FKLI/KLCI and FCPO technical analysis update

The FKLI has been trading rather quietly the last few weeks.  It is recovering somewhat nicely on the back of overseas markets.  The trend has been topsy turvy with Trend indicator acting more as an oscillator than a trend forecasting mechanism.

As of now, it is reaching the zero line which could be t the start of something or more of the same choppy range we've been having so far.  The trend is somewhat bullish, although a choppy bullish and moving up slowly

FCPO has been acting bearish as of late with both trend indicators and price action showing lower prices. Not much can be said about palm oil due to the large range.  I suppose it is trying to find support at the lower trend line.

SRC International... another 1MDB?

From the Edge:

Prime Minister Datuk Seri Najib Razak said SRC International Sdn Bhd, a wholly-owned unit of the Ministry of Finance (MoF), has invested RM3.81 billion of the RM4 billion borrowed from Kumpulan Wang Persaraan (Diperbadankan) (KWAP) in overseas assets. Najib said this includes assets in countries like Indonesia and Mongolia.

“The total investment for SRC International is RM4.1 billion, of which RM3.81 billion has been invested in overseas assets related to natural resources and coal in countries like Indonesia and Mongolia,” he said in his written reply in Parliament to questions from PKR secretary-general Rafizi Ramli. Reporters obtained Najib’s reply yesterday.

Every time PM Najib uses the word "Assets" I'm a little frightened.  Assets are just something a person or company buys and may or may not have its stated value.  If there is strong liquid market, it has better transparency in value, otherwise the assets probably will fall in value.  It may also fall in value if cash flows aren't there.

Although not on the scale of 1MDB, the SRC International company seems to have borrowed money from KWAP, our country's pension fund to finance investments in natural resource countries like coal that have surely declined in value by now.

This brings me back to a post I wrote recently questioning whether our money is really safe.  The issue is when it comes to the government, given their track record, it's not out of question that they would use the people's money to invest in things like SRC International.  

The MOF shouldn't have any authority to borrow money from the country's pension and EPF fund. Nor should the retirement funds let the government take money.  Mixing people's hard earned retirement money with government hanky panky just really makes me want to hurl.

Short term swing trades: Genting

Maybe it is too late for this trade, but we all know Genting is one of the favourites for swing trading.  It's obvious the bearishness in Genting is just way too much.  After all, how low can a stock go when half its earnings are in Singapore dollars!

The red candlestick a few days ago past the 23.6% fibonacci was overkill on the selling.  A perfect time for a move higher!

I like a trade back to RM 9 a share while getting stopped out at RM 8 a share.  

Lim Kit Siang wants a new coalition "Save Malaysia"

From the Malaysian Insider:

With Pakatan Rakyat (PR) facing an inevitable split, DAP parliamentary leader Lim Kit Siang has suggested the formation of a “Save Malaysia” coalition, aimed at defending the Federal Constitution and rule of law.

With both Barisan Nasional and PR facing their own problems and Malaysian political scene turning into what he described as "no man’s land", the DAP veteran said this could be the right time to set up of the new coalition, with a new prime minister and government.

This, he said was provided that Prime Minister Datuk Seri Najib Razak announces Umno's support for the PAS’s hudud enactment.

Unfortunately with the passing of PAS leader Nik Aziz, the more hard lined PAS members have more or less seized power.  This has caused all sorts of trouble for Pakatan in recent times.

Often times, it is a bad omen when such a moderate leader such as Nik Aziz is no longer the leader of his party.  The suppressed hard liners have a chance to take control of the party, and unfortunately they did.  This is true with almost any political party in the world and repeatable throughout history, not just special to Malaysia.

So Lim Kit Siang wants to make a new coalition.  I think this is a good idea, but it will set back the opposition quite a bit.  A coalition is only as strong as its foundation and unfortunately Pakatan, didn't in my opinion, have a strong enough foundation.  Basically it's foundation was Anwar, as influential a person like Anwar is, a foundation built on a person won't be very strong when he is gone.

The foundation needs to be built on principles, have solid political views, and one that appeals to the moderate Malaysian.  A solid foundation would build a party into a solid opposition.

At the moment nothing appeals to most moderate and young Malaysians.  BN is up to its hanky panky, PKR is still Anwar crazy.  Set up a good, principled, multi-racial opposition and BN would be in trouble.

More FlyMojo questions

From the Edge:

KUALA LUMPUR: Malaysian skies will soon see the addition of new start-up flymofo’s colours as the full service carrier, which will operate out of the Senai Airport in Johor and the Kota Kinabalu Airport in Sabah, is slated to start operations in October 2015.

But CIMB Research analyst Gan Jian Bo is sounding alarm bells over the likelihood that existing airlines’ yields — already under pressure after consumers were spooked by the spate of aircraft disasters in this region — would be compressed further due to overcapacity when flymojo comes on board.

The new airline, operated by Fly Mojo Sdn Bhd, signed a letter of intent last Tuesday with Canada’s Bombardier Commercial Aircraft to purchase 20 SC100 aircraft for US$1.47 billion (RM5.45 billion), with an option for another 20, which would up the value of the deal to US$2.94 billion. It plans to fly under-served routes.

It's plain to see that everything the government seems to be touching on the private sector is turning toxic on the heels of the 1MDB uproar.

This FlyMojo venture is becoming another scrutinized area of concern, which I first highlighted when the story for the Bombardier plane order broke out.   It turns out that Malaysia doesn't likely need another airline with so many competitors like Malindo and AirAsia out there.  Of course I'd like to see more details regarding to what extent the government is involved in this supposed "venture."

I just find it odd that the government just keeps on doing these kind of no-brain investment ideas.  They are eventually going to scheme themselves out of PutraJaya.  But, what else is new, I suppose this kind of stuff has been going on for years.  I suppose someone has got to get rich, via some "commissions."

What is the GST really? but the gov't buys a private jet

From The Malaysian Insider:

The Malayian Insider wrote a pretty critical comment from the common person saying :

The 48-year-old Klang small trader’s views on the GST is part of a trend seen in The Malaysian Insider's survey on the new tax – the lower a respondent's household income, the more “negative” he feels about the new tax. 

This is despite extensive government PR campaigns to convince Malaysians that the tax was fair and that it would lead to a reduction in the prices of goods. 

“The government wants to tax us and tells us to save. But then it goes and buys a new private jet,” said Zaidi, referring to the RM465.4 million Airbus ACJ320 that Putrajaya admitted purchasing recently.

Although the above part is juicy and pretty much an extremely salacious headline, I'd like to focus on some of the half truth propaganda/ media blitz that the government has been spewing.  I fear that when people realize how bad it is, the ruling government will be in trouble because all they've been saying that this won't hurt that much.  I think it will.  What's worse than bad is a government who just is fooling themselves how alright the GST will be.

Putrajaya has claimed that the GST is part of its efforts to reform the current tax system, where only about 1.7 million out of 12 million workers pay income tax.

The above statement is quite true.   Most people don't pay tax.  Yet it is almost guaranteed everyone will.  Even the homeless person who buys food every day.

The tax burden will be spread throughout the population and will affect almost all goods and services. 

Yes it is spread through the population.  But the majority of any population are usually the poor.  so the burden is generally on the poor, not the rich.  It is also burdensome on the rich, but not to the same effect in terms of percentage of their income.

In terms of effective tax each group pays, for some poor groups, they might as well be paying 1000% more in taxes. A person making RM 3000 to RM 4000 per month will likely pay 300 percent more in taxes this year than last.

In exchange, personal income taxes would be reduced from 1% to 3% depending on the tax bracket. It is estimated that about 300,000 individuals would no longer pay income tax after GST.

Yes this is true, but as not many people pay tax, these new individuals will have to pay GST.  To find out how much you will likely pay, Just take your yearly expenditure, For example say a person spends RM2,000 a month on expenses. The 24,000 spent annually comes out to an GST tax of RM 1,540 a year.

A person paying income tax would likely have to pay maybe a hundred bucks on that per year, now they pay 1,540 in taxes per year.  the reduction in income tax isn't so good is it.  Honestly I'd rather the income tax increase than pay RM 1,540 a year on GST.

I hope I've put GST in perspective for some people out there.  No one can hide from GST, not even those who aren't working.

GST break for retail lots....but it won't make much of a difference for tenants

From the Edge, via Amanah Investments:

The media recently reported that the goods and services tax (GST) will not be imposed on commercial units with rentals of below RM500,000 annually. We believe this announcement is further to the previous declaration that only residential units will be exempted.

This news is slightly positive to retail REITs as it alleviates the additional cost to tenants. Hence it should remove the likelihood that the tenants may demand renegotiation for the lowering of rental fees. 

I find it unlikely any retail operator will give their tenants a break in fees.  Lets face it, the shopping mall still pays 6 percent GST for everything it operates on.  GST breaks maybe translates into cost reductions of 1 percent for the consumer, but if your landlord pays full GST, expect the cost to be transferred to the tenant.

They will no doubt be better off, but sorry no breaks.

People should realize, GST breaks result in little savings for retailers as the retailers suppliers will all pass on the GST costs to the retailer.

Short term swing trades: HLFG

I plan on putting a few short term swing trades for posts.  Please note that the shorter the time frame in trading the more fickle the market is.  Sometimes trades work, sometimes they don't.  But I've always fancied a little day trading speculation.  But mind you that all this is mainly for speculation so please don't take the short term swing trades as a recommendation.  It's not.

As of current juncture in time, we'll just stick with the FBMKLCI.  I like three stocks at the present time.  Maybank, HLFG, Maxis.

I'll cover HLFG in detail

When some people look at HLFG, they see the big red bearish trend at the end of December.  Me on the other hand sees something different.

The breakout move at the beginning of the month seems to be holding.  It touched a low in February and now is trading just short of the 50 percent retracement.

I'd like to speculate that the share will make a move higher to at least RM17.65 from the current RM 16.92.  Stop me out around RM 16.20 if i'm wrong.

Malaysia government in another airline company

From the Edge Markets:

NGKAWI (Mar 17): Malaysia's government on Tuesday announced the establishment of a new airline, called flymojo, and said it has signed a deal with Canadian planemaker Bombardier Inc to buy 20 CS100 aircraft for about $1.47 billion.

The announcement, made in the presence of Prime Minister Najib Razak at the Langkawi International Maritime and Aerospace (LIMA) exhibition, included an option to buy 20 more aircraft, taking the deal value up to $2.94 billion.

I'm not sure what is the reasoning behind this.  The industry economics don't really make sense for the government to be involved in another airline venture.

When it comes to companies that the government doesn't really have a natural monopoly over, for example airlines and autos, they've done just horribly.  It seems that Malaysia doesn't really learn from mistakes, but likely someone is getting rich off this deal in "commissions".  Hey, 1MDB is failing, but it's business as usual for a select few!

The problem with Anwar led PKR-DAP

From Malaysia Insider:

Malaysian voters overwhelmingly want political parties which take care of all Malaysians, rather than ones that fight for just their own race and religion, a survey has shown, even as ruling parties Umno, MIC and MCA continue to rely on race-based politics to drum up support.

The survey, commissioned by The Malaysian Insider, found that the racial rhetoric these parties thrive on is not consistent with what Malaysians want.

Of all the respondents polled, 76.9% said they preferred a party that was inclusive over one that catered to just their community.

The Malaysia Insider commented that it seems more and more Malaysians are becoming educated and ascending above the common race based politics to community based ones, ones on merit.

Race based politics is sort of a crutch for many politicians that can't perform in terms of both at the job and popularity.  They create a bogeyman of playing one race against another.  If there is one thing politicians can always fall back on, is that of race.

 PKR-DAP coalition is not a very popular alternative to BN, despite it being racially diverse.  The problem is that of its principles.  It seems as the coalition solely exists to advocate Anwar for power.

Take one case in point, Anwar's wife was "selected " to be the Menteri Besar of Selangor.  And all the political underhand tactics reminiscent of political engineering  with Anwar taking over Kajang and leaves a salty taste in the mouths of many Malaysians.  We give you support, yet you like to keep the hanky panky politics of decades ago.  It seems like BN 2.0 under Anwar.

Case two:  the "jumping of BN supporters to PKR".  At the last GE election, Anwar boasted he had many assemblymen waiting to jump over to PKR.  These kind of tactics are plain stupid.  What does it say about the party besides it is willing to engage in sneaky underhand tactics to gain power?

Anwar is seen as a bit of a fanatic politician.  It's not hard to see for many Malaysians, assuming  many are like me.  As atrocious as the the current government is for seeing Anwar to the gallows, I think most people would rather stick with BN over BN 2.0.  If Anwar were to sit in the PM office, would much change besides Anwar's cronies now in office?  Most people won't trade one messed up government for another.

If PKR-DAP really wanted to challenge for government power, they would need to drop the Anwar-centred politics and push for what really matters to people, integrity.  I for one think Azmin-Ali is turning out to be a strong leader for PKR, but pity it took him so much time to reach the office with all the Selangor MB drama.  The Sultan of Selangor ruling on Selangor MB may be a blessing in disguise for the fledgling party.

Najib probably is catching a whiff something is wrong at 1MDB

From Astro Awani on March 5:

According to a statement from the Prime Minister's Office today, the Auditor-General's report would be passed for transparent inspection to the Public Accounts Committee, which is fully bipartisan and reflects Parliament's composition. 

It said the prime minister had informed the Cabinet of the move.

"If any wrongdoing is proven, the law will be enforced without exception," Najib said in the statement.

 Just to read between the lines, Najib has given himself an out with the last statement over the 1MDB audit.  Najib could have worded it a little bit better by saying he's sure nothing is wrong, but instead he is taking the role of an enforcer here and not saying anything that indicates 1MDB is problem free.

Distancing himself from the toxic fiasco is probably the first step.  I really won't be surprised if 1MDB now turns out to be a sham.  Already the Ministry of Finance says the entity is indebted with a net gearing of 17x!

How stressful is Malaysia's stress test?

The IMF has published Bank Negara's parameters for stress testing a while back.  

A short primer, is that the stress tests are run for two scenarios.  One, a sharp drop to about -2 percent and then a V-shaped recovery.  Another is a slower drop to just below 0 percent GDP, but followed by a slower paced recovery.

I'm glad to say that Bank Negara follows Basel's baseline -2 percent GDP adverse scenario, which will likely be what will happen when Malaysia puts institutes the GST.  But the tests are not stressful enough.  I'd like to see a scenario where S1 drops to -2 percent and then slowly recovers because that is what will likely happen when Malaysia institutes the GST.  

If the world economies suffer, the stress tests will be a shambles.  Actually Malaysia should include the effects of GST in the oncoming year as a baseline scenario (shift the y axis up by 5 percent).  Then we will truly have a valid stress test.  This stress test I repeat is a JOKE.  The only way the stress tests are valid is if the world economy doesn't slow down!

Furthermore, in adverse scenarios, the smaller banks would likely need to re-capitalization!  stay away from the smaller banks, they will need cash calls in the oncoming year.  That is almost a 90 percent chance of occurring under the adverse scenarios.  And we are going to get the adverse scenario no matter what due to our GST.

KLCI/FKLI and FCPO technical update

The FKLI is in the midst of perhaps beginning a down trend.  But not yet,  due to the large volatility over the beginning of the month.  The market will still likely continue to trade in line with other markets until April, so a rebound is possible depending on how most markets react.

At the same time, the market isn't oversold, so buyers may want to wait longer, especially with the prospect of barely positive GDP in the oncoming year.

FCPO is also in the same boat as the market had the same volatility as FKLI.  Range trade is still the order of the day with wide supports and resistances.  200 day moving average seems like interim support as the market tries to turn the widely followed technical indicator upward.

Brahim's holdings buys companies to "diversify"

From the Edge:

KUALA LUMPUR (Mar 10): Brahim's Holdings Bhd ( Financial Dashboard) rose as much as 16 sen or 19% after the firm said it planned to buy a local food and beverage (F&B) company to reduce dependence on its core in-flight catering business.

 Brahim's (fundamental: 0.35; valuation: 1.2) rose to an intraday high of RM1.02 before paring gains to 98.5 sen at 10:10am. The bourse's eighth-largest gainer saw some 9.4 million shares traded.

Brahim's share trade was suspended from 10:12am last Friday till 5pm yesterday. The stock resumed trading today.

Yesterday, Brahim's told the exchange it was in talks to buy a local F&B company to increase shareholders' value.

Brahim's said the terms and conditions of the acquisition had yet to be finalised.

Does Brahim's contract with MAS seem to be on the ropes?  I'm not sure but the company CEOs seem to lack foresight on what to do.  Going out and buying lots of companies isn't exactly the best way to inspire confidence among shareholders.

Moves higher will seem like a dead cat bounce to me.  It's no secret that Brahim's Holdings is desperately trying to shore up revenues, and the companies the Brahim's is seeking to buy will milk them for all they can as their negotiating position is quite bad.

More GST woes

It has been brought to my attention that estimates for Malaysia GDP are way too high with 4 percent GDP growth from the government and world bank.  We can see a -9 percent GDP growth when Australia first introduced a GST of 10 percent.  

Likely a positive GDP will be considered lucky with a hefty 6 percent levy in Malaysia.  Similar countries such as Japan also experienced -3 percent GDP growth at only a 3 percent increase in GST.  Extrapolating a similar ratio, Malaysia will be likely get -1 percent GDP going forward for 2016 (5 percent -6 percent = -1 percent GDP growth).  I imagine the end of 2015 will likely record a 1.5 to 2 percent GDP growth.

Australia is one of those countries who was a pioneer in instituting GST.  The stock market didn't do too well in the period following GST implementation.

Malaysia also has major problems with instituting the GST.  They've created almost a brand new GST system after studying a few countries' GST programmes and likely a new system will almost lead to major confusion.

Is our retirement safe?

Whenever government entities like the 1MDB get called into question, we tend to look take a harder look at our finances.  The Edge has called into question how Malaysia will pay its ballooning pension liabilities.

The Edge weekly in its latest edition said that tighter finances meant that pension reforms were inevitable and that such reforms were happening around the globe because a significant jump in the cost of caring for people in their old age — be it to put in place infrastructure that is more friendly to the aged or more expensive healthcare requirements.

The Edge’s Cindy Yeap, Kamarul Azhar and Kathy Fong wrote that while Malaysia’s population was still much younger compared with that of the developed countries where these pension reforms have taken place, one in 10 Malaysians will be aged 65 and above by 2035, according to projections by Malaysia’s Department of Statistics.

“That means 3.89 million people aged 65 and above — more than double the 1.43 million in 2010 — and this is projected to rise to 4.41 million, or 11.4% of Malaysia’s population, by 2040,” they wrote.

The Edge said that in fact, official projections show Malaysia would reach the 7% threshold The World Bankdefines as an ageing society in just six years, in 2021.

The question comes in if the pensions look suspect, so might our retirement savings.  It's possible.  The truth is the EPF seems like a black box.  It pays out dividends every year to all the account holders, but we never know what the net asset value of the fund is.   For all we know it could be a ponzi scheme.

Will we ever know?  probably not.  But if you ever thought the EPF is a bit shady when it comes to investment funds, moving the money to a genuine investment fund which holds stocks with net asset values and distributions will likely be the best bet.  Maybe you won't get the stable holdings like a normal bank account with interest, but at least you will have some idea what you are really holding.

I know some companies are already moving the EPF contributions to a private scheme.  See if the company you are working for offers this option.

Why Malaysia needs maids more than they want to admit

From Bernama:

With 34 per cent of management positions held by women in Malaysia, the Southeast Asian nation is only slightly behind China which, at 36 per cent, remains the region's diversity leader.

According to recruiting expert Hays' 2015 Hays Asia Salary Guide, the figure for Malaysia was up from 29 per cent last year.

Malaysia was followed by Hong Kong (31 per cent, down from 33 per cent the previous year) and Singapore (27 per cent, unchanged year-on-year).

 The excerpt above is from Bernama regarding the high percentage of women in the work force.  Malaysia is one of the exceptions when it comes to work place diversity.  But our high work place diversity isn't possible without some help from other countries.

Maids in Malaysia have gotten a bad rap.  Indonesia now doesn't want to send us maids and agent fees have increased by a large amount.  A lot of Malaysians say we don't need maids in Malaysia.    But Malaysia as a whole needs them as an economic backbone.

One of the main reasons for the outstanding diversity in the work place is that if you take a sample of working mothers with children, in top management, a large portion of them will have maids for help on home matters.  It is extremely difficult for women to be in the work force if maids were scarce in Malaysia.

On economics terms, Malaysia take note, maids help the nation grow its revenues.  If families don't have maids, likely one of the parents will have to stop working and women leaving the work force is never good

MAS is looking like a turn around

From the Sun Daily:

It said more than 4,000 contracts have been identified under a comprehensive review of MAS' contracts and that the process to replace contracts that meet the market-based requirements of newco began end-February 2015, days after the MAS Act came into effect, while discussions are underway on selected contracts that have been identified for renegotiation.

I am looking at the MAS situation with the service act and am thinking two things.

MAS or now known as MAB is looking like a turn around.  Likely it has unparalleled flexibility it never had before to do what necessary to become a stand alone entity.  Looks like Khazanah boss is quite strong and a stand up investor for Malaysia.  It also seems no hanky panky will be going on with this turn around which is extremely commendable.

The second item deals with is one company bigger than the nation?  The MAS act makes MAS shareholders the beneficiary in not having to become a bankrupt entity.  It gives bankruptcy powers without having to declare bankruptcy.

I think this is a double edged sword.  Share holders will undoubtedly be happy.  Bond holders as well because they don't have to take a hair cut in their bond holdings.  But, it sets somewhat a dangerous precedent with unknown consequences.  It raises the question what other entities will the government make a special law for.  I think a lot of government suppliers are going to start panicking.  As for now though, this precedent is very beneficial for government entities.

Why countries should develop infrastructure now

Although much of the world is hurting from pain slower growth, it's arguable, this may be one of the best times in the past decade to get construction projects going.

Steel prices, iron ore, crude oil are hitting record lows.  If you are a country which spent their time saving and waiting for the right moment to upgrade infrastructure, this is it.  China is deliberately scaling back growth and therefore raw materials of all sorts are in excess supply.

Malaysia might actually see the prices in steel drop dramatically lower, as well as the cost in constructing the MRT.  Either the price will drop or the companies involved will reap major profits.  Probably the companies involved will make the profits since in Malaysia a lot of these construction companies will just kick the profits back to certain government elites.

India has just kicked off a major rail road rebuilding project.  It's not hard to see why as steel prices are hitting all time lows.  India will reap the rewards of its rail road project in decades to come.

Infrastructure hasn't had it this good in a long time!