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.

Breakout from Accumulation

 28 August 2021

Dear Fellow Investor,

Breakout from Accumulation

Weekly EWM the exchange traded fund representing blue chip Malaysian shares. EWM is traded on the NYSE.

Last week the EWM was up 72.1 points or 4.75%  to close at 1590.16. Foreign funds came in to push prices through several layers of supply catching the short sellers who are now sitting on large losses and margin calls.  The pessimists now have to decide at what levels to buy as the trend has turned higher at least in the short term. 

The psychology of these short term players  is why should I buy now when I could have bought earlier at a lower price ? If prices move higher, they will have missed the opportunity to buy low because the mentality of most retailers is to buy cheap.  This is the purpose of professional operators who use the pattern of pushing through supply to  wash out the short sellers and move prices strongly higher to lock out value buyers. They win on both sides of the market.  This is the classic pattern from Richard Wycoff, the pioneer price and volume trader who earned a huge fortune trading over 100 years ago.  His methods are still used today by most professional traders.

Google Richard Wycoff to see what resources/ books  are available. My business partner Martin Wong offers courses on the Richard Wycoff method and software to identify patterns such as pushing through supply.   His website is www.ivsachart.com.

As  reported in the latest  Edge there are some fundamentals that support economic recovery: They include growth in exports of RM 97.32  which is up 5 % in July which is the 11th month of year on year expansion. Malaysia  runs a trade surplus.  Inflation comes in at 2.2% which dipped to a 5 month low compared to 3.4 % from June 2020. The RM has also strengthened vs the USD, the lowest in a month to 4.19 showing foreign fund inflow.   Top Glove has announced that they will go ahead with their Hong Kong IPO as it has been delayed for the last few months.  Demand trends are positive for rubber gloves with the emergence of new viruses . Top Glove, the world’s largest glove producer is using funds from their IPO to fund new production. Rubber Glove counters including Top Glove are trading at attractive valuations as insiders continue to accumulate.

The construction index is also showing strength anticipating mega projects such as MRT3, Pan Borneo Highway, the KL to JB high speed rail and Klang Valley double tracking phase 2 to be launched.    There are 52 high impact projects under budget 2021 to pump prime economic recovery. This was reported in the Edge by Sufri Mhd Zin in his outlook for construction.

The plantation sector is coming back to life. Our plantation counters which we hold for you include Kim Loong and United Plantation are steady and we continue to collect handsome dividends while we wait. As the pandemic problems recede and more people get vaccinated supply chains will open up, labor shortages will subside and plantation counters will move higher.    Valuations are cheap and insiders are accumulating.

Keep Safe

Bill

A bright spot in the on going disaster in Kabul:

Fresh hope for ex-marine’s efforts to rescue 200 cats and dogs from Kabul.

UK defence secretary says Paul Farthing, his team and animals can leave on chartered plane

A bright spot in the chaos and mismanagement of the Afghan crises.  Private charities  are filling the void left by incompetent self serving politicians such as Joe Biden. He was able to charter an air bus to the UK with private donations to aid in the saving of his animals and staff from a Kabul animal shelter. The UK government gave approval. From the Guardian News.

 

Appointment of the new prime minister.

 21 August 2021

Dear Fellow Investor,

The EWM, an ETF of blue chip Malaysian shares traded on the NYSE rose 0.65 %  Saturday. This is a positive reaction to the appointment of the new prime minister. Should professional investors have sold the EWM down that would have been a no confidence vote by foreigners on the KLSE and the new prime minister. 

Notice the narrow range accumulation on above average volume over the last month.  This is in the face of extreme pessimism, political uncertainty  and fear of tapering being reduced  by the US Federal Reserve.   This would mean a slowdown of US  money printing and the result being higher US interest rates. This would negatively impact stocks and bonds worldwide.

The other cloud overhanging the market is the pandemic. In Tong’s Edge column, he reports that the worst of the Covid-19 pandemic in Klang Valley is in the rear view mirror. He presented  statistics: hospital admissions are turning lower and % of population in the Klang Valley with at least one dose is now at the 70% level and rising. Daily cases and daily deaths have been reduced. The decline in infections, hospitalizations and deaths is inevitable and was set in motion months ago with the start of our national vaccination program. This could be another reason we are seeing accumulation over the last month in the KLSE.  Smart money identifies value at a discount and they act accordingly.

Last week, I said I would review 3 of our Singapore holdings. They are SGX, Parkway Life Reit. and OCBC bank.

SGX is sitting in a “sweet spot” where it enjoys both growth and stability along with exposure to emerging opportunities.

With its core business stable and contributing steady profit and free cash flow, SGX has the opportunity to seek growth through collaborations, joint ventures and acquisitions.

The bourse operator is the only stock exchange in Singapore, endowing it with a natural monopoly.

SGX is also exposed to money flows from the Asian region, particularly China.

This exposure is beneficial to the group as China is viewed as being the next emerging superpower.

                              Source: Singapore Exchange Analyst Day Presentation Slides

From the diagram above, the exchange is sitting in a “sweet spot” where it enjoys both growth and stability along with exposure to emerging opportunities.

New initiatives such as Climate Impact X, a collaboration with DBS Group (SGX: D05), Temasek Holdings and Standard Chartered Bank (LSE: STAN), open up interesting possibilities for the group to add additional revenue streams. I  like their plan to launch the biggest Asia FOREX platform

The recent 9 % correction allows us to buy/ add  at a cheaper valuation. 

Parkway Life Reit. 

Parkway Life REIT is in a league of its own, being one of the only REITs that can boast an uninterrupted increase in its recurring distribution per unit (DPU) since its IPO in 2007.

This week, the healthcare REIT announced the signing of new master lease agreements for its three Singapore hospitals.

The new lease agreements will run for around 20.4 years, from 23 August 2022 till 31 December 2042.

Beyond the initial term, Parkway Life REIT has the option to renew these leases for a further 10 years till 31 December 2052.

The new leases are signed with IHH Healthcare Berhad (SGX: Q0F), an international healthcare services provider that employs 65,000 staff across 80 hospitals in 10 countries.

As part of the agreement, Parkway Life REIT will also commit a one-time capital expenditure (capex) of S$150 million to revamp all three Singapore hospitals.

The capex will commence no later than 1 January 2023 and is estimated to take place over three years.

Parkway Life has enjoyed revenue from its Japanese nursing home assets and supported by insider buying as well.

It is the primary health care asset in our portfolios.  

OCBC Bank

New group CEO Helen Wong said that the lender saw growth in multiple areas, driven by the strength of OCBC’s diversified franchise.

The broad-based growth saw the bank achieve a net profit of S$1.16 billion for the quarter due to higher fee income and reduced allowances.

OCBC’s financial and operating numbers demonstrate the bank’s resilience and ability to continue growing even as the world slowly recovers from the ravages of the pandemic.

Here are five things that investors should want to know about the bank’s latest earnings.

1.   A surge in net profit

    2. Net Interest Margin  has stabilised

    3. Steadily-increasing assets under management

    4. Lower overall allowances

    5. Interim dividend raised

 

These reports are from Smart Investor, Singapore and extracted from latest company quarterly reports.

Biden’s supporters are turning on him based on his handling of the on going Afhgan crises. Especially those who have sons, relatives, friends and daughters in the military. There are  calls for him to resign and this could be the catalyst for a correction in US/ World  market shares. The shares I reviewed in todays report should not be affected no matter what Biden does.

Keep safe

Bill

Review of Dialog

14 August 2021

Dear Fellow Investor,

Review of Dialog

We are holding Dialog as an exposure to oil . It is a high quality blue chip with 9 % held by EPF and 7.4 % held by KWAP. The founder Ngan Boon Keat holds 23.3 %.

Since March 2021 there has been consistent buying by institutions,  the founder as well as other insiders .

Below is the Bloomberg insiders report showing lots of green arrows. Each green arrow represents an insider purchase. An insider only buys for one reason and that is he thinks prices will rise. An insider has deep pockets and buys value on price dips. He is also not concerned with price volatility because an insider knows the fundamentals of the company  better that most.

Recent CGS CIMB research summary:

Market not factoring in full long-term potential from PP3 (Singapore BP Terminal) However, the operating environment remains challenging in other ways. International travel restrictions continue to hamper Dialog’s ability to do overseas plant maintenance work, and the oil price volatility in CY20 as well as the global border closures seem to have slowed down new customer acquisition and development at PP3. The last major customer acquisition was BP Singapore, which was announced two years ago in May 2019; since then, Dialog has not announced any new customers for PP3. The dearth of positive newsflow has caused its share price to decline more than 20% over the past year. Our SOP valuation of its existing businesses is RM2.34; we expect the value of future PP3 developments to add a further RM1.48, giving a 32.6% upside to the current share price. We reiterate Add as we view Dialog as undervalued relative to its long-term potential. SOURCES: CGS-CIMB RESEARCH

Dialog is an Asian/ Malaysian recovery story . As business returns to pre pandemic levels, MCOs are lifted and borders open oil demand will increase.   

Below is the Bloomberg summary of analyst reviews: Average target is RM 3.91.

Extreme negative sentiment and heavy foreign fund selling has driven the KLSE and Dialog price down below historical valuations. According to today’s Edge foreign fund ownership of Malaysian shares is at 19.3 % the lowest since 1998.   

Catalysts for Malaysian recovery are two: vaccination rollouts and resolution of political uncertainty. In  Tong’s Edge column today he details why mathematically the worst for the Klang Valley should soon be over. All 6.2 million  will be fully vaccinated  with full vaccine efficacy in 5 weeks and therefore the number of infected and hospitalized will drop dramatically.  

On 7 September the parliament will meet and we will know the results of the confidence motion.  The market will tell us ahead of time if it is a positive result. We might see a pickup of foreign fund buying as well as increased volume. So far the market is holding support which is positive.  

Next week I will review 3 of our Singapore holdings: OCBC, Parkway Life Reit and SGX. These are recovery plays.

Keep safe

Bill

At some point inflation will turn from transitory to  endemic contrary to what the US Federal Reserve forecasts. Commodities should benefit.

Bright Spots

 7 August 2021

Dear Fellow Investor,

Bright Spots

Last week the KLSE dropped marginally due to increased Covid cases and political uncertainty. The technology index however made a new high.

   KLSE Technology Index

The technology index has performed well due to strong exports and demand trends. The pandemic has motivated businesses to adapt and innovate which technology companies facilitate.

Our holdings in KGB- recently split 2 for 1 with a free warrant - is a manufacturing company who developed a gas to make semiconductors in China. They leveraged on their expertise with rarefied gasses to support China in their efforts to manufacture semi- conductors.  The management of KGB used to be with Malaysian Oxygen and are well established with many years of specialized knowledge of industrial gasses.  With the technology sell down in China, KGB was not effected. They keep a low profile and have good relations with the authorities.  

 

  KGB line chart .

From Tong’s Edge portfolio Saturday: Malaysia is aggressively vaccinating its population and will hit 50% fully vaccination by end of August. On reaching this milestone the country should  relax mobility restrictions quickly and allow economic activities to resume.

His Malaysia portfolio reflects this view as he continues to hold quality companies with pricing power  and recovery potential.  In his overseas portfolio he holds Singapore Air for recovery. We hold SATS and Comfort Del Gro for the same reasons.

Based on consumer surveys, market sentiment is still extremely negative.  We are at 2000 levels of 62.2 % based on a recent CGS CIMB report.  Reality does not support this number.

From the Saturday Edge: The pandemic is still unfolding and while the number of infections remain high due to mass testing, around 98 % of these cases are asymptomatic or with mild symptoms. As vaccinations are ramped up the hospitalization rate is expected to decrease which will improve our healthcare system to respond.

If you are holding quality shares do not sell- enjoy your dividends and earnings growth. If you have spare cash consider to shop for bargains . If you wait for recovery prices might be much higher.

Keep safe

Bill

Malaysia and Singapore offer numerous benefits compared to New York and many big cities. Taxes are relatively low. Crime is limited- gun violence is virtually non  existent.  Business is free to operate with minimal regulation and there is no tax on capital gains related to equities or fixed income.