of regulators that currently oversee Euronext will retain responsibility for the European market. However, it's never final until the deal closes. Problem number one is with the regulators, and number two is that Euronext shareholders might think the NYSE deal is not good enough for them, and might start agitating for a better deal, or to get a new offer from Deutsche Boerse.
What this technically means is that for good/large non-US companies thinking of a listing or a dual listing, it will be a choice of between NYSE/Euronext or LSE/Nasdaq. Assuming the US entities are roughly equal in strength and attractiveness, the LSE still has a lead as a destination for big foreign listings. The London location is a big asset for Nasdaq to have. Surely, NYSE would have preferred to have LSE but Euronext is the next best thing.
While takeovers and mergers of exchanges are all the rage in Europe and US, it is highly unlikely that the same will be seen in Asia. It is almost unthinkable to see any of these exchanges willing to give up its independence or share authority with each other, can you?? - Hong Kong SE, Singapore SE, Kuala Lumpur SE, Tokyo SE, Thailand SE, Jakarta SE ... is it an Asian thing??? Does that mean capitalism is defined differently in Asia?? The reasons why Asian exchanges will not be able to merge/sell compared to their European / American counterparts cuts at the very ability to understand how Asia works - in fact, this question should be asked of every single European/American expat wanting to work in Asia - their ability to answer it well shows how much they know of Asia and how Asia works. Or, they could read my blog...
The exchanges in Asia are more than just a free standing institution that governs the listed companies and its regulation. Asian exchanges is closely linked to their respective governments. While they are expected to deliver on the same platform on transparency, listings, governance and even profitability issues ... Asian exchanges are like a mascot for their financial standing. A bit like their own currency, there is more pride in it than value backing the currencies. Hence to sell down or share authority would be close to accepting that they are not good enough to regulate on their own, that they have ceded power to map its financial future ... None would be pragmatic enough (maybe Singapore) to consider the intrinsic benefits of linking up and merging.
I still say that KLSE and SES should merge but because of the above factors, that is unlikely to happen. However, they can have a JV of sorts by exchanging maybe 10% of their shares with each other, and allowing both exchanges to buy and sell on both countries' shares on one single platform - automatically doubles the number of listed companies, almost double the number of participants, double the choices, enormous cost savings, plus the shares listed on both exchanges differs quite a bit (little replication) ... and yet allow for the companies to be regulated / approved by their respective exchanges - thats as close as a marriage you will get for Asian exchanges... a bit like a gay / same-sex marriage, don't you think! Not quite a merger of equals, but it will do for now.
NYSE Group Inc. agreed to buy Euronext NV for 7.78 billion euros (US$9.96 billion), forming the first transatlantic stock exchange and edging out a rival bid by Deutsche Boerse AG. NYSE executed a swift swoop for the Paris-based Euronext, Europe's second-largest stock exchange. NYSE Euronext, as the combined company will be called, would unite the 214-year-old New York Stock Exchange with bourses in Paris, Amsterdam, Brussels and Lisbon and Europe's second-largest futures market. The new exchange will handle about US$2.1 trillion in stock trades a month, twice as much as Nasdaq Stock Market Inc. The agreement, which the companies are calling a merger of equals, requires approval by shareholders from the companies and regulators in the U.S. and Europe. Thain (NYSE) said he met last week with regulators from both side of the Atlantic to build support for the deal. ``Both of the regulatory organizations are operating in quite a co-operative way,'' Thain said. ``They are both very receptive. They are both supportive'' of the combination.
The combined company would be based in New York, with European operations run from Euronext's offices. The SEC would have regulatory oversight over only the U.S. equity and options market, while the group of regulators that currently oversee Euronext will retain responsibility for the European market. However, it's never final until the deal closes. Problem number one is with the regulators, and number two is that Euronext shareholders might think the NYSE deal is not good enough for them, and might start agitating for a better deal, or to get a new offer from Deutsche Boerse.
What this technically means is that for good/large non-US companies thinking of a listing or a dual listing, it will be a choice of between NYSE/Euronext or LSE/Nasdaq. Assuming the US entities are roughly equal in strength and attractiveness, the LSE still has a lead as a destination for big foreign listings. The London location is a big asset for Nasdaq to have. Surely, NYSE would have preferred to have LSE but Euronext is the next best thing.
While takeovers and mergers of exchanges are all the rage in Europe and US, it is highly unlikely that the same will be seen in Asia. It is almost unthinkable to see any of these exchanges willing to give up its independence or share authority with each other, can you?? - Hong Kong SE, Singapore SE, Kuala Lumpur SE, Tokyo SE, Thailand SE, Jakarta SE ... is it an Asian thing??? Does that mean capitalism is defined differently in Asia?? The reasons why Asian exchanges will not be able to merge/sell compared to their European / American counterparts cuts at the very ability to understand how Asia works - in fact, this question should be asked of every single European/American expat wanting to work in Asia - their ability to answer it well shows how much they know of Asia and how Asia works. Or, they could read my blog...
The exchanges in Asia are more than just a free standing institution that governs the listed companies and its regulation. Asian exchanges is closely linked to their respective governments. While they are expected to deliver on the same platform on transparency, listings, governance and even profitability issues ... Asian exchanges are like a mascot for their financial standing. A bit like their own currency, there is more pride in it than value backing the currencies. Hence to sell down or share authority would be close to accepting that they are not good enough to regulate on their own, that they have ceded power to map its financial future ... None would be pragmatic enough (maybe Singapore) to consider the intrinsic benefits of linking up and merging.
I still say that KLSE and SES should merge but because of the above factors, that is unlikely to happen. However, they can have a JV of sorts by exchanging maybe 10% of their shares with each other, and allowing both exchanges to buy and sell on both countries' shares on one single platform - automatically doubles the number of listed companies, almost double the number of participants, double the choices, enormous cost savings, plus the shares listed on both exchanges differs quite a bit (little replication) ... and yet allow for the companies to be regulated / approved by their respective exchanges - thats as close as a marriage you will get for Asian exchanges... a bit like a gay / same-sex marriage, don't you think! Not quite a merger of equals, but it will do for now.
Friday, June 02, 2006
Astro & Scomi Covered Warrants
An Early Valuation
Both are decent companies, but Scomi would be more exciting and should have a much higher beta (volatility) which bodes better as a covered warrant. Astro's growth and prospects appear limited from here on with the exception of its Indonesian ventures (which is still in a shambolic stage still). The thing to be very careful here is that these covered warrants only have an 8 month to expiry period, pretty short, so the timing is very crucial here. Once the bull rears its head, these covered warrants will fly because the premium is very low while the gearing is pretty good. The reverse will occur should there be market weakness but if you get in early (e.g. below 30 sen), your downside is limited by the absolute price. Don't think these CWs will fall below 20 sen for Scomi and 25 sen for Astro unless the index craps below 850. As cynical as it may sound, it is highly likely (and in the long term interest of) the lead managers will try to ensure that these early batches of covered warrants do perform well (as best they could without flouting the laws). By ensuring that, it will serve them well as an expanding and enlarging franchise, and revenue stream. While I am not suggesting outright manipulation... but there are one hundred and one ways to skin a cat (think fund management, research, special placements, etc...).
Astro CW
Terms - 2 CW for 1 Astro share
Exercise Price - RM4.65
Current Share Price - RM4.80
Current CW Price - RM0.27
The premium would be = (0.27 x 2) + 4.65 / 4.8 = 8.12%
Gearing (Leverage) would be = 4.80 / (0.27 x 2) = 8.8x
Scomi CW
Terms - 1 CW for 1 Scomi share
Exercise Price - RM1.15
Current Share Price - RM1.20
Current CW Price - RM0.22
The premium would be = 0.22 + 1.15 / 1.20 = 14.1%
Gearing would be = 1.20 / 0.22 = 5.45x
Naturally the Scomi CW looks more expensive with a higher premium and much lower gearing than Astro CW. Both are actually "cheapish" for now. All things being equal (with no price fluctuations) Scomi CW should be fairly valued at RM0.24 (compared to the current price of RM0.22). While Astro CW should be fairly valued at RM0.33 (compared to the current price of RM0.27). The market has priced the Astro CW too cheaply, even after taking into account the lesser stock volatility. Even if you take in the prospects, the Astro CW is still too cheap.
An Early Valuation
Both are decent companies, but Scomi would be more exciting and should have a much higher beta (volatility) which bodes better as a covered warrant. Astro's growth and prospects appear limited from here on with the exception of its Indonesian ventures (which is still in a shambolic stage still). The thing to be very careful here is that these covered warrants only have an 8 month to expiry period, pretty short, so the timing is very crucial here. Once the bull rears its head, these covered warrants will fly because the premium is very low while the gearing is pretty good. The reverse will occur should there be market weakness but if you get in early (e.g. below 30 sen), your downside is limited by the absolute price. Don't think these CWs will fall below 20 sen for Scomi and 25 sen for Astro unless the index craps below 850. As cynical as it may sound, it is highly likely (and in the long term interest of) the lead managers will try to ensure that these early batches of covered warrants do perform well (as best they could without flouting the laws). By ensuring that, it will serve them well as an expanding and enlarging franchise, and revenue stream. While I am not suggesting outright manipulation... but there are one hundred and one ways to skin a cat (think fund management, research, special placements, etc...).
Astro CW
Terms - 2 CW for 1 Astro share
Exercise Price - RM4.65
Current Share Price - RM4.80
Current CW Price - RM0.27
The premium would be = (0.27 x 2) + 4.65 / 4.8 = 8.12%
Gearing (Leverage) would be = 4.80 / (0.27 x 2) = 8.8x
Scomi CW
Terms - 1 CW for 1 Scomi share
Exercise Price - RM1.15
Current Share Price - RM1.20
Current CW Price - RM0.22
The premium would be = 0.22 + 1.15 / 1.20 = 14.1%
Gearing would be = 1.20 / 0.22 = 5.45x
Naturally the Scomi CW looks more expensive with a higher premium and much lower gearing than Astro CW. Both are actually "cheapish" for now. All things being equal (with no price fluctuations) Scomi CW should be fairly valued at RM0.24 (compared to the current price of RM0.22). While Astro CW should be fairly valued at RM0.33 (compared to the current price of RM0.27). The market has priced the Astro CW too cheaply, even after taking into account the lesser stock volatility. Even if you take in the prospects, the Astro CW is still too cheap.
Thursday, June 01, 2006
China A-Shares / Banks / Bad Debts
The Bigger Picture
Shenzhen and Shanghai exchanges have their A-shares, and for the 26 companies who also list their shares in Hong Kong, the shares are known as H-shares in Hong Kong. It used to be that A-shares trade at a big premium to H-shares, and that has been the case for the past few years. Something funny happened on my way to the Communist Great Hall, now the H-shares trade at a premium to the A-shares!!! It appears that the Chinese stocks have been having a torrid 4-year slump. This also meant that Chinese citizens in China have been hit badly and are beginning to shun investing in local stocks. It could also mean that fund managers are more comfortable now to buy H-shares, or that Hong Kongers are more liquid now and are beginning to buy H-shares in a big way. This could also means that the overall share valuation for Chinese companies listed on China exchanges are no longer frothy.
The bigger picture is that, Chinese companies listed on HKSE and Singapore have performed remarkably well over the last 2 years. The valuation was boosted by the strong liquidity driven rallies in both markets over the last 12 months. The bigger and better known Chinese companies head for HKSE while the lesser known and smaller companies opt for Singapore - but both types did well. It is not just a matter of liquidity prevalent in HK and Singapore, but rather an improving perception that China companies listed in HK and Singapore (including those with a dual listing) that they have a more stringent check and balance on these companies' financials. Better corporate governance and transparency requirements from the more established exchanges seem to have yielded more confidence among institutional and retail investors in HK and Singapore. Despite the high-profile bust for China Aviation Oil or CAO (Singapore) Corporation, which lost US$550 million in speculative trading, making it one of the biggest business scandals in Asia since Nick Leeson lost US$1.4 billion at Barings Bank in 1995, Chinese companies listed in Singapore were largely unaffected.
Today saw the trading for the massive Bank of China's IPO - which was a great success. This follows on the heels of the highly successful listing for China Construction Bank last October in HK. This brings us to the grave problems that I have with China's economy. A recent study by Ernst & Young estimated that China's total bad debt liabilities stood at US$911 billion, and not the official figure of US$400 billion touted by the government. Even at US$911 billion, while huge, it is surmountable provided Chinese banks continue to improve on their risk and credit management practices. It would have been a time bomb waiting to explode if the authorities did not open up the bigger banks to foreign shareholdings. The last 3 years have seen numerous foreign banks / government investing agencies / private equity firms buying minority stakes in the bigger Chinese banks - the bigger implication is that by opening up to these new shareholders, Chinese banks would have a much greater chance to manage and whittle down the overall bad debts and eliminate the doomsday scenario. Global investors should be glad that this has basically averted a massive crunch or correction badly needed within China's financial system.
Now, let's just try and get a handle on the excessive property bubble.
The Bigger Picture
Shenzhen and Shanghai exchanges have their A-shares, and for the 26 companies who also list their shares in Hong Kong, the shares are known as H-shares in Hong Kong. It used to be that A-shares trade at a big premium to H-shares, and that has been the case for the past few years. Something funny happened on my way to the Communist Great Hall, now the H-shares trade at a premium to the A-shares!!! It appears that the Chinese stocks have been having a torrid 4-year slump. This also meant that Chinese citizens in China have been hit badly and are beginning to shun investing in local stocks. It could also mean that fund managers are more comfortable now to buy H-shares, or that Hong Kongers are more liquid now and are beginning to buy H-shares in a big way. This could also means that the overall share valuation for Chinese companies listed on China exchanges are no longer frothy.
The bigger picture is that, Chinese companies listed on HKSE and Singapore have performed remarkably well over the last 2 years. The valuation was boosted by the strong liquidity driven rallies in both markets over the last 12 months. The bigger and better known Chinese companies head for HKSE while the lesser known and smaller companies opt for Singapore - but both types did well. It is not just a matter of liquidity prevalent in HK and Singapore, but rather an improving perception that China companies listed in HK and Singapore (including those with a dual listing) that they have a more stringent check and balance on these companies' financials. Better corporate governance and transparency requirements from the more established exchanges seem to have yielded more confidence among institutional and retail investors in HK and Singapore. Despite the high-profile bust for China Aviation Oil or CAO (Singapore) Corporation, which lost US$550 million in speculative trading, making it one of the biggest business scandals in Asia since Nick Leeson lost US$1.4 billion at Barings Bank in 1995, Chinese companies listed in Singapore were largely unaffected.
Today saw the trading for the massive Bank of China's IPO - which was a great success. This follows on the heels of the highly successful listing for China Construction Bank last October in HK. This brings us to the grave problems that I have with China's economy. A recent study by Ernst & Young estimated that China's total bad debt liabilities stood at US$911 billion, and not the official figure of US$400 billion touted by the government. Even at US$911 billion, while huge, it is surmountable provided Chinese banks continue to improve on their risk and credit management practices. It would have been a time bomb waiting to explode if the authorities did not open up the bigger banks to foreign shareholdings. The last 3 years have seen numerous foreign banks / government investing agencies / private equity firms buying minority stakes in the bigger Chinese banks - the bigger implication is that by opening up to these new shareholders, Chinese banks would have a much greater chance to manage and whittle down the overall bad debts and eliminate the doomsday scenario. Global investors should be glad that this has basically averted a massive crunch or correction badly needed within China's financial system.
Now, let's just try and get a handle on the excessive property bubble.
UEM World-Disney
Inexperience Showing
As reported in The Edge: Asked on a report on May 31 on Disney's denial, its managing director, Datuk Ahmad Pardas Senin said: “The efforts need to be continuously done as this is not something that can be achieved in a short space of time.” He said UEM World had initiated talks with several operators other than Disney as UEM World had allocated 2,400ha of its 9,200ha township in Nusajaya for leisure or theme park development. Prior to its suspension at 2.30pm on May 31, UEM World fell six sen to RM1.76 after Disney's denial that it was interested to set up a theme park in the country. It resumes trading on June 1. On May 30, Minister in the Prime Minister's Department Datuk Seri Mohd Effendi Norwawi said the government was in talks with Oriental Land Co Ltd, who operates Tokyo Disneyland, and Disney in the US to bring in Disney. Reuters on May 31 quoted Walt Disney Parks and Resorts spokeswoman, Lisa Haines, as saying: “At this time, however, there are no existing discussions in Malaysia and we currently have no plans for a Disney-branded resort development in that country.” On UEM World’s bid for the second Penang bridge, Ahmad Pardas said it had written to the government to be considered as it was the concession holder of the first Penang bridge and undertook the construction of the second link bridge between Johor Bahru and Singapore. He hoped it would be considered for transportation projects under the Ninth Malaysia Plan (9MP), including the expansion of light rail transit (LRT) and other railway commuter projects.
My Take - It is so obvious that UEM World and probably the minister have been given an ear bashing by Disney folks. In handling corporate negotiations, we probably have some inexperience folks there (more with the minister than UEM World). Disney would be in trouble if Malaysia keeps talking about the project when Disney themselves have not yet announced any details of the negotiations. A seasoned negotiator would have sat down with Disney to plan the news releases in a proper manner. These are the kind of things why GLCs reputation is found wanting in important things such as: "execution", "proper follow-through" and "professionalism". Its not like your own backyard anymore where the Bursa / SC dare not reprimand those very high up. Sigh! You cannot retract what you have said when it has been recorded by Reuters, damage is done, just hope that this does not jeopardise the deal. When the minister said they have met Disney in the US earlier in the month, and mentioned another meeting with Oriental Land (franchise holder for Disney in Japan) - that is material information. They did not think of the impact on Disney in the regulations-heavy American corporate governance environment. Why were there no better advisors? Should really hire me... man!
Inexperience Showing
As reported in The Edge: Asked on a report on May 31 on Disney's denial, its managing director, Datuk Ahmad Pardas Senin said: “The efforts need to be continuously done as this is not something that can be achieved in a short space of time.” He said UEM World had initiated talks with several operators other than Disney as UEM World had allocated 2,400ha of its 9,200ha township in Nusajaya for leisure or theme park development. Prior to its suspension at 2.30pm on May 31, UEM World fell six sen to RM1.76 after Disney's denial that it was interested to set up a theme park in the country. It resumes trading on June 1. On May 30, Minister in the Prime Minister's Department Datuk Seri Mohd Effendi Norwawi said the government was in talks with Oriental Land Co Ltd, who operates Tokyo Disneyland, and Disney in the US to bring in Disney. Reuters on May 31 quoted Walt Disney Parks and Resorts spokeswoman, Lisa Haines, as saying: “At this time, however, there are no existing discussions in Malaysia and we currently have no plans for a Disney-branded resort development in that country.” On UEM World’s bid for the second Penang bridge, Ahmad Pardas said it had written to the government to be considered as it was the concession holder of the first Penang bridge and undertook the construction of the second link bridge between Johor Bahru and Singapore. He hoped it would be considered for transportation projects under the Ninth Malaysia Plan (9MP), including the expansion of light rail transit (LRT) and other railway commuter projects.
My Take - It is so obvious that UEM World and probably the minister have been given an ear bashing by Disney folks. In handling corporate negotiations, we probably have some inexperience folks there (more with the minister than UEM World). Disney would be in trouble if Malaysia keeps talking about the project when Disney themselves have not yet announced any details of the negotiations. A seasoned negotiator would have sat down with Disney to plan the news releases in a proper manner. These are the kind of things why GLCs reputation is found wanting in important things such as: "execution", "proper follow-through" and "professionalism". Its not like your own backyard anymore where the Bursa / SC dare not reprimand those very high up. Sigh! You cannot retract what you have said when it has been recorded by Reuters, damage is done, just hope that this does not jeopardise the deal. When the minister said they have met Disney in the US earlier in the month, and mentioned another meeting with Oriental Land (franchise holder for Disney in Japan) - that is material information. They did not think of the impact on Disney in the regulations-heavy American corporate governance environment. Why were there no better advisors? Should really hire me... man!
Wednesday, May 31, 2006
Snippets, Snipes & Snides
29 May - 31 May 2006
Las Vegas Sands To Break Even In 5-8 Years?
The world's largest casino firm by market value, expects its Singapore casino to reach break even within five to eight years after the start of operations. The firm, which runs the Venetian in Las Vegas and a successful Macau casino, last week won the 30-year concession for the first of Singapore's two planned gambling resorts after promising to invest more than US$3.2 billion in what will be the world's most expensive casino. Bearing in mind that their first casino in Macau repaid itself in full within the first year of operations, the 5-8 year payback is more for the masses. How do you like it if you come out and say that the project will be profitable in a couple of years? (even if its true or plausible).... thta is not good PR. Its interesting that Sands almost immediately started work on the Marina Bay project - sigh, I guess they did not want anyone to start protesting the decision... its OK guys, you are in Singapore, not somewhere else in Asia, things don't flip-flop in Singapore.
Foreign Funds Sold US$5 bn
Emerging market equity funds were responsible for a whopping US$5 billion of the net outflows during the week ended May 24, or 1.74% of total assets, their worst outflow since May 2004, according to Emerging Portfolio Fund Research. The Boston-based company said on May 29 that inflation fears leading to uncertainty over US monetary policy and global liquidity conditions helped inspire the particularly sharp round of profit taking and panic selling in the second half of May, just as it did two years ago this month. Even the investor favorites in recent months, the BRIC equity funds that invest in Brazil, Russia, India and China, saw their first week of net outflows since EPFR began tracking them separately in October 2005. Europe Equity Funds, which invest in developed European equities suffered their worst outflows since May 2004 as investors pulled out US$1.7 billion. Japan Equity Funds had their second straight week of outflows, reducing year to date net inflows to just under $5 billion. US Equity Funds had only modest outflows on the week, but investors have pulled more than US$4 billion from these funds in the last two weeks. If you noticed, some markets suffered more than others, especially India. The present pullback is not the same for everyone. Please look at the vulnerability for each market in my blog on 8 May "Are We Bubbling Yet?"
Sell In May And Go Away
Many hedge funds may be wishing that they followed that advice and closed out positions given what's been a headache inducing, crappy month for many of them. For hedge funds, May has been a miserable month that may mark the end of earning easy money and the beginning of tough trading conditions. Nothing has gone smoothly in the US$1.2 trillion hedge fund industry since a sell-off in precious metals prices spilled on emerging markets and soon affected developed markets. In the absence of a real catalyst, analysts blame fears of inflation and rising rates for the sudden drop. Many of the world's roughly 8,000 funds lost between 3 and 6 percent in the first three weeks of May with some having seen swings of 10 percent or more. Now hedge fund managers, who earned strong returns by simply being long on equities, will have to make savvier stock picks, and any bets on commodities may have to be a little bit quicker with more moves in and out. That may be a shock for the legions of managers who earned more money in the first four months of 2006 than all of 2005 simply by jumping on trends that were too good to pass up. Losses weren't confined to metals however and that's what is making the month so treacherous. Global macro funds that bet on currencies, commodities and interest rates are said to have given up roughly 25 percent. Funds specializing in emerging markets and even mid-cap stocks were said to have given back as much as 50 percent.
29 May - 31 May 2006
Las Vegas Sands To Break Even In 5-8 Years?
The world's largest casino firm by market value, expects its Singapore casino to reach break even within five to eight years after the start of operations. The firm, which runs the Venetian in Las Vegas and a successful Macau casino, last week won the 30-year concession for the first of Singapore's two planned gambling resorts after promising to invest more than US$3.2 billion in what will be the world's most expensive casino. Bearing in mind that their first casino in Macau repaid itself in full within the first year of operations, the 5-8 year payback is more for the masses. How do you like it if you come out and say that the project will be profitable in a couple of years? (even if its true or plausible).... thta is not good PR. Its interesting that Sands almost immediately started work on the Marina Bay project - sigh, I guess they did not want anyone to start protesting the decision... its OK guys, you are in Singapore, not somewhere else in Asia, things don't flip-flop in Singapore.
Foreign Funds Sold US$5 bn
Emerging market equity funds were responsible for a whopping US$5 billion of the net outflows during the week ended May 24, or 1.74% of total assets, their worst outflow since May 2004, according to Emerging Portfolio Fund Research. The Boston-based company said on May 29 that inflation fears leading to uncertainty over US monetary policy and global liquidity conditions helped inspire the particularly sharp round of profit taking and panic selling in the second half of May, just as it did two years ago this month. Even the investor favorites in recent months, the BRIC equity funds that invest in Brazil, Russia, India and China, saw their first week of net outflows since EPFR began tracking them separately in October 2005. Europe Equity Funds, which invest in developed European equities suffered their worst outflows since May 2004 as investors pulled out US$1.7 billion. Japan Equity Funds had their second straight week of outflows, reducing year to date net inflows to just under $5 billion. US Equity Funds had only modest outflows on the week, but investors have pulled more than US$4 billion from these funds in the last two weeks. If you noticed, some markets suffered more than others, especially India. The present pullback is not the same for everyone. Please look at the vulnerability for each market in my blog on 8 May "Are We Bubbling Yet?"
Sell In May And Go Away
Many hedge funds may be wishing that they followed that advice and closed out positions given what's been a headache inducing, crappy month for many of them. For hedge funds, May has been a miserable month that may mark the end of earning easy money and the beginning of tough trading conditions. Nothing has gone smoothly in the US$1.2 trillion hedge fund industry since a sell-off in precious metals prices spilled on emerging markets and soon affected developed markets. In the absence of a real catalyst, analysts blame fears of inflation and rising rates for the sudden drop. Many of the world's roughly 8,000 funds lost between 3 and 6 percent in the first three weeks of May with some having seen swings of 10 percent or more. Now hedge fund managers, who earned strong returns by simply being long on equities, will have to make savvier stock picks, and any bets on commodities may have to be a little bit quicker with more moves in and out. That may be a shock for the legions of managers who earned more money in the first four months of 2006 than all of 2005 simply by jumping on trends that were too good to pass up. Losses weren't confined to metals however and that's what is making the month so treacherous. Global macro funds that bet on currencies, commodities and interest rates are said to have given up roughly 25 percent. Funds specializing in emerging markets and even mid-cap stocks were said to have given back as much as 50 percent.
Tuesday, May 30, 2006
Bursa, Mesdaq & Bonus Issues
Good Move By Bursa
Bursa Malaysia Securities Bhd has announced that public listed companies whose accumulated losses exceed their reserves are not allowed to undertake bonus issues. In a statement announcing amendments to its listing requirements and Mesdaq market listing requirements in relation to bonus issues, Bursa Securities said PLCs were disallowed from undertaking bonus issues “if their accumulated losses exceed the reserves to be capitalised for the bonus issue''. It said the amendments were made as part of Bursa Securities' continuous efforts to enhance investor protection under its regulatory framework and listing requirements. The amendments will take effect immediately for all applications for listing of securities arising from bonus issues submitted to Bursa Securities on or after yesterday. Bursa Securities is a wholly-owned subsidiary of Bursa Malaysia Bhd.
We have had a spate of proposals, mainly from Mesdaq counters, asking for bonus issues. The ruling with regards to accumulated losses / reserves is very astute. However, that is just one side of the equation. Many of the Mesdaq counters are basically shares with a par value of 10 sen or 20 sen, when compared to the Main Board or Second Board shares where their par value is usually RM1.00 or RM0.50 at least.
It is so obvious, the aim of management of those companies applying for bonus issues is to lower the average share price and nothing more. It makes it easier for them to farm shares out to syndicates for speculative play. For those not clued in:
a) a share that trades at RM0.25 will become RM0.125 with a 1 for 1 bonus, the share capital will double but in the eyes of most retail players its a doubling of their shares but they do not see it in terms of a doubling of share capital (I know its illogical)
b) management knows that players are more likely to hold onto a share if it trades at just RM0.10 or RM0.20 as it is close to zero and won't have much to fall (again the logic is financially naive and ill-informed but that's the yardstick for many unsophisticated retail players). Hence management thinks that there will be more "natural support" should the bottom fall out from the speculative plays
c) penny stocks image should be discarded wherever possible - most penny stocks are speculative counters with no real tangible assets or businesses, in most markets' perception. They do get support buyers as they are numerically cheap in absolute terms but to keep allowing these companies to do bonus issues (especially Mesdaq counters) is to allow for these shares to be kept near the 10 sen or 20 sen level. Don't need to have that, I am sure Bursa is smarter than that and the management of Mesdaq counters should really try and go and improve their real businesses than thinking of shallow ways to manipulate share prices
Bearing that in mind, Bursa needs to cover that loophole. A share that trades below RM1.00 should never be allowed to have bonus issues even though their reserves are adequate. If your shares are below RM1.00, you must have a pretty substantial number of shares floating out there already. Bearing in mind also that bonus issues are ZERO SUM GAMES, it does not add value at all. The basic premise is to reward shareholders and make shares more affordable, if you are below RM1.00, your shares are already very affordable. It only makes sense if a share has risen a few times over and management wants to make it "affordable", then it might be prudent to do a bonus issue.
The other thing which negates a bonus issue is that shares are now tradeable at 100 share lots and not 1,000 shares like before. The 100 share lot trading rule basically eliminates the need for bonus issues. Bursa has to be more vigilant as we do not want to see a large majority of shares trading near 10 sen or 20 sen in the forseeable future - then KLSE will be known really as a penny stock market. By the way, a good move by the Bursa - I would strongly recommend that there'd be an additional ruling in that shares below RM1.00 be prohibited from doing bonus issues.
Good Move By Bursa
Bursa Malaysia Securities Bhd has announced that public listed companies whose accumulated losses exceed their reserves are not allowed to undertake bonus issues. In a statement announcing amendments to its listing requirements and Mesdaq market listing requirements in relation to bonus issues, Bursa Securities said PLCs were disallowed from undertaking bonus issues “if their accumulated losses exceed the reserves to be capitalised for the bonus issue''. It said the amendments were made as part of Bursa Securities' continuous efforts to enhance investor protection under its regulatory framework and listing requirements. The amendments will take effect immediately for all applications for listing of securities arising from bonus issues submitted to Bursa Securities on or after yesterday. Bursa Securities is a wholly-owned subsidiary of Bursa Malaysia Bhd.
We have had a spate of proposals, mainly from Mesdaq counters, asking for bonus issues. The ruling with regards to accumulated losses / reserves is very astute. However, that is just one side of the equation. Many of the Mesdaq counters are basically shares with a par value of 10 sen or 20 sen, when compared to the Main Board or Second Board shares where their par value is usually RM1.00 or RM0.50 at least.
It is so obvious, the aim of management of those companies applying for bonus issues is to lower the average share price and nothing more. It makes it easier for them to farm shares out to syndicates for speculative play. For those not clued in:
a) a share that trades at RM0.25 will become RM0.125 with a 1 for 1 bonus, the share capital will double but in the eyes of most retail players its a doubling of their shares but they do not see it in terms of a doubling of share capital (I know its illogical)
b) management knows that players are more likely to hold onto a share if it trades at just RM0.10 or RM0.20 as it is close to zero and won't have much to fall (again the logic is financially naive and ill-informed but that's the yardstick for many unsophisticated retail players). Hence management thinks that there will be more "natural support" should the bottom fall out from the speculative plays
c) penny stocks image should be discarded wherever possible - most penny stocks are speculative counters with no real tangible assets or businesses, in most markets' perception. They do get support buyers as they are numerically cheap in absolute terms but to keep allowing these companies to do bonus issues (especially Mesdaq counters) is to allow for these shares to be kept near the 10 sen or 20 sen level. Don't need to have that, I am sure Bursa is smarter than that and the management of Mesdaq counters should really try and go and improve their real businesses than thinking of shallow ways to manipulate share prices
Bearing that in mind, Bursa needs to cover that loophole. A share that trades below RM1.00 should never be allowed to have bonus issues even though their reserves are adequate. If your shares are below RM1.00, you must have a pretty substantial number of shares floating out there already. Bearing in mind also that bonus issues are ZERO SUM GAMES, it does not add value at all. The basic premise is to reward shareholders and make shares more affordable, if you are below RM1.00, your shares are already very affordable. It only makes sense if a share has risen a few times over and management wants to make it "affordable", then it might be prudent to do a bonus issue.
The other thing which negates a bonus issue is that shares are now tradeable at 100 share lots and not 1,000 shares like before. The 100 share lot trading rule basically eliminates the need for bonus issues. Bursa has to be more vigilant as we do not want to see a large majority of shares trading near 10 sen or 20 sen in the forseeable future - then KLSE will be known really as a penny stock market. By the way, a good move by the Bursa - I would strongly recommend that there'd be an additional ruling in that shares below RM1.00 be prohibited from doing bonus issues.
Lion Forest Industries
Attractive Trading Patterns
Lion Forest Industries, which was featured in my blog on Mega M&A Deals In Malaysia on 22 May, has been trading attractively for the past 3 days. Its stock code on KLSE is 8486. While every single market in Asia dwindled and dawdled on Monday and today, the buying pattern has been very solid in Lion FIB for the past 3 days (you can check out the buying which looks like strategic accumulation, but not very subtle, which leads me to believe the buying is largely genuine rather than syndicate based). As mentioned, the NTA is RM8.21, hence any deal to sell should be struck around RM6.50-RM7.00 at the bare minimum.
LFI through its 97.78% owned subsidiary, Sabah Forest Industries Sdn Bhd is Malaysia's largest producer of printing and writing papers. SFI's main products are paper, pulp, sawn timber, plywood and commercial logs. The subsidiary also produces other products like building materials, lubricants, spark plugs, industrial equipment and automotive components. The respective annual production capacities of SFI for its various products are 150,000 MT for paper, 120,000 MT for pulp, 100,000 m3 for sawn timber, 120,000m3 for plywood and 500,000m3 for commercial logs. In addition, approximately 30% of its wood-based products are exported to countries in the Middle East and the Far East. LFI has a NTA of RM8.21 a share, and even if it is not offered up to its NTA value, market expectations are that its assets could easily fetch around RM6.50-RM7.00 a share. That may be below NTA but it's still a rich price relative to its current share price of below RM4.00.
Attractive Trading Patterns
Lion Forest Industries, which was featured in my blog on Mega M&A Deals In Malaysia on 22 May, has been trading attractively for the past 3 days. Its stock code on KLSE is 8486. While every single market in Asia dwindled and dawdled on Monday and today, the buying pattern has been very solid in Lion FIB for the past 3 days (you can check out the buying which looks like strategic accumulation, but not very subtle, which leads me to believe the buying is largely genuine rather than syndicate based). As mentioned, the NTA is RM8.21, hence any deal to sell should be struck around RM6.50-RM7.00 at the bare minimum.
LFI through its 97.78% owned subsidiary, Sabah Forest Industries Sdn Bhd is Malaysia's largest producer of printing and writing papers. SFI's main products are paper, pulp, sawn timber, plywood and commercial logs. The subsidiary also produces other products like building materials, lubricants, spark plugs, industrial equipment and automotive components. The respective annual production capacities of SFI for its various products are 150,000 MT for paper, 120,000 MT for pulp, 100,000 m3 for sawn timber, 120,000m3 for plywood and 500,000m3 for commercial logs. In addition, approximately 30% of its wood-based products are exported to countries in the Middle East and the Far East. LFI has a NTA of RM8.21 a share, and even if it is not offered up to its NTA value, market expectations are that its assets could easily fetch around RM6.50-RM7.00 a share. That may be below NTA but it's still a rich price relative to its current share price of below RM4.00.
Monday, May 29, 2006
Top Hedge Funds Earners
Mind Boggling Numbers
You need to make US$130 million in 2005 to make the top 25 earners in hedge fund managers ranking by Institutional Investor. When it comes to pure wealth creation — arguably the biggest motivation for the majority of hedge fund managers — times have never been better. Thanks to the power of hedge fund math, driven by management fees and performance incentives, more managers are making more money today than ever before. One year ago Edward Lampert of ESL Investments made headlines when he became the first manager to earn US$1 billion in a year. This time there are two who broke the billion-dollar barrier: James Simons of Renaissance Technologies Corp. and BP Capital Management’s T. Boone Pickens. In 2005 math whiz Simons, we calculate, earned a staggering US$1.5 billion, edging out oil tycoon Pickens, who took home an equally astounding US$1.4 billion from two hedge funds he quietly launched ten years ago. Although Lampert saw his earnings cut by more than half in 2005, he still made a cool US$425 million, good enough for sixth place. Rounding out the top five are three longtime managers: Soros Fund Management’s George Soros, US$840 million; SAC Capital Advisors’ Steven Cohen, US$550 million; and Tudor Investment Corp.’s Paul Tudor Jones II, US$500 million.
This swelling of personal gains has made many hedge fund managers enormously wealthy. At least 13 of the managers out of 25 are billionaires — Simons; Pickens; Soros; Cohen; Jones; Lampert; Shaw; Bruce Kovner of Caxton Associates and David Tepper of Appaloosa Management (tied at No. 7); Israel Englander of Millennium Partners (No. 11); Kenneth Griffin of Citadel Investment Group (No. 13); James Pallotta of Tudor Investment Corp. (tied for No. 14), and Louis Bacon of Moore Capital Management (No. 19).
Investors have long insisted that hedge fund managers have a substantial percentage of their net worth tied up in their own funds to ensure that the interests of all parties are aligned. Now, as hedge fund assets have grown, and managers’ assets in their own funds have grown with them, managers no longer need to put up high returns to make a lot of money.
Six managers this year make the top 25 despite generating single-digit returns: Caxton’s Kovner, Citadel’s Griffin, ESL’s Lampert, Tudor’s Pallotta, Raymond Dalio of Bridgewater Associates and Och-Ziff Capital Management Group’s Daniel Och. Clearly, there is a disconnect between pay and performance, it appears that once you have the size, everything appears larger and stretched. People are getting paid extraordinary amounts of money for performance that is mundane and very average. As hedge funds have grown, management fees — which mostly range between 1 percent and 5 percent, depending on the manager — have become an increasingly important piece of the economic equation. Ten years ago a US$10 billion hedge fund was rare; today there are 20 managers who run at least that much in assets. You can make T-bill returns and be just fine because you have a 2 percent management fee. Of course, some do deserve the pay scale due to the returns and terms of the agreement - e.g. Gendell made US$215 million in 2005 thanks to a 38 percent net return, which followed 100 percent-plus returns in 2003 and 2004.
The billions and billions of dollars being accumulated by hedge fund managers is a concern for investors. The wealth creates the potential for major distractions for all managers who are successful - wealth has the potential to have a dulling influence on a manager’s drive, you start buying your own Gulfstream, buy a small island off Tahiti, ... indulge in art, wine, women... maybe even fund a movie of your choice.... or give it all up to spend a couple of years in Nepal.
In every profession, whether it is a football coach or a surgeon, the best person makes the most money. The same is true with investment managers. The great ones are hedge fund managers. Why is that Tom Cruise gets US$20 million per movie and nobody says anything, or the US$6 million per movie by Nicole Kidman.... or the US$60 million dollar man Schumacher who doesn't know how to turn, park or drive.
1 - James Simons - Renaissance Technologies Corp. US$1.5 billion
Simons’ legend grows apace with his portfolio and his philanthropy. Last year the veteran Long Island hedge fund manager’s quant-driven Medallion hedge fund returned 29.5 percent net. That was all the more remarkable given the US$5.3 billion fund’s 5 percent management fee and 44 percent performance fee. (The gross return was nearly 60 percent.) Even so, Medallion fell short of its roughly 34 percent annualized net return since its 1988 inception. The odds are pretty good that Simons will figure out how to make up that shortfall. Many hedge funds are run by teams of pointy-headed rocket scientists, but Renaissance Technologies Corp. might be able to run its own space program. The 68-year-old Simons, who has a Ph.D. in mathematics from the University of California at Berkeley and has taught at Massachusetts Institute of Technology and Harvard University, has packed his East Setauket, New York, enterprise with math and computer whizzes. These quantitative specialists use arcane programs to trade the globe’s most liquid securities rapidly and frequently, using lots of leverage. Nonetheless, no program can entirely capture the markets’ vicissitudes. The firm’s new US$3.4 billion Renaissance Institutional Equity Fund, which Simons says in an investor document has the capacity to handle as much as US$100 billion in assets, got off to a slow start last year, rising just 5 percent from its August 1 inception through year-end. RIEF’s US$20 million minimum investment gears it to institutions; unlike the shorter-horizon Medallion, the new fund takes mostly long positions and holds them for relatively protracted periods. RIEF’s gain in assets came as Simons moved Medallion ever closer to being a closed portfolio for himself, his friends and his employees. Always generous, Simons is devoting a large amount of time and money to philanthropies near and dear to him. He has donated US$38 million to research the cause of autism, with which his teenage daughter was diagnosed when she was young. He and his wife, Marilyn, are said to be prepared to spend a further US$100 million on promising autism studies. Early this year Simons, who once chaired the math department at the State University of New York at Stony Brook, gave US$13 million to nearby Brookhaven National Laboratory so that it could keep running its Relativistic Heavy Ion Collider, the only device in the world that can mimic the “Big Bang” in the lab. Simons, along with a large number of other managers on our list of top money earners, is supporting New York State Attorney General Eliot Spitzer’s bid to become governor of New York.
5 - Paul Tudor Jones II - Tudor Investment Corp. US$500 Million
The Robin Hood Foundation’s annual benefit often brings out the quirkier sides of Wall Streeters along with their checkbooks. For last year’s gala Paul Tudor Jones II, a co-founder of the charity, dressed as Star Wars’ Darth Vader. “This is what will happen to you,” Jones, who is 51, warned traders under 40, according to those who were present. Going over to the dark side hasn’t hurt his performance. Since opening Tudor Investment Corp. in 1980, Jones has never had a down year. In 2005 the firm’s US$5.3 billion flagship Tudor BVI Global Fund climbed 14.7 percent net of its 4 percent management fee and 23 percent performance fee, marking its fifth year in a row of double-digit net returns. Most of the gains came from global equities, including macro bets in Japan, energy and emerging markets. (James Pallotta, No. 14, oversees Tudor’s Raptor funds and himself earned US$200 million.) Jones, whose Greenwich, Connecticut–based firm manages US$12.7 billion in all, is a staunch supporter of wildlife conservation. He owns Grumeti Reserves in Tanzania’s Western Serengeti and was recently lauded by the East African country’s Parliament for not permitting hunting in his reserve. He has given money to Democrats in key races in 2006, backing New York State Attorney General Eliot Spitzer’s run for the governorship of New York.
6 - Edward Lampert - ESL Investments US$425 Million
Time magazine, in its May 6 issue featuring “the lives and ideas of the world’s most influential people,” poses this question about one of its 100 profile subjects: Is Eddie Lampert the best investor on Wall Street? Lampert’s fund was up just 9 percent in 2005, chiefly because of a sizable cash position. As a result, he wound up taking home about US$600 million less than the more than US$1 billion he pocketed in 2004, when he was No. 1 on our list. All the same, Lampert’s investors have little to bellyache about. Even with last year’s listless showing, ESL Investments has compounded at about 28 percent a year, on average, since the 43-year-old launched it in 1988 at 26, fresh out of Goldman, Sachs & Co.’s risk-arbitrage group. ESL’s prospects now depend upon the health of mass-market retailer Sears Holdings Corp. Since Lampert took a recapitalized Kmart public in the spring of 2003, then merged it with Sears, Roebuck & Co. in mid-2005, his investment has soared tenfold. The company accounts for two thirds of Greenwich, Connecticut–based ESL’s US$11 billion equity portfolio. Sears’ shares finished last year up 16.8 percent. ESL’s other two big positions: a US$1.7 billion stake in car retailer AutoNation, whose shares rose 13 percent in 2005, and a US$2 billion investment in parts supplier AutoZone, which was flat. One question on the minds of Sears shareholders is what Lampert, who is chairman, plans to do with the US$4.4 billion sitting in its till. At Sears’ annual meeting in April, he hinted at additional acquisitions. Meanwhile, Lampert is battling New York–based hedge fund Pershing Square Capital Management for control of Sears’ Canadian operation (Sears Holdings owns a majority stake).
14 - Timothy Barakett - Atticus Capital US$200 million
For an activist investor, Timothy Barakett kept a low profile after launching Atticus Capital in 1995, at age 26. That changed last year when Atticus and the Children’s Investment Fund U.K., a London hedge fund, teamed up to block Deutsche Bšrse’s US$2.5 billion bid for the London Stock Exchange. They proposed instead that the German market issue a special dividend or buy back shares. Six months later Deutsche Bšrse’s CEO, Werner Seifert, quit, and the LSE has become the object of ardent courtship by both the Nasdaq Stock Market and the New York Stock Exchange. Then the battle-hardened Atticus turned on another exchange. Earlier this year the New York firm and accounts it advises amassed a 9.1 percent stake in Euronext and urged that the Paris-based electronic exchange combine with Deutsche Bšrse. In February, Barakett fired off a letter to Arcelor CEO Guy DollŽ expressing his extreme disappointment that the Luxembourg-based steelmaker, in which Atticus has a 1.3 percent stake, wasn’t paying more attention to a tender offer from Mittal Steel Co., also based in Luxembourg. Barakett, who holds a BA in economics from Harvard University and an MBA from the Harvard Business School, does not make his rather handsome living just from badgering CEOs. His Atticus Global fund was up a net 22 percent in 2005, and his Atticus European fund — managed by David Slager, who is tied for No. 20 — surged 62 percent. On a capital-weighted basis, Atticus’s funds were up 45 percent, on average. Little surprise, then, that the firm’s assets more than doubled in 2005, to US$9.2 billion. That must please Barakett, but it is also gratifying to Atticus vice chairman Nathaniel Rothschild, son of Lord Jacob Rothschild. The younger Rothschild earned about US$80 million last year.
20 - Daniel Loeb - Third Point US$150 Million
Daniel Loeb puts the “pistol” in epistolary. The Third Point founder’s letters to CEOs can be blunt, as in a blunt instrument. In one guided missive in February 2005, he wrote Irik Sevin, then CEO of Stamford, Connecticut– based heating-oil distributor Star Gas Partners: “Sadly, your ineptitude is not limited to your failure to communicate with bond and unit holders. A review of your record reveals years of value destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America.” Three weeks later Sevin resigned. But for all his bluster, the 44-year-old Loeb dedicates less than 10 percent of his New York firm’s US$3.8 billion in assets to shareholder-activism strategies. Instead, the 1984 Columbia University economics grad is a traditional value and event-driven investor. Last year Loeb cashed in on surging energy prices. He racked up big gains on two Houston-based energy companies — 140 percent on McDermott International and roughly 50 percent on Plains Exploration & Production Co. His return for the year: 18 percent net. In a more serendipitous investment coup, Loeb made a 500 percent profit in 2005 by selling a 1984 Martin Kippenberger painting that he had held for three years to advertising figure Charles Saatchi for $1.5 million. The hedge fund manager owns more than 30 works by the German artist, whose credo was to shock and disturb people to expand their perception, not unlike Loeb.
Top Ten:
1. James Simons $1.5 billion Renaissance Technologies
2. Boone Pickens $1.4 billion BP Capital Management
3. George Soros $840 million Soros Fund Management
4. Steven Cohen $550 million SAC Capital Advisors
5. Paul Tudor Jones $500 million Tudor Investment
6. Edward Lampert $425 million ESL Investment
7. Bruce Kovner $400 million Caxton Associates
8. David Tepper $400 million Appaloosa Management
9. David Shaw $340 million D.E. Shaw
10. Stephen Mandel $275 million Lone Pine Capital
Mind Boggling Numbers
You need to make US$130 million in 2005 to make the top 25 earners in hedge fund managers ranking by Institutional Investor. When it comes to pure wealth creation — arguably the biggest motivation for the majority of hedge fund managers — times have never been better. Thanks to the power of hedge fund math, driven by management fees and performance incentives, more managers are making more money today than ever before. One year ago Edward Lampert of ESL Investments made headlines when he became the first manager to earn US$1 billion in a year. This time there are two who broke the billion-dollar barrier: James Simons of Renaissance Technologies Corp. and BP Capital Management’s T. Boone Pickens. In 2005 math whiz Simons, we calculate, earned a staggering US$1.5 billion, edging out oil tycoon Pickens, who took home an equally astounding US$1.4 billion from two hedge funds he quietly launched ten years ago. Although Lampert saw his earnings cut by more than half in 2005, he still made a cool US$425 million, good enough for sixth place. Rounding out the top five are three longtime managers: Soros Fund Management’s George Soros, US$840 million; SAC Capital Advisors’ Steven Cohen, US$550 million; and Tudor Investment Corp.’s Paul Tudor Jones II, US$500 million.
This swelling of personal gains has made many hedge fund managers enormously wealthy. At least 13 of the managers out of 25 are billionaires — Simons; Pickens; Soros; Cohen; Jones; Lampert; Shaw; Bruce Kovner of Caxton Associates and David Tepper of Appaloosa Management (tied at No. 7); Israel Englander of Millennium Partners (No. 11); Kenneth Griffin of Citadel Investment Group (No. 13); James Pallotta of Tudor Investment Corp. (tied for No. 14), and Louis Bacon of Moore Capital Management (No. 19).
Investors have long insisted that hedge fund managers have a substantial percentage of their net worth tied up in their own funds to ensure that the interests of all parties are aligned. Now, as hedge fund assets have grown, and managers’ assets in their own funds have grown with them, managers no longer need to put up high returns to make a lot of money.
Six managers this year make the top 25 despite generating single-digit returns: Caxton’s Kovner, Citadel’s Griffin, ESL’s Lampert, Tudor’s Pallotta, Raymond Dalio of Bridgewater Associates and Och-Ziff Capital Management Group’s Daniel Och. Clearly, there is a disconnect between pay and performance, it appears that once you have the size, everything appears larger and stretched. People are getting paid extraordinary amounts of money for performance that is mundane and very average. As hedge funds have grown, management fees — which mostly range between 1 percent and 5 percent, depending on the manager — have become an increasingly important piece of the economic equation. Ten years ago a US$10 billion hedge fund was rare; today there are 20 managers who run at least that much in assets. You can make T-bill returns and be just fine because you have a 2 percent management fee. Of course, some do deserve the pay scale due to the returns and terms of the agreement - e.g. Gendell made US$215 million in 2005 thanks to a 38 percent net return, which followed 100 percent-plus returns in 2003 and 2004.
The billions and billions of dollars being accumulated by hedge fund managers is a concern for investors. The wealth creates the potential for major distractions for all managers who are successful - wealth has the potential to have a dulling influence on a manager’s drive, you start buying your own Gulfstream, buy a small island off Tahiti, ... indulge in art, wine, women... maybe even fund a movie of your choice.... or give it all up to spend a couple of years in Nepal.
In every profession, whether it is a football coach or a surgeon, the best person makes the most money. The same is true with investment managers. The great ones are hedge fund managers. Why is that Tom Cruise gets US$20 million per movie and nobody says anything, or the US$6 million per movie by Nicole Kidman.... or the US$60 million dollar man Schumacher who doesn't know how to turn, park or drive.
1 - James Simons - Renaissance Technologies Corp. US$1.5 billion
Simons’ legend grows apace with his portfolio and his philanthropy. Last year the veteran Long Island hedge fund manager’s quant-driven Medallion hedge fund returned 29.5 percent net. That was all the more remarkable given the US$5.3 billion fund’s 5 percent management fee and 44 percent performance fee. (The gross return was nearly 60 percent.) Even so, Medallion fell short of its roughly 34 percent annualized net return since its 1988 inception. The odds are pretty good that Simons will figure out how to make up that shortfall. Many hedge funds are run by teams of pointy-headed rocket scientists, but Renaissance Technologies Corp. might be able to run its own space program. The 68-year-old Simons, who has a Ph.D. in mathematics from the University of California at Berkeley and has taught at Massachusetts Institute of Technology and Harvard University, has packed his East Setauket, New York, enterprise with math and computer whizzes. These quantitative specialists use arcane programs to trade the globe’s most liquid securities rapidly and frequently, using lots of leverage. Nonetheless, no program can entirely capture the markets’ vicissitudes. The firm’s new US$3.4 billion Renaissance Institutional Equity Fund, which Simons says in an investor document has the capacity to handle as much as US$100 billion in assets, got off to a slow start last year, rising just 5 percent from its August 1 inception through year-end. RIEF’s US$20 million minimum investment gears it to institutions; unlike the shorter-horizon Medallion, the new fund takes mostly long positions and holds them for relatively protracted periods. RIEF’s gain in assets came as Simons moved Medallion ever closer to being a closed portfolio for himself, his friends and his employees. Always generous, Simons is devoting a large amount of time and money to philanthropies near and dear to him. He has donated US$38 million to research the cause of autism, with which his teenage daughter was diagnosed when she was young. He and his wife, Marilyn, are said to be prepared to spend a further US$100 million on promising autism studies. Early this year Simons, who once chaired the math department at the State University of New York at Stony Brook, gave US$13 million to nearby Brookhaven National Laboratory so that it could keep running its Relativistic Heavy Ion Collider, the only device in the world that can mimic the “Big Bang” in the lab. Simons, along with a large number of other managers on our list of top money earners, is supporting New York State Attorney General Eliot Spitzer’s bid to become governor of New York.
5 - Paul Tudor Jones II - Tudor Investment Corp. US$500 Million
The Robin Hood Foundation’s annual benefit often brings out the quirkier sides of Wall Streeters along with their checkbooks. For last year’s gala Paul Tudor Jones II, a co-founder of the charity, dressed as Star Wars’ Darth Vader. “This is what will happen to you,” Jones, who is 51, warned traders under 40, according to those who were present. Going over to the dark side hasn’t hurt his performance. Since opening Tudor Investment Corp. in 1980, Jones has never had a down year. In 2005 the firm’s US$5.3 billion flagship Tudor BVI Global Fund climbed 14.7 percent net of its 4 percent management fee and 23 percent performance fee, marking its fifth year in a row of double-digit net returns. Most of the gains came from global equities, including macro bets in Japan, energy and emerging markets. (James Pallotta, No. 14, oversees Tudor’s Raptor funds and himself earned US$200 million.) Jones, whose Greenwich, Connecticut–based firm manages US$12.7 billion in all, is a staunch supporter of wildlife conservation. He owns Grumeti Reserves in Tanzania’s Western Serengeti and was recently lauded by the East African country’s Parliament for not permitting hunting in his reserve. He has given money to Democrats in key races in 2006, backing New York State Attorney General Eliot Spitzer’s run for the governorship of New York.
6 - Edward Lampert - ESL Investments US$425 Million
Time magazine, in its May 6 issue featuring “the lives and ideas of the world’s most influential people,” poses this question about one of its 100 profile subjects: Is Eddie Lampert the best investor on Wall Street? Lampert’s fund was up just 9 percent in 2005, chiefly because of a sizable cash position. As a result, he wound up taking home about US$600 million less than the more than US$1 billion he pocketed in 2004, when he was No. 1 on our list. All the same, Lampert’s investors have little to bellyache about. Even with last year’s listless showing, ESL Investments has compounded at about 28 percent a year, on average, since the 43-year-old launched it in 1988 at 26, fresh out of Goldman, Sachs & Co.’s risk-arbitrage group. ESL’s prospects now depend upon the health of mass-market retailer Sears Holdings Corp. Since Lampert took a recapitalized Kmart public in the spring of 2003, then merged it with Sears, Roebuck & Co. in mid-2005, his investment has soared tenfold. The company accounts for two thirds of Greenwich, Connecticut–based ESL’s US$11 billion equity portfolio. Sears’ shares finished last year up 16.8 percent. ESL’s other two big positions: a US$1.7 billion stake in car retailer AutoNation, whose shares rose 13 percent in 2005, and a US$2 billion investment in parts supplier AutoZone, which was flat. One question on the minds of Sears shareholders is what Lampert, who is chairman, plans to do with the US$4.4 billion sitting in its till. At Sears’ annual meeting in April, he hinted at additional acquisitions. Meanwhile, Lampert is battling New York–based hedge fund Pershing Square Capital Management for control of Sears’ Canadian operation (Sears Holdings owns a majority stake).
14 - Timothy Barakett - Atticus Capital US$200 million
For an activist investor, Timothy Barakett kept a low profile after launching Atticus Capital in 1995, at age 26. That changed last year when Atticus and the Children’s Investment Fund U.K., a London hedge fund, teamed up to block Deutsche Bšrse’s US$2.5 billion bid for the London Stock Exchange. They proposed instead that the German market issue a special dividend or buy back shares. Six months later Deutsche Bšrse’s CEO, Werner Seifert, quit, and the LSE has become the object of ardent courtship by both the Nasdaq Stock Market and the New York Stock Exchange. Then the battle-hardened Atticus turned on another exchange. Earlier this year the New York firm and accounts it advises amassed a 9.1 percent stake in Euronext and urged that the Paris-based electronic exchange combine with Deutsche Bšrse. In February, Barakett fired off a letter to Arcelor CEO Guy DollŽ expressing his extreme disappointment that the Luxembourg-based steelmaker, in which Atticus has a 1.3 percent stake, wasn’t paying more attention to a tender offer from Mittal Steel Co., also based in Luxembourg. Barakett, who holds a BA in economics from Harvard University and an MBA from the Harvard Business School, does not make his rather handsome living just from badgering CEOs. His Atticus Global fund was up a net 22 percent in 2005, and his Atticus European fund — managed by David Slager, who is tied for No. 20 — surged 62 percent. On a capital-weighted basis, Atticus’s funds were up 45 percent, on average. Little surprise, then, that the firm’s assets more than doubled in 2005, to US$9.2 billion. That must please Barakett, but it is also gratifying to Atticus vice chairman Nathaniel Rothschild, son of Lord Jacob Rothschild. The younger Rothschild earned about US$80 million last year.
20 - Daniel Loeb - Third Point US$150 Million
Daniel Loeb puts the “pistol” in epistolary. The Third Point founder’s letters to CEOs can be blunt, as in a blunt instrument. In one guided missive in February 2005, he wrote Irik Sevin, then CEO of Stamford, Connecticut– based heating-oil distributor Star Gas Partners: “Sadly, your ineptitude is not limited to your failure to communicate with bond and unit holders. A review of your record reveals years of value destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America.” Three weeks later Sevin resigned. But for all his bluster, the 44-year-old Loeb dedicates less than 10 percent of his New York firm’s US$3.8 billion in assets to shareholder-activism strategies. Instead, the 1984 Columbia University economics grad is a traditional value and event-driven investor. Last year Loeb cashed in on surging energy prices. He racked up big gains on two Houston-based energy companies — 140 percent on McDermott International and roughly 50 percent on Plains Exploration & Production Co. His return for the year: 18 percent net. In a more serendipitous investment coup, Loeb made a 500 percent profit in 2005 by selling a 1984 Martin Kippenberger painting that he had held for three years to advertising figure Charles Saatchi for $1.5 million. The hedge fund manager owns more than 30 works by the German artist, whose credo was to shock and disturb people to expand their perception, not unlike Loeb.
Top Ten:
1. James Simons $1.5 billion Renaissance Technologies
2. Boone Pickens $1.4 billion BP Capital Management
3. George Soros $840 million Soros Fund Management
4. Steven Cohen $550 million SAC Capital Advisors
5. Paul Tudor Jones $500 million Tudor Investment
6. Edward Lampert $425 million ESL Investment
7. Bruce Kovner $400 million Caxton Associates
8. David Tepper $400 million Appaloosa Management
9. David Shaw $340 million D.E. Shaw
10. Stephen Mandel $275 million Lone Pine Capital
Asian Currencies On Tenterhooks
The dollar's slide against Asian currencies could provide a catalyst for greater regional economic cooperation in an effort to avoid another financial crisis. So far this year the US unit has fallen by between five and eight percent against the Thai baht, Malaysian ringgit, South Korean won and Indonesian rupiah amid worries about global economic imbalances and upward pressure on the Chinese yuan. This is putting pressure on Asian economies by making their exports less competitive and cutting into companies' repatriated profits and leaders in the region are worried that the dollar will continue to decline.
Somehow, the smaller Asian nations' central banks are willing to let their currency appreciate vis-a-vis the dollar because they see real competition coming more from the Chinese yuan rather than pricing in US dollars. In the global export paradigm, the blackboard is denominated in yuan and not US dollars. Current and future competition among global exporters will have to deal in yuan terms - if yuan is allowed to appreciate, it is ok to appreciate in tandem. Having said that, the quantum of the increase have been greater for the smaller Asian countries' currencies when compared to the yuan.
The appreciation in Asian currencies is a controlled thing, as long as everyone moves up together, their exporting ability is not diminished badly. Asian central banks have to allow the appreciation to cope with imported inflationary pressures also. What we don't want is a period of volatility, a period of gradual appreciation is not volatility - just a measure to get up to the new competitive landscape. All economies are basically adjusting to help the US economy compete better and to stave off a derailment of the American economy. The overall economic strategy needs to price the US dollar cheaper (as it has been printing too much money), allow for better wealth redistribution / creation in developing countries owing to the enormous deficit registered by the US economy, and doing all that without very high inflation or interest rates. Its a tricky and delicate balancing act.
Asia does not want to see another financial crisis like 1997 which was triggered by currency speculation and volatility. If your economy is big enough like China and Japan, your currency is safer. However the other Asian nations' are at the mercy of market forces especially during periods of excessive speculation. Hence the idea of an Asian Currency Unit (ACU). To be fair, an ACU is likely to be successful as a viable bond market for companies and government to tap the capital markets, and have exposure in a currency which is stable. To think that the ACU would ever become like the Euro in the EU - forget about it, its not going to happen in our lifetime.
To try and develop a deep Asian bond market in ACU will reduce volatility of the Asian currencies as much as possible and allow for more cooperation and reliance on one another. There will be a lot more cooperation and joint manouveres with respect to sharing monetary and fiscal policies in Asia. A meeting was held of the ASEAN members long with China, Japan and South Korea agreed in Hyderabad, India, earlier this month to study the possibility of a single Asian currency similar to the euro. The Asian Development Bank (ADB) has been spearheading a proposal for the creation of an Asian currency unit or ACU, which is an index of currencies, as part of a bid to bolster monetary stability and spur regional economic growth. The ADB is also supporting the Asian Bond Market Initiative to develop an efficient bond market for the region. Finance ministers of ASEAN Plus Three -- which includes Japan, China and South Korea -- have already made progress in boosting financial and monetary policy coordination. But substantive coordination could be prompted by a sudden US dollar crunch which is possible. This may take place (because of speculative) capital inflows into China, and when China suddenly has to intervene in a massive way maybe that could be an opportune time for the finance ministers to really discuss this issue. Hopefully the region does not have to wait for another crisis. Asian nations still have painful memories of the 1997 Asian Financial Crisis which began with speculative attacks on the Thai baht and spread rapidly to other regional economies, causing sharp falls in stock markets and currencies. Although Japan and China are considered less vulnerable given the size of their economies and foreign exchange reserves, they are also involved in moves towards closer economic ties. Strained relations between Japan and both China and South Korea over war-time history have raised concerns that efforts to form an "East Asian Community" are losing momentum.
Probably now the bigger Asian nations are arguing over how the currency index should be constructed as everybody wants a higher profile. When it comes to egos and pride, I fear for Asia. Its time to discard that and work for the common good of the region - failure to cooperate will result in the entire region being vulnerable and lose out in potential growth synergies.
The dollar's slide against Asian currencies could provide a catalyst for greater regional economic cooperation in an effort to avoid another financial crisis. So far this year the US unit has fallen by between five and eight percent against the Thai baht, Malaysian ringgit, South Korean won and Indonesian rupiah amid worries about global economic imbalances and upward pressure on the Chinese yuan. This is putting pressure on Asian economies by making their exports less competitive and cutting into companies' repatriated profits and leaders in the region are worried that the dollar will continue to decline.
Somehow, the smaller Asian nations' central banks are willing to let their currency appreciate vis-a-vis the dollar because they see real competition coming more from the Chinese yuan rather than pricing in US dollars. In the global export paradigm, the blackboard is denominated in yuan and not US dollars. Current and future competition among global exporters will have to deal in yuan terms - if yuan is allowed to appreciate, it is ok to appreciate in tandem. Having said that, the quantum of the increase have been greater for the smaller Asian countries' currencies when compared to the yuan.
The appreciation in Asian currencies is a controlled thing, as long as everyone moves up together, their exporting ability is not diminished badly. Asian central banks have to allow the appreciation to cope with imported inflationary pressures also. What we don't want is a period of volatility, a period of gradual appreciation is not volatility - just a measure to get up to the new competitive landscape. All economies are basically adjusting to help the US economy compete better and to stave off a derailment of the American economy. The overall economic strategy needs to price the US dollar cheaper (as it has been printing too much money), allow for better wealth redistribution / creation in developing countries owing to the enormous deficit registered by the US economy, and doing all that without very high inflation or interest rates. Its a tricky and delicate balancing act.
Asia does not want to see another financial crisis like 1997 which was triggered by currency speculation and volatility. If your economy is big enough like China and Japan, your currency is safer. However the other Asian nations' are at the mercy of market forces especially during periods of excessive speculation. Hence the idea of an Asian Currency Unit (ACU). To be fair, an ACU is likely to be successful as a viable bond market for companies and government to tap the capital markets, and have exposure in a currency which is stable. To think that the ACU would ever become like the Euro in the EU - forget about it, its not going to happen in our lifetime.
To try and develop a deep Asian bond market in ACU will reduce volatility of the Asian currencies as much as possible and allow for more cooperation and reliance on one another. There will be a lot more cooperation and joint manouveres with respect to sharing monetary and fiscal policies in Asia. A meeting was held of the ASEAN members long with China, Japan and South Korea agreed in Hyderabad, India, earlier this month to study the possibility of a single Asian currency similar to the euro. The Asian Development Bank (ADB) has been spearheading a proposal for the creation of an Asian currency unit or ACU, which is an index of currencies, as part of a bid to bolster monetary stability and spur regional economic growth. The ADB is also supporting the Asian Bond Market Initiative to develop an efficient bond market for the region. Finance ministers of ASEAN Plus Three -- which includes Japan, China and South Korea -- have already made progress in boosting financial and monetary policy coordination. But substantive coordination could be prompted by a sudden US dollar crunch which is possible. This may take place (because of speculative) capital inflows into China, and when China suddenly has to intervene in a massive way maybe that could be an opportune time for the finance ministers to really discuss this issue. Hopefully the region does not have to wait for another crisis. Asian nations still have painful memories of the 1997 Asian Financial Crisis which began with speculative attacks on the Thai baht and spread rapidly to other regional economies, causing sharp falls in stock markets and currencies. Although Japan and China are considered less vulnerable given the size of their economies and foreign exchange reserves, they are also involved in moves towards closer economic ties. Strained relations between Japan and both China and South Korea over war-time history have raised concerns that efforts to form an "East Asian Community" are losing momentum.
Probably now the bigger Asian nations are arguing over how the currency index should be constructed as everybody wants a higher profile. When it comes to egos and pride, I fear for Asia. Its time to discard that and work for the common good of the region - failure to cooperate will result in the entire region being vulnerable and lose out in potential growth synergies.
Saturday, May 27, 2006
Sand In My Face
Casino IR Goes To Las Vegas Sands
Well, it was supposed to be between MGM and Harrah, since both have local partners in Capital Land and Keppel respectively. It cannot be that Sands have a highly superior proposal, can it?!! I mean, MGM and Harrah also busted their guts, and all things being equal, surely the ones with local partners should get it. Assuming the submissions are almost equal in attractiveness, the fact that Sands got it may mean:
a) the committee wants no local players to be involved
b) that automatically means Genting will be the frontrunner for Sentosa
I still think giving it to Sands is a mistake because Sands investments in Macau is a few times bigger than the Marina Bay IR - however you want to cut it, priority and preferential treatment will go to Macau, be it entertainment, high rollers, incentives, etc.... Sands have more to lose if Macau fails than the Singapore project. Giving it to just a foreign company with no local participation will start to grate on Singaporean nerves should Sands start reporting net profits of S$500 million or more a year. A gaming outfit always have the odds in favour of the house, Singaporeans will start getting pissed off if Sands and Genting IRs start to rake in hundreds of million of Sing dollars a year, mostly at the expense of Singaporeans with little going back to charity. This is so unlike Singapore horse racing or Singapore Pools where bettors know their losses are going to good projects locally. Bad vibes.
The Nusajaya Disney project if announced may actually thwart Genting's chances - surely they do not want to see two big Malaysian companies have a huge slice of the action in southern Johor and Singapore. Hmmm... for those who fear that the attrition on Sentosa IR will be greater if Disney does go to Nusajaya - on further deliberation, having Disney in Nusajaya will actually result in a multiplier effect for both Malaysia and Singapore tourism, feeding off each other.
Casino IR Goes To Las Vegas Sands
Well, it was supposed to be between MGM and Harrah, since both have local partners in Capital Land and Keppel respectively. It cannot be that Sands have a highly superior proposal, can it?!! I mean, MGM and Harrah also busted their guts, and all things being equal, surely the ones with local partners should get it. Assuming the submissions are almost equal in attractiveness, the fact that Sands got it may mean:
a) the committee wants no local players to be involved
b) that automatically means Genting will be the frontrunner for Sentosa
I still think giving it to Sands is a mistake because Sands investments in Macau is a few times bigger than the Marina Bay IR - however you want to cut it, priority and preferential treatment will go to Macau, be it entertainment, high rollers, incentives, etc.... Sands have more to lose if Macau fails than the Singapore project. Giving it to just a foreign company with no local participation will start to grate on Singaporean nerves should Sands start reporting net profits of S$500 million or more a year. A gaming outfit always have the odds in favour of the house, Singaporeans will start getting pissed off if Sands and Genting IRs start to rake in hundreds of million of Sing dollars a year, mostly at the expense of Singaporeans with little going back to charity. This is so unlike Singapore horse racing or Singapore Pools where bettors know their losses are going to good projects locally. Bad vibes.
The Nusajaya Disney project if announced may actually thwart Genting's chances - surely they do not want to see two big Malaysian companies have a huge slice of the action in southern Johor and Singapore. Hmmm... for those who fear that the attrition on Sentosa IR will be greater if Disney does go to Nusajaya - on further deliberation, having Disney in Nusajaya will actually result in a multiplier effect for both Malaysia and Singapore tourism, feeding off each other.
WorldCup2006
Brazil vs South Africa
It is just before the Bafana Bafana v Brazil match. Ronaldinho goes into the Brazilian changing room to find all his teammates looking a bit glum.
“What’s up?” he asks.
“Well, we’re having trouble getting motivated for this game. We know it’s important but it’s only S.A. They’re sh*t and we can’t be bothered.”
Ronaldinho looks at them and says, “Well, I reckon I can beat them by myself—you lads go down to a pub in Soweto.”
So Ronaldinho goes out to play Bafana Bafana by himself and the rest of the Brazilian team go off for a few jars. After a few pints they wonder how the game is going, so they get the landlord to put the teletext on. A big cheer goes up as the screen reads “Brazil 1 – Bafana Bafana 0 (Ronaldinho 10 minutes)”. He is beating Bafana Bafana all by himself! Anyway, a few pints later and the game is forgotten until someone remembers, “It must be full time now, let’s see how he got on.” They put the teletext on.
“Result from the Stadium ‘Brazil 1 (Ronaldinho 10 minutes) – Bafana Bafana 1 ( Nomvete 89 minutes).”
They can’t believe it; he has single-handedly got a draw against Bafana Bafana!! They rush back to the Ellis Park Stadium to congratulate Ronaldinho. They find him in the dressing room, still in his gear, sitting with his head in his hands. He refuses to look at them.
“I’ve let you down, I’ve let you down.” “Don’t be daft, you got a draw against Bafana Bafana, all by yourself. And they only scored at the very, very end!”
“No, no, I have, I’ve let you down…I got sent off after 12 minutes.”
Brazil vs South Africa
It is just before the Bafana Bafana v Brazil match. Ronaldinho goes into the Brazilian changing room to find all his teammates looking a bit glum.
“What’s up?” he asks.
“Well, we’re having trouble getting motivated for this game. We know it’s important but it’s only S.A. They’re sh*t and we can’t be bothered.”
Ronaldinho looks at them and says, “Well, I reckon I can beat them by myself—you lads go down to a pub in Soweto.”
So Ronaldinho goes out to play Bafana Bafana by himself and the rest of the Brazilian team go off for a few jars. After a few pints they wonder how the game is going, so they get the landlord to put the teletext on. A big cheer goes up as the screen reads “Brazil 1 – Bafana Bafana 0 (Ronaldinho 10 minutes)”. He is beating Bafana Bafana all by himself! Anyway, a few pints later and the game is forgotten until someone remembers, “It must be full time now, let’s see how he got on.” They put the teletext on.
“Result from the Stadium ‘Brazil 1 (Ronaldinho 10 minutes) – Bafana Bafana 1 ( Nomvete 89 minutes).”
They can’t believe it; he has single-handedly got a draw against Bafana Bafana!! They rush back to the Ellis Park Stadium to congratulate Ronaldinho. They find him in the dressing room, still in his gear, sitting with his head in his hands. He refuses to look at them.
“I’ve let you down, I’ve let you down.” “Don’t be daft, you got a draw against Bafana Bafana, all by yourself. And they only scored at the very, very end!”
“No, no, I have, I’ve let you down…I got sent off after 12 minutes.”
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