I’m not sure if I have a good explanation for this, but bonds were sold off dramatically last week (even though we already knew that yields were getting too poor to support such prices).
As it is near Christmas, I was attending too many schmooze parties hosted by service providers, clients, politicians and businessmen and missed the chance to offload the great portion of my bonds and take some profit, which I will do so tonight.
“KUALA LUMPUR: Malaysia’s economy may expand by as much as 6% next year, double that of the government’s forecast of between 2% and 3%, said a global investment banking group.”
quotes the Edge
“UBS Ltd managing director for global economics Paul Donovan said that was achievable given his expectation, among other things, that the country’s industrial production would grow by more than 11% next year from this year’s low base.“
Here’s a chart of Malaysia’s Industrial Production. A 11% increase would actually bring it back to pre-08 levels, and I’m not sure where he thinks all the extra demand will come from.
But more importantly, what will that mean for the stock market? Not much it seems:
“Nonetheless, he warned that higher economic growth did not necessarily mean an improvement in the stock markets.”
His colleague was also equally vague, stating:
“…the current FBM KL Composite Index had an upside of under 10% and any additional upsides would depend on whether the strong corporate earnings growth in 3Q this year would continue into 2010.”
So does the Index have an upside or not?
And strong earnings growth? Depends on whether it is due to cost cutting or improving revenues, right?
Speaking of which, see below. YTL was boosted due to property sales, and Tanjong’s to gaming and power generation. The others…. hmmmm not so hot.
I came across the World Gold Council today and thought I’d post up a copy of their quarterly investment digest, which is a pretty good summary of events and current thoughts around gold. The discussions on the effectiveness of gold as a currency or inflation hedge are also interesting.
Website address is here, where one will also find industry data, trends, historical prices and research.
Some charts starting to look ugly from a technical perspective.
My favourite leading indicator the China FTSE is displaying a classic negative divergence (note that divergences can last for weeks and months).
The Dow, comprising of the largest companies in the world is my favourite “market” indicator – the independent variable against which I compare all other equities indices. This is still showing some steam.
Two charts depicting the inflation story.
1) This precious metals juggernaut is still in full swing and approaching oversold territory.
2) But… notice the cup and handle formation on commodities in general.
3) Flight to quality. No real evidence of this happening… yet or ever?
Here are the latest published indicators.
All of them are trending up. Although the dip in Industrial Production is a concern Manufacturing is trending up.
Price action and general investor sentiment is generally supportive, with most now believing that we are out of the woods.
Maxis set its IPO price to $4.75 today, which increases projected yields to around 4.8% from 4.29%, based on calculations in my previous post in an effort to make its numbers look more attractive. I am not sure whether or not this is below the expected valuation given to it by its sellers and no comments have been received yet as to why this number was used, and I am puzzled if reports are correct that the shares have really been hugely oversubscribed. Could it be that all involved are doing their utmost to ensure that this counter does not end up trading below its IPO price?
Dow back above 10,000. Nasdaq at 2105. S&P at 1066.63.
Dow is therefore a whisker from its yearly highs, although Nasdaq and S&P are a few percentage points below, in an environment where momentum is declining.
Even if prices manage to hold into the weekend, volumes are likely to be slightly lower than the previous weeks and not likely to undermine the bearish signal provided in the previous 2 weeks, where declines were accompanied with big increasing volume (classic technical bear scenario).
Is this a fadeout from the technical traders? If so, who will be stepping in to support prices, with fundamental traders already thinking that markets are overvalued? A crash may be on the cards. Many fundamental-based investors really do not believe in this rally, but the important question is how they will express this view in equities. Will they take the next available opportunity to go short or at least start taking profits on whatever longs they have? And what about the contrarians? Are they optimistic or pessimistic?
Commodities are also rising (even agricultural commodities) due to the weakening dollar. Gold at all time highs. Natural gas, the current junk of all commodities however, is now below $10 due to concerns of oversupply. Deflation is clearly not happening here.
Bond yields are also depressed due to the impressive run up in bonds this year, except for long dated US treasuries which are being shunned by fundamental-based investors due to uncertainties in the US Fed’s quantitative actions.
Cash has also been one of the worse performing asset classes this year. But are people forgetting the utility of having an abundant store of liquidity?
Took a look at Maxis’ IPO Prospectus yesterday which apart from the financials provided a pretty comprehensive picture of the competitive environment for telcos. In short, the brunt of Maxis’ revenues comes from its mobile services, which comprise of pre and post paid mobile data, wireless broadband and roaming services. The other 2 services being fixed line and ‘international gateway services’ (i.e. physical cables connecting to Thailand and Singapore as well as other submarine cables other geographic regions).
Investors are most focused on the expansion of wireless broadband since that’s the main area of growth for this industry, with pre and post paid mobile penetrations rates already very deep (101 in Malaysia % vs. 140% in Hong Kong).
Investors generally view Maxis (and telcos more generally) as more or less a utility company with some growth prospects. So, for Rm5.20 what are you getting?
I think that the following article from The Edge sums it up quite well.
In short one should be looking at the dividend yield, and the fact that Maxis’ has committed to distribute 75% of PAT. Based on the current figures, this would be around 4.5% which compares favourably to the ETF XLU for utility companies whose yield is currently 4.4%, with the prospect of additional growth potential as well. I would also expect Maxis’s yield to increase over time at a faster rate compared to standard utilities, but would not consider this to the best candidate if you’re looking for swift capital appreciation.
| Issued Share Capital | 7,500,000,000 |
| Profit After Tax (PAT) | $2,282,000,000 |
| Payout Ratio(75%) | $1,711,500,000 |
| Payout Per Share | $0.23 |
| IPO Price | $5.20 |
| Dividend Yield | 4.39% |
StarBiz Business Times Bank Negara| Ftse Bursa Malays | 1437.78 | ||
| Sse Composite Ind | 2663.21 | ||
| Ishares Trust (ba | 42.22 | ||
| Spdr Gold Trust | 121.62 | ||
| United States Oil | 33.70 | ||
| Ishares Trust Ish | 107.55 |
Gold and $$$
Gold also sold off last week. Big time. Although fundamentalists still have a case for weaker gold there is a strong technical bear signal (see the volume!!) which I expect will be taken advantage of by technical traders at least for the short term.
Notice the mirror image on the dollar, which experienced a blast off on similarly impressive volumes. A potential technical trade would be to long dollar with an intial stop at 22.05.
Similarly one could always short gold of course.
USO, on the other hand is sticking fast, and showing that the stronger dollar is not causing a similar sellof in other commodities. Either it will have to catch up, or Gold will resume its longer term trend eventually. I still fancy the short term long dollar technical trade even though it’s still going against its long term trend.