Weekly Snippets, Snipes & Snide Commentary
13 March - 18 March 2006
RM4.4 Billion Allocation - The Malaysian government announced a RM4.4 billion allocation to improve public transport system. This is like a bad son who got whacked by his mum real bad and has to come up with excuses, reasons and justifications on the spot in order to stop the whacking. The advisors around PM Badawi should be reprimanded seriously for pitiful strategy and PR (what is this thing about lack of good PR skills, we have had PR problems highlighted in my previous blogs on Proton, MAS... and now the government too - its about time for all to rethink the importance of good PR, its not just a soft-skill you know). If the allocation was to improve public transport, it would have been annnounced at the same time with the fuel price increase and not as an afterthought. Malaysians are not so stupid lah... Still, it is a good move but could have been so much better-handled. A more comprehensive plan to improve the public transport over a 5 year period with a yearly allocation of RM10 billion would have been a cinch. RM10 billion is not much and easy to get - you already get RM4 billion from the public, you can get another RM4 billion from the industrial side, and you probably do not need to increase fuel prices by the same quantum as for the consumers to get that amount, as for the balance RM2 billion - just make it an extraordinary 5 year tax on Petronas for supernormal profits, Petronas would not even feel it. Now RM50 billion over 5 years, I am sure we can come up with something decent for the city and rural folks, even with leakages ... come on... hmmm.. maybe I should run for office.... nah... I'd turn corrupt too fast to be effective...
Free Chicken Anyone - Eat as much fried chicken as you want, but only if there happens to be avian flu scare. Why are things only free-to-eat when it is deemed "suspiciously dangerous"?? There were a few politicians photographed tucking away on fried chicken in a few "events" held to press home the point that chickens are safe to be eaten. Since there were some ducks culled last week in Perak, I guess the ducks should be shivering for there will be some "duck eating" party over the next 2 weeks. I am just trying to imagine if the same action/reaction was replicated elsewhere. How about the anthrax scare in the US? Will we see Bush and Condeleeza Rice holding a press conference at a US mail room and just opening up random letters and inhaling?? C'mon guys, its safe to smell the letters now.
Investor Conference - Over 500 fund managers, analysts and institutional investors will converge in Kuala Lumpur for Invest Malaysia 2006, which is aimed at profiling Malaysian companies and showcasing the diversity of investments in the Malaysian capital market. Some 30 corporate presentations by industry leaders will be held for potential investors at the two-day conference. The companies making presentations are mainly Khazanah related companies. The conference is jointly organised by Bursa Malaysia Bhd, Commerce International Bankers Bhd (CIMB) and UBS Securities Malaysia Sdn Bhd. My gripe is that this conference is like an "insider-conference" as anyone in the industry can tell you the links between UBS-Khazanah, and the links between Bursa-CIMB are very ... how should I say this, ... having a lot to do with scratching and backs. Again, my other gripe is that international investors KNOW the companies already, a conference or roadshow will not change that. The only thing is that the companies can tell investors what sort of KPIs they have implemented, but investors need to see the results first - if the results are good, you don't need conferences like these, the professionals will find you.
Monday, March 20, 2006
Friday, March 17, 2006
Imaginative Investing
The Art Of Transcendental Business Projection
We can do all the number crunching and spreadsheet analysis, blah-blah, but will that ever get you the 3-bagger or 5-bagger over a period of 3-10 years. 3-bagger refers to 300% net returns from your initial investment. Journalists or those with 20/20 hindsight vision will always tout the scenario that if you had invested US$10,000 in Genting, Berkshire Hathaway, Microsoft, Intel, etc... 10 or 15 years ago, you'd be ... close to Nostradamus (dead and unbelievable).
Maybe we don't need a 300% return over 5 years, maybe all we want is a stock that will gain 20%-30% a year, even then 2-3 years down the line will see us doubling our money at least. That should be pretty good. But we don't want to do endless homework and research to get there. Well, there is a way, and that is what I call (my creation) Imaginative Investing.We are blessed with faculties to be able to appreciate nuances in behaviour. We can always point to a kid and say with authority, "That kid will grow up to be a brat, useless piece of shit". We form predictive comments in our own sphere of consciousness and deductive powers. This goes on and on, some things we can be good at, others not very much - e.g. If I strike the lottery, I will donate half to charity (ain't gonna happen cause you don't even buy lottery).
Of course, not everyone will be brilliant in using Imaginative Investing technique (send me now US$300 and you will get a money back 30 day guarantee...) as it has a lot do with your basic IQ to start with. I mean, we can only work with what we have, you know.
OK, I jest, here's the more serious stuff... Imaginative Investing is about thinking and filtering companies with the intention of seeing where they will be 2 or 4 years down the road. Sounds simple enough, but just as simple as predicting a beautiful teenager that she will turn out to be a beautiful girl in 5 years time. Our imagination and projection of a company's road into the future will carry with it many factors, which we may not be able to put down on paper, but we can feel it in our guts. It has to do with either the industry the company is in (industry enlarging); its ability to protect its margins or even a cartel-like operation; its cadre of strong, visionary and prudent management; maybe their product will find great acceptance or be the market leader; etc... Naturally these things are the same stuff that analysts will go through when writing their reports, but trust me, somehow, these nuggets get lost along the with the clinical prose, standard recommendation, rows of rows of figures, etc...
As ludricous as it may sound, just gve yourself some space and time as you read through the papers, slow your breathing, close your eyes, focus on the name of the stock, ... of course you must know something about the stock in the first place (I'm not Madam Zathura for heaven's sake) or a market semi-professional (i.e. adept at losing money professionally but given no credit for it)... then try and visualise the company's business, earnings, how the company will be one year down the road, two years down the road... how they will get there, will they get there, what will they be... will they be tripling their net profit then. These imaginative quests has the ability to correct each hypotheses by themselves. If you start thinking of a silly proposition, such as NST doubling its share price in 3 years... your inner voice will laugh at you. Its amazing but if you respect your inner voice, it can tell you a lot of stuff man! These projections are self censoring, it will be able to take in all the news items, corporate announcements, financial tidbits, uselesss financial blogs like this one, etc... to form the basis for censuring projections.
Somehow at the back of our minds, we can see a certain product or business that will continue to flourish, or an expanding market share, or a way forward to dominate their respective markets ... it is harder to justify those visions on numbers projection alone.
I did not examine the financial numbers of the following companies closely, but they all look like 3-baggers or even 5-baggers in 3-10 years time (in my imaginative transcendental portfolio). I will also rate them out of 10 points as an indication of their potential - the higher the better.
MALAYSIA
Air Asia (9/10)
Pos Malaysia (6/10)
Transmile Group (9/10)
Uchi (7/10)
Genting/Resorts World (7/10)
D&O Ventures (8/10)
Faber (6/10)
Sunrise (6/10)
Wah Seong (8/10)
IOI Corp (6/10)
Scomi Engineering (6/10)
Scomi Marine (9/10)
SINGAPORE
Capitaland (6/10)
Hyflux (7/10)
Singpost (7/10)
Keppel Land (6/10)
OSIM (8/10)
Hong Leong Asia (8/10)
I somehow know the bulk of my Singaporean readers will crucify me and alert me to their own picks... but these are my Imaginative Investing Picks, do NOT quote research/financials of these companies to me. I just know where they are, I have read about what they do, have been doing, and my assessment of the platform they are on, the ability to leverage and scale up.... in my mind. Maybe some of you would like to share you II picks too.
HONGKONG
China Mobile (6/10)
Li & Fung (9/10)
Cafe de Coral (6/10)
Cosco Pacific (7/10)
China Oilfield (6/10)
Thursday, March 16, 2006
Suddenly, Everything's Rosy?
Equity Markets Turned Positive (Again)
Hong Kong shares made their biggest gain in six weeks yesterday, sparked mainly by property stocks rising on easing fears over further US interest rate hikes, and by China Mobile, which is expected to report better-than-projected results today. The blue-chip Hang Seng Index surged 200.6 points, or 1.29% to 15,720, the steepest climb since January 27 when it jumped 1.5%. Hong Kong's property shares recouped recent losses to post their biggest one-day percentage rise in nearly three weeks. The Hang Seng property sub-index rose more than 2% to 19,263. Top property gainers included Henderson Land, whose shares rose 3% to HK$42.95, and Sino Land, up 3.2% to HK$11.30. Shares of local property stocks had been staggered recently by renewed concern over potential interest rate hikes in the United States. Last week, long-term US treasury yields spiked to their highest levels in 21 months. But the softer-than-expected February US retail sales figures calmed the anxiety, precipitating the largest one-day plunge in US long-term treasury yields in six months overnight Tuesday. US retail sales last month fell 1.3%, steeper than the 0.8% decline predicted.
My BIG PICTURE comments a week back seem to be coming to fruition - watch the consumer prices in the US (or in this case, retail sales) as that would give strong directional momentum for investors to reframe their decision making.
Its kind of funny because the oil inventory in the US also continued rising, which put to rest the fear of high oil prices (temporarily). I did mention that the recent oil price spike was due more to fear than real fundamentals - the continued rise in stockpile of oil inventory further reassured investors. Does that mean the Iran thing is no big deal? It is still a big deal, and both US and Iran are shoving and pushing each other still. I mean, Iran is the second largest oil producing OPEC nation and could hold the world's supply at ransom - but the higher inventory levels in the US did help to allay those fears, plus other friendlier OPEC nations could step in to counter any shortfall by Iran. However, Iran's economy could suffer greatly if a prolonged curtailing of supply is mandated - so, unlikely to happen, and even if it did, it will be short-lived.
The main argument is that US wants Iran to stop its nuclear weapons programme. This time around, Bush is smarter by calling on all 15 council members of the UN Security Council to back him by issuing a statement to call on Iran to suspend uranium enrichment efforts. Russia and China remain the two who wants the "statement by the Council" to be watered down. Economic and/or political sanctions could be imposed on Iran. I don't think Bush wants to go down the road of another costly invasion so soon. Even airstrikes would be a no-no as once you start something like that, you have to follow through in a big way till completion. So, the threat of airstrikes and invasion are there, but not likely this time around. Certainly the UN and allies to the US would not want to see another Iraq-like invasion so soon.
The other main reason for the bullish tide of change was the spectacular gains made by China's yuan yesterday. It registered its biggest one-day gain against the dollar since revaluation, buoyed by technical buying. The move also followed comments by Premier Wen Jiabao on Tuesday reiterating Beijing's pledge to tolerate a more flexible currency. The yuan closed at 8.0377 versus the dollar, up 0.12% from Tuesday's close of 8.0473. The currency hit an intraday high of 8.0373. The one-day gain marked the first time the currency had risen more than 0.1 percent in a day. What is more important is not that the yuan gained ground but that the authorities in China "allowed" the currency to rise. This move would indicate a more concilliatory strategy to work with the US to redress the trade imbalance problem. Good for China and the US, good for the rest of the world.
Equity Markets Turned Positive (Again)
Hong Kong shares made their biggest gain in six weeks yesterday, sparked mainly by property stocks rising on easing fears over further US interest rate hikes, and by China Mobile, which is expected to report better-than-projected results today. The blue-chip Hang Seng Index surged 200.6 points, or 1.29% to 15,720, the steepest climb since January 27 when it jumped 1.5%. Hong Kong's property shares recouped recent losses to post their biggest one-day percentage rise in nearly three weeks. The Hang Seng property sub-index rose more than 2% to 19,263. Top property gainers included Henderson Land, whose shares rose 3% to HK$42.95, and Sino Land, up 3.2% to HK$11.30. Shares of local property stocks had been staggered recently by renewed concern over potential interest rate hikes in the United States. Last week, long-term US treasury yields spiked to their highest levels in 21 months. But the softer-than-expected February US retail sales figures calmed the anxiety, precipitating the largest one-day plunge in US long-term treasury yields in six months overnight Tuesday. US retail sales last month fell 1.3%, steeper than the 0.8% decline predicted.
My BIG PICTURE comments a week back seem to be coming to fruition - watch the consumer prices in the US (or in this case, retail sales) as that would give strong directional momentum for investors to reframe their decision making.
Its kind of funny because the oil inventory in the US also continued rising, which put to rest the fear of high oil prices (temporarily). I did mention that the recent oil price spike was due more to fear than real fundamentals - the continued rise in stockpile of oil inventory further reassured investors. Does that mean the Iran thing is no big deal? It is still a big deal, and both US and Iran are shoving and pushing each other still. I mean, Iran is the second largest oil producing OPEC nation and could hold the world's supply at ransom - but the higher inventory levels in the US did help to allay those fears, plus other friendlier OPEC nations could step in to counter any shortfall by Iran. However, Iran's economy could suffer greatly if a prolonged curtailing of supply is mandated - so, unlikely to happen, and even if it did, it will be short-lived.
The main argument is that US wants Iran to stop its nuclear weapons programme. This time around, Bush is smarter by calling on all 15 council members of the UN Security Council to back him by issuing a statement to call on Iran to suspend uranium enrichment efforts. Russia and China remain the two who wants the "statement by the Council" to be watered down. Economic and/or political sanctions could be imposed on Iran. I don't think Bush wants to go down the road of another costly invasion so soon. Even airstrikes would be a no-no as once you start something like that, you have to follow through in a big way till completion. So, the threat of airstrikes and invasion are there, but not likely this time around. Certainly the UN and allies to the US would not want to see another Iraq-like invasion so soon.
The other main reason for the bullish tide of change was the spectacular gains made by China's yuan yesterday. It registered its biggest one-day gain against the dollar since revaluation, buoyed by technical buying. The move also followed comments by Premier Wen Jiabao on Tuesday reiterating Beijing's pledge to tolerate a more flexible currency. The yuan closed at 8.0377 versus the dollar, up 0.12% from Tuesday's close of 8.0473. The currency hit an intraday high of 8.0373. The one-day gain marked the first time the currency had risen more than 0.1 percent in a day. What is more important is not that the yuan gained ground but that the authorities in China "allowed" the currency to rise. This move would indicate a more concilliatory strategy to work with the US to redress the trade imbalance problem. Good for China and the US, good for the rest of the world.
Wednesday, March 15, 2006
Preferential Treatment Or Discrimination
DIGI, Dubai Ports, Mittal Steel...
This was reported in Reuters 14/3/2006: "Norway's largest telecoms group Telenor will not reduce its stake in Malaysian subsidiary DiGi.Com, despite the disappointment of not winning a government 3G licence tender. DiGi, 61 percent owned by Telenor, is Malaysia's largest mobile phone operator without a 3G licence and had been a favourite to win one of the two tenders. ... Telenor dismissed rumours in Malaysia's media and markets that it would sell some of its shares in DiGi. ... The Malaysian government told DiGi it had lost out on the tender because of the high foreign ownership in the company. Telenor has expanded into emerging markets over the last few years and fully or partly owns mobile phone operators from its Nordic base, through eastern Europe to southeast Asia. ....Analysts said the Malaysian government's reasons and the fact that DiGi did not have a 3G licence would influence Telenor's long-term policy in the region... Malaysia has almost 17 million mobile phone subscribers, around 65 percent of the population, making it Southeast Asia's third most developed mobile market after Singapore and Brunei. "
Things like that happens in the business world. Get over it already. Look at how Dubai Ports got shafted just by its geographical location. Or how the Donald Trump-like Lakshmi Mittal's bid for Arcelor is being regarded and treated, mainly due to where he was from. For Mittal, sometimes buying the most expensive house in the most expensive area in London, and throwing the most lavish party would not even come close to buying you acceptance. Sometimes, its not just business alone.
As for the DIGI case, I was amazed at the clarity and frankness of Keng Yaik's explanation on why DIGI did not get the 3G license. Good on you, if you practiced discriminatory business decisions, be man enough to admit it. Don't try and cover it with some other altruistic reasons (like some). Having said that, is 3G really that important an asset for national interest purposes. I mean, I can understand if it was ONE or TWO licenses, but you issued more than that! I came across a funny excerpt today in The Star where Keng Yaik was at the launching of Radio-Frequency Identification Devices National Security Platform. Naturally he was questioned (again) on the 3G issue. To which he replied that the ministry was still being criticised over the matter. Touche... his frankness is certainly winning me over!
Tuesday, March 14, 2006
Battle Of The Exchanges
Nasdaq and NYSE Fights Over LSE
Nasdaq made an audacious bid for London Stock Exchange last week. Its offer made Macquarie's earlier bid looking infantile and amateurish. The timing of Nasdaq's bid was also interesting as it was the same week that NYSE went for a listing after being absorbed into Archipelago. Nasdaq has been winning the trading wars being the biggest electronic exchange, while some segments of NYSE still wanted to hold on to archaic sign language to do deals (we know the real reasons don't we, electronics makes it more difficult to screw clients). NYSE's listing was a percursor to admitting that they needed to go electronic in a complete overhaul way before they lose more market share to Nasdaq and the rest.
Nasdaq could afford to bid very high for LSE because Nasdaq trades at a rich 65 times earnings this year. As Nasdaq has always been electronic, its business platform is highly scalable, and LSE makes a very good fit. If one were to look at the number of foreign companies going for depository receipts last year, only one-third went to the US exchanges, the rest mainly opted for London and Luxembourg. If Nasdaq gets LSE, its could spell a long period of demise and diminished stature for NYSE.
Fearing a need to do catch, a substantial shareholder of NYSE called for the company to stay away from entering into a bidding war with Nasdaq for LSE. Frankly speaking, NYSE is not ready to absorb LSE, while Nasdaq has been preying for the last 12 months.
There is only so long the LSE board can say no. If the next bid comes in, and I am sure it will - the pressure will be to OK the bid because it will be getting to stratospheric levels. It will be harder to stay independent. I believe the board members of LSE would now seriously and quickly consider a merged Euro exchange, involving at least Paris-Euronext and Germany's Deutsche Bourse. It makes more sense in a E.U. environment. Once merged, it will be a lot harder for anyone to buyout the entity. In fact, the merged entity will be powerful enough to buyout some of the other commodity exchanges and strike strong alliances.
To make themselves less attractive, LSE has immediately filed documents to return 510 million pounds (US$880 million) back to shareholders, depleting its still substantial cash coffers. Still, board members are still going into talks with Nasdaq on what should happen next. Nasdaq has more leverage and propensity to do the deal as it is scaling up its business platform, while the cost savings will be a good reason to do the deal too. The LSE board would be tempted to join forces with Nasdaq and the entity could also be a cross-Atlantic powerhouse. This will further allow London to thumb its nose at E.U. (if it so chooses).
At the end of the day, Nasdaq cannot afford NOT to get LSE. Money is not an issue for Nasdaq. A Nasdaq-LSE entity will be too formidable especially when foreign companies think of doing depository receipts or even outright listing in a major exchange.
Will the samer fervour happen in Asia? Unlikely, some of the bourses are too nationalistic. The better performing bourses such as HKSE and SGX are too competitive with each other to give each other the time of the day. For HKSE to sell to SGX or vice versa is unthinkable as the "financial center" reputation and flow-on benefits and bragging rights are just too much to even contemplate. Even an alliance between the two will be hard to forge.
The following table ranks the market capitalisation of the respective exchanges as at end of 2005:
1) New York Stock Exchange US$13.3 billion
2) Tokyo Stock Exchange US$4.57 billion
3) Nasdaq US$3.6 billion
4) London Stock Exchange US$3.06 billion (now a lot higher)
5) Osaka Stock Exchange US$2.97 billion
6) Euronext-Paris US$2.71 billion
7) Toronto Stock Exchange US$1.48 billion
8) Deutsche Bourse US$1.22 billion
9) HK Stock Exchange US$1.05 billion
10) Madrid Stock Exchange US$0.96 billion
Nasdaq and NYSE Fights Over LSE
Nasdaq made an audacious bid for London Stock Exchange last week. Its offer made Macquarie's earlier bid looking infantile and amateurish. The timing of Nasdaq's bid was also interesting as it was the same week that NYSE went for a listing after being absorbed into Archipelago. Nasdaq has been winning the trading wars being the biggest electronic exchange, while some segments of NYSE still wanted to hold on to archaic sign language to do deals (we know the real reasons don't we, electronics makes it more difficult to screw clients). NYSE's listing was a percursor to admitting that they needed to go electronic in a complete overhaul way before they lose more market share to Nasdaq and the rest.
Nasdaq could afford to bid very high for LSE because Nasdaq trades at a rich 65 times earnings this year. As Nasdaq has always been electronic, its business platform is highly scalable, and LSE makes a very good fit. If one were to look at the number of foreign companies going for depository receipts last year, only one-third went to the US exchanges, the rest mainly opted for London and Luxembourg. If Nasdaq gets LSE, its could spell a long period of demise and diminished stature for NYSE.
Fearing a need to do catch, a substantial shareholder of NYSE called for the company to stay away from entering into a bidding war with Nasdaq for LSE. Frankly speaking, NYSE is not ready to absorb LSE, while Nasdaq has been preying for the last 12 months.
There is only so long the LSE board can say no. If the next bid comes in, and I am sure it will - the pressure will be to OK the bid because it will be getting to stratospheric levels. It will be harder to stay independent. I believe the board members of LSE would now seriously and quickly consider a merged Euro exchange, involving at least Paris-Euronext and Germany's Deutsche Bourse. It makes more sense in a E.U. environment. Once merged, it will be a lot harder for anyone to buyout the entity. In fact, the merged entity will be powerful enough to buyout some of the other commodity exchanges and strike strong alliances.
To make themselves less attractive, LSE has immediately filed documents to return 510 million pounds (US$880 million) back to shareholders, depleting its still substantial cash coffers. Still, board members are still going into talks with Nasdaq on what should happen next. Nasdaq has more leverage and propensity to do the deal as it is scaling up its business platform, while the cost savings will be a good reason to do the deal too. The LSE board would be tempted to join forces with Nasdaq and the entity could also be a cross-Atlantic powerhouse. This will further allow London to thumb its nose at E.U. (if it so chooses).
At the end of the day, Nasdaq cannot afford NOT to get LSE. Money is not an issue for Nasdaq. A Nasdaq-LSE entity will be too formidable especially when foreign companies think of doing depository receipts or even outright listing in a major exchange.
Will the samer fervour happen in Asia? Unlikely, some of the bourses are too nationalistic. The better performing bourses such as HKSE and SGX are too competitive with each other to give each other the time of the day. For HKSE to sell to SGX or vice versa is unthinkable as the "financial center" reputation and flow-on benefits and bragging rights are just too much to even contemplate. Even an alliance between the two will be hard to forge.
The following table ranks the market capitalisation of the respective exchanges as at end of 2005:
1) New York Stock Exchange US$13.3 billion
2) Tokyo Stock Exchange US$4.57 billion
3) Nasdaq US$3.6 billion
4) London Stock Exchange US$3.06 billion (now a lot higher)
5) Osaka Stock Exchange US$2.97 billion
6) Euronext-Paris US$2.71 billion
7) Toronto Stock Exchange US$1.48 billion
8) Deutsche Bourse US$1.22 billion
9) HK Stock Exchange US$1.05 billion
10) Madrid Stock Exchange US$0.96 billion
The Malaysian Govt-Linked-Companies Experience - Malaysia Airports
The Bravura & Mis-steps
Some of our GLCs do well but many do poorly. Do we not have capable managers? Our spreadsheet analysis not credible enough? Execution problem? (Please read my blog on "execution risk"). I would like to run through the brief history of Malaysia Airports (MA), a GLC, and see where they'd gone wrong and what they did right. Khazanah Nasional Bhd owns 73% in the company. It is understood that getting MA in order is one of the Government investment arm's priorities.
KLIA started construction in 1995 and was completed in 1998 by the government, not by the people in management of MA. We needed the new airport. Cost came to RM10.7 billion and was borne by the government. The license to manage and operate KLIA was issued to MA in May 1998 for a period of 50 years. MA was listed in 1999. In its IPO prospectus, MA published the financial results from 1994-1998 (not including KLIA) as MA was already managing 19 airports in the country. The PAT: for 98 was RM341 million; for 97 was RM236 million; for 96 was RM357 million; for 95 was RM104 million; and for 94 was RM176 million. Pretty decent stuff.
Was it a question of timing or bad luck? The Asian financial implosion was pretty clear in 97/98, surely assumptions on air travel and business activity would be curtailed. Why was the F1 sepang circuit suddenly put under MA? Why did MA get involve in the management and operation of 1,740 hectare of oil palm on KLIA land?
The basic revenue streams for MA are simple: aeronautical - airport charges; and non-aeronautical - concession income, fees from parking facilities, sales revenue from retail outlets, rents/charges paid by other airlines and tenants. Its like running a property building, isn't it? If it stays that way, it is hard to go wrong.
Things went awry because assumptions on air traffic flow were way off. Other businesses were parked into MA (see above), making life hell for management of MA but cannot say "no" to Khazanah/MOF, right?! Did I mention the National Exhibition & Convention Center (NECC) also? This was apparently sold for RM145 million to recover cost incurred by MA.
The proposed sale of 30% MA to Schipol in 2003 would have been good but was called off. F1 circuit in Sepang was supposed to be sold off to Ministry of Finance for Rm389 million. Plus compensation for Senai airport would see RM70 million going to MA from the government. But wait, this is in 2003, all that is supposed to help MA pay for the outstanding concession fee of RM454 million to the government. Nothing happened - tai-chi negotiations...
These are so "unstrategic" and non-synergistic.
The restructuring of payments to government and sale of F1 circuit have been dragging on for so long. The numbers MA has to pay is RM856 million to the government as concession fee. The bloody F1 thingee is still in the air for RM390 million. Plus MA still has to pay lease rental charges for KLIA amounting to RM60 million per year (increasing at 4% annually), as well as 8% of KLIA's revenue. Under the terms of the concession agreement, MAHB is required to pay the Government RM1.3 billion for the KLIA concession in five instalments. But the lower-than-anticipated passenger movements at the international airport in its first few years of operations, coupled with the incentives given to the various airlines to lure them to KLIA, had dampened the airport operator's ability to strictly follow the payment schedule. That being the case, the balance payment of RM467.3 million will still be a strain on the company's cashflow.
That's why airport tax will rise by tomorrow, and lower airport tax will be levied on the Subang low-cost-carrier terminal, and I suppose some/part of the lease payments would be waived to compensate for MAS pulling out of some domestic routes (which MA is managing those airports). F1 circuit will probably absorbed by MOF in lieu of concession payments to the government. Maybe finally MA can come clean. Should be clearer skies for MA... finally.
Lessons From The Malaysia Airports' Experience:
1) management at MA seems to be powerless to counter "higher up" voices in terms of assets and the businesses they have to take up - we need to appoint capable people and then empower them to act, not pull the strings attched
2) just because it involves the government doesn't mean deals/payments/lease/agreements do not need to be resolved asap - in fact the government should set a leading example by honouring these agreements to boost the "good feelings" of doing business with government bodies. Things cannot go into tai-chi mode for a long time as parties involved get flustered and frustrated. Nobody likes to deal with that kind of business mentality. You don't want members of the business community to always think "Oh, well, its part of the cost of dealing with government bodies". That has to change
3) stop being a good mother - the government has to stop being a mother to all projects. GLCs have to be given the leeway to operate within their jurisdiction. When occassions arise, don't ask the richer son to give to the poorer son
4) improve business plans, projections, spreadsheet analysis and assumptions. Too many times, proposals have been kicked started on too-rosy projections with not enough hole-poking into assumptions. Don't just accept a biz plan and spreadsheet analysis just because the project was already okayed by "higher voice" - it will come and haunt us later. That's why Khazanah has to do so many "crisis management meetings" with GLCs, they step off the wrong foot in the first place. Do better at the initial stages, so that you have less to do later. Plus, when fundamentals change, we need GLCs to move fast enough to change business plan, or renegotiate contracts where possible - GLCs tend to move too slow
5) not just things coming from the top - we cannot have things being decreed from the top, set the GLCs free, don't ask them to absorb this, buy that, sell this and that. Let the GLCs set a proper business strategy for the business that they should focus on. Let each GLC be focused in what they do, not a mish-mash of stuff. Let them be accountable
6) when dealing with GLCs, make it more certain that parties involved know what's the likely outcome. There is so much uncertainty with MA for the past 3 years - will certain payments be waived, will taxes be increased, what will become of certain domestic airports, will they be able to sell the F1 circuit, etc... when it is difficult for independent investors to make a clean assessment of the prospects, dues, payments, terms of contract a company is involved in (because when it comes to GLCs, many things are FLUID).. then how do you expect to garner consistent institutional investor interest... no amount of international roadshows and showcasing will help to counter that
Monday, March 13, 2006
Stop The Quarterly Earnings Guidance Already!
More and more big listed companies in America are revolting on the practice of providing quarterly earnings guidance (QEG). In other words, providing company forecasts. Needless to say, this kind of short term managing will result in a very difficult operating environment. Long term objectives and strategy will be compromised to attain short term goals and targets. QEG will not just affect the top layer of management, but will work itself down to the nuts and bolts of every organization, especially sales and marketing. Constantly doing, re-doing, re-working, re-stating QEGs will create a damaging focus on meaningless short-term performance and undermine a company's ability to manage for the long term. This re-working, re-stating, re-doing will have to be re-communicated down the line re-peatedly. Re-diculous!
Even I am concerned for quarterly reporting as I do feel there is an excessive burden on the board and senior management to do board papers, attend board meetings just to ratify and spot "typos" - a lot of constructive hours are lost. If we can maintain quarterly reporting to the bare minimum with no "special announcements or guidance" necessary... it will save a lot of people a lot of time, money and creative energy. Companies want to project numbers that will please Wall Street, their shareholders, the bloggers and excessive business programs on television. All company executives, especially those of large public companies, should follow the lead of others who have stopped issuing earnings guidance. Even stock analysts are disenchanted with QEGs as they have write, comment on trivial things on a too-regular basis.
Berkshire Hathaway Inc chief executive Warren Buffett said Wall Street's relentless focus on whether companies hit or miss quarterly earnings targets encourages balance-sheet manipulation and discourages long-range planning. A consensus is growing among CEOs, regulators and analysts to go against QEGs. Many CEOs despise giving such guidance but are afraid to stop because they think they would be punished by Wall Street analysts and shareholders.
Among the biggies who have stopped giving QEGs are Citigroup, General Motors, Ford, Motorola and Intel. Last Friday saw another big boy joining this elite group, Pfizer. Even Merrill Lynch has recommended its global research analysts to discount company guidance when preparing forecasts.
Many companies want to stop, maybe part of the reason is that more and more companies have been missing their numbers. Particularly if you have had a great quarter, what are you going to forecast for the next quarter? If you are less than optimistic, then even that great quarter's results will be villified and your stock will be graded down by analysts and business journalists. If you maintain an optimistic forecast, you are just raising the bar every quarter - how often can you raise the bar. Not everyone has a "General Electric" at his disposal - not that I am bashing GE, GE has been famous for not missing QEGs. When you have a fantastically run company with super achieving executives, and most importantly, an array of business units - you can "manage" earnings well. Tweaking business units performance on a quarterly basis, recording some sales early and some late - well, wouldn't it be easy, especially when you have so many well run units in GE.
CEOs have another quibble about QEGs and that is the increasing focus of class-action shareholder lawsuits. It is too short term in nature and volatile, and if CEOs are held liable for QEGs on a strict basis, it will be too stressful, if it isn't already.
As in any markets, the top companies get too much research coverage while the rest get zilch. Two-thirds of Nasdaq companies are covered by one or no analysts. Small companies then feel obligated to play the QEG game simply to get attention. The one group who seem to benefit more from QEGs are the hedge funds, as they can have more opportunities to go long/short a stock/industry class based on QEGs. Hedge funds also tend to be more severe in rewarding and punishing short term happenings. End result, more volatility.
When QEGs were first proposed, it was based on the premise that they would help lessen volatility, and hence risk and cost of capital would also decrease. It should lead to better information flow and access for shareholders and potential investors. Boy, I think everyone should admit they were mostly wrong here.
Oil Bourse To Trade In Euros
Will The US Dollar Status Be Compromised
I know it is difficult enough to differentiate between Iran and Iraq. Iraq is where the US soldiers have been stationed way too long. Iran is the country with the better football team and White House is suspicious of their involvement in nuclear whatchammacallit. Some have called the recent grouses White House has with Iran as having more to do with the Iranian government starting a Tehran oil bourse. It is supposed to be operational, maybe by the end of March or early April. The other thing which caused some domino-kind-of-panic among critics was the detail that oil will be traded in Euros and not US dollars in the bourse.
Firstly, the US have already be at loggerheads with Iran for sometime, not just recent months. President George W Bush declared in his January 2002 State of the Union address to Congress in which he labeled Iran, along with Iraq and North Korea, as a member of the "axis of evil" trio. This was well before anyone in Tehran was even considering establishing an oil bourse to trade oil in various currencies.
Some believe that, should the Teheran bourse takes off, oil nations (especially those bullied by the US foreign policies) would trade in Euros, and that might cause a depletion of importance for the US dollars. Already much of today's petrodollars are being recycled back to buy US Treasuries. Would the bourse stop the buying of US Treasuries? I think those oil nations that do buy US Treasuries will keep buying US Treasuries, while those who have an axe to grind with US foreign policy do not even buy US Treasuries now - so the proposition does not hold water. Plus, there is a misconception to what is termed as "petrodollars". It does not just mean oil earnings being used to buy US Treasuries. Petrodollars really mean the excess profits being recycled back to the financial centers in HK, London and New York, to be lent out in US dollar form to other "investing units" to buy US dollar denominated assets. More significantly, the petrodollars is also recycled through the big banks to be lent out in US dollar loans to impoverished or oil-deficient Third World countries.
For the bourse to do real damage, it has to take off in a big way. More participation by important oil nations. The bourse do give the players an alternative, an option which certainly must rub the White House up the wrong way. But is it big enough?
It is one thing to have a bristled political relations between two countries, but this may be the sort of thing that makes push coming to shoves, leading to blows??!! One has to remember that oil is denominated and quoted in US dollars for convenience. Since the oil shock of the 70's, many countries have shifted their oil buying in their own currencies. This is especially true for Germany, Japan and France - when oil price can jump with such volatility, the last thing you need is another fluctuating factor (US dollar). It is more prudent to lessen the risk by buying oil in your own currency. Hence the importance of oil being traded in US dollars in present days has been overstated.
Back in the early 70's, the oil shock which sent oil prices rising by 300%-400%, helped propel the world's demand for US dollars, thanks to oil being traded in US dollars. But that view does not hold up in 1979 when Iran's Ayatollah Khomeini rose to power and caused another round of oil price hike. This time the US dollars actually fell as foreign nations dumped US dollars to protest US foreign policy of Jimmy Carter. That was so bad that Carter had to bring in the superman-Volcker to steady the ship. Volcker allowed interest rates to rise to stabilise the US dollar. That led to widespread higher global interest rates and global recession and unemployment. Since then major countries have a better understanding of how the US dollar is inter-connected to the global economic fortunes - whether you like it or not. This is another reason why a US dollar collapse is not likely in the present times (a weaker US dollar yes, not a halved US dollar) - globalisation of trade have been so prevalent and pervasive over the last 15 years. A similar round of what happened with the Carter-Volcker situation today would be exaggerated a few times over the world.
The US dollar is a reserve currency. You get that status not by a vote at a United Nations meeting. You have to fight for it. You have to go to war for it. You have to have the economic and military leadership to maintain it. You can go do things in the name of "democracy" but in the end its the reserve currency benefits that hold the country together. The US dollar is a paper currency, i.e. not back by "tangible stuff" like many others. While the US dollar is not backed by gold, it is backed by some 130 military bases globally. No one likes to hear it, or even preach it, but reserve status is economic power, and the right to dominate the global economic process. You can't wrench that away from the US by just an oil bourse. Call them the big bully but thats the way the world turns (for now).
That's why, while the Euro have risen in prominence, it is still a long way off to even challange the US dollar as a viable alternative. Will the European Union have sufficient solidarity to take up global military leadership? EU military spending is just a little more than 10% of the US. Greenpeace influenced, left leaning blocks... just do not add up to superpower. Although they can start by issuing and creating as deep as possible a Euro-denominated bond market and papers.
While we criticise the US for consuming more than they deserve; and we criticise them for allowing the trade deficit thing to get out of hand; and that they are just printing paper money to pay for stuff - at the end of the day, the US already "paid" and "backed" their currency in many other ways, which we are unwilling or too embarressed to acknowledge. Seen in that light, the new oil bourse in Teheran would not even bother the White House or US dollar one bit. Like an ant bite to an elephant.
Will The US Dollar Status Be Compromised
I know it is difficult enough to differentiate between Iran and Iraq. Iraq is where the US soldiers have been stationed way too long. Iran is the country with the better football team and White House is suspicious of their involvement in nuclear whatchammacallit. Some have called the recent grouses White House has with Iran as having more to do with the Iranian government starting a Tehran oil bourse. It is supposed to be operational, maybe by the end of March or early April. The other thing which caused some domino-kind-of-panic among critics was the detail that oil will be traded in Euros and not US dollars in the bourse.
Firstly, the US have already be at loggerheads with Iran for sometime, not just recent months. President George W Bush declared in his January 2002 State of the Union address to Congress in which he labeled Iran, along with Iraq and North Korea, as a member of the "axis of evil" trio. This was well before anyone in Tehran was even considering establishing an oil bourse to trade oil in various currencies.
Some believe that, should the Teheran bourse takes off, oil nations (especially those bullied by the US foreign policies) would trade in Euros, and that might cause a depletion of importance for the US dollars. Already much of today's petrodollars are being recycled back to buy US Treasuries. Would the bourse stop the buying of US Treasuries? I think those oil nations that do buy US Treasuries will keep buying US Treasuries, while those who have an axe to grind with US foreign policy do not even buy US Treasuries now - so the proposition does not hold water. Plus, there is a misconception to what is termed as "petrodollars". It does not just mean oil earnings being used to buy US Treasuries. Petrodollars really mean the excess profits being recycled back to the financial centers in HK, London and New York, to be lent out in US dollar form to other "investing units" to buy US dollar denominated assets. More significantly, the petrodollars is also recycled through the big banks to be lent out in US dollar loans to impoverished or oil-deficient Third World countries.
For the bourse to do real damage, it has to take off in a big way. More participation by important oil nations. The bourse do give the players an alternative, an option which certainly must rub the White House up the wrong way. But is it big enough?
It is one thing to have a bristled political relations between two countries, but this may be the sort of thing that makes push coming to shoves, leading to blows??!! One has to remember that oil is denominated and quoted in US dollars for convenience. Since the oil shock of the 70's, many countries have shifted their oil buying in their own currencies. This is especially true for Germany, Japan and France - when oil price can jump with such volatility, the last thing you need is another fluctuating factor (US dollar). It is more prudent to lessen the risk by buying oil in your own currency. Hence the importance of oil being traded in US dollars in present days has been overstated.
Back in the early 70's, the oil shock which sent oil prices rising by 300%-400%, helped propel the world's demand for US dollars, thanks to oil being traded in US dollars. But that view does not hold up in 1979 when Iran's Ayatollah Khomeini rose to power and caused another round of oil price hike. This time the US dollars actually fell as foreign nations dumped US dollars to protest US foreign policy of Jimmy Carter. That was so bad that Carter had to bring in the superman-Volcker to steady the ship. Volcker allowed interest rates to rise to stabilise the US dollar. That led to widespread higher global interest rates and global recession and unemployment. Since then major countries have a better understanding of how the US dollar is inter-connected to the global economic fortunes - whether you like it or not. This is another reason why a US dollar collapse is not likely in the present times (a weaker US dollar yes, not a halved US dollar) - globalisation of trade have been so prevalent and pervasive over the last 15 years. A similar round of what happened with the Carter-Volcker situation today would be exaggerated a few times over the world.
The US dollar is a reserve currency. You get that status not by a vote at a United Nations meeting. You have to fight for it. You have to go to war for it. You have to have the economic and military leadership to maintain it. You can go do things in the name of "democracy" but in the end its the reserve currency benefits that hold the country together. The US dollar is a paper currency, i.e. not back by "tangible stuff" like many others. While the US dollar is not backed by gold, it is backed by some 130 military bases globally. No one likes to hear it, or even preach it, but reserve status is economic power, and the right to dominate the global economic process. You can't wrench that away from the US by just an oil bourse. Call them the big bully but thats the way the world turns (for now).
That's why, while the Euro have risen in prominence, it is still a long way off to even challange the US dollar as a viable alternative. Will the European Union have sufficient solidarity to take up global military leadership? EU military spending is just a little more than 10% of the US. Greenpeace influenced, left leaning blocks... just do not add up to superpower. Although they can start by issuing and creating as deep as possible a Euro-denominated bond market and papers.
While we criticise the US for consuming more than they deserve; and we criticise them for allowing the trade deficit thing to get out of hand; and that they are just printing paper money to pay for stuff - at the end of the day, the US already "paid" and "backed" their currency in many other ways, which we are unwilling or too embarressed to acknowledge. Seen in that light, the new oil bourse in Teheran would not even bother the White House or US dollar one bit. Like an ant bite to an elephant.
Friday, March 10, 2006
YTD Best Performing Bourses
Surprise, surprise... the following were the best performing bourses from 1st January 2006 till end of February 2006:
1) Shanghai Composite +11.8%
2) Frankfurt DAX +7.2%
3) HK Hang Seng +7.0%
4) Paris CAC +6.1%
5) Jakarta Composite +5.9%
6) Singapore STI +5.7%
7) Thailand SET +4.2%
8) Nasdaq +3.4%
9) KLCI +3.2%
10) London FTSE +3.1%
11) Dow Jones +2.6%
12) S&P 500 +2.6%
13) Philippines Comp. +1.6%
14) Nikkei 225 +0.6%
15) Taiwan Weighted +0.2%
16) Korean Kospi -0.6%
Since the beginning of March 2006, Singapore and Frankfurt bourses have continued to make further headway. The poorer performance by US bourses was largely due to uncertainty over Federal Reserve hiking rates further, and manufested in very high levels of insider selling. Insider is defined as listed company officers, directors and senior management. A monthly survey by Thomson Financial showed that insider selling totaled an astounding US$6.1 billion in February 2006, which was the highest level of monthly selling by insiders since the US$9.1 billion record in February 2000. Some of you may remember that the February 2000 was the period just before the bursting of the dot-com bubble, so it was prescient of the insiders. Selling by insiders in February 2006 was highest in technology related stocks (maybe knee jerk reactions from those fearing the very volatile movements in Google - which can move tech-stocks as a group like a yo-yo). However, there has been insider buying also for US regional banks, real estate and trusts. While the February figure is worrisome, it needs further confirmation. If the March figure is just as bad, things can get very nasty in the US.
Surprise, surprise... the following were the best performing bourses from 1st January 2006 till end of February 2006:
1) Shanghai Composite +11.8%
2) Frankfurt DAX +7.2%
3) HK Hang Seng +7.0%
4) Paris CAC +6.1%
5) Jakarta Composite +5.9%
6) Singapore STI +5.7%
7) Thailand SET +4.2%
8) Nasdaq +3.4%
9) KLCI +3.2%
10) London FTSE +3.1%
11) Dow Jones +2.6%
12) S&P 500 +2.6%
13) Philippines Comp. +1.6%
14) Nikkei 225 +0.6%
15) Taiwan Weighted +0.2%
16) Korean Kospi -0.6%
Since the beginning of March 2006, Singapore and Frankfurt bourses have continued to make further headway. The poorer performance by US bourses was largely due to uncertainty over Federal Reserve hiking rates further, and manufested in very high levels of insider selling. Insider is defined as listed company officers, directors and senior management. A monthly survey by Thomson Financial showed that insider selling totaled an astounding US$6.1 billion in February 2006, which was the highest level of monthly selling by insiders since the US$9.1 billion record in February 2000. Some of you may remember that the February 2000 was the period just before the bursting of the dot-com bubble, so it was prescient of the insiders. Selling by insiders in February 2006 was highest in technology related stocks (maybe knee jerk reactions from those fearing the very volatile movements in Google - which can move tech-stocks as a group like a yo-yo). However, there has been insider buying also for US regional banks, real estate and trusts. While the February figure is worrisome, it needs further confirmation. If the March figure is just as bad, things can get very nasty in the US.
Asian Real Estate
Or Why Malaysian Real Estate Is So Cheap
Did you know that KL real estate is one of the cheapest in Asia - another reason why 5 star hotels in Malaysia are also among the cheapest in the world. One can understand if Malaysian real estate values lag those of more developed nations such as Singapore, Hong Kong, Seoul or Tokyo... but KL even lags Indian cities, Bangkok and certain places in Jakarta. We can understand why Shanghai or Beijing would be more expensive too compared to KL - population, out-sourcing and investment.
Is this a correlation to our GDP per capita (roughly translated is how much money a citizen earns in a specific country a year). The figures were obtained from CIA files, yes the American Central Intelligence Agency for 2005: www.gov/cia/publications/factbook/rankorder/2004rank.html
1) Luxembourg US$62,700
2) Equatorial Guinea US$50,200 (where is that, I want to move there ... but a cafe latte will probably cost US$15)
3) Norway US$42,400
4) USA US$41,800
8) HK US$36,800
16) Canada US$32,800
18) Australia US$32,000
20) UK US$30,900
22) Japan US$30,400
26) Singapore US$29,700
36) Taiwan US$26,700
41) New Zealand US$24,100
42) Brunei US$23,600
51) South Korea US$20,300
82) Russia US$10,700
83) Malaysia US$10,400
86) Mexico US$10,000
88) WORLD AVERAGE US$9,300
97) Thailand US$8,300
118) China US$6,200
132) Philippines US$5,100
150) Indonesia US$3,700
155) India US$3,400
229) Somalia US$600
231) Gaza Strip US$600
232) East Timor US$400
If you look at the table above, it bears little correlation. A poor country can have high city real estate values - hence a big factor is city population. You need to cram a lot of people into a tiny space, then real estate values will soar - take New York, Tokyo, HK, Singapore, Bangkok, Shanghai, Shenzhen, Karachi, Mumbai ... many are in the region of 10-30 million city population. KL has about 5 million but it is also quite spread out. So, another factor is it has to be CRAMPED - or rather business activity CBD has to be cramped.
Another factor for high real estate values is whether you are a financial center. Is your city a crucial outpost to doing business in the region - HK, Shanghai, Singapore, Tokyo, Mumbai, New York, etc... KL is neither here nor there. What about Bangkok? Well, it has a super duper population (have you seen the weekend exodus from Bangkok every Friday). Even though it is not a financial center, it the the center for a country with a decent population size. If your capital city is the center of a country with a decent population, you can be assured of good commercial real estate values - e.g. Thailand, Taiwan, South Korea. We need Malaysia to move quickly from 26 million to at least 60 million. Then you can have some good ripple on effect on real estate values.
If you are not a financial center, you can still command high rates if high-value services businesses are aplenty. Hence Singapore's commercial real estate will have a very strong long term uptrend as it does not depend on its reputation as a financial center/port/MICE biz like HK but moves higher up the value-added curve by encouraging designers/inventors in animation, biotech, education, etc. Does KL look like a city with good high value added industries?
Good amenities and public infrastructure would not be a bad thing, look at Tokyo, HK, Singapore or even New York - but infra is not crucial in giving higher real estate values. If you look at the capital cities of the high GDP per capita countries such as Oslo, Amsterdam, Stockholm, etc.. you will find that good infra is a good thing but not necessarily stratospheric real estate prices.
Lack of good quality commercial space will also spruce up real estate values. Just look at Indian cities, cities in Vietnam or even Jakarta. We in KL, unfortunately builds okay buildings cheaply as land is cheap and plentiful. I mean, KL commercial just keeps getting drawn wider and wider. First the CBD, then the city kind of move wider to include PJ, then it moves out to Shah Alam, now Klang. Too much cheap flat land.
So, commercial real estate value in Malaysia will lag the rest of Asia, even some cities in Vietnam (my gawd), and it will not change until the fundamentals change. The only exciting part for Malaysian real estate is residential, and you know how people get crazy with houses, every now and then, good houses in good locations will have its own bull run. The rental yields never match the house prices - but hey, who the heck cares. Commercial and retail, fergedaboudit!
Problems With Bursa Malaysia
The Bursa people did a press conference yesterday, trying to address the poor investor interest in Malaysian stocks. The following are factoids regarding Bursa's strategy, their understanding of the real problems, and whether their priorities have been misplaced.
1) Yusli, the CEO, said that the Bursa expects to maintain its 2006 financial results around the same level as last year. In 2005 the Bursa reported a credible net profit of RM81.3 million on revenues of RM257.6 million, and declared a hefty dividend.
My Take - That's what you get when you give your CEO and senior executives large chunks of shares/options in Bursa shares. It will make them think that financial results and cash back in "my pocket" are the most important things in running an exchange. (Please read my blog on Bursa and what's wrong with their corporate strategy) - its high time to refocus priorities on other more pressing issues, its not just a net profit thing for the Bursa. A lot of remisers, dealers and brokers who depend on the Bursa DO NOT have Bursa shares to help cushion the fall, like some.
2) Yusli also trumpeted that local and foreign funds could return to Malaysian stocks, and to do that, one of the first thing will be showcasing 30 companies in a big joint conference hosted by the Bursa, CIMB and UBS on March 22 to 24. Yusli added that there will be GLCs and plantation firms. "We have some really good companies and we want to tell as many investors as possible".
My Take - Most institutional investors KNOW THE 30 companies a lot better than the CFOs/CEOs doing the presentation already!!! Not investing in Malaysian companies is not due to a lack of awareness or lack of intimate knowledge of the companies per se, good investors also know why they should not be investing after doing their own research. It is so naive to think that a few conferences like these will perk up buyers - my, I didn't know how good these companies were, I should buy now.... really Yusli...
3) Yusli did mention that after speaking to big foreign investors, they did mention that the Bursa needs to have more big, quality and liquid stocks.
My Take - Okay man, here are some real issues. BIG - how to be big, well similar GLC could merge; good GLCs and other listed firms with proper expertise could venture overseas to by up regional stakes (Malaysian market is too small to grow into anything decent if a company stays local).
QUALITY - That is being addressed by Khazanah on its GLCs, have to wait and see if the strategy pans out. As for other listed non-GLCs, quality is there but there is a big complacency around many of those companies. Many are happy to be Jaguh Kampung (backyard champs) and stay that way, they are happy making their RM30 -100 million. Companies to emulate: Tanjong, YTL Power, IJM, IOI Corp, etc...
As for LIQUIDITY, this is one thing the Bursa can do more effectively. Khazanah can take the lead, too many companies are holding about 45%-55% of their shares. There is no need to do that. Believe in sharing growth values. Have the confidence to operate with just 34% stake or thereabouts. More transparency, accountability will put more pressure on strategic decisions and management decisions, but that's the way forward. Studies in the past have shown that companies who have placed out shares from a high majority stake to just a controlling stake, actually saw their share price rise, and activity level also rose despite the greater free float. Greater free float means more big institutions can then consider buying them as there will be sufficient liquidity to move in and out. Khazanah should really take the lead, reduce stakes and place them out.
Part of the reason for the under-performance by Malaysian stocks last year was the tight control on the ringgit. Many funds were in agreement to load up on ringgit based assets last year in anticipation of a stronger ringgit or revaluation. That did not occur, and wasted a lot of investors' time. Malaysia is such a small market, you don't want to get disappointed by a small market. Its like a guy, if he got rejected by a supermodel, that's kinda ok, but to be rejected by a 4' 11" pork chop, that's another thing. Stop making the ringgit artificially weak, the authorities are only helping to make the plantation companies look better than what they really are.
Sometimes we are just like a piece of pork chop, in Cantonese, a very average looking girl. The corporate results are not outstanding, liquidity is a problem, not enough big companies. Companies that do well are actually helped by the ringgit, what if the ringgit is allowed to appreciate from here. Other bourses offer more upside. Malaysian stock prices while not expensive is not cheap either. Liquidity in the system is decent but countered by firming interest rates. Property prices have been stagnant.
Sometimes no one will want to date your daughter, and you will feel sad about it. Every dog has its day, nobody stays down forever. The KPIs to be announced by the GLCs should be looked at closely. Not so much what they reveal, but how and what Khazanah will be doing with performers and non-performers - that will be the crucial thing. Of the GLCs such as plantations, banks, conglomerates, utilities and services - the one sector that is "easier to navigate" and control is utilities - I suspect real improvements and changes will be more evident in utilities - hence TM and Tenaga should see more upside activity, if there happens to be any.
Thursday, March 09, 2006
The BIG PICTURE In March 2006
Give Me A Reason To Stick Around
Well, I have to say that I am generally still bullish on Asian equities for 2006. The present humdrum days make almost everyone to question their investment outlook. Let's look at some interesting pointers:
1) The second year of a US presidency usually is bad news for US stocks. Yes, 2006 is the second year for Bush.
2) The US dollar seems to be losing ground. It seems that the authorities are allowing the dollar to slide to try and address the trade imbalances. If China won't revalue, we will devalue the dollar (albeit gently).
3) Recent weeks (days actually) saw a lot of speculative investors selling out of emerging markets' assets such as currencies like Polish zloty, Hungarian forint, Turkish lira and even Icelandic krona. The selldown was exemplified in the stockmarkets of Karachi and Mumbai, Argentina's Merval, Brazil's Bovespa, Hungary's Buz, Morocco's MASI, etc... The main reason for the selldown in emerging markets' assets is the fear that Federal Reserve will push interest rates above 5% later on.
4) This fear has been reflected in the US Treasuries with the yield on 10-year widening to 4.8%. European bond yields have also widened in anticipation that the European Central Bank will tighten along with the Federal Reserve.
5) All that is happening around Bank of Japan, which is about to announce that they will start raising interest rates. This BOJ move is widely anticipated and is necessary as the liquidity in the system is too strong. This announcement will NOT deter the rise of Japanese stocks in 2006, mark my words. This time around, the gains are genuine and there is sufficient gas to propel the rally into 2007. Ample liquidity, increased foreign participation, better restructuring, genuine turnarounds - the rate increase announcement is just a reflection of the underlying strength of the liquidity and not a sign to fear rise of inflation.
6) Oil is another factor here. OPEC just met in Vienna to keep production stable. US oil inventory has risen. The high price of oil now is a reflection of the fear of increased tensions between the US and Iran over the latter's nuclear programme. Again, based on fear rather than real fundamentals.
7) However, with all the inflationary fears and oil price spikes, gold prices have eased on profit taking. Surprising.
This is indicative of all markets that needs to find reasons to "take some profits", be it stocks, gold, oil prices, emerging markets - all have had excellent run-ups of late, and all are dying to find some reason to rest. Hence it is my belief that nothing much has changed, Asian equities still good. US equities, iffy. US junk bonds, very iffy, as their yields are too close to the Treasuries, too much bond money chasing after too few papers.
US dollar will weaken a bit more but the Fed is not going to ease the dollar and raise rates at the same time - defeats the purpose. Just have to keep a close eye on US consumer prices over the next few weeks and months.
Give Me A Reason To Stick Around
Well, I have to say that I am generally still bullish on Asian equities for 2006. The present humdrum days make almost everyone to question their investment outlook. Let's look at some interesting pointers:
1) The second year of a US presidency usually is bad news for US stocks. Yes, 2006 is the second year for Bush.
2) The US dollar seems to be losing ground. It seems that the authorities are allowing the dollar to slide to try and address the trade imbalances. If China won't revalue, we will devalue the dollar (albeit gently).
3) Recent weeks (days actually) saw a lot of speculative investors selling out of emerging markets' assets such as currencies like Polish zloty, Hungarian forint, Turkish lira and even Icelandic krona. The selldown was exemplified in the stockmarkets of Karachi and Mumbai, Argentina's Merval, Brazil's Bovespa, Hungary's Buz, Morocco's MASI, etc... The main reason for the selldown in emerging markets' assets is the fear that Federal Reserve will push interest rates above 5% later on.
4) This fear has been reflected in the US Treasuries with the yield on 10-year widening to 4.8%. European bond yields have also widened in anticipation that the European Central Bank will tighten along with the Federal Reserve.
5) All that is happening around Bank of Japan, which is about to announce that they will start raising interest rates. This BOJ move is widely anticipated and is necessary as the liquidity in the system is too strong. This announcement will NOT deter the rise of Japanese stocks in 2006, mark my words. This time around, the gains are genuine and there is sufficient gas to propel the rally into 2007. Ample liquidity, increased foreign participation, better restructuring, genuine turnarounds - the rate increase announcement is just a reflection of the underlying strength of the liquidity and not a sign to fear rise of inflation.
6) Oil is another factor here. OPEC just met in Vienna to keep production stable. US oil inventory has risen. The high price of oil now is a reflection of the fear of increased tensions between the US and Iran over the latter's nuclear programme. Again, based on fear rather than real fundamentals.
7) However, with all the inflationary fears and oil price spikes, gold prices have eased on profit taking. Surprising.
This is indicative of all markets that needs to find reasons to "take some profits", be it stocks, gold, oil prices, emerging markets - all have had excellent run-ups of late, and all are dying to find some reason to rest. Hence it is my belief that nothing much has changed, Asian equities still good. US equities, iffy. US junk bonds, very iffy, as their yields are too close to the Treasuries, too much bond money chasing after too few papers.
US dollar will weaken a bit more but the Fed is not going to ease the dollar and raise rates at the same time - defeats the purpose. Just have to keep a close eye on US consumer prices over the next few weeks and months.
Hedge Funds To List on Singapore Exchange???
You Better Be Joking About This
The following was reported in The Straits Times (Singapore) 9/3/2006: "Hedge funds are the hottest investment around these days and they could be listed on the Singapore Exchange (SGX) - but not before the public gives its two cents' worth. The SGX wants public feedback on the proposal to allow the funds to list but not be traded - a move that would make Singapore the first market in Asia to have such a listing framework. Industry watchers are in favour, saying it will enable hedge funds to draw investments from institutions, particularly European pension funds, that have internal rules barring them from putting money into unlisted securities. Allowing the listings will also fill a 'huge vacuum' for an Asian centre, as hedge funds have to head to exchanges in Dublin and Luxembourg, which are 'near administration capacity and in the wrong time zone for Asian funds', said hedge fund consultant Peter Douglas. 'This is potentially a huge move that could boost Singapore's standing as a wealth management hub,' he added. The director of advisory services at hedge fund research firm Eurekahedge, Mr Nigel Poh, agreed: 'Together with the Budget measures to boost the investment management industry, this move creates a favourable environment to attract more hedge funds to set up shop here.' It could also provide a positive knock-on effect for law firms and fund administrators, experts say. Hong Kong, which is Singapore's closest rival as an Asian base for hedge funds, does not have a listing framework. The SGX paper lays out a number of criteria for hedge funds seeking a listing: They must be recognised or authorised under the Securities and Futures Act, offer units only to institutions or wealthy investors and have at least S$20 million in assets. They must have at least one key executive with a minimum of five years of investment management experience and fulfil basic public disclosure requirements. These include publishing each month the per-unit value of their portfolios less liabilities and six-monthly financial results. But the funds would be exempted from disclosing in their annual reports their list of investments and how they fared. 'A robust framework with necessary safeguards is needed for the listing of hedge funds,' said SGX. 'As hedge funds have different characteristics and risk structures compared to a typical investment fund, it is proposed that the listing of hedge funds be regulated within the existing framework for investment funds with necessary adaptations and amendments.' The deadline for feedback submission is March 28. The paper can be viewed at www.sgx.com "
My take:
a) You are supposed to list them but not trade them - so we have a listed fund but no tradeable prices? This is supposed to allow institutions to invest, particularly those who can only invest in listed vehicles. Its a silly way to attract more investors. The problem lies with those archaic investors, they are the old European money, they should just go and change their charter in light of modern developments in international finance. You don't bend over backwards for them. Even as I am speaking about this, a lot of hedge funds have already listed their funds in Dublin and Luxembor already. But if you have already unbuckled your pants for others to do stuff to your behind, I cannot stop you, can I?!!
b) The nature of a hedge fund may usually have a short life span. If a fund posted negative returns for a couple of years, I think its goodbye everyone. Listing them would only add to the already onerous fee structure for everyone. It just vets for these additional information - that the fund has someone with at 5 years investing experience; post a monthly NAV/unit price; post a 6-monthly results - my gawd, almost all hedge funds investors would GET THAT kind of information already, twerps!!! So what is new!!!
c) You have invented the wheel, then there is this group of very wealthy merchants who want you to redesign the wheel into a square instead - because the roads in the town where they live is made out of stairs, up and down, up and down, but all stairs' steps. That's what we are facing here, don't bend over backwards for these archaic funds. There will always be funds if you are good. Next they will ask you to list some islands cos they can't buy them unless these small independent islands are listed.
You Better Be Joking About This
The following was reported in The Straits Times (Singapore) 9/3/2006: "Hedge funds are the hottest investment around these days and they could be listed on the Singapore Exchange (SGX) - but not before the public gives its two cents' worth. The SGX wants public feedback on the proposal to allow the funds to list but not be traded - a move that would make Singapore the first market in Asia to have such a listing framework. Industry watchers are in favour, saying it will enable hedge funds to draw investments from institutions, particularly European pension funds, that have internal rules barring them from putting money into unlisted securities. Allowing the listings will also fill a 'huge vacuum' for an Asian centre, as hedge funds have to head to exchanges in Dublin and Luxembourg, which are 'near administration capacity and in the wrong time zone for Asian funds', said hedge fund consultant Peter Douglas. 'This is potentially a huge move that could boost Singapore's standing as a wealth management hub,' he added. The director of advisory services at hedge fund research firm Eurekahedge, Mr Nigel Poh, agreed: 'Together with the Budget measures to boost the investment management industry, this move creates a favourable environment to attract more hedge funds to set up shop here.' It could also provide a positive knock-on effect for law firms and fund administrators, experts say. Hong Kong, which is Singapore's closest rival as an Asian base for hedge funds, does not have a listing framework. The SGX paper lays out a number of criteria for hedge funds seeking a listing: They must be recognised or authorised under the Securities and Futures Act, offer units only to institutions or wealthy investors and have at least S$20 million in assets. They must have at least one key executive with a minimum of five years of investment management experience and fulfil basic public disclosure requirements. These include publishing each month the per-unit value of their portfolios less liabilities and six-monthly financial results. But the funds would be exempted from disclosing in their annual reports their list of investments and how they fared. 'A robust framework with necessary safeguards is needed for the listing of hedge funds,' said SGX. 'As hedge funds have different characteristics and risk structures compared to a typical investment fund, it is proposed that the listing of hedge funds be regulated within the existing framework for investment funds with necessary adaptations and amendments.' The deadline for feedback submission is March 28. The paper can be viewed at www.sgx.com "
My take:
a) You are supposed to list them but not trade them - so we have a listed fund but no tradeable prices? This is supposed to allow institutions to invest, particularly those who can only invest in listed vehicles. Its a silly way to attract more investors. The problem lies with those archaic investors, they are the old European money, they should just go and change their charter in light of modern developments in international finance. You don't bend over backwards for them. Even as I am speaking about this, a lot of hedge funds have already listed their funds in Dublin and Luxembor already. But if you have already unbuckled your pants for others to do stuff to your behind, I cannot stop you, can I?!!
b) The nature of a hedge fund may usually have a short life span. If a fund posted negative returns for a couple of years, I think its goodbye everyone. Listing them would only add to the already onerous fee structure for everyone. It just vets for these additional information - that the fund has someone with at 5 years investing experience; post a monthly NAV/unit price; post a 6-monthly results - my gawd, almost all hedge funds investors would GET THAT kind of information already, twerps!!! So what is new!!!
c) You have invented the wheel, then there is this group of very wealthy merchants who want you to redesign the wheel into a square instead - because the roads in the town where they live is made out of stairs, up and down, up and down, but all stairs' steps. That's what we are facing here, don't bend over backwards for these archaic funds. There will always be funds if you are good. Next they will ask you to list some islands cos they can't buy them unless these small independent islands are listed.
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