The Kerja Bodoh Continues

You can get the full list here (link). Our PM continues to show his *competency* in managing the budget just like how he did for: Budget 2016: Ini Kerja Bodoh (link)

The Cover of The Edge Malaysia - 29 Jan 2016

As expected ($32) from my previous post the govt has now changed the budget to be in line with an expected oil per barrel price of $30 to $35. Here are some of my selected highlights (NOT salient points) from Prime Minister Datuk Seri Najib Razak's announcement of the following measures under Putrajaya's recalibration of Budget 2016:

EPF contributions by employees to be reduced by 3% from March this year until December 2017. Contribution rate by employers, however, remains the same.
Najib said the reduced contributions would boost spending by an estimated RM8 billion.
- More disposable income = more taxable income. Also with the extra money you will spend on goods which are likely to be GST-ed. Didn't they just say that 60% of EPF savers do not have enough. My advice is to opt back to 11%, do NOT rob your future savings. 
*Income tax is calculated based on the gross salary minus the individual tax relief (RM 9,000 per year) and monthly EPF contribution made by the employee (limited to RM 6,000 per year). No other tax reliefs have been taken into account for the income tax calculation.

Tax exemption of RM2,000 for Malaysians earning RM8,000 and below for the financial year of 2015, a move that would affect two million tax payers.
- I like this though as this will boost domestic demand and have a multiplier effect on the economy.

Food and cost of living
Cash aid programme BR1M will be continued: "The government will not compromise on what is right for the country and people," Najib said.
- BR1M does not really help in terms of solving the financial problems faced by the people since it is only a one-off monetary aid. Instead, the Government needs to come out with long-term measures like improving productivity = increase wages. Handouts are commonly demonized for its social corrosiveness for breeding laziness and dependence.

Housing
For new housing developments, sale of houses priced not more RM300,000 to be limited to first-time house buyers.
- Does nothing but to distort the market further. First: banks are tightening now; it helps little if the buyer still could not secure the housing loan. Second: this can only work in tier 1 cities (Penang, KL and JB). Nak beli rumah kedua kat Kangar macam mana, kena cari >300k? Third: will drive demand for investors towards the higher range which in turn will fuel potential bubbles due to overcrowding.  

Improving revenue collection
Optimise revenue from telecommunications by redistributing bidding processes.
- This is stupid. This is more or less an indirect tax to the telcos. Already at yesterday's closing nearly RM10 billion market capitalization was wiped out of the big three: Axiata (-10.31%), Maxis (-6.36%) and Digi (-4.31%). The private sector do not like nasty surprise, stability is the key thing in creating a conducive free market.

Civil service and government-linked companies
Government to keep its promise of July 1, 2016 additional salary increase for civil servants.
- Why do we keep growing the operational expenses? It's already a record high of 82% of our national budget. Banyak cantik. Banyak bodoh.

Education and scholarships
The National Scholarship Programme (Program Biasiswa Nasional) will allow 20 top SPM-scorers to pursue their studies in universities abroad;
The Bursary Programme (Program Lepasan Bursary) for 744 students to pursue their undergraduate degrees in public and private higher education institutions in the country
- Poor kids. Bursary recipients in tears after budget revision (link). This is not the Asian financial crisis. Education is the last thing that should be cut for its economic gains in the long run are tremendous. Here we are sacrificing not just the budget but our brightest minds.

February 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 8th time I'm posting my prediction in a blog posting. 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? :) My total savings for 2015 is: RM 50.75.

Feb 2016

Crude oil price resumes its free fall towards the high $20s but managed a small rebound to the range of $30. US continues to add more to its stockpiles and crude inventories continue rise. Also Iran has completed the nuclear deal and is poised to add as much as 500,000 barrels a day, which in a market that is already oversupplied by over 1 million barrels per day. Learn About The Oil Crisis (link)

MYR's performance was a bit eventful; it weakened after the US fed hike but towards the last week of the month it went down to the level it started of in the month of Dec. I suspect that our central bank (BNM) may have sold some reserves off to fend the Ringgit but I can only confirm this when they release the data on the 29th of Jan. Again I think this is about where MYR will stand so it's time to change foreign currencies back to MYR, hold cash and wait for "jualan harga murah". Will 2016 Bring a Bear Market? (link)

We also have the so called budget re-calibration on 28th of Jan; this is because our original budget is based on the assumption that the oil price holds steady ~$48. Clearly this is not the case, the new normal should be $32. It remains to be seen what will be cut from the Budget. There are also rumours that RON 95 will be GST-ed and that a floor price for RON 95 will be introduced because our coffers are running dry.

Some asked why did the price of crude oil drop in 2015?

- Strong US dollar; all commodities are priced in dollar and that includes oil.

- Organization of Petroleum Exporting Countries (OPEC); refuses to cut production in order to maintain market share.

- Oversupply of crude oil; thanks largely to US shale oil producers which is now the world's biggest swing producers.

- Declining demand; world's no.2 economy China is slowing.

- Iran nuclear deal; removes Western sanctions and thus allowing country to export oil once again.
- Successful Paris climate change breakthrough talks; marks the beginning of the end of the fossil fuel age.

How come our pump fuel price did not drastically drop in 2015? 

- This is primarily due to weakening MYR to the USD.

RM/L has dropped a lot again from 1.77 (Nov) -> 1.50 (Dec) -> 1.25 (Jan). With such a drastic drop there is no doubt that I will predict that fuel price will drop by 15 sen +/- 5sen. There is no need to rush to the petrol station, please wait until after the announcement on 31st and fill your tank on 1st February (Monday).

Below is a table of my previous predictions way back to the beginning of 2015. My predictions are based on Tapis crude oil price, performance of Ringgit (added after Mar) & domestic politics (which was added after May). My total savings to date: RM 50.75 (I will reset the amount for 2016 starting next month)

**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.**

Feng Shui Index Believe It or Not?

As is tradition, the annual CLSA Feng Shui Index offers an alternative look at what’s in store for you and the Hang Seng, more for your pleasure than profit, but you never know, you may just get lucky! It is usually published days before Chinese New Year.

Look below and its eerily familiar between CLSA and the actual index for year 2014 and 2015. Also the Kuala Lumpur CI correlates well with the Hang Seng Index (at least for 2015 that I've checked).

If you believe in Feng Shui, may the force be with you for 2016 (I will post when the new index is out).

CLSA Feng Shui Index 2014

Actual Hang Seng Index 2014

CLSA Feng Shui Index 2015

Actual Hang Seng Index 2015

Investing in Malaysian Mid/Small Cap Companies

FTSE Malaysia Small Cap Interactive Chart (link)

Malaysian Small caps index did not have a good run in 2015 and had a pretty shaky start in 2016. It would be good for value investors like us to buy when it is cheap, preferably at 12000 levels; sometimes I'm not conservative. Mid/Small caps are not easy to invest directly (higher risk than big caps, too many companies to screen and more volatile). However there is an easier way which I believe is also safer: Eastspring Investments Small-Cap Fund

Key Points
1. Ranked 1st for 3Yr, 5Yr and 10Yr Annualized Returns under Category Equity Malaysia Mid/Small-cap as of 30 Nov 2015. Good track record.

2. Fund size of approximately RM 241.14 million (as at November 30, 2015) is small and manageable, manager has focus. Big funds tend to under-perform lower ones.

3. Cash level has dropped from 2014 (25%) to 2015 (15%), this would suggest to me that it has sought to buy some securities at discounted price due to the index's fall in 2015 hence there is potential for upside if the index recovers.

4. Purchasable under fundsupermart (link) @ 2% sales charge; during promo it can be as low as 0.5%. You can also utilize EPF account 1. It also has a decent expense ratio for an equity fund @ 1.64%. Affordable and flexible.

5. Fund fact sheet located here: Dated December 2015 (link). Fund has wisely positioned itself out of O&G/Banking/Automotive/Plantation industry which is expected to be so-so/not well in 2016. Manufacturing @ 21.25% is a boom as exports is poised to gain with a weaker MYR and especially if exports are denominated in USD. Good selective pickings.

**Please bear in mind that this is a high risk investment :) ** Just look at the returns and you will understand why. Can you stomach certain years that are bad and not emotionally sell them?

Annual Returns
2015 : +18.65%
2014 : +16.22%
2013 : +64.02%
2012 : +11.07%
2011 :    -8.68%
2010 : +30.39%
2009 : +56.02%
2008 :  -38.60%

1st 2016 BNM MPC Meeting Minutes - Catch 22

Decrease in the Statutory Reserve Requirement (SRR) Ratio

Bank Negara Malaysia wishes to announce the decrease in the Statutory Reserve Requirement (SRR) Ratio from 4.00% to 3.50%, effective from 1 February 2016. 

The decision to reduce the SRR is undertaken as part of a comprehensive effort by Bank Negara Malaysia to ensure sufficient liquidity in the domestic financial system, and to support the orderly functioning of the domestic financial markets. Since early 2015, Bank Negara Malaysia has relied on its monetary operations, including the reverse repo facility, to provide liquidity to the banking system as net external outflows reduced the amount of liquidity in the system.  As at 21 January 2016, this has amounted to RM40 billion.

The SRR is an instrument to manage liquidity and is not a signal on the stance of monetary policy. The Overnight Policy Rate (OPR) is the sole indicator used to signal the stance of monetary policy, and is announced through the Monetary Policy Statement released after the Monetary Policy Committee meeting. 

- Reducing SRR would mean banks are able to lend more as they do not have to buffer more of their cash under reserves.

- This is a sign that BNM would want to try to boost the domestic economy by allowing banks to give credit out to people/businesses that would in turn lead to spending/investments.

- Could also be a sign that BNM is worried about the slowdown of the Malaysian economy. Remember that we have tweaked our growth forecast from 6% -> 5.5% -> 5% and now 4%+.

Monetary Policy Statement 

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent.

While the global economy continues to expand, the recovery in the advanced economies has not been as strong as earlier expected and the growth in the emerging economies has slowed. The current heightened financial market volatility and uncertainties also pose additional downside risks to global growth.

For Malaysia, growth remains driven by domestic demand. While private consumption has moderated as households adjust to the higher cost of living, household spending is being supported by continued growth in income and employment. Overall investment has benefited from the implementation of infrastructure development projects and capital spending in the manufacturing and services sectors despite the lower investment in the oil and gas sector.

Going forward, while recent trends suggest a turnaround in exports, the contribution of the external sector to overall growth is expected to be modest. In this challenging environment, the economy is expected to experience more moderate growth in 2016, after expanding by about 5 percent in 2015. Downside risks to growth have increased following greater uncertainty on both the global and domestic fronts. In confronting this more difficult environment, the Malaysian economy will benefit from having diversified sources of growth, economic flexibility, low unemployment, manageable level of external debt, and a well-capitalised banking system and developed capital markets that provide continued access to financing.

Headline inflation averaged 2.1% in 2015 and is expected to be higher in 2016, given recent adjustments in administrative prices and the weaker ringgit exchange rate. The impact of these domestic cost factors on overall inflation is, however, expected to be mitigated by the continued low energy and commodity prices and the generally subdued global inflation. In terms of trajectory, headline inflation is anticipated to peak in the first quarter of 2016 and to moderate thereafter.

Recent external and domestic developments have continued to affect the ringgit exchange rate and domestic financial markets. The net external outflows have also led to a moderation in domestic liquidity. Bank Negara Malaysia’s monetary operations have ensured that there is sufficient liquidity to support the orderly functioning of the money and foreign exchange markets. The financial system remains sound with financial institutions operating with ample liquidity buffers. Consequently, the growth of financing to the private sector continues to be healthy.

At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity. The MPC recognises that there are heightened risks in the global economic and financial environment. These risks are being closely monitored to assess their implications on macroeconomic stability and the prospects of the Malaysian economy. This is to ensure that the monetary policy stance is consistent with the sustainability of the overall growth prospects.

- BNM is in a tough position. Upping the OPR would mean the currency will strengthen because deposit rates would go up. However it would also lead to higher borrowing cost and possibly an increase in NPL (non-performing loans).

- http://www.theedgeproperty.com.my/content/housing-npls-expected-increase-says-property-consultant

- If the OPR were to reduce it would lead to more capital outflows as the currency will weaken; deposit rates would go down. However borrowing cost will be cheaper but bear in mind that household debt ratios are already sky high now @ 88% to GDP.

- Hence this is catch 22: neither left nor right, just stay where you are @ 3.25%. 

Some Interesting Presentations from Marketplace Fair @ Bursa

http://www.bursamarketplace.com/index.php?ch=ch_activities&pg=activities&ac=14&utm_medium=email&utm_campaign=MarketPlaceFair%20Bursa%20eDM%206%20Post%20Event&utm_content=MarketPlaceFair%20Bursa%20eDM%206%20Post%20Event+CID_c6ef7572ecb899f5afd96af1c8299bb1&utm_source=CampaignMonitor

You will need to register and sign in to view the PDFs.

Small Cap Jewel & Market Outlook 2016 - Lim Sae Wai - RHB
- Review of past year events and global markets as well as outlook. It also details Small Cap Jewels - 5 picks. However small cap is largely high risk investment hence it also explains the high level of returns. If I would go into small cap I would pick funds; notably Eastspring Investments Small-Cap Fund.

REITs An Alternative to Property Investment - PC Wong
- Nice explanation of this asset class and comparison to traditional properties. Many of you know I'm not shy of REITs. BSDREIT earned me 65% returns over 3 years before I finally sold it off. I'm interested in KLCCP merely waiting for a better price and now I also have my eyes on: AmAsia Pacific REITs Plus.

2016 Malaysia Equities Outlook and Strategy - Wong Chew Hann - MaybankKE
- Shows Malaysia key economic indicators but my favourite here is the 2016 - Lookouts section, much so that I printed it out.

An Overview of Karex Berhad $KARE
- I didn't know much about this company except that it makes condom, LOL until I read this clearly well defined presentation. I have SUPERMAX (glove co) but this co looks pretty well managed and has potential.

Smart and Easy Investing in ETFs - iVCAP
- I don't pay attention to ETFs because they are boring and the only strategy I see is to buy a the right time (when the market is at near bottom) because it's tracks the stock index. However this foil has a good flow of information regarding exchange traded funds. ETFs are largely unknown here in Malaysia but has been around globally for a long time.

I Found Where To Park Money For Emergency Use

After a bad start even for myself (due to being unwell) in 2016, I'm finally back to the blogging sphere. In order to increase frequency of posting I will likely be linking articles, ideas and putting comments where appropriate.

As many of you know I'm an account holder in FSM and have various fund holdings but what I do with my cash? Savings account? Fixed deposit? Hold hard currency? I think money market funds will serve my needs very well. I shall explain.
THE NET INTEREST RATE* ON CASH MANAGEMENT FUND

I got the idea from this FSM article:
http://www.fundsupermart.com.my/main/research/-View-Idea-Of-The-Week-How-to-Save-for-a-Rainy-Day-11-Dec-2015--6606

1. RELATIVELY ATTRACTIVE RETURNS AS COMPARED TO SAVINGS RATE
- Maybank offers - Money market funds ~3.50%.

2. NO LOCK-IN PERIOD & LIQUIDITY
- Fixed deposits rates are higher than savings and possibly money market funds but they suffer from lock-in periods. Not ideal for emergency cash.
- Money market funds have no lock-in period, hence better liquidity and can redeem their money without forfeiting the interests gained.

3. REQUIRE A MINIMUM INVESTMENT AMOUNT ONLY
- Money market funds have low minimum initial investment (RM500) and subsequent amount (RM100).
- All money market funds on Fundsupermart platform are at 0% sales charge.

Other smaller benefits I see by parking cash here are:
Parking facility – I can park your money in this fund while waiting for the right time to invest in unit trusts in FSM.
Visibility of daily interest rate – I will be able to know the interest rates on a daily basis since the fund invests into deposits.
Facilitates the execution of the Regular Savings Plan (RSP) – Monies can be deducted from the fund to buy selected unit trusts on a regular basis.

Is it safe? Yes.
The fund houses that manage these funds, being the Capital Markets Services License holders for Unit Trust Management Company (UTMC), are strictly regulated by the Securities Commission (SC). Also, these funds’ mandate is to invest in money market instruments and deposits of financial institutions with a maturity period of no more than 1 year. As such, these funds provide investors with the similar sense of security that the banks offer.

Investors will be rest assured as these funds have been able to deliver a positive 1-year rolling return with an astounding probability of 100% over the past 4.5 years (ended Dec 2015).

The only thing to remember is that money market funds are not insured under the Perbadanan Insurans Deposit Malaysia scheme so they do carry slightly more risks than savings and fixed deposits.