Weekly Snippets, Snipes & Snides
April 1 - April 6, 2006

Asian Bourses Flying - KLCI rose to its highest level in nearly eight months with trading volume hitting a new record at over two billion shares, as optimism over further gains by Asian currencies. Asian markets, which climbed to 16-year highs, were aided by continued gains in their currencies that were led by the Chinese yuan, which hit a new post-revaluation high. The Thai stock market and baht were the spectacular performers in Asia, as the Bangkok SET Index jumped more than 3% after the three-month political stalemate ended with Prime Minister Thaksin Shinawatra pledging to step down. The baht rose to its highest level since the middle of March last year. Foreign players were buying blue-chip counters to primarily take advantage of the ringgit, which hit a new eight-year high at RM3.67 to the US dollar.
Now, it is easy to get carried away with the rising sentiment. Let's get a handle on why the markets surge - its basically a rerating of currencies, not of corporate fundamentals. Thaksin ending his political tussle would automatically increase the chances of Arroyo being booted out of office within the near term. A savvy investment pro would already know the Premier Hu Jin Tao will be visiting the USA end of April. Many pros would be betting for a gradually stronger yuan the weeks leading up to the visit - betting on the right cross currency would be difficult. Betting on US dollar at a time when the Fed seems intent on raising rates would neutralise the edge. Undervalued Asian currencies looks the best beta bet. However the Thai "crisis" and Philippine "debacle" kind of put a dampner on things. Though for the last couple of weeks, savvy managers have been buying ringgit (being probably the most undervalued Asian currency) and Japanese yen. The dam did not start to crack till "new developments" came in, the Thaksin event allowed more investment managers to be more gung-ho. Hence the sweeping across the board rerating of assets via a currency shift.

Temasek's Immediate Accounting Loss - Well, buying Shin Corp and then watching the seller end his political career within a few weeks should really inculcate new insights for Temasek. The US$3.8 billion acquisition now has a paper loss of 20%, all within one month of transacting the deal. Shin Corp has fallen gradually but surely since the deal was struck. Shin Corp's share price for the last few weeks was almost the perfect indicator of Thaksin's political career. Now Temasek will have to carry out impairment tests to determine if they need to take a charge for the diminished sum. In hindsight, with Thaksin out of the political spectrum, Shin Corp under Temasek could reinvent itself and consumers could prefer the "Thaksin-less company" if "PR /advertising / product innovation" are handled well. The product innovation should be a no-brainer with SingTel's contribution. Now, its just the soft skills PR and advertising, and Shin Corp could really go places. A name change might be worth considering.

Arroyo, Pack Your Bags - The people power movement's success in Thailand will inject enormous pride and ambition to the people power movement in the Philippines. The downfall of Thaksin was that the movement needed a "poster boy issue" to hold onto. For Thaksin its the grandiose transaction of Shin Corp. In Arroyo's case its the case of "vote rigging" allegations. The writing is more than just on the wall already, Arroyo.... man, even Peter, Paul & Mary are singing the song for you. What will be pissing the Filipinos is the fact that they have been campaigning since 2004 against Arroyo, while their "friends" in Thailand took just a few months to get Thaksin to step down. The February state of emergency declared by Arroyo did not go down well with the public, and seems to be indicative of a person clutching at her handbag... I mean straws. Now, to be fair, Arroyo is more formidable than Bill Clinton, she has survived not one, but three impeachment bids. Will Gloria follow Thaksin's example of stepping down and winning some brownie points? Unlikely, because there is a good chance that she might be jailed if she is no longer President as the accussations surrounding her are criminal allegations. She has to resign and then leave on a jet plane, till a proper pardon/amnesty is granted. The tide is turning again in the Philippines.

The Signs Are There For Shanghai

Real Estate Bubble Almost Ending

It is wonderful to see how Shanghai has evolved over the last 10 years. However, the property prices have gone way past what is rational. The trouble is, predicting when the bubble would deflate is like catching falling swords - it may kill you, and even if you manage to catch them, you may be seriously injured yourself. (No, I am not financially independent enough to own any Shanghai property). The trouble with a rising asset class, no matter what asset class - it could Shanghai property or Sydney property, or San Fran property, or London property, or Indian stocks, Nasdaq techs, etc... - is that the ones who profited will get back into the same asset class with an an even bigger exposure. Say, you have this HK speculator who has bought and sold ten Shanghai properties over the last 10 years. He has turned his HK$10 million capital into HK$80 million. Chances are high that he will have at least HK$50 million as down payment for a few geared Shanghai new developments with an actual exposure of at least HK$400 million. By staying put in the same asset class, we are basically saying to the gods, "Please, I really want to make sure that I will get caught really bad when the market comes crashing down". A decent sized correction of just 25% over a 6 month period for Shanghai property will wipe out HK$100 million from the speculator's net worth - which means he will now have a negative net worth of negative HK$20 million. As in any good profitable markets, the need to diversify must be heeded, and always watch for signs to pare down your exposure because every dog has its day.

The one sign that I came across which could start deflating the Shanghai property bubble was the surprising rating given by Standard & Poor / Moody's on Shanghai Real Estate's (SRE) bond issue. SRE is a leading developer in Shanghai's financial hub, and has proposed a US$150 million (HK$1.17 billion) bonds. It was rated as non-investment, or junk status, as rating agencies were concerned about the company's narrow focus and limited cashflow. Standard & Poor's assigned a "BB-" long-term corporate credit rating to the seven-year bonds, three notches below the investment grade, while Moody's Investors Service assigned a similar "Ba3" rating. The ratings reflect the key challenges faced by Shanghai Real Estate, including its lumpy operating cash flow, resulting from its single business focus on property development.

The significant geographic concentration on Shanghai alone did not help and the company's rising leverage was a big concern. Leverage is not just an option in Shanghai for property developers. Leverage is a necessary toll to compete. Developers there have to get the biggest projects and complete them the fastest, and try to sell them all yesterday. To enable the retail side to buy, many developers have innovative financing schemes to help the buyers/speculators - hence leverage is not an option in Shanghai property market.

SRE said last month its 2005 profit surged 234% to HK$301 million, from HK$90 million a year earlier. The company plans to use the net proceeds from the proposed bond sale to replenish its land bank, rating agencies said. It has a land bank of 1.4 million square meter gross floor area in Shanghai, which the company estimates will be sufficient for its development for the next four to five years. However, S&P did say that SRE's low cost of land bank, good locations of its developing properties, and expertise in the industry are offset by its high concentration risk, small- scale operations, and lack of stable recurring income. After the bond sale, SRE's EBIT will fall to about 3x interest expense in 2007 from 10x in 2005. The thing is, cases like SRE are being replicated many times over all across Shanghai - when your earnings starts coming down from 10x of interest expense to just 3x, its a worry. There is not sufficient cushion for even a minor blip.

Owing to the small size of the bond issue and SRE's relatively small size as well, this piece of news will be brushed aside by many. To me, this is an important sign. If you have made a lot of money from China properties, to tell you to get out would be fruitless, just gear down. If you normal gearing is 8x, bring it down to 3x - you have already made your money, let someone else make theirs. Keeping what you made is the most difficult thing.

Thaksin's Smartest Move
How To Win, Then Concede, Then Win Again

24 hours ago, Thaksin claimed victory in Sunday's controversial snap elections. A few hours ago, Thaksin stepped down as PM. The elections was a near-farce because almost all opposition parties boycotted it (sounded like an old Hungarian election). His party Thai Rak Thai party won just 16 million out of the 28 million votes cast. The figure is very shocking when you consider that the opposition parties boycotted the election. The 16 million figure was significanly down from the 19 million votes garnered by Thaksin's party in a similar election held 14 months ago. A smart person knows when to fight his battles. Thaksin tried to pick his, and the election results showed a sway that is too great to defend. Might as well go graciously and win some brownie points. Thaksin does not need the money, he has the money. He may need the political power, but where is the power when the vote count came in the way it did, and it would be a very stressful period ahead to continue. Already, as pointed out in a previous blog, the courts are beginning to show more vigilance in favour of public interests, which would make Thaksin's job all the more difficult.

Whether Thaksin got rich from his coveted position is not up for examination here. He did contribute some significant things for the Thai economy. After the financial implosion in 97/98 which affected many Asian countries, Thailand was one of the hardest hit. To be fair, Thailand rose the quickest from the pile of debris and hubris. Thaksin boosted domestic demand and export growth, especially domestic demand. This is a good appreciation of sufficient critical mass to drag yourself out of ruins. Which is also why I always advocate that countries like Malaysia, Australia and NZ should try and bring up their population to 50m-60m mark as fast as they can. This will greatly reduce the dependency on exports. Thailand has a population of 65 million.

Thaksin's policies helped the economy grow by an astounding 44% since 2001 and foreign direct investment into Thailand more than doubled to US$2.7 billion in the 3 years to 2005. The good times were to be had for all, in fact Thai stock markets was performing much better than its neighbours for the last 2 years. The one thing which escaped Thaksin is that in a domestic pump-primming exercise, you must know how to hold back and fine tune. CPI was already on a significant uptrend even before the oil price hikes over the last 12 months. This has led to rumblings of dissatisfaction in recent times. The sale of Shin Corp to Temasek was the right "poster boy" for the groundswell to break the barricades.

At least Thaksin has the foresight and street-smarts to step down upon hearing the results of the election. He won't be far away. Any mis-steps by the new PM and you can betcha Mr. T will be waiting in the wings to come back as the "prodigal son reborn-revised-rejuvenated-matured-remodeled-transformed-refreshed-rehabilitated"!

Weekly Snippets, Snipes & Snides
March 27 - April 1, 2006

AirAsia's Got The Upper Hand - In a most unusual collaboration with MAS, AirAsia seems to have got the better deal in terms of domestic routes. Both MAS and AirAsia would benefit from leveraging off each other as connecting hubs but AirAsia should be sporting a wider grin. AirAsia will take over 96 non-trunk domestic routes and would be sharing capacity with MAS on 19 domestic routes. This will help MAS to reduce its number of aircrafts from 40 to 21. AirAsia will probably not buy the aircrafts from MAS as they have just two types of aircrafts now, and adding another type would increase maintenance cost. MAS would also (finally) be reducing manpower count from 23,000 to 16,500. AirAsia would be working with MAS to try and absorb some of the staff affected by the MAS' layoffs. The other longer term kicker is to have AirAsia owning the new LCC terminal in Subang. For AirAsia, the fundamentals are ticking along nicely but the valuation is a bit rich no matter how you cut it. It deserves to be at a premium even when compared to other LCCs but it still needs to be lower. From its current price of RM1.76, savvy investors should look to pick up AirAsia anywhere between RM1.50-1.55 (if it does come down at all). As for MAS, even though some of the recent developments with AirAsia are what I would support, the turnaround is unlikely to yield the kind of profits for the stock to be at RM3.04 (current price). Even with a 75% success rate with its turnaround plan, MAS is not likely to see earnings returns more than their cost of capital. Still, that is what you get with a stock that has less than 30% in free float.

Temasek's Limitation - As written in my blog on Temasek and GIC, both these entities are facing more obstacles in the international investing strategy. Most of the industries they are interested in are also sensitive strategic sectors, such as telcos, energy, aviation, banking and real estate. Hence certain countries are likely to limit the exposure to a single investor or foreign government linked entity. No government will look at Temasek (or any of its controlled GLCs) as being any different from GIC despite both company's protestations. The recent rebuff of DBS Group's bid to buy Korea Exchange Bank was due to the fact that DBS' largest shareholder Temasek is not a bank. In India, the government rejected a joint bid by Singapore Technologies (Temasek controlled) and Telekom Malaysia for 48% of mobile operator Idea Cellular - main reason being that Temasek already owns a stake in Bharti Tele-Ventures. Even in Malaysia, SingTel (again controlled by Temasek) had to sell down its stake in Southern Bank after breaching the 5% threshold - as it already indirectly controls another Malaysian bank in Alliance Bank. The issue will get more complicated as more important companies are added to the stable. The recent acquisition of the 11.5% stake in Standard Chartered Bank is a good example. StanChart have a lot of strategic stakes in various "sensitive countries" such as China, South Korea, Thailand and Indonesia - how will that be viewed when the regulators consider Temasek's actual holdings in their banking sector. Maybe the best way to get around that is to get big fund managers such as Fidelity or Capital Group to set up a huge sector fund, e.g. European Bank Sector Fund or Asia-Pacific Bank Sector Fund - if Temasek or GIC puts in US$5 billion into these funds, they could account for just 20%-30% of that fund, and any investments made by the fund would not be viewed as so political - that would work if Temasek's interest is solely in accumulating profit growth that is. Or am I mistaken?

Car Prices In Asia-Pacific

Topping The Charts As The Costliest Place To Buy Cars

If you live in KL, Singapore, Bangkok or HK, time and again you will find some gwailo driving around in a beaten up car. We are talking about someone probably on an expatriate package driving around in a cheap car. Mostly its because they cannot envisage paying for a new car at those ridiculous local prices. They have bought and driven many cars in Australia, USA, UK or Europe but never could they imagine that cars in Asia-Pacific could cost so much. If you look at the average per capita income of these countries, you'd be surprised at how most Asians even manage to buy a car! Just have a look and compare the recommended retail prices of the following cars - the first price is in the local currency, followed by a converted price into USD for comparison sake. Not all prices or car models were available in all countries. I just selected from Malaysia, Australia, Singapore, HK and Thailand. And to think that the Malaysian government just lowered the car prices some more, Malaysian car prices cited are the "new lowered prices".

AUDI A6 2.4 Multitronic (Auto)
MYR368,000/US$100,000
AUD80,600/USD57,500
HKD431,000/USD55,500
THB4,170,000/USD107,400
SGD188,000/USD116,100

AUDI TT Coupe 1.8 Turbo (Auto)
MYR338,000/USD91,700
AUD81,200/USD58,200
HKD433,000/USD55,800
SGD186,000/USD115,000

BMW525i (A) E60
MYR398,000/USD108,000
AUD93,900/USD67,300
HKD565,000/USD72,800
SGD222,500/USD137,500

BMW 645Ci COUPE
MYR808,000/USD219,400
HKD1,298,000/USD167,200
SGD345,000/USD213,000

BMW Z4 ROADSTER 3.0
MYR468,000/USD127,000
HKD533,000/USD68,600
AUD93,400/USD67,000

CITROEN C2 VTR SENSODRIVE (Auto)
MYR130,000/USD35,300
HKD148,000/USD19,000
AUD23,000/USD16,500

HONDA CIVIC 2.0 VTi-s (a)
MYR124,000/USD33,600
HKD185,000/USD23,800
AUD26,500/USD19,000
SGD79,000/USD48,800
THB1,020,000/USD26,200

HYUNDAI SONATA 2.4L (a)
MYR122,000/USD33,100
HKD159,000/USD20,500
AUD31,500/USD22,500
SGD65,000/USD40,100

LAND ROVER 4.4 V8 (A)
MYR772,000/USD209,600
HKD1,250,000/USD161,000
AUD141,900/USD101,600
SGD368,000/USD227,500
THB8,450,000/USD217,500

MERCEDES BENZ CLS350 STANDARD (a)
MYR688,000/USD186,800
HKD935,000/USD120,500
AUD139,400/USD99,900
SGD289,000/USD178,500
THB8,600,000/USD221,400

MERCEDES BENZ S350 (A)
MYR1,230,000/USD334,000
SGD329,000/USD203,300

PROTON WAJA 1.6 (A)
MYR63,000/USD17,100
SGD56,000/USD34,600

Generally Singapore car prices tops the bunch but there is still the COE for the Singapore buyer to pay for. The COE is an entitlement for buyer to buy certain type of cars, the bigger size the engine c.c. the higher the COE. But since the COE is tradeable, it is not a full expense item. The funny thing is that the Protons and Peroduas are so much more expensive in Singapore - take it from me, don't buy the Malaysian cars if you live in Singapore, its just not worth it. The argument that cars in the US are cheap cause they have the volume is shallow. Just look at HK, its a small place, expensive place, high per capita income, great infra even, but cars are very decently priced.

The car prices have to be seen in light of the average per capita income of the residents in the respective countries:

HK - USD36,800
Australia - USD32,000
Singapore - USD29,700
Malaysia - USD10,400
Thailand - USD8,300

So, if we take the BMW 525i (A) E60, a HK resident would take 1.98 years to pay it off. An Australian would take 2.1 years. A Singaporean would take 4.6 years. While a Malaysian would take 10.3 years. That is why so many gwailos would never ever buy new cars while living in Asia cause its ridiculous. The even more astounding fact is that, you will find an even higher ratio of the luxury cars being driven on the roads in Asia-Pacific!!!

While it is certainly cheaper (relatively) to buy in HK, the cost of maintaining a car in HK is very prohibitive when it comes to fuel, parking fees and parking spaces. For Malaysia, even with the recent price reduction, it is silly to have such high car prices when mobility is so important in Malaysia and the country do not have such congested city streets (relatively) when compared to Singapore, Bangkok or HK. It is downright embaressing when Malaysia even produces cars on its own. Countries that do not enjoys cheaper car prices??!!

To further emphasise how high car prices are for the general public in Malaysia, we have the Approved Permits (APs) which are basically rights for special car import permits. It used to be sparingly issued to some royalty or people coming to live in / coming back to Malaysia. A decade ago, the APs got issued in abundance - to magnify the distortion in prices, AP holders can import cars from overseas (reconditioned or new) and pay all the necessary taxes and duties, and still end up making tons of money selling to Malaysians. Why issue so many APs when car prices are artificially held up already. Its like raising the price of cigarettes to an artificially high US$8 a pack and at the same time giving APs to certain well connected groups to import on their own. These people, after paying all the taxes will still make supernormal profits selling at US$7.80! Where is the logic of the NAP? The fact that APs have been changing hands at RM30,000 to RM40,000, after the holders just paid a few hundred ringgit for it, further pisses the entire nation (except those connected enough to get those APs).

It is still OK for the average citizen in HK or Singapore as many do not own cars as the public transportation system is good. However, the situation is very different in Thailand and Malaysia, you need a car to move around. Even the massively subsidised fuel prices do not come anywhere close to curtailing the negative effects caused by the high car prices. While Thailand's fuel prices are slightly higher than Malaysia, at least when you drive in Thailand, you don't have to pay toll. Try driving from Johor to Kedah, and compare that from south of Thailand to Bangkok. For more than 1,000 miles in Thailand leading to Bangkok, not one toll station. So, what is so precious about Malaysia that we have such notoriously high car prices, low fuel prices but tolls everywhere... all on a per capita that is in the bottom half of the world, but with car prices at the top ten percent in terms of cost in the world??!!

Cars are a necessity not a luxury in those two countries. As for Malaysia - the opportunity cost, loss in purchasing power, loss in economic wealth, impairment in the strive for efficient utilisation of resources - just to protect the unimpressive (inefficient) local car manufacturers, is just too much to bear. Get this over and done with already!

People, cars have always been one of the worst type of investment you can get into, the depreciation value starts accelerating the moment the car moves out of the showroom. Whether you drive the car or not, it will still lose value with every passing minute. When the governments of these countries imposes high taxes and duties on cars, they are basically eroding the purchasing power and allocation of resources of their citizens. Its high time the price of cars need to come down a lot further in Asia-Pacific.

Have A Good Read
Interesting Business Books for First Half Of 2006

I have a confession here, I don't read fiction. Not that I don't like good novels, just that there is so much good non-fiction in business journalism, and the fact that I have to get through so many business magazines and breezing through some research reports, that there is just little time left to read well. My all time favourite business books are easy to size up, as they are standouts by themselves. Everyone with a hint of interest in the business world MUST read the following two books (my all time favourite reads):

1) Liar's Poker by Michael Lewis
From the eyes of a trader at Salamon Brothers during the most heady times in the 80s. How financial product success brings power, how power leads to excesses and poor management. Very funny and a genuine writer at heart. The characters are so flamboyant, colourful and charismatic, and real at the same time.

2) Barbarians At The Gate: The Fall of RJR Nabisco by Bryan Burrough and John Helyar
Riveting account of the tussle for RJR Nabisco. Corporate greed and ineptitude at RJR Nabisco was never seen again until Eisner joined Disney. The rise of KKR and their mindset, the egos and the lucrative fees. Real life much better than fiction, man. The start of leverage buyouts, now the RJR Nabisco deal looks tame by comparison.

For the first half of 2006, I would recommend the following biographies / business books:

Hedgehogging by Barton Biggs
Gives a good account of what hedge funds are and how they operate. in addition, his perceptions on various investment strategies were enlightening. Lots of colourful stories about "real investment pros" and how people always try to compensate money for lack of integrity, grace, class and character. Great read.

Rock Solid: The Corporate Career Of Tan Chin Tuan by Lee Su Yin
Read about the life and philosophies of the late OCBC Chairman. A surprisingly fair minded person for such a successful corporate person. Great strategic thinker and a man of integrity. Good guys sometimes do finish first.

Confessions Of A Wall Street Analyst: A True Story Of Inside Information and Corruption In The Stock Market by Daniel Reingold
Daniel was a top notch telecom sector analyst. Learn about the sordid business of research and investment banking. Right in the middle of companies (destined for destruction) such as Global Crossing and WorldCom. Learn how words are twisted, sales are ruthlessly made and how everyone's for sale at the right price.

Tan Chin Nam: Never Say 'I Assume' by Tan Chin Nam & Larry Parr
Great read, loved the fact that at least this one is still alive. Knows how to do business, and knows how to enjoy life too. Great horse lover. His discourse on his close relationships with some heavies are worth more than the price of the book already. Those not in the know, TCN is the owner /founder of Tan & Tan Developments, IGB, GoldIS, Wah Seong and is responsible for MidValley Megamall and the Sierramas enclave. Also the builder for Desa Kudalari (probably Malaysia's first condo) and the Shangrila Hotel in Singapore.

Temasek & GIC Singapore - "Cain & Abel", "Donny & Marie" or.. ?

Temasek has been hogging the headlines for the past few weeks, and seems not to be shying away from the over-exposure. First, the situation with the purchase of Thailand's Shin Corp, and before the dust even settles, Temasek announced the purchase of the much sought after 11.55% stake in Standard Chartered from the Khoo family. So what's with Temasek, and how come GIC is so laidback compared to Temasek? Ask every person in Singapore, and probably 9 out of 10 could not tell you the difference between Temasek and GIC - saying that the PM's wife (Ho Ching) runs Temasek does not count, OK! Even the rural PAS members in Kelantan know that!

Temasek is the investment arm of the Singapore government. Initially important stakes were held by Ministry of Finance (in various sectors such as shipbuilding and manufacturing). Temasek is owned by one shareholder, Singapore's Ministry of Finance. The Government of Singapore Investment Corp (GIC) invests only the government foreign reserves. Hence GIC does not have a history of building up GLCs (government linked companies) like Temasek does. So naturally, Temasek is more powerful, owing to the stable of important GLCs in its grasp. However, the big difference is that GIC acts more like a proper portfolio manager, with proper allocations into real estate, currencies, commodities and bonds while Temasek seemingly answers to no one and engages in accumulation of strategic companies.

Temasek basically rides on its hold on big and important GLCs such as Singapore Telecom, DBS Bank (involved in the recent failed bid for Korea Exchange Bank), Singapore Airlines, PSA (involved recently in the failed bid for Dubai Ports), Singapore Power, Neptune Orient Lines, etc.. Plus it also owns my favourite place in Singapore, the Zoological gardens and holds a stake in Singapore Pools, the only legal betting company in Singapore. Though more than half of Temasek's holdings are in Singapore, eventually they want to see only one-third of that in Singapore. Hence the strong investment drive to go international.

Temasek is like a fully cloaked woman, mysterious... mainly because it need not report its financials publicly. However, to satisfy the legal requirements in issuing bonds to raise money from the public, it disclosed its financials in October 2004. For year ended March 2004, it reported a net profit of S$7.4 billion on revenues of S$56.5 billion. The 2004 report stated that Temasek managed S$900 billion (US$565 billion). Standards & Poor assigned Temasek with a AAA rating.

As for GIC, it was established in 1981 to manage the country's foreign reserves. They now have 6 offices worldwide. Its assets under management is dwarfed by Temasek, holding just slightly above US$100 billion. GIC acts more like a professional investing outfit and has a very long established relationship with the magnificent investment firm, the Capital Group. The Capital Group has a remarkable track record, beating S&P 500 for each of the past 30 years in each of its 6 funds.Now the Capital Group has more than US$750 billion under management. GIC places a lot of its funds under Capital Group's management, emphasised by the fact that GIC is Capital Group's biggest single client.

After PSA's failed tussle with Dubai Ports for P&O, GIC has just stepped in with Goldman Sachs and Borealis (Canada) to launch a takeover bid for Associated British Ports for S$5.6 billion (US$3.5 billion).

There is no doubt that there is a difference in perception with regards to Temasek and GIC. GIC is viewed as a very professional portfolio manager, quiet achiever... and somehow Temasek seems to be secretive and professionally ruffling more feathers wherever it goes. It may be that Temasek is a bit too arrogant in its dealings, not taking care and time to appreciate the nuances of investing in certain companies. It may also be that the stakes Temasek has been acquiring are more strategic in nature (than GIC's more prudent value/risk/return investment process). When I say strategic, it could mean having significant exposure to the banking and telco sector of developing Asian countries, etc... Still, Temasek could do with a bit better PR, the secrecy and "not-granting-of-interviews" just adds to the fear and and unknown side of things every time Temasek steps into a country to invests. The people of that country just don't know what Temasek stands for, is it an economic conquering ship, what will their strategy be, why are foreign interests controlling important assets, etc...? When no information is available, Temasek becomes an easy target for niche groups to use Temasek as a punching bag for their own causes.

Could Have Been Better

1) Temasek could have handled the Shin Corp deal a lot better. Temasek failed to recognise the sensitivity of Thai people, the potential backlash on Thaksin, the growing tide of resentment against Thaksin - it spells of arrogance by Temasek. Instead of doing a majority sale deal, could have broken it up in 2 or 3 tranches to assuage fears. Say 20% now and another 20% 12 months later if Shin Corp meets some targets, and the balance 2 years down the road. Plus it would have given more time to find a new owner for the stake in Thai AirAsia, instead of being seen as scrambling to find a new buyer right after the deal. Since Shin Corp became a foreign controlled entity, it no longer can own the controlling stake in Thai AirAsia. Now the stake was sold (finally) to Asia Aviation. It appeared that Temasek did not realise the contravention till after the deal has been sealed. Some knuckles needed to be rapped here.

2) The visibility issue is too threatening. People not from Singapore do not differentiate between Temasek and GIC, or the GLCs of Singapore for that matter. Even though you argue till the cows come home, authorities will still regard the whole grouping as one. Hence the visibility issue, the rapid flow of deals - just makes other people nervous every time GIC or Temasek or some Singapore GLC announces a takeover deal. Having the money is one thing, being seen as "new economic lords" taking over important assets of respective countries is an issue that needs addressing. Just because Temasek is satisfied with its own investment policies and transparency issues does not mean the deals will be well received. Especially when deals are occuring within the Asian backyard. Time to be the good neighbour.

For instance, these are the big deals in recent months. Just imagine youself as a person living in an Asian country other than Singapore, how would the rapid succession of these" deal flows / failed deals" affect you, or are you unaffected by them?
- PSA tussles with Dubai Ports to buy P&O for 2 billion pounds.
- Temasek purchasing a 5% stake in Bank of China for US$1.5 billion
- Temasek purchasing a 5% stake in China Minsheng Bank
- Temasek purchasing a 5.1% stake in China Construction Bank
- GIC bidding for Associated British Ports
- The Reserve Bank of India rebuffing Temasek from raising its stake in ICIC Bank (India's largest private sector bank) because the central bank viewsTemasek and GIC as related entities, and both companies cannot collectively own more than 10% of ICIC Bank
- GIC buys the Oakwood Appartments in Roppongi, Japan. The latest addition after purchasing Oakwood Akasaka, Oakwood Aoyama and Oakwood Shirokane. GIC also owns the Shidome City Center, Shinagawa Seaside Towers and Kawasaki Tech Centre. GIC also has a US$1 billion investment in ProLogis Properties which invests in high quality logistics facilities in Japan
- GIC bought the Intercontinental Hotel in Paris for 315 million pounds. GIC also bought the prime Chifley Tower and Chifley Plaza in Sydney, and the Royal Pines Resort in Gold Coast, Australia
- GIC is a key investor in China International Capital Corp (CICC), China's first joint venture investment bank
- Temasek buying Shin Corp from Thaksin's family
- SingTel buying 32% of India's Bharti Telecom (India's second largest mobile operator)
- SingTel buying 45% of Pacific Bangladesh Telecom for US$118 million
- DBS Bank failed attempt to buy Korea Exchange Bank
- DBS Bank buying a 37% stake in Indian financial firm Cholamandalam
- Temasek buying an 11.5% stake in Standard Chartered Bank
- Temasek putting in a bid together with Blackstone Capital (Merrill Lynch now) and the Carlyle Group for a strategic stake in Air Sahara
- Temasek's failed tussle with Taishi Financial to by a 22% stake in Taiwan's investment company Chang Hwa
- Temasek tripling its stake in Pakisatan NDLC-IFIC Bank
- Temasek buying a 30% stake in Vietnam's Pacific Airlines
- Temasek buying a strategic stake in India's Mahindra & Mahindra

Is it an envy problem, I think its more than that. Singapore may think of the twin terrors as "Donny & Marie" but to the rest its a bit like "Cain & Abel" but not quite. I think its closer to "Aykyrod & Belushi"! One is saner than the other but both are still dangerous...

Asian Currency Unit - Needs To Take Off
Rebalances Economic Power To Asian Economies

China has just overtaken Japan as the world's largest holder of foreign exchange reserves with US$853.7 billion at the end of February. China's reserves rose a sharp US$26.3 billion in January to 845.2 billion dollars, then added another US$8.5 billion in February. Japan's reserves at end of February stood at US$850.06 billion. China's foreign exchange reserves have grown remarkably in recent years - more than doubling from US$403.3 billion in 2003, thanks to strong fund inflows and a burgeoning trade surplus. This news comes at a time when plans to launch an Asian Currency unit (ACU) to help develop regional bond markets and promote regional monetary cooperation seems to be stalling.

The plan to launch the ACU is an important step to wrest some economic power to the Asian side. Of course the ACU will never be a a public currency like the Euro, but it is crucial to develop a substantive bond market based on the ACU. Right now, when you have billions of surplus cash in your central banks, you can either invest in bonds denominated largely in US dollars. Even soft loans to third world countries or those issued by IMF/World Bank are usually in US dollars. If you read my blog on the domination and reserve currency status of the dollar, you will appreciate that we need to diversify from that. Having a deep ACU bond market will bring prominence to Asian currencies and finances.

Right now, the members involved are quibbling over two things: the weighting of their respective currencies; and the inclusion/exclusion of some currencies. The weighting issue is a simple one, and should be easily resolved once the egos are set aside. It should be based on either a trade weigted index or GDP formula.

The tougher issue is determining who is in and who is out. Taiwan, though should be in, will definitely be out because you need China's yuan to be involved. HK dollars should be in, but will not be owing to its linkage to China (plus its a fully pegged currency anyway, get over it already). Difficult regime such as Cambodia should not be in, but will keep trying via the Asean route. Brunei should be in, even though it is small, plus it is already part of Asean. So, Cambodia is the sticky icky one. The ACU is supposed to be the Asean nations plus the big 3, which include Japan, China and South Korea. Wonder why India isn't included?

The ACU will allow for big bond issues to be distributed and traded. It will foster a new asset class in terms of Asian currency bond exposure and will excite big bond funds. The volatility of certain currencies will only add curry to the flavour. If it is big and deep enough, certain Euro central bankers and certain Asian countries may be able to diversify their portfolio of excess cash into ACUs. The ACU will generate even more excitement with respect to single Asian country currency bonds. For example a company or a country could issue a dual bond, 5 billion ACU (hypothetically) at 4% and a RM5 billion at 6%, thus allowing some diversification, risk management, exposure assessment of usage of funds, etc... If a smaller Asian country's currency is under "attack", the country may choose to borrow in ACUs instead of a more dominant or prohibitive US dollar, or as an option to a higher-cost Euro bond.

The main benefit in my view will be the "more intimate cooperation and consultation" on monetary and fiscal policies of member countries in the ACU. Strength in numbers. Keep us seperate, each Asian country is much weaker.

Stock Market Capitalisation - A Reality Show

Finding Your Space In The World

Sometimes when we talk about financial markets, we miss the bigger picture of how things are. One could be the minister of finance or a big hedge fund trader or a big shot analyst... in various countries in Asia or Australia for that matter, we tend to get lost and self absorbed in our own world, exaggerating our importance. Many Asian investors and management often wonder why foreign investing institutions or foreign investors do not buy more shares of Asian companies. Some government authorities try their darndest to drum up interest among the foreigners. Maybe if we look at comparative market capitalsations, we will get a better picture.

Market capitalisation is calculated by multiplying the number of outstanding common shares of the firm and the current price of those shares. The term capitalisation is sometimes used as a synonym of market capitalisation; more often, it denotes the total amount of funds used to finance a firm's balance sheet and is calculated as market capitalisation plus debt (book or market value) plus preferred stock. Below are the approximate total market cap of the "domestic listed companies only" on the respective exchanges as at end-2005 (or figures as close to end-2005):

NYSE US$13.3 trillion
Nasdaq US$3.6 trillion
Tokyo Stock Exchange US$4.6 trillion
London Stock Exchange US$3.1 trillion
Euronext US$2.7 trillion
Deutsche Bourse US$1.2 trillion

In Asia-Pacific, the HKSE's figure was US$1.05 trillion. The Jakarta Stock Exchange has a paltry figure of US$50 billion. The Singapore Exchange at US$203 billion. The Taiwan Stock Exchange at US$480 billion. The Bombay SE comes in at US$592 billion. The KLSE at US$190 billion. The Thailand SE at US$142 billion.

The 10 largest US companies listed on NYSE according to market cap:

1) Exxon Mobil US$365 billion
2) General Electric US$347 billion
3) Citigroup US$230 billion
4) Bank of America US$212 billion
5) Procter & Gamble US$197 billion
6) Pfizer US$193 billion
7) Wal-Mart US$188 billion
8) Johnson & Johnson US$179 billion
9) AIG US$170 billion
10) Altria US$150 billion

Bearing in mind, I didn't even venture to include some of the big companies on other exchanges such as Microsoft US$279 billion, BP Plc US$236 billion, Royal Dutch Shell US$206 billion, HSBC US$190 billion, Petro China US$182 billion, Toyota US$174 billion, etc..

Just looking at the exchanges value and market cap of some of the biggest companies, theoretically speaking the ENTIRE KLSE is only as big as HSBC!!! Which means HSBC can basically own all the one thousand over companies listed on KLSE in exchange of their shares!

Either Citigroup or Bank of America could do the same for all the domestic companies listed on Singapore Stock Exchange. When just ONE company can account for your entire country's exchange market capitalisation - that's a reality check. That should give us a better sense of where we are in the economic world. I mean the CEO would almost be able to proclaim himself/herself as KING/QUEEN of the country - if I "control" all the companies on the Singapore Stock Exchange, that is a pretty powerful position, even PAP would have to give way man!!!

This game is quite fun, say Exxon mobil could just borrow a little bit more and then it could take over all the companies listed on Taiwan Exchange. General Electric should do this, it could buy out all the companies on KLSE and Thailand Stock Exchange in exchange for GE shares. instead of running GE from a tiny building, you could run companies over two decent sized countries, with lots of island resorts to boot.

In the US they have their own categories of stock size. A small cap is defined as having a market cap of below US$1 billion (RM3.7b / S$1.62b / HK$7.8b / A$1.34b) - and that's a SMALL CAP in the US!!! Mid-caps have a capitalisation of between US$1 billion to US$5 billion. Large caps are those exceeding US$5 billion.

So on that "US based categorisation", the following are a selection of the biggest companies from HK, Malaysia and Singapore:

a) Maybank US$9.7 billion - Large Cap
b) Sime Darby US$3.2 billion - Mid Cap
c) Genting Bhd US$3.5 billion - Mid Cap
d) EON US$0.55 billion - Small Cap
e) Hutchinson Whampoa US$35 billion - Large Cap
f) Bank of East Asia US$4.7 billion - Mid Cap
g) New World Development US$2.47 billion - Mid Cap
h) DBS Group US$13.4 billion - Large Cap
i) Great Eastern Holdings US$3.6 billion - Mid Cap
j) Singapore Press US$4.2 billion - Mid Cap
k) City Developments US$3.3 billion - Mid Cap
l) Siam Cement US$8 billion - Large Cap
m) Thai Airways US$2.1 billion - Mid Cap
n) Bangkok Bank US$3.9 billion - Mid Cap
o) Bank Mandiri US$3.3 billion - Mid Cap
p) Astra International US$2.6 billion - Mid Cap

This blog is not meant to shame or embarress, but rather a constant reminder to all investment pros in Asia, that we have to work harder in order to make a similar level of money. The scaling and leveraging in the US or much of Europe offers scaled salaries. If you manage ten M&A transactions in Asia-Pacific (except in China, I guess), it would not yield even half of one good size M&A transaction fees in the US.

Plus to those who scream and yell, why don't they invest in Asia-Pacific ... well, Asia-Pacific is so SMALL, if you are managing a US$500 million fund, you might allocate US$100 million to Asia - how many countries will you have to cover just to manage 20% of your portfolio. While on the other hand, I can cover 40% of my portfolio in US stocks and the other 40% in big European stocks. Somehow stocks listed in the big bourses in Europe tend more to act and look similar (e.g. London, Paris, Germany) but each exchange in Asia-Pacific is a different animal on it own and require more work to understand before acting.

Mis-Steps By Khazanah, Bursa & GLCs
Things That Make Me Mad

In less than 24 hours after my glowing write up on the reintroduction of short selling, I have been inundated with disappointing news of what transpired over the last 2 days involving the headlined companies and institutions. Sigh...

Short Selling - Apparently after PM Badawi made the announcement, almost every single CEO of the local funds got a phone call telling them that short selling is not "permitted" for local institutions. So, short selling is only for foreign institutions, where is the logic?? Why handicap the local funds? Of course, the actual rules and regulations have yet to be announced, please.... be logical and have a bit of brains and allow short selling for ALL, including members of the public. You cannot have one set of rules for some, and another for the other group - this is not NEP, this is supposed to be a world class financial capitalistic market place!!!

KPIs - Apparently people in the Bursa were running around like a chicken without a head as GLCs suddenly announced their KPIs. Are KPIs material information? How should the Bursa view them? I mean, the Bursa is organising the bloody conference with CIMB, surely they would be informed that KPIs would be presented and talked about during the conference. GLCs were instructed to announce the KPIs prior to the conference so that they would not breach any rules with regards to talking about material market moving information. The Bursa should have been smarter by knowing what KPIs are, and whether they represent material information into the market in the first place - then they would not have to had so many emergency meetings.

Execution Risk - This is what I call a lack of execution ability. Haphazard management of things and events, failure to be detail oriented, management by crisis (no crisis, no management). Surely, parties involved in the planning of the conference and the subject material should have covered the bases better than what happened in the last 48 hours. Buck up people, work doesn't mean just showing up.

Some Horrible KPIs - Some of the KPIs are decent but some are just meaningless. Let me criticise the bad ones first: Golden Hope - ROE of between 8%-12%, why the big gap, its a 50% gap, that is not a KPI, that is a very forgiving rule of thumb (there is nothing KEY or PERFORMING about that), its like telling your son to get between 50-75 marks out of 100!!!; then there is MRCB - obviously an underperformer for the past 3 years, being set revenue and PBT growth of 50% - the figure is so high it renders it meaningless, already by setting such a high rate, it tells me you are talking of a very low base to start with, so the KPI would be meaningless, MRCB could very well make 50% or 100% or even 300%, it wouldn't surprise anyone coming from such a low meaningless base.

Going Private - Then Azman Mokhtar had the nerve to go and say that some GLCs may be taken private, and that share sales of GLCs by Khazanah is unlikely. First, the share sales, please refer to my previous blogs on share sales. Secondly, taking companies private. When do we take companies private??? When the real instrinsic value is way below market valuation, or in simpler terms when market cap is way below NTA, or when earnings multiples is grossly low compared to future earnings growth, or a combination of those factors.

ARE THERE ANY GLCs BEING UNDERVALUED CURRENTLY??

No, there are plenty of GLCs underperforming, overvalued, very fat, inefficient - thats why the KPIs were introduced, am I right or ... am I right!!? Then nothing is undervalued, then why do you go and talk about taking them private?? In which case, taking any of the GLC private would be admitting that they are beyond help, that they cannot muster any more investors' interest, that they cannot borrow from banks anymore .... so, please.... sigh.... I am so sad and angry... I don't know what else to say.

p/s Well after the ranting, there is ONE stock under Khazanah that should be taken private, its Faber (please read blog on Faber as one of my top buys of 2006). Even though it may save a lot of embarressment to take MAS or Proton private, the bill could be too much at a time when Khazanah wants to invest abroad. Of course Khazanah could take a couple of the construction stocks private, but why, they are low brow construction stocks, nothing much to restructure, they are cheap because its a cyclical industry they are it. As for CIMA, sell the company already, there are bids on the table. So, its unlikely to be UEM World or Opus. ..... So, is Azman saying he is going to take Faber private? Looks like the best possiblity.

Short Selling In KLSE

Wise, Farsighted Or A Mistake

The government introduced several measures to enhance the local bourse including allowing large Malaysian companies with foreign operations and foreign owned companies with foreign assets of at least RM1 billion in market capitalisation to seek listing on Bursa Malaysia, enabling dual listings and reintroducing short selling. The government said the measures were aimed at bolstering the stock market to be a world class capital market. Other than that, to realign the regulatory framework, the securities and futures laws are to be reconsolidated into a single omnibus legislation.The consolidation of these two laws would enable the introduction of a single licensing framework for market participants.

Besides that, regulated short selling (RSS) and securities borrowing and lending (SBL) will be reintroduced, the government said. To attract global talent, the processing of visas and work permits for foreign individuals in all aspects of the financial services sector would be centralised at the respective regulators, namely, Bank Negara Malaysia and the Securities Commission.

RSS is a big decision and will be applauded and criticised by many. The naysayers will be highlighting that the market may not be deep enough. Participants may not be sophisticated enough. When authorities are claiming that GLCs are cheap, why would they go and derail that - as when shorting, most foreign institutions will be aiming for GLCs anyway. The timing is bad as we are trying to entice more buying not selling activity. Will result in more manipulation.

I am very much for RSS. My reasons:

1) Better valuation - You cannot keep a market artificial. By having RSS, you have a market that rewards and punishes good fundamentals and bad valuation. Valuation will be clearer and more transparent.
2) More activity - Right now, you can only participate in the market provided you have ONE view, you must be bullish. In general, markets will only have two to three mini bullish phases a year. In total, you would be happy to get 3 months of bullish activity - you can kiss goodbye the other 9 months. Remisers and dealers would now be more open to having two views instead of just one.
3) Restrict over-manipulation - Syndicates will have to do more legwork when ramping stocks. Last couple of weeks could have been a great opportunity to short sell the poultry stocks, or even some questionable highly traded Mesdaq stocks.
4) Investors can hedge and have more strategies - Now even the individual investor can act like a hedge fund. Say, I like property stocks ahead of the 9MP, but think that the activity is overdone in poultry. Go long on one side and borrow to short the other. This gives more choices and strategies, and can reduce risk. Of course if you are an idiot and go the other way, you would double your losses - but there are more choices now... or is it more ways to hang yourself?! But if you are a poor investor, you will eventually lose all your money anyway with or without RSS - RSS will be good for the good investor.
5) Investors' intelligence - This will propel the public to learn more and study more about stocks in general. You have to form real opinions and not just rely on hearsay. As it is more exciting, investors will indulge more. Just as in horse racing, if you only have WIN bets, its dull. But if you have QUINELLAS (forecasting the first 2 horses) or TRIFECTAS (forecasting the first 3 horse in the same order), you get more activity. The cynics who say that RSS is just for institutions because the man on the street would not be savvy enough is wrong. Yes, they may have to learn, but they will. If we stop introducing new things to the market for fear of ignorance - then nothing new will be added, its a myopic view. Then, warrants or futures would never be introduced in the first place. We just have to make sure there is sufficient information out there - know what free float is, what open shorts' balance (open interest) is, know what is squeezing the shorts, understand that you need to incur interest and related cost to borrow stocks to short, know what breakeven is in a trade, etc...
6) GLCs - It will put the GLCs on the backfoot. As Khazanah is still in the initial stages of reviving the GLCs, having RSS will delay any plans Khazanah might have to sell down their stakes. Only until GLCs are performing well will Khazanah have the luxury option to sell down some stakes. Increasing the free float at a time when a company is still struggling is an invitation to shoot oneself in the foot. (As argued before in my previous blogs, I am a big believer in Khazanah selling down their stakes to improve liquidity).
7) Bad timing? - Well, there can never be an excellent time, can it? Just do it already. Just make sure the lending procedures and interest charges are competitive and attractive for both side. For stock owners, they could make some money by depositing shares to lend.
8) Hedge funds - If all parties work well, we could see more hedge funds being very active in the KLSE. In fact, this move will put a lot of pressure on the neighbouring bourses to do likewise.

For those who think that share prices should be encouraged to go up, not down - that is a naive and shallow opinion. Stocks do not just serve to make you money. You participate in the growth potential of each stock. Stock markets DO NOT OWE US A LIVING. When you get it wrong, you get it wrong. Already without RSS, investors still lose so much money, why not give this a chance. Prices go up and down, now at least you can profit when you bet it on the way down correctly.

Fly Me To The Moon

Banned Airlines By E.U.

When you have the planes keep diving into the Red Sea or having pilots that don't take-off and land properly, you say enough is enough. Various EU countries have come up with their own list of banned airlines from their skies. While we in Asia are still generous to "errors/poor standard practices" by certain airlines (I mean a couple of pilots playing mahjong and putting the plane on auto-pilot is macho-bravissmo right?), it might be good for us to pay heed to traveling on the following banned airlines, particularly when you are on a budget or when you are the adventurous type.... Now, where is my Citation when I need it the most?!!

AIRLINES BLACKLISTED & BANNED
By France
Air Koryo (North Korea)
Air Saint-Thomas (US Virgin Islands)
International Air Service (Liberia)
Air Mozambique (Mozambique)
Transairways (Mozambique)
Phuket Airlines (Thailand)

By Belgium
Africa Lines (Central African Republic)
Air Memphis (Egypt)
Air Van Airlines (Armenia)
Central Air Express (Congo)
ICTTPW (Libya)
International Air Tours (Nigeria)
Johnsons Air (Ghana)
Silverback Cargo Freighters (Rwanda)
South Airlines (Ukraine)

Each of the European countries have their own list of banned airlines, and pressure to reveal them have been mounting in order for the public to be aware of the airlines censured. In a few months time a more complete list of banned airlines by EU-wide-unified should be finalised. Right now, there is a bit of confusion over which airline can still fly here or there ... no wonder they end up diving into the Red Sea.

Malaysia's Natural Resources & Its Future

Summertime, and the living is easy....

Malaysia is a lucky country as it has bountiful natural resources from rubber, palm oil, oil & gas, timber, etc... Maybe its the fact that things are so easy, that we have been lazy and have not been efficient and effective in using our natural resources. I tend to liken Malaysia to Australia - back in the 60s-70s, Australia was a very resource rich country (and still is). When a country can just dig up stuff and sell for tons of money, its easy. Surprisingly, Australia has managed to transform itself from a resource reliant country to one which has a pretty good work ethic, all in a matter of 10-15 years. Now, you find companies such as Macquarie Bank, Toll Corp, BHP ... going at it with international players, and winning.

The funny thing is, maybe not so funny, countries that lack natural resources have to dig deep to perform in the business world. Places such as Japan, Hong Kong, Singapore and even Taiwan are good examples. When Country A produces oil for next to nothing, and Country B produces lots of cow/beef at a very low cost, it will be very hard for say Singapore to jump in and participate in the business transaction. Hence a resource lacking country would have to add value to business transactions in order to partake in the economic world or else Singapore would not get a slice of the action. Examples the resource lacking country could do: buy the beef from Country B, add-value to it, either pre-cook it a certain way; or cure it then can it; or buy in bulk from many producers so that you have a solid inventory management and distribution system to other countries; or devise ways to lend money to Country A and B to expand; or help develop accounting systems for both countries... you get the drift. When you have nothing, you have to work real hard in order for people to play with you and give you some money.

Not just the people, the governments also become lazy. Sometimes I wish we had less natural resources in Malaysia, so that the country can wake up faster. Whe things are plentiful and easy to get, it is easy to get complacent and wastage happens frequently. There is also a lack of urgency to implement technology or do value-added stuff as profits are there and nobody is getting fired. Summertime, and the living is easy... and senior management will not be so vigilant in their controls and oversight also.

The fuel oil situation is a prime example. We get so used to a fuel oil subsidy for so long, we think we are eternally entitled to it. If we tell neighbouring countries we used to pay just RM1.50 (US$0.43) per liter and now we have to pay RM1.94 (US$0.52) per liter of fuel, they'd be envious. Ask the average Malaysian or even politician in the country if they know how much oil reserve life we have left in Malaysia.... probably 9 out of 10 cannot even guess to the nearest 5 years. We only have crude and oil condensate reserves of 4.8 billion barrels , which is about a reserve life of 20 years. Of course, we could make more discoveries in the future, but that is uncertain. In fact, Malaysia could turn to be net importer of fuel oil by 2015. As for gas, we are much better here as we have a reserve life of 33 years - and judging from our geography, we are more likely to discover bigger and more extensive gas wells in the future.

Petronas, to be fair to them, is easily the best run GLC, and is probably the top ten Asian companies in terms of management ability, strategy and execution ability. Knowing the limited reserves within our shores, the company has ventured well and beyond to capture more reserves. By utilising the profits, Petronas now has almost 60 energy ventures in 26 countries. Petronas has ventured into difficult areas such as Sudan, Egypt, Chad, Niger, Turkmenistan... to look for oilfields and LNG work.

We cannot undo the good work Petronas has done for the country... PLEASE, no more getting Petronas to build the Formula 1 strip and then fund a F1 team, or the world's tallest building (although the KLCC is pretty good and make economic sense actually), or to build Putrajaya, etc... Many of us heave a big sigh of relief that Badawi has no mega-project which uses funds from Petronas - that in itself is a fact we need to applaud!

Malaysia as a country has so much potential, we have the abundance of natural resources. We have among the better brains, just go to any major universities in the world and see how Malaysians (or Asians in general) perform. We speak English and in many cases Mandarin/Tamil, enabling us to be effective in two of the more important economies in the world for now and the next 10-20 years at least. Where we are now is okay, but we could so very easily jump up the economic and development ladder.

Yes, the removal of subsidies will hurt, but everyone needs to do away with that eventually for Malaysia to compete well and fairly. Even the subsidised natural gas to independent power producers have to go. These subsidies cannot go all at once. A masterplan has to be drawn up with a proper timeline. If subsidy for fuel and natural gas is reduced by 10% every year from 2008 onwards till zero - I think companies and the public can adjust accordingly. The additional revenue to the government budget will be needed to improve salaries and amenities, boost value-added services, lower taxes, etc... Its about time we extract the maximum benefits from our natural resources. Meritocracy has to come into play in more areas of the economy. Do not have sections of the economy to be always on crutches. I don't want to see in the next 5 years, Malaysians having to use 3 ringgit to get 1 Sing dollar. .... how to go to the bloody new Singapore casinos then??!!