Market Update

30 May 2020

Dear Fellow Investor,

One of our holdings is Wellcall which is a manufacture of rubber hoses. They have been effected by the MCO and were forced to shut down their  production  lines. They have now re opened and are running extra shifts to meet demand.

Most of their rubber hoses are supplied to the oil and gas industry and they were hit by the oil price collapse.

Oil  is since slowly recovering. Should recovery continue this will benefit Wellcall.  Wellcall has a strong balance sheet with zero borrowing and 10.5 sen per share in cash as of 31 Dec 2019.  They also export 90.5 % of their production to USA, Canada, Asia, Europe, Australia and Africa.  They benefit from the weak ringgit. At current price dividend is 5.7 %

Another share we hold is Kellington, The company is a provider of Ultra-High Purity (UHP) gas and chemical delivery solutions. Apart from Malaysia, its revenues are derived from Singapore, Taiwan and the People's Republic of China.  They supply UHP gas to the electronics and semi conductor industry. They have regional offices in China, Taiwan, Singapore and Malaysia. Revenues have been slowing in the last 12 months due to  Covid and trade issues. Price has recovered from the March panic low of RM 0.65 to RM 1.09  due to   supply lines opening up and improvement on the virus front. I look for more gains as the virus problem improves.

This morning I attended a virtual seminar by the I Capital research group.  I am pleased to report Tan Teng Boo had some positive words to say about PM Muhyiddin and how he is handling the Covid virus in Malaysia. 

The PM is very humble and does not give medical advice unlike some world leaders but delegates to the medical experts in the  health ministry.  Infection and death rates in Malaysia are dropping while recovery rates are increasing.  

Mr Tan also continues to be bullish on China and Hong Kong. Valuations are reasonable and the new Hong Kong security law will restore   stability to society. The government needs to use an iron fist to restore order and stop chaos.  Macao passed a similar law 10 years ago and has not had any problems with protestors since. The reason was that then the Western media was not actively promoting political change or trying to attack China .  The vast majority of Hong Kong citizens want stability and do not support the demonstrators.  The business of Hong Kong is business and that formula has worked for 150 years and will continue to work. 

On the investment side, our positions in Heim and Carlsberg are well supported as they have restarted their brewery operations.  Prices advanced last week anticipating the opening of the pubs and nightclubs.  

Life is getting back to normal, Bill

Critter of the week is a monitor lizard.

KUALA LUMPUR: A man who overcame his fear of monitor lizards to rescue one has become an internet hero. A video has gone viral showing him still clad in Baju Melayu for the Hari Raya Aidilfitri celebrations, tentatively putting out his hand to free the lizard's head which was stuck in a sardine can. I love these creatures as they perform a public service by eating small pests. 

Positive movement on investment

23 May 2020

Dear Fellow Investor,

There has been some positive movement on our investments lately.  Dialog has finally broken out after congesting for the last few months. Dialog has one of the strongest balance sheets compared to other oil shares in the KLSE and benefits from residual income from their oil storage facilities.  Even with the crude oil price collapse they were only marginally effected . Should oil demand continue to recover, Dialog is well positioned for further upside.   

United Plantations has been a long term hold for us and has moved higher.  They have the strongest financials compared to the other KLSE plantation companies and have survived almost 100 years of cyclical ups and downs.  Their handsome dividend is well covered and gives comfort during periods of volatility. The recent spat with India has been sorted out and now India has agreed to buy our palm oil. This has boosted CPO and the plantation sector. India is the second largest buyer after China.     

Maybank, which we bought after the 9 May 2018 general election has not performed well.  I bought Maybank after the election as I was positive on the new government.  I was wrong . We bought at the RM 10 level and it has dropped to RM 7.41 but because of RM 1.78 of dividends received our loss is less than 10 %.   In the last 2 weeks there has been massive institutional buying of Maybank which has provided support in the weekly time frame. Perhaps they know something the public does not. Next week, I will review some of our other holdings. 

On the medical front, as reported by Newsmax health, there has been a breakthrough drug: Intermectin, which shows  results against Corona virus. There have been several simultaneous trials in several countries including Australia and the US  and physicians who participated in the studies say this drug is salvaging people from their death beds.  It has not yet won FDA approval or use as a Covid 19 medication but is being fast tracked.

Malaysia is slowly getting back to normal. Traffic is  gradually returning. The parking lot at my office is ¾ full  A few customers in my complex are returning to the restaurants.   It will take time for sentiment to improve. It is like the stock market after a collapse. It takes time to heal.  

As investors we need to look for signs of improvement . Perhaps it could be less persons wearing masks. If we wait until no one is wearing a mask it is too late because the market has recovered.

My hunch is that it is not as bad as the media reports. More than 2 times as many people die every year in auto accidents than with Covid but the media does not focus on auto deaths.  The media spends 24/7 on Covid and whips up the public fear. Statistically the risk is double for dying in an auto accident but you do not see auto drivers wearing crash helmets or fire proof suits.   The virus will pass but people will still die in auto accidents.  

Keep safe
Bill

Critter of the week is a rescued bald eagle who was shot by a hunter in Missouri. Luckily the eagle survived .  The bald eagle is the national bird of the US and is highly protected. If the hunter is caught the fine could be USD 100,000 and a heavy jail term.  

Opening up of America

16 May 2020

Dear Fellow Investor,

Opening up of America

Politics are driving the narrative . The hysteria driven media who are beating the covid virus drum 24/7 has given politicians the excuse to lock down America. They have suspended constitutional rights, grabbed power and forced the public to hunker down.

The public is fighting back and defying the government. States are opening up again.   In the below illustration 37 states out of 50 have opened up.  Others are  reducing restrictions.  California had a wakeup call. The governor told Elon Musk to keep his Fremont Tesla plant closed indefinitely because his car business was non essential so Musk defied him,  refused to shut down the plant and said  should the state police be sent to arrest him  he would move his plant to Texas or Florida. The governor backed down.  Musk is back in business and 20,000 workers still have their jobs.

Opening up America. Green states are open while red states are under lockdown.  Orange states are reducing restrictions. In this illustration, the green states are mostly Republican Trump states while the red states are Democrat Joe Biden supporters

Asian countries have made great progress. Infection and death  rates have declined. Taiwan, Hong Kong, Korea, Malaysia, Vietnam, Thailand, China  and Singapore are going back to normal.

The problem is negative sentiment and fear which is holding people back from going on about their normal lives. I was in the KLCC Friday and most shops,  banks,  food courts  have reopened but there were only a few customers. All were wearing masks and I saw one fellow wearing a scary Saddam Hussein gas mask. At RHB the front line staff wore face shields, masks and rubber gloves.  Before letting me in the bank I had to fill out a health screening form.

I spoke with the Phillip analyst in Singapore and he told me the city is slowly getting back to normal.  The SGX remains under a cloud of negativity and fear; however, just as in Malaysia value is emerging.  There was an insightful  article in the Star today by Lin See Yan, a former banker and Harvard educated economist. He talked about why liquidity injections, QE, government support programs and helicopter money will support stocks at least in the short term.

This should keep the ship from sinking at least until the public’s fear subsides.   

Keep safe

Bill

Critter of the week is an adopted pet and why keeping a pet can add at least 2 years to your life.  

Climbing the wall of worry

9 May 2020

Dear Fellow Investor,

Climbing the wall of worry

Weekly chart of the NASDAQ Technology sector index

Since  March at the height of the Corona virus panic technology shares have staged a V shaped recovery and are on course to test the highs.

In late February,  Neil  Furguson a UK government bio scientist and coronavirus  tzar   forecasted 4 million Americans would die from the virus as well as millions world wide. His statements accelerated the world share market panic. His dire forecasts were way off the mark but because CNN and the fake news media hyped his claims 24/7, billions were erased from world markets but have now partially recovered.

 Last week he was forced to resign in disgrace  for violating the UK MCO to visit his friend’s wife with whom he was having an affair. He advised social distancing and to stay locked up but as many government officials they make laws but appear to be above them. 

Locally there has been solid progress on the virus. The government is easing restrictions. Businesses are opening. Customer traffic is returning to the malls. Hari Raya is just around the corner.  The KLSE has stabilized.  The technology sector is the strongest sector and our Inari/Uchi  investments are finally recovering.   

Yes, there is a lot of worry in Malaysia and most of the world but in my opinion most of the bad news is discounted. The global economy is swimming in a sea of liquidity and as long term investors we need to look through the noise and not get caught up in the news cycle. We hold in Singapore Kepple Data Center Reit  which has done well for us. The latest annual report describes the potential of this sector and will report on it next week.  

Keep safe 

Bill

Critters of the week are the 3 newly born tiger cubs at the Taiping Zoo.  They are super rare as there is only estimated 300 Malayan tigers left in the wild.  We plan to visit them once the virus problem is solved. 

Inflation Indicator

2 May 2020

Dear Fellow Investor,

On 18 April 1906, a massive earthquake hit the business sector of San Francisco. It triggered fires which laid the city in ruins.  Factories, warehouses and businesses were destroyed. Hundreds died.  This led to a 50%  stock market collapse  triggered by the collapse of several large New York banks and stock brokers. It led to a severe recession that took 3 years to play out.

However; by July 1909 the market completely recovered.

Theodore Roosevelt was president then and the US had a  laissez faire system of government meaning transactions between private parties were absent of any government intervention,  regulation, tariffs or subsidy. Businessmen were free to conduct business as they saw fit.  As the US had a gold standard, the government could not print money and deficit spend to bail out those who were demanding free money. It was through hard work, savings, investment the politicians pulling together San Francisco and America quickly recovered.  President Roosevelt took a hands off approach and let the free markets solve the problem.

Today’s 24/7  media induced Covid panic has not destroyed infrastructure but has killed many poor souls and disrupted lives. The media hype and political bickering is making the problem worse. Trump blamed China for releasing the virus and threated to impose new tariffs which caused an over  1000 point Dow Jones drop and multi billions wiped off world stock markets.

A worse problem has been created by the multi trillion dollars of helicopter money printing which is more dangerous than the virus and it is the certainty  of inflation. 

We must be on guard and I follow carefully an inflation indicator which is to track the spread between the US 5 year treasury bond and the US 5 year TIP or treasury inflation protected  bond. If the spread begins to widen it means professionals who buy bonds want inflation protection.

We then need to allocate into shares which benefit from inflation such as those which are commodity related . Gold and silver as well as quality properties will do well.   

On a positive note, the MCO (Movement Control Order)  is working and many businesses will re open next week. Restrictions are being lifted.

Remdesivir a covid drug by Gilead Life Sciences has shown positive results and the US FDA has approved it . It should save many lives.   I have confidence in medical technology to find a vaccine and that should solve the virus problem.

However; I have little confidence in  politicians and central bankers. Their money printing will cause inflation and ultimately financial misery.   

The critter this week is the Covid. Thank God in Malaysia we do not have this political duel about the virus.   Politicians of all the parties seem to be on the same page. 

Keep safe, Bill