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
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