Wednesday, 30 March 2011

How US Housing Market fares lately? (30 March 2011)

Indeed, there is a insightful write-up by RHB Research today on the US housing market. People are still very curious about the US housing market, but yet to have the courage to BUY. Herd mentality? And, why US housing market is catching the attention of the world? Oh, thanks to Rich Dad Poor Dad, and the world famous property tycoon, Donald Trump.

In fact, I am wondering how did Donald fares these few years? That's why Donald had teamed up with Robert Kiyosaki to publish a book last year? People stop buying property because they're buying books nowadays?

A Double-Dip in the US Housing Market?... by RHB Research (30 March 2011)

US home prices, as measured by the S&P/Case-Shiller composite index of 20 metropolitan areas, declined by 0.2% mom in January vs -0.4% in December, and dipped for the 7th straight month to the lowest since April 2009. Year-on-year, home prices in 20 major cities fell by a larger magnitude of 3.1% in January, the 4th consecutive month of decline and from -2.4% in December. Home prices in these cities climbed up for 8 consecutive months from February until September 2010, before relapsing into a decline again since October last year, suggesting that the housing market is weakening, which will remain a drag to the economic recovery.

In many areas, home prices have fallen to 2003 levels, prior to the start of the housing bubble, due to the glut of supply in the housing market caused by rising foreclosures. This was compounded by potential house buyers' expectations of further drop in house prices, making them stay on the sidelines before entering the market to buy even cheaper houses. As a result, prices may fall further until foreclosures and short sales are cleared. Also, despite the millions of foreclosures and short sales, which is when lenders allow homeowners to sell for less than they owe on their mortgage, many of the homes for sale are undesirable, as the supply of homes that people actually want to purchase or could afford to is much narrower.

As a whole, falling prices and weak home sales would likely pose a drag to the economy, which is showing signs of strength elsewhere. Already, claims for unemployment benefits are at pre-recession lows, consumers are spending more money and manufacturing activity is growing at its fastest rate in 7 years. By contrast, sales of existing homes are coming off the worst year in more than a decade. And new homes are selling at the slowest pace on records dating back to 1963. In part, the weakening prices show how much a home-buying tax credit stimulated sales in late 2009 and early 2010. Once those tax credits expired in April 2010, many markets began a decline that shows no sign of stopping yet. Some economists say the tax credits merely postponed the bottoming out that's occurring now.

So, when would US Housing Market Recovers?
Finance Malaysia has a very general answer, abandoning all those complicated theories and analyst, that the US housing market will recovers once investors can't find any bargain at emerging markets. This year, Hong Kong is expecting a slowdown in property sales, with Li Ka Shing too looking to other vehicles for growth. China is going to increase interest rate again to curb excessive liquidity and inflation. Back home in Malaysia, BNM is hinting for more measures to control high household debt. Soon, investors would re-look and re-position themselves on US once emerging countries can't give them their desired return.

Wages and Inflation

Those who see no inflation in our future usually rest their argument on slow wage growth. The argument is that if wage rates don't increase, then there is nothing to pass on in the form of higher prices. Would that it were so?

The real issue is not whether wages are rising. The real issue is whether or not labor costs are rising. Wages are only one component of the cost of labor to business and wages represent a declining portion of that cost. Ask Walmart.

As Walmart faces a potential multi-billion lawsuit, companies around the US brace themselves for massive copy-cat employee lawsuits. All large companies now have to factor in dramatically higher potential liability costs associated with the Walmart lawsuit. Don't believe that companies aren't watching the developments in the Walmart case -- they are.

As for Walmart, you can be sure that they will make every effort, over time, to pass their litigation costs on to their labor force. But, in the short run, the cost of labor at Walmart has just risen dramatically, while wages have gone nowhere.

Lawyers are the big winners here. The losers are folks looking for a job or looking for a wage increase. Even if wages decline, there will be substantially higher labor costs ahead thanks to government efforts to "protect" employees. All of these protection mechanisms are costly and will be passed on to consumers in the form of higher prices.

The issue is not whether wages are rising. The issue is whether labor costs are rising. The answer is that labor costs are rising and rising at an incredible pace. Hence, higher prices.

Tuesday, 29 March 2011

Who would be the winner of POS Malaysia?

It's been awhile since the government announcing its intention to divest its shareholding in Pos Malaysia last year. Through Khazanah Holdings, the government owned 32% stake in Pos. Let's re-look at the news with updated info, and hopefully we can have a better prediction on Pos in the near term.

While waiting for a new strategic partner, Pos has declared a one-off final and special dividend of 17.5sen, which provides a dividend yield of 5.7%. However, OSK is maintaining its fair value for Pos at RM4.12 with a BUY call. It closed at RM3.32 yesterday.
On 29th March 2011, Business Times reported unconfirmed sources said that Khazanah had just shortlisted 3 out of 5 parties bidding for its 32% stake in Pos.

Who are they?
The 2 candidates that already failed are:
  1. Scomi Bhd
  2. Tricubes Bhd
The 3 still-in-run candidates are:
  1. Nationwide
  2. MPC-Amanah REIT
  3. DRB-Hicom
The shortlisted parties will make a final presentation today to Khazanah and McKinsey & Co, who is the adviser. Pos' book value per share stands at RM1.54 and it is known that 3 shortlisted candidates are bidding at between 2.2x and 3x. This implies an offer of RM3.38 - RM4.62 per share. It was reported that the ultimate winner will be announced by the Prime Minister during Invest Malaysia 2011 on 12th April (Tuesday).

What is in the offing from the 3 candidates?
Of the names, each has its own niche expertise, with one looking to inject a bank (likely Syed Mokhtar's Bank Muamalat), one with a logistics expertise (Nationwide) and the other a property developer (MPC and Amanah REIT). It was previously rumored that Syed Mokhtar (DRB) is offering RM1bn for Khazanah's divested stake, which works out to be RM5.78 per share. (OSK Research)

What is so exciting about Pos Malaysia?
  • Relaxation of Postal Act, which could allow Pos Malaysia to re-develop some of its land parcels to unlock the value of its land-bank.
  • Expanding revenue from offering shared banking services with RHB and Maybank.
  • Plans to introduce a new direct address mail service soon. Advertisers can channel some of their advertisement spending to direct address mail to target customers.
Recent DRBHCOM share price movement

Finance Malaysia's prediction...
While not able to access the inside information, Finance Malaysia looks at a different angle to predict the ultimate winner, this time via technical analysis. Judging from the past weeks price movements, DRB Hicom is signaling something boiling behind. Today, DRB closed at RM2.16. Would it be the one?

Monday, 28 March 2011

Inflation is Picking Up

While Bernanke continues to look in the rear view mirror hoping to spot some deflation, the facts on the ground and the road ahead are clearly all about rising inflation. The February CPI numbers released today, an annual rate of five percent should give Bernanke and his QE2 activity a reason to reflect. It is true that in a world of no food and no energy the numbers look better, but who lives in that world?

What are the implication of rising inflation? Trouble in bond land. This means investor losses on bonds and headwinds for stocks. Unanticipated inflation is always bad news for stocks. Inflation reduces the value of the national debt, but inflation increases the deficit, offsetting the former effect.

One big plus: the housing market will benefit from increasing inflation, mostly because homeowners are big debtors and have fantastic tax advantages compared to the owners of any other asset (even better than owning oil wells!). Those who buy homes now and over the next year or two will be big winners. Stocks will do fine longer term, bonds are headed for disaster, and homeowners will strike gold.

New Fund: HwangDBS Select Dividend Fund

To further leveraging on the signature "Select" series of HwangDBS funds, HwangDBS Investment Management Berhad today added in HwangDBS Select Dividend Fund. Over the years, the Select series of funds have demonstrated strong performance, stability and consistency in meeting their objectives. Through this new fund, investors can access a diversified, yet focused portfolio of quality dividend yielding stocks in Malaysia and Asia-Pacific region.

The fund endeavors to provide a combination of regular income and capital growth over the medium to long term period. To achieve the primary objective of providing regular income, the fund intends to invest in high dividend yielding equities and equities that could potentially experience high dividend pay out growth. The fund's investments will be primarily focused in Malaysian equities with a minimum investment of 70% of the fund's NAV. The fund may also invest up to 30% of its NAV in Asia-Pacific region.

Two-part Approach?
  1. Stable and High Dividend Yielding Equities
    • Invest in already well recognized, stable and high dividend yielding equities
    • Regular income
    • Stability
  2. The "next dividend leaders"?
    • Identify and invest in equities which have the potential to become strong, quality dividend paying equities in the future
    • Those that potentially to start a dividend payout policy
    • Those that potentially increasing current dividends payout levels
    • Dividend plus Capital appreciation
Income Distribution: Semi-Annually?
  • Targeting 8% to 10% returns per annum with moderate levels of risks
  • Semi-annual income distributions which give investors flexibility for cash flow needs plus potentially higher returns than Fixed Deposits or local Bonds

Source: HwangDBS Investment Management website

Click here to read the prospectus

Sunday, 27 March 2011

Cost Is Not The Real Issue

You hear the President criticized over the cost of the new Libyan military adventure. Whatever the merits or demerits of the President's new military activities, they are not really that costly. That's why they are so easy to do. The cost restraint for military adventurism is not really binding anymore. We could fight a number of wars all over the globe for a pittance of what it costs to support Medicare, Medicaid, Obamacare, and Social Security.

War is cheap! The volunteer army did that for us. It replaced conscripts with folks that really wanted to do this. So we have fewer of them, pay them better, and they do a better job. Plus, war technology has improved.

So, Obama gets a push-button war on the cheap. Whether it's a good idea or not is an entirely different story, but cost is not the issue.

Saturday, 26 March 2011

Bob Herbert on "Losing Our Way"

Bob Herbert is a hard left columnist for the New York Times. Normally, his columns are showers of praise for the Obama Administration (like most every other political column in the NY Times). Today, Herbert is on a different tack. He is criticizing the Administration for spending tax dollars in Libya (and other foreign adventures) while "...simultaneously demolishing school budgets, closing libraries, laying off teachers and police officers and generally letting the bottom fall out of the quantity of life here at home." Sounds compelling doesn't it.

This article shows the depth of the lack of understanding of the hard left for what is really going on in the US and Western Europe. First and foremost, there is absolutely no reason whatsoever for laying off any public employees. Were it not for the absurd work rules and legal restrictions, public employees would take compensation adjustments and there would be few, if any, layoffs.

In my own county of Albemarle County, Virginia, rather than take a five percent paycut, the teachers lobby prefers to have five percent of the teachers laid off. That is a cruel and unfair outcome for the five percent who are laid off. The 95 percent who retain their jobs and benefits could care less. All that matters to them is that their pay and benefits are maintained. Under seniority rules only the newest teachers are at risk. The old fuddy duddies are completely protected from layoffs (as well as from any accountability at all). The "children be damned" attitude of the public school teacher lobby in this community (and in this state) mirrors that of teacher lobbies and teachers unions across the US and Europe. It is their decision to have layoffs. These would be very easy to avoid. Ditto for other public employees.

But, Herbert's column raises a deeper question. If money is spent on foreign adventures, doesn't that take money away from funding an economic recovery in the US? The answer is a resounding "no." Regardless of the merits or demerits of foreign adventures, there is simply no evidence that governments who spend money promote economic recovery, progress or growth. In fact, the opposite is true. What the government needs to do is get out of the way. No amount of government spending can undo the damage of the Dodd-Frank legislation or Obamacare. Sending Elizabeth Warren back to Harvard and dismantling the mis-named Consumer Protection Agency would do more for economic recovery than spending another trillion dollars funding Obama's political allies (Obama's definition of stimulus spending).

A similar argument applies to public education. Public education in the US and increasingly in Europe is in shambles. Why? Money? Just look at the numbers. Schools, public and private, higher education and lower education, absorb an increasing share of national output, not only in the US but throughout Europe. Are our schools getting better? Our schools, in fact, are poorly run, dominated by administrators and teachers with political, not educational, motivation. It is easy to teach students, if that is what you want to do, But, increasingly, teaching students is not what teachers want to do. You can see this most clearly in higher education, but it shows up dramatically in the modern public schools as well. The recent activities by teachers in Wisconsin show you where their true interests is not in the classroom.

Money isn't the issue, Bob Herbert. In fact, more money can cause even more mischief for our public schools, for our economic recovery. The best thing the government can do is to shrink itself and get out of the way.

Earth Hour by Switching-Off TNB's Nuclear Plan(t)? (26 March 2011)

In conjunction with Earth Hour today, would you do your part by switching off lights from 8.30pm to 9.30pm? I heard people are talking about earth hour since weeks before, and many shopping malls and hotels are organizing some amazing events during this special dark moment. Actually, the idea of Earth Hour came out as a way to showcase a growing global community's commitment to taking environmental action and protecting the planet we are living in.

And, this year, the one-hour is just like a moment for us to remember the lost lives in Japan earthquake and tsunami disaster, which killed more than 10,000 lives. Of course, the nuclear radiation treat are still looming in Japan, and we really needs to evaluate the effects.

But, isn't nuclear power GREEN?

As I know, nuclear power is much more environmental friendly than Coal/Gas power plant. Although Hydro power is renewable, it is devastating to the nature when construction by greatly changes the topography of the surrounding area and sacrificing the habitat of animals.

However, Japan's latest nuclear emergency is a wake-up call for aspirant TNB who is planning to build out nation's first nuclear power plant by 2015. It is likely to be hot debate in parliament and will soon become an "political agenda" in the upcoming general election.

Electricity Capacity as at June 2010. (Tenaga Nasional Bhd)

Do we really need Nuclear Power?
As of June 2010, 91% of Malaysia's electricity is generated by either gas, coal and oil. This is totally not environmental friendly. Hence, in June 2009, the Malaysian cabinet decided to include nuclear energy as part of an energy option for electricity generation particularly in Penisular Malaysia for post-2020. With the treat of climate change and the depletion of fossil fuel resources, it is no surprise that utilities worldwide are putting the nuclear alternative back on the table until the Japan disaster recently.

Other than nuclear, many people think that solar, wind and biomass energy which is renewable is an good alternative. But, it is ridiculous if we are to talk about constant and stable energy production and competitive pricing. Please bear in mind that, the more expensive power produced by TNB will translate into higher electricity tariff to consumers.

In conclusion, I think Malaysia needs Nuclear power and should proceed with the nuclear power project for sustainable power supply to power up our nation, continue growing in the future. We should not lag behind and must plan ahead for nuclear power because nuclear power plant needs 10 years to build and commissioned. The main concern for Malaysians, however, is the lack of expertise and maintenance of nuclear power. Government should address this problem thoroughly, and once solved, everything would be smooth sailing.
Source: Tenaga Nasional Bhd

Friday, 25 March 2011

A Soft Economy Amidst a Sea of Liquidity

Some parts of the economy have returned to pre-crisis levels. The stock market for one. The stock market is now well ahead of where it was just prior to the collapse of Lehman Brothers. Prices of the best buildings in NYC and London are nearing the peaks reached in 2007, if not exceeding them. Luxury homes are on the rebound. Yet the overall US economy is moribund and headed nowhere. How can this be?

The simple answer is the Federal Reserve. The Federal Reserve is monetizing substantial amounts of US treasuries (buying treasuries, in other words). This is equivalent to printing money instead of selling debt from the point of view of government financing. This is QE2. This process, QE2, adds enormous amounts of liquidity to the financial system, available to whatever suits the fancy of the financial system. Normally, such excess liquidity feeds directly into asset prices -- stocks, bonds, high end real estate -- and that is exactly what has been happening.

Business is not really using the excess liquidity to expand capital equipment and employment. Business is not optimistic about the future, mostly because business understands all too well what the Obama Administration is all about. Instead the excess liquidity is being soaked up into an asset bubble -- a bubble that will inevitably end badly.

Don't look for further rallies in asset prices. QE2 is coming to an end soon and there is not likely to be a QE3. Incredibly slow economic growth will continue on pace for the next two years as we slog our way to a 7-8 percent unemployment range with rising inflation -- a condition known as stagflation. Stock prices will stall here and bond prices will get hammered. High end asset prices, rising now from Bernanke's foolishness, will settle back to earth. There won't be a crash or a double dip, but the asset price rally will be ending soon while the economy will continue to trudge along.

The big unknown is the exploding debt nightmare. That nightmare could upset the slow moving turtle that is the American economy.

Portugal, Greece and More

Greek unemployment has now surged to 16.5 percent as it struggles to implement a half-baked austerity program. Greek's austerity program is an example of policy gone berserk. The austerity program that Greek politicians have pursued (with the support of the EU) is too little to have any impact on their spiraling debt problems and too much to permit the economy to avoid collapse. Why do this?

The Portuguese have rejected austerity. Others will follow. Austerity without at least a partial debt default is a foolish and unsustainable policy. The best historical precedent for the madness going on in the European union today is the reparations payments program foisted onto Germany by the Treaty of Versailles. We know how that experiment ended. Enough.

There is no reason to insulate bondholders from the folly of their investments. They should bear the brunt of bad decisions. Portugal, Greece, Ireland, Italy, and Spain should default, at least in part, on their sovereign debt. "Should" will eventually turn to "will" anyway. There is no way that these austerity programs are bearable.

None of the European economies are truly competitive any more. Europe has been carried along by the American economic engine for the past two generations. But, the US can't be the engine that pulls the EU anymore. The US has problems of its own that increasingly mirror the problems of the European zone.

The economic future is with countries that have competitive economies fostered by governments that see economic growth, not economic pie redistribution, as the number one goal of economic policy. This means Asia. This means parts of Eastern Europe. It means one or two isolated situations in Latin America. Everywhere else, the number one goal is to divide up the economic pie. That never leads to good things for the average person who finds, inevitably, his/her share of the diminishing pie diminishing as well.

The rich do not necessarily get richer. Sometimes the rich get preoccupied with implementing policies that stifle economic growth. Hubris breeds incompetence. That is what has happened to Europe and the United States.

Thursday, 24 March 2011

The Beat Goes On

Jose Socrates, Prime Minister of Portugal, failed this week to get his country to complete the fiscal austerity program designed to save Portugal from defaulting on their sovereign debt. The truth is that no one cares about Portugal. The big concern is Spain. Portugal is a relatively small economy and EU bailout fund could easily accommodate Portugal's needs (and probably will do so soon). But, that leaves Spain. Spain's problems are so immense that the EU has no serious way of dealing with it.

Thoughts of Portugal lead to the contemplation of Spain, in true domino-theory progression. It is hard to see what the EU will do when Spain is the headline. That could be game over (and we haven't even begun to speak of Italy).

All of this is a policy of wishful thinking by the EU, of course. It is simply a matter of time until all the PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) default on their sovereign debt and are forced to nationalize their largest banks. Why they think putting this off is a good idea is something of a mystery. It only gets worse with time.

The US is not far behind.

Tuesday, 22 March 2011

New Fund: Avenue CARE Fund

On 18th March 2011, Avenue Invest Berhad, a member of the ECM Libra Group, launched the Avenue Canada Australia Resources Economies (CARE) Fund.

CARE fund seeks to achieve capital growth over a medium to long-term period by investing primarily in securities of companies in Australia and Canada. The fund may also invest in equities and equity-related securities, fixed income securities, structured products and money market instruments.

Why Australia and Canada?
Due to their resource-based economies, the manager views Australia and Canada as two of the best-positioned countries in the developed world to benefit from the rapid growth of emerging economies such as China. Both economies have emerged largely unscathed from 2008's global financial crisis and are now buoyed by the resurgence of their resource-based industries.

How to achieve the fund's objective?
Generally, the fund will invest at least 70% of its NAV in Australian and Canadian markets and the balance of 30% in other markets within the MSCI AC World Index which are deemed beneficiaries of resource-driven demand from emerging markets.

List of countries within the MSCI AC World Index as at June 2009.

The Fund may invest in companies across a broad range of industries and/or sectors including but not limited to banking and financial, materials and resources, consumer, health care, energy, industrial, real estate, telecommunications, utilities and infrastructure.

Source: Avenue Invest Berhad

Click here to read the prospectus.

Monday, 21 March 2011

Check out Matthew Klein's Piece in NYTime Today

Matthew Klein's article dubbed "Educated, Unemployed, and Frustrated," describes the plight of American young people looking for a job and a future. He notes that 21 percent of workers between ages 16 to 24 are unemployed. These, of course, are mostly not college graduates, although Klein strongly suggests that they are in a typical NYTimes manner. The truth is that college grads have a very low unemployment rate, less than 5 percent in the aggregate, while non college grads have five times that number. Klein doesn't bother to ask why?

Klein does note the burden of entitlements which systematically favor age over youth, but that doesn't explain why young folks are struggling so in the job market, especially those without a college degree. Perhaps, he should look at some of the other editorials that grace the NY Times -- the ones that support employer mandates, the ones that suggest that all business folks are crooks, the ones that support higher taxes for employers, the ones that support Obamacare and other back breaking mandates on business, the ones that encourage frivolous lawsuits aimed at deep-pocket business when business is not really the offender, and on and on.

The answer is simple. We have priced these young folks out of the market. Who can afford to hire them. Not American business. The rest of the world, fortunately for them, unfortunately for us, does not load up employees with goodies that need to be financed by those who hire them (except in Europe, where young people face the same dismal future as our own). If you increase the price of something, people want less of it. Employees are no different than anything else.

Sunday, 20 March 2011


Whatever your source of the news, you must feel bombarded by the headlines from Japan, from Libya, and from other troublespots around the globe. These headlines and news stories are obscuring the underlying facts about what is going on.

Oil is not going to spike to $ 200 -- no matter what happens in the Middle East. There is not going to be a nuclear conflagration in Asia or even in Japan resulting from the damage to Japan's nuclear facilities. And, yes, there is no one to blame for the earthquake and tsunami.

The news media is so preoccupied with finding people to blame about every possible difficulty that the world faces that it obscures the real facts about what is taking place. The real facts remain: the western economies are mired in one of the slowest economic recoveries in the history of the world, while Asian economies and some Latin American economies and Eastern European economies are booming.

Western economies have mortgaged their futures by massive transfer payments to current citizens, mostly the older half of the population, financed by younger citizens and citizens yet to be born. The method, debt financing, is now seen as unsupportable. This is true of Greece as it is true of the United States (and Japan). There is no real answer other than some form of bankruptcy. Whether these steps are taken now or in the future just depends upon the outcome of political jockeying. But, it will take place. The numbers do not permit any easy fix, short of some form of bankruptcy.

The slow pace of economic recovery in the Western economies is mainly a result of their governmental policies toward labor, health care, the environment, and the regulatory regime. The attempt to shower private and public employees with benefits has made labor much more expensive to (all) employers -- hence a dramatic and permanent drop in hiring. This has been a deliberate policy in the United States and in Western Europe. If you increase a price, the demand for the product falls. If you increase the cost of employees, the demand for them will decline and has declined in the Western world (and will continue to decline).

Economic growth, which will continue in the West, will eventually lead to more jobs and, two or three years from now, to lower unemployment rates. But, we will never regain the vigor of the past unless the rules governing employees change in the Western world, which is unlikely. Slow growth and decadence are the future for the US and Western Europe. This is the new normal. Only a move toward free markets can change this and a move in that direction seems politically unlikely. Politicians of all stripes in the US and Western Europe support the legislative agenda that has lead to the current morass. That's not likely to change.

Meanwhile, Asia marches on, Japan aside. Asian nations have not mortgaged the future of their young and unborn to the current older generation. Thus, they have a real future. Economic progress is not shackled by a host of walls built by good intentions. You can't eat "good intentions."

Rich folks everywhere support making employees more expensive and increasing the stranglehold of regulations on businesses. Bill Gates and Warren Buffett certainly support this program, but so do most rich folks, because it is not going to change their lifestyle.

Many college students, dreaming of working for non-profits and basking in the glow of self-congratulatory adulation, have been sheltered from the harsher side of the economy for most of their lives. They have little or no sympathy for the plight of the average citizen, struggling to find work, but finding themselves priced out of the market by government rules and regulations.

The elites, as Tom Sowell calls them, are mainly about looking in the mirror and talking about what "good people" they are. Katie Couric is the poster child for this kind of self image. But, others, like the NPR folks, are pretty stong candidates for runner-up poster children. If it feels good and sounds good, who cares how many people get hurt in the process. That seems to be the position of the elite of the news media.

That lower incomes are battered by these policies is not the concern of the elite who push these regulations. If you were to ask a college senior if he/she would support a law making it against the law to hire someone at a salary less than $ 100,000 per year, they would instantly recoil. But that same college student supports minimum wage increases, living wage proposals and other things that damage the future prospects of the poorest among us. Bill Gates and Warren Buffet will never suffer from an increase in the minimum wage, but countless millions of Americans have already suffered from this type of punitive legislation and untold millions will be similarly penalized in the future.

So, don't get lost in the hysterical headlines about Japan and Libya. The real facts on the grounds are that government policies in the Western economies are hastening their declining share of real economic output. Other parts of the world, that have not put such policies in place, are growing rapidly and will, within a generation, surpass the Western world economically. This is the real story.

New Rules on Credit Cards: NO Credit for LOW Credit?

New Measures on Credit Cards had been announced by Bank Negara Malaysia (BNM) to promote prudent financial management and responsible business practices. Summary on the announcement made:
  • For new credit card holders, minimum income eligibility is set at RM24,000 p.a
  • For cardholders earning RM36,000 p.a and less, the following would be applicable:
    • Cardholders can only hold credit cards from a maximum of 2 issuers
      • Affected existing cardholders are given up to the end of 2011 to select their preferred issuers.
      • Cardholders will also be given at least 2 years to service their outstanding credit card debt for the credit cards that have been canceled for the purpose of meeting this requirement.
    • The maximum credit limit extended to a cardholder shall not exceed 2x their monthly income per issuer.
      • For affected existing cardholders, a grace period of 2 years will be given to them to meet with the new requirement.

Example of Credit Cards
How about credit card issuers?
  • Credit card issuers are required to adopt fair, transparent and responsible approach in marketing and offering of credit cards to consumers
  • Can issuers increase cardholders' credit limit without obtaining their consent? NO
  • Can issuers offer a credit advance in the form of cheque payable to cardholders, if they did not request for it? NO

Ease of comparison and making decisions...
  • Issuers to provide a Product Disclosure Sheet that contains key information on the card's features, fees and obligations of the cardholders.
  • Issuers to display prominently alerts to communicate to cardholders the implications of meeting only minimum and partial repayments.
  • Annual statements will be issued at the end of each year, providing information on how long it will take to fully pay off the cardholder's outstanding balance and the total interest costs if only minimum repayment made.

How to make Credit Card Infrastructure more Secure and Safe?
  • Effective 1 January 2012, transaction alerts via Short Messaging Service (SMS) will be implemented after each transactions are performed
  • Effective 1 January 2015, Personal Identification Number (PIN) verification for all card transactions will be implemented
To make our Credit Card safer

Finance Malaysia have a say
The eligibility starts from minimum RM2,000 per month salary is good. We should not give credit to those lower income group as that will only encourage them to spend with credit. But, the maximum credit limit of 2x monthly income is somehow too conservative. In fact, issuers are giving 3x credit limit currently, which is deemed reasonable. 
Problem arise when we purchase a laptop worth RM2,500 for example, and opt for 0% interest repayment scheme. Even though we are capable to repay, but the credit limit balance is reduced by RM2,500 straightaway, and it left very little only.

Understandably, the measures is introduced when Malaysian households debt is considered very high currently. Overall, it is good for the banking systems, and I believe Malaysians welcome the extra security features to be imposed to instill confidence of public on the usage of credit cards.

Source: Bank Negara Malaysia

Thursday, 17 March 2011

New Fund: RHB Dynamic Oil-Gold Capital Protected Fund

Launched on 11th March 2011, RHB Dynamic Oil-Gold Capital Protected fund is investing in oil and gold, which have the potential to perform in both areas that have great bullish and bearish markets.

This is a 3 years capital protected fund. As usual, it will invests at least 85% of the NAV in zero-coupon negotiable instruments of deposits. Meanwhile, up to 10% of the fund's NAV will invest in an over-the-counter (OTC) option that gave investors returns (if any).

The OTC option will provide exposure to the performance of the Option Strategy, which is an index, maintained by the issuer of the OTC option and is subject to a dynamic risk adjustment linked to the realized volatility of the underlying.

Option Strategy
This Option Strategy is a rules-based strategy computed and developed by the option issuer / counterparty. It aims to tap into the growth of oil and gold through the use of a "momentum" based strategy to capture the trends of the Underlying and also, volatility stabilization to reduce the exposure to the Underlying if the volatility is high.

The theory behind momentum strategy assumes that a leading performer from the last period will continue to be leading performer in the next period, while the volatility stabilization will protect investors against sudden changes in the Underlying prices.

How to determined the asset class?
In determining which asset class to invest into, the Option Strategy will look at the below rations:
  1. (gold price / oil price) spot ratio
  2. 60 days Moving Average (MA) of the Gold / Oil Ratio

To read the prospectus, please click here.
Source: RHB Investment Management

Related Posts:

New Fund: AmAustralia Fund

Looking good on Australia, AmMutual is launching a new fund to capture the potential of Australia. The fund seeks to provide income and long-term capital growth by investing in Australian equities and Australian dollar fixed income securities.
Note: The fund's main focus is on income and to a lesser extent, capital growth.

"Australia's economy is resilient and has posted an impressive positive gross domestic product growth over the last 18 years, even outperforming all other advanced economies during the global financial crisis," said Datin Maznah Mahbob, CEO of Funds Management Division, AmInvestment Bank Group. (Business Times)

Investment Strategy
The fund generally maintains equity exposures within a range of 50% to 100% of the fund's NAV. Then, the balance may be invested in Australian dollar fixed income securities and liquid assets. 
It will derive its income primarily through investments in relatively higher paying dividend stocks and bonds. However, it may also invest in growth stocks to participate in an actual or anticipated stock market rally.

As such, Credit Suisse AG, Singapore Branch has been appointed as the Sub-Investment Manager to manage the fund's Australian portfolio.

Process & Selection of Equity
Process & Selection of Fixed Income Securities

Investor's Profile
  1. Income and Long-term capital growth on their investments,
  2. Long-term investment horizon,
  3. Participation in the upside potential of Australia
Key Data of the fund

Source: AmMutual

Tuesday, 15 March 2011

Japan Will Get Through This

Don't count out the Japanese. They will get through this current crisis and find a way to deal with their difficulties.

The radiation leakage will likely be localized. The lingering problem will be energy shortages for the Japanese economy and for the needs of Japanese families. The market reaction in Tokyo is much overdone. The real financial problem in Japan is Japan's sovereign debt and Japan's unreasonable commitments to old age pensions and medical care. Sound familiar? The demographics are not helpful -- Japan is an aging and declining population -- but that is a problem that most of the developed world faces.

The earthquake is not good news, but it is by no means as catastrophic for Japan as much of the media assumes. The sell-off in American stocks, more muted, is more reasonable than the 15 percent decline in the Japanese market during the first two days of this week.

The media is not helpful in this crisis, which is usually the case in crises of any description.

Post-Japan Disaster: After Timber, it's Glove Sector?

As per our previous posts (How Should Investors trade after the Japanese Disaster?), we wrote about timber counters, and it's proven the right sector investors should look at. And, below is the performance of those mentioned counters.

All of them outperformed KLCI, which recorded -2.20%. Why WTK outperformed its peers? Simple answer is its cheaper share price and better liquidity. In fact, TaAnn and WTK is the main focus because they export 80-90% of their products to Japan. This puts them in the limelight of stocks investors should look at for the moment.

Why should you look at Glove sector next?
After timber, glove sector should outperformed the generally weak market sentiment. Investors are scared. Those who already bought was stuck-in there. Those who already sold was staying sidelined. And, those who dare to buy now is focusing on timber stocks only - and today glove.

Main reasons were:
  1. Demand for medical glove is expected to increase substantially. After the disaster, Japan should be facing another problem - outbreak of diseases. Because of the wet and dirty condition after tsunami, diseases tends to spread easily and this could intensify the demand for gloves being used by medical personnel and public in general.
  2. Stronger USD. One of the setback for our glove makers is weakening of USD which could harm the export market to US. Post-Japan disaster, USD was expected to strengthen in line with "flight to safety" strategy employed by global investors. This is an advantage, or in fact, the turning point for our glove makers.

With these two important factors, glove sector should be on investors' radar in the near future. Indeed, you do not have much choice in this kind of market where everything seems going down hill. Either you stay sidelined, or brace the storm to invest in these counters. And, my personal stock-picks would be Supermax due to its attractive valuation and good liquidity.

Finance Malaysia urged all Japanese to stay strong, and we will support you from afar. We are living in the same planet. We are 1 actually.

Sunday, 13 March 2011

How should investors trade after the Japanese Disaster?

Special edition from Japanese Earthquake on 11/03/2011 (black Friday?).

Duped as Japan's deadliest disaster in more than a century, 10m high tsunami crushing on the coast line, and yet to be confirmed - world's worst nuclear disaster in 25 years. I'm sitting in front of computer screen, reading the news while monitoring the share market that Friday. The more I read, my heart is bumping faster, and the share market is going downhill.

Modified Tsunami picture

In fact, KL is raining for whole day, signaling the bad situations would appeared somewhere, and it materialized in Japan shortly. In the morning session, KL market is rather quite. I asked myself: "Today, traders are still in bed due to the favorable sleeping weather?".

To recap, below is the performances of major market on Friday.
What should investors do?
And, how should investors trade going forward?

Personally speaking, I don't think this is a good time to accumulate. We never know the bottom. Catching the falling knife is very dangerous, and it's not worth to take the risks. Let's gauge it with the previous major earthquake in Japan, the 1995 Kobe temblor. According to Macquarie Group Ltd, Japanese stocks fell 8% in the week after Kobe temblor.

Meaning, with 1.72% down on last Friday,  there is another 6.28% to go. But, the aftermath is more serious this round, thus, at least 10% slump is justifiable. Japanese yen strengthen considerably on Friday, as investors pull money out from share market and into government bonds or money market.

Sorry to say that the Japanese outlook is very bleak currently. Being the world's most indebted country, and with a negative growth in 4Q2010, Japan needs time to rebuild and time to restore investors' confidence.

Malaysia timber companies to do well?
However, timber companies should do well in the expense of Japan's disaster. Stocks to watch is Ta Ann, WTK and Jaya Tiasa. Japan is the single most important market for local timber companies. As such, the main catalyst for timber sector now is the reconstruction of affected area in Japan in the coming months.


Thursday, 10 March 2011

What is Statutory Reserve Requirement (SRR)?

Everyone is buzzing about SRR lately, since Bank Negara Malaysia's statement which stated its intention to raise SRR in the near future. Actually, what is SRR? And, what is the effect of higher SRR imposed? Why BNM using SRR right now? Finance Malaysia hopes to clear everyone's doubt and would appreciate if you can share this out.

What is SRR?
Statury Reserve Requirement is a monetary policy instrument available to Bank Negara Malaysia (BNM) for the purposes of liquidity management. Effectively, banking institutions namely commercial banks, merchant/investment banks and Islamic banks are required to maintain balances in their Statutory Reserve Accounts (SRA) equivalent to a certain proportion of their eligible liabilities (EL), this proportion being the SRR rate.

Why BNM uses the SRR as its "tool"?
Since SRR is available to BNM to manage liquidity and hence credit creation in the banking system, it was used to withdraw or inject liquidity when the excess or lack of liquidity in the banking system is perceived to be large and long-term in nature. Currently, BNM believes that our banking system is lack of liquidity, thus it may raised the SRR to "store" more money in banks.

Effective 1 March 2009, the SRR rate for banking institutions is 1% of EL. As of 1st September 2007, the EL base consists of ringgit denominated deposits and non-deposit liabilities, net of interbank assets and placements with BNM.

Previous adjustments to the SRR rate
What is the effect of higher SRR?
As explained above, higher SRR means that banks in Malaysia will have to keep more money as their reserve. This translates into lower loans growth for banks. Normally, banks wiould imposed stricter loan approvals for borrowers, because less funds are available for lending.

Normally, higher SRR translates into lower profit growth for banks. Banking stocks are the hardest hit. But, raising the SRR from a record low of 1% is unlikely to have any significant impact on credit growth. Finance Malaysia see this as an opportunity to accumulates banking stocks if they are battered down because of higher SRR.

Source: OSK Research

Source: OSK Research

Source: OSK Research

Source: OSK Research

Source: Bank Negara Malaysia

Related Posts:

My First Home Scheme: Home of Trouble Ahead?

Once again, to address the affordability issues of properties, MyFirst Home Scheme (My1st) was launched by government on 8th March 2011. Thanks for addressing the problem faced by young Malaysians working adults. But, does it really worth to even think about the scheme?

Of course, owning a house at young age is a good start to family planning. In fact, we're living in a society where buying a new house tights closely to starting a family. But, this is not necessary a MUST to everyone of us. We must do proper planning before committing for such a long-term loan with such huge amount. Buying a house is not buying an iPad or iPhone.

Only apartments are likely with less than RM220,000 price tags in Klang Valley now
Highlights of My First Home Scheme...
  • For those earning less than RM3,000 monthly
  • Working in private sector
  • Confirmed employees with a minimum of 6 months in the job
  • Joint applications are allowed (both in private sector and are family members)
  • 100% loan financing for first house purchasing
  • Eligible houses: Between RM100,000 and RM220,000
  • Both under construction or completed properties
  • Repayment period of up to 30 years
  • Monthly loan repayment must be < 1/3 of applicants' monthly gross income
  • 25 participating banks / financial institutions
Burning questions to participating banks...

  1. Does the participating banks offering the same rate as currently practiced?
  2. Does the banks really allocate sufficient funds for such loan?
  3. Would the bank perform stricter credit checks since many borrowers are young and categorized as higher risk group?
Burning questions to borrowers...
  1. Are there any houses out there you still think that is not overvalue? Still berbaloi?
  2. Assumed that you found one, does it fit into your desired picture? Safe surrounding?
  3. Assumed that you also found one, are you quick enough to snap it?
"Trouble Ahead"?
Assuming that loan rates as BLR-2.2% (BLR currently is 6.30%) and a 100% loan amount of RM220,000, the monthly loan repayment is RM1,063. If an eligible guy take the loan with maximum salary of RM3,000 allowed, the take home pay after EPF deduction was RM2,670 only. This translates into 40% of net income!

Example calculations of monthly loan repayment

Do not forget the legal fees, stamp duty, fire insurance, MRTA, cukai pintu, cukai tanah and renovations fees! I think most of our fresh graduates will buy a new car first. Assuming that the car loan installment is RM500 monthly, this would add up to 58% of net income!
To make trouble bigger, please take note of the changing interest rate environment, which means the BLR would possibly revised upward in the future. Then, your loan repayment will be adjusted higher accordingly. Can you afford your loan repayment then?

Related posts: