Assalamualaikum w.b.t.,

Hidup di dunia yang sementara ini banyak mengabui mata kita tentang matlamat kehidupan yang sebenarnya. Kita semakin terdesak dengan himpitan kehidupan dan berlumba-lumba untuk mencari kehidupan yang lazimnya lebih menampakkan keduniaa semata-mata.
Apakah ada di antara pelaburan yang semakin hari semakin kurang diberikan tumpuan? Namun, apakah kita menidakkan keperluan yang perlu kita sediakan di dunia bagi persediaan akhirat? Bagaimanakah pula pelaburan di dunia yang wajar dilakukan untuk persediaan akhirat kita? Wajar rasanya kita sama-sama bincangkan dan jadikan maklumat bersama ini sebagai panduan kita merentasi dunia untuk menempah tempat yang selesa di akhirat kelak, insyaallah.

Pandangan serta komen rakan-taulan, pak-pak ustaz, profesionalis, akauntan, hartawan, dermawan, pak/mak wan dan sebagainya boleh dikongsi untuk dijadikan panduan disamping memperkuatkan ukhwah sesama kita. Sila diemailkan pandangan anda ke mryteratak@gmail.com.


Wassalam.
5/11/2009
------------
Pemberitahuan: Semua maklumat di blog ini adalah pandangan peribadi melainkan dinyatakan sebaliknya. Sila rujuk kepada institusi atau badan yang berkaitan untuk maklumat lebih lanjut. Sebarang rujukan dari blog ini adalah risiko sendiri.Pengarang tidak bertanggungjawab di atas sebarang masalah yang timbul disebabkan oleh bahan diblog ini.

Wednesday, March 24, 2010

Dividend-paying companies

The Star: Wednesday March 24, 2010

Personal Investments - By Ooi Kok Hwa

Despite investing in profit-making companies, a lot of investors have been complaining that they are not getting the desired returns from the companies that they have invested in.

One of the main reasons is that these companies usually pay very low dividends or no dividends to their investors.

Hence, even though these companies make good profits from their businesses, they are not sharing the profits with their minority investors.

Companies that pay good dividends to their investors imply that the major shareholders of these companies are willing to share their wealth with minority investors.

Given that minority investors have no control over these companies, they have only two sources of returns from their investments, namely dividend returns and capital gains.

If the companies refuse to reward their investors with good dividends, then investors need to make sure that they buy low and sell high in order to get capital gains.

Warren Buffett proposes one concept, which is called the one-dollar premise - for every dollar profit that a company makes, it either pays one dollar dividend to its shareholders or if that dollar is being retained, it needs to bring additional one dollar market value.

Companies with good management will always try to maximize the wealth of their investors.

The following table will show the importance of dividends to an investor.

Assuming you have invested in Company A with an average cost of RM15.

Company A generates earnings per share (EPS) of RM1.00 with price-earnings ratio (PER) of 15 times and pay out 80% of its profits as dividends or dividend per share of RM0.80.

Hence, with the purchase price of RM15, the dividend yield (DY) is 5.3%.

We also assume that Company A has a constant PER of 15 times and dividend payout ratio of 80% for the next 20 years.

Annual growth rate of EPS is 8% based on our country’s average nominal GDP growth rate of 8%.

For the first 10-year period, given that our original cost of investment is fixed at RM15, our dividend yield will be getting higher and higher.

For example, first year DY of 5.3% is computed based on DPS of RM0.80 divided by RM15.

And second year DY of 5.8% is calculated based on DPS of RM0.86 (RM0.80 x 1.08) divided by the same original purchase price of RM15.0.

As the company’s businesses continue to grow and generate higher profits, as long as the company practices a fixed dividend payout policy (our example is based on a fixed dividend payout ratio of 80%), investors’ DY will increase.

At Year 10, given that our purchase price remains the same at RM15, with a DPS of RM1.60, our DY is 10.7% (1.60/15.0).

Thus, the average DY for the first 10-year period is 7.7%.

Coupled with the annual capital gain of 8% (the share price has grown by annual growth rate of 8% from RM15 to RM29.99), investors will generate an annual total returns rate of 15.7% (7.7% + 8%)!

If we keep this stock for another 10-year period, our next 10-year annual total return is 24.7% (16.7% + 8%)!

From here, we can see that if we have invested in good companies that always reward their investors with very high dividend payments, our returns will be huge if we hold it long term.

Normally, consumer-based companies and companies that do not need high capital expenditures will be able to reward shareholders with good dividend payments.

Besides, major shareholders must be willing to share their profits with their investors through good dividend payments.

# Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

Tuesday, March 23, 2010

5 Ways to Double Your Investment


Assalamualaikum w.b.t.,

For reading pleasure.
-----------------------------------
by Ken Clark
Thursday, July 23, 2009
provided by
There's something about the idea of doubling one's money on an investment that intrigues most investors. It's a badge of honor dragged out at cocktail parties, a promise made by over-zealous advisors, and a headline that frequents the cover of some of the most popular personal finance magazines. Where this fixation comes from is anyone's guess.

Perhaps it comes from deep in our investor psychology; that risk-taking part of us that loves the quick buck. Or maybe it's simply the aesthetic side of us that prefers round numbers - saying your "up 97%" doesn't quite roll off the tongue like "I doubled my money." Whatever the source though, it is both a realistic goal that investors should always be moving towards, as well as something that can lure many people into impulsive investing mistakes. Knowing some of the most trusted avenues to doubling your money is something that all investors should have in their toolboxes.


The Classic Way - Earn It Slowly
Investors who have been around for a while will remember the classic Smith Barney commercial from the 1980s, where British actor John Houseman informs viewers in his unmistakable accent that they "make money the old fashioned way – they earn it." When it comes to the most traditional way of doubling your money, that commercial's not too far from reality.

Perhaps the most tested way to double your money over a reasonable amount of time is too invest in a solid, speculative portfolio that's diversified between blue-chip stocks and investment grade bonds. While that portfolio won't double in a year, it almost surely will eventually, thanks to the old rule of 72.

The rule of 72 is a famous shortcut for calculating how long it will take for an investment to double, if its growth compounds on itself. According to the rule of 72, you divide your expected annual rate of return into 72, and that tells you how many years it takes you to double your money.

Considering that large blue-chip stocks have returned roughly 10% over the last 100 years, and investment grade bonds have returned roughly 6%, a portfolio that is divided evenly between the two should return about 8%. Dividing that expected return (8%) into 72, gives a portfolio that should double every nine years. That's not to shabby, when you consider that it will quadruple after eighteen years, and octuple (8 times) after 27.

The Contrarian Way – Blood in the Streets
Even straight-laced, even-keeled investors know that there comes a time where you've got to buy. Not because everyone is getting in on a good thing, but rather, because everyone is getting out. Just like great athletes go through slumps when many fans turn their backs, the stock prices of otherwise great companies occasionally go through slumps because fickle investors head for the hills.

As Baron Rothschild (and Sir John Templeton) once said, smart investors "buy when there is blood in the streets, even if the blood is their own." Of course, these famous financiers weren't arguing that you buy garbage, at any price. Rather, they were arguing that there would most surely be times where good investments become oversold, which presents a buying opportunity for brave investors who have done their homework.

Perhaps the most classic barometers used to gauge when a stock may be oversold, is the price-to-earnings ratio and the book value for a company. Both of these measures have fairly well established historical norms for both the broad markets and for specific industries. When companies slip well below these historical averages for superficial or systemic reasons, smart investors will smell an opportunity to double their money.

The Safe Way
Just like how the fast lane and the slow lane on the freeway eventually lead to the same place, there are both quick and slow ways to double one's money. So for those investors who are afraid of wrapping their portfolio around a telephone pole, bonds may provide a significantly less precarious journey to the same destination.

But investors taking less risk by using bonds don't have to give up their dreams of one day proudly bragging around the lunchroom about doubling their money. In fact, zero-coupon bonds (including classic U.S. Savings Bonds), can keep you in the "double your money" discussion.

For the uninitiated, zero-coupon bonds may sound intimidating. In reality, they're surprisingly simple to understand. Instead of purchasing a bond that rewards you with a regular interest payment, you buy a bond at a discount to its eventual maturity amount. For example, instead of paying $1,000 for a $1,000 bond that pays 5% per year, an investor might buy that same $1,000 for $500. As it moves closer and closer to maturity, its value slowly climbs until the bondholder is eventually repaid the face amount.

One hidden benefit that many zero-coupon bondholders love is the absence of reinvestment risk. With standard coupon bonds, there's the ongoing challenge of reinvesting the interest payments when they're received. With zero coupon bonds, which simply "accrete" or grow towards maturity, there's no hassle of trying to invest smaller interest rate payments or risk of falling interest rates.

The Speculative Way
While slow and steady might work for some investors, others may find themselves falling asleep at the wheel. They crave more excitement in their portfolio and are willing to take bigger risks to earn bigger payoffs. For these folks, the fastest ways to super-size the nest egg may be the use of options, margin or penny stocks.

Stock options, such as simple puts and calls, can be used to speculate on any company's stock going up or down. For many investors, especially those who have their finger on the pulse of a specific industry, options can turbo-charge their performance. Considering that each stock option potentially represents 100 shares of stock, a company's price might only need to increase a small percentage for an investor to hit one out of the park. Be careful and be sure to do your homework; options can take away wealth just as quickly as they create it.

For those who want don't want to learn the ins and outs of options, but do want to leverage their faith (or doubt) about a certain stock, there's the option of buying on margin or selling a stock short. Both of these methods allow investors to essentially borrow money from a brokerage house to buy or sell more shares than they actually have, which in turn, can raise their potential profits substantially. Again, this method is not for the faint-hearted, since margin calls can back your available cash into a corner, and short-selling can theoretically can generate infinite losses.

Lastly, extreme bargain hunting can quickly turn your pennies into dollars. Whether you decide to roll the dice on the numerous former blue-chip companies that are now selling for less than a dollar, or you sink a few thousand dollars into the next big thing, penny stocks can double your money in a single trading day. Just remember, whether a company is selling for a dollar or a few pennies, its price reflects the fact that other investors don't see any value in paying more than that price.

The Best Way to Double Your Money
While it's not nearly as fun as watching your favorite stock on the evening news, the undisputed heavyweight champ of doubling your money is that matching contribution you receive in your employer's retirement plan. It's not sexy and won't wow the neighbors at your next block party, but getting an automatic 50 cents to $1 for every dollar you deposit is tough to beat.

Making it even better is the fact that the money going into your 401(k) or other employer-sponsored retirement plan comes right off the top of what your employer reports to the IRS. For most Americans, that means that each dollar invested really only costs them 65-75 cents out of their pockets. In other words, for every 75 cents, most Americans are willing to forgo out of their paychecks, they'll have $1.50 or more added to their retirement nest egg –
not too shabby!

Before you start complaining about how your employer doesn't have a 401(k) or how your company has cut their contribution because of the economy, don't forget that the government also "matches" some portion of the retirement contributions of taxpayers earning less than a certain amount. The Credit for Qualified Retirement Savings Contribution reduces your tax bill by 10-50% of what ever you contribute to a variety of retirement accounts (from 401(k)s to Roth IRAs).

If It's Too Good to Be True…
There's an old saying that if "something is too good to be true, then it probably is." That's sage advice when it comes to doubling your money, considering that there are probably far more investment scams out there than sure things. While there certainly are other ways to approach doubling your money than the ones mentioned so far, always be suspicious when you're promised results. Whether it's your broker, your brother-in-law or a late night infomercial, take the time to make sure that someone is not using you to double their money.

Sunday, March 21, 2010

"China's Bubble" Warning By Doomsayers

MalaysiaFinance: 19/Mar/2010

You gotta love it how more and more people just seem to join the chorus once somebody with some credibility says something interesting. China is in the midst of "the greatest bubble in history," said James Rickards, former general counsel of hedge fund Long- Term Capital Management LP. Who is Rickards??? Why is he saying things at all? He's just the counsel at what was the biggest collapse in the 90s.... aahhh. The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc. Rickards joins hedge fund manager Jim Chanos, Marc Faber and professor Kenneth Rogoff in warning of an overheating and potential crash in China's economy following a rally in stock and property prices. Now even the World Bank has chimed in to say the same thing.

Are we heading down the road as opined by those above. Beijing has already raised lenders' requirements twice this year. Let's look at some problem areas.


If China’s credit growth were to slow sharply, non-performing loans (NPLs) would spike by the end of the year. Although the problem would not be as large as in the late 1990s, another recapitalization would be difficult without tapping government coffers. The asset management companies set up to recapitalize the banks in 1999 have yet to repay their loans, and nobody is willing to buy their assets at prices anywhere near what would be needed to cover their costs.

The problem seems to be with the politically-connected municipal investment and development companies (MIDCs), which would likely be able to maintain their credit lines. The MDICs are at the center of a risky shell game with local banks, in which land and credit lines are swapped to maximize the companies’ access to financing. However, most infrastructure projects financed by these companies remain a long way from profitability, and land prices used for collateral were seriously inflated last year. If they no longer had access to credit, many MDICs would default, which would spark a tough fight over who is responsible for the redemption of the loans. The China Banking Regulatory Commission (CBRC) estimated that 8,000 MDICs accounted for 14% of new lending in 2009, though other estimates put the figure much higher.

In the Chinese bond market their presence was even larger—they issued RMB250 billion in bonds last year, up from RMB30 billion the year before, accounting for the bulk of the 88% jump in corporate bond issuance through Q3 2009. The State Council recently said it is seeking to regulate these companies, calling their financing a “latent systemic risk in the financial sector.”Chinese regulators have told commercial lenders to restrict new lending to municipal development companies, the official Shanghai Securities News reported on February 24, 2010. Banks were told to stop lending to any projects backed solely by a local government guarantee and reject any projects that lacked adequate capital.
Victor Shih, a professor at Northwestern, estimates that their total borrowing between 2004 and 2009 was US$1.6 trillion (RMB10.9 trillion), or about 33% of GDP and 70% of its foreign exchange reserves. Banks have already pledged additional credit to the companies. "If the central government does not restrict bank lending to them, these entities will go deeper into debt, thus either requiring the sale of much more land or the creation of a pile of nonperforming loans."

Shih estimates that government debt, including the hidden liabilities, could reach RMB39.8 trillion (US$5.8 trillion) or 96% of GDP in 2011. This includes non-performing loans held by state-owned banks, liabilities of the development banks, and the debts of the asset management companies set up to recapitalize the banking sector. "The worst case is a pretty large-scale financial crisis around 2012". "The slowdown would last at least two years and maybe longer."In 2009, the Ministry of Land and Resources reported that government land sales netted RMB1.6 trillion (US$234 billion), most of which went to local government coffers. The government sold 319,000 hectares of land in 2009, up 44% from 2008, the revenues from which increased 63% y/y. Land sold for "real-estate use" accounted for 84% of this. At the height of the previous property bubble in 2007, the government raised RMB1.3 trillion from land sales. If China's property bubble were to burst in 2010 the revenue from land sales could dry up, which would weigh heavily on local governments' abilities to continue financing the stimulus.


Official debt-to-GDP ratio was 17.7% at end of 2008, but this may be closer to 60% once local government debt, backstopped bank loans and bad assets are included. This is still below the U.S. level and not explosive, but stimulus spending by local governments and loans from state-owned banks may push the 2009 fiscal deficit up to 10% of GDP.

Hot money poses another problem for RMB appreciation. If the RMB looks like a one-way bet, which a modest and steady appreciation path would indicate, then international funds will find their way into property and other assets in Beijing, Shanghai and the other major cities. RGE estimates that China experienced about US$40-50 billion in “hot money” inflows in Q4 2009. This could worsen the asset price bubbles regulators have been trying to ease since late last year. (Housing affordability is among Chinese consumers’ top complaints.)

There are problem spots in China, and its mainly in property. The MDICs are too reliant on land sales and have borrowed excessively. Its about to implode anytime, just another couple of rate hikes and another round of curbs on lending should do that.

While that may also deflate China stock markets, I do think the ill effects on stocks will be very temporary. Just have a look at the two charts below:
While the US is gaining share, China is losing share. Aside from an uptick in the summer months of 2009, China's stock market cap as a % of world market cap has been trending downward throughout the entire rebound.

One of the easy ways to see how a country is performing relative to other countries is to look at its market cap as a percentage of world market cap. In the early stages of the global rebound off of the March lows, the US rose significantly, but other countries were gaining even more. In recent months, however, the tide has turned, and the US is now outperforming the rest of the world. As shown below, US stock market cap as a percentage of world market cap has been steadily rising since last November. During the 2003-2007 bull market, emerging markets and other countries really outperformed the US. If this bull market continues and the US continues to gain share, it will represent a very big trend change that will make a huge impact on portfolio performance depending on an investor's domestic versus international equity allocation.

The charts also reveal that the bulk of the liquidity has gone into property and not stocks. Hence it will have a muted effect when property side busts.

Moody's upgraded China's ratings outlook to positive from stable on November 9, 2009, keeping the rating at A1, on expectations that the country's economic recovery is taking stronger hold with only modest effects on the government's finances. The agency cited possible asset price bubbles and the long-term effects of China's stimulus program as risks to its outlook. It also upgraded the ratings for seven Chinese banks, a sector that some analysts worry may be hit with a surge in non-performing loans following this year's sharp credit growth. Moody's said that the banks could withstand such "stress scenarios" given their strong capital positions and earnings.

There are those who would defend the property boom in China. JPMorgan's Jing Ulrich argues in the FT that Chinese real estate is not overvalued and the fallout of a price contraction would not be severe because there is less leverage involved. "Chinese household debt amounts to approximately 17% of GDP, compared to roughly 96% in the US and 62% in the eurozone. ... Over the past 5 years, urban household incomes grew at a 13.2% compound annual growth rate, compared to an 11.9% CAGR in home prices."

While that may be the case, the problem with China property is with the MDICs and not the end buyers per se. So, JP Morgan can still be wrong.

May main reason for saying China is not headed for a big implosion is that the Chinese economy is still relatively a relatively closed economy. The liquidity swishing around is still controlled by Beijing, with the exception of some hot money into property. We cannot regard China like normal more open economies - e.g. Malaysia or Indonesia, where we can be on the receiving end of a lot of hot money, and will feel the gravity of it when these funds exit. You do not have such a keen issue in China.

Beijing knows the unbalanced lending to state firms and municipal councils, and is trying to redress the problem, albeit a tad late. Really should get out of China property for the next 12 months.

Wednesday, March 17, 2010

It’s not easy being EPF

Thestar: Wednesday March 17, 2010

Raison D'etre - By Risen Jayaseelan

THAT the Employees Provident Fund (EPF) had abstained from voting at the recent contentious EON Capital Bhd (EON Cap) EGM is not surprising. And why should it? Voting either way would have meant that the pension fund was in favour of one party and against another.
The EPF has no intention of getting embroiled in corporate tussles but it does strive to ensure that the value of its investments is protected.
So when the EPF discovered that there were many governance issues in KFC Holdings (M) Bhd (KFCH) in the past, it made the drastic decision of selling down its stake. At one time, EPF controlled about 17% of KFCH but in 2007, had ceased to be a substantial shareholder in the company.
To be sure, it takes a lot for the EPF to decide to sell out of a listed company. That is simply because the fund is “saddled” with more money than it can invest. To date its fund size is around RM380bil and growing at about 7% to 8% a year.
To preserve its capital, the EPF keeps most of that money in the low-risk fixed-income assets, the bulk of which are in loans, bonds and government securities.
It has about 25% of its funds invested in equities, mostly in blue chip companies listed on Bursa Malaysia.
That scenario makes the EPF a difficult animal to figure out. Consider this – while it is a shareholder in EON Cap (12.8%), it is also a shareholder in Hong Leong Bank Bhd (13%). Hence when considering the offer by Hong Leong Bank to buy the assets of EON Cap, EPF also had to look at it from the perspective of being a shareholder of Hong Leong Bank.
It can get even more complicated. In 2006, when MMC Corp Bhd made a bid to buy the assets of Malakoff Bhd, the EPF then not only held an 11% stake in Malakoff, it also had 5% in MMC.
EPF had voted in favour of MMC’s offer for Malakoff, which technically would have meant that the EPF would be cashing out of its interest in Malakoff, the country’s largest independent power producer.
But soon after, it emerged that the EPF subscribed to the bonds issued by MMC’s special purpose vehicle that was the offeror in the deal. The bonds were issued to finance the deal. Not only that, EPF also subsequently emerged as a 30% shareholder in Malakoff, which means that somehow EPF was invited back into the de-listed Malakoff. It should be noted that the bonds carried an attractive coupon rate.
The deal naturally irked other minority shareholders in Malakoff, who could not participate in the future growth of the company.
But it seems that the EPF had striven to ensure that it did not lose its exposure to a good asset, in the form of Malakoff’s power business, and the cashflows attached to it.
Hence, when trying to gauge the mindset of the EPF whenever one of its investee companies is involved in a corporate exercise, bear in mind one thing: The EPF would prefer to remain a shareholder, especially if the asset is either churning out good cashflows, or has the promise of achieving that.
That may very well be the thinking behind EPF’s position in EON Cap and KNM Group Bhd. Bear in mind that EPF is present as a shareholder in all listed banks in Malaysia, which means that banking remains one of its top sector picks.
As for KNM, EPF favours the company for its extensive product range and geographical diversification, among others. As such, would the EPF be keen to sell out at a price of 90 sen (which is the indicative price that the offerors have stated they would pay for the assets of KNM, subject to a due diligence on-going now)? Probably not.
And no wonder the pension fund was buying more shares in KNM recently, after the shares weakened on a poor quarterly result.
Now that deputy news editor Risen Jayaseelan has some clarity on how the EPF makes and manages its investment decisions, he is keen to know the same of other large funds, such as Lembaga Tabung Haji and Permodalan Nasional Bhd.

Monday, March 15, 2010

Market challenges

Thestar: Saturday March 13, 2010

By CECILIA KOK

cecilia_kok@thestar.com.my
Bursa: Ideal investment equation is an even mix of foreign investment, domestic institutions and retail participation.
ON the global investment stage, the developed economies have become so yesterday. To most people, the hot spots for sustained high returns are the emerging markets, particularly Asia. And this notion still prevails today. In fact, the recovery of the Asian economies, which is leading the world out of a deep slump, has only served to strengthen such a view.
Hence, the region is becoming a magnet for global capital. “As it is, the Asian recovery story is already driving the region’s equity markets and it will continue to do so for the longer term,” says Bank Islam chief economist Azrul Azwar Ahmad Tajuddin.
Clockwise from top left: AmBank group MD Cheah Tek Kuang, Bursa Malaysia Bhd CEO Datuk Yusli Mohamed Yusoff, FTSE Group chief executive Mark Makepeace and CLSA Securities Malaysia Sdn Bhd head of research Clare Chin
But on the flipside, the intra-regional competition for capital will just keep on intensifying, and surely, there will be winners and losers in terms of gaining a share of the pie.
As it stands, anecdotal evidence seems to suggest that Malaysia is not on the winning side, as the local bourse continues to lose ground to other regional markets deemed to be more vibrant and freer, especially with regards to the movement of capital.
The heartening news, however, is that Bursa Malaysia Bhd is not sitting still. Chief executive officer Datuk Yusli Mohamed Yusoff has pledged to step up efforts to promote the stock exchange so as to bring in a fair share of the global capital.
At a recent roundtable discussion organised by Bursa Malaysia in collaboration with StarBizWeek, Yusli likens Malaysia to a little boy surrounded by so many other taller guys, saying the country needs to “shout louder and jump higher just to get investors’ attention”.
Losing lustre
“That’s just the right thing to do,” Kenanga Investment Research economist Wan Suhaimi Saidi says. “Efforts to promote our capital market are crucial because the competition for capital is increasingly stronger with the rise of other emerging economies, such as the BRICs,” he adds.
(The BRICs refers to Brazil, Russia, India and China.)
Contrary to how it was for Malaysia before the 1997/98 Asian financial crisis, when it was a sweet spot for foreign capital inflow, Malaysia is definitely no longer the favourite destination for investors to park their money, contends a broker from an international firm.
However, that is not to say our local bourse has utterly vanished from the foreign investors’ universe. They account for about 25% of the total value traded on Bursa Malaysia. Domestic institutions are the most active participants, contributing more than 50%, while local retail participation continues to lag.
The ideal equation, according to Bursa Malaysia, is an even mix of the three groups of participants. And achieving that is the exchange’s goal.
So, to Yusli, marketing the market is not just about attracting foreign inflows, but also about boosting interest among individual investors at home.
There is excess liquidity (as in funds held by households and institutions) submerging the financial system, and that offers the local bourse the potential to tap into these monies and bring back some vibrancy – the element Yusli says is missing in the market today.
However, Bursa Malaysia faces challenges in attempting to restore vibrancy. Analysts point out four major issues that need to be addressed – the country’s growth story, investors’ perception of the market, liquidity and choice of companies.
A defensive growth story
As economists point out, it is not that Malaysia lacks a growth story; it is that the story needs to be stronger.
“Many investors prefer to park their investments in destinations where there are ‘sexy’ growth stories, as in high growth rates, even though these tend to be associated with the higher risk of ‘overheating’,” says Wan Suhaimi of Kenanga.
Datuk Yusli Mohamed Yusoff has pledged to step up efforts to promote Bursa Malaysia.
Malaysia’s projected 2010 growth rate of 5% may not make a ‘sexy’ story, but it is a healthy and sustainable pace, and with that, it provides a less risky environment for investors.
The key attraction of the Malaysian market is it is defensive, somewhat a “safe haven”, as CIMB head of equity research Terence Wong argues, because of the strong participation of local fund managers cushioning any negative impact. In other words, in a downturn, the Malaysian market tends to fall less than others.
Being a low-beta market (less risky, but lower returns), the attractiveness of the Malaysian bourse is a relative issue, Wong argues. “It depends on the condition of the other markets in the world,” he explains.
A senior “buy” analyst from foreign fund management company Manulife concurs. “When regional markets are buoyant, Malaysia would not be the first choice of foreign investors. But when regional markets are down, investors would turn to Malaysia to park their monies,” he opines.
Limited choice, less movement
Based on fundamentals, Malaysia has some compelling factors to offer in building up interest in its capital market. As it is, many listed companies on the local bourse, particularly those with regional presence, are already growing at rates faster than that of the country’s economy.
The downside, however, is the choices of such big companies in the Malaysian capital market are rather limited, compared with other markets in the region such as Singapore and Hong Kong, the foreign fund manager points out.
“That’s one of the main reasons the Malaysian market doesn’t appear to provide much excitement to us,” he explains.
Terence Wong ... ‘The Malaysian market is defensive and somewhat a safe haven.
In addition, most of the large Malaysian companies are already trading at relatively expensive valuations. For instance, the blue chip plantation counters are trading at a premium of more than 5%.
“Other markets at the moment seem to be offering more attractive entry levels because of their cheaper valuations,” a foreign broker says.
Another complaint among foreign investors is the small free float of many of the listed companies in Malaysia, especially big and well-managed ones, because the bulk of their shares are in the hands of major shareholders. Hence, such stocks are not easily available.
The tight shareholding control of these companies is one of the main reasons for the lack of liquidity – as in the level of ease to buy and sell stocks without drastically affecting their prices – in the Malaysian stock market.
For instance, government-linked companies (GLCs) at present account for about one third of Bursa Malaysia’s total market capitalisation. In many cases, the majority of these GLCs’ equity is owned by the Government and institutions controlled by the Government.
If the major shareholders of these tightly-held companies pare down their stakes and thus allow more shares of the companies to be traded, it will help improve liquidity in the local market. Without the element of liquidity, it is tough to attract investor interest, says a broker.
As FTSE Group chief executive Mark Makepeace puts it, it is about creating liquidity to build the momentum to attract further liquidity.
Meanwhile, a dealer argues that a fair amount of speculation should be allowed to move the market and enhance liquidity. An overly regulated market does not give much room for sustained activity that can push the market, he says.
In an effort to stamp out market speculation by syndicates, Bursa Malaysia and the Securities Commission have been stringent in monitoring of stock trading activities and have taken action when there is suspicious activity.
“In a way, the authorities have to be credited for such effort because it could provide some form of protection to investors, particularly those who are less sophisticated,” says Wong.
At the same time, in a reflection of how difficult it is for regulators to balance their twin roles of driving market development and looking out for the investors, there are also frequent complaints that the authorities have not done enough to weed out market manipulation.
New model a fresh catalyst
The consensus view among market analysts is that investors are now turning their focus on the new economic model (NEM) to whet their interest in the Malaysian capital market.
On Thursday, Prime Minister Datuk Seri Najib Tun Razak said the “first stage” of the NEM would be launched by the end of the month, and that more details about the NEM would be unveiled during the announcement of the 10th Malaysia Plan in June.
Many are hoping that the NEM will take the country to the next level, and create a more dynamic Malaysian economy that can compete with other fast-emerging economies in the region.
“There is high expectation that the NEM would have pro-business policies to address the declining private investments in the country,” the Manulife analyst says.
Another issue that needs to be tackled is the slow creation of a new generation of big and successful companies over the last 10 years. Only a handful have emerged, most notably the AirAsia group.
A local broker urges the Government to step up efforts to encourage the creation of such companies that can be floated on the local bourse, as most of the existing ones in the country are already listed. “This is important to provide diversity and inject some vibrancy back into the market,” he explains.
Perception is everything?
With Malaysia making not-so-favourable headlines of late, pertaining to political and social developments, foreign investors’ sentiment towards the country’s stock market in general remains lukewarm.
“Thanks to the media for that,” Wan Suhaimi quips.
Those negative views that foreign investors have towards Malaysia are probably unfair – and untrue to some extent – and do not reflect the earnings and potential growth of local companies.
But in the capital market, perception is everything. Or is it?
“Well, that depends. Serious and intelligent investors go deeper than just the perception,” Kenanga’s Wan Suhaimi opines.
“Smart money will go where there is a better option and more benefits. It goes beyond politics or individuals.”
While some of the measures implemented by the Government last year to reform and liberalise the economy had been positive for the capital market, improving investor sentiment remains a major hurdle.
The reality is, many investors have not been keeping track of what’s happening in Malaysia since the country fell off their radar screen more than 10 years ago, when the Government instituted the restrictive measures of capital controls and exchange rate pegging in the wake of the Asian financial crisis.
Hence, they are not aware of the initiatives that the Government has taken over the years to revamp and open up the economy. For instance, capital market experts point out that many foreign investors still think that capital controls and exchange rate pegging are in force even though those measures had been relaxed several years ago.
“Clearly, some investor education is needed here, but what’s even more crucial is consistency of the Government in terms of policy implementation,” a foreign broker says.
Earlier, the Government had announced plans to implement measures within this year to liberalise and reform its economy. These include the restructuring of the fuel subsidy scheme and a review of electricity tariffs. However, the plans to implement some of those measures have been reversed.
Such developments can only moderate investors’ optimism and enthusiasm towards the Malaysian market.
“Coming from the foreign fund managers’ perspective, I can tell you that we are feeling a bit uncomfortable because we can’t gauge which direction your country’s policy is going to turn next,” a foreign fund manager explains.
Truly, the task of bringing back vibrancy and drawing investor interest in the local stock market cannot be achieved solely via Bursa Malaysia’s marketing efforts; it has to involve all the stakeholders in the economy.
And working towards that is essential to building an efficient institution that can mobilise resources and raise funds for the financing of projects and investments. That will ultimately promote further economic growth.
A vibrant capital market, after all, is an essential feature of a high-income economy.

Sunday, March 14, 2010

Are EPF savings alone enough?

Thestar: Saturday March 13, 2010

By EUGENE MAHALINGAM 

eugenicz@thestar.com.m

Invest ahead to generate extra money after retirement.

WHEN I was growing up, I aspired to join the Government. The main reason so was that I could be eligible for a pension scheme. This came from the fact that my parents were both civil servants and they got to enjoy the benefits of a pension when they retired. They still do.
While it’s not much, it’s comforting for them that at their age, they would continue to have an income for as long as they lived. I wanted to be able to look forward to that as well.
Alas, fate – or was it free will? – had a hand to play in my career choice and I ended up taking a job in the private sector. Seeing as I’m having fun doing what I do, I don’t see myself switching careers any time soon. So there goes my plan of getting a pension.
Time to switch to Plan B, namely, the Employees Provident Fund (EPF). It is intended to help employees from both private and non-pensionable public sectors save a fraction of their salaries in a contribution scheme. The contributions are invested to generate income and the funds in the contributors’ accounts are to be used in the event that the employee is temporarily or no longer fit to work.
It primarily applies to retirement, but sickness, disabilities or unemployment are also covered. The EPF also provides a framework for employers to meet their obligations to employees.
As a retirement plan, money accumulated in EPF savings can only be withdrawn when members turn 50, during which they may withdraw only 30% of their balance. Members who are 55 or older may withdraw the entire sum.
Recently, the EPF board declared a dividend of 5.65% for the financial year ended Dec 31, 2009, up 115 basis points over the 4.5% paid for 2008.
According to Fundsupermart.com Malaysia, over the past five years, EPF has been distributing an average annual dividend of 5%. The average real dividend rate for the past five years was 1.7%, after reflecting an average inflation rate of 3.4%.
With that, the important question to ask is: Will the savings from our EPF be enough to sustain us in our retirement years?
Expert advice
In his Personal Investing column, “Enough money for retirement?” last year, MRR Consulting investment adviser and managing partner Ooi Kok Hwa says as the average Malaysian lived to about 75, those who retire at 55 would need to manage their EPF savings for 20 years. But most retirees spend all their EPF money within three years of retirement, he claims.
Ooi provides a breakdown of how a retiree can manage his EPF savings for 20 years.
“We will assume a starting pay of RM1,500, growing at the rate of 8% per annum; an average bonus of two months per annum, average EPF returns of 5%, total EPF contribution of 23% (employer: 12%, employee: 11%) and inflation rate of 3%.
“Our analysis shows that if we are able to live with just one-third (or 33%) of our last drawn salary, the EPF money should be able to support us for 20 years until we pass away at 75.”
According to Ooi, if a person’s last drawn salary is RM13,976 at 55, he can only afford to spend one-third or RM4,612 per month after retirement (1/3 x RM13,976).
He stresses, however, that the computation was based on the assumption that a person would still be able to generate 5% returns after retirement.
“Everyone has different financial situations. If possible, we need to build our own investment portfolio apart from the EPF savings. We may need to seek some part-time jobs after retirement if our financial resources do not permit us to stop working,” he wrote.
“Besides, we need to clear all our outstanding debts before retirement. We also need to buy enough life and medical insurance for ourselves as well as set up education funds for our children.”
Financial planner Wilson Low says a person who’s concerned about his or her future financial well-being has one clear option – invest.
“Anyone who’s worried about not having enough money in their old age should do something about it, to make sure that you do have money to sustain you when you’re old and not working any more,” he adds.
“The obvious thing to do is to invest in something that can help generate an income for you when you’re older. There are various investment avenues out there and with proper planning and research, financial independence is not an impossibility.”
What some have done
Rita (not her real name), is a retired nurse. After working for the Government for 30 years, she worked in the private sector for a further nine years because she needed the money.
However, she admits that without her pension, it would be difficult to make ends meet. “There are things like your children’s education or repairs to the house that you need to think about. Without the pension, the EPF definitely would not be enough.”
Rita adds that as a former civil servant, she will always be eligible for free treatment at government hospitals. “This is especially important since most medical expenses will come up as one gets older,” she says.
Rita adds that EPF also used to declare higher dividends, between 6% and 7% in the 1990s.
Kamala (not her real name) was a former employee of the Rubber Research Institute of Malaysia. A Government-based organisation initially, it was privatised in the 1990s and its employees were asked to chose either a pension or EPF scheme as a retirement option.
Kamala chose the EPF scheme, a decision she claims she regrets. “The money finished quickly as I had many financial obligations like my children’s education and housing loan. I also had to undergo an expensive operation, the cost of which would not have been an issue if I were a civil servant.”
She is however thankful that today, her children have all grown up and give her husband and her money on a monthly basis. “We have also invested our money in property. So financially we are all right.”
Meanwhile, Kong, an information technology executive in his early 40s, says he spends about RM4,000 a month on household expenses, his children’s education and an outstanding home and car loan, among other financial obligations.
“I’m spending so much every month that I hardly have enough to save. Fortunately my wife is also contributing. After 55, it’s definitely not going to be easy. I’ll probably have to continue working until my kids can support themselves,” he adds.

Friday, March 12, 2010

KLCI down for second straight day

The Star: Published: Friday March 12, 2010 MYT 10:51:00 AM

KUALA LUMPUR: The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) fell for a second straight day as investors stayed cautious after the sharp fall yesterday.
At 10.20am, the benchmark index was 8.37 points lower at 1,313.06 after opening 1.83 points lower at 1,319.60.
Losers led gainers 336 to 127 while 200 counters were unchanged. Turnover was 192.9 million shares valued at RM274.9mil.
Overnight, the Dow Jones Industrial Average rose 44.51 to 10,611.84 while the Nasdaq composite index rose 9.51 to 2,368.46 for its sixth straight advance.
TA Securities said the negative breadth and weak-buying momentum Thursday implied that a more significant profit-taking retracement was needed before buyers are convinced to bargain for recovery gains.
The research firm downgraded its short-term call on banking stocks to take profit as prices are likely to consolidate or retrace. HwangDBS Vickers Research said as bargain hunters and profit takers continued their wrestle, the local stock market was expected to swing sideways for the time being.
“The benchmark FBM KLCI will probably range bound with a marginal positive bias, possibly targeting to reach 1,340 (its next resistance target) in the near future,” it said, adding that the overnight gain on Wall Street would help to shore up overall sentiment today.
RHB Research Institute said Thursday’s sharp negative reversal on the FBM KLCI calls for a temporary consolidation ahead.
“Dampened further by the T+4 forced-selling activities from Monday’s 1.16 billion shares high volume, the index could see follow-through retracement towards a lower technical gap near the 1,300.74 to 1,312.18 region soon,” it said.
On Bursa Malaysia, Top Glove rose 16 sen to RM12.30, Ho Hup gained 16 sen to RM1.41, and Krisassets Holdings added 11 sen to RM3.
Among banks, CIMB Group fell 20 sen to RM13.84, Public Bank shed 4 sen also to RM11.84 and Maybank was 8 sen lower at RM7.34.

Tuesday, March 9, 2010

Banks raise rates

Thestar: Tuesday March 9, 2010

By JAGDEV SINGH SIDHU and ELAINE ANG

Bankers say rate hikes based on recent adjustment
starbiz@thestar.com.my
KUALA LUMPUR: Banks have begun raising their base lending rates (BLRs) following Bank Negara’s move to lift the overnight policy rate (OPR) by 25 basis points last week.
Five of the largest banks in the country raised their BLR to 5.8%.
Malayan Banking Bhd (Maybank) and CIMB Bank Bhd were the first two banks to announce their interest rate hike from 5.55%.
The two banks raised their BLR and base financing rates to 5.8% effective today following Bank Negara’s OPR revision last Thursday.
In a statement, Maybank president and CEO Datuk Seri Abdul Wahid Omar said the interest rate revision was based on the recent adjustment in the OPR.
“We expect to see better growth from our core business segments, leveraging on the improving economic environment and as more customers take advantage of the diversity of our product and service offerings,” he added.
Public Bank will also raise its BLR to 5.8% today, according to Bank Negara’s banking info website.
“We are supportive of Bank Negara’s move to normalise interest rates as the economy regains stability and are immediately transmitting it to both savers and borrowers,’’ said CIMB group chief executive Datuk Seri Nazir Razak in a statement.
Nazir said it was the right time to raise interest rates as the economic environment had normalised and growth momentum was strong.
“We saw the fourth quarter gross domestic product (GDP) numbers and we are looking at a GDP growth north of 4% this year potentially,’’ he told reporters at the launch of CIMB Twin Yield Income Investment structured product yesterday.
“Those conditions suggest that it is time to normalise interest rates. As best as I can tell, it is a good decision.’’
CIMB also raised its savings and fixed deposit rates by up to 25 basis points.
The RHB banking group also raised its BLR for RHB Bank Bhd to 5.8% today.
In a statement, group managing director Datuk Tajuddin Atan said RHB would be balancing the increased borrowing rates by offering more competitive rates for depositors.
Hong Leong Bank Bhd will increase its BLR to 5.8% effective March 10.
Bank Negara raised the OPR as the economy has improved significantly and returned to its path to recovery.
“Given this improved economic outlook, the Monetary Policy Committee (MPC) decided to adjust the OPR towards normalising monetary conditions and preventing the risk of financial imbalances that could undermine the economic recovery process,’’ said Bank Negara in its monetary policy statement last week.
“At the new level of the OPR, the stance of monetary policy continues to remain accommodative and supportive of economic growth.”
A rise in interest rates is usually greeted with trepidation as economists typically worry about its impact on growth and demand.
This time around, that apprehension is not yet visible.
“At the moment the impact will not be great as it is coming off historic lows,’’ said AmResearch economist Manokaran Mottain.
The Association of Banks Malaysia said the increase in OPR would not impede access to financing nor affect the industry’s lending activities.
The banking industry recorded a loans growth of 8.6% in January and 7.8% in December.
Analysts said the impact the BLR increase would have on bank’s profits would depend on whether deposit rates would be raised by the same quantum.
They said bank margins were squeezed when interest rates were cut but they expected net interest margins to widen as interest rates rose.

For Bank Negara statements click here

Monday, March 8, 2010

FBMKLCI Melonjak Dua Hari Berturut-turut

Assalamualaikum w.b.t.,

Indeks komposit (FBMKLCI) hari ini telah melonjak ke paras 1324.22 mata setelah menokok 24.44 mata dan 15+ mata jumaat lepas. Peningkatan ini sejajar dengan pekembangan positif pasaran Wall Street dan Shanghai. Lonjakan pasaran tempatan  ini didominasi oleh kaunter-kaunter kewangan (tidak patuh syariah) berasaskan riba dan judi. Dijangkakan "2nd Liner" dan "3rd Liner" akan membuat rally setelah kaunter-kaunter utama FBM30 "1st Liner"  memperlahankan pecutan mereka. Dengan perkembangan positif ini sudah pasti ramai yang mula membelek dan membidik saham-saham atau unit amanah mereka atau mula memasuki pasaran saham.

Sayugia diingatkan, berhati-hati bila melabur. Pasaran boleh berubah sekelip mata. Seboleh-bolehnya elakkan kaunter-kaunter spekulasi atau syarikat yang rekod kewangannya yang sangat buruk serta perniagaan yang tidak menguntungkan. Begitu juga bagi mereka-mereka yang melabur dengan unit amanah (unit trust), ini adalah antara masa-masa yang sesuai untuk menilai perkembangan "unit trust" anda atau peluang untuk mengambil untung. Dinasihatkan, dapatkan pandangan agen unit amanah anda dan buatlah sasaran mengikut matlamat pelaburan anda.

Dalam keadaan mod "bull" carilah saham-saham yang masih rendah harganya berbanding nilai sebenarnya. Elakkan membeli saham-saham yang ditawarkan pada harga yang tinggi berbanding nilainya. Melabur dengan sabar dan jangan ikutkan hati, terburu-buru serta tamak seperti pepatah melayu ada berkata, "Umpama Anjing Dengan Bayang-bayang".

Antara kaunter-kaunter yang agak mendapat perhatian pelabur adalah CSCSteel, Coastal, Titan, Luxchem, KFIMA, Fimacorp, Favco, E&O, LHH, Pantech, Tenaga dan sebagainya. Buatlah analisa sendiri, nilailah kadar risiko yang anda mampu tanggung.dan adakah boleh memegang saham untuk tempoh yang lama sekiranya berlaku balikan pasaran. Risiko pelaburan adalah tanggunjawab sendiri.

"When Market Up Time To Evaluate and Sell, When Market Down Time to Analise and Buy".

Melabur-melabur juga, patuh syariah perlu diingatkan juga.

Wassalam.

Penafian: Tulisan ini adalah pandangan peribadi semata-mata. Sila nilaikan  dan risiko pelaburan adalah tanggungjawab serta risiko pelabur itu sendiri. Penulis tidak bertanggungjawab di atas segala  kerugian atau kesan yang dihadapi akibat dari tulisan diblog ini.

Sunday, March 7, 2010

Having a concrete plan to financial freedom

Thestar: Saturday March 6, 2010

By FINTAN NG

fintan@thestar.com.my
Financial freedom is a distant dream for the vast majority of working people, it is made almost unattainable by the generally low wages and inflationary pressure that many here have to struggle with.
An observer says it has become increasingly difficult to rely on just a day job to achieve that freedom as wages here have not kept up with inflation.
This person has a day job and several side incomes including running a dragon fruit farm and being involved as an agent in the Malaysia My Second Home programme.
Some, like Ginger Leong, say “forced savings” is their path to financial freedom. However, she acknowledges that whatever is saved now may not be enough due to inflation and other commitments.
Many also find it hard to even start on the path to financial freedom as they are confronted by a plethora of investment instruments available as well as the endless numbers of books and blogsites on financial management.
What most people need is guidance on how to sift through all the information out there and come up with what Whitman Independent Advisors Sdn Bhd managing director Yap Ming Hui says should be a “down-to-earth” and sensible view on achieving these goals.
He tells StarBizweek that most people “dream of achieving financial freedom” but “they don’t have a workable or concrete plan”.
Yap, who wrote a book, Roadmap to Financial Freedom, says defining goals – a “self-defined good life” for attaining financial freedom – is important.
“Not everyone can become wealthy but everyone can achieve financial freedom, however those who want to achieve it must have a roadmap as a guide to know what is the optimum investment that needs to be made,” he says, adding that even people with average assets and incomes can attain their financial goals.
Yap defines financial freedom generally as “an optimum financial position whereby your wealth is optimised to match your optimum financial needs and wants”. In this respect, “wealth” can also be defined as “assets”.
He realises that individuals have different goals, needs and wants but says this can be simplified to two components for the purpose of mapping out a roadmap - optimisation of assets and identifying and managing financial needs and wants.
Yap says needs and wants should not be viewed strictly from the financial context alone but from a bigger picture - the higher context of life.
“Most people will just concentrate on optimising their wealth but just concentrating on making more money is not true financial freedom if needs and wants are not defined,” he says.
Yap says when a person embark on the path to achieving financial freedom, some of the questions to ask are: How far is that person from their goals? If situations come around that will impact finances, what will that person do? What’s a person’s next move suppose to be?
Standard Financial Planner Sdn Bhd chief executive officer Alfred Sek says that freedom has been achieved as long as there is no stress from financial problems or commitments.
“Achieving it is a gradual process, people adjust as they go along, so if they earn more then they adjust their goals, similarly if they earn less than they adjust too,” he says.
Sek says in his experience advising clients on their finances, flexibility is important. “There are no real yardsticks, personal situations and needs are different,” he says.

Friday, March 5, 2010

Report of 50% iron ore price hike offer doubted

Thestar: Friday March 5, 2010

Analysts say settlement, if reached, seen nearer 65% to 70%
BEIJING: A Chinese media report that global miners are offering Chinese steel mills a 50% rise in iron ore prices was dismissed as posturing by analysts, who predicted a rise of 65% to 70% instead.
China has by far the world’s largest steel sector, producing almost half of global crude steel last year, when the country’s iron ore imports surged 42% to a record 628 million tonnes to feed the rampant production.
The head of the iron ore department of a large Chinese steel mill told the state-run China Daily that the big three iron ore miners – Vale, Rio Tinto and BHP Billiton – were seeking a 50% hike in term prices from 2009 levels.
BHP and Rio Tinto officials declined to comment on the report as a matter of policy.
However industry analysts said 50% looked low, considering soaring spot prices, which have risen more than 50% since September, and recent comments from mining companies about the gulf between the benchmark and the market.
Inspection workers collecting samples at an iron ore dump site in Shandong province on Monday. Spot iron ore on a landed China basis is trading around US$134 a tonne, double the 2009 free-on-board contract. — Reuters
“I think this is posturing and very much to be expected this time of year. With the big iron ore producers voicing an interest in spot pricing, it will be very tough for the steel mills to fight a big price increase,” said ANZ’s senior commodity analyst Mark Pervan, who forecast a 70% rise in ore prices.
“Steel mills are getting ready for increased raw material costs. Japanese mills are talking about a 30% rise in hot-rolled coil, equivalent to an additional US$180 a tonne. But to cover a 70% rise in ore and a 72% rise in coking coal would only take a 19% increase in HRC prices.”
Spot iron ore on a landed China basis is trading around US$134 a tonne, double the 2009 free-on-board contract.
Iron ore miners, BHP Billiton in particular, have talked at length in recent weeks about the difference between spot and annual prices, hinting that contract prices and the spot market needed to converge.
Last year’s contracted iron ore prices were around US$62 a tonne and coking coal was US$129. Based on 1.6 tonnes of iron and 0.6 tonnes of coking coal to make one tonne of steel, Japanese mills could be positioning product prices for a worst-case scenario of a 100% rise in coke and ore costs.
The China Daily quoted the steelmill official as saying Baosteel, which is leading the talks this year, “would wait and see how Japanese and South Korean steel mills react to the proposal before taking a decision”.
“If other Asian steel mills accept the new ore prices, then Chinese steel mills will have no other choice but to accept the same, as stopping production is not in the best interests of the industry.”
A source at South Korea’s top steelmaker POSCO said it had not received any official offers from major iron ore suppliers yet, but added that miners have said, during casual meetings with mills, that prices should return to 2008 levels.
The collapse of financial markets in 2008 prompted a 33% fall in annual iron ore prices settled with Japan and South Korea.
Steep prices may force steelmakers to shift away from decades-old annual benchmark pricing and adopt a hybrid annual or quarterly set pricing model, the POSCO source added.
“Steelmakers will have to use a differential negotiating system – i.e., partly accepting a quarterly index system. While we cannot say officially that we would accept it, there should be a certain momentum to change the system.”
The China Daily said China’s crude steel output was expected to rise 8.6% to 621.5 million tonnes in 2010, a slower rate of annual growth than last year’s 13.5%, without citing a source for the forecast. — Reuters
That would imply a rise in annual production of 54 million tonnes, compared to 68 million tonnes last year.

Fuel prices set to rise

Friday March 5, 2010

By DANNY YAP

danny@thestar.com.my
PETALING JAYA: The Government is likely to revert to slight increases in fuel prices over time now that it has been officially announced that the proposed two-tier fuel subsidy scheme based on vehicle engine capacity has been scrapped, analyst and economists say.
The proposed fuel subsidy scheme was originally set to be implemented on May 1.
Maybank Investment Bank analyst Mohd Khair Mirza said: “We may see an increase of about 10 sen in petrol prices post May 1.” He added that it was the only viable option for the moment unless the Government came out with a better fuel subsidy scheme.
Mohd Khair said the two-tier fuel subsidy scheme proposed in theory appeared good on paper but issues such as implementation and enforcement were questionable.
He said: “At least with the slight increase in fuel prices over time it is applied across the board and the Government is able to close the gap on the fuel subsidy which remains unsustainable.”
Mohd Khair said that based on US$80 per barrel of crude oil, the Government was currently subsidising fuel at the pump at around 40 sen per litre.
An economist from a rating agency said although the proposed two-tier fuel subsidy scheme has been scrapped, it should not deter the Government from continuing to look for other schemes that were more practical and viable.
He said a viable scheme should meet two objectives – ensure the hardcore poor are not badly affected and address the fuel subsidy.
A local economist from a broking house said the Government’s decision to scrap the proposed two-tier fuel subsidy scheme based on vehicle engine capacity came as no surprise.
“We figured it (scrapping of the scheme) would happen. There was a lot of talk that the subsidy scheme was not practical, despite a lot of effort by the Government to implement it,” he said.
The economist believed some individuals were waiting to exploit the scheme (if implemented) thinking they could benefit from the scheme.
“Thankfully the Government realised the proposed subsidy scheme was not foolproof and decided to scrap it,” he said.

Bank Negara ups interest rates

Thestar: Friday March 5, 2010

By YVONNE TAN

Overnight policy rate increased to 2.25%

yvonne@thestar.com.my
PETALING JAYA: Bank Negara raised its overnight policy rate (OPR) by 25 basis points to 2.25% yesterday, signalling the time was ripe to normalise interest rates with the improvement in economic conditions.
The Monetary Policy Committee (MPC) said the hike was to prevent any financial imbalance that could take place should rates remain too low for longer than necessary and said Malaysians should expect the rate of inflation to rise but remain moderate given the prevailing economic conditions.
The hike in OPR, the benchmark interest rate which determines banks’ lending rates, is the first increase in close to four years.
“The recovery in the global economy is progressing amidst continued policy support and improvements in financial conditions,” the central bank said in a statement yesterday.
Dr Yeah Kim Leng (left)expects an increase of between 75 and 100 basis points this year
It said going forward, domestic growth was expected to strengthen further, supported by domestic demand and continued improvement in external demand, particularly from the regional economies which had expanded strongly in the fourth quarter.
Malaysia recorded its first growth of 4.5% after three consecutive quarters of contraction in the last quarter after a combination of government spending, a lower inflation rate and accommodative monetary policy helped boost domestic demand.
“Given this improved economic outlook, the MPC decided to adjust the OPR towards normalising monetary conditions and preventing the risks of financial imbalances that could undermine the economic recovery process,” it said.
While external factors, including rising global commodity and food prices might exert some additional upward pressure on domestic prices, inflation was expected to remain moderate this year, Bank Negara said.
Domestic consumer prices rose for a second month in January, up 1.3% year-on-year.
The OPR has remained at a historical low of 2% since February last year amid a severe and fundamental economic downturn. “These conditions no longer prevail,” Bank Negara said, adding that the stronger growth performance in the fourth quarter affirmed that the economic recovery was “firmly established”.
Accordingly, the floor and ceiling rates of the corridor for the OPR were raised to 2% and 2.5% respectively yesterday.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng described the hike both as a signal of the central bank’s confidence that the local economy recovery was on track and as a “gradual normalisation” of the historically low rates.
Bank Negara had earlier also indicated the need for the normalisation of rates, adding that any increase should be viewed as “normalisation” and not “tightening”, which is normally implemented to slow consumer demand in an overheated economy with high inflation.
According to Yeah, a “normal” level for the OPR is between 3.25% to 3.5%. He expects an increase of between 75 basis points to 100 basis points this year backed by improving economic conditions.
AmResearch Sdn Bhd senior economist Manokaran Mottain said the increase was within AmResearch’s expectations and believed that given increasing inflationary pressures, there would be at least another increase of 25 basis points this year.
“It is needed for a gradual move towards the normalisation of rates,” he said.
At the new OPR level, the stance of monetary policy continued to remain accommodative and supportive of economic growth, said Bank Negara yesterday.

Monday, March 1, 2010

Tabung Haji in the limelight

 Assalamualaikum w.b.t.,

Tabung Haji dan KWSP adalah antara badan amanah jaminan kerajaan membantu pencarum  menggandakan caruman untuk kegunaan mengerjakan haji atau untuk masa persaraan kelak. Tetapi sejauh manakah  hasil pelaburan dari  tabung amanah ini? Tabung Haji meberikan keuntungan pelaburan 5% untuk berakhir tahun 2009 manakala KWSP belum mewar-warkan dan dijangkakan sekitar 5% juga. Kenapakah ianya rendah berbanding bank rakyat 15% untuk tahun 2009? Apakah kedua-dua badan amanah ini diurus tadbir secara tidak berhemah, sedangkan pelulus pelaburan yang terakhir diperingkat Menteri? Artikel di bawah menghuraikan perjalanan pelaburan Tabung Haji untuk renungan bersama. Oleh itu, jika pelabur unit amanah mengetahui dimana wang mereka dilaburkan, maka pelabur boleh membuat keputusan untuk terus kekal dengan unit amanah berkenaan atau menukar ke unit amanah lain yang lebih menguntungkan. 

Dari sembang-sembang kedai kopi, secara umumnnya KWSP sebenarnya boleh memberikan keuntungan yang lebih baik dari Bank Rakyat namun ianya terikat dengan kelulusan kerajaan, bersesuaian ia nya merupakan  tabungan dana negara.

Wallah hu 'alam.

------------------

Saturday February 27, 2010

By RISEN JAYASEELAN

risen@thestar.com.my
Newly-appointed acting CIO gives an overview of the recent issues surrounding the pilgrim fund.
THE ongoing tussle at Petra Perdana Bhd has had an interesting side effect – it has thrust Lembaga Tabung Haji (LTH) into the limelight. The pilgrim fund lost its chief investment officer (CIO) soon after the eventful Feb 4 Petra Perdana EGM.
Following his departure, rumours had been swirling around that the CIO, Abdul Halim Alias, had left because of a fallout with the upper echelons at LTH.
Tabung Haji has more than five million depositors with accumulated deposits totalling RM23bil.
While LTH’s newly appointed replacement for Halim vehemently denies his organisation is facing managment problems, Halim says otherwise. “I quit as I could no longer perform my duties without compromise,” he says.
There have also been a number of documents that have surfaced, attempting to level blame at the powers-that-be at LTH but the veracity of the information could not be confirmed.
Whatever the real story behind LTH and the Petra Perdana case may be, the situation has raised some pertinent questions about LTH. How much money does this fund have and more importantly, what criteria does it use to make its investments?
Indeed, LTH’s fund size is staggering, at RM23bil, considering the source of these funds – its over five million Malaysian Muslim depositors.
While the total figure is still small when compared with the Employees Provident Fund (which has about RM350bil), the key difference is that the pension fund receives most of its funds from companies; LTH’s monies are solely from the man in the street. It was set up in 1963 by Royal Prof Ungku Aziz to help Muslims finance their haj pilgrimages to Mecca.
But that does not mean LTH is a charity. It acts more like a savings bank that encourages Muslims to save money with them, to be used when the time comes for one’s pilgrimage.
Despositors are offered a subsidised package for the haj though. The cheapest package costs depositors RM9,980. According to LTH, a similar package sold by other providers costs RM12,600, indicating the amount of subsidy that the pilgrim fund provides.
LTH also pays a decent dividend, referred to as bonus, to its depositors, not unlike the EPF. But here’s one stark difference: A look at LTH’s financial statements indicate that the pilgrim fund relies heavily on stock market gains for its profit and dividend payouts.
For example, in 2007 stock market gains made up 66% of its profits. But this was not the case in 2008 when its contribution dipped to 23%.
As a result, profits for that year reduced, albeit not by much.
Winnings from selling its stock holdings made up close to half of 2009 net profit.
Stock market-centric
LTH’s stock market investments currently make up 43% of its total investments. This is unlike the EPF which has tended to put most of its money in fixed income products, that bear lower risk but also give it lower returns.
EPF’s stock market investments only make up 25% of its asset base, while Malaysian government securities, loans and bonds make up about 70% of its base. The EPF has said that its does this in order to achieve its prime goal of “capital preservation”.
So, is LTH forgoing the principle of capital preservation by having a high stock market exposure? Shouldn’t it focus on the lower risk fixed income type securities?
The pilgrim fund’s newly-appointed acting CIO Datuk Syed Saleh Abdul Rahman refutes the allegation that the fund is taking too much risk. “The other 57% of our investments are in properties, cash and fixed income. And ours is a prudent approach (in all our investments, including equities). Investing in fixed income assets is not the only way to achieve capital preservation,” he tells StarBizWeek in an interview.
Questionable stock selections
But not only is LTH’s stock market exposure relatively large, some of its stock selections have also raised questions.
LTH has two portfolios of listed equities. One is its core and strategic portfolio, where the pilgrim fund takes a longer-term view, gaining from the dividend income from its holdings.
The second is a portfolio of companies where it invests primarily for growth in capital appreciation. It is mainly the selection of stocks in the latter category that has drawn criticism.
Case in point: Ramunia Holdings Bhd. LTH owns over 25% of Ramunia. It became a substantial shareholder in Ramunia on Nov 2, 2007. On that day, Ramunia was trading at around RM1 per share. LTH subsequently steadily increased its investment in Ramunia, in a period when the shares were mostly trading within the RM1.20-RM1.40 band.
It raised its interest in Ramunia as the company became a take-over target of an MISC unit. Even before the deal was completed, LTH was busy mopping up Ramunia shares in the market.
But the MISC take-over was called off and Ramunia, which was loss making, saw its share price plunge. It currently trades at around 40 sen a share.
Md Noor A Rahman, who was LTH’s CIO prior to Halim, had told StarBizWeek in a previous interview that it is sitting on a significant paper loss in Ramunia. He said that the Ramunia investment is “probably the one black sheep” and he took full responsibility for the decision to invest in Ramunia.
He claimed that LTH had invested in Ramunia after doing its legwork on the oil and gas industry, including going on company visits and attending conferences.
LTH has also put a lot of money into Silverbird Group Bhd, a company that is struggling in the competitive food industry. It owns 27% of the company and has not seen the value of its investment increase.
More recently, LTH emerged as a placee of initial public offering (IPO) shares in Chinese shoe maker Xingquan International Sports Holdings Ltd.
LTH subsequently bought more shares in Xingquan from the open market. It now has a 5.76% in the shoe maker, which is still trading below its IPO price.
Then there’s Lityan Holding Bhd. It revived this ailing technology company by injecting its own information technology business into the company.
The spectacular share price movement of Lityan after this exercise brought more attention on LTH’s investment sytle but also raised questions as to why the pilgrim fund needed to inject its own asset into a listed company, after having already provided for the loss of that investment.
LTH also invests in ACE market stocks, something that most fund managers do not have the mandate to do.
“LTH seems to take strategic stakes in certain companies for reasons only known to them,” Kumpulan Sentiasa Cemerlang fund manager Choong Khuat Hock points out.
On the flip side, there are those who feel that LTH plays a very crucial role in the capital market.
Says the CEO of an ACE Market company: “LTH plays a crucial role as an investor. The EPF limits themselves to a certain number of companies on Bursa Malaysia, and most of these are the larger ones.
“LTH has a wide range of companies they invest in, they take a longer term view and engage companies on their future growth plans. Crucially, they are supportive of small and medium enterprises, something most other funds stay away from.”
Some spectacular gains
To be fair, LTH’s investment team has made some very good investments in growth stocks. If its investment team was not doing well, the pilgrim fund would be hard pressed to pay the kind of dividends it does.
Cases in point are its early investments in companies like Three-A Resources Bhd (where Wilmar International Ltd later emerged as a substantial shareholder), Mudajaya Group Bhd (the construction outfit whose share price had quadrupled over the last year and is now involved in the independent power producer business in India), Government e-services provider MY EG Services Bhd (which is showing a steady growth in both its earnings and share price) and rubber glove players Latexx Partners Bhd and Supermax Corp Bhd.
Perhaps the problem is one of perception. LTH could do more to explain its investment decisions. Says Federation of Malaysian Consumers Associations (Fomca) secretary-general Muhammad Sha’ani Abdullah: “LTH’s accountability and transparency of its investments is not satisfactory.”
Syed Saleh defends LTH’s position by noting that it uses very strict criteria for making its investments. “Investments typically go through the investment team, the risk assessment team and then the investment panel, followed by the board of directors and finally by the Minister in the Prime Minister’s department.”
When asked why LTH had invested in lesser-known or unprofitable companies, Syed Saleh said that the pilgrim fund will make an investment if the company concerned holds growth potential.
This need to invest in growth is understandable. The bulk of LTH’s profits come from capital gains of the stocks they invest in.
Insiders say this is why the pilgrim fund actively pursues high growth opportunities. For example, last year, LTH’s stock market gains totalled more than RM500mil.
And the reason why it needs to achieve such high profits is because it has to keep paying out attractive dividends. LTH’s dividend rates, if benchmarked against fixed deposit rates, are not too bad. However, they still trail the rates offered by EPF.
This begs the question: Despite EPF taking a more prudent approach to its investments, how is it that it is able to pay out higher dividends?
Part of the explanation could lie in the fact that more money is poured into the accounts of every single EPF contributor, compared with the savings that every LTH individual puts into his account.
Another reason is that LTH subsidises some of the haj pilgrimages it manages, a type of expense that the EPF does not have to incur.
Subsidising the haj
LTH also carries out activities related to the haj.
“We handle all the management issues of the pilgrims, their registration, their passport and visa. We give them classes for them to understand how they should perform once in Mecca. We also help to arrange their air travel, accommodation and medical needs,” says Syed Saleh.
Aside from being able to get a subsidised haj package and other related services, Muslims are also drawn to place their savings in LTH because it effectively takes care of their zakat obligations or alms giving. LTH pays zakat out of their profits before dividends are paid to account holders.
Muslims are also comfortable with the fact that LTH’s investments are only made in syariah compliant counters. While there seems to be some concern over LTH these days – the media recently received a complaint letter about LTH from 14 depositors, asking the pilgrim fund to respond to news articles suggesting that all is not well at the fund – it is likely that the majority of contributors are not overly concerned.
“I only have good words for LTH. They play a very important role for Muslims, many of whom would not have been able to go to Mecca if not for the fund,” says the deputy head of a large multinational company, who himself has an account with LTH.