If any market qualifies as rockier than equities, consider oil. Crude prices have done a complete roundtrip from $40 a barrel, up to $147/barrel last summer, only to tumble back down to today's levels under $40/barrel. So what exactly happened?
As our guest James Cordier, president of Liberty Trading Group, explains, oil's recent adventure was the result of a "perfect storm" of many factors.
Global demand was rising, along with hedge fund speculation.
The dollar was falling, boosting all dollar-denominated commodities.
China and other major oil consumers were providing fuel-price subsidies that propped up demand.
But by the summer of 2008, when those subsidies were removed and the global economy sputtered, oil's unraveling began. So is the oil party over? Not exactly. Once the economy begins its recovery, expect oil prices to race up to the $60-$70/barrel levels, Cordier forecasts.
And gasoline prices at the pump, heading into the crucial summer driving season? Higher, Cordier says. While demand may flatten as the economy slows and unemployment climbs, refiners are making less refined products such as gasoline and diesel to improve profit margins. We likely won't see prices topping $4/gallon like last summer, but hovering instead in the $2/gallon range.
And the likelihood of a return to $147 oil? "A fantasy," Cordier says.
Tuesday, February 24, 2009
BEST WORLD: Low capex, high cashflow business
BEST WORLD is like a beauty queen who becomes more attractive with time. Year in, year out, since its listing in 2004, the company has delivered strong profit growth, as reflected in the title of a recent press release, “Best World delivers fourth year of consecutive growth since listing”.
As I dig deeper into the financial figures and familiarize myself with the business, I discover how well this company has done for its shareholders. Since its IPO, total shareholder return (that is, capital appreciation plus dividends) has been more than 600% as at Feb 29 this year, according to Bloomberg.
The company has stepped up its dividend payment now (final dividend of 2 cents, interim dividend 1.212 cents a share) when many companies are reducing theirs in times of uncertainty. For FY 2007, Best World increased its payout ratio from 34.8% in 2006 to 45% of its net profit. Better still, the higher percentage is on a higher base, as Best World’s net profit rose 13.9%.
Best World chairman Doreen Tan is a co-founder of Best World along with Dora Hoan.
Despite its fabulous business and shareholder orientation, Best World is a stock that some people hesitate to invest in simply because it is a multi-level marketing (MLM) company. A lot of people wrongly perceive it as pyramid selling, which is illegal in Singapore and many parts of Asia.
There are dubious businesses in the MLM industry, which focus their efforts on recruiting “sales representatives” who end up buying products for their own use and for inventory.
The reputable MLM businesses, on the other hand, mainly employ part-time, or sometimes full-time, sale representatives who use personal relationships and one-on-one selling to market products. The evidence points to Best World being a reputable MLM business.
Its compensation program, called ENP, does not make millionaires out of ordinary folk. However, it enables sales representatives to make decent money to add to their family’s resources. At least, one aspect of a “pyramid scheme” is at work in the Best World compensation plan. Thousands of individuals become its sales distributors to simply buy products at the “wholesale” price in order to use the products.
That’s why there’s only one sales distributor who is making S$500,000 and a few more who are making S$100,000 per year. These super distributors have a full-time commitment to sales and recruiting. Best has an estimated 2,000 such full-timers. On average, Best World’s active sales distributors earn sales commission of S$2,000 to S$2,500 per year.
The commission of top earners (which Best World terms as Silver, Gold and Platinum Directors) ranges from S$70,000 to S$500,000 per annum.
Best World sets a low consumption hurdle for members to sustain their membership. This gives me confidence that reported sales are quite close to actual consumption. In contrast, some competitors have higher entry-level sales hurdles to encourage aggressive selling by the agents.
Although sales growth is superior initially, the structure would leave unconsumed inventory stuck within the distribution channels eventually. According to its latest update, Best World has 148,428 distributors, of whom only 2,000 are full-timers. Best World's distributors consume about 75% of the products they buy.
Their demographics provide telling information about its main target market – females above 30 years old. About 95% of the full-time distributors are business builders.
Gross margins of more than 75%
This business model is undoubtedly compelling. It enjoys gross margins in excess of 75% without any corresponding huge need for capex. The sales force is independent and self-managed. Best World usually enters a new market when existing distributors start selling Best World products in this new market.
Membership has grown rapidly in recent years.
These distributors seek the Company’s permission to set up a Lifestyle Centre (“LC”) at their own expense. This centre acts as a storage and distribution point for the sales distributors. A certain percentage of sales is rewarded to these aggressive distributors for setting up LCs. When sufficient sales volume has been achieved, the company would set up a Regional Centre to enhance the marketing efforts of the products.
Best World has minimum receivables as all products are paid before they are sold. But the company does provide credit terms for some of its best sales people in regional markets. Best World has minimum working capital requirements.
Because of this unique market penetration strategy and the minimum working capital requirement, the company can continue to scale up the business without substantial requirements for working capital, property, plant and equipment.
In FY2007, its cash conversion cycle (that is, the time between the purchase of goods and the collection of payment) was shortened to 115 days as the company tightened collection days and inventory control. This compares well with FY 2006’s 110 days and FY2005’s 147 days.
Notably, Best World generated free cash flow of about S$14 million in FY07, compared to S$10.3 million in FY06.
Best World makes product quality a key priority. It sources for innovative products from its pharmaceutical GMP-certified OEM suppliers which are mostly based outside Asia. It plans to launch 10 new products every year. Sales growth is less driven by the number of launches and more by the emergence of the next blockbuster. While there is no guarantee of future product success, I see an emerging success.
Its DR’s Secret sold 200 sets/month when it was first launched in 1990. Currently, more than 5,000 sets are sold every month. Dr’s Secret sells for $384 per set, placing it among the mid-high tier of skincare product segment. My girlfriends say SK II sells for S$500+. A blockbuster product, the Negative Ionizer, costing S$750 sold pretty well in Singapore over the past 2 years. This same product was launched in Malaysia in May 06.
Best World keeps its SKU (or Stock Keeping Units) below 100 to make the sale proposition relatively simple for their mostly part-time independent sales force.
Hardly any receivables
Best World’s business is attractive because it is extremely cash generative and scalable. In FY2007, Best World's debtor days were 45 days, compared to payable days of 14 days. Receivables are tightly controlled by Best World.
Best World’s gross margins are attractive at 70-78%. The company sells its products to the distributors at a fixed Distributor Price (“DP”). Its distributors can sell the products onward to non-members at a 20% mark-up or Retail Price (“RP”).
However, the majority of the products are consumed by its own members. The company only books revenue at DP and prices its products at about 4-7x cost of goods sold (COGS). Historical margins were around 75%, which are higher than Amway’s 27%, Nu Skin’s 28% and the margins of traditional retailers such as Robinson and Metro. This implies that Best World’s products are priced at the mid-high range. This premium pricing reflects the quality of its products.
SPRING chairman Philip Yeo visiting Best World's HQ at Changi.
Selling and distribution expenses are the biggest cost component for Best World. These expenses are largely commissions for distributors to motivate them but there is a cap to ensure that selling expenses do not escalate out of control. The ENP program ensures that the company does not pay out more than 50.5% of revenue at any point. Instances of 50% payouts are rare, occurring only if all the distributors within a downline become optimally productive.
The beauty of MLM is the low capex requirements. There is little need to spend on fixed assets to run the business. As such, Best World’s free cash flow should be pretty close to its reported earnings. In Best World’s case, FY2007 net profit of S$13.5 million is close to FCF of S$14 million – and this pattern has prevailed in the past. With strong free cash flow, the Company can support sustainable dividends payout. The management has a policy to pay out 30% of its net profit as dividends to shareholders.
In FY2006, the Company paid S$4.125 million, or 2.5 cents per share, as dividend. For FY 2007, the Company increased it to S$6.125 million, or 3.212 cents, per share. I am sure the company can pay more in the future as it has a cash hoard of more than S$35 million and capex plans can be financed by its strong cash flow.
Ideally, Best World should consistently pay out more than 50% of its net profit as dividends, similar to Eu Yan Sang. This would help attract more institutional interest to the company, just as Eu Yan Sang has Aberdeen Asset Management as its anchor investor.
Future Plans
The management looks pretty focused, having publicly stated the markets that it would be expanding to in future. South Korea and the Philippines will be the new markets in 2008, while Japan and India will be next in 2009/2010. Given its track record in Indonesia, Malaysia and other markets, I believe the company should be able to execute its plans – with, hopefully, no more than a few bumps here and there.
A lot has been said about Best World’s expansion into China, touted to be the largest consumer market in the next five years. While there is no doubt that China, with its 1.3 billion population presents enormous opportunity for the company, I also believe that this is not an easy market.
Challenges will come along with opportunities. Let the management execute its plans in China the next 1-2 years and we will see how it grows along. In the meantime, if you are able to shake off any prejudice that MLM companies are bad eggs, this company is worth a second look, at least.
As I dig deeper into the financial figures and familiarize myself with the business, I discover how well this company has done for its shareholders. Since its IPO, total shareholder return (that is, capital appreciation plus dividends) has been more than 600% as at Feb 29 this year, according to Bloomberg.
The company has stepped up its dividend payment now (final dividend of 2 cents, interim dividend 1.212 cents a share) when many companies are reducing theirs in times of uncertainty. For FY 2007, Best World increased its payout ratio from 34.8% in 2006 to 45% of its net profit. Better still, the higher percentage is on a higher base, as Best World’s net profit rose 13.9%.
Best World chairman Doreen Tan is a co-founder of Best World along with Dora Hoan.
Despite its fabulous business and shareholder orientation, Best World is a stock that some people hesitate to invest in simply because it is a multi-level marketing (MLM) company. A lot of people wrongly perceive it as pyramid selling, which is illegal in Singapore and many parts of Asia.
There are dubious businesses in the MLM industry, which focus their efforts on recruiting “sales representatives” who end up buying products for their own use and for inventory.
The reputable MLM businesses, on the other hand, mainly employ part-time, or sometimes full-time, sale representatives who use personal relationships and one-on-one selling to market products. The evidence points to Best World being a reputable MLM business.
Its compensation program, called ENP, does not make millionaires out of ordinary folk. However, it enables sales representatives to make decent money to add to their family’s resources. At least, one aspect of a “pyramid scheme” is at work in the Best World compensation plan. Thousands of individuals become its sales distributors to simply buy products at the “wholesale” price in order to use the products.
That’s why there’s only one sales distributor who is making S$500,000 and a few more who are making S$100,000 per year. These super distributors have a full-time commitment to sales and recruiting. Best has an estimated 2,000 such full-timers. On average, Best World’s active sales distributors earn sales commission of S$2,000 to S$2,500 per year.
The commission of top earners (which Best World terms as Silver, Gold and Platinum Directors) ranges from S$70,000 to S$500,000 per annum.
Best World sets a low consumption hurdle for members to sustain their membership. This gives me confidence that reported sales are quite close to actual consumption. In contrast, some competitors have higher entry-level sales hurdles to encourage aggressive selling by the agents.
Although sales growth is superior initially, the structure would leave unconsumed inventory stuck within the distribution channels eventually. According to its latest update, Best World has 148,428 distributors, of whom only 2,000 are full-timers. Best World's distributors consume about 75% of the products they buy.
Their demographics provide telling information about its main target market – females above 30 years old. About 95% of the full-time distributors are business builders.
Gross margins of more than 75%
This business model is undoubtedly compelling. It enjoys gross margins in excess of 75% without any corresponding huge need for capex. The sales force is independent and self-managed. Best World usually enters a new market when existing distributors start selling Best World products in this new market.
Membership has grown rapidly in recent years.
These distributors seek the Company’s permission to set up a Lifestyle Centre (“LC”) at their own expense. This centre acts as a storage and distribution point for the sales distributors. A certain percentage of sales is rewarded to these aggressive distributors for setting up LCs. When sufficient sales volume has been achieved, the company would set up a Regional Centre to enhance the marketing efforts of the products.
Best World has minimum receivables as all products are paid before they are sold. But the company does provide credit terms for some of its best sales people in regional markets. Best World has minimum working capital requirements.
Because of this unique market penetration strategy and the minimum working capital requirement, the company can continue to scale up the business without substantial requirements for working capital, property, plant and equipment.
In FY2007, its cash conversion cycle (that is, the time between the purchase of goods and the collection of payment) was shortened to 115 days as the company tightened collection days and inventory control. This compares well with FY 2006’s 110 days and FY2005’s 147 days.
Notably, Best World generated free cash flow of about S$14 million in FY07, compared to S$10.3 million in FY06.
Best World makes product quality a key priority. It sources for innovative products from its pharmaceutical GMP-certified OEM suppliers which are mostly based outside Asia. It plans to launch 10 new products every year. Sales growth is less driven by the number of launches and more by the emergence of the next blockbuster. While there is no guarantee of future product success, I see an emerging success.
Its DR’s Secret sold 200 sets/month when it was first launched in 1990. Currently, more than 5,000 sets are sold every month. Dr’s Secret sells for $384 per set, placing it among the mid-high tier of skincare product segment. My girlfriends say SK II sells for S$500+. A blockbuster product, the Negative Ionizer, costing S$750 sold pretty well in Singapore over the past 2 years. This same product was launched in Malaysia in May 06.
Best World keeps its SKU (or Stock Keeping Units) below 100 to make the sale proposition relatively simple for their mostly part-time independent sales force.
Hardly any receivables
Best World’s business is attractive because it is extremely cash generative and scalable. In FY2007, Best World's debtor days were 45 days, compared to payable days of 14 days. Receivables are tightly controlled by Best World.
Best World’s gross margins are attractive at 70-78%. The company sells its products to the distributors at a fixed Distributor Price (“DP”). Its distributors can sell the products onward to non-members at a 20% mark-up or Retail Price (“RP”).
However, the majority of the products are consumed by its own members. The company only books revenue at DP and prices its products at about 4-7x cost of goods sold (COGS). Historical margins were around 75%, which are higher than Amway’s 27%, Nu Skin’s 28% and the margins of traditional retailers such as Robinson and Metro. This implies that Best World’s products are priced at the mid-high range. This premium pricing reflects the quality of its products.
SPRING chairman Philip Yeo visiting Best World's HQ at Changi.
Selling and distribution expenses are the biggest cost component for Best World. These expenses are largely commissions for distributors to motivate them but there is a cap to ensure that selling expenses do not escalate out of control. The ENP program ensures that the company does not pay out more than 50.5% of revenue at any point. Instances of 50% payouts are rare, occurring only if all the distributors within a downline become optimally productive.
The beauty of MLM is the low capex requirements. There is little need to spend on fixed assets to run the business. As such, Best World’s free cash flow should be pretty close to its reported earnings. In Best World’s case, FY2007 net profit of S$13.5 million is close to FCF of S$14 million – and this pattern has prevailed in the past. With strong free cash flow, the Company can support sustainable dividends payout. The management has a policy to pay out 30% of its net profit as dividends to shareholders.
In FY2006, the Company paid S$4.125 million, or 2.5 cents per share, as dividend. For FY 2007, the Company increased it to S$6.125 million, or 3.212 cents, per share. I am sure the company can pay more in the future as it has a cash hoard of more than S$35 million and capex plans can be financed by its strong cash flow.
Ideally, Best World should consistently pay out more than 50% of its net profit as dividends, similar to Eu Yan Sang. This would help attract more institutional interest to the company, just as Eu Yan Sang has Aberdeen Asset Management as its anchor investor.
Future Plans
The management looks pretty focused, having publicly stated the markets that it would be expanding to in future. South Korea and the Philippines will be the new markets in 2008, while Japan and India will be next in 2009/2010. Given its track record in Indonesia, Malaysia and other markets, I believe the company should be able to execute its plans – with, hopefully, no more than a few bumps here and there.
A lot has been said about Best World’s expansion into China, touted to be the largest consumer market in the next five years. While there is no doubt that China, with its 1.3 billion population presents enormous opportunity for the company, I also believe that this is not an easy market.
Challenges will come along with opportunities. Let the management execute its plans in China the next 1-2 years and we will see how it grows along. In the meantime, if you are able to shake off any prejudice that MLM companies are bad eggs, this company is worth a second look, at least.
BEST WORLD: Insights from FY08 analyst briefing
DIRECT SELLER Best World had over a dozen analysts and fund managers at its FY08 results briefing last week, and its management shared candidly how it is meeting the challenge of the tough economic climate.
The consumer-discretionary company netted some S$10.6 million in earnings for FY08, had net margins of 11.1% and sits on some S$30.6 million of cash.
Best World’s revenues come from sales of skincare, health supplements and other lifestyle health and beauty products to its members.
Not only do the members use Best World products themselves, they are also provided with comprehensive sales training as well as commissions for recruiting other members and for promoting sales.
Best World’s successful member-get-member platform has grown its membership base to 186,759 (customers) in about 10 countries in the Asia Pacific region.
Indonesia, Malaysia and Singapore are its key markets.
Indonesia is its largest market, with revenue contribution of 46% in FY08. While Indon sales have been robust – growing 14.5% yoy, a weaker rupiah resulted in sales contribution falling by 3.6% in Singapore dollars.
Best World recently met a hiccup in obtaining licensing for direct selling in China. A proposal to acquire 51% in Chinese direct seller Joymain lapsed after the Chinese party failed to obtain approval from their Ministry of Commerce.
Below is a summary of issues addressed by Best World’s executive director, Mr Huang Ban Chin, and its group financial controller, Ms Chew Nam Yeo, at the briefing.
Sales
Q: What is your best-selling product category?
A: Skincare, as most of our distributors are ladies. This contributes about 60% to our revenues.
Q: What is your longest selling product?
A: Health supplements. Our products do not have a limit on its life cycle. The popularity of a product line depends on how much commission it can generate for distributors.
Q: What will your advertising & promo expense look like for FY09?
A: A&P expense is booked as part of distribution cost, which together with commissions and other sales related expenses is about 40% of revenue.
We are not planning any substantial increase in our A&P expense.
Our advertising is prudent; that is, media channels chosen are specific to audience target rather than blitzes. For example, we may advertise in Lianhe Zaobao to reach the Mandarin speaking community but not in the Straits Times.
Best World's negative ionizer is a big ticket item which sells for about S$700.
Q: Why are sales per member declining (from S$668 in FY07 to S$514 in FY08)? How do you deal with this?
A: Our product structure is such that members usually make big-ticket purchases at the point of recruitment. Subsequent purchases are usually to replace consumable supplies.
For example, selling prices of some products like our negative ionizer and water filter are in the high hundreds but these are not consumables that generate replacement sales.
Thus, as our membership base grows, the existence of earlier recruits who buy less than the new recruits for the year will average down sales per member.
To address this, we are constantly rolling out new product lines and phasing out the older models in response to changes in market trends, regulations and cost of ingredients.
In 2009, we have a new product - first milk (Colostrum) health supplement, and Pureflo - a new generation of our water filteration system.
We also smooth out revenue by providing installment payment schemes.
Q: Do members pay to join as distributors?
A: There is a nominal once-off membership fee of S$25. This is payable upon recruitment and is used to offset costs of sales kits which include product and price catalogues, CDs etc.
Q: In your membership structure, what is the proportion of ‘business builders’ versus passive consumers?
A: The number of business builders (members who actively recruit new members and generate high-volume sales) is growing. This is especially true in China.
In the pipeline is a 3rd generation water filtration system capturing form and function.
Indonesia
Q: Have you maintained retail prices in Indonesia?
A: We raised prices twice in Indonesia last year. The first was for passing the burden of value-added tax to customers. The second was to offset the foreign currency loss we would incur as a result of the Indonesian Rupiah’s depreciation.
Q: What is your cash conversion cycle in Rupiah?
A: About 5 months.
Q: How are you planning to offset a decline in revenue from Indonesia?
A: Taiwan is a very resilient market and its people are very solution oriented in hard times. It is one market where direct selling recruitment rises during recessions.
Relationships are very important in China, Hong Kong and Taiwan. For example, they would rather buy from someone they know than from a retail mall.
Taiwanese have a natural affinity for selling in China and we see potential in the Greater China market.
China
Q: What are your plans for expanding in China?
A: Joymain has been dropped but we are exploring other business partners. We are no longer considering joint ventures with Chinese direct sellers in order to sell under their license. Rather, we will apply for the license under the Best World corporate name.
Hong Kong is a tough market due to the relatively lower proportion of members who want to be business builders. However, it is important as an entry point to the China market.
Guangdong residents, for example, use established Hong Kong brands as a reference for product acceptance.
Q: Have you recovered your Rmb 20 million prepayment to Joymain for the acquisition?
A: Our prepayment is secured by Joymain’s unencumbered real properties independently valued to be worth about Rmb 40 million in April 2008. Currently we are going through the necessary procedures to recover the prepayment.
Group financial controller Chew Nam Yeo has a prudent cash control policy.
Outlook
Q: Have any of your competitors closed down?
A: A private company named WBG closed shop recently. The closure was due to a management problem rather than market conditions.
Q: Does this present opportunity for Best World?
A: Yes, we certainly see opportunity there.
Balance sheet and cash flow
Q: How did you achieve the improvement in receivables turnover (from 45 days in FY07 to 22 days in FY08)? Is that sustainable?
A: We had better credit management and receivables collection.
Q: Why did payables turnover fall (from 54 days in FY07 to 24 days in FY08)?
A: There are certain vendors with shorter payment terms.
Q: Are you holding your S$30 million of cash reserves in any structured products?
A: We are very prudent in cash management and mostly hold deposits in banks. We do not hold any stocks or bonds for speculation purposes.
A small proportion (S$3.5 million) is in principal-protected variable interest rate notes issued by banks.
We will need cash resources for our expansion as well as business opportunities that may arise in the course of the year.
The consumer-discretionary company netted some S$10.6 million in earnings for FY08, had net margins of 11.1% and sits on some S$30.6 million of cash.
Best World’s revenues come from sales of skincare, health supplements and other lifestyle health and beauty products to its members.
Not only do the members use Best World products themselves, they are also provided with comprehensive sales training as well as commissions for recruiting other members and for promoting sales.
Best World’s successful member-get-member platform has grown its membership base to 186,759 (customers) in about 10 countries in the Asia Pacific region.
Indonesia, Malaysia and Singapore are its key markets.
Indonesia is its largest market, with revenue contribution of 46% in FY08. While Indon sales have been robust – growing 14.5% yoy, a weaker rupiah resulted in sales contribution falling by 3.6% in Singapore dollars.
Best World recently met a hiccup in obtaining licensing for direct selling in China. A proposal to acquire 51% in Chinese direct seller Joymain lapsed after the Chinese party failed to obtain approval from their Ministry of Commerce.
Below is a summary of issues addressed by Best World’s executive director, Mr Huang Ban Chin, and its group financial controller, Ms Chew Nam Yeo, at the briefing.
Sales
Q: What is your best-selling product category?
A: Skincare, as most of our distributors are ladies. This contributes about 60% to our revenues.
Q: What is your longest selling product?
A: Health supplements. Our products do not have a limit on its life cycle. The popularity of a product line depends on how much commission it can generate for distributors.
Q: What will your advertising & promo expense look like for FY09?
A: A&P expense is booked as part of distribution cost, which together with commissions and other sales related expenses is about 40% of revenue.
We are not planning any substantial increase in our A&P expense.
Our advertising is prudent; that is, media channels chosen are specific to audience target rather than blitzes. For example, we may advertise in Lianhe Zaobao to reach the Mandarin speaking community but not in the Straits Times.
Best World's negative ionizer is a big ticket item which sells for about S$700.
Q: Why are sales per member declining (from S$668 in FY07 to S$514 in FY08)? How do you deal with this?
A: Our product structure is such that members usually make big-ticket purchases at the point of recruitment. Subsequent purchases are usually to replace consumable supplies.
For example, selling prices of some products like our negative ionizer and water filter are in the high hundreds but these are not consumables that generate replacement sales.
Thus, as our membership base grows, the existence of earlier recruits who buy less than the new recruits for the year will average down sales per member.
To address this, we are constantly rolling out new product lines and phasing out the older models in response to changes in market trends, regulations and cost of ingredients.
In 2009, we have a new product - first milk (Colostrum) health supplement, and Pureflo - a new generation of our water filteration system.
We also smooth out revenue by providing installment payment schemes.
Q: Do members pay to join as distributors?
A: There is a nominal once-off membership fee of S$25. This is payable upon recruitment and is used to offset costs of sales kits which include product and price catalogues, CDs etc.
Q: In your membership structure, what is the proportion of ‘business builders’ versus passive consumers?
A: The number of business builders (members who actively recruit new members and generate high-volume sales) is growing. This is especially true in China.
In the pipeline is a 3rd generation water filtration system capturing form and function.
Indonesia
Q: Have you maintained retail prices in Indonesia?
A: We raised prices twice in Indonesia last year. The first was for passing the burden of value-added tax to customers. The second was to offset the foreign currency loss we would incur as a result of the Indonesian Rupiah’s depreciation.
Q: What is your cash conversion cycle in Rupiah?
A: About 5 months.
Q: How are you planning to offset a decline in revenue from Indonesia?
A: Taiwan is a very resilient market and its people are very solution oriented in hard times. It is one market where direct selling recruitment rises during recessions.
Relationships are very important in China, Hong Kong and Taiwan. For example, they would rather buy from someone they know than from a retail mall.
Taiwanese have a natural affinity for selling in China and we see potential in the Greater China market.
China
Q: What are your plans for expanding in China?
A: Joymain has been dropped but we are exploring other business partners. We are no longer considering joint ventures with Chinese direct sellers in order to sell under their license. Rather, we will apply for the license under the Best World corporate name.
Hong Kong is a tough market due to the relatively lower proportion of members who want to be business builders. However, it is important as an entry point to the China market.
Guangdong residents, for example, use established Hong Kong brands as a reference for product acceptance.
Q: Have you recovered your Rmb 20 million prepayment to Joymain for the acquisition?
A: Our prepayment is secured by Joymain’s unencumbered real properties independently valued to be worth about Rmb 40 million in April 2008. Currently we are going through the necessary procedures to recover the prepayment.
Group financial controller Chew Nam Yeo has a prudent cash control policy.
Outlook
Q: Have any of your competitors closed down?
A: A private company named WBG closed shop recently. The closure was due to a management problem rather than market conditions.
Q: Does this present opportunity for Best World?
A: Yes, we certainly see opportunity there.
Balance sheet and cash flow
Q: How did you achieve the improvement in receivables turnover (from 45 days in FY07 to 22 days in FY08)? Is that sustainable?
A: We had better credit management and receivables collection.
Q: Why did payables turnover fall (from 54 days in FY07 to 24 days in FY08)?
A: There are certain vendors with shorter payment terms.
Q: Are you holding your S$30 million of cash reserves in any structured products?
A: We are very prudent in cash management and mostly hold deposits in banks. We do not hold any stocks or bonds for speculation purposes.
A small proportion (S$3.5 million) is in principal-protected variable interest rate notes issued by banks.
We will need cash resources for our expansion as well as business opportunities that may arise in the course of the year.
Paul Krugman on the Malaise of Nations
Nobel Prize-winning economist Paul Krugman discusses why the U.S.'s balance-sheet recession could lead to many years of deflationary malaise.
Paul Krugman Is in His Element. The Nobel Prize-winning economist in December put out an updated edition of The Return of Depression Economics, his prescient study from 1999 in which he laid out the risks to nations when recessions spiral into long-term malaise. Timely reading, indeed, and worth picking up, if you haven't already; a copy can be purchased online here. Krugman was kind enough to expand upon his thoughts regarding President Obama's stimulus package and what changes may be in store for the U.S. and world economies in coming years in an e-mail exchange with Barrons.com.
Barrons.com: What's the stupidest thing you've heard said about the current economic crisis and how to solve it? What's the smartest?
Paul Krugman: The stupidest is a very tough competition; I tend to think of whichever mind-numbingly stupid thing I've just heard, like [U.S. House of Representatives] Minority Leader [John] Boehner's statement that we shouldn't "reward" Fannie and Freddie by increasing their resources (he apparently doesn't understand the meaning of "government owned.") But I guess the statements from many players that the Obama plan is a spending bill, not a stimulus bill -- when spending is the whole point -- top the list.
The smartest thing probably comes from Richard Koo, [chief economist for Japan's Nomura Research Institute, part of Nomura Securities] who was one of the first to point out that this isn't just a housing crisis, or even a banking crisis -- it's a balance sheet crisis.
Barrons.com: You've written that the gap between the economy's potential shortfall in production over the next three years -- $2.9 trillion -- and the $800 billion in economic stimulus is a big problem. Why does this gap between production and bailout matter so much?
Krugman: My big concern here is that the economy digs itself into a deflationary hole, which is what can all too easily happen if you have a large, sustained output gap. Once prices start falling, and people start to expect continuing deflation, the balance sheet problems will become much worse than they already are, and much harder to resolve. Watching that happen in Japan is what led me to write the original, 1999 version of The Return of Depression Economics, and now the same thing is all too possible here.
Barrons.com: What's a worst-case scenario if this stimulus fails to kick-start a recovery, as you've argued?
Krugman: A lost decade or more. I don't think, even now, that we're headed for 20+ percent unemployment, Depression-style. But I can see a strong possibility of an economic and political trap: low investment and high savings thanks to deflation and a depressed economy, with effective government action blocked by a combination of concerns about debt and the widespread belief that we tried stimulus and it didn't work.
Barrons.com: Will the $80 billion in aid to holders of underwater mortgages make a material difference?
Krugman: It depends on the meaning of the word "material." It will help millions of families, and somewhat reduce the financial system's losses. It won't revive the housing market, nor will it end the banks' problems.
Barrons.com: Will we ever become a nation of savers again?
Krugman: Actually, we ARE becoming a nation of savers again -- which is part of the reason GDP is plunging. I think the asset wipeout will have a long-term impact on consumer behavior; remember, we had a 9% savings rate as recently as the 80s.
Barrons.com: There's been a dramatic collapse in asset values in the stock market, as measured by the decline in the P/E of the S&P 500. Do you think asset values will bounce back with an economic recovery, or has there been some fundamental long-term shift in asset values that will linger even after recovery?
Krugman: Believe it or not, housing prices are still above-normal, as measured either by the price-rent ratio or the price-income ratio. So housing prices won't bounce back. As for stocks, when I take [Yale University economist] Bob Shiller's data, which give prices relative to a long trailing average of profits, and update, I get a P/E right now of about 13, not so far from historical norms. So it's not clear how much bounceback we can count on, if any. Maybe the bull market was the aberration.
Barrons.com: You've advocated a stimulus for the U.S. along the lines of the Public Works project during the Depression. Assuming such a thing could produce another economic boom, what are the downside risks to a massive infusion of public money?
Krugman: Well, large-scale government borrowing does pose long-term fiscal risks; the U.S. has substantial room for additional borrowing, but it's not unlimited. Aside from that, I don't see big risks.
Barrons.com: One of the themes you explore in your writing is the notion that world economic relationships can change over the course of decades (e.g., from globalism to nationalism to globalism). What are a couple of the biggest economic changes you see playing out over the next ten years, and what might be their social impact in the U.S. and abroad?
Krugman: I think we're heading for a new regime of financial regulation, which might significantly reduce financial globalization, for both good reasons and bad: the good reason is that a lot of what looked like globalization was actually regulatory arbitrage, the bad reason is that governments that are bailing out financial system will tend to insist that the benefits stay at home. I don't think this will affect most Americans' lives much; but a lot of the highest incomes have come from finance, and the Masters of the Universe will definitely end up less masterful.
We're also, I think, going to see some significant reindustrialization, because the conveyor belt moving Chinese and other funds to America will be slowed if not shut down. This will mean a greater reliance on domestic production.
Mainly, though, how society changes will depend on the political response -- whether this really ends up being a new New Deal or just a slight course correction.
Barrons.com: What great books have you read recently that you can recommend?
Krugman: I just reread a good part of John Maynard Keynes's Essays in Persuasion, especially "The Great Slump of 1930," which is awesomely relevant right now. And while it has nothing much to do with the crisis, I'd highly recommend Dan Koeppel's Banana: The Fate of the Fruit that Changed the World, which tells you a lot about the history of globalization along the way.
Paul Krugman Is in His Element. The Nobel Prize-winning economist in December put out an updated edition of The Return of Depression Economics, his prescient study from 1999 in which he laid out the risks to nations when recessions spiral into long-term malaise. Timely reading, indeed, and worth picking up, if you haven't already; a copy can be purchased online here. Krugman was kind enough to expand upon his thoughts regarding President Obama's stimulus package and what changes may be in store for the U.S. and world economies in coming years in an e-mail exchange with Barrons.com.
Barrons.com: What's the stupidest thing you've heard said about the current economic crisis and how to solve it? What's the smartest?
Paul Krugman: The stupidest is a very tough competition; I tend to think of whichever mind-numbingly stupid thing I've just heard, like [U.S. House of Representatives] Minority Leader [John] Boehner's statement that we shouldn't "reward" Fannie and Freddie by increasing their resources (he apparently doesn't understand the meaning of "government owned.") But I guess the statements from many players that the Obama plan is a spending bill, not a stimulus bill -- when spending is the whole point -- top the list.
The smartest thing probably comes from Richard Koo, [chief economist for Japan's Nomura Research Institute, part of Nomura Securities] who was one of the first to point out that this isn't just a housing crisis, or even a banking crisis -- it's a balance sheet crisis.
Barrons.com: You've written that the gap between the economy's potential shortfall in production over the next three years -- $2.9 trillion -- and the $800 billion in economic stimulus is a big problem. Why does this gap between production and bailout matter so much?
Krugman: My big concern here is that the economy digs itself into a deflationary hole, which is what can all too easily happen if you have a large, sustained output gap. Once prices start falling, and people start to expect continuing deflation, the balance sheet problems will become much worse than they already are, and much harder to resolve. Watching that happen in Japan is what led me to write the original, 1999 version of The Return of Depression Economics, and now the same thing is all too possible here.
Barrons.com: What's a worst-case scenario if this stimulus fails to kick-start a recovery, as you've argued?
Krugman: A lost decade or more. I don't think, even now, that we're headed for 20+ percent unemployment, Depression-style. But I can see a strong possibility of an economic and political trap: low investment and high savings thanks to deflation and a depressed economy, with effective government action blocked by a combination of concerns about debt and the widespread belief that we tried stimulus and it didn't work.
Barrons.com: Will the $80 billion in aid to holders of underwater mortgages make a material difference?
Krugman: It depends on the meaning of the word "material." It will help millions of families, and somewhat reduce the financial system's losses. It won't revive the housing market, nor will it end the banks' problems.
Barrons.com: Will we ever become a nation of savers again?
Krugman: Actually, we ARE becoming a nation of savers again -- which is part of the reason GDP is plunging. I think the asset wipeout will have a long-term impact on consumer behavior; remember, we had a 9% savings rate as recently as the 80s.
Barrons.com: There's been a dramatic collapse in asset values in the stock market, as measured by the decline in the P/E of the S&P 500. Do you think asset values will bounce back with an economic recovery, or has there been some fundamental long-term shift in asset values that will linger even after recovery?
Krugman: Believe it or not, housing prices are still above-normal, as measured either by the price-rent ratio or the price-income ratio. So housing prices won't bounce back. As for stocks, when I take [Yale University economist] Bob Shiller's data, which give prices relative to a long trailing average of profits, and update, I get a P/E right now of about 13, not so far from historical norms. So it's not clear how much bounceback we can count on, if any. Maybe the bull market was the aberration.
Barrons.com: You've advocated a stimulus for the U.S. along the lines of the Public Works project during the Depression. Assuming such a thing could produce another economic boom, what are the downside risks to a massive infusion of public money?
Krugman: Well, large-scale government borrowing does pose long-term fiscal risks; the U.S. has substantial room for additional borrowing, but it's not unlimited. Aside from that, I don't see big risks.
Barrons.com: One of the themes you explore in your writing is the notion that world economic relationships can change over the course of decades (e.g., from globalism to nationalism to globalism). What are a couple of the biggest economic changes you see playing out over the next ten years, and what might be their social impact in the U.S. and abroad?
Krugman: I think we're heading for a new regime of financial regulation, which might significantly reduce financial globalization, for both good reasons and bad: the good reason is that a lot of what looked like globalization was actually regulatory arbitrage, the bad reason is that governments that are bailing out financial system will tend to insist that the benefits stay at home. I don't think this will affect most Americans' lives much; but a lot of the highest incomes have come from finance, and the Masters of the Universe will definitely end up less masterful.
We're also, I think, going to see some significant reindustrialization, because the conveyor belt moving Chinese and other funds to America will be slowed if not shut down. This will mean a greater reliance on domestic production.
Mainly, though, how society changes will depend on the political response -- whether this really ends up being a new New Deal or just a slight course correction.
Barrons.com: What great books have you read recently that you can recommend?
Krugman: I just reread a good part of John Maynard Keynes's Essays in Persuasion, especially "The Great Slump of 1930," which is awesomely relevant right now. And while it has nothing much to do with the crisis, I'd highly recommend Dan Koeppel's Banana: The Fate of the Fruit that Changed the World, which tells you a lot about the history of globalization along the way.
BEST WORLD: Trading at 1X PE ex-cash
Results announced last night.
BEST WORLD INTERNATIONAL’S revenue for FY08 declined 6% to $96.1 million while its earnings came in 20.7% lower at $10.6 million.
Notably, net earnings for 4Q dropped more than expected (80%) to $989,000.
Best World, which is a direct seller of various products in the region, said it experienced weaker consumer demand for its products in Malaysia, in particular.
The weaker demand was partly caused by price increases of its products in 4Q in several key markets due to the appreciating Singapore dollar against the local currencies.
Solid balance sheet
Distribution costs, which comprise commissions, advertising & promotion expenses and other sales related costs, decreased proportionately with revenue.
But administrative expenses increased 8.2% to $18.8 million in FY2008 because of a revision in remuneration from the previous year and an increase in headcount, an increase in lease expenses and higher asset depreciation and amortization.
It does seem that Best World’s administrative cost structure stands at around $5 million quarterly and remains pretty fixed.
The company also incurred $2.1 million in unrealized forex exchange losses in 4Q alone. This is something that we have to seek clarification on.
Among the positives, I note that the company has improved its credit management and this has led to accounts receivable turnover decreasing from 45 days as at end-2007 to 22 days as at end-2008.
The company had no bank loan at the end of 2008 and has approximately $30.6 million in cash and cash equivalents. Hence, providing for working capital requirements, the company appears to be in a good position to continue its cash dividend payout in future.
A final and a special dividend totalling 1.0 cent per ordinary share has been proposed. Including the interim dividend of 1.2 cents, the total dividends will amount to 2.2 cents per ordinary share for FY2008.
26% increase in membership
Overall, membership figures grew 26% from 148,428 in FY2007 to 186,759 in FY2008. In the past, I understand that only about 2,000 are active business builders – that is, consumers who take direct selling as a business.
In a poor economic environment like the current one, I believe more white-collar workers will turn to direct selling as a second source of income. This could be a new source of sales folks for Best World, especially in Singapore where most of the sales force is Mandarin-speaking.
People still need to purchase necessities and consumables in good or bad times. And who better to buy from than one's own trusted network of business partners, colleagues, family and/or friends?
For the next 12 months, I would be looking to see if the company can add a substantial number of new members to its sales force and also to evaluate how much of these members are business builders as compared to normal consumers.
China was a disappointment
Best World announced the termination of the JV with Joymain a week ago. This came as no surprise to me as the company had no updates to this JV after its initial announcement in Dec 2007.
What concerns me is whether the company will have to write down its RMB 20 million loan to Joymain.
I also wonder what the company’s China strategy now is. Does it have to do another JV to grow its China market or should it build China slowly via organic growth? The company already has nearly 3,000 members under its franchise-selling scheme in China.
Valuation: 1X PE ex-cash
For an 18-yar-old company with annual revenue of almost $100 million and profit of $10.6 million, one can hardly call it a fledgling company. Yet, the market is valuing it at only 3.8x PE. This is a company that has generated $50 million of profit over the past 5 years.
Ex-cash (remember, it has $30.6 million in cash and zero bank loan), the company is now trading at just around 1x PE.
BEST WORLD INTERNATIONAL’S revenue for FY08 declined 6% to $96.1 million while its earnings came in 20.7% lower at $10.6 million.
Notably, net earnings for 4Q dropped more than expected (80%) to $989,000.
Best World, which is a direct seller of various products in the region, said it experienced weaker consumer demand for its products in Malaysia, in particular.
The weaker demand was partly caused by price increases of its products in 4Q in several key markets due to the appreciating Singapore dollar against the local currencies.
Solid balance sheet
Distribution costs, which comprise commissions, advertising & promotion expenses and other sales related costs, decreased proportionately with revenue.
But administrative expenses increased 8.2% to $18.8 million in FY2008 because of a revision in remuneration from the previous year and an increase in headcount, an increase in lease expenses and higher asset depreciation and amortization.
It does seem that Best World’s administrative cost structure stands at around $5 million quarterly and remains pretty fixed.
The company also incurred $2.1 million in unrealized forex exchange losses in 4Q alone. This is something that we have to seek clarification on.
Among the positives, I note that the company has improved its credit management and this has led to accounts receivable turnover decreasing from 45 days as at end-2007 to 22 days as at end-2008.
The company had no bank loan at the end of 2008 and has approximately $30.6 million in cash and cash equivalents. Hence, providing for working capital requirements, the company appears to be in a good position to continue its cash dividend payout in future.
A final and a special dividend totalling 1.0 cent per ordinary share has been proposed. Including the interim dividend of 1.2 cents, the total dividends will amount to 2.2 cents per ordinary share for FY2008.
26% increase in membership
Overall, membership figures grew 26% from 148,428 in FY2007 to 186,759 in FY2008. In the past, I understand that only about 2,000 are active business builders – that is, consumers who take direct selling as a business.
In a poor economic environment like the current one, I believe more white-collar workers will turn to direct selling as a second source of income. This could be a new source of sales folks for Best World, especially in Singapore where most of the sales force is Mandarin-speaking.
People still need to purchase necessities and consumables in good or bad times. And who better to buy from than one's own trusted network of business partners, colleagues, family and/or friends?
For the next 12 months, I would be looking to see if the company can add a substantial number of new members to its sales force and also to evaluate how much of these members are business builders as compared to normal consumers.
China was a disappointment
Best World announced the termination of the JV with Joymain a week ago. This came as no surprise to me as the company had no updates to this JV after its initial announcement in Dec 2007.
What concerns me is whether the company will have to write down its RMB 20 million loan to Joymain.
I also wonder what the company’s China strategy now is. Does it have to do another JV to grow its China market or should it build China slowly via organic growth? The company already has nearly 3,000 members under its franchise-selling scheme in China.
Valuation: 1X PE ex-cash
For an 18-yar-old company with annual revenue of almost $100 million and profit of $10.6 million, one can hardly call it a fledgling company. Yet, the market is valuing it at only 3.8x PE. This is a company that has generated $50 million of profit over the past 5 years.
Ex-cash (remember, it has $30.6 million in cash and zero bank loan), the company is now trading at just around 1x PE.
Sunday, February 22, 2009
高盛：新台币韩元与新元对美元会续跌
高盛(Goldman Sachs Group Inc.)表示，新台币、韩元和新元对美元还会继续下跌。另外，澳元和纽元对美元汇率连续两周下跌，因担心东欧经济恶化导致市场抛售高收益资产。
高盛表示，新台币、韩元与新元等兑美元今年贬势将扩大。香港高盛分析员莱克（Fiona Lake）在研究报告中写道，新台币3个月内将贬至36元新台币兑1美元。新台币兑美元今年以来贬幅达5.3％，前天触及34.699元新台币兑1美元，创2003年6月以来低点。
高盛预估，韩元兑美元短期内将贬至1500韩元兑1美元；新元兑美元3个月内将贬至1.56新元兑1美元。韩元兑美元年初迄今贬16％，目前在1488韩元水平上交易。新元今年贬5.6％，目前在1.53新元水平上交易。
莱克表示，未来一年人民币汇价可能持稳。它年初以来贬0.2％。
另外，纽元对美元连续第二天下跌，纽西兰财政部表示，由于税收收入减少，预期现金预算赤字将大于去年年底预测。
高盛表示，新台币、韩元与新元等兑美元今年贬势将扩大。香港高盛分析员莱克（Fiona Lake）在研究报告中写道，新台币3个月内将贬至36元新台币兑1美元。新台币兑美元今年以来贬幅达5.3％，前天触及34.699元新台币兑1美元，创2003年6月以来低点。
高盛预估，韩元兑美元短期内将贬至1500韩元兑1美元；新元兑美元3个月内将贬至1.56新元兑1美元。韩元兑美元年初迄今贬16％，目前在1488韩元水平上交易。新元今年贬5.6％，目前在1.53新元水平上交易。
莱克表示，未来一年人民币汇价可能持稳。它年初以来贬0.2％。
另外，纽元对美元连续第二天下跌，纽西兰财政部表示，由于税收收入减少，预期现金预算赤字将大于去年年底预测。
金融海啸第2波 逼在眉睫
香港文汇报报道，金融海啸爆发以来，美国以至各国政府都出招救市、刺激经济，但仍无法改善市场的信心。受华府拟将部分银行国有化的传言影响，美国金融股的沽压沉重，华府需设法澄清。另外东欧国家经济表现差劲，汇率下跌、债台高筑，大有机会影响西欧国家，引发第二波金融海啸。
美国参议院银行业委员会主席多德接受彭博电视台访问，谈到有意见称将部分银行或需短暂国有化时表示：“我一点都不欢迎（这做法），但这有可能发生。我担心我们最终都要这样做，哪怕是一段短时间。”
花旗日泻22% 华府急澄清
多德这段讲话刺激投资者的神经，曾获注资共450亿美元（约3,489亿港元）的美银和花旗股价于上周五的纽约股市急泻，其中花旗的股价更于一天内急泻超过22%，跌破2美元，美银股价也一度跌穿3美元。花旗和美银的市值分别萎缩至106亿美元（约822亿港元）和242亿美元（约1,877亿港元）。有分析认为投资者已不相信两行的市值，忧虑华府随时接管两行。
为安抚市场，白宫和财政部先后表示会保持银行系统的私有制。白宫发言人吉布斯说，政府依然确信私有制银行系统是正确路向。财政部发言人则重申，华府将确保金融系统由私营机构拥有和管理。华府澄清后，稍为止住股市的跌势，不过道琼斯指数收市仍跌100点。
资金急撤离 东欧多国高危
美国和西欧国家受海啸影响，资金撤离东欧市场，东欧经济岌岌可危。世界银行警告，东欧今年的经济前景“黯淡”，非常不明朗。东欧失业率攀升，“末日博士”鲁比尼更指拉脱维亚、爱沙尼亚、立陶宛、匈牙利、白俄罗斯和乌克兰等国是高危国家。
骨牌效应将冲击西欧银行
东欧国家的经济与西欧国家的金融业有莫大关系，西欧银行因在本国发展空间有限，因此向东欧国家放债，数字显示目前西欧国家向东欧的借出贷款达1.5万亿美元（约11.6万亿港元）。
然而，近日东欧国家的货币汇率下跌，令以欧元和瑞士法郎等外币为结算的债务变得更加昂贵，另外多数借款短期内到期，今年就必须还款或者再融资4,000亿美元（约3.1万亿港元），但信贷渠道已关，东欧国家欠债的机会大增。穆迪投资上周便警告，东欧金融体系风险正在加剧，并可能造成骨牌效应，向西欧扩散，情况可能进一步恶化。
分析员警告，东欧可能发生与90年代末亚洲金融危机同等规模的经济动荡，重创本已脆弱的欧洲金融体系，甚至引发第二波金融海啸。
世银警告西欧国家要摒弃保护主义，才不致窒碍东欧国家的经济复苏。波兰已发起东欧各国于下月1日举行迷你峰会，向西欧国家发声，拒绝保护主义，欧盟委员会主席巴罗佐将出席。
美国参议院银行业委员会主席多德接受彭博电视台访问，谈到有意见称将部分银行或需短暂国有化时表示：“我一点都不欢迎（这做法），但这有可能发生。我担心我们最终都要这样做，哪怕是一段短时间。”
花旗日泻22% 华府急澄清
多德这段讲话刺激投资者的神经，曾获注资共450亿美元（约3,489亿港元）的美银和花旗股价于上周五的纽约股市急泻，其中花旗的股价更于一天内急泻超过22%，跌破2美元，美银股价也一度跌穿3美元。花旗和美银的市值分别萎缩至106亿美元（约822亿港元）和242亿美元（约1,877亿港元）。有分析认为投资者已不相信两行的市值，忧虑华府随时接管两行。
为安抚市场，白宫和财政部先后表示会保持银行系统的私有制。白宫发言人吉布斯说，政府依然确信私有制银行系统是正确路向。财政部发言人则重申，华府将确保金融系统由私营机构拥有和管理。华府澄清后，稍为止住股市的跌势，不过道琼斯指数收市仍跌100点。
资金急撤离 东欧多国高危
美国和西欧国家受海啸影响，资金撤离东欧市场，东欧经济岌岌可危。世界银行警告，东欧今年的经济前景“黯淡”，非常不明朗。东欧失业率攀升，“末日博士”鲁比尼更指拉脱维亚、爱沙尼亚、立陶宛、匈牙利、白俄罗斯和乌克兰等国是高危国家。
骨牌效应将冲击西欧银行
东欧国家的经济与西欧国家的金融业有莫大关系，西欧银行因在本国发展空间有限，因此向东欧国家放债，数字显示目前西欧国家向东欧的借出贷款达1.5万亿美元（约11.6万亿港元）。
然而，近日东欧国家的货币汇率下跌，令以欧元和瑞士法郎等外币为结算的债务变得更加昂贵，另外多数借款短期内到期，今年就必须还款或者再融资4,000亿美元（约3.1万亿港元），但信贷渠道已关，东欧国家欠债的机会大增。穆迪投资上周便警告，东欧金融体系风险正在加剧，并可能造成骨牌效应，向西欧扩散，情况可能进一步恶化。
分析员警告，东欧可能发生与90年代末亚洲金融危机同等规模的经济动荡，重创本已脆弱的欧洲金融体系，甚至引发第二波金融海啸。
世银警告西欧国家要摒弃保护主义，才不致窒碍东欧国家的经济复苏。波兰已发起东欧各国于下月1日举行迷你峰会，向西欧国家发声，拒绝保护主义，欧盟委员会主席巴罗佐将出席。
末日博士：黑暗中仍有投资亮点
“末日博士”认为在黑暗的经济中依然有投资亮点，曙光将来自黄金、商品、亚洲股市和石油关联公司。
准确预测1987年美国股灾和1997年亚洲金融风暴，有“末日博士”之称的麦嘉华（Marc Faber），昨天受邀为《商业时报》同瑞士私人银行宝盛银行(Julius Baer)联办的“金融危机：何去何从”论坛上发表演讲，并给予以上投资建议。
提到黄金，麦嘉华说：“如果美国继续印钞票来救市，美元将进一步趋软，使信贷吃紧的情况恶化。美元持续疲弱，人们就会找寻替代品，而黄金价格的上涨折射的美元超量发行。商品价值永远追不上印钞的速度。没有国家因为印钞票而发达，否则非洲的津巴布韦（Zimbabwe）早就是世界上最富裕的国家。”
麦嘉华：如果美国继续印钞票来救市，美元将进一步趋软，使信贷吃紧的情况恶化。
麦嘉华曾经表示，要走出目前的危机，全球应该转而使用一个黄金标准（gold standard）。
不过，他昨天回答有关询问时坦言，由于黄金在过去几年已从首饰和储值的工具变成了投资的工具，这个19世纪的作法应该行不通，但如果局势每况愈下，政府和央行再也无法有效控制，那么一些政府，甚至是企业本身也许会考虑采用某种形式的黄金标准来进行交易。
“市场并没有失效”
麦嘉华尝试解释这场环球金融危机，他说：“市场其实没有失效，失败的是政府的干预手段、政策变革以及金融产品的创新。”
另一名主讲者宝盛银行的亚太区投资主管阿南塔（V. Anantha-Nageswaran）也看好黄金。
阿南塔是宝盛银行内部公认的“末日博士”，于2007年预见前所未见的金融海啸可能发生。
他预测，黄金价格在12至24个月内可能上涨一倍。“人们在恐慌时总是会想到黄金。”
除了黄金外，阿南塔认为，在气候转变和中国及印度的崛起下，软商品(soft commodities）的前途无量，建议投资者趁现在进场慢慢积累这方面的投资。
石油关联公司或挂牌基金受看好
另外，考虑到石油开采公司因石油价格大跌而停止探索新油田，阿南塔也建议投资者考虑石油关联公司或挂牌基金（ETFs），等到经济复苏，需求回升，而到了2012年相信又会碰上石油短缺的情况，相信能从中获利。他指出，美国亿万富翁巴菲特（Warren Buffett）旗下伯克希尔哈撒韦公司（Berkshire Hathaway），近期就悄悄地挪用超过10％的资金，投资在能源公司上，包括ConocoPhillips, Burlington Northern Santa Fe等。
麦嘉华则认为，世界各地的政府如果无法解决眼前一系列金融问题，导致国际关系紧张，危机可能将演变成战争，到时候，拥有商品是最实际和最值钱。不过，他提醒，虽然长期下来商品将走高，但过程中将波动剧烈，价格上下50％相当平常。
展望未来两年，阿南塔相信，市场将在两个极端之间游走，不是过于悲观就是过于乐观，要进行投资就应该看中长期，投资期为6至10年。
他认为，商品的投资应该是中期性，而放眼长期则可考虑亚洲公司股票，但应该首先关注新加坡、韩国、台湾和日本等地的公司股票，之后才探讨中国、印度和印尼方面。
“中国、印度和印尼将是未来的增长引擎，而且有强大的国内经济做后盾，但这些地区的股市未跌至谷底，目前还不是进场的时机。欧美方面，除非能找到金融和房地产业以外的新领域制造新就业机会，经济要复苏相当困难，而美元将因此疲弱下去。”
麦嘉华也建议投资亚洲股市，药剂和酒店管理公司、印尼、马来西亚、拉丁美洲的种植场，白银等，但抛售美国国债，避免澳洲和亚洲主要金融中心的房地产。
希望持守现金者，阿南塔建议分散投资，买入挪威克朗、加币和新元，长期则应考虑人民币、巴西里亚伊和韩元。
准确预测1987年美国股灾和1997年亚洲金融风暴，有“末日博士”之称的麦嘉华（Marc Faber），昨天受邀为《商业时报》同瑞士私人银行宝盛银行(Julius Baer)联办的“金融危机：何去何从”论坛上发表演讲，并给予以上投资建议。
提到黄金，麦嘉华说：“如果美国继续印钞票来救市，美元将进一步趋软，使信贷吃紧的情况恶化。美元持续疲弱，人们就会找寻替代品，而黄金价格的上涨折射的美元超量发行。商品价值永远追不上印钞的速度。没有国家因为印钞票而发达，否则非洲的津巴布韦（Zimbabwe）早就是世界上最富裕的国家。”
麦嘉华：如果美国继续印钞票来救市，美元将进一步趋软，使信贷吃紧的情况恶化。
麦嘉华曾经表示，要走出目前的危机，全球应该转而使用一个黄金标准（gold standard）。
不过，他昨天回答有关询问时坦言，由于黄金在过去几年已从首饰和储值的工具变成了投资的工具，这个19世纪的作法应该行不通，但如果局势每况愈下，政府和央行再也无法有效控制，那么一些政府，甚至是企业本身也许会考虑采用某种形式的黄金标准来进行交易。
“市场并没有失效”
麦嘉华尝试解释这场环球金融危机，他说：“市场其实没有失效，失败的是政府的干预手段、政策变革以及金融产品的创新。”
另一名主讲者宝盛银行的亚太区投资主管阿南塔（V. Anantha-Nageswaran）也看好黄金。
阿南塔是宝盛银行内部公认的“末日博士”，于2007年预见前所未见的金融海啸可能发生。
他预测，黄金价格在12至24个月内可能上涨一倍。“人们在恐慌时总是会想到黄金。”
除了黄金外，阿南塔认为，在气候转变和中国及印度的崛起下，软商品(soft commodities）的前途无量，建议投资者趁现在进场慢慢积累这方面的投资。
石油关联公司或挂牌基金受看好
另外，考虑到石油开采公司因石油价格大跌而停止探索新油田，阿南塔也建议投资者考虑石油关联公司或挂牌基金（ETFs），等到经济复苏，需求回升，而到了2012年相信又会碰上石油短缺的情况，相信能从中获利。他指出，美国亿万富翁巴菲特（Warren Buffett）旗下伯克希尔哈撒韦公司（Berkshire Hathaway），近期就悄悄地挪用超过10％的资金，投资在能源公司上，包括ConocoPhillips, Burlington Northern Santa Fe等。
麦嘉华则认为，世界各地的政府如果无法解决眼前一系列金融问题，导致国际关系紧张，危机可能将演变成战争，到时候，拥有商品是最实际和最值钱。不过，他提醒，虽然长期下来商品将走高，但过程中将波动剧烈，价格上下50％相当平常。
展望未来两年，阿南塔相信，市场将在两个极端之间游走，不是过于悲观就是过于乐观，要进行投资就应该看中长期，投资期为6至10年。
他认为，商品的投资应该是中期性，而放眼长期则可考虑亚洲公司股票，但应该首先关注新加坡、韩国、台湾和日本等地的公司股票，之后才探讨中国、印度和印尼方面。
“中国、印度和印尼将是未来的增长引擎，而且有强大的国内经济做后盾，但这些地区的股市未跌至谷底，目前还不是进场的时机。欧美方面，除非能找到金融和房地产业以外的新领域制造新就业机会，经济要复苏相当困难，而美元将因此疲弱下去。”
麦嘉华也建议投资亚洲股市，药剂和酒店管理公司、印尼、马来西亚、拉丁美洲的种植场，白银等，但抛售美国国债，避免澳洲和亚洲主要金融中心的房地产。
希望持守现金者，阿南塔建议分散投资，买入挪威克朗、加币和新元，长期则应考虑人民币、巴西里亚伊和韩元。
Saturday, February 21, 2009
Warrants
We stumbled upon this advertisement in Singapore from a financial instituition and thought what great marketing material it was.
What they wrote seem to imply that their hedging strategies are perfect ( second paragraph) and any gain to the warrant holders are taken from the losses of the warrant issuers' counterparty whom they entered into positions with to hedge their warrant positions. Its not really right to state its a win-win situation between issuers and warrant holders since the issuers are still earning the premiums with no risk ( assuming perfect hedge) but risks still exists for the warrant holders who could still lose the premiums. Maybe this situation exists to " compensate" the warrant issuers for all the hardwork they have done to package such a derivative product.
And the truth of the matter is, in our opinion, its indeed a zero sum game since there is no such thing as a perfect hedge. When warrant holders win, warrant issuers still lose, although, the lost is just minimised. Refer to the following link where it is written :
"According to Financial Supervisory Service data, domestic brokerage houses posted a combined 55.4 billion won loss from equity-linked warrant trading between April and August last year, while foreign houses logged a 1 billion won loss. These warrant issuers failed to hedge adequately against markets moving against them as the benchmark KOSPI jumped 29 percent. "
Anyway, we stumbled upon this somewhere in the internet:
"For the covered warrant, the main concern of the issuer is how to attract the market investors to buy the issued covered warrant when the product is launched. In this consideration, the usual technique for the investment banker is to buy lot of the corresponding share at a low price and suddenly push up the stock price. It then issues the covered warrant at a strike price based on the high stock price. Often they will also support the stock price for a while, but when their warrant have been nearly sold to the market, the stock price will drop. As the strike price of covered warrant is normally quite high, the premium and leverage ratio are also quite high. The high leverage ratio is ideal for investment consideration, but the high premium is very risky, and the covered warrant can easily become "Wall-paper warrant" in bad market situation. Investors should always remember that the issuer of the covered warrant is an investment banker who is VERY EXPERIENCED in market manipulation. When a covered warrant is approaching its expiration date, the issuer will try to beat down the price of the stock, such that the issuer can buy back enough stock from the market to be later distributed to the warrant holders who are willing to exercise the warrant. In the extreme, the issuer may even try to drag down the stock price to make it lower than the strike price. The warrant thus becomes 'Wall-paper' and no warrant holder is willing to exercise it. The warrant issuer thus makes a neat big profit. This normally occurs to the weaker blue chips (there is only covered warrants for blue chip stocks in HK) like Cathay Pacific and Dairy Farm. There are some issuers who are very NOTORIOUS in killing their covered warrant investors! "
Directors' Trades
Insider pares stake in Cosco
Oct 5, 2006
The Straits Times
INSIDERS have almost stopped selling shares in Cosco Corp.
The only exception is Mr Zhou Xie Dong, director of its China unit, Cosco Shipyard Group (CSG).
Records kept by Shareinvestor.com show he sold 100,000 Cosco shares at $1.65 apiece on Sept 20 and another 43,000 shares at $1.66 each on Sept 29.
Following the two sales, his stake has now been pared to 257,000 shares.
Besides Mr Zhou, other parties who sold Cosco shares recently included Madam Mina Chan - the wife of independent director and former MP Wang Kai Yuen - and Mr Wang Zai Zhong, another CSG director.
But dealers have noted that their sales were easily absorbed in the market, as about nine million Cosco shares are traded daily, on average.
One dealer said that interest in Cosco has stayed red-hot because of the fresh issues of covered warrants on the stock.
'New warrant issuers are coming into the market and they are all chasing after the same few hot stocks like Cosco,' said a dealer.
And Cosco's share price may have been chased up by warrant issuers buying the mother shares to 'cover' the risks associated with issuing covered warrants on the stock, he added.
Yesterday, Cosco climbed four cents to a new high of $1.73 on a volume of 17.9 million shares.
The most actively traded Cosco covered warrant was one issued by Merrill Lynch
It ended 2.5 cents up at 26 cents on a hefty volume of 15.7 million units.
What they wrote seem to imply that their hedging strategies are perfect ( second paragraph) and any gain to the warrant holders are taken from the losses of the warrant issuers' counterparty whom they entered into positions with to hedge their warrant positions. Its not really right to state its a win-win situation between issuers and warrant holders since the issuers are still earning the premiums with no risk ( assuming perfect hedge) but risks still exists for the warrant holders who could still lose the premiums. Maybe this situation exists to " compensate" the warrant issuers for all the hardwork they have done to package such a derivative product.
And the truth of the matter is, in our opinion, its indeed a zero sum game since there is no such thing as a perfect hedge. When warrant holders win, warrant issuers still lose, although, the lost is just minimised. Refer to the following link where it is written :
"According to Financial Supervisory Service data, domestic brokerage houses posted a combined 55.4 billion won loss from equity-linked warrant trading between April and August last year, while foreign houses logged a 1 billion won loss. These warrant issuers failed to hedge adequately against markets moving against them as the benchmark KOSPI jumped 29 percent. "
Anyway, we stumbled upon this somewhere in the internet:
"For the covered warrant, the main concern of the issuer is how to attract the market investors to buy the issued covered warrant when the product is launched. In this consideration, the usual technique for the investment banker is to buy lot of the corresponding share at a low price and suddenly push up the stock price. It then issues the covered warrant at a strike price based on the high stock price. Often they will also support the stock price for a while, but when their warrant have been nearly sold to the market, the stock price will drop. As the strike price of covered warrant is normally quite high, the premium and leverage ratio are also quite high. The high leverage ratio is ideal for investment consideration, but the high premium is very risky, and the covered warrant can easily become "Wall-paper warrant" in bad market situation. Investors should always remember that the issuer of the covered warrant is an investment banker who is VERY EXPERIENCED in market manipulation. When a covered warrant is approaching its expiration date, the issuer will try to beat down the price of the stock, such that the issuer can buy back enough stock from the market to be later distributed to the warrant holders who are willing to exercise the warrant. In the extreme, the issuer may even try to drag down the stock price to make it lower than the strike price. The warrant thus becomes 'Wall-paper' and no warrant holder is willing to exercise it. The warrant issuer thus makes a neat big profit. This normally occurs to the weaker blue chips (there is only covered warrants for blue chip stocks in HK) like Cathay Pacific and Dairy Farm. There are some issuers who are very NOTORIOUS in killing their covered warrant investors! "
Directors' Trades
Insider pares stake in Cosco
Oct 5, 2006
The Straits Times
INSIDERS have almost stopped selling shares in Cosco Corp.
The only exception is Mr Zhou Xie Dong, director of its China unit, Cosco Shipyard Group (CSG).
Records kept by Shareinvestor.com show he sold 100,000 Cosco shares at $1.65 apiece on Sept 20 and another 43,000 shares at $1.66 each on Sept 29.
Following the two sales, his stake has now been pared to 257,000 shares.
Besides Mr Zhou, other parties who sold Cosco shares recently included Madam Mina Chan - the wife of independent director and former MP Wang Kai Yuen - and Mr Wang Zai Zhong, another CSG director.
But dealers have noted that their sales were easily absorbed in the market, as about nine million Cosco shares are traded daily, on average.
One dealer said that interest in Cosco has stayed red-hot because of the fresh issues of covered warrants on the stock.
'New warrant issuers are coming into the market and they are all chasing after the same few hot stocks like Cosco,' said a dealer.
And Cosco's share price may have been chased up by warrant issuers buying the mother shares to 'cover' the risks associated with issuing covered warrants on the stock, he added.
Yesterday, Cosco climbed four cents to a new high of $1.73 on a volume of 17.9 million shares.
The most actively traded Cosco covered warrant was one issued by Merrill Lynch
It ended 2.5 cents up at 26 cents on a hefty volume of 15.7 million units.
Saturday, February 14, 2009
How To Tell When The Economy's Getting Better
The stimulus package is finally finished. President Obama is promising a tough new bank-rescue plan to boost lending and limit outrageous pay. Troubled homeowners may even get some relief. All told, the government could spend more than $3 trillion to help end the recession.
So now all we have to do is sit back and watch the economy grow like a beanstalk, right?
If only. One risk of the unprecedented government intervention is that it won't do all that much to hasten the end of the recession. Another risk is that consumers, expecting a magic-bullet fix, could fail to prepare for tough times that still lie ahead. "This is going to be a difficult year," Obama himself said at his first press conference. "If we get things right, then starting next year we can start seeing some significant improvement."
Next year? Afraid so. Most economists agree that it will take that long, at least, before the biggest problems - mounting layoffs, the housing bust, the banking crisis, and plunging confidence - start to turn around. Here's what to watch for to tell whether the stimulus package is actually working, and when the economy might start to mend.
An improvement in the unemployment rate. Of all the economic indicators, this is probably the single most important. But you might want to avert your eyes for awhile.
Obama has talked about creating 3 to 4 million new jobs, and if the stimulus plan works, it might come close to that - over several years, combined. But it's almost certain that through this summer and into the fall, there will be a net job loss, not a gain. Most economists expect the unemployment rate, now 7.6 percent, to hit at least 9 percent by the end of this year. That represents up to 2 million more lost jobs. Many of those cuts are already in the works - just follow the recent layoff announcements from companies like Caterpillar (20,000), Boeing (10,000), SprintNextel (8,000) and Home Depot (7,000). But the pink slips haven't all gone out yet, so the layoffs haven't shows up in the official numbers.
The first sign of an improvement will be...corporate silence. As in no more draconian job-cut announcements. Once that happens (or doesn't), the unemployment rate will plateau. Then, companies might start hiring again, and a couple of months after that, the unemployment rate will start to fall. Three straight monthly declines would be a good sign that the economy is really on the rebound. That probably won't happen until 2010.
If you're wondering what's the point of the stimulus package if it won't do much to help workers in 2009, look to 2010. And 2011. That's where the plan will make a bigger difference. Moody's Economy.com estimates that by the middle of 2010, the unemployment rate will start to drift back toward 8.5 percent. But without any stimulus plan, it would have hit 11 percent. Viva la government.
More stable home prices. The realestate boom and bust is what torpedoed the economy in the first place, and the economy won't start to recover until the housing bubble fully deflates. The good news is that housing prices have already been falling for more than two years, with prices down more than 20 percent nationwide. And we might be more than halfway toward the bottom: Moody's Economy.com predicts that housing prices should stop falling nationwide by the second half of 2009. Overall, the forecasting firm predicts a 30 percent drop in home values from the peak values of 2006.
Others think it will take longer, but whenever it happens, an end to the housing slide will mark an important turning point. Hardly anybody thinks that prices will shoot back up or there will be another buying binge. But a boomlet, maybe. Once prices stabilize, buyers will stop worrying that they could be purchasing a costly asset that's falling in value. As they buy, other kinds of consumer activity - like shopping for furniture and kitchen upgrades - will follow. Slowly.
A consumer confidence rebound. Since consumer confidence closely tracks the job market, the dismal numbers of the last few months probably won't improve by much until late in 2009, or 2010. Homeowners have lost more than $3 trillion worth of value in their homes over the last three years, and investors have seen their stock portfolios shredded. So even people who feel secure in their jobs are dour.
A turnaround in the housing or stock markets would break the gloom and help some people feel better off. So would easier lending by banks, which would help solvent consumers buy a few more cars, appliances, and other goods. But consumer confidence won't really start to improve until workers start to feel more secure about their jobs and income. Think 2010.
A less volatile stock market. Every investor hopes that beleaguered stocks will come roaring back in 2009 and regain some of the ground lost since the peak in 2007 - when the S&P 500 stock index was nearly 50 percent higher than it is today. But a better indicator of economic health would be a steady recovery - without the manic swings that seem to come from every hint of undisclosed trouble at some big bank or rumor of new government intervention.
The stock market is harder to predict than most other parts of the economy, since it's deeply dependent on psychology and other intangibles. The market could bounce back by mid-summer. Or it could remain stagnant for years, like it did for most of the 1970s. The experts can't be any more sure than you or I.
One hopeful sign would be less market sensitivity to events in Washington. The biggest market mover these days is the federal government, since fortunes stand to be won or lost - mostly lost - depending on how deeply the government intervenes in the activities of megabanks like Citigroup and Bank of America, and how much federal spending will be available to stand in for plunging consumer spending. The markets will be back to their old selves when earnings reports, IPO announcements, and M&A deals are what send stocks up or down, and utterings from Washington amount to little more than an echo. Since the government seems to be the only institution spending money so far in 2009, it could be awhile before Wall Street returns to form.
Economic growth turns positive. By economic standards, the current downturn has already lasted longer than the typical post-World War II recession. Yet there's still a lot more pain to endure. A recent survey of economists by the Wall Street Journal found that the majority think the economy will continue to contract for the first half of 2009, with growth turning positive in the second half of the year. That outlook is much worse than a few months ago, and even when growth turns positive the economy could sputter along without many new jobs or bold moves in the private sector.
It's always possible that impatient consumers will get sick of holding back, and start running up their credit card balances once again (if the banks let them). The bank-rescue plan might spur more lending than expected, goosing businesses and consumers alike. Or the stimulus plan might spread goodwill and optimism throughout the land. If you get the urge to spend, that might be the strongest indicator of all. Call the economists.
So now all we have to do is sit back and watch the economy grow like a beanstalk, right?
If only. One risk of the unprecedented government intervention is that it won't do all that much to hasten the end of the recession. Another risk is that consumers, expecting a magic-bullet fix, could fail to prepare for tough times that still lie ahead. "This is going to be a difficult year," Obama himself said at his first press conference. "If we get things right, then starting next year we can start seeing some significant improvement."
Next year? Afraid so. Most economists agree that it will take that long, at least, before the biggest problems - mounting layoffs, the housing bust, the banking crisis, and plunging confidence - start to turn around. Here's what to watch for to tell whether the stimulus package is actually working, and when the economy might start to mend.
An improvement in the unemployment rate. Of all the economic indicators, this is probably the single most important. But you might want to avert your eyes for awhile.
Obama has talked about creating 3 to 4 million new jobs, and if the stimulus plan works, it might come close to that - over several years, combined. But it's almost certain that through this summer and into the fall, there will be a net job loss, not a gain. Most economists expect the unemployment rate, now 7.6 percent, to hit at least 9 percent by the end of this year. That represents up to 2 million more lost jobs. Many of those cuts are already in the works - just follow the recent layoff announcements from companies like Caterpillar (20,000), Boeing (10,000), SprintNextel (8,000) and Home Depot (7,000). But the pink slips haven't all gone out yet, so the layoffs haven't shows up in the official numbers.
The first sign of an improvement will be...corporate silence. As in no more draconian job-cut announcements. Once that happens (or doesn't), the unemployment rate will plateau. Then, companies might start hiring again, and a couple of months after that, the unemployment rate will start to fall. Three straight monthly declines would be a good sign that the economy is really on the rebound. That probably won't happen until 2010.
If you're wondering what's the point of the stimulus package if it won't do much to help workers in 2009, look to 2010. And 2011. That's where the plan will make a bigger difference. Moody's Economy.com estimates that by the middle of 2010, the unemployment rate will start to drift back toward 8.5 percent. But without any stimulus plan, it would have hit 11 percent. Viva la government.
More stable home prices. The realestate boom and bust is what torpedoed the economy in the first place, and the economy won't start to recover until the housing bubble fully deflates. The good news is that housing prices have already been falling for more than two years, with prices down more than 20 percent nationwide. And we might be more than halfway toward the bottom: Moody's Economy.com predicts that housing prices should stop falling nationwide by the second half of 2009. Overall, the forecasting firm predicts a 30 percent drop in home values from the peak values of 2006.
Others think it will take longer, but whenever it happens, an end to the housing slide will mark an important turning point. Hardly anybody thinks that prices will shoot back up or there will be another buying binge. But a boomlet, maybe. Once prices stabilize, buyers will stop worrying that they could be purchasing a costly asset that's falling in value. As they buy, other kinds of consumer activity - like shopping for furniture and kitchen upgrades - will follow. Slowly.
A consumer confidence rebound. Since consumer confidence closely tracks the job market, the dismal numbers of the last few months probably won't improve by much until late in 2009, or 2010. Homeowners have lost more than $3 trillion worth of value in their homes over the last three years, and investors have seen their stock portfolios shredded. So even people who feel secure in their jobs are dour.
A turnaround in the housing or stock markets would break the gloom and help some people feel better off. So would easier lending by banks, which would help solvent consumers buy a few more cars, appliances, and other goods. But consumer confidence won't really start to improve until workers start to feel more secure about their jobs and income. Think 2010.
A less volatile stock market. Every investor hopes that beleaguered stocks will come roaring back in 2009 and regain some of the ground lost since the peak in 2007 - when the S&P 500 stock index was nearly 50 percent higher than it is today. But a better indicator of economic health would be a steady recovery - without the manic swings that seem to come from every hint of undisclosed trouble at some big bank or rumor of new government intervention.
The stock market is harder to predict than most other parts of the economy, since it's deeply dependent on psychology and other intangibles. The market could bounce back by mid-summer. Or it could remain stagnant for years, like it did for most of the 1970s. The experts can't be any more sure than you or I.
One hopeful sign would be less market sensitivity to events in Washington. The biggest market mover these days is the federal government, since fortunes stand to be won or lost - mostly lost - depending on how deeply the government intervenes in the activities of megabanks like Citigroup and Bank of America, and how much federal spending will be available to stand in for plunging consumer spending. The markets will be back to their old selves when earnings reports, IPO announcements, and M&A deals are what send stocks up or down, and utterings from Washington amount to little more than an echo. Since the government seems to be the only institution spending money so far in 2009, it could be awhile before Wall Street returns to form.
Economic growth turns positive. By economic standards, the current downturn has already lasted longer than the typical post-World War II recession. Yet there's still a lot more pain to endure. A recent survey of economists by the Wall Street Journal found that the majority think the economy will continue to contract for the first half of 2009, with growth turning positive in the second half of the year. That outlook is much worse than a few months ago, and even when growth turns positive the economy could sputter along without many new jobs or bold moves in the private sector.
It's always possible that impatient consumers will get sick of holding back, and start running up their credit card balances once again (if the banks let them). The bank-rescue plan might spur more lending than expected, goosing businesses and consumers alike. Or the stimulus plan might spread goodwill and optimism throughout the land. If you get the urge to spend, that might be the strongest indicator of all. Call the economists.
Thursday, February 12, 2009
SMRT - Public transportation ridership
We raise our earnings by 9.4% and target price to S$2.00
SMRT continues to deliver steady earnings growth and a respectable yield of 5.3%. We expect FY10E earnings growth of 10.4% YoY supported by resilient ridership growth and cost savings from lower oil prices. We have raised our earnings by 9.4% in FY10E to account for our lower oil price assumptions. We raise our TP from S$1.95 to S$2.00 and reiterate our Buy recommendation.
Beneficiary of lower oil price, wage deflation, higher ridership and new rail
SMRT should benefit from: 1) a drop in oil prices, 2) lower staff costs, 3) resilient ridership growth and 4) rental income stability due to long leases. SMRT has also secured a contract to operate the palm monorail in Dubai. This contract is based on a cost plus model and could boost SMRT’s revenue by S$20m pa. Our cost assumptions are conservative and should provide further upside to our earnings.
Increase in rail and bus ridership to offset potential reduction in fares
Public transportation ridership could see stronger growth, underpinned by the reduction in transport fares and an increasing trend of moving towards public transport. We cut our assumptions for fares by 5% in anticipation of the potential fare reduction by the PTC at the end of Feb09. We expect the 5% potential rebate in fares to be more than offset by the increase in ridership for rail and bus.
Target price of S$2.00 implies a PE of 16.8x FY10E; risks
We raise our target price from S$1.95 to S$2.00 on our earnings upgrade and a change in our valuation from ROE/PB to DCF. We have used a COE of 7.5% based on a risk-free rate of 2.6%, ERP of 4.8% and a beta of 1.0 with a TGR of 1%.
Downside risks include: a strong rebound in the oil price, decline in ridership, sharp reduction in fares, intense taxi competition and disease outbreak.
SMRT continues to deliver steady earnings growth and a respectable yield of 5.3%. We expect FY10E earnings growth of 10.4% YoY supported by resilient ridership growth and cost savings from lower oil prices. We have raised our earnings by 9.4% in FY10E to account for our lower oil price assumptions. We raise our TP from S$1.95 to S$2.00 and reiterate our Buy recommendation.
Beneficiary of lower oil price, wage deflation, higher ridership and new rail
SMRT should benefit from: 1) a drop in oil prices, 2) lower staff costs, 3) resilient ridership growth and 4) rental income stability due to long leases. SMRT has also secured a contract to operate the palm monorail in Dubai. This contract is based on a cost plus model and could boost SMRT’s revenue by S$20m pa. Our cost assumptions are conservative and should provide further upside to our earnings.
Increase in rail and bus ridership to offset potential reduction in fares
Public transportation ridership could see stronger growth, underpinned by the reduction in transport fares and an increasing trend of moving towards public transport. We cut our assumptions for fares by 5% in anticipation of the potential fare reduction by the PTC at the end of Feb09. We expect the 5% potential rebate in fares to be more than offset by the increase in ridership for rail and bus.
Target price of S$2.00 implies a PE of 16.8x FY10E; risks
We raise our target price from S$1.95 to S$2.00 on our earnings upgrade and a change in our valuation from ROE/PB to DCF. We have used a COE of 7.5% based on a risk-free rate of 2.6%, ERP of 4.8% and a beta of 1.0 with a TGR of 1%.
Downside risks include: a strong rebound in the oil price, decline in ridership, sharp reduction in fares, intense taxi competition and disease outbreak.
Revisiting the REIT model
The REIT model works well in an environment where interest rates are low and the economy is booming, both for the REIT sponsors as well as investors. The value proposition to the REIT sponsors is that they are able monetize their developments and get the cash flow to fund new projects. For the investors, they get to receive regular dividend payouts akin to a fixed income instrument, and yet enjoy the upside potential of the share price.
Not too long ago, the foremost objective of REIT managers is to grow the portfolio size so that they can deliver increasing dividends to the investors. The issue then is the lack of acquisition opportunities. Fast-forward to today’s credit crisis, only a few REIT managers talk about acquisitions despite valuations being lower now. Ability to secure financing is the topmost worry.
In the last quarter, the REIT sector has been plagued by refinancing risk although some of the managers have proved otherwise as they secured new fundings. We believe that in the coming quarters, the market will be taking into consideration the sustainability of revenue and possible tenant defaults.
DPU maintenance or DPU erosion We believe the fundamentals supporting the entire landscape have turned 180 degree. REIT model works best when cost of funds is low and cash flow generated from rentals provides a steady and recurring dividend to investors. Today we are facing the opposite; high cost of funds and potential shock to rental income.
Commercial rents are softening According to the URA statistics, 4Q08 rental index of commercial property in the central area declined 6.5% from the previous quarter.
In our last sector update published in November 08, we presented a historical analysis and postulated the index to fall at least 30% from its peak. If history can be a guide, we should be looking at a trough reading of 145, which is 25% away from the current reading of 193. Vacancy is now at 9.3% as compared to the trough reading of 6.8% at 4Q07. The highest level recorded was during the SARS period in 2003 whereby vacancy was 19.0%.
Industrial rents tend to be more stable as the leases are longer Although industrial rents display much less volatility, we can observe that rents have softened in 4Q08, its first real decline since 2004.
Retail and hospitality Retail sales index fell two consecutive months from Sep 2008 to Nov 2008. Excluding motor vehicles, the index started its decline since Aug 2008 and on a YoY basis, retail sales declined by 3.4%. Excluding motor vehicles, sales declined by 2.2%. Although collection from tourist receipt set a new record in 2008 at $14.8 billion, the trends are not very optimistic. Our argument is that if tenants’ businesses are affected in this recession, landlords will not have it easy, even if leases are signed and locked-in. REIT managers will then have an even tougher job of preventing falling DPU.
Report Card We use a simple metric to see how the various REITs have performed in their stated objective of increasing DPU. We compile the gross revenue and DPU for the most recent announced quarter and compare the percentage variances on a YoY and QoQ basis. We expect percentage changes in revenue to affect DPU in the same proportion. Any deviation demonstrates the REIT managers’ efficiency. We caution that our compilation is not a be all and end all guide, as individual REIT will have its own merits.
From the above, six REITs have registered falling DPU over the year while seven have registered falling DPU over the quarter. The sectoral performance confirms our last view (see REIT update report in Nov 08), where hospitality sector seems to be the most affected, with both QoQ revenue and DPU registering negative growth and healthcare continues to be the most resilient.
We expect rental income to face increasing pressure as businesses implement cost containment measures. DPU will in turn be subjected to a double whammy from higher borrowing costs and management fees. In conclusion, we expect to see more DPU erosion in the coming quarters.
Not too long ago, the foremost objective of REIT managers is to grow the portfolio size so that they can deliver increasing dividends to the investors. The issue then is the lack of acquisition opportunities. Fast-forward to today’s credit crisis, only a few REIT managers talk about acquisitions despite valuations being lower now. Ability to secure financing is the topmost worry.
In the last quarter, the REIT sector has been plagued by refinancing risk although some of the managers have proved otherwise as they secured new fundings. We believe that in the coming quarters, the market will be taking into consideration the sustainability of revenue and possible tenant defaults.
DPU maintenance or DPU erosion We believe the fundamentals supporting the entire landscape have turned 180 degree. REIT model works best when cost of funds is low and cash flow generated from rentals provides a steady and recurring dividend to investors. Today we are facing the opposite; high cost of funds and potential shock to rental income.
Commercial rents are softening According to the URA statistics, 4Q08 rental index of commercial property in the central area declined 6.5% from the previous quarter.
In our last sector update published in November 08, we presented a historical analysis and postulated the index to fall at least 30% from its peak. If history can be a guide, we should be looking at a trough reading of 145, which is 25% away from the current reading of 193. Vacancy is now at 9.3% as compared to the trough reading of 6.8% at 4Q07. The highest level recorded was during the SARS period in 2003 whereby vacancy was 19.0%.
Industrial rents tend to be more stable as the leases are longer Although industrial rents display much less volatility, we can observe that rents have softened in 4Q08, its first real decline since 2004.
Retail and hospitality Retail sales index fell two consecutive months from Sep 2008 to Nov 2008. Excluding motor vehicles, the index started its decline since Aug 2008 and on a YoY basis, retail sales declined by 3.4%. Excluding motor vehicles, sales declined by 2.2%. Although collection from tourist receipt set a new record in 2008 at $14.8 billion, the trends are not very optimistic. Our argument is that if tenants’ businesses are affected in this recession, landlords will not have it easy, even if leases are signed and locked-in. REIT managers will then have an even tougher job of preventing falling DPU.
Report Card We use a simple metric to see how the various REITs have performed in their stated objective of increasing DPU. We compile the gross revenue and DPU for the most recent announced quarter and compare the percentage variances on a YoY and QoQ basis. We expect percentage changes in revenue to affect DPU in the same proportion. Any deviation demonstrates the REIT managers’ efficiency. We caution that our compilation is not a be all and end all guide, as individual REIT will have its own merits.
From the above, six REITs have registered falling DPU over the year while seven have registered falling DPU over the quarter. The sectoral performance confirms our last view (see REIT update report in Nov 08), where hospitality sector seems to be the most affected, with both QoQ revenue and DPU registering negative growth and healthcare continues to be the most resilient.
We expect rental income to face increasing pressure as businesses implement cost containment measures. DPU will in turn be subjected to a double whammy from higher borrowing costs and management fees. In conclusion, we expect to see more DPU erosion in the coming quarters.
Correction in the offing for Reits?
THE Straits Times Index (STI) has been trading sideways on thin volumes over the past one week and we do not expect the market lethargy to improve anytime soon. Judging by the constant stream of profit warnings, there is high probability that markets will remain in this comatose state for some time.
The collective $3.1 billion rights issue exercise by CapitaLand and CapitaMall Trust is also likely to soak up more liquidity from this cash-strapped market.
Despite positive price action in US indices, we believe this global economic crisis has not bottomed; investors are also likely keep their powder dry over the coming months. We surmise that the 500-point rebound in the Dow Jones Industrial Average towards the end of last week was primarily predicated on pure hope that the Senate approval of the US$780 billion rescue plan will do the trick.
Indeed, some optimists have even suggested that the combined prescription of lower interest rates and massive stimulus packages will spare us from a prolonged and deep recession and lead the world to a quick recovery.
However, it is worth noting that if such fiscal and monetary bailouts were an easy solution, then Japan would have emerged from its economic slump a long time ago.
Also, massive spending in the 1930s by then US president Roosevelt did not lift the US or the world out of the Great Depression.
As the dictum goes: A picture tells a thousand words and charts usually reflect the mood of the market. The recent market spikes in anticipation of good news coupled with light volumes provide the perfect recipe for a bull trap to occur.
For the mid-term, the STI has penetrated the base of its rising wedge pattern, pointing towards more downside risk. Reits are forming head-and-shoulder structures, suggesting that an impending correction is about to take place; investors can use KE CFDs to short the sector.
By KEN TAI
Senior Technical Strategist
KELIVE RESEARCH (Part of the Kim Eng Group)
The collective $3.1 billion rights issue exercise by CapitaLand and CapitaMall Trust is also likely to soak up more liquidity from this cash-strapped market.
Despite positive price action in US indices, we believe this global economic crisis has not bottomed; investors are also likely keep their powder dry over the coming months. We surmise that the 500-point rebound in the Dow Jones Industrial Average towards the end of last week was primarily predicated on pure hope that the Senate approval of the US$780 billion rescue plan will do the trick.
Indeed, some optimists have even suggested that the combined prescription of lower interest rates and massive stimulus packages will spare us from a prolonged and deep recession and lead the world to a quick recovery.
However, it is worth noting that if such fiscal and monetary bailouts were an easy solution, then Japan would have emerged from its economic slump a long time ago.
Also, massive spending in the 1930s by then US president Roosevelt did not lift the US or the world out of the Great Depression.
As the dictum goes: A picture tells a thousand words and charts usually reflect the mood of the market. The recent market spikes in anticipation of good news coupled with light volumes provide the perfect recipe for a bull trap to occur.
For the mid-term, the STI has penetrated the base of its rising wedge pattern, pointing towards more downside risk. Reits are forming head-and-shoulder structures, suggesting that an impending correction is about to take place; investors can use KE CFDs to short the sector.
By KEN TAI
Senior Technical Strategist
KELIVE RESEARCH (Part of the Kim Eng Group)
Wednesday, February 11, 2009
Why Analysts Keep Telling Investors to Buy
Even now, with the recession deepening and markets on edge, Wall Street analysts say it is a good time to buy.
Still. At the top of the market, they urged investors to buy or hold onto stocks about 95 percent of the time. When stocks stumbled, they stayed optimistic. Even in November, when credit froze, the economy stalled and financial markets tumbled to their lowest levels in a decade, analysts as a group rarely said sell.
And last month, as the Dow and Standard & Poor’s 500-stock index suffered their worst January ever, analysts put a sell rating on a mere 5.9 percent of stocks, according to Bloomberg data. Many companies have taken such a beating in the downturn, analysts argue, that their shares are bound to bounce back.
Maybe. But after so many bad calls on so many companies, why should investors believe them this time?
When Internet stocks imploded in 2000 and 2001, Wall Street analysts were widely scorned for fanning a frenzy that had inflated dot-com shares to unsustainable heights. But this time around, credit rating agencies, mortgage companies and Wall Street bankers have shouldered much of the blame for the Crash of 2008, and few have publicly questioned the analysts who urged investors to buy all the way down.
“Analysts completely missed the boat again with the subprime and credit crises,” said Jacob Zamansky, a securities lawyer who represents investors. “They should’ve given some early warning signs to investors to bail out, or at least lighten up their portfolios. That warning never came.”
Instead, many recommendations urged investors to hold on to their shares, or double down, as the bloodletting worsened.
On Oct. 8, as Congress and the Treasury Department frantically tried to calm the plummeting markets, a Citigroup analyst upgraded Bank of America to buy. Since then, Bank of America shares have fallen 77 percent.
That same month, Jeffrey Harte, a top-rated analyst at Sandler O’Neill and Partners, also lifted Bank of America to buy, from hold, and a month later, he gave Citigroup
the same upgrade, according to Bloomberg data.
“Our ratings are based on 12-month price targets,” Mr. Harte said. “Given the nature of economic cycles and, really, the focus of the new administration, I did expect and still do expect that the sector will improve considerably over the long term.”
With every wrenching decline, stocks seemed to be only better and better bargains to the most bullish market watchers, and their buy ratings seemed to reflect a hope that the market would soon turn a corner.
One analyst at Davenport & Company called the aluminum maker Alcoa a strong buy on March 24, Bloomberg data shows, when its stock was a buoyant $35 a share and commodities prices were rising. He then affirmed the rating 13 times as metals prices plunged, manufacturing dried up and Alcoa shares fell more than 70 percent.
“You can look back and say you were wrong as you go back and try to do a post-mortem on things,” said John Roger s, director of research at the market research firm D. A. Davidson & Company. “I don’t think there’s ever 100 percent accurate predictive expertise. I wish there was.”
In July, Mr. Roger s put a buy rating on Chicago Bridge and Iron, an engineering and construction company whose stock fell sharply during the first half of 2008. The rebound Mr. Roger s hoped for never came: the stock plunged 65 percent more.
Mr. Roger s said he did not expect oil prices, then hovering near $145 a barrel, to dwindle to $40.. He did not expect Chicago Bridge and Iron to hit snags on British natural gas developments. And he did not expect such a broad economic downturn.
“If I had a rewind button and I could have done it, I would have downgraded on the day it peaked,” he said. “I was wrong on that, and I think any analyst would have to acknowledge that.”
In their defense, analysts point out that most regulators, economists, journalists and investors failed to foresee this financial catastrophe. And the worsening economy did prompt a cut in their buy recommendations.
Investors, for their part, may have simply been following the lesson that had been beaten into them time and again during the bull years of the last decade: buy cheap because the market will always go up.
“The market went up, up, up and up. You were rewarded for saying, ‘Don’t worry, be happy,’ ” said William A. Fleckenstein, president of Fleckenstein Capital, a money management firm in Issaquah , Wash. “Each time the market went down was a new opportunity to buy the stock even cheaper.”
When the storms of last year hit, few investors realized that this pattern would suddenly vanish, with disastrous results. “They didn’t understand the world they were operating in every year was a false reference point,” Mr. Fleckenstein said.
Still, the optimistic adage holds: the greater the fall, the greater the upside. Just give it some more time.
“Any analyst with a buy rating looks bad in a bear market,” said Anthony Polini, an analyst at Raymond James who rates banks. “This group is dramatically oversold. It’s down 75 percent. If you don’t have some strong buy ratings at this point, you’re doing a disservice to your customers.”
Mr. Polini, who has a strong buy rating on Bank of America, said it was a mistake to cut long-term outlooks for companies just because their stock price fell.
The actual investment recommendations coming from a sales desk can tell a different story from analysts’ publicly released research. To gauge what clients are actually hearing from their investment managers, the investment-tracking firm First Coverage collects buy and sell recommendations from about 1,000 analysts that serve independent and midsize firms.
At the end of January, 34.5 percent of the recommendations seen by First Coverage were for a sell or short call. That was up from 24 percent in December 2007. At the height of the market crash, in October and November, the proportion of sell calls reached about 45 percent.
In all of 2008, sells never outweighed the buys.
Why, even amid cascading losses, could not the majority of analysts simply slash a company’s rating to sell and tell investors to cut their losses?
“It doesn’t matter if you’re in a bear market, a bull market, a flat market, you’re going to get 95 percent of the research coming out telling you to buy,” said Randy Cass, chief executive of First Coverage. “It’s just the way it’s always been.”
Although reforms after the dot-com bubble sought to make analysis more independent by separating it from investment banking, the broader culture on Wall Street still favors bulls.
Some attribute the surplus of optimism to a widespread expectation that stocks — like home prices — will always increase in value over time. After all, the S.& P. 500 has posted annual returns of more than 9 percent during the last 80 years.
Still. At the top of the market, they urged investors to buy or hold onto stocks about 95 percent of the time. When stocks stumbled, they stayed optimistic. Even in November, when credit froze, the economy stalled and financial markets tumbled to their lowest levels in a decade, analysts as a group rarely said sell.
And last month, as the Dow and Standard & Poor’s 500-stock index suffered their worst January ever, analysts put a sell rating on a mere 5.9 percent of stocks, according to Bloomberg data. Many companies have taken such a beating in the downturn, analysts argue, that their shares are bound to bounce back.
Maybe. But after so many bad calls on so many companies, why should investors believe them this time?
When Internet stocks imploded in 2000 and 2001, Wall Street analysts were widely scorned for fanning a frenzy that had inflated dot-com shares to unsustainable heights. But this time around, credit rating agencies, mortgage companies and Wall Street bankers have shouldered much of the blame for the Crash of 2008, and few have publicly questioned the analysts who urged investors to buy all the way down.
“Analysts completely missed the boat again with the subprime and credit crises,” said Jacob Zamansky, a securities lawyer who represents investors. “They should’ve given some early warning signs to investors to bail out, or at least lighten up their portfolios. That warning never came.”
Instead, many recommendations urged investors to hold on to their shares, or double down, as the bloodletting worsened.
On Oct. 8, as Congress and the Treasury Department frantically tried to calm the plummeting markets, a Citigroup analyst upgraded Bank of America to buy. Since then, Bank of America shares have fallen 77 percent.
That same month, Jeffrey Harte, a top-rated analyst at Sandler O’Neill and Partners, also lifted Bank of America to buy, from hold, and a month later, he gave Citigroup
the same upgrade, according to Bloomberg data.
“Our ratings are based on 12-month price targets,” Mr. Harte said. “Given the nature of economic cycles and, really, the focus of the new administration, I did expect and still do expect that the sector will improve considerably over the long term.”
With every wrenching decline, stocks seemed to be only better and better bargains to the most bullish market watchers, and their buy ratings seemed to reflect a hope that the market would soon turn a corner.
One analyst at Davenport & Company called the aluminum maker Alcoa a strong buy on March 24, Bloomberg data shows, when its stock was a buoyant $35 a share and commodities prices were rising. He then affirmed the rating 13 times as metals prices plunged, manufacturing dried up and Alcoa shares fell more than 70 percent.
“You can look back and say you were wrong as you go back and try to do a post-mortem on things,” said John Roger s, director of research at the market research firm D. A. Davidson & Company. “I don’t think there’s ever 100 percent accurate predictive expertise. I wish there was.”
In July, Mr. Roger s put a buy rating on Chicago Bridge and Iron, an engineering and construction company whose stock fell sharply during the first half of 2008. The rebound Mr. Roger s hoped for never came: the stock plunged 65 percent more.
Mr. Roger s said he did not expect oil prices, then hovering near $145 a barrel, to dwindle to $40.. He did not expect Chicago Bridge and Iron to hit snags on British natural gas developments. And he did not expect such a broad economic downturn.
“If I had a rewind button and I could have done it, I would have downgraded on the day it peaked,” he said. “I was wrong on that, and I think any analyst would have to acknowledge that.”
In their defense, analysts point out that most regulators, economists, journalists and investors failed to foresee this financial catastrophe. And the worsening economy did prompt a cut in their buy recommendations.
Investors, for their part, may have simply been following the lesson that had been beaten into them time and again during the bull years of the last decade: buy cheap because the market will always go up.
“The market went up, up, up and up. You were rewarded for saying, ‘Don’t worry, be happy,’ ” said William A. Fleckenstein, president of Fleckenstein Capital, a money management firm in Issaquah , Wash. “Each time the market went down was a new opportunity to buy the stock even cheaper.”
When the storms of last year hit, few investors realized that this pattern would suddenly vanish, with disastrous results. “They didn’t understand the world they were operating in every year was a false reference point,” Mr. Fleckenstein said.
Still, the optimistic adage holds: the greater the fall, the greater the upside. Just give it some more time.
“Any analyst with a buy rating looks bad in a bear market,” said Anthony Polini, an analyst at Raymond James who rates banks. “This group is dramatically oversold. It’s down 75 percent. If you don’t have some strong buy ratings at this point, you’re doing a disservice to your customers.”
Mr. Polini, who has a strong buy rating on Bank of America, said it was a mistake to cut long-term outlooks for companies just because their stock price fell.
The actual investment recommendations coming from a sales desk can tell a different story from analysts’ publicly released research. To gauge what clients are actually hearing from their investment managers, the investment-tracking firm First Coverage collects buy and sell recommendations from about 1,000 analysts that serve independent and midsize firms.
At the end of January, 34.5 percent of the recommendations seen by First Coverage were for a sell or short call. That was up from 24 percent in December 2007. At the height of the market crash, in October and November, the proportion of sell calls reached about 45 percent.
In all of 2008, sells never outweighed the buys.
Why, even amid cascading losses, could not the majority of analysts simply slash a company’s rating to sell and tell investors to cut their losses?
“It doesn’t matter if you’re in a bear market, a bull market, a flat market, you’re going to get 95 percent of the research coming out telling you to buy,” said Randy Cass, chief executive of First Coverage. “It’s just the way it’s always been.”
Although reforms after the dot-com bubble sought to make analysis more independent by separating it from investment banking, the broader culture on Wall Street still favors bulls.
Some attribute the surplus of optimism to a widespread expectation that stocks — like home prices — will always increase in value over time. After all, the S.& P. 500 has posted annual returns of more than 9 percent during the last 80 years.
Fishing through the storm
China Fishery Group Ltd (CFGL) is the world’s top producers of fish and fishmeal products. Its fishing operations accounted for 76% of revenue in 9M08 and its fishmeal & fish oil operations accounted for 24%. According to the Food and Agriculture Organisation, global demand for fish is expected to grow by 50m tonnes to 183m tonnes from 2001 – 2015. We believe that CFGL is in the right industry for growth going forward.
CFGL is currently benefiting from China ’s growing demand for aquatic products. China accounts for 57% of CFGL’s revenue. According to the National Bureau of Statistics of China , aquatic products CPI rose 11.2% YoY in Nov 2008, suggesting that demand remains robust relative to supply. We believe that this trend could persist for a few more quarters.
Falling oil prices will benefit CFGL. Crude oil prices have fallen from a high of US$147/bbl in July 2008 to US$40/bbl as of Feb 2009. We are assuming FY09 average crude oil price of US$65/bbl, lower than FY08’s US$100/bbl. Consequently, we forecast FY09 bunker cost of US$61.8m, 35% less than our FY08 estimate. We forecast FY09 net profit growth of 18..7%, which we believe will excite investors.
High gearing, but strong operating cash flow. We are concerned that CFGL has a high gearing ratio of 0.93x and a sizeable US$245.8m long term loan.
However, CFGL has strong operating cash flow (US$60.2m for 9M08) which is expected to persist and help its refinancing of US$80m short term loan. Its 9M08 interest coverage was an acceptable 4.5x. In addition, we believe that lower interest rates in FY09 will be positive.
We rate CFGL a BUY with a target price of S$0.86. We have a price target of S$0.86 based on 3.9x FY09 P/E which is pegged to the FSTC FY09 P/E of 3.9x.
CFGL is currently benefiting from China ’s growing demand for aquatic products. China accounts for 57% of CFGL’s revenue. According to the National Bureau of Statistics of China , aquatic products CPI rose 11.2% YoY in Nov 2008, suggesting that demand remains robust relative to supply. We believe that this trend could persist for a few more quarters.
Falling oil prices will benefit CFGL. Crude oil prices have fallen from a high of US$147/bbl in July 2008 to US$40/bbl as of Feb 2009. We are assuming FY09 average crude oil price of US$65/bbl, lower than FY08’s US$100/bbl. Consequently, we forecast FY09 bunker cost of US$61.8m, 35% less than our FY08 estimate. We forecast FY09 net profit growth of 18..7%, which we believe will excite investors.
High gearing, but strong operating cash flow. We are concerned that CFGL has a high gearing ratio of 0.93x and a sizeable US$245.8m long term loan.
However, CFGL has strong operating cash flow (US$60.2m for 9M08) which is expected to persist and help its refinancing of US$80m short term loan. Its 9M08 interest coverage was an acceptable 4.5x. In addition, we believe that lower interest rates in FY09 will be positive.
We rate CFGL a BUY with a target price of S$0.86. We have a price target of S$0.86 based on 3.9x FY09 P/E which is pegged to the FSTC FY09 P/E of 3.9x.
China Fishery Group Ltd.
• 4Q08 results preview. 4Q08 results are likely to come in slightly below our estimate of US$19m, which is already 25% below consensus estimate of US$25.3m, given a sharp drop in fishmeal prices to close to US$800/tonne in 4Q08 and the company’s
advance purchase of bunker fuel at higher prices.
• Strong fish prices, stabilised fishmeal prices. Alaskan Pollock prices have firmed
by 19% yoy to US$1,600/tonne on substitution demand from more expensive fishes.
Meanwhile, fishmeal prices have recovered to the US$850/tonne level after dipping
close to US$800/tonne in 4Q08, with management guiding for prices of US$800-
850/tonne for FY09.
• Potential catalysts in 2H09. We believe soymeal prices should strengthen in 2H09
as the impact of lower supply from reduced plantings and lower fertiliser usage bites.
Firmer soymeal prices will likely lead to firmer fishmeal prices due to the substitution effect. Meanwhile, better-than-expected progress in the South Pacific operation offers upside to our forecasts.
• Maintain Outperform, target price of S$1.34 (5.9x CY10 P/E) and EPS estimates.
We are keeping our EPS estimates unchanged, although we note risks of weaker
pollock selling prices going forward. Current valuation of 2.6x CY10 P/E appears
attractive vs. the peer average of 7.8x.
advance purchase of bunker fuel at higher prices.
• Strong fish prices, stabilised fishmeal prices. Alaskan Pollock prices have firmed
by 19% yoy to US$1,600/tonne on substitution demand from more expensive fishes.
Meanwhile, fishmeal prices have recovered to the US$850/tonne level after dipping
close to US$800/tonne in 4Q08, with management guiding for prices of US$800-
850/tonne for FY09.
• Potential catalysts in 2H09. We believe soymeal prices should strengthen in 2H09
as the impact of lower supply from reduced plantings and lower fertiliser usage bites.
Firmer soymeal prices will likely lead to firmer fishmeal prices due to the substitution effect. Meanwhile, better-than-expected progress in the South Pacific operation offers upside to our forecasts.
• Maintain Outperform, target price of S$1.34 (5.9x CY10 P/E) and EPS estimates.
We are keeping our EPS estimates unchanged, although we note risks of weaker
pollock selling prices going forward. Current valuation of 2.6x CY10 P/E appears
attractive vs. the peer average of 7.8x.
China Paper Holdings : Cash-rich to fund growth
We recently paid a visit to China Paper’s plant and also to one of its key customers, Xinhua’s printing plant in Linyi, Shandong Province.
China Paper has a strong balance sheet and is in a net cash position of S$82mn. This should help fund its plans to double its paper chemical capacity and act on capacity potential acquisition opportunities to expand and enrich its product mix.
With increasing average selling price and recovering utilization rates, we expect China Paper will see record high sales in FY08 and 15-20% YoY growth in net profit. Capacity expansion and M&A opportunities, if completed in 2009 as expected, should further fuel growth in 2009 and onwards.
The stock is currently trading at 2.8x PER of estimated 2008 EPS with even lower forward earnings ratios as earnings are set to grow on firm’s double-digit top line expansion. This is slightly below peers in HK and other S-chips, which are at c.3x-4x PER.
It is also trading well below its book value of S 37 cts per share despite an ROE of 15.7% and even below its net cash of S 20cts per share. As such, valuations are
undemanding but re-rating would depend on delivery of earnings and acquisitions.
China Paper has a strong balance sheet and is in a net cash position of S$82mn. This should help fund its plans to double its paper chemical capacity and act on capacity potential acquisition opportunities to expand and enrich its product mix.
With increasing average selling price and recovering utilization rates, we expect China Paper will see record high sales in FY08 and 15-20% YoY growth in net profit. Capacity expansion and M&A opportunities, if completed in 2009 as expected, should further fuel growth in 2009 and onwards.
The stock is currently trading at 2.8x PER of estimated 2008 EPS with even lower forward earnings ratios as earnings are set to grow on firm’s double-digit top line expansion. This is slightly below peers in HK and other S-chips, which are at c.3x-4x PER.
It is also trading well below its book value of S 37 cts per share despite an ROE of 15.7% and even below its net cash of S 20cts per share. As such, valuations are
undemanding but re-rating would depend on delivery of earnings and acquisitions.
Tuesday, February 10, 2009
花旗樓市何時有運行？
傳統智慧告訴我們，股市走在經濟前頭，而經濟又行先樓市一步。是耶非耶，看看2003年沙士前後恒指、本地生產總值（GDP）和樓價指數，便知不中不遠。
供過於求問題嚴重
然而，大多數專家都相信，美國經濟、股市要有運行，先決條件是樓價止跌回升。老畢第一個感覺是，這好像跟傳統智慧背道而馳，因為如此說來，樓市豈非先於美股和美國經濟復甦？不過，想深一層，今年踏入「三歲」（次按在2007年夏天爆煲）的信貸危機由樓市出事觸發，而今次風暴跟1982和1991年美國經濟衰退最大的分別，在於當年金融體系對聯儲局放寬銀根反應很快，減息效應在各式信貸市場立竿見影；今天則有信心問題，銀行對借款人疑神疑鬼，甚至連同業也不信，聯儲局的零息政策無法適時在信貸市場「落實」，大量待售房屋積壓難清，加上銀主盤泛濫，美國樓市供過於求情況嚴重。
老畢可以肯定，花旗物業市場在經濟不景和銀行危機前後夾擊下，樓價跌幅會比1982和1991年更深，在谷底橫行的時間亦將更長！由於美股和美國經濟都在苦候樓市見底，引伸下去，經濟何時復甦、牛市幾時重臨，關鍵在於物業供求需時多久才能回復平衡。
花旗樓市是否沒有正面因素？答案是否定的。目前樓價中位數比2007年春高位回落超過二成，按揭利率同時下跌，意味美國人置業負擔能力顯著上升（樓價相對收入倍數下降）。不過，負擔能力雖處於上世紀七十年代初以來的最高水平，但按揭需求不僅並未相應增加，反而跌至二十年來最低！
你可以怪責格老甚至中國製造信貸泡沫、狂轟銀行向沒有資格置業的「三無人士」（無工作、無收入、無恒產）胡亂放貸，但美國樓市的根本問題是供求失衡，市場上有太多賣不出的房子。與其用「倒後鏡」看問題，不如前瞻「存貨積壓」（inventory overhang）的問題何時才能解決。
根據老畢手頭上的資料，可以用四個字來形容：大事不妙！
自上世紀六十年代有紀錄以來，美國待售新屋數量從未超逾十二萬五千間。可是，一年前數字突破了二十萬，創出歷史新高；去年11月雖回落至十九萬六千，但依然遠高於歷史平均水平。值得大家注意的是，美國去年12月有多達二萬二千間新屋售出，許多人以此推斷樓市可能已見底。可是，發展商若非劈價6%（12月比 11月），這批貨尾能成功賣出嗎？如果一個月減價6%也可視作樓市指標，那麼樓價一年要跌多少？見底，你話呢？
按照目前的銷售速度，充斥美國市場的待售新屋，至少要六個月時間才能沽清。驟耳聽來，這好像不太長，但不要忘記，新屋佔美國每年整體房屋銷售不足 8%，置業人士多買二手房舍。若把二手供應納入，再加上在拍賣會求售的銀主盤（佔美國眾多州份房屋銷售逾半），清理待售房屋需時估計長達十六個月！
美國樓市還有一個世界各地俱無的特性（拜房利美、房貸美這兩家被華府接管的政府資助機構﹝GSEs﹞「孭起」按揭市場所賜），就是銀行收回斷供物業，抵押品（房屋）價值即使低於借貸金額，即物業變成負資產，只要業主交回鑰匙，銀行便無權追討差價。那等於說，美國人斷供的誘因，比香港以至世界任何地方的業主都大，意味銀主盤供應量於可見將來仍會維持在高水平，令花旗樓市百上加斤。
美國樓價離底尚遠
美國樓價跟高位比較雖跌了不少，但供過於求一天未見改善，樓市一天也難言見底。根據以往經驗，物業市場不景、待售房屋積壓，存貨清理過程一般需時三年。可是，與過去不同，銀行今天紛紛收緊信貸，待售物業之多亦遠非昔日可比。種種迹象顯示，花旗樓市要回復供求平衡，需時恐怕不止三年。換句話說，樓市至少有幾年無運行，美國股市和經濟前景，還不可思過半？
最近，聲討金融業的聲音響徹大西洋兩岸，繼奧巴馬限制受助金融機構領導層的薪酬後，英國四家對沖基金的經理亦被傳召到下議院財政特別委員會作證。罪狀？因為眼光獨到沽空銀行股獲利也！果真世事如棋光怪陸離，為投資者賺取厚利的基金經理要向公眾交代，導致百年基業一朝喪的金融機構巨頭，卻連半句「鎖你」都懶得說。
代議士煞有介事，可能因為這個年頭賺錢的對沖基金實在太罕有，少得令議員們疑心大起。數據顯示，對沖基金去年平均虧損18.3%，是自1990年以來最差劣的表現。與標準普爾五百指數同期下跌37%比較，這個回報說不上羞家，但考慮到對沖基金收取相當於二成回報的表現費，18.3%的虧蝕，當然不及格。
不過，亦非所有對沖基金都一敗塗地。PFP Wealth Mangement的普賴斯（Tim Price）就向投資者推介，去年平均錄得9.8%回報的「系統性趨勢」（systemic trend）基金。系統性趨勢策略極之倚賴電腦模型，經常押注長線趨勢，例如油價走向。
普賴斯推介的AHL多元化基金（AHL Diversifeid Fund）及Whinton Futures，前者去年錄得三成升幅，後者回報亦達二成。兩基金表現同樣卓越，但入場門檻天差地遠，AHL最低投資額3萬美元，Whinton 的入場費卻高達100萬美元！
美滙指數由去年12月開始上升，1月23日在86.81水平遇上阻力調整；1月28日低見83.57，其後反彈至2月2日的86.07收市，進入敏感三角形待變。美元前景不明朗，投資者轉炒交叉盤，而英國銀行業最近不利消息頻傳，商品大王羅傑斯更斷言英國「玩完」，英鎊於是成為交叉盤的軸心貨幣而備受沽壓，兌美元在1月23日創下1.3505的十多年低位，歐羅兌英鎊在1月26日最高見0.952，與去年底的0.98歷史高位僅一步之遙，部分分析員甚至作出英鎊將邁向兌美元及歐羅平算的預測！不過，英鎊兌美元卻力守1.35不破，歐羅兌英鎊亦在0.9以上水平遇到回吐壓力，而市場對英倫銀行是否應該繼續減息首次出現意見分歧，再加上英國1月份Halifax房價指數出乎業界意料上升1.9%，由是觸發拆倉平盤，鎊滙在英倫銀行宣布減息半厘後不跌反升，兌美元衝破並企穩在1.46近期阻力之上，歐羅兌英鎊更跌穿近月重要技術支持位0.88，英鎊挑戰1.50美元心理大關的可能性不能排除。
供過於求問題嚴重
然而，大多數專家都相信，美國經濟、股市要有運行，先決條件是樓價止跌回升。老畢第一個感覺是，這好像跟傳統智慧背道而馳，因為如此說來，樓市豈非先於美股和美國經濟復甦？不過，想深一層，今年踏入「三歲」（次按在2007年夏天爆煲）的信貸危機由樓市出事觸發，而今次風暴跟1982和1991年美國經濟衰退最大的分別，在於當年金融體系對聯儲局放寬銀根反應很快，減息效應在各式信貸市場立竿見影；今天則有信心問題，銀行對借款人疑神疑鬼，甚至連同業也不信，聯儲局的零息政策無法適時在信貸市場「落實」，大量待售房屋積壓難清，加上銀主盤泛濫，美國樓市供過於求情況嚴重。
老畢可以肯定，花旗物業市場在經濟不景和銀行危機前後夾擊下，樓價跌幅會比1982和1991年更深，在谷底橫行的時間亦將更長！由於美股和美國經濟都在苦候樓市見底，引伸下去，經濟何時復甦、牛市幾時重臨，關鍵在於物業供求需時多久才能回復平衡。
花旗樓市是否沒有正面因素？答案是否定的。目前樓價中位數比2007年春高位回落超過二成，按揭利率同時下跌，意味美國人置業負擔能力顯著上升（樓價相對收入倍數下降）。不過，負擔能力雖處於上世紀七十年代初以來的最高水平，但按揭需求不僅並未相應增加，反而跌至二十年來最低！
你可以怪責格老甚至中國製造信貸泡沫、狂轟銀行向沒有資格置業的「三無人士」（無工作、無收入、無恒產）胡亂放貸，但美國樓市的根本問題是供求失衡，市場上有太多賣不出的房子。與其用「倒後鏡」看問題，不如前瞻「存貨積壓」（inventory overhang）的問題何時才能解決。
根據老畢手頭上的資料，可以用四個字來形容：大事不妙！
自上世紀六十年代有紀錄以來，美國待售新屋數量從未超逾十二萬五千間。可是，一年前數字突破了二十萬，創出歷史新高；去年11月雖回落至十九萬六千，但依然遠高於歷史平均水平。值得大家注意的是，美國去年12月有多達二萬二千間新屋售出，許多人以此推斷樓市可能已見底。可是，發展商若非劈價6%（12月比 11月），這批貨尾能成功賣出嗎？如果一個月減價6%也可視作樓市指標，那麼樓價一年要跌多少？見底，你話呢？
按照目前的銷售速度，充斥美國市場的待售新屋，至少要六個月時間才能沽清。驟耳聽來，這好像不太長，但不要忘記，新屋佔美國每年整體房屋銷售不足 8%，置業人士多買二手房舍。若把二手供應納入，再加上在拍賣會求售的銀主盤（佔美國眾多州份房屋銷售逾半），清理待售房屋需時估計長達十六個月！
美國樓市還有一個世界各地俱無的特性（拜房利美、房貸美這兩家被華府接管的政府資助機構﹝GSEs﹞「孭起」按揭市場所賜），就是銀行收回斷供物業，抵押品（房屋）價值即使低於借貸金額，即物業變成負資產，只要業主交回鑰匙，銀行便無權追討差價。那等於說，美國人斷供的誘因，比香港以至世界任何地方的業主都大，意味銀主盤供應量於可見將來仍會維持在高水平，令花旗樓市百上加斤。
美國樓價離底尚遠
美國樓價跟高位比較雖跌了不少，但供過於求一天未見改善，樓市一天也難言見底。根據以往經驗，物業市場不景、待售房屋積壓，存貨清理過程一般需時三年。可是，與過去不同，銀行今天紛紛收緊信貸，待售物業之多亦遠非昔日可比。種種迹象顯示，花旗樓市要回復供求平衡，需時恐怕不止三年。換句話說，樓市至少有幾年無運行，美國股市和經濟前景，還不可思過半？
最近，聲討金融業的聲音響徹大西洋兩岸，繼奧巴馬限制受助金融機構領導層的薪酬後，英國四家對沖基金的經理亦被傳召到下議院財政特別委員會作證。罪狀？因為眼光獨到沽空銀行股獲利也！果真世事如棋光怪陸離，為投資者賺取厚利的基金經理要向公眾交代，導致百年基業一朝喪的金融機構巨頭，卻連半句「鎖你」都懶得說。
代議士煞有介事，可能因為這個年頭賺錢的對沖基金實在太罕有，少得令議員們疑心大起。數據顯示，對沖基金去年平均虧損18.3%，是自1990年以來最差劣的表現。與標準普爾五百指數同期下跌37%比較，這個回報說不上羞家，但考慮到對沖基金收取相當於二成回報的表現費，18.3%的虧蝕，當然不及格。
不過，亦非所有對沖基金都一敗塗地。PFP Wealth Mangement的普賴斯（Tim Price）就向投資者推介，去年平均錄得9.8%回報的「系統性趨勢」（systemic trend）基金。系統性趨勢策略極之倚賴電腦模型，經常押注長線趨勢，例如油價走向。
普賴斯推介的AHL多元化基金（AHL Diversifeid Fund）及Whinton Futures，前者去年錄得三成升幅，後者回報亦達二成。兩基金表現同樣卓越，但入場門檻天差地遠，AHL最低投資額3萬美元，Whinton 的入場費卻高達100萬美元！
美滙指數由去年12月開始上升，1月23日在86.81水平遇上阻力調整；1月28日低見83.57，其後反彈至2月2日的86.07收市，進入敏感三角形待變。美元前景不明朗，投資者轉炒交叉盤，而英國銀行業最近不利消息頻傳，商品大王羅傑斯更斷言英國「玩完」，英鎊於是成為交叉盤的軸心貨幣而備受沽壓，兌美元在1月23日創下1.3505的十多年低位，歐羅兌英鎊在1月26日最高見0.952，與去年底的0.98歷史高位僅一步之遙，部分分析員甚至作出英鎊將邁向兌美元及歐羅平算的預測！不過，英鎊兌美元卻力守1.35不破，歐羅兌英鎊亦在0.9以上水平遇到回吐壓力，而市場對英倫銀行是否應該繼續減息首次出現意見分歧，再加上英國1月份Halifax房價指數出乎業界意料上升1.9%，由是觸發拆倉平盤，鎊滙在英倫銀行宣布減息半厘後不跌反升，兌美元衝破並企穩在1.46近期阻力之上，歐羅兌英鎊更跌穿近月重要技術支持位0.88，英鎊挑戰1.50美元心理大關的可能性不能排除。
身处通缩心存通胀投资策略不败之道
美国国会将于今天凌晨通过二党经过一番讨价还价后达成的振兴经济及金融业修订方案，不管金额是八千多亿或七千多亿（美元），这笔资金，都是国库空空如也的政府所没有，因此只能通过借入或开动印钞机筹集。
當紅的英國史家、哈佛大學教授、《世界金融史─金錢的崛興》的作者富格遜，不久前在達沃斯「經濟論壇」上發言，指出「美國政府○九年必須籌措二萬二千億政費，不論用什麼方法，都不可能不左右利率或通貨膨脹」。
眾所周知，政府向市場舉債，除了有利息支出的長期財政負擔，還會迫升利率（這便是過去說之屢矣的「排擠效果」〔crowding out effect〕；貨幣派批評凱恩斯財政政策衍生的赤字預算〔先使未來沒有的錢〕，等同在「乞丐兜搵食」，必然刺激利率上揚）。由於香港及其近鄰如中國、日本、新加坡和台灣等，都有大量外滙儲存，因此港人對其他國家資金短絀情況不大了解。
事實上，如今「水緊」缺錢的，不僅是先進國家，發展中國家亦大多債台高築，ING銀行月初發表的一項報告，便指出新興市場國家和企業，在未來數年內，必須償還、贖回及支付（利息）的資金總額為六萬八千億（尚不包括這些國家為刺激經濟而計劃投入的資金），加上歐盟諸國現年度約一萬一千億的赤字開支及本文見報時應已通過的美國「救市計劃」，各國政府需要的資金高達十萬億！
市場哪來這麼巨額資金，最終政府只有開動印鈔機，而其後果一如夜以繼日，通貨膨脹率驟升無法避免。
可是，如今「官民一體」，憂懼的是通縮而非通脹，高盛去月底在「外滙交易會議」上對約五百名與會者的調查，顯示擔心通縮的有百分之83、認為通脹惡化的只有百分之17；這種「民情」，在筆者看來，是「反智」的，因為事實清楚指出，歷史上12次惡性通脹（Hyperinflation）的導因均為「大量創造貨幣以融資公共財赤」。
當前的情況豈能例外？
奧巴馬總統的閣員及顧問的學養及經驗以至要搞好美國經濟的企圖心都不必懷疑，可是，他們開出的藥方，不外是師凱恩斯故智（數十年來，宏觀經濟學產生了以千計的計量程式，卻對經濟學的進步並無幫助），而經驗告訴大家，凱恩斯的財政政策有嚴重的後遺症，昨天《華爾街日報》對奧巴馬希望通過「花錢」使經濟走出困局的做法表示懷疑，大有道理。天下沒有免費午餐，天下又怎有沒有代價的經濟復甦，大量注入未來沒有的金錢，其副作用必然是經濟長期受害。
在經濟風雨飄搖、英國和日本已相繼宣布正式進入通縮期的大環境下，筆者仍持惡性通脹將至的態度，其「不識時務」、「不得人心」，彰彰明甚。近月來「真理在我」的通縮分子（deflationists），眾口一詞，指出世界性需求下降、消費者負債過甚需要長期減債（deleverage）、國際貿易萎縮、環球性失業率高企、貿易和金融保護主義升溫以至美國金融制度因互信不足頻臨崩潰……。
種種情況和通貨膨脹背道而馳。這些都是天天見報的事實。不過，事實的另一面是，美國（和其他資本主義國家）經濟陷入困境，急需注入更多資金；而美國政府的總負債達十三萬七千億（大多以債券形式存在），目前說美國可能無法還債（贖回），當然是杞人憂天，所以如此，皆因她仍有印刷鈔票的能力；但美債的外國持有者對美國經濟的信心日漸消褪，如果奧巴馬的振興經濟計劃未如人意，「拋售美債會對持有者本身帶來損失她們因此不會拋售」的「傳統智慧」便面臨嚴峻考驗。 只要外國債權人不再購入（遑論拋售）改持非美元資產，美元泛濫成災，事屬必然。
通貨收縮是通貨膨脹之母，不僅見諸20世紀20年代的德國，事隔近百年，兩者的關係依然不變。 通縮意味貨幣流動性放緩、人民撙節開支、增加儲蓄（或購入孳息較存款利率高的短期票據）；這種情況迫使政府必須「大手筆」注資（貨幣及財政政策）刺激經濟，不過，由於大部分人民致力於減債且擔心減薪、失業，不敢消費，政府的注資不一定會收到刺激經濟成長的效果，結果政府只有供應更多鈔票；儲蓄有如水壩，當貨幣供應大增至人民對其失去信心時，他們便會開始肆意花費，情況有如水壩崩塌，市場為紙幣淹沒的惡性通脹便出現！
加州史學教授費特明十多年前的《大混亂─1914至1924年德國通脹下的政治學、經濟學和社會》（上網找G. Feldman的著作便見），對當前的經濟形勢有啟發作用：「馬克滙價貶值，當然是壞事，但它突然敗部復活（recuperation）轉強，帶給經濟的傷害愈甚。」貨幣強勢令出口下降、失業率上升、股市急挫、上市公司無力派息、銀行和企業倒閉……。
1921年12月馬克強力反彈如德國經濟迴光返照，馬克滙價轉強成為德國經濟致命一擊；1922年馬克大貶值，惡性通脹（嚴重程度媲美津巴布韋）降臨。德國經濟由是一蹶不振，種下了納綷黨在大選中勝出執政的禍根.
現在的市場共識是今年上半年美元「可以看好」，美元滙價回揚，其對美國經濟的傷害，將在下半年浮現。 這是投資者不可掉以輕心的發展！
當前世界經濟特別是資本主義經濟奄奄一息，預期通縮是理所當然的；但一如較早前在這裏指出，筆者愈來愈相信身處通縮環境的投資者，應做好如何迎接惡性通脹來臨的部署。
當紅的英國史家、哈佛大學教授、《世界金融史─金錢的崛興》的作者富格遜，不久前在達沃斯「經濟論壇」上發言，指出「美國政府○九年必須籌措二萬二千億政費，不論用什麼方法，都不可能不左右利率或通貨膨脹」。
眾所周知，政府向市場舉債，除了有利息支出的長期財政負擔，還會迫升利率（這便是過去說之屢矣的「排擠效果」〔crowding out effect〕；貨幣派批評凱恩斯財政政策衍生的赤字預算〔先使未來沒有的錢〕，等同在「乞丐兜搵食」，必然刺激利率上揚）。由於香港及其近鄰如中國、日本、新加坡和台灣等，都有大量外滙儲存，因此港人對其他國家資金短絀情況不大了解。
事實上，如今「水緊」缺錢的，不僅是先進國家，發展中國家亦大多債台高築，ING銀行月初發表的一項報告，便指出新興市場國家和企業，在未來數年內，必須償還、贖回及支付（利息）的資金總額為六萬八千億（尚不包括這些國家為刺激經濟而計劃投入的資金），加上歐盟諸國現年度約一萬一千億的赤字開支及本文見報時應已通過的美國「救市計劃」，各國政府需要的資金高達十萬億！
市場哪來這麼巨額資金，最終政府只有開動印鈔機，而其後果一如夜以繼日，通貨膨脹率驟升無法避免。
可是，如今「官民一體」，憂懼的是通縮而非通脹，高盛去月底在「外滙交易會議」上對約五百名與會者的調查，顯示擔心通縮的有百分之83、認為通脹惡化的只有百分之17；這種「民情」，在筆者看來，是「反智」的，因為事實清楚指出，歷史上12次惡性通脹（Hyperinflation）的導因均為「大量創造貨幣以融資公共財赤」。
當前的情況豈能例外？
奧巴馬總統的閣員及顧問的學養及經驗以至要搞好美國經濟的企圖心都不必懷疑，可是，他們開出的藥方，不外是師凱恩斯故智（數十年來，宏觀經濟學產生了以千計的計量程式，卻對經濟學的進步並無幫助），而經驗告訴大家，凱恩斯的財政政策有嚴重的後遺症，昨天《華爾街日報》對奧巴馬希望通過「花錢」使經濟走出困局的做法表示懷疑，大有道理。天下沒有免費午餐，天下又怎有沒有代價的經濟復甦，大量注入未來沒有的金錢，其副作用必然是經濟長期受害。
在經濟風雨飄搖、英國和日本已相繼宣布正式進入通縮期的大環境下，筆者仍持惡性通脹將至的態度，其「不識時務」、「不得人心」，彰彰明甚。近月來「真理在我」的通縮分子（deflationists），眾口一詞，指出世界性需求下降、消費者負債過甚需要長期減債（deleverage）、國際貿易萎縮、環球性失業率高企、貿易和金融保護主義升溫以至美國金融制度因互信不足頻臨崩潰……。
種種情況和通貨膨脹背道而馳。這些都是天天見報的事實。不過，事實的另一面是，美國（和其他資本主義國家）經濟陷入困境，急需注入更多資金；而美國政府的總負債達十三萬七千億（大多以債券形式存在），目前說美國可能無法還債（贖回），當然是杞人憂天，所以如此，皆因她仍有印刷鈔票的能力；但美債的外國持有者對美國經濟的信心日漸消褪，如果奧巴馬的振興經濟計劃未如人意，「拋售美債會對持有者本身帶來損失她們因此不會拋售」的「傳統智慧」便面臨嚴峻考驗。 只要外國債權人不再購入（遑論拋售）改持非美元資產，美元泛濫成災，事屬必然。
通貨收縮是通貨膨脹之母，不僅見諸20世紀20年代的德國，事隔近百年，兩者的關係依然不變。 通縮意味貨幣流動性放緩、人民撙節開支、增加儲蓄（或購入孳息較存款利率高的短期票據）；這種情況迫使政府必須「大手筆」注資（貨幣及財政政策）刺激經濟，不過，由於大部分人民致力於減債且擔心減薪、失業，不敢消費，政府的注資不一定會收到刺激經濟成長的效果，結果政府只有供應更多鈔票；儲蓄有如水壩，當貨幣供應大增至人民對其失去信心時，他們便會開始肆意花費，情況有如水壩崩塌，市場為紙幣淹沒的惡性通脹便出現！
加州史學教授費特明十多年前的《大混亂─1914至1924年德國通脹下的政治學、經濟學和社會》（上網找G. Feldman的著作便見），對當前的經濟形勢有啟發作用：「馬克滙價貶值，當然是壞事，但它突然敗部復活（recuperation）轉強，帶給經濟的傷害愈甚。」貨幣強勢令出口下降、失業率上升、股市急挫、上市公司無力派息、銀行和企業倒閉……。
1921年12月馬克強力反彈如德國經濟迴光返照，馬克滙價轉強成為德國經濟致命一擊；1922年馬克大貶值，惡性通脹（嚴重程度媲美津巴布韋）降臨。德國經濟由是一蹶不振，種下了納綷黨在大選中勝出執政的禍根.
現在的市場共識是今年上半年美元「可以看好」，美元滙價回揚，其對美國經濟的傷害，將在下半年浮現。 這是投資者不可掉以輕心的發展！
當前世界經濟特別是資本主義經濟奄奄一息，預期通縮是理所當然的；但一如較早前在這裏指出，筆者愈來愈相信身處通縮環境的投資者，應做好如何迎接惡性通脹來臨的部署。
經濟愈墮落市場愈快樂？
美國上周五公布的就業數據認真無眼睇，1月份職位流失59萬8千，失業率升至7.6％的17年新高. 如果你信國家經濟研究局（NBER）的判斷，即花旗經濟早在2007年12月已陷入衰退，那麼美國在短短一年裏減少的職位便多達3百60萬，半數於過去三個月內出現！
從資金流向捕捉趨勢各位想必同時發現，美股在數據公布後不跌反升；一周計，道指錄得3.5％升幅，S&P漲5.2％，納指更急升7.8％，帶動港股周一造好。
老畢上周說過，對投資者而言，經濟學家的意見不妨記在心上（克魯明等人針對奧巴馬刺激經濟方案的評論有參考價值），但以真金白銀下注時，學者的話大可拋諸腦後，因為資產市場的走向往往跟他們的警告背道而馳。
試舉一例，美國救市方案有「購買國貨」條文（奧巴馬承諾作出修訂，但聽其言不如觀其行，一切有待事實證明）；西班牙的政客也在大搞Made in Spain運動，聲聲抵制進口；英國各地上周爆發野貓式罷工，矛頭直指外國勞工；中美在人民幣滙率上針鋒相對……，種種迹象均在發出全球化「岌岌可危」、經濟民族主義（economic nationalism）張牙舞爪的訊號。 可是，本港上市航運股不僅未因環球貿易在保護主義抬頭下雪上加霜而捱沽，反而追隨波羅的海乾散貨指數（BDI）急升。 順道一提，BDI過去14天持續上揚，累積漲幅達9成；自去年12月5日見底後，至今反彈148％。
另一例子是，經濟榮辱繫於資源出口的巴西，今年股市表現跟內地相比不遑多讓，與環球經濟和貿易前景「分道揚鑣」。
與去年波羅的海指數、巴西股市和內地A股暴跌，為今年初的強勁反彈創造條件一樣，美國政府雖遲遲未公布挽救金融業新方案（最新消息財長蓋特納將於本港時間周三凌晨發表聲明），但市場注意力已從銀行困局轉向其他環節，其中科技股表現出眾，反映在去年9月雷曼失救引發拋售潮中受累的部分行業，已開始吸引資金回流。
今年以来，金融股跌幅由单位数至六成不等，只有已变身银行控股公司的两大投行──大摩和高盛──股价上升。 這反映市場對一再狂瀉的金融股戒心不減，華府一天仍在壞銀行、資產擔保和國有化之間舉棋不定，投資者對金融股將繼續敬而遠之。可是，銀行以外的行業，今年股價跌幅普遍不足一成，尤以科技股走勢最醒神。
這個趨勢，從年初以來納指表現遠勝道指和S&P五百指數可見一斑。
從附圖可見，在2008年8至11月金融海嘯最黑暗的日子，道指走勢遠勝納指，但強弱趨勢自年底開始逆轉，意味去年科技股遭過分拋售，為投資者製造了低吸機會。
老畢並非在說全球化前路暢通無阻（事實剛好相反），只是建議大家，與其浪費時間聽經濟學家爭辯救市有效無效，不如多點注意市場發出的訊號，從中探索資金流動的趨向。
歐美銀行業正處於水深火熱之中，其中最頭痛的是不停注資銀行的英國。
由美國次按引發的金融海嘯，令金融界及相關專業機構形象大受損害，如果還不設法修補改善，在人前人後「多加幾分」，以後怎能順利跟客戶打交道？
普世價值未動搖誠然，源於美國禍延全球的金融海嘯令西方的自由經濟政策備受質疑，而外儲冠全球的具中國特色社會主義經濟成就引起不少學者研討。然而，不要忘記，中國經濟之所以飛躍增長，實有賴於與西方接軌的開放政策，目前遭到批評的只是過度「放縱」的金融市場機制，但自由民主這普世價值並未因而稍有動搖。 「有特色」的民主社會，未知何日在中國實現？
從資金流向捕捉趨勢各位想必同時發現，美股在數據公布後不跌反升；一周計，道指錄得3.5％升幅，S&P漲5.2％，納指更急升7.8％，帶動港股周一造好。
老畢上周說過，對投資者而言，經濟學家的意見不妨記在心上（克魯明等人針對奧巴馬刺激經濟方案的評論有參考價值），但以真金白銀下注時，學者的話大可拋諸腦後，因為資產市場的走向往往跟他們的警告背道而馳。
試舉一例，美國救市方案有「購買國貨」條文（奧巴馬承諾作出修訂，但聽其言不如觀其行，一切有待事實證明）；西班牙的政客也在大搞Made in Spain運動，聲聲抵制進口；英國各地上周爆發野貓式罷工，矛頭直指外國勞工；中美在人民幣滙率上針鋒相對……，種種迹象均在發出全球化「岌岌可危」、經濟民族主義（economic nationalism）張牙舞爪的訊號。 可是，本港上市航運股不僅未因環球貿易在保護主義抬頭下雪上加霜而捱沽，反而追隨波羅的海乾散貨指數（BDI）急升。 順道一提，BDI過去14天持續上揚，累積漲幅達9成；自去年12月5日見底後，至今反彈148％。
另一例子是，經濟榮辱繫於資源出口的巴西，今年股市表現跟內地相比不遑多讓，與環球經濟和貿易前景「分道揚鑣」。
與去年波羅的海指數、巴西股市和內地A股暴跌，為今年初的強勁反彈創造條件一樣，美國政府雖遲遲未公布挽救金融業新方案（最新消息財長蓋特納將於本港時間周三凌晨發表聲明），但市場注意力已從銀行困局轉向其他環節，其中科技股表現出眾，反映在去年9月雷曼失救引發拋售潮中受累的部分行業，已開始吸引資金回流。
今年以来，金融股跌幅由单位数至六成不等，只有已变身银行控股公司的两大投行──大摩和高盛──股价上升。 這反映市場對一再狂瀉的金融股戒心不減，華府一天仍在壞銀行、資產擔保和國有化之間舉棋不定，投資者對金融股將繼續敬而遠之。可是，銀行以外的行業，今年股價跌幅普遍不足一成，尤以科技股走勢最醒神。
這個趨勢，從年初以來納指表現遠勝道指和S&P五百指數可見一斑。
從附圖可見，在2008年8至11月金融海嘯最黑暗的日子，道指走勢遠勝納指，但強弱趨勢自年底開始逆轉，意味去年科技股遭過分拋售，為投資者製造了低吸機會。
老畢並非在說全球化前路暢通無阻（事實剛好相反），只是建議大家，與其浪費時間聽經濟學家爭辯救市有效無效，不如多點注意市場發出的訊號，從中探索資金流動的趨向。
歐美銀行業正處於水深火熱之中，其中最頭痛的是不停注資銀行的英國。
由美國次按引發的金融海嘯，令金融界及相關專業機構形象大受損害，如果還不設法修補改善，在人前人後「多加幾分」，以後怎能順利跟客戶打交道？
普世價值未動搖誠然，源於美國禍延全球的金融海嘯令西方的自由經濟政策備受質疑，而外儲冠全球的具中國特色社會主義經濟成就引起不少學者研討。然而，不要忘記，中國經濟之所以飛躍增長，實有賴於與西方接軌的開放政策，目前遭到批評的只是過度「放縱」的金融市場機制，但自由民主這普世價值並未因而稍有動搖。 「有特色」的民主社會，未知何日在中國實現？
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