General Economy Stuff in my Head

It's been a while since I did a hardcore financial/economic blog post. So I will just pen down some stuffs that I have in my head.

1. The Chinese Yuan

• China is determined not to let the Yuan rise as this will make their exports expensive to other countries, thus reducing their competitiveness. This will be disadvantages for many manufacturing countries. Reiterating that eventually China will not lose its grip as the 'factory of the whole' in the years to come.
• In addition, it also means that large scare manufacturing company will eventually have to move over to China.
• They can afford to suppress the valuation of the Yuan because of the large amount of foreign reserve which they have, which actually comes from the large sales of their goods to other countries, which in turn increases their foreign reserves. So as you can see, it is a vicious cycle, and China will have the upper hand
• On a side note,t I noticed while watching the movie 2012, it tells about how the currency to buy a place on the 'Ark' is in Euros and not in USD, and the building of the Arks were also done in China. Interesting...
  

2. STI

The STI has been inching up,slowly but steadily. However it appears to me that it will be reaching a 'stationay point' (like in math) soon. I.e. the curve is smoothing off to a peak that looks like it's going to be the fibonnaci line of 61.8% at index value around 2949.(Seen from the graph below)

Also, small caps are running like crazy, and IPOs are having big one day jumps in prices. The last time that we saw this occurrence was just before the financial crisis in Oct 2007. This is making we worry. I am currently quite heavily invested in stocks. So I am still contemplating whether to back away from the market soon..maybe in January after the Capricorn effect.

Go and pursue a business!

I am sure many of you out there must have thought about achieving financial freedom, if not why invest?

In my opinion, another way to achieve freedom (in addition to financial freedom) is to set up your own business.

Frankly, many big business start from really small start ups. For example in today's Life section, it talks about Mr Eldwin Chua, 32, a former Zi Char cook who now owns 8 restaurants including the $4 million taste Paradise at Ion Orchard. But we must also remember that route to success is never easy, and statistically, the odds are against us as 80% of companies will fail within 5 years of start up.

However, this should not deter us from trying. If solely based on this statistics, it means that if you own 5 business, at least one will continue after the 5 years! And like investing, a multi-bagger stock can potentially recoup all the losses from other stocks and give you a massive returns! The upward potential is limitless. (Not an accurate way of reading the statistics, but we should always be optimistic)

Therefore I am urging all those who have ideas and would like to pursue it to drop me an email at NTUchartist@hotmail.com .We can discuss it through and see how it goes from there. But I can assure you that you will have 100% of my commitment, but I also expect the same from you.

Back from Hong Kong

Above are some photos from my trip.


Some interesting observations that I made in Hong Kong are

• People there are VERY interested in finance. You see people looking at stocks everywhere, a bunch of old people can be gathering near a small screen near an ATM machine looking at the jumping of the prices in the Hang Seng Index. Also, they have countless magazines talking about investment/money etc. The most amazing thing is that I saw an episode of a lecture on Technical Analysis from the Hong Kong University broadcasting on a Sunday Morning!

• They have property rental shops everywhere! I believe this can be viable in Singapore. A physical presence will be very useful for expats who are coming to Singapore in search of a flat. The unique thing about these shops is that the company holds onto the keys of the flats, hence the customer can actually view all the flats immediately! This is similar to those in the UK.

• People there trade car park lots like houses. A carpark lot actually comes with a title deed!

• I am sure most of you who have been to Hong Kong have seen the dessert shop Xue Liu Shan. It is a dessert shop specializing in selling deserts that are made up of mangoes. I heard that there was a branch in Singapore a few years back, but it failed. I wondered what happened. But frankly, I do see a possible market for this dessert shop in Singapore. Only problem is the high price of the desserts.
  

Off to Hong Kong

I will flying over to Hong Kong for a short holiday and will give some insights and observations of the country.

Anyway, those of you who realized, the china penny stocks are surging like crazy over the last 2 days while the STI index is relatively stagnant...this is causing me to worry a little.

This is because, the last time this happened over a consistent period of time, i.e penny stocks surged while the blue chips are relatively stagnant, a major correction followed after it. This might be a signal that the market might correct soon. So set your stop losses!

I also believe that stop losses are important, even in 'long term investment', this is because I had a bad experience when I did not set my stop losses. (The reason is simple. A stock that drop 50%, needs to gain back 100% in order for you to break even. That's tough!)

Also, if you want to trade China stocks, I have a good stock in mind, ChinaMilk. This is researched by a friend of mine, BT. Just last week, it was trading at around 27 cents which I really wanted to buy in, because the company is actually holding around the equivilant of cash on hand. (meaning, if you can take over the company and liquidate it, you can get back around the same amount of $$, excluding their fixed assets and other stuff) The only thing that I worry is that their core business is doing REALLY badly, with revenue of some businesses dropping over 90%!

But frankly their cash on hand is really enticing. However the stock has started to run. In my opinion, just wait and not rush in. The stock might still run up, like all the other China stocks, but unless there is good reason to back it up, it is pure speculation and thus will definitely correct itself!

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 ntuchartist@hotmail.com

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!
  

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)