April 14, 2009
Wellcare Group – An Intelligent Speculation?
Filed under: From the co-founders — Tags: Marcelo Lima, WCG, Wellcare Group — Jane Scottsdale @ 1:11 pm
Common stock investing is inherently risky, and those risks cannot be divorced from the rewards that come with them. Often, it isn’t easy to separate the speculative from the investment component of a common stock commitment. On this topic, Ben Graham, author of the classic The Intelligent Investor, has written most clearly:
Outright speculation is neither illegal, immoral, nor (for most people) fattening to the pocketbook. More than that, some speculation is necessary and unavoidable, for in many common-stock situations there are substantial possibilities of both profit and loss, and the risks therein must be assumed by someone. There is intelligent speculation as there is intelligent investing. But there are many ways in which speculation may be unintelligent. Of these the foremost are:
(1) speculating when you think you are investing;
(2) speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and
(3) risking more money in speculation than you can afford to lose.
With that caveat, here’s Wellcare Group (WCG), a stock that has a reasonable chance of going higher once its legal problems are resolved and its earnings normalized. As such, it may present an intelligent speculation.
First, a quick background. Wellcare is a healthcare management organization focused on Medicare and Medicaid, government-run entitlement programs for the elderly and low-income population. It has over 2.5 million members enrolled in its programs nationwide, with a large portion of them in Florida.
Its stock hovered around $120 per share when in October 2007 about 200 FBI agents raided its Tampa campus. The stock collapsed to $40, wiping out $3.3bn in shareholder value. The uncertainty was large; there was no official word of what the FBI raid was for, although newspaper reports stated that one of Wellcare’s subsidiaries had overbilled the government by $35m. In this context, the share price collapse was wildly overdone.
A quick resolution of the problem didn’t happen. Instead, the company went “dark,” not filing its quarterly and yearly financial statements and risking stock exchange delisting for its non-compliance. Periodic SEC filings kept shareholders apprised of the slow progress, but it wasn’t until early 2009 that things became clearer. The company finally filed all of its late financial statements and set a shareholder’s meeting – the first since the FBI raid – for July 30.
Wellcare is well capitalized. As of 12/31/2008, it had about $1.2 billion in cash and $153 million in debt. This debt proved to be another Achilles heel for the stock. When the company reported in 2008 that it was in technical default for not having filed its financial statements, the price dropped precipitously yet again. Fairholme Capital, which owns nearly 20% of the stock, bought a majority of the debt, likely in a move to protect its equity investment.
Throughout this misadventure, the stock has swung wildly, hitting a low of $6.12 in November and $6.23 in March of this year. Yet Wellcare’s core business remains sound, generating substantial free cash flows. The exact number for 2008 involves reversing a goodwill write-down and removing a non-recurring $103m in litigation expenses, but a normalized estimate of $4 in free cash flow per share is probably on the conservative side. While there is significant regulatory uncertainty surrounding its Medicare and Medicaid businesses, at the current price of around $13.80, it’s hard to find a way to lose.
Yet all of these uncertainties – particularly those surrounding the FBI investigation – are still large, which is where the speculative component of this investment comes in. There might be a probability of the government’s penalties being larger than expected. The company is also facing various lawsuits related to its illegal activities, including a class-action lawsuit. Defending against these will cost management’s time and shareholders’ cash.
On the other hand, Wellcare may soon begin conducting conference calls with shareholders and analysts, may soon settle with the government by paying a fine, and may ultimately get sold to a larger competitor, such as UnitedHealth Group. After it fired its disgraced former management, the board brought in Charles Berg, formerly a UnitedHealth executive, Oxford Health Plans CEO and “deal guy.”
With these factors in mind, and taking into account Graham’s three points above, Wellcare may seem like an intelligent speculation after all.
Marcelo P. Lima is a securities analyst. He may be reached at MPL4@cornell.edu
http://blog.valueinvestingcongress.com/2009/04/14/wellcare-group-%e2%80%93-an-intelligent-speculation/
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Tuesday 20 October 2009
Value Investing Congress 19th - 20th October, 2009
http://www.valueinvestingcongress.com/
An advanced seminar on value investing
How to Decipher Financial Statements, Avoid Value Traps and Pick Investment Winners
MONday MAY 4, 2009
7:30 - 8:00 AM
Registration
8:00 - 10:00 AM
How to Profit From the Mortgage Crisis:
Long Investments
• A beaten-down blue-chip
Case study: American Express
• Growth at a reasonable price (GARP)
and a beaten-down blue-chip
Case studies: Berkshire Hathaway & Wesco
• Out of favor financial
Case study: Resource America
• Distressed Debt
Case study: Subprime mortgage tranche
10:00 - 10:15 AM Break
10:15 - 10:45 AM
How to Not Lose Money in the Mortgage Crisis:
Stocks to Avoid
• Aggressive accounting, inadequate
reserving and the structure of CDOs
Case study: MBIA
10:45 - 11:30 am
Different Types of Value — Part One:
Piggybacking on Activism
• Piggybacking on structural activism
Case study: Wendy’s (Ackman)
• Piggybacking on operational activism
Case study: Wendy’s (Peltz)
• Catalyzing activism
Case study: CNET
11:30 AM - 12:00 Pm
Investor Irrationality and the Current
Market Meltdown
12:00 - 1:00 pm Lunch
1:00 - 3:00 Pm
Different Types of Value — Part Two:
Out of Favor Sectors (Retail/Consumer)
• Beaten down blue chip retailer and
piggybacking on activism
Case study: Target
• Profiting from a liquidation
Case study: Footstar
• Betting on a turnaround under new
leadership (1)
Case study: Borders Group
• Betting on a turnaround under new
leadership (2)
Case study: Wendy’s
3:00 - 3:15 pM Break
3:15 - 4:00 pM
Warning Flags
• Overvaluation
Case study: Netflix
• Overvaluation and unsustainable
business model
Case study: VistaPrint
4:00 - 5:00 pM
Different Types of Value —
Part Three
• An out-of-favor cyclical with too much debt
Case study: Huntsman
• Mispriced options
Case studies: dELiA*s, Ambassadors
International, TravelCenters of America,
PhotoChannel Networks, Proliance
International, General Growth Properties
5:00 - 6:00 pM
Networking Cocktail Reception
http://www.valueinvestingcongress.com/downloads/VICP09_Workshop_Agenda3.pdf
AGENDA
An advanced seminar on value investing
How to Decipher Financial Statements, Avoid Value Traps and Pick Investment Winners
MONday MAY 4, 2009
7:30 - 8:00 AM
Registration
8:00 - 10:00 AM
How to Profit From the Mortgage Crisis:
Long Investments
• A beaten-down blue-chip
Case study: American Express
• Growth at a reasonable price (GARP)
and a beaten-down blue-chip
Case studies: Berkshire Hathaway & Wesco
• Out of favor financial
Case study: Resource America
• Distressed Debt
Case study: Subprime mortgage tranche
10:00 - 10:15 AM Break
10:15 - 10:45 AM
How to Not Lose Money in the Mortgage Crisis:
Stocks to Avoid
• Aggressive accounting, inadequate
reserving and the structure of CDOs
Case study: MBIA
10:45 - 11:30 am
Different Types of Value — Part One:
Piggybacking on Activism
• Piggybacking on structural activism
Case study: Wendy’s (Ackman)
• Piggybacking on operational activism
Case study: Wendy’s (Peltz)
• Catalyzing activism
Case study: CNET
11:30 AM - 12:00 Pm
Investor Irrationality and the Current
Market Meltdown
12:00 - 1:00 pm Lunch
1:00 - 3:00 Pm
Different Types of Value — Part Two:
Out of Favor Sectors (Retail/Consumer)
• Beaten down blue chip retailer and
piggybacking on activism
Case study: Target
• Profiting from a liquidation
Case study: Footstar
• Betting on a turnaround under new
leadership (1)
Case study: Borders Group
• Betting on a turnaround under new
leadership (2)
Case study: Wendy’s
3:00 - 3:15 pM Break
3:15 - 4:00 pM
Warning Flags
• Overvaluation
Case study: Netflix
• Overvaluation and unsustainable
business model
Case study: VistaPrint
4:00 - 5:00 pM
Different Types of Value —
Part Three
• An out-of-favor cyclical with too much debt
Case study: Huntsman
• Mispriced options
Case studies: dELiA*s, Ambassadors
International, TravelCenters of America,
PhotoChannel Networks, Proliance
International, General Growth Properties
5:00 - 6:00 pM
Networking Cocktail Reception
http://www.valueinvestingcongress.com/downloads/VICP09_Workshop_Agenda3.pdf
Most Companies Yet To Disclose Remuneration Levels
October 20, 2009 20:03 PM
Most Companies Yet To Disclose Remuneration Levels, Says Ernst & Young
KUALA LUMPUR, Oct 20 (Bernama) -- Most Malaysian companies have yet to disclose the remuneration level of their executive directors and relate it with performance, according to an international public accounting firm.
Ernst & Young Malaysia, in its 2009 executive and board remuneration report, said though the level of disclosure on remuneration of executive directors increased, there was still a lack of information on the correlation between level of remuneration and company's performance.
Ernst & Young's performance and reward leader for the Far East, Dharma Chandran, said majority of the companies that were assessed did not report on performance measures.
"They tell you what they paid the executives last year and how much they paid remuneration (but) they did not say much in terms of what kind of performance measures that they used, whether revenue, profit or economic values as benchmark," he told a media briefing here Tuesday.
The report was made based on analysis of information in the annual reports of the top 100 companies on Bursa Malaysia's Main Market with the financial years ended 2008 and 2007.
According to the report, only 23 per cent of companies disclosed remuneration details for all individual directors as recommended in the Malaysian Code of Corporate Governance.
Though there was still lack of disclosure, Dharma said the increasing weighting towards variable pay indicated that Malaysian companies were responding to international trends and reviewing their strategies to ensure alignment with their business strategy and shareholder value creation.
However, there was a need for long-term incentives for these executive directors to create long-term values and keep real talent in the company, he said.
Dharma said most Malaysian companies offered short-term incentives based on company's performance rather than long-term incentives to these directors.
"For the remuneration to be balanced, a mixed of short-term and long-term incentives could drive better future for the company," he said.
Short-term incentives are usually in the form of annual bonuses while long-term incentives can be equity- or cash-based programme with a vesting period of more than one year.
Moving forward, total remuneration levels are expected to remain stagnant or assumed downward trend this year as Malaysian companies are still feeling the effects of a weak global economy, the report said.
-- BERNAMA
Most Companies Yet To Disclose Remuneration Levels, Says Ernst & Young
KUALA LUMPUR, Oct 20 (Bernama) -- Most Malaysian companies have yet to disclose the remuneration level of their executive directors and relate it with performance, according to an international public accounting firm.
Ernst & Young Malaysia, in its 2009 executive and board remuneration report, said though the level of disclosure on remuneration of executive directors increased, there was still a lack of information on the correlation between level of remuneration and company's performance.
Ernst & Young's performance and reward leader for the Far East, Dharma Chandran, said majority of the companies that were assessed did not report on performance measures.
"They tell you what they paid the executives last year and how much they paid remuneration (but) they did not say much in terms of what kind of performance measures that they used, whether revenue, profit or economic values as benchmark," he told a media briefing here Tuesday.
The report was made based on analysis of information in the annual reports of the top 100 companies on Bursa Malaysia's Main Market with the financial years ended 2008 and 2007.
According to the report, only 23 per cent of companies disclosed remuneration details for all individual directors as recommended in the Malaysian Code of Corporate Governance.
Though there was still lack of disclosure, Dharma said the increasing weighting towards variable pay indicated that Malaysian companies were responding to international trends and reviewing their strategies to ensure alignment with their business strategy and shareholder value creation.
However, there was a need for long-term incentives for these executive directors to create long-term values and keep real talent in the company, he said.
Dharma said most Malaysian companies offered short-term incentives based on company's performance rather than long-term incentives to these directors.
"For the remuneration to be balanced, a mixed of short-term and long-term incentives could drive better future for the company," he said.
Short-term incentives are usually in the form of annual bonuses while long-term incentives can be equity- or cash-based programme with a vesting period of more than one year.
Moving forward, total remuneration levels are expected to remain stagnant or assumed downward trend this year as Malaysian companies are still feeling the effects of a weak global economy, the report said.
-- BERNAMA
Graham's view of people who trade continuously
"Everyone knows that most people who trade in the market lose money at the end. The peopl,e who persist in trying it are either unintelligent, or willing to lose money for the fun of the game, or gifted with some uncommon and incommunicable talent. In any case, they are not investors."
"Too many clever and experienced people are engaged simultaneously in tryng to outwit one another in the market. The result, we believe, is that all their work and effort 'cancel out', so that ... each conclusion ends up by being no more dependable than the toss of a coin ... the activities of the stock market analysts are the same as the activities of a tournament of bridge expert. Everyone is very brilliant indeed, but scarcely anyone is so superior to the rest as to be certain of winning a prize .... because the analysts communicate freely with each other, it is as if all the contestants in the bridge tournament gathered around and argued with each other what strategy each should use."
"Too many clever and experienced people are engaged simultaneously in tryng to outwit one another in the market. The result, we believe, is that all their work and effort 'cancel out', so that ... each conclusion ends up by being no more dependable than the toss of a coin ... the activities of the stock market analysts are the same as the activities of a tournament of bridge expert. Everyone is very brilliant indeed, but scarcely anyone is so superior to the rest as to be certain of winning a prize .... because the analysts communicate freely with each other, it is as if all the contestants in the bridge tournament gathered around and argued with each other what strategy each should use."
All the clocks have no hands
We are all at a wonderful ball where champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment, terrorists will burst in through the terrace doors, killing many and scattering the survivors. Those who leave early will be saved, but the ball is so splended that no one wants to leave while there is still time. Everyone wants to enjoy one more dance and sip one more glass of champagne. So everyone keeps asking: "What time is it? What time is it?" We look around and find that all the clocks have no hands.
Final answer to stock values
There is no such thing as a final answer to stock values. A dozen experts will arrive at twelve different conclusions - Gerald Loeb
The barriers to success are psychological rather than physical.
What can an individual investor do?
Though it is believed that investment can be a very profitable field, it is only profitable to those who are strong of will and are prepared to work at it. There is no simple way to get rich quick in the stock market.
The barriers to success are psychological rather than physical. Psychological barriers are so much harder to cross for so few of us can bear the thought of not being part of a crowd.
Here are the words of advice from Dreman in his book Psychology and the Stockmarket.
".... the best chance an investor has is to stand apart from popular thinking. He must be willing to forego the thrill of being in unison with the market, in agreement with the expert opinion and with the exciting, seemingly surefire ideas currently in vogue.... This is no small sacrifice. To own the 'right' stocks in a rising market is a heady experience. There is a wonderful blend of monetary gain and ego satisfaction in being right in a popular manner.
Man is a social animal. To succeed, the investor has to be able to withstand the tremendous pressure leading to conformity... (he) will face a continuing flow of negative feedback from the market, from experts and from groups of people whom he respects. The reader may feel a little like the patient whose doctor has advised him to give up sex for this health. Some of us might just prefer to die happy."
Though it is believed that investment can be a very profitable field, it is only profitable to those who are strong of will and are prepared to work at it. There is no simple way to get rich quick in the stock market.
The barriers to success are psychological rather than physical. Psychological barriers are so much harder to cross for so few of us can bear the thought of not being part of a crowd.
Here are the words of advice from Dreman in his book Psychology and the Stockmarket.
".... the best chance an investor has is to stand apart from popular thinking. He must be willing to forego the thrill of being in unison with the market, in agreement with the expert opinion and with the exciting, seemingly surefire ideas currently in vogue.... This is no small sacrifice. To own the 'right' stocks in a rising market is a heady experience. There is a wonderful blend of monetary gain and ego satisfaction in being right in a popular manner.
Man is a social animal. To succeed, the investor has to be able to withstand the tremendous pressure leading to conformity... (he) will face a continuing flow of negative feedback from the market, from experts and from groups of people whom he respects. The reader may feel a little like the patient whose doctor has advised him to give up sex for this health. Some of us might just prefer to die happy."
Bulls versus Bears
"Only own those rare stocks whose earnings yield over the next few years will be much higher than the bond yields against which stock valuations must compete." Kenneth Fisher, son of Philip Fisher. Just like his father, the young Fisher is a conservative investor.
"When the earnings yield on stocks is very low relative to bond yields, stocks will fall. "
"No one can precisely 'time' the market. As PEs moved up from levels that were historically cheap to a range somewhat above long-term norms, pocket some of your equity profits now and build up your cash reserves to the 10%, then 15% and then 20% level."
"As the dream merchants continue to drive prices higher rapidly, raise more cash."
"The near term nod still goes to the bulls. Firstly, both Newton and experience have shown that a body in motion continues in motion until stopped by something more formidable than anything one can see at present. Second, there is simply too much liquidity in the world with no better place to flow."
"The market has only recently gotten carried away, and it can still correct these excesses in a mild, orderly fashion."
"When the earnings yield on stocks is very low relative to bond yields, stocks will fall. "
"No one can precisely 'time' the market. As PEs moved up from levels that were historically cheap to a range somewhat above long-term norms, pocket some of your equity profits now and build up your cash reserves to the 10%, then 15% and then 20% level."
"As the dream merchants continue to drive prices higher rapidly, raise more cash."
"The near term nod still goes to the bulls. Firstly, both Newton and experience have shown that a body in motion continues in motion until stopped by something more formidable than anything one can see at present. Second, there is simply too much liquidity in the world with no better place to flow."
"The market has only recently gotten carried away, and it can still correct these excesses in a mild, orderly fashion."
Hong Leong group in focus
Hong Leong group in focus
Written by Joseph Chin
Tuesday, 20 October 2009 13:23
KUALA LUMPUR: Shares of several companies in the Hong Leong group topped the gainers list at the midday break on Tuesday, Oct 20 while the broader market was mixed
Hong Leong Industries rose 34 sen to RM4.50, Hong Leong Financial Group 31 sen to RM6.49 and Hong Leong Bank 16 sen to RM7.41. Cement maker Tasek-PA gained 26 sen to RM3.50 but Tasek shares fell seven sen to RM3.73.
Written by Joseph Chin
Tuesday, 20 October 2009 13:23
KUALA LUMPUR: Shares of several companies in the Hong Leong group topped the gainers list at the midday break on Tuesday, Oct 20 while the broader market was mixed
Hong Leong Industries rose 34 sen to RM4.50, Hong Leong Financial Group 31 sen to RM6.49 and Hong Leong Bank 16 sen to RM7.41. Cement maker Tasek-PA gained 26 sen to RM3.50 but Tasek shares fell seven sen to RM3.73.
Singapore fund exits KFCH
Singapore fund exits KFCH
Tags: Arisaig Asean Fund Ltd | Lembaga Tabung Haji | QSR Brands Bhd
Written by Financial Daily
Tuesday, 20 October 2009 11:00
KUALA LUMPUR: Singapore-based Arisaig Asean Fund Ltd has exited KFC Holdings (Malaysia) Bhd after it sold all its 6.89% stake or 13.65 million shares last Thursday.
A filing with Bursa Malaysia showed the fund sold the shares in a married deal for an undisclosed price. The buyer of the stake was not revealed.
Arisaig Asean Fund was the third largest shareholder in KFCH and the share price had performed well in recent months. KFCH closed at RM7.50 on that day. Analysts said Arisaig Asean Fund had been reducing its stakes in several Malaysian companies to meet redemptions.
The single largest shareholder in KFCH is QSR BRANDS BHD [] which owns 50.25% or 99.63 million shares. The second largest shareholder is Lembaga Tabung Haji with 24.87% or 49.31 million shares. KFCH yesterday closed 50 sen higher at RM8, the highest since Nov 13, 2007.
This article appeared in The Edge Financial Daily, October 20, 2009.
Tags: Arisaig Asean Fund Ltd | Lembaga Tabung Haji | QSR Brands Bhd
Written by Financial Daily
Tuesday, 20 October 2009 11:00
KUALA LUMPUR: Singapore-based Arisaig Asean Fund Ltd has exited KFC Holdings (Malaysia) Bhd after it sold all its 6.89% stake or 13.65 million shares last Thursday.
A filing with Bursa Malaysia showed the fund sold the shares in a married deal for an undisclosed price. The buyer of the stake was not revealed.
Arisaig Asean Fund was the third largest shareholder in KFCH and the share price had performed well in recent months. KFCH closed at RM7.50 on that day. Analysts said Arisaig Asean Fund had been reducing its stakes in several Malaysian companies to meet redemptions.
The single largest shareholder in KFCH is QSR BRANDS BHD [] which owns 50.25% or 99.63 million shares. The second largest shareholder is Lembaga Tabung Haji with 24.87% or 49.31 million shares. KFCH yesterday closed 50 sen higher at RM8, the highest since Nov 13, 2007.
This article appeared in The Edge Financial Daily, October 20, 2009.
Lion Div further cuts stake in Parkson to 1.45%
Lion Div further cuts stake in Parkson to 1.45%
Tags: Amsteel Corp Bhd | Excel Step Investments Ltd | LDHB | Lion Corp Bhd | Lion Diversified Holdings Bhd | Megasteel Sdn Bhd | Parkson Holdings Bhd
Written by Ellina Badri
Monday, 19 October 2009 22:30
KUALA LUMPUR: LION DIVERSIFIED HOLDINGS BHD []'s (LDHB) subsidiary Excel Step Investments Ltd disposed of a total 36.74 million shares representing a 3.62% stake in PARKSON HOLDINGS BHD [] between June 29, 2009, and Oct 19, 2009, for RM185.8 million cash, to partly settle its deferred cash payments.
In a statement today, LDHB said 16.74 million shares were sold in the open market, with the remaining 20 million disposed off via a placement through JPMorgan Securities (Malaysia) Sdn Bhd.
It said its deferred cash payments payable were from its RM100 million acquisition of a 11.1% stake in Megasteel Sdn Bhd in February this year and its purchase of RM450 million Lion Corp Bhd Class B(b) bonds from Amsteel Corp Bhd, also in February.
It also said the balance of the proceeds from its share disposal would be used to repay borrowings and for working capital.
LDHB said following the disposal, its stake in Parkson was now reduced to 1.45%, adding that Excel Step held RM228.8 million redeemable convertible secured loan stocks 2007/2010 convertible into 57.2 million new Parkson shares.
"The LDHB group's original costs of investment in the 36.74 million Parkson shares was approximately RM147 million and the investment was made in Sept 2007," it added.
It said as of today, it had disposed of a total of 55.24 million Parkson shares, or a 5.44% stake, for a total cash consideration of RM272.3 million.
Between Apr 24 and June 26, it had disposed of a 1.82% interest in Parkson via the open market for RM86.5 million cash.
Tags: Amsteel Corp Bhd | Excel Step Investments Ltd | LDHB | Lion Corp Bhd | Lion Diversified Holdings Bhd | Megasteel Sdn Bhd | Parkson Holdings Bhd
Written by Ellina Badri
Monday, 19 October 2009 22:30
KUALA LUMPUR: LION DIVERSIFIED HOLDINGS BHD []'s (LDHB) subsidiary Excel Step Investments Ltd disposed of a total 36.74 million shares representing a 3.62% stake in PARKSON HOLDINGS BHD [] between June 29, 2009, and Oct 19, 2009, for RM185.8 million cash, to partly settle its deferred cash payments.
In a statement today, LDHB said 16.74 million shares were sold in the open market, with the remaining 20 million disposed off via a placement through JPMorgan Securities (Malaysia) Sdn Bhd.
It said its deferred cash payments payable were from its RM100 million acquisition of a 11.1% stake in Megasteel Sdn Bhd in February this year and its purchase of RM450 million Lion Corp Bhd Class B(b) bonds from Amsteel Corp Bhd, also in February.
It also said the balance of the proceeds from its share disposal would be used to repay borrowings and for working capital.
LDHB said following the disposal, its stake in Parkson was now reduced to 1.45%, adding that Excel Step held RM228.8 million redeemable convertible secured loan stocks 2007/2010 convertible into 57.2 million new Parkson shares.
"The LDHB group's original costs of investment in the 36.74 million Parkson shares was approximately RM147 million and the investment was made in Sept 2007," it added.
It said as of today, it had disposed of a total of 55.24 million Parkson shares, or a 5.44% stake, for a total cash consideration of RM272.3 million.
Between Apr 24 and June 26, it had disposed of a 1.82% interest in Parkson via the open market for RM86.5 million cash.
Hai-O riding high on China connection
Hai-O riding high on China connection
Tags: Changyu Pioneer Wine Co Ltd | China | Chinese herbs | Chinese medicated wines | Extensive network in China | Hai-O Enterprise Bhd | Tan Kee Hock
Written by Tony C H Goh
Monday, 19 October 2009 11:23
KUALA LUMPUR: HAI-O ENTERPRISE BHD [], widely known as a wholesaler and retailer of Chinese herbs and medicine, is now looking at expanding its reach in the wine, liquor and liqueur business by leveraging on its strong network in China.
“Currently, wines and liquor are considered as the second-liner products carried by the retail division. But with the current market trend towards drinking of red wine in the country, we foresee huge potential,” Hai-O’s general manager Tan Kee Hock said at the third Yantai International Wine Festival in Yantai, China, recently.
Hai-O has an extensive network in China, with business dealings dating back to 1975, particularly with Changyu Pioneer Wine Co Ltd, China’s oldest vineyard, which was established in 1892 and its biggest wine producer based in the wine-producing region of Yantai, Shandong province.
“As the sole distributor of Changyu’s wines in Malaysia, we are allocating a big portion of our promotion and advertising budget to raise awareness,” said Tan, who is in charge of the Chinese medicated wines, cooking wines, healthcare food and beverages division of the company.
Among Changyu products under the sole agency rights of Hai-O are Ling Zhi Medicated Liquor, Tze Pao San Pian Chiew, Te Zhi San Pian Chiew, Changyu Cabernet Dry Red Wine, Changyu Cabernet, Gernischt Dry Red Wine and Changyu Ice Wine.
While seeking to grow its wine and liquor business, multi-level marketing (MLM), wholesale and retailing are still the main contributors to Hai-O’s growth and revenue. It is exposed to all mainstream segments of Malaysia’s population, with the retail segment basically aimed at the Chinese, while MLM is mainly Malay-based.
For the fiscal year ended April 30, 2009 (FY09), Hai-O’s revenue increased 16% to RM435.2 million from RM373.8 million in the previous year. Net income rose 7% to RM52 million. The higher revenue reflects strengthening of the ringgit against the US dollar and the promotion of house-based products from the retail division.
The wholesale and retail division contributed RM16.8 million to the group revenue of RM148.6 million in the first quarter ended July 31, 2009 (1QFY10), down 11.2% from RM18.9 million in the previous quarter and 16.9% or RM20.2 million in the same period last year.
But given the promising potential of the wine industry in China, Hai-O believes its strategy of leveraging on the biggest wine company in the fast-developing Asian giant is likely to pay off. Hai-O has seen its share price jumping nearly 30% over the past three weeks to RM7.02 last Friday when it added another 12 sen, with 38,600 shares done.
Yantai is the largest wine-producing region in China, accounting for around 35% or one in every three bottles of wine produced there. The wine industry in China is the world’s 10th largest grape wine producer, and the only Asian country that produces grape wine on a commercial scale.
Other major grape wine players in China include Sino-French joint venture, Dynasty Winery Ltd and China Great Wall Wine Co, Ltd. Collectively, these top three wine producers control 40% of China’s wine market. Besides Shandong, some other famous wine-producing regions are found in Fujian and Guangdong provinces.
While growth in the traditional wine consumer countries has remained flat in the last 10 years, experts estimate that China would be the world’s most active wine market with a 36% growth through 2010. Over the same period, total global wine consumption is expected to grow at only 9.15%.
Research data from British research institute ISWR/DGR showed that based on current trends, total global wine consumption will reach 100 million litres by 2010, with China accounting for 5.58 million litres.
In a recent report on the company, RHB Research remained upbeat on Hai-O’s prospects going forward, even when there was a visible slowdown of the company’s retail and wholesale business.
This was largely due to the strong performance of its main business segment of MLM, for which the number of members has ballooned to more than 110,000 from 70,000 a year ago.
The company is well on track to surpass its internal target of 10% earnings growth in FY10. “Taking into account the robust 1QFY10 results and better-than-expected MLM sales, we raised our FY10-12 earnings forecasts by 22% to 28%,” said RHB.
“Hai-O’s attractiveness lies in its strong dividend payout policy of at least 50% of net earnings. Traditionally, the company has paid out above and beyond that amount, averaging 65% over the past five financial years.
“We project gross dividend per share for FY10 and FY11 to be at 54.5 sen and 57 sen, or a yield of 9.6% and 10%, respectively,” the research house added.
Some of the key risks include an unexpected reduction in dividend payout ratio to below 50% and the MLM division’s revenue coming in below expectations.
This article appeared in The Edge Financial Daily, October 19, 2009.
Tags: Changyu Pioneer Wine Co Ltd | China | Chinese herbs | Chinese medicated wines | Extensive network in China | Hai-O Enterprise Bhd | Tan Kee Hock
Written by Tony C H Goh
Monday, 19 October 2009 11:23
KUALA LUMPUR: HAI-O ENTERPRISE BHD [], widely known as a wholesaler and retailer of Chinese herbs and medicine, is now looking at expanding its reach in the wine, liquor and liqueur business by leveraging on its strong network in China.
“Currently, wines and liquor are considered as the second-liner products carried by the retail division. But with the current market trend towards drinking of red wine in the country, we foresee huge potential,” Hai-O’s general manager Tan Kee Hock said at the third Yantai International Wine Festival in Yantai, China, recently.
Hai-O has an extensive network in China, with business dealings dating back to 1975, particularly with Changyu Pioneer Wine Co Ltd, China’s oldest vineyard, which was established in 1892 and its biggest wine producer based in the wine-producing region of Yantai, Shandong province.
“As the sole distributor of Changyu’s wines in Malaysia, we are allocating a big portion of our promotion and advertising budget to raise awareness,” said Tan, who is in charge of the Chinese medicated wines, cooking wines, healthcare food and beverages division of the company.
Among Changyu products under the sole agency rights of Hai-O are Ling Zhi Medicated Liquor, Tze Pao San Pian Chiew, Te Zhi San Pian Chiew, Changyu Cabernet Dry Red Wine, Changyu Cabernet, Gernischt Dry Red Wine and Changyu Ice Wine.
While seeking to grow its wine and liquor business, multi-level marketing (MLM), wholesale and retailing are still the main contributors to Hai-O’s growth and revenue. It is exposed to all mainstream segments of Malaysia’s population, with the retail segment basically aimed at the Chinese, while MLM is mainly Malay-based.
For the fiscal year ended April 30, 2009 (FY09), Hai-O’s revenue increased 16% to RM435.2 million from RM373.8 million in the previous year. Net income rose 7% to RM52 million. The higher revenue reflects strengthening of the ringgit against the US dollar and the promotion of house-based products from the retail division.
The wholesale and retail division contributed RM16.8 million to the group revenue of RM148.6 million in the first quarter ended July 31, 2009 (1QFY10), down 11.2% from RM18.9 million in the previous quarter and 16.9% or RM20.2 million in the same period last year.
But given the promising potential of the wine industry in China, Hai-O believes its strategy of leveraging on the biggest wine company in the fast-developing Asian giant is likely to pay off. Hai-O has seen its share price jumping nearly 30% over the past three weeks to RM7.02 last Friday when it added another 12 sen, with 38,600 shares done.
Yantai is the largest wine-producing region in China, accounting for around 35% or one in every three bottles of wine produced there. The wine industry in China is the world’s 10th largest grape wine producer, and the only Asian country that produces grape wine on a commercial scale.
Other major grape wine players in China include Sino-French joint venture, Dynasty Winery Ltd and China Great Wall Wine Co, Ltd. Collectively, these top three wine producers control 40% of China’s wine market. Besides Shandong, some other famous wine-producing regions are found in Fujian and Guangdong provinces.
While growth in the traditional wine consumer countries has remained flat in the last 10 years, experts estimate that China would be the world’s most active wine market with a 36% growth through 2010. Over the same period, total global wine consumption is expected to grow at only 9.15%.
Research data from British research institute ISWR/DGR showed that based on current trends, total global wine consumption will reach 100 million litres by 2010, with China accounting for 5.58 million litres.
In a recent report on the company, RHB Research remained upbeat on Hai-O’s prospects going forward, even when there was a visible slowdown of the company’s retail and wholesale business.
This was largely due to the strong performance of its main business segment of MLM, for which the number of members has ballooned to more than 110,000 from 70,000 a year ago.
The company is well on track to surpass its internal target of 10% earnings growth in FY10. “Taking into account the robust 1QFY10 results and better-than-expected MLM sales, we raised our FY10-12 earnings forecasts by 22% to 28%,” said RHB.
“Hai-O’s attractiveness lies in its strong dividend payout policy of at least 50% of net earnings. Traditionally, the company has paid out above and beyond that amount, averaging 65% over the past five financial years.
“We project gross dividend per share for FY10 and FY11 to be at 54.5 sen and 57 sen, or a yield of 9.6% and 10%, respectively,” the research house added.
Some of the key risks include an unexpected reduction in dividend payout ratio to below 50% and the MLM division’s revenue coming in below expectations.
This article appeared in The Edge Financial Daily, October 19, 2009.
Top Glove eyeing acquisition targets in Malaysia
Top Glove eyeing acquisition targets in Malaysia
Tags: Influenza A (H1N1) | KM Lee | M&A | Malaysian entities | Medi-Flex Ltd | organic growth | Top Glove Corp Bhd
Written by Chong Jin Hun
Monday, 19 October 2009 11:21
KLANG: Top Glove Corp Bhd’s potential merger and acquisition (M&A) targets are most likely to be Malaysian entities and any such exercises will only be carried out at low and attractive prices, its managing director KM Lee said.
They will be financed via internal funds, helped by its net cash position of some RM176 million.
“It’s good to keep it (cash) handy in case the oppportunity of possible M&As comes our way,” Lee told The Edge Financial Daily in an interview.
Organic growth and M&As are expected to be key highlights of Top Glove’s intention to retain its supremacy in the international glove manufacturing sector. It aims to increase its present global market share of 22% to 30% by 2012.
Top Glove had in 2007 finalised the acquisition of a controlling stake in Singapore-listed rival Medi-Flex Ltd for some S$21 million (RM50.86 million).
The purchase of Medi-Flex, which owns two glove manufacturing plants in Klang and Banting in Selangor, was intended to help Top Glove expand its product range to include medical and cleanroom gloves.
Going forward, Lee said Top Glove was forecasting a conservative 10% annual revenue growth for the current and next financial year as the company builds more factories and expands its domestic production capacity.
With a cash hoard of RM176 million, Lee says Top Glove is in a good position to look for acquisitions that will help it maintain its position as the world's biggest rubber glove producer. Photo by Suhaimi Yusuf
For now, a larger output for Top Glove is deemed crucial to fulfil rising global demand for disposable gloves, due to the Influenza A(H1N1) outbreak.
Lee said these factories, to cost some RM35 million each, would be built on company-owned industrial land in Klang.
“Capacity expansion is the one (factor) that will see us moving forward in the long term. It’s quite traditional for us to build one to two factories every year.
“A lot also depends on how the A(H1N1) unfolds in the coming winter months (in the northern hemisphere),” he said.
Top Glove’s latest set of financials has improved. Net profit more than doubled to RM56.83 million in the fourth quarter ended Aug 31, 2009 from RM25.11 million a year earlier, helped by cost efficiency and higher demand for disposable gloves due to the A(H1N1) outbreak. Revenue rose 17.2% to RM427.35 million from RM364.53 million.
Full-year net profit rose 53.6% to RM169.15 million from RM110.1 million, while revenue increased by 10.9% to RM1.53 billion from RM1.38 billion.
Globally, Top Glove owns 19 factories, of which 17 are glove production facilities while the remaining two are latex concentrate plants in Thailand.
The company has 13 glove factories in Malaysia, and two each in Thailand and China. Together, they produce up to 31.5 billion pieces of gloves a year.
The company may also build more factories in Thailand and China to meet rising global demand for gloves.
Top Glove has allocated some RM70 million for capital expenditure (capex) in the current financial year ending Aug 31, 2010, to finance the CONSTRUCTION [] of two factories in Malaysia with a combined annual capacity of three billion pieces of gloves.
This article appeared in The Edge Financial Daily, October 19, 2009.
Tags: Influenza A (H1N1) | KM Lee | M&A | Malaysian entities | Medi-Flex Ltd | organic growth | Top Glove Corp Bhd
Written by Chong Jin Hun
Monday, 19 October 2009 11:21
KLANG: Top Glove Corp Bhd’s potential merger and acquisition (M&A) targets are most likely to be Malaysian entities and any such exercises will only be carried out at low and attractive prices, its managing director KM Lee said.
They will be financed via internal funds, helped by its net cash position of some RM176 million.
“It’s good to keep it (cash) handy in case the oppportunity of possible M&As comes our way,” Lee told The Edge Financial Daily in an interview.
Organic growth and M&As are expected to be key highlights of Top Glove’s intention to retain its supremacy in the international glove manufacturing sector. It aims to increase its present global market share of 22% to 30% by 2012.
Top Glove had in 2007 finalised the acquisition of a controlling stake in Singapore-listed rival Medi-Flex Ltd for some S$21 million (RM50.86 million).
The purchase of Medi-Flex, which owns two glove manufacturing plants in Klang and Banting in Selangor, was intended to help Top Glove expand its product range to include medical and cleanroom gloves.
Going forward, Lee said Top Glove was forecasting a conservative 10% annual revenue growth for the current and next financial year as the company builds more factories and expands its domestic production capacity.
With a cash hoard of RM176 million, Lee says Top Glove is in a good position to look for acquisitions that will help it maintain its position as the world's biggest rubber glove producer. Photo by Suhaimi Yusuf
For now, a larger output for Top Glove is deemed crucial to fulfil rising global demand for disposable gloves, due to the Influenza A(H1N1) outbreak.
Lee said these factories, to cost some RM35 million each, would be built on company-owned industrial land in Klang.
“Capacity expansion is the one (factor) that will see us moving forward in the long term. It’s quite traditional for us to build one to two factories every year.
“A lot also depends on how the A(H1N1) unfolds in the coming winter months (in the northern hemisphere),” he said.
Top Glove’s latest set of financials has improved. Net profit more than doubled to RM56.83 million in the fourth quarter ended Aug 31, 2009 from RM25.11 million a year earlier, helped by cost efficiency and higher demand for disposable gloves due to the A(H1N1) outbreak. Revenue rose 17.2% to RM427.35 million from RM364.53 million.
Full-year net profit rose 53.6% to RM169.15 million from RM110.1 million, while revenue increased by 10.9% to RM1.53 billion from RM1.38 billion.
Globally, Top Glove owns 19 factories, of which 17 are glove production facilities while the remaining two are latex concentrate plants in Thailand.
The company has 13 glove factories in Malaysia, and two each in Thailand and China. Together, they produce up to 31.5 billion pieces of gloves a year.
The company may also build more factories in Thailand and China to meet rising global demand for gloves.
Top Glove has allocated some RM70 million for capital expenditure (capex) in the current financial year ending Aug 31, 2010, to finance the CONSTRUCTION [] of two factories in Malaysia with a combined annual capacity of three billion pieces of gloves.
This article appeared in The Edge Financial Daily, October 19, 2009.
Carefully examine the possible alternatives when you invest
Buy Quality Stocks, Sell Treasuries, Says Mauboussin
Author of Think Twice offers advice on investors and investments.
By Russel Kinnel | 10-19-09 | 06:00 AM |
Michael Mauboussin thinks about where you should invest and how you should invest. As chief investment strategist at Legg Mason Capital Management, Mauboussin focuses on the economy, markets, and investor behavior. Mauboussin is also an adjunct professor at Columbia.
About the Author
Russel Kinnel is Morningstar's director of mutual fund research. He is also the editor of Morningstar FundInvestor, a monthly newsletter dedicated to helping investors pick great mutual funds, build winning portfolios, and monitor their funds for greater gains. Kinnel would like to hear from readers, but no financial-planning questions, please. Contact Author | Meet other investing specialists
His new book, Think Twice, examines why investors make mistakes if they leap to judgment and how they can correct that by carefully examining the possible alternatives and learning from their mistakes. I asked him about where the economy and markets are headed as well as lessons we can learn about how we make decisions. Check out his outlook for inflation, U.S. equities, and Treasuries as well as his advice on how we can all make better investors.
Q. It seems like a company's debt level has been all that mattered the past two years. Have the markets corrected for that enough that they'll be moving on to something else and if so what will that be?
A. If you take a step back, stock prices have two basic drivers: future cash flows and a discount rate that brings future values to the present. If you look back on 2007, we had good levels of cash flow--corporate America was near peaks in historical operating profit margin and return on invested capital--and the perceived levels of risk were very low.
All of that changed in 2008. First, the perception of risk skyrocketed, especially after the failure of Lehman Brothers in September. As a rough proxy for perceived risk in the equity market you can look at the VIX (more formally, the Chicago Board Options Exchange Volatility Index), which measures the implied volatility of S&P 500 Index options. Realized volatility in the past 80 or so years had been roughly 20 percent, but the VIX shot into the 80s. When the perception of risk rises, stock prices go down.
The second shoe to drop was earnings. Also in the fourth quarter of 2008, earnings estimates dropped rapidly. The one-two combination of lower anticipated cash flows and higher risk punished the market--probably to an excessive degree. When investors fear risk, of course, credit spreads--a measure of the interest rate companies have to pay to borrow--also rise and that makes people worry about companies with debt going bankrupt.
Since the March lows, we've seen some retrenchment of the concerns about cash flow and risk. As perceived risk levels drifted back toward more normal levels--the VIX today is in the low 20s--the riskier assets performed very well--the so-called "junk trade." The market got a second lift in the summer on the heels of second-quarter earnings, which on balance came in better than what was expected. Most of the positive surprise came as the result of cost cutting. Companies have aggressively managed their cost structures--which has left the residual of a sluggish labor market--and have been super diligent with working capital as well. But earnings through cost savings cannot go on forever.
If the markets are to continue to generate attractive returns, we will need to see good old-fashioned sales growth. In my opinion, the evidence is clearly pointing to a recovery, but naturally the data will show fits and starts.
Q. Investors have been buying up huge sums of bond funds and with it inflation risk. All of the different inflation hedges have their own flaws and strengths, so what's the best way to hedge some of that inflation risk?
A. My sense is that at least some of the appetite for bond funds represents less a love of bonds than a distaste for stocks. The poor 10-year results for the stock market have left a lot of equity investors with a bad taste in their mouths--even though history suggests that poor past market returns are a decent predictor of future returns (and vice versa).
Inflation does not appear to be an imminent threat--there is too much slack in the labor market and unused capacity. But how the government's stimulative steps, which were necessary in my view, ultimately influence inflation is anyone's guess. While I don't think it's a worry for the short-to-intermediate term, I would keep it on the radar screen.
So if you are worried about inflation risk, how might you play that in the stock market? The goal would be to find companies that have sustainable competitive advantages--moats around their businesses--that will allow them to increase the price of their good or service at a rate consistent with inflation. So a portfolio of high-quality stocks with this attribute, purchased at attractive prices, is a very sensible way to address this concern.
Q. Should investors do anything about the declining dollar in their portfolios?
A. While it's important to be mindful of the role of a declining--or rising--dollar in evaluating a company, I'm not sure investors should do anything specific about it. If you are convinced the dollar is going lower, you should short the dollar. But forecasting currencies is not an easy game to play, and I know that I have zero edge there. On a company by company basis, it makes some sense to consider various scenarios for the dollar, assess the probability of those scenarios, and judge what those scenarios imply about value.
Probably the best way to manage currency exposure is to have a properly diversified global portfolio. While I'm optimistic about the future of the United States, I'm also a subscriber to what Fareed Zakaria calls the "rise of the rest." In other words, the U.S. should continue to do well but other parts of the globe may do relatively better. So long-term investors should have exposure to various markets around the globe.
Q. Where are the greatest opportunities in investing today?
A. One area that looks interesting in the U.S. market is quality companies. These are businesses that have high returns on invested capital, decent pricing power, good economic moats around their businesses, solid balance sheets, and good operating histories. These companies tended to trade at generous valuations in the late 1990s and have spent most of the 2000s treading water. Even considering the current recession, these businesses have grown sales and profits while sustaining good economic returns.
You can go down the list of the S&P 50 (50 largest by market cap in S&P 500) and find a number of these companies. And if they do well, it'll be harder for active managers to beat the market because the S&P 500 is a market-capitalization-weighted index and many money managers are underexposed to these kinds of businesses.
Q. What are the least attractive areas today?
A. A natural consequence of the high level of risk aversion has been a large move in U.S. Treasury securities. When you look at the 10-year note with a 3.4 percent yield, it's a reasonable case that equity markets will deliver much higher returns in the next decade--even adjusted for risk. So what may appear to be among the least risky assets may be among the riskiest, at least if you take opportunity cost into consideration.
Q. Your new book, Think Twice, suggests that we can avoid many mistakes by reviewing our gut reaction. How can we effectively review a decision so that we make the right call?
A. The main theme of the book is that in certain situations, your mind is going to want to go down one path to a solution when there is a better path. This is not true in all situations. In the book, I identify eight areas where this can occur. So you want to prepare for these decisions by learning about possible mistakes, recognize the mistakes in context, and apply tools to mitigate them.
I also offer some specific advice at the end of the book. Let me share a couple of those ideas. The first is to keep a decision-making journal. When you make a decision, write down what you decided, what you expect to happen, and why. If you're so inclined, you might even take note of how you feel physically and emotionally.
The journal allows you to periodically audit your decisions--effectively giving yourself feedback. It can also help you sidestep hindsight bias, the tendency to think you knew more in the past than you actually did. You can also see instances when you were right for the wrong decisions. Dealing honestly with those decisions is hard work.
Q. What's a common mistake that a fund investor might avoid by properly reviewing a decision?
A. One common mistake is a reliance on the inside view versus using the outside view. With the inside view, you try to solve a problem by gathering information, and using that unique set of input to decide. It's the natural way we do things in any planning task. The outside view, by contrast, looks at a problem as part of a larger reference class. It basically allows you to ask the question: When someone else was in this position, what happened?
A reliance on the inside view generally leads to forecasts that are too optimistic. If you've ever done a renovation to your house you know the feeling: Renovations always seem to come in above budget and behind plan. The outside view provides a better, and more grounded, assessment.
So, for instance, investors can use the outside view when working on their models. We have lots of data about corporate growth rates and return on invested capital patterns. An investor can check their assumptions against the larger reference to see if they make sense.
Q. It sounds like this is a rebuttal to Malcolm Gladwell's Blink, which argues our instant reaction is usually on the money. What did he miss?
A. I believe in the role of intuition in decision making, but I certainly don't glorify it. By and large, I believe that people rely more on their intuition than they should.
Here's how I think about it. Psychologists often distinguish between two mental systems, creatively called System 1 and System 2. System 1 is fast, automatic, and hard to train. When you jump at the sight of a snake, you have System 1 to thank. System 2 is slow, requires input, and can be trained. It's your analytical mind. If you do something repeatedly, some aspects of System 2 thinking slip into System 1. Consider the first time you drove a car; you had to think about each action very deliberately. But after time and experience, you internalized many of the tasks, and driving migrated mostly from System 2 to System 1.
Intuition works when you have a System 1 that is well trained. Think of a chess master, or a finely trained soldier. But note that for System 1 to work effectively, you need to deal with situations that are linear and consistent. If you're dealing with decisions in a realm where the outcomes are nonlinear or the statistical properties change over time, intuition will fail because your System 1 doesn't know what's going on.
Increasingly, professionals are forced to confront decisions related to complex systems, which are by their very nature nonlinear and have changing statistical properties. This definitely applies to investing and business. So you have to be very careful if you rely on intuition.
http://news.morningstar.com/articlenet/article.aspx?id=311863
Author of Think Twice offers advice on investors and investments.
By Russel Kinnel | 10-19-09 | 06:00 AM |
Michael Mauboussin thinks about where you should invest and how you should invest. As chief investment strategist at Legg Mason Capital Management, Mauboussin focuses on the economy, markets, and investor behavior. Mauboussin is also an adjunct professor at Columbia.
About the Author
Russel Kinnel is Morningstar's director of mutual fund research. He is also the editor of Morningstar FundInvestor, a monthly newsletter dedicated to helping investors pick great mutual funds, build winning portfolios, and monitor their funds for greater gains. Kinnel would like to hear from readers, but no financial-planning questions, please. Contact Author | Meet other investing specialists
His new book, Think Twice, examines why investors make mistakes if they leap to judgment and how they can correct that by carefully examining the possible alternatives and learning from their mistakes. I asked him about where the economy and markets are headed as well as lessons we can learn about how we make decisions. Check out his outlook for inflation, U.S. equities, and Treasuries as well as his advice on how we can all make better investors.
Q. It seems like a company's debt level has been all that mattered the past two years. Have the markets corrected for that enough that they'll be moving on to something else and if so what will that be?
A. If you take a step back, stock prices have two basic drivers: future cash flows and a discount rate that brings future values to the present. If you look back on 2007, we had good levels of cash flow--corporate America was near peaks in historical operating profit margin and return on invested capital--and the perceived levels of risk were very low.
All of that changed in 2008. First, the perception of risk skyrocketed, especially after the failure of Lehman Brothers in September. As a rough proxy for perceived risk in the equity market you can look at the VIX (more formally, the Chicago Board Options Exchange Volatility Index), which measures the implied volatility of S&P 500 Index options. Realized volatility in the past 80 or so years had been roughly 20 percent, but the VIX shot into the 80s. When the perception of risk rises, stock prices go down.
The second shoe to drop was earnings. Also in the fourth quarter of 2008, earnings estimates dropped rapidly. The one-two combination of lower anticipated cash flows and higher risk punished the market--probably to an excessive degree. When investors fear risk, of course, credit spreads--a measure of the interest rate companies have to pay to borrow--also rise and that makes people worry about companies with debt going bankrupt.
Since the March lows, we've seen some retrenchment of the concerns about cash flow and risk. As perceived risk levels drifted back toward more normal levels--the VIX today is in the low 20s--the riskier assets performed very well--the so-called "junk trade." The market got a second lift in the summer on the heels of second-quarter earnings, which on balance came in better than what was expected. Most of the positive surprise came as the result of cost cutting. Companies have aggressively managed their cost structures--which has left the residual of a sluggish labor market--and have been super diligent with working capital as well. But earnings through cost savings cannot go on forever.
If the markets are to continue to generate attractive returns, we will need to see good old-fashioned sales growth. In my opinion, the evidence is clearly pointing to a recovery, but naturally the data will show fits and starts.
Q. Investors have been buying up huge sums of bond funds and with it inflation risk. All of the different inflation hedges have their own flaws and strengths, so what's the best way to hedge some of that inflation risk?
A. My sense is that at least some of the appetite for bond funds represents less a love of bonds than a distaste for stocks. The poor 10-year results for the stock market have left a lot of equity investors with a bad taste in their mouths--even though history suggests that poor past market returns are a decent predictor of future returns (and vice versa).
Inflation does not appear to be an imminent threat--there is too much slack in the labor market and unused capacity. But how the government's stimulative steps, which were necessary in my view, ultimately influence inflation is anyone's guess. While I don't think it's a worry for the short-to-intermediate term, I would keep it on the radar screen.
So if you are worried about inflation risk, how might you play that in the stock market? The goal would be to find companies that have sustainable competitive advantages--moats around their businesses--that will allow them to increase the price of their good or service at a rate consistent with inflation. So a portfolio of high-quality stocks with this attribute, purchased at attractive prices, is a very sensible way to address this concern.
Q. Should investors do anything about the declining dollar in their portfolios?
A. While it's important to be mindful of the role of a declining--or rising--dollar in evaluating a company, I'm not sure investors should do anything specific about it. If you are convinced the dollar is going lower, you should short the dollar. But forecasting currencies is not an easy game to play, and I know that I have zero edge there. On a company by company basis, it makes some sense to consider various scenarios for the dollar, assess the probability of those scenarios, and judge what those scenarios imply about value.
Probably the best way to manage currency exposure is to have a properly diversified global portfolio. While I'm optimistic about the future of the United States, I'm also a subscriber to what Fareed Zakaria calls the "rise of the rest." In other words, the U.S. should continue to do well but other parts of the globe may do relatively better. So long-term investors should have exposure to various markets around the globe.
Q. Where are the greatest opportunities in investing today?
A. One area that looks interesting in the U.S. market is quality companies. These are businesses that have high returns on invested capital, decent pricing power, good economic moats around their businesses, solid balance sheets, and good operating histories. These companies tended to trade at generous valuations in the late 1990s and have spent most of the 2000s treading water. Even considering the current recession, these businesses have grown sales and profits while sustaining good economic returns.
You can go down the list of the S&P 50 (50 largest by market cap in S&P 500) and find a number of these companies. And if they do well, it'll be harder for active managers to beat the market because the S&P 500 is a market-capitalization-weighted index and many money managers are underexposed to these kinds of businesses.
Q. What are the least attractive areas today?
A. A natural consequence of the high level of risk aversion has been a large move in U.S. Treasury securities. When you look at the 10-year note with a 3.4 percent yield, it's a reasonable case that equity markets will deliver much higher returns in the next decade--even adjusted for risk. So what may appear to be among the least risky assets may be among the riskiest, at least if you take opportunity cost into consideration.
Q. Your new book, Think Twice, suggests that we can avoid many mistakes by reviewing our gut reaction. How can we effectively review a decision so that we make the right call?
A. The main theme of the book is that in certain situations, your mind is going to want to go down one path to a solution when there is a better path. This is not true in all situations. In the book, I identify eight areas where this can occur. So you want to prepare for these decisions by learning about possible mistakes, recognize the mistakes in context, and apply tools to mitigate them.
I also offer some specific advice at the end of the book. Let me share a couple of those ideas. The first is to keep a decision-making journal. When you make a decision, write down what you decided, what you expect to happen, and why. If you're so inclined, you might even take note of how you feel physically and emotionally.
The journal allows you to periodically audit your decisions--effectively giving yourself feedback. It can also help you sidestep hindsight bias, the tendency to think you knew more in the past than you actually did. You can also see instances when you were right for the wrong decisions. Dealing honestly with those decisions is hard work.
Q. What's a common mistake that a fund investor might avoid by properly reviewing a decision?
A. One common mistake is a reliance on the inside view versus using the outside view. With the inside view, you try to solve a problem by gathering information, and using that unique set of input to decide. It's the natural way we do things in any planning task. The outside view, by contrast, looks at a problem as part of a larger reference class. It basically allows you to ask the question: When someone else was in this position, what happened?
A reliance on the inside view generally leads to forecasts that are too optimistic. If you've ever done a renovation to your house you know the feeling: Renovations always seem to come in above budget and behind plan. The outside view provides a better, and more grounded, assessment.
So, for instance, investors can use the outside view when working on their models. We have lots of data about corporate growth rates and return on invested capital patterns. An investor can check their assumptions against the larger reference to see if they make sense.
Q. It sounds like this is a rebuttal to Malcolm Gladwell's Blink, which argues our instant reaction is usually on the money. What did he miss?
A. I believe in the role of intuition in decision making, but I certainly don't glorify it. By and large, I believe that people rely more on their intuition than they should.
Here's how I think about it. Psychologists often distinguish between two mental systems, creatively called System 1 and System 2. System 1 is fast, automatic, and hard to train. When you jump at the sight of a snake, you have System 1 to thank. System 2 is slow, requires input, and can be trained. It's your analytical mind. If you do something repeatedly, some aspects of System 2 thinking slip into System 1. Consider the first time you drove a car; you had to think about each action very deliberately. But after time and experience, you internalized many of the tasks, and driving migrated mostly from System 2 to System 1.
Intuition works when you have a System 1 that is well trained. Think of a chess master, or a finely trained soldier. But note that for System 1 to work effectively, you need to deal with situations that are linear and consistent. If you're dealing with decisions in a realm where the outcomes are nonlinear or the statistical properties change over time, intuition will fail because your System 1 doesn't know what's going on.
Increasingly, professionals are forced to confront decisions related to complex systems, which are by their very nature nonlinear and have changing statistical properties. This definitely applies to investing and business. So you have to be very careful if you rely on intuition.
http://news.morningstar.com/articlenet/article.aspx?id=311863
Monday 19 October 2009
KNM 19.10.2009
http://spreadsheets.google.com/pub?key=tRskke5FybslzPlCGkTtM4Q&output=html
This stock fell off the cliff. Presently, it is not classified as an investment grade stock. There is much speculation on this stock. There is some uncertainty of its business performance in the near term. Hopefully, clarity will surface soon.
Latest qtr EPS (Q2, 09) = 1.82 sen
annualised EPS = 1.82 x 4 = 7.28 sen
Current Price = $ 0.82
Current PE (annualised EPS) = 82 / 7.28 = 11.3
"Buy from a sucker, sell to a sucker"
The “buy from a sucker, sell to a sucker” school of speculation is that for anyone to make money through the purchase and subsequent resale of a stock without the actual value of that stock increasing, he/she must rely upon the ignorance of either the seller or the buyer or both.
The odds are definitely against not being the sucker on either one or the other end of that transaction.
It's another way of expressing the "Greater Fool Theory." "I may be a fool to buy this stock at this price; but I'll find another fool to buy it from me at a higher price." This is what fueled many exploded "bubbles."
The odds are definitely against not being the sucker on either one or the other end of that transaction.
It's another way of expressing the "Greater Fool Theory." "I may be a fool to buy this stock at this price; but I'll find another fool to buy it from me at a higher price." This is what fueled many exploded "bubbles."
Buy good companies at reasonable prices.
Buffett's strategy for coping with a down market is to approach it as an opportunity to buy good companies at reasonable prices.
Buffett makes concentrated purchases. In a downturn, he buys millions of shares of solid businesses at reasonable prices.
And even in a bear market, although Buffett had billions of dollars in cash to make investments, in his 2009 letter to Berkshire Hathaway shareholders, he declared that cash held beyond the bottom would be eroded by inflation in the recovery.
Buffett makes concentrated purchases. In a downturn, he buys millions of shares of solid businesses at reasonable prices.
And even in a bear market, although Buffett had billions of dollars in cash to make investments, in his 2009 letter to Berkshire Hathaway shareholders, he declared that cash held beyond the bottom would be eroded by inflation in the recovery.
Know When to Sell
Indefinite growth is not a realistic expectation, yet investors often expect rising stocks to gain forever. Putting a price on the upside and the downside can provide solid guidelines for getting out while the getting is good. Similarly, if a company or an industry appears to be headed for trouble, it may be time to take your gains off of the table. There's no harm in walking away when you are ahead of the game.
(To learn more about when to get out of a stock, see To Sell Or Not To Sell.)
http://www.investopedia.com/articles/stocks/07/when_to_sell.asp
(To learn more about when to get out of a stock, see To Sell Or Not To Sell.)
http://www.investopedia.com/articles/stocks/07/when_to_sell.asp
Buying good companies when the headline news is bad
Buying good companies when the headline news is bad is the hardest thing to do (psychologically), but it's the simplest way to buy low. And buying low makes it a lot easier to sell high.
It's Different This Time – Or Is It?
In 2009, the global economy fell into recession and international markets fell in lockstep. Diversification couldn't provide adequate downside protection. Once again, the "experts" proclaim that the old rules of investing have failed. "It's different this time," they say. Maybe … but don't bet on it. These tried and true principles of wealth creation have withstood the test of time.
Discovering if we learnt the lessons of Black Monday, October 1987 Crash
From The Times October 19, 2009
Discovering if we learnt the lessons of Black Monday
Gerard Lyons: Economic view
Today is the twenty-second anniversary of Black Monday. On this day in 1987 stock markets around the world crashed. The Dow Jones fell 22.6 per cent in one day, London shed one fifth of its value over two days. The newspapers and television were full of pictures of traders in panic. Sound familiar?
Reflecting on 1987 is interesting in its own right and has lessons for today. Many of the factors that led to the 1987 crash are now being repeated around the globe: equity markets seen as out of touch with reality; concern about the twin US trade and budget deficits; and worries about the dollar.
Poor US trade figures on the preceding Thursday had spooked the markets, which had been worried already by a small interest rate hike by the Germans the week before.
That rise had triggered worries that global policy co-ordination was at an end. The period from September 1985 to the summer of 1987 was the golden era of policy co-ordination, with the Plaza and Louvre accords marking a time when the G7 acted together to first weaken and then stabilise the dollar. By October 1987, co-ordination was at an end.
The crash led to fears of a depression and prompted central banks to pump liquidity into the markets and to cut interest rates. The Bank of England base rate was 10 per cent on Black Monday and reached a low of 7.5 per cent the following May. At the time, I wrote in The Times of the problems to come. A year later, in October 1989, base rate was up to 15 per cent. Boom then became bust.
Today’s crisis has been worse, as the financial system almost collapsed, jobs have been lost, firms have gone bust. As a result, the policy response has been more aggressive. But, as in 1987, perhaps the stimulus may work better and quicker than initially expected.
If anything, Black Monday was a watered-down version of what we have experienced now and an early warning sign of the underlying volatility of markets. Then, there was talk of pro-cyclicality on the way up and down, triggered by programmed trading systems.
Also, I remember a speech by Robin Leigh-Pemberton, the Bank of England Governor, in February 1988 in which he placed the blame on regulation and supervision and said: “This will have implications for the capital resources that participants must be required to maintain.” Banks, we were then told, must learn the lessons about credit exposure and capital adequacy. How times change? Not much it would seem.
These issues were still centre stage ten days ago at the International Monetary Fund (IMF) meetings in Istanbul, where the mood was one of optimistic caution. Relief that policy had pulled us back from the brink was mixed with fears of over-regulation and concerns that we may be sowing the seeds of the next crisis.
The global outlook depends on the interaction between three key factors: the economic fundamentals; the policy response; and confidence. In Istanbul, the outlook for policy was at centre stage.
Central banks and policymakers in the West appear to be keen to co-ordinate their exit strategies from their stimulus. This is something they plan to discuss at next spring’s IMF meetings in Washington. Yet the next six months might test this accord to the full. There is every likelihood of a strong bounce over that time, as previous policy easing feeds through.
Just as we saw with the Bundesbank rate rise in early October 1987, coming months may force many countries to think about tightening policy to suit domestic needs. This great dilemma is already being played out across the world.
In recent weeks Israel and Australia have raised rates. The further east one goes, the greater the temptation to tighten policy. Indonesia and India have already hinted at higher rates, South Korea is in two minds, while behind the scenes in China policymakers appear to be at odds. There, the worries of the Premier and State Council over exports and jobs may take precedence over central bank concerns about asset price inflation.
The dilemma for many countries is that tightening early may attract hot money inflows, as investors seek higher yields. Waiting, however, may trigger asset price inflation, with liquidity flowing into equities and property, as we have seen recently in China. The question is: can any large exporting nation really tighten monetary policy before the United States, or indeed Europe, given that these are the destinations of the bulk of goods and services?
In view of such uncertainty, many countries appear keen to build up their defences, to be prepared for any eventuality. The lesson of Asia over the past decade has not been lost. After its crisis in 1997-98, Asia’s holding of global currency reserves rose from one third to two thirds now, the bulk in dollars. Others look set to follow suit.
It is not in anyone’s interests to actively sell the dollar, in case this triggers the collapse they fear. Thus, what I call passive diversification is taking place. As reserves rise, less and less are going into the dollar, although it still receives the lion’s share.
Over time, more countries will want to manage their currency against the countries with which they trade. If foreign exchange reserves were to reflect trade patterns, then $2.3 trillion of the present $6.8 trillion of global foreign exchange reserves would have to move out of the dollar. The private sector is already cautious.
As the dollar declines, the gainers are commodity currencies, gold, the euro and the yen.
Not everyone is happy. This dampens recovery prospects in countries whose currencies are appreciating and adds to problems for the most fragile economies in the eurozone. It is also adding to pressure on Asian countries, particularly China, to let their currencies strengthen. Perhaps this merits a repeat of the 1985 Plaza Accord to prevent an inevitable currency crisis.
Yet one currency that seems unlikely to rally against the dollar is sterling. In part, this is because of market caution towards the UK. It is also because a weaker pound is seen as central to Britain’s policy stance. This is alongside the need for a prolonged period of low interest rates and a much tighter fiscal stance.
The UK has had the biggest devaluation in its history. Yet there have been few squeals, as it has been gradual and is taking place in an environment where competition is tough and inflation is not a problem. As history has shown us, sterling remained the world’s reserve currency long after the UK’s economic power had peaked.
This is relevant in considering the dollar’s prospects now. The general feeling in Istanbul was that there are no alternatives to the dollar. Perhaps that is right, but the dollar and sterling face hard times ahead. If there is one thing this crisis and that of Black Monday have taught us, it is not to ignore the fundamentals.
• Gerard Lyons is chief economist at Standard Chartered
http://business.timesonline.co.uk/tol/business/columnists/article6880225.ece
Discovering if we learnt the lessons of Black Monday
Gerard Lyons: Economic view
Today is the twenty-second anniversary of Black Monday. On this day in 1987 stock markets around the world crashed. The Dow Jones fell 22.6 per cent in one day, London shed one fifth of its value over two days. The newspapers and television were full of pictures of traders in panic. Sound familiar?
Reflecting on 1987 is interesting in its own right and has lessons for today. Many of the factors that led to the 1987 crash are now being repeated around the globe: equity markets seen as out of touch with reality; concern about the twin US trade and budget deficits; and worries about the dollar.
Poor US trade figures on the preceding Thursday had spooked the markets, which had been worried already by a small interest rate hike by the Germans the week before.
That rise had triggered worries that global policy co-ordination was at an end. The period from September 1985 to the summer of 1987 was the golden era of policy co-ordination, with the Plaza and Louvre accords marking a time when the G7 acted together to first weaken and then stabilise the dollar. By October 1987, co-ordination was at an end.
The crash led to fears of a depression and prompted central banks to pump liquidity into the markets and to cut interest rates. The Bank of England base rate was 10 per cent on Black Monday and reached a low of 7.5 per cent the following May. At the time, I wrote in The Times of the problems to come. A year later, in October 1989, base rate was up to 15 per cent. Boom then became bust.
Today’s crisis has been worse, as the financial system almost collapsed, jobs have been lost, firms have gone bust. As a result, the policy response has been more aggressive. But, as in 1987, perhaps the stimulus may work better and quicker than initially expected.
If anything, Black Monday was a watered-down version of what we have experienced now and an early warning sign of the underlying volatility of markets. Then, there was talk of pro-cyclicality on the way up and down, triggered by programmed trading systems.
Also, I remember a speech by Robin Leigh-Pemberton, the Bank of England Governor, in February 1988 in which he placed the blame on regulation and supervision and said: “This will have implications for the capital resources that participants must be required to maintain.” Banks, we were then told, must learn the lessons about credit exposure and capital adequacy. How times change? Not much it would seem.
These issues were still centre stage ten days ago at the International Monetary Fund (IMF) meetings in Istanbul, where the mood was one of optimistic caution. Relief that policy had pulled us back from the brink was mixed with fears of over-regulation and concerns that we may be sowing the seeds of the next crisis.
The global outlook depends on the interaction between three key factors: the economic fundamentals; the policy response; and confidence. In Istanbul, the outlook for policy was at centre stage.
Central banks and policymakers in the West appear to be keen to co-ordinate their exit strategies from their stimulus. This is something they plan to discuss at next spring’s IMF meetings in Washington. Yet the next six months might test this accord to the full. There is every likelihood of a strong bounce over that time, as previous policy easing feeds through.
Just as we saw with the Bundesbank rate rise in early October 1987, coming months may force many countries to think about tightening policy to suit domestic needs. This great dilemma is already being played out across the world.
In recent weeks Israel and Australia have raised rates. The further east one goes, the greater the temptation to tighten policy. Indonesia and India have already hinted at higher rates, South Korea is in two minds, while behind the scenes in China policymakers appear to be at odds. There, the worries of the Premier and State Council over exports and jobs may take precedence over central bank concerns about asset price inflation.
The dilemma for many countries is that tightening early may attract hot money inflows, as investors seek higher yields. Waiting, however, may trigger asset price inflation, with liquidity flowing into equities and property, as we have seen recently in China. The question is: can any large exporting nation really tighten monetary policy before the United States, or indeed Europe, given that these are the destinations of the bulk of goods and services?
In view of such uncertainty, many countries appear keen to build up their defences, to be prepared for any eventuality. The lesson of Asia over the past decade has not been lost. After its crisis in 1997-98, Asia’s holding of global currency reserves rose from one third to two thirds now, the bulk in dollars. Others look set to follow suit.
It is not in anyone’s interests to actively sell the dollar, in case this triggers the collapse they fear. Thus, what I call passive diversification is taking place. As reserves rise, less and less are going into the dollar, although it still receives the lion’s share.
Over time, more countries will want to manage their currency against the countries with which they trade. If foreign exchange reserves were to reflect trade patterns, then $2.3 trillion of the present $6.8 trillion of global foreign exchange reserves would have to move out of the dollar. The private sector is already cautious.
As the dollar declines, the gainers are commodity currencies, gold, the euro and the yen.
Not everyone is happy. This dampens recovery prospects in countries whose currencies are appreciating and adds to problems for the most fragile economies in the eurozone. It is also adding to pressure on Asian countries, particularly China, to let their currencies strengthen. Perhaps this merits a repeat of the 1985 Plaza Accord to prevent an inevitable currency crisis.
Yet one currency that seems unlikely to rally against the dollar is sterling. In part, this is because of market caution towards the UK. It is also because a weaker pound is seen as central to Britain’s policy stance. This is alongside the need for a prolonged period of low interest rates and a much tighter fiscal stance.
The UK has had the biggest devaluation in its history. Yet there have been few squeals, as it has been gradual and is taking place in an environment where competition is tough and inflation is not a problem. As history has shown us, sterling remained the world’s reserve currency long after the UK’s economic power had peaked.
This is relevant in considering the dollar’s prospects now. The general feeling in Istanbul was that there are no alternatives to the dollar. Perhaps that is right, but the dollar and sterling face hard times ahead. If there is one thing this crisis and that of Black Monday have taught us, it is not to ignore the fundamentals.
• Gerard Lyons is chief economist at Standard Chartered
http://business.timesonline.co.uk/tol/business/columnists/article6880225.ece
Poh Kong 19.10.2009
http://spreadsheets.google.com/pub?key=th6Y8kWFmNXekgYj_wo6byA&output=html
This is a challenging time for the gold retailers. With gold price going upwards, the prices of their products are higher. This will reduce the demand for these discretionary products. The inventories sold will have to be replaced by new inventories bought at higher prices. There is also the risk of price fluctuations. The gold price can goes up as well as down. These retailers will also have to hedge against these fluctuations. If they got this right, there is exceptional gain. On the other hand, a wrong bet can be a costly affair indeed, especially for those with little working capital.
Did you profit from the best stock rally in the last 10 years?
More specifically, how much of your investment money was in equity in March 2009? One prominent blogger by his admission was 30% or so anxiously invested in first half of this year. But salutation and hooray to those with 80% or more invested in stocks in March 2009. :-)
The Investment World is Changing
Two Images Summarize the Current State of the Investing World
http://seekingalpha.com/article/167118-two-images-summarize-the-current-state-of-the-investing-world
http://seekingalpha.com/article/167118-two-images-summarize-the-current-state-of-the-investing-world
Maxis prepares to relist in Malaysia's largest IPO ever
Maxis prepares to relist in Malaysia's largest IPO ever
By Anette Jönsson | 15 October 2009
Two years after being taken private, Maxis will relist the domestic portion of its business, offering investors a high-quality yield play.
The Malaysian stockmarket is getting ready for its largest initial public offering ever and it is a familiar face that will be rejoining its ranks. Just over two years after Maxis Communications (MCB) was privatised by its controlling shareholder, Malaysia's largest provider of mobile communication services is about to return with an IPO that looks set to raise about $3 billion.
Like most other companies that are relisted following a privatisation, however, it is a smaller and more streamlined company that is currently being pre-marketed. Most notably, the company's mobile businesses outside Malaysia -- primarily the mobile operations in India and Indonesia -- will stay with the unlisted parent company. The change is signalled by the fact that the unit preparing for a listing is named Maxis Berhad, while Maxis Communications will remain a private entity that will hold the international businesses as well asa controlling stake in Maxis Berhad (from here on referred to as Maxis).
Sceptics have noted that Maxis is the portion of the company that remains after the high-growth businesses in India and Indonesia has been taken out, suggesting that this will be a much less exciting business than it was before it was taken private in June 2007. This is indeed true -- at least with regard to the removal of the fastest growing portions of the business -- though the feedback from domestic investors, in particular, suggests there are still reasons to be excited.
Sources involved in the offering note that, before the privatisation, investors were not that keen on the international business, which they saw as a drain on the company's cashflow. Indeed, much of what the company was earning from the steady and cash-generative domestic operations went straight into the funding of its overseas expansion, leaving shareholders with few benefits and a lot of execution risk.
A similar argument is outlined by Maxis in the preliminary listing prospectus as it lists the reasons behind the buyout and de-listing: The principal shareholder at the time, Ananda Krishnan-controlled Binariang, believed that the overseas expansion [existing and future] "would significantly change the financial and risk profile of MCB due to uncertainties surrounding the investment and regulatory environments in new markets, the substantial capital expenditure required, which may strain MCB's cashflow and dividend payment capability, and the increase in gearing to finance such...investments in new markets, which may result in higher borrowing costs."
"As such, Binariang undertook the privatisation of MCB as it believed that private ownership would accord greater flexibility for MCB to realise its vision to be a leading telecommunications company and to adopt a capital structure consistent with the change in its funding and risk profile," Maxis said.
"Previously the minority shareholders didn't get much of the yield. Now, the interests of the parent company and the minority shareholders are aligned," said one source, noting that Maxis has promised to pay out 75% of its annual earnings as dividends. "The company is giving the market what it wanted two years ago."
What investors who buy into the restructured listing candidate will get is a company with a leading position in the domestic market and very strong cashflow generation -- the free cashflow yield is estimated at 6%-7%. Given its size, Maxis will also be a bell-weather stock in the Malaysian market and is expected to go into all the benchmark indices, meaning investors who follow Malaysia or the telecom sector will pretty much have to buy it. Meanwhile, domestic investors are already well-familiar with the company and its ability to make money.
That should ensure a successful IPO at least, but that is not to say that Maxis will be an instant hit once it starts trading. Malaysia is a mature mobile market with a 100% penetration rate and while Maxis is the dominant player with a 46% share of the post-paid market and 38% of the pre-paid subscriptions, it does have competition from the number two and three players -- Celcom, which is owned by Axiata (formerly TM International), and DiGi.
"People don't question the quality [of Maxis], they question the growth and how much competition there is in the market," said the earlier quoted source.
The level of competition will be of particular importance in the wireless broadband segment of the market, which is viewed as a key growth area, particularly in light of the fact that 50% of the Malaysian population is estimated to be younger than 25. The country already has 15.9 million internet users and, over the past three years, they have increasingly started to access the internet through various mobile and wireless devices.
However, in a sense, the Malaysian telecom market is less competitive than other Asian markets as the key players have been expanding overseas and, just like Maxis did in its previous reincarnation, they use their domestic operations to fund this expansion. As a result, the Malaysian telecom operators have refrained from price wars that may have had a negative impact on their cashflow and margins. Aside from the mobile business, Maxis also offers fixed-line and international gateway services.
Maxis will be offering 30% of the company, or 2.25 billion shares, all of which are existing shares sold by MCB. About 7.8% of the deal will be earmarked for retail investors and another 50% will be offered to Malaysian investors recognised as Bumiputras (indigenous investors). The remainder will be split between other domestic institutional and international investors. Reducing the number of available shares even further, sources say the company is in discussion with a number of potential cornerstone investors.
Because of its greater market share, analysts argue that Maxis should trade at a premium to DiGi and Axiata, which indeed it did when it was listed as MCB. DiGi, which is viewed as the closest comparable because most of its businesses are in Malaysia, currently trades at a 2010 enterprise value-to-Ebitda multiple of 7.3 and at a price-to-earnings ratio of 14.9 times. Analysts estimate its free cashflow yield at 6.8%.
Axiata, which aside from Malaysia also has mobile operations in Indonesia, Cambodia, Mauritius, Thailand, Sri Lanka, Bangladesh, Pakistan, Iran and Singapore, trades at a 2010 EV/Ebitda multiple of 7, a P/E ratio of 16.8 times and at a free cashflow yield of 4.5%.
While Maxis will only set the price range ahead of the formal roadshow, which is scheduled to kick off on October 23, there is a maximum price of M$5.50 per share attached to the Bumiputra tranche. That price would value Maxis at an EV/Ebitda multiple of 9.6 and a P/E multiple of 16.5 and would imply a free cashflow yield of 6.2%.
A price of M$5.50 per share would also suggest a deal size of M$12.4 billion ($3.6 billion). That will be more than double Petronas Gas's $1.1 billion IPO in 1995, which still ranks as the country's largest listing, according to Dealogic. Maxis Communications' own IPO in 2002 raised $803 million, which makes it the second largest.
Maxis' final price is expected to be fixed in the week of November 9 and the shares should start trading by mid-November. CIMB, Credit Suisse and Goldman Sachs are joint global coordinators and joint bookrunners for the offering, with J.P. Morgan, Nomura and UBS joining them at the bookrunner level.
http://www.financeasia.com/article.aspx?CIaNID=114764
By Anette Jönsson | 15 October 2009
Two years after being taken private, Maxis will relist the domestic portion of its business, offering investors a high-quality yield play.
The Malaysian stockmarket is getting ready for its largest initial public offering ever and it is a familiar face that will be rejoining its ranks. Just over two years after Maxis Communications (MCB) was privatised by its controlling shareholder, Malaysia's largest provider of mobile communication services is about to return with an IPO that looks set to raise about $3 billion.
Like most other companies that are relisted following a privatisation, however, it is a smaller and more streamlined company that is currently being pre-marketed. Most notably, the company's mobile businesses outside Malaysia -- primarily the mobile operations in India and Indonesia -- will stay with the unlisted parent company. The change is signalled by the fact that the unit preparing for a listing is named Maxis Berhad, while Maxis Communications will remain a private entity that will hold the international businesses as well asa controlling stake in Maxis Berhad (from here on referred to as Maxis).
Sceptics have noted that Maxis is the portion of the company that remains after the high-growth businesses in India and Indonesia has been taken out, suggesting that this will be a much less exciting business than it was before it was taken private in June 2007. This is indeed true -- at least with regard to the removal of the fastest growing portions of the business -- though the feedback from domestic investors, in particular, suggests there are still reasons to be excited.
Sources involved in the offering note that, before the privatisation, investors were not that keen on the international business, which they saw as a drain on the company's cashflow. Indeed, much of what the company was earning from the steady and cash-generative domestic operations went straight into the funding of its overseas expansion, leaving shareholders with few benefits and a lot of execution risk.
A similar argument is outlined by Maxis in the preliminary listing prospectus as it lists the reasons behind the buyout and de-listing: The principal shareholder at the time, Ananda Krishnan-controlled Binariang, believed that the overseas expansion [existing and future] "would significantly change the financial and risk profile of MCB due to uncertainties surrounding the investment and regulatory environments in new markets, the substantial capital expenditure required, which may strain MCB's cashflow and dividend payment capability, and the increase in gearing to finance such...investments in new markets, which may result in higher borrowing costs."
"As such, Binariang undertook the privatisation of MCB as it believed that private ownership would accord greater flexibility for MCB to realise its vision to be a leading telecommunications company and to adopt a capital structure consistent with the change in its funding and risk profile," Maxis said.
"Previously the minority shareholders didn't get much of the yield. Now, the interests of the parent company and the minority shareholders are aligned," said one source, noting that Maxis has promised to pay out 75% of its annual earnings as dividends. "The company is giving the market what it wanted two years ago."
What investors who buy into the restructured listing candidate will get is a company with a leading position in the domestic market and very strong cashflow generation -- the free cashflow yield is estimated at 6%-7%. Given its size, Maxis will also be a bell-weather stock in the Malaysian market and is expected to go into all the benchmark indices, meaning investors who follow Malaysia or the telecom sector will pretty much have to buy it. Meanwhile, domestic investors are already well-familiar with the company and its ability to make money.
That should ensure a successful IPO at least, but that is not to say that Maxis will be an instant hit once it starts trading. Malaysia is a mature mobile market with a 100% penetration rate and while Maxis is the dominant player with a 46% share of the post-paid market and 38% of the pre-paid subscriptions, it does have competition from the number two and three players -- Celcom, which is owned by Axiata (formerly TM International), and DiGi.
"People don't question the quality [of Maxis], they question the growth and how much competition there is in the market," said the earlier quoted source.
The level of competition will be of particular importance in the wireless broadband segment of the market, which is viewed as a key growth area, particularly in light of the fact that 50% of the Malaysian population is estimated to be younger than 25. The country already has 15.9 million internet users and, over the past three years, they have increasingly started to access the internet through various mobile and wireless devices.
However, in a sense, the Malaysian telecom market is less competitive than other Asian markets as the key players have been expanding overseas and, just like Maxis did in its previous reincarnation, they use their domestic operations to fund this expansion. As a result, the Malaysian telecom operators have refrained from price wars that may have had a negative impact on their cashflow and margins. Aside from the mobile business, Maxis also offers fixed-line and international gateway services.
Maxis will be offering 30% of the company, or 2.25 billion shares, all of which are existing shares sold by MCB. About 7.8% of the deal will be earmarked for retail investors and another 50% will be offered to Malaysian investors recognised as Bumiputras (indigenous investors). The remainder will be split between other domestic institutional and international investors. Reducing the number of available shares even further, sources say the company is in discussion with a number of potential cornerstone investors.
Because of its greater market share, analysts argue that Maxis should trade at a premium to DiGi and Axiata, which indeed it did when it was listed as MCB. DiGi, which is viewed as the closest comparable because most of its businesses are in Malaysia, currently trades at a 2010 enterprise value-to-Ebitda multiple of 7.3 and at a price-to-earnings ratio of 14.9 times. Analysts estimate its free cashflow yield at 6.8%.
Axiata, which aside from Malaysia also has mobile operations in Indonesia, Cambodia, Mauritius, Thailand, Sri Lanka, Bangladesh, Pakistan, Iran and Singapore, trades at a 2010 EV/Ebitda multiple of 7, a P/E ratio of 16.8 times and at a free cashflow yield of 4.5%.
While Maxis will only set the price range ahead of the formal roadshow, which is scheduled to kick off on October 23, there is a maximum price of M$5.50 per share attached to the Bumiputra tranche. That price would value Maxis at an EV/Ebitda multiple of 9.6 and a P/E multiple of 16.5 and would imply a free cashflow yield of 6.2%.
A price of M$5.50 per share would also suggest a deal size of M$12.4 billion ($3.6 billion). That will be more than double Petronas Gas's $1.1 billion IPO in 1995, which still ranks as the country's largest listing, according to Dealogic. Maxis Communications' own IPO in 2002 raised $803 million, which makes it the second largest.
Maxis' final price is expected to be fixed in the week of November 9 and the shares should start trading by mid-November. CIMB, Credit Suisse and Goldman Sachs are joint global coordinators and joint bookrunners for the offering, with J.P. Morgan, Nomura and UBS joining them at the bookrunner level.
http://www.financeasia.com/article.aspx?CIaNID=114764
Learning the Ropes of Investing
Learning the Ropes of Investing
Six Benefits of Joining an Investment Club
© Odiete Eneakpodia
Oct 18, 2009
The path to financial freedom goes beyond just earning money from a regular job and saving it. Successful wealth accumulation begins when we learn how to multiply our money.
A lot of people are today familiar with the need to invest their money however they don’t have the requisite knowledge to make profitable investment decisions especially since the world of investment is fraught with risks and uncertainties.
One way to build knowledge and gain confidence about investing is through investment clubs.
1. What is an investment club?
2. Benefits of investment clubs
(Access to investment ideas that could boost your personal investment activities
Club meetings provide you access to smart ideas on attractive investment opportunities such as what stock is currently a must buy in the market, new private placement opportunities etc. Sharing in the research of others and the extra bonus of a group setting for discussing investment ideas and issues often enriches the quality of our investment decision making.
Many clubs also develop unique learning activities that could include listening to and watching investment training videos from top investment experts, playing investment games like cash flow 101 developed by Robert kiyosaki, attending investment workshops, etc.)
3. You could become your own stock analyst
(One thing a rookie investor can learn form joining and participating in the activities of your investment club is the skill to pick stocks he wants to invest in rather than relying on his intuition or his stock broker.
It gives him the skill to analyze stocks and other investments on his own before putting his money. This knowledge acquired will prove useful in his own personal investment activities.)
4. Leverage the power of numbers to minimize risk
5. Build wealth gradually and achieve financial independence
(Joining an Investment club enables a newbie investor master the discipline of setting aside a part of your income periodically to invest an ideal strategy to gradually build wealth and achieve financial independence.)
6. Social networking
Read more: http://investment.suite101.com/article.cfm/learning_the_ropes_of_investing#ixzz0UKk1xBKa
Six Benefits of Joining an Investment Club
© Odiete Eneakpodia
Oct 18, 2009
The path to financial freedom goes beyond just earning money from a regular job and saving it. Successful wealth accumulation begins when we learn how to multiply our money.
A lot of people are today familiar with the need to invest their money however they don’t have the requisite knowledge to make profitable investment decisions especially since the world of investment is fraught with risks and uncertainties.
One way to build knowledge and gain confidence about investing is through investment clubs.
1. What is an investment club?
2. Benefits of investment clubs
(Access to investment ideas that could boost your personal investment activities
Club meetings provide you access to smart ideas on attractive investment opportunities such as what stock is currently a must buy in the market, new private placement opportunities etc. Sharing in the research of others and the extra bonus of a group setting for discussing investment ideas and issues often enriches the quality of our investment decision making.
Many clubs also develop unique learning activities that could include listening to and watching investment training videos from top investment experts, playing investment games like cash flow 101 developed by Robert kiyosaki, attending investment workshops, etc.)
3. You could become your own stock analyst
(One thing a rookie investor can learn form joining and participating in the activities of your investment club is the skill to pick stocks he wants to invest in rather than relying on his intuition or his stock broker.
It gives him the skill to analyze stocks and other investments on his own before putting his money. This knowledge acquired will prove useful in his own personal investment activities.)
4. Leverage the power of numbers to minimize risk
5. Build wealth gradually and achieve financial independence
(Joining an Investment club enables a newbie investor master the discipline of setting aside a part of your income periodically to invest an ideal strategy to gradually build wealth and achieve financial independence.)
6. Social networking
Read more: http://investment.suite101.com/article.cfm/learning_the_ropes_of_investing#ixzz0UKk1xBKa
KLSE Market Performance last week
Asian Economic News
--------------------------------------------------------------------------------
Malaysian Shares May End Win Streak
10/18/2009 6:41 PM ET
(RTTNews) - The Malaysian stock market has finished higher now in four consecutive sessions, collecting more than 20 points or 1.9 percent to hit a fresh closing high for the year. The Kuala Lumpur Composite Index moved above the 1,255-point plateau, but now analysts are forecasting a modest retreat at the opening of trade on Monday.
The global forecast for the Asian markets suggests weakness, thanks to disappointing economic and earnings news out of the United States. Technology and financial stocks are expected to be under pressure, although strength among the commodities - especially oil - may provide some support. The European and U.S. markets finished modestly lower on Friday, and the Asian markets are forecast to follow that lead.
The KLCI finished modestly higher on Friday, thanks to firm support from the financial stocks and the plantations, while the industrial issues saw more modest gains.
For the day, the index added 9.91 points or 0.80 percent to finish at 1,256.77. Volume was 1.147 billion shares worth 1.217 billion ringgit. There were 481 gainers and 239 decliners, with 238 stocks finishing unchanged.
Among the gainers, DBE Gurney Resources, SKP Resources, TA Enterprise, Sime Darby, Maybank, CIMB Group, Tenaga, IOI Corp and Genting all finished higher.
http://www.rttnews.com/Content/AsianMtUpdates.aspx?Node=B3&Id=1096268
--------------------------------------------------------------------------------
Malaysian Shares May End Win Streak
10/18/2009 6:41 PM ET
(RTTNews) - The Malaysian stock market has finished higher now in four consecutive sessions, collecting more than 20 points or 1.9 percent to hit a fresh closing high for the year. The Kuala Lumpur Composite Index moved above the 1,255-point plateau, but now analysts are forecasting a modest retreat at the opening of trade on Monday.
The global forecast for the Asian markets suggests weakness, thanks to disappointing economic and earnings news out of the United States. Technology and financial stocks are expected to be under pressure, although strength among the commodities - especially oil - may provide some support. The European and U.S. markets finished modestly lower on Friday, and the Asian markets are forecast to follow that lead.
The KLCI finished modestly higher on Friday, thanks to firm support from the financial stocks and the plantations, while the industrial issues saw more modest gains.
For the day, the index added 9.91 points or 0.80 percent to finish at 1,256.77. Volume was 1.147 billion shares worth 1.217 billion ringgit. There were 481 gainers and 239 decliners, with 238 stocks finishing unchanged.
Among the gainers, DBE Gurney Resources, SKP Resources, TA Enterprise, Sime Darby, Maybank, CIMB Group, Tenaga, IOI Corp and Genting all finished higher.
http://www.rttnews.com/Content/AsianMtUpdates.aspx?Node=B3&Id=1096268
Sunday 18 October 2009
The 20 Golden Rules of Investment
May 21, 2008
The 20 Golden Rules of Investment
Investing your own money is a complicated and potentially dangerous business. One slip in the tricky world of stocks and shares can prove very costly. So Times Money offers a guide on how to survive and profit in the investment jungle.
1) Buy low; sell high.
2) Don’t chase performance. If you like a stock or fund, buy on the dips.
3) Run your winners. In other words let your profts roll up and don't be in too much of a hurry to kiss goodbye to your best-performing investments.
4) Cut your losses before they become excessive.
5) Never get too attached to a share or a fund. As the late Sir John Harvey Jones once said: “You sometimes have to kill your favourite children.”
6) In general, think long-term. As Warren Buffett, the great US investor once said: “Never buy a stock unless you would be happy with it if the stock exchange closed down for the next 10 years.”
7) But don’t let that stop you reviewing your portfolio regularly. You need to check that your portfolio is properly balanced.
8) Reinvest your dividends. The power of compounding your reinvested share or fund dividends makes a massive difference to your overall return.
9) Don’t put all your eggs in one basket. If you had had all your money in tech stocks in March 2000 you would probably have had about 90 per cent of the value of your portfolio wiped out over the next couple of years.
10) Although it makes sense to hold shares for the long term you don’t necessarily want to hold them forever. In the end shares are for buying and selling not for buying and forgetting about.
11) To that end make sure you spend as much time thinking about selling shares as you do about buying them. Most investors neglect this vital discipline.
12) Make sensible use of tax-privileged investment vehicles such as pensions and Individual Savings Accounts (Isas) but never let the tax tail wag the investment dog.
13) If you don’t understand how a particular investment works it’s probably not a good idea to put money into it.
14) Don’t be afraid to ask the ‘what if’ question. In the late 1990s many investors bought supposedly ‘low risk’ savings products linked to the performance of the stock market. Few asked what would happen if the stock market fell off a cliff, as it did from 2000 onwards, slashing the value of the so-called ‘precipice bonds’.
15) Be flexible and don’t back yourself into a corner. If you bought a stock for 500p and it’s now languising at 50p, don’t stubbornly hold on to it indefinitely in the misguided belief that it’s bound to recover to 500p - it may never do so.
16) Don’t be afraid to go against the crowd - some of the most successful investors have been contrarian investors.
17) Never be influenced by ‘special offers’ such as the discounts sometimes advertised by fund groups for purchasing funds within a specific time. It’s much better to buy the right fund than to get a few pounds knocked off the purchase price of the wrong fund.
18) Ignore all stock market ‘tips’, whether offered in the workplace or at the nineteenth hole of the local golf course. Remember the old stock market adage that “where there’s a tip there’s a tap”.
19) Never get too carried away by investment euphoria, whether for stocks and shares or bricks and mortar - nothing goes up for ever.
20) Remember that if something looks too good to be true - it probably is.
http://timesbusiness.typepad.com/money_weblog/2008/05/the-twenty-gold.html
Bull market
Share prices are consistently rising. Think “bull in a china shop” – excited, but potentially dangerous
Beginner's glossary of Investment terms
Beginner's glossary
Bear
Describing someone as bearish does not mean they are large and hairy, but that they have a cautious and conservative outlook, and are more inclined to be pessimistic. A bear market is characterised by falling share prices and poor returns. Bear times are bad times
Bear squeeze
Not a hug from a grizzly, but a slight rise in share prices after they have fallen sharply as traders who have been short selling buy back their positions
Bull market
Share prices are consistently rising. Think “bull in a china shop” – excited, but potentially dangerous
Bear market
Share prices are consistently falling. Think bear with a sore head – just sort of grumpy
Dead cat bounce
When a share rallies after a large fall, before dropping to new lows – just as a cat that falls from a height bounces on the ground when it lands, even though it is dead
Catching a falling knife
Buying more shares as the prices slump, in the belief that they may soon rebound. Likely to have the same effect on your wallet as actually catching a falling knife will have on your hand
Correction
A misleading term – it sounds minor, but it actually means quite a steep fall in the price of shares
Credit crunch
With all this free publicity it could become the name of a biscuit snack. But it refers to the seizure in the money markets caused by the fallout from US sub-prime mortgage customers defaulting on their loan payments. Big banks refused to lend each other money and while some banks hoarded their cash, others were left exposed without enough cash in their pocket. Think Northern Rock
Going long
Buying shares in the belief that the price will increase, producing a profit. A bit like buying a Hermès handbag in the hope that it will become a classic commanding a much higher price at auction. This doesn’t always work
Growth recession
Not male pattern baldness, but very slow economic growth, which can have a similar effect on consumers as a recession
Hyperinflation
When prices go up faster than people can spend their money. If you leave a wheelbarrow of cash in the street, someone steals only the wheelbarrow
Hedging
Taking two positions that will offset each other if prices change and so limiting financial risk. In roulette, the ultimate hedge bet is putting your money on red and black – but you are bound to lose half your money. Hedge fund managers are cleverer than that
Negative equity
Owing more on your home than it is actually worth. Lots of people who took out mortgages for 100 per cent or more of the value of their properties are in danger of this, especially when house prices fall
Short selling
When traders sell shares they don’t yet own as they believe prices will fall and they can buy them back at a lower price. Like selling your laptop to your mate for £1,000. Before you take it round, it breaks. You buy another in a shop for £800 and give it to your mate, making £200
Stagflation
Not a beast the Royal Family hunts, but a coalescence of stagnation and inflation – a period of slow growth with high inflation
Sub-prime mortgages
Home loans granted to people with troubled credit histories. Those who have missed a few credit card payments are classed as “light” sub-prime, while others who have become bankrupt in the past or who have court judgments against their name for nonpayments of debts are “heavy” sub-prime
Wind up
It means something else to humorists, and Jeremy Beadle. In the money world, it means when a company ceases activity with a view to shutting down. It can also refer to ending a pension scheme, or a relationship. If you want to dump someone, “I’d like to wind things up with you” should do it
http://business.timesonline.co.uk/tol/business/economics/article3234671.ece
Bear
Describing someone as bearish does not mean they are large and hairy, but that they have a cautious and conservative outlook, and are more inclined to be pessimistic. A bear market is characterised by falling share prices and poor returns. Bear times are bad times
Bear squeeze
Not a hug from a grizzly, but a slight rise in share prices after they have fallen sharply as traders who have been short selling buy back their positions
Bull market
Share prices are consistently rising. Think “bull in a china shop” – excited, but potentially dangerous
Bear market
Share prices are consistently falling. Think bear with a sore head – just sort of grumpy
Dead cat bounce
When a share rallies after a large fall, before dropping to new lows – just as a cat that falls from a height bounces on the ground when it lands, even though it is dead
Catching a falling knife
Buying more shares as the prices slump, in the belief that they may soon rebound. Likely to have the same effect on your wallet as actually catching a falling knife will have on your hand
Correction
A misleading term – it sounds minor, but it actually means quite a steep fall in the price of shares
Credit crunch
With all this free publicity it could become the name of a biscuit snack. But it refers to the seizure in the money markets caused by the fallout from US sub-prime mortgage customers defaulting on their loan payments. Big banks refused to lend each other money and while some banks hoarded their cash, others were left exposed without enough cash in their pocket. Think Northern Rock
Going long
Buying shares in the belief that the price will increase, producing a profit. A bit like buying a Hermès handbag in the hope that it will become a classic commanding a much higher price at auction. This doesn’t always work
Growth recession
Not male pattern baldness, but very slow economic growth, which can have a similar effect on consumers as a recession
Hyperinflation
When prices go up faster than people can spend their money. If you leave a wheelbarrow of cash in the street, someone steals only the wheelbarrow
Hedging
Taking two positions that will offset each other if prices change and so limiting financial risk. In roulette, the ultimate hedge bet is putting your money on red and black – but you are bound to lose half your money. Hedge fund managers are cleverer than that
Negative equity
Owing more on your home than it is actually worth. Lots of people who took out mortgages for 100 per cent or more of the value of their properties are in danger of this, especially when house prices fall
Short selling
When traders sell shares they don’t yet own as they believe prices will fall and they can buy them back at a lower price. Like selling your laptop to your mate for £1,000. Before you take it round, it breaks. You buy another in a shop for £800 and give it to your mate, making £200
Stagflation
Not a beast the Royal Family hunts, but a coalescence of stagnation and inflation – a period of slow growth with high inflation
Sub-prime mortgages
Home loans granted to people with troubled credit histories. Those who have missed a few credit card payments are classed as “light” sub-prime, while others who have become bankrupt in the past or who have court judgments against their name for nonpayments of debts are “heavy” sub-prime
Wind up
It means something else to humorists, and Jeremy Beadle. In the money world, it means when a company ceases activity with a view to shutting down. It can also refer to ending a pension scheme, or a relationship. If you want to dump someone, “I’d like to wind things up with you” should do it
http://business.timesonline.co.uk/tol/business/economics/article3234671.ece
Iceland exposed: How a whole nation went down the toilet
From The Times
October 1, 2009
Iceland exposed: How a whole nation went down the toilet
A year ago this month, Iceland went bankrupt. We explain how it went from being the world’s happiest nation to one with a bleak future
Roger Boyes
Along a narrow strip between downtown Reykjavik and the northern coastline lies a jumble of half-built high-rise buildings that was to be the new Manhattan of the north. By Spring this year, the place had become an urban graveyard. Someone has scrawled "CAPITALISM R.I.P." on the side of one of the buildings. Squatters have moved in, converting an abandoned house into a cosy café.
The Reykjavikers cheerfully welcomed the presence of some kind of life to this ghost town. The developers, however, did not approve. So, just after Easter, the riot police were sent in with a chainsaw to hack through barricaded doors and pepper spray to disable the young squatters. The clean-up was nasty, brutal and short: it was the official end of Niceland.
The Icelandic sense of live-and-let-live was the first casualty of the meltdown. For centuries, island society had functioned on family lines. Yes, there were feuds and friction between family members, but there was tolerance too. The financial collapse, though, brought a rawness to everyday life.
While the Nordic rules still applied, no one was hustled out of the office on the day that the banks went under; no one stuffed the clutter of their desks into a cardboard box. But by November, dismissal letters were in the mail. Unemployment rose from under 2 per cent in September 2008 to 10 per cent by the spring of 2009.
Although for a decade or so Iceland had imagined itself to be at the centre of the prosperous world, the crash propelled it back into the remote North Atlantic. Its pride was hurt. Icelanders were conscious that they had been steered incompetently and corruptly into the abyss. Yet the political class showed no remorse. David Oddsson — the head of the central bank, who as prime minister had presided over the privatisation of Iceland’s state-owned banks — was quick to blame the magnate Jon Asgeir and the oligarchs; Jon Asgeir blamed both the US for letting Lehman collapse and Oddsson for not responding intelligently; the Icelandic Government blamed the British Government.
“There is no culture of ministerial responsibility here,” says a senior official. “The prime minister will say, ‘I didn’t order this, I didn’t cause that, so why should I step down?’ And since the prime minister says that, so do the ministers and department chiefs.” As a result, no one has an interest in discovering why mistakes were made. The main threads of Icelandic rule were too intertwined, matted together: remove any one of these components — say, by an ill-judged confession of incompetence — and the whole edifice was likely to collapse.
The smallness of the society increased the risks of mismanagement: the humiliation of national bankruptcy, the speed with which the middle class was impoverished, the heaviness of personal debt, the almost instant flip from being the world’s happiest nation to being a place that could offer no future to its young. So Iceland became not only the first country to go broke, but also the first in this global financial crisis to chase its government out of power.
Soon, as living standards began to fall and people took to the streets, an uprising gathered force. It became known as the kitchen revolution because demonstrators used wooden spoons to bang pots and pans to drown out the proceedings of Parliament.
These protests had plenty of pathos, above all, the singing of the rather dirge-like national anthem. Mainly, though, this was an ironic revolt. Fake banknotes bearing the image of David Oddsson’s head were distributed, free of course, since he was widely seen as having betrayed the krona.
In December, Gurri, one of Iceland’s many self-proclaimed witches. led protesters toward the central bank and entered the building, carrying a life-size effigy of David Oddsson. Repelled by police, the short blonde witch, dressed of course in black, started to spank her effigy —“You’ve been a bad boy!” — pronounced a spell, then stuffed it in a garbage bag.
Until this moment, Iceland’s protest movement was an expression of hurt and an inchoate demand for change. Its ironic undertone was in part because many in the middle class, now being squeezed between higher mortgage debt and lower real wages, were half-aware that they had allowed the political class to get away with their incompetence and bad deals. Now they were demanding that the same class be changed, yet no party was completely untarnished by the years of easy credit.
On October 24 the Government formally asked the IMF for help, both to send a signal to other nations and to stabilise the currency. There was no rush to help: Britain and the Netherlands were adamant that there should be no IMF package until they secured guarantees from Reykjavik to compensate Icesave depositors. Geir Haarde, the Prime Minister, eventually agreed because he had no choice: without the IMF loan of $2.1 billion, Iceland was finished. On November 16, Iceland announced that it would comply with the EU Deposit Guarantee Scheme’s directive guaranteeing compensation for up to €20,877 [£19,000] for each savings account.
The horse-trading showed the Icelanders that their Government had no choices and could not in any rational sense be described as a government any more. More than 50,000 people had their savings wiped out. The Salvation Army hostel began to fill up with families unable to make ends meet.
Car loans became like some obscure punishment from hell. Taken out in foreign currencies, the loan had to be paid back in a krona whose value was shrivelling by the day. The only way out of the squeeze was to take out a newspaper advert offering thousands of dollars to anyone willing to take on the car and its bulging debt. “The Range Rover and other SUVs have gone through an incredible transformation,” a sociologist tells me. “First they were luxuries, then they were necessities — and you can see the point, you really need off-road vehicles in Iceland, it’s a rugged place — and now they have become burdens.” In the two months after the meltdown, Icelanders had been in shock, and the shock had atomised the island. The traditional solidarity of Christmas and the long holiday mutated into political solidarity — and contempt for the seemingly guilty silence of the political class. When the demonstrations began in the new year, the tone was different. The aim was clear: to bring down the Government. Now, for the first time, the politicians began to understand what was at stake. They were not being barracked by communist agitators but were being brought to account by a nation.
Those in power thought they were being confronted by lynch justice and allowed the riot police almost a free hand to defend the institutions of state. Those demonstrating outside began to sniff every hint of weakness. There were many such pointers. Politicians were buckling under ill health. The Foreign Minister Ingibjorg Solrun Gisladottir, head of the Social Democrats, had been absent for most of the crisis because she was being treated for a brain tumour; President Ólafur Grimsson underwent heart surgery; and Haarde announced that he had cancer of the oesophagus. The demonstrators saw weakness politically too, of course. Iceland looked rudderless, with the Parliament coming back from its Christmas holidays on January 22, after what might seem to have been an unusually long break in the middle of a world crisis.
That day Haarde addressed [Parliament] in his first detailed account of what the Government had been doing since the October meltdown. It did not seem like much. Measures had been introduced, he said, to ease the pain of those tumbling into debt. Housing funds were to go easy on loan defaulters, child allowance was to be paid every month instead of every quarter, the unemployed were to be encouraged to study, employers nudged into offering part-time work instead of firing staff. Haarde stretched it out into a catalogue of 15 points, but it amounted to a wish list.
None of this pleased or satisfied the protesters. The rallies grew and grew. The protesters banged tom-toms and lit effigies of politicians until late in the night. There were no more vague demands for apologies. “What do you want to happen next, after they’ve gone?” I asked the people in the crowd that January, and did not get a coherent reply. Some wanted a return to “fairness”; the more radical were so enraged that they went so far as to demand a kind of Nuremberg trial, with Haarde, Oddsson and the oligarchs jailed on charges of defrauding the nation.
“This economic crisis has hit us with the force of a war,” said the novelist Einar Mar Gudmundsson. “It will cost us more than a war, not just in lost wealth, but in people — we will lose a generation, maybe two, to migration.” By January, having just had his cancer diagnosis, Haarde realised that he could no longer convince the nation that he was indispensable to its resurrection.
It was time to go. On January 23, a Friday and the end of a long, noisy week of public protests, Haarde announced early elections and said that, for medical reasons, he would not be running. That was not exactly the triumphant defenestration that the protesters had been hoping for. The announcement of his illness — he left the country within days for treatment in Amsterdam — confused the protest movement and the country.
“The first political casualty of the global crisis!” was the headline in Britain, but in Iceland it did not seem like that. “There was just a kind of emptiness,” recalled Magnus, an economics student. But the crumbling of the establishment had begun.
The interim government, intended to steer Iceland toward the election, was to be a coalition of Social Democrats and the Left Greens, led by the dour Johanna Sigurdardottir. Johanna, nicknamed Saint Johanna by Icelanders, was different. She was from the left of the Social Democrats, and had been pushed aside in the contest for the party leadership in 1996 (leading her to declare: “My time will come”). During election campaigns she would go to the huge dockside warehouse that housed Reykjavik’s flea market. Next to the dried-fish stands, a scruffy café, much favoured by the down-and-out, is warm, cheap, and only three minutes’ walk from the Salvation Army hostel. Johanna would sit there and listen to their complaints and those of anyone else ready to draw up a chair.
Johanna was not only the island’s first female prime minister, but also the first openly gay national leader in the world. Her relationship, in an officially registered union with the journalist and children’s book writer Jonina Leosdottir was well-known to Icelanders but attracted little curiosity. With only one gay bar on the island, Icelanders do not stay in the closet long. But to non-Icelanders Johanna’s sexuality seemed important, a sign of a more fundamental shift in attitudes. Half of her Cabinet were women — not unusual in Nordic societies — and more significant, the heads of new versions of two of the banks were women: Elin Sigfusdottir at New Landsbanki and Birna Einarsdottir at New Glitnir. Their brief was to create domestic-deposit bases, make a go of shaping a conventional, customer-oriented bank and allow the formerly glamorous and now ruined international departments to sit in a kind of toxic-waste disposal unit.
The only Icelandic investment company to emerge from the crisis relatively unscathed was Audur Capital, set up by two women, Halla Tomasdottir and Kristin Petursdottir, to cater to female investors. “Our ground rule was simple,” said Halla Tomasdottir. “We didn’t invest in anything we couldn’t understand.” In a sense the supposedly new orientation toward women echoes the Viking tradition, when the men would disappear out to sea for weeks on end, leaving women to run the households.
The Icelandic approach to dealing with the crisis, essentially to let the women clean up after the party, is part of a broader feeling, though, that the Age of Testosterone may be coming to an end in the financial sector. Blaming the crisis on endocrinology is of course absurdly reductionist.
At the heart of Ms Sigurdardottir’s shift for Iceland was not her feminism but a basic egalitarianism. Iceland had for centuries been a society without large income differences, that treasured literacy, socialised health care and equal access to nature and its resources. Indeed, when David Oddsson took over the prime ministership in the early 1990s, Iceland bore a strong resemblance to a socialist society.
Johanna Sigurdardottir put egalitarianism back on the agenda; her promotion of women was not supposed to right some ancient wrong, a discriminatory imbalance, but rather ease the way back toward a society that treasured solidarity. Women understood Johanna’s aims better than men and confirmed her in power in the general election on April 22. By that time, after only a few months in government, Johanna had convinced society that it had to reach deep into itself and fish out special Icelandic virtues: modesty, hard work, a rugged respect for each other.
That was not enough, however, to dispel the anger, the sense of betrayal. On election day, protesters broke into the villa of Bjorgolfur Thor Bjoergolfsson in Frikirkjuvegur, Free Church Street. Thor had bought the house from the city council years earlier. The villa had belonged to his great-grandfather, who had founded one of the country’s most influential trading dynasties. Since Thor was ensconced in Holland Park, London, the protesters were able to climb on to the front balcony of the house, hang some life-size Viking dolls from the balustrade, and hang a banner declaring: “We were never elected to any office, yet we ruled everything”. The sentiment was shared by the voters, who elected the Social Democrat and the Left Green parties with a huge majority.
Seven months after the meltdown, Iceland was still a seething, frustrated, unhappy nation. A friend of mine encountered a normally mild old woman as she left city hall after casting her vote. “What were these people thinking when they bled their own country dry?” the woman said. “They will never be able to show their faces in this country again, nor will their children, or their children’s children.”
Gurri, the blonde witch, could not have produced a better curse.
Meltdown Iceland by Roger Boyes is published by Bloomsbury on October 10 at £12.99. To order it for £11.69, including p&p, call 0845 2712134 or visit timesonline.co.uk/booksfirst
The way the crash happened
September 2008: Seven months after reports that Kaupthing, Iceland’s biggest bank, is seven times more likely to go into administration than a typical European one, the Icelandic Government introduces emergency legislation allowing it to nationalise Iceland’s third largest bank, Glitnir.
October 2008: Iceland takes control of Kaupthing, after Alistair Darling invokes anti-terrorism laws to freeze its UK assets. British institutions and individuals scramble to recover their savings (local authorities alone had deposited £900 million into Icelandic banks). The BBC business editor Robert Peston writes on his blog that Kaupthing has “the worst case of financial BO I’ve encountered”.
November 2008: The IMF approves a $2.1 billion (£1.4 billion) loan to Iceland. Its inflation soars to 17.1 per cent.
January 2009: Protesters surround Prime Minister Geir Haarde’s car and pelt it with eggs. He resigns.
February 2009: Iceland’s Government tries to sell its embassy residences for a total of £25 million in an attempt to raise capital for the cash-strapped country.
April 2009: A centre-left coalition lead by the interim PM Johanna Sigurdardottir wins a majority of 34 out of 63 seats at the parliamentary elections.
June 2009: A consortium of four Icelandic banks buys West Ham United from Bjorgolfur Gudmundssonm, who lost a fortune when Landbanksi went into administration.
July 2009: Iceland applies for EU membership. Documents released by the Icelandic Government reveal that the British and Dutch authorities held a meeting in 2006 to consider what would happen if the Icelandic bank Landsbanki could not cover the deposits of British and Dutch savers.
August 2009: Iceland annual birth rate experiences a 3.5 per cent hike.
Sarah Haines
http://women.timesonline.co.uk/tol/life_and_style/women/the_way_we_live/article6855928.ece
October 1, 2009
Iceland exposed: How a whole nation went down the toilet
A year ago this month, Iceland went bankrupt. We explain how it went from being the world’s happiest nation to one with a bleak future
Roger Boyes
Along a narrow strip between downtown Reykjavik and the northern coastline lies a jumble of half-built high-rise buildings that was to be the new Manhattan of the north. By Spring this year, the place had become an urban graveyard. Someone has scrawled "CAPITALISM R.I.P." on the side of one of the buildings. Squatters have moved in, converting an abandoned house into a cosy café.
The Reykjavikers cheerfully welcomed the presence of some kind of life to this ghost town. The developers, however, did not approve. So, just after Easter, the riot police were sent in with a chainsaw to hack through barricaded doors and pepper spray to disable the young squatters. The clean-up was nasty, brutal and short: it was the official end of Niceland.
The Icelandic sense of live-and-let-live was the first casualty of the meltdown. For centuries, island society had functioned on family lines. Yes, there were feuds and friction between family members, but there was tolerance too. The financial collapse, though, brought a rawness to everyday life.
While the Nordic rules still applied, no one was hustled out of the office on the day that the banks went under; no one stuffed the clutter of their desks into a cardboard box. But by November, dismissal letters were in the mail. Unemployment rose from under 2 per cent in September 2008 to 10 per cent by the spring of 2009.
Although for a decade or so Iceland had imagined itself to be at the centre of the prosperous world, the crash propelled it back into the remote North Atlantic. Its pride was hurt. Icelanders were conscious that they had been steered incompetently and corruptly into the abyss. Yet the political class showed no remorse. David Oddsson — the head of the central bank, who as prime minister had presided over the privatisation of Iceland’s state-owned banks — was quick to blame the magnate Jon Asgeir and the oligarchs; Jon Asgeir blamed both the US for letting Lehman collapse and Oddsson for not responding intelligently; the Icelandic Government blamed the British Government.
“There is no culture of ministerial responsibility here,” says a senior official. “The prime minister will say, ‘I didn’t order this, I didn’t cause that, so why should I step down?’ And since the prime minister says that, so do the ministers and department chiefs.” As a result, no one has an interest in discovering why mistakes were made. The main threads of Icelandic rule were too intertwined, matted together: remove any one of these components — say, by an ill-judged confession of incompetence — and the whole edifice was likely to collapse.
The smallness of the society increased the risks of mismanagement: the humiliation of national bankruptcy, the speed with which the middle class was impoverished, the heaviness of personal debt, the almost instant flip from being the world’s happiest nation to being a place that could offer no future to its young. So Iceland became not only the first country to go broke, but also the first in this global financial crisis to chase its government out of power.
Soon, as living standards began to fall and people took to the streets, an uprising gathered force. It became known as the kitchen revolution because demonstrators used wooden spoons to bang pots and pans to drown out the proceedings of Parliament.
These protests had plenty of pathos, above all, the singing of the rather dirge-like national anthem. Mainly, though, this was an ironic revolt. Fake banknotes bearing the image of David Oddsson’s head were distributed, free of course, since he was widely seen as having betrayed the krona.
In December, Gurri, one of Iceland’s many self-proclaimed witches. led protesters toward the central bank and entered the building, carrying a life-size effigy of David Oddsson. Repelled by police, the short blonde witch, dressed of course in black, started to spank her effigy —“You’ve been a bad boy!” — pronounced a spell, then stuffed it in a garbage bag.
Until this moment, Iceland’s protest movement was an expression of hurt and an inchoate demand for change. Its ironic undertone was in part because many in the middle class, now being squeezed between higher mortgage debt and lower real wages, were half-aware that they had allowed the political class to get away with their incompetence and bad deals. Now they were demanding that the same class be changed, yet no party was completely untarnished by the years of easy credit.
On October 24 the Government formally asked the IMF for help, both to send a signal to other nations and to stabilise the currency. There was no rush to help: Britain and the Netherlands were adamant that there should be no IMF package until they secured guarantees from Reykjavik to compensate Icesave depositors. Geir Haarde, the Prime Minister, eventually agreed because he had no choice: without the IMF loan of $2.1 billion, Iceland was finished. On November 16, Iceland announced that it would comply with the EU Deposit Guarantee Scheme’s directive guaranteeing compensation for up to €20,877 [£19,000] for each savings account.
The horse-trading showed the Icelanders that their Government had no choices and could not in any rational sense be described as a government any more. More than 50,000 people had their savings wiped out. The Salvation Army hostel began to fill up with families unable to make ends meet.
Car loans became like some obscure punishment from hell. Taken out in foreign currencies, the loan had to be paid back in a krona whose value was shrivelling by the day. The only way out of the squeeze was to take out a newspaper advert offering thousands of dollars to anyone willing to take on the car and its bulging debt. “The Range Rover and other SUVs have gone through an incredible transformation,” a sociologist tells me. “First they were luxuries, then they were necessities — and you can see the point, you really need off-road vehicles in Iceland, it’s a rugged place — and now they have become burdens.” In the two months after the meltdown, Icelanders had been in shock, and the shock had atomised the island. The traditional solidarity of Christmas and the long holiday mutated into political solidarity — and contempt for the seemingly guilty silence of the political class. When the demonstrations began in the new year, the tone was different. The aim was clear: to bring down the Government. Now, for the first time, the politicians began to understand what was at stake. They were not being barracked by communist agitators but were being brought to account by a nation.
Those in power thought they were being confronted by lynch justice and allowed the riot police almost a free hand to defend the institutions of state. Those demonstrating outside began to sniff every hint of weakness. There were many such pointers. Politicians were buckling under ill health. The Foreign Minister Ingibjorg Solrun Gisladottir, head of the Social Democrats, had been absent for most of the crisis because she was being treated for a brain tumour; President Ólafur Grimsson underwent heart surgery; and Haarde announced that he had cancer of the oesophagus. The demonstrators saw weakness politically too, of course. Iceland looked rudderless, with the Parliament coming back from its Christmas holidays on January 22, after what might seem to have been an unusually long break in the middle of a world crisis.
That day Haarde addressed [Parliament] in his first detailed account of what the Government had been doing since the October meltdown. It did not seem like much. Measures had been introduced, he said, to ease the pain of those tumbling into debt. Housing funds were to go easy on loan defaulters, child allowance was to be paid every month instead of every quarter, the unemployed were to be encouraged to study, employers nudged into offering part-time work instead of firing staff. Haarde stretched it out into a catalogue of 15 points, but it amounted to a wish list.
None of this pleased or satisfied the protesters. The rallies grew and grew. The protesters banged tom-toms and lit effigies of politicians until late in the night. There were no more vague demands for apologies. “What do you want to happen next, after they’ve gone?” I asked the people in the crowd that January, and did not get a coherent reply. Some wanted a return to “fairness”; the more radical were so enraged that they went so far as to demand a kind of Nuremberg trial, with Haarde, Oddsson and the oligarchs jailed on charges of defrauding the nation.
“This economic crisis has hit us with the force of a war,” said the novelist Einar Mar Gudmundsson. “It will cost us more than a war, not just in lost wealth, but in people — we will lose a generation, maybe two, to migration.” By January, having just had his cancer diagnosis, Haarde realised that he could no longer convince the nation that he was indispensable to its resurrection.
It was time to go. On January 23, a Friday and the end of a long, noisy week of public protests, Haarde announced early elections and said that, for medical reasons, he would not be running. That was not exactly the triumphant defenestration that the protesters had been hoping for. The announcement of his illness — he left the country within days for treatment in Amsterdam — confused the protest movement and the country.
“The first political casualty of the global crisis!” was the headline in Britain, but in Iceland it did not seem like that. “There was just a kind of emptiness,” recalled Magnus, an economics student. But the crumbling of the establishment had begun.
The interim government, intended to steer Iceland toward the election, was to be a coalition of Social Democrats and the Left Greens, led by the dour Johanna Sigurdardottir. Johanna, nicknamed Saint Johanna by Icelanders, was different. She was from the left of the Social Democrats, and had been pushed aside in the contest for the party leadership in 1996 (leading her to declare: “My time will come”). During election campaigns she would go to the huge dockside warehouse that housed Reykjavik’s flea market. Next to the dried-fish stands, a scruffy café, much favoured by the down-and-out, is warm, cheap, and only three minutes’ walk from the Salvation Army hostel. Johanna would sit there and listen to their complaints and those of anyone else ready to draw up a chair.
Johanna was not only the island’s first female prime minister, but also the first openly gay national leader in the world. Her relationship, in an officially registered union with the journalist and children’s book writer Jonina Leosdottir was well-known to Icelanders but attracted little curiosity. With only one gay bar on the island, Icelanders do not stay in the closet long. But to non-Icelanders Johanna’s sexuality seemed important, a sign of a more fundamental shift in attitudes. Half of her Cabinet were women — not unusual in Nordic societies — and more significant, the heads of new versions of two of the banks were women: Elin Sigfusdottir at New Landsbanki and Birna Einarsdottir at New Glitnir. Their brief was to create domestic-deposit bases, make a go of shaping a conventional, customer-oriented bank and allow the formerly glamorous and now ruined international departments to sit in a kind of toxic-waste disposal unit.
The only Icelandic investment company to emerge from the crisis relatively unscathed was Audur Capital, set up by two women, Halla Tomasdottir and Kristin Petursdottir, to cater to female investors. “Our ground rule was simple,” said Halla Tomasdottir. “We didn’t invest in anything we couldn’t understand.” In a sense the supposedly new orientation toward women echoes the Viking tradition, when the men would disappear out to sea for weeks on end, leaving women to run the households.
The Icelandic approach to dealing with the crisis, essentially to let the women clean up after the party, is part of a broader feeling, though, that the Age of Testosterone may be coming to an end in the financial sector. Blaming the crisis on endocrinology is of course absurdly reductionist.
At the heart of Ms Sigurdardottir’s shift for Iceland was not her feminism but a basic egalitarianism. Iceland had for centuries been a society without large income differences, that treasured literacy, socialised health care and equal access to nature and its resources. Indeed, when David Oddsson took over the prime ministership in the early 1990s, Iceland bore a strong resemblance to a socialist society.
Johanna Sigurdardottir put egalitarianism back on the agenda; her promotion of women was not supposed to right some ancient wrong, a discriminatory imbalance, but rather ease the way back toward a society that treasured solidarity. Women understood Johanna’s aims better than men and confirmed her in power in the general election on April 22. By that time, after only a few months in government, Johanna had convinced society that it had to reach deep into itself and fish out special Icelandic virtues: modesty, hard work, a rugged respect for each other.
That was not enough, however, to dispel the anger, the sense of betrayal. On election day, protesters broke into the villa of Bjorgolfur Thor Bjoergolfsson in Frikirkjuvegur, Free Church Street. Thor had bought the house from the city council years earlier. The villa had belonged to his great-grandfather, who had founded one of the country’s most influential trading dynasties. Since Thor was ensconced in Holland Park, London, the protesters were able to climb on to the front balcony of the house, hang some life-size Viking dolls from the balustrade, and hang a banner declaring: “We were never elected to any office, yet we ruled everything”. The sentiment was shared by the voters, who elected the Social Democrat and the Left Green parties with a huge majority.
Seven months after the meltdown, Iceland was still a seething, frustrated, unhappy nation. A friend of mine encountered a normally mild old woman as she left city hall after casting her vote. “What were these people thinking when they bled their own country dry?” the woman said. “They will never be able to show their faces in this country again, nor will their children, or their children’s children.”
Gurri, the blonde witch, could not have produced a better curse.
Meltdown Iceland by Roger Boyes is published by Bloomsbury on October 10 at £12.99. To order it for £11.69, including p&p, call 0845 2712134 or visit timesonline.co.uk/booksfirst
The way the crash happened
September 2008: Seven months after reports that Kaupthing, Iceland’s biggest bank, is seven times more likely to go into administration than a typical European one, the Icelandic Government introduces emergency legislation allowing it to nationalise Iceland’s third largest bank, Glitnir.
October 2008: Iceland takes control of Kaupthing, after Alistair Darling invokes anti-terrorism laws to freeze its UK assets. British institutions and individuals scramble to recover their savings (local authorities alone had deposited £900 million into Icelandic banks). The BBC business editor Robert Peston writes on his blog that Kaupthing has “the worst case of financial BO I’ve encountered”.
November 2008: The IMF approves a $2.1 billion (£1.4 billion) loan to Iceland. Its inflation soars to 17.1 per cent.
January 2009: Protesters surround Prime Minister Geir Haarde’s car and pelt it with eggs. He resigns.
February 2009: Iceland’s Government tries to sell its embassy residences for a total of £25 million in an attempt to raise capital for the cash-strapped country.
April 2009: A centre-left coalition lead by the interim PM Johanna Sigurdardottir wins a majority of 34 out of 63 seats at the parliamentary elections.
June 2009: A consortium of four Icelandic banks buys West Ham United from Bjorgolfur Gudmundssonm, who lost a fortune when Landbanksi went into administration.
July 2009: Iceland applies for EU membership. Documents released by the Icelandic Government reveal that the British and Dutch authorities held a meeting in 2006 to consider what would happen if the Icelandic bank Landsbanki could not cover the deposits of British and Dutch savers.
August 2009: Iceland annual birth rate experiences a 3.5 per cent hike.
Sarah Haines
http://women.timesonline.co.uk/tol/life_and_style/women/the_way_we_live/article6855928.ece
Ten tips to survive a property downturn
February 25, 2008
Ten tips to survive a property downturn
It’s the news that every homeowner has been fearing – house prices are definitely falling.
Halifax says prices fell 2.4 per cent in May and are now down 3.8 per cent on a year ago. Last week Nationwide also reported that prices fell 2.5 per cent in May. Most experts expect there to be plenty more bad news to come.
But there is no need to panic. Falling house prices bring opportunities for buyers. There is also plenty that sellers can do to ease the pain. Here are ten tips to help you ride out the property downturn
TIPS FOR BUYERS
Falling prices are positive
As house prices have soared, more and more first-time buyers have been priced out of the market. A slowdown could change all that as more homes fall within the range of would-be homeowners.
A downturn is also good news for people who already own a property and would like to move to a bigger home or more expensive area. Trading up gets easier in a downturn because the gap between the cost of smaller and bigger properties narrows. Say your flat is on the market for £250,000 and you are trading up to a £400,000 house. Prices in your area fall 10 per cent meaning you take a £25,000 hit on your flat but the price of the house drops by £40,000 to £360,000. That’s a net gain of £15,000.
Don't count on big discounts
If you’re holding off buying, hoping that prices will plummet, prepare to be disappointed in London and the south east as property experts believe prices will remain resilient. Analysts also expect prices in Scotland to hold up as well.
However, it doesn’t hurt to haggle. There is so much bad news around that sellers are feeling nervous – experts say that you could easily knock 10 per cent or more off the asking price.
Rent to lock in profits
If you’re convinced the market in your area is going to fall further be prepared to move into rented accommodation and wait for the market to drop before buying back in. House prices need to fall by about 4 per cent to make it financially worthwhile to sell to rent, according to property analyst Knight Frank.
Do your homework
Find out how much similar properties have sold for by typing the postcode into the website Hometrack.co.uk or Upmystreet.com. But remember that these are backward looking: they tell you what homes sold for in the past not what they are selling for now. Propertyforecasts.co.uk, which estimates future price movements for the next five years, is also worth a look, although it costs £15 for a full report.
Get your finances in order
As sentiment has soured, fewer vendors are putting their properties on to the market so you must be ready to pounce when your dream home comes along. Talk to a mortgage broker when you start looking to find out how much you can borrow and what the best deals are. You improve your chances of having access to the best deals if you have a deposit of 20 per cent or more, don't need to borrow a high income multiple and have a spotless credit record. Several brokers such as L&C (www.lcplc.co.uk) and Charcol (www.charcol.co.uk) have useful calculators which estimate how much you will be able to borrow.
AND FOR SELLERS...
Price realistically
Putting your home on the market at the right price is key if you want to guarantee a quick sale. Get several valuations from estate agents and also take a look at the websites mentioned above – then set the price somewhere in the middle. As a rule of thumb, estate agents suggest you should ask for about 5 per cent more than you realistically expect to get. However, if you really need to sell fast, set an asking price slightly lower than your ideal from the off – it looks better than desperately slashing the price at a later date.
Flexibility pays
You’ll make yourself more attractive to potential buyers if you can move out fast – it also gives them less chance to back out of the deal. Consider moving into rented accommodation if you are offered a good price but have nowhere to move to.
Don't move, extend
If you’re moving because you need extra space, extending your existing home could be cheaper and less hassle. However, you need to make the right improvements at the right price. A loft conversion is the single most valuable alteration you can make to your home, according to a study by Nationwide. By adding 300 square feet of floor space made up of an extra bedroom and bathroom you can add over 20 per cent to the value of your property. Turn a two-bedroom house into a three-bed and you can increase its value by 12 per cent. But can you bear the builders and the mess?
Don’t be afraid to pull out
Just because you’ve hoisted a “For Sale” sign doesn’t mean that you can’t change your mind if you’re not seeing the interest you hoped. Ignore the hard sell from your estate agent. They’ll probably try to convince you that there are lots of interested buyers waiting in the wings – the chances are it’s the first time you’ve heard their voice in weeks.
If you don’t need to sell, stay calm
It’s a statement of the obvious but one that, in property obsessed Britain, we often forget: if you’re already on the ladder and not planning to sell in the near future it doesn’t matter if house prices drop. The chances are that by the time you need to sell prices will be back up again. Even if they’re not think of all those juicy gains you’ve made over recent years –house prices are up an average 59 per cent over the past five years, according to Halifax. A house that was worth £120,000 at the end of 2002 was worth nearly £200,000 in December. Think about all that “free” money and stop worrying.
http://timesbusiness.typepad.com/money_weblog/2008/02/ten-tips-to-sur.html
Ten tips to survive a property downturn
It’s the news that every homeowner has been fearing – house prices are definitely falling.
Halifax says prices fell 2.4 per cent in May and are now down 3.8 per cent on a year ago. Last week Nationwide also reported that prices fell 2.5 per cent in May. Most experts expect there to be plenty more bad news to come.
But there is no need to panic. Falling house prices bring opportunities for buyers. There is also plenty that sellers can do to ease the pain. Here are ten tips to help you ride out the property downturn
TIPS FOR BUYERS
Falling prices are positive
As house prices have soared, more and more first-time buyers have been priced out of the market. A slowdown could change all that as more homes fall within the range of would-be homeowners.
A downturn is also good news for people who already own a property and would like to move to a bigger home or more expensive area. Trading up gets easier in a downturn because the gap between the cost of smaller and bigger properties narrows. Say your flat is on the market for £250,000 and you are trading up to a £400,000 house. Prices in your area fall 10 per cent meaning you take a £25,000 hit on your flat but the price of the house drops by £40,000 to £360,000. That’s a net gain of £15,000.
Don't count on big discounts
If you’re holding off buying, hoping that prices will plummet, prepare to be disappointed in London and the south east as property experts believe prices will remain resilient. Analysts also expect prices in Scotland to hold up as well.
However, it doesn’t hurt to haggle. There is so much bad news around that sellers are feeling nervous – experts say that you could easily knock 10 per cent or more off the asking price.
Rent to lock in profits
If you’re convinced the market in your area is going to fall further be prepared to move into rented accommodation and wait for the market to drop before buying back in. House prices need to fall by about 4 per cent to make it financially worthwhile to sell to rent, according to property analyst Knight Frank.
Do your homework
Find out how much similar properties have sold for by typing the postcode into the website Hometrack.co.uk or Upmystreet.com. But remember that these are backward looking: they tell you what homes sold for in the past not what they are selling for now. Propertyforecasts.co.uk, which estimates future price movements for the next five years, is also worth a look, although it costs £15 for a full report.
Get your finances in order
As sentiment has soured, fewer vendors are putting their properties on to the market so you must be ready to pounce when your dream home comes along. Talk to a mortgage broker when you start looking to find out how much you can borrow and what the best deals are. You improve your chances of having access to the best deals if you have a deposit of 20 per cent or more, don't need to borrow a high income multiple and have a spotless credit record. Several brokers such as L&C (www.lcplc.co.uk) and Charcol (www.charcol.co.uk) have useful calculators which estimate how much you will be able to borrow.
AND FOR SELLERS...
Price realistically
Putting your home on the market at the right price is key if you want to guarantee a quick sale. Get several valuations from estate agents and also take a look at the websites mentioned above – then set the price somewhere in the middle. As a rule of thumb, estate agents suggest you should ask for about 5 per cent more than you realistically expect to get. However, if you really need to sell fast, set an asking price slightly lower than your ideal from the off – it looks better than desperately slashing the price at a later date.
Flexibility pays
You’ll make yourself more attractive to potential buyers if you can move out fast – it also gives them less chance to back out of the deal. Consider moving into rented accommodation if you are offered a good price but have nowhere to move to.
Don't move, extend
If you’re moving because you need extra space, extending your existing home could be cheaper and less hassle. However, you need to make the right improvements at the right price. A loft conversion is the single most valuable alteration you can make to your home, according to a study by Nationwide. By adding 300 square feet of floor space made up of an extra bedroom and bathroom you can add over 20 per cent to the value of your property. Turn a two-bedroom house into a three-bed and you can increase its value by 12 per cent. But can you bear the builders and the mess?
Don’t be afraid to pull out
Just because you’ve hoisted a “For Sale” sign doesn’t mean that you can’t change your mind if you’re not seeing the interest you hoped. Ignore the hard sell from your estate agent. They’ll probably try to convince you that there are lots of interested buyers waiting in the wings – the chances are it’s the first time you’ve heard their voice in weeks.
If you don’t need to sell, stay calm
It’s a statement of the obvious but one that, in property obsessed Britain, we often forget: if you’re already on the ladder and not planning to sell in the near future it doesn’t matter if house prices drop. The chances are that by the time you need to sell prices will be back up again. Even if they’re not think of all those juicy gains you’ve made over recent years –house prices are up an average 59 per cent over the past five years, according to Halifax. A house that was worth £120,000 at the end of 2002 was worth nearly £200,000 in December. Think about all that “free” money and stop worrying.
http://timesbusiness.typepad.com/money_weblog/2008/02/ten-tips-to-sur.html
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