Pandemic Effects on Countries & Macro Trade Ideas

 Global biggest economies saw some significant changes following the Covid-19 pandemic.  Nominal GDP values denominated in a common currency are a way of measuring and comparing economic sizes of different countries, and provide a glimpse of how developments — such as the pandemic — affect economies differently.

India which was 5th in 2019 has slipped to 6th, and judging by the calamitous situation there, is likely to drop further in 2021.

The pandemic which has hit South American nation in a much bigger way has resulted in Brazil slipping markedly. Brazil was 9th in 2019 and has slipped to 12th in 2020. Again another candidate that is likely to slip further down in 2021 although maybe not as precarious as India. IMF has projected that Brazil is likely to stay out of the top 10 till 2026 at least. Brazil has recorded the 3rd highest caseload and 2nd in terms of number of deaths. This spells a pending bleak situation going forward for India.

South Korea, thanks to its vigilant measures and high testing rates, has reaped the economic benefits and moved into top 10 in 2020.

However its interesting to look at trade impact as well. The world’s most affected economies due to coronavirus are the European Union, the US, Japan, South Korea, Taiwan, and Vietnam, according to UNCTAD’s preliminary estimates of trade impact, in that order. That is because on a per capita basis, the amount of trade impact would be higher for smaller population with a high trade coefficient. This highlights USA's even deeper predicament.

April 28 (Reuters) - U.S. bank Goldman Sachs expects commodities to rally another 13.5% over the next six months on a worldwide reversal of coronavirus curbs, lower interest rates and a weaker dollar, its commodities research team said on Wednesday.

MACRO TRADE IDEAS: The sustained rallies in iron ore, copper and alumina may very well spill into the 3Q at least. As to whether it is sustainable, the jury is still out. However we have seen significant rallies in local stocks linked to those categories. Freight rate have jumped as well. Just look at the renewed interest in the few local players. 

Even oil & gas stocks should be in for a good run. But I prefer the above categories.

I think as a short term trade play, stocks linked to these will be useful to follow. That's because while liquidity is still good in the markets, they have also been running low on ideas.

p/s She is Lin Min Chen from Malaysia. Making her rounds in HK and Taiwan. I think she will succeed big time very soon.

Snippets: Iron Ore Prices, Dissecting MTouche

IRON ORE: The price of iron ore, Australia’s biggest export, has surged to an all-time high as aggressive, infrastructure-focused stimulus programs in China fuel booming demand for the key steel-making raw material. Iron ore’s stunning rally over the past year – which has delivered mega-profits to mining giants BHP, Rio Tinto and Fortescue and helped support Australia’s finances through the COVID-19 crisis – hit a record high of $US193.85 a tonne on Tuesday. The milestone price, which topples the previous record of $US193 a tonne set in 2011, comes as demand from Chinese steel mills rose in the lead-up to a Labour Day public holiday. Analysts on Wednesday suggested the price may continue to soar even higher and soon cross $US200 a tonne.

We have seen the price of aluminium rising in tandem as well. Last 2 weeks saw a rerating in some local aluminium stocks. Just heads up.

DISSECTING MTOUCHE:  MTouche went for a 10 into 1 consolidation. The exercise went ex on 20 April. The few weeks prior to going ex, shares were trading between 2-3 sen. Upon going ex it was a disappointing few days as the new share price only went to 15 sen-21 sen (meaning its the same as before going ex 1.5 sen to 2 sen). The last two days have seen interest being registered in the share price and volume. 

I have to STRESS that this is not a buy/sell opinion. Just have a look at the facts. At 35 sen today, its collective number of shares stands at 132 million shares. Giving it a beautiful market cap of just RM47m. 

Thie initial price weakness probably has to do with the upcoming 6 for 1 rights at 10 sen, which comes with 3 for 1 free warrants. That means if you hold 100,000 shares, you have to pay RM60,000 to get the 600,000 new shares, giving you a total of 700,000 shares plus you will get 300,000 free warrants. Getting investors to pony up funds is never easy. Looking at the market cap now, it is dirt cheap as to get control of a listed counter, you are already looking to pay a RM20-40m premium. As everyone has to put in the new 10 for every shares- this will mean shares will be back by cash of 10 sen anyway. Factoring in the free warrants, it is likely that there is meat on the table.

Again not a call to buy or sell. Do your own research before acting.

p/s: She is Malaysian actress Sangeeta Khrishnasamy. She did a small role in Kollywood movie after making an appearance in Venkat Prabhu's hit Goa and as the female lead in ZHA among famous South Indian film actors.^[2] In 2015 was the female lead for two hit Malaysian Tamil movies Vetti Pasanga & Vennira Iravugal. Vennira Iravugal became an acclaimed Malaysian Tamil movie after it was screened in several film festivals around Europe and winning a special jury award at the Norway Tamil Film Festival in 2014, subsequently taking home all 5 awards in all categories at the Malaysian Kalai Ulagam Awards in 2015. 

AirAsia - Survive or Perish

 

It is already so rare for any local company to make its mark regionally and AirAsia has more than done that. Its a pity that the Government has chosen to fold their arms when AA comes asking for help. The amount of time lifelines have been thrown to  Airlines ... do you wish to count ... the wau, the rebranding, the 4th floor or is it 5th floor I forgot .. credentialed CEOs, foreign and local. 

Occam's Razor  conclusion - Why can't we revive MAS to profitability. There have been multiple efforts and strategies deployed, and have been given more lifelines than a pussy (cat, I meant). OR's wisdom would be that it is not salvageable.

Easily the most palatable thing will be to merger AirAsiaX with MAS. But egos get in the way, valuation gets in the way, unions get in the way. When did we get to behave like the Japanese? Consensus decision making?

Let it be known that every single Asian nation helped their airline massively... you may argue AA is not a national airline but so shallow. What is "nationally owned"? You only help when government institutions owned some of it? Seriously, how many Malaysians AA employs, how much tourism it brings to the country by making regional travel more affordable and efficient. The multiplier effects would be many x what MAS has done over the years (besides draining our resources). Someone can go tabulate how much funds has been given to MAS for the past 20 years - its enough to build another international airport.

But I am not here to bash MAS - just giving a preface to the situation AA is facing. Can they survive. Its an opinion piece, not a buy or sell.

Firstly, I think whether you like Tony Fernandes or not, you cannot and should not deny the fact that he is a brilliant entrepreneur.

To survive the next 2 years, which is critical, will see good upside or a close shop scenario. It is that dire. 

NAPS is only 15 sen. Even following the private placements and rights issue, by end of the year NAPS will be just 30 sen. But you only talk of NAPS when the company has a high chance of NOT being a going concern. Thus the break up value is needed as a benchmark guide for investors to assess their risk.

Looking at the sober projections by UOB KH, the year ending 2022 December would be the X-Factor. When will regional travels be back to normal? Not all Asian countries (including Australia and NZ) are vaccinating at the same rate. You can take out India. The travel bubble between HK-SG will only start end of May. Initial travel bubbles between SG-Australia may be starting June/July. All in, to get to even 50% normality, we are looking at October 2021 the earliest. It is imperative that we achieve 70-80% normality for airline travel by November-December 2021. Failing that, the 2022F figures below are very hard to attain.

Herein lies the catch. If they are unable to attain that figure - say the make zero profits for 2022F. The castle will crumble because they will then have to raise another xxxx (maybe circa RM500m) to push through 2022-2023.

However, if the figures hold up, meaning air travel gets back to normality by end of 2021, a net profit of RM1bn will be looking pretty good. On the back of 6bn shares, EPS will be 16.6 sen. If they can achieve that in 2022, it will be normal services have resumed. That being the case I think a 15x PER would not be outrageous. 15 x 16.6 = RM2.49. This compares favourably to the current price of 89 sen.

What that means is going forward, any kind of related news on air travel, vaccination rates, vaccine passports, air travel bubble, reinfection rates around the region, etc... will be of utmost importance. If you are long the stock now, be prepared for A LOT OF VOLATILITY.

Will people travel when its green lighted? Oh yes they will. The pent up demand for air travel is so big that I see the initial 3 months to be so vibrant that high prices can be charged by all airlines.

As for the share options scheme and long service incentive scheme, its not dilutive but a necessary tool to make company goals achievable.It is better to be upfront and transparent on incentives for staffers (which AA did), plus AA is in no position to offer cash bonuses for the next 2-3 years. Hence it is the more decent alternative.

Again back at the chalkboard. Merge AAX with MAS. Let them take the longer foreign routes. This section of business is going to be so much more difficult for the next few years. You don't need more than 1 player.

By doing so, you reserve all regional routes for AA, instead of both trying to cannibalise each other to grow out of the miserable situation.

p/s: Yes, its Son Yejin. There are some people who might not be so attractive in photos. Yejin is one of them. Go watch her act, talk and behave... you will fall easily in love with her. Easily the most adorable actress from SK.

Asset Class Returns - Nuances

 

The chart below shows several issues investors struggle with all the time. It’s difficult to pick the best performing investment year after year, yet for many investors, it’s an annual event. They look for an encore, picking the best asset class last year with the hope of a repeat performance. Yet, betting on last year’s winner rarely works out.

Assets at the top of the chart one year could be at the bottom the next, and vice versa. Much of this is due to reversion to the mean. But over the long-term, those big swings even out. The key is to appreciate that asset classes goes through "cycles" and your funds could be caught in dead water if you are invested in the wrong asset classes for a few years.  

The chart shows annual returns for eight asset classes against a diversified portfolio. Diversification works to smooth out those big swings in the short-term. While you’ll never get the biggest gains of any year, you avoid the huge losses. The flip side to me is that FULL DIVERSIFICATION is a coward's way of investing. There are enough information and trends to read for investors to be weighted into the "correct asset classes" year in year out. Efforts should be made to rebalance your portfolio to obtain supernormal returns, and as shown from the chart, it is highly doable.

The table below ranks the best to worst investment returns by asset class over the past 10 years. 

- REITs had a fantastic run from 2011 till 2015. Mainly sifting from the ashes of the 2008 subprime mess. Any massive correction from a bubble presents opportunity, and they can lasts a few years, not just a knee-jerk upswing.

- From 2013 till even the present day, the markets have been characterised by loads of liquidity being poured into the markets via record low rates. The situation was further expanded owing to the pandemic rescue packages for the last 18 months. Low interest rates with liquidity is a magnet to large caps, and they have performed admirably since 2013.

- Emerging markets never seems to have a good run of more than 2 years. The third usually is a down year. This may be characterised as global funds flow bias. Global funds may plough their exposure but won't stay longer than two years. Once the main guys exit, it will be a down year. That's probably due to the fact that most emerging markets stocks are not in their benchmark or must have strategy. Two years up one year down, when its cheap enough, they get back in.

- Surprisingly small caps have not really done much better when compared to large caps. I see this anomaly was due to the deluge of liquidity at the top. Small caps were more of an indirect beneficiary from the liquidity deluge, but big funds cannot find enough size among small caps to soak it up well, which probably caused more big funds to stick with big caps.

- Caught up in the data but not obvious must be the speedy evolution of what constitutes as large caps. Over the past few years, they are less oil & gas, big steel but more tech related. Hence we need to adjust our parameters when we are talking about large caps.

p/s: Anggika Bosterli was born in 1995, at the age of 21 (now 26) she is already having a strong foothold in the Indonesian film industry. She is one of the most desired women in Indonesia as she is a regional beauty with a little icing from a foreign country.

She became noticed for her exceptional beauty through her debut role in soap opera Fly with You. She has also Acted in FTV videos like Do Not Take My Husband and So Blue Pupils. Her recent film that was released this year is Aach…. Aku Jatuh Cinta.

Back To My Roots - Blogging Like Before

 

There aren't many blogs that lasts more than a few years. People get bored or they have run out of things to say. I am here to say I will START to return to my original fervour of blogging. Like rediscovering your passion. So, readers can look forward to at least a new posting every single day. 

This blog was started back in 2007, most marriages or businesses don't lasts that long. You can't force it, the passion has to be rediscovered again and again. But with new guidelines - you have to do a lot of self censorship according to the times. No need for further elaboration.

Plus, the icing on the cake, my female photo selections will also make a comeback.

Berjaya Group CEO - There's a new CEO in town and many of my friends have made comments. Generally, they have been good that finally someone is putting some skin in the game. However a few of my respected financial friends made these comments: "How did he get to have so much money in the first place?"... "Did Vincent Tan finance his stock purchases?" (is that legally/morally wrong?).

We have become so cynical that we tend to take the glass half empty route every time we come across "seemingly good things". We question, we doubt, we make disparaging comments ... based on NOTHING other than our biases or skewed value system. 

Maybe its the environment we were brought up in, and/or the political shenanigans and the puppet masters behind so many of our institutions and power plays ... maybe.

I think I'd like to give the guy some leeway. I mean he was doing good stuff at PNB... till the good things affected the tollways of some powerful people I think, so they say. 

So the next time we come across something 'seemingly positive", let's give it a chance. There is no need to whack everything, even when 9 out of 10 times its usually "sinister". Life would be better this way, the more negativity we pour onto ourselves just kills our souls faster.

p/s: after haven't posted pics for so long, the first one will have a lot of weight .. she is Shirley Cheung Yuk San, a one time TVB starlet. I think for about 6-7 years before leaving abruptly to start her body slimming biz. She got that listed in HK's GEM in 4 years. She's 47 now and still looks great (and single... her "influential bf died a few years back). She is tenacious, intelligent and quite brilliant in so many ways.