KUALA LUMPUR: Following the financial meltdown of 2008, blamed largely on lax corporate regulation, shareholder activists are calling for stricter corporate governance, greater disclosure and fairer treatment of minority shareholders towards shoring up equity valuations and lowering cost of capital.
Delivering his talk to directors of financial institutions here recently, well-known Hong Kong shareholder activist David Webb highlighted corporate governance issues in the region, particularly in Hong Kong, that had retarded equity valuations and devalued otherwise well-run companies.
The talk was part of the ongoing financial institutions directors’ education (FIDE) programme, which is offered by Bank Negara Malaysia and Malaysia Deposit Insurance Corporation.
“Investors investing in badly governed corporations will discount the share price with an expectation for losses if there is inadequate, infrequent and delayed disclosure,” he said.
In most of Asia where corporations are government- or family-controlled, there is little opportunity for a shareholder activist to voice his opinions, except when voting on related transactions.
The dominance of government- and family-holders makes it necessary to have mechanisms in place to level the playing field for minority shareholders.
Webb believes that once checks and balances such as disclosure, class actions and proper penalties are in place, there will be fairer treatment, higher prices and lower cost of capital, resulting in economic gains for all.
Webb. Photo by Suhaimi Yusuf
“Every jurisdiction has to remain competitive by raising their sovereign ceiling by putting these systemic changes in place, to ensure fairer treatment for minority shareholders and a more competitive economy.”
Webb is an advocate of top-down reforms of law and regulation through media pressure, lobbying policymakers and being involved in the policymaking.
Shareholder protection, he argued, could be improved by making poll-voting mandatory at company general meetings. He is critical of the conventional method of voting by a show of hands, as it fails to reflect the sentiments of those absent from the meeting, resulting in the lack of knowledge of any opposing votes.
As a result of Project Poll, one of his initiatives to demand poll taking at AGMs, mandatory poll taking came into effect in Hong Kong last January.
On the issue of independent directors, Webb observed that no market had yet to get it right despite existing requirements on the minimum number of independent directors sitting on the board.
“So long as they are voted in by the controlling shareholders, they serve only at the pleasure of the controlling shareholders, and they are not independent,” he said.
His reform proposal is to treat elections of independent directors as a related-party transaction to disallow the votes of interested parties.
After retiring from a wildly successful five-year career in investment banking in London, Webb was elected as a non-executive director of Hong Kong Exchanges and Clearing Ltd in 2003, before resigning in 2008 citing concerns over governance.
Queried on the reasons for his activism, Webb said: “I am very fortunate to have a strong financial security to back my cause, after being overpaid as an investment banker. I am able to contribute some of my returns back to Hong Kong society.
“You need the fundamental protections of freedom of speech and an open society where you will not be sued for everything you say. I could not have done this (advocate for shareholders’ rights) successfully in a country like Singapore, for example.”
There is also a problem of communication — retail investors are often unaware of shareholder meetings. Voting turnout is typically between 40% and 50% of public votes.
“The simple solution to this is for regulators to impose an obligation on custodians to seek voting instructions from their beneficiaries. Of course, this would incur more costs, but all forms of democracy cost money,” he said.
Webb said punitive measures for rule transgressors could also be improved in the region.
What is the downside risk of breaking the law or regulation? The lack of proper sanctions means that the laws and regulations have a bite with no teeth.
One redress is for civil tribunals (such as the Market Misconduct Tribunal in Hong Kong) to order disgorgement of profits and payment of legal expenses. Hong Kong has stepped up prosecution for corporate crimes, but there are bars to this such as the high burden of proof beyond reasonable doubt.
While there is a statutory derivative action mechanism in place, there is a disincentive for shareholders to commence such a proceeding since damages are paid to the company and yet the individual is expected to foot the costs of litigation until the court directs otherwise.
As a solution to this, Webb referred to jurisdictions such as Australia where litigation finance companies exist. Further, a contingent fee system for lawyers would promote shareholder activism
November 30, 2009
Banking on hitting bottom
KUALA LUMPUR: It may be past the sink-or-swim stage, but nevertheless analysts are still cautiously treading water before declaring that the floor has been found for the country’s banking sector.
Both ECM Libra Investment Research and OSK Research are maintaining their neutral and overweight calls, respectively, on the sector on the back of rising key leading indicators, which at the very least appear to be showing a slower rate of decline.
This cautious optimism is supported by Bank Negara Malaysia (BNM) statistics for October 2009, which show lead indicators exhibiting signs of returning to healthier levels with overall loan growth of 7.5% year-on-year (y-o-y) for the month compared with 7.2% in September.
ECM Libra noted that loans growth, which had declined rapidly since December 2008 when outstanding loans for that month grew 12.8% from a year earlier, was perhaps finding its base in October after months of erratic movement.
“The improving set of numbers corresponds to the gradual recovery in economic conditions, mirrored by the recent announcement of 3Q09 GDP which registered a contraction of 1.2%, much healthier than the 1Q09 and 2Q09 contractions of 6.2% and 3.9%, respectively,” said the research house in a note last Thursday.
“We had already imputed stronger 7% to 8% loans growth from CY10, from the average 5%-6% currently,” it said.
It also said there had been pent-up demand for credit, based on the double-digit y-o-y changes in applications and approval numbers.
On the back of generally improving consumer and business sentiment, loan applications were up 38.3% y-o-y in October against 3.6% in the previous month. Loan approvals in October also rose 25.4% y-o-y versus 1.5% in September, which OSK Research said was indicative of banks’ lower risk aversion.
“Apart from higher loan approvals from the SMEs and household segment, loan approvals for business turned positive with a growth of 12.1% versus a contraction of 11.2% in September 2009,” OSK Research said in a note last Thursday.
It added that it had maintained its industry loan growth forecast of 7.5% for 2009 and 8.5% for 2010.
OSK Research said there were “no signs of deterioration” in asset quality with net non-performing loans (NPLs) hovering at the 2.1% level while aggregate loan loss coverage ratio was above 90%.
Average lending rates (ALR), another leading indicator for the banking system, were also relatively stable at 4.9% while average base lending rates (BLR) remained unchanged at 5.51%.
“The average quoted fixed deposit rates for tenures between one and 12 months were still within the range of 2% and 2.5%,” OSK Research added.
Meanwhile, total deposits in the banking system in October showed a marginal decline of RM600 million compared with September 2009, due to the withdrawal of maturing negotiable instruments of deposit (NID) put in place by banking institutions.
The financial system saw an increase in business enterprise deposits by RM8.9 billion which primarily took the shape of Islamic banking instruments and other deposits.
Top picks among the research houses include MALAYAN BANKING BHD [], CIMB Group Holdings Bhd, PUBLIC BANK BHD [], AMMB HOLDINGS BHD [] and EON CAPITAL BHD [].
HwangDBS Vickers Research liked CIMB “for capital markets’ play and exposure to the Indonesian banking sector” and Public Bank “for resilience and dividends”. It also recommended HONG LEONG BANK BHD [] for its expansion in the region and potential for growth in China, and EONCap for a small-cap bank play.
Meanwhile, Nomura Singapore Research in its Asean Bank Check for last week, recommended a buy on Maybank and a neutral on Public Bank, while adding that AMMB showed promise of an upside despite a run-up in the stock.
Maintaining a buy on AMMB with a raised target price of RM6.10, Nomura said the lender was currently trading just above its mid-cycle price-to-book value ratio of 1.5 times.
Both ECM Libra Investment Research and OSK Research are maintaining their neutral and overweight calls, respectively, on the sector on the back of rising key leading indicators, which at the very least appear to be showing a slower rate of decline.
This cautious optimism is supported by Bank Negara Malaysia (BNM) statistics for October 2009, which show lead indicators exhibiting signs of returning to healthier levels with overall loan growth of 7.5% year-on-year (y-o-y) for the month compared with 7.2% in September.
ECM Libra noted that loans growth, which had declined rapidly since December 2008 when outstanding loans for that month grew 12.8% from a year earlier, was perhaps finding its base in October after months of erratic movement.
“The improving set of numbers corresponds to the gradual recovery in economic conditions, mirrored by the recent announcement of 3Q09 GDP which registered a contraction of 1.2%, much healthier than the 1Q09 and 2Q09 contractions of 6.2% and 3.9%, respectively,” said the research house in a note last Thursday.
“We had already imputed stronger 7% to 8% loans growth from CY10, from the average 5%-6% currently,” it said.
It also said there had been pent-up demand for credit, based on the double-digit y-o-y changes in applications and approval numbers.
On the back of generally improving consumer and business sentiment, loan applications were up 38.3% y-o-y in October against 3.6% in the previous month. Loan approvals in October also rose 25.4% y-o-y versus 1.5% in September, which OSK Research said was indicative of banks’ lower risk aversion.
“Apart from higher loan approvals from the SMEs and household segment, loan approvals for business turned positive with a growth of 12.1% versus a contraction of 11.2% in September 2009,” OSK Research said in a note last Thursday.
It added that it had maintained its industry loan growth forecast of 7.5% for 2009 and 8.5% for 2010.
OSK Research said there were “no signs of deterioration” in asset quality with net non-performing loans (NPLs) hovering at the 2.1% level while aggregate loan loss coverage ratio was above 90%.
Average lending rates (ALR), another leading indicator for the banking system, were also relatively stable at 4.9% while average base lending rates (BLR) remained unchanged at 5.51%.
“The average quoted fixed deposit rates for tenures between one and 12 months were still within the range of 2% and 2.5%,” OSK Research added.
Meanwhile, total deposits in the banking system in October showed a marginal decline of RM600 million compared with September 2009, due to the withdrawal of maturing negotiable instruments of deposit (NID) put in place by banking institutions.
The financial system saw an increase in business enterprise deposits by RM8.9 billion which primarily took the shape of Islamic banking instruments and other deposits.
Top picks among the research houses include MALAYAN BANKING BHD [], CIMB Group Holdings Bhd, PUBLIC BANK BHD [], AMMB HOLDINGS BHD [] and EON CAPITAL BHD [].
HwangDBS Vickers Research liked CIMB “for capital markets’ play and exposure to the Indonesian banking sector” and Public Bank “for resilience and dividends”. It also recommended HONG LEONG BANK BHD [] for its expansion in the region and potential for growth in China, and EONCap for a small-cap bank play.
Meanwhile, Nomura Singapore Research in its Asean Bank Check for last week, recommended a buy on Maybank and a neutral on Public Bank, while adding that AMMB showed promise of an upside despite a run-up in the stock.
Maintaining a buy on AMMB with a raised target price of RM6.10, Nomura said the lender was currently trading just above its mid-cycle price-to-book value ratio of 1.5 times.
Portfolio insurance reduces downside
Insurance is used to protect against unexpected losses. Traditionally, insurance is to protect the financial well-being of an individual or a company in the case of unexpected loss of life or property.
Not insurable
Unfortunately, there is no insurer for financial losses. For an asset to be insured, it must be insurable, ie the losses must be random in nature. Financial assets fail to meet this criterion, as stock prices fall in tandem with economic downturns.
Due to changes in economic direction — or more simply, the movements of funds from one asset class to another — stock prices do not move randomly.
Since stock prices move in a herd, it creates a cyclical pattern. This behaviour does not allow insurance companies to provide protection against financial losses. Otherwise, it will be much easier for investors to protect their equity investment from losses during financial crisis by paying some insurance premium.
Investors who want to protect their investment will have to look for some other alternatives. So long as there is an instrument that can mitigate investment risk, it is worthwhile exploring.
Understand the risk
Insurance is a form of risk management that can be used to hedge against the risk of a contingent loss. To reduce or mitigate investment risk, it is necessary to know what risk we are trying to avoid and what we want to be shielded from. It may also be crucial to protect the capital or profit during a certain period.
Every investor knows that there is a risk when investing. Although many investments provide higher returns in the long run, unexpected events may cause losses to investors from time to time. The sudden collapse of stock prices due to a fall in market sentiment, war, changes in government policies or other financial mishaps is a major reason why many people shy away from investing in the stock market.
Portfolio insurance
Unlike traditional classes of insurance, portfolio insurance was only developed about two decades ago. It was designed to limit the losses in a portfolio of investment from significant and sudden share price declines. The need for portfolio insurance to protect against downside risk is felt especially among the larger funds where, for practical reasons, disposals and rebalancing of portfolios are more difficult.
Unfortunately, unlike traditional classes of insurance where a specific risk can be insured, portfolio insurance is not perfect and has many limitations.
Use options and futures as a hedge
Essentially, portfolio insurance is a hedging strategy against market risk, which it does by selling index futures or buying stock index put option. The former is our stock index futures (FKLI), but the latter is not available in Malaysia.
For a large institution where stocks invested in the portfolio are similar to the 30 stocks of FBM KLCI, selling FKLI can be a good proxy. In the absence of other index futures, the correlation between a portfolio and the KLCI is crucial in determining how good the hedge is. The delta between the two asset classes is the hedge ratio, which is used to compute the required number of contracts to sell to optimise the hedge.
Short-selling of index futures to protect a portfolio from dropping below a certain level can only be effective if it is done before the market declines. However, shorting the index futures while market is falling can still be useful to protect against further downside of a portfolio value.
The gains from the short-selling index futures in a falling market will be able to offset the losses in the deteriorating portfolio value. In other words, by short-selling index futures, the value of portfolio can be protected. An illustration is shown in Table 1.
A portfolio of shares similar to the components of KLCI with a market value of RM250,000 can be hedged or protected by short-selling four index futures contracts of FKLI at the 1,200.0-point level, say. The value of the futures contract is RM240,000. If the market depreciates by 10%, the portfolio value will fall by RM25,000, but the loss will be offset by a gain of RM24,000 from the shorting of FKLI (assuming the FKLI also falls by 10%). The end result from this portfolio insurance is that the final portfolio value fell only to RM249,000 (ignoring the small hedging costs).
On the other hand, if the market appreciates by 10%, the portfolio will not benefit from the market run-up, as losses from the short contracts will offset price appreciation of the equity portfolio.
Insured for the short period
The form of hedging above will help to lock up the portfolio value before the futures contracts are expired. Although such an insurance may not be a perfect hedge in the sense that a portfolio may have a different composition from that of KLCI, it does help to mitigate the losses when market declines. The number of contracts is determined by the hedge ratio, which is linked to the co-movement between the portfolio and the benchmark KLCI.
Normally, such protection can be used for the short-term period only, as index futures can be sold readily for the current or next month contract which is more actively traded. Nevertheless, such short-term insurance is still useful when an investor is away or busy for several weeks but does not want to sell the shares which are kept for longer term purposes.
If the shares are disposed off and bought back later, it will involve unnecessary transaction costs, not to mention the possibility of loss of dividend during the period. Selling the FKLI short as insurance can also be employed during short periods of uncertainty, eg tension in the Middle East or prior to a general election in a politically less stable country. Fund managers may also use this insurance towards end of the year to protect the portfolio profits.
Protection via put warrant
A put option is also another method to develop portfolio insurance. Unfortunately, there is no options market in Malaysia. A put option is a financial instrument similar to shorting an asset, allowing its buyer to sell a stock or index at a pre-determined price.
Recently, OSK Investment Bank launched three local stock put warrants — Axiata-HA, Genting Malaysia-HA and IOI-HA — which can be purchased to protect the downside of the underlying stocks over a longer period. For put warrants on an index, the same investment bank also issued a 2-year FBMKLCI-HA for investors who want to hedge against the fall in KLCI.
For those invested in Hong Kong market, HSI-H1 — which will mature in August 2011 — may be considered as a hedge against a drop in the Hang Seng Index. A word of caution, however; the local put warrant may be less liquid due to limited participants. Another point of concern is the large premium of the warrants.
Protection via short ETF
Another form of protection is to buy a Short Exchange-Traded Fund (ETF), whose price moves in the opposite direction of a normal ETF. Choosing a relevant Short ETF is important to provide a better hedge. Some important considerations are the size of the Short ETF as well as whether it has sufficient liquidity to exit. Other factors to consider are the reputation of the sponsor, management fees, leverage and components in the ETF.
Some of the relevant Short ETFs are UltraShort Dow30 (to provide a hedge on global market) and UltraShort FTSE/Xinhua China25 Proshares (to provide a hedge against China stocks). Both of them are listed on the New York Stock Exchange.
Negative correlation — CTA
In the absence of a suitable short ETF, the next alternative protection is to have a perfect negatively correlated asset to go along with our core investment. There are not many asset classes which are negatively correlated with the equity market. When the economy falls, the values of many asset classes also fall in line. The only difference is the degree of price erosion.
One of the unique classes of investment which is negatively correlated with the equity market is trend following managed futures, or a Commodity Trading Advisor (CTA). These CTAs seek to profit from trends. They play long futures in a bullish market, and short futures in a bearish market.
In a clear up-trend market, they will generate profits like stocks and shares. They will perform particularly well during a bear market, when fear overcomes the emotion of investors, be it retailers or institutional investors. It is the ability of trend-following CTAs to profit from both bull and bear markets that makes CTAs an excellent asset class to act like portfolio insurance for traditional equity investment. The correlation between several asset classes is shown in Table 2.
Negative correlation — bond
Other than CTAs, long term bonds are also another asset class which normally behave differently from equity investments. The stock market normally performs well during periods of economic expansion, which coincide with rising interest rates. As a result, long term bonds may not perform during this period.
On the other hand, when the economy slows down and causes the stock market to fall, central banks normally reduce interest rates to revive the economy.
A cut in interest rates will lead to higher bond prices. As such, when the stock market is not performing during the period of a weak economy, a reduction in interest rate will boost the performance of bond investments.
As such, equities and bonds are an excellent combination in a long-term portfolio. This twin investment is commonly found in insurance companies and some bigger institutions.
Absolute return HFs
Another asset class that has a low correlation with the equity market is an alternative investment such as a hedge fund (HF). The main objective of most HFs is to provide absolute returns, regardless of market conditions. Examples of absolute return HF strategies are convertible arbitrage, long/short and relative value. In recent years, more and more HFs are targeting institutional funds. The appeal of HFs for institutions is their ability to generate consistent moderate returns, unlike the high volatility of stocks.
Unfortunately, the strategies adopted by most HFs hit a snag last year during the Lehman Brothers fiasco, and they too suffered huge losses. To be fair, most HFs only lost about 20%, half the losses of traditional long-only equity funds which tend to suffer 40% losses or more. Even though HFs may not function well during crisis period where poor liquidity truncated their performance, HFs are still relevant as their strategies will still work when market is back to normal.
Lowly correlated assets
Other than CTAs, bonds and alternative investments, there are not many asset classes which show a negative correlation with equity investment over a long period.
Having said that, there are many asset classes which have low correlations with share investments. Property investment is an excellent example in Malaysia. In the 1997/98 Asian financial crisis and the recent 2008 global financial crisis, Malaysian property prices stayed fairly firm even though stock prices collapsed sharply.
Having a diversified portfolio with different asset classes which are not correlated or lowly correlated is a useful way to reduce portfolio risk.
VIX & gold
BCA Research, in its October report, recommended the Chicago Board Options Exchange Volatility Index (VIX) and gold as suitable equity portfolio insurance. This is based on recent behaviour of these two instruments.
The VIX is the volatility index for investors to trade on equity risk. The inverse correlation of the VIX to the S&P 500 makes it excellent insurance to hedge against the fall in US market, and it is getting even more popular among institutional investors to protect their equity portfolio. The correlation of VIX with S&P 500 was -0.73 since Oct 2007 and -0.91 since March 2009, according to the report.
In the case of gold, its correlation with S&P 500 was -0.2 since Oct 2007, but increased to 0.71 since Mar 2009. Perhaps, gold is a better hedge against the fall of the US dollar than the fall of equity.
Have insurance in mind
Most investors invest to make money, but few think of insurance for their investment. For the long term strategy, diversifying into lowly correlated investment such as PROPERTIES [] and bonds is necessary. Buying into negatively correlated investments such as managed futures is an excellent choice to protect against another crisis which could be due to reversal of US dollar carry trade, collapse of yet another asset bubble created by low interest rates, etc.
For shorter-term protection, short selling an appropriate number of index futures contracts will reduce portfolio volatility over several weeks.
Investors should always have portfolio insurance in mind when investing as there is no insurance agent coming around to provide reminder on the importance of portfolio insurance.
Not insurable
Unfortunately, there is no insurer for financial losses. For an asset to be insured, it must be insurable, ie the losses must be random in nature. Financial assets fail to meet this criterion, as stock prices fall in tandem with economic downturns.
Due to changes in economic direction — or more simply, the movements of funds from one asset class to another — stock prices do not move randomly.
Since stock prices move in a herd, it creates a cyclical pattern. This behaviour does not allow insurance companies to provide protection against financial losses. Otherwise, it will be much easier for investors to protect their equity investment from losses during financial crisis by paying some insurance premium.
Investors who want to protect their investment will have to look for some other alternatives. So long as there is an instrument that can mitigate investment risk, it is worthwhile exploring.
Understand the risk
Insurance is a form of risk management that can be used to hedge against the risk of a contingent loss. To reduce or mitigate investment risk, it is necessary to know what risk we are trying to avoid and what we want to be shielded from. It may also be crucial to protect the capital or profit during a certain period.
Every investor knows that there is a risk when investing. Although many investments provide higher returns in the long run, unexpected events may cause losses to investors from time to time. The sudden collapse of stock prices due to a fall in market sentiment, war, changes in government policies or other financial mishaps is a major reason why many people shy away from investing in the stock market.
Portfolio insurance
Unlike traditional classes of insurance, portfolio insurance was only developed about two decades ago. It was designed to limit the losses in a portfolio of investment from significant and sudden share price declines. The need for portfolio insurance to protect against downside risk is felt especially among the larger funds where, for practical reasons, disposals and rebalancing of portfolios are more difficult.
Unfortunately, unlike traditional classes of insurance where a specific risk can be insured, portfolio insurance is not perfect and has many limitations.
Use options and futures as a hedge
Essentially, portfolio insurance is a hedging strategy against market risk, which it does by selling index futures or buying stock index put option. The former is our stock index futures (FKLI), but the latter is not available in Malaysia.
For a large institution where stocks invested in the portfolio are similar to the 30 stocks of FBM KLCI, selling FKLI can be a good proxy. In the absence of other index futures, the correlation between a portfolio and the KLCI is crucial in determining how good the hedge is. The delta between the two asset classes is the hedge ratio, which is used to compute the required number of contracts to sell to optimise the hedge.
Short-selling of index futures to protect a portfolio from dropping below a certain level can only be effective if it is done before the market declines. However, shorting the index futures while market is falling can still be useful to protect against further downside of a portfolio value.
The gains from the short-selling index futures in a falling market will be able to offset the losses in the deteriorating portfolio value. In other words, by short-selling index futures, the value of portfolio can be protected. An illustration is shown in Table 1.
A portfolio of shares similar to the components of KLCI with a market value of RM250,000 can be hedged or protected by short-selling four index futures contracts of FKLI at the 1,200.0-point level, say. The value of the futures contract is RM240,000. If the market depreciates by 10%, the portfolio value will fall by RM25,000, but the loss will be offset by a gain of RM24,000 from the shorting of FKLI (assuming the FKLI also falls by 10%). The end result from this portfolio insurance is that the final portfolio value fell only to RM249,000 (ignoring the small hedging costs).
On the other hand, if the market appreciates by 10%, the portfolio will not benefit from the market run-up, as losses from the short contracts will offset price appreciation of the equity portfolio.
Insured for the short period
The form of hedging above will help to lock up the portfolio value before the futures contracts are expired. Although such an insurance may not be a perfect hedge in the sense that a portfolio may have a different composition from that of KLCI, it does help to mitigate the losses when market declines. The number of contracts is determined by the hedge ratio, which is linked to the co-movement between the portfolio and the benchmark KLCI.
Normally, such protection can be used for the short-term period only, as index futures can be sold readily for the current or next month contract which is more actively traded. Nevertheless, such short-term insurance is still useful when an investor is away or busy for several weeks but does not want to sell the shares which are kept for longer term purposes.
If the shares are disposed off and bought back later, it will involve unnecessary transaction costs, not to mention the possibility of loss of dividend during the period. Selling the FKLI short as insurance can also be employed during short periods of uncertainty, eg tension in the Middle East or prior to a general election in a politically less stable country. Fund managers may also use this insurance towards end of the year to protect the portfolio profits.
Protection via put warrant
A put option is also another method to develop portfolio insurance. Unfortunately, there is no options market in Malaysia. A put option is a financial instrument similar to shorting an asset, allowing its buyer to sell a stock or index at a pre-determined price.
Recently, OSK Investment Bank launched three local stock put warrants — Axiata-HA, Genting Malaysia-HA and IOI-HA — which can be purchased to protect the downside of the underlying stocks over a longer period. For put warrants on an index, the same investment bank also issued a 2-year FBMKLCI-HA for investors who want to hedge against the fall in KLCI.
For those invested in Hong Kong market, HSI-H1 — which will mature in August 2011 — may be considered as a hedge against a drop in the Hang Seng Index. A word of caution, however; the local put warrant may be less liquid due to limited participants. Another point of concern is the large premium of the warrants.
Protection via short ETF
Another form of protection is to buy a Short Exchange-Traded Fund (ETF), whose price moves in the opposite direction of a normal ETF. Choosing a relevant Short ETF is important to provide a better hedge. Some important considerations are the size of the Short ETF as well as whether it has sufficient liquidity to exit. Other factors to consider are the reputation of the sponsor, management fees, leverage and components in the ETF.
Some of the relevant Short ETFs are UltraShort Dow30 (to provide a hedge on global market) and UltraShort FTSE/Xinhua China25 Proshares (to provide a hedge against China stocks). Both of them are listed on the New York Stock Exchange.
Negative correlation — CTA
In the absence of a suitable short ETF, the next alternative protection is to have a perfect negatively correlated asset to go along with our core investment. There are not many asset classes which are negatively correlated with the equity market. When the economy falls, the values of many asset classes also fall in line. The only difference is the degree of price erosion.
One of the unique classes of investment which is negatively correlated with the equity market is trend following managed futures, or a Commodity Trading Advisor (CTA). These CTAs seek to profit from trends. They play long futures in a bullish market, and short futures in a bearish market.
In a clear up-trend market, they will generate profits like stocks and shares. They will perform particularly well during a bear market, when fear overcomes the emotion of investors, be it retailers or institutional investors. It is the ability of trend-following CTAs to profit from both bull and bear markets that makes CTAs an excellent asset class to act like portfolio insurance for traditional equity investment. The correlation between several asset classes is shown in Table 2.
Negative correlation — bond
Other than CTAs, long term bonds are also another asset class which normally behave differently from equity investments. The stock market normally performs well during periods of economic expansion, which coincide with rising interest rates. As a result, long term bonds may not perform during this period.
On the other hand, when the economy slows down and causes the stock market to fall, central banks normally reduce interest rates to revive the economy.
A cut in interest rates will lead to higher bond prices. As such, when the stock market is not performing during the period of a weak economy, a reduction in interest rate will boost the performance of bond investments.
As such, equities and bonds are an excellent combination in a long-term portfolio. This twin investment is commonly found in insurance companies and some bigger institutions.
Absolute return HFs
Another asset class that has a low correlation with the equity market is an alternative investment such as a hedge fund (HF). The main objective of most HFs is to provide absolute returns, regardless of market conditions. Examples of absolute return HF strategies are convertible arbitrage, long/short and relative value. In recent years, more and more HFs are targeting institutional funds. The appeal of HFs for institutions is their ability to generate consistent moderate returns, unlike the high volatility of stocks.
Unfortunately, the strategies adopted by most HFs hit a snag last year during the Lehman Brothers fiasco, and they too suffered huge losses. To be fair, most HFs only lost about 20%, half the losses of traditional long-only equity funds which tend to suffer 40% losses or more. Even though HFs may not function well during crisis period where poor liquidity truncated their performance, HFs are still relevant as their strategies will still work when market is back to normal.
Lowly correlated assets
Other than CTAs, bonds and alternative investments, there are not many asset classes which show a negative correlation with equity investment over a long period.
Having said that, there are many asset classes which have low correlations with share investments. Property investment is an excellent example in Malaysia. In the 1997/98 Asian financial crisis and the recent 2008 global financial crisis, Malaysian property prices stayed fairly firm even though stock prices collapsed sharply.
Having a diversified portfolio with different asset classes which are not correlated or lowly correlated is a useful way to reduce portfolio risk.
VIX & gold
BCA Research, in its October report, recommended the Chicago Board Options Exchange Volatility Index (VIX) and gold as suitable equity portfolio insurance. This is based on recent behaviour of these two instruments.
The VIX is the volatility index for investors to trade on equity risk. The inverse correlation of the VIX to the S&P 500 makes it excellent insurance to hedge against the fall in US market, and it is getting even more popular among institutional investors to protect their equity portfolio. The correlation of VIX with S&P 500 was -0.73 since Oct 2007 and -0.91 since March 2009, according to the report.
In the case of gold, its correlation with S&P 500 was -0.2 since Oct 2007, but increased to 0.71 since Mar 2009. Perhaps, gold is a better hedge against the fall of the US dollar than the fall of equity.
Have insurance in mind
Most investors invest to make money, but few think of insurance for their investment. For the long term strategy, diversifying into lowly correlated investment such as PROPERTIES [] and bonds is necessary. Buying into negatively correlated investments such as managed futures is an excellent choice to protect against another crisis which could be due to reversal of US dollar carry trade, collapse of yet another asset bubble created by low interest rates, etc.
For shorter-term protection, short selling an appropriate number of index futures contracts will reduce portfolio volatility over several weeks.
Investors should always have portfolio insurance in mind when investing as there is no insurance agent coming around to provide reminder on the importance of portfolio insurance.
Blue chips off early lows, Petra Energy hits limit down
KUALA LUMPUR: The 30-stock FBM KLCI fell as much as 22 points to a low of 1,248.58 in early trade on Monday, Nov 30 in a knee-jerk reaction to the fall on Wall Street and key regional markets on fears about a default by Dubai.
At 10am, the FBM KLCI was down 8.03 points to 1,262.58. There were 270.92 million shares valued at RM342.39 million. Losers hammered gainers 535 to 35 while 110 stocks were unchanged.
Petra Energy hit limit down in early trade, down 29.8% to RM1.27 with 5,000 shares done on concerns about the outlook for the company.
BLD PLANTATION []s lost 37 sen to RM3.63 but with 4,000 shares done while Far East shed 25 sen to RM6.25 and UMCCA 19 sen to RM7.80. However, KL Kepong rose 14 sen to RM15.74.
HL Bank lost 17 sen to RM8.01, F&N 16 sen to RM11.02 while WCT lost 15 sen to RM2.37 on concerns about a possible impact from Dubai's financial woes.
KNM was the most active with 22 million shares done, down two sen to 74 sen. Maxus shed two sen to RM5.35 and Gamuda six sen to RM2.69.
BAT rose the most, adding 68 sen to RM45.48 while Dutch Lady added 14 sen to RM12.20 and KFCH seven sen to RM7.45.
At 10am, the FBM KLCI was down 8.03 points to 1,262.58. There were 270.92 million shares valued at RM342.39 million. Losers hammered gainers 535 to 35 while 110 stocks were unchanged.
Petra Energy hit limit down in early trade, down 29.8% to RM1.27 with 5,000 shares done on concerns about the outlook for the company.
BLD PLANTATION []s lost 37 sen to RM3.63 but with 4,000 shares done while Far East shed 25 sen to RM6.25 and UMCCA 19 sen to RM7.80. However, KL Kepong rose 14 sen to RM15.74.
HL Bank lost 17 sen to RM8.01, F&N 16 sen to RM11.02 while WCT lost 15 sen to RM2.37 on concerns about a possible impact from Dubai's financial woes.
KNM was the most active with 22 million shares done, down two sen to 74 sen. Maxus shed two sen to RM5.35 and Gamuda six sen to RM2.69.
BAT rose the most, adding 68 sen to RM45.48 while Dutch Lady added 14 sen to RM12.20 and KFCH seven sen to RM7.45.
FBM KLCI skids 12 pts in early trade
KUALA LUMPUR: The FBM KLCI skidded to a low of 1,248 in early trade on Monday, Nov 30, tracking the losses on Wall Street as the local market extended its consolidation after the trade-shortened week.
At 9.12am, the FBM KLCI had fallen 12.23 points to 1,258.38. Turnover was 102.46 million shares valued at RM134.16 million.
Hwang DBS Vickers Research said in its market outlook that the bears - and not the bulls - would return first to the Malaysian stock exchange following the extended weekend break.
"If so, then its benchmark FBM KLCI is expected to gap down, possibly sliding towards its immediate support level of 1,255 ahead as the consolidation process on our local bourse carries on," it said.
Petra Energy fell 54 sen to RM1.27 while BLD PLANTATION []s lost 40 sen to RM3.60. Dutch Lady gave up 26 sen to RM11.80, Hartalega 21 sen to RM5.58, HL Bank 20 sen to RM7.98.
KNM was the most active with 11.4 million shares done, down 2.5 sen to 73.5 sen, after releasing its poor set of corporate results. Maxis fell three sen to RM5.34 and Gamuda nine sen to RM2.66.
At 9.12am, the FBM KLCI had fallen 12.23 points to 1,258.38. Turnover was 102.46 million shares valued at RM134.16 million.
Hwang DBS Vickers Research said in its market outlook that the bears - and not the bulls - would return first to the Malaysian stock exchange following the extended weekend break.
"If so, then its benchmark FBM KLCI is expected to gap down, possibly sliding towards its immediate support level of 1,255 ahead as the consolidation process on our local bourse carries on," it said.
Petra Energy fell 54 sen to RM1.27 while BLD PLANTATION []s lost 40 sen to RM3.60. Dutch Lady gave up 26 sen to RM11.80, Hartalega 21 sen to RM5.58, HL Bank 20 sen to RM7.98.
KNM was the most active with 11.4 million shares done, down 2.5 sen to 73.5 sen, after releasing its poor set of corporate results. Maxis fell three sen to RM5.34 and Gamuda nine sen to RM2.66.
Banks, world leaders play down Dubai debt threat
DUBAI/LONDON: Banks outside the Gulf played down their exposure to Dubai debt on Friday, Nov 27 after fears of default shook global markets, and European leaders said the world economy was now strong enough to cope with the setback, According to Reuters.
Stocks from Tokyo to London were haunted by concerns that banks were exposed to state companies in Dubai, whose rise from a desert backwater into the business hub of the world's top oil exporting area lured expatriate cash and executives.
The crisis began on Wednesday when Dubai, part of the United Arab Emirates federation, asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel, developer of three palm shaped islands that once attracted celebrities and the super-rich.
"While it is a setback, I think we will find it is not on the scale of previous problems we have dealt with," British Prime Minister Brown told reporters in Port of Spain, where he will attend a summit of leaders from Commonwealth countries.
"The world financial system is stronger now and able to deal with the problems that arise," he said.
French Prime Minister Francois Fillon said there were enough resources in the region to make sure there would not be a second round of the financial crisis although at a joint news conference, Russian premier Vladimir Putin said the saga showed it would be tough for the world to shake off the financial crisis which has gripped it for two years.
Dubai World had $59 billion of liabilities as of August, most of Dubai's total debt of $80 billion. International banks exposure related to Dubai World reach $12 billion in syndicated and bilateral loans, banking sources told Thomson Reuters LPC.
But the numbers pale in comparison to the $2.8 trillion in writedowns the International Monetary Fund estimates U.S. and European lenders will have made between 2007 and 2010 as a result of the global credit crisis.
"The events in Dubai in recent days are one of the hiccups if you like, one of the difficulties, which affirms that we were right to highlight the uncertainty ahead of us and that the road ahead could be a bumpy one," European Central Bank Governing Council member Athanasios Orphanides said.
French banks said their exposure to the Dubai crisis was limited and Italy's central bank said Italian banks should face no problems linked to the Gulf trade and tourism hub. The sentiments were echoed by Chinese banks.
Those statements helped push European stocks into the black although U.S. stock futures pointed lower after markets were shut for the U.S. Thanksgiving holiday.
"We have seen a classic risk aversion reaction in the markets over the past 24 hours. The dollar has slumped, the yen is stronger," a Societe Generale note said. "At this stage, this setback looks to be one that is very much country specific."
ABU DHABI EXPOSURE
While European and Asian banks scrambled to distance themselves, lenders in Abu Dhabi, a fellow member of the UAE federation and home to most of the country's oil, appeared to have major positions.
Abu Dhabi Commercial Bank has at least 8-9 billion dirhams ($2.18-$2.45 billion) exposure to Dubai World and related entities, forcing the bank to book more provisions, a senior executive of the bank said. First Gulf Bank has at least 5 billion dirhams ($1.36 billion).
JP Morgan said it was less concerned about global banks' direct exposure to Dubai World and was not worried about Abu Dhabi, which is sitting on hundreds of billions of dollars.
"We are more concerned about the spillover effect within the UAE with CDS spreads in Abu Dhabi increasing," it said in a note. "It remains unclear if the Dubai government will support the liabilities of government related entities and how ... neighbors will weather the storm."
The price of insuring Gulf debt surged again on Friday.
Credit default swaps (CDS) for Dubai rose more than 100 basis points but were well below previous peaks in the global crisis late last year and earlier this.
Nakheel's Islamic bond prices extended losses, falling 30 points to a record low of 40, according to Reuters data.
The US$3.52 billion bond at the center of the crisis, which was originally due to mature on Dec 14, 2009, had traded as high as 110 on Wednesday before the Dubai government said it would ask creditors to agree on a standstill of debt held by Nakheel and Dubai World until May 2010.
The debt crisis in Dubai also pushed up debt insurance costs for other sovereigns in the Gulf, a wealthy region Western firms had turned to for help at the height of the credit crunch.
TRANSPARENCY, CREDIBILITY
Analysts expect Dubai to receive financial support from Abu Dhabi, though it may have to abandon an economic model focused on developing swathes of desert with foreign money and labor.
But the prospect of a bailout did little to allay concerns among investors, already worried the global economy may not be recovering quickly enough to justify a near doubling of prices for emerging market stocks and many commodities since March.
International fund managers said they were considering rotating dedicated money out of Dubai and into Abu Dhabi, Qatar and Egypt after local markets begin to open on Monday after the Muslim Eid al-Adha holiday.
Analysts also said the timing of the announcement on the eve of the holiday, the lack of prior communication with bondholders, and the scant details given on how a debt rescheduling would work had dented Dubai's credibility.
"The way the announcement was made, including its timing has caused damage to Dubai's credibility," Ghanem Nuseibah, senior analyst at Political Capital Policy Research & Consulting Institute. "This will take a very long time to repair."
UAE media either ignored the crisis or put a positive spin on the news on Friday. Abu Dhabi-based financial daily Alrroya Aleqtissadiya carried the headline "European markets overreact to Dubai's bond news."
Stocks from Tokyo to London were haunted by concerns that banks were exposed to state companies in Dubai, whose rise from a desert backwater into the business hub of the world's top oil exporting area lured expatriate cash and executives.
The crisis began on Wednesday when Dubai, part of the United Arab Emirates federation, asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel, developer of three palm shaped islands that once attracted celebrities and the super-rich.
"While it is a setback, I think we will find it is not on the scale of previous problems we have dealt with," British Prime Minister Brown told reporters in Port of Spain, where he will attend a summit of leaders from Commonwealth countries.
"The world financial system is stronger now and able to deal with the problems that arise," he said.
French Prime Minister Francois Fillon said there were enough resources in the region to make sure there would not be a second round of the financial crisis although at a joint news conference, Russian premier Vladimir Putin said the saga showed it would be tough for the world to shake off the financial crisis which has gripped it for two years.
Dubai World had $59 billion of liabilities as of August, most of Dubai's total debt of $80 billion. International banks exposure related to Dubai World reach $12 billion in syndicated and bilateral loans, banking sources told Thomson Reuters LPC.
But the numbers pale in comparison to the $2.8 trillion in writedowns the International Monetary Fund estimates U.S. and European lenders will have made between 2007 and 2010 as a result of the global credit crisis.
"The events in Dubai in recent days are one of the hiccups if you like, one of the difficulties, which affirms that we were right to highlight the uncertainty ahead of us and that the road ahead could be a bumpy one," European Central Bank Governing Council member Athanasios Orphanides said.
French banks said their exposure to the Dubai crisis was limited and Italy's central bank said Italian banks should face no problems linked to the Gulf trade and tourism hub. The sentiments were echoed by Chinese banks.
Those statements helped push European stocks into the black although U.S. stock futures pointed lower after markets were shut for the U.S. Thanksgiving holiday.
"We have seen a classic risk aversion reaction in the markets over the past 24 hours. The dollar has slumped, the yen is stronger," a Societe Generale note said. "At this stage, this setback looks to be one that is very much country specific."
ABU DHABI EXPOSURE
While European and Asian banks scrambled to distance themselves, lenders in Abu Dhabi, a fellow member of the UAE federation and home to most of the country's oil, appeared to have major positions.
Abu Dhabi Commercial Bank has at least 8-9 billion dirhams ($2.18-$2.45 billion) exposure to Dubai World and related entities, forcing the bank to book more provisions, a senior executive of the bank said. First Gulf Bank has at least 5 billion dirhams ($1.36 billion).
JP Morgan said it was less concerned about global banks' direct exposure to Dubai World and was not worried about Abu Dhabi, which is sitting on hundreds of billions of dollars.
"We are more concerned about the spillover effect within the UAE with CDS spreads in Abu Dhabi increasing," it said in a note. "It remains unclear if the Dubai government will support the liabilities of government related entities and how ... neighbors will weather the storm."
The price of insuring Gulf debt surged again on Friday.
Credit default swaps (CDS) for Dubai rose more than 100 basis points but were well below previous peaks in the global crisis late last year and earlier this.
Nakheel's Islamic bond prices extended losses, falling 30 points to a record low of 40, according to Reuters data.
The US$3.52 billion bond at the center of the crisis, which was originally due to mature on Dec 14, 2009, had traded as high as 110 on Wednesday before the Dubai government said it would ask creditors to agree on a standstill of debt held by Nakheel and Dubai World until May 2010.
The debt crisis in Dubai also pushed up debt insurance costs for other sovereigns in the Gulf, a wealthy region Western firms had turned to for help at the height of the credit crunch.
TRANSPARENCY, CREDIBILITY
Analysts expect Dubai to receive financial support from Abu Dhabi, though it may have to abandon an economic model focused on developing swathes of desert with foreign money and labor.
But the prospect of a bailout did little to allay concerns among investors, already worried the global economy may not be recovering quickly enough to justify a near doubling of prices for emerging market stocks and many commodities since March.
International fund managers said they were considering rotating dedicated money out of Dubai and into Abu Dhabi, Qatar and Egypt after local markets begin to open on Monday after the Muslim Eid al-Adha holiday.
Analysts also said the timing of the announcement on the eve of the holiday, the lack of prior communication with bondholders, and the scant details given on how a debt rescheduling would work had dented Dubai's credibility.
"The way the announcement was made, including its timing has caused damage to Dubai's credibility," Ghanem Nuseibah, senior analyst at Political Capital Policy Research & Consulting Institute. "This will take a very long time to repair."
UAE media either ignored the crisis or put a positive spin on the news on Friday. Abu Dhabi-based financial daily Alrroya Aleqtissadiya carried the headline "European markets overreact to Dubai's bond news."
DRB-Hicom’s 2Q net profit dips marginally
KUALA LUMPUR: DRB-HICOM BHD []’s net profit for the second quarter ended Sept 30 (2QFY10), dipped marginally to RM61.73 million from RM62.01 million a year ago.
According to a Bursa Malaysia filing on Nov 26, revenue for the group declined 4.5% to RM1.53 billion from RM1.60 billion while basic earnings per share stood at 3.19 sen versus 6.16 sen previously.
DRB-Hicom said it had a lower pre-tax profit of RM76.66 million in 2QFY10 compared with RM86.99 million in 1QFY10 mainly due to higher claims provisions made by an insurance company of the group.
For the six months ended Sept 30, the group said pre-tax profit fell to RM163.65 million from RM745.60 million as it had included recognition of a one-off gain on the disposal of EON CAPITAL BHD [] of about RM567.57 million and negative goodwill of RM24.28 million from the acquisition of additional equity in certain subsidiary companies in the same half last year.
DRB said it expects the financial performance for the year ending Mar 31, 2010 to be satisfactory with the continuing recovery of the economy and improving market conditions.
DRB-Hicom’s share price closed unchanged at RM1.04 today with 187,600 shares traded
According to a Bursa Malaysia filing on Nov 26, revenue for the group declined 4.5% to RM1.53 billion from RM1.60 billion while basic earnings per share stood at 3.19 sen versus 6.16 sen previously.
DRB-Hicom said it had a lower pre-tax profit of RM76.66 million in 2QFY10 compared with RM86.99 million in 1QFY10 mainly due to higher claims provisions made by an insurance company of the group.
For the six months ended Sept 30, the group said pre-tax profit fell to RM163.65 million from RM745.60 million as it had included recognition of a one-off gain on the disposal of EON CAPITAL BHD [] of about RM567.57 million and negative goodwill of RM24.28 million from the acquisition of additional equity in certain subsidiary companies in the same half last year.
DRB said it expects the financial performance for the year ending Mar 31, 2010 to be satisfactory with the continuing recovery of the economy and improving market conditions.
DRB-Hicom’s share price closed unchanged at RM1.04 today with 187,600 shares traded
Plantation stocks spur FBM KLCI
KUALA LUMPUR: The Malaysian equity benchmark leaped into positive territory at midday following losses in early trade Thursday, helped by gains in shares of PLANTATION [] firms as palm oil prices soared.
At 12.30pm, FBM KLCI added 1.81 points to 1,272.81. Prime movers of the index include shares of IOI Corp Bhd, which gained eight sen to RM5.49 and KUALA LUMPUR KEPONG BHD [], which advanced four sen to RM15.54. SIME DARBY BHD [] was up two sen to RM9.
Across the exchange, a total of 220 stocks advanced while 283 declined as investors traded some 392 million shares worth around RM427 million.
"The economic news (in the US), as well as a drop in the dollar, stoked investors' appetite for higher-returning but riskier investments like stocks.
"For months, investors have been weighing their desire for bigger returns with fears that the stock market will falter if the economy looks like it won't maintain a recovery," SJ Securities Sdn Bhd wrote in a note to clients today.
US stocks gained in overnight trading as investors responded well to news that jobless claims in the world's largest economy registered a larger than expected decline. The Dow Jones Industrial Average climbed 0.29% to 10,464.40, Nasdaq rose 0.32% to 2,176.05, while S&P 500 was up 0.45% to 1,110.63. US markets will be closed on Thursday for Thanksgiving holiday.
Major Asian indices fell today. Japan's Nikkei 225 dipped 0.43% to 9400.97, Hong Kong's Hang Seng fell 0.98% to 22,389.50, while Australia's S&P/ASX 200 lost 0.40% to 4703.30.
US crude oil for January 2010 fell 41 cents to US$77.55 a barrel while spot prices for gold rose US$1.30 to US$1,193.10 an ounce. Malaysian palm oil for January 2010 delivery rose as much as RM39 to RM2,058 a tonne in morning trade before sitting at RM2,481 at press time.
The ringgit weakened against major currencies, and was traded at 3.3770 versus the US dollar, 5.1042 against the euro, 5.6424 against the pound sterling, 3.8890 versus the yen, and 2.4481 compared to the Singapore dollar.
At 12.30pm, FBM KLCI added 1.81 points to 1,272.81. Prime movers of the index include shares of IOI Corp Bhd, which gained eight sen to RM5.49 and KUALA LUMPUR KEPONG BHD [], which advanced four sen to RM15.54. SIME DARBY BHD [] was up two sen to RM9.
Across the exchange, a total of 220 stocks advanced while 283 declined as investors traded some 392 million shares worth around RM427 million.
"The economic news (in the US), as well as a drop in the dollar, stoked investors' appetite for higher-returning but riskier investments like stocks.
"For months, investors have been weighing their desire for bigger returns with fears that the stock market will falter if the economy looks like it won't maintain a recovery," SJ Securities Sdn Bhd wrote in a note to clients today.
US stocks gained in overnight trading as investors responded well to news that jobless claims in the world's largest economy registered a larger than expected decline. The Dow Jones Industrial Average climbed 0.29% to 10,464.40, Nasdaq rose 0.32% to 2,176.05, while S&P 500 was up 0.45% to 1,110.63. US markets will be closed on Thursday for Thanksgiving holiday.
Major Asian indices fell today. Japan's Nikkei 225 dipped 0.43% to 9400.97, Hong Kong's Hang Seng fell 0.98% to 22,389.50, while Australia's S&P/ASX 200 lost 0.40% to 4703.30.
US crude oil for January 2010 fell 41 cents to US$77.55 a barrel while spot prices for gold rose US$1.30 to US$1,193.10 an ounce. Malaysian palm oil for January 2010 delivery rose as much as RM39 to RM2,058 a tonne in morning trade before sitting at RM2,481 at press time.
The ringgit weakened against major currencies, and was traded at 3.3770 versus the US dollar, 5.1042 against the euro, 5.6424 against the pound sterling, 3.8890 versus the yen, and 2.4481 compared to the Singapore dollar.
MPHB’s earnings up on financial services, stockbroking performances
KUALA LUMPUR: MULTI-PURPOSE HOLDINGS BHD []’s (MPHB) net profit for the third quarter ended Sept 30, 2009 rose 27% to RM50.73 million on the back of a 7.1% increase in revenue to RM813.24 million, due mainly to improved performances in its financial services and stockbroking divisions.
It said substantial brokerage income and the writeback of provision for diminution in value of investments in the stockbroking division resulted in profit before tax (PBT) of RM4.6 million compared with a loss of RM2.23 million previously.
Its financial services division reported PBT of RM18.05 million from a loss of RM3.78 million previously due to higher premium earned and lower claim incurred.
Meanwhile, its gaming division had higher payout ratio subsequently reducing its PBT to RM12.77 million from RM34.37 million. It added that the launch of the 4D Jackpot game in September had not been felt yet.
MPHB’s earnings per share rose to 4.9 sen from 4.2 sen.
For the cumulative nine months, it posted a net profit of RM223.16 million on the back of RM2.45 billion revenue, an increase of 60.7% and 6% respectively.
It said substantial brokerage income and the writeback of provision for diminution in value of investments in the stockbroking division resulted in profit before tax (PBT) of RM4.6 million compared with a loss of RM2.23 million previously.
Its financial services division reported PBT of RM18.05 million from a loss of RM3.78 million previously due to higher premium earned and lower claim incurred.
Meanwhile, its gaming division had higher payout ratio subsequently reducing its PBT to RM12.77 million from RM34.37 million. It added that the launch of the 4D Jackpot game in September had not been felt yet.
MPHB’s earnings per share rose to 4.9 sen from 4.2 sen.
For the cumulative nine months, it posted a net profit of RM223.16 million on the back of RM2.45 billion revenue, an increase of 60.7% and 6% respectively.
CIMB Bank to sell RM8.4b of bad loans to‘bad bank’
KUALA LUMPUR: CIMB Group Holdings Bhd has received the Minister of Finance’s approval for CIMB Bank Bhd to dispose of RM8.4 billion bad loans to Southeast Asia Special Asset Management Bhd (SEASAM), a special-purpose company that can be deemed its “bad bank”.
The bad loans that will be sold to the “bad bank” has a net book value of RM928 million.
In a statement to Bursa Malaysia yesterday, it said CIMB Bank would dispose of a portfolio of mostly legacy non-performing loans (NPLs) comprising about 45,000 accounts with a gross loan amount of RM8.4 billion to SEASAM, a wholly owned unit of CIMB Group.
Following the exercise, CIMB Bank’s gross NPL ratio would drop to 2.8% and its net NPL to 1.3%. Loan loss coverage would improve to 116.1% from 91.8% as at Sept 30, 2009. However, there would be no change to CIMB Group’s consolidated ratios.
CIMB Group chief executive Datuk Seri Nazir Razak said SEASAM would lay the foundation for the creation of a regional entity within CIMB Group that would operate, manage and extract value from CIMB Group’s NPLs in Malaysia and across the region.
“The creation of a separate identifiable entity for NPLs would further reflect a clean break from the past and allow stakeholders to easily differentiate between the results of CIMB Group’s business transformation and its legacy NPL recovery efforts,” he said.
CIMB Bank is expected to deconsolidate those bad assets in its financial year ending Dec 31, 2009.
Earlier this year, the banking group had said the group was planning to set up a regional “bad bank” to manage some RM10 billion and RM11 billion in NPLs that had been written down to about RM1 billion.
The bad loans would be mainly from its Malaysian operations, but the “bad bank” would also manage NPLs from its Thai unit, it had said.
Meanwhile, CIMB Group said Datuk Zainal Abidin Putih had been appointed as chairman of SEASAM’s board, while Ahmad Shazli Kamarulzaman had been identified as a candidate for the CEO position.
CIMB Group said the duo would bring in their vast experience in management of NPLs and distressed assets gained from Pengurusan Danaharta Nasional Bhd, the national asset management company set up by the Ministry of Finance in the wake of the 1997 Asian financial crisis.
The bad loans that will be sold to the “bad bank” has a net book value of RM928 million.
In a statement to Bursa Malaysia yesterday, it said CIMB Bank would dispose of a portfolio of mostly legacy non-performing loans (NPLs) comprising about 45,000 accounts with a gross loan amount of RM8.4 billion to SEASAM, a wholly owned unit of CIMB Group.
Following the exercise, CIMB Bank’s gross NPL ratio would drop to 2.8% and its net NPL to 1.3%. Loan loss coverage would improve to 116.1% from 91.8% as at Sept 30, 2009. However, there would be no change to CIMB Group’s consolidated ratios.
CIMB Group chief executive Datuk Seri Nazir Razak said SEASAM would lay the foundation for the creation of a regional entity within CIMB Group that would operate, manage and extract value from CIMB Group’s NPLs in Malaysia and across the region.
“The creation of a separate identifiable entity for NPLs would further reflect a clean break from the past and allow stakeholders to easily differentiate between the results of CIMB Group’s business transformation and its legacy NPL recovery efforts,” he said.
CIMB Bank is expected to deconsolidate those bad assets in its financial year ending Dec 31, 2009.
Earlier this year, the banking group had said the group was planning to set up a regional “bad bank” to manage some RM10 billion and RM11 billion in NPLs that had been written down to about RM1 billion.
The bad loans would be mainly from its Malaysian operations, but the “bad bank” would also manage NPLs from its Thai unit, it had said.
Meanwhile, CIMB Group said Datuk Zainal Abidin Putih had been appointed as chairman of SEASAM’s board, while Ahmad Shazli Kamarulzaman had been identified as a candidate for the CEO position.
CIMB Group said the duo would bring in their vast experience in management of NPLs and distressed assets gained from Pengurusan Danaharta Nasional Bhd, the national asset management company set up by the Ministry of Finance in the wake of the 1997 Asian financial crisis.
Stocks to watch Sime Darby, MAS, MMC, Puncak Niaga, Genting
Bellwether indices in the region closed mostly higher yesterday. The Shanghai Composite Index rebounded by 2% after slumping the day before on fears of a government clampdown on bank lending.
However, at home, the FBM KLCI was trading mostly sideways. The index was in the red for the better part of the day but losses were limited. The benchmark index ended the day just one point lower at 1,271.
The stocks to watch today are SIME DARBY BHD [], MALAYSIAN AIRLINE SYSTEM BHD [] (MAS), MMC CORPORATION BHD [], PUNCAK NIAGA HOLDINGS BHD [] and GENTING BHD [].
Sime Darby’s net profit for the first quarter ended Sept 30, 2009 (1QFY10) fell 21% to RM684.64 million from RM866.98 million, underpinned by lower average crude palm oil (CPO) price.
Revenue was 11.13% lower at RM7.74 billion compared with RM8.705 billion a year earlier.
However, moving forward Sime Darby’s earnings is expected to improve as CPO prices are already on the uptrend. Yesterday, CPO closed RM4 higher at RM2,482 per tonne from RM2,478 on Tuesday. Sime Darby closed three sen higher at RM8.98 yesterday.
MAS shares might extend its losses today after announcing a net loss of RM299.6 million for its third quarter ended Sept 30, 2009 versus RM38.1 million profit in the same period last year. The counter closed six sen lower at RM3.10 yesterday.
Despite early signs of improvement in passenger and cargo traffic, the national carrier said the outlook for the fourth quarter continues to be challenging as yields remained under pressure.
MMC Corporation Bhd’s shares are also expected to see some movement today after the company terminated the memorandum of understanding with Dubai World to jointly develop areas in south Johor.
The plan was for MMC and Dubai World to develop a maritime centre masterplan that would comprise oil terminal activities, drydocks, a shipyard, including conventional cargo handling facilities. MMC closed at RM2.50 yesterday.
Water concessionaire Puncak Niaga Holdings Bhd might come under close watch today after the Selangor state government said it would not pay compensation to Puncak's subsidiary Syarikat Bekalan Air Selangor Sdn Bhd (Syabas).
The state government said Puncak should not have included the compensation into its recently-announced quarterly and nine-month results and called for the concessionaire to rectify the matter and be "responsible" towards its shareholders.
Investors should also monitor other Selangor water-players, namely KUMPULAN PERANGSANG SELANGOR [] Bhd (KPS) as the Pengurusan Aset Air Bhd’s (PAAB) due diligence on all four state water companies nears completion. The due diligence is expected to conclude by next week.
Puncak closed three sen higher at RM3.24 while KPS gained five sen to end at RM1.48 yesterday.
Genting Bhd may draw investors’ interest today after reporting a sterling third quarter ended Sept 30, 2009 net profit of RM371 million against a loss of RM40 million a year ago.
The gaming giant said in a statement that while the global economy continues to show signs of recovery, it remains cautiously optimistic of its prospects. Genting closed three sen lower at RM7.08 yesterday.
However, at home, the FBM KLCI was trading mostly sideways. The index was in the red for the better part of the day but losses were limited. The benchmark index ended the day just one point lower at 1,271.
The stocks to watch today are SIME DARBY BHD [], MALAYSIAN AIRLINE SYSTEM BHD [] (MAS), MMC CORPORATION BHD [], PUNCAK NIAGA HOLDINGS BHD [] and GENTING BHD [].
Sime Darby’s net profit for the first quarter ended Sept 30, 2009 (1QFY10) fell 21% to RM684.64 million from RM866.98 million, underpinned by lower average crude palm oil (CPO) price.
Revenue was 11.13% lower at RM7.74 billion compared with RM8.705 billion a year earlier.
However, moving forward Sime Darby’s earnings is expected to improve as CPO prices are already on the uptrend. Yesterday, CPO closed RM4 higher at RM2,482 per tonne from RM2,478 on Tuesday. Sime Darby closed three sen higher at RM8.98 yesterday.
MAS shares might extend its losses today after announcing a net loss of RM299.6 million for its third quarter ended Sept 30, 2009 versus RM38.1 million profit in the same period last year. The counter closed six sen lower at RM3.10 yesterday.
Despite early signs of improvement in passenger and cargo traffic, the national carrier said the outlook for the fourth quarter continues to be challenging as yields remained under pressure.
MMC Corporation Bhd’s shares are also expected to see some movement today after the company terminated the memorandum of understanding with Dubai World to jointly develop areas in south Johor.
The plan was for MMC and Dubai World to develop a maritime centre masterplan that would comprise oil terminal activities, drydocks, a shipyard, including conventional cargo handling facilities. MMC closed at RM2.50 yesterday.
Water concessionaire Puncak Niaga Holdings Bhd might come under close watch today after the Selangor state government said it would not pay compensation to Puncak's subsidiary Syarikat Bekalan Air Selangor Sdn Bhd (Syabas).
The state government said Puncak should not have included the compensation into its recently-announced quarterly and nine-month results and called for the concessionaire to rectify the matter and be "responsible" towards its shareholders.
Investors should also monitor other Selangor water-players, namely KUMPULAN PERANGSANG SELANGOR [] Bhd (KPS) as the Pengurusan Aset Air Bhd’s (PAAB) due diligence on all four state water companies nears completion. The due diligence is expected to conclude by next week.
Puncak closed three sen higher at RM3.24 while KPS gained five sen to end at RM1.48 yesterday.
Genting Bhd may draw investors’ interest today after reporting a sterling third quarter ended Sept 30, 2009 net profit of RM371 million against a loss of RM40 million a year ago.
The gaming giant said in a statement that while the global economy continues to show signs of recovery, it remains cautiously optimistic of its prospects. Genting closed three sen lower at RM7.08 yesterday.
EPF retirement withdrawals total RM1.97b in 3Q
KUALA LUMPUR: Retirees withdrew a total of RM1.97 billion from the Employees Provident Fund (EPF) in the third quarter of 2009 (3Q09), a 20% rise from RM1.64 billion in the previous corresponding quarter.
In a statement yesterday, EPF said a total of RM1.41 billion (2Q09: RM1.81 billion) was withdrawn as lump sum age 55 withdrawal, representing an increase of 14.22% from a year earlier. Total applications approved under this category rose to 32,446 (2Q09: 39,901) from 29,054 previously.
The remaining RM557.05 million (2Q09: RM705.89 million) was withdrawn under flexible age 55 withdrawal which rose by 38% from RM403.51 million in 3Q08.
"Increasing member interest in flexible age 55 withdrawals underscores members' confidence in the EPF in earning dividends for their savings," said EPF chief executive officer Tan Sri Azlan Zainol.
"Nonetheless, 72% of retirement withdrawals still consist of lump sum withdrawals. We hope to see this amount decrease over time as more members become increasingly aware that lump sum withdrawal will likely lead to income inadequacy during retirement."
Azlan said the trend of stretching the retirement ringgit was also reflected in the applications for members' investment withdrawal that continued upwards, albeit marginally, by 3.58% compared with 3Q08.
In 3Q09, a total of 111,418 applications (2Q09: 114,268) were approved with withdrawals amounting to RM872.89 million (2Q09: RM906.8 million) compared with 107,564 approved applications and RM808.53 million withdrawn a year earlier.
EPF said members, however, exercised greater prudence and care in making withdrawals for housing as shown in a significant annual decrease in 3Q09, due to the adverse economic conditions.
It said with many purchasers adopting a "wait and see" attitude, approved applications for housing withdrawals in 3Q09 fell 20.18% to 86,664 from 108,573 in 3Q08 (2Q09: 104,951 applications). The amount withdrawn fell 30.75% to RM1.1 billion from RM1.58 billion a year earlier (2Q09: RM1.32 billion).
As at end-September 2009, EPF membership grew 2.4% to 12.28 million compared with 12.211 million in 2Q09 and 11.99 million in 3Q08. The total number of active members rose to 5.73 million from 5.6 million in 3Q08 (2Q09: 5.72 million). The number of registered employers rose 2.44% from 440,603 in 3Q08 to 451,399 in 3Q09 (2Q09: 447,119).
In a statement yesterday, EPF said a total of RM1.41 billion (2Q09: RM1.81 billion) was withdrawn as lump sum age 55 withdrawal, representing an increase of 14.22% from a year earlier. Total applications approved under this category rose to 32,446 (2Q09: 39,901) from 29,054 previously.
The remaining RM557.05 million (2Q09: RM705.89 million) was withdrawn under flexible age 55 withdrawal which rose by 38% from RM403.51 million in 3Q08.
"Increasing member interest in flexible age 55 withdrawals underscores members' confidence in the EPF in earning dividends for their savings," said EPF chief executive officer Tan Sri Azlan Zainol.
"Nonetheless, 72% of retirement withdrawals still consist of lump sum withdrawals. We hope to see this amount decrease over time as more members become increasingly aware that lump sum withdrawal will likely lead to income inadequacy during retirement."
Azlan said the trend of stretching the retirement ringgit was also reflected in the applications for members' investment withdrawal that continued upwards, albeit marginally, by 3.58% compared with 3Q08.
In 3Q09, a total of 111,418 applications (2Q09: 114,268) were approved with withdrawals amounting to RM872.89 million (2Q09: RM906.8 million) compared with 107,564 approved applications and RM808.53 million withdrawn a year earlier.
EPF said members, however, exercised greater prudence and care in making withdrawals for housing as shown in a significant annual decrease in 3Q09, due to the adverse economic conditions.
It said with many purchasers adopting a "wait and see" attitude, approved applications for housing withdrawals in 3Q09 fell 20.18% to 86,664 from 108,573 in 3Q08 (2Q09: 104,951 applications). The amount withdrawn fell 30.75% to RM1.1 billion from RM1.58 billion a year earlier (2Q09: RM1.32 billion).
As at end-September 2009, EPF membership grew 2.4% to 12.28 million compared with 12.211 million in 2Q09 and 11.99 million in 3Q08. The total number of active members rose to 5.73 million from 5.6 million in 3Q08 (2Q09: 5.72 million). The number of registered employers rose 2.44% from 440,603 in 3Q08 to 451,399 in 3Q09 (2Q09: 447,119).
November 25, 2009
KL blue chips help prop up mart
Published: 2009/11/25
Shares on Bursa Malaysia ended mixed yesterday, with buying in bluechips and second liners sustaining the market, said dealers.
The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rose 1.21 points to 1,272.09 after opening 0.23 point higher at 1,271.11.
The market is expected to see rangebound trading the rest of the week as it consolidates ahead of the year-end, said TA Securities analyst, Stephen Soo.
"It is pretty quiet with players on leave for the school holidays. There's no action here despite the overnight gain on Dow Jones. The sentiment is soft for now," he said.
The FBM Emas Index gained 2.8 points to 8,488.67, the FBM Top 100 increased 5.7 points to 8,297.82 but the FBM 70 fell 3.07 points to 8,232.22. The FBM ACE decreased 36.99 points to 4,331.56 and the Industrial Index rose 4.66 points to 2,692.02.
The Plantation Index jumped 47.08 points to 6,205.92 and the Finance Index advanced 16.46 points to 11,010.5.
"It's been a traders' market with little participation from funds," another dealer at a bank-backed brokerage told Dow Jones Newswires.
"Local government-led funds helped to absorb some selling pressure and this kept the benchmark in positive territory," he added.
Decliners outnumbered advancers by 367 to 292 while 261 counters were unchanged and 355 others untraded.
Overall volume was lower at 759.806 million shares worth RM1.179 billion from Monday''s 808.167 million shares worth RM880.017 million.
Among the actives, Malayan United was flat at 23 sen while Watta gained 1/2 sen to 37.5 sen and Privasia Tech rose 1 sen to 10.5 sen.
Formosa Prosonic fell 1/2 sen to 68.5 sen and MMM-WB went up 1 sen to 2 sen.
As for the heavyweights, Sime Darby, CIMB and Tenaga remained untraded at RM8.95, RM13.00 and RM8.44 respectively. Maybank fell 2 sen to RM6.94, Maxis dropped 12 sen to RM5.20 and Public Bank declined 2 sen to RM10.94.
IOI Corp rose 6 sen to RM5.39, PPB gained 12 sen to RM15.86 and KLK increased 18 sen to RM15.30. Genting Malaysia declined 2 sen to RM2.89 and Tanjong dropped 28 sen to RM16.42.
Meanwhile, FBM KLCI futures ended lower amid a mixed cash market, dealers said.
November 2009 fell 5.5 points to 1,267.5 while December 2009 and June 2010 dropped 6.5 points each to 1,267.0 and 1,270.0 respectively and March 2010 lost 7.0 points to 1,273.0.
Volume rose to 8,450 lots from 3,168 lots on Monday. - Bernama, AFP
Shares on Bursa Malaysia ended mixed yesterday, with buying in bluechips and second liners sustaining the market, said dealers.
The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rose 1.21 points to 1,272.09 after opening 0.23 point higher at 1,271.11.
The market is expected to see rangebound trading the rest of the week as it consolidates ahead of the year-end, said TA Securities analyst, Stephen Soo.
"It is pretty quiet with players on leave for the school holidays. There's no action here despite the overnight gain on Dow Jones. The sentiment is soft for now," he said.
The FBM Emas Index gained 2.8 points to 8,488.67, the FBM Top 100 increased 5.7 points to 8,297.82 but the FBM 70 fell 3.07 points to 8,232.22. The FBM ACE decreased 36.99 points to 4,331.56 and the Industrial Index rose 4.66 points to 2,692.02.
The Plantation Index jumped 47.08 points to 6,205.92 and the Finance Index advanced 16.46 points to 11,010.5.
"It's been a traders' market with little participation from funds," another dealer at a bank-backed brokerage told Dow Jones Newswires.
"Local government-led funds helped to absorb some selling pressure and this kept the benchmark in positive territory," he added.
Decliners outnumbered advancers by 367 to 292 while 261 counters were unchanged and 355 others untraded.
Overall volume was lower at 759.806 million shares worth RM1.179 billion from Monday''s 808.167 million shares worth RM880.017 million.
Among the actives, Malayan United was flat at 23 sen while Watta gained 1/2 sen to 37.5 sen and Privasia Tech rose 1 sen to 10.5 sen.
Formosa Prosonic fell 1/2 sen to 68.5 sen and MMM-WB went up 1 sen to 2 sen.
As for the heavyweights, Sime Darby, CIMB and Tenaga remained untraded at RM8.95, RM13.00 and RM8.44 respectively. Maybank fell 2 sen to RM6.94, Maxis dropped 12 sen to RM5.20 and Public Bank declined 2 sen to RM10.94.
IOI Corp rose 6 sen to RM5.39, PPB gained 12 sen to RM15.86 and KLK increased 18 sen to RM15.30. Genting Malaysia declined 2 sen to RM2.89 and Tanjong dropped 28 sen to RM16.42.
Meanwhile, FBM KLCI futures ended lower amid a mixed cash market, dealers said.
November 2009 fell 5.5 points to 1,267.5 while December 2009 and June 2010 dropped 6.5 points each to 1,267.0 and 1,270.0 respectively and March 2010 lost 7.0 points to 1,273.0.
Volume rose to 8,450 lots from 3,168 lots on Monday. - Bernama, AFP
Analysts welcome Najib's call
By Jeeva ArulampalamPublished: 2009/11/25
Malaysia's Prime Minister has called for the creation of bigger companies on Bursa Malaysia possibly through mergers
Analysts yesterday welcomed Prime Minister Datuk Seri Najib Razak's call for the creation of bigger companies on Bursa Malaysia possibly through mergers, to create sizeable entities that can draw foreign investment funds.
"Once you are big enough, you will naturally draw more attention. A company's market capitalisation has to be at least over US$1 billion (RM3.39 billion) before foreign investors consider investing," OSK Research head of research Chris Eng told Business Times yesterday.
Jupiter Securities research head Pong Teng Siew added that fund managers are looking for companies that can contribute returns to their large portfolios.
Analysts were commenting on Najib's statement in New York on Monday that the government may look at encouraging mergers of companies listed on Bursa Malaysia to attract foreign investors.
Najib said this after meeting US fund managers who told the prime minister that they were keen to see more Malaysian companies with big market capitalisation such as Maxis Bhd.
They also expressed their preference for government-linked investment companies (GLIC) such as the Employees Provident Fund (EPF), Khazanah Nasional Bhd and Permodalan Nasional Bhd (PNB) to reduce their stakes slightly in government-linked companies (GLCs) to allow for more liquidity in the market.
Najib said he will bring up the matter with the executive committee of National Economic Action Council (NEAC) when he gets back to study the possible implications of these suggestions.
Sectors that could see potential mergers include property, oil and gas and plantation stocks, said analysts. It would also help some become either regional or global players.
However, Aberdeen Asset Management managing director Gerald Ambrose stressed that there are more factors to consider than just size.
"Size is not everything and there needs to be a good business rationale behind a merger. We consider the quality, corporate governance and valuation of the company when we invest," said the fund manager.
Meanwhile, industry experts said that the paring down of the GLIC's stake in GLCs has been a long time coming.
In September, Khazanah reduced its stake in airport operator Malaysia Airports Holdings Bhd by 5 per cent, from 72.7 per cent to 67.7 per cent.
This sparked market talk that the government was starting to reduce its stake in GLCs to attract foreign investors to the local market.
"What the government needs to do is find a middle ground on how much they can sell down and still maintain control over these companies," said Pong.
The question, however, is where should the GLICs such the EPF and PNB put their monies.
"What we propose is a distributed investment into the Malaysian companies with good growth potential. These would include some small and medium capital stocks," said Eng.
Although investing abroad is another possibility, funds such as the EPF have restrictions on their foreign exposures.
"Though the government could consider relaxing these restrictions, a major consideration for the EPF is if they have the expertise to manage an international portfolio," said Pong.
Malaysia's Prime Minister has called for the creation of bigger companies on Bursa Malaysia possibly through mergers
Analysts yesterday welcomed Prime Minister Datuk Seri Najib Razak's call for the creation of bigger companies on Bursa Malaysia possibly through mergers, to create sizeable entities that can draw foreign investment funds.
"Once you are big enough, you will naturally draw more attention. A company's market capitalisation has to be at least over US$1 billion (RM3.39 billion) before foreign investors consider investing," OSK Research head of research Chris Eng told Business Times yesterday.
Jupiter Securities research head Pong Teng Siew added that fund managers are looking for companies that can contribute returns to their large portfolios.
Analysts were commenting on Najib's statement in New York on Monday that the government may look at encouraging mergers of companies listed on Bursa Malaysia to attract foreign investors.
Najib said this after meeting US fund managers who told the prime minister that they were keen to see more Malaysian companies with big market capitalisation such as Maxis Bhd.
They also expressed their preference for government-linked investment companies (GLIC) such as the Employees Provident Fund (EPF), Khazanah Nasional Bhd and Permodalan Nasional Bhd (PNB) to reduce their stakes slightly in government-linked companies (GLCs) to allow for more liquidity in the market.
Najib said he will bring up the matter with the executive committee of National Economic Action Council (NEAC) when he gets back to study the possible implications of these suggestions.
Sectors that could see potential mergers include property, oil and gas and plantation stocks, said analysts. It would also help some become either regional or global players.
However, Aberdeen Asset Management managing director Gerald Ambrose stressed that there are more factors to consider than just size.
"Size is not everything and there needs to be a good business rationale behind a merger. We consider the quality, corporate governance and valuation of the company when we invest," said the fund manager.
Meanwhile, industry experts said that the paring down of the GLIC's stake in GLCs has been a long time coming.
In September, Khazanah reduced its stake in airport operator Malaysia Airports Holdings Bhd by 5 per cent, from 72.7 per cent to 67.7 per cent.
This sparked market talk that the government was starting to reduce its stake in GLCs to attract foreign investors to the local market.
"What the government needs to do is find a middle ground on how much they can sell down and still maintain control over these companies," said Pong.
The question, however, is where should the GLICs such the EPF and PNB put their monies.
"What we propose is a distributed investment into the Malaysian companies with good growth potential. These would include some small and medium capital stocks," said Eng.
Although investing abroad is another possibility, funds such as the EPF have restrictions on their foreign exposures.
"Though the government could consider relaxing these restrictions, a major consideration for the EPF is if they have the expertise to manage an international portfolio," said Pong.
KL Kepong Q4 net profit dips
By Goh Thean EuPublished: 2009/11/25
Malaysia's third largest palm oil producer posted a fourth-quarter net profit of RM243.73 million, an 8.88 per cent fall from RM267.5 million a year ago
Malaysia's third largest palm oil producer by hectarage Kuala Lumpur Kepong Bhd (KLK) (2445) said its fourth-quarter net profit declined by almost 9 per cent, mainly due to the lower selling price of crude palm oil (CPO).
However, the company is optimistic that the current financial year ending September 30 2010 will improve and be "favourable", mainly driven by higher oil palm fruit production and stronger earnings from its oleochemical division.
"The plantations (division) will continue to contribute satisfactory returns, underpinned by expected higher fresh fruit bunches (FFB) production, (and we also expect) higher earnings from the oleochemical division in anticipation of improved demand from the recovery of the global economic crisis," said KLK in its filing to Bursa Malaysia yesterday.
Its retail division is also expected to regain lost momentum, with the completion of its restructuring exercise.
The company posted a fourth-quarter net profit of RM243.73 million, an 8.88 per cent fall against RM267.5 million a year ago. Revenue for the period fell by 16 per cent to RM1.8 billion, from RM2.15 billion a year ago.
Like most palm oil producers, KLK earnings were hit by the lower CPO prices. The average prices of CPO for the fourth quarter ended September 30 was 24.7 per cent lower at RM2,410 against RM3,200 for the same period a year ago.
Although fourth-quarter results were weaker than last year, KLK said that it could have been worse but the improved contribution from its oleochemical operations (from RM29 million to RM58.2 million) as well as write-back on its investments has helped mitigate the decline.
For the full fiscal year, it posted a net profit of RM612.5 million, against RM1.04 billion a year ago. Revenue fell to RM6.66 billion for the full-year ended September 30 2009.
Analysts in general remained neutral and positive on the company's stock. There are 12 research houses recommending a "buy" call, 12 placing a "hold" call, while five have a "sell" call on the stock. Target prices range as high as RM17.25 (Macquarie) to as low as RM8.22 (UBS), based on Bloomberg data.
KLK also proposed to pay a final dividend of 30 sen to shareholders. In total, it plans to return a dividend of 40 sen a share to shareholders, representing more than two-third of its full-year net profit.
Its shares on Bursa Malaysia closed 1.2 per cent higher at RM15.30 yesterday. So far this year, KLK shares have risen by more than 71 per cent.
Malaysia's third largest palm oil producer posted a fourth-quarter net profit of RM243.73 million, an 8.88 per cent fall from RM267.5 million a year ago
Malaysia's third largest palm oil producer by hectarage Kuala Lumpur Kepong Bhd (KLK) (2445) said its fourth-quarter net profit declined by almost 9 per cent, mainly due to the lower selling price of crude palm oil (CPO).
However, the company is optimistic that the current financial year ending September 30 2010 will improve and be "favourable", mainly driven by higher oil palm fruit production and stronger earnings from its oleochemical division.
"The plantations (division) will continue to contribute satisfactory returns, underpinned by expected higher fresh fruit bunches (FFB) production, (and we also expect) higher earnings from the oleochemical division in anticipation of improved demand from the recovery of the global economic crisis," said KLK in its filing to Bursa Malaysia yesterday.
Its retail division is also expected to regain lost momentum, with the completion of its restructuring exercise.
The company posted a fourth-quarter net profit of RM243.73 million, an 8.88 per cent fall against RM267.5 million a year ago. Revenue for the period fell by 16 per cent to RM1.8 billion, from RM2.15 billion a year ago.
Like most palm oil producers, KLK earnings were hit by the lower CPO prices. The average prices of CPO for the fourth quarter ended September 30 was 24.7 per cent lower at RM2,410 against RM3,200 for the same period a year ago.
Although fourth-quarter results were weaker than last year, KLK said that it could have been worse but the improved contribution from its oleochemical operations (from RM29 million to RM58.2 million) as well as write-back on its investments has helped mitigate the decline.
For the full fiscal year, it posted a net profit of RM612.5 million, against RM1.04 billion a year ago. Revenue fell to RM6.66 billion for the full-year ended September 30 2009.
Analysts in general remained neutral and positive on the company's stock. There are 12 research houses recommending a "buy" call, 12 placing a "hold" call, while five have a "sell" call on the stock. Target prices range as high as RM17.25 (Macquarie) to as low as RM8.22 (UBS), based on Bloomberg data.
KLK also proposed to pay a final dividend of 30 sen to shareholders. In total, it plans to return a dividend of 40 sen a share to shareholders, representing more than two-third of its full-year net profit.
Its shares on Bursa Malaysia closed 1.2 per cent higher at RM15.30 yesterday. So far this year, KLK shares have risen by more than 71 per cent.
DiGi, IOI and PPB top list in creating value for investors
Published: 2009/11/23
DiGi.Com Bhd (6947), IOI Corp Bhd and PPB Group Bhd top the list of Malaysian companies when it comes to creating value for investors over a cycle of boom and bust, according to a management consultant.
Using Bloomberg data, Stern Stewart & Co has ranked the 100 biggest local firms on its calculation of RWA (relative wealth added) and WAI (wealth added index) from 2001 to the early part of 2009.
It covers a full business cycle in which the expansion period was from May 2001 to November 2008, followed by the contraction period that lasted till March this year.
RWA benchmarks a company's total shareholder returns compared with its peer's performance.
WAI benchmarks total shareholder returns relative to the cost of equity, which is the average minimum return required by investors for the risk they are taking.
"Staple industries have done better throughout the cycle. This is expected given the last crisis," Stern Stewart's president international Erik Stern said, referring to the performance of Malaysian companies.
"What is remarkable is that companies that belong to more volatile industries, such as DiGi (telecoms) and Public Bank (banks), have fared better than most staple companies," he said in an interview.
"The same can be learned if one looks at the bottom of the ranking. Companies in industries that are less affected in a downturn, such as Tenaga Nasional and YTL (utilities), have not managed to ride the cycle as well as others.
"The main take-away is that companies cannot just 'sit back' and ride the cycle. Shareholder wealth is not only determined by the industry, but also on management."
DiGi.Com Bhd (6947), IOI Corp Bhd and PPB Group Bhd top the list of Malaysian companies when it comes to creating value for investors over a cycle of boom and bust, according to a management consultant.
Using Bloomberg data, Stern Stewart & Co has ranked the 100 biggest local firms on its calculation of RWA (relative wealth added) and WAI (wealth added index) from 2001 to the early part of 2009.
It covers a full business cycle in which the expansion period was from May 2001 to November 2008, followed by the contraction period that lasted till March this year.
RWA benchmarks a company's total shareholder returns compared with its peer's performance.
WAI benchmarks total shareholder returns relative to the cost of equity, which is the average minimum return required by investors for the risk they are taking.
"Staple industries have done better throughout the cycle. This is expected given the last crisis," Stern Stewart's president international Erik Stern said, referring to the performance of Malaysian companies.
"What is remarkable is that companies that belong to more volatile industries, such as DiGi (telecoms) and Public Bank (banks), have fared better than most staple companies," he said in an interview.
"The same can be learned if one looks at the bottom of the ranking. Companies in industries that are less affected in a downturn, such as Tenaga Nasional and YTL (utilities), have not managed to ride the cycle as well as others.
"The main take-away is that companies cannot just 'sit back' and ride the cycle. Shareholder wealth is not only determined by the industry, but also on management."
IOI posts 65pc higher Q1 net profit
Published: 2009/11/25
Malaysia's second largest palm oil producer IOI Corp Bhd (1961) saw its first-quarter net profit rise by 65 per cent from a year earlier, on stronger contributions from its property and manufacturing segments.
The net profit, which came in at RM478.4 million, was also boosted by unrealised translation gains on its US-dollar denominated borrowings.
IOI, in a filing to the stock exchange yesterday, said the rest of the year will continue to be challenging despite signs of improvement in the global economy.
Still, the group is "optimistic" that it will turn in a better performance this year. It made a net profit of RM983.5 million for the last fiscal year ended June 30 2009.
IOI's revenue in the first quarter this year fell to RM3.3 billion compared with RM4.7 billion before.
Its operating profit in the plantation division fell by 56 per cent due to weaker palm oil prices and lower production.
The average crude palm oil price realised for the quarter was RM2,294 per tonne compared with RM3,391 per tonne a year earlier.
The group said its resource-based manufacturing segment saw higher profits despite lower sales as the previous quarter had included foreign exchange losses.
Meanwhile, operating profit in the property development and investment segments was about 2.4 times more than a year earlier, due mainly to increased sales of higher-end residential and commercial properties in the Klang Valley.
IOI's share price rose 6 sen to RM5.39 yesterday.
Malaysia's second largest palm oil producer IOI Corp Bhd (1961) saw its first-quarter net profit rise by 65 per cent from a year earlier, on stronger contributions from its property and manufacturing segments.
The net profit, which came in at RM478.4 million, was also boosted by unrealised translation gains on its US-dollar denominated borrowings.
IOI, in a filing to the stock exchange yesterday, said the rest of the year will continue to be challenging despite signs of improvement in the global economy.
Still, the group is "optimistic" that it will turn in a better performance this year. It made a net profit of RM983.5 million for the last fiscal year ended June 30 2009.
IOI's revenue in the first quarter this year fell to RM3.3 billion compared with RM4.7 billion before.
Its operating profit in the plantation division fell by 56 per cent due to weaker palm oil prices and lower production.
The average crude palm oil price realised for the quarter was RM2,294 per tonne compared with RM3,391 per tonne a year earlier.
The group said its resource-based manufacturing segment saw higher profits despite lower sales as the previous quarter had included foreign exchange losses.
Meanwhile, operating profit in the property development and investment segments was about 2.4 times more than a year earlier, due mainly to increased sales of higher-end residential and commercial properties in the Klang Valley.
IOI's share price rose 6 sen to RM5.39 yesterday.
Sime Darby 1Q net profit down 21%
Written by Chong Jin Hun
Wednesday, 25 November 2009 18:39
KUALA LUMPUR: SIME DARBY BHD []'s first quarter net profit fell by an annual pace of 21% due to lower income from the conglomerate's oil palm PLANTATION [], property, and industrial units.
In a statement to Bursa Malaysia today, Sime Darby said that its net profit in the quarter ended Sept 30, 2009 came to RM684.64 million compared with RM866.98 million a year earlier. Revenue declined 11.1 % to RM7.74 billion from RM8.71 billion.
"The outlook for a gradual and sustainable global economic recovery is looking positive. This will result in increasing economic activities in the market sectors in which the group operates, but some uncertainties remain.
"In view of the above, barring unforeseen circumstances, the directors are of the opinion that the group’s performance for the current financial year would be better than that of the previous year," Sime Darby said.
Looking ahead, the company expects its oil palm output to be higher than that of the previous year. Significant locked-in real estate sales in the preceding fourth quarter of the previous financial year are also anticipated to support earnings.
Sime Darby added that improvements in market sentiment are expected to augur well for the group’s other divisions, which include automotive, energy and utilities, as well as healthcare operations.
Wednesday, 25 November 2009 18:39
KUALA LUMPUR: SIME DARBY BHD []'s first quarter net profit fell by an annual pace of 21% due to lower income from the conglomerate's oil palm PLANTATION [], property, and industrial units.
In a statement to Bursa Malaysia today, Sime Darby said that its net profit in the quarter ended Sept 30, 2009 came to RM684.64 million compared with RM866.98 million a year earlier. Revenue declined 11.1 % to RM7.74 billion from RM8.71 billion.
"The outlook for a gradual and sustainable global economic recovery is looking positive. This will result in increasing economic activities in the market sectors in which the group operates, but some uncertainties remain.
"In view of the above, barring unforeseen circumstances, the directors are of the opinion that the group’s performance for the current financial year would be better than that of the previous year," Sime Darby said.
Looking ahead, the company expects its oil palm output to be higher than that of the previous year. Significant locked-in real estate sales in the preceding fourth quarter of the previous financial year are also anticipated to support earnings.
Sime Darby added that improvements in market sentiment are expected to augur well for the group’s other divisions, which include automotive, energy and utilities, as well as healthcare operations.
Wall St dips on revised GDP; Fed's view curbs loss
NEW YORK: US stocks fell on Tuesday on lackluster economic data in a session marked by low volume and choppy trading, but losses eased after the Federal Reserve raised its expectations for growth in 2010.
Stocks fell early in the session as revised government data on gross domestic product showed the US economy grew at a slower-than-expected pace in the third quarter.
Hewlett-Packard Co shares led the Dow industrials lower a day after the TECHNOLOGY [] bellwether said in its results that the US economy remained challenging.
With the S&P 500 up 22% so far this year, investors were struggling to justify additional gains after a series of middling economic reports.
However, the downbeat mood was tempered after the Fed revised upward its growth expectation for 2010, while minutes of the FOMC's most recent meeting showed officials are increasingly confident about a durable recovery for the US economy.
"You're getting the cross-current of weak revisions to third-quarter data matrixed against the Fed increasing the growth estimates for the economy for the next year," said Jim Awad, managing director at Zephyr Management in New York.
"But the action in the market is moderate going into the holiday weekend and I wouldn't read too much into it."
The US stock market will be closed on Thursday in observance of Thanksgiving Day. On Friday, it will be open for only half a day due to the holiday.
The Dow Jones industrial average dropped 17.24 points, or 0.16%, to end at 10,433.71. The Standard & Poor's 500 Index inched down just 0.59 of a point, or 0.05%, to 1,105.65. The Nasdaq Composite Index fell 6.83 points, or 0.31%, to 2,169.18.
Hewlett-Packard Co fell 1.6% to $50.19 a day after the blue-chip computer and printer maker reported a quarterly profit that matched its preliminary results, but said the economy remained challenging.
HP also said it saw growth in its share of US enterprise personal computers, which is rival Dell's key market. Dell's stock fell 3.2% to $14.32 and ranked as a top drag on the Nasdaq 100.
Financial stocks showed weakness throughout the session. JPMorgan Chase & Co slid 1.9% to $42.48 and ranked among the heaviest weights on the blue-chip Dow industrials. The KBW bank index fell 0.7%.
Zephyr Management's Awad said there is concern about banks' capital after news that the Fed asked lenders that were part of its "stress tests" to submit plans to repay government money.
US home prices rose in September, according to the Standard & Poor's/Case-Shiller index, but the increase was less robust than forecast. Home prices for that month were unchanged, according to a separate report from the US Federal Housing Finance Agency.
The Dow Jones US Home CONSTRUCTION [] Index fell 1.7%.
Volume was light on the New York Stock Exchange, where only about 952 million shares changed hands, far below last year's estimated daily average of 1.49 billion. On the Nasdaq, about 1.87 billion shares traded, well below last year's daily average of 2.28 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 8 to 7. On the Nasdaq, about three stocks fell for every two that rose. — Reuters
Stocks fell early in the session as revised government data on gross domestic product showed the US economy grew at a slower-than-expected pace in the third quarter.
Hewlett-Packard Co shares led the Dow industrials lower a day after the TECHNOLOGY [] bellwether said in its results that the US economy remained challenging.
With the S&P 500 up 22% so far this year, investors were struggling to justify additional gains after a series of middling economic reports.
However, the downbeat mood was tempered after the Fed revised upward its growth expectation for 2010, while minutes of the FOMC's most recent meeting showed officials are increasingly confident about a durable recovery for the US economy.
"You're getting the cross-current of weak revisions to third-quarter data matrixed against the Fed increasing the growth estimates for the economy for the next year," said Jim Awad, managing director at Zephyr Management in New York.
"But the action in the market is moderate going into the holiday weekend and I wouldn't read too much into it."
The US stock market will be closed on Thursday in observance of Thanksgiving Day. On Friday, it will be open for only half a day due to the holiday.
The Dow Jones industrial average dropped 17.24 points, or 0.16%, to end at 10,433.71. The Standard & Poor's 500 Index inched down just 0.59 of a point, or 0.05%, to 1,105.65. The Nasdaq Composite Index fell 6.83 points, or 0.31%, to 2,169.18.
Hewlett-Packard Co fell 1.6% to $50.19 a day after the blue-chip computer and printer maker reported a quarterly profit that matched its preliminary results, but said the economy remained challenging.
HP also said it saw growth in its share of US enterprise personal computers, which is rival Dell's key market. Dell's stock fell 3.2% to $14.32 and ranked as a top drag on the Nasdaq 100.
Financial stocks showed weakness throughout the session. JPMorgan Chase & Co slid 1.9% to $42.48 and ranked among the heaviest weights on the blue-chip Dow industrials. The KBW bank index fell 0.7%.
Zephyr Management's Awad said there is concern about banks' capital after news that the Fed asked lenders that were part of its "stress tests" to submit plans to repay government money.
US home prices rose in September, according to the Standard & Poor's/Case-Shiller index, but the increase was less robust than forecast. Home prices for that month were unchanged, according to a separate report from the US Federal Housing Finance Agency.
The Dow Jones US Home CONSTRUCTION [] Index fell 1.7%.
Volume was light on the New York Stock Exchange, where only about 952 million shares changed hands, far below last year's estimated daily average of 1.49 billion. On the Nasdaq, about 1.87 billion shares traded, well below last year's daily average of 2.28 billion.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 8 to 7. On the Nasdaq, about three stocks fell for every two that rose. — Reuters
Growth in China a multi-year trend, says HwangDBS
KUALA LUMPUR: With the focus now on China, HwangDBS Investment Management Bhd (HwangDBS IM) is lining up a series of funds that will have exposure to the Chinese market, as Malaysian investors’ confidence in that country remains high.
“We are planning to introduce more China-centric funds to investors in the coming months, as we believe growth in China, or for that matter the Asian emerging markets, is a multi-year trend.
“Malaysian investors like the China growth story. We think that their comfort level in terms of corporate governance is high for the larger-cap H-Shares (Hong Kong-listed Chinese companies). However, investors are still cautious on the smaller caps, which is not unusual, and not only confined to Chinese companies,” HwangDBS IM chief investment officer David Ng told The Edge Financial Daily.
He said the lacklustre performance of recent Chinese initial public offerings (IPOs) here should not be used as an indicator of Malaysian investors’ appetite for Chinese equity exposure. “Chinese companies that have so far listed in Malaysia are also perceived to be involved in unexciting industries. Hence, these companies will need to continue engaging investors and delivering on their numbers to prove their credentials,” said Ng.
To date, HwangDBS IM has at least 13 funds with exposure to China and Greater China. For instance, HwangDBS Global Emerging Markets Fund (GEM) and HwangDBS Select Opportunity Fund (SOF) have some 15% and 17%, respectively, of their assets invested in H-Shares or Hong Kong-listed China entities.
Both funds had performed well in line with the strong performances of Asian and emerging markets generally, with GEM charting 46% and SOF 50% growth year-to-date, said Ng.
HwangDBS IM’s Greater China Structured Fund, launched in November 2006, provides the most direct exposure to the Chinese market. Up to 96% of the capital raised is invested in structured products issued by Deutsche Bank (M) Bhd and linked to a basket of stocks on the recognised stock exchanges of Greater China.
According to Ng, as an indicator of the level of confidence, most funds that have been launched with a China theme have sold well. The HwangDBS Greater China Structured Fund, for example, has garnered good response and the company has applied for an increase in fund size.
On the performance of the local equity market this year, Ng said it had lagged as it did not decline as much last year, which meant valuations were at a premium compared with peers in the region.
“There is also a lack of catalysts or growth story for companies here, while foreign investors are concerned about any changes to the Malaysian secular policy and qualms over the political will of the government to execute its reform agenda,” he said.
The FBM KLCI has risen 45% so far this year, compared with 56% for Hong Kong’s Hang Seng Index, 57% for Singapore’s Straits Times Index, 55% for Thailand’s SET index and 84% for the Jakarta Composite Index.
HwangDBS IM began operations in Malaysia in 2001, and currently has 25 retail funds with investment in various sectors. In all, it manages a total of 40 unit trust funds, including corporate and retail funds.
Its assets under management have grown by more than 280% to RM6.4 billion as of July 31, 2009 from just over RM20 million in 2001. HwangDBS IM has a total of 5,000 retail and 24 institutional clients.
“We are planning to introduce more China-centric funds to investors in the coming months, as we believe growth in China, or for that matter the Asian emerging markets, is a multi-year trend.
“Malaysian investors like the China growth story. We think that their comfort level in terms of corporate governance is high for the larger-cap H-Shares (Hong Kong-listed Chinese companies). However, investors are still cautious on the smaller caps, which is not unusual, and not only confined to Chinese companies,” HwangDBS IM chief investment officer David Ng told The Edge Financial Daily.
He said the lacklustre performance of recent Chinese initial public offerings (IPOs) here should not be used as an indicator of Malaysian investors’ appetite for Chinese equity exposure. “Chinese companies that have so far listed in Malaysia are also perceived to be involved in unexciting industries. Hence, these companies will need to continue engaging investors and delivering on their numbers to prove their credentials,” said Ng.
To date, HwangDBS IM has at least 13 funds with exposure to China and Greater China. For instance, HwangDBS Global Emerging Markets Fund (GEM) and HwangDBS Select Opportunity Fund (SOF) have some 15% and 17%, respectively, of their assets invested in H-Shares or Hong Kong-listed China entities.
Both funds had performed well in line with the strong performances of Asian and emerging markets generally, with GEM charting 46% and SOF 50% growth year-to-date, said Ng.
HwangDBS IM’s Greater China Structured Fund, launched in November 2006, provides the most direct exposure to the Chinese market. Up to 96% of the capital raised is invested in structured products issued by Deutsche Bank (M) Bhd and linked to a basket of stocks on the recognised stock exchanges of Greater China.
According to Ng, as an indicator of the level of confidence, most funds that have been launched with a China theme have sold well. The HwangDBS Greater China Structured Fund, for example, has garnered good response and the company has applied for an increase in fund size.
On the performance of the local equity market this year, Ng said it had lagged as it did not decline as much last year, which meant valuations were at a premium compared with peers in the region.
“There is also a lack of catalysts or growth story for companies here, while foreign investors are concerned about any changes to the Malaysian secular policy and qualms over the political will of the government to execute its reform agenda,” he said.
The FBM KLCI has risen 45% so far this year, compared with 56% for Hong Kong’s Hang Seng Index, 57% for Singapore’s Straits Times Index, 55% for Thailand’s SET index and 84% for the Jakarta Composite Index.
HwangDBS IM began operations in Malaysia in 2001, and currently has 25 retail funds with investment in various sectors. In all, it manages a total of 40 unit trust funds, including corporate and retail funds.
Its assets under management have grown by more than 280% to RM6.4 billion as of July 31, 2009 from just over RM20 million in 2001. HwangDBS IM has a total of 5,000 retail and 24 institutional clients.
US stocks could sputter with Black Friday eyed
NEW YORK: U.S. stocks could sputter in the new week starting Monday, Nov 23 as volumes dry up in holiday-shortened trading and with a slew of economic reports likely to illustrate the recovery is still fragile, according to Reuters.
Investors will also get a glimpse of how holiday shopping could shape up with Black Friday, which traditionally marks the start of the season as retailers slash prices to tempt shoppers. It will be difficult for the economic recovery to make much headway without a pick-up in consumer spending as it accounts for two-thirds of the economy.
A raft of data is squeezed into the first half of the week, shortened by Thursday's Thanksgiving holiday. The delicate nature of the recovery has analysts split on whether the economy will advance from here or still faces another leg down.
The debate has plagued the rally throughout its run but now that the S&P 500 is up more than 60 percent from March's 12-year lows, investors are more wary of taking risks. With just six trading weeks left in the year, market watchers are keen to hold onto profits.
"There's simply more risk where we are," said Lawrence Creatura, equity market strategist and portfolio manager at Federated Clover Capital Advisors, in Rochester, New York.
"We're at a higher altitude and even though in some ways it doesn't feel like it, it's less safe now than it was in March."
Data has largely shown an economy that is recovering slowly but is still weak, particularly in areas like employment. Reports include home sales, consumer confidence, durable goods and the second reading of gross domestic product.
As well, the Federal Open Market Committee will release the minutes from November's rate-setting meeting. Investors will be looking for insight as to how the central bank will eventually start to remove its extraordinary stimulus measures and its view on the health of the economy.
The Dow and S&P 500 made 13-month highs this week before easing off, and recent sessions suggest the market is struggling to justify more gains.
For the week, the Dow rose 0.5 percent, the S&P 500 fell 0.2 percent and the Nasdaq shed 1 percent. The S&P failed to hold above the key 1,100 level and will continue to face resistance there.
Volume is expected to be light throughout the week with U.S. markets closed on Thursday for Thanksgiving and shutting early on Friday. Low volume can make stocks more volatile as fewer participants make it easier to move prices.
Black Friday, the day after Thanksgiving, will be watched closely with analysts anxious for signs consumers will be opening up their wallets.
The phrase Black Friday is used by retailers to refer to the start of the holiday period when their business moves into the black, or turns a profit.
Early data on shopper traffic and anecdotal evidence will give the first snapshot of the day's performance and a clearer picture will emerge the following week when stores report November retail sales.
Investors will also get a glimpse of how holiday shopping could shape up with Black Friday, which traditionally marks the start of the season as retailers slash prices to tempt shoppers. It will be difficult for the economic recovery to make much headway without a pick-up in consumer spending as it accounts for two-thirds of the economy.
A raft of data is squeezed into the first half of the week, shortened by Thursday's Thanksgiving holiday. The delicate nature of the recovery has analysts split on whether the economy will advance from here or still faces another leg down.
The debate has plagued the rally throughout its run but now that the S&P 500 is up more than 60 percent from March's 12-year lows, investors are more wary of taking risks. With just six trading weeks left in the year, market watchers are keen to hold onto profits.
"There's simply more risk where we are," said Lawrence Creatura, equity market strategist and portfolio manager at Federated Clover Capital Advisors, in Rochester, New York.
"We're at a higher altitude and even though in some ways it doesn't feel like it, it's less safe now than it was in March."
Data has largely shown an economy that is recovering slowly but is still weak, particularly in areas like employment. Reports include home sales, consumer confidence, durable goods and the second reading of gross domestic product.
As well, the Federal Open Market Committee will release the minutes from November's rate-setting meeting. Investors will be looking for insight as to how the central bank will eventually start to remove its extraordinary stimulus measures and its view on the health of the economy.
The Dow and S&P 500 made 13-month highs this week before easing off, and recent sessions suggest the market is struggling to justify more gains.
For the week, the Dow rose 0.5 percent, the S&P 500 fell 0.2 percent and the Nasdaq shed 1 percent. The S&P failed to hold above the key 1,100 level and will continue to face resistance there.
Volume is expected to be light throughout the week with U.S. markets closed on Thursday for Thanksgiving and shutting early on Friday. Low volume can make stocks more volatile as fewer participants make it easier to move prices.
Black Friday, the day after Thanksgiving, will be watched closely with analysts anxious for signs consumers will be opening up their wallets.
The phrase Black Friday is used by retailers to refer to the start of the holiday period when their business moves into the black, or turns a profit.
Early data on shopper traffic and anecdotal evidence will give the first snapshot of the day's performance and a clearer picture will emerge the following week when stores report November retail sales.
Wall St dips as investors fret about recovery
NEW YORK: U.S. stocks fell for a third straight day on Friday, Nov 20 as investors took weaker-than-expected results from computer maker Dell and homebuilder D.R. Horton as a further sign that the recovery would be anemic, according to Reuters.
Following the S&P 500's gain of more than 60 percent from its 12-year closing low of March 9, investors have become more sensitive to signs of weakness as they sought to justify lofty share valuations.
"While it appears to us that the recession is over, there are a lot of lingering signs of pain on Main Street," said Sasha Kostadinov, portfolio manager and research analyst at Shaker Investments in Cleveland, Ohio. "Unemployment is very high, lots of people out of work and that is still causing significant stress."
The news of a 54 percent slide in Dell's quarterly profit rounded off a rocky week for the TECHNOLOGY [] sector, which has been a market darling since March as investors bet on a strong recovery to spur corporate and consumer spending. Shares fell 10 percent.
Unease about the economy's prospects drove investors to snap up defensive stocks seen better able to withstand an uncertain economy, limiting the Dow's losses.
The Dow Jones industrial average fell 14.28 points, or 0.14 percent, to 10,318.16. The Standard & Poor's 500 Index dropped 3.52 points, or 0.32 percent, to 1,091.38. The Nasdaq Composite Index slipped 10.78 points, or 0.50 percent, to 2,146.04.
For the week, the Dow rose 0.5 percent, the S&P 500 fell 0.2 percent and the Nasdaq shed 1 percent. Trading was choppy with the monthly expiration of November options on Friday.
With the year-end fast approaching, there was also a push by some investors, including hedge funds, to lock in profits from the recent rally going into 2010, analysts said.
Dell, the No. 3 personal computer maker, slid 10 percent to US$14.29 a day after it reported a sharp drop in third-quarter profit and sales that missed estimates. Dell was the Nasdaq's top drag.
D.R. Horton Inc tumbled 15.4 percent to US$10.37 after the homebuilder reported a fourth-quarter loss that was wider than expected and said market conditions were "still challenging."
A rebound in the U.S. dollar pressured prices of global commodities, including crude. Energy stocks were hurt, such as Chevron Corp, which fell 0.7 percent to US$76.77. - Reuters
Following the S&P 500's gain of more than 60 percent from its 12-year closing low of March 9, investors have become more sensitive to signs of weakness as they sought to justify lofty share valuations.
"While it appears to us that the recession is over, there are a lot of lingering signs of pain on Main Street," said Sasha Kostadinov, portfolio manager and research analyst at Shaker Investments in Cleveland, Ohio. "Unemployment is very high, lots of people out of work and that is still causing significant stress."
The news of a 54 percent slide in Dell's quarterly profit rounded off a rocky week for the TECHNOLOGY [] sector, which has been a market darling since March as investors bet on a strong recovery to spur corporate and consumer spending. Shares fell 10 percent.
Unease about the economy's prospects drove investors to snap up defensive stocks seen better able to withstand an uncertain economy, limiting the Dow's losses.
The Dow Jones industrial average fell 14.28 points, or 0.14 percent, to 10,318.16. The Standard & Poor's 500 Index dropped 3.52 points, or 0.32 percent, to 1,091.38. The Nasdaq Composite Index slipped 10.78 points, or 0.50 percent, to 2,146.04.
For the week, the Dow rose 0.5 percent, the S&P 500 fell 0.2 percent and the Nasdaq shed 1 percent. Trading was choppy with the monthly expiration of November options on Friday.
With the year-end fast approaching, there was also a push by some investors, including hedge funds, to lock in profits from the recent rally going into 2010, analysts said.
Dell, the No. 3 personal computer maker, slid 10 percent to US$14.29 a day after it reported a sharp drop in third-quarter profit and sales that missed estimates. Dell was the Nasdaq's top drag.
D.R. Horton Inc tumbled 15.4 percent to US$10.37 after the homebuilder reported a fourth-quarter loss that was wider than expected and said market conditions were "still challenging."
A rebound in the U.S. dollar pressured prices of global commodities, including crude. Energy stocks were hurt, such as Chevron Corp, which fell 0.7 percent to US$76.77. - Reuters
November 20, 2009
FBM KLCI up, thanks to Maxis
Share prices on Bursa Malaysia ended broadly lower yesterday but last minute nibbling in heavyweights and persistent support for newly listed Maxis helped push the barometer to the positive territory.
The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) perked 1.55 points to 1,276.65. It had opened 0.11 point lower at 1,274.99.
Maxis, which opened with a premium of 46 sen at RM5.46 over its institutional offer price of RM5, topped both the active and gainers list. It ended 42 sen higher at RM5.42.
"The market struggled to keep afloat as wider market sentiment remained sluggish, especially after Wall Street's dismal overnight performance," a dealer said.
He said although the much awaited listing of Maxis provided a liquidity boost and encouraged more institutional participation in bluechips, the overall profit taking consolidation mood in the broader market stayed.
TA Securities said the immediate resistance for the FBM KLCI will be at 1,288, while 1,305 will be a more significant upside hurdle.
"The immediate downside cushion is at 1,275," it said in its note yesterday.
The FBM Emas Index edged up 0.96 point to 8,522.32, the FBM Top 100 jumped 7.41 points to 8,327.02 but the FBM 70 fell 3.39 points to 8,258.86.
The FBM ACE Index declined 80.98 points to 4,387.6.
The Industrial Index dropped 7.33 points to 2,688.45 yesterday but the Plantation Index added 45.53 points to 6,250.54 and the Finance Index dipped 16.8 points to 11,022.99.
Decliners outnumbered advancers by 457 to 238 while 245 counters were unchanged and 334 untraded.
Overall volume was higher at 1.351 billion shares worth RM2.685 billion compared with Wednesday's 945.197 million shares worth RM1.017 billion.
Other actives Scomi Group-Loan Rights edged down 1 sen to 1.5 sen, Mlabs fell 10.5 sen to 23 sen and Yung Kong perked 1/2 sen to 18.5 sen.
Of the heavyweights, Sime Darby, Maybank and Public Bank were flat at RM9.00, RM6.94 and RM10.98 respectively, while CIMB Group fell 4 sen to RM13.00.
FBM KLCI futures contracts on Bursa Malaysia Derivatives ended broadly lower in line with the cash market's sluggish performance, dealers said.
November 2009 and December 2009 fell 6.5 points each to 1,271.0 and 1,272.5 respectively, March 2010 slipped 4.5 points to 1,277.0 and June 2010 dropped 3.5 points to 1,280.0.
Volume was higher at 4,720 lots compared with Wednesday's 4,563 lots while open interests rose to 17,966 contracts from 17,648.- Bernama
The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) perked 1.55 points to 1,276.65. It had opened 0.11 point lower at 1,274.99.
Maxis, which opened with a premium of 46 sen at RM5.46 over its institutional offer price of RM5, topped both the active and gainers list. It ended 42 sen higher at RM5.42.
"The market struggled to keep afloat as wider market sentiment remained sluggish, especially after Wall Street's dismal overnight performance," a dealer said.
He said although the much awaited listing of Maxis provided a liquidity boost and encouraged more institutional participation in bluechips, the overall profit taking consolidation mood in the broader market stayed.
TA Securities said the immediate resistance for the FBM KLCI will be at 1,288, while 1,305 will be a more significant upside hurdle.
"The immediate downside cushion is at 1,275," it said in its note yesterday.
The FBM Emas Index edged up 0.96 point to 8,522.32, the FBM Top 100 jumped 7.41 points to 8,327.02 but the FBM 70 fell 3.39 points to 8,258.86.
The FBM ACE Index declined 80.98 points to 4,387.6.
The Industrial Index dropped 7.33 points to 2,688.45 yesterday but the Plantation Index added 45.53 points to 6,250.54 and the Finance Index dipped 16.8 points to 11,022.99.
Decliners outnumbered advancers by 457 to 238 while 245 counters were unchanged and 334 untraded.
Overall volume was higher at 1.351 billion shares worth RM2.685 billion compared with Wednesday's 945.197 million shares worth RM1.017 billion.
Other actives Scomi Group-Loan Rights edged down 1 sen to 1.5 sen, Mlabs fell 10.5 sen to 23 sen and Yung Kong perked 1/2 sen to 18.5 sen.
Of the heavyweights, Sime Darby, Maybank and Public Bank were flat at RM9.00, RM6.94 and RM10.98 respectively, while CIMB Group fell 4 sen to RM13.00.
FBM KLCI futures contracts on Bursa Malaysia Derivatives ended broadly lower in line with the cash market's sluggish performance, dealers said.
November 2009 and December 2009 fell 6.5 points each to 1,271.0 and 1,272.5 respectively, March 2010 slipped 4.5 points to 1,277.0 and June 2010 dropped 3.5 points to 1,280.0.
Volume was higher at 4,720 lots compared with Wednesday's 4,563 lots while open interests rose to 17,966 contracts from 17,648.- Bernama
OSK Research maintains Buy on Wah Seong, target price RM3.24
KUALA LUMPUR: OSK Investment Research is maintaining a Buy on Wah Seong Corp Bhd with an unchanged target price of RM3.24 based on a price-to-earnings ratio (PER) of 14 times FY10 earnings per share (EPS).
For 4QFY09, the research house envisages an even stronger quarter as there would be no minority interest erosion from PPSC Industrial Holdings Sdn Bhd in which Wah Seong completed the acquisition of the remaining 32% on 29 Oct, 2009.
"We continue to like the company for its market leadership in the provision of pipe coating and corrosion protection in Asia," it said.
Wah Seong posted net profit of RM31.02 million in the third quarter ended Sept 30, 2009, up 14.7% from RM27.04 million a year ago, as the bottomline was boosted by its specialised pipe coating and corrosion protection services.
OSK Research said the two major events expected to unfold before year-end are the outcome of bidding for the USD160m Gorgon pipe coating job, and its M&A in West Africa?s Nigeria and Angola.
To recap, Wah Seong together with Bredero Shaw have been shortlisted to bid for the Gorgon 900km pipeline job but we believe Wah Seong stands a great chance of winning given its strong presence in the Asian markets.
Wah Seong is also looking at acquiring the assets of pipe coating companies - one each in Nigeria and Angola - that are jointly owned (60:40) by Socotherm and a strategic partner.
"We understand that the strategic partner is currently in negotiations with Socotherm to take over the latter's 60% stake and on completion, Wah Seong will buy over the assets of these two pipe coating companies," it said.
For 4QFY09, the research house envisages an even stronger quarter as there would be no minority interest erosion from PPSC Industrial Holdings Sdn Bhd in which Wah Seong completed the acquisition of the remaining 32% on 29 Oct, 2009.
"We continue to like the company for its market leadership in the provision of pipe coating and corrosion protection in Asia," it said.
Wah Seong posted net profit of RM31.02 million in the third quarter ended Sept 30, 2009, up 14.7% from RM27.04 million a year ago, as the bottomline was boosted by its specialised pipe coating and corrosion protection services.
OSK Research said the two major events expected to unfold before year-end are the outcome of bidding for the USD160m Gorgon pipe coating job, and its M&A in West Africa?s Nigeria and Angola.
To recap, Wah Seong together with Bredero Shaw have been shortlisted to bid for the Gorgon 900km pipeline job but we believe Wah Seong stands a great chance of winning given its strong presence in the Asian markets.
Wah Seong is also looking at acquiring the assets of pipe coating companies - one each in Nigeria and Angola - that are jointly owned (60:40) by Socotherm and a strategic partner.
"We understand that the strategic partner is currently in negotiations with Socotherm to take over the latter's 60% stake and on completion, Wah Seong will buy over the assets of these two pipe coating companies," it said.
Stocks to watch: MRCB, Telekom, Putrajaya Perdana, Tanjong
KUALA LUMPUR: Regional markets are expected to see more downside on Friday, Nov 20 following the weaker overnight closing on Wall Street while at Bursa Malaysia, the factors to watch out are the release of the third quarter GDP data and the inclusion of Maxis Bhd into the 30-stock FBM KLCI.
US stocks slid as another batch of economic data pointed to the fragility of the recovery and a brokerage's dim view on the semiconductor sector hit TECHNOLOGY [] shares, according to Reuters.
The benchmark S&P 500 suffered its worst one-day percentage fall in three weeks as investors feared that weakness in housing and labor markets would persist, making current stock valuation seem unjustified.
The Dow Jones industrial average shed 93.87 points, or 0.90 percent, to end at 10,332.44. The Standard & Poor's 500 Index slid 14.90 points, or 1.34 percent, to 1,094.90. The Nasdaq Composite Index dropped 36.32 points, or 1.66 percent, to 2,156.82.
On the home front, Bank Negara is scheduled to release its 3Q GDP data after market close. Economists expect the country's economy to have bottomed out, though 3Q would see a contraction on-year, but at a smaller pace.
However, the statement from the central bank about the outlook for the economy should be of more importance.
Maxis Bhd, which traded as expected on its return to Bursa Malaysia Securities yesterday, intends to fervently defend, if not beat, the old Maxis's record highs on all fronts and is prepared to gear up to deliver good dividend yields, its top officials said.
Maxis will be included in the 30-stock FBM KLCI, replacing MALAYSIAN AIRLINE SYSTEM BHD [].
MALAYSIAN RESOURCES CORP [] Bhd (MRCB) has priced its share rights issue with an entitlement basis of one-for-two at RM1.12 per share. It said the right issue would raise gross proceeds of about RM540.7 million and RM508.3 million under the maximum and minimum scenarios, respectively.
Telekom Malaysia is scheduled to release its results on Friday. OSK Investment Research is maintaining its neutral call on TM with a target price of RM2.88.
It expected the telco's margin to come under pressure from higher high speed broadband operating expenditure and increased advertising and promotion as as TM slugged it out to defend its fixed broadband business and to drive uptake of its voice service.
"TM’s core earnings are likely to come in lower year-on-year in 3Q09 due to weaker EBITDA margin and lower interest income but higher quarter-on-quarter with the normalisation of the high effective tax in 2Q09.
"We suspect TM conceded its dominant share of fixed broadband addition in 3Q09 to a nimble and more aggressive Packet One (P1)," it said.
Putrajaya Perdana's 3Q net profit jumped 110% to RM12.2 million for its third quarter ended September 30, 2009 (3Q2009). Its revenue however fell 16% to RM199.9 million.
For its nine months period, its net profit increased 71% to RM26.96 million compared to the previous corresponding period. Meanwhile, its revenue increased 15% to RM679.8 million for the same period
Tanjong plc has appointed ASTRO ALL ASIA NETWORKS PLC []'s former chief operating officer Goh Seow Eng as the chief executive officer of its entertainment division, responsible for both its wholly-owned subsidiaries Pan Malaysian Pools Sdn Bhd (PMP) and TGV Cinemas Sdn Bhd (TGV).
It is interesting to note that analysts had earlier said if Tanjong's power and gaming operations were split, this could create greater value. The power business, if spun off, would attract Syariah compliant funds.
GAMUDA BHD []'s 40%-owned Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) has filed a suit against PUNCAK NIAGA HOLDINGS BHD []'s 70% subsidiary Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) with a claim of RM196 million owing, excluding interests, in relation to the supply of treated water to the latter.
US stocks slid as another batch of economic data pointed to the fragility of the recovery and a brokerage's dim view on the semiconductor sector hit TECHNOLOGY [] shares, according to Reuters.
The benchmark S&P 500 suffered its worst one-day percentage fall in three weeks as investors feared that weakness in housing and labor markets would persist, making current stock valuation seem unjustified.
The Dow Jones industrial average shed 93.87 points, or 0.90 percent, to end at 10,332.44. The Standard & Poor's 500 Index slid 14.90 points, or 1.34 percent, to 1,094.90. The Nasdaq Composite Index dropped 36.32 points, or 1.66 percent, to 2,156.82.
On the home front, Bank Negara is scheduled to release its 3Q GDP data after market close. Economists expect the country's economy to have bottomed out, though 3Q would see a contraction on-year, but at a smaller pace.
However, the statement from the central bank about the outlook for the economy should be of more importance.
Maxis Bhd, which traded as expected on its return to Bursa Malaysia Securities yesterday, intends to fervently defend, if not beat, the old Maxis's record highs on all fronts and is prepared to gear up to deliver good dividend yields, its top officials said.
Maxis will be included in the 30-stock FBM KLCI, replacing MALAYSIAN AIRLINE SYSTEM BHD [].
MALAYSIAN RESOURCES CORP [] Bhd (MRCB) has priced its share rights issue with an entitlement basis of one-for-two at RM1.12 per share. It said the right issue would raise gross proceeds of about RM540.7 million and RM508.3 million under the maximum and minimum scenarios, respectively.
Telekom Malaysia is scheduled to release its results on Friday. OSK Investment Research is maintaining its neutral call on TM with a target price of RM2.88.
It expected the telco's margin to come under pressure from higher high speed broadband operating expenditure and increased advertising and promotion as as TM slugged it out to defend its fixed broadband business and to drive uptake of its voice service.
"TM’s core earnings are likely to come in lower year-on-year in 3Q09 due to weaker EBITDA margin and lower interest income but higher quarter-on-quarter with the normalisation of the high effective tax in 2Q09.
"We suspect TM conceded its dominant share of fixed broadband addition in 3Q09 to a nimble and more aggressive Packet One (P1)," it said.
Putrajaya Perdana's 3Q net profit jumped 110% to RM12.2 million for its third quarter ended September 30, 2009 (3Q2009). Its revenue however fell 16% to RM199.9 million.
For its nine months period, its net profit increased 71% to RM26.96 million compared to the previous corresponding period. Meanwhile, its revenue increased 15% to RM679.8 million for the same period
Tanjong plc has appointed ASTRO ALL ASIA NETWORKS PLC []'s former chief operating officer Goh Seow Eng as the chief executive officer of its entertainment division, responsible for both its wholly-owned subsidiaries Pan Malaysian Pools Sdn Bhd (PMP) and TGV Cinemas Sdn Bhd (TGV).
It is interesting to note that analysts had earlier said if Tanjong's power and gaming operations were split, this could create greater value. The power business, if spun off, would attract Syariah compliant funds.
GAMUDA BHD []'s 40%-owned Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) has filed a suit against PUNCAK NIAGA HOLDINGS BHD []'s 70% subsidiary Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) with a claim of RM196 million owing, excluding interests, in relation to the supply of treated water to the latter.
Wall St drops on recovery concerns, tech rout
NEW YORK: U.S. stocks slid on Thursday, Nov 19 as another batch of economic data pointed to the fragility of the recovery and a brokerage's dim view on the semiconductor sector hit TECHNOLOGY [] shares, according to Reuters.
The benchmark S&P 500 suffered its worst one-day percentage fall in three weeks as investors feared that weakness in housing and labor markets would persist, making current stock valuation seem unjustified.
"There's this feeling that the economy has lost momentum from the third quarter," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. "The market gained traction to the downside when the disappointing economic indicators came out."
Bank of America-Merrill Lynch cut its 2010 growth outlook for the semiconductor industry on concerns about a rising inventory glut. It downgraded 10 stocks, including Intel Corp, Texas Instruments Inc and Marvell Technology Corp.
The downgrades were a setback for those betting that the technology sector would fare better than others as the recovery takes hold. Chips are essential to a broad range of products, including computers and mobile devices.
Investors have ridden the tech wave since the S&P 500 hit a 12-year closing low on March 9. Shares of Dow component Intel fell 4.1 percent to $19.30 on Nasdaq. The PHLX Semiconductor Index dropped 3.4 percent.
On the economic front, the Conference Board's index of U.S. leading economic indicators, a gauge of the U.S. economy's prospects, rose 0.3 percent to 103.8, the highest since September 2007. But the increase fell short of Wall Street's expectation for a rise of 0.5 percent.
There was also more disconcerting news in housing. A record one in seven U.S. mortgages were in foreclosure or at least one payment was past due in the third quarter, according to fresh data signaling that the housing market's recovery will be tepid at best.
The U.S. dollar's gain was another headwind for stocks as it pressured prices of natural resources like crude oil and gold, pushing down shares of companies such as Alcoa and U.S. Steel Corp. The S&P materials index shed 1.5 percent as the U.S. dollar index rose 0.2 percent.
The Dow Jones industrial average shed 93.87 points, or 0.90 percent, to end at 10,332.44. The Standard & Poor's 500 Index slid 14.90 points, or 1.34 percent, to 1,094.90. The Nasdaq Composite Index dropped 36.32 points, or 1.66 percent, to 2,156.82.
Bank of America-Merrill Lynch said notions of a strong rebound for the semiconductor industry next year may not be realistic.
Texas Instruments shares fell 3.4 percent to US$24.88 on the New York Stock Exchange, while Marvell Technology Corp shares declined 5.1 percent to US$15.27 on Nasdaq.
The stock of iPod and iPhone maker Apple Inc slid 2.7 percent to US$200.51 and was a top drag on Nasdaq.
Tech news took an even gloomier tone after the closing bell as computer maker Dell Inc reported a slide in quarterly profit. Dell's revenue missed Wall Street's expectations as sales to large business continued to struggle.
Dell's stock fell 6.6 percent to US$14.82 in after-hours trading. On Nasdaq, it had closed at US$15.87
The benchmark S&P 500 suffered its worst one-day percentage fall in three weeks as investors feared that weakness in housing and labor markets would persist, making current stock valuation seem unjustified.
"There's this feeling that the economy has lost momentum from the third quarter," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. "The market gained traction to the downside when the disappointing economic indicators came out."
Bank of America-Merrill Lynch cut its 2010 growth outlook for the semiconductor industry on concerns about a rising inventory glut. It downgraded 10 stocks, including Intel Corp, Texas Instruments Inc and Marvell Technology Corp.
The downgrades were a setback for those betting that the technology sector would fare better than others as the recovery takes hold. Chips are essential to a broad range of products, including computers and mobile devices.
Investors have ridden the tech wave since the S&P 500 hit a 12-year closing low on March 9. Shares of Dow component Intel fell 4.1 percent to $19.30 on Nasdaq. The PHLX Semiconductor Index dropped 3.4 percent.
On the economic front, the Conference Board's index of U.S. leading economic indicators, a gauge of the U.S. economy's prospects, rose 0.3 percent to 103.8, the highest since September 2007. But the increase fell short of Wall Street's expectation for a rise of 0.5 percent.
There was also more disconcerting news in housing. A record one in seven U.S. mortgages were in foreclosure or at least one payment was past due in the third quarter, according to fresh data signaling that the housing market's recovery will be tepid at best.
The U.S. dollar's gain was another headwind for stocks as it pressured prices of natural resources like crude oil and gold, pushing down shares of companies such as Alcoa and U.S. Steel Corp. The S&P materials index shed 1.5 percent as the U.S. dollar index rose 0.2 percent.
The Dow Jones industrial average shed 93.87 points, or 0.90 percent, to end at 10,332.44. The Standard & Poor's 500 Index slid 14.90 points, or 1.34 percent, to 1,094.90. The Nasdaq Composite Index dropped 36.32 points, or 1.66 percent, to 2,156.82.
Bank of America-Merrill Lynch said notions of a strong rebound for the semiconductor industry next year may not be realistic.
Texas Instruments shares fell 3.4 percent to US$24.88 on the New York Stock Exchange, while Marvell Technology Corp shares declined 5.1 percent to US$15.27 on Nasdaq.
The stock of iPod and iPhone maker Apple Inc slid 2.7 percent to US$200.51 and was a top drag on Nasdaq.
Tech news took an even gloomier tone after the closing bell as computer maker Dell Inc reported a slide in quarterly profit. Dell's revenue missed Wall Street's expectations as sales to large business continued to struggle.
Dell's stock fell 6.6 percent to US$14.82 in after-hours trading. On Nasdaq, it had closed at US$15.87
November 19, 2009
Ringgit slightly lower against greenback
THE ringgit closed slightly lower against the US dollar yesterday, dealers said.
They said the market was nervous on talks that Indonesia's central bank may restrict foreign ownership of short-term debts.
However, one of the dealers said the rupiah later regained its strength as fear of immediate capital curbs eased.
On the local front, the ringgit was traded within a range of between 3.3620 and 3.3770 to the US dollar throughout the day.
The scheduled listing of Maxis' initial public offering today provided support for the local currency, according to the dealers.
At 5.02pm, the ringgit was traded lower at 3.3650/3700 against the US dollar compared with the previous day's close of 3.3630/3680.
The local unit ended the day mixed against other major currencies.
It declined against the Singapore dollar to 2.4289/4351 from 2.4276/4339 the previous day but strengthened against the Japanese yen to 3.7741/7823 from 3.7838/7898 earlier.
Against the British pound, the ringgit rose to 5.6603/6694 from 5.6663/6754 the previous day and it was also higher against the euro at 5.0219/0304 compared to 5.0236/0325 earlier.
INTERBANK RATES
SHORT-TERM rates were stable at close yesterday on continued intervention by Bank Negara Malaysia to mop up excess liquidity in the inter-bank system, dealers said.
The overnight rate was at 1.92 per cent while the one-week, two-week and three-week rates were at 1.96 per cent, 1.98 per cent and 2.01 per cent respectively.
At close, liquidity surplus in the conventional system was reduced to RM18.616 billion from RM22.158 billion estimated earlier while for Islamic funds, it was reduced to RM5.853 billion from an earlier estimate of RM12.811 billion.
Bank Negara conducted seven tenders, comprising three conventional, two Al-Wadiah and one repo tenders as well as a commodity murabahah programme tender in the morning.
The central bank also called a late conventional tender for RM18.6 billion of one-day money and an Al-Wadiah tender for RM5.8 billion of one-day money.
The underlying Kuala Lumpur Inter-Bank Offered Rate was unchanged at 2.17 per cent.
KLIBOR
THE three-month Kuala Lumpur Interbank Offered Rate (KLIBOR) futures contracts on Bursa Malaysia Derivatives closed lower yesterday with four contract months traded.
The futures market saw March 2010 down by two ticks to 97.75 while June 2011 lost three ticks to 96.72 and June 2013 fell by two ticks to 95.27. December 2013 stood unchanged at 94.94.
Volume stood at 41 lots with open interests at 32,932 contracts.
On the cash market, the underlying three-month KLIBOR was unchanged at 2.17 per cent.
The KLIBOR futures were untraded the previous day.
Meanwhile, the five-year Malaysian Government Securities (MGS) futures were untraded throughout the day. - BERNAMA
Most AccessedMost EmailedFrom NST.Cash incentive to fly into 2 airports, LCCT
YTL to streamline REITs here, S'pore EPF puts Shahril in charge of investments Maxis in spotlight as it stages comeback on Bursa YTL rides on TM facilities for wireless Internet service TA Enterprise to acquire another hotel next month Miti to make decision on Malaysia-US FTA talks soon Hong Leong Group approached on stake in Xinfei
Oct new car sales up 23pc from a year ago RHB Capital's Q3 weaker on provision
Cash incentive to fly into 2 airports, LCCTYTL to streamline REITs here, S'poreOmbudsman rebukes EU over errors in Intel caseEPF puts Shahril in charge of investmentsEurope Roundup: Shares end lowerAlcatel Lucent sees growth in AsiaWIEF plans to hold regional business forumPureCircle raises STG40m to 'sweeten' outputOct new car sales up 23pc from a year agoIpoh, Malacca folk will get to enjoy Domino's fare soon
Top Stories Wee, Chew booted out from MCA presidential councilWee, Chew booted out from MCA presidential councilMCA central committee rejects Nov 28 EGM: OngKu Li mulls oil loyalty caucus chairmanshipKlang housewife who drank weedkiller dies
LocalForeignMarket Watch RHB Capital's Q3 weaker on provision.
They said the market was nervous on talks that Indonesia's central bank may restrict foreign ownership of short-term debts.
However, one of the dealers said the rupiah later regained its strength as fear of immediate capital curbs eased.
On the local front, the ringgit was traded within a range of between 3.3620 and 3.3770 to the US dollar throughout the day.
The scheduled listing of Maxis' initial public offering today provided support for the local currency, according to the dealers.
At 5.02pm, the ringgit was traded lower at 3.3650/3700 against the US dollar compared with the previous day's close of 3.3630/3680.
The local unit ended the day mixed against other major currencies.
It declined against the Singapore dollar to 2.4289/4351 from 2.4276/4339 the previous day but strengthened against the Japanese yen to 3.7741/7823 from 3.7838/7898 earlier.
Against the British pound, the ringgit rose to 5.6603/6694 from 5.6663/6754 the previous day and it was also higher against the euro at 5.0219/0304 compared to 5.0236/0325 earlier.
INTERBANK RATES
SHORT-TERM rates were stable at close yesterday on continued intervention by Bank Negara Malaysia to mop up excess liquidity in the inter-bank system, dealers said.
The overnight rate was at 1.92 per cent while the one-week, two-week and three-week rates were at 1.96 per cent, 1.98 per cent and 2.01 per cent respectively.
At close, liquidity surplus in the conventional system was reduced to RM18.616 billion from RM22.158 billion estimated earlier while for Islamic funds, it was reduced to RM5.853 billion from an earlier estimate of RM12.811 billion.
Bank Negara conducted seven tenders, comprising three conventional, two Al-Wadiah and one repo tenders as well as a commodity murabahah programme tender in the morning.
The central bank also called a late conventional tender for RM18.6 billion of one-day money and an Al-Wadiah tender for RM5.8 billion of one-day money.
The underlying Kuala Lumpur Inter-Bank Offered Rate was unchanged at 2.17 per cent.
KLIBOR
THE three-month Kuala Lumpur Interbank Offered Rate (KLIBOR) futures contracts on Bursa Malaysia Derivatives closed lower yesterday with four contract months traded.
The futures market saw March 2010 down by two ticks to 97.75 while June 2011 lost three ticks to 96.72 and June 2013 fell by two ticks to 95.27. December 2013 stood unchanged at 94.94.
Volume stood at 41 lots with open interests at 32,932 contracts.
On the cash market, the underlying three-month KLIBOR was unchanged at 2.17 per cent.
The KLIBOR futures were untraded the previous day.
Meanwhile, the five-year Malaysian Government Securities (MGS) futures were untraded throughout the day. - BERNAMA
Most AccessedMost EmailedFrom NST.Cash incentive to fly into 2 airports, LCCT
YTL to streamline REITs here, S'pore EPF puts Shahril in charge of investments Maxis in spotlight as it stages comeback on Bursa YTL rides on TM facilities for wireless Internet service TA Enterprise to acquire another hotel next month Miti to make decision on Malaysia-US FTA talks soon Hong Leong Group approached on stake in Xinfei
Oct new car sales up 23pc from a year ago RHB Capital's Q3 weaker on provision
Cash incentive to fly into 2 airports, LCCTYTL to streamline REITs here, S'poreOmbudsman rebukes EU over errors in Intel caseEPF puts Shahril in charge of investmentsEurope Roundup: Shares end lowerAlcatel Lucent sees growth in AsiaWIEF plans to hold regional business forumPureCircle raises STG40m to 'sweeten' outputOct new car sales up 23pc from a year agoIpoh, Malacca folk will get to enjoy Domino's fare soon
Top Stories Wee, Chew booted out from MCA presidential councilWee, Chew booted out from MCA presidential councilMCA central committee rejects Nov 28 EGM: OngKu Li mulls oil loyalty caucus chairmanshipKlang housewife who drank weedkiller dies
LocalForeignMarket Watch RHB Capital's Q3 weaker on provision.
EPF puts Shahril in charge of investments
Shahril, 39, will succeed Johari Muid, who is now in charge of the pension fund's strategic planning unit.
The outgoing chief of property group Malaysian Resources Corp Bhd has vast experience in corporate finance, restructuring, mergers and acquisitions, as well as property development, the EPF said in a statement.
Shahril also serves as a non-executive director on the boards of Media Prima Bhd, The New Straits Times Press (Malaysia) Bhd and Pengurusan Danaharta Nasional Bhd.
The outgoing chief of property group Malaysian Resources Corp Bhd has vast experience in corporate finance, restructuring, mergers and acquisitions, as well as property development, the EPF said in a statement.
Shahril also serves as a non-executive director on the boards of Media Prima Bhd, The New Straits Times Press (Malaysia) Bhd and Pengurusan Danaharta Nasional Bhd.
Stocks dip as tech outlook and housing take toll
NEW YORK: U.S. stocks broke three days of gains on Wednesday, Nov 18 following worrisome outlooks from two major software makers and a surprising drop in home CONSTRUCTION [] last month, according to Reuters.
But stocks sharply cut the session's losses just before the closing bell as many investors pointed to a strong uptrend in equities that have pushed major indexes to 13-month highs in recent days. The S&P 500 has ended down only three times in the last two weeks
Business software maker Autodesk Inc was cautious about the outlook for the current quarter, while sector peer Salesforce.com Inc reported a slowdown in new business. The news was a setback to investors looking for signs of a pickup in demand.
The government said housing starts declined to their lowest level in six months, weighed down by a sharp fall in construction activity for both single-family and multi-family dwellings, a sign the housing market is still under pressure.
Henry Smith, chief investment officer at Haverford Trust Co in Philadelphia, said that despite these setbacks, the equity market was experiencing tailwinds from low interest rates, government stimulus spending and signs of economic recovery.
"We are of the continued belief that right now, the tailwinds propelling the market are still outweighing the headwinds," he said.
The Dow Jones industrial average dropped 11.11 points, or 0.11 percent, to 10,426.31. The Standard & Poor's 500 Index dipped just 0.52 of a point, or 0.05 percent, to finish at 1,109.80. The Nasdaq Composite Index lost 10.64 points, or 0.48 percent, to end at 2,193.14.
Autodesk shares slid 10.4 percent to $24.20 and weighed on the Nasdaq, a day after the company, which licenses software to companies on a per-user basis, warned its recovery could be hindered by more job losses. Meanwhile, Salesforce fell 3.1 percent to $63.61 on the New York Stock Exchange.
"TECHNOLOGY [] has been a strong area of the market, and those two results broke the momentum," said Nick Kalivas, vice president of financial research and senior equity index analyst at MF Global in Chicago.
The Dow Jones U.S. Home Construction index climbed 0.8 percent, bolstered by a Citigroup upgrade of Pulte Homes Inc to "buy" from "hold." Pulte rose 4.6 percent to US$10.04.
While the decline in new construction raised concerns about the recovery, it could bode well for removing remaining inventory from the market, something analysts say must happen for the housing sector to recover.
Losses were kept in check by advances in the financial sector. The S&P financial index added 0.9 percent after hedge fund billionaire John Paulson said Bank of America Corp stock could double in two years. Bank of America's shares rose 3.7 percent to US$16.35.
Paulson made his comments in an investor note that was reported by Bloomberg News.
Analysts said the inverse correlation between the dollar and equities -- which has helped to boost natural resource stocks by lifting the price of dollar-denominated commodities -- appeared to break down.
A bevy of mining and energy shares declined, even as the dollar fell and gold hit a record high above US$1,150 an ounce. Freeport McMoRan Copper & Gold Inc was off 0.8 percent at US$84.69, while ConocoPhillips slipped 0.2 percent to US$53.58.
But stocks sharply cut the session's losses just before the closing bell as many investors pointed to a strong uptrend in equities that have pushed major indexes to 13-month highs in recent days. The S&P 500 has ended down only three times in the last two weeks
Business software maker Autodesk Inc was cautious about the outlook for the current quarter, while sector peer Salesforce.com Inc reported a slowdown in new business. The news was a setback to investors looking for signs of a pickup in demand.
The government said housing starts declined to their lowest level in six months, weighed down by a sharp fall in construction activity for both single-family and multi-family dwellings, a sign the housing market is still under pressure.
Henry Smith, chief investment officer at Haverford Trust Co in Philadelphia, said that despite these setbacks, the equity market was experiencing tailwinds from low interest rates, government stimulus spending and signs of economic recovery.
"We are of the continued belief that right now, the tailwinds propelling the market are still outweighing the headwinds," he said.
The Dow Jones industrial average dropped 11.11 points, or 0.11 percent, to 10,426.31. The Standard & Poor's 500 Index dipped just 0.52 of a point, or 0.05 percent, to finish at 1,109.80. The Nasdaq Composite Index lost 10.64 points, or 0.48 percent, to end at 2,193.14.
Autodesk shares slid 10.4 percent to $24.20 and weighed on the Nasdaq, a day after the company, which licenses software to companies on a per-user basis, warned its recovery could be hindered by more job losses. Meanwhile, Salesforce fell 3.1 percent to $63.61 on the New York Stock Exchange.
"TECHNOLOGY [] has been a strong area of the market, and those two results broke the momentum," said Nick Kalivas, vice president of financial research and senior equity index analyst at MF Global in Chicago.
The Dow Jones U.S. Home Construction index climbed 0.8 percent, bolstered by a Citigroup upgrade of Pulte Homes Inc to "buy" from "hold." Pulte rose 4.6 percent to US$10.04.
While the decline in new construction raised concerns about the recovery, it could bode well for removing remaining inventory from the market, something analysts say must happen for the housing sector to recover.
Losses were kept in check by advances in the financial sector. The S&P financial index added 0.9 percent after hedge fund billionaire John Paulson said Bank of America Corp stock could double in two years. Bank of America's shares rose 3.7 percent to US$16.35.
Paulson made his comments in an investor note that was reported by Bloomberg News.
Analysts said the inverse correlation between the dollar and equities -- which has helped to boost natural resource stocks by lifting the price of dollar-denominated commodities -- appeared to break down.
A bevy of mining and energy shares declined, even as the dollar fell and gold hit a record high above US$1,150 an ounce. Freeport McMoRan Copper & Gold Inc was off 0.8 percent at US$84.69, while ConocoPhillips slipped 0.2 percent to US$53.58.
Premature fiscal exit would hurt Malaysia, says World Bank
KUALA LUMPUR: The World Bank warned today that Malaysia should not exit its fiscal pump priming as it could choke off the country's economic recovery.
However, the bank also cautioned that extending fiscal support for too long "may hamper the credibility of medium-term fiscal consolidation, reduce room for future stimulus, increase the risk of asset price bubbles and constrain the private sector once demand picks up," the World Bank said in a country report on Malaysia.
Malaysia is expected to rack up a budget deficit of 7.4% of gross domestic product this year, its biggest in over 20 years, in part due to two fiscal stimulus packages worth a total of RM67 billion.
The extra spending was aimed at offsetting a slump in global demand that has hit Asia's third-most export dependent economy hard.
The government expects the Southeast Asian country's economy to shrink 3% this year and to grow by 3% next year, although the World Bank was more optimistic.
"With East Asia leading the recovery and advanced economies showing progressive improvement, the Malaysian economy is projected to grow at 4.1% in 2010, following a contraction of 2.3% in 2009," the World Bank said.
However, the bank also cautioned that extending fiscal support for too long "may hamper the credibility of medium-term fiscal consolidation, reduce room for future stimulus, increase the risk of asset price bubbles and constrain the private sector once demand picks up," the World Bank said in a country report on Malaysia.
Malaysia is expected to rack up a budget deficit of 7.4% of gross domestic product this year, its biggest in over 20 years, in part due to two fiscal stimulus packages worth a total of RM67 billion.
The extra spending was aimed at offsetting a slump in global demand that has hit Asia's third-most export dependent economy hard.
The government expects the Southeast Asian country's economy to shrink 3% this year and to grow by 3% next year, although the World Bank was more optimistic.
"With East Asia leading the recovery and advanced economies showing progressive improvement, the Malaysian economy is projected to grow at 4.1% in 2010, following a contraction of 2.3% in 2009," the World Bank said.
Banks weigh on FBM KLCI
KUALA LUMPUR: Profit taking on blue chips, especially banks, pushed the 30-stock FBM KLCI into the red at midday on Wednesday, Nov 18, mirroring the cautious developments in the key regional markets.
At 12.30pm, the FBM KLCI fell 5.3 points to 1,274.65. Turnover was 487.68 million shares valued at RM461.23 million. There were 230 gainers, 295 losers and 277 stocks unchanged.
Japan's Nikkei 225 fell 0.85% to 9,647.12, Hong Kong's Hang Seng Index slipped 0.7% to 22,753.99 while Singapore's Straits Times Index lost 0.5% to 2,751.59. Shanghai's Composite Index rose 0.26% to 3,291.46.
Light crude oil rose 26 cents to US$79.34, crude palm oil futures added RM20 to RM2,3562 while gold fell 0.4% or US$4.53 to US$1,136.75.
At Bursa, among the 30-stocks of the FBM KLCI, CIMB fell the most, down 16 sen to RM13 on profit taking which saw 3.34 million shares done. Its decline pushed the index down 1.89 points.
Sime Darby fell eight sen to RM9 and Axiata five sen lower to RM3.10, which dragged the index down by another 2.24 points. Other decliners were Genting PLANTATION []s, PPB, HL Bank and YTL, which fell 10 sen each to RM6.15, RM15.78, RM8.20 and RM7.39 respectively.
Among the banks, CIMB fell 16 sen to RM13 , RHB Cap and Hong Leong Bank 10 sen each to RM5.40 and RM8.20 but Maybank rose three sen to RM6.97 and Public Bank advanced two sen to RM11.
Bintulu Port fell 24 sen to RM6.26 with 3,000 shares, making it the worst performer while Parkson shed 15 sen to RM5.29.
Scomi-LR was the most active with 45.1 million units done, shedding one sen to two sen.
Silver-WA rose seven sen to 22.5 sen with 36 million units done. Dialog rose eight sen to RM1.43 on stronger earnings and bonus issue.
Nestle retained its top spot, holding on to its 24 sen gain to end the morning at RM32.64. AMMB-CC rose 21 sen to RM1.59 and KLCCP 12 sen to RM3.42.
Lityan rose 17 sen to RM2.61 while Jetson-WA added eight sen to RM1.96 while the shares gained two sen to RM2.92.
At 12.30pm, the FBM KLCI fell 5.3 points to 1,274.65. Turnover was 487.68 million shares valued at RM461.23 million. There were 230 gainers, 295 losers and 277 stocks unchanged.
Japan's Nikkei 225 fell 0.85% to 9,647.12, Hong Kong's Hang Seng Index slipped 0.7% to 22,753.99 while Singapore's Straits Times Index lost 0.5% to 2,751.59. Shanghai's Composite Index rose 0.26% to 3,291.46.
Light crude oil rose 26 cents to US$79.34, crude palm oil futures added RM20 to RM2,3562 while gold fell 0.4% or US$4.53 to US$1,136.75.
At Bursa, among the 30-stocks of the FBM KLCI, CIMB fell the most, down 16 sen to RM13 on profit taking which saw 3.34 million shares done. Its decline pushed the index down 1.89 points.
Sime Darby fell eight sen to RM9 and Axiata five sen lower to RM3.10, which dragged the index down by another 2.24 points. Other decliners were Genting PLANTATION []s, PPB, HL Bank and YTL, which fell 10 sen each to RM6.15, RM15.78, RM8.20 and RM7.39 respectively.
Among the banks, CIMB fell 16 sen to RM13 , RHB Cap and Hong Leong Bank 10 sen each to RM5.40 and RM8.20 but Maybank rose three sen to RM6.97 and Public Bank advanced two sen to RM11.
Bintulu Port fell 24 sen to RM6.26 with 3,000 shares, making it the worst performer while Parkson shed 15 sen to RM5.29.
Scomi-LR was the most active with 45.1 million units done, shedding one sen to two sen.
Silver-WA rose seven sen to 22.5 sen with 36 million units done. Dialog rose eight sen to RM1.43 on stronger earnings and bonus issue.
Nestle retained its top spot, holding on to its 24 sen gain to end the morning at RM32.64. AMMB-CC rose 21 sen to RM1.59 and KLCCP 12 sen to RM3.42.
Lityan rose 17 sen to RM2.61 while Jetson-WA added eight sen to RM1.96 while the shares gained two sen to RM2.92.
CIMB Thai shares jump again, hit 3-yr high
BANGKOK: Shares in CIMB Thai Bank soared as much as 26% on Wednesday, Nov 18, extending Tuesday's surge after its parent, Malaysia's CIMB Group announced a plan to list in Bangkok, according to Reuters.
The stock rose 30% on Tuesday -- the maximum permitted daily rise -- as the listing plan stoked speculation the Thai unit might delist, putting a premium on its stock.
By 0401 GMT, the stock was up 24.14 percent at 2.88 baht, coming off its highest since August 2006 of 2.96 baht in early trade. The main Thai index was up 0.39 percent.
The low liquidity of CIMB Thai stock exaggerated its rise, analysts said.
CIMB Thai said on Wednesday that 6.85% of its paid-up registered capital, or 914 million shares, was free to trade and that CIMB Group owned 93.15%.
Some analysts felt the stock wouldn't go much higher.
"It's already too expensive as the price is now at five times book value. I see no point snapping up the stock again. There's no fundamental drive," said Worawat Saisuphatphol, a banking analyst at KGI Securities (Thailand).
CIMB Group, which owns 94 percent of the Thai unit, plans to raise about 4.5 billion baht (US$136 million) by selling up to 35 million of its own shares in an initial public offering in Thailand by mid-2010.
Malaysia's second-biggest lender by assets will tap a stock market that has climbed 57% this year, while building momentum for its regional brand and grabbing a bigger slice of the lending business in Southeast Asia's second-biggest economy, industry analysts said.
The stock rose 30% on Tuesday -- the maximum permitted daily rise -- as the listing plan stoked speculation the Thai unit might delist, putting a premium on its stock.
By 0401 GMT, the stock was up 24.14 percent at 2.88 baht, coming off its highest since August 2006 of 2.96 baht in early trade. The main Thai index was up 0.39 percent.
The low liquidity of CIMB Thai stock exaggerated its rise, analysts said.
CIMB Thai said on Wednesday that 6.85% of its paid-up registered capital, or 914 million shares, was free to trade and that CIMB Group owned 93.15%.
Some analysts felt the stock wouldn't go much higher.
"It's already too expensive as the price is now at five times book value. I see no point snapping up the stock again. There's no fundamental drive," said Worawat Saisuphatphol, a banking analyst at KGI Securities (Thailand).
CIMB Group, which owns 94 percent of the Thai unit, plans to raise about 4.5 billion baht (US$136 million) by selling up to 35 million of its own shares in an initial public offering in Thailand by mid-2010.
Malaysia's second-biggest lender by assets will tap a stock market that has climbed 57% this year, while building momentum for its regional brand and grabbing a bigger slice of the lending business in Southeast Asia's second-biggest economy, industry analysts said.
FTEC’s former MD ordered to restitute RM2.5m in IPO funds
KUALA LUMPUR: Kenneth Vun @ Vun Yun Liun, former managing director and shareholder of FTEC Resources Bhd, has been ordered by the High Court to restitute to the company RM2.496 million, the amount of the company’s funds he had caused to be misused for his personal benefit.
The Securities Commission (SC) said in the landmark court ruling on Nov 11, Vun was also restrained from directly or indirectly managing FTEC funds and any of the group’s companies for two years after he had complied with the restitution order, unless with prior SC approval.
“This is the first time ever a company director has been ordered by the court to restitute company funds,” the SC said in a statement yesterday, calling the scoring of “another milestone in its relentless efforts to enhance corporate government”.
FTEC has been renamed Mangotone Group Bhd.
The SC said the judgment marked a major success for the regulator which had sued Kenneth Vun on Sept 26, 2007.
It said its investigation into the utilisation of the FTEC public issue proceeds showed that Vun had utilised a portion of the proceeds for his own benefit and personal use, constituting a breach of the conditions set by the SC when it approved its listing.
The SC said the civil action was brought under Section 100 of the Securities Industry Act 1983, which allows the court to make a restitution order upon application by the SC if it found a person to have contravened a relevant requirement.
“The SC views the judgment as a timely reminder to directors of listed companies that they must not treat company funds as their own and that they must at all times discharge their duties with honesty, integrity and accountability,” it said.
The Securities Commission (SC) said in the landmark court ruling on Nov 11, Vun was also restrained from directly or indirectly managing FTEC funds and any of the group’s companies for two years after he had complied with the restitution order, unless with prior SC approval.
“This is the first time ever a company director has been ordered by the court to restitute company funds,” the SC said in a statement yesterday, calling the scoring of “another milestone in its relentless efforts to enhance corporate government”.
FTEC has been renamed Mangotone Group Bhd.
The SC said the judgment marked a major success for the regulator which had sued Kenneth Vun on Sept 26, 2007.
It said its investigation into the utilisation of the FTEC public issue proceeds showed that Vun had utilised a portion of the proceeds for his own benefit and personal use, constituting a breach of the conditions set by the SC when it approved its listing.
The SC said the civil action was brought under Section 100 of the Securities Industry Act 1983, which allows the court to make a restitution order upon application by the SC if it found a person to have contravened a relevant requirement.
“The SC views the judgment as a timely reminder to directors of listed companies that they must not treat company funds as their own and that they must at all times discharge their duties with honesty, integrity and accountability,” it said.
Malaysia’s growth can exceed govt target, World Bank says
KUALA LUMPUR: Malaysia’s economy can expand faster than targeted if private investment increases, a World Bank economist said yesterday.
The country’s Economic Planning Unit estimates Malaysia’s gross domestic product (GDP) needs to grow 5.4% a year over the next decade to achieve developed nation status by 2020, Bernama reported on Nov 11.
“The growth rate can be higher than that if private-sector investment can be revitalised,” Philip Schellekens, senior economist at the East Asia and Pacific department of the World Bank, said here. “I think it’s realistic, providing the government can pull off the various initiatives that have been announced on revitalising the Malaysian economy.”
Prime Minister Datuk Seri Najib Razak has eased rules governing overseas investors, initial public offerings and property purchases in a bid to lure more foreign money. Private investment in Malaysia “never recovered” after the Asian financial crisis a decade ago, Schellekens said.
Najib said on Oct 23 that Malaysia’s US$195 billion (RM655.2 billion) economy may shrink 3% this year, less than an earlier forecast for a contraction of 4% to 5%. It will release its third-quarter growth figure on Friday.
The country’s Economic Planning Unit estimates Malaysia’s gross domestic product (GDP) needs to grow 5.4% a year over the next decade to achieve developed nation status by 2020, Bernama reported on Nov 11.
“The growth rate can be higher than that if private-sector investment can be revitalised,” Philip Schellekens, senior economist at the East Asia and Pacific department of the World Bank, said here. “I think it’s realistic, providing the government can pull off the various initiatives that have been announced on revitalising the Malaysian economy.”
Prime Minister Datuk Seri Najib Razak has eased rules governing overseas investors, initial public offerings and property purchases in a bid to lure more foreign money. Private investment in Malaysia “never recovered” after the Asian financial crisis a decade ago, Schellekens said.
Najib said on Oct 23 that Malaysia’s US$195 billion (RM655.2 billion) economy may shrink 3% this year, less than an earlier forecast for a contraction of 4% to 5%. It will release its third-quarter growth figure on Friday.
November 18, 2009
Update CIMB to dual list on SET
KUALA LUMPUR: The nation’s second-largest banking concern CIMB Group Holdings Bhd is seeking a dual listing on the Stock Exchange of Thailand (SET), as it underlines its intention to be a significant regional player moving forward.
The market responded positively to the news, sending CIMB’s share price to a new high of RM13.28 at the close yesterday, up 36 sen or 2.79% after rising as much as 38 sen to RM13.30. A total of 7.4 million shares changed hands.
The stock has been skyrocketing of late — reaching a 29-month high of RM12.32 on Oct 14 versus the previous high of RM12.29 set on May 10, 2007. In intra-day trade on Nov 10, 2009, it touched a high of RM13.14.
CIMB has also closed the gap on MALAYAN BANKING BHD [] as the biggest banking concern in the country in terms of market capitalisation.
As at the close of trading yesterday, CIMB’s market capitalisation came up to RM47.57 billion, just slightly over RM1 billion less than Maybank’s
capitalisation of RM48.63 billion. Maybank closed at RM6.87, up two sen.
Market observers said the increase in CIMB’s share price was a positive reaction to its announcement that it would list its shares on the SET.
In a statement, CIMB Group chief executive officer Datuk Seri Nazir Razak said the banking group’s intention was to strengthen its commitment to Thailand and further facilitate its development as a regional universal bank.
“This move amplifies our commitment to Thailand. The listing will enhance our profile to investors and the general public in Thailand and makes it easy for them to invest in the growth of a regional bank,” he said.
CIMB’s listing will be the first foreign listing on the SET since the Securities and Exchange Commission (SEC) of Thailand and SET approved their new guidelines for foreign listings in October 2009. The regulations will be effective Dec 1, 2009.
Based on CIMB’s market capitalisation of US$13.7 billion (RM46.25 billion) as at Nov 13, the banking group would be among the three largest listed companies on SET and would be the largest financial services group.
“As CIMB Group is a leading financial group in the region, its listing will offer Thai investors an alternative worthy of consideration and will raise the profile of the Thai market in the eyes of fund managers worldwide,” said SET president Patareeya Benjapolchai.
CIMB plans to undertake an initial public offering (IPO) of up to 35 million ordinary shares of RM1 each to retail and institutional investors in Thailand. The Thai shares, when listed, will be fully fungible with their Malaysian counterparts, the statement said.
A minimum offering size would be determined at a later date and could comprise either new CIMB shares or existing shares offered for sale by a major CIMB shareholder.
The listing exercise was expected to be completed in the first half of 2010, although the banking group still has to seek approval from both Malaysian and Thai regulators.
CIMB’s proposed listing would be the first to take advantage of the new regulations on foreign listings approved by Thai regulators, which will be effective next month.
Based on those regulations, the SET would only allow dual listing of companies where the home exchange is a member of the World Federation of Exchanges and the regulator is a member of the International Organisation of Securities Commissions.
CIMB already has an established presence in Thailand through its 93.15%-owned subsidiary CIMB Thai Bank Public Co Ltd, which is listed on the SET and will continue to do so post the dual-listing exercise.
Nonetheless, CIMB Thai Bank president and CEO Subhak Siwaraksa said the bank might consider a restructuring.
“CIMB Thai will continue to be listed on the SET for now,” said Subhak. “However, CIMB Group’s proposed listing would be an opportune time for us to reconsider this in consultation with our shareholders”.
CIMB Thai contributed just under 1% to the CIMB Group’s profit before tax (PBT) in its most recent financial quarter earnings (third quarter ended Sept 30, 2009).
Meanwhile, initial reactions from local fund managers and analysts appear to be neutral on the latest development as many see it as an effort by CIMB to grow its regional brand, although the announcement came as a surprise to many of them.
“For them to seek dual listing, it shows they are trying to really be a regional group as they want a market presence there,” said MIDF Investment CEO Scott Lim. “It’s a very strong effort from CIMB to make their presence felt.”
He said the exercise would be indicative of CIMB’s long-term commitment to Thailand and allow for greater branding presence.
Head of research and partner of investment managers Kumpulan Sentiasa Cemerlang Sdn Bhd Choong Khuat Hock said the move made sense because CIMB had ambitions to grow its Thai business, and listing on the SET could make fund raising easier without incurring currency risk.
“It makes more sense for them as they can now raise (funds) in baht than to raise in ringgit or US dollar and converting,” Choong said.
He added that he did not think the listing on SET would have any significant impact on the locally-listed counter. In the case of most corporates with dual-listing status, Choong said, the activity tended to remain with the shares listed on the primary market.
In terms of numbers, a local research analyst said there would be a minimal impact on the counter as it only affected about 1% of the current sharebase. The listing, however, would diversify the shareholder base.
“There is no bottom line impact at all, or change in any operation. It’s just the listing of shares. This move has more to do with branding and allowing other people to tap the shares from abroad,” she said.
The market responded positively to the news, sending CIMB’s share price to a new high of RM13.28 at the close yesterday, up 36 sen or 2.79% after rising as much as 38 sen to RM13.30. A total of 7.4 million shares changed hands.
The stock has been skyrocketing of late — reaching a 29-month high of RM12.32 on Oct 14 versus the previous high of RM12.29 set on May 10, 2007. In intra-day trade on Nov 10, 2009, it touched a high of RM13.14.
CIMB has also closed the gap on MALAYAN BANKING BHD [] as the biggest banking concern in the country in terms of market capitalisation.
As at the close of trading yesterday, CIMB’s market capitalisation came up to RM47.57 billion, just slightly over RM1 billion less than Maybank’s
capitalisation of RM48.63 billion. Maybank closed at RM6.87, up two sen.
Market observers said the increase in CIMB’s share price was a positive reaction to its announcement that it would list its shares on the SET.
In a statement, CIMB Group chief executive officer Datuk Seri Nazir Razak said the banking group’s intention was to strengthen its commitment to Thailand and further facilitate its development as a regional universal bank.
“This move amplifies our commitment to Thailand. The listing will enhance our profile to investors and the general public in Thailand and makes it easy for them to invest in the growth of a regional bank,” he said.
CIMB’s listing will be the first foreign listing on the SET since the Securities and Exchange Commission (SEC) of Thailand and SET approved their new guidelines for foreign listings in October 2009. The regulations will be effective Dec 1, 2009.
Based on CIMB’s market capitalisation of US$13.7 billion (RM46.25 billion) as at Nov 13, the banking group would be among the three largest listed companies on SET and would be the largest financial services group.
“As CIMB Group is a leading financial group in the region, its listing will offer Thai investors an alternative worthy of consideration and will raise the profile of the Thai market in the eyes of fund managers worldwide,” said SET president Patareeya Benjapolchai.
CIMB plans to undertake an initial public offering (IPO) of up to 35 million ordinary shares of RM1 each to retail and institutional investors in Thailand. The Thai shares, when listed, will be fully fungible with their Malaysian counterparts, the statement said.
A minimum offering size would be determined at a later date and could comprise either new CIMB shares or existing shares offered for sale by a major CIMB shareholder.
The listing exercise was expected to be completed in the first half of 2010, although the banking group still has to seek approval from both Malaysian and Thai regulators.
CIMB’s proposed listing would be the first to take advantage of the new regulations on foreign listings approved by Thai regulators, which will be effective next month.
Based on those regulations, the SET would only allow dual listing of companies where the home exchange is a member of the World Federation of Exchanges and the regulator is a member of the International Organisation of Securities Commissions.
CIMB already has an established presence in Thailand through its 93.15%-owned subsidiary CIMB Thai Bank Public Co Ltd, which is listed on the SET and will continue to do so post the dual-listing exercise.
Nonetheless, CIMB Thai Bank president and CEO Subhak Siwaraksa said the bank might consider a restructuring.
“CIMB Thai will continue to be listed on the SET for now,” said Subhak. “However, CIMB Group’s proposed listing would be an opportune time for us to reconsider this in consultation with our shareholders”.
CIMB Thai contributed just under 1% to the CIMB Group’s profit before tax (PBT) in its most recent financial quarter earnings (third quarter ended Sept 30, 2009).
Meanwhile, initial reactions from local fund managers and analysts appear to be neutral on the latest development as many see it as an effort by CIMB to grow its regional brand, although the announcement came as a surprise to many of them.
“For them to seek dual listing, it shows they are trying to really be a regional group as they want a market presence there,” said MIDF Investment CEO Scott Lim. “It’s a very strong effort from CIMB to make their presence felt.”
He said the exercise would be indicative of CIMB’s long-term commitment to Thailand and allow for greater branding presence.
Head of research and partner of investment managers Kumpulan Sentiasa Cemerlang Sdn Bhd Choong Khuat Hock said the move made sense because CIMB had ambitions to grow its Thai business, and listing on the SET could make fund raising easier without incurring currency risk.
“It makes more sense for them as they can now raise (funds) in baht than to raise in ringgit or US dollar and converting,” Choong said.
He added that he did not think the listing on SET would have any significant impact on the locally-listed counter. In the case of most corporates with dual-listing status, Choong said, the activity tended to remain with the shares listed on the primary market.
In terms of numbers, a local research analyst said there would be a minimal impact on the counter as it only affected about 1% of the current sharebase. The listing, however, would diversify the shareholder base.
“There is no bottom line impact at all, or change in any operation. It’s just the listing of shares. This move has more to do with branding and allowing other people to tap the shares from abroad,” she said.
Subscribe to:
Posts (Atom)
About Me
- Nuang
- Ibrahim bin Ramli@Nuang started his career with CIMB Wealth Advisors Berhad as Agency Manager in April, 2008.Previously he was an Internal Auditors and Accounts Executive with Perodua Sales Sdn Bhd since 17 August, 1994. His background:- 1.Certified of Achievement for Master Sales Leadership from Dr Lawrence Walter Ng of President of The Art Of Learning and International Of Learning Without Learning 2.Certified for eXtra Ordinary Performance of Lawrence Walter Award Certificate for One Million Ringgit Club 2007 3. Certified Life & General insurances 4. Conferred with Diploma in Business Studiess & Bachelor of Business Admin(Hons)Finance from UiTM, Terengganu Branch & Shah Alam respectively;
music
Create a playlist at MixPod.com
