China needs to raise rates to cope with QE2
(Agencies)
Updated: 2010-11-05 11:04
BEIJING - China needs to increase interest rates to curb capital inflows driven by US monetary easing, an official newspaper said in an editorial on Friday.
Although such a move would increase the rate differential between China and the United States, which might by itself attract further cash from abroad, the China Securities Journal argued that raising interest rates would provide a net benefit by cooling domestic asset prices.
"We must not forget the Japan lesson. We must tighten internal policies to deal with external easing so as to avoid the formation of asset bubbles," the leading financial newspaper said in a front-page editorial.
It said that Japan's interest rate cuts in the 1980s inflated asset prices and led to deflation when the bubbles burst.
China needs to be wary about asset bubbles because food-driven inflation pressure is on the rise and efforts to ward off hot-money inflows are less effective since other developing countries, including Brazil, South Korea and Thailand, are also trying to impose capital controls, it said.
"From this perspective, it's necessary for our country to enter a cycle of interest rate rises," it suggested. "The process of our capital account opening should also be controlled."
The editorial does not necessarily represent official policy, but it does reflect widespread worries in China about how to cope with a rise in international liquidity after the US Federal Reserve unveiled a fresh round of quantitative easing this week.
China raised interest rates last month for the first time in nearly three years, although the jury is out among economists about whether the next rate rise will come before the end of this year.
http://www.chinadaily.com.cn/business/2010-11/05/content_11507379.htm
Wednesday 17 November 2010
Maersk wants more market share on imports to China
Maersk wants more market share on imports to China
By Wang Xiaotian (China Daily)
Updated: 2010-11-16 11:06
A Maersk container ship passes another ship as it leaves Hong Kong. The shipping company expects to see a continuous rise in freight demand in Asia, Latin America and Africa for next year. [Bloomberg]
Shipments are expected to pick up due to rising demand in Asia
BEIJING - Maersk Line, the world's largest container carrier, wants a larger share of shipments generated from imports to China as the country's economic growth pattern translates to stronger domestic demand.
"We will put more sales and customer service staff in the import market," Tim Smith, chief executive officer for the Copenhagen-based shipping line's North Asia region, said in an exclusive interview in Beijing on Monday.
"This is very much linked to the intra-Asia market because a lot of China's imports come from different parts of Asia. China imports raw materials or partly processed goods, assembles them and sends them for export. So we are trying to combine the intra-Asia imports with exports."
The transported volume related to China increased by more than 10 percent, 3 percentage points higher than the global gain, contributing 25 percent of the company's global volume and 35 percent of its total export volume.
"We've seen a development in the import market in China that will help the overall demand. We are looking at that very closely," he said.
In the first nine months this year, Maersk Line witnessed a dramatic upturn from its 2009 historic loss of $2.1 million to a profit of nearly $2.3 million, thanks to a 34 percent year-on-year increase in average freight rates, 7 percent increase in transported volume and substantial savings per unit.
Smith, a 25-year veteran of the shipping industry, describes the business situation in 2010 as "strange" following unpredictable growth patterns quarter-on-quarter.
The second quarter this year saw strong growth followed by unexpected average growth in the third quarter, and a slight decrease in the fourth quarter, which is unusual due to the annual expected year-end seasonal demand.
"We've been surprised how quickly it has improved. The situation in 2010 is a little bit better than the normal level. 2011 is not necessarily as good as this year as demand may slow, and we have to carefully monitor the demand and supply situation," he said.
Although the recovery of mature markets such as Europe and US is still not strong enough, robust economic growth in emerging markets will spur further grounds for optimism, said Smith, estimating a global demand growth of 8 percent next year compared to 2010.
"It won't necessarily be a consistent growth month-by-month, but may go up and down a little bit," he said.
Volume on transatlantic routes increased by 3 percent year-on-year in the first nine months this year, while volumes rose by 7 percent on transpacific routes and 16 percent on Latin America and Oceania routes.
He expected a continuous rise of freight demand in Asia, Latin America and Africa for next year. For the increasing container freight capacity, which would affect freight rates, he predicted a 10 to 12 percent year-on-year capacity growth as more new ships are delivered to owners in 2011.
He said it is difficult to predict how much freight rates will increase in the future but based on current levels, the company expects to see good profit ahead.
Revenue of its parent, A.P. Moller, Maersk Group, increased by 17 percent year-on-year to $41.4 billion in the first nine months of 2010, primarily as a result of higher freight rates for its container shipping activities and higher oil prices, the group said in an interim report released on Nov 10.
For the same period, the group reported a net profit of $4.2 billion against a historic loss of $1 billion in 2009.
The group lifted its expectation for a full-year profit from $4 billion to $5 billion despite cautioning seasonal decline in both volumes and freight rates for the container activities towards the end of the year.
http://www.chinadaily.com.cn/business/2010-11/16/content_11556272.htm
By Wang Xiaotian (China Daily)
Updated: 2010-11-16 11:06
A Maersk container ship passes another ship as it leaves Hong Kong. The shipping company expects to see a continuous rise in freight demand in Asia, Latin America and Africa for next year. [Bloomberg]
Shipments are expected to pick up due to rising demand in Asia
BEIJING - Maersk Line, the world's largest container carrier, wants a larger share of shipments generated from imports to China as the country's economic growth pattern translates to stronger domestic demand.
"We will put more sales and customer service staff in the import market," Tim Smith, chief executive officer for the Copenhagen-based shipping line's North Asia region, said in an exclusive interview in Beijing on Monday.
"This is very much linked to the intra-Asia market because a lot of China's imports come from different parts of Asia. China imports raw materials or partly processed goods, assembles them and sends them for export. So we are trying to combine the intra-Asia imports with exports."
The transported volume related to China increased by more than 10 percent, 3 percentage points higher than the global gain, contributing 25 percent of the company's global volume and 35 percent of its total export volume.
"We've seen a development in the import market in China that will help the overall demand. We are looking at that very closely," he said.
In the first nine months this year, Maersk Line witnessed a dramatic upturn from its 2009 historic loss of $2.1 million to a profit of nearly $2.3 million, thanks to a 34 percent year-on-year increase in average freight rates, 7 percent increase in transported volume and substantial savings per unit.
Smith, a 25-year veteran of the shipping industry, describes the business situation in 2010 as "strange" following unpredictable growth patterns quarter-on-quarter.
The second quarter this year saw strong growth followed by unexpected average growth in the third quarter, and a slight decrease in the fourth quarter, which is unusual due to the annual expected year-end seasonal demand.
"We've been surprised how quickly it has improved. The situation in 2010 is a little bit better than the normal level. 2011 is not necessarily as good as this year as demand may slow, and we have to carefully monitor the demand and supply situation," he said.
Although the recovery of mature markets such as Europe and US is still not strong enough, robust economic growth in emerging markets will spur further grounds for optimism, said Smith, estimating a global demand growth of 8 percent next year compared to 2010.
"It won't necessarily be a consistent growth month-by-month, but may go up and down a little bit," he said.
Volume on transatlantic routes increased by 3 percent year-on-year in the first nine months this year, while volumes rose by 7 percent on transpacific routes and 16 percent on Latin America and Oceania routes.
He expected a continuous rise of freight demand in Asia, Latin America and Africa for next year. For the increasing container freight capacity, which would affect freight rates, he predicted a 10 to 12 percent year-on-year capacity growth as more new ships are delivered to owners in 2011.
He said it is difficult to predict how much freight rates will increase in the future but based on current levels, the company expects to see good profit ahead.
Revenue of its parent, A.P. Moller, Maersk Group, increased by 17 percent year-on-year to $41.4 billion in the first nine months of 2010, primarily as a result of higher freight rates for its container shipping activities and higher oil prices, the group said in an interim report released on Nov 10.
For the same period, the group reported a net profit of $4.2 billion against a historic loss of $1 billion in 2009.
The group lifted its expectation for a full-year profit from $4 billion to $5 billion despite cautioning seasonal decline in both volumes and freight rates for the container activities towards the end of the year.
http://www.chinadaily.com.cn/business/2010-11/16/content_11556272.htm
Inflation does matter in China and the world
Inflation does matter in China and the world
By Huang Shuo (chinadaily.com.cn)
Updated: 2010-11-15 16:58
The growth rate of China's consumer price index (CPI) was 4.4 percent year-on-year in October, a 25-month high. The rate is up 0.8 percentage points from September. This is an alarming statistic for a country that for the past three decades has had steady economic growth. Inflation risks do matter for China.
In particular, the new factor of a rise in prices, main promoter for CPI growth, took up 3 percentage points of the 4.4 percent surge. Prices of agricultural products and food have been playing major roles in contributing to the CPI hike. Food prices surged by 10.1 percent compared with the same period of last year as a result of the price hike in international agricultural products, and the recent flood in South China’s Hainan province affected vegetable prices and oil prices, adding to the product costs, said Sheng Laiyun, spokesman for the National Bureau of Statistics (NBS).
In addition, daily essentials such as eggs and vegetables are leading the price increases in China's consumer market, followed by meat, oil and white sugar.
As the industry generally expected that about 4 percent would be the proper answer for CPI, the final data released by the NBS on Nov 11, 2010, was 0.4 percentage points higher than estimated, which astonished the public and drew lots of attention from domestic and foreign experts.
Consumer prices associated with social stability are the top concern of the public in China. The increase of CPI indicates that the surge in commodities prices is ongoing in the consumption market, closely linked with the daily lives of ordinary people. China’s income per capita still lags behind the United States, the European Union, and even some other emerging economies. How to increase income and stabilize or lower the prices in the market, especially for daily essentials, should be attached great importance by the government.
Livelihood is like the basis for constructing a building, which lays the firm foundation for a harmonious society. Whether people can lead a good life decides the quality of governance by central and local authorities. High consumer prices pose an unstable economic factor to improving the living standard of people.
More regulations are expected for the soaring Chinese CPI. As to that situation, the People’s Bank of China, the central bank of China, has noticed and adopted a measure increasing the required reserve ratio by 50 basis points and coming into effect on Nov 16, 2010, in order to ease the pressure from the second round of quantitative easing policy (QE2) by the Federal Reserve of the US and increasing liquidity caused commodity prices to rise in China. But is it enough to merely depend on national economic regulatory authorities?
Every economy released loose monetary policies to conquer the challenges brought by the international financial crisis in 2008 and get out of the recession. But side effects are inevitable. Rising inflation is one of the consequences. As a result, countries with expansion policies on issuing more currencies should work together and reach agreements to confront the emerging side effect -- inflation.
The author can be reached at larryhuangshuo@gmail.com.
http://www.chinadaily.com.cn/business/2010-11/15/content_11552427.htm
By Huang Shuo (chinadaily.com.cn)
Updated: 2010-11-15 16:58
The growth rate of China's consumer price index (CPI) was 4.4 percent year-on-year in October, a 25-month high. The rate is up 0.8 percentage points from September. This is an alarming statistic for a country that for the past three decades has had steady economic growth. Inflation risks do matter for China.
In particular, the new factor of a rise in prices, main promoter for CPI growth, took up 3 percentage points of the 4.4 percent surge. Prices of agricultural products and food have been playing major roles in contributing to the CPI hike. Food prices surged by 10.1 percent compared with the same period of last year as a result of the price hike in international agricultural products, and the recent flood in South China’s Hainan province affected vegetable prices and oil prices, adding to the product costs, said Sheng Laiyun, spokesman for the National Bureau of Statistics (NBS).
In addition, daily essentials such as eggs and vegetables are leading the price increases in China's consumer market, followed by meat, oil and white sugar.
As the industry generally expected that about 4 percent would be the proper answer for CPI, the final data released by the NBS on Nov 11, 2010, was 0.4 percentage points higher than estimated, which astonished the public and drew lots of attention from domestic and foreign experts.
Consumer prices associated with social stability are the top concern of the public in China. The increase of CPI indicates that the surge in commodities prices is ongoing in the consumption market, closely linked with the daily lives of ordinary people. China’s income per capita still lags behind the United States, the European Union, and even some other emerging economies. How to increase income and stabilize or lower the prices in the market, especially for daily essentials, should be attached great importance by the government.
Livelihood is like the basis for constructing a building, which lays the firm foundation for a harmonious society. Whether people can lead a good life decides the quality of governance by central and local authorities. High consumer prices pose an unstable economic factor to improving the living standard of people.
More regulations are expected for the soaring Chinese CPI. As to that situation, the People’s Bank of China, the central bank of China, has noticed and adopted a measure increasing the required reserve ratio by 50 basis points and coming into effect on Nov 16, 2010, in order to ease the pressure from the second round of quantitative easing policy (QE2) by the Federal Reserve of the US and increasing liquidity caused commodity prices to rise in China. But is it enough to merely depend on national economic regulatory authorities?
Every economy released loose monetary policies to conquer the challenges brought by the international financial crisis in 2008 and get out of the recession. But side effects are inevitable. Rising inflation is one of the consequences. As a result, countries with expansion policies on issuing more currencies should work together and reach agreements to confront the emerging side effect -- inflation.
The author can be reached at larryhuangshuo@gmail.com.
http://www.chinadaily.com.cn/business/2010-11/15/content_11552427.htm
What is quantitative easing?
Quantitative easing (QE) is a monetary policy used by some central banks to increase the supply of money by increasing the excess reserves of the banking system, generally through buying of the central government's own bonds to stabilize or raise their prices and thereby lower long-term interest rates.
This policy is usually invoked when the normal methods to control the money supply have failed, i.e., the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero. It has been termed the electronic equivalent of simply printing legal tender. (Source: Wikipedia)
This policy is usually invoked when the normal methods to control the money supply have failed, i.e., the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero. It has been termed the electronic equivalent of simply printing legal tender. (Source: Wikipedia)
Quantitative easing a form of currency intervention
Quantitative easing a form of currency intervention
By Wang Guanyi (HK Edition)
Updated: 2010-10-20 06:58
The recent dispute in currency policies between export-oriented economies and developed economies can be traced back to the 2008 financial crisis. Developed economies have chosen to print money in order to claw the effects of the 2008 financial collapse.
Quantitative Easing (QE) was introduced in early 2009 by the central banks in hope to jump start their domestic economies. This helped restore confidence in the financial markets but never accomplished its purpose of boosting their own countries' economies. None of the G7 countries have been able to regain GDP growth close to that of pre-crisis levels. Hoping to boost business activity, central bankers printed money, but commercial banks were unwilling to lend, which resulted in massive liquidity directed elsewhere. Through the highly efficient network of investment banks, most of the extra liquidity injected indeed flew into the financial systems and once again boosted prices of various financial assets, while at the same time causing the US dollar to depreciate significantly over the past six months.
On the other hand, emerging market economies, which at one point relied heavily on exports, are suddenly witnessing significant appreciation pressure on their own currencies. Many of these economies acted, through tax or other forms of capital control, to maintain the stability of their own financial systems from the flooding of currencies such as the yen and the dollar. From the perspective of emerging economics, QE is a form of currency intervention, and a way of exporting inflation. The developed countries are trying to walk out from the gloom of deflation by transporting inflationary pressure on others through currency depreciation.
China has always been responsive and takes part in its fair share of global social responsibility. The country chose not to appreciate the yuan in the 1998 Asian crisis, which made life for all the Southeast Asian countries easier during the period. However, the impact and implications of further yuan appreciation on the country's 1.3 billion citizens will be drastic and must be handled carefully by the country's leaders. Because of the scale of such a move, China needs to consider all measures in handling the matter and this is an issue on which it will not easily give way.
Over the past two years, Beijing has worked hard to stimulate its domestic consumption in order to push GDP expansion and find other ways of continuing its economic growth without relying too heavily on exports. However, this is no easy task and such a change will take a longer time to implement in an economy as large as China's. Moreover, manufacturers in China are already pressured by surging labor and commodity costs. A rapid surge in the yuan will not only be catastrophic to exporters but could also lead to a huge surge in unemployment and subsequently social instability. On the other hand, if the yuan appreciates at a healthy pace, this would allow the restructuring of the Chinese economy to take place and the gradual transfer of wealth from exporters to households. Additionally, emerging Chinese consumers may eventually be able to provide employment opportunities to help alleviate western unemployment problems.
The Chinese Central Government clearly has a road map on internationalizing the yuan and ultimately making it a free-floating currency. However, the road map would clearly rely on when the infrastructure, legal framework, domestic banking and financial systems are ready. The actions from the Plaza Accord and the bitter lessons that the Japanese learned after appreciating the yen is well remembered. It might be in the interest of China to lend to the US for consuming more Chinese goods. It will never, however, be in the interest of China to jeopardize the well being of its manufacturers, to inflate property and stock markets with hot money, and to risk wiping out the wealth accumulated by hard working. Everyone knows that when hot money retreats, bubbles will burst and this is something China is taking very seriously.
The author is a visiting professor at the Asian International Open University, an international financial commentator at NOW business news channel and founder of www.wongsir.com.hk.
(HK Edition 10/20/2010 page2)
http://www.chinadaily.com.cn/hkedition/2010-10/20/content_11431630.htm
By Wang Guanyi (HK Edition)
Updated: 2010-10-20 06:58
The recent dispute in currency policies between export-oriented economies and developed economies can be traced back to the 2008 financial crisis. Developed economies have chosen to print money in order to claw the effects of the 2008 financial collapse.
Quantitative Easing (QE) was introduced in early 2009 by the central banks in hope to jump start their domestic economies. This helped restore confidence in the financial markets but never accomplished its purpose of boosting their own countries' economies. None of the G7 countries have been able to regain GDP growth close to that of pre-crisis levels. Hoping to boost business activity, central bankers printed money, but commercial banks were unwilling to lend, which resulted in massive liquidity directed elsewhere. Through the highly efficient network of investment banks, most of the extra liquidity injected indeed flew into the financial systems and once again boosted prices of various financial assets, while at the same time causing the US dollar to depreciate significantly over the past six months.
On the other hand, emerging market economies, which at one point relied heavily on exports, are suddenly witnessing significant appreciation pressure on their own currencies. Many of these economies acted, through tax or other forms of capital control, to maintain the stability of their own financial systems from the flooding of currencies such as the yen and the dollar. From the perspective of emerging economics, QE is a form of currency intervention, and a way of exporting inflation. The developed countries are trying to walk out from the gloom of deflation by transporting inflationary pressure on others through currency depreciation.
China has always been responsive and takes part in its fair share of global social responsibility. The country chose not to appreciate the yuan in the 1998 Asian crisis, which made life for all the Southeast Asian countries easier during the period. However, the impact and implications of further yuan appreciation on the country's 1.3 billion citizens will be drastic and must be handled carefully by the country's leaders. Because of the scale of such a move, China needs to consider all measures in handling the matter and this is an issue on which it will not easily give way.
Over the past two years, Beijing has worked hard to stimulate its domestic consumption in order to push GDP expansion and find other ways of continuing its economic growth without relying too heavily on exports. However, this is no easy task and such a change will take a longer time to implement in an economy as large as China's. Moreover, manufacturers in China are already pressured by surging labor and commodity costs. A rapid surge in the yuan will not only be catastrophic to exporters but could also lead to a huge surge in unemployment and subsequently social instability. On the other hand, if the yuan appreciates at a healthy pace, this would allow the restructuring of the Chinese economy to take place and the gradual transfer of wealth from exporters to households. Additionally, emerging Chinese consumers may eventually be able to provide employment opportunities to help alleviate western unemployment problems.
The Chinese Central Government clearly has a road map on internationalizing the yuan and ultimately making it a free-floating currency. However, the road map would clearly rely on when the infrastructure, legal framework, domestic banking and financial systems are ready. The actions from the Plaza Accord and the bitter lessons that the Japanese learned after appreciating the yen is well remembered. It might be in the interest of China to lend to the US for consuming more Chinese goods. It will never, however, be in the interest of China to jeopardize the well being of its manufacturers, to inflate property and stock markets with hot money, and to risk wiping out the wealth accumulated by hard working. Everyone knows that when hot money retreats, bubbles will burst and this is something China is taking very seriously.
The author is a visiting professor at the Asian International Open University, an international financial commentator at NOW business news channel and founder of www.wongsir.com.hk.
(HK Edition 10/20/2010 page2)
http://www.chinadaily.com.cn/hkedition/2010-10/20/content_11431630.htm
HSBC warns downside risks in Asian economy
HSBC warns downside risks in Asian economy
(Xinhua)
Updated: 2010-11-16 14:01
HONG KONG - As Asian economy was barreling ahead, downside risks including higher interest rates in advanced economies and a slowdown in exports were still worth keeping an eye on, said HSBC in a research paper released late Monday.
Asia, more than ever, has received enormous flows from fixed income investors, desperate for yield they couldn't find in the United States and Europe, said Frederic Neumann, co-head of Asian Economics Research of HSBC, in the paper.
"It's important to note the risk of higher interest rates in advanced economies and, concurrently, strength in the US dollar."
HSBC also warned that since Asia has benefited equally from soaring exports as well as domestic demand for its economic development, a possible deceleration of exports next year, may weigh on growth across the region and lead investors to revisit assumptions about Asian's prospects.
"Exports to the US and Europe still matter, and any hiccup there would send painful ripples back into Asia."
Accelerating inflation in the region is another risk after the United States launched a new round of quantitative easing measures, which may lead to wobbles of the dollar and eventually kill domestic demand in Asian countries, the paper said.
The risks of another surge in prices are rising in Asia, and Asian central bankers may then be forced to tighten precipitously, eventually driving consumers and firms to cut back on spending, Neumann said .
"A hard landing, echoing events of 2008, can no longer be ruled out."
(Xinhua)
Updated: 2010-11-16 14:01
HONG KONG - As Asian economy was barreling ahead, downside risks including higher interest rates in advanced economies and a slowdown in exports were still worth keeping an eye on, said HSBC in a research paper released late Monday.
Asia, more than ever, has received enormous flows from fixed income investors, desperate for yield they couldn't find in the United States and Europe, said Frederic Neumann, co-head of Asian Economics Research of HSBC, in the paper.
"It's important to note the risk of higher interest rates in advanced economies and, concurrently, strength in the US dollar."
HSBC also warned that since Asia has benefited equally from soaring exports as well as domestic demand for its economic development, a possible deceleration of exports next year, may weigh on growth across the region and lead investors to revisit assumptions about Asian's prospects.
"Exports to the US and Europe still matter, and any hiccup there would send painful ripples back into Asia."
Accelerating inflation in the region is another risk after the United States launched a new round of quantitative easing measures, which may lead to wobbles of the dollar and eventually kill domestic demand in Asian countries, the paper said.
The risks of another surge in prices are rising in Asia, and Asian central bankers may then be forced to tighten precipitously, eventually driving consumers and firms to cut back on spending, Neumann said .
"A hard landing, echoing events of 2008, can no longer be ruled out."
Tuesday 16 November 2010
Testing your own portfolio
Testing your own portfolio
By Daryl Guppy (China Daily)
Updated: 2010-11-15 10:41
Every investor and trader has a collection of stocks in his or her portfolio. Some are short-term trades, others are long-term investments. With investments in particular, it is easy to forget the original reasons for buying the stock. It is tempting to pay less attention to these long-term stocks and pay more attention to new stocks purchased more recently. The result is often a portfolio filled with under-performing stocks, or stocks that are doing serious damage to the overall return from the portfolio.
Every day every trade in my portfolio has to pass four tests. These tests are designed to make sure I remember why each stock was purchased. This daily review reminds me of my objectives and tells me if those objectives continue to be satisfied. When the trade, or investment fails, then it is time to exit the trade and look at other options. Applying the tests takes just a few moments if it is done every day, or at least once a week.
The four tests involve
The alternative to the current trade is always cash. If this capital allocated to the trade was held in cash, would it deliver a better return? The answer is not as simple as it looks. The return from the trade must be assessed against the interest return on cash over 30 days, 90 days, 120 days or longer. It is also a mistake to assume the price will increase steadily. Unlike a 90-day interest rate deposit, the market price always includes volatility because it is the nature of market activity.
The size of the expected reward is related to the number of days traders expect to wait for the reward. In a slow trend the expected time period for the price rise might be several weeks. In a fast moving rebound stock the expected time period for the anticipated profit might be a few days or a week.
The second question asks if one started today with cash would one buy the same stocks that are currently in one's portfolio? The question is designed to make one actively assess the value of one's stocks. It is easy to ignore stocks in the portfolio that are not performing well. They do not do any damage, but nor do they contribute actively to the portfolio performance. This question helps one take a new look at these lazy stocks.
There are some stocks one would not buy today because they are already too high. This is usually a good observation because it usually means these trades or investments are amongst the most profitable in one's portfolio.
The third question is designed to confront our tendency to fall in love with our stocks. Are you looking for reasons why your trade is good rather than reasons why the trade can go wrong? When we trade we give money to the market to support our opinion about a stock or the market development. It is a temptation to always look for reasons to convince us the trade is a good proposition, even when it is not performing as we expected.
When we first analyzed the trade we made a more objective assessment, looking at how the trade could succeed, and also how it could fail. Once we own the stock, we have an endowment bias. Because we own the stock we think it has more value than the price we paid for it. This bias prevents ongoing objective analysis.
Finally, what is the trading edge, or advantage in this trade? When the trade was started you believed you had an advantage. Perhaps it was superior analysis of a situation that led you to selecting this stock. Perhaps it was a chart pattern that you recognized before many others in the market. Perhaps the trade is a particular type of investment that yields a good dividend and a good capital gain.
Market conditions change, and this can change the conditions and advantages in the trade. The trading edge you had when the trade opened may disappear. You need to be aware of this so you can make a better decision about closing the trade. You will not always have an advantage, but this is not always a problem. It only becomes a problem when you think you have an advantage but the market has actually taken it away from you. This is one of the factors that keeps people in losing trades.
These are four questions essential for everyday portfolio management.
The author is a well-known international financial technical analysis expert.
http://www.chinadaily.com.cn/bizchina/2010-11/15/content_11549949.htm
By Daryl Guppy (China Daily)
Updated: 2010-11-15 10:41
Every investor and trader has a collection of stocks in his or her portfolio. Some are short-term trades, others are long-term investments. With investments in particular, it is easy to forget the original reasons for buying the stock. It is tempting to pay less attention to these long-term stocks and pay more attention to new stocks purchased more recently. The result is often a portfolio filled with under-performing stocks, or stocks that are doing serious damage to the overall return from the portfolio.
The four tests involve
- looking at the cash situation,
- asking whether the stock is still worth buying,
- considering what could go wrong and
- analyzing the trading advantage.
The alternative to the current trade is always cash. If this capital allocated to the trade was held in cash, would it deliver a better return? The answer is not as simple as it looks. The return from the trade must be assessed against the interest return on cash over 30 days, 90 days, 120 days or longer. It is also a mistake to assume the price will increase steadily. Unlike a 90-day interest rate deposit, the market price always includes volatility because it is the nature of market activity.
The size of the expected reward is related to the number of days traders expect to wait for the reward. In a slow trend the expected time period for the price rise might be several weeks. In a fast moving rebound stock the expected time period for the anticipated profit might be a few days or a week.
The second question asks if one started today with cash would one buy the same stocks that are currently in one's portfolio? The question is designed to make one actively assess the value of one's stocks. It is easy to ignore stocks in the portfolio that are not performing well. They do not do any damage, but nor do they contribute actively to the portfolio performance. This question helps one take a new look at these lazy stocks.
There are some stocks one would not buy today because they are already too high. This is usually a good observation because it usually means these trades or investments are amongst the most profitable in one's portfolio.
The third question is designed to confront our tendency to fall in love with our stocks. Are you looking for reasons why your trade is good rather than reasons why the trade can go wrong? When we trade we give money to the market to support our opinion about a stock or the market development. It is a temptation to always look for reasons to convince us the trade is a good proposition, even when it is not performing as we expected.
When we first analyzed the trade we made a more objective assessment, looking at how the trade could succeed, and also how it could fail. Once we own the stock, we have an endowment bias. Because we own the stock we think it has more value than the price we paid for it. This bias prevents ongoing objective analysis.
Finally, what is the trading edge, or advantage in this trade? When the trade was started you believed you had an advantage. Perhaps it was superior analysis of a situation that led you to selecting this stock. Perhaps it was a chart pattern that you recognized before many others in the market. Perhaps the trade is a particular type of investment that yields a good dividend and a good capital gain.
Market conditions change, and this can change the conditions and advantages in the trade. The trading edge you had when the trade opened may disappear. You need to be aware of this so you can make a better decision about closing the trade. You will not always have an advantage, but this is not always a problem. It only becomes a problem when you think you have an advantage but the market has actually taken it away from you. This is one of the factors that keeps people in losing trades.
These are four questions essential for everyday portfolio management.
The author is a well-known international financial technical analysis expert.
http://www.chinadaily.com.cn/bizchina/2010-11/15/content_11549949.htm
Chinese shares tumble over tightening policy speculation
Chinese shares tumble over tightening policy speculation
(Xinhua)
Updated: 2010-11-16 15:54
BEIJING - Chinese equities slid Tuesday as investors worried prospects of higher interest rates and inflation control policies would hurt companies' earning.
Property developers, metal companies and banking shares fronted the sell-off with the benchmark Shanghai Composite Index down 3.98 percent, or 119.88 points, to close at 2,894.54.
The Shenzhen Component Index fell 4.61 percent, or 590.82 points, to end at 12,217.27.
Combined turnover expanded to 398.13 billion yuan ($59.96 billion) from 355.3 billion yuan the previous trading day.
Losers outnumbered gainers by 774 to 115 in Shanghai and 898 to 191 in Shenzhen.
http://www.chinadaily.com.cn/business/2010-11/16/content_11558056.htm
(Xinhua)
Updated: 2010-11-16 15:54
BEIJING - Chinese equities slid Tuesday as investors worried prospects of higher interest rates and inflation control policies would hurt companies' earning.
Property developers, metal companies and banking shares fronted the sell-off with the benchmark Shanghai Composite Index down 3.98 percent, or 119.88 points, to close at 2,894.54.
The Shenzhen Component Index fell 4.61 percent, or 590.82 points, to end at 12,217.27.
Combined turnover expanded to 398.13 billion yuan ($59.96 billion) from 355.3 billion yuan the previous trading day.
Losers outnumbered gainers by 774 to 115 in Shanghai and 898 to 191 in Shenzhen.
http://www.chinadaily.com.cn/business/2010-11/16/content_11558056.htm
QE2 may have 'catastrophic consequences' for global economy
By Ren Jie (chinadaily.com.cn)
Updated: 2010-11-12 10:54
 |
| Cheng Siwei |
Cheng made the remarks at "A World Summit: The Ascent of China's Capital Markets" in Beijing on Wednesday.
Emerging-market stocks rose and prices of bulk commodities surged significantly last week following the US Fed's announcement on Nov 3 that it will buy $600 billion in Treasury bonds to boost the US economy, in a move known as "quantitative easing" (QE2), which triggered global debate. Many economists say they believe that the policy's effectiveness is uncertain.
Cheng also said there are many ways for hot money to enter in China, especially since the country's central bank is raising interest rates. He said busting underground banking rings will help the country curb hot money inflows.
Cheng also said he is a "prudential optimist" and is confident in the performance of Chinese stocks in 2011. He admitted that the A-shares are still in a bear market, but said the worst part of it is over. Chinese capital markets will gradually enter in a bull market next year as the nation's economy growth remains stable.
http://www.chinadaily.com.cn/business/2010-11/12/content_11541106.htm
Mieco
Date announced 16/11/2010
Quarter 30/09/2010 Qtr 3 FYE 31/12/2010
STOCK MIECO C0DE 5001
Price $ 0.64 Curr. ttm-PE 17.68 Curr. DY 0.00%
LFY Div 0.00 DPO ratio 0%
ROE 2.4% PBT Margin 3.9% PAT Margin 4.0%
Rec. qRev 41954 q-q % chg -6% y-y% chq -11%
Rec qPbt 1645 q-q % chg 63% y-y% chq 47%
Rec. qEps 0.80 q-q % chg 67% y-y% chq -207%
ttm-Eps 3.62 q-q % chg 75% y-y% chq -123%
Using VERY CONSERVATIVE ESTIMATES:
Forecast High Pr 0.88 Forecast Low Pr 0.46 Recent Severe Low Pr 0.46
Current price is at Middle 1/3 of valuation zone.
RISK: Upside 57% Downside 43%
One Year Appreciation Potential 7% Avg. yield 0%
Avg. Total Annual Potential Return (over next 5 years) 7%
CPE/SPE 0.98 P/NTA 0.42 NTA 1.53 SPE 18.00 Rational Pr 0.65
Decision:
Already Owned: Buy, Hold, Sell, Filed; Review (future acq): Filed; Discard: Filed.
Guide: Valuation zones - Lower 1/3 Buy; Mid. 1/3 Maybe; Upper 1/3 Sell.
Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
Hong Leong Bank
Date announced 16/11/2010
Quarter 30/09/2010 Qtr 1 FYE 30/06/2011
STOCK HLBank C0DE 5819
Price $ 9.55 Curr. PE (ttm-Eps) 13.70 Curr. DY 2.51%
LFY Div 24.00 DPO ratio 35%
ROE 14.9% PBT Margin 58.8% PAT Margin 47.6%
Rec. qRev 539787 q-q % chg 4% y-y% chq 5%
Rec qPbt 317381 q-q % chg -8% y-y% chq 10%
Rec. qEps 17.72 q-q % chg -15% y-y% chq 10%
ttm-Eps 69.73 q-q % chg 2% y-y% chq 13%
Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5% Avg.H PE 12.00 Avg. L PE 10.00
Forecast High Pr 10.68 Forecast Low Pr 8.31 Recent Severe Low Pr 8.31
Current price is at Middle 1/3 of valuation zone.
RISK: Upside 48% Downside 52%
One Year Appreciation Potential 2% Avg. yield 3%
Avg. Total Annual Potential Return (over next 5 years) 6%
CPE/SPE 1.25 P/NTA 2.04 NTA 4.69 SPE 11.00 Rational Pr 7.67
Decision:
Already Owned: Buy Hold Sell Filed Review (future acq): Filed Discard: Filed
Guide: Valuation zones Lower 1/3 Buy Mid. 1/3 Maybe Upper 1/3 Sell
Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
OSK Research maintains Buy on Parkson, TP RM6.64
OSK Research maintains Buy on Parkson, TP RM6.64
Written by The Edge FinancialDaily
Tuesday, 16 November 2010 08:33
KUALA LUMPUR: OSK Research is maintaining its Buy call and target price of RM6.64 for PARKSON HOLDINGS BHD [].
Parkson reported a 1QFY11 revenue of RM656.5 million (+2.3% y-o-y) and net profit of RM76.2 million (+17.7% y-o-y). If not for the stronger RM against RMB and VND, net profit would have surged 28.4% y-o-y.
OSK Research said on Tuesday, Nov 16 the robust numbers were attributed to the impressive same store sales growth in all the countries under its umbrella, as well as new openings. Despite the higher expenses incurred for new openings, commission rates, direct sales and EBITDA margins were flat y-o-y.
“As the results were within our forecast, we maintain our FY11 and FY12 earnings estimates at RM373.6m and RM444.3m. Parkson has declared a 10 sen tax exempt dividend per share. Maintain BUY,” it said.
Written by The Edge FinancialDaily
Tuesday, 16 November 2010 08:33
KUALA LUMPUR: OSK Research is maintaining its Buy call and target price of RM6.64 for PARKSON HOLDINGS BHD [].
Parkson reported a 1QFY11 revenue of RM656.5 million (+2.3% y-o-y) and net profit of RM76.2 million (+17.7% y-o-y). If not for the stronger RM against RMB and VND, net profit would have surged 28.4% y-o-y.
OSK Research said on Tuesday, Nov 16 the robust numbers were attributed to the impressive same store sales growth in all the countries under its umbrella, as well as new openings. Despite the higher expenses incurred for new openings, commission rates, direct sales and EBITDA margins were flat y-o-y.
“As the results were within our forecast, we maintain our FY11 and FY12 earnings estimates at RM373.6m and RM444.3m. Parkson has declared a 10 sen tax exempt dividend per share. Maintain BUY,” it said.
Medical insurance is something you take but hope never to have to use.
Sunday November 14, 2010
Security blanket
By DZIREENA MAHADZIR
starmag@thestar.com.my
Medical insurance is something you take but hope never to have to use.
WE read of young and healthy people who, without any warning, suffer a heart attack. Closer to home, your child may fall prey to the aedes mosquito and get dengue. Or, you could simply trip and break a leg.
Whatever it is, when the hospital bill comes in, you'll probably suffer another blow when you see how the cost of treatment and medication all add up.
Heng Zee Wang ... know what you want and ask lots of questions.That is one reason why it is important to have medical insurance.
Some people argue that it is too expensive – you pay so much and get nothing in return. But that's the thing with insurance – you take it in the hope that you won't have to use it. But should you ever do, you will definitely be glad to have had the foresight to sign up for it.
And, the earlier you sign up the better. Premiums are lower if you purchase coverage at a younger age, and when you are still medically fit.
Those who insure themselves when they're older may have to pay higher premiums or be subjected to certain exclusions. And there have been cases of applicants being rejected because of their health.
As for the cost, there are various types of insurance to meet different needs. And you can tailor medical plans according to your budget, says Heng Zee Wang, chief product and marketing officer of Prudential Assurance Malaysia Bhd.
"The cost of hospitalisation is very high, so it's important that you have a medical card. You can have a basic insurance plan that comes with medical card for as low as RM100 a month, so it will cover room and board for that amount."
Before signing on the dotted line, there are some things to take note of.
"You must know what coverage you want and look at what's available. Even if you take a basic plan initially, you can upgrade it as you go along. Look at the terms and conditions, the inclusions and coverage waiting period. This is important to avoid disputes later on," Heng adds.
Some people reason that as long as they are working, their hospital bills will be taken care of by their employer because "my company already provides medical coverage".
What they may not be aware of is that once they leave the company, the cover will terminate. The same regulations apply come retirement. In Malaysia, most private company do not cover employees after they retire from work.
By then it will not be easy to purchase your own medical insurance because of the age factor, and the state of your health. Even if you do sign up for a policy, the premium will probably be higher, and certain illnesses may not be covered.
If you are aware of the benefits of medical insurance but are baffled by the different kinds of plans out there, here are some guidelines from insurance professionals.
To enjoy comprehensive health care protection, ideally you should have:
* A hospitalisation and surgical insurance plan which covers room and board, laboratory fees, use of special facilities, nursing care, and certain medicines and supplies which are medically necessary.
* A critical illness plan. With this, the policy-holder will get a lump sum cash payment from the insurance company if he/she is diagnosed with any of the critical illnesses listed under the policy.
* A hospital income plan that provides income replacement should the insured person be hospitalised due to an accident or illness.
* A disability income plan that covers the policy-holder's day-to-day expenses if he/she is unable to work due to an accident or illness.
How about complaints that "we pay so much for insurance but don't get anything in return"?
Heng says his company has introduced a medical plan which allows the policy-holder to get a no-claims bonus if he/she does not make any claims. It is an indirect way of rewarding customers for staying healthy.
The plan works very much like motor insurance: those who don't submit any claim during a policy year will get a bonus, which is automatically converted into additional units. These units will be invested in investment-linked funds of your choice, thus increasing the value of your policy.
Claims is another issue that is often the bane of many. Heng's advice is to ask the right questions before buying your policy. If you don't, you may encounter problems when it comes to making claims.
Presently, an e-mail is being circulated concerning the case of a woman in Singapore who found herself in a such a predicament. She says she has three policies which cover her for critical illness but has not been able to make any claims because they do not cover ductal carcinomas-in-situ or Stage 0 breast cancer.
What is the fine print that you should read carefully when it comes to a critical illness plan?
Heng explains that typically, this plan excludes medical conditions such as carcinoma-in-situ (or early stage cancer, where the cancerous cells have not moved out of the area of the body where they originally developed).
In Singapore, each of the critical illnesses stated in a policy contract follows a set of definitions given by the Life Insurance Association of Singapore. These standard definitions apply to the critical illness policies offered by life insurance companies in the country.
Insurance companies here follow definitions laid down by the Life Insurance Association of Malaysia (LIAM).
However, Heng adds, it is possible for the policy-holder who has been diagnosed with carcinoma-in-situ to claim for the cost of treatment for her condition, provided she has an existing medical plan. This may include expenses for her hospitalisation, surgery and post-hospitalisation treatment.
There are also certain insurance plans in the market which provide payouts for early stages of cancer.
So, it is vital to ask questions and know what you need. And be prepared to review your policy as your needs grow. One hopes never to have to turn to medical insurance, but it certainly is reassuring to know there is a security blanket at hand should the need ever arise.
Checklist
WHAT to do when buying medical insurance:
1) Understand what your needs are and how much you can put aside regularly. Seek your agent's advice before choosing a plan that suits you best.
2) Understand what the terms and conditions are, as well as the scope of cover provided under the policy. What are the benefits? What is NOT covered? How long is the coverage for? What is the waiting period? What is the limit (both annual and lifetime) you can claim?
3) Is there any co-insurance? Co-insurance is a cost-sharing arrangement between the insurer and policyholder. For example, co-insurance on a 10/90 basis means the policyholder will pay 10% of the bill, and the insurer will pay the balance, subject to the terms and conditions of the policy.
4) Will the premium remain the same amount throughout the duration of the policy, or will it increase according to age?
5) It is important to disclose details of your or your family's medical history (if any) at the time of purchase, to avoid any dispute in the future.
6) Take time to talk to your agent about the claims procedure, so you are aware of what's involved.
7) All insurance companies offer a 15-day free look. If you do not find the policy suitable and return it within that period, you are entitled to a refund of the premium paid (subject to terms and conditions).
8) Review your medical insurance plan at least once a year. This is important, especially with the cost of health care outpacing inflation. Chances are the plan you bought some years back may not be enough to meet future needs. Upgrade if you can afford it, so you will have the financial resources to meet rising medical costs, particularly after retirement.
Jobstreet
Date announced 16/11/2010
Quarter 30/09/2010 Qtr 3 FYE 31/12/2010
STOCK Jobstreet C0DE 0058
Price $ 2.9 Curr. ttm-PE 25.48 Curr. DY 1.03%
LFY Div 3.00 DPO ratio 35%
ROE 23.7% PBT Margin 48.9% PAT Margin 31.7%
Rec. qRev 30425 q-q % chg 2% y-y% chq 24%
Rec qPbt 14867 q-q % chg -6% y-y% chq 42%
Rec. qEps 3.06 q-q % chg -13% y-y% chq 25%
ttm-Eps 11.38 q-q % chg 6% y-y% chq 59%
Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5% Avg.H PE 21.00 Avg. L PE 12.00
Forecast High Pr 3.05 Forecast Low Pr 1.40 Recent Severe Low Pr 1.40
Current price is at Upper 1/3 of valuation zone.
RISK: Upside 9% Downside 91%
One Year Appreciation Potential 1% Avg. yield 2%
Avg. Total Annual Potential Return (over next 5 years) 3%
CPE/SPE 1.54 P/NTA 6.04 NTA 0.48 SPE 16.50 Rational Pr 1.88
Decision:
Already Owned: Buy, Hold, Sell, Filed; Review (future acq): Filed; Discard: Filed.
Guide: Valuation zones - Lower 1/3 Buy; Mid. 1/3 Maybe; Upper 1/3 Sell.
Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr
Term Life Insurance is Value for Money
Buy insurance for PROTECTION. Don't buy insurance for INVESTMENT.
For the same protection, term insurance is more affordable than the insurance that gives protection with investment included.
Insurance products that also include investments are unlikely to give spectacular investment returns as these insurance companies are regulated and can invest in certain 'safe and low risk assets' only.
The savings through buying term insurance can then be invested into other investment products that may potentially give better returns.
Q&A: What can be deducted from rental income?
Oct 21, 2010
Q&A: What can be deducted from rental income?
Answering a reader's question about deductions for rental income is PricewaterhouseCoopers Taxation Services Sdn Bhd (PwC) senior executive director Margaret Lee.
Lee holds a portfolio of clients from diversified industries. She has been with PwC for 20 years, and has been involved in the undertaking of corporate restructuring of companies, cross-border deal structuring, due diligence reviews and negotiations with the regulatory authorities on tax matters. Additionally, she advises clients on the income tax, real property gains tax and stamp duty implications of merger of multinationals, conglomerates, trading and manufacturing companies.
Dear Editor,
I've rented my condo and would like to know if these are deductible:
- Real Estate Agent's commission
- Sinking fund (imposed by condo management)
- Service charges for repairs (in addition to costs of repairs)
- Installation costs of air-cond and water heater requested by tenant
Thank you.
Regards,
Sharon
--------------
Dear Sharon,
My answers are as below:
- Real Estate Agent's commission
Answer: This is deductible, provided that this is not the first time the condo is rented out to generate rental income.
- Sinking fund (imposed by condo management)
Answer: Deductible, since this is an expense in connection with the production of rental income.
- Service charges for repairs (in addition to costs of repairs)
Answer: Deductible, as long as these are not capital expenditure but are revenue deduction incurred for the wear and tear of the premises.
- Installation costs of air-cond and water heater requested by tenant
Answer: Not deductible and not qualified for capital allowance (tax depreciation) since there is capital expenditure incurred by the landlord and the landlord is not carrying a rental business.
http://www.starproperty.my/PropertyGuide/Finance/7699/0/0
Q&A: What can be deducted from rental income?
Answering a reader's question about deductions for rental income is PricewaterhouseCoopers Taxation Services Sdn Bhd (PwC) senior executive director Margaret Lee.
Lee holds a portfolio of clients from diversified industries. She has been with PwC for 20 years, and has been involved in the undertaking of corporate restructuring of companies, cross-border deal structuring, due diligence reviews and negotiations with the regulatory authorities on tax matters. Additionally, she advises clients on the income tax, real property gains tax and stamp duty implications of merger of multinationals, conglomerates, trading and manufacturing companies.
Dear Editor,
I've rented my condo and would like to know if these are deductible:
- Real Estate Agent's commission
- Sinking fund (imposed by condo management)
- Service charges for repairs (in addition to costs of repairs)
- Installation costs of air-cond and water heater requested by tenant
Thank you.
Regards,
Sharon
--------------
Dear Sharon,
My answers are as below:
- Real Estate Agent's commission
Answer: This is deductible, provided that this is not the first time the condo is rented out to generate rental income.
- Sinking fund (imposed by condo management)
Answer: Deductible, since this is an expense in connection with the production of rental income.
- Service charges for repairs (in addition to costs of repairs)
Answer: Deductible, as long as these are not capital expenditure but are revenue deduction incurred for the wear and tear of the premises.
- Installation costs of air-cond and water heater requested by tenant
Answer: Not deductible and not qualified for capital allowance (tax depreciation) since there is capital expenditure incurred by the landlord and the landlord is not carrying a rental business.
http://www.starproperty.my/PropertyGuide/Finance/7699/0/0
Billionaire Warren Buffett's firm tweaks its US$49bil US stock portfolio
Tuesday November 16, 2010 MYT 9:14:56 AM
Omaha, Nebraska: Warren Buffett's company has invested in Bank of New York Mellon and sold off stakes in NRG Energy, CarMax and Republic Services.
Berkshire Hathaway Inc. revealed a number of changes to its $49 billion U.S. stock portfolio Monday in documents filed with the Securities and Exchange Commission.
The company doesn't typically comment on its investment decisions.
Between the end of June and the end of September, the Omaha-based company that Buffett leads as chairman and CEO made several changes during an active quarter.
Those included cutting Berkshire's Comcast stake to 187,000 shares from 12 million, reducing Nike holdings to 3.6 million shares from 7.6 million, cutting an Ingersoll-Rand Company investment to 636,600 shares from 5 million and reducing a stake in Nalco Holding Co. to 6.1 million shares from 9.15 million. - AP
Proposals by Time dotcom signals important milestone to turn around GLCs
Tuesday November 16, 2010
Proposals by Time dotcom signals important milestone to turn around GLCs
Raison D'etre - Risen Jayaseelan
Proposals by Time dotcom signals important milestone to turn around GLCs
Raison D'etre - Risen Jayaseelan
On the face of it, the deal does raise eyebrows. First, it a very big related-party transaction (RPT) and second, why is an individual being given control over an important GLC?
But a closer look indicates that there is not much to fret about. First, the RPT is fully disclosed and all interested parties in the deal, which include Afzal and Khazanah Nasional Bhd, aren’t going to vote on the deal, leaving the decision on whether to accept or reject the proposals entirely in the hands of the minority shareholders.
Second, is the question of whether the assets are being injected at a fair price.
Afzal said UBS Securities Malaysia was particularly picked by TdC’s board to advise on the deal as UBS has had a lot of experience in valuing assets such as data centres and submarine cables.
It is also understood that the replacement cost of the submarine cables is much higher than what TdC is paying for. (To recap, one of the companies TdC is buying owns a 10% interest in the trans-Pacific Unity North Cable system, which is a 9,620km Japan-US cable built together with Google, Bharti, KDDI, SingTel and Pacnet.)
But perhaps, most significant aspect of the deal is this: Afzal did not parachute into this deal from nowhere. He has been given the reins to run TdC since October 2008 and has been doing a pretty decent job at it. TdC used to be known as a company whose revenue and profits were erratic and interspersed with asset disposals and impairment exercises that left investors with little visibility of the future earnings of the company.
But since 2009, TdC has been consistently EBITDA (earnings before interest, tax, depreciation and amortisation) positive, has had strong operations cashflows and has had five consecutive quarters of revenue and earnings growth. TdC’s EBITDA and operating profit margin have also doubled in the first half of FY2010. Afzal says 2009 was a year of ‘detox and cleansing’, whereby the cash was conserved, processes re-engineered and the quality of their fibre optic networks – the core of their business – were improved.
A closer look at the deal also reveals that Afzal & Co are being paid for their assets largely in shares in TdC. The cash that TdC is paying out goes mainly to other shareholders of the assets, namely three private equity funds, which had pumped in the initial capital needed to part finance the construction of the submarine cable. This clearly indicates that Afzal and his team are in for the long run at TdC.
Minority shareholders, therefore, should consider these facts when it’s time to vote on this deal.
If this model works out – if Afzal and team do bring value to TdC – then it does set a good precedent for Khazanah and other government agencies on how to deal with valuable assets in their hands which are not reaching their full potential.
To be sure, it does seem that this is the model that Khazanah is also trying to follow for POS Malaysia Bhd. Alas, in that case, it does seem to be taking longer than expected. While bids have been submitted by various parties on their plans to take POS to the next level, little has been heard of the deal since. It is rumoured that one stumbling block remains to be the unwillingness of the Government to give up its powerful golden share. Hopefully, that problem will be sorted out over time.
·Deputy news editor Risen Jayaseelan reckons that the TdC example is a big improvement from the past where assets and licenses were dished out to certain connected individuals who didn’t increase the value of those assets or worse, flipped them to other parties at a profit.
Be wary of runaway stocks in a bull run
15 NOV, 2010, 12.00PM IST, DHIRENDRA KUMAR,
Be wary of runaway stocks in a bull run
The Bombay Stock Exchange (BSE) Sensitive Index (Sensex) revisiting the previous high of 20873 points could not have had a better timing, with Diwali and stocks making a perfect combination.
However, notwithstanding the festive connection, the index filled a psychological breach by erasing the damage of the great crash of 2008. Or maybe not.
I’m sorry to be the fly in the ointment, but I do think that investors should be paying more attention to what didn’t come back up rather than what did.
There are a number of stocks that haven’t made it back anywhere close to the highs that they touched in January 2008. For instance, for Reliance Communications (the worst of the lot), the Sensex is still at around 4800 points compared to January 2008.
And for anyone still hanging on to their DLF stocks, the Sensex is still at around 6400. There are a number of other stocks that have done almost as badly. Predictably, these are mostly from the telecom and the real estate/infrastructure industries.
Interestingly, at the other end of the scale, there are only a couple of Sensex stocks that have actually outstripped the index over this period.
The moral of the story is obvious: In any kind of market rally, there are always some questionable stories that get sold. It all looks fine as long as the going is good, but when the cycle reverses, many of the stocks and sectors, which looked like great bets, turn out to have been over-hyped. Some of these never come back. How long will it take for a stock like DLF to capture its previous high on an inflation-adjusted basis? A decade, maybe two decades? I wouldn’t be surprised if it never did so.
Today’s markets are characterised by a huge flood of liquidity from foreign investors and, even more importantly, the expectation that this flood of liquidity will continue. Investors will do well to remember that in the stock market, the foundation of future fortunes are laid when stock prices are down. When the bulls are raging, then more often than not, investors are laying the foundations of future losses.
In today’s market (as in January 2008), there are good stocks that are overpriced and there are bad stocks that are overpriced. There may even be some good stocks that are rightly-priced. Good luck finding them.
(The expert is CEO, Value Research)
http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/Be-wary-of-runaway-stocks-in-a-bull-run/articleshow/6927176.cms
Be wary of runaway stocks in a bull run
The Bombay Stock Exchange (BSE) Sensitive Index (Sensex) revisiting the previous high of 20873 points could not have had a better timing, with Diwali and stocks making a perfect combination.
However, notwithstanding the festive connection, the index filled a psychological breach by erasing the damage of the great crash of 2008. Or maybe not.
I’m sorry to be the fly in the ointment, but I do think that investors should be paying more attention to what didn’t come back up rather than what did.
There are a number of stocks that haven’t made it back anywhere close to the highs that they touched in January 2008. For instance, for Reliance Communications (the worst of the lot), the Sensex is still at around 4800 points compared to January 2008.
And for anyone still hanging on to their DLF stocks, the Sensex is still at around 6400. There are a number of other stocks that have done almost as badly. Predictably, these are mostly from the telecom and the real estate/infrastructure industries.
Interestingly, at the other end of the scale, there are only a couple of Sensex stocks that have actually outstripped the index over this period.
The moral of the story is obvious: In any kind of market rally, there are always some questionable stories that get sold. It all looks fine as long as the going is good, but when the cycle reverses, many of the stocks and sectors, which looked like great bets, turn out to have been over-hyped. Some of these never come back. How long will it take for a stock like DLF to capture its previous high on an inflation-adjusted basis? A decade, maybe two decades? I wouldn’t be surprised if it never did so.
Today’s markets are characterised by a huge flood of liquidity from foreign investors and, even more importantly, the expectation that this flood of liquidity will continue. Investors will do well to remember that in the stock market, the foundation of future fortunes are laid when stock prices are down. When the bulls are raging, then more often than not, investors are laying the foundations of future losses.
In today’s market (as in January 2008), there are good stocks that are overpriced and there are bad stocks that are overpriced. There may even be some good stocks that are rightly-priced. Good luck finding them.
(The expert is CEO, Value Research)
http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/Be-wary-of-runaway-stocks-in-a-bull-run/articleshow/6927176.cms
Rubber prices at 30-year high
Rubber prices have this week hit a 30-year high, causing tyre makers to raise their prices by 10pc to 15pc.
Futures on the benchmark Tokyo commodities index surged to $4,661 per tonne, their highest since February 1980, and cash prices in Thailand climbed to an all-time record. Forecast rain is likely to worsen a supply shortage and Chinese inflation boosted demand across the commodity sector.
According to technical analysts from ProSpreads: "The fundamental reasons for rubber's recent gains are clear and evident: increased car sales in China, coupled with bad weather across South-East Asia, further squeezing supply. It would take a brave speculator to sell into this rally."
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/8132582/If-theres-a-global-gas-glut-why-are-prices-rising.html
Futures on the benchmark Tokyo commodities index surged to $4,661 per tonne, their highest since February 1980, and cash prices in Thailand climbed to an all-time record. Forecast rain is likely to worsen a supply shortage and Chinese inflation boosted demand across the commodity sector.
According to technical analysts from ProSpreads: "The fundamental reasons for rubber's recent gains are clear and evident: increased car sales in China, coupled with bad weather across South-East Asia, further squeezing supply. It would take a brave speculator to sell into this rally."
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/8132582/If-theres-a-global-gas-glut-why-are-prices-rising.html
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