Bursa Bull Trader | Malaysia Stock Trading and Investing Blog

2012 Dragon Trading Refreshment

2012-01-16T08:00:00.002+08:00

10 rules must remember before you start trading intra day.

1. Never rush into a trade. Always reach the market at least 15-20 minutes in advance with your trading list in place.

2. Trade with a calm mind, maintain a sound balance between personal life and life in the share market; don't let the two aspects interfere.

3. Don't enter a trade if you are unsure of the trend (if prices will move up or down). Preferably start trading around 10.10 am (markets begin at 9.55 am every weekday; weekends are a holiday) to know the clear market direction.

4. Never risk more than 10 per cent of your trading capital in a single trade.

5. Over trading kills, never do over trading.

6. Remember that no one can predict the exact highs and exact lows. So never try to catch them.

7. Always maintain strict discipline in your trades. Remember to keep a strict stop loss and booking profits is a must (So that you know how much you can afford to lose).

8. Booking profits is very important and booking loss at the right time is even more important.

9. Never let a profit turn into a loss; always keep booking profits and raise your stop loss accordingly.

10. When in doubt the best thing to do is 'Get Out', and don't 'Get In' when in doubt. Simply put, when in doubt prefer staying at home and enjoy the company of your loved ones.

Stop Loss

■Set protective stop as soon as you enter a position. The stop price should be decided before entering a position.

■Move protective stop to break-even when price moves in your direction (more than the average daily range).

■It might be a good idea to sell a part of your position (for e.g. one third) for a reasonable profit. By doing this, there will be less pressure to sell early since you have already cashed in; and if the trade goes against you, there is at least some profit from the trade.

■Use trailing stops for the rest of the position to ride the move.

Psychology

■Never trade impulsively, stick with your edge/plan.

■Never ever add to a losing position (unless you already have a plan thought out to scale into a position at different entry points); add only to winning positions (progressively smaller amounts).

■Don’t be influenced by others; stick with your edge/plan.

■It is important to forgive yourself when you make a trading mistake despite your best efforts.

Technical Analysis

■Reduce or dispose your position if a trend line you are watching is violated, especially with heavy volume. Don’t hope that the trend line break is a fake one.

■Never trade based on indicator divergence (with price) alone. Divergences can go on for a while, with price continuing to make higher highs and the indicator continuing to make lower highs (or price making lower lows with indicator making higher lows).

Money Management

■Try not to lose more than 2% of your capital on a single trade. Stop trading to re-examine the situation if you lose more than 6% of your capital within a month or have consecutive losing trades.

Hard Work

■At the end of the day, record your trades and the thought process (including charts if possible) that went into making those trades.

Note: Some expert traders scoff at the idea of placing a stop as soon as a trade is entered (they might have mental stops for their positions). But if you have trouble cutting losses and if there is a chance that you could freeze like a deer in the headlights when you are hit with a huge loss, it is best to set a stop as soon as you enter a position.

Follow these simple stock trading rules and here’s to happy trading!

Good Luck!

KLCI: Still Marching Towards 2000

2012-01-03T07:30:00.003+08:00

Bravo! Congratulation to you! If you still with the market and did survive rough volatile last year. Yes, you survive from the market :-). Those who still struggling or not earn enough $$$, not to worry, there is ample room for you to grow in the market again this year - Be the one to "Beat the Market".

Well, since our KLCI did not able to make it to 2000 in 2011, I re-write this target to this year! With current new year mood and progress in EU in dealing with debts, local front ETP development and GE13 will be the main catalyst for the market to rally.

Technical perspective, after hitting near 1600 a dive happen and bottom out at 1310 level (which luckily did not happen to breakdown below 1300 level is my crucial point to keep KLCI alive and bullish) and a strong rebound happen to push the index above 1500 last year closing. Base on this build up, I am still bullish with our KLCI performance and looking forward for more rally to come.

I would recommend that to monitor the index point that it will not turn down the 1500 level so easily and if that happen this is the time or opportunity for more buying.

LONG LIVE BURSA for more RALLY. :-)

Happy Trading and Good Luck.

[Previous KLCI Posting]
http://bursabulltrader.blogspot.com/2011/01/klci-marching-towards-2000.html

Does The Rally Have More Hop?

2011-01-10T07:30:00.002+08:00

The stock market barometer hit a historical high recently. Will it have more bounce or could it hit a bump in the Year of the Rabbit?

CALL it the January effect, a pre-lunar rally or a pre-election run. In fact, call it whatever you want but this is the fact the stock market has never, in its history, risen to current levels before.

Investors cheered at the beginning of this week when the 30-stock key benchmark index, the FTSE Bursa Malaysia KL Composite Index hit a fresh high of 1,533, up 14.5 points or 0.96%.

In the first week alone, it has risen more than 2.5% in ringgit terms and 2.3 % in US dollar terms.

Daily trading volumes have also been robust, crossing the average 2 billion mark against the average of some 1 billion last year.

“Granted, the index is not the perfect gauge as it is only made up of 30 component stocks but the positive sentiment is contagious and it is spilling over,” remarks a market observer.

The reasons for such exuberance includes stoked expectations of a general election in the first half of this year, massive global liquidity arising from quantitative easing in the Western world, a rising ringgit and commodity prices and a firm economic outlook, or at least economic recovery stories in most parts of the world.

This begs the question is the current upswing more than just a flash in the pan?

Laggard compared to the rest

Noteworthy is that the Malaysian stock market, relative to most of its Asean counterparts, has not gone up as much in the past one year.

For example, last year, markets in Indonesia, Thailand and the Philippines were up 54%, 61% and 52% in US dollar terms as opposed to Malaysian equities which had risen 31%.

“That alone is more like reaching the top step of the kitchen ladder rather than the stars in the sky,” says Gerald Ambrose, the head of Malaysian operations at Aberdeen Asset Management.

Ambrose is quite confident that the current rise in the Malaysian stock market will continue. “It is real and the momentum appears to be intact,” he tells StarBizWeek. Naturally, no one quite knows how long the rise will continue.

“It could go on for the whole year to produce a huge equity bubble by the end of it. Or it could all go wrong tomorrow!,” says Ambrose.

Vincent Khoo, head of research at UOB KayHian writes in his 2011 market strategy report that macro domestic conditions in the first half of the year are favourable for a healthy market, with benign inflation and a firm economic outlook, boosted by the unfolding of the New Economic Model (NEM) which brings with it various degrees of financial liberalisation and mega infrastructure projects.

However, the second half of the year's performance, he says, would have less upside and as such, Khoo is advising clients to switch to being defensive, in anticipation of a “jerkier” market due to possible resumption of interest rate hikes here and less accommodative monetary policies in the West.

OSK Research head Chris Eng shares the same sentiment with Khoo, saying that the first half of the year is well positioned for a robust stock market while the remaining two quarters of the year could see some volatility largely due to the same reasons.

“For the time being, you can call it a pre-lunar rally, an election rally or the Capricorn effect, but the effect is the same!” says Ambrose.

Liquidity Rush

The massive amounts of liquidity totalling hundreds of billions of US dollars released from the credit and quantitative easing (QE) measures by the US and other developed countries such as Japan, European Union (EU) zone and Britain are currently flowing into high growth countries including Malaysia, in search of better returns.

“With the present low interest rate regime globally, hence low yields on fixed income and deposit instruments, it makes sense to be overweight on equities and Asia will be the focus of global investment funds given their growth potential,” says Danny Wong, CEO of fund management firm Areca Capital.

In this regard, a recent report by Credit Suisse Group AG showed that net foreign buying in Malaysian stocks surged to RM2.6bil in December from RM900mil the month before.

From the foreign exchange point of view, the weak US dollar is also a push factor for the influx of funds into Asia, encouraging investors to put their money into Asian equities, says Wong.

Last year, the ringgit appreciated more than 11% against the greenback.

“With this influx of investment money into Asia, Malaysia will gain from the spillover effect, if not directly benefit from the inflows,” says Wong.

The macro perspective

From the economic fundamental point of view, major economies such as the US and the EU zones are showing uneven recovery from their last crises, but economists are expecting some stabilisation of sorts in the near-term.

A slew of positive economic indicators from the US recently, for example, suggests that things could be getting better there.

On Tuesday, figures showed that new orders for US goods rose while the reading for the US Purchasing Managers Index a headline indicator for economic activity was also higher at 57% in December. A reading above 50% reflects growth.

Employment figures another key economic barometer were also healthier, rising 100,000 in December, the most since November 2007, according to Bloomberg.

Over in Europe, China has pledged its support for the zone, promising to help it out of its debt crisis by signing multi-billion contracts and buying up its bonds.

Domestically, growth is expected to be slower this year, coming from a high-base effect last year. Economists are predicting the economy to grow at about 5.3% this year from roughly 7% in 2010.

However, the equity market will continue to be supported by still relatively high double-digit corporate earnings buoyed by underlying domestic and global economic activities, says Areca's Wong.

The country's economic transformation programme (ETP) which includes plans to build a RM36bil mass rapid transit system, if wholly and successfully implemented, is likely to galvanise private investments.

Along with the Government's support of domestic consumption spending, the private sector will benefit from the economic growth, notes Wong.

“The implementation of the Greater KL for instance will benefit the construction, property and financial sectors with indirect spillover effect to other related sectors such as raw materials and other infrastructure industry,” he says.

Wong, as a fund manager believes that the confidence and perception towards Malaysia have somewhat improved among foreigners of late, largely due to the recent investment-friendly measures announced.

The lifting of certain controls and restrictions such as foreign holding limits in the financial sector, efforts to cut subsidies and the plan to reduce the country's budget deficit are among the contributing factors to a better perception of the country's transformation, he adds.

One fund manager says the promotion of Malaysia as a global Islamic financial hub has also put Malaysia on the radar screen of global investors.

“Once there is confidence, our “domestic champion businesses” such as the oil palm, glove, oil and gas and gaming sectors will be magnets to foreign funds,” Wong says.

Further supporting these fundamentals are that investors appear to already be overweight on neighbouring markets like Indonesia, Singapore and Thailand, says Aberdeen's Ambrose.

Data-wise, foreign institutions' holdings in Malaysian equities, although off their lows, are only about 22% now versus the peak levels of 27% in 2008.

Adds Ambrose: “Whilst valuations for Malaysian stocks are hardly at bargain basement levels by our calculations, our portfolio is on about 16 times 2011 earnings with earnings growth at a conservative 5% neither does it look anywhere near overvalued.”

In terms of FBM KLCI targets, UOB KayHian has a year-end target which is pretty similar to most research houses in town. It is targeting for the index to reach 1,654 by year-end based on a 2012 forecast price earnings of 14.5 times.

Wong notes many market trend followers believe that the market should enjoy “good times” for the next two to three years since the last financial crisis was in 2007 to 2009 and the market just started rebounding in the second quarter of 2009.

“Further, the expectations of an early election may provide a feel-good factor for a rally,” he adds.

Analysts also note the Government's efforts in reducing its stakes in major Government-linked companies including in Telekom Malaysia Bhd, Tenaga Nasional Bhd and Malaysia Airport Holdings Bhd, which will likely enhance participation from the retail market and foreign investors.

The downside

What could throw a spanner in the works in the current surge? Plenty, according to experts.

The issue of hot money and how quickly these funds could flow out as it has come into the Asian markets is one main risk.

Everyone knows that Asian economies are currently seeing strong inflow of funds as Western investors try to diversify from the horrors of holding US dollar, Euro and Sterling, Ambrose notes.

Because of this, several emerging economies have imposed various new measures to control excessive inflows of hot money.

“Malaysia has not joined in any of these measures so far (which has restored a lot of credibility in my view), but this remains a great uncertainty for Asian markets this year,” says Ambrose.

He emphasises that the various austerity measures taken up by the US Fed and the European Central Bank to tame their respective deficits in the wake of the financial mess they are in are unprecedented and could result in unforeseen consequences.

Example, Spain said last year it would reduce public investment, slash public wages by 5% and freeze them this year while suspending a raise in pensions.

“Unprecedented measures can result in unforeseen consequences. There could be more collapses in peripheral EU countries as a result of the measures, which can then derail everything,” Ambrose says.

Inflation could also derail the current rise in regional and global equities. Inflation, particularly cost push inflation caused by higher food and fuel prices hurts the man in the street in terms of higher prices.

Just earlier this week, the price of RON 97 petrol went up by 10 sen to RM2.40 a litre.

“It's possible that inflation could force Bank Negara to raise rates, hence slow money supply, thus making equities less attractive,” Ambrose says.

OSK Research warns of political instability including the possibility of wars specifically between North and South Korea as factors which can drag the market down.

In our view, however, the largest potential risk we see for 2011 will be if investors lose confidence in the US economy, and specifically the US dollar,” it says.

Geopolitical risks, contagion effects of sovereign indebtness, a double-dip recession. All these are risks.

Wong from Areca probably sums it up best when he says: “As always, it is advisable for investors to diversify their investments into various assets classes.”

In terms of fixed income, investors should keep to short-duration liquid bonds as inflation, likely to be driven by cost-push factors such as energy and food price hikes and subsidy cuts, may kick-in soon.

Source: http://biz.thestar.com.my

M'sian Economy To See Increased Activities

2011-01-06T07:30:00.001+08:00

Oil and gas, construction sectors expected to accelerate in 2011

PETALING JAYA: The Malaysian economy is likely to experience increased activities especially in the oil and gas and construction sectors as well as the capital market.

HwangDBS research head Wong Ming Tek expects the acceleration of oil and gas contract awards in 2011, namely, in brownfield services, marginal fields, downstream EPCC (engineering, procurement, construction and commissioning) and deepwater exploration.

“The year 2010 has been lacking in contract awards but the groundwork has been laid for a more robust 2011. The market has seen strong momentum in newsflow and development over the last few months,” said Wong.

Wong feels that 2011 will also see more execution on the Economic Transformation Programme (ETP). “The ETP will take centre stage this year. The challenge is in the execution. If implemented successfully, the ETP will be significant for our economy and equity market,” said Wong.

Areca Capital chief executive officer Danny Wong is also placing hope on the ETP as he feels that the implementation of the ETP projects will lead to some form of confidence building among foreigners.

“Malaysia has today somewhat transformed and I feel that the perception currently is better than it was two years ago. These ETP projects can sustain Malaysia's economic growth, but more importantly, their successful implementation can put Malaysia back on the radar screen (of investors),” he said.

Danny added that with the quantitative easing (QE) measures by the US Government, there was liquidity out there looking for a place to park and Malaysia could benefit from this.

QE refers to the Federal Reserve's efforts to jump-start the economy and stave off deflation by buying back US$600bil in Treasury bonds, hence putting more money into the system.

Danny also feels that the normalisation of interest rates will take place but it would not be as much as what most people predict because the economy was still on an unsteady footing. While many would be looking forward to continuing the year on a high note, there are risks for investors to watch out for.

Key risks include persistent concerns about sovereign debt in the eurozone, upside risk to inflation, credit-financed flows inflating asset prices and QE possibly restraining the effectiveness of monetary policy.

According to CIMB economist Lee Heng Guie, 2011 will be marked by four key trends with the US Federal Reserve's second wave of quantitative monetary easing setting the stage.

“First, a two-speed recovery of mature and emerging economies is becoming more entrenched. Asia's growth, though slower, should be buffered by internal engines as exports take a back seat,” he said.

The second trend is a resurgence in capital flows to emerging markets. With the US Fed embarking on a new round of easing, much of the fresh liquidity created will be heading to emerging markets on the hunt for “carry trade” or higher returns.

The third trend is volatile currencies. “The persistent strength of capital inflows is bound to add upward pressure on exchange rates in Asia, forcing the central banks to limit currency appreciation through a myriad of measures, which include foreign exchange intervention and quasi-controls,” said Lee.

Fourthly, the interest rate normalisation is expected to continue. Lee believes Asia would remain ahead of the global monetary tightening cycle as interest rates normalisation would resume in the second and third quarter of 2011 when the recovery becomes more entrenched.

KLCI: Marching Towards 2000

2011-01-03T07:30:00.001+08:00

Congratulation! for our local mart to be able to hold above 1500. Since early 2010 the index has added around 300 points from its low of 1225. This represent of more than 20% increase. So, how about in 2011? Well, I would say the bull still charging up at current level as it trying to make new high going forward. Of course any new high or uptrend there will be a sharp pullback and it will be limited - I would recommend this is the time or opportunity for buying. As the bull is in control, do note of the silent bear waiting for killing. Any index pullback below 1500 in 2011 will be slightly negative and index shoot below 1300 is what I do not want it to happen. I believe 1300 will not be the case in 2011 and I still confident in our local mart will perform better. LONG LIVE BURSA for grabbing the figure 2000. :-)

Happy Trading and Good Luck!

[Previous KLCI Posting]
http://bursabulltrader.blogspot.com/2010/06/klci-byond-1500-or-blow-1150.html

Asia Will Steer World Economy In 2011

2010-12-15T07:30:00.001+08:00

SHANGHAI: The prolonged weakness in the U.S. and Europe may be the least of Asia's troubles in 2011, economists say, as the region fights potentially destabilizing inflationary pressures.

Asia will lead global growth in 2011, with China, now the world's second largest economy, steady at about 10 percent growth, the government-affiliated Chinese Academy of Social Sciences forecasts.

With a strong rebound in the U.S. or Europe just as unlikely as a relapse into a "double-dip" recession, Asia is easing its way out of stimulus programs launched during the financial crisis. But the U.S. Federal Reserve's effort to nurture job creation through fresh "quantitative easing" has governments across the Pacific maneuvering to keep price pressures from spiraling out of control.

"The inflation outlook is really critical at this point," UBS economist Duncan Wooldridge said in a recent conference call, noting that excluding Japan, consumer price inflation in Asia has been averaging about 5 percent.

"From my perspective there's really only one thing that matters at this point: inflation," he said.

China's consumer price inflation surged to a 28-month high of 5.1 percent in November. The government raised interest rates in October for the first time since the financial crisis struck and has shifted to a "prudent" monetary policy for 2011 from one that was "relatively loose," signaling its intent to tighten credit as it fights price hikes.

Focusing on the politically sensitive food prices that are said to account for up to three-quarters of the latest inflationary spike, the Chinese government ordered a crackdown on commodity speculation, price caps for edible oil and subsidies for the poor.

It is already claiming some success in bringing prices for some vegetables and fruits lower. Meanwhile, the weather problems - like drought in south China and floods in Pakistan and Thailand - that have pushed food prices higher should moderate by midyear, according to most forecasts.

But inflation remains a threat, especially for emerging economies that are attracting large inflows of money from investors seeking higher returns than they can get from U.S. Treasurys and shares. The surging liquidity is adding to pressures on Asian economies to either raise interest rates or let currencies that already have gained substantially against the weak U.S. dollar appreciate further.

"Emerging economies can stop inflation if they are determined," says Shanghai-based independent economist Andy Xie. But he figures that an effective strategy would require raising exchange rates by up to 50 percent and interest rates by 10 percent.

"There is almost zero chance for them to pursue such a contractionary policy," he says.

Those options, while unpalatable, reflect the region's relative strength compared with the U.S., EU and Japan, says a report by Macquarie Securities.

"Treading the fine line between growth undershoot and inflation overshoot is a challenge that is particular to Asia," it says.

Japan, now the world's No. 3 economy after it was overtaken by China this year, faces no such dilemma. Though its economy gained momentum in the third quarter, that is fading as slowing overseas demand and the strong yen bite into exports, while deflation continues to stymie growth.

With recession-stricken Americans unable to resume the kind of freewheeling spending that powered growth for much of the past two decades, the recovery increasingly hinges on Asian resilience.

"Asia is depending on demand in this part of the world," says David Cohen, a regional economist for Action Economic in Singapore. "That's where it's going to have to come from."

So far, China's rebound has largely been powered by massive bank lending in support of government stimulus, backed by steady, double-digit growth in consumer spending. The benefits spill across the region, from coal and iron ore miners in Australia and Indonesia, to semiconductor makers in South Korea and Taiwan.

As they launch a new five-year economic plan and prepare for a leadership transition in late 2011, China's leaders have signaled their determination to keep growth at a steady pace with a recent announcement that they will stick to a "prudent" monetary policy for the coming year, says Ye Tan, a popular economic commentator in Shanghai.

"In my view, they are sending the message that once the government curbs inflation, it will carry on with another round of investment to ensure it can meet its growth goals for 2011," Ye says. - AP

BursaBullTrader Trading Buy v1.0

2010-12-10T07:30:00.006+08:00

Well, I just finish formulate my own 1st ChartNexus XpertTrader rules. Now release as version 1.0. :-) My purpose is to spot the trading potential of the selected counters. I put it for test to run on 01-Dec and come out 12 counters. I have to do manual filter out this counters which is PNxx, very abnormal low volume, higher price or simple conclusion - counters that not to my preferences. I try to set this condition (volume >= 0.3M and shares price <= RM2.00) in XpertTrader but I did not manage to find this option. Anyway, this is not a big deal, the list of counters XpertTrader screen out really help a lot of my other manual works :-D. After further filtering, I have 2 counter that got my attention: INCKEN (+0.070 in 2 days) & TWSCORP (+0.100 in 2 days). As per today 09-Dec, I still see this counter has upside potential.

Another test I did is on 06-Dec. Here is my further manual filtering counters: KSL, PETRA, SCOMIEN & UEMLAND. So far KSL (+0.050), PETRA (+0.115) & UEMLAND (+0.290) has made a good performance for this 2 days till 9-Dec. SCOMIEN (-0.100) still down on profit taking and I believe it will shoot up sooner or later.

Happy Trading!

Global Economy In Another Super-Cycle

2010-12-07T07:30:00.001+08:00

THE world economy is in a super-cycle. This is a period of historically high global growth, lasting a generation or more. There are many factors driving this, including rising trade, high rates of investment, rapid urbanisation and technological innovation. Super cycles are also characterised by the emergence of economies enjoying rapid growth, such as China, India and Indonesia now.

The world economy has twice enjoyed super-cycles before. The first, from 1870 to 1913, saw a significant pick-up in global growth, with the world growing on average each year by 2.7 per cent a full 1 per cent higher than previously seen. That cycle was led by the emergence of the US and saw increased trade and greater use of technologies from the industrial revolution.

The second super-cycle, from 1945 to the early 1970s, saw growth averaging 5 per cent and was characterised by the post-war reconstruction and catch-up across large parts of the globe. It saw the emergence both of a large middle class in the West and of exporting nations across Asia, led by Japan.

We may now be in another super-cycle, with aspects similar to those seen in the first two super-cycles. For people in Asia and across the emerging world the idea of strong growth may not sound unusual. But for many in the West, the thought of a super-cycle may sound strange, given the present problems confronting the world economy. Yet the reality is the world economy now is over US$62 trillion (RM195.3 trillion), about twice the size it was a decade ago, and it has already exceeded its pre-recession peak.

Over the last two years, its rebound has been driven by policy stimulus in the West and by stronger growth in the East. Indeed, emerging economies, which are one-third of the world economy, currently account for two-thirds of its growth. This trend looks set to continue. By 2030, the world economy could grow to US$308 trillion (RM960.75 trillion). Excluding inflation that would equate to US$129 trillion (RM406.35 trillion) in real terms, or in today’s prices, and to US$143 trillion (RM450.45 trillion) keeping prices constant but allowing for some emerging-market currency appreciation. The projections would imply a real growth rate of 3.5 per cent for the period between 2000, when the super-cycle started, and 2030, or 3.9 per cent from now to 2030. That would be a significant step-up compared with 2.8 per cent between 1973 and 2000.

What is remarkable is not only the likely scale of this expansion but the fact that these forecasts are based on projections for growth that some might even think are too cautious! For instance, China is expected to grow on average 6.9 per cent per annum over the period to 2030, and India by 9.3 per cent. By 2030, India may have become the world’s third largest economy. Moreover, Indonesia, currently the 28th largest economy may have moved to 5th largest in twenty years, having enjoyed nearly 7 per cent average growth over that period.

There are always risks that could impact global growth. The first super-cycle ended with the outbreak of the First World War, the second with the oil shocks of the early seventies. Hopefully, the world today is better placed to address such risks, thanks to the emergence of international decision making bodies and policy fora such as the G20.

It is important to stress that a super-cycle does not mean that growth will be continuously strong over the whole period. For the last three or four years we have been amongst the most pessimistic about US growth. I am still cautious. Despite the benefits of quantitative easing, the US economy will still struggle in the year-ahead, growing below trend. Likewise, Europe and Japan face a sluggish near-term outlook where growth will be modest.

All this makes it even more remarkable if Asia can drive more of its own growth. That is, after all, what the world needs. Next year, China sees the first year of its twelfth five-year plan. That should help growth. But, even allowing for this, the Chinese and other central banks across Asia will be tightening policy to cap inflation. In turn, this should allow growth to be more sustainable, but at rates either close to, or even below, those seen this year.

So, even in a super-cycle, there can be challenges for policymakers. Just as it is important to focus on near-term challenges, it is also vital to keep sight of longer-term opportunities. During the super-cycle, we believe that China can displace the US as the world’s largest economy by 2020, far sooner than many expect.

Whilst such forecasts give a scale of the outlook, it is the story behind what is happening that is as important.There is the scale of the economies that are growing. As emerging economies grow they will exert greater influence on the world economy.

Then there is the impact from the growth of new trade corridors. Close to 85 per cent of the world’s population are becoming increasingly inter-connected through trade, allowing an unprecedented number of people to contribute to the global economy. Cash and financial resources will be critical drivers of growth, given the need for investment, particularly in infrastructure.

Then there is what I call perspiration, with more people working and spending, and inspiration, with greater use of innovation and technology. The countries that will succeed will be those with the cash, the commodities and the creativity.

In recent years I have described what was happening as the New World Order, reflecting a shift in the balance of economic and financial power from the West to the East. While still valid, a super-cycle better reflects what is happening. It is still possible for the West to do well in this environment, particularly if economies there are creative yet it is Asia that appears to be the clear winner.

Dr Gerard Lyons is group head of global research and chief economist at Standard Chartered Bank

My Trade Story: AIRASIA & PENERGY

2010-12-02T07:30:00.003+08:00

Let start with AIRASIA. It really gave me a slapped by closing at uncomfortable zone of 2.65 on 30Nov. I have unrealise lost of -0.030. My average buy price is 2.68. You may refer to "My Trading Diary" on the right panel column for live trade detail. Well , this closing initiate my defensive play which I worked out for next day. Luckily I manage to sold all my AIRASIA between 2.67 and 2.68. I did not planned to exit but have planned to SHORT this stock and make an intraday gain. So the time have come when the counter shoot below 2.60 which is my 1st level buy price and grap some back @ 2.59. Still I patiently waited for 2.53 - 2.55 level. Finally it shoot to low of 2.55 and end up manage to buyback all my stock and top up some more at cheaper price to average down by bring down my buy price to 2.605. * Do pls care your study detail if you planned to do this kind of attempt :-). In conculsion, I make an intraday gain of +0.100 and still make some loss of -0.025 for my holding as at today. My next eye will see how is the breakout trend support reaction.

Short term wise, AIRASIA still a bullish counter from my viewpoint . The technical MACD has a bullish crossover and stay above the zero line and the breakout trend line of 2.53-2.55 still provide the main support. If this level is broke down, this will be totally different story.

How about PENERGY? Well this counter is not as naughty as AIRASIA (so far) :-). I still in the comfort position as my holding price is at 1.459 +0.060 per today closing. On 30Nov it created a candle that looks like shooting star, but indeed it is not - as it close new high of 1.52 created on 29Nov. Today I expect the price to hit 1.49 -1.50 to test the support of up trend line (now act as support). It did test the support and by closing well as unchanged. Although is a black candle but this candle form a confirmation that this will be a bullish continuous pattern. Tomorrow 02Dec will tell the story to confirm this trend when it close as new high. If it is not, I have to look for the support at 1.49 and this will bring me to another attention either to exit or SHORT the counter. Hopefully this will not happen.

Short term wise, PENERGY is bullish with tested upper trend line and rising MACD.

Hopefully all goes well according to planned and I can ride with the bullish trend.

Good Luck and happy trading for all of us. :-D

10 Common Trading Errors

2010-11-29T07:30:00.003+08:00

1. Little Preparation or Training

When you enter the market arena, you had better be prepared. However, few traders perform the necessary due diligence before moving headlong into the markets: "The market is a food chain — the big fish eat the little fish."

Dr. Elder agrees that many people underestimate what it takes to be a profitable trader.

Recommendation: Enter the market with a sufficient amount of training, through vehicles such as books published on securities trading, educational courses, and trading conferences.

2. Being Too Emotional About Money

According to professionals, the reason many emerging traders fail to consistently earn profits is because of their perceptions of money.

There are ways to desensitize one's emotional connection to money. Start by trading smaller share size (such as 100 shares per trade). Trading in smaller quantities can help minimize both the losses and the emotional distress that often comes with losing larger amounts of capital.

Recommendation: Over time, as a trader becomes more successful, experts suggest slowly raising the share size — without raising your blood pressure — until a personal comfort zone is reached.

3. Lack of Recordkeeping

It's understandable why traders become emotional when trading stocks. To help bring these emotions under your control, keep a detailed trading diary.

Recommendation: Track your trading history by using a daily diary and study your progress.

4. Anticipating Profits

Most traders don't want to acknowledge that a trade could turn against them. They enter the market assuming they'll be successful, refusing to look in the rearview mirror. It's also common for emerging traders to use a calculator to predict how much they'll make and how they'll spend the unrealized profits! It's dangerous to anticipate how much you'll make in advance.

Recommendation: Enter a trade with the understanding that you may not be right. It can then be easier to acknowledge if a trade goes against you.

5. Blindly Following Mechanical Systems

A large percentage of traders use technology — in the form of online trading platforms that provide charting, research, and backtesting tools — to help them refine their strategies. A computer and software can provide important information about the technical and fundamental characteristics about stocks. However, many traders make the common mistake of relying too much on these tools without a full understanding of their capabilities.

Recommendation: Understand that computers and software trading platforms are only tools. Learn how to grasp the underlying trading concepts — such as reading and analyzing a chart —and know the reasons why you bought and sold a security.

6. Not Learning How to Short

If you fail to learn how to utilize short trading strategies, then you have cut yourself out of a number of profitable trades. Many people think that shorting is un-American or too risky.

By not learning know how to go short, you're removing a significnat percentage of potential trades, especially when the Bull market falters. The market is a two-way street, and the person who doesn't short is missing a part of the game.

Recommendation: Don't underestimate the importance of shorting stocks, and learn how to utilize this technique.

7. Lack of Specialization

Many people are attracted to trading because they think it's an easy vehicle for making money. However, there are several types of securities that can be traded in today's markets, including stocks, options, commodities, futures, and currencies. It is a daunting task to learn the characteristics of each security type. Therefore, it's often helpful to specialize.

Recommendation: Know what you trade. Don't spread yourself too thin by trading markets that you don't understand.

8. Improper Timing

It's very common for emerging traders to make timing mistakes. Quite often, a trader may have a good idea, but discovers that he or she bought the stock at an inopportune price. Timing a trade is never an exact science, but it's important for traders to recognize that there are times when it might be prudent to lock in a profit or cut a loss.

Recommendation: A detailed trading diary and experience could help minimize timing errors.

9. Placing Improper Stops

Many traders incorrectly place stop orders, causing their positions to get stopped out too early and failing to capture much profit. It's common for newbies to place stops according to a set percentage, such as 2%, or a set amount. How much a trader is willing to lose depends on his or her risk-tolerance.

Place stops according to what the market is telling you, such as support and resistance levels. When placing a stop, let the stock's behavior, or a standard deviation, tell you where the best stop placements are.

Recommendation: Try placing stops according to the stock's standard deviation, rather than on the basis of percentages or dollar amounts.

10. Not Calculating a Stock's Risk-Reward Ratio

Many traders do not calculate the risk-reward ratio of a stock trade before they establish a position. A stock's risk-reward ratio is the relationship between an investor's desire for capital preservation at one end of the scale and a desire to maximize returns at the other end.

How do you determine a stock's risk-reward profile? There are three common components of a stock's risk-reward ratio: current stock price (a known); and a profit objective and stop exit price (both subjective). Calculating a profit objective and a stop exit for a trade often involves many factors, such as standard deviation or technical indicators, including Fibonnaci and moving averages.

Recommendation: Before you enter a trade, the first question you should ask yourself is: What is the risk-reward ratio of trading this stock? If you are a novice trader, using a low risk-reward ratio could help lower your potential downside.

Strong Economic Growth Ahead For M'sia

2010-11-12T07:30:00.000+08:00

Asia leading the global recovery

DURING the first half of this year, Asia was in the lead of the global economic recovery. As analysed in the International Monetary Fund’s (IMF) latest Regional Economic Outlook for Asia and the Pacific (REO), this strength in activity was fuelled by both strong exports and robust domestic demand.

As anticipated, export growth for the region has moderated in the second half, reflecting the sluggish recovery in the United States and western Europe, as well as the maturing of the global inventory cycle.

In line with regional trends, Malaysia too has rebounded impressively from the impact of the global financial crisis. Growth in the first half of the year was 9.5%. While export growth in Malaysia has moderated, domestic demand – in particular from the private sector – remains robust and a broad-based expansion is under way.

The outlook for Malaysia is strong

For Asia as a whole, still accommodative macroeconomic policies, robust consumer confidence, improving labour markets, and higher asset values are all expected to help sustain consumption. In line with this, we project that Asia will grow at 8% in 2010 and a more sustainable 7% in 2011 as the recovery matures further.

The near-term outlook for Malaysia also remains strong. Domestic demand, led by consumption, is expected to continue to make a substantial contribution to growth. Macroeconomic policy settings have been normalised to reflect the transition to private sector-led growth.

The resumption of fiscal consolidation is welcome, while the monetary policy stance has become less accommodative but still remains appropriately supportive of growth. Moreover, the ringgit has appreciated markedly, providing further support to domestic demand as the driver of growth over the near term. In line with the above, we expect Malaysia’s GDP growth to be close to 7% this year and 5.5% in 2011.

The region still faces risks

Despite the overall favourable outlook for the region, some important risks continue to cloud the horizon. The fragility and unevenness of the global economic recovery remains a concern. An unanticipated weakening in activity in the advanced economies would spill onto the Asian economies through weaker export growth. Asia as a whole has also attracted large capital inflows since the middle of 2009, reflecting ample global liquidity and favourable growth prospects for the region.

While asset markets in the region generally do not appear to be overvalued as of now, further capital inflows could pose vulnerabilities if they result in unsustainable asset valuations or excessive expansion of domestic liquidity. Inflation has already bottomed out in many countries across the region, and house price pressures have emerged in some economies.

This constellation of risks calls for a continued and cautious normalisation of macroeconomic policy settings, and careful monitoring of the financial sector. Macroprudential measures that have been implemented in some economies remain an important element of the toolkit to guard against financial sector risks.

Finally, should the downside risks to global growth materialise, Asian policymakers have ample room to readjust macroeconomic policies to counter any adverse effects on economic activity in their own economies.

In Malaysia, the financial sector has weathered the global crisis well and corporate balance sheets remain strong. The authorities have demonstrated an impressive track record in proactive financial supervision and sustained efforts to develop financial markets both in the conventional and Islamic finance areas. Nevertheless, there are some risks that need to be closely watched. For example, Malaysia too could be vulnerable to large capital inflows and excessive asset price rises. Household debt is also high, although this is mitigated somewhat by substantial asset holdings. We are confident that the authorities have the tools to address these risks, should they materialise.

The challenges for Asia over the medium term

What are the challenges for Asia over the medium term? The global financial crisis demonstrated the need for the region to rely more on a “second engine of growth” – namely domestic demand. Rebalancing towards domestic demand requires sustained steps to increase domestic consumption and investment, including through fiscal measures, structural reforms in labour, product and financial markets, as well as greater exchange rate flexibility.

Fewer motives for precautionary saving and greater incentives for businesses to increase investment in domestically-oriented sectors should be among the outcomes of such reforms. In the REO, we demonstrate that improving access to credit for small and medium enterprises operating in domestic markets, including services, as well as to increase investment in infrastructure, could help ignite the second engine of growth in Asia. Indeed, the development of SMEs and access to financing is an area Malaysia has emphasised and made progress on in recent years.

There are significant challenges for Malaysia too over the medium term. The growth momentum which propelled the country from low to middle income by the early 1990s stalled after the Asian crisis.

As a result, Malaysia continues to remain a middle income country while some of its peers that started from similar initial positions have achieved higher per capita incomes. As rightly recognised in the authorities’ Economic Transformation Programme and the 10th Malaysia Plan, rekindling the growth momentum requires deep structural and fiscal reforms to unlock Malaysia’s growth potential.

The key to success will be implementation. The reform process should proceed at a measured pace and take into account the need to protect vulnerable groups. At the same time it needs to be steady and sustained.

Key reforms under way must be pushed forward. In particular, poorly designed subsidies – especially fuel subsidies – should be phased out and replaced with targeted assistance. Improving the business environment by levelling the playing field through reform of government-linked companies and further labour market liberalisation will also pay dividends.

The IMF stands ready to contribute its international perspective and global expertise to the ambitious goals that the Malaysian authorities have set for themselves. We are looking forward to continuing a mutually beneficial engagement.

M'sian market at record high - so what is the next thing?

WHAT next? That might be a common question asked after the FTSE Bursa Malaysia KL Composite Index hit a new record high this week and therefore heads into uncharted territory.

That question is difficult to answer because unlike the previous rallies in 1993 and in 2008, the run-up this time around has been surprisingly orderly.

Volume, often an indicator of fervent euphoria, has remained sane and while the index has set a record, trading activity on Bursa Malaysia is nowhere close to previous high levels. This would suggest there is still more room to go.

Although the rise this time has less to do with direct retail interest as it did in the past, the professionalism in investing these days – where more Malaysians are putting their hard-earned money in the hands of professional managers to invest – is also a good sign.

It’s often joked that when retail interest shoots up and everybody becomes a tipster, it’s time to sell. Also a signal would be syndicate activity returning to the market in a big way.

That, to my knowledge, is nowhere close to the situation in previous rallies and surely is a contrarian indicator worth following.

Another fundamental backing to the rise this time would be borne by the efforts ongoing to revitalise the economy, especially the private sector and the investments it is expected to pour into the country.

Some may argue that economic growth might have some correlation to corporate earnings but the balance sheet and cash generation capability of most companies are far better now then in the past.

Maybe it’s also the better health and performance of the largest companies in the country where more focus and strict adherence to key performance indicators now then before have led to better financial performance and hence their attraction.

Furthermore, as more companies in Malaysia venture abroad and with the large commodity companies riding on skyrocketing crude palm oil (CPO) prices, the story at home might not swing investor focus as much as it did in the past.

But the surge in the local stock market also has to do with the amount of money that is swimming around globally, hunting for the best returns they can get.

Between the United States printing money from its quantitative easing and the still super-low interest rates globally, cash around the world has been hunting for returns.

They have so far got it from commodities. Among this group, CPO is rising and rubber has hit an all-time high.

And in emerging Asia, they might have also found an answer for now by buying the currencies of Asian economies.

The flood of money into Asian currencies has led to reciprocal rises in the stock markets in the Philippines and Jakarta, which have in recent months peaked at their all-time highs, suggesting that money is trying to capitalise on growth in equities as well as currencies. Markets in Thailand and Singapore are also rising strongly.

To pour more cold water on the rally, the market is said to be trading at high price to earnings ratio and economically, the horizon globally is less rosy.

Malaysia’s economic growth is forecast to fall next year to between 5% and 6% from a projected 7% this year.

Is 2010 a replica of the 1993 bull run? I don’t think so although most would love the ride, not the end.

The situation this time is vastly different but any time a market hits an all-time high, some caution should come into play. A market high does not happen often.

Deputy news editor Jagdev Singh Sidhu is cautiously optimistic that the rally this time would not be accompanied by companies with poor fundamentals promising a pot of gold for unsuspecting punters.

Malaysia Equities Poised For Bull Run

2010-11-10T07:30:00.004+08:00

Malaysia’s equities market is on the verge of a bull-run similar to the one seen in the early 1990s and the indications are that it is sustainable, the chief investment officer of HwangDBS Investment Management said.

“Conditions for 2011 are ripe and any pull-back now is an opportunity for investors,” said David Ng, who manages about RM8.9 billion for the fund house.

Malaysia, he said, is “unexpectedly exciting” so long as the government can execute the projects announced in its US$444 billion economic transformation programme last month.

However, Ng cautioned that it would not be a repeat of 2009-2010 where over 90 per cent of stocks rose following the crisis.

“2011 will be about stock-picking,” he said.

The benchmark FBM KLCI has risen by almost 20 percent since the start of the year, setting a 34-month record on yesterday.

The FBM KLCI has risen more than its Singaporean counterpart, but has not matched the meteoric rises in Indonesia, Thailand and the Philippines, which have surged over 40 per cent each.

Analysts say part of the reason for the KLCI’s climb is the pre-election enthusiasm, but Ng said there were fundamentals supporting the rise. Malaysia is expected to hold general elections next year although they aren’t due until 2013.

Present conditions were similar to those in the 1992-1994 bull run, Ng said, and the low interest rate environment in developed economies could further fuel the growth spurt here.

Analysts expect further massive inflows of capital into Asia, driven by the second round of U.S. quantitative easing and warn that this may spark inflationary pressures and asset bubbles.

“Areas where we are positioned are the oil and gas sector and banking in Malaysia,” Ng said. “Regionally, we like technology and tourism in Singapore.”

The performance of these sectors will continue to be fueled by demand from big emerging economies such as China, India and Indonesia, and are insulated from a slowdown in developed markets, Ng said.

He said he preferred high-yielding dividend stocks as those companies tended to have better fundamentals.

The inflow of funds has been well-documented by international observers, and has led the World Bank to issue a warning over the possibility of asset bubbles. Ng said bubbles posed a real risk but there have yet to form.

HwangDBS Investment Management has averaged a 15 per cent return per annum on its assets under management since 2000, Ng said. - Reuters

FBMKLCI breaches all time high

Persistent support for heavyweights pushed the FBM KLCI to a new all time high today, despite some profit taking in the local bourse as well as key regional markets.

The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) which has been on an uptrend since last week ended 6.68 points higher at 1,526.53, although it had seen an intra-day all time high of 1,526.67 earlier. It had opened 1.87 points higher at 1,521.71.

The previous intraday high record was 1,524.69 seen on Jan 14, 2008.

The bull trend is expected to extend till February next year amid inflow of foreign funds, especially from the US to emerging markets such as Malaysia, Affin Investment Bank Head of Retail Research Dr Nazri Khan told Bernama.

"It is mainly hot money from the U.S. as a result of the U.S. Federal Reserve's policy of quantitative easing amounting to US$600 billion," he said.

Hence, he said commodity-linked counters would be the main beneficiaries.

Nazri said the local bourse momentum was "a sustainable bull-run" as there was still ample of room for growth in the Malaysian equities market.

"There is room for more volume as compared to the regional peers," he said.

HwangDBS sees boom market conditions

KUALA LUMPUR, Nov 9 — Low interest rates in the US and Asia will drive money into equities, creating boom and possibly bubble-like conditions in the stock market, said HwangDBS Investment Management Bhd chief investment officer David Ng.

The investment manager acknowledged that there were still concerns about a double-dip recession, but he sees easy liquidity outweighing weak growth and said that conditions are “right for a boom market”.

“If the US economy grows 2 per cent, it is good enough,” he said in at a press conference today. “As long as there is slow growth and loose monetary policy, it can fuel a bubble. This is a long-term secular trend.”

He said strategists were beginning to be more bullish on Malaysia and noted that some have been talking about current conditions — such as low interest rates and a strong current account surplus — being similar to those leading up to the “super bullish” years of 1993 to 1995 when Malaysian shares were traded at up to 30 times price-earnings ratio.

“Money is like water and will flow to where interest rates and yields are higher,” said Ng. “You are losing your purchasing power by putting money in a bank. Our investment strategy is based on low interest rates. Money has to find a home.”

He said that as the market will be supported by ample liquidity, any pullback in shares is an opportunity for investors to pick up shares and earn more money.

He said that he still sees markets moving up next year after a “muted” 2010 and likes stocks that pay good dividends as they tend to be of better quality.

While acknowledging that Malaysia has tended to be perceived as a boring, defensive and marginalised market, he said that he has been seeing foreign inflow of funds for the past 23 consecutive weeks.

The HwangDBS forecast of a possible boom in equities comes a day after a US-based asset management firm told Malaysian reporters that the inflationary policies in the US would benefit emerging markets.

Stephen Dover, international chief investment officer of Franklin Templeton Investments, said a large consensus has emerged that QEII — the US$600 billion (RM1.8 trillion) worth of liquidity being introduced by the US Federal Reserve by June next year — is positive for emerging markets and a high portion of QEII will go to emerging markets.

Ng cautioned however that the days of high returns experienced in 2009 are over.

“2011 is about stock picking,” he said. “Investors should not be greedy. The big 50-60 per cent returns are behind us and returns will be more normalised.”

Risks to the stock market boom could come from runaway inflation triggering central banks to raise interest rates.

“Too much liquidity has a tendency of leading to inflation and if inflation becomes too much of a problem, they will raise interest rates,” he said.

While Dover said Asian finance ministers will have their hands full trying to prevent speculation and overheating of their markets due to a surge in liquidity from the US, Ng said that he saw little risk of capital controls being implemented.

“We should be smart enough to know that capital controls would make you undesirable,” he said.

Malaysia Bourse Still Has Legs To Run

2010-11-02T07:30:00.002+08:00

MIDF Amanah CEO says the run will be driven mainly by inflows of funds as investors start to see the full potential of the Malaysian and regional markets.

THE Malaysian stock market still has legs to run and the rally is still at the early stage, MIDF Amanah Asset Management Bhd said.

Hence, Bursa Malaysia still offers plenty of opportunities for investors, the wholly owned unit of Permodalan Nasional Bhd said.

MIDF Amanah chief executive officer and chief investment officer Scott Lim said the run will be driven mainly by inflows of funds, both local and foreign, as investors start to see the full potential of the local and regional markets.

"The market is not fair. It is very selective. The first wave of money is very particular on what they choose. They always buy the most blue-chip. They always buy the best-quality companies.

"After they have invested, they make their money and the (price-to-earnings, or PE) valuation will become too high, from 10 times to more than 15 times," Lim told the media in Kuala Lumpur last week.

The local stock market, which fell by about 50 per cent during the global financial crisis, has regained its momentum.

It has risen by some 17 per cent so far this year, and jumped 80 per cent from the 829.41 points in October 2008.

Lim said this meant that investors would have to look for better value.

"They will go and hunt for lower-valuation companies that have better growth in terms of pricing. So, the development of the market is that when it has become matured, investors will go to the next tier and when the market grows even more matured, the investors will go to the lower tiers.

"This bull market is still at the very early stage because there is still a lot of values to be found. I am not sure how many more good years the rally is going to be. It all depends on how fast they re-price this market," he explained.

Lim added that while the "smart" money had come to Asia, the next money, or next big wave, would be from those people unwilling to leave the US right now.

"But the wave will come and, when it comes, it will be bigger than the first wave," he said.

Lim also noted Asia's strong economic fundamentals, which will make it the epicentre of growth in future.

These fundamentals include a high population base, favourable demographic, accommodative interest rates, healthy government fiscal balance and strong household balance sheet.

Is there a super bull run in 2010?

Although the economic situation now compares with that of 1993, the last push must come from local retail investors.

THE recent rally in our local bourse has prompted many seasoned investors, especially those who experienced the super bull run in 1993, to wonder whether the current rally is about to turn into a real bull run. Of course, nobody can tell for sure what will happen next, but we certainly can do some homework, comparing the circumstances back in 1993 against the current situation.

In 1991, Tun Dr Mahathir Mohamad unveiled the philosophy of “Malaysia Incorporated” which was a development strategy for Malaysia to achieve a developed nation by 2020. In the early 1990s, despite slowdown in the global economy, as the third largest economy in South-East Asia, after Indonesia and Thailand, Malaysia was supported by relatively strong macroeconomic fundamentals and resilient financial system. With the real GDP growing at 9.9%, ringgit appreciation, strong export growth and the Government’s measures to hold inflation low at 3.6%, the local stock market became an attractive alternative to foreign investors.

Before 1993, foreign investment in Malaysia was mainly dominated by long-term direct investment in the manufacturing sector. However, as a result of measures taken to develop our domestic equity market, coupled with the strong economic backdrop, we saw a massive influx of foreign capital inflow, which helped fuel the super bull-run in 1993. Within the year, the market increased by 98% to reach an all-time high of 1,275.3 points and foreign investors’ participation accounted for 15% of total trading value of our local bourse. This had also driven the market into a highly speculative one, which lured many retailers into the market, thinking of making fast and easy money.

With the presence of new and unfamiliar players, the market became a huge “casino”. Retail investors bought into stocks based on rumours rather than company fundamentals. Among the hottest topics during that time were the awards of government mega projects, privatisation candidates, sector play and regular news on upward revision of corporate earnings. Examples for the highly speculative stocks were Ekran, Ayer Molek Rubber Co, Berjuntai Tin Dredging and Kramat Tin Dredging.

In 1993, with the economy booming, the Government planned several mega projects, including the KL International Airport (RM8bil), Johor-Singapore Second Link (RM1.6bil) and Kuala Lumpur Light Rail Transit (RM1.1bil). The news of contract awarding immediately sent the market into speculative mood on those potential candidates. Similarly, the news of the Government planning on privatising some of the its own corporations, such as Petronas, KTM and Pos Malaysia had also driven these counters into prime trading targets.

Besides, the ease of accessing bank credit by investors also contributed to the market rally. We noticed that a high percentage of loans was channelled to broad property sector as well as the purchase of securities.

As a result of massive inflow of foreign funds and the super bull run in stock market, Bank Negara introduced a number of selective capital controls in early 1994 to stabilise the financial system,

Recently, our Prime Minister Datuk Seri Najib Tun Razak unveiled the Economic Transformation Programme (ETP) with the aim to boost our gross national income (GNI) to US$523bil in 2020 from US$188bil in 2009. The programme is to attract investment not only from the Government, but also (more importantly) from domestic direct investment as well as foreign direct investment. In view of strong economic growth, our GDP growth is anticipated to increase by 6% this year.

In September, we notice that there was a net inflow of foreign funds again in our equity market. Over the past few weeks, the average stock market daily volume had been hovering above one billion shares per day. Almost every day, the top 10 highly traded stocks were those speculative stocks with poor fundamentals. In addition, we noticed that some retail investors had started to get excited again in the stock market.

According to Andrew Sheng in his book titled From Asian To Global Financial Crisis, there were two main indicators to irrational exuberance during the super bull run in 1993. The first was the amah (domestic maid) syndrome. We need to be careful when amahs got excited about the stock market. This was because they did not know what they were buying and would always be the last to sell. The second indicator was when businessmen began to speculate stocks in the stock market. This was because they might neglect their businesses and use some of their cash for speculation.

Comparing our current market situation with the 1993 bull run, there are certain similarities that we see, such as strong economic growth, ringgit appreciation, inflow of foreign capital and ease of credit. However, our local retailer participation is yet to get boiling, which may be the last push factor towards the bull run. Hence, once the participation of the local investors starts to get heated up, together with more inflow of foreign fund, that may be the signs of the market heading for a ‘mini’ super bull run.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

China's Surprise Rate Hike: What It Means

2010-10-21T07:30:00.000+08:00

On Tuesday global stock markets got up on the wrong side of the bed thanks to news from an unexpected source: the People's Bank of China. The nation's central bank, analogous to the Federal Reserve in the U.S., announced it would raise rates on one-year loans and deposits by .25 percent, or 25 basis points.

Why is the People's Bank of China raising interest rates?

Central banks raise interest rates when they are concerned about inflation, or if they are worried that credit or the economy at large is expanding at an unsustainable pace. Higher interest rates make money more expensive, and thus should cut down on borrowing activity. China's economy is growing very rapidly, at a 10.3 percent annual rate in the most recent quarter, and inflation is running above the official target of three percent. For a country that has to make up as much ground as China does, no rate can be too fast. But housing markets, especially in coastal cities, have been raging. With observers fretting about bubbles, China's central bank has taken efforts to discourage real estate lending and choke off inflation. Raising interest rates is one way to do that.

Why would global stock markets react negatively to this news?

Two reasons. First, think about the changing shape of the world's economic geography. The U.S. (the world's largest economy), Japan (until recently the world's second-largest economy), and the European bloc (which rivals the U.S. in size) are all growing very slowly. China, now the second-largest economy in the world, accounts for a huge amount of growth and demand. While it exports a great deal, it also imports massive quantities of everything from nuts grown in California to copper mined in Chile. The Chinese domestic market has also finally emerged as an important source of sales; General Motors sells more cars in China than it does in the U.S. So any hint that the Chinese juggernaut might be showing signs of slowing is bound to be seen in a negative light by investors who are concerned about growth.

Second, it was a surprise. Markets hate surprises. As a general rule, monetary policy in the U.S. and Europe is conducted with a certain amount of transparency. Officials use speeches and statements to telegraph their intentions, so as not to surprise investors and markets. In China, government bodies keep information very close to their vest and don't face the same type of pressures that western central banks do to give notice about their actions. Since the markets for Chinese currency are very tightly controlled, the People's Bank of China doesn't feel the need to communicate openly about its intentions.

What are the effects of such an increase on China's economy?

The impact of this rate increase lies as much in its symbolism as in its practical effect. Boosting the rates by 25 basis points is like tapping the brakes gently on a freight train running at 90 miles per hour -- it can only slow it down a bit. But it does signal that China's central bank is sufficiently concerned about some issues in its economy to take action.

The exchange rate of China's currency, the yuan (the Renminbi is the official name of the currency, while the yuan is the main unit of currency), against the dollar, has been a contentious issue between the U.S. and China. How does this move affect the exchange rate?

In theory, raising interest rates in China should make the yuan stronger against the dollar. All things being equal, money flows toward countries with higher interest rates (like China) and away from countries with very low interest rates (like the U.S.). But despite intense pressure from the U.S. government, China has remained committed to keeping the yuan trading in a stable range against the greenback. China prefers a weak currency because it makes Chinese goods cheap for American consumers and makes American-made goods expensive for Chinese consumers -- which encourages exports and the consumption of domestically produced goods.

Daniel Gross is economics editor and columnist at Yahoo! Finance.

Budget 2011 : Big Projects To Power Economy

2010-10-18T07:30:00.000+08:00

KUALA LUMPUR: Private investment through construction activity got a serious boost from Budget 2011 after a slew of costly projects headlined by the RM40bil mass rapid transit project were announced as the building blocks towards reinventing the economy got under way.

Action on plans already laid out in the New Economic Model and the Economic Transformation Programme were introduced in the budget as funding and certainty for a number of ideas and projects previously identified were fleshed out.

“It is a budget set to springboard the initiatives of change by the Government and put Malaysia well on the path towards a stronger nation and a high income economy. The Government’s bold moves to assure investments in new growth areas and creating many jobs are exciting for us all,’’ said Malayan Banking Bhd chairman Tan Sri Megat Zaharuddin Megat Mohd Nor.

Headlining the entire budget were a number of big ticket and high-impact projects, and a number of them were earmarked in the development of Greater Kuala Lumpur such as the construction of a landmark RM5bil 100-storey tower by 2020 and RM10bil to building affordable housing and commercial properties in Sungai Buloh which would be completed by 2025.

Those projects would be developed by government agencies and the Government would also utilise RM1bil from the RM20bil Facilitation Fund, previously set up in the previous budget, as a tipping point for a number of public-private partnership projects.

“These strategic high impact projects will assist in meeting the targeted GDP growth of our economy,’’ said group managing director of MIDF Datuk Mohd Najib Abdullah.

The use of the private sector in its development plans has allowed the Government to scale back its development expenditure for 2011 to RM49.2bil while getting as much impact as possible on the economy.

“I believe this budget will fast-track the transformation process and set the pace for the private sector to contribute effectively to this national ambition,’’ said senior partner of UHY Malaysia Alvin Tee.

“The groundwork and the timeline have been clearly spelt out for National Key Economic Areas. They will create a multiplier effect which is exactly what is required for us to become a high income economy.’’

Some entry point projects (EPP) highlighted by the ETP were given the go-ahead in the budget.

The Government would spend RM146mil on an oil field services and equipment centre in Johor that would have a private investment potential of RM6bil over the next 10 years and RM50mil would be spent on a shaded walkway for the KLCC-Bukit Bintang vicinity as a boost to tourism.

The Government would also provide RM100mil towards a RM3bil integrated eco-nature resort at Nexus Karambunai resort in Sabah, which was an EPP.

“What matters most is the timely and effective implementation of the NKEA initiatives so as to produce significant tangible growth dividend in the medium term,’’ said CIMB Investment Bank chief economist Lee Heng Guie.

The budget also took cognisance of the role capital markets have in an economy by introducing a number of proposals which include increasing the number of day traders, boosting the Islamic capital markets and GLICs cutting down their stakes in listed firms on Bursa Malaysia.

The raising of the cap of foreign investments by the EPF should allow for the fund to seek higher returns and by introducing a private pension fund scheme, it would open an avenue for workers to seek alternative retirement scheme.

“The measures and initiatives announced are predominantly targeted towards enhancing liquidity, velocity and vibrancy,’’ said Bursa Malaysia CEO Datuk Yusli Mohamed Yusoff.

The budget also allowed for more risk taking by revamping insolvency laws which would amend the bankruptcy limit of RM30,000 per person and by building more technopreneurs in the country by intensifying the venture capital industry.

Green measures were also provided for, as imported hybrid cars would incur no more taxes or excise duties, biodiesel would be introduced in more states from June next year and a feed in tariff mechanism would be implemented to allow for more renewable power to be generated in the country.

Although increasing private expenditure is important in transforming the economy, the budget also contained proposals to improve human capital in the country by improving the quality of education and the range of vocational training.

“In an ever-increasingly competitive environment, its is crucial to build a workforce comparable with global talents. Our workforce needs to harness its full potential through education, training, up-skilling and re-skilling programmers to achieve national growth targets,’’ said Kelly Malaysia managing director Melissa Norman.

While the broader economy would get a lift from the anticipated rise in private investment, the Government sought to increase its revenue by increasing sales tax by one percentage point to 6%. Subscribers of paid TV services, such as Astro, would be hit from an imposition of the 6% service charge on their bills.

Furthermore, the Government is taking steps to reduce the number of low skilled foreign workers in the country by gradually increasing the levy on such workers.

“Concentrating on lower skilled foreign workers is an impediment to us becoming a high income nation,’’ said Deloitte KassimChan Tax Services Sdn Bhd country tax leader Ronnie Lim.

Measures to help first-time home buyers were announced but the budget has in essence sidestepped the issue of rising house prices.

The housing lobby would not be the only special interest group that would be smiling.

Guinness Anchor Bhd managing director Charles Ireland said it was prudent for the Government not to impose another round of excise duty on alcohol for next year as that would have exerted tremendous pressure on the industry and put further pressure on the F&B industry and tourism.

Budget 2011 Is Critical For The Market

2010-10-13T07:30:00.001+08:00

Deutsche Bank said three key themes should emerge during the tabling of Friday’s Budget 2011, that will likely reignite interest in the market.

First, measures to expedite the Economic Transformation Program (ETP) and in particular, emphasis on driving the 12 NKEAs (National Key Economic Areas)

“Special emphasis, we believe, might be placed on a) fast-tracking mega projects such as the Greater KL MRT, b) supporting tourism, c) improving market dynamics (e.g Govt stake sales to improve market free float) and d) driving education initiatives,” said Deutsche.

On taxes, the research house envisage incentives to encourage private sector participation in the 12 NKEAs. In addition, clarity on the implementation of the goods and services tax is likely, as well as the possibility of individual tax cuts given the Government’s emphasis on attracting and retaining talent.

Thirdly, the Government may introduce loan to valuation ‘caps’ on an individuals’ third mortgage. “There does not appear to be a property bubble but due to a proliferation of minimal down payment schemes promoted jointly by developers and banks, the Government may be keen to instill greater prudence,” said Deutsche.

Meanwhile, the biggest criticism on the Government is the lack of follow through on major initiatives. This view is slowly changing.

Subsidies are being rationalised, more meaningful initial public offerings are underway, the Ringgit is at a 13 year high and infra projects are underway.

“But much more needs to be done to truly convince the market that Malaysia’s very own structural evolution ‘story’ is well underway,”

“Market valuations, at 14.3 times price earnings ratio 2011 and 3.7% dividend yield, should not be viewed as excessive when earnings growth of 17.1% and return on equity at 16% are taken into account too,” said Deutsche.

How to Gain Confidence, Commitment, Courage and Control

2010-10-11T07:30:00.001+08:00

Why do some investors make consistent profits, and others run through their trading account within the first year? After blowing out my first trading account, I went on a quest to discover the answers. What follows is my discovery of four traits profitable investors all have in common, something I've dubbed The 4 Cs to Becoming a Genius Trader.

I personally speak with thousands of traders each year, on over 100 trading floors. Initially, I asked traders to share their strategies with me. However, I soon observed that two people could take the same setup and one would profit while the other lost money. Therefore, my questions became, how do you feel when you win or lose? What do you say to yourself when you're trading? What thoughts go through your mind once you place a trade? How does one control ego? How do you keep faith in yourself when you hit a large draw down? How do you deal with fear and anxiety? Moreover, what is happening in your life when you are trading well? In the end, traders used to shout across the trading floor "Hey Martin I had two sugars in my coffee this morning and my wife called me a lazy bum before I left for work, what shall I do, go long or short?"

I am obsessed with understanding what makes a consistently successful trader tick. I speak only to traders with a minimum of seven years of consistent profits, and who enjoy good personal lives. How do I define a good personal life? Successful traders are happy outside of a trading environment and enjoy a balanced life style. I christened these hard to find traders "Genius Traders". First, I learned to become one, and then I moved on to assist others.

Start your journey to becoming a Genius Trader and consistent profits! My years of research have uncovered that Genius Traders have the following in common.

They all practice the 4 C's of Confidence, Commitment, Courage, and Control.

Let's start with Confidence. There is too much emphasis on confidence as the primary characteristic of successful traders. However, it counts for very little on its own without incorporating commitment, courage, and control. Confidence allows you to execute your trades in an objective manner.

What is the biggest confidence killer to a trader? The unrealistic expectation that every trade will be a winner. Let go of this artificial belief and accept that some losses are the cost of doing business. The tenet is to make a profit, and realize one losing trade is not the end of your portfolio. Letting go of this, and other unrealistic expectations, allows you to trade in a relaxed state. Your confidence will grow exponentially. A relaxed state means lower stress and the ability to make better decisions. Even highly competitive traders accept some trades will fail, and remain confident in their trading abilities.

Commitment. It is important to your continued success that you commit to improving your trading performance. Every profitable person I have met made an individual commitment to his or her personal and professional growth. My trading and investing mentor, Sam Gardner, said to me "eternal vigilance is the price us traders must pay for continued success". Pledge to give your best and learn to improve each day if you expect to maintain a high level of performance. Your investing education never ends.

How do you become a more committed trader? First, determine your investing preferences and find a trading style that fascinates you. It's easy to commit to something we enjoy. Do not force yourself to trade metals, if your real love is in currencies. Second, budget your time and money for continuing education. Keep your interests fresh, and learn new approaches to sustain your commitment. This naturally leads to improved profits.

Courage. Concentrate on developing courage now, or risk a shortened investment career. Trading is not for the weak hearted. The markets are unpredictable and even the smartest analyst will make mistakes. Eventually everyone experiences a sequence of losing trades and you will not be exempt. You have a choice between self-pity and self-reflection. The Genius Trader has the courage to look at their mistakes and learn from them. The average trader perceives this as too painful, and simply curses their bad luck.

How do you become a more courageous trader? You must journal every single trade. Over the years, as I continue to interview accomplished investors, they all keep some form of trading journal. This provides such valuable information that I incorporate into other areas of my life. A detailed trading journal will be a big revelation into the success behind your best trades, and possible causes behind your losers. Armed with these facts, self-reflection becomes more productive.

Control. Do you have a high degree of control? Or, are your decisions clouded by your emotions? Do you practice risk management? Or, is your trading more like gambling in Vegas?

Genius Traders control their emotions and follow their trading rules. Your ability to implement your trading plan, in a controlled manner, is vital if you want consistent profits. Unstable trading leads to poor decisions. Traders who make poor decisions are not in the game very long.

Establishing a master trading plan is one of the quickest ways to maintain emotional control.

A set plan with specific trading rules makes for a less anxious environment. Back tested strategies allow the needed reassurance to follow through with complete confidence.

It took me years to foster a method that transforms an anxious state into an optimal trading attitude. Now, I can show someone how to do this in minutes. Begin with this small step to practicing the 4 C's of Confidence, Courage, Commitment, and Control. You do not have to believe everything I say. Just try a few days for yourself. I am confident you will notice a change for the better. The only question left to ask is, are you ready to begin your journey to becoming a Genius Trader?

By Martin Thomas is an independent futures trader of over 12 years, and a leading trading advisor.

Private Sector Confidence Key To ETP's Success

2010-10-01T07:30:00.002+08:00

Unless the government is willing to implement bold changes that will lead towards further liberalisation, ease of doing business, reduced bureaucracy and greater transparency, the pessimism from the private sector will likely remain.

Last week, there were rumblings at the Putra World Trade Centre when thousands thronged the exhibition hall hoping to understand, and perhaps share the government's aspiration in charting the economic roadmap towards a better future.

Indeed, the spectacular scene at the Economic Transformation Programme (ETP) Open Day is unprecedented in Malaysia's 53-year history. Never has any previous administration shared its economic agenda by disclosing hard figures, projected growth, step-by-step strategy and sector-by-sector analysis through an open-day event fully attended by almost half the Cabinet led by the Prime Minister and accompanied by chief executive officers from both the private and public sectors. Many were pleased with the depth of information they got at the exhibition.

There is a general consensus that the government has succeeded in raising the public's fervor about economic reforms - now brewing almost at a boiling point - with the population eagerly waiting for the government to implement it quickly. Yet, the government knew well enough that no agenda, plans or programmes can succeed without two vital ingredients - meticulous planning and public's confidence. The government has scored full marks on both accounts and what remains now is probably the most challenging of them all - to ensure its effective implementation.

The cards are now laid on the table and what is at stake are investments worth over RM1.3 trillion with projects spread across 12 key economic areas, massive business opportunities and the creation of 3.3 million jobs - all within a span of 10 years.

The entire economic agenda appears ambitious, if not radical, from an economic perspective. The goal has been determined and the primary mission is to enable the private sector to spearhead the entire agenda.

Between 1990 and 1997, private investment was the key source of growth in Malaysia, accounting for about 30 per cent of gross domestic product (GDP). It currently stands at about 10 per cent. The huge savings-investment gaps over the years are evidence of ample domestic private resources available.

Indeed, the Malaysian-based companies' investments abroad, totalling RM36 billion in 2009, are a testimony of the sector's capability to churn out the RM1.271 trillion required by the government to pursue its economic programmes.

In return, the government has promised to relegate itself to the role of a "facilitator" while pledging its commitment to ensure that the country's engine of growth will be led by the private sector.

Unfortunately, the task of winning the private sector's confidence is no mean feat considering that only 30 per cent of Malaysian investments abroad were repatriated back to the country last year. Many private firms have openly expressed their concerns about the government's bureaucratic red tape, lack of business support services, and low level of innovation and productivity.

In response to these concerns, the government has initiated several efforts such as deregulating the Foreign Investment Committee guidelines, revamping several government-link corporations, re-branding as well as enhancing the role of several government agencies to facilitate private sector investments.

Yet, there is a clamour for the government to do more. Unless the government is willing to implement bold changes that will lead towards further liberalisation, ease of doing business, reduced bureaucracy and greater transparency in addition to addressing other structural weaknesses such as lack of knowledge workers and overly subsidised market economy - the pessimism from the private sector will likely remain.

The government has also announced that 27 per cent of the total amount of investments earmarked for the National Key Economic Areas projects, or RM378 billion, will be sourced from foreign direct investments.

Foreign investors, according to the new economic agenda, are expected to invest an average of RM37.8 billion annually over the next 10 years. On analysis, most of these investments have been marked for the electrical and electronics sector where the target is to increase the gross national income to RM90 billion while generating 157,000 jobs.

The government is adamant to maintain its global share in the semiconductor and LED industry despite past volatility in the global market.

While setting targets on the electrical and electronics sector should be welcomed because it opens massive employment opportunities, there are many factors that need to be considered, like the availability of skilled and professionals workers among its workforce. To engage in high-value added technology entails an educated workforce that embraces innovation, technology and life-long learning embedded in a well-developed educational system. If such talent is lacking from within, the best route is to attract from the global market, which effectively requires Malaysia to compete with other countries like Australia, New Zealand, the US, Singapore and Canada. Unfortunately, the present immigration policy on attracting foreign talent is a far cry from other developed economies and these need to be rectified immediately.

The slew of economic programmes - Government Transformation Programme, New Economic Model and 10th Malaysia Plan - will witness the transformation of Malaysia's entire economic landscape if implemented effectively.

While setting economic programmes demonstrate the government's commitment to transform the economy radically, they have to be carried out with pragmatism, combined with the will to eradicate obsolete policies that will only hinder its ambitious plan.

(Dr Hassan Ali is an associate professor at the Graduate School of Business, Universiti Sains Malaysia)

Beware Of Share Buybacks

2010-09-17T07:30:00.001+08:00

UNDER normal circumstances, investors should get excited when companies buy back their own shares. In theory, this action implies the management views the best available investment opportunity for the utilisation of excess cash is to invest in its own company rather than buy into some other companies.

This is because when a company buys back its own shares, it will reduce the firm’s outstanding shares and enhance the company’s earnings per share (EPS).

Due to information asymmetry, the management is in the best position to determine that the company is being undervalued at the current price and, thus, it is to the best interest of the shareholders to buy back the company’s shares.

Hence, in general, we can conclude share buybacks usually convey a positive signal that implies the stock of a company is underpriced.

However, lately in Malaysia there was one listed company, Company K – we prefer to call it Company K than to reveal its real name – which showed unusual buying-back activities over an extended period up to May 17, 2010.

Here is an analysis of the Company K’s stock-price movement over this period. The price chart shows Company K had been hovering at around 80 to 90 sen until May 25, 2010. In fact, the company’s stock was being traded above 80 sen despite the recent financial crisis.

During the 2008-2009 market crashes, while the majority of companies were facing drops of 50% or more in their prices, Company K’s share price remained stable at above 80 sen.

Based on our observation of stock exchange filings, the stability of this company’s share price at around 80–85 sen appeared to be supported by its share buyback activities.

The company stopped buying its own shares since May 17. The last tranche of its share repurchase was on May 17 and the total number of shares bought were 36,000. As a result, since May 25, the stock prices started to plunge.

The main reasons for the sharp drop were because Company K defaulted on loans repayments and a few of the company’s key owners had left the company as well as the country.

As mentioned earlier, finance text books say when companies buy back their own shares, it implies the companies are undervalued.

However, in this case, Company K reported on June 7 RM146.5mil of losses for its fiscal fourth quarter ended March 31, 2010. Table 1 shows the company continued to buy back its own shares during the fourth quarter of FY10 and first quarter of FY11, even though the company was incurring huge losses during the periods. This seem to be against what we have learned from financial theory.

Investors may be wondering whether they are able to sell before the sharp plunge in share prices. Based on our observation, the company only announced the default in loans repayments on May 31, 2010 and the share prices immediately tumbled to a low of 10 sen.

By the time the company announced its fourth-quarter results on June 7, its share price remained low at 14.5 sen.

An interesting point to note from Table 1 is that coincidentally, Company K’s key owner, Mr JH, sold most of his holdings by the time the results were announced. He sold 39.2 million shares (53.4 million minus 14.2 million) from April 7 to June 7, 2010.

At the moment, due to the delay in submitting audited financial statements for the period ended March 31, 2010, shares in the company have been suspended from trading at 6.5 sen. The company is currently facing a winding-up petition and the appointment of provisional liquidators.

In short, share buybacks do not imply companies are undervalued. Investors need to be careful as some companies may use these activities to support their share prices.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting

Bursa Malaysia May Enter 'Golden Era'

2010-09-13T07:30:00.000+08:00

Philippine and Malaysian stock markets may soon end 16 years of stagnation and enter a “golden era,” according to CLSA Asia-Pacific Markets technical analysts.

The Philippine Stock Exchange Index is testing its record high reached on Oct. 8, 2007, after fluctuating between support at 975 to 1,075 and resistance at 3,447 to 3,896 since 1993, CLSA analysts led by Laurence Balanco said.

The FTSE Bursa Malaysia KLCI Index is also poised for a breakout after it “drifted net-sideways” below the 1,332 to 1,524 range since 1994, the analysts wrote in a report.

The “secular bear markets” in the two Southeast Asian countries may be similar to ones in South Korea from 1989 to 2005, Indonesia from 1990 to 2004, India from 1992 to 2004, Singapore from 1994 to 2006, and the US from 1966 to 1982, according to CLSA. Since then, benchmark indexes in the five countries have rallied at least 51 per cent and posted gains of as much as 282 per cent, the analysts said.

“If the PSE index and the KLCI are to adhere to these common secular bear market patterns, then both markets are on the cusp of entering a new long-term bull market phase,” the analysts wrote.

A “conclusive” breakout above 3,896 could take the Philippine gauge to 6,752 “in the years to come,” according to the analysts. Still, they said the market may yet pause as it approaches the resistance zone and as the benchmark index completes a five-wave sequence from the October 2008 low.

The Philippine index lost 0.6 per cent to 3,723.45 at 11:14 am local time.

Cyclical Correction

“A partial retracement from the 3,447 to 3,896 resistance zone will mark the end of a 16-year secular bear market,” they wrote. “We would look at accumulating stocks during this cyclical correction.”

Resistance refers to the upper boundary of a trading range, where sell orders may be clustered, while support is where there may be buy orders. Elliott Wave Theory, created by US market analyst Ralph Elliott in 1938, concludes that market swings, or waves, follow a predictable, five-stage structure of three steps forward and two steps back.

In Malaysia, a breakout may suggest a long-term minimum target of 2,610 for the KLCI index, according to the analysts, who didn’t specify a time frame. The gauge was little changed at 1,433.68.

Still, an “extreme” reading for the gauge’s 14-day relative strength index may be a warning sign of a pullback in the near term, the analysts said. The KLCI’s RSI, tracking how rapidly prices advanced or declined, was at 77.6 today, higher than the 70-level seen by some analysts as a signal that prices are poised to fall. -- Bloomberg

Foreign Direct Investments Vs Domestic Investments

2010-09-08T07:30:00.002+08:00

THE domestic debate on whether a country should focus on foreign direct investments (FDIs) or direct domestic investments (DDIs) is gaining traction as Malaysia moves towards increasing private investment under the 10th Malaysia Plan. Questions are being raised on the impact and contribution of FDIs versus domestic investments on the economy.

Before I go any further, some definitions are in order. What is FDI? What is direct investment abroad and what is domestic investment? FDI is defined as a long-term investment in a foreign country. It has three components, namely equity capital, reinvested earnings and intra-company loans. Domestic investment is investment by local companies in the domestic market.

Cases where Malaysian conglomerates invest overseas are known as direct investments abroad.The labs initiated by PEMANDU have identified 131 projects, also referred to as Entry Point Projects. These are projects which will be launched in the next five years. It is hoped that the implementation of these projects will help stimulate private investment.

By definition, Entry Point Projects are just the beginning, and going forward, there will be other investments which might result from their implementation. What is interesting is the following:

*That a large proportion is private investment, i.e. 92 per cent, with projects requiring public sector funding amounting to only 8 per cent; and

* About 80 per cent of these projects are domestic investments with the remainder coming from FDIs.Looking at these numbers, questions may be asked as to whether FDIs are necessary. Or can we ignore FDIs completely and depend only on domestic investments?

Let us begin by looking at the role of FDIs in Malaysia's economic development. Malacca had been a leading centre of commerce and trade between the 14th to the 19th centuries. Its strategic location in the Straits of Malacca made it a coveted settlement. Traders from China, India, the Middle East and neighbouring regions converged into the thriving port for trade and commerce. As early as the 14th century, Malacca had attracted FDIs in services.

Later in our history, we had the British coming to Malaya to invest in rubber and tin. British investments in these two commodities resulted in the laying of railway tracks and the construction of roads to transport commodities to the markets. This in turn opened up the country for development. We also earned valuable foreign exchange for these exports and a significant cross-section of "Malayans" benefitted in the form of higher income. Kuala Lumpur, Ipoh and Penang grew as a result of booming trade in these commodities. This is a very simple illustration of the benefit of foreign investments.

In the 1970s and 1980s, Malaysia began to attract investments in the electronics sector. We have a growing population and the farms and tin mines can no longer absorb the surplus labour from the rural areas. Fortunately, the factories in Penang, Shah Alam and Johor were able to provide job opportunities for our young people. Without FDIs, our unemployment rate would have jumped to more than 20 per cent. The young boys and girls who worked in these factories were able to send money home, thus providing income support to their families.

We also have been attracting investments in the services industry. Foreign banks opened up branches in Penang and Kuala Lumpur. There were also investments in transport and logistics. All these have provided job and business opportunities for our people.

Of course there are also downsides to FDIs. There was not much linkage with the domestic economy. In the early stages, there was little value-added as components were mainly imported. In the 1970s and 1980s, many FDIs were only in assembly-type operations. We became more dependent on foreign labour, and remittance abroad kept on growing. Large multinational corporations became complacent as the government was quite generous in approving applications for foreign labour. In a way, this has created a vicious cycle of dependence on foreign labour which is extremely difficult to break.

All told, FDIs on balance have played an important role in our country's development. We liberalised foreign equity requirements in 1988 which further stimulated FDI flows. We were considered as one of the tiger economies, and this status was achieved partly because Malaysia was one of the major destinations for FDIs.Questions have been raised as to whether FDIs continue to be relevant. These questions have been asked because of the following:

* The lack of linkages with the local economy;
* In some cases, imported components remain high;
* Dependence on foreign labour has increased;
* Dependence on foreign labour has increased;
* Domestic wages have been depressed;
* Our failure to effectively move up the value chain;
* The volatile nature of FDIs especially in the earlier days, some FDIs were footloose in nature;
* Greater competition from China and some neighbouring countries; and
* The apparent neglect of domestic investments.

Our position is that Malaysia will continue to need foreign investments. But FDIs of a different kind. We have been talking about quality FDIs. But, what are quality FDIs?Quality FDIs are those which generate more benefits and spin-offs to the local economy. They will have to possess the following features:

* Strong linkages to the domestic economy including SMEs in terms of local sourcing;
* Investments which are more capital-intensive which will not require too much foreign labour; and
* Investments which are knowledge-intensive, which will pay higher wages.

This will be our focus going forward. In other words, we have to be selective because our wages are higher compared with those in neighbouring countries. We have decided to attract these kind of industries to the country. Some might say that we have also failed to attract quality investments. This is not entirely true.

Going forward, we are going to focus more and more on domestic investment. I am not saying that FDIs are no longer relevant. They continue to be important, but given the competitive environment and our large domestic savings, we need to motivate our own people to put more money into the country.

However, it is acknowledged that domestic investments cannot create as much impact as FDIs for the following reasons:

* Our people do not possess sophisticated technology as the Japanese and Germans;
* Our domestic companies do not have extensive overseas marketing network;
* We do not have many regional and global companies; and
* Our domestic market is relatively small.

Notwithstanding the above, we have examples of Malaysian companies investing overseas with high level of technology. But we do not have enough of them.

Despite these constraints, we believe there is potential to boost domestic investments. These will be in the area of infrastructure development, resource-based industries and in property development. Some of our investors are beginning to develop capabilities in the area of manufacturing.

How do we get our entrepreneurs to invest more in the country? We know that a number of our large corporations including government-linked companies have invested large sums both locally and overseas. Khazanah, CIMB Bank, Maybank, YTL, Genting, Petronas, Sime Darby are among some of our companies which have sought opportunities abroad.

While we are not preventing them from going abroad, we have to further improve the domestic investment climate, to motivate them to invest more locally. We have to continue reducing red tape and bureaucracy and making government rules and procedures more transparent. But above all, we have to create more opportunities for them to invest in the domestic economy.

Analysts See New High For Bursa Malaysia Index

2010-09-06T07:30:00.002+08:00

PETALING JAYA: With four months to go before 2010 ends, a number of brokerages have unveiled their 2011 year-end targets for FTSE Bursa Malaysia KL Composite Index (FBM KLCI).

Quite a few predicted the benchmark index will reach a new high in 2011.

“Theoretically, the FBM KLCI could reach 1,578 to 1,691 by the end of 2011 purely based on our corporate earnings growth forecasts and by applying mid-cycle forward price/earnings (PE) targets of 14 to 15 times,’’ UOB Kay Hian Research said in its report yesterday.

“This assessment explicitly assumes that investors are no longer concerned over global economic and financial systemic risks,’’ it added.

The brokerage preferred to “err on the cautious side” and pegged a tentative target at 1,580 level.

The FBM KLCI reached a record 1,516.22 points on Jan 11, 2008, months before the credit crisis erupted in the United States and wreaked financial havoc across the globe.

As at Thursday, FBM KLCI closed at 1,441 points. The index was up 13.2% for the year. It is the fourth-best performing index in Asia, trailing behind Thailand, Indonesia and Phillipines.

The big markets in Japan and China are down for the year, as well as those in Europe and the United States.

It may seem that investors have ignored “warning signals” coming from developed worlds, which are struggling to revive their ailing economies.

The region’s outperformance “was partly caused by inflows of portfolio funds into emerging markets as investors switched out of developed markets,’’ RHB Research Institute said yesterday.

This, the firm said, was not a sustainable trend. “We continue to believe that the equity market may move into a phase of greater volatility in the months ahead,’’ it said.

Although it foresees a market correction, if it happens, it will not be “sharp given the ample liquidity and sustainable economic and earnings growth’’.

RHB sees a potential for the market to trade up to 1,450 points by the year-end, which is higher than its previous forecast of 1,400 points.

The research house also has the most aggressive 2011 year-end target for the index at 1,640 points – based on an estimated market value of 15 times its one-year forward projected earnings for 2012.

Local listed companies, mainly big banks, churned out a predictably strong earnings in the April-to-June quarter. Banking stocks, led by Malayan Banking Bhd and CIMB Group Holdings Bhd, accounted for a major chunk of the FBM KLCI basket.

With banking stocks’ earnings outlook upgraded at HwangDBS Vickers Research, the firm yesterday raised its current year-end target for the index to 1,500 points from 1,448 points previously.

It sees “intermittent” profit taking on the back of the FBM KLCI 14% climb since May, but believes that the index’s longer-term uptrend is intact.

But the just-ended results season may not have impressed everyone, especially those at CIMB Research and OSK Research.

Save for the banking and gaming stocks, CIMB said the August earnings season was generally below expectation and lacked “excitement”.

Propelled by rising profits at banks and gaming firms, CIMB projected that this year’s corporate profit growth would reach 30%, up from 24% it predicted three months ago.

It said banks and gaming stocks’ rapid profit increases had more than made up for the shortfalls at telecommunications, industrial, as well as oil and gas sectors.

This year’s blistering growth rate will be the fastest in the region. CIMB forecasts the pace will slow down to 13% next year.

Despite the strong recovery in earnings, CIMB kept its year-end target for the FBM KLCI at 1,450 points, and expects the index to go up to 1,520 points in 2011.

Over at OSK, the mood is equally sombre. The research house has revised its 2010 earnings growth forecast to 26% from 22% previously. However, it maintained a year-end target of 1,465 points after ascribing to a lower PE ratio of 15 times versus 16 times previously.

Given the weakening earnings trend across the board, OSK cautioned that the third quarter may see “more downgrades than upgrades’’.

However, this may be a “temporary situation” until the Government rolls out so-called mega projects that will provide the lift in the construction, steel and banking sectors.

Despite its cautious view, OSK’s 2011 year-end target for the FBM KLCI is at 1,580 points.

Why Is There A Lack Of Interest In The Market?

2010-08-26T07:30:00.001+08:00

THE FTSE Bursa Malaysia KL Composite Index (FBM KLCI) finally touched 1400-level again. Despite high index level, the overall daily traded volume remained low at about 700 million-800 million. We believe, except for certain fund managers and day traders, not many retail investors were excited about the market. In this article, we will look into the reasons why investors are not investing at the moment.

We believe one of the main reasons is that many investors are still quite worried about the global economic recovery. Given that a lot of newspaper articles, media as well as some investment gurus have been saying that the global economy still has the possibility to have “double dips” or slip into recession again. Nevertheless, at this point in time, we believe nobody will know for sure whether the economy will enter into recession.

However, we notice that the current high FBM KLCI level was mainly driven by high stock prices of some key blue-chip stocks or fund favourite stocks. Investors need to understand that even though the FBM KLCI is surging to reach the recent 2008 peak of 1500-level again, there are still plenty of stocks selling at very cheap valuation.

A lot of second- and third-liners are still selling at 2008-09 low but with good values, i.e. price/earnings ratio of about six times, dividend yield of above 5% as well as selling below the owners’ costs (or selling below net tangible asset).

Despite the cheap valuation for lower liner stocks, not many investors are aware of their values. For those who may be aware of the values, not many are willing to inject fresh money into the stock market. One of the main reasons is many may still be holding poor quality stocks and these stocks are selling at 2008-09 low.

Given that they are not willing to cut their losses and worried about losing more money in the stock market, they prefer to stay sidelined while waiting for their existing poor quality stocks to recover one day.

In behavioral finance, we name this phenomenon as “snake-bite” effect.

Unfortunately, in most instances, the moment the prices of these poor quality stocks start to recover, this may indicate the end of the recent market rally because most fund managers, company owners and experienced traders will take the opportunity to liquidate their holdings to these retail investors.

Apart from the above reasons, some investors are quite worried over corporate governance issues in some Malaysian listed companies.

Incidents, like some companies being abandoned by their key owners, companies defaulting on their loan repayments, increasing number of companies being classified under Practice Note 17 and later failed to regularise their companies, are affecting the overall market sentiment. As a result, retail investors are quite careful in investing in new companies lately.

Except for Malaysia and a few other countries in the emerging market, the stock market performance of most overseas markets was weak since April this year.

Retail investors were quite concerned over the financial crisis in some European countries, the weak euro currency, weak US economic indicators as well as asset bubble in China. As a result, the retail participation in these markets, including Malaysia, was quite low. Hence, the current low buying interest from our retail investors is in line with the overall global market phenomenon. The buying interest will only come back when the global stock market starts to show signs of recovery again.

Another reason why investors are not buying stocks is that most retail investors have invested quite a big sum of money in unit trust funds. Even though they still have some savings to invest directly in the market, they prefer to keep those excess savings in fixed deposits rather than to buy stocks directly.

This phenomenon also happens in most developed countries where investors prefer to put money in unit trust funds rather than investing in the stock market. As a result, the fund size managed by unit trust companies grows faster every year.

Hence, we notice that the stock prices for fund managers’ favourite stocks or stocks covered by research analysts are surging to new high whereas the performance of the neglected firms remain low.

Unless investors are holding those fund favourite stocks, they will complain that they have not benefited from the recent market rally.

As mentioned earlier, we still have a lot of second or third liner stocks with strong fundamentals that are selling at cheap valuations. Investors are encouraged to do their own research to discover those companies.

Jesse Livermore: Lessons From A Legendary Trader

2010-08-23T07:30:00.000+08:00

Born in 1877, Jesse Livermore is one of the greatest traders that few people know about. While a book on his life written by Edwin Lefèvre, "Reminiscences of a Stock Operator" (1923), is highly regarded as a must-read for all traders, it deserves more than a passing recommendation. Livermore, who is the author of "How to Trade in Stocks"(1940), was one of the greatest traders of all time. At his peak in 1929, Jesse Livermore was worth $100 million, which in today's dollars roughly equates to $1.5-13 billion, depending on the index used.

The enormity of his success becomes even more staggering when considering that he traded on his own, using his own funds, his own system, and not trading anyone else's capital in conjunction. There is no question that times have changed since Mr. Livermore traded stocks and commodities. Markets were thinly traded, compared to today, and the moves volatile. Jesse speaks of sliding major stocks multiple points with the purchase or sale of 1,000 shares. And yet, despite the difference in the markets, such automation increased liquidity, technology, regulation and a host of other factors that still drive the markets today.

The Test of Time
Given that this trader's rules still apply, and the price patterns he looked for are still very relevant today, we will look at a summary of the patterns Jesse traded, as well his timing indicators and trading rules. (For more classic and lesser-known investing titles to add to your collection, check out Investing Books It Pays To Read.)

Price Patterns
Jesse did not have the convenience of modern-day charts to graph his price patterns. Instead, the patterns were simply prices that he kept track of in a ledger. He only liked trading in stocks that were moving in a trend, and avoided ranging markets. When prices approached a pivotal point, he waited to see how they reacted.

For instance, if a stock made a $50 low, bounced up to $60 and was now heading back down to $50, Jesse's rules stipulated waiting until the pivotal point was in play in order to trade. If that same stock moved to $48, he would enter a trade on the short side. If it bounced up off the $50 level, he would enter long at $52, closely watching the $60 level, which is also a "pivotal point." A rise above $60 would trigger an addition to the position (pyramiding) at $63, for example. Failure to penetrate or hold above $60 would result in a liquidation of the long positions. The $2 buffer on the breakout in this example is not exact; the buffer will differ based on stock price and volatility. We want a buffer between actual breakout and entry that allows us to get into the move early, but will result in fewer false breakouts.

While Jesse did not trade ranges, he did trade breakouts from ranging markets. He used a similar strategy as above, entering on a new high or low but using a buffer to reduce the likelihood of false breakouts. (Find more profitable entry and exit locations with this standard indicator; read Measure Volatility With Average True Range.)

Price patterns, combined with volume analysis, were also used to determine if the trade would be kept open. Some of the criteria Jesse used to determine if he was in the right position were:

Increased volume on breakout.
The first few days after the break prices should move in the breakout direction
A normal reaction occurs where prices retrace somewhat against the trend, but volume is lower on retracements than it was in the trending direction.
As the normal reaction ends, volume increases once again in the direction of the trend.

Deviations from these patterns were warning signals and, if confirmed by price movements back through pivotal points, indicated that exited or unrealized profits should be taken. (For more read our Greatest Investors Tutorial.)

Timing the Market
Any trader knows that being right a little too early or a little too late can be as detrimental as simply being wrong. Timing is crucial in the financial markets, and nothing provides better timing than price itself. The pivotal points mentioned above occur in individual stocks and market indexes, as well. Let price confirm the trade before entering large positions.

Jesse Livermore believed no matter how much we "feel" that we know what is happening, we need to wait for the market to confirm our thesis. And only when it does do we make our trades - and we must do so promptly. (From picking the right type of stock to setting stop-losses, learn how to trade wisely in Day Trading Strategies For Beginners.)

Trading Rules
The trading rules that follow are simple, and have been included in many trading plans by many traders since they were created nearly a century ago. They are still valid today, and were created under Jesse's truism: "There is nothing new in Wall Street. There can't be, because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again."

Trade with the trend. Buy in a bull market, short in a bear market.
Don't trade when there aren't clear opportunities.
Trade using the pivotal points. (Learn how to spot the pivot point from which a new movement will emerge; read Find A Trend With The Partial Retrace.)
Wait for the market to confirm opinion before entering. Patience leads to "the big money."
Let profits run. Close trades that show a loss (good trades generally show profit right away).
Trade with a stop, and know it before you enter.
Exit trades where the prospect of further profits is remote (trend is over or waning).
Trade the leading stocks in each sector; trade the strongest stocks in a bull market, or the weakest stocks in a bear market.
Don't average down a losing position.
Don't meet a margin call; close the position instead.
Don't follow too many stocks.

Summing Up Jesse Livermore's Strategy
Jesse was highly successful, but also lost his fortune several times. He was always the first to admit when he made a mistake, and when he lost money it came down to two potential culprits:

1. The rules for trading were not fully formulated (not the case for most of his losses).
2. The rules were not followed.

For today's trader, these are still likely the culprits that keep profits at bay. To be profitable, we must actually create a profitable trading system, and then we must adhere to it in actual trading.

Jesse outlined a simple trading system for us: wait for pivotal points before entering a trade. When the points come into play, trade them using a buffer, trading in the direction of the overall market. Let the price dictate our actions and stay with profitable trades, until there is good reason to exit the trade. Losses should be small and trading should be avoided when there are no clear opportunities. When there are trading opportunities, trade stocks that are most likely to move the most. (For more books, check out Ten Books Every Investor Should Read.)

Malaysia Economic Growth To Stay Strong

2010-08-19T07:30:00.003+08:00

The Malaysian economy, which enjoyed a spectacular performance in the first three months of 2010, is expected to ease in the second quarter.

Economists polled by Business Times forecast the economy to grow 7.93 per cent year on year in the second quarter, from 10.1 per cent in the first.

They also project full-year growth to average 6.83 per cent before slipping to 5.47 per cent next year.

Bank Negara Malaysia will announce the latest data today.DBS Bank economist Irvin Seah said that although a moderation of gross domestic product (GDP) growth was expected - as the low base effect dissipates and external demand momentum slows - it would still be "a considerably strong pace of growth", with domestic demand as the key driver.

Private consumption growth may edge slightly higher to 5.3 per cent on the back of a brighter employment outlook.

Seah expects capital investment to bounce back after a sharp inventory destocking of about RM2.4 billion in the previous quarter."We could possibly see investment growth of about 7 per cent (from 5.4 per cent previously) as companies expand their production capacity along with this recovery," he said.

Seah, however, warned that strong domestic demand also implies that import growth will likely outpace the rise in exports and, thus, some drag can be expected from overall net exports.

US investment bank Citi attributed the slowing pace in the second quarter mainly to the services and agriculture sectors.

Within services, growth in electricity production, transport and storage, and tourism has moderated. The weakness in the rubber, crude palm oil and crude oil production sectors has dragged down agriculture and mining output.Economist Kit Wei Zhang said that financial services saw faster household and business loan growth during the second quarter.

Manufacturing growth edged up to 15.6 per cent as both export- and domestic-oriented industries recovered.

"But with production running ahead of exports in recent months, the resulting increase in inventories signals a likely moderation in manufacturing output in coming quarters," Kit said.

He said that construction has also picked up, led by projects under the stimulus packages announced by the government. There was also renewed pick-up in housing construction.

Kit said the narrowing of trade surplus may be partly offset by resilient domestic demand.

"Decline in sales tax has eased significantly, while consumption credit accelerated, although motor vehicle sales moderated slightly.

Economists polled expect GDP growth to ease in the second half of the year to about 5.08 per cent from an average of 9.07 per cent in the first half, due partially to weaker external demand.

Seah said that while manufacturing would once again lead the other key sectors in terms of growth, its pace was slowing.

With the uncertainties surrounding US recovery and the euro zone, and Asia facing slower growth, the pace of expansion in manufacturing would continue to moderate in the quarters ahead, he added.

Kit sees inflation at benign levels."With both output and inflation gap near neutral levels, a more subdued external outlook, and renewed easing by the (US) Federal Reserve (Fed), we maintain our view that Bank Negara Malaysia will stand pat till end-2010 and early 2011," he said.

Kenanga Investment Bank economist Wan Suhaimie Saidi said the slowing pace in the second half of the year was already evident as intra-regional trade showed signs of slowing on weaker export demand.

BullTrader : Trading Buy

2010-08-16T07:30:00.005+08:00

Trading List

SCOMI Target 0.60, ZELAN Target 0.95, KEURO Target 1.05, MSPORTS Target 0.80, SUMATEC Target 0.35, REDTONE Target 0.30, JAKS Target 0.90, TIMECOM Target 0.85, L&G Target 0.65

Happy Trading and Good Luck :-)

Go Asia For Consumption Stocks

2010-07-19T07:30:00.000+08:00

WITH equity markets continuing to be volatile for the foreseeable future, wary investors will be looking for pointers on where to put their money.

The global economy is still confronted by a bleak US jobs market outlook and further troubles brewing in the eurozone which may affect wider Europe.

There is also growing realisation that earnings upgrades have run beyond underlying economic fundamentals and business conditions, prompting investors to pull back.

As reported earlier in StarBiz, investors may look towards the US markets for some sort of lead as Wall Street kicks off the second quarter’s earnings report.

However, future corporate earnings growth, and therefore of the economy, may not be rosy as stimulus measures taken to boost growth at the height of the financial crisis wane, or are withdrawn, and consumers in the developed world continue to tighten their belt.

A report by ECM Libra Investment Bank Bhd research head Bernard Ching dated July 14 shows three underlying themes for investing in the third quarter in the local equity market.

He recommends a switch to high-dividend yield defensive stocks for capital preservation, buying undervalued cyclical stocks with exposure to domestic demand and consumption recovery in Asian economies and riding on the strengthening ringgit.

“We favour a defensive strategy over the next three months until there is better clarity in the fourth quarter,” he says.

Ching suggests accumulating undervalued stocks predominantly driven by consumption growth domestically and in Asia in view of external uncertainty and concerns over domestic policy.

“While exports to advanced economies may come under pressure due to tepid consumption growth, we believe Asia will take the lead in global consumption growth,” he says.

He adds that investors should ride on to the strengthening ringgit as structural issues such as high unemployment and fiscal deficit in the US, eurozone and Britain will make their currencies less attractive.

Fund managers are also picking up on the domestic consumption story in Asia with Fortress Capital Asset Management Sdn Bhd chief executive officer Thomas Yong preferring China, Hong Kong and Singapore due to their still strong growth prospects.

“We like the domestic consumption stories in all these markets and therefore prefer the consumer products and retailing sectors there,” he says.

Yong adds that the consumer theme includes the automobile sector. “As an extension, the China and Hong Kong markets also offer numerous proxies to US recovery in consumption spending – particularly sporting goods manufacturers,” he says.

Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose says the stronger balance sheets of the public and private sectors in the Asean markets make them attractive.

He recommends exposure to plays on Asean domestic economic activity such as the banking, retail, property development and insurance sectors.

“As the developed world keeps real interest rates below zero and prints money, that liquidity will find the best returns in Asean,” Ambrose adds.

He points out that Asean’s banking sectoris “relatively unpolluted by worthless proprietary trading books, their fiscal balances are sounder (Malaysia’s deficit is high, but almost entirely funded domestically) and the man in the street has savings as opposed to his developed world counterpart’s debt.”

Ambrose says the surest bet is the gradual strengthening of Asian, and especially Asean currencies, against the greenback, euro, sterling and yen.

He believes gold should be an important part of any investment portfolio as insurance against the folly of mainly developed countries’ central banks.

While Ambrose feels that inflation is under control and not an immediate threat, “if you keep printing money, inflation will occur”.

Both Ambrose and Yong are wary of commodities with the former saying that commodity price movements are greatly influenced by the economic health of China, the biggest swing contributor to demand growth.

“Any slowdown could lead to commodity price weakness,” Ambrose adds.

Yong says Fortress Capital typically shies away from investing in exotics such as commodities but remains bullish on oil prices over the long term.

On bonds, he says the favoured segment of the market “is probably shorter duration higher credit rating issues”.

Understanding Index Investing

2010-07-13T07:30:00.000+08:00

INDEX investing may sound like Greek to some although it is already a growing trend in Hong Kong and Singapore over the past five years. The other Southeast Asian countries are playing catch-up with index investing as more investors are aware of this opportunity for them to gain potential higher returns.

However, before we go into index investing, let us understand what an index is in the first place.

When we read the market commentary in the daily newspapers or listen to market up dates on television, we almost always come across statements such as "the market performed well today" or "there was a bull run on the market today". The word "market" is used liberally but what does it actually refer to?

When people talk about the "market" in relation to the stock market, they are actually referring to an index. For Malaysia, an example of an index is the FTSE Bursa Malaysia Kuala Lumpur Composite Index, better known as the FBM KLCI. Therefore, if you hear: "the market is up," this means the FBM KLCI is higher compared to the previous day.

So, is an index important? And if yes, why so? An index is important because of what it represents. The beauty of an index is that it is extremely easy to understand and investors know exactly what they are acquiring by putting money in an index.

It is too demanding to track every single share trading on the stock exchange, hence, an index that tracks the more "relevant" shares are created. These shares are usually the heavyweight stocks with more market capitalisations.

When these heavyweight stocks appreciate, the entire bourse goes up and when they lose value, the entire stock market trends down. In coming out with an index, the index provider must first define exactly what criteria is used to select shares for a given index.

Creating an Index

An index is made up of a basket of stocks. Therefore one must understand that it can be created to represent any segment of the stock market. One of the more widely known indexes in the world is the S&P 500 Index created by Standard and Poor's Index Services. The S&P 500 represents 500 of the most widely held firms in the US such as Exxon Mobil, Apple, and Microsoft, and the stocks within this index trade on major US bourses such as the New York Stock Exchange and Nasdaq.

Regarded as one of the best barometers of the American equity markets, the job of many American fund managers is to produce returns that outperform this index. Another well-known index, is the FTSE 100 Index that holds the top 100 largest firms listed on the London Stock Exchange. This index is seen as an indicator of the British economy and is the leading share index in Europe.

An interesting thing about indices is that almost anyone can create an index. During the dot-com bull run, almost all the publications in the US created an index to represent different types of new-economy stocks.

However, what sets the big indices apart is the reputation of the company that creates and manages the index. As you go along and get familiar with the various indices, you will start noticing them in every single market and for every sector and industry.

Apart from looking at the index provider, another way to differentiate the indices is to identify the methodology used to measure the importance of each security within its basket. There will always be a stock that is arguably more important than the other. For example, there will always be shares of companies that are more influential to the entire market due to their size or share price.

A common method used by indexes around the world though, is to weigh companies based on their market capitalisation. If company ABC has a market capitalisation of RM1 million and the total value of all the companies within an index is RM100 million, this means that shares of the company would be worth 1 per cent in this index. Such computations are done up-to-the minute with analysis tools, hence making indexes an extremely accurate reflection of its chosen market.

Making money via index investing

It is relatively easy to maintain an index. Except for the occasional fine-tuning, an index only needs to hold on to its basket of stocks from year to year, which means lower costs for an investor. When investing purely in an index, there are no costs involved that goes to fund managers (for their stock picking skills), since there is no active stock picking required. This in return, means more of your money is invested and gets a chance to grow!

With an index, investors get to decide on what and where their money should go. For instance, if you believe that China's economy will continue to grow with each passing year, you could jump on the Chinese bandwagon by investing in an index that tracks the country's main stock market. One of the most popular ways to invest in an unknown market is to do so via index investing because it (the index) is already diversified. This is a quality much desired by investors to smoothen out instability (the losses and gains in the value of your investments).

In most cases, index investing would likely mean investing in the larger leading companies in a stock market with strong brands and significant market share. Though it is possible for the value of an index investment to decline like any other investment, the odds of all leading companies in the index going bust at the same time are low.

In any case, chances are that actively managed unit trust funds with a similar investment universe would also be suffering a similar decline. As such, investors need to consider all the risks involved before making any investment, even with index investing.

Investing in an Index

Making money with an index takes the same amount of time required for an economy to grow - it is a long-term process. There are two ways to invest in an index: via an index unit trust fund or with an exchange traded fund (ETF). For the first option, investors must be aware that not all index funds are the same. A fund company can create and sell index funds but may charge a substantial sales commission and a higher management fee which may compromise the main advantage of index investing, that is its low cost.

The second option to index investing is via ETFs. The main difference between ETFs and standard unit trust funds is that it (ETF) is listed on the stock exchange and trades like a normal share throughout the trading day. In the more matured financial markets, ETFs are growing increasingly popular with investors.

In the next article, we will feature the many advantages of ETFs. The more you understand about the universe of investing and the various instruments available in the market, the better chance of you finding the right investment at the cost and risk level which you are most comfortable with, for your portfolio.

Govt May Speed Up Rollout Mega Projects

2010-07-07T07:30:00.001+08:00

This is to keep growth intact amid shaky global recovery

PETALING JAYA: A shaky global economic recovery may prompt the Government to speed up the rollout of big construction projects at home to keep domestic growth intact.

Mega projects that grabbed the headlines recently include the RM36bil mass rapid transit (MRT) project jointly proposed by Gamuda Bhd and MMC Corp Bhd, the RM7bil light rail transit (LRT) extension programme and the redevelopment of land belonging to the Federal Government.

The bulk of these potential contract awards are expected to go to the bigger players. The awards, if they materialise soon, would be a major boost for the sector.

“While we believe the market is fully aware that certain negative elements are still lingering in the sector, we feel that it is likely to ‘brave’ these negative elements and forge ahead of the curve, underpinned by the collective ‘buy-first-on-news’ mentality,” RHB Research Institute said in a note yesterday.

These so-called negative elements include slow pace of public project awards and the 23% cut in actual project development spending under the 10th Malaysian Plan as compared to the Ninth Malaysia Plan.

RHB Research yesterday upgraded the construction sector to overweight from neutral previously, buoyed by positive newsflow. It listed Gamuda Bhd as its top “tactical” pick, while Sunway Holdings Bhd ranked the highest on its “value” list.

Previous reports indicated that the MRT project might start as soon as early next year, while works to extend the LRT lines would commence by the end of the year.

There is yet to be a formal award of the proposed MRT project, or clear indication that the huge project would even take off soon despite being identified for implementation under the 10th Malaysia Plan.

OSK Research predicted the value of local contracts to be dished out this year to “easily surpass” the total RM10bil recorded in 2009.

The figure excludes potential award of LRT or MRT-related jobs, according to analyst Jeremy Goh who covers the sector at OSK Research.

The firm has a “neutral” view on the construction sector, largely because of unattractive valuations and “lack of significant re-rating” catalyst happening soon.

Shares in Gamuda had risen 22% year-to-date at yesterday’s close of RM3.15, while rival IJM Corp Bhd was up 10% at RM4.93. Construction and property player Malaysian Resources Corp Bhd (MRCB) closed at RM1.52 yesterday, up 22% year-to-date.

MRCB has been linked to the project to develop the Government land in Sungai Buloh, Selangor, although there has been no official award to the company so far.

RHB Research said the market was likely to react positively to the announcement of formal awards of Federal land parcels to “master developers” and the subsequent farming out of the sub-divided smaller land parcels to various developers.

“Given the scale of the projects and that most construction boys are already involved in property business, they are likely to get a slice of the action,” the firm said.

Unusual Market Activity - Buy or Sell?

2010-07-02T07:30:00.002+08:00

LATELY, Bursa Malaysia has issued unusual market activity (UMA) queries on some listed companies due to unusual price movement and trading activities.

Normally, companies that are being issued UMA queries have very high trading volumes and surge in stock prices within a short period of time without any significant corporate announcement.

Based on our observations, in most cases, the stock prices for companies affected will not go up after the UMA queries, as most investors might view these queries as negative event to the companies.

Even though the stocks are not being suspended for trading, most traders will try to avoid them as they may be suspended later.

According to the Main Board’s Listing Requirement (LR) Paragraph 9.11, UMA is referred to as unusual price movement, trading activity or both.

The listed issuer must immediately undertake a due enquiry to seek the cause of the UMA in its securities. They are required to determine whether the UMA are attributed to information that has recently been publicly disclosed, has not been publicly disclosed or is a market rumour.

Most of the time, the UMA queries are issued on companies with some possibility of trading on material non-public information.

According to LR Paragraph 9.15, insiders must not trade on the basis of material information which is not known to the investing public.

Besides, according to Section 188 of the Capital Markets & Services Act 2007, anyone who commits an offence under insider trading shall be punished on conviction to imprisonment for a term not exceeding 10 years and to a fine of not less than RM1mil.

Despite heavy fine and punishment for trading on insider information, each time Bursa Malaysia issues UMA queries on any listed companies, the general public may be able to predict the “standard” replies from them.

The “standard” replies from these companies are “To the best knowledge the Board of Directors of the Company is not aware of any other corporate developments, any rumour or report, any possible explanation on UMA or any material information ....”

It is very seldom that the listed companies will explain in detail on the UMA.

Even though we do believe that sometimes certain listed companies may not be aware of the sudden surge in stock prices and volumes, however, if the trading volumes per day accounted for a big percentage of the outstanding shares of the listed companies, the major shareholders may be aware of the reasons driving the heavy trading volumes.

This is because usually the key owners of the companies are, at any time, fully aware of the major shareholders of their companies.

Being retail investors who own a very small number of shares in these companies, we need to observe how these companies response to the UMA queries. If there is no other major corporate developments after the UMA queries, like what they claimed earlier that they were not aware of any major corporate developments, then we will consider their earlier “standard reply” as genuine.

Otherwise, if there are major corporate developments within the companies in the subsequent periods, we believe that there may be certain forms of insider trading during the UMA period.

As mentioned earlier, traders and speculators will try to avoid speculating stocks with UMA queries because they worry that if the stock prices continue to surge higher, the companies may be suspended from trading.

A good quality of management will try their best to explain the possible causes for the UMA whereas a bad quality of management will only provide minimal information with the “standard” reply and take advantage of higher share prices in the subsequent major corporate announcements.

Lastly, as one of Abraham Lincoln’s (America’s 16th President – 1861-65) famous sayings: “You may fool all the people some of the time, you can even fool some of the people all of the time, but you cannot fool all of the people all the time”.

We believe that sometimes even though some companies’ owners may be able to take advantage on investors, it will eventually be discovered by the public and resulted in a bad reflection on the quality of the management.

As investors, we need to be extra careful when considering buying into these companies in the future.

Malaysia Forecast To Be ‘young and poor’ by 2030

2010-06-30T07:30:00.004+08:00

KUALA LUMPUR, June 29 — Malaysia’s relatively high population growth rate will see the country remain comparatively young over the next two decades but economic growth is not expected to keep pace with population expansion, according to a report by Bank of America Merril Lynch.

Most developed countries experience lower population growth than developing countries and thus become older as they grow richer but China and Thailand however, are forecast to grow old before they can become rich with more than 15 per cent of the population aged above 65 years in the next 15-20 years.

The forecasts are part of an analysis by Bank of America Merrill Lynch on the impact of demographic trends on investment opportunities.

It also found that the population in Hong Kong, Korea, Singapore, Taiwan and Australia are growing old fast but they are expected to remain among the wealthiest in the world.

By 2015, Malaysia is forecast to have an elderly dependency ratio (EDR) — population aged above 64 divided by population aged between 15 and 64 — of 10 with a GDP per capita calculated on purchasing power parity (PPP) basis of US$20,000 (RM64,950). Current young and rich countries such as Australia, Singapore and the US have EDR’s of between 15 and 25 with a GDP per capita of between US$50,000 to US$70,000.

By 2030, Malaysia’s EDR is expected to be about 15 with a GDP per capita of about US$50,000 while Australia, Singapore and the US are expected to have an EDR of between 30 and 40 and per capita GDPs of US$110,000 and US$160,000.

The report also suggested however that based solely on the ratio of prime savers — defined as population aged between 40 and 64 — to the rest of the population, the stock markets of China, India, Indonesia, Malaysia and Philippines are expected to outperform those of Australia, Hong Kong, Korea, Singapore, Taiwan and Thailand in the next 20 years.

It added that in advanced economies such as the US and the UK, the stock market “can rationally factor in the demographic trend, usually a few years ahead”. It said that there is a risk of that relationship becoming “self-fulfilling” leading to decades of bear markets in those countries.

“The stock markets and financial assets are arguably most influenced by the mid-aged people,” said the report. “Hence, it is not surprising that the correlation between Mid-Young ratio and the aggregate value of stocks traded is quite high for most Asian countries.”

The report said that there were investment opportunities in the education sector in China, India and the Philippines unlike Australia and Korea which have the most highly education labour force.

It also said that Australia and Thailand have room for development in the private healthcare sector and that India, Philippines and Singapore lag in terms of public spending on healthcare.

Yuan Move Spurs Demand For Ringgit

2010-06-23T07:30:00.002+08:00

Asian currencies from the won to the ringgit are luring two of the region’s largest investors on speculation China’s decision to end the yuan’s peg will increase demand in the world’s third-biggest economy.

Mitsubishi UFJ Asset Management Co, a unit of Japan’s largest bank, says Asian central banks will allow appreciation by reducing dollar purchases. AMP Capital Investors Ltd, Australia’s second-biggest money manager, predicts the region’s currencies will gain as much 15 per cent in the next year as China’s move underscores the strength of the global recovery.

The yuan rose the most in five years yesterday after the central bank said June 19 it would increase the currency’s “flexibility,” scrapping a two-year peg against the dollar aimed at shielding exporters from the global financial crisis. The Bloomberg-JPMorgan Asia Dollar Index climbed 0.7 per cent, the most in six weeks. Policy makers from the Philippines to Thailand said the change would spur regional trade.

“Asian central banks will probably ease their grip on intervention as competitiveness becomes less of an issue,” said Hideo Shimomura, who helps oversee the equivalent of US$55.4 billion at Tokyo-based Mitsubishi UFJ Asset. “Authorities in Asia see the move as confidence by the Chinese authorities in its economic state.” Shimomura said he may add to holdings of Asian currencies including the Singapore dollar.

The yuan strengthened 21 per cent in the three years before policy makers halted gains at about 6.83 per dollar in July 2008. It fell 0.2 per cent to 6.8095 as of 12:36 p.m. in Shanghai after rising 0.4 per cent yesterday. South Korea’s won gained 2.6 per cent yesterday, the ringgit appreciated 2 per cent and Taiwan’s dollar rose 0.6 per cent.

Won Gains

China, including Hong Kong, is the biggest export market for economies such as Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.

“This is a good opportunity for Thai exports to China,” Deputy Governor Bandid Nijathaworn told reporters in Bangkok yesterday. Spencer Lin, the head of foreign-exchange at Taiwan’s central bank, said today that yuan’s appreciation “will be good for countries selling goods to its domestic market.”

The yuan policy change signals that “the recovery in the Chinese economy is on a more solid footing,” Philippine central bank Governor Amando Tetangco said in a June 20 interview. “This bodes well for intra-Asian trade and consequently growth for our economies.”

Solid Recovery

China’s central bank said it was prepared to resume appreciation because the “upturn in the Chinese economy has become more solid” and that a stronger yuan would help curb inflation. Gross domestic product expanded 11.9 per cent in the first quarter from the same period of 2009.

“The move by Chinese authorities has given investors more confidence on China’s growth trajectory as it has reduced the need for aggressive tightening,” said Nader Naeimi, a Sydney- based strategist at AMP, which has more than US$90 billion of funds under management in Sydney. “Asian currencies are leveraged to China’s growth profile. We are increasing our allocation.”

AMP’s favors the Taiwan dollar, the Korean won, the Singapore dollar and the Malaysian ringgit.

Floating Rate

People’s Bank of China said that a floating exchange rate will help the nation to focus its economy on domestic demand, curb inflation and reduce trade imbalances, according to a question-and-answer document published June 20. The bank ruled out “large changes” in the exchange rate and said it will prevent “excessive” fluctuations.

The won led declines in Asian currencies today, falling 1 per cent, on speculation policy makers will seek to limit appreciation as they assess the economic impact of an expected rise in the yuan.

Regional currency rallies may prove short-lived, as China’s central bank will limit gains while Europe’s debt crisis worsens, according to DBS Asset Management Ltd. and Daiwa SB Investments Ltd.

“If you ask me if this yuan news will make me specifically load up on Asian currencies over and above what we already own, then the answer is no,” said Desmond Soon, a portfolio manager at DBS Asset Management Ltd, which oversees the equivalent of S$7 billion (US$5.1 billion) in Singapore. “The yuan is not substantially undervalued in its trade-weighted basket.”

‘Gradually, Slowly’

Asian currencies have already priced in yuan appreciation and may not keep rising, said Kenichiro Ikezawa, who oversees about US$3 billion at Daiwa in Tokyo.

“It is very clear that China will only let the yuan move gradually and slowly,” Ikezawa said. “So, when the yuan rises only gradually, the rest of Asian currencies won’t keep strengthening.”

After China abandoned a peg and revalued the yuan on July 21, 2005, the Taiwan dollar and South Korean won rallied to peaks by mid-August of that year and dropped 4.7 per cent and 0.8 per cent, respectively, in the third quarter.

Bank of Korea Governor Kim Choong Soo said a rising yuan may pose difficulties for South Korea by spurring gains in the won, which advanced the most in two weeks yesterday.

Demand from China has supported exports during the global recession. South Korea’s shipments to China surged 50 per cent in the first 20 days of May, helping drive the 42 per cent increase in overall exports reported for the whole month, official figures show.

“The other central banks will be more relaxed in letting their currencies move, because their competitiveness with China will change,” said Endre Pedersen, who manages about US$16 billion of Asian bonds at MFC Global Investment Management. “It’s going to encourage other assets to come in Asia. People who were shaking their heads in May are now getting back in again.” -- Bloomberg

Singapore, Malaysia Lead Global Wealth Recovery

2010-06-14T07:30:00.003+08:00

Singapore and Malaysia led a recovery of global wealth to pre-crisis levels as the number of millionaires grew by about 14 per cent in 2009, the Boston Consulting Group said.

The number of millionaire households increased to 11.2 million, according to the study released yesterday by the Boston-based firm. Singapore posted a 35 per cent gain, followed by Malaysia, Slovakia and China. In 2008, the number of millionaire households fell about 14 per cent to 9.8 million.

“Given the severity and magnitude of the crisis, I’m surprised at how fast global wealth has come back,” Bruce Holley, a senior partner in the firm’s New York office and topic expert for wealth management and private banking for the US, said in a telephone interview before the report was released.

Global wealth rose by 11.5 per cent after falling 10 per cent in 2008, as assets under management increased to US$111.5 trillion, close to the annual study’s record US$111.6 trillion in 2007. North America, defined as the US and Canada, had the greatest gain in assets at US$4.6 trillion to US$35.1 trillion. The US also had the most millionaire households at 4.72 million, the survey said, while Europe remained the wealthiest region, with US$37.1 trillion.

Asia-Pacific
Wealth in the Asia-Pacific region, excluding Japan, is expected to rise at almost double the global rate, the study said. Global wealth will increase at an average annual rate of almost 6 per cent from year-end 2009 through 2014, which is higher than the 4.8 per cent annual growth rate from year-end 2004 through 2009.

Asia-Pacific will increase its share of global wealth from 15 per cent in 2009 to almost 20 per cent in 2014, with China and India the engines of growth. Together, the two countries will make up 75 per cent, or almost US$9 trillion, of the increase in assets managed in the region over the period.

Singapore also had the highest proportion of millionaire households at 11.4 per cent, followed by Hong Kong and Switzerland. The fourth, fifth and sixth spots were in the Middle East -- Kuwait, Qatar and the United Arab Emirates. The US was seventh-highest at 4.1 per cent.

“The model is about how the wealth jam is being spread, based on the underlying GDP,” said Roman Scott, managing director of Singapore-based Calamander Capital Pte, which advises private banks. “The fuel that feeds the private-banking industry is the amount of wealth that’s being created. In Asia, it’s not a huge stock of old wealth, but rather, lots of newly created wealth from economic activity.”

Current numbers may differ from those in last year’s report because of currency fluctuations and newer available data, said Peter Damisch, a BCG partner and a co-author of the report. The study looked at 62 countries representing more than 98 per cent of global gross domestic product.

Wealth Recovery
The recovery in wealth last year was a result of resurgent financial markets and increased savings, the report said. The Standard & Poor’s 500 Index rose 20 per cent in 2009 and the US savings rate averaged 4.2 per cent compared with 2.6 per cent a year earlier.

Global wealth dropped in 2008 for the first time since the survey’s 2001 inception as the credit crisis sent stock indexes tumbling and slashed the value of real-estate holdings, hedge- fund and private-equity investments. Last year’s survey had said total wealth wouldn’t return to pre-recession levels until 2013.

Less than 1 per cent of households globally were considered millionaires, which is defined as investable assets of more than US$1 million, exclusive of real estate and property such as art. Wealth became more concentrated with millionaire households controlling 38 per cent of the world’s assets compared with 36 per cent a year earlier, the study said.

‘Still Feel Burned’
The amount of offshore wealth, defined as assets housed in a country other than the investor’s legal residence, increased to US$7.4 trillion after declining to US$6.8 trillion in 2008 as global regulators pressured countries such as Switzerland to cut down on bank secrecy. Switzerland remained the largest offshore center, with about 27 per cent, or US$2 trillion, of assets, the report said.

The offshore business is expected to grow driven by emerging markets, even with increased regulatory pressure. It will grow at above 6 per cent, versus the 2 per cent growth in traditional markets, the report said.

The report’s authors also looked at the performance of 114 wealth management firms worldwide and found revenue declined by an average of 7.3 per cent as assets under management increased an average of 14.3 per cent. Reasons for decreased revenue include fewer transactions, tougher price negotiations and a shift to lower-risk asset classes and investments that are liquid and simple, the study said.

Investors feel frustrated and distrustful following the market events beginning in 2008, despite the increase in wealth, Holley said.

“People still feel burned,” said Holley. “I think the numbers in the report suggest a much rosier experience than how people actually feel.” -- Bloomberg

10th Malaysia Plan Highlights

2010-06-11T07:30:00.002+08:00

Following are the highlights of Prime Minister Datuk Seri Najib Tun Razak's speech when tabling the Tenth Malaysia Plan (10MP) at the Dewan Rakyat today:

* Theme: Towards Economic Prosperity and Social Justice

* The 10MP (2011-2015) is critical for the continuation of the national agenda to realise Vision 2020

* RM20 billion facilitation fund to be set up for public private projects.

* Electricity sector will be made more competitive, subsidies to be removed gradually

* Malaysia has earmarked plans to develop the Malaysian Rubber Board’s land in Sungai Buloh at an estimated cost of RM10 billion.The land covers an area of 3,300 acres, he said in his speech.

* Petroliam Nasional Bhd, Malaysia’s state oil company, plans to build a RM3 billion liquefied natural gas regasification plant in Melaka, south of Kuala Lumpur

* Malaysia has identified 52 high-impact projects worth RM63 billion to implement. They include seven highway projects at an estimated cost of RM19 billion. The government also plans two coal electricity generation plants at a cost of RM7 billion.

* 10MP targets the gross national income per capita to increase to RM38,850 (US$12,140) in 2015; requires the GDP to grow at 6 per cent per annum.

* Growth will be led by the services and manufacturing sectors, revitalising the agricultural sector towards higher value added as well as the adoption of ICT, biotechnology and other relevant technologies.

* The key challenge is to stimulate private sector investments to grow at 12.8 per cent or RM115 billion per annum.

* Government committed to reducing the fiscal deficit from 5.3 per cent of the GDP in 2010 to less than 3 per cent per annum in 2015.

10MP: 10 main premises
First : Internally driven, externally aware
Second : Leveraging on our diversity internationally
Third : Transforming to a high-income nation through specialisation
Fourth : Unleashing productivity-led growth and innovation
Fifth : Nurturing, attracting and retaining top talent
Sixth : Ensuring equality of opportunities and safeguarding the vulnerable
Seventh: Concentrated growth, inclusive development
Eighth : Supporting effective and smart partnerships
Ninth : Valuing our environmental endowments
Tenth : Government as a competitive corporation

10MP-Five Strategic Thrusts
First: Designing government philosophy and approach to transform Malaysia using NKRA methodology
Second: Creating a conducive environment for unleashing economic growth
Third: Moving towards inclusive socio-economic development
Fourth: Developing and retaining a first-world talent base and
Fifth: Building an environment that enhances quality of life

* 10MP allocation for non-physical infrastructure to be increased to 40 per cent compared with 21.8 per cent under the 9MP, focus to be given to skills development programmes, R&D activities and venture capital funding

* A world-class civil service college will be established to raise the competency of civil servants

Focus on 12 national key economic areas of NKEAs to be announced in October
(i) Oil and gas
(ii) Palm oil and related products
(iii) Financial services
(iv) Wholesale and retail
(v) Tourism
(vi) Information and communication technology (ICT)
(vii) Education services
(viii) Electric and electronic
(ix) Business services
(x) Private healthcare
(xi) Agriculture
(xii) Greater Kuala Lumpur

* A special unit, the Economic Transformation Unit, will be established to plan and coordinate the implementation and development of the NKEAs.

* A Competition Commission and Appeal Tribunal will be established to ensure more orderly and effective implementation of the law.

* The government will continue to strive to place Malaysia among the top five most competitive countries in the world.

* A Facilitation Fund of RM20 billion will be provided to help the private sector to finance public-private partnership projects.

* Through the Facilitation Fund, the government expects to attract private sector investments worth at least RM200 billion. Among the projects that are being considered are land reclamation in Westport in Port Klang, Malaysia Truly Asia Centre in Kuala Lumpur and Senai High Technology Park in Iskandar Malaysia, Johor.

* A special unit under the Prime Minister''s Department will be set up to set the direction and drive the National Innovation System and innovation policies and strategies.

* Government financing for public venture capital companies will be in the form of equity and not loans.

* A Mudharabah Innovation Fund (MIF)with an allocation of RM500 million will be introduced to provide risk capital to government venture capital companies.

* A Business Growth Fund with an initial allocation of RM150 million will be set up to bridge the financing gap between the early stage of commercialisation and venture capital financing for high tech products.

* The bankruptcy laws will be simplified to support a risk-taking culture, eliminate the stigma of failure and allow high calibre and credible entrepreneurs who fail to become active again.

* High speed broadband project to cover major towns, priority economic growth areas and industrial areas, broadband coverage for suburban and rural areas broadband service for the rural population through wireless infrastructure offering a variety of affodable packages

* East Coast Expressway from Kuantan to Kuala Terengganu to be completed in the plan period at a total cost of RM3.7 billion and to be linked to the Kuantan Port which will be upgraded

* The electrified double track rail project from Gemas to Johor baharu, estimated to cost RM8 billion, will be implemented to complete the electrified double track rail project from Padang Besar in the north to Johor Baharu in the south

* A sewerage treatment plant using green technology to be constructed in Lembah Pantai, Kuala Lumpur, similar plants throughout the country to follow.

* Focus on raising the income and quality of life of the bottom 40 per cent household income group where the Bumiputera form the largest number, that is 73 per cent of the 2.4 million households in the group.

* Subsidy rationalisation in stages, the lower income group and those who are most vulnerable will continue to be given assistance.

* Implementation of various economic programmes and provision of basic amenities to those living in the interior, especially those who live in long houses in Sabah and Sarawak, as well as the Orang Asli and estate workers in Peninsular Malaysia.

* A RM109 million allocation to provide water supply to 182 estates with up to 1,000 acres in size and located less than five kilometres from the water mains.

* AIM and TEKUN micro-credit facilities will be provided to address urban poverty and the loan scheme will be packaged together with entrepreneurship training.

* A fund of RM100 million to be provided to provide soft loans for 280,000 households in Chinese new villages to pay their land premiums and renewals of leasehold through Bank Simpanan Nasional.

* The proportion of graduate teachers in primary schools will be increased from 28 to 60 per cent to improve the quality of students.

* The performance of students in critical subjects , particularly, the National Language, English, Science and Mathematics, will also be improved by increasing the number of graduate teachers.

* The qualification requirement for appointment of preschool teachers will be raised to a diploma and bachelor''s degree.

* Candidates with Unified Examination Certificate (UEC) and Sijil Pelajaran Malaysia (SPM) will be considered for enrolment into the Chinese language programme in Institutes of Teacher Education to meet the demand for quality Mandarin language teachers in Chinese national schools and national schools.

* The same consideration will also be given to those who have Sijil Menengah Agama and Sijil Tinggi Agama and SPM to become teachers in J-Qaf and Islamic education programme.

* The number of high-performing schools will be increased to 100 by the end of 2012 and they will include primary, secondary, day and residential schools.

* A Trust School framework will be introduced to enable public-private partnership in the management of selected government schools and they will be provided with greater autonomy.

* RM280 million will be allocated to government-aided schools for 2011 and 2012. Each category of government-aided school, namely Chinese schools, Tamil schools, religious schools and mission schools, will receive an allocation of RM70 million for the first two years of the 10MP.

* The government will provide assistance to pat electricity and water bills of up to RM2,000 per month for each of the almost 1,900 government-aided schools.

* Financial allocation for universities will depend on the achievement of their KPI targets and the government will grant gradual autonomy to the universities to improve their performance.

* The quality of academic staff will be improved by increasing the number of PhDs with a target of 75 per cent in research universities and 60 per cent in other public universities.

* The MyBrain15 programme will be intensified to finance doctoral studies for the purpose of increasing the number of PhD holders to 18,000 by 2015.

* Salary packages will be reviewed to attract foreign lecturers and retired academic staff.

* Universiti Teknologi Malaysia (UTM) has been declared a research university, after Universiti Malaya, Universiti Kebangsaan Malaysia, Universiti Putra Malaysia and Universiti Sains Malaysia.

* Implementation of the high capacity Mass Rapid Transit system in Kuala Lumpur, covering a radius of 20km from the city centre with a total length of about 150km, will be able to serve up to two million passenger trips per day from 480,000 trips on current urban rail systems.

* Increase the percentage of public transport usage in Greater KL from 12 per cent in 2009 to 30 per cent in 2015.

* Public land transport system will be expanded to other cities with the introduction of the Bus Rapid Transit system in Iskandar, Johor, while the number of public buses in Penang will be increased by 200 buses to enable the expansion of 26 routes with an added capacity of 75,000 passengers per day.

* Construction of eight hospitals, including specialist hospitals, 197 clinics and 50 additional 1Malaysia clinics which are expected to be ready in the first half of the 10MP.

* Construction of 78,000 affordable houses under the 10MP.

* A fund of RM500 million for repair and maintenance works of public and private low-cost housing based on a matching grant basis where half of the contribution will be borne by the government and the other half by the management committee or residents' association.

Surviving A Bear Market

2010-06-10T07:30:00.003+08:00

Given the recent weakness of the stock market - coupled with the reality of recessionary pressures - it's past time to start acknowledging we're entering a cyclical bear market.

However, it doesn't have to be a major distraction. Bear markets are more than survivable with a few simple steps. They require faith and passive attention, but a bear market doesn't have to be the disaster the media makes it out to be.

To preface, this article is not going to define a bear market. The Internet is loaded with definitions of what a technical bear market is, how and why they start, and what the end result is. The scope of this discussion is only to examine what you as an individual investor can do to minimize the downside of a bear market...or perhaps even thrive in it.

Though there are more than five basic bear market rules, these five may be the most critical.

1. Understand that a bear market is not an upside-down bull market.
Bull markets are characterized by prolonged, gentle rallies, with modest (and somewhat predictable) corrections, or pullbacks. Bear markets are characterized by sharp, quick drops, and even quicker, huge rebounds.....though the rebounds don't revisit previous highs. In other words, bear markets are much more volatile - in both directions - than bull markets. Using the same strategy or philosophy during both can lead to mixed results.

2. Understand that not all stocks go down in a bear market.
Yes, it's true...some stocks still go up in a bear market - you just have to find them.

3. Understand that most stocks do go down in a bear market.
Here's the headache to rule #2...the odds are technically against you if you're a 'long only' investor.

4. Understand that you will get no meaningful help from the media or government regarding when the bear market has begun, or when it has ended.
A bear market is usually defined as a decline of 20% or more in stock prices. Who has 20% to give up? Moreover, there is no official beginning or end to a bear market, and opinions vary greatly as to when we're actually at one end or the other. Ultimately, the individual investor must decide.

5. Understand that the economy and the stock market are not synchronized.
Stocks tend to be predicitive of the economy, rather than - and contrary to popular belief - reflective of the economy. The market almost always starts to rebound right in the middle of a technical recession, so don't be afraid to go against the grain if it feels right. (Side note: The National Bureau of Economic Research didn't say until November of 2001 that the U.S had started a recession in March of 2001. They didn't say until July of 2003 that November of 2001 was the end of the recession. In both cases, the stock market was well ahead of the NBER.)

These certainly aren't the only rules of a bear market, but a good place to start if you're not sure how to navigate one.

KLCI: Byond 1500 or Blow 1150?

2010-06-07T07:30:00.001+08:00

Since my previous coverage in Jan 2010, our KLCI index does not move much from the level of 1300. With the current world economic condition, financial issues in europe and the process of economy recovery, it was no doubt our market will behave accordingly. As for my personal view, the market still promising provided 1250-1280 level was strongly supported. This level will provide cushion for buying opportunities. In the worse case, if 1150 level been taken out, than it will be sad story for all of us here. BUT if the 1300 level was breakout for the 2nd time, than we may looking at beyond 1500 level and wish all that will come end of the year or 1st half next year. Hopefully! Be caution and stay alert. :-) Happy trading and good luck!

[Previous KLCI Posting]
http://bursabulltrader.blogspot.com/2010/01/klci-great-v-shape.html

Can Malaysia Achieve 7.7% Growth?

2010-05-21T07:30:00.000+08:00

KUALA LUMPUR: High growth forecasts made by foreign economists have not prompted their local counterparts to change their tune, as they feel that the current data and expectations do not warrant such bullishness.

Economists contacted by StarBiz said that uncertainty over the latter part of this year and a higher base effect achieved in the second half of 2009 would make it difficult for the economy to hit a growth rate in excess of 7% for the year as predicted by a few foreign brokers.

“Such high growth rates can be achieved if there is stronger-than-expected recovery in exports and private investment,” said Affin Investment Bank economist Alan Tan, who has forecast the economy to grow by 4.3% this year.

The official growth forecast for 2010 is for gross domestic product (GDP) to expand between 4.5% and 5.5%.

Recent forecasts of growth rates that are well above the official forecast and that of many economists was first made by JPMorgan which projected Malaysia's economy will grow by 7.7% this year.

The foreign broker, which initially had a forecast of 6.8%, said the upward revision was made in view of strong regional production data in the first quarter and the positive outlook for the manufacturing sector.

HSBC Holdings plc senior Asian economist Robert Prior-Wandesforde last week said he expected Malaysia's GDP to expand 7.3% this year on an aggressive V-shaped recovery in exports and to be lifted by higher commodities prices and domestic demand.

Maybank Investment Bank economist Suhaimi Illias said the change in the expectations of the foreign brokers was down more to a situational rather than fundamental shift.

Suhaimi, who has forecast a 5.3% economic growth this year, feels that the bullish outlook for Asia would have influenced the foreign brokers' decision.

He said for growth to spike upwards, exports and investments would have to improve substantially. He, however, pointed out that leading indicators for Malaysia's economy in December and January had slowed and that growth rates could moderate in the next six months.

Helping drive economic growth higher could be the reforms that could take place under the New Economic Model but economists said implementation of that had to first take place.

“Growth can exceed the Government's forecast if all those reforms work,” said AmInvestment Bank Bhd senior economist Manokaran Mottain.

Manokaran, who has a growth forecast of 5% for this year, said the performance of external economies was also critical if Malaysia's economy were to grow faster than the official prediction.

“If external demand remains as strong as in the first half then there are grounds to revise economic assumptions,” he said.

How that unfolds is still unclear given Europe's problems in dealing with Greece's debt and also how the governments of developed countries handle their exit from pump-priming initiatives undertaken to deal with the recent global financial crisis.

CIMB Research head of economics Lee Heng Guie said uncertainty still clouded the global outlook, particularly in the second half of this year.

“The global recovery will be gradual and uneven. In our view, though the global economic recovery is well under way, risks remain in the outlook and there could be bumps along the road,” he said.

“The advanced economies are expected to record moderate growth in 2010 given the prevailing high unemployment, ongoing deleveraging process and the still-impaired financial system that continues to restrain lending.''

Lee, who has forecast Malaysia's GDP to grow by 4.8% this year, said Asian economies would continue to lead the global recovery due to the gaining traction of both domestic and external demand.

“China and India are expected to grow strongly this year, but they are already facing an asset price bubble and the potential threat of inflation risk,” he said.

“Policymakers have tightened credit by hiking the reserve requirement ratio and interest rate and will continue to move towards less accommodative monetary stance to prevent the build-up of financial imbalances.”

Cut-Loss And Affordability (Mentality)

2010-05-18T07:30:00.010+08:00

Before you proceed to study Technical Analysis and become a trader, please be reminded to get your mentalities right. To me, the first thing that you need do before you even think of becoming a trader is to calculate how much money you can afford to loose. Pathetic don’t you think? People go into stocks to earn money, but this stupid guy tells me to think about how much I can loose first?

First of all, technical analysis (TA) is not a miracle method that can give you 100% accuracy. No matter how much you have read, how many charts you have studied, how great indicators are, technical analysis is just not correct all the time…. Especially when you are just starting to try this technique. You may hear your friends or some super guru on TA tell you about this miracle setting or indicator that will help you pick out winners… But once you try things out… You may find that it is just not that simple… So many things can go wrong… Misinterpretations, misleading and contradicting indicators, unexpected change in crowd behaviour… etc… So, how can you make sure that you are correct 100%? Whether you like it or not, TA is actually using the chart to predict the behavior of the crowd based on history… But whipsaws do happen… a simple bad news may cause mass panic which leads to panic selling…

The key to be a successful trader is to survive all this mistakes long enough in order to find the correct way to get it right… Which is why the rule of thumb for trading is to “keep loss small and let profit run”.

But how small is small? When to cut loss? This will be discussed further in future postings… But to make it simple, when you enter a trade, there has to be a buy signal that you use. It doesn’t matter if it is trend, MACD, Moving average, breakout… etc. But you must know why you entered in the first place… So, you must be prepared to cut loss once you find that the reason is no longer there… For example, if you entered because of uptrend, you must be prepared to cut loss once you realized you made a mistake when the price violates the trend.

However, another important point to remember about cutting loss is affordability. As we know, the financial status of everyone is different and this can affect the cut loss level to a certain extent. Some people like to say that your cut loss level should not be more than 2% of your capital. I would like to say that your cut loss level should be kept to the amount that you can afford if you were to make 5 consecutive losses, or 2 % of your capital, whichever lower.

With this affordability in mind, you will use them when choosing counters. I think we should not enter a trade when the cut loss level is above your affordability. It is safer to pass those trades. So, please remember this two points, Cut Loss & Affordability when you choose to trade.

I picked this interesting test done by Dr. Shapiro in the book “Trading For A Living” written by Dr. Alexander Elder. Do try this out for it is very important concept to grasp in stocks, so please be honest. First, try not to think too much and use your instinct or feeling to answer, then try again after thinking properly and carefully… See if your answers are the same before proceeding to the explanations, hehe… this can be quite fun:

Part 1:
If I give you two choices: 1) A 75% chance to win RM1000 with a 25% chance of getting nothing. Or 2) A 100% chance to get RM700. Which would you go for?

Part 2:
If you are given two choices: 1) A sure 100% loss of RM700 Or 2) 75% chance of losing RM1000 but a 25% chance of loosing nothing and keep all your RM1000?

Explanations:
For part 1, four out of five subjects will take the second choice. The majority makes the emotional decision and settles for a smaller gain.

For part 2, three out of four will take the second choice, condemning themselves to lose more in their effort to avoid risk, they actually maximize their losses… Emotional traders want certain gains and turn down profitable risks that involve uncertainty. However, they will go into risky gambles to avoid taking certain losses. It is our human nature to take profits quickly and postpone taking losses. Irrational behavior increases when people feel under pressure.

If you were to look into your account, you will realize that the major burns that you have is a few large losses that was there because of your inability to cut loss. Or it might be the continuous small loss made because you were under pressure to cover back the loss you made. All these only proves once again how important money management and cutting loss is in trading.

Malaysia's Highest Q1 Growth Since 2000

2010-05-14T07:30:00.000+08:00

PUTRAJAYA: The Malaysian economy recorded a robust growth of 10.1% in the first quarter of 2010, the highest first quarter growth since the 11.7% recorded in 2000.

Prime Minister Datuk Seri Najib Tun Razak said that given the robust performance this year and the government-introduced economic transformation initiatives, he was confident Malaysia would achieve its target of 6% growth this year.

Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz also announced a slight increase in the interest rate to counter any spike in inflation following the high growth. The Overnight Policy Rate was increased by 25 basis points to 2.5%.

She said the new level of the OPR would continue to be “accommodative and supportive of the economic growth.”

Najib, who announced the first quarter GDP at a press conference at his office here, said the growth in the first three months of this year was much higher than the 4.4% growth registered in the fourth quarter of last year.

Najib said the growth was spurred by strong domestic demand and global economic recovery.

He said this was also in step with the positive growth seen in other regional and emerging economies like China (11.9%), South Korea (7.8%) and Indonesia (5.7%).

“On the supply side, all major sectors recorded robust growth, particularly the manufacturing sector which grew by 16.9% compared to the 5.0% in the last quarter of 2009.

“Growth in this sector was driven by the electric and electronics (25.9%), transport equipment (25.3%) as well as wood products and furniture (18.7%) sub-sectors,” he said.

Najib said the services sector also registered a strong performance at 8.5%, compared to 5.2% in the previous quarter.

He said this was because of strong growth in the utilities (16.6%), real estate and business services (14.2%), wholesale and retail (9.6%) and the transport and storage (9.2%) sub-sectors.

He said the construction sector continued to expand with a 8.5% growth while the mining sector also seemed to have turned around to record a 5.2% growth.

He said the agriculture sector too expanded by 6.8%, mainly due to higher production of rubber, livestock and timber.

“On the demand side, growth during the first quarter of this year was underpinned by strong domestic expenditure stemming from sustained expansion in private and public consumption of 5.1% and 6.3% respectively.

“Investments too grew strongly at 5.4%, reflecting a recovery in investor confidence,” he said.

Najib said the external sector registered a sterling performance with a 19.3% increase in total exports, amidst recovery in the global economy and trade.

Similarly, he said, total imports expanded by 27.5% on account of higher imports of intermediate (37.9%), consumption (18.5%) and capital goods (9.6%), pointing to a more robust domestic economic activities.

Asked on Government’s plans to roll back subsidies, Najib said the government commitment to reduce subsidies would be implemented on a gradual basis.

He said the Government would take care of the vulnerable groups and make any transition as painless as possible.

On whether more subsidies would be rolled back, Najib said: “What is important is ensuring a strong, robust recovery and that any savings are used for productive investments.”

Later, Najib tweeted that the GDP growth meant more and better jobs for Malaysians.

“Government is committed to ensuring economic recovery and transformation is on the right track,” he added.

OSK Top Small Cap

2010-05-07T07:30:00.000+08:00

NINETEEN new companies have made it to OSK Investment Bank's Top 50 Malaysian small cap list called "Jewel 50", OSK Research deputy head of research, Jeffrey Tan said today.

A cross-section of industries and sectors form the list, he said.

OSK also included two new categories to its OSK Top Malaysian Small Cap 2010 publication namely, financial service providers and conglomerates.

Tan said the 50 companies have an upside potential of 5-15 per cent.

In the sixth edition, OSK continued to feature 50 of Bursa Malaysia's top small cap companies but unlike the previous edition, the market capitalisation threshold has been increased to RM1.5 billion from RM1 billion.

"This is to maintain coverage depth and breadth and to ensure that the better small cap companies are represented," Tan said in a press conference in Kuala Lumpur.

The 19 new stocks in no particular order are CI Holdings, Delloyd Ventures, Signature International, Axis REIT, EP Manufacturing, Notion Vtec, Glomac, Sunway Group, Mamee-Double Decker, Multi Sports, Salcon, Faber, AEON Credit, Protasco, Zhulian, Handal, Engtek, Southern Steel and Evergreen Fibreboard.

The companies were picked for their positive share price catalyst going forward, undemanding valuation and strong fundamentals.

"Three stocks making their debut in the 2010 edition, namely Faber, C.I Holdings and Glomac are in our Top 10 list, with C.I Holdings sitting among the Top five. Some household names previously featured in our Top 10 companies - Hai-O and QL Resources - have again earned their place in our 2010 edition," Tan said.

The OSK Top Malaysia Small Cap publication has evolved into a leading small cap investment compendium in Malaysia referred to by the local and foreign investors alike to make informed investment decisions, he said.

The companies featured in the 2009 edition have performed commendably, with 32 of the 50 companies having posted absolute returns of 50-375 per cent and outperforming the benchmark FBM KLCI and FBM Emas Index, said Tan.

OSK's top 10 picks recorded absolute share price returns of 52-347 per cent in 2009, with notable winners being Mudajaya -- the top contruction pick, which rallied 347 per cent, while oil and gas player Alam Maritim surged 201 per cent.

Half of the Top 10 picks in 2009 posted an average return of 10 per cent.

The runaway winners were the glove makers, followed by the steel sector.

Malaysia To Grow At Fastest Pace Since 1996

2010-04-26T07:30:00.001+08:00

The Malaysian economy is expected to expand at 8.0 per cent in 2010, buoyed by strengthening domestic and external conditions, AmResearch Sdn Bhd said.

"We are now projecting a much higher forecast of 8.0 per cent this year, the strongest since 1996, even though fiscal and monetary stimulus would be gradually withdrawn by year-end," it said in a statement today.

The AmResearch number is higher than Bank Negara Malaysia's gross domestic product (GDP) data forecast of 4.5-5.5 per cent and the World Bank's at 5.7 per cent.

Prime Minister Datuk Seri Najib Tun Razak has also a more optimistic forecast, of not less than 6.0 per cent for this year.

"It will be a broad-based recovery, with all major sectors of the economy registering positive growth, amid strengthening domestic demand and a pick-up in external demand," the research company highlighted.

For the first quarter of 2010, AmResearch estimates the economy to expand at a more rapid pace of 9.8 per cent, the highest in the last 10 years, with private sector spending by households as well as exports leading the way.

The country's export performance has benefited from an improvement in external demand, particularly from regional economies and stronger commodity prices.

However, with prospects of a disappointing global upswing getting dimmer, AmResearch maintains its forecast of the real GDP at around 6.0 per cent in 2011.

It said this would depend very much on the type of reforms in the pipeline, as well as the government''s commitment in making it a reality.

Since last year, several liberalisation measures have been introduced to lift direct foreign investment in financial services and in other tertiary sectors.

A new initiative known as the Government Transformation Programme (GTP) has also been started to tackle waste and corruption in the public sector and speed up the implementation of new projects.

Malaysia will also kick-start a second and final part of the New Economic Policy by the third quarter of this year, detailing structural reforms with timeliness, and this should boost the country's potential even stronger.

AmResearch said the major growth drivers in 2010 will be the manufacturing sector that is expected to expand by 12.3 per cent, led by the electric and electronic sector, which represents more that nine per cent of the GDP.

The services sector, it noted, is also estimated to grow at 7.1 per cent and contribute at least 4.1 percentage points to the GDP, led by stronger demand arising from a positive wealth effect of the financial markets, stable employment conditions and rising income levels.

AmReseach said private consumption is also expected to rise on the back of improvements in the labour market, disposable incomes and consumer confidence."We forecast a 4.5 per cent growth this year, against 0.8 per cent in 2009," it added.

Meanwhile, exports and imports are to post double-digit growths of 15 per cent and 16 per cent this year for a higher current account surplus of RM125bil or 20 per cent of the GDP.

Headline inflation is expected to rise 2.5 per cent, in tandem with improving economic conditions and possible adjustments to prices.

"Given the assumption of stronger economic momentum and higher inflation rates, we reckon the year-end target for the overnight policy rate will be at three per cent now.

"This is still below neutral levels and would not choke the recovery process."In this regard, we see the ringgit at RM3.10 per US dollar by year-end, moving towards its new fair-value, since the trade-weighted index is also a function of GDP and OPR," it added. -- BERNAMA

How To Succeed In A Brave New World

2010-04-15T07:30:00.002+08:00

THE worst may be over. Growth opportunities are now emerging again but the environment remains volatile and the prospects for a deep and sustained recovery are still uncertain.

Capital injections by governments around the world have maintained liquidity in some key areas, but not necessarily assured us greater stability.

In this climate, some companies will succeed, but others will continue to fail. We are at a point in the economic cycle where chief executives need to consider a few key questions, one of which is – how do I fund my new business model?

Where previously there was ample capital available, now it is critical to consider whether capital is being allocated appropriately, efficiently and competently. In the new environment, the CEO cannot just rely on the CFO to answer this question and should seek to understand capital management issues more thoroughly.

It is ironic that as many companies fail on the way out of a downturn as do on the down slope. It is when things start picking up and their order books fill up that addressing working capital requirements is critical.

Typically, businesses with high volumes, low margins, high fixed costs, high costs for premises and staff, high operating gearing and highly volatile cash flows have been hit fastest in the recent crisis. At the other end of the spectrum, companies with low volumes and high margins have been better placed as they have more capacity to cut margins and continue selling.

Right capital structure

The CEO should be challenging whether the organisation has the right capital structure to match its business model. This may seem obvious, but there are many painful examples of crisis-hit companies that have failed to realise just how fundamentally their business environment has changed and how that has affected their overall capital structure and accompanying risks.

Many companies operating in Asia have complex corporate and debt structures due to the use of offshore holding companies as listing vehicles, and many debt instruments may actually have risk characteristics akin to traditional equity.

Good housekeeping on the company’s debt and equity structure is absolutely necessary. This enables the corporate executives to understand how continued weakness in business activities will affect their business revenues and potentially risk the breach of a covenant.

When bank funding was freely available, many organisations became overly reliant on cheaper uncommitted funding, relative to longer term debt, as a way to fund long-term assets.

This mismatch created problems when banks withdrew their short term lines. CEOs should be looking at their cost of funds and their net (not gross) operating margins to match pre interest earnings to meet their debt obligations.

Risk detection

While there are signs of a recovery, executives must continue to ask how continued weak performance could affect their financial positions. In cases where debt covenants risk being breached, they need to know how close they are to the thresholds.

This is another reason why executives must understand what activity drives what line in the company’s profits and loss (P&L) and to make a realistic estimate as to how this might lead to a “cash crunch”.

Financial risk detection should start with the long-term forecasting of a company’s pre-tax earnings.

This means examining the company’s back-end to understand a company’s business activities and sales records to realistically assess the firm’s P&L accounts.

This allows companies to set achievable targets, rather than relying solely on the “nice-to-have” predictions that CFOs may have derived from past data alone.

In these uncertain times, it is more critical than ever to conduct a critical or independent review of the reasonableness of the assumptions behind P&L forecasts.

To gain the maximum visibility, the cash forecasting process should involve all key business managers who are most able to influence those business activities and outcomes, such as the heads of sales and procurement, or the general managers of particular operating units.

Funding thresholds should be established, and well in advance, to enable companies to tap into various funding sources well before credit bottlenecks occur.

While there is liquidity available in the current market environment, banks are no longer prepared to lend until they have completed their due diligence.

They need to be convinced that their borrowers are able to service their principal and interest obligations and can withstand a level of continued market deterioration in case the current market optimism proves to be premature.

The notion that “success breeds success” certainly holds true in Asia’s funding world.

Insight Into Stock Trading

2010-04-08T07:30:00.001+08:00

A LOT of retail investors like to trade in stocks. As a result of high losses incurred over the years, especially on stocks that have been delisted, they do not believe in holding stocks for the long term.

They believe stocks are suitable for trading and not for long-term investment.

Stock trading is not as simple as trading based on tips and market rumours. Most retail investors actually rely on tips from their remisiers to help them make quick gains from the stock market.

Investors need to understand that trading involves high discipline, commitment of time and skills. Based on interviews with some top traders, Jack D. Schwager concluded that all successful traders are serious about their trading and are willing to spend a lot of time on market analysis and trading strategies.

The secret to their success is usually a methodology that worked for them, together with having very rigid loss-control.

They always act independently of the crowd and have the patience to wait for the right timing for trading. In addition, all the successful traders understand that losing money from trading is part of the game.

A lot of traders always say that trading in stocks has a lower risk than buying stocks for the long term. Many retail investors like to buy stocks for trading because they do not have the patience to hold stocks for the long term.

But whenever they incur losses, they tend to change their original objective of stock trading to long-term investment, not knowing that the majority of those stocks for trading are not suitable for long-term investment.

While some of them may be aware of this important fact, due to their unwillingness to admit their mistakes by cutting losses, they choose to continue to hold on to the stocks. As a result, they get stuck with a lot of poor fundamental stocks in their portfolio for the long term. Most of the time, they will hold those stocks until they get delisted!

Investors need to understand that stock trading involves constant locking in of gains and cutting of losses. They must always set target profits (profits per trade or PPT) and maximum loss (loss per trade or LPT) for every trade. They need to set the target number of trades that are supposed to bring gains, which is also known as trading success ratio (success ratio or SR).

They then need to set the target number of trades that they are willing to be involved in per month (trades per month or TPM).

Hence, profits that can be made by a trader will very much depend on his SR as well as TPM. Most of the time, the target PPT and maximum LPT are relatively constant and are dependent on individual risk tolerance level and skills.

For example, an investor has set his PPT at RM500, LPT at RM300 and SR at 60%. If he sets 10 TPM, based on SR of 60%, of the 10 trades that he has made, six trades will make gains of RM500 each and four trades will incur losses of RM300 each. The net gain for 10 trades will be RM1,800 ((6xRM500) – (4xRM300)). If the trader intends to increase his profits, he needs to do more trades per month; in other words, increase the TPM.

Given that the movement of stock prices is random, the probability of stock prices moving up or down is 50%. We think it is a great achievement if a trader can achieve an SR of 55% to 60%. Most retail investors hope for 90% because they are not willing to cut losses.

As a result, they will wait for the stock price to break even whenever it drops below their purchase prices. However, the longer they wait, the more losses they will incur. Most of the time, of the 10 trades done, they may achieve SR of 90% where nine trades may give them gains but the one trade that incurs loss may wipe out all their nine gains!

We agree that the above methodology is easier said than done. A lot of times, investors may have the discipline to lock in their gains, but do not have the discipline to cut losses.

Besides, investors need to allocate a certain amount for their trading capital, which is the amount that investors are willing to lose in stock trading. It should not cause financial problems to investors if they lose all the trading capital.

Lastly, investors should not average down their losing position. If they have incurred losses in the past three to four trades, it means they may have lost touch with the market timing and sentiment. In this case, it may be good for them to take a break from trading and analyse the reasons behind those losses before continuing.

Malaysia Must Act Now To Retain Competitiveness

2010-04-01T07:30:00.002+08:00

MALAYSIA’S gross national income (GNP) is about US$7,600 annually or RM2,200 a month and currently, almost 4% of all Malaysians and over 7% of rural Malaysians live below the poverty line.

The NEM report said that half a century after independence, these figures provided a sobering reminder of how far Malaysia still had to go before it could become an advanced, high income economy.

From independence in 1957 until the Asian financial crisis, Malaysia’s economic development was impressive by any measure. In the mid-1990s, in the run-up to the 1997 Asian financial crisis, Malaysia’s gross domestic product (GDP) grew at an average rate greater than 9% annually.

Since 1997, however, the GDP growth rate had been practically halved (not even taking into account the 2008 global financial crisis).

It said the Asian financial crisis was a watershed in Malaysia’s growth. Since the crisis, the country’s position as an economic leader in the region had steadily eroded.

The crisis also caused significant outflow of foreign portfolio investment and foreign direct investment as well as a fall in overall investment, which had not recovered.

Since the Asian financial crisis, Malaysia had seen a major change in aggregate investment trends. While countries such as Indonesia had seen notable recovery in investment levels since the crisis, Malaysia had seen no recovery, with aggregate investments levels as a percentage of GDP continuing to decline.

Although Malaysia ranked 23rd out of 183 countries overall, doing business in Malaysia was more difficult than in competing countries, especially in aspects related to entry and exit of firms.

Malaysia’s place on the Global Competitiveness Index had dropped to 24th in 2010 from 21st previously, indicating that the country was becoming less attractive as an investment destination. Institutional structures, processes and policies also contributed to the difficulty of doing business in Malaysia.

Export is, and had been for some time, a key focus of Malaysia. Exports had focused mainly on electrical and electronics (E&E) products which accounted for more than 40% of the country’s total exports.

GDP growth in Malaysia was sensitive to the fortunes of the E&E sector, where recent decline in global growth was quickly reflected in a fall in such exports, exposing the country to volatility in global markets.

Skilled jobs were most often synonymous with higher wages and in Malaysia, not enough high-wage jobs had been created.

This reflected the dominance in Malaysia of low value-added good which required low-skilled labour. As a result, only 25% of Malaysia’s labour force comprised highly skilled workers, compared with significantly higher proportions in Singapore, Taiwan and South Korea.

The human capital situation in Malaysia was not improving. Instead, the country was losing the skilled talent needed to drive future growth.

The exodus of talented Malaysians was further compounded by the fact that the education system, despite high fiscal outlays through several reform efforts, was not effectively delivering the skills needed.

Against the backdrop of strong economic growth and the New Economic Policy, Malaysia had made impressive headway with regard to overall poverty reduction.

Inequality, however, remained a real challenge for Malaysia. Although absolute poverty had been reduced, 40% of households continued to have very low income levels, particularly those in rural areas.

Starting as a low-income country in 1957, Malaysia briskly climbed the ladder to attain upper middle-income status by 1992.

But since becoming an upper middle-income country, Malaysia had largely stayed where it was. Although its income trajectory continued to exhibit a gradual uptrend, the country remained far below the “high income” boundary.

As global investors were increasingly turning to large-scale markets to lower costs, small economies like Malaysia must remove all costly barriers to give investors compelling reasons to put their money and create high wage jobs here.

Malaysia must act now before its position deteriorated any further.

GDP May Rise More Than 5pc

2010-03-23T19:30:00.002+08:00

Malaysia’s Prime Minister Najib Razak said the economy may expand more than 5 per cent this year as the country recovers from last year’s recession.

“I’m on record to say I am looking at 5 per cent and beyond,” Najib told reporters in Hong Kong.

“But that’s a general kind of goal for the government.” Najib said last week Southeast Asia’s third-largest economy can expand as much as 6 per cent in 2010. The country’s central bank will release its official economic forecast in Kuala Lumpur tomorrow.

The economy may expand 5.5 per cent this year after shrinking 1.7 per cent in 2009, according to the median estimate of seven economists surveyed by Bloomberg News. The government said in October that gross domestic product would expand 2 per cent to 3 per cent in 2010.

Najib, who boosted government spending and eased investment rules last year to revive growth, is scheduled to announce a long-term plan for the economy next week. Central bank Governor Zeti Akhtar Aziz raised interest rates for the first time in almost four years on March 4, joining nations from Australia to India in withdrawing monetary stimulus as Asia leads a recovery from the global slump.

The government is also considering whether to issue a global bond after fund managers indicated such a security would be “viewed very favorably,” Najib said today. -- Bloomberg

Higher FDI This Year On Reforms

HONG KONG, March 23 — Malaysia should see increased foreign direct investment (FDI) this year after the government implements administrative reforms, Prime Minister Datuk Seri Najib Razak said.

The country’s new economic model, to be announced later this month, would include unspecified administrative reforms that should result in a “marked improvement” in FDI, Najib (picture) told an investment forum in Hong Kong today.

Malaysia has been considering proposals to end its subsidy regime and phase in a new goods and services tax as it begins dismantling a four-decade race-based economic system that has deterred foreign investment.

Najib also reiterated an earlier statement that Malaysia’s GDP growth should hit 5 per cent or more this year. The country’s economy shrank by 1.7 per cent last year.

The economic regime adopted after race riots in 1969 has given an array of economic benefits to the ethnic Malay population, which makes up 55 per cent of the total, but investors complain it has led to a patronage-ridden economy that has resulted in foreign investment increasingly moving to Indonesia and Thailand.

Najib is scheduled to unveil initial details of a new economic model to boost growth and win back foreign investment at the annual “Invest Malaysia” conference organised by Bursa Malaysia on March 30.

Earlier this month, the government backed off from an economic reform plan, including the introduction of a goods and services tax, just weeks after it halted implementation of petrol price increases aimed at cutting its subsidy bill, and electricity price rises.

In all three cases it cited the need to “engage with the public”, a message that may derail Malaysia’s bid to reverse investment outflows and tackle a budget deficit that has overshot its targets since 2007 to hit a more than 20-year high of 7.4 per cent of gross domestic product in 2009. — Reuters

Bursa Stocks May Rise 10pc Further

2010-03-11T07:30:00.001+08:00

Malaysia’s stock index may rise a further 10 per cent in 2010 on the “currency game” as investors buy more equities after the Malaysian ringgit gained the most in Asia this year, Manulife Asset Management (Malaysia) Sdn. said.

The FTSE Bursa Malaysia KLCI Index, which rallied 45 per cent last year, may reach as high as 1,450 by the end of 2010, said Jason Chong, chief investment officer at Manulife Asset in Kuala Lumpur. The ringgit advanced 2.7 per cent this year after gaining 1.2 per cent in 2009.

Foreign investors are “playing the currency game on the back of expectations interest rates will go higher and the ringgit will strengthen,” Chong, who helps manage 2.5 billion ringgit ($750 million) of assets at Manulife, said in an interview today. “While the rest of the region is coming down, they’re looking at Malaysia as a safe haven.”

The ringgit rallied after the central bank raised its benchmark interest rates on March 4 for the first time in almost four years, saying record-low borrowing costs were no longer warranted as the economy emerges from recession and inflation. A stronger ringgit helps boost the value of foreigners’ assets denominated in the currency, including stocks.

Banks, plantations and building material suppliers are expected to lead gains, said Chong. Prime Minister Najib Razak said last week that Southeast Asia’s third-largest economy may expand 6 per cent this year, twice the pace of the official forecast. Government data on March 5 showed Malaysian exports rose 37 per cent from a year earlier in January, the most in 11 years.

Foreign Investors
Najib has unveiled 67 billion ringgit ($20 billion) of stimulus measures and accelerated efforts to open up the economy to attract more foreign investors. The government has eased rules governing overseas investors, initial public offerings and property purchases in a bid to lure more foreign money and shore up the economy.Chong, who joined Manulife on Feb. 8, was previously chief investment officer of UOB-OSK Asset Management in Kuala Lumpur.

The market’s price-to-earnings multiple is 16.1 times current year estimates, the highest level since February 2008, according to data compiled by Bloomberg. The multiple may climb to 18 times in the short term, he said, without specifying a precise period. -- Bloomberg

Currency Gain

‘Brightening’ Outlook
A central bank survey of economists in Singapore projected 6.5 per cent growth for the city-state’s gross domestic product this year, a percentage point more than at the last poll in December. Philippine exports in January jumped 42.5 per cent, the most since 1995, according to figures published today.

“The economic picture is brightening despite all the caution flagged by the central banks and finance ministry officials around the world,” said David Cohen, a Singapore- based economist at Action Economics. “The data still continues to show a global economic recovery led by Asia. That should be positive for Asian currencies.”

The ringgit strengthened and the Kuala Lumpur Composite Index of shares was headed for a two-year high before a government report tomorrow that’s forecast to show industrial output picked up in January. Production increased 11.7 per cent from a year earlier following an 8.9 per cent gain in December, according to the median estimate of economists surveyed by Bloomberg. The central bank raised its key interest rate last week, saying an economic recovery is “firmly established.”

“The recovery story is looking good and the market is upbeat about the prospect of further rate increases,” said Tan Voon Ching, a currency trader at OSK Investment Bank Bhd. in Kuala Lumpur. “Stocks are rising, providing support for the ringgit.”

Foreign Funds
Taiwan’s dollar today reached a one-month high of NT$31.73 versus the greenback before slipping to close little changed on suspected central bank intervention. Overseas investors bought $1.4 billion more of the island’s shares than they sold this month through yesterday.

“There are foreign funds who want to invest,” said Hao- Yun Juan, a foreign-exchange trader at Kingstown Bank in Taipei. “People will not push appreciation too rapidly because the central bank will give some support for the Taiwan dollar.”

India’s rupee strengthened 0.4 per cent to 45.45 following net share purchases of $1.6 billion in the country’s first five trading days of March. Korean equities attracted $1.4 billion from abroad this month through yesterday.

The Philippine peso climbed 0.2 per cent to 45.640 per dollar and the Thai baht strengthened 0.1 per cent to 32.68. The yuan was little changed at 6.8262. -- Bloomberg

Rules That Warren Buffett Lives By

2010-03-05T07:30:00.001+08:00

Warren Buffett is arguably the world's greatest stock investor. He's also a bit of a philosopher. He pares down his investment ideas into simple, memorable sound bites. Do you know what his homespun sayings really mean? Does his philosophy hold up in today's difficult environment? Find out below.

"Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1."
Buffett personally lost about $23 billion in the financial crisis of 2008, and his company, Berkshire Hathaway, lost its revered AAA ratings. So how can he tell us to never lose money?

He's referring to the mindset of a sensible investor. Don't be frivolous. Don't gamble. Don't go into an investment with a cavalier attitude that it's OK to lose. Be informed. Do your homework. Buffett invests only in companies he thoroughly researches and understands. He doesn't go into an investment prepared to lose, and neither should you.

Buffett believes the most important quality for an investor is temperament, not intellect. A successful investor doesn't focus on being with or against the crowd.

The stock market will swing up and down. But in good times and bad, Buffett stays focused on his goals. So should we. (This esteemed investor rarely changes his long-term investing strategy no matter what the market does.

"If The Business Does Well, the Stock Eventually Follows"
The Intelligent Investor by Benjamin Graham convinced Buffett that investing in a stock equates to owning a piece of the business. So when he searches for a stock to invest in, Buffett seeks out businesses that exhibit favorable long-term prospects. Does the company have a consistent operating history? Does it have a dominant business franchise? Is the business generating high and sustainable profit margins? If the company's share price is trading below expectations for its future growth, then it's a stock Buffett may want to own.

Buffett never buys anything unless he can write down his reasons why he'll pay a specific price per share for a particular company. Do you do the same?

"It's Far Better to Buy a Wonderful Company at a Fair Price Than a Fair Company at a Wonderful Price"

Buffett is a value investor who likes to buy quality stocks at rock-bottom prices. His real goal is to build more and more operating power for Berkshire Hathaway by owning stocks that will generate solid profits and capital appreciation for years to come. When the markets reeled during the recent financial crisis, Buffett was stockpiling great long-term investments by investing billions in names like General Electric and Goldman Sachs.

To pick stocks well, investors must set down criteria for uncovering good businesses, and stick to their discipline. You might, for example, seek companies that offer a durable product or service and also have solid operating earnings and the germ for future profits. You might establish a minimum market capitalization you're willing to accept, and a maximum P/E ratio or debt level. Finding the right company at the right price -- with a margin for safety against unknown market risk -- is the ultimate goal.

Remember, the price you pay for a stock isn't the same as the value you get. Successful investors know the difference.

"Our Favorite Holding Period Is Forever"
How long should you hold a stock? Buffett says if you don't feel comfortable owning a stock for 10 years, you shouldn't own it for 10 minutes. Even during the period he called the "Financial Pearl Harbor," Buffett loyally held on to the bulk of his portfolio.

Unless a company has suffered a sea change in prospects, such as impossible labor problems or product obsolescence, a long holding period will keep an investor from acting too human. That is, being too fearful or too greedy can cause investors to sell stocks at the bottom or buy at the peak -- and destroy portfolio appreciation for the long run.

You may think the recent financial meltdown changed things, but don't be fooled: those unfussy sayings from the Oracle of Omaha still RULE!

Preparing For The Inevitable Bursting Bubble

2010-03-03T07:30:00.002+08:00

Financial bubbles are a way of life now. They can upend your industry, send your portfolio into spasms and leave you with whiplash. And then, once you've recovered, the next one will hit.

Or so you might think, as a veteran of two gut-wrenching market declines and a housing bubble over the last decade.

There's plenty of reason to expect more surprises, given the number of hedge funds moving large amounts of money quickly around the world and the big banks making their own trades.

Individuals, as always, may be tempted to make their own financial bets, too. Last time, they bought overpriced homes with too much borrowed money. Next time, who knows what the bubble will be? And that's the problem, as it always is. How do you identify the next thing that will pop? Is it China? Or Greece? Or Treasury bonds? It is difficult to predict and make the right defensive (or offensive) moves at the correct moment to save or make money.

Still, if you want to better insulate yourself from bubbles -- however often they may inflate -- there are plenty of things you can do. Your debt levels matter, and you may want to consider a more flexible investment strategy. But perhaps most important, this is a mental exercise that begins and ends with an honest assessment of your long-term goals and how you handle the emotional jolts that come from the bubbles that burst along the way.

Fixed Expenses
Start with the basics. The less you have to pay toward monthly obligations, the better off you are, and that's especially true at a time of economic disruption. You certainly wouldn't want any bills increasing, so now's a good time to refinance to a fixed-rate mortgage.

Whittle down student loan and credit card debt, too, and pay cash for your car if possible. "Flexibility is priceless in a time of panic," said Lucas Hail, a financial planner with Foster & Motley in Cincinnati.

Self-Reliance
Then take a hard look at how much you should rely on promises from the government. Social Security and Medicare may not fit the traditional definition of bubbles, but that hasn't stopped Rick Brooks from advising his financial planning clients to expect less from both programs.

"Something that is not sustainable will not continue. It just can't," he said of Medicare.

Mr. Brooks, the vice president for investment management with Blankinship & Foster in Solana Beach, Calif., said anyone under 50 should assume that Medicare will look nothing like it does now and examine private health insurance premiums for guidance as to what may need to be spent on health care in retirement. Meanwhile, the firm advises current retirees to assume a 20 percent cut in Social Security benefits at some point.

Bedda D'Angelo, president of Fiduciary Solutions in Durham, N.C., has an equally stark outlook on long-term employment risk. If there are two adults in the household, your goal should probably be to have two incomes instead of one. "I do believe that unemployment is inevitable," she said, adding that people who think they are going to retire at 65 should save for retirement as if they will be forced out of the work force in their mid-50s.

Portfolio Tactics
Perhaps you did what you thought you were supposed to during the last decade. You got religion and stopped trading stocks. Then, you split your assets among various low-cost mutual funds and added money regularly. And the results weren't quite what you hoped.

Tempted to make big bets on emerging markets or short Treasury bills? You've landed in the middle of the debate between those who favor a more passive asset allocation and those who prefer something called tactical allocation.

The first camp sets up a practical mix of investments, according to a target level of risk, and then readjusts back to that mix every year or so.

They frown on the hubris of the tactical practitioners. To make a tactical approach work, they note, you need to know what the right signals will be to buy and sell everything from stocks to gold, during every future market cycle. Then, these tacticians need to have the discipline to act each and every time. This is extraordinarily hard.

The tacticians, however, believe they have no choice. "What consumers need to know is that no matter how comforting it is to believe a formulaic approach or prepackaged investment product will allow them to put their financial future on autopilot, our current and future financial environment will require advice, diligence, education and responsiveness, which takes into account strategic consideration of geopolitical and economic relationships," as Ryan Darwish, a financial planner in Eugene, Ore., put it to me this week.

Mr. Darwish scoffed at the notion of mere bubbles and said he thought that more fundamental and far-reaching shifts were under way, like the transfer of economic power from the United States to China and other nations.

A growing number of financial planners are embracing a middle, more measured approach: If diversification across stocks, bonds and other asset classes has proved to be a good thing in most investing environments, why not diversification around investment approaches?

"I am not a financial genius, but the geniuses are even worse off because they're anchored on one philosophy," said David O'Brien, a financial planner in Midlothian, Va. So he and a growing number of his peers have added some strategies to their baseline portfolios aimed at losing less during bubbles while still gaining in better times. "We're not trying to shoot for the moon," he added.

These tactics can include managed futures, absolute return funds, merger arbitrage and other approaches that will get their own column someday.

The embrace of all this even led one investment professional I spoke with this week to express the ultimate sacrilege: It really is different this time.

Thomas C. Meyer of Meyer Capital Group in Marlton, N.J., noted that many of these alternative strategies were not even available in mutual-fund form three to four years ago. So that's different. He's now putting 30 percent of his clients' equity portfolios into such investments.

The big change, however, is that the baby boomer money is getting older. People are further along in their careers than they were during the market crash in 1987, and they can't rely on pensions as so many more near retirees could in the 1980s (while shrugging off stock market volatility). And the boomers don't have as much time to make up lost ground, especially if they're already retired.

"Losing less means a lot right now," Mr. Meyer said. "So we want to suck volatility out where we can."

Matter of the Mind
But can you live with less volatility -- and the permanent end of occasional portfoliowide returns in the teens or higher? Markets run on greed and fear; bubbles expand and deflate thanks to outsize versions of each. One of the few things you can predict about bubbles is that they will test your conviction on where you sit along the fear-greed continuum.

And once they pop, you'll know a bit more about how your mind works than you did before.

This last downturn was severe enough that about 10 percent of Steven A. Weydert's clients realized that they had overestimated their own risk tolerance. "Ideally, with an asset allocation, you never want to look back and say you're sorry," said Mr. Weydert of Bowyer, Weydert Wealth Planning Partners in Park Ridge, Ill.

So rather than trying to predict the number and type of bubbles, it may make more sense to look inward when trying to predict the future. Bob Goldman, a financial planner in Sausalito, Calif., said that clients often looked at him blankly when he asked them what it was they imagined for themselves in the future. Sometimes, they need to go home and figure out what sort of life it is that they're saving for -- and how much (or little) it might cost.

"People come in and talk about how we all know that inflation is going to explode next year," Mr. Goldman said. "Well, we don't all know that. We don't know anything. But we can know something about our own lives, and there is a person we can talk to about that. A person in the mirror."

Malaysia GDP In Positive Territory

2010-02-25T07:30:00.002+08:00

PUTRAJAYA, Feb 24 — Datuk Seri Najib Razak announced today that the economy grew by 4.5 per cent for the fourth quarter of 2009, although GDP for the year still shrank slightly.

The prime minister said the positive growth in Q4 was helped largely by the government’s push to pump some RM1 billion a month into the economy.

This had resulted in the country’s economic performance faring better than expected.

Najib said that overall the country’s GDP for 2009 had still contracted by 1.7 per cent which was lower than the projected -3 per cent.

He set a target for his administration of growing the economy this year by five per cent which he said could be achieved barring unforeseen circumstances.

“Sustained growth in private consumption expenditure and increased public sector spending contributed to higher domestic demand, which recorded a growth of 3 per cent in the fourth quarter,” he said in explaining the economy’s better performance in the last three months of 2009.

Najib said that private consumption growth was supported by better conditions in the labour market, a low level of inflation and higher spending for the year-end school holiday period and festive season.

He added that an increase in public sector consumption also helped push growth into positive territory.

Public sector consumption expenditure expanded further by 1.3 per cent while public sector capital spending increased substantially as the implementation of projects under the quarter kicked in.

During the fourth quarter, the development expenditure of the federal government amounted to RM17.6 billion.

Najib said that this was an increase of 9.5 per cent compared with the fourth quarter of 2008.

The PM stressed that the implementation of the two stimulus packages were key to the economic recovery.

“Over 113,000 projects under the two stimulus packages have and are being implemented, involving a total value of RM17 billion. Out of that, the government has made a payment of RM13.9 billion. Therefore on average, the government has pumped approximately RM1 billion per month into the market from January 2009.

“As one of the specific measures in the mini budget 2009, the government has provided training and created employment opportunities to cushion the difficulties faced by retrenched workers and unemployed graduates,” he said.

The government has currently filled 38,495 of the 50,000 vacant posts in the federal civil service and recruited 11,131 officers on contract basis in government agencies since March 2009.

The government has also provided 100,000 training opportunities and job placements through its collaboration with the private sector.

Najib said he expected the private sector capital spending to increase this year.

“There are emerging signs of stabilization in the private sector capital spending as business sentiments continue to improve. This together with the higher public sector capital spending contributed to the turnaround in total gross fixed capital formation which registered a positive growth of 8.2 per cent during the quarter.

“On the supply side, all economic sectors recorded improved performance during the quarter. Growth in the services sector was broad based, with almost all sub-sectors recording higher growth rates. The manufacturing sector recovered to register a positive growth of 5.3 per cent, reflecting the improvement in both external and domestic demand.

“Activities in the construction sector expanded strongly by 9.2 per cent, benefiting primarily the accelerated implementation of projects under the fiscal stimulus packages and the ninth Malaysia plan,” he said.

The country’s export also recorded a positive growth of 5.1 per cent compared to -22.4 per cent in the third quarter.

Foreign direct investment also increased in 2009 to RM7.2 billion compared from RM6.7 billion with investments mainly in the manufacturing and services sector.

Najib said he was confident that the country would maintain its economic growth.

“For Malaysia the economy, yes (we can expect that the worse is over). Provided nothing seriously unexpected happens with respect to the global economy. For example any major sovereign collapse.

“Barring unforeseen circumstances of that nature, we could safely say that we have recovered from the crisis and we should be looking forward to a strong growth for 2010,” he said.
Najib said he expected the economy to grow by five per cent this year.

“As you know earlier forecast was four per cent but for this year, I am hoping that I can achieve one or two per cent more than that so we are going all out to make sure that we are able to generate the confidence and speedy implementation of projects.”

Economists Anticipate Economy Would Strengthen Further

2010-02-19T07:30:00.000+08:00

THE last piece of economic data for a tumultuous 2009 was the industrial production index (IPI), which showed a strong bounce in the month of December.

The 8.9% improvement in industrial production in December from a year ago was only the second time industrial production for 2009 was in the black but the magnitude of the bounce and the similar pattern of factories roaring back to life in other countries have more or less affirmed opinion that the worst is behind us.

“Short term forward-looking indicators point to a sustained pickup in gross domestic product (GDP) and manufacturing activities in the first three to six months of 2010, as per the index of leading economic indicators and the global manufacturing Purchasing Managers’ Index, which chalked up its sixth consecutive month of expansion in January,” says Maybank Investment Bank in a note.

Industrial production data has a big influence on economic growth numbers given that the size of the manufacturing sector is still sizeable in Malaysia. Economists also point out that electricity consumption, which together with manufacturing and mining output make up the IPI, also gives some rough indication to the services sector activity in the country.

Manufacturing output, however, carries the heaviest weightage in the IPI. Industrial production was lifted by manufacturing activity, which posted a 12.9% growth in December from a year ago.
The electricity sector saw a growth of 14.1% but mining was down 0.2% as crude oil output fell.

“Real GDP should have rebounded year-on-year in the fourth quarter of 2009 as industrial production expanded 2.9% year-on-year – the first growth since the third quarter of 2008 – lifted by manufacturing and electricity production which gained 5.1% and 10.3% year-on-year respectively,” says Maybank.

“This supports the current view that the Malaysian economy has expanded year-on-year in the fourth quarter of 2009 after consecutive declines in the preceding three quarters and a flat fourth quarter of 2008. Our 2009 real GDP growth estimate of -2.2% versus -3.8% actual real GDP in Jan-Sept 2009 implies that the economy expanded by at least 2.5% year-on-year in the fourth quarter of 2009.”

OSK Research, in its note, says that although the IPI for 2009 was down 7.6% from a year ago, it sees the index rising by 9.4% for this year as the mining, electricity and manufacturing sectors continue to climb in the months ahead.

“Demand in the mining sector would continue to be boosted by higher commodity prices on the back of gradual economic growth. In view of growing domestic and global demand as well as better consumer sentiment, we see production levels in the manufacturing sector scaling up to meet increasing orders,” it says.

“Through higher levels of production from both the mining and manufacturing sectors, we believe the lengthening of operation hours may fuel demand for the electricity sector.

“Even if there is an electricity tariff hike in 2010, we believe the demand for electricity would be relatively unaffected as it is price inelastic as it is essential to the mining and manufacturing sectors.”

The rebound in the IPI and also stronger export numbers have economists predicting steady economic growth for 2010.

Exports have bounced back and in December, the value of goods from Malaysia was the highest in 2009 and growth of exports for the month was the strongest since July 2008.

AmResearch believes that economic growth rebound in the fourth quarter of the year could become much stronger than market consensus.

“Based on initial indicators of industrial sectors, which includes the manufacturing sector, we are now looking at a stronger growth of 2.5% to 3%, compared to a slower 1.5% growth predicted earlier,” it says in a note.

“This will push full-year contraction to a much slower -2.2% in 2009, before accelerating to 3.5% growth in 2010.”

While there is optimism for growth, some economist says greater scrutiny on the numbers are needed.

“We will know how sustainable the recovery trend is when we observe how the major indicators perform after the second quarter of 2010, as weakness in the major economies especially the US may yet weigh down on stronger growth,” says Kenanga Investment Bank in its note.

“The first half of 2010 may see stronger growth due to the base effect as well as further improvement in external demand and partly due to the residual impact from the stimulus package. However, the momentum may taper off in the second half of 2010 as those factors may start to loose its steam.”

It sees, along with ongoing domestic structural reforms, Malaysia’s economy likely perform below its potential. Kenanga expects the economy to grow by between 3% and 4% in 2010.

Feng Shui And What The Tiger Holds

2010-02-17T07:30:00.000+08:00

It's a question we raise every year. Every Chinese New Year, in fact. And that's what the year has in store for us.

Never mind that some of us are not feng shui practitioners, but never a time had astrologers and feng shui masters had such allure than now when they would be consulted to predict whether we can finally wave goodbye to all the turmoils of last year and say hello to much better times ahead or we will continue to be doomed.

Indeed, if the turnout at local feng shui expert Joey Yap's Succeeding in Turbulent Times seminar in Kuala Lumpur last month were anything to go by, it reflected increasing interest among the locals in the ancient Chinese belief.

According to the Chinese calendar, 2010 is the year of the Metal Tiger. Many feng shui experts predict it to be a year of moderate growth, which makes sense as the world's economy is gradually recovering from the worst economic crisis in decades.

Favourable businesses to be in this year are said to be industries with the fire, earth and metal elements. These include stock market, energy, airline, construction, property, banking/financial and steel sectors.

On an individual basis, people born under the zodiac signs of the Monkey and the Tiger itself clash with the Grand Duke Jupiter star this year, so they must be careful because this year is considered not good for them. Just as important as what to do is what to avoid. They are warned against attending funerals and weddings in the next 12 months.

For those who are born in the year of the Pig, Snake, Rooster and Goat, 2010 is supposed to bring good luck, although there are conflicting views from feng shui experts with regard to those born in the year of the Dog and the Horse.

More often than not feng shui provides sensible advice and there is logic behind most feng shui situations. After all, the basic principle of feng shui is to create certain harmonious aspects between human, building and the environment surrounding it.

For example, a house facing the west is not good from a feng shui perspective. According to property agents, there is logical reasoning for this. For a west-facing house, you are constantly exposed to direct, hot sun in the afternoon that can heat the property to uncomfortable temperatures. To rectify the situation, simply plant shady trees so that you block the sun that beams into your house.

Similarly, every school of feng shui repeatedly warns against living in a house located at a T or Y junction. It's easy to see why. Such junctions are prone to road accidents. Pollution and dust are at their maximum at these junctions. You would also be disturbed by car headlights shining into the living room.

Rather than moving away, you can change the direction of the front door so that it doesn't face that junction anymore.

Still, while most Malaysians may consider feng shui superstitious, thousands of others swear by the results. I have a friend who claimed that the practice of feng shui has changed his business luck for the better and another who used it to counter office politics.

Never mind that some of us are not feng shui practitioners, but never a time had astrologers and feng shui masters had such allure than now when they would be consulted to predict whether we can finally wave goodbye to all the turmoils of last year and say hello to much better times ahead or we will continue to be doomed.

Indeed, if the turnout at local feng shui expert Joey Yap's Succeeding in Turbulent Times seminar in Kuala Lumpur last month were anything to go by, it reflected increasing interest among the locals in the ancient Chinese belief.

According to the Chinese calendar, 2010 is the year of the Metal Tiger. Many feng shui experts predict it to be a year of moderate growth, which makes sense as the world's economy is gradually recovering from the worst economic crisis in decades.

Favourable businesses to be in this year are said to be industries with the fire, earth and metal elements. These include stock market, energy, airline, construction, property, banking/financial and steel sectors.

On an individual basis, people born under the zodiac signs of the Monkey and the Tiger itself clash with the Grand Duke Jupiter star this year, so they must be careful because this year is considered not good for them. Just as important as what to do is what to avoid. They are warned against attending funerals and weddings in the next 12 months.

For those who are born in the year of the Pig, Snake, Rooster and Goat, 2010 is supposed to bring good luck, although there are conflicting views from feng shui experts with regard to those born in the year of the Dog and the Horse.

More often than not feng shui provides sensible advice and there is logic behind most feng shui situations. After all, the basic principle of feng shui is to create certain harmonious aspects between human, building and the environment surrounding it.

For example, a house facing the west is not good from a feng shui perspective. According to property agents, there is logical reasoning for this. For a west-facing house, you are constantly exposed to direct, hot sun in the afternoon that can heat the property to uncomfortable temperatures. To rectify the situation, simply plant shady trees so that you block the sun that beams into your house.

Similarly, every school of feng shui repeatedly warns against living in a house located at a T or Y junction. It's easy to see why. Such junctions are prone to road accidents. Pollution and dust are at their maximum at these junctions. You would also be disturbed by car headlights shining into the living room.

Rather than moving away, you can change the direction of the front door so that it doesn't face that junction anymore.

Still, while most Malaysians may consider feng shui superstitious, thousands of others swear by the results. I have a friend who claimed that the practice of feng shui has changed his business luck for the better and another who used it to counter office politics.

Robust Recovery, If US, China Rebound

2010-02-08T07:30:00.000+08:00

MALAYSIA’S highly open economy, where total exports and imports account for more than 200% of gross domestic product (GDP), is expected to record a more robust recovery if growth in the world’s two largest economies continue to outperform.

The US economy recently announced a better-than-expected 5.7% growth in the fourth quarter of 2009 (2.2% in third quarter) as businesses reduced inventories less aggressively.

It was the quickest pace of growth in more than six years, beating market consensus of between 4.5% to 5%. For the full year, the US real GDP contracted by 2.4% in 2009, the first annual recession since 1991.

Meanwhile, China’s GDP is said to have grown 8.7% year-on-year in 2009 – the highest rate in the world. The country registered a 10.7% growth in the fourth quarter of 2009.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng says the US and Chinese markets account for more than a quarter of Malaysia’s exports, excluding intermediate exports to other countries that ultimately ends up in these two destinations.

“The fourth quarter growth in these two economies would also mean a greater absorption of a broader spectrum of Malaysian exports ranging from electronics as well as electrical products to resource-based exports such as rubber, petroleum, wood, chemical and palm oil products,” he notes.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias concurs that the country’s economic rebound would ride on the growth experienced by its major export markets like the US and China.

“Malaysia’s GDP growth is highly correlated with the US’ since the 1997 Asian Financial Crisis,” he says.

China’s strong rebound will also benefit Malaysia as its share of total exports have been steadily rising from 2% in 1999 to about 9% in 2008, he notes.

However, Zahidi adds that Malaysia’s economic rebound is also tied to the stimulus measures implemented by the Government.

“Consumer spending has strengthened, expanding by 1.5% in third quarter of 2009 after contracting by 0.7% in the first quarter, following an improvement in the Malaysian labour market,” Zahidi says.

However, the question remains if the recovery in the major global economies is likely to be sustained and how this would impact the Malaysian economy.

Although the US economy rebounded strongly in the fourth quarter, much of the growth was said to be driven by a rebound in inventory.

According to Zahidi, changes in inventory resulted in more than half of the growth (3.4% out of 5.7%). “Inventory correction, unfortunately, cannot sustain the US economy’s growth in the medium term,” he says, adding that real demand is needed.

However, private consumption remained lackluster in the fourth quarter, due to the high jobless rate and cautious lending by banks.

While the US official unemployment rate stood at 10% in December last year, the rate which includes discouraged and temporary workers stood at 17.3% in the same month.

At the same time, US banks were still very cautious in their lending to consumers, as seen by the 3.9% contraction in consumer credit in November last year.

Malaysia’s economic growth, Zahidi says, will largely depend on global conditions, adding that a sustained expansion in global growth and international trade will have a positive impact on the economy.

“If the global economy does not succumb to a double dip, then the prospects of achieving the Government’s targeted growth is bright,” he says, adding that domestic demand would also strengthen should consumer spending sustain throughout the year.

However, Zahidi says there are risk factors that could moderate the country’s growth.

“Malaysia’s household debt-to-GDP ratio stood at more than 60% in the past few years. A continued increase in credit-card transactions may lead us to question whether consumers are becoming more dependent on credit in supporting their consumption habit,” he points out.

Besides that, a correction in equity prices may also dampen consumer and business sentiments as well.

A recent report by the Malaysian Institute of Economic Research (Mier) says that although there are signs the global downturn has stabilised somewhat, overall recovery is expected to be sluggish and uneven.

“The recovery from the current crisis will be difficult compared to the previous ones because of the synchronised nature of the downturn.

“The technical recession is likely to end in the fourth quarter of 2009. However, Malaysia may not regain strength until the global economy is back on track, which is going to be at a disappointingly slow pace,” Mier says, adding that the services sector would be a pillar of strength amidst a glum manufacturing sector.

The 6 Biggest Investing Mistakes

2010-01-20T07:30:00.003+08:00

Burton G. Malkiel, Princeton economics professor and author of 'A Random Walk Down Wall Street,' and Charles D. Ellis, author of 'Winning the Loser's Game,' have teamed up to write 'The Elements of Investing.'

We're both in our seventies. So is Warren Buffett. The main difference between his spectacular results at Berkshire Hathaway and our good results is not the economy and not the market, but the man from Omaha. He is simply a better investor than just about any other in the world. Brilliant, consistently rational, and blessed with a superb mind for business, he has managed to avoid the mistakes that have crushed so many portfolios. Let's look at two examples.

In early 2000, Berkshire Hathaway's portfolio had underperformed funds that enjoyed spectacular returns by loading up on stocks of technology companies and Internet startups. Buffett avoided all tech stocks. He told his investors that he refused to invest in any company whose business he did not fully understand - and he didn't claim to understand the complicated, fast-changing technology business - or where he could not figure out how the business model would sustain a growing stream of earnings. Some said he was an old fuddy-duddy. Buffett had the last laugh when Internet-related stocks came crashing back to earth.

In 2005 and 2006, Buffett largely avoided the mortgage-backed securities and derivatives that found their way into many investment portfolios. Again, his view was that they were too complex and opaque. He called them "financial weapons of mass destruction." When they brought down many a financial institution (and ravaged our entire financial system), Berkshire Hathaway avoided the worst of the meltdown.

1. Overconfidence
At our two favorite universities, Yale and Princeton, psychologists are fond of giving students questionnaires asking how they compare with their classmates. For example, students are asked: "Are you a more skillful driver than your average classmate?" Invariably, the overwhelming majority answer that they are above-average drivers. Even when asked about their athletic ability, where one would think it more difficult to delude oneself, students generally say they're above average. They see themselves as above-average dancers, conservationists, friends, and so on.

And so it is with investing. In recent years, a group of behavioral psychologists and financial economists have created the important new field of behavioral finance. Their research shows that we are not always rational. We tend to be overconfident. If we do make a successful investment, we confuse luck with skill. It was easy in early 2000 to delude yourself that you were an investment genius when your Internet stock doubled and then doubled again.

To deal with the pernicious effects of overconfidence, think about amateur tennis. The player who steadily returns the ball, with no fancy shots, is usually the player who wins. And the prudent buy-and-hold investor who holds a diversified portfolio through thick and thin is the investor most likely to achieve his long-term goals.

2. Following the Herd
People feel safety in numbers. Investors tend to get more and more optimistic, and unknowingly take greater and greater risks, during bull markets and periods of euphoria. That is why speculative bubbles feed on themselves.

But any investment that has become a widespread topic of conversation among friends or has been hyped by the media is very likely to be unsuccessful. Throughout history, some of the worst investment mistakes have been made by people who have been swept up in a speculative bubble. Whether with tulip bulbs in Holland during the 1630s, real estate in Japan during the 1980s, or Internet stocks in the United States during the late 1990s, following the herd - believing that "this time it's different" - has led people to make some of the worst investment mistakes.

Just as contagious euphoria leads investors to take greater and greater risks, the same self-destructive behavior leads many to sell at the market's bottom when pessimism is rampant.

More money went into equity mutual funds during the fourth quarter of 1999 and the first quarter of 2000 - the top of the market - than ever before. Most of that money went to high-tech and Internet investments, the ones that turned out to be the most overpriced and then declined the most during the subsequent bear market. And more money went out of the market during the third quarter of 2002 than ever before, as mutual funds were redeemed or liquidated - just at the market trough. Later, during the punishing bear market of 2007-09, new record withdrawals were made by investors who threw in the towel at record lows just before the first, and often best, part of a market recovery.

It's not today's price or even next year's price that matters; it's the price you'll get when you sell. For most investors, that's in retirement - and even at age 60, chances are you will live another 25 years and your spouse may live several years more. So don't let the crowd trick you into either exuberance or distress. Remember the ancient counsel, "This too shall pass."

3. Timing the Market
Does the timing penalty - the cost of second-guessing the market - make a big difference? You bet it does. The stock market as a whole has delivered an average rate of return of 9.6% over long periods of time.

But that return measures only what a buy-and-hold investor would earn by putting money in at the start of the period and keeping his money invested through thick and thin. The average investor's actual returns are at least two percentage points lower because the money tends to come in at or near the top and out at or near the bottom.

In addition to the timing penalty, there is also a selection penalty. When money poured into equity mutual funds in late 1999 and early 2000, most of it went to the riskier funds - those invested in high tech and Internet stocks. The staid "value" funds, which held stocks selling at low multiples of earnings and with high dividend yields, experienced large withdrawals. During the bear market that followed, these same value funds held up very well while the "growth" funds suffered large price declines. So the gap between overall market returns and an investor's actual returns is even larger than those two percentage points.

4. Assuming More Control Than You Have
Psychologists have identified a tendency in people to think they have control over events even when they have none. That can lead investors to overvalue a losing stock in their portfolio. It also can lead them to imagine trends when none exist or believe they can spot a pattern in a stock chart and thus predict the future. In fact, the changes in stock prices are very close to a "random walk": There is no dependable way to predict the future movements of a stock's price from its past wanderings.

The same holds true for supposed seasonal patterns, even if they appear to have worked for decades. Once everyone knows there is a Santa Claus rally in the stock market between Christmas and New Year's Day, the "pattern" will evaporate. Investors will buy one day before Christmas and sell one day before the end of the year to profit from the supposed regularity. But then investors will have to jump the gun even earlier, buying two days before Christmas and selling two days before the end of the year. Soon all the buying will be done well before Christmas and the selling will take place right around Christmas. Any apparent stock market pattern that can be discovered will not last as long as there are people around who will try to exploit it.

5. Paying Too Much in Fees
There is one piece of investment advice that, if you follow it, can dependably increase your returns: Minimize your investment costs. We have spent two lifetimes thinking about which mutual fund managers will have the best performance year in and year out. Here's what we now know: It was and is hopeless.

That's because past performance is not a good predictor of future returns. What does predict investment performance are the fees charged by the investment manager. The higher the fees you pay for advice, the lower your return. As our friend Jack Bogle, founder of mutual fund company the Vanguard Group, likes to say, "You get what you don't pay for."

We looked at all equity mutual funds over a 15-year period and measured the rate of return produced for their investors, as well as all the costs charged and the implicit costs of portfolio turnover - the cost of buying and selling portfolio holdings. We then divided the funds into quartiles. The lowest-cost-quartile funds produced the best returns.

If you want to own a mutual fund with top-quartile performance, buy a fund with low costs. If we measure after-tax returns, recognizing that high-turnover funds tend to be tax-inefficient, our conclusion holds with even greater force.

6. Trusting Stockbrokers
The stockbroker's real job is not to make money for you but to make money from you. Brokers tend to be friendly for one major reason: It gets them more business. The typical broker "talks to" about 75 customers who collectively invest about $40 million. (Think for a moment about how many friends you have and how much time it takes you to develop each of those friendships.) Depending on the deal he has with his firm, your broker gets about 40% of the commissions you pay.

So if he wants a $100,000 income, he needs to gross $250,000 in commissions charged to customers. Now do the math. If he needs to make $200,000, he'll need to gross $500,000. That means he needs to take that money from you and each of his other customers. Your money goes from your pocket to his pocket. That's why being "friends" with a stockbroker can be so expensive. A broker has one priority: getting you to take action, any action.

We urge you not to engage in "gin rummy" behavior. Don't jump from stock to stock or from fund to fund as if you were selecting and discarding cards in a game. You'll run up your commission costs - and probably add to your tax bill as well.

Promising Outlook For Landed Properties

2010-01-13T07:30:00.000+08:00

THE residential property market should see a pick-up this year if buying interest remains sustainable and developers offer more creative and well planned projects.

Take-up rates have gradually picked up since the first quarter of 2009 and by the second quarter, newly launched properties recorded take-up of 31.7% – the highest over the past three years.

The strong take-up is especially evident for landed properties, including super-link terrace houses, semi-detached houses and bungalows, which cater to the upper-middle class.

Prices are also expected to rise in tandem with the economic rebound and landed residences have generally seen price increases of between 10%-15% to RM250 to RM300 per sq ft. While the high-end condominium market is still bleak because of an over supply situation, the outlook for landed residences in premium locations is much brighter.

Developers are more confident of rolling out new projects this year to capitalise on the buoyant sentiment among property buyers.

Mah Sing Group Bhd group chief executive Tan Sri Leong Hoy Kum says with the brighter economic outlook, more Malaysians will be willing to spend on big-ticket items like property.

“We believe this will lead to a strong demand recovery in mid-tier to high-end landed properties,” Leong says, adding that these segments should rake in stronger sales.

He says residential properties that cater to the middle to upper middle market stand to benefit from the rebound in property demand.

GuocoLand Bhd director of marketing and sales KC Chong concurs that landed properties, particularly gated enclaves in good locations, command a strong following.

“They appeal to both owner-occupiers, as well as investors as there is a willing pool of tenants which prefer landed properties complete with security, management and common facilities.”

The “feel good” factor may lead many to upgrade this year, given the (still) relatively favourable financing schemes available, he says.

However, Chong cautions that given the likely increase in launches expected this year, developers will have to work hard to achieve their targets.

SP Setia Bhd president and chief executive officer Tan Sri Liew Kee Sin says developers will have to plan their launches carefully and understand market needs if they expect good take-up rates.

“Many developers today are selling an aspirational lifestyle rather than just a house. Innovative ideas and designs are important factors in selling properties today coupled with a strong brand name,” Liew notes.

ECM Libra analyst Bernard Ching says more positive consumer sentiment and current low mortgage rates will sustain demand for residential properties going forward.

“Based on historical data, we see a strong correlation between consumer sentiment index (CSI) and demand for residential properties. Since hitting a low of 70.5 in the second quarter of 2008, the CSI has rebounded above the 100-point neutral level since the second quarter of last year,” he says.

Ching says the Government’s decision to impose a 5% real property gains tax (RPGT) only on property sales within the first five years of purchase instead of a blanket tax irrespective of date of purchase (as announced under Budget 2010) will boost buying interest.

“This is certainly a positive measure that will provide a much needed relief to the property sector. With the relaxation of the RPGT, we believe buying interest will pick up pace, especially among upgraders who need to sell their existing properties first,” he adds.

He says another catalyst for the property sector will be the impending announcement by the Government to allow Employees Provident Fund contributors to utilise their current and future savings in Account 2 for property purchases.

“This is likely to boost housing affordability, especially among first time home buyers, and benefit the mass residential segment,” he notes.

According to DBS Group Research Equity analyst Yee Mei Hui, a strong appetite for upper mid-high end properties has seen recent launches breaching 70% take-up within the first weekend.

“Developers are increasingly confident and have set higher sales targets, bringing forward launches and replenishing their landbank. Demand is expected to pick up further on the back of an improving economic outlook,” she says.

Yee adds that given the threat of rising inflation caused by higher mortgage rates and the impending introduction of the goods and services tax, more Malaysians are also buying property as a hedge against inflation.

KLCI : Great V Shape!

2010-01-11T07:30:00.001+08:00

Outlook for 2010 is very promising for the market. Since my last coverage in Jun 2009, our KLCI has been keeping the upward momentum and indeed it show a very good performance! Going forward I still bullish on our local mart to perform a similiar performance this year. My next target would be 1500! Well there will be also high hope that our local mart will be breaking new high! At the mean time we just aim for 1500 level before decide the next step. :-) Hope for the best for all of us here and good luck!

[Previous KLCI Posting]
http://bursabulltrader.blogspot.com/2009/06/klci-v-shape-or-u-shape.html

Malaysia GDP Growth Likely To Accelerate

2010-01-07T07:30:00.004+08:00

A VOLATILE, bumpy ride it was for trade-dependent Malaysia as it received the knock-on effects of the global market.

The contractions have been reduced since last year's second quarter and the third quarter economic activities confirm Malaysia has passed the worst of the downturn that gripped its major trading partners.

Growth has shifted from the strong exports Malaysia to domestic demand, while various fiscal stimulus packages have been rolled out to kick-start the economy to mitigate the gradual recovery of the external markets.

Consumer and business confidence have rebounded in Malaysia as reflected in the third quarter gross domestic product (GDP) numbers.

Research houses have fine-tuned their GDP forecasts for 2009 and 2010 following the upside surprise in the third quarter when the economy posted a smaller decline of 1.2 per cent in the July-September period, compared with a 3.9 per cent decline in the second quarter and -6.2 per cent in the first quarter.

Except for agriculture, all the sectors recorded better performance in the third quarter.

CIMB chief economist Lee Heng Guie is already looking at a 2.0 per cent gain in the fourth quarter of 2009 which would take the growth to a lower contracted growth this year.

According to him, the latest batch of global and domestic indicators supports the view that the economy is firmly in a recovery phase.

The positive macro signposts include the OECD leading index which registered a positive uptrend for the eighth consecutive month, signalling the broadening base of recovery in both the developed and emerging economies.

Also, there has been a positive expansion in domestic industrial output which will continue going into 2010, driven by the turn in inventories, reviving domestic demand and continued recovery of exports.

Lee has revised up the real GDP growth to 2 per cent year-on-year in the fourth quarter from 1.8 per cent and the economy to chart a 3.5 per cent growth next year, underpineed by domestic demand and recovery in exports.

Compared with the rest in the region, Malaysia's recovery is trotting along, commented Manokaran Mottain, senior economist with AmResearch.

Conditions in the country have improved as a result of the government's commitments on structural reforms, loose monetary policy measures, stimulus spending and improving external environment.

As in elsewhere in Asia, Malaysia has also implemented a large fiscal stimulus to help recovery and such benefits will continue to come through for several quarters.

"Given the country's low domestic and foreign government debt levels, fiscal policies may remain loose and supportive until economic recovery is confirmed."

A third stimulus package is probably no longer needed as he had suggested earlier this year with a "prudent fiscal policy back on the radar".

Mottain does not, however, expect Malaysia to outperform Singapore in terms of the manufacturing sector.

"This is because Malaysia does not have the exposure to the bio-medicals sector which has boosted the sector and exports in Singapore," he said, comparing with the Malaysian economy's dependence on the electronics sector where growth has been sluggish in comparison.

Kit Wei Zheng of Citi, estimates growth in 2010 to be led by a modest recovery in manufacturing and exports, whilst consumer spending lends further support.

He says a smaller fiscal deficit implies less fiscal support for the economy than initially expected.

The key issues shaping medium-term outlook, he said, are the transition to a consumption and services driven economy, structural reforms to kick-start private investments, including addressing gaps in human capital, and medium-term fiscal consolidation.

In the 2010 Budget, the government made itself clear regarding future policy directions, when it trimmed its operating expenditure for next year to help cut its fiscal deficit from 7.4 per cent of GDP to 5.6 per cent of GDP in 2010.

"Because of the government's fiscal policy change, we do not think Malaysia's upswing will come under serious threat," remarked Mottain.

The government has also raised its GDP projection to -3 per cent for 2009, from its previous estimate of between -4 per cent to -5 per cent.

GDP growth may accelerate in 2010, hinged on positive factors such as RM1 billion public spending per month until middle of the year; recent reduction in personal income tax rates and improved economy to raise private consumption; recovery in private investment as well as global demand for Malaysian-made goods.

Analysts: It'll Be A Good Run In The First Half

2009-12-23T07:30:00.001+08:00

The Malaysian stock market, which had a strong run this year, will likely to continue performing well in the first half of next year before faltering in the second half as investment risks heighten, analysts said.

OSK Investment Research is optimistic that the key stock index, the FTSE Bursa Malaysia KLCI, will hit a high of 1,345 points in either April or May. It closed at 1,255.66 on December 21.

"We think the market still has more room to grow for the next five months or so, thereafter there could be a retracement in the second half due to rising interest rates in the US and risk that 2010 corporate earnings could be disappointing," Chris Eng, its head of research told Business Times.

His advice to investors is to make money before interest rates in the US start to rise. "We think profit-taking will take place six months before the interest rates rise in the US," he remarked.

JPMorgan Securities (Malaysia) Sdn Bhd too believes the market will be better in the first half of 2010.

"We expect Malaysia equities to sustain their strong performance in the first half," said Chris Oh, its head of research.

He said the key drivers for this are an expected rebound in economic growth of 5 per cent, the implementation of large-scale infrastructure projects and reform policy that are likely to exceed investors' low expectations, a stronger ringgit and a generally positive view on emerging market equities.

His top three stock picks for next year are Public Bank Bhd, Genting Bhd and Sime Darby Bhd.

RHB Research Institute Sdn Bhd, meanwhile, upped its end-2010 index target to 1,400 from 1,370 before.

This suggests a modest upside of about 11 per cent for next year compared to this year's strong rise of 43.2 per cent (as at December 21).

"This was a strong year because it was the first year of economic recovery. Moving forward, valuations are no longer cheap but neither are they stretched. In situations like this, the market's performance will hinge on the strength of the economic and corporate earnings recovery," its head of research Lim Chee Sing noted.

He expects the 25 index stocks that RHB tracks to post average earnings growth of 15 per cent next year after a 15.7 per cent contraction this year. He said the market was likely to be more volatile next year and urged investors to stay focused on valuations.

"Stock picking is key, shy away from speculative stocks. Always be grounded by valuations - look to companies with good growth and strong business models and managements," he said.

The sectors he thinks will be "interesting" next year are telcos, power and banks. His top three stock picks are Tenaga Nasional Bhd, Unisem Bhd and Faber Group Bhd.

Meanwhile, stock market regulator Bursa Malaysia Bhd voiced hope that local and global economic recovery would be on the cards for next year but noted that investors still seemed to be cautious. It nevertheless pledged to continue with its liberalisation efforts to attract more interest.

"Sentiment is still cautious and investors continue to stay on the sidelines, waiting for more concrete signals from the bigger economies. Despite the economic scenario, we have remained firm in our direction to liberalise and make the capital market more efficient, with changes such as the Foreign Investment Commitee deregulation and the revamp of the fund raising framework, among others.

"Overall, it is our belief that in reforming to become a high performing market, this will bring in bigger investment opportunities that will contribute towards a dynamic Malaysian capital market," its chief executive officer Datuk Yusli Mohamed Yusoff told Business Times via email.

He said Bursa Malaysia would also continue efforts to attract quality listings. In a normal year where there are no adverse market conditions, one can expect to see between 30 and 40 new listings, he said.

On ongoing efforts to improve liquidity and free float, he said he was hopeful of more robust divestment activities by government holdings following a directive made by Prime Minister Datuk Seri Najib Razak.

Yusli said Bursa Malaysia's initiatives next year will revolve around ensuring diversity of products, greater liquidity, enhanced quality and better efficiency.

He hopes there will be more retail participation, which is currently low, in the mid-30s percentile.

"Education and awareness are the key and we'll continue with efforts in that direction. We've also not seen a return of foreign funds to the levels seen before the 2008 election results. I hope that foreign investors will take note of the capital market and the government's efforts to make Malaysia friendly to business and investing, and that we will see foreign funds come back to our shores," he said.

The 9 Characteristics of Great Traders

2009-12-21T07:30:00.002+08:00

What separates the 10% that make money from the 90% that don't?

1. 10,000 hours
For some reason most people that 'try their hand' at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn't see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?

Trading success, comes from screen time and experience, you have to put the hours in!

2. Education, education, education.
The old cliche touted by politicians when they can't think of anything clever to say to their audience. The importance of education to success in trading cannot be placed on a high enough pedestal. You have to learn to earn, the best traders work obsessively to refine their edge further to stay ahead of the curve.

3. Think for yourself.
"NO! NO! NO!"... "Bear Stearns is not in trouble"..."Don't move your money from Bear! That's just silly! Don't be silly!"

A quote from well known stock guru Jim Cramer aired on CNBC days before Bear Stearns lost 90% of its value. Many followed this call and felt the obvious pain as a result. As the old saying goes, too many cooks spoil the broth; it is very much the same in trading. Successful traders blinker themselves from the opinions of others; they focus on their own analysis of fundamental and technical information.

4. Adapt or Die.
Market conditions change and technology advances, thus the conditions for trading are always evolving, the rise in mechanical trading is testament to that. The very best traders through a process of education and adaptation are constantly staying ahead of the curve and creating ever new and ingenious methods to profit from the markets evolution.

5. Fail to plan, you plan to fail.
The best traders have a well documented plan; they know exactly what they are looking for and follow that plan to the letter. Their preparation for a trade starts long before the market open, it is this meticulous planning and importantly adherence to that plan that helps them avoid the biggest demons for any trader, over trading and revenge trading.

6. "Be like Machine"
As human beings emotions pay a key role in our existence, for a trader emotions can be a source of great pain. Trading psychology and the management of your emotions in a trade play a key role in overall success. Fear and greed can cut your winners short and let your losers run. Dealing with emotions follows on from your plan; the more robust your plan the less likely you are to fall into the emotional mine field.

7. Know your tools
Every trader has a set of tools they use, DOM, Charts, News feeds etc. These tools are a trader's bread and butter; they are the most vital part of a trader's arsenal, without which it would be impossible to trade. The best traders have mastered their order entry methodology, they know all about the features they need from their charts. This mastery of their tools, allows the trader to get the very best out of the resources they have available to them and ensures perfect execution of their trading ideas.

8. Know Thyself
Behind all the egos and excess, the best traders know their limitations; they focus on what can go wrong in a trade, and expend a lot of energy in limiting and controlling their risk before thinking about profits. They have a heightened sense of self-awareness and focus on incremental self improvement.

9. Profit & Loss
The best traders focus on the trade itself rather than the P&L; they view each trade as a technical exercise and focus on getting the most out of the market in accordance with their plan. They do not think in terms grocery payment, the electric bill and the desire to make X amount to cover a mortgage payment. Focusing on the money behind a trade can cloud technical objectivity.

In Conclusion
The greatest traders work hard to get ahead and even harder to stay ahead. Through increased and niche knowledge they constantly adapt with the market and remain profitable in every environment. Drive, tenacity and the will to succeed is the greatest edge of every successful trader.

Malaysia Should Learn From Past Economic Lessons

2009-12-10T07:30:00.002+08:00

TEN years ago, as the Asian financial crisis was wreaking havoc and countries in the region were engaged in some serious economic firefighting, I had a heated discussion with my fellow journalists discussing the once-in-a-generation turmoil before us.

There was considerable pride in how we tackled the crisis compared with other countries which were in worse financial shape and badly hit by the ensuing trail of economic problems. The conversation eventually reached the all-too-familiar “at least we are better than them” comment.

But here’s the thing. It is pointless to compare Malaysia with countries that are worse off. Progress should be measured against what we hope to become. In other words, we ought to compare Malaysia with countries that are better off than us.

Fast forward 10 years (today) and the self-glorifying comment above seems far less realistic.

Thailand and Indonesia, the two countries that the journos were comparing Malaysia with then, paid a tremendous social cost from the International Monetary Fund aid package which was accompanied by a market liberalisation agenda; but they have rebounded strongly.

For Malaysia, failure to vigorously improve the economy through market and economic liberalisation initiatives in the aftermath of the Asian crisis is rearing its cost today.

The Government has signalled it will act but what is likely forcing its hand in this matter could be the decline of the private sector’s role in the economy today.

Prior to the Asian crisis, the country’s ratio of gross domestic capital formation as a percentage of GDP was over 40%, hitting 43% in 1997 compared with 34% for Thailand and 32% for Indonesia. Right after the crisis in 1998, the ratios for all three countries plunged with Thailand and Indonesia falling much more than Malaysia.

But over the years, gross domestic capital formation as a percentage of GDP for those two countries started to rise but in Malaysia, that ratio has steadily fallen; in 2008, it was just below 20% whereas in Thailand it was 29% from a low of 20.5% in 1999 and 28% for Indonesia from a low of 11% in 1999.

Over that time, the Government has repeatedly declared that the private sector will resume its role as the engine of growth, much like it was prior to the crisis, but that has not materialised.
With falling private sector investment in Malaysia, the Government has had to shoulder much of the burden of generating economic growth.

There were times, both politically and economically, Malaysia could have instituted change that would have addressed that decline much sooner as the cost of supporting growth has become too large solely for the Government to be burdened with.

Being the engine of growth is a task the Government cannot continue indefinitely, given the already huge strain it has put on the national accounts by virtue of the repeated budget deficits since the Asian crisis.

Knowing this, there is seemingly a rush by the current administration to eradicate the malaise afflicting the economy and to get private sector to take over the reins of the economy.

It intends to lift the lid on the economy by revamping the NEP to bring about much needed entrepreneurship into the economy. The administration is also trying to figure out how best to reverse the perception or reality that the private sector is being crowded out of the economy in favour of government-linked companies. Subsidies are also in the crosshairs of the Government.

To tackle this, the Government is preparing a new economic model to get the services industry to invest more in the economy with the intention of moving the country’s per capita income up to the range of that of a high income economy.

All of that can only be accomplished if it manages to convince businesses to invest more in the economy. Companies today have more choices as to where to invest their money today than they did in the early to mid-1990s.

There is a lot of competition for investment money not only from our neighbours but also from the larger BRIC (Brazil, Russia, India and China) nations and emerging markets in Europe.

The Government has to position Malaysia, more so for local companies, as the destination of choice for businesses and come up with policies that will reverse the worrisome decline in private investment in the country.

Such a task is monumental and whether Malaysia will succeed is unknown as history has taught us that getting an economy out of the middle income range is extremely difficult to accomplish.
But try they must. There’s no time to waste.

Make M'sians Become High Income Growth Model

2009-12-08T07:30:00.000+08:00

Financial institutions say employment of highly-skilled labour a key ingredient

PETALING JAYA: Banks can innovate and support the high income growth model for which a basic ingredient is the setting up of industries that employ highly-skilled labour.

“All over the world, countries with high income would have industries and activities involving highly skilled workers who would be paid high wages,” said Sanjeev Nanavati, CEO of Citibank Malaysia.

The starting point is the availability of such a pool and in Malaysia’s case, there is an urgent need to iron out some serious human capital issues relating to education, innovation and the rate of emigration.

“There is enough financing in the country,” said Sanjeev.

“What it needs is more private investments in highly skilled areas to take place. Malaysia has to make itself a compelling, not just attractive, destination for foreign investments,” he added.

“It needs to increase the momentum towards achieving the high income growth model by repositioning itself as a hub for higher education.”

It should consider inviting the top universities in the world to set up an international campus here, setting up more international schools which should be more accessible to Malaysians and making a concerted effort to change the quality of human capital.

CIMB group chief financial officer Kenny Kim sees the banking sector’s role as providing financing schemes to grow new sectors of the economy, particularly in the knowledge intensive areas.

“This may involve taking a different approach in assessing credit risk as these industries do not have traditional collateral,” said Kim.

Banks and the Government should also collaborate to support businesses seeking capital to grow in new areas such as clean energy.

According to Alliance Bank CEO Datuk Bridget Lai, processes and services that help generate cost and time saving for businesses will become more prominent.

Cash management, e-commerce, payroll and other automated services will free up more resources that can be directed towards higher income generating activities.

“A high income economy driven by the services sector will increase the population of educated, high networth individuals who will demand more sophisticated offerings,” she said.

This is apart from the bread-and-butter products such as credit cards, personal loans and mortgages. (In 2008, mortgages represented 54% of total consumer loans, vehicle financing 31%, personal loans 9% and credit cards 7%).

“Variety and flexibility in savings and/or investments, transportability of resources and assets as well as reputable fiduciary and estate planning will feature heavily in this economy,” she added.

As customers require higher value added from banks, a “one-size-fits-all” approach will not work.

A bigger shift is expected towards more financial planning services versus the traditional selling of financial products.

“CIMB group is making investments in this area to enable its frontliners to better understand its clients’ unique needs before recommending solutions,” Kim said.

There will be more emphasis on insurance, unit trust and structured products to complement traditional deposit products as a means of income growth and preservation.

Banking services should become more accessible through the growing usage of Internet and mobile banking as well as call centres.

A bigger role lies ahead for banks and other financial intermediaries in providing sufficient education and understanding of complex investment options.

“Banks will need to meet these new benchmark levels of expectations,” said Lai. Besides financial planning skills, further education is required in portfolio management, risk and diversification techniques as well as international offerings of financial investment options.

How To Diversify Investments During Time Of Crisis

2009-12-02T07:30:00.000+08:00

AS a result of the financial crisis, even though most commodities have not been performing well, gold has outperformed the conventional asset classes like equity and bond.

This has prompted some investors to consider commodities as one of their investment asset classes. In this article, we will look into how to invest in commodities.

Bruno H. Solnik and Dennis W. McLeavey in their book titled “International Investments” classified commodities in three major categories – agricultural products, energy and metals.

Examples of agricultural products are fibres (wood, cotton), grains (wheat, corn, soybean), food (coffee, cocoa, orange juice) and livestock (cattle, hogs, pork bellies). Energy products can be crude oil, heating oil and natural gas whereas examples of metal products are copper, aluminum, gold, silver and platinum.

The main reason behind investing in commodities is that they have negative correlation with stock and bond returns. This will provide a good way to diversify portfolio risks. Besides, given that commodities are positively co-related to inflation, they can help investors hedge against inflation.

Investors can consider investing directly in commodities or indirectly by buying into futures contracts, bonds indexed on some commodity price as well as stocks of commodity related companies.

Some companies will invest in commodities that are extensively used as raw materials in their production processes. High commodity prices or raw material prices will affect those companies’ performance. However, if they have invested in their raw materials, even though their profitability might be affected by high raw material prices, the gains from their investment in those commodities will offset the losses in their operations.

Some investors will consider buying into commodity futures, such as crude palm oil (CPO) futures as this is one of the easiest and cheapest ways to get exposure to commodities.

However, investors need to understand that futures trading requires a high level of trading skills as most commodity players are well-equipped with the required market information, like total world supply and demand of CPO as well as the weather conditions in those producing countries.

Some financial institutions may offer unit trust funds that invest directly in those commodities or indirectly through buying into commodity futures. In the United States, investors can buy into commodities via exchange traded funds (ETF) that are invested in commodities futures.

An ETF is a special type of fund that tracks some market indices and it is traded on a stock market like any common share. Given that the world economy may recover further and oil prices may go beyond US$100 per barrel again, buying into oil or other commodity related ETFs may provide retail investors an alternative to get exposure into commodities.

Since commodity cycles and the general business and stock market cycles are usually different, investing in commodities provides a good way of portfolio diversification.

Besides, investors can consider buying into collateralised futures funds (sometimes they are referred as structured products). A collateralised futures fund is a portfolio that takes a small long position in commodity futures and invests the rest of the money in government securities. Normally, it is capital guaranteed as the yield generated by government securities will be used to cover for the cost incurred for the futures contracts.

Lastly, investors can consider buying into listed companies that are commodity related. In Malaysia, if investors wish to gain from higher CPO prices, they can consider buying into plantation companies.

Given the current gold prices of more than US$1,150 per ounce, some investors are eager to know whether there are any further upsides to the gold prices. Some analysts and fund managers have predicted that the gold prices may go beyond US$1,200 to US$1,300 per ounce.

Investors will rush into gold during a financial crisis, like the current financial crunch and the Great Depression in 1929-32, because gold can keep its value during those periods.

We believe that gold is a cyclical product. Even though nobody knows how high the gold prices can go, given that the world economy is showing signs of recovery, the upside potential for gold investing may be limited.

Can Stock Market Rally Last?

2009-11-18T07:30:00.001+08:00

NEW YORK: Somebody on a bus asks a friend, "How about that stock market?"

The response: "Unbelievable." Caribbean vacationers lounging poolside check their Blackberries for stock prices.

Suburban gym members chat about the latest market gains during their morning workouts.

Welcome to the 2009 bull market - or so many people think.

They're buying up shares of everything from Google Inc. to Bank of America Corp. at a pace not seen since the 1930s.

Since March, the Dow Jones industrial average has jumped 57 percent and the Standard & Poor's 500 index has gained 62 percent.

Investors are betting on a strong economic recovery. But here's the problem: Good news ahead could be bad news for the bull.

To understand why, consider the very thing that has boosted the market.

The U.S. government has spent nearly $1 trillion to stimulate the economy and the Federal Reserve has maintained a policy of keeping interest rates near zero.

Those will disappear as the economy's health improves, potentially halting the bull market by taking away what has been its crutch - sources of cheap and plentiful money.

"Pretty soon the easy money phase could be behind us," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, an investment firm in Albany, New York.

The government has plunged big money into the marketplace, through tax cuts,
construction projects and other measures. At the same time, low interest rates have invigorated stocks by reducing borrowing costs and bolstering corporate profits.

The low rates have also knocked down the returns of other short-term investments, like government bonds and money-market funds.

Since people aren't getting high returns on those investments, they're buying stocks.
Stocks are risky because they don't guarantee a return, and the recent bear market shows how deeply share prices can drop.

From October 2007 through March, the Dow industrials lost 53 percent.

"The Fed is forcing everyone to take risk by buying stocks because if you don't take risk, you will be earning nothing on your money," said Ed Yardeni, president and chief investment strategist at Yardeni Research.

Yardeni said his clients, which include pension funds and institutional investors, feel like they don't have a choice but to buy stocks right now.

He sees lots of "fully invested bears" - investors who don't believe that investing in stocks makes sense right now because of the state of the economy, but they are buying anyway because they worry they might miss out on a bull run.

The Dow is trading above 10,000 for the first time since October 2008, though it is still 27 percent below its peak two years ago.

The S&P 500 has gone up almost 7 percent just this month.

Plenty of investors and analysts don't see an end to those gains, especially if the economy picks up in the coming months.

But a strong economy is just what Yardeni and some others on Wall Street say could thwart the rally should it lead to higher interest rates and waning government stimulus.

The Fed isn't expected to act soon.

The U.S. central bank has kept the target range for its bank lending rate at zero to 0.25 percent since December.

It pledged this month to keep that rate at a record low for an "extended period."

How long that really means is anyone's guess.

The Fed said in a statement after its November meeting that economic activity has "continued to pick up" and that the housing market has strengthened - a key ingredient for a sustained recovery.

But a 10.2 percent unemployment rate and weak consumer spending is still plenty worrisome to the economy's overall health.

Yardeni thinks once the Fed even begins to hint of looming changes in its interest-rate policy it will "take the steam out of this rally," he said.

"It won't take much to push this market back down."

In the past, higher rates didn't knock down stocks immediately.

The Fed cut its benchmark rate from 2001 through 2003 to stimulate growth, taking it down to a low of 1 percent, where it stayed for a year.

The low rates reduced mortgage costs, feeding the housing boom, and sparked a bull market in stocks.

The Fed started to slowly raise rates in July 2004 to slow the economy and keep inflation in check.

The housing market peaked in 2006 and the stock market followed in 2007.

After that, both headed into a free fall.

Back in 1982, a sustained bull market began amid a deep recession, and the gains lasted even though the Fed began to boost rates.

There was more to lure investors back to stocks then, notes David Rosenberg, chief economist and strategist at Canadian wealth management Gluskin Sheff.

Stock dividend yields were 6 percent then; today they are below 2 percent.

That means investors had a greater potential to generate income off their stock investments, regardless of whether prices rose or fell.

Bond yields were at double-digits and were expected to fall in 1982; today short-term bonds pay nearing nothing and yields will likely head higher.

That could make fixed-income investments more attractive.

Investors still should heed the potential danger signs of today's market, before their exuberance gets the better of them. - AP

Think Like Warren Buffett

2009-11-11T07:30:00.000+08:00

1. Think of Stocks as a Business

Many investors think of stocks and the stock market in general as nothing more than little pieces of paper being traded back and forth among investors, which might help prevent investors from becoming too emotional over a given position but it doesn't necessarily allow them to make the best possible investment decisions.

That's why Buffett has stated he believes stockholders should think of themselves as "part owners" of the business in which they are investing. By thinking that way, both Hagstrom and Buffett argue that investors will tend to avoid making off-the-cuff investment decisions, and become more focused on the longer term. Furthermore, longer-term "owners" also tend to analyze situations in greater detail and then put a great eal of thought into buy and sell decisions. Hagstrom says this increased thought and analysis tends to lead to improved investment returns.

2. Increase the Size of Your Investment

While it rarely - if ever - makes sense for investors to "put all of their eggs in one basket," putting all your eggs in too many baskets may not be a good thing either. Buffett contends that over-diversification can hamper returns as much as a lack of diversification. That's why he doesn't invest in mutual funds. It's also why he prefers to make significant investments in just a handful of companies.

Buffett is a firm believer that an investor must first do his or her homework before investing in any security. But after that due diligence process is completed, an investor should feel comfortable enough to dedicate a sizable portion of assets to that stock. They should also feel comfortable in winnowing down their overall investment portfolio to a handful of good companies with excellent growth prospects.

Buffett's stance on taking time to properly allocate your funds is furthered with his comment that it's not just about the best company, but how you feel about the company. If the best business you own presents the least financial risk and has the most favorable long-term prospects, why would you put money into your 20th favorite business rather than add money to the top choices?

3. Reduce Portfolio Turnover

Rapidly trading in and out of stocks can potentially make an individual a lot of money, but according to Buffett this trader is actually hampering his or her investment returns. That's because portfolio turnover increases the amount of taxes that must be paid on capital gains and boosts the total amount of commission dollars that must be paid in a given year.

The "Oracle" contends that what makes sense in business also makes sense in stocks: An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.

Investors must think long term. By having that mindset, they can avoid paying huge commission fees and lofty short-term capital gains taxes. They'll also be more apt to ride out any short-term fluctuations in the business, and to ultimately reap the rewards of increased earnings and/or dividends over time.

4. Develop Alternative Benchmarks

While stock prices may be the ultimate barometer of the success or failure of a given investment choice, Buffett does not focus on this metric. Instead, he analyzes and pores over the underlying economics of a given business or group of businesses. If a company is doing what it takes to grow itself on a profitable basis, then the share price will ultimately take care of itself.

Successful investors must look at the companies they own and study their true earnings potential. If the fundamentals are solid and the company is enhancing shareholder value by generating consistent bottom-line growth, the share price, in the long term, should reflect that.

5. Learn to Think in Probabilities

Bridge is a card game in which the most successful players are able to judge mathematical probabilities to beat their opponents. Perhaps not surprisingly, Buffett loves and actively plays the game, and he takes the strategies beyond the game into the investing world.

Buffett suggests that investors focus on the economics of the companies they own (in other words the underlying businesses), and then try to weigh the probability that certain events will or will not transpire, much like a Bridge player checking the probabilities of his opponents' hands. He adds that by focusing on the economic aspect of the equation and not the stock price, an investor will be more accurate in his or her ability to judge probability.

Thinking in probabilities has its advantages. For example, an investor that ponders the probability that a company will report a certain rate of earnings growth over a period of five or 10 years is much more apt to ride out short-term fluctuations in the share price. By extension, this means that his investment returns are likely to be superior and that he will also realize fewer transaction and/or capital gains costs.

6. Recognize the Psychological Aspects of Investing

Very simply, this means that individuals must understand that there is a psychological mindset that the successful investor tends to have. More specifically, the successful investor will focus on probabilities and economic issues and let decisions be ruled by rational, as opposed to emotional, thinking.

More than anything, investors' own emotions can be their worst enemy. Buffett contends that the key to overcoming emotions is being able to "retain your belief in the real fundamentals of the business and to not get too concerned about the stock market.

"Investors should realize that there is a certain psychological mindset that they should have if they want to be successful and try to implement that mindset.

7. Ignore Market Forecasts

There is an old saying that the Dow "climbs a wall of worry". In other words, in spite of the negativity in the marketplace, and those who perpetually contend that a recession is "just around the corner", the markets have fared quite well over time. Therefore, doomsayers should be ignored.

On the other side of the coin, there are just as many eternal optimists who argue that the stock market is headed perpetually higher. These should be ignored as well.

In all this confusion, Buffett suggests that investors should focus their efforts of isolating and investing in shares that are not currently being accurately valued by the market. The logic here is that as the stock market begins to realize the company's intrinsic value(through higher prices and greater demand), the investor will stand to make a lot of money.

8. Wait for the Fat Pitch

Hagstrom's book uses the model of legendary baseball player Ted Williams as an example of a wise investor. Williams would wait for a specific pitch (in an area of the plate where he knew he had a high probability of making contact with the ball) before swinging. It is said that this discipline enabled Williams to have a higher lifetime batting average than the average player.

Buffett, in the same way, suggests that all investors act as if they owned a lifetime decision card with only 20 investment choice punches in it. The logic is that this should prevent them from making mediocre investment choices and hopefully, by extension, enhance the overall returns of their respective portfolios.

Bottom Line

"The Warren Buffett Portfolio" is a timeless book that offers valuable insight into the psychological mindset of the legendary investor Warren Buffett. Of course, if learning how to invest like Warren Buffett were as easy as reading a book, everyone would be rich! But if you take that time and effort to implement some of Buffett's proven strategies, you could be on your way to better stock selection and greater returns.

How To Handle Market Uncertainty

2009-11-05T07:30:00.000+08:00

AFTER the strong rally over the past seven months, the market is finally undertaking some corrections. Some investors may not fully comprehend why the stock market moved up when the companies reported bad financial results, but tumbled when the companies started to show better financial performance.

We need to understand that the market had discounted the good news. Some of those good financial results were already reflected in the stock prices. The stock market cycle always moves ahead of the economic cycle.

During the Great Depression in 1929, the stock market recovered eight months ahead of the real economic recovery. Even though some investment experts say the worst is far from over, we notice that a lot of economic indicators are pointing to an economic recovery.

However, the economic growth may not move as fast as the stock market. As a result, while the economy continues to recover, stock prices need to come down to reflect the fundamentals of the companies.

This explains why once investors started to realise that the stock prices could not be supported by the fundamentals of some companies, especially blue-chip stocks, the stock prices had to come down to reflect the true value of companies.

Nevertheless, based on our analysis, most listed companies in Malaysia showed great recovery in their second quarter of 2009 financial results against the results in the first quarter as well as the fourth quarter of 2008.

We need to understand that there are many disturbing factors that affect the stock prices, but not reflect the fundamentals of companies. From the perspective of behavioural finance, investors’ expectations and emotions have great influence on stock prices. Two factors influence investors’ expectations – past experience and new information.

In the absence of new information, investors will use past trends to extrapolate into the future. As a result, the stock prices may persist in trend for a while before the next market reversal.

This may cause the market to overreact to good financial results as shown by some companies.
According to Fischer Black, some investors tend to be affected by noise that makes it difficult for them to act rationally. He defines noise as what makes our observations imperfect as well as keeps us from knowing the expected return on a stock.

Some investors, due to lack of self control and proper financial training, may misinterpret economic information and sometimes be carried away by the stock market emotion. Investors may feel uneasy over the recent strong market performance. However, they will still choose to follow the market trend even though they feel their judgment may be wrong. In behavioural finance, we label this as conformity in which we are inclined to follow the example of others even though we do not believe in the action.

The above phenomenon of stock prices being valued beyond the fundamentals of the companies is applicable to some selected blue-chip stocks. Nevertheless, Bursa Malaysia does have plenty of second- and third-liner stocks which are still selling at cheap valuations. Investors may want to take the current market corrections to accumulate them for the long-term.

We need to relate the current stock prices to the intrinsic value of the companies. Some investment tools like price-to-earnings ratio, dividend yield and price-to-book ratio will assist us in filtering out some good companies for investment.

Even though there are a lot of uncertainties along the way to full financial recovery, we feel that investors may view the recent corrections as good opportunities to build their long-term investment portfolios. For those who have been looking for investment returns higher than fixed deposit rates, there are still a lot of stocks that are paying handsome dividend yield of more than 4% and yet selling at cheap prices.

One of the most important investing principles is to have the discipline to hold long term. We should not pay too much attention to the fluctuation of stock prices; instead, we need to focus on the earning power of the companies as it is one of the most important drivers in deriving the intrinsic value of a company.

As a result of the financial crisis, even though a lot of companies are showing great recovery, their performance and prices are still lower than their peak level during the year in 2007. If the overall economy and the companies’ performance recover to 2007 level, their current stock prices may be a good entry level.