Looking back today, I realised I have already posted 51 times since the blog started. A little less than Dawn Yeo or whatever her name may be but I am sure I make it up with a lot more substance. My mundane life is probably the last thing people would want to read about that is why I spend most of my time reading about investing finding little titbits of knowledge to share with all of you.
Since we are on the topic of mundane things, the market has been acting very much like my life. Boring and going downhill. The global markets have been spending much time in the red and a flat performance is considered a good day in the market these days. The relative strength index (RSI) of the US is currently standing at a very respectable 11.9, which is the lowest oversold region in a very very long time. This gives an indication of how badly the Dow has been performing over the past 2 weeks.
Let me first congratulate myself for my call on Asia Food and Properties 2 weeks ago. At $0.605 it was a bargain and those that have followed that call would have made good money because they would have gotten 1 Bund Centre Investments (BCI) share for every 2 AFP shares held. On the last day of cum entitlement, the price of AFP was $0.635 and after the BCI shares were distributed the ex price was $0.505, implying that BCI shares were worth $0.26. Now AFP's price have recovered back to $0.575 and BCI shares are priced at $0.49. Therefore astute investors would have made almost 100% on their BCI shares and still gained more than 10% on their AFP shares. What a return! Especially during such a horrible market condition.
Enough of the past, lets take a little look at the future. As a blogger who tries to post at least 1 post a week, it is sometimes difficult because it is not easy to find something interesting to write about every week. I did not manage to find time on Sunday to write because I was out attending a wedding of a fellow investment professional and it was definitely one of the few times when I did not mind the wedding lasting a little longer. Sitting on a table of private bankers is always a sure bet of having at least one hottie sitting there. But enough of that. Lets get back to today's post.
This week, I would like to share an interesting article which I read in the Business Times this week. The article was introducing the investment proposition of Agricultural land. You must be asking yourself, why is SVI talking about Agricultural land? No I am not hinting to all of you to go out and buy yourself a farm to grow crops or even raise cows. A year ago, I had this investment analyst introduce the concept of buying agri land to me. I found the argument very compelling but my first reaction was....how the hell was I supposed to buy agri land???? Do I just get off my butt and go down to Latin America, Australia or even China to buy agri land? I made a mental note to myself to find a way or a channel to gain access to it but thanks to my infamous short term memory, it just fell out of my mind...till today.
Why agri land? We can once again break this down to a demand and supply argument. Continued population growth, rapid urbanisation and land degradation will lead to a lower supply of agri land for the world. On the demand side of the equation, rising per capita income in emerging economies will lead to higher demand for meat, grain and other agri products. If that is not enough for you, the drive for alternative energy like biodiesel means that the competition for agri land use will heat up to a level never seen before.
There were also some performance numbers quoted in the article. Rabobank provided the figures and it showed how well agri land has performed over the past 11 years. With the best performer being pastureland in Sao Paulo, Brazil delivering 658% over the period.
So how do we, the common folk gain access to this investment? Well there is currently no direct way to do so unless you have tons of capital. I am sure one day some investment bank is going to package agri land pieces into a strutured vehicle for common investors to buy into, but that will mean management fees and also some sort of underwriting fees involved. I have to be honest, I hate paying fees, especially on a yearly basis regardless of whether the investment is delivering positive returns or not.
We do have the ability to gain indirect access to the ever appreciating agri land investment. Yes, you guessed it right. We can always buy into plantation, grain, dairy owners. There are quite a few out there, companies like Wilmar, Indofood, Sime Darby etc who own more than 200,000 hectares of plantation land each. I will totally look into studying companies that own such assets. Currently, I do not think many of such companies are cheap in terms of price to book values but a more detailed look will be needed to reach a more certain conclusion. But this is definitely an investment that I will be keeping a close eye on going forward.
Best,
SVI
Monday, July 5, 2010
Thursday, July 1, 2010
A mid-week note to start 3Q2010
I feel almost apologetic that the market practically has had its wheels fall off after my double dip post on Monday. My protégé smsed me and said maybe I should write about more optimistic scenarios and the market may turn positive. Often have we heard about markets overshooting on the upside and downside. I believe the sell down in 2008 was a classic case of overshooting on the downside on the back of “end of the world” pessimism. While the sell down in 2008 was spectacular, the rebound in 2009 was nothing short of a big bang. The question that lingers in one’s mind is…Did it overshoot on the upside. I believe the answer is maybe. As we all know, the world is a big place, global markets are not equal in terms of status and valuations, this is the reason why my answer was maybe.
When the tide rose in 2009, every market rose in tandem and almost every investor became a genius (including me). But if we look at the earnings expectations, I would have to say that the expectations have been a little too optimistic for some markets. The S&P reaching 19 times p/e at its 2010 peak was excessive considering economic growth was still tepid. While the Shanghai composite traded at a mere 20 odd times when China was reclaiming double digit growth numbers. How I would classify this current correction as a normalization of valuations for the markets that have overshot on the upside. As for Shanghai Composite trading at 15 times p/e, that is just a bargain. The worries over a slowdown and its property bubble bursting is keeping valuations in check but I believe for those brave souls out there, they should be buying some CSI 300 or any A shares ETFs because returns will be great down the road.
In simple words, 2009 was the biggest 1 year rebound in stock markets ever and many stock indices doubled during the period. Remember, these all happened before the earnings recovered in any way. Investors realized that they had been overly pessimistic and sold down stocks to a level which should only be touched when the world was coming to an end. No one can be blamed for that besides the media who wrote about the crisis as if it was really financial Armageddon and the world we know was coming to an end. When the world did not come to an end and rationality came back home, investors started to price stocks more rationally. As the markets picked up, so did sentiment and this pushed prices to levels where it was a little stretched and now we are paying the price.
According to PIMCO’s New Normal thesis, investors should get ready for lower growth in developed countries and emerging market will start to play a bigger role in world markets. They also mentioned that investors have to stop having the expectations of double digit returns from bonds or equities in this new normal environment. Investment assets are not expected to perform as strongly as the "old normal" over the past 20 years and in the "new normal" investment returns are going to pale in comparison to the past.
Never in PIMCO’s dreams was the market going to rally like what it did in 2009 and it was practically an egg in their faces. But I would like to add, they may not have gotten the timing correctly, it does not mean that they are wrong. Eventually their new normal will arrive and investor expectations have to adjust to the new growth path. They were too early on their call on the sub-prime crisis, but at least they were well positioned for it by the time it happened.
I do believe that the credit crisis of 2007-08 stemmed from the fact that we have built the world we live in on credit. Credit is a part of all of our lives. It is commercialization that has led us to rely so much on credit and living on credit became a norm. Credit cards lure us with their attractive promotions, interest free installment payments, Kris flyer miles etc, convincing us that by using them is more than just out of convenience but also the benefits are bountiful. Credit is used in buying luxury items like houses, Panerai watches, sports automobiles etc. It allows us to buy things which we cannot afford at the current moment but we wish to believe we will eventually make enough to do so. For the past 30 years, credit has been utilized from individuals to corporates to governments and the multiplier effect has been one that the world has never seen before. The creation of securitization has exacerbated the problem by allowing financial institutions to sell the debt back to the very people who are taking on the debt. What irony!
The credit crisis of 2007-08 represents the wake up call that we have so desperately needed but never want to hear from. As credit is withdrawn from the system, “deleveraging process” is what it is called, corporates, individuals and governments are all suffering from their past over indulgences. From a sub-prime and mortgage crisis (individuals), it evolved into a banking crisis (corporates) and now moving to the advanced stage…a sovereign crisis (governments). The credit crisis is not over, it is just evolving and moving like a contagion from the smaller players to the larger ones. We are probably at the more advanced stages of the deleveraging process but it is a stage which could drag on for a long time. Credit expansion is not expected to come back with a bang any time soon (with the exception of China) and sovereign risks are rising as less peripheral countries like Spain and the UK are getting dragged into the picture.
Many would say a sovereign crisis like this is possibly a once in a generation event, in Nassim Taleb's words a "Black Swan" event. From a personal point of view, I do not think the Euro zone's crisis is the trigger for the "Black Swan" event. No doubt these Euro zone problems will not be going away any time soon but they will not lead to a world wide crash. Do not listen or take heed in what the press are writing about; how the Euro zone is going to split up, the end of the Euro is nigh, Germany to leave the Euro zone, PIIGS going to be kicked out of Euro zone etc. First let me say, the Euro will never disappear and the Eurozone will not break up. To top things off, assertions of Germany leaving the Euro zone is just preposterous. The Germans are better off with the lower Euro, they are going to be exporting a serious amount of BMWs and Porsches. There is also no chance the Germans will take the risk of incurring the wrath of its largest trading partners by abandoning them during their time of need. Germany is afterall the largest exporter of goods within the Euro zone and the last thing they want is to make their largest customers angry. So logically, all those debates in the media on the breaking up of the Euro zone is just silly.
There is without a shadow of a doubt that the troubles of the US is significantly higher than that of the Euro zone nations. There will always be arguments that the USD is the reserve currency of the world and that it can never be replaced. I would like to remind readers that no one believed that Rome would fall too. I do not think it would be wise for the world be complacent and believe that the US will always be the leader and with their ability to print more money, they will not fall into the same trap as the Euro zone countries. All I can say is, it is only natural that no one stays in a leadership position forever. Just like Roger Federer, Lin Dan, Michael Schumacher etc, they may be the best of all time at present, but their no. 1 position will one day be usurped by others. It is great to be on top, but enjoy the moment because it will not last forever.
Best,
SVI
When the tide rose in 2009, every market rose in tandem and almost every investor became a genius (including me). But if we look at the earnings expectations, I would have to say that the expectations have been a little too optimistic for some markets. The S&P reaching 19 times p/e at its 2010 peak was excessive considering economic growth was still tepid. While the Shanghai composite traded at a mere 20 odd times when China was reclaiming double digit growth numbers. How I would classify this current correction as a normalization of valuations for the markets that have overshot on the upside. As for Shanghai Composite trading at 15 times p/e, that is just a bargain. The worries over a slowdown and its property bubble bursting is keeping valuations in check but I believe for those brave souls out there, they should be buying some CSI 300 or any A shares ETFs because returns will be great down the road.
In simple words, 2009 was the biggest 1 year rebound in stock markets ever and many stock indices doubled during the period. Remember, these all happened before the earnings recovered in any way. Investors realized that they had been overly pessimistic and sold down stocks to a level which should only be touched when the world was coming to an end. No one can be blamed for that besides the media who wrote about the crisis as if it was really financial Armageddon and the world we know was coming to an end. When the world did not come to an end and rationality came back home, investors started to price stocks more rationally. As the markets picked up, so did sentiment and this pushed prices to levels where it was a little stretched and now we are paying the price.
According to PIMCO’s New Normal thesis, investors should get ready for lower growth in developed countries and emerging market will start to play a bigger role in world markets. They also mentioned that investors have to stop having the expectations of double digit returns from bonds or equities in this new normal environment. Investment assets are not expected to perform as strongly as the "old normal" over the past 20 years and in the "new normal" investment returns are going to pale in comparison to the past.
Never in PIMCO’s dreams was the market going to rally like what it did in 2009 and it was practically an egg in their faces. But I would like to add, they may not have gotten the timing correctly, it does not mean that they are wrong. Eventually their new normal will arrive and investor expectations have to adjust to the new growth path. They were too early on their call on the sub-prime crisis, but at least they were well positioned for it by the time it happened.
I do believe that the credit crisis of 2007-08 stemmed from the fact that we have built the world we live in on credit. Credit is a part of all of our lives. It is commercialization that has led us to rely so much on credit and living on credit became a norm. Credit cards lure us with their attractive promotions, interest free installment payments, Kris flyer miles etc, convincing us that by using them is more than just out of convenience but also the benefits are bountiful. Credit is used in buying luxury items like houses, Panerai watches, sports automobiles etc. It allows us to buy things which we cannot afford at the current moment but we wish to believe we will eventually make enough to do so. For the past 30 years, credit has been utilized from individuals to corporates to governments and the multiplier effect has been one that the world has never seen before. The creation of securitization has exacerbated the problem by allowing financial institutions to sell the debt back to the very people who are taking on the debt. What irony!
The credit crisis of 2007-08 represents the wake up call that we have so desperately needed but never want to hear from. As credit is withdrawn from the system, “deleveraging process” is what it is called, corporates, individuals and governments are all suffering from their past over indulgences. From a sub-prime and mortgage crisis (individuals), it evolved into a banking crisis (corporates) and now moving to the advanced stage…a sovereign crisis (governments). The credit crisis is not over, it is just evolving and moving like a contagion from the smaller players to the larger ones. We are probably at the more advanced stages of the deleveraging process but it is a stage which could drag on for a long time. Credit expansion is not expected to come back with a bang any time soon (with the exception of China) and sovereign risks are rising as less peripheral countries like Spain and the UK are getting dragged into the picture.
Many would say a sovereign crisis like this is possibly a once in a generation event, in Nassim Taleb's words a "Black Swan" event. From a personal point of view, I do not think the Euro zone's crisis is the trigger for the "Black Swan" event. No doubt these Euro zone problems will not be going away any time soon but they will not lead to a world wide crash. Do not listen or take heed in what the press are writing about; how the Euro zone is going to split up, the end of the Euro is nigh, Germany to leave the Euro zone, PIIGS going to be kicked out of Euro zone etc. First let me say, the Euro will never disappear and the Eurozone will not break up. To top things off, assertions of Germany leaving the Euro zone is just preposterous. The Germans are better off with the lower Euro, they are going to be exporting a serious amount of BMWs and Porsches. There is also no chance the Germans will take the risk of incurring the wrath of its largest trading partners by abandoning them during their time of need. Germany is afterall the largest exporter of goods within the Euro zone and the last thing they want is to make their largest customers angry. So logically, all those debates in the media on the breaking up of the Euro zone is just silly.
There is without a shadow of a doubt that the troubles of the US is significantly higher than that of the Euro zone nations. There will always be arguments that the USD is the reserve currency of the world and that it can never be replaced. I would like to remind readers that no one believed that Rome would fall too. I do not think it would be wise for the world be complacent and believe that the US will always be the leader and with their ability to print more money, they will not fall into the same trap as the Euro zone countries. All I can say is, it is only natural that no one stays in a leadership position forever. Just like Roger Federer, Lin Dan, Michael Schumacher etc, they may be the best of all time at present, but their no. 1 position will one day be usurped by others. It is great to be on top, but enjoy the moment because it will not last forever.
Best,
SVI
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