Thursday, June 24, 2010

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
Eight main branches and seven sub-branches in China
Five main branches and four sub-branches in China
10% stake in Bank of Ningbo
Eight branches in China
15.4% stake in Evergrowing Bank
 * 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!

Monday, June 21, 2010

China removes Yuan peg!

Picture source:

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!

Saturday, June 19, 2010

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

Sunday, June 13, 2010

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!