Busy with work

Dear readers, the lack of updates recently is because of my commitment at my work place. Though the hours at my trading house are rather long, but I actually enjoy what I am doing now and am learning lots of stuff with regards to physical oil trading.

Also because of work,I have also turned down an offer from Mr Tan Kin Lian's (ex CEO of NTUC income) offer to help set up and teach a financial course, but I feel honoured to have been approached by him too.

In other news, currently I am not really actively trading the markets for 2 main reasons,

1. Work makes it hard for me to monitor the markets as actively as in the past
2. Just by looking at the charts, I feel that the market is going to correct soon. All the RSIs are above 70!!

However, I do check my watchlists daily..which comprises of commodity stocks and REITS.

Finally, I believe that I will be updating this blog much less frequently in the future and I thank everyone for the support over the years.

Coupon dispensing machine business idea

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I was in China for my graduation trip when I saw this particular machine dispensing deals via coupons on food/clothes/products etc. It has taken off in China but somehow no one has brought it into Singapore yet. Personally I find the idea very lucrative as I did a mini business plan with a few friends including asking around for potential investors. However I regret to say that nothing has been done as everyone that I talked too would like to concentrate on their jobs.

Nonetheless, here is the idea that I would like to share and maybe someone will actually do it? All the best to the person! 

 Sample picture of the machines (from english.sina.com) 

Concept

• Build a machine that dispenses vouchers from merchants in the proximity to passersby, so that they will be enticed to visit these shops.
• Charged the merchants for advertising on your machine
• Over time, create a profile list of the users of these machines and more revenue can be gained for being able to target specific groups of people

Why I think it will work

• At least for people my age group, we tend to meet at a certain MRT station first before actually deciding what to eat. Because some people in a group will  definitely be earlier than the rest, he can go take a look at the machine and decide what's having a promotion and propose to the group.
• Singaporeans are price conscious
• Putting these machines at MRTs is essentially targeting the middle/lower class people who will be more likely to be price conscious
• Even if people do not use the vouchers, by having people looking at the machine and the respective merchants on it, advertising is essentially done already
• It has been proven that coupons dispensed on these machines have a higher conversion rate as to those given by via pamphlets. (source from the China company)

Rough costing

• 1 x MRT panel in City hall per month is approx SGD400
• 15 merchants per machine, each paying SGD500/mth (Presently in China, some merchants pay up to SGD800) = SGD7,500

So as in you can see, even with other costs, the potential returns are huge! If you put it at the major heartland malls where aunties/students are..it should be a hit! 

Potential problems/Solution

• Low barrier of entry. Essentially a big company like JCDecaux can just come in and build a similar machine beside yours and outlast you as they have more capital. Hence I propose teaming up with another big player in order to allow the company to be sustainable in the long term.
• Looking for merchants to partner up with will be a problem. But I propose that we can team up with 'The passion card'. Personally I do not think their card is as widely used as expected (I might be wrong), but essentially partnering with them would give a greater backing and also a list of their existing client. This is also good for them, as it will help promote the use of their card. (The china company actually issues membership card that can be used with the machine. Passion card can be promoted via this means too)

Here is the link to an online article too. Click here

Feel free to comment/email me to exchange ideas and views.

Asian/US/World Cheap now?

Recently, I attended a seminar (speakers were from Aberdeen asset management and BCM)  on the outlook of the Asian / US Economy and here are some takeaways from the seminar:

• The economy of Asia ex Japan can be growing, but the market (i.e stock market) might not truly reflect that in the short term. This is because though the Asian ex Japan economy has more or less decoupled from the western economies, the fact remains that our stock market is still coupled. Just look at the impact of a drop of the DJIA has on the subsequent day in the Asian markets!

• But this can prove to be a good buying opportunities for the long term. However the speaker from Aberdeen said that they are currently underweight in China but are overweight in Singapore and Thailand
• If you want exposure to the China market, do it via the China companies listed on the Hong Kong Stock Exchange as opposed to those listed in the Shanghai Stock Exchange. This is due to various issues like accounting methods, transparency etc.

• Singapore has been trading at a long term average of 1.8x PTB(price to book ratio), though he did not mention how long the average was taken and also that presently, we are just slightly above average.

• As for the US market, apparently the stimulus of around USD 787 billion has not been fully utilized yet. Only about 60%. Hence the remaining money can still be used to push up the economy.

• Currently the S&P 500 companies rake in around 37% of their revenue from non US markets. This means that even if the US economygoes into recession, US companies that actually do well overseas due to the growing world economy, they will still make money. He cited an example of MacDonald. It doesn't take a rocket scientist to predict the MacDonald will have an increase in worldwide revenue over the years.

• Overweight on technology stocks. They do not pick it because of the sector, but rather because they see many companies that have big potential coming from that sector. The speaker being based in San Francisco (not too far away from Silicon Valley) says that he has seen many exceptional talents who are setting up their companies, especially in the renewable energy sector, which he feels will do very well in the years to come.

On the topic about price to book ratios, here are some clippings I gotten from The Business Times on 20 Aug 2010.

Looking at the STI graph above, our PTB ratio and dividend yield are almost going back to the pre-recession's value. This signify that the economy might be slightly overvalued now, as per during 2008. But as I mentioned earlier, according to the speaker, we are at a long term average of around 1.8x PTB now, whereas historical high is around 3x PTB, signifying potential upside.

Together with my confidence in the Singapore economy, I am actually looking to buy into the STI ETF next month as a means to invest in the Singapore economy.

 

Even though the speaker was underweight on China's economy. Looking at the Shanghai Composite graph aboce, you can see that China's PTB ratio is now at a historical low point of around 2.5x, as compared to the peak at 7x. I am looking to put some money into China, but have not really done my home work as to what exactly to buy yet.

  

In other news, I'm also overweight in commodities myself. The biggest recent event involves Wilmar International, with their entry into the Sugar market. I see big potential in this and will definitely pick up Wilmar stocks in the midst of the currently decline in their stock price. This is because the whole world is heavily dependent on Sugar, Asians being big consumers of it too. The other company is Noble Group.

Looking at the graph above (source from Phillip Securities Research), Noble's main business is in energy and I foresee that the energy market will definitely rise in the long term due to greater consumption. Only thing I worry about Noble Group is the relatively thin margin of 2.1%. But if I am not wrong, I would believe a large chuck of the profits are actually paid to the traders as bonuses. Hence in a bad market, traders will be paid less, thus preserving the company’s margin.

Just in case most of you do not know, commodities traders are paid crazy amount of bonus because of the profit sharing policy in which their remuneration package is defined.

Lastly, I believe that I will be updating this blog much less frequently as I embark on a new journey in my life. I aim to be an oil trader and will defintely strive hard to acheive my goals. Meanwhile, I will still actively search the markets for good investment opportunities in order to create a reliable stream of passive income.

Shorting selling linked to hedge-fund loans

Recently, I came across an article in 'The Wall Street Journal' that I found interesting.

A report done by four academics and accepted for publications in the Journal of FInancial Economics, tracks the trading of 105 U.S. companies that borrowed money from hedge funds between Jan 2005 and July 2007.

Key information:

• Average company that receive a new loan from hedge funds saw a 75% spike in volume of short sales during the five days preceding announcement of the loan, as compared with the volume of short selling 60days before the deal
• However, 255 similar companies which turn to banks for loans saw little change in short selling volume
• Short selling also jumped 28.4% before any changes in existing loans from hedge funds as compared to a droped in 17.4% in short selling if the changes of loans was done with a bank

  Reasons(according to the report):

• Short selling after a loan is announced is actually expected as investors and lenders hedge their exposure against the company who will be taking on a debt at a higher rate. (After reading the article, I believe hedge funds charge a higher interest rate as compared to banks)
• Hedge funds know that this 'shorting' will happen and thus do the shorting in advance before the public does it. ( Hence the article starts talking about insider trading and the fact that hedge funds are less regulated than banks)

My opinions:

• I feel that in order for hedge funds to be willing to lend money to companies, it means that they have already scrutinized the companies. ( From my knowledge, I believe that the really smart people work in hedge funds instead of banks, as remuneration is much better, thus I choose to believe that hedge funds do make better decisions that banks) Hence it actually makes sense to buy up these companies' shares when the public are shorting it.

In other news, I attended the Asian Investment Banking Conference 2010 just a few weeks ago. The main thing I got out of the event is that for those people who are thinking of going into investment banking, just stay in Asia. There is no need to go to USA/Europe. This is because, Asia is now the focus for investment banking. The number of cases that you will get to work on is much much more plentiful in Asia (though it might not be bigger), but it does give you more exposure, which is much more important.

Also, for those who would like to get into the front office of a bank, it is better to work in a front office role in a small bank and learn the essential skills which are transferable, than a back office position in a large reputable bank. This is because it is almost virtually impossible to jump from back office to front office.

How will appreciation of Renminbi (Chinese Yuan) affect Singapore banks?

According to a report by UOB Kay Hian:

• Potential appreciation has little impact on Singapore banks
• Table below explains some of the exposure of the Singapore banks
• DBS's wholly owned DBS Bank (HK) has 50 braches and a market share of 5% in Hong Kong. Hence they will benefit if the RMB appreciates.
• OCBC owns a stake in Bank on Ningbo, which is worth around SGD661.9 million (about 2.3% of OCBC's current market capital) and hence with an appreciation of RMB, this will mean that the investment in Bank of Ningbo is worth more.

	Branch Network	Investments in China	Estimated % of Total Loans
DBS	Eight main branches and seven sub-branches in China	n.a.	2.5
OCBC	Five main branches and four sub-branches in China	10% stake in Bank of Ningbo	2.5
UOB	Eight branches in China	15.4% stake in Evergrowing Bank	2.0

 * Table courtesy of UOB KH

In my view, I would think that if the RMB were to appreciate, the banks will actually stand to benefit much much  more .This is because I believe that the banks would have also made other kinds of mini investments that are yet to be reported. (We all know that Singapore is heavily invested in China) Hence in general their total assets in China will appreciate!

But then again, though the RMB is expected to appreciate in the long term. We are still unsure about the short term direction!

China removes Yuan peg!

Picture source: reuters.com

China announced a few days back that it will be removing the Yuan peg (6.38 Yuan to 1 USD), which was implemented during the global crisis in order to shield their exporters.

This decision in my opinion, came as the US has been pressuring China to let its Yuan revalue, citing unfair competition. However even with the unpegging of the Yuan, China said that it is only going to let the Yuan revalue slowly and not let it be a big one time jump.

Some implications for the strengthing Yuan might be:

• China citizens will have a higherpurchasing power, as imports will be cheaper hence indirectly increasing their lfestyle.
• Paper companies in China will stand to benefit. This is because most of their pulp is imported (thus stronger Yuan, means cheaper pulp for the paper companies) and the final product is mostly kept within China.
• Airlines will stand to benefit. Fuel cost which are normally demonited in USD and the cost of buying new Boeing planes will drop (in terms of Chines Yuan)

In my opinion, this might reduce China's competitiveness in the short term as its exports will be more expensive. But in the long term, people will still realise that China's cost is still relatively low, as compared to the rest of the world and hence will be flocking back, when China improves their technology/capabilities. In addition, I feel that the stronger Yuan might help in China acquiring more skills/ technologies from the developed countries too!

Danger! and Parkway holdings

World cup season has caused a drop in volume in trading activities, though the STI has been rising. In Technical Analysis terms, when a price is rising with dropping volume, there is danger!

Anyway to keep things in perspective, the graph below shows the performance of the STI since 1987. ( I gotten the data off yahoo.) As you can see corrections from peaks usually last quite a while..

In other news, the battle for Parkway holdings by the two firms, Fortis Healthcare Group and Khazanah is making quite a big headline.Here is a summary of events

• Fortis bought a part of parkway holdings 2mths ago, bringing their share to 25.3%
• Khazanah, who has been a shareholder for some time already, then wants to take control of parkway by making an offer to buy more shares in order to reach 51.5% holding, with an offer price of $3.78. This translate in them buying 364 out of every 1000 shares that they do not own.
• If Fortis wants to block Khazanah from doing so, they will have to buy ALL the shares that they do not currently hold. This is because of SGX ruling that states that if a firm has recently became a substantial shareholder, they cannot make a partial offer for the company but would instead need to make an offer for the WHOLE company.

This translates to the following issues

• Fortis need to spend more $$ than Khazanah in order to take control of parkway, because they need to make an offer for the WHOLE company, while Khazanah needs to reach only 51.5% to control the company
• Fortis can actually give up their recently bought share to Khazanah and make a decent profit of around 6%
• Shareholders wise, if you are unsure how the saga will end, and are happy with the current offer price of $3.78 by Fortis, just sell into the market (which I believe is trading around that price) Else, you might not be lucky enough to be the 364/1000 shares people that Fortis intend to buy

World Cup 2010

Had a good trip to Redang and China. Saw quite a few things over in those 2 countries. For example in China, after speaking to the tour guide, she mentioned that the common people are backing off the property and the stock market, though many local people who are earning around SGD800 had already been flipping properties for a while.

Hearing this, I believe it is really time for foreign investors to stay out and let the situation cool off, which includes giving the time needed for the China property laws to settle down too.

Anyway, for the time being, I have exited all my positions and it seems to be a rather good decision for the pass few weeks.

For those of you who did not subsribe to the world cup, here is a good fast streaming site for the world cup. Enjoy!

http://www.footyfire.com/

Sell in May and go away? World cup on stock markets?

1) 'Sell in May and go away' , this is the common saying that has been around for years.

 
Picture courtesy of http://www.ritholtz.com

So as you can see, based on the US's S&P 500, if you sell in May and buy back in Nov, you will generally do better (though one thing to note is that, on average, all months actually generate positive returns). In Singapore's context, I am not very sure, but I guess that it should show a similar trend as the world's economy are interlinked.

2) 

Picture courtesy of http://blogs.timeslive.co.za

I have also read reports that during the world cup period, stock markets will drop too. This is because people will be pulling money out of stocks to bet and/or spending more time watching soccer and hence not be as participative in the stock market. These reports were also supported by accompanying statistics.

Though I do not believe 100% what these reports have said, I do believe that they should be some truth in it, considering the statistic were not faked.




In conclusion, statistically, it is not a good time to hold stocks over the next few months. Personally, I have sold away around 80% of my holdings, leaving behind some preference shares which I few should be relatively non-volatile.

Also, besides the above 2 reasons that I have mentioned, I am actually going overseas for my grad trip.(Will be visiting Malaysia and the Shanghai World Expo) Thus without the time/access to my trading accounts, I would rather take my profits and have a peace of mind during my trips.

Graduated! (Greece, Goldman, DJIA)

Sorry for the lack of posts, was busy with school exams. But finally,I have graduated!

Anyway, many major events happened over the past few weeks. Here are some of the more interesting ones:

Picture courtesy of : http://www.defimediacdn.info/

1. The biggest one is the Greece bailout. It caused the market to go into a panic stricken sell off mode. Hence I bought up some blue chips last week too. Not 100% sure that the market will not be sold down again, but I believe that the fundamentals of Asian markets are strong and especially that of Singapore. So I have basically bought into Singapore companies dealing with land/telco. Also, most of Greece's debt is limited to the EU, with little exposure to the rest of the world. Even America did not take on too much of its debt. I am not saying that it will not affect Asia/Singapore, but rather, I do not personally think the actual impact will be too big.

Picture courtesy of : http://standupforamerica.wordpress.com/

2. The Goldman Sach case. It might be true that Goldman Sach might have a little conflict of interest when structuring their products. BUT, I feel that if the institutional investors can afford to pump in so much money to buy the products, they should actually be smart enough to understand the products before buying it. I mean, we can understand if aunties/uncles who invests $20,000 in structued products and got mislead, but for companies who spend millions in investing, there is really no excuse for them not doing their homework prior to buying such products.



3. The drop of almost a 1000 (approx 10%) points in the Dow Jones Industrial Index last week before a strong recovery to close approx 3% down.. There was speculation that some person keyed in a sell order of 'billions' instead of 'millions. However reports were quick to say that this wasn't the case, and investigations are still undergoing. Personally, I choose to believe that it is due to some computer glitches. If you do not know, with the invention of algorithm trading (i.e computer trading on its own based on predefined rules), it has actually increase the liquidity in the stock market by more than 50%!. So in this particular instant, say for example when a particular stock get sold off by a large institutional investor, it might have triggered a involuntary cut loss mechanism in many trading algorithm, which in turn exacerbated the effect and caused the almost 10% drop in the index.

Commodities (Deutsche Bank) , Oil, World Cup, HDB business idea

Here are some stuff interesting stuff that I have experienced and read over the past few weeks.

1) I attended a talk by DBS on an insight to commodities. The presentation was however done by 2 bankers from Deutsche Bank. Somethings that I took home from there are.

• At the talk, it was said that commodities have outperformed equities for the past 10 plus years, however I feel that the method of comparison is a little flawed. For one, they only compared the basic price of the commodity with that of the Dow Jones. However, we must always remember, when looking at equities, you must power of reinvesting dividends is actually huge!
• The 'cost' price oil, which is also the fundamental support, is around USD 70 now.
• LPG is undervalued.
• Gold is overvalued, however other metals like palladium (used in car catalyst) will see a surge in price, as the automotive industries in emerging markets like India and China picks up.

2) Oil. This is somewhat related to what I will doing in the future, hence the current interest. Some interesting facts:

• Lots of companies (private and non-private) are not trading any more oil with Iran This is because the US and their allies do not wish to have Iran benefiting economically, which will indirectly support their nuclear plans.
• For oil trading, the best kind of environment is to have low oil prices and high volatility.This is because traders live on volatility and with low oil prices, it is cheaper to fund purchases. This means that in the crisis years of 2008/2009, some companies might actually be making a windfall, contrary to what most people believe.

3) I have been reading articles that predict that the stock market will be weak from around now to June/July. Why? Because the world cup is coming!And it has been proven for the past 5 or so world cups.

4) I have been looking at HDBs at the moment, both resale and the new Punggol Emerald and Punggol Waves. In the process I have though of a business ideas as many property websites are really un-user friendly. So I am looking for any person who is able to do programming and build a website, do drop me an email.

Keppel Corp and Sembcorp Marine

Did you know that Keppel Corp and Semcorp Marine are the world's larges and second largest rig builders respectively?

Also, they have announced new orders this month (March)

SembMarine

SGD $550 million contract from ConocoPhillips to construct the Ekofish accomodation topside, situtaed in the North Sea

• Project to start in 3Q2010 and ready for delivery in 2013

• Will cause year to date orders to SGD $810 million, and lift order books to SGD 6.3 Billion

• Apparently this project will help to contribute to profits of around SGD $27 million for FY 2011 and FY 2012

Keppel Corp

• Its subsidiary Keppel Verolme and Areva Energietechnik GmbH have secured a 62 62 million euros (SGD $117.6 million) contract from Wetfeet Offshore Windenergy GmbH to build a mobile offshore application barge

• It will also be situated in the North Sea

• Scheduled to be completed in 4Q11

Some interesting facts (from Citigroup)

• Operating expenditure in deep water floaters in 2Q02 is USD $60,000 per day

• Operating expenditure in deep water floaters in 2Q09 is USD $115,000 per day

• It is expected that between 2010 and 2013, median day rates are to be more than USD
  

• $100,000 for jack-up units and USD $400,000 for deep water units

• Demand for jack-up rigs should continue to fall as the new oil finds are in deeper waters
  

China's Yuan valuation : Undervalued?

Firstly, let us start off by looking at the big mac index. It is based on the theory of purchasing-power parity, which is basically showing how hard you need to work in order to make enough money to buy a Big Mac from MacDonald.

Below is a picture of the index, benched marked to the USD. An example, based on the picture, is that a person in Norway needs to work about 90% lesser than a person in the USA in order to buy a Big Mac.



According to the picture above, China's yuan is about 49% below that of the USD, based on this index.

However, will the USA actually benefit if China strengthen the Yuan? On first thought, it might. Because people will say that with a stronger Yuan, China's goods will be more expensive, hence they will export less to the USA.

But if you look closely, and for those of you who have been to the USA, most of the goods in the USA are actually 'Made in China'. With a stronger Yuan, companies in the USA will have to pay more to purchase their supplies from China, adding to their cost and thus lowering their profits.

An actual example that most of us can relate to is the Iphone. The actual cost of an Iphone is around USD300. The amount that goes to the workers in China who only assemble the parts is only USD 4. The rest of the money actually goes to the other countries that the parts are manufactured in.

So the conclusion is: Yes it is true, with a stronger Yuan, China's goods will be more expensive. However there will be negative repercussion on the USA's economy, whose supplies inevitability comes from China. With more expensive China goods, the USA will have to incur higher cost in their supplies. Thus either the USA companies will have to work with lower profit margins, or pass on the extra cost to their customers. Either way, I personally feel it is quite a lose-lose situation for the USA.

Fish and Co promotion : $1 Fish and Chips promotion for Earth Day

Not exactly a financial post, but just to let you all know.. Fish and Co is having an Earth Day promotion.

Fish and Chips for $1!

For more information, visit : http://www.fish-co.com/earthhour


Enjoy!

Singapore ranked 4th as a global financial centre

This study, in which 1700 financial services executives took part in, is based on 64 factors some of them which are:

• Business environment
• Infrastructure
• Market access
• General competitiveness
  

Apparently, it is stated that in general, a good financial hub must also have a fair, consistent and predictable tax policy and supervisory environment.

My thoughts:

This rankings further reiterate our government's emphasis on making Singapore one of the major hubs for financial services. Just look at the new launch of Bank of Singapore, it is a means to grow Singapore's private wealth management.

Also, Singapore is also the 3rd largest oil trading country in the world (once again, behind New York and London), but it is really quite an achievement, considering the fact that we are a small country.

As you can see, Singapore is heading towards these kind of 'high returns' kind of industry. Basically industries they can bring in LOTS of money.

Just a few days back, I was thinking..why are bankers one of the highest paid people in the industry? And why do banks earn sooo much money?

If you actually think about it, ALL industry eventually will need to rely on banks for financial assistance in some way or another. So a bank has a role to play in ALL aspects in the economy. Hence by earning a little bit from EVERYONE in the economy, they actually make tons of money.