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

Start the KL-Singapore Bullet Train Project Already!

The KL-Singapore bullet train project was mooted as far back as 2006. Till today, nothing came of it. Mark Mobius of Templeton Emerging Markets was in KL recently and was asked what were the competitive advantages or sectors that Malaysia had an edge in. He said, and I agreed, plantations and tourism. We are doing well enough in plantations, even though it appears only IOI Corp is moving up the entire value chain and integrating the processes vertically and horizontally - what are the other plantation companies doing? Many are still happy to be planting and harvesting then selling, there are plenty of value add processes to palm oil in order to transform them into various other uses. While we have our R&D in plantation, we still need to pump it up with a more open collaborative research institute to get at fresher ideas of how to further enhance the usage of palm oil. Why don't we give out 5 sponsored Phds for foreign students that do higher research in palm oil related studies every year, and give them 3 year stints after that at PORLA? Why don't we establish one or two chairs for renown research scientists in food/plant biology/ chemistry or related subjects within PORLA to further energise the unit. Don't just employ local research staffers, it stunts our way of thinking, you need a different perspective, a fresher way of looking at things all the time.

Now onto the second part, tourism, we have so much potential but its all over the place. We have tons of beaches, diving spots, natural rainforests, caves, etc... eco-tourism is the way forward. Only we have that kind of tourism, .... you can do your Disneyland or Universal Studio or casinos, those things can be transplanted anytime anywhere within a couple of years. We need a cohesive strategy to manage the operators, grade them continually, have a strong tourism police force to check and evaluate the operators, have a site that grades and allows access to all the licensed operators. Bad hats will be punished severely. The operators within a region will have to do their part with the help of Tourism Ministry to maintain the "essence, integrity and longevity" of the eco-toursim spots.

Now, for a tourist, they have to search in the dark, rely on recommendations from friends, to get to interesting places. Already we have such a strong platform, the best run and cheapest budget airline in Asia as a base.

The second idea, which is critical as well, is to build the Singapore-KL bullet train. It is best to extend the ERL line. Why sit on it for 3 years??? It is so viable and the multiplier effects will be fantastic. Malaysia has the cheapest 5 star hotels in Asia, period. Malaysia has the best food in Asia, period. Most of our neighbours love to come to visit, especially Singaporeans, but have you seen the weekend jams at the causeway? The difference in currency is also a strong power puller.

Imagine a trip from KL-Singapore taking 90 minutes, add 30 minutes for the wait and checking in and checking out. Two hours and you are in KL, can you imagine the crowd. Heck, you can be very profitable even by charging RM50-RM100 per one way trip, yes, you can rip the bus travel to shreds. If you add one stop at Melaka, well you know how many new hotels will be built around Melaka? It takes the stress out of driving.

The bullet train has multiplier effects on both cities because the project basically makes KL a suburb of Singapore, and Singapore a suburb of KL, you basically enlarged the urban population of both cities overnight. You will find on most days and probably weekends that 1/5 of the people having fun in that city will be from the other city. On special occasions, it will be even more pronounced.

On the business front, there are plenty of companies, especially foreign companies that will set up offices in KL instead of Singapore. With the bullet train, they could literally take the 7am train and start meeting clients in Singapore from 10am onwards, he/she could meet 4 clients and have lunch with one, do a bit of shopping and take the 6pm train back and still be home in KL by 9pm. All that for RM100??? Just the thought of relocating from Singapore to KL would save a company some two-thirds in costs immediately. There are plenty of these type of enhanced business contacts and privileges that comes with the bullet train project. Gawd! Its only RM8bn, it the oil subsidy bill for a few months!!! If you can afford the RM60bn stimulus bill, you can tag on another RM8bn that would have very strong long term multiplier benefits to many sectors of our economy. This is the exact kind of big projects that moves us UP THE VALUE CHAIN!!! This is exactly, what we need.

Don't worry about Singapore, they would be more than happy to participate. They are pragmatic enough, just that we are not. Such a project will need strong parties to pull this off as there are vested interests involved. I would suggest the following: YTL 40%; SIA 20%; MAS 20%; UEM 20%. Now why would I want UEM inside?

The bullet train project will be critical in jump starting the Nusajaya project as well. Right now, there are some people working in Singapore that travels daily to Singapore from Nusajaya. Can you imagine the flow on effects if there is a connecting line from Nusajaya???

Imagine this, there is an express train every hour from Kl-Singapore on the hour. Once every 3 hours, the train will stop at Melaka and Nusajaya, i.e. one in every 3 trains is not express. The Nusajaya line will be made up of a separate line on its own with 4 stations, each station will be attached to a huge parking area. These 4 stations will lead to Nusajaya. There will be a train running direct from Nusajaya to Singapore Raffles Place direct every 30 minutes during peak travel period, and reduces to 1 hour on non-peak.

Watch the properties in Nusajaya being snapped up, watch the plethora of Singapore companies jumping to invest in other sectors in Nusajaya.

Sigh... another National Service , another idea that will not get me my datukship... another idea for free... wait it gets better, the second phase of the project will go north bound, half an hour for Ipoh-KL (gee, many might even move back to Ipoh to work in KL), one hour for KL-Penang (Singaporeans will laugh, 2.5 hours from Singapore-Penang, food glorious food), and the piece `de resistance... KL-Hatyai in 3 hours, which makes Singapore-Hatyai in just 5.5 hours ... The collective urbanisation of these cities will recharge the business activity in each and every city, it will in effect double, even triple the "population effect" of each city.


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2006

KUALA LUMPUR: Imagine zipping in a bullet train from the KL Sentral station into the heart of Singapore in 90 minutes flat. That is something that will become a reality if tycoon Tan Sri Francis Yeoh’s plan to build and operate such a train service at a cost of up to RM8 billion takes off.

Yeoh told the New Straits Times that the Malaysian and Singapore Governments had been informed of the proposal by YTL Corp for the fast train service.

If approved, the project will become the largest to be launched on a private finance initiative (PFI) basis, as encouraged under the Ninth Malaysia Plan.

Construction will take three years but it could be two years before cross-border approvals and land acquisition are obtained.

Yeoh said that if the project is approved, YTL would go to the global capital market to raise the needed funds to finance it. Partners providing the rail and train technology for the project could be either Japanese, French or German operators of fast train services.

"Every single fund manager loves this project and a lot of consumers want it. The industries want it. It’s a no-brainer. It’s the perfect alternative to air and land transport between the two hubs and will integrate them," he said.

"This is not a dream and a project that can’t be done. It can be done if there is a will to do it. And I pray that there will be this will to do it," he said.

"It will help move the economy ahead. The country now needs the boost of fresh private sector investment and we can do that with projects like this."

Yeoh said the KL-Singapore fast rail link could be an extension of the Sentral-Kuala Lumpur International Airport train service that is currently operated by YTL majority-owned Express Rail Link (ERL).

The ERL was built at a cheap cost of RM35 million per kilometre compared to other train projects in the developed world built at between RM120-RM150 million per kilometre. The ERL project received no government subsidies.

"We can extend the airport line to Singapore. We can also find ways for the rail link to pass through the newly developing southern Johor Corridor enroute to Singapore," he added.

Under the YTL proposal, a new standard gauge railway line would have to be built across the southern states to accommodate trains with wider wheels that can travel at a speed of up to 350km per hour.

The metre-gauge railway lines currently used by Keretapi Tanah Melayu (KTM) can only accommodate trains with a smaller wheel size and a maximum speed of 140 km per hour.

Yeoh said the timing was just right for the launch of the project now as the Malaysian Government was keen on it and the cost of land acquisition to build the rail connection was relatively cheap.

Land cost usually accounts for 70 per cent of the cost of such rail projects while the cost for the technology accounts for 30 per cent.

"It is the land value that is important. The land cost is still affordable now in Malaysia, unlike in Hong Kong, the US or Europe."

Yeoh said Singapore has also had a look at the project.

"I don’t think they will be that difficult. We have been chatting with them for quite a while now."

Yeoh said he was ready to accept Malaysia Airlines and Singapore Airlines as well as the airport operators of both cities as "cornerstone investors" in the project to ensure relevant entities from both sides had a stake in the project.

The direct rail link will provide commuters with an alternative to expensive air travel and the slower journey by car or bus.


p/s photos: Yukie Nakama