Investors are rightfully worried about the formation of asset bubble after the revelation that Chinese banks lent out US$670.9 billion, a full 91.6% of the country’s lending target for the year in the first quarter. Most are wondering if it was being directed into areas conducive to a long-term recovery. With such a huge sum of money flowing around, coupled with lax regulation and tracking by the banks, it is not difficult to guess which are the likely places the money will end up in. For answers, look no further than the China stock market and prices of real estate.
Not long ago, Beijing, worried that hot money flowing into unwanted sectors could cause bubbles rather than sustain economic growth, has warned mainland banks against using wealth management funds to directly invest in secondary markets of A shares, managed funds and pre-IPO companies. The warning come ahead of the revival of mainland initial public offerings and after an estimated 50 percent of bank lending has been poured into surging stock and real estate markets.
As such, the recent run-up in China stock market cannot be attributed to any improvement in economy or the companies’ fundamentals. Guilin Sanjin Pharmaceutical, the mainland's first IPO since September 2008, was oversubscribed 165 times and raised about 910.8 million yuan.
The sharp reduction in lending in April – to US$87 billion from US$278 billion in March – could be seen as a return to a degree of normalcy. Not as far as the People’s Bank of China is concerned. The central bank advocates a continued loose monetary policy on the grounds that a real economic recovery has yet to take hold. Increased liquidity may help in the short term, but it presents serious long-term risks. Many have highlighted a possible non-performing loan crisis down the road.
Tuesday, June 30, 2009
Sunday, June 21, 2009
No better way to lose - Jackpot machines
Last November, a 49-year-old man won the largest UK jackpot ever - playing an online slot machine. His take was £2,086,585. This, despite what we know to be a universal truth: slot machines (jackpot machines) are the worst bet of them all. They take much more than they give. The maths, the science and the psychology are all against you.
It's why the machines are the darlings of the casinos: they generate between 60 and 80% of all casino profit. According to figures collected by Las Vegas-based gaming expert Michael Bluejay, the return percentage makes the cost of playing fruit machines outrageously high in comparison to other forms of gaming. Games such as blackjack or baccarat give the casino a 1% edge over the player. A slot machine set at a relatively high 90% offers the casino a whopping 10% edge. According to Bluejay, a player on a one-dollar slot machine will on average lose $800 in a ten-hour session. This is money ground away by the machine as winnings are fed back into the machine. The same player over the same time period will lose only an average of a tenth of that ($79) playing a low-intensity game such as roulette. You still lose money at roulette, blackjack and baccarat, but you lose it more slowly; so you enjoy a longer night out.
People talk about strategies, like watching as punters pump in money then hovering like a vulture to move in if it doesn't pay out for him. But random number generators have no memory for the past or plan for the future. They do not make decisions. The machine's outcomes are determined by random numbers and every time you play a machine the odds are exactly the same. It's a myth that the slot machine will tighten up after it has hit the jackpot, or that it will be loose if it hasn't been paying. This is not true. It's like spinning a roulette wheel. Every time you play the odds are the same.
By controlling how often certain symbols that pay out money appear, manufacturers can mathematically control how much money the machine will pay out over its lifetime. Most manufacturers and players agree that machines set to pay out below 75% are far too stingy to maintain player interest, though they certainly exist.
Most people misunderstand the percentages, according to US expert and author Frank Legato. 'People think that because it's a 98% machine that it should pay back 98 cents in every dollar they gamble. No, several hundred people over a couple of months will have got back 98% of everything that was put in that machine.' He claims that even a 98% return machine will make $200 to $300 a day for a casino.
'It's about impression management. The high-frequency gambling, plus near misses, plus the lights and colours and sounds and noises... all contribute to a person staying on the machine. 'Why is there a metal payout tray? So that when coins fall into the tray, you hear the "kerchunk, kerchunk, kerchunk" and it emphasises the win. You go into a casino and there might be 1,000 machines but you'll hear the 20 that are paying out and the coins hitting a pan. What you don't hear are the 980 machines that are losing at the same time.'
It's why the machines are the darlings of the casinos: they generate between 60 and 80% of all casino profit. According to figures collected by Las Vegas-based gaming expert Michael Bluejay, the return percentage makes the cost of playing fruit machines outrageously high in comparison to other forms of gaming. Games such as blackjack or baccarat give the casino a 1% edge over the player. A slot machine set at a relatively high 90% offers the casino a whopping 10% edge. According to Bluejay, a player on a one-dollar slot machine will on average lose $800 in a ten-hour session. This is money ground away by the machine as winnings are fed back into the machine. The same player over the same time period will lose only an average of a tenth of that ($79) playing a low-intensity game such as roulette. You still lose money at roulette, blackjack and baccarat, but you lose it more slowly; so you enjoy a longer night out.
People talk about strategies, like watching as punters pump in money then hovering like a vulture to move in if it doesn't pay out for him. But random number generators have no memory for the past or plan for the future. They do not make decisions. The machine's outcomes are determined by random numbers and every time you play a machine the odds are exactly the same. It's a myth that the slot machine will tighten up after it has hit the jackpot, or that it will be loose if it hasn't been paying. This is not true. It's like spinning a roulette wheel. Every time you play the odds are the same.
By controlling how often certain symbols that pay out money appear, manufacturers can mathematically control how much money the machine will pay out over its lifetime. Most manufacturers and players agree that machines set to pay out below 75% are far too stingy to maintain player interest, though they certainly exist.
Most people misunderstand the percentages, according to US expert and author Frank Legato. 'People think that because it's a 98% machine that it should pay back 98 cents in every dollar they gamble. No, several hundred people over a couple of months will have got back 98% of everything that was put in that machine.' He claims that even a 98% return machine will make $200 to $300 a day for a casino.
'It's about impression management. The high-frequency gambling, plus near misses, plus the lights and colours and sounds and noises... all contribute to a person staying on the machine. 'Why is there a metal payout tray? So that when coins fall into the tray, you hear the "kerchunk, kerchunk, kerchunk" and it emphasises the win. You go into a casino and there might be 1,000 machines but you'll hear the 20 that are paying out and the coins hitting a pan. What you don't hear are the 980 machines that are losing at the same time.'
Saturday, June 6, 2009
Pay 83% premium for hope?
The Singapore stock market has gone spectacularly over the past few months. It would be foolhardy to say otherwise. Apparently, the sense of optimism is now so strong that some speculators are willing to pay a premium of 83% for hope.
Enporis Greenz Limited was formally known as Seksun Corporation Limited, which was principally involved in the manufacture of high-precision metal components and contract manufacturing for the electronics industry, with operations in Singapore, Malaysia, Indonesia, China and the USA. In October 2007, the Company announced the sale of substantially the whole of its assets and business undertakings to Supernova Holdings (Singapore) Pte. Ltd. Following the completion of the sale in February 2008, the Company remained listed on the SGX Mainboard and was renamed as Enporis Greenz Limited. Currently, it is a shell company with no operating business to speak of. The Company continues to explore and assess various investment options to seek viable opportunities in other areas of business.
According to the Listing Manual, the Singapore Exchange Securities Trading Limited (SGX-ST) may remove the Company from the Official List if it is unable to acquire a new business satisfying the requirements for a new listing within 12 months from the time it becomes a cash company. On 30th Jan 2009, the Company managed to obtain an extension of time of 6 months from 31 January 2009 to continue their search of a new business. In the event the Company does not obtain ETL or proceed with the RTO, the SGX-ST will not grant further extension and will proceed to delist the Company.
The time to the deadline of 31st July 2009 is less than 2 months away. It is highly unlikely that Enporis Greenz will be able to consummate a new business, considering the amount of paperwork and logistics to be done. The writing is clearly on the wall as one of the management staff, who is also a substantial shareholder, has steadily pared down his stake from 24.42% to 20.46% in the past few weeks.
In the event that the company is delisted, any cash remaining will be distributed to the shareholders. As of the last financial report, the maximum amount of cash backing per share is approximately $0.03. Enporis Greenz last traded at $0.055 on Friday 5th June, which represents a premium of 83%. In short, speculators are paying 2.5 cents more to punt that the company will successfully find a new business before end July.
Unfortunately, the margin facilities of financial institutions do not allow the shorting of Enporis Greenz's shares. A potential return of 45% in less than 2 months is eye-popping no matter which view one takes.
Enporis Greenz Limited was formally known as Seksun Corporation Limited, which was principally involved in the manufacture of high-precision metal components and contract manufacturing for the electronics industry, with operations in Singapore, Malaysia, Indonesia, China and the USA. In October 2007, the Company announced the sale of substantially the whole of its assets and business undertakings to Supernova Holdings (Singapore) Pte. Ltd. Following the completion of the sale in February 2008, the Company remained listed on the SGX Mainboard and was renamed as Enporis Greenz Limited. Currently, it is a shell company with no operating business to speak of. The Company continues to explore and assess various investment options to seek viable opportunities in other areas of business.
According to the Listing Manual, the Singapore Exchange Securities Trading Limited (SGX-ST) may remove the Company from the Official List if it is unable to acquire a new business satisfying the requirements for a new listing within 12 months from the time it becomes a cash company. On 30th Jan 2009, the Company managed to obtain an extension of time of 6 months from 31 January 2009 to continue their search of a new business. In the event the Company does not obtain ETL or proceed with the RTO, the SGX-ST will not grant further extension and will proceed to delist the Company.
The time to the deadline of 31st July 2009 is less than 2 months away. It is highly unlikely that Enporis Greenz will be able to consummate a new business, considering the amount of paperwork and logistics to be done. The writing is clearly on the wall as one of the management staff, who is also a substantial shareholder, has steadily pared down his stake from 24.42% to 20.46% in the past few weeks.
In the event that the company is delisted, any cash remaining will be distributed to the shareholders. As of the last financial report, the maximum amount of cash backing per share is approximately $0.03. Enporis Greenz last traded at $0.055 on Friday 5th June, which represents a premium of 83%. In short, speculators are paying 2.5 cents more to punt that the company will successfully find a new business before end July.
Unfortunately, the margin facilities of financial institutions do not allow the shorting of Enporis Greenz's shares. A potential return of 45% in less than 2 months is eye-popping no matter which view one takes.
Sunday, May 24, 2009
Current outlook of S-REITs
Real Estate Investment Trusts (REITs) in Singapore are struggling for the first time since CapitaMall Trust, the first S-REIT, was listed in July 2002. Before the US sub-prime crisis took its toll on the economy and property market in Singapore.
Like their Asian peers, S-REITs have taken a beating since mid 2008. S-REIT prices have fallen by an average of 61% between end 2007 and 2008. Their total market capitalisation has plunged by 42%. With a total debt of over S$4.9 billion maturing in 2009 and more than $3.2 billion in 2010, refinancing has become the most imminent challenge, exacerbated by increasing cost of financing under the tighter credit conditions. Deleveraging is also among the top priorities of S-REITs, leading to CapitaMall Trust (CMT)’s major rights issue in March 2009. On top of these problems, S-REITs are threatened by falling rental income in all sectors and asset devaluation in their portfolios.
The retail S-REITs are expected to be the least impacted by falling rents among other S-REITs in this downturn. During previous downturns, the retail sector was the most resilient with rents declining the least. S-REITs with more suburban malls in their portfolios would face the least drop in rental income as their resident catchment would still need to eat and drink and purchase basic goods and services. Average rents in suburban areas dropped only marginally by 1.6% in the first quarter of 2009 from the peak in the third quarter of 2008 while average rents fell more by 6.9% in Orchard/Scotts Road and 3.8% in Other City Areas during the same period. Suburban malls also have an advantage over malls in the central areas in terms of competition level as among the 2.9 million sq ft of new supply in 2009, only 9% will be in the suburban areas. With the opening of Tampines 1 Mall in early April 2009, there will be no other major new mall in the suburban areas for the rest of the year.
S-REITs in the office sector would face the most impact on rental income as office demand is more correlated to GDP performance than other property sectors. During the Asian financial crisis, rents of prime office space in Raffles Place dived 41.4% from the peak in the fourth quarter of 1996 while prime first-storey retail rents in Orchard/Scotts Road and first-storey industrial rents fell less by 28.6% and 34.5% respectively. Following the Internet bubble burst in 2001, prime office rents in Raffles Place plunged 45.6%, higher than the fall of 38.9% for first-storey industrial rents while rents of prime retail space in Orchard/Scotts Road remained stable. In this current downturn, prime office rents in Raffles Place had fallen by an average of 36.8% from the peak in the third quarter of 2008 by the first quarter of 2009.
With a higher percentage of supply in the pipeline compared with other sectors, the office sector is expected to take a longer time to bottom than the other sectors. Office occupier demand is expected to be negative in 2009 with excess space caused by consolidation of operations and job layoffs. At the same time, there will be a substantial amount of new space in the next five years, the bulk of which will be in 2009 and 2010. The annual average supply of 2.2 million sq ft during 2009 to 2013 is 47% higher than the past ten year’s average.
Like their Asian peers, S-REITs have taken a beating since mid 2008. S-REIT prices have fallen by an average of 61% between end 2007 and 2008. Their total market capitalisation has plunged by 42%. With a total debt of over S$4.9 billion maturing in 2009 and more than $3.2 billion in 2010, refinancing has become the most imminent challenge, exacerbated by increasing cost of financing under the tighter credit conditions. Deleveraging is also among the top priorities of S-REITs, leading to CapitaMall Trust (CMT)’s major rights issue in March 2009. On top of these problems, S-REITs are threatened by falling rental income in all sectors and asset devaluation in their portfolios.
The retail S-REITs are expected to be the least impacted by falling rents among other S-REITs in this downturn. During previous downturns, the retail sector was the most resilient with rents declining the least. S-REITs with more suburban malls in their portfolios would face the least drop in rental income as their resident catchment would still need to eat and drink and purchase basic goods and services. Average rents in suburban areas dropped only marginally by 1.6% in the first quarter of 2009 from the peak in the third quarter of 2008 while average rents fell more by 6.9% in Orchard/Scotts Road and 3.8% in Other City Areas during the same period. Suburban malls also have an advantage over malls in the central areas in terms of competition level as among the 2.9 million sq ft of new supply in 2009, only 9% will be in the suburban areas. With the opening of Tampines 1 Mall in early April 2009, there will be no other major new mall in the suburban areas for the rest of the year.
S-REITs in the office sector would face the most impact on rental income as office demand is more correlated to GDP performance than other property sectors. During the Asian financial crisis, rents of prime office space in Raffles Place dived 41.4% from the peak in the fourth quarter of 1996 while prime first-storey retail rents in Orchard/Scotts Road and first-storey industrial rents fell less by 28.6% and 34.5% respectively. Following the Internet bubble burst in 2001, prime office rents in Raffles Place plunged 45.6%, higher than the fall of 38.9% for first-storey industrial rents while rents of prime retail space in Orchard/Scotts Road remained stable. In this current downturn, prime office rents in Raffles Place had fallen by an average of 36.8% from the peak in the third quarter of 2008 by the first quarter of 2009.
With a higher percentage of supply in the pipeline compared with other sectors, the office sector is expected to take a longer time to bottom than the other sectors. Office occupier demand is expected to be negative in 2009 with excess space caused by consolidation of operations and job layoffs. At the same time, there will be a substantial amount of new space in the next five years, the bulk of which will be in 2009 and 2010. The annual average supply of 2.2 million sq ft during 2009 to 2013 is 47% higher than the past ten year’s average.
Sunday, May 10, 2009
Gauging the market through equity risk premium
Following the stock market rally since mid-March, STI has now breached the 200day MA level on the back of rising volume. I would say that the majority of stocks regardless of size, have rebounded off their lows. All technical signs are pointing towards a bullish uptrend.
In this posting, lets take a look at what the equity risk premium (ERP) is indicating for the Singapore market. To calculate the ERP, the average P/E of the index stocks are needed. Curently there are 30 component stocks which make up the STI. Based on their Y2008 earnings and the closing price on 8th May, the average P/E is found to be 10.9. Take note that 2 companies have got no P/E as they are loss-making.
The second input we need is the average 1-year fixed deposit rate of the 3 local banks. A quick search on the internet will provide the rates and the average i get is 0.55%. Using the average P/E and average FD rates, the ERP is found to be 8.63%.
One thing i would like to point out is that the ERP value is never static. It changes everyday due to the fluctuation of stock prices. Generally, a high ERP value (>2) indicates that the investor expects a higher return for putting his money into equities especially during periods of uncertainty. In order to make investing in equities worthwhile, the investor must be adquately compensated through earning higher returns. On the contary, it goes down when investors are bullish about the future prospects of equities.
The current ERP of the STI is relatively high as compared to one, two years ago. As such, the Singapore market is not considered to be expensive. However, bear in mind that trailing P/E is being used. A 20% drop in earnings this year for market is not far-fetched. As investors, we should never rely on a single metric to determine our buy or sell decisions. Even though the Singapore market is not expensive, whether it can still continue to go up is anyone's guess.
Sunday, April 26, 2009
Thinking from the business perspective
Collin Yeo said...
"uptrending share price tells you nothing on the business and industry outlook"So what does? Consistent CAGR, strong cashflow, earnings and dividends? What if these doesn't translate into uptrending share price? Would you still buy into the company?
Collin, the 4 points you mentioned above form only part of the metrics that an investor should take note of. The list is not exhaustive but it includes ROE, ROIC, WACC, trade receivables level and so on. These ratios and figures can be obtained easily from the annual reports. But wait, getting your hands on them is only half the work done. The other half of the effort should be focused on the business prospects and the management staff. Most investors neglect this portion as such things are not easily quantifiable and it can be very time consuming to dig for info.
What should investors look out for in terms of business prospects and outlook?
Basically reading up on the work of Michael E. Porter will give you a much better idea.
For example, lets take a look at the group of companies under electronic contract manufacturers.
There are quite a few of such companies listed in SGX. The laptops, computers and other electronic equipment companies are usually the customers of the electronic contract manufacturers. They exist to provide a value added service (example: assembly of components, modules and circuit boards) to their customers. Through these processes, they earn a small margin (5-10%) in return. Compare this to their customers' margin. After taking back the assembled parts, the customers will then put their own brand name (example: HP, Acer) on the product. For niche electronic products, the selling price can be a few times higher than the cost price. For low end products, the margin is around 20-30%.
On the whole, there isnt much differentiation among the electronic contract manufacturers. Each of them can adequately serve the needs of HP and Acer. All are providing a commodity service. Normally, at the end of the day, the contract manufacturer with the lowest cost will win. If one have to choose between investing in the prospects of brand owners and contract manufacturers, then the choice is quite clear.
Now back to your earlier question, "Would you still buy into the company if consistent CAGR, strong cashflow, earnings and dividends doesn't translate into uptrending share price?"
There is no definite answer as one has to look into the circumstances how the strong earnings and cashflow are achieved. There will be more reason to do some research if such positive news does not translate into a higher share price. What does the public know that you dont? But if I can find a company with great business prospects (competitive advantage), consistent CAGR, strong cashflow and earnings with anemic share price, i would be happy to snap it up.
Cheers!
"uptrending share price tells you nothing on the business and industry outlook"So what does? Consistent CAGR, strong cashflow, earnings and dividends? What if these doesn't translate into uptrending share price? Would you still buy into the company?
Collin, the 4 points you mentioned above form only part of the metrics that an investor should take note of. The list is not exhaustive but it includes ROE, ROIC, WACC, trade receivables level and so on. These ratios and figures can be obtained easily from the annual reports. But wait, getting your hands on them is only half the work done. The other half of the effort should be focused on the business prospects and the management staff. Most investors neglect this portion as such things are not easily quantifiable and it can be very time consuming to dig for info.
What should investors look out for in terms of business prospects and outlook?
Basically reading up on the work of Michael E. Porter will give you a much better idea.
For example, lets take a look at the group of companies under electronic contract manufacturers.
There are quite a few of such companies listed in SGX. The laptops, computers and other electronic equipment companies are usually the customers of the electronic contract manufacturers. They exist to provide a value added service (example: assembly of components, modules and circuit boards) to their customers. Through these processes, they earn a small margin (5-10%) in return. Compare this to their customers' margin. After taking back the assembled parts, the customers will then put their own brand name (example: HP, Acer) on the product. For niche electronic products, the selling price can be a few times higher than the cost price. For low end products, the margin is around 20-30%.
On the whole, there isnt much differentiation among the electronic contract manufacturers. Each of them can adequately serve the needs of HP and Acer. All are providing a commodity service. Normally, at the end of the day, the contract manufacturer with the lowest cost will win. If one have to choose between investing in the prospects of brand owners and contract manufacturers, then the choice is quite clear.
Now back to your earlier question, "Would you still buy into the company if consistent CAGR, strong cashflow, earnings and dividends doesn't translate into uptrending share price?"
There is no definite answer as one has to look into the circumstances how the strong earnings and cashflow are achieved. There will be more reason to do some research if such positive news does not translate into a higher share price. What does the public know that you dont? But if I can find a company with great business prospects (competitive advantage), consistent CAGR, strong cashflow and earnings with anemic share price, i would be happy to snap it up.
Cheers!
Thursday, April 16, 2009
Beware of interested party transaction
C&G used to be a stock market darling from 2006 to 2007. But this should no longer be the case going forward with their latest announcement.
http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_C00AF58E46FDF7164825759A0030BE44/$file/CG_Memo_of_Understanding_for_the_Proposed_Acquisition.pdf?openelement
Basically, C&G is signalling to its investors that there is not much light at the end of the tunnel for the textile industry. To me, textile is a commodity and there is no pricing power for companies in this industry. Of course, this does not mean that C&G will report a loss in the next few quarters but growing profits will become increasingly difficult as we move on. This is the main reason why i did not buy into C&G after looking through its report in 2006. Yes i missed out on the wonderful gains as the share price went up throughout 2007. But again, a uptrending share price tells you nothing on the business and industry outlook, which one ultimately has to take into consideration when buying shares.
The next thing investors should take note of is the interested party transaction involved for this latest acquisition. Mr. Lam Chik Tsan who is the Executive Chairman and Director of C&G, owns 60% of the issued and paid up share capital of Vendor. Accordingly, the Vendor would be deemed as an “associate” of Mr. Lam Chik Tsan and an “interested person” in the context of the Proposed Acquisition. It should also be noted that Mr. Cai Junyi who is the Company’s Executive Director and Chief Executive Officer, owns approximately 17.5% of the issued and paid-up share capital of the Vendor. The 2 of them in total owns 77.5% of the vendor.
Waste to energy may be the next big thing that the China government is trying hard to promote and rollout. From the environmental viewpoint, this is a positive move forward. But being constantly in the news does not gurantee profits, which is the main driver of share price. Also, one should question how did the independent valuers arrive at the RMB359 million figure. Till now there is only 1 operating waste incineration power plant in Jinjiang. The Target Group has also commenced preparations to construct waste incineration power plants in Huangshi and Hui’an and construction of these plants are expected to be completed by September 2010 and March 2010 respectively. In addition, memorandums of understanding have been signed with the relevant administrative authorities of the Anxi County in the Fujian province of PRC and Chonburi, Thailand. Sounds good. However, one should be aware that memorandums of understanding can be cancelled on short notice.
All this talk of a new promising waste to energy business venture caused me to recall a similar company listed in SGX. The name is China Enersave. Investors will do well to read up on the not-so-great developments thus far.
http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_C00AF58E46FDF7164825759A0030BE44/$file/CG_Memo_of_Understanding_for_the_Proposed_Acquisition.pdf?openelement
Basically, C&G is signalling to its investors that there is not much light at the end of the tunnel for the textile industry. To me, textile is a commodity and there is no pricing power for companies in this industry. Of course, this does not mean that C&G will report a loss in the next few quarters but growing profits will become increasingly difficult as we move on. This is the main reason why i did not buy into C&G after looking through its report in 2006. Yes i missed out on the wonderful gains as the share price went up throughout 2007. But again, a uptrending share price tells you nothing on the business and industry outlook, which one ultimately has to take into consideration when buying shares.
The next thing investors should take note of is the interested party transaction involved for this latest acquisition. Mr. Lam Chik Tsan who is the Executive Chairman and Director of C&G, owns 60% of the issued and paid up share capital of Vendor. Accordingly, the Vendor would be deemed as an “associate” of Mr. Lam Chik Tsan and an “interested person” in the context of the Proposed Acquisition. It should also be noted that Mr. Cai Junyi who is the Company’s Executive Director and Chief Executive Officer, owns approximately 17.5% of the issued and paid-up share capital of the Vendor. The 2 of them in total owns 77.5% of the vendor.
Waste to energy may be the next big thing that the China government is trying hard to promote and rollout. From the environmental viewpoint, this is a positive move forward. But being constantly in the news does not gurantee profits, which is the main driver of share price. Also, one should question how did the independent valuers arrive at the RMB359 million figure. Till now there is only 1 operating waste incineration power plant in Jinjiang. The Target Group has also commenced preparations to construct waste incineration power plants in Huangshi and Hui’an and construction of these plants are expected to be completed by September 2010 and March 2010 respectively. In addition, memorandums of understanding have been signed with the relevant administrative authorities of the Anxi County in the Fujian province of PRC and Chonburi, Thailand. Sounds good. However, one should be aware that memorandums of understanding can be cancelled on short notice.
All this talk of a new promising waste to energy business venture caused me to recall a similar company listed in SGX. The name is China Enersave. Investors will do well to read up on the not-so-great developments thus far.
Saturday, April 4, 2009
Permit obtained for more creative accounting
A country's laws, policies and regulations are set by government. However, such things can be changed in a short time if the concerned parties pushed their case hard enough. On 2nd April, the Financial Accounting Standards Board (FASB) in United States allowed banks more discretion in reporting the value of mortgage securities.
Good news? Surely it will be for banks. Perhaps in this coming quarter, we can expect lower impairment charges and write-down values. To me, this is a move of desperation. There is no more credibility in doing accounting. When the market is fine, nobody made noise as most were raking in copious amount of money. Now that the chips are down, banks want to have the freedom to set their own asset prices.
Valuation of assets and liabilities is a malleable matter. Long ago accountants grappled with the issue of which master they should serve, since their constituents can have conflicting interests. According to best practices, accountants should chosen the path of conservative reporting as it has shown to serve most constituents well. It may not be fair to all but life is not always fair.
Generally, a bank's assets are made up of the following:
1) Cash
2) Securities
3) Loans
4) Other assets (plant & equipment)
With the investment banks, there will be an extra category of asset based on derivatives and other financial instruments.
Loans represent the majority of a bank's assets. A bank can typically earn a higher interest rate on loans than on securities, roughly 6%-8%. You can find detailed information about the rates earned on loans and investments in the financial statements. Loans, however, come with risk. If the bank makes bad loans to consumers or businesses, the bank will take a hit when those loans aren't repaid. Because loans are a bank's bread and butter, it's critical to understand a bank's book of loans. Due to the worldwide boom in real estate in recent years, a large portion of loans are back by properties.
The biggest problem facing banks now, are that derivative asset values are virtually impossible to estimate, many loans are in forbearance if not default, and securities based upon mortgages are underwater and untradeable. Banks have a very difficult time marking to market because there is no market. There will be no simple solution in sight. Nevertheless, banks are posting huge losses as they need to mark down their assets every quarter according to the old accounting rules.
Will the new accounting rules set by FASB change anything?
Sadly no. The assets on the books of the banks are trash and they and the government know. That was why in the absence of buyers, the government has to step in to mop up the 'toxic assets' as stated in Geithner's plan. The main objective is to create a market for the underwater and untradeable assets. Even though the transacted price of the assets are low, the government just want to be able to buy time and ride out this downturn so that the assets need not be written-off. If things turn out well a few years down the road, the government may even book a profit at the exit point.
Marking asset to fair value will cause more pain in a downturn. But when asset prices move back up, profits can be recorded in the earnings statement. It is well-known that FASB made the rule change under great political pressure. However, such a hasty implementation may have huge unintended consequences. All parties involved could have inadvertently planted the seed for the next financial disaster/bubble.
Good news? Surely it will be for banks. Perhaps in this coming quarter, we can expect lower impairment charges and write-down values. To me, this is a move of desperation. There is no more credibility in doing accounting. When the market is fine, nobody made noise as most were raking in copious amount of money. Now that the chips are down, banks want to have the freedom to set their own asset prices.
Valuation of assets and liabilities is a malleable matter. Long ago accountants grappled with the issue of which master they should serve, since their constituents can have conflicting interests. According to best practices, accountants should chosen the path of conservative reporting as it has shown to serve most constituents well. It may not be fair to all but life is not always fair.
Generally, a bank's assets are made up of the following:
1) Cash
2) Securities
3) Loans
4) Other assets (plant & equipment)
With the investment banks, there will be an extra category of asset based on derivatives and other financial instruments.
Loans represent the majority of a bank's assets. A bank can typically earn a higher interest rate on loans than on securities, roughly 6%-8%. You can find detailed information about the rates earned on loans and investments in the financial statements. Loans, however, come with risk. If the bank makes bad loans to consumers or businesses, the bank will take a hit when those loans aren't repaid. Because loans are a bank's bread and butter, it's critical to understand a bank's book of loans. Due to the worldwide boom in real estate in recent years, a large portion of loans are back by properties.
The biggest problem facing banks now, are that derivative asset values are virtually impossible to estimate, many loans are in forbearance if not default, and securities based upon mortgages are underwater and untradeable. Banks have a very difficult time marking to market because there is no market. There will be no simple solution in sight. Nevertheless, banks are posting huge losses as they need to mark down their assets every quarter according to the old accounting rules.
Will the new accounting rules set by FASB change anything?
Sadly no. The assets on the books of the banks are trash and they and the government know. That was why in the absence of buyers, the government has to step in to mop up the 'toxic assets' as stated in Geithner's plan. The main objective is to create a market for the underwater and untradeable assets. Even though the transacted price of the assets are low, the government just want to be able to buy time and ride out this downturn so that the assets need not be written-off. If things turn out well a few years down the road, the government may even book a profit at the exit point.
Marking asset to fair value will cause more pain in a downturn. But when asset prices move back up, profits can be recorded in the earnings statement. It is well-known that FASB made the rule change under great political pressure. However, such a hasty implementation may have huge unintended consequences. All parties involved could have inadvertently planted the seed for the next financial disaster/bubble.
Saturday, March 14, 2009
Iconic major shareholder holds the upper hand
On 11 March, major shareholder, Tong Jun Kian, announced a mandatory unconditional cash offer for all issued shares of Iconic Holdings (IHL) after having acquired an additional 10.21% stake from Akzo Nobel Coatings via a married deal, increasing his total shareholding interest, together with the relevant persons, in Iconic to 57.12%. The shares are being offered at $0.10, an approximate 20% discount to $0.125, the last transacted price on 9 March.
As of March, there are 111,806,820 shares in issue. Effectively, Mr Tong has valued the company at $11.18 million. For this takeover, he just need to pay $4.8 million for the 42.8% stake which he do not own. IHL is currently a shell company because it completed the sale of its surface coatings business to The Sherwin-Williams Company in July 2008. With the disposal, IHL does not have a core business. Its remaining operating business comprises principally the sale and distribution of adhesives and chemicals carried out by its subsidiary, Hernon (Asia) Pte Ltd. Based on the HY2008 Announcement, the IHL Group’s assets comprise substantially of cash as at 31 December 2008. In order to continue its listing status, IHL has 12 months from the disposal of its core business (which was on 31 July 2008) to acquire a new business.
Since the acquisition of a new business is unlikely to materialise by July 2009, Mr Tong has decided that he will buy over the whole company and delist it. Is this a good offer for the current shareholders? Based on its balance sheet for HY2008, IHL has a current asset of $23 million, of which $18.6 million is cold hard cash. Its liability is neligible. So, if we only take the cash into consideration, the value for each share should be about $0.16. Clearly this takeover offer greatly benefits Mr Tong, as he is trying to pay 62.5 cents for each dollar backing.
Despite the unattractiveness of this offer, shareholders do not have better choices as the daily trading volume of the shares is very low and it is time consuming to wait for the company to delist on its own after July 2009.
Thursday, March 5, 2009
Beauty China turns ugly duckling
To say that it has been a roller coaster ride for the shareholders of Beauty China (BC) in the past 2 days is a gross understatement. No retail investor could have been prepared for the extreme volatility that we have witnessed on BC’s share price. On the morning of 2nd March, BC called for a trading halt pending announcement. BC closed at $0.37 on the previous Friday (27th Feb). The much-awaited announcement that was made on Tuesday noon disclosed that the founder, Mr Wong, was in discussion with some parties regarding the sale of his 38.7% stake.
At first glance, it looks like good news for the shareholders as some parties are interested in acquiring a stake in BC, which was previously a market darling before this downturn. However, it occurred to me that assuming the party was to successfully take control of Mr Wong’s 38.7% stake, it would also need to make a general takeover offer for all shares it does not own at the similar price it paid. If the ultimate intention of the other party is to takeover the whole company, then it seems odd that only Mr Wong alone is in negotiations and not the whole board of directors.
My belief that there was something fishy behind this deal was further reinforced when there was no spike in the share price after the trading halt was lifted. Investors react negatively and the huge wave of selling caused the share price to close at $0.11. It was down 70.3% on just half day of trading. If there is a chart for the most spectacular collapse of share price in the shortest period of time, BC will definitely rank on top. After the market close, BC came out to announce that some of Mr Wong’s shares were sold due to margin call. With that announcement, we finally had a clearer picture what this was all about.
Currently, there is no rule that requires the disclosure of shares that are pledged. Seriously, the authorities should look into this issue and consider making the necessary changes to protect the minority shareholders. This is not the first time such thing has happened and it wont be the last time. A similar incident occurred in Jade Technologies last year.
At first glance, it looks like good news for the shareholders as some parties are interested in acquiring a stake in BC, which was previously a market darling before this downturn. However, it occurred to me that assuming the party was to successfully take control of Mr Wong’s 38.7% stake, it would also need to make a general takeover offer for all shares it does not own at the similar price it paid. If the ultimate intention of the other party is to takeover the whole company, then it seems odd that only Mr Wong alone is in negotiations and not the whole board of directors.
My belief that there was something fishy behind this deal was further reinforced when there was no spike in the share price after the trading halt was lifted. Investors react negatively and the huge wave of selling caused the share price to close at $0.11. It was down 70.3% on just half day of trading. If there is a chart for the most spectacular collapse of share price in the shortest period of time, BC will definitely rank on top. After the market close, BC came out to announce that some of Mr Wong’s shares were sold due to margin call. With that announcement, we finally had a clearer picture what this was all about.
Currently, there is no rule that requires the disclosure of shares that are pledged. Seriously, the authorities should look into this issue and consider making the necessary changes to protect the minority shareholders. This is not the first time such thing has happened and it wont be the last time. A similar incident occurred in Jade Technologies last year.
Monday, February 23, 2009
Important criteria met for Bright World takeover
This posting is to follow up on the latest development of Bright World. BW just announced its financial results for FY2008 last friday. As i have expected all along, they are able to meet the profit requirement of RMB18 million for Q4 2008. Pls refer to the links below for my earlier posting:
http://level13-analysis.blogspot.com/2008/10/sweeteners-for-bright-world-takeover.html
http://level13-analysis.blogspot.com/2008/09/my-view-on-bright-world-takeover-part-2.html
Having a profit after tax of at least 91% of what was achieved in FY2007, BW has successfully overcome a large hurdle in ensuring that the takeover by CHAC turns out to be a reality. Of course at this moment, nothing is firmed up yet. There are still pre-conditions to be fulfilled. The obstacle that everyone will focus on now will be the shareholders' meeting organised by CHAC. In that meeting, which will take place before 10th March, CHAC shareholders will vote on the takeover offer. The green light from the authorities on both sides should also be made known in March. Once all these have been passed and approved, the share price of BW should move up towards the $0.70 region.
http://level13-analysis.blogspot.com/2008/10/sweeteners-for-bright-world-takeover.html
http://level13-analysis.blogspot.com/2008/09/my-view-on-bright-world-takeover-part-2.html
Having a profit after tax of at least 91% of what was achieved in FY2007, BW has successfully overcome a large hurdle in ensuring that the takeover by CHAC turns out to be a reality. Of course at this moment, nothing is firmed up yet. There are still pre-conditions to be fulfilled. The obstacle that everyone will focus on now will be the shareholders' meeting organised by CHAC. In that meeting, which will take place before 10th March, CHAC shareholders will vote on the takeover offer. The green light from the authorities on both sides should also be made known in March. Once all these have been passed and approved, the share price of BW should move up towards the $0.70 region.
Tuesday, February 17, 2009
False illusion of China's stock market
China's benchmark stock index rose yesterday to a 5-month high on investor enthusiasm about added liquidity amid rising bank lending, shrugging off declines in other Asian markets on news of Japan's economic contraction. The benchmark Shanghai Composite Index climbed 3 percent, or 68.59 points, to 2,389.59, its highest close since August 29. The Shenzhen Composite Index added 1.9 percent to close at 763.3.
The rise was driven not by economic fundamentals but by a surge in bank lending, which has sent money flowing into the market, analysts said. The government says lending hit a new monthly high in January, driven by a massive stimulus plan. "The economic fundamentals are not strong enough to support the market's rise," said Zhang Xiang, an analyst for Guodu Securities in Beijing. "The market is in an irrational state, which is not going to last long." The rise came despite a government announcement yesterday that foreign investment in China fell 32.7 percent in January from a year earlier. That was on top of last week's news that January exports fell 17.5 percent.
The motive is correct but the end result will lead to another downtrend soon. China government's aim to relax bank lending is to help support the existing businesses and companies tide over this uncertain period. However, the funds are not directed to the parties which needed them the most. Instead, the money is being used to speculate in the stock markets. These speculators are likely to exit the market at the first sign of bad news. As such, the run-up over the past month is not sustainable.
The rise was driven not by economic fundamentals but by a surge in bank lending, which has sent money flowing into the market, analysts said. The government says lending hit a new monthly high in January, driven by a massive stimulus plan. "The economic fundamentals are not strong enough to support the market's rise," said Zhang Xiang, an analyst for Guodu Securities in Beijing. "The market is in an irrational state, which is not going to last long." The rise came despite a government announcement yesterday that foreign investment in China fell 32.7 percent in January from a year earlier. That was on top of last week's news that January exports fell 17.5 percent.
The motive is correct but the end result will lead to another downtrend soon. China government's aim to relax bank lending is to help support the existing businesses and companies tide over this uncertain period. However, the funds are not directed to the parties which needed them the most. Instead, the money is being used to speculate in the stock markets. These speculators are likely to exit the market at the first sign of bad news. As such, the run-up over the past month is not sustainable.
Sunday, February 8, 2009
Value destruction by Contel
I pity those investors who are vested in Contel since their IPO days (although i dont think the number is high). 1.5 years ago, i had a posting, in which i advised all investors to avoid Contel due to its constant and urgent need for capital. On top of that, free cash flow was non-existent.
http://level13-analysis.blogspot.com/2007/07/raising-capital-at-contel.html
Let me do a recap on the amount of money that Contel raised ever since it was listed and you can make up your mind if it was indeed a value destruction job.
In Dec 2005, Contel was listed at an IPO price of $0.22. It managed to raise $9.1 million. There were about 250.92 million shares outstanding. Thus, the market cap was around $55.2 million. At that time, the book value per share was $0.162.
On 7th June 2006, Contel announced a proposed issue of up to $50 million in principal value of non-interest bearing equity linked redeemable structured convertible notes due 2011 in ten equal tranches of principal value S$5 million each to Advance Opportunities Fund. Investors should head for the nearest exit when the news was released. In a report
http://www.sfc.hk/sfc/doc/EN/speeches/public/surveys/07/exchange_audit_report_070404.pdf by the Securities and Futures Commission on the 2005 work of the Stock Exchange Listing Division published in April 2007, the SFC said (para. 48, p.12):
"In the last few years, several companies issued a particular type of convertible note, now commonly referred to as "toxic convertibles"... In the absence of other factors, each conversion is likely to lead to a reduction of the issuer's share price and an increase in the number of shares into which the remaining notes can be converted, resulting (because of the falling share price) in a spiral of further dilution of existing shareholders and reduction in share prices. In the worst-case scenario, the notes are converted into shares at the par value and the convertible noteholders may end up holding almost all the company's shares."
In June 2007, after taking $26.5 million from Advance Opportunities Fund and seeing the outstanding number of shares balloon to 417.85 million, Contel terminated the subscription agreement of the convertible notes.
In July 2007, the company decided that it needed more funds and so set up an arrangement with ABN AMRO Bank relating to the issue of US$8 million (S$12 million) zero coupon convertible bonds due 2010.
In Dec 2008, Contel made a private placement of its shares and raked it another $2.167 million.
As of 30th Jan 2009, the number of shares outstanding is 486.6 million.
The downfall of Contel is complete with this announcement on 31st Jan 2009. http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_D44C1AC0FBF95ECC4825754F003F55A1/$file/Contel_Galaxy_Business_Disposal_Annc__finalised.pdf?openelement
From the period between Dec 2005 to Jan 2009, the total amount of cash that went into Contel was nearly $50 million. However, the amount of dividend it paid out was ZERO.
I rest my case.
http://level13-analysis.blogspot.com/2007/07/raising-capital-at-contel.html
Let me do a recap on the amount of money that Contel raised ever since it was listed and you can make up your mind if it was indeed a value destruction job.
In Dec 2005, Contel was listed at an IPO price of $0.22. It managed to raise $9.1 million. There were about 250.92 million shares outstanding. Thus, the market cap was around $55.2 million. At that time, the book value per share was $0.162.
On 7th June 2006, Contel announced a proposed issue of up to $50 million in principal value of non-interest bearing equity linked redeemable structured convertible notes due 2011 in ten equal tranches of principal value S$5 million each to Advance Opportunities Fund. Investors should head for the nearest exit when the news was released. In a report
http://www.sfc.hk/sfc/doc/EN/speeches/public/surveys/07/exchange_audit_report_070404.pdf by the Securities and Futures Commission on the 2005 work of the Stock Exchange Listing Division published in April 2007, the SFC said (para. 48, p.12):
"In the last few years, several companies issued a particular type of convertible note, now commonly referred to as "toxic convertibles"... In the absence of other factors, each conversion is likely to lead to a reduction of the issuer's share price and an increase in the number of shares into which the remaining notes can be converted, resulting (because of the falling share price) in a spiral of further dilution of existing shareholders and reduction in share prices. In the worst-case scenario, the notes are converted into shares at the par value and the convertible noteholders may end up holding almost all the company's shares."
In June 2007, after taking $26.5 million from Advance Opportunities Fund and seeing the outstanding number of shares balloon to 417.85 million, Contel terminated the subscription agreement of the convertible notes.
In July 2007, the company decided that it needed more funds and so set up an arrangement with ABN AMRO Bank relating to the issue of US$8 million (S$12 million) zero coupon convertible bonds due 2010.
In Dec 2008, Contel made a private placement of its shares and raked it another $2.167 million.
As of 30th Jan 2009, the number of shares outstanding is 486.6 million.
The downfall of Contel is complete with this announcement on 31st Jan 2009. http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_D44C1AC0FBF95ECC4825754F003F55A1/$file/Contel_Galaxy_Business_Disposal_Annc__finalised.pdf?openelement
From the period between Dec 2005 to Jan 2009, the total amount of cash that went into Contel was nearly $50 million. However, the amount of dividend it paid out was ZERO.
I rest my case.
Friday, January 30, 2009
Price movement of DBS shares over the past month
The price of DBS has fluctuated greatly in the past 1 month or so. This increase in volatility has benefited short term traders. Fundamentally, there is no change in the business condition and environment that DBS is operating in. All said, these movements are not unexpected and can be anticipated if one is able to understand the effects of corporate actions and read the market well.
I am not suggesting that the share price is being manipulated. The point I want to make is that there are certain ‘invisible hands’ in the market (how else do you explain the buying of 100-200 lots at one go) and their buying and selling stirs up the volume and interest of this counter.
In the period straight after the rights announcement was made on 22 Dec 2008, the share price went down as the public reacts to the fact that DBS needed a capital boost and upon conversion, the rights will dilute future EPS and dividend payout.
After the initial fall, the share price went up under higher volume in the last week of Dec before the ex-rights date as the investors went in knowing that they will be entitled to the rights and they (the rights) can be sold in the open market in the event that the shareholders do not wish to hold them. The share price continue to firm in the first few days of Jan as investors are aware that it is in their interest for the price to remain high so that the rights can be disposed off for a substantial amount in the near future.
The fall in DBS share price start to accelerate on the 8th Jan, 2 days after the commencement of the rights trading. By then those who wanted to sell their rights would have sold and the incentive to keep a high share price is no longer present. More investors exited the counter as they took profit on the main shares that they bought just 1 week ago. As evident from the graph on the right, the turnover volume is the highest at this point in time.
In the period straight after the rights announcement was made on 22 Dec 2008, the share price went down as the public reacts to the fact that DBS needed a capital boost and upon conversion, the rights will dilute future EPS and dividend payout.
After the initial fall, the share price went up under higher volume in the last week of Dec before the ex-rights date as the investors went in knowing that they will be entitled to the rights and they (the rights) can be sold in the open market in the event that the shareholders do not wish to hold them. The share price continue to firm in the first few days of Jan as investors are aware that it is in their interest for the price to remain high so that the rights can be disposed off for a substantial amount in the near future.
The fall in DBS share price start to accelerate on the 8th Jan, 2 days after the commencement of the rights trading. By then those who wanted to sell their rights would have sold and the incentive to keep a high share price is no longer present. More investors exited the counter as they took profit on the main shares that they bought just 1 week ago. As evident from the graph on the right, the turnover volume is the highest at this point in time.
Immediately after Chinese New Year, the counter was in play again as the price went surging up based on the trades done and volume turnover. I believe this happened in anticipation of the new shares, which will be added on 2nd Feb. In light of the events that took place, I am confident that the price will go back down to the $8 range next week. My conclusion is based on the anchor price of $8.37, which is the theoretical price DBS should be trading in after the conversion of all the rights.
In short, the price movements that we have observed are typical of a blue-chip company with strong following and high liquidity, which decided to do a rights issue. I have no doubts that the share price of Capitaland will follow the same pattern should they issue renounceable rights too.
Thursday, January 22, 2009
Eight stages of life by Vittachi
Stage one: The Intern.
Arrives late. Explains that he got lost. Told to make coffee. Makes undrinkable black gunge. Sits in on meetings at which he realizes - with horror - that he knows nothing about anything being discussed. Spends most of the day feeling useless. Asks inane questions such as, "Please, sir, do we have to ask before we go to the toilet?" At midday, eats packed lunch from home.
Stage two: The Short-Contract Worker.
Arrives early. Waits outside until a staff member arrives with a key. Devotes all his energy to volunteering for assignments because he is desperate to get hired full-time.
At lunch, he eats sandwiches at his desk while doing everyone else's work. He leaves the office last, at 9pm, but still arrives the next morning before the rest of us.
Stage three: The New Hire.
Arrives slightly before other staff. First to take his seat at meetings. Talks constantly about "our vision." Starry eyed and enthusiastic. Does much of the work that gets done, although he is constantly interrupted by older staff wandering into his room to sit on his desk and spout rubbish. Leaves at 8pm.
Stage four: The Experienced Executive.
Arrives at exactly 9am, not a minute early or late. Has a lot of work to do, but spends most of his time transferring it to other people. Occasionally buys lunch at the wine bar for people at stages one, two and three, because he enjoys the way they worship him. Leaves at 7pm.
Stage five: The Senior Manager.
Strolls into the office at 9.40am. Cannot avoid work completely, but does the bare minimum. Lunches at private club, practicing his "vice president" look of worldliness and ennui, so as to be ready for the next stage. Sneaks out of the office on the dot of 6pm.
Stage six: Vice President.
Languidly ambles into the office around 11am. Finds work a total bore, so he gets people at stages one, two, three and four to do all of his work for him. Spends most of the day sitting on the desks of new hires to give them the benefits of his wisdom. Leaves the office at 5pm, pretending to be on the way to a client meeting.
Stage seven: Chief Executive Officer.
Comes into the office at noon, and then goes straight out again for a long lunch at his club, which takes him until 3pm. No longer even pretends to do any work. Leaves at 4pm for a quick round of golf.
Stage eight: Chairman.
Arrives late. Explains that he got lost because his memory is not what it was. Serves coffee from private percolator. Turns out to be undrinkable black gunge. Sits in on meetings at which he realizes - with horror - that he no longer knows anything about what is being discussed. Spends most of the day feeling terrifyingly useless. Asks inane questions all the time, such as, "Shall we open some overseas offices, or have we already done that sort of thing?" Before leaving at 3pm, he eats packed lunch from home, because he can't eat anything without bran.
Have a good laugh and a great chinese new year!
Arrives late. Explains that he got lost. Told to make coffee. Makes undrinkable black gunge. Sits in on meetings at which he realizes - with horror - that he knows nothing about anything being discussed. Spends most of the day feeling useless. Asks inane questions such as, "Please, sir, do we have to ask before we go to the toilet?" At midday, eats packed lunch from home.
Stage two: The Short-Contract Worker.
Arrives early. Waits outside until a staff member arrives with a key. Devotes all his energy to volunteering for assignments because he is desperate to get hired full-time.
At lunch, he eats sandwiches at his desk while doing everyone else's work. He leaves the office last, at 9pm, but still arrives the next morning before the rest of us.
Stage three: The New Hire.
Arrives slightly before other staff. First to take his seat at meetings. Talks constantly about "our vision." Starry eyed and enthusiastic. Does much of the work that gets done, although he is constantly interrupted by older staff wandering into his room to sit on his desk and spout rubbish. Leaves at 8pm.
Stage four: The Experienced Executive.
Arrives at exactly 9am, not a minute early or late. Has a lot of work to do, but spends most of his time transferring it to other people. Occasionally buys lunch at the wine bar for people at stages one, two and three, because he enjoys the way they worship him. Leaves at 7pm.
Stage five: The Senior Manager.
Strolls into the office at 9.40am. Cannot avoid work completely, but does the bare minimum. Lunches at private club, practicing his "vice president" look of worldliness and ennui, so as to be ready for the next stage. Sneaks out of the office on the dot of 6pm.
Stage six: Vice President.
Languidly ambles into the office around 11am. Finds work a total bore, so he gets people at stages one, two, three and four to do all of his work for him. Spends most of the day sitting on the desks of new hires to give them the benefits of his wisdom. Leaves the office at 5pm, pretending to be on the way to a client meeting.
Stage seven: Chief Executive Officer.
Comes into the office at noon, and then goes straight out again for a long lunch at his club, which takes him until 3pm. No longer even pretends to do any work. Leaves at 4pm for a quick round of golf.
Stage eight: Chairman.
Arrives late. Explains that he got lost because his memory is not what it was. Serves coffee from private percolator. Turns out to be undrinkable black gunge. Sits in on meetings at which he realizes - with horror - that he no longer knows anything about what is being discussed. Spends most of the day feeling terrifyingly useless. Asks inane questions all the time, such as, "Shall we open some overseas offices, or have we already done that sort of thing?" Before leaving at 3pm, he eats packed lunch from home, because he can't eat anything without bran.
Have a good laugh and a great chinese new year!
Monday, January 12, 2009
Hear no evil, read no evil
“Many stock commentators are saying that stocks are cheap, dividend yield is high, time to buy.”
“A value investor should not be obsessed about short term fluctuation. Long term value is more important. Now is the time to ferret out the wheat from the chaff.”
“If it is because of a short term bull market that commentators recommend/ investors buy stocks, it is speculation. Those commentators need to be fired and those investors need to be educated.”
The above are some comments on my earlier posting titled “Short term bull, long term bear”. All the things mentioned by stock commentators and stock articles found in various media channels (newspapers, websites, magazines) contain some truth in it. In reality, most people just accept things at face value. But as value investors, we must be discerning on what we buy. Some stock commentators are sell-side analyst themselves, and one must be prepared to take what they say with a pinch of salt, as they need to sound optimistic so that their clients will continue to trade.
Stocks are cheap. They are cheap on what basis? Cheap because P/E is low and dividend yield is high? If you are just using the above 2 metrics to conclude that stocks are cheap, then I would say you are missing the point. Metrics are not to be used in isolation. It can give you a distorted view of the truth. For example, many China textile stocks in SGX are trading at P/E of 2-3. On this basis alone, some would consider them cheap. However, the P/E will tell you nothing about the state of the textile industry in china, which is now on the brink of collapse. Many companies have folded (including China Printing and Dye) and things are not expected to return back to normal in this year.
What value investors should buy in times of panic are quality companies with a widely recognizable brand name, consistent positive cash flows, low debt and having a business model which serves a niche market. Textile companies in the commodities trade certainly do not fit into the above description. More often than not, the dividend yield that you see are based on historical payout, which indicates nothing on the amount and stability of future earnings of that particular company.
I agree that value investors should not be obsessed about short-term fluctuation. Value on individual companies can present itself at a different period of time. They need not appear in sync with the lowest point of the STI. It is not my intention to dwell too much on the daily ups and downs. The point I want to bring across is that I don’t see much catalyst for the stock market as a whole to go further up within the next 2 months. Do not forget that nearly half of the STI is made up of local banks. All will announce their lower earnings in February and we will find the January and Obama effects disappear quickly over the horizon. The upsurge, which we have observed in the past few months, can be classified as a bear rally. Bear rallies are not new occurrences. In the market downturn during the USA Great Depression, bear rallies also took place that sent the index up by 30-40%. There will be many false starts before the real bull run starts again.
For those who must invest, I would suggest dividing your money into four equal portions and start buying stocks once every 3 months from Q2 onwards. This dollar cost averaging method of purchase should be complete in Q1 next year. In this way, the cost price is spread out and the chances of suffering a loss after investing in a stock is lower.
“A value investor should not be obsessed about short term fluctuation. Long term value is more important. Now is the time to ferret out the wheat from the chaff.”
“If it is because of a short term bull market that commentators recommend/ investors buy stocks, it is speculation. Those commentators need to be fired and those investors need to be educated.”
The above are some comments on my earlier posting titled “Short term bull, long term bear”. All the things mentioned by stock commentators and stock articles found in various media channels (newspapers, websites, magazines) contain some truth in it. In reality, most people just accept things at face value. But as value investors, we must be discerning on what we buy. Some stock commentators are sell-side analyst themselves, and one must be prepared to take what they say with a pinch of salt, as they need to sound optimistic so that their clients will continue to trade.
Stocks are cheap. They are cheap on what basis? Cheap because P/E is low and dividend yield is high? If you are just using the above 2 metrics to conclude that stocks are cheap, then I would say you are missing the point. Metrics are not to be used in isolation. It can give you a distorted view of the truth. For example, many China textile stocks in SGX are trading at P/E of 2-3. On this basis alone, some would consider them cheap. However, the P/E will tell you nothing about the state of the textile industry in china, which is now on the brink of collapse. Many companies have folded (including China Printing and Dye) and things are not expected to return back to normal in this year.
What value investors should buy in times of panic are quality companies with a widely recognizable brand name, consistent positive cash flows, low debt and having a business model which serves a niche market. Textile companies in the commodities trade certainly do not fit into the above description. More often than not, the dividend yield that you see are based on historical payout, which indicates nothing on the amount and stability of future earnings of that particular company.
I agree that value investors should not be obsessed about short-term fluctuation. Value on individual companies can present itself at a different period of time. They need not appear in sync with the lowest point of the STI. It is not my intention to dwell too much on the daily ups and downs. The point I want to bring across is that I don’t see much catalyst for the stock market as a whole to go further up within the next 2 months. Do not forget that nearly half of the STI is made up of local banks. All will announce their lower earnings in February and we will find the January and Obama effects disappear quickly over the horizon. The upsurge, which we have observed in the past few months, can be classified as a bear rally. Bear rallies are not new occurrences. In the market downturn during the USA Great Depression, bear rallies also took place that sent the index up by 30-40%. There will be many false starts before the real bull run starts again.
For those who must invest, I would suggest dividing your money into four equal portions and start buying stocks once every 3 months from Q2 onwards. This dollar cost averaging method of purchase should be complete in Q1 next year. In this way, the cost price is spread out and the chances of suffering a loss after investing in a stock is lower.
Thursday, January 8, 2009
"Viagra" needed for porn industry
This piece of news is incredible. The porn industry is the last one you will expect to require a bailout. I very much doubt the government will help in this. If it does, very soon all the business leaders from various industries will be queuing up to ask for handouts from the government.
Two porn moguls including Hustler magazine founder Larry Flynt are seeking a five-billion-dollar bailout from Washington, arguing that the limp US economy has thrown cold water on the adult entertainment industry.
Flynt and "Girls Gone Wild" video series creator Joe Francis asked the newly convened 111th Congress "to rejuvenate the sexual appetite of America" in a bailout move similar to the one set aside for US auto manufacturers.
"Congress seems willing to help shore up our nation's most important businesses, (and) we feel we deserve the same consideration," Francis said in a statement.
"In difficult economic times, Americans turn to entertainment for relief. More and more, the kind of entertainment they turn to is adult entertainment."
The pair were quick to admit that "the 13-billion-dollar industry is in no fear of collapse, but why take chances?"
Francis, recently imprisoned for nearly a year on a prostitution-related charge after pleading no contest in a plea bargain, cited industry figures that show adult DVD sales and rentals decreasing 22 percent in 2008, as people turn to the Internet for adult entertainment.
"With all this economic misery and people losing all that money, sex is the farthest thing from their mind," Flynt said.
"It's time for Congress to rejuvenate the sexual appetite of America. The only way they can do this is by supporting the adult industry and doing it quickly."
Flynt said people were "too depressed to be sexually active."
"This is very unhealthy as a nation. Americans can do without cars and such, but they cannot do without sex."
Two porn moguls including Hustler magazine founder Larry Flynt are seeking a five-billion-dollar bailout from Washington, arguing that the limp US economy has thrown cold water on the adult entertainment industry.
Flynt and "Girls Gone Wild" video series creator Joe Francis asked the newly convened 111th Congress "to rejuvenate the sexual appetite of America" in a bailout move similar to the one set aside for US auto manufacturers.
"Congress seems willing to help shore up our nation's most important businesses, (and) we feel we deserve the same consideration," Francis said in a statement.
"In difficult economic times, Americans turn to entertainment for relief. More and more, the kind of entertainment they turn to is adult entertainment."
The pair were quick to admit that "the 13-billion-dollar industry is in no fear of collapse, but why take chances?"
Francis, recently imprisoned for nearly a year on a prostitution-related charge after pleading no contest in a plea bargain, cited industry figures that show adult DVD sales and rentals decreasing 22 percent in 2008, as people turn to the Internet for adult entertainment.
"With all this economic misery and people losing all that money, sex is the farthest thing from their mind," Flynt said.
"It's time for Congress to rejuvenate the sexual appetite of America. The only way they can do this is by supporting the adult industry and doing it quickly."
Flynt said people were "too depressed to be sexually active."
"This is very unhealthy as a nation. Americans can do without cars and such, but they cannot do without sex."
Sunday, January 4, 2009
Short term bull, long term bear
Last friday, the STI closed at 1829.71 points. Within 1 week, it went up 5.15% from around 1740 points. The picture on the right shows that the STI has breached the 50 day moving average ever since it went below that line in June 2008. This indicates a short term bullishness in the market right now. I expect the STI to go higher in the next few weeks and the reasons are as follows:
1) The Obama factor – This will be a change welcomed by all. Obama will take office in January 2009 and he has already assembled a group of very credible people to help him. The good news that most americans will be looking forward to is the stimulus package he will be announcing. I believed that the rescue package is not empty talk and it will most likely be the catalyst to kick start the economy which is under intensive care unit for the past months. What started off as a $350bn package has now ballooned to $600bn, and now its likely to top $1 trillion. Whether the $1 trillion is enough remains to be seen.
2) The fear factor has decreased - Most of the bad news have been announced and the peak of pessimism has passed. I would say the worst part was the period in Sept & Oct 08 when Lehman collapsed and AIG almost went under. The fear has somewhat subsided as governments around the world have signalled their willingness to inject cash to stimulate the economy and to bailout large companies in distress regardless of industry. The Chicago Board Options Exchange Volatility Index, reached a low of 39.61 on Wednesday, a level unseen since 2nd Oct 2008. The VIX, based on a number of index options, shows the market's expectations for volatility over a 30 day period.
Even though things are beginning to look brighter, I believe it is still too early to go long on stocks. Why?
1) Low volume in market - For those technical investors, its generally accepted that anything that goes up too quickly on low volume is not sustainable.
2) More bankruptcies and job cuts on the way - The IMF has predicted that 2009 will bring slower growth in emerging countries and negative growth in the UK, Europe and USA. Dont think that just because we did not see any news announcement, everything is well. Many small and medium companies are closing and employees laid off. This trend will continue for most part of 2009.
3) Lousy earnings outlook - Most companies will announce their financial report in Feb 2009. The earnings for fiscal year 2008 will be dragged down by the poor and difficult business conditions in the second half of the year. A lot of stocks are trading at a P/E level of below 10 in the SGX. If you think that the second half of 2008 is a bad dream for earnings, then be prepared for a nightmare in first half 2009. A lot of stocks are trading at a historical P/E level of below 10 in the SGX. However, when a 50% decrease of earnings take place, the P/E can easily double and the price no longer seem attractive.
Monday, December 29, 2008
Trade receiveables is important! (Suneast case)
Exactly one year ago, i pointed out some suspicious corporate actions in the SGX listed company called 'Suneast'. The link below will bring you to my earlier posting.
http://level13-analysis.blogspot.com/2007/12/saying-no-to-suneast.html
Now, one year later, my call to avoid this company has proved to be correct. Besides the questionable actions by the company i have stated earlier, I would like to draw your attention to the main reason that has caused the downfall of Suneast - Trade receiveables.
As at June 2007, the trade receiveables in Suneast was HK$168.4 million. One year later, it went up to HK$295.1 million, which represents an increase of HK$126.7 million (75.2%). Over the same period, sales revenue went up by merely HK$97.5 million (31.4%). To all the value investors out there, seeing the trade receiveables growing faster than sales revenue is a big red flag. Time to head for the exit immediately, regardless if you own the stock or not! What good is the company if it cannot convert all the profit into cold hard cash?
True enough, this problem is growing bigger and at the end of Aug 2008, Suneast has total trade receivables outstanding of HK$360 million. At this point in time, the problem is compounded because the banks are unwilling to lend it more money to finance the business operation. The events that followed were typical of a company desperate for cash.
On 30th Oct 2008, Suneast announced that it will issued more shares in three stages to raise capital. On 16th Dec 2008, Suneast has decided to sell its subsidiary which controls the much touted 51% of NuXD, which resulted in a loss of HK$56 million. Imagine, 56 million went up in smoke in just over 1.5 years!!!
The final blow was delivered today when the Executive Chairman, Mr Philip Chung, resigned with effect from 29 December 2008 due to health reasons. (Frankly, who will believe all this bullshit.) To put it crudely, it was a toxic stock from the beginning. The long suffering shareholders of Suneast ought to band together to seek a recourse from the management.
Wish all a very happy new year.
http://level13-analysis.blogspot.com/2007/12/saying-no-to-suneast.html
Now, one year later, my call to avoid this company has proved to be correct. Besides the questionable actions by the company i have stated earlier, I would like to draw your attention to the main reason that has caused the downfall of Suneast - Trade receiveables.
As at June 2007, the trade receiveables in Suneast was HK$168.4 million. One year later, it went up to HK$295.1 million, which represents an increase of HK$126.7 million (75.2%). Over the same period, sales revenue went up by merely HK$97.5 million (31.4%). To all the value investors out there, seeing the trade receiveables growing faster than sales revenue is a big red flag. Time to head for the exit immediately, regardless if you own the stock or not! What good is the company if it cannot convert all the profit into cold hard cash?
True enough, this problem is growing bigger and at the end of Aug 2008, Suneast has total trade receivables outstanding of HK$360 million. At this point in time, the problem is compounded because the banks are unwilling to lend it more money to finance the business operation. The events that followed were typical of a company desperate for cash.
On 30th Oct 2008, Suneast announced that it will issued more shares in three stages to raise capital. On 16th Dec 2008, Suneast has decided to sell its subsidiary which controls the much touted 51% of NuXD, which resulted in a loss of HK$56 million. Imagine, 56 million went up in smoke in just over 1.5 years!!!
The final blow was delivered today when the Executive Chairman, Mr Philip Chung, resigned with effect from 29 December 2008 due to health reasons. (Frankly, who will believe all this bullshit.) To put it crudely, it was a toxic stock from the beginning. The long suffering shareholders of Suneast ought to band together to seek a recourse from the management.
Wish all a very happy new year.
Monday, December 22, 2008
Desperate, Bold Step by DBS
DBS announced today that it will be issuing rights to raise net proceeds of approximately SGD4 billion. Pursuant to the Rights Issue, 760,480,229 Rights Shares will be offered at SGD5.42 per Rights Share on the basis of one Rights Share for every two Shares held. At this moment, there are 2 burning questions on the investors' minds. Why the need to raise capital? Why now?
After reading all the chest-beating statements in the announcement, i remain unconvinced. The signal i am getting from DBS is this: I NEED CASH BADLY. So they dont need the cash for M&A. But i believe they need the cash because their core business has slowed down tremendously and the cash flow is expected to be poor. NPL are on the rise and they know that they need to take huge write-offs in the near future. If not, why would anyone want to raise capital in this uncertain and turbulent time. Also, the rights are being placed at such a huge discount to attract investors to take them up, which indicates a red flag.
Current shareholders who choose not to take up this rights issue may potentially see their stake decrease by up to 33.3%. Before the announcement, DBS was trading at $9.85. So logically, upon the successful closing of this rights issue, the ex-rights price should also go down by 15% to $8.37 (assuming all rights are exercised). As such, in the near future, we may see DBS price moving rangebound around $8. However, we need to be aware that the future EPS, book value & dividend will be shared among a larger number of outstanding shares.
One last thing i would like to mention is the dividend. In the announcement, DBS stated that it intends to declare and pay a final dividend for the quarter ending 31 December 2008 the same absolute cash amount as it would have done had there been no Rights Issue. In light of the weak business conditions, I expected this year-end dividend amount to decrease as compared to the same period last year. I would really be afraid if DBS payout the same amount of dividend because it does not make sense to give out the same dividend amount using capital raised from the rights issue (Its a big no brainer red flag).
Have a merry christmas. Cheers!
Friday, December 12, 2008
Very much in the woods
Recession in the USA started in Dec2007 (Ok, owe up those who blindly believed what those authorities of influence said when they denied that USA was in a recession in the earlier part of the year). You don’t hear much good news nowadays. We are not out of this mess yet. In fact, I think we are only about 40% in progress. 60% more pain to experience before we can see the sunshine. Below are some of the pointers that I have consolidated from various print media and websites, which may help us identify the period of the much awaited turnaround in market sentiment and business conditions.
1) Home prices in USA stop falling.
2) Foreclosure rate return back to normal level.
3) Commercial banks start to lend again.
4) Inventory falls back to a reasonable level. Currently there are too much goods but too little demand.
5) Earnings growth visibility return for companies. At the moment, earnings are expected to contract for FY2009.
6) Government bond yield increase and corporate bond yield decrease. This is a sign that investors’ risk appetite has returned.
7) Companies stop writing-off assets and stop taking on impairment charges.
8) Inter-bank interest rate goes back to normal level.
Have a great weekend.
1) Home prices in USA stop falling.
2) Foreclosure rate return back to normal level.
3) Commercial banks start to lend again.
4) Inventory falls back to a reasonable level. Currently there are too much goods but too little demand.
5) Earnings growth visibility return for companies. At the moment, earnings are expected to contract for FY2009.
6) Government bond yield increase and corporate bond yield decrease. This is a sign that investors’ risk appetite has returned.
7) Companies stop writing-off assets and stop taking on impairment charges.
8) Inter-bank interest rate goes back to normal level.
Have a great weekend.
Thursday, December 4, 2008
Updates on Bright World takeover
Recently, the share price of Bright World(BW) came under further pressure as a result of a letter sent to its directors from the Monetary Authority of Singapore (MAS), referring to a possible breach of section 203 of the Securities and Futures Act.
What is section 203 of the Securities and Futures Act?
Section 203 (Continuous disclosure) shall apply to —
(1)(a) an entity the securities of which are listed for quotation on a securities exchange;
(b) a trustee of a business trust, where the securities of the business trust are listed for quotation on a securities exchange; or
(c) a responsible person of a collective investment scheme, where the units of the collective investment scheme are listed for quotation on a securities exchange,
if the entity, trustee or responsible person is required by the securities exchange under the listing rules or any other requirement of the securities exchange to notify the securities exchange of information on specified events or matters as they occur or arise for the purpose of the securities exchange making that information available to a securities market operated by the securities exchange.
(2) The persons specified in subsection (1) (a), (b) or (c) shall not intentionally, recklessly or negligently fail to notify the securities exchange of such information as is required to be disclosed by the securities exchange under the listing rules or any other requirement of the securities exchange.
(3) Notwithstanding section 204, a contravention of subsection (2) shall not be an offence unless the failure to notify is intentional or reckless.
Comments:
Basically, what section 203 implies is that any price sensitive information must be announced through the SGX first before going through other media channels. There must not be any news leak prior to any announcement so that no parties can gain an advantage by making use of the price sensitive information.
Personally, i believe MAS is interested to know why there is a spike in trading volume 1 week before the takeover announcement by China Holdings Acquisition Corp. There is ground for MAS to suspect that the takeover news has been leaked out before it was announced. The directors have indicated that it is premature to assume that the takeover plan will be scrapped due to the infringement of section 203. The last SGX listed company to be convicted of infringing section 203 was more than 2 years ago in April 2006. The contravention by Trek, was in relation to the company's failure to promptly announce an earnings projection, in breach of its disclosure obligations under the SGX-ST listing rules.
On 19 January 2006, Trek disclosed in an interview with Reuters that it expected sales and earnings to grow by 20% to 25% over the next three to five years. As the information was material and had not been publicly disseminated before the interview, SGX-ST listing rules required that it be promptly announced to the market via SGXNET. Trek failed to do this. The company only made the announcement after being alerted by SGX-ST on the morning of 20 January 2006. By this time, there had been sharp increases in the price and trading volume of its shares. On 14 February 2006, SGX-ST publicly reprimanded Trek for breach of its disclosure obligations under the listing rules.
Trek has admitted to contravening section 203(2) of the SFA by negligently failing to notify SGX-ST of the earnings projection. The company has paid a civil penalty of S$75,000 to MAS without court action.
In the event that BW is guilty of not safe-guarding the price sensitive info, I believe the punishment will be at most a hefty fine.
What is section 203 of the Securities and Futures Act?
Section 203 (Continuous disclosure) shall apply to —
(1)(a) an entity the securities of which are listed for quotation on a securities exchange;
(b) a trustee of a business trust, where the securities of the business trust are listed for quotation on a securities exchange; or
(c) a responsible person of a collective investment scheme, where the units of the collective investment scheme are listed for quotation on a securities exchange,
if the entity, trustee or responsible person is required by the securities exchange under the listing rules or any other requirement of the securities exchange to notify the securities exchange of information on specified events or matters as they occur or arise for the purpose of the securities exchange making that information available to a securities market operated by the securities exchange.
(2) The persons specified in subsection (1) (a), (b) or (c) shall not intentionally, recklessly or negligently fail to notify the securities exchange of such information as is required to be disclosed by the securities exchange under the listing rules or any other requirement of the securities exchange.
(3) Notwithstanding section 204, a contravention of subsection (2) shall not be an offence unless the failure to notify is intentional or reckless.
Comments:
Basically, what section 203 implies is that any price sensitive information must be announced through the SGX first before going through other media channels. There must not be any news leak prior to any announcement so that no parties can gain an advantage by making use of the price sensitive information.
Personally, i believe MAS is interested to know why there is a spike in trading volume 1 week before the takeover announcement by China Holdings Acquisition Corp. There is ground for MAS to suspect that the takeover news has been leaked out before it was announced. The directors have indicated that it is premature to assume that the takeover plan will be scrapped due to the infringement of section 203. The last SGX listed company to be convicted of infringing section 203 was more than 2 years ago in April 2006. The contravention by Trek, was in relation to the company's failure to promptly announce an earnings projection, in breach of its disclosure obligations under the SGX-ST listing rules.
On 19 January 2006, Trek disclosed in an interview with Reuters that it expected sales and earnings to grow by 20% to 25% over the next three to five years. As the information was material and had not been publicly disseminated before the interview, SGX-ST listing rules required that it be promptly announced to the market via SGXNET. Trek failed to do this. The company only made the announcement after being alerted by SGX-ST on the morning of 20 January 2006. By this time, there had been sharp increases in the price and trading volume of its shares. On 14 February 2006, SGX-ST publicly reprimanded Trek for breach of its disclosure obligations under the listing rules.
Trek has admitted to contravening section 203(2) of the SFA by negligently failing to notify SGX-ST of the earnings projection. The company has paid a civil penalty of S$75,000 to MAS without court action.
In the event that BW is guilty of not safe-guarding the price sensitive info, I believe the punishment will be at most a hefty fine.
Friday, November 21, 2008
Eight years recap
For those who need a recap on what has happened in the investment world for the past 108 years, The Global Investment Returns Yearbook (GIRY), compiled by London Business School experts is definitely an eye opener. The core of the Yearbook is provided by a long-run study since 1900 in all the main asset categories in Australia, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, South Africa, Spain, Sweden, Switzerland, the United Kingdom, and the United States. These markets today make up some 85% of world equity market capitalisation. The first chapter of the book gave us an insight of the global markets from the first eight years of this decade.
The key findings for year 2007:
- Despite the turmoil in the credit markets, stock markets performed reasonably well in most countries. Emerging markets did best.
- Volatility accelerated from a low base at the start of 2007.
- Sector exposures had a larger impact than in recent years, with resource stocks doing particularly well, and financials suffering.
- The tide turned for small-caps, which suffered a reversal after four years of outperformance. Value stocks also disappointed, and they underperformed growth stocks.
- While the US (and world) bond indices did well, most government bond markets gave a negative real return.
- Commodities, notably oil, generally performed well.
- The second half of 2007 witnessed a real estate slowdown in many countries, and a sharp collapse in the US.
- Currency mattered. The US dollar was again weak, and nearly all currencies were performance enhancing. Most countries had satisfactory USD returns, but their Euro returns were markedly lower.
- By end-2007 stock markets had largely eliminated the losses from the savage, start-of-century bear market. This is remarkable since, at the trough in March 2003, US stocks had fallen 45%, UK equity prices had halved, and German stocks had fallen by two-thirds.
- Annualised real equity returns over 2000-07 remain negative in only three of the 17 Yearbook countries, the US (-0.4%), Japan (-0.7%) and The Netherlands (-1.3%). However, returns remain low in several other markets, including the UK (0.5%), Germany (1.4%), France (1.2%), Italy (0.9%) and Sweden (1.4%).
- The annualised USD real return on the GIRY world index over 2000–07 is just 1.3%. Over this period, bonds beat equities (and bills) in 10 out of 17 countries, including all the largest markets. Realised equity risk premium over this period remain low by historical standards.
- Despite 2007 being generally disappointing for small-caps, over 2000–07 they nevertheless beat large-caps in every Yearbook country except Norway (and, marginally, Taiwan). In most countries, those who invested in 2000 in small-caps are more than 50% richer than large-cap investors.
- The poor return in 2007 from value stocks did not eliminate the 2000-07 value premium. Over 2000-07, value stocks beat growth stocks in every Yearbook country except Hong Kong (and, marginally, Switzerland). In most markets, those who invested in 2000 in value stocks are more than 50% richer than growth-stock investors.
- Momentum trading has provided large potential profits in virtually every equity market. A strategy of buying stock market winners, while avoiding (or taking a short position in) stocks that have performed poorly, has provided a large premium since 2000-07.
- A major factor is the investor’s choice of reference currency. Over the eight years since 2000, the US dollar has fallen against all Yearbook currencies except two (the South African Rand and the Yen). Since 2002, the dollar has fallen against every Yearbook currency—by 39% in the case of the Euro.
- A huge gap has now opened up in sector performance since the tech-bubble burst in March 2000. An investment in the top performing UK sector—tobacco—would now be worth 212 times more than an equivalent amount invested in the worst performing sector—technology hardware.
The key findings for year 2007:
- Despite the turmoil in the credit markets, stock markets performed reasonably well in most countries. Emerging markets did best.
- Volatility accelerated from a low base at the start of 2007.
- Sector exposures had a larger impact than in recent years, with resource stocks doing particularly well, and financials suffering.
- The tide turned for small-caps, which suffered a reversal after four years of outperformance. Value stocks also disappointed, and they underperformed growth stocks.
- While the US (and world) bond indices did well, most government bond markets gave a negative real return.
- Commodities, notably oil, generally performed well.
- The second half of 2007 witnessed a real estate slowdown in many countries, and a sharp collapse in the US.
- Currency mattered. The US dollar was again weak, and nearly all currencies were performance enhancing. Most countries had satisfactory USD returns, but their Euro returns were markedly lower.
- By end-2007 stock markets had largely eliminated the losses from the savage, start-of-century bear market. This is remarkable since, at the trough in March 2003, US stocks had fallen 45%, UK equity prices had halved, and German stocks had fallen by two-thirds.
- Annualised real equity returns over 2000-07 remain negative in only three of the 17 Yearbook countries, the US (-0.4%), Japan (-0.7%) and The Netherlands (-1.3%). However, returns remain low in several other markets, including the UK (0.5%), Germany (1.4%), France (1.2%), Italy (0.9%) and Sweden (1.4%).
- The annualised USD real return on the GIRY world index over 2000–07 is just 1.3%. Over this period, bonds beat equities (and bills) in 10 out of 17 countries, including all the largest markets. Realised equity risk premium over this period remain low by historical standards.
- Despite 2007 being generally disappointing for small-caps, over 2000–07 they nevertheless beat large-caps in every Yearbook country except Norway (and, marginally, Taiwan). In most countries, those who invested in 2000 in small-caps are more than 50% richer than large-cap investors.
- The poor return in 2007 from value stocks did not eliminate the 2000-07 value premium. Over 2000-07, value stocks beat growth stocks in every Yearbook country except Hong Kong (and, marginally, Switzerland). In most markets, those who invested in 2000 in value stocks are more than 50% richer than growth-stock investors.
- Momentum trading has provided large potential profits in virtually every equity market. A strategy of buying stock market winners, while avoiding (or taking a short position in) stocks that have performed poorly, has provided a large premium since 2000-07.
- A major factor is the investor’s choice of reference currency. Over the eight years since 2000, the US dollar has fallen against all Yearbook currencies except two (the South African Rand and the Yen). Since 2002, the dollar has fallen against every Yearbook currency—by 39% in the case of the Euro.
- A huge gap has now opened up in sector performance since the tech-bubble burst in March 2000. An investment in the top performing UK sector—tobacco—would now be worth 212 times more than an equivalent amount invested in the worst performing sector—technology hardware.
Sunday, November 16, 2008
Macau - Glitter no more
Statistics can lie. This cannot be too far away from the truth. In April this year, the Macau Statistics and Census Service reveals that the sleepy, underachieving Portuguese enclave until its return to Chinese rule in 1999 - has become the richest place in Asia. A closer examination of the figures supplied tells a totally different story.
Here is the good news - Macau's booming casino industry boosted per capita gross domestic product to US$36,357 last year, a rise of 26%. That surpasses perennial regional gross domestic product (GDP) superstars such as Japan, Singapore, Hong Kong and Brunei and means the territory now ranks 20th on the list of the world's top-performing economies, ahead of Italy and just behind Germany.
That is where the good news ends. This is neither an economic miracle nor a model that anyone in Asia - or elsewhere - should aspire to follow. All of Macau's new found wealth has been generated by casino revenue, which grew 47% last year, so GDP figures present a false economic picture of the city with a population of 538,000. Consider this: the rise in median monthly salaries has not come close to keeping up with Macau's soaring GDP, increasing only 7.5% from a year earlier and now standing at 7,930 patacas (US$990), well below the earning power of its prominent Asian neighbors.
A look at personal consumption expenditure also clearly puts Macau, which has a land mass of only 16 square kilometers, in a far humbler place than its garish GDP banner suggests. Personal consumption accounted for only 21% of Macau's GDP last year. In Hong Kong, 60 kilometers northeast, personal consumption accounted for 60% of GDP and personal consumption expenditure per capita was $17,800, compared with Macau's $7,500.
Where do you find the rest of Macau's whopping GDP? Most of it has gone into building a gambling mecca that has become the Las Vegas of Asia. Indeed, last year Macau overtook the Las Vegas Strip as the richest gambling market on the planet. Macau has long been known as a haven for gamblers, but that reputation was greatly enhanced in 2002 when the gaming market was liberalized to include foreign players. Before that, Hong Kong-born billionaire Stanley Ho Hung-sun, now 86, had monopolized the industry for four decades. Las Vegas gambling moguls seized the opportunity and poured money into the city, which now boasts 30 casinos. The Venetian Macau, which was built by the Las Vegas Sands Corp and opened last August, is the largest casino in the world.
While Macau's gambling dens have lured millions of visitors to the city - most of them from mainland China, where gambling is illegal - those tourist dollars are going mostly into the pockets of casino moguls, with ordinary citizens left to pick up the scraps that fall from the banquet table. Making matters worse for ordinary folk, inflation - as measured by the composite consumer price index - raced along last month at 9.47%, a 12-year high. Rents rose 15.6%, and the cost of a doctor's consultation shot up 24.2%. Add to that sharp hikes in food prices that have also hit Hong Kong and the mainland and the reported 7.5% jump in median monthly income starts to look like a negative.
Unemployment is a mere 2.9%, but that, again, is due to the casino boom. Alarmingly, Macau's younger generation is increasingly choosing to drop out of school in their teens to take casino jobs that pay as much as $2,200 a month. Gambling revenue has allowed the government to boost spending on education, but at the same time casinos are snatching would-be graduates away with the lure of easy money for work that, most likely, will be a dead-end.
Here is the good news - Macau's booming casino industry boosted per capita gross domestic product to US$36,357 last year, a rise of 26%. That surpasses perennial regional gross domestic product (GDP) superstars such as Japan, Singapore, Hong Kong and Brunei and means the territory now ranks 20th on the list of the world's top-performing economies, ahead of Italy and just behind Germany.
That is where the good news ends. This is neither an economic miracle nor a model that anyone in Asia - or elsewhere - should aspire to follow. All of Macau's new found wealth has been generated by casino revenue, which grew 47% last year, so GDP figures present a false economic picture of the city with a population of 538,000. Consider this: the rise in median monthly salaries has not come close to keeping up with Macau's soaring GDP, increasing only 7.5% from a year earlier and now standing at 7,930 patacas (US$990), well below the earning power of its prominent Asian neighbors.
A look at personal consumption expenditure also clearly puts Macau, which has a land mass of only 16 square kilometers, in a far humbler place than its garish GDP banner suggests. Personal consumption accounted for only 21% of Macau's GDP last year. In Hong Kong, 60 kilometers northeast, personal consumption accounted for 60% of GDP and personal consumption expenditure per capita was $17,800, compared with Macau's $7,500.
Where do you find the rest of Macau's whopping GDP? Most of it has gone into building a gambling mecca that has become the Las Vegas of Asia. Indeed, last year Macau overtook the Las Vegas Strip as the richest gambling market on the planet. Macau has long been known as a haven for gamblers, but that reputation was greatly enhanced in 2002 when the gaming market was liberalized to include foreign players. Before that, Hong Kong-born billionaire Stanley Ho Hung-sun, now 86, had monopolized the industry for four decades. Las Vegas gambling moguls seized the opportunity and poured money into the city, which now boasts 30 casinos. The Venetian Macau, which was built by the Las Vegas Sands Corp and opened last August, is the largest casino in the world.
While Macau's gambling dens have lured millions of visitors to the city - most of them from mainland China, where gambling is illegal - those tourist dollars are going mostly into the pockets of casino moguls, with ordinary citizens left to pick up the scraps that fall from the banquet table. Making matters worse for ordinary folk, inflation - as measured by the composite consumer price index - raced along last month at 9.47%, a 12-year high. Rents rose 15.6%, and the cost of a doctor's consultation shot up 24.2%. Add to that sharp hikes in food prices that have also hit Hong Kong and the mainland and the reported 7.5% jump in median monthly income starts to look like a negative.
Unemployment is a mere 2.9%, but that, again, is due to the casino boom. Alarmingly, Macau's younger generation is increasingly choosing to drop out of school in their teens to take casino jobs that pay as much as $2,200 a month. Gambling revenue has allowed the government to boost spending on education, but at the same time casinos are snatching would-be graduates away with the lure of easy money for work that, most likely, will be a dead-end.
Sunday, November 9, 2008
China's agricultural industry
In October 2008, Communist Party of China (CPC) Central Committee issued a landmark policy to further rural reform and development. One of the biggest moves was to allow farmers to "lease their contracted farmland or transfer their land use right" to boost the scale of operation for farm production and provide funds for them to start new businesses.
Farming practices within China range from small scale family owned holdings to large commercial farming operations. The major buyers of market-ready products, such as fruit and vegetables, are large grocery retailers, whereas the major buyers of products requiring processing, such as cereal grain, are wholesale dealers and food processing companies. The costs of machinery and land required to work a large-scale farm are high and provide a significant barrier to entrance. Furthermore, farmers worldwide are facing increasing operational costs due to oil and fertilizers. Although large co-operative farms exits within the Chinese market, the Chinese agricultural market is highly fragmented compared to western markets.
The majority of commercial farmers operate relatively small scale holdings, producing a limited amount of produce for local consumption. However, rapidly increasing food demands are leading to an increase in the extent of large scale farming co-operatives. The customers of such large scale operations are typically food processing companies and supermarket chains. Such large buyers wield their large purchasing power to negotiate minimal prices through bulk purchasing.
The majority of the population of China is still relatively rural in nature and a high proportion of people are still involved in agriculture, either for self-sufficiency or commercial purposes. The majority of farming in China is undertaken within small scale family owned farms, which often act collectively within co-operatives. Given the small scale of most Chinese farming operations combined with the existence of cooperatives, players can enter on a small scale relatively unhindered. However, in order to start a competitive large scale farming operation, the significant cost of machinery and land may pose significant barriers to the entrance of new players. In recent years, some foreign players have started operations within China, attracted by the abundance of low cost highly fertile land and a burgeoning market for food in the country. Furthermore, the increasing demand for food within China is increasingly attracting foreign companies to enter the market through the importation of agricultural produce.
The agricultural products market encompasses a wide variety of products, for which the threat of substitution varies considerably. For example, many fruit and vegetables and cereal products, most notably rice, form staple dietary components for which the threat of substitution is low. Organically certified produce is increasingly being favored in recent years due to the supposed health benefits of avoiding the use of chemical fertilizers and the more environmentally friendly image of organic production. On the negative side, such produce is considerably more expensive for consumers. However, the cost of organic farming in comparison to intensive methods is declining as dramatic increases in fuel and fertilizer prices negatively impact upon non-organic methods.
Players within the Chinese agricultural products market range from individually owned farms to large consolidated farming corporations. It should be appreciated that the latter has a distinct advantage through their scale economies of mass production. With the exception of produce quality, there is typically a lack of differentiation between produce from different producers and producers are typically highly similar, which enhances rivalry.
Farming practices within China range from small scale family owned holdings to large commercial farming operations. The major buyers of market-ready products, such as fruit and vegetables, are large grocery retailers, whereas the major buyers of products requiring processing, such as cereal grain, are wholesale dealers and food processing companies. The costs of machinery and land required to work a large-scale farm are high and provide a significant barrier to entrance. Furthermore, farmers worldwide are facing increasing operational costs due to oil and fertilizers. Although large co-operative farms exits within the Chinese market, the Chinese agricultural market is highly fragmented compared to western markets.
The majority of commercial farmers operate relatively small scale holdings, producing a limited amount of produce for local consumption. However, rapidly increasing food demands are leading to an increase in the extent of large scale farming co-operatives. The customers of such large scale operations are typically food processing companies and supermarket chains. Such large buyers wield their large purchasing power to negotiate minimal prices through bulk purchasing.
The majority of the population of China is still relatively rural in nature and a high proportion of people are still involved in agriculture, either for self-sufficiency or commercial purposes. The majority of farming in China is undertaken within small scale family owned farms, which often act collectively within co-operatives. Given the small scale of most Chinese farming operations combined with the existence of cooperatives, players can enter on a small scale relatively unhindered. However, in order to start a competitive large scale farming operation, the significant cost of machinery and land may pose significant barriers to the entrance of new players. In recent years, some foreign players have started operations within China, attracted by the abundance of low cost highly fertile land and a burgeoning market for food in the country. Furthermore, the increasing demand for food within China is increasingly attracting foreign companies to enter the market through the importation of agricultural produce.
The agricultural products market encompasses a wide variety of products, for which the threat of substitution varies considerably. For example, many fruit and vegetables and cereal products, most notably rice, form staple dietary components for which the threat of substitution is low. Organically certified produce is increasingly being favored in recent years due to the supposed health benefits of avoiding the use of chemical fertilizers and the more environmentally friendly image of organic production. On the negative side, such produce is considerably more expensive for consumers. However, the cost of organic farming in comparison to intensive methods is declining as dramatic increases in fuel and fertilizer prices negatively impact upon non-organic methods.
Players within the Chinese agricultural products market range from individually owned farms to large consolidated farming corporations. It should be appreciated that the latter has a distinct advantage through their scale economies of mass production. With the exception of produce quality, there is typically a lack of differentiation between produce from different producers and producers are typically highly similar, which enhances rivalry.
Tuesday, November 4, 2008
Stock challenge game
Recently i entered into a stock challenge game organised by the following website:
http://www.nextinsight.com.sg/
The game has started on 3rd Nov 2008 and will run for the next 6 months. Below are some of the stocks i have bought or shorted with my virtual start-up capital of $100K with supporting reasons.
1) Bright World (Long)
How can i not put money where the mouth is after spending time researching on the company?
I am confident that all the pre-conditions of the takeover offer will be fulfilled in the coming months. Even though there is no guarantee, I feel the potential return outweighs the associated risks. Moreover, some sweeteners have been included in the post-acquisition period for current shareholders of China Holdings Acquisition Corp which bodes well for the success of this deal. Those who are not familiar can refer to my earlier postings on bright world.
2) Wilmar (Short)
Shorted Wilmar purely for trading purposes. I feel that the buy-in was overdone as it gained about 20% from Monday to Thursday last week. There was a rebound in CPO prices in the last 10 days or so. But I believe this upsurge in prices will be temporary.
3) UOB (Short)
Shorted UOB as I expect its 3Q earnings report to be weak as compared to the last quarter. I see the UOB share price on a downward decline and took the opportunity to short it when there was a small rally on Thursday 30th Oct. I believe the demand for loans will continue to be soft and thus UOB’s margin will be affected. Further impairment charges will have to be taken as we progress and that will reduce the profits too.
I will post new updates if there is any change in my portfolio.
Cheers!
http://www.nextinsight.com.sg/
The game has started on 3rd Nov 2008 and will run for the next 6 months. Below are some of the stocks i have bought or shorted with my virtual start-up capital of $100K with supporting reasons.
1) Bright World (Long)
How can i not put money where the mouth is after spending time researching on the company?
I am confident that all the pre-conditions of the takeover offer will be fulfilled in the coming months. Even though there is no guarantee, I feel the potential return outweighs the associated risks. Moreover, some sweeteners have been included in the post-acquisition period for current shareholders of China Holdings Acquisition Corp which bodes well for the success of this deal. Those who are not familiar can refer to my earlier postings on bright world.
2) Wilmar (Short)
Shorted Wilmar purely for trading purposes. I feel that the buy-in was overdone as it gained about 20% from Monday to Thursday last week. There was a rebound in CPO prices in the last 10 days or so. But I believe this upsurge in prices will be temporary.
3) UOB (Short)
Shorted UOB as I expect its 3Q earnings report to be weak as compared to the last quarter. I see the UOB share price on a downward decline and took the opportunity to short it when there was a small rally on Thursday 30th Oct. I believe the demand for loans will continue to be soft and thus UOB’s margin will be affected. Further impairment charges will have to be taken as we progress and that will reduce the profits too.
I will post new updates if there is any change in my portfolio.
Cheers!
Thursday, October 30, 2008
Sweeteners for Bright World takeover
A few days ago, CHAC and BW jointly announced the terms of the amended agreement in the takeover offer.
Things that have been changed:
1) Valuation and purchase price of BW.
The revised transaction results in a minimum valuation of Bright World at approximately USD255 million (assuming CHAC acquires all issued Bright World shares, the initial shares of CHAC issued to World Share are valued at USD9.29 per share, which is the estimated redemption value of the CHAC shares).
2) Triggers for the issuance of the additional shares
World Share's eligibility to receive additional CHAC shares has been modified by changing the triggers for the issuance of the additional shares from triggers based on the financial performance of the new company to those based on the market-based stock price performance of the new CHAC. World Share will now only receive additional shares if the stock price of CHAC reach USD12.50 per share.
3) Post acquisition cash dividend of USD0.50 per share for CHAC shareholders.
After the closing of the transaction, it is intended that CHAC shall declare and pay a cash dividend of USD0.50 per share to its shareholders of record and reduce the strike price for CHAC's currently outstanding warrants by USD0.50. World Share has waived its right to receive the cash dividend with respect to any CHAC shares it may hold.
Comments:
Personally, i view the admendments as a positive development in this takeover offer. It shows the determination of the buyers to push through this acquisition under such gloomy and uncertain economic outlook. Basically, with these changes, the buyers are clearly aligning the interest of the CHAC shareholders together with their own. I believe it is done to ensure that this deal can be approved during the voting which is to be carried out early next year. The earlier agreement announced on July 21, 2008 valued the the transaction at a minimum of about USD263 million based on the estimated redemption value of the CHAC shares of USD9.79 per share. Now the estimated redemption value of the CHAC shares is USD9.29 per share. The difference of USD0.50 will be paid as cash dividend to CHAC shareholders.
Tuesday, October 28, 2008
Crude oil price is all rubbish!
Around 4 months ago, crude oil price was at about USD140 per barrel. Fast forward to the last weekend, after a slew of bad news and poor earnings outlook hit the market, crude oil is only trading at about USD62 per barrel. After witnessing a drop of 55% in crude oil price, I have a few questions in my mind.
1) Did the oil consumption in the world reduce by half over the previous 4 months?
2) Did the world’s population replace half its energy needs by using alternative sources over the last 4 months?
3) Did the oil producing countries extract 2 times more output in the past 4 months?
4) Did someone or some country release its huge oil inventory in the market over the past 4 months?
The answer to the above 4 questions is a resounding ‘NO’. However, I will be glad if some kind soul can show me otherwise. The only logical and possible answer as to why oil prices has dropped dramatically is that most investors speculating in oil have exited the market. They include individuals, hedge funds and institutions. As such, this ties back to the title of my posting that the oil price in the market we have seen over the last few years is all rubbish. For the past few years, oil price is on a steady ascend because it is heavily influenced by speculators. Sadly during this period, there are even some highly respected persons who came out to defend the high oil price, saying that the prices are backed by real demand. When the commodities bubble burst, all of them tried to rush for the one and only exit, which results in the oil price collapsing in a relatively short period of time.
1) Did the oil consumption in the world reduce by half over the previous 4 months?
2) Did the world’s population replace half its energy needs by using alternative sources over the last 4 months?
3) Did the oil producing countries extract 2 times more output in the past 4 months?
4) Did someone or some country release its huge oil inventory in the market over the past 4 months?
The answer to the above 4 questions is a resounding ‘NO’. However, I will be glad if some kind soul can show me otherwise. The only logical and possible answer as to why oil prices has dropped dramatically is that most investors speculating in oil have exited the market. They include individuals, hedge funds and institutions. As such, this ties back to the title of my posting that the oil price in the market we have seen over the last few years is all rubbish. For the past few years, oil price is on a steady ascend because it is heavily influenced by speculators. Sadly during this period, there are even some highly respected persons who came out to defend the high oil price, saying that the prices are backed by real demand. When the commodities bubble burst, all of them tried to rush for the one and only exit, which results in the oil price collapsing in a relatively short period of time.
Friday, October 24, 2008
Everything is slippery and red
Besides the most obvious clue that the stock prices are dropping like stones, lets count the number of ways to spot the blood in stock markets:
1) Brokers and investors committing suicide after losing a fortune.
2) Friends seeking advice if they should pull out their money from unit trust.
3) You start to see the word “recession” appear regularly in the newspapers.
4) Hot money fleeing various countries and sectors that were the darlings of investors not so long ago.
5) Relatives and friends telling you to keep your cash and do nothing.
6) Shopkeepers no longer look at stock prices during their free time.
7) More and more property advertisement in the newspaper.
8) A decrease of workload for staff in banks doing the settlement of trades for clients.
9) A decrease in the number of people patronizing your favorite restaurant.
10) Banks starting to retrench staff across the board, especially the equities department.
11) The amount of assets managed by wealth mangers is stagnant or decreasing.
12) More and more news of companies closing down due to mounting losses and insufficient cash.
This list is by no means exhaustive, please feel free to add on.
Cheers! Have a nice weekend.
1) Brokers and investors committing suicide after losing a fortune.
2) Friends seeking advice if they should pull out their money from unit trust.
3) You start to see the word “recession” appear regularly in the newspapers.
4) Hot money fleeing various countries and sectors that were the darlings of investors not so long ago.
5) Relatives and friends telling you to keep your cash and do nothing.
6) Shopkeepers no longer look at stock prices during their free time.
7) More and more property advertisement in the newspaper.
8) A decrease of workload for staff in banks doing the settlement of trades for clients.
9) A decrease in the number of people patronizing your favorite restaurant.
10) Banks starting to retrench staff across the board, especially the equities department.
11) The amount of assets managed by wealth mangers is stagnant or decreasing.
12) More and more news of companies closing down due to mounting losses and insufficient cash.
This list is by no means exhaustive, please feel free to add on.
Cheers! Have a nice weekend.
Tuesday, October 14, 2008
Saving mini investors
Currently the Hong Kong government is trying very hard to intervene and arrange for a compensation package to all minibond investors. There has been immense pressure by the Singapore minibond investors on the local authorities to step in and arrange a similar bailout. With all due respect, I personally do not think that it is a good idea for the authorities to step in.
MAS, which is the government authority in this case, has to make decisions and take actions that are consistent. If MAS has decided to intervene for the minibond investors, then why stop there? They should also round up all the retail investors who have placed their money in the internet technology unit trusts 8 years ago and fight to compensate their losses. How about those who invested in emerging market funds at the beginning of this year and are now looking at a loss of 30 – 40%? The list is never ending. Does anyone believe that there was no occurrence of “misinterpretation” by the banks 8 years ago? It takes 2 hands to clap and the whole fiasco happened due to the combination of greed on the investors’ part and “misinterpretation” on the banks part.
However, I do support the MAS stance that they will punish the banks if they are found to be guilty of understating the risks of the derivative products to the customers. It is important for MAS to send the right message that if any of the local banks compensate the investors for the losses in the minibonds, it should see it as a gesture of goodwill from the bank and not due to the pressure from MAS.
Lastly, I would like to bring up 2 golden rules for those thinking of purchasing investment products from those financial consultants.
Rule 1:
Ask for all the risks and the worst-case scenario for the product that you are interested in. Walk away if you do not understand what the financial consultant is saying.
Rule 2:
Never forget rule 1.
MAS, which is the government authority in this case, has to make decisions and take actions that are consistent. If MAS has decided to intervene for the minibond investors, then why stop there? They should also round up all the retail investors who have placed their money in the internet technology unit trusts 8 years ago and fight to compensate their losses. How about those who invested in emerging market funds at the beginning of this year and are now looking at a loss of 30 – 40%? The list is never ending. Does anyone believe that there was no occurrence of “misinterpretation” by the banks 8 years ago? It takes 2 hands to clap and the whole fiasco happened due to the combination of greed on the investors’ part and “misinterpretation” on the banks part.
However, I do support the MAS stance that they will punish the banks if they are found to be guilty of understating the risks of the derivative products to the customers. It is important for MAS to send the right message that if any of the local banks compensate the investors for the losses in the minibonds, it should see it as a gesture of goodwill from the bank and not due to the pressure from MAS.
Lastly, I would like to bring up 2 golden rules for those thinking of purchasing investment products from those financial consultants.
Rule 1:
Ask for all the risks and the worst-case scenario for the product that you are interested in. Walk away if you do not understand what the financial consultant is saying.
Rule 2:
Never forget rule 1.
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