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3: Malaysia REITs - Looking For My 2nd Durian Runtuh
4: Is Insurance Really Necessary?
5: Everyone Must be A Millionaire

Head to the watch list on the above tab to see my what's on my radar and foreseeable future postings =)

Decided to make adjustments on the way I blog & share due to time constraints and other commitments. In the coming weeks you should see them. Short updates but more frequent & concise.

Thursday, July 30, 2015

August Prediction of Pump Oil Price (Ron 95)

**It is easier to predict the direction of fuel price than to estimate amount of swing of fuel price due to the government REFUSING to disclose the compute mechanism.**

This is the second time I'm posting my prediction. Please bare that I will repeat some lines for new readers :) Also I always care to post my predictions before any official news or other analysts have given their views (typically too late after the queue starts at the stations).

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? :)

Aug 2015
Global events have once again rocked oil prices. Thanks to the America-Iran deal (Iran Set To Rejoin The World) & various oil states particularly in the Middle East battling each other for market share, oil is now heading to a new normal of $50 per barrel (down ~15%) as depicted in the WTI crude oil futures.
The new normal $50 per barrel
No changes to my expectation of a continuation of a weaker MYR. BNM to continue to intervene by selling our foreign reserves and smooth the decline.
As expected back in June, MYR will continue to be this weak >3.70
Big political events ongoing, the SUPER MORON is getting desperate by the day. The people wants a new PM not a new DPM. However these news won't really impact our MYR any further as it is already in such a weaken state.

I predict fuel prices to fall back 15/10 sen (RM2.00/RM2.05 for RON95). Worst case they will maintain it or give only a small 5 sen cut. No really huge cuts (e.g. >=20 sen) because even the SUPER MORON knows this will not make the rakyat any less angry about what is going on recently. You should only pump on 1st August. I cannot imagine at all that the price will go up.

Below 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 REFUSING 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 33.25 (not very far off RM 42 and we are already halfway thru 2015)

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. 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.
Ron 95 RM 2.05 (Jun) -> RM2.15 (Jul) (prediction set, saved RM 3.50)

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. If 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)

**It is easier to predict the direction of fuel price than to estimate amount of swing of fuel price due to the government REFUSING to disclose the compute mechanism.**

Re-Examining AIA's Investment-Linked Funds

Original Post back in Oct 2012. It's nearly 3 years.

I will reiterates some of my points again. Investment-linked policies offer:

1. Low insurance charges: As this is based on age, for young people entering the workforce you can obtain high coverage at low cost.
2. Many other benefits: Hospitalization, accidental, critical illnesses and many other protection benefits can be added on top of the standard ILP.
3. Visibility/transparency: ILP reveals how the premium allocation is made on your statement. You will also get an annual report on how your fund is performing.
4. Investment strategy in your hands: You can decide your risk level, choose which fund to invest, fund switching and portfolio allocation.

**Please note that ILP by insurance companies are not supposed to generate money for retirement. After all insurance plans are essentially protection providers NOT wealth generators (this is a great misconception by people). The returns are meant to offset the higher insurance charges (but you still pay the same premium) as you grow older thus as more returns are achieved, the longer the plan will last/the better coverage you can add later on in life. 
These four founds also share some similarities: they have been around for 10 years and small in size for their category (except for fixed income fund).

3 years ago I picked 4 funds and they have performed amazingly. The red arrow was when I first made my pick on them.

AIA Aggressive Fund (Local Equities)
CAGR of 11.55% beating benchmark by 2.60%.

AIA Medium Cap Fund (Local Equities)
CAGR of 11.72% beating benchmark by 2.29%.

AIA Dana Dinamik (Local Equities)
CAGR of 10.36% beating benchmark by 1.82%.

AIA Fixed Income Fund (Local Bond)
CAGR of 5.50% beating benchmark by 0.64%.

Of these four funds (all are domestic to Malaysia), 3 are 100% equities and only 1 falls under the fixed income securities category. Pure equity funds are volatile in nature and tend to correlate with stock market sentiment. All 3 have major exposure on trading/services sector, industrial products and finance. Malaysia's economy is highly dependent on growth in these areas and these sectors in total contribute a large amount of total GDP to the country. As such the easiest barometer to gauge the fund performance is to look at the KLCI. Fixed income securities however are generally stable with lesser returns.

The other funds performance continue to pale in comparison. The table below will describe them.

1. Red ones are all funds with foreign exposure (be it direct stock selection or feeder fund). Continue to avoid them at all costs, AIA fund managers have a hard time even getting + returns when investing beyond our shores and they still do after 3 years.
2. Two new funds were launched in 2012, as it is still new I have to ignore them until I have at least 3 years' worth of data. My next update on ILP funds should begin to factor them in.
3. Back in Oct 2012: *AIA Equity Dividend Fund on prospectus looks promising. It invests only in Bursa's blue chip counters that provide strong dividend payouts. 
-> Indeed it has performed well (CAGR of 10.89%), matching the performance level of the 3 funds I have selected. But it's still new, testing times like now should test the fund's resilience, we will see.

4. Back in Oct 2012: I personally picked AIA Aggressive Fund (trading/services), AIA Medium Cap Fund (industrial products & consumer) and the AIA Fixed Income Fund (finance borrowings). At 33% allocation each, I am seeing a 9.2% return p.a. based on historical data. To add some leeway, I have only a 8% expectation =)
-> In the 3 years period they have managed to return me 9.887% (Jul 2012 to Jul 2015)
[1] aggressive 25.33% total return (3 years) = 7.82% cagr * 0.33 = 2.581%
[2] dana dinamik 27.96% total return (3 years) = 8.57% cagr * 0.33 = 2.828%
[3] medium 46.50% total return (3 years) = 13.57% cagr * 0.33 = 4.478%

I do not think (nor hope or expect) to see such returns being replicated in the coming 3 years due to the current economic conditions. However these funds are holding high levels of cash (Medium Cap: 26%, Aggressive: 15%, Dana Dinamik: 16%) usually reserved to cherry pick good stocks during bad times like we are experiencing now so there is room for optimism in the long run. When the SUPER MORON leaves office [1] MYR will strengthen [2] KLCI will jump..just hang on folks.

Data Source: AIA Investment Linked Funds Performance 2014

Sunday, July 26, 2015

Sunday Lite: Flip Flop In Malaysia's Property Market

Source material:

Malaysia Property Flipping and its Ugly Effect

  • It was the lure of fast and easy money, lots of it, that made James Lam jump at the chance to be a Malaysia property speculator or property flipping. 
  • I was greedy.” says the 53-year-old who is in the top management of a multinational company. He already has a well-paying job, but the opportunity was too good to resist.
  • One way of beating the system is to secure loans for several properties from as many banks all at the same time.
  • Once Mr Lam gets the bank loans, he has to make sure he sells the properties quickly and at a higher price before the loan repayment commences. He has a small window period of a few months to get this done.
  • But this did not happen for the two properties in a prime area in Kuala Lumpur that he now has. “I cannot get a buyer. Not even a tenant (to rent). I have to start paying the banks for the loans with my own money.” 
  • He also realises that the property market is slowing down and his chances of selling these properties off is getting slimmer by the day. With Real Property Gains Tax made steeper in 2014 at 30 per cent for properties sold within three years, he would need to have a huge profit margin to offset the tax.
My comments : 
Indeed it has slowed down. Besides the house price index the number of property transactions has also fallen. If you don't believe in numbers just head to any property fair in town and you can count the # of visitors with your pair of hands.

The mighty flippers may flop

  • Situations like this are nothing new to Siva Shanker. He has seen loads of such cases and he does not see a rosy end to this tale. 
  • His 34 years of experience as a real estate agent tells him that Mr Lam will either start cutting down his expenses so he has spare money to service the banks loans until a buyer comes along. “Or he will start borrowing from relatives or, worst still, from loan sharks.”
  • A sharp rise in value (of properties) creates the flipping culture,” he tells The Establishment Post. “In 2010, 2011 and 2012, thousands of properties were sold to flippers. These are people who neither need the property nor can afford to buy it. They buy it purely on speculation,” adds Mr Shanker, the immediate past president of the Malaysian Institute of Estate Agents.

Getting the DIBS on Malaysia Property Flipping

  • One of the reasons for a huge rise in flippers is the Developer Interest-Bearing Scheme (Dibs) where a house buyer need not pay down payment upon signing of the sale and purchase agreement. 
  • The developer will also bear the other expenses like stamp duty, legal fees and also interest on finance during the project construction period until the handing over of the keys. In essence, the buyer only pays for 90 per cent of the property value. In Malaysia, down payment for properties is at 10 per cent.
  • But speculators do not realise is that the value of properties sold under Dibs are actually marked up. This artificially hikes the property value and has caused the property market to rise unnaturally. 
  • Dibs was scrapped in Malaysia Budget 2014. Bank Negara was forced to take this measure when household debt soared to 86.8 percent of gross domestic product in 2013.
  • But the worst is not over. The effect of Malaysia property flipping is going to hit the property market in a bad way, according to Mr Shanker. “We will see a new category in property transactions – properties from flippers.” Presently, all property transactions involve the primary market, which are the newly built units, and the secondary market, which are the houses built and bought long ago that have now been sold.
  • He feels this category of property transactions will constitute a sizeable “5 to 10 per cent of new stock”. Flippers may be forced to sell their properties at much reduced, or even lower than the purchase price, so not to be saddled with a property they cannot afford to hold. 
  • So when a sizeable number of properties are made available in the market at much reduced prices, it is not going to be pretty for property investors and owners.

My comments : 
Everybody knows Malaysia has the highest household debt to GDP ratio in Asia. Below was taken in 2013, it is even higher now. 
House prices are lagging indicators of the economy (& our economy is not doing good) simply because it is illiquid (you can't sell it as fast as selling off shares). I told a couple of folks that the year it's going to be is 2017 and I still stand by it.  

At present economic conditions, BNM will not raise interest rates. It cannot and will not. [1] Lower interest rate is needed to spur economic borrowing and spending during bad times like now. [2] An increase in the rate will burden borrowers, make credit harder to obtain and certainly will mean bad news for property as it based highly on leverage.

This is why the Ringgit will continue to weaken and there is nothing much BNM can do about it except to smooth the decline by burning more reserves.

Elsewhere, property flipping is losing its appeal

  • Property flipping is fast becoming a thing of the past in the West. “China, Singapore, Malaysia, Hong Kong are now where the West have been and gone through,” Vijay Manavalan, a property negotiator in Malaysia involved in promoting properties in UK for investment.
  • To get value out of property investment, it is best to get slow income, and not flip. There will not be many more markets around the world to flip. Investors need to look at the rental income that can be generated,” he tells The Establishment Post.
  • With a combination of government measures and diminishing opportunities, Malaysia property flipping may just be a thing of the past and Malaysian property market can be allowed to grow naturally and at a steady pace.

Thursday, July 23, 2015

Weekly Market Highlights July (3)

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

Share markets have had a good week reflecting good news regarding Greece, better-than-expected Chinese economic data, the nuclear agreement with Iran and benign comments from US Federal Reserve chair Janet Yellen. The US dollar continued to drift higher with the perception that the US Federal Reserve is still on track to hike rates later this year (now that global risks have faded a bit) and this saw the Australian dollar, euro and yen fall. Commodity prices remained weak including oil on the back of the agreement with Iran. 

More oil to hit an already oversupplied oil market. Agreement was also reached between Iran and the US to curb the former's nuclear program and remove sanctions. Assuming it is finalised, this is good news, in particular to the extent that it will see a boost to global oil supply ultimately of around 1% per annum, providing another dampener on the world oil price. Over the last year world oil production expanded 3.1 million barrels per day, but demand only rose by 1.4 million barrels per day.

United States
US economic data was a mixed bag. While data for housing starts and permits, industrial production and the New York regional manufacturing conditions survey improved more than expected, June retail sales disappointed, the Philadelphia regional manufacturing conditions survey fell, small business confidence fell and consumer confidence slipped (but probably due to all the noise around Greece and China). Inflation readings were also mixed with producer prices up a bit more than expected but import prices remaining weak, and consumer prices in line with expectations.

So while US Federal Reserve Chair Janet Yellen is still expecting to raise interest rates later this year, it’s dependent on a further improvement in growth coming through and while the September US Federal Reserve meeting is ‘live’ for a hike it looks only 50/50 at this stage.

US June quarter company earnings are doing it again. Each quarter market expectations for US profits get guided too low and the actual outcome ends up being better. The same seems to be happening for the June quarter results, where the consensus started with a -5.3% year on year decline, but after 72% of results to date have beaten expectations has already been revised up to -3.2%. It’s likely to end up slightly positive. So yes the strong US dollar is impacting but not as much as feared.

Grexit off! - at least for now. Agreement was finally reached between Greece and its creditors on a path towards a new three-year bailout program. Greece has met its commitment to pass various reforms through its parliament, the deal has already been approved by several Eurozone parliaments including Germany and Finland, €7 billion in bridging finance has been arranged for Greece to make its near-term debt payments and the European Central Bank has increased its liquidity assistance for Greek banks. 

Given that the Greek economy will likely get worse before it gets better and debt relief is still a way off (after program reviews) another rebellion by Greece - reopening the prospect of a Grexit - remains a risk. But in the short term, Greece is likely to fade as an issue. The key for investors to bear in mind though is that the risk of contagion flowing from Greece to other Eurozone countries is now substantially reduced compared to several years ago - with other vulnerable countries now in much better shape and defence mechanisms much stronger. Through the recent turmoil the highest Italian and Spanish 10-year bond yields got to was just 2.4%, a
fraction of the 7% plus seen in 2011-12. 

There were no surprises from the European Central Bank which left monetary policy unchanged, but signalled a preparedness to ease if there is an unwarranted tightening in monetary conditions. A fall in May industrial production in the Eurozone was disappointing, but the European Central Bank's latest bank survey revealed no tightening in lending conditions and improving credit demand, which is good news given the background of the Greek turmoil.

The Chinese share market continued its recovery, helped by rumours that the China Securities Finance Corporation has up to RMB3 trillion (or A$652 billion) with which to buy shares if needed. The proportion of Chinese shares in trading halts has now fallen to 23%, from a high of around 40%. 

Chinese economic data was all a bit stronger than expected, confirming earlier signs that growth had improved somewhat. June quarter gross domestic product growth held constant at 7% year-on-year, but improved on a quarterly basis from 1.4% to 1.7%. 

The Bank of Japan left monetary policy unchanged but nudged down its growth and inflation forecasts a bit. Further easing is still possible with inflation well below target.

Not much exiting news in Malaysia, mostly 1MDB's never ending saga. The most interesting item to look forward is our Budget in the month of October as well as Q2 economic numbers in the coming weeks. This was in Bloomberg's front page news this week after Dow Jones tells PM's lawyers to school client. 

Iran Set To Rejoin The World

The original post is from the Economist :

  • America’s Congress now has 60 days to scrutinise the deal.
  • With or w/o an agreement, the world is stuck with an Iran that continues to run a big nuclear programme, remains slippery and dangerous.
  • The real test of the deal is whether it is better than the alternatives. It is.
  • Some critics may believe that attacking Iran is the only option but war is a poor form of arms-control. 
  • Even if America had the stomach for a months-long campaign, and even if it could take out all of Iran’s many nuclear sites, bombing cannot destroy nuclear know-how. 
  • Instead the programme would go underground, beyond the reach of monitors.
  • Some worry that the deal will destabilise the region and encourage nuclear proliferation. 
  • Hard to see why Israel should feel more threatened than they do now. 
  • Israel has overwhelming nuclear and conventional military superiority.
  • The nuclear deal binds Barack Obama, America’s president, into the Middle East. 
  • Deal will make Iran more powerful, but it will also lead the country to become more open. 
  • Unlike North Korea’s Kim dynasty, which cheated on its nuclear pact, Iran’s supreme leader, Ayatollah Ali Khamenei, decided that being a pariah was worse for his regime than rejoining the world.
  • A country of Iran’s size and sophistication will get a bomb if it really wants one. Nothing can change that. But this pact offers the chance of holding Iran back and shifting its course. The world should embrace it, cautiously.
  • The streets of Tehran burst with jubilant cheering, flag-waving and the blasting of car horns to rejoice at the signing of a momentous nuclear accord between Iran, America and five other world powers.
  • As one celebrant put it, Iran had endured a political and economic fast lasting 36 years; it was at last rejoining the world.
  • The message was clear: sanctions and diplomatic isolation were coming to an end.
  • So many Western delegations have turned up in Iran in anticipation of a bonanza that its airport has opened a Commercially Important Persons lounge, alongside its VIP one.

  • If it works, the accord will contain Iran’s nuclear capability for at least 10-15 years. 
  • The hope is that, in the meantime, Iran and the region will have changed profoundly.
  • The most obvious consequence will be economic. 
  • Unlike its richer Gulf neighbours, Iran is not an oil-soaked rentier state, but a regional power with an industrial economy and lots of educated people who work.
  • Alone in the Gulf, it manufactures (and even exports) its own cars. For all its petrodollars, Saudi Arabia could not match Iran’s nuclear programme without outside help. 
  • The supreme leader, Ayatollah Ali Khamenei, has set a target of 8% average annual growth for the next five years, up from its current 2.5%. 
  • Some Western diplomats and financiers in Tehran reckon that, within a decade, Iran’s GDP might surpass that of Saudi Arabia and Turkey, the regional economic powerhouses.
Taken from The Economist

My thoughts : A deal is better than no deal, I would totally agree. The most profound effect is economic. Foreign direct investment will flow back in, jobs will be created for the hungry well educated people, quality of life will improve and together other social benefits.

Economics will trump ideology, just as it did in post-Mao China so my bet is all in that Iran will liberalize, furthermore it has a well educated population not peasants or farmers. 

Iran's economy if not for sanctions would have been close or slightly smaller to Malaysia's ($375 billion). The biggest prize is hydrocarbons: Iran has the world’s fourth-largest oil and second-largest gas reserves.

It is also estimated that the deal will allow Iran to pump an extra 2 million barrel per day by 2016 and almost double that by 2017 into the world market. This will certainly put oil at low prices that we continue to see now. Not good news for our O & G sector and the national coffer (Petronas - Malaysia's piggy bank). Tak apala Najib sudah implement GST kan.

Though it is still 2015, you can clearly see how the deal has had a knee-jerk impact on the oil price. It is now hovering at $50. Unfortunately a stronger USD compiled with a weaker MYR will again more or less offset any benefits. The joker has to go.

Thursday, July 16, 2015

Selamat Hari Raya Aidilfitri To Everyone

Greetings from Legoland

To my fellow Muslims and Malaysians who celebrate Hari Raya Together and to my other readers outside of Malaysia it's a major festive week so I will Keep It Short & Simple. Enjoy the festivities. Drive safe, rest well, please spend the time with the people you care and love.

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

Global shares are currently in a correction phase. Greece’s Crisis, China’s slowdown and the approaching prospect of higher US interest rates have weakened global shares since mid-June. Accordingly, global shares should deliver solid returns later in 2015 allowing for this current bout of turbulence. 

The IMF has cut their 2015 Global growth forecast from 3.5% to 3.3% for 2015. America’s growth has been downgraded by -0.6% to 2.5% in 2015 given the March quarter contraction. Yet the IMF is still optimistic that this is a “temporary setback” given “easy financial conditions, lower oil prices and strengthening housing market”. Europe’s growth forecast has held steady at 1.5% for 2015, even allowing for Greece suffering a “heavier toll”. 

America’s central bank meeting minutes for June gave no compelling signs on the likely timing and trajectory for US interest rate rises. 

Greece’s debt crisis has not yet been resolved with negotiations continuing with their creditors in the European
Commission (EC), European Central Bank (ECB) and International Monetary Fund (IMF). The deadline of July 12
passed with no resolution. European leaders appear to have instructed Greece that pension and tax reform measures
must be passed by Greece’s parliament by July 15 before further bailout financing is considered. Greek banks have
been closed since June 29. As Greek banks are heavily dependent on the European Central Bank (ECB) providing
cash, the ECB’s decision to cap funding at Euro 89 billion has effectively restricted Greek banks to limit cash ATM

withdrawals to Euro € 60 per day.

China’s rollercoaster Share market has been the main dramaThe Shanghai Composite Index suffered a painful - nearly 25 % in the past month. This is not really a major crisis for the Chinese economy. The average Chinese household has less than 15% of their assets in Chinese shares according to HSBC as such consumers have limited exposure. Furthermore share investors who have held the benchmark portfolio for the past six months still have a +40% positive return. It was merely too fast too furious as the market overheated. 

However China’s economy is still experiencing a slowdown rather than a slump. There are key signs suggesting that China’s economic growth is progressively slowing rather than collapsing into a recession. China’s residential property market appears to be stabilising, with prices having recorded modest gains in May and June. China’s business surveys, such as the Purchasing Manager Indexes for June, suggest that China’s real economic growth is now running around the 6.5% pace. China’s central bank has also cut their key interest rates in June, which should be more supportive of Chinese economic growth over the next year. 

Japan’s Tankan survey shows an encouraging gain in business confidence in the June quarter. This is supportive of Japanese shares and the mild economic recovery.

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


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.

[1] The rankings between 2H'2014 vs now show a very big mess, yes! It is very clear now which funds perform better under stress (during bad times, e.g. Msia market dropped due to cheaper oil and weakening myr, China's panic selling, Grexit and default).
[2] 4/5 of picks since being added in the four broad categories have since performed well (I won't say admirably given these bad times): Kenanga Growth, Select Opportunity, Eastspring Equity Income and Select Asia Quantum.
[3] The big let down was Hong Leong's Consumer (and now has a competitor Libra's Consumer and Leisure Asia). The fund's exposure to the Malaysian market is huge and consumer based stocks has suffered due to GST. Under flagged. Public's Far East Property did perform well but it only managed to return to its 2013 peak return level and the momentum has fallen. I maintain its under flagged rating. Thus I've temporarily removed Hong Leong Consumer & Public's Far East Property.
[4] As of this writing, I own Kenanga Growth Fund which has been performing above my expectation. Now the fund has a high level of cash 25-30% as such I expect it to wait for opportunities to accumulate during bad times.

[5] Remember that I shun Philip Master Equity Growth due to high TER (total expense ratio) of 4%. It has been performing abysmally; dropping from the top spot to the edge of #29.
[6] I also own Aberdeen Islamic World Equity Fund (TER of 0.81%). This fund is now 2.5 years old and there is really still no useful data to show. In due time I will share of course.
You may read why. 
Aberdeen Funds in Malaysia..Are They "Iron" Clad Investments?
Aboi To Finally Invest In Aberdeen Islamic World Equity Fund

Here's 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 deviationA 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.

Source: MorningStar - Rating & Risks section for respective fund

Immediately you will notice why I prefer Affin Hwang's Quantum over Eastspring Investments Small-cap. Sharpe ratios are similar but with Quantum's std dev at almost half of Small-cap's - less volatility. This explains why the Preservation rating of Small-cap is at an appalling 1 (it was 2 in 2H'2014). Nevertheless both are in different categories and they do excel at what they do. However I still cannot stomach such volatility and would certainly lean towards Quantum. Perhaps you can :)

Second. Long gone are the Sharpe ratios of 2+. The Malaysian market has plateaued with more downside risks than upside potential due to political uncertainties as well as weakening myr. I was right to ignore MY Focus due to the having highest Beta in 2H'2014 (30%) and now it's a whopping 40%! Equity income is still better - lower Beta and less Std Dev. My ratings still stand Kenanga Growth and Equity Income but I already have KGF so there is no need for me to increase my exposure to the lackluster Malaysia equities market.

I continue to hold my view that investing in Asia (exc Japan) is still the way to go. America's equities market has definitively peaked with US Fed interest rate rise looming in 2H'2015 (September maybe). Europe is still battling with Grexit but the contagion effect is limited as most investors have priced that risk in their purchases lately as evident from EU markets, they have not reacted like China's panic selling. From now on it is a lot more difficult to get the returns we once did during the bull run from 2009-2013. Do not expect record high returns. It is still best to hold cash and wait.

My five rules of choosing funds:
#1 Avoid choosing big sized popular funds!
#2 Compare fund expenses!
#3 Information on the fund manager!
#4 Good funds don't advertise.
#5 Avoid the usual past performance > riskiness of fund > manager's rep (some don't) > fund expenses > popularity of fund.  Look from the opposite direction and do your filtering from there.

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.

Saturday, July 11, 2015

Weekly Market Highlights July (2)

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

United States
US activity data is solid and suggestive of forthcoming US interest rate rises. House prices recorded annual gains on circa +5% in the year to April. The ISM manufacturing survey rose to a 5 month high - US economic activity is rebounding after the harsh winter weather at the stat of the year. Main focus will be on June manufacturing and jobs data. Expect to see a 1% gain in existing home sales (Monday), further gains in home prices and consumer confidence (Tuesday), a slight gain in the ISM manufacturing conditions index (Wednesday) to 53, another solid 225,000 gain in June payrolls and a fall in unemployment to 5.4% (both Friday). Perhaps the main focus will be on whether the average hourly earnings data shows another uptick in wages growth.

European data is generally positive despite Greece’s woes. European bank lending recorded positive annual growth at 0.5% in May. Europe financial system more supportive of growth than that during 2012 when bank landing was contracting while Italian and Spanish bond yields were under siege. European PMI manufacturing surveys for June are also more encouraging with the survey at a 14 month high. However European unemployment still remains too high at 11.1% in May while annual inflation is minimal at 0.2% in June (still too low).

The Greek population has voted NO in the referendum on agreeing to proposed austerity measures. Greece may now have to confront the prospect of Europe withdrawing financial support making it drastically difficult to stabilise its banking system, likely have to exist the Euro and introduce its own currency. Greek banks have been closed since Monday June 29th. Given that Greek banks were heavily dependent on the European Central Bank (ECB) providing cash given falling deposits, the ECB decision to cap funding at Euro 89 billion has seen Greek banks
close to avoid a cash crisis (also known as a “bank run”). The Greek government also missed a debt repayment to the IMF on June 30th. This effectively constitutes a default but IMF has diplomatically termed this debt as in “arrears”. Just playing with words I would say.

Much depends on Greece in the short term with a no vote likely leading to lead to more near-term weakness and continued volatility. Looking beyond near-term risks, the conditions for an end to the cyclical bull market in
shares are still not in place: valuations against bonds remain good; economic growth is continuing at a not too cold but not too hot pace; and monetary conditions are set to remain easy. As such, share markets are likely to see another year of reasonable returns, despite current uncertainties.

China’s official PMI survey was stable in June while the “Non-Manufacturing” survey showed a healthy gain to a 3 month high. This suggests that Chinese economic growth is holding up at close to the 7% target for 2015 set by the Chinese government. However China's stock market had a bout of panic selling on Wednesday's open. See my previous post: China's Popcorn Is Ready. The market has recovered slightly due to massive Chinese government intervention including drastic measures like allowing the halt of trading as well as disallowing major stakeholders of more than 5% to sell any shares in the next six months. China has a long way to go in its journey of liberating its financial machine. 

Japan’s Tankan survey shows an encouraging gain in business confidence in the June quarter. This is supportive of Japanese shares and the mild economic recovery.

Spot on. Last update I mentioned that "we just avoided a Fitch (rating agency) downgrade though I reserve my doubts". I was right. The Ringgit got thrashed up to 3.83 (due to WSJ's revelations of misappropriation of funds by our PM) before BNM (as usual) intervened by burning more of our foreign reserves. However from the outcome of the 4th MPC meeting, Malaysia’s central bank held its overnight policy rate at 3.25% on Thursday, keeping policy steady. As such in the event that the outflow of Ringgit continues, BNM will have to sell more reserves to prop up the Ringgit or at least smooth the decline. We will see.

Wednesday, July 8, 2015

China's Popcorn Is Ready

Meltdown in Chinese Financial Markets

  • Chinese stocks plunged rapidly out of the Wednesday open
  • Selloff that has wiped out roughly $2.4 trillion in value from China’s equities.
  • The selloff came despite a rare pledge by the People's Bank of China as the markets opened that it would closely watch stock movements and continue to use multiple ways to support the state-backed margin-finance entity.
  • China companies rush to suspend their shares; 40% of all stocks now in halt.
  • It marked the largest wave of trading halts in the history of China’s equity markets, the report said.
  • Many of the companies didn’t disclose the reasons behind their trading suspensions
  • A spokesman for the China Securities Regulatory Commission, Deng Ge said in a statement that “irrational selloffs” had increased, and described the current market mood as “panic sentiment.”

Shanghai Composite Index

More reading available:

My comments:
Though slightly and not elaborate, I have mentioned not once but many times about China's overheated playground. If you took note, it's more or less a warning to sell and get the hell out when you still can. Investors' confidence in China will be shaken again. This would definitely impact the Chinese Yuan and offshore Chinese bond yields will rise. The selloff will also probably spillover to global markets but until now it is difficult to see how big that impact is. 

-> 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. 

Weekly Market Highlights June (4)
-> 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.

Aboi's Portfolio Review For June 2015
Aboi's Portfolio Review For July 2015
-> Aberdeen Islamic World Equity Fund (Equity Global)
- Maintain BUY.
- Fund has no exposure to China's overheated stock market and slowing economy
-> 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%.

In short I still hold to my beliefs that unless China reforms its regulatory & financial markets as well as making them more open to foreign institutional investors (liberisation), it will continue to behave like a gambling den. I will avoid China.