Saturday, November 28, 2009

Asian's Banks Exposure to Dubai and the Middle East

As many of you all might have realized, Dubai is asking for 6 more months to pay back its debt. This somehow has caused the whole world's economy to go into panic.

But as quickly as the news came out, many companies/banks/brokerage houses are coming out with reports and statistics to help assure the general public and investors.

Firstly, here is the actual news (Taken from The Straits Times 1 ) :

Dubai's government investment firm Dubai World shocked markets on Thursday when it asked for a six-month delay in repaying a US$59 billion (S$81 billion) tranche of its total debt of US$80 billion.

Next, according to another report by The Straits Times 2:

Local firms like Property group City Developments (CDL) which have links with companies in Dubai come up to assure the public that their investments are safe. In the case of CDL, if Dubai chooses to default on it payments, CDL will just invest more capital but will thus end up with a greater share of the investment.

Now comes the reports by brokerage houses. Here are some facts and figures done by Citibank:

Source: Citi Investment Research and Kinner's Dealogic file

  • Asian Banks have little, if any exposure to Dubai
  • Dubai's exposure to the world's banks is actually $22 Billion out of the $80 Billion debt
  • Main 2 banks are Standard Charted and HSBC due to their operations in the middle east
  1. Standard Charted ( US$14bn at 1H09, equal to 7.6% of group loans and 60% of equity), but this refers to the WHOLE of middle east, not only Dubai
  2. HSBC (US$15.9bn at 1H09, equal to 1.7% of group loans and 13% of equity), but this refer to the UAE, not only Dubai
  • Below are some bank exposure to Dubai
As you can see, actually there is not much need for alarm. Just that it proves to show that even oil rich countries can be in debt.

In my opinion, unless something major actually happens, this news is actually exaggerated by the media and thus indirectly causing mass panic among investors. Thus, this might actually be a good opportunity to invest in some of the bank stocks which will/might be beaten down due to the general bad market sentiments. Especially for those who have totally no exposure to the Middle East at all.

If any of you want the actual report on the Asian Banks by Citibank, do drop me an email at

Wednesday, November 25, 2009

USD and its implication

Here is the summary of the above video:
  • Since March, the USD has been dropping
  • This is because of the excess USD supply due to the bail out by the FEDs
  • The central bank has been buying 3 times more EURO than USD, implying the switching to EUROs as the reserve currency
  • Since March, USD has slide 70% compared to the Euro/Aussie and 46% to the pound
  • FEDs should not be raising their interest rates for the timing being because this will increase the borrowing cost by corporations, limiting their growth
  • Gold to go up higher, because its a safe asset

Things that I would like to add:
  • In my opinion, commodities like gold are trending up, because of 2 main reasons.
  1. The basic supply and demand. Meaning if more people wants gold, the price will go up.
  2. Gold is usually denominated in USD. So if the USD depreciates, the price will go up. (Imagine that you have a 1kg gold bar, bought with 100USD. If in 1 year's time, USD's depreciates, you need more USD to buy the same 1 kg of gold bar. Hence the price of the gold bar effectively increases, though its worth is the same.)
  • I'm actually still optimistic about the stock market. The market is still trading sideways, but if you realized, its gradually trending up. So I feel that it is actually a good time to invest, while everyone's still quite uncertain.
  • Personally, if the government have been revising our growth upwards, Singapore should be expected to do relatively well in the coming months. It is not that I am bias towards the Singapore government, but we have to admit that they do have above average foresight.
  • Actually a depreciating currency is good for people to borrow. For example, you borrow USD100 to buy gold. Assuming gold does not drop in value, with a depreciation of the USD, in 1 year time, your gold will be worth say for example USD110. So you can sell your gold, return the USD100 and whatever interest to the bank, and pocket the profit!

Tuesday, November 10, 2009

Rickmers Maritime's problem!

Rickmers Maritime (RM) has issued a dividend. However as feared, one of their ships on lease is having its contract terminated on Feb 2010. Hence if they are unable to find another taker for this ship, or if they have to lower the charter price for the ship,this will prove detrimental to RM's income.

So..tentatively some stock brokerage firms are having a sell call on this stock.

Once again as I said, if you believe in the long term potential of the shipping industry, which I feel will definitely be strong once more, you can consider this stock. However, because of the recent news, do give it a few days for the stock to stabilize before buying.

In general, whenever news of a stock is just announced, I do recommend that you give it a few days for the market to digest the news before buying into the stock. This is because there might be many people speculating on the stocks due to the news, so if you are a long term investor, you would not want to be too affected by the immediate news. (However this is my own personal opinion, but it actually varies, depending on the news too)

Thursday, November 5, 2009

Arbitrage Opportunity for Kreit

As of the end of today,

The price of Kreit is as follows:

Kreit $1.01
Kreit Rights $0.06

The cost of converting a right to the stock is $0.93

Hence if you buy the rights and convert them to the stock, the actual price that you will be buying is $0.93 + $0.06 = $0.99 which is 2 cents cheaper than the current traded price.

Hence if you intend to buy this stock for the long term, it is cheaper to buy the rights instead of the stock, if you are going to buy into this stock. In addition, the commission charge that you will be paying would be lesser also because of the lower overall transaction amount.

However if you are going to trade this rights, I suggest you stay away from it. Because it acts similar to a warrant, giving you high leverage but this has a very short lifespan, expiring on 9 Nov.

This works in genera for stocks where they have rights that are facing such scenarios where the conversion price plus the nil paid rights (rights traded on the market before they are converted to stocks) are actually cheaper than the mother stock itself. Thus giving you an opportunity to buy the mother stock at a cheaper price.