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
Saturday, October 9, 2010
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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