The other day, a remisier friend of mine pointed out to me that the Singapore stock market volumes have fallen since the casinos opened their doors for business. He was trying to get the point across to me that Singaporean punters have turned to Baccarat tables to try their luck instead of playing contra in the market. After much thinking, I came to the conclusion that contra players were actually smarter to try their luck in gambling than trying to trade stocks in and out of the market within 5 days. The reason to why I think that way is that if you were gambling you would be playing on your luck and if you played Baccarat (in my opinion is the fairest game in the casino even though its still not a 50/50 game) it would give you a better chance of winning money than contra trading. Why? Because contra trading is much more than just luck, its also the psyche of the market participants and many other external factors that may cause your trade to turn sour. No matter how good you are, the odds are stacked against you. You are much better off investing consistently using the buy and hold strategy to build your wealth.
Of course, I personally have the weakness of looking for thrills in the market and end up losing money trading. Overall, my record is still a positive one but honestly too much time has been spent trading for me to do other more concrete things like...work. I do have a resolution to trade less going forward and perhaps channeling more energy towards studying, reading, working and gambling.
Before I start on the topic of the day, I would like to correct myself in the previous post where I mentioned that the yield curve has a good record of predicting recessions. It is true that it has good predictive ability but the fact that the shorter end of the curve is near to zero, that could mean that it has lost its predictive ability as the yield curve has absolutely no chance of inverting. Short term rates will never go negative in nominal terms and thus there is no chance of yield curve inversion no matter how flat the yield curve goes. So I do apologise for that. I was not thinking too clearly on that.
Today I just want to write a post that is more general and relaxing, letting my mind flow to whatever comes into it and "go with the flow" in every sense. My fellow peers in the investment industry have been raving about how well bonds have done and telling me how they were bearish and that equities are going to have a tough time going forward. They are all advising whoever is willing to listen to go into "safer" assets like bonds and senior loans. While good ol' chump like me continues to argue for equities as the place to be in. So in order to convince myself that I am right to be bullish, I have decided to list down the reasons to why I am.
Here are some reasons to why I am bullish.
1) Merger and acquisitions are picking up
The bidding war on 3 PAR is really a joke because the company that specialises in data storage that is still in the red is being bid up all the way from the initial offer of 1.16 billion to 2 billion. Two computer giants rushing to get into the data storage business, totally getting into a tug and pull war.
What about BHP's bid for Potash, now that was one mega deal. 36 billion and still being turned down. Who says there is not enough liquidity in the market? Merger and acquisitions happen only when corporations are optimistic about the economic situation and their future going forward.
Just because they are not willing to employ, does not mean that the companies are doing badly. They are just making sure they squeeze as much productivity out of their existing resources and are looking to expand through acquisitions than through organically growing their companies. That is why the employment situation is still looking dire.
We need to start to acknowledge that the new economy will be a less labour intensive one as technology continues to deliver new breakthroughs in productivity and companies take on the leaner and meaner model.
2) Dividend yields are now higher than the 10 year treasury bill and should be higher
Dividends have not caught up with the earnings growth. They were cut during the market downturn but they have not recovered as earnings have. With the ten year treasury moving down back to crisis like levels of 2.5% and so much liquidity looking for yields, the dividends are going to look mighty attractive backed by robust earnings.
3) Earnings are still robust
Earnings on the S&P500 have improved 43% YOY and are expected to show resilience as productivity continues to be strong. Earnings expectations are currently being revised downwards as fears over the economic recovery continue to hog the headlines. This gives me even more impetus to try to pick companies to buy. I love it when there is no expectations. Like I always tell my friends, when there is no expectations there is no disappointment. What that means is, there is only upside no downside.
4) Penultimate years before elections tend to be good years for equities
How time flies and as Obama's time as president enters its 3rd year in 2011, he will need to do lots of things to aid the economy before going into election year 2012. In history, pre-election years tend to be good years for the market. Remember 2007? Markets hit a new high before sub prime came along. 2003 was the turn of the market after the tech bubble. So I believe 2011 will be no different, a another good year for equities.
5) Deflation is not likely
3 years ago during an investment conference which I was speaking in, there was a fund manager who came up to me and asked me whether I thought the bond traders or equity traders were better readers of the economy. At that time, bonds were rallying and yields were falling off the cliff while at the same time equities were also rallying to new highs. Both were telling contrasting stories on the economy. At the time, the bond traders were risk adverse while the equity bulls were strong at work. I told him, it was probably the bond traders because the valuations were ridiculous for equities. Now I would say the bond traders are wrong, so are the equity traders. So end of the day, equity traders seem to be wrong all the time. Haha.
The notion of deflation has become something of a widely discussed possibility. For me, I believe it is really quite impossible for that to happen because CPI numbers are still very much in the positive territory, be it in developed markets or emerging markets. There is no chance in this living world when there is so much money being printed and prices go negative. If Bernanke fails to keep deflation our of the US, he would have wasted his decades of academic study and I feel sorry for him and his parents.
6) Chinese hard landing is close to impossible
There was a very prominent economist that told me that I should never worry about Chinese data disappointing the market. I would like to say that he is really a super nice person for such a prominent and well known person. Why he made that statement was because he felt that the numbers from China cannot be trusted and they are just manipulated to give the market what it wants. So if the numbers are doctored, how is it possible to have a hard landing?
There are tons of talk about how Chinese properties are tumbling down in prices but I just has a meeting with a CEO of a property management company and he told me that 2nd tier cities are still seeing higher prices. In fact, the government is trying to boost the property markets in the 2nd and 3rd tier markets. They are only targeting to cool the coastal and 1st tier cities property markets rather than the whole of China.
Many an experts are talking about how the banks will suffer as the property mania is China cools down, but so much has been discounted on the prices of Chinese banks that they look like the ones that got hit by sub prime. Financials in China really do look cheap now.
7) There is no where else to park your money
With property prices in emerging markets looking frothy, deposit rates close to nothing, bond prices at sky high and commodity markets seeing only pockets of strength, where else can anyone with excess cash park their money? Maybe they should go to Marina Bay Sands for a nice night of entertainment or maybe Resort World Singapore to try their luck. For those not really into gambling, there is no harm parking your money in a good dividend paying stock right?
8) Stocks are trading at 12.7 times p/e for 2010 and 11 times for 2011, still below long term averages.
Valuations are still cheap. I really do not need to talk about it too much. It is a fact. There is even a company in Singapore that is trading at 5 times p/e with a 7% dividend yield and 30% earnings growth. Now that is ridiculously cheap. The father of value investment, Benjamin Graham once said, "a company that has no earnings growth should not trade more than 8 times p/e." Well when you are growing at 20-30%, you definitely should not be trading at 5 times.
After a long week, I am very proud to find myself finding the energy to write this post but as a disciplined person I told myself, I need to put my thoughts into writing and also to hold back any urge of going to a midnight baccarat session.
Well all the best for the week coming ahead. Non-farm payrolls once again this Friday, man I am getting old with every month flashing by.
Best,
SVI
Saturday, August 28, 2010
Saturday, August 21, 2010
US recession fears are overdone at the moment. Headlines deceive once again!
Considering the fact that I will be working the whole day tomorrow, just decided to start my post early this weekend. I need to be very frank about my feelings on the previous post on Genting Singapore. While I was writing it, my hands were trembling and my face was cringing because it is really a stock I was dead against for the better part of 5 years. I pray hard that I will never have to do a reversal again. If ever I have to write something good about DBS, I will quite blogging and move to the mountains to hide my face. Considering I have been throwing insults at the god forsaken bank for the better part of the past decade. If I were any older, it would have been a significantly longer time.
Since I have written a post during midweek, it is rather difficult to see what I should touch on today. No doubt, the markets have been very volatile on the downside for the past week, but it is the first week in 4 which we have seen a negative finish. It is about time that we saw a bit of a pullback. Lets not get too negative on this. I am still very positive on equities and negative on bonds, this is to reiterate my position that there is a massive bubble in the fixed income space(especially US treasuries).
With US treasuries rallying over the past couple of weeks over fears that the US economy going into a double dip recession, I think it will be appropriate to understand the situation over there. From what I see, people are just getting jittery over the headlines but lets look more closely to see what is the probability of a recession reappearing in the US.
The biggest sell off for the week came after jobless claims in the US came in higher than expected, teetering close to the 500k mark. To me jobless claims are just too volatile to give an accurate indication of the job market in the US. Looking at the chart below, the 4 week average for jobless claims (which I like more) shows a little upturn on that front but it is still some way from its peak in 2009.
On the industrial production front, it also looked pretty stagnant while capacity utilization continues to improve slowly. Many investors were spooked by the Philadelphia Fed Survey suddenly dipping into negative territory, but from my years of following this data point, it really is not a good gauge of economic activity. It is important for us to note that industrial production only accounts for no more than 20 percent of GDP in the US. So a slowdown or not, it is not as crucial as the service sector. Deindustrialization in the US has made the economy harder to read as it is more dependent on the intangible area of services.
Consumer sentiment has been positive but not at overly optimistic levels due to the fact that unemployment is still high and the real gauge of unemployment in the US shows a 16% unemployment rate. However, we need to understand one thing. Even though unemployment remains high, that does not mean that consumer spending will turn negative. It will be weak no doubt, due to fewer people working but consumers only slow down their spending if they are fearful about losing their jobs but now with earnings showing stellar growth and productivity levels remaining strong, job security is improving and thus it will support consumer spending. Judging by how well the Ipads are selling, it shows consumers are still willing to spend on luxuries but only selectively.
My previous point on job security creating confidence to consume more can be reinforced by the two charts below. Consumption slowly creeping up even though income growth is flat. Disposable income and expenditure data looks tepid but at least they have improved significantly from 2009 levels. We need to understand that income has one of the longest lag effects compared to other indicators because you do not expect your employer to give you a raise on the very next month after a good earnings quarter. The only feeling you will get is security that your job is in a safer state as the company delivers profits but to expect a raise immediately is just silly. Sometimes it takes more than a year of economic recovery for employers to feel comfortable enough to raise pay and to employ more people. If I were an employer, I would not raise the pay for my employees because I know for a fact that there will be a line of people ready to take his place if he should feel underpaid and leave.
From what I mentioned previously, service industry makes up the major share of economic growth and what we see is an expansionary number but still a very weak one. The US recovery is definitely on track but it is still very shallow considering the amount of stimulus the government has pumped into the economy.
You may have realised by now, I have left out the housing situation in the US in this post. The reason I am doing so is because I really do not think housing is going to come back so soon. Remember, real estate bubbles take a long long time to recover from. Just ask anyone who bought a Singapore property in 1997, right before the Asian Financial Crisis. Most of them have just broken even over the past year. How many years has it been? 13? Japanese properties probably will never see the levels in the 1980s. Prices in the US will only recover a little but it will be purely wishful thinking if you think that the prices are going to see 2007 levels? Not a chance. We will be lucky if we see it within the next 10 years. The only way prices will hit 2007 levels will be due to hyperinflation in the US which cannot be ruled out due to the amount of liquidity in the system. But in terms of real prices, it will probably be languishing.
Lastly, I would like to use the yield curve for US treasuries to show why I think a recession is very unlikely because it is still very steep and near term rates remain low and long term rates continue to remain firm. 10 year yields are moving down drastically (no doubt artificially) and the yield curve remains steep. I firmly believe in the yield curve's ability to predict recessions going forward. It has predicted the last 13 out of the last 12 recessions in the US. Hahaha. Liquidity is more than abundant in the system and it is very obvious that money is so cheap that merger and acquisitions will start to pick up. Judging from the multi-billion deal proposed by BHP in its quest to purchase Potash, it is just the beginning. Expect more deals to come and large companies with ability to take advantage of the cheap liquidity to buy other companies. It is a sign of how cheap valuations are now and as cheap money continues to be available, the economy will continue to chug along.
My conclusion is that a double dip recession is highly unlikely in the near term. Ben Bernanke will never let it happen considering he once suggested to drop money from a helicopter to stop deflation in Japan. So have faith in Benny and continue to take the opportunity to add to your equity stakes. Buy quality and do not look at your statements too frequently, faith will be repaid going forward.
Have a good week ahead!
Best,
SVI
Since I have written a post during midweek, it is rather difficult to see what I should touch on today. No doubt, the markets have been very volatile on the downside for the past week, but it is the first week in 4 which we have seen a negative finish. It is about time that we saw a bit of a pullback. Lets not get too negative on this. I am still very positive on equities and negative on bonds, this is to reiterate my position that there is a massive bubble in the fixed income space(especially US treasuries).
With US treasuries rallying over the past couple of weeks over fears that the US economy going into a double dip recession, I think it will be appropriate to understand the situation over there. From what I see, people are just getting jittery over the headlines but lets look more closely to see what is the probability of a recession reappearing in the US.
The biggest sell off for the week came after jobless claims in the US came in higher than expected, teetering close to the 500k mark. To me jobless claims are just too volatile to give an accurate indication of the job market in the US. Looking at the chart below, the 4 week average for jobless claims (which I like more) shows a little upturn on that front but it is still some way from its peak in 2009.
On the industrial production front, it also looked pretty stagnant while capacity utilization continues to improve slowly. Many investors were spooked by the Philadelphia Fed Survey suddenly dipping into negative territory, but from my years of following this data point, it really is not a good gauge of economic activity. It is important for us to note that industrial production only accounts for no more than 20 percent of GDP in the US. So a slowdown or not, it is not as crucial as the service sector. Deindustrialization in the US has made the economy harder to read as it is more dependent on the intangible area of services.
Consumer sentiment has been positive but not at overly optimistic levels due to the fact that unemployment is still high and the real gauge of unemployment in the US shows a 16% unemployment rate. However, we need to understand one thing. Even though unemployment remains high, that does not mean that consumer spending will turn negative. It will be weak no doubt, due to fewer people working but consumers only slow down their spending if they are fearful about losing their jobs but now with earnings showing stellar growth and productivity levels remaining strong, job security is improving and thus it will support consumer spending. Judging by how well the Ipads are selling, it shows consumers are still willing to spend on luxuries but only selectively.
My previous point on job security creating confidence to consume more can be reinforced by the two charts below. Consumption slowly creeping up even though income growth is flat. Disposable income and expenditure data looks tepid but at least they have improved significantly from 2009 levels. We need to understand that income has one of the longest lag effects compared to other indicators because you do not expect your employer to give you a raise on the very next month after a good earnings quarter. The only feeling you will get is security that your job is in a safer state as the company delivers profits but to expect a raise immediately is just silly. Sometimes it takes more than a year of economic recovery for employers to feel comfortable enough to raise pay and to employ more people. If I were an employer, I would not raise the pay for my employees because I know for a fact that there will be a line of people ready to take his place if he should feel underpaid and leave.
From what I mentioned previously, service industry makes up the major share of economic growth and what we see is an expansionary number but still a very weak one. The US recovery is definitely on track but it is still very shallow considering the amount of stimulus the government has pumped into the economy.
You may have realised by now, I have left out the housing situation in the US in this post. The reason I am doing so is because I really do not think housing is going to come back so soon. Remember, real estate bubbles take a long long time to recover from. Just ask anyone who bought a Singapore property in 1997, right before the Asian Financial Crisis. Most of them have just broken even over the past year. How many years has it been? 13? Japanese properties probably will never see the levels in the 1980s. Prices in the US will only recover a little but it will be purely wishful thinking if you think that the prices are going to see 2007 levels? Not a chance. We will be lucky if we see it within the next 10 years. The only way prices will hit 2007 levels will be due to hyperinflation in the US which cannot be ruled out due to the amount of liquidity in the system. But in terms of real prices, it will probably be languishing.
Lastly, I would like to use the yield curve for US treasuries to show why I think a recession is very unlikely because it is still very steep and near term rates remain low and long term rates continue to remain firm. 10 year yields are moving down drastically (no doubt artificially) and the yield curve remains steep. I firmly believe in the yield curve's ability to predict recessions going forward. It has predicted the last 13 out of the last 12 recessions in the US. Hahaha. Liquidity is more than abundant in the system and it is very obvious that money is so cheap that merger and acquisitions will start to pick up. Judging from the multi-billion deal proposed by BHP in its quest to purchase Potash, it is just the beginning. Expect more deals to come and large companies with ability to take advantage of the cheap liquidity to buy other companies. It is a sign of how cheap valuations are now and as cheap money continues to be available, the economy will continue to chug along.
My conclusion is that a double dip recession is highly unlikely in the near term. Ben Bernanke will never let it happen considering he once suggested to drop money from a helicopter to stop deflation in Japan. So have faith in Benny and continue to take the opportunity to add to your equity stakes. Buy quality and do not look at your statements too frequently, faith will be repaid going forward.
Have a good week ahead!
Best,
SVI
Tuesday, August 17, 2010
To err is but human, to admit is divine. Genting Singapore, my biggest mistake ($1.52) Buy.
Some people say, when a person reaches an extreme level of exhaustion, they either blank out or get inspired. What I realised from my own experience is, when I gamble till late at night in a casino, I tend to get reckless and gamble with larger amounts. Thank god I only gamble in Genting Highlands and not Marina Bay Sands because the ringgit is a lot smaller and also the minimum bet is lower. Honestly, I only feel like blanking out right now but what I am going to do is to try to give my self a boost and write something interesting today.
I have to admit, I have a gambler's mentality and much like my idol, Li Nanxing, who loves to gamble both in real life and reel life. There is something about gambling that makes me excited and please do not tell my parents or they will be putting me on the "to bar" list on our 2 casinos. Very proud of myself that I have only visited the casinos thrice since their opening (Pay attention Peoples Action Party, the 100 bucks entrance did not deter me). There is without a doubt that that Marina Bay Sands is the a lot classier and posh. It made me feel like Yan Fei, only without the suit and no Zoe Tay by my side. As for the company I am focusing on today, I have a totally different feel for it.
Before I start with any analysis of the company, I would like to say that this is probably the worst calls in my investing life. I have been cursing this company since the first day I was involved in their share placement at 20 odd cents, all the way back 5 years ago. This is one stock I have been pushing for a strong sell on this counter for the longest time, with my arguments based on share dilution, track record etc. Now it has come back to haunt me, hitting all time high of $1.68 this morning before pulling back to $1.52. Before I admit this was a bad call, I am going to go through the financial statement right now and give you my thoughts. It has been a hectic week so far for me, working 12 hour days and suffering from insomnia, but I still have the compulsion to read through Genting's statement. Those who know me will know that I hate being wrong and when I am wrong, I want to know where I went wrong and why did I come to the wrong decision. So lets get started.
Genting Singapore PLC* ("Genting Singapore") is a leading integrated resorts development specialist with over 20 years of international gaming expertise and global experience in developing, operating and/or marketing internationally acclaimed casinos and integrated resorts in different parts of the world, including Australia, the Americas, Malaysia, the Philippines and the United Kingdom (“UK”).
It is a subsidiary of Genting Berhad and was incorporated in 1984 to invest in leisure and gaming-related businesses outside Malaysia. Genting Group is a collective name for Genting Berhad and its subsidiaries and associates. Genting Group is one of Asia’s leading and best managed multinationals. The Group is renowned for its strong management leadership, financial prudence and sound investment discipline.
The company's principal activities are:
* Development and operation of integrated resort
* Casino operations
* International sales and marketing services
* IT application related services
Genting Singapore has an experienced management team that is focused on and committed to growing its business globally. The Group is the largest casino operator in the UK and had developed integrated family resort in Singapore.
Lets start with the profit statement. Revenue top line growth expanded by more than 100% qoq from $460 million to $979 million. YOY it was even more impressive. Up more than 700%. Gross profit margin was also stronger as the cost of sales only rose by 65% qoq. Net profit came stronger than expected with net margin of 40% which shows how lucrative the integrated resort business is. Diluted earnings per share came in at 3.29 cents for the quarter and that is just mind blowing considering there are more than 12 billion shares out there! Revenues from the integrated resort alone was $860 million and what really impressed me was how people loved Universal Studios considering the fact that 8000 people have visited there on a daily basis and spent a whopping $84 bucks per person! You gotta be kidding! Just do the math, $672,000 per day and multiply it by 365 days. That is a quarter billion bucks per year. Singaporeans simply love thrill rides.
Balance sheet strength wise, I have to admit, at this point, it does look like I may be wrong on my sell call because the net equity to shareholders stands at $4.575 billion. Current liabilities only stand at $1.2 billion which is more than manageable with their $3.2 billion cash hoard. I was worried about Genting needing to raise more money but they do not look like they do in the short term. They do have around $4 billion in long term debt, but this can be easily refinanced in the longer term if they are able to sustain this earnings profile and positive operational cash flow. A large chunk of the long term borrowings is secured by the license of the integrated resort.
Cash flow from operations have seen a strong inflow for 1H10, coming in at a stellar $730 million. That is just pretty amazing and to think that the casino operations only started during Chinese New Year this year.
Enough of the good stuff, now for the bad stuff. The proposed sale of Stanley Leisure, the UK casino operations of Genting Singapore to their parent Genting Malaysia for 340 million pounds may sound good to many people, but to me, it shows that they are up to their old tricks again. After taking years of losses due writedowns from their UK operations, they have decided to sell it to Genting Malaysia at a cheap price. So poor Singaporean shareholders who have suffered from the numerous writedowns now have to see an asset that has been stripped down to its bare fundamentals, sold away just when there is light at the end of the tunnel. This is one of my main arguments against Genting Singapore, that is, they will always be giving their parent the good deals and leaving Singaporean shareholders high and dry.
Regardless of my impression and strong dislike for this company, I have to bring myself to put on record that I have been wrong about its prospects because I may have underestimated the allure of gambling to Singaporeans and our multi talented foreign talents. You know what I am impressed with? The fact that Marina Bay Sands have opened since April 2010 and Genting has maintained its growth rate. I expected there to be some attrition rate from Genting Singapore but it is does not seem to be the case. No matter what, I am still going to say there will still be some attrition going forward and I expect earnings over the next two quarters to impress on a YOY basis but show a slowdown on a QOQ one. Genting Singapore registered flat earnings for 1H2010 taking into account the losses from 1Q2010.
If they are able to register the same kind of earnings for the rest of the year, it will really be impressive and will only be trading at 23 times p/e but full year earnings of 2011 will only be 11.5 times. There is a good chance they may be re-rated to close the gap between them and their peers in Macau. Therefore it is possible that this stock could be a lot higher going forward. I am going to price it at $1.95 first. It is impossible to rule out the possibility of moving to $2.40-$2.60. I cannot believe I am writing this and am sure my closest friends in the brokerage business are going to be laughing when they read this.
As I have put on the title of this post. To err is but human, but to admit is divine. I am only human and its not too late to say I was wrong.
Best,
SVI
I have to admit, I have a gambler's mentality and much like my idol, Li Nanxing, who loves to gamble both in real life and reel life. There is something about gambling that makes me excited and please do not tell my parents or they will be putting me on the "to bar" list on our 2 casinos. Very proud of myself that I have only visited the casinos thrice since their opening (Pay attention Peoples Action Party, the 100 bucks entrance did not deter me). There is without a doubt that that Marina Bay Sands is the a lot classier and posh. It made me feel like Yan Fei, only without the suit and no Zoe Tay by my side. As for the company I am focusing on today, I have a totally different feel for it.
Before I start with any analysis of the company, I would like to say that this is probably the worst calls in my investing life. I have been cursing this company since the first day I was involved in their share placement at 20 odd cents, all the way back 5 years ago. This is one stock I have been pushing for a strong sell on this counter for the longest time, with my arguments based on share dilution, track record etc. Now it has come back to haunt me, hitting all time high of $1.68 this morning before pulling back to $1.52. Before I admit this was a bad call, I am going to go through the financial statement right now and give you my thoughts. It has been a hectic week so far for me, working 12 hour days and suffering from insomnia, but I still have the compulsion to read through Genting's statement. Those who know me will know that I hate being wrong and when I am wrong, I want to know where I went wrong and why did I come to the wrong decision. So lets get started.
Genting Singapore PLC* ("Genting Singapore") is a leading integrated resorts development specialist with over 20 years of international gaming expertise and global experience in developing, operating and/or marketing internationally acclaimed casinos and integrated resorts in different parts of the world, including Australia, the Americas, Malaysia, the Philippines and the United Kingdom (“UK”).
It is a subsidiary of Genting Berhad and was incorporated in 1984 to invest in leisure and gaming-related businesses outside Malaysia. Genting Group is a collective name for Genting Berhad and its subsidiaries and associates. Genting Group is one of Asia’s leading and best managed multinationals. The Group is renowned for its strong management leadership, financial prudence and sound investment discipline.
The company's principal activities are:
* Development and operation of integrated resort
* Casino operations
* International sales and marketing services
* IT application related services
Genting Singapore has an experienced management team that is focused on and committed to growing its business globally. The Group is the largest casino operator in the UK and had developed integrated family resort in Singapore.
Lets start with the profit statement. Revenue top line growth expanded by more than 100% qoq from $460 million to $979 million. YOY it was even more impressive. Up more than 700%. Gross profit margin was also stronger as the cost of sales only rose by 65% qoq. Net profit came stronger than expected with net margin of 40% which shows how lucrative the integrated resort business is. Diluted earnings per share came in at 3.29 cents for the quarter and that is just mind blowing considering there are more than 12 billion shares out there! Revenues from the integrated resort alone was $860 million and what really impressed me was how people loved Universal Studios considering the fact that 8000 people have visited there on a daily basis and spent a whopping $84 bucks per person! You gotta be kidding! Just do the math, $672,000 per day and multiply it by 365 days. That is a quarter billion bucks per year. Singaporeans simply love thrill rides.
Balance sheet strength wise, I have to admit, at this point, it does look like I may be wrong on my sell call because the net equity to shareholders stands at $4.575 billion. Current liabilities only stand at $1.2 billion which is more than manageable with their $3.2 billion cash hoard. I was worried about Genting needing to raise more money but they do not look like they do in the short term. They do have around $4 billion in long term debt, but this can be easily refinanced in the longer term if they are able to sustain this earnings profile and positive operational cash flow. A large chunk of the long term borrowings is secured by the license of the integrated resort.
Cash flow from operations have seen a strong inflow for 1H10, coming in at a stellar $730 million. That is just pretty amazing and to think that the casino operations only started during Chinese New Year this year.
Enough of the good stuff, now for the bad stuff. The proposed sale of Stanley Leisure, the UK casino operations of Genting Singapore to their parent Genting Malaysia for 340 million pounds may sound good to many people, but to me, it shows that they are up to their old tricks again. After taking years of losses due writedowns from their UK operations, they have decided to sell it to Genting Malaysia at a cheap price. So poor Singaporean shareholders who have suffered from the numerous writedowns now have to see an asset that has been stripped down to its bare fundamentals, sold away just when there is light at the end of the tunnel. This is one of my main arguments against Genting Singapore, that is, they will always be giving their parent the good deals and leaving Singaporean shareholders high and dry.
Regardless of my impression and strong dislike for this company, I have to bring myself to put on record that I have been wrong about its prospects because I may have underestimated the allure of gambling to Singaporeans and our multi talented foreign talents. You know what I am impressed with? The fact that Marina Bay Sands have opened since April 2010 and Genting has maintained its growth rate. I expected there to be some attrition rate from Genting Singapore but it is does not seem to be the case. No matter what, I am still going to say there will still be some attrition going forward and I expect earnings over the next two quarters to impress on a YOY basis but show a slowdown on a QOQ one. Genting Singapore registered flat earnings for 1H2010 taking into account the losses from 1Q2010.
If they are able to register the same kind of earnings for the rest of the year, it will really be impressive and will only be trading at 23 times p/e but full year earnings of 2011 will only be 11.5 times. There is a good chance they may be re-rated to close the gap between them and their peers in Macau. Therefore it is possible that this stock could be a lot higher going forward. I am going to price it at $1.95 first. It is impossible to rule out the possibility of moving to $2.40-$2.60. I cannot believe I am writing this and am sure my closest friends in the brokerage business are going to be laughing when they read this.
As I have put on the title of this post. To err is but human, but to admit is divine. I am only human and its not too late to say I was wrong.
Best,
SVI
Wednesday, August 11, 2010
An interesting 2Q2010 earnings season. Enjoy it while it lasts!
Interestingly, I am sitting at home doing some work rather than out drinking and having a merry time. Suddenly feeling sorry for myself, I decided to put on an old movie while I did some serious reading on funds to recommend investors. Not surprisingly, I ended up paying more attention to the movie than reading. Laughing as my two favorite comedians, Owen Wilson and Vince Vaughn went through wedding after wedding during wedding season. They sure were having a really good time, preying on gullible women at weddings. That definitely does not happen at Singapore weddings because I have been to many a wedding and nothing this interesting ever happens. The only feeling I get is the feeling of loss when a hole is burnt through your pocket for the red packet money.
I tell you which season gets me excited. Earnings season. Over the past 2 quarters, earnings have been a joy to go through as the economy picked up and companies started turning profitable. This sure was not the case during 2007-09, where flat earnings growth was a god sent for investors. The purpose of writing this post during midweek is to remind myself to review the companies that impressed me. Thus I am aware that this post could take some time to write. So I am just going to write short pieces on them.
First company that impressed me was City Neon. I have to confess that I own some of the stock at a very high price, but till today, I am still convinced that it will one day repay the faith I have in this company. Basically, CITYNEON is a leading provider for event and exhibition services in Asia & Middle East, with expertise in the design and construction of interior architectures, galleries and theme parks. I believe this is going to be an upcoming company because of the sheer number of major events that are going to be held in Asia. The company has already done work at the World Expo and Resorts World Singapore etc, they are currently working on the Youth Olympics in Singapore. The open float of this company is extremely small because its largest and controlling shareholder is "The Star Publications" of Malaysia and it is very tightly held by them. Earnings came in 20% higher yoy and revenue grew by 70%. The company is only trading at 11 times 2010 p/e but the potential is huge for it. Watch for it as Singapore's 2 integrated resorts start hosting more events.
Moving on, the next company that really shone through was Bright World Precision. This company deals mainly in metal stamping machinery and has turned around very impressively. Earnings and valuations for this company is just nuts. The market cap of the company is only SGD94 mil, while its earnings for 2Q2010 came in close to SGD12 mil. What does that mean? It means it is trading at less than 3 times p/e if earnings continue to be robust. The dividend yield for 2009 was close to 10%. Operating cash flow is at more than RMB100 mil in the quarter alone. Trading a little more than its NAV ($0.19), this is one company that I would love to have more on my portfolio.
Next up, my personal favorite, Sarin Tech. Amazing company. What can I say, it was just out of this world. Profits were up by an astronomical level and balance sheet just grew from strength to strength. Cash levels are more than enough to pay off all their debt. Cash from operations grew strongly. The latest news was the company just delivered Galaxy 1000 to Blue Star group. This is the next 100% upside stock. Company also declared 1.25 US cents interim dividend. This translates to almost 3 percent~ that is only interim only!!!!
GP Batt I do not need to write too much. Profits continue to be positive, falling yoy mainly because of foreign exchange losses. Still delivering more than 7 cents per share this quarter, translating to only 5.78 times price to earnings. Still trading at 0.61 times price to book, this means its still very cheap. There is still a very nice article on the future of the company in this week's "The Edge" magazine. So I am not going to write on this.
Moving on to my favourite meat for Shabu Shabu, Pork. People's Food seems to have recovered well with their earnings rebounding by more than 100% to around 1.22 cents for the quarter and for 1H2010 earnings has grown more than 150%. Recovery is firmly on track as pork prices continue its march upwards. I have been stocking up on frozen pork recently, especially after my dearest prime minister said the best way for us to curb increasing food prices is by buying frozen meat. I really appreciate such words of wisdom and take them very seriously. I wonder whether if my dear prime minister is also eating frozen meat? Back to the stock, this is one company that has tons of value oozing out of its ears. Stay tuned for more.
One blue chip stock that really caught my eye was Fraser and Neave (FNN). Besides being in a superb cash position, I do think that the company is looking good and with Kirin brewery's acquisition into FNN, makes them an even more formidable company. Looking at their 9 month operating cash flow over the past 2 years, it has averaged SGD500 million in operating cash inflows. That is a whopping amount of money! When I was going through their finances, I was intrigued by the underlying value of the company and almost ran out to invest all my CPF monies into this growing giant. Do pay closer attention to this company. It is one blue chip for the future. Rather than wasting your time with other blue chip pretenders.
Luye Pharma once again took my breath away. 64% profit growth! What the hell is the private equity management doing for the company? This shows, private equity companies really can add value to a company and deliver stronger returns. Cash flow was strong and it does seem like the product base for the company has reached mass adoption and its going help the company move on to greater things. A good platform for it to go further in the future. For pharma companies, the starting up is always the toughest stage, once they get a blockbuster drug up, earnings start growing exponentially and adoption for their other drugs become easier as the public starts to see the company as a dependable one. This is where I see Luye going. So we shall see if I am correct or not.
On the flip side, I need to have an honorary mention for an amazingly bad company called Celestial Nutrifoods. In my years of looking at financial statements, I have never thought I would ever see a company register negative revenue, not to mention negative revenue of RMB161 million. Astonishing! I believe the shareholders should bring the company's board of directors and management team out for a good meal because this is really an achievement. They should be flogged for doing so badly! Idiots. To think that this company was destined for greatness back in 2006. What Warren Buffett once said, " make sure you invest in a company that even an idiot can manage, because one day it will be run by one". Celestial is the prototype company, Buffett was referring to.
There is no way I can write on all the companies that have done well but I am trying my best to give you an impression of which companies are on the right track. It is not going to be so smooth sailing for the rest of the year as the Chinese slowdown is going to be a drag on earnings.
I wish I had more time but honestly, my new boss is killing me with the number of projects he is throwing to me. I do hope that I will still have the time to write every week. Cross your fingers for me.
Best,
SVI
I tell you which season gets me excited. Earnings season. Over the past 2 quarters, earnings have been a joy to go through as the economy picked up and companies started turning profitable. This sure was not the case during 2007-09, where flat earnings growth was a god sent for investors. The purpose of writing this post during midweek is to remind myself to review the companies that impressed me. Thus I am aware that this post could take some time to write. So I am just going to write short pieces on them.
First company that impressed me was City Neon. I have to confess that I own some of the stock at a very high price, but till today, I am still convinced that it will one day repay the faith I have in this company. Basically, CITYNEON is a leading provider for event and exhibition services in Asia & Middle East, with expertise in the design and construction of interior architectures, galleries and theme parks. I believe this is going to be an upcoming company because of the sheer number of major events that are going to be held in Asia. The company has already done work at the World Expo and Resorts World Singapore etc, they are currently working on the Youth Olympics in Singapore. The open float of this company is extremely small because its largest and controlling shareholder is "The Star Publications" of Malaysia and it is very tightly held by them. Earnings came in 20% higher yoy and revenue grew by 70%. The company is only trading at 11 times 2010 p/e but the potential is huge for it. Watch for it as Singapore's 2 integrated resorts start hosting more events.
Moving on, the next company that really shone through was Bright World Precision. This company deals mainly in metal stamping machinery and has turned around very impressively. Earnings and valuations for this company is just nuts. The market cap of the company is only SGD94 mil, while its earnings for 2Q2010 came in close to SGD12 mil. What does that mean? It means it is trading at less than 3 times p/e if earnings continue to be robust. The dividend yield for 2009 was close to 10%. Operating cash flow is at more than RMB100 mil in the quarter alone. Trading a little more than its NAV ($0.19), this is one company that I would love to have more on my portfolio.
Next up, my personal favorite, Sarin Tech. Amazing company. What can I say, it was just out of this world. Profits were up by an astronomical level and balance sheet just grew from strength to strength. Cash levels are more than enough to pay off all their debt. Cash from operations grew strongly. The latest news was the company just delivered Galaxy 1000 to Blue Star group. This is the next 100% upside stock. Company also declared 1.25 US cents interim dividend. This translates to almost 3 percent~ that is only interim only!!!!
GP Batt I do not need to write too much. Profits continue to be positive, falling yoy mainly because of foreign exchange losses. Still delivering more than 7 cents per share this quarter, translating to only 5.78 times price to earnings. Still trading at 0.61 times price to book, this means its still very cheap. There is still a very nice article on the future of the company in this week's "The Edge" magazine. So I am not going to write on this.
Moving on to my favourite meat for Shabu Shabu, Pork. People's Food seems to have recovered well with their earnings rebounding by more than 100% to around 1.22 cents for the quarter and for 1H2010 earnings has grown more than 150%. Recovery is firmly on track as pork prices continue its march upwards. I have been stocking up on frozen pork recently, especially after my dearest prime minister said the best way for us to curb increasing food prices is by buying frozen meat. I really appreciate such words of wisdom and take them very seriously. I wonder whether if my dear prime minister is also eating frozen meat? Back to the stock, this is one company that has tons of value oozing out of its ears. Stay tuned for more.
One blue chip stock that really caught my eye was Fraser and Neave (FNN). Besides being in a superb cash position, I do think that the company is looking good and with Kirin brewery's acquisition into FNN, makes them an even more formidable company. Looking at their 9 month operating cash flow over the past 2 years, it has averaged SGD500 million in operating cash inflows. That is a whopping amount of money! When I was going through their finances, I was intrigued by the underlying value of the company and almost ran out to invest all my CPF monies into this growing giant. Do pay closer attention to this company. It is one blue chip for the future. Rather than wasting your time with other blue chip pretenders.
Luye Pharma once again took my breath away. 64% profit growth! What the hell is the private equity management doing for the company? This shows, private equity companies really can add value to a company and deliver stronger returns. Cash flow was strong and it does seem like the product base for the company has reached mass adoption and its going help the company move on to greater things. A good platform for it to go further in the future. For pharma companies, the starting up is always the toughest stage, once they get a blockbuster drug up, earnings start growing exponentially and adoption for their other drugs become easier as the public starts to see the company as a dependable one. This is where I see Luye going. So we shall see if I am correct or not.
On the flip side, I need to have an honorary mention for an amazingly bad company called Celestial Nutrifoods. In my years of looking at financial statements, I have never thought I would ever see a company register negative revenue, not to mention negative revenue of RMB161 million. Astonishing! I believe the shareholders should bring the company's board of directors and management team out for a good meal because this is really an achievement. They should be flogged for doing so badly! Idiots. To think that this company was destined for greatness back in 2006. What Warren Buffett once said, " make sure you invest in a company that even an idiot can manage, because one day it will be run by one". Celestial is the prototype company, Buffett was referring to.
There is no way I can write on all the companies that have done well but I am trying my best to give you an impression of which companies are on the right track. It is not going to be so smooth sailing for the rest of the year as the Chinese slowdown is going to be a drag on earnings.
I wish I had more time but honestly, my new boss is killing me with the number of projects he is throwing to me. I do hope that I will still have the time to write every week. Cross your fingers for me.
Best,
SVI
Sunday, August 8, 2010
Equities vs Bonds....Future vs Present. Common stocks, uncommon profits.
As we await eagerly our nation's birthday tomorrow, I sit here thinking of what to write about this week. The friends that know me for years will know that I have never been a fan of the lavish affair we have come to know as National Day Parade. Even though Singapore has one of the largest foreign reserves in the world, but fact of the matter is, we do not have to burn money by firing those silly fireworks into the sky. That is why I make it a point never to watch it every year. The money can be better used to help those that really need it, rather than those capitalists that benefit from our extravagance.
From my previous post on Japanese girls, I had a few phone calls from friends on where to find that particular Japanese waitress I was referring to. I would like to take this opportunity to thank them on behalf of the pub for their patronage. After last week, I am fully convinced that Singaporean men really have a fetish for Japanese women.
Ok enough about women. I have decided to write a piece on what I think of the market. Funny thing was, I asked my colleague what he was telling his clients to buy and he basically told me, "bonds". If you remember back in March, I wrote a post on how the greatest bond manager of all time, Bill Gross was predicting that the 30 year bull market for bonds was coming to an end. I do believe he is right and it was kind of worrying that an industry veteran like my colleague was selling bonds like hot cakes. Too much hot cakes may lead to a laxative effect for anyone. Too much of anything is never a good thing.
Here are the reasons why I am bearish on bonds.
1) Companies have never been so indebted before.
According to the Federal Reserve, non financial firms borrowed another $289 billion in the first quarter of 2010, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s.
The debt repayments made during the financial crisis were brief and minimal: tiny amounts, totaling about $100 billion, in the second and fourth quarters of 2009.
Remember that these are the debts for the non financials -- the part of the economy that's supposed to be in better shape.
Central bank and Commerce Department data reveal that gross domestic debts of non financial corporations now amount to 50% of GDP. That's a postwar record. In 1945, it was just 20%. Even at the credit-bubble peaks in the late 1980s and 2005-06, it was only around 45%.
2) Interest rates have never been so low.
SIBOR has not been this low in 17 years. Money market rates are only at 0.5%. Fed funds rate are close to zero, 3 month Libor stands at 0.44%, Euribor at 0.905% etc. Basically, what this means is that cash is not doing much for any investor. With interest rates so low, the upside for bonds are not going to be attractive enough for me to recommend to investors to buy.
3) Inflation is coming soon.
Last week, my old boss called me up and asked how he should get exposure to soft commodities like wheat, coffee and other agri products. I told him he can use stocks, funds or even structured notes. But the key here is, he is a 20 year veteran who is very astute. I do understand where he is coming from because soft commodities unlike hard commodities are less elastic in demand. Daily necessities tend to be things which we do not mind paying more for (of course we would still curse and swear) and nothing we can do about higher prices because of our consumption habits.
Wheat prices have gone on a ballistic move upwards, thanks to the fears of famine in Russia. Putin banning all wheat exports out of Russia was a radical move, but the fears of shortage is a very real one. Coffee, pork bellies etc all flying upwards, so do cherish your cappuccinos or even those free espressos which your company provides for you at the pantry because prices are all going to rise over the next few weeks. Cornflakes lovers beware, your Special K's are all going to cost more per box.
With wages in China rising, manufacturers are all scrambling to raise wages for their workers before they all start leaving for greener pastures or jumping off from the rooftops of their factories. Interest rates will be pressurised to rise as inflation starts to rear its ugly head.
So bonds are a big no no for me.
Now for equities.
Global markets look really much stronger over the past month and Europe's worries have taken a backseat as earnings season continued to impress investors. So far most of the blue chip companies have outperformed expectations and they have shown that they are still able to grow their profits in the face of the jobless recovery of the global economy.
Recent weeks, the hottest sector has been the shipping sector as earnings have rebounded and trade has picked up globally. The problem is whether it is sustainable or not. The Baltic dry index has suffered during the May and June sell down but is starting to show signs of a turnaround. If it can rebound meaningfully, we should be increasing our exposure on shipping going forward.
Technology stocks have also done very well, especially for the poor contract manufacturers that have suffered for the past 2 years. I think the market is going to continue finding more reasons to push these stocks up. Imagine, the Ipad has been sold out for the past couple of weeks. When was the last time an electronic device sold so well that there was a shortage? Who said the consumers are no longer spending?
Emerging markets continue to deliver strong growth. There is little risk of the EM countries going into a double dip scenario unless China overdoes its cooling policies but it is pretty clear that the tightening measures are more or less done and going forward, the Chinese government is going to focus on managing growth at a sustainable rate and focus on sectors that will bring about more jobs and improve the living standard of the 2nd and 3rd tier provinces.
Russia is facing food problems in the short term but oil and commodities continue to be strong thus their economy is on good stead. Brazil is in a world of its own and being the largest sugar producer and leading producer of many other soft commodities like spices and coffee beans makes it a main beneficiary of the soft commodities boom.
India is starting to look good because inflation should be tapering off. Their market has been held back by their inflationary situation but it seems like their interest rate hikes have done the job in curbing inflation and the country is back on its right track.
Singapore just announced its GDP grew 17.9% for 1H2010. We are probably going to grow faster than China and Indonesia this year and maybe only slower than Qatar out of 183 economies globally. Impressive? I think so. Sustainable? Not likely. But we do have new growth drivers in place, that is why I am a big fan of the Singapore market because I think it deserves to be re-rated. Malaysia is my favorite too, personally I am looking to start a pure Malaysian portfolio. That will probably happen soon.
USA and Europe are still going to struggle with their growth numbers. The US registered 2.6% growth for 1H2010, some may say its a reasonable number for a country as large and developed as itself. The problem is, this growth is stimulus assisted, take away the stimulus, it will probably be registering low or no growth. This is what worries the whole world, what happens when stimulus is used up. Job creation is back in negative territory for the month of July but I believe there is a silver lining to the report as the private sector showed some improvement in terms of job creation while the main drag was the public sector. In an economic situation like this, the government sector has done its job in picking up the slack, now we need to see the private sector do its part. So I believe down the road, we need to focus on the private sector over the next few months.
Europe on the other hand will be announcing GDP numbers over the next week. With Germany, France and UK expected to expand more than expected in 2Q2010, growth seems to be recovering for the major economies of Europe, while I do not expect the PIGS countries to show much improvement. As I have pointed out before, the PIGS are just peripheral countries and does not make much of a difference for the Eurozone. However, the Eurozone central bank and governments better not be over zealous in raising interest rates or impose more austerity measures across the board.
Recently, there have been many stories covering PIMCO's venture into the equities business, showing their faith in equities going into the New Normal. When the largest bond fund manager decides to go into equities, its a sign to us that bonds may be a thing of the past and equities is going to have a brighter future.
I am a firm believer of equities and the market's current momentum looks strong. Remember what I said over the past couple of months when the markets were getting hammered? It is not the end of the run for equities, its just a usual correction. Buy on dips going forward and you will be rewarded. Fortune favors the brave. That's what I always believe in.
Have a good national day ahead! But do not bother with the fireworks because burning money will never be a habit of mine. I do hope one day, we learn how to respect the poor and contribute more to their well being rather than to waste money on glorifying ourselves once a year. I have said my piece and am going to have a good rest tomorrow by studying more stocks. Have a good trading week ahead!
Best,
SVI
From my previous post on Japanese girls, I had a few phone calls from friends on where to find that particular Japanese waitress I was referring to. I would like to take this opportunity to thank them on behalf of the pub for their patronage. After last week, I am fully convinced that Singaporean men really have a fetish for Japanese women.
Ok enough about women. I have decided to write a piece on what I think of the market. Funny thing was, I asked my colleague what he was telling his clients to buy and he basically told me, "bonds". If you remember back in March, I wrote a post on how the greatest bond manager of all time, Bill Gross was predicting that the 30 year bull market for bonds was coming to an end. I do believe he is right and it was kind of worrying that an industry veteran like my colleague was selling bonds like hot cakes. Too much hot cakes may lead to a laxative effect for anyone. Too much of anything is never a good thing.
Here are the reasons why I am bearish on bonds.
1) Companies have never been so indebted before.
According to the Federal Reserve, non financial firms borrowed another $289 billion in the first quarter of 2010, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s.
The debt repayments made during the financial crisis were brief and minimal: tiny amounts, totaling about $100 billion, in the second and fourth quarters of 2009.
Remember that these are the debts for the non financials -- the part of the economy that's supposed to be in better shape.
Central bank and Commerce Department data reveal that gross domestic debts of non financial corporations now amount to 50% of GDP. That's a postwar record. In 1945, it was just 20%. Even at the credit-bubble peaks in the late 1980s and 2005-06, it was only around 45%.
2) Interest rates have never been so low.
SIBOR has not been this low in 17 years. Money market rates are only at 0.5%. Fed funds rate are close to zero, 3 month Libor stands at 0.44%, Euribor at 0.905% etc. Basically, what this means is that cash is not doing much for any investor. With interest rates so low, the upside for bonds are not going to be attractive enough for me to recommend to investors to buy.
3) Inflation is coming soon.
Last week, my old boss called me up and asked how he should get exposure to soft commodities like wheat, coffee and other agri products. I told him he can use stocks, funds or even structured notes. But the key here is, he is a 20 year veteran who is very astute. I do understand where he is coming from because soft commodities unlike hard commodities are less elastic in demand. Daily necessities tend to be things which we do not mind paying more for (of course we would still curse and swear) and nothing we can do about higher prices because of our consumption habits.
Wheat prices have gone on a ballistic move upwards, thanks to the fears of famine in Russia. Putin banning all wheat exports out of Russia was a radical move, but the fears of shortage is a very real one. Coffee, pork bellies etc all flying upwards, so do cherish your cappuccinos or even those free espressos which your company provides for you at the pantry because prices are all going to rise over the next few weeks. Cornflakes lovers beware, your Special K's are all going to cost more per box.
With wages in China rising, manufacturers are all scrambling to raise wages for their workers before they all start leaving for greener pastures or jumping off from the rooftops of their factories. Interest rates will be pressurised to rise as inflation starts to rear its ugly head.
So bonds are a big no no for me.
Now for equities.
Global markets look really much stronger over the past month and Europe's worries have taken a backseat as earnings season continued to impress investors. So far most of the blue chip companies have outperformed expectations and they have shown that they are still able to grow their profits in the face of the jobless recovery of the global economy.
Recent weeks, the hottest sector has been the shipping sector as earnings have rebounded and trade has picked up globally. The problem is whether it is sustainable or not. The Baltic dry index has suffered during the May and June sell down but is starting to show signs of a turnaround. If it can rebound meaningfully, we should be increasing our exposure on shipping going forward.
Technology stocks have also done very well, especially for the poor contract manufacturers that have suffered for the past 2 years. I think the market is going to continue finding more reasons to push these stocks up. Imagine, the Ipad has been sold out for the past couple of weeks. When was the last time an electronic device sold so well that there was a shortage? Who said the consumers are no longer spending?
Emerging markets continue to deliver strong growth. There is little risk of the EM countries going into a double dip scenario unless China overdoes its cooling policies but it is pretty clear that the tightening measures are more or less done and going forward, the Chinese government is going to focus on managing growth at a sustainable rate and focus on sectors that will bring about more jobs and improve the living standard of the 2nd and 3rd tier provinces.
Russia is facing food problems in the short term but oil and commodities continue to be strong thus their economy is on good stead. Brazil is in a world of its own and being the largest sugar producer and leading producer of many other soft commodities like spices and coffee beans makes it a main beneficiary of the soft commodities boom.
India is starting to look good because inflation should be tapering off. Their market has been held back by their inflationary situation but it seems like their interest rate hikes have done the job in curbing inflation and the country is back on its right track.
Singapore just announced its GDP grew 17.9% for 1H2010. We are probably going to grow faster than China and Indonesia this year and maybe only slower than Qatar out of 183 economies globally. Impressive? I think so. Sustainable? Not likely. But we do have new growth drivers in place, that is why I am a big fan of the Singapore market because I think it deserves to be re-rated. Malaysia is my favorite too, personally I am looking to start a pure Malaysian portfolio. That will probably happen soon.
USA and Europe are still going to struggle with their growth numbers. The US registered 2.6% growth for 1H2010, some may say its a reasonable number for a country as large and developed as itself. The problem is, this growth is stimulus assisted, take away the stimulus, it will probably be registering low or no growth. This is what worries the whole world, what happens when stimulus is used up. Job creation is back in negative territory for the month of July but I believe there is a silver lining to the report as the private sector showed some improvement in terms of job creation while the main drag was the public sector. In an economic situation like this, the government sector has done its job in picking up the slack, now we need to see the private sector do its part. So I believe down the road, we need to focus on the private sector over the next few months.
Europe on the other hand will be announcing GDP numbers over the next week. With Germany, France and UK expected to expand more than expected in 2Q2010, growth seems to be recovering for the major economies of Europe, while I do not expect the PIGS countries to show much improvement. As I have pointed out before, the PIGS are just peripheral countries and does not make much of a difference for the Eurozone. However, the Eurozone central bank and governments better not be over zealous in raising interest rates or impose more austerity measures across the board.
Recently, there have been many stories covering PIMCO's venture into the equities business, showing their faith in equities going into the New Normal. When the largest bond fund manager decides to go into equities, its a sign to us that bonds may be a thing of the past and equities is going to have a brighter future.
I am a firm believer of equities and the market's current momentum looks strong. Remember what I said over the past couple of months when the markets were getting hammered? It is not the end of the run for equities, its just a usual correction. Buy on dips going forward and you will be rewarded. Fortune favors the brave. That's what I always believe in.
Have a good national day ahead! But do not bother with the fireworks because burning money will never be a habit of mine. I do hope one day, we learn how to respect the poor and contribute more to their well being rather than to waste money on glorifying ourselves once a year. I have said my piece and am going to have a good rest tomorrow by studying more stocks. Have a good trading week ahead!
Best,
SVI
Subscribe to:
Posts (Atom)
Posts
