Iran Set To Rejoin The World

The original post is from the Economist :
[1] http://www.economist.com/news/leaders/21657803-nuclear-deal-iran-better-alternativeswar-or-no-deal-all-hiyatollah
[2] http://www.economist.com/news/briefing/21657821-momentous-day-iran-it-signs-nuclear-deal-america-may-yet-transform
[3] http://www.economist.com/news/briefing/21657820-imperfect-deal-better-alternatives-making-world-bit-safer

• 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.

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)

World

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. 

Eurozone
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.

Asia

China’s rollercoaster Share market has been the main drama. The 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

This is the last update on Mutual Funds in Malaysia. Links to my first two:
Aboi's Updates For Malaysian Bond Mutual Funds for 2H'2015
Aboi's Updates For Malaysian Mixed Assets Mutual Funds for 2H'2015

Equities

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] 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 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.

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.