[Investment] 25 Golden Rules for Stocks Investing by Peter Lynch

One should always be equipped with the right knowledge and mindset before investing. There are some of you who requested for guides and book recommendation for kick-starting investment. Aside from the well-known Benjamin Graham’s “The Intelligence Investor” also known as the bible for value investor, Peter Lynch best-selling book - “Beating the Street” is also one of my personal top pick for investment readings. Since I'm nobody while Peter Lynch managed one of the most successful mutual fund i.e Fidelity’s Magellan Fund (1977 to 1990), here are the 25 golden rules for investment shared by the legendary investor which you may appreciate:-

1. Investing is fun, exciting, and dangerous if you don’t do any work.
2. You can outperform the investment experts if you use your edge by investing in companies or industries that you already understand.
3. Over the past three decades, the stock market has come to be dominated by a herd of professional investors. Contrary to popular belief, this makes it easier for the amateur investor. You can beat the market by ignoring the herd.
4. Behind every share is a company. Find out what it’s doing.
5. Often, there is no correlation between the success of a company’s operations and the success of its shares over a few months or even a few years. In the long term, there is a 100 percent correlation between the success of a company and the success of its shares. This disparity is the key to making money; it pays to be patient, and to own successful companies.
6. You have to know what you own, and why you own it. “This baby is a cinch to go up!” doesn’t count.
7. Long shots almost always miss the mark.
8. Owning shares is like having children – don’t get involved with more than you can handle. The part-time share picker probably has time to follow 8 to 12 companies, and to buy and sell shares as conditions warrant. There don’t have to be more than 5 companies in your portfolio at any one time.
9. If you can’t find any companies that you think are attractive, put your money in the bank until you discover some.
10. Never invest in a company unless you understand its finances. The biggest losses in shares come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent before you risk your money on it.
11. Avoid hot stocks in hot industries. Great companies in cold, non-growth industries are consistent big winners.
12. With small companies, you’re better off waiting until they turn a profit before you invest.
13. If you’re thinking about investing in a troubled industry, buy the companies with staying power. Also, wait for the industry to show signs of revival. Buggy whips and radio tubes were troubled industries that never came back.
14. If you invest $1,000 in a share, all you stand to lose is $1,000. However, you stand to gain $10,000 or even $50,000 over time if you’re patient. The average person can concentrate on a few good companies, while the fund manager is forced to diversify. By owning too many stocks, you lose this advantage of concentration. It only takes a handful of big winners to make a lifetime of investing worthwhile. (This is very similar to Warren Buffet’s advice to: “Keep all your eggs in one basket – but watch that basket!”)
15. In every industry and every region of the country, the observant amateur can find great growth companies long before the professionals have discovered them.
16. A stock market decline is as routine as a January blizzard in Colorado. If you’re prepared, it can’t hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.
17. Everyone has the brainpower to make money in shares. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid shares and equity unit trusts altogether.
18. There is always something to worry about. Avoid week-end thinking and ignore the latest dire predictions of the newscasters. Sell a share because the company’s fundamentals deteriorate, not because the sky is falling.
19. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.
20. If you study 10 companies, you’ll find 1 for which the story is better than expected. If you study 50, you’ll find 5. There are always pleasant surprises to be found in the stock market – companies whose achievements are being overlooked on Wall Street.
21. If you don’t study any companies, you have the same success buying shares as you do in a poker game if you bet without looking at your cards.
22. Time is on your side when you own shares of superior companies – even if you missed Wal-Mart in the first five years, it was a great stock to own in the next five years. Time is against you when you own options.
23. If you have the stomach for shares, but neither the time nor the inclination to do the homework, invest in equity unit trusts. Here, it’s a good idea to diversify. You should own a few different kinds of funds, with managers who pursue different styles of investing: growth, value, small companies, large companies etc. Investing in six of the same kind of fund is not diversification. And, if you’ve invested in one fund or several funds that have done well, don’t abandon them on a whim – stick with them.
24. Take advantage of faster-growing economies by investing some portion of your assets in an overseas fund with a good record.
25. In the long run, a portfolio of well-chosen shares and/or equity unit trusts will always outperform a portfolio of bonds or a money market account. In the long run, a portfolio of poorly chosen shares won’t outperform the money left under the mattress!

(Source: Beating the Street, Peter Lynch with John Rothchild)

Hey peeps I'm alive :D

There seems to be a reader who wonder why this blog has not been updating

Thousand apology and thanks for the concern, my initial plan for this blog was to update at least weekly as well.

But guys, sadly too many things just caught up (I know excuses right, gotta admit am little lazy too)

Anyway, currently I'm working on a thesis titled:-

"The effectiveness of price stabilisation (greenshoe option) and Malaysia IPO performance" 

Will share my findings real soon.. so stay tuned :) 

pls don't leave =/

[Investment] US interest rate hike forecast

(Some) Economists forecast are like.....

Condition: Federal Open Market Committee (FOMC) meeting  

Forecast: US interest rate hike

If you know what I mean, high 5~

Be an organ donor, will you?

(Note: This neither an investment nor finance post)

Today while browsing the daily news, I came across an eye-catching headline of an article - "Almost 20,000 Patients Waiting For Organs Transplants". From the total, kidney patients recorded the highest potential organ recipients with a total of 19,474 people followed by liver, heart and lung patients.

Source: The Edge Financial Daily, July 10th 2015

(http://www.bernama.com/bernama/v8/ge/newsgeneral.php?id=1151158)

First thing came across my mind was - Oh dear, you must do something! Why do I think I should pledge to be an organ donor:-

God has given me so much in my life with perfect body and organ. Being able to give the gift of life, that's the greatest thing you can do till your last breath. Also, I will be saving someone life who may meant alot to others especially their loved ones. What's more, it doesn't cost me anything to become an organ donor. 

Sharing is caring. 

What others may think about becoming an organ donor:-

1. Probably the doctor might declare your death even before your last breath. 
My view: Even if it really happen, I believe I'm in deep suffering at that situation and it's alright for the doctor to shorten my pain.

2. While you are donating your organ for free, your organ may be sold to the black market and not helping those who really needed.
My view: Black market or not, as long as it save someone life that's matter. Also, black market exist in the first place due to supply shortage and excess demand. If everyone donate their organ, then the black market wouldn't exist no?

3. You don't live healthy life style, are you even qualified for donating your organ?
My view: Never try never know.

4. You may look awful during your funeral.
My view: Who cares? I'm death.

We all can make a difference to the world,

if everyone be a little selfless. 

You may agree or disagree with my view. Organ donation is a medical procedure which involves process of donating organs or tissue from a living or dead person to be transplanted into living recipients who, in many cases, is very ill or dying. You can pledge to become an organ donor online and if you would like to learn more about organ donation kindly visit http://www.dermaorgan.gov.my/en/what-is-organ-donation/

You may opt to donate the following organ & tissue :-

Today July 10th 2015, I'm proud and happy to take this pledge to be an organ donor.

[Investment] Top 5 Things to Consider before Investing in Student Accommodation

While the stocks markets are not doing too good and the fixed deposit in the bank does not yield the expected return, people are always on the look for better alternatives to park their Moola $$ for better return. 

There are growing trend of investment in UK/ Australia student accommodation property being extensively marketing in Malaysia. I will just call it a student pod here since it is typically a single room (without hall & kitchen) just sufficient for a bed and study desk, nothing more. 

1. Typical Marketing Pitches

Selling price from £45,000

>8% net yield p.a.

3-5 years rental guarantee

NO stamp duty, rental income tax and capital gain tax

Few units left!!!!!

Does this sound familiar?

Student pods are usually marketed with attractive pitches such as high return and guaranteed yield to attract investors.  Questions to be pondered: (1.) If the entry cost is low and the return is so attractive, why are the local investors not buying it? Why do they even need to market the student accommodation property to overseas investors so far from home? Doesn’t it sound fishy? (2.) Do you even need to advertise so badly with more than quarter page of the newspaper or organise a seminar/ expo if just few units are left?

2. Abandon projects

According to various sources, there have been various cases that abandoned projects and developers failed to deliver the promises guaranteed yield. Always remember - the profile, financial and credibility of the property developer and the track record of its past projects are important to evaluate the worthiness of the investment in student accommodation.

3. Do the maths!

The selling price may seems to be low by itself, but don’t forget you are investing in a student pod which the general size range from 120 sqft – 200 sqft. Doing the maths itself by dividing the selling price over the floor area, the price you are paying are most likely higher than the apartment/ condo in your neighborhood. It’s overpriced! Guess what, most of the time, investors are actually subsidising the guaranteed rent by paying an inflated price for the unit they secure.

4. What happens after the guaranteed period?

How can you sell something if it is sold overpriced to you? Most likely you will just sell it at a loss. Also, the real market rental return are usually much lower than the guaranteed return after the guaranteed period. Besides, there are limited exit strategy as resale value usually fall after the guarantee return run out and student pod typically difficult in attracting buyers. So what if you can’t find a buyer? Guess, you will just need to hold for more than 10 years to break-even. Worst case, what if the student pod you owned is vacant?

5. Financing

The salesperson will tell you that the investment amount is so low that the banks usually do not offer loan for investment in student pod. Think about it, is the risk of the investment in student pod too high that the bank will not like to offer financing? What’s next? You must either be cash rich or the salesperson may suggest you to take up a personal finance or borrow from your family & friends dan lain-lain. This sounds so silly, personal financing interest rate will cost you more than 10% which is above the guaranteed return of 9%. Furthermore, relationships with family & friends are priceless. Does it worth the risk of breaking the relationship bond?

Please note over here, I’m talking about student pod also known as Asrama to Malaysian. There are of course people making money with student accommodation by investing in apartments and renting out the bedrooms, but managing it will be troublesome.

Investment that look and sound attractive, with smooth-talking salespeople, slick websites or sophisticated brochures and prospectuses, can still be a scam or crappy deals. The return may always seems attractive but may not commensurate the risk.

Be a smart investor, don’t be impulsive. THINK before you invest, don't let GREED lure you into investment scams or crappy deals!

If you or your family & friends do have some experiences in any investment scheme either genuine, scam or abandoned projects, I would like to hear from you! You are most welcome to comment (which will be moderated) or message me through the contact form at the bottom of my page, I will try my very best to reply every message. 

Sharing is caring, let us learn from each other~ 

[Investment] Quality of earnings per share (EPS)

It is usually assumed that EPS is a widely used indicator for investors’ ratio – price earning ratio (P/E ratio). P/E ratio is often used to value of investment decisions, such as buying/ selling shares, mergers & acquisitions and public listing exercises. Somehow, there are significant limitations imposed on EPS quality and usefulness.

Creative Accounting/ Impression Management

EPS is only considered high quality when it is “relatively true representation of what the company actually earned.” -- Rick Wayman. There are many strict standards and regulations about how to report the earnings of a company in its financial statements. However, there are ways that easily distort the reported EPS by simply applying various measuring standards (e.g income recognition, depreciation method, off-balance sheet financing, etc) that fits the purposes of the company with the effect of any creative accounting. Unethical companies may use EPS information to influence the investors and market expectation by smoothing out EPS trends.

Cash (from operation) is KING, not profit

The best way to evaluate quality is to compare operating cash flow per share to reported EPS, because cash is “king” not profit. The excess cash from operation can be utilised to purchase new fixed assets or to reward shareholders in the form of dividends. If operating cash flow per share is less than EPS, it means that the company is generating less cash than reported EPS. In this case, EPS is of low quality because it does not reflect the negative operating results of the company and overstates what cash operating results. 

Comparability

EPS of one entity cannot be compared with another entity because the denominator of the number of shares is not comparable. Any attempt to make inter-entity comparisons will necessarily involve the risk of erroneous conclusion to be drawn. EPS may not be comparable over time because of changes in owners’ equity structure (e.g shares placement, shares buyback, shares dividend and shares split). While the addition of diluted EPS provides partial mitigation, considerable care is needed when comparing EPS numbers of an entity over time. 

Non-financial consideration

The other sources of information used to analyze quality of EPS for investment decision making are management's strategic plan, business projects plan, production capacity information, sales and marketing information. Management could also indicate the course of action that the company has taken or proposes to take remedy on material deficiency EPS. Investor should have kept a watchful eye on its financial performance and management's strength, in order to make a good investment decision.

Macro view

The investors should also have a general view of market conditions and the overall business environment. A negative cash flow and EPS may not necessarily be illegitimate, investors should analyze the EPS trend in relation to industry trends. Investors can also compare the unfavourable performance of the company within the same industry to identify business cyclical. 

To conclude, EPS as a sole indicator itself does not indicate much information for investor. Making investment decisions requires not just figure of EPS but all types of information include past, present and future information as well as evaluating the cash flow. General view of market conditions, overall business industry environment, current business and world economics events play an important role in the process. However, the difficulty is getting all the information is a timely, costly and concise manner between those who have it and those who need it for investment decision making.

[Investment] Your biggest investment - HEALTH!

(Source: The Star cover page as at 27 Feb 2014)

Overweight, obesity, hypertension, diabetes, high cholesterol...
Are you one of these group above? 

Sadly, we are all busy chasing for money at the expense of our health.

Trust me, insurance agents will be going all out there with this cover story by instilling fear of the breadwinner to promote insurance policy.

Come on guys, buying insurance won’t solve the problems.

But seriously, the biggest investment in your life should be your own health.

Nobody but you alone are responsible for you own health.

Being healthy need not spending more money, just invest a little more effort will make your body feel better.
Healthy lifestyle start now not tomorrow.

Investment tips for the day:

THE GREATEST WEALTH IS HEALTH.

(Winners of unhealthy lifestyle culture: Life insurance and healthcare sector;
Biggest losers: You & your loved one)

GLCs to STOP Foreign Assets Buying?

To contain the strong capital outflow and depreciating of Ringgit, MOF had finally taken some actions.

Malaysian government-linked firms asked to stop buying foreign assets

6 Jan 2015

"KUALA LUMPUR (Jan 6): Malaysia's finance ministry has asked government-linked companies (GLCs) and statutory bodies to temporarily halt purchases of foreign assets, in response to falling commodity prices and in a bid to contain capital outflows. The ministry confirmed that a circular signed by the treasury's secretary-general on Dec. 26 was a move to boost domestic consumption. In an email response to Reuters, the ministry said that the entities were "requested to give priority to domestic investment activity and postpone or put on hold, purchase of assets or investment abroad" "

On the other hand....

EPF to raise overseas exposure to 26% in 3 years

10 Feb 2015

"KUALA LUMPUR: To generate more consistent returns in the long term, the Employees Provident Fund (EPF) is looking to increase its overseas exposure to 26% of the fund’s total investment assets within the next three years, according to chief executive officer Datuk Shahril Ridza Ridzuan.  “At 23% [present], we plan to move [it up] to 26% over the next three years. So we are looking at adding on about 1% every year,” he told a briefing on the EPF’s 2014 investment results yesterday. The growth in foreign assets, added Shahril, will come from fixed income, equities and real estate."

*Click on the news headlines for full story

(Source: Financial Daily The Edge)

Doubt if GLCs are taking the orders seriously.

[Economics] Economic Outlook Snapshot for 2015

Malaysia 2015 Outlook

• In light of the weaker growth prospects, another interest rate hike this year is off the cards, even in the face of a weaker currency.
• Domestic demand and ETP will remain prime mover of growth.
• Exports to benefit from global recovery especially given lower oil prices.
• Fiscal reforms and subsidy cuts underway to rein in budget deficit and debt.

Global 2015 Outlook

• The global economy enters 2015 on mixed footing. In the US, where growth is starting to look good, there are questions about slack in the labour market, the outlook on inflation and when policy rates are likely to rise.
• Growth rates are expected to go up in the US and possibly Japan, but China will remain slow. European growth is unlikely to deviate much from the pace in 2014.
• There is potential policy rates rise in the US but China to implement further cuts. The European Central Bank will start buying sovereign debt and Japan goes even more turbo on quantitative easing.

(Source: Various research reports and news portal)

[Investment] CIMB-RHB-MBSB Three-way Merger

This is a continuing blog from my previous post on Why mergers fail to unlock the expected synergy?. The three-way merger somehow garnered my interest since it has been on the news headlines for almost half a year and it is by far the biggest corporate deal in Malaysia (up to RM94 billion) - although the deal didn't come through.

For ease of understanding and to cut a long story short, so here's the compiled news headlines for the proposed three-way merger ranked by chronological order. 

Date	News Headline
09-Jul-14	Stocks trading suspended
10-Jul-14	BNM approval to commence negotiation and exclusivity agreement between CIMB, RHB and MBSB
08-Sep-14	EPF: Right to vote on merger critical to protect members’ interests
09-Sep-14	RHB Cap unlikely to be priced at significant premium if EPF allowed to vote
30-Sep-14	Abu Dhabi reaches out to M’sia
08-Oct-14	RHB and MBSB boards agree to proposed merger
09-Oct-14	Mega bank merger terms concluded to see share swap between CIMB-RHBCap, formation of mega Islamic bank
10-Oct-14	CIMB’s shareholders to hold 70% stake in enlarged banking group
13-Oct-14	Malaysia's three-way bank deal is far from done
13-Oct-14	Moody's: Mega bank merger credit negative for CIMB Islamic Bank, benefits RHB
14-Oct-14	Mega bank merger credit negative for CIMB Islamic Bank
15-Oct-14	MBSB will cause asset quality weakness in merged mega bank: Fitch
21-Oct-14	Bank merger plan can still proceed even if EPF is not allowed to vote
21-Oct-14	CIMB, RHBCap, MBSB share trade suspended pending annoucement
23-Oct-14	RHBCap shares fall 0.2%, CIMB down 0.6%, MBSB drops 1.5% after EPF disallowed from merger vote
24-Oct-14	Abu Dhabi state fund asks for more in $22 bln Malaysia banking deal
30-Oct-14	EPF will not trim stake in CIMB
30-Oct-14	Bursa to decide on EPF vote
31-Oct-14	CIMB-RHBCap-MBSB post merger integration to cost RM1.4b
03-Nov-14	Merger valuations seem fair, but will Aabar accept?
20-Nov-14	Aabar now in favour of mega merger
01-Dec-14	Merger will go through “with or without EPF”, says Nazir
10-Dec-14	Bursa says no to EPF’s appeal to vote in banks merger
17-Dec-14	Potential revision in Malaysia Building Society’s offer price
14-Jan-15	Merger deal is off, confirm CIMB, RHBCap and MBSB
15-Jan-15	Aborted mega bank merger highlights tougher environment, says Fitch
16-Jan-15	Market relief on aborted merger

(Sources: Financial Daily The Edge)

The implications on stocks performance

It's late and I'm starting to counting star, so here's a chart that explain all:-

Shares performance (return in %) of MBSB, RHB and CIMB from 01 Jul 2014 - 20 Jan 2015

(Click image to enlarge)

• Three key events (based on the date of Bursa announcement) are highlighted as it had triggered the stocks to move more than +-10% (i.e the start of negotiation, the proposal of the merger, the appeal for EPF's voting rights was rejected and the cease of proposed merger).
• MBSB: As a target company of the three-way merger, the shares performance had been fueled with positive momentum since the negotiation started and proposed merger announced. The surge of shares price was due to the fact that investors are chasing after the arbitrage over the proposed cash offer price of RM2.82 vs. market price. However, the stocks started to head south after the EPF (major shareholder) voting rights was rejected and the deal was ceased.
• CIMB: The shares performance is worst off since the start of the merger's negotiation as there were negative views on the asset quality and credit rating post-merger. Market relief with sign of stocks rebounding prior the announcement of the withdrawal of the proposed merger.
• We can see that the market actually reacted significantly for all three stocks days (or a week) before the official Bursa announcement on the withdrawal of three-way merger. Was there some noise in the market or was there any party who had the advantage of superior information?
• So who is the biggest loser? From the chart above, CIMB is the biggest loser with its market value depreciated -19.5% since the 1 Jul 2014 (vs. RHB: -8.5%; MBSB:-2.4%). 
• However, investors who are emotional and acted on news flows could also be the biggest loser as well, i.e. investors who bought MBSB shares after the announcement of the proposed merger and hoping the deal to seal (to receive the offer cash consideration) may lose of up to -24%.
• Of course with high trading volume and liquidity during the period, it did provide a good opportunity for traders as well.

Thoughts of the day:

Propose transactions are just proposal, anything could happen.
There's no done deal, until Bursa Announcement say so.

Information asymmetric do exist, you may be too slow to react.
Life is not fair, same goes to the market.

[Investment] Why mergers fail to unlock the expected synergy?

The domestic financial industry has been changing rapidly. Given the more competitive financial landscape arising from greater globalisation and liberalisation, it is vital for banking institutions to respond promptly to enhance capacity and capabilities. With the recent the proposed three-way merger acquisition of RHB-CIMB-MBSB (mega bank wannabe), it just inspired me to blog on a general topic on merger acquisition. The three-way merger had been relatively complicated with lots of drama i.e (1.) starting of with everyone wondering who is the actual acquirer along with plot twist behind the deal (RHB or CIMB?); then (2.) the voting issue of EPF coupled with the demanding Abu Dhabi state fund (Aabar Investment) going against the transaction; (3.) and the concern on valuation as the stocks market heading south; (4.) lastly the merger was finally aborted (what a relief?).

Of course the shares price for three of the companies had been roller coaster but I’m not going to blog about the merger implication on the shares performance at the moment. The rationales behind the mega merger were justified by (1.) valuation creation through synergy 1+1+1=??? (a common argument for all mergers) (2.) earnings accretive (3.) being largest Islamic bank to drive growth (4.) being top 5 largest bank in the region of ASEAN. However, channel check on the ground, most of the employees were not even happy or looking forward for the merger.

Aside from its products innovation and large network distribution, the success of the banking industry also heavily rely on the professional services which people play a key role in the company.  So here's some people issue arose or rather the resistance to change during the transition period that lead to the failure of delivering the expected full value of mergers.

We-they attitudes

  So we used to be fierce competitor and we used to fight but now you expect us to be a happy loving family? After the acquisition has been formally announced, the differences in the two organizational cultures usually lead to competition between employee groups and hostile ‘we-they’ attitudes. Particularly in target company, the employees may have perceived the acquisition as a loss. The merger usually emphasize or even exaggerate the differences in status between employees, the resultant structure is often a constant reminder of who the `winners” and who the `losers’ are. Employees may not know where the new organization is headed and how they fit into the new scheme of things.

Cultural clash

  While the two organizations are still in the transition period, it is common to notice that the number of employees who have been coming to work with workplace concerns and issues has risen dramatically. Most of the complaints surround the culture clash between the two merging companies. It became quite clear that this merger was going to be challenging, given the drastically different cultures of the two organizations. An employee-centric approach to business vs a power culture will make a big difference to way people used to do things i.e. clearly defined position, status, rules and procedures.

Confusion and confusion 

  Despite the fact that mergers and acquisitions look attractive to management and investors, the reality of their execution is that organizations are composed of employees who generally view such organizational changes as a threat. Accordingly, many merger and acquisition deals have inherent retention issues resulting from negative attitudes often felt by employees, including, but not limited to uncertainty about the future organizational direction, feelings of loss of previous organizational culture, uncertainty about personal job security, perceptions of lack of leadership credibility, feelings of confusion due to a lack of communication, survivor guilt due to downsizing of other employees, perceptions of increased job stress and workload.

Lost and found

  In essence, employees from the target company lose trust in their organizations and feel betrayed by leadership. Employees begin to grieve the loss of corporate identity and reminisce about the good old days before the merger. Consequently, in an attempt to regain control over individual job situations, many employees begin to contemplate "jumping ship" as the merger and acquisition is implemented. During the transition period, many of the senior, experienced and qualified professionals may leave due to uncertainty of the post-merger organisational structure of the company and the resistance to change. Following the departure of the head of team and senior management, most of the team members will follow suit leaving to the closest competitors which led to loss of human capital. Not to mention, good staff tend to leave while "bad apples" tend to stay.

As a general rule of thumb, M&A is accepted if the deal is earning accretive. However, people are key assets of a company which go unrecorded. When people leave, they bring along the relationship, network, knowledge, skills and expertise which are irreplacable. When we talk about synergy 1+1=3, have we ever factored in the cost to retain human capital as well as the value loss from human capital (especially in the service related sector)?

Thoughts for 2014 and Happy New Year 2015

It’s the last day of the year 2014 and I open up the newspaper of  The Edge Financial Daily like every other days. Cover page of the FD really seems saddening as the year ending 2014 for Malaysia has been surrounded with many bad news.

(Source: The Edge Financial Daily - 31st December 2014)

There’s some thoughts that came through my mind from a popular Chinese characters “wei-ji” 危 (crisis) 機 (opportunity), i.e. there is a famous saying: in every crisis, although dangers abound, there is also opportunity.

Since there's every opportunity in every time of danger, so here's a summary of my views after relooking (at the points highlighted by FD) for the year of 2014:- 

危 (time of danger)	機 (time of opportunity)
3 Air Disasters (MAS MH3070, MAS MH17, Air Asia QZ8501)	The travel insurance market in Malaysia is under-penetrated compared to other countries. These incidents will lead to higher awareness and the increase of demand for air travel insurance. (Winner: Travel insurance sector)
Worst Floods  Since 1972	Even though insurance company may need to pay out huge claims for the floods, the incident will drive higher pricing for insurance premium. Massive floods in Kelantan also led to loss of infrastructure, homes and cars, there will be need for development and assets replacement. (Winner: Automotive, Insurance and Construction sector)
Crude Oil Plunges 40%	Lower oil price is positive for the household spending leading to higher disposal income and lower inflationary pressure. Also, business with high transportation and energy cost will benefit from lower crude oil price. (Winner: Airlines, Power, and Construction sector)
Ringgit Depreciate 7% against USD	Strengthening USD boost the export industry (with income quoted in USD). (Winner: Glove producer and Shipping sector)
Bank Negara Foreign Reserves dip 11%	There is a need for Government to work on controlling budget deficit. Fundamentals of the economy need to be proven over time and monetary policy stance will remain accommodative.
FBM KLCI fall 5%	FBMKLCI has always been  viewed as trading  at a premium of PER compared to regional market. With the recent correction, market weakness essentially offer opportunities to position for the medium term. Also, foreign fund outflow will reduce the volatility of the stocks market.

Wishing all of you a happy and prosperous new year for 2015, 
let’s count our blessings and embrace for better tomorrow.

May you be blessed with health, wealth and happiness.

[Investment] Crude Oil Price - The million dollar question

5-year and 1 year WTI crude oil prices

(Charting tools by TradingView)

Crude oil price has been falling down and down since July 2014 as there is glut in the oil supply mainly due to:

1. US shale oil revolution
2. Libya back to oil production after civil war
3. Lastly, nobody want to reduce production - OPEC did nothing to support oil price.

As a result, market has turned bearish on the oil&gas counters and net oil exporter countries.

RSI for 5-years and 1-year for WTI crude oil prices broke into lowest indicating strong oversold. 

Million Dollar Question:

Is this the bottom yet? Where will be the floor price? 

When will the oil price rebound? 

At what price level will it normalise?

[Economics] Where is the world heading? Global economy snapshot (Sept 2014)

Global Overview

(i) The International Monetary Fund (IMF) cuts its global growth forecast for both 2014 and 2015 as economy recovery was weak and uneven. It also warned about the risks of rising geopolitical uncertainty (e.g. Russia/Ukraine crisis, ISIS in Syria&Iraq, and protest in Hong Kong) and a financial-market correction.

(ii) The 2015 global economic growth is revised downward to 3.8% for 2015, compared with a July forecast for 4%. The 2015 global growth is cut by 0.2% to 3.8%, whilst 2014 is cut by 0.1% to 3.3%.

(iii) Also, the World Bank lowered its forecasts for growth in developing East Asia this year as China’s expansion moderates and policy makers brace for tighter global monetary conditions. The region is forecast to grow 6.9% in 2014 and 2015, down from 7.1% projected in April. China will expand 7.4% this year and 7.2% next year, compared with 7.6% and 7.5% previously forecast.

USA 

(i) The US economy expanded in the 2Q2014 at the fastest rate since the 4Q2011 as companies stepped up investment and households boosted spending. GDP grew at a 4.6% annualized rate in 2Q2014, up from a previous 1Q2014 of 4.2%.

(ii) US consumer credit increased by US$26.0 billion to US$3.2 trillion in July, which implies that the US consumer confident is improving. With banks are showing a greater willingness to extend credit cards and finance car purchases amid growing demand and rising competition, the accessibility to credit will help spur gains in the housing industry as well with the possibility of accelerating up inflation rate to the desired Fed’s target of 2.0%.

(iii) The Fed indicated improving labor market and rising inflation are likely to create conditions for an initial interest-rate increase in the 1H2015 or later in the year.

Euro-zone

(i) The Euro-zone’s economy stagnated in the 2Q2014 (0.2% in 1Q14) as investment fell by 0.3%. Consumer spending and exports rose, while change in inventories subtracted from GDP. As a result, ECB lowered its 2014 and 2015 GDP forecasts to 0.9% and 1.6% respectively.

(ii) Euro-zone’s inflation also slowed in September to the lowest level in five years, at an annualized rate of 0.3% (August 2014: 0.3%). It is the lowest level of inflation since October 2009, adding to fears of a deflationary spiral. Inflation has been persistently below the European Central Bank's (ECB) 2% target rate.

(iii) The ECB has introduced measures from negative interest rates and long-term loans to asset purchases to fend off deflation and regenerate growth. On September 4th 2014, ECB announced a further cut of 10 bps to its key interest rate. The benchmark rate was lowered to 0.05%, the deposit rate is now -0.2%, and the marginal lending facility is 0.3%. ECB intends to steer the size of its balance sheet back to the levels seen at the start of 2012, indicating an increase in assets of as much as €1trn (US$1.3trn).

Japan

(i) The Japanese economy contracted 1.7% in the 2Q2014 (1Q2014: 1.5%) as the weaknesses in exports and production strike a note of concern about the strength of the economy. Outbound shipments unexpectedly fell in June, while output slumped the most in more than three years as retail sales dropped, showing its economy struggling to rebound from a sales-tax increase last quarter.

(ii) The Bank of Japan (BOJ) has reaffirmed that the Japanese economy is recovering at a moderate pace and will continue its accommodative measure, i.e. the asset purchase programme, to support further growth.

(iii) In addition, the BOJ maintained its pledge to increase the monetary base at an annual pace of 60 trillion Yen to 70 trillion Yen.

Malaysia

(i) For the Malaysian economy, exports and private sector activity continue to exhibit strength due to the recovery in the regional demand and supported by stable income growth and favourable labour market conditions. The overall growth momentum is expected to be sustained.

(ii) Malaysian annual inflation rate edged up to 3.3% in August from 3.2% in July mainly driven by higher food prices.  The inflation is expected to be elevated to 3.5% in 2015 in anticipation of GST and subsidy rationalisation.

(iii) Bank Negara Malaysia (BNM) raised its Overnight Policy Rate (OPR) for the first time in over 3 years by 25 basis points to 3.25% on July 10th 2014 as inflation rate remains above its long-run average. Economists anticipate that the OPR will likely be kept at 3.25% for the rest of the year with a potential rate hike of 25 basis point in the 1H2015.

(Sources: Various countries statistic sites, research reports and news portal)