I started my career at almost the similar timeframe as September of 2019 in this crisis, but 22+ years past. During then, the market was really hot especially among the second boards (then there was a second board which later was merged into the Main Board). Back then, I was tasked to maintain a group of 40+ loan accounts and look for new ones. I remembered the 2 earlier business accounts that I met up with which was my first time to Batu Pahat and Muar, situated in southern Malaysia were furniture makers. Both of them were doing relatively well. One whose business was selling to the entire country with lorries delivering furniture comprising from simplest of low costs RM30 furniture to sofas. The other was doing purely exports, run by a Taiwanese family.
Of course, 6 months later the Asian financial crisis hit Malaysia. We knew about it but my lack of experience caused me to not know what to do and expect as it was my first real experience of what a crisis was. In a matter of hours Malaysian Ringgit was devalued by easily double digit percentage. The business community whom were caught did not know what to do. So was the entire nation. I can vouched however, there is a huge difference though during then compared to today. During then, the banks would have pulled back the banking lines that were unutilised as they feared of facing more exposures. (Today, quickly BNM imposed a 6 months moratorium on payment for the businesses - This would have given some breather although we have yet to see the impact after that 6 months)
Of course, when RM plunged - it was a tale of two stories for the furniture makers. The one that was selling within the country saw its sales plunged (and later went under receivership) while the one that was doing exports later on became very big and it subsequently got listed and has a huge operations in Vietnam today. We know the main reasons as sales was in USD through exports to US and Europe while the local one was holding a combined foreign and local costs while sales was a mere fraction of what it used to be when the crisis hit.
Today, that situation we faced 21 years ago has its similarities. BNM and the Finance Ministry this time would not have the challenge of defending the Ringgit but we have an economy that was almost on standstill for 2-1/2 months - especially on buying the non-essential items (furniture is one of them). We are going to face worse as time passed when people are now more careful on their spending. That spiralling effect of less-spending would cause local domestic economy to suffer. This time around though, the sales to US for some goods will not enjoy a similar profile as the US, UK, Japan, China's Main Streets are also suffering the same.
However, as one can vouched, this crisis (as people call it will turn to a new normal - and that new normal does not look good for Malaysia) is going to change the business landscape. What is the new normal then? It is going to be more of the digital normal - which means usage of services, purchases of goods are almost borderless. Today, I am sitting at home working using cloud services provided by Google and Amazon. My company is buying more servers with components and equipment made by Intel, AMD, Cisco just to address this period. There is this imagination that the new normal would also mean many globally would subscribe to services and products that are provided by just a handful - Amazon, Google, Microsoft, Facebook, Netflix, Alibaba, Tencent, ByteDance. Many people are buying goods direct from China through Lazada and Shopee - I am not sure our government realise this but the retail market share is more and more getting away from Malaysian companies.
Where do we go then? It is going to be late if we want to compete against the Amazon(s) and Alibaba(s). Rubber glove is a good situation for Malaysia but it is not the new normal. It is the current normal and it may go away. We as a country has to build and encourage up a group of businesses that will be trading globally. Rubber gloves gave us some business safety net. We have a country which geographically and infrastructure-ly built for international trade. The Trade War which is back after 3 months of hiatus - we Malaysia is going to take advantage of it. We are going to use Klang, Johor's ports as an advantage.
Already some of the businesses that are resilient - we can see is made out of this infra and positioning. Those names are Scientex, Dialog, Guan Chong (maybe even MSM) - mainly comprise of producers, traders and manufacturers of essential and daily used items. We have to get Malaysian companies to be strong with digital exposures.
What we have tried to do through our digital initiatives did not really bear much fruits. We were followers. If in US or China a digital business model is successful, we tried to copy them. This is not taking advantage of what we are strong in. Malaysia is a nation which is exposed to the world. US and China, when they built on an idea - they have a huge internal consumption to test on those ideas. We do not have that. I am sure when Spotify was created it was not meant for the Swedish market.
So where do we go in terms of the stock market? All things are not lost. We have enough of these companies and entrepreneurs. When I was exposed to the rubber gloves makers back in 2000, those companies were nowhere near what we imagine they are today. We can recreate many of these similar companies in many different industries. Scientex is one huge example. So was Press Metal. Back 18 years ago, I was not impress with the company - again I am mistaken.
I think this crisis, which is yet to show its true-devil self, would still present opportunities and the way to look for it is less of the inward looking ones but search for the ones that would go outward of this country.
Saturday, May 30, 2020
Saturday, May 23, 2020
The rise of the retail traders
What the movement control has managed to give rise is the emergence of the retail traders in Malaysia a number which we have not seen in the past decade. This is a welcome situation on the perspective of balancing the trades as in the past Malaysia's trade have been dominated by the very large pension or savings funds in Malaysia. I have never liked the situation in Malaysia as we were overly heavy on EPF, KWAP, PNB where decisions were focused on a few individuals rather than the masses.
Despite the CMCO, we have seen the largest trade volume in Malaysia on 18 May 2020. Although the Trade value was not the highest, the volume were high. These are probably due to 2 factors, emergence of the new retailers and very active participation from the syndicates. We need both to achieve that.
As an example how much were retailers in the market, see the volume below:
As below, we would see retail participation has increased almost 2x of previous. The institutionals whom would be taking advantage assuming they are better fund managers would also be participating. So, we actually see more liquidity in the market despite the downturn where people are losing their jobs.
The numbers on 16 March was already on the highside. On a normal day, prior to COVID-19, the trades were usually about in the realm of RM1 billion.
During MCO and CMCO, things that never happened, this time around is rather unusual. I hear over the radio, a doctor whom was staying at home during the MCO, who usually would not have the time to do trading, started his stock market activities during then. I have friends whom I was convincing them to invest - many of them successful business person asking for contacts to opening of trading account.
While these people are rich and pretty successful, they are usually small business owners or professionals, whom would not know much about stock market valuations but they are people whom are smart and understand what looks good and what is not. They have some good sense or risk management. They are not that much of gamblers.
Now in this MCO, they are emerging. Question is how long they will stay. At least for now, they have created an account and have their money in the trading account.
If the market really experience downturns, some of these people would leave while some might even stay for a long while. For a while, Bursa Malaysia has been experiencing many delisting exercises as small companies which are not much of an interest to the large funds such as EPF, have seen their share prices being low comparatively to the international markets. These are the ones which retail should have participated but they did not. It remains to be seen whether these retailers would remain.
I am for it. At the end of the day, although there is an opportunity for trades and speculation, I still think investing over a longer horizon prevails. When I mentioned longer term, it means over few years - not over few months like some older person is trying to promote.
Despite the CMCO, we have seen the largest trade volume in Malaysia on 18 May 2020. Although the Trade value was not the highest, the volume were high. These are probably due to 2 factors, emergence of the new retailers and very active participation from the syndicates. We need both to achieve that.
As an example how much were retailers in the market, see the volume below:
 |
| Trade on 16 March 2020 (before MCO) |
As below, we would see retail participation has increased almost 2x of previous. The institutionals whom would be taking advantage assuming they are better fund managers would also be participating. So, we actually see more liquidity in the market despite the downturn where people are losing their jobs.
 |
| Trade on 18 May 2020 (during CMCO) |
During MCO and CMCO, things that never happened, this time around is rather unusual. I hear over the radio, a doctor whom was staying at home during the MCO, who usually would not have the time to do trading, started his stock market activities during then. I have friends whom I was convincing them to invest - many of them successful business person asking for contacts to opening of trading account.
While these people are rich and pretty successful, they are usually small business owners or professionals, whom would not know much about stock market valuations but they are people whom are smart and understand what looks good and what is not. They have some good sense or risk management. They are not that much of gamblers.
Now in this MCO, they are emerging. Question is how long they will stay. At least for now, they have created an account and have their money in the trading account.
If the market really experience downturns, some of these people would leave while some might even stay for a long while. For a while, Bursa Malaysia has been experiencing many delisting exercises as small companies which are not much of an interest to the large funds such as EPF, have seen their share prices being low comparatively to the international markets. These are the ones which retail should have participated but they did not. It remains to be seen whether these retailers would remain.
I am for it. At the end of the day, although there is an opportunity for trades and speculation, I still think investing over a longer horizon prevails. When I mentioned longer term, it means over few years - not over few months like some older person is trying to promote.
Sunday, May 17, 2020
Reach me through telegram - @intellecpoint
I realise that for any speedy as well as more secure and not-flooded with unnecessary spams, you can now reach me at
https://t.me/intellecpoint
or
username : @intellecpoint
I have created a group called Intellectpoint
join by going into the below link
https://t.me/joinchat/OJNKyh1lBOHBXZdSPNdqAQ
You can talk to me on current economic and market trends, simple investing concepts (or maybe even complex), Bursa Malaysia especially, where does Malaysia stands as an example. In the past I have not been able to attend to questions or may be too slow as I was inundated with jobs as well as engagements. I hope through telegram, I am able to speed that up.
I am not an expert user on telegram, but will work on my knowledge.
Do share with others as well.
Do join!
https://t.me/intellecpoint
or
username : @intellecpoint
I have created a group called Intellectpoint
join by going into the below link
https://t.me/joinchat/OJNKyh1lBOHBXZdSPNdqAQ
You can talk to me on current economic and market trends, simple investing concepts (or maybe even complex), Bursa Malaysia especially, where does Malaysia stands as an example. In the past I have not been able to attend to questions or may be too slow as I was inundated with jobs as well as engagements. I hope through telegram, I am able to speed that up.
I am not an expert user on telegram, but will work on my knowledge.
Do share with others as well.
Do join!
Wednesday, May 13, 2020
Not surprising that Yee Lee is doing a quick takeover exercise
Wilmar which part of its business is selling cooking oil in China, just announced a good result considering the huge impact from COVID-19 in China. This is what it reads for Wilmar which sells flour, cooking oil in China largely.
"Being a producer of essential products for both food and non-food categories, the Group’s operations were not significantly impacted by the various stages of lockdowns globally. Demand for the Group’s consumer products grew amidst the COVID-19 pandemic as household consumption increased due to the implementation of movement restriction measures globally. Sales volume for consumer products grew by 34.8% to 2.9 million MT in 1Q2020, mainly from increased demand for the Group’s consumer staples such as rice, flour and cooking oil."
Back here in Malaysia, Yee Lee which just announced a takeover offer after a failed in 2019, this time offering at a lower price of RM2.06.
One of Yee Lee's larger business is cooking oil under the brand "Helang". At the first time of offering, its offered price was deemed "not fair but reasonable" - which is common for Malaysian companies in Bursa nowadays.
"Being a producer of essential products for both food and non-food categories, the Group’s operations were not significantly impacted by the various stages of lockdowns globally. Demand for the Group’s consumer products grew amidst the COVID-19 pandemic as household consumption increased due to the implementation of movement restriction measures globally. Sales volume for consumer products grew by 34.8% to 2.9 million MT in 1Q2020, mainly from increased demand for the Group’s consumer staples such as rice, flour and cooking oil."
Back here in Malaysia, Yee Lee which just announced a takeover offer after a failed in 2019, this time offering at a lower price of RM2.06.
One of Yee Lee's larger business is cooking oil under the brand "Helang". At the first time of offering, its offered price was deemed "not fair but reasonable" - which is common for Malaysian companies in Bursa nowadays.
Wednesday, May 6, 2020
We are just too optimistic
For much of the COVID-19 period between February to now (May 4), we have been largely tracking the S&P500. This rebound is good for the market given the sharp drop that many stock markets have experienced especially in March 2020.
We can call that free market competition at a time when many countries are looking inward - and globalization is dwindling.
Why is then our KLCI trending similarly to the US. One has to bear in mind, within S&P500, the top 5 companies (Apple, Amazon, Microsoft, Alphabet, Facebook), their future looks good given the current situation. They will be better off now and in the latter part when things are back to normal. We are not.
 |
| Comparison between S&P 500 and KLCI (3 months between 5 February to 4 May) |
I however think, we are just too optimistic. US is pumping USD3 trillion into their economy with Federal Reserve acting as the biggest bailout machine. EU and Japan will take similar actions. However, here in South East Asia, we can't just print money like what they do. Anything that we need from in terms of booster in the economy is just like picking up the crumbs from whatever is left out from the economic stimulus that are provided by these superpowers. US will come out the fastest as they have the luxury of having its currency as the reserve currency, China will be the dark horse, while the developing economies will be left hungry.
If anything, post COVID-19, let's look at what we can buy from the stock market. Retail will be dominated by Lazada and Shopee, both China's supported companies. Food and goods delivery would be controlled by foreign companies as well. Anything digital would be largely controlled by foreign companies. What do we have? Perhaps we have a small little company that does e-government services aka MYEG in the digital space. That's all.
We of course have our export industries but they are not as competitive as Vietnam anymore and we are largely dependent on foreign companies whom may not be interested at Malaysia as much as before. We in fact should not be dependent on them as much as we are not able to compete in terms of price. We should not compete in this area. Technically, many of the countries are catching up.
Let's pull out the companies in Malaysia that we think can be one which we can be proud of regionally. Even at one point of time, the government probably felt that Axiata is best being managed by the regional Telenor (Digi).
If anything this COVID-19 will expose our weakness economically - although the Ministry of Health had done a wonderful job. The economic revival is left to a group of people whom had just been in office for 2 months. Do we expect miracle?
They will have the standard statement. Let's go digital - Industry 4.0, go for FDIs. The local retailers whom many of them have yet to reach maturity, would probably fall by the wayside. The poor support that is given to our industries comprising many of small and medium sized is bad so much so many would suffer and may not be around. Those spaces would be filled by the new entrants and in the name of FDIs, we would be happy to open up to these guys to take over the economic spaces.
Why is then our KLCI trending similarly to the US. One has to bear in mind, within S&P500, the top 5 companies (Apple, Amazon, Microsoft, Alphabet, Facebook), their future looks good given the current situation. They will be better off now and in the latter part when things are back to normal. We are not.
Tuesday, May 5, 2020
Sold almost all Airasia - Why
I have sold almost all (16700 @ RM0.81) of Airasia par 200 units on 23 April 2020. Well, the rationale is almost similar to Warren Buffett's idea of selling all his holdings but it is different. Let me put the reasons.
For Berkshire Hathaway, he basically owned the Big 4 airlines - United, Delta, Southwest, American Airlines. When he bought the airlines I believe, it was due to the industry was facing reduced or managed competition, and the number of seats was much more controlled. One notice that Berkshire did not own a particular company but instead owned the Big 4. There was a reason to this, he did not want to make a picking on a company but rather made an industry call. COVID-19 pandemic however, changed that landscape much due to unforeseen oversupply even after the lockdown is over. The government of US was in fact putting $25 billion to support its airline industry during this trying times.
How the airline industry is going to change? The way people travel is going to be different and there are various thoughts - such as foregoing the middle seats for a single aisle, more sanitation and control etc. These are going to reduce the revenue for the airline companies but instead increased their costs. Nowhere in the world would be dissimilar when comes to this issue.
Malaysia or our region which includes China and India's situation is somewhat different although there are much similarities. These airlines be it Singapore Airlines, Thai Airways, MAS, Airasia, Lion Air - they are operating off different bases and registered as airlines businesses operating off a specific country. We know that Singapore government gave a rescue package of around $13 billion to SIA. Emirates and Qatar Airways which are representing much richer countries would have done the same - if not already done. We hear of Australia - at the moment - would allow Richard Branson's Virgin Australia to go under although airline industry plays a pivotal role in providing strength for the business and tourism industry - which is unforeseen in my opinion. I think China, would the same in rescuing its airlines as they are pretty much state-owned anyway.
What about Airasia? Well, the only thing we have heard is that the government may consider the amalgamation of Airasia-MAS and maybe including the much affected AAX. I however think that it is going to be very hard - depending on how hard Airasia or MAS are being hit. MAS would have been hit harder as it was not in any situation to survive, unless Khazanah continues to pump in cash. One must notice that at this moment, Khazanah would also be needed to perform its call of duty to support government's financial need.
Airasia was being lucky that it sold more than 110 planes over the last 2 years. It was holding cash as it managed to secure more than RM11 billion of sale. We also have gotten some of the cash in the form of dividends (about RM1.35 per share) from that results, and I have heard of analysts mentioning that the cash situation would have been better if it was not distributed. Well, let's put it that some of the cash may have remained in the hands of the largest shareholders and when in need, there would possibly be a cash call exercise. So I think, Airasia would be saved despite it being a private company.
Why would I then sell Airasia? First of all, it is probably the hardest hit industry and no one can predict the outcome. No matter how our modelling is done, it is hard to predict. Let's say the worst case scenario - what if no vaccine is found even after 2 years? People may not be able to fly inter-country for months or quarters. I still think at this moment the fittest will survive and given the balance sheet of Airasia, it is the fitter one. HOWEVER, where Airasia is operating from i.e. Malaysia, Thailand, Philippines, Indonesia - these countries are not the fit ones.
These countries would have enough trouble supporting their economies whatever the outcome may be from COVID-19 and they would not have the financial power to support their airlines. Malaysia is hit by the virus, political uncertainties, oil. Thailand is hit as well and it is probably thrashed by the automotive industry situation.
Post COVID-19, the ones with the balance sheet will survive and prosper. The same is onto a particular company - and the similar situation would be for countries.
What I am afraid is - the SIAs, Scoot, Qatar, Emirates would be outrunning the air space. There would be oversupply of seats for a while. The situation is people would be still hungry to travel but not for the shorter term. I know I have heard of behavior will change but I think certain behavior like wanting to travel will stay, but the bigger thing I fear is that the poorer countries may not be able to support their own industries and airline industry needs support no matter what the outcome would be in future.
For Berkshire Hathaway, he basically owned the Big 4 airlines - United, Delta, Southwest, American Airlines. When he bought the airlines I believe, it was due to the industry was facing reduced or managed competition, and the number of seats was much more controlled. One notice that Berkshire did not own a particular company but instead owned the Big 4. There was a reason to this, he did not want to make a picking on a company but rather made an industry call. COVID-19 pandemic however, changed that landscape much due to unforeseen oversupply even after the lockdown is over. The government of US was in fact putting $25 billion to support its airline industry during this trying times.
How the airline industry is going to change? The way people travel is going to be different and there are various thoughts - such as foregoing the middle seats for a single aisle, more sanitation and control etc. These are going to reduce the revenue for the airline companies but instead increased their costs. Nowhere in the world would be dissimilar when comes to this issue.
Malaysia or our region which includes China and India's situation is somewhat different although there are much similarities. These airlines be it Singapore Airlines, Thai Airways, MAS, Airasia, Lion Air - they are operating off different bases and registered as airlines businesses operating off a specific country. We know that Singapore government gave a rescue package of around $13 billion to SIA. Emirates and Qatar Airways which are representing much richer countries would have done the same - if not already done. We hear of Australia - at the moment - would allow Richard Branson's Virgin Australia to go under although airline industry plays a pivotal role in providing strength for the business and tourism industry - which is unforeseen in my opinion. I think China, would the same in rescuing its airlines as they are pretty much state-owned anyway.
What about Airasia? Well, the only thing we have heard is that the government may consider the amalgamation of Airasia-MAS and maybe including the much affected AAX. I however think that it is going to be very hard - depending on how hard Airasia or MAS are being hit. MAS would have been hit harder as it was not in any situation to survive, unless Khazanah continues to pump in cash. One must notice that at this moment, Khazanah would also be needed to perform its call of duty to support government's financial need.
Airasia was being lucky that it sold more than 110 planes over the last 2 years. It was holding cash as it managed to secure more than RM11 billion of sale. We also have gotten some of the cash in the form of dividends (about RM1.35 per share) from that results, and I have heard of analysts mentioning that the cash situation would have been better if it was not distributed. Well, let's put it that some of the cash may have remained in the hands of the largest shareholders and when in need, there would possibly be a cash call exercise. So I think, Airasia would be saved despite it being a private company.
Why would I then sell Airasia? First of all, it is probably the hardest hit industry and no one can predict the outcome. No matter how our modelling is done, it is hard to predict. Let's say the worst case scenario - what if no vaccine is found even after 2 years? People may not be able to fly inter-country for months or quarters. I still think at this moment the fittest will survive and given the balance sheet of Airasia, it is the fitter one. HOWEVER, where Airasia is operating from i.e. Malaysia, Thailand, Philippines, Indonesia - these countries are not the fit ones.
These countries would have enough trouble supporting their economies whatever the outcome may be from COVID-19 and they would not have the financial power to support their airlines. Malaysia is hit by the virus, political uncertainties, oil. Thailand is hit as well and it is probably thrashed by the automotive industry situation.
Post COVID-19, the ones with the balance sheet will survive and prosper. The same is onto a particular company - and the similar situation would be for countries.
What I am afraid is - the SIAs, Scoot, Qatar, Emirates would be outrunning the air space. There would be oversupply of seats for a while. The situation is people would be still hungry to travel but not for the shorter term. I know I have heard of behavior will change but I think certain behavior like wanting to travel will stay, but the bigger thing I fear is that the poorer countries may not be able to support their own industries and airline industry needs support no matter what the outcome would be in future.
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