Malaysia-Singapore Ties
Brawling Teenage Kids That Never Grow Up

Friends and regular visitors to this blog have been asking why I haven’t commented on the Malaysia-Singapore bridge situation. Generally, I wanted to stay away from the Malaysia-Singapore thing as nothing ever changes, it’s the same thing over and over again. Its like raising two teenage brats who never grow up. The Malaysia-Singapore thing is like the Sydney-Melbourne rivalry. Back in the 70s, citizens from both countries would take any opportunity to make a jibe at the other on various issues – politics, currency valuation, progress, economic viability, jokes, sporting rivalry etc… That kind of mentality eroded as we stepped into the 90s as citizens from both countries got really tired over the squabbles. Now, we tend to disagree about the belligerent stances taken by both governments in private, and just roll our eyes every time something erupts. Both sides never learn, both governments use the squabbles to score political brownie points, and both countries failed to recognize that we need each other in more ways than we care to admit.

The water issue, an agreement made many years ago to supply water at a certain rate (that does not make economic sense in present days) should have been renegotiated to accumulate goodwill. A decent offer from Singapore should have been accepted by Malaysia to generate that kind of goodwill – but no, both parties harp on mind numbing trivial stuff that irritate each other, scratching open wounds that never have the chance to heal properly.

There are certain important points to note on factors affecting both countries:

1) Do not link demands with other issues. Settle each issue on its own. To try and solve 100 issues all in one fell swoop is naïve. To try and gain an advantage with each issue is a mentality that both sides have to drop.
2) The fact that Singapore now gets to deal with PM Badawi is as good as it will get. I believe you have a more rational and less-combative figure than you-know-who. Take advantage of that for both countries.
3) The Malaysian CPF issue (Malaysian superannuation savings under the Singapore’s CPF) is not going to get settled by Singapore because if the Singapore side allows Malaysians to withdraw, it might lead to a big outflow of Malaysians working in Singapore. We are not talking of blue collar but the capable senior executives. A senior Malaysian exec who has worked more than 15 years in Singapore could very well have S$200,000 to S$500,000 in CPF (a big chunk could be in property). Some really well paid ones could have S$1 million or more. The property gains inherent would be the kicker. To allow CPF withdrawal would give these people a real option of moving back to a good lifestyle back in Malaysia even on a reduced salary. Singapore economy thrives on capable brainy people, and I estimate that about 20%-25% of the top execs in Singapore are Malaysians. So, this CPF thing will never happen.
4) Sand and air space are two separate issues. Sand is an economic item and should be treated as such – a deal should be struck on a government to government basis with a regular repricing that is fair. Air space is a no-no, if Singapore wants to test their planes and strategies – go further south, its all open airspace. There is no reason for Johor to let open their airspace as it encroaches – would Singapore allow Malaysian air forces to invade their airspace??
5) Don’ use certain advantages to irk the other side. The old KTM plot in Singapore is a good example.
6) Don’t threaten to use legal ways to settle matters all the time. Unless its for the best of both sides. Even if one country claims victory in one specific case in international arbitration – you can bet your sweet ass that the other party will remember that and would wait for the right opportunity to make the other side pay for it. So, it will never end.
7) Let's be realistic, at the end of the day, Singapore wants more things from Malaysia than vice-versa. Malaysia should not use that as an advantage in negotiations, and don't always use threats (you only use threats on desperate cases) - e.g. stop supplying water, no more sand, no more produce or veggies, etc... Singapore should not always play the "let's be fair and transparent" card, because it irks Malaysia. Malaysia feels that any deal done do not see a corresponding form of gratitude from the southern neighbour. Singapore tend to be smug about it as they can afford to pay almost any price for anything - and that is the kind of mental arrogance that is hard to swallow or stomach.

Back to the bridge (most of the problems is by Malaysians on Malaysia) - it highlights the very POOR EXECUTION and advisory work in the project. OK, we have to disband the bridge, but now what will happen to the CIQ complex? Why was there no tender? Why so much preliminary work was done when the entire project wasn't possible to push through without Singapore's agreement? What about the terms of the construction and completion? Doesn't anybody advise the authorities that the new bridge project has NO LEGS to stand on in an international arbitration case - why proceed alone? Prudent spending, this is certainly not! Now, we will see compensation for stalled project? Why is the bridge crooked - to stop tanks from rolling from one country to the other? Will heads roll? Again, noooooo..... Heads Must Roll .... A Thorough Audit MUST Be Undertaken To See Where We Went Wrong ... (To be fair though, this has nothing to do with PM Badawi as it was initiated before his tenure).... So when can we annex Johor to Singapore?

Everybody knows the bridge is not the real issue, it’s a case of brawling kids with a real history. The best way forward, now that we have a more conciliatory PM in Badawi is for Singapore to offer the same approach – have a high level weekend session – make sure both countries settle on a few issues and announce it together as a major step forward. On other issues, agree to disagree for the time being, don’t link up all issues to be settled at once. If we can even come out and settle on two or three issues, it will project a new “makeup and image” for both sides to their citizens.

At the end of it all, we will never go to war with each other. We have too much at stake, too many blood ties, too many friends …. So, let’s be pragmatic.

Reiterating A Bullish Year For Asian Stocks

Just in case some of you may have missed my earlier blogs - I am still bullish on Asian stocks, and not just in 2006 but for the next couple of years at least. The main factors for my saying so:

1) Currency Realignment (Wealth Re-creation) - Bulk of Asia-Pacific have recovered from the financial crisis, and are being rerated by investors. Led by the yuan, other undervalued currencies such as the ringgit, Indon rupiah and baht are being brought up at the same time. Only this time around, there is a bit more room on the upside. The yuan can appreciate another 30% from here over the next 3 years without much dent to its competitive edge. Malaysia's ringgit can easily gain another 10% over the next 2 years without losing steam. An appreciating currency means assets denominated in that currency will see demand as well. Better purchasing power will stifle inflationary pressures, which will further boost stock and property prices. The wealth re-creation process will translate into better purchasing power, domestic demand and higher velocity of money in the region.

2) Japan To Rise (Really This Time) - Readers of my blog will be familar with my conviction that Japan's economic and prices recovery are genuine this time around. Last year was good for stock and property prices in Japan, but 2006 and 2007 should even be better. A more open financial market with more restructuring, buyouts, private equity and foreign investment will drive the cobwebs away. The fact that Bank of Japan is increasing interest rates from ZERO is not a sign to be feared but to be welcomed, because it shows that liquidity is more than ample in the system and that prices finally are rising. A genuine recovery in Japan will translate into great multiplier effects for the rest of Asia. A good rule of thumb is every 1% growth in GDP for Japan will have the effect of raising Asia's GDP by 0.7%. You do the math, this is good math.

3) The Really Big Picture - Please read my blog on "Asian Equity Markets Have A Lot Of Ground To Make Up" dated 8 February 2006. Basic argument is that Asia's GDP will account for 22%-24% of total global GDP by 2008-2010. Meanwhile Asian stock markets only account for 12% of total global market capitalisation. Structural changes in the competitive landscape have been witnessed over the last 5 years. Creativity, technology, globalisation and competition have all converged and brought Asia higher up the global playing field. We shoud see a very positive next 5 years for Asian equity markets as I forsee Asia's share of market cap to rise from 12% to a more respectable 16% (or one-third in size).

Sarbanes-Oxley/Nasdaq/LSE

Well, finally Nasdaq has done the smart thing, at least get a foot in with LSE. It has just acquired a strategic 15% stake in LSE. Though not a controlling stake, it is a very smart move as it places Nasdaq at the front of the queue should anyone else wants to sell. This also securitised ties with LSE and would stave off any potential bids from NYSE or Euronext. Nasdaq has had to acquire aggressively because its spate of new listings have been drying up. Much of the blame can be attributed to the introduction of Sarbanes-Oxley law (SOX). SOX was introduced after the Enron and WorldCom scandals in 2002. However, the SOX were more onerous and burdensome and many new listings opted to go via London instead of the US.

SOX itself is more qualitative as an "accounting standard". The actual compliance is not that big, but new wordy introductions and requirements tend to have the effect of scaring companies off. The most troublesome part would have to be the company's regulatory structure and the governance with regards to any changes. Provisions in SOX that forces companies to have their internal controls certified by auditors borders on the excessive. The London Stock Exchange has managed to lure more Asian listings over the last 3 years as the US tied itself in knots with reglations.

SOX in itself is good, and would point to better governance, however, the regulators have to be aware that better governance makes more sense with US companies that are already listed. For foreign companies contemplating a listing, the SOX adds unecessary cost and paperwork. If SOX really is effective and important, companies raising funds WITHOUT SOX rules should be paying higher interest rates, and those complying with SOX should be paying lower rates for funding. Presently, there is no such distinction. If the lenders are not making the distinction and pricing nuances, it means SOX as a whole is more hot air than substance.

Possibly The World's Most Valuable Unlisted Website

If you are older than 30, chances are high that you have never visited YouTube, or more specifically www.youtube.com ... Well, you should, as this could very well be the most valuable website/company next to Google and EBay. It probably would never come close to Google but its going to make the owners billions.

YouTube is just 14 months old, can you believe that... and the founders are probably just a tad older than that!!! The two founders are 20-something ex-PayPal veterans. Chad Hurley and Steven Chen got US$8 million in second round venture capital funding from Sequoia (the same early investors in Yahoo and Google). YouTube's premise is simple but effective, it is a tech-savvy and easy to navigate site for people to upload videos of various antics /mind blowing lip-synching performances / comedy sketches / etc... to share with the world. You are likely to view interesting snippets from TV comedy shows - and the traffic/hits/views are a brilliant indicator of what's hip / funny / cool / jazzy... The site now has about 30 million views a day and is growing rapidly.

Facebook, another social networking site, has already just rejected a buyout offer of US$750 million. To me, YouTube is a few times more exciting than Facebook. The potential for media companies to use YouTube as a research and marketing tool is enormous. The only thing to iron out is the copyright. While a lot of the submissions are from private individuals, there have been a substantial number of snippets from copyrighted shows/programs. They have been smart enough to limit the uploads to 10 minutes thus erasing the hot TV episodes breaches. They have also installed the control whereby if a clip has been taken down, it can never be uploaded again.

To see why you will be hooked on YouTube in just less than 10 minutes, just go to:

www.youtube.com

then click on "Top Favourites"
then click on "robot dance" video

(now, tell me that is NOT the most amazing piece of dancing you have ever seen?!!!)

still game, then click on "guitar" video to see Joe Satriani reincarnated into a very young (probably Asian) kid ... absolutely unbelievable.

and finally, check out the absolutely bonkers sketch in "Crazy Asian Mother" about the zealous over-achieveing Asian moms on their poor, brilliant children studying in America.

Highly Speculative Stocks On KLSE Now
Their Danger Levels

Don't get me wrong, I do not abhorr specky stocks, they are part and parcel of a normal stockmarket. In fact, they are a necessary evil. However, there is good risk and silly risk. Some of these stocks, I have highlighted before ... you can refer to my blog on January 26, 2006 when I said that some hedge funds took up large placements of stocks in Farm Best, Iris and Fonics. Their prices at the time were RM4.08, RM0.26 and RM0.36 respectively. Farm Best went as high as RM5.80 and has now settled at RM4.90 - not bad at all for the buyers. Fonics is a dog, or rather dog with fleas - it had a sharp run up the week prior to January 26 from RM0.24 to RM0.36 - so the placements to hedge funds was more a sell-down by main owners on hindsight as it never breach RM0.39, and is now trading at RM0.32. The leader of the pack is Iris, probably because it has the largest paid up and the volume placed out would probably be the biggest as well. Iris has risen from RM0.26 to a present day high of RM0.85 on very good volume. All this in a matter of 3 months or less.

There are plenty of these type of high volume specky stocks, some are overdone, some have a bit of merit, some are downright dangerous. When I term a specky stock as highly dangerous, I am talking about the scope of that share correcting massively (i.e. absolutely nothing worthwhile in the company). For example, I do think Iris is overdone but it has some fundamentals and a 50%-60% correction is possible but not much more. However, some other stocks I can forsee a 90% correction based on their "inherent value" and share spread.

The following are some of these highly traded stocks, their price jumps, and the rating of danger - ZERO being neutral, 3 being dangerous but should have more upside, 7 being highly flammable (players must be in and out like a fox), 10 being just plain silly and ridiculous (not worth punting seriously as it could and should fall like a rock soon). Marks out of 10.

Iris
The share has zoomed up by more than 300% in just a few weeks. The head keeps talking in the press of a potential foreign buyer. Yeah, sure... where was the buyer when the share was below RM0.20 a few months back.
Danger level: 8/10

IFCA
Share price was just RM0.20 mid-March 2006 and now it is trading at RM0.54. Volume jumps only recently, may have some petrol left as volume traded looks to be insufficient to help the players to get rid of stocks on hand yet. A couple of laps left, but when its over its back to RM0.20, so beware. Fundamentals, almost non existent.
Danger level: 7/10

MEMS Technology
Traded at RM0.35 during mid-January period, now at RM0.50. At least the company has some fundamentals and have been reporting profits at least. Not too specky. Can go up a bit more.
Danger level: 5/10

Karambunai
This one is sucking in too many retail players, especially the ones who cannot read. Traded forever at RM0.02 to RM0.03 for the longest time. In just 3-4 weeks, its now at RM0.11. The owners are laughing, trust me. To retail players, RM0.11 is very low in price, but please check out the company. Lost between Rm57m-83m EACH YEAR for the past 3 years. Has a massive 2 over billion shares and if it wasn't because the players were "related" to some politico, this thing would not have been listed in the first place. Fundamentals zilch.
Danger level: 13/10

Nasioncom
Price traded around RM0.19 during mid-January, now at RM0.31. Volume is good, look like players are gearing for one final move before getting rid of stocks. Fundamentals wise, the stock is worth about RM0.10.
Danger level: 6/10

GHL Systems
Share price mid January RM0.13, spurted over the last 2 weeks to RM0.33. Volume surge just started, so should have some legs in it. Company have some decent fundamentals, OK still.
Danger level: 3/10

NovaMSC
Almost the twin brother of Karambunai. Price during mid_january RM0.06, now its at RM0.19. Seems "cheapish" to retail players, but trust me, its now. Bottom can fall out anytime when even the owners don't want to hold the stock. Danger level: 10/10

Furquan Business Org (FBO)
This is hard to judge. Could go either way. Looks OK and main shareholders don't look to be disposing. Share price has beeen occillating between RM0.15 and RM0.22 for the longest time.
Danger level: Not rated.

Global Economics - Generalisations & Hidden Truths

Learning While You Laugh

I am sure some of you have heard about this Heaven and Hell scenario on global economics. Sure, we will laugh, but look deeper and there is an element of truth behind each humourous stab.

HEAVEN is when you have:

An American salary
A British home
Chinese food
A Swiss economy
An Italian body
Japanese technology
An African "tool"
An Indian wife

HELL is when you have:

An American wife
A British body
A Chinese "tool"
Swiss food
Italian technology
A Japanese home
An African economy
An Indian salary

In a rapidly changing global economy, even jokes have to be refreshed every now and then. Things like "British body" and "Indian salary" may not be so funny very soon.

No More Silly Records Breaking Please!

Diluting The Malaysia Boleh Mantra

If you live in Malaysia, you would have been inundated with inane records being broken of insignificant tasks. As a matter of fact, so many record breakers' applications from Malaysia were rejected by Guinness that the authorities decided to set up their own Malaysia Book Of Records. Let me just say a few things about what is wrong with all that:

1) Makes everyone else cringe (except the participants themselves) - Its not "shame" we are feeling, its more like seeing your parents doing something embarressing in public, its icky and the only response is eyes rolling to the top. Malaysians or associations who think it is fun to do certain record breaking events, must first have the sense of breaking a record of some merit. Things like largest ever ice-cream cake or largest tea bags, are very close to inane stuff.

2) Reflection - What we do in public, and what we claim to be able to do under the banner of Malaysia Boleh REFLECTS squarely back at us. We yell the mantra like kids who had too much sugar, and then proceed to attempt weak record breaking attempts of inane stuff. For those who can, go and break records that are "widely accepted" by the world as records worth mentioning. Do not go and start a new record book so that you can go on recording silly attempts at insignificant stuff. Its a reflection of shallow thinking, naive thinking, katak bawah tempurung, jaguh kampung mentality of the people and authorities responsible. Does it mean that, if we cannot score high enough to get into Mensa Society, that you go and set up a Maesa Society (with easier entry levels of course) - its that kind of second class mentality which will paralyse a large part of our society.

3) Fund raising - Some will question that I am too harsh on these silly events as most are fund raisers. There are 1,001 ways to raise funds. You don't have to go breaking silly records to do that. To use charity as an excuse to do exasperating events is juvenile, infantile, puerile, unsophisticated... and ... (I am running out of harsh words to say here...).

4) Pride or false pride - Many of us will cringe everytime pictures and articles are splashed (even across front pages) in papers. Is that real pride being show by the record breakers, or are we so limited to be able to only show the mediocre things we could do? Do we inadvertently cultivate the thinking that it is OK to be so-so? Why do we need to do a biggest teh tarik cup ever made, or tallest chapati,... cause you can never run out of local food items or local objects, can you?? That is why its inane. I can already think of 100 inane things to set records for: most roti bakar with kaya consumed in 1 minute; the highest kuih talam structure of Twin Towers constructed; biggest sarong; largest low sang; biggest kebaya; longest row of orchids; the biggest popiah constructed; etc...

5) Attempt records of significance - Just follow the Guinness rule book. If they deem it OK to be registered, it should be MORE acceptable since they have been doing it for decades. Some record breakers do have legitimate claims to real records such as Jayabarathy Letchumy's car drag with her hair. Some silly ideas actually turned out to be interesting records by Malaysians, such as the world's longest pencil.

I hope the "record breaking targets" is not part of the 9th Malaysia Plan. For everyone's sake, association leaders, government department heads, hotel marketing managers, junior journalists..... please, enough is enough, have a better screening process before supporting any record breaking attempt. Do not dilute the Malaysia Boleh mantra. As my hero Stephen Chow would say, "Only dim witted leaders can trip me up, ... you useless piece of log, don't walk back home, just roll on home, you useless piece of log!"

I do have one record event which I hope someone will try to break: "The most number of customers served by a government department in an hour".

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

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

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

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

The Signs Are There For Shanghai

Real Estate Bubble Almost Ending

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

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

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

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

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

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

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

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

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

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

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

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

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

Car Prices In Asia-Pacific

Topping The Charts As The Costliest Place To Buy Cars

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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