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Sunday, January 31, 2016

SWISS: $4 billion may have been misappropriated from state-owned companies in Malaysia

Switzerland's top prosecutor said $4 billion may have been misappropriated from state-owned companies in Malaysia.

$4 billion may have been misappropriated from state-owned companies in Malaysia

“We are very concerned,” Swiss Attorney General Michael Lauber told The Wall Street Journal on Friday. “We have found evidence of suspicious money transfers linked to 1MDB going through Swiss financial institutions, and we believe that it is very important that it is shared with the Malaysian authorities.”

The investigation revealed indications that funds have been misappropriated and said it was looking into four cases of potential criminal conduct. It said some of the funds had been transferred to Swiss accounts held by former Malaysian public officials and current and former officials from the United Arab Emirates.

The comments represent the most detailed allegations yet of wrongdoing around 1MDB. The fund, set up by Malaysian Prime Minister Najib Razak in 2009 to help strengthen the Southeast Asian country’s economy, also faces a continuing probe by the U.S. Federal Bureau of Investigation and had been the subject of several inquiries in Malaysia.

1MDB had made a statement that no contact has been made by any foreign investigative authority but stood ready to cooperate should the need arise. The Malaysian Prime Minister and United Arab Emirates' representatives couldn't immediately be reached for comment.

Swiss authorities have spent five months investigating unnamed people tied to 1MDB over bribery of public officials, misconduct in public office and money laundering.

Officials worried, however, that Malaysia’s decision this week to halt an investigation into the transfer of $681 million into Mr. Najib’s private bank account after clearing him of wrongdoing could hamper their own probe.

On the back of the decision to halt an investigation into Mr. Najib's private bank account,  Malaysian Attorney General Mohamed Apandi Ali said he was ready to cooperate with the Swiss probe. “My office intends to take all possible steps to follow up and collaborate with our Swiss counterparts, and we look forward to receiving the findings of their investigations.”

In a statement, PetroSaudi said it wasn’t the subject of any investigation and hadn’t been accused of criminal conduct. The company denies any wrongdoing, it said.

A spokeswoman for Genting declined to comment. Tanjong didn’t immediately respond to requests for comment. Efforts to reach SRC and ADMIC were unsuccessful.

Swiss officials said they became interested in the activities around 1MDB due to concerns the country’s banking system may have been used for illegal activities.

In July, The Wall Street Journal reported that an earlier Malaysian probe found the funds had entered Mr. Najib’s account through banks including a Singapore branch of Zurich-based Falcon Private Bank AG, as well as other companies and entities linked to 1MDB.

Falcon hasn’t been accused of wrongdoing and has said it is cooperating with the investigation.

The Swiss said they have frozen tens of millions of dollars in assets at unspecified Swiss banks as part of their probe.

The Wall Street Journal has reported that the investigation has focused on transactions made using Falcon, which is owned by an Abu Dhabi sovereign-wealth fund that has done business with 1MDB. The fund hasn’t responded to requests for comment.

In its announcement Tuesday, the Malaysian attorney general’s office said it had no evidence that the Saudi donation to Mr. Najib “was given as an inducement or reward for doing or forbearing to do anything in relation to his capacity as a Prime Minister.” All but $61 million of the money was eventually returned to the Saudis, Malaysian authorities said.

Following that announcement, the Swiss attorney general’s office said it contacted the Malaysians directly and asked for mutual assistance between the agencies to continue, and for evidence unearthed by the Swiss to be considered.

Microsoft wants everyone on board with "Windows 10" by July 2016

It is not a new story that Microsoft is giving away free "Windows 10" to everybody. The shift in strategy of the Redmond company has been gaining momentum under the leadership of Satya Nadella.

Giving away the operating system for free may seems like a suicide strategy given how traditionally, the OS is one of the revenue generating products for Microsoft. The reason behind this is simple and it has been written over time and time again...
WINDOWS 10 on one billion devices.


1 Billion Windows 10 Devices


Getting Windows 10 onto one billion devices, (matching Apple's number on the iOS) is great but tough. Windows is a computer operating system, not a phone operating system and the era of PC's dominant has long gone.

Of course, the PC market is still huge and massive, about 270 million units per year, and for Microsoft to arrive at their one billion target is still very much a possibility and to do it, and do if fast, Microsoft is giving it away for free.

NEW LINE OF REVENUE

So, why Microsoft wants the one billion target if they are not going to make money from it. That is the problem Nadella answered....and they call it services.



Office 365, for example works better when a lot of people used it and it's a subscription based model. Instead of a one time fee, usually around $100 per copy, Microsoft will now gets $5.99 every month, which means after a year plus, the company will already generates more money than the old model.

This change has caused Microsoft to revamp their business model, and look for different ways to monetize Windows. The Windows Store is another example that Microsoft is working on. Let's not kid ourselves...it's still very much a baby product (look at how so many developers are turn off by it and you would know) but with more people engaging with Windows Store, the better it will become. It is still not relevant with most users as of now but Apple's Store is one example of it, and in its' recently announced holidays quarters, under "Services" which means App Store is worth $31 billion per year business.

Microsoft may not be in that league yet but Nadella definitely is eyeing some of that $31 billion of business.

With "Windows 10" for everyone, the higher chance will it be for Microsoft to achieve the similar success on this front.

WINDOWS EVERYWHERE

I think Nadella may be even more ambitious than what most people have wrote about or talked about so far.....The idea of a Universal Apps, Windows 10 on 1 billion devices...sounds great but Nadella may have an eye on the mobile market. While Windows 10 mobile is a failure so far, Microsoft is engaging with more mobile users on Apple and Google's own homeground by developing more apps for iOS and Android.


Windows embracing iOS and Android

The effect of the engagement is strong and Microsoft is getting a lot of good reviews so far.

I think the idea is to have Windows everywhere....and when Windows Store is on par with both Apple's App Store and Google's Playstore, and a more matured Windows 10 OS, it's not that difficult to attract people to move over the Windows platform.

Microsoft's continued presence in the mobile market and the introduction of Surface will be a game changer. It's not going to be great at this point of time, but by making the engagement alive, they will reach there eventually, and the faster it is with one billion devices on Windows 10.

That's probably the reason why Nadella is not talking much about the mobile market at the moment.

CLOUD SERVICE THE MAIN AGENDA

If you look at it, all these changes are made possible because of the big revenue that kick in from cloud services at the moment.


And Microsoft will build on this. With all those apps available in iOS, Android, and also their own Windows store, Microsoft will definitely leverage on these engagements to encourage more subscription for their cloud services.

The 1 billion devices on Windows 10 will make it even easier for the company to grow their cloud business. I believe it will not be long before Microsoft take over Amazon on the cloud front in terms of market share.


Machine Learning, Hololens and IoT

It is perhaps one of those things that all technology companies are looking into but with one billion devices on Windows 10 and making Windows 10 a universal OS across different form of devices, Microsoft will be at an advantage.





The Hololens is one attempt by Microsoft in creating a new form or device. And the company is also working with car makers by leveraging on the existing Machine Learning capabilities that the company has.

ALL THE FREEBIES TO MAKE YOU LOVE WINDOWS


"We want to move from people needing Windows, to choosing Windows, to loving Windows," said Nadella at a recent press event for Windows 10. "That is our bold goal."

That love is lacking, and as Microsoft moves to what Nadella calls "Windows as a service," then the idea of operating systems becomes less relevant.

The future will be a battleground over services and apps that work across multiple devices and different form factors, and Nadella’s background in cloud seems to be influencing Microsoft’s moves here.





WHAT HAPPENS IF THE PLAN GOES WRONG?

Yes, all of those grand schemes look GREAT but Microsoft has the tendency of a big flop at times. Will this be one of it? What if they could not get to one billion devices? They have a target deadline to reach this number by 2018, and now they are already at 200 million devices.

But come July, a big decision will have to be made. Will Microsoft still be giving away "Windows 10" for free?

Speculations have been made on the several options that Microsoft has:


1) Go back to the original model of charging users a license to get Windows
2) Extend the period of time Windows 10 is free for
3) Change out the free offer for a different user

Any of the three options are possible and many are prediction Nadella to take the option 2 and gives another 6 months of free Windows 10 to get as many people as possible on board.

Microsoft's latest holiday's quarter report show signs of a Windows Store growth (has the engagement really been successful?), third party apps are great, cloud revenues continued the uptrend (despite a slowdown from Amazon), and the Surface line ups are doing great...will these be enough for Microsoft to make a comeback?

Let's see what happens on July 26, 2016!



"Experts" on where the Market is heading

2016 didn't start off brightly, especially in the global stock market, with China's slowdown seems to be worse than expected and the oil supply glut has yet to improve. The China's circuit mechanism in trying to control the volatility of the market has failed and make things worse....so, the big question now: just where the market is heading?

It is common for us to have different views on the market outlook but here are the summaries that we collect from some of the "experts" in the industry.

MAYBANK IB

Maybank Investment Bank (IB) expects the current volatility in the stock market to continue, especially in the first quarter of 2016. Maybank IB Regional Chartist & Economics Lee Cheng Hooi was reported by Bernama as saying the factors impacting the stock market would be largely externally induced by headwinds revolving around US monetary policy normalisation, China's structural slowdown and emerging market impact.

Meanwhile, for the first half 2016, he said the key themes to influence the local bourse includes construction, which will be boosted by the execution of the 11 Malaysia Plan (11MP) projects, the state of the ringgit, weather phenomena such as El Nino and Shariah investment.

He said investors should remain defensive in the near term and invest based on selected themes in the face of the current market condition.

The investment bank has picked some of top stocks for this year, naming Gamuda, Sunway Construction, Cahya Mata Sarawak, Harbour Link, Genting and Hong Leong Financial Group, as among them.

-reported by Bernama on January 30, 2016

Affin Hwang Investment Bank Bhd

Affin Hwang Investment Bank Head of Retail Research Datuk Mohd Nazri Khan expects it would be “just a matter of time” for the FTSE Bursa Malaysia (FBM KLCI) to pull below the critical 1,600 points support level. 

The FBM KLCI hit a record high of 1,892 points in August 2014. At current level, the index was down 15% from where it was at its highest peak.

The market is considered to be in bear territory after falling more than 20% from recent peak.

Stocks in India last week joined benchmark equity gauges of Japan, China, Singapore, the UK, Germany, France and Spain in bear territority.

As it is, a slowdown in China, weaker commodity prices and the unpredictable currency movement represent the biggest threat to the Malaysian economy, Nazri said.


-reported by The Star Business News on January 27, 2016


GEORGE SOROS



Soros is someone that Malaysian will be very familiar with as former Prime Minister Tun Mahathir claimed George Soros to be partially responsible for the economic crash in 1997 of East Asian markets, and here's what he got to say.

“China has a major adjustment problem. I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds of the crisis we had in 2008”
Soros believes that China’s currency devaluation is transferring problems to the rest of the world, and that higher interest rates in the United States will add pressure domestically. If you’re not sure if you should heed Soros’ warning, he averaged approximately 20% year for his hedge fund from 1969-2011.


ALLIANZ CHIEF ECONOMIC ADVISER

Mohamed El-Erian, the chief economic adviser of Allianz believes that markets are in full-scale contagion, and that central banks have run out of ammunition in a slow-growth economic environment.

The era for borrowing growth and profits from our future have reached an end for the US market. On the Fed rate hike, he thinks that two rate hikes should be the maximum expectation and not four.

On his recommendation to investors, he said 20% - 25% to be allocated to cash. He's most cautious about junk bonds, emerging markets and energy. There is very little optimism from him on the current and future economic conditions.

Jim Cramer
Cramer is most concerned about a strong U.S. dollar, oil and earnings. He believes that the U.S. dollar can no longer be used as an excuse for poor performance, and that it has become more of a cost. In regards to oil, he cites too much supply and net enough demand to achieve balance. Furthermore, he feels that housing and auto sales have peaked.
CONCLUSION??

The one thing interesting about the market is that whatever the "experts" say, it's not necessarily true. Any investment should be done based on your own research and analysis. It should be interesting to take note of the opinions of these names though given the track record that is rather convincing. These "bearish" opinions might not be true but it's good to take note and stay cautious in your investment endeavor. 

"Price is what you pay. Value is what you get." - Warren Buffett

Saturday, January 30, 2016

Stock Pick: Uchi Technologies Bhd

2016 hasn't really been that great in the stock market but if you are looking for companies with strong fundamentals and balance sheet, Uchi Technologies Bhd might be the right one for you.

Uchi Technologies Bhd is involved in original design manufacturing (ODM), specializing in the design of electronic control systems primarily for consumer and industrial electrical and electronic appliances industries (such as precision weighing scales and high end household appliances). 

The company had a bad start to 2016, falling by 9.8% to close at RM1.57 on January 29, the last trading day in January. This is in comparison with the FBM KLCI that had dropped by 1.5%. I think the recent drop in price makes the company at a rather attractive value for a long term buy.


Uchi Technologies had a rough start in 2016
The company has a strong balance sheet, cash rich and zero debt. As of the latest quarter report that was released in November last year, the company had RM153.3 million in cash and cash equivalent, where RM149.3 million are in short term deposits. This was an increase of RM20.3 million compared to its' 2014 audited report. 

Besides the strong cash flow, the company also has a consistent dividend payout record and it amounts to a dividend yield of about 6 to 7%. 

In its' 3QFY15 earnings report ended September 2015, Uchi Tech's revenue and operating profit for the quarter increased by 19% and 39% to RM29.4 million and RM14.5 million respectively compared to the quarter ended September 2014, mainly due to the appreciation of the USD against the Ringgit.

The management is expecting the revenue is USD to remain flat for the year ending December 2015.

Historically, the management has proven themselves to be able to help the company to sustain their revenue and income. While the stock might not see much exciting movement, I believe it is one of those counter that has a strong fundamentals to lean on in times of uncertainty. If you are looking for a high dividend yield counter with a strong cash flow to support, Uchi Tech is one of those we think you should put under your watchlist.

Uchi Tech is currently trading at RM1.57, with a PE ratio of 14.14 and market capitalization of RM615.99 million. 

Disclaimer: This is just an analysis of the stock based on our own opinion. We do not have any holding in the counter mentioned.

Wednesday, January 27, 2016

iPhone slowdown

iPhone slowdown? Is that even possible? But that's what's in the NEWS.

This has prompted APPLE Inc. to forecast a sales decline for the first time in more than a decade, adding to evidence that the market for smartphones is becoming saturated and that expansion in China is no longer enough to maintain the company’s unprecedented run of growth.

APPLE's iPhone slowdown?

On Tuesday, Apple said that revenue will be from $50 billion to $53 billion. This is the first quarterly drop since 2003 and it is also below the average analyst of $55.61 billion, according to Street Account. Some of the analysts look at the Q2 guidance provided by Apple seriously as they are usually quite true.

Shares in the company have fallen nearly 20 percent in the last six months. Dow had a 8% decrease while Nasdaq Composite had a 10% fall for the same period. This probably reflect the worries that analysts have on how the slowdown in China could hurt Apple's expected growth in the region.

While Apple remains immensely profitable, generating a record $18.4 billion in net income on sales of $75.9 billion in the December quarter, it’s no longer benefiting as much from the rapid adoption of smartphones around the world.

Mobile-phone rival Samsung Electronics Co. also recently reported weaker-than-expected results. Apple Chief Executive Officer Tim Cook has expanded in China and released new services and products such as Apple Watch to help broaden the business, but the company’s dependence on the iPhone leaves it vulnerable to any deceleration in demand.

I think I've mentioned this in a post before on how Apple is becoming like Microsoft under the helm of Steve Ballmer. Tim Cook is a brilliant CEO in achieving record sales and profit, but if there is no focus on another breakthrough products or marketing like how Steve Jobs did, Apple will suffer the same fate as any tech companies that grow too big and too comfortable.





Monday, January 25, 2016

Saudi not afraid of low oil prices

Saudi Arabia is not afraid of low oil price and this will send the already gloomy oil & gas industry even further downwards.

Saudi Arabian Oil Co. is maintaining investment in oil and natural gas projects and has formulated a new strategy in response to cheaper crude as it studies options to sell shares in its parent company and downstream refining and chemical operations, Chairman Khalid Al-Falih said Monday at a conference in Riyadh. The state-run producer, known as Saudi Aramco, can sustain low oil prices for “a long, long time,” he told reporters.



It is a signal that the Saudi is sending across....that this is a fight they will not lose. 

“Saudi Arabia is well-documented to be the clear lowest-cost producer -- we have scale, capabilities, and technology to help us maintain our low cost as we go forward,” he said. 

He also mentioned how the company encourage fiscal discipline and in the company's investments capacity, oil and gas had not slowed down.

LOWEST COST-PRODUCER

State-run company, Aramco, supplies all of Saudi Arabia’s crude oil, pumped more than 10 million barrels a day in each of the last 10 months. The company’s output was 10.25 million barrels a day in December, adding to a global supply glut that pushed benchmark Brent crude prices down 35 percent last year and a further 14 percent this month. The company continues and shows no sign of slowing down, even as they seek to assert their role as the world's lowest-cost producer. 

Amid the financial pressures due to the tumbling oil price, Aramco is studying a possible share sale as the country looks into privatizing companies in all industries.

There are two tracks for an IPO.

First, it's to bring together a significant downstream portfolio of Saudi Aramco involving refining, chemical and marketing businesses and offer these in a big bundle that is going to be a significant addition to the local Tadawul stock market.

The second one is the first in the history of Saudi Arabia: to actually offer an appropriate percentage of the company at the top.

The company won’t offer shares in its crude reserves, which belong to the state, he said Sunday in an interview on Al Arabiya television. Saudi Arabia holds 267 billion barrels of proven crude reserves, the world’s second-largest after those of Venezuela, according to data from BP Plc.

Aramco sees demand for crude growing, Al-Falih said. The company isn’t responsible for current low crude prices and is hoping for a “moderation” in price levels, he said.


Oil at $110 was unsustainable, Al-Falih said.

“Demand will grow as it already started in 2015, and there will be a period not far into the future where demand catches up with supply and inventories are worked out of the system, and we will be back at where we were before,” he said.

Until that happens, Al-Falih said, “Saudi Arabia can sustain low oil prices for a long, long time.”

Malaysia Weekly Highlights

PETRONAS to cut spending by RM50 bil over 4 years

PETRONAS out of gas?

Over the week, Wall Street Journal reported that Petroliam Nasional Bhd (Petronas) plans to slash as much as 50 billion ringgit ($11.4 billion) in capital and operating expenditure over the next four years, according to an internal memo sent to staff by its chief executive officer.

Petronas is the Malaysian government’s biggest source of revenue, covering as much as one third of the annual budget, even after cuts in subsidies and the introduction of new taxes to diversify sources of income. 

Petronas confirmed that it had circulated the memo as part of “ongoing efforts to optimize costs to address the impact of the continuous fall in crude oil prices.” 

The firm has been hit by a slump in oil prices, which have fallen over 70% over the past 18 months.

BANK NEGARA RESERVES FALL TO US$95.1 billion

Bank Negara Malaysia's international reserves fell by a marginal 0.21% to US$95.1 billion in the first two weeks of January 2016. The ringgit has been hit by the volatile Chinese markets at the start of the year. They stood at a five-month high of US$95.3 billion as at December 31st, 2015. The central bank issued a statement saying that the reserves position is sufficient to finance 8.5 months of retained imports and 1.1 times the short term external debt.







SRR cut to 3.5% by Bank Negara, keeps OPR  

Bank Negara Malaysia kept its key overnight policy rate (OPR) at 3.25% last Thursday but announced a 50bps cut in the statutory reserve requirement (SRR) ratio for banks to 3.5%, effective 1st of February, following the monetary policy committee meeting. The objective is to ensure sufficient liquidity in the domestic financial system. The reduction in SRR is the first since July 2011. 
Bankers and analysts say the cut will release some RM6 billion into the banking system. While it may be a relatively small amount, it sends a message to the market that the central bank is taking steps to address perceived tight liquidity in the industry.

AUTOMOBILE INDUSTRY'S 2016 FORECAST FALL
  
The Malaysian automotive industry hit record sales in 2015 but the projection for 2016 by Malaysian Automotive Association (MAA) will fall. The industry volume this year is expected to fall by 2.5% amid local and external economic headwinds, before a rebound in 2017. MAA's latest forecast for 2016 is 4.83% or 33,000 units lower than its earlier forecast of 683,000 units in July last year.

THE POLITIC GAME CONTINUES: THIS TIME AGAINST MUKHRIZ

The party's crisis in Kedah, where certain division leaders are demanding the ouster of Menteri Besar Datuk Seri Mukhriz Mahathir is getting the headlines last week, and UMNO President Datuk Seri Najib Razak had a discussion over it in Putra World Trade Centre (PWTC), according to The Edge Weekly.


 

Monday, January 18, 2016

IRAN adds to oversupply in oil

It is difficult to see oil recovering in the near term despite the investment in Phillips66 by Warren Buffett.

The oversupply doesn't seem to deter anyone from going into oil business. With the economic sanctions lifted, Iran is ready to get back into oil business and Bloomberg reported chief analyst at CMC Markets in Sydney saying by phone, “There is ongoing negative pressure on oil prices from oversupply."



"Iran is not new, but we’ve arrived now at the point where sanctions have been removed and it’s going to be a key focus for the markets over coming weeks. The question is how much supply can come online in the short-term.”

The Persian Gulf nation will only be able to increase oil production by 100,000 barrels a day, or 3.7 percent, a month after sanctions are lifted and by 400,000 in six months, according to the median estimate of 12 analysts and economists surveyed by Bloomberg. Iran is the fifth biggest OPEC producer.

Saudi Oil Minister Al-Naimi declined to comment Sunday when asked how the removal of economic sanctions against Iran might affect prices. The kingdom is the world’s biggest crude exporter, pumping 10.25 million barrels a day in December, according to data compiled by Bloomberg.

Hedge funds last week increased bearish oil wagers to a record as global equities fell and sanctions on Iran were poised to be lifted. Speculators’ short position in WTI rose 15 percent in the period ended Jan. 12, data from the U.S. Commodity Futures Trading Commission show. It’s the highest in records dating back to 2006. Net-long positions fell to the lowest in more than five years.


“Iran’s additional crude shipments have the potential to further depress prices, perhaps to as low as $25 a barrel,” Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings Inc., said by e-mail Sunday.

Sunday, January 17, 2016

Iran sheds ECONOMIC SANCTIONS

Iran sheds ECONOMIC SANCTION, allowing it to move out from under the yoke of crippling economic sanctions, the United Nations’ nuclear agency announced Saturday.                                                       

ECONOMIC SANCTION NO MORE

The country has complied with terms of an international agreement to curb its nuclear development program.

The International Atomic Energy Agency concluded that the Islamic Republic had curbed its ability to develop an atomic weapon as required under an accord with world powers.

“Iran has undertaken significant steps that many people doubted would ever come to pass,” clearing the way for sanctions to end, U.S. Secretary of State John Kerry said in Vienna late Saturday after Iran’s compliance with the agreement was certified. Still, he said the accord “doesn’t wipe away all of the concerns” of the international community, and “verification remains, as it always has been, the backbone of this agreement."

With some sanctions lifted, Iran is setting in motion a deal with Airbus Group SE to add 114 new and used jets for Iran Air, whose fleet averages an estimated 26.8 years of age, according to website Planespotters.net. Aircraft of that vintage are practically antiques by industry standards, and the more-modern Airbus planes will let Iran Air expand domestically and fly more overseas routes.

 

TENSIONS ESCALATING

 

The IAEA assessment sets off a financial windfall for Iran that regional competitors Saudi Arabia and Israel, which bitterly opposed the deal, say will empower the theocracy in Tehran and further destabilize the Middle East. Tensions between mainly Shiite Muslim Iran and Sunni-ruled Saudi Arabia have escalated since the agreement was signed, helping fuel wars from Syria to Yemen where they back opposing sides.

“Israel will continue to monitor and warn about Iran’s dangerous activities and will do everything it can to protect its own security and defend itself,” Israeli Prime Minister Benjamin Netanyahu said in a statement released by his office in Jerusalem.

As holder of the world’s fourth-largest reserves of crude and largest of natural gas, Iran gains immediate access to about $50 billion in frozen accounts overseas, funds the government says it will use to rebuild industries and infrastructure. It also opens the door to foreign investors who are keen to enter a relatively untapped market of 77 million people.

 

 

Saturday, January 16, 2016

Everything goes wrong in 2016

We're just into the second week of 2016 and it already felt like a Bear Market. 

Not even the pessimist on Wall Street thought things would go wrong so quickly in 2016. 

BEAR MARKET in 2016?


Dow Jones Industrial Average sank 391 points on Friday, China is struggling to prop up its slowing economy and calm its volatile stock market, and oil price is below $30 a barrel in 12 years....

The selling has been intense, and European stocks officially entered bear market territory on Friday when the Stoxx Europe 600 Index closed down 20 percent from its record high in April. Now global equities have lost more than $14 trillion, or 20 percent, since June. The pace of the drop has been so fast it’s unraveled about half of the rally since a low in 2011. Investors have fled into the U.S. Treasury market, and pushed the yield on the 10-year note below 2 percent for the first time in months.

 


Friday, January 15, 2016

While most people turn away from oil, Warren Buffett goes in

Oil price's plunge might seem like forever especially for those living in Malaysia. It's as bad as it could go but if there's any positive that is required, one just had to look at Warren Buffet.

When most people turn away from oil, Warren Buffett goes in.

The stock pick king is going in on oil. Has it bottom?

Warren Buffett is expanding his bet on the oil industry, slowly adding to his already large stake in oil refiner Phillips 66 even as crude oil prices have sunk to a 12-year low.

From Jan. 4 to Jan. 11, Berkshire Hathaway Inc, which Buffett has run since 1965, paid about US$390 million for an additional 5.1 million shares of Phillips 66, according to filings with the U.S. Securities and Exchange Commission.

The purchases boosted Berkshire's investment in Phillips 66 to 65.68 million shares, or about 12.3 percent of those outstanding, worth $5.21 billion as of Thursday's market close.

Phillips 66 shares closed up $4.03, or 5.4 percent, at $79.28 on the New York Stock Exchange.


As there can be a lag of several days between purchases and SEC filings, we may find out soon that Berkshire continued to buy at the lower levels.




Thursday, January 14, 2016

China's Mountain Debt a Bigger Economic Concern

If you think that China's stock market is scary, it's time to look at its' mountain debt. 

$28 trillion of credit bubble with the economy growing at its' slowest pace in 25 years, I wonder....JUST HOW BIG THE PROBLEM REALLY IS.

And China's inconsistent policy and direction under President Xi Jinping and Premier Li Keqiang...question marks are everywhere...whether they are for financial sector reform and shifting their $10 trillion-plus economy from one powered by investment and exports to one more focused on consumption and services or not.

We all know what happened as 2016 kick off with one of the greatest nightmare in the history of the stock market. And the yuan currency...it's crazy to talk about it. But the biggest problem perhaps is the question of how the Chinese officials will keep the economy growing to repay past obligations, without resorting to a fresh pick-up in debt to fund more stimulus. It was China’s reliance on credit-fueled growth in the wake of the 2008 global financial crisis that resulted in one of the biggest debt expansions in recent history, and today’s hangover.

A report on Tuesday forecast shows China's 2015 expansion slowed to 6.9%, the slowest pace since 1990, and like all other analysts, I believe the 6.9% is not that all bad. But the real problem to me is what about the "mountain debt" that was supercharged by spending on infrastructure and housing, that delivered average economic growth of 10 percent over the past 30 years. Government, corporate, and household borrowing totaled $28 trillion as of mid-2014, or about 282 percent of the country’s GDP at the time, according to McKinsey & Co. 

At the end of the day, an economy fueled by debt cannot last. The deleveraging process will happen eventually.

Wednesday, January 13, 2016

Stock Pick: Hup Seng Industries Berhad

Hup Seng Industries Berhad increased by 3.88% to close at RM1.34. 

HUP SENG's cream crackers


The stock has a low beta of 0.61 and of low volatility. 

The company mainly manufactures biscuit such as cream crackers, crackers, marie biscuits, cookies for domestic and export markets. 

While the company is currently trading at P/E of 20.64 which is on the high side, Hup Seng has a very strong balance sheet. The company has zero borrowing and and is cash rich with RM115.3 million as of the latest quarter report.This is very good especially in turbulence time. It is also not affected by a lot of speculators given that the volume is rather stable and low. It is definitely a counter that one could consider for the long term.
The company is also giving out dividend on a consistent manner, which is about 4.1% in yield.

The company's latest earnings report were in November. The 3QFY2015 report shows revenue grew 10% to RM206.8 million, driven by both domestic and export market. Cream crackers continued to be the strong performer for the Group. Profit before tax on the other hand jumped 51% to RM52.9 million. The increase in profit was largely due to improved sales margin brought about by lower input costs, weaker Ringgit and successful modification in the pricing strategy.

I personally love this stock and the management team who have proven themselves historically. The negative side of choosing this counter could be the lack of liquidity as the stock is not as liquid as other stocks that were heavily traded. The valuation with P/E of 20.64 is slightly on the high side but I think given the reliability of the management team, the premium paid for the stock is well justified. Definitely a counter to hold for the long term, say 5 to 10 years in my view.

DISCLAIMER: This is just an analysis of the stock based on our own opinion. We do have a bit of holding in Hup Seng Industries Berhad.

Malaysia's "Budget 2016" tweak to be announce on 28 Jan

Treasury secretary-general Tan Sri Mohd Irwan Siregar Abdullah said Prime Minister Datuk Seri Najib Razak is set to announce the revisions to Budget 2016 on January 28.

He assured the press and the public that the government will not cut the salaries of two million civil servants in the tweaks. 

"The prime minister will announce the revised budget on January 28... let’s wait for his announcement to see what the details are," he said at the launch of the World Bank's office in Kuala Lumpur today.

The revision was necessary as the current economic climate had changed significantly from when the Budget 2016 was tabled. Back then, the oil was $48 per barrel but the oil price has now fallen to below US$33 per barrel. 

The Ringgit has also weakened compared to back then.


Crude Oil - Below $30 a Barrel

I just posted about how the nightmare continues for the oil & gas industry in 2016 as the oil price continues to fall but I didn't expect it to drop like this.

Looking at the dynamics, looking at the charts...it's just a free fall.





Oil price free fall



Oil dropped below $30 a barrel in New York for the first time in 12 years on concern that turmoil in China’s markets will curb fuel demand.

West Texas Intermediate crude tumbled to the lowest since December 2003. Concerns that China’s economic growth may slow has soured investors on the prospects for a quick recovery, turning hedge funds the least bullish in five years. A rapid appreciation of the U.S. dollar may send Brent oil to as low as $20 a barrel, Morgan Stanley said.


A SHORT HISTORY ON OIL PRICE

Between 2010 and 2014, oil demand was soaring around the world, as countries recovered from the financial crisis but the supply was never able to keep up. 

Many older oil fields were stagnating. Conflicts in places like Libya and Iraq were restricting supply. Countries had to draw down their stockpiles, and prices soared to around $100 per barrel.

Those high prices were attractive for suppliers and spurred more drillers in the United States to use innovative hydraulic fracturing and horizontal drilling techniques to unlock vast quantities of oil from shale formations in places like North Dakota and Texas. The impact, US crude oil production has nearly doubled since 2010.

Of course, eventually, supply caught up with demand and then surpassed it, and it's really no rocket science....the crash came eventually. 

Things became worse when demand slowed down in the mid 2014. 

Europe had its mess and most importantly, China's economy was starting to slow down. 
The demand slowed down but the supply continues....United States was still producing more and more oil. Iraq and Libya were also starting to bring back more production. So prices began sliding.

In an attempt for Saudi to maintain market share, they too (together with OPEC) decided to increase production in order to maintain market share, hoping that the subsequent fall in oil prices would crush US frackers, who require higher prices to stay profitable.


US drillers turned out to be far more adaptable to low oil prices than the Saudis thought — companies cut costs and boosted productivity in order to keep the oil flowing. US production has stopped growing lately, but the decline has been far less severe than originally predicted. Iraq has nearly doubled production since 2014 as it recovers from conflict. Thanks to the nuclear deal with the US, Iran is expected to start exporting more oil soon, further adding to the supply glut.


The demand slide continues as China's slowdown continues...and here is the dynamics, and it's not good. As long as supply far surpassed the demand, it's difficult to see any comeback in oil prices. 

WHEN WILL OIL PRICE REBOUNDS?

That is really the question isn't it? Some banks project oil prices to keep plummeting down to $20 per barrel this year. Others expect a rebound to around $40 or $50 per barrel as the US shale boom tapers off and demand recovers.

But ultimately, the supply and demand dynamic is the thing for us to keep an eye on. 

If say, a cold war between Saudi Arabia and Iran heat up and caused disruption in the production, the oil price may start to rebound. If China's economy suddenly rebounds unexpectedly, that could have a similar effect. Or maybe Iran will do something that causes European Union and US oil sanctions to snap back into place. Alternatively, maybe low oil prices will persist indefinitely.

Tuesday, January 12, 2016

2016 - Nightmare continues for Oil

It is easy to think that the nightmare for oil ended in 2015 but the market is showing us otherwise. 

Crude oil's nightmare continues in 2016 as the price fell toward $30 a barrel.

A supply response to lower prices continues to be slow in coming and signs of a China's slowdown is hurting the oil & gas producers. 

The low oil price is hurting the oil & gas sector
 
HOW LOW CAN IT GO?

The drop in oil prices has been accompanied by a fresh round of bearish commentary, with Morgan Stanley calling for prices to fall as low as $20 per barrel while Guggenheim sees crude reaching $25 per barrel.

With the continuous drop, the latest range of investment bank forecasts has them dropping as low as $10 a barrel before finally bouncing back.

So, will it be $25, $20 or even $10? How low can it go? 

Primarily to blame was the 14 per cent slump on China's markets this year, which is being driven by concerns over growth that could ultimately hit oil demand. The stronger dollar also makes oil more expensive in overseas territories.

WILL LOW OIL PRICES BE UNBEARABLE FOR OPEC?


With the price of crude oil collapse by more than 65% to a 12-year low, there are signs that OPEC may have had enough. 

Nigeria's top oil official and OPEC President Emmanuel Kachikwu said the cartel is considering an emergency meeting, perhaps as soon as next month. At issue is whether OPEC would agree to cut production, a move that could help stop the crude price freefall.  

 "I think a ... majority in terms of [OPEC] membership are beginning to feel that the time has come to ... have a meeting and dialogue again once more without the sort of tension that we had in Vienna on this."

When OPEC last met in the Austrian capital in December, it was bitterly divided and refused to cut output. The next ordinary meeting is scheduled for June 2.

Led by Saudi Arabia, OPEC decided in 2014 to wage a price war with low cost producers in the U.S. and elsewhere in a bid to defend market share.

Since then, oil companies have sacked hundreds of thousands of workers, and slashed investment budgets.  

 

Sunday, January 10, 2016

2016: GLOBAL BEAR MARKET?

Some analysts have the view that the start to the year typically are associated with the post-holiday blues with low volume.

It was reported in StraitsTime that analyst, Charles Kong said, "Markets usually edge up on low volume. People take time to recover from the holidays and traders don't usually jump in straightaway."

Well, the theory has been immediately discarded when 2016 kickstart. All numbers in red and sell orders piling up.

The China market was in a free fall with a survey of China's manufacturing confirmed fears that growth was slowing in the second largest economy. The yuan also fell to its lowest in five years. Investors were also getting used to the circuit breaker, with so many people rushing to sell and worries of being caught stuck once the circuit breaker triggers the close of the exchange.

Source from Bloomberg

Over the past week, investors lost an estimated US$2.3 trillion (S$3.3 trillion) across global markets. In Singapore alone, the damage to local stocks was about $27 billion. 

The crash was so alarming that legendary investor George Soros warned that global markets were facing a crisis. "When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008," he said on Thursday. 

TOO MUCH BAD NEWS?

Some analysts pointed on how world events are created this panic.

"You had the sabre rattling in the Middle East and then it was Kim Jong Un's North Korea, and fear over the Chinese economy. This was a perfect storm of events that caused investors to run for the hills."

World's Richest Lose $194 Billion In First Trading Week of 2016

The world’s 400 richest people lost almost $194 billion this week as world stock markets began the year with a shudder on poor economic data in China and falling oil prices.

Forty-seven billionaires lost $1 billion or more during the worst week for U.S. stocks since 2011, according to the Bloomberg Billionaires Index. The combined drop was almost seven times the $29 billion lost in the first five trading days of 2015. The 400 people on the index had a combined $3.7 trillion at the end of the week, compared with more than $4 trillion a year ago. 


GLOBAL BEAR MARKET?  

Could this be a global bear market? Some market watchers are on record that the U.S. is already in a bear market and that it's just a matter of time before the markets fall at least 20 per cent from their high in May last year, the benchmark drop required to meet the bear market definition.

Like Toronto, most of the world's stock markets are already in a bear market, according to a report from the Swiss financial services company UBS.

And like mountain climbers, Stovall says, with all economies tethered together, even though the U.S. "seems to have a solid grip and a solid footing, the other countries don't, and should they slip off of the mountain, they will pull us down with them."
 



Thursday, January 7, 2016

CHAOTIC 29 MINUTES in China

China's market just made a record....and that's a CHAOTIC 29 Minutes in China. The market open at 9.30am local time and in 29 minutes, it was all over. 

The share prices went into a free fall as soon as local exchange opened. One manager of $46 million in Shanghai liquidated all his holdings. Other investors, including a top-performing hedge fund, tried in vain to cash out as circuit breakers brought trading to an abrupt halt. 29 minutes, the market is close. And let's not forget...it's only the 7th January 2015...the 4th day the market opens in 2016...and it's already the second time that the circuit breakers were triggered. 

It was a chaotic day for the China's market. Even after the market were close, a lot of phone calls were made. Flood of angry phone calls from clients on the market plunge and the circuit breaker. It was abrupt on Monday...it was even worse today.

Imagine if you're going to watch a football game....the game was supposed to last for 90 minutes but by the 10th minute, the referee blew the whistle and said it's game over. Manchester United lost! What the hell! (You get what I mean with this description right?)

29 minutes and it's game over!
The bigger problem lies with the question why.

It's not like the growth story is over for China. True, the yuan is weakening and the economy is decelerating to its slowest annual pace since 1990, but that’s been known for some time. The currency is actually holding up well versus just about everything but the dollar, and analysts are predicting a 6.5 percent economic expansion this year.

It can't be that bad right? Could it?

Well, it's difficult to predict a volatile market such as this but the main concern is really on the MARKET INTERVENTION BY THE CHINESE AUTHORITIES.

With the policy makers' extreme measure to prop up shares last year, no one knows what will Beijing be doing this time around.

Criticism is intensifying over market-wide circuit breakers, launched at the start of this year, that kick in when there’s a 5 percent swing in the CSI 300. That halts trading for 15 minutes, with exchanges shutting for the rest of the day if the index moves by 7 percent, as it did on Monday and Thursday.

The circuit breaker is a WILD CARD, and something that investors in China are obviously still trying to get used to....while the idea is manage volatility, it also caused a lot of selling pressure as people are afraid to get stuck by the time the circuit breaker is triggered. And when it did, it stop...there's not even any chance for a rebound.

Definitely a day that will go into the history book as one of the shortest period of time that the market was opened.

OPEC war heated up with Wall Street support for shale

The OPEC war against the shale producers are heated up as shale producers look to Wall Street for support. 

Simply put: Another reason to be bearish on crude prices.

Pioneer Natural Resources Co. announced on Tuesday it was tapping investors for $1.4 billion in fresh equity to help finance an increase this year in spending and production in Texas, where wells are still profitable. The share sale shows capital markets are still willing to back the shale industry as crude trades at the lowest in 11 years.

The move, if followed by other top shale producers, could lead to a shallower drop in U.S. oil production than currently expected, putting further downward pressure on crude prices. On Tuesday, Brent, the global oil benchmark, fell below $35 a barrel for the first time since 2004.

US Oil Production seen slowing down slightly but not enough

Based on the chart from Bloomberg, the oil production in US peaked at almost 9.7 million barrels a day in April. Since then, it has dropped to 9.3 million barrels as companies tightened their belts to cope with low prices. The U.S. Energy Information Administration, a federal body that tracks supply trends, expects production to drop to 8.8 million on average in 2016.

SUPPORT FROM WALL STREET

In a sign of investors’ appetite to support shale companies, Pioneer increased the size of its offering to 12 million shares from 10.5 million shares within hours of its first announcement. The company said it expected to sell the new shares at $117 apiece, a 6.5 percent discount to Tuesday’s close, raising gross proceeds of $1.4 billion.

Of course, even with the support, not all is rosy for the shale companies. 
At current prices, investment bank Tudor Pickering Holt & Co. in Houston estimates that the shale industry will spend $9 billion more than it will earn this year, although the gap could be "partially covered" with asset sales and additional cuts to investment programs. 

With this, things may be intensified...with the shale companies relying on Wall Street for support while OPEC is counting on the pain from the low prices to rebalance the oil market. 

Definitely not a very good sign for the oil companies with this news....will the oil price goes lower? Will it hurt Ringgit further? Ouch! I'm definitely hoping that things will turn better but I ain't so optimistic about it. 

Wednesday, January 6, 2016

Global Semiconductor sales dipped in November

TheEdge Markets has reported that global semiconductor sales fell 3% year-on-year in November last year, according to the US-based Semiconductor Industry Association (SIA).

SIA, representing U.S. leadership in semiconductor manufacturing, design, and research, yesterday announced worldwide sales of semiconductors reached $28.9 billion for the month of November 2015, 0.3 percent lower than the previous month’s total of $29.0 billion and 3.0 percent down from the November 2014 total of $29.8 billion. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

A drop in sales for global semiconductor sales, source: WSTS

Source: http://www.design-reuse.com/news/38963/november-2015-semiconductor-sales.html
Well, if you are looking at Bursa Malaysia, it is normal to look at the export stocks these days especially given how RM has dropped so much from just a year ago. The weakened Ringgit against the USD is of course a good news for these export counters but if you are expecting the semiconductor industries to do well, statistics suggest a slight drop.

So, what say you? Will the drop in sales be offset by the weakened Ringgit, making the semiconductor counters a good buy still?

According to the news report from The Edge Markets, SIA president and CEO John Neuffer said the global semiconductor sales in November were hurt by softening demand and lingering macroeconomic challenges. However, he said, “Despite these headwinds, the industry may narrowly surpass total annual sales from 2014 and is projected to post modest sales increases in 2016 and beyond."

To read the original news article by The Edge Markets, here is the link: http://www.theedgemarkets.com/my/article/global-semicon-sales-dipped-3-y-o-y-november-2015-says-sia

Even as I wrote this, I have a counter that is under the semiconductor industry: Inari Amertron Berhad.