Yen-Dollar Movements

The Mumbling Priest said...
Hi, saw this today from a Reuters article: "The dollar scaled four-year peaks against the yen on Monday amid expectations of strong U.S. economic data this week ..." "This week is make-or-break week for the U.S. dollar," said Kathy Lien, chief fundamentals analyst, at Forex Capital Markets in New York. "The foreign exchange market has turned very dollar-bullish after a series of upside surprises in economic data, causing a sharp plunge in rate cut expectations," she added. Dali, is this why the markets are down this morning? How would you interpret this?

For a mumbling priest, you sure don't sound like one. You have a couple of factors causing a sharp weakness in the yen and a corresponding uptick in the dollar:
a) yen carry trade - this is one of the newer terms created just to alienate the general public, a carry trade is borrowing in the currency and then converting it (selling) to invest in other assets (and different currency). Yen carry trades have been popular due to the very very low interest rates, and the mid term perception that the yen would not appreciate much. An example of a shrewd investing move, borrow in yen and paying 1% p.a. and investing in a well managed Singapore REIT for 6% yield - your risk is the interest rate differentials vis-a-vis the currency movements between the two - looks a safe play for a 1-2 year view.
b) US dollar shorters - undoubtedly, the dollar has been on a slide for much of 2006 and the first few weeks of 2007. The general consensus being that the dollar should slide some more in 2007. It was also thought that the slide would be as catalyst some weker economic data coming through for the US, and that the Fed would eventually have to ease rates sometime by mid-2007. Lower rates are supposed to be followed by a weakish dollar, hence the arguments go. However, despite rising inventory of housing, other economic data coming out of the US have indicated surprising firmness. This basically caused the expectations of a rate drop by the Fed to evaporate quite a bit. If rates are left unchanged for a bit longer, the dollar shorts would be wise to square off or reduce their positions, hence the sudden bullishness in the dollar.

To me, this is not a renewed bullishness, rather than a reversing of some shorts, thus compounding the yen carry trade. I have to state my position that the Japanese economy is recovering, and will continue its bullish run - a weaker yen will only help the cause not derail the momentum.

I do expect the BOJ to raise rates soon, and some may be alarmed by that, but seriously from such a low level, what do you want the BOJ to do? BOJ raising rates means a stronger domestic economy, a positive sign. It will also have the effect of reducing yen carry trade, but not so much, because at below 1%, the interest rate differentials is still substantial. However, once BOJ raises rates (and they will), the bullishness on USD will be tempered and the dollar should resume its slow slide.

The lack of a rate cut by the Fed will stop the bull run somewhat temporarily in the US for equities, but not by much. Its a both sides of the coin thing, no rate cut owing to firmer domestic economy, or rate cut due to a weaker economy. Both can find arguments for a continued bull run for equities. Fear is a hard landing, not likely with the current spate of economic data. Or uncontrolled inflationary expectations, not likely as well. So, no big risks here, bull is alive and well.

Big Picture - Capital Flows
Tough At The Top

When equity markets are at all time highs, its tough for everyone. You don't want to miss it but you are wary of the short term correction. This current global bull run has captured almost every equity market into its grasp. If we were to look at it - this bull run looks quite tame, not much excessive exuberence. Which is good because it means there is less froth. Of course, I am refering to most of the European markets plus US and even Malaysia and Japan. Markets that look more frothy are the ones in HK, China and Singapore. FVrothy as in the sense of more speculative plays and margin plays. So, in a nut shell, on participation level markets still look "safe-ish".

On factors affecting capital flows - interest rates and interest rates expectations. ECB - flat or down. Federal Reserve - Flat with possible downside bias. Bank of Japan - Flat with upside bias. China Central Bank - Flat. Interest rate expectations is probably the most important indicator for assessing capital flows. The US equity markets was rising and rising, and many were expecting an imminent drop in Fed funds rate in the coming months. This would serve two purposes, the main one being to have a soft landing amidst a slowly weaker economy; and the other being to engineer a weaker USD. The US markets fell last night on the drop in inventory of unsold homes and a weak 5 year T-note auction. The weak auction indicates weak foreign participation, thus pushing up yields further = foreign investors want higher yields or would want to enter only at a much weaker USD. Both predictions have a strong probability of becoming a reality in the coming months.

But you cannot really have both at the same time as higher rates tend to push the currency stronger, and at the same time weaken the economy. The Fed's strategy is likely to be flat rates, weaker USD.

Capital flows in Asia would be an important factor as well. Will capital rush out? Growth in GDP and earnings are there for most Asian countries. Despite the overall strengthening of Asian currencies against USD, its not so bad because almost every Asian currency is rising at the same time, meaning the export competitiveness is not eroded vis-a-vis other Asian exporters. Growth is good, and the stronger currencies give them a better way to manage imported inflation.

As long as the Euro and especially the USD are on a weakening path, investors will gladly park their funds in Asia. So, the biggest derailment factor is capital flows rushing out of Asia = a strengthening USD. It looks like the USD will spend a lot of time during 2007 on the weak side. Just how weak is weak enough? Till there is a dent in China's trade surplus? That will take years.

Whatever it is, there is little risk now of capital rushing out of Asia, but we need to monitor developments. On the economic front, this look fine for all. One thing which could cause a flight to USD is political risk or risk of war/conflict, so keep your eyes open.

Kinsteel's Fortunes

The Accidental Investor said...
Dali, Actually sold half the warrants at 2.65 (top for the morning session - hence causing resistance) for a nice piece of biz (+348% gain). If the rest of the warrants drop to zero, I am still holding on to close to 150% net profit. Not too shabby. Kinsteel is a story that is as yet unfolding. Analysts put it at a target price of 4x FY07 earnings at RM2.40. But I am not convinced. Already the last Q results with one month of Perwaja contribution was sensational -even though all Perwaja mills were not fully operational yet. I also believe that the analysts are wrong on the target EPS and it should be higher. And I don't think we should be valuing a market share leader at 4X earnings especially in an environment of rising steel demand and prices. Valuing is at a reasonable 8X PE for a market share leader (assuming EPS targets are correct) would actually lead to a valuation close to the RM5.00 you mentioned. This will be interesting.

The Mumbling Priest said...
Disregarding the recognition of -ve GW, I'm rather curious about Kinsteel's Q3 performance. Operating margin for Q3 is 30% compared to 11.4% for the 9mths (incl Q3). Sales actually dipped 2.8% from Q2 (see note B2. But operating expenses dropped like a brick - to yield the 30% operating margin. Notice that Q3's operating margin is 70m vs 89m for the cum 9 mthsMy question is how does assimilation of Perwaja for just one month have such a wonderful effect on operating expenses? Don't get me wrong - I think there's still upside - but I'm very curious.

The Accidental Investor said...
IMHO, the Opex stated in their accounts definitely includes Cost of goods sold. Being "integrated" now, they have access to cheaper feedstocks from the Perwaja mills and no longer have to cost their supplies at market rate. It would be interesting when true economies of scale or further operating efficiencies kick in.

The Mumbling Priest said...
Thanks AI, that sounds pretty reasonable. Except that the 30% operating margin is the average for the 3 mths to end-Sept. And the acqn was completed 7 Sept. Is it therefore reasonable to say that Kinsteel has moved to a whole new super duper level from Sept 7th? Up to June 06, its operating margins were only 3.5%. FY05's was 5.7%. Now, assuming monthly sales were even thru out Q3, that would mean an operating margin of 83% for Sept alone? If sustainable, it deserves a very much higher PEuhh that's (83+3.5+3.5)/3 mthsIf there were no sales in Jul & Aug, yeah 30% is believable. Time to call in sifu Dali. I must be missing something here.

To call someone sifu in the movies usually means an imminent death for the sifu, so no need to do that. I am not in fengshui, I will not decorate myself or proclaim myself to be Grand Master Dr.... blah-blah-blah. Back to Kinsteel. Some important factoids:

1) Yes, the merger is very good for Perwaja and Kinsteels, and yes, they are enjoying 30% margins, but what I am more certain about is it won't last.
2) The company now is a fully integrated steel player. What does that mean? They now have upstream and downstream products.
3) Production capacity at Kinsteel used to be just 800,000MT, now it has 4,500,000 MT p.a.
4) What about demand and operations - well, the Perwaja plant is operating at full capacity while the Kinsteel plant is at around 70%. The only bad side is the Gurun plant, operating at below 20%. But bear in mind that before the merger, the Gurun thing was at zero. This is one of the major reasons why after the merger, the results were so solid - that is, before the merger, Perwaja had a lot of under-utilised assets, which was also why Kinsteel agreed to the buyout and issuance of shares to Maju at such a low price.
5) Good timing. The global steel market was consolidating in 2005 and 2006 but the outlook for 2007 have improved sharply. Global steel market is looking at a y-on-y growth of just over 5%.
6) No selling by major shareholders - The company is almost equally held by Maju and the original Kinsteel owners. As both parties have worked hard to produce results, no one is selling their shares... not yet anyway. Beyond RM4.00, I think the temptation to sell some will increase significantly.
7) The high margins won't last, right now they are enjoying very cheap feedtsock, which won't last. It is easier to squeeze great returns from inefficiencies in the first phase of integration. The story is good but not that good. Still, margins may still be maintainable at 12%-15% for the next few years barring a collapse in global steel markets. It is the most profitable steel operations in the country.
8) Why can they do that when Amsteel/Megasteel finds the going tough? Well, Abu Sahid got his money from dealing in scrap metals way way back, no one knows the market better than him. He has a strong understanding of the feeder stock network.
9) The stock also got a recent boost when the world's largest iron ore exporter, Cia Vale do Rio Doce, decided to raise prices by 9.5% this year. They locked in a good price for the rest of the year.
10) Smart usage of capital - Unlike Mr. Cheng, who likes to leverage like nobody's business, the company recently sold RM400m Islamic bonds , and half went to pay down debts. Cash flow will be very good this year and we can expect more prudent debt reduction as they still have loads of inefficiencies to improve on.

Valuation RM4.00-RM5.00 in 2007. Makes the 28 November recommendation entry price of RM1.40 looks kinda ridiculous, but the company did have a few surprise news boosts from external sources following that period.

Retail Participation - Part Deux

Rafeedah Bigbuns said...
Could it be possible that one of the reasons for the apparent lack of retail participation in the market is that a large number of them may have given up investing on their own and instead put their money into Unit Trusts and let others manage their money? Perhaps the Unit Trust companies and their sales people have done their job too well and successfully persuaded a great many people to invest via unit trusts instead of picking stocks themselves.This may be the current situation. I have a feeling that at a later date when unit trust investors find that their investment take too long to give a profit (maybe due to the initial load and management fees) they may well abandon unit trusts and return to investing directly in stocks themselves.

swifz said...
unit trust has done their advertisement well. Look at the 20% dividend that they declare. Sure more will rush in.

doraiddd said...
yusli doesnt think he's king of the world cos he knows he's master of the universe. But then why did a master of the universe exercised and started selling his bursa shares from a year ago when bursa was at 4 bucks? even as recent as last november, he sold at below 7. Doesnt he read dali?? does he not have the confidence??? He should have exercised all, leveraged up and bot more!! Could he not see a rally coming?? Foot-in-mouth disease, indeed, compounded by a total brain bypass. It's wankers like these that really really hurt retailers. It's time to exit the market and sit on my cash profits. Q1 targets have all been achieved within the first month. What more can one want?

Yus baby, lower participation by retail SHOULD be applauded, not derided by you. Markets in developed nations actually sees a much lower retail participation as more and more funds are manged via institutions and professionals. It is also a natural market development phenomena, a growing up kind of thing - or are we led to think the Bursa really wants local retail investors to stay in the dark ages, and punt and kill ourselves slowly with Yusli's song?!

EPF has already allowed for investing via certain unit trusts, and the good results over the last 2 years would be pumped up, which should result in more people jumping on the bandwagon. The majority of early investors using their EPF funds to invest in unit trust in the late 90s mostly got screwed - market tanked, they got screwed, market recoevered, the fund have no more money to invest - generally early participants got the bitter end of the joy stick, and the only one raving are the unit trust sales on commissions and their inept fund managers. This prompted many to withdraw from unit trusts from 2000-2003 and put the funds back to EPF. Now, we should have another rush back to unit trusts - just pick the consistent ones with a good track record. And for heaven's sake, the commissions given to the unit trust sales IS already way way too high - something's gotta give, even private bankers don't get that much, OK!!

Finally, doraiddd (please explain your moniker, cos its bound to be funny), great posting, very funny. The one on Yus selling his Bursa shares just a few months back at RM7 is not one, but two or even three-foot-in-the-mouth kind of thing. Maybe I should give him a call and persuade him to re-enter and buy back Bursa shares now at RM11.30, after all Yus is a retail player also, so must follow his own advice and buy and play! Cheers!

Foot-In-Mouth Disease
Ramblings By Yusli

The head of Bursa Malaysia laid out the reasons why retail participation in the current bull run is low. My comments in blue.

Foreigners are more bullish on and have stronger interest in Malaysian stocks than local investors, according to Bursa Malaysia chief executive officer Datuk Yusli Mohamed Yusoff. Foreign fund managers are gung-ho on Malaysian stocks. However, local investors seem to have no faith in domestic companies.
Local investors have faith in the companies, just not so much faith in the ways of Bursa. Local investors are in the rally, just not at a level as the foreign investors' appetite. Yusli has to remember that we do not have contra trades like before; we do not have T+7 and contango deals like before - friend, you cannot have your cake, eat it and blame it on fat guy. When the restrictive rules are in place (which is good for the integrity and quality of the market), the changes are bound to be there. Blaming local investors of having no interest is very shallow, and just reinforces what is lacking in top level thinking.

He noted that foreign institutional investors were the net buyers on Bursa, accounting for 35% of last year's daily volume. Locals, especially retail investors, were still waiting on the sidelines although the market had rallied for more than three months. Retail investors have not returned to the market in a big way yet. It would be a shame if our investors miss the rally on Bursa,¨ said Yusli, who blamed the slow retail interest on the lack of promotional efforts by stockbrokers. Why should local investors follow foreign buyers?? Are they always correct?? Or does Yusli want local investors to hold the bag for them when foreign investors leave the shores?? Yusli have no right to question the persuasions or strategy of local investors - everyone has their own way of investing. If they are not buying, they have their reasons, ... Yusli, the last I heard, you are not Big Brother, or am I mistaken?

The other thing is that foreign investors have a better incentive to buy Malaysian stocks, for the currency exposure, which could further boost their returns.

Why would it be a shame to miss the end part of a rally (possibly)? Maybe local investors do not like the risk-reward ratio now. Where do you think Yusli will be if the market tanks to 1,000 next week? I don't think Yusli will be reducing his pay or options package. Every investor parks their hard-earned funds and assume the risks, ... what risks does Yusli assume other than the variation in his options.

There are many undervalued stocks. And yet retail investors do not know what stock to buy, he said.The bullish sentiment on Bursa gathered strength in the second half of last year, led by plantation stocks and companies that were undertaking merger and acquisition activities.The strong rally had indeed overshot the expectations of many investment analysts.
Please, Yusli, you think local investors are all stupid? Who do you think were the buyers at 900, 950 and 1,000 - the foreign funds interest then was very low, did I hear you tell foreign investors that they are idiots?? Many local investors did make money over the past 12 months, if they chose to lie low now, its their perogative, ... or is it that you have so many stocks, you are wishing the local investors to pump up the prices for you to get out??

Are there really many undervalued stocks? Hmmm .... I bet you think Bursa is a buy at RM11.00 as well (for the record this blog did call a strong buy on Bursa shares at RM6.85 with a target of around RM10.00)

If the analysts can be wrong, what makes you the King of The World? If analysts can be wrong, who can right, or righter?? So, shut your trap cos it sounds and smells alot like b.s. to a lot of people.

Financial Jargon & Terminologies For The Current Times

This is largely a repost of some smart-ass definition for financial jargon.

EBITDA
Earnings Before I Tricked the Dumb Auditor

EBIT
Earnings Before Irregularities and Tempering

Top-Down Investing
People with a bit of economics knowledge but scared shitless about accounting

Bottom-Up Investing
People who knows a bit about accounting but hates fiction

Unusual Market Activity
Something the management and directors always know NOTHING about

Averaging Down Investing
When you totally ignore the fact that you were wrong in the first instance

Doubling Up Investing
Making doubly sure that you are more than fully-invested when the stock eventually tanks

CEO
Chief Embezzlement Officer

CFO
Chief Fraud Officer

Second Board
What Second Board???

Margin Account
Shorter rope, tighter noose

Hedge Funds
"Institutionalised" margin accounts

NAV
Normal Andersen Valuation

NPAT
Never Pay Any Tax

EPS
Eventual Prison Sentence

Federal Reserve Board
Bank of Japan on Prozac

Equity Research
As useful as a used condom

Equity Analysts
Hopes no one discovers how average they are

Fund Managers
Sponges off the brains of analysts and strategists and call it their own

Chartists & Rocket Scientists With Trading Programs
People who have given up trying to understand the stock markets

Short Term Investor
Someone who is in-and-out within 3 days or less

Long Term Investor
A short term investor who cannot get out profitably after 3 days

Bull Market
A random market movement causing an investor to mistake himself for a financial genius

Bear Market
A 6 to 18 month period when the kids get no allowance, the wife gets no jewellery, and the husband gets no sex

Off Balance Sheet Items
More important than items in the balance sheet, and represent things that really should be in the balance sheet

Momentum Investing
The fine art of buying high and selling low with the crowd

Value Investing
The art of buying low and selling lower

P/E ratio
The percentage of investors wetting their pants as the Market keeps crashing

Stock Broker
Poorer than you were last year

Remisier
Someone who should have kept their previous job

Investor Protection
Padded walls in broking halls

Market Correction
The day after you buy stocks

Cash Flow
The movement your money makes as it disappears down the toilet

Institutional Investor
Past year investor who is now locked up in a nuthouse

Economist
Someone who tells you why their predictions went wrong after every quarter, and proceeds to give a confident prediction for the next 3 quarters

Floods, Indian Ocean & Al Gore
No Happy Feet!

Floods In Malaysia & Indonesia - A bull market will turn even negative news into a positive market run story. For the first time in decades, the sothern part of Malaysia and parts of Indonesia have experienced unusual torrential sustained rainfall for the past 8 weeks. Hundreds of thousand have had to evacuate with many losing much of their belongings. Now that has turned into higher prices for timber and crude palm oil, both countries being big exporters of both products. Prices for timber have risen by at least 25% over the last few weeks.

Is this an abberation or the start of yearly cycle risk, much like El Nino and El Nina? Having read some reports, one by Prof. Dr. Ferdolin Tangang, an oceanographer at UKM, it looks likely that the situation was brought about by warmer ocean waters in Indian Ocean and partly due to melting ice caps. Chalk one up for Al Gore, the warmer waters could cause a lot of things - the Indian Ocean was supposed to flow into the Artic waters to disperse heat, however, the melting ice caps kinds slows down or even stops that flow, this causes salinity in the waters to decrease, in turn reducing the water mass making it unable to sink, and further disturbing the flow. This basically means colder winters in Europe, and more unusual climate changes for areas surrounding the Indian Ocean. Following this argument, typhoons and even cyclones would be a much more common occurance in the future. Of course, these events do not just happen overnight, it is the gradual accumulation of various "bad things" we have let happen to our environment.

Business wise, fund managers should take note. One can go very long on things like timber, CPO and even rice. Industry conditions are good, economic activity is vibrant, growth prospects are also good for the countries concerned. Hence whenever these typhoons or cyclones strike, prices will tend to be higher. The severity of the storms may even make a substantial portion of the production fields untenable for long periods. The governments concerned should think a bit longer term as these calamities may occur more often and more readily than we would like to think. Hence the authorities must plan and act swiftly to minimise the ill-effects should another similar calamity arrive - if the calamity strikes a couple more times over the next 2 years, you can pretty much forget about the South Johor Plan.

No one likes to make money out of people's misery, but as a business blog, I have to point out the longer term effects on goods and services owing to changes in market conditions.

The Effects Of A Bull Market

1) Delusion - May cause most investors to think that they are smarter than what they really are. A prolonged bull market may even cause some to elevate oneself to demi-god status. A normal market is like sitting for a test and answering an objective test with 4 choice answers, one of them being the correct one. A bull run is like sitting for the same test the only difference being three out of four choice answers happens to be the correct answer.

2) Coverting Temporary Events Into Annuity - All of a sudden some investors will find that they are making 5,000-20,000 a week. All at once, the investor will turn into an actuary specialist and calculate the fresh stream of income as an annuity (prolonged consistent rvenue for the longest time). This will give rise to euphoria in mind and cause the person to spend the net present value of the annuity in leveraged format.

3) Experts' Predictions - You can sift out the good experts and the merely qualified ones. When the market was at 900, they will predict a high of 1,000 over the next 12 months. When the market reaches 975, they will upgrade their 12 months forward target to 1,080. Now at 1,120 you will find them marking 1,200-1,250 as the high for 2007. That is not predictions, that is anchoring & adjust, a simplified way of decision making. A real prediction is someone who will dare to predict 1,100 when the market is at 900 and says that is reachable within 12 months. You can easily tell the better ones, don't be fooled just because they get their pictures in the papers. The essence lies in their grasp of the overall Big Picture. If their grasp is weak, they will not dare venture beyond the "safe zone" (i.e. anchor & adjust). However, if their grasp is good, they will be able to convince you with good solid arguments and pieces most of the important jigsaw together to forma coherent cause & effect storyline. You will know its good cause it will be persuasive.

Market Strategy

This applies to all stock markets I guess. Its frustrating, isn't it? The market keeps rising but you cannot find anything to buy. Every day that the market closes higher makes you think about how it was during the last market collapse. You wonder how that will happen, will you be caught (again), ... This bull market is not a recent one, I have already said many times early last year that we are already in the midst of a global bull run, and many were not aware of it. What we are seeing is the last 25% of the bull run, where everything looks good and rosy. Interest rates going down, oil prices whacked down, earnings reports all solid,... The last few weeks have been more exciting for Asian bourses. The currency factor is a major impetus.

Have a look at the blue chips, most have gone past their anticipated fair values, who would want to buy more, how much higher can they go? Can Genting go to RM40? Can Maxis go to RM12? What about Resorts... RM18?? Seriously, these figures are not that far fetched, and you can almost spin a good story to support those prices. Companies leading the way over the last few weeks had been the plantations and top-notch blue chips (just mentioned). I still think there is a bit of life left in the run evn though its on its last quarter hind leg. I think some switching will be to GLCs to propel the index past 1,150. As mentioned a few months back, I think the market will hit 1,250 sometime this year as a high.

The big caps helping the push in the coming days and weeks should include Uem World, MRCB, Sime Darby, Tenaga, Telekom, Maybank, AMMB...
If you consider this group, their share prices are still not very, very high yet. So, there is room at the top of the stairs. This market and also regional markets are awash with liquidity. Bad news will be played down and decent news will be greeted as the second coming.

Danger is always there at these levels, these are great times to rebalance your portfolio - throw out those stuff you have bought for the wrong reasons, and do not leverage up now. That is just silly.

Fergetaboud Horror-Violent Movies

Movies can only try to capture reality. No matter how wonderfully expansive our imaginations are, reality always wakes us up to inhale the smelling salts of life. Described below is not something from Ichi The Killer but something which happened in Japan.

A woman was arrested for dumping husband's mutilated body in the park in Machida, Tokyo, where the victim's head was found. A 32-year-old woman has been arrested for abandoning the mutilated body of her husband late last year. Kaori Mihashi, from Tokyo's Shibuya-ku, stands accused of illegal abandonment of a body. She has confessed that she murdered and dismembered her husband, Yusuke Mihashi, 30, in December. Kaori allegedly put parts of the mutilated upper part of her husband's body in a bag and abandoned the bag in the Shinjuku district of Tokyo in December. She left the man's lower part in the garden of a house in Shibuya-ku. (Borat would say: Nice...)

Based on the woman's confession, police found the head of the husband, who worked for a foreign-affiliated securities house, in a park in the western Tokyo suburb of Machida on Wednesday. "After my husband came home drunk and went to bed on early December 12, I fatally hit him on the head with a wine bottle," police quoted the wife as saying. "I then cut his body up after buying a saw at a general store in Shibuya-ku." She admitted that she took the husband's body in a suitcase in a taxi to Shinjuku. The couple married in March 2003.

Asked about her motives, Kaori said, "About six months after we got married, we began arguing with each other. My husband belittled me and attacked me. I then decided to kill him." (The perils of getting married...)

Mihashi filed a missing person's report with police on Dec. 15, a day before parts of her husband's body were found in Kabukicho in Shinjuku-ku.

I think there will be a bidding war for the copyright of the story to be made into a Hollywood Asian remake ala Infernal Affairs. Let's see, I would like to see Ben Affleck cast as the husband, modern looking enough and can be uppity-smart, easy to be hated by viewers. As a twist, the movie should be made from the woman's point of view and should sympathise with her. Hence we need a long suffering, depressed female with the inner strength and cold-bloodedness to carry out the misdeed ... Nicole Kidman would do well here.

But why would I blog about a murder story in a business blog? Answer: The husband was an employee at Morgan Stanley Properties Japan K.K. Hmmm... the plot could thicken with the involvement of properties and the yakuzas, throw in an illicit affair between Kidman and the CEO of Morgan Stanley.... yowser! We will get Stanley Tucci as the yakuza district head and Alec Baldwin as the romeo CEO. Interest parties, please contact my agent.

Snippets, Snipes & Snides - 3rd Week Jan

MAS - Possibly the most expensive airline to fly. MAS fares are priced like the Patek Phillip is to watches, but in reality MAS offers a service level that is akin to Swatch. Fair enough that the new management have its work cut out for them thanks to the inefficient management of the past (with some still lingering around in the boardroom), and Jala will never get a better chance to turn this Titanic around with the current bull markets. So, I must tip my Aussie Baggy Green cap off to Jala for quickly coming out to sell shares to fund the turnaround - that was the smartest move since his appointment. Shares of Malaysian Airline System Bhd. fell sharply yesterday, a day after the company said it plans to sell 1.6 billion ringgit of shares to improve cash flow. MAS plans to sell 418 million new shares and an equal number of redeemable convertible preference shares, or RCPS, at a possible 45% discount to the ex-rights price. The share issue will be earnings dilutive but seriously, when you have severly impaired earnings, how dilutive can that be. What MAS needs is a recapitalisation, and this is vital and timely and appropriate. The stars seem to be all aligned for Jala, oil price whacked down, bullish market allows for big share sale at a good price. I am a bit bullish on MAS but I still think there are other better investments in the market place.

Resorts World/StarCruises - Stanley Ho Hung-sun is poised to buy up to a 10 percent stake in Star Cruises, which will then get the rights to build and operate a casino in Macau in exchange, probably the Galaxy consortium, where the majority shareholder have been notified that he needs to selldown his stake. Its a hedged bet for both sides. Ho's son and Packer junior are also building in Macau under the Melco/PBL banner (which lost out in Sentosa IR). It looks silly for Stanley Ho to get into Star Cruises, if Star Cruises ends up with a stake in Galaxy. It would make better sense for Star Cruises to buy a stake in Melco/PBL, and allow Stanley Ho to take a 10% stake in Star Cruises - Ho will get a backdoor entry into Sentosa IR via Star Cruises. I would not rule out a further share sale to Melco/PBL as well as Star Cruises needs to raise a lot of funds. Its a win-win situation for both sides, and they could actually collude to control gaming in Asia, and with James Packer's push into gaming, this triumvirate (Ho, Genting, Packer) could very well form a cartel in Asian gaming plus the Australasia region as well. What are the dangers, if one were to examine the business plans of the Sentosa IR and the Macau gaming licenses, all winners are highly geared, and most would be selling shares or going to IPO to raise funds. While gaming is a solid industry, the playerscannot have major hiccups in operations as any cash flow setback will be felt severely very fast. Their plans rest on the Asian gaming industry continuing to flourish, hence dangers to this sector would be any sudden major economic correction in Asia, or unmanageable-risk-events such as bird flu outbreaks.

Proton - General Motors Corp., the world's largest automaker, is ``legitimately'' interested in a stake in Proton Holdings Bhd, so the report goes. Volkswagen AG and PSA Peugeot Citroen are also in talks with the state-controlled carmaker. Proton ended a 21-year alliance with Japan's Mitsubishi Motors Corp. in March 2004 and is seeking a new partner to revive revenue, which fell to the lowest in at least seven years in the quarter ended Sept. 30. GM is expanding in China, India and other Asian emerging markets, as sales slump in its home U.S. market. Readers will remember my recommendation a few months back to buy Proton below RM5.00 as they will have to get a partner. Plus any deal will have to be priced near its NTA which is at least RM9.00 (given some discounts). The collection in Proton-CA over the past 5 weeks have been too obvious - insiders have been collecting like crazy. The current price of Proton-CA assume a done deal that Proton would be zipping to RM8.50 at least. GM increasingly will depend on overseas markets to boost its global sales total and last year sold 55 percent of its models outside the U.S. GM's sales increase in markets such as China, where the Buick Excelle is the second-most popular car, contrasts with an 8.8 percent drop in the company's U.S. sales last year.Wagoner is under pressure to show improvement in the carmaker's finances after last year rejecting an alliance with Renault SA and Nissan Motor Co. proposed by GM's then largest individual investor, Kirk Kerkorian.

Star Cruises & Resorts World In Macau

Star Cruises was suspended late last week - ask anyone, when they heard of the suspension, the first thing on their minds was "fund raising exercise...again la". Only, this time its a bit different. Genting group has two "problems", the underperforming and capital hungry Star Cruises, and the excellent balance sheet and cash yielding but dormant Resorts World. Genting is solid with its power plants, gaming, etc... Genting International is the same with the integrated reorts.

Resorts World's only attraction is the world's biggest hotel and the sole highland casino in Malaysia. Its making money but growth is very limited. Star Cruises Limited, a 34.4% owned associate of Resorts World, is the third largest cruise line in the world with a fleet of 20 cruise ships. But Star Cruises has brought more funding problems than positive results. If Star Cruises continue to perform badly, it will eventually suck most of the cash off Resorts World, plus as long as Star Cruises is an anchor, it will drag down Resorts.

You can see shades of Genting's strategy when they included Star Cruises as a 25% jv partner in the Sentosa IR project. Just recently, a fresh development in Macau has required one of the new operators to sell down his stake as required by the authority - the operator being Galaxy (Packer junior is a partner in the group). This is possibly the best and only chance for Genting group to get a ... not even a foothold, more like a toehold into Macau.

If successful, it will rescue propel Star Cruises up the gaming chart. More synergies could be seen ferrying patrons from Macau to Sentosa - gambling all the way. Chances are the gaming revenue will eventually surpass the cruise liner revenue and diminished its importance. The negative thing is how will Star Cruises pay for the stake. The other thing being, Galaxy is not the numero uno operator in Macau, and is unlikely to rank first or even second on the list of places for visitors to go to - so its clout and earnings power and drawcard will not be as strong as the American players.

Speculation is rife in Resorts World as Star Cruises has been suspended but don't go overboard, pardon the pun, its not that exciting, and chances are Star Cruises/Resorts will have to overpay to get the stake.

Possibly The Funniest Malaysian Posting In 2007

There had been some hoo-hah over the inclusion of some common but dubious "sayings" in the official Malay dictionary. The blogger linked below posting possibly the funniest blog for 2007... even this early. For those linguistically-challanged in the Malay language, I will attempt to translate bits of it (blue).

http://dewan-karut.blogspot.com/

Mabuk Keling (dalam bahasa perancis: Indien ivre) (in French...)

Asal-usul: Ahli-ahli sejarah percaya bahawa fenomena 'mabuk keling' ini terjadi semenjak lahirnya todi dan Samy Vellu. Origin: Historians believed that the phenomena of mabuk keling came about with the invention of toddy and existence of Samy Vellu.

Maksud: Orang mabuk yang berperangai seperti bahlul+beruk+bangsat; sedangkan hanya minum segelas dua air haram. Perhatian: Adalah dinasihatkan supaya berhati-hati ketika menggunakan perkataan ini. Perkataan ini cukup sensitif sehingga boleh menyebabkan botol dibaling ke arah kepala awak oleh keling yang sudah mabuk keling. Meaning: Drunkards acting like an asshole on just a couple of drinks (usually illegal concoctions involving coconut juice). One needs to be careful when using the phrase as it could result in bottle being thrown towards your direction by the usual suspects.

Contoh Ayat: OI KECOH LA LU! LU MINUM... ORANG MINUM JUGAK... JANGANLAH BUAT MACAM MABUK KELING. Ni baru kena segelas je, dah nak pecah-pecah botol la...bukak baju lah...kang kena lagi tiga gelas macam mana pulak hah? NAk rogol lipas pulak? kimak betui... Usage In A Sentence: Go fuck yourself, drink just a bit and you make like mabuk keling. Just one glass and you want to break the bottle ... tear open your shirt ... what will happen if you had three glasses? Would you be trying to rape the cockcroach already??!!

Janji Melayu (dalam bahasa jerman: Versprechung des Malaiianers) (in German ...)

Asal Usul: Tiada siapa pun dapat mengenalpasti sejarah kewujudannya. Sebilangan pakar bahasa mendakwa ia mula digunakan sejak zaman kesultanan melayu melaka. Tetapi lebih ramai berpendapat 'Janji Melayu' lahir dihari kerajaan memperkenalkan Dasar Ekonomi Baru*. Origin: No one is certain as to its origination. Some experts figured that the phrase was first used during the historical Malaccan-Malay sultanate period. However more believe that the phrase was introduced during the New Economic Policy.

Maksud: Janji tidak menepati janji. Ini terutamanya berkaitan janji waktu masa. Perhatian: Penggunaan hanya terhad kepada kaum Melayu saja. Meaning: Promises that were never kept. This is particularly in reference to time appointments.

Contoh Ayat: *Eh Pak Seman, aku sebagai anak muda ini malulah dengan kerajaan kita nie. Kan diorang kata nak memansuhkan Dasar Ekonomi Baru apabila jumlah ekuiti Bumiputera kita sudah mencecah 30%? Ni hah, sekarang laporan ASLI dah pun konfirm bumiputera kita sudah sampai paras 45%! Kenapa tiada tindakan diambil? Sampai bila kita nak dicemuh dengan janji melayu kita? Usage In A Sentence: Hey Uncle Smith, as the younger generation I am awfully ashamed of our government. Didn't we say that the NEP will be abolished when our Bumi equity reaches 30%? Why do we keep openly flout our promises with our janji Melayu attitudes.

Cina Jinjang (dalam bahasa itali: cinese del jinjang) (in Italian ...)

Asal Usul: Semenjak pekan Jinjang dibuka berpuluh tahun dahulu. Tetapi hanya menjadi terkenal setelah cerita 'Young & Dangerous' ditayangkan. Juga dikenali dengan nama 'Sindrom Ho Nam'. Origin: Since the establishment of the town of Jinjang decades ago, but the phrase wa smade famous after the movie Young & Dangerous was made. Also known as the Ho Nam Syndrome, named after the lead gangster character.

Maksud: Cina jenis ON habis, yang hidup di dunia mereka sendiri (iaitu cukup distintif jika dibandingkan dengan cina lain). Meaning: A Chinese person who is always ON to the max, living in his own world (always different & distinctive compared to the rest of the Chinese population).

Perhatian: Anda perlu berhati-hati dengan pertuturan mengenai cina jinjang sekiranya anda mengesan cina-cina berciri sebegini berdekatan anda: Beware: You need to be careful should you notice the following traces/traits of Cina Jinjang around you.

Rambut berwarna-warni, dan langsung tidak kena dengan kepala hotak mereka. Multi coloured hairstyle, which totally clashes with the natural skin tone of his head.

Stail fesyen angkasa lepas. Banyak menggunakan fabrik metalik, yang menyilau mata. Space age fashion style. Uses metallic fabrics a lot, those which can cause temporary blindness.

Gabungan fesyen yang teramat SALAH i.e. Tali pinggang putih, seluar jeans hijau, baju kemeja merah dan kasut kuning. Absolutely no fashion coordination sense, for example, whilte coloured belt with green coloured jeans and yellow shoes.

Kereta yang dipandu sudah modify habis. Ekzos lantang; bodykit Evo3 pada kereta Wira; lowered sehingga semut pun tak boleh lepas bawah kereta. Always driving cars that have been modified. Excessively huge and loud exhaust; placing an Evo3 bodykit onto a Proton Wira; car lowered until an ant also cannot pass underneath the car.

Suka menurun tingkap kereta, menghisap rokok sambil mem-blast-kan lagu fengtau supaya satu kampung boleh dengar. Likes to have car windows wound down while smoking, and blasting dance-ecstacy-music so loud that the whole village could hear.

Tiu Nia Ma Ke Chau Hai, dan perkataan-perkataan seangkatan sering dilafazkan
dan lain-lain ciri yang tidak lazim terdapat pada orang cina. Uses choice phrases such as TNMCH and the like, repeatedly in beginning a conversation, as a punctuation mark, or just to mark the end of a sentence. (creative license here)... their favourite haunts include Sungei Wang Plaza, Cheras Leisure Mall and Berjaya Times Square.

Contoh Ayat: Eh mata hang tu jaga-jaga sikit. Kau jangan jeling-jeling kat bebudak sana... pasal diorang semua cina jinjang... silap langkah, ada tengkuk korang yang patah. Usage In A Sentence: Just watch where you are looking. Don't stare at those boys there ... looks like Cina Jinjang..

Asian Markets' Jitters

As reported in TheEdgeDaily - Asian stock markets fell and regional currencies weakened in the morning session today (Thursday) triggered by a series of negative news, including investment curbs in Thailand, Venezuela’s proposal to nationalise its utilities and the fall of oil prices to a 15-month low of US$55 (RM193) per barrel. Jakarta’s stock market was the worst hit, losing 3.96% or 70.51 points to 1,710.36 while the rupiah fell 0.55% to a two-week low on worries that Indonesia could also follow Thailand in imposing investment curbs. Japan’s Nikkei 225 fell 295.37 points to 16,942.4, Hong Kong’s Hang Seng Index was down 329.74 points to 19,568.34, Singapore’s Straits Times Index dropped 47.2 points to 2,961.15 and South Korea’s KOSPI lost 18.55 points to 1,355.79. However, the Stock Exchange of Thailand Index bucked the trend adding 0.71% or 4.39 points to 621.14, after falling 2.6% on Jan 9. On Bursa, the Kuala Lumpur Composite Index (KLCI) fell just 5.77 points or 0.52% to 1,113.19.

KLCI fell the least -... when did we become the strong man of Asia???

Analysts said the proposed nationalisation of Venezuela’s telephone and electric companies and Thailand’s move to cap foreign voting rights in Thai companies to 49% rattled investor confidence in emerging markets. The Caracas Stock market plunged 15% on Jan 9 after Venezuela President Hugo Chavez threatened to nationalise the country’s major utilities. I can understand the Thailand effect but Venezuela??? I guess one could argue that the Venezuela situation would be lumped as additional risk aligned with investing in emerging markets.

Oil price falling a negative??? That is news to me. It may temporarily halt the uptrend of CPO owing to the "viability" aspect of producing biodiesel vis-a-vis fuel price, but the benefits of lower oil prices are enormous - less inflationary pressures in the US, Europe and Japan - all having to contend with inflationary pressures, which now will subside. Of course, the US already showed some economic weakening in their domestic economy, and this will hurry the Fed to lower rates soon - good for equities.

There is a wild card though, the recent bombings in Thailand was compounded by 3 bomb explosions yesterday in the Philippines killing 7 and wounding 29 - obviously trying to disrupt this weekend's Asean summit there.

Our Thai friends are shaking their heads. Just back in December, they did a U-turn on a major policy, rocking its own stockmarket. Now, another policy reversal. Now they say that foreign ownership limitations of Thai companies won't affect the country's telecom sector - was this to appease the Singapore government - maybe the lion whispered to the elephant "Ehh, friend friend la... the leech is out of the forest already.. !!" These kind of nervous steps and missteps would shake the confidence of foreign investors even more, what will they do next, what won't they do, what is permanent or is everything fluid...

The risk climate of investing in stocks, particularly in Asia, has just been raised somewhat, better be sidelined, reduce.

Toll-Tally Out Of Order

As reported in Screenshots:

1 ) January 8, 2007: Litrak CEO responding to Malaysiakini in Kuala Lumpur:
Litrak CEO Sazally Saidi told Malaysiakini in a written response that issues raised with the revision of toll rate along the LDP should best be posed to the relevant authorities. “This is because all those issues had been thoroughly discussed between the company and the authorities, where details were tabled, audited and scrutinised. Thus, the authorities are the best parties to provide answers as this will prevent any misunderstanding or misrepresentation of information with regard to the issues,” he said.

2 ) January 9, 2007: PM Abdullah Ahmad Badawi responding to Bernama in Putrajaya : Abdullah said the decision to allow the recent toll increase was based on representations by the concessionaires on their toll collection. "And what they proved to us, to the government, was that the toll had to be increased," he said. Asked whether details of the toll collection to date should be released to the public, he said: "All are public limited companies." Abdullah said that the projections of future traffic volume were made when the concessions were negotiated and the present-day conditions had to be taken into account. "We cannot deny them that. And if today, the situation warrants that we take action to raise the toll, we have to do it. Otherwise, we'll have to subsidise some more. How much more can we subsidise, how can we subsidise everything," he said.

3 ) January 9, 2007: PM Abdullah Ahmad Badawi responding to theSun in Putrajaya : Abdullah continued to defend the recent toll increase, however, adding that the government could not continue compensating highway concessionaires with no toll increase. Abdullah said when negotiations on the concession agreements were going on, a study was done on the traffic volume annually by the respective companies and the findings were presented for discussion and approval. When told that highway concesssionaire Litrak reported in its 2006 annual report a RM80 million profit and why there was a need for the government to still compensate the company, Abdullah said: "We had a lot of discussion on this. We did what we felt was right. If you (reporter) have more information on what you just said, please let us know." When asked about Mahathir's statement that the traffic volume on highways had probably increased five-fold and that the government had a share in the excess collection, Abdullah did not offer a reply.

4 ) January 9, 2007: Minister S. Samy Vellu responding to Bernama in New Delhi: Works Minister S. Samy Vellu said the cabinet has to give the green light for highway concessionaires to reveal details of toll collection and the volume of traffic using their highways. "I will bring it up to the cabinet on whether we can allow highway concessionaires to release these figures. If the cabinet agrees, then we will ask the companies involved to come out with the details," he said.

5 ) January 9, 2007: Minister S. Samy Vellu was quoted as saying in The Star: On the calls for a review in the concessionaire agreements, he said the Government would have to pay compensation if the agreements were reviewed.

Do we expect to pass the buck for another 24 years till LDP's concession expires in 2031?

My Unpopular Lima Sen

1) Can only blame Mahathir and Samy as the concessions were signed during their time.

2) Government stopping subsidy is correct.

3) Traffic has jumped 5-fold, but concession agreement was flawed as it failed to take into account "contingent situations such as these".

4) Renegotiating the agreement, while good, will BE VERY VERY BAD in the eyes of institutional and foreign investors. It will be taken to mean any agreement can be stopped and renegotiated, especially when it favours the "investing company" - what kind of message will that send? You can still renogotiate but the government will have to pay a very sizable compensation, and you would WANT to pay a sizable compensation - at least that will be a one off thing and no more "same hoopla" every few years when Litrak increases the toll.

5) If government now feels that they have the short end of the stick, instead of just subsidising the bloody thing - just get Khazanah to do a General Offer to buyout Litrak and take the bloody thing private. How much will that cost? RM1.4-RM1.6 billion. Hey, best to get EPF involved, at least its money well spent, and the tolls go straight to EPF profits, dividend back to the people. What this lesson tells us is the government MUST BE SMARTER = you still give out toll road concessions as the government need not shoulder all the infra risk and capital deployment; just structure better agreements in that, after certain milestones where the concessionaire makes "supernormal profits", that the government would have a call option buy back controlling stake at a certain premium, that way everyone happy and smarter.

6) What the government must avoid doing is to send the message that agreements can be changed when it suits the government to do so as the ramifications would be too enormous and would not be best global practice. Yes, the previous people in charge did a poor job in drafting the agreement. Don't blame the present new leader. Yes, the current government can do some thing to alleviate the situation, but its not Litrak's fault also.

Thailand Looking Shaky

There seems to be a sense of innocence among the new government of Thailand. Maybe its because they were largely from the military. You had a boo-boo by people at Bank of Thailand, which nearly collapsed the country's financial markets - OK, it was not the new government's direct fault. Reversal of the equity investment ruling for foreign funds was swift and applauded. Then the bombings from the south moved to Bangkok and Chiangmai.

The government came out saying they probably won't be able to find out the mastermind behind the new slate of bombings. Pretty naive, even if that is true, you can discuss about it in private not communicate that in public. Public confidence is important.

While all that is happening, foreign investors are preparing for a new blow: the possibility they will be forced to divest themselves of shareholdings in Thailand-based companies. Foreign business leaders say they are worried about recently disclosed plans by the military-installed government here to review the way foreign-owned businesses can operate in the country. Proposed changes, they say, could outlaw the practice whereby some businesses circumvent foreign-ownership restrictions by using Thai citizens to hold nominal legal control of companies while foreigners retain majority voting rights. If the law is changed -- and the Thai cabinet is scheduled to consider it as soon as today -- foreigners might be prevented from using local nominees that effectively enable the non-Thai investors to retain majority control of their companies. Currently, Thailand restricts foreigners from maintaining direct majority control in several important sectors, including telecommunications and retailing. (WSJ)

Not good, not good at all. The new government does not seem to have a handle on things, too many things happening all at once and the leaders are pulled in all directions - need real leaders, managers and politicians - not so easy la... a lot of things they don't teach you at military school.

M&A = Private Equity Mania

The driver for the bullish undertone in KLSE stocks should be M&A activity. Why are so many Malaysian listed companies considering M&A exercises? Not due to the ingenuity of our under-powered merchant bankers for sure. Its directly correlated to the private equity boom over the last 24 months all over the world. The boom started in the US, rolled over to Europe and then into bigger markets in Asia.

Malaysia kinda missed the boat owing to "equity ratio thingee", the general fact that Malaysian companies are too small, and the fact that many of the "undervalued companies or under-managed companies" are GLCs (which would present a whole new set of issues when trying to take them private).

Still, I do believe that the smaller private equity funds will find their way via JVs into Malaysian markets sooner rather than later. Many savvy company owners would be able to see the trend and they'd better move to gobble up undervalued companies themselves or face a bidding war later. Owners of undervalued companies themselves would want to quickly take themselves private before going into a bidding war with someone else.

Privatisation works on two levels generally: one, where the breakup value is much higher than market value (market cap); the other being "synergistic values" where bigger is better and stronger.

Candidates

BANKING - The relaxation of rules by Bank Negara in November to allow banks to talk with more than one suitor at a time is a boost to the players. Basically, what they are saying is Bank Negara is allowing competitive bidding. Best candidate should be RHB Capital and EON Capital. For the record, Cank Commerce bought Southern Bank at 2.3x NTA and Temasek paid 2.0x NTA for Alliance Bank. This would translate into a pricing of RM4.00 to RM4.20 for RHB Capital, and a pricing of RM6.70 to RM7.20 for EON Capital.

PROPERTY - Quite straight-forward, just look at P/BV and just consider the discount. Sapura Resources RM0.32/BV1.93. Menang RM0.14/BV0.70. Pasdec RM0.38/BV1.57. Equine Capital RM0.48/BV1.84. Malton RM0.29/BV1.18. Mutiara Goodyear RM0.52/BV1.63. Meda RM0.18/BV0.59. Tanco RM0.075/BV0.25. PJ Dev RM0.47/BV1.59. Matrix International RM0.43/BV1.31. Of course the list of discount to NTA is long, when we try and pick winners we have to note the existing volume trends and shareholding spread as well to determine likely winners. So do the homework and put them on your watchlist.

STEEL - Those looking best in terms of having a discount to Book Value plus a strong dividend yield: 1) Ornasteel 2) Prestar

Email Contact

Jomaropol said...
Salvatore, I was wondering do you have any email which we can email you with, if we heard anything worthwhile?

Dear Visitors & Friends,

You may contact me anytime at:

malaysiafinance@gmail.com

What Are The Dangers For 2007

Everyone seems to be quoting the following article about US$22b being plowed into emerging markets:

Emerging market equity funds attracted US$22.4 billion (about RM77.6 billion) in 2006, of which US$11.2 billion or half of total inflows went into China related equity funds, according to Emerging Portfolio Fund Research (EPFR). The US-based EPFR - which tracks equity and bond fund flows of 15,000 international and emerging market funds with US$7 trillion in assets - said on Jan 3 it was another record setting year for flows into emerging market equity funds. “Strong fund flows for Asia ex-Japan and China Equity Funds in the latest week (final week of 2006) suggests that the ripples caused by Thailand’s recent imposition of capital controls have rapidly faded,” it said in a report. EPFR said global equity funds recorded inflows of US$29.7 billion, a 51% increase on the tally for 2005 and the third straight year that these funds had posted a record for inflows. “It is clear that global investors continued to seek more global exposure in 2006 in comparing EPFR’s total universe of US and non-US equity funds,” it said. EPFR said total inflows into all non-US equity fund groups (including global, emerging markets, Europe, Japan, and Pacific region funds) amounted to US$116.5 billion in 2006, compared to US Equity Funds that sustained net outflows of US$15.9 billion.

Among emerging markets fund groups, it added that Asia ex-Japan funds raked in US$635.9 million in fresh money - of which flows into China Equity Funds accounted for more than half. BRIC Equity Funds, which invest in Brazil, Russia, India and China, ended the year with net inflows of US$4.3 billion. On Japan, it said despite the benchmark Nikkei 225 was at a seven-month high, it was not enough to spare Japan Equity Funds their eighth straight week of net outflows, thereby keeping this fund group on course to post net outflows for the first time since 2002. “The redemptions have come in spite of solid performance by Japanese equities which has added US$4.95 billion to the value of these funds’ collective portfolios since Nov 30,” it said. EPFR said Japan’s export story remains strong, in part due to its surprisingly weak currency. But its domestic story remains uncertain despite an economic recovery that is now in its fifth year. “With tighter fiscal and monetary policy on the horizon, investors question resilience of Japanese consumers and worry about a fresh bout of deflation,” it added.

1) Relative - The size of the funds into Asia ex-Japan went mostly into China, the rest got crumbs, nothing to shout about.
2) The Ringgit - This is crucial because a large motivating factor for continuing foreign purchases of equities into Malaysia lies on the outlook of the ringgit. Generally, the outlook is still good and I do not forsee any spectacular problems till the ringgit reaches 3.2 or thereabouts. The other good thing is the recent turmoil initiated by Thailand's central bank - this would serve as an excellent warning to Zeti and her team on HOW NOT TO SCARE the markets. Hence a sudden policy or capital movement change is unlikely, or largely will be watered down. Look for Zeti's opinions in the papers to monitor Bank Negara's shifts in policy thinking.
3) Interest Rates - Inflation will be a factor in 2007 as wages and prices move higher (higher tolls are but an indicator). As part of the policy to subsidise the economy less (which I strongly support), higher wages (esp in the public sector) and prices for goods and services are inevitable. The buffer is still there though. The strong ringgit is a lever we will rely on to a certain extent to manage the buffer. Bank Negara cannot really raise rates much further because that will send the ringgit higher too fast. Bank Negara's stance is quite obvious, it will allow the ringgit to appreciate in step with China's yuan. That is smart because in the end that is the main competitor in production of goods and services which we should benchmark upon. Hence on the interest rates front, it will be OK for the equity markets.
4) Timing - As usual, most equity rallies come in spurts, and the first and last quarters will still be the best period to invest or punt. Go away in May, come back in October, you will miss many anxious periods.
5) What can unbuckle the bullish undertone??? - Problems in China, politics, equity or property corrections. I am still a believer that the bullishness over Chinese banks is a tad overdone. In all likelihood, if there is a severe correction, it will affect other Asian markets more. Keep an eye there, and it also puts HK in the same boat as a large part of the stupendous rally in the Hang Seng last year was due to the large market cap and listings of China-related companies there. We can and should assume both markets as one.

I see a seperation of the influence of US and European equity markets on Asian markets. Just monitor China. Have a good, healthy, safe and prosperous 2007!