Really Useful Signs
Update On China Covered Warrants
These are volatile buggers and need to be monitored always. In the first few weeks when they were introduced, they were priced expensively and traded even more so. Somehow after the global tussle with subprime, almost all China covered warrants are cheaply traded (each warrant has an intrinsic value, usually priced in terms of its implied volatility and time value). Some are so ridiculously cheap, you'd think they are selling them at Petaling Street!
Company / Warrant Px / Premium / Gearing / Maturity
Category: Ridiculously Cheap Covered Warrants & Excellent China/HK Exposure
CCCC-C1 / 0.425 / 0% / 6x / 31 Jan 2008
CCCC-C3 / 0.115 / 8% / 15x / 4 Apr 2008
p/s CCCC-C3 is a lot better and cheaper as a buy & hold than C1
HKEX-C3 / 0.575 / 0% / 12x / 4 Apr 2008
HSBC-C1 / 0.155 / 7% / 40x / 4 Jan 2008
HSI-C1 / 0.40 / 0% / 24x / 29 Feb 2008
HWL-C1 / 0.275 / 7% / 13x 2 Jan 2008
Sinopec-C1 / 0.105 / 12% / 16x / 31 Jan 2008
Category: Cheap Covered Warrants & Good China/ HK Exposure
CNOOC-C1 / 0.105 / 15% / 6.7x / 25 Feb 2008
China Mobile-C4 / 0.40 / 4% / 6x / 28 Mar 2008
ICBC-C1 / 0.195 / 3% / 6x / 29 Feb 2008
ICBC-C3 / 0.18 / 0% / 6.5x / 2 Jan 2008
Petrochina-C1 / 0.185 / 8% / 6x / 29 Feb 2008
Petrochina-C3 / 0.165 / 7% / 6x / 17 Jan 2008
p/s Petrochina will be trading soon in Shanghai Exchange (within 2-6 weeks) and the IPO is priced close to the H-shares, I anticipate a jump of at least 40%-50% in the first few days of trading. This will spur buying of the H-share of Petrochina as well as its NYSE listing shares. Owing to the unique deliniation of investor pool - the Shanghai will trade at a huge premium to the H-share in HK, and you will find the NYSE trading at a discount to the H-share. The first 3-tiered share price for one single stock. Hence, for a strong speculative buy, the Petrochina covered warrants are the way to go.
Shenhua-C1 / 0.125 / 7% / 6.8x / 25 Feb 2008
About Time
Most Singaporeans would have heard of Corrine May and her music. For the rest of the world, here's Corrine! This Singapore-born, Berklee College of Music-educated songwriter & singer sounds like an amalgamation of Sarah McLachlan, Sting and an updated Joni Mitchell. She composes all her songs (almost). She released Safe In A Crazy World in 2005. Her first entitled Corrine May as well was released in 2001. Just recently, her new album was released, Beautiful Seed.
Corrine won the Carole King & Carole Bayer Sager Songwriting contest back in 2000, and the rest, as they say, is history.
When you write your own melodies and lyrics, and sing as well, and you happen to be that good - that's very very good indeed. Should check out her albums when in Singapore (she's already very big in Singapore and California, and should conquer the rest soon). Failing that, check out her Corrine May titled album at cdbaby.com , esp Fly Away, Same Side Of The Moon and If You Didn't Love Me.
http://cdbaby.com/cd/corrinnemay
Chicken Without Sexual Life
You have to get there early to enjoy one of China's hidden treasures, broken English. The authorities knowing full well that there are a lot of inadvertently funny translations into English, are acting speedily to rectify the matter. Road signs, shop signages, menus, etc... sigh, you have to go early to enjoy them or else they would have been corrected already.
This is not purely to laugh AT them, but to laugh WITH them. Everybody will make the sincerest of mistakes owing to the country coming to grips with the demands of globalisation. Its easy when you only have ONE language to contend with, but for the rest of the world, its juggling 2-4 languages and dialects - so native English speakers, don't laugh too loud.
To start off, here are a couple of menus from. See if you can guess what the real menu items are. Oh, btw... Chicken Without Sexual Life - Spring Chicken.
Morgan Stanley (again), My Fav Strategists
Asia/Pacific Equity Strategy
Start Buying Asia-Pac: +10% by Year-End
August 21, 2007
By Malcolm Wood, Ryan Tsai, Corey Ng
Asia/Pacific Equity Strategy
Start Buying Asia-Pac: +10% by Year-End
August 21, 2007
By Malcolm Wood, Ryan Tsai, Corey Ng
We see six reasons to buy Asia-Pac: This has been the largest bull market correction in 20 years, valuations are moderately attractive, earnings momentum and fundamentals are positive, the fallout from the US credit squeeze should be limited, Asia liquidity conditions are still strong, and sentiment has turned pessimistic. We have also raised our year-end index target by 3%, to 480.
Estimating the US Fallout: Impact on Asia Should Be Limited. The credit squeeze should keep growth sluggish in the US. The squeeze should deepen the housing downturn, slow job growth and lift the saving rate. Asia has four offsets to mitigate the US impact: re-directing exports, and gaining export market share; strong economic momentum and fundamentals; the liquidity boom; and potential political stimulus. We would avoid Asia stocks with large US exposure.
Country Strategy - Overweight China, Hong Kong, Malaysia and Singapore. In a context of slowing G7 growth and Fed rate cuts, our preferred markets are China and Hong Kong. In China we see significant upside earnings potential, while Hong Kong should benefit from lower US rates and China capital inflows. We raised Thailand to a neutral weight, given its progress toward elections. We reduced Australia, where liquidity is tight, and valuation unattractive. India stays underweight despite an improving rate outlook, given political uncertainty, high valuation and poor earnings revisions. In our model portfolio we overweight banks, insurers, consumer, property and telcos.
Chinese PER & Earnings Growth
At the end of August, 852 Shanghai-listed companies and 487 Shenzhen-listed firms reported their earnings for the first half of this year. The aggregate net profit of the Shanghai companies was 290.3 billion yuan (US$38 billion), up 69.2 percent year on year, while their aggregate income was 2.69 trillion yuan, up 24.9 percent. Shenzhen-listed firms reported a combined 99.23 percent increase in aggregate net profits at 47.52 billion yuan, while aggregate income was up 28 percent at 754.52 billion yuan.
Blue-chip companies reported the best performance, with their aggregate net profits accounting for 77.4 percent of the total in Shanghai. The aggregate net profit of the top 30 Shenzhen firms jumped 77.23 percent to 27.47 billion yuan, 57.8 percent of the total for all listed firms. Companies in the financial, non-ferrous metals, excavation and real estate sectors performed well. Seventeen Shanghai-listed companies in the financial sector enjoyed a combined net profit growth of 74.1 percent.
That's the often uttered fundamental factor in explaining high PERs accorded to China firms. Its the sustainability and quality of growth which are needed to be examined further. Now, a simple analysis would show a disparity in Revenue & Net Profit growth patterns. Herein lies the pandora's box.
Revenue Growth / Net Profit Growth
Shanghai 24.9% / 69.2%
Shenzhen 28% / 99%You cannot have such disproportionate jumps - but you can I guess, if the employees all agree to have their salaries reduced by 40% every year; or you can manufacture a product 30% cheaper with every progressive year. Some disproportionate jumps can be explained via "extraordinary gains" such as asset sales, disposal of subsidiaries at a profit or even "revaluation gains" of land and buildings - all of which are one-off and non-operating, hence non-important (sic).
The magic elixir is investment income contributed most to profit jumps. The total investment income was 10.4 billion yuan on the Shenzhen exchange, 15.33 percent of the total. I believe the proportion for Shanghai listed firms could even be higher, closer to 25% of total. That may not sound like sizable but this is the actual percentage following a 70%-99% jump in base value. In other words, the investment income in 2007 as a % of 2006 total net profit should be in the region of 35%-45%!!!
Sure, the operating performance is still solid after you strip out investment income from their net profits, but it goes a long way to challenge the sustainability of earnings growth and the quality as well. Investment income is NOT recurring income, it could be huge losses (really big ones) in one of two financial years ahead though.
a) over reliance on trading and investments
b) misallocation of capital towards trading and investment at the expense of funding organic growth, necessary capital investments and r&d expenditure
c) over-reliance on local investments will cause many to stay domestic, and not consider to go global to expand their reach
d) the exponential domino knock-on effects of a 30%-40% correction will be very severe, and could cause many companies to kill off otherwise healthy businesses
Just a reminder, just a reminder ... till then, China bull is alive and well... still. But don't paint the bull up more than what it deserves to be, just a bull, who will die someday.
Trying To Instill Confidence
Bernanke tried to pacify investors last Friday when he said the Fed stands ready to take additional actions as needed to provide liquidity. Central bankers next meet to set rates on Sept. 18. There is a greater acknowledgement by the authorities of the real issues behind the subprime mess, plus a better grip on the consequences on the average American. This will swing the pendulum back to the bulls. Interest-rate futures show traders bet there's a 100% chance the Fed will cut borrowing costs to at least 25 basis points next month. The odds were 26% a month ago. Bernanke basically suggested that the Fed is prepared to cut the discount rate further or use additional tools to ease the strains in markets.
The political PR machinery recognises a dire situation that needed more than just the Fed, here's Bush! Bush said he will let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to guarantee loans for delinquent borrowers, thus allowing them to avoid foreclosure and refinance at more favorable rates. Administration officials said that the goal would be to change its federal mortgage insurance program in a way that would let an additional 80,000 homeowners with sloppy credit records sign up, beyond the 160,000 likely to use it this year and next.
“It’s not the government’s job to bail out speculators or those who made the decision to buy a home they knew they could never afford,” Mr. Bush said. “Yet there are many American homeowners who can get through this difficult time with a little flexibility from their lenders or little help from their government.” Other elements of the plan would need legislative action, requiring Bush to win over the Democratic leadership in Congress. He called for Congress to act quickly. Bush and his advisors have stepped up to the plate amidst growing criticism from Democrats that the government are folding their arms in light of hundreds of thousands of Americans losing their homes.
The main objective of the package is not to affect the stock markets but to help low-income homeowners, many of them concentrated in certain neighborhoods in several distressed areas of the country, such as Ohio and Michigan.
By helping homeowners keep their homes and refinance or renegotiate the terms of the mortgages, this could have a stabilizing effect on the financial institutions that have these mortgages in their portfolios, and help them write down the value of the mortgages or sell them off at a loss. To be able to mark them to market, bite the bullets, and move on is crucial for some many affected financial institutions. Many want to move on but can't trade their portfolios, now its getting a lot better.
Methinks that the timing of Bush speech and Bernanke's address were NOT a coincidence. It looks too good and mesh together well. Obviously all have consulted with financial institutions, some members of Congress, housing counseling groups, academic specialists, and also with Bernanke. Bernanke, on behalf of the Fed, cannot say those things that Bush has said because that's not the role of the Federal Reserve.
Several other steps the administration plans to announce involve seeking legislative changes. Bush is expected to endorse proposals backed by Democrats in Congress that would raise the ceiling on the amount of a mortgage that can be refinanced with federal insurance. The rain clouds have dissipated with a little ray of sunshine poking through.
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