Portfolios hold firm as market tumbles20 Oct 08 | Issue 259 | ||||||||||||
By Alex Chin It’s been a wild ride on the stockmarket since our June portfolio update, but our Income and Growth portfolios have put in a resilient performance. We’re pretty pleased with the performances of our two model portfolios since 30 June, considering the carnage that’s been wreaked on world stockmarkets. Based on Friday’s closing prices, our Income Portfolio lost 3.8% and ourGrowth Portfolio lost 8.8% over the period, but that compares very favourably with the All Ordinaries Accumulation Index, which dived 23.9%. Probably the main factor has been the relatively low exposure of the two portfolios to resources stocks. That hurt us in the first half of the year, but it’s helped since, with the bursting of the resources bubble knocking BHP Billiton and Rio Tinto down 44% and 54% respectively. Solid incomeThe Income Portfolio’s fall of 3.8% since 30 June, compared to 23.9% for the All Ords Accumulation Index, puts it well ahead of its benchmark over the seven years since inception on 10 July 2001, with a total return of 13.6% pa compared to 6.6% pa for the index.
The world’s banks have been the talk of the markets over the past few months, but our own have fared pretty well. Westpac has posted a gain of 7% since 30 June, while ANZhas declined 10%. Commonwealth Bank has managed an increase of 3%, helped along by a positive reaction to its purchase of BankWestfor the lowly price of $2.1bn. You can see our own valuation of CBA in today’s feature, What’s Commonwealth Bank worth?. Highly geared non-financial stocks, however, have fared less well, andTimbercorp has dropped 25%. While there’s a lot of debt, the company is being priced at only one-third of its net assets, which provides a considerable margin of safety. TREES2 have dropped 36% as the difficulties faced by their issuerGreat Southern have become more apparent. We recently downgradedTREES2 to Hold. An exception to the rule, however, was Sigma Pharmaceuticals, which rose 36.4% despite relatively high debt levels, after its half-year result provided evidence of an improved performance. And Westfield Group was able to confound gloomy projections for the global economy by edging up 2%. The portfolio’s only real exposure to the resources sector, Washington H Soul Pattinson, dropped 15% as the value of its shareholding in coal miner New Hope Corporation fell 39%. We’re going to tender all of our holding in MMC Contrarian in its buyback scheme. About half the shares should be bought back at 70.9 cents per share, making a useful $7,500 available to buy any bargains that appear. Mixed results in GrowthThe Growth Portfolio lost 8.8% over the period, which puts its return since inception on 7 August 2001 at a disappointing 4.3% pa compared to 6.6% pa for the All Ords Accumulation Index. You can read the reasons for this in our past half-year portfolio updates, but the long and the short of it is that we didn’t get off to a good start and some of our recent investments are yet to pay off – to put it kindly – and we plainly got into one or two a bit early. Roc Oil was the major casualty, with a fall of 68% alongside the rapidly falling oil price, the controversial merger with Anzon Australia and the death of CEO John Doran. But the trouble wasn’t limited to resources, and fears of a downturn in the advertising industry sent STW Communications down 35%. On the positive side, Cochlear saw its stock jump 32% as demand for its products continues to grow. The portfolio’s financial stocks provided a mixed performance. Macquarie Groupand fund manager Treasury Group were in the doghouse, with their stocks down 36% and 28% respectively. But Platinum Asset Management chalked up an 11% gain as the performance of its funds improved, and RHG Group clocked up a rise of 110% as the cash rolls in and the company buys back shares. This is an interesting time for both portfolios. You can see what’s in them and follow their progress in the Portfolios section of our website. There has been no buying or selling over the quarter, but the current market is an ideal time to change that. There’s spare cash in the Growth portfolio, so look out for some buying in the near future. Disclosure: The author, Alex Chin, and other staff members own shares in many of the companies mentioned in this article. See the staff portfolio on our website for a full listing. |
Saturday, 21 August 2010
Portfolios hold firm as market tumbles
The Snowball: Warren Buffett and the Business of Life. ‘Buffett is not a simple person, but he has simple tastes.’
The Snowball: Warren Buffett and the Business of Life9 Oct 08 | Issue 259 | |||
By Gareth Brown Value investors the world over have been waiting years for this book. Finally, Christmas has arrived. I discovered my hero when I was 20 years old. It’s all a bit tragic really. When my mates were talking about Andrew Johns, ‘Plugger’ Lockett, Warnie and Axl Rose, I bit my lip because I knew no one wanted to hear about a retirement-aged Nebraskan investor. After several years of wandering aimlessly through the investing wilderness, discovering value investing was like a club to my head full of ignorance, and joining the Warren Buffett cult changed everything. Since then, I’ve read every one of Buffett’s Berkshire Hathaway chairman’s letters, every one of his partnership letters from before that, and every decent book ever written on him. I’ve attended the Berkshire annual meeting in Omaha four times, and I have a book, a dollar bill and a one hundred dollar bill signed by Buffett and partner Charlie Munger. OK, it’s more than a bit tragic. From Passion Pop to pinot noirLike many other Buffett fans, after a few years hoovering up everything ever written about him I found another hero – Charlie Munger. A Buffett fan becomes a Mungerophile much like a wine connoisseur progresses from Passion Pop to pinot noir. Where Buffett offers insightful homespun wisdoms and words of encouragement digestible to all, Munger offers long speeches on The Psychology of Human Misjudgement and A Lesson on Elementary, Worldly Wisdom. At age 20, I didn’t appreciate pinot noir or Charlie Munger. But with a bit of ageing, I've been drawn to the depth, complexity, and lack of sweetness. Not that I’ve ever given up on Buffett, of course. I knew there was a lot more going on behind that simple façade. As Forbes once wrote: ‘Buffett is not a simple person, but he has simple tastes.’ Unfortunately, though, the world’s yearning for easy answers had it focusing on whatever could be condensed into five golden rules. And Buffett’s compulsion to offer something for everybody effectively stonewalled those wanting more. That’s why I was so excited by the release of Buffett’s authorised biography,The Snowball: Warren Buffett and the Business of Life. Alice Schroeder was a financial analyst who covered Berkshire Hathaway and obviously made a significant impression on him. All previous biographies have been unauthorised and unassisted, but when Schroeder tried to convince Buffett to write an autobiography, he ended up convincing her to write this book. A simple instructionHe gave her seemingly unfettered access to both himself and his family and friends over a five-year period, with one instruction: ‘Whenever my version is different from somebody else’s, Alice, use the less flattering version.’ The result is extraordinary. As our company pre-ordered many copies of the book, I received a pre-release sample copy and set about trying to be one of the first Aussies to read it cover to cover. I’m sure someone beat me to the punch but, for the record, I was done by the evening of 6 October. The book’s 838 pages and my slow reading turned the event into a 30-hour readathon. But I came away with a very different, more complete picture of my hero. This is a very personal account that attempts to discover why Warren Buffett is who he is.
Not that there isn’t plenty of investment gold in the book. It goes into considerable detail on the key investments he’s made over the decades, and fleshes out those choices in a way that adds something to the thousands of pages already inked on Buffett’s approach to investment. We learn how he turned the first few snowflakes – money earned selling gum at age six – into a giant, ever-growing snowball. Hoard and compoundInfluenced by his Depression-scarred parents, and perhaps his own experience with war-time rationing, Buffett had a burning desire to collect and hoard from an early age. At first it manifested itself in a stamp collection, but pretty soon he switched his attention to cash, realising that wealth tends to increase one’s freedom. Aged 11, he declared that he would be a millionaire by the time he reached 35. In fact he got there by 30, and his many early business ventures make fascinating reading. Later in life, of course, he moved on to hoarding companies ... and managers ... and friends and admirers. This tendency, combined with a freakish mathematical talent, competitive spirit and single-mindedness, makes Buffett the compounding machine that he is. It enabled him to save $10,000 by the end of high school, and to compound his nest egg at the freakish rate of 61% per year in the first half of the 1950s. It explains how investors in the Buffett Partnership compounded their money at rates of 31% per year from 1956 up until 1969, and that’s after the deduction of Buffett’s hefty profit share. And he then parlayed everything into the snowball that is Berkshire Hathaway. Tough timesWe learn about the tough times in the mid-1970s, when Buffett’s portfolio was down nearly a third. Not unlike today, many investors were questioning their very involvement with the stockmarket, but Buffett famously quipped that he ‘felt like an oversexed man in a harem’.
And the book continues all the way up to the Bear Stearns collapse in March 2008, and offers Buffett’s thoughts on the current credit crisis. Buffett the ‘implacable acquirer’ – as Munger called him – is a big part of the story. But the real gold in this book is the way it cracks open the man’s personality. Readers of The Snowball, especially those that thought they knew Warren Buffett, are likely to spend a lot of time with jaws dropped. He comes across as rather fragile and very human. Buffett hero-worshipped his father but had a tremendously strained relationship with his mother, Leila. It turns out she was rather devoid of love for her son and, prompted by Schroeder, we wonder whether this led to his complete reliance on the kindness of other women. To this day, the many women in his life seem to have all slotted into a motherly role. The strong moral example set by his father, a highly principled Congressman, obviously influenced the man he became. But I found it reassuring to see that, like many of us, in adolescence he came to a fork in the road and nearly took the wrong path. Actually, he started off down that wrong path before turning things around. In those early teen years he was a nightmare for his teachers, and despite his obviously prodigious talents, he was racking up Cs and Ds in the classroom, even in mathematics. And he led a life of petty crime, filling up his closets with ‘hundreds of golf balls’ stolen from a Sears department store. A study in contradictionBuffett is brave and fiercely independent when it comes to financial decisions. And yet we learn that he habitually craves the praise of others and is deeply wounded by criticism. He’s obsessed with weight, putting himself on a 1,000 calorie a day diet in the lead up to the Berkshire annual meeting, yet typically eating nothing but hamburgers, french fries, ice cream and Cherry Coke. He reads and files away the thousands of letters sent to him by fans across the world, seeking an affirmation he’s unable to find within. Yet we learn about his ‘Inner Scorecard’, a wonderful concept at odds with his need for praise: ‘In teaching your kids, I think the lesson they’re learning at a very, very early age is what their parents put the emphasis on. If all the emphasis is on what the world’s going to think about you, forgetting about how you really behave, you’ll wind up with an Outer Scorecard ... It helps if you can be satisfied with an Inner Scorecard’. Perceived as a technophobe, by 1994 Buffett had grasped ‘how the internet was going to affect the auto-insurance industry in the coming decades – better than the auto-insurance industry itself had’. While the general public assumed technology was beyond him, he was pushing change within Berkshire’s auto-insurance subsidiary GEICO, proclaiming: ‘He who wins the internet, wins the war’. Coldly rationalBuffett is able to empathise with the underdog, campaigning for the rights of Jews and African Americans in a segregated America and, more recently, committing his entire wealth to charity, mostly to the Bill & Melinda Gates Foundation to help solve difficult problems like AIDS and malaria in the poorest parts of the world. Yet he struggles to empathise with his own children, viewing them as winners of the ‘ovarian lottery’ and perhaps therefore already spoiled. And while we’re obviously not privy to the full story, I was astounded by his coldly rational approach to his son’s adopted daughters. He hasn’t embraced them as his own granddaughters, despite the issue being very much outside their control.
We learn of his fear of death and illness. When Buffett’s beloved father, Howard, was in hospital dying, his wife made sure he visited regularly, but he struggled to come to terms with it all and was totally unable to grieve after he passed away. We then share a tender moment in 2003–04 when he put that all aside to be there for his wife, Susan, through her illness and eventual death. Ultimately, this book is about the character of Warren Buffett, flawed and human like the rest of us, and yet able to inspire an urge for greatness and goodness in people who’ve never even met him. The inside scoopIn 2005 I got the sort of inside scoop others might kill for. My friend and alleged boss Greg Hoffman and I were queuing with perhaps 1,500 other Berkshire shareholders in the ‘international meet and greet’ session at the Berkshire annual meeting. It’s a chance for shareholders who’ve travelled from outside of North America to briefly meet the duo and get some memorabilia autographed. We aimed to be dead last in the queue, plotting to hog a little more than the necessarily short periods granted to others. In front of us was a young Asian couple: Buffett (loosely paraphrased from my leaky memory): Howdy, where you from? Young couple: Korea Buffett: Oh, I’ve been looking at stocks over there; they seem very cheap. At least a year before the rest of the world, we got a very clear signal that Buffett was looking at and likely buying Korean stocks. Over the next week, we thought about how we might do the same. We looked at funds and direct shares, and wondered how we might get our heads around Korean accounting. After a little work, we decided it was too much like learning a foreign language, and our attention floated off elsewhere despite the fact that we were struggling to find outstanding ideas in the Australian market at the time. A different approachWe now know that Buffett, already fabulously wealthy, was spending ‘night after night’ thumbing through a Korean stockmarket almanac, and digesting a book on Korean accounting to ‘reduce the odds of getting hornswoggled by the numbers’. Working through a list of thousands of Korean stocks, he narrowed it down to a shorter list of potential gems and got to know them better. He set up a special account with a bank in Korea, and apparently ‘that’s not easy to do’. He then put $100m of his own money into a portfolio of about 20 securities. That’s probably the equivalent of a few hundred dollars to you or I, but where we saw difficult hurdles he saw a puzzle to be solved. That’s why he’s Warren Buffett and why we’re not. Thank you Alice Schroeder for writing this wonderful book, for putting five years work into it and for resisting the urge to sugar coat. Honest biographies of living legends are all too rare, and it must take a lot of courage to write one. And thank you Warren Buffett for encouraging the development of this book and, as Schroeder put it, ‘for not meddling with the book for more than five years – right up until the day it went to the printer’. I could never imagine what it’s like to have my whole life laid bare like that. You’ve inspired a great many to become better, and not just at investing. That’s why you’re my hero, and I look forward to getting my copy of The Snowball signed at next year’s meeting. |
Friday, 20 August 2010
Bullbear on temporary long leave from blogging.
I have decided to stop updating this blog for the next few months or so as I will be rather busy. For those who have been following this blog, thank you for the encouragements and interactions. I have certainly learned a lot from the many smart personalities in cyber world.
The first posting of this blog was on 1.8.2008: Investment Policies (Based on Benjamin Graham) Time passed quickly and it was fun to have explored, in some depth, this topic on investing.
Staying with an investing philosophy and strategy is safe and rewarding. I follow Benjamin Graham's teaching closely. It was a good experience to have invested during the recent years that included a severe bear market following the US sub-prime crisis and Lehman crash. Those who have survived and benefited would have acquired valuable lessons very useful for their lifetime of investing.
Wishing all a productive and rewarding investing journey.
The first posting of this blog was on 1.8.2008: Investment Policies (Based on Benjamin Graham) Time passed quickly and it was fun to have explored, in some depth, this topic on investing.
Staying with an investing philosophy and strategy is safe and rewarding. I follow Benjamin Graham's teaching closely. It was a good experience to have invested during the recent years that included a severe bear market following the US sub-prime crisis and Lehman crash. Those who have survived and benefited would have acquired valuable lessons very useful for their lifetime of investing.
Wishing all a productive and rewarding investing journey.
Thursday, 19 August 2010
To achieve its growth and income targets, Malaysia will require 2.2 trillion ringgit in new investments.
Malaysia Growth Probably Slowed as Exports Face Risks
August 17, 2010, 6:42 AM EDT
By Shamim Adam and Michael Munoz
Aug. 17 (Bloomberg) -- Malaysia’s economic expansion probably slowed last quarter from the fastest pace in a decade, as signs of cooling global growth cloud the outlook for exports.
Malaysia’s central bank has raised interest rates three times since the start of March, a cycle that may be halted as policy makers take stock of the world economy. Weaker-than- expected economic growth in Japan and slower expansion in the U.S. and China have added to signs that the global recovery may falter, threatening demand for Asia’s goods.
Malaysia’s “industrial activity maintained its double- digit growth in the second quarter, while services output has also been strong,” said Ashira Perera, an economist at Capital Economics Ltd. in London. “Looking ahead, final demand conditions in the U.S. and in Europe, as well as the easing in China’s economic expansion, will weigh on Malaysia’s exports and industrial output. Domestic demand is likely to stay healthy.”
The economy’s expansion has boosted the Malaysian ringgit, spurring the currency to a gain of 8.3 percent against the dollar and 21 percent against the euro this year, the best performance in Asia excluding Japan. The FTSE Bursa Malaysia KLCI Index gained for a third day today and has added 8.3 percent this year.
Inflation Rate
The inflation rate probably climbed to 2 percent in July, the highest level in 14 months after the government cut fuel and food subsidies, according to a separate Bloomberg survey of 15 economists. The Department of Statistics will release the price data tomorrow.
“Inflation remains moderate, and should allow Bank Negara to hold steady through year-end,” said David Cohen, an economist at Action Economics in Singapore.
The International Monetary Fund last week said the $192 billion economy may grow 6.7 percent this year, higher than the government’s forecast for a 6 percent expansion. Southeast Asia’s third-largest economy has “appropriately” shifted its monetary policy to support growth and keep inflation in check, the IMF said.
Growth Targets
Malaysia will target annual gross domestic product growth of 5 percent to 6 percent between 2011 and 2020 to meet its goal of becoming a high-income nation, according to a statement from Prime Minister Najib Razak today. To achieve its growth and income targets, the country will require 2.2 trillion ringgit in new investments, he said.
The government “is working to implement additional measures designed to open markets, improve human capital and reform affirmative action laws to be more market friendly and transparent,” according to the statement.
Recent Malaysian data have signaled a cooling in the economy. Exports increased at the slowest pace in seven months in June, while gains in industrial production were the smallest in four. The economic rebound may slow in the second half after the central bank boosted borrowing costs, the Malaysian Institute of Economic Research has said.
--With assistance from Barry Porter in Kuala Lumpur. Editors: Sunil Jagtiani, Stephanie Phang
%MYR
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net
http://www.businessweek.com/news/2010-08-17/malaysia-growth-probably-slowed-as-exports-face-risks.html
August 17, 2010, 6:42 AM EDT
By Shamim Adam and Michael Munoz
Aug. 17 (Bloomberg) -- Malaysia’s economic expansion probably slowed last quarter from the fastest pace in a decade, as signs of cooling global growth cloud the outlook for exports.
Malaysia’s central bank has raised interest rates three times since the start of March, a cycle that may be halted as policy makers take stock of the world economy. Weaker-than- expected economic growth in Japan and slower expansion in the U.S. and China have added to signs that the global recovery may falter, threatening demand for Asia’s goods.
Malaysia’s “industrial activity maintained its double- digit growth in the second quarter, while services output has also been strong,” said Ashira Perera, an economist at Capital Economics Ltd. in London. “Looking ahead, final demand conditions in the U.S. and in Europe, as well as the easing in China’s economic expansion, will weigh on Malaysia’s exports and industrial output. Domestic demand is likely to stay healthy.”
The economy’s expansion has boosted the Malaysian ringgit, spurring the currency to a gain of 8.3 percent against the dollar and 21 percent against the euro this year, the best performance in Asia excluding Japan. The FTSE Bursa Malaysia KLCI Index gained for a third day today and has added 8.3 percent this year.
Inflation Rate
The inflation rate probably climbed to 2 percent in July, the highest level in 14 months after the government cut fuel and food subsidies, according to a separate Bloomberg survey of 15 economists. The Department of Statistics will release the price data tomorrow.
“Inflation remains moderate, and should allow Bank Negara to hold steady through year-end,” said David Cohen, an economist at Action Economics in Singapore.
The International Monetary Fund last week said the $192 billion economy may grow 6.7 percent this year, higher than the government’s forecast for a 6 percent expansion. Southeast Asia’s third-largest economy has “appropriately” shifted its monetary policy to support growth and keep inflation in check, the IMF said.
Growth Targets
Malaysia will target annual gross domestic product growth of 5 percent to 6 percent between 2011 and 2020 to meet its goal of becoming a high-income nation, according to a statement from Prime Minister Najib Razak today. To achieve its growth and income targets, the country will require 2.2 trillion ringgit in new investments, he said.
The government “is working to implement additional measures designed to open markets, improve human capital and reform affirmative action laws to be more market friendly and transparent,” according to the statement.
Recent Malaysian data have signaled a cooling in the economy. Exports increased at the slowest pace in seven months in June, while gains in industrial production were the smallest in four. The economic rebound may slow in the second half after the central bank boosted borrowing costs, the Malaysian Institute of Economic Research has said.
--With assistance from Barry Porter in Kuala Lumpur. Editors: Sunil Jagtiani, Stephanie Phang
%MYR
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net
http://www.businessweek.com/news/2010-08-17/malaysia-growth-probably-slowed-as-exports-face-risks.html
Wednesday, 18 August 2010
Wall Street Legend: This Market Just Flashed a Huge Warning Signal
| |||
| David Rosenberg calls it the smoking gun… Rosenberg and I just spoke on the phone. You might not know his story, but David Rosenberg is a Wall Street legend. He is famous for being a bearish economist at the most bullish firm on Wall Street. When the housing market was in a roaring boom, Merrill Lynch was making billions. But Rosenberg, Merrill's chief economist, was warning about recession and a bear market in stocks. He said the housing and mortgage bubble would pop and a severe economic downturn would follow. Last year, he quit Merrill Lynch. Many people thought Merrill fired him for not being bullish enough. "That's nonsense," he told me. "My wife and three kids live in Toronto. I wanted to be with them. So I left New York." He's now Chief Economist at Gluskin Sheff, a boutique money-management firm in Canada. Of course, Rosenberg's bearish views were spectacularly right… Rosenberg is now one of the most popular economists in the media. You'll often find him giving an interview on CNBC or a quote to the Wall Street Journal. So what's Rosenberg's smoking gun? It's the bond market. First, check out this chart of the yield on the 10-year Treasury note. It's collapsing… now at March 2009 levels.  Some markets are smarter than others. Lumber is a great leading indicator of the housing market. The Baltic Dry Index often leads the shipping stocks. Rosenberg says the bond market is smarter than the stock market. Rosenberg writes a great, free daily newsletter, Breakfast With Dave, where he summarizes and comments on all the major economic news of the day. In one of his issues last week, he showed that whenever the economy heads into a downturn, bond traders start anticipating the recession before the stock market. Take the 1990 recession, for example. The 10-year note yield peaked on May 2, 1990 at 9.09%. The S&P 500 peaked two months later… In the 2001 recession, the 10-year yield topped out on January 20, 2000 at 6.79%. The stock market peaked eight months later, on September 1, 2000. In the 2008 recession, the 10-year yield reached its high on June 12, 2007. The S&P 500 peaked on October 9, 2007, a few months later… And finally, the smoking gun for the 2010 recession… The 10-year Treasury yield peaked on April 5 at 3.99%. It's now at 2.60% four months later. The stock market peaked on April 26, three weeks later… In other words, if the action in the bond pits is any guide, the economy is going back into recession. I asked Rosenberg what investors should do about this. He likes gold and the highest-quality natural resource companies. But bonds are his favorite investments. He says most people think cash is king. But they're wrong. In a deflationary recession, income is king. He calls his strategy "SIRP," which stands for Safety and Income at a Reasonable Price. Rosenberg thinks interest rates will continue to decline like they did in Japan, and bond investments will continue to rise in value. Corporate bonds are his favorite. Rosenberg says American corporate balance sheets are loaded with cash and extremely healthy, so corporate bonds are safe. Good investing, Tom |
Rational look at the NEP - the Never Ending Policy
Two congresses, two directions — Tay Tian Yan
AUG 17 — Over the last weekend, the MCA held the Chinese Economic Congress. I think we can still remember that Malay rights group Perkasa had also held a Bumiputera Economic Congress about two months ago.
Perhaps, consciously or unconsciously, the MCA wants to eliminate the arrogance of the group and its president Datuk Ibrahim Ali. However, of course it is not the main objective of the Chinese Economic Congress.
It is not necessary to confront Perkasa, but there is need to surpass it.
There are great differences in terms of the themes, standards and atmospheres when the two economic congresses are compared.
The Bumiputera Economic Congress tried to resolve the current and future big issues with outdated mindsets and close-minded attitudes.
Meanwhile, the MCA’s Chinese Economic Congress discussed national economic difficulties and explored the way forward with forward-looking visions and open-minded attitudes.
No wonder Prime Minister Datuk Seri Najib Razak looked relaxed during his opening speech, which was very different from his expressions when he lowered his head while Ibrahim and others raised their fists and shouted slogans.
After the Bumiputera Economic Congress, Najib was told bluntly in the face by Ibrahim that the Malays have rejected the New Economic Model (NEM).
The Chinese Economic Congress, on the other hand, supported the NEM, and included it as the first item in the congress’ declaration.
The Bumiputera Economic Congress wanted to strengthen the distribution and quota system from a narrow racial perspective to protect the interests of some people.
However, it did not address national economic difficulties, including the lack of competitiveness, investment decline, budget deficits and low national income.
It rejected the NEM and insisted on continuing the implementation of the New Economic Policy (NEP). However, it failed to suggest any positive and practical ideas to resolve the bias and abuses of the NEP.
The frustrated remarks made by Ibrahim and others have triggered the sentiments of some people and exaggerated their discontentment and resentment. At the same time, they have also created fear, anxiety, disappointment and frustration in some others.
It is a kind of negative energies that could tear the country apart.
Meanwhile, based on knowledge and rationality, the Chinese Economic Congress was concerned about problems encountered not only by the Chinese community, but the whole Malaysian society.
Entrepreneurs and academic speakers have underlined the obstacles faced by the Malay community and recommended the implementation of genuine inter-racial business co-operation.
The congress also proposed to reform the economic system, enhance education, attract talents to return, and attach importance to performance and productivity. Instead of concerning only the interests of a single racial group, the congress concerned about the overall national interests.
The congress has conveyed a positive message and provided the country a positive energy to progress.
In a rational society, we do not need emotions to dominate our wills. Instead, we must know how to resolve problems. — mysinchew.com
* This is the personal opinion of the writer or the publication. The Malaysian Insider does not endorse the view unless specified.
http://www.themalaysianinsider.com/breakingviews/article/two-congresses-two-directions-tay-tian-yan/
AUG 17 — Over the last weekend, the MCA held the Chinese Economic Congress. I think we can still remember that Malay rights group Perkasa had also held a Bumiputera Economic Congress about two months ago.
Perhaps, consciously or unconsciously, the MCA wants to eliminate the arrogance of the group and its president Datuk Ibrahim Ali. However, of course it is not the main objective of the Chinese Economic Congress.
It is not necessary to confront Perkasa, but there is need to surpass it.
There are great differences in terms of the themes, standards and atmospheres when the two economic congresses are compared.
The Bumiputera Economic Congress tried to resolve the current and future big issues with outdated mindsets and close-minded attitudes.
Meanwhile, the MCA’s Chinese Economic Congress discussed national economic difficulties and explored the way forward with forward-looking visions and open-minded attitudes.
No wonder Prime Minister Datuk Seri Najib Razak looked relaxed during his opening speech, which was very different from his expressions when he lowered his head while Ibrahim and others raised their fists and shouted slogans.
After the Bumiputera Economic Congress, Najib was told bluntly in the face by Ibrahim that the Malays have rejected the New Economic Model (NEM).
The Chinese Economic Congress, on the other hand, supported the NEM, and included it as the first item in the congress’ declaration.
The Bumiputera Economic Congress wanted to strengthen the distribution and quota system from a narrow racial perspective to protect the interests of some people.
However, it did not address national economic difficulties, including the lack of competitiveness, investment decline, budget deficits and low national income.
It rejected the NEM and insisted on continuing the implementation of the New Economic Policy (NEP). However, it failed to suggest any positive and practical ideas to resolve the bias and abuses of the NEP.
The frustrated remarks made by Ibrahim and others have triggered the sentiments of some people and exaggerated their discontentment and resentment. At the same time, they have also created fear, anxiety, disappointment and frustration in some others.
It is a kind of negative energies that could tear the country apart.
Meanwhile, based on knowledge and rationality, the Chinese Economic Congress was concerned about problems encountered not only by the Chinese community, but the whole Malaysian society.
Entrepreneurs and academic speakers have underlined the obstacles faced by the Malay community and recommended the implementation of genuine inter-racial business co-operation.
The congress also proposed to reform the economic system, enhance education, attract talents to return, and attach importance to performance and productivity. Instead of concerning only the interests of a single racial group, the congress concerned about the overall national interests.
The congress has conveyed a positive message and provided the country a positive energy to progress.
In a rational society, we do not need emotions to dominate our wills. Instead, we must know how to resolve problems. — mysinchew.com
* This is the personal opinion of the writer or the publication. The Malaysian Insider does not endorse the view unless specified.
http://www.themalaysianinsider.com/breakingviews/article/two-congresses-two-directions-tay-tian-yan/
King Rats of the NEP, the Never Ending Policy
King Rats of the NEP – William Leong
August 17, 2010
Tan Sri Liew Kee Sin, chairman of SP Setia Bhd provided statistics to show that Malaysian Chinese businessmen have prospered and fared well under the pro-bumiputra New Economic Policy.
He said Chinese individuals controlled 73% of the wealth owned by the top 40 richest Malaysians and make up eight of the top 10 richest Malaysians. The people know who these persons are. Some of them are not only among the richest in Malaysia but in the world.
The people also know how they made their fortunes in the past 40 years. The complaint is not that there is no Malaysian Chinese, Indian, Sikh, Kadazan, Dusun, Iban or other non-bumiputra who has found fame and fortune under the NEP. There will always be those who will thrive even in the most brutal and oppressive regimes.
The complaint is that due to the abuses of the NEP, Malaysians have been deprived of their inalienable right to seek a livelihood with dignity.
Malaysians irrespective of race or religion is entitled to the inherent dignity and inalienable equal right to a livelihood and a standard of living adequate for the well being of himself and his family.
Malaysians are entitled to seek a livelihood with dignity. They need not in the struggle for survival have to be like the King Rat in James Clavell’s novel who engaged in bribery, corruption and black market activities to survive in a Japanese POW camp.
The King Rat, an enlisted man without distinction in civilian life becomes a major power in the prison camp by being the most successful trader through bribery and corruption and black marketeer.
The Japanese gave the prisoners nothing other than filthy huts to live in and the bare minimum of food. Officers were reduced to wearing rags and were closed to losing their humanity. Even the senior officers had to come to the King Rat for help in selling their valuables to buy food.
The King Rat thrived in the brutal environment of deprivation of a prison camp. The abuses of the NEP or its bastardization as described by Datuk Seri Nazir Razak, have created an environment that has spawned King Rats.
The implementation of the NEP required the government to grant wide discretionary powers to officers in approving licenses, permits and other instruments to intervene in economic activities.
By wielding such powers, it allowed such officers opportunities to seek payments from business tycoons to street vendors to obtain licences or approvals. Hawkers and street vendors have to make under counter payments before they are granted licences to eke out their meager earnings.
Business tycoons have to pay much more for their projects to move. This has given rise to both petty corruption and grand corruption. How else can you make a living in a country ranked 56 in the Transparency International Corruption Perception Index?
Malaysians should not be subjected to such indignities.
Tan Sri Liew called on the Chinese businessmen to work with their Malay counterparts. This has been done from the outset of the NEP. The disingenuous did not wait for Tan Sri Liew’s call. Many contracts given to the Malays were subcontracted to Chinese contractors.
Class F contracts are only given to bumiputra contractors selected according to the personal discretion of government officers or local council mayors and not by open tenders. The Ali Baba system has put paid to the noble objective of granting contracts, licenses and permits to Malay businessmen to uplift their economic status.
After 40 years and billions of ringgit in contracts 82 per cent of the rural poor and 67 per cent of the urban poor are still Malays. So long as the majority of Malays remain in poverty, Perkasa and the extremists will claim that the NEP must be continued. The NEP will then stand for the Never Ending Policy.
One cannot blame the Chinese and non-bumiputra contractors taking on the jobs as second, third or even fourth hand sub-contractors. They also have to survive. They also have needs. Many of these sub-sub contractors end up not being paid for the work they have done.
In many instances, the contractors at the top have taken payments upfront leaving nothing for the sub-contractors.
I know of many Chinese and non-bumiputra subcontractors who end up being bankrupts in this way. Why should these sub-subcontractors be forced to earn a living in this way? If Class F contracts are awarded based on needs and not race, much grief and suffering would be avoided for all involved.
Tan Sri Liew pointed out examples of the spectacular gains made by Chinese businessmen under the NEP. It must however be noted that due to the restrictions imposed by the NEP especially under the Industrial Co-ordination Act and key economic areas, Chinese businesses are not a force in manufacturing and they are no longer owners of the number of banks and finance companies they had before the 1970’s.
During the 1980’s the Associated Chinese Chambers of Commerce and Industry have repeatedly complained that if foreign investors were exempted from the obligatory Bumiputra equity participation requirements in their Malaysian enterprises, why were Chinese enterprise forced to bear the same obligation. The complaints fell on deaf ears. The consequential result was the tie up between the Chinese entrepreneurs and Malays who were influential politicians or former top level bureaucrats (including military).
This was not the objective of the NEP. The NEP was intended to be the catalyst for mutually equal tie-ups between Chinese and Malay entrepreneurs to strengthen Malaysian companies’ economic resilience. Instead it became a mix between business and politics.
In the long run this did not portend well for a healthy business or social–economic environment.
Tan Sri Liew said business was all about profits and not politics. Businessmen are in the business to make money. The King Rat when asked by the British captain who liberated the prison why the King Rat was in a far better health and condition than the other ragged, emaciated and sickly prisoners, he replied that there was no harm in looking out for number one.
The British captain retorted it was no harm provided it was not at others’ expense. Similarly there is no harm to continue the NEP provided it is not at others’ expense. In reality the costs and expense is too high and disproportionate to the gains.
A brief example is more than sufficient to illustrate the point. Under the NEP between 1995 and 2000, the Seventh Malaysia Plan for primary education development allocated 96.5 per cent to the national primary schools which had a total environment of only 75 per cent.
The Chinese primary schools which had a total enrollment of 21 per cent was allocated with only 2.4 per cent while Tamil schools with 3.6 per cent of the total enrollment was allocated one per cent of the budget.
Despite announcements by the government on a reduction of reliance on racial quotas for admission to public universities in 2004, 128 students who obtained the best possible grade of 5A’s were denied their first choice of course in medicine. The only thing they have in common is that they are not bumiputras.
Deputy International Trade and Industry Minister Datuk Mukhriz Tun Dr Mahathir informed the Dewan Negara on July 27 2010 that SME Bank from 2006 to June this year approved a total of RM9.8 billion loans involving 5,447 applications and other programmes of which 90 per cent of the beneficiaries are bumiputra SMI’s.
According to the Federation of Chinese Malaysia Youth Section Strategy Research Committee Head Professor Dr Chin Yew Sin there are about 519,000 SMEs in Malaysia and they have not received loans from the SME Bank.
The costs of the NEP to Malaysia among others, is the thousands of primary school children who have to do with less, the lost to the nation of the hundreds of brilliant and talented scholars who cannot realise their full potential and hundreds of thousands of small and medium enterprises who face financial difficulties because of race.
The whole world has recognised that inequality within a nation and between nations leads to poverty and generally poorer living conditions. A socially equal system should achieve fairness in distribution and opportunity among everyone. The NEP cannot drive Malaysia out of its present social-economic quagmire.
Just as in the novel, where the King Rat becomes the strongest in an environment that rewards cunning, luck and strength, he in the end becomes food for someone stronger, Malaysia cannot sustain its development in an environment where the bastardization of the NEP rewards the cunning and the disingenuous.
The nation can only prosper where integrity, ethics and good governance are practised. The few Malaysian Chinese businessmen who have thrived under this restricted environment cannot justify the continuance of the NEP and the social and economic losses suffered by all the others.
William Leong Jee Keen is the Member of Parliament for Selayang
* This is the personal opinion of the writer or the publication. The Malaysian Insider does not endorse the view unless specified.
http://www.themalaysianinsider.com/breakingviews/article/king-rats-of-the-nep-william-leong/
August 17, 2010
Tan Sri Liew Kee Sin, chairman of SP Setia Bhd provided statistics to show that Malaysian Chinese businessmen have prospered and fared well under the pro-bumiputra New Economic Policy.
He said Chinese individuals controlled 73% of the wealth owned by the top 40 richest Malaysians and make up eight of the top 10 richest Malaysians. The people know who these persons are. Some of them are not only among the richest in Malaysia but in the world.
The people also know how they made their fortunes in the past 40 years. The complaint is not that there is no Malaysian Chinese, Indian, Sikh, Kadazan, Dusun, Iban or other non-bumiputra who has found fame and fortune under the NEP. There will always be those who will thrive even in the most brutal and oppressive regimes.
The complaint is that due to the abuses of the NEP, Malaysians have been deprived of their inalienable right to seek a livelihood with dignity.
Malaysians irrespective of race or religion is entitled to the inherent dignity and inalienable equal right to a livelihood and a standard of living adequate for the well being of himself and his family.
Malaysians are entitled to seek a livelihood with dignity. They need not in the struggle for survival have to be like the King Rat in James Clavell’s novel who engaged in bribery, corruption and black market activities to survive in a Japanese POW camp.
The King Rat, an enlisted man without distinction in civilian life becomes a major power in the prison camp by being the most successful trader through bribery and corruption and black marketeer.
The Japanese gave the prisoners nothing other than filthy huts to live in and the bare minimum of food. Officers were reduced to wearing rags and were closed to losing their humanity. Even the senior officers had to come to the King Rat for help in selling their valuables to buy food.
The King Rat thrived in the brutal environment of deprivation of a prison camp. The abuses of the NEP or its bastardization as described by Datuk Seri Nazir Razak, have created an environment that has spawned King Rats.
The implementation of the NEP required the government to grant wide discretionary powers to officers in approving licenses, permits and other instruments to intervene in economic activities.
By wielding such powers, it allowed such officers opportunities to seek payments from business tycoons to street vendors to obtain licences or approvals. Hawkers and street vendors have to make under counter payments before they are granted licences to eke out their meager earnings.
Business tycoons have to pay much more for their projects to move. This has given rise to both petty corruption and grand corruption. How else can you make a living in a country ranked 56 in the Transparency International Corruption Perception Index?
Malaysians should not be subjected to such indignities.
Tan Sri Liew called on the Chinese businessmen to work with their Malay counterparts. This has been done from the outset of the NEP. The disingenuous did not wait for Tan Sri Liew’s call. Many contracts given to the Malays were subcontracted to Chinese contractors.
Class F contracts are only given to bumiputra contractors selected according to the personal discretion of government officers or local council mayors and not by open tenders. The Ali Baba system has put paid to the noble objective of granting contracts, licenses and permits to Malay businessmen to uplift their economic status.
After 40 years and billions of ringgit in contracts 82 per cent of the rural poor and 67 per cent of the urban poor are still Malays. So long as the majority of Malays remain in poverty, Perkasa and the extremists will claim that the NEP must be continued. The NEP will then stand for the Never Ending Policy.
One cannot blame the Chinese and non-bumiputra contractors taking on the jobs as second, third or even fourth hand sub-contractors. They also have to survive. They also have needs. Many of these sub-sub contractors end up not being paid for the work they have done.
In many instances, the contractors at the top have taken payments upfront leaving nothing for the sub-contractors.
I know of many Chinese and non-bumiputra subcontractors who end up being bankrupts in this way. Why should these sub-subcontractors be forced to earn a living in this way? If Class F contracts are awarded based on needs and not race, much grief and suffering would be avoided for all involved.
Tan Sri Liew pointed out examples of the spectacular gains made by Chinese businessmen under the NEP. It must however be noted that due to the restrictions imposed by the NEP especially under the Industrial Co-ordination Act and key economic areas, Chinese businesses are not a force in manufacturing and they are no longer owners of the number of banks and finance companies they had before the 1970’s.
During the 1980’s the Associated Chinese Chambers of Commerce and Industry have repeatedly complained that if foreign investors were exempted from the obligatory Bumiputra equity participation requirements in their Malaysian enterprises, why were Chinese enterprise forced to bear the same obligation. The complaints fell on deaf ears. The consequential result was the tie up between the Chinese entrepreneurs and Malays who were influential politicians or former top level bureaucrats (including military).
This was not the objective of the NEP. The NEP was intended to be the catalyst for mutually equal tie-ups between Chinese and Malay entrepreneurs to strengthen Malaysian companies’ economic resilience. Instead it became a mix between business and politics.
In the long run this did not portend well for a healthy business or social–economic environment.
Tan Sri Liew said business was all about profits and not politics. Businessmen are in the business to make money. The King Rat when asked by the British captain who liberated the prison why the King Rat was in a far better health and condition than the other ragged, emaciated and sickly prisoners, he replied that there was no harm in looking out for number one.
The British captain retorted it was no harm provided it was not at others’ expense. Similarly there is no harm to continue the NEP provided it is not at others’ expense. In reality the costs and expense is too high and disproportionate to the gains.
A brief example is more than sufficient to illustrate the point. Under the NEP between 1995 and 2000, the Seventh Malaysia Plan for primary education development allocated 96.5 per cent to the national primary schools which had a total environment of only 75 per cent.
The Chinese primary schools which had a total enrollment of 21 per cent was allocated with only 2.4 per cent while Tamil schools with 3.6 per cent of the total enrollment was allocated one per cent of the budget.
Despite announcements by the government on a reduction of reliance on racial quotas for admission to public universities in 2004, 128 students who obtained the best possible grade of 5A’s were denied their first choice of course in medicine. The only thing they have in common is that they are not bumiputras.
Deputy International Trade and Industry Minister Datuk Mukhriz Tun Dr Mahathir informed the Dewan Negara on July 27 2010 that SME Bank from 2006 to June this year approved a total of RM9.8 billion loans involving 5,447 applications and other programmes of which 90 per cent of the beneficiaries are bumiputra SMI’s.
According to the Federation of Chinese Malaysia Youth Section Strategy Research Committee Head Professor Dr Chin Yew Sin there are about 519,000 SMEs in Malaysia and they have not received loans from the SME Bank.
The costs of the NEP to Malaysia among others, is the thousands of primary school children who have to do with less, the lost to the nation of the hundreds of brilliant and talented scholars who cannot realise their full potential and hundreds of thousands of small and medium enterprises who face financial difficulties because of race.
The whole world has recognised that inequality within a nation and between nations leads to poverty and generally poorer living conditions. A socially equal system should achieve fairness in distribution and opportunity among everyone. The NEP cannot drive Malaysia out of its present social-economic quagmire.
Just as in the novel, where the King Rat becomes the strongest in an environment that rewards cunning, luck and strength, he in the end becomes food for someone stronger, Malaysia cannot sustain its development in an environment where the bastardization of the NEP rewards the cunning and the disingenuous.
The nation can only prosper where integrity, ethics and good governance are practised. The few Malaysian Chinese businessmen who have thrived under this restricted environment cannot justify the continuance of the NEP and the social and economic losses suffered by all the others.
William Leong Jee Keen is the Member of Parliament for Selayang
* This is the personal opinion of the writer or the publication. The Malaysian Insider does not endorse the view unless specified.
http://www.themalaysianinsider.com/breakingviews/article/king-rats-of-the-nep-william-leong/
Tuesday, 17 August 2010
Your best Investment Method
What is Your best Investment Method?
Stocks Market
Bonds
Gold
Forex
Real Estates
Gold and Stocks Market
Stock and Bond
All of the Above!
None
Stocks Market
Bonds
Gold
Forex
Real Estates
Gold and Stocks Market
Stock and Bond
All of the Above!
None
Classic example of herd mentality: Buying into small and micro-cap companies just because they have rallied on the bourses.
Ignore the herd, be your own master
Nikhil Walavalkar, ET Bureau
A teacher once asked a student, “If there are 10 sheep in a field and one escapes through a hole in the fence, how many are left?” Student answers, “None.” When the teacher berated the student for his poor maths, the student replied, “I know my maths, but you do not know about sheep.”
Some investors find it difficult to invest gainfully in equities because of behavioural issues. Here are some of the factors that investors should be careful about while investing in equities.
Herd mentality
Herd mentality means the sheep-like tendency to mimic others. “ Herd mentality can adversely impact an individual. When there is a scarcity of resources, it can be fatal,” says Om Ahuja, head – wealth management & strategy, Emkay Global Financial Services.
Most of the time, it leads to bad investment decisions as an individual ends up buying something unsuitable for his needs. Buying into small and micro-cap companies just because they have rallied on the bourses is a classic example of herd mentality. In most cases, followers fail to notice a change in the trend and incur losses. Unfortunately, blind followers return when they spot a herd to follow.
One can look at this from another angle. People tend to purchase a financial product when they get a call from a distributor who also tells that your best friend or neighbour has also bought it.
Anchoring
We tend to value our assets using certain reference points which may have no relevance to the present market condition. For instance, many assume that when a stock hits a 52-week high, it is time to book profits. Since listing, HDFC has hit 52-week highs several times.
Had you sold because the stock has hit a 52-week high, you would have lost heavily on opportunity. “The price point that an investor gets anchored to is the cost price, and if the stock goes down and the investor does not book loss, he aggravates his loss,” says Jayant Pai, vice-president, Parag Parikh Financial Advisory Services.
A similar example of anchoring can be seen in other day-to-day decisions like sales. Buyers may travel an hour to throng a sale offering 50% discount, even if the value of the purchase is a few hundred rupees, but he may ignore a 0.5% discount on something that costs tens of thousands of rupees.
Overweighing what can be counted
Albert Einstein got it right when he remarked, “Not everything that counts can be counted and not everything that can be counted, counts.” Many a time investors come across a stock that seems to be ignored by market forces. Such stocks represent a business with sustained rise in profits, return ratios higher than industry norms and a fantastic looking business model. For years the market has not given the stock its due and it quotes at bizarre valuations.
In heady markets such as the one we are living in, such hidden gems come forth and naive investors fall for them. Barring stray instances, they land on the wrong side. The reasons remain in the not measurable segment of analysis.
Endowment effect
It is the ‘endowment effect’ that blindfolds many investors when the stocks they hold start their downward journey. Individuals believe that the things they own are worth more than their real worth. Investors are no different. The stocks owned by them are seen to be more valuable than their actual worth. Investors find reasons to substantiate why they bought a stock and why they were holding on to a particular stock.
Theme junkies
To a man with a hammer, everything looks like a nail. When investors have only one idea, it can be a very dangerous situation. Especially, if the idea is a borrowed one, it can be fatal. When investors hear themes such as ‘India consumption’, there is a tendency to go for it and scenario starts worsening when investors try to look at ‘consumption’ in each and every stock they come across. Instead of being objective, investors try to rationalise and incur losses in the long term.
Incentive-caused bias
“Never ask a barber whether you need a haircut,” goes the old saying. Some lawyers induce clients to litigate when it is in the clients’ interest to settle and some doctors prescribe high-cost treatment when they could have treated the patients with a cheaper solution. These are classic instances of incentive-caused bias. In financial markets, we come across many such barbers – read intermediaries with vested interests. Sell-side analysts – analysts who recommend stocks to others – are a classic case in point. Typically, a sell-side analyst has more of ‘buy’ recommendations than ‘sell’ recommendations. They are to be watched out more carefully in boom phases.
On the other hand, there are some distributors offering investors products that offer the distributors higher fees or commissions and are not in the best interest of the investors.
http://economictimes.indiatimes.com/quickiearticleshow/6317492.cms
Nikhil Walavalkar, ET Bureau
A teacher once asked a student, “If there are 10 sheep in a field and one escapes through a hole in the fence, how many are left?” Student answers, “None.” When the teacher berated the student for his poor maths, the student replied, “I know my maths, but you do not know about sheep.”
Some investors find it difficult to invest gainfully in equities because of behavioural issues. Here are some of the factors that investors should be careful about while investing in equities.
Herd mentality
Herd mentality means the sheep-like tendency to mimic others. “ Herd mentality can adversely impact an individual. When there is a scarcity of resources, it can be fatal,” says Om Ahuja, head – wealth management & strategy, Emkay Global Financial Services.
Most of the time, it leads to bad investment decisions as an individual ends up buying something unsuitable for his needs. Buying into small and micro-cap companies just because they have rallied on the bourses is a classic example of herd mentality. In most cases, followers fail to notice a change in the trend and incur losses. Unfortunately, blind followers return when they spot a herd to follow.
One can look at this from another angle. People tend to purchase a financial product when they get a call from a distributor who also tells that your best friend or neighbour has also bought it.
Anchoring
We tend to value our assets using certain reference points which may have no relevance to the present market condition. For instance, many assume that when a stock hits a 52-week high, it is time to book profits. Since listing, HDFC has hit 52-week highs several times.
Had you sold because the stock has hit a 52-week high, you would have lost heavily on opportunity. “The price point that an investor gets anchored to is the cost price, and if the stock goes down and the investor does not book loss, he aggravates his loss,” says Jayant Pai, vice-president, Parag Parikh Financial Advisory Services.
A similar example of anchoring can be seen in other day-to-day decisions like sales. Buyers may travel an hour to throng a sale offering 50% discount, even if the value of the purchase is a few hundred rupees, but he may ignore a 0.5% discount on something that costs tens of thousands of rupees.
Overweighing what can be counted
Albert Einstein got it right when he remarked, “Not everything that counts can be counted and not everything that can be counted, counts.” Many a time investors come across a stock that seems to be ignored by market forces. Such stocks represent a business with sustained rise in profits, return ratios higher than industry norms and a fantastic looking business model. For years the market has not given the stock its due and it quotes at bizarre valuations.
In heady markets such as the one we are living in, such hidden gems come forth and naive investors fall for them. Barring stray instances, they land on the wrong side. The reasons remain in the not measurable segment of analysis.
Endowment effect
It is the ‘endowment effect’ that blindfolds many investors when the stocks they hold start their downward journey. Individuals believe that the things they own are worth more than their real worth. Investors are no different. The stocks owned by them are seen to be more valuable than their actual worth. Investors find reasons to substantiate why they bought a stock and why they were holding on to a particular stock.
Theme junkies
To a man with a hammer, everything looks like a nail. When investors have only one idea, it can be a very dangerous situation. Especially, if the idea is a borrowed one, it can be fatal. When investors hear themes such as ‘India consumption’, there is a tendency to go for it and scenario starts worsening when investors try to look at ‘consumption’ in each and every stock they come across. Instead of being objective, investors try to rationalise and incur losses in the long term.
Incentive-caused bias
“Never ask a barber whether you need a haircut,” goes the old saying. Some lawyers induce clients to litigate when it is in the clients’ interest to settle and some doctors prescribe high-cost treatment when they could have treated the patients with a cheaper solution. These are classic instances of incentive-caused bias. In financial markets, we come across many such barbers – read intermediaries with vested interests. Sell-side analysts – analysts who recommend stocks to others – are a classic case in point. Typically, a sell-side analyst has more of ‘buy’ recommendations than ‘sell’ recommendations. They are to be watched out more carefully in boom phases.
On the other hand, there are some distributors offering investors products that offer the distributors higher fees or commissions and are not in the best interest of the investors.
http://economictimes.indiatimes.com/quickiearticleshow/6317492.cms
Monday, 16 August 2010
“What is Value Investing” : Invest using a business-like approach
Invest using a business-like approach
Tags: Capital Dynamics | invest | Tan Teng Boo
Written by Surin Murugiah
Monday, 16 August 2010 11:31
KUALA LUMPUR: People who intend to invest in the equity markets must use a business-like approach to derive the best returns from their investments.
“Investors should invest in shares using the same process that they would apply if they were to buy the entire business,” said Capital Dynamics managing director Tan Teng Boo.
“They should buy or sell based on valuations.”
Citing Benjamin Graham, the founder of the value investing theory, Tan said investing was most intelligent when it was business-like.
Speaking at the inaugural investor day of icapital.biz Bhd, Tan’s presentation entitled “What is Value Investing” focused on how it was crucial for investors to be patient to reap the highest returns.
Using the analogy of buying a business concern, Tan said investors should analyse the business of a company before deciding to buy its shares.
He said they must get a general idea of the nature of the business by reading its annual reports, as well as understand the long-term economics of the business.
Quoting Warren Buffett, he said if a business was doing well, the stock eventually followed suit.
“For example, if they want to buy the shares of a newspaper, they should look at advertising revenue patterns.
“They must also look at the increasing trend of internet advertising and how these could affect newspapers,” he said.
Tan said it was also important to assess the calibre of the people managing the business.
“You should go over the financial numbers of the company, derive its intrinsic value and compare it with the market price.
“A stock is undervalued if the intrinsic value is more than the share price, overvalued if the former is lower than the share price and fairly valued when the two are equal,” he said.
He said it was also important in valuing a company to look at its free cash flow, meaning cash that was available after excluding capital expenditure and working capital requirements.
Tan said investors should buy only when the stock price was lower than the intrinsic value, adding that intrinsic value was long-term in nature.
He said value investing did not require high IQ, but patience and discipline.
“These are the two most difficult qualities. A value investor is not interested in being right temporarily, but more on a sustained manner,” he said.
Tan concluded by citing a statement from Buffett: “If you have to go through too much investigation, something is wrong.”
This article appeared in The Edge Financial Daily, August 16, 2010.
Capital Dynamics: Leading indicators have peaked
Capital Dynamics: Leading indicators have peaked
Tags: Capital Dynamics | FBM KLCI | iCapital.Biz Bhd | Malaysian economy
Written by Surin Murugiah
Monday, 16 August 2010 11:42
KUALA LUMPUR: Capital Dynamics forecasts the Malaysian economy to grow between 6.3% and 6.7% this year and between 5% and 5.5% in 2011.
It said the leading indicators had peaked, meaning growth was high in the first half of 2010 (due to a low base last year) and was expected to moderate next year. It said manufacturing and exports played an important role to support the economy.
“But, we still must look out for developments in the US, Europe and Japan, should demand taper down,” it said.
The fund management company also expects a correction on Bursa Malaysia Securities in the short term (seven to eight months), with immediate support for the FBM KLCI at 1,250 points. It maintains a bearish outlook in the medium term, adding that over the last six months, the local stock market had been volatile, with the technical charts showing bearish indicators.
“The 100- and 200-day moving averages have shown a worrying trend,” it said at the inaugural investor day of icapital.biz Bhd. “We need to look out for confirmation signals.”
On the Malaysian economy, Capital Dynamics said the country had been lagging its regional peers in recent years. “In terms of income per capita, Indonesia overtook Malaysia in 2009. In 1968, Malaysian per capita income was double that of Singapore. Now, Singapore is more than four times higher,” it said.
In terms of budget deficit and government debt, the country was looking more like Greece, it said. “Indonesia, which has outperformed Malaysia since 2005, is still lowering its government debt. Malaysia’s investing spending, on the other hand, has been on the decline,” it said.
On foreign direct investments (FDI), it said Malaysia suffered the worst dip in 2009 compared with its regional neighbours, all of which had attracted at least double or triple the FDI into Malaysia.
Former prime minister Tun Dr Mahathir Mohamed had recently said that FDI into the country was low because foreign countries lacked funds. “If that were the case, why then are the others still getting FDI?” Capital Dynamics asked. “If we look at US corporate earnings, it is still strong.”
The fund manager also said Malaysia needed to up the ante to create a competitive work environment to improve productivity. “About 83% of those employed by Malaysian manufacturers have Sijil Pelajaran Malaysia or lower qualifications. In terms of productivity growth, from 2000 to 2009, we are still lagging Thailand and Indonesia.”
No double dip for China
Capital Dynamics forecasts China’s economy to grow between 9.5% and 10.5% this year, while in 2011, real GDP growth would be at 8% to 9%, driven by consumption growth.
It said there was no danger of a double dip for China, and the Chinese authorities’ fiscal stimulus plans had boosted economic activities. “In 1H2010, real GDP was 11.1%, investments were up 25%. Investments and private consumption are still the biggest contributors,” it said.
It said while Beijing had taken steps to arrest the overheating of its property market, the measures would not cause a collapse of the demand for houses, because while the authorities had curbed speculative activity, they did not raise interest rates.
“The measures were aimed at purchases of second or third homes, so demand from first-time house buyers will still be there,” it said.
It also said, as the Chinese tended to purchase homes using about 50% from their personal savings, there was less danger to the banking system. “Mortgage loans work out to only about 10% to 15% of GDP versus 70% in the US. Household incomes also rose faster than the rise of house prices, so there is no issue of affordability,” it said.
US on the mend
The US economy has been on the mend, with improvements in the demand for durable goods as well as retail sales, while its external trade was also increasing, Capital Dynamics said. It forecasts US GDP to grow 3.7% in 1H2010 and 2.5% to 3% in 2H.
“For the full year, we forecast 2010 growth at between 2.7% and 3.2%, while for next year it will be 2.5% to 3%.”
It said there were five challenges for the US —the fading effects of the temporary stimulus packages; an impaired housing market; high unemployment; unusually uncertain global outlook; and managing the exit from its extraordinary policies.
Capital Dynamics said it did not foresee a double dip for the US economy. “But, there has to be sustained growth over the broad areas of the economy.” Addressing the challenges for the US, it said the world’s biggest economy was turning towards more sustainable sources of growth, which was a positive sign.
On housing, it said the market had bottomed out, so it was bound to move up, and added that mortgage delinquencies had peaked. “US house prices are now more affordable and mortgage rates are at record low,” it said.
On unemployment, Capital Dynamics said recent corporate earnings indicated that companies had the cash, but much of it went towards capital spending.
“Also, due to market uncertainty, many companies want to retain cash in case they have to face another financial downturn.
“Furthermore, the Obama administration is pushing for several Bills, so employers might want to wait out and see the implications of these laws, on whether it would be more expensive to hire,” it said.
However, it said employers would soon have to start hiring, when demand increases for their products.
A more pressing issue for the US were the external factors, especially the overhanging eurozone debt worries.
“But so far, the European authorities have demonstrated the political will to carry on with the measures, to ensure that Europe does not suffer the same fate as Lehman Brothers in the US,” it said.
This article appeared in The Edge Financial Daily, August 16, 2010.
Tags: Capital Dynamics | FBM KLCI | iCapital.Biz Bhd | Malaysian economy
Written by Surin Murugiah
Monday, 16 August 2010 11:42
KUALA LUMPUR: Capital Dynamics forecasts the Malaysian economy to grow between 6.3% and 6.7% this year and between 5% and 5.5% in 2011.
It said the leading indicators had peaked, meaning growth was high in the first half of 2010 (due to a low base last year) and was expected to moderate next year. It said manufacturing and exports played an important role to support the economy.
“But, we still must look out for developments in the US, Europe and Japan, should demand taper down,” it said.
The fund management company also expects a correction on Bursa Malaysia Securities in the short term (seven to eight months), with immediate support for the FBM KLCI at 1,250 points. It maintains a bearish outlook in the medium term, adding that over the last six months, the local stock market had been volatile, with the technical charts showing bearish indicators.
“The 100- and 200-day moving averages have shown a worrying trend,” it said at the inaugural investor day of icapital.biz Bhd. “We need to look out for confirmation signals.”
On the Malaysian economy, Capital Dynamics said the country had been lagging its regional peers in recent years. “In terms of income per capita, Indonesia overtook Malaysia in 2009. In 1968, Malaysian per capita income was double that of Singapore. Now, Singapore is more than four times higher,” it said.
In terms of budget deficit and government debt, the country was looking more like Greece, it said. “Indonesia, which has outperformed Malaysia since 2005, is still lowering its government debt. Malaysia’s investing spending, on the other hand, has been on the decline,” it said.
On foreign direct investments (FDI), it said Malaysia suffered the worst dip in 2009 compared with its regional neighbours, all of which had attracted at least double or triple the FDI into Malaysia.
Former prime minister Tun Dr Mahathir Mohamed had recently said that FDI into the country was low because foreign countries lacked funds. “If that were the case, why then are the others still getting FDI?” Capital Dynamics asked. “If we look at US corporate earnings, it is still strong.”
The fund manager also said Malaysia needed to up the ante to create a competitive work environment to improve productivity. “About 83% of those employed by Malaysian manufacturers have Sijil Pelajaran Malaysia or lower qualifications. In terms of productivity growth, from 2000 to 2009, we are still lagging Thailand and Indonesia.”
No double dip for China
Capital Dynamics forecasts China’s economy to grow between 9.5% and 10.5% this year, while in 2011, real GDP growth would be at 8% to 9%, driven by consumption growth.
It said there was no danger of a double dip for China, and the Chinese authorities’ fiscal stimulus plans had boosted economic activities. “In 1H2010, real GDP was 11.1%, investments were up 25%. Investments and private consumption are still the biggest contributors,” it said.
It said while Beijing had taken steps to arrest the overheating of its property market, the measures would not cause a collapse of the demand for houses, because while the authorities had curbed speculative activity, they did not raise interest rates.
“The measures were aimed at purchases of second or third homes, so demand from first-time house buyers will still be there,” it said.
It also said, as the Chinese tended to purchase homes using about 50% from their personal savings, there was less danger to the banking system. “Mortgage loans work out to only about 10% to 15% of GDP versus 70% in the US. Household incomes also rose faster than the rise of house prices, so there is no issue of affordability,” it said.
US on the mend
The US economy has been on the mend, with improvements in the demand for durable goods as well as retail sales, while its external trade was also increasing, Capital Dynamics said. It forecasts US GDP to grow 3.7% in 1H2010 and 2.5% to 3% in 2H.
“For the full year, we forecast 2010 growth at between 2.7% and 3.2%, while for next year it will be 2.5% to 3%.”
It said there were five challenges for the US —the fading effects of the temporary stimulus packages; an impaired housing market; high unemployment; unusually uncertain global outlook; and managing the exit from its extraordinary policies.
Capital Dynamics said it did not foresee a double dip for the US economy. “But, there has to be sustained growth over the broad areas of the economy.” Addressing the challenges for the US, it said the world’s biggest economy was turning towards more sustainable sources of growth, which was a positive sign.
On housing, it said the market had bottomed out, so it was bound to move up, and added that mortgage delinquencies had peaked. “US house prices are now more affordable and mortgage rates are at record low,” it said.
On unemployment, Capital Dynamics said recent corporate earnings indicated that companies had the cash, but much of it went towards capital spending.
“Also, due to market uncertainty, many companies want to retain cash in case they have to face another financial downturn.
“Furthermore, the Obama administration is pushing for several Bills, so employers might want to wait out and see the implications of these laws, on whether it would be more expensive to hire,” it said.
However, it said employers would soon have to start hiring, when demand increases for their products.
A more pressing issue for the US were the external factors, especially the overhanging eurozone debt worries.
“But so far, the European authorities have demonstrated the political will to carry on with the measures, to ensure that Europe does not suffer the same fate as Lehman Brothers in the US,” it said.
This article appeared in The Edge Financial Daily, August 16, 2010.
Bank fraud: know your rights
Bank fraud: know your rights
Adam Courtenay
August 10, 2010
Short of being physically held up by thieves, one of the more disquieting modern day experiences is being pilfered electronically.
Anyone who has had an account stripped clean of cash, either online, through credit card fraud or by card skimming, will know all about the panic and fear that ensues.
These were the emotions that overcame Peter Westhuyzen* when he discovered on a Monday morning earlier this year that his cheque account at St George had been plundered of $4000.
He immediately phoned St George, who asked him to report the theft to his branch in central Sydney. He knew one thing – he only ever used a single ATM in Sydney’s CBD. When he arrived early at the branch, Westhuyzen discovered about 30 other people waiting outside who had been similarly hit over the weekend.
All had used the same ATM and all had had money stripped via another ATM based in Canberra. Some had even been double-fleeced, once from the Canberra ATM and a second time from another in London.
It is believed a skimming device had been fitted at the “mouth” of the machine to copy the person’s card details. A micro-camera would then have been installed by the thieves to capture the pin number as the person keyed it in. The gang would have then transferred the skimmed data to a counterfeit card and the robberies were easily perpetrated remotely.
Most new machines have shields placed onto their key pads, or are chip and pin “capable”. That is, they use computer chips to store information rather than the more easily-cloned magnetic stripes. All Australian ATMs must be chip and pin “capable” by January 1, 2011. Westhuyzen was swiftly reimbursed as it was clear the fraud had occurred on a large scale. Generally, in obvious cases such as the above, banks refund quickly.
What basic protections do customers have? Banks, credit unions and building societies must subscribe to the Electronic Funds Transfer Code, which protects consumers who use electronic banking such as ATMs and Eftpos, or telephone and internet banking, to transfer funds.
The Australian Securities and Investment Commission has a detailed “Fido” page on its website, which clearly details the rights of customers – and the obligations of banks – when fraud occurs.
Customers are only liable if they are said to have acted with “extreme carelessness”. This may mean that they had given their pin number or online contact details to a friend or family member, but questions may also arise if a theft has not been promptly or accurately reported.
ANZ has a Fraud Money-Back Guarantee which will fully re-credit a customer’s account “as long as they have not contributed to the loss and have notified the bank promptly”. The bank will reimburse claims of up to $10,000 within five business days of receiving completed documentation.
In most cases customers are sent out dispute forms and asked to indicate which transactions were fraudulent. “We send this through to customer repatriation and people generally get their money back within a week," says Brett Small, head of financial crime at National Australia Bank.
Online, things are less clear. Is responding to a convincing “phishing” email tantamount to “extreme carelessness”? In these cases customers are sent an email, and from there induced by a fake website to give out account details. If a bank site has been cloned, is it the fault of the bank or personal negligence on the customer’s part?
Gary Schwartz, an IT expert who runs the website jargonfreehelp.com, says it is worth having up-to-date security software on personal computers to help disprove any possible charge of negligence. All the same, he agrees software plays only a small part in protecting bank, credit card details and other accounts like PayPal, where money is moved.
"Common sense plays the biggest part in all this," Schwartz says. "If you get an email with links to your bank, PayPal or any other website that requires a login to an account, do not click on the link, go to your browser and type in the website address to see if it is the real thing."
Banks claim their protective technology is now more proactive than reactive. Small says NAB can now detect 90 per cent of fraud cases “within minutes or seconds”. The big four banks use technology that throws up red flags when transactions fall outside the customer’s normal usage patterns – patterns based on geography, amount and time.
“It would ask why a transaction is happening at 2.00 am, and why in the UK? We can see hundreds of anomalies in real time and stop it in real time if necessary,” Small explains.
There are now also extra layers of security such as tokens which display changing numbers that must be punched in to complete an online transfer, as well as SMS alerts to inform customers of any large money movements.
There are times when the bank will question the validity of a fraud, and in these situations, things may not go so smoothly. Small says a bank has to protect itself from false “victims” and the bank has a highly trained team of fraud examiners which will question customers – politely, of course.
“We ask the customer to fill out a statutory declaration and also a police report. These are measures designed to make them think twice [about committing a fraud],” he says.
*Not his real name.
http://www.smh.com.au/money/on-the-money/bank-fraud-know-your-rights-20100810-11ums.html
Adam Courtenay
August 10, 2010
Short of being physically held up by thieves, one of the more disquieting modern day experiences is being pilfered electronically.
Anyone who has had an account stripped clean of cash, either online, through credit card fraud or by card skimming, will know all about the panic and fear that ensues.
These were the emotions that overcame Peter Westhuyzen* when he discovered on a Monday morning earlier this year that his cheque account at St George had been plundered of $4000.
He immediately phoned St George, who asked him to report the theft to his branch in central Sydney. He knew one thing – he only ever used a single ATM in Sydney’s CBD. When he arrived early at the branch, Westhuyzen discovered about 30 other people waiting outside who had been similarly hit over the weekend.
All had used the same ATM and all had had money stripped via another ATM based in Canberra. Some had even been double-fleeced, once from the Canberra ATM and a second time from another in London.
It is believed a skimming device had been fitted at the “mouth” of the machine to copy the person’s card details. A micro-camera would then have been installed by the thieves to capture the pin number as the person keyed it in. The gang would have then transferred the skimmed data to a counterfeit card and the robberies were easily perpetrated remotely.
Most new machines have shields placed onto their key pads, or are chip and pin “capable”. That is, they use computer chips to store information rather than the more easily-cloned magnetic stripes. All Australian ATMs must be chip and pin “capable” by January 1, 2011. Westhuyzen was swiftly reimbursed as it was clear the fraud had occurred on a large scale. Generally, in obvious cases such as the above, banks refund quickly.
What basic protections do customers have? Banks, credit unions and building societies must subscribe to the Electronic Funds Transfer Code, which protects consumers who use electronic banking such as ATMs and Eftpos, or telephone and internet banking, to transfer funds.
The Australian Securities and Investment Commission has a detailed “Fido” page on its website, which clearly details the rights of customers – and the obligations of banks – when fraud occurs.
Customers are only liable if they are said to have acted with “extreme carelessness”. This may mean that they had given their pin number or online contact details to a friend or family member, but questions may also arise if a theft has not been promptly or accurately reported.
ANZ has a Fraud Money-Back Guarantee which will fully re-credit a customer’s account “as long as they have not contributed to the loss and have notified the bank promptly”. The bank will reimburse claims of up to $10,000 within five business days of receiving completed documentation.
In most cases customers are sent out dispute forms and asked to indicate which transactions were fraudulent. “We send this through to customer repatriation and people generally get their money back within a week," says Brett Small, head of financial crime at National Australia Bank.
Online, things are less clear. Is responding to a convincing “phishing” email tantamount to “extreme carelessness”? In these cases customers are sent an email, and from there induced by a fake website to give out account details. If a bank site has been cloned, is it the fault of the bank or personal negligence on the customer’s part?
Gary Schwartz, an IT expert who runs the website jargonfreehelp.com, says it is worth having up-to-date security software on personal computers to help disprove any possible charge of negligence. All the same, he agrees software plays only a small part in protecting bank, credit card details and other accounts like PayPal, where money is moved.
"Common sense plays the biggest part in all this," Schwartz says. "If you get an email with links to your bank, PayPal or any other website that requires a login to an account, do not click on the link, go to your browser and type in the website address to see if it is the real thing."
Banks claim their protective technology is now more proactive than reactive. Small says NAB can now detect 90 per cent of fraud cases “within minutes or seconds”. The big four banks use technology that throws up red flags when transactions fall outside the customer’s normal usage patterns – patterns based on geography, amount and time.
“It would ask why a transaction is happening at 2.00 am, and why in the UK? We can see hundreds of anomalies in real time and stop it in real time if necessary,” Small explains.
There are now also extra layers of security such as tokens which display changing numbers that must be punched in to complete an online transfer, as well as SMS alerts to inform customers of any large money movements.
There are times when the bank will question the validity of a fraud, and in these situations, things may not go so smoothly. Small says a bank has to protect itself from false “victims” and the bank has a highly trained team of fraud examiners which will question customers – politely, of course.
“We ask the customer to fill out a statutory declaration and also a police report. These are measures designed to make them think twice [about committing a fraud],” he says.
*Not his real name.
http://www.smh.com.au/money/on-the-money/bank-fraud-know-your-rights-20100810-11ums.html
Beware a trillion dollars lying under Chinese mattress
Beware a trillion dollars lying under Chinese mattress
William Pesek
August 16, 2010 - 7:51AM
Now that's one big mattress.
Last week, we learned China's households hide as much as 9.3 trillion yuan ($US1.4 trillion) of income not reported in official figures - 80 per cent of it by the nation's wealthiest. This massive pile of stashed cash is equal to about 30 per cent of gross domestic product.
There may be both good and bad news in the above study conducted for Credit Suisse Group AG. The good: it lends credence to the domestic-demand story for Chinese growth. It turns out, the average urban disposable household income is 32,154 yuan, or 90 per cent more than official figures. The bad: China's rich-poor gap may be much bigger than we realise.
China's "Gini coefficient," a statistical measure of wealth equality, has long been too high. In May, the Economic Information Daily, a government-affiliated newspaper, said the figure reached 0.47, higher than the recognised "warning level" of 0.4.
Things may be far worse in the most populous nation. A widening wealth disparity will lead to trouble down the road for 1.3 billion Chinese and investors betting on stability in an economy that may already be the second-largest.
Nothing spooks the Communist Party like social unrest. Its conviction to snuff it out whenever and wherever it occurs was behind the 4 trillion-yuan stimulus package in 2008. Reducing income disparities is a top goal of President Hu Jintao and Premier Wen Jiabao to stave off riots, strikes and other unrest that might threaten the party's six-decade rule.
Harder, Faster
They need to work much harder and much faster. The risk is that they may start believing their own press.
The story getting the most mileage is China's economic brawn. Its $US2.5 trillion of currency reserves is viewed as a nice insurance policy against trouble in markets. News that China bought $US20 billion more Japanese bonds than it sold in the first half of 2010, the fastest pace of purchases in at least five years, is seen as a passing of the torch in Asia.
In a way, it is. Japanese officials have done a poor job of disguising their glee over China supporting their debt. Government and Bank of Japan officials are concerned about their own nation's ability to finance a widening budget deficit. The desperation was fairly clear in a recent advertising campaign that suggested Japanese women are attracted to guys who invest in government bonds.
China's Fragilities
Investors haven't gotten rich betting against China. Yet China's fragilities need tending to, and now, if its development is to be sustainable.
The condition of China's state-owned banks is a concern for investors, and rightfully so. China plans to stress-test banks to assess how a big drop in property prices would affect the financial system. Officials should make sure the process is more thorough and transparent than in the US, Europe or Japan.
Social unrest is a bigger risk. Much of China's hidden income may be "illegal or quasi-illegal," according to the Credit Suisse study, published by the China Reform Foundation.
It should be no surprise that a nation growing 10 per cent has a healthy gray economy running in parallel. That's what happens when an all-powerful, top-down government mixes with vast supplies of capital. Crony capital thrives, be it kickbacks from construction projects, gifts to officials at weddings, payoffs from state monopolies such as the tobacco industry or spreading profits from land transfers.
Corruption's Price
This corruption comes at a huge price. The inefficiencies it breeds feed disparities in economic opportunities, income and the distribution of assets, such as property. The degree of social conflict inherent in China's rise is becoming more apparent. Just ask the folks at Toyota Motor Corp and Honda Motor Co dealing with strikes and demands for higher wages.
The most dangerous aspect of China's trajectory is how, well, American it looks. The concentration of wealth among the richest Chinese helps explain a surge in spending on luxury goods. As Japanese sales wane, posh brands can't open Chinese stores fast enough. Last year, Gucci opened one in Shijiazhuang, the capital of Hebei province, selling $US4000 snakeskin purses. That's about twice the city's official annual per-capita income.
China's social fabric is under pressure. This year's employee suicides at Foxconn Technology Group are a case in point. So is the spate of deadly attacks on schoolchildren, which press reports suggest are related to grievances with local governments. Last week, the New York Times reported on growing violence against doctors in the northeastern city of Shenyang.
China has done a remarkable job raising living standards for millions. The reason it sucks up so much attention and investment is genuine progress. While its challenges are many, China is leaving India far behind in tackling poverty. Now, its wealth balance is heading in the wrong direction.
You can censor Google Inc.'s search engine. You can't hide the fact that a handful of Chinese are getting very rich from the billion-plus workers being left behind. Anger will rise, tempers will flare and things could get out of control. Try stuffing that under a mattress.
Bloomberg
William Pesek
August 16, 2010 - 7:51AM
Now that's one big mattress.
Last week, we learned China's households hide as much as 9.3 trillion yuan ($US1.4 trillion) of income not reported in official figures - 80 per cent of it by the nation's wealthiest. This massive pile of stashed cash is equal to about 30 per cent of gross domestic product.
There may be both good and bad news in the above study conducted for Credit Suisse Group AG. The good: it lends credence to the domestic-demand story for Chinese growth. It turns out, the average urban disposable household income is 32,154 yuan, or 90 per cent more than official figures. The bad: China's rich-poor gap may be much bigger than we realise.
China's "Gini coefficient," a statistical measure of wealth equality, has long been too high. In May, the Economic Information Daily, a government-affiliated newspaper, said the figure reached 0.47, higher than the recognised "warning level" of 0.4.
Things may be far worse in the most populous nation. A widening wealth disparity will lead to trouble down the road for 1.3 billion Chinese and investors betting on stability in an economy that may already be the second-largest.
Nothing spooks the Communist Party like social unrest. Its conviction to snuff it out whenever and wherever it occurs was behind the 4 trillion-yuan stimulus package in 2008. Reducing income disparities is a top goal of President Hu Jintao and Premier Wen Jiabao to stave off riots, strikes and other unrest that might threaten the party's six-decade rule.
Harder, Faster
They need to work much harder and much faster. The risk is that they may start believing their own press.
The story getting the most mileage is China's economic brawn. Its $US2.5 trillion of currency reserves is viewed as a nice insurance policy against trouble in markets. News that China bought $US20 billion more Japanese bonds than it sold in the first half of 2010, the fastest pace of purchases in at least five years, is seen as a passing of the torch in Asia.
In a way, it is. Japanese officials have done a poor job of disguising their glee over China supporting their debt. Government and Bank of Japan officials are concerned about their own nation's ability to finance a widening budget deficit. The desperation was fairly clear in a recent advertising campaign that suggested Japanese women are attracted to guys who invest in government bonds.
China's Fragilities
Investors haven't gotten rich betting against China. Yet China's fragilities need tending to, and now, if its development is to be sustainable.
The condition of China's state-owned banks is a concern for investors, and rightfully so. China plans to stress-test banks to assess how a big drop in property prices would affect the financial system. Officials should make sure the process is more thorough and transparent than in the US, Europe or Japan.
Social unrest is a bigger risk. Much of China's hidden income may be "illegal or quasi-illegal," according to the Credit Suisse study, published by the China Reform Foundation.
It should be no surprise that a nation growing 10 per cent has a healthy gray economy running in parallel. That's what happens when an all-powerful, top-down government mixes with vast supplies of capital. Crony capital thrives, be it kickbacks from construction projects, gifts to officials at weddings, payoffs from state monopolies such as the tobacco industry or spreading profits from land transfers.
Corruption's Price
This corruption comes at a huge price. The inefficiencies it breeds feed disparities in economic opportunities, income and the distribution of assets, such as property. The degree of social conflict inherent in China's rise is becoming more apparent. Just ask the folks at Toyota Motor Corp and Honda Motor Co dealing with strikes and demands for higher wages.
The most dangerous aspect of China's trajectory is how, well, American it looks. The concentration of wealth among the richest Chinese helps explain a surge in spending on luxury goods. As Japanese sales wane, posh brands can't open Chinese stores fast enough. Last year, Gucci opened one in Shijiazhuang, the capital of Hebei province, selling $US4000 snakeskin purses. That's about twice the city's official annual per-capita income.
China's social fabric is under pressure. This year's employee suicides at Foxconn Technology Group are a case in point. So is the spate of deadly attacks on schoolchildren, which press reports suggest are related to grievances with local governments. Last week, the New York Times reported on growing violence against doctors in the northeastern city of Shenyang.
China has done a remarkable job raising living standards for millions. The reason it sucks up so much attention and investment is genuine progress. While its challenges are many, China is leaving India far behind in tackling poverty. Now, its wealth balance is heading in the wrong direction.
You can censor Google Inc.'s search engine. You can't hide the fact that a handful of Chinese are getting very rich from the billion-plus workers being left behind. Anger will rise, tempers will flare and things could get out of control. Try stuffing that under a mattress.
Bloomberg
Tan Teng Boo of iCap said there are a lot of undervalued stocks on Bursa Malaysia.
iCapital.biz sees 7pc GDP growth
By Azlan Abu BakarPublished: 2010/08/16
MALAYSIA could record a positive gross domestic growth (GDP) for 2010 although almost all major economies including the US and China have suffered a growth slowdown since a couple of weeks ago.
Icapital.biz Bhd (5108) managing director Tan Teng Boo said the global market outlook for the next six months will continue to be uncertain.
Key data released in the US showed hints of possible economic softness, which could trigger another round of cautious sentiment among investors.
"However, despite the current situation Malaysia could still record up to 7 per cent GDP growth this year given the strong growth it achieved in the first and second quarter of the year," he told reporters when met at the company's Investors Day in Kuala Lumpur over the weekend.
The event was held to educate investors on investments. It also held talks, exhibition booths and presentations from companies which icapital.biz had invested in.
Tan said although the equity market has somewhat lagged behind a bit compared to others in the region, foreign investors are nevertheless excited with the New Economic Model (NEM) introduced by the government.
"They (foreign investors) are waiting to see how fast and how broad the reforms will be able to take place," he said.
He said if the NEM can be implemented fast, it could also transform and take Malaysia's economy into a new level.
"When that happens, we can expect to see a boom on the local stock market," Tan said, noting there a lot of undervalued stocks on Bursa Malaysia.
He said the Malaysian economy has the potential to surpass the performance of other markets including Singapore and Taiwan.
"We can succeed as we have the people, necessary support and skills to further build up the economy and attract direct foreign investments into the country," Tan said.
He said Malaysia's growth at present will continue to be driven by the resilient domestic market.
Icapital.biz, the country's only listed closed-end fund, recorded a net profit of RM36.4 million on the back of a RM42.2 million revenue for the financial year ended May 31 2010 compared with a revenue of only RM11.4 million a year before. Net profit in 2009 stood at RM6.2 million.
Its net asset value for the financial year recently ended rose 19 per cent to RM2.10 per share from RM1.77 previously.
"We hope to double our assets in the next five years," Tan said, noting the company posted growth of more than 130 per cent since it was listed in 2005.
Read more: iCapital.biz sees 7pc GDP growth http://www.btimes.com.my/Current_News/BTIMES/articles/ibix15/Article/#ixzz0wiSOWKeN
By Azlan Abu BakarPublished: 2010/08/16
MALAYSIA could record a positive gross domestic growth (GDP) for 2010 although almost all major economies including the US and China have suffered a growth slowdown since a couple of weeks ago.
Icapital.biz Bhd (5108) managing director Tan Teng Boo said the global market outlook for the next six months will continue to be uncertain.
Key data released in the US showed hints of possible economic softness, which could trigger another round of cautious sentiment among investors.
"However, despite the current situation Malaysia could still record up to 7 per cent GDP growth this year given the strong growth it achieved in the first and second quarter of the year," he told reporters when met at the company's Investors Day in Kuala Lumpur over the weekend.
The event was held to educate investors on investments. It also held talks, exhibition booths and presentations from companies which icapital.biz had invested in.
Tan said although the equity market has somewhat lagged behind a bit compared to others in the region, foreign investors are nevertheless excited with the New Economic Model (NEM) introduced by the government.
"They (foreign investors) are waiting to see how fast and how broad the reforms will be able to take place," he said.
He said if the NEM can be implemented fast, it could also transform and take Malaysia's economy into a new level.
"When that happens, we can expect to see a boom on the local stock market," Tan said, noting there a lot of undervalued stocks on Bursa Malaysia.
He said the Malaysian economy has the potential to surpass the performance of other markets including Singapore and Taiwan.
"We can succeed as we have the people, necessary support and skills to further build up the economy and attract direct foreign investments into the country," Tan said.
He said Malaysia's growth at present will continue to be driven by the resilient domestic market.
Icapital.biz, the country's only listed closed-end fund, recorded a net profit of RM36.4 million on the back of a RM42.2 million revenue for the financial year ended May 31 2010 compared with a revenue of only RM11.4 million a year before. Net profit in 2009 stood at RM6.2 million.
Its net asset value for the financial year recently ended rose 19 per cent to RM2.10 per share from RM1.77 previously.
"We hope to double our assets in the next five years," Tan said, noting the company posted growth of more than 130 per cent since it was listed in 2005.
Read more: iCapital.biz sees 7pc GDP growth http://www.btimes.com.my/Current_News/BTIMES/articles/ibix15/Article/#ixzz0wiSOWKeN
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