Let's Take A Walk With The New "Apek" On The Block

I will go through the entire exercise of reading the prospectus and noting the important points of this China-company listing on Bursa, K-Star Sports. This way, we all can discuss on how we should be evaluating the whole thing.

Yes, you guessed it correctly, its another shoe maker. Why is it that shoe making industry is the only industry being keen to list on Bursa? That's another question for another time.

K-Star will offer 15.32 million new shares at an issue price of RM2.15 per share with 3.4 million shares allocated for the Malaysian public and the rest of 11.92m for selected investors. OK, the size of the offering is not too big at all. The thing to watch out for is the placement to selected investors - if its a huge allocation to selected investors compared to the public, then maybe the promoters and lead underwriters are NOT THAT CONFIDENT on the issue at all. A large sized placement to selected investors may be negative as well, remember MultiSports and Mr. Quek.

Some may think that its a good thing that its all new shares issued. I think if its an ACE company, then that is OK, but for an established company churning decent profits, that is myopic and naive. You should have some sort of moratorium but you should also be upfront with shares that owners might want to sell. I would rather that they sell 20% of their shares to the public and 5% to selected investors - and then the rest of the shares be placed on a moratorium for 6 months, and only sell another 10% from 7-24 months. That way, they can go and concentrate on running the business but with some sort of buffer on being listed. You cannot and should not deny entrepreneurs from some cashing out after having growing the company to a listing.

The IPO exercise is expected to raise RM32.94mil out of which RM9mil will be used for raising the company's production capacity, RM5mil for sales and marketing network expansion, RM4.5mil to enhance product design and development capabilities, RM3mil on branding and advertising efforts and the rest for working capital and listing expenses.

The company, scheduled for listing this May 31, recorded a revenue of RM294.4mil and a pre-tax profit of RM45.54mil last year (StarBiz made an error in taking the RMB figures for RM). Here is the key, it makes RM45.54m a year, and yet it is only raising RM32.94m??? There is absolutely no need to get listed, is there? Generally, a company should be making much less than what it is trying to raise - that way, it is to channel additional capital to fund growth. When you already make more than what you are trying to raise, you MUST HAVE OTHER BIGGER OBJECTIVES on your agenda.

Hence, the bullshit about increasing capacity, marketing network expansion, enhancing product design, branding and working capital are all plain bullshit (and it smells too).

I am not saying you cannot list when the amount you are raising is a lot less than your annual profit but you got to be more upfront-la, not so many idiots running around. I would be a lot happier if the company says that its also to allow for some early investors to cash out - there is nothing wrong with that at all, but don't try to pull a fast one. We all need entry and exit strategies, and its an accepted process for capital to invest and divest, so that the process can be repeated, its the whole mantra of investing and capitalism.ol

K-Star has been in the apparel industry for twenty years and its product range include athletic footwear and leisure wear. They are also the original design manufacturer (ODM) and original equipment manufacturer (OEM) for international brands including Umbro, Diadora, Kappa, Le Coq Sportif, Die Wilden Kerle, Canguro Cosby and Bridgestones, as well as PRC footwear brand, Double Star. This is good stuff, proven deliverables across a wide section of reputable clients. It has four production lines and produces four million pairs of shoes in-house annually.

Back to valuations, RM45.54m based on 89m shares is a net EPS of 51 sen. At IPO price of RM2.15 thats a remarkably cheap PER of 4.2x. However, we should do a comparison: Xinquan, for year ending June 2010 should be making 35.7 sen, at RM1.17 it is trading at 3.27x PER. Why do you want to list on Bursa when you get PER valuations between 2x-5x???

Look at the 2010 PER valuations for similar China sports apparel companies: Anta in HKSE 17x; Dongxiang in HKSE 15x; Li Ning in HKSE 19x; Hongxing in Singapore at 8x. The key difference besides the different exchanges is the size of the companies. Anta, Dongxiang and Li Ning all have a market cap of above $3bn. Even Hongxing in Singapore has a credible market cap of $338m. Xinquan's market cap is just $103m. As for K-Sports, its market cap on listing 89m x 2.15 =RM191.4m / 3.2 = $60m.

Realistically, I think Xinquan is more interesting because if you ascribe an 8x PER (like in Singapore) for Xinquan, its market cap would be close to Hongxing. But even at 3.2x PER Xinquan only paid out 5.3 sen in dividend, presenting a yield of just 4.7%. If you are really generating so much cash flow and you are concerned on your share price, then maintain a strong dividend policy. Xinquan should make RM109m for year ending June 2010 and is only likely to pay out 5.3 sen gross dividend. They have 307.3m shares but they are paying only RM16.3m in dividends. Do this, declare that you will pay 50% of net profits as annual dividends. RM109m x 0.5 = RM54.5m = 17.7 sen. At RM1.17, thats a gross dividend yield of 15%. Once you declare a firm dividend policy, watch your share fly. I am sure using 50% of net profits is more than sufficient to grow the business.

K-Star directors said in the prospectus that they intend to pay 10%-20% of profits in dividend. At RM45.54, assume 20% = RM9.1m / 89m = 10.2 sen. At RM2.15 thats a yield of 4.7%. So tell me what K-Star is doing that is any different from Xinquan??? The controlling shareholder will retain 58.4% of shares upon listing, the key again is who holds the rest?

One hint, the conversion of a S$6.105m loan into 13.32m K-Star shares. This amount may be fluid and could be early sellers, maybe.

Sales to two major customers, namely Xiamen-Waitu Import Export and Qingdao Double Star Celebrity Industrial accounts for 40% of sales. I need not tell you that that is a significant risk, but still acceptable. Other financial metrics such as inventory turnover period of 13 days and receivables turnover period of 80 days are quite positive.



Overall, its valuations are attractive but will suffer the same fate as the rest. Initially you probably have to clear 15.32m + 13.32m shares = 28.64m shares. After that, maybe the share price can find some traction.

I would strongly advise that these companies come out and declare 50% profits payout as dividends; and Bursa put in my recommended moratorium on the owners and promoters. Only then will confidence be back in these shares, and you need confidence to be back if we are to be a viable alternative. You can have hundreds of meetings and brain storming sessions - these will be your best weapons.

Let's be honest here, even if we do all the right things, these shares will probably get between 7x-10x PER valuation max because:
- they will always be benchmarked to those listed in Singapore and HK
- the discounts for smaller China companies listed overseas are justified judging from the "shenanigans" concocted by some of the red chips in Singapore
- they list in Malaysia usually because someone had the bright idea of either cleaning up the books and/or inject fresh capital to dress up the company and/or hammering together a few smaller companies to make it listable and/or ... you get the drift ... when that's the case, usually the ideas man would want to cash out quick

SGX To Trade New Fuel Oil Contract - Wake Up Bursa!

With Singapore's status as the world's largest bunkering port and the world's third largest oil trading hub, SGX said the new contract will further enhance the country's attraction as an international oil pricing centre. The contract is based on the Residual Marine Grade 380 ISO 8217, primarily bunker fuel oil supplied to ships. Physical delivery will be through free-on-board or inter-tank transfer at exchange-designated Singapore oil installations. The minimum trading contract size is 100 metric tonnes per lot and the minimum deliverable size will be 2,000 metric tonnes or 20 lots.

Market-makers and liquidity providers will be available for this contract, SGX says.

According to Lam Yi Young, chief executive of the Maritime and Port of Authority of Singapore (MPA), the new contract is expected to attract demand from local and international participants. "SGX's fuel oil futures contract will encourage greater participation in Singapore's marine fuel market both from local and international shipping and bunkering communities," he says.

The Simex contract was for fuel oil with a viscosity of 180 centistokes, widely considered the global benchmark.

However, the two previous offerings failed to take off. The Simex contract was later withdrawn; CME Group still lists its fuel oil contract though volumes have failed to ignite.

So despite Singapore being home to the world’s busiest port in terms of shipping tonnage, what went wrong? Elena Sing, SGX’s head of commodities, says it is simply a matter of timing. She told Futures and Options World inthat market participants had approached the exchange asking for the contract, especially firms that could not access the over-the-counter market.

“The Simex contract was in existence nearly 20 years ago,” Sing says. “Back then there was limited storage space, whereas now Singapore has extensive storage capacity. There are also a far greater number of market participants.”

Sing concludes: “The market is ready for this new futures contract.”

SGX’s optimism is shared by others in Singapore. Chong Lit Cheong, chief executive of International Enterprise Singapore, says: “Singapore has been one of the leading physical commodities trading hubs in Asia Pacific, in particular for the oil trading sector. The launch of SGX’s FO 380 contract will undoubtedly further strengthen our value proposition to the global oil trading community.”

The regional head of commodities at a futures commission merchant in Singapore says: “We’ve had quite a lot of interest from our customers. Those clients are mostly already active in the oil market, rather than the hedge funds.”

However, success for the contract is far from guaranteed, say industry insiders. The 180 centistoke standard, rather than 380, is the global benchmark, and that although Singapore is a hub for oil trading, much of that trading is entrenched in New York, particularly the Platts-linked OTC contract.

The settlement process is extremely complicated. SGX says it will match buyers and sellers by volume, before loadings are fixed. For unmatched volumes, parties will settle their trades against the monthly closing price for the contract.

With firms like Shell, BP and Singapore Petroleum Co, as well as traders Vitol, Glencore, Chemoil, Hin Leong, PetroChina, shipper Maersk and bunker supplier Equatorial Marine all involved in forming the contract, such large players may provide the liquidity so sought after by non-physical players in the oil market.

The contract will have two daily trading sessions: 9am to 7pm and 8pm to 10.55pm. The 7pm closing price will be the price for the day’s settlement. The monthly settlement is the average settlement price for the last five days of the month.

Comments: Despite two false starts, SGX kept at it and by bringing in the major players as "consultants" in setting up the contract, it should have a better chance at success. This brings us back to Bursa, where foreign funds have been staying away for the past 16 months. The palm oil futures USD contract has not yet borne fruit. Could we be in danger of losing the palm oil futures stranglehold soon?

Sometimes, just because something is chugging along does not mean we can do nothing. We need to enlarge the pool of palm oil traders and lure more and more big companies to trade the existing RM or USD contracts. Only by being bigger will the contract stay put. If we do nothing, I am very sure SGX will try to launch a USD palm oil contract in the near future.

After selling 25% of our derivatives unit to CME Group, we have yet to see tangible benefits!!??

Yes, we can sit and say that KL is not a financial center and will face a lot of obstacles. We need to be proactive. We should nurture our niche markets, be it in Islamic finance or palm oil, or even rubber and tin. We do not seem to have a roadmap or a cohesive strategy. We do not seem to have a bigger picture appreciation of the evolving needs and demands on these so called "home advantage" products. As in many things in Malaysia, we do not have a proactive mindset, we have a poor strategic mindset about most things, we have a high propensity to churn out brilliant power points but that is usually not complemented by a similar record in proper execution, and we usually do not spend enough time on details and crossing the T's and inking the dots.

p/s photos: Sandra Dewi

China Moving To The Big Stage

Jan. 9 (Bloomberg) -- China took a “big step” toward opening its capital markets by approving stock index futures, paving the way for increased investment in the world’s fastest- growing major economy.



The China Securities Regulatory Commission said yesterday it may take three months to complete preparations for index futures, agreements to buy or sell an index at a preset value on an agreed date. The government also approved margin trading and short selling, when investors seek to profit from declines in shares, according to a commission statement on its Web site.

“They’re taking a big step forward in developing their capital markets and allowing people to express their positive and negative views on stocks,” Invesco said in a statement. Invesco, which invests in China as part of its Asia Pacific business that had $26.8 billion of assets as of Sept. 30. “You’ll have more people participate in the market and thus greater efficiency.”

Increased investment in Chinese equities may help narrow the gap between prices of shares traded in both Hong Kong and the mainland. Companies in China’s benchmark Shanghai Composite Index trade at 33.9 times 12-month trailing earnings compared with 20.9 times for the Hang Seng China Enterprise index in Hong Kong. A potential long-term development is more clarity in the market now that there’s more liquidity in the market for the true valuations of the companies that are dual listed.

China, whose economy grew 8.9 percent in the third quarter of 2009, currently bars overseas investors from trading yuan- denominated stocks and bonds on the mainland except through a so-called qualified foreign institutional investors program, which has approved 94 international firms. Foreign ownership of fund management companies is restricted to 49 percent.

Index futures may help ease fluctuations in the world’s third-largest equity market by value after the Shanghai Composite Index doubled in 2007, then slumped 65 percent in 2008 before rebounding 80 percent last year. Until now, Chinese investors could only profit from gains in equities.

China is going to the direction of freedom for its markets and more flexibility for its investors so it’s good news. More liquidity in the futures leads to more investors as you have a bigger pool of tools. You can be long on the future and short on the stock.



Allowing short-selling in China probably will spur the start of more hedge funds in Asia. Short selling is when investors sell borrowed stock in the hope of profiting by buying the securities later at a lower price and returning them to the shareholder.

Rules for the index futures will deter participation by retail investors, said JPMorgan Chase & Co. Investors will be required to put up 10 percent of a contract’s value to buy, sell or short CSI 300-based futures as collateral, according to rules published on China Financial Futures Exchange’s Web site in 2007. The bourse has been conducting mock trading in the securities since October 2006. The value of the futures contracts will be points of the CSI 300 multiplied by 300 yuan, according to the trading rules the exchange set.

Investors will need to spend 105,000 yuan ($15,379) to buy a single futures contract when the CSI 300 is at the 3,500 level, establishing a “cost barrier to retail participation. These initiatives will provide tools for institutional investors to hedge risks and should reduce market volatility in the long-term. Citic Securities Co., China Merchants Bank Co., Ping An Insurance Group Co., Industrial Bank Co. and Shanghai Pudong Development Bank Co. are the most-heavily weighted stocks on the CSI 300.

Comments: The article basically says it all. As things stand, with so much restrictions on foreign funds participation, coupled with a monolithic broking business (i.e. relatively benign equity margin business and minimal leverage by participants) - China equity markets is already very huge. The combined daily turnover for China exchanges is nearly US$25bn.

In comparison, HK's figure is around US$5.7bn. Seoul's figure is US$3.2bn. Taiwan's at US$3.7bn. Can you imagine when markets in China opens up a little bit more to foreign participation??!! HK is getting a lot of attention from large companies wanting to list overseas because their legal infrastructure and transparency are a lot better and is of global standard. You and I know that China will take a looong time to do both well. To companies, HK is as good as listing and tapping into China funds swell.

Back home, the smaller exchanges have to carve out their own niche. I have said this for the umpteenth time, let investors do day-trading short selling - meaning they have to cover by end of day or face buying in consequences. What's so bad about that? I think it will boost daily turnover by at least 20% on Bursa. What is so bad about selling first, since that same person will have to cover by end of the day. It is not the same as short selling and holding that short for an extended period of time, which presents a higher risk to the markets.


p/s photos: Sharon Xu

KPJ - Revisited

KPJ did well for the last few days. In fact, it did very well for the whole of 2009. The company is soundly managed with good fundamentals, as was stated in my previous posting on KPJ.

http://malaysiafinance.blogspot.com/2009/12/why-i-like-kpj-healthcare-lot.html

Timing was correct, took me by surprise that it announced the ex-all date so soon. Here comes the interesting bit. The ex-all date is 6 January 2010. If you take the remaining days left:

30 Dec Wed
31 Dec Thu
4 Jan Mon
5 Jan Tue
6 Jan Wed
7 Jan Thu

Technically, the savvy traders who did not want to pick up shares but get a slice of the bonus / splits / free warrants, could buy on Thursday 31 Dec and would just make the ex-all date of 6 Jan. However, the company has also announced that the shares will be suspended on Monday, 4 Jan to make way for the split first. If we were to understand this correctly, why would you suspend 2 days before the ex-all? Does it mean that on Tuesday 5 Jan the shares would trade on a split basis (i.e. if shares were at RM6.40 before Monday 4 Jan, it will trade at RM3.20 on 5 Jan Tuesday?

Just read the announcement: "Please be advised that the trading of KPJ shares will be suspended with effect from 9.00 a.m., Monday, 4 January 2010 in order to facilitate the Share Split. The suspension will continue until the completion of the same." The last phrase that the suspension will continue until the completion of the same, can be read as indefinite. If they take longer than one day, they can.

What the announcement was not clear is whether the shares will only be suspended for that ONE day on Monday 4 Jan. It could be that the shares could go suspended till 6 Jan for the ex-all. If that is the case then the last two days to buy to get the "loot" will be today and tomorrow only!!!

If its the first scenario, whereby the shares come back on 5 Jan on a split basis at RM3.20 ... who do you think will be SELLING? Nobody, that's who! Why would you want to hold for the split only to sell after the split - when everybody knows the real action is in the bonus shares and free warrants. Hold another day for the 1-for-4 bonus and 1-for-4 free warrants. Which means on the Tuesday 5 Jan, KPJ share price could be in for another jump, if this scenario holds true.



I don't know for sure which scenario will play out but it will be very interesting to watch. Bursa, please make sure companies make announcement properly, if its suspended for ONE day, say so. If its indefinite, say so. Btw, holders of KPJ should be sleeping soundly and be ready for a great start to the new year. The free warrants are looking mighty attractive now and should trade around RM1.00 after ex-all.

Subject	:	KPJ - NOTICE OF BOOK CLOSURE
Contents	:	1) Subdivision of every existing one (1) ordinary share of RM1.00 each in KPJ Healthcare Bhd ("KPJ" or the "Company") into two (2) new ordinary shares of RM0.50 each in KPJ ("Shares") ("Share Split") 2) Bonus issue of up to 105,525,308 new ordinary shares ("Bonus Shares") of RM0.50 each ("Shares") in KPJ Healthcare Bhd ("KPJ" or the "Company") to be credited as fully paid-up, on the basis of one (1) Bonus Share for every four (4) Shares in KPJ after accounting for subdivision of every existing one (1) ordinary share of RM1.00 each in KPJ into two (2) new Shares in KPJ. 3) Issue of up to 131,906,635 free warrants ("Free Warrants") in KPJ Healthcare Bhd ("KPJ" or the "Company") on the basis of one (1) Free Warrant for every four (4) ordinary share of RM0.50 each in KPJ ("Shares") after accounting for subdivision of every existing one (1) ordinary share of RM1.00 each in KPJ into two (2) new Shares in KPJ and bonus issue of up to 105,525,308 Shares on the basis of one (1) new Share for every four (4) Shares in KPJ. Kindly be advised of the following : 1) The above Company's securities will be traded and quoted [ "Ex - All" ] as from : [ 6 January 2010 ] 2) The last date of lodgement : [ 8 January 2010 ] 3) Retention Money : Where securities are not delivered in time for registration by the seller, then the brokers concerned :- a) Selling Broker to deduct [ 1/3 ] , of the Selling Price against the Selling Client. b) Buying Broker to deduct [ 20% ] of the Purchase Price against the Buying Client. c) Between Broker and Broker, the deduction of [ 1/3 ] of the Transacted Price is applicable.

Subject	:	KPJ-Suspension of trading arising from proposed share split of each ordinary share of RM1.00 in KPJ into two (2) ordinary shares of RM0.50 each ("Share Split")
Contents	:	Please be advised that the trading of KPJ shares will be suspended with effect from 9.00 a.m., Monday, 4 January 2010 in order to facilitate the Share Split. The suspension will continue until the completion of the same.

p/s photos: Chrissie Chau

A Bitter After-Taste To DSC Solutions Listing (Holiday Reading For Bursa & Kenanga Investment Bank)

There have been discussions at Investalks.com on this topic. Someone commented that DSC may have been pushed up because its NTA was RM2.27. If you read the prospectus closely, you will get that figure but that was based on a pre-IPO pre- enlarged share issuance exercise. Read page 11 of the prospectus, you will find that the proforma consolidated NTA after the public issue and bonus issue will be just 13.16 sen.

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I think this is too important a posting to be relegated to the bottom of my posting listings. So, I have put it at the top again. I think Bursa and Kenanga Investment Bank must have been praying that nobody writes about this. Hey... none of the mainstream media picked this up at all???!!! WTF!!!

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Well spotted by Alex Lu on his popular nexttrade blog site was the quite clumsy listing of DSC Solutions. Let me say here first that the company should have been better advised by the lead manager Kenanga as well as by Bursa. But first, read up to see what the hoo-hah was about:

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http://nexttrade.blogspot.com/2009/12/dscsol-were-investors-not-aware-of.html

Tuesday, December 15, 2009

DSCSOL- Were investors not aware of the Bonus Issue?

DSC Solutions Berhad ('DSCSOL') is involved in the provision of AIDC solutions, software & engineering services. AIDC stands for Automatic Identification & Data Collection. AIDC allows companies to improve their business processes by changing from a manual to automatic data collection systems. This will enable the production of faster & more accurate reports- aiding management in its decision-making.

For its listing purposes on the ACE Market of our exchange, DSCSOL made a Public Issue of 12.578 million shares at an issue price of RM0.50. After the IPO (but before its listing), it carried out a Bonus Issue of 1-for-1. This effectively reduced its IPO price from RM0.50 to RM0.25. The stock was listed on Dec 9.

From the 15-minute chart below, we can see that the share price jumped on the first day of listing and thereafter it steadily sold down. I hope the reason for the bullish action on the first day of trading was not due to investors' misreading the Prospectus or that they were not aware of the Bonus Issue. If so, it could lead to a mispricing of the stock. The making of a Bonus Issue after the IPO closure & before the listing of the stock on the exchange is a practice that should be discouraged.


Chart: DSCSOL's 15-min chart as at Dec 15, 2009_9.24am (Source: Quickcharts)

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If you click on the chart, you will see that there were two groups of players at the very beginning of the trading day, one group thinking the IPO price was effectively 0.50 and the other knowing that it was 0.25. Naturally within the first couple of minutes, the share price had a trading range of between 40 odd sen and 60 sen, a highly unusual spread of activity given the actual IPO price was 0.25. From 40 sen to 60 sen itself meant a jump of 50% in valuation.

It opened at 47 sen went towards 40 sen, which to the promoters was already a highly spectacular IPO given that it was priced at 25 sen. But noooo, that's not enough, there were sufficient players in the market place who thought that the shares were "under water" (that its IPO was priced at 0.50) and should surely be shored up by promoters soon. Oh, yes, whoop-dee-dah .. it went on a merry way for the rest of morning session, trading as high as 91.5 sen - I would like the person who bought at 91.5 sen to try and seek compensation from Bursa and Kenanga. I doubt he/she will succeed, but I think the case needed to be heard by more people so that more investors do not get "conned" unintentionally.

The actual announcement from Bursa's website:

Initial Public Offering (IPO)

Reference No GR-091119-27659

Company Name	:	DSC SOLUTIONS BERHAD (ACE Market)
Stock Name	:	N/A
Date Announced	:	19/11/2009

Subject	:	PUBLIC ISSUE OF 12,578,000 NEW ORDINARY SHARES OF RM0.10 EACH IN DSC SOLUTIONS BERHAD (“DSC SHARES”) AT AN ISSUE PRICE OF RM0.50 PER DSC SHARE PAYABLE IN FULL ON APPLICATION COMPRISING: • 500,000 NEW DSC SHARES AVAILABLE FOR APPLICATION BY ELIGIBLE DIRECTORS, EMPLOYEES AND BUSINESS ASSOCIATES OF DSC SOLUTIONS BERHAD AND ITS SUBSIDIARY COMPANIES; • 11,078,000 NEW DSC SHARES FOR PLACEMENT TO SELECTED INVESTORS; AND • 1,000,000 NEW DSC SHARES AVAILABLE FOR APPLICATION BY THE PUBLIC AND BONUS ISSUE OF ONE (1) NEW DSC SHARE TO BE ISSUED AND CREDITED AS FULLY PAID-UP FOR EVERY ONE (1) DSC SHARE HELD AFTER THE PUBLIC ISSUE IN CONJUNCTION WITH ITS LISTING ON THE ACE MARKET OF BURSA MALAYSIA SECURITIES BERHAD.

Notice how casual and matter of fact the phrase "AND BONUS ISSUE OF ONE (1) NEW DSC SHARE TO BE ISSUED AND CREDITED AS FULLY PAID-UP FOR EVERY ONE (1) DSC SHARE HELD AFTER THE PUBLIC ISSUE" was inserted as part of the announcement. OMG... that announcement IS NOT NORMALLY DONE, hence it must be highlighted properly, be reminded and alerted properly...

.

Look at the above chart, yes everybody wised up following the euphoria that the company's IPO price was really just 25 sen. Well, whoever got the shares or traded smartly, got the benefit of this near catastrophe. The shares has since slid from the 70 odd sen to the current low 30 sen... but to the owners, its a bloody fantastic price still given that its IPO price was just 25 sen. As nice as it was, the company owners did not get the benefit of the volatility because they were not allowed to sell any shares within the lock up period.

Who is going to stand up for all the investors who BOUGHT from 40 sen to 90 sen and still holding - we have to ask what kind of information were they relying on ... because we know that all investors genuinely thought that the price you paid for the IPO shares WILL BE the IPO share reference price - ask 100 people, see how many would disagree. Hence their confusion and/or reliance on available information is understandable. Don't do the "buyers beware" argument because that is dipshit-lawyer-ball-less-tactic ... that is seeking to be protected from claims, ... what we are here is to try to BE FAIR, BE REGULATORS THAT HAVE THE CONCERNS OF INVESTORS AT HEART, ... did we really do that here???

a) Nobody is saying that Kenanaga or Bursa or DSC "intentionally" conned the public. It is exactly that the same group of people who had no bad intentions, and that they also did not have market attuned instincts and market savvy knowledge - because if you have, you would HAVE KNOWN and PREDICTED that there will be substantial pockets of investors in the market place who DO NOT EVEN READ the prospectus closely. Please do not hide behind the guise of "its all there in the prospectus" to absolve your responsibility. Do not get lawyer-ing with me. We all know what "we should have done", please .... look at the evidence and tell me that nobody was mis-informed. It might have been mostly their own fault, but did the authorities and the promoters and lead manager did "enough" to alert investors, I would at least double-underline with red ink that there will be a one-for-one bonus issue AFTER the IPO but before the listing, and that the effective IPO price upon listing will be 0.25 and not 0.50 - what will it cost you all to do that in bold, in red, in the front page of the prospectus, and as well on the Bursa circulars and announcement page.

b) Accept that this bonus issue after the placement of shares but before listing WAS HIGHLY UNUSUAL and NOT THE NORM. Once you accept that, make steps TO ENSURE THAT ALL INVESTORS ARE SUFFICIENTLY INFORMED, ALERTED TO THAT FACT ... something which did not happen with DSC. You don't want this negativity with the newly launched ACE Market, do you??

c) Kenanga Investment Bank and mgmt of DSC, may I ask what was SO FUCKING DIFFICULT to sell 24m shares at 25 sen instead of 12m at 50 sen and then just list???? Why do the fucked up post IPO 1 for 1 bonus??? Why complicate matters? I know, the next time I get to list my company, I will sell 30m shares at 0.50, then prior to listing do a 5 for 1 bonus issue, and laugh all the way to the bank ... this makes the actual IPO at 0.10 but most will still think its at 0.50.

Am I the only one (with Alex) to see this big dis-service to investors? Imagine people buying Maxis new shares on trading day at RM16-17, thinking its good value, when actual IPO price was RM5 ... just because this was a smallish company does not alter the mechanics. If it happened to the Maxis IPO, all hell would have broken loose.

Well, at the end of it all, no one will apologise... Bursa will not, Kenanga Investment Bank will not ... because apologising is tantamount to acknowledging that they were "at some fault" - thus triggering lawsuits. Yusli, please don't say anything NOW, don't come out to say "Buyers Beware" shit now, it will piss everybody off. Do your internal investigation, and put in measures to prevent such occurrences again.

I have said it hundreds of times ... Bursa is stocked with TOO MANY LAWYERS, TOO MANY PEOPLE WITH INSUFFICIENT MARKET SAVVINESS, INSUFFICIENT MARKET SENSE .. if you did have that one fucker who is market savvy, that person would have alerted all to this... "hey, this could blow up, let's do a special reminder or special announcement, or send a special circular to all traders and remisiers to advise their clients before they buy or sell that the effective IPO price is 25 sen".

Nothing, nada, zilch ...

p/s photo: Some companies need to be "purged" of some employees like the photo would suggest

New York Roadshow By JP Morgan

J.P. Morgan's Malaysia Corporate Access Days

November 5-6 (Thu-Fri)

Grand Hyatt New York, 109 East 42nd Street at Grand Central Terminal, New York

• Roundtable discussions, presentations and Q&A sessions with Malaysian government officials and regulators
• 1x1 meetings with participating Malaysian corporates

Senator Tan Sri Amirsham Abdul Aziz, Chairman - National Economic Advisory Council
Dato' Ooi Sang Kuang, Deputy Governor, Bank Negara Malaysia
Dato' Yusli Mohamed Yusoff, CEO, Bursa Malaysia

Participating Corporates

Air Asia (AIRA MK) - Dato Kamarudin Meranun, Group Deputy CEO

Axiata Group (AXIATA MK) - 1. Dato' Sri Jamaludin Ibrahim, President & Chief Executive Officer / 2. Dato’ Yusof Annuar Yaacob, Group Chief Financial Officer

Bursa Malaysia (BURSA MK) - Puan Nadzirah Abd Rashid, CFO

IJM Corporation (IJM MK) - Datuk Krishnan Tan Boon Seng, Chief Executive Officer & Managing Director

Public Bank (PBK MK) - Mr. Leong Kwok Nyem, Chief Operating Officer

Sime Darby (SIME MK) - 1. Azhar bin Abdul Hamid, EVP, Plantation / 2. Mohamad Hishammudin bin Hamdan, Group Head, Strategy & GBD / 3. Shariman Alwani bin Mohamed Nordin, Gp Head, Value Mgt & IR

S P Setia (SPSB MK) - 1. Ms. Wong Sheue Yann, Head, Corporate Services - Group Corporate Services / 2. Mr. Cheong Heng Leong - Manager, Investor Relations - Group Corporate & Finance Division

YTL Corp Berhad (YTL MK) - Tan Sri Dato' Dr Francis Yeoh, Group Managing Director

p/s photo: Chrissie Chau

Free Me For Better Participation, Bursa & SGX Please Read - Free HK Live Quotes

The idea of providing real-time stock market prices on websites free of charge is not new. The New York Stock Exchange (NYSE), a subsidiary of NYSE Euronext, introduced a pilot programme in July last year that allows service providers to disseminate real-time last sale prices of transactions on the NYSE for free if they pay a monthly flat fee (the fee has been reduced to US$70,000 from the original US$100,000). Since the NYSE Realtime Reference Prices programme does not include key information such as the size of each trade or bid/ask quotations, the free real-time prices are not in a context in which trading or order-routing
decisions are made unless the service providers also offer the key market information.

Free basic Hong Kong securities and derivatives market price quotes are currently available on the HKEx website with a 15-minute delay. The delayed quotes are the most popular service of the website and HKEx is exploring the feasibility of offering free basic real-time prices from its markets on one or more websites in Hong Kong and/or elsewhere (not necessarily via the HKEx website).

Exchanges hoard their live prices as if they were gold nuggets, charging an arm and a couple of legs for anyone wishing to have live quotes. It is strange and peculiar that the average investor has to go to broking halls or call up their dealers to get live prices. I wonder what the commissions and fees #1 and fees #2 are for... why make it so damn difficult to get information. Information is VITAL for all investors, and that's the one thing that all exchanges have been making life tough. Think outside the box la... if we have better information flow, investors will trade more.

The HK Exchange move is timely and more so because the general populace of China is so scattered. The investors in smaller cities will things much tougher. If Bursa provides a similar business model, I think you will lure traders and investors from Australia, NZ, HK, China and of course Singapore. The general trend is to trade via your e-broking account. If information can be relayed via the net without charges, that can only help. Anyway, the free live feed still does not come with bid/offer size and rankings, so the exchanges will still hold on to the prized goose.

Hong Kong Exchanges and Clearing Limited (HKEx) announced last Friday that its information business subsidiary, HKEx Information Services Limited, has signed an agreement with each of the companies listed below (the service providers) for provision of real-time basic prices from HKEx's securities market at the six designated websites.

Service Providers (in alphabetical order by region)

Company Name	Designated Website
Hong Kong
AAStocks.com Limited	www.aastocks.com
ETNet Limited	www.etnet.com.hk
Oriental Press Group Limited	www.on.cc
Mainland
Beijing Sohu New Media Information Technology Co., Limited	www.sohu.com
China Finance Online Co. Limited	www.jrj.com.cn
Tencent Holdings Limited	www.qq.com

The Free Real-time Basic Market Prices Website Service (or Free Prices Website Service) will be soft-launched on 5 October in both Hong Kong and the Mainland. The trial version of the new website service will be available at the designated websites for investors to access real-time basic prices from HKEx's securities market free of charge from the soft-launch date. The service will be officially launched on 1 January 2010 under a pilot programme that will last till the end of December 2011. HKEx plans to review the pilot programme in its latter stage to determine whether and, if so, in what form the service should be continued after 2011.

The main objectives of the new website service are to expand dissemination of Hong Kong securities market information and raise the Hong Kong securities market's profile in the Mainland. HKEx believes that the free service will benefit investors and therefore be welcomed by the market.

The real-time market data content provided under the Free Prices Website Service comprises:

	Nominal price/closing price and last trade price for all securities traded on the Stock Exchange;
	Indicative Equilibrium Price (or IEP) and Indicative Equilibrium Volume (or IEV), which are calculated during the pre-opening trading session, for all securities traded on the Stock Exchange;
	Turnover value and volume of all securities traded on the Stock Exchange; and
	High/low prices of the day of all securities traded on the Stock Exchange.

The attachment below provides answers to some possible questions about the new service.

1.	Why does HKEx consider the six service providers will suffice for the public demand for free real-time Hong Kong stock market information?
	The Free Prices Website Service will provide basic market data and is designed to provide an additional delivery channel for Hong Kong securities market data. The service will complement existing channels and market data services provided by HKEx-licensed real-time information vendors by increasing the variety of information services available in the market to meet different needs of investors.
	Existing dissemination channels will not be affected by the new service. Any party satisfying the licensing requirements can still apply for a vendor licence from HKEx and provide market data services to investors. Indeed, there are now more than 120 real-time market data information vendors, including eight Mainland companies, collectively offering more than 700 securities and derivatives market data services. Market data services offered by the Mainland information vendors include streaming real-time securities market data provided on the Internet.
	The new service will initially be offered for two years to enable HKEx and the market to get familiar with the new service, and for HKEx to better understand its impact on the market in general and the other market data services currently provided by licensed information vendors in particular. HKEx has committed to closely monitor market reaction to the new service and review the service no later than the last six-month period of the two-year pilot period to decide whether and, if so, in what form the service should be continued.

2.	Was there any assessment of the likely impact on existing information vendors and revenue of HKEx?
	HKEx believes the basic snapshot price data that will be available under the new service are not readily substitutable for the great variety of information services being offered by existing information vendors. HKEx believes the impact on the business of existing information vendors and HKEx's information income should be insignificant.
	HKEx also believes that the new service should be beneficial to the Hong Kong securities industry as the service will help build greater interest in the Hong Kong market, particularly among Mainland users.

3.	Will HKEx further extend the data content of the Free Prices Website Service?
	The real-time market data content provided under the Free Prices Website Service comprises:
		Nominal price/closing price and last trade price for all securities traded on the Stock Exchange;
		Indicative Equilibrium Price, or IEP, and Indicative Equilibrium Volume, or IEV - which are calculated during the pre-opening trading sessions - for all securities traded on the Stock Exchange;
		Turnover value and volume of all securities traded on the Stock Exchange; and
		High/low prices of the day of all securities traded on the Stock Exchange.
	The new service does not include bid/ask quotation, market depth or broker queue information. HKEx has no current plans to extend the data content of the Free Prices Website Service.

p/s photo: Bowie Tsang

The M'sian X-Files - Intricacies Of The New FBM KLCI

There is a lot of new information that one can get on the new index, which will help us to understand the index and the markets better. It will also help to get a better grasp as to the "integrity of the FBM KLCI" when it rises and falls.

a) Its just 30 counters instead of the old KLCI which had 100 counters.

b) The new index addresses issues such as liquidity and free float, and let's face it funds in general are really looking at just the top 30... heck throw in another 20 stocks and that's their universe.

c) There is a good chance that the 30 stocks will start to be traded at a premium to the rest as these are the must haves for all indexed funds, by all the big and small local funds, and by most of the foreign fund managers managing Asian portfolio so as to not be under performing the Asian benchmarks.

d) Having said that, part of the rise in the FBM KLCI over the last 2 weeks may be attributed to some of these sustained 'enforced buying' activity rather than by genuine equity players.

e) The new index is a skewed index. Banks and plantations alone have a total weighting of 55%. If you have banks, plantations and telco = 63%. If you add banks, plantations, power, gaming and telco = 85%. So, technically a fund manager need only look seriously at these FIVE SECTORS alone to do well, forget about the rest.

f) The new index will also affect how research houses form their analyst teams. They must cover the 5 sectors, there are 9 sector that are not covered by the new index. It is very likely that analysts in the following sectors better start covering a more important sector in order to stay relevant. The following are the 9 sectors that are deemed as "irrelevant", "need not exist", "unimportant to the Malaysian economy", "unnecessary to look at in order to gauge the overall health of the economy": technology, transportation, property, timber, insurance, construction, building materials, hotels and industrial products. Go figure!

g) The new index will make it that much "easier" for the index to be controlled - conspiracy theorists will agree with me whole-heartedly that this is to allow PNB-EPF-MOF-EPU to control the index better. So, the next time we see a major market correction, we may be able to withstand it better with the new index as all it takes is to mop up the 30 stocks ... even though those stocks outside of the top 30 may be seeing their share prices tumbling like a rock. Managed perception more important la... than real effects to the economy. Hey, like that, we may never ever see a major correction in the FMB KLCI... ever... especially if we keep launching new big funds to mop these buggers up. But I am only guessing here.

h) Now let's consider the sin stocks, gaming and tobacco, they account for 12% of the new index. This is an important consideration as most of the big local funds will not be touching these stocks. Can you "not be in control of the 12% of the index" and still manage funds that is compared to the FBM KLCI benchmark? If these 12% of the new index starts a bull run on its own, most of the local funds will be under performing the new index. Can you all see a danger here??? Staring at you in the face!!! The danger is ... if there ever occurs a situation where you get the gaming and tobacco stocks to be in a strong bull run outperforming the rest of the new indexed stocks ... could we safely say that the EPU-MOF will not be strong-armed or "influenced" by certain parties to "whack down the sin stocks" with excessive punitive measures ( additional gaming and duties above and beyond what is normally expected in a financial year)???

g) If you take Khazanah, Petronas and PNB as the investing triumvirate ... the 3 already control 12 out of the 30 stocks in FBM KLCI. If you are a nasty anti-government critic, you have enough loose thoughts to take this factor to the next level. I am not saying its a negative or a positive, but its a fact that is worth remembering. Be careful, as the greater the influence one has, the greater the responsibility to be prudent, transparent and professional.

h) Though most fund managers will want to stick to the FBM 100 as the benchmark for their performance, it will not be so easy. The drivel, the propaganda and focus have all been set to make FBM KLCI the index to watch, and because it was kinda close to the level where the old KLCI was, most will tend to take to this new index. Its much harder if you switch from a 1,100 index level to a 9,500 one ... kudos to the planners.

i) Of course detractors will point to the fact that the venerated Dow Jones Industrial Index is only made up of 30 stocks, and is an often quoted barometer, even though most professional funds benchmark their performance to the broader S&P 500. The big difference is that it will be a hundred times easier to try to "manipulate" the FBM KLCI than the Dow Jones Industrial Index. Actually, pick just any two stocks in the Dow Jones, I am VERY SURE the market cap of any two stocks will be bigger than total market cap of ALL stocks listed on Bursa - in fact just any ONE stock in the top 10 of DJIA will be enough to cover the entire market cap of Bursa. Not to belittle FBM KLCI but to put things in perspective.

Can I have my Datukship now??!! (yea, I don't really need one or want one... but I want to get on and off my plane faster la...).


p/s photos: Yukie Nakama

On A Clear Day, I Can See Forever

My blog has mostly been about a lot of bashing and flaming, in particular when major institutions do not execute or plan well. A diversion for now, which I hope will be more frequent in the future, are two major developments worth noting:

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KUALA LUMPUR, Aug 11 — CME Group Inc, the world’s largest derivatives exchange, will develop a US dollar crude palm oil (CPO) futures contract using settlement prices of Malaysia’s ringgit contracts for trading on CME Globex. CME will work with stock exchange operator Bursa Malaysia to offer the cash-settled futures contract in the United States aimed at globalising the Malaysian CPO futures market, a statement from the two companies said.

The two parties will also explore trade matching services, product licensing and minor cross-equity investments in a partnership still subject to regulatory approval. The Chicago-based exchange operator said the proposed partnership will increase its presence in Asia and expand its transaction processing business opportunities. Specific terms of the partnership will be announced later, the two exchanges said in a statement. Bursa has introduced a dollar-based palm oil contract. — Reuters

Comments: The FUPO was a start and fizzled just as many had expected (including this blog), but looking further ahead, the instrument was needed as a negotiating point to get CME to launch a similar US-dollar based contract as well. Getting it on CME is no guarantee of success, but will be the best platform for getting things right. Volume and liquidity will need to start on CME side before getting similar activity on FUPO during Malaysian trading time. It has a decent chance for success now as being on CME would at least lure the arbitrageurs. The fact that there is a corresponding ringgit based contract makes for good arb opportunity. Volume begats volume, soon I hope to see FUPO trading just as active as the ringgit based contract. The major local palm oil players have a role to play (which they haven't been doing so far) - all have been sitting back pooh-poohing the FUPO and just putting through contracts through the ringgit side. You as the major CPO players have a big role to play, you have to lead, try funneling 25% of all hedging / selling activity through FUPO because in the end its you fuckers who will benefit. Having a USD contract for futures will negate a lot of currency hedging required as you people still borrow extensively in USD. You cannot just sit back and say to Bursa "let's see what you can do". You know very well you will be the major players in any CPO based contracts - unless you think this is not going to help shore up your business strategy and options (which means you are plainly stupid to think so when there is a government body helping you indirectly to better sell, better hedge and better market your product).

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KUALA LUMPUR, Aug 11 — Malaysia’s central bank has directed a sweeping overhaul in the board of directors of the country’s largest banking group Maybank, in an unprecedented government censure on a board of a financial institution. The little-publicised revamp followed government displeasure at the controversial acquisition of an Indonesian lender by Malayan Banking (Maybank) last year, officials say. Bank Internasional Indonesia (BII) was bought from a consortium led by Singapore’s Temasek Holdings at a price that was deemed too high.

Prime Minister Najib Razak, who directed Bank Negara to review the transaction, has endorsed the central bank’s decision calling for a Maybank board revamp, the government officials say.

“The decision was also made that the board revamp will be carried out in stages and directors who are retiring won’t be re-elected to the board,” said a senior government official who was involved in top-level discussions on Maybank’s Indonesian venture.

Maybank’s main shareholders are national equity fund Permodalan Nasional and pension fund Employees Provident Fund. Bank Negara declined comment for this article, citing its policy of not discussing issues involving individual financial institutions. Maybank executives, including its chief executive officer Abdul Wahid Omar, also declined repeated requests for comment for this article. But the bank did announce the retirement of two directors and the appointment of three new members mid-last month. Between end-October last year, when the acquisition of BII was completed, and this March, three directors have resigned.

“This is part of the reforms that the PM is pushing for and it will raise the sense of greater accountability in the boards of government-linked companies,” said a senior adviser to Najib who is familiar with the central bank’s decision on Maybank.

In March last year, Maybank entered into an agreement to buy a 55 per cent interest in BII from Sorak Financial Holdings, which is majority-owned by Singapore’s Temasek Holdings. The Malaysian bank agreed to pay US$1.5 billion (RM5.3 billion) for the stake and then make a tender offer for the remaining 44 per cent for roughly US$1.2 billion. But the global financial meltdown raised questions over the health of banks in general and reignited criticisms that Maybank was paying too high a price for BII. Maybank’s position was further undermined when Indonesia introduced changes to its corporate takeover rules, which called on the Malaysian financial institution to sell down 20 per cent of its holdings in BII within two years of its takeover.

Bankers close to Maybank had argued that the disposal was surely to lead to massive losses. Faced with the prospect that the deal could adversely hit Maybank and the Malaysian banking system, Bank Negara had revoked its approval for the BII acquisition. The approval was later reinstated. The deal was finalised after the Temasek-led consortium lowered the purchase price for the transaction by US$220.5 million for the 55 per cent interest in BII. In Bank Negara’s review, which was completed in April this year, it concluded that Maybank’s purchase price for BII was too expensive. The central bank also concluded that the Malaysian financial institution did not put in place adequate measures to protect itself in the event that the deal encountered problems, the government officials said. — The Straits Times

Views: The article is so succinct and clear, I don't really have to add anything. Interested readers can search this blog for my previous postings on Maybank and BII.


p/s photos: Lee Ji Ah

Short Selling, Securities Lending - The Prequel, The Sequel & Then Some More

Well after two and a half year of screwing around, we are back at the table on Short Selling. Only this time, the "leadership" seems to have been taken over by Securities Commission instead of Bursa ... hmmm... wonder why??!! ; ) I searched through my older posts on Restricted Short Selling and its funny how the tone of my postings have changed (or mellowed rather). I was so much more vicious and angrier then... ; ) ... Let's look at the history for a while:

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as posted on 11th October 2006 ...

Regulated Short Selling Will Fail Dismally (Again)

Bursa will not like to hear me on this. They'd probably think I have a deep vendetta against them. First, Bursa is too greedy to try and act as the Central Lending Agency. Brokers, custodians and investors all have to go through Bursa to things done. This creates an unnecessary layer which adds to cost. Secondly, Bursa failed to appreciate why an OTC market would have been better. Not all lenders want to lend shares at 2%, some may only lend at 5% or even 10%. Take Google shares for example, at US$500, probably a lot of people would want to short it, hence the lenders could actually ask for a higher rate before lending out. A transparent and free-market OTC makes for real activity and better returns for both sides. I am not sure if Bursa even have the mechanism to change the lending rates?? (..what, change the rates... every now and then ... so much work la...). Thirdly, too much red tape, inteference, scrutiny... blah blah... Having said that, as long as people can make big money, they can withstand the trouble to invest, if they can make 30% in a month in Timbuktu exchange, you can betcha they will try to get there. But it probably won't happen in Bursa's RSS - limited shares for shorting, do you think there will be 1 million of a company's shares for shorting? Chances are, it will be sporadic and insignificant, which will turn people off. That is why an OTC would have stood a better chance to survive. Imagine the current scenario, with Genting jumping on the Macau news, I think its a good time to short Genting shares, but no one wants to lend at 2%, so I put up a willingness to borrow 50,000 shares at 4% or even 6%, I am sure someone will bite. The failure to allow for a free flowing capital markets. The shallow thinking that by being the Central Lending Agency, somehow that could prevent disasters needs to be re-examined. You mean, the 1997 implosion was due to short sellers??? Please grow up, that shows how naive the current crop of people in unthinkably high positions are... sigh... You cannot molly-coddle a capital market, it has to be relatively laissez-faire ... look at global best practices... please...

p/s btw, I totally agree there should be short selling, just do it better ... man...

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as posted on July 17, 2008 ....

RSS (restricted short selling)... it was expected to fail, it failed ... NO SHARES AVAILABLE FOR SHORTING!!! What does that tell you about the program? A learned friend disagreed with my negative assessment on RSS two years ago saying they have international consultants and exchanges helping on the product. Just because they are foreign, does not mean they are good. The Bursa is ladened with bureaucracy, red tape, nothing ever gets decided, in the end any decision will take two months to make, and the bulk of people never really touch securities before...

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Now to the present, the SC obviously said something to the effect of "I don't think you guys really know what you are doing" to Bursa... Anyway, why make more enemies? My comments in red.

Aug 4 (Bernama) — The Securities Commission (SC) and Bursa Malaysia today announced the introduction of securities borrowing and lending negotiated transaction (SBLNT), an enhanced securities borrowing and lending (SBL) model that offers an option to borrow and lend on an over-the-counter (OTC) basis. In a joint statement here today, the SC and Bursa Malaysia said the SBLNT model would be implemented on August 17 and relevant participants would be able to submit applications now.

They said the model would complement the existing SBL Central Lending Agency (SBL CLA) model which was introduced in January 2007 as the first phase of the securities borrowing and lending framework. ( Gee, this is b.s., what do you mean by "complement", it complements nothing, the existing SBL is crapufullacrap, obviously somebody devised a "better way to not lose face" by using the word "complement", just say it like it is... it IS a new way to replace the previous crap).

“Under the SBLNT framework, any eligible person who is approved by Bursa Malaysia Securities Clearing Sdn Bhd may borrow and lend securities. The lender and borrower are now given the flexibility to enter into SBL agreements, hence they can negotiate and agree on the terms of borrowing and lending directly,” they said.

These SBL transactions, they said, must be reported via onshore borrowing and lending representatives and facilitated through Bursa Malaysia Securities Clearing as the approved clearing house.

“This reporting is imperative for the movement of the loaned securities to take effect from the lender’s depository account to the borrower’s depository account. In addition, only securities that are specified by the approved clearing house are eligible for borrowing and lending transactions and the purposes for which the borrowing and lending have also been specified,” they said.

The statement said the SBLNT framework would also enable Bursa Malaysia Securities Clearing to ensure orderly and transparent borrowing and lending. Besides that, the SC also released the revised SBL Guidelines while Bursa Malaysia issued the relevant rules, procedures and guidelines to provide for SBLNT. (All things being equal, transparency is good, but in such a small market such as the Bursa, with an even smaller number of "players", the transparency rule actually inhibits, scares and restricts the players. A better rule would be, as long as the investor is "approved and has an account with an approved broker", if client borrows or lends, it should be referred to by a number, and not the actual client. The unique structure of short selling/ lending give rise to excessive spotlight and focus on these transactions - no clients will want to be shamed publicly by its fraternity for having shorted at the wrong levels or lent securities which have since collapsed in price.)

In the SBL CLA model, Bursa Malaysia Securities Clearing acts as the central lending agency for all SBL activities conducted in Malaysia and participants need to comply with the terms and conditions as directed by Bursa Malaysia Securities Clearing.

Both the current SBL CLA and the new SBLNT models will operate concurrently. The revised SBL Guidelines by SC also provide clarification on the tax treatment applicable to SBLNT. The revised SBL Guidelines and rules are available on the SC website at www.sc.com.my as well as Bursa Malaysia website at www.bursamalaysia.com.

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My Worthless Views: It is a better model in that it allows for negotiated terms of borrowing or lending. However, it will fail just as dismally as the earlier model because:

a) The model still requires investors to borrow the securities first before selling. In many places, the investor has the option of selling the shares first, and then having 3 days (in the US) to borrow the shares. Naturally that is risky as one might not be able to borrow the shares, but herein lies the shortcoming, there isn't sufficient liquidity on the lending side here. Chicken and egg thingy, no liquidity, smaller share caps, low free float ratios, and you cannot sell first then borrow later which is an important option.

b) The vast majority of stocks borrowed by brokers (in most markets) come from loans made by the leading custody banks and fund management companies. Depending on specific account agreements, brokers are able to borrow stocks from their customers who own "long" positions, particularly those in "margin" accounts. I don't think our custody banks and fund management companies are "up to speed" with the nature and benefits of short-selling. I don't think many of the trust deed of local fund management companies even allow them to do that.

c) It isn't clear to the borrowers that the lenders may ask for the return of shares, and the borrower will have to return them to the lender or borrow the shares from elsewhere. Its cumbersome and most participants are not savvy or patient enough to go through all the trouble. A successful short selling model requires a critical mass of institutional players, which we do not have. We need hedge funds players, we need astute local funds that trade and hedge, we need a lot of local funds that are willing to lend securities, we need... (fill in the blanks).

d) The only savvy short selling / lending players are the local brokers. Right now MOST LOCAL BROKERS are "lending shares" to cover short positions, many without even telling their clients - its a loophole the SC and Bursa must plug. My strong recommendation is for all brokers be required to get "expressed permission of the customer" before they can "deploy or lend" the securities belonging to the clients, and that the clients must be properly compensated for it.


p/s photos: Rita Rudani

Deciphering Hot & Hotter Emerging Markets

Trying to further decipher whether the flow of funds into emerging markets' equity is broad based or selective, is an important question. If it is broad based, then it is primarily a big picture capital flows trend. Generally, when we get the big picture correctly, the smarter money would further drill down to specific markets. Not all markets are created equal. At any point in time, some markets will be more attractive than others based on the prevailing interest rates, growth rates assumptions, equity valuations and other lesser investing factors.

I have managed to come across a great chart by the highly respected Bank Credit Analyst, which basically explains which markets would "see the most action" in this current rally. Anyone could plot a valuation chart based on the country's prevailing interest rates and match that with the country stocks' forward or trailing PER. That would be quite one dimensional. The BCA's chrat is a lot more persuasive in that it is based on forward and de-trended (I don't even want to attempt to know what that word meant, but it sounded so sophisticated) trailing PERs, price to book ratio, and dividend yields shown relative to the average of 18 countries".

Hence it is a peer-to-peer analysis. There is one major shortcoming in that tabulation, in that it does not take into account the historical average valuation of each specific market say over the past 5 years. The BCA chart only looks at how each country is faring in valuation terms relative to one another. For example, if Malaysia's historical PER forward valuation was 18x, and HK's historical PER forward valuation figure is 15x - naturally if we just look at PER, HK will always look cheap relative to Malaysia. However if the current forward PER for Malaysia and HK are 14x and 13x respectively - HK would still be cheaper on a straight out valuation but in actual fact, we should look at its PER now compared to the historical valuation for a more nuanced and value-add commentary, whereby Malaysia's market would be the 'cheaper' one.

Besides that caveat the BCA chart looks very good indeed.

From the BCA chart, the most attractive markets NOW:
1) Czech and Thailand - these are "false favourtites" in a horse race. On valuation matric, they are the most attractive and cheapest, but their valuations have been skewed because of extreme financial distress (in Czech Rep) and heavy political uncertainty in Thailand. Hence we need to take these two out or at least regard them with a lot of conservatism.

2) HK - Its looking really good, tus explaining the surge in hot money there. Shanghai and Shenzhen are not so open to foreign funds, hence much of the hot money has been diverted to HK as proxy.

3) Poland - Cheap on valuations.

4) Malaysia - You wouldn't get many houses recommending Malaysia, but the BCA thesis puts Malaysia as highly attractive. Bank Negara's recent decision to leave rates unchanged makes things hotter still till the next BN meeting.

5) South Africa & Hungary - These are attractive but have very high rates, which indicates that money might be flowing out of these two countries. In an effort to retain capital flows, these rates are kept high. In instances like these, foreign funds regard these as tricky markets as your equity gains could be erased by a weak local currency in the end.

China is very hot even though its not the most attractive on valuations, it is a relatively closed market and the surge in bank lending (i.e. liquidity) over the past 6 months has ensured a most vibrant market.

Singapore unfortunately may be trailing the rest of the emerging markets as valuations wise, it is not that attractive. Still, trailing it may be, it will still enjoy some partying albeit much less enthusiasm.