Rally is narrowly based and focused on technology stocks

30 April 17

Dear Fellow Investor,

In the last year 10 stocks have reflected the rise in the Nasdaq and S & P in the US. This means the rally is narrowly based and focused on technology stocks including Amazon, Google, Facebook and Apple. This is deceptive as the index does not reflect the broader market.  

Valuations are also stretched.

There is value in Hong Kong with a PE of 12 while Singapore is at 14.6. Nasdaq at 25.5 while Malaysia is at 18.4 and that is why I do not recommend main stream KLSE shares which in some cases are overvalued. 


We have an advantage in investing in under researched smaller to mid cap Malaysian companies as they are too small for the large funds to invest. Valuations are more reasonable but we have to do the hard on the ground research to find them. I travel each month to Singapore in search of these companies for our PGWA accounts and lesser traveled places in Malaysia for our EPF and cash accounts.


I do not recommend to buy most China shares due to compliance issues and lack of transparency so I focus on Hong Kong. Hong Kong is a good proxy for China, Singapore as well. Hong Kong is so strict even Ali Baba could not list in Hong Kong but listed in the US.

The U.S. economy isn’t looking as strong as you might think. Surveys of consumer and business sentiment – that is, how people “feel about” their economic situation – are upbeat. That’s important, and it matters for future growth. But what’s more important is underlying economic trends. And those aren’t so sunny.



For example, retail sales – how much stuff Americans buy – have fallen over the past two months. This is the first time in more than two years that this has happened. Monthly auto sales have dropped nearly 10 percent since December. Economists are cutting their growth forecasts for 2017.

The US Purchasing Managers Index for manufacturing, which measures the activity level of purchasing managers in the manufacturing sector, has been falling this year. Other surveys suggest that the pace of hiring has slowed and manufacturing cost inputs have increased sharply.

Also, President Trump can’t seem to get much done which is not his fault because of congress and special interests 

Look to China instead

The real economic excitement is across the Pacific, in China. 

China’s economy is strong – and far stronger than a lot of people think. Chinese stocks are positioned to do a lot better than U.S. stocks.

The economy is growing nicely. China’s Manufacturing PMI (purchasing managers index) has been steadily rising for more than a year now. Annual industrial production has accelerated so far this year, from year-on-year growth of 6 percent to 7.6 percent recently.

Manufacturing and industrial production growth are both indicators of strong economic growth.

Power production is one of the more reliable economic indicators in China (it’s hard to massage the data). Even the Premier Li Keqiang, the head of the Chinese government and the number two behind President Xi Jinping, has said that he looks at electricity production and transport data as his key indicators of the economy. Power production fell in China for almost two years leading up to August of 2016. But now it’s growing at a healthy 6 to 7 percent annually.

Another reliable data set preferred by Premier Li is railway freight volumes. Railway freight, which reflects the gross weight of cargo transported, grew 19 percent in February over the previous year. That’s a big change from the last quarter of 2015, when it fell 15 percent. A similar indicator, container throughput, grew 8 percent in March for China’s ports. It was flat a year ago.

It follows that trade volumes are also up. Year-on-year exports were up 16 percent, comfortably beating estimates of just 3.2 percent.

Bullish China, China's economy is strong, and the equity markets in Hong Kong, Singapore- Asia in general are beginning to reflect this. Economic growth provides the foundation for hiring, spending and investment.


As a result, we’ve seen H-Shares, Chinese stocks listed in Hong Kong, return 9.3 percent this year versus 6.7 percent for the S&P 500 index.

StansburyChurchouse research

Invest well and Grow Your Wealth, Bill

Can Trump break the chain so the eagle can fly ? This cartoon reflects most countries in the world- Europe, Japan, US . The liberals, socialists will do all in their power to hold back their economies with more regulations and taxes. They want a stronger chain and a heavier ball. Britain broke the chain with Brixit and look at the result. A super strong economy- more jobs, more progress and more investment.

Central bank intervention has kept stock market rallies going but the rallies are beginning to taper.

22 April 2017

Dear Fellow Investor,

Central bank intervention has kept stock market rallies going but the rallies are beginning to taper.

The euphoria that Trump tax reduction and fiscal spending policies, low interest rates, repeal of the expensive and inefficient Obama care medical program would boost the world economy and stock markets is meeting political reality.  Many in Trump’s own party are resisting cut backs in social entitlement spending.  

Most politicians will never vote to cut a free program or benefit as this is political suicide. That is the problem with Socialism. It is hard to reverse . The end result of Socialism is that the money runs out. Witness Venezuela:  Complete chaos, social unrest, lack of food and medicine and hyperinflation

Couple this with historical high PE valuations in the S & P, Dow, Russell and Nasdaq (S & P @ 24.45, Nasdaq @ 25.45 Dow @ 20.45 and Russell 2000 small cap @ 111 )  and we see professional money managers shifting to emerging markets in Asia/ Japan/ Europe/Singapore/ Malaysia/ HK where valuations are more reasonable.

Should this worry us ? 

Despite rising interest rates, geopolitical uncertainty, North Korea, the French election , BRIXIT, wars in most of the Middle East, oil price drops, I am not worried and neither should you. The below chart of money supply growth trumps all. The massive QE will find its way into financial assets world wide but we must be careful to select the right ones and ask ourselves, where is the money flowing to ?

What can we control ?

As an investor, I do not worry about what I can not control. Interest rates, currency rates, inflation rates, commodity prices, geopolitics, election results etc are beyond our control.

What we can control is our selection of promising companies based on measures of financial strength, valuations, growth in sales and earnings as well as honest management. My investments are made based on probabilities. If my analysis puts the odds in my favour, I go for it.  I am not always right but over time this method has produced steady returns.  When I am wrong, I exit and look for something else.

Dolly and I  just returned from 1 week in Taiwan. 

Their stock market and economy is booming. Especially semi conductor shares.  When riding the MRT, we saw  motivated traders on their smart phones   booking orders.

I found a promising  Taiwan semiconductor company for our PGWA accounts but I need to make a careful financial analysis before investing.

English is not a problem as most young people/ students speak English and are happy to practice their English with a foreigner. Taiwan is also super safe and clean - like Singapore. Taiwanese are also very polite and helpful.  Costs of food and accommodation are  reasonable.

We recently took profits on some of our Malaysian shares and I am looking for value opportunities such as companies overlooked by the crowd to allocate our capital.  Money supply growth in Malaysia, foreign fund buying  as well as the possible upcoming election should provide support.

Invest well and grow your wealth, Bill

Notice the keep off the grass sign at the Taipei Zoo. Punishments for breaking the law in Taiwan are very harsh

My Taiwan Trip

Dear Fellow Investors,

Dolly and  I will be away from 13 to 19 April to visit Taiwan.   Besides visiting some interesting tourist sites in Taipei, I will be researching a stock opportunity for our PGWA clients.

We have booked a private guide/ car  and set a specific agenda as our time is limited and we have no desire to visit tourists traps such as high priced pearls, jade, herbal products etc.

Should you have questions on your account  please call Fund Managers Jeffry/ Richard or Ashley @ 03 2166 0998 . Admin questions you may call Linda/ Nora/ Idza @ 03  2783 0300.

I will check my emails/ whats ap if you wish to contact me.  Taiwan is one of most wired countries in the world.

I expect the market to consolidate in the next few days as the Trump rally digests its gains. Your shares in accounts under our management are high quality, value  companies that won't be much affected  no matter what Trump/ Putin  say. They are sleep at night type of shares that pay steady dividends. 

Invest Well and Grow Your Wealth

Bill

4 Lessons from Warren Buffet a billionaire investor

9 April 2017

Dear Fellow Investor,

4 Lessons from Warren Buffet a billionaire investor:

The first lesson is to buy value at a reasonable price.

There is a company  which has been incredibly successful. They are a semiconductor  company and supply radio frequency chips  to Apple as well as other hand phone companies.  Their earnings growth and return on equity continues to climb. When we visited them, we noticed their fanatical efforts to control costs. They have a fortress balance sheet and are net cash. Because the valuation at the time we visited was a relatively low PE of 13 we decided to buy for our clients and ourselves.  The company is Inari. Presently the PE has advanced to 23.8 .  Although Inari is a great company  the valuations are a bit high.

The second lesson is to buy great companies.

How do I identify a great company ? It is the brand. Nestle, Thai Beverage, Carlsberg, F & N, Dutch Lady are a few.  They consistently grow earnings and for the last 3 down years they and their shareholders have prospered.

The third lesson is to buy imaginary fear.

In March 2014 there were thousands of protestors rioting in Thailand demanding the resignation of the PM Yingluck Shinawatra. Thai Beverage which we were holding dropped 40 % one week after I bought it. I immediately went to Thailand and found that the riot was like a carnival. Protestors were paid to blow whistles  and wave flags.

I spoke with investor relations and found revenues were going up during the riots as protestors were drinking more Chang Beer and other beverages from Thai Bev. I immediately averaged down the position and the share has virtually doubled from the low. 

A steady stream of increasing dividends continues to roll in. Virtually every stockbroker at that time recommended to sell.    That is why it is important to visit companies you are interested in. You will understand the company better.When imaginary fear hits you will be prepared to buy and avoid acting on conventional analysis

The fourth lesson is to buy companies with little or no debt.

We need to see companies generating lots of cash and prudently investing part of the cash as well as paying out dividends.   I like to see retained earnings of at least 60 %. Hong Kong Land, listed in Singapore which I recently bought for clients and myself fits this profile.  They own high quality commercial buildings in Singapore and Hong Kong with rising cash flows generated from rental incomes. 

They are investing part of this cash into commercial buildings in Vietnam and Thailand and paying the balance in generous dividends. We bought this value share cheaply at 0.8 to book value and a PE of 11.   Their brand is their manager Jardine Matheson which is a blue chip and Hong Kong icon.  These people know about property .

Never worry about the China market . They invest in hard assets. The Hong Kong market is a proxy.

The meeting between  Trump and Xi Jinping this weekend is bullish for markets as it sets the stage for progress on various fronts.  Trump and Xi Jinping are master deal makers. They are meeting to deal not to fight.

These 4 lessons reflect my investment style.  With the bullish sentiment in markets today we need to look carefully and be patient .  Opportunity will emerge.  The Trump missile  launch is a bullish signal for defence/ infrastructure  related shares which should provide more fiscal stimulus. Trump is a man of action unlike Obama who was all talk and no action.

Invest well and grow your wealth
Bill

Trump policies are good for business and creating wealth world wide

2 April 2017

Dear Fellow Investor,

This has been a profitable quarter for our managed accounts. The STI has risen from 2898 from 1 Jan 2017 to 3175 or 9.1% to 31 March 2017 for an average return of 9.1%. The KLSE has risen from 1635 on 1 Jan 2017 to 1740 to 31 March 2017 for an average return of 6.1%

This bull rally has overcome marginal losses for the last 3 years and we are now in the money.  Never before since the KLSE inception in the early 1970s has the KLSE been down for 3 consecutive years. 2017 is on course to turn the tide. 

We can thank Donald Trump for this reversal. His policies are good for business and creating wealth world wide.

The biggest question you ask me is will this continue and if we are making sizeable profits should we book the profits ?

It depends on what shares you hold.  If your shares show evidence of declining sales and earnings, dividend cuts, high and increasing leverage, reduced cash flow and heavy insider selling the answer is yes. Take your profits and switch to something else that is more reasonably priced.

Rotate out of consensus favorites  trading at high multiples and switch into overlooked but lower priced solid businesses overlooked by the fund managers. Make sure they pay dividends and have  rising sustainable earnings and cash flows.

The Singapore STI is trading @ a trailing PE of 13 while Malaysia is at 18.6.

This compares with the S & P @ 29 and Nasdaq @ 31.  Value in the US is hard to find but it certainly exists in Hong Kong, Thailand, Singapore and Malaysia.

For those who are overweight Malaysian equities, I suggest you diversify into Hong Kong, Singapore, Thai shares with our PGWA account. We favor high quality dividend producing shares and a way to protect ourselves due to currency fluctuations.

Please call/ email me and I am happy to explain.

Invest well and grow your wealth,
Bill
012 685 1207