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.