A metaphor for the current market is a large ocean liner

30 June 2018

Dear Fellow Investor,

There was an interesting quote in the latest edition of Money Week, a UK investment publication.

“A trade war, meanwhile remains a danger, but bear in mind that US presidents always like to approach mid-term elections with low unemployment and rising stock prices. Markets shudder when there is bad news on this front. It may soon be in Donald Trump’s political interests to dial it down. All told, the cracks in the global growth story do not look fatal for equities.”

Unlike the US, China is not facing an election in 4 months, perhaps not in at least 5 years.

For this reason, I forecast Trump will strike a deal as China does not have an approaching  election. From a political standpoint China has the upper hand.

One of my clients asked me an excellent question about where is the current support in the KLSE.  My view is that there are 2 markets presently.  One market would be companies under a cloud such as some government linked companies, Najib and 1MBD linked companies.  Until the truth is revealed, I do not see support in this sector.  Our new government is doing a good job in uncovering the truth but it will take time. As they catch one cockroach, others will climb out of the woodwork. We need to wait for more cockroaches to be caught.

On the other hand, quality well managed companies not effected by the change in government are already finding chart support. This is the market I focus on for you our clients.  

A metaphor for the current market is a large ocean liner. The ship was suffering many leaks so the owner of the ship replaced the incompetent captain with a more qualified leader. 

The new leader’s first task was to plug the leaks to prevent the ship from sinking. That’s what is happening in our market now but there are many leaks to plug. At least the ship has stabilized and is not sinking.

Malaysia has a new ship, a new captain and a bright future just like the UK Brexit when it leaves the  mismanagement, corruption  and economic failure of the EU.

Next Saturday 7 July is the Phillip Investment Conference from 9 AM to 6 PM. It is to be held in Berjaya Times Square. Prominent speakers include Mr Ang Kok Heng whose topic is The Game Changer after GE 13. and Dato Nazri Khan whose topic is Chindia Renaissance and US Trade War.

 I will be there if you have any questions. To get a registration code please call our customer service at 03 2783- 0300/200, 10 CPE points will be given to guests. Try this link

http://www.fame.com.my/SeminarRegistration.aspx

Invest well and grow your wealth
Bill

Today's 'critter' turned out to be the great white heron or great egret-- and that's because Australian reader Garry Robinson sent me this excellent photo that he took of one wading in the Warners Bay/Newcastle area of New South Wales. 

Don’t let all the latest news rattle you

23 June 2018

Dear Fellow Investor,

Uncertainty has been chilling investor sentiment. Some of the uncertainties include trade wars, post election policy shifts, investment exodus from emerging markets and direction of interest rates.

Don’t let all the latest news rattle you…our portfolios are designed to be resilient and provide income no matter what the news flow is  on any particular day.

What matters are the earnings our companies are providing.

Those investors who were positioned for a Najib win have suffered billions in losses. Construction firms, property developers and many Najib linked companies have been hit hard. We hold none of these.

We were relatively unscathed as we focus on companies off the radar screen of the big fund managers and ones that produce solid earnings and cash flows.

The KLSE has suffered a classic washout which is the result of foreign selling by large funds as they exit emerging markets. 

Opportunities emerge after a washout. Buying fear is a high odds bet. I just bought Maybank for our clients as the odds favour an economic turnaround with the current new government headed by pro business leaders such as Dr M, Lim Guan Eng  and Nor Shamsiah our new Bank Negara governor.  

There was a powerful interview in the Edge today between Dr M and Jack Ma of Ali Baba. It lays out the technology vision between China and Malaysia which will benefit the recovery. Jack Ma has already invested over USD 100 million into Malaysia and said he will invest more. The focus will be on logistics and technology training to raise the standards of our local citizens.

We could not ask for a better endorsement of our prospects moving forward than Jack Ma.   He puts his money where his mouth is.

On Saturday 7 July Phillip is holding the annual Phillip Investor Conference at Berjaya Times Square from 9 am to 6 pm. Topics include new government, trade war and where we are heading. Several prominent speakers will be presenting. I will be there if you have any questions. To get a registration code please call our customer service at 03 2783- 0300/200, 10 CPE points will be given to guests. Try also this linkhttp://www.fame.com.my/SeminarRegistration.aspx

Invest well and grow your wealth
Bill

Today’s critter is a paradise shelduck, a large goose-like duck endemic to New Zealand.  Both the male and female have striking plumage.   

Why is the USD strengthening ?

16 June 2018

Dear Fellow Investor, 

To all our Muslim friends and clients we wish you a peaceful and happy Hari Raya holiday. 

Last week I reported on the strengthening US Dollar and how that will impact our investments . 

This week, the US Dollar continues to strengthen as money flows out of some of the developing markets including Argentina, Mexico, Indonesia, India and Philippines . 

Why is the USD strengthening ? 

Out of control deficits and spending in the US is the main reason so in order to attract funds to cover the deficits the US Federal Reserve has been raising interest rates. Rising interest rates attracts much needed funds. Fed rate hikes plus Quantitative Tightening is draining hundreds of billions out of emerging markets and those funds are going into the USD. Money always flows to where it gets the best return. 

Solid blue chip Singapore, Hong Kong, US and Malaysian companies with rising earnings, recurring revenue and reliable cash flow will continue to prosper and these companies are somewhat insulated from the currency volatility. The undervalued Ringgit has stabilized after the shock Malaysian election result while the Sing Dollar has actually gone up versus the USD. 

We will continue to focus on established value companies with low or no debt. This will allow us to ride out the Donald Trump induced trade war volatility and continue to collect our dividends. 

Invest well and grow your wealth 

Bill 

This week’s critter is a Maine Coon, the world’s largest cat. 

The Maine Coon is a native New Englander where he was a popular mouser, farm cat and, most likely, ship's cat! The good-natured Maine Coons are the largest domestic cats in the world. Despite their size, they are known as gentle giants because of their relaxed and easy-going personality.

My last visit to Singapore

11 June 2018

Dear Fellow Investor,

On the ground research

We just returned from a 3 day visit to Singapore. Our visit included a company visit to IFast, who provide platform services to the financial service industry. They maintain the Fund Supermarket service which offers a wide range of ETFs, unit trusts, research and a discount share brokerage.

Their numbers are impressive and show consistent revenue and earnings growth. I am not buying this for our managed accounts until we complete our due diligence. 

We also attended a Motley Fool briefing on the US Dollar outlook by David Kuo, CEO of Motley Fool.

This was important as the trend of the US Dollar will affect our investments, especially those who earn revenues in USD.

His view on the USD is bullish because:

Rising interest rates:

Only the US can raise rates compared to the UK, Japan, EU, Switzerland and Australia. These economies are all slowing and only the US economy is booming while  US unemployment is at a 30 year low so interest rates will rise to keep a lid on inflation

Reserve status of the USD:

 2/3rd of central bank reserves are in USD . As other countries accumulate trade surpluses they have no other way to go but the USD. Even China is forced to accumulate USD.

The dollar index chart ($USD)

 

$USD weekly chart

If the 94.89 resistance breaks expect a push to the old high at 103. The underlying fundamentals and dollar demand favor a price break to new highs. The trend seems unstoppable.

I asked David the risks to this scenario. He said about 10 % .

The Singapore economy seems to be picking up. We went to Orchard Road and there were crowds of shoppers. We went to the Kinokuniya book shop and there were long lines of buyers waiting to pay. The same was true for cloths buyers at Parksons. The Lucky complex on Orchid Road was filled with Filipinos buying gifts for family and sending funds back to their relatives.

Singaporians are generally happy with the Malaysian election results and tell me they hope the same thing happens in Singapore.

The government intends to raise the GST  and the people are not happy with the GST policy -  just like in Malaysia. There could be a change of government in Singapore because the self serving politicians jack up the GST. That is what a taxi man told me

Singapore investors are cautious so our policy of picking up quality value companies such as Hong Kong Land which is priced in USD and assets in HK/ Sing  dollars should pay off. David mentioned to me that in his recent visit to Hong Kong, they own prime central business district properties with rental reversion contracts. The tenants pay up the higher rents because there is a waiting list for new tenants.

The generous dividend helps.

Invest well and grow your wealth

Bill

Todays critter is a black-crowned night heron -- and it stands a bit over 0.60 meters/24 inches tall.  This is the male -- and it certainly appeared that he was checking the tree out as a possible nesting site.  It will be interesting to see if he's still there -- and with a mate -- when I go back 

 

Malaysia will turnaround

4 June 2018

Dear Fellow Investor,

Turnaround

 

 

In 2015 Christoph Miller, a prominent aviation turnaround  strategist took over MAS as CEO. Within a year he cut costs, reduced headcount by 6000 bodies, negotiated cheaper prices from suppliers and cut unprofitable routes. After years of losses in less than a year MAS began to make profits.  

With the right leader such as Dr M, Malaysia will turnaround.  It is already happening.

The vast majority of Malaysian citizens are supporting him.

So far in only a few days citizens have donated over 40 million ringgit to a fund which will be used to reduce the deficit .

You may participate by banking into Tabung Harapan Malaysia Maybank A/C 5660 1062 6452 . Amounts collected are posted on the MOF website and are administrated by our new finance minister Lim Guan Eng. Donations are tax deductible. Since the abolishment of GST we are sure we can dip into our pockets to help our country.

Lim Guan Eng turned around Penang. When he was elected chief minister of Penang in 2008, Penang had debts of 630 million. Now Penang is in surplus. One of his new policies when he took over Penang was open tenders and transparency for government contracts. Now he and Dr M are applying this transparency and open tender policy for all government contracts in Malaysia.  

The most profitable time to invest is when there is a turnaround. In the transition there is uncertainty and fear. You will be buying quality at a discount. That is what I am doing now for you who are my clients. Do expect some volatility but hold on as positive events unfold. 

Next Friday, I will be in Singapore for a company visit to IFast, an interesting company which is disrupting the brokerage  and asset management industry.  In fact Phillip Capital as well as other asset managers and banks  are customers. If it passes my criteria I will allocate to your PGWA accounts.

Invest well and grow your wealth

Bill

Commentary by Ed Steer who publishes a gold/ silver report and like me is an animal lover

Today's critter is the yellow-shafted northern flicker -- and I only had to walk out into my yard to take these photos.  I had just cut and watered the grass on Saturday -- and this fellow showed up on it a few hours later.  I could hardly believe my good fortune --