It sure beats FD rates and it is safe too.
http://spreadsheets.google.com/pub?key=tWENexpUrXS_RMxB7k73RgQ&output=html
Revisiting this old spreadsheet reveals many lessons on "stocks selection" and "buy and hold" strategies.
There are 9 stocks in this portfolio.
Buying prices:
Nestle: 10.20, 15.5, 22.80
PPB: 3.85, 6.80
Guinness: 4.38, 5.35
DLady: 1.70, 11.30
Tenaga: 3.32
GENM: 1.19
PBB: 4.48, 5.98, 6.80, 6.70
PetDag: 3.98, 5.75
UMW: 2.975
The returns of the stocks were calculated based on the their prices on 5.3.2009 when the market was at its lowest in the recent Global Financial Crisis. Even at these "low" prices, it is "safe" to hold onto these stocks in the portfolio.
Always buy QUALITY.
Click:
*****Long term investing based on Buy and Hold works for Selected Stocks
Sunday, 3 October 2010
Stage Is Set (Again) for a Blue-Chip Revival
Fundamentally
Stage Is Set (Again) for a Blue-Chip Revival
By PAUL J. LIM
Published: October 2, 2010
EVER since big blue-chip domestic stocks fell out of favor in early 2000, many market strategists have regularly been predicting their imminent return to glory.
In 2003, after the tech bubble burst and market valuations started to fall back to earth, large-capitalization stocks were supposed to catch a second wind. They didn’t.
Amid the global financial panic of 2008, investors were supposed to regain their appetite for blue chips because, in uncertain times, these industry-dominating companies could offer steadier growth. Yet, that year, large-cap stocks fell even harder than small-company stocks. And to add insult to injury, small stocks went on to outpace large ones in 2009 and so far this year.
Today, some market watchers are armed with a kitchen sink full of arguments that the stage is set for a blue-chip revival.
Not only are the large caps cheaper than small caps by historical standards, but some of these big companies, like Hewlett-Packard and Microsoft, are trading at price-to-earnings ratios of nine or less, based on projected earnings. Large stocks also have greater exposure to foreign markets, including emerging markets like China.
“I actually think large-cap stocks have more growth potential because they can go outside the United States,” said Thomas H. Forester, manager of the Forester Value fund, who has been bullish about this group since 2008.
Large stocks are also sitting on a mountain of cash. “At some point, these companies will start using that money to raise dividends, buy back their stock, or start buying each other,” said Robert E. Turner, chief investment officer at Turner Investment Partners, a money management firm in Berwyn, Pa. He says that cash has been especially important since the disruptions of the financial crisis.
All of these trends could benefit large-cap stocks, which have had a miserable decade. While small caps were up nearly 4 percent, annualized, from 2000 to the end of 2009, and mid-caps rose more than 6 percent, annualized, the large-cap Standard & Poor’s 500 lost about 1 percent.
But before investors get too worked up about a pending blue-chip boom, it’s important to note that it could take months, if not years, before large stocks stage a real comeback.
FOR starters, the bull market that began in March 2009 is only 18 months old. Historically, shares of small-but-nimble companies have outpaced the blue chips through the first two years of a rally, according to Sam Stovall, chief investment strategist at S.& P. In fact, in the second years of bull markets since 1950, the S.& P. 600 index of small stocks has gained 22 percent, on average, versus 18 percent for the S.& P. 500 index of blue-chip shares.
So “there’s absolutely no reason why small caps can’t keep outperforming large caps,” Mr. Stovall said.
James B. Stack, editor of the InvesTech Market Analyst, a newsletter based in Whitefish, Mont., noted that the so-called Nifty Fifty era — when the market’s biggest growth stocks dominated — came to an end in the 1973-74 bear market. After that, small stocks trounced blue chips until the early 1980s.
That’s not the only example of a slow recovery. After the 1929 crash, it wasn’t until 1945 that large stocks made it back to even. And blue-chip stock prices appreciated at a relatively modest rate in succeeding years: 4.6 percent, annualized, from 1945 to 1953.
Finally, there’s this: Large stocks continue to be the darlings of professional investors. A recent survey of money managers by Russell Investments found that two-thirds described themselves as bullish on large growth stocks, versus only around half who are similarly optimistic about small-cap shares.
That may not be a good sign. “If the consensus says small caps will underperform large caps, you know there’s a good chance they won’t,” Mr. Stovall said.
At the very least, says Robert Sharps, who manages assets for T. Rowe Price institutional clients, even if blue chips don’t return to their late-1990s glory anytime soon, it’s still “highly probable that returns in the next decade will be markedly better than the last one.”
Stage Is Set (Again) for a Blue-Chip Revival
By PAUL J. LIM
Published: October 2, 2010
EVER since big blue-chip domestic stocks fell out of favor in early 2000, many market strategists have regularly been predicting their imminent return to glory.
Amid the global financial panic of 2008, investors were supposed to regain their appetite for blue chips because, in uncertain times, these industry-dominating companies could offer steadier growth. Yet, that year, large-cap stocks fell even harder than small-company stocks. And to add insult to injury, small stocks went on to outpace large ones in 2009 and so far this year.
Today, some market watchers are armed with a kitchen sink full of arguments that the stage is set for a blue-chip revival.
Not only are the large caps cheaper than small caps by historical standards, but some of these big companies, like Hewlett-Packard and Microsoft, are trading at price-to-earnings ratios of nine or less, based on projected earnings. Large stocks also have greater exposure to foreign markets, including emerging markets like China.
“I actually think large-cap stocks have more growth potential because they can go outside the United States,” said Thomas H. Forester, manager of the Forester Value fund, who has been bullish about this group since 2008.
Large stocks are also sitting on a mountain of cash. “At some point, these companies will start using that money to raise dividends, buy back their stock, or start buying each other,” said Robert E. Turner, chief investment officer at Turner Investment Partners, a money management firm in Berwyn, Pa. He says that cash has been especially important since the disruptions of the financial crisis.
All of these trends could benefit large-cap stocks, which have had a miserable decade. While small caps were up nearly 4 percent, annualized, from 2000 to the end of 2009, and mid-caps rose more than 6 percent, annualized, the large-cap Standard & Poor’s 500 lost about 1 percent.
But before investors get too worked up about a pending blue-chip boom, it’s important to note that it could take months, if not years, before large stocks stage a real comeback.
FOR starters, the bull market that began in March 2009 is only 18 months old. Historically, shares of small-but-nimble companies have outpaced the blue chips through the first two years of a rally, according to Sam Stovall, chief investment strategist at S.& P. In fact, in the second years of bull markets since 1950, the S.& P. 600 index of small stocks has gained 22 percent, on average, versus 18 percent for the S.& P. 500 index of blue-chip shares.
So “there’s absolutely no reason why small caps can’t keep outperforming large caps,” Mr. Stovall said.
James B. Stack, editor of the InvesTech Market Analyst, a newsletter based in Whitefish, Mont., noted that the so-called Nifty Fifty era — when the market’s biggest growth stocks dominated — came to an end in the 1973-74 bear market. After that, small stocks trounced blue chips until the early 1980s.
That’s not the only example of a slow recovery. After the 1929 crash, it wasn’t until 1945 that large stocks made it back to even. And blue-chip stock prices appreciated at a relatively modest rate in succeeding years: 4.6 percent, annualized, from 1945 to 1953.
Finally, there’s this: Large stocks continue to be the darlings of professional investors. A recent survey of money managers by Russell Investments found that two-thirds described themselves as bullish on large growth stocks, versus only around half who are similarly optimistic about small-cap shares.
That may not be a good sign. “If the consensus says small caps will underperform large caps, you know there’s a good chance they won’t,” Mr. Stovall said.
At the very least, says Robert Sharps, who manages assets for T. Rowe Price institutional clients, even if blue chips don’t return to their late-1990s glory anytime soon, it’s still “highly probable that returns in the next decade will be markedly better than the last one.”
Loss of Young Talent Thwarts Malaysia’s Growth
October 1, 2010
Loss of Young Talent Thwarts Malaysia’s Growth
By LIZ GOOCH
KUALA LUMPUR — With its dazzling skyscrapers, bright lights and ubiquitous symbols of modernity, Singapore has long worked its magic on Rachel Liew, 20.
Even as a young girl visiting the city-state with her family from her native Malaysia, Singapore’s clean streets, convenient public transportation and modern lifestyles made a lasting impression.
As Ms. Liew grew older, she came to believe that Singapore could also offer a better education than her homeland, and in 2008, she packed her bags and headed south across the border to pursue a degree in mechanical engineering at Nanyang Technological University.
“I might return to Malaysia if I had a really good job offer there, which I think would be unlikely, or if I eventually get married to a Malaysian who wants to live in his hometown,” said Ms. Liew, one of about 700,000 Malaysians living abroad. “But other than that, I think I would probably settle down in Singapore.”
That is exactly the kind of sentiment Malaysia’s policy makers are desperate to change.
Many Asian nations have long been concerned about the outflow of human capital to more developed countries, but here in Malaysia, the need to address the problem has assumed a new urgency in the final decade for reaching its long-established goal of becoming a developed country by 2020.
Companies have long complained about a shortage of skilled labor in Malaysia, and economists say it is severely affecting the country’s ability to attract more high-technology industries. The government is acutely aware of the shortage in skills and the potential hurdle it poses to the country’s 2020 goal.
“We don’t get it right, we are in serious trouble,” the human resources minister, S. Subramaniam, said during an interview.
Studying and working overseas have long been considered attractive options for those Malaysians who can afford to make the move. About half of those living abroad can be found in neighboring Singapore. Australia, Britain and the United States are also popular.
Robert K. Chelliah, who runs an Australian immigration agency in Perth, with offices in Kuala Lumpur and Singapore, said by phone that the number of Malaysians contacting his company with inquiries about moving to Australia had soared 80 percent since 2008.
“In the last two to three years, the motivation to acquire Australian permanent residency has sharply increased across all age sectors as well as across racial backgrounds,” he said.
Like Ms Liew, most of the seven people interviewed for this article said that better education, wages and career opportunities could be found abroad, while parents wanted to ensure that their children received an internationally recognized education in English.
Many interviewees, when asked about their concerns about returning to Malaysia, cited racial tensions and the country’s affirmative action policy, which gives special privileges to ethnic Malays, who make up 60 percent of the population. The government has recognized the need to change the policy, which was introduced in the 1970s to improve the economic standing of Malays, who were more highly represented among the nation’s poor than its Chinese and Indian minorities.
Prime Minister Najib Razak has repeatedly emphasized that affirmative action would be made “market-friendly, merit-based, transparent and needs-based” under the country’s latest plan, the New Economic Model, which is designed to steer Malaysia toward its development goals. Ethnic Malays, or bumiputras, still benefit from privileges like discounted housing, and some government contracts are available only to companies they control.
A Malaysian Chinese businessman, who left Malaysia for Canada as a university student in the 1970s and stayed there, said that because of the policy, only a handful of his Malaysian Chinese classmates who also studied abroad had returned to Malaysia. Several other Malay and non-Malay interviewees also described the system as unfair.
Danny Quah, a professor of economics at the London School of Economics and Political Science, says that the brain drain has had a huge effect on the country’s economic and industrial development.
“People have left, growth prospects have dimmed, and then more people continue to leave,” said Mr. Quah, who is also a member of the Malaysian National Economic Advisory Council. “It’s a vicious cycle that the economy has had to confront for the last decade or longer.”
Malaysia’s growth rate dropped to an average of 5.5 percent a year from 2000 to 2008, from an average of about 9 percent a year from 1991 to 1997.
Private investment, meanwhile, has fallen to about 10 percent of gross domestic product in 2008 from more than a third of G.D.P. in 1997, and the World Bank has warned that a lack of human capital is a “critical constraint in Malaysia’s ambition to become a high-income economy.”
Stewart Forbes, executive director of the Malaysian International Chamber of Commerce and Industry, said foreign companies faced difficulties finding skilled workers in fields like electronics, the petrochemical industries and engineering. Some companies complain of poor communication and English skills.
“I don’t think it’s yet reached the stage where companies are saying, ‘I cannot do my business here,”’ Mr. Forbes said. “I think it’s true to say, however, that there’s lost investment opportunities here because of the labor situation.”
Mr. Forbes contrasted the skill shortage in Malaysia, where 80 percent of the work force has only a high school education, with a country like Taiwan, which emphasizes the number of holders of graduate degrees available to investors.
Previous government attempts to lure back Malaysian expatriates, namely the Brain Gain Malaysia and Returning Expert programs, have had little success. Despite financial incentives like importing cars tax-free and efforts to ease access to permanent residency for foreign spouses, they have attracted fewer than 3,000 applicants.
The government now plans to enhance and consolidate those programs under a new agency, to be known as the Talent Corp. Its financing will be announced as part of the country’s 2011 budget on Oct 15. It will recommend ways the country's education and training systems can be overhauled to produce graduates who better fulfill industry needs, especially in sectors like information technology and financial services.
Muhyiddin Yassin, Malaysia’s deputy prime minister and education minister, is leading a major review of the education system. “There will definitely be a major overhaul of the system,” he said in an interview, adding that the system needed to foster creativity and innovation.
Enhancing the skills of the existing work force, encouraging universities to work more closely with industry and increasing the number of students enrolled in vocational training are also priorities.
Mr. Muhyiddin said that Malaysia needed to record annual economic growth of 6 percent for the next 10 years to achieve its 2020 goal and that a work force with the right skills was a “precondition” for such growth.
Still, enticing Malaysian expatriates home, when salaries there remain lower than abroad, presents a major challenge.
In Malaysia, the average income per capita is currently about $7,000, a figure the government wants to increase to $15,000 by 2020. In Singapore, by contrast, the figure hovers around $37,000, World Bank data show.
Mr. Subramaniam, the human resources minister, says that he expects salaries to rise as more high-technology industries develop and that, in the meantime, improvements in other factors, like work opportunities, may help lure Malaysians home.
“If we give them a good working environment, an area where they can grow, and it’s stimulating and satisfying, they might be willing to take a slight cut in their salary,” he said.
Still, some economists remain skeptical about the government’s initiatives to reverse the diaspora.
Terence Gomez, a professor on the economics faculty of the University of Malaya, said that changing the affirmative action policy remained a highly contentious issue, with the government under pressure from right-leaning groups and members of its own party, the United Malays National Organization, to maintain it.
But he said it was vital that Malaysia become more of a meritocracy if it is to succeed in drawing back the diaspora. For instance, non-Malays need to be assured that they can be appointed to senior civil service positions, and the private sector must be based on transparency and fairness, rather than race, he said.
Otherwise, “professionals won’t come back and work in the public sector, and investors won’t come back and invest in the private sector,” he added.
Mr. Quah of the London School said that it was not affirmative action alone that had driven the brain drain and that higher wages and economic growth, and good schooling opportunities, were vital to enticing expatriates home.
“This is an economically astute middle class, and they will see whether it’s in their interests to return or not,” he said.
Chen May Yee, 39, a Malaysian Chinese journalist who lives in Minneapolis with her American husband and two children, is yet to be convinced that Malaysia can offer the work opportunities and lifestyle she wants for her family. She said she had taken a pay cut each time she had previously moved back to Malaysia after stints in the United States or Singapore — sometimes as much as 50 percent.
“I’d love to move back for family and friends, but I just don’t see how to make it work economically,” she said.
http://www.nytimes.com/2010/10/02/business/global/02brain.html?ref=business&src=me&pagewanted=all
Malaysia
Malaysia has long prided itself as a model of ethnic harmony. But the country's three main races Malays, Chinese and Indians now find themselves at an uneasy turning point. The post-independence political formula of race-based parties united in a common coalition is breaking down, with Chinese and Indians withdrawing their support. An affirmative action program favoring Malays has been extended indefinitely and is widely resented among non-Malays. Add religious tensions to the mix and the notion of a common Malaysian identity is looking fragile. Malay Muslims are asserting their rights to be judged by a separate Islamic legal system in matters pertaining to marriage, divorce and inheritance. The civil courts have so far ruled in their favor.
Yet as the country searches for a common identity, some parts of the country are thriving. Construction is booming in the heart of the commercial capital, Kuala Lumpur. The government is reaping billions of dollars from the surge in commodity prices, mainly oil and gas and palm oil and rubber. Malaysia continues to build world-class highways and other physical infrastructure. But the quality of its universities and education system remains middling to poor.
In February 2008, Prime Minister Abdullah Ahmad Badawi called for general elections. The campaign was a barometer of a soured national mood, with voters in opinion polls saying their greatest concerns were ethnic tensions, income inequality, rising prices of fuel and food and a surge in crime. Contested vigorously by the opposition, the elections were also a test of Mr. Abdullah's popularity. He came to power in 2003 promising sweeping reforms and a crackdown on corruption, but his administration has been widely seen as ineffectual. When opposition party members and activists wanted to send a message about the state of Mr. Abdullah's administration, they delivered a present to his office -- a pillow.
--Thomas Fuller, March 6, 2008
Single trader sparked Wall Street's flash crash
October 2, 2010
A computer-driven sale worth $US4.1 billion ($4.24 billion) by a single trader helped trigger the May flash crash, which sent the Dow Jones Industrial Average dropping nearly 1000 points in less than a half-hour and set off liquidity crises that ricocheted between US futures and stock markets.
The report did not identify the trader by name, but internal documents obtained from futures exchange operator CME Group identified that trader as money manager Waddell & Reed Financial.
The long-awaited report focused on the relationship between two hugely popular securities - E-Mini Standard & Poor's 500 futures and S&P 500 "SPDR" exchange-traded funds - and detailed how high-frequency algorithmic trading can sap liquidity and rock the marketplace.
"The interaction between automated execution programs and algorithmic trading strategies can quickly erode liquidity and result in disorderly markets," the report said.
The "flash crash" sent the Dow Jones Andustrial Average plunging within minutes, exposing flaws in the electronic marketplace dominated by high-speed trading.
The report lays the foundation for a commission to recommend new rules to avoid a repeat. At least one lawmaker threatened congressional action if regulators did not address the disparity in the markets.
Trading was turbulent that afternoon because of concerns over the European debt crisis. Against that backdrop, a "large fundamental trader" initiated a sell program to sell 75,000 E-Mini contracts as a hedge to an existing equity position, according to the 104-page report.
Citing documents from CME Group, Reuters reported on May 14 that Waddell sold a large order of E-Minis during the market plunge, identifying the firm to which the chairman of the Commodity Futures Trading Commission, Gary Gensler, had alluded in congressional testimony.
The CFTC had resisted naming Waddell in Friday's report because of laws that allow it to withhold such information from the public, sources have said.
Waddell's selling algorithm had "no regard to price or time," the report said. That, coupled with the "aggressive" reaction by high-frequency traders hedging their positions, led to two separate "liquidity crises" -- one in the E-minis, the other among individual stocks.
Waddell's algo "responded to the increased volume by increasing the rate at which it was feeding the orders into the market, even though orders that it already had sent to the market were arguably not yet fully absorbed by fundamental buyers or cross-market arbitrageurs," the report said.
These arbitrageurs transferred the selling pressure to the stock market, sparking a "hot-potato" effect among high-frequency traders that rapidly passed the same positions back and forth.
Meanwhile, the report continued, the stock market began plunging as trading pauses kicked in at individual firms, as high-frequency traders became net sellers, and as market makers began routing "most, if not all," retail orders to the public markets -- a flood of unusual selling pressure that sucked up more dwindling liquidity.
Shares of Waddell edged higher on Friday. They fell sharply on the day of the initial Reuters report.
The unprecedented flash crash called into question many of the regulatory and technological changes over the last decade, which ushered in an era of lightning-quick trading on dozens of mostly electronic exchanges and alternative venues.
Data to the beginning of this month show that funds have exited mutual funds in every week since early May. Meanwhile, the 20-day moving average of the S&P 500's daily volume shows a slow decline since late May, according to Reuters data.
"I do not expect today's report to restore the confidence that was lost as a result of the flash crash," said David Joy, Minneapolis-based chief market strategist at Columbia Management, a large money manager.
"Most individual investors do not fully understand how high-frequency trading works, only that it can create volatility and seems to put them at a disadvantage. Only time, and higher stock prices, will restore that lost confidence."
The SEC, under enormous political and public pressure to act, in the last few months adopted new trading curbs known as circuit breakers and proposed establishing a consolidated audit trail of all stock trading.
Lawmakers seized on the latest report as a reason for the SEC to do more to fix the fragmented markets.
"The SEC should seriously consider ways to slow things down when markets get volatile," said Democratic Senator Charles Schumer.
Democratic Representative Paul Kanjorski said regulators must act quickly to revise market rules.
If necessary, Congress must "put in place new rules of the road to ensure the fair, orderly and efficient functioning of the US capital markets," Kanjorski said.
The flash crash report comes just as the SEC and the CFTC have begun drafting nearly 200 rules required by the landmark Wall Street reform legislation, which includes a revamp of the opaque over-the-counter derivatives market.
Reuters
http://www.smh.com.au/business/markets/single-trader-sparked-wall-streets-flash-crash-20101002-161fr.html
A computer-driven sale worth $US4.1 billion ($4.24 billion) by a single trader helped trigger the May flash crash, which sent the Dow Jones Industrial Average dropping nearly 1000 points in less than a half-hour and set off liquidity crises that ricocheted between US futures and stock markets.
A report issued on Friday by the US Securities and Exchange Commission and the Commodity Futures Trading Commission determined the plunge was caused when the trading firm executed a computerised selling program in an already stressed market.
The report did not identify the trader by name, but internal documents obtained from futures exchange operator CME Group identified that trader as money manager Waddell & Reed Financial.
The long-awaited report focused on the relationship between two hugely popular securities - E-Mini Standard & Poor's 500 futures and S&P 500 "SPDR" exchange-traded funds - and detailed how high-frequency algorithmic trading can sap liquidity and rock the marketplace.
"The interaction between automated execution programs and algorithmic trading strategies can quickly erode liquidity and result in disorderly markets," the report said.
The "flash crash" sent the Dow Jones Andustrial Average plunging within minutes, exposing flaws in the electronic marketplace dominated by high-speed trading.
The report lays the foundation for a commission to recommend new rules to avoid a repeat. At least one lawmaker threatened congressional action if regulators did not address the disparity in the markets.
Trading was turbulent that afternoon because of concerns over the European debt crisis. Against that backdrop, a "large fundamental trader" initiated a sell program to sell 75,000 E-Mini contracts as a hedge to an existing equity position, according to the 104-page report.
Citing documents from CME Group, Reuters reported on May 14 that Waddell sold a large order of E-Minis during the market plunge, identifying the firm to which the chairman of the Commodity Futures Trading Commission, Gary Gensler, had alluded in congressional testimony.
The CFTC had resisted naming Waddell in Friday's report because of laws that allow it to withhold such information from the public, sources have said.
Waddell's selling algorithm had "no regard to price or time," the report said. That, coupled with the "aggressive" reaction by high-frequency traders hedging their positions, led to two separate "liquidity crises" -- one in the E-minis, the other among individual stocks.
Waddell's algo "responded to the increased volume by increasing the rate at which it was feeding the orders into the market, even though orders that it already had sent to the market were arguably not yet fully absorbed by fundamental buyers or cross-market arbitrageurs," the report said.
These arbitrageurs transferred the selling pressure to the stock market, sparking a "hot-potato" effect among high-frequency traders that rapidly passed the same positions back and forth.
Meanwhile, the report continued, the stock market began plunging as trading pauses kicked in at individual firms, as high-frequency traders became net sellers, and as market makers began routing "most, if not all," retail orders to the public markets -- a flood of unusual selling pressure that sucked up more dwindling liquidity.
Shares of Waddell edged higher on Friday. They fell sharply on the day of the initial Reuters report.
The unprecedented flash crash called into question many of the regulatory and technological changes over the last decade, which ushered in an era of lightning-quick trading on dozens of mostly electronic exchanges and alternative venues.
Data to the beginning of this month show that funds have exited mutual funds in every week since early May. Meanwhile, the 20-day moving average of the S&P 500's daily volume shows a slow decline since late May, according to Reuters data.
"I do not expect today's report to restore the confidence that was lost as a result of the flash crash," said David Joy, Minneapolis-based chief market strategist at Columbia Management, a large money manager.
"Most individual investors do not fully understand how high-frequency trading works, only that it can create volatility and seems to put them at a disadvantage. Only time, and higher stock prices, will restore that lost confidence."
The SEC, under enormous political and public pressure to act, in the last few months adopted new trading curbs known as circuit breakers and proposed establishing a consolidated audit trail of all stock trading.
Lawmakers seized on the latest report as a reason for the SEC to do more to fix the fragmented markets.
"The SEC should seriously consider ways to slow things down when markets get volatile," said Democratic Senator Charles Schumer.
Democratic Representative Paul Kanjorski said regulators must act quickly to revise market rules.
If necessary, Congress must "put in place new rules of the road to ensure the fair, orderly and efficient functioning of the US capital markets," Kanjorski said.
The flash crash report comes just as the SEC and the CFTC have begun drafting nearly 200 rules required by the landmark Wall Street reform legislation, which includes a revamp of the opaque over-the-counter derivatives market.
Reuters
http://www.smh.com.au/business/markets/single-trader-sparked-wall-streets-flash-crash-20101002-161fr.html
Huge sell-off in agriculture as speculators run
October 2, 2010
Fear of high corn stockpiles and uncertainties in the outlook for sugar and cotton sparked a massive sell-off in agricultural markets on Friday, overshadowing the rally in energy and metals.
US corn futures tumbled the 30-cent trading limit in near record volume to end down 6 per cent for the session and 10 per cent for the week in an extended reaction to Thursday's government crop report showing hefty inventories of the grain.
Soybeans fell 4 per cent on the day and wheat over 3 per cent.
Raw sugar closed down half a per cent, adding to the previous session's drop of almost 6 per cent. Analysts said investors were worried the sweetener's near 50 per cent gain during the third quarter had outpaced demand.
"I'm sure that the market had outstripped its fundamentals," Keith Brown, a cotton broker in Moultrie, Georgia, said after US cotton futures plunged about 4 per cent from 15-year highs. "(Speculators) carried us up ... now, they are feeding upon themselves like piranha trying to get out faster than the next guy."
The 19-commodity Reuters-Jefferies CRB index settled down almost half per cent after rising as much earlier in the session, following a 2 per cent rally in oil and copper and a new record high in gold. The CRB rose nearly 11 per cent in the third quarter, its biggest gain in five quarters, with sugar being the index's star performer.
The about-face in agriculture after the strong third quarter made some grains traders wonder if they were looking at the start of a prolonged lean period for prices. But some, like those in the sugar trade, expected a quick rebound.
"With oil so strong and the dollar weakening further, it would seem sugar will hold rather than continue the collapse, and we would expect the support to hold," said Thomas Kujawa of Sucden Financial Sugar, who predicted the sweetener would hold at above 22.50 cents a lb. New York's key raw sugar contract closed at 23.36 cents per lb.
Corn posted its biggest one-day drop since January 12, when the government released another bearish report on stockpiles of the grain. Chicago's key corn contract for December finished at $US4.65-3/4 a bushel, falling the 30 cent that also contributed to its biggest weekly loss since mid-January.
Crude oil's benchmark front-month contract in New York rose almost 2 per cent to settle above $US81 a barrel, a level not seen since August 10, as a sliding dollar caused investors to hedge in oil and metals.
Gold hit record highs for a sixth successive session, scaling above $US1320 per ounce.
Copper rose 2 per cent to scale two-year highs in both London and New York after China's latest manufacturing data showed an important engine of global growth was humming again after sputtering in the second quarter.
Reuters
http://www.smh.com.au/business/markets/huge-selloff-in-agriculture-as-speculators-run-20101002-161g3.html
Fear of high corn stockpiles and uncertainties in the outlook for sugar and cotton sparked a massive sell-off in agricultural markets on Friday, overshadowing the rally in energy and metals.
US corn futures tumbled the 30-cent trading limit in near record volume to end down 6 per cent for the session and 10 per cent for the week in an extended reaction to Thursday's government crop report showing hefty inventories of the grain.
Soybeans fell 4 per cent on the day and wheat over 3 per cent.
Raw sugar closed down half a per cent, adding to the previous session's drop of almost 6 per cent. Analysts said investors were worried the sweetener's near 50 per cent gain during the third quarter had outpaced demand.
The liquidation marked a sharp reversal in trend for agricultural markets, which were among the biggest gainers in commodities during the just-ended quarter.
"I'm sure that the market had outstripped its fundamentals," Keith Brown, a cotton broker in Moultrie, Georgia, said after US cotton futures plunged about 4 per cent from 15-year highs. "(Speculators) carried us up ... now, they are feeding upon themselves like piranha trying to get out faster than the next guy."
The 19-commodity Reuters-Jefferies CRB index settled down almost half per cent after rising as much earlier in the session, following a 2 per cent rally in oil and copper and a new record high in gold. The CRB rose nearly 11 per cent in the third quarter, its biggest gain in five quarters, with sugar being the index's star performer.
The about-face in agriculture after the strong third quarter made some grains traders wonder if they were looking at the start of a prolonged lean period for prices. But some, like those in the sugar trade, expected a quick rebound.
"With oil so strong and the dollar weakening further, it would seem sugar will hold rather than continue the collapse, and we would expect the support to hold," said Thomas Kujawa of Sucden Financial Sugar, who predicted the sweetener would hold at above 22.50 cents a lb. New York's key raw sugar contract closed at 23.36 cents per lb.
Corn posted its biggest one-day drop since January 12, when the government released another bearish report on stockpiles of the grain. Chicago's key corn contract for December finished at $US4.65-3/4 a bushel, falling the 30 cent that also contributed to its biggest weekly loss since mid-January.
Crude oil's benchmark front-month contract in New York rose almost 2 per cent to settle above $US81 a barrel, a level not seen since August 10, as a sliding dollar caused investors to hedge in oil and metals.
Gold hit record highs for a sixth successive session, scaling above $US1320 per ounce.
Copper rose 2 per cent to scale two-year highs in both London and New York after China's latest manufacturing data showed an important engine of global growth was humming again after sputtering in the second quarter.
Reuters
http://www.smh.com.au/business/markets/huge-selloff-in-agriculture-as-speculators-run-20101002-161g3.html
Bull Market: Go by fundamentals, invest with caution
26 Sep, 2010, 05.31AM IST,
Kavita Sriram,ET Bureau
Bull Market: Go by fundamentals, invest with caution
A bull run may be good news for investors. However, must exert extreme caution when attempting to churn out profits from these markets.
Factors that led to bull run
The shot past the 20,000 level for the first time since mid-January 2008. Both NSE and BSE regained highs after a gap of almost 32 months. Investor enthusiasm in oil and gas, capital goods and banking sector stocks led the ascent to glory.
The fast-expanding economy on track after stimulus packages built up the momentum. Most important of all was the sustained foreign institutional investor (FII) interest in the markets that gave the Sensex the final impetus. Inflow of foreign capital and strong economic growth forecasts are credited for the optimism in the markets.
Perils of
Anticipation of a large correction could create panic among investors who could resort to booking profits. This situation is more likely when the index rise has been rapid and unexpected. If the bull run is largely owing to foreign capital, the market's direction can be highly unpredictable. This is because foreign investor sentiments are impacted with global developments and trends.
So, a recession or political development elsewhere across the globe can lead to FII selling here. Some analysts could declare a bull run as sustainable and advise investors to enter the markets. There may be many who would advice caution citing a likely correction. These mixed signals could confuse an investor who would watch the bull phase pass, simply waiting by the sidelines.
Golden rules for investing in bull markets
Here are a few pointers for investors in a bull run:
Go by fundamentals
Identifying a possible bull run well ahead and entering at this early stage will give ample opportunity to book profits. However, pick up stocks that have strong fundamentals that wouldn't let you down in volatile times.
Stay within risk appetite
Invest according to your risk appetite. Small-cap stocks have tremendous growth potential. But they carry a high element of risk. On the contrary, largecap stocks are less risky with only little headroom to climb higher.
Balance portfolio
Ensure your overall portfolio is well-diversified and strike a balance between your debt and equity investments. Do not borrow to invest in the markets. Do not divert funds from your savings kitty to the equity market. Do not be deceived by a bubble that has artificially pushed the markets up. Investing systematically with a long-term perspective in mind is the best market strategy.
Stick to goals
Deter from buying or selling high volumes. Do not invest heavily in heated stocks when the index is at a peak. Avoid chasing the crowd. Stick to your investment goals. Some investors who make money in bull markets become over-confident and start taking greater risks. Rely more on market and company research rather than solely on instincts. Do not get carried away by rumours, peer activities and forecasts. Not many can actually chase market indices.
http://economictimes.indiatimes.com/features/financial-times/Bull-Market-Go-by-fundamentals-invest-with-caution/articleshow/6626132.cms
Kavita Sriram,ET Bureau
Bull Market: Go by fundamentals, invest with caution
A bull run may be good news for investors. However, must exert extreme caution when attempting to churn out profits from these markets.
Factors that led to bull run
The shot past the 20,000 level for the first time since mid-January 2008. Both NSE and BSE regained highs after a gap of almost 32 months. Investor enthusiasm in oil and gas, capital goods and banking sector stocks led the ascent to glory.
The fast-expanding economy on track after stimulus packages built up the momentum. Most important of all was the sustained foreign institutional investor (FII) interest in the markets that gave the Sensex the final impetus. Inflow of foreign capital and strong economic growth forecasts are credited for the optimism in the markets.
Perils of
Anticipation of a large correction could create panic among investors who could resort to booking profits. This situation is more likely when the index rise has been rapid and unexpected. If the bull run is largely owing to foreign capital, the market's direction can be highly unpredictable. This is because foreign investor sentiments are impacted with global developments and trends.
So, a recession or political development elsewhere across the globe can lead to FII selling here. Some analysts could declare a bull run as sustainable and advise investors to enter the markets. There may be many who would advice caution citing a likely correction. These mixed signals could confuse an investor who would watch the bull phase pass, simply waiting by the sidelines.
Golden rules for investing in bull markets
Here are a few pointers for investors in a bull run:
Go by fundamentals
Identifying a possible bull run well ahead and entering at this early stage will give ample opportunity to book profits. However, pick up stocks that have strong fundamentals that wouldn't let you down in volatile times.
Stay within risk appetite
Invest according to your risk appetite. Small-cap stocks have tremendous growth potential. But they carry a high element of risk. On the contrary, largecap stocks are less risky with only little headroom to climb higher.
Balance portfolio
Ensure your overall portfolio is well-diversified and strike a balance between your debt and equity investments. Do not borrow to invest in the markets. Do not divert funds from your savings kitty to the equity market. Do not be deceived by a bubble that has artificially pushed the markets up. Investing systematically with a long-term perspective in mind is the best market strategy.
Stick to goals
Deter from buying or selling high volumes. Do not invest heavily in heated stocks when the index is at a peak. Avoid chasing the crowd. Stick to your investment goals. Some investors who make money in bull markets become over-confident and start taking greater risks. Rely more on market and company research rather than solely on instincts. Do not get carried away by rumours, peer activities and forecasts. Not many can actually chase market indices.
http://economictimes.indiatimes.com/features/financial-times/Bull-Market-Go-by-fundamentals-invest-with-caution/articleshow/6626132.cms
Some inherent problems with these methods.
Some inherent problems with these methods.
DCF: Treat this with extreme caution. The danger is that you will give it more weight than it deserves because it is been spat out by your elegant spreadsheet. Remember John Maynard Keynes - it's better to be vaguely right than precisely wrong. Your time will be better spent thinking about your assumptions and why they[re so different from the market's.
Price/BV: All things being equal, a good business making high returns on capital will justify a price that's higher than its net asset value - particularly if it has ample scope to invest further capital at those high rates of return. And a poor business making low returns will deserve to be priced at a discount to its net asset value - particularly if it's determined to keep investing capital at those low rates of return rather than return it to shareholders. There's a broad correlation between price-to-book ratio and return on capital, though it's far from perfect, reflecting the problems inherent in these measures and the market's own inefficiencies. So, if you find a company making decent returns on capital, but priced around book value or lower, it might pay to wonder why. Generally there's a reason - such as that those returns are flattered because the balance sheet undervalues the company's capital or the returns are likely to take a tumble - but occasionally it might suggest a bargain.
Graham's net current asset approach: When a common stock sells persistently below its liquidating value, then either the price is too low or the company should be liquidated. If it is worth more as a going concern, then the stock should sell for more than its liquidating value. These types of opportunities have become scarce.
PE ratio: You can approach this by assuming that a stock is worth a multiple of this year's earnings, where the multiple is one divided by YOUR target rate of return. So, if you are targeting a return of 8% a year, then you could, in theory, pay a PER of 12.5 (1 divided by 8%). And if you were targeting 12% a year, then you'd pay a PER of up to 8.33. And if a stock were priced in the market on a PER of 16, then theoretically, it would be set to provide a return of 6.25% (1 divided by 16; this is also known as its 'earnings yield'). But, in practice, things aren't so simple. Some companies persistently make better than average returns on their capital, while others make poor returns.
Short cuts for finding value
Companies and shares are worth the present value of the future cash they can generate for their owners. This is a rather simple statement, and yet in practice, valuing companies is not so straightforward.
As the famous economist John Maynard Keynes put it, it's better to be vaguely right than precisely wrong, and the better bet is to stick to a few simple valuation tools. Here are some ways to value companies or shares:
But in every case, you'll probably get closest to the truth by looking at all the different measures.
Also, only invest in good quality businesses.
As the famous economist John Maynard Keynes put it, it's better to be vaguely right than precisely wrong, and the better bet is to stick to a few simple valuation tools. Here are some ways to value companies or shares:
1. Discount cash flow method.
2. Asset-based valuation tools.
- Price/Book Value
- Graham's Net Current Asset approach
3. Earnings-based valuation tools.
- PE ratio
4. Cash flow-based valuation tools
- DY
- FCF Yield
- The price-to-book ratio tends to work best with low-quality businesses on steep discounts.
- The PER tends to work best with high-quality growth companies.
- The dividend yield and free cash flow yield tend to be suited to mature businesses generating steady returns.
But in every case, you'll probably get closest to the truth by looking at all the different measures.
Also, only invest in good quality businesses.
Wait for the Price to come to You (Timing versus Pricing)
Invest in businesses. Recognise quality. These are the factors that make a company great:
If you find all the above qualities together, you'll have a business that's making excellent returns on capital.
You should be able to confirm this by calculating that number from the accounts for the last few years, and checking how the cash is flowing through the business.
The next step is to work out the PE ratio that you'd be happy to pay for the business, or a dividend yield or a cash flow yield, or all three.
Then you wait, making adjustments to your valuation as needs dictate, so when the price comes into range, you'll be ready to pounce.
- it must have a good product,
- it must have a powerful competitive position and,
- it must have a strong management and culture that are open to change.
If you find all the above qualities together, you'll have a business that's making excellent returns on capital.
The next step is to work out the PE ratio that you'd be happy to pay for the business, or a dividend yield or a cash flow yield, or all three.
Then you wait, making adjustments to your valuation as needs dictate, so when the price comes into range, you'll be ready to pounce.
Saturday, 2 October 2010
Why Investment Risk Increases Over Time
By CARL RICHARDS
Spend any time hanging out with traditional financial services salespeople or in the investment section of Barnes & Noble and you’ll no doubt hear the claim that risk declines over time.
This story is often accompanied by an “educational” piece that looks something like the sketch above. The message is that over time, the range of potential investment returns narrows toward a long-term average of about 10 percent.
In other words, when you look at the best and worst returns for the stock market for any one-year period, you could have lost over 40 percent or gained over 60 percent. That’s a really wide range.
But when you look at 20-year periods, the worst average annual performance was a gain of around 3 percent with the best being about 15 percent. That’s a much more narrow range. Over 30 years, things get even closer to the average.
The problem is real people in the real world don’t really care about percentages. We care about dollars. No matter how hard you try, you can’t pay for food, college or retirement with a bucket full of percentages.
And when we measure the same range of potential outcomes over time, only this time we do it in dollars, you get the opposite picture. The potential outcomes get wider over time.
If you happen to earn 5 percent instead of the 7 percent you planned on, it will make very little difference 12 months from now. But in 20 or 30 years, you will end up in a greatly different place.
Think of it as a cross-country flight leaving from Los Angeles and heading to Miami. If you’re a half-inch off when you take off, you will hardly notice when you fly over Las Vegas. Fail to make a course correction, however, and you run the risk of ending up in Maine instead of Miami.
It’s a wild paradox, but most of the educational stories and tools used by the investment and personal finance industry are focused on investments, not investors, and on percentages, not dollars. A study released recently came to a similar conclusion using much more detailed reasons as to why, but the message is the same. Risk actually increases over time, contrary to the expectations of the industry.
This is part of the reason that financial plans are worthless, but the process of planning is vital.
If you base your plan on earning the long-term average return of the stock market and never make course corrections, you’re at great risk of ending up someplace other than where you planned. On the other hand, if you set a course and then make slight course corrections when you find you have veered off, you can home in on your destination.
http://bucks.blogs.nytimes.com/2010/08/10/why-investment-risk-increases-over-time/
Click: Three most important personal factors to consider: Your Time Horizon, Risk Tolerance and Investment Objectives
Tobacco and breweries may get a blow from Budget 2011
Tobacco and breweries may get a blow from Budget 2011
Written by Financial Daily
Thursday, 30 September 2010 11:37
This article appeared in The Edge Financial Daily, September 30, 2010.
Written by Financial Daily
Thursday, 30 September 2010 11:37
Tobacco and brewery sectors
Maintain neutral on both: The tobacco and brewery industries are referred to by some as the “sin sector” (together with the gaming industry) in Malaysia. Like most parts of the world, these sectors are governed by tough government regulations and pay high excise duties. Our findings, which we elaborate in this report, are mainly focused on excise duty related to the sin sector.
Tobacco: From our recent channel checks, we sense that there is a possibility of cigarette pack prices being increased by about 30 sen to 60 sen per pack. This translates into a price increment of 1.5 sen to 3 sen per stick. Benchmarking against a premium 20s cigarette pack at RM9.30 (note that small 14s packs are no longer available), this could translate into pack prices potentially ranging from RM9.60 to RM9.90.
Although we did not manage to unearth the actual sum of the hike in tobacco excise duty, historically price increases have often involved a mark-up of 0.5 sen to 1 sen per stick above existing excise duty rates.
As such, the excise duty on cigarettes may go up by 1 sen to 2.5 sen per stick. All in all, we understand that the upward price adjustment in response to the excise duty rate hike will not breach the psychological level of RM10 per pack.
Brewery: We initially expected alcohol excise duties to be spared from a raise in the upcoming Budget 2011. However, the minister’s remarks about a possible hike in alcohol excise duty would be negative for the sector. Although we are unable to gauge the amount of increase, we deem any hike from the current RM7.40 per litre level as “damaging”. As a relative measure, alcohol-related duties and taxes account for some 48% of the retail price of beer. Adjusting for disposable income, alcoholic beverage prices in Malaysia may well be considered the highest in the world.
Maintain neutral on both: The tobacco and brewery industries are referred to by some as the “sin sector” (together with the gaming industry) in Malaysia. Like most parts of the world, these sectors are governed by tough government regulations and pay high excise duties. Our findings, which we elaborate in this report, are mainly focused on excise duty related to the sin sector.
Tobacco: From our recent channel checks, we sense that there is a possibility of cigarette pack prices being increased by about 30 sen to 60 sen per pack. This translates into a price increment of 1.5 sen to 3 sen per stick. Benchmarking against a premium 20s cigarette pack at RM9.30 (note that small 14s packs are no longer available), this could translate into pack prices potentially ranging from RM9.60 to RM9.90.
Although we did not manage to unearth the actual sum of the hike in tobacco excise duty, historically price increases have often involved a mark-up of 0.5 sen to 1 sen per stick above existing excise duty rates.
As such, the excise duty on cigarettes may go up by 1 sen to 2.5 sen per stick. All in all, we understand that the upward price adjustment in response to the excise duty rate hike will not breach the psychological level of RM10 per pack.
Brewery: We initially expected alcohol excise duties to be spared from a raise in the upcoming Budget 2011. However, the minister’s remarks about a possible hike in alcohol excise duty would be negative for the sector. Although we are unable to gauge the amount of increase, we deem any hike from the current RM7.40 per litre level as “damaging”. As a relative measure, alcohol-related duties and taxes account for some 48% of the retail price of beer. Adjusting for disposable income, alcoholic beverage prices in Malaysia may well be considered the highest in the world.
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We see the companies in our “sin sector” coverage being slapped by higher excise duties in Budget 2011.
For the tobacco sector, although we do not make any changes to our earnings for now, we downgrade British American Tobacco (M) Bhd (target price: RM40.12) to a “sell” from “neutral” previously, given that its stock price has rallied strongly in the past quarter, while keeping JT International Bhd as a “buy” (TP:RM5.96) for its solid fundamentals, which will see it strongly positioned in the value-for-money cigarette segment, which is fast gaining popularity.
Brewers enjoyed a grace period from 2006 to 2009, when they were spared from hikes in alcohol excise duty.
However, the honeymoon seems to be over and we see an impending hike in Budget 2011 likely to scald sentiment.
We maintain our “neutral” recommendation for Guinness Anchor Bhd (TP: RM7.90) and our “buy” recommendation on Carlsberg Brewery Malaysia Bhd (TP: RM5.80). — OSK Invesment Research
For the tobacco sector, although we do not make any changes to our earnings for now, we downgrade British American Tobacco (M) Bhd (target price: RM40.12) to a “sell” from “neutral” previously, given that its stock price has rallied strongly in the past quarter, while keeping JT International Bhd as a “buy” (TP:RM5.96) for its solid fundamentals, which will see it strongly positioned in the value-for-money cigarette segment, which is fast gaining popularity.
Brewers enjoyed a grace period from 2006 to 2009, when they were spared from hikes in alcohol excise duty.
However, the honeymoon seems to be over and we see an impending hike in Budget 2011 likely to scald sentiment.
We maintain our “neutral” recommendation for Guinness Anchor Bhd (TP: RM7.90) and our “buy” recommendation on Carlsberg Brewery Malaysia Bhd (TP: RM5.80). — OSK Invesment Research
This article appeared in The Edge Financial Daily, September 30, 2010.
GAB confident of continued growth
GAB confident of continued growth
Written by Daniel Khoo
Friday, 01 October 2010 10:58
Revenue had also doubled to RM1.36 billion in FY2010 from RM682.4 million in FY2000. Earnings per share had also shot up to 50.5 sen from 20.2 sen during the period.
Consequently, shareholders have been rewarded with higher dividend. GAB declared dividend per share of 45 sen in FY2010 versus 18 sen in FY2000.
GAB will continue to grow its market share by spending more on advertising and promotion (A&P) activities through simple leisure group activities especially through football sporting events.
“One of the things that we were doing four years ago is Tiger Football Club which is our platform around football.
“We have increased our A&P budget again this year; we increased it last year and the year before. This is the fifth year I have been in the company now and every year we’ve increased our budget,” Ireland said.
“We do that because we see A&P as investments, you make wise investments and you will get superior returns.”
The company has seen its main product brand Tiger beer outperforming the overall market with “double digit growth rates”, and this has been its key growth driver of profits and revenue.
Tiger is its biggest brand, in terms of sales volume. However, Heineken and Guinness Stout command better margin due to the more premium price.
Asked about GAB’s individual market share for its brands, Ireland did not want to divulge specific details but gave rough estimates saying “Tiger’s (market share) is 2.5 times the size of Guinness, and Guinness is twice the size of Heineken. Heineken is twice the size of Anchor”.
According to Charles, the company’s management had this year raised salaries for its staff that he said are “above market rates”.
He stressed that the amount spent on human resources, such as higher salaries, is a form of investment, not costs.
“It is people that make the difference in a business, and we want to retain the best talent. Lots of businesses have got great brands; lots of businesses have got good profit and loss, balance sheets and cash at hand,” Ireland said.
“To be able to sustain performance over the medium and long term and to beat the competition year after year — it takes great people doing the right things in the right way.”
This article appeared in The Edge Financial Daily, October 1, 2010.
Written by Daniel Khoo
Friday, 01 October 2010 10:58
PETALING JAYA: Having achieved nine consecutive years of growth in profit and market share since FY2000 ended June 30 is certainly a good reason for Guinness Anchor Bhd (GAB) to celebrate.
Another reason to cheer is that its managing director Charles Henry Ireland is upbeat that the stellar performance will continue riding on the back of a growing population in a modernising society and mindset despite critics saying otherwise.
“As a business, we have managed to consistently outperform the competition and the market through a good strategy. And we’ve still got some way to go before we fully exhaust the opportunity that comes from that strategy,” said Ireland.
He reckoned that as the country’s economy progresses further, the demand for beer will increase in tandem with it.
However, industry observers noted that the local beer market is maturing, in addition to the share-of-throat competition from other alcohol beverages like wine.
But, Ireland who has been with GAB for four years, does not agree that the domestic beer market is maturing. “You guys keep on talking about saturated market, but that’s not the way I see it”, he told The Edge Financial Daily.
“If you look at per capita consumption in the western world, it is higher than in the less developed countries.”
Malaysia has the lowest per capita consumption of alcohol in Southeast Asia. Statistics show that the per capita consumption of alcohol within the Indian and Chinese community is 21 litres per adult per year, whereas the figure in Thailand is three times more.
“Per capita consumption will increase gradually over the years. The growth has been quite stagnant over the past years because the government has over the last 10 years raised taxes from being one of the lowest in the world to one of the highest,” Ireland said.
Ireland’s belief is certainly not baseless, judging by the mushrooming of pubs and bars, particularly in the cities.
GAB distributes its products mainly through pubs and bars that have supply contracts that are renewable annually.
“Two years ago, we’ve got about 75% of all the new pubs that were opened that came up for supply contract. Last year, it was above 80%. So when a new bar opens in Malaysia, four out of every five have contracts with GAB. This creates the demand for our brands for consumers access to our products,” Ireland said.
Industry analysts estimate that GAB has a 57% market share of the Malaysian beer and stout industry.
GAB’s net profit had more than doubled to RM152.7 million in its FY2010 from RM60.95 million in FY2000 despite the several hikes in excise duty on alcohol drinks. Another reason to cheer is that its managing director Charles Henry Ireland is upbeat that the stellar performance will continue riding on the back of a growing population in a modernising society and mindset despite critics saying otherwise.
“As a business, we have managed to consistently outperform the competition and the market through a good strategy. And we’ve still got some way to go before we fully exhaust the opportunity that comes from that strategy,” said Ireland.
He reckoned that as the country’s economy progresses further, the demand for beer will increase in tandem with it.
However, industry observers noted that the local beer market is maturing, in addition to the share-of-throat competition from other alcohol beverages like wine.
But, Ireland who has been with GAB for four years, does not agree that the domestic beer market is maturing. “You guys keep on talking about saturated market, but that’s not the way I see it”, he told The Edge Financial Daily.
“If you look at per capita consumption in the western world, it is higher than in the less developed countries.”
Malaysia has the lowest per capita consumption of alcohol in Southeast Asia. Statistics show that the per capita consumption of alcohol within the Indian and Chinese community is 21 litres per adult per year, whereas the figure in Thailand is three times more.
“Per capita consumption will increase gradually over the years. The growth has been quite stagnant over the past years because the government has over the last 10 years raised taxes from being one of the lowest in the world to one of the highest,” Ireland said.
Ireland’s belief is certainly not baseless, judging by the mushrooming of pubs and bars, particularly in the cities.
GAB distributes its products mainly through pubs and bars that have supply contracts that are renewable annually.
“Two years ago, we’ve got about 75% of all the new pubs that were opened that came up for supply contract. Last year, it was above 80%. So when a new bar opens in Malaysia, four out of every five have contracts with GAB. This creates the demand for our brands for consumers access to our products,” Ireland said.
Industry analysts estimate that GAB has a 57% market share of the Malaysian beer and stout industry.
Revenue had also doubled to RM1.36 billion in FY2010 from RM682.4 million in FY2000. Earnings per share had also shot up to 50.5 sen from 20.2 sen during the period.
Consequently, shareholders have been rewarded with higher dividend. GAB declared dividend per share of 45 sen in FY2010 versus 18 sen in FY2000.
GAB will continue to grow its market share by spending more on advertising and promotion (A&P) activities through simple leisure group activities especially through football sporting events.
“One of the things that we were doing four years ago is Tiger Football Club which is our platform around football.
“We have increased our A&P budget again this year; we increased it last year and the year before. This is the fifth year I have been in the company now and every year we’ve increased our budget,” Ireland said.
“We do that because we see A&P as investments, you make wise investments and you will get superior returns.”
The company has seen its main product brand Tiger beer outperforming the overall market with “double digit growth rates”, and this has been its key growth driver of profits and revenue.
Tiger is its biggest brand, in terms of sales volume. However, Heineken and Guinness Stout command better margin due to the more premium price.
Asked about GAB’s individual market share for its brands, Ireland did not want to divulge specific details but gave rough estimates saying “Tiger’s (market share) is 2.5 times the size of Guinness, and Guinness is twice the size of Heineken. Heineken is twice the size of Anchor”.
According to Charles, the company’s management had this year raised salaries for its staff that he said are “above market rates”.
He stressed that the amount spent on human resources, such as higher salaries, is a form of investment, not costs.
“It is people that make the difference in a business, and we want to retain the best talent. Lots of businesses have got great brands; lots of businesses have got good profit and loss, balance sheets and cash at hand,” Ireland said.
“To be able to sustain performance over the medium and long term and to beat the competition year after year — it takes great people doing the right things in the right way.”
This article appeared in The Edge Financial Daily, October 1, 2010.
Glove makers advance after CIMB Research maintains overweight on sector
Glove makers advance after CIMB Research maintains overweight on sector
Written by Surin Murugiah
Friday, 01 October 2010 15:29
KUALA LUMPUR: Rubber glove makers on Bursa Malaysia advanced in the afternoon session on Friday, Oct 1 after CIMB Research maintained its overweight on the sector and said that despite considerable headwinds encountered by the sector this year, demand for rubber gloves continued to grow at a healthy clip.
http://www.theedgemalaysia.com/business-news/174572-glove-makers-advance-after-cimb-research-maintains-overweight-on-sector-.html
Written by Surin Murugiah
Friday, 01 October 2010 15:29
KUALA LUMPUR: Rubber glove makers on Bursa Malaysia advanced in the afternoon session on Friday, Oct 1 after CIMB Research maintained its overweight on the sector and said that despite considerable headwinds encountered by the sector this year, demand for rubber gloves continued to grow at a healthy clip.
At 3.15pm, Supermax was up 15 sen to RM3.94, Hartalega gained 14 sen to RM4.84, Latexx rose 13 sen to RM2.57, Top Glove, Kossan and Adventa gained 10 sen each to RM5.23, RM3.07 and RM2.50, respectively, while Rubberex added three sen to 87 sen.
CIMB Research in a report on Friday said with continued technological advancement of glove products and facilities, Malaysian rubber glove manufacturers would maintain its leadership in the global market.
In light of the positive long term prospects of the industry, the research house maintained its overweight call. All the glove stocks under its coverage remain as Outperforms, said CIMB Research.
“Potential re-rating catalysts include the continuing uptick in demand from the healthcare industry, ongoing capacity expansion and strong earnings growth.
“The recent sharp pullback in share prices has made the sector even more attractive with undemanding average P/Es of 7-8 times. Supermax and Latexx remain our top picks,” it said.
In light of the positive long term prospects of the industry, the research house maintained its overweight call. All the glove stocks under its coverage remain as Outperforms, said CIMB Research.
“Potential re-rating catalysts include the continuing uptick in demand from the healthcare industry, ongoing capacity expansion and strong earnings growth.
“The recent sharp pullback in share prices has made the sector even more attractive with undemanding average P/Es of 7-8 times. Supermax and Latexx remain our top picks,” it said.
http://www.theedgemalaysia.com/business-news/174572-glove-makers-advance-after-cimb-research-maintains-overweight-on-sector-.html
Boustead — a sleeping giant awakens
Boustead Holdings Bhd
(Sept 30, RM4.91)
Initiate coverage with buy call at RM4.45 with target price of RM6.60: We initiate coverage of Boustead with a “buy” rating and RM6.60 target price based on 20% discount to sum-of-parts (SOP) value. Our core investment thesis is three-fold:
1) More proactive management. Major shareholder, LTAT, is looking to raise Boustead’s free float by cutting its 60% stake to 50% by end-2010. It also recently bought 86.1% of Pharmaniaga Bhd, a government healthcare service provider, which would allow for vertical integration within the group and aid in the 55% EPS growth for FY2011F. We think the market has not priced in the significant earnings accretion. On the cards is also the potential sale of its Indonesian plantation estates (about 18,000ha) that are capping its current blended FFB yield at 16.7 tonnes per hectare.
2) GLC-property proxy. Its property arm is due for a major transformation as LTAT is currently finalising two lucrative government land deals — (i) 60 acres of Jalan Cochrane land and (ii) the 245-acre Batu Cantonment army base in Jalan Ipoh, both in Kuala Lumpur. Both developments will have a MRT station. We estimate these projects could add RM2.05 per share, raising our SOP value to RM10.35. This excludes more recently the rights to claim highly valuable land in Penang. Execution risk is minimal premised on its highly successful development in Mutiara Damansara.
3) Surge in contracts for BHIC. BHIC is expected to capitalise on the next batch of six out of 27 patrol vessels from the Royal Malaysian Navy. If the initial six vessels were a benchmark, this contract could be worth at least RM6.7 billion, almost triple its RM2.5 billion order book value. Our new order win assumptions are conservative at RM800 million per year for FY2010 to FY2012F.
Boustead’s valuation is appealing at a one-year forward PER of seven times and 0.9 time P/NTA, while offering a 5% yield. These are roughly at its historical mean levels, but we expect valuations to expand when the market recognises the earnings-accretive Pharmaniaga acquisition and the formalisation of the two key land deals.
Boustead’s current RM4.2 billion market capitalisation implies its lucrative plantation assets, growing property business, and trading arm, are currently trading at only six times CY2011 earnings. — HwangDBS Vickers Research, Sept 30
(Sept 30, RM4.91)
Initiate coverage with buy call at RM4.45 with target price of RM6.60: We initiate coverage of Boustead with a “buy” rating and RM6.60 target price based on 20% discount to sum-of-parts (SOP) value. Our core investment thesis is three-fold:
1) More proactive management. Major shareholder, LTAT, is looking to raise Boustead’s free float by cutting its 60% stake to 50% by end-2010. It also recently bought 86.1% of Pharmaniaga Bhd, a government healthcare service provider, which would allow for vertical integration within the group and aid in the 55% EPS growth for FY2011F. We think the market has not priced in the significant earnings accretion. On the cards is also the potential sale of its Indonesian plantation estates (about 18,000ha) that are capping its current blended FFB yield at 16.7 tonnes per hectare.
2) GLC-property proxy. Its property arm is due for a major transformation as LTAT is currently finalising two lucrative government land deals — (i) 60 acres of Jalan Cochrane land and (ii) the 245-acre Batu Cantonment army base in Jalan Ipoh, both in Kuala Lumpur. Both developments will have a MRT station. We estimate these projects could add RM2.05 per share, raising our SOP value to RM10.35. This excludes more recently the rights to claim highly valuable land in Penang. Execution risk is minimal premised on its highly successful development in Mutiara Damansara.
3) Surge in contracts for BHIC. BHIC is expected to capitalise on the next batch of six out of 27 patrol vessels from the Royal Malaysian Navy. If the initial six vessels were a benchmark, this contract could be worth at least RM6.7 billion, almost triple its RM2.5 billion order book value. Our new order win assumptions are conservative at RM800 million per year for FY2010 to FY2012F.
Boustead’s valuation is appealing at a one-year forward PER of seven times and 0.9 time P/NTA, while offering a 5% yield. These are roughly at its historical mean levels, but we expect valuations to expand when the market recognises the earnings-accretive Pharmaniaga acquisition and the formalisation of the two key land deals.
Boustead’s current RM4.2 billion market capitalisation implies its lucrative plantation assets, growing property business, and trading arm, are currently trading at only six times CY2011 earnings. — HwangDBS Vickers Research, Sept 30
This article appeared in The Edge Financial Daily, October 1, 2010.
Friday, 1 October 2010
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