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Showing posts with label Stock markets. Show all posts
Showing posts with label Stock markets. Show all posts

Sunday, September 5, 2021

The fund flow conundrum

 

THE FBM KLCI closed above 1,600 points this week for the first time in five months since March 23, 2021.

It has been six consecutive days that our index continued to scale impressively. The index was single-handedly lifted due to the foreign funds flowing back into Bursa Malaysia with limited support by local institutions and retail investors, who have been net sellers.

Interestingly, this coincided with the resolution of the political impasse in our country with the eventual appointment of Datuk Seri Ismail Sabri as the new Prime Minister, the third in three years.

As of end-July 2021, foreign participation in terms of market capitalisation in our local equity market was at a record low of 20.2%.

After 25 months of a consecutive selloff by foreign funds of Malaysian equities, is this the inflection point that stock market investors have been fervently looking forward to?

There are many layers of questions to this overarching theme, but in my view, the most important would be the need to understand what investors want.

Investors ultimately want returns. So if they were to invest in our local stock market, they hope to be able to get the returns, as otherwise, they might as well invest elsewhere.

Malaysia’s weightage on global indexes has shrunk since its peak pre-1997/98 Asian Financial Crisis.

A simple gauge would be the MSCI Emerging Markets Index, where the FBM KLCI’s weightage has been declining from 19.94% in 1994 to 1.36% as at Aug 30, 2021 as shown in the pie chart (see chart).

https://cdn.thestar.com.my/Content/Images/MCSI_Emerging_Market_Index_market_value.jpg

This simply means how insignificant the Malaysian stock market has become in the eyes of global investors.

There is also a direct correlation to the performance of the companies in our local index.

Could it be that our listed companies are either undervalued or underperforming to regional peers, especially in the context of emerging markets?

There is no absolute answer to this as it is at times, a chicken-and-egg issue. Which one actually comes first?

Without foreign fund flows, the valuation of listed companies will remain low, as the market participants would be limited, resulting in a constrained money supply in the local bourse.

Conversely, it is true as well. Why should foreign funds invest in our local stock market and listed companies if the valuation versus their growth trajectory or earnings is not in tandem?

A good example would be Singapore. The Singapore Exchange (SGX) for the past 10 years has suffered a wave of delistings.

In 2010, there were 783 listed companies on the SGX. As at end-2020, there were only 715 listed companies remaining.

The peak of the Straits Times Index (STI) was 3,575 points and it has been on a downtrend ever since. Due to the country’s Covid-19 resilience, the STI started picking up ahead of regional peers towards the end of 2020 and reached 3,087 points as of Wednesday.

The predicament that Singapore went through is rather perplexing as any investor who has scoured the SGX would realise the companies are mostly undervalued not only in terms of valuation but also yields.

If we were to compare Singapore’s listed companies today, they are still undervalued comparatively to our local companies.

The blue-chip tech, banking and utilities companies in terms of valuation are on average more attractive than those listed on Bursa.

In the midst of this earnings season, looking at the reports, apart from the commodities sector, blue chips and select consumer/FMCG companies which were exemplary, others showed improvement but it is still far from recovery.

On face value, many did well if we take into consideration that the same quarter last year was the worst quarter for most companies as they had felt the full impact of MCO 1.0.

Bigger pull: The bull and bear fronting the Bursa Malaysia building. The local bourse needs more companies which can command a dominating position in the global market.

Bigger pull: The bull and bear fronting the Bursa Malaysia building. The local bourse needs more companies which can command a dominating position in the global market.

Whether our local stock market can remain competitive and capture the interest of foreign funds rely on many factors, among which are:

> the ease of entry and exit (access),

> low barriers of entry (cost),

> economic growth prospects (potential),

> political stability (certainty),

> unique value proposition (world-class companies only available in Malaysia), and

> favourable tax regimes (policies).

With all these factors in play and every market in the world vying for the same pool of funds, there must be a unique proposition for our local stock market.

Of course, the vibrancy of the local stock market would also require emphasis placed on local retail investors apart from our local institutions (mostly the sovereign, pension and government linked funds) which act as the anchor.

Only with that, Malaysia can break away from the usual stigma of “small population, limited growth trajectory”.

A good place to start would be the reform on market policies to be more investor-friendly.

However, the game changer would be favourable policies which can nurture, support and grow industries or SMEs such that they would be able to become world-class companies someday yet continue to list on Bursa.

The United States and Hong Kong markets are able to attract global investors’ interest primarily due to the unique companies which are listed on their bourse such as Amazon, Netflix, Tencent, JD.com, Google among many others.

Our own stock market need such companies to attract foreign funds and sustain their interest.

Bursa does have some good names which are not readily available elsewhere in the world such as those in the technology semiconductor space, glove sector, palm oil sector and plastics packaging sector.

We need more companies that either command dominating position in the global market share within their sector or trailblazers that move the country towards the preferred sectors.

This would be more sustainable to ensure foreign funds investing in our markets is not solely because our listed companies are undervalued but rather for the companies’ unique position itself.

In my humble view, a two pronged approach of encouraging good companies and getting them to list locally can address this predicament.

As an example, the precursor would be favourable policies accorded to foreign direct investment entities should also be given to local home-grown companies which meets the criteria, be it tax incentives or cheap land and so on.

Once the companies grows to a healthy size, to encourage them to list on Bursa, lower listing fees, ease of listing requirements or tax breaks for cornerstone investors or funds investing in home-grown companies listing on Bursa would go a long way.

That way, investors around the world who want a piece of these companies would have little alternative but to invest in our local stock market.

The fund flow conundrum of our local stock market will then eventually see some light at the end of the tunnel.

Ng Zhu Hann 

Ng Zhu Hann

 
Hann, is the author of Once Upon A Time In Bursa. He is a lawyer & former Chief Strategist of a Fortune 500 Corporation.

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Learn to invest in stocks properly

Monday, August 2, 2021

No such thing as ‘too big to fail’ in China

 

On Oct 24 2020 during the Bund Summit in Shanghai, Jack Ma delivered his keynote address where he criticised China’s regulators’ saying “outdated supervision” of financial regulation was stifling innovation and its global banking rules were like an “old people’s club.”

 

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PEOPLE who have invested heavily on China stocks in the past two years must be wondering when did it all start to go wrong? After all, China did celebrate the 100th anniversary of the Chinese Communist Party recently on July 1.

Usually on such momentous occasions, one would expect China’s government to prop up financial markets and show the world its economic strength. Ironically, most Chinese stock market indexes are down year to date giving up the strides made for the better half of the year as seen in table 1.

So, did it all start with Jack Ma? On Oct 24 2020 during the Bund Summit in Shanghai, Jack Ma delivered his keynote address where he criticised China’s regulators’ saying “outdated supervision” of financial regulation was stifling innovation and its global banking rules were like an “old people’s club.”

He called for change and said that Chinese banks had a “pawnshop mentality which affects many entrepreneurs.” Many suspected that this led to regulators scuttling Ant Group’s Us$37bil (Rm156mil) mega initial public offering (IPO) and the eventual three-month-long disappearance of Jack Ma.

Before Jack Ma, there was Dalian Wanda Group’s Wang Jianlin, once Asia’s richest man with a net worth of Us$46bil (Rm194bil).

He owned the largest cinema chain AMC (one of the popular Reddit meme stock in 2020/21) and had ambitions to overtake Disney but was hit hard when regulators embarked on capital controls to rein in capital outflow from China.

Businessmen who were taking on debts buying assets all over the world outside of China became a target.

When regulators flexed their muscles, Wang tried to avoid the same fate as HNA Group (one of China’s largest assets buyers which filed for bankruptcy) by immediately disposing foreign assets to comply. Wang then, was among one of the well-connected tycoons to Beijing’s political elites and at one point he was even bidding for the Bandar Malaysia project.

If we were to look back at history, Jack Ma or Wang Jianlin were definitely not the early precedents where China’s government had intervened in businesses.

During the Qing Dynasty, legendary “red-topped hat” businessman Hu Xueyan, the only merchant to be given a second ranked grade official position and control the economy with businesses ranging from banks, pawnshops, silk trade to daily essentials; met with a tragic end despite his fairytale-like rags to riches journey and contribution to the struggling nation then.

This raises the question, what causes the conflict between the China’s government and the business sector?

History have shown us that China is a country where public interests takes precedent over corporate profits.

There are no person or entities that are too big to fail.

This is a complete opposite to United States’s capitalist system. In addition, based on historical literature, the traditional social class structure of China dating back to the imperial periods, consist of four main categories; namely scholars, farmers, artisans and merchants.

Interestingly, merchants have always had the lowest standing in the social class structure.

In the case of Ant Group’s failed IPO, setting aside individual politics and ego, there were justifications for regulators to step in specifically on Ant Financial past lending practices at exorbitant rates.

It was able to bypass regulators’ scrutiny where a financial entity such as banks would otherwise be subjected to. This is rather similar to Malaysia where banks are subjected to regulatory supervision by Bank Negara, whereas money lending entities are subjected to supervision by Ministry of Housing & Local Government (KPKT), allowing it to charge interests as much as 18% per annum.

With regards to Didi Global Inc’s troubled Us$4.4bil (Rm18.6bil) IPO on the New York Stock Exchange (NYSE), the back story was Didi went ahead with its IPO, ignoring Cyberspace Administration of China’s (CAC) order to conduct a thorough examination of its network security. CAC was worried Didi’s massive data will fall into foreign hands due to greater public disclosure associated with a US listing. Clearly, in the interest of its shareholders, many of whom were foreign venture capital and private equity funds, Didi prioritised the listing over national interest.

In the latest regulatory clampdown on the private tutoring education sector, the Chinese government directed that companies in this space to operate as a social enterprise instead of a for profit model.

These new rules barred for-profit tutoring in core school subjects to ease financial pressures on families. The policy change further restricts foreign investment in the sector through merger and acquisition (M&A), franchises and others.

Historically, education is of paramount importance in Chinese’s culture. By doing this, China’s government is seeking to ensure affordable education to a majority of the people in expense of the profiteers.

From table 2, you can see how the best names in each sector have been impacted by China’s new regulatory framework changes in recent times.

Of course there are argument in terms of merits and weaknesses for each governance model. The US model spurs creativity and innovation but it also leads to wide inequality and disparity for the majority of the people. The Chinese model, whilst authoritarian and lacks transparency, does protect the welfare of the masses especially those who may fall through the cracks of society.

Neither one is perfect. It all comes down to different priorities. China have done very well eradicating poverty and lifting the people from hardcore poor to a burgeoning middle class society in the past twenty years.

No matter the propaganda painted in western media to shed China in a negative light, there is no denying that they have accomplished what many countries can only dream of – taking care of the majority of the people.

I am by no means a pro-china hawk as I have undergone western education my whole life. However, with my years of experience working with one of the largest Fortune 500 Corporation in China and being in the inner circle of decision-makers, I have learnt much about their fears, concerns and how they navigate the business, political and social spheres while building a fortune.

Every stock market has its nuances

There is a Chinese character “jing wei” when read together means respect and fear. This word aptly describes how China companies operate at all times.



If you are a Chinese company, wherever you may be, you will bend the knee if China’s government wants you to. It is not easy to be successful in China due to the intense competition. It is even harder to be successful and not attract government attention.

Many retailers often lament, “It is hard to make money from Bursa, better to invest in China and Hong Kong stocks.”

I think it is imperative to first understand that every stock market has its own nuances. Unless one has thorough understanding of the local investment climate, latest news flow and even culture, investing in overseas market is not as simple as just buying big brand names or familiar companies.

It is true that good companies in foreign stock markets is part of a bigger ocean with more opportunities and growth runway due to a larger addressable market.

Similarly there are bigger operators, syndicates or scandals lurking around the corner.

Who would have thought that a company like Luckin Coffee, listed on Nasdaq with a market cap of Us$12bil (Rm50.7bil), once the largest coffee chain in China and touted to be the biggest threat to Starbucks, would turn out to be a fraud?

Having said that, as a fundamentalist, I believe this regulation wave causing the sell down provides a great investment opportunity for these companies due to my belief in the long term prospect of China’s economy.

We must remember that very few people in the world are like Robert Kuok. Some have argued the reason for his success is his early entry into China. I beg to differ. I believe strongly his success in China is because he always placed the interests of China before his own corporate and personal interests.


So entrepreneurs who aspire to do well in China, may consider taking a leaf from Robert Kuok’s playbook and the easiest place to start, is to remove the “I” in the equation of things.

Hann Ng - Managing Partner - Hann Partnership | LinkedIn

NG ZHU HANN

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Friday, November 1, 2019

President Xi’s Blockchain Push Triggers Frenzy in China Technology Stocks

Blockchain endorsement: Xi said China will increase investment in blockchain technology after chairing a study session last week on developing the industry, state-owned Xinhua reported.— AP
 
https://youtu.be/hfNcct7ZfbE

https://youtu.be/KoDD2Yk0bjE
  • Shenzhen tech index surges 5.3%, the most in eight months
  • Investors urge companies to develop blockchain businesses
BEIJING: Chinese investors snapped up every blockchain-related stock in sight after President Xi Jinping said Beijing wants to speed up development of the technology.

The gains were widespread yesterday, with Insigma Technology Co and Sinodata Co among more than 60 tech shares surging by the daily limit in Shanghai and Shenzhen.

The excitement coincided with a 26% rally in Bitcoin, and also boosted stocks with more tenuous connections to blockchain, like baby-food producer Beingmate Co and selfie-app developer Meitu Inc.

Xi said China will increase investment in blockchain technology after chairing a study session last week on developing the industry, state-owned Xinhua reported late last Friday.

The market reaction shows how far an endorsement from Xi can go in China, where high-level officials yesterday began their first major policy meeting since early 2018.

“Most of these companies, especially those that are just beginning to state their connection with blockchain today, are trying to take advantage of the hype, ” said Li Shiyu, fund manager at Guangdong Xiaoyu Investment Management Co. “It shows how much excitement can be triggered by something stressed as a priority by the top man himself.”

Xi Jinping comments spark rally in China technology stocks

The Shenzhen Information Technology Index closed 5.3% higher yesterday, its biggest advance in eight months.

Hundsun Technologies Inc, Easysight Supply Chain Management Co, YGSOFT Inc and dozens more companies with officially registered blockchain businesses rose by the 10% limit.

In Hong Kong, traders singled out Meitu due to its plans for an encrypted user-identification system.

The shares surged as much as 30%. Pantronics Holdings Ltd - which earlier this month said it will change its name to “Huobi Technology”, a reference to a digital currency exchange - rallied as much as 67%.

American depositary receipts of Chinese blockchain companies also surged last Friday.

Investors pressured other firms to jump on the blockchain hype, using an online Q&A platform to submit thousands of questions on their plans to use the technology.

“Please proactively make expansion plans in blockchain to jump on state policies - doing so would be the best reward to investors, ” urged one shareholder of development-store operator Hunan Friendship & Apollo Commercial Co. — Bloomberg

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Sunday, January 7, 2018

New Year 2018 high for Malaysia


FBM KLCI moves higher past 1,800 mark while ringgit breaches RM4 level


In a synchronised fashion, the ringgit, stock market and exports are all glowing for Malaysia. Add this to the rising price of crude oil, economists are expecting the good start to the year to continue leading up to GE14. Experts foresee these translating to lower import costs and more affordable overseas education.


Busa and ringgit on a high


PETALING JAYA: In a rare occurrence, the local capital markets got off to a roaring start in the first week of the new year.

US$ vs ringgit at 3.9965 


Sentiments on the stock market picked up as it sailed through the 1,800 mark, the ringgit breached the RM4 level against the US dollar and the latest trade numbers released showed that exports have hit record levels.

FBM KLCI up 14.52pts to 1,817.97


The FBM KLCI, a key benchmark for the local stock market, closed at 1,817.97, up 14.52 points yesterday – the highest since April 2015. Analysts and fund managers expect the upward momentum to continue, leading to the 14th General Election (GE14).

“The local stock market is set to continue its upward momentum, with investors in optimistic mood, lingering upon expectations of the GE14,” an analyst said.

The Malaysian stock market is now playing catch-up with key regional markets in other countries that have been moving up.

For instance, in the United States, the Dow Jones Industrial Average closed at fresh record highs above 25,000. Trading volume on Bursa has risen sharply to a high of nearly six billion shares valued at RM3.94bil. This is the highest since 2014.

“The increasing volume is an indicator of more investors joining the fray,” said the analyst.

The ringgit also perked up against the US dollar and strengthened to 3.9945 yesterday, the strongest level since August 2016.

Crude oil prices continue to climb with the Brent Crude rising above US$67 per barrel. Apart from a brief spike in May 2015, this is the highest price levels it has reached since December 2014, when the oil price started its slide down.

Exports in November rise to RM83.50bil

Exports hit record high of RM83.5bil in November - Business News ...

Adding to the optimism, the country’s latest trade data for November showed that exports exceeded expectations and rose to a monthly high of RM83.5bil. This is an increase of 14.4% from last year.

The head of UOB Kay Hian Malaysia Research, Vincent Khoo, expects global and local conditions to be favourable for the local stock market as sentiment builds up for the GE14.

“Malaysia has been a laggard and now it is reversing its underperformance. Liquidity is strong locally and internationally as there is more foreign funds participation.

“Economic numbers are strong and export momentum continues to be solid,” Khoo said.

Socio Economic Research Centre executive director Lee Heng Guie said there were continued optimism and positive sentiments on the global economy and markets.

He said the tax reforms in the US would beef up corporate earnings while central banks around the world were raising rates.

The impending GE14, he added, spurred investors’ interest in the stock market and the recovery in oil prices continued to lift the demand for ringgit.

He said the ringgit had a good rally since the last Bank Negara meeting and the upcoming meeting on Jan 29 might see the central bank review its overnight policy rates (OPR) upwards.

The OPR now is 3.25% and many are expecting it to increase, a move that would spur banks to raise their interest rates.

Additionally, Lee said trade data was better than expected and as long as the macro numbers and earnings deliver, it would lift sentiments on market.

Nonetheless, he said investors might be a bit cautious when the dissolution of Parliament was announced.

Meanwhile, Oanda head of trading Asia-Pacific Stephen Innes said Bursa Malaysia was playing catchup as the ringgit remained undervalued in a lot of fund managers’ portfolio.

“But I think the current run will take us to 3.90 (against the US dollar) but at this stage, I think the market is starting to factor in the Bank Negara rate hike in January.

“So we may see a slower appreciation of the ringgit and we should expect profit taking ahead of the rate decision (by BNM) later in the month,” he added.

On the external front, Inness said the global equity market rally was benefiting from higher commodity prices in general and specifically oil prices.

“The recent supply disruptions are having a much more significant impact on prices given Opec’s (Organisation of the Petroleum Exporting Countries) recent production cut and the market is certainly much tighter than it has been in the past.

“Rising oil prices bode well for the FBM KLCI given that oil and gas constituents play a big role in the KLCI make-up. However, I don’t think this is strictly an isolated oil play but it is also rallying on the global growth narrative which is supporting export-oriented firms,” Innes said.

By leong hung yee The Staronline

Bursa and ringgit on a high


FBM KLCI moves higher past 1,800 mark while ringgit breaches RM4 level


PETALING JAYA: In a rare occurrence, the local capital markets got off to a roaring start in the first week of the new year.

Sentiments on the stock market picked up as it sailed through the 1,800 mark, the ringgit breached the RM4 level against the US dollar and the latest trade numbers released showed that exports have hit record levels.

The FBM KLCI, a key benchmark for the local stock market, closed at 1,817.97, up 14.52 points yesterday – the highest since April 2015. Analysts and fund managers expect the upward momentum to continue, leading to the 14th General Election (GE14).

“The local stock market is set to continue its upward momentum, with investors in optimistic mood, lingering upon expectations of the GE14,” an analyst said.

The Malaysian stock market is now playing catch-up with key regional markets in other countries that have been moving up.

For instance, in the United States, the Dow Jones Industrial Average closed at fresh record highs above 25,000. Trading volume on Bursa has risen sharply to a high of nearly six billion shares valued at RM3.94bil. This is the highest since 2014.

“The increasing volume is an indicator of more investors joining the fray,” said the analyst.

The ringgit also perked up against the US dollar and strengthened to 3.9945 yesterday, the strongest level since August 2016.

Crude oil prices continue to climb with the Brent Crude rising above US$67 per barrel. Apart from a brief spike in May 2015, this is the highest price levels it has reached since December 2014, when the oil price started its slide down.

Adding to the optimism, the country’s latest trade data for November showed that exports exceeded expectations and rose to a monthly high of RM83.5bil. This is an increase of 14.4% from last year.

The head of UOB Kay Hian Malaysia Research, Vincent Khoo, expects global and local conditions to be favourable for the local stock market as sentiment builds up for the GE14.

“Malaysia has been a laggard and now it is reversing its underperformance. Liquidity is strong locally and internationally as there is more foreign funds participation.

“Economic numbers are strong and export momentum continues to be solid,” Khoo said.

Socio Economic Research Centre executive director Lee Heng Guie said there were continued optimism and positive sentiments on the global economy and markets.

He said the tax reforms in the US would beef up corporate earnings while central banks around the world were raising rates.

The impending GE14, he added, spurred investors’ interest in the stock market and the recovery in oil prices continued to lift the demand for ringgit.

He said the ringgit had a good rally since the last Bank Negara meeting and the upcoming meeting on Jan 29 might see the central bank review its overnight policy rates (OPR) upwards.

The OPR now is 3.25% and many are expecting it to increase, a move that would spur banks to raise their interest rates.

Additionally, Lee said trade data was better than expected and as long as the macro numbers and earnings deliver, it would lift sentiments on market.

Nonetheless, he said investors might be a bit cautious when the dissolution of Parliament was announced.

Meanwhile, Oanda head of trading Asia-Pacific Stephen Innes said Bursa Malaysia was playing catchup as the ringgit remained undervalued in a lot of fund managers’ portfolio.

“But I think the current run will take us to 3.90 (against the US dollar) but at this stage, I think the market is starting to factor in the Bank Negara rate hike in January.

“So we may see a slower appreciation of the ringgit and we should expect profit taking ahead of the rate decision (by BNM) later in the month,” he added.

On the external front, Inness said the global equity market rally was benefiting from higher commodity prices in general and specifically oil prices.

“The recent supply disruptions are having a much more significant impact on prices given Opec’s (Organisation of the Petroleum Exporting Countries) recent production cut and the market is certainly much tighter than it has been in the past.

“Rising oil prices bode well for the FBM KLCI given that oil and gas constituents play a big role in the KLCI make-up. However, I don’t think this is strictly an isolated oil play but it is also rallying on the global growth narrative which is supporting export-oriented firms,” Innes said.

Experts see good tidings in firmer currency

Back in favour:People queuing to change the ringgit for US Dollar at a money exchange outlet in Bangsar, Kuala Lumpur.

PETALING JAYA: Lower import costs and more affordable overseas education are among the benefits brought about by a firmer ringgit and bullish stockmarket.

National Chamber of Commerce and Industry of Malaysia (NCCIM) president Tan Sri Ter Leong Yap said the rise in the ringgit is a sign of growing confidence in the nation’s economy.

“These are good signs which have set a feel-good mood for the market. What is most important is for the ringgit to remain stable as business needs this rather than having to hedge on the foreign exchange,” he said.

However, a stronger ringgit could act as a “double-edged sword”, Ter added, as exports would now cost higher.

“Exporters may not make the windfall profit as before but they had adjusted to this,” said Ter, who is also Associated Chinese Chamber of Commerce and Industry of Malaysia (ACCCIM) president.

Malaysia Retail Chain Association (MRCA) president Datuk Garry Chua said a stronger ringgit bodes well for retailers that rely heavily on imports.

“In the end, the shoppers will benefit as cost of products would be lower due to the exchange rate,” he said.

Chua said the positive stock run was also good news for retailers and consumers.

“People tend to spend more due to easy earnings from the market and this is good for business,” he said.

Malaysia Associated Indian Chambers of Commerce and Industry (MAICCI) president Tan Sri Kenneth Eswaran said the positive developments showed that the nation’s economic transformation is on the right track.

“The ringgit breaking the RM4 barrier and the stock market climb are signs showing the Government’s economic transformation plans are bearing fruit. Traders and consumers will now enjoy lower import costs,” he said.

Taylor’s University deputy vice chancellor Prof Dr Pradeep Nair said the ringgit’s rally is expected to continue and strengthen below the RM4 region.

“For the education sector, this will be beneficial for parents who wish to send their children abroad to do part or whole of their studies to countries like the US, UK and Australia, should the trend continue,” he said.

He said a firmer ringgit would not have a major impact on incoming foreign students.

“We are still relatively cheaper than other countries that use English as the medium of teaching and we will remain one of the preferred destinations for foreign students looking for affordable, quality education,” he said.

Sunway Education Group senior executive director Dr Elizabeth Lee said some parents would be more willing to send their children abroad for further studies.

“I sense that enthusiasm in parents who enrolled their children with us. They are more confident of supporting their higher education throughout,” she said.

By martin carvalho The Staronline

Ringgit boost for investors, importers 

Companies which lost out during a low ringgit recouping fast

Ringgit on uptrend: People queuing up to change money at a money changer. The ringgit has broken past the crucial 4.00 level.

THE New Year is in, tides are changing and the ringgit is recovering from the past two year’s extreme blues.

The long-awaited reprieve has finally come for certain consumer companies that import intermediary goods for their production cycle.

Foreigners who have taken advantage by accumulating and buying into the equity and/or bond market when the ringgit was at a weaker level last year, would be firmly in the money now.

Analysts see the local currency as now being on a cruise control climb mode moving to new highs in the past week and possibly in the near future.

They note that the foreign buyers would see two-way gains and would be able to realise their gains if they choose to.

“If they liquidate and take the money out they will realise the gains and benefit. Last year the ringgit strengthened by almost 10.4%. Ringgit already broke the crucial 4.00 level, assuming that they make money from the market and take it out, they will also pay less to convert to US dollar,” Socio Economic Research Centre’s executive director Lee Heng Guie tells StarBiz Week.

The ringgit had seen a gain of 0.64% after we entered the New Year, adding to its gains that was achieved in the past two months of 5.63%.<

Currency strategists agree that the next crucial psychological mark would be the 3.80 level that is the infamous currency peg level some years after the 1997 Asian Financial Crisis.

The recovering oil prices with the lifting of equity markets due to strong global sentiment aided gains in the ringgit, Lee says.

The FBM KLCI saw a strong upward move as investors celebrated Christmas and ushered in the New Year thereafter.

The benchmark index had gained some 4.6% since Dec 19 to yesterday’s close at 1,817.97.

Meanwhile, the other companies that will stand to gain are consumer-driven companies especially those that have imported intermediary goods to manufacture or complete end products.

Lee says the strengthening ringgit, if it is sustained, would eventually help to boost the consumer sentiment index (CSI).

In the latest reported third quarter of 2017, the Malaysian Institute of Economic Research (Mier) said the CSI continued to remain weak with the index having retreated further to 77.1. “Anxieties over higher prices grow and (there are) burly spending plans amid waning incomes and jobs,” the Mier said at the release of third quarter CSI figures then.

Any CSI level below the 100 indicates weakness on the consumer front.


Lee says he is hopeful the stronger ringgit would help eventually translate to additional cost savings to the consumer in the form of lower prices.

Meanwhile, MIDF Research’s consumer stocks analyst Nabil Fithri says not all consumer companies would automatically gain from the strengthening ringgit.

He notes that the gainers among the consumer companies would mainly be those which derive their sales from the local market and have imported intermediary goods in the supply chain.

“On average, the companies that import their raw materials lock in the prices through forward contracts for the upcoming six months. So, if there are any gains to their profit margins, it would be seen in the second half of the year,” he says.

Among the companies that stand to gain from this trend are the major consumer food companies such as Fraser & Neave Holdings Bhd (F&N), Nestle (M) Bhd and Dutch Lady Milk Industries Bhd.

Strong gains: The Dutch Lady Milk Industries factory in Petaling Jaya. The company’s stocks had been making strong gains since last year.
Better profit: Nestle Malaysia is one of the companies gaining from a strong ringgit.

All three stocks have been making strong gains in their share prices last year despite their high base.

Observers note that a common theme today that belies these stocks are that they derive their sales from the local market, with minimal or zero exports. Hence they will benefit from strong gains should the local currency appreciate further.

“Their raw materials that form a big part of their production are ingredients such as milk, coffee and sugar which are not readily available locally. They need to be imported and these are denominated in US dollar,” an analyst with a local research outfit says.

Two of those stocks that were mentioned above topped the gainers list on Friday: Nestle rising by RM1.20 to a new historical high of RM103.80 and F&N hitting an alltime high of RM27.82.

Investors may also want to train their sights on the smaller-capitalised consumer stocks some of which had been at a disadvantage earlier due to the weakened ringgit.

The stocks in this space include Apollo Food Holdings Bhd, Hup Seng Industries and Berjaya Food Bhd.

Apollo Food, the maker of packaged confectionery products see a big part of their sales being derived locally and their food is usually stocked in the school canteens.

The stock is trading at a current price to earnings ratio (PER) of 23.6 times and forward financial year 2018 ending April 30 (FY18) PER of 18.96 times.

The company’s second quarter profit had dropped by 11.1% to RM3.82mil primarily due to the lower ringgit then compared to the same quarter a year ago.

When the ringgit was trading above the 4.00 level then, the company had said in its prospectus that its operating environment was more challenging due to the increase in costs of raw materials.

Meanwhile, Berjaya Food Bhd could see further gains ahead as the ringgit continues its ascent.

The company owns half of the popular Starbucks franchise in Malaysia beside owning the worldwide Kenny Rogers Roasters franchise after acquiring KRR International Corp of the US in April 2008.

AmInvestment Bank Research said last month that it believed the worst is over for Berjaya Food with KRR’s robust same store sales growth following the disposal of KRR Indonesia.

The research house had highlighted that Berjaya Food would benefit from a stronger ringgit.

AmInvestment Research maintained its buy recommendation on Berjaya Food with fair value of RM1.91 per share.

“Valuations are pegged to a PER of 25 times FY19 forward, reflecting a 20% premium to its historical valuations. We think that it is justified as Berjaya Food has significantly enhanced earnings visibility following the disposal of KRR Indonesia, attractive growth off a low base and a stellar Starbucks brand,” it says.

By daniel khoo TheStaronline

Monday, January 1, 2018

Critical trends to watch in 2018

There are many issues on a fast and slow boil and some of them could reach a tipping point in the new year


ANOTHER new year has dawned, and it’s time to preview what to expect in 2018.

The most obvious topic would be to anticipate how Donald Trump, the most unorthodox of American presidents, would continue to upset the world order. But more about that later.

Just as importantly as politics, we are now in the midst of several social trends that have important long-term effects. Some are on the verge of reaching a tipping point, where a trend becomes a critical and sometimes irreversible event. We may see some of that in 2018.

Who would have expected that 2017 would end with such an upsurge of the movement against sexual harassment? Like a tidal wave it swept away Hollywood producer Harvey Weinstein, film star Kevin Spacey, TV interviewer Charlie Rose and many other icons.

The #MeToo movement took years to gather steam, with the 1991 Anita Hill testimony against then US Supreme Court nominee Clarence Thomas being a trailblazer. It paved the way over many years for other women to speak up until the tipping point was reached. So, in 2018, expect the momentum to continue, and in more countries.

Another issue that has been brewing is the rapid growth and effects of digital technology. Those enjoying the benefits of the smartphone, Google search, WhatsApp, Uber and online shopping usually sing its praises.

But the “Fourth Industrial Revolution” is like Dr Jekyll and Mr Hyde. It has many benefits but also serious downsides, and the debate is now picking up.

First, automation with artificial intelligence can make many jobs redundant. Uber displaced taxis, and will soon displace its drivers with driver-less cars.

The global alarm over job losses is resonating at home. An International Labour Organisation report warning that 54% of jobs in Malaysia are at high risk of being displaced by technology in the next 20 years was cited by Khazanah Research Institute in its own study last April. TalentCorp has estimated that 43% of jobs in Malaysia may potentially be lost to automation.

Second is a recent chorus of warnings, including by some of digital technology’s creators, that addiction and frequent use of the smartphone are making humans less intelligent and socially deficient.

Third is the loss of privacy as personal data collected from Internet use is collected by tech companies like Facebook and sold to advertisers.

Fourth is the threat of cyber-fraud and cyber-warfare as data from hacked devices can be used to empty bank accounts, steal information from governments and companies, and as part of warfare.

Fifth is the worsening of inequality and the digital divide as those countries and people with little access to digital devices, including small businesses, will be left behind.

The usual response to these points is that people and governments must be prepared to get the benefits and counter the ill effects. For example, laid-off workers should be retrained, companies taught to use e-commerce, and a tax can be imposed on using robots (an idea supported by Bill Gates).

But the technologies are moving ahead faster than policy makers’ capacity to keep track and come up with policies and regulations. Expect this debate to move from conference rooms to the public arena in 2018, as more technologies are introduced and more effects become evident.

On climate change, scientists frustrated by the lack of action will continue to raise the alarm that the situation is far worse than earlier predicted.

In fact, the tipping point may well have been reached already. On Dec 20, the United Nations stated that the Arctic has been forever changed by the rapidly warming climate. The Arctic continued in 2017 to warm at double the rate of the global temperature increase, resulting in the loss of sea ice.

These past three years have been the warmest on record. The target of limiting temperature rise to 2°C above pre-industrial levels, a benchmark just two years ago by the UN’s top scientific climate panel and the Paris Agreement, seems outdated and a new target of 1.5°C could be adopted in 2018.

But it is much harder to meet this new target. Will political leaders and the public rise to the challenge, or will 2018 see a wider disconnect between what needs to be done, and a lack of the needed urgent response?

Another issue reaching tipping point is the continuing rise of antibiotic resistance, with bacteria mutating to render antibiotics increasingly ineffective to treat many diseases. There are global and national efforts to contain this crisis, but not enough, and there is little time left to act before millions die from once-treatable ailments.

Finally, back to Trump. His style and policies have been disruptive to the domestic and global order, but last year he seemed unconcerned about criticisms on this. So we can expect more of the same or even more shocking measures in 2018.

Opposition to his policies from foreign countries will not count for much. But there are many in the American establishment who consider him a threat to the American system.

Will 2018 see the opposition reach a tipping point to make a significant difference? It looks unlikely. But like many other things in 2018, nothing is reliably predictable.

Global Trends by martin khor

Martin Khor is executive director of the South Centre. The views expressed here are entirely his own.


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