When I was younger, I had a good friend who told me he wished to marry a Japanese woman and that it would be a dream come true. I never understood the fascination behind it because I did not see why Japanese women would be any different from our very own Singaporean women. But he was adamant that Japanese women were just classy and attractive. We were in secondary school then, imagine that. Like all dreams in our lives, it never came true. That friend of mine went on to marry a Singaporean lady and had 2 kids. On Friday, I went to a pub with a couple of friends and there was a Japanese waitress who sat and chatted with us. Only then did I understand my friend's fascination with Japanese women. She was classy, cool, among many other things. Two out of the four men at the table were charmed and one even claimed that he would stop being a womaniser if he could marry her. Of course he was drunk, no one can quit being a womaniser. I personally thought she was attractive but simply was not my type because I have always been a sucker for older women, however that leaves for another conversation.
Why did I use this story to lead into my post of this week? Well I was reading a good report on Chinese strategy over the past week and it occured to me that the most commonly spoken about market in the investment world is China. Even though it has been so popular, but contrary to what the whole world believed, China turned out as the worst performing Asian market so far in 2010. How wrong could analysts be? No one would have predicted this when 2010 started, with Chinese growth back at double digits and a property market that was red hot, interest rates at a low and inflation a tepid levels. Personally, I have been bullish on China before but I never felt overwhelmed enough to claim that it was the market I should be fully invested in. It is similar to the situation of me not seeing my friend's obsession over Japanese girls. However over the past week, it seems to me that I have reached an epiphany and realised that both the fascination with Japanese girls and China stocks markets are justified.
Over the past decade, the market chatter on China has always been positive. Finding an analyst or strategist that would hang their head out and went negative on the Chinese market was not impossible but harder to find that a Great White Shark. Over my investment career, I have read book after book, report after report on why investors should be invested in China and if they don't they would be missing out on the opportunity of a life time. They were definitely right during 2005-07 when the Shanghai Composite hit close to 6000 points and traded at 40 times forward p/e with price to book at almost 5 times. I remember fondly those days as an investment strategist when the market was so predictable and there would be rallies that lasted more than 10 days in a row. Good times for reminiscing.
In the past 3 years, it has been a different story. The Shanghai composite has since fallen more than 70% from its peak before rebounding to levels 50% lower than its 2007 level. To illustrate how irrational investors are, I remember investors, analysts, strategists etc were all predicting the Shanghai Composite to continue its ridiculous run upwards and that valuations in excess of 50 times p/e was not excessive considering companies were practically growing earnings at more than 20% per year. It was as if the party would never end. But we all know today that it did end and it ended really badly. Fast forward to present day as the Shanghai Composite sits at 2600 odd points, many analysts are predicting a possible hard landing for the Chinese economy with the property market crashing and stimulus spending reeled in by the Central Govt.
What a reversal of fortunes, but the question is...what has changed since 2007? Nothing....Growth is still at double digit levels, inflation is lower now, interest rates are low too, the yuan is stronger, companies have become stronger in terms of balance sheet strength after the financial crisis weeded out the weaker players. Funny thing is, the same analysts and strategists that were bullish in 2007 are claiming that 15 times p/e and 2 times book value makes the Chinese market look excessive. What logic is that???? If we look back at the charts, the valuation for China H and A shares are all looking at very reasonable valuations and with the profitability index for Chinese corporates back to their pre-crisis levels.
If you ask me what are the sectors I am bullish on for the Chinese markets, I would say transportation, oil and gas, financials and utilities. I really do not think its the right time to go for real estate yet. With the exception of the transportation sector, the rest of those which I have pointed out earlier are the sectors that have done badly over the past 8 months. Valuations are looking good and these sectors will be thriving as the Chinese economy continues to power ahead.
To pick specific stocks listed in China is a daunting task and I am not going to venture into any specific picks at this time even though I have a couple of names in my mind. I would encourage everyone to at least gain exposure to Chinese stocks during this period of time because I believe 2H10 and 2011 will be a good year for Chinese stocks. No doubt that there will be volatility but I am sure that it is a good entry point for those looking for chinese exposure.
For me, I have my reservations about the level of corporate governance of the chinese companies that is why I prefer to use exchange traded funds as a vehicle for me to gain exposure. I have listed all the Chinese related ETFs listed on SGX for your reference below. I like to use this because the management fees are minimal due to their passive nature, also you get diversified exposure to the Chinese market and governance issues are not going to be a major risk for investors. Personally, I do not like the larger indices like CSI 300 because the portfolio is too diversified for my liking, I prefer that of Xinhua 25 or SSE 50 which gives me exposure to the prominent big caps and gives me more upside due to its concentrated portfolio. Thats just me so you make your own decision on which to choose.
In one week, I discovered the merits of Japanese girls and Chinese stocks in a way that I have never seen before, so all in all, it was overall a good learning week. for me
List of China related ETFs listed in Singapore
United SSE 50 China ETF
db x-trackers FTSE/Xinhua China 25 ETF
db x-trackers CSI 300 Index ETF
db x-trackers MSCI China TRN Index ETF
Lyxor ETF China Enterprise (HSCEI)
Lyxor ETF Hong Kong (HSI)
Have a great week ahead!
Best,
SVI
Saturday, July 31, 2010
Friday, July 23, 2010
Thong Guan Packaging developed into a value package over time. (RM1.06)
"History is a great story teller but it is no fortune teller." This is a quote I am going to coin my own because it came to my mind and I just wished to share it with all of you. I believe most of you may be thinking my absence over the past 2 weeks have been due to my favorite team, Holland losing in the World Cup finals. I would like to dispel this conjecture as totally untrue and I do believe that Spain deserved their victory. So here I am continuing my long wait for my dearest Holland to win the World Cup once again. This is the one thing which seems to follow history....Holland screwing up in the finals as usual.
But why do we spend so much time reading about history of companies if its not going to tell us what will happen in the future? Simple. Track record. It is true, no matter how strong a track record a company has, it is no guarantee that it will be a success in the future. It does however lower the possibility of it screwing up. Just like watching a tv series, it is always good to start from the beginning to get a feeling of whether it is going to be a good series to follow or to just give up after watching the first couple of episodes. Yes, you are right to point out that there is a chance that the story will develop into a better plot over the longer term, but chances are slim. That is why, I love reading about history, esp economic history to get a clearer picture of whatever has happened and the consequences of the events that has passed. Even though history is no fortune teller, it gives us a good perspective of how we got here in the first place.
Why do I speak of history today? Nostalgia? Nope. But the company I am going to recommend to you is one of strong tradition and history. I decided to introduce this company to all of you because it is one that has frustrated me over the past week. I have been monitoring the company over the past month and last thursday it rose more than 25%!!! I missed it. But I do not feel I have missed the full run up. I believe it has just begun and the momentum is going to push it much higher. Lets see if I am right.
Thong Guan Packaging is one of Asia Pacific's largest plastic packaging companies with over 30 years of experience and distinguished track record. They are the largest producer of cast pallet stretch film in this region with annual combined production output in excess of 100,000 metric tons.
Their core manufacturing operations are situated in northern Malaysia,Kedah that covers an area of over 20 acres, with established manufacturing operations in Suzhou, China and a joint venture in Bangkok, Thailand. As the pioneer in plastic packaging in Malaysia, TGP is regionally known for its uncompromising quality in the manufacturing of plastic films and bags and boasts a very impressive list of consumer product companies as their clients.
Although their packaging business has an impressive track record, but Thong Guan was actually founded was before the 30 year old packaging business. Thong Guan's operation was established in 1942. It started as a smally family oriented tea merchant specializing in black and Chinese tea which was packed under its own "888" and other brands.
Presently, Syarikat Thong Guan Trading Sdn Bhd is one of the largest processor and distributor of tea, coffee and other related products in Malaysia. It is a wholly owned subsidiary company of Thong Guan Industries Berhad, a company listed on the Main Board of the Kuala Lumpur Stock Exchange. The production of tea and coffee products at its manufacturing plants located in Sungai Petani, Kedah. The products are widely distributed in Penisular Malaysia, Sabah & Sarawak and also exported to the neighboring countries of Thailand, Singapore and Brunei.
Talk about a long history. The company has reinvented itself into the huge packaging company from just a tea packaging and distribution company which is a totally impressive feat.
Valuations wise, the dividend for FY2009 was 4 cents which translates to almost a 4% yield. Price to revenue ratio stands at 0.25 and they have grown the their revenue numbers consistently throughout the 1990s till now with the exception of 2008-09. Book value stands are more than RM2.00 which means the current price of RM1.06 is trading at a significant discount to the company's underlying value.
Another really impressive statistic of Thong Guan is its ability to generate significant cash flows over the longer period of time. Price to free cash flow ratio on average over the past 5 years has been 2 times!!! That is a really magical number because the company has demonstrated its ability to generate sustainable cash flows and with little debt on their books, it should be able to raise its dividend payouts going into the future.
In terms of track record, the management of Thong Guan has an impeccable reputation and much of its success is due to their vision and ability to steer the company to become the packaging giant that it is today. A company with such a long track record with no scandals or problems is now a rarity. I challenge any of you to find 10 companies listed in Singapore and Malaysia that has been around for as long as Thong Guan and grown so consistently. Please do not say Jardine makes up 3 different companies. Haha.
Ok thats all from me this week.
Best,
SVI
But why do we spend so much time reading about history of companies if its not going to tell us what will happen in the future? Simple. Track record. It is true, no matter how strong a track record a company has, it is no guarantee that it will be a success in the future. It does however lower the possibility of it screwing up. Just like watching a tv series, it is always good to start from the beginning to get a feeling of whether it is going to be a good series to follow or to just give up after watching the first couple of episodes. Yes, you are right to point out that there is a chance that the story will develop into a better plot over the longer term, but chances are slim. That is why, I love reading about history, esp economic history to get a clearer picture of whatever has happened and the consequences of the events that has passed. Even though history is no fortune teller, it gives us a good perspective of how we got here in the first place.
Why do I speak of history today? Nostalgia? Nope. But the company I am going to recommend to you is one of strong tradition and history. I decided to introduce this company to all of you because it is one that has frustrated me over the past week. I have been monitoring the company over the past month and last thursday it rose more than 25%!!! I missed it. But I do not feel I have missed the full run up. I believe it has just begun and the momentum is going to push it much higher. Lets see if I am right.
Thong Guan Packaging is one of Asia Pacific's largest plastic packaging companies with over 30 years of experience and distinguished track record. They are the largest producer of cast pallet stretch film in this region with annual combined production output in excess of 100,000 metric tons.
Their core manufacturing operations are situated in northern Malaysia,Kedah that covers an area of over 20 acres, with established manufacturing operations in Suzhou, China and a joint venture in Bangkok, Thailand. As the pioneer in plastic packaging in Malaysia, TGP is regionally known for its uncompromising quality in the manufacturing of plastic films and bags and boasts a very impressive list of consumer product companies as their clients.
Although their packaging business has an impressive track record, but Thong Guan was actually founded was before the 30 year old packaging business. Thong Guan's operation was established in 1942. It started as a smally family oriented tea merchant specializing in black and Chinese tea which was packed under its own "888" and other brands.
Presently, Syarikat Thong Guan Trading Sdn Bhd is one of the largest processor and distributor of tea, coffee and other related products in Malaysia. It is a wholly owned subsidiary company of Thong Guan Industries Berhad, a company listed on the Main Board of the Kuala Lumpur Stock Exchange. The production of tea and coffee products at its manufacturing plants located in Sungai Petani, Kedah. The products are widely distributed in Penisular Malaysia, Sabah & Sarawak and also exported to the neighboring countries of Thailand, Singapore and Brunei.
Talk about a long history. The company has reinvented itself into the huge packaging company from just a tea packaging and distribution company which is a totally impressive feat.
Valuations wise, the dividend for FY2009 was 4 cents which translates to almost a 4% yield. Price to revenue ratio stands at 0.25 and they have grown the their revenue numbers consistently throughout the 1990s till now with the exception of 2008-09. Book value stands are more than RM2.00 which means the current price of RM1.06 is trading at a significant discount to the company's underlying value.
Another really impressive statistic of Thong Guan is its ability to generate significant cash flows over the longer period of time. Price to free cash flow ratio on average over the past 5 years has been 2 times!!! That is a really magical number because the company has demonstrated its ability to generate sustainable cash flows and with little debt on their books, it should be able to raise its dividend payouts going into the future.
In terms of track record, the management of Thong Guan has an impeccable reputation and much of its success is due to their vision and ability to steer the company to become the packaging giant that it is today. A company with such a long track record with no scandals or problems is now a rarity. I challenge any of you to find 10 companies listed in Singapore and Malaysia that has been around for as long as Thong Guan and grown so consistently. Please do not say Jardine makes up 3 different companies. Haha.
Ok thats all from me this week.
Best,
SVI
Saturday, July 10, 2010
Loyalty to a winless football team vs Loyalty to an incompetent bank. Which is worse?
Today is the world cup finals between Holland and Spain. If there is something I am sure of, that is it will be one cracking match between 2 deserved teams. I have been a supporter of Holland over the past 18 years and trust me it has not been an easy road because of the constant disappointment due to the underachievement of the team. Considering the fact that the team has not won anything since 1988, many Oranje fans will agree with me on the frustration of watching talented dutch teams fight within their own ranks in the past causing them to perform badly on the world stage.
Talking about supporting a football team unconditionally reminds me of something which I feel compelled to bring up an incident that was pretty comical and yet frustrating for many people this week. As a supporter of Holland and Liverpool, I believe many supporters will understand my pain of watching my teams screw up year after year. I only hope that I will see one of these 2 teams win a major title (Holland the world cup and Liverpool the premiership) before I die. Chances are slim and maybe be wishful thinking but one needs to have hope right?
Much like my loyalty towards my team, many Singaporeans have a similar foolish following of our very own national bank. Splashed all over the pages of local papers were reports on how this particular bank's consumer banking system grinded to a stop due to some system glitches last monday. Some may think that I am really anal to pick on DBS for such a technical glitch, but lets be honest here, this is the nation's largest bank and most people use their accounts with DBS as their key account for transactions. The glitch definitely caused much inconvenience to many Singaporeans and DBS really has to admit that it was a disgraceful incident as the other 2 local banks have never gotten themselves into this kind of situations before.
Funny thing is, almost every Singaporean has a DBS account and considering the constant queues at the ATMs nationwide, it really makes me wonder why that is so. More often than not, whenever I walk past a DBS atm, I see a long long queue while the OCBC or UOB ATM next to it is as deserted as the restaurants at Boat Quay. If I did not know better, I would have thought that there was a "run on bank" with DBS. Why do people not just use UOB or OCBC and spare themselves of the pain of queuing? That just baffles me. Now with this technical glitch, it just supports my argument of blind faith of human beings. Loyalty to a football club can be disappointing and painful but as a supporter you do not suffer from financial losses (unless you keep buying their merchandise) but if you stick to a bank that cannot even manage their basic banking system properly then there is no guarantee on what could happen down the road.
Yes yes, some will tell me that I am too hard on our nation's bank, but look at their track record. Who got hit hardest in 2008 in terms of exposure to toxic assets? Poor investment decisions, investing heavily in Suzhou? Which bank destroyed their Hong Kong customers' safe deposit boxes with their precious belongings? I do not need to mention the name but honestly ask yourselves, with a track record so blemished, you still have confidence in them? Is that blind faith and stupidity? I am not here to judge you, but I hope my readers have better sense to think logically for themselves without me to spell it out. There is a reason why DBS stock is still far from their 2007 highs while UOB and OCBC are getting recovering nicely. Being the only govt backed bank, it has a natural competitive advantage and analysts continue to speak favorably on the company. On paper, they are right to point out the competitive edge, in theory and reality, things can diverge quite drastically.
Ok enough bank bashing on this post. Lets discuss about something else that maybe more interesting than incompetent banks. Since today is a big day for me, I have decided to just write about more general happenings of the market rather than writing specifically on any stocks.
S chips came back into the limelight this week, with 2 large (should I say 2 largest) private equity firms taking strategic stakes in China Animal and China Fishery. Frankly, looking at the entry prices of the two investors, they were not bought at a cheap valuation. China Fishery is currently trading at a premium to its peers listed in Norway, yet Carlyle was willing to enter at this price. China Animal placed out shares at a premium to their last closing price. No doubt the convertibles will allow Blackstone to lower their average price but still it is a show of their confidence in the company's prospects over the longer term. The fact that both companies are agricultural and food producers, it ties in with my bullishness on agri land.
There is no doubt that the corporate governance of S chips have been a major deterrent to investors over the past 2 years, with FerroChina and Fibrechem shredding up what was left of S chips reputation after the China Aviation Oil debacle. I do not deny there are many question marks on many S chips, till the extent of one of them (China Hongxing) needing to bring their bank statements to their analyst briefing to assure them that they really do have the cash stated in their accounts. Confidence once lost will take a long time to regain. Once a wise man said, it takes a lifetime of hard work to gain confidence of others and it only takes a second to throw it all away. In the case of S chips, it took a few companies to destroy confidence.
Wen confidence is high, prices get euphorically high, that is when valuations get stretched and irrational. When confidence is low, prices get depressed and opportunities appear. I have been a big fan of depressed stocks and where there is fear, there is money to be made. There are quite a few quality S chips with strong cash flows and balance sheets but are totally unloved, hopefully the events of the past week will make investors wake up to the reality that not all S chips are the same and see value in them.
I will leave it up to you guys to seive out the peaches from the lemons. Sorry, I would love to write about a certain stock but I am really too preoccupied with my Holland to concentrate on writing on specific stocks. However I can point you guys towards the right direction...China Merchant Pacific, FabChem, Fung Choi Media...The rest is up to yourselves.
Go Oranje!
Best,
SVI
Talking about supporting a football team unconditionally reminds me of something which I feel compelled to bring up an incident that was pretty comical and yet frustrating for many people this week. As a supporter of Holland and Liverpool, I believe many supporters will understand my pain of watching my teams screw up year after year. I only hope that I will see one of these 2 teams win a major title (Holland the world cup and Liverpool the premiership) before I die. Chances are slim and maybe be wishful thinking but one needs to have hope right?
Much like my loyalty towards my team, many Singaporeans have a similar foolish following of our very own national bank. Splashed all over the pages of local papers were reports on how this particular bank's consumer banking system grinded to a stop due to some system glitches last monday. Some may think that I am really anal to pick on DBS for such a technical glitch, but lets be honest here, this is the nation's largest bank and most people use their accounts with DBS as their key account for transactions. The glitch definitely caused much inconvenience to many Singaporeans and DBS really has to admit that it was a disgraceful incident as the other 2 local banks have never gotten themselves into this kind of situations before.
Funny thing is, almost every Singaporean has a DBS account and considering the constant queues at the ATMs nationwide, it really makes me wonder why that is so. More often than not, whenever I walk past a DBS atm, I see a long long queue while the OCBC or UOB ATM next to it is as deserted as the restaurants at Boat Quay. If I did not know better, I would have thought that there was a "run on bank" with DBS. Why do people not just use UOB or OCBC and spare themselves of the pain of queuing? That just baffles me. Now with this technical glitch, it just supports my argument of blind faith of human beings. Loyalty to a football club can be disappointing and painful but as a supporter you do not suffer from financial losses (unless you keep buying their merchandise) but if you stick to a bank that cannot even manage their basic banking system properly then there is no guarantee on what could happen down the road.
Yes yes, some will tell me that I am too hard on our nation's bank, but look at their track record. Who got hit hardest in 2008 in terms of exposure to toxic assets? Poor investment decisions, investing heavily in Suzhou? Which bank destroyed their Hong Kong customers' safe deposit boxes with their precious belongings? I do not need to mention the name but honestly ask yourselves, with a track record so blemished, you still have confidence in them? Is that blind faith and stupidity? I am not here to judge you, but I hope my readers have better sense to think logically for themselves without me to spell it out. There is a reason why DBS stock is still far from their 2007 highs while UOB and OCBC are getting recovering nicely. Being the only govt backed bank, it has a natural competitive advantage and analysts continue to speak favorably on the company. On paper, they are right to point out the competitive edge, in theory and reality, things can diverge quite drastically.
Ok enough bank bashing on this post. Lets discuss about something else that maybe more interesting than incompetent banks. Since today is a big day for me, I have decided to just write about more general happenings of the market rather than writing specifically on any stocks.
S chips came back into the limelight this week, with 2 large (should I say 2 largest) private equity firms taking strategic stakes in China Animal and China Fishery. Frankly, looking at the entry prices of the two investors, they were not bought at a cheap valuation. China Fishery is currently trading at a premium to its peers listed in Norway, yet Carlyle was willing to enter at this price. China Animal placed out shares at a premium to their last closing price. No doubt the convertibles will allow Blackstone to lower their average price but still it is a show of their confidence in the company's prospects over the longer term. The fact that both companies are agricultural and food producers, it ties in with my bullishness on agri land.
There is no doubt that the corporate governance of S chips have been a major deterrent to investors over the past 2 years, with FerroChina and Fibrechem shredding up what was left of S chips reputation after the China Aviation Oil debacle. I do not deny there are many question marks on many S chips, till the extent of one of them (China Hongxing) needing to bring their bank statements to their analyst briefing to assure them that they really do have the cash stated in their accounts. Confidence once lost will take a long time to regain. Once a wise man said, it takes a lifetime of hard work to gain confidence of others and it only takes a second to throw it all away. In the case of S chips, it took a few companies to destroy confidence.
Wen confidence is high, prices get euphorically high, that is when valuations get stretched and irrational. When confidence is low, prices get depressed and opportunities appear. I have been a big fan of depressed stocks and where there is fear, there is money to be made. There are quite a few quality S chips with strong cash flows and balance sheets but are totally unloved, hopefully the events of the past week will make investors wake up to the reality that not all S chips are the same and see value in them.
I will leave it up to you guys to seive out the peaches from the lemons. Sorry, I would love to write about a certain stock but I am really too preoccupied with my Holland to concentrate on writing on specific stocks. However I can point you guys towards the right direction...China Merchant Pacific, FabChem, Fung Choi Media...The rest is up to yourselves.
Go Oranje!
Best,
SVI
Monday, July 5, 2010
Hot Real Estate? Hospitality? Commercial? Residential? None of the above...Arable is the answer.
Looking back today, I realised I have already posted 51 times since the blog started. A little less than Dawn Yeo or whatever her name may be but I am sure I make it up with a lot more substance. My mundane life is probably the last thing people would want to read about that is why I spend most of my time reading about investing finding little titbits of knowledge to share with all of you.
Since we are on the topic of mundane things, the market has been acting very much like my life. Boring and going downhill. The global markets have been spending much time in the red and a flat performance is considered a good day in the market these days. The relative strength index (RSI) of the US is currently standing at a very respectable 11.9, which is the lowest oversold region in a very very long time. This gives an indication of how badly the Dow has been performing over the past 2 weeks.
Let me first congratulate myself for my call on Asia Food and Properties 2 weeks ago. At $0.605 it was a bargain and those that have followed that call would have made good money because they would have gotten 1 Bund Centre Investments (BCI) share for every 2 AFP shares held. On the last day of cum entitlement, the price of AFP was $0.635 and after the BCI shares were distributed the ex price was $0.505, implying that BCI shares were worth $0.26. Now AFP's price have recovered back to $0.575 and BCI shares are priced at $0.49. Therefore astute investors would have made almost 100% on their BCI shares and still gained more than 10% on their AFP shares. What a return! Especially during such a horrible market condition.
Enough of the past, lets take a little look at the future. As a blogger who tries to post at least 1 post a week, it is sometimes difficult because it is not easy to find something interesting to write about every week. I did not manage to find time on Sunday to write because I was out attending a wedding of a fellow investment professional and it was definitely one of the few times when I did not mind the wedding lasting a little longer. Sitting on a table of private bankers is always a sure bet of having at least one hottie sitting there. But enough of that. Lets get back to today's post.
This week, I would like to share an interesting article which I read in the Business Times this week. The article was introducing the investment proposition of Agricultural land. You must be asking yourself, why is SVI talking about Agricultural land? No I am not hinting to all of you to go out and buy yourself a farm to grow crops or even raise cows. A year ago, I had this investment analyst introduce the concept of buying agri land to me. I found the argument very compelling but my first reaction was....how the hell was I supposed to buy agri land???? Do I just get off my butt and go down to Latin America, Australia or even China to buy agri land? I made a mental note to myself to find a way or a channel to gain access to it but thanks to my infamous short term memory, it just fell out of my mind...till today.
Why agri land? We can once again break this down to a demand and supply argument. Continued population growth, rapid urbanisation and land degradation will lead to a lower supply of agri land for the world. On the demand side of the equation, rising per capita income in emerging economies will lead to higher demand for meat, grain and other agri products. If that is not enough for you, the drive for alternative energy like biodiesel means that the competition for agri land use will heat up to a level never seen before.
There were also some performance numbers quoted in the article. Rabobank provided the figures and it showed how well agri land has performed over the past 11 years. With the best performer being pastureland in Sao Paulo, Brazil delivering 658% over the period.
So how do we, the common folk gain access to this investment? Well there is currently no direct way to do so unless you have tons of capital. I am sure one day some investment bank is going to package agri land pieces into a strutured vehicle for common investors to buy into, but that will mean management fees and also some sort of underwriting fees involved. I have to be honest, I hate paying fees, especially on a yearly basis regardless of whether the investment is delivering positive returns or not.
We do have the ability to gain indirect access to the ever appreciating agri land investment. Yes, you guessed it right. We can always buy into plantation, grain, dairy owners. There are quite a few out there, companies like Wilmar, Indofood, Sime Darby etc who own more than 200,000 hectares of plantation land each. I will totally look into studying companies that own such assets. Currently, I do not think many of such companies are cheap in terms of price to book values but a more detailed look will be needed to reach a more certain conclusion. But this is definitely an investment that I will be keeping a close eye on going forward.
Best,
SVI
Since we are on the topic of mundane things, the market has been acting very much like my life. Boring and going downhill. The global markets have been spending much time in the red and a flat performance is considered a good day in the market these days. The relative strength index (RSI) of the US is currently standing at a very respectable 11.9, which is the lowest oversold region in a very very long time. This gives an indication of how badly the Dow has been performing over the past 2 weeks.
Let me first congratulate myself for my call on Asia Food and Properties 2 weeks ago. At $0.605 it was a bargain and those that have followed that call would have made good money because they would have gotten 1 Bund Centre Investments (BCI) share for every 2 AFP shares held. On the last day of cum entitlement, the price of AFP was $0.635 and after the BCI shares were distributed the ex price was $0.505, implying that BCI shares were worth $0.26. Now AFP's price have recovered back to $0.575 and BCI shares are priced at $0.49. Therefore astute investors would have made almost 100% on their BCI shares and still gained more than 10% on their AFP shares. What a return! Especially during such a horrible market condition.
Enough of the past, lets take a little look at the future. As a blogger who tries to post at least 1 post a week, it is sometimes difficult because it is not easy to find something interesting to write about every week. I did not manage to find time on Sunday to write because I was out attending a wedding of a fellow investment professional and it was definitely one of the few times when I did not mind the wedding lasting a little longer. Sitting on a table of private bankers is always a sure bet of having at least one hottie sitting there. But enough of that. Lets get back to today's post.
This week, I would like to share an interesting article which I read in the Business Times this week. The article was introducing the investment proposition of Agricultural land. You must be asking yourself, why is SVI talking about Agricultural land? No I am not hinting to all of you to go out and buy yourself a farm to grow crops or even raise cows. A year ago, I had this investment analyst introduce the concept of buying agri land to me. I found the argument very compelling but my first reaction was....how the hell was I supposed to buy agri land???? Do I just get off my butt and go down to Latin America, Australia or even China to buy agri land? I made a mental note to myself to find a way or a channel to gain access to it but thanks to my infamous short term memory, it just fell out of my mind...till today.
Why agri land? We can once again break this down to a demand and supply argument. Continued population growth, rapid urbanisation and land degradation will lead to a lower supply of agri land for the world. On the demand side of the equation, rising per capita income in emerging economies will lead to higher demand for meat, grain and other agri products. If that is not enough for you, the drive for alternative energy like biodiesel means that the competition for agri land use will heat up to a level never seen before.
There were also some performance numbers quoted in the article. Rabobank provided the figures and it showed how well agri land has performed over the past 11 years. With the best performer being pastureland in Sao Paulo, Brazil delivering 658% over the period.
So how do we, the common folk gain access to this investment? Well there is currently no direct way to do so unless you have tons of capital. I am sure one day some investment bank is going to package agri land pieces into a strutured vehicle for common investors to buy into, but that will mean management fees and also some sort of underwriting fees involved. I have to be honest, I hate paying fees, especially on a yearly basis regardless of whether the investment is delivering positive returns or not.
We do have the ability to gain indirect access to the ever appreciating agri land investment. Yes, you guessed it right. We can always buy into plantation, grain, dairy owners. There are quite a few out there, companies like Wilmar, Indofood, Sime Darby etc who own more than 200,000 hectares of plantation land each. I will totally look into studying companies that own such assets. Currently, I do not think many of such companies are cheap in terms of price to book values but a more detailed look will be needed to reach a more certain conclusion. But this is definitely an investment that I will be keeping a close eye on going forward.
Best,
SVI
Thursday, July 1, 2010
A mid-week note to start 3Q2010
I feel almost apologetic that the market practically has had its wheels fall off after my double dip post on Monday. My protégé smsed me and said maybe I should write about more optimistic scenarios and the market may turn positive. Often have we heard about markets overshooting on the upside and downside. I believe the sell down in 2008 was a classic case of overshooting on the downside on the back of “end of the world” pessimism. While the sell down in 2008 was spectacular, the rebound in 2009 was nothing short of a big bang. The question that lingers in one’s mind is…Did it overshoot on the upside. I believe the answer is maybe. As we all know, the world is a big place, global markets are not equal in terms of status and valuations, this is the reason why my answer was maybe.
When the tide rose in 2009, every market rose in tandem and almost every investor became a genius (including me). But if we look at the earnings expectations, I would have to say that the expectations have been a little too optimistic for some markets. The S&P reaching 19 times p/e at its 2010 peak was excessive considering economic growth was still tepid. While the Shanghai composite traded at a mere 20 odd times when China was reclaiming double digit growth numbers. How I would classify this current correction as a normalization of valuations for the markets that have overshot on the upside. As for Shanghai Composite trading at 15 times p/e, that is just a bargain. The worries over a slowdown and its property bubble bursting is keeping valuations in check but I believe for those brave souls out there, they should be buying some CSI 300 or any A shares ETFs because returns will be great down the road.
In simple words, 2009 was the biggest 1 year rebound in stock markets ever and many stock indices doubled during the period. Remember, these all happened before the earnings recovered in any way. Investors realized that they had been overly pessimistic and sold down stocks to a level which should only be touched when the world was coming to an end. No one can be blamed for that besides the media who wrote about the crisis as if it was really financial Armageddon and the world we know was coming to an end. When the world did not come to an end and rationality came back home, investors started to price stocks more rationally. As the markets picked up, so did sentiment and this pushed prices to levels where it was a little stretched and now we are paying the price.
According to PIMCO’s New Normal thesis, investors should get ready for lower growth in developed countries and emerging market will start to play a bigger role in world markets. They also mentioned that investors have to stop having the expectations of double digit returns from bonds or equities in this new normal environment. Investment assets are not expected to perform as strongly as the "old normal" over the past 20 years and in the "new normal" investment returns are going to pale in comparison to the past.
Never in PIMCO’s dreams was the market going to rally like what it did in 2009 and it was practically an egg in their faces. But I would like to add, they may not have gotten the timing correctly, it does not mean that they are wrong. Eventually their new normal will arrive and investor expectations have to adjust to the new growth path. They were too early on their call on the sub-prime crisis, but at least they were well positioned for it by the time it happened.
I do believe that the credit crisis of 2007-08 stemmed from the fact that we have built the world we live in on credit. Credit is a part of all of our lives. It is commercialization that has led us to rely so much on credit and living on credit became a norm. Credit cards lure us with their attractive promotions, interest free installment payments, Kris flyer miles etc, convincing us that by using them is more than just out of convenience but also the benefits are bountiful. Credit is used in buying luxury items like houses, Panerai watches, sports automobiles etc. It allows us to buy things which we cannot afford at the current moment but we wish to believe we will eventually make enough to do so. For the past 30 years, credit has been utilized from individuals to corporates to governments and the multiplier effect has been one that the world has never seen before. The creation of securitization has exacerbated the problem by allowing financial institutions to sell the debt back to the very people who are taking on the debt. What irony!
The credit crisis of 2007-08 represents the wake up call that we have so desperately needed but never want to hear from. As credit is withdrawn from the system, “deleveraging process” is what it is called, corporates, individuals and governments are all suffering from their past over indulgences. From a sub-prime and mortgage crisis (individuals), it evolved into a banking crisis (corporates) and now moving to the advanced stage…a sovereign crisis (governments). The credit crisis is not over, it is just evolving and moving like a contagion from the smaller players to the larger ones. We are probably at the more advanced stages of the deleveraging process but it is a stage which could drag on for a long time. Credit expansion is not expected to come back with a bang any time soon (with the exception of China) and sovereign risks are rising as less peripheral countries like Spain and the UK are getting dragged into the picture.
Many would say a sovereign crisis like this is possibly a once in a generation event, in Nassim Taleb's words a "Black Swan" event. From a personal point of view, I do not think the Euro zone's crisis is the trigger for the "Black Swan" event. No doubt these Euro zone problems will not be going away any time soon but they will not lead to a world wide crash. Do not listen or take heed in what the press are writing about; how the Euro zone is going to split up, the end of the Euro is nigh, Germany to leave the Euro zone, PIIGS going to be kicked out of Euro zone etc. First let me say, the Euro will never disappear and the Eurozone will not break up. To top things off, assertions of Germany leaving the Euro zone is just preposterous. The Germans are better off with the lower Euro, they are going to be exporting a serious amount of BMWs and Porsches. There is also no chance the Germans will take the risk of incurring the wrath of its largest trading partners by abandoning them during their time of need. Germany is afterall the largest exporter of goods within the Euro zone and the last thing they want is to make their largest customers angry. So logically, all those debates in the media on the breaking up of the Euro zone is just silly.
There is without a shadow of a doubt that the troubles of the US is significantly higher than that of the Euro zone nations. There will always be arguments that the USD is the reserve currency of the world and that it can never be replaced. I would like to remind readers that no one believed that Rome would fall too. I do not think it would be wise for the world be complacent and believe that the US will always be the leader and with their ability to print more money, they will not fall into the same trap as the Euro zone countries. All I can say is, it is only natural that no one stays in a leadership position forever. Just like Roger Federer, Lin Dan, Michael Schumacher etc, they may be the best of all time at present, but their no. 1 position will one day be usurped by others. It is great to be on top, but enjoy the moment because it will not last forever.
Best,
SVI
When the tide rose in 2009, every market rose in tandem and almost every investor became a genius (including me). But if we look at the earnings expectations, I would have to say that the expectations have been a little too optimistic for some markets. The S&P reaching 19 times p/e at its 2010 peak was excessive considering economic growth was still tepid. While the Shanghai composite traded at a mere 20 odd times when China was reclaiming double digit growth numbers. How I would classify this current correction as a normalization of valuations for the markets that have overshot on the upside. As for Shanghai Composite trading at 15 times p/e, that is just a bargain. The worries over a slowdown and its property bubble bursting is keeping valuations in check but I believe for those brave souls out there, they should be buying some CSI 300 or any A shares ETFs because returns will be great down the road.
In simple words, 2009 was the biggest 1 year rebound in stock markets ever and many stock indices doubled during the period. Remember, these all happened before the earnings recovered in any way. Investors realized that they had been overly pessimistic and sold down stocks to a level which should only be touched when the world was coming to an end. No one can be blamed for that besides the media who wrote about the crisis as if it was really financial Armageddon and the world we know was coming to an end. When the world did not come to an end and rationality came back home, investors started to price stocks more rationally. As the markets picked up, so did sentiment and this pushed prices to levels where it was a little stretched and now we are paying the price.
According to PIMCO’s New Normal thesis, investors should get ready for lower growth in developed countries and emerging market will start to play a bigger role in world markets. They also mentioned that investors have to stop having the expectations of double digit returns from bonds or equities in this new normal environment. Investment assets are not expected to perform as strongly as the "old normal" over the past 20 years and in the "new normal" investment returns are going to pale in comparison to the past.
Never in PIMCO’s dreams was the market going to rally like what it did in 2009 and it was practically an egg in their faces. But I would like to add, they may not have gotten the timing correctly, it does not mean that they are wrong. Eventually their new normal will arrive and investor expectations have to adjust to the new growth path. They were too early on their call on the sub-prime crisis, but at least they were well positioned for it by the time it happened.
I do believe that the credit crisis of 2007-08 stemmed from the fact that we have built the world we live in on credit. Credit is a part of all of our lives. It is commercialization that has led us to rely so much on credit and living on credit became a norm. Credit cards lure us with their attractive promotions, interest free installment payments, Kris flyer miles etc, convincing us that by using them is more than just out of convenience but also the benefits are bountiful. Credit is used in buying luxury items like houses, Panerai watches, sports automobiles etc. It allows us to buy things which we cannot afford at the current moment but we wish to believe we will eventually make enough to do so. For the past 30 years, credit has been utilized from individuals to corporates to governments and the multiplier effect has been one that the world has never seen before. The creation of securitization has exacerbated the problem by allowing financial institutions to sell the debt back to the very people who are taking on the debt. What irony!
The credit crisis of 2007-08 represents the wake up call that we have so desperately needed but never want to hear from. As credit is withdrawn from the system, “deleveraging process” is what it is called, corporates, individuals and governments are all suffering from their past over indulgences. From a sub-prime and mortgage crisis (individuals), it evolved into a banking crisis (corporates) and now moving to the advanced stage…a sovereign crisis (governments). The credit crisis is not over, it is just evolving and moving like a contagion from the smaller players to the larger ones. We are probably at the more advanced stages of the deleveraging process but it is a stage which could drag on for a long time. Credit expansion is not expected to come back with a bang any time soon (with the exception of China) and sovereign risks are rising as less peripheral countries like Spain and the UK are getting dragged into the picture.
Many would say a sovereign crisis like this is possibly a once in a generation event, in Nassim Taleb's words a "Black Swan" event. From a personal point of view, I do not think the Euro zone's crisis is the trigger for the "Black Swan" event. No doubt these Euro zone problems will not be going away any time soon but they will not lead to a world wide crash. Do not listen or take heed in what the press are writing about; how the Euro zone is going to split up, the end of the Euro is nigh, Germany to leave the Euro zone, PIIGS going to be kicked out of Euro zone etc. First let me say, the Euro will never disappear and the Eurozone will not break up. To top things off, assertions of Germany leaving the Euro zone is just preposterous. The Germans are better off with the lower Euro, they are going to be exporting a serious amount of BMWs and Porsches. There is also no chance the Germans will take the risk of incurring the wrath of its largest trading partners by abandoning them during their time of need. Germany is afterall the largest exporter of goods within the Euro zone and the last thing they want is to make their largest customers angry. So logically, all those debates in the media on the breaking up of the Euro zone is just silly.
There is without a shadow of a doubt that the troubles of the US is significantly higher than that of the Euro zone nations. There will always be arguments that the USD is the reserve currency of the world and that it can never be replaced. I would like to remind readers that no one believed that Rome would fall too. I do not think it would be wise for the world be complacent and believe that the US will always be the leader and with their ability to print more money, they will not fall into the same trap as the Euro zone countries. All I can say is, it is only natural that no one stays in a leadership position forever. Just like Roger Federer, Lin Dan, Michael Schumacher etc, they may be the best of all time at present, but their no. 1 position will one day be usurped by others. It is great to be on top, but enjoy the moment because it will not last forever.
Best,
SVI
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