Save Money, Make Money & the Economy

The Economy

Every investor typically and rightfully become pessimistic at news of latest numbers i.e. lower forecasted country growth rates, lower PMI, lower consumer spending and lower oil prices (to an extent), among others. 

To fall back on solid investment  principles and outlook, Warren Buffett’s (3rd richest man/investor) Letter to Shareholders released on 27/02/2016 has offered a brighter & as always a fundamentals-based outlook.

[ Berkshire Hathaway Shareholder Letter 2015: http://www.berkshirehathaway.com/letters/2015ltr.pdf ]

As such the letter reads that considering the current $56,000 GDP per capita, a 2% growth of U.S. should correspond to about a $19,000 increase in real GDP per capita for the next 25 years. A continuing excerpt: “Were that to be distributed equally, the gain would be $76,000 annually for a family of four.” In short, “Today’s politicians need not shed tears for tomorrow’s children”.

The letter goes on to describe past & present productivity benefits, climate issues, insurance business,  interest rates affecting business, intrinsic value of Berkshire and much more.

Typically this blog continues to follow the top investors to businesses, to differentiate media opinion from probable facts to actual facts. A brief/complete reading of companies’s annual reports/letters/statements would give a much better view of business on the ground (unless an on-the-ground survey is possible). Hence, it is recommend to read these materials should there be much fear in one’s investment-ideas-generator. For layback investors, Chairman Statements of your stocks should be beneficial. Look for them either in your stock’s Annual Reports or Company Webpage(typically includes annual reports).

There are businesses that are suffering and will suffer with current economic conditions, but those with prudent cost control measures, great management and business dynamics will not only strife through hard times but flourish with time. 

Our outlook is maintained as bumpy with a possibly positive or flat Presidential year for stocks.

For Malaysia, we suggest the recent approval Trans Pacific Partnership Agreement (TPPA) to be positive. Upon full implementation, the neutralisation of remainder trade barriers should provide better business access to other signatory countries namely Brunei, Chile, New Zealand, Singapore, Australia, Canada, Japan, Mexico, Peru, the United States and Vietnam. Local Malaysian business will remain protected as per the TPPA. The exact implications is a developing issue as local laws are to be amended to complement the TPPA. The United States, on a positive note will clearly stand to benefit much from this globalisation oriented trade pact i.e. from manufacturing to agriculture.

Save & Make Money

Saving money may be partly summed up in a quote:

“If you buy things you don't need, you will soon sell things you need.” - Buffett

The idea of making money that the writer is presenting is creation of an earning stream over and  above that of inflation. 
Similar natured ideas and concepts can be found in previous posts;

https://iliveidreamitranscend.blogspot.my/2015/04/why-invest-your-money.html

https://iliveidreamitranscend.blogspot.my/2014/03/investment-malaysia-shares-why-invest.html

Hence, this is an update.

Fixed Deposits (FD)

Consider an FD promotion that is/are offered in local Malaysian bank(s). Some may promote a Step Up Rate of 4% that increases every 3 months. ALWAYS ask for the EFFECTIVE INTEREST rate. As sometimes, banks will credit your interest to your account and NOT to your principle. This greatly misrepresents the rates on “promotion”. Always ask for Credit To Principal (if relevant).

A simple e.g.

RM10,000 is deposited into 2 different type FD accounts:

(A) Credit to Account - Step Up Rate

4.0% 3months     Returns:RM100.00

4.3% 6months     Returns:RM107.50

4.6% 9months     Returns:RM115.00

Total Return: RM322.50

(B) Credit to Principal

4.3% 9months     Return:RM322.50

Total Return: RM322.50

If you notice, in both accounts, the effective rate is 4.3% p.a with a return of RM322.50. 

Further Info: 
(“ / “ means Divide)
To calculate your 9months Return, just take;
Interest/12 x Months x Sum;

(4.3%= 0.043)/12   x   Months(9)   x   Sum(RM10,000) = RM322.50

To calculate your 9months Effective Rate, just take

Returns/Sum/Months x 12;

RM322.50/RM10,000/9 x 12 = 4.3% 

Point to be made is, don’t be fancied away with the 4.6% on your last 3months. Focus on your Effective Rate. 

[ Further Info: Step Up Rate: meaning first 3months interest given is at 4% per annum (p.a.), next 3months interest is 4.3% p.a., and last 3months interest at 4.6% p.a. ]

Finally, your “Returns” from an FD account is mostly to secure your money from inflation. Therefore, they should NOT be considered your Returns. A proper returns gauge should be your Real Returns generated when you invest in anything that generates MORE than your country’s inflation rate (or cost of capital). 

[ More on real returns in above Link ]

Some people might however require the cash from FD interest which according to his/her investment strategy is beneficial. However, it is recommended to focus on increasing your earnings via better job/business prospect and then save a portion with FDs/short term securities and the rest in value Stocks/Shares/Saham(part ownership of businesses).

Stocks in View


MajuPerak Bhd
Unaudited Final Quarterly Earnings for 2015 are out and the company has collected its cash from the land sale of RM42mil thereabouts. From FY2014 to FY2015, EPS(P.S.) and the company's cash holding(B.S.) has increased about 3x and 2x respectively. Net Assets per Share (NAV) reduced to RM1.13 but would have increased to RM1.20 if not for the conversion of ICPS based on the Unaudited Report. Further assessment is necessary to assess proper allocation of cash collected FY2015.
[P.S. found in Profit Statement, B.S. found in Balance Sheet,  at http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=190692&name=EA_FR_ATTACHMENTS ]


Perak Corporation Bhd
Earnings were dismal for the final quarter 2015 however amazing for the entire 2015 up about 100% from RM51mil to RM100mil. NAV increased from RM5.63 to RM5.82 while Total Debt was reduced by 57% from RM176mil to RM74mil.

Until next time, happy value investing.

[DISCLOSURE: The writer currently owns minority stake in Majuperak Bhd, Perak Corporation Bhd among the mentioned stocks as of 29/02/2016 under his personal account. JR Capital LLP has no interest in mentioned stock 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.]

2016 Outlook, Gloom or Boom

Looking back, 2015 was a volatile year filled with both pessimism and optimism, Historically, when the consensus is either one, the opposite takes place. That being said, 2016 is starting off the same as 2015 due to all current happenings: China slowdown, currency rout, U.S rate hike(s), ISIS terror and others.

That was exactly what was written in JANUARY 2015;

[ https://iliveidreamitranscend.blogspot.my/2015/01/2015-outlook-and-growth-stocks.html ]

The only differences are the current happenings.

Fast forward to 2016, China is slowing down, consuming less commodities, creating an excess global commodity supply scenario; glut in places like Australia (i.e. mining), not to mention lower oil prices which were supposedly good for consumers but not fully reflected in improved retail sales in the U.S. when considering ex-transport or if you minus vehicle sales. China’s retail sales on the other hand is still growing >10% as of Dec 2015. Currencies are being devalued globally affecting countries’ balance sheets and international trade. 

A continued global slowdown is medium-probable but it is suggested in 2016, an anticipation of a recession is what might stir a bear market, causing stock prices to continue their fall. However, we are positive on the prospects of specific individual great businesses regardless of global sentiment.

As a reminder;

American business and industrial stocks rose from 1914-1918 which historically included World War 1 (WW1).

For an extensive reading on 2016 Market Outlook by famous investors;

Barron’s Roundtable discussion featuring Mario Gabelli among others;

CLICK ON THE SEARCH RESULT THAT READS: 

“Barron’s 2016 Roundtable, Part 1: A World of Opportunities”

[ https://www.google.com/search?client=safari&rls=en&q=Barron%E2%80%99s+2016+Roundtable,+Part+1:+A+World+of+Opportunities&ie=UTF-8&oe=UTF-8 ]

The theme at JR Capital is recurring. Stick to long term value businesses. Not all stocks fall in a bear market though majority do. Money globally still has to find a shelter be it stocks, bonds or in alternative investments. Should you find businesses previously recommended as such IBM; cheap and have long term prospects, keep them. 

Credit/loans that have been given out to Oil and Gas (O&G) companies in particular would be a concern for O&G stock investors. Bank stock investors should be wary should their company have high exposure to this sector. For a general business and loans outlook in Malaysia have look for those with access to CIMB Equity Research, statistics found in issue January 14, 2016 entitling “Banks:A testing time for asset quality”.

We believe Malaysian banks have done proper capital raising activities to weather in bad Non-Performing Loans (NPL) unless credit were extended to businesses that are highly levered, affected by global slowdown and that are currently being mismanaged, & loans start to default affecting overall domestic banking liquidity. We still are not invested in any local banks as it is not yet within our investment forte. In particular this is because the nature of banks is such that assets managed always exceed invested equity(by shareholders) thus typically raising cheap additional funds from investors i.e. via Rights issues should liquidity issues arise. Further, buybacks are less substantial compared to their American peers and the local major shareholders are rather dominant in corporate exercises.

O&G businesses, 

will continue to suffer unless they are supported (contract based etc) by larger more liquid O&G businesses (with downstream operations). Contracts as previously mentioned are most likely subjected to alterable provisions: in other words, contract awards may not guarantee full payments. 

Overall, 2016 has started off with a market correction.

See how often corrections typically occur:

[ https://iliveidreamitranscend.blogspot.my/2014/04/market-outlook-2014.html ]

Looking forward, it will continue to be a bumpy year. It is more likely a U.S. presidential year (2016) ends on a positive note (U.S. stock market). There is a possibility due to severe uncertainty that stocks may trend sideways. Stick with fundamentals and buy stocks that are great for the next 5 years that are currently cheap. That said, most investors at the Barron’s 2016 Roundtable are rather sceptical looking at Emerging Markets. Therefore, for new funds, U.S. stocks should provide some stability though there will be a >20% increased cost on a MYR/USD currency-translation basis (consider price-depressed stocks/companies that have global sales affected by lower sales due to currency-translations i.e. IBM).

Lastly, 

Cutting Losses is nonsense, UNLESS you are assured the business/stock you own will never improve looking forward. Further, should you have sufficient reasons to believe certain stocks will outperform other investments for the next 5 years and beyond, invest in those beaten down stocks with good fundamentals. If not, have patience as should the current global slowdown persist, good businesses may be selling at even more bargain prices. A 20% cash buffer is recommended once again for those with weaker stomachs and gloomy outlooks. Then again, there are always hidden bargains to be found.

Stocks in View

Parkson Retail Group Ltd (3368.HK), Parkson Holdings Berhad (5657.KL)

• Morningstar fair value RM1.55 (06/01/2016)
  http://quotes.morningstar.com/stock/analysis-report?t=XKLS:5657&region=mys&culture=en-US&productcode=MLE&cur=
• Research report by Societe Generale (26/11/2015)
  https://www.privatebanking.societegenerale.com/fileadmin/user_upload/bonds-library/credit-report/CORPORATES/Asia/Parkson_Retail_2015_11_26_9M15_Rating.pdf
• Buybacks in January 2016 at a 5 year low: hedges risk of major share purchases at low prices by interested parties and promotes shareholder value i.e. shareholder’s percentage of ownership in company increases upon share dividend/share cancellations: in other words, the shareholder grows his/her share of the company without additional investment. Further, Parkson is spending ~50% less of shareholder’s cash from 1year ago (from RM2.00-RM1.00) for buybacks. High paper losses for long term shareholders will be circumvented should profits start to resurface from all ongoing business revamps. Company is sufficiently liquid and has relatively fat gross profit margins.

IBM

• Prospects in cognitive computing (Watson) and hybrid cloud.
• High buybacks, stable dividend, strong customer base.
• Note: earnings 4Q 2015 to be released on 19/01/2016. Quarterly revenue have been on a decline for 14 quarters as of 19/10/2015 as management's strategy is to divest subsidiary businesses with lower profit margins (some with high revenues) and to focus at higher margin business opportunities rather than only high revenue opportunities.

Happy value investing.

[DISCLOSURE: The writer currently owns minority stake in Parkson Retail Group Ltd, Parkson Holdings Bhd, among the mentioned stocks as of 18/01/2016 under his personal account. JR Capital LLP has interest in mentioned stock IBM 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.]

Nov 2015 Outlook

U.S. interest rates. A common news headline. Interest rates should not be of any major concern for good companies with stable interest coverages and good business models. 

Historically, government do not make deliberate moves that is against the interest of economic growth. Since the Great Depression (1930), the U.S. government has very much used Keynesian economic theories (gov intervention) among others that have benefitted stocks tremendously; from below 70 on the Dow Jones Average (DJIA) to above 17000!

U.S. Banks should benefit from the rise in interest rates (whenever it comes) as the banks will be able to charge more on their loans net of deposit rates. This is assuming:

1. There is no panic amongst investors regarding any new bank scandal
2. Average defaults (no massive oil related, large size defaults)
3. Stable loan growth environment ahead

Note: Investors might still be jittery in investing in banks due to the losses the financial crisis caused. A sudden bear market might hit the banking sector. However, the reverse could happen should sentiment built on a margin expansion storyline.

Besides banks (our repetitive theme in 2015), one might want to explore companies that provide parts for larger industries as quoted by Mario Gabelli of GAMCO, $40bil AUM. Among mentioned: O’Reilly Auto Parts (search for interview with Gabelli on CNBC:The Halftime Report, 30/10/2015). 

Precision Castparts, a parts manufacturing company, a Buffett (Top 3 richest man) linked deal and Gabelli’s stock picks might suggest despite the acclaimed global slowdown by news sources, businesses will keep chugging along.

In conclusion, our recommendations are stocks we’ve mentioned since 2014. In September,

[ https://iliveidreamitranscend.blogspot.my/2015/09/volatility-and-china.html ]

we advised purchases of beaten down stocks. October has been a good month for numerous U.S. stocks. However, it is opined, most of our Malaysian recommended stocks (besides IBM) are still undervalued. 

Looking forward, we see some turbulence ahead. Our model portfolio has been constructed to withstand the next 5 years via China's strong consumption rise story and strong localised property development stories among others.

Stocks in View

Parkson Retail Group Ltd (3368.HK), Parkson Holdings Berhad (5657.KL)

Turnaround story

Perak Corporation Berhad (8346.KL), Majuperak Berhad (8141.KL)

A local-state development story.

Twitter
NOT a recommended investment stock. A trading stock, noting a generally high interest in technology stocks and a recent new large shareholder, a Prince of Saudi.


Happy investing until next time.

[DISCLOSURE: The writer currently owns minority stake in Parkson Retail Group Ltd, Parkson Holdings Bhd, Majuperak Berhad, Perak Corporation Berhad among the mentioned stocks as of 30/09/2015 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.]

Volatility and China

September 2015 has been a volatile month for stocks globally. 

Many investors might be panicking or forced into selling off good assets, overvalued assets or undervalued assets. Looking at a few markets globally;

China: Shanghai Index (mainland)

- is up 31.16% in the past 1 year (1YR) and down 5.62% Year To Date (YTD)

U.S.: DJIA 

- is down 3.53% 1YR and down 9.95% YTD

Malaysia: KLSE

- is down 9.62% 1YR and down 7.96% YTD

[Data: bloomberg.com 30/09/2015]

Other markets: Japan (Nikkei index) and Hong Kong (Hang Seng index) have also been on the slump as of late.

For simplicity sake, Volatility is defined as the up & down movements of stocks in markets. Stocks naturally go up and down, re-estimating the value of businesses based on their latest earnings and balance sheets whilst forecasting their future opportunities. Should a business stock be going down as of late, it is recommended to revalue your stocks (should you be unsure of your past valuation). 

For fundamentalist (non traders), check whether are your businesses;

1) still to continue operations under normal conditions ?

2) will they still be able to churn out average returns ?

3) are their balance sheets unaffected materially by any recent interest rate/exchange rate/policy fluctuations ?

4) have you paid a reasonable price for future growth ?

Should all your answers be positive ones, then stick with your stocks. Inactivity during volatility is your friend unless currently you have decided to reposition your stocks intelligently. 

Further, if you have purchased undervalued stocks and they are selling at lower prices with growth in sight, unaffected by global sentiments and factors, this could be the time to invest a part of your cash that you have been withholding as we suggested in January 2015;

[ http://iliveidreamitranscend.blogspot.my/2015/01/2015-outlook-and-growth-stocks.html ]

[Note: A contrasted Global Investment Managers’ Outlook:

Kenneth Fisher of Fisher Investments is of the view that U.S. is in the late cycle of a bull market hence better returns for large cap stocks in the nearby future.

Tan Teng Boo of Icapital.biz/Capital Dynamics is of the view that stocks are to go down a lot more before recovering i.e. in the U.S. and Hong Kong.]

However, be aware of the country you are invested/investing as markets do react to governmental factors i.e. its stability, as such currently in Malaysia that have suffered a >20% devaluation of currency and a stock market slump, currently, to be/being propped by a RM20bil government initiated stock boost via ValueCap Sdn Bhd. Malaysia’s stock market slump is also a reflection of fundamentals i.e. oil prices and others (more in our July 2015 write up, last 3 paragraphs prior “Stocks In View” section;

[ http://iliveidreamitranscend.blogspot.my/2015/07/global-stocks-mixed-china-down-malaysia.html ]

Overall, the writer opines the best way forward is investing in a market/country that have conducive shareholder centric policies and regulations (U.S.). With that, market volatility will be partially circumvented by regulators. Further, investing in businesses of stable natures (Berkshire Hathaway), that are business and shareholder oriented should circumvent global economy volatility. Apportioning part of your portfolio for growth stocks is also recommended. 
[Note: Investing in stocks of businesses operating in markets/countries that you understand sufficiently is a good way of overcoming structural shortcomings (volatility/risks affected by policies/laws) to an extent]

CHINA SLOWING DOWN HOW MUCH?

Most likely all stock market participants have been observing China’s economy and the world economy which according to many experts have been slowing down. No doubt China is slowing down whilst affecting business globally across industries. However, we still suggest a slowdown of the Top 2 largest economy growing at about TRIPLE the rate of the United States, having at least THREE times the consumers, have much more room to benefit long term shareholders, as long as prices paid for stocks were sufficiently low and not overvalued.

Investing in China is different from investing in U.S. or Malaysia due to many regulatory and legal differences among others. Assuming China’s government moves to a free market system gradually wherein businesses are allowed to dictate the overall economy alike U.S., shareholders should see tremendous returns assuming corporate governance is upheld at all times.

Alternatively, should China continue to successfully develop a mixed economy system, companies with superb management that are able to constantly adapt to government regulations and uphold shareholder centrism, should be very rewarding for shareholders. Global conflicts between China and the world however might distort this suggestion. However, president Xi Jin Ping’s visit to the U.S. recently might suggest China’s future path is to continue moving towards business based policies.
[Not to mention numerous other steps that have been taken by China to enhance their global business standing; i.e the silk road plans, AIIB, internationalisation of the renminbi]

Despite the recent slowdown in China, retail sales continue to be robust. On a separate note, on a relative comparative basis, the middle class in China is opined to be wealthier than the middle class in Malaysia in terms of their spending power domestically. Moving forward, all consumer stocks and consumption based stocks that have superior management and corporate governance would be suggested as good stocks. 
[ NO stock suggestions are given besides retail stocks previously mentioned (Parkson Retail Group) as there are much more factors that requires scrutiny i.e. stock market regulations and business regulations ]


Stocks In View

Parkson Retail Group & Stocks from previous months


Happy investing until next time.

[DISCLOSURE: The writer currently owns minority stake in Parkson Retail Group among the mentioned stocks as of 30/09/2015 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.]

Rocky Markets, “Bersih” Rally, Thought Processes

U.S. market alongside other Asian stock exchanges recently underwent a Correction. 
Malaysia’s KLSE is down 10.87% 1YR and down 6.64% YTD (28/08/2015 Bloomberg) on Friday and there were no negative surprise events over the weekend “Bersih” rally. 

Such statements should be present in abundance in the media. The following is a brief reasoning why headlines as such should not deter critical investment decisions.

The stock market is not alive. That would seem rather obvious however media always gets the best of investors by using words that portray the liveliness of the stock market. Daily, you will read words that spell out doom or boom in most media coverages. Subconsciously, these may effect your decisions unless you have already developed a rigid investment philosophy that you stick by at all times.

In a recent Bloomberg interview, Tan Teng Boo of Icapital.biz Bhd mentioned the “sell off” began as soon as the July FOMC minutes 2015 meeting minutes were released for public viewing. 

[ Bloomberg TV Live, 27/08/2015,
http://www.bloomberg.com/news/videos/2015-08-27/is-another-global-financial-crisis-on-the-horizon- ]

[ July FOMC minutes:
http://www.federalreserve.gov/monetarypolicy/fomcminutes20150729.htm ]

This form of observation is much more warranted than random media explanations when stocks decline in value. 

However, the writer is NOT biased towards any recommendation by others. The example(s) given is to show the "Thought Processes" that guide fund managers.

[For newer investors; a Correction/Sell Off takes place when fund managers and investors as a group sell more securities than they buy]

For a sharper look at stock markets, read Kenneth Fisher’s 11th book "Beat The Crowd”. 

In regards to media, Mr. Fisher blatantly says CNBC is NOT for serious investors (not his exact words). The point to be made is that the media have their own business which is reporting news daily to gain more viewers and advertisers for more revenue dollars to benefit their stakeholders.

All media companies have a business to run. Assuming routinely the media gave you the break down of companies’ true long term potential and all you had to do was buy and hold those stocks, they’d run out of news, out of viewers, out of advertisement dollars, out of revenues and finally out of business. Possibly a reporter with such skills may find it more rewarding to become a fund manager. The point to be made is don't be easily persuaded by news but always stick to logical, rational and workable investment philosophy(s)/strategy(s).

[Note: Media nevertheless plays an important role in maintaining efficient markets and in dissemination of information]

Warren Buffett’s Berkshire Hathaway recently announced a purchase of Precision Castparts at a price above $30 billion. (As a background story, Mr. Buffett have advised investors before NOT to buy airline companies in the past.) A simple reasoning to his recent mega purchase could be that this company makes important parts for the airline industry in large quantities and that Mr Buffett views the airline industry to continuously grow. In the nearby future, it can be opined that the life spans of aircrafts alongside economic growth in Asia and other emerging nations will lead to new aircraft orders and consequently higher parts sales by Precision Castparts (cheaper parts from competitors is less probable to be consumed by the airplane industry due to high safety standards requirements). In addition, Mr Buffett also acquired a car dealership, Van-Tuyl Group in April, 2015. 

The main point to be seen is the thought process of Mr Buffett’s acquisitions. It is opined that his bet is on the long term returns in 2 major industries in 2 companies that play large and important roles within those industries. He once mentioned in a talk he gave, that the auto industry of US in the 20th century had 2000 companies but eventually only 3 of them survived. How do you choose the winner? By betting on more or less, sure bets: which are as long as the auto industry and the aviation industry prosper, services/sales/parts will be required. Companies fulfilling this increasing requirement of sufficient size and quality will prosper. As long as a company maintains its competitive position & shareholders interest among others, all shareholders will share in the benefits of that company’s prosperity. An added note; Mario Gabelli of GAMCO also uses similar thought processes in his stock purchases.

[ The talk by Warren Buffet : https://www.youtube.com/watch?v=2a9Lx9J8uSs ]

Back to the U.S., Malaysia, and Asian stock market Correction. Look for long term prospects. Holding long term investments saves you numerous costs that compounds over time i.e. capital gains taxes (not present in Malaysia) and brokerage costs. 

Besides below, many investors in Malaysia might be piling into Oil&Gas (O&G) stocks. 

A word of caution: These stocks have been sold as numerous KLSE listed O&G stocks are dependant on PETRONAS for their contracts. These contracts have high probability of revision clauses allowing PETRONAS to change terms during unfavourable events (i.e. current drop in commodity prices). For definite confirmation, ask investor relations of your O&G shareholding company for major O&G contract documents that should be available to all shareholders from respective company head offices. This is to ensure your stocks of contract-dependant companies are secured in times of low oil prices. Some companies may have already be forthright in disclosing their exposure to recent oil selldown.

Solar related and renewable-energy-based Companies might present an opportunity looking at advancements in technology, reduction in production costs comparable to non-renewables sources and the increasing necessary awareness in global pollution. Identifying winning companies is still in progress as cheaper non-renewable natural resources (e.g. oil) tend to depress solar stocks and vice versa.  

Stocks in View

MajuPerak Holdings Bhd 

• Receivables from sale of land not yet realised in 2Q.
• Long Term: Joint Venture (JV) businesses still in progress. They should provide sufficient investment returns in coming years. Realisation of JVs depend on project speed, quality, etc (check for any negative development as company has a history of negative earnings).

Perak Corp Bhd

• Have recently pared down debts and booked gains from disposal of securities held (Integrax Bhd stock) for first half ,H1 2015

IBM (U.S.)

• Have substantial return on equity policy and strong and large client/customer base
• Despite declining revenues, efforts are continuously taken to remain competitive. 
• Have a complex network of businesses that require extensive research for full business comprehension. 

Happy investing until next time. 

[DISCLOSURE: The writer currently owns minority stake in MajuPerak Holdings Bhd and Perak Corp Bhd among the mentioned stocks as of 31/08/2015 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.]

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.]