Direction for Stock Market in 2H 2007

The 2H 07 started off very well and a record intra-day high was reached on 16 Jul 07 at 3,688.58 although the day closed was 3,653.23.

Oil & Gas, Construction, Properties and Marine were in plays and speculative penny stocks like Baker, Banjoo, Equation Jade & Informatics were on the run. Oh gosh, I was tempted (UNFORNATELY)!!

Suddenly, without any warning, speculative penny stocks took a turn in the afternoon of 17/7/07after hitting record volumes and prices. The properties counters got hit by the announcement of the increase in the Development Charges, and later, both banks and property shares were hammered by the statement from MAS on its concerns on the property prices.

Then, the BIG Bang came, Dow Jones dropped >500 points on 26 & 27 Jul 07 although it was attempting to test 14,000 level just on 19 Jul 07. STI was not sparred and it fell a sharp 173 points for 3 days from 25 to 27 Jul 07 or 4.7% from the previous close. The sentiment became negative on US housing woes and sub-prime loans problems and slow down in US economy.

My portfolio suffered some drops. The core holdings are ok, as they were picked based on fundamentals. However, due to the earlier europia in stock market and the constant discussion on speculative plays among my colleagues, I got tempted and jumped into doing speculative buying (IPCO & Swing Media) without doing my dues on the margin-of-safety. I also followed the ShareOwl investments calls and bought into Guthrie & China Milk warrant (ops, I bought the WARRANT). Hmm... I think I'm going to get stucked in IPCO & Swing Media for quite sometime.

No wonder one of the investment advice given is NEVER talk about stocks, and this is what the world's greatest investor, Warren Buffret has been practising. I have to admit my fault and blame myself for falling into the trap of greed and emotions. I probably have to reassess these choices and make a decision to hold or to cut loss.

The marco view of the fundamentals look intact and in fact, the GDP growth for Singapore and the whole world is expected to be higher this year. Analysts are still looking at higher STI of 3800 to 4300 by year end. The property prices should continue to climb at fast pace for at least until Q1 of FY08 and the multiplier effect of the IR investments is expected to boast the local market until 2009.

For the current quarter, I believe the stock market will consolidate and should move side ways. If the STI falls to 3300 level, it will be a good chance to accumulate. I'm still positive for a bull to come back by late November and should last into Jan 08. This time, I will seriously consider whether to reduce my holdings on properties REITS having observed its huge run-up and then the subsequent correct down.

AREIT 3.32 (17 Jul 07)
CMT 4.30 (21 Jun 07)

The yields at these levels are at ridiculously low of 3-4% compare to 3% on 10-year bond. One strategy adopt could be selling them out at high level and buy back at lower levels (done for CMT, but the low was not low enough). Another strategy is simply by switching other higher yield REITs. The high prices are probably due to asset inflation from the good sentiment, high liquidity and bouyant property market, which will utimately come down to the realistic levels after the europia is gone.

Review of 1H 2007 Investment Performance

It has been a while since my last update of my view on the Stock Market in Feb 2007. It turned out to be true that the market pulled back after the Lunar New Year and the strong correction set-in Mar 07. The STI was down from 3,217.68 (2 Feb 2007) to as low as 2,982.29 (-7.3%) by 5 Mar 07.

The correction in Mar 07 was brought about by the sharp dip in Wall Streets due to liquidity worries revolving around the prospect of the collapse of sub-prime lenders in the US and the unwinding of the carry trade in the Japanese yen, and finally, new concerns that the US economy will stall into a recession by the end of the year, a possibility trumpeted by none other than former Federal Reserve chief Alan Greenspan.

However, the correction was quite short-lived and the STI recovering towards end of Apr-May07 and ended at 3,548.20 at end of Jun 07. My investment porfolio was not affected very much due to price appreciation in my small cap investments, e.g. Adampak, Transview & Sp Winsor and REITs, e.g. AREIT, Cambridge & CMT.

I took some profit on Cambridge, SPH, TT International, Transview, TCIL and Vicom, although some of them subsequently continue to spike up. I also reduce my holdings in HTL and sold off Aussino and Portek due to worse that expected results.

The new investments I have made for long-term cashflow income are Babcock & Brown, First Reit and MacPSF.

Babcock & Brown is the first of its kind of business trust investing in operating leases, loan porfolio securitised assets and alternative assets to be listed here. At the dividend yield of >9%, it is rather attractive although the market perceived it to be of higher risks than REITS. I intend to monitor its results and gain further understanding before increasing my investment in it further. However, I should cap the investment to 20% of my funds in this stock due to the business risks it is carrying (it is a business trust!) and the business performance depends very much on the experience and judgement of its management.

I have invested quite heavily (40 lots) into First Reit as I feel that the market is mispricing it too much due to the risks associated with its Indonesian Assests. Nonetheless, with a NTA of 88 cts and yield of >8%, I believe my average purchase price of 73.3 cts has quite a comfortable safety buffer. For the time being, I will just maintain this amount of investment.

MacPSF is a ASX listed fund having duo listing in SGX. It is an investment funds investing in listed and unlisted property funds in Australia, US, Europe, New Zealand etc. This investment looks interesting to me as it gives me exposures in the properties in Aussie Land and other parts of the World and also the currency exposure to AUD since its dividend is to be paid this currency. It is expected commodity-back currencies should continue to perform well for the next few years due to the strong commodity demand in China. However, it should not be forming more than 10% of my investment.

New investments are also made into Contel and YHI for captial growth potential.

BT: Capital flows fuelling Asia asset bubbles (27 Jul 2007)

Capital flows fuelling Asia asset bubbles

They're also driving up currency values in developing Asian countries, warns ADB

By ANTHONY ROWLEY
IN TOKYO

CAPITAL flows into developing Asia are driving up currency values and contributing to asset bubbles, the Asian Development Bank (ADB) said yesterday.

The warning comes at a time when outflows of funds from Japan in particular are pushing up Asian currencies to the point where the export competitiveness of some countries is being damaged, and when asset markets are becoming overheated.

The ADB's latest Asia Economic Monitor produced by the bank's Office of Regional Economic Integration says that, even so, strong growth in China and slightly slowing growth in the newly industrialised economies (South Korea, Hong Kong, Taiwan and Singapore) plus most of Asean should allow East Asian economies to grow by 8.1% this year and 7.9% in 2008.

Surging capital inflows - which reached a record US$269 billion in 2006 - brought with them increasing pressures for currency appreciation and fast-rising asset prices, leaving authorities with a new set of macroeconomic challenges to manage, the ADB report says .

'Already this year, the Thai baht is up over 17.6% and the Philippine peso over 9%, while equity markets have been rising fast and showing increasing signs of volatility. Authorities in the region are faced with a serious challenge as they look for the right policies to manage capital flows and keep economic expansion on a steady course.'

Although capital inflows can bring benefits, their danger lies in the potential for sudden reversal, with huge implications for asset prices and overall macro-economic conditions, the report argues. It breaks new ground for a multilateral financial institution in highlighting such dangers.

The report does not make specific reference to outflows of capital from Japan, via the so-called 'carry trades', whereby yen are used to fund purchases of other currencies and assets outside of Japan.

But these have been a major source of momentum for driving up the Korean won, the Thai baht and other Asian currencies while at the same time driving the yen down to record levels.

To counter the impact of surging capital inflows, the ADB says authorities in emerging Asia should consider a package that includes greater currency flexibility; a monetary policy that strikes a balance between domestic and external objectives; limiting the role of fiscal policy; further liberalising capital outflows; and developing more efficient financial market regulation and supervision.

Nevertheless, the region is in a far better position to manage potential financial shocks than it was at the time of the Asian financial crisis a decade ago, the ADB suggests.

Most of the economies in the region are running big current account surpluses and central banks are largely sterilising the capital inflows, resulting in huge foreign exchange reserves.

Potential risks to the economic outlook in East Asia include greater-than-expected inflation; increased financial market volatility; a sharper US economic slowdown; a disorderly adjustment of global payments imbalances; and non-economic events, such as geopolitical disruptions or further outbreaks of avian flu.

The ADB report includes a theme chapter looking at the region's banking sector, 10 years after the financial crisis, which notes that across much of the region, significant progress has been made in returning banks to robust health. Impaired assets have been cleaned up and risk management systems have been strengthened.

Yet, progress has been uneven and the challenges faced by banking systems continue to differ sharply. While financial systems in the region are now less exposed to changes in debt-related capital flows than a few years ago, new risks have emerged as banks have moved into activities such as household lending, securities and property.


Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

The Remisier King Speaks

SINGAPORE) Peter Lim, the man formerly known as the 'Remisier King' and who is estimated to be worth more than $2 billion today, reckons the stock market still has two good years to go. But he is getting concerned about the property market.

The good life: Nowadays, Mr Lim spends his time dispensing advice to deal-makers in the industry - and sends them a bill of $300K for it

'The market won't collapse for the next two, three years. It's all sentiment-driven. People are making more money, and so long as people are spending, we are OK. But one has got to start to think how to exit at the end of 2-3 years - 2009, before the casino starts operating,' he said.

Mr Lim is, of course, well known as an influential stockbroker and deal-maker in the Singapore and Malaysian markets in the early 1990s. That was also when he made his millions, but quit at his peak to take care of divorce proceedings.

Despite being out of the industry, it was in the last few years that his fortunes took a leap forward, thanks to the booming stock market. He was recently in the news for agreeing to put $150 million into Rowsley for its reverse takeover of a China solar company.

In a near four-hour interview with BT to talk about his market views and investment philosophy, Mr Lim said a lot of the big companies listed on the Singapore Exchange (SGX) today have a global presence.

Like Keppel Corp, for instance; it can't fulfil all the orders for its oil rigs. So even if there is a shift in investor sentiment and the market corrects severely, investors can still ride out the whole cycle, said Mr Lim - barring a global recession, of course.

The danger, he said, is in the small-cap sector. 'Some of these stocks have gone up a lot. Much of the potential has been priced in. If this potential is cut short by any unexpected unfortunate event, they will come down like a rock.'

Small-cap stocks run up fast because of their small float. But when the sentiment turns, everyone is a seller, he said.

As for the property market, Mr Lim thinks prices have gone up too fast. The sharp increase has taken everyone by surprise, even the government. 'Actually, it's quite simple. Singapore is small. You get a small bucket, and pour a lot of water, it'll overflow. This is what's happening. I think the demand just comes together at the same time. I don't think it's sustainable.'

Demand is so strong that people are knocking down buildings, and that's curtailing supply even more.

But the thing is, the buildings knocked down will have three times more apartments when they get rebuilt a few years down the road. 'When the supply comes out, property prices will drop,' he said.

Comparisons have been drawn between Singapore and London. 'But you tell me: how many en bloc (redevelopments) do they have in London? No en blocs means no additional supply.' he said.

Mr Lim is worried about the impact of high rentals on businesses - office rentals have gone up by 200-300 per cent in the last few years. 'Costs are going to bloat . . . most businesses' margins are going to be eaten up by costs.'

At the moment, many individuals and companies are making money from asset inflation, he said. 'You hope that this asset inflation becomes an income, becomes regular. But I don't think so. These are all situational. But it will go one day.

'I'm not a pessimist, but this is how I see it. That's why at the end of a bull market, you see a new generation coming up. Because all the old ones die. Now and then, you see one of those who stays - then he becomes a legend. And if you observe those legends, most of the time, they spend their time scolding people: 'don't gear, don't gamble'.'

And that exactly was the message that he kept harping on during the interview.

'A lot of people get it wrong. When the bull market is here, they build debts. Bull market is the time to build cash. Because today's market turns very quickly. When the market turns, you cannot sell, especially for the property market. You can only sell when things are going up.

'So I always tell my friends: 'Make sure you stay alive. The market won't die, so there's always a next time.' '

By BT's estimates, Mr Lim is worth in excess of $2 billion. He has just under 5 per cent in Wilmar International. Based on the company's current market capitalisation of $22 billion on SGX, that stake alone is worth $1.11 billion. He has about 11 per cent in FJ Benjamin, and that's worth $52.6 million. Meanwhile, his 25 per cent stake in Rowsley has a market value of $37 million. So his Singapore equities alone are worth $1.2 billion. On top of that, he has some Australian mining stocks bought in the 1970s and '80s.

Mr Lim says 50 per cent of his portfolio is now in equities, another 10 per cent in properties and the remaining 40 per cent in cash. The cash is from the dividends he received, which he has not reapplied to the market. So all in, he's worth more than $2.4 billion.

The 54-year-old believes that the fortune he has today is pre-destined. 'This size - substantially, it's your destiny. If today I have $10 million, I'd say over 90 per cent is due to my hard work. But getting it right is not $1 billion. Maybe it's $100 million. How that $100 million becomes $1 billion, you know it's because somebody likes you. You must believe it's somehow a path that's been drawn.'

The bulk of his net worth is in Wilmar, in which he was asked to pump in under $10 million in the early 1990s. By the second half of the decade, he had totally written off that investment. That was when the Indonesian currency fell from 2,500 rupiah against the US dollar (the exchange rate he invested in Wilmar), to 16,000 rupiah, and president Suharto was ousted. There were riots in Indonesia. There was no way of cashing out the assets. But in a few years, things stabilised in Indonesia and the pieces began to come together for Wilmar. Its China operations began to pick up, businessman Robert Kuok decided to inject his Malaysian palm oil operations into Wilmar and palm oil prices started to go through the roof because of the scramble to produce biofuels.

'My Indonesian partner was asking me the other day: 'How the hell did we make so much money?' '

'Up to a point after people tell you a story and a vision, don't write it off. Sometimes it comes true. You just make sure that if it doesn't come true, you don't get hurt too much,' he said.

The most important factor to consider when investing in a company is the person running it; you look at whether the person is honest, and whether he or she is master of their trade.

'It works. It's a tested method of assessing companies,' Mr Lim said.

Wilmar is not his only lucky break. He escaped the Asian crisis as he had quit the broking profession in 1996 to prepare for his divorce proceedings. And he spent the next six months liquidating most of his stock positions. So when the crisis hit, he was mostly in cash.

He was also not in the market during the dotcom bubble as the hearing on the division of matrimonial assets dragged on until 2001. He thanks his lucky stars for having avoided the Asian financial crisis, but thinks he would not have been caught in the insanity of the dotcom bubble.

Nowadays, Mr Lim spends his time dispensing advice to deal-makers in the industry - and sends them a bill of $300,000 or more for it. He still gets a thrill out of structuring deals, which he says is similar to a chess game.

He described the recent Rowsley deal to acquire a solar energy company in China as 'beautiful', as one which allows existing shareholders to 'lock in the upside, but hedge the downside'.

He's also having to cope with the problems of having too much money. He worries if his children, a 15-year-old girl and 13-year-old boy, will be spoilt by his wealth. He reckons he may give the bulk of his money to charity eventually.

But going by the four-hour lunches that he takes - with Imperial Treasure at Great World City being his Canteen No 1 and Kuriya his Canteen No 2 - and sometimes squeezing in a game of tennis or two before dinner, the money problem can't be all that bad.

HIS VIEWS ON . . .

Cutting deals

Maybe it's in the blood. It's quite exciting to pitch a deal, to make sure that you don't catch me. It's like a chess game: you make this move, the next one I make. I don't want to get checkmate.
Wealth

Money is a funny thing. When you don't have it, you want it. But when you have it, you have a lot of problems. I believe that if I'd had no money, I wouldn't have had my divorce. Things wouldn't be good, but it wouldn't end up in a divorce.

Growing old

Once you are old, every year makes a lot of difference. Your lease gets shorter, there's no extension. You go, you go.

Death

Some of my school mates have passed away. So once you start to see all these things, your perspective on life becomes more measured, more considered.

Making money

It's very difficult to make money from trading. People who get rich are those who buy a company, build it, run it. Most of the traders, they come, they make money, because they have this gambling instinct. They take the money and spend it. The minute they lose money, they got no money to pay up.

The next downturn

Today's bull run can get cut short by a number of things. Just like our recent experience with Sars, or a bomb drops on the wrong person's head. Like anything else, the least expected thing can happen at the wrong time. I got a feeling the next downturn will be very severe.