This week went as per what I expected in the market. We could have just closed all markets this week and still be in the same place as we ended on Friday. As the world waits intently for the results of the mid-term elections and the Fed decision on the almost stale story of QE2. I would not even dare to predict what will the markets be like this coming week. It is really any one's guess on whether we climb to new highs or plunge to correction mode. Technical analysts are going to tell you its time for the market to take a breather but as per what my boss calls technical analysts, vodoo specialists, there is no way that technical analysis is an exact science.
Before I start on my discussion topic for this week, I would like to thank my very good friend "Earn Money Online" for his very kind words on my stock picks. I have to say the Thomson Medical call was an inspired one and I am very proud of it. I remember, after I made the call 5 weeks ago, the stock fell and my friend sent me an email telling me that some analyst called for a "Hold" on the stock and asked me whether I was wrong this time. Well I think it shows that particular analyst can take his report and shove it into a place where the sun does not ever shine. Considering the offer was made at such a large premium to the closing price on Friday, my call for value on the stock was more than accurate. Babies are IN!!!! No not really, especially in my household. But to all those people looking to deliver their kids at Thomson Medical going forward, I would like to wish good luck on the fees.
Now lets see what I can pull out of bag this week. I have to apologise to those who went with my Sarin call and lost money. I do think that it is rather unfortunate that it has fallen more than 20 percent since their profit guidance earlier this month and the fact that they said the profits are going to fall significantly from the previous quarter sounded rather ominous. What in the world did they mean by "significantly"? I went around and did a survey on what people's interpretation on the words "significantly lower". Interestingly enough, I got a very wide range from my sample size of people. The indicated range actually went from 20% all the way to 80%. Personally, I placed a 80% fall in the profits for the company in 3Q2010 and projected an improvement in 4Q2010 and I still came out with a 10 times p/e valuation. That is why I have chosen not to cut losses on my position and wait patiently for the results to come out and see what the management has to say.
This week I am looking for a stock for myself to invest in for the longer term. For my own personal account, this year has been an awful year tracking only market gains and not creating excess alpha which I should be. Now that I have missed the boat on Thomson Medical, it is back to the drawing board for me. After doing my usual screening, I saw a few rather interesting candidates that aroused my curiousity. But given my ridiculous schedule I have only been able to look at one in closer detail. For those who have been following this blog over the past one year, they will know how I think. The more obscure and niche the business is, the more I am interested in the company. I also do not like companies that are heavily covered by analysts. If it is heavily researched that means the stock is a lot more efficiently priced and also more susceptible to what I call "noise". This "noise" refers to the glitches that happen over a company's growth. The volatility in the stock price will be significantly higher because of the number of different reports that are released by different analysts with different mindsets and interpretation of any new developments with the company.
Before I start, I would like to tell a story of me visiting an Hermes outlet with a friend who was buying a scarf for his girlfriend. I walked up to the counter and asked to look at a really cool looking wallet made from crocodile skin. Without even thinking I asked how much it was, totally expecting a number around the region of S$2-$5k. Guess what was the number? S$17k! For a wallet? I would be willing to sell my skin if it was worth that much! Ok jokes aside, this is how I will lead in to my latest pick for all of you. So here it is, my latest stock pick. Heng Long International.
Heng Long is one of the five top-tier tanneries of crocodilian leather in the world, with an entrenched position in the global supply chain of crocodilian skins and leather used by the luxury and high-end fashion industry.
Their principal business activities are primarily sourcing, tanning and processing of a wide range of raw crocodilian skins into crusts and high-end finished crocodilian leather for supply to the luxury and fashion industry where their products command a premium price.
They have an aggregate production area of approximately 6,605 sq m with a capacity ranging between 200,000 and 300,000 crocodilian skins per annum.
Their finished high-end crocodilian leather is sold directly or through distributorship agreements to luxury and fashion product manufacturers in Europe, United States, Asia, South America, Africa and Australia for use in the manufacture of handbags, watchstraps, boots, garments and other fashion accessories.
Around 49% of their revenue is derived from Europe, the bulk of which is from sales of farmed alligator leather used by high-end watchstrap makers catering to luxury watch brands.
The other key segment customers (either direct or indirect) in Europe includes luxury brand leather goods manufacturers and fashion houses such as Prada and Stefano Ricci.
Asia is their second largest market segment contributing approximately 42% of total revenue. Major customers in Asia include Kwanpen, a well-known local luxury brand of crocodilian leather goods with retail outlets in important cities in Asia, and other leather goods makers in the PRC and Japan catering to the Japanese consumers, as well as leather goods makers in South Korea catering to its domestic market.
Sales to the Americas and the rest of the world contributed the remaining 9% of revenue, with a significant portion of business from the Americas currently being derived from makers of western fashion boots and belts using skins of the caiman species.
What I liked about it from the revenue point of view was that the Asia segment has grown from 24% to 42% in 3 years. It is important that the company gets more exposure to the Asian markets as the demand for luxury goods are growing much faster and trust me, you will want to ride this trend. Consumer stocks in Asia have been rising this past year on an average of 40% or higher. Many people are now calling for consumer stocks to trade at more than 35 times p/e. I do admit it is rather excessive, but we are in the middle of a fast growing secular trend, ride it hard. It all started with the consumer staples stocks, soon it will move to the consumer discretionary space. Do not underestimate this trend because by the time you are convinced, its too late.
Right now, Heng Long is only on the road to recovery. The stock is trading at 32 times p/e but its revenue and profits are no where close to their 2008 levels. YTD revenues only stand at S$23 million and profits are S$2.4 million, that is for the first 2 quarters only. In 2008, revenues were S$68 million and profits were S$11.4 million. I believe we will be buying a major turnaround story in Heng Long. Forward earnings wise, I think this levels are reflecting half the current p/e multiple. If that is the case, we are looking at a much higher price for the stock. Margins are stabilising at 25.4% and this is still a very decent margin even though its still lower than the mid 30s seen in 2007-2008.
Lets look at the market capitalisation for the company, it stands at S$89.78 million and if the profits normalise back to S$11 million, we would only trade at less than 9 times p/e. Also the fact that dividends amounted to 1.2 cents in 2008, that translates to 3.4% dividend yield. For a penny stock of this size that is pretty impressive. Of course, you may argue that I am looking into the past for clues on the performance of this company, but the fact that this is a company that has been around for the better part of 50 years, I believe this is a story that is going to last.
Currently, the company trades at 1.1 times price to book value and it is something that I am very comfortable with. Thus this will be my latest buy call and I believe I will be right on this one.
Have a great week ahead.
Best,
SVI
Saturday, October 30, 2010
Friday, October 22, 2010
G20 meetings, what an occasion. Always good to take a nice 2 day holiday.
Started the blog the moment I came back from a nice relaxing night at my favorite chill out joint. It is friday and here I am thinking about how to finish my blog post a little earlier this week to give myself a little more time during the weekend to maybe catch up on some reading. Time really flies past when a person is busy as hell. Scary thing is how time becomes the most precious commodity as one gets older. So Michael Douglas was right in Wall Street 2, time is truly something which we cannot get back once it has passed. As we come closer to the key date of November 3, when the Fed will decide on the quantum of QE2. This decision alone will determine whether the market will trend higher or take a breather all the way till the end of 2010. So lets all wait with abated breath and hope for "Helicopter" Ben to drop money from the heavens.
So why don't we start with what I am bullish on over the next 3 months. I will start with Energy. I believe oil prices will trend higher. I had a colleague ask me, why I was positive on the energy sector when demand is not expected to grow significantly as consumers continue to hold back their purchases in developed countries. I totally agreed with him that demand and supply is a key determinant for energy prices. But I also believe that when there is excess liquidity, the first and most obvious target for "hot money" is to look for safe bets and things that will have continuous and inelastic demand. Safe bets naturally are fixed income instruments like treasuries and bonds. They have already done well and whatever can be milked from fixed income has been squeezed out. So naturally, the money is in search of the next best thing....staples. Food, energy and other commodities that we need in our daily lives. If that is not a safe bet, I do not know what is.
Secondly, the last couple of times the US dollar index was at the 77.5 level, Nymex crude prices were at US$92 per barrel. So we have a US$10 trade up from current $81.13 level. That is more than 10% from here and energy related equities will provide a leveraged exposure for investors who are bullish on energy. Anadarko is my favorite stock in the US for energy exposure while in Asia, I really like Petrochina for their strong growth avenues. In our island country of Singapore, we have the 2 largest rig builders in the world, Keppel Corp and Sembmarine. Someone once asked me, why we would be such good rig builders when we have no oil...That is a very good question. I have no clue because I am not old enough to remember how our government decided on becoming market leaders in rig building. Amazing...but it shows, whatever Singapore decides to put their minds to do, they do it best. A little bit of patriotism on my part.
Markets were practically flat for the whole week with all focus on the G20 meeting going on during this weekend in Korea. We should all take this with a pinch of salt because G20 meetings are normally a weekend retreat for various central bank officials at a nice exotic resort. The most common topics discussed during the meetings should revolve around the quality of this year's wine crop and maybe a little on what is the latest investment opportunity. Nothing concrete ever comes out of the G20 meetings and do not expect any new surprises.
So I have decided to give you the excerpt on the meeting from AFP and add a few comments of my own. A little interpretation of the salient points from the meeting.
Main points of G20 ministers' statement
These are the key points of a statement issued Saturday by Group of 20 finance ministers and central bankers at the end of a two-day meeting in South Korea:
* Global economic recovery remains 'fragile and uneven' and downside risks remain. Advanced countries will implement 'clear, credible, ambitious and growth-friendly' consolidation plans, taking into account their own circumstances.
My comment: This sounds like a page out of the Federal Reserve's beige book report. What do they mean by "credible, ambitious and growth friendly" plus taking into account their own circumstances? The US can go ahead and devalue their currency because their situation is more dire while the rest should just let their currencies rise because they are in a better situation? I guess so.
* Members will move towards more market-determined exchange rate systems reflecting underlying economic fundamentals and 'refrain from competitive devaluation of currencies'. Advanced economies to be vigilant against excessive swings in exchange rates, to mitigate the risk of volatility in capital flows facing some emerging countries. International Monetary Fund to assess the wider systemic impact of nations' policies.
My comment: Just like what I said earlier. US can devalue while the rest cannot. But do not worry, the US will not devalue in a one off manner, instead they intend to let it devalue slowly through their little QE moves. There will no longer be any more breaking off the Bretton Woods agreement like the past, it will be done in a gradual manner.
* G20 will 'resist all forms' of protectionism and work to break down trade barriers.
My comment: China MUST continue their export of rare earths because everyone else needs it while the US can continue to discuss on their currency reform plans which would technically put tariffs on Chinese toys, textiles etc. Wow talk about double standards.
* Members will work to reduce excessive imbalances and maintain current account imbalances at 'sustainable' levels. IMF to assess the causes of persistently large imbalances.
My comment: Imbalances here mean, those countries that have a huge trade surplus against the US. Basically the best way to change this is to force these countries to import US made goods even if they are more expensive. If not "BUY USA" slogans will be placed throughout all the states in the US to instill a little patriotism into Americans and convince them not to buy goods from foreign countries. What does that mean? Internal protectionism measures.
* Members to develop 'comprehensive action plan' on the global economy for the Seoul G20 summit on Nov 11 to 12.
My comment: Follow up rest and relax retreat. Another 2 days of good relaxing holiday.
* G20 will fully implement a bank capital and liquidity framework drawn up by the Basel Committee, and endorses recommendations by the Financial Supervisory Board for tighter supervision of big financial firms.
My comment: A new spin story to create confidence in the large financial firms in the market. Guess who have the largest financial institutions in the world?
* G20 welcomes IMF's strengthening of its Flexible Credit Line and establishment of the Precautionary Credit Line to strengthen 'global financial safety nets' and pre-empt new crises.
My comment: Financial institutions will be able to take more risk because there will be safety nets in place this time.
* Working group to produce multi-year plan to promote 'inclusive and sustainable economic growth and resilience' in developing countries. -- AFP
My comment: A committee made up of mostly developed nations representatives will sit together to decide how best to hold back the growth of emerging economies so as to maintain their leadership position. Talk about a conflict of interest.
You may agree or disagree with me. Just wanted to give you two cents worth of what I think of these rubbish meetings.
Anyway, try to be a little more conservative over this coming week as jitters over possible QE2 disappointments. Take a look at the 10 year US treasury yield. It has moved from 2.4% back to 2.56%, which shows profit taking on treauries even though QE2 will focus mainly on flattening the yield curve and expanding more credit to the US consumer. So I believe this week will be similar to the last week.
Personally, I am bullish but I am still looking for attractive entry points into the market. Do not rush, opportunities will be coming. I am sure.
Have a great week ahead!
Best,
SVI
So why don't we start with what I am bullish on over the next 3 months. I will start with Energy. I believe oil prices will trend higher. I had a colleague ask me, why I was positive on the energy sector when demand is not expected to grow significantly as consumers continue to hold back their purchases in developed countries. I totally agreed with him that demand and supply is a key determinant for energy prices. But I also believe that when there is excess liquidity, the first and most obvious target for "hot money" is to look for safe bets and things that will have continuous and inelastic demand. Safe bets naturally are fixed income instruments like treasuries and bonds. They have already done well and whatever can be milked from fixed income has been squeezed out. So naturally, the money is in search of the next best thing....staples. Food, energy and other commodities that we need in our daily lives. If that is not a safe bet, I do not know what is.
Secondly, the last couple of times the US dollar index was at the 77.5 level, Nymex crude prices were at US$92 per barrel. So we have a US$10 trade up from current $81.13 level. That is more than 10% from here and energy related equities will provide a leveraged exposure for investors who are bullish on energy. Anadarko is my favorite stock in the US for energy exposure while in Asia, I really like Petrochina for their strong growth avenues. In our island country of Singapore, we have the 2 largest rig builders in the world, Keppel Corp and Sembmarine. Someone once asked me, why we would be such good rig builders when we have no oil...That is a very good question. I have no clue because I am not old enough to remember how our government decided on becoming market leaders in rig building. Amazing...but it shows, whatever Singapore decides to put their minds to do, they do it best. A little bit of patriotism on my part.
Markets were practically flat for the whole week with all focus on the G20 meeting going on during this weekend in Korea. We should all take this with a pinch of salt because G20 meetings are normally a weekend retreat for various central bank officials at a nice exotic resort. The most common topics discussed during the meetings should revolve around the quality of this year's wine crop and maybe a little on what is the latest investment opportunity. Nothing concrete ever comes out of the G20 meetings and do not expect any new surprises.
So I have decided to give you the excerpt on the meeting from AFP and add a few comments of my own. A little interpretation of the salient points from the meeting.
Main points of G20 ministers' statement
These are the key points of a statement issued Saturday by Group of 20 finance ministers and central bankers at the end of a two-day meeting in South Korea:
* Global economic recovery remains 'fragile and uneven' and downside risks remain. Advanced countries will implement 'clear, credible, ambitious and growth-friendly' consolidation plans, taking into account their own circumstances.
My comment: This sounds like a page out of the Federal Reserve's beige book report. What do they mean by "credible, ambitious and growth friendly" plus taking into account their own circumstances? The US can go ahead and devalue their currency because their situation is more dire while the rest should just let their currencies rise because they are in a better situation? I guess so.
* Members will move towards more market-determined exchange rate systems reflecting underlying economic fundamentals and 'refrain from competitive devaluation of currencies'. Advanced economies to be vigilant against excessive swings in exchange rates, to mitigate the risk of volatility in capital flows facing some emerging countries. International Monetary Fund to assess the wider systemic impact of nations' policies.
My comment: Just like what I said earlier. US can devalue while the rest cannot. But do not worry, the US will not devalue in a one off manner, instead they intend to let it devalue slowly through their little QE moves. There will no longer be any more breaking off the Bretton Woods agreement like the past, it will be done in a gradual manner.
* G20 will 'resist all forms' of protectionism and work to break down trade barriers.
My comment: China MUST continue their export of rare earths because everyone else needs it while the US can continue to discuss on their currency reform plans which would technically put tariffs on Chinese toys, textiles etc. Wow talk about double standards.
* Members will work to reduce excessive imbalances and maintain current account imbalances at 'sustainable' levels. IMF to assess the causes of persistently large imbalances.
My comment: Imbalances here mean, those countries that have a huge trade surplus against the US. Basically the best way to change this is to force these countries to import US made goods even if they are more expensive. If not "BUY USA" slogans will be placed throughout all the states in the US to instill a little patriotism into Americans and convince them not to buy goods from foreign countries. What does that mean? Internal protectionism measures.
* Members to develop 'comprehensive action plan' on the global economy for the Seoul G20 summit on Nov 11 to 12.
My comment: Follow up rest and relax retreat. Another 2 days of good relaxing holiday.
* G20 will fully implement a bank capital and liquidity framework drawn up by the Basel Committee, and endorses recommendations by the Financial Supervisory Board for tighter supervision of big financial firms.
My comment: A new spin story to create confidence in the large financial firms in the market. Guess who have the largest financial institutions in the world?
* G20 welcomes IMF's strengthening of its Flexible Credit Line and establishment of the Precautionary Credit Line to strengthen 'global financial safety nets' and pre-empt new crises.
My comment: Financial institutions will be able to take more risk because there will be safety nets in place this time.
* Working group to produce multi-year plan to promote 'inclusive and sustainable economic growth and resilience' in developing countries. -- AFP
My comment: A committee made up of mostly developed nations representatives will sit together to decide how best to hold back the growth of emerging economies so as to maintain their leadership position. Talk about a conflict of interest.
You may agree or disagree with me. Just wanted to give you two cents worth of what I think of these rubbish meetings.
Anyway, try to be a little more conservative over this coming week as jitters over possible QE2 disappointments. Take a look at the 10 year US treasury yield. It has moved from 2.4% back to 2.56%, which shows profit taking on treauries even though QE2 will focus mainly on flattening the yield curve and expanding more credit to the US consumer. So I believe this week will be similar to the last week.
Personally, I am bullish but I am still looking for attractive entry points into the market. Do not rush, opportunities will be coming. I am sure.
Have a great week ahead!
Best,
SVI
Sunday, October 17, 2010
Some useful thoughts from me. 17th Oct 2010
Another week, another dollar. This week went by so quickly that I do not have any impression of what happened. When one gets bogged down with work, time becomes like an illusion. It feels as though it does not exist. Today, I just felt like writing whatever comes to mind because I do not have time to be so structured and think of exactly what to write.
China has really been on fire since reopening after their golden week holidays. They really delivered a golden week for investors. It has rallied more than 10% within 6 days. That is one hell of a move. But is it excessive? You are going to read lots about how the chinese market is overheated and how a pullback is coming. This week, it will be testing the psychologically important level of 3,000 points. If it breaks through, we are going to have a good ride all the way for another 200 points at least. I have been privileged enough to witness the parabolic move of the Shanghai Composite in 2006-07. There is no such thing as resistance in China when the bull market gets going over there.
Tomorrow we will have the largest IPO since Singtel hit the STI back during a time before I could really appreciate the sheer size of the offering. Global Logistics Properties (GLP), this is a name that has haunted me every morning over the past week when I turn on the radio to listen to the news. I have never heard an ipo promoted to this extent. Fund managers will be rushing to buy this stock tomorrow because it will DEFINITELY be included in the FTSE STI index and for those managers that are benchmarked against the index, they will need to have a certain holding in this company.
Is it cheap? I was asked this question on Friday, while I was having drinks with a few bankers. The last thing I want to think about is stocks when I am busy having my diet coke and fighting the temptation to start drinking alcohol. This is the answer I gave them. Peter Lim bought, what do you think? They rebutted with, he wanted to buy Liverpool too, so do you really think he is really that good an investor? Haha. Ok enough about Liverpool, especially because I am a pool fan...
Well back to GLP. This is one that I have mixed feelings about. I personally never liked big floats because it takes forever to move the stock up. But I do think this is an interesting ipo because I feel the assets here are possibly undervalued because they were bought at really cheap prices in the past. Especially their Japanese assets. The part where I am not too comfortable with is the fact that it is a loss making outfit currently. My call for this stock is that it will be a good investment for the long term. I am pretty sure of that. From what I know, they initially wanted to price it at $2.30 so that would be my short term target for the stock. It may even hit it when it opens tomorrow.
For the rest of the month, we will have 3 more ipos, that is pretty impressive because that would mean 5 ipos in October. As per my previous post, I have already said, the ipo fever is on! The USD has continued to fall and the market has been on a tear. STI is at 3,204 now and from my charts, I can only see 3300 before a very meaningful pull back.
I have investment strategists telling me that the USD is going to be on a free fall all the way to $1.26 against the SGD. Now that is bad news, but I would like to point out some risks before we get ahead of ourselves. One of the books which I have read over the past year (called Animal Spirits by the great Akerlof and Shiller), did point out that we should never underestimate the power of animal spirits. There is no such thing as a one way trade, at least not one that is so overly predictable. The key risk to this is for QE2 to disappoint in November. Bernanke did say in his speech on Friday, he is definitely going to go ahead with it but the question is...how much?
There is a rumor that the Chinese and Americans have decided to come to a compromise. The Chinese will allow faster appreciation on their yuan while the US lower their quota on QE2. If this is true, we will see the USD rebound and the markets will start to correct downwards. With the strength in the markets, I am just concerned that the expectations on the quantum of QE2 are a little excessive.
One thing that gave me great confidence that QE2 will definitely be implemented was the inflation number that came out on Friday and also the jobless claims number on Thursday. It gives Bernanke more room to maneuver because the data is backing his claim on the need for QE2. But in my view, QE2 will not work because it is only going to create wealth for the rich but not the common folk. We are clearly in a liquidity trap and a more targeted approach will be needed if Bernanke does not want to throw money down the drain.
I was also asked by my favorite protege on whether the current debacle on foreclosures in the US is going to hurt the market. Well here is my answer. This is really not a big enough problem to justify the 10% drop in the larger US bank stocks. I view this as a buying opportunity for those investors who have been looking at an appropriate time to buy into US financials.
One stock that I have been a little amazed by is Apple. The stock his US$315 on Friday and cementing its place as the 2nd largest company in the world, right behind Exxon Mobil. I love Apple as a company but I am just concerned that investors have fallen too deeply in love with this stock to see that the stock price is reflecting a little too much optimism. If I am not wrong, the company now makes up more than 7.9% of the Nasdaq's market cap and that is just mind blowing. So if you are an Apple stock holder, its important to pay close attention to their earnings growth going forward. With its ability to innovate and make people fall in love with their products, it will not surprise me if it continues to move upwards, but I like to make it a point to review my holdings when large milestones are achieved.
I continue to maintain my overweight position in equities and I am very bullish on Japan. I know, you think I am mad. I think I am right. We shall see.
Ok time for me to take some time off thinking about stocks and the economy.
Have a good week ahead!
Best,
SVI
China has really been on fire since reopening after their golden week holidays. They really delivered a golden week for investors. It has rallied more than 10% within 6 days. That is one hell of a move. But is it excessive? You are going to read lots about how the chinese market is overheated and how a pullback is coming. This week, it will be testing the psychologically important level of 3,000 points. If it breaks through, we are going to have a good ride all the way for another 200 points at least. I have been privileged enough to witness the parabolic move of the Shanghai Composite in 2006-07. There is no such thing as resistance in China when the bull market gets going over there.
Tomorrow we will have the largest IPO since Singtel hit the STI back during a time before I could really appreciate the sheer size of the offering. Global Logistics Properties (GLP), this is a name that has haunted me every morning over the past week when I turn on the radio to listen to the news. I have never heard an ipo promoted to this extent. Fund managers will be rushing to buy this stock tomorrow because it will DEFINITELY be included in the FTSE STI index and for those managers that are benchmarked against the index, they will need to have a certain holding in this company.
Is it cheap? I was asked this question on Friday, while I was having drinks with a few bankers. The last thing I want to think about is stocks when I am busy having my diet coke and fighting the temptation to start drinking alcohol. This is the answer I gave them. Peter Lim bought, what do you think? They rebutted with, he wanted to buy Liverpool too, so do you really think he is really that good an investor? Haha. Ok enough about Liverpool, especially because I am a pool fan...
Well back to GLP. This is one that I have mixed feelings about. I personally never liked big floats because it takes forever to move the stock up. But I do think this is an interesting ipo because I feel the assets here are possibly undervalued because they were bought at really cheap prices in the past. Especially their Japanese assets. The part where I am not too comfortable with is the fact that it is a loss making outfit currently. My call for this stock is that it will be a good investment for the long term. I am pretty sure of that. From what I know, they initially wanted to price it at $2.30 so that would be my short term target for the stock. It may even hit it when it opens tomorrow.
For the rest of the month, we will have 3 more ipos, that is pretty impressive because that would mean 5 ipos in October. As per my previous post, I have already said, the ipo fever is on! The USD has continued to fall and the market has been on a tear. STI is at 3,204 now and from my charts, I can only see 3300 before a very meaningful pull back.
I have investment strategists telling me that the USD is going to be on a free fall all the way to $1.26 against the SGD. Now that is bad news, but I would like to point out some risks before we get ahead of ourselves. One of the books which I have read over the past year (called Animal Spirits by the great Akerlof and Shiller), did point out that we should never underestimate the power of animal spirits. There is no such thing as a one way trade, at least not one that is so overly predictable. The key risk to this is for QE2 to disappoint in November. Bernanke did say in his speech on Friday, he is definitely going to go ahead with it but the question is...how much?
There is a rumor that the Chinese and Americans have decided to come to a compromise. The Chinese will allow faster appreciation on their yuan while the US lower their quota on QE2. If this is true, we will see the USD rebound and the markets will start to correct downwards. With the strength in the markets, I am just concerned that the expectations on the quantum of QE2 are a little excessive.
One thing that gave me great confidence that QE2 will definitely be implemented was the inflation number that came out on Friday and also the jobless claims number on Thursday. It gives Bernanke more room to maneuver because the data is backing his claim on the need for QE2. But in my view, QE2 will not work because it is only going to create wealth for the rich but not the common folk. We are clearly in a liquidity trap and a more targeted approach will be needed if Bernanke does not want to throw money down the drain.
I was also asked by my favorite protege on whether the current debacle on foreclosures in the US is going to hurt the market. Well here is my answer. This is really not a big enough problem to justify the 10% drop in the larger US bank stocks. I view this as a buying opportunity for those investors who have been looking at an appropriate time to buy into US financials.
One stock that I have been a little amazed by is Apple. The stock his US$315 on Friday and cementing its place as the 2nd largest company in the world, right behind Exxon Mobil. I love Apple as a company but I am just concerned that investors have fallen too deeply in love with this stock to see that the stock price is reflecting a little too much optimism. If I am not wrong, the company now makes up more than 7.9% of the Nasdaq's market cap and that is just mind blowing. So if you are an Apple stock holder, its important to pay close attention to their earnings growth going forward. With its ability to innovate and make people fall in love with their products, it will not surprise me if it continues to move upwards, but I like to make it a point to review my holdings when large milestones are achieved.
I continue to maintain my overweight position in equities and I am very bullish on Japan. I know, you think I am mad. I think I am right. We shall see.
Ok time for me to take some time off thinking about stocks and the economy.
Have a good week ahead!
Best,
SVI
Saturday, October 9, 2010
Grab onto whatever has real value. Currency depreciation on the way.
What a week. Work and work. Honestly, I really wonder how much longer I can keep it up writing this blog. If I continue thinking of the market even during my off days, I will probably forget the rest of my life. Would like to get a new toy to distract myself however my mind is a blank when it comes to thinking of things to buy for entertainment. If anyone out there that has a good idea of what to buy, feel free to drop me a message.
So we did rally one more week didn't we? Most of the world is looking for a meaningful correction in the equity markets after a great September. Well I guess it is not here yet. Remember what I said last week? USD is still weak, market is still strong. Investors are now looking forward to QE2 that is why it is being discounted in the market. A further catalyst was the CME (comprehensive monetary easing) introduced by the Bank of Japan. The Japanese showed how desperate they were in jumping ahead of the Fed and went ahead to cut interest rates and expand their balance sheet through the outright purchase of debt. The race is on! Developed countries are going to go on a currency race to see who can depreciate the fastest. It is not wonder that gold has rallied to new all time highs.
Expectations of investors now are on the Fed going ahead with the their plans for quantitative easing part 2. That is why the markets have done so well over the past month and risky assets have all rallied. When I mean rally, I mean up more than 10% over a month! Some experts out there are warning on the fact that risky assets have rallied, the Fed may hesitate in implementing QE2. I would like to point out that these so call experts are very wrong in their argument because the Fed's reason for considering QE2 is to fight off deflation and to boost the slowing growth, not to boost asset markets. Therefore, I am sure they will implement some form of QE, especially after Japan went ahead to do it first.
There is no doubt that the rally we are witnessing is currently liquidity driven more than fundamentally. The problem here is, liquidity can disappear anytime (not that I think it is going to disappear anytime soon), fundamentals last. Enjoy the rally while it continues, asset prices will continue to inflate as currencies continue to depreciate. It is worrying because the very money which we hold in our wallets are losing value and confidence is starting to wane.
The Fed has indicated their intentions, the BOJ has moved and the ECB remains quiet. The poor Europeans, their Euro is going to be the strongest currency amongst all the developed economies currencies. Expect more news to come out of Europe going forward. Spin doctors are going to go ahead and push out stories about how one of their peripheral members may default. Trust me, everyone wants a weak currency now. What we have here is a implicit currency war. This is causing gold to go ballistic, this will slowly be followed by other real assets like commodities. That is why, the smart money better go for the commodity producers and also long all commodities with the exception of natural gas. When people lose confidence in currencies, they will park their monies in assets that are staples or will maintain its value. We are not going back to the days of barter trade but investors are going to view commodities as the best way to maintain their value of money.
In the mean time, we are really looking at a bullish market. How do I know that? First, the market is interpreting all the bad news in the market as a positive. Why? Thats because if the news is bad, there is a better chance of QE2. Take for example, the worse than expected non farm payrolls number led to a positive move in the US markets, crossing the important 11k. This could continue all the way till November when the Fed meets again and makes the decision to go ahead. The mid term elections are also on the cards, throw in the start of a very interesting earnings season. I believe we will not be seeing a stellar 3Q earnings season because expectations have been raised and the low base effect experienced last year will not be relevant this year. We will see a little volatility during this earnings season but we will continue to see the market continue to trend upwards.
So lets get back to our local market where the STI have come close to the 3200 points. The underlying market is extremely strong. How do I know that?
1) IPOs are coming back.
Yamada green resources, Global Logistics, Mapletree Industries, Oxley, etc are all coming into the market because of the positive sentiment.
2) More privatisation moves are in the works.
3) Placements are coming fast and furious.
Companies doing share placements are doing so well. Lorenzo doubled after announcing their share placement. HLN and Sino Grandness both did well after they announced their plans to raise money. Expect many more to come. The bull market is a good opportunity for companies to raise money at a good stock price.
4) IPOs have strong debuts. Yamada was a good example last week.
IPO price of $0.22 and opening at $0.36! Hitting a high of $0.41 and closing at $0.37. Yamada had a fantastic debut! Mushrooms....they are the hot thing now.
In order to close off this post, I just want to point out the stocks I like going forward in the short term. Noble ($2.01), Straits Asia ($2.32), Olam if it falls to $3.06, NOL ($2.07). These are all my short term trades and not fundamental picks.
Ok have a good week ahead.
Best,
SVI
So we did rally one more week didn't we? Most of the world is looking for a meaningful correction in the equity markets after a great September. Well I guess it is not here yet. Remember what I said last week? USD is still weak, market is still strong. Investors are now looking forward to QE2 that is why it is being discounted in the market. A further catalyst was the CME (comprehensive monetary easing) introduced by the Bank of Japan. The Japanese showed how desperate they were in jumping ahead of the Fed and went ahead to cut interest rates and expand their balance sheet through the outright purchase of debt. The race is on! Developed countries are going to go on a currency race to see who can depreciate the fastest. It is not wonder that gold has rallied to new all time highs.
Expectations of investors now are on the Fed going ahead with the their plans for quantitative easing part 2. That is why the markets have done so well over the past month and risky assets have all rallied. When I mean rally, I mean up more than 10% over a month! Some experts out there are warning on the fact that risky assets have rallied, the Fed may hesitate in implementing QE2. I would like to point out that these so call experts are very wrong in their argument because the Fed's reason for considering QE2 is to fight off deflation and to boost the slowing growth, not to boost asset markets. Therefore, I am sure they will implement some form of QE, especially after Japan went ahead to do it first.
There is no doubt that the rally we are witnessing is currently liquidity driven more than fundamentally. The problem here is, liquidity can disappear anytime (not that I think it is going to disappear anytime soon), fundamentals last. Enjoy the rally while it continues, asset prices will continue to inflate as currencies continue to depreciate. It is worrying because the very money which we hold in our wallets are losing value and confidence is starting to wane.
The Fed has indicated their intentions, the BOJ has moved and the ECB remains quiet. The poor Europeans, their Euro is going to be the strongest currency amongst all the developed economies currencies. Expect more news to come out of Europe going forward. Spin doctors are going to go ahead and push out stories about how one of their peripheral members may default. Trust me, everyone wants a weak currency now. What we have here is a implicit currency war. This is causing gold to go ballistic, this will slowly be followed by other real assets like commodities. That is why, the smart money better go for the commodity producers and also long all commodities with the exception of natural gas. When people lose confidence in currencies, they will park their monies in assets that are staples or will maintain its value. We are not going back to the days of barter trade but investors are going to view commodities as the best way to maintain their value of money.
In the mean time, we are really looking at a bullish market. How do I know that? First, the market is interpreting all the bad news in the market as a positive. Why? Thats because if the news is bad, there is a better chance of QE2. Take for example, the worse than expected non farm payrolls number led to a positive move in the US markets, crossing the important 11k. This could continue all the way till November when the Fed meets again and makes the decision to go ahead. The mid term elections are also on the cards, throw in the start of a very interesting earnings season. I believe we will not be seeing a stellar 3Q earnings season because expectations have been raised and the low base effect experienced last year will not be relevant this year. We will see a little volatility during this earnings season but we will continue to see the market continue to trend upwards.
So lets get back to our local market where the STI have come close to the 3200 points. The underlying market is extremely strong. How do I know that?
1) IPOs are coming back.
Yamada green resources, Global Logistics, Mapletree Industries, Oxley, etc are all coming into the market because of the positive sentiment.
2) More privatisation moves are in the works.
3) Placements are coming fast and furious.
Companies doing share placements are doing so well. Lorenzo doubled after announcing their share placement. HLN and Sino Grandness both did well after they announced their plans to raise money. Expect many more to come. The bull market is a good opportunity for companies to raise money at a good stock price.
4) IPOs have strong debuts. Yamada was a good example last week.
IPO price of $0.22 and opening at $0.36! Hitting a high of $0.41 and closing at $0.37. Yamada had a fantastic debut! Mushrooms....they are the hot thing now.
In order to close off this post, I just want to point out the stocks I like going forward in the short term. Noble ($2.01), Straits Asia ($2.32), Olam if it falls to $3.06, NOL ($2.07). These are all my short term trades and not fundamental picks.
Ok have a good week ahead.
Best,
SVI
Saturday, October 2, 2010
Centraland a Chinese developer for the future. Strong buy at $0.45 but be patient with it
After saying bye to the best September showing in more than 71 years, what is next? One really has to wonder what has caused the market to have such a performance within a month. The 3rd quarter of 2010 has come to an end with a bang, bringing markets back to their highs of the year, in the case of the US markets, close to their highs. Cheer has come back to the market and once again I have been getting smses from close friends on what should they buy to participate in this market. I have never been a really good trader while I still have faith in my stock picking skills. Did anyone see GP Batteries over the past week? Pardon my cockyness.
A good friend of mine told me about how he went out to buy some US dollars in preparation of his trip to the US next year. He felt that the $1.32 rate was so attractive that he could not stop himself from going to the ATM to draw some cash and converted it to USD. Part of me wanted to tell him he was wrong, part of me just let it go. The USD has had a good rebound earlier this year before resuming its inevitable drop over the past month. What does this tell us? A technical rebound can last months at times, but the long term trend will prevail in the end. The long term down trend for the USD is securely intact with our favourite US govt looking to implicitly devalue their money through their printing presses.
Currency is something that has always been fascinating to me but I am no expert in this. However as a trained economist, I can say that common sense is telling me that depreciation or devaluation of the USD is not going to help much. Also labelling the Chinese as currency manipulators is not going to change anything. Jobs are not going to come back because the cost of Chinese labor is still at least 80% cheaper than US labor. Competitive depreciation of currency by all the developed countries will not change the economic background because if everyone is doing the same thing the change will be absolutely nothing. My suspicion on the Europeans exaggerating their sovereign debt crisis to devalue the Euro is still valid. Now the US are also pushing their USD down with their claims of possible quantitative easing. Guess who is left behind? The poor Japanese who are unable to intervene in their Yen markets like the past because they no longer have the financial clout to do so. No matter how much Yen is sold into the market, it is easily absorbed by the ferocious buying of the Chinese.
Why would anyone be buying Japanese Yen when the Japanese Govt Bonds (JGBs) are yielding 0.965% for their 10 year issues? Shouldn't the close to 2.7% of the 10 year US treasuries be more appetitizing? Think about it. Common sense right? Wrong. The the Japanese deflation is running at 1% this year, thus the real yield is 1.965% while the US core CPI stands at 0.9% YOY thus the real rate is? 1.8%. Throw in the overworked printing presses of the US federal reserve, the consumer expectations are for inflation to pick up to 1.2% going into 2011 (I think this is conservative), the real yield on the US treasury is going to fall further.
With all this implicit devaluation, gold has reached another high once again with investors looking for a safe store of value. However investing in gold for Singaporeans have not given them the kind of returns they would have hoped for because of the appreciation of the SGD while gold is being priced in USD. The exchange loss takes a serious haircut off the Singaporean gold investor.
Another interesting development I over the past week is the rise of the oil price, both Nymex and Brent breaking above the $80 dollar mark. This bodes well for the oil related counters plus the alternative energy players. Remember, alternative energy is only feasible if the oil price remains above $60 or so. The higher it goes, the more interest there will be on alternatives. Oil plays have taken a back seat throughout this market rally, this could change should oil continue to show strength.
For stock specific news, I can only say the one announcement that really caught my attention was the investment of Warburg Pincus into 2 of Centraland's projects. I have been watching this counter for the longest time and it has a valuation that will shock most people. Trading at a whopping 400 p/e and 2 times book value. However, the company is really a work in progress. Although in its prospectus, it described itself as a residential and commercial property developer. But over the past 2 years since its IPO in 2008, the stock has become a specialised commercial property developer. It is one of the leading developers in Zhengzhou with a specialisation towards trading hubs. Basically these trading hubs are clusters where wholesalers are located and most retailers look for suppliers there. I personally like this niche as this will give them a more stable income through rental space and also strong demand for their saleable space.
I believe this is what Warburg Pincus has seen in this niche developer to be so willing to invest RMB650 million into the 2 JVs with Centraland and they have indicated the possibility of injecting their own assets in Tianjin and Beijing into the JVs. Also Warburg Pincus will have the option to double up their investment by injecting another RMB650 million within the next 30 months after the first investment is made. This is a lot of money and it will also allow Centraland to ensure that their projects will be completed on time and without any problems with the funding. A strong partner like Warburg Pincus is a testament to the Centraland management and capability. After 3 years, Warburg Pincous has indicated their intention to IPO the JVs and that will deliver further value to all shareholders. I know 3 years is a long time, but I really do think it may be worth the wait.
This is definitely not a company for the present but I do believe it is one for the future. You have to see how far the company has come over the past 2 years. They have secured more trading hub projects and most of them are mega projects that are more than 200,000 square feet of gross floor area. Their landbank is huge with more than 1.5 million square feet of GFA still waiting to be developed. This is going to be a property giant. The current market cap is more than $800 million and is still trading lower than its IPO price of $0.50. Open float is super low at 13.3% and the shares are closely held. So good luck in trying to get a substantial holding on this beauty.
I know this is a long term play but I believe a good investor should have the vision to see the value of this company. So do take a look into this one.
I would have liked to write more but work has been hell and my life is becoming as boring as a librarian's. So have a good week ahead and lets hope the markets continue to hold up as well as it has.
Best,
SVI
A good friend of mine told me about how he went out to buy some US dollars in preparation of his trip to the US next year. He felt that the $1.32 rate was so attractive that he could not stop himself from going to the ATM to draw some cash and converted it to USD. Part of me wanted to tell him he was wrong, part of me just let it go. The USD has had a good rebound earlier this year before resuming its inevitable drop over the past month. What does this tell us? A technical rebound can last months at times, but the long term trend will prevail in the end. The long term down trend for the USD is securely intact with our favourite US govt looking to implicitly devalue their money through their printing presses.
Currency is something that has always been fascinating to me but I am no expert in this. However as a trained economist, I can say that common sense is telling me that depreciation or devaluation of the USD is not going to help much. Also labelling the Chinese as currency manipulators is not going to change anything. Jobs are not going to come back because the cost of Chinese labor is still at least 80% cheaper than US labor. Competitive depreciation of currency by all the developed countries will not change the economic background because if everyone is doing the same thing the change will be absolutely nothing. My suspicion on the Europeans exaggerating their sovereign debt crisis to devalue the Euro is still valid. Now the US are also pushing their USD down with their claims of possible quantitative easing. Guess who is left behind? The poor Japanese who are unable to intervene in their Yen markets like the past because they no longer have the financial clout to do so. No matter how much Yen is sold into the market, it is easily absorbed by the ferocious buying of the Chinese.
Why would anyone be buying Japanese Yen when the Japanese Govt Bonds (JGBs) are yielding 0.965% for their 10 year issues? Shouldn't the close to 2.7% of the 10 year US treasuries be more appetitizing? Think about it. Common sense right? Wrong. The the Japanese deflation is running at 1% this year, thus the real yield is 1.965% while the US core CPI stands at 0.9% YOY thus the real rate is? 1.8%. Throw in the overworked printing presses of the US federal reserve, the consumer expectations are for inflation to pick up to 1.2% going into 2011 (I think this is conservative), the real yield on the US treasury is going to fall further.
With all this implicit devaluation, gold has reached another high once again with investors looking for a safe store of value. However investing in gold for Singaporeans have not given them the kind of returns they would have hoped for because of the appreciation of the SGD while gold is being priced in USD. The exchange loss takes a serious haircut off the Singaporean gold investor.
Another interesting development I over the past week is the rise of the oil price, both Nymex and Brent breaking above the $80 dollar mark. This bodes well for the oil related counters plus the alternative energy players. Remember, alternative energy is only feasible if the oil price remains above $60 or so. The higher it goes, the more interest there will be on alternatives. Oil plays have taken a back seat throughout this market rally, this could change should oil continue to show strength.
For stock specific news, I can only say the one announcement that really caught my attention was the investment of Warburg Pincus into 2 of Centraland's projects. I have been watching this counter for the longest time and it has a valuation that will shock most people. Trading at a whopping 400 p/e and 2 times book value. However, the company is really a work in progress. Although in its prospectus, it described itself as a residential and commercial property developer. But over the past 2 years since its IPO in 2008, the stock has become a specialised commercial property developer. It is one of the leading developers in Zhengzhou with a specialisation towards trading hubs. Basically these trading hubs are clusters where wholesalers are located and most retailers look for suppliers there. I personally like this niche as this will give them a more stable income through rental space and also strong demand for their saleable space.
I believe this is what Warburg Pincus has seen in this niche developer to be so willing to invest RMB650 million into the 2 JVs with Centraland and they have indicated the possibility of injecting their own assets in Tianjin and Beijing into the JVs. Also Warburg Pincus will have the option to double up their investment by injecting another RMB650 million within the next 30 months after the first investment is made. This is a lot of money and it will also allow Centraland to ensure that their projects will be completed on time and without any problems with the funding. A strong partner like Warburg Pincus is a testament to the Centraland management and capability. After 3 years, Warburg Pincous has indicated their intention to IPO the JVs and that will deliver further value to all shareholders. I know 3 years is a long time, but I really do think it may be worth the wait.
This is definitely not a company for the present but I do believe it is one for the future. You have to see how far the company has come over the past 2 years. They have secured more trading hub projects and most of them are mega projects that are more than 200,000 square feet of gross floor area. Their landbank is huge with more than 1.5 million square feet of GFA still waiting to be developed. This is going to be a property giant. The current market cap is more than $800 million and is still trading lower than its IPO price of $0.50. Open float is super low at 13.3% and the shares are closely held. So good luck in trying to get a substantial holding on this beauty.
I know this is a long term play but I believe a good investor should have the vision to see the value of this company. So do take a look into this one.
I would have liked to write more but work has been hell and my life is becoming as boring as a librarian's. So have a good week ahead and lets hope the markets continue to hold up as well as it has.
Best,
SVI
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