Source : Business Times - 19 Nov 2008

Wish-list includes reinstatement of deferred payment, old formula for DC

Some property industry players are yearning for the good old days, hoping the government will reverse some of the changes in property policies made in the past two years and thus go beyond the usual exemptions and rebates on property taxes with its off-Budget/Budget packages.

Such a strategy may be timely in helping to stimulate currently flagging property demand given that the measures were rolled out when the market was sparkling.

Developers are hoping the government will reinstate the deferment of stamp duty on property purchases where the property is under development (this was removed in December 2006) and revert to the old formula for computing development charge (DC) rates, based on 50 per cent of the appreciation in land value arising from changing the use of a site or building a bigger project on it. This was raised to 70 per cent in July last year.

Also high on the developers' wish-list is a revival of the deferred payment scheme (DPS) - which was scrapped in October last year - to boost home purchases, with a qualifier that safeguards be introduced to address concerns that such schemes had spurred speculation.

A major property developer also suggested a demand-boosting measure in the form of changing the investment criteria for Economic Development Board's Global Investor Programme to allow a higher quantum for property purchase or even lowering the total threshold value.

Under a new option to the Programme announced in July 2005, a foreigner can be considered for permanent resident status if he invests at least $2 million in business set-ups, other investment vehicles, and/or private residential properties, with up to half of the investment allowed in private residential properties.

'More people taking up permanent residence or citizenship and landing on our shores will help the property market,' said the developer.

KPMG Tax Services executive director Leonard Ong said that granting exemptions or rebates on property taxes for completed commercial and industrial buildings will help landlords and hopefully they will pass on some of the savings to their tenants.

'Earlier this year, when property prices were on the rise, the government also raised Annual Values of properties. So based on this, owners would be paying more property taxes than last year. This makes it all the more important to introduce exemptions or rebates for property taxes,' he added. Property tax is calculated as a percentage of a property's annual value.

Developers are also hoping for property tax exemption for vacant land and land under development to reduce costs.

'During this period, the market is so quiet we cannot launch projects,' notes Ho Bee Investment chairman and CEO Chua Thian Poh.

Following the December 2006 rule change on stamp duty, property buyers are now required to pay stamp duty within 14 days from the date that the option to purchase is accepted.

The previous concession, introduced in June 1998, had allowed stamp duty payment to be deferred to the date of issuance of Temporary Occupation Permit for a project or date of sale of interest in the property, whichever was earlier, for properties under development.

Deferring payment of stamp duty for projects under development once more would lower upfront cash commitment for home buyers, some of whom may be stretched, especially since it could take a few years for the new homes they've bought to be completed, says Knight Frank managing director Tan Tiong Cheng.

Most developers are hoping the government will reinstate the DPS. They say DPS helped genuine home buyers, especially upgraders who may be able to sell their existing homes only when their new private home has been built.

Ho Bee's Mr Chua suggests modifications be made to DPS to allay concerns that it also facilitated speculation in the past.

'The most important thing is to require the buyer to secure a housing loan even if he does not need to draw down the loan immediately, to ensure a credit assessment of the buyer is done by the banks,' he said.

However, Ho Bee's Mr Chua disagreed with the suggestion by some analysts that the initial payment by the buyer - before the deferred payment kicks in - be raised from 10-20 per cent previously to 30 per cent, as that 'would not help home buyers much'.

Although developers are currently not in a race to redevelop their sites given the property slump, many argue that going back to the pre-July 2007 formula for computing DC rates - which creamed off a smaller portion of the enhancement in land value - 'would provide greater incentive for land owners to explore more productive use for their properties and could spur some activity', the head of a listed property group said.

Developers are also concerned about banks tightening financing to home buyers and to businesses in general, and hope the Monetary Authority of Singapore will use 'moral suasion' to send the right signal to banks.

BEIJING, Nov. 28 (Xinhua) -- China has decided to allocate 500 million yuan (73 million U.S. dollars) from the central fiscal for rural environment treatment, the Ministry of Environment Protection said Friday.

The fund would help save 600 villages out of severe environment problems and award 100 others which play exemplary roles in ecology. The program would directly benefit 4 million people, the ministry said.

The money would be mainly used to address problems of drinking water contamination in rural areas and pollution arising from household livestock raising, and to build polluted water treatment facilities.

The ministry said the money was being distributed to rural areas, which was expected to stimulate another 100 million yuan of local rural environment investment.
Source: The Business Times, The CEO Column, October 25, 2008

Liew Mun Leong (President and CEO, CapitaLand Group)

During this credit crunch, we need to do more than just perform profitably to impress investors, says CapitaLand CEO in an e-mail he wrote to his colleagues recently

DURING the current turbulent times it is all the more crucial to keep close communication with the company's employees about what is happening around the world and how it is affecting the company. Clear, honest and transparent communication will help a lot in managing their psychology and at the same time gain better understanding and support from them. Two Sundays ago, I wrote an e-mail to my colleagues with this purpose in mind. An edited version is reproduced below:

Dear Colleagues,

The current global financial crisis has been deteriorating rapidly. It happened so fast, and no one can believe how quickly Wall Street blue chips like Bear Stearns, Fannie Mae and Freddie Mac and Lehman Brothers have fallen. Even savvy and smart financial global giants like AIG, Goldman Sachs, Morgan Stanley, and Merrill Lynch have needed bailouts or buyouts. The 'theory of common happiness' which infected the world just a year ago is a sharp contrast to the fiery turmoil engulfing international financial markets today, turning the theory into one of 'common misery', globally.

Understandably, CapitaLand's share price has also not been spared. It is very apparent that the drop in share prices in the stock market has been across the board, across the world, indiscriminate, and not company-specific. As a large real estate company with investments and operations in the Asia Pacific, Europe and the Gulf, CapitaLand is naturally affected by these economic ups and downs, even if these are unrelated to the company's fundamentals. As a highly-liquid blue chip company, we are a likely candidate for redemptions by hedge funds and other investors looking to realize their gains.

Notwithstanding the share price drop, how we, as a company, withstand the current global financial crisis depends on how strong we are financially.

During this credit crunch, we need to do more than just perform profitably to impress investors. Investors want to see our balance sheet - how liquid we are? How are we managing our debt, especially short-term debt? How much cash are we holding? Indeed, we have a very healthy balance sheet which is stronger than ever before. Our debt and liquidity have been pro-actively managed long before the present crisis. As at 30 June 2008, the Group had S$3.4 billion of cash, excluding additional proceeds from recent divestments in the last few months. On a proforma basis, assuming these divestments were completed on 30 June 2008 and all things being equal, the Group's net debt-to-equity ratio would have been 0.43 as at 30 June 2008. I believe we are one of the lowest geared Singapore property companies. In addition, our private equity funds have undrawn commitments of S$2.2 billion.

Call it 'blessings in disguise'. We were outbid on several projects, including the two integrated resorts, the Marina Bay Financial Centre sites, the Beach Road /former NCO Club site and the JTC privatisation project. All these multi-billion dollar undertakings would have weighed heavily on our books had we been successful.

Instead, we are in a favourable cash position to ride out the current credit and capital market turmoil. Indeed we are ready to seize opportunities in this capital constrained environment, looking out for distressed assets and companies to collaborate with. We are in the enviable position of being able to 'plant seeds' during this down cycle. Similar seeds were planted during the 1997 Asian Financial Crisis: we acquired Furama Hotel to build AIG Tower in Hong Kong, developed the Canary Riverside project in London 's Canary Wharf , resurrected Raffles City Shanghai as well as bought and refurbished the half-completed Capital Tower Beijing. These developments have since been monetised to prepare us for this latest cycle of opportunities.

In fact, our former board member Andrew Buxton commented that CapitaLand's management has been 'actively managing its balance sheet' all these years. This active capital management has always been misunderstood as either hollowing out, or as exceptional one-off transactions that are not seen as part of our business strategy. We have been aggressively managing our property transactions - divesting and acquiring, and expanding our business in the process.

'Disciplined aggression'

At all times, we have been prudent and disciplined with our investments. Gail Fosler, President of The Conference Board and one of CapitaLand's International Advisory Panel members, recently used the term 'disciplined aggression' to describe companies that proactively and prudently manage their business. I think this term captures the essence of our investment management strategy accurately.

Someone asked me whether during today's financial climate, a company could save a troubled balance sheet. Clearly, it is too late for a company currently in such a predicament to take corrective action. Banks are resistant to lending to anyone, even to one another. Recently, I read an article where an American industrialist said, 'Unless you have more cash than you need to borrow, they (local banks) won't do business with you.' Sounds counter-intuitive, but it's true.

In his book 'Managing in Turbulent Times', Peter Drucker advised that in such a volatile environment, management should go back to the fundamentals of business and stick to the basics. We intend to do just that. Our corporate strategy has been planned for ups and downs and can be captured in three simple words: Focus, Balance and Scale. We will continue to focus capital and human resources on our key sectors of residential, retail, commercial, integrated developments, hospitality and financial services. We will also remain balanced in our investment approach and will continue to maintain scale and scalability in our business operations.

In particular, we are 'long' on human resource investment. People is the most important asset in our company. We continue to 'hire and fire' in good or bad times. In bad times we will continue to hire as there will be a wider pool of talents to attract. We manage our people the same way that we manage our balance sheet. If you have not managed your balance sheet well consistently then it is too late to repair it during a crisis. The same goes for human resource management. Talent management is about being rigorous but not ruthless.

I am often asked what we plan to do with our accumulated cash. We will continue to build up our cash position even though we have currently secured S$3 to $4 billion. We will watch the distressed market very carefully, seeking out opportunities but not investing hastily, asking questions: It may be cheap but is it a good asset? Is it going to be part of our focused strategy? Can we add value to it?

We have weathered two crises - the Asian Financial Crisis in 1997 and a prolonged one in 2001-2003 after our formation in 2000. Both times we emerged a stronger company and further extended our leadership in the real estate sector. We are riding into this latest storm with a much stronger ship and a more experienced crew, and on course to enter the next growth cycle.

An eminent US economist Paul Romer once said, 'A crisis is a terrible thing to waste.' Yes, provided that in trying not to waste the crisis, you do not get in it yourself. We are mindful of that.

Friday, November 28, 2008

Shipping companies bleed, ship-breaking booms!


Even as shipping companies world-wide are facing rough weather on account of recessionary trends, India’s ship-breaking business is all set to flourish. Ship-breaking is a process of dismantling a vessel’s structure for scrapping and disposal whether conducted at a breach, pier, dry dock or dismantling slip. It includes a wide range of activities, from removing all gears and equipments to cutting down and recycling the ships’ infrastructure. Ship-breaking is a challenging process, due to structural complexity of the ships and many environmental, safety and health issues involved. While ship scrapping in dry docks of industrialized countries is regulated, ship-breaking on beaches, alongside piers is less subject to control and inspection.
Breaking old or redundant ships rather than scuttling or using them as artificial riffs, enables steel and other parts of the ships to be recycled at a much lower cost than importing and processing iron ore. Less energy is also needed. It also provides for timely removing of outdated tonnage from international waters. Hundreds of vessels are scrapped each year, a trend which will continue with the phasing out of single hull vessels.


Thursday, November 27, 2008

Public Bank dominates again

KUALA LUMPUR: Public Bank Bhd has been ranked first in corporate governance in the Corporate Governance Survey 2008 and won the overall excellence award for the fourth consecutive year.

A collaboration between Minority Shareholder Watchdog Group (MSWG) and Nottingham University Business School, Malaysia Campus, the survey presented the findings on the compliance by all public-listed companies on Bursa Malaysia with the corporate governance principles and best practices.

Wednesday, November 26, 2008

Banks are top three brands in Malaysia


PETALING JAYA: Maybank is ranked the top brand in Malaysia's 30 Most Valuable Brands (MMVB) again this year, with a total brand value of RM9.3bil.

All the top three brands were banks, with Public Bank and CIMB following Maybank with RM6.8bil and RM6.2bil in brand value respectively (see table).

The brands which saw the biggest value growth were CIMB (83% growth), followed by DiGi (35%) and The Star (22%).

The report added that The Star controlled 64% of the circulation and 73% of the advertising revenue in the English print media market. Its circulation was 2.2 times and readership 2.9 times more than its nearest rival.

Tan Sri Amirsham Aziz presenting the most valuable brand award to Star Publications group MD and CEO Datin Linda Ngiam

"It remains nimble in its content mix, pragmatic in its editorial stance and opportunistic in introducing new products," the report said.

Its brand value was derived through a valuation study commissioned by the Association of Accredited Advertising Agents Malaysia (4As) and The Edge. It was conducted by Interbrand, one of the largest brand consultancies internationally.

The 4As unveiled the top 30 brands at the MMVB 2008 awards ceremony in Petaling Jaya last night.

The total value of the top 30 brands stood at RM61.8bil, a 9% growth over the RM56.6bil achieved last year.

The study said 14 brands showed a growth in value this year.

Only brands that were public listed or owned by listed companies were considered for the study. Hence Maxis, which was ranked third in last year's study, was not in the list as it was delisted.

Meanwhile, Mamee Double Decker and Bonia have dropped out of the list. Sin Chew, and Ogawa are the new entries in the top 30.

The other brands in the top 30 not shown in the table are AirAsia (brand value: RM378mil), Dutch Lady (RM306mil), Affin Bank (RM237mil), MAA (RM219mil), Padini (RM204mil), Kurnia (RM197mil), Sin Chew (RM190mil), Proton (RM150mil), Ogawa (RM104mil) and Sunway (RM101mil).

Minister in the Prime Minister's Department Tan Sri Amirsham Abdul Aziz presented the awards to the companies in the top 30 brands yesterday.

4As president Datuk Vincent Lee said brands were organic assets that needed constant nurturing.

He said economic and political instability would affect their ability to generate value.

"We need to look at our wealth creators and nurture them with even more courage, conviction and rigour."


PETALING JAYA: The impact from the cut in the overnight policy rate (OPR) is "mildly negative" on the profitability of banks as the move is expected to weigh on their net interest margins, analysts said.

Lower interest rates, as well as a cut in the statutory reserve requirement (SRR), are also unlikely to have any real impact on loans growth as the sentiment had already turned negative, they said.

Bank Negare cut its key interest rate by 25 basis points to 3.25% on Monday in an effort to stimulate economic growth.

It also lowered the statutory reserve requirement (SRR) to 3.5% from 4% to inject more liquidity into the banking system.

Aseambankers, in a note to clients, said the central bank's interest rate cut was "mildly negative" as variable rate loans would be re-priced downwards immediately within a week but fixed deposits have a time lag before the adjustment.

The research house said while lower interest rates usually stimulate loans growth, this time the impact was likely to be muted as business and consumer sentiment had been dented in the fast deteriorating global economy.

"At best, we could see more refinancing activities for existing fixed rate loans," it said.

Earnings momentum would inevitably slow down as resources were shifted towards protecting asset quality, the research house reckoned.

However, Aseambankers said lower interest rates, together with concerted efforts to restructure troubled loans, might help mitigate rising default rates and a sharp deterioration in asset quality.

OSK Investment Bank said banks would face increasing pressure on their net interest margins given the now wider gap between loan and deposit rates after the cut in the key interest rate.

Banks had been competing to grow their various deposit offerings via longer tenure fixed deposits at higher rates, the research house said, adding that the growth of deposits was stronger than loans.

Banks with the highest proportion of fixed rate loans in their portfolios would be the least affected by the cut in the OPR, it said.

OSK Investment Bank said AMMB Holdings Bhd, EON Capital Bhd and Public Bank Bhd have a large portion of fixed rate loans in their portfolios. AMMB has 60.1% of their portfolios in fixed rate loans, EON Capital, 45.2% and Public Bank, 37.7%, according to OSK.

The reduction in interest rates would lead to lower bond yields, which meant higher mark-to-market gains for banks with a relatively large proportion of bond portfolio holdings, OSK said, citing Bumiputra-Commerce Holdings Bhd as the bank to benefit the most from this.

The slash in the SRR was unlikely to have an incremental impact on overall liquidity as the banking system was flushed with cash, OSK said, adding that boosting economic growth was more important in stimulating loans growth.

A bank-backed research house said the reduction of SRR should release at least RM2.7bil into the banking system, thus enabling more lending activities at lower rates.

The interest rate cut, however, would exert a greater downward pressure on the ringgit in the short-term, it said.

Yesterday, the ringgit was traded at 3.6207 against the US dollar.


I am coming up with a scheme to measure based on time line, how the prices of each stock fare.

Why am I making such comparisons? The fact is that I had been trying to catch the bottom during this down trend. But, I'd found it too difficult and each time I tried, I would get burnt. So, to overcome that, I come up with this scheme. I would buy the stock if it goes below the 90% time line mark. Not 90% chance or 90% of the price. I am not using price or probability (if there is a way?), I am using time line. If you are getting stock which is 90% low for a good company, I believe you will gain holding that stock and it would be a good price to enter.

DBS Bank:
Based on the 10 Year price charts, the following observations were made:
About 90% over the last 10 years, the prices of the stock has stayed above S$9.50. Which means that you have opportunity to buy the share below S$9.50 only 10% of the time.

My entry point for DBS is below $9.50 and holding for long term (> 3 years). Even it the share goes to the 1998 lows, I believe it would stay there for a short period of time only. Since I am not a day trader, it is unlikely that I would be in front of the screen to catch it.

I only have information up to 2001. Based on these 7 year data, I concluded that a reasonable "buyable" price should be below S$2.40 and good and very safe entry point should be below S$1.50 (see below).

Even though the prices has corrected quite a lot, its lack of historical background is making it look more expensive that it should. So, anything below $2.00 could be a good entry point. However, if you were to stick to the principle of margin of safety, then, below $1.50 is certainly the way to go.

This stock presents much better entry situation than Capitaland in terms of Property Sector. It is near the entry level of S$5.00 now. Historically, 90% of the last 10 year's prices are above S$5.00. Rallying to $7.00 should be no problem.

Keppel Corporation:
I had been monitoring this counter quite closely. Adjusted for the split, good entry price should be about S$3.00. With the uncertainty in the current market, it is entirely possible for it to go below S$3.00. But anything below S$4.00 would make good investing opportunity for this counter with its strong dividends.

Tuesday, November 25, 2008

Public Bank is Asia's priciest banking stock

Source: Malaysian Insider

KUALA LUMPUR, Nov 25 - In a period of grim economic news, Malaysia's third largest lender in asset terms is coming out smelling like roses. According to Citibank's research unit in Kuala Lumpur, Public Bank is currently Asia's most expensive banking stock trading at close to three times book which is almost three times the Asian average.

The stock is already Malaysia's largest bank in terms of market capitalisation (RM29.5 billion) outpacing both Maybank and CIMB, both of which have larger asset bases. And its share price has come off the least compared with other Asian banks, sliding 32 per cent since January compared with the regional average of over 50 per cent.

The statistics say much about Public's conservative management which is still led by its septuagenarian founder and controlling shareholder Tan Sri Teh Hong Piow. Teh built up the bank from scratch and never let it deviate from his stamp of conservatism, a grounding that stood it in good stead as it was one of the few Malaysian banks that didn't make a loss during the 1998 Asian financial crisis.

Even so, there are those who feel that Public's share price level is "unsustainable". Both Citibank and Credit Suisse recently called a "sell" on the stock. Both calls, however, failed to make much of a dent in the bank's share price which has stubbornly stayed at around RM8.40.

One attribute is its solid balance sheet. For the year to Dec 31, 2007, Public Bank made a profit attributable to shareholders of RM2.12 billion on revenues of over RM5 billion. And its net non-performing loans are below two per cent, the lowest in the industry.

The other key attraction of the bank for investors is its high payout ratios. From 2005 onwards, the dividend payout has ranged from 87 per cent to 92 per cent, making the stock a very attractive dividend play. It could be one reason why foreigners still hold over 40 per cent of the stock.

Even so, the bank is expected to scale back. For one thing, its loan growth - which averaged over 40 per cent in 2007 - is expected to come off sharply, estimated by Citibank to drop to 18 per cent this year and 9 per cent the next as the Malaysian economy begins slowing sharply.

Citibank also believes that the bank's management will also cut dividend payouts to shore up its Tier-1 capital ratio which is among the lowest among Malaysian banks because of its aggressive dividend policy. It would
also be very much in keeping with Teh's conservatism.

But even at Citibank's target price of RM7.17, Public Bank would still be among Asia's most expensive banks with a price to book ratio of 2.9 times. In contrast, Citibank estimated that the three big Singapore banks, on average, would be priced at 0.9 times book. - Business Times Singapore


Source : Business Times

Hong Kong's Sino Land and the mainland's China Overseas Land & Investment Ltd are among the property stocks offering the best value in Asia, fund manager Henderson Global Investors says.

Chris Reilly, director of property for Asia, said funds run by his company were keen on buying property stocks in Australia, Singapore, China and Hong Kong, after share prices in these countries fell sharply as investors dumped risky assets due to the global financial crisis.

The company also picked Japan Real Estate Investment Corp from Japan's battered real estate investment trust sector.

'There is no great rationale for going into emerging markets right now. We are sticking to mature and more stable markets, where values have also fallen. There are more risks in less transparent and emerging markets,' Mr Reilly said.

Henderson Global, which manages US$1.5 billion worth of investments in Asia, is also keen on Australian property investor Stockland Group and Singapore's CapitaLand.

Battered property shares in Asia would likely start to recover in the next six to 12 months, thanks to global government efforts to cut interest rates and infuse more liquidity into the financial system, Mr Reilly said. 'There is some distress in the market right now. Investors are acting very defensively. But there is a sense of opportunism ahead. We will get better values down the line.'

Hong Kong developer Sino Land, whose shares have plunged more than 80 per cent so far this year, remained attractive given its focus on building housing units 'in times of lower supply', Mr Reilly said.

Home prices in Hong Kong, which slipped into a recession in the third quarter, will probably drop 20 per cent this year, according to a Reuters poll. The expected price decline would likely drive shares of Sino Land lower, analysts said.

China Overseas Land, the nation's largest developer by market value, may benefit most from China's decision to ease rules on buying homes, and its planned spending to boost the economy, Mr Reilly said.

'We pick China Overseas Land because of its long-term growth prospects and reasonable valuation,' he said. 'It is in the best position (to benefit) from the government's stimulus package.'

Shares of China Overseas Land rallied 12 per cent on Oct 23, the day after the Chinese government announced measures to shore up the country's ailing property sector. But the stock is still down 45 per cent so far this year.

Beijing last month cut mortgage rates, reduced downpayments for first- time home buyers and cut transaction taxes to stimulate demand for housing. Early this month, China said it would spend US$586 billion to build houses and on other infrastructure projects to spur the economy. - Reuters
Source : Business Times
Blaxland strikes out despite downsizing from $300m planned portfolio

(SINGAPORE) AN Australian private property fund manager that had been expected to buy some $200 million of Singapore industrial properties including eSys Technologies building in Changi North has decided not to proceed with the acquisitions.

No deal: eSys Technologies building is one of two industrial properties that Blaxland has forfeited its deposit on
Blaxland Funds is said to have put its plans on hold, given current weak market conditions, and is not expected to transact anything here in the near future.

Industry observers reckoned that the current tight funding climate and weak investor sentiment were likely reasons.

Some sources suggested that the deal-breaker was 'the rapidly changing market conditions' here.

'It may have boiled down to making a call on the market. Is this the right time to buy industrial property in Singapore?' said an industry observer.

'After doing their due diligence and appraisal, Blaxland decided not to proceed with the transactions,' he added.

BT understands that Blaxland may have found better-value opportunities emerging in its home market, Australia.

Blaxland Funds Group is a joint venture between its executive staff and The Myer Family Company.

It set up a representative office in Singapore earlier this year and is said to have planned to assemble an industrial property portfolio worth over $300 million initially.

In June, it signed Memoranda of Understanding to purchase five assets on the island for around $200 million. Around August, it was said to have shortlisted two of those properties - eSys Technologies' building in Changi North and SH Cogent Logistics' warehouse building at Penjuru Close in Jurong.

Blaxland had paid deposits totalling a few hundred thousand Singapore dollars to the sellers, BT understands. It had to forefeit these deposits when, at the beginning of this month, it decided against proceeding with completing the two transactions.

The SH Cogent Logistics building is a brand-new, five-storey ramp-up warehouse with a lettable area of about 400,000 square feet. The building is on a site with a remaining lease of over 20 years. It received Temporary Occupation Permit this year. The property is about 80-90 per cent occupied. Blaxland was to have paid some $50 million for this property.

The eSys Technologies building, which was to have been sold for more than $20 million, is under five years old. It has a lettable area of about 180,000 sq ft and the balance lease term on the site is also understood to be over 20 years.

eSys Technologies and SH Cogent Logistics were to have leased back their respective properties for five years had the sales to Blaxland proceeded.

Industry sources said that the other three properties Blaxland had inked MOUs for are in Ubi and Changi.

Monday, November 24, 2008

Public Mutual wins award for second year

PUBLIC Bank's wholly owned subsidiary Public Mutual won the "Most Outstanding Islamic Fund Manager" award for the second consecutive year at the 5th KLIFF Islamic Finance awards 2008 held recently.

Public Mutual chairman Tan Sri Dr Teh Hong Piow said in a statement:

"This award represents the 121st award won by Public Mutual since 1999. Winning the award not only reinforces our position in the Islamic unit trust industry but also affirms our commitment to excellence."

As at end of September, Public Mutual managed 24 Islamic funds with total Islamic assets under management of RM8.5bil, which represented 50.7% market share of the private Islamic unit trust industry.

Public Mutual is the largest private unit trust company with 67 funds under management. The total net asset value of the funds managed by the company was RM24.1bil as at end September.
Sunday, November 23, 2008

Stock Picking

Update 1: 23-Nov-08
  1. Looks for new commercial and infrastructure left behind by bubbles
  2. Dividend Yield Stocks
  • SMRT
  • SBS
  • REIT (>20% dividend at this point of time)
  • Public

To be Update....
Saturday, November 22, 2008

AIG Valuation and S&P Technical Analysis

AIG Valuation
Recently, Yahoo! message board has a discussion on AIG valuation. I find it interesting point of view and want to share with you. The valuation method is based on US government US$40B capital injection to AIG, exchange for 80% of AIG shares. Based on my understanding, the calculation can be reproduced as below.
Current Total Shares 2,703,000,000 - equivalent to 20% holding
New Shares for government - equivalent to 80% holding (worth US$40B)

Hence, valuation = (US$10B) / (2.7B shares)
= US$3.7
The purpose of government injecting capital to AIG is to buy time while AIG try to sell-off it's assets. And if you follow AIG activities closely, you should see assets selling activities. One of the asset is Taiwan life insurer Nan Shan Life which worth 2.2B.

Although based on the calculation from Yahoo! discussion board, the fair value is $3.7, share price has fallen to ~$1.50.

S&P Technical Analysis
Louise Yamada is is one of the most recognized technical analyst on the WallStreet, winning the award for best chart analyst 4 years in a row from 2001 to 2004. This week, Bloomberg and CNBC asked for her opinion on US stock market. Using S&P500 as example, she predict S&P will fall below 2002 low, and likely to continue to fall lower. She mentioned to look for oversold signal which tends to sustain in bear market.
Dream World

Freud said that we resolve conflicts in our dreams. Perhaps the stock market is no different. Maybe it’s actually working out conflicts left in the wake of the excesses of the '80s and '90s.

We’re talking inflated home values, excessive risk taking, shadowy derivatives, and self-destructive lending. All of which can be linked back to low interest rates.

The previous five years were great for investors living in a dream world, but with this market experiencing the fourth worst decline in the last 80 years the real question is, is the nightmare now beginning?

A Nightmare on Wall Street?

Unfortunately, the short answer is yes, according to technical analyst Louise Yamada. She says, “I think the charts have been forewarning us that the markets are deteriorating.”

"The 2002 lows are very vulnerable and chances are good they are going to be broken," she tells the traders, grimly.

If you look at the chart below you see a massive double top with a critical 10 year support at 2002, she says. “And we're breaking that support.”

In other words, not only has the S&P fallen below its 2002 lows, but it will likely continue lower from there.

Sound far-fetched? Maybe but Yamada is one of the most celebrated technicians on the Street, winning the award for best chart analyst 4 years in a row from 2001 to 2004.

She has a 600 target on the S&P 500 and a 6,000 target for the Dow. That's where she thinks we're heading.

Friday, November 21, 2008

The New Paradigm

George Soros is actively promoting his new book The New Paradigm for Financial Markets. In short, his is promoting the theory of reflexivity; which he believe can better explain events in financial market than the old school economics theory. Old school economics theory is based on free market and the idea that greed is good (in short).

The world is moving to a new paradigm, but I do not mean in the sense of what George Soros is talking about. New paradigm that I mean are such as:
  • Shift in consumption patterns
    Aging population, green house effect, food chain & water polution and rapid technology innovation, recession.. shifts in consumer spending pattern.
  • Shift in financial power
    China is richest in foreign reserve at this point of time, but it's social safety net is weak, unlike western contries which has welfare system that protects the unemployed. How will China spend its money during this financial crisis? What is the opportunity for China and how would China utilise it?Brazil and India rising strongly...
  • Slowing Global trade continues in a world that is highly inter-connected
    Global trade, shipping, air transportation, global-financial system are physically and electronically highly connected. Are we going to move faster or slower?
  • Energy System - oil, solar, automobile industry
    There is a pattern shift in energy source, from oil to green energy. But, what is not going to change is the electricity distribution system. What is going to happen to automobile industry? Solar Cell manufacturer would make car as well?

  • China Financial Industry will be a growing industry in this downturn. I believe private sectors are growing this industry. Recently, there is a trend of Chinese headhunting talents from Wall Street.
    Joint hiring drive to snare Wall Street and City talents
    FINANCIAL institutions in Shanghai will conduct a joint recruitment drive next month on Wall Street and in the City of London to take advantage of the global financial tsunami which has presented an opportunity to snare experienced talents who are being let go by their crisis-hit big-name and renowned employers.

    The Shanghai Financial Services Office yesterday said it will be teaming up with the city's human resource authority and the government of Pudong New Area to lead state-owned and Shanghai financial institutions to hire senior financial professionals and experienced bankers in the two global financial centers.

    "We are not lacking headcount but we are short of experienced bankers," a Bank of China banker told Shanghai Daily. "We may be more cautious on hiring graduates next year but it's not the case with experienced bankers who have a global perspective and an experienced background."

    Wall Street and the City of London are seeing a lot of layoffs by big-name institutions in the financial industry such as Citigroup and HSBC in the past months as the crisis, which originated in the United States, went on to sweep global markets and economies.

    Citigroup said earlier this week it will cut jobs by 20 percent from its last year staff payroll peak, shedding another 53,000 jobs in the coming months, mainly in London and Wall Street.

    "During these trying times, the Shanghai financial industry should also take advantage of the financial crisis to lure high-end talents which Shanghai lacks, especially when the city is building itself into an international financial center," the Shanghai Financial Services Office said yesterday.

    The office, together with other authorities, will also help arrange big-name players from the two global hubs to visit financial institutions in Lujiazui and learn about opportunities available.

    Shanghai authorities have allowed small-credit companies to be started to help small businesses ward off the impact from the global economic slowdown. There are also plans for rural banks, with the first Shanghai-based rural bank likely to open this year, said sources.

    Insurance firms will take a bigger role in the city's economic and social development, and they will also be allowed to invest in more areas.

    Meanwhile here are some policy change from Chinese government:
    China: The Balancing Act
    Monday, 13 October 2008
    With both the Olympics and Para-Olympics now over and the vestiges of Olympic advertising slowly being removed from billboards around China, it is getting back to business as usual in China, or as usual as it could be. For awhile, the feeling was that the Chinese economy would come out of the Olympics, weather the credit crunch and continue on the path of the fantastic growth that China has experienced over the past 10 years. As the situation in the United States worsens, both as a result of the credit crisis and the worsening economic situation, that feeling is changing.

    Initially, as the US crisis unfolded, the primary concern in China was companies’ exposure, especially banks, to the now largely worthless mortgage securities. It gradually became clear during the Q407-Q208 earnings season that Chinese banks did have a sizable exposure to these derivatives, but the exposure wasn’t enough to drag down the growing revenues from domestic expansion, which easily eclipsed any losses from mortgage securities.

    Further internal pressure came from the combination of the dollar’s depreciation against the Chinese Yuan, increasingly strict Chinese labour laws and increasing commodity and transportation costs. All of these factors started to cut into the competitiveness of China’s manufacturing industry, and consequently, profits. Many manufacturing companies either shut down completely and/or moved production out of China. Although not perfect, this was seen as an acceptable way to lower the frothy economic growth that China was going through, and the mood remained upbeat.

    However, over the past few months, much like their counterparts in the US, Chinese industry followers have become far less sanguine about the situation. They are starting to see how a real risk of a global economic slowdown precipitated by the crisis in the US could effect China.

    So with an economy heavy reliant on export, yet with increasing domestic demand and relatively little exposure to the credit markets, what’s coming for China’s post Olympic economy? Well, we at Kapronasia see a definite slow-down coming. However, as we move into 2009, the real issue will ultimately come from internal issues created as a result of external factors outside of China’s control.

    Recent actions by the government indicate that they recognise the risk as well. Let's take a look at three of them.

    Living on the Margin
    Just over a week ago, the China Securities Regulatory Commission (CSRC) announced the gradual introduction of margin trading and short selling with the intent of introducing “new vitality” to the Shanghai A-share stock market. Up until this point, investors had few options with which to play both sides of stocks, i.e. to profit from both prices rises and falls; now they will. Initially the implementation will be limited to certain brokerages, and margin trading is expected to far outweigh short selling as brokerages have much more money to lend than they do shares.

    Certainly margin and short selling will do wonders for brokers’ commissions and the overall volatility of the market, but will it really help? A few weeks ago, the US regulators put a freeze on short selling as many pundits saw excessive short selling by hedge funds as being one of the reasons behind the weakness in the US markets.

    Still, as the practice is new for China, it likely won’t affect markets in the short-term and the global markets will have at least found equilibrium by the time that it does. Industry observers indicate that it will increase market liquidity and also weed out some of the more amateur investors. This would help as the Shanghai market has historically had a high percentage of retail investors as compared to other more established markets. Increasing institutional activity should bring a bit more stability.

    Bring back the credit
    In addition to the equity market, the government has also been toying with the debt market. So far this year the government has relaxed the banking reserve requirements by 5%, which has brought some liquidity to the market. In addition, In April of this year, the government opened up the 3 -5 year corporate debt market. This had some success, but was suspended in June due to regulatory issues and perceived potential conflicts with the government’s efforts to control growth.

    Since June the market has changed dramatically though and now getting funding in the hands that need it has become a greater priority, so a week ago, the government reopened the market. Companies can now issue medium term debt after going through a relatively simple approval process giving better access to capital outside of equity and bank loans.

    This Land is your land
    Although mostly unrelated to Financial Services, this past weekend, the government passed another ground-breaking reform drastically changing the roles of land ownership. Since the state was established, most rural farming land was state owned. Previously, farming families were allocated plots of land on a 30 year lease from the government. Under the new reform, the land is still in the hands of the government, but families will have 70 year leases and may be allowed to exchange their plots of land or use the sites as assets/collateral for loans.

    It may be that the average rural farmer may not understand the national implications of the rule, but they will certainly see the effect of the regulation in their wallet and that's the intention. The government wants to boost rural income and improve productivity, which will then lead to increased consumption - driving domestic demand.

    Making decisions
    One of the advantages of a socialist state is that tough contentious issues can be solved rapidly and quickly as the decisions are made by a few leaders who are responsible for the people of a country, yet are not responsible to the people. Hence, China’s rapidly changing economic conditions and growth since the People’s Republic of China was established in 1949, have been supported by appropriate and timely regulation and policy decisions.

    Nevertheless, as much as China sometimes seems to operate as a completely isolated entity, commercially China is inextricably tied into the global economy. The US is China’s largest trading partner and if growth in the US economy slows, there will be a knock-on effect on China’s economy. How big that effect will be is not clear, but a more critical issue is if the economic slowdown will affect the social stability equilibrium that China has managed to find.

    Cracks in the Wall
    Beyond growth, one of the government’s key initiatives is to keep a ‘harmonious society’ or essentially maintaining social order. Growing economic wealth has to a large extent essentially ensured this by keeping the majority of the people wealthy and consequently, happy. However, current conditions are shifting rapidly and may put the government on the defensive.

    Consider the labour law passed early this year. Without getting into details, it favours the worker, not the company. One aspect is letting staff go – it’s now much more difficult. When the regulations were implemented at the beginning of the year, the global economy was in much better shape, so although the new laws made life for the average Chinese company a bit more onerous and even forced some manufacturing companies to close their doors, it wasn’t disastrous; now with a potentially huge slowdown on the horizon, the situation is a bit more critical.

    As the economy slows, companies that were on the edge of laying off staff to save costs, will start firing. Companies that were close to shutting down because of increased competitiveness will start shutting down. Unemployment in China will increase, but potentially, so will unrest.

    As the situation progresses, the ability of the government to implement ‘crowd pleasing’ initiatives like the labour law, will be severely be limited. If GDP growth was 3% when the labour law was implemented instead of ~7%, the results would have been much worse.

    Looking ahead
    So as we look forward to the future, China will have to continue finding ways to drive external growth, but more importantly, will need to focus on internal stability and growth. They will need to find a delicate balance of keeping the populace happy and satisfied yet putting the measures in place to keep domestic growth on track. Expect to see many more policies like the ones we have noted above. And watch closely, whatever policies they choose will define the China of the future.