Stabilizing on relatively high volume after price correction

 25 Sept 2021

Dear Fellow Investor,

Stabilizing on relatively high volume after price correction

Weekly EWM trading in a consolidation after 4 weeks of correction. This ETF of Malaysian blue chip shares trades on the NYSE and represents foreign fund participation.  Foreign funds continue to shop for bargains in the KLSE both here and abroad.

News flow was mixed . Reaction to the loan moratorium  on banks was slightly negative  as Maybank dropped to RM 8.10 but a 28 sen dividend was declared which under the share reinvestment scheme can be taken up at RM 7.80 per share.  Public Bank which we hold for most accounts was slightly down. Not much impact to the negative news which in my opinion is positive.   I do not look at news in and of itself but look at market reaction to news. In the case of the banks, bad news has been discounted.

Bank earnings are increasing as the economy gradually re opens. The parking lot and restaurants at my office show increasing customer traffic  . Even the KLCC is coming back to life.   Vaccinations are working. The government has loosened foreign labor restrictions and is giving visas to plantation and manufacturing workers. Quality businesses in these sectors now have recovery potential.   

The Evergrande property developer uncertainty continues to overhang world markets but not much impact on Malaysian or Singapore companies or banks as the Edge reports minimal to no exposure to Evergrande. The Chinese authorities are taking decisive efforts to manage this problem.  The finance ministry has banned bitcoin and crypto trading in China to prevent anonymous money transfers in or out of China and Hong Kong.

I know it is possible to get rich quick trading crypto but in my opinion the biggest risk is government regulation. When governments who flood markets with fiat money feel threatened by a private currency which is outside of  government control they can shut it down.

According to Ray Dalio, the billionaire hedge fund manager Central Banks  have the tools and can instantly flip a switch and close crypto down.  Fiat currencies grow by an average of 15 % a year over time so by holding cash we lose 15 % a year in purchasing power. Politicians do not want to lose their money printing power which is a form of wealth confiscation. This is the attraction of bitcoin  which has a fixed supply and can not be created out of thin air.  Gold and silver are similar. No one in the last few thousand years has found a way to counterfeit gold and  this is why gold is a good insurance policy against irresponsible money printing.  Annual gold mine production world wide is less than 1.5 % which is lower than population growth. In shares to protect ourselves and survive we need  at least 15 % Return on Equity + dividends. 

Technology is the strongest KLSE sector closing at an all time high Friday. Money continues to move to this sector as businesses to survive must innovate and adapt. The pandemic has accelerated this trend.

Take  care
Bill

The fallout of Evergrande

18 Sept 2021

Dear Fellow Investor,

The front-page financial news last week was the fallout of Evergrande, the Chinese developer and conglomerate.  Shares of Evergrande collapsed and trading of their bonds was suspended.  The Hang Seng lost 6 % and Asian markets fell.  Buyers of Evergrande condos may lose their deposits.  The root causes of the problem were too much debt and the ego of the CEO who is an empire builder. Multi billionaire Mr Hui, the CEO came from very humble beginnings as he was the son of a wood cutter. He joined the communist party and in 35 years made many connections which enabled him to borrow money to finance his businesses.  His businesses included electric cars, property development, a sports team and mainly businesses favourable to the interests of the CCP.    According to Bloomberg, despite the panic, behind the scenes multibillion of bailout funds are being arranged by the Peoples Bank of China. If not and there is a liquidation like Lehman Brothers, the CCP could lose support and the over 100,000 employees of Evergrande could lose their jobs. Already there are demonstrations by investors, suppliers and property buyers.  The CCP just like the US Federal Reserve has the power to create money out of thin air to cover the problem.   This is why in my opinion it is a non-event.  I would venture to say Mr. Hui will voluntarily give up a large portion of his wealth to aid in the restructuring. This will be positive for our Asian shares once this uncertainty is removed.

On the local front, foreign funds continue to buy blue chip Malaysian shares during the recent consolidation.  EPF was selling minor amounts.

 

Weekly EWM the ETF of blue-chip Malaysian shares traded on the NYSE. Notice the wide range price bar one month ago. Notice the high volume. This according to volume spread analysis is a POC or point of change which signals a shift from supply to demand. On this POC there was foreign fund buying. As long as price trades within the range of the wide range price bar expect higher prices.  According to today’s Edge, death and hospitalization rates in Malaysia and Singapore are dropping and the economies are opening up. There is more traffic on the road and Kuching is planning to open for tourists just like Langkawi.  The new health minister, Khairy Jamaluddin is doing a good job as vaccinations continue to be rolled out. As business gets back to normal, expect our recovery stocks to perform.

Take care

Bill  

 

Anxious buyers walk near unfinished residential buildings from the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 16, 2021.

Road to Investment

 11 Sept 2021

Dear Fellow Investor,

I would like to thank all of you who today attended our virtual 11^th annual Phillip Investor Conference, Road to Investment, Turning the Corner.  Hopefully next year will be in person. 

David Ng, a proprietary futures trader spoke about trading opportunities in commodities including CPO and metals. He feels with inflation increasing and the commodity cycle rising commodities should rise . He particularly likes copper and aluminium  due to increasing world demand for alternative energy and massive infrastructure spending by the US .  Inflation will benefit CPO as supply/ demand trends remain positive.

Yvonne  Tan of East spring gave her outlook on Malaysian equities. She reported that foreign funds are returning after having been out for the last 8 months. They are buying high quality blue chips and collecting 3.5 to 4 % dividend yields.  They are buying banks, energy, technology  and Telco's which are trading at attractive valuations.   Yvonne expects recovery in the 4^th quarter as Malaysia eases restrictions and more businesses get back to normal.

Yeu Huan Lai of Nikko Securities gave a briefing on Singapore. He presented the case for a rise in the STI to 3605 by 1st quarter 2022. This is based on Singapore getting the pandemic under control. Presently over 80 % of the population has been fully vaccinated.   More reopening will occur. GDP has reached pre pandemic levels. Growth is high in electronics, exports and manufacturing. The pillars of political stability, ease of doing business, and a talented workforce continues to attract  foreign investors including major tech companies such as Apple, Google and Tencent.  Market PE is 14 which offers value, earnings growth and rising dividend yields.   He likes banks, REITS, logistics and transportation related shares for recovery.  He likes mall Reits which can raise their rents as customer traffic picks up.

Edwin Lee of UOB gave his China outlook. He reviewed the new focus by the government on common prosperity.  He reported that China was since 1980 able to decrease the poverty level from 90 % to  less than 5 % in 40 years by introducing free markets and capitalism .  The result has been an explosion of business and wealth creation. Today 50 % of the wealth is controlled by less than 1% of the population so Chairman Xi wishes to level the playing field by introducing labor rights, more affordable housing and free education.  Lee said we need to focus on businesses the government favors such as alternative energy, electric cars and semiconductors. Our holdings in Kellington which is a Malaysian company that supplies industrial gasses to  China semiconductor companies is doing well.

Our CIO, Mr Ang Kok Heng gave a briefing on forces effecting market movements including insider buying and selling, corporate exercises, and foreign buying. He feels recovery is on the horizon as vaccine rollouts increase, political stability seems to be happening and foreigners return. He feels there is good value in selected shares.

Take care

Bill

Thank God, most of Asia and Malaysia and Singapore are not taking in unvetted Afghan refugees.