Maybank Monitoring Dubai Situation closely

From the Business Times:

Maybank's branches in Bahrain and London are monitoring the situation closely even though its loan exposure there is only a fifth of a per cent of its total.

MALAYSIA'S biggest lender Malayan Banking Bhd (Maybank) (1155) does not expect to be affected by the debt crisis in Dubai as its loan exposure there is only a fifth of a per cent of its total.

"Our branches in Bahrain and London are monitoring the situation closely. We are hopeful and believe the issues in Dubai will be resolved," said chief executive officer Datuk Sri Abdul Wahid Omar in Kuala Lumpur yesterday.

On November 25, Dubai sought a freeze on repayment of US$26 billion (RM89.44 billion) debt linked to Dubai World and its two main property units, Nakheel and Limitless World.

I quoted from an earlier post [1] that Malaysia should be proactive in the Dubai siutation. Finally, Maybank came out and said they are monitoring it closely. Islamic Finance as a whole is under scrutiny. It's a rather profitable niche for Malaysia, and it's ridiculous to take a lackadaisical approach. The government should send some people over there to keep track of the situation and lobby in Malaysia's interest as an Islamic Finance stronghold.

[1] Dubai bonds, what are the implications?

The public officials here should be mindful of the risks and take a proactive approach to the UAE handling of this situation. That means sending people over there to lobby the rulers not to screw up. We have vested interest.

Review of Poker Face of Wall st., Aaron Brown

I just finished reading The Poker Face of Wall St. by Aaron Brown, by a professor of finance and ex trader who graduated from Harvard and University of Chicago in Applied mathematics and Finance. For anyone who is into statistics, poker, game theory, and trading; this is an excellent book.



I've always been fascinated by the game of poker, and not for the drama where people put millions on the line for a single hand. I find the way that people interact with each other given uncertainty is a bit mesmerizing.

In most gambling games, black jack, roulette, craps, etc; people bet against the house, there is no uncertainty and only odds, and over a large number of hands, you will more than likely lose money. Poker is the only game which combines both uncertainty of people and odds to make a wonderfully unpredictable game.

The human involvement in the game brings ways to make money and make it consistently. Why do you think the house never have their dealers play poker? They aren't sure if they can win over a large number of hands. Even if they give themselves an edge, its not certain as there are so many unknowns. They only get a cut of the winning pot. This isn't the best way to make money for casinos.

First, the book talks about how almost every economic activity takes on a gambling twist. The author gives examples and dispels common notions about securities and investments that they are mainly a gamble, and not the safe instruments we are spoon fed by sales people. He even asserts that major stock market crashes were more of an unpredictable event, there were no real big news events before or after that just caused the plunge. This lends credence to the unpredictability in markets. He then talks about how gambling played a pivotal role in providing capital to those who needed it in business such as Bill Gates who used poker money to start up Microsoft.

He talks about trading, poker, bluffing, and game theory and asserts some major pitfalls of practitioners of game theory. He thinks that knowledge of game theory is more useful as a way to win over people who use game theory. I think so too. Game theory works better in one on one games but horribly in Poker games which involve groups of people. People who use game theory will generally lose over time especially when they continue to meet people who are better than them.

He also says that people need to take risks to make real money in the world. When you've got a good hand, you have to have the guts to take risks. I believe he doesn't say that people should take dumb risks. For me, a person who thinks he should run a business when he sees so many successful people running a business is a dumb risk. Most people fail. Don't believe me, believe in the statistics.

On the other hand, if they got nothing to lose, yes it may be a worthwhile risk much like a lottery ticket or a business. For those with money it's a horrible bet. Humans also have this false confidence that say "I will make it work" which is a fallacy. They read all these books which give them confidence that they too can do it, they follow the advice to the letter, and fail. In running a business, a lot of it is luck. Don't believe all the hype out there about the Warren Buffetts or Bill Gates and their stories.

Definitely, this book is food for thought. I also read Nassim Taleb's Fooled by Randomness, which is an excellent complementary read to Poker Face on Wall st. Reading both will give you a greater understanding than if you were to choose just one as both books talk about fairly difficult abstract concepts.

Bursa Malaysia should look into Options

The KLSE needs more financial innovation within a "structured" manner. Options are an excellent way to produce arbitrage opportunities that could make the market more efficient. Fisher Black, nobel prize winner and one of the creators of the Black-Scholes theory for option pricing reasoned that options were another instrument that could aid in price discovery and arbitrage.

For the Malaysian securities market, we need more ways to derive daily prices. Options will create volume in stocks and securities. At the same time, with these extra revenues, Bursa Malaysia and the Government stand to cut some of the taxing stock transaction fees. This will also create a more liquid finance system.

So to summarize:

1. Better price discovery for stocks.
2. Extra revenue will bring in room to cut current commission rates.
3. Higher security volume resulting from lower commissions and hedging activities.
4. More liquidity and efficiency.
5. More foreign investor interest as a result

Astro to launch HDTV services

From the Business Times:

ASTRO All Asia Networks plc will launch high-definition television (HDTV) in Malaysia on Friday, said Astro TV chief executive officer Datuk Rohana Rozhan.

HDTV is a digital television broadcasting system with higher resolution than traditional television systems.

"Astro TV is now available to some 2.875 million residential subscribers who will be able to subscribe to its next generation of services, commencing with HDTV and high level interactivity and connectivity," she said.

"The roll out of these services is estimated to cost some RM200 million, including marketing and operating costs of approximately RM150 million, over the next financial year, ahead of revenue and earnings from these services," she said in a statement today.

Rohana said Astro TV will continue to focus on evolving content and technologies ahead of consumer trends, to lead by innovation in response to demanding and sophisticated customers.

Astro All Asia Networks today announced a higher pre-tax profit of RM195.69 million for the third quarter ended Oct 31, 2009 compared with a pre-tax loss of RM212.37 million in the same quarter last year.

Its revenue grew to RM863.49 million from RM744.54 million due to a strong growth reported by Astro TV.

"Astro TV delivered a strong set of results this quarter on the back of a price increase, the introduction of new packages, net subscriber growth of 94,000 and disciplined cost management," Rohana said.

The direct-to-home TV joint venture business in India, Sun Direct TV, reported strong subscriber growth with some 500,000 new customers activated for the quarter ended Oct 31, bringing the total to 4 million customers, she said.

It also announced an interim tax-exempt dividend of 2.5 sen per share for the third quarter, bringing total dividend to-date to 7.5 sen. - Bernama

From what I heard from my Astro installer, HDTV won't actually be available for some time. This launch seems to be merely a formality. In addition, not all channels will be HD, the electronic HD box will cost more, and HD channels will cost more. We're looking at a year or two away at least.

Disclaimer: This is just what I heard from my Astro installer, who knows, Astro could change its mind at any time or my installer could be lying.

Goldman Sachs in Malaysia

From the Business Times:

MALAYSIA has given U.S. investment bank Goldman Sachs licences to set up fund management and advisory operations in the country, as the Southeast Asia nation competes for foreign investments.

The licences were given as part of the liberalisation measures announced by Prime Minister Najib Razak earlier this year, the country’s securities regulator, Securities Commission Malaysia , said in a statement today.

Goldman Sachs’ entry “demonstrates the group’s confidence in the growth opportunities available in the Malaysian capital market,” said the SC.

Other global financial companies such as JPMorgan and Credit Suisse already operate in Malaysia.

“We look forward to playing a larger role in their development,” Leissner said in the SC statement.

Malaysia in June unveiled a raft of measures to boost investment in the slumping economy and lift a laggard stock market, including waiving the condition that local companies should reserve 30 per cent of any post-IPO share sale to Malay investors.

Corporate activity in Malaysia is expected to rise next year and bolster the stock market, analysts say.

Malaysia this year saw Southeast Asia’s biggest ever IPO after the US$3.3 billion offering by Maxis Bhd the country’s biggest mobile provider.

Malaysia is the worst-performing market in Asia so far this year, up just 44 per cent, compared to Indonesia’s more than 80 per cent gain and Thailand’s 56 per cent rise. - Reuters

Wow...looks like Goldman Sachs is coming to Malaysia. I think competitors should be scared. The great vampire squid is coming to town:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

That doesn't paint a pretty picture. Well, after all the bad media, they try to paint themselves in a better light in that they are doing God's work. Oops, just a little too bright. Now they are declaring themselves holy to the world.

When it comes from their CEO, the statement will almost be certainly taken out of context. Seems to me he seriously misjudged how many people still felt betrayed by the government with their tax payer dollars paid out in bonuses to Goldman Sachs.

Anyways, with so much notoriety, they feel like they can be accepted in a country such as Malaysia. Perhaps, maybe they'll be welcomed with open arms as people generally go to those who can get them the most money. Go with Goldman, their reputation to win at any cost, and you can't lose, or can you?

Dubai bonds, what are the implications?

I've heard some interesting stories from my friend about doing business in Dubai. He sells jewelry and regularly makes trips over there. His customers over there buy jewelry in large and lucrative quantities and he has built the contacts and relationships so that it is worth it for him to hand carry his jewelry from Malaysia and sell it in Dubai.

Sometimes, when my friend would call up, they would tell my friend they were busy and then out of the blue tell him to come NOW. They treat him like a dog. That example speaks a lot about the over cocky style of business over there. So it doesn't surprise me when Abu Dhabi tells Dubai to handle their own problems.

But now, the world is placing a huge microscope over the situation and how it is handled. This also has huge implications for Islamic finance. If the bond holders pull the nuclear option and take the assets over in court, we will see how the UAE responds as they probably will not be prone to letting foreigners come up and take over nationally backed companies. Further opaquing the situation, the Islamic Sukuk bonds may not give holders the legal strengths of bonds as they are considered a form of equity and bonds. Although, I'm sure the sukuk holders would prefer bond power in re-organization. I think a lot of people buying the Sukuks believe they are a type of bond.

The law system in in the UAE is also suspect as the courts basically do what the rulers say if they so deem it. For small cases, I think re-organization is not a problem, but for something like Dubai World, international investors will scrutinize their decision.

Even if Malaysia does not have a lot of interests directly affected by Dubai's crisis, their future growth and confidence in Islamic financial instruments are under scrutiny. They are affected as an Islamic finance hub. Future slow down in growth from this area will cut valuations of players in the Islamic finance arena today. A dubious ruling will definitely see the financial arena in Malaysia drop in value to investors. The public officials here should be mindful of the risks and take a proactive approach to the UAE handling of this situation. That means sending people over there to lobby the rulers not to screw up. We have vested interest.

Malaysia property bubble in the making?

This is a conundrum that I've been debating. I've yet to see very many housing articles, data, and research seriously critiquing the housing market here.

When I look information such as household income to price, I see a lot of houses overpriced. Consider the average household income is RM4000. How can they afford houses that run in the RM270 to RM300 per sq. ft range. I see young people going for new properties running at RM400, RM500+ per sq ft price. Not only that, the standard down payment here is 10%. Most people can't put up the 20% equity.

In fact, I've been hearing that consumers can get around that 10% down payment with a measly 3% down payment (7% covered by the contractor)! A lot of the practices such as option arms, almost no down payment, and interest rate resets into the second and third year that doomed the US are prevalent here. People should use the low rate period to pay down the amortization on the house and instead are spending it on consumer goods as evidenced by the growth in consumer loans and consumption.

The government isn't doing much to curb the risk although they mentioned that they are concerned. We have the housing capital gains tax supposedly to cool down the market. But we all know the main purpose of the tax is for revenue. There are far more effective ways on clamping down on the housing market. For one, increase the down payment and ban all these shady teaser rates and zero down payment ideas.