Wednesday, 29 June 2011

MSM: So Far So SWEET (30th June 2011)

New Bursa Malaysia comer, MSM is the leading sugar producer in Malaysia, with a total market share of 57% in 2010 (based on production volume). It is one of two sugar refiners in the country, the other being Tradewinds (M) Bhd. Following its listing, MSM will be the only directly listed sugar refiner in Malaysia.

It has two sugar refineries in Prai, Penang and Chuping, Perlis with production capacity of 1.11m tonnes per year, as well as the only sugar cane plantation and mill in Malaysia. MSM’s sugar cane plantation is 4,454 ha in size, while its sugar mill has a capacity of 5,500 tonnes/day.

No wonder MSM had gained 26% on its debut, albeit profit taking the following day. Yet, many investors are pouring their interest in this counter maybe for the following reasons:

  1. A potential beneficiary of a free market for sugar soon – in view of the Government’s moves to reduce subsidies for sugar over the last year and a half;
  2. Beneficiary of the Government’s long-term contract for raw sugar – given that raw sugar comprises 80% of its production costs;
  3. Beneficiary of weakening US$ - given that MSM imports 98% of its raw sugar requirements;
  4. Focusing more on export markets to grow margins and profitability - given that margins in the domestic market are relatively stable due to the price ceiling in place; and
  5. 36% growth in capacity within the next five years to cater for export opportunities given the widening spread between raw and refined sugar prices.

OSK Research

MSM produces various products including fine granulated white sugar, coarse granulated white sugar, coarse brown sugar, soft brown sugar, icing sugar, caster sugar, super fine white sugar and molasses. White sugar comprises the majority of its sales volume. MSM’s sugar is sold under the brands of “Gula Prai” and “Gula Perlis”. MSM breaks down its sales into four categories:
  1. Domestic – which comprise sales to the domestic market and which is entitled to a subsidy from the government;
  2. Local export – which comprises sales to domestic industrial customers, who use the sugar to manufacture products for export;
  3. Export – which comprise sales to export markets like Singapore, Australia, New Zealand and Pakistan and are made via traders; and
  4. Other – which is made up entirely of sales of molasses.
Valuations and Fair Value
OSK Research: We peg MSMM to 13.0x FY11 EPS, which gives us a fair value of RM5.16. We are basing our valuation on 3 other non-government linked sugar refining companies with similar FY10 net profit and refined sugar production capacity. However, we think that MSMM should trade at a premium to its peer average PE of 11.7x given its link to Felda Group, which confers it the benefits that come with having a GLC as a majority shareholder. MSMM plans to pay out at least 50% of its earnings as dividend. Assuming a 50% dividend payout ratio, the stock offers dividend yields of 5.9% and 6.1% for FY11 and FY12 respectively.
Regional Peers Comparison - OSK Research
RHB Research: For valuation purposes, we have compared MSM to its regional listed peers. In our view, although Tradewinds is the only other sugar refiner in the country, we believe MSM is not directly comparable to Tradewinds, given that Tradewinds’ business comprises sugar, rice and palm oil. Based on our analysis, MSM’s regional peers are trading at an average PER of 11.6x FY11 and 10.6x FY12. As such, we attribute a target PER of 11x FY12 to MSM’s earnings, in between its regional peers’ valuations for FY11 and FY12, and obtain a fair value of RM4.90. This implies a 40% upside from the IPO price of RM3.50/share. At our fair value of RM4.90, investors would also benefit from a dividend yield of 4-5% p.a.

Source: OSK Research and RHB Research

Tuesday, 28 June 2011

New Fund: OSK-UOB Capital Protected Dual Opportunities Fund

While inflation fears in China is a dominant factor, signs that China's growth is holding up well despite this concern will certainly fuel further growth. Traditionally in China, a higher inflation tends to exhibit a positive correlation with Chinese companies price-earnings ratios and nominal earnings growth. Having said that, the consensus view is that the government will raise borrowing costs to contain inflation and prevent the economy from overheating.
With such growth euphoria and inflationary concern, a new fund is structured to take advantage of the current inflationary economy in China. This is a 4-year close-ended capital protected* fund which aims to provide income and capital appreciation over the medium term whilst protecting investors’ capital* on the Maturity Date.

Where is the Fund's return comes from?

The Hong Kong (HK) Option is designed to provide investors with potential annual coupon payments that are based on the performance of Chinese companies’ stocks and potential returns from its exposure to a gold investment at Maturity Date. Hence, the Fund’s name “Dual Opportunities” reflects the two opportunities available under the HK Option.

The HK Option is denominated in US Dollars and thus, the Fund’s return from the HK Option is subject to US Dollars / Ringgit Malaysia exchange rate risk. The Fund has 100% participation in the HK Option payout. The HK Option will provide the Fund with exposure to the performance of a fixed basket of 5 Chinese companies’ stocks listed on the Hong Kong Stock Exchange (“Underlying”).

However, the performance of each of these stocks under the HK Option is capped at 8% per annum. The final Underlying which will always be comprised of 5 stocks will be determined on the Commencement Date of the Fund.

The HK Option will pay the Fund a potential annual coupon payment that is based on the performance of a basket of 5 Chinese companies’ stocks which are expected to perform during this inflationary period.

In addition to the performance of the Underlying, the HK Option is also structured to pay a gold return, if any, at the Maturity Date. The HK Option’s exposure to gold return would depend on the annual performance of the Underlying and also on the performance of gold prices between the Commencement Date and the Maturity Date.

Indicative Asset Allocation of the Fund

The Fund is suitable for investors who:
  • have a low risk tolerance;
  • seek capital protection;
  • have a positive outlook on China's growth potential;
  • have a positive outlook for gold prices;
  • have a medium term horizon and seek regular income.

Source: OSK-UOB Investment Management

Monday, 27 June 2011

Fat Chance

Greek Foreign Minister Papandreou is out selling the new austerity package to his Parliament. He wonders why Greeks are rioting in the streets. How would you like to see your taxes go up $ 4,000 per year next year? That's what a typical family of four in Greece will face under the proposed austerity plan, according to calculations by a Greek newspaper, To Vima.

That is only the beginning. This austerity plan is merely a small down payment on a massive effort to stem the huge budget deficit. There is no hope of a budget surplus. This plan is intended to slow the growth of debt, not reduce it. Reducing debt would require far, far larger sacrifices.

Papandreou assumes that citizens that have been told for generations that they are entitled to early retirement, free health care, free education...essentially free everything..will now pony up to pay for all of this free stuff. I have my doubts.

No way Greece will implement this plan. No way. The Parliament may pass the plan, but it will not be enforced or implemented in what is arguably the most corrupt government within the European Union.

Sunday, 26 June 2011

How to prevent Credit Card fraud?

Nowadays, people are using "Plastic Cash" (credit card) to shop and pay for almost everything. With the ease of payment, comes with the ease of fraud. As a wise consumer, we should know how to prevent credit card fraud, thus safeguarding our "plastic money".

Credit card fraud is a serious crime which can cost you and credit card issuers huge losses. Credit card issuers have taken security measures to protect you against such possible frauds. However, you can also take the proper safety measures to avoid from being a victim of fraud.

Here’s what you can do to minimize your risk of being a victim of card fraud:

Safeguard your credit card
  • Sign on your credit card immediately after you received it.
  • Keep your credit card in the same place in your wallet or purse so that you will notice it immediately if it is lost or stolen.
  • Do not lend your credit card to anyone.
  • Do not provide your credit card details to an unknown party.
  • Do not write down your PIN number on the back of your credit card or keep it in your wallet. Always memorize your PIN number instead.
  • Keep the telephone number of your credit card issuer so that you can immediately report lost or stolen cards, unauthorized transaction or disclosure of PIN to a third party.
  • Cut your expired credit cards into two when you get a new one.

Check your credit card transactions to avoid unauthorized transactions
  • Check all details on the charge slip before signing or confirming the transaction.
  • Keep all your charge slips and check it against your credit card statement as soon as you receive it.
  • Notify your credit card issuer immediately of any error or possible unauthorized transactions and follow up in writing as soon as possible.
  • Destroy all your charge slips before throwing them away.
Source: Banking Info

Call Biden's Bluff

There is no time like the present to bring an end to the massive US fiscal deficits. Congress should vote a resounding "no" to an increase in the debt limit. Force the issue. It is the only way any progress will ever take place. It gets no easier later. Now is the time as Senator Obama pointed out five years ago, when he voted, as a senator, not to increase the debt limit. He was right then, he is wrong now.

For example, moving the age limits on social security saves a lot more money if you do it now, than if you do it one year from now or five years from now. Why wait until all of the baby boomers have retired and the problem is a multiple of what it is today. Do it now!

This is the time. This is the place. Folks like Senator Warner of Virginia claim to be moderates, but their voting record is to the left of Barney Frank. They are preaching that if we don't raise the debt ceiling, there will be catastrophe. Thanks to senators like Warner there has been an ever escalating deficit. He knows that he won't be there when the ultimate catastrophe comes. All Warner wants is the ability to waste more taxpayer dollars and postpone dealing with the problem, so that he can get re-elected. That's why he wants a "clean" debt ceiling increase bill.

Congress should call Biden's bluff. A poll taken in the last few days shows that the public favors a "no" vote on raising the debt ceiling by a margin of 41-38. Every Congressman who votes to increase the debt ceiling should lose his seat -- Democrat or Republican.

Friday, 24 June 2011

Leave the Oil Market Alone

Obama's decision to release oil from America's strategic reserve is another bone-headed, political decision designed to rescue his collapsing state in the polls. It is bizarre that a President who claims to support alternatives to fossil fuel energy objects to the rising price of fossil fuel energy. There really is no other way to stimulate alternative energy than to let prices of fossil fuel energy rise and let the market produce alternatives. There simply is no other way.

This is truly an administration that believes government can work wonders. The only wonder is why they believe that. The sobering facts of what has happened to the economy under this administration is a compelling testament to the failure of government to create jobs and improve economic performance. Now, these folks think they can solve energy problems by lowering the price of fossil fuels. You wonder if anyone in this administration knows anything about economics.

This is Why Politics Has a Bad Name

Are they kidding? Merkel and Sarcozy. Is Greece really going to accept economic devastation for at least a generation to pay back German and French bankers? Is there anyone out there who thinks this is really going to happen?

There is no way Greek citizens will agree to this. It is not politically possible. The Greek Parliament may pass whatever legislation that it feels like passing, but enforcement will not take place. There are few governments or countries in the world where corruption and tax evasion is as rampant as Greece. This is always the outcome of of an ever burgeoning government.

European Union officials believe, as Obama believes, that raising tax rates will generate revenues. In fact, raising tax rates last year in Greece led to a substantial decline in tax revenues.

What is happening in Europe is typical of modern politics both in Europe and in the US. Pretend politics. There are few, if any, statesmen in Europe who are behaving rationally these days. Remember the Treaty of Versailles? How did that work out for you?

Thursday, 23 June 2011

Why Maybank and CIMB gave up on RHBCap? (23 June 2011)

Merely less than one month of battle (not even pulling off the gun), both Maybank and CIMB today respectively announcing to abort the merger talks with RHBCap. Funny oh? First, the news of aborting was first reported by a Singapore newspaper, not Malaysia, and why not Malaysia? Second, both contenders had set end of June's proposals, announced just only last week. So fast change mind?

Both CIMB and Maybank are turning their heads away from RHB now.
Of course, between the dates, Abu Dhabi Commercial Bank (ADCB) made a significant headline when it sells its 25% stake in RHBCap to its sister company, Aabar Investment, for RM10.80 per share, which value RHBCap at 2.25 times RHBCap book value. Does this really affecting the merger talks?

What CIMB says?

In a statement Thursday, June 23, CIMB group chief executive Datuk Seri Nazir Razak said that based on its discussions and assessment of the present expectations of key stakeholders, the bank did not believe that it would be able to arrive at a value creating merger.

“Merger negotiations are both resource consuming and distracting for staff and stakeholders.

"Therefore, we prefer not to prolong our discussions unnecessarily, allowing all parties to return to ‘business as usual’ as soon as possible,” he said. (TheEdge)

What Maybank says?
“In light of recent developments and following further deliberations, the board of directors of Maybank has decided not to pursue the possible merger at this juncture,” Maybank said on Thursday, June 23. (TheEdge)

Who knows? RHB's investors should sell their holdings above RM10 previously.
What Finance Malaysia says?
"The merger talks most probably is still on-going, but behind the board room. ADCB's RM10.80 did set a hindrance for both parties to proceed with the merger talks, in order to convince other shareholders."

"Other than that, EPF's role is crucial for all parties to consider now. Sooner or later, EPF must divest its stake to below 20%. By then only can EPF remove itself from the day-to-day operations of RHB Bank. Remember, EPF's role was supposed to invest, not managing a company."

"Thirdly, Maybank and CIMB may think that the merger talks would takes a long time to consider, and it may affects the day-to-day operations of RHB Bank. Just like EONCap, many of their staffs are turning to other banks while Hong Leong Bank is launching and fighting its merger plans."

Tuesday, 21 June 2011

New IPO: Eversendai

En-route to Main Board of Bursa Malaysia on 1st July 2011, Eversendai Corp is a structural steel specialist with operations predominantly in the Middle East, Malaysia and India. Currently, the company is bidding for RM1.5 billion worth of infrastructure, high-rise building and power plant projects in Southeast Asia, India and Middle East after being invited by public and private sectors.

Its outstanding construction order book stood at RM1.4 billion as at 16th May 2011, while owning 4 fabrication plants in Malaysia and Middle East with a combined annual capacity of 119,000 tonnes.

What is so attractive about Eversendai?

According to RHB Research, Eversendai's key appeal to investors lies in:
  1. It being a rare "outside-looking-in" home-grown construction company that has excelled in the international market, particularly, the Middle East, based on its own strength, practically almost indifferent to the local construction cycle;
  2. The recognition by key international contractors as a highly reliable structural steel contractor from past assignments puts Eversendai in a sweet spot in the sense that it is often named the structural steel subcontractor by most international contractors participating in the same international tenders;
  3. Its strong market position in UAE and Qatar by virtue of its 26.5% market share in terms of fabrication capacity; and
  4. Its good earnings visibility underpinned by RM1.4 billion outstanding order book and strong likelihood of securing about another RM1 billion worth of new jobs by end of the year.
Eversendai's expertise in power plant was gained from the construction of the Tanjung Bin, Manjung and Jimah power plants several years ago. In India, it has 4 on-going power plant projects.
Source: Business Times
Source: RHB Research
Maybank Investment Bank Bhd is the sole adviser, underwriter and book runner for the IPO. Meanwhile, RHB Research is projecting the earning per share (EPS) of Eversendai to grow by 15.1% and 12% in FY12/12-13, assuming it is to secure RM1.4bn, RM1.5bn, and RM1.6bn worth of new contracts in FY12/11-13. As such, it arrived at an indicative fair value of RM2.27 for Eversendai based on 14x FY12/12 EPS.

If that is true, there is a 33% upside from the RM1.70 IPO price. Would it be a good BUY?

Eversendai final retail price fixed at RM1.62 per share, while institutional price at RM1.70.

Sell The Rally

"Stocks up on news of a Greece settlement," read this morning headlines. Stocks are cheap, no doubt. But, stocks are cheap for a reason. Economic policy in the US threatens to push the economy into a second recession and Europe is turning a small problem into a potential financial conflagration. This rally is going nowhere. Sell it and wait for more rational times (or even cheaper stock prices).

Monday, 20 June 2011

From Molehill to Mountain

Greece is a small country with an estimated 11.3 million in population. It's total GDP was about $ 320 billion in 2010. So, why all the hubub. Why can't Greece default on its nearly $ 400 billion national debt? It is not going to be able to pay it and it's debt is growing currently at nearly $ 50 billion annually. With these numbers, why are France and Germany so intent on stepping in and turning a molehill into a mountain.

Politicians are obsessed with fixing things and so long as disaster is unlikely on their watch, they proceed. Obama doesn't have to worry. The US is not likely to go bankrupt within the next four years. Within the next ten years, that's a different story. But, he won't be there then, so what does he care?

Sarcozy and Merkel are obsessed with the same mindset. They don't want disaster on their watch. So, kick the can down the road and set the stage for a far bigger disaster on the next guy's watch. Such statesmanship!

Democracy is a tough game (for the electorate). It is easy to promise and hard to deliver. But you can get elected on a promise and by the time folks find out that you didn't deliver, you've bought your own island somewhere and what do you care. That is the kind of cynicism that permeates the folks who think government can solve all problems. They are not there when disaster strikes.

So, the European Union pushes the car closer to the cliff's edge, thinking it is doing something worthwhile. Only the car is now a bus and has many more passengers and the size of the bus and the number of passengers are growing every day. It is obvious that the bus is headed over the cliff. The only thing we don't know is how big the bus will be when it goes over and how many passengers are going to go with it.

The Plight of Papandreou

Why is Papandreou, Greece's prime minister, struggling to convince the Greek public to cut spending and raise taxes? At the moment, Greece is spending 25 percent more than their tax revenues, which means their national debt is continuing it's upward spiral. There has been no progress since the last year's bailout. No, indeed. Things have gotten much, much worse for Greece's finances, not better.

The problem for George Papandreou is the political rhetoric of the past half century. Politicians like Papandreou and his economist (sic) father Andreas Papandreou have, for several generations, preached to the Greek population that they could have it all -- free health care, free education, free everything, plus early retirement with a fat pension. Everything is free in the wonderful Papandreou state. Nothing need be paid for. That's what Papandreou and his father have been telling Greeks for the past fifty years.

Guess what? They lied. Providing all manner of free and inexpensive stuff to folks doesn't work unless there is someone out there who is willing to fund all of this. The fact is, in the long run, there is no one willing to fund the Greeks in the style to which the Papandreous wished them to become accustomed. The Papandreous were frauds and now the Greeks and other Europeans are angry, confused and rioting. Who wouldn't be angry and confused?

Papandreou deserves his current fate. He helped to create the problem and cheerlead the fraud that led to the current problems in Europe. Why Obama is choosing to follow this path is a great mystery.

Sunday, 19 June 2011

Betwixt and Between

What accounts for the fact that Obama is in trouble with both the left and the right and the middle appears to be defecting as well? Isn't anyone happy with Obama?

The problem for Obama, as well as for Europe, is simply a case of affordability. We've run out of chips, as has Europe. Who is to fund all the largesse that the left dreams about? The answer -- no one.

Unfortunately, much of the citizenry of the western world now believes that things like old age pensions, health care, education, jobs, etc. are rights to be guaranteed by the government. But, who pays?

Taxing the rich and selling bonds only takes you so far. 100 percent tax rates aren't likely to raise much revenue. Bondholders like to get their money back. They won't get it back if they loan it to western nations. Bond holders are learning this now at a rate that alarms western politicians. Western politicians are already beginning to blame bond holders for their greed in demanding that they get repaid. What terrible people? Wanting to get their money repaid?

This is all silly. It is merely a question of numbers. There is no way to make this work. You could resort to compulsion (i.e. dictatorship) to level the economic status of your populace. Some form of government such as the kind that the infamous Soviet Union imposed on its people. That kind of political outcome produced poverty and stability, but at least there were no rich folks. Or were there?

If all you want is to eliminate rich people, that is relatively easy to do. If you want your average citizen to prosper, then that is an entirely different proposition. Giving people opportunity, minimizing the reach of government, and providing a rule of law are the best prescriptive tools to economic prosperity for any nation. Unfortunately, the US and the West have been busy for several decades dismantling the very things that created prosperity in the West in the first place.

Asia is not so foolish. So far, their leaders have not promised the impossible. They have problems, no doubt, but they have created nothing like the absurd expectations of the average citizen in Greece. The US and the West are in the middle stages of removing themselves from world leadership, both political and economic.

Obama now realizes, I would suppose, that his policies don't really work. I doubt that he would say this out loud. But, really? 9.1 percent unemployment at this point in the recovery. 1.8 percent economic growth? These numbers are unprecedented for an economic recovery. Failure is only a word, but it aptly describes the economic reality of Obama policies.

So, what can Obama do? Not much. He has tried his full panoply of liberal schemes and they have simply made things far, far worse. Even the most leftist citizen still would like a job. That's the hard cold fact that the Obama folks don't seem to get.

Meanwhile, Obama continues to lecture the rest of the world about how to run their affairs. Fortunately, no one listens. Obama has badly damaged the American economy and its future. He is now essentially an irrelevant force, other than presiding over the wreckage that his policies have created.

Perhaps, playing golf is the only thing left for this president.

Saturday, 18 June 2011

How to select a Medical Plan?

While celebrating Father's day, I have a meaningful story to share with you. I visited a hospital in KL recently and to my surprise, I came across a little boy who was diagnosed with leukemia. More surprising, his age was only 8 years old. Oh my god, this little boy doesn't even know what leukemia was, and he had to suffer from such a young age!!! Through these torturing times, I believe his father's love is what he needed the most. God bless him.

Do you know that almost 9/100 Malaysians aged above 35 suffer from diabetes?
Do you know that over 1/5 are expected to get cancer in their lifetime?
The fact is, because of the stressful and unhealthy way of life today, lifestyle diseases are on the rise. Do you have any real example from your own little circle?

We can, however, spare our self and our loved ones a lot of anxiety with comprehensive medical plans, which provide a financial cushion in times of need. Although these plans cannot prevent illnesses, it can help us to go through those rough times - financially.

Most Malaysians are unprepared for the rising cost of medical care

It was a fact. The Government spent a huge proportion of the public's bill with health expenditure which runs into billions of ringgit yearly. Luckily, more and more people are aware of the importance of insurance. I know you do, right? Insurance not only makes healthcare affordable, but also offers access to better and more timely medical attention at private and public institutions.

If you have medical insurance, you have the option to selected the hospital of your choice to enroll in. If not, you can only surrender yourself to government hospital. With a plan in hand, you have the peace of mind to focus on recovery. Do you want yourself worrying on medical bills while laying on the bed?

Things to take note of on Medical plan:
  • Is it Guaranteed Renewable?
  • How much is the Room & Board rate allowable?
  • Any co-insurance / co-payment? How was it calculated? If any, are there any maximum limit for your part?
  • What is the annual limit and lifetime limit?
  • Renewable until what age? 70 or 80 or 100 years old?
  • Lastly, ensuring that the above answers were written clearly on the quotation or policy. Please DO NOT trust the words spoken by insurance agent. See for yourself to prove it.
Basically, all of the medical plans offered in Malaysia have annual limit. However, some insurer may waive the annual limit, subject to certain condition or with a rider. With an additional rider, it commensurate with a higher premium. There is pros and cons to this. And, you should be able to justify the increase charges just to waive the annual limit. If the extra premium is high, you may consider taking up a higher annual limit medical plan, or buying another standalone medical card to supplement it.

Boeing and Obama

The Obama NLRB has intervened in Boeing's business decision to locate a plant in South Carolina. Why? South Carolina is a "right-to-work" state, meaning that South Carolina law doesn't force unwilling employees to join a union that they don't want to join. Freedom is a crime, according to the NLRB. Thus, an ordinary business decision is now a subject of litigation.

No doubt, other countries would be happy to provide a site for the plant that the NLRB doesn't want to see located in South Carolina. In effect, the NLRB is pushing American companies to outsource major sections of their business, unless they are willing to unionize their work force. So much for freedom.

You begin to wonder if this is part of a grander plan. Force the US economy to its knees by foolishness like the Boeing decision and push American jobs to foreign countries and foreign workers. Meanwhile, do everything possible to restrict free trade in products -- e.g. the Obama Administration's refusal to push the Columbia trade agreement to the finish line. Maybe this Administration really doesn't want the US economy to recover.

I have always thought the Obama economic policies resulted simply from stupidity, but the Boeing decision is so damaging to job creation (other businesses are watching) and such a government grab for power and influence over business, that it makes you wonder what the real end game is for the Obama Administration?

Friday, 17 June 2011

Why Not Cut Your Exposure?

The markets are rife with concerns that European banks and American banks will lose a lot of money if Greece defaults. So, why don't the banks simply sell their Greek sovereign debt holdings and avoid any further exposure? After all, post-2008, the banking systems in the US and Europe have been subject to new regulations and are marking their portfolios to market. Right? Wrong!

As usual, regulation doesn't work. If European and American banks sell their Greek debt assets, they will take huge losses precisely because they are not marking these assets to market as everyone assumes. The regulators are letting these banks carry all of this bad debt at par and their balance sheets incorrectly show assets at highly inflated values. So much for financial reform!

It's the same old story. Everyone assumes that bank regulation works. The fact is that it doesn't work. Just when you need heads up banking regulation, what you get is a wink and a nod and political interference. That is what is going on right now.

What would have been a minor problem -- a Greek default two years ago -- is being elevated into a major problem that will ultimately undermine the financial stability of Europe and the US.

Financial regulation doesn't work. Regulators are not the answer. Dodd-Frank legislation is a sham and is simply a hindrance to a serious economic recovery. Let the markets work. Let those who buy bad debt take their losses without involving taxpayers in the process.

We are in serious danger of replaying the fall of 2008 by more foolish government policy regarding the debt markets.

Thursday, 16 June 2011

Is This News?

There is a growing realization by world financial markets that Greece is not going to make it without some kind of default (partial or complete). Is this really a surprise? Is Obama serious that US taxpayers should step in and finance profligate Greek spending behavior? How absurd is the Obama economics going to get?

The Greeks expect the rest of Europe (and now, according to Obama, the US) to fund their extravagant lifestyle. Why? What greater good is served by bailing out folks who have a corrupt political and economic system and no work ethic? Does that do some over-arching good somewhere?

There seems to be no end to the irrationality of Obama economic policy. Let the Greeks default. Is it really a surprise that they are on the brink of default? Ordinary Greeks are not interested in paying their own bills. Look at the riots in the streets. That tells you what the typical Greek citizen thinks. They are mad that the rest of Europe is not willing to fund them indefinitely.

So, where is the news in this? When will Europe (and Obama) wake up to the realities of economic life?

Wednesday, 15 June 2011

New Fund: AmASEAN Equity Fund

If Singapore and Malaysia market only is not enough to feed your appetite, then you may consider the whole ASEAN markets. ASEAN was being targeted by international investors again since the 1997 Asian financial crisis given its high growth rates and more stable economy.

AmASEAN equity fund seeks to provide capital growth over the medium-to-long term by investing 70% to 98% of the fund's NAV will be invested in a diversified portfolio of equities and equity-related securities which are Shariah Compliant, issued by companies listed in the ASEAN countries, and including securities listed in non-ASEAN countries but with their core business in the ASEAN markets.

Core business in this respect means the major business of the company, where majority of the company's revenue (at least 50%) is derived from the ASEAN countries. ASEAN member countries comprise of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Investment Criteria or Strategy:
  • Above average growth potential
  • Undervalued stocks relative to its earnings growth potential and/or its fair value
  • Combines top-down asset and sector allocation process with a bottom-up stock selection process
  • Active asset allocation strategy depending upon the equity market expectations
  • Stock selection based on improving fundamentals and growth at reasonable valuations
Source: AmMutual

Tuesday, 14 June 2011

New Fund: Public Singapore Equity Fund

Singapore is into a new era now after opening its door to casinos, which attracted massive foreign direct investments. The small little island poised to grow further boosted by various industry, not only gaming.

"The fund enables investors to participate in the growth prospects of Singapore's resilient economy and attractive valuations. Investors can ride on the potential upside of the Singapore dollar over time," said CEO Yeoh Kim Hong.

About the fund

The fund seeks to achieve capital growth over the medium-to-long term mainly by investing in Singapore stocks, though it may invest up to 30% of its NAV in global markets. As such, the fund will invest in a diversified portfolio of blue chips, index stocks and growth stocks.

"The fund would focus on sectors with resilient growth prospects such as banking and finance, properties and real estate investment trusts, consumer, offshore and marine engineering groups, services and commodity sectors," added the CEO.

Investments that may also included:
  • Listed warrants and options to enhance its returns
  • Unlisted equities with attractive potential returns, particularly in companies that are expected to seek listing on the Singapore, domestic and global markets within a time frame of two years
  • Collective investment schemes with similar investment objectives in the Singapore, domestic and global markets
  • Domestic and foreign fixed income securities such as sovereign bonds, corporate debt and money market instruments to help generate returns

Source: Public Mutual

Saturday, 11 June 2011

Double Dip -- A Real Possibility

Could the economy be headed for a second recession? Two months ago, the possibility of a second leg down seemed unlikely. Now, I'm not so sure. Amity Schlaes "The Forgotten Man" chronicles the double and triple dips of the 1930s Great Depression in the US. There are startling parallels between the depression era and our current malaise. And some storms clouds of the modern era were not present in those bygone days.

The main parallels are: 1) massive government intervention in the economy; 2) a mountain of new regulations on private sector economic activity and fear of new and unknown regulations yet to be announced; 3) fear of major new tax increases on wealth holders (I.e. "tax the rich"). These concerns prevented any sustained economic recovery in the twelve year span from 1929 until 1941, at which time many of these burdens were eased to allow for a major wartime production effort.

History may be about to repeat itself.

The problems in housing, where government action has been pernicious, suggest the long awaited bottom in the housing market is going to continue to be awaited. Jamie Dimon of J P Morgan spoke eloquently this week, in his exchange with Fed Chairman Bernanke, of the inhibiting influence of Dodd-Frank and other Obama-driven legislation that takes a sledgehammer to the commercial and mortgage lending capabilities of the country. Obama and his Congressional and labor union allies seem to want to push US tax rates to unprecedented levels. Meanwhile successful businesses are reviled and ordinary business mistakes are viewed as criminal activities by the White House.

So, why should businesses expand and hire employees given this backdrop?

Adding to all of this is the collapse of the Great European Experiment. Europe decided decades ago that their citizens could have it all-- light work loads, lavish health and old age benefits, employment without fear of termination! What a brave new world this was! Europe was all the rage. This worked as long as bondholders would provide the funding for this silly and foolish experiment. Guess what? The party is over. Europe is now front page news every day as European countries scramble to find new benefactors willing to bankroll their life of leisure. So this tragi-comedy is playing out alongside the other headwinds that face the world economy.

Finally, the Chinese economic engine is suddenly sputtering.

While nothing is ever certain about the economy, it now seems at least 50-50 that the US economy is headed for a second recession.

Friday, 10 June 2011

Oh my beloved PSD Graduates, where are You?

When writing this article, I am proud to say that I am a local graduate working locally and repaying my PTPTN loan monthly. Who said that graduates can't perform as best as others? Do we necessary needed to obtain hundreds of thousands of loans to study oversea? If I can survive here, why can't you?

Of course, I can't deny that some professional courses offered here are not competitive enough. That's why many professionals opt for oversea universities. By graduating oversea as a doctor or lawyer or engineer, it definitely costs you a hole in the pocket. Please bare in mind, it is not your pocket, but your parents' pocket. This is when Public Service Department (PSD) scholarship comes into the picture to fulfill Malaysia's dream to groom our talents, and your parents' dream too.

Why don't you come back?
Then, this question popped up. Yesterday, it was reported that 65% of PSD scholars did not return home. Surprised? And, most of them is doctor. Although there are thousands of reasons for them to not returning, I would like to stress one thing only here - responsibility. Yes, whatever you take is whatever you give. PSD gave you so much money, supporting your dream to be a successful Malaysians, realizing your parents' dream, is that the way you return the favors of Malaysia Government?

Practicing what you learn from the 1st day?

Even when we were young studying in Kindergarten, we taught to be a responsible person. And, you're professional now. Do you practiced what you have learn all these years? If you do not like the Malaysia's way, why you took up the PSD scholarship in the first place? Instead, you can take your parents hard earned money. Then, you can disappear yourself, and no one will bother about it.

However, if you took PSD scholarship and do not return back to service, this is considered as "investment loss" of Government. This is public money. Meaning every Malaysian can blame you. Even if you succeed in life, you're spiritually failed. Please be responsible to yourself, your family, and your country. Respond now!

Wednesday, 8 June 2011

New Fund: OSK-UOB US Legendary Fund

Failed to be Warren Buffett? How about exposing to the performance of his investment company, Berkshire Hathaway? Not a bad idea though.

The latest fund, launched by OSK-UOB, aims to provide capital appreciation over the short-term (18 months) whilst aiming to preserve investors' capital on the Maturity date. This is not a capital guaranteed or protected fund.

This is a wholesale fund which was structured to capitalize on the performance of Berkshire Hathaway Inc., such that the positive performance of the company and its out-performance against the Standard and Poor's 500 Index will provide the fund with returns during the recovery and rebuilding of the US economy.

The fund will invest 100% of its NAV in a non-capital protected RM denominated structured investment issued by a domestically incorporated financial institution with a rating of at least 'A' by RAM Rating Services Berhad or its equivalent rating by any other reputable rating agency.

The Structured Investment has embedded options (comprising the underlying reference i.e. the Berkshire Hathaway Inc-Class B shares and the S&P500 index) with a payoff determined only at Maturity Date.

About Berkshire Hathaway Inc. - Class B shares
Berkshire Hathaway Inc. is a holding company owning subsidiaries in a variety of business sectors. Berkshire's principal operations are insurance business conducted nationwide on a primary basis and worldwide on a reinsurance basis. Berkshire's other operations include The Buffalo News, aviation training, and retail furniture businesses, as well as shoe, candy and rug manufacturing.

Source: OSK-UOB Unit Trust Management Bhd

Bernanke is Bankrupt

Ben Bernanke's main concern in life is getting himself reappointed as Federal Reserve chairman. Nothing else really matters to Bernanke.

Yesterday, Jamie Dimon, CEO of JP Morgan Chase, questioned Bernanke on the effect of Dodd-Frank, Credit Card Reform, the new mortgage lending rules. It is worth noting that Jamie Dimon is a Democrat, contributed personally to the Obama presidential campaign in 2008, and has long spoken favorably about the president. Looks like he doesn't like the president's economic policies.

Dimon argued forcibly yesterday that Obama's economic policies, especially regulatory policies, are thwarting any real chance of a recovery. He's right. Bernanke, on the other hand, praised the so-called "reforms." This is the same Bernanke who was quoted in 2007: "..the sub-prime lending problems are contained." Bernanke stood by while the American economy bubbled and collapsed and he did nothing until it was far, far too late to do any good. Now, Bernanke's policies do harm.

Bernanke is a disgrace. He is the easily the worst Fed Chairman in US history, which is quite an accomplishment.

Tuesday, 7 June 2011

New Fund: RHB-GS US Equity Fund

Yet, another US fund is in town now. More and more new fund is focusing on the US market, given its relatively attractive valuations currently after the 2008 global financial crisis. If you want to invest in US market, you may consider this fund which is managed by the US "tai-ko" - Goldman Sachs.
The fund's objective is to seek to achieve long-term capital appreciation through investment in a collective investment scheme, which invests primarily in securities of United States of America companies. This a feeder fund, where 95% of the fund's NAV will feed into the Goldman Sachs US Equity Portfolio (Target Fund).

Information of the Target Fund
The Target Fund is a portfolio of Goldman Sachs Funds, a public limited company qualifying as an investment company organized with variable share capital, in which Goldman Sachs Asset Management International is the investment manager of the fund. The Target Fund is domiciled in Luxembourg and denominated in USD and regulated by Luxembourg Supervisory Authority.

Why is this fund different from other funds?
  1. The Best of both worlds. A portfolio that balances the best ideas of Growth and Value to provide US market exposure without style bias.
  2. A disciplined investment process. The Goldman Sach's Investment Committee constructs a US large cap portfolio thoroughly researched companies that exhibit quality characteristics and compelling valuations.
  3. A proven history. The portfolio draws on the best ideas of the US Growth and US Value Teams with proven track records going back 30 and 11 years, respectively.
Source: Prospectus
As at 31 March 2011 (Goldman Sachs Asset Management)
As at 31 March 2011 (Goldman Sachs Asset Management)

Source: RHB Investment Management

Obama on Greece

"...other countries are going to have to provide them a backstop and would be disastrous for us to see an uncontrolled spiral and default in Europe, because that could trigger a whole range of other events..." so said President Obama today while visiting with German Chancellor Angela Merkel.

Maybe Obama should take some notes here. The Greeks are interested in two things: 1) more bond sales backed by the Eurozone; 2) no austerity. Unfortunately, these two are incompatible and will not happen. German and French citizens are fed up with bankrolling the sick Greek economy and the absurd work ethic of most of the Greek citizenry. If "disastrous" is the right name, then it is on its way. Ultimately, no one has the resources to bail out Greece indefinitely.

Obama should look at the situation in his own country, which is on a path to the same outcome that lies ahead for Greece....bankruptcy.

NY Times Shows Its Ignorance Once More

Dig the New York Times story today about Walmart. According to the story by Lisa Lee, the Walton family has creeped over the 50 percent stock ownership line by arranging for the company to do stock buybacks. This article exposes, for all to see, the incompetence of the NY Times business team. Since when is 50% a significant goal line for "control" of a public company. Is there anyone out there who thinks that if the Walton family owned only 48.5 %, for example, that they would have some big difficulty lining up another 1.6 % of non-family members to exercise 50 % plus one voting majority?

Owning as little as 10 percent of a company is often sufficient to dominate the policy in most public corporations. The only practical difference between more than 50 percent and less than 50 percent that Lee can cite in her article is the fact that NYSE rules do not require a majority of outside directors. Wow! Owning only 49 percent puts the Waltons in the difficult position, according to Ms. Lee, of not controlling the board's directors. Is she kidding?

It is worth noting that there are no director changes announced or contemplated at Walmart as a result of the family crossing the magic 50 percent line. Once again, the Times does its readers a disservice by highlighting an irrelevancy as a matter of substance.

Monday, 6 June 2011

"Extend and Pretend" Comes to Greece

Members of the European Union are moving closer to a plan that will extend the debt maturities of Greek private debt (that is, debt owed to the private sector, mainly banks). This is more wishful thinking. Extending the debt in a package that involves more austerity is a prescription for more pain and no gain. Long run, this cannot work.

The Greeks are way overextended. Short of some kind of substantial default, Greece has no hope. Extending maturities is a "mild" default. Greece needs a real default. They need to offer bondholders 15 cents on the dollar for their outstanding debt -- take it or leave it. Merely extending debt maturities is too little too late.

The reason that the EU is not moving forward with true restructuring (meaning a much more drastic default than mere debt extension) is that they have orchestrated earlier bailouts using the private sector and the EU is reluctant to turn around a year later and demand that the buyers take an immediate haircut. So, they temporize.

The outcome for Greece is going to be a major default at some point. It is far better to do it now, not later. It is better for creditors, it is better for Greece.

Sunday, 5 June 2011

What is the job of a student?

As I am writing this post, I know there must be many other student out there doing their part for the school. What I mean here is, these students are not studying or learning or enjoying their school life. Instead, they are told to "do sales" for their beloved school. Do you know that students are running across the town? Do you know that they are sweating under the sun? Do you know that they are wetting under the rain?

Doing Sales for the school?

Indeed, this is not a new phenomena in Malaysia, at least for the past 20 years. It had been practiced this way since my good old student days. Doing sales here meaning a student is going all out to persuade or convince public to donate money for their school. Is it doing sales? By promoting projects of a school, renovations, new hall, new lab, new school field, students are passionate enough to contribute their energy and time for the benefits of their school. If this is not sales, then what?

But, is this the right thing to do?
Please do not forget, the main objective we enroll into school is to study and learn. Although such actions by students is good in nature, schools should not encourage it. If the student is a volunteer, this is nothing wrong. What if it is not? He might feel that he is not loyal to the school, and feel he is being forced to do so. In the end, this particular student will hate the school and his studies.

Students are studying in library
Whose job is it actually?
Ok. Schools need money, especially private schools. But, who is going to get the funding? Finance Malaysia thinks that everyone of us should, except students. Just let student go to school performing their duties - study and learn. In contrast, headmaster and parents association and public at large should put in their efforts to get the funds needed. I would rather see headmaster going all-out to get donations instead of students in the future. Would this proved that the headmaster is good? Of course.

Saturday, 4 June 2011

Surprise, Surprise..No Jobs

Hilda Solis, Obama's Secretary of Labor, was trotted out yesterday to make the rounds on the news shows to explain how the economy could produce a mere 54,000 new jobs in the month of May. According to Solis, all we need to do is pass Obama's plans for "investing in America" in education and alternative energy and to pass the debt ceiling increase. These people must live in a cave! How would boosting teacher salaries, providing more subsidies to Obama's friends in the alternative energy space and providing a new lease on life for deficit spending do anything for aggregate employment?

Solis, along with her boss, needs a course in economics. If you want workers hired, what should the government do? Make them more expensive? Give them additional rights to sue their employers? Solis seems to think that businesses should hire folks simply to further Obama's political future.

Back to square one. Businesses exist to make money. If they expand their businesses, they will do it in the most efficient way. If the government deliberately makes one of the factors of production much more expensive, then, when businesses do expand, they will avoid using that factor of production. That, in a nutshell, is why no wants to hire people, whether they are expanding or not. If you are trying to make money in the modern economy, the last thing you want are more employees.

High unemployment is a direct result of Obama economic policies. They are reaping what they have sown. Presumably, they must have thought that some other outcome was possible. A policy of demonizing business folks and making labor much, more expensive for business has lead to staggeringly high levels of unemployment and no serious job creation in sight. Why is that a surprise to anyone?

Thursday, 2 June 2011

New Fund: TA Global Technology Fund

Thinking about iPhone and iPad? Queuing yet can't get the latest products from Apple? Yes. This is the type of companies that the fund is going to invest. Maybe, this fund is attractive to iPhone and iPad addicts, where their gadgets is gaining popularity while setting the new benchmark on smartphone globally. Other than that, Google is expanding globally as you may noticed that it had just open its representative office in Malaysia recently. Let's find out more about the fund.

Basically, this is a feeder fund which invests a minimum of 95% of the Fund's NAV into the Henderson Horizon Fund - Global Technology Fund ("Target Fund") and the balance in liquid assets.

"Companies in the technology sector now have much healthier balance sheets and strong free cash flow generation. Also, there is a significant pent-up demand from enterprises for technology products. Demographic shifts are taking place which are driving technology adoption" said Mr. Wong Mien, CEO of TAIM.

What would investors getting?
Investors will have the opportunity to invest into attractive global technology themes such as E-Commerce, Online Advertising, Data Growth and Connectivity in both the established and emerging markets. Companies with strong barriers to entry will benefit from strong demand trends and sustained revenue growth.

The Target Fund Manager strongly believes that the technology sector is well placed to outperform as corporate continues to recover, prompting investment in technology. There are also a number of ongoing product cycles in both the corporate and consumer segments that should support growth.

Key Selling Point:

How is the performances of the Target Fund?
Source: TA Investment Management

If Not Now, When?

Why should Congress vote to increase the debt ceiling and simply kick the can down the road? Is there some date out there where it becomes politically easier to change the trajectory of spending? If you are really going to slow the rate of spending, it needs to begin now. Those who want a "clean debt limit increase" are also those who want to increase spending levels.

Congress should vote no on increasing the debt limit. It has to begin somewhere, sometime. Why not now?

Economy is Dead in the Water

Now what? Having worn everyone out with a fiscal and monetary explosion for the past two years, the Administration and Congress are now faced with an economy going nowhere. While we continue to punish businesses and financial institutions, we wonder why no one is interested in hiring lots of folks and risking their capital in this brave new world.

What gets lost in all of this is the question of how people decide to risk their capital and how they decide to hire employees? They do this only to make money, which many in the Obama Administration think is un-American. Until the Obama folks begin to see some virtues in the accumulation of wealth, they will never understand why their economic policies are doomed to failure. Businesses don't just invest to be patriotic and improve Obama's election chances.

People take risk to get rich and to accumulate more wealth. The rush by the Obama folks to redistribute wealth and demonize "the rich," just means that there will continue to be a natural and rational reluctance on the part of business to do anything to help move this recovery along. Someone has to risk capital and hire employees besides the government.

The Obama folks just don't get it.