High Income Nation By 2020?

Based on the original post: High Income Nation By 2020? Dream On. You should spend time to read this as well. There are figures to back up the arguments.


What upset me is when I read this news today:
http://www.themalaysianinsider.com/malaysia/article/1.5-million-bangladeshi-workers-to-arrive-in-3-years-says-home-minister#sthash.vfpBY8J5.dpbs

Here's the snippets:

• 1.5 million Bangladeshi workers to arrive in 3 years, says home minister

• These workers will be involved in various fields, especially in the plantation sector and will meet the demands of the job market in Peninsular Malaysia, Sabah and Sarawak.

• "However, this initiative only involves fresh workers from Bangladesh. Illegal Bangladeshi immigrants working here are not involved and we will continue to deport them," he said in Malacca today. (Belum kira illegals lagi beb)

Disease (One of it)

• Low-skill jobs equal low wages

• In Malaysia, not enough high-wage jobs have been created. In fact the share of skilled labour has declined across industries.

• The E&E sector, which is the major contributor to Malaysia’s growth, has experienced some 

• of the biggest declines in use of high-skilled labour.

• ...employers do not pay for skills, relying instead on tried and tested means such as a readily available pool of unskilled foreign workers and underpriced resources to generate profits.

• Immigration policies favour low skilled and cheap labour. Between 1990 and 2005, foreign labour contributed more than a third of the increase in total labour supply, and over 98% were low-skilled contract migrant workers.

• Malaysian firms prefer to undertake less sophisticated activities, such as upgrading existing product lines or machinery and equipment. Activities that give rise to greater innovation and require the filing of patents are undertaken less frequently.

Broad decrease in the use of high-skilled workers in all industries

I have stressed this before back in 2012 in my blog post (Malaysia 2020 Is Not A Vision, It's A Dream) as a big problem plaguing Malaysia: We attract "mainly" low skilled workers; laborers.

Sunday Lite: July Prediction of Pump Oil Price (Ron 95)

Why is this sort of important? Say every month you know ahead of official price announcement and let's assume there is a price swing on average of 10 sen per month and you can fill in 35 litres. 0.10 x 35 x 12 = RM 42 savings a year. Obviously you don't feel it's a lot but every year you will always call and beg for credit card waiver of RM50 on govt service charge? Ironic isn't it? :)

Jul 2015
WTI crude oil future still very near $60, however the performance of the Myr has been abysmal. It continues to weaken from 3.65 to almost 3.80. BNM will continue to intervene by selling our foreign reserves so that it won't reach that physiological level. No major political events. I expect prices to maintain (RM2.05 for RON95). No harm to pump though, if there is a remote chance of increase it would be 5 sen. It is extremely unlikely to go down.

Hovering @ $60 per barrel

Likely to be @ this level (>3.70) for the month of July

Here are my previous predictions (thru emails, whatsapps, blog posts and word-of-mouth so I might have missed people out therefore decided to put it in blog is the best). **It is easier to predict the direction of fuel price than to estimate amount of swing of fuel price due to the government REFUSE to disclose the compute mechanism. My predictions are based on WTI crude oil price, performance of Ringgit (added after Mar) & politics conditions (which was added after May).

My total savings to date: RM 29.75 (not very far off RM 42 and we are already halfway thru 2015)

Jun 2015
Oil per barrel still hovering near $60 and likely to be within this range. Myr has weaken again, now 3.67 and expected to weaken even more. Honeymoon is over. Like the u-turn on prepaid card GST fiasco, petrol will go up 20 sen.
Ron 95 RM 1.95 (May) -> RM2.05 (Jun) (prediction set, saved RM 3.50)

May 2015
Aboi's fuel price est for May. More likely than not likely to go up 10 sen on 1st May. Due to oil futures hovering slightly above $60 (up 10%) while Myr only strengthen by 3% against the US dollar.
Ron 95 RM1.95 (Apr) -> RM1.95 (May) (prediction off, should have factored in the two 'buy' elections)

Apr 2015
50/50 chance for price to remain or go slightly lower (5 sen/10 sen). It is highly not likely to go up.
WTI futures hovering at $50-55 instead of $60.
Offset by weaker ringgit RM3.70 instead of RM3.60.
Saudi declared war on Yemen but expected not to cause any break in oil production levels as of now.
Hence the bet best is to wait until April 1 to fill up
Unlike 28th no need to beratur...
Ron 95 RM1.95 (Mar) -> RM 1.95 (Apr) (prediction set)

Mar 2015
Time for my monthly update again. I expect fuel price to go up by 5 sen/10 sen in March.
This is because WTI oil futures is around $55-60 as compared to a month ago when it was $48.
Not likely to maintain prices unless gohmen wanna give you ang pow.
Don’t wait till 28th, later need to 'beratur'..
Ron 95 RM1.70 (Feb) -> RM1.95 (Mar) (prediction set, saved RM 5.25)

Feb 2015
I lost the original message. Continue to expect a decrease in pump oil price as per barrel dropped to $45. This is when America shale oil pumped record amount of oil and the Sheikh's continue to fight for market share at the expense of market price. I not mistaken I predicted a 10 sen drop.
Ron 95 RM1.91(Jan) -> RM 1.70 (Mar) (prediction set, saved RM 7.35)

Jan 2015
I lost the original message. Expected a decrease in pump oil price due to oil dropping below $55 per barrel. If I remembered correctly I estimated a 20 sen drop.
Ron 95 RM2.26 (Dec) -> RM1.91 (Jan) (prediction set, saved RM 12.25)

Dec 2014
Oil sinks after OPEC decides to hold onto production targets. Maybe some countries will go rogue (decide not to hold but decrease barrel production).
Oil 68.71-4.926.68%
Ron 95 @ rm 2.30 is based on $85 per barrel. So we should see it priced lower than RM 2.30 by December. Maybe rm 2.15 or rm 2.20? #tanyanajib.
Ron 95 RM2.30 (Dec) -> RM2.26 (Jan) (prediction set, saved RM 1.40)

Weekly Market Highlights June (4)

Source: Amp Capital (here for full market update) & iCapital biz (subscription required)

Still low bond yields point to soft medium term returns from bonds, but it’s hard to get too bearish on bonds in a world of too much saving and spare capacity. Central banks won’t ratify a bond crash like in 1994, by raising interest rates aggressively.

United States
US economic data was mostly good consistent with the view that growth has picked up after the March quarter slowdown, albeit not as strongly as occurred last year. Some softness include housing starts fell in May but permits to build new homes and NAHB home builder's conditions index rose solidly indicating housing recovery. Jobless claims fell and US leading index rose. Core CPI inflation weaker than expected, 1.7% (target is 2%). The Fed remains on track to hike interest later this year, but it’s looking more gradual. Fed revised down its interest rate expectations (the so-called dot plot) reinforcing that rate hikes will be gradual. Base case remains that the first hike will be in September – but the risks are that a combination of slower growth, Greek related turmoil or a stronger US dollar could push this out to December.

Eurozone
In the Eurozone, bank take up of cheap ECB Targeted Long Term Refinancing Operations (TLTRO) money was strong for the second quarter in a row adding to confidence that bank lending will continue to improve. Focus will remain on whether there is a resolution on Greece. Meanwhile, expect the noise around Greece to have weighed on the Markit manufacturing and services conditions PMIs (Tuesday) but money supply and bank lending growth (Friday) are expected to show further improvement. The Greek standoff continues. The lack of progress in negotiations and the negative rhetoric from the Greek Government is clearly worrying for investors and the risk of no deal, setting Greece on a path of default and exit from the Euro, has clearly gone up. While the Greek mess is unnerving and may go on for a while yet, it’s unlikely to drive a return to the mini bear market in shares we saw back in 2011 at the height of the Eurozone crisis. It is of my opinion that Greece will make a last ditch effort and soften stance not to default - it is more damaging to leave than to remain within the European Union. 

Asia

Chinese shares have had another sharp pull back with the Shanghai composite having had a 13% fall from its June 12 high. After rising 140% over 12 months and around 50% year to date such volatility is to be expected as it has risen a bit too far too fast. The easy gains are probably over and a period of correction would be healthy. However, it’s worth reiterating that the Shanghai composite index on an historic price-earnings of 21 times is still below its long term average (~28) and should benefit as further monetary easing comes through.

China saw more evidence that property prices have bottomed with average of property prices rising again in May. A
stabilisation in Chinese property market indicates that a key source of risk to the Chinese economy is now receding. The June MNI survey of business confidence also rose.

In Japan, the Bank of Japan (BoJ) left monetary policy unchanged but this was as expected. Pressure for more easing remains though, and despite BoJ Governor Kuroda's confusing comments on the value of the yen, it’s likely that it will see further falls ahead. 

In Japan, the Markit manufacturing conditions PMI (Tuesday) and a range of economic data to be released Friday will be watched for confirmation that the Japanese economic recovery is on track. In terms of the latter expect to see jobs data remaining strong and a rebound in household spending growth. Core inflation is expected to have remained only just above zero though highlighting why the Bank of Japan is still likely to be forced to undertake more monetary easing.

Over in Malaysia, the stock market continues to be plummeted by foreign funds selling. Two days ago, it was believed that Ringgit will hit RM3.80 to the US Dollar. It is very likely that Bank Negara has intervened to push up the Ringgit. Data compiled by Bloomberg shows 3.7650 to a dollar as of 10.26am in Kuala Lumpur. The Sing Dollar is at RM2.80 now, the highest ever in history. Malaysia’s ringgit dropped the most in Asia on speculation Fitch Ratings will downgrade the country (from A- to B+) as the US moves toward raising interest rates later this year. To defend the Ringgit we can either sell foreign reserves or increase interest rates (2 of the most conventional ways). BNM will not do the latter because fears of housing collapse.

Here's the correlation between lending rate (which is closely tied to interest rate) vs housing price index. The saying goes, Interest rates can’t stay low forever otherwise inflation will go out of control. Sounds familiar Malaysians?  

From TradeEconomics.com

Other news obtained by Icap, manufacturing sales value fell by 0.6%, year-on-year. Big declines in sales value of petroleum related products and this is likely to have an impact on the manufacturing sales in the coming months ahead. Overall there is no good news in Malaysia - I have said many times before, our market has no catalyst at all. The honeymoon period is over.

From iCapital

Aboi's Updates For Malaysian Bond Mutual Funds for 2H'2015

The highly anticipated Mutual Funds updates for 2H 2015 is finally here. I shall start with the Bond sector (Mixed Assets and Equities in the coming days). First recap the 1 year returns of my previous picks:

AmDynamicBond (7.33%), PB Islamic Bond (5.51%), AMB Dana Arif (6.47%), Areca enhanced INCOME (3.57%), Affin Hwang Select Bond (8.02%), Hong Leong Global Bond (-1.54%). With the exception of HL, every bond fund provided a return which is more than a fixed deposit account (with the rate you can get a year ago which should be ~3.25%)

Bonds

TER is the total expense ratio, a measure of total cost (purchase, redemption, auditing, management fees) of a fund to the investor. The lower the better.

Commentary

[1] Removed Areca enhancedINCOME fund, the sharp blip is unexplained and for a bond fund this is unacceptable to me. Based on my previous info and its track record, it was not a mistake to me to recommend this fund. Nevertheless risk will always be present. You still gain a 1-year gain of 3.57% (on par to fixed deposit but nevertheless disappointing for a bond fund)

[2] AMB Dana will remain as third choice because of higher expense ratio. 

[3] AmDynamic is now back in bussines gaining 7.33% returns in one year. The recovery after the reopening of unit subscription is in line with my expectation.
[4] For outside exposure, both Affin Hwang Select Bond remains top choice. I am removing HL Global Bond. It was a mistake I admit to recommend a global bond at current high flying equities market in developed countries. Fund is now holding ~45% cash and as such there is very limited upside.
[5] As of this writing, I own AmDynamic Bond Fund.
[6] I will inject some cash into Affin Hwang Select Bond Fund (Asia Bond) as part of diversification outside of Malaysia.

I still cannot stomach to recommend AMB Income Trust yet nor Eastspring Investment Trust. A fund that leap frogs in ranking quickly may suggest that it is involved in high risk high return choices. It is of my opinion that a bond fund should be the least risky asset class (vs Mixed Assets & Equities type) and as such should strive for a balanced, consistent and sustainable returns. A good bond fund should give a higher return than that of a fixed deposit account but not at the expense of a lot more risk.

Take a look at what I meant by 'extraordinary results' which by my experience is associated to more risk taking in search of higher returns. The question is, what if those high risk takes don't turn out well?

*Nevertheless current returns of AMB and RHB-OSK suggests that they will return to a more normalized and expected yearly returns of a typical good bond fund. Their ranking should change in my next update in Dec 2015.

Examine the 'Extraordinary' returns for a Bond fund. Both these funds have very high Std Deviation values (7.79%, 4.04% and 5.38% respectively). AMB Income Trust is more favourable due to a far better Sharpe ratio of 1.43, Eastspring's 0.75 and RHB-OSK's 1.32.

The more consistent performers under the Bond umbrella. (Std deviation values from left to right: 2.19%, 1.33%, 1.19% and 2.47% only) with Sharpe ratio of nearly 1 except AmDynamic at 0.33. (due to massive redemption and reopening of subscription in 3Q2013)

Source: MorningStar - Rating & Risks section for respective fund

I will use a better risk-adjusted returns measure using the five principles of risk measures; alpha, beta, r-squared, std deviation and Sharpe ratio. I will just explain what they represent rather than showing hefty equations.

Alpha: A +ve of 1.0 means the fund has outperform its benchmark index by 1.0%. The opposite goes for -ve.
Beta: A +ve of 1.2 means the fund is 20% more volatile than the index. The higher the beta suggest it offers the possibility of higher returns but also posing more risk. The opposite goes for -ve. 
R-squared: A higher R-squared will indicate a more useful beta value (85 to 100) aka good correlation. A low R-squared value means you should ignore the beta. It's a measure on well the fund is measured against an appropriate benchmark.
Standard deviation: A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.
Sharpe Ratio: The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. It describes how much excess return you get for extra volatility you endure in holding riskier asset.

Though the Sharpe Ratio value for AMB Income Trust & RHB-OSK Islamic Bond looks solid it is difficult for me to swallow such deviation. Until these values go down to a more reasonable level I will shy away no matter how 'extraordinary' the returns are. It's all about managing risk.


Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

Sunday Lite: The New Cold War?

The original post is from the Economist :
[1] http://www.economist.com/news/leaders/21654058-keep-its-fighting-edge-america-needs-spend-more-technology-sharper-blade
[2] http://www.economist.com/news/international/21654066-military-playing-field-more-even-it-has-been-many-years-big

• Although the United States is still by far the world’s strongest martial power, others are catching up particular China.
• In the past America has harnessed technology to offset its rivals’ advantages. Nuclear arsenal for deterrence (in the 1950s), "deep strike" systems (from the late 1970s) and smart munitions, battle networks and electronic warfare (1991 Gulf war).
• But these technologies have now proliferated, China that worries American strategists the most.
• Growing more sophisticated and its government is becoming more assertive towards its neighbors. 
• China is determined to prevent American aircraft-carriers from operating close to its shores, and could even threaten American bases in the region. 
• Built up an array of land-based precision-guided missiles; submarines and fighter aircraft equipped with anti-ship missiles; and electronic, cyber- and anti-satellite weapons intended to disrupt and blind America’s command-and-control networks.
• China’s aim is to deter any American president from coming to the aid of allies subjected to threats or bullying from Beijing.
• China's defense budget that tends to grow by more than 10% a year.
• The Chinese call their objective “winning a local war in high-tech conditions”. 

From The Economist

• China aims to make it too dangerous for American aircraft-carriers to operate within the so-called first island chain (thus pushing them out beyond the combat range of their tactical aircraft) and to threaten American bases in Okinawa and South Korea. American strategists call it “anti-access/area denial”, or A2/AD.
• America has been distracted. 13 years of counter-insurgency and stabilization missions in Afghanistan and Iraq, More focused on churning out mine-resistant armored cars and surveillance drones than on the kind of game-changing innovation needed to keep well ahead of military competitors. 
• The US Pentagon late 2014, began the quest for a new range of breakthrough technologies—what it calls a “third offset strategy”.
• These are likely to include stealthy unmanned planes and underwater vehicles that can operate autonomously (and thus survive enemy disruption of their data links). Tireless drones, long-range strike aircraft to penetrate the toughest air defenses, directed-energy (laser) and electromagnetic weapons (fire projectiles using electricity) to defend ships against missile attack.
• It is unlikely that a third offset strategy will secure Western military dominance for as long as the first two did. Technology spreads much more quickly these days, partly thanks to the internet, which the Pentagon helped to create and which now helps rival powers steal America’s military secrets. 
• American power is not always wielded wisely. But it remains the best guarantee of the rules-based international order, from which nearly all countries benefit—and not just America’s allies. That order is already impaired. If America loses its technological edge, it will only fray faster.

My thoughts : In the long run, if you want to lead the world militarily you have to lead it economically as well so far China is a long way from achieving this, perhaps not in the coming few decades.

Living in South East Asia, I do not like China's flagrant violation of international law by claiming
the entire South China Seas as hers. It is pure bullying, macam 'samseng'.

Very unlikely there will be an all out war. China and the US have more interest in common than conflicts at odds. At $550 b in trade in 2014, they are the second biggest trading partner to each other and this will only keep growing.

We should only be afraid of miscalculations or accidental provocation that could lead to a short term military crisis. E.g. Soviet Cuban Missile Crisis or an accidental firing on a civilian plane like MH17 (over Ukraine-Russian meddling). This is how it indirectly affects us - normal citizens.

I hope America would accept China as a growing rising power just like Britain did (which was the former world power) when US was eclipsing it. In return it is in China's best interest to treat America as a partner in world's affair to gain more influence & acceptance. The world is big enough. Meanwhile we are busy...

From FinanceTwitter

Malaysian REITs in 2015 (Some Opportunities Exist)

Source: Dynaquest SPG, Kenanga Research, MIDF Research.

Potential Upside/Downside = Current Price/Net Asset Value
OP = OutPerform (more upside potential than downside risk)
UP = UnderPerform (more downside risk than upside potential)
MP = Market Perform (limited upside)

***My order of evaluation: Yield > Prospects > Discount/Premium Rate. Below are key highlights that I extracted from various sources as indicated above. And I generally ignore smaller REITs due to them being too illiquid & boring (ARREIT is an exception, covering it for a friend).

KLCCP Stapled Group (Diversified, Market Cap: RM12.583 billion)
Gotten shareholder's approval to raise funds of RM1.2b supposedly for potential asset acquisitions within KL's Golden Triangle (Suria KLCC only 60% owned, KLCC Convention Centre, Traders Hotel and Impiana Hotel. A key positive factor is PETRONAS being sole lessee of two key assets (Twin Tower & Menara 3 Petronas) under triple net lease arrangement for 15 years providing very good stability of income. OP because of acquisition prospects & triple net lease arrangement.
Kenanga Research RESULTS NOTE - KLCC STAPLED GROUP - 06 MAY 2015


Pavilion REIT (Malls, Market Cap: RM4.55 billion)
Da Men is expected to be completed in 3Q15 and Pavilion Extension done by mid FY16. The management still views the outlook for 2015 to be challenging amid weaker consumer sentiment due to GST and significant increase in the supply of new retail space in the Klang Valley hence MP rating (mall REIT usually commands a premium based on my 5 years data)
Kenanga Research RESULTS NOTE - KLCC STAPLED GROUP - 06 MAY 2015


IGB REIT (Malls, Market Cap: RM4.59 billion)
Owner of Mid Valley Megamall & The Gardens Mall. IGBREIT is unlikely to make any acquisitions in the near term despite their low gearing level of 0.32x. MP rating due to GST and retail space oversupply (mall REIT usually commands a premium based on my 5 years data)
Kenanga Research RESULTS NOTE - 29 APRIL 2015


Sunway REIT (Diversifed, Market Cap: RM4.81 billion)
Sunway Putra Mall (SPM)'s official reopening (refurbishment) with at least 50% occupancy -> 70% by Aug15. Sunway Putra Hotel (SPH) refurbishment almost completed while refurbishment for Sunway Putra Tower (SPT) is still ongoing and is expected to be fully completed by 4QCY15. Acquisition of Sunway Hotel Georgetown was completed on January 2015. MP rating due to GST (mall REIT usually commands a premium based on my 5 years data)
Kenanga Research COMPANY UPDATE - SUNWAY REIT - 16 JUNE 2015


CapitaMallsMalaysiaTrust (Malls, Market Cap: RM2.49 billion)
The acquisition of Tropicana City Mall (TCM) and Tropicana Office Tower (TCOT) is expected to complete by 3Q15. Earnings to be reflected in FY16. Strong income growth from East Coast Mall is expected to cushion the negative impact from the MRT work discruptions to Sungei Wang Plaza. Proposal for placement of new units to raise up to RM395.5m to fund its purchase of both TCM and TCOT (which have been priced at RM565.0m) is ongoing. MP rating due to GST (mall REIT usually commands a premium based on my 5 years data)
MIDF Research CMMT - DECENT 1Q15 RESULT


Axis REIT (Diversified, Market Cap: RM1.94 billion)
AXREIT has completed the acquisition of three assets, namely; (i) Axis Shah Alam DC3, (ii) Axis MRO Hub, and (iii) Axis Shah Alam DC2, and has already signed the SPA for the Industrial facility in Johor. However, the Prai asset is the only remaining asset yet to be acquired, and the due diligence is expected to be completed in 2Q15. Dividend payout increased in CY14 largely due to gains arising from disposal of Axis Plaza, this will not repeat in CY15. AXREIT also announced a 1:2 share split on 3rd March 2015, which is pending approval from SC, and to be followed by approval from unitholders. UP rating due to high premium rate leading to low yield. Way below the average REIT yield figure.
Kenanga Research RESULTS NOTE - AXIS REIT - 21 APRIL 2015


YTL Hospitality REIT (Tourism, Market Cap: RM1.35 billion)
Trust's property asset value of ~RM 3.0 billion comprising hospitality assets located in Malaysia, Japan and Australia and has more than 50% of investment in properties (by asset value) located abroad. Proposed increased in fund size from 1.324 billion units up to max of 2.125 billion units.
OP due to prospects of better earnings (weaker currency from all three countries good for tourism) and providing the best yield among all REITs.


AmanahRaya REIT (Diversified, Market Cap: RM510 million)
Earnings will be surpressed due to non-payment of rent by SilverBird Factory (11% of gross rental income) and shortfall of rental income from Wisma Amanah Raya Bhd after CIMB-IB tenancy ended in 2013. Acquired Wisma Comcorp for RM30 m in Dec 2014. Better to err on the side of caution until more information on earnings is clear. For CY15 it will be boosted by the disposal of Kontena National Distribution Centre 11 for RM34 million. Maintain MP due to uncertainty, however the good yield and discount more than offset the uncertainty.

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

Weekly Market Highlights June (3)

Source: Amp Capital (here for full market update) & iCapital biz (subscription required)

United States
Economic data continues to provide evidence growth is picking up. Retail sales up strongly in May, consumer confidence up, small business optimism up, jobless claims remaining low, job openings up strongly in April even

though the hiring and quits rate was down fractionally and mortgage applications to purchase up strongly. The Federal Reserve Bank (the Fed) will be the big focus in the week ahead. Recent improvement in US economic

indicators have come too late, and the labour market improvement is not yet strong enough, to bring on a rate hike at Wednesday's Fed meeting, but the Fed is likely to signal that it remains on track to hike rates later this year (my bets on September) providing economic data continues to improve giving confidence that inflation will rise back to target (I think it's a 2% target).

Eurozone

Greece nearing the end game. Ball is now in Greece's court to accept offer at end of June or face dire consequences for not avoiding a default. The June 18 Eurozone finance ministers’ meeting is the next deadline to watch. The pressure on Greece is now immense as recent turmoil has helped plunge it back into recession.  So Greece is likely to remain a source of volatility. But even if Greece does end up leaving the Euro, the threat of contagion to other peripheral countries is low compared to the 2010-12 period as they are now in better shape and the ECB is now providing stronger support.

Asia

Chinese shares’ inclusion in MSCI benchmark indices on hold but inevitable. Foreign investors still bit convoluted, will need time to make foreign access easier and when that occurs global demand for Chinese shares will be boosted. This will in turn inject a more significant and much needed foreign institutional element into the Chinese share market helping to balance out speculative retail investors and making for a more stable market.

Chinese economic data for May provided signs of a stabilization in growth after the soft patch early this year. Imports and fixed asset investment were weaker than expected, but growth in industrial production, consumer spending, exports, property sales and money supply improved and credit came in stronger than expected. At the same time though inflation was weaker than expected and producer prices are continuing to fall highlighting that monetary policy still remains way too tight, so further PBOC easing is still likely. 

Japanese economic data was good with March quarter GDP growth revised up to a strong 1% quarter on quarter driven by strong investment, strong machinery orders in April indicating that the strength in investment may be continuing and further falls in bankruptcies and Tokyo office vacancy rates.

Over in Malaysia, the stock market has of late been hit by heavy foreign funds selling. With US economic growth expected to make up for seasonally weak Q1, more foreign funds selling is to be expected. I've said before when putting my comment on Kenanga Growth Fund (change from BUY to HOLD rating) a week ago because there is lack of any catalyst in the Malaysian market.

Can U Answer Three Simple Finance Questions?

Roughly half of the world can’t answer these three questions correctly:


1.  Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow?
A) more than $102
B) exactly $102
C) less than $102

2.  Imagine that the interest rate on your savings account is 1 percent per year and inflation is 2 percent per year. After one year, would you be able to buy
A) more than
B) exactly the same as
C) less than today with the money in this account?

3.  Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”
A) true
B) false


Even worse – 70% of Americans & 73% of Japanese can’t answer all three questions correctly. What about Malaysians? I did a short poll today (60% of folks couldn't get all correct answers so the findings are not far off) asking friends from different working backgrounds and various age profile (21 to 60). I asked 20 people.

These findings were recently published by two economists, Annamaria Lusardi and Olivia Mitchell, and the results reveal startling levels of financial illiteracy across the world. Their works can be found @ Most People in the World Have No Idea How to Manage Their Money. (the answer is in this link)

This is why most people that we know have so many persistent financial problems. We don’t even come close to understanding the construct of money or how it should be used. It is really unfortunate that most schools don't even teach basic finance but emphasize math and even additional maths! The fact is people need to become better educated on the topic of money, finance and economics. It is no rocket science, reading articles or asking folks who are familiar can be a good start. Although it seems to be a long road ahead for most of us it’s never too late to get started.

Weekly Market Highlights June (2)

Source: Amp Capital (here for full market update) & iCapital biz (subscription required)

United States
Economic data is good. ISM manufacturing conditions index rose, non-manufacturing conditions indexes remain solid, construction activity rose strongly, auto sales rose to their fastest pace since 2005, the trade deficit narrowed sharply and labour market indicators are strong; stronger than expected employment growth in May and a slight pick-up in wages growth. All of which indicates that the Fed is on track for a September rate hike albeit a very small hike. This will lead to more inflows of capital to the dollar. We are already witnessing the impact of such anticipation now: 1 US Dollar equals 3.75 Malaysian Ringgit.

Eurozone
Also saw some good economic data. Composite business conditions PMI revised up for May, retail sales up more than expected in April and unemployment falling more than expected. Inflation rose to 0.3% yoy in May and core inflation rose to 0.9% indicating that the risk of deflation is continuing to recede. Europe still has a long way to full recovery so it is good to see that ECB President Draghi reiterate the commitment to implement its quantitative easing plans in full (i.e. buying bonds out to September 2016). Negotiations on a “reform for funding” deal for Greece are continuing to drag on. Greece will likely continue to be a source of volatility through June. Whichever way it goes though, the threat of contagion to other peripheral countries is low compared to the 2010-12 period as they are in far better shape now and the ECB is buying bonds across Europe as part of its QE program.

Asia
The 140% surge in Chinese shares over 12 months. Another bubble that may be close to ending? The easy gains are probably over and a period of correction would be healthy. However, the Shanghai composite index on an historic PE of 21 times is still below its long term average and should benefit as further monetary easing comes through. China's official manufacturing PMI rose marginally in May, albeit it’s still at the low end of the range it’s been in for the last few years. More policy easing is likely required though to be confident.

In Japan there was a welcome rise in wages growth. However, at 0.9% year on year, it still has a fair way to go before the Bank of Japan (BoJ) can be confident it has broken the back of deflation.

In India, the Reserve Bank cut interest rates again with inflation being below target and growth in activity slowing in the March quarter. Further rate cuts are still likely.

In Malaysia contrary to what the government is saying a weaker myr is not helping our exports due to the decline of oil related exports and palm oil. As such the exports of major commodities continued to declined on a year-to-year basis for the 9th consecutive month. Imports would continue to stay low due to weaker domestic demand after the GST implementation. The broad trend in the Malaysian ringgit remains down as the Fed is likely to raise rates later this year unless BNM shores up support by selling foreign reserves. It is not likely to raise interest rates.

Savings vs Investments (Unit Trusts)

The primary aim of savings is to protect the real value of money you put away, while investments are meant to grow its value. In short I believe that you need both. Savings for short term use and as an emergency buffer or reserves. Investments for your long term goals and needs (>3 years).

Savings: Savings Accounts / Fixed Deposits
Pros of Savings:
Keeps value of money intact and provide small returns as determined by interest rates. Usually always available when you need it. Minimal risks and usually guaranteed by banks or by the government. Finally it requires very little financial knowledge.

Cons of Savings:
Little increase in value over time. Currency fluctuations and inflation may significantly diminish its value. **
** Banks use your money (from savings account or FD) to provide loans and in return distribute a portion of their profits in the form of interest on your savings. Central banks control the interest rate based on inflation numbers and therefore savings can only return a slightly higher than forecasted rise in cost of living otherwise known as inflation to ensure that the value of your savings does not. This is WHY it is only good as a short term use.


Investments: Equities (shares in company) / Bonds / Property / Unit Trusts
Pros of Investments:
Grows the value of your money and may return several times the amount of your initial investment.
Helps you build a nest egg for your retirement, children's education fund, vacation and etc. Most of the time the value of investment tends to correlate to inflation.

Cons of Investments:
Risk level varies but generally higher than savings. Money usually locked in for a period of time or at least not straight forward to cash out. Requires a good amount of understanding the product and market.


As you know 20% of my portfolio is based on Unit Trusts, a figure which I would like to see increased in the coming years. Here are the benefits I see (from highest order to lowest):

Portfolio Diversification - investor has access to broader range of securities (Malaysia / Asia / Global) than you could if investing on your own. this also minimizes exposure to any one type of risk.

Access to Broader Array of Financial Assets - in Malaysia a normal investors cannot directly invest in government or corporate bonds. Fund Managers have access to those.

Asset Liquidity - you can buy and sell units anytime as compared to trading shares of companies where prices and opportunities to transact depends on availability of both buyers and sellers.

Affordability - require minimal amount of investment as most funds accept both small (for as little as RM 100) and large investments.

Continuous Professional Management - funds run by full time and professional managers who have necessary skills, relevant experience and dedicated resources to maximize investments. **
** NOT all funds are managed well. One must know how to filter good ones out as posted previously http://aboiwealthpot.blogspot.com/2014/10/abois-updates-for-malaysian-equities.html. It will pay extremely WELL if you do your homework.

Global Fund on Equities (shares on company)

Asia Bonds (a type of corporate loan)

Asia Pacific ex Japan Equities (shares on company)

Malaysia only Equities (shares on company)

Aboi's Portfolio Review For June 2015

I am moving market update to a different posting within the coming weeks. This new portfolio review post will be done monthly and offer only [key updates]. Second I would begin to leverage research on [credible] sources based on my experience but my conclusions would still be based on [fundamental] financial figures. Lastly I will explain [briefly] any changes in my rating as well as fair value revisions.

Portfolio target composition. Equities 65%, Bonds 25% and Supplementary 10%.

Targets for returns p.a. Equities 12%, Bonds 5% and Supplementary 3.5%.

Notes

- Affin Hwang Select Income Fund: Income Distribution RM 0.005 per unit (reinvested)

- Kenanga Growth Fund: Income Distribution RM 0.10 per unit (reinvested)

Comments
- Portfolio target for the 5th year @ RM156k for April 2015: Slightly OFF. 
- Portfolio target for the 6th year @ RM171k for April 2016.
- The TWRR (time weighted annual return rate = 7.70% 
- TWRR down by 1.30% from Feb'15 vs portfolio target = 9.40%).

Supermax (Equity Malaysia)

- Changed BUY -> HOLD. Uncertainty in local stock market.

- Lowered fair value (RM 2.45 -> RM 2.30) due to narrower margin from competition.

- Stock crippled due to fire at its Alor Gajah plant but has since recovered.

- Growth in capacity from two new plants in Meru, Klang which will double nitrile gloves production from 6.9b to 12.3b pieces p.a.

- Still has attractive valuations vs peers e.g. PER & Div Yield.

Genting (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.

- Higher fair value (RM 10.50 -> RM 10.69) backed by earnings to grow steadily and stable.

- However most of its current investments will only come to fruition in 2H15/2016 so there is no short term catalyst to prop up share price.

Freight (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.

- Higher fair value (RM 1.09 -> RM 1.65) as it managed to weather temporary setbacks with healthy numbers so far.

- Stock took a beating due to cessation of a 3PL contract and temporary closure of a warehouse for renovation but expected to slowly recover.

- Growth will be supported by its core Sea Freight division and trade within Asia-Australia region.

ICapital (Closed-End Fund Equity Malaysia)
- Maintain BUY.
- Huge discount from current price to NAV (20.62%)

Affin Hwang Select Income Fund (Equity & Bond - Asia)

- Maintain BUY.
- Strong USD will make headwinds for Asia markets as such fund pare down exposure in equities (30% -> 20%). 
- Also doubled cash levels to 7% and continue exposure on Asian credit market pending US Fed's direction in the 2H15.   

Kenanga Growth Fund (Equity Malaysia)

- Maintain HOLD. Uncertainty in local stock market.
- Lack of catalyst in the short term, fund holding high level of cash ~20-25%.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM 0.8 0.2 3.9 12.4 14.28 14.4 36.2 73.0 170.4 412.7 Performance figures are absolute returns based on the price of the fund as at June 2, 2015 (Last updated on June 4, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

AmDynamic Bond Fund (Bond Malaysia)

- Maintain BUY.
- Mainly invested in local corporate bonds ~80%. Interest rate expected to remain still.
- BNM will likely continue its policy pause and maintain cautious stance with a "wait-and-see" approach on US Fed direction.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM 0.4 0.9 1.8 2.8 2.66 7.0 6.3 13.2 36.0 118.8 Performance figures are absolute returns based on the price of the fund as at June 2, 2015 (Last updated on June 4, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

Aberdeen Islamic World Equity Fund (Equity Global)

- Maintain BUY.
- Fund has no exposure to China's overheated stock market and slowing economy. Fund also has 18% exposure to the already lofty valuations in US equities so impact is minimized if a correction occurs.
- Fund continues to be very diversified globally; Healthcare (21%), Materials (16%), Energy (15%), Industrial (13%), Consumer Staples (13%).

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM -0.2 1.1 -0.3 6.4 6.63 9.2 31.5 - - - Performance figures are absolute returns based on the price of the fund as at June 1, 2015 (Last updated on June 4, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date.

CIMB Principal PRS Asia Pacific Ex Japan Equity Fund (Equity Asia)

- Maintain BUY.
- Fund holding exposure to China's overheated stock market is minimal ~10%.
- Positive on Asian Equities but growth will be more scarce moving forward as regional portfolios are fully invested hence earnings will depend highly on stock selection.

FUND PERFORMANCE (BID TO BID CUMULATIVE RETURNS)

Period 1 wk 1 mth 3 mth 6 mth YTD 1 yr 2 yr 3 yr 5 yr 10 yr Bid to Bid Returns (%) - RM -1.5 -1.3 2.0 10.8 10.31 22.2 36.2 - - - Performance figures are absolute returns based on the price of the fund as at June 2, 2015 (Last updated on June 4, 2015),on NAV-to-NAV basis,with dividends being 'reinvested' on the dividend date

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.