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.