A 30% correction in emerging markets?
More money than you can imagine. Billions and trillions of currency notes. The Fed's quantitative easing program sent a lot of cheap money floating around the world. This money directly found its way to emerging markets. With high interest rates, and strong economic recoveries, the flow of money in this direction was but obvious.
For a while, increased cash makes everyone feel happy. FIIs pumped in a total of US$ 29.3 bn in India so far in 2010. This sent stock prices soaring. The very same stocks which were selling at their lows a year back, reached their lifetime highs. Stock markets climbed quickly to their previous peaks.
But, was the excess money even needed in the first place? Increased inflows of money have led to inflationary pressure, currency appreciation and asset bubbles forming in these countries. According to Nobel Prize-winning economist Joseph Stiglitz, these are "considerable risks". So, how do the emerging markets react? Well, economies from San Paulo to New Delhi have been trying hard to control these volatile capital inflows. Brazil raised its taxes on foreign bond purchases by almost three times. India tried to raise interest rates to stem rampant inflation.
But now, India has inadvertently done something to further reduce FII inflows. The recent bribery scams, stock price riggings and political uncertainty led to FIIs dropping Indian stocks like hot potatoes. The pace of FII inflows has slowed down considerably over the past three months. Marc Faber believes that emerging markets could easily see a 20-30% correction. Tightening monetary conditions, high crude prices and food supply concerns are all adding to the mess.
But, if you bought the right stocks at the right valuations and with the right management, you may still be safe. We believe that Faber has it right by saying that if you cannot swallow a 30% correction in whatever you buy, then don't even get up in the morning from your bed.
Equimaster
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Wednesday 22 December 2010
Do you invest in what you don't understand?
Principles of value investing have helped create legends of the likes of Warren Buffett and Peter Lynch. The principles are simple and easy to understand. Pick a sound business that is available at cheap valuations. And then hold it till such time the value is realized.
But the most important principle is to invest only in what you understand. This means to stay within your own circle of competence. As Buffett puts it "Everybody's got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside the circle." As simple as it sounds, it is the most difficult principle to follow. And wandering away from it can cause investors the biggest harm.
A case in point for this is that of the emerging market guru, Mark Mobius. While Mobius has enjoyed tremendous success with his investment techniques in Asia, his emerging market fund has not done so well outside of the region. In fact, the geographically diverse Emerging Market Fund has ranked only 103 out of 236 funds over 10 years in total returns.
So does it mean that Mobius has changed his style of investing? No he has not. He still sticks to his principles of picking value buys. However, it may be possible that he has just stepped outside his circle of competence.
Do you stick to your own circle of competence while choosing your investments?
http://www.equitymaster.com/
But the most important principle is to invest only in what you understand. This means to stay within your own circle of competence. As Buffett puts it "Everybody's got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside the circle." As simple as it sounds, it is the most difficult principle to follow. And wandering away from it can cause investors the biggest harm.
A case in point for this is that of the emerging market guru, Mark Mobius. While Mobius has enjoyed tremendous success with his investment techniques in Asia, his emerging market fund has not done so well outside of the region. In fact, the geographically diverse Emerging Market Fund has ranked only 103 out of 236 funds over 10 years in total returns.
So does it mean that Mobius has changed his style of investing? No he has not. He still sticks to his principles of picking value buys. However, it may be possible that he has just stepped outside his circle of competence.
Do you stick to your own circle of competence while choosing your investments?
http://www.equitymaster.com/
QL Resources Bhd
• Riding uptrend in demand for food commodities
Initiate coverage on QL Resources (QL with a Buy recommendation and
target price of RM7.30) based on 20x CY11 P/E. QL’s products will benefit
directly from the rising global demand and price trend for food
commodities. The group is one of Asia’s largest surimi manufacturers and
a Malaysian market leader in livestock feed trading, fishmeal and egg
production.
• Sustainable earnings growth
We have forecast a 3-year forward forecast EPS CAGR of 17.3% (FY11-
13), that will be driven by strong demand for QL’s marine, livestock feed,
poultry products and palm oil, with rising population and disposable
income, as well as the group’s steady capacity expansion. Diversification
reduces earnings volatility by smoothening out cyclicality of its resourcebased activities.
• Assertive regionalisation drive
QL’s expansion plan is both local and regional, with total group capex set
to increase by 60% in the next 2 years to RM200m annually. The group is
replicating its business model in the ASEAN region with new poultry farms
in Tay Ninh, Vietnam and Cianjur, Indonesia; a new marine plant being
constructed in Surabaya, Indonesia and further planting and palm oil mill
slated for its plantation in Tarakan, Kalimantan, Indonesia.
• Benefits from government incentives for agriculture
QL benefits from the government’s pro-agriculture stance via tax
incentives that translate to a lower tax rate (15% in FY10) and subsidised
diesel for its deep sea fishing operations. The group’s latest venture into
renewable energy is directly in accordance with the government’s
promotion of green technology as contained in the Budget 2011
announcement.
• Further upside to share price
Despite what seems like expensive valuations, we are bullish on QL as we
firmly believe it deserves premium valuation to peers as well as market.
QL’s next 2 years earnings CAGR of 16.1% is impressive as compared to
Malaysian peers of 5.6%. Furthermore, over the last 10 years, QL’s
average 12-month forward earnings growth is impressive at 23%. At our
target price, PEG ratio is undemanding at only 0.9x based on 10-year
average growth rate.
http://www.ecmmoney.com/wp-content/uploads/downloads/2010/12/QLG_101214_Initiating-coverage.pdf
Initiate coverage on QL Resources (QL with a Buy recommendation and
target price of RM7.30) based on 20x CY11 P/E. QL’s products will benefit
directly from the rising global demand and price trend for food
commodities. The group is one of Asia’s largest surimi manufacturers and
a Malaysian market leader in livestock feed trading, fishmeal and egg
production.
• Sustainable earnings growth
We have forecast a 3-year forward forecast EPS CAGR of 17.3% (FY11-
13), that will be driven by strong demand for QL’s marine, livestock feed,
poultry products and palm oil, with rising population and disposable
income, as well as the group’s steady capacity expansion. Diversification
reduces earnings volatility by smoothening out cyclicality of its resourcebased activities.
• Assertive regionalisation drive
QL’s expansion plan is both local and regional, with total group capex set
to increase by 60% in the next 2 years to RM200m annually. The group is
replicating its business model in the ASEAN region with new poultry farms
in Tay Ninh, Vietnam and Cianjur, Indonesia; a new marine plant being
constructed in Surabaya, Indonesia and further planting and palm oil mill
slated for its plantation in Tarakan, Kalimantan, Indonesia.
• Benefits from government incentives for agriculture
QL benefits from the government’s pro-agriculture stance via tax
incentives that translate to a lower tax rate (15% in FY10) and subsidised
diesel for its deep sea fishing operations. The group’s latest venture into
renewable energy is directly in accordance with the government’s
promotion of green technology as contained in the Budget 2011
announcement.
• Further upside to share price
Despite what seems like expensive valuations, we are bullish on QL as we
firmly believe it deserves premium valuation to peers as well as market.
QL’s next 2 years earnings CAGR of 16.1% is impressive as compared to
Malaysian peers of 5.6%. Furthermore, over the last 10 years, QL’s
average 12-month forward earnings growth is impressive at 23%. At our
target price, PEG ratio is undemanding at only 0.9x based on 10-year
average growth rate.
http://www.ecmmoney.com/wp-content/uploads/downloads/2010/12/QLG_101214_Initiating-coverage.pdf
Pimco says 'untenable' policies will lead to eurozone break-up
Pimco says 'untenable' policies will lead to eurozone break-up
Pimco, the world's largest bond fund, has called on Greece, Ireland and Portugal to step outside the eurozone temporarily and restructure their debts unless the currency bloc agrees to a radical change of course.
Pimco, the world's largest bond fund, has called on Greece, Ireland and Portugal to step outside the eurozone temporarily and restructure their debts unless the currency bloc agrees to a radical change of course.
Andrew Bosomworth, head of Pimco's portfolio management in Europe, said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro.
"Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments," he told German newspaper Die Welt.
He said these countries could rejoin EMU "after an appropriate debt restructuring", adding that devaluation would let them export their way back to health.
Mr Bosomworth said EU leaders were too quick to congratulate themselves on saving the euro last week with a deal for a permanent bail-out fund from 2013.
"The euro crisis is not over by a long shot. Market tensions will continue into 2011. The mechanism comes far too late," he said.
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17 Dec 2010
The bond fund argues that the EU strategy of forcing heavily indebted countries to undergo draconian fiscal austerity without offsetting stimulus is unworkable.
The austerity policies are stifling the growth needed to stabilise debt levels.
"Can countries inside a fixed exchange-rate system like the euro grow and tighten budget policy at the same time? I don't think so. It didn't work in Argentina," Mr Bosomworth said.
Pimco also gave warning that the bond vigilantes have lost faith in the policy and are trying to liquidate their holdings of peripheral EMU faster than the European Central Bank (ECB) can buy the debt, causing a relentless rise in yields, and a vicious circle.
Despite this, the ECB said on Monday that it had cut purchases of government debt last week, settling €603m (£509m), down from €2.68bn a week earlier. The withering comments from the world's top investor in EMU sovereign debt is a blow for Portugal and Spain. Both nations are hoping bond spreads will start to narrow before they face a funding crunch in the first quarter of next year.
Jacques Cailloux, chief Europe economist at RBS, agreed that last week's European summit had failed to grasp the nettle.
"None of the policy responses put in place in Europe since the start of the crisis provides a credible backstop to prevent further contagion," Mr Cailloux said.
"We remain most concerned about an escalation of the sovereign debt crisis hitting larger economies in the euro area. Markets continue to underestimate the potential disruption via financial transmission channels that such an event could trigger."
Meanwhile, Spain must cut harder and deeper to rein in its finances, the OECD has warned, calling for an overhaul of its labour laws and employment practices. Madrid is already in the midst of harsh austerity measures, but the influential Paris-based think-tank said more must be done. The Spanish economy should be able to shrink its budget deficit from 11pc of GDP last year to the 6pc target next year, the OECD believes.
Price of hot chocolate to soar
Price of hot chocolate to soar
Just when it seemed the only respite from the bad weather was curling up in front of the fire with a mug of hot chocolate, there is more bad news.
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8215194/Price-of-hot-chocolate-to-soar.html
Just when it seemed the only respite from the bad weather was curling up in front of the fire with a mug of hot chocolate, there is more bad news.
Photo: Philip Hollis
The price of hot chocolate is to soar after the wholesale cost of cocoa powder jumped by 32 per cent over the last year.
The rise has been blamed on failing crops earlier in the year and disruption from suppliers in Ivory Coast, whose traders suffered following a chaotic general election earlier. Specualtors have been adding to the problem by stocking up.
Cocoa powder as risen to £3,000 a ton a much bigger rise than cocoa butter which is used to make chocolate bars.
The figures were disclosed by commodities analyst Mintec for The Grocer magazine.
'The price of chocolate drinks is coming under pressure and cocoa powder and sugar become more expensive on the world markets," a spokesman for Mintec.
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21 Dec 2010
'Over the past few months the price of cocoa powder has been steadily increasing and sugar prices have followed suit propelling the price of chocolate raw materials to record levels.'
It added: 'As chocolate consumption is increasing faster than production, prices for raw materials might not ease quickly.'
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8215194/Price-of-hot-chocolate-to-soar.html
What investment bankers earn in UK
What investment bankers earn
From back office clerk to accountant to head of investment, we list the average salaries – and bonuses – of investment bank employees in the City of London.
From back office clerk to accountant to head of investment, we list the average salaries – and bonuses – of investment bank employees in the City of London.
Photo: AFP
Settlements:
Clerk: £30,000-£43,000 (plus 10pc bonus)
Supervisor: £40,000-£55,000 (plus 15pc bonus)
Manager: £48,000-£70,000 (plus 20pc bonus)
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Trade Support:
0-1 years: £25,000-£30,000 (plus bonus dependent on trader or broker performance)
More than 3 years: £40,000-£60,000 (plus bonus dependent on trader or broker performance)
Financial Control:
Newly qualified: £35,000-£45,000 (plus 5 to 7pc bonus)
Director: £85,000-£130,000 (plus 40 to 60pc bonus)
Regulatory Accountant:
Newly qualified: £35,000-£48,000 (plus 5 to 7pc bonus)
Director: £90,000-£110,000 (plus 40 to 60pc bonus)
Private banker/Client portfolio manager:
1-3 years: £30,000-£45,000 (plus 10 to 30pc bonus)
More than 10 years: £80,000-£100,000 (plus 40 to 100pc bonus)
Investment analyst:
1-3 years: £40,000-£65,000 (plus 0 to 100pc bonus)
More than 10 years: £110,000-£130,000 (plus 0 to 100+pc bonus)
Fund manager:
5-8 years: £70,000-£100,000 (plus 0 to 100pc bonus)
More than 10 years: £110,000-£150,000 (plus 0 to 100+pc bonus)
Chief investment officer/Head of investment:
£130,000 (plus 100+pc bonus)
• Michael Page Financial Services: Salary Survey 2010
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8210778/What-investment-bankers-earn.html
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8210778/What-investment-bankers-earn.html
Padini Holdings Berhad
• Direct beneficiary of uptick in consumer spending
We recently hosted a corporate presentation by Padini Holdings (Padini),
a well-established retailer of fashion apparel and footwear, and came
away with a positive medium-term outlook on the company. Strong brand
recognition and large nationwide store network place Padini in favourable
position to capitalise on any strengthening consumer sentiment and
spending.
• Padini Corp and Vincci Ladies continue to lead
Padini Corp and Vincci Ladies are the most significant subsidiaries in
Padini Group, together constituting 70% of FY10 group revenue and 84%
of pretax profit. Padini-branded clothing and footwear with the Vincci label
have consistently resonated with Malaysian consumers thanks to the
group’s effective merchandising strategy.
• Extending ‘Brands Outlet’ store network
The group is expanding its value proposition ‘Brands Outlet’ stores in
response to positive reception by shoppers and to expand its store
network to urban areas beyond the highly saturated Klang Valley. There
are currently 11 ‘Brands Outlet’ stores that account for 27% of the group’s
total retail floor space.
• Potential for dividend upside
Given Padini’s minimal capex requirements in the 2-year forward forecast
period, we believe that the company could pay out higher dividends than
the 15.0 sen DPS in FY10 (or 32% dividend payout ratio).
• Fair value of RM5.33
Utilising a target P/E of 10x applied to CY11 EPS of 53.3 sen, we arrive at
a fair value of RM5.33. Our target P/E is based on a 2x premium to Bonia
Corp, Padini’s closest comparable. We believe that Padini deserves to
trade at higher valuations because it has a larger store network and
higher margin product mix (with larger proportion of fashion apparel).
Target P/E is lower than Padini’s 12-year historical average P/E of 11.7x
(FY99-FY10) however, as we anticipate moderation in earnings growth
moving forward. We have projected a 3-year net profit CAGR (FY10-12) of
6.4%. Our fair value indicates a potential 9% upside to current share
price.
http://www.ecmmoney.com/wp-content/uploads/downloads/2010/12/PAD_101221_Non-rated.pdf
We recently hosted a corporate presentation by Padini Holdings (Padini),
a well-established retailer of fashion apparel and footwear, and came
away with a positive medium-term outlook on the company. Strong brand
recognition and large nationwide store network place Padini in favourable
position to capitalise on any strengthening consumer sentiment and
spending.
• Padini Corp and Vincci Ladies continue to lead
Padini Corp and Vincci Ladies are the most significant subsidiaries in
Padini Group, together constituting 70% of FY10 group revenue and 84%
of pretax profit. Padini-branded clothing and footwear with the Vincci label
have consistently resonated with Malaysian consumers thanks to the
group’s effective merchandising strategy.
• Extending ‘Brands Outlet’ store network
The group is expanding its value proposition ‘Brands Outlet’ stores in
response to positive reception by shoppers and to expand its store
network to urban areas beyond the highly saturated Klang Valley. There
are currently 11 ‘Brands Outlet’ stores that account for 27% of the group’s
total retail floor space.
• Potential for dividend upside
Given Padini’s minimal capex requirements in the 2-year forward forecast
period, we believe that the company could pay out higher dividends than
the 15.0 sen DPS in FY10 (or 32% dividend payout ratio).
• Fair value of RM5.33
Utilising a target P/E of 10x applied to CY11 EPS of 53.3 sen, we arrive at
a fair value of RM5.33. Our target P/E is based on a 2x premium to Bonia
Corp, Padini’s closest comparable. We believe that Padini deserves to
trade at higher valuations because it has a larger store network and
higher margin product mix (with larger proportion of fashion apparel).
Target P/E is lower than Padini’s 12-year historical average P/E of 11.7x
(FY99-FY10) however, as we anticipate moderation in earnings growth
moving forward. We have projected a 3-year net profit CAGR (FY10-12) of
6.4%. Our fair value indicates a potential 9% upside to current share
price.
http://www.ecmmoney.com/wp-content/uploads/downloads/2010/12/PAD_101221_Non-rated.pdf
Tuesday 21 December 2010
The path to achievable growth
Martin Roth
December 1, 2010Click for more photos
In a rocky market environment, with the economic outlook also far from clear, one way to boost a portfolio is to seek out growth stocks - those dynamic companies that continue to expand year after year.
These can offer the astute investor both a steadily appreciating share price and a rising dividend payout.
However, they also come with greater risk than other stocks, often including high price-earnings ratios and significant share-price volatility.
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Typically, a growth stock operates within a thriving industry and occupies a strong and expanding market share position within that industry, allowing it to boost profits on a sustainable basis.
Its particular strength might be its technology, or its ability to bring out a steady stream of innovative new products, or simply a business model that is superior to that of rivals.
Dynamic management is often another notable characteristic.
A classic example is the bionic-ear implant manufacturer Cochlear, which holds about two-thirds of the global market for its products with high profit margins. A continuing stream of new, high-tech models keeps it at the forefront of its industry.
Between 2004 and 2010 its earnings per share figure tripled and a glance at its long-term share-price chart shows that from about $22 in early 2004, the shares soared to nearly $80 in late 2007, before retreating when the global financial crisis hit.
Simon Robinson, a senior private wealth manager at Wilson HTM, which manages the Wilson HTM Priority Growth Fund, cites another example - electronics retailer JB Hi-Fi.
''Now that they have established their business model effectively, they are able to gain significant leverage as they continue to roll out new stores,'' he says. ''Then, as sales volumes increase, they get more buying power and more value for their advertising dollar.
''That allows them to become more efficient than competitors and they pass on these efficiencies to their customers, which makes them even more competitive. It is a virtuous circle.''
However, Robinson notes that a particular danger of growth stocks is that the market might project into the share price significant levels of growth, above what is actually achievable. This can lead to a high share price, followed by a sharp sell-off once investors realise that growth will not meet expectations.
''Growth stocks are sometimes significantly underpriced and sometimes they are significantly overpriced,'' he says. ''It is important for investors to understand the components of that growth, including the industry in which the company operates and the competitive dynamic there.''
In fact, he advises investors that their best strategy is to analyse companies carefully in order to spot potential growth stocks while they are still on relatively low price-earnings ratios and have not generally been recognised by the market.
For investors interested in this theme, another issue recently has come to the fore - claims that Australia now has far fewer growth stocks than previously.
''If you went back five years or so there were a lot of pretty sexy growth stories,'' says an equity strategist at Merrill Lynch, Tim Rocks. ''In healthcare there were companies like Cochlear and [vaccine and blood products corporation] CSL and in other industries you had a range of companies that still had good growth in front of them, such as JB Hi-Fi.
''[Surfwear specialist] Billabong International was another example.
''Even [merchant bank] Macquarie at that time, you would say, was a growth company. It was expanding offshore and as many as a dozen more large companies were out there, with very interesting long-term growth profiles.
''That appears to us to be no longer the case. Many of those companies are now well advanced in their strategies, so their periods of very high growth are behind them.
''And, more interestingly, the next generation has not really appeared to step up. So we struggle to find a big list of companies with that genuine sustainable growth in front of them.''
He notes that much growth in the Australian market comes from the resources sector but the relevant stocks tend to be volatile and too China-dependent to be classic growth stocks.
However, Robinson says, there are always growth stocks ''but the trick is finding them''.
The institutional business director at Hyperion Asset Management, Tim Samway, rates four internet companies - Seek, Wotif.com Holdings, REA Group and Carsales.com. ''They have very high returns on equity, low debt and steady organic earnings growth,'' he says.in
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