Market Commentary

You can say a lot of things about the market or you can say that there is nothing much to say. Global macro developments have been causing a stop-start to other markets that were having a ball of a time. That is unavoidable, and presents a convenient excuse for the more active markets to take profits every now and then. I do not see liquidity leaving the bullish markets, in fact more are pouring in with the woes in Europe looking to be a lot more drawn out.


I still think the markets are OK, for Malaysia, I see 1650 as a reasonable target by March 2011. Beyond that, I will have to assess the macro developments and the execution swiftness of the ETP and other big projects.

Even CPO prices have chipped in boosting the related counters, though I am not entirely a big fan yet of CPO counters. You can have high prices but not high sustainable demand.


On a side note, JCY is moving closer to where I see good value, around 76 sen (please read my last posting on JCY). Semicon and related industries are highly cyclical, some may have harped too much on their latest quarter's results, but its cyclical, roll with it. They are never going to be smooth. The harping may have some merit if you track back to how CIMB brought the company public - here is where the research departments will frown and throw papers when asked by investment banking side to write a 'good report'. Even when it was just listed, most knew that the reports circulating then were pretty optimistic. Me included, I gave them too much credit, luckily I changed sides when it broke RM1.50.

It was "not right" for any decent research unit to NOT acknowledge that cyclical forces have turned and its was "not right" to just lower expectations, its a blood bath. The same can be said for Notion Vtec, these are not bad companies, in fact they are quite well run. But they are in an industry that is always a lot bigger than the companies, and they ebb and flow, as much as you can try to plan you will always be swallowed. Take your time to buy at the bottom cycle - just another two or three more months should be dandy.

The question many people ask is why the property swaps deals do not trade closer to their purported price. In a strong market, they will. Unfortunately they were caught in the North Korean silliness. But that is not the main reason. The news is out, most of these stocks were "over-owned" leading up to the deals, if the news followed a strong market, then everyone would be happy to hold, and vice versa. Secondly, the pricing, when you are swapping you tend to swap at higher book values than was normally the average for the past year. So IJM Land swap at 3.65 and MRCB at 2.30 ... why at that price, they could have done it at 5.00 and 3.50 ... does that mean the share price will go there? Of course not. As the actual ex-date draws closer, they will, provided people like the deal.


I think the 3 big property deals so far have been reasonably priced, with IJM Land coming out with a good pricing advantage. Besides timing, the next catalyst should be the announcement of the mega RRI Sg Buloh land project, so be prepared to hold a while. However, it is likely to announce the RRI project prior to the completion of the deal and not after, because that would formally secure real intent of having both companies to complete the deal.

Same for Sunway group of companies, but their completion date is faster. Bearing in mind that there is capital repayment via cash dividends, the combined share will face immediate selling pressure in the first few days and may dip lower than 2.80, but longer term the prospects are very good.

The market is led by property and more property stocks. I read Avenue Securities' latest take on SP Setia: "It is fully valued at this juncture. SP Setia has delivered strong property sales of RM2.1bn up to Sep 2010 which underpins earnings visibility for the next 2-3 years. However, we believe this has already been priced-in, likewise the launch of KL Eco City, its mega commercial project adjacent to Mid Valley".


Well, I think they are terribly wrong, not just wrong but terribly wrong. SP Setia was my favoured property counter from day one. Its ascendancy was halted by the UEM Land-Sunrise, and then swiftly followed by IJM Land-MRCB and then Sunway City-Sunway Holdings. There should be some "big news" in the pipeline for SP Setia. Some have whispered of something to do with Sime Property or some massive Sime Property land jv ... I think those whispers have more merit than they appear ...(read between the lines).

Gamuda, not exactly a property counter has taken the limelight yesterday. Its basically a rebalancing act after the recent stop work order on the big project up north. Ringgit for ringgit, I still prefer the upside for SP Setia and IJM Land above the rest.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.