"One belt one road is an under appreciated unstoppable trend that will underpin Asian markets"

27 August 2017

Dear Fellow Investor,

China spent over 2 trillion USD on infrastructure last year while the US spent less than 1 trillion. 

Trump wishes to match China spending on infrastructure but the opposition party and even some in his own party  refuse to cooperate. It boils down to political paralysis.

As investors we must follow the macro trends and China development is one of these trends.

China is now calling the shots in Industrial metals pricing; Trading volumes on China's three exchanges reach record levels; Demand buoyed by China’s New Silk Rail Road Route connecting 16 cities in China with 15 cities in Europe; Aussie / Japan Yen Traders tracking Shanghai base metals; -

China is dominating the global resources game. When Iron ore futures on the Dalian Commodity Exchange (DCE) surged to a record high earlier this year, on expectations about Beijing's spending plans for building up the country’s transportation network, spot prices in Australia and New York jumped soon after.

This pattern demonstrates China's growing clout in setting the prices of commodities. Prices of the steel-making material have since come off their 52-week highs, but price gyrations underscore just how far China has come in pricing power on both the spot and in the futures market, particularly for heavily-traded mineral ores like aluminum and copper, which is regarded as a barometer of global economic health. 

“Over the last two years, the drivers of global metal price discovery have, in our view, shifted to China."
Gary Dorsch  Global Money Trends

Rail freight trains rarely generate main stream media attention. Yet the January 18th, 2017; arrival at DB Cargo’s London Eurohub terminal in Barking, east London, was slightly different. A freight train had travelled more than 7,500-miles to Britain from Yiwu in eastern China, and was the first-ever freight service to complete the journey. 

Taking 18-days to pass through eight countries, the train received a VIP welcome, with Chinese lion dancers and TV crews from around the world gathering to mark its arrival. Such strong interest is due to the potential of transEurasian rail freight to British logistics and forwarding companies. 

The journey took around half the time of a similar sea voyage, and cost approximately half of the equivalent air freight journey. “This moment was important to show that we can run the train in less than 18 days to the UK,” said InterRail Group, Switzerland, the operator of the service. It’s hopeful of adding more British services in the future. 

The service, carrying garments, bags and suitcases among other items, passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium, France, and finally to London along China’s so-called “Belt-and-Road” initiative that was launched in 2013. The key trading route will greatly affect other companies that transport goods by sea and air. 

The first direct freight train to reach the United Kingdom from China, ended after a 16-day journey, which normally takes 45-days by sea. On January 2nd, London became the 15th city in Europe that was added to a train freight line.

How do we leverage on this trend ?  We can look at high quality  shipping and logistics  companies listed in Hong Kong/ Singapore and Malaysia  as well as    resource companies in Australia.
I am focusing on Asian stock markets for my clients as I believe they offer better value with less risk compared to developed markets  For example Hong Kong trades at a PE of 12.7 compared to  the S & P 500 PE  of 25

One belt one road is an under appreciated unstoppable trend that will underpin Asian markets.

Obviously we must be selective in how we allocate our capital  and in the following weeks I will be focusing on Asian market opportunities we can profit from based on this scenario.

Invest well and grow your wealth
Bill

Today’s critter is a Corgi. Her name is Pipito,  She is looking for a loving home. She has had her shots is neutered  and is very healthy and a good watch dog. Please whats ap/call me if interested.  012 685 1207

Valuable Insight by Motley Fool

19 August 2017

Dear Fellow Investor,

Last night I listened to a podcast from Singapore with Tom Gardner  co-founder and CEO of Motley Fool. For those who might not know, Motley Fool is an investment research service with a world wide presence. They provide members with fish but also teach how to fish.

He shared some valuable insight which can benefit all of us as investors.  He shared Warren Buffet’s advice to only buy companies with the ability to raise their prices.   Uchi Tech Bhd, maker of micro processors for coffee machines  is one as well as Well Call Bhd, a maker of custom hoses.  

Tom also likes businesses  run by their founders. Uchi, WellCall, Inari and ECS IT are examples. He said that statistically: owner operated business outperform by 2 % year on year on average compared to those run by CEOs/ managers  with no skin in the game.

We hold UchiTech, Inari, ECS IT and Well Call for  clients and ourselves.

He also believes we should learn and add to our winners. I believe in learning from our winners  but in my opinion adding to our winners when valuations are stretched is a dangerous strategy .

Tom mentioned the  trends which will benefit in the years to come.  They include robotics, artificial intelligence, medical diagnostics and automation. These sectors are where money is going. I am looking hard for opportunities in these sectors especially those companies who automate. The government announced they will raise worker levies but I do not forecast  a tax on robots

His last takeaway was to believe in entrepreneurs  rather  than most financial analysts. For me that means know the management, their vision and confirm that from our study of their financial statements. I trust analysts who visit the companies they recommend  Those who are arm chair analysts, I discount.

Motley Fool visits all the companies they recommend.

The KLSE is in a state of hibernation. Liquidity has dried up. Investors are pessimistic. There is a cloud of gloom and doom overhanging the market.

I remember an old saying. Never sell a quiet market. We buy strong well managed businesses which have held up well in this atmosphere.  We continue to collect our dividends and sleep at night .

Look at the bright side. S & P maintained the Malaysia financial rating at -A which is investment  grade. GDP is gone up to 5.4% The general election is coming.  and that will remove an uncertainty that may get foreigners back into the market. Steve Bannon, senior adviser to Trump was fired yesterday by Trump as Bannon wanted a trade war with China. Bannon was a good friend of Trump but with Trump business is first before friendship and China is good for business. Hence no trade war or war with North Korea.

Invest well and grow your wealth

Bill

Today’s ‘critter’ is a fossa…the largest mammalian carnivore on the island of Madagascar — and has been compared to a small cougar.  It is a member of the Eupleridae, a family of carnivorans closely related to the mongoose family.  Although the species is widely distributed, it is locally rare in all regions, making fossas particularly vulnerable to extinction. Photo Credit: Ran Kirlian.

Panic selling by the uniformed

13 Aug 2017

Dear Fellow Investor,

Damage on world markets  last week was over USD 1 trillion . The catalyst for panic selling was North Korea’s threat to launch a missile  attack on Guam, a US possession and navy base.  This is a low probability event based on the below report:

Scenes like this scare people and cause panic selling by the uniformed. We are bombarded by the media 24/7  and this intensifies the fear. Kim is a bully and will ultimately back down in the face of overwhelming China and US power.

In a Chinese state-run newspaper on Friday Beijing made it clear “If the US and South Korea carry out strikes and try to overthrow the North Korean regime and change the political pattern of the Korean Peninsula, China will prevent them from doing so.” Beijing’s preferred outcome is a continuation of the status quo, warning Kim Jong Un that it would “remain neutral if North Korea were to strike first.”

China has the military and economic power to back up their policy.  Trump knows this as well as North Korea.   North Korea knows China will remain neutral should Kim attack Guam. Without China, North Korea has no economic  or military support  .  

North Korea will threaten but take no action and markets will recover.  Trump being a businessman does not want war that involves South Korea as  they control multiple world wide supply chains for electronics and high tech industries  An attack on Seoul could put the interconnected business world into a world wide depression and Trump would lose in the next election.  

Just like Kim Jon Un, Trump’s main focus is to keep power for himself and his cronies.

August, historically is the worst month for the stock market  however; our value investing strategy in managing your cash and EPF accounts has protected us during these uncertain times.

Year to date we have earned a net return of over 10 % for our managed accounts. We run our winners and are mindful of the companies we hold.

For example some of our losses in the last 5 years were in Amway which cut their dividends and had large Forex losses. We sold LeFarge cement due to an oversupply of cement, dividend cut and receivable payment problems  We cut our BAT position due  dividend cuts and rises in excise taxes to a level which makes their cigarettes too expensive for the average Joe smoker.

We also sold our Tune Insurance positions due to  Tony Fernandez selling large portions of his Tune shares. I was always wary of Tony because of his public boasting and high media profile. However;   we hold  insurance companies such as LPI and Allianz which keep a low profile and have super solid balance sheets. 

We also cut our position in Delium which although solid financially was exposed to oil which is still in a downtrend. .  Lastly we cut our Hovid position when they did not get FDA approval for Tokovid, a heart protection product and also production problems and MOH suspension due to miss labeling .  Their balance sheet was also deteriorating. 

Our losses were relatively small  compared to our winners but we take calculated risks to put the odds in our favour and that is why we earn reasonable returns over time. And sometimes take losses

Our winners speak for themselves so I won’t mention them.

I am positive moving forward but there will be volatility.

S&P 500 has made it at least a year without so much as a -5% pullback, and marks the longest streak since 1995. In the background, global economic growth is strengthening, central banks continue to be accommodative and despite this week’s earnings disappointments, S&P-500 profits are on course for the back-to-back +10% growth.

Invest well and grow your wealth

Bill

Today’s critter is “out of Africa” as well.  It’s the klipspringer, a tiny antelope found in eastern ad s

Southern Africa — and it’s just too cute for words.  I saw several when I was in Rhodesia/Zimbabwe back in the early 1970s.  They stand 17/24 inches/43-60 cm tall at the shoulder.   The name “klipspringer” is a compound of the Afrikaans words klip (“rock”) and springer (“leaper")

Market Outlook

5 August 2017

Dear Fellow Investor,

As conservative investors we should hold  some selected property investments.  After all they are real assets producing cash flow, rents and dividends. Property prices in Singapore/ Hong Kong have stabilized  According to the Edge newspaper affordable residential properties in Malaysia have begun to slowly rise.

Qualities I look for are low gearing, a book value less than the value of its assets  rising cash flow and a strong balance sheet.  Hongkong Land meets all these criteria.

Hongkong Land (SGX:H78) is a share we hold in our PGWA accounts. It is a proxy for Hong Kong and Singapore commercial property.  Yesterday they released their first half earnings. It was a good set of results for the company.

Using their retained earnings Hongkong Land  is expanding into Phnom Penh. They are developing a site next to the US Embassy to be let to corporations, accountants and financial service companies. So far most of the space has been booked in advance of completion. Cambodia being a frontier market is a fast growing economy attracting major corporations

The State Of The Business Now

Here are some important financial numbers for the first half of 2017:

• Underlying profit attributable to shareholders jumped by 32% to US$517 million.
• Total profit attributable to shareholders (this includes non-trading items) soared 147% to US$3.125 billion largely due to a revaluation gain of U$2.608 billion on the company’s investment properties. This compares with a revaluation gain of just US$870 million in the first half of 2016.
• Consequently, underlying earnings per share increased by 32% to US$0.2199. Total earnings per share also spiked by 147% to US$1.328.
• An interim dividend of US$0.06 per share was proposed, unchanged from a year ago.
• Hongkong Land’s operating cash flow in the first half of 2017 came in at US$572.7 million. With renovations expenditure and developments capital expenditure of US$99.8 million in the same period, the company generated US$472.9 million in free cash flow, 32% higher than the free cash flow of US$358.2 million a year ago (US$467.4 million in operating cash flow and US$109.2 million in capex).
• The company’s net debt decreased from US$2.322 billion (US$1.560 billion in cash and US$3.882 billion in debt) in the first half of 2016 to US$1.882 billion (US$1.902 billion in cash and US$3.784 billion in debt). Hongkong Land’s balance sheet remains strong in our view, with a net debt to equity ratio of just 5.5%.
• Hongkong Land’s book value per share – an important metric to track as we think it is the most relevant measure of the company’s value – increased by 15.0% from the first half of 2016 to US$14.54 in the latest reporting period. This is also an increase of 9.4% from the book value per share of US$13.30 seen at end-2016. (It’s worth noting that Hongkong Land currently does not have intangible assets, so its tangible book value per share and reported book value per share are identical.)

In the first half of 2017, Hongkong Land’s investment properties in Hong Kong, which are all located in the special administrative region’s Central area, mostly performed well. 

The company commented that office rental reversions were positive as market supply remained tight.

Vacancy for Hongkong Land’s Central office portfolio as of 30 June 2017 was just 1.5%, an improvement from 3.1% a year ago, and 2.2% at end-2016. The portfolio’s average monthly office rent also increased to HK$106 per square feet, up from HK$103 in the first half of 2016. 

Hongkong Land’s retail portfolio saw its vacancy rate increase from zero in the first half of 2016 to 0.6%. There was also little change in rental reversion for the retail portfolio. But, positive reversions in 2016 caused the retail portfolio’s average rent to increase from HK$216 per square feet in the first half of 2016 to HK$224.

In Singapore, Hongkong Land’s investment properties saw their vacancy rate improve from 1.0% at 30 June 2016 to 0.2% in the latest reporting period. But, there was “mildly negative rental reversions” in the portfolio, and the average office rent actually declined year-on-year from S$9.40 per square feet to S$9.10.

The majority of the tenants in Hongkong Land’s investment properties in Singapore and Hong Kong are still financial institutions, legal firms, and accounting firms.

Coming to the company’s development business, there were increased profits in both mainland China and Singapore because of higher sales.

What’s Next?

Hongkong Land said that the “good performance” of its “investment property portfolio is expected to continue in the second half of the year.” On the development business, the company does not expect to benefit from further sales completions in Singapore.

In its earnings release, the company also gave updates on some of its growth projects for its investment properties business:

• There is WF Central, a retail/hotel project located in Beijing’s Dongcheng district. The retail component is scheduled to open in the later part of this year, while the hotel side will open in 2018.
• In Jakarta, the 73,000 square metre fifth tower at Jakarta Land is expected to be completed in early 2018. Hongkong Land owns 50% of Jakarta Land.
• The company’s 26,000 square metre mixed-use complex in Cambodia is seeing space “being progressively taken up by tenants.”
• A joint-venture agreement was reached in June 2017 to “construct and manage a well-located site within the Marina Bay Financial District of Singapore with a developable area of 120,000 square metres.” Hongkong Land will own 33% of the project, which will be connected to the company’s existing Singapore properties in the district.

I will continue to watch for growth in Hongkong Land’s book value per share (the performance in the first half of 2017 was good). The balance sheet remains strong and its dividend is well-covered. At the company’s current stock price of US$7.80, it has a price-to-book ratio of just 0.54. Warren Buffet would be interested in this company as it meets his investment criteria.

The KLSE  continues to be in an uncertain state. Volume has fallen and an average of a third of listed shares  untraded. in the last 2 weeks.  I am waiting for a catalyst to move the market. Our focus on quality dividend producing shares protects us in this uncertain environment.

Invest well and grow your wealth
Bill

Today’s critter is the maned wolf.  It is the largest canid of South America. Its markings resemble those of foxes, but it is not a fox, nor is it a wolf, as it is not closely related to other canids — and unlike other canids, it hunts alone.  

This mammal is found in open and semi-open habitats, especially grasslands with scattered bushes and trees, in south, central-west, and southeastern Brazil, Paraguay, northern Argentina, Bolivia east and north of the Andes.