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.

Recovery Delayed

 29 May 2021

Dear Fellow Investor,

Recovery delayed

The theme in the KLSE for the last 3 weeks is delayed recovery. On Friday it was announced a total lockdown with only essential services allowed to operate.  Traffic has slowed to a crawl, shopping malls are empty and people are afraid. The main topic of conversation and news flow is Covid infections, clusters and vaccination schedules.

Despite the negative news flow the KLSE is well supported. The 1560 support level has been tested 5 times this year and held. Foreign investors are nibbling. Vaccination rates are accelerating.   There is deep value in our market and professionals know it .

There was an insightful article in the Edge today by Dr Mahathir. Bottom line he said “ let’s have a serious vaccination campaign to reduce the number of new cases.”  He reported that if China with a population of over 1.1 billion can solve their Covid problem and achieve a herd immunity of 80% why can not we with a population of only 32 million be slow to rollout ? He even suggested we use Sinovac as it has worked well in China .

My view is we will get through this. There is light at the end of the tunnel.

Inflation watch

Despite the increase in money supply by  almost all world central banks the US Treasury 10 year bond has congested for the last 11 weeks. If the market were afraid of higher rates prices would be accelerating. This is in the face of a multi trillion fiscal stimulus plan by Joe Biden and free money to millions of Americans.  Common sense  tells me this can not last and at some point inflation and interest rates will rise. I do not trust those who run the Central Banks. They have consistently been wrong having failed to warn us about the 2008 financial collapse .  I am sceptical of the word transitory inflation which is the buzzword of US treasury and federal reserve officials.

I just finished a book Fed Up by Danielle Booth who was an insider working for the US Federal Reserve. She details the corruption, abuse of power and incompetence of these unelected officials and why we should be very sceptical of their actions and pronouncements. Most hide behind their PHD credentials and most have no practical market experience.

Weekly chart of the US 10 year Treasury Bond 

Next week will review what shares/ sectors  foreigners are buying after the dust settles from the lock down order.

Keep safe

Bill

Playing for the animals at the Berlin zoo. Just like musicians today the zoo animals lack an audience. Link below.

https://www.facebook.com/dw.euromaxx/videos/237055981349722/

The uncertainty that caused the delayed recovery

 22 May 2021

Dear Fellow Investor,

Recovery delayed

As mentioned last week the recovery has been delayed with uncertainty about the new Malaysian lockdown and increased Asian/Malaysian  infection rates and has caused the KLSE,  SGX  and most Asian markets to be under pressure.   In today’s Star there was some rare good news. It was reported that the country’s Covid 19 vaccinations recorded its fastest rate on Wednesday with more than 80,000 shots administered. This was the highest daily figures since March 2. So far 2,236,695 Malaysians have received a vaccine dose.  

A second round of vaccinations of Astro Zeneca Covid 19 will be open for registration on noon Sunday 23 May.  Bookings for vaccination slots can be made via the website at https://www.vaksincovid.gov.my/

I personally have had my first dose of Phizer and the procedure was efficient and well administered by GH staff at a community hall in Kajang. The only side effect was a slight soreness in my arm.

The inflation story has effected sentiment and is on the radar of most market participants. The fear is higher interest rates which could trigger equity market collapse. 

This will hurt growth and technology shares especially those that are highly geared.  

However; the 10 year US T Bond yielded 1.62 % on Friday little changed for the week signalling equities/bonds are well supported and inflation is not a major concern among professionals .  

As vaccine rollouts are gaining momentum life is going back to normal especially in Europe, UK, China and US.  Commodity markets which were dramatically rising over the last few months  are topping out. Lumber in the US took a 31 % drop from the high in the last 2 weeks. The same is true with base metals and  agricultural markets.

Lumber futures traded on the CME

Supply chains are opening up and this will increase supplies of essential goods and lessen inflationary spikes.  Freight rates are also topping out as shipping gets back to normal.

Another  piece of good news is Malaysian exports. In March 2021 they were up 31 %, the highest in 44 months.  The trend is up. This will support our export related  shares and the economy in general. 

The reason the US, UK, China  and European markets are doing well and Asia is underperforming is because of high vaccination and slowing infection rates in developed countries. Asia will follow. Action is being taken.  The politicians are finally waking up to reality.

Take care and keep safe

Bill

2021 Gold Eagle  The ultimate inflation hedge.

Recovery Delayed

 15 May 2021

Dear Fellow Investor,

Here's wishing all our Muslim readers Selamat Hari Raya Aidilfitri!

Recovery delayed

Early last week saw price pullbacks in most equity markets. This was in part due to  Covid fears, renewed MCOs and fears of inflation due to rising commodity prices coupled with massive stimulus.  Growth and technology shares were  hit  because of fears of rising interest rates that squeeze the profit margins and future earnings of higher leveraged companies.

However; technology is still a preferred sector as Malaysian and Singapore exports continue to increase. The whole world is being driven by  innovation, robotics, automation, artificial intelligence and disruption.  Malaysian  technology shares benefit from these unstoppable trends. Companies  in this space continue to show positive earnings growth.

And because of this there has been heavy insider and institutional buying of Malaysian technology shares on the recent price correction.  

Our portfolios have experienced volatility but we will get through this as the winds of stimulus, low interest rates and vaccination rollouts will benefit our quality investments.

 

Fears of inflation

On Friday, the US 10 year treasury bond fell after retail sales  fell. Employment data contrary to most analysts is also coming in weaker than expected.  Because of that equities rallied strongly .   

The 10 year US T Bond yield is the benchmark of interest rates for the whole world. That is my indicator of inflation expectations. BOTTOM LINE - The reappearance of inflation is acceptable, even positive, as long as it stays moderate. The risk is a return of inflationary psychology.

From Bloomberg the normal supply chain

Keep safe

Bill