Charity & Good Charity!
An Important Diversion

There is charity and there is good charity - hmmm ... Good Charity, sounds like a wonderful name for a horse. There are those that say that any charity is good. Are you one of those who draw a line between certain causes, that they have to be deserving enough first? If an able man in his 30s were to beg for coins, is that deserving? Or a one-legged man in his 60s more deserving?

Why does it have to be that we "mark people and causes" for charity? Because we have limited funds? When people find out that they have been cheated by certain causes or people pretending to be beggars - are you pissed off? But why ... why should any of us be pissed off?? Why bother being charitable in the first place? Is it the reputation, or does the act itself makes you feel good?

Some say that it does not matter what your motivations are, as long as there are donated funds. Charity is charity, whether you are donating to enhance your reputation, or because there are others who will see you in a different light, or you are just a kind soul - all funds into charity are good funds.

Our own persuasions and motivations will be dealt with by some higher forces, its not for us to make the calls or prejudge. While any charity is good, we can and should aspire to higher grounds. Just give, out of the goodness of your soul - do not be bothered if that beggar deserves it, do not qualify your charity - do your parents love you only if you behave in a certain way? Even if the unfortunate soul were to be only pretending, its OK ... we have to think "what if he's not", and not be overly pessimistic.

Just remember the goodness that comes to each of us when we ourselves are down, and when we don't really deserve kindness. Be a channel of goodness, not a guarded hoarder. There are billions of misdeeds in the world that needs correcting - we are not supposed to do all ... Bloom Where You Are Planted ... charity and goodness does not mean to strangers only, but first to the friends and family ... its absurd if we were to treat strangers better than the ones we love.

But anyway, back to Good Charity ... the affluent Hong Kong Jockey Club has decided to create 2,500 new jobs in the troubled area of Tin Shui Wai in HK. The Hong Kong Jockey Club announced that it would complement its new telebet centre with training and volunteer services and set up the "HKJC Telebet Centre cum Volunteers and Training Centre" in Tin Shui Wai. It is hoped that the new centre will help revitalise Tin Shui Wai and gradually give local residents a chance to establish new community networks. HKJC's 800-strong C.A.R.E.@hkjc volunteer team would set up a base at the new Centre, and the new workforce at Tin Shui Wai centre would in due course join the volunteer team themselves. HKJC said "We believe that volunteer work is a part of holistic people development, and our ultimate aim is to form a strong volunteer force in the district to promote the spirit of helping others to become self-sustaining ... We hope this task force can help other needy people through their own experience, so as to promote community care and ensure a self-sustaining, harmonious and proactive life for everyone."

For those in the dark, Tin Shui Wai is a depressed area populated by the working class mainly. There is also a substantial proportion of people living there who are the newer migrants. Livelihood has been affected because of more than frequent family tragedies and people finding it hard to make ends meet. The prevailing mood and reputation caused many to "blacklist" the area and the people living there as "unfortunate, unlucky, depressing, down-trodden..."

Hence I applaud HKJC's move as it was very swift and prompt. Its good when "charity" can do a more "effective good", but that is not Good Charity, that's effective Charity. Good Charity are any acts that comes from the goodness of your hearts, with no expectation of reward. Of course charity is not just in monetary terms. Don't know why, but its probably just the time of the year to talk about these things. Writing a business blog can sometimes cloud our ways and motivations to certain objectives & life's drection - good to be reminded. Happy birthday J-man!

Something's Rotting With CIC

China Investment Corporation, the US$200 billion sovereign wealth fund set up by the Chinese government in September, was a much touted sovereign wealth fund. Initially CIC has been allocated US$200 billion, a still small portion of its US$1.4 trillion reserves.

While many thought that CIC would begin to solicit stakes in big foreign companies, including myself, their subsequent moves indicate something stinky. CIC initial US$3 billion investment into Blackstone caused me to praise their astuteness in strategy as that would allow CIC to be privy to the major deals flowing across the desk of Blackstone, and thus allowing CIC the choice to invest alongside with Blackstone. It would also limit the bad press portraying CIC as the aggressor in major M&A activities.

However, how CIC deployed the rest of the funds revealed more than they intended. A third of China Investment's portfolio is to be invested in Central Huijin Investment Company, a purchaser of bad loans from the Chinese banks, and another third will recapitalize China Agricultural Bank and China Development Bank, to shape them up for privatization.

This lends further evidence that there is still a mountain of bad debts residing in many unlisted state-controlled units. Those banks already listed, and those with major foreign banks as substantial shareholders, are those with healthier balance sheet - however, a major correction in the China stock markets and/or property side will also put a lot of stress on these so called "healthy listed banks" loans portfolio.

But thats not the major point, the main thing is that CIC would be entrusted to "recapitalise" institutions related to the hidden bad debts still residing in unlisted companies. I have mentioned before that the main reason why Beijing is slow to allow the yuan to appreciate is that its financial system is still at a nascent stage. The trade surpluses and booming stock market are only a portion of the real economy - and they need to "clean up" the underside while things are still good. Beijing is buying time - let's hope that they can do that while the stocks, property and trade surpluses are still bullish. Cause if not, the weight of bad debts will turn insurmountable almost overnight.

More Whispers On Shenhua

Shenhua Energy, the world's second-largest coal company, could raise almost US$80 billion to spend buying mines, power plants and ports to feed China's growing demand for energy. The mining company is in preliminary talks to invest in Indonesia (Adaro, read below) and is studying targets in Australia and Mongolia, president Ling Wen said on Friday. Shenhua has been forced to move a lot faster in its M&A strategy thanks to BHP Billiton's audacious bid for Rio Tinto. The $US134 billion unsolicited takeover bid for Rio Tinto Group by BHP Billiton, the world's biggest mining company, may accelerate those plans. There are only so many decent sized mines left to acquire that would help make a difference to Shenhua over the longer term. After all, it IS the world's second largest coal company, and wants to at least stay there if not improve further.

"It's very important to use not only organic growth but also mergers and acquisitions to make our enterprise larger, better and more profitable," Mr Ling said in an interview in Beijing. "We have huge room to make some acquisitions."

China Shenhua would be able to finance takeovers because its parent, state-owned Shenhua Group, owns a 74%. China Shenhua would be able to liberate $US78.5 billion by selling new shares and diluting its parent's stake to just over 50 per cent. China, the largest energy consumer after the US, burns coal to generate almost 80 per cent of its power. The Government estimates energy demand will rise about 4 per cent annually to the equivalent of 2.7 billion tonnes of coal by 2010. China's gross domestic product grew 11.5 per cent in the third quarter.

The price of shares in China Shenhua, which ranks behind St Louis-based Peabody Energy in coal sales, have more than doubled this year, outpacing the 43 per cent advance in the benchmark Hang Seng Index. The parent's stake dropped from 81% after the company raised 66.6 billion yuan in a Shanghai share sale in October. The stock has fallen 7% since then.

Next Hottie - Kian Joo

Well, the bidding has reached frenetic pace for Kian Joo's 35% controlling stake. The grapevine has it that Mega First was an early bidder but soon dropped out. Tin can manufacturer Can-One then came into the picture to buy the 153.87m block.

Apparently the price was being bidded higher than the purported RM250m. Bearing in mind that the new owner will probably have to collect more or even make a general offer as well, its going to be a lot more than RM250m (share price of around RM1.55).

Anthony See was known to have submitted a bid himself, however it looks like the race now has left only two bidders. One an American company and the other a Japanese company, and both are willing to work with one of the brothers. The key thing is pricing, apparently bidding is already past the RM2.20 mark. This may give Kian Joo shares a bit more upswing as the battle heads to a conclusion.

China Dolls' Whspers

Following up on how China Mobile surged on corporate developments, players of Chinese H-shares covereds would be disadvantaged for failing to keep in tune with the latest whispers. Here are some of the latest whispers with respect to those H-shares covereds on KLSE.

ICBC & Bank of China - The company is rumoured to be making a bid for a stake in Swiss investment banking giant UBS. This is similar to the troubles Citigroup and Bear Stearns found themselves to be in. Looks like UBS would also be needing some form of capital injection. While the two banks are the rumoured aggressors, a deal with ICBC is more likely than with Bank of China.

Shenhua - The company had been invited to take a small stake in Adaro prior to its listing in Jakarta next year to raise US$750m but Shenhua declined to take that up. Apparently Shenhua is very interested but would like a bigger stake. Shenhua is rumoured to be persuading Adaro to shelve their listing plan and instead allow Shenhua to take up a bigger stake. Adaro is controlled by several investors including Edwin Soeryadjaya, son of the founder of the Indonesian car firm Astra International, and entrepreneur Sandiaga Uno. Indonesian laws encouraging corporate transparency provide a tax break on capital gains earned when a stake is sold through a stock offering. Regulations limiting foreign ownership in the country's coal firms to 49 per cent are also waived if the acquisition takes place through a share sale. Shenhua is cashed up and looking for acquisitions after raising US$9 billion from an initial offering in Shanghai in September and has long had Indonesia in its sights. Shenhua, which listed in Hong Kong two years ago, has also indicated it was looking at acquisition targets in Australia and Mongolia. To control Adaro, Shenhua may have to fork up US$4 billion.

OK! Now Is Safe To Get Back Into Certain Markets!!!

Recent postings have avoided highlighting stocks of any kind as the markets were averse to equities in general. The only bright spot, HK/China, even had a difficult few weeks. However, there are sufficient signs that its OK to re-enter certain equity markets.

Global liquidity is still there. A good indicator is to examine the flow of funds in/out of certain fund types. The data on fund flows from the Investment Company Institute for October showed that global equity funds showed inflows of US$14.97 billion, compared to an outflow of US$3.71 billion from US equity funds. For all of 2007, global funds have recorded inflows of US$123.7 billion, compared with US$20.9 billion in outflows for U.S. funds. This further strengthen the funds away from US assets.

Much of the outflow from US equity funds was probably due to a hedge against a persistently weakening USD. As for China, the fears over inflation and out of control CPI seem to be properly discounted. We know for a fact that liquidity is still ample globally - they have to go somewhere. However, not all markets present the 10%-20% upside necessary for foreign funds to park their assets. If we were to reassess the global equity picture, we need places where: currency outlook is still positive; stock markets can see a 10%-20% upside over the next 6 months; and a reflating economy. With that in mind the best markets would be:

1) HK

2) Brazil & Colombia

3) Japan

4) China

5) South Korea

6) Vietnam

7) Thailand

At present levels, it is very difficult to see markets such as Australia, Canada, the US and Malaysia to register a 10%-20% gain from current levels.

Cost Of Living Survey 2007

Excerpt: ECA’s Cost of Living Survey is carried out twice a year comparing a basket of 128 consumer goods and services commonly purchased by expatriates in over 300 locations worldwide. Multinational companies use the results to help compensate their internationally mobile staff. Living costs for expatriates are affected by inflation, availability of goods and exchange rates, all of which can have a significant impact on expatriate remuneration packages. Some people may be surprised to see African locations in the top ten. However, ECA’s cost of living survey compares like-for-like goods and services, certain items and brands typically purchased by expatriates, which are not readily available locally, can be very expensive. In addition, the commodity boom in recent years has led to considerable currency appreciations in commodity-exporting markets, such as Angola, making it an increasingly expensive location for expatriates.

Seoul maintains its position as the most expensive city in Asia for expatriates, moving from 8th to 7th in the global ranking over the past twelve months. During the same period, Tokyo, Asia’s second most costly city, dropped out of the top ten for the first time moving from 10th to 13th. Depreciation of the yen against most other currencies, coupled with low inflation, has significantly reduced living costs for foreigners in Tokyo, Yokohama and Kobe in recent years. Several other Asian cities have fallen in the ranking, including Taipei which has fallen six places. This is largely explained by the weakness of the US dollar to which their currencies are linked. The region’s biggest fall was in Indonesia with Jakarta dropping 11 places to 153rd position. However, with a large number of Asian cities experiencing higher rates of prices increases than elsewhere in the world, locations in the region have, in general, moved up the rankings.

A 6% overall rise in the cost of goods and services typically purchased by expatriates has meant that despite the weakening Hong Kong dollar Hong Kong’s position in the ranking has remained steady and is still the fifth most expensive location in the region and ranked 79th worldwide. The recent rise in GST in Singapore from 5% to 7% has contributed to pushing up living costs in Singapore, which has risen 10 places in the ranking since 2006. This, together with no change in Hong Kong’s position, means that the gap is closing between the two locations. As living costs in other locations in the region catch up, the need for companies to provide higher cost of living allowances when moving people to Hong Kong rather than elsewhere in Asia, has been eroded over the past 12 months.

Most Expensive Cities Globally (Last Year's Position)

1 (2) Luanda, Angola

2 (3) Oslo, Norway

3 (4) Moscow, Russia

6 (5) Kinshasa, Congo

7 (8) Seoul, Korea

9 (11) Geneva, Switzerland

10 (17) London, UK

13 (10) Tokyo, Japan

23 (54) Istanbul, Turkey

48 (28) Manhattan New York, USA

Asia's Most Expensive Cities (Global Ranking)

1 (7) Seoul

2 (13) Tokyo

5 (79) HK

6 (94) Taipei

7 (95) Beijing

8 (100) Shanghai

9 (122) Singapore

11 (153) Jakarta

18 (168) Bangkok

24 (177) Mumbai

25 (178) New Delhi

29 (191) Manila

32 (195) Hanoi

33 (197) Kuala Lumpur

35 (203) Karachi

36 (204) Ho Chi Minh City

My Comments: Should we be happy or sad that Malaysia is so "cheap"? I see three main reasons why Malaysia is cheap:

a) Subsidised products - The country puts in a lot of subsidy in many essential necessities, but more importantly the government subsidises a lot in oil & gas products as well. This helps to translate into a lower COL for all, albeit unecessarily subsidising the profits of many manufacturers and MNCs. Naturally, when these products' prices surge (like they have been doing for the past 2 years), the subsidy budget will become unmanageable. The government has to look deeper into the opportunity cost of such deep subsidy plans. We also need to put in place a timeline to trim the subsidy for all companies operating in Malaysia - they must be forced to compete with fuel and electricity at normalised prices.

b) Foreign Workforce - Malaysia enjoys near full employment, however the country has some 2 million official foreign workers and probably another 2 million in the country working illegally. The foreign work force is a significant factor in depressing wages and keeping prices in check. They also free up a sizable percentage of the local workforce to other areas of employment.

c) Its In The Real Estate (the biggest reason for low COL figure) - Malaysia has one of the cheapest real estate market in Asia, and real estate is a huge component of overall cost structure for any businesses. Translate that down the line for all products and services, you get an effectively lower COL for Malaysia.