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Thursday, April 30, 2009

Fidelity Says 'All Things in Place' for Bull Market

By Hanny Wan and Bernard Lo
April 30 (Bloomberg) -- Anthony Bolton, president of
investments at Fidelity International, said a bull market in
equities has already begun and financial shares are poised to
drive recent gains higher.
Low valuations indicate advances that began in March are
the start of a bull market, Bolton said. He favors financials,
consumer cyclical, technology, and "value stocks," such as
retailers, automakers and construction-related shares.
"All the things are in place for the bear market to have
ended," Bolton said in an interview with Bloomberg Television
in Hong Kong. "When there's a strong consensus, a very negative
one, and cash positions are very high, as they are at the moment,
I'd like to bet against that."
The MSCI World Index has dropped 3.2 percent this year,
extending last year's 42 percent slump, the worst annual
performance since at least 1970. Shares plunged as a collapse in
U.S. consumer spending and a freeze in credit markets sent the
U.S., Europe and Japan into their first simultaneous recessions
since World War II.
The declines dragged the gauge's price-to-book value, or
the ratio of stock prices to company assets, to 1.5, down from
2.4 at the beginning of 2008.
Bolton, who is based in London, said that in September he
started putting money into Fidelity's China-focused fund, which
invests in Hong Kong-listed H shares of Chinese mainland
companies, and into Japanese stocks.

Not Bear Rally

Investments in money market funds in the U.S. have reached
a record and could fuel a bull market during the next two to
three years, he said.
Bolton's view contradicts that of Nouriel Roubini, the New
York University professor who predicted the financial crisis.
Roubini said last week he was "still bearish" and that an
economic recovery is going to take "longer than expected."
"Nearly all the broker research I read says 'bear-market
rally,' that's one of the other things that makes me think it's
the beginning of a bull market, not a bear-market rally,"
Bolton said. "When everyone is extremely negative, I want to
bet against that. If you wait for things to get better, you'll
miss the rally."
Fidelity International managed about $157 billion as of
January, according to Hong Kong-based spokeswoman Megan Aitken.

Wednesday, April 29, 2009

Fed Is Said to Seek Capital for at Least Six Banks After Tests

By Robert Schmidt and Rebecca Christie
April 29 (Bloomberg) -- At least six of the 19 largest U.S.
banks require additional capital, according to preliminary
results of government stress tests, people briefed on the matter
said.
While some of the lenders may need extra cash injections
from the government, most of the capital is likely to come from
converting preferred shares to common equity, the people said.
The Federal Reserve is now hearing appeals from banks, including
Citigroup Inc. and Bank of America Corp., that regulators have
determined need more of a cushion against losses, they added.
By pushing conversions, rather than federal assistance, the
government would allow banks to shore themselves up without the
political taint that has soured both Wall Street and Congress on
the bailouts. The risk is that, along with diluting existing
shareholders, the government action won’t seem strong enough.
“The challenge that policy makers will confront is that
more will be needed and it’s not clear they have the resources
currently in place or the political capability to deliver
more,” said David Greenlaw, the chief financial economist at
Morgan Stanley, one of the 19 banks that are being tested, in
New York.
Final results of the tests are due to be released next week.
The banking agencies overseeing the reviews and the Treasury are
still debating how much of the information to disclose. Fed
Chairman Ben S. Bernanke, Treasury Secretary Timothy Geithner
and other regulators are scheduled to meet this week to discuss
the tests.

Options for Capital

Geithner has said that banks can add capital by a variety
of ways, including converting government-held preferred shares
dating from capital injections made last year, raising private
funds or getting more taxpayer cash. With regulators putting an
emphasis on common equity in their stress tests, converting
privately held preferred shares is another option.
Firms that receive exceptional assistance could face
stiffer government controls, including the firing of executives
or board members, the Treasury chief has warned.
Today, Kenneth Lewis, chief executive officer of Bank of
America, faces a shareholder vote on whether he should be re-
elected as the company’s chairman of the board. While Lewis has
been at the helm, the bank has received $45 billion in
government aid.

‘Out of Our Hands’

Scott Silvestri, a spokesman for Charlotte, North Carolina-
based Bank of America, declined to comment on Lewis yesterday.
Lewis said earlier this month that the firm “absolutely”
doesn’t need more capital, while adding that the decision on
whether to convert the U.S.’s previous investments into common
equity is “now out of our hands.”
Citigroup, in a statement, said the bank’s “regulatory
capital base is strong, and we have previously announced our
intention to conduct an exchange offer that will significantly
improve our tangible common ratios.”
Along with Bank of America and New York-based Citigroup,
some regional banks are likely to need additional capital,
analysts have said.
SunTrust Banks Inc., KeyCorp, and Regions Financial Corp.
are the banks that are most likely to require additional capital,
according to an April 24 analysis by Morgan Stanley.
By taking the less onerous path of converting preferred
shares, the Treasury is husbanding the diminishing resources
from the $700 billion bailout passed by Congress last October.

‘Politically Constrained’

“Does that indicate that’s what the regulators actually
believe, or is it that they felt politically constrained from
doing much more than that?” said Douglas Elliott, a former
investment banker who is now a fellow at the Brookings
Institution in Washington.
Geithner said April 21 that $109.6 billion of TARP funds
remain, or $134.6 billion including expected repayments in the
coming year. Lawmakers have warned repeatedly not to expect
approval of any request for additional money.
Some forecasts predict much greater losses are still on the
horizon for the financial system. The International Monetary
Fund calculates global losses tied to bad loans and securitized
assets may reach $4.1 trillion next year.
Geithner has said repeatedly that the “vast majority” of
U.S. banks have more capital than regulatory guidelines indicate.
The stress tests are designed to ensure that firms have enough
reserves to weather a deeper economic downturn and sustain
lending to consumers and businesses.

‘Thawing’ Markets

He also said there are signs of “thawing” in credit
markets and some indication that confidence is beginning to
return. His remarks reflected an improvement in earnings in
several lenders’ results for the first quarter, and a reduction
in benchmark lending rates this month.
Financial shares are poised for their first back-to-back
monthly gain since September 2007. The Standard & Poor’s 500
Financials Index has climbed 18 percent this month, while still
73 percent below the high reached in May 2007.
Finance ministers and central bankers who met in Washington
last weekend singled out banks’ impaired balance sheets as the
biggest threat to a sustainable recovery. Geithner has crafted a
plan to finance purchases of as much as $1 trillion in
distressed loans and securities. Germany has proposed removing
$1.1 trillion in toxic assets.

Sunday, April 26, 2009

New Bailout Disaster .......

If the US government bailouts truly rescued companies, jobs and the economy, Washington might be able to argue that they worked.

But, unfortunately, despite all the money spent, lent and guaranteed, these companies are going bankrupt anyhow.

The prime example: After throwing billions at failed automakers last December, Chrysler is now just days away from bankruptcy, and General Motors could be close behind.

Under an agreement with the U.S. government, Chrysler must restructure its debt no later than next Friday or file for bankruptcy. But the company’s creditors are stubbornly refusing to accept stock in the failed company in lieu of payment.

Meanwhile, an eerily similar scene is being acted out at General Motors: Despite the $13.4 billion Washington gave the company last December, GM is now facing a June 1 deadline to restructure or to file for Chapter 11.

Think of it: In the next 37 days, it’s likely that not just one, but TWO of our nation’s largest companies ... two of our largest employers ... will go broke despite the biggest auto industry bailouts in history!

The lesson is clear ...

These Bailouts Don’t Save Failed Companies.
But They Do BANKRUPT Our Children!

They just add dramatically to our debt burden for generations to come, prolonging the agony for all concerned.

This really stresses us out. To de-stress click here

If you do not de-stress it may cause depression or mood swing or insomia

However, during turbulent times like this is better to trade than to invest.

To improve your chances in trading you can use Fibonacci retracement technique and to learn more about it you can click here.

When the going gets tough the tough gets going. Learn and stay ahead of others.

If you believe in investing instead of trading there is nothing wrong but you need to learn from the best guru in investment, Warren Buffett. Now you are lucky to just click here to get his step by step system.



Thursday, April 23, 2009

New Bull at Bursamalaysia?

The stock market is starting to show the symptoms of a typical bull market. Firstly, investors were not
afraid at all as the KLCI approached the 76.6 pts RSI yesterday, which helped the benchmark index to
stretch its gains within the overbought territory. Another very positive development is that this time, it
was the broader market which fueled buying sentiment on the KLCI component stocks instead,
eventually sending the key index higher by 10.06 pts.
We have said that it is not impossible for the key index to stretch the current uptrend. Although
the market has entered overbought territory, the KLCI could still rally further and carry the daily
RSI over the 80 pt-mark. We have seen this happen many times before in a typical bull market in
the past, especially when the weekly and monthly RSIs are far from being overbought.
Of course, the key technical indicator to watch out today is the daily RSI, which is now trading at the 79
pt-level. No doubt that the market is becoming more and more overbought, but the conviction and
confidence of buyers are also improving by the day since the breakout from the 100-day MAV line. This
type of market sentiment is essential at this stage to carry the KLCI further away from the 200-day MAV
line. Yesterday’s rally is the initial confirmation of a decisive violation of the 200-day MAV line.
Meanwhile, the near-term technical outlook of the KLCI remains firmly bullish. We are still eyeing
a strong support at the 200-day MAV line, which is now situated at the 959 pt-level. An additional
support is seen at the 936 pt-level, followed by the 925 pt-level. To the upside, continue to look for the
1,000 pt-level as the next formidable resistance

Wednesday, April 22, 2009

Improved sentiment

Local investment outlook brightens as the Malaysian government announces the removal of the 30% bumiputra equity quota in 27 services sub-sectors, with immediate effect. Prime Minister Datuk Seri Najib Tun Razak also said that more services sub-sectors would be liberalised progressively (liberalization in the financial sector will be announced next week), heralding a more competitive and efficient sector going forward. Data revealed that inflation slowed to an 11-month low of 3.5% in Mar, giving the central bank room for further interest rate cut to help revive growth. Foreign reserveS dropped 0.2% to USD87.65bn in mid Apr compared to end-Mar, as outflow of capital continues to erode the country’s reserve.

· In the US, mortgage applications last week rose 5.3% from the week before, not so much because of increase in purchases but rather due to loan refinancing. House price index also gained for a second consecutive month in Feb by 0.7%, adding signs of stabilization in the house price slump.

· Meanwhile, unemployment rate in UK rose sharply to 6.7%, amid report that the government support for the banking system has risen to GBP1.4 trillion and may climb higher. The government has taken over four banks, insured assets and underwritten loans to spur an economy ravaged by the global credit crisis.

Bank profits appear out of thin air – Andrew Ross Sorkin

This is starting to feel like amateur hour for aspiring magicians.

Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market.

Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow their audiences with what appeared to be – presto! – better-than-expected numbers.

But in each case, investors spotted the attempts at sleight of hand, and didn’t buy it for a second.

With Goldman Sachs, the disappearing month of December didn’t quite disappear (it changed its reporting calendar, effectively erasing the impact of a $1.5 billion loss that month); JPMorgan Chase reported a dazzling profit partly because the price of its bonds dropped (theoretically, they could retire them and buy them back at a lower price; that’s sort of like saying you’re richer because the value of your home has dropped); Citigroup pulled the same trick.

Bank of America sold its shares in China Construction Bank to book a big one-time profit, but Ken Lewis heralded the results as “a testament to the value and breadth of the franchise.”

Sydney Finkelstein, the Steven Roth professor of management at the Tuck School of Business at Dartmouth College, also pointed out that Bank of America booked a $2.2 billion gain by increasing the value of Merrill Lynch’s assets it acquired last quarter to prices that were higher than Merrill kept them.

“Although perfectly legal, this move is also perfectly delusional, because some day soon these assets will be written down to their fair value, and it won’t be pretty,” he said.

Investors reacted by throwing tomatoes. Bank of America’s stock plunged 24 per cent, as did other bank stocks. They’ve had enough.

Why can’t anybody read the room here? After all the financial wizardry that got the country – actually, the world – into trouble, why don’t these bankers give their audience what it seems to crave? Perhaps a bit of simple math that could fit on the back of an envelope, with no asterisks and no fine print, might win cheers instead of jeers from the market.

What’s particularly puzzling is why the banks don’t just try to make some money the old-fashioned way. After all, earning it, if you could call it that, has never been easier with a business model sponsored by the federal government. That’s the one in which Uncle Sam and we taxpayers are offering the banks dirt-cheap money, which they can turn around and lend at much higher rates.

“If the federal government let me borrow money at zero per cent interest, and then lend it out at 4 to 12 per cent interest, even I could make a profit,” said Professor Finkelstein of the Tuck School.

“And if a college professor can make money in banking in 2009, what should we expect from the highly paid CEO’s that populate corner offices?”

But maybe now the banks are simply following the lead of Washington, which keeps trotting out the latest idea for shoring up the financial system.

The latest big idea is the so-called stress test that is being applied to the banks, with results expected at the end of this month.

This is playing to a tough crowd that long ago decided to stop suspending disbelief. If the stress test is done honestly, it is impossible to believe that some banks won’t fail. If no bank fails, then what’s the value of the stress test? To tell us everything is fine, when people know it’s not?

“I can’t think of a single, positive thing to say about the stress test concept – the process by which it will be carried out, or outcome it will produce, no matter what the outcome is,” Thomas K. Brown, an analyst at Bankstocks.com, wrote.

“Nothing good can come of this and, under certain, non-far-fetched scenarios, it might end up making the banking system’s problems worse.”

The results of the stress test could lead to calls for capital for some of the banks. Citi is mentioned most often as a candidate for more help, but there could be others.

The expectation, before Monday at least, was that the government would pump new money into the banks that needed it most.

But that was before the government reached into its bag of tricks again. Now Treasury, instead of putting up new money, is considering swapping its preferred shares in these banks for common shares.

The benefit to the bank is that it will have more capital to meet its ratio requirements, and therefore won’t have to pay a 5 per cent dividend to the government. In the case of Citi, that would save the bank hundreds of millions of dollars a year.

And – ta da! – it will miraculously stretch taxpayer dollars without spending a penny more. – NYT

US and European Banks Need $875 Billion In Equity, IMF Says

U.S. and European banks need to raise $875 billion in equity
by next year to recapitalize banks to a level similar to the pre-crisis
years -- and twice that amount to match the level of the mid-1990s, the
International Monetary Fund estimated.

The steep funding requirements reflect a financial crisis that the IMF said
continues to deepen along with the global recession. The banking sector's
woes have spread from the housing sector to commercial real estate loans
and emerging-market debt. Overall, the IMF estimates that the U.S.,
European and Japanese financial sectors face losses of about $4.1 trillion
between 2007 and 2010. Of that amount, banks are confronting $2.5 trillion
in losses, insurers $300 billion and other financial institutions $1.3
trillion.

The banking sector has already written down $1 trillion of those losses,
said the IMF, which didn't estimate how much other financial firms such as
insurance companies and hedge funds, have written down thus far.

"Without a thorough cleansing of banks" balance sheets of impaired assets,
accompanies by restructuring and, where needed, recapitalization, risks
remain that banks' problems will continue to exert downward pressure on
economic activity," said the IMF's Global Financial Stability Report, its
twice-yearly review of the world's financial sector. While problems in the
U.S. mortgage sector are generally blamed for the global financial crisis,
the IMF report, showed there other regions played a big role too. About
$2.7 trillion of the losses from 2007 to 2010 were attributable to the U.S.
market, the IMF reported, while about $1.2 trillion came from bad loans and
security losses in Europe.

U.S. banks have written down roughly half their anticipated $1.06 trillion
in estimated losses from 2007 to 2010, the IMF said, while euro-zone area
banks have written down just 17% of their $900 billion in losses. British
banks have written down about one-third of their $310 billion in
anticipated losses. "The Europeans haven't appreciated just how bad their
situation is," said Adam Posen, deputy director of the Peterson Institute
for International Economics, a Washington D.C, think tank.

In certain areas, the IMF has a bleaker outlook than some prominent Wall
Street bears.

For example, the fund is projecting that 7.9% of U.S. loans will have gone
bad by next year. In a recent research report, Calyon Securities analyst
Mike Mayo predicted that losses will crest to 3.5%, a level that he said
would slightly eclipse the peak rate during the Great Depression. Mr. Mayo
estimated that U.S. banks are only about one-third of the way through
losses on credit cards and other non-mortgage consumer loans, while losses
on business loans "seem in the early stages."

The IMF's conclusion that the banking industry's misery is far from over is
likely to cast a further cloud over the industry, even as several big banks
recently have reported quarterly profits. (The latest came Monday, with
Bank of America Corp. announcing that it earned $4.2 billion in the first
quarter.) Many banks' profits, however, have stemmed from a combination of
unsustainably high trading revenue and a variety of one-time gains. Bank
executives, investors and analysts are bracing for losses to continue
accelerating as economies around the world remain mired in recession,
leading more individuals and businesses to default on their loans.

On Monday, those fears led investors to flee the banking sector. Shares of
many top financial institutions, including Bank of America and Citigroup
Inc., suffered double-digit losses, and the KBW Bank Stock index tumbled
15%.

The IMF urged governments to "take bolder steps" in injecting capital
through common shares "even if it means taking majority, or even complete,
complete control of institutions." Government ownership may be necessary,
the IMF said, to restructure institutions.

The U.S. government has tried to avoid outright nationalization. But
Washington could go a long way to meeting the IMF's estimate of the $275
billion in equity that U.S. banks will need by 2010 by converting into
common shares the approximately $200 billion in preferred shares the
government owns in more than 500 U.S. financial institutions. Federal
banking regulators this month are wrapping up "stress tests" of the
nation's 19 largest banks, and industry experts believe the results will
uncover capital holes in the balance sheets of at least several big banks.
But private investors remain reluctant to pump money into the industry
until it's clear that losses have peaked.

---Bob Davis and David Enrich, The Wall Street Journal; bob.davis@wsj.com

Tuesday, April 21, 2009

4 Investing Scam Warning Signs to Watch Out For!

The Bernie Madoff scandal shook the markets and rocked the investing world, and his recent conviction for defrauding thousands of investors in a Ponzi scheme has been an eye-opening warning to many investors that scams come in all shapes and sizes.

And although Madoff's investing scam appears more sophisticated than most scams, it actually follows a pattern similar to other scammers out there.

Warning Sign #1:
Following an 'Elite' Model

Scammers tend to angle their pitches around the lure of the "market elite."

They will sell you on the idea that their strategies are the same used by the fat cats on Wall Street. However, the joke's on the scammer in this one. It actually does not take much effort to find out the strategies of market elites and how they manage their investments.

Don't make the mistake of getting cheated out of your money for information you could have acquired yourself.

Warning Sign #2:
Insider Information

Even savvy investors can be enticed by the promise of insider information. Scam artists know the lure of strategies not available to normal participants, especially in options trading and the forex market.

By promising to provide exclusive access to information you would otherwise miss out on, many schemes can hook you and take you for all you're worth. However, you can rest assured that these insider "tips" are anything but legit.

Warning Sign #3:
Promises of Steady Profits

When investing in a recession, you tend to get used to seeing low numbers on returns. So the thought of steady profits at a high rate can be so enticing that you might overlook the details and sign up without thinking. This tactic is found in just about every investment scam. Although the return amount varies, they all represent that those profits will be flowing constantly.

Even in good times, we all know steady profits can never be guaranteed. Don't get distracted by big dollar signs.

Warning Sign #4:
Limited-Time Offers

One of the oldest tricks in the scammer book is pressuring you with a limited-time offer. These ploys imply scarcity and scare you into the idea that you're missing out on such a great deal that you sign on the dotted line before you even realize what's happening.

While it's true that there are often small windows on certain investing opportunities, you should never allow yourself to be pressured into a deal based solely on the idea that it will never come around again.

In fact, there's one scam that has been pedaling the same limited-time offer to the first 100 buyers since 2004! Take time to read the fine print, and your chances of falling victim to a scam will diminish.


Monday, April 20, 2009

The Great Banking Swindle of 2009

Washington and Wall Street are now playing a financial con game that would make an Enron executive turn green with envy:

The bank “stress tests” now being conducted by Washington are little more than a shameless hoax: Based on the irrational assumption that the economy won’t get as bad as it already is!

The regulators’ notion of “stress” is a 3.3 percent economic contraction and 8.9 percent unemployment in 2009 ...

But the economy is already shrinking at the annual rate of 5 percent and unemployment is already at 8.4 percent with the Obama administration itself warning that it could hit 10 percent this year!

Worst of all,the rosy earnings that banks announced last week are based on jury-rigged accounting rules:

Rules that allow the banks’ accountants to simply wave a magic wand and ...

  • Instantly inflate the book value of toxic assets they own ...

  • Miraculously vaporize liabilities they are responsible for, and ...

  • Magically erase billions of losses in their quarterly reports – treat them like they never even happened.

Put simply, Washington and Wall Street are now so terrified by the true condition of America’s banks, they have resorted to COOKING THE BOOKS!

Their goal is to try to restore confidence. But ultimately, the true consequence is to shatter trust ... and in the meantime, promote the fleecing of millions of savers and investors who allow themselves to be seduced by this shameless scam.

QUESTION:
WHY are Washington and Wall Street
engaging in this blatant deceit?

ANSWER:
Because they already know the TRUTH
— and it has them TERRIFIED!

The next phase of this crisis, hundreds of banks and other lenders will be pushed to the brink — and OVER the brink — demanding hundreds of billions of dollars; perhaps even trillions in new bailouts.


The above is Martin Weiss's opinion.

Will US market crash in May 2009?

Regulators are supposed to issue the results of the bank “stress tests” on May 4th.
Question is, will they have the guts to do so?

No doubt they’ll issue something. But will it be the truth? Or will they sugarcoat the results to prevent — for a little while longer — a full-blown market meltdown?

Why the market plunged today

People can’t keep their mouths shut, especially in Washington. And we’re already hearing about “leaks” on the stress tests.

And if what they are saying is anywhere close to the truth, it’s looking very, very bad — much as I’ve been warning my subscribers for many months now.

The entire U.S. banking system is in a state of utter chaos! Among what we’re hearing:

  • 16 of the biggest 19 banks are virtually insolvent

  • If just two of those banks go under, the FDIC is finished

  • The crisis is much bigger than anyone has admitted thus far — with upwards of $5 trillion at risk!

And forget the so-called “earnings” banks like Citigroup and Bank of America have been reporting. Scratch the surface, and there is a lot of rot underneath.

Forget the fairy tales of economic recovery
and a soaring stock market

Get ready for Dow 6,000, instead.

The recent rally was nothing more than a temporary short-squeeze. No conviction. No long-term investors. No new money. Low trading volume.

Just fast money on a quick-hitting pirate raid.

The Pollyannas of the investing world have been predicting that recovery was just around the corner ever since this stink-bomb first blew up. But they’ve been wrong — and I’ve been right — every step of the way.

Things are going to get a whole lot worse before they start getting better. Worse for the economy. Worse for the stock market.


The above is Michael Shulman's opinion.

Picking ‘darling stocks’ for the long run

While confidence has returned to the market as evidenced by the Kuala Lumpur Composite Index (KLCI) closing at a six-month high of 965.17 last Friday, many investors are wondering how long the rally would last and when a pullback would happen.

As it is, concerns are emerging about the start of a consolidation, which saw trading volume shrinking from nearly two billion units last Thursday to about one billion units the following day.

Over in the US, the Dow Jones Industrial Average rose a mere 5.9 points to 8,131.33 in positive and negative territory range trade last Friday.

Since April 1, the KLCI had risen over 9% from 884.18 points to 965.17 last Friday, up 80.99 points, with market capitalisation rising RM34.88 billion to RM734.88 billion from RM700 billion.

Despite the market volatility over the past few months, a few “darling” stocks had displayed their resilience, underpinned by strong cash flow, good dividend yield and good management (see table on Page 6).

As such, these stocks are expected to continue to deliver in the event of a pullback. Analysts’ top picks include familiar heavyweights such as IJM Corp Bhd, Tanjong plc and Malaysian Resources Corp Bhd (MRCB).

Top Glove Corp Bhd, Nestle (M) Bhd and KPJ Healthcare Bhd are also on the list due to the nature of their businesses in fast-moving consumer goods and essential services, especially healthcare.

On average, these stocks had substantially outperformed the KLCI over the past six months, with MRCB and Muhibbah Engineering (M) Bhd topping the list.

Using October as a base, the KLCI had risen 1.32%, based on Bloomberg data. MRCB’s share price rose 75% during that period while Muhibbah advanced 57.75%. MRCB closed unchanged at RM1.05 while Muhibbah rose four sen to RM1.12 last Friday.

Top Glove, a top pick for Hwang-DBS Vickers Research, has seen its share price go up 48.6% over the past six months. It closed five sen higher at RM5.50 last Friday.

An analyst at HwangDBS Vickers Research said other picks include Malaysia Airports Holdings Bhd (MAHB) and Lingkaran Trans Kota Holdings Bhd (Litrak).

“They have outperformed when the market was down and they would outperform when the market goes back up,” he said.

HwangDBS Vickers Research said MAHB offered robust earnings, with a fixed 50% dividend payout ratio, while Litrak’s business as a toll concessionaire ensured strong cash flow.

AmInvestment Bank regional head for equity research Benny Chew is bullish on plantation stocks — Kuala Lumpur Kepong Bhd and IOI Corporation Bhd.

“With a weakening US dollar, commodities would do better. These stocks are defensive on the downside and leverage on the upside,” he said.

His other picks are Proton Holdings Bhd, Axiata Group Bhd, IGB Corporation Bhd, RHB Capital Bhd, Ann Joo Resources Bhd and Puncak Niaga Holdings Bhd.

“Proton would be doing better now with the return of Tun Dr Mahathir Mohamad and Axiata is expected to also do well with its ex-rights. Valuation is cheap and their balance sheet is no longer dragged down,” said Chew.

While MIDF Asset Management Bhd chief executive officer and chief investment officer Scott Lim has his favourites, “there is no such thing as darling stocks because we have different reasons for investing in various stocks”.

“Good picks are those companies with good business models and management team,” he said, adding that stocks with healthy and growing cash flow would ensure good dividends even during bad times and “dividend yields would grow during good times”.

His favourites include PPB Group Bhd, Dialog Group Bhd, Nestle, DiGi.Com Bhd and British American Tobacco (M) Bhd.

“PPB has proven to have healthy cash flow in the long term and dividends are sustainable and Dialog is well managed. Consumer stocks such as Nestle, DiGi and BAT have always been defensive stocks,” he added.

Although banking stocks had been noted as likely leaders of a market rally, Lim cautioned that such stocks would not be spared from the effects of a recession.

“Invest in companies where the price offers good value and they have good, long-term growth potential, good dividend yield and a management team that is intact. These companies would be stronger than before when there is a recovery,” he said.

For OSK Research, small caps such as Hartalega Holdings Bhd and Wah Seong Corp Bhd are jewels as they have outperformed the underlying index since October.

Hartalega’s position as market leader for nitrile gloves used in the medical sector would ensure that the company would continue to perform while Wah Seong has a strong orderbook of about RM1.4 billion, the research house said.

An analyst from OSK Research said: “We have buy calls on MRCB, Tanjong, Public Bank, IJM and MMC. They have of course outperformed the KLCI by a fair measure with MMC and MRCB as situational plays.

“Defensive big-cap picks are Tanjong and Petronas Gas. The reasons are stock and sector-specific but generally their business models are recession-proof,” he said.

Strong cash flow from its power and gaming businesses is the reason for OSK Research picking Tanjong as one of its top defensive plays. While its share price has climbed 35.2% over the past six months, Tanjong’s good dividends make it a “darling” among long-term investors.

In IJM’s case, the research house believes the company could possibly bag some RM6.4 billion worth of jobs over the next two years. Public Bank Bhd also remains a top pick for the banking sector due to its solid track record, asset quality and dividend yields.

This article appeared in The Edge Financial Daily, April 20, 2009.

Real value emerging, though crisis not over

Although the global financial crisis is far from over, real value of asset prices have started to emerge, planting a sign that it is already the right time to buy quality stocks and bonds.

Singapore-based Aberdeen Asset Management Asia Limited business development director Donald Amstad said while the fund manager did not advise investors on when to enter the market, he believed it was good time to start investing selectively in good quality stocks and corporate bonds.

“If you have RM100, don’t put all of it into the market today. You probably want to put RM10 this month and another RM10 the following month. But the bottom line is, it is okay to start nibbling at certain stocks and corporate bonds,” he told The Edge Financial Daily in a recent interview.

However, he cautioned that investors should be careful and selective in choosing the equities and bonds to invest in, especially in an environment when the de-leveraging of asset prices was not over.

“We still expect further de-leveraging in asset prices, especially among the G-7 nation banks, as defaults are still rising in mortgages in the US, including the good mortgages segment and in new market sectors,” he said.

Nevertheless, Amstad said Aberdeen was generally not concerned about the vagaries of the market or if the market crisis had bottomed out, as it was always on the lookout for good companies.

“The companies that will do well will be those that are cash-rich. This is because these companies will be able to buy assets at distressed prices, from the over-leveraged investors that are selling these assets, which they overpaid two to three years ago,” he said.

He expects share prices of good companies to recover within the next five years.

Aberdeen Asset Management Asia Ltd strategist Peter Elston said the fund manager did not invest from a “top-down perspective” and hence, did not have any preference for investing in any particular region.

“We would look for companies with good corporate governance to minority shareholders, good balance sheet and give excess returns on capital, as well as sustainable competitive advantages that a company has,” he said.

Elston said the fund manager would generally aim at outperforming the MSCI Emerging Markets Index in three to five years, given that Aberdeen held a medium- to long-term view on its investments.

Amstad said Aberdeen had broad confidence in Asia because of its large current account surpluses, sound government fiscal policies and generally low debt and leverage that would form a good foundation to recover from external shocks.

Nevertheless, he said Aberdeen had always invested in Malaysia, Singapore, Hong Kong and India, but not Japan, China, Korea and Taiwan.

“We like companies that always act in the best interests of their minority shareholders, which we are not always able to find in these places. For instance, in Japan, there is a strong sense of social obligation, while in China, there are many state-run banks where the government dictated on when they should lend.

“We want the management to decide on these issues and lend at sensible prices, and we find that banks in India, Malaysia, Hong Kong and Singapore generally lend money to people at sensible prices,” he said.

Elston said Aberdeen had 3.2% of its funds invested in local stocks, including Bumiputra-Commerce Holdings Bhd and Public Bank Bhd. “We like these two banks because we think they are well-managed and we like the banking model, as well as the barriers of entry implemented by the regulators,” he said.

He also believed that emerging markets would play a key role in the global economy arena, as demand in the West collapsed.

“This is the century of emerging economies, where they will take over the developed economies. Forecasts have suggested that the gross domestic product (GDP) of emerging markets will exceed the GDP of developed countries by 2030.

“Even then, the emerging economies would expand even larger, given that these economies cover 85% of the world’s population,” he said.

Elston believed that many emerging economies would be able to stand on their own, and that these emerging economies would have a higher intra-region dependency, and wean off dependency on consumption by the West and developed economies.

“In the last two years, many economies still have not decoupled, but we are now seeing true decoupling, since end-October last year.

“China has the pent-up demand that will enable the country to absorb the demand, which was traditionally consumed by the US.

“For instance, there is one car per 100 people in China, compared with 80 cars per 100 people in the US. Hence, it is important for Malaysia to align itself to the Chinese economy,” he said, adding that, nevertheless, it would take a few more decades before China would overtake US as the global economic superpower.

However, he did not find Eastern Europe as attractive, given that these markets were strained by high levels of foreign debt. “The good news is that these are long-term debts, which give them time to unwind their positions,” he said.

This article appeared in The Edge Financial Daily, April 20, 2009.

Saturday, April 18, 2009

Is It Time to Sell the Rally?

We've seen the market zoom up from its lows in the 6,000s to around Dow 8,000 over the last month, largely on positive banking news including the unveiling of the Public-Private Investment Program and better-than-expected banking earnings from Wells Fargo (NYSE: WFC) and Goldman Sachs (NYSE: GS).

Is this a bear market rally or the start of a sustained recovery? And if we are headed for a fall, which companies are overvalued? We asked our motley crew of analysts, writers, editors, and advisors.

Alex Dumortier, Motley Fool Writer: This is almost certainly a bear market rally built on hope and dreams rather than an objective assessment of the present situation. Take Wells Fargo's buoyant earnings pre-release, which sparked a broad stock rally last Friday: It was pretty skimpy in terms of hard data, and there could well be an unpleasant underside to the lender's financial condition. What about the PPIP, which will allow banks to shed their toxic assets? As far as I'm concerned, it's more of a concept at this stage than a road-tested solution to the problem.

The credit crisis began over 18 months ago, but it's been barely six months since the S&P 500 fell below 1,000 -- a level at which it is significantly overvalued. Given that the fundamental issue of bank insolvency remains like a sword of Damocles, hanging over the economy and the market, I think we should expect other bottoms such as the ones that occurred last November and last month. Stocks that have enjoyed the large run-ups since March 9, such as Wells Fargo or Citigroup (NYSE: C) may be particularly vulnerable to a correction.

Robert Brokamp, Advisor, Rule Your Retirement: When it comes to investing, history is our best guide, imperfect as it is. As Rule Your Retirement contributor Doug Short demonstrated in our most recent issue, major bear markets end at lower market valuations than what we see today. Also, bear markets have a funny tendency to end in the second half of the year, for whatever that's worth. But, as Warren Buffett said, "If past history was all there was to the game, the richest people would be librarians" (something I'd fully support, since I'm married to one). Maybe history won't repeat itself. And as long as you're not investing money that you'll need in the next five to seven years, it may not matter.

Jim Mueller, Motley Fool Editor: Rally or recovery? I think it's a rally, and we have at least one more market slump ahead of us before a true recovery. Obama reminded us yesterday not to get too enthusiastic from a relatively short period of better than expected news because we still have a long way to go. Yesterday's retail news, too, reminded us that, while there might be some glimmers of light, it is still very stormy. One company that I think has gotten ahead of itself is Netflix (Nasdaq: NFLX). Yes, it probably grew subscribers better than expected thanks to the economy, but I don't think things will be as rosy as everyone may hope when it reports earnings next week. The price indicates to me expectations for a blowout quarter and raised guidance. I'd be surprised if both actually happened. Therefore, a significant correction from its recent run-up is definitely a possibility. Out on a limb with a short-term call, but there you are.

Morgan Housel, Motley Fool Writer: The economy seems to actually have a pulse again, and that's encouraging. When the government carpet bombs the economy with several trillion dollars over the span of a few months, things won't stay depressed for long, and stocks are sobering up to this reality. No one really has a clue, but the rally at least feels legitimate.

Yet, for some companies, the intensity and justification of the rebound is frightening. Banks -- particularly Citigroup and Bank of America (NYSE: BAC) -- continue to perplex me. Investors have taken results from the two strongest banks and assumed it's transferable to the two weakest banks. That's an expectations disaster in the making.

These are two companies that would be six feet under without being tethered to Washington. Now they've quadrupled in value on no news going into a black hole of earnings announcements. If successful investing means "being fearful when others are greedy," investors should be scared witless of these two.

Todd Wenning, Analyst for Motley Fool Pro: This rally has certainly provided investors with a glimmer of hope, but I think it's gotten a little ahead of itself as we've switched from pessimism to optimism in only a few weeks. The best thing investors can do right now is not panic buy, remain focused and patient, and make a list of companies they'd love to buy at lower prices. That way, if the market does sell off this rally, as I expect it will, you'll be ready to capture those values.

Matt Koppenheffer, Motley Fool Writer: Was there a green light on the market that I somehow missed? Since March 6th, Bank of America is up 221%, and Citigroup surged 289%. Why? Because Wells Fargo announced better than expected earnings? And here I thought we already knew that Wells Fargo was in a class above B of A and Citi.

So far we've been seeing some signs of "second derivative recovery" -- i.e., the speed of the decline is slowing. However, we still have a tremendous glut of housing inventory, and bank balance sheets are about as clear as mud. And that's just to name a couple of lowlights.

I don't expect that we'll be mired in this bear market forever, but the height of the market bounce over the past month makes me a bit nervous given economic realities. I wouldn't be surprised to see some of the really big gainers -- the two mentioned above, Barclay's and its triple, or AIG and its 300%-plus run -- give back some of the ground they gained over the past month.

Andy Cross, Advisor, Hidden Gems: I don't know if the storm has passed us or if we're just in the middle of the eye, waiting for the next wave. My feeling is that it will take some time for this global, leverage-fueled hangover to work its way out of our economic system. But because the stock market typically leads bullish economic numbers, we need to stay invested in the best companies. What's interesting is that I've heard cocktail stories about how so-and-so picked up shares of Bank of America at $3. It's now at $10. Or AIG below a buck. It's at $1.50. So, people are buying and selling stocks, but to me it seems more like speculating or trading rather than investing. Be careful if you're playing a dead-cat bounce in low-quality companies, because they can go down just as quickly as they can go up.

Anand Chokkavelu, Motley Fool Editor: I'm agreeing with the others that we could see Dow 6,000 before Dow 10,000, so I won't rehash. Two non-banks that could see better buying opportunities are Best Buy (NYSE: BBY) and Buffalo Wild Wings (Nasdaq: BWLD). They've both had good run-ups on favorable earnings reports, but both are driven by fickle consumerism. Both of these companies are high on my watchlist, but I'm waiting for some bit of negative news to give us better prices to pick up shares.

Friday, April 17, 2009

WHY THE RALLY CAN GO FURTHER

* Asian equities have risen 35% over the past five weeks

* But there is no reason why they can't run a little further

* Valuations remain reasonable, the newsflow will continue to improve - and
investors are still very bearishly positioned

Since we published our Quarterly on 6 April, markets have continued their
strong rebound. MSCI Asia ex Japan is up a further 6% since then, taking
the total rise since March 3 to 35%. For individual markets, rises have
been even more spectacular: Korea is up 48% and India 44% since March 3.
China, which bottomed earlier on October 27, is up no less than 72%.

Can the rally really continue any longer? Sceptics will argue that, with
the RSI at 72 (well above where it got to in previous rallies) and the Q1
earnings season in the US and Asia likely to be terrible, the market will
come tumbling back down soon.

We think the chances are this rally can continue for a while. Valuations
are not yet an issue, with PB for Asia ex Japan still 18% below its
long-term average. Newsflow is likely to be positive over the coming
months, as economic data series continue to improve and analysts start to
raise their earnings forecasts (and stock recommendations) to reflect this.
We found on our recent marketing trips that institutional fund managers are
almost unanimously bearish (and scrambling to get exposure to avoid missing
out on the rally). Moreover, there are plenty of examples in history of 50%
rebounds - either bear market rallies or initial bounces off the bottom. It
is true the market won't go up in a straight line (since the deleveraging
process is far from over, and the economic recovery may not be sustainable
once fiscal and monetary stimuli are withdrawn). If the global economy
double dips, stocks could correct in the second half. But, for now, enjoy
the fun.

Thursday, April 16, 2009

Time to buy cyclical stocks in emerging markets

The time is now to buy into emerging markets' cyclical stocks in the engineering, construction and financial sectors, given markets globally have bottomed, said an equity strategist.
JP Morgan Securities (Asia Pacific) Ltd managing director and chief Asian & emerging markets equity strategist Adrian Mowat said utilities and telecommunication stocks might appear "dynamic to investors" but were defensive and would not be fluid during the period of an economic recovery.
"Generally, I won't want to risk on utilities and telecommunication stocks in an emerging market now. I also don't have a strong view on commodities," he told a press conference yesterday.
Mowat said engineering and construction stocks stood to have a margin of improvement as infrastructure works in particular would benefit from falling steel and copper prices, adding that dipping coal prices for power generation would also lower the input cost of cement.
He said the Malaysian market's sector composition had quite a large weighting on utilities which would be less attractive to investors who wanted to ride on the recovery.
Mowat said cyclical market returns would be more substantial by looking at the construction stocks versus telecommunication firms.
"You will see capital flow back into the emerging markets in the region and Malaysia will benefit from that. I think it has started but is not going to be huge," he added.
Mowat noted that the equities market would become more expensive in the recovery stage as analysts would keep revising down earnings while the market would be discounting into the recovery.
Asked if Malaysia had bottomed, he said emerging markets had hit their lows in October last year while that of the developed markets happened in early last month .
On whether Malaysia's estimated budget deficit of 7.6% in 2009 would deter investors, Mowat said that should not be a factor as public sector debt to GDP in the emerging world was well contained, adding that most of the bond market struggled mainly due to lack of supply and captive buying instead.
"Bear in mind, the Malaysian government also owns large outfits, like the oil company that isn't listed," he said.

Written by Yong Min Wei

12 tenets of value investing

1. Rule No. 1: Don't lose money. Rule No. 2: Don't forget Rule No. 1. Don't be satisfied to let a few stocks in your portfolio lose a lot of money while one hits a home run.

2. Be an investor, not a speculator. Too many investors jump on the momentum bandwagon and chase stocks just because the price is going up. Most believe they can get out before the stock price crashes — but few do!

3. Price is what you pay; value is what you get. Valuation always matters. Learn how to value companies. Use data from the immediate past of at least past 5 years by looking at PE, EPS, growth, ROE etc.

4. Buy with a margin of safety. Estimates of value depend on a wide variety of inputs and are never hard and fast. Buying stocks at a significant discount to valuation estimates provides a margin of safety.

5. Stop trying to predict the direction of the market. Timing the market is a futile exercise that no one has consistently mastered. If your investment thesis is right, the market will eventually come around.

6. Patience is a key element of success. Don't chase a stock with a price above your margin of safety; wait for it to come down. Once you buy, wait for the market to realize a stock's value — weeks, months, or even years later.

7. Never invest in a business you can't understand. The simpler the investment thesis, the better. Stay within your circle of competence.

8. Invest for absolute returns. Beating the market index is a laudable aim, but there's no prize for breaking even when the market is down 5%. Our aim is to increase portfolio value over the long term.

9. Be fearful when others are greedy and greedy when others are fearful. Don't let the market psych you out of a good investment. Most investors swear off stocks when the market declines and greedily buy in when it's up. To be successful, be contrarian.

10. Watch the business, not the stock. Checking quotes every day won't improve your chances of success. Instead, watch the business fundamentals and management's actions — those are the real drivers of value creation.

11. Know when to sell. It's generally best to buy and hold for the long term, but you should sell if you have a better investment for your money, if your investment thesis was wrong, or if you simply need the cash.

12. Have fun with investing. Educate, amuse, and enrich. There are far more important things in life than investing, which is only a means to an end so enjoy while you learn.

Friday, April 10, 2009

Top 10 Stock Trading Mistakes to Avoid by John Lansing

Stock Trading Mistake #1: Setting out without a plan

Setting out on your first foray into financial planning and investing without a well-planned investment strategy is like going on a cross-country road trip without a map.

Taking the time to develop a well thought out investment plan (including your financial goals, personal goals, risk tolerance, available investment amount, etc.) will help to protect you from trendy, and often risky, speculation.

Stock Trading Mistake #2: Trading on emotion

People are fallible and, more often than most like to admit, they make decisions based upon their emotional reactions instead of facts and research.

Doing your homework will pay off in the long run.

Stock Trading Mistake #3: Getting greedy

Novice investors too often forget to take profits from stocks that continue to rise in value. Remember, what goes up must come down eventually.

Do your research (maybe using some stock analysis software or an online trading service), read the professional analyses and take your profits before you lose them.

Stock Trading Mistake #4: "Analysis paralysis"

Novice investors in the stock market tend to "overdose" on information, becoming easily confused, overwhelmed and indecisive.

If you're on information overload, rely on the advice of your broker (if they offer it) and other trusted resources.

Stock Trading Mistake #5: Adopting the "get rich quick" mentality

Don't enter into the trading arena with a "get rich quick" mentality. While you may have success in trading, the best traders know that successful portfolio development is a bumpy rollercoaster ride.

The market is volatile. If you don't have the stomach for it, look for the lowest risk possible.

Stock Trading Mistake #6: Ignoring risk

A common misconception is that "low-risk" equals no risk. This is simply not true.

Risk can be managed, but you must realize that it does exist with every trade. A well-researched trade can minimize the chance of a negative outcome, but you are always taking a risk.

Stock Trading Mistake #7: Sleeping on the job

Many novice investors jump out of the gate strong, but their initial interest wanes over time.

If you don't have the time, or conviction, to regularly monitor your investments, rely on financial investment services and advice from professional investment counselors. Or, invest in established, well-performing mutual funds.

Stock Trading Mistake #8: Putting all your eggs in one basket

Remember the old adage "Don't put all your eggs in one basket?" It holds true for investments as well.

The truly successful investor has diversified investments to offset the ups and downs of the market. Spread your investments to increase profit potential and decrease loss potential.

Stock Trading Mistake #9: Following rumors

Novice investors are too often looking for an advantage in the wrong place. Don't make trades based upon a "tip" from your neighbor or brother-in-law. Conduct your own research, consult your investment adviser and be sure the facts support the "tip" before you make your decision.

Relying on tips alone can get you into financial trouble quickly!

Stock Trading Mistake #10: Investing money you can't afford to lose

Never invest money that you can't spare. Yes, you could make a killing in the market and triple your investment, but you could just as easily lose it all.

If you can't afford to lose it, you can't afford to invest it.

Thursday, April 9, 2009

comment by OSK on 9.4.09

We had expected a run-up in early April (refer to our Apr 1, ’09 April outlook report), we believe the recent rally has been too much, too fast and is still very much a Bear Market Rally. We advise investors to Take Profit as the US economy does not appear to have bottomed out yet while the duration of the current Bear Market does not appear to have matched the severity of the economic recession. We advise re-entering the market in late May. The Top Sell ideas are Bumi-Commerce, IOI Corp, SP Setia, Gamuda and UMW. ..

Sabah and Sarawak should continue to be in the limelight with more infrastructure developments likely coming their way. Sarawak based construction firms Naim Holdings (BUY, TP: RM1.69) and Hock Seng Lee (NEUTRAL, TP:
RM0.49) should be among the beneficiaries. Other Sarawak companies such as Cahaya Mata Sarawak
(Not Rated) and Sarawak Energy (Not Rated) would also be beneficiaries.

Economy not out of the woods yet. With global markets rallying some 20% since March, some
parties have taken a view that the global economy is bottoming out. However, a quick look at the
indices generally regarded as leading leads us to believe that it is still too early to hold this view.

Take Profit. As mentioned in our report dated Mar 31, ‘The Psychology of Rights’, with Axiata going ex-
rights today, the market may find some support. However, more importantly, we believe global investors
will wake up to the fact that the US economy is still falling and the current Bear Market has not yet fully
panned out. We believe selling pressure internationally will have the greater bearing and recommend
investors Take Profit on the KLCI. Our Top Sell Ideas are Bumiputera-Commerce Holdings (TP:
RM5.70), IOI Corp (TP: RM4.22), SP Setia (TP: RM2.10), Gamuda (TP:RM1.39) and UMW
(TP:RM4.06). We advise re-entering the market in late May as the 1Q09 results season tapers off.




Wednesday, April 8, 2009

Is this a good time to buy stocks? 8th April 2009

THE current financial crisis is making it hard for some investors or analysts to derive the intrinsic value of a company.

Some long-term investors intend to accumulate stocks during this period.

However they are not too sure whether this is the right time to buy stocks even though the share prices of some companies are much lower than analysts’ computed intrinsic value. They wonder whether the current share prices have already factored in all the incoming bad news, like poor revenue, earnings or further write-down on inventories, debtors or other assets.

Some investors may argue that the stock prices are real and truly reflect the value of certain companies – the very low stock prices for these companies may imply that they will go bankrupt soon.

Investors always ask why different analysts compute different intrinsic values for the same listed company. Sometimes they wonder which one should they rely on. Besides, they are unable to comprehend why some analysts keep changing their intrinsic values for certain companies. It may appear that the value changes according to the market and economic situations.

Investors notice that whenever the market recovers, analysts start to revise upward the intrinsic value of some companies, much higher than their market prices.

However, whenever market sentiment turns negative, they start to revise downward the intrinsic value, much lower than the current market prices. This has created confusion among investors and they wonder why analysts cannot provide a fixed intrinsic value for each listed company.

As a result, one common question arises from most investors: can we really rely on analysts’ intrinsic value to buy stocks? Some may even argue: can we really trust analysts’ research reports?

To answer the above questions, we need to understand the meaning of intrinsic value. According to Benjamin Graham, the father of value investing, intrinsic value is the value of the company to a private owner. It is the price of a company that the owner will sell, which should reflect all the facts, including the value of its assets, earnings, dividends as well as potential future prospects.

We need to understand that it is an estimate rather than a precise number. It changes according to market valuations as well as the economic outlook. Besides, analysts’ computed intrinsic values are only valid on the research reporting dates.

They are not valid even a day later because the estimation of the intrinsic values will change whenever the market receives new information on the companies, new economic outlooks or new market conditions.

The movement of interest rates, currencies, commodities, introduction of new stimulus packages, overseas market movement can affect the estimation of the intrinsic values. Furthermore, those variables change every day. Hence, we need to be careful on the reporting dates whenever we read any research reports.

Different analysts use different methods to derive the intrinsic values. Warren Buffett suggests that the intrinsic value is derived from discounting all future free cash flows of the company to present value. He named these free cash flows as owners’ earnings. This method is commonly used in most business appraisal reports and being taught in investment valuation courses.

According to Graham, intrinsic value can be determined by the earnings power of a company. It is the earnings capacity of a company in a normal year – the earnings that it can earn year after year during normal business conditions.

He suggested that we should use normalised earnings and normalised market valuation to derive the intrinsic value. Examining the company’s past earnings trends as well as future average expected earnings will provide us a clue to its normalised earnings. We can use historical market valuation to derive the normalised market valuation.

Hence, we notice that different investment gurus use different methods to derive the intrinsic value. This explains why different analysts compute different intrinsic values for the same company.

As long as they have reasonable basis, supported by appropriate research and investigation, we can accept those values. Nevertheless, we need to pay attention to the assumptions they used as well as the suitability of the valuation methods during that period.

Unfortunately, investors with limited financial training will have difficulties to evaluate the quality of those research reports. We suggest investors read more research reports on the same listed company before coming to a conclusion to buy or sell.

Monday, April 6, 2009

Najib's Counters

Najib’s six confidants

Very soon after Najib was appointed Finance Minister in September, he personally picked six individuals for a corporate roundtable. It is widely believe that these six individuals with corporate and investment background, have at one point or other given significant input to Najib on issues ranging from the economy, capital markets and business in general. It is also interesting to note that out of the six, three are currently board members at Khazanah. Thus although it is the outgoing Badawi administration that empowered Khazanah as the government’s strategic investment vehicle, we believe Khazanah will remain very relevant in the Najib administration.

Najib’s four brothers

Najib is the eldest of the five siblings in the Razak family and he was 17 years old when his father Abdul Razak was Malaysia’s 2nd Prime Minister from 1970-1976. Najib is also a nephew of Malaysia’s 3rd Prime Minister Hussien Onn. Out of his four brothers, Nazir Razak CEO of Bumi-Commerce is the most well-known one and has also been very vocal in the press, regularly calling for a revamp of the archaic National Economic Policy (NEP). Thus it is no surprise that Nazir has Najib.s ear as the latter has recently been on national TV promising to make changes to the implementation of NEP.



We continue to believe that the Najib administration has plans for further liberalisation in the services sector. In Najib’s mini-budget speech on March 10, he said that the Foreign Investment Committee (FIC) will be adopting a more liberal approach to nurture a more investor-friendly environment, i.e. to attract more investments including foreign direct investments. Therefore the government is formulating new guidelines to reflect this new role for FIC. We are guessing that they may further relax the NEP in the services sector. Many have argued that the NEP has been a disadvantage in attracting FDIs/portfolio investments into Malaysia. Thus further dismantling of this arcade policy could put Malaysia back on the path to structural growth over the longer term, and will correspondingly boost the local equity market in the long run.

Stocks to keep an eye on

We have done a screen of stocks which we believe traders and investors should keep an eye on as the guards change in Putrajaya. We continue to like MRCB (MRC MK-RM0.87-BUY) and IJM (IJM MK-RM4.02-BUY) as they stand to benefit from the government’s fiscal spending ahead. Furthermore, CEO of MRCB Shahril Ridzuan was hand-picked to be one of the pioneering members under the government’s GLC reform initiatives. As for IJM, ultimate parent is MMC Corp (MMC MK-RM1.41-N-R), whose major shareholder is Syed Mokthar Albukhary, who many believe will remain in the inner circle. Both MRCB and IJM have Employees Provident Fund (EPF) as their single largest shareholder.

We remained cautious on the banking sector given the cyclical downturn ahead, but Bumi-Commerce (BCHB MK-RM6.55-SELL) will continue to draw interest from long term investors. Despite concerns on withdrawal of Middle Eastern investments in Iskandar Malaysia, another favourite amongst traders is UEM Land (ULHB MKRM0.75- N-R).

Finally a few of observations from Figure 3. Firstly, three groups are prominently featured in the table, i.e. Sapura, Hong Leong and MMC. Secondly, oil & gas companies namely Sapura Crest and Wah Seong with cheap PE multiples of 7-8x have been outperforming the market over the last three months. Thirdly, TH Group, George Kent, Johan and Paramount are loss making but have outperformed the market.

The faces to remember

Najib's brothers


Saturday, April 4, 2009

6 reasons I'm calling a bottom and a new bull

1. The stock market turns before the economy bottoms
Regardless of what Dr. Doom or any economist boasts, the stock market has a mind of its own, it's a leading indicator. Stocks historically kick into action earlier than the economy recovers, often six months ahead of the economy's bottom. Witness March.
So while economists' predictions pinpointing a recession may appear earlier than bear market predictions by the notoriously optimistic Wall Street pundits, the cycles work the other way in a recovery: A stock market bottom and new bull may occur six months before the economists call the ending of a recession and an economic recovery. So Dr. Doom's "call" will naturally come months after the stock market in fact turns.
2. Stocks make big money fast then go to sleep
Back in January, Wall Street Journal columnist Jason Zweig reported on some fascinating research: "History shows that the vast majority of the time, the stock market does next to nothing. Then, when no one expects it, the market delivers a giant gain or loss -- and promptly lapses back into its usual stupor."
And the numbers back it up: "Javier Estrada, a finance professor at IESE Business School in Barcelona, Spain, has studied the daily returns of the Dow Jones Industrial Average back to 1900." He "found that if you took away the 10 best days, two-thirds of the cumulative gains produced by the Dow over the past 109 years would disappear. Conversely, had you sidestepped the market's 10 worst days, you would have tripled the actual return of the Dow."
3. No one can predict the next big move
Unfortunately, markets are notoriously unpredictable, ruled by mobs of irrational investors who are all bad guessers, No one can predict in advance when those "10 worst" or "10 best" days will actually occur. Not on Main Street. Certainly not on Wall Street.
Why? In his classic, "Stocks for the Long Run," Wharton economics Prof. Jeremy Siegel studied all the big market moves between 1801 and 2001. Two centuries of data. Siegel concluded that 75% of the time there was no rational explanation for big moves up in stock prices or big moves down. Lesson: Market timing is a loser's game.
4. Famous media-darling pundits inevitably flameout
A month ago Newsweek's science columnist and former Wall Street Journal legend Sharon Begley wrote a fascinating piece, "Why Pundits Get Things Wrong." Her opening: "Pointing out how often pundits' predictions are not only wrong but egregiously wrong -- a 36,000 Dow! euphoric Iraqis welcoming American soldiers with flowers! -- is like shooting fish in a barrel, except in this case the fish refuse to die. No matter how often they miss the mark, pundits just won't shut up."
Think of all the media darlings you know as Begley reviews the data: And "the fact that being chronically, 180-degrees wrong does not disqualify pundits is in large part the media's fault: cable news, talk radio and the blogosphere need all the punditry they can rustle up, track records be damned."

The data comes from Philip Tetlock, a research psychologist at Stanford University: "Tetlock's ongoing study of 82,361 predictions by 284 pundits" concludes that their accuracy has nothing to do with credentials such as a doctorate in economics or political science, or on "policy experience, access to classified information, or being a realist or neocon, liberal or conservative."
What matters? "The best predictor, in a backward sort of way, was fame: the more feted by the media, the worse a pundit's accuracy. ... The media's preferred pundits are forceful, confident and decisive, not tentative and balanced. ... Bold, decisive assertions make better sound bites; bombast, swagger and certainty make for better TV."
They can be totally wrong, so long as they're assertive and entertaining. "The marketplace of ideas does not punish poor punditry. Few of us even remember who got what wrong. We are instead impressed by credentials, affiliation, fame and even looks -- traits that have no bearing on a pundit's accuracy."
Think of all the media darlings you know as Begley reviews the data: And "the fact that being chronically, 180-degrees wrong does not disqualify pundits is in large part the media's fault: cable news, talk radio and the blogosphere need all the punditry they can rustle up, track records be damned."

5. Even the best economists make huge errors
Go back a decade to that classic article in BusinessWeek, "What Do You Call an Economist With a Prediction? Wrong." Four years later in "So I Was Off by a Trillion," BusinessWeek punctuated the message, reporting on Michael Boskin's classic error. Boskin, a Stanford economist and former chairman of the Council of Economic Advisers under Bush 41, "circulated a startling paper to fellow economists. In it, he argued that the future tax payments on withdrawals from tax-deferred retirement accounts ... were being drastically undercounted. That meant federal budget revenues could potentially be in for a huge, unforeseen windfall ... of almost $12 trillion."
That also meant a political boost for Bush 43: "Larger than the sum of the 75-year actuarial deficits in Social Security and Medicare plus the national debt." Later, however, Boskin checked his numbers and "concluded that he had made a serious mistake: A key term had been left out ... possibly wiping out most of the estimated $12 trillion in savings."
No surprise: Political ideologies often motivate "objective" economists.
6. Will the real Dr. Doom please stand up?
Roubini actually shares the Dr. Doom title with many others, including Hong Kong economist Marc Faber who publishes the "Gloom Boom Doom Report;" legendary Salomon Bros. strategist Henry Kaufman; and Houston billionaire Richard Rainwater, whom Fortune mentioned as Dr. Doom.
In addition, in one of our columns last summer, we reported on many others whose predictions of a coming recession predated Roubini's claim, though not called "Dr. Doom." They include: Pete Peterson, a Blackstone Group founder; Pimco's Bill Gross; Harvard financial historian Niall Ferguson; Warren Buffett; former SEC chairman Arthur Levitt; Jeremy Grantham whose GMO firm manages $100 billion; "Black Swan" author Nassim Nicholas Taleb; and long-time Forbes columnist, economist Gary Shilling.
Noteworthy, way back in 2004 Shilling specifically warned: "Subprime loans are probably the greatest financial problem facing the nation in the years ahead." And later in June 2007 Shilling said: "Just as the U.S. housing bubble is bursting, speculation elsewhere will come to a violent end, if history is any guide. Some astute pioneers, including Richard Bookstaber, who designed various derivative-laden strategies over the years, now fear that financial derivatives and hedge funds -- focal points of today's huge leverage -- will trigger financial meltdown." Then in a November 2007 column, "17 Reasons America needs a recession," Gross predicted a bailout of "Rooseveltian proportions" ahead.
Yes, we were warned. In fact, seems everyone knew. But our denial was too powerful, hidden under our new culture of infectious greed.
The examples go on and on ... strongly suggesting that the "Roubini Hype Machine" may well be the "one-hit wonder" Portfolio calls him. He was not ahead of the competition with his December 2007 recession call. So if you're one of America's 95 million investors waiting for Roubini to call a bottom before getting back in the market, you'll miss the real turning point.
One final, crucial warning: This next bull will be short. First, it will suck money out of the mattresses of investors who are sitting on cash. Then Wall Street will recreate the insanity of the '90's dot-coms and the recent subprime-credit mania.
But underneath it all, Wall Street's bulls will be setting the stage for yet another catastrophic bubble and meltdown. So please be careful when "Dr. Doom's PR Hype Machine" proclaims that Roubini's finally morphed into "Dr. Boom" later this year. It'll be too late. End of Story