May 7, 2010
Comeback of the Year? Try Corporate Profits
By PAUL J. LIM
THE market remains worried about plenty of things — including a sharp decline late last week, and the spreading debt crisis in Europe. But, recently, it has appeared that investors are ready to strike one item off their list of concerns: corporate profits.
“To say that earnings so far have been off the charts would not be too much of an exaggeration,” said Robert C. Doll, global chief investment officer for equities at BlackRock, the investment management firm.
Of the companies in the Standard & Poor’s 500-stock index that have announced first-quarter results, 77 percent have beaten Wall Street earnings forecasts. And profits for the quarter are on track to grow 56 percent compared with the 2009 period.
These earnings reports, however, started to arrive just as the market has shifted from confidence to much uncertainty.
From Feb. 8 to April 26, the S.& P. 500 gained 15 percent, largely in anticipation of an improved earnings and economic outlook. But the downgrading of Greece’s debt and fears that the crisis may be spreading throughout the region and the world have taken center stage, sending the market tumbling more than 8 percent. Concerns about Europe notwithstanding, many analysts have already begun ratcheting up their forecasts for stocks for the rest of this year.
Still, it’s important to remember that earnings season isn’t over, so it’s premature to proclaim complete victory on the profit front.
Stuart A. Schweitzer, global market strategist at J.P. Morgan Private Bank, noted, “Where the jury is still out is on the sustainability of this upswing, because companies had been achieving improvements in profits largely by slashing costs.”
He added, “Without increased revenues, it would be hard to imagine companies moving from cost-reduction to spending mode and hiring mode.”
So far, sales for the S.& P. 500 have also been stronger than analysts anticipated. Of the 437 that have reported earnings, 66 percent had revenue growth exceeding analysts’ expectations, according to Thomson Reuters.
But the news isn’t all positive. For one thing, revenue surprises pale in comparison with profit surprises. Companies are beating Wall Street profit forecasts by 15 percent but beating revenue projections by just 0.8 percent.
And not all companies are reporting revenue growth. The casino operator MGM Mirage said revenue fell 4 percent in the first quarter versus the 2009 period. And Sara Lee, the food giant, said quarterly sales fell 2.5 percent.
David A. Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, the investment manager in Toronto, said that if figures from just one sector — financial services — were excluded, revenue of S.& P. 500 companies would be just about meeting expectations.
To be sure, analysts’ forecast for first-quarter sales growth is 11 percent — nothing to sneeze at.
“The interesting thing is how much of the good earnings news is coming from the banking and financial sector,” said David C. Wright, managing director of Sierra Investment Management.
He pointed out that this sector, which was hit hardest in the financial crisis, has been a big beneficiary of government stimulus. That ranges from mortgage relief efforts and the government purchase of “toxic” mortgage-backed securities to the recent Fed policy of near-zero short-term interest rates.
Because these efforts can’t continue forever, he said, “I can’t conclude that we’re seeing anything resembling a self-sustaining recovery.”
IF the improved outlook for the financial sector is indeed spreading to the broader economy, he said, an uptick could be expected in commercial and industrial loan activity.
But according to the Federal Reserve Bank of St. Louis, commercial and industrial bank loans nationwide have fallen every month between October 2008 and March 2010, the latest period for which data is available.
For now, at least, Mr. Schweitzer of J.P. Morgan says he is optimistic. “You know that saying that half a loaf is better than none? At this point,” he said, “I’m willing to take a quarter of a loaf.”
But such patience won’t last indefinitely. For evidence of a full recovery, investors will need to keep checking corporate reports through the end of this earnings season — and, quite likely, well into the second quarter.
Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.
http://www.nytimes.com/2010/05/09/business/09fund.html?ref=business
Monday, 10 May 2010
Greece, the Latest and Greatest Bubble
MARCH 11, 2010, 6:44 AM
Greece, the Latest and Greatest Bubble
By PETER BOONE AND SIMON JOHNSON
Bubbles are back as a topic of serious discussion, as they were before the financial crisis. The questions today are:
(1) Can you spot bubbles?
(2) Can policy makers do anything to deflate them gently?
(3) Can anyone make money when bubbles get out of control?
Our answers are:
(1) Spotting pure equity bubbles may sometimes be hard, but we can always see unsustainable finances supported by cheap credit.
(2) Policy makers will not act because all great (and dangerous) bubbles build their own political support; bubbles are invincible, until they collapse.
(3) A few investors can do well by betting against such bubbles, but it’s harder than you might think because you have to get the timing right — and that’s much more about luck than skill.
Bubbles are usually associated with runaway real estate prices or emerging market booms or just the stock market gone mad (remember Pets.com?). But they are a much more general phenomenon — any time the actual market value for any asset diverges from a reasonable estimate of its “fundamental” value.
To think about this more specifically, consider the case of Greece today. It might seem odd to suggest there is a bubble in a country so evidently under financial pressure, and working so hard to stave off collapse with the help of its neighbors.
But the important thing about bubbles is: Don’t listen to the “market color” (otherwise known as ex-post rationalization); just look at the numbers.
By the end of 2011 Greece’s debt will be around 150 percent of its gross domestic product. (The numbers here are based on the 2009 International Monetary Fund Article IV assessment.) About 80 percent of this debt is foreign-owned, and a large part of this is thought held by residents of France and Germany. Every 1 percentage point rise in interest rates means Greece needs to send an additional 1.2 percent of G.D.P. abroad to those bondholders.
Imagine if Greek interest rates rise to, say, 10 percent. This would be a modest premium for a country with the highest external public debt/G.D.P. ratio in the world, a country that continues (under the so-called austerity program) to refinance even the interest on that debt without actually paying a centime out of its own pocket, while struggling to establish any backing from the rest of Europe. At such interest rates, Greece would need to send at total of 12 percent of G.D.P. abroad per year, once it rolls over the existing stock of debt to these new rates (nearly half of Greek debt will roll over within three years).
This is simply impossible and unheard of for any long period of history.
German reparation payments were 2.4 percent of gross national product from 1925 to 1932, and in the years immediately after 1982 the net transfer of resources from Latin America was 3.5 percent of G.D.P. (a fifth of its export earnings). Neither of these were good experiences.
On top of all this, Greece’s debt, even under the International Monetary Fund’s mild assumptions, is on a non-convergent path even with the perceived “austerity” measures. Bubble math is easy. Hide all the names and just look at the numbers. If debt looks as if it will explode as a percent of G.D.P., then a spectacular collapse is in the cards.
Seen in this comparative perspective, Greece is still going bankrupt unless it gets a great deal more European assistance or puts a much more drastic austerity program in place. Probably it needs both.
Given that there’s a definite bubble in Greek debt, should we expect European politicians to help deflate this gradually?
Definitely not. In fact, it is their misleading statements, supported in recent days (astonishingly) by the head of the International Monetary Fund, that keep the debt bubble going and set us all up for a greater crash later.
The French and Germans are apparently actually encouraging banks, pension funds and individuals to buy these Greek bonds — despite the fact senior politicians must surely know this is a Ponzi scheme (i.e., people can get out of Greek bonds only to the extent that new investors come in).
At best, this does nothing more than postpone the crisis. In the business, it is known as “kicking the can down the road.” At worst, it encourages less informed people (including perhaps pension funds) to buy bonds as smarter people (and big banks, surely) take the opportunity to exit.
While French and German leaders make a great spectacle of wanting to end speculation, in fact they are encouraging it. The hypocrisy is horrifying. President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany are helping realistic speculators make money on the backs of those who take misleading statements by European politicians seriously. This is irresponsible.
What should be done? In three steps:
1. The Greeks and the Europeans must decide: Do they want to maintain the euro as Greece’s currency, or not?
2. If they want to keep the euro in Greece, the Greeks need to come up with realistic plan to start repaying debt soon. Any Greek plan will not be credible for the first few years, so the Europeans must finance the Greeks fully. This does not mean spending 20 billion euros; rather, it means making available around 180 billion euros, that is, the full amount of refinancing that Greece needs during this period.
3. If they don’t want to keep the euro, then they should start working now on a plan for Greece’s withdrawal. The northern Europeans will need to bail out their own banks, because Greek debt must fall substantially in value. Euro-denominated debt will need to be written down substantially or converted to drachmas so it will be partially inflated away. The Greeks can convert local contracts, and deposits at banks, to drachmas. It will be a very messy, difficult transition, but the more the debt bubble persists, the more attractive this becomes as a “least awful” solution.
Regardless of the decision on whether Greece will keep the drachma or give it up, the I.M.F. should be brought in to conduct the monitoring and burden share.
The flagrant deception that we now observe — as the Europeans claim that the Greeks have taken a big step forward, and encourage people to buy Greek bonds — proves they do not have the political capacity to be realistic about this situation. Who can now be believed when it comes to discussing needs for Greek financial reform and formulating a credible response?
The only credible voice left with the capacity to act is the I.M.F. — and even that body risks being compromised by the indiscreet statements of its top leadership as the bubble continues.
If such measures are not taken, we are clearly heading for a train wreck. The European politicians have been tested, and now we know the results: They are not careful. They are reckless.
Peter Boone is chairman of the charity Effective Intervention and a research associate at the Center for Economic Performance at the London School of Economics. He is also a principal in Salute Capital Management Ltd. Simon Johnson, a senior fellow at the Peterson Institute for International Economics, is the former chief economist at the International Monetary Fund.
http://economix.blogs.nytimes.com/2010/03/11/greece-the-latest-and-greatest-bubble/
Greece, the Latest and Greatest Bubble
By PETER BOONE AND SIMON JOHNSON
Bubbles are back as a topic of serious discussion, as they were before the financial crisis. The questions today are:
(1) Can you spot bubbles?
(2) Can policy makers do anything to deflate them gently?
(3) Can anyone make money when bubbles get out of control?
Our answers are:
(1) Spotting pure equity bubbles may sometimes be hard, but we can always see unsustainable finances supported by cheap credit.
(2) Policy makers will not act because all great (and dangerous) bubbles build their own political support; bubbles are invincible, until they collapse.
(3) A few investors can do well by betting against such bubbles, but it’s harder than you might think because you have to get the timing right — and that’s much more about luck than skill.
Bubbles are usually associated with runaway real estate prices or emerging market booms or just the stock market gone mad (remember Pets.com?). But they are a much more general phenomenon — any time the actual market value for any asset diverges from a reasonable estimate of its “fundamental” value.
To think about this more specifically, consider the case of Greece today. It might seem odd to suggest there is a bubble in a country so evidently under financial pressure, and working so hard to stave off collapse with the help of its neighbors.
But the important thing about bubbles is: Don’t listen to the “market color” (otherwise known as ex-post rationalization); just look at the numbers.
By the end of 2011 Greece’s debt will be around 150 percent of its gross domestic product. (The numbers here are based on the 2009 International Monetary Fund Article IV assessment.) About 80 percent of this debt is foreign-owned, and a large part of this is thought held by residents of France and Germany. Every 1 percentage point rise in interest rates means Greece needs to send an additional 1.2 percent of G.D.P. abroad to those bondholders.
Imagine if Greek interest rates rise to, say, 10 percent. This would be a modest premium for a country with the highest external public debt/G.D.P. ratio in the world, a country that continues (under the so-called austerity program) to refinance even the interest on that debt without actually paying a centime out of its own pocket, while struggling to establish any backing from the rest of Europe. At such interest rates, Greece would need to send at total of 12 percent of G.D.P. abroad per year, once it rolls over the existing stock of debt to these new rates (nearly half of Greek debt will roll over within three years).
This is simply impossible and unheard of for any long period of history.
German reparation payments were 2.4 percent of gross national product from 1925 to 1932, and in the years immediately after 1982 the net transfer of resources from Latin America was 3.5 percent of G.D.P. (a fifth of its export earnings). Neither of these were good experiences.
On top of all this, Greece’s debt, even under the International Monetary Fund’s mild assumptions, is on a non-convergent path even with the perceived “austerity” measures. Bubble math is easy. Hide all the names and just look at the numbers. If debt looks as if it will explode as a percent of G.D.P., then a spectacular collapse is in the cards.
Seen in this comparative perspective, Greece is still going bankrupt unless it gets a great deal more European assistance or puts a much more drastic austerity program in place. Probably it needs both.
Given that there’s a definite bubble in Greek debt, should we expect European politicians to help deflate this gradually?
Definitely not. In fact, it is their misleading statements, supported in recent days (astonishingly) by the head of the International Monetary Fund, that keep the debt bubble going and set us all up for a greater crash later.
The French and Germans are apparently actually encouraging banks, pension funds and individuals to buy these Greek bonds — despite the fact senior politicians must surely know this is a Ponzi scheme (i.e., people can get out of Greek bonds only to the extent that new investors come in).
At best, this does nothing more than postpone the crisis. In the business, it is known as “kicking the can down the road.” At worst, it encourages less informed people (including perhaps pension funds) to buy bonds as smarter people (and big banks, surely) take the opportunity to exit.
While French and German leaders make a great spectacle of wanting to end speculation, in fact they are encouraging it. The hypocrisy is horrifying. President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany are helping realistic speculators make money on the backs of those who take misleading statements by European politicians seriously. This is irresponsible.
What should be done? In three steps:
1. The Greeks and the Europeans must decide: Do they want to maintain the euro as Greece’s currency, or not?
2. If they want to keep the euro in Greece, the Greeks need to come up with realistic plan to start repaying debt soon. Any Greek plan will not be credible for the first few years, so the Europeans must finance the Greeks fully. This does not mean spending 20 billion euros; rather, it means making available around 180 billion euros, that is, the full amount of refinancing that Greece needs during this period.
3. If they don’t want to keep the euro, then they should start working now on a plan for Greece’s withdrawal. The northern Europeans will need to bail out their own banks, because Greek debt must fall substantially in value. Euro-denominated debt will need to be written down substantially or converted to drachmas so it will be partially inflated away. The Greeks can convert local contracts, and deposits at banks, to drachmas. It will be a very messy, difficult transition, but the more the debt bubble persists, the more attractive this becomes as a “least awful” solution.
Regardless of the decision on whether Greece will keep the drachma or give it up, the I.M.F. should be brought in to conduct the monitoring and burden share.
The flagrant deception that we now observe — as the Europeans claim that the Greeks have taken a big step forward, and encourage people to buy Greek bonds — proves they do not have the political capacity to be realistic about this situation. Who can now be believed when it comes to discussing needs for Greek financial reform and formulating a credible response?
The only credible voice left with the capacity to act is the I.M.F. — and even that body risks being compromised by the indiscreet statements of its top leadership as the bubble continues.
If such measures are not taken, we are clearly heading for a train wreck. The European politicians have been tested, and now we know the results: They are not careful. They are reckless.
Peter Boone is chairman of the charity Effective Intervention and a research associate at the Center for Economic Performance at the London School of Economics. He is also a principal in Salute Capital Management Ltd. Simon Johnson, a senior fellow at the Peterson Institute for International Economics, is the former chief economist at the International Monetary Fund.
http://economix.blogs.nytimes.com/2010/03/11/greece-the-latest-and-greatest-bubble/
Greek Debt Woes Ripple Outward, From Asia to U.S.
The fear that began in Athens, raced through Europe and finally shook the stock market in the United States is now affecting the broader global economy, from the ability of Asian corporations to raise money to the outlook for money-market funds where American savers park their cash.
“Greece may just be an early warning signal,” said Byron Wien, a Wall Street strategist. Above, the Acropolis in Athens.
What was once a local worry about the debt burden of one of Europe’s smallest economies has quickly gone global. Already, jittery investors have forced Brazil to scale back bond sales as interest rates soared and caused currencies in Asia like the Korean won to weaken. Ten companies around the world that had planned to issue stock delayed their offerings, the most in a single week since October 2008.
The increased global anxiety threatens to slow the recovery in the United States, where job growth has finally picked up after the deepest recession since the Great Depression. It could also inhibit consumer spending as stock portfolios shrink and loans are harder to come by.
“It’s not just a European problem, it’s the U.S., Japan and the U.K. right now,” said Ian Kelson, a bond fund manager in London with T. Rowe Price. “It’s across the board.”
The crisis is so perilous for Europe that the leaders of the 16 countries that use the euro worked into the early morning Saturday on a proposal to create a so-called stabilization mechanism intended to reassure the markets. On Sunday, finance ministers from all 27 European Union states are expected to gather in Brussels to discuss and possibly approve the proposal.
The mechanism would probably be a way for the states to guarantee loans taken out by the European Commission, the bloc’s executive body, to support ailing economies. European leaders including the French president, Nicolas Sarkozy, said Saturday morning that the union should be ready to activate the mechanism by Monday morning if needed.
In Spain Saturday, Vice President Joseph R. Biden Jr. underscored the importance of the issue after meeting with Prime Minister José Luis RodrÃguez Zapatero. “We agreed on the importance of a resolute European action to strengthen the European economy and to build confidence in the markets,” Mr. Biden said. “And I conveyed the support of the United States of America toward those efforts.”
Beyond Europe, the crisis has sent waves of fear through global stock exchanges.
A decade ago, it took more than a year for the chain reaction that began with the devaluation of the Thai currency to spread beyond Asia to Russia, which defaulted on its debt, and eventually caused the near-collapse of a giant American hedge fund, Long-Term Capital Management.
This crisis, by contrast, seemed to ricochet from country to country in seconds, as traders simultaneously abandoned everything from Portuguese bonds to American blue chips. On Wall Street on Thursday afternoon, televised images of rioting in Athens to protest austerity measures only amplified the anxiety as the stock market briefly plunged nearly 1,000 points.
“Up until last week there was this confidence that nothing could upset the apple cart as long as the economy and jobs growth was positive,” said William H. Gross, managing director of Pimco, the bond manager. “Now, fear is back in play.”
While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile countries like Spain and Portugal might default, the turmoil also exposed deeper fears that government borrowing in bigger nations like Britain, Germany and even the United States is unsustainable.
“Greece may just be an early warning signal,” said Byron Wien, a prominent Wall Street strategist who is vice chairman of Blackstone Advisory Partners. “The U.S. is a long way from being where Greece is, but the developed world has been living beyond its means and is now being called to account.”
If the anxiety spreads, American banks could return to the posture they adopted after the collapse of Lehman Brothers in the fall of 2008, when they cut back sharply on mortgages, auto financing, credit card lending and small business loans. That could stymie job growth and halt the recovery now gaining traction.
Some American companies are facing higher costs to finance their debt, while big exporters are seeing their edge over European rivals shrink as the dollar strengthens. Riskier assets, like stocks, are suddenly out of favor, while cash has streamed into the safest of all investments, gold.
Just as Greece is being forced to pay more to borrow, more risky American companies are being forced to pay up, too. Some issuers of new junk bonds in the consumer sector are likely to have to pay roughly 9 percent on new bonds, up from about 8.5 percent before this week’s volatility, said Kevin Cassidy, senior credit officer with Moody’s.
To be sure, not all of the consequences are negative. Though the situation is perilous for Europe, the United States economy does still enjoy some favorable tailwinds. Interest rates have dropped, benefiting homebuyers seeking mortgages and other borrowers. New data released Friday showed the economy added 290,000 jobs in April, the best monthly showing in four years.
Further, crude oil prices fell last week on fears of a slowdown, which should bring lower prices at the pump within weeks. Meanwhile, the dollar gained ground against the euro, reaching its highest level in 14 months.
While that makes European vacations more affordable for American tourists and could improve the fortunes of European companies, it could hurt profits at their American rivals. A stronger dollar makes American goods less affordable for buyers overseas, a one-two punch for American exporters if Europe falls back into recession. Excluding oil, the 16 countries that make up the euro zone buy about 14 percent of American exports.
For the largest American companies, which have benefited from the weak dollar in recent years, the pain could be more acute. More than a quarter of the profits of companies in the Standard & Poor’s 500-stock index come from abroad, with Europe forming the largest component, according to Tobias Levkovich, Citigroup’s chief United States equity strategist. All this could mean the difference between an economy that grows fast enough to bring down unemployment, and one that is more stagnant.
The direct exposure of American banks to Greece is small, but below the surface, there are signs of other fissures. Even the strongest banks in Germany and France have heavy exposure to more troubled economies on the periphery of the Continent, and these big banks in turn are closely intertwined with their American counterparts.
Over all, United States banks have $3.6 trillion in exposure to European banks, according to the Bank for International Settlements. That includes more than a trillion dollars in loans to France and Germany, and nearly $200 billion to Spain.
What is more, American money-market investors are already feeling nervous about hundreds of billions of dollars in short-term loans to big European banks and other financial institutions. “Apparently systemic risk is still alive and well,” wrote Alex Roever, a J.P. Morgan credit analyst in a research note published Friday. With so much uncertainty about Europe and the euro, managers of these ultra-safe investment vehicles are demanding that European borrowers pay higher rates.
These funds provide the lifeblood of the international banking system. If worries about the safety of European banks intensify, they could push up their borrowing costs and push down the value of more than $500 billion in short-term debt held by American money-market funds.
Uncertainty about the stability of assets in money market funds signaled a tipping point that accelerated the downward spiral of the credit crisis in 2008, and ultimately prompted banks to briefly halt lending to one other.
Now, as Europe teeters, the dangers to the American economy — and the broader financial system — are becoming increasingly evident. “It seems like only yesterday that European policy makers were gleefully watching the U.S. get its economic comeuppance, not appreciating the massive tidal wave coming at them across the Atlantic,” said Kenneth Rogoff, a Harvard professor of international finance who also served as the chief economist of the International Monetary Fund. “We should not make the same mistake.”
James Kanter contributed from Brussels.
http://www.nytimes.com/2010/05/09/business/global/09ripple.html?src=me&ref=business
“Greece may just be an early warning signal,” said Byron Wien, a Wall Street strategist. Above, the Acropolis in Athens.
What was once a local worry about the debt burden of one of Europe’s smallest economies has quickly gone global. Already, jittery investors have forced Brazil to scale back bond sales as interest rates soared and caused currencies in Asia like the Korean won to weaken. Ten companies around the world that had planned to issue stock delayed their offerings, the most in a single week since October 2008.
The increased global anxiety threatens to slow the recovery in the United States, where job growth has finally picked up after the deepest recession since the Great Depression. It could also inhibit consumer spending as stock portfolios shrink and loans are harder to come by.
“It’s not just a European problem, it’s the U.S., Japan and the U.K. right now,” said Ian Kelson, a bond fund manager in London with T. Rowe Price. “It’s across the board.”
The crisis is so perilous for Europe that the leaders of the 16 countries that use the euro worked into the early morning Saturday on a proposal to create a so-called stabilization mechanism intended to reassure the markets. On Sunday, finance ministers from all 27 European Union states are expected to gather in Brussels to discuss and possibly approve the proposal.
The mechanism would probably be a way for the states to guarantee loans taken out by the European Commission, the bloc’s executive body, to support ailing economies. European leaders including the French president, Nicolas Sarkozy, said Saturday morning that the union should be ready to activate the mechanism by Monday morning if needed.
In Spain Saturday, Vice President Joseph R. Biden Jr. underscored the importance of the issue after meeting with Prime Minister José Luis RodrÃguez Zapatero. “We agreed on the importance of a resolute European action to strengthen the European economy and to build confidence in the markets,” Mr. Biden said. “And I conveyed the support of the United States of America toward those efforts.”
Beyond Europe, the crisis has sent waves of fear through global stock exchanges.
A decade ago, it took more than a year for the chain reaction that began with the devaluation of the Thai currency to spread beyond Asia to Russia, which defaulted on its debt, and eventually caused the near-collapse of a giant American hedge fund, Long-Term Capital Management.
This crisis, by contrast, seemed to ricochet from country to country in seconds, as traders simultaneously abandoned everything from Portuguese bonds to American blue chips. On Wall Street on Thursday afternoon, televised images of rioting in Athens to protest austerity measures only amplified the anxiety as the stock market briefly plunged nearly 1,000 points.
“Up until last week there was this confidence that nothing could upset the apple cart as long as the economy and jobs growth was positive,” said William H. Gross, managing director of Pimco, the bond manager. “Now, fear is back in play.”
While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile countries like Spain and Portugal might default, the turmoil also exposed deeper fears that government borrowing in bigger nations like Britain, Germany and even the United States is unsustainable.
“Greece may just be an early warning signal,” said Byron Wien, a prominent Wall Street strategist who is vice chairman of Blackstone Advisory Partners. “The U.S. is a long way from being where Greece is, but the developed world has been living beyond its means and is now being called to account.”
If the anxiety spreads, American banks could return to the posture they adopted after the collapse of Lehman Brothers in the fall of 2008, when they cut back sharply on mortgages, auto financing, credit card lending and small business loans. That could stymie job growth and halt the recovery now gaining traction.
Some American companies are facing higher costs to finance their debt, while big exporters are seeing their edge over European rivals shrink as the dollar strengthens. Riskier assets, like stocks, are suddenly out of favor, while cash has streamed into the safest of all investments, gold.
Just as Greece is being forced to pay more to borrow, more risky American companies are being forced to pay up, too. Some issuers of new junk bonds in the consumer sector are likely to have to pay roughly 9 percent on new bonds, up from about 8.5 percent before this week’s volatility, said Kevin Cassidy, senior credit officer with Moody’s.
To be sure, not all of the consequences are negative. Though the situation is perilous for Europe, the United States economy does still enjoy some favorable tailwinds. Interest rates have dropped, benefiting homebuyers seeking mortgages and other borrowers. New data released Friday showed the economy added 290,000 jobs in April, the best monthly showing in four years.
Further, crude oil prices fell last week on fears of a slowdown, which should bring lower prices at the pump within weeks. Meanwhile, the dollar gained ground against the euro, reaching its highest level in 14 months.
While that makes European vacations more affordable for American tourists and could improve the fortunes of European companies, it could hurt profits at their American rivals. A stronger dollar makes American goods less affordable for buyers overseas, a one-two punch for American exporters if Europe falls back into recession. Excluding oil, the 16 countries that make up the euro zone buy about 14 percent of American exports.
For the largest American companies, which have benefited from the weak dollar in recent years, the pain could be more acute. More than a quarter of the profits of companies in the Standard & Poor’s 500-stock index come from abroad, with Europe forming the largest component, according to Tobias Levkovich, Citigroup’s chief United States equity strategist. All this could mean the difference between an economy that grows fast enough to bring down unemployment, and one that is more stagnant.
The direct exposure of American banks to Greece is small, but below the surface, there are signs of other fissures. Even the strongest banks in Germany and France have heavy exposure to more troubled economies on the periphery of the Continent, and these big banks in turn are closely intertwined with their American counterparts.
Over all, United States banks have $3.6 trillion in exposure to European banks, according to the Bank for International Settlements. That includes more than a trillion dollars in loans to France and Germany, and nearly $200 billion to Spain.
What is more, American money-market investors are already feeling nervous about hundreds of billions of dollars in short-term loans to big European banks and other financial institutions. “Apparently systemic risk is still alive and well,” wrote Alex Roever, a J.P. Morgan credit analyst in a research note published Friday. With so much uncertainty about Europe and the euro, managers of these ultra-safe investment vehicles are demanding that European borrowers pay higher rates.
These funds provide the lifeblood of the international banking system. If worries about the safety of European banks intensify, they could push up their borrowing costs and push down the value of more than $500 billion in short-term debt held by American money-market funds.
Uncertainty about the stability of assets in money market funds signaled a tipping point that accelerated the downward spiral of the credit crisis in 2008, and ultimately prompted banks to briefly halt lending to one other.
Now, as Europe teeters, the dangers to the American economy — and the broader financial system — are becoming increasingly evident. “It seems like only yesterday that European policy makers were gleefully watching the U.S. get its economic comeuppance, not appreciating the massive tidal wave coming at them across the Atlantic,” said Kenneth Rogoff, a Harvard professor of international finance who also served as the chief economist of the International Monetary Fund. “We should not make the same mistake.”
James Kanter contributed from Brussels.
http://www.nytimes.com/2010/05/09/business/global/09ripple.html?src=me&ref=business
Global Financial Crisis II
Fears that the Greek debt crisis could drag down the world economy
More market turmoil looms
PHILIP WEN
May 10, 2010
AFTER a horror week during which $90 billion was wiped off the Australian sharemarket, investors are bracing themselves for more financial market turmoil over the mounting debt crisis in Europe.
Australian stocks fell 7 per cent last week, the worst weekly loss since November 2008. And the worst may not be over, with the SPI futures index pointing to further losses today, following more losses across all major global indices.
With markets worldwide taking a battering, European leaders have scrambled into action as fears intensify that the spread of the region's debt woes could pitch the world back into a recession.
''The problem now is contagion risk and where will it stop,'' said credit markets expert Philip Bayley, of ADCM Services. ''The markets fear that we are now entering the second leg of the global financial crisis - GFC II.''
Fears that a debt default by Greece could paralyse the world's financial system - just as the collapse of Lehman Brothers did two years ago - sparked another wave of heavy selling on European and US markets on Friday.
Treasurer Wayne Swan said Australia was better placed than any other advanced economy to deal with any global slowdown caused by the sovereign debt crisis in Greece. Mr Swan will hand down his third budget tomorrow.
His comments followed the Reserve Bank of Australia last week cautioning that the economy could be buffeted by global fallout.
The market plunge could have serious ripple effects through its impact on confidence.
Some of the nation's major banks were believed to be looking over the weekend at measures to keep holdings of liquid assets topped up given increased risk on European credit markets.
Even home buyers appeared to be responding to global jitters. Melbourne's property market recorded its second lowest auction clearance rate so far this year, the figure dropping to 78 per cent on the weekend.
REIV chief executive Enzo Raimondo said the six rate rises, affordability concerns and the unseasonably high stock levels were all having an impact on demand. On Friday, euro zone governments approved the $A160 billion Greek bailout package, in a last-ditch effort to keep the nation afloat.
But markets were unconvinced. The Dow Jones shrugged off stronger than expected US jobs data to close 1.3 per cent lower.
In Britain, shares fell 2.6 per cent - a result exacerbated by uncertainty over the British general election.
The cost of protecting European bank debt against default has reached levels not seen since the height of the global financial crisis. Bond yields soared in Portugal and Spain, while the failure to constrain the debt crisis led to the euro plunging 4.3 per cent last week. Portugal, Ireland, Italy, Greece and Spain collectively owe $US3.9 trillion ($A4.39 trillion) to other countries.
Apart from Australian banks' $A56.4 billion in exposure to Europe at the end of December, most analysts say the economy has few other direct links to the troubled region.
US President Barack Obama admitted he was ''very concerned'' about the debt crisis. Understandably so, given the extreme volatility in US markets last week, including an extraordinary 10 per cent intra-day plunge on Thursday. The Dow Jones index retreated 6.4 per cent last week, the heaviest decline since March 2009. Wall Street's so-called ''fear gauge'', the CBOE volatility index, jumped 25 per cent in the same period.
ADCM's Mr Bayley said markets were pointing to a Greek debt default as an ''all but foregone conclusion'', with the rescue package likely to have little impact.
With NATALIE PUCHALSKI
Source: The Age
http://www.smh.com.au/business/more-market-turmoil-looms-20100509-ulse.html
More market turmoil looms
PHILIP WEN
May 10, 2010
AFTER a horror week during which $90 billion was wiped off the Australian sharemarket, investors are bracing themselves for more financial market turmoil over the mounting debt crisis in Europe.
Australian stocks fell 7 per cent last week, the worst weekly loss since November 2008. And the worst may not be over, with the SPI futures index pointing to further losses today, following more losses across all major global indices.
With markets worldwide taking a battering, European leaders have scrambled into action as fears intensify that the spread of the region's debt woes could pitch the world back into a recession.
''The problem now is contagion risk and where will it stop,'' said credit markets expert Philip Bayley, of ADCM Services. ''The markets fear that we are now entering the second leg of the global financial crisis - GFC II.''
Fears that a debt default by Greece could paralyse the world's financial system - just as the collapse of Lehman Brothers did two years ago - sparked another wave of heavy selling on European and US markets on Friday.
Treasurer Wayne Swan said Australia was better placed than any other advanced economy to deal with any global slowdown caused by the sovereign debt crisis in Greece. Mr Swan will hand down his third budget tomorrow.
His comments followed the Reserve Bank of Australia last week cautioning that the economy could be buffeted by global fallout.
The market plunge could have serious ripple effects through its impact on confidence.
Some of the nation's major banks were believed to be looking over the weekend at measures to keep holdings of liquid assets topped up given increased risk on European credit markets.
Even home buyers appeared to be responding to global jitters. Melbourne's property market recorded its second lowest auction clearance rate so far this year, the figure dropping to 78 per cent on the weekend.
REIV chief executive Enzo Raimondo said the six rate rises, affordability concerns and the unseasonably high stock levels were all having an impact on demand. On Friday, euro zone governments approved the $A160 billion Greek bailout package, in a last-ditch effort to keep the nation afloat.
But markets were unconvinced. The Dow Jones shrugged off stronger than expected US jobs data to close 1.3 per cent lower.
In Britain, shares fell 2.6 per cent - a result exacerbated by uncertainty over the British general election.
The cost of protecting European bank debt against default has reached levels not seen since the height of the global financial crisis. Bond yields soared in Portugal and Spain, while the failure to constrain the debt crisis led to the euro plunging 4.3 per cent last week. Portugal, Ireland, Italy, Greece and Spain collectively owe $US3.9 trillion ($A4.39 trillion) to other countries.
Apart from Australian banks' $A56.4 billion in exposure to Europe at the end of December, most analysts say the economy has few other direct links to the troubled region.
US President Barack Obama admitted he was ''very concerned'' about the debt crisis. Understandably so, given the extreme volatility in US markets last week, including an extraordinary 10 per cent intra-day plunge on Thursday. The Dow Jones index retreated 6.4 per cent last week, the heaviest decline since March 2009. Wall Street's so-called ''fear gauge'', the CBOE volatility index, jumped 25 per cent in the same period.
ADCM's Mr Bayley said markets were pointing to a Greek debt default as an ''all but foregone conclusion'', with the rescue package likely to have little impact.
With NATALIE PUCHALSKI
Source: The Age
http://www.smh.com.au/business/more-market-turmoil-looms-20100509-ulse.html
Sunday, 9 May 2010
The FAT FINGER Incident. Why the market crashed on 6th May 2010?
So what happened? Details were still fuzzy last night as of this writing, but it looks like the event will become known as the fat finger event. A trader at Citi entered an order to sell 15 million shares of a security (not an outrageous amount), but accidental typed billion. Traders all over the globe saw the huge sell order and followed suit assuming Citi knew something. A massive selloff ensued. Part of the issue is because a lot of sophisticated traders use stop-loss order to limit themselves from losing too much in a massive selloff. Say I owned stock in Google and wanted to protect myself from losing too much money if the stock lost value. Earlier this week Google was trading around $530. So maybe I decided if the price dropped to $500 I’d sell my position. When the massive selloff occurred Google dropped to $500 so my stop loss order was triggered. All over the world millions of stop-loss orders like this were triggered so the market was flooded with sell orders and the price of everything tanked. Though it was fantasy trading, I had quite a few stop loss orders triggered as well.
In the high paced world of trading, with lightning fast computers, and herd mentalities, in a matter of minutes almost 10% of the value of the US stock market was wiped out. This 2.5 minute video shows how quickly it happened, and makes Jim Cramer look like the savior of the market. He literally calls the selloff ridiculous, and then people just started buying.
The FAT FINGER Incident
In the high paced world of trading, with lightning fast computers, and herd mentalities, in a matter of minutes almost 10% of the value of the US stock market was wiped out. This 2.5 minute video shows how quickly it happened, and makes Jim Cramer look like the savior of the market. He literally calls the selloff ridiculous, and then people just started buying.
The FAT FINGER Incident
Technology to fatten Latexx profit margin
By Lynn Omar and Ooi Tee Ching
Published: 2010/05/08
Business Times
LATEXX Partners Bhd (7064) is set to see fatter profit margin next year, after securing a technology to make natural rubber gloves for medical practitioners with hypersensitive skin.
These gloves will be priced more than an ordinary pair of gloves but Latexx declined to say by how much.
Latexx's net profit margin stood at 16 per cent for 2009, which is better than its bigger rival Top Glove Corp Bhd which is below 14 per cent now.
Hartalega Holdings Bhd has the best margin at 24 per cent.
In the last decade, glovemakers produced more synthetic gloves after a small number of the developed world's doctors and nurses complained of their allergy to natural rubber and deemed it unsafe.
Basically, their skin is hypersensitive to the protein residue in natural rubber gloves.
Famous hospitals like the Johns Hopkins Hospital and Shriner's Hospital in the US went to such extent of viewing such allergic reaction as serious threats that they banned natural rubber medical devices and switched to synthetic gloves and catheters.
But the fact remains that natural rubber gloves are more comfortable to wear and far more elastic.
With this MPXX(TM) technology from Budev BV that "washes off' protein content in natural rubber", Latexx chief executive officer (CEO) Low Bok Tek anticipates some hospitals and dental clinics in North America and Europe to switch back to natural rubber gloves.
"When our clients see the MPXX technology logo, they'll know they are using virtually protein-free natural rubber gloves," said Low.
He was speaking to reporters after a briefing for analysts in Kuala Lumpur yesterday. Also present were Latexx head of corporate services Dr Liew Lai Lai and Budev CEO Michiel Paping.
"We recently imported the sample machine here to wash off the protein residue from the natural rubber gloves. Our initial estimate is to 'wash' 500 million pieces a year," said Paping.
Latexx is also hopeful of dishing out more dividends to shareholders this year on prospects of robust glove sales. The group declared dividends of 2.5 sen a share for the first quarter of this year.
Read more: Technology to fatten Latexx profit margin http://www.btimes.com.my/Current_News/BTIMES/articles/laytexx-2/Article/index_html#ixzz0nPEv7b4O
Published: 2010/05/08
Business Times
These gloves will be priced more than an ordinary pair of gloves but Latexx declined to say by how much.
Latexx's net profit margin stood at 16 per cent for 2009, which is better than its bigger rival Top Glove Corp Bhd which is below 14 per cent now.
Hartalega Holdings Bhd has the best margin at 24 per cent.
In the last decade, glovemakers produced more synthetic gloves after a small number of the developed world's doctors and nurses complained of their allergy to natural rubber and deemed it unsafe.
Basically, their skin is hypersensitive to the protein residue in natural rubber gloves.
Famous hospitals like the Johns Hopkins Hospital and Shriner's Hospital in the US went to such extent of viewing such allergic reaction as serious threats that they banned natural rubber medical devices and switched to synthetic gloves and catheters.
But the fact remains that natural rubber gloves are more comfortable to wear and far more elastic.
With this MPXX(TM) technology from Budev BV that "washes off' protein content in natural rubber", Latexx chief executive officer (CEO) Low Bok Tek anticipates some hospitals and dental clinics in North America and Europe to switch back to natural rubber gloves.
"When our clients see the MPXX technology logo, they'll know they are using virtually protein-free natural rubber gloves," said Low.
He was speaking to reporters after a briefing for analysts in Kuala Lumpur yesterday. Also present were Latexx head of corporate services Dr Liew Lai Lai and Budev CEO Michiel Paping.
"We recently imported the sample machine here to wash off the protein residue from the natural rubber gloves. Our initial estimate is to 'wash' 500 million pieces a year," said Paping.
Latexx is also hopeful of dishing out more dividends to shareholders this year on prospects of robust glove sales. The group declared dividends of 2.5 sen a share for the first quarter of this year.
Read more: Technology to fatten Latexx profit margin http://www.btimes.com.my/Current_News/BTIMES/articles/laytexx-2/Article/index_html#ixzz0nPEv7b4O
How To Build A Fortune In The Stock Market
How To Build A Fortune In The Stock Market: 5 Questions Every Investor Needs To Ask Of Their Investment Strategy
Posted in stock market
May 08
Every investor’s investment strategy should adequately address the following five questions:
(1) What specific stocks will I buy?
(2) When should I buy these stocks?
(3) How should I buy these stocks?
(4) When should I sell these stocks?
(5) How should I sell these stocks?
In addition, the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio. If the answers for questions #2 , #3. #4, and #5 exhibit no variance, then the risk profile for all stocks in the portfolio will be the same, an undesirable trait.
There is a very good reason why people that try to mimic the portfolios of very wealthy successful investors never can achieve nearly the same success as the investors they mimic. The reason is that they can only answer one piece of the above 5-part investment puzzle- the question of what to buy. In fact, I could open up my portfolio to investment novices, show them all the stocks I own now, and out of 1,000 novices, all of them would have an extremely difficult time duplicating my future returns. In fact, it’s entirely plausible that investors would lose significant amounts of money on the very same stocks that would produce my largest gains.
Why?
Again, understanding a complete investment system will determine portfolio returns, not just knowing what to buy.
Why Most Investment Firms’ Strategies Fail to Adequately Address the 5 Questions
The evolution of job titles for investment professionals from broker to financial consultant to financial advisor is ironic, because the original title, for the great majority of employees in this industry, is by far the most accurate. Most financial consultants are nothing more than brokers that broker the money you give to them. They serve as middlemen between you and the money managers hired by the firm, and are so interchangeable with one another that a retail investor’s portfolio returns are not likely to vary significantly from one consultant to another at the same firm.
Back when I worked as a “broker” at a Wall Street firm, I remember hearing a story about a very successful (meaning high-income earner) financial consultant that bought nothing but exchange traded funds (ETFs) for his clients. His rational for doing so was four-fold.
(1) Mutual fund expenses were too high (true);
(2) Expenses on ETFs were low (true);
(3) The overwhelming majority of money managers can’t beat the performance of the major domestic indexes (true); and
(4) Therefore, ETFs were the best way to invest for his client (false).
Global investment firms never train their brokers how to be superior stock pickers. They train them how to be superior salespeople. So in concluding that allocating entire portfolios solely to ETFs was the absolute best possible strategy for his clients, this particular consultant’s logic was erroneous. The consultant drew this conclusion solely based upon his foundation of investment knowledge, one primarily filled with investment sales strategies. In fact, though I was never able confirm this, I heard many anecdotal stories that this particular financial consultant was able to outperform the vast majority of financial consultants at the firm with his “I will only buy ETFs” strategy.
Though I wouldn’t be surprised if this were true, the fact that this particular consultant was able to gather so many clients based on such a faulty strategy was a remarkable statement about the average investor’s knowledge of how to build wealth. To me, as unknowledgeable as financial consultants are about proper wealth building strategies (given their constant diet of investment sales strategies), this proves that the average retail investor, even those with millions of investable assets, are far less knowledgeable.
In conclusion, every retail investor should thus utilize the 5 questions of building wealth to determine if his or her investment strategy is faulty or strong. With any strong investment strategy, all 5 questions will be relevant. Own a faulty investment strategy and most likely, one or more of the 5 questions will be irrelevant. And the faultiness of the strategy no doubt will be manifested in weak returns. To illustrate how the 5 questions of building wealth will “out” any poor investment strategy, let’s take a look at a couple of examples. Let’s start with two different portfolios, one primarily built around ETFs; the other primarily built around Mutual Funds.
(1)What Specific Stocks Should I Buy?
Neither the Mutual Fund or ETF strategy can answer this question, so you don’t even need to ask the final four questions to know that neither of these strategies will help you build wealth.
How about a portfolio that consists of all individual Chinese stocks? This portfolio passes question #1, the question of what specific stocks to buy. Next, if we drill down to see how this portfolio was constructed, the portfolio manager’s answers to questions #2 and #3 – “When were these stocks bought and why?” and “How were these stocks bought and why?” – will reveal whether or not the portfolio was indeed constructed solidly.
Finally the portfolio manager’s answers to questions #4 and #5 – “How will these stocks be sold and why?” and “When will these stocks be sold and why?” will reveal if strategies are in place to lock in profits or minimize potential losses. However, remember the earlier point I made in this article: “the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio.” Most likely for a portfolio built on stocks that trade in a frothy, emerging market, there will be little variance in the answers for questions #2, #3, #4 and #5. This lack of variance again would expose the weakness of this investment strategy.
Although just a rough guide, the 5 questions should provide you a quick way to establish the intelligence and strength of your current investment strategy.
J.S. Kim is the founder and managing director of SmartKnowledgeU
http://stock-market.amoblog.com/how-to-build-a-fortune-in-the-stock-market-5-questions-every-investor-needs-to-ask-of-their-investment-strategy.html
Posted in stock market
May 08
Every investor’s investment strategy should adequately address the following five questions:
(1) What specific stocks will I buy?
(2) When should I buy these stocks?
(3) How should I buy these stocks?
(4) When should I sell these stocks?
(5) How should I sell these stocks?
In addition, the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio. If the answers for questions #2 , #3. #4, and #5 exhibit no variance, then the risk profile for all stocks in the portfolio will be the same, an undesirable trait.
There is a very good reason why people that try to mimic the portfolios of very wealthy successful investors never can achieve nearly the same success as the investors they mimic. The reason is that they can only answer one piece of the above 5-part investment puzzle- the question of what to buy. In fact, I could open up my portfolio to investment novices, show them all the stocks I own now, and out of 1,000 novices, all of them would have an extremely difficult time duplicating my future returns. In fact, it’s entirely plausible that investors would lose significant amounts of money on the very same stocks that would produce my largest gains.
Why?
Again, understanding a complete investment system will determine portfolio returns, not just knowing what to buy.
Why Most Investment Firms’ Strategies Fail to Adequately Address the 5 Questions
The evolution of job titles for investment professionals from broker to financial consultant to financial advisor is ironic, because the original title, for the great majority of employees in this industry, is by far the most accurate. Most financial consultants are nothing more than brokers that broker the money you give to them. They serve as middlemen between you and the money managers hired by the firm, and are so interchangeable with one another that a retail investor’s portfolio returns are not likely to vary significantly from one consultant to another at the same firm.
Back when I worked as a “broker” at a Wall Street firm, I remember hearing a story about a very successful (meaning high-income earner) financial consultant that bought nothing but exchange traded funds (ETFs) for his clients. His rational for doing so was four-fold.
(1) Mutual fund expenses were too high (true);
(2) Expenses on ETFs were low (true);
(3) The overwhelming majority of money managers can’t beat the performance of the major domestic indexes (true); and
(4) Therefore, ETFs were the best way to invest for his client (false).
Global investment firms never train their brokers how to be superior stock pickers. They train them how to be superior salespeople. So in concluding that allocating entire portfolios solely to ETFs was the absolute best possible strategy for his clients, this particular consultant’s logic was erroneous. The consultant drew this conclusion solely based upon his foundation of investment knowledge, one primarily filled with investment sales strategies. In fact, though I was never able confirm this, I heard many anecdotal stories that this particular financial consultant was able to outperform the vast majority of financial consultants at the firm with his “I will only buy ETFs” strategy.
Though I wouldn’t be surprised if this were true, the fact that this particular consultant was able to gather so many clients based on such a faulty strategy was a remarkable statement about the average investor’s knowledge of how to build wealth. To me, as unknowledgeable as financial consultants are about proper wealth building strategies (given their constant diet of investment sales strategies), this proves that the average retail investor, even those with millions of investable assets, are far less knowledgeable.
In conclusion, every retail investor should thus utilize the 5 questions of building wealth to determine if his or her investment strategy is faulty or strong. With any strong investment strategy, all 5 questions will be relevant. Own a faulty investment strategy and most likely, one or more of the 5 questions will be irrelevant. And the faultiness of the strategy no doubt will be manifested in weak returns. To illustrate how the 5 questions of building wealth will “out” any poor investment strategy, let’s take a look at a couple of examples. Let’s start with two different portfolios, one primarily built around ETFs; the other primarily built around Mutual Funds.
(1)What Specific Stocks Should I Buy?
Neither the Mutual Fund or ETF strategy can answer this question, so you don’t even need to ask the final four questions to know that neither of these strategies will help you build wealth.
How about a portfolio that consists of all individual Chinese stocks? This portfolio passes question #1, the question of what specific stocks to buy. Next, if we drill down to see how this portfolio was constructed, the portfolio manager’s answers to questions #2 and #3 – “When were these stocks bought and why?” and “How were these stocks bought and why?” – will reveal whether or not the portfolio was indeed constructed solidly.
Finally the portfolio manager’s answers to questions #4 and #5 – “How will these stocks be sold and why?” and “When will these stocks be sold and why?” will reveal if strategies are in place to lock in profits or minimize potential losses. However, remember the earlier point I made in this article: “the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio.” Most likely for a portfolio built on stocks that trade in a frothy, emerging market, there will be little variance in the answers for questions #2, #3, #4 and #5. This lack of variance again would expose the weakness of this investment strategy.
Although just a rough guide, the 5 questions should provide you a quick way to establish the intelligence and strength of your current investment strategy.
J.S. Kim is the founder and managing director of SmartKnowledgeU
http://stock-market.amoblog.com/how-to-build-a-fortune-in-the-stock-market-5-questions-every-investor-needs-to-ask-of-their-investment-strategy.html
Comparative analysis of Glove companies (9.5.2010)
Comparative analysis of Glove companies (9.5.2010)
http://spreadsheets.google.com/pub?key=thG2gqUrXjSrcpL3LAlPbRg&output=html
The whole sector has been re-priced since last year. The average PE for the sector is around 15.
Topglove trades at a slight premium. It is debt free and has net cash. It should continue to generate a lot of free cash flows in years to come.
Hartalega has done extremely well. It enjoys the biggest profit margin amongst the glove companies. This is due to its use of automation to increase productivity. It has overtaken the other more established companies and ranks 3rd in the earnings table.
Latexx has made a remarkable turnaround. It has good earnings and should continue to grow. Due to its smaller size, its growth is anticipated to be the fastest amongst all the glove companies.
Supermax is the most indebted of all the glove companies. Given the better glove business environment, perhaps, its management may surprise the investors in the next year or two. Meantime, its not as attractive as the above three companies in term of fundamentals.
Kossan has been disappointing. Kossan continues to carry a lot of debt despite having been a long player in the market when many other players have benefited from the strong revenue and margin growths to pare down their borrowings. Its profit margin is below the average of the industry.
Adventa gets good press. However, when comparing its fundamentals with its peers, it is not such an attractive stock. Its dividend payout is the highest in the industry compared to the industry average of nearer 20%. Moreover, its PE is the highest among the glove companies, but this does not appear to reflect its growth potential.
Rubberex is a disappointment and stood up quite apart from the fast moving players in this industry.
There are also significant risks in this industry, best summarised here:
Solid earnings growth as supplanted by
Key risks include
http://spreadsheets.google.com/pub?key=thG2gqUrXjSrcpL3LAlPbRg&output=html
The whole sector has been re-priced since last year. The average PE for the sector is around 15.
Topglove trades at a slight premium. It is debt free and has net cash. It should continue to generate a lot of free cash flows in years to come.
Hartalega has done extremely well. It enjoys the biggest profit margin amongst the glove companies. This is due to its use of automation to increase productivity. It has overtaken the other more established companies and ranks 3rd in the earnings table.
Latexx has made a remarkable turnaround. It has good earnings and should continue to grow. Due to its smaller size, its growth is anticipated to be the fastest amongst all the glove companies.
Supermax is the most indebted of all the glove companies. Given the better glove business environment, perhaps, its management may surprise the investors in the next year or two. Meantime, its not as attractive as the above three companies in term of fundamentals.
Kossan has been disappointing. Kossan continues to carry a lot of debt despite having been a long player in the market when many other players have benefited from the strong revenue and margin growths to pare down their borrowings. Its profit margin is below the average of the industry.
Adventa gets good press. However, when comparing its fundamentals with its peers, it is not such an attractive stock. Its dividend payout is the highest in the industry compared to the industry average of nearer 20%. Moreover, its PE is the highest among the glove companies, but this does not appear to reflect its growth potential.
Rubberex is a disappointment and stood up quite apart from the fast moving players in this industry.
There are also significant risks in this industry, best summarised here:
Solid earnings growth as supplanted by
- capacity expansion, and
- positive newsflow
Key risks include
- a sudden surge in latex price,
- energy input costs or
- an unfavourable ringgit/US$ foregin exchange rate movement.
Saturday, 8 May 2010
A quick look at Latexx (8.5.2010)
A quick look at Latexx (8.5.2010)
http://spreadsheets.google.com/pub?key=tMGIE1j8l7f8e27I8inQUig&output=html
http://spreadsheets.google.com/pub?key=tMGIE1j8l7f8e27I8inQUig&output=html
A quick look at Kossan (8.5.2010)
A quick look at Kossan (8.5.2010)
http://spreadsheets.google.com/pub?key=ttaoTf7WwIlRuWyNhWEz7xg&output=html
http://spreadsheets.google.com/pub?key=ttaoTf7WwIlRuWyNhWEz7xg&output=html
A quick look at Adventa (8.5.2010)
A quick look at Adventa (8.5.2010)
http://spreadsheets.google.com/pub?key=tpg78jjich_9vs6GZN8r5KA&output=html
http://spreadsheets.google.com/pub?key=tpg78jjich_9vs6GZN8r5KA&output=html
A quick look at Hartalega (8.5.2010)
A quick look at Hartalega (8.5.2010)
http://spreadsheets.google.com/pub?key=tT2IXHGPpvc86Obf9tr25aQ&output=html
http://spreadsheets.google.com/pub?key=tT2IXHGPpvc86Obf9tr25aQ&output=html
A quick look at Top Glove (8.5.2010)
A quick look at Top Glove (8.5.2010)
http://spreadsheets.google.com/pub?key=tZlHVEhyDcVlmKxE5_V4reQ&output=html
http://spreadsheets.google.com/pub?key=tZlHVEhyDcVlmKxE5_V4reQ&output=html
Friday, 7 May 2010
A quick look at CSC Steel (7.5.2010)
A quick look at CSC Steel (7.5.2010)
http://spreadsheets.google.com/pub?key=tdSgsmFJYX6roa6GAAjnlBg&output=html
http://spreadsheets.google.com/pub?key=tdSgsmFJYX6roa6GAAjnlBg&output=html
A quick look at Pintaras Jaya (7.5.2010)
A quick look at Pintaras Jaya (7.5.2010)
http://spreadsheets.google.com/pub?key=tuEWCudGrYd-gYKpjeFknvg&output=html
http://spreadsheets.google.com/pub?key=tuEWCudGrYd-gYKpjeFknvg&output=html
A quick look at Guinness (7.5.2010)
A quick look at Guinness (7.5.2010)
http://spreadsheets.google.com/pub?key=tP_TV-Arxg9uwwrvWyZ_kvw&output=html
Guinness Anchor 3Q net profit up 42.5% to RM46.5m
Written by Surin Murugiah
Friday, 07 May 2010
KUALA LUMPUR: GUINNESS ANCHOR BHD []'s net profit for the third quarter ended March 31, 2010 rose 42.5% to RM46.46 million from RM32.6 million a year earlier, on the back of a 17.8% increase in revenue to RM370.82 million.
Earnings per share rose to 15.38 sen from 10.79 sen a year ago.
Managing director Charles Ireland said on Friday, May 7 the sales and profit increase was partly due to the later timing of the Chinese New Year celebrations, a traditional driver of sales of the malt liquor market.
Ireland said GAB's third quarter performance had further extended its position as Malaysia's market leader in the MLM, adding that as of end of FY09 ended June 30, GAB recorded eight successive years of volume, revenue and profit growth.
"I am happy to report that GAB is on track to meet our targeted full year results for FY10 ending June 2010," he said.
http://www.theedgemalaysia.com/business-news/165628-guinness-anchor-3q-net-profit-up-425-to-rm465m.html
http://spreadsheets.google.com/pub?key=tP_TV-Arxg9uwwrvWyZ_kvw&output=html
Guinness Anchor 3Q net profit up 42.5% to RM46.5m
Written by Surin Murugiah
Friday, 07 May 2010
KUALA LUMPUR: GUINNESS ANCHOR BHD []'s net profit for the third quarter ended March 31, 2010 rose 42.5% to RM46.46 million from RM32.6 million a year earlier, on the back of a 17.8% increase in revenue to RM370.82 million.
Earnings per share rose to 15.38 sen from 10.79 sen a year ago.
Managing director Charles Ireland said on Friday, May 7 the sales and profit increase was partly due to the later timing of the Chinese New Year celebrations, a traditional driver of sales of the malt liquor market.
Ireland said GAB's third quarter performance had further extended its position as Malaysia's market leader in the MLM, adding that as of end of FY09 ended June 30, GAB recorded eight successive years of volume, revenue and profit growth.
"I am happy to report that GAB is on track to meet our targeted full year results for FY10 ending June 2010," he said.
http://www.theedgemalaysia.com/business-news/165628-guinness-anchor-3q-net-profit-up-425-to-rm465m.html
OSK expects 50 Jewels to shine
OSK expects 50 Jewels to shine
By Goh Thean Eu
Published: 2010/05/07
OSK Research Sdn Bhd, a unit of OSK Investment Bank Bhd, expects companies that made it to its top 50 Malaysian small-cap list, dubbed "50 Jewels", to register between 5 per cent and 15 per cent growth in earnings this year, driven by their strong fundamentals, as well as a recovery in the economy.
The research house also expects companies in the Top 10 list, which are made up of the 10 best small- cap companies from the 50 Jewels, to post between 8 per cent and 15 per cent earnings growth.
This year, 19 new companies have made it to the 50 Jewels list, including Notion Vtec, Zhulian, Sunway Group, EP Manufacturing, Glomac, AEON Credit and Southern Steel.
"In this edition, we continue to feature 50 of Bursa Malaysia's top small-cap companies, but unlike the previous editions, we have raised the market capitalisation threshold to RM1.5 billion from RM1 billion.
"This is to maintain coverage depth and breadth and to ensure that the better small-cap companies are represented," said OSK Research head Chris Eng in a media briefing in Kuala Lumpur yesterday.
Companies which made it to the 50 Jewels list in 2009 have performed commendably, with 32 of them having posted absolute returns of 50 to 375 per cent, outperforming the benchmark index.
Its top-10 picks for 2009 also posted absolute share price returns of 52 to 347 per cent. Mudajaya, its top construction pick for 2009, rallied 347 per cent.
Meanwhile, the research house expects the local stock market to continue to be volatile over the next three months, mainly due to one of the following factors -
"We expect things to stabilise sometime in the third quarter, and then the company's fundamentals and economic fundamentals will drive the market," explained Eng.
In its recent research report, OSK Research targeted the benchmark FTSE Bursa Malaysia KL Composite Index to hit 1,465 points by year-end. It also placed a fair value of 1,580 points on the index in 2011.
Read more: OSK expects 50 Jewels to shine
By Goh Thean Eu
Published: 2010/05/07
OSK Research Sdn Bhd, a unit of OSK Investment Bank Bhd, expects companies that made it to its top 50 Malaysian small-cap list, dubbed "50 Jewels", to register between 5 per cent and 15 per cent growth in earnings this year, driven by their strong fundamentals, as well as a recovery in the economy.
The research house also expects companies in the Top 10 list, which are made up of the 10 best small- cap companies from the 50 Jewels, to post between 8 per cent and 15 per cent earnings growth.
This year, 19 new companies have made it to the 50 Jewels list, including Notion Vtec, Zhulian, Sunway Group, EP Manufacturing, Glomac, AEON Credit and Southern Steel.
"In this edition, we continue to feature 50 of Bursa Malaysia's top small-cap companies, but unlike the previous editions, we have raised the market capitalisation threshold to RM1.5 billion from RM1 billion.
"This is to maintain coverage depth and breadth and to ensure that the better small-cap companies are represented," said OSK Research head Chris Eng in a media briefing in Kuala Lumpur yesterday.
Companies which made it to the 50 Jewels list in 2009 have performed commendably, with 32 of them having posted absolute returns of 50 to 375 per cent, outperforming the benchmark index.
Its top-10 picks for 2009 also posted absolute share price returns of 52 to 347 per cent. Mudajaya, its top construction pick for 2009, rallied 347 per cent.
Meanwhile, the research house expects the local stock market to continue to be volatile over the next three months, mainly due to one of the following factors -
- global bull factor,
- global bear factor,
- local bull factor and
- local bear factor. :-))
"We expect things to stabilise sometime in the third quarter, and then the company's fundamentals and economic fundamentals will drive the market," explained Eng.
In its recent research report, OSK Research targeted the benchmark FTSE Bursa Malaysia KL Composite Index to hit 1,465 points by year-end. It also placed a fair value of 1,580 points on the index in 2011.
Read more: OSK expects 50 Jewels to shine
Speculative Excesses Drove Huge U.S. Market Rout
Speculative Excesses Drove Huge U.S. Market Rout: NuWave
By REUTERS
Published: May 6, 2010
Filed at 7:11 p.m. ET
NEW YORK (Reuters) - Thursday's sharp sell-off in U.S. stocks was sparked by nothing more than too many traders betting on energy, equity and metals markets going higher that then popped in a cascade of stop-loss selling, a hedge fund manager said.
A proprietary index that NuWave Investment Management LLC uses to gauge risk about 10 days ago posted its highest reading ever -- greater even than fall of 2008, said Troy Buckner, managing principal and co-founder at the Morristown, New Jersey-based hedge fund.
NuWave pared its exposure to only 40 percent of normal levels, mildly counter to the risk trade in general, he said.
"We were expecting a significant correction to most of the markets," Buckner said. "While we wouldn't claim to know the day, we recognize that periods like this generate our worst-risk profiles historically."
A wave of selling on Thursday knocked U.S. stocks down as much as 9 percent, pushed the euro to an almost 14 month-low and gold prices climbed to close to record highs.
NuWave gave a presentation about tail risk at Morgan Stanley in late April to an audience of about 120 investors. The presentation outlined the hedge fund's concerns that markets were leaning too heavily in one direction.
Buckner said while traders and others will point to any number of triggers or catalysts, such as Greece's debt woes or a fat thumb, as causing Thursday's rout, which included the Dow's biggest intraday point drop ever, he disagreed.
"I'll be surprised if that's the case. There's heavy pressure and uniformly excess positioning on the speculative side across multiple sectors, including equities as probably the worst," said Buckner, who also cited metals and energy.
After hitting lows produced by the worst financial crisis in 70 years, stocks jumped about 80 percent, copper prices nearly tripled and crude oil rose 250 percent driven by direction bets placed by speculators, Buckner said.
"Multiple sectors were exposed to these excesses," he said. "By our measurement these are greater speculative imbalances than even the fall of 2008."
NuWave has a special perspective on the market as it holds long-short and market-neutral positions, and as a commodity trading advisor, operates managed futures, Buckner said.
"From our perspective I think it's not surprising to us that there are massive corrections in store, and from today's action we didn't sense there was anything other than a cascade of speculative positions triggering stop losses."
(Reporting by Herbert Lash)
http://www.nytimes.com/reuters/2010/05/06/business/business-us-markets-rout-nuwave.html?_r=1&src=busln
By REUTERS
Published: May 6, 2010
Filed at 7:11 p.m. ET
NEW YORK (Reuters) - Thursday's sharp sell-off in U.S. stocks was sparked by nothing more than too many traders betting on energy, equity and metals markets going higher that then popped in a cascade of stop-loss selling, a hedge fund manager said.
A proprietary index that NuWave Investment Management LLC uses to gauge risk about 10 days ago posted its highest reading ever -- greater even than fall of 2008, said Troy Buckner, managing principal and co-founder at the Morristown, New Jersey-based hedge fund.
NuWave pared its exposure to only 40 percent of normal levels, mildly counter to the risk trade in general, he said.
"We were expecting a significant correction to most of the markets," Buckner said. "While we wouldn't claim to know the day, we recognize that periods like this generate our worst-risk profiles historically."
A wave of selling on Thursday knocked U.S. stocks down as much as 9 percent, pushed the euro to an almost 14 month-low and gold prices climbed to close to record highs.
NuWave gave a presentation about tail risk at Morgan Stanley in late April to an audience of about 120 investors. The presentation outlined the hedge fund's concerns that markets were leaning too heavily in one direction.
Buckner said while traders and others will point to any number of triggers or catalysts, such as Greece's debt woes or a fat thumb, as causing Thursday's rout, which included the Dow's biggest intraday point drop ever, he disagreed.
"I'll be surprised if that's the case. There's heavy pressure and uniformly excess positioning on the speculative side across multiple sectors, including equities as probably the worst," said Buckner, who also cited metals and energy.
After hitting lows produced by the worst financial crisis in 70 years, stocks jumped about 80 percent, copper prices nearly tripled and crude oil rose 250 percent driven by direction bets placed by speculators, Buckner said.
"Multiple sectors were exposed to these excesses," he said. "By our measurement these are greater speculative imbalances than even the fall of 2008."
NuWave has a special perspective on the market as it holds long-short and market-neutral positions, and as a commodity trading advisor, operates managed futures, Buckner said.
"From our perspective I think it's not surprising to us that there are massive corrections in store, and from today's action we didn't sense there was anything other than a cascade of speculative positions triggering stop losses."
(Reporting by Herbert Lash)
http://www.nytimes.com/reuters/2010/05/06/business/business-us-markets-rout-nuwave.html?_r=1&src=busln
Panic sends Dow to worst ever drop
Panic sends Dow to worst ever drop
MARINE LAOUCHEZ
May 7, 2010 - 8:49AM
AFP
Panic selling swept US markets on Thursday as the Dow Jones plunged a record of almost 1000 points before recouping more than half those losses.
It was unclear whether the sudden sell-off, the Dow's biggest ever intra-day drop, was the result of fears over the Greek debt crisis, a mistaken trade or technical error.
The crash began shortly before 2.25pm local time, when in a white-knuckle 20 minutes America's top 30 firms saw their share prices dive 998.5 points, almost nine per cent, wiping out billions in market value.
The drop eclipsed even the crashes seen when markets reopened after September 11, 2001 and in the wake of the Lehman Brothers collapse.
The Dow later recovered, closing nearly four per cent down, but spooked traders were left wondering whether a technical glitch had caused the blue-chip index to erode three months of solid gains.
Rumours swirled that a Citigroup trader had mistakenly sold 16 billion rather than 16 million stocks in Procter and Gamble shares, forcing the Dow down.
Shares in the consumer goods giant lost more than seven US dollars, falling in a similar pattern to the Dow, trading at a low of 55 US dollars a share.
"At this point, we have no evidence that Citi was involved in any erroneous transaction," said company spokesman Stephen Cohen.
A spokesperson for the New York Stock Exchange said the cause was still not known.
"We don't know, right now we're looking into it," said Christian Braakman, "it's all speculation."
But after three days in which stocks have suffered triple-digit intra-day losses because of concern about Greece's debt crisis, it was clear that the sell-off was real for some investors.
At the close, the Dow had recovered to 10,520.32, down 347.80 (3.20 per cent), while the Nasdaq was down 82.65 points (3.44 per cent) at 2,319.64. The Standard & Poors 500 Index was down 37.72 points (3.24 per cent) to 1,128.15.
Images of rioting as the Greek parliament passed unpopular austerity measures did little to ease market panic.
The parliament approved billions of euros of spending cuts pledged in exchange for a 110 billion euros ($A155 billion) EU-IMF bailout just one day after three bank workers died in a firebomb attack during a huge protest.
On Thursday, police charged to scatter hundreds of youths at the tail-end of a new protest outside parliament that drew more than 10,000 people.
In Lisbon, European Central Bank chief Jean-Claude Trichet battled to reassure financial markets that Greece's debt crisis would not end in default, but could not prevent the euro from falling to a 14-month low against the dollar.
Pleas for patience from the White House also had little impact.
The White House said that reforms in Greece were "important" but would take time and that the US Treasury was monitoring the situation.
"The president has heard regularly from his economic team," said White House spokesman Robert Gibbs, adding that President Barack Obama's top economic officials were closely communicating with their European counterparts.
© 2010 AFP
http://news.smh.com.au/breaking-news-business/panic-sends-dow-to-worst-ever-drop-20100507-uhgu.html
Volatilities in other markets when the DOW plunged almost 1000 points
Offshore overnight
In one of the most dizzying half-hours in stock market history, the Dow Jones industrial average plunged almost 1000 points amid worries about European debt.
The Dow managed to recover two-thirds of its losses before the end of Thursday's Wall Street session, but all major indices closed sharply lower on a day that recalled the market turmoil of the 2008 financial crisis.
There were reports that a technical glitch hastened the selling.
Even so emotions ran high, with traders concerned that Greece's economic problems will hurt other European countries and ultimately, the US recovery.
Only 173 stocks rose on the New York Stock Exchange while 3002 fell.
Volume came to an extremely heavy 2.57 billion shares.
When markets settled, the Dow Jones Industrial Average had fallen 347.80 points, or 3.20 per cent, to 10,520.32 points.
The Standard & Poor's 500 index closed down 37.72 points, or 3.24 per cent, at 1128.15 points.
The Nasdaq composite closed down 82.65 points, or 3.44 per cent, at 2319.64 points.
European stock markets lost ground on Thursday as remarks on the Greek crisis by the head of the European Central Bank failed to reassure anxious investors.
ECB head Jean-Claude Trichet ruled out a Greek debt default and insisted that the problems besetting Greece were different from those faced by Spain and Portugal.
The London FTSE 100 closed down 80.94 points, or 1.52 per cent at 5260.99 points.
The German DAX 30 closed down 50.19 points, or 0.84 per cent, at 5908.26 points.
The French CAC 40 index closed down 79.92 points, or 2.20 per cent, at 3,556.11 points.
Commodities
Oil prices dropped to levels not seen since February on Thursday, as the stock market posted huge losses.
The benchmark crude oil for June delivery contract fell $US2.86 to settle at $US77.11 a barrel on the New York Mercantile Exchange.
Oil hit $US73.71 on February 16 and has lost almost $US10 a barrel since Monday.
Crude was lower at noon and the price slide picked up speed as the stock market tumbled and Investors flew to safer havens in gold and bonds.
Europe's debt problems got much of the blame for the drop in stocks and commodities. The ongoing crisis also has undermined the euro and strengthened the US dollar.
Commodities priced in US dollars, such as oil, become more expensive for investors holding euros as the US dollar rises.
In London, Brent crude gave up $US2.78 to settle at $US79.83 on the ICE futures exchange.
Gold for June delivery rose $US22.30 to settle at $US1197.30 an ounce on the Comex division of the New York Mercantile Exchange.
Silver for July delivery fell 1.9 US cents to settle at $US17.515 per fine ounce.
Copper for July delivery settled down 3.45 US cents at $US3.1170 per pound.
AAP, with Chris Zappone BusinessDay
http://www.smh.com.au/business/markets/stocks-set-to-plunge-after-us-freefall-20100507-uhc0.html
In one of the most dizzying half-hours in stock market history, the Dow Jones industrial average plunged almost 1000 points amid worries about European debt.
The Dow managed to recover two-thirds of its losses before the end of Thursday's Wall Street session, but all major indices closed sharply lower on a day that recalled the market turmoil of the 2008 financial crisis.
There were reports that a technical glitch hastened the selling.
Even so emotions ran high, with traders concerned that Greece's economic problems will hurt other European countries and ultimately, the US recovery.
Only 173 stocks rose on the New York Stock Exchange while 3002 fell.
Volume came to an extremely heavy 2.57 billion shares.
When markets settled, the Dow Jones Industrial Average had fallen 347.80 points, or 3.20 per cent, to 10,520.32 points.
The Standard & Poor's 500 index closed down 37.72 points, or 3.24 per cent, at 1128.15 points.
The Nasdaq composite closed down 82.65 points, or 3.44 per cent, at 2319.64 points.
European stock markets lost ground on Thursday as remarks on the Greek crisis by the head of the European Central Bank failed to reassure anxious investors.
ECB head Jean-Claude Trichet ruled out a Greek debt default and insisted that the problems besetting Greece were different from those faced by Spain and Portugal.
The London FTSE 100 closed down 80.94 points, or 1.52 per cent at 5260.99 points.
The German DAX 30 closed down 50.19 points, or 0.84 per cent, at 5908.26 points.
The French CAC 40 index closed down 79.92 points, or 2.20 per cent, at 3,556.11 points.
Commodities
Oil prices dropped to levels not seen since February on Thursday, as the stock market posted huge losses.
The benchmark crude oil for June delivery contract fell $US2.86 to settle at $US77.11 a barrel on the New York Mercantile Exchange.
Oil hit $US73.71 on February 16 and has lost almost $US10 a barrel since Monday.
Crude was lower at noon and the price slide picked up speed as the stock market tumbled and Investors flew to safer havens in gold and bonds.
Europe's debt problems got much of the blame for the drop in stocks and commodities. The ongoing crisis also has undermined the euro and strengthened the US dollar.
Commodities priced in US dollars, such as oil, become more expensive for investors holding euros as the US dollar rises.
In London, Brent crude gave up $US2.78 to settle at $US79.83 on the ICE futures exchange.
Gold for June delivery rose $US22.30 to settle at $US1197.30 an ounce on the Comex division of the New York Mercantile Exchange.
Silver for July delivery fell 1.9 US cents to settle at $US17.515 per fine ounce.
Copper for July delivery settled down 3.45 US cents at $US3.1170 per pound.
AAP, with Chris Zappone BusinessDay
http://www.smh.com.au/business/markets/stocks-set-to-plunge-after-us-freefall-20100507-uhc0.html
US stocks plummet, then recover some losses
US stocks plummet, then recover some losses
May 7, 2010 - 6:56AM
US stocks plunged 9 per cent in the last two hours of trading overnight before clawing back some of the losses as the escalating debt crisis in Europe stoked fears a new credit crunch was in the making.
The Dow suffered its biggest ever intraday point drop, which may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said.
Indexes recovered some of their losses heading into the close but equities had erased much of their gains for the year to end down just over 3 percent, the biggest fall since April 2009.
"We did not know what a stock was worth today, and that is a serious problem," said Joe Saluzzi of Themis Trading in New Jersey.
Traders around the world were shaken from their beds and told to start trading amid the plunge as investors sought to stem losses in the rapid market sell-off.
Declining stocks outnumbered advancers on the New York Stock Exchange by more than 17 to 1. Volume soared to it highest level this year by far.
Nasdaq said it was investigating potentially erroneous transactions involving multiple securities executed between 2.40pm and 3pm New York time.
Investors had been on edge throughout the trading day after the European Central Bank did not discuss the outright purchase of European sovereign debt as some had hoped they would to calm markets, but gave verbal support instead to Greece's savings plan, disappointing some investors.
The Dow Jones industrial average dropped 347.80 points, or 3.20 per cent, to 10,520.32. The Standard & Poor's 500 Index fell 37.75 points, or 3.24 per cent, to 1128.15. The Nasdaq Composite Index lost 82.65 points, or 3.44 per cent, to 2319.64.
The sell-off was broad and deep with all 10 of the S&P 500 sectors falling 2 to 4 per cent. The financial sector was the worst hit with a fall of 4.1 per cent.
Selling hit some big cap stocks. Bank of America was the biggest percentage loser on the Dow, falling 7.1 per cent to $US16.28. All 30 component of the Dow closed lower.
An index known as Wall Street's fear gauge, the CBOE Volatility Index closed up more than 30 per cent at its highest close since May 2009. It had earlier risen as much as 50 per cent.
The mounting fears about a spreading debt crisis in Europe curbed the appetite for risk and put a report of weak US retail sales into sharper relief. Most top retail chains reported worse-than-expected same-store sales for April, sparking concerns about consumer spending, the main engine of the US economy.
That hit shares including warehouse club Costco Wholesale Corp, which fell 3.9 per cent to $US58.03, and apparel maker Gap Inc, which lost 7.2 per cent at $US22.91.
The head of the ECB, Jean-Claude Trichet, said on Thursday that Spain and Portugal were not in the same boat as Greece, but the risk premium that investors demand to hold Portuguese and Spanish government bonds flared to record highs.
Reuters
http://www.smh.com.au/business/markets/us-stocks-plummet-then-recover-some-losses-20100507-uh8l.html
May 7, 2010 - 6:56AM
US stocks plunged 9 per cent in the last two hours of trading overnight before clawing back some of the losses as the escalating debt crisis in Europe stoked fears a new credit crunch was in the making.
The Dow suffered its biggest ever intraday point drop, which may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said.
Indexes recovered some of their losses heading into the close but equities had erased much of their gains for the year to end down just over 3 percent, the biggest fall since April 2009.
"We did not know what a stock was worth today, and that is a serious problem," said Joe Saluzzi of Themis Trading in New Jersey.
Traders around the world were shaken from their beds and told to start trading amid the plunge as investors sought to stem losses in the rapid market sell-off.
Declining stocks outnumbered advancers on the New York Stock Exchange by more than 17 to 1. Volume soared to it highest level this year by far.
Nasdaq said it was investigating potentially erroneous transactions involving multiple securities executed between 2.40pm and 3pm New York time.
Investors had been on edge throughout the trading day after the European Central Bank did not discuss the outright purchase of European sovereign debt as some had hoped they would to calm markets, but gave verbal support instead to Greece's savings plan, disappointing some investors.
The Dow Jones industrial average dropped 347.80 points, or 3.20 per cent, to 10,520.32. The Standard & Poor's 500 Index fell 37.75 points, or 3.24 per cent, to 1128.15. The Nasdaq Composite Index lost 82.65 points, or 3.44 per cent, to 2319.64.
The sell-off was broad and deep with all 10 of the S&P 500 sectors falling 2 to 4 per cent. The financial sector was the worst hit with a fall of 4.1 per cent.
Selling hit some big cap stocks. Bank of America was the biggest percentage loser on the Dow, falling 7.1 per cent to $US16.28. All 30 component of the Dow closed lower.
An index known as Wall Street's fear gauge, the CBOE Volatility Index closed up more than 30 per cent at its highest close since May 2009. It had earlier risen as much as 50 per cent.
The mounting fears about a spreading debt crisis in Europe curbed the appetite for risk and put a report of weak US retail sales into sharper relief. Most top retail chains reported worse-than-expected same-store sales for April, sparking concerns about consumer spending, the main engine of the US economy.
That hit shares including warehouse club Costco Wholesale Corp, which fell 3.9 per cent to $US58.03, and apparel maker Gap Inc, which lost 7.2 per cent at $US22.91.
The head of the ECB, Jean-Claude Trichet, said on Thursday that Spain and Portugal were not in the same boat as Greece, but the risk premium that investors demand to hold Portuguese and Spanish government bonds flared to record highs.
Reuters
http://www.smh.com.au/business/markets/us-stocks-plummet-then-recover-some-losses-20100507-uh8l.html
'Fat finger' trade forces US stocks dive
'Fat finger' trade forces US stocks dive
May 7, 2010 - 6:30AM
The biggest intraday point drop ever for the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank that in turn triggered widespread panic-selling.
At one stage, the Dow was down a whopping 998 points - or 9 per cent - before rebounding but it was still sharply lower for the session as continuing worries about Greece and the so-called sovereign debt contagion ate into investor confidence.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
But US stocks still ended sharply lower, as continuing worries about the debt crisis in Greece ate into market confidence, prompting a wide-spread sell-off.
US stocks posted their largest percentage drop since April 2009, with all three major indexes ending down more than 3 per cent.
Indexes earlier in the afternoon had plunged even more steeply, before paring losses.
Observers questioned why Procter & Gamble’s stock tumbled precipitously - and some say that could have been behind the massive plunge.
Both Fox News and CNBC reported that a trading error involving P&G stock could have been responsible for part of a dip that dragged the Dow Jones Industrial Average within a hair’s breadth of a 1000-point drop.
The sudden sell-off saw investors desert stocks wholesale.
But P&G’s stock, which had been trading at $US62, suddenly began to crash, falling around 20 per cent at one point for no apparent reason.
The Dow Jones industrial average ended down 347.80 points, or 3.2 per cent, at 10,520.32. The Standard & Poor's 500 Index was off 37.75 points, or 3.24 per cent, at 1128.15. The Nasdaq Composite Index was down 82.65 points, or 3.44 per cent, at 2319.64.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumour but that the bank currently had no evidence that an erroneous trade had been made.
http://www.smh.com.au/business/markets/fat-finger-trade-forces-us-stocks-dive-20100507-uh91.html
May 7, 2010 - 6:30AM
The biggest intraday point drop ever for the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank that in turn triggered widespread panic-selling.
At one stage, the Dow was down a whopping 998 points - or 9 per cent - before rebounding but it was still sharply lower for the session as continuing worries about Greece and the so-called sovereign debt contagion ate into investor confidence.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
But US stocks still ended sharply lower, as continuing worries about the debt crisis in Greece ate into market confidence, prompting a wide-spread sell-off.
US stocks posted their largest percentage drop since April 2009, with all three major indexes ending down more than 3 per cent.
Indexes earlier in the afternoon had plunged even more steeply, before paring losses.
Observers questioned why Procter & Gamble’s stock tumbled precipitously - and some say that could have been behind the massive plunge.
Both Fox News and CNBC reported that a trading error involving P&G stock could have been responsible for part of a dip that dragged the Dow Jones Industrial Average within a hair’s breadth of a 1000-point drop.
The sudden sell-off saw investors desert stocks wholesale.
But P&G’s stock, which had been trading at $US62, suddenly began to crash, falling around 20 per cent at one point for no apparent reason.
The Dow Jones industrial average ended down 347.80 points, or 3.2 per cent, at 10,520.32. The Standard & Poor's 500 Index was off 37.75 points, or 3.24 per cent, at 1128.15. The Nasdaq Composite Index was down 82.65 points, or 3.44 per cent, at 2319.64.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumour but that the bank currently had no evidence that an erroneous trade had been made.
http://www.smh.com.au/business/markets/fat-finger-trade-forces-us-stocks-dive-20100507-uh91.html
Understanding High Frequency Trading (HFT): Wall Street's Latest Scam
Wall St, New York, USA, 17 August 2009. The new cream-skimming trick in Wall Street's playbook is called High Frequency Trading, or HFT.
It works like this: big trading banks invest in super-computers that can process information at every faster speeds, splitting nano-seconds into smaller and smaller units. These super-computers can process instructions faster than regular computers, and much faster than humans. Next, they place these super-computers in the exchanges themselves. This gives direct access to the exchange, cutting out the latency of connections from remote locations. By trading faster than smaller investors, profits can be constantly churned.
http://bx.businessweek.com/investment-banking/view?url=http%3A%2F%2Fwww.economywatch.com%2Feconomy-business-and-finance-news%2Fhigh-frequency-trading-hft-wall-streets-latest-scam-18-08.html
It works like this: big trading banks invest in super-computers that can process information at every faster speeds, splitting nano-seconds into smaller and smaller units. These super-computers can process instructions faster than regular computers, and much faster than humans. Next, they place these super-computers in the exchanges themselves. This gives direct access to the exchange, cutting out the latency of connections from remote locations. By trading faster than smaller investors, profits can be constantly churned.
High Frequency Trading (HFT): Wall Street's Latest Scam
http://bx.businessweek.com/investment-banking/view?url=http%3A%2F%2Fwww.economywatch.com%2Feconomy-business-and-finance-news%2Fhigh-frequency-trading-hft-wall-streets-latest-scam-18-08.html
Thursday, 6 May 2010
A quick look at F & N (6.5.2010)
A quick look at F & N (6.5.2010)
http://spreadsheets.google.com/pub?key=tGDNB7GiYxmXFXxqJEqY49A&output=html
KUALA LUMPUR: MIDF Research has upgraded Fraser & Neave Holdings Bhd (F&N) to a buy with a higher target price of RM12 (from RM10.60) and said the company's 1HFY10 net profit grew 56.4% year-on-year to RM162.9 million, accounting for 69% and 60% of MIDF's and consensus full year numbers.
Excluding the RM10 million charges recognised in 2QFY09 due to the closure of glass plant in Petaling Jaya, MIDF estimated that the earnings growth was about +43% y-o-y.
The commendable results were mainly due to the higher soft drinks sales, better-than-expected overall profit margin and lower minority interest, it said.
"We are rolling over our valuation into FY11 numbers but with a lower implied PER of 14.5 times as compared with 16 times previously. As such, we are upgrading our call for F&N to buy with a higher target price of RM12 (previously RM10.60), based on 14.5 times FY11 EPS.
"We believe the downside is fairly limited, cushioned by the 5.1% net dividend yield," it said.
http://www.theedgemalaysia.com/business-news/165574-midf-research-raises-fan-target-price-to-rm12-.html
Related:
FY09/10 Half Year Results Briefing
7 May 2010
http://announcements.bursamalaysia.com/EDMS/edmsweb.nsf/all/1E4DE9BCD0574BC54825771B0032A5DB/$File/Half%20year%20results%207%20May%202010%20-%20FNHB%20(final).pdf
http://spreadsheets.google.com/pub?key=tGDNB7GiYxmXFXxqJEqY49A&output=html
| MIDF Research raises F&N target price to RM12 |  |  |  |
| Written by MIDF Research |
| Friday, 07 May 2010 09:38 |
KUALA LUMPUR: MIDF Research has upgraded Fraser & Neave Holdings Bhd (F&N) to a buy with a higher target price of RM12 (from RM10.60) and said the company's 1HFY10 net profit grew 56.4% year-on-year to RM162.9 million, accounting for 69% and 60% of MIDF's and consensus full year numbers.
Excluding the RM10 million charges recognised in 2QFY09 due to the closure of glass plant in Petaling Jaya, MIDF estimated that the earnings growth was about +43% y-o-y.
The commendable results were mainly due to the higher soft drinks sales, better-than-expected overall profit margin and lower minority interest, it said.
"We are rolling over our valuation into FY11 numbers but with a lower implied PER of 14.5 times as compared with 16 times previously. As such, we are upgrading our call for F&N to buy with a higher target price of RM12 (previously RM10.60), based on 14.5 times FY11 EPS.
"We believe the downside is fairly limited, cushioned by the 5.1% net dividend yield," it said.
http://www.theedgemalaysia.com/business-news/165574-midf-research-raises-fan-target-price-to-rm12-.html
Related:
FY09/10 Half Year Results Briefing
7 May 2010
http://announcements.bursamalaysia.com/EDMS/edmsweb.nsf/all/1E4DE9BCD0574BC54825771B0032A5DB/$File/Half%20year%20results%207%20May%202010%20-%20FNHB%20(final).pdf
News you could use: Stocks are Crashing.
Stocks are crashing, so you turn on the television to catch the latest market news.
The Stock Market is on sale. Huge banners reading: "SALE! 50% OFF!"
Then the anchorman announces brightly, "Stocks became more atractive yet again today, as the Stock Market dropped another 2.5% on heavy volume - the fourth day in a row that stocks have gotten cheaper. Tech investors fared even better, as leading companies like ABC lost nearly 5% on the day, making them even more affordable. That comes on top of the good news of the past year, in which stocks have already lost 50%, putting them at bargain levels not seen in years. And some prominent analysts are optimistic that prices may drop still further in the weeks and months to come."
Read more here:
"Falling stock prices would be fabulous news for any investor with a very long horizon."
The Stock Market is on sale. Huge banners reading: "SALE! 50% OFF!"
Then the anchorman announces brightly, "Stocks became more atractive yet again today, as the Stock Market dropped another 2.5% on heavy volume - the fourth day in a row that stocks have gotten cheaper. Tech investors fared even better, as leading companies like ABC lost nearly 5% on the day, making them even more affordable. That comes on top of the good news of the past year, in which stocks have already lost 50%, putting them at bargain levels not seen in years. And some prominent analysts are optimistic that prices may drop still further in the weeks and months to come."
Read more here:
News you could use
"Falling stock prices would be fabulous news for any investor with a very long horizon."
A quick look at Yee Lee (5.5.2010)
A quick look at Yee Lee (5.5.2010)
http://spreadsheets.google.com/pub?key=t110lp_dYviKliqIsIUOsLw&output=html
http://spreadsheets.google.com/pub?key=t110lp_dYviKliqIsIUOsLw&output=html
You Don’t Need Perfect Batting Average
You Don’t Need Perfect Batting Average: In order to significantly outperform the market, investors need not generate near perfect results.
Hammering home the idea that a few good stocks a decade can make an investment career, Lynch had this to say about Buffett:
"Warren states that twelve investments decisions in his forty year career have made all the difference."
Related:
Benjamin Graham
"To achieve satisfactory investment results is easier than most people realise; to achieve superior results is harder than it looks."
Hammering home the idea that a few good stocks a decade can make an investment career, Lynch had this to say about Buffett:
"Warren states that twelve investments decisions in his forty year career have made all the difference."
Related:
Lessons Learned From Investing Genius Peter Lynch
Benjamin Graham
"To achieve satisfactory investment results is easier than most people realise; to achieve superior results is harder than it looks."
A quick look at 3A Resources (5.5.2010)
A quick look at 3A Resources (5.5.2010)
http://spreadsheets.google.com/pub?key=tcpHxcoccuKHRFO8To1fewQ&output=html
http://spreadsheets.google.com/pub?key=tcpHxcoccuKHRFO8To1fewQ&output=html
Indonesia finance minister named a managing director of the World Bank Group
Indonesia finance minister quits
JAKARTA, May 5 — Indonesian Finance Minister Sri Mulyani Indrawati, a key reformer in Southeast Asia’s biggest economy, is leaving office in what could be a major blow to a crackdown on graft and tax evasion.
Indrawati, 47, was named a managing director of the World Bank Group, a sign of the growing clout of emerging economies. But the move also reflects increasing pressure on her at home from politicians opposed to her clean-up campaign.
“It’s a good move for her, but not good for Indonesia,” said Nick Cashmore, head of CLSA in Indonesia.
“She’s leaving earlier than expected, not doing the full five years. It shows that all these undercurrents are gathering pace.”
President Susilo Bambang Yudhoyono has congratulated Indrawati on the move, indicating he is willing to let her go, but investors will be watching who he appoints as her replacement for a signal on where the reform programme is headed.
Chief Economic Minister Hatta Rajasa will temporarily take charge of the finance portfolio until Indrawati’s replacement is appointed, presidential spokesman Julian Pasha told Reuters on Wednesday. Indrawati is to take up the World Bank post on June 1.
Rajasa is better known for his political skills, unlike Indrawati, who has a doctorate in economics and was an executive director at the International Monetary Fund before joining government.
Investors have been big buyers of Indonesian assets in the past 18 months, largely attracted by its pace of reform and liberalisation and the prospect of a surge in demand for its vast natural resources as the global economy recovers.
Local financial markets fell after the announcement of Indrawati’s move, but analysts said the weakening in the rupiah to 9,090 per dollar from 9,030 and a 3 percent drop in the stock market reflected broader investor concerns about emerging markets and risk related to the euro zone.
“The market will definitely react negatively to her departure,” said Destry Damayanti, an economist at Mandiri Sekuritas in Jakarta.
“Hopefully it is a short-lived one, but it all depends on who replaces her. That is the main concern for now, her replacement. What is needed is someone who is a professional, someone who is not politically biased.”
NO CENTRAL BANK GOVERNOR
Likely candidates include: Anggito Abimanyu, the head of the ministry’s Fiscal Policy Agency; Chatib Basri, an academic and special adviser to the finance minister; Raden Pardede, an economist and former head of the state asset management company; and Agus Martowardojo, president director of Indonesia’s largest lendor Bank Mandiri.
The change at the finance ministry comes at a time when the country is still without a governor for Bank Indonesia, the central bank. Darmin Nasution, the senior deputy governor, has been acting governor since mid-2009.
“With Sri Mulyani’s strong and credible reform credentials, her departure is likely to be seen negatively by the market, not to mention that Indonesia has not had a BI Governor in almost a year,” Citibank economist Johanna Chua said in a research note.
“Thus, vacancies in two of the most important economic posts will raise some concerns about the credibility of macro policies and the pace of reforms. Nonetheless, we think despite her departure, Indonesia’s track record of prudent fiscal policies will likely remain intact.”
Indrawati and Vice President Boediono, who was earlier the central bank governor, were regarded as Yudhoyono’s top reformers, taking a tough public stance against corrupt politicians, officials and businessmen in a country that ranks among the most corrupt in the world.
Their reforms, for example in the tax and customs offices, led to improvements in revenue collection but much more remains to be done to clean up the civil service, including the police and judiciary.
Indrawati raised salaries at revenue departments, fired corrupt officials, and introduced more transparent work practices including open plan offices and computerised records.
She has sent sent investigators from the anti-corruption commission on surprise raids, including to the customs department, to check whether officials had cash stashed away.
However, tax evasion remains a serious problem. In a country with a population of about 240 million, there are only 16 million registered tax payers.
JAKARTA, May 5 — Indonesian Finance Minister Sri Mulyani Indrawati, a key reformer in Southeast Asia’s biggest economy, is leaving office in what could be a major blow to a crackdown on graft and tax evasion.
Indrawati, 47, was named a managing director of the World Bank Group, a sign of the growing clout of emerging economies. But the move also reflects increasing pressure on her at home from politicians opposed to her clean-up campaign.
“It’s a good move for her, but not good for Indonesia,” said Nick Cashmore, head of CLSA in Indonesia.
“She’s leaving earlier than expected, not doing the full five years. It shows that all these undercurrents are gathering pace.”
President Susilo Bambang Yudhoyono has congratulated Indrawati on the move, indicating he is willing to let her go, but investors will be watching who he appoints as her replacement for a signal on where the reform programme is headed.
Chief Economic Minister Hatta Rajasa will temporarily take charge of the finance portfolio until Indrawati’s replacement is appointed, presidential spokesman Julian Pasha told Reuters on Wednesday. Indrawati is to take up the World Bank post on June 1.
Rajasa is better known for his political skills, unlike Indrawati, who has a doctorate in economics and was an executive director at the International Monetary Fund before joining government.
Investors have been big buyers of Indonesian assets in the past 18 months, largely attracted by its pace of reform and liberalisation and the prospect of a surge in demand for its vast natural resources as the global economy recovers.
Local financial markets fell after the announcement of Indrawati’s move, but analysts said the weakening in the rupiah to 9,090 per dollar from 9,030 and a 3 percent drop in the stock market reflected broader investor concerns about emerging markets and risk related to the euro zone.
“The market will definitely react negatively to her departure,” said Destry Damayanti, an economist at Mandiri Sekuritas in Jakarta.
“Hopefully it is a short-lived one, but it all depends on who replaces her. That is the main concern for now, her replacement. What is needed is someone who is a professional, someone who is not politically biased.”
NO CENTRAL BANK GOVERNOR
Likely candidates include: Anggito Abimanyu, the head of the ministry’s Fiscal Policy Agency; Chatib Basri, an academic and special adviser to the finance minister; Raden Pardede, an economist and former head of the state asset management company; and Agus Martowardojo, president director of Indonesia’s largest lendor Bank Mandiri.
The change at the finance ministry comes at a time when the country is still without a governor for Bank Indonesia, the central bank. Darmin Nasution, the senior deputy governor, has been acting governor since mid-2009.
“With Sri Mulyani’s strong and credible reform credentials, her departure is likely to be seen negatively by the market, not to mention that Indonesia has not had a BI Governor in almost a year,” Citibank economist Johanna Chua said in a research note.
“Thus, vacancies in two of the most important economic posts will raise some concerns about the credibility of macro policies and the pace of reforms. Nonetheless, we think despite her departure, Indonesia’s track record of prudent fiscal policies will likely remain intact.”
Indrawati and Vice President Boediono, who was earlier the central bank governor, were regarded as Yudhoyono’s top reformers, taking a tough public stance against corrupt politicians, officials and businessmen in a country that ranks among the most corrupt in the world.
Their reforms, for example in the tax and customs offices, led to improvements in revenue collection but much more remains to be done to clean up the civil service, including the police and judiciary.
Indrawati raised salaries at revenue departments, fired corrupt officials, and introduced more transparent work practices including open plan offices and computerised records.
She has sent sent investigators from the anti-corruption commission on surprise raids, including to the customs department, to check whether officials had cash stashed away.
However, tax evasion remains a serious problem. In a country with a population of about 240 million, there are only 16 million registered tax payers.
Wilmar: Asia’s next Cargill in China?
Wilmar: Asia’s next Cargill in China?
KUALA LUMPUR, May 3 — Singapore-listed Wilmar is shaping up to become the Asian version of agribusiness giant Cargill, with an expanding network of farms, food processors and shipping companies.
And it’s showing its muscle where it matters most — in China.
Wilmar’s integrated China operations account for 44.7 per cent of its US$10.3 billion (RM32.79 billion) assets, allowing it to weather recent volatile food prices and now a likely yuan policy change.
The company had the most to gain when Beijing in April slapped import curbs on Argentine soyoil — a commodity that competes with Wilmar’s domestically crushed oilseeds in China and imported palm oil.
This resilience has spurred investors to clamour for Wilmar to revisit a shelved IPO for its China business, possibly this year, four years after the powerful Kuok family merged Wilmar and Malaysia-based Kuok Group to create the US$32 billion firm.
“I believe they will revisit the IPO. It’s anybody’s guess when it happens, but Wilmar has rightly tapped into the fact that agriculture is super-hot in China,” said Michael Greenall, an analyst with BNP Paribas.
“With the super-charged growth in China’s economy, higher incomes and rural-to-urban migration contributing to stronger demand in all the sectors it’s invested in, Wilmar will act.”
Wilmar’s proposed China listing would have raised as much as US$3.5 billion on the Hong Kong stock exchange, at the lower end of the range of China-based food companies.
Wilmar, which has been dubbed by analysts as the “China proxy”, currently trades at 18 times its 2010 earnings, richer than rival China Agri Industries’ 14 times but cheaper than 22 times at China Foods.
Wilmar’s shares have gained more than 8 per cent this year, outperforming a 2.5 per cent rise on Singapore’s benchmark index, while other plantation firms such as Malaysia’s Sime Darby, IOI Group and Indonesia’s Astra Agro Lestari are trading lower.
Margins in Wilmar’s main business sectors — oilseeds and grains, palm and laurics and consumer food products — certainly have room to grow as the world’s most populous country and third-largest economy keeps to its target of 8 per cent annual growth.
YUAN BOOST?
An immediate margin boost may come from a yuan policy shift that could make imported soybeans cheaper for Wilmar — a top importer that dominates a fifth of China’s 94 million tonnes of soy processing capacity.
It also buffers Wilmar from negative margins arising from weak livestock feed demand for soymeal, as the food processor can channel soyoil into its cooking oil business that controls 45 per cent of China’s market.
In contrast, the influx of cheap soy imports may further weigh on smaller crushers that have tiny integrated downstream operations. Some have none to speak of.
Soyoil accounts for a quarter of China’s 6.4 million tonnes of edible oil imports, and Wilmar makes up the rest with palm oil from its estates in Southeast Asia, taking a larger market share than Sime and IOI.
Analysts say a Wilmar IPO will bring all these factors into play.
“Wilmar is one of its kind. They are not only selling to China but they also know the supply side (because) they have estates in Malaysian and Indonesia,” said Ivy Ng, an analyst with Malaysia’s CIMB Investment Bank.
“If you look at China Agri, they don’t have any estates, they buy palm, process and sell.”
Wilmar’s plantation landbank of 570,000 hectares is just 41 per cent planted, and analysts say the planting will rise in tandem with China’s growing appetite for edible oils and palm oil getting cheaper if Beijing lets its currency appreciate.
The scale of its operations — 130 processors and plants in China — allows Wilmar to manage the fluctuations in soybeans and palm oil and preserve earnings.
A 10 per cent change in the price of palm oil only affects the company’s 2010 earnings by 2 per cent, Goldman Sachs said in a note. Other analysts say such a swing affects earnings of purer plantation plays such as Astra Agro Lestari by 13 per cent.
TURNING TO RICE AND WHEAT
The major risk to Wilmar’s growth is that it will eventually come up against regulations stipulating that foreign firms cannot own new soy processors and those with a soy market share of more than 15 per cent will not get approval to expand capacity.
But analysts are still pricing in an upside to Wilmar’s share price, which surged 130 per cent in 2009. The Thomson Reuters I/B/E/S survey of 19 analysts has an average target price for Wilmar of S$7.80 (RM18.13) — a 13 per cent gain from its current level.
Much of the optimism lies with Wilmar’s aggressive move into China’s highly fragmented rice and wheat milling sectors, which are the world’s largest, and also produce noodles and pastries.
“They have been investing a lot in rice and flour in China, which can become very big,” Nomura analyst Tanuj Shori said.
“The biggest entry barrier is scale. The bigger you are, the easier it is to achieve higher profitability.”
China Agri leads with a 2 per cent market share in both sectors, but Wilmar can take top position as it can build mills at its existing manufacturing bases where it can share overheads and logistics, reducing costs and boosting margins, analysts say.
Backed by a balance sheet of US$23.5 billion, Wilmar can fund its rice and wheat expansion through its US$1 billion capex. China Agri plans to spend US$1.1 billion this year.
And Wilmar can channel wheat and rice products to its existing edible oil customers — noodle manufacturers Tingyi and Want Want.
“We believe Wilmar is capable of adding 4 million tonnes,” said Hwang-DBS analyst Ben Santoso, basing that on five 400,000 tonne capacity plants for both rice and flour.
“Compared to its last published capacity of 890,000 tonnes, it’s an extraordinary expansion.” — Reuters
KUALA LUMPUR, May 3 — Singapore-listed Wilmar is shaping up to become the Asian version of agribusiness giant Cargill, with an expanding network of farms, food processors and shipping companies.
And it’s showing its muscle where it matters most — in China.
Wilmar’s integrated China operations account for 44.7 per cent of its US$10.3 billion (RM32.79 billion) assets, allowing it to weather recent volatile food prices and now a likely yuan policy change.
The company had the most to gain when Beijing in April slapped import curbs on Argentine soyoil — a commodity that competes with Wilmar’s domestically crushed oilseeds in China and imported palm oil.
This resilience has spurred investors to clamour for Wilmar to revisit a shelved IPO for its China business, possibly this year, four years after the powerful Kuok family merged Wilmar and Malaysia-based Kuok Group to create the US$32 billion firm.
“I believe they will revisit the IPO. It’s anybody’s guess when it happens, but Wilmar has rightly tapped into the fact that agriculture is super-hot in China,” said Michael Greenall, an analyst with BNP Paribas.
“With the super-charged growth in China’s economy, higher incomes and rural-to-urban migration contributing to stronger demand in all the sectors it’s invested in, Wilmar will act.”
Wilmar’s proposed China listing would have raised as much as US$3.5 billion on the Hong Kong stock exchange, at the lower end of the range of China-based food companies.
Wilmar, which has been dubbed by analysts as the “China proxy”, currently trades at 18 times its 2010 earnings, richer than rival China Agri Industries’ 14 times but cheaper than 22 times at China Foods.
Wilmar’s shares have gained more than 8 per cent this year, outperforming a 2.5 per cent rise on Singapore’s benchmark index, while other plantation firms such as Malaysia’s Sime Darby, IOI Group and Indonesia’s Astra Agro Lestari are trading lower.
Margins in Wilmar’s main business sectors — oilseeds and grains, palm and laurics and consumer food products — certainly have room to grow as the world’s most populous country and third-largest economy keeps to its target of 8 per cent annual growth.
YUAN BOOST?
An immediate margin boost may come from a yuan policy shift that could make imported soybeans cheaper for Wilmar — a top importer that dominates a fifth of China’s 94 million tonnes of soy processing capacity.
It also buffers Wilmar from negative margins arising from weak livestock feed demand for soymeal, as the food processor can channel soyoil into its cooking oil business that controls 45 per cent of China’s market.
In contrast, the influx of cheap soy imports may further weigh on smaller crushers that have tiny integrated downstream operations. Some have none to speak of.
Soyoil accounts for a quarter of China’s 6.4 million tonnes of edible oil imports, and Wilmar makes up the rest with palm oil from its estates in Southeast Asia, taking a larger market share than Sime and IOI.
Analysts say a Wilmar IPO will bring all these factors into play.
“Wilmar is one of its kind. They are not only selling to China but they also know the supply side (because) they have estates in Malaysian and Indonesia,” said Ivy Ng, an analyst with Malaysia’s CIMB Investment Bank.
“If you look at China Agri, they don’t have any estates, they buy palm, process and sell.”
Wilmar’s plantation landbank of 570,000 hectares is just 41 per cent planted, and analysts say the planting will rise in tandem with China’s growing appetite for edible oils and palm oil getting cheaper if Beijing lets its currency appreciate.
The scale of its operations — 130 processors and plants in China — allows Wilmar to manage the fluctuations in soybeans and palm oil and preserve earnings.
A 10 per cent change in the price of palm oil only affects the company’s 2010 earnings by 2 per cent, Goldman Sachs said in a note. Other analysts say such a swing affects earnings of purer plantation plays such as Astra Agro Lestari by 13 per cent.
TURNING TO RICE AND WHEAT
The major risk to Wilmar’s growth is that it will eventually come up against regulations stipulating that foreign firms cannot own new soy processors and those with a soy market share of more than 15 per cent will not get approval to expand capacity.
But analysts are still pricing in an upside to Wilmar’s share price, which surged 130 per cent in 2009. The Thomson Reuters I/B/E/S survey of 19 analysts has an average target price for Wilmar of S$7.80 (RM18.13) — a 13 per cent gain from its current level.
Much of the optimism lies with Wilmar’s aggressive move into China’s highly fragmented rice and wheat milling sectors, which are the world’s largest, and also produce noodles and pastries.
“They have been investing a lot in rice and flour in China, which can become very big,” Nomura analyst Tanuj Shori said.
“The biggest entry barrier is scale. The bigger you are, the easier it is to achieve higher profitability.”
China Agri leads with a 2 per cent market share in both sectors, but Wilmar can take top position as it can build mills at its existing manufacturing bases where it can share overheads and logistics, reducing costs and boosting margins, analysts say.
Backed by a balance sheet of US$23.5 billion, Wilmar can fund its rice and wheat expansion through its US$1 billion capex. China Agri plans to spend US$1.1 billion this year.
And Wilmar can channel wheat and rice products to its existing edible oil customers — noodle manufacturers Tingyi and Want Want.
“We believe Wilmar is capable of adding 4 million tonnes,” said Hwang-DBS analyst Ben Santoso, basing that on five 400,000 tonne capacity plants for both rice and flour.
“Compared to its last published capacity of 890,000 tonnes, it’s an extraordinary expansion.” — Reuters
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