Global Stocks mixed, China down, Malaysia 1MDB

China: Shanghai Index (mainland)

- is up 67.77% in the past 1 year (1YR) and up 13.83% Year To Date (YTD)

U.S.: DJIA

- is up 9.69% 1YR and up 0.87% YTD

Malaysia: KLSE

- is down 5.09% 1YR and down 0.69% YTD 

[Data: Bloomber.com 31/07/2015]

China economic data & the showing of slowdown, is of global consequence. China consumes a large part of many country’s output. However;

Shanghai stock index have been depressed for a few years when economic data was good (high digits GDP growth) (e.g. 2011-2014). Hence, a major movement upwards was due sooner or later especially with the introduction of Hong Kong-Shanghai stock connect late 2014. 

[https://en.wikipedia.org/wiki/Shanghai-Hong_Kong_Stock_Connect]

Despite this, the move upwards in 2014 was extremely rapid (more than a 100% increase). The recent correction is opined as healthy. Moving forward, growth in GDP though low accounts for a large population base. Total Consumption should be healthy in many years to come. Risks would extend to sudden government policy changes and low visibility of actual economic data (the latter being a common problem for many countries and companies).

Moving on;

DJIA’s valuation can be considered as high, taking into account the present low interest rate environment. This is as companies are all paying a very low interest rates on capital employed i.e. loans (refinanced) and new bonds. When rates go up, companies with lower margins will register lower net profits if they had not fixed in low interest rates (costs). If rates remain low, then stocks can be viewed as cheap (Mr. Buffet agrees on camera on the last point). 

Timing stocks?

Election year is coming up in the States (U.S.). Making moves (as such increasing interest rates) that may affect election outcome can be argued as a viable point. However, Michael Moore’s documentary Capitalism: A Love Story around 1:28:00 might suggest timing of Crisis (2008) may develop close to Election Time. 

[For an interesting analysis on Political history Versus Wall Street returns, read Kenneth Fisher (Investment Manager/Billionaire/Forbes Columnist); 

http://www.forbes.com/sites/kenfisher/2015/06/17/hillary-clinton-stock-market-bets/]

Regardless, if you do purchase stocks that are ugly in price or from a trading Point of View but have great balance sheets and good viable business models, then timing becomes redundant. Probability of getting timing right Versus getting fundamentals right: most likely fundamentalists win in the long run. Regardless, timing is definitely possible with much profits to be made. 

KLSE is having trouble as;

Numerous scandals have risen in Malaysia (1MDB). Oil and Gas sector that makes up about 1/5 of Malaysia's GDP is suffering from the drop in oil prices, alongside, their lenders (banks) should companies begin to default under stress of prolonged lower oil prices. Costs of living of consumers have risen with subsidy cuts and GST implementation among others. Currency (MYR) has plunged to asian financial crises levels (USD1=RM3.82). 

Overall, it is opined Malaysia will strive in the longer term due to rich natural resources, diverse capable manpower and improving business opportunities among others. Companies that are reliant on government contracts (GLCs) are likely to suffer in the unlikely event the leading political party loses out in the next election. Probable rallies might affect investor sentiments. Moreover, it is opined KLSE (displaying 30 Malaysian companies) has rich valuations unless in the unlikely event interest rates are reduced or those 30 companies are replaced by upcoming cheaper valued companies.

Thus, buying opportunities will arise should there be a market correction. KLSE stocks nevertheless do not prioritise shareholders as much as American companies do. Hence, selection of stocks should always take into account management quality, identity of major shareholders and history of Shareholderism among others. 

Stocks in View

MajuPerak Holdings Bhd

• Upcoming receivables from sale of land. 
• Long Term: JV businesses in Bamboo project, solar projects, housing projects.
• However, company has bad history of earnings but losses are usually very low comparatively to non-revalued Net Asset Value.

Parkson Holdings Bhd

• Selling at 10 year lows with numerous long term strategies being put into action to ramp net profits back up.
• Gross margins have been maintained. In China, net profits have been affected by closed down stores, increasing retail competition with increasing retail demand, anti-graft measures. New stores and refurbished stores profit/loss for about the past year and a half is yet to be reflected in Parkson Retail Group's profit & loss statement.
• Recent restructuring of Parson Retail Asia Ltd (Singapore) to be acquired by Parkson Retail Group Ltd (Hong Kong) will see an incoming cash of up to RM600,000,000 into Parkson Bhd’s coffers to be used for business expansions etc (Overall Parkson cash level not affected).

Oldtown Bhd

• Long Term Branding profits. Short Term expansion opportunities in Australia wherein first outlet has begun operation.

Happy investing until next time. 

[DISCLOSURE: The writer currently owns minority stake in MajuPerak Holdings Bhd, Parkson Holdings Bhd and Oldtown Bhd among the mentioned stocks as of 31/07/2015 under his personal account. JR Capital LLP does NOT have any interest in mentioned stocks as of mentioned date.] 

[DISCLAIMER: Everything stated in this blog is purely the opinion of the writer and any decision taken should be based on sound judgement with risks fully born by the decision maker. The writer shall bear no responsibility for any losses due to adherence of advices blogged by the writer or any commenters.  Informational discrepancies are possible and will be corrected if any.]