Always look at the risks before looking at the rewards in your long term investing

In investing, always look at the risks before looking at the rewards.

Understand the risks you are taking and then decide for the potential rewards you can hope to get, whether this reward/risk ratio makes business or investing sense.

Also, determine what is the likelihood of the reward appearing, its quantum and when.

Remember, "a bird in the hand today is worth two or more in the bush tomorrow."



How to look at risks in investing?

Back to the teaching of Warren Buffett's 4 tenets of his investing method.

1.  Understand the business.
2.  A business having durable competitive advantage.
3.  Managed by people with integrity.
4.  Available at fair price (margin of safety).

His tenets are very simple, and yet so few are following these.


If the business is too hard to understand, avoid investing into it.  You need to be able to understand the business.  What are the products or services it is selling?  Who are its customers?  How are its revenues generated?  Its profit margins?  Who are its competitors?  Only invest into a company you understand.  This is having business sense.

A company with durable competitive advantage enjoys certain unique advantages that allow it to compete in its competitive business environment.  The company may be selling a unique product or service, protected by patents or it enjoys a brand that people like for a long time.  Perhaps, the business is the lowest cost producer, or the cost of switching by its customers to another competitor is high.  Some businesses enjoy networking effect.  Avoid businesses with no durable competitive advantage.

People with integrity can be difficult to judge with certainty.  In general, a reputation build up slowly over 30 years can disappear over 5 minutes.  Anyone whom you have even a slight suspicion of his integrity, just avoid investing into that company.

When all the above 1, 2, and 3 tenets are met, you can then determine the price to buy and how much to buy?  You need to be patient.  The market is volatile and stock prices are volatile.  These market volatility and price volatility reflect the fluctuating sentiments of the investors and players in the market.  Don't time the market, always price the market.  You buy when the price is right.  Avoid when the price is obviously too high.  Invest when a great company is available at a fair price or even a slightly above fair price.  Be greedy and invest a lot, when a great company is available rarely at a huge bargain price.



Managing risks

The above few paragraphs explore how you will manage risks as applied to each tenets of Buffett in your stock investing.  In a very general sense, risks can be managed in 4 ways:

1.  Avoid
2.  Retain or embrace
3.  Reduce
4.  Transfer.

Whenever you are prospecting a new stock, you will need to determine that this stock meets the 4 business tenets of Buffett.  At each stage, you should avoid this stock altogether if you determined its risk is too high.

• Note that not able to understand the company's business is high risk too and you will need to avoid investing into it.  
• Not able to determine what confers to it its long term durable competitive advantage, is also another investing risk that should be avoided or perhaps embraced sometimes, but you need to have a very good reason.  
• Of course, avoid counters managed by people whose integrity you doubt.  
• Not able to value the business either because it is too complex to understand or its accounting is too difficult to fathom, you are better to avoid investing into this company.

Eventually, you are left with those stocks which you understand very well.

• QUALITY OF THE COMPANY (QUALITATIVE ASSESSMENT):  You understand their businesses, their durable competitive advantages and their management.  
• VALUATION OF THE COMPANY (QUANTITATIVE ASSESSMENT):  And, you too understand how to value them and this gives you an advantage to buy and own them at a reasonable, fair or good prices.  

Every stock you own has gone through this thorough risk analysis and also the reward potential analysis.  For the stocks you have in your long term portfolio, you have retain and embrace the risks associated with investing in them and also have a very clear idea of their reward potentials.  You know their risk/reward ratios over the long term and the probability of their investing returning  predictable positive returns (driven by the durable competitive advantage possessed by these companies).

When the stocks in your portfolio are priced too high during certain market situations, you may, if you wish to, also reduce the risks or transfer the risks using various strategies.


Through managing your risks, you avoid losses or minimise your losses and the modest positive returns from the other stocks in your portfolio will translate into reasonable returns.

Investing is fun and profitable in the long run.

Good luck to all.

Determining the Payback Period. When are borrowings excessive?

In the balance sheet, the total liabilities exceed the total equity overwhelmingly.  What does this mean?

There are 3 possible types of scenarios when this happens:

1.  The company has excessive long term borrowings.
2.  The company has excellent business that uses very little equity and its business is funded mainly by its creditors.
3.  The low equity is due to accumulated deficit, the result from continuing losses in operations.




Let us look at scenario No. 1:  The company has excessive long term borrowings.

Companies normally borrow money from financial institutions to fund their expansion.

• This is even more prevalent in an environment where the interest rates are low.
• Some companies will also refinance their debt by taking advantage of the low interest rate so that they can enjoy some savings in the interest payable.
• Yet others will refinance their debt with a higher interest rate to extend the maturity date of the debt.

All the above make business sense, when the return on capital is higher than the cost of capital.  

But, if the business continues to suffer despite the injection of additional funds through borrowings, then the company could be in dire straits.

When are borrowings excessive?  How do you determine this?

The key is in the payback period.

Look at the amount of long-term borrowings (normally found under the heading of Non-Current Liabilities) and then the Net Profit (found in the Income Statement).

Assuming that the company can utilise ALL its Net Profits in its present financial year to pay off its long term borrowings AND the SAME Net Profit recurs every year, you have this formula:

Payback Period in years = Long Term Borrowings /Net Profit.

The resulting answer is the payback period for the long-term borrowings.

A prudent KPI for the payback period is not more than 5 years.

Yes, you can argue that the company can achieve tremendous profit growth in the next few years.  If that happens, the number of years required to pay off its debts can be reduced dramatically.  

By the same argument, what if the economy suffers and a loss is incurred?

F&N’s earnings to be driven by export growth, cost efficiency

F&N’s earnings to be driven by export growth, cost efficiency
August 20, 2018, Monday



KUCHING: Analysts project the future earnings of Fraser & Neave Holdings Bhd (F&N) to be driven by the continued strong export growth and improved cost efficiency as a result of cost optimisation efforts and better economies of scale.

Following a visit to F&N Dairies Manufacturing plant in Selangor Halal Hub, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) highlighted that F&N targets total export revenue to reach RM800 million by 2020.

According to MIDF Research, as of the first nine months of financial year 2018 (9MFY18), export contributes 16 per cent of total revenue whilst for F&N’s Malaysia and Thailand segments, these grew 20 per cent year on year (y-o-y) and 10 per cent y-o-y respectively.

“We estimated export revenue to contribute between the range of RM642.9 million to RM710.6 million for FY18,” the research arm said.

“Assuming the same rate of growth, F&N poised to achieve its total export revenue target before 2020.”

MIDF Research noted that F&N’s two main segments, the Malaysian and Thailand segments, which contribute 57.1 per cent and 42.9 per cent respectively to total revenue (including export) are currently facing intense completion.

The research arm further noted that F&N’s domestic market share for sweetened condensed milk has slipped from 59 per cent in FY14 to 52.4 per cent as of the first half of FY18 (1HFY18).

“Despite the declining market share, revenue dropped marginally by 0.4 per cent y-o-y and 0.3 per cent y-o-y in the 9MFY18.

“Nevertheless, we expect a stronger revenue growth due to pre-sales and services tax (SST) purchase and new innovative products set to be launched in Malaysia and Thailand market next year.”



http://www.theborneopost.com/2018/08/20/fns-earnings-to-be-driven-by-export-growth-cost-efficiency/

Internal Rate of Return

Internal Rate of Return (IRR)

• is the discount rate that generates a zero net present value for a series of future cash flows
• it equates the present value of the future net cash flows from an investment project with the initial cash outflow of the project
• it is calculated by employing trial and error method
• a higher cost of capital lowers the value of NPV and vice versa
• it takes into account the concept of time value of money
• project with IRR more than the required rate of return is considered as acceptable and profitable.

IRR > Required rate of return, accept the project

IRR < Required rate of return, reject the project

IRR = DISCOUNT RATE for positive NPV  + [DISCOUNT RATE DIFFERENCE x (Positive NPV / (Positive NPV - Negative NPV)]



Example:

DISCOUNT RATE @ 18%
Initial Investment 160,000
Cash flows of constant 55,000 for year 1 to year 5.
Given that the discount rate or required rate of return is 18%.
Total Present Value 171,994.41 #
Total Investment  (160,000)

Net Present Value 11,994.41

DISCOUNT RATE @ 24%
IRR is the discount rate that generates zero NPV.
Increasing the discount rate will lower the NPV.
To generate negative NPV, we have to increase the discount rate.
Let this discount rate or cost of capital to be 24%.

Using discount rate of 24%, the values are as follow:

Initial Investment 160,000
Cash flows of constant 55,000 for year 1 to year 5.
Given that the discount rate or required rate of return is 24%
Total Present Value 150,996.15 #
Total Investment  (160,000)

Net Present Value -9,003.85



CALCULATION

IRR

= DISCOUNT RATE for positive NPV  + [DISCOUNT RATE DIFFERENCE x (Positive NPV / (Positive NPV - Negative NPV)]
= [18% + (24% - 18%) {11,994/(11,994-(-9,003.85)}] x 100%
= 18% + 3.4%
= 21.4%

As the cost of capital for this project is 21.4% and the firm will only receive 18% for each dollar invested, the company should not accept this project.




# Note:  The total present value can be calculated thus
CF1/[(1+r)^1]  + CF2/[(1+r)^2] + CF3/[(1+r)^3] + .... CF3/[(1+r)^n]

Net Present Value and Profitability Index

Net Present Value (NPV)

• an indicator of how much value an investment could contribute to the firm
• takes into account the concept of time value of money
• the Present Value Interest Factor (PVIF) Table can be used to calculate present value
• the criteria below should be considered before accepting for rejecting a project or an investment:

NPV > 0  

The investment would add value to the firm.

The project should be accepted.

NPV < 0

The investment would subtract value from the firm, that means the project reduces shareholder wealth.

The project should be rejected.

NPV = 0

The investment would neither gain nor lose value for the firm.

We would be indifferent in the decision whether to accept or reject the project.  This project adds no monetary value.  Decision should be made based on OTHER CRITERIA.

Total Present Value = sum of the discounted value of all future cash flows.

NPV =  Total Present Value - Total Investment.

Probability Index 

The project is not profitable when its profitability index (PI) is less than 1.00

PI = Total Present Value / Total Investment

Payback Period

Payback Period (PBP) is the period of time required for the cumulative expected cash flows to equalize the initial investment or cash outflow.


1.  Equivalent or constant cash inflow.

PBP = Initial Investment / Cash Inflow


2.  Unequal Cash Inflow

PBP = N + [ (Initial Investment - Accumulated Cash Inflow for Year N)/Cash Flow for Year M ]

N = the number of years for the accumulated cash flows that had not exceeded the capital or investment.

M = the year where the total accumulated cash flow is equal to or more than the capital or investment.

Accounting Rate of Return or Average Rate of Return (ARR)

Accounting Rate of Return or Average Rate of Return (ARR)

• a financial ratio used in capital budgeting
• does not take into account the concept of time value of money
• calculates the return generated from net income of the proposed capital investment.

1.  Investment without scrap value

Depreciation = Total Investment / Useful Life

ARR = [(Average Cash Flow - Depreciation) / Initial Investment] x 100%

2.  Investment with a scrap value

Depreciation = (Total Investment - Scrap Value) / Useful Life

ARR = [(Average Cash Flow - Depreciation) / Initial Investment] x 100%

Project Evaluation

The decisions of where to invest the company's resources have a major impact on the future competitiveness of the company.

Trying to get involved in the right projects is worth an effort, both to

• avoid wasting the company's time and resources in meaningless activities, and 
• to improve the chances of success.

Project evaluation is a process used to determine whether a firm's investments are worth pursuing.

Producing new products, buying a new machine and investing in a new plant are examples of firm's investment.

Investing in those activities involves a major capital expenditure, and management needs to use capital budgeting techniques to determine which projects will yield the most return over an applicable period of time.



Capital Budgeting Factors

Factors involved in capital budgeting are:

1.  Initial Cost
The initial investment or cash capital required to start a project.

2.  Cash In Flow
The estimated cash amount that flows into a business due to operations of the project or business.

3.  Investment Period
The duration of the project and when it is estimated to be completed.

4.  Discount Factor
The value of interest that will be received or charged during the period of the project's execution and it will affect the present value of cash in flows for different years.

5.  Time Value of Money
The idea that a ringgit now is worth more than a ringgit in the future, even after adjusting for inflation, because a ringgit now can earn interest or other appreciation until the time the ringgit  in the future would be received.This theory has its base in the calculation for present value.



Factors influencing investment decision

A firm must make an investment decision to improve or increase the incomes of the company in order to compete in the market.

Investment environments include:

1.  Product development/enhancement
2.  Replacing equipment/machinery
3.  Exploration of new fields or business.



Project Evaluation Methods

Common methods used in evaluating projects, investments or alternatives are:

1.  Payback Period (PBP)
2.  Accounting Rate of Return/Average Rate of Return (ARR)
3.  Net Present Value (NPV)
4.  Profitability Index (PI)
5.  Internal Rate of Return (IRR)


In choosing an investment or project, select the project which generates HIGHER ARR, NPV, PI and IRR; and SHORTER PBP.



APPENDIX:

Turning investing principles into good investing habits

So just what is a habit?

A habit is:

• a recurrent, often unconscious pattern of behaviour that is acquired through frequent repetition, and,
• an established disposition of mind or character.

As an investor,you need to not only learn to do it well but also to do it with some consistency, and do it without struggling to remember what you did last time.  

As a low volatility investor, you are not likely to be as active trading in the markets as some other investors, and you may not watch as closely.

Any investor - active, inactive, aggressive or low volatility - has a duty to keep up with his or her investments.

For the low volatility investor and others, it is important to develop certain habits, routines, or thought processes for:

• choosing investments,
• watching and managing investments, and
• selling or replacing investments.

With the right habits, you will increase the chances of success.

Turning principles into habits

Investors have obvious goals:  to produce wealth and to preserve capital.

Anything an investor does should address both goals, preferably simultaneously.

As an investor, you are motivated to succeed and, over time, you build a set of strategies and tactics to help you achieve those goals.

"Motivation is what gets you started.  Habit is what keeps you going."

It is easy to get motivated.  It is harder to learn the ropes - the skills and techniques - required to become a good investor.  

But what may be hardest of all, once you gain experience and enjoy some investing success, is to turn those skills into habits.

Habits that become built in, second nature, repeatable and predictable, and not only lead to good results but help you avoid bad ones.

Without consistent habits, low volatility investors will make mistakes and find themselves off in the weeds. 

Good investing habits are like a good golf swing: apply those habits to every investment choice and you won't succeed every time, but your chances for success will brighten considerably.

The thought processes in building a portfolio that works.

You want an investment portfolio that meets your financial objectives. 

Investors have obvious goals:  to produce wealth and to preserve capital.

You also want that portfolio to accomplish those goals quietly, with a minimum of upsets, a minimum of nerves, a minimum of complex mathematics, and most likely, a reasonable amount of effort on your part, because you are busy doing other things in life too.

The tiered portfolio is divided into three primary tiers:

1.  The Foundation portfolio
2.  The Rotational portfolio
3.  The Opportunistic portfolio.



The Foundation portfolio (80%)

This is set up to meet or slightly beat expected market returns, often with stable and somewhat defensive investments.

Dividend-paying stocks with rising dividends and growing prospects while at the same time exhibiting low downside risk and volatility are a pretty good fit.

These investments can be stocks or funds, and can be augmented by fixed-income securities, real estate, or other investments that meet this general profile.



Rotational (10%) and Opportunistic (10%) portfolio

The purpose of these is to achieve better-than-market returns, perhaps with more volatility, but these portfolios are small enough to contain risk and to avoid consuming too much of your investing time and bandwidth.



Putting together your portfolio

How your portfolio is put together is entirely up to you, not only because the portfolio needs to suit your tastes, intuitions and the facts at the time, but also because many of the investments (and the mix of investments) may not even be available, or priced right, at the time.

Building a tiered portfolio

This tiered portfolio has three segments:

1.  Foundation investments
2.  Rotational investments
3.  Opportunistic investments.


Foundation investments (80%)

These are like dividend-paying stocks that produce market (or better) returns with relatively less risk.


Rotational investments (10%)

These are mostly ETFs and inverse investments.  They add some defense and sector diversification to your portfolio.


Opportunistic investments (10%)

These employ a little more risk to boost returns.



Aim

The net result should be a portfolio that generates above-market returns with below-market risk.

The most bang for your buck

You want to select investments carefully to eke out those one, two or three extra percentage points of excess return. 

You are trying to add investments that is, at the highest possible return level for the amount of risk taken.  

You are trying actively to manage volatility and risk - avoid, reduce, retain or transfer risk.

Essentially, you want the most bang for your buck.

Smart diversification is the key. The smart investors are focus Investors.

True investors are not random stock pickers.

They take out risk by understanding the investments and their intrinsic value, rather than by spreading the risk across more companies.

Smart investors are focus investors who drive toward deep understanding of their investments without diluting possible returns through diversification.

They see danger in owning too many investments, which may be beyond the scope of what they can manage or keep track of.

Here's the paradox:  Instead of reducing risk through diversification, risk may actually increase as it becomes harder to follow the fortunes of so many businesses.

That is why Buffett and others reject diversification per se as an investment strategy.

They prefer to reduce risk by watching a few companies and investments more closely.


"Diversification is for people who don't know what they're doing."  Warren Buffett.

Volatility, Risk and You as an Investor. "Take no risk" is not an option.

As an investor, you have to know something about volatility and risk, where it comes from and how it can affect your investment performance.

If you avoid volatility altogether, example, keeping your money in fixed deposits or risk free saving deposits, you will eventually be sorry in all but the most remote black swan scenarios.



What are you to do?  

You will have to face the risk and decide how you want to go forward in your investing.  There are at least four things you can do about risk, to manage it.

1.  Avoid risk:  accept risk-free returns of 2% or less.
2.  Retain risk:  know it's there, know its dangers, and deal with them.
3.  Reduce risk:  be smart about what you are doing by taking the necessary precautious
4.  Transfer risk:  make contrarian investments or buy derivatives -another scary concept, to insure your portfolio.



The best investing approach to risk taking

The best investing approach overall is some combination of the four.

Warren Buffett's strategy was primarily to reduce risk by knowing what he was doing.  We can embrace a lot of what he has to say, though we cannot all be so masterful.

We may want to avoid risk with certain portions of our investments, like an emergency or college fund as we approach our children's college years.

We will retain risks, knowing it is hard to quantify or measure just how much risk we want to retain.

We will reduce risks by being smart, which means knowing where the risks come from and taking steps, like doing smart, forward-looking research to reduce them.

There are ways to transfer some of the risks by buying and selling certain types of options to trade a relatively more volatile future for certain cash today or to insure a portfolio outright.




"Take no risk" is not an option.

If you have money, you will take risk.

If you want your money to work for you some day, you have to take a little more risk, especially in view of long-term inflation.

If you embrace and manage the risk properly and stay within yourself, you won't lose sleep at night.  

What is risky is what makes you lose sleep at night.

This is anything that's psychologically upsetting or distracting that causes you not to be wholly focused or effective on the rest of what's gong on around you.




Risk checklist

Here is a short risk checklist:

• If you cannot sleep at night, you are taking too much risk.
• If you cannot function normally without being distracted; if you are irritable or angry or pensive or withdrawn, you are probably taking too much risk.
• If you are risking something greater than you can afford to lose, you are taking too much risk.
• If you are truly worried about your long-term financial security, you are taking too much risk.
• The converse is true too.  If you are truly worried about long term financial security, you may not be taking enough risk; you are sacrificing too much return.

Conclusion

In the end, it all depends on how much risk you want to take and how you feel about risk to achieve a balance you are comfortable with.

Low volatility investing is the acceptance and management of some investing risk to produce better-than-market returns while minimizing exposure to the wealth-destroying sharp downturns that can have long-term effects on investing performance.

Small losses versus Big losses. They are different stories.

Small Losses

Small hits or losses are alright, so long as they aren't persistent or don't last forever.  That said, we cannot take 10% or even 5%, losses ongoing and forever.  Even if we under-perform the markets by a few percentage points, we can lose out on considerable gains once the power of compounding sets in.


Big Losses

Big losses are a different story.  We can tolerate the 10% corrections and even ignore the 10% twitter, but if we are exposing ourselves to 50% losses on individual investments - or worse, on substantial portions of our portfolios - look out!  It will take a lot to turn that ship around and get it back to where it went off course.


Fluctuations, minor corrections and bear market

There is a big difference between fluctuations, minor corrections (considered to be 10% pullbacks by most market professions), and an all-out bear market, usually considered a plunge of 20% or more.  The prudent investor senses the difference between fluctuations, corrections and the more destructive bear markets.


The high cost of an untimely hit.

Volatility can be expensive, especially, if it goes beyond normal investment noise into creating a significant downturn, especially at the beginning of an investing period.

The principles and effects of compounding makes a difference not just how much we succeed but also WHEN we succeed in the markets.

The general principle is that the more we can earn SOONER - to unleash the power of compounding to a greater degree over a longer time - the better off we are.

Conversely, if our investment capital takes a hit in the early going, it takes a lot just to get back to even, let along to get ahead.

Limitations on using the past data approach. The past does not predict the future.

There are two general categories of limitations on using the past data approach:

1.  The past doesn't predict the future.

No matter how much math you apply to how much data, you're still looking backward.

Trying to say what's going to happen based on what has happened is a dangerous game, particularly with anything involving as many non-quantifiable variables as investing.

The best thing you can do with the models is to gain a better understanding of what happened in the past, but you can't be sure it will happen again in much the same way; in fact, you can be pretty sure it won't happen the same way again.

2.  There are too many moving parts.

External, internal and personal factors all come into play, and no model can take everything into account.  

A stock may have played predictably in the past (and a company's earnings may have played predictably, too, thus the stock price predictability), but what happens when something changes?

What happens when customers suddenly decide they don't like a product anymore or, for that matter, when investors decide they don't like a stock (or gold or corn or a bond or real estate) anymore, or as much as they did?

You can't predict all the factors that influence the future.  Nobody can.  Again, if you could, who would take the other side of the trade?

In investing, it is more important to be able to measure and conceptually understand what is going on than doing a lot of complex quantitative analysis..

Investing is not, and never will be, a formula.

There are no equations to determine the best investments.

There are theoretical approximations but we cannot depend on them 100%.

For a host of reasons, they don't tell all, and they don't always work.

The point is to be able to measure and conceptually understand what's going on.

You are probably better off knowing what questions to ask and making big-picture look-out-the-window risk/reward decisions than getting bogged down trying to calculate the risk of the investment yourself.

You can look at the numbers, particularly comparative numbers, to get an idea whether an investment more or less accomplishes your objectives.

You can also look at a chart to get a quick view or vision of the volatility without knowing the precise numbers within.

At the end of the day, quantitative measures are important mostly for comparison.




Summary

Some of your best investment calls will occur by simply looking out the window.

What is important is to grasp the concept and then with a few measures to help assess risk/reward and especially to compare it.

Informed common sense

Remember the past doesn't predict the future.

There are also too many variables you cannot quantify, like human behaviour and economic sentiment.

Some of the investing models are pretty cool but they are far from perfect; and they may sidetrack you from making the right decisions.

INFORMED COMMON SENSE will help you more in making the right decisions.

Housing is a volatile investment indeed, at least for most people.

Statistics show that housing on the whole is a relatively tame investment:

• Average annual percent change:  3.1%
• Number of years positive:  15
• Number of years negative:  5
• Number of years between 0 and 10% positive:  13.
• Number of years more than 20 percent positive: 0
• Number of years more than 20 percent negative: 0

[Housing is thus an example of low volatility investment, with a tame and steady 3.1% annual gain with 15 positive years out of 20 and no 20% annual fluctuations.  Also, you get to live in it.]

Two caveats.  

Caveat number one is:  the price of a house is very large.  So a 5% (or $10,000) move on a $200,000 asset is significant and a 20% (or $40,000) move is gigantic.  Volatility as a percentage should naturally attenuate as the base of an index rises.  Sometimes the opposite happens when bubbles go into correction.

The second caveat is: leverage magnifies volatility.  Suppose you buy a $200,000 house and that you, like most others do, borrowed 80% of the value.  Your equity is $40,000.  A 5% or $10,000 price decrease now translates into a 25% ($10,000/$40,000) change.  [The mathematics:  if your equity is only a fifth of the asset value, you must multiply the volatility figures by 5x.]

Here are the housing volatility figures, this time assuming an 80% mortgage:

• Average annual percent change:  15.5%
• Number of years positive:  15 
• Number of years negative:  5
• Number of years between 0 and 10% positive:  2
• Number of years more than 20% positive:  10
• Number of years more than 20% negative: 2

Note especially the decline in the number of years between 0 and 10 percent positive:  from 13 to 2.  Looked at it in this light, housing is a volatile investment indeed, at least for most people.

[Remember too the impact of leverage on volatility.  This comes into play, too, when looking at companies to invest in.  If they've borrowed a lot of to finance the business, that, too, can lead to higher volatility.]

Volatility and Leverage: A vicious circle?

Where leverage is involved, a small loss is magnified into a big one.

That bigger loss creates considerable indigestion for the losers.

They see what's happening and rush to deleverage; that is, to sell assets to reduce exposure to volatility.

That rush to the exits creates more volatility.

The cycle continues.

This deleveraging cycle goes a long way to explain the 2008 financial crisis:  the volatility that created it and that it created.

When we look at the causes and consequences of volatility, we can see how it frequently can become a self-fulfilling prophecy, particularly where leverage is involved.

What went wrong for Turkey? Its economy is 'in the midst of a perfect storm'

What went wrong for Turkey? Its economy is 'in the midst of a perfect storm'


August 13, 2018 16:17 pm +08


(Aug 13): The free fall in the Turkish lira has stoked fears of an economic fallout that could spill over into other emerging markets and the banking systems in Europe.

Turkish President Recep Tayyip Erdogan blamed the plunge in the currency on "an operation against Turkey" and dismissed suggestions that the country's economy was facing troubles. But strategists from J.P. Morgan Asset Management said the NATO member has found itself "in the midst of a perfect storm" of worsening financial conditions, shaky investor sentiment, inadequate management of the economy and tariff threats from the U.S.

"Turkish assets have been under severe pressure," the strategists wrote in a Friday note. "While Turkey makes up a small percentage of the global economy and financial markets, investors are worried about the issues in Turkey causing damage in other markets around the world, particularly Europe."

In the immediate term, policy decisions out of Washington have sparked Turkey's currency crash: The lira plunged as much as 20 percent against the dollar on Friday after President Donald Trump said he approved doubling metals tariffs on Ankara. But the cracks in Turkey's economic foundation were already spreading before the American president made his move.

How did Turkey get here?

Turkey has in recent years been one of the fastest-growing economies in the world, even outperforming economic giants China and India last year. In the second quarter of 2018, the country reported 7.22 percent growth in its gross domestic product.

That expansion, however, was fueled by foreign-currency debt, analysts said. At a time when central banks around the world were pumping money to stimulate their economies after the global financial crisis, Turkish banks and companies were racking up debt denominated in U.S. dollars, they said.

That borrowing, which fueled consumption and spending, resulted in Turkey running deficits in both its fiscal and current accounts. The former happens when government spending exceeds revenue, while the latter essentially means a country buys more goods and services than it sells.

The country's foreign currency debt now stands at more than 50 percent of its GDP, according to estimates by the International Monetary Fund.

Implications of Turkey's debt

Turkey is not the only economy with "twin" deficits and high amounts of foreign currency debt. Indonesia, for example, also runs fiscal and current account deficits and its foreign currency borrowing is roughly 30 percent of GDP.

But unlike Indonesia, Turkey doesn't have large enough reserves to rescue the economy when things go wrong, said Richard Briggs, an analyst from research firm CreditSights.

According to Briggs, Turkey's reserves are notably low compared to its $181 billion in short-term debt denominated in currencies other than the lira. On top of that, much of the foreign currency in Turkey is held by banks, and those funds could be withdrawn by customers, he added.

That means when the lira falls, Turkey may not be able to buy up its currency to prevent it from spiraling further. If that situation worsens, the country would have to find other ways to finance its debt, including possibly getting bailed out by the International Monetary Fund.

Economic mismanagement

To many analysts, Turkey wouldn't have gotten into the current predicament if its central bank had been left to do its job.

The Turkish economy has been "overheating" with inflation — at 16 percent in July — way exceeding the central bank's target of 5 percent. Raising interest rates could have helped to stem such a massive increase in consumer prices: Higher rates tend to attract foreign investors, who would need the lira to buy Turkish assets. That could in turn support the currency, which makes imports cheaper and lessens the burden of paying back foreign debt.

But Erdogan has said he's in favor of lower interest rates to continue driving growth. His influence over the country's central bank has undermined investor confidence, experts have said.

"President Erdogan continues to prioritize growth and lower rates which will extend the current crisis, rather than allowing the economy to rebalance. He is here to stay, and markets don't have confidence in him. That's a dangerous mix," Briggs wrote.

What's next for Turkey?

Without raising interest rates, Turkey has few other options to get out of its economic problems, said Eric Robertsen, global head for foreign exchange, rates and credit research at Standard Chartered Bank.

Turkey earlier said it was limiting banks' foreign exchange swap transactions but it wasn't implementing capital controls. Those measures are merely "baby steps" and won't do much unless interest rates are raised, Robertsen told CNBC's "Squawk Box."

"The interest rates policy is kind of the critical line of defense," he said. "What they have to do is make sure that currency doesn't leave the country in a full-fledged capital flight ... it has to be a combination of currency measures and interest rates, there's no way around that."


http://www.theedgemarkets.com/article/what-went-wrong-turkey-its-economy-midst-perfect-storm

A Horrifying Storm Is Brewing Inside the Stock Market

A Horrifying Storm Is Brewing Inside the Stock Market

The markets continue to hover around record highs. But there could be a storm brewing investors need to watch.

MoneyShow.com
Aug 8, 2018


Don't forget risk.

Leverage remains insanely high at $647 billion, 55% higher than at the 2007 double housing and stock bubble peak and 116% higher than the 2000 tech mania peak. Total margin debt has exceeded 3% of Gross Domestic Product only three times; in 1929 as the madness of the Roaring Twenties peaked, last year and this year.

Leverage may seem like magic on the way up but the effects are horrifying when prices fall. The unwinding of margin debt between 1929-1932 resulted in a economic depression as the phenomenal wealth driving the nation's economy evaporated.

Stock prices fell as much as 90% after soaring 4.2-fold in only nine years and four months. The damage was so extensive that the Dow Industrials did not fully recover until 26 years later in 1955.

Thus, we look at today's stock market and worry about the similarities. In only nine years and four months from the previous bear market bottom in March 2009, the Dow Jones Industrial Average has now surged 4.1-fold, almost exactly the same as the run into the 1929 peak.

While we do not expect an exact repeat of the 1929-32 period when excessive leverage led to a crash and a collapse into an economic depression, the current environment is way too similar to past manias and in certain aspects — primarily leverage — is far worse than the prior two peaks in March 2000 and October 2007. Given our long term target of Dow 14,719, down 43% from today, we have zero comfort for the long side.

Meanwhile, total dollar trading volume (DTV) now stands at yet another new record high. Over the last 12 months, total DTV is now $81.24 trillion, up nearly 15% from last years record, roughly 75% higher than at the 2007 double bubble peak and 150% higher than at the tech mania peak.

The trend to trade more has kept average holding periods for U.S. stocks to just over four months. When stocks are held for the long term, valuation becomes a primary consideration. The shorter period one holds stocks, the less likely one is to rely on valuations, hence valuation methodologies are now routinely shunned and scorned in favor of chasing momentum.

Sentiment is perhaps the most significant driver of price, but it is not mere excessive optimism that makes the current environment so dangerous. Excessive valuations have been in place for so long that they are now accepted as entirely normal.

In the same way that buying stocks for 10% down in 1929 was regarded as normal, in the same way the "Nifty Fifty" one decision stocks in 1972 were considered normal, in the same way Nasdaq at a 250 P/E multiple in 2000 was considered normal, today's environment is accepted as normal and forecasts of higher prices abound.

In a CNBC survey of 19 top Wall Street firms, every strategist forecast higher prices and an average gain of another 10.6% through the remainder of the year. We are far more comfortable on the other side of the fence. Risks on the long side continue to be insanely high.

History has shown 30% downturns occur on average, roughly once every nine years. We are astonished how little attention is paid to risk parameters, even at this point when it is so ridiculously obvious how much leverage is built into stock prices and how overvalued stocks are.

We expect as bear market and our target remains Dow 14,719. Be careful. A storm is brewing.

By: Alan Newman, editor of CrossCurrents. Via MoneyShow.



https://finance.yahoo.com/m/79fb3e52-7b6f-3489-a678-e0731fb8b644/a-horrifying-storm-is-brewing.html

A massive losing bet on bitcoin futures has investors buzzing

A massive losing bet on bitcoin futures has investors buzzing
CRYPTOCURRENCY
Friday, 3 Aug 2018


HONG KONG: A huge wrong-way bet on Bitcoin has left an unidentified futures trader unable to cover their losses, putting counterparties at risk and threatening to dent confidence in one of the world’s largest cryptocurrency venues.

The more than US$400mil long position in Bitcoin futures was amassed on OKEx, a Hong Kong-based exchange that’s ranked No. 4 on Coinmarketcap.com’s list of the biggest crypto platforms, according to a person familiar with the matter, who asked not to be named because he isn’t authorized to speak about the issue with the media.

While OKEx has moved to liquidate the position, it has so far been unable to cover the trader’s shortfall amid a down market for Bitcoin this week, the person said.

If the shortfall still exists at the 4 pm settlement time in Hong Kong on Friday and exceeds the size of the exchange’s insurance fund, futures traders who have unrealized profits on OKEx may be forced to absorb the losses, in line with a “clawback” policy detailed on OKEx’s website, the person said. OKEx doesn’t expect the issue to affect the exchange’s ability to function, he said.

“Everyone is talking about it,” said Jake Smith, a Tokyo-based adviser to Bitcoin.com, in reference to the OKEx trade. Smith said the systemic risks were likely contained, but that the episode could have some ripple effects on the market. “The main question is how will OKEx handle this,” he said.

Lennix Lai, a director at OKEx, said via email that the exchange may issue a statement on Friday. Lai didn’t answer an emailed list of questions from Bloomberg News.

In a statement on its website last month, OKEx outlined planned changes to its margin rules and liquidation procedures that it said would “vastly minimize the size of bankruptcy positions” and make clawbacks less frequent. The exchange, which allows clients to leverage their positions by as much as 20 times, said it would start rolling out the changes in September. Before clients can begin trading futures, they’re required to pass a quiz on OKEx’s rules.

Clawbacks are unique to crypto markets and expose the exchanges who use them to reputational risks when clients are forced to absorb losses, said Tiantian Kullander, a former Morgan Stanley trader who co-founded crypto trading firm Amber AI Group. “It’s a weird mechanism,” Kullander said.

Bitcoin, the biggest cryptocurrency by market value, dropped 3.2% to US$7,309 at 3:20 pm Hong Kong time on Friday, extending its decline this week to 11%. It has slumped 49% this year. - Bloomberg


Read more at https://www.thestar.com.my/business/business-news/2018/08/03/a-massive-losing-bet-on-bitcoin-futures-has-investors-buzzing/#Uu1VCrlVplSB1SwH.99

F&N shares rise on higher profit

F&N shares rise on higher profit

Friday, 3 Aug 2018


KUALA LUMPUR: Shares in Fraser & Neave Holdings Bhd (F&N) rose on Friday boosted by a 51% profit increase in the third quarter ended June 30.

The counter rose 16 sen, or 0.43% to RM37.56. In the past one year, F&N shares have appreciated 54.09%.

F&N’s third quarter net profit jumped 51% to RM104.5mil, from RM69.37mil a year earlier, thanks to positive contributions from Malaysia and Thailand.

Revenue, however, was slightly lower by 1% to RM1.03bil, from RM1.04bil in 3QFY17.

Kenanga Research said F&N’s 9M18 core net profit of RM318.8mil (-6%) and the absence of dividend was within expectations.

“New products are seen as key drivers for the group, amidst slow spending trends and high production costs.

“The high cost, however, could be mitigated by the group’s improving efficiency following capital investments and restructuring,” it said.

Kenanga has maintained its underperform and target price of RM32.15 on F&N.


Read more at https://www.thestar.com.my/business/business-news/2018/08/03/fn-shares-rise-on-higher-profit/#faIuSFbJd1Z3daQP.99

Caring Pharmacy Group

Caring profit sends shares up 9%

Wednesday, 25 Jul 2018


KUALA LUMPUR: Caring Pharmacy Group is the top performer on Bursa Malaysia with shares up 9% in early trade after it posted a higher profit.

The counter rose 15 sen, or 9.09% to RM1.80, its highest since late-January.

Caring Pharmacy’s net profit for the fourth quarter ended May 31 rose 34.6% to RM5.86mil from RM4.36mil recorded a year ago.

Revenue for the quarter rose 8.2% to RM129.35mil from RM119.5mil, driven by the higher sales generated from existing outlets due to aggressive and extensive promotional campaign launched during the quarter under review.

For the full financial year ended May 31,Caring’s net profit soared 41.4% to RM18.56mil on revenue of RM508.27mil.

Read more at https://www.thestar.com.my/business/business-news/2018/07/25/caring-profit-sends-shares-up-9pc/#FwfoAcyie8QWFqw7.99

Analysts maintain cautious view on UMW Aerospace

Analysts maintain cautious view on UMW Aerospace
January 11, 2018, Thursday Sharon Kong, sharonkong@theborneopost.com


KUCHING: Analysts who recently visited UMW Holdings Bhd’s (UMW) Aerospace Rolls-Royce fan case manufacturing plant have left their cautious view unchanged due to the group’s mixed prospects.

As per UMW’s website, UMW Aerospace Sdn Bhd (UMW Aerospace) signed a 25 plus five year agreement with Rolls-Royce Plc (Rolls-Royce) on August 12, 2015 to manufacture and assemble fan cases for Rolls-Royce Trent 1000 and Trent 7000 aero engines, which power the Boeing 787 Dreamliner and Airbus A330 neo aircrafts.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) had factored in RM750 million capital expenditure (capex) allocated for the first 2.5 years.

According to Kenanga Research, UMW Aerospace has delivered 6 fan cases for 4Q17 and additionally, expects to ramp up its production to 80 fan cases for 2018 and 160 fan cases by 2019 before hitting full capacity of 250 fan cases by 2020.

“UMW Aerospace is expected to be profitable at 160 fan cases level in 2019 considering that some front-loaded investments need to be amortised.

“The full production capacity is in line with the full production capacity of Seletar Rolls-Royce engine assembly plant,” the research arm said.

Kenanga Research highlighted that UMW Aerospace expects to post double-digit revenue growth over the next five years.

“However, due to the stringent contract condition with Rolls-Royce, the company is unable to disclose the information regarding the average selling price or the costs breakdown for the fan cases.”

Based on the first nine months of 2017 (9M17) results, the manufacturing and engineering (M&E) segment posted pretax losses of RM13.2 million and Kenanga Research estimated that UMW Aerospace has incurred start-up losses of circa RM47.1 million. This is given that other business in M&E segment remained at the same level as of financial year 2016 (FY16).

The research arm thus factored in the start-up losses in FY17E reported net profit (NP) while maintaining FY17E CNP numbers.

Overall, Kenanga Research maintained its neutral stance on UMW in view of the single-digit growth in the group’s automotive segment sales volume pending the completion of its new Bukit Raja Plant (expected to be operational in early 2019, an additional 50,000 capacity (one-shift) to the current 75,000) and the gestation period for its Rolls-Royce plant (expected to break even in FY19).

“Moving forward, the group’s strategic exit from the oil and gas (O&G) industry is expected to improve the group’s profitability,” the research arm said.

“Furthermore, the automotive segment is expected to be driven by the new models namely 2018 Toyota C-HR completely built up (CBU), 2019 Toyota C-HR completely knocked down (CKD), 2018 Toyota Harrier, all-new Perodua MyVi and face-lifted variants of existing models.”


http://www.theborneopost.com/2018/01/11/analysts-maintain-cautious-view-on-umw-aerospace/

GITP remains cornerstone for Malaysia’s gaming sector

GITP remains cornerstone for Malaysia’s gaming sector
January 16, 2018, Tuesday Sharon Kong, sharonkong@theborneopost.com


KUCHING: The Genting Integrated Tourism Plan (GITP) remains the catch in 2018 in Malaysia’s gaming sector, analysts opine in an industry insight.

The research arm of Hong Leong Investment Bank Bhd (HLIB Research) believed that in Malaysia, the multiyear growth story of GITP will continue to be the catch for Genting Malaysia Bhd (Genting Malaysia) this year, which will be driven by the recently opened VIP gaming areas in November 2017, the upcoming indoor theme park by the first half of 2018 (1H18) and the much awaited 20th Century Fox World Theme Park by end-2018.

HLIB Research noted that the target of reaching 30 million of visitation by 2020 from the current 22 million level signifies a compound annual growth rate (CAGR) of circa 10 per cent from 2016.

On another note, growing optimism is seen in Singapore as the overall market condition has improved with higher gaming volume attributable to higher patronage coupled with the return of high rollers.

The research arm believed the earnings before interest, tax, depreciation and amortisation (EBITDA) margin expansion in 2017 after the cost rationalisation initiatives will continue to bear fruit moving into 2018.

HLIB Research also highlighted that with the growing middle class in China, the appetite of outbound travel has been growing tremendously and the trend is set to continue in 2018.

“Chinese are now the largest tourist arrivals group for Singapore and third for Malaysia,” it said.

“We believe the restrictions for Chinese to travel to South Korea could be beneficial to both Genting Malaysia and Genting Singapore.”

HLIB Research expected any favourable news from Japan pertaining to the casino bill in 2H18 will create excitement for Genting Singapore.

The research arm also noted that Resorts World Las Vegas is on schedule to open in 2020 while the casino plan in Miami may be revived.

“On the contrary, casino plans in Massachusetts are stalled due to the ongoing legal issue.”

As for the number forecast operator (NFO) market, HLIB Research expected it to be stagnant or decline due to cannibalisation from illegal operators which undermine the growth potential.

The research arm pointed out that in the absence of fresh catalyst, dividend yield of circa six per cent will continue to serve as the support for share price.

It noted that the immediate risk on tax hike is unlikely given that NFOs are still experiencing lacklustre sales outlook since the introduction of goods and services tax (GST) three years ago.

“Any increase in the gaming tax or pool betting duty may cause a lose-lose situation while benefiting illegal operators instead,” the research arm said.

Overall, HLIB Research maintained ‘overweight’ on the gaming sector as the research arm believed captivation of GITP expansions will continue to drive the market with the reopening of both indoor and outdoor theme parks, supported by the overall domestic growth upcycle theme while international operations continue to show stabilised and improved performances.

“The return of VIP players seen in the regional markets is the another stimulus for the sector,” it added.


http://www.theborneopost.com/2018/01/16/gitp-remains-cornerstone-for-malaysias-gaming-sector/

Uncertainty surrounds UMWOG’s HWU utilisation

Uncertainty surrounds UMWOG’s HWU utilisation
January 18, 2018, Thursday


KUCHING: While analysts are mildly positive on UMW Oil and Gas Corporation Bhd (UMWOG) securing ane umbrella contract to provide hydraulic workover units (HWUs) to Petronas Carigali Bhd, uncertainty lies in its HWU utilisation rate.

In a corporate update, AmInvestment Bank Bhd (AmInvestment Bank) said the umbrella contract could involve the use of all or any of UMWOG’s five HWU units – UMW Gait 1, UMW Gait 2, UMW Gait 3, UMW Gait 5 and UMW Gait 6 – to undertake workover services.

“The contract, which commenced on December 22 last year, is under an umbrella framework which may comprise of a series of individual orders and call-out.

“However, at present, there has not been any call-out or work order which will be made at stipulated prices for those HWU services,” it guided in the update.

Due to this uncertainty of utilisation, the HWU segment currently registered losses for the group due to its units being largely idle over the past year, and contributes to the ongoing losses for the group.

Looking beyond the HWU segment, the group’s full rig utilisation rates and margins remained a large concern.

“Separately, even at near full rig utilisation of 90 per cent in the third quarter of financial year 2017 (3QFY17), UMWOG still suffered a minor core loss of RM14 million.

“As there will be three rigs out of charter in 1QFY18 or an utilisation rate of 60 per cent, we expect a resumption of losses for the group,” said the bank.

Similarly, Hong Leong Investment Bank Bhd (HLIB Research) also reported a resumption of losses for UMWOG in FY18-19 with forecasted profit after tax and minority interests (PATAMI) of RM102 and RM71 million loss respectively.

While UMWOG has guided that there may be 12 rig charters expected to materialise in 2018, AmInvestment Bank argues that these may be short-term charters to replace current contracts which are expiring in 2018.

Even with full utilisation at current day rates, the bank said UMWOG would only be barely breaking even, notwithstanding the group’s efforts to draw further cost efficiencies with a stronger credit profile amongst suppliers and financeiers.

“Hence, we do not expect any near-term re-rating for the stock,” said the bank.

With that said, AmInvestment Bank has decided to downgrade their recommendation on UMWOG to ‘sell’ from ‘Hold’ as its share price has rebounded above their unchanged fair value of RM0.30 per share.

Meanwhile, HLIV Research is maintain its ‘hold’ call with an unchanged target price of RM0.40 as the group’s completion of rights issue and removal of debt maturity overhang risks are expected to provide a catalyst for share prices while earnings outlook appear more encouraging in 2018.


http://www.theborneopost.com/2018/01/18/uncertainty-surrounds-umwogs-hwu-utilisation/

MRCB-Quill REIT declares a DPU of 8.39 sen for FY17

MRCB-Quill REIT declares a DPU of 8.39 sen for FY17
January 20, 2018, Saturday



KUCHING: MRCB Quill Management Sdn Bhd (MQM), the manager of MRCB-Quill REIT, a listed real estate investment trust, wishes to announce that MQReit achieved a realised net income of RM21.42 million for the fourth quarter of 2017 (4Q17).

This is an increase of approximately 61 per cent from the realised net income of RM13.30 million recorded for 4Q16. The higher realised net income for this quarter was attributable to the recognition of income from Menara Shell, net of higher property operating expenses, finance costs, trustee’s fee and manager’s fee.

For the full year, MRCB-Quill REIT achieved a realised net income of RM88.01 million, an increase of 48.8 per cent compared to the realised net income of RM59.16 million recorded for the financial year ended FY16.

Correspondingly, realised earnings per unit (EPU) for financial year ended FY17 of 8.24 sen was recorded.

After taking into consideration the non-cash adjustment for manager’s fee payable in units and net fair value loss on investment properties, MRCB-Quill REIT achieved a distributable income for FY17 of RM92.4 million.

FY17 distribution per unit (DPU) was 8.39 sen, which is 0.1 per cent higher compared to the FY16 DPU of 8.38 sen. The FY17 DPU of 8.39 sen translates to a distribution yield of 6.7 per cent based on the closing price of RM1.25 per unit as at 29 December 2017.

Tan Sri Saw Choo Boon, chairman of MQM said: “We expect the office market outlook to remain challenging this year. We will focus on asset management and leasing strategies that are centered on tenant retention as well as managing MRCB-Quill REIT’s operational cost effectively.”

Yong Su-Lin, chief executive officer of MQM said: “The manager’s active leasing and asset management strategies throughout the year has ensured successful tenant renewals of 80 per cent for the leases due in 2017.

“On the back of this as well as new tenancies entered during the year, MRCB-Quill REIT’s average occupancy rate for the year stood at 96.3% in terms of Net Lettable Area (NLA).

“In respect of 2018, MRCB-Quill REIT has approximately 28 per cent of its leases based on NLA that are due for renewal, with the bulk of the leases due after the first half of 2018.

“In tandem with executing our on-going marketing strategies, we continue to identify asset enhancement initiatives centered on enhancing the quality and physical condition of MRCB-Quill REIT’s portfolio of properties.

“Premised on the above, scheduled enhancement works will be initiated for a few properties for this financial year, namely Wisma Technip, Plaza Mont Kiara, Platinum Sentral and Menara Shell.”

She added: “As at Dec 31, 2017, MRCB-Quill REIT’s gearing ratio stood at 37.3 and 76 per cent of its total borrowings are on fixed interest rate.

“As part of our capital management strategy to maintain majority of fixed rate borrowings, we will continue to monitor the interest rate environment with the aim of locking in fixed interest rates at an appropriate time via interest rate swaps.

“This will help to mitigate MRCB-Quill REIT’s exposure to future interest rate risk and provide income stability to the Trust.”


http://www.theborneopost.com/2018/01/20/mrcb-quill-reit-declares-a-dpu-of-8-39-sen-for-fy17/

REITs to see earnings impact from higher borrowing costs

REITs to see earnings impact from higher borrowing costs
January 23, 2018, Tuesday


KUCHING: Real estate investment trusts (REITs) is expected by analysts to have potential earnings impact of 0.2 per cent to 2.1 per cent from higher borrowing costs.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), market is expecting an announcement of a 25 basis points (bps) increase in overnight policy rate (OPR) to be announced later this Thursday.

Some had even predicted the possibility of two rate hikes of 25 bps each for 2018 while MIDF Research’s house expected only one rate hike this year.

Based on the research arm’s sensitivity analysis, earnings per unit (EPUs) of REITs under its coverage are limited to minus 0.2 per cent to minus 2.1 per cent if there is one rate hike of 25bps.

“REITs with higher floating rate loans are more likely to be affected by the increase in interest rate,” it said.

Among the REITs that MIDF Research covered, Amanahraya REIT’s loans were all based on floating rates.

“Conversely, IGB REIT’s floating rate loans was only kept at one per cent.”

The research arm gathered that REIT managers were working on converting part of their floating rate loans to fixed rate loans to mitigate the risk of potentially higher interest costs.

MIDF Research highlighted that although a rate hike may have adverse impact to the bottomlines of REITs notably due to higher borrowing costs and potentially a slightly narrower spread between 10-year Malaysian Government Securities (MGS) yield and dividend yields from REITs, other factors at play may change the dynamic of the unit price movement.

“For instance, when Bank Negara announced a 25bps rate increase on July 10, 2014, price movements of REITs were mixed,” it said.

“Of the seven REITs under our coverage, only two REITs showed downward price movement of minus 5.9 per cent (Capitaland Malaysia Mall Trust) and minus 6.7 per cent (Amanahraya REIT).

“The rest had showed positive movement from the period of July 10, 2014 until December 10, 2014.”

All in, MIDF Research kept its estimates unchanged until the actual announcement of the rate hike and maintained ‘neutral’ on the sector.

Bursa Malaysia activities in 2017

• FBM KLCI saw growth of 9.4 per cent.
• Market capitalisation grew by 14.4 per cent year-on-year (y-o-y) to RM1.9 trillion.
• Significant increase in retail participation, which grew by 41 per cent y-o-y.
• RM10.8 billion net foreign inflow in 2017.
• Bursa Malaysia attracted 13 new listings, raising a total of RM7.4 billion.
• Average daily trading value (ADV) for securities market on-market trades grew by 27.7 per cent to RM2.3 billion.
• The average daily contracts traded in the derivatives market in FY2017 were 57,677 contracts.
• A total of 14.0 million contracts was traded in FY2017.
• Islamic capital market, trading revenue in FY2017 fell by 3.7 per cent to RM15.8 million despite an improvement in ADV by 20.2 per cent to RM19.6 billion.

Bursa Malaysia records higher earnings in FY17
February 6, 2018, Tuesday



KUALA LUMPUR: Bursa Malaysia Bhd’s pre-tax profit for financial year ended Dec 31, 2017 (FY17) rose to RM305.88 million from RM270.59 million a year earlier.

Revenue surged to RM556.83 million from RM506.78 million previously.

In a statement yesterday, Bursa Malaysia chief executive officer, Datuk Seri Tajuddin Atan, said 2017 was one of the strongest years for the local equity market.

The FBM KLCI saw growth of 9.4 per cent and market capitalisation grew by 14.4 per cent year-on-year (y-o-y) to RM1.9 trillion, he said.

“There was a significant increase in retail participation, which grew by 41 per cent y-o-y. This was in line with our continued focus to engage and educate by building our retail outreach efforts and financial literacy programmes, further expanding our retail base throughout the year,” he said.

Bursa Malaysia saw a RM10.8 billion net foreign inflow in 2017.

In FY2017, Bursa Malaysia attracted 13 new listings, raising a total of RM7.4 billion compared to RM0.6 billion in 2016.

“We will expand our marketing efforts to build a strong IPO pipeline and look forward to rolling out our initiatives aimed at widening our products and services to create a conducive capital market ecosystem for all market participants,” said Tajuddin.

For the year under review, securities market trading revenue increased by 21.9 per cent to RM259.6 million from higher average daily trading value (ADV) for securities market on-market trades, which grew by 27.7 per cent to RM2.3 billion.

The average daily contracts traded in the derivatives market in FY2017 were 57,677 contracts and a total of 14.0 million contracts was traded in FY2017 compared to 14.2 million contracts in FY2016.

In the Islamic capital market, trading revenue for Bursa Suq Al-Sila’ in FY2017 fell by 3.7 per cent to RM15.8 million despite an improvement in ADV by 20.2 per cent to RM19.6 billion, mainly due to the introduction of volume-based pricing scheme.

“We will continue to work closely with our intermediaries to improve liquidity and increase trading activities,” said Tajuddin.

Bursa Malaysia’s board of directors has approved a second interim dividend of 18.5 sen per share for FY2017, amounting to approximately RM99.4 million, which is payable on March 5, 2018.

With that, the total dividend, including special dividend declared for the year amounted to 53.5 sen per share. — Bernama

Neutral on Bonia’s proposed demerger

Neutral on Bonia’s proposed demerger
February 10, 2018, Saturday


KUCHING: Bonia Corporation Bhd’s (Bonia) proposed demerger and subsequent listing of wholly-owned subsidiary CRG Incorporated Sdn Bhd (CRG) on the LEAP Market of Bursa Malaysia Securities Bhd has garnered neutral views from analysts.

According to AmInvestment Bank Bhd (AmInvestment Bank), the intended objective is likely to position Bonia with greater visibility and coherence of earnings drivers.

AmInvestment Bank anticipated that CRG may command lower valuations than Bonia seeing the LEAP Market is less liquid and has a lower pool of investable institutional investors, which effectively translate into demand.

“Should CRG command lower valuations than Bonia, it could be value destructive to existing Bonia shareholders in the near term,” the research firm said.

“We are neutral over the development. While we appreciate greater visibility and coherence of Bonia earnings drivers excluding CRG over the longer term, it may be offset by the potential near-term restructuring drag.”

All in, AmInvestment Bank maintained its ‘buy’ recommendation and fair value of RM0.67 per share.

The research firm noted that valuations are pegged to financial year 2019 (FY19) with a target price earnings (P/E) of 14.5-fold, in line with Bonia’s five-year historical average P/E.

“We continue to like Bonia’s flagship brands, Braun Buffel and Bonia and its turnaround-led growth,” the research firm said.

“Meanwhile, valuations are attractive for a regional luxury brand going through an upcycle in consumer spending.”



http://www.theborneopost.com/2018/02/10/neutral-on-bonias-proposed-demerger/

EPF proven to be successful retirement funds globally

EPF proven to be successful retirement funds globally — CIMB
February 12, 2018, Monday



KUALA LUMPUR: The Employees Provident Fund (EPF) has proven to be one of the most successful retirement funds globally, said CIMB Group.

Its Group chief executive, Tengku Datuk Seri Zafrul Aziz said the commendable dividend rate is truly reflective of a well-diversified investment strategy.

On Saturday, EPF declared a dividend rate of 6.9 per cent for conventional accounts for 2017, with a payout amounting to RM44.15 billion and 6.4 per cent for Simpanan Shariah for 2017, with payout amounting to RM3.98 billion. Zafrul said CIMB also strongly supports EPF’s cause to make retirement a mainstream topic so that more youths could plan for it, whether through the EPF or Private Retirement Scheme, as soon as they start working. — Bernama

==


EPF eyes Latin America as new investment destination
February 13, 2018, Tuesday


KUALA LUMPUR: The Employees Provident Fund (EPF) is eyeing expansion into the Latin American market as part of its efforts at boosting its global assets portfolio to 32 per cent this year from 28 per cent in 2017.

Chief executive officer, Datuk Shahril Ridza Ridzuan, said an increase in the overseas asset portfolio would provide the fund with the necessary diversification and returns to meet contributors’ expectations.

“Like many global pension funds, we need to have a balanced portfolio and increase its exposure as much as possible to growth around the world,” he told reporters at the fund’s 2017 dividend briefing yesterday.

He said overseas investments also provided high returns, contributing 41.4 per cent of the total income, despite only making up of only 28 per cent of total investments last year.

“Our historical chart has shown that global assets give us the necessary diversification and exposure to growth, which is vital for the fund to continue to perform and provide the kind of return that our members expect,” he said.

He said diversification into overseas markets also helped the fund compensate for any downturn in any of its investment market and continue to grow.

As of last year, EPF has presence in 30 markets, primarily in the developed market, North Asia and Asean.

On Shariah Savings, Shahril said, they had, as of last year, attracted about 700,000 contributors with a total size of RM68 billion from RM100 billion allocated for the savings.

The total Conventional Savings and Shariah Savings have about 14 million contributors and total fund size of RM768.51 million, he said. He said Shariah assets made up 47.5 per cent of the fund’s total asset exposure and contributed 42.9 per cent of total income last year.

“Shariah investments’ underperformance was attributed to oil and gas and mobile telecommunication sectors,” he said.

Nevertheless, he said, Shariah investments contributed 36 per cent to conventional savings dividend distributions on top of 100 per cent contributions to Shariah savings.

On Saturday, EPF announced 6.9 per cent dividend for conventional savings with a payout amounting to RM44.15 billion and 6.4 per cent dividend to Shariah savings, with payout amounting to RM3.98 billion. — Bernama

MAHB net profits surges more than three fold

MAHB net profits surges more than three fold
February 22, 2018, Thursday


KUALA LUMPUR: Malaysia Airports Holdings Bhd’s (MAHB) net profit surged more than three fold to RM237.09 million the financial year ended Dec 31, 2017 against RM73.17 million registered in 2016.

The group’s revenue in 2017 rose 11.5 per cent to RM4.65 billion from RM4.17 billion, previously, attributable to growth in both airport and non-airport operations.

“Airport operations recorded revenue growth of 9.8 per cent, mainly driven by the aeronautical and non-aeronautical segment,” it said in a filing with Bursa Malaysia yesterday.

In the fourth quarter), MAHB registered a decrease in net-profit to RM27.85 million from RM37.12 million the previous corresponding quarter in 2016.

On outlook, the airport operator said 2018 held the promise of being another exciting year for MAHB.

“The group remains committed in delivering high quality services to our stakeholders by embedding a customer-centric culture in airport operations to provide an innovative and digitalised airport experience for passengers, airlines and retailers,” said MAHB.

— Bernama

Malaysia Airports hits record 96.6 million passengers in 2017
February 22, 2018, Thursday



KUALA LUMPUR: Malaysia Airports Holdings Bhd’s (MAHB) passenger movements at its domestic airports grew 8.7 per cent to a record of 96.6 million passengers in 2017, surpassing the 90 million mark for the first time.

In a filing to Bursa Malaysia yesterday, MAHB said the passenger traffic was mainly driven by the international sector, which rose 14.6 per cent to 49.5 million passengers in 2017 over 2016.

“Domestic traffic on the other hand recorded 47.1 million passenger movements, an increase of 3.1 per cent over the same period in 2016. The Kuala Lumpur International Airport (KLIA) recorded 58.6 million passengers in 2017, a double-digit growth of 11.4 per cent over 2016.

“KLIA handled 28.3 million passengers, 11 per cent higher than in 2016 while klia2 handled 30.3 million passengers, a growth of 11.8 per cent over 2016. KLIA and Kota Kinabalu were among the airports that registered a double-digit growth in passenger movements,” it said.

MAHB said other airports that also registered positive growth were Penang, Kuching, Langkawi, Kota Bharu, Melaka, Tawau and Bintulu, while overall aircraft movements for airports in Malaysia increased by 4.5 per cent in 2017.

It said the international movements increased by 11 per cent while domestic sector increased by 0.7 per cent, with the overall average load factor for 2017 at 76 per cent, the highest since 2012.

Despite the high increase in the international aircraft movements, MAHB said average load factor for the international sector was an all-time high of 77 per cent, while overall cargo movements increased by 7.9 per cent in 2017 to 955,936 tonnes, the first positive growth since 2014.

Meanwhile, MAHB said the Istanbul Sabiha Gokcen Airport’s (SGIA) total passengers surpassed the 30 million mark for the first time in 2017, registering 31.3 million passengers, an increase of 5.7 per cent over 2016.

“International passengers increased by 8.4 per cent, while domestic passengers increased by 4.5 per cent. Istanbul SGIA’s passenger traffic picked up momentum after February 2017,” it added.

Based on prevailing economic conditions and the additional airlines seat capacity offered, MAHB said Malaysia passenger traffic in 2018 is expected to register 103.7 million passengers over 96.6 million recorded in 2017.

“The international and domestic passenger traffic is expected to register 53.9 million and 49.8 million movements, respectively. It is expected that fuel cost (single largest airline cost at 20-40 per cent) will remain close to current prices.

“Malaysia would continue to benefit from visa relaxation for Chinese and Indian tourists. The 2018 traffic numbers are expected to be mainly contributed by China, India and Southeast Asia sectors which currently make up 75 per cent of the international traffic,” it said. — Bernama

Petronas Chemicals’ FY17 pre-tax profit rises to RM5.24 bln

Petronas Chemicals’ FY17 pre-tax profit rises to RM5.24 bln
February 21, 2018, Wednesday



KUALA LUMPUR: Petronas Chemicals Group Bhd’s pre-tax profit for the financial year ended Dec 31, 2017 (FY17) increased to RM5.24 billion from RM4.11 billion in 2016.

Revenue rose to RM14.41 billion from RM13.86 billion previously, the group said in a filing to Bursa Malaysia yesterday.

It said the higher revenue was mainly driven by improved product prices and higher sales volumes, as well as benefitting from the strong US dollar.

“Earnings before interest, taxes, depreciation and amortisation (EBITDA) also increased by RM1.3 billion or 25 per cent to RM6.6 billion and profit after tax increased by RM1.2 billion or 37 per cent to RM4.4 billion, in line with higher revenue,” it said.

Moving forward, Petronas Chemicals said the results of the group’s operations were expected to be primarily influenced by

• global economic conditions, 
• utilisation rate of production facilities and 
• petrochemical products prices which have a high correlation to crude oil prices, particularly for the Olefins and Derivatives Segment.

 — Bernama

The whats, whys and hows of personal financial planning

The whats, whys and hows of personal financial planning
February 21, 2018, Wednesday AKPK



KUCHING: What do you do when you want to go somewhere?

You probably ask the following questions: What is the best way to go there? Will there be traffic jams? Is it better to take the LRT or bus? Should someone drive me there instead?

As you evaluate the options available to you, you ask questions about what you need to do and then make your decision — these are the steps involved in the planning process. Planning can be for the short-term, medium-term or long-term.

It is the same in personal financial planning, except that the time frame is over a longer period. Ideally, you should be looking as far ahead as your retirement years.

Personal financial planning involves asking questions about your future, your dreams and goals. It is thinking about what you want to do in your life, such as getting married, buying a car or a house, having children and planning for their education.

To achieve your life dreams and goals, you need to plan from the financial aspect. In personal financial planning, you look at how you will be budgeting, saving and spending your money over time.

Steps in personal financial planning

There are five steps in financial planning:

1. Assessing where you are now in financial terms 
2. Setting goals 
3. Creating a financial plan 
4. Implementing the plan 
5. Monitoring and reassessing


Benefits of financial planning

Many people think that financial planning is a hassle and that it stops them from doing fun things. If you consistently live on a budget, surely you would have to sacrifice some fun activities now, wouldn’t you? Think about it, if you have to save, you can always budget your money in such a way that you have some money to go out with friends and having a good time.

If you set a good financial planning habit, you can always have more fun in the future!

With a personal financial plan, you will:

Have more control of your financial affairs and be able to avoid excessive spending, unmanageable debts, bankruptcy or dependence on others.

Have better personal relationships with people around you, such as your family, friends and colleagues, because you are happy with your life and not borrowing any money to make ends meet or expecting hand-outs from others.

Have a sense of freedom from financial worries because you have planned for the future, anticipated your expenses and achieved your personal goals in life.

Be more effective in obtaining, using and protecting your financial resources throughout your lifetime, not only for yourself but also for the people you love.

With a good personal financial plan, you will be more informed about your future needs and the resources that you have. You will also have peace of mind knowing that your financial situation is in control.



Life stages and financial goals

In your adult life, you will go through various stages, from starting a career to retiring, from being single to getting married, having children and sometimes being single again. At various phases in your life, you have different priorities, responsibilities and financial goals.

Each stage of your life presents different investment opportunities and challenges. Discipline and perseverance play a key role in maintaining a reliable financial strategy. As your life changes, so do your needs and goals. Sound financial planning can prepare you to meet them successfully.

When you are in your 20s, you will be looking at money and spending it differently from when you get into your 50s. For example, when you are single, you probably want to have enough money to make a down payment for a car or go on a holiday with your friends.

After you get married, you may want to buy a house. Later, when you have children, you would want to plan for their education and maybe even start a retirement fund.

You have to adjust your financial priorities to meet the varied needs at different points of your life. Therefore, how you spend your money as you go through your adult life depends on your financial goals.



The Credit Counselling and Debt Management Agency (AKPK) is an agency under Bank Negara Malaysia tasked to help individuals take control of their financial situation. For assistance, please contact AKPK’s Power Infoline at 03-26167766 or visit www.akpk.org.my.

Understanding the time value of money

Understanding the time value of money
February 28, 2018, Wednesday AKPK



Imagine that you are offered a sum of money and asked to choose whether you want the money now or one year later. It is good to think what RM1 could buy back in 1990, what it could buy today and what would it be able to buy in the future?

Instinctively, you would know that money you have now – at the present time – is worth more than the same amount in the future. This is a key principle of economics that states as long as money can earn interest, any amount of money is worth more the sooner it is received. This concept illustrates the time value of money, also known as ‘present discounted value’.

Let us understand this idea. Say you deposit money into an interest bearing savings account at a five per cent interest rate, RM1,000 saved today will be worth RM1,050 in one year. Here multiplication is used when the ringgit amount is deposited in an interest bearing account. This is because from now to a given time in future it would continually yield interest.

On the other hand, RM1,000 received one year from now is only worth RM952.38 today. Division is used to represent the losses that arise during the period that a ringgit amount is not in an interest bearing account. It is that simple!

From this illustration you can observe that money has a time value. All things being equal, the present value of money is greater than the value of the same amount of money at any given time in the future.



The power of compound interest

How important is it to begin putting aside money for savings right now, instead of sometime later?

For example: Ahmad, Siti and Zainal consistently invest the same amount of money, i.e. RM3,000 per year for 10 years, which earn the same interest return of five per cent per annum. But they start investing at different ages – Ahmad at 18, Siti at 28 and Zainal at 38.

When all three retire at 60, Ahmad has more money than Siti and Zainal. He has RM198,228.14, whereas Siti has RM121,694.88 and Zainal has RM74,710.

Ahmad has more money at age 60 compared to Siti and Zainal although each of them invested RM30,000.



Important notes

Investment return will fluctuate over the years due to economic and stock market conditions. Some years may be lower than five per cent per year and some years may be higher than five per cent per year. Therefore, the total investment value may be more or less than the original investment amount.

The total investment that Ahmad, Siti and Zainal will get at the age of 60 will be as stated above only if the annual investment return is consistently at five per cent per year.

The outcome in the example above is due to the effect of compound interest. It is the additional interest earned on top of the original savings amount plus the interest received.

The power of compound interest is that, the earlier you start saving, the greater the interest accumulated on your original investment.

This simply means the more money you keep aside now, the faster you can fulfil your dreams. will you get interest on the original investment, you also receive interest on the interest you earned the prior year. This is called compounded interest, which is basically interest applied to interest.

Compound interest is important to investors who are able to leave their investments to grow over long periods. The RM10,000 investment mentioned above, when invested for 10 years at five per cent per annum, will be worth RM16,289.

If the interest rate of five per cent is compounded on a monthly basis, the monthly interest rate is 0.42 per cent, which is five per cent divided by 12 months.

If the same amount of RM10,000 is invested based on 0.42 per cent per month and invested for 10 years, it will be worth RM16,401, which is RM112 more than if invested at a yearly rate of five per cent. Therefore, you will gain more if you invest in an investment that pays interest on a monthly instead of yearly compounded basis.

Compound interest can be what we call a double-edged sword. It can work both to your advantage and disadvantage.

It can help give you more return on your investment as the benefit of compounding interest means you will earn more interest income the longer you keep your money invested.

In contrast, if you have a loan or credit card debt, you can end up paying more interest if these debts are calculated on a compounded interest rate.

This is because if you delay your loan or credit card repayment for a longer time, you will be charged more interest, eventually making it increasingly difficult for you to settle your loan or credit card debt.

Next week, AKPK will focus on the importance of setting your financial goals for a better future.

The Credit Counselling and Debt Management Agency (AKPK) is an agency under Bank Negara Malaysia tasked to help individuals take control of their financial situation. For assistance, please contact AKPK’s Power Infoline at 03-26167766 or visit www.akpk.org.my.