KLSE Market PE 19.6.2020

Company	Mkt Cap (b)	Last Price	PE	DY	ROE
MAH	9.607	5.79	26.18	2.59	3.99
AMMB	9.404	3.12	6.06	6.41	8.47
AXIATA	32	3.49	37.89	2.72	5.42
CIMB	36.616	3.69	9.45	7.05	7.09
DIALOG	20.141	3.57	32.78	1.06	15.08
DIGI	33.744	4.34	23.7	4.19	228.88
GENM	15.855	2.67	22.36	7.49	3.78
GENTING	17.213	4.44	13.22	4.95	3.69
HAPSENG	21.411	8.6	18.38	4.07	15.6
HARTA	38.827	11.46	89.32	0.72	17.11
HLB	31.475	14.52	12.29	3.44	9.17
HLFG	16.203	14.12	9	2.97	8.82
IHH	47.477	5.41	86.15	0.74	2.46
IOI	27.34	4.35	66.82	1.84	4.58
KLK	23.826	22.04	56.91	2.27	4.07
MAXIS	41.683	5.33	28.4	3.75	20.86
MBB	86.334	7.68	10.23	8.33	10.82
MISC	35.175	7.88	-	4.19	-0.7
NESTLE	32.689	139.4	52.39	2.01	72.7
PBB	64.443	16.6	11.87	4.4	12.55
PCHEM	50.56	6.32	20.07	2.85	8.29
PETDAG	20.962	21.1	41.19	4.03	9.16
PETGAS	34.311	17.34	19.19	4.73	13.77
PMETAL	18.898	4.68	41.23	1.07	14.01
PPB	24.355	17.12	22.31	1.81	4.95
RHB	19.369	4.83	7.99	6.42	9.3
SIME	14.827	2.18	17.93	4.59	5.79
SIMEPLT	33.941	4.93	83.14	0.2	3.09
TENAGA	67.2	11.78	18.21	8.49	6.74
TOPGLOV	39.094	14.58	59.68	0.51	18.94
Company	Mkt Cap (b)	PAT (m0	DIV (m)	DPO	Equity (m)
MAH	9.607	367.0	248.8	0.68	9197.0
AMMB	9.404	1551.8	602.8	0.39	18321.3
AXIATA	32	844.6	870.4	1.03	15582.1
CIMB	36.616	3874.7	2581.4	0.67	54650.3
DIALOG	20.141	614.4	213.5	0.35	4074.5
DIGI	33.744	1423.8	1413.9	0.99	622.1
GENM	15.855	709.1	1187.5	1.67	18758.7
GENTING	17.213	1302.0	852.0	0.65	35285.7
HAPSENG	21.411	1164.9	871.4	0.75	7467.4
HARTA	38.827	434.7	279.6	0.64	2540.6
HLB	31.475	2561.0	1082.7	0.42	27928.3
HLFG	16.203	1800.3	481.2	0.27	20411.9
IHH	47.477	551.1	351.3	0.64	22402.3
IOI	27.34	409.2	503.1	1.23	8933.6
KLK	23.826	418.7	540.9	1.29	10286.5
MAXIS	41.683	1467.7	1563.1	1.07	7036.0
MBB	86.334	8439.3	7191.6	0.85	77997.2
MISC	35.175	-241.0	1473.8	-6.12	34428.6
NESTLE	32.689	624.0	657.0	1.05	858.3
PBB	64.443	5429.1	2835.5	0.52	43259.5
PCHEM	50.56	2519.2	1441.0	0.57	30388.2
PETDAG	20.962	508.9	844.8	1.66	5555.8
PETGAS	34.311	1788.0	1622.9	0.91	12984.5
PMETAL	18.898	458.4	202.2	0.44	3271.6
PPB	24.355	1091.7	440.8	0.40	22053.8
RHB	19.369	2424.2	1243.5	0.51	26066.2
SIME	14.827	826.9	680.6	0.82	14282.2
SIMEPLT	33.941	408.2	67.9	0.17	13211.6
TENAGA	67.2	3690.3	5705.3	1.55	54751.9
TOPGLOV	39.094	655.1	199.4	0.30	3458.6
KLCI	964.98	48117.0	38250.0	0.79	606066.2
KLCI 1503.19
Market PE	20.1
Market DY	3.96%
Market ROE	6.3%

Market P/B	1.59
Market DPO	0.79

Excellent comments on Margin of Safety by Warren Buffett

Warren Buffett explains Margin of Safety

https://youtu.be/hZQNnDHlQZQ

'Don't confuse day traders with serious investors'

'Don't confuse day traders with serious investors': Warren Buffett and Howard Marks will win over time, Princeton economist says

"I don't confuse day traders with serious investors," he said. "Don't be misled with false claims of easy profits from day trading."

The economist and author added that almost all individual traders suffer losses over time, highlighting three studies to support his claim:

• Active traders on Charles Schwab significantly underperformed a low-cost index fund over a six-year period.
• Less than 1% of Taiwanese traders consistently beat a low-cost ETF over a 15-year period, and 80% lost money.
• 97% of Brazilian day traders lost money, and just 1% earned more than the national minimum wage.

Malkiel also emphasized that savvy investors diversify and rebalance their holdings, manage their tax burdens, avoid trying to time the market, stick to their convictions, and use investment structures such as low-fee ETFs.

https://markets.businessinsider.com/news/stocks/warren-buffett-howard-marks-will-ultimately-beat-day-traders-malkiel-2020-6-1029321160

Unconventional Market Policy: Exit Strategy (8)

Special Operations

Overall, special operations other than the traditional repurchase agreements might be needed to sterilise the effects of unconventional policy measures at the appropriate time in the future. 

1.  One option would be to have the fiscal authority issue debt certificates to the market and deposit the proceeds with the central bank. 

• The switch in the ownership of government debt from the private sector to the monetary authority would alleviate the inflationary pressures arising from the additional liquidity. 

2.  Another option would be for the central bank to issue debt certificates itself, as the ECB for example can do according to its Statute. 

• In this way the central bank would essentially change the composition of the liabilities side of its balance sheet, moving away from excess reserves and towards less-liquid debt securities. 
• The effect, compared with government debt issuance, would in essence be the same.

Financial loss for the central bank

An important final element related to the exit strategy, but which should be considered carefully already when deciding to embark on unconventional measures, is that when the central bank sells the assets their value is likely to have declined considerably, given the higher rate of interest. 

This implies a financial loss for the central bank. 

The consequences for the financial – and overall – independence of the central bank should not be downplayed.

Unconventional Market Policy: Exit Strategy (7)

Getting the timing right in withdrawing additional liquidity

Getting the timing right in withdrawing additional liquidity is likely to be decisive in order to ensure a non-inflationary recovery. 

Generally speaking, the lower the reversibility of the non-conventional operations, the larger the risk of being behind the curve when the macroeconomic and financial market situation improves.

Indeed, to a large extent the speed of unwinding of unconventional measures would depend on their degree of reversibility. 

(A)  Some of the unwinding would happen automatically as central bank programmes become increasingly unattractive as financial conditions normalise. 

• For instance, many lending facilities provide liquidity at a premium over the main policy rate or with a high haircut applied to the required collateral, making interbank lending the more attractive option once normal lending activity among market participants is restored. 
• As a result, the central bank’s balance sheet would decline automatically as demand for its funds decreases. 
• As noted, the ECB’s current liquidity-providing operations imply an ‘endogenous’ exit strategy as banks would automatically seek less credit from the ECB when tensions in financial markets ease. 
• The speed of the reversibility would therefore largely depend on the speed of the resurgence of the financial system. 

(B)  In the euro area, the revitalisation of money markets is key to the ECB’s exit strategy and any future interest rate decision should therefore avoid a further disruption of money markets. 

• In this context, bringing the main policy rate too close to zero would risk hampering the functioning of the money markets as it would reduce the incentives for interbank lending. 
• This, in turn, could blur the important signals coming otherwise from the resurgence of interbank lending and the associated positive effect on the ECB’s balance sheet.

(C)  Obviously, the speed of tightening would also depend on the maturity of the assets bought by central banks within the framework of their easing programmes. 

• Differences in the maturity of assets will ensure that a tightening of the accommodative stance would come in gradual tranches. 
• This is important to avoid any abrupt tightening of credit conditions in the middle of the recovery. 
• At the same time, measures centered on assets that are longer-term in nature and less liquid could pose challenges to the future unwinding of these measures. 
• If market conditions were to improve faster than expected, an increase in the average maturity of the central bank’s portfolio would make it more difficult for financial markets to return to normal private sector functioning and would also heighten medium-term inflation risks.

Unconventional Monetary Policy: Exit Strategy (6)

How quickly should policy-makers reverse their policies? 

On the one hand, withdrawing liquidity in such large quantities will trigger a substantial contractionary monetary policy shock. 

The large size of many easing programmes will make it difficult to sell assets without a significant market impact. 

If it happens too quickly or abruptly, policy-makers risk choking off the economic recovery or imposing heavy capital losses on lenders. 

• For instance, in the corporate bond or commercial paper market, even small sales of securities by the central bank could cause spreads to widen considerably and to sharply tighten credit conditions for firms. 

On the other hand, with policy rates at record low levels and additional liquidity-providing measures adopted in so many countries, the possibility of inflation risks emerging sometime later is not something that can be excluded. 

• Retaining such exceptional policy measures for too long might aggravate the upside risks to price stability and sow the seeds for future imbalances in financial markets.

Unconventional Monetary Policy: Exit Strategy (5)

Reaction of the Financial Markets to the Start of Unwinding

This raises the question of the reaction that financial markets might have to the start of the unwinding of the direct easing measures. 

1.   How would markets react to the central bank starting to sell the government bonds it purchased under the direct quantitative easing policy? 

Such a start would signal presumably that the tightening cycle is close and could affect yields. 

2.  If the amount of assets to be sold is significant, this can have an impact on the market conditions of the underlying assets, possibly further depressing its price.

Unconventional Monetary Policy: Exit Strategy (4)

Unwinding of 'Credit Easing' Policies (Unwinding the Purchase of Corporate Bonds)

Measures taken through the purchase of corporate bonds aim to revitalise the flow of credit in certain market segments.

These measures are primarily designed to bypass the financial sector and to ensure that non-financial corporations still have access to external financing. 

Now, in theory, by stimulating longer-term investments and hence aggregate demand, these measures might induce inflationary pressures in the medium to long-term, independent of the functioning of money markets and lending by banks. 

The strength of this channel depends on the depth of the corporate bond market. 

• If policy-makers were to react to these inflationary pressures by raising interest rates pre-emptively while money markets were still weak, the consequences for the banking channel of intermediation could be severe. 
• If, however, markets were to function properly again, there would be no reason to postpone the unwinding of ‘credit easing’ policies to a date longer than needed. 

Taken together, this reasoning suggests that purchases of privately issued securities should be unwound before or at the same time as interest rates are raised back to normal levels.

Unconventional Monetary Policy: Exit Strategy (3)

What are the implications for the sequencing of unwinding conventional and unconventional policy measures? 

It means that non-standard measures that aim mainly at restoring the orderly functioning of money markets, such as supplementary longer-term refinancing operations or an extended menu of eligible collaterals, might have to be rolled back before interest rates are increased again.


Why?

(A)  First of all, because raising interest rates in an environment in which such unconventional measures were still judged to be necessary would risk undermining a sustained recovery by money markets. 

If concerns about the required and available amounts of short-term funding still prevailed among market participants, raising rates might reinforce these fears and could lead to further, unwarranted upward pressure on overnight rates. 

(B)  Second, supplying extra liquidity to the markets through non-standard measures while, at the same time, tightening monetary policy would send mixed signals on the effective monetary policy stance. 

Measures to alleviate the strains in money markets could in fact be seen as a continued easing of the monetary policy stance. 

(C)  Third, with non-standard measures such as the unlimited provision of liquidity still in place it might be more difficult for the central bank to steer the level of market rates consistent with its policy target. 

For example, a fixed rate tender with full allotment usually leaves the banking sector with a large daily liquidity surplus, which needs to be mopped up by additional fine-tuning operations towards the end of the reserve maintenance period in order to avoid a sharp drop in the overnight interest rate. 

This, however, causes extra volatility in the markets as well as large interest rate fluctuations that are undesirable from the point of view of an effective signalling of the monetary policy stance. 

(D)  Fourth, with markets still in need of additional non-standard measures, the pass-through of an increase in policy rates would probably be hampered. 

The orderly transmission of any monetary tightening would only resume once trust among market participants has had been restored and money markets were operating normally again. 

(E)  Finally, in any bank-dominated system of fund intermediation, in which the recovery of the economy largely depends on the soundness of the banking system, inflationary pressures that would require a tightening of monetary policy are likely to appear only when the banks take up their normal lending activity again. 

This, in turn, implies that non-standard measures should ideally be rolled back before interest rates were increased.

Unconventional Monetary Policy: Exit Strategy (2)

Most of the unconventional measures (quantitative easing and credit easing) put in place are designed to stimulate lending, to convince savers to hold risky longer-term assets.

The extremely low interest rates and ample liquidity aims at favouring borrowers and penalising lenders over the medium term.

The effectiveness of these measures mainly depends on the readiness of banks to go back to their main business of lending to households and firms rather than parking excess reserves with the central bank.



Problem of Exiting or Reversing

Prospects of rising interest rates may discourage private savers from purchasing longer-term assets, as a tightening of monetary policy inevitably implies a capital loss for those who bought these assets. 

An increase in policy rates – and in particular in the deposit rate – risks undermining banks’ incentive to re-engage in funding the private sector. 

Raising policy rates, or the expectation of such increases, when confidence is not fully restored could therefore be counterproductive.

Unconventional Monetary Policy: Exit Strategy (1)

EXIT STRATEGY

How and when do central banks need to unwind the extra monetary stimulus? 

Simple answers:

• when the economy rebounds and 
• inflationary prospects are back in line with the central bank’s price stability objective. 

Not Easy

Unfortunately, for a number of reasons, formulating an adequate exit strategy is not such an easy task. Why? 

Two choices that need to be made: 

• first, devising the right sequence for the phasing out of the conventional and unconventional monetary policy accommodation; 
• second, deciding on the speed at which the unconventional accommodation is removed.

To unwind unconventional monetary policy operations (in the case of quantitative easing and credit easing policies), 

• it normally implies selling assets outright, and in significant amounts. 

In the case of the endogenous easing measures, the unwinding happens automatically, since banks should naturally 

• reduce their demand for central bank money and 
• increase interbank lending as their situation normalises.

Reference:

https://www.ecb.europa.eu/press/key/date/2009/html/sp090428.en.html?fbclid=IwAR3l-HERTcR1afdIISMWCe0owxInfKY2zF5O5L4E-pfpADWdhAt4W6Z-Ux0

Conventional and unconventional monetary policy
Lorenzo Bini Smaghi,
Member of the Executive Board of the European Central Bank,
Keynote lecture at the International Center for Monetary and Banking Studies (ICMB),
Geneva, 28 April 2009

KEYNOTE LECTURE AT THE INTERNATIONAL CENTER FOR MONETARY AND BANKING STUDIES (ICMB),

GENEVA, 28 APRIL 2009

HOW ARE UNCONVENTIONAL MEASURES IMPLEMENTED?

1 Direct Quantitative Easing

2 Direct Credit Easing

3 Indirect (or Endogenous) Quantitative/Credit Easing

Deflation vs. Disinflation: What's the Difference

By STEVEN NICKOLAS
Updated Apr 19, 2019

Deflation vs. Disinflation: An Overview

Although they may sound the same, deflation should not be confused with disinflation.

Deflation is a decrease in general price levels throughout an economy, while disinflation is what happens when price inflation slows down temporarily.

Deflation, which is the opposite of inflation, is mainly caused by shifts in supply and demand.

Disinflation, on the other hand, shows the rate of change of inflation over time. The inflation rate is declining over time, but it remains positive.


KEY TAKEAWAYS

Deflation is the drop in general price levels in an economy, while disinflation occurs when price inflation slows down temporarily.

Deflation, which is harmful to an economy, can be caused by a drop in

• the money supply, 
• government spending, 
• consumer spending, and 
• corporate investment.

Central banks will fight disinflation by

• expanding its monetary policy and 
• lowering interest rates.

Disinflation can be caused

• by a recession or 
• when a central bank tightens its monetary policy.

***************************************************

Deflation

Deflation is the economic term used to describe the drop in prices for goods and services.

Deflation slows down economic growth.

It normally takes place during times of economic uncertainty when there is demand for goods and services is lower, along with higher levels of unemployment.

When prices fall, the inflation rate drops below 0 percent.


Deflation (and inflation) rates can be calculated using the consumer price index (CPI). This index measures the changes in the price levels of a basket of goods and services. They can also be measured using the gross domestic product (GDP) deflator, which measures the price inflation.

There are several different factors that can cause deflation, including a drop in the money supply, government spending, consumer spending, and investment by corporations.

Business productivity can also lead to a drop in prices.

• When a company uses more advanced technology in its production process, it may become more efficient, thereby reducing its costs. 
• These cost savings may then be passed on to the consumer resulting in lower prices.

Consider the case of mobile phones. Cellphone prices have dropped significantly since the 1980s due to technological advances. This has allowed supply to increase at a faster rate than the money supply or demand of cellphones.

But bonds can perform well during times of deflation.   More investors end up flocking to quality assets that promise a safer investment vehicle.

By contrast, it can have a negative effect on the stock market. A drop in prices—and, therefore, supply and demand—will hurt the profitability of companies, leading to the erosion of share value.

In order to deal with deflation, a central bank will step in and employ an expansionary monetary policy. 

• It lowers interest rates and increases the money supply within the economy. 
• This, in turn, boosts demand for goods and services. 
• Lower interest rates mean an increase in the spending power of consumers. 
• More spending means price inflation and, therefore, higher demand for goods and services. 
• Higher prices lead to higher profits for businesses.

Disinflation

Disinflation occurs when price inflation slows down temporarily. 

This term is commonly used by the U.S. Federal Reserve when it wants to describe a period of slowing inflation. 

Unlike deflation, this is not harmful to the economy because the inflation rate is reduced marginally over a short-term period.

Unlike inflation and deflation, disinflation is the change in the rate of inflation.

• Prices do not drop during periods of disinflation and it does not signal an economic slowdown. 
• While a negative growth rate—such as -2 percent—indicates deflation, disinflation is demonstrated by a change in the inflation rate from one year to the next. 
• So disinflation would be measured as a change of 4 percent from one year to 2.5 percent in the next.

IMPORTANT:  Disinflation isn't necessarily bad for the stock market, as it may be during periods of deflation. In fact, stocks can perform well when the inflation rate drops.



Disinflation is caused by several different factors.

• A recession or a contraction in the business cycle may result in disinflation. 
• It may also be caused by the tightening of monetary policy by a central bank. When this happens, the government may also begin to sell some of its securities, and reduce its money supply.

https://www.investopedia.com/ask/answers/032415/what-difference-between-deflation-and-disinflation.asp#:~:text=Deflation%20is%20a%20decrease%20in,shifts%20in%20supply%20and%20demand.&text=The%20inflation%20rate%20is%20declining%20over%20time%2C%20but%20it%20remains%20positive.

Disinflation

By WILL KENTON
Updated Sep 12, 2019


What is Disinflation?

Disinflation is a temporary slowing of the pace of price inflation.

It is used to describe instances when the inflation rate has reduced marginally over the short term.

It should not be confused with deflation, which can be harmful to the economy.


KEY TAKEAWAYS

Disinflation is a temporary slowing of the pace of price inflation.

Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to the rate of change in the rate of inflation.

A healthy amount of disinflation is necessary, since it represents economic contraction and prevents the economy from overheating.


Understanding Disinflation

Disinflation is commonly used by the Federal Reserve to describe a period of slowing inflation. 

Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to the rate of change in the rate of inflation.

Although sometimes confused with deflation, disinflation is not considered problematic because 

• prices do not actually drop, and 
• disinflation does not usually signal the onset of a slowing economy. 

Deflation is represented as a negative growth rate, such as -1%, while disinflation is shown as a change in the inflation rate from 3% one year to 2% the next.

Disinflation is considered the opposite of reflation, which occurs when a government stimulates an economy by increasing money supply.

A healthy amount of disinflation is necessary, since it

• represents economic contraction and 
• prevents the economy from overheating. 

As such, instances of disinflation are not uncommon and are viewed as normal during healthy economic times.

Disinflation benefits certain segments of a population, such as people who are inclined to save their earnings.


Causes of Disinflation

Several main reasons can cause an economy to experience disinflation.

• If a central bank decides to impose a tighter monetary policy and the government starts to sell off some of its securities, it could reduce the supply of money in the economy, causing a disinflationary effect. 
• Similarly, a contraction in the business cycle or a recession can also cause disinflation. For example, businesses may choose not to increase prices to gain greater market share, leading to disinflation.

Disinflation Since 1980

The U.S. economy experienced one of its longest periods of disinflation from 1980 through 2015.

During the 1970s, the rapid rise of inflation came to be known as the Great Inflation, with prices increasing more than 110% during the decade. The annual rate of inflation topped out at 14.76% in early 1980. 

Following the implementation of aggressive monetary policies by the Federal Reserve to reduce inflation, 

• the increase in prices slowed in the 1980s, rising just 59% for the period. 
• In the decade of the 1990s, prices rose 32%, 
• followed by a 27% increase between 2000 and 2009, and 
• a 9% increase between 2010 and 2015.

Stock Performance During the Period of Disinflation from early 1980 to 2015

During this period of disinflation, stocks performed well, averaging 8.65% in real returns between 1982 and 2015.

Disinflation also allowed the Federal Reserve

• to lower interest rates in the 2000s, 
• which led to bonds generating above-average returns.

The Danger of Disinflation

The danger that disinflation presents is when the rate of inflation falls near to zero, as it did in 2015, raising the specter of deflation. 

Although the rate of inflation turned negative briefly in 2015, concerns over deflation were dismissed because it was largely attributed to falling energy prices. 



[Some economists view the near-zero rate of inflation in 2015 as a bottom, with the expectation, or hope, the rate of inflation will begin to rise again. As of Jan. 2018, the rate of inflation stands at 2.1%, with projections for an increase to 2.38% later in the year.]


https://www.investopedia.com/terms/d/disinflation.asp

Unconventional Monetary Policy: Conclusion (8)

KEYNOTE LECTURE AT THE INTERNATIONAL CENTER FOR MONETARY AND BANKING STUDIES (ICMB),
GENEVA, 28 APRIL 2009

HOW ARE UNCONVENTIONAL MEASURES IMPLEMENTED?

1 Direct Quantitative Easing

2 Direct Credit Easing

3 Indirect (or Endogenous) Quantitative/Credit Easing

Conclusions

To conclude, the decision whether to embark on non-conventional monetary policy measures, which specific ones and for how long depends on a series of considerations, including

• the overall conditions of the economy, in particular the presence of deflationary pressures and 
• the effective constraint provided by the zero lower bound for interest rates, 
• the structure of the financial flows in the economy, 
• the medium term incentives that would be created for the private sector and 
• the risks entailed in the exit strategy, including for the independence and credibility of the central bank. 

Some measures present greater advantages, in terms of providing the right incentives and being easily reversible. 

Others present more risks and have to be well targeted and used under specific circumstances. 

Considering the pros and cons of the various measures requires deep thinking. 

I have tried to develop tonight some of the considerations underlying such a reflection.

Hopefully this has been useful in understanding why the ECB has proceeded speedily in some areas while taking the necessary time to reflect on others.

Thank you very much for your attention.

https://www.ecb.europa.eu/press/key/date/2009/html/sp090428.en.html?fbclid=IwAR3l-HERTcR1afdIISMWCe0owxInfKY2zF5O5L4E-pfpADWdhAt4W6Z-Ux0

Conventional and unconventional monetary policy
Lorenzo Bini Smaghi,
Member of the Executive Board of the European Central Bank,
Keynote lecture at the International Center for Monetary and Banking Studies (ICMB),
Geneva, 28 April 2009