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.     

Technology index advanced despite of the dropped in volume of KLSE

 31 July 2021

Dear Fellow Investor,

Despite the low volume drop in the KLSE last week, the technology index advanced. Our tech holdings in Inari, Pentamaster and Frontkin were not affected. Our blue chip dividend producing shares were also supported both in Malaysia and Singapore.

When I select shares, I follow Warren Buffet’s principle of pricing power. Pricing power calculates a firm’s markup or the extent to which a company can raise prices over and above costs. I combine this with other margin strength.

For example, Inari supplies Radio Frequency  chips to Apple for their I Phones.  Despite recessions, bad news, negative sentiment and inflation, Apple is able to raise their prices due to high and consistent demand .  Have you noticed how the Apple store in the KLCC is always filled with customers although many other shops have low footfall ?  Once the MCO is lifted, Apple store in KLCC will fill up again.

Other shares we hold with pricing power include Carlsburg and Heim. They have unique brands and a loyal following who will pay a premium price for their products.  In Singapore we hold SATS and Sheng Siong. Both have pricing power. SATS controls the majority of gateways at Changi airport and other airports which means other competitors are locked out of gateway catering services.  It gives them a moat and the  flexibility to increase prices should inflation become a problem. Sheng Siong operates a supermarket chain in Singapore mostly located in HDP flats. The have pricing power as HDP residents can conveniently buy their wide selection of meat, fish and fresh vegetables products without having to travel.  Even an increase in prices should not drive customers away. Because of their low debts and strong balance sheet if interest rates go up they are not impacted.  

The Star today had an article on the National Recovery Plan. It mentioned that Labuan now has herd immunity with 86% of the residents vaccinated. This is the mass vaccination trend which will lead to economic recovery.  By October 2021 the target is have Malaysia fully vaccinated. This could be the light at the end of the tunnel.

Combine this with low interest rates, quantitative easing, and loose money, expect funds to flow into equities.   Inflation  could be an issue, but buying high quality dividend producing companies with pricing power   should help us prosper despite inflation .

Keep safe

Bill

Quality companies with pricing power can help us tackle inflation.

Testing Support

24 July 2021

Dear Fellow Investor,

Testing Support

EWM, the Malaysia country fund traded on the NYSE is testing November 2020 weekly support.   This index consists of blue chip index shares such as Maybank,  Tenaga, Genting and Digi and is a good representation of the Malaysian stock market. Despite the extreme negative market sentiment the index is holding steady with low volume.  Low volume means there is not much interest in the market and no panic liquidation by professionals.   

My advice is to stay the course with your quality index linked,  export  and  technology related shares. Enjoy the dividends.

We will also reap the dividends of the vaccine rollout. Malaysia has the highest pace of vaccinations in the region   according to today’s Edge page 14 report.  A Bloomberg commentator this morning mentioned that the human spirit will overcome the virus. It took less than a year to come up with  effective vaccines which in part was made possible by advanced technology and operation warp speed by Donald Trump.  Malaysia is now administering over 410,000 shots a day compared to 170,000 a month ago. This is a warp speed rollout and could be one  reason the KLSE is not collapsing.   

This is the path to herd immunity and a normal economy. Hong Kong now allows  full capacity in restaurants with fully vaccinated staff and vaccinated customers . Singapore now allows groups of up to 5 for dine in. Customers must prove they have been vaccinated.  This could happen in Malaysia.

Keep safe

Bill

Thank God for free markets and capitalism. That is what will pull us out of the health crises and economic slump.

Bidenflation

17 July 2021

Dear Fellow Investor,

Bidenflation

US markets were hit Friday by a combination of factors. The catalyst for the fall were comments by   Treasury  secretary Janet Yellen who said expect inflation to rise over the next few months before falling. Other Federal Reserve officials even suggested that tapering would be scaled back and interest rates might go up. This spooked the markets and the Dow which had been up over 100 points dropped to close down 299 points while the tech heavy Nasdaq dropped 115 points.    

What is the reality ? According to the latest CPI numbers:

Here are the items really driving up inflation: Car rental 87.7% (y/y change) Used cars 45.2% Gas 45.1% Laundry machines 29.4% Airfare 24.6% Moving 17.3% Hotels 16.9% Furniture 8.6% Bacon 8.4% TVs 7.6% Fruit 7.3% Shoes 6.5% Fresh fish 6.4% New cars 5.3% Milk 5.6% Rent (OER) 2.3%

Below is the US Federal Reserve balance sheet as of 15 June 2021.

The trend of money creation is up despite what the authorities are saying about transitory inflation. If the fiscal stimulus programs of 3.4 trillion USD are passed by the US congress the money creation trend will accelerate.  The odds favour it will be passed as politicians love to spend.  Other central banks will join the party . To give a maximum economic boost interest rates will be suppressed . This will benefit stocks . We must remain fully invested.  Buy the dip.  

As pandemic conditions normalize with lockdowns and increased vaccinations  expect Malaysia to recover. Infection rates are up but testing  rates are also up which explains this anomaly.  

There was a very interesting letter to the editor  in last week’s Star. It responded to a Bloomberg article by some UK critics saying Malaysia was a failed state  due to the slow  response to the pandemic.  The truth is that Malaysia has the 2^nd highest vaccination rate in Asia . The critics also said Malaysia is facing financial difficulties. The truth is S & P sovereign credit ratings  rates Malaysia as A- long term and A2 short term. In contrast the sovereign credit ratings of failed state Somalia is D according to the Economist intelligence unit.   In terms of FDI, foreign direct investment of RM 86 billion in the manufacturing services industries   were approved compared to  RM 41.2 billion in the 1st quarter last year. Rising crude oil and high commodity prices will also support our economy and balance of trade.  

Our focus on technology stocks should bear fruit and also our recovery stocks which have pricing power.  Inflation will help.

Stay the course

Bill

Political disputes are settled in the failed state Haiti by shooting the president. Despite the infighting and political bickering  Malaysians would not resort to such extremes  and another reason we are not a failed state.