A welcome relief

16 March 2019

Dear Fellow Investor,

Last Sunday there was a market positive  article in the Star which was a welcome relief from the usual dose of gloom and pessimism such as  trade wars, Brexit, global economic slowdown, political uncertainty etc.

The article  profiled Dr Li Chunrong, a veteran auto turn around expert and the new CEO of Proton. He is turning around Proton after years of massive losses. In the last few months he has raised the image of Proton with the launch of the X70 SUV.

The X70  represents a Geely/ Proton product which incorporates the Volvo technology.  Volvo according to Road and Track magazine is the world’s safest car.

Geely bought out Volvo a few  years ago and Geely because of the Volvo technology is the safest and most popular car in China. The new Proton may soon have that reputation.

Customer surveys have been positive and there is a long waiting list to purchase the X70.

The bottom line speaks loudly. In the first 2 months sales rose 42% year on year to 12,300 units.

Market share has also risen and the target is to sell 90,000 units this year.

Dr Li forecasts break even for 2019 and profits by 2020.  He is well on his way.

He has dramatically cut costs by squeezing the distributers who were inflating their cost of parts. He is also  consolidating the sales and service centres.  In the past Proton had outlets which sold the cars but did not service them.  Now he has directed them to offer both sales and service under one roof.   He has optimized plant capacity by moving  plants to Tanjung Malim where before they were scattered over the country.

He is also bringing in auto talent from  Germany, Japan,US, China, and Canada who have seats on the board. Before there was only talent from Malaysia. Now there is talent from 14 countries.

Turning around Proton has been a challenge for him but he has a well thought out plan and the technical, financial resources to make it a success. He works 12 hours a day 6 days a week and he  said  he is a kumin ren   meaning someone destined to lead a very hard life.

Dr Mahathir has given the X70 a very good rating and is impressed by the technology advances and sophistication of the vehicle. 

 

Dr M is himself a car expert and has a large collection of classic cars which he donated to the people in his museum in Langkawi

Although I am not recommending to buy DRB Hycom (Proton holding company)  I am always on the lookout for companies who are well managed, have a great product and are focused on  cost cutting.

We are tentatively planning our first Investors Club meeting on Saturday 6 April 11am at my office in Phillip Capital. Some of you have expressed interest and will keep you posted as to the agenda.

Invest well and grow your wealth
Bill

Critter of the week is a giant but gentle dog . He is a wolf mixed breed who was rescued by a kind dog lover who found him abandoned on the street.

 

 

A value and income investor

9 March 2019

Dear Fellow Investor,

On Friday the Shanghai Index dropped 4.4 %.

The catalyst was a  call by  by Citic Securities to sell shares in Peoples Insurance  The sell call was like a depth charge to the market.  and panic selling of most shares worldwide resulted.

Machine traders controlled by artificial intelligence dominated the order flow  and virtually every market in the world was hit.

Regulators in China are concerned by the Shanghai  market bubble and were behind the sell call to cool things down. The authorities want a gradual market rise but not a buying frenzy.

There was follow thru selling in New York as the Dow, Nasdaq and S & P dropped sharply.  By  the close US markets closed flat erasing large losses. Sanity returned so expect Asian markets to recover next week.

That is why in a nut shell I am a value and income investor. Our Singapore and Malaysian shares are all well run businesses with earnings growth so why worry about a limit down drop in Peoples Insurance in Shanghai ? I never heard of this company.

Invest well and grow your wealth

Bill

Critters of the week are the beautiful birds in the KL bird park:

Whenever an overseas visitor comes to Malaysia I take them to the Kuala Lumpur bird park. It is the largest open air bird park in the world and the birds are friendly.

Money supply has flattened.

2 March 2019

Dear Fellow Investor,

Yesterday, I spoke with the head of research of a prominent asset manager. For privacy reasons I can not mention his name.

He has been consistently correct in his views regarding the Malaysian stock market over the years.

I asked him why the Malaysian market has been underperforming of late and why some of the index  linked favourites such as Tenaga, Telecom, Gamuda  have fallen.

He mentioned the main reason is that the M1 or money supply has flattened.  He showed a Bloomberg chart of money supply versus the KLSE and how every correction/ recession  since 1980  has been correlated with a drop in M1.

Bank Negara publishes M1 on their website at the end of each month. Of course a single number does not make a trend but the lack of growth in M1 is a matter of concern.

The second reason he mentioned was that some of the index linked shares are showing earnings declines and shrinking profit margins. Tenaga is an example. Felda although not an index linked share is a prime example.

It means we must focus on individual shares and invest in them based on their individual merits.

With careful and patient research, these low profile value shares exist. Our research team is focusing on these. Some are export related, in niche sectors, have expanding margins, low or no debt, pay dividends  and are run by experienced and honest managers.

If we focus in this space we should prosper no matter what are  the M1 numbers.

I leave you with a quote from Dr Mahathir as reported in the Edge which is the remedy for M1 growth,

“They(businessmen) are the ones who invest their capital, set up businesses and industries, provide employment and pay taxes. Without taxes, the government will not have sufficient funds to administer the country or states”  . He was calling on some Pakatan leaders to cease their criticism of the capitalist system and change their socialist way of thinking.

Invest well and grow your wealth,
Bill

Critters of the week are pygmy elephants from Sabah. The reserve is a short drive from Kota Kinabulu and they also have sun bears.

Malaysia is attracting savvy investors now.

23 Feb 2019

Dear Fellow Investor,

Last week, I reviewed some of the reasons why Malaysia should be on your investment radar screen now.

Attached is a report from Motley Fool Singapore as to why Malaysia is attracting savvy investors now.
Motley Fool Report

This is a promotional piece for their newly launched Malaysian share market research service.

What is surprising is that I have been a member for 3 years  to their Singapore service which focuses  mainly on the Singapore and US markets and now they are recommending Malaysia. Motley has helped me to find opportunities in Singapore for our global wrap accounts and we have made reasonable equity as well as currency gains .

I believe their thesis about Malaysia is correct however;

We have a big advantage over them as we have our dedicated local research term, our industry connections and  local on the ground knowledge.

We are also able to focus on lesser known under researched companies that offer growth and income.

We should soon be starting our investment club in March  which will meet on Saturday once a month in my office at Phillip and  we will share some of these opportunities.

I have some personal observations about Why Malaysia Now :  in addition to the Motley report.

·      For most of the last 2 years futures prices on the composite index futures contract have been trading at a discount. That means sentiment has been extremely negative . Now the discount has narrowed to about even which means professional buying including foreign funds.  In order not to tip their hand professionals are slowly in a low profile way accumulating blue chip shares.

·      EPF paid a generous dividend this round of 6.2 %and EPF outperformed over 98 % of all Malaysian unit trusts. The reason they outperformed is that they hold 50 % of their assets in MGBs ( Malaysian government bonds)  In a pessimistic and gloomy atmosphere bonds outperform stocks as well as pay steady safe income.   MGBs are ultra safe. Since January 2019 MGBs yields are slightly trending down. With yields dropping will EPF be able to continue to pay high dividends without increasing their equity exposure ?

·      EPF with the economy gradually recovering  is a huge force in the market. They along with other institutions will provide strong equity support in 2019.  In addition if they repatriate overseas funds back to Malaysia that will give additional boost. EPF invested heavily in Europe and the US. Will they sell these overvalued developed markets and buy undervalued Asian markets?  

If this makes sense to you and you wish to add to your existing EPF/cash accounts, please contact me. I will share with you my asset allocation model.

The time seems right.

Invest well and grow your wealth,
Bill

Critter of the week is the national animal of Bhutan, the Takin. A friend of mine just returned from holiday to Bhutan and said they are the happiest people in the world. They are laid back and very friendly.  

   

8 reasons Malaysia is attracting savvy investors.

16 Feb 2019

Dear Fellow Investor,

Last week I received a note from Motley Fool Singapore a research service which focuses mainly on Singapore shares.

The note was titled: Asia’s best kept secret: 8 reasons Malaysia is attracting savvy investors:

Some of the reasons stated included:

That 1MBD is a temporary distraction from what is essentially a long term growth story for the country.  

Malaysia has bounced back from the Asian financial crises and is presently growing at the GDP of 4.6 %  

Market cap of the SGX is 1.2 trillion SGD while the Malaysia market cap is about 0.52 trillion SGD with many world class companies. That means there is room to grow leveraging on Malaysia’s advantage of  low labor, land costs and a lower cost of living.

Malaysia also offers a prudent conservative investing environment as evidenced by the EPF retirement fund which has given an average return on capital of between 6 and 7 % since 2010.  This compares favourably with the Singapore CPF.

These reasons have the potential of attracting Singapore investors to Malaysia.

Foreign funds have been accumulating shares as investors are returning to China and Asian markets from developed markets.

The trade war issues between China and the US are improving.The Hang Seng is recovering nicely. The Shanghai index is bottoming.

China’s market recovery will benefit all the Asian markets.

President Trump masterfully made a deal with Congress to build his Mexican border wall and keep open the US government.  The markets reacted positively Friday  and the Dow rose over 400 points. Expect follow thru in Asia Monday.  Trump’s popularity is over 50 % positive  according to several polls.

There is still a cloud of extreme gloom hanging over the SGX and the KLSE but I am seeing rays of light piercing the gloom. Some of the companies we have invested in including Dialog, Inari and Kellington are showing surprise positive earnings results.  

Invest well and grow your wealth
Bill

Critter of the week is a black leopard from Kenya.

The black leopard is a creature shrouded in mystery. Many people have reported fleeting glimpses of this shadowy cat, but very few of these sightings can be confirmed. Although a handful can be found in zoo cages scattered around the world, no photographs of wild black leopards exist.

An extraordinary and abrupt change in Monetary Policy.

9 Feb 2019

Dear Fellow Investor,

Policy Shift •

The Fed’s latest FOMC meeting produced one of the most consequential shifts in Monetary Policy in the last few years. •

Rate hikes were put on hold. •

·       Quantitative Tightening is to be ended much sooner than was expected. •

·       And, a “Fundamental Decision” was made to change the way the Fed manages interest rates.

This was an extraordinary and abrupt change in Monetary Policy.

World wide markets began a V recovery  Short sellers were trapped as plunge protection teams came in to buy 1000s of index futures contracts to support the markets.

Even base metals are recovering as reflected in the DBB.

The DBB is the base metal index traded on the NYSE. It is made up of physical metals such as copper, zinc, aluminium, lead.  Since December 2018 it has made a 7 % recovery.

DBB traded on the NYSE is a  lead indicator of growth

How to escape the gut wrenching volatility and prosper.

Our process is simple, intuitive, and explainable. We buy companies run by people with track records of success, in industries and business models with a competitive advantage, bought at good prices, and we hold them for longer than most of our competition is willing to

This is Warren Buffet’s method and  is based on decades of evidence that show patience and competitive advantage combine for a high chance of investor success. 

Our local market and Singapore continue to congest but there is evidence of foreign funds slowly returning. Confidence is  rising but we need to be very selective in our dealings.

The US monetary policy shift should benefit our share investments.

Invest well and grow your wealth
Bill

Critter of the week is : The cheetah

by Ingo Gerlach -- and is captioned: "Cheetahs marking their territory in the grasslands of Masai Mara, Kenya."

A lead indicator for a positive result of the US/ China trade war

2 Feb 2019

Dear Fellow Investor,

A lead indicator for a positive result of the US/ China trade war

 

XLK weekly price chart  The XLK is an ETF of technology shares traded on the NYSE

The XLK has many major technology shares including Apple, Intel, Cisco and Qualcom. Most of the shares in the XLK have exposure to China. Apple has major exposure.

Because the XLK is trending up for the last 7 weeks, it means smart money is betting on a positive result of the China/ US trade talks.

The US interest rate outlook is also turning dovish as evidenced by softening in the US Dollar index. 

If smart money thought that US interest rates would be raised the US Dollar index would be strengthening and shares would be dropping..

Smart money is professional money such as,  Warren Buffet, Howard Marks, Bill Gross or Ray Dalio.

They have the inside track to Federal Reserve policies and political moves by  Trump and Xi .

On the local front, the Warren Buffet of Asia, Cheah, Cheng Hye chairman of Value Partners plans to raise RM 2 billion this year for investing in Malaysia. His partner says in a Star interview Saturday Malaysia this year offers value .because of the refreshing improvement in governance and transparency.

Singapore should also see a boost as this is the 200^th anniversary of its founding in 1819 and a planned parliamentary election next year. Singapore politicians will stimulate the economy to get votes. 

I wish all of you a happy and prosperous  Chinese New year and be mindful driving back to your loved ones this holiday.

Bill

Critter of the week is the fluffy panda Xing Xing at Negara Zoo.  We went yesterday and there was no crowd so we were able to get a close up view. :