Eurovision Winner
The nice table was nicked from a popular blog by Paul Kedrosky. It is highly significant that the market cap of Europe has now gone past the US. Usually these sort of things indicate a deeper under-current and long term trends. The Euro-zone economies should grow at about 4.2%, assuming 2.2% inflation in 2007. US GDP may grow at 2.2%. This rate is not just for 2007 but if you have a look at the past few years, the differentials are there already.

In Europe you have pockets where growth is huge and others a bit more sedated. These pockets of economy operating at various stages of an industrial life cycle affords the region a lot of room to manouvere. Outsourcing becomes a higher art form. Assuming Europe’s biggest companies grow profits at 8% in 2007, there could be a 12%-14% rise for the S&P Europe 350 this year. At the same time, big companies are putting more money into dividends, buybacks and acquisitions than capital expenditures. While the same thing is happening in the US as well, a lot more "market cap" has been taken off the table by the huge private equity firms. Hence, seen in that light, the market cap thingee may not be a very good indicator as chances are very high that these privatised companies will return to exchanges within a few years after being retooled.

The shift in market cap is also due to the weak US dollar as the market cap is calculated in US dollars. Even if everything stays the same, the US dollar would be depreciating at least 2% or more a year for the past few years, and probably for the next few years.

That being the case, there is another underlying factor which would have shifted the European figure even faster - the fact that there is much higher proportion of companies being listed in the US than Europe. In Europe a large portion of big lucrative companies are still held privately. If that factor is equalised, European market cap would have gone past the US a few years ago. The long term trend has been set a couple of years ago and not just now. Europe will be a more important center for fund and capital raising vis-a-vis the rest with London taking an increasingly important stature as "the" financial center that matters.

Pay Me Well

In 1996, Lee Kuan Yew said that low salaries will not attract able men who are or can be successful in their professions or business. Now they will be upping the peg of ministerial pay in Singapore to the top private sector earners again. Currently ministers earn just S$1.2m (US$1.836m) per year, and the repeg will put them at S$2.2m (US$3.36m) or higher if you are more "senior". Since 1994, the salaries of Singapore ministers have been set at two-thirds the median pay of the 48 best-paid bankers, lawyers, accountants, engineers, and executives in multi-nationals and manufacturing firms.

Naturally, there is a big outcry from the general public in Singapore. Bulk of who survive on a household monthly income of between S$2,000-S$6,000. Here are some thoughts:

a) Nobody is really deriding the repeg, just the quantum I guess. To peg to the TOP private sector earners is to imply that the ministers are also the top quartile. Is that the reality?

b) Another reason is that they are clean and the salaries are needed to eliminate corruption or the need to be corrupt. Doesn't that say something inherent with the mentality of a normal person: that a person will be more likely to be corrupt if he is paid below average. Hmmm... does that mean that the majority of people in prison now may not need to be there if they were paid well enough in the first place???

c) If you are paying for being "efficient", "competitive nation building" and "corruption-free"... Singapore ranks #5 in the world, Norway ranks #2 and their ministers get about 20%-25% what their Singapore counterparts are getting. I thought Norway has a higher cost of living index than Singapore. Hmmm... maybe Singapore can outsource for cheaper and better performing ministers from Norway. Even at half the new package, Norway ministers would jump at the offer.., plus now no need to pay foreigners CPF right??!!

d) Actually I do agree that salary plays a big part in nurturing the right behaviour. Most Asian nations pay their ministers pittance (let's not single out specific countries, you-know-I-know lah), and those countries that do so have also the highest incidence of corruption. These are smart people (most anyway), these are also people being given immense power, and the likelihood for abuse is also high: if you pay them pittance, the attraction and need to find extra sources of income are very high.

e) You have to pay well if you want to eliminate the distractions of wanting to feather one's nest or to accumulate for a sufficiently nice retirement income. Hence you will find many politicians thinking and finding ways to benefit themselves instead of doing nation building stuff. I think Lee & Lee have a strong argument here. You don't want ministers spending half their time having meetings about "special projects", "specially awarded jobs", "meeting important and connected people for the wrong reasons", etc...

f) The angst among the public is when they compare with what the general public is getting, or rather what they themselves are getting. Its a bit like begrudging the MNCs CEO pay packages. US listed companies regularly pay their CEOs between US$5-50m a year all in (basic, options and bonuses) - of course, the companies have a pretty big market cap to contend with. Even smaller US companies (those with market caps of US$1-5bn will pay between US$1-10m. OK, let's bring it back to listed Singapore companies as a better yardstick, the top CEOs of the top 50 firms should be getting packages of S$1.5m to S$5m easy, no questions asked. Why is it so difficult for the public to accept that their ministers are paid like the CEOs of the top 100 companies in Singapore?? Surely the way they have been handpicked, proven themselves continuously, and before that having to accumulate top notch degrees and recognised academic excellence - all must count for something. These are the people leading the nation. I would be proud that they get what they are getting, and they deserve it too. Is it easier to run a nation than a big company? Like I have said before, Singapore is a very well run company.

g) Plus, we are not talking about 1,000 or 2,000 ministers... its just a select bunch. You pay S$600,000 a year and get dubious characters like TT Durai (the NKF scandal). So, obviously S$600,000 is way, way, not enough. Look at the new apartment launches, you have to make it affordable for the ministers as well. If ministers have problem buying, who else can buy?

h) Sure, the comparisons with US, UK and Japan ministers will be a sore point. Maybe Singapore is doing it correctly, and the rest are doing it wrong. Must remember that ministers in those countries are also known to "need to pave the way later" when they get out of office - not to say they are corrupt but they do "plan" to have other sources of income later in life.

i) The one thing which the senior government must rein in is the way retired/former ministers get on a lot of important boards, and gets paid very well. In order to maintain better integrity, maybe retired/former ministers should NOT be sitting on more than 2 boards (either private or public) because they way it is now, the retired ministers could get paid even more than the ones in service now in some cases!!! For example, ex-Foreign Affairs minister S Dhanabalan is now the Exec Chairman of DBS Group, Chairman of Temasek and Director of GIC. (like they say in Singapore... "walau-wey"). The ex minister for Defence Yeo Ning Hong is the Exec Chairman of PSA, Director of DBS Group and Director of Singapore Press. There's another very busy ex-minister Lim Chee Onn (ex-minister without Portfolio, my my... look at his portfolio now) - the Exec Chairman of Keppel Corp, Chairman of Keppel Capital, Chairman of Keppel Land, Chairman of MobileOne, Director of Temasek, Director of k1 Ventures, Director of Singapore Airlines, and Director of Natsteel (where got time , man!?). Then there is Goh Yong Hong the ex-Commissioner of Police. He is the Exec Deputy Chairman of Singapore Turf Club, Chairman of Singapore Pools (not the swimming type OK), Director of Dragon Land, and Director of Premas (a unit of Capitaland).

j) The ministers are mostly picked from the business sectors and their evolutionary process are quite different from politicians of other countries. Few are the grassroots types or cikgus/teachers/municipal leaders/etc... Hence the yardstick for apples to oranges applies here.

k) What about working for the benefit of the nation? Let sleeping dogs lie, its tough enough to remember the Singapore anthem in Malay-man, one thing at a time lah. Like I say, the way Singapore is run, its like a corporation, hence the pragmatism. Live with it, its good for the country.

RB Land, All Potential (Updated)
IJM To Re-engineer The Stock

Update: Pls do not get over-excited over the RM2.06 MGO for RB Land Sdn Bhd, that is NOT for RB Land Bhd (the listed vehicle). RB Land Sdn Bhd is a subsidiary of RB Land Bhd... I am very keen on RB Land Bhd because of the likelihood of one of two options cited below, both will be vg for RB Land Bhd ... for anything to happen to RB Land Bhd, they have to tidy up the strings attached following their takeover Roadbuilder Bhd, which included the need to do the MGO for RB Land Sdn Bhd ... now coast is clear for the next exercise on RB Land Bhd... the build up in volume over the past few days is very good. In particular, investors are keen to know what IJM Corp Bhd's plans are for RB Land now that IJM has taken over Road Builder Holdings Bhd. RB Land is a 70% subsidiary of Road Builder. IJM officials have said they wish to keep RB Land listed. IJM will need to consolidate the property divisions of IJM and Road Builder, as achieving synergies and efficiencies are key goals of the merger between the two groups. If IJM's acquisition of Kumpulan Europlus Bhd goes through, there could be more property assets for IJM to consolidate. RB Land's existing property projects include the Seremban 2 township in Negeri Sembilan and the Shah Alam 2 mixed development in Selangor. RB Land also owns the Holiday Villa Subang hotel. IJM could choose to inject some of its undeveloped land into RB Land. IJM owns close to 30 hectares in Kuala Lumpur. Most of this is commercial land and carry a net book value of more than RM170 million as at March 31, 2006. Being located in Kuala Lumpur, the development value of this land could be lucrative. IJM's property arm, however, is much larger than that. Property assets of the group are valued at more than RM1 billion and property development contributed around RM500 million in revenue and about RM100m in profits for FY2006. They will have to place out shares in RB Land Bhd sooner or later if they want to keep it listed. Hence they will consolidate their property side into RB Land Bhd to create sufficient institutional interest before placing shares out at higher prices. This in turn could facilitate a placement of new RB Land shares to institutional investors and thereby address the tight liquidity issue. The company has 568m shares but only 30% in free float in the most optimistic of guesses (the real free float should be a lot less, maybe less than 10%), hence you are looking at a free float of btw 100m-200m the most. Still, it should be noted that RB Land itself has got some ambitious plans. The company said it plans to launch up to RM987 million worth of property projects in the Klang Valley and Johor over the next three years. These include a RM250 million commercial job on a 3.4ha site in SS2, Petaling Jaya, and a RM320 million mixed development project near Taman Perling in Johor. IJM could very well end up with the property assets of K-Euro and Talam. Judging from the backdrop, a longer term consolidation process could be in the works. With a relatively clean slate, RB Land Bhd could be the boy wonder with the umbrella to hold all these assets. Just the status and stature as IJM's property arm, along with IJM's premium mgmt, would attract substantive interest in that "counter". The safety buffer in buying RB Land Bhd now is that it is still a long way from RB Land Bhd's RNAV of RM1.80. ... So there you go, pls cite sources and do research properly... if not, its a bit embarressing-lah.
When IJM bought Road Builder, the next was always going to be RB Land. IJM is very likely to do one of two things:

1) Take RB Land private because the RNAV of RB Land is above RM1.80 per share, plus the rapid landbank acquisition undertaken by RB Land over the last 2 years have made the company landbank to be very attractive.

2) Inject IJM property & landbank into RB Land. The property side contributes about RM100m in pretax profit compared to RB Land's pretax of RM41m. Bodes well for RB Land.

I would do the first option but IJM may have a bigger strategic plan, which makes it necessary to tap capital and unlock values for IJM at the same time. For a property player, its better to have a seperate listed vehicle away from IJM as the capital raising burden will be redeployed better. It gives a better matching of expenses and income.

The second option would certainly bring about a surge in RB Land's valuation, closer to its RNAV - aggregated landbank, more significant player, and a status as IJM's property arm. Either way, RB Land looks awfully attractive now. Especially with the nice uptrend in volume over the last few days, looking better every day.

OK For Some, Not OK For Others
Know Your Place

Some of you may have been harping on PM Badawi's prediction of 1,350 for the KLCI a few weeks back. The hecklers were a growing bunch during down days, ... as they say, men are obnoxious in groups. Personally, I think it is acceptable for a PM to say what he thinks the market will be doing. It is acceptable, but not advisable. If I was his personal advisor, I would caution him from giving an actual number. You can be positive without incriminating yourself. Plus, an actual number would make it a tangible yardstick for cynics and critics to harp on to win political points. Still, its OK, that's why I did not criticise Badawi when he said what he said.

But I jumped off my chair when Yus-baby asked people to buy shares, and a bit later on when he ticked off retail players for not entering the market with more gusto. It is not a matter of whether the market hits 1,400 or 1,000. Its not a matter of whether people lose money or make tons from his opinion. Why I jumped was that he should not be making such statements as a person in his position. Am I the only one to see the huge conflict of interest?

Just imagine this,... say the KLCI runs up to 1,400 and Yus-baby thinks its overbought. WOULD Yus-baby be able to come out then to tell everyone to SELL?? He can't... he can't do that for someone in that position.

So, when you can't be making a public SELL statement, you shouldn't making a public BUY statement. Its what we call vested interest.

For Badawi, he can... he can ask people to be take some profit, its still OK, he can even say that he thinks stocks are overvalued ... may be political suicide but its OK. Yus-baby as Bursa CEO has to be very careful of what comes out of his mouth when it comes to Malaysian stocks. Everyone must know the role he is playing. Its called professionalism.

N2N Connected
Timing Is Everything
(additional catalysts updated)

It is very easy to spot winners from Mesdaq. Readers of this blog will be aware that I have been careful in highlighting good companies. It is pretty easy to write about good companies, but as an investing and trading blog, it is also crucial to get timing pretty right. Its quite pointless to me to write about something now when it only moves in 4Q, better for me to write in 3Q than now. Some will say that we all don't know the timing, true, but there are things called probable catalysts and you can surmise by looking at a whole load of other factors to get close to timing. Its a daily blog for heaven's sake, not a half yearly blog, so gotta spot them better.

Been reluctant to highlight specific stocks as index has been moving higher and looking to gather steam for a charge at 1,350 soon, but the aggregation of fundmentals and convergence of catalysts make it impossible to neglect N2N Connect.

Paid up: 284m shares Market Cap: RM596m
Biz: Leader in online broking services on a multi platform that allows mobile trading in overseas markets
Turnover/Pretax: 2004 RM4.11m/RM1.34m; 2005 RM7.74m/RM3.27m; 2006 RM16.9m/RM10.073m

Quiet market leader, grabbing market share and now makes it almost impregnable by competition. Smartest thing is they did not try and be a standalone broker themselves, rather they help brokers operate online. There is enormous power in aggregation of clients, and their platform does not make them a competitor to brokers. Now they have 8 brokers as clients: Apex Securities, PM Securities, SJ Securities, CIMB Securities, KL City Securities, Kenanga, Credit Suisse, AmSecurities and Hwang-DBS.

Quietly profitable already, meaning they have gone past sufficient critical mass already. Gains in revenue from here is largely supernormal profits. They now have a 40% market share. This transaction-based-payment platform works, and has attracted a number of suitors/investors. I would not be surprised if Legg Mason/GSachs or the like were to gobble up a substantial stake soon.

Its platform is a few rungs above many others in that it can be accessed via mobile, PCs or PDAs. Plus they have the flexibility to allow clients to buy overseas shares as well. One can argue that internet trading has not taken strong roots in KLSE yet, it takes time and there is only one way to go, up. If we were to compare with the same evolutionary process in the US, Australia, Japan, Singapore or even HK, the outlook is quite brilliant. The other brilliant thing is that even at such a nascent acceptance stage, N2N Connect is already profitable, what else can I say?

The delivery channels is not just one-way (buying/selling stocks) but also informational advantage (transmission and relay of live prices). Current internet trading in KLSE adds up to about 8% of overall market share daily, can go much higher.

Management is credible, not some twenty year olds who have no appreciation for trading stocks and are just tech geeks, but rather savvy long time operators. Izlan Izhab, the the independent non-executive chairman has 35 years of experience in Legal & Compliance at Bursa. The MD, Tiang Boon Hew is a 17 year techie and have done stints at Computer Associates Pte Ltd, Citibank (South Asia) and i2 Technologies Pte Ltd.

A bonus is in one of its subsidiary, 3GWiFi, where it holds its IM application EMO. A surge in IM applications via mobile and hand held devices could launch a seperate but exciting prospect on its own.

The Saudis are coming. Very prominent Saudi investor/partners have joined forces in a jv with N2N holding 51%, the rest are held by Majed Al Ibrahim, Thamer Al Muhana, Selman Alfares and Hassan Ajam. The company named N2N Arabia is said to have 2 Saudi banks and 2 Saudi brokers coming onboard. The Saudi Stock Exchange or Tadawul has only 84 companies while Bursa has more than 1,000 but the market cap and DAILY TRADING VALUE are even bigger than Bursa. Its daily value traded averages between RM5bn-RM7bn. Market cap wise, Bursa is at about RM670bn while Tadawul hovers at RM1 trillion.So, the prospects are excellent considering internet broking is still in its infancy in Saudi Arabia.

Mesdaq companies going great guns are easy to spot after they have climbed over a certain threshold because their business models are highly scalable. Just look at Green Packet and the likes.
Catalysts: banks and brokers signing up for N2N Arabia; 700,000 shares crossed on wednesday (4 April) at RM1.74; plus average daily volume picking up nicely for the past few days; judging from private equity flows and funds movement, would not surprise if there is a takeover or privatisation bid in the works ... I personally won't be selling till it goes past RM3.00.

Additional catalysts: while harping on Saudi Arabia, it seems an earlier agreement may have been signed with Dubai Financial Exchange as well; the first 3 months of 2007 have seen a stupendous surge in trading volumes, esp internet trading... just how good?? ... well, there are hints that the 1Q profits could match the whole of 2006, now that would be a brilliant catalyst ... as internet trading players tend to move in and out at a quicker rate, the level of activity and selldown/buyback in 1Q2007 would not surprise me.

Bursa Must Put A Stop To This Malicious Activity
Silly Conversion Ratios

The Mumbling Priest said...
Used to tell people that CWs have their death certificates written the moment they're born... many don't care. Everyday, you lose time value, both in terms of interest (carry) & especially the possibility of the mother going up. Do the issuers make a lot from CS biz? I guess they make enough to pay some bills. But if you're thinking whether they are making from the ridiculous market prices, it depends on whether they have any left after the placements. Oh, did anyone notice the trend for 10:1 CWs? hahahaha cheaper per unit but bloody ridiculously over-priced all-in. Some people just don't get it! That's why CIMB is following OSK's tracks. Beware!

Let's see if we are just as starry-eyed now, with the listing of 3 new covereds. Public Bank-CC: issue price 11 sen, conversion ratio 10-to-1, conversion price 8.90, current price 9.10, current mother share price 9.10, current PBB-CC price 24 sen (high of 30 sen), maturity 23/9/2007
Premium = 2.40 + 8.90 / 9.10 = 24% (quite acceptable). Gearing = 9.10/2.40 = 3.8x (much better). In comparison, PBB-CB has now FINALLY dropped to what I considered as fair value predicted 3 days ago. PPB-CA is a much better exposure at 57-60 sen, premium of less than 8% and a very good gearing at nearly 8x, maturity 30/8/2007.

YTL-CC: issue price 8.5 sen, conversion ratio 10-to-1, conversion price 7.50, current mother share price 7.20, current YTL-CC price 21 sen (high of 25.5 sen), maturity 23/9/2007
Premium = 2.10 + 7.50 / 7.20 = 33% (still a tad expensive). Gearing = 7.20/2.10 = 3.4x (acceptable). Both YTL-CB and CC should go towards 17-18 sen. YTL-CA is a much better exposure at 54-57 sen, premium of less than 10% and a very good gearing at more than 6x, maturing 28/2/2007.

Tenaga-CE: issue price 8.5 sen, conversion ratio 10-to-1, conversion price 11.80, current mother share price 11.70 , current Tenaga-CE price 25 sen (high 33 sen), similar maturity as above
Premium = 2.50 + 11.80 / 11.70 = 24.7%. Gearing = 11.70/2.50 = 4.7x. Good gearing but Tenaga-CD is a much better bet at 46-48 sen, premium less than 8% and gearing of nearly 10x.

All shows that the recently issued covered traded too expensively and the 3 new ones today, while better priced than those listed on Monday, is still a tad expensive.

Bursa should put a stop to this nonsense by CIMB (of all people, maybe the options are making them do crazy stuff) with the deluge of covereds having these 10 into one conversion ratios. The ONLY REASON for them doing this is to jack up interest by issuing at absolute low prices e.g. 8.5 sen 11 sen, what else can the reason be? If you can sell a covered at 11 sen, you can still sell the same thing at RM1.10 (1-to-1 conversion) or even 55 sen (5-to-1). If investors cannot afford RM1.00 instruments, should they be playing those 11 sen instruments even? Since investors can buy 100 shares now and not the minimum 1,000 lots before, where's the logic of doing 10-to-1. If you allow that, why not 20 to 1 or 40 to 1, ... then I can issue at 3 sen... hah... sure cannot fail now!!! The INTENTION is near criminal ... issue at 10 to 1 la... the dumb public would buy even more, they don't know how to calculate premiums and gearing (I can hear the execs lauging to the bank when they should be laughing to the SC for interrogation). If there is no ill-intent, why do 10 to one, PLEASE ANSWER!!! I would even advise Bursa and SC to step in to check if the placements are done properly and not into "inside accounts" prior to the listing. I can take 2 to 1 or even 4 to one. Bursa, please put a stop to this ridiculous tactic by the issuing houses, it will only hurt retail players. Just have a look at the amount of money lost on those 3 covereds issued on Monday, and we are supposedly near our all time highs. Bursa, you have to step in to protect those that need to be protected (i.e. not the big boys). I know, my friend, Yus-baby has came out to warn investors that they need to be aware of what they are getting into when buying covered warrants. That's all good, but a disclaimer is insufficient and does not absolve Bursa from acting further, you and I know the huge retail market is composed of investors with various levels of investing sophistication - you have to also help reduce those "misdirected intentions" of the big boys.

Slow Death

It is sad to be right sometimes. The slow death being witnessed in the new covereds, namely: Genting-CD, PBB-CB and YTL-CB, is sad and unstoppable. Sad because the bulk of the buyers have to be retail players. No institutional investor would be buying these covereds at these valuations. Looking at the selling, the holders are still starry eyed, there is still a long way down to go.

Sad because no one in the business papers are writing anything to warn them, maybe all are also involved?! Bursa should take some responsibility in that it has FAILED to educate the masses on covereds. Just offering courses is insufficient, have to make it reaches the critical mass of players by hook or crook. Even brokers have not done enough to educate remisiers and dealers. It is sad cause there will be no more buyers very soon for these 3 covereds, and buyers yesterday could very well lose 50% or more within 3 days or contra.

Should retail players learn the hard way that absolute cheap prices do not apply that well in covered warrants as in normal shares. Normal penny stocks can still be played up, syndicate wise, or you can still lock up penny shares waiting for the next turn of the century to make back. But not these covered warrants because they have a tangible value and a time to expiry. No syndicate is going to touch that, as they may be left holding a bag that will be worth nothing should things go wrong. Can go to zero very fast-la auntie .. sigh...

7 Habits Of A Highly Effective Nation
A Most Enlightening & Inspiring Speech

As reported in NST's frontpage today:

Malaysia belongs to all Malaysians equally, and all have an equal right and responsibility to take ownership of their country and its future, the Raja Muda of Perak said. Raja Nazrin Shah said Malaysians needed to realise they all had a vital role in building a strong nation.

1) The first of seven steps he defined towards this end was a sense of belonging and a common destiny, binding Malaysians of all races, religions and origins together in a common purpose. "Only when each citizen believes that he or she has a common home and is working towards a common destiny will he or she make the sacrifices needed for the long haul," Raja Nazrin said in a keynote address on "Prospects and Challenges for Nation-building" at the Young Malaysians’ Roundtable Discussion on National Unity and Development in Malaysia. The event was organised by the Bar Council and the Asian Strategy and Leadership Institute (Asli).

Raja Nazrin said the Federal Constitution, the Rukunegara and Vision 2020 encapsulated the rights, hopes and aspirations of the population in a way that no other documents could. "The integrity of these documents must be defended and promoted, especially the first (the Federal Constitution)," he said.

2) Step Two: Don’t just wish away problems, as nation-building is premised on the fact that there are differences in society. If we all walked, talked and thought the same, it would probably not be needed. There will, unfortunately, be chauvinistic groups here, just as there are in others. They will fight the idea of national unity, block social change and try to be politically dominant. The existence of these groups, however, does not mean that nation-building is a futile exercise. What it meant, rather, was that Malaysians needed to be prepared to negotiate their way through and around these differences. Raja Nazrin suggested the creation of social movements to enlighten the people and deny popular support to chauvinists who impeded national unity.

3) Step Three: Nation-building required accommodation and compromise. In our haste to be prescriptive, we should not be so idealistic that we are incapable of also being practical. We should not allow perfection to be the enemy of the good. Yes, we should seek the best solutions and expect the highest standards of performance, but we should also be prepared to sacrifice some part of our positions for the good of the whole. Raja Nazrin said individuals ended up worse off when they acted out of self-interest and not in their collective group interest.

4) Step Four: Avoid enforced solutions, as coercion or threats of violence would nullify nation-building. He emphasised that might was not equal to right. Solutions, he said, had to be found within the political and social structures, as the alternative could lead to a strong temptation to resort to illegitimate ways and means. Nation-building required society to be open, tolerant and forward-looking, he added. "So important are these values that they are embedded in Vision 2020’s nine strategic challenges, as are those of a mature democracy, a caring society and innovation."

5) Step Five: Inclusiveness, to enable the various sectors of society to be productively engaged. Malaysians need to guard against all forms of extremism, chauvinism, racism and isolationism. In this respect, there should also be social, political and legal sanctions, he added. "Nation-building is a process rather than an outcome. When Malaysia started off 50 years ago, there were no examples to study. There were no manuals to follow. " While a sense of impatience is perhaps fully understandable, nation-building takes place over a period of time and only with persistence." Raja Nazrin said trust had to be built where there was none, and co-operation established where it was absent. "Building on layers of foundation is the only way to ensure that the process is solid and sustainable," he said.

6) Step Six: Political, social and economic incentives should exist to reward good behaviour and penalise bad. "I know this statement is self-evident, but it is a fact that many countries are as likely to punish good behaviour as to reward it," he said." After all, if there are benefits for corruption, then there is a real cost to being honest." The incentives for building a nation must be greater and more compelling than breaking it down, he said. The Raja Muda said the price of racial and cultural intolerance should be made prohibitively high.

7) Step Seven: The greatest challenge to nation-building was balancing the need for change with that of continuity, particularly in facing globalisation. Globalisation, Raja Nazrin said, had unleashed sweeping economic, political, social and cultural transformations that had weakened national institutions, values and norms. On leaders of the future, Raja Nazrin said that able young people needed to be mentored. "The young should be allowed to make mistakes along the way as part of the overall learning process."

My Take - The sentiments is very close to how I feel about my country and countrymen. If only the majority of people in government feels the same way. There is hope I guess, especially in corporate Malaysia: there is a broom sweeping through corporate Malaysia, the GLCs in particular. Plus most of the government ministries have improved enormously in delivery. One of the last bastion is to take the broom to the local government level, the municipal leaders. The trouble with these aspirations is whether it permeates through every layer of society. Cynics will pooh-pooh them as wishful thinking. But we have to start somewhere, its a pragmatic and realistic platform, and I very much think PM Badawi is on the same platform - which is also why I am willing to give him a lot of leeway in terms of his leadership performance. The good thing is Raja Nazrin is likely to be king one day... soon. 50 years is not easy, with no manual, if enough people want the same things, we can get there slowly.

Dear Yus-Baby, How Now Brown Cow?

Probably your wife doesn't even call you something that endearing. If you do not already read this blog, ... won't blame you considering the amount of tongue-lashings I have been meting out towards you/Bursa. If you need refreshening, please run through my arguments on: what's lacking with Bursa; why I still like the share price; why Short-selling will fail dismally; ... remember the Single Stock Futures (remember the Alamo) ... hmmm...

Let's be constructive and make your stock options even more valuable. Market velocity is up. Instead of spending months coming up with a flawed business model pertaining to Restricted Short Selling in an illiquid market such as ours, you can drum up a lot more market participation by implementing the following two measures:

a) Allow and encourage brokers to start issuing PUT covered warrants. Same as the present covered warrants (calls) just the reverse in betting. Its akin to shorting, and a whole lot cheaper. Just maybe get the houses to extend the time to expiry a bit more to ensure better reception, 9 months is way too short, maybe 15 months is better. Put warrants can be transacted with one phone call and completed in 5-15 seconds. Everyone should compare that with shorting a stock, just go through the logistics, time and then tabulate the costs involved. Who will go for RSS???

Some will argue that put warrants may not have a deep enough market; hey, the same argument will apply for Short Selling. No one can guarantee that there will be sufficient stock to sell short, I am sure Bursa will not be able to offer any form of guarantee or liquidity.

Or you can introduce Put warrants alongside Short Selling, but then it could be really embarressing when RSS fails dismally next to put warrants, so you don't want to have that, ... rather you want to introduce a more cumbersome instrument with dubious liquidity that will cost more to everyone so that Bursa can be the gatekeeper (one Eric Tsang is enough-already) and rake more fees - but remember... no transaction, no fees, Yus-baby, no matter how many "toll gates" you set up.

b) Another way to boost volume by 20% is to allow all clients/remisiers/dealers to short stocks or warrants provided they cover within same day. Right now, this is not allowed, please tell me why??? Same day trades should be allowed whether they have shares or not. Of course if a client shorts a stock and failed to cover, he/she will get the same buy in penalty, which will be deterrent enough. By allowing this, it will attract more day traders, and in fact create a more liquid market place especially when investors get pissed off over a syndicated stock rising too much. It will equalise the market place more for the small punters. Right now, its the big fish and syndicates that move stocks up and down. Small punters can only follow the trends and waves after it has bolted. This way, small punters can short first cover later, which automatically DOUBLES his/her options in buying/selling stocks now/later. Its a very good move, please take up my suggestion and remember to credit me, but no need to nominate me for some Datukship or anything... Ok-baby ... berkhidmat untuk negara ..!

Cry Also No Tears!
Public Bank & YTL Covereds

What about the other two new covereds? Well, PBB-CB also had an issue price of just 13 sen and also went ballistic to 40.5 sen on huge volumes. Its 10 into one, meaning you would be buying 10 covereds. Let's say the covered price you got was 35 sen = RM3.50 and you would need to pay another 8.85 to convert into ONE mother share = RM12.35. Premium 12.35/8.95 = 40%. Gearing 8.95/3.50 = 2.5x. Not as bad as Genting-CD, but very very expensive also!!! The fair value should be closer to 24-26 sen and not anywhere near 34-36 sen certainly!!! Very expensive!!!

YTL-CB has an issue price of 11 sen and went to a high of 34.5 sen and now is trading at 26 sen. Again ten into one, say you buy at 25 sen = RM2.50 plus conversion RM7.35 = RM9.85. Premium is 985/6.80 = 42.7%. Gearing is 6.80/2.50 = 2.7x. Gearing is much better but premium is still way too much. Don't be tricked by the low absolute price. Fair value is only at 14-15 sen, and not anywhere near 25 sen!!!

You Have Been Warned

New Covered Warrants

Genting-CD the new covered warrant went ballistic this morning to go from an issue price of 13 sen to a high of 43 sen on huge volume. Its issue price was just 13 sen, and you would need 50 ... repeat ... fifty of these to convert into ONE Genting share. The general public must learn quickly the importance of conversion ratio, and not just look at the very low absolute covered warrant price. Cry also no tears!!!

Assume mother share at RM40. You would be buying 50 x say 38 sen = RM19. RM19 plus you would then pay the conversion price of RM39 = RM58. Premium would be RM58/RM40 = 45%. Gearing would be RM40/RM19 = 2.1x

... my gawd, that is so unrealistic. The premium is high for a warrant maturing in 28th Sep 2007, but the worst thing is the gearing 2.1x. If mother share is at RM40, the fair value for this Genting-CD is only 20-22 sen, not anywhere near 40 sen!!! If you are really bullish on Genting, just buy Genting-CC or Genting-CB even, both have premiums of less than 15% and gearings of between 6-8x. Its like buying a Rolex at Sincere and a Rolex for RM200 at Petaling Street!

Trends In Palm Oil 2007

a) Rising Bad News Bears - There appears to be a slowly but surely rising group of detractors over the prospects for palm oil in 2007 and 2008. For a sector that has seen almost all buys and overweight recommendations only for the past 2 years: this would be almost tide turning.

b) La Nina - The region is seeing the La Nina effect (more rain) now, the flip side of El Nino. Even nowadays, we are seeing a lot more rain, thus boosting palm oil production. For example in 1999 when dry spells gave way to a similar La Nina effect, CPO production jumped nearly 27%, causing CPO prices to drop by 30% over the next 12 months.

c) Viability of Biodiesel - Following the mad rush into setting up biodiesel plants, now it looks a bit silly. For biodiesel to be viable, CPO needs to be about RM1,400 per tonne while oil must be US$55 or above. Yes, oil price is now in the US$60-65 but CPO is almost 40% higher. A product such as biodiesel which is so dependent on the prices of two seperate products is likely to bring about a difficult business model to work on. Both have to be in sync for them to sell, if one is out of sync, what then? Do production stops, or do you continue and just bottle up the biodiesel in tanks? What about capacity utilisation rates? How does that affect payback on capital invested? It also is dependent on favourable rules and tax benefits from EU and Malaysia, for how long... what if a better and cheaper substitute is available? After all that, biodiesel does not even give you supernormal profits, not enough to justify the risks involved.

d) The Smart Ones - I have mentioned this many times before, biodisel should be regarded as just one of the by-products of CPO, not the saviour or new demand factor. In fact, the business mechanics of producing biodiesel is so weak, its not surprising that the smart ones DID NOT jump in, e.g. IOI Corp and KL Kepong.

e) The EU Factor - The EU wants 5.75% of transport fuel to be biofuels by 2010 and 10% by 2020. Well, CPO is not the only biofuel in town. There is a new and hardier version, an Africa plant called jastropha. It can start producing oils in 6 months and the plant can lasts for 50 years. Needing little care or fertilizer, pest resistant, plus the oil does not even need refining. They are already planting loads of it in Africa, India and China.

f) Trade Friction - As global trade of biofuels heats up, European biodiesel producers charged that they have uncovered an "unfair" loophole for biodiesel sourced from Brazil and Malaysia to enter the EU: shipment via the U.S. where the biofuel qualifies for a hefty U.S. subsidy. Since 2004, U.S. biodiesel producers have been eligible for a subsidy of $1 per gallon for biodiesel blended with diesel fuel. Third countries such as Brazil and Malaysia are shipping biodiesel to U.S. harbors to be blended with 1% diesel, and then shipping it out afterwards to the EU.

g) High CPO Prices - Despite the La Nina and jastropha effects, most are still seeing an upswing in CPO prices. Some even see RM2,400 per tonne this year, which blows the biodiesel equation out of the water. Golden Hope may say that since they own the plantations, they can get the feeder stock at cheaper prices - Brains 101 would dictate that using palm oil for biodiesel instead of selling into open market at RM2,400 involves opportunity cost of RM1,000 per tonne. So let's not hear any of that silly logic again.

Despite the negatives, the major demand factors are still strong, i.e. buying by China and India. Especially from India since the cutting of the import tariffs. IOI Corp and KL Kepong are still OK, particularly IOI Corp with its huge dividend coming up and excellent property exposure. Those with exposure to biodiesel plants should be avoided owing to the uncertainty and possible writeoffs - Carotino, Mission Biofuels, Carotech, Kulim, Golden Hope, Wilmar, PPB, etc ... in fact they will be in for a sustained period of negative divergence from IOI Corp and KLK. Would not be surprising if a few months down the road, all the palm oil biodiesel plants will be retooled to use jastrophas as feeder stock ...

Edge S'pore vs Edge M'sia

Many blog readers in Malaysia and Singapore should also be reading Edge Malaysia or Singapore, but probably not both. In my current capacity, I get to read (have to read) both editions. Been biting my tongue for sometime but cannot-tahan already: have to say something. The Edge Singapore beats the shit out of The Edge Malaysia, hands down.

I wonder why, because the Singapore team is skeletal almost. A lot of credit must go to Assif Shameen, Sunita Sue Leng and Ben Paul for leading the content drive. (I guess I have to qualify that I do not know anyone at The Edge Singapore.) Here are my reasons:

Readability - Content has to be readable and digestable. As I am have been in investment for nearly half my life, I think I have decent investing experience. If I have trouble comprehending the thought-process of the writers or the gist of what they are trying to say, then a lot more readers should have trouble as well. Point A + Point B = Point C save for Point D. I have been reading both editions for the past year and a half, my readability ratings out of 10, Edge Malaysia 7/10, Edge S'pore 8.5/10.

Value Add Commentary - I d not want to be bashing up anyone as it is difficult to a good biz journalist, but page 6 (Random Thoughts) of Edge M'sia is totally wasted, and somebody please use another photograph for the column. Enough said. However, other columnists on both sides stack up quite well and most do appear in both editions. But owing to the irrelevant, inside-jokes-aside columns in Edge M'sia such as Random Thoughts and Coffee Break: Edge S'pore has my vote just slightly by virtue of having less irrelevant columnists. Edge Malaysia 8/10, Edge S'pore 8.5/10.

Market Pulse - As a biz weekly, it is very important to get at the market's pulse while at the same time appreciate the scheduling difficulty in getting articles onboard before the deadline. Edge M'sia tries harder. However Edge S'pore again gets my vote on overall attempt to get at the market's pulse. Just look at the announcements under COMPANIES, not only are snippets of corporate announcements delivered crisply, it has excellent value add commentary. Edge M'sia 8/10, Edge S'pore 9/10.

Look & Feel - If you have come across both, the M'sia edition is printed on quality soft card paper, doesn't rub off , but heavy like hell as they try to sell loads of adverts via various pullouts. Its like the LA Times Weekend Edition or Sun-Herald over the weekend, cumbersome. I prefer the S'pore edition anytime, light, glossy, colour pictures come out nicer. Edge M'sia 9/10, S'pore 9.5/10.

Stock Ideas/Tips - Edge M'sia does much better than its counterpart as I feel the Edge S'pore is way, way understaffed to do a decent coverage. Edge M'sia 9/10, Edge S'pore 7/10.

Macro Views - What I don't wish to see is too many syndicated articles as the bulk of the readers would have come across the same thing in other publications. Both could do better. Manu Bhaskaran's views are excellent, there should be more such type of views from regional economists and strategists. We don't need more gwailos sitting in Zurich or London telling us what's happening.

p/s my fav biz mags are Fortune and Business Week (Forbes is pathetic, and its Republican extreme-bias just kills off my interest in their biz articles)... it used to be I like Fortune a lot more than Business Week, but somehow the latter has improved markedly over the last 12 months to narrow the gap, well done Business Week...