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!

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.

FKLI and FCPO technical analysis update

The FKLI is slowly gaining momentum and is currently in an uptrend after a shaky start to February.  As long as overseas markets remain robust, the trend will likely continue.  The gap fill to 1860 looks like the target for the uptrend.  

The market remains slow moving due to the volatility early in the year.  Large trend moves are unlikely for now as evidenced by the small ranged days the market had for the last two weeks.

FCPO is a topsy turvy pattern, flipping from bear to bull almost in an instant.  Frequently markets don't flip, from bull to bear or bear to bull in such a short timespan, so FCPO will likely quiet down as well.

The market is still ranged, and the recent move to RM 2,221 shows bears still have a say in prices.  Likely the market will still range between RM 2,340 and RM 2,220 for the next few weeks.

1MDB just can't get a break

From the Edge:

Feb 24): 1Malaysia Development Bhd.’s bonds are trading like junk as investors seek greater clarity over the state investment fund’s plans to wind down and sell off assets.

Investors are demanding a 439 basis-point premium over similar maturity Treasuries to hold the Kuala Lumpur-based company’s securities, compared with an average of 415 for speculative-grade quasi-sovereign notes in the region, a JPMorgan Chase & Co. index shows. Its $3 billion of 4.4 percent notes due 2023 closed at 86.72 cents on the dollar on Feb. 16, a record low. They traded at 87.62 cents on Monday.

1MDB has been suffering blow after blow in the media.  The most recent statement by the CEO Arul tried to paint a profitable picture of the beleaguered investment fund by saying it made 400 million in profits on that deal.

Tony Pua, a state MP, begged to differ and stuck to his guns and asked where is the profit on this supposed profitable deal.  The market is also thinking that 1MDB may not be able to repay its debts and would need a cash injection from the government, as can be seen by the large premium over treasuries.

The problem in a lot of these "investments" 1MDB does is that it is very opaque, something like a private equity fund.  Winding down an investment like this will likely come at a significant cost as its projects are not finished yet.  Furthermore, ability to make payments on its debts is really difficult as coming up with money to hold the fund over has met many challenges.   The delayed IPO really saw how close 1MDB was to bankrupting the Malaysian banks as 1MDB was not able to pay back its loans on time.

Will investors buy into the IPO?  I'm not so sure as a couple of Malaysian government backed IPOs have not done too well.  Look at Felda and Gas Malaysia.  Confidence isn't as high as before.  Only time will tell.

1MDB jitters abated, banks up

From the Edge:

Malaysian bankers will trigger an event of default (EOD) if state strategic investor1Malaysia Development Bhd (1MDB) fails to repay RM2 billion loan for its power unit taken in May 2014, say sources.

The loan has been rolled over twice with the last deadline being last month and is part of a RM5.5 billion debt taken by a unit of the company wholly owned by the Finance Ministry.

 A few banks were on the hook for loans, namely RHB bank, Maybank, Alliance bank, Malaysian Builder society, and Hwang DBS investment bank.  These few banks provided the 2 billion loan for 1MDB to repay.

On the plus side, these companies won't go into receivership as they won't have to write down the loan as per accounting rules.  Even the Malaysian central bank commented how auditors are to handle the bank's accounts if the loan if the principal is not paid back by February 18.

As a consequence.  All the stocks are up for these companies, and so is the market.

Tenaga cuts tariffs

From the Edge:

UR: TNB Nasional Bhd (TNB) ( Financial Dashboard) saw its market value shrink by RM2.6 billion yesterday as investors offloaded its shares on the government’s announcement of a new, lower electricity tariff.

TNB’s counter, which opened at RM14.94 yesterday, was stable up until the moment when the Energy, Green Technology and Water Ministry (KeTTHA) announced that electricity tariff in Peninsula Malaysia had been revised downward by 2.25 sen per kilo watt hour (kWh).

 Tenaga just cut its tariffs....ouch.  A lot of investors were banking on the fact that Najib stated no tariff cuts would be instituted.  Likely that froth will come out of the market.  At the end of the day, Tenaga is still a government entity which will cater to the government whims.

Seeing as how unpopular the profits for Tenaga is, Najib has a bit of a sore spot whenever politicians raise the question on enriching Tenaga's shareholder's pockets at the expense of the common Malaysian folk.

Government entities will usually have their upside capped due to the fact that if profits are too large, people will start to complain.  Most economics books will tell you these companies which operate in a government regulated monopoly will earn a decent return for shareholders but not outlandish due to public and government meddling.  This seems to be the case for Tenaga.

So where does that leave us?

Probably an attempt to target the gap at around 10 Ringgit a share.  Let's see what happens.  Already analysts are calling for more tariff cuts.

Yinson Technical Analsyis

Yinson is one of the current darlings of the KLSE with a very conservative business model.  It builds and oversees the initial process of shipbuilding and christening of FPSO, a large tanker that functions as an oil platform.  Then it matches the long term lease contracts with loans it will take out based on long term rates. 

They basically say, here is the US giving such good long term rates, lets take advantage and borrow money to build vessels for the oil and gas industry, then enter into long term lease rates, then make money off the spread.  They retain the vessel at the end of the day while gaining income off the spread between the rates they charge and what they borrow.

Their stock price has been on a tear the last few weeks with lots of profits oozing.

The analysis of this chart is relatively simple.

1.  The pullback at q2 in 2014 seems to be a turning point.  The market made a solid test below the consolidation point in q1 then moved higher immediately.  At this point the market is indeed bullish.

2.   Buyers were waiting for a pullback.  The buyers got what they wanted in the begining of Q4, but immediately sold off before breaking the Q4 consolidation's high, no doubt because of the severity of the drop at the end of Q3.

The market may encounter resistance at the consolidation over RM 3 a share as bears did manage to try and sell down just below the high of the Q3 consolidation box.  But a move above the Q3 consolidation will likely be another bullish turning point.  

If the market were to make a high past the Q3 consolidation box,  one of two things can happen, it can rocket higher to its Q3 high or it could pullback and consolidate once again.  At the moment, Yinson might range, but I wouldn't be surprised if it tends towards the bullish side as it's creeping up to RM 3 a share once again.

Zeti speaks on strong ringgit fundamentals

From the Star:

PUTRAJAYA: Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz says the ringgit is fundamentally strong and “it will reflect the underlying fundamentals when the global events settle down”.

She also said on Tuesday Malaysia’s financial system can ride out the capital inflow and outflow.  Zeti added Malaysia's GDP for 2014 was also within the forecast.

She also said BNM would not allow any “systemic” effect from any individual company to affect the country’s economy.

The Edge weekly also commented on a speech by Prime Minister Najib regarding the Ringgit fundamentals.  But if the fundamentals were so good, why is the Ringgit is suffering the most in the region?

Even Zeti is becoming more vocal about the "fundamental" strength of the Ringgit.  Is the Central Bank going to put its money where its mouth is and shore up the weakening Ringgit?  probably not.

It seems panic is spreading a bit as no matter what either leader says, the Ringgit just won't wake up.  Ever since the capital controls statement on Reuters by Zeti, the Ringgit has done nothing but tank.  It's as if the market says keep talking, I'll just keep pushing your buttons.

Reversing the Palm oil hedge

I have decided to do recant my blog post about the USD hedge innate in Palm oil.  While indeed palm oil is priced in US dollars in Europe, a large majority of palm oil customers are European and their currency is having a tougher time than even the Ringgit.  So they will likely turn to their own in state oil products as the palm oil is getting expensive versus the Euro.

A large amount of Malaysian investment is from the Eurozone.  So, a poor euro environment makes Malaysian operations more costly from their perspective.  This is probably one of the more subtle themes underpinning the Malaysian economy at the moment.  They are going to buy less of our exports.

Tenaga's craazzzy earnings

From the Star:

Tenaga Nasional Bhd’s net profit for the first quarter ended Nov 30, 2014, rose 34.4% to RM2.352bil from RM1.75bil a year ago, thanks to the increase in tariff and sales in the Peninsula and Sabah. 

Sales in the Peninsula grew 3.3%, while in Sabah it was 2.4%, which was an additional boost to TNB given the tariff hike in January 2014 of 14.9% and 16.9% respectively.

 Up 34.4% making 600 mil more PROFIT than a year ago, on top of the ridiculous profit they are making now.   They are getting so much money they don't know what to do with it.  With this money, surely Integrax is going to ask for a higher offer.

Unfortunately, everyone is paying higher electricity bill charges.  Whoever sold stocks because of GST, Tenaga is just rolling over the GST problem like a small little pothole in the road.

Sapura Kencana Technical Analysis SKpetro

Sapura Kencana was one of the darlings of the oil and gas industry.  Unfortunately with oil hitting all time lows, their outlook looks dim.  I won't mince words, bottom catching is usually a fools game, especially a stock with low dividends.  As goes the saying, if you look around the room and don't know who the sucker is, the sucker is you.

I'll just have you know, a few oil stocks have looked technically strong off a bottom, especially in the US, but technicals seem to have failed this industry as bottoms have not held up.  I won't be surprised if the same goes for SKpetro.  All in all I'd skip this stock, save your money for another rainy day.

But for you people who REALLY want to get into the stock, I don't mind thinking about a long position with play money of course :)

1.We seem to have found a bottom at RM 2 a share.  Is this a bottom that will hold up?  I think it may.  at RM 2.61 is a 30 percent rebound off the lows, and given the nature of the rebound at this particular price, I think the outlook would be good.  I'd cut and run from a long position at a price lower than RM 2 a share, but seeing how this is an oil and gas stock, bottoming technicals seem like having a 50-50 chance of holding.

SP Setia Technical Analysis from the begining

SP Setia is probably one of Malaysia's most loved property counters.  I'm going to try and attempt to do some technical analysis on this beast.  It's also one of those counters just when you think it is down and out, it just comes back rip roaring higher.

SP Setia is a company known for innovating in the property market.  Their developments are known for quality and even creation of a lifestyle.  Perhaps their most well known developments are in Shah Alam where they have a 2,500 acre development that has won rave reviews.

The national government investment arm, PNB has wanted to take SP Setia global with a redevelopment of the Londone Battersea Power Station.  It would make sense as living in UK's neighborhoods resembles something of a mish mash of houses put together.  SP setia community development could take London property to another level.

The share price isn't for the faint of heart.  Consolidations can last 3-4 years which tends to shake out the most steely focused investor.

1.  One of the pivotal periods in SP Setia's history was in 2002.  When the high broke above the red rectangle, it signaled a change of sentiment from the usual pump and dump stock plaguing so many counters in Malaysia.  About one year later, after a pullback, the stock jumped.   Investors could have goten in around 80-90 sen a share, above the stop out point at the low in 2001.

Asking investors to wait one year while the stock drops 40 percent is tough to swallow, especially form RM 1.30 to 80 sen a share, but those shareholders would have been rewarded with a double.  But with the double could have come a quadruple with a long consolidation period frrom 2004 to 2007.  Asking investors to wait 3 years while the share goes nowhere is a tough thing to do.  That is why this stock isn't exactly for the faint of heart.

2.  The next pivotal point is in 2010.  A break above RM 3.3 a share signals more bullishness.  But where is the downside?  Likely near RM 1.5 a share.  Investors need to wait for consolidation for a longer period in time due to the huge range of movement in prices.

It's five years since the break hgiher into RM 3.30 a share, but time has been long and a three to four year pullback seems to be the norm, but the risk is of course the stock were ot trade much lower to RM 1.5 a share.

For me, the risk is too much to bear, But I'd be a long around RM 2.10 a share.  But, for most money managers, this stock is just rough as their performance metrics are on a yearly basis.

I think the stock will go higher in the next 5 years, but in between then,who knows what will happen.  I'm bullish, but not willing to initiate a long at these levels nor able to stomach the long gestation periods the pullbacks always seem to bring.

FKLI/KLCI and FCPO technical Analysis update

The FKLI has seen a rebound as of late.  While nothing is set in stone, a few of the bombed out oil stocks are picking up, as well as the index.  Support seems reasonably good.  With the anticipated Eurozone QE program on the horizon, most equity markets seem to be picking up.

The trend line has adjusted downwards to the new support at the low set a few weeks ago.  At this point the market may or may not see new highs.  It's anyone's game.  But below 1730, the market will look weak.



FCPO looks reasonably strong if it stays above RM 2,297, but the uptrend is all but stalled for the current period given the last few down days.  Given the predominate downtrend over the last few years, the market probabilities lend towards the bearish side.

Finance Minister Zeti speaks up on Capital controls

From the Edge:

 Malaysia has "moved on" from using controls to manage capital flows, its central bank said on Friday, signalling it would not resort to such measures amid a falling currency and slowing economic growth.

"Extreme measures such as capital controls are for extreme periods. We are certainly not experiencing such extreme conditions," the central bank said.

"This is a marked contrast to the experience in the late 1990s," it added, responding to a Reuters query on whether capital controls — a measure Malaysia employed during the Asian crisis of the late 1990s to staunch capital outflows — were once again an option.

"We are now in a period when the economy has been on a steady growth path with a low level of unemployment for several years," the central bank said. 

Because talk of capital controls dominated Russia's economic rumour mill, this rumour also got people to think how safe their money is in Malaysia.  The depreciating Ringgit isn't helping to quiet the rumor as well.

This statement probably is positive on the Ringgit as nothing has really been said before regarding Malaysia on the possibility of reinstituting capital controls within the last few weeks.   I say the last few weeks because that is when the whole Russian currency fiasco started dominating headlines, then that is when people started to worry.

  But it is sort of a double edged sword.  The conditions she gave are certainly far away from what is happening now, but it is a possibility.  If Malaysia has unemployment reaching 8-9 percent, people may start abandoning the country in droves.  Careful what you say.

We can interpret her statement as we are so far away from capital controls at this point even with the Ringgit at 3.6 to the US dollar.  Markets will like this for sure.

Palm oil stocks as a hedge against a falling currency

It's no secret that palm oil is an international commodity.

From the Edge:

LA LUMPUR (Jan 14): Palm oil output in Malaysia may fall further this month as the aftermath of monsoon flooding takes its toll on yields that are already low for seasonal reasons, while growers in Borneo were now braced for the monsoon, which has shifted to that region.

Malaysia's weather office forecast better conditions over the peninsular region in the coming week, dispelling fears of a fresh wave of flooding in the coastal states of Kelantan, Terengganu and Pahang, which were hardest hit by last month's rain.

Palm oil is generally seen as a boring commodity, but it does have certain desirable properties.  For one, although it is priced in ringgit, Europeans buy the palm oil in US dollars.    The truth is,  it's kind of a running joke to have palm oil priced in ringgit as most of it is sold to foreign countries.

So, the net effect is that Palm oil companies won't be affected much by a weakening currency, with costs in Ringgit, while their revenues are in US dollars.  The majority of palm oil companies will see a bit of tasty profit.

RHB and CIMB abandon the merger

From The Edge

CIMB Group Holdings Bhd. ( Financial Dashboard) and RHB Capital Bhd. ( Financial Dashboard) are planning to scrap the three-way merger that would have created Malaysia’s largest banking group, said people with knowledge of the matter. 

Terms for the deal, announced in October, no longer make sense as the industry outlook worsens, said the people, who asked not to be named because deliberations are private. 

An announcement could come as soon as this week, one person said. The proposed combination also included the acquisition of smaller lender Malaysia Building Society Bhd ( Financial Dashboard).

The news that RHB and CIMB have abandoned the merger is good news for CIMB in particular, the shareholders.  Now, the only way to get those two entities to merge is for the EPF to offer an MGO for the shareholders, but that won't be cheap.  Shareholders have voted, leave them to their own devices.

From day one, the RHB and CIMB mergers were seen as rough for CIMB shareholders, especially in the view that RHB would take over the banking business.   The merged entity would mostly be merged from CIMB to the RHB banking entity.  Thus the reason why arbitrageurs  decided CIMB should gravitate towards RHB's book value.

CIMB is known as a relatively high performing bank culture.  Merging is all and well, but most shareholders would rather not do the merger considering CIMB already has their plate full with integration of banks from overseas.

FKLI and FCPO technical Update

The outlook for the FKLI has been erratic with sentiment just flipping from one direction to another.  It's a symptom of a hot and cold market with  a lot of uncertainty.  Trend reversals can be seen by the the trend lines flipping from bull to bear and bear to bull quite violently.  Now of course, the FKLI looks to be in this lower 1700s territory for the next few months.

FCPO is gaining ground over the last few weeks.   The sentiment is bullish with the directional trade indicator indicating more upside movement.  Most of the longs were shaken out a few weeks ago when the market traded crazily between RM 2,100 and RM2,200 a tonne.  Also we have had a v-spike test lower just two days ago which saw the market vault up yesterday.

Expect any spikes downward not to last very long as bullish sentiment is still with palm oil.