The Power of Positive Thinking

 26 June 2021

Dear Fellow Investor,

Our technology shares listed on the KLSE are well supported despite the MCO, Covid fears and pervasive negative sentiment.  Exports have been increasing as demand for semiconductors and technology related products are increasing worldwide.  Well managed and financially solid Malaysian tech shares will leverage on these trends and expect new highs on these counters. Other sectors such as consumer and banking are lagging but as sentiment improves expect recovery.

Fears of higher interest rates by the US Federal Reserve receded and the Nasdaq broke a 6 months resistance last week making an all time high.

Weekly Nasdaq

I suspect foreign funds will see how undervalued some of the Malaysian technology shares are compared to US counterparts and come in to take advantage.

Dr. Mahathir made some positive and realistic comments in his Edge column today. He said vaccination is effective in reducing cases but more needs to be done for the rural areas. Management of the pandemic is not very good but it is improving. The government is listening and doing something but more needs to be done.

Based on statistics it was reported in the Edge that Malaysia has the 2^nd lowest Covid death rate in Asia at 0.65% or 4637 deaths out of 33 million while Singapore leads with 0.05 % or 35 deaths out of a population of 5.9 million.  In contrast the UK, US, and Australia had much higher death rates as a percentage of population.    

One of our core holdings is Nidec and Free Malaysia today reported on the company.

Nidec revs up EV motor growth with Chinese R&D centre

 

 

© Provided by Free Malaysia Today Nidec controls 5.5% of China’s EV motor market, the biggest slice for a foreign independent manufacturer. (AFP pic)

DALIAN: At Nidec’s state-of-the-art development centre for electric vehicle motors in Suzhou, near Shanghai, speedy work is crucial to winning and retaining often-impatient Chinese clients.

The development centre opened in September last year to produce prototypes tailored to customer needs. The process usually takes six months to a year, but some customers have asked it to be done in “a month and a half”.

Meeting such tight deadlines requires adequate human resources. The centre hired 170 staffers by June 1 and plans to boost the number to 250 by March next year.

Eager to tap the country’s burgeoning demand for electric vehicles, Nidec also plans to have 2,000 workers at an electric vehicle motor plant launched this spring in Dalian in northeast China.

Along with an existing Dalian plant that also produces other products, the total workforce in the city will swell 40% to 5,000.

Under Nidec’s development method, the base motor model that requires the most advanced technology, known as the “mother”, is developed in the Japanese prefecture of Shiga near the company’s headquarters in Kyoto.

Its design and output are then adjusted to each customer’s specification in a process handled by the new Suzhou centre.

Nidec has managed to fulfil seemingly impossible requests from customers, managing design work down to the hourly basis to meet deadlines. This method has at times enabled Nidec to steal customers away from its competitors.

“We’re tapping into our speedy operations to capture the growth market,” said Akitoshi Kato, who heads the Suzhou centre.

The centre prides itself on maintaining one of the industry’s most extensive testing facilities, where it simulates various conditions to test the motor’s endurance in high temperatures or in mud.

The new plant in Dalian now has just one building. But when combined with a planned second structure, it is expected to become the world’s largest motor factory, churning out the equivalent of 1 million EV motors a year.

“We’re planning to build a ‘supplier town’ around here, or a hub of about 20 related parts factories for EVs and other applications,” said Kazutsugu Igarashi, the head of the Dalian factory.

Nidec controls 5.5% of China’s EV motor market, the biggest slice for a foreign independent manufacturer, according to Mizuho Bank senior research officer Tang Jin.

The Japanese company ranks fourth in the market for drive systems, which include gears and inverters, at 15%.

Nidec showing share buybacks recently. Notice the green arrows in March 2021.

Next week, I plan to report on SATS a core Singapore holding for our PGWA accounts in Singapore which is a  recovery play.

Keep safe.
Bill  

Sentiment now is the glass is half empty but reality is different.

National Recovery Plan

 19 June 2021

Dear Fellow Investor,

National Recovery Plan

Last week the national recovery plan was announced. It appears to be a clear plan that will restore our economy.  The goal is for full recovery by the end of the year. The market as a leading indicator is showing the recovery in recovery opening stocks such as Genting Bhd which is up 13 % this year. Last week the technology index rose to 82.20 up over 10 % since 15 May. This shows that export related technology shares are attracting buyers.  Despite the price volatility in technology shares, technology businesses  are here to stay. The successful technology companies which we hold all have strong balance sheets, innovative management and positive cash flows.    

       Weekly  US 10 year treasury bond

Despite the US and European  stock  market panic on Friday based on inflation fears and threats to raise interest rates by the US Federal Reserve,  the 10 year bond yield went down.  If professionals really believed rates would go up, yields would also rise dramatically. It means the drops in markets Friday were a panic driven event.

Most commodities were also hit as the Chinese are cooling the markets by releasing physical commodities such as copper and iron ore. This is a long term positive for infrastructure plans and may reduce inflationary pressures.   For those who trade commodity relate stocks this could be a buying opportunity once the dust settles. Crude oil diverged from the sell down and was marginally up supporting the world recovery theme.

        

        Weekly Nasdaq with Friday close

Despite the market volatility the Nasdaq only traded down
0.28 % for the week.  Should  the authorities really have decided to raise interest rates the Nasdaq would have collapsed.  The Nasdaq has many growth related shares with stretched balance sheets and loaded with debt so they  get killed with higher rates.

Despite the negativity, uncertainty and fear  stay the course with your quality shares as odds favor recovery and better times ahead.

Bill

Genting re opening with new theme park by end of year + Borders open and tourists return  = Share recovery 

 

Inflection point

12 June 2021

Dear Fellow Investor,

Inflection point

Last week I had my 2^nd dose of Phizer and Dolly her 1^st dose of Astrazeneca . Mine was done in the METIC while Dolly’s was at the PWTC. No side effects except slight dizziness . The vaccination process  was  well handled and efficient.    Waiting time was minimal. The venues were well chosen as they are able to handle a large volume of vaccinations and access is user friendly.  Staff are very helpful.

I see this is an inflection point for Malaysia as is the only way out of the pandemic and a move to economic recovery are mass vaccinations. The government has finally woken up to this reality and they have gotten their act together. 

Those countries who have rolled out mass vaccinations are seeing good results with lower infection and death rates and their economies are going back to normal. Australia, Singapore, UK, China, Hong Kong, US and Europe are some examples.  Japan has finally woken up to this reality.

With the pandemic receding oil demand is recovering. Below is a headline from the Fleet St Letter.

Reports of the death of oil are grossly exaggerated.  

The main stream media, International Energy Agency , the Biden administration and most European governments  are pushing for the shut down of fossil fuel. Biden has already stopped oil drilling on government land, shut a major oil pipeline and cancelled off shore oil leases. He also has plans to increase regulations and taxes on oil producers to cut into their profit margins.   Couple this with the pandemic recovery, the result has been sharply higher crude oil prices.
From the Fleet St Letter here is a quote  from Alexander Novak, the Russian deputy prime minister .

 

“If the world were to follow the International Energy Agency’s controversial road map, which said that investment in new fields would have to stop immediately to achieve net-zero carbon emissions by 2050, the price for oil will go to, what, $200 [per barrel]? Gas prices will skyrocket… oil and gas will still be around for decades to come.”

Novak is telling us what we should already know but don’t seem to admit. That is by halting investment in oil production, there will soon be less available oil and prices will rise, potentially dramatically.”

At $71/barrel, Brent Crude has more than doubled in price relative to mid-2020

Everything is effected by energy prices. In the US inflation is rising because of the jump in energy prices. Biden could easily lose his majority in congress in the next mid term elections in less than 1 ½ years because of  misplaced green energy policies, massive tax increases, deficit  and social spending.  To keep power he and other officials in major countries will maintain low interest rates and that will keep stock markets supported.  Malaysia’s export industries and economy will continue to recover as supply chains open up, people go back to work and spending recovers.    The latest lock down is inconvenient but will pass. As oil prices inflate this  benefits  Malaysia’s fiscal position.

Keep safe

Bill

Buyer’s remorse 

Market Review

 5 June 2021

Dear Fellow Investor,

Below is the weekly chart of EWM, an ETF which represents a basket of blue chip KLSE shares traded on the NYSE.

EWM, traded on NYSE  

This shows continued consolidation on relatively low volume since January 2021 holding support at the 50 week moving average. Despite the extreme pessimism and gloom among our local retail investors this ETF reflects foreign investor’s neutral views about Malaysia. Dividend income from quality blue chip Malaysian shares represented by this ETF would show a long term uptrend. Dividends in well managed solid companies are relatively stable and based on long term earnings trends compared to daily price fluctuations which move by  emotions and sentiment.

Sentiment has been negatively effected by MCO 3 and financial problems with Serba Dinamik . Compared to panic selling and big price drops in March with MCO 1, the bad news seems well absorbed. Infection rates are dropping and vaccines are being widely distributed.   Private clinics and hospitals have been given the green light to administer vaccinations. The same is happening in Singapore and this should help our recovery stocks including SATS, OCBC Carlsburg and Comfort del Gro.  

On Friday monthly US employment numbers were released showing less than expected hiring.  Stocks, gold and commodities rose while interest rates and the USD dropped  Despite inflation fears is means business as usual by the federal reserve- more money printing and QE.

 

Weekly US 10 year Treasury bond reflecting interest rate stability.

Take care
Bill

Why I am  bullish the RSX, the Russian ETF heavily weighted to Russian oil companies.