Asian Gaming Traits & Extrapolations To Business and Markets

Go to any casino in the world, be it Perth, Sentosa, Vegas, Seoul, London, ... and you are likely to hear occasional shouts of "Picture". Mind you, the shouts will largely come from groups of Asian gamblers from various countries, most of who will not be able to pass English at O Levels.

I have often wondered how the locals (those in non-Asian countries) viewed these Asian gamblers. Should you classify them as rude, boorish, madcap, poor appreciation of math and house margins', "should be in gamblers' anonymous", class-less, "does not know the value of money", etc...

As in any generalizations, there are more truths in these generalizations rather than pure myths. 


The Game

Ask a group of diverse people, you can easily separate true gamblers from amateurs:  the last 4 games of baccarat showed the PLAYER winning ... will you bet, and if you do, what will you bet on?

Normal Gamblers: BANKER, even though each game does not rely on past events, it is more unlikely that a fifth game will be won by PLAYER

Real Gamblers: PLAYER, a trend is hard to find, and when you find a trend, it is not just your friend but a best friend ... the fact that its 4th time in a row does not mean it more unlikely to be PLAYER, it just reinforced the momentum of the PLAYER going forward ... FOMO (fear of missing out)... this might be the only trend to run more than 10x tonight ... for every time it hits PLAYER you are just going to get a more religious group of converts shouting catchphrases like true believers .. they do not think of the negative but only positive, they visualize the 10th or 15th time it hits PLAYER

Conservative Gambler: Wait for the trend to turn, then bet. Thinking that they missed out on 4 of the runs, they just don't think it is worth it. These people want to catch it all rather than a tiny bit of it


Fate vs Destiny

To most Asians, gambling is more than just a past time activity. It is a means of challenging your own fate against destiny. Destiny is the bigger over-riding preordained feature for oneself. Fate is the inevitability of a usually adverse outcome. Like the saying goes, you won't know you are lucky unless you gamble. It sounds more like a gambler's epithet. 


Risk-Taking Nature

Asians by nature are ranked higher in risk-taking. The same argument can be made for early migrants to foreign shores as that must have been a massive risk-taking. It is also said that owing to that "genetic predisposition", you will find most migrants in foreign shores having a strong predisposition towards gambling. Not just Asians, in fact, you can include Greeks, Lebanese, Italians, etc... Generally, it takes one or two generations before that "genetic predisposition" is tamed (lol, need further study).

https://andropausesuccor.com/

Trend Is Your Friend

This is probably the most correlatable trait. Most Asian gamblers did not even know that they were master chartists even before they were born. Never go against a trend, even if there is a slight aberration, you can more easily explain it away to continue riding the trend. This is why history has shown consistently that Asian bull runs have been more vociferous and boisterous than Western bull runs. Part of the reasoning may be due to a larger market participation rate by individuals in Asian bourses compared to no-Asian bourses. Nonetheless, robust market activity in a bull run will be heightened on this "trend factor" or FOMO (fear of missing out). 


Math Is For Business

Will a smart business person be a good gambler. well, a truly smart business person will not be a reckless gambler. If I were to survey the Chinese company owners in Malaysia, there are just as many who are avid casino players and also as many who rather shun the place. Hence a good business person is and should not be a reckless gambler. 

Of course, there have been cases aplenty where company owners have gambled away their companies. As in anything, if you give in to excesses in life, be it gambling, drinking, sex or drugs ... there's no way your business life will be untouched.

Surely smart business people know the odds are stacked against them at casino games. Here, math matters only a little. However, one should know the odds margin that the casino holds against you in all games. Baccarat and blackjack have the smallest margins favouring the house. The more exotic the games become (e.g. 3 cards poker, 5 cards Carribean, ...) the margins are higher to the house. Don't even get me started on slots.






Control and Strategy

In gambling as in business, there must be a strategy, control factors and exit plan. Going in without them will almost guarantee "play till you lose it all".


Gambling Highs vs Business Highs - The Dopamine Effect


Research has shown that the drugs most commonly abused by humans (including opiates, alcohol, nicotine, amphetamines, and cocaine) create a neurochemical reaction that significantly increases the amount of dopamine that is released by neurons in the brain's reward center. 

These highs can be achieved in a smaller way via good companionship, regular exercise, a bit of alcohol and jolly friendships. People will tend to seek out the "darker evils" for dopamine when they cannot find them in their normal lifestyles. 


Advice

If you are going to gamble, first find something you are good at, or you like passionately. At the crux of it all its betting red or black, player or banker. If you are going to do that, do it where there are more variables involved, such as trading forex ... but you have to be good at reading economic variables, be on top of major business developments, read trends in economic figures, as well as be cognizant of chart movements and volume spikes ... then you may have a better than 0.5 chance of winning ... pick the best instrument that you are familiar with e.g. sgd/usd, or aud/usd, or yen/usd ... only do cross rates when you are really good.

If you are going to gamble, again find things that have more variables like stocks... earnings projections, aberrations and anomalies, learn to read financials, read industry trends, judge market sentiment, monitor shareholding changes, read charts for entry and exit points, etc... then if you are good at it you may have a better than 0.5 chance of winning.

Another safer way, go play Texas Poker among your friends, with a controlled budget. Even then, I doubt your chance of winning is 0.5.

London Biscuits - The Only Value Left Is In The Name

Let's look at the demise or downhill run by London Biscuits. We may then be able to see the various permutations involved and announced. How investors should react and so on.

Timeline

2019 February, London Biscuits’ external auditors Nexia SSY had expressed a qualified opinion on the group’s financial statements for the financial year ended Sept 30, 2018 (FY18). It had raised concern on the group’s physical inventories held at Sept 30, 2018, which were stated in the statements as RM26.89 million at the group level and RM20.79 million at the company level,
(LESSON: any kind of qualified opinion, one should sell first... our professional accountants are loathed to qualify anything unless its really necessary ... sell first then do research later, a lot of time to buy back if you were wrong)

On July 8, London Biscuits slipped into PN17 status after it defaulted on a RM9.8 million in loan payment to Bank of Nova Scotia Bhd,

(July 3), London Biscuits said that its executive director Datuk Ranjeet Singh Sidhu and its chief financial officer Loo Seng Kit had voluntarily resigned. Both had taken on their roles only on June 17,
(LESSON: when top management or board members resign suddenly, another big red flag... this one more so as these two were less than one month into their jobs)

https://andropausesuccor.com/

 (July 8), London Biscuits updated in a fresh filing with Bursa Malaysia that it was now a PN17 company due to the payment default,
(LESSON: PN17 generally will yield a shock selldown, PN17 is not all that bad, you have to assess how bad are the books as any potential asset injection or white knight to come in will have to judged on its viability... London Biscuit with just a cursory glance on numbers may require too much debt forgiveness and capital reduction to work for existing shareholders and creditors)

(Aug-Oct) Meileelanusa S/B disposed 5.9%, as of Oct 15 the company has only 7.35% from 13.8% in July,

 (Sept 24): Johor-based confectionery maker London Biscuits Bhd has been slapped with a lawsuit by Kuwait Finance House (Malaysia) Bhd (KFH) for RM5.06 million in outstanding debt,

(Oct 23), wind up petition and court-appointed PWCoopers Advisory as interim liquidators,

(Nov 12), MembersOne Ventures Fund, a Sydney based fund, has acquired 11.35%,

(Nov 15), in total London Biscuits has defaulted on RM285m

So who would buy now? Who are MembersOne Venture Fund? Only set up in 2017? Those who are cynical may say that the controlling shareholders, having sold at much higher levels, may have a reason to buy now to still "control" future firesale and/or white knight's

emergence. It is well known that most of the machinery in the company needs replacing or upgrading, hence you may even write that asset off altogether. SC needs to be more vigilant here looking at how volatile the changes have been to the company over the past 6 months. Too many things have happened, too many questions have surfaced.

Any value left in the company. The latest quarterly showed a Net Asset per share position of RM1.28. If you multiply by the number of shares 291m = RM372.5m. That is only slightly more than the loans being defaulted of RM285. Naturally net asset value would have already taken into account the loans, hence there should be a lot of vultures buying! But wait, they lose about 30-35 sen each quarter in net asset value. Looking at that trend alone, you would have avoided the stock 6 months ago. Judging on the qualified opinion and swift resignations of new management, one may suspect that the figures may not be reliable at all.

https://andropausesuccor.com/

Hence it is prudent to ignore the net asset value altogether, thus the only value left is the brand name London Biscuits. People who buy biscuits are usually not share investors.

My Own Comics

A few years back, on the official Dilbert site, you could pick any strips and put in your own words to create your own comic strips. I did quite a few. Hey, maybe I could make a living writing for a good cartoonist. Sadly the site does not allow "user creativity" anymore.

https://andropausesuccor.com/

Understanding The HK Situation

I have HK friends who cannot sit at the same table for dinner because of differing opinions on the way the protests have descended to. Even back in Malaysia, I have close friends who keep posting how the rioters should be handled, locked up and punished.


I don't think that the majority understand fully why the protests are ongoing; why it has descended into rioting and mayhem ... and many people in HK are still in support.

Anyone who is outside of HK would find it easy to question and condemn the silliness, naivety, and futility of the rioters' efforts.

This is by no means an apologetics diatribe to justify the protesters and (maybe even) the rioters. Rather, it is an attempt to understand the thinking and makeup of most Hongkongers.

First, let's look at why a lot of foreign people dislike the protesters/rioters:
- a complete disregard for rule of law
- the HK police force has been too 'lenient' and the "rules of engagement" too humanist as to limit the powers of the police to counter the protesters
- doesn't HK belong to China anyway?
- in less than 30 years HK will go back to China whether you like it or not
- to go against Beijing is almost a truly futile effort in the end
- doesn't HK people know how dependent their economy and business future is on China?
- there's nothing much that HK is good at other than shipping, logistics, property (domestic) and as a financial center.

To try and blame foreign sources for funding and influencing the rioters and protesters is exactly why the local people in government and Beijing to a lesser extent fail to appreciate the depth of the discontent among the majority of HK people. Let's put that aside and try to understand the whys'.

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ANGST Section 1 - Historical & Political Apathy

- most of the older people in HK now FLED China, now let that sink in a bit. FLED, past tense of FLEE. The younger folks who were born in HK only knew of their colonial master, as a dominion of the British empire
- hence we can appreciate the political apathy for much of the past 100 years, there wasn't a call for universal suffrage because it was a British colony and to my knowledge, there was never a substantive call or formation of a movement to declare that the population wishes to form a separate country or government
- when the Brits agreed to sign back HK to China in the 1997 agreement
- on June 9, 1898, the British under Queen Victoria brokered a 99-year lease agreement for the use of Hong Kong after China lost a series of wars fought over the British trade in tea and opium
- in 1984, British Prime Minister Margaret Thatcher and Chinese Premier Zhao Ziyang negotiated the underlying plan for the lease to end, such that Hong Kong would remain a semi-autonomous region for a 50-year period after the lease ended
- the lease ended on July 1, 1997, and since then tensions between the democratically-minded Hong Kong population and the PRC have continued, although Hong Kong remains functionally separate from the Chinese mainland
- the perceived increased  of Beijing influence over the past 15 years have left many HKers shaking their heads
- most HK people did not feel the need to ask for universal suffrage under the British because the latter allowed HK to flourish under the laissez-faire economic system, backed by ICAC for corruption eradication, the independence of the judiciary and legal system, and the relative independence of the police force ... all hallmarks of good governance of a capitalistic economy


ANGST Section 2 - Culture/Displacement

- way too many Chinese from the mainland has been invading HK in various means: shopping, buying up properties and stocks to start with
- thousand of kids from southern China take the long train ride to go to schools in HK, causing a strain on resources and places for HK kids
- the mass buying of baby powder and a plethora of other stuff to trade back in China
- the huge surge in the number of Chinese women from the mainland to have their babies in HK, straining resources and places further
- these are more than just tourists' troubling behaviour; it is considered intolerable to the extent that HK's culture is being eroded, their rights and privileges are also being eroded, their home is no longer the home they were used to, HK is more dependent on Mandarin in a way that is unsettling for most, and most ironically most HK people no longer can afford to live in HK while many of the rich mainland Chinese can and do so with aplomb.


ANGST Section 3 - Affordability Gap

- unless you already paid-up on your unit in HK, you are basically the majority of them striving to carve out 60-70% of their monthly pay for the mortgage or to save enough for a down payment
- even you daily existence is paying homage and duties to the landlords via higher rents, higher food prices, higher everything really because rents, space, and buildings are all owned by the elite few and cost more than an arm and a leg
- the cosy relationship between the ruling elite and property barons has led to a stifled release of land for public housing over the past 30 years; is it a wonder that more than 70% of HK land has been gazetted as reserves (for environmental protection, or other altruistic reasons) ... I am all for being green but not when the majority of your citizens are suffering indirectly due to these political moves
- despite years of schooling and using loads of funds for education, many of the youths find the future bleak - rising costs and property affordability gap and lack of freedom, all were a recipe for an uprising ... mixed that in with undisguised contempt for the influx of mainland Chinese into many things in HK, you have a fire morphing into a fireball
- Hong Kong has also set world records in home prices and has a glaring income gap. In 2016, it had a Gini coefficient – a measure of inequality – of 0.539, which Oxfam said was the highest in 45 years.

ANGST Section 4 - Trust Deficit With Beijing

- remember that the bulk of HKers were made up people who chose to flee to HK, now you want them to go back to be governed by the motherland
- while Beijing does a lot of things well, it has a very different way of doing things when it comes to dissent, political opinions that differ from the "official stance" ... and that translates itself to overbearing laws for "control" purposes and to stifle and the lines of control from the courts to the police to the army act as one machinery for the good of the party (I mean, how to trust a state prosecution process that has a 99% conviction rate??!!)
- the Legco was set up as a mouthpiece for Beijing, even though some seats were available for election by the masses, the entire setup was such that there was no way to overthrow or even pass legislation without Beijing's approval
- the extradition bill was just the straw that broke the camel's back, hence even when the bill was finally withdrawn and killed off, it was too late to stop the protests.


ANGST Section 5 - Trust Deficit With Local Government

- In many ways, the distrust with local government is greater than with Beijing although both are similar in the eyes of most HKers
- By being appointed, and by inference cosying up to the richest in HK and Beijing, the entire Legco has to go

https://andropausesuccor.com/

- for those who say the protesters could have gone about their protests in the proper way... that is exactly the point of protests breaking out into riots, there is no way for any "voices" to be heard or to lead to substantive changes in the current political ecosystem.


A WAY OUT? - HK is important to Beijing but not as important as say 20 years ago. There is no way for Beijing to grant independence, even the protesters know that. But why force a group of people to be back into your system when they clearly don't want your ways.

If I was Beijing, I would extend the 50 year agreement of two systems to 100 years. Next, I would revamp Legco to allow for absolute universal suffrage. To have 100% seats being elected by the people. Much like a federal government and a state government structure. Absolute no question on wanting independence will be tolerated.

The Not-So-Enigmatic Success Story Behind QL Resources?

CAVEAT:  This is entirely MY OWN VIEW, I could be wrong here. It is mainly conjecture on my part.

It has been said when you wish to emulate someone, learn from the best. QL Resources, a shining star in terms of stock price performance for the last 15 years, did very well again in 2018 in spite of trying conditions. 

 QL was founded in 1987, but its roots stretch back to the late 1970s. In those early years, Dr Chia Song Kun and his brothers harvested the calcium-infused shells of dead mollusks from a remote shoreline near their home village, which they supplied to local feed millers. The hard-fought success of this modest business allowed them to expand their product range and open new branches across Malaysia. 

 After establishing a core business in feedstuff trading the company grew through adjacency expansion, which led to diversification into food for human consumption. QL now operates in three distinct sectors: Integrated Livestock Farming, which includes poultry farming, feedstuff trading and consumer brands; Marine Products Manufacturing, which includes surimi and fishmeal processing and consumer brands; and Palm Oil Activities, which includes milling, plantations and biomass clean energy.

QL’s strategy involves the deployment of technology, capital and management expertise into populous emerging markets. Despite new market challenges and geopolitical risks, regional expansion in adjacent ASEAN markets is fuelling QL’s medium and long-term growth.

Dr Chia and his team pursue a strategy of strengthening and additional integration of QL’s value chain. This provides the company with more opportunities to add value, multiplies its ability to generate profit, increases efficiency, mitigates the business cycle risk that often affects singular parts of a value chain, and ultimately ensures consistent quality in the final product. Greater competitive advantages are held over businesses in any one segment of the chain as a result.

QL’s marine products manufacturing division is the fastest-growing among its three business divisions. It is involved in deep-sea fishing, aquaculture farming, surimi and fishmeal productions. Presently, QL is the largest surimi producer in Asia. Over the last 10 years, QL has achieved a CAGR of 13.59% in revenues for this division. It has grown from RM245.4 million in 2007 to RM877.1 million in 2017.

QL’s livestock farming division remains the biggest revenue contributor to the group. It has grown as a result of organic growth and a series of acquisitions. In 2007, this division was producing 1.5 million eggs a day. In 2017, QL produces 4.6 million eggs a day. It also produces 40 million day-old chicks (DOC) and 20 million broilers and trades over 1 million metric tonnes of animal feed raw materials a year. Over the last 10 years, QL has achieved a CAGR of 10.50% in revenues for this division. It has grown steadily from RM657.2 million in 2007 to RM1.78 billion in 2017.

QL has achieved a CAGR of 14.04% in dividend payouts to its shareholders over the last 10 years. It has increased from RM14.3 million in 2007 to RM53.0 million in 2017. QL has maintained an average dividend payout ratio of 24.51% over the last 10 years. For the financial year ended 31 March 2017, QL declared 7.25 sen in dividend per share. It comprised 3.00 sen in special dividend and a final single-tier dividend of 4.25 sen. The special dividend is one-off and declared as a token of appreciation to reward its loyal shareholders. As at 4 September 2017, QL Resources share price is trading at RM4.82 a share. Excluding the special dividend, if QL is able to maintain its final single-tier dividend of 4.25 sen for the financial year 2018, its expected dividend yield is 0.88%.

As of May 2019, FamilyMart Malaysia opens its' 100th store in Melaka, earmarks to open another 50 stores in FY19 towards their FY22 target of 300 stores. While operations are not expected to break even in FY19, management expects the store chain to become profitable in FY20 from an expected store base of around 120 branches.

Today QL has a coherent, complementary set of businesses with a combined objective: to add value to our broad, resource-based Group.

• Marine Products Manufacturing Activities

  • We are the largest producer of surimi in Asia as well as the largest fishmeal and surimi-based products manufacturer in Malaysia.

• Palm Oil Activities

  • We are the leading independent crude palm oil miller in Sabah, Malaysia.
  • Own and manage a 1,200 HA mature palm oil estate, also in Sabah.
  • In Eastern Kalimantan, Indonesia, we own and manage a 20,000 HA oil palm plantation, of which 5,000 HA are mature.

• Integrated Livestock Farming Activities

• We are one of Malaysia’s leading distributors of animal feed raw materials.
• We are also one of Malaysia’s leading poultry egg producers, with a production rate of approximately 3.2 million eggs per day.
• We are a leading integrated broiler producer in East Malaysia

So which company did Dr Chia Song Kun patterned (emulated)  after? This is entirely MY OWN VIEW, I could be wrong here. It is mainly conjecture on my part.  Coincidentally, or not, it was after another Chia family... but from Thailand. I think it was more than coincidence that both have the same surnames.

To be fair, QL after making great inroads into the agro-farming, livestock feed, marine farming... did venture into something big which CP did not have a natural advantage, i.e. palm oil. The Family Mart venture puts QL back on the CP treasure map (CP own's the 7-11 franchise for Thailand, the best performing of all 7-11 franchises globally).





CP or Charoen Pokphand Group

Key Dates: 
1921: Chia Brothers, from China, set up a seed shop in Bangkok's Chinatown, then begin exporting poultry and pigs to Hong Kong. 
1954: The company diversifies into animal feed production and launches a subsidiary, Charoen Pokphand Feedmill. 
1964: Dhanin Chearavanont, son of one of the founders, takes over as company leader. 
1970: The company launches a poultry breeding business in partnership with Arbor Acres of the United States. 
1973: The company begins exporting poultry to Japan and becomes one of that market's leaders. 
1979: The company becomes the first foreign firm to invest in the Chinese market, opening a feed subsidiary in the Shenzhen economic trade zone. 
1986: The company diversifies into shrimp production and becomes the world's leader in this market. 
1994: Lotus Supercenter retail network is launched in Thailand. 
1998: The company restructures as a "focused" agribusiness. 
2003: Dhanin Chearavanont is named one of Fortune magazine's "World's Most Powerful Business Leaders." 

Textbook Play

This post is in no way to dilute Dr. Chia's business ability, rather, it is to highlight how an academic can parlay his book knowledge (case studies and research papers) with great entrepreneurship to bring about great businesses.

I am a great admirer of Dr. Chia. I would use the words "emulated" or "patterned" and NOT "copied", when referring to QL's achievements. I think Dr. Chia is easily Malaysia's best business person for the past 50 years.

We all want to learn from the best. We buy good books on business, we pay for solid business centric magazines and papers - just to improve our knowledge and hopefully learn more about business insights and strategies. Dr. Chia is a fine example of learning from the best, parlaying his astute business knowledge, and executing very well.


CP In Everything Now

Just how much more can QL grow? Well, QL has managed to replicate CP's top two businesses: Agro-Industry/Food and Retail/Distribution. That has taken a lot of effort for QL. We have to remember CP is so much bigger than QL because of its early mover advantage and a domestic population that is almost 3x the size of Malaysia.

Is QL Still Attractive As A Stock

Definitely yes. Just have a look at its long term share price chart. One caveat though, I think some investors have been too exuberant over the Family Mart business and has pushed its near term valuations on the high side. If I had been holding QL for more than 5 years, I would sell 2/3 at current valuations if not all BUT would definitely look to buyback when earnings start its next wave 0 when Family Marts shows better cash flows. Now Family Mart is in its capital expenditure phase.

http://andropausesuccor.com

AMLA Overkill For the Majority Of Malaysians

The objectives for AMLA are fine. However, most will agree that the "checks and balances" on ordinary Malaysians of late (over the past 6-9 months) have been bordering on overkill. A sudden substantial sum should attract proper queries. But please, not RM2,000 or RM8,000 here, TT here kena and TT there kena. For the majority of Malaysians, we are being "mildly persecuted for having and using and receiving money", so much so that we are "made to feel that we ordinary Malaysians cannot and certainly should not nor are we capable of earning or handling money more than RM500".

New accounts should be checked sure. But if we have been holding active bank accounts for 15-20-25 years, why now? Even so, ask once every 6 months, please ... not every other transaction 2-3 times a month. We feel like ex-prison convicts being checked by our supervisor for post-good behavior.



Why should Bank Negara tone down the "overkill":

- You are letting the eagles go free, but go rustling for chickens. We only see "justice being carried out now" on maybe the top 10-20 senior politicians from the old government. I mean, come on, what about the day in day out shenanigans for the last 10 years by the next layer of 500-1,000 top "politicians / influencers / gatekeepers"???

- It is disruptive to our lives, and put the poor souls at the banks having to make these incessant ludicrous calls. Making them subjected to temper outbursts and being called names and profanities for no good reason. WHAT A TOTAL WASTE OF RESOURCES on all counts.

- We have people appointed to look for real money launderers, don't we? Or suddenly bank officers were appointed as RELA members? Let MACC and the Police money laundering unit do their job. If it is not effective, pour resources there.

- Already the economy has been slowing down for the past 2-3 years. The velocity of money has dipped appreciably, and here comes the phone call questioning my funds' movements. It is a wonder that funds even move at all.

- Bank Negara, no need to go so micro. These scare tactics supposedly preventive just give rise to an unbalanced cost-benefit result. Don't use or test the general public's patience to bring about some "scare tactics". Criminals will be criminals, they will find other ways.

- The GREY economy: I am sure Bank Negara knows how big our grey economy is. The side that pays no taxes. A lot of funds swish around because of the grey economy. If you want to capture the taxes there, do a proper GST on consumption. Don't unnecessarily burden and frustrate the majority of good standing citizens.

Preventive Measures for Reporting Institutions

All reporting institutions are required by law to undertake preventive measures to prevent their institutions from being used as a conduit for money laundering and terrorism financing activities.

The preventive measures include conducting risk assessment, application of customer due diligence, submission of suspicious transaction report (STR) and cash threshold report (CTR), maintenance and retention of records of transactions and implementation of AML/CFT compliance programme that is reflective of the reporting institutions’ money laundering and terrorism financing risk profile.

WHAT IS MONEY LAUNDERING?

Money laundering is a process of converting cash or property derived from criminal activities to give it a legitimate appearance. It is a process to clean ‘dirty’ money in order to disguise its criminal origin.

WHAT IS TERRORISM FINANCING?

Terrorism financing is the act of providing financial support, funded from either legitimate or illegitimate source, to terrorists or terrorist organisations to enable them to carry out terrorist acts or will benefit any terrorist or terrorist organisation.

While most of the funds originate from criminal activities, they may also be derived from legitimate sources, for example, through salaries, revenues generated from legitimate business or the use of non-profit organisations to raise funds through donations.

IMPACT OF MONEY LAUNDERING AND TERRORISM FINANCING ON COUNTRY

• Increase in the overall rate of crime that could threaten national security.
• Inhibit the growth and competitiveness of the economy.
• Taint the integrity and reputation of the business and financial sector.
• Increase cost of doing business and operations of various sectors of the economy.

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What's Ailing The Local Equities Market

So, whats ailing the local bourse. The Dow keeps chugging along and most other markets have been doing relatively well for the longest time. Our local markets have been in the doldrums since we changed government. Is it that we are still on the clean-up stage owing to the many mismanagement at plenty of GLCs? Is our debt burden so insurmountable? Is the property overhang causing a shrinkage in liquidity?

Or has it to do with the Malaysian bonds' future?

Stock market indices provider FTSE Russell’s decision to retain Malaysian bonds on its FTSE World Government Bond Index (WGBI) watch list is negative to the market, AmBank Research says.

“The next review will only be due in March 2020. This is negative to the market as it means the overhanging concern on potential US$8bil (RM33.6bil) foreign outflows from the Malaysian bond market in the event of a downgrade will not immediately go away, ” the research house said on Friday.

“Apart from Malaysian bonds, a downgrade would hurt the ringgit, and in turn, the appetite for Malaysian equities as well, ” it said in a research note.

A downgrade of Malaysia’s bond would have excluded them from the WGBI. Malaysia's bond market is the most foreign-owned in Asia, and the status-quo could weigh on the ringgit on Friday, Reuters reported.

FTSE Russell will provide another update after an interim review in March, which would give the Malaysian central bank time to potentially explore more measures to enhance liquidity, the agency added.

Read more at https://www.thestar.com.my/business/business-news/2019/09/27/foreign-bond-outflow-concerns-remain-after-ftse-russell-decision-ambank-research-says#dLllyE8SVCbcguQX.99


For me, all the cited reasons above do not account for the main reasons why local equities have been shunned.

1) Participation Rate - As a developing economy, it is natural that the markets will see a large participation by private investors vis-a-vis institutional. In bullish markets, retail investors may account for 40-60% of volume traded. Things have been evolving for the past 10 years. Can anyone guess how many broking accounts there are in Malaysia: answer, it is 1-2 million, maybe even more. 

Now, guess how many accounts TRADE AT LEAST ONCE A YEAR ... (you can get the actual figures from Bursa if they let you) ... around 200,000 accounts. So forget about the 2 million, most are dormant or replications. 

Now, guess how many individual accounts trade at least ONCE A MONTH. Its around 60,000 only. Does that ring any alarm bells? How did we get to this sorry state?


2) Lacklustre IPOs - Need I say more. For the past 10 years, you can tabulate all the IPOs and see how they perform. Are there no interesting prospects left? I would argue that overly stringent rules and regulations have been hampering decent companies. Many have opted to go overseas for listings. Some cannot get the valuations they want.

Bursa/SC have to be forward thinking in bringing up good prospects to list on Bursa even though it might have to bend rules a bit. Our regulations are too tight and leave no room to manoeuvre. Then there are are the overly inquisitive on their sources of capital - it is up for debate; there are already rules by Bank Negara to "capture questionable funds", why does this fall under Bursa/SC again?

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The reality is, EVEN WITH THE TIGHT REGULATIONS we are coming up with very mediocre IPOs, so the rules are not doing their jobs no matter how you argue.

Why can't you help list IPay88 (want higher valuation, so be it, it is the future), or 99Speedmart, KK Group or PappaRich .... just scan these decent companies: AbbVie Sdn Bhd, Elken Sdn Bhd, arvato Systems Sdn Bhd, Continental Tyre PJ Sdn Bhd, Jakel Trading Sdn Bhd, Matrix Global education Sdn Bhd, Harta Maintenance Sdn Bhd, KDEB Waste Management Sdn Bhd, OFO Tech Sdn Bhd, Swingvy Sdn Bhd, Zenxin Organic Food Sdn Bhd ... Of course, not all of them are quite ready to list, but many are if we are just more "amenable to the requirements".

Our listing rules are so archaic, we still favour old industries with hard assets, proven profits over 3 years, listing around 10-15x earnings ... all these rules are meant for industries 25 years ago, we haven't changed.

There is little proactive engagement with these private companies. There must be a team to "encourage, facilitate, even mentor" dynamic soon listable companies. Let's no longer lord it over as gatekeepers, you come to me and we see whether you can pass. Be proactive, engage, be flexible, if IPay88 wanted 28x earnings, I think it is reasonable, I think investors would grab it even. Because we are so ladened with very humdrum IPOs for the past few years already. 

3) Over-Surveillance - What I meant by that is surveillance on trading and possible collusions. We all know Bursa/SC have brilliant systems to track all our trades. But when it goes overboard, nobody wants to trade anymore for fear of getting into trouble. Did you know if a com

pany or an investor were to do a General Offer (usually at a premium to prevailing market prices), Bursa/SC can (and I heard do) trackback all BUYERS of the stock for the past 12 months. I mean, come on. Who dares to buy? As innocent as you heard a rumour from a pub, you'd feel you might be doing something wrong already to buy based on rumour. This is but one example and remeasures and traders can tell you plenty more.


4) Make Money - You cannot argue that people are shunning stocks because ALL PEOPLE will go to where they can make money. Take Bitcoins, many didn't even have an account or know where to trade these buggers, but because its volatile and trending, people will find a way when there's money to be made. People are shunning local stocks because there's not much money to be made...FULL STOP.

5) Going Private - Just look at the table above. Why are good companies going private in droves? Because the market is not giving them the valuations they think they deserve. Many will resurface later with better valuations in other exchanges. Or they do not think they need to raise capital anymore.

There are slightly less than 1,000 listed companies on Bursa. Around 60% will see no trades almost every day. That needs to be addressed. No liquidity for various reasons, no more reason to be listed. Something needs to be done here. Unfortunately, I can't help solve every single problem.


6) Most Important Shift In Paradigm - This would be the most important shift in listing paradigm, which seems to have bypassed Bursa/SC completely. Now companies are no longer listing to RAISE CAPITAL for growth like before. The paradigm has shifted to Private Equity/Venture Capital Funds to raise funds.

For example, a company could have listed now for 14x prospective earnings on Bursa, but instead, choose to take funding of RM150m (even more than what the company could have raised by listing on Bursa) and remain private. Hence the new capital will fund growth strategies and has a good chance to succeed. Two years later, the same company will go for listing but now net profit has more than tripled, thus listing at 14x prospective would yield a market cap of more than 3-4x than listing on Bursa two years back.

There's nothing wrong with that except that the company is now listing to help PE/VC to exit rather than to raise capital and allow investors to participate in the growth of the companies. Hence the valuations become fuller than say two years back, thus limiting the upside as well. (The delisting and relisting of Leong Hup has some semblance of that).


These are but just a few critical factors that the government has to address to rejuvenate the local bourse. Even if you do nothing, the local bourse will still have bull runs when the planets are aligned, but these ups and downs will not help mask deeper underlying problems in the long run.

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