Market reaction towards Budget 2020

Dear Fellow Investor,

On Friday,  Budget 2020  was announced.

Market reaction was muted. The KLSE was up marginally and the EWM which is the Malaysian country fund traded on the NYSE was also up marginally.

Weekly EWM the Malaysian country fund ETF traded on the NYSE reflecting the Friday close in New York. This ETF consists of KLSE index linked heavy weight shares.

If the budget was positive EWM would have risen strongly.

It would have meant foreign fund and professional  buying to front run Monday’s KLSE open

 

Notice price trades below the 50 week moving average. This is evidence of a KLSE index linked downtrend.

The CIO of Phillip Capital Mgt posted a strategy report last week and mentioned the KLSE has been down 4 out of the last 5 years and is currently trading at the 1998 level of around 1500.

Not all is bad news: Many export related stocks are doing well because of the weakened Ringitt  Some technology stocks are also outperforming  Some high quality businesses are trading at extreme undervalued value levels. These are companies with growing earnings, dividends and consistent cash flow. 

Our CEO says by focusing on these we can beat the index and at some point the market will recognize the value.

I attended a seminar today given by the 5^th person, an Asian research group. They made a good case for beaten down Malaysian  Hong Kong and Singapore value shares. They stressed value + dividends to help ride out the volatility. They expect the current world wide trend of lower interest rates to support these shares. They also like selected REITs.

Invest well and grow your wealth

Bill

Critter of the week is the world’s largest lizard a Komodo dragon living at the Singapore zoo.  It would cost you a few thousand to visit Komodo island in Indonesia to see a Komodo dragon and in 2020 the island will be closed to visitors and once it reopens the visitor's permit will be 500 USD. I think I will choose the Singapore option.  

 

 

 

Financial Engineering

5 Oct 2019

Dear Fellow Investor,

Financial Engineering

Suppose someone owns 3 condos in a prime area in Kuala Lumpur. They are each valued at 1.5 million. This person sells one to his brother for 1.7 million and after a few weeks the brother sells to another brother for 1.9 million. The money stays in the family. This goes on among the 3 condos and because of publicity and media hype the property  investment crowd joins in.  After a year and a half  prices are up 50 %

The brothers then cash in their gains and walk away. The latecomers who bought at the high are caught .At least they may be earning rental income but may be suffering  capital losses.

No real value has been created. No new wealth has been created. Money has been churned.

The same thing has been happening in stock markets especially in the US.  Mr Tong who writes the stock market column in the Edge describes that 8 out of the last 10 Unicorn IPOs in the US such as Uber/ and Lift are suffering losses of well over 30 % in just a few months.Many IPOs in Malaysia have suffered the same cruel fate.

Just as in our condo example these IPOs have not been creating value in fact they have been destroying by value making large losses and burning cash. They were also promoted and hyped by the financial media so that the original owners could offload to the public at high prices.    

This is why I am a mainly a value investor and avoid IPOs .

I want to invest in established well managed businesses with increasing return on equity that share some of their profits in the form of dividends.

One of our holdings HK Land has suffered mainly because of the Hong Kong unrest.

They are well established and meet all of my value investing criteria including diversification into Singapore and Thailand. They also pay a solid dividend in USD backed by increasing cash flow.

I am not worried about the price correction in HK Land . According to one of our clients who travels frequently to HK, there is a silent majority of HK citizens who do not support the demonstrators.  They want to live normal lives and continue business as usual.  The new face mask law implemented yesterday  under the emergency law should make it easier for the police to identify the violent thugs.Carrie Lam is finally taking firm action. In New York last week  the EWH, The Hong Kong ETF country fund  traded on the NYSE has stabilized. HK Land should recover.

Next Tuesday, I will be attending a briefing at CIMB by the Hong Kong market strategist who is flying in from HK to give us an up to date view. . Will keep you posted.

Invest well and grow your wealth
Bill

Critters of the week are Sri Lanka elephants. Last year we toured the country and encountered an elephant sanctuary  with hundreds of these noble beasts.  They like to herd together just like IPO investors who sometimes go to the slaughter house.

 

 

The strongest sectors in the KLSE

28 Sept  2019

Dear Fellow Investor,

The strongest sectors in the KLSE are  presently the energy and technology sectors. Our only holding in energy is Dialog which is holding up well. The main revenue driver of Dialog is their tank farms which are used to store oil.  This produces recurring revenue and makes money no matter the price of oil.   Being integrated they also participate in down steam as well as upstream projects.

Our  technology share is Inari. Inari is a play on Apple as they supply Apple components.  As long as Apple performs, Inari will follow. Apple continues to make new highs.

The Group acquired Amertron Global Inc and changed name to Inari Amertron Berhad. The acquisition of Amertron Global added opto-electronics and fiber optic capabilities to the Group and manufacturing facilities in Malaysia (Penang and Johor Bahru), Philippines (Clark Field and Paranaque), and China (Kunshan).

Tim Cook and Donald Trump made a deal to exempt Apple from China tariffs so there is less uncertainty and the price has risen.

Other technology shares both in Malaysia and the US are also performing.

The chart below of the XLK, an ETF trading on the NYSE continues to uptrend The XLK represents the leading tech shares in the US. It includes semiconductor companies..

Weekly XLK representing US tech shares as well as Broadcom, an equipment maker   which is a shareholder of Inari .

My view is that the market is anticipating a US China trade deal. Otherwise XLK would be trending down. The insiders of these tech companies know better than the talking heads on CNBC and the retail crowd. 

The present gloom and fear overhanging Asian markets is now the Trump impeachment probe. Investors are afraid if Trump is removed from office stock markets world wide would collapse. CNN, BBC, CNBC and most of the media are beating the non stop impeachment/ recession drums.

It will never happen. For a US president to be impeached both houses of Congress must approve. The House of representatives are controlled by the opposition Democrats so they will probable impeach Trump but  the Senate is controlled by Trump’s party, the Republicans. It takes a 2/3^rd  vote of the Senate to remove Trump from office.

Odds of Trump being removed are remote.  This will never happen. For 3 years the opposition Democrats have obstructed the major issues such as infrastructure, immigration, health care reform, border wall, etc. Nothing is getting done. The voters are angry at the desperation and inaction of the Democrats. They can see through the lies, rumours and misinformation being presented as facts.  

The Democrats will be punished by the voters in 2020.

As long as Trump is in charge expect higher stock prices world wide and I think the 50% of Americans who hold stocks via their pension plans and outright holdings understand this.

Invest well and grow your wealth,
Bill

Critter of the week is a rescued Sun Bear. For 7 years a prisoner and now free. The authorities should put the owner in a cage.

KUCHING, Sept 25 — In just less than 24 hours, the concern voiced by the public had managed to put pressure, forcing the authority to make a move to rescue a sun bear, allegedly locked-up under cruel condition at a house in Demak Laut here.

 

 

Mr. Phua Lee Kerk's Talk

21 Sept  2019

Dear Fellow Investor,

Today, I had the rare opportunity to hear Mr Phua Lee Kerk, Strategist of Phillip Capital Management in a talk he gave to a group of professional investors.

He answered some of the pressing investment questions that many of you have been asking.

Questions included: Value versus growth stocks? Why is the KLSE stuck in a trading range near 1600 ? What catalyst to move the index ?  What are the foreign funds waiting for ? Why Donald Trump will continue to make sure the Dow Jones goes up and why this correlates positively with world markets.

Value Stages a Comeback

PE Levels current vs historical as of 3 Sept 2019 for S &P 

Historical Medium	Current	Implied Price Change	Value Advantage
Growth PE	19.7	32.5	-39 %
Value PE	11	10.3	7 %
Value Advantage				46 %

Maludin economics

From an odds point of view value investing has a 46 % advantage over growth investing at the present time.

Growth stocks such as Facebook/ Netflix are faltering while value stocks such as consumer issues are outperforming as fund managers shift from  growth to value. This is a world wide phenomena.

The KLSE remains stuck at 1600 because investors are waiting for the budget to be announced and waiting for ratings agencies to decide if to remove Malaysian bonds from the world bond index. Foreign funds are out of the market and will return when these uncertainties are resolved. Foreign funds hold less than 31 % of the market which is close to a historical low which means not much downside from current levels.

Donald Trump is only interested in getting re elected so he will send out a positive twitter when the market corrects and a negative twitter when the market goes up too fast. Every one of his actions is designed to get the most votes as possible. Morgan Stanley has created the Trump Twitter Index to measure Trump’s twitters. The whole world of traders are exploiting this index for quick gains. This index is available on the Bloomberg work station.

The Hong Kong disruptions are lessening and are limited to a few violent hard core criminal protesters. The general public are getting tired of it and want to get back to business as usual. Phua feels by 1 October the 70^th anniversary of the Communist party Hong Kong will stabilize. There is value in Hong Kong shares as fear and uncertainty dominate but this is opportunity for brave investors.

Invest well and grow your wealth
Bill

Critter of the week is the white tiger.

White tiger at Zoo Negara. Once the haze lifts we will definitely visit the tigers. And pray to God these wonderful animals are not suffering. Hopefully by the end of October we will have relief.

 

 

An opportunity to make more profit with less risk.

Dear Fellow Investor,

Before becoming a fund manager, I was very active trading commodities. My specialty was meat and grain futures. This background has helped me in share investing.

One takeaway from grain markets  is there is a trading advantage of buying a lagging but related market. For example, if corn, wheat, oats, soybeans, rice are trending up while  palm oil is congesting in a trading range, it is a good bet to buy palm oil. Chances are palm oil will join the other up trending grain markets.

This will give you an opportunity to make more profit with less risk.

A similar opportunity is presenting itself in the KLSE.

Most Asian markets are beginning to trend up while the KLSE is lagging.  Taiwan, Hong Kong, Singapore, Korea, Thailand and Vietnam are moving higher while the KLSE continues to congest.
My view is that risk is low buying high quality KLSE shares beaten down by foreign fund selling. Malaysia should in time catch up with the other Asian markets.

Another dynamic occurring in the US markets which affect all markets is a shift from growth to value stocks. Smart money is taking profits on their high flying technology shares and switching into boring consumer stocks that pay  dividends and trade at attractive valuations. Examples in the US markets include Wallgreen Boots Alliance, Campbell Soup, and Kraft Heinz.

 

Weekly chart of the EWM which is an ETF traded on the NYSE representing a basket of high quality blue chip Malaysian shares.

In our Malaysian portfolios we hold such shares and they have diverged from the down trending main KLSE index.  An example is United Plantations, a high quality plantation company which has been well supported and pays a solid dividend. .

Invest well and grow your wealth,

Bill

Critter of the week is a Sabah sun bear, the world's smallest bear. These are highly endangered but can be found in most Malaysian zoos. 

 

Perception versus reality

7 Sept  2019

Dear Fellow Investor,

Perception versus reality

Despite the riots, the tensions, the violence, and the airport disruptions, Hong Kong is still in business. Notice the ultra high volume price bars on the right hand side of the chart which is evidence of panic selling by the fearful and uninformed investors and  buying by professionals .

Most Hong Kong citizens only want to go on about their daily lives and business and not cause disruption. It only takes a few troublemakers using social media to stir up the crowd. The Western media focuses on the troublemakers but not the majority of peaceful citizens. Even Donald Trump refuses to get drawn in and said Hong Kong is China and let them sort out their own problems.

China took a wise hands off policy and tensions seem to be lessening.   The reality is the majority of Hong Kong citizens only want peace and stability and that is why the HKSE will recover.

The  KLSE is also suffering from negative perception.  and lack of turnover.  I spoke with the head of research with a prominent broker Friday and asked him why the lack of movement ? The main reason he said is that on Bank Negara latest money supply release    money supply growth dropped from 4.4 % to 3.4 % year on year. That shows slowing credit growth and less money coming into the market  On a positive note GDP is increasing and FDI into Malaysia has been increasing.  FDI is long term money from Japan, Europe and the US.

He advised to avoid construction and property shares and focus on those Malaysian companies  which benefit from the strong US Dollar and US China trade war. We hold these in your portfolios. He also advised to look at Hong Kong and Singapore shares beaten down by the negative perception. Singapore has stabilized and is recovering.

Invest well and grow your wealth,
Bill

Critters of the week :

Is there a slowdown in 2019

1 Sept  2019

Dear Fellow Investor,

What a difference a week makes in the life of a market.

 

Weekly chart of the Dow Jones .

The Dow was up 774 points from last Friday’s close. The 50 week moving average supported the price as professionals bought the dip.

Asian markets including the SGX, KLSE and Hang Seng also held long term chart support in the face of recession talk, yield curve fears, trade war uncertainty and Hong Kong riots. Last week the Hang Seng PE was at 10.4 and the SGX at 12 which are near 2008 lows. Value players are beginning to commit. There are great companies which will continue to be great now trading at attractive levels.  

Behind this scary background is the Western media such as BBC, CNBC, CNN who constantly beat the recession drum.  Even I Capital, a local market research service are hoping for a US recession so Donald Trump will lose in 2020.  Does the media and I Capital. really want millions of people to lose their jobs, their businesses and homes ? Do they want us to earn less money ? That does not sound compassionate to me.,

The majority of Western media  has downplayed the facts. The US economy has seen some of the best jobs and income data in half a century:

Facts from Stephen Moore of the Wall St Journal

·  US has the lowest unemployment rate since the 1960s.

·  US has have the lowest unemployment rate for women, blacks, Hispanics, and those without a high school diploma since 1969.

·  US has the lowest inflation rate in 50 years.

·  US has the lowest interest rates in most people's lifetimes. The 30-year mortgage rate in many markets is down to 3.5%. When Jimmy Carter was president, rates for mortgages hit 20%.

·  The wealth of American families and businesses recently reached $100 trillion for the first time ever. As more than half of all families own stock, this wealth burst affects nearly everyone.

·  Wage growth for workers is at or near a 20-year high, and recent revisions by the Labor Department show fatter paychecks in 2017 and 2018 than previously thought.

·  Today in America, there are 7.5 million unfilled jobs. This is the highest level of job openings in American history.

·  Trump has been ridiculed for calling this economy a "blockbuster," but he's mostly right.

Is there a slowdown in 2019? Undeniably, yes. Growth has slowed in the last year from 3%-plus to just barely 2% this year. The slowdown is reflected in weak manufacturing and industrial production in 2019 and a troubling drop-off in business capital spending. Consumers are spending – thanks to the tax cuts and wage gains – but that can only take the economy so far.

Sustainable growth depends on business formation and expansion, not consumer shopping. We know what's holding that back: the trade war with China, a Fed that's too tight, and the headwinds of an economic stall-out in Germany, the rest of the European Union and Japan.

Most countries in the world would love to have America's economic conditions. My forecast that if and when Trump gets a deal with Beijing that ends the tariff wars, the economy will soar and the recession boosters will look mighty foolish – again.

This will lead world markets higher.

Invest well and grow your wealth,
Bill

 

Critter of the week is Elsa a white tigress just recently acquired by the Melaka Zoo in Ayer Keroh. We plan to celebrate Merdeka  day in Melaka by  visiting  Elsa.