Top 7 Stories of 2007 and Happy 2008

Hi,

What a year it has been! Before we all end our year in a high note, let's recollect my take on the 7 biggest economic stories of 2007 (with a slight Malaysia twist):

1. Feb/Mar 2007 - rewinding of Yen-carry trade and global stock markets' collapses over the concern of China's over heating economy
2. Nov 2007 - Price of crude oil reached almost USD100 per barrel!
   
3. Aug 2007 - US sub-prime mortgage crisis led to fear of global financial credit crunch and resulting in billions of dollars write off for major global financial institutions and investment bankers
4. The sale of significant stakes in Citigroup. UBS and Morgan Stanley to Abu Dhabi Investment Authority, Government of Singapore Investment Corp (GIC) and China Investment Corp (CIC) respectively, following the sub-prime mortgage crisis. A sign of the emergence of Sovereign Wealth Funds (SWF) as the new master of global finance.
5. Nov 2007 - the emergence (and listing) of the world's largest plantation group, Sime Darby (formerly Synergy Drive) in Bursa Malaysia, post merger of 8 companies under Permodalan Nasional Berhad (PNB)
6. Dec 2007 - Prices of crude palm oil exceeded the record high of RM3,000 (USD895) per tonne
7. Dec 2007 - KLCI hitting record high of 1,447 on the last day of trading, representing a 31% rise for the year of 2007. Ranking wise in Asia, Malaysia is ranked fifth top performer, after China (162.5%), Indonesia (49.6%), Hong Kong (41.2%) and South Korea (32.2%).

I would like to take this opportunity to also wish all my friends and readers a Happy New Year and may the year ahead be filled with more successes and accomplishments! Be healthy too!

Is It Time To Capitalize On Global Financial Weakness?

Given the current state of credit crunch and financial turmoil experienced by many global financial institutions, investment bankers and hedge funds as a result of US sub-prime issues, a number of them have suffered billions of financial losses that even led to the resignation of some key CEO positions. The ones in trouble include big names such as Merryl Lynch, UBS AG (world's no 1 private bank from Switzerland) and even Citigroup. So it is therefore equally expected that many of their stock prices have also taken a huge tumble, by as much as 40% to 50%!

So the question beckons, have we seen the worst of it or just the beginning of a bigger crisis to come? Coupled with the continued softening of US economy (possible sign of a recession), US consumer confidence at an all time low and the looming threats of uncontrollable inflation (caused by record high prices of crude oil), it is indeed a very challenging moment for anyone to make a fairly accurate prediction of what's going to happen next!

However, i have made some observations recently that some "Contrarians" are already at work, by snapping up "cheap" financial stocks! This time the Contrarians are mainly from the East, and they are led by the Sovereign Wealth Funds (SWF), the likes of GIC (Government of Singapore Investment Corp), middle east's Abu Dhabi SWF and China's CIC (China Investment Corp). Take for example the recent events, GIC's USD17 billion capital injection into UBS, and Abu Dhabi's USD7.5billion rescue of Citigroup, in exchange for a stake in these bankers.

Could this be a sign that the worst is probably over and these funds were out for a good shopping spree? It certainly appears to be so.

Back home in Malaysia, some local institution such as CIMB Bank has also recently launched a fund called the "Rebound FRNID", a product that enables investors to benefit from the potential rebound of four global banking giants whose share prices have been negatively impacted by the recent US subprime crisis. These are Citigroup, Merrill Lynch, UBS AG and Morgan Stanley. The Rebound FRNID guarantees investors a fixed return of 15% on a 2-year investment, 23% on a 3-year investment and 45% on a 5-year investment, provided the equity basket exceeds a return of 25% at maturity. The principal is guaranteed by CIMB Bank if held to maturity.

63 Limiting Beliefs About Money

For those of you who are not yet successful or rich, ever wonder why is that so? Consciously or subconsciously, it is likely that you have some limiting beliefs about money that have been holding you back... Now is the time to release yourself from these limiting beliefs! A person's financial position is often a good reflection of a person's state of mind about money. It is therefore important to first manage your own state of mind!

Here's my list of 63 limiting beliefs about Money: (Feel free to add more if you feel i have omitted)

1. Money is the root of all evil.
2. If I am successful, people will dislike or hate me.
3. It’s more enlightened to be poor than being rich.
4. Most rich people probably did something bad or dishonest to making money
5. If I make lots of money, I might lose it
6. There is not enough money to go around.
7. Money is a zero sum game – for someone to gain, there must be someone to lose
8. It is better to take less than to be responsible for someone else’s hardship.
9. If I make more money than my father, I will be betraying him
10. Having lots of money equates heavy responsibility
11. I am not “good enough” to be rich
12. Getting rich isn’t for people like me
13. The rich get richer.
14. Money makes money
15. The poor get poorer.
16. I don’t need lots of money, I just need enough to survive
17. Too much money leads to stress and health problems
18. I can’t get rich because the economy is bad
19. I am not good in managing money
20. I am not smart enough to be rich
21. I have potential to become rich, all I need is a break
22. This is not the “right” time for me to gain wealth
23. I don’t really want to be rich because money causes problems
24. I can’t get rich doing what I love
25. If I strive for money and not succeed, I will feel like a loser!
26. I should always use money wisely.
27. Money is hard to deal with.
28. Money is hard to get.
29. I have to work hard all the time to make money
30. Time is money.
31. I can’t have money and free time at the same time.
32. Having lots of money makes me less spiritual.
33. Accepting money obligates me.
34. To be a better person I have to work more for less money than other people do.
35. Having money stops me from being happy.
36. I am happier by having less money
37. Money spoils me and my thinking
38. To be rich I have to take advantage of people
39. I will never have enough money because money is never enough
40. I get what I deserve.
41. Never buy anything that I don’t need.
42. Never ever borrow money
43. I never want people to know I have so much money because people are really mean to rich people.
44. If I get paid a lot people will find out that I am a cheat.
45. Having more money is a form of greed
46. Rich people are greedy
47. Getting rich is against religious beliefs
48. Good opportunities are hard to come by
49. I am not educated enough to get rich
50. I am too young to get rich
51. I am too old to get rich
52. As a woman, it’s much more difficult to get rich
53. Selling is difficult
54. I wish I didn’t have to deal with money
55. I don’t have time to make more money
56. If I am not born rich, chances are I won’t be rich
57. I have to work to make money
58. Family is more important than money
59. Once I have lots of money, I will feel secure
60. The only reason to work is to make money
61. I will prove myself by being rich
62. Investments are for people who have lots of money
63. Investments are too risky

Top 10 Ideas To End Your Year With A Flourish!

1. Review your financial goals and personal goals
2. New Year Resolution: Prepare your financial and personal goals for 2008. Remember, be SMART - Specific, Measurable, Achievable, Realistic, Timely
   
3. Review performance of your investment portfolio, realign your portfolio and investment strategies for 2008
   
4. Best time to visit your Tax Advisor or scrap through your local tax guide to complete your year-end tax planning. It will certainly make next year's tax submission a lot easier! This applies to both business and personal.
   
5. Plan how to celebrate Christmas and New Year's Eve: time to pamper yourself!
6. Plan for your perfect Christmas gifts for your loved ones....time to pamper them too so that they will likely to treat you better next year!
   
7. If you are a boss or working for people, take your team or fellow staff members for a good night out!
8. Give away to charity....monetary or effort you decide. It must be done whole heartedly and in good spirit! Make sure donation is part of your annual budget.
9. If you are expecting to travel for your vacation, give it a thorough wash for an extra gloss and inspect your car or preferably, send your car for a thorough check-up. You wouldn't want to put your car at risk and thereafter spoiling your vacation!
10. Write down your top 5 to 10 biggest achievement for the year. Feel good about yourself!
    

Why Everyone Should be Wealthy!

Just come across this article by a fellow Malaysian in which I thought was very well written. Better still he is only 21 years old! Below is an extract:

"A lot of people have chosen to better themselves and work on becoming wealthy not for the purpose of achieving the high-class status per se. Yes, they want to better their lifestyle, enjoying what the world has got to offer but I dare say that this is not their main objective. Look at Warren Buffett for example. For those who does not know who he is, well, he is arguably the most famous value investors of all time. Warren Buffett, being the second richest man on earth, is still living in a house he bought in 1958 for $31,500. He doesn’t own many luxury cars at all. He also does his own taxes. You see, it doesn’t mean that you can’t live a simple life when you’re rich. Being rich just gives you more options.

Another thing, philanthropic efforts. Being rich gives you the option of being more involved with charities and humanitarian efforts. Yes, you can still donate to charities when you earn an average salary, but imagine the magnitude of help that you can provide if you’re a billionaire. How much can you give if you earn $60,000 per year versus how much can you give if you earn $60,000 per month?Also, think about this situation:

“You’re a doctor and you decide to volunteer yourself and spend some time in Africa to help the poor. On average, you are able to help 100 people per day.”

That sounds great right? Consider this situation:

“You are a billionaire and you decide to help the needy in Africa. You then hire 100 doctors and send them to Africa. On average, one doctor can treat 100 patients per day. That means, you are helping 10,000 people per day!”

So, which one is better?

Back to Warren Buffett, he recently pledged 83% of his wealth to Bill and Melinda Gates Foundation. That’s about 30 billion dollars!

Being financially free also opens an opportunity to not have to enslave yourself with working from 9 to 5. You get to do what matters most to your life. You can spend more time with your family, you can spend more time getting closer to God, and etc. A rich-man can also be a family-man. Also, now, stress is no longer an issue. I regard working for people from Monday to Friday, from 9 to 5, for 30 years, as a stressful lifestyle. You worry about money, you worry about time, you worry losing your job, and etc.

Yes, sometimes, we also worry about getting robbed and etc., but hey, if you keep a low-profile and lead a “simple life”, it wouldn’t be much of a problem would it? Also, who says that an “average” person doesn’t pose the risk of getting robbed? Referring to the excerpt above, I think that person is just worried about somebody harming his family, that’s all. Nothing wrong with that. People also spend a lot of money installing burglary alarm system in their homes. Are they saying “Hey, I’ve got a lot of valuables in my house that I need to install an alarm” ? I doubt it. They just care about their personal safety.

Let’s look at an example that is closer to home. Does the name Tan Sri Syed Mokhtar Al-Bukhary ring a bell? He’s a billionaire but rarely can we see him on TVs and magazines. He only uses a Proton Perdana and I heard somewhere that if you actually meet him in person, you’d be shocked to learn that he’s actually a billionaire. Also, his philantrophic efforts, my goodness, no need to comment on this. All I can say is, if we have more people like him, the world would be a much better place to live.

One might also argue that when you’re rich, you become arrogant. Surprise surprise, there are also heaps of arrogant “average” people.

Another thing, most people would like to have kids. Being rich, your kids’ education in the future is pretty much guaranteed. No need to worry about scholarships, and study loans. Giving your kids a headstart really is a nice thing to do, no?

Another interesting fact, there’s this millionaire that I heard of. He invests his money somewhere and uses the profits to sponsor people to go for their Hajj.

If we adopt a just-enough-to-spend attitude, what happens if something bad happens to us? What happens if we were downsized? What happens if one day you lose your ability to work because of an accident? What happens if, assuming you’re the breadwinner, you die. What’s going to happen to your family? Something to ponder upon…

I guess at the end of the day, you make your own life choices. You can become rich or become “average”. If you do become rich, then you can choose to lead an extravagant life or lead a “simple-life” instead. It really is up to you.

Money is just a tool. It is a tool that can help you and others. Just that, one needs to learn to not get obsessed with money too much that it clouds your judgement."

For the full article, please click this link.

Procrastination Rules Once More!

To all my readers,

Gee, time flies! Without realizing time passes by so quickly, my last post was actually made 21st Nov! That was more than 3 weeks ago since i posted an article! My sincere apology to all my readers who came in either on a regular or ad-hoc basis!

Well, it's a sad fact of procrastination ruling the mind once more.....(i thought I have tried hard getting rid of this bad disease but it comes again to haunt me once more!). Actually, i wanted to inform you all that I would be taking a 2 week break due to my winter vacation in Japan. Then i thought about why not spend a bit of time posting some articles when i was in Japan....there goes the thoughts and that never happened! In fact, i barely had time to look at my emails throughout the trip! It was simply fun packed all the way that i simply had no time or "energy" left for blogging at the end of each day when i was in Japan!

One thing about Japan that fascinates me is the common sight of vending machines at almost any site of town, including inside hotel, pathways, roads and of course shopping centers. Its vending machines sells almost anything from soft drinks, juices, vitamin drinks, coffee, tea to alcoholic beverages, cup noodle and cigarettes! For drinks, both hot and cold option is easily available. Even coffee maker machines (such as the likes of Starbuck coffee) are available! After doing some research, i realize that Japan has the most number of vending machines in the world, with an estimated one vending machine over estimated 23 people (statistics according to the Japan Vending Machine Manufacturers Association). With over 127 million population, the number of vending machines would work out to be around 6 million units!

Vending machine is indeed a great source of passive income! Outsource the maintenance to third party and all one needs to do is to collect the coins and roll into the bank!















However, in some countries (particularly less developed or developing countries), vending machines may subject to severe abuse or vandalism.

The End Of A Saga

Proton is Malaysias only national car company, and was set up since 1984. For two decades, Proton had dominated the local passenger car market, mainly due to support granted by the Malaysian Government, in the form of higher tariffs and custom duties imposed on foreign car marques. Although Proton cars were not cheap by any means, its cars were the most affordable by the average Malaysians, despite poor customer service, poor quality and lack of new or innovative models. Believe it or not, Proton Saga, which was launched more than 20 years ago, is still on sale today and it was in fact the "best" selling car for Proton in year 2006! For many years during its hey days, interested buyers were not even allowed to test drive the cars! Talk about arrogance!!

Then came ASEAN Free Trade Agreement (AFTA), Malaysia has no choice but to reduce tariff on ASEAN made cars and with the aggressive marketing coupled with innovative and inexpensive models launched by popular car companies such as Toyota, Honda, Hyundai and Kia, Proton sales started to take a major dip in the last 2 to 3 years. In the face of fierce competition, Proton had little strategy, had limited new models to launch, their cars remained to be of poor quality and low-end technology and also embarked on the wrong type of marketing plan! All these factors contribute to a significant drop in market share, to the extent of losing the market leadership position to Perodua for the first time in history and incurred huge losses. As if these are not bad enough, Proton even suffer from negative cash flows! Many car dealers and local automotive suppliers were forced to close down or downsize as a result of this "catatrosphe"!

As expected, the Malaysian Government tried to rescue Proton from their worst disaster or even closure. First they replaced the Top Executive, followed by acting as the intermediary to initiate a strategic alliance with a foreign car maker, with the intention to seek transfer of technology and expansion of market base. Fair enough, but surely the Government had to offer something significant in return. Few foreign car makers come and go, all in all, there is only one genuine and serious party involved, being VolksWagen (VW). The German car maker has long wanted to expand into South East Asia, and Malaysia appears to be an ideal market base to be in, given that Malaysia has the largest automotive market in South East Asia. In addition, Proton fits the bill to be a suitable partner or target, given Protons state-of-the-art facilities (but hugely underutilized) in Tanjong Malim. For the matter, Proton have only less than 50% utilization of its capacity! So the negotiation started in October 2004, which was more than 3 years ago! It was indeed a long drawn saga, having gone through a series of go, no go speculations. It is widely believed the complication arises due to Malaysian Governments reluctance to forgo management control and majority equity ownership.

Lets look at the the other side of the spectrum, what can VolksWagen bring to Proton? First of all, VW is a global brand and is the fourth largest car maker after Toyota, General Motors and Ford. It also owns other global brands such as Lamborghini, Bentley, Skoda and Audi. For the record, VW has successfully transformed Skoda from a loss-making entity to a profitable one in a matter of few years. Also, VW can certainly bring to the table state-of-art technology in automotive engines, and its vast marketing network and plan.

So the Malaysian Government has vowed that Proton needs a foreign partner to salvage its pride and rekindle its sales and marketing direction and in fact has set a clear deadline to finalize the negotiation. With all signs point to an agreement by end of the year, the event took a major U-turn yesterday as the Government announced the end of all negotiations. What has led to such dramatic U-turn after such a long negotiation?

Lets look at recent events from Proton. Proton launched a new model (named Persona) in August 2007 and its sales to date were encouraging (having achieved bookings of about 22,000 units since). Proton also clinched a couple of car deals and entry into China and Iran. In addition, Proton has improved its car quality and also plans to have further new launches in 2008.

It is for the above reasons that the Malaysian Government ended talks with VW. In my opinion, it is indeed a short sighted view from the Government. Do they really think Proton can conquer the market on its own? Think again! First of all, Proton still lack the platform for long term growth. They still do not have a formidable brand name, they still lack quality if compared to other popular brands, they still do not have the economies of scale (in production and sales), they still do not have a powerful engine to compete with the rest of the world, they do not have sufficient funds to spend on Research and Development, and even if they do, money spent does not necessarily deliver results (just look at Protons Campro Engine)! In addition, their export market is still small, and so far only managed to penetrate mainly less developed or developing countries. What about marketing plan? History has suggested that they are simply not good enough to compete with the best! So if the Government thinks that such short-term rebound can deliver long term sustainability, they are again making the biggest mistake!

Malaysian local banks have sought foreign strategic alliance, such as AMMBs alliance with ANZ, Affin with Bank of East Asia, etc. In telecommunication, Digi is run by Telenor and is hugely successful! In fact, Digi was the most profitable (by returns) in Asia Pacific in 2006! At the end of the day, everyone is a winner, if only the Malaysian Government adopts the same philosophy in the case of Proton and the local automotive sector!

So instead of raising the bar and potentially becoming a regional champion, looks like Proton will remain mediocre or at best, the local champion or in Malay, the "Jaguh Kampung"!

What You Need To Know About Warrants Trading?

Warrant is an excellent leverage against the underlying shares (also known as mother share) or securities of a listed entity. It is a tool commonly used by listed companies to raise funds in the market. A "Call" Warrant gives the holder the right, but not the obligation, to purchase (or own) a certain quantity of the underlying shares at a predetermined price on or before a specific date. On the other hand, a "Put" warrant (not available in Malaysia) grants the holder the right to sell the underlying shares at a predetermined price on or before a specific date.

Warrant appeals to investors (particularly retail) because it's much cheaper to own one compared to its underlying shares. The difference between the underlying shares and the warrant is often determined by the pre-determined exercise price (or strike price). The warrant is "in-the money" if the underlying share price is higher than the exercise price, which also means investors who bought the warrant now and decide to convert will make profit, assuming the underlying share price stays constant or higher after conversion. Conversely, if the underlying share price is lower than the exercise price, the warrant is said to be "out-of money", which simply means investors will lose money after converting the warrant to shares. Retail investors often misunderstood the difference between company-issued warrants vs structured warrants.

By virtue of warrant being cheaper than the underlying shares, many retail investors have opted to buy warrants instead of the underlying shares, with the understanding that they can buy more units and make larger gains, without actually understanding the underlying terms and conditions! This is a common pitfall... First of all, warrants are highly volatile, as the percentage gain o loss is higher compared to the percentage change in the underlying shares. Say for example warrant X is trading at $1 and has an exercise price of $2, while the mother share X is trading at $3. A drop in price for Share X by 10% could potentially lead to a fall of 30% for the price of the warrant X! Of course, the reverse situation applies if the underlying share price gains by 10%! Secondly, all warrants carry an expiry date, which makes the warrant worthless if they are not exercised before the expiry date! The period to expiry also refers to the "Time Decay"....the closer to the expiry, the quicker the time decay. An investor therefore needs to understand and monitor the time decay closely so that the investment will not become suddenly "vaporised"! Thirdly, the exercise price of the warrant will determine whether an investor is paying for the "premium" or too much money, in simple terms. It's important to take note that the "premium" factor of a warrant tends to deteriorate as the time to expiry is getting closer. Quite often, you may experience a warrant being "out-of-money" if the time to expiry is less than 6 months, as investors turn risk-averse. Fourthly, a warrant holder does not carry voting rights and is also not entitled to any dividend distribution.

Warrants tend to be short-term trading in nature, unless an investor wishes to convert to the underlying shares for reasons such as voting rights, dividend payment or other special distribution, etc.

There are also differences between company-issued warrant and third party issued warrants. I shall cover this in my next post.

So before you step out and buy warrants just because they are cheaper, think again and please do some homework!

Google Listed In Malaysia

When anyone looks at the post title, they must be wondering if there is a typo error....in fact, make no mistake, it is indeed the famous America-based World No 1 Internet Search Engine powerhouse, Google Inc. The listing in Malaysia Kuala Lumpur Stock Exchange represents a Call Warrant, issued by OSK Investment Bank.

Google's previous day's share price closed at around USD670, which makes up almost USD210billion in market capitalization, which is even larger than the total market capitalization of some less developed countries. Considering its IPO price of USD85 in August 2004, the stock has achieved skyrocketing gain in slightly more than 3 years! Google derives its revenue almost entirely from advertisements linked to its Internet search engine although it is diversifying its sources of sales. For instance, Google has started to sell advertisements in video clips on YouTube, a website it acquired for US$1.65bil last year. Other notable acquisitions include Feedburner and Blogger.com, a popular free weblog system.

Coming back to the Call Warrants listed in Malaysia today, its share price shot up a staggering 140% from RM0.11 (USD0.03) to RM0.265 (USD0.08) with intra-day high at RM0.33(USD0.1) ! More than 6million shares changed hands, hence making it among the Top 5 most active stocks for the day! Now comes the interesting part...The warrants have a conversion ratio of 3,000 to 1, with an exercise price of US$680. This means an investor will need 3,000 Google call warrants plus US$680 – or a total of US$913 – for one ordinary Google share, which is currently trading at less than US$670. This suggests a premium of about 36%, which makes the call warrant very expensive indeed! I wonder if investors chasing these stocks are aware of such conversion terms! Based on my experience, chances are these investors (likely to be retail investors) are not aware of such terms when they bought the shares!

Wall Street, Recession and Inflation

These days watching Wall Street is like riding a roller coaster ride....you never know what is going to happen next! As expected, the subprime issue and financial credit issues continue to plug the Wall and the Street in America, forcing many investment bankers to downgrade their earnings or even incur or write off significant losses. Yesterday was another occasion where Wall Street tumbled 2.6% (or 360 points)! Sentiment has not been helped by skyrocketing crude oil price... it is really a matter of time crude oil will hit USD100 / barrel!

Inflation surely is inching up, like it or not, but to what extent is the question. In some countries where certain controlled items such as petrol price are subsidized, perhaps the higher costs will not be passed down to consumers but there is also a question of how much longer can this last? It is certainly a huge burden for Government to continue with the excess baggage and this certainly does not augur well for the overall balance and free will of trade.

On the other hand, question will be asked if the current US credit woes will lead to a bigger and wider issue, that is, a possible economic slump and recession? Occurrence of this scenario will surely inject shivers in the spine of the rest of the world, given that a good portion of the global exports are absorbed by US.

That being said, the Asia growth story led by both China and India will likely extend a buffer to the sustainability of global economic growth. Besides, latest data posted by US Government in the form of better than expected worker productivity growth rate for the third quarter suggests that growth in US is encouraging and putting inflation in-check. So it is not doom and gloom all the way at the moment. Also, US Federal Reserve seems determined to rescue the economy, given the recent measures to cut interest rates by as much as 75 basis point.

Alibaba, Open Sesame!

Just like the novel, Alibaba.com's opening day listing of its IPO shares happens today reminiscent of a magical bang, despite the previous day's whopping 5% collapse in Hong Kong stock market! Its share price opened more than twice the IPO offer price of HK$13.50 and closed with a price gain of about 80%! For the record, the IPO was oversubscribed 150 times, indicating the frenzy of investors chasing after the world's second largest internet offering after Google in 2004. For those who were fortunate to be awarded the shares from IPO, it is indeed like a strike of lottery!

Let's look at the statistics again....effectively at the IPO price, Alibaba was trading at 106 times its 2007 earnings....much more than any of its peers such as Google (about 46 times) and eBay (about 23 times). Does Alibaba deserve such a loftily high valuation? Definitely not! How about double that with current price? I'm afraid the BUBBLE has just gone bigger!

Calling For "Order" On Hedge Funds

A hedge fund is an investment fund similar to mutual fund where there are a pool of funds invested in a collective manner. Hedge Fund is often structured to avoid direct regulation and charges a performance fee based on the increase of the value of the fund's assets. In the pursuit of maximum returns in today's competitive world, hedge funds has become very popular with estimation of about USD1 trillion in motion. As a hedge fund is largely unregulated, its investment manager is able to deploy a wide range of investment strategies and tactics than it could for a regulated fund, and is therefore considered to carry more risk. They often uses complex investment strategies such as short selling, futures, swaps and other derivative contracts and leverage. They will often seek to generate returns that are not closely correlated to those of the broader financial markets by hedging its investments against adverse moves in those markets.

For the purposes of consumer protection, in most countries hedge funds are prohibited from marketing to investors who are not professional investors or high net worth individuals. They therefore tend to operate in secrecy and is not required to report what they're doing. This is in fact an area of biggest concern.

Today's financial markets are filled with plenty of liquidity, despite the current US sub-prime issues that have threaten to derail global liquidity and credits. Yen carry trades have become a popular cheap source of funds, given Japan's low interest rates and stagnant or deflationary economy. Hedge fund is definitely one the major beneficiary of this source of funds to finance their investment activities. In the pursuit of greater financial returns, it is no coincidence that many of global asset classes have been driven up the roof. This includes real estate property, commodities such as palm oil and crude oil which are trading at record highs respectively! We have already seen the bubble of US housing real estate has finally burst as a result of overzealous speculation! So the big question is will others ultimately suffer the same fate as US housing? This could well happen given the following scenarios:
- US sub-prime issue continues to deteriorate to the extent of causing a collapse of consumer confidence and worst of all a US recession;
- unwinding of Yen carry trades as a result of stronger Yen or rising interest rates due to better than expected Japan's economy and/or higher inflation;
- Bubbles in emerging market's economy particularly China and to a lesser extent India. A great course of concern here is China's overheated stock market and next in line could be Hong Kong due to large inflow of money from mainland China.

Certainly, the above events may not happen as yet but there is always a possibility it may happen one day. So the big question is can something be done to regulate Hedge Funds so that further speculative damages can be prevented? Else, investors will just have to enjoy the party while it lasts!

The Myth of Contrarian Investing

The word Contrarian refers to an investment style that goes against prevailing market trends by buying assets that are performing poorly and then selling when they perform well. A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricings in securities markets. e.g., widespread pessimism about a stock can drive a price so low that it overestimates the company's risks, and underestimates its potential returning to profitability. Identifying and purchasing such distressed stocks, and selling them after the company recovers, can lead to above market average gains. Similarly, widespread optimism can also result in unjustifiably high valuations of a particular company or stock that will eventually lead to significant downfall, when these high expectations are not fulfilled. Therefore, avoiding investments in over-hyped investments reduces such risk.

Contrarians are sometimes thought of as perma-bears, i.e., market participants who are permanently biased to a bear market view. However, a contrarian does not necessarily have a negative view of the overall stock market, nor does he believe that it is always overvalued, or that the conventional wisdom is always wrong. Instead, a contrarian seeks opportunities to buy or sell specific investments when the majority of investors appear to be doing the opposite, to the point where that investment has become mispriced or misguided. Such buying opportunities are likely to be identified during market declines. For instance, the recent market crashes in March and September 2007 where investors sold in panic served as a good opportunity for contrarians to pick up fundamentally sound stocks.

Famous contrarian include Benjamin Graham and David Dreman. A classic example in Malaysia is the self-made billionaire and ex-stockbroker Chua Ma Yu's recent acquisition of Star Cruises, which is loss making over the years.

In reality, it is not easy to become a contrarian. It takes a lot of courage and patience, and often, one will be left alone. Investors (particularly retail) are often driven by greed and fear, and highly influenced by daily media such as newspaper and television. When a market crashes, most investors do not have the courage to buy shares because they fear that the shares that they purchase today may get even cheaper tomorrow. It's more so difficult given the scenario of Asian financial crisis in 1997. where the savvy investor may not be able to withstand the kind of market collapse that happened. However, for those who did, at or near market rock-bottom, theiy would have been laughing all the way to the bank by now! On the other hand, an investor, may regret selling their investments too soon in a bull market, and as a result of feeling uneasy over the decision to sell too soon, coupled with little sign of market correction, one starts to buy back stocks and eventually run into problems due to severe market downfall triggered by unforeseen events such as winding off of Yen-carry trades, inflation, US sub-prime property woes, etc.

Alibaba and the IPO Thieves

Remember the story of Ali Baba and the 40 Thieves, from the famous book of One Thousand and One Nights? This is no story telling here....i am actually referring to the popular China's B2B e-commerce website, Alibaba.com.

I first came across Alibaba.com towards the end of 2006, having known very little about this company. I then realized that they are the biggest B2B e-commerce trading company in China, with the forecast to profit more than US$80million this year alone! What is great about this company is that it serves as the critical connecting bridge between global traders and the Chinese traders made up of mostly small and mid-sized businesses.

Alibaba.com is going for listing and it has chosen Hong Kong for listing. The IPO has attracted great interest among the retail investors, as they queued frantically to get hold of the prospectus and application form. The reason for the enormous interest is simple.....For those who have witnessed the dizzying performance of Google's and Baidu's share prices since listing, it's an opportunity that no one should miss out! Even institutional investors are not missing out, as shown by the over 50 times oversubscription rate of the institutional tranche! On the other hand, Yahoo! has also pledged to purchase 10% of the available shares from Alibaba, which further ignites the excitement among investors!

Alibaba possesses a great growth story, judging by China's huge population and the currently low internet penetration rate. In addition, the industry is potentially lucrative if more of China's 32 million small and medium-sized enterprises (SMEs) can be persuaded to use the internet. It is believed that trade among Chinese SMEs reached $532 billion in 2007, and will grow by about 15 percent per year over the next five years!

The IPO price is anywhere between HK$12-HK$13.5 per share. The range was in fact revised from the initial HK$10-HK$12 a piece! At the higher point of the scale, this would mean its stock would be listed at 106 times multiple of 2007 earnings, a record price for global IPO listing! By contrast, Google shares were priced at a P/E of 90 in its IPO and currently fetch a 50 P/E multiple. Sounds like too much an investor is paying for but given the current frenzy and the great future prospects, i believe investors will still ride the waves.

No doubt one can potentially gain substantially by the direct route, i.e, via IPO, but there's no guarantee one would get it. There lies another potential, via the indirect route, i.e, watch out for Yahoo's share price, given its shareholding in Alibaba. If Alibaba shares do well, it may also trigger a rerating of Yahoo! Shares!

The stock is scheduled for listing on Nov 6 and is expected to raise US$1.3 billion!

A Tribute To Lim Goh Tong

Lim Goh Tong is a popular Malaysian household name for owning Malaysia's only casino resort in Genting Highlands, a hilltop hotel cum resort. He passed away this morning at Subang Jaya Medical Center (SJMC) at the age of 90. Lim made himself famous by battling against the odds to build Genting Highlands, considering Malaysia is a muslim country, and flourished into a Las Vegas-style resort.

Born in Anxi in Fujian province, Lim was the fifth child among seven siblings who migrated to Malaya, as Malaysia was then known, in 1937 at the age of 19 with only a suitcase and US$175 in his pocket.

Forbes magazine listed Lim, among the world's top 250 billionaires in 2006 and the third richest person in Malaysia with a personal net worth of US$4.3 billion (€3.04 billion).

His empire of business now includes hotels and resorts, plantations, properties, paper manufacturing, power generation, oil and gas, electronic commerce and information technology development.

His company, Genting International, last year made headlines by securing a lucrative contract awarded by Singapore Government to build and operate a world class integrated casino and resort in Singapore's Sentosa Island.

This post is a special tribute to this person who has achieved many great things in life and a fine example for entrepreneurs.

For more information, go to http://www.axilltv.com/bkpost-2.php?newsid=75731.

Heads Up, Malaysia-based Internet Marketers, Paypal Will Pay You!

Finally, a piece of good news for all Malaysia-based Internet Marketers! You are now finally able to withdraw money from Paypal! This must be one of the best piece of news for all Malaysians earning a living in the cyberspace! In fact, many Malaysians have been suffering from the fate of not able to withdraw their earnings from Paypal due to Paypal's restriction. For those who did not know, there is actually a way out before this, ie., by applying a VMI (Virtual Money Inc card)....anyhow, that's history now!

For the official announcement made by Paypal, please click http://pages.ebay.com.sg/sea/paypal/withdraw.html

However, this piece of news have actually created plenty of confusion among Malaysians due to the policies varied among banks! For the matter, not all Malaysian banks offer this withdrawal facility.

First and foremost, do take note that the current withdrawal method is available to Visa® branded credit, debit or prepaid card ONLY. So any card with Master logo is OUT!

As at current, only the following banks entertain such request:

• RHB Bank (7 days)
• CIMB Bank & Southern Bank (12 days)
• Citibank (14 days)
• HSBC Malaysia (6 days)
• United Overseas Bank (12 days) - NO DEBIT VISA ELECTRON

(source: Geek's Corner)

VISA cards that can be used for PayPal withdrawals for now:

1. Al-Rrajhi ATM Debit Card i
2. Public Bank Visa Electron Debit Card
3. UOB ATM with VISA Electron
4. BSN Matix Visa Electron
(source: Geek's Corner)

The Debit cards are:
1. Public Bank Visa Electron Debit Card
2. UOB ATM with VISA Electron

Before you happily go to the bank and withdraw the money, you need to be aware of the following terms and conditions:
- There is USD5.00 Withdrawal Fee charged by Paypal;
- Prevailing Visa + Bank Commission of 2.0% to 2.5% is imposed by the Bank before conversion to Ringgit;
- The whole transaction may takes 7-14 working days to clear;
- There is a maximum amount of $500 a day withdrawal, minimim is $10.

On Paypal perspective, the account must also be a verified or confirmed status.

To transfer the funds to credit card is now made simple by Paypal. Login to your account and click withdrawal. You will then see the option of "transfer funds to your card". That's it!

For more information, please click the following weblogs:
Geek's Corner
Matt's Internet Marketing Blog

Keeping Your Rental Property In Good Shape

Have you had the experience of not able to rent out your rental property despite getting a number of prospective tenants to view your property? An you think hey, that can't be right, because you heard from your friend earlier, who managed to rent out his or her property without much of a problem. What went wrong? One of the problem, might be, your rental property IS NOT IN GOOD SHAPE!

Quite often, i hear complaints from property owners that they were not able to secure a tenant for many months, only to find out that their rental property is in such a lousy shape! I mean, things like a well-kept and clean place, properly organized furniture, keep the place nice and tidy especially visually inviting areas such as living room and kitchen, functioning and proper lighting, etc....these are essentials in order to greet your "guests" the positive way! It's like meeting your partner's parents for the first time...you need to dress up "appropriately"! Many people have mistaken that as soon as they put up the ads (of their property for rent), prospective tenants who walk in would just fall in "love" with their place or so much so that they will simply find it "irresistible". In fact, one of the simplest way to testing that "irresistible" theory is by putting yourself in the shoe of the prospective tenant, i.e., ask yourself how you feel when you walk into the house? If the feeling is negative, very likely the prospective tenant would feel the same too!

Up until now, I always have very little difficulty in renting out my properties and that is because, i understand this concept of "putting yourself in his shoe" very well. With vast competition and tenants simply spoiled for choice, it is important to "package" your property so that it becomes more rentable than others. Just think about it this way, how would you market your product effectively against your competition? Just imagine a can of coke with just a basic label and without packaging, would anyone buy it? Answer is simple, packaging is obviously a critical element. However, a word of caution is that you should avoid packaging your property overzealously until you put up the most advance design and overspend your budget. After all, "beauty" is in the eye of beholder. The right "taste" can be quite personal, really. So, to me, just make it SIMPLE, PRESENTABLE AND NICE will do. How i define this is really by thinking through how I would like to see and have if I were a tenant myself. Obviously, some level of comfort and convenience are essential ingredients to consider.

These are my top 10 must-do list to make your property appealing:

1. Put on a fresh coat of paint. Repaint the dead old or worn-off spot at the very least
2. Spring clean the house (so that you won't see any dead ants or cockroaches lying on the floor!)
3. If your unit comes with wooden pargue or marble flooring, give it a "polish" state in order to return some gloss over the surface.
4. Fix any problems you may have encountered, such as water leakage, door rust, squeeky sound, broken furniture or lighting, etc.
   
5. Service all the air-conditioners (and regularly do so every 6 to 12 months)
6. Organize all the furniture and fittings...turning your place into "move-in" condition
7. Fix some nice decorative items such as picture or painting hanging on the walls. However they should blend with the overall theme of the property and they may not need to be expensive
   
8. Get ready some basic utilities such as toilet roll and hand wash detergent. These things make your place extra homely!
9. Check all electrical items should be in working condition. If not, send them for repair or replace them.
   
10. Extend welcome gestures and smile, when meeting your prospective tenants for the first time!
    

I also like the idea of making your rental property a fully-furnished unit, because that creates a real DIFFERENTIATOR! Semi-furnished at the very least, if you cannot afford to fully-furnish the unit. Bear in mind that added furnishing can also bring you higher premium in your rental rates most of the time. Just bear in mind of course you do not need to overdo it!

By keeping your property in GOOD SHAPE, you should be able to achieve a higher success rate of securing new tenants and retaining them!

Unleash The Power of Real Estate Residual Income

Time passes by so quickly that it's been more than a month since i moved into my new apartment. Believe it or not, simple things could turn out to be a complete nightmare, such as the problems I am still facing with my furniture supplier for poor quality of goods delivered and my little balcony lighting still remained unfixed! I am sure many house movers would be able to share this kind of unpleasant experience with me. Anyhow, i reckon that while such issues are to be resolved, i need to move on with life quickly.

Two immediate agendas appear in my list. The first one being Internet Marketing. Internet Marketing is not something new to me. In fact, I was somewhat involved in Internet Marketing since the year of 2003, having seen its vast potential as a business. Unfortunately, I never quite get myself into the thick of it, mainly because i had not put sufficient time and effort into it. Over the years, i have personally witnessed the industry blossomed into a multi-billion dollar business and it has certainly enriched many people and introduced a new way of life for many too. It's not uncommon to hear money making tag lines such as making money while sleeping or making money in your pyjamas! So, i told myself that enough is enough. I am not going to let this opportunity slip by any longer. I need to buck up and get SERIOUS into ACTION! More about this in my upcoming post.

My second immediate agenda is to turn my previous home to become a rental property. Condominium apartment is an excellent asset to generating endless passive income. I actually have 2 options, i.e., to dispose it off for a decent capital gain, or to put it up for the rental market. If i were to sell it, it would probably give me a capital gain of about 25% (which is not too good considering I have owned this property for 8 years!). However, if i were to rent it out, it would give me a short term gross annual return on investment from 8% to 11%! In fact, i am quite confident that i could fetch a gross annual return of 9.4%, which is very attractive considering average rental yield between 4% and 7%. Some of you may be asking, why is it possible to fetch such a high rental yield given such a capital return? Well, it's simply a matter of supply and demand. Whilst home purchasers and investors have generally overlooked this area where my property is located, there are actually great demand in people seeking out for a decent lease home for their own convenience. This property is strategically located, with close amenities such as shopping mall, hypermarket, school, medical center, public transport and recreational parks. In fact, there is also a soon-to-be-launched large commercial and retail center named "The Paradigm". It would consist of service apartment suites, commercial office tower, retail shopping and fine dining. For those interested to find out more, the developer is WCT land, a major property developer who has made themselves popular in successfully developing Bandar BukitTinggi, Klang.

Besides, the nearby soon-to-be completed Plaza Kelana Jaya will also add to the potential attraction to the area. In fact, it is the only waterfront promenade commercial development in Petaling Jaya. Also, another prominent hypermarket operator, UK based Tesco, is believed to be setting up a hypermarket around the area soon.

With such array of positive development soon to be happening, I am eager to hold out for longer term for a bigger capital return and of course in the near term, I could still enjoy my rental income with spare cash to spare when my unit is tenanted. In the meantime, I have some work to be done to get this property tenanted.

10 Common Stockmarket Myths To Avoid

1. Stock market is a form of gambling. Someone must lose in order for someone to gain - As a matter of fact, it is possible that everyone gains without the need for someone to lose (in real terms). How is that possible? In a bull market, it is possible that different investors buying into a common share at a different time make money. It is only the "economic" (not real doll loss) loss that an investor suffers as a result of selling the stock early.

2. Buy a stock when there is large buying volume sitting in the order transaction queue, as if there were many buyers waiting to buy the particular stock. - Very often this could well be the play of syndicates, to entice investors to buy the stocks when in fact they were looking to sell! For all you know, the buyer order could well evaporate all of a sudden! Sometimes, it could also well be an act of institution investor to provide support to the share price.

3. Buy when the share price has achieved higher highs on multiple consecutive days -
Quite often the particular stock with such pattern of trade may well be a sign of overbought position. A correction could be on its way!

4. Buy on news. - Very often investors already started accumulating the stock upon anticipation of a major event that will significantly enhance earnings of a company ahead of time. So instead, a better approach would be buy on "rumours", sell on "news or fact"! However, there are exceptions to this rule, such as if the market has not anticipated such event from happening.

5. Buy the Top 10 or 20 most active stocks, that is, follow the herd's mentality and buy when the particular stock is hotly traded. More often than not, you could well be buying a stock at a high price when the other wise investors were selling. Buying at a high price merely put yourself in a high risk position for potentially a smaller gain!

6. buy or sell with a view of short-term gain. Most people like making QUICK money, so that one does not "tie down" his or her funds. - I know the day traders and technical chartist will disagree with this. The fact of the matter is that unless you are a full-time trader, it will be difficult to monitor your stocks on an active manner. Moreover, doing short-term trading merely increases your cost of transactions over time!

7. Buy a stock when a key businessman or politician is buying the stock, as there must be some positive development going on. - This is pure speculation. Prices could well go the opposite way if the speculated event does not materialize. Moreover, a significant event may take a long time to materialize.

8. Holding on to stocks with the false believes that stock prices will ultimately revert to where they were once upon a time. - Never be afraid to cut losses as you could reinvest the money elsewhere with better returns. Be bold to admit your mistakes (After all, everyone does make mistakes). Holding on to stocks with poor fundamentals may well cause you to suffer significant losses! It is utmost important to understand a company's fundamentals before investing. Merely guided by rumours or tips is a risky business!

9. Only insiders can make money in stock market. - Fact of the matter is, you do not need to be an insider to make money. In fact, insider trading is illegal in most markets. You can make money by investing in fundamentally sound stocks. Value the business of a stock in the form of potential growth and management capability.

10. Stock market prediction is the key to successful investing. - Fact of the matter is, no one can accurately predict the movement of a stock, not even the most experience technical chartist! Technical analysis merely serve as a guidance, based on sophisticated software that can churn out predictions based on historical data and complex algorithms that no lay man can understand. Fact is, software is a program written by humans to best reflect patterns but never human behaviour which can be unpredicted, due to various circumstances such as fears due to uncertainty.

Saving Private Equity

The recent US Federal Reserve's decision to lower interest rates by 50bp have indeed given a huge interim lifeline to the global financial sector to continue extending credit to credit-worthy borrowers and encouraging Merger and Acquisition (M&A) activities. Unlike the market crash in August where many investors were found catching a falling knife, most markets have since recovered. In fact, some stock markets such as Wall Street and Hong Kong Hang Seng have either reached or surpassed the all-time high. Some attributed the bullish sentiment to global funds' window dressing activities, which coincided with third quarter closing, whilst some relate the reason being recovery of confidence due to lesser probability of credit crunch. However, in my personal view, the real impact will only be testified in the coming months or quarter, where corporate earnings are due to release. Certainly i do not think we are totally out of the woods yet. Whatever it is, it is certainly positive for all, including private equity, whom has been recently heavily hit by the US subprime woes as a result of the meltdown in residential real estate property prices. Many of the private equity had indeed either suffered major losses or facing the crude reality of closure. Indeed, this is a good lesson for all that for those who are fond of "HIGH RISK, HIGH RETURN", the reverse (HIGH RISK, HIGH LOSSES) holds true too!

Nevertheless, private equity is definitely here to stay as companies, institutions and high net worth individuals continue to pursue opportunities for greater returns at "whatever" cost. This is the risk that investors should bear in mind and ready to accept the "fate" if the worse should happen. However, let's not rule the whole forest as bad as there are a number of "genuine" private equity funds that are continuing to do very well.

When To Rent Or Sell A Property?

Other than the one you are currently occupying, are you currently owning any real estate properties but do not know what to do with it? Let us explore...You basically have three options, that is, rent, sell or hold. If you decide to rent it out, i congratulate you because you now have a passive income generating asset that gives you residual income until your lease expires. However, you need to take into consideration other operating expenses such as maintenance, service charges, loan installment (if any), assessment, real estate broker fees, taxes and other general upkeep expenses. After deducting all these expenses, your net income should determine whether your rental is in a positive or negative category, normally termed as positive or negative cash flow. Ideally, you should rent out the property which gives you positive cash flow. (On the flip side of the coin, you probably should not purchase a property that does not give you positive cash flow in rental yield, unless you are confident that the piece of property has good potential to generate an attractive capital return!) In addition, you should also watch out for the rental yield, versus the average return if you were to park the money in a low risk fixed income money instrument such as fixed deposits in a bank. For example, if interest rates with your fixed deposit is 3%, then you should look for net rental yield that more or less double that!

In the case the property could only generate negative cash flows and/or unattractive rental yield, it is probably better to dispose it off in the market since you could use the money to later purchase a piece of property that generates better cash flow or return.

What if you feel confident that this piece of property will generate good capital returns if you hold on to it? Well, you could always do so as long as you assess the probability of this to happen, taking into account the burden of holding cost. The worst to happen is if you get it all wrong and you end up holding on to a piece of property that does not generate any returns!

Fed The Saviour of the Day?

What a day, global markets came alive after US Federal Reserve decided to cut interest rates by 50 basis point (or half a percentage). This is an unexpected positive news from the Fed, given that the general consensus appeared to be a maximum rate cut of 25 basis point or stayed unchanged. To top up the icing on the cake, Fed also cut bank loan discount rates by another half a percentage! The Fed's decision, aimed at shielding the economy from a credit crunch as well as a slump in the housing sector, came about a month after it cut its discount rate in an emergency move to encourage banks to borrow directly from the central bank. US and global markets indeed reacted positively, with Dow rose 2.5%, Asia stockmarkets also rose between 1 - 4% with India Stock Exchange being the best performer with a 4.17% increase! (Interesting to note that China's Shanghai Index had not reacted positively to the news and had in fact fallen by half a percentage point. Perhaps a strong signal that China stocks are losing its steam after such a fanatic run).

As global investors welcome the latest development, there were mixed reactions from researchers to analysts. Some augur the move as a good one, while others felt that US Federal Reserve had overreacted. Perhaps the US Central Bank finally reckons that the housing subprime woes and credit crunch are causing a bigger damage to the overall economy, leading to a worse than expected job data, thus such drastic measures has to be taken. However, there is still a genuine threat on inflation, given the fact that crude oil price has again hit record level and is still threatening to rise further. Perhaps, it could also be a case of politics versus pragmatism....Nevertheless, the measure is indeed a strong dose of confidence across the business and investment community. However, it does not mean that we are now out of the woods (of the subprime and credit crunch). A lot will depend on how companies and financial institutions perform over the next few months.

Penang the Next Global Mega City?

Penang is a popular island state situated at the northern part of Malaysia. Commonly known as the Pearl of the Orient, Penang is vastly popular for its food (eg., Prawn mee, Assam Laksa, Lo Bak, etc) and a popular tourist destination offering nice beaches and holiday resorts. Penang is also home to many high tech multinational and local manufacturing companies. Its property prices is also one of the most expensive in the country due to scarcity of land. For many years, Penang development has been rather stuck in a stagnant image, due to some major relocation of high tech manufacturers from here to other lower cost destination partcularly China, and the perception that Kuala Lumpur is the better place to job opportunity and making money.

For the next foreseeable years ahead, I believe Penang's image is set to change dramatically given that there is now increasing influx of foreigners into Penang (it's nice to live, good infrastructure, friendly people, etc) and the real estate properties in the state are also increasingly gaining popularity and attractions from property developers and foreign investors. The major area fronting Gurney Drive ( a popular sea-side tourist spot) is also bursting with new commercial activities with the upcoming launching of up-market shopping mall, Gurney Paragon. Its neighbour, Gurney Plaza, was just acquired by Capitaland of Singapore a couple of months ago at around RM1,000 psf!

The latest unveiled is the launch of Penang Global City Center (PGCC), reminiscent of Kuala Lumpur City Center (KLCC) where the twin Petronas Tower is located. This is indeed the latest mega property project unveiled in Penang by the Prime Minister of Malaysia himself. The project spans over 257 acres of land located at the old Penang Turf Club. Ring any bell? For those who are familiar with the present KLCC site, it was also formerly the KL Turf Club! The project entails top-class hotel, retail, residential, international school, arts, medical tourism and exhibition centers, connecting with monorail service and designed by French and New York architects! Moreover, the zone will also be classified Multimedia Super Corridor which carries the MSC status, a benefit comes with tax and business incentives specially dedicated to ICT companies.

Judging by the great success and world class recognition enjoyed by KLCC and the positive spillover to the surrounding real estate property valuations where prices have skyrocketed, it is worthy to take note of this latest special property development. If all goes according to plan, i have no doubt that property and land prices surrounding PGCC will also escalate over the years ahead! This is also indeed a great opportunity to position Penang as the next potential global mega city of the world!

Malaysia's Budget 2008: Is it a Hype or Light At The End of Tunnel?

For the newly announced Malaysia's Budget 2008, is it a hype or light at the end of tunnel? Well, depends on who you speak to, the answer varies. The politicians, as usual, will sing the tune in lauding Government's effort, making statements like far-sightedness, one of the best, etc. So, we should just discount most if not all of their views since their answers were commonly biased. What about people who are in business? Well, my immediate reaction is that they should be happy given the fact that corporate tax rate will be further reduced by 1% come 2009. (Bear in mind tax rate for 2007 and 2008 have already been reduced by 1% each, that is, 27% and 26% respectively). This is definitely a step forward at the right direction, from corporate Malaysia's selling point perspective, but taking a step back, we know that Malaysia is still far behind more advanced East Asian countries such as Hong Kong and Singapore where their respective corporate tax rates are in the mid teens!

What about ordinary people (or rakyat) like you and me? Well, the common reaction seems to be less happy, given the fact that the highly speculated personal income tax rate has not been reduced (despite cut in corporate tax rate). Bear in mind that for most working class people, it is also common to find people paying at the higher thresholds of the income tax rate, given the way it is currently structured. So with rising cost of living (especially food, petrol, electricity, etc), most people will be disappointed with Government's latest decision to keep rates. However, on the flip side of the coin, i see that there are actually good news for people in general. Firstly, Malaysians now can purchase a new home by withdrawal from the EPF (Employee Provident Fund) on a monthly basis, which makes it now affordable for many to service their monthly mortgage installments. So, this is definitely a major plus point for the property sector in general, particularly the mid and lower segment of the property sector. This could well translate into increased property transactions and also better sales for the developers. In turn, it could also help resolve the property overhang (due to supply over demand) situation for the mid to low-end segment. Secondly, there is actually an indirect reduction in personal income tax, in the form of dividend income received from equity investments to be exempted from tax starting 2008. This is a good way to promote investments in high dividend yielding stocks, particularly those from good quality companies with sound management team.

Not to mention, the Government's effort on giving free education (up to secondary) and incentives for Research and Development initiatives are definitely a plus point, in improving education and creating the climate for Malaysian businesses to move up the value chain in order to become more competitive globally.

However, one of my biggest disappointment from this round is the lack of incentive given to promote REIT (Real Estate Investment Trust). As it stands currently, Malaysia's REIT sector is still trailing far behind countries like Hong Kong and Singapore. This is probably also reflected in its small size compared to these countries. The current tax regime relative to these countries are too high relative to these countries, rendering it less competitive in the region.

Last but not least, it is worthy to note that Malaysia has created tax incentives in attracting foreign talent into Malaysia in developing its Islamic financial markets and the country's goal to make Malaysia a Global Islamic financial hub. Given that Malaysia has lost the initiative to be the regional (conventional) financial hub, it certainly stands a better chance now to become a global Islamic financial hub but much more will need to be done. However, it is somewhat peculiar as some argued that such talents are born and brat in Malaysia, and as a matter of fact, Malaysia is the one losing her own talent to other countries who wish to develop their own Islamic markets on a daily basis! As such, such incentive may not serve the whole objective of retaining Malaysia's own talent.

In a nutshell, the latest Budget may not have served everyone's needs (and I think it will never ever be!) but there are certainly light at the end of tunnel.

Past Week's Economic Food For Thought

Some interesting extracts for the past one week which i thought could be of interest to some..

Quote of the week:

Federal Reserve Chairman Ben Bernanke, said the "Fed continues to monitor the situation and will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets. Further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected. The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets. He also made clear he won't rescue investors from bad decisions."

• US consumer spending rose by 0.4% in July, double the June increase.
• The US GDP was revised up to 4.0% annual rate of growth in 2Q07, from 3.4% estimated
  previously. (This is interesting, given the current subprime housing woes in US and its likely impact on economy! This is clearly a sign that US Government think the subprime issue will not pose a great danger to the overall economy...Time will tell if this holds true but i have my doubts)
  
• US construction spending unexpectedly fell in July by the most since January
• US mortgage application volume increased 1.3% in the past week.
• The US economy will slow sharply this year and fall behind growth rates in most of the
  world, according to forecasts in a U.N. report. Woes in the housing market will drag US
  GDP for 2007 to a modest 2% growth, compared with 3.3% last year. For the first time
  since 2001, both the European Union, at 2.8%, and Japan, 2.3%, are predicted to have
  higher GDP growth than the US. China, at 10.5%, and India, 8.5%, should experience
  economic growth rates similar to the last three years, the report said.
  
• China ordered banks to put aside more money as reserves for the seventh time this year to cool lending and investment after inflation accelerated to a 10-year high.

Back in Malaysia, the key event to watch will be the announcement of Budget 2008 this afternoon. It is widely speculated that there is a likelihood of personal income tax cut and more incentives for property sector for the benefit of general public (not just the high-end segment but across the board). This could also well be the last budget tabling before the calling of the next general election!

A Frantic Week!

What a frantic week! Last Friday i finally moved into my new home and took me almost a good whole day to move the stuff from old to new. I was quite thankful that my movers were very much helpful and they managed to move the things without damaging a single item. I also appreciate the fact that they did this on a public holiday so everything appeared to be calm and in order.

Sadly, after much deliberation and "pressure" from my wife, I had to give away my favourite 3 feet long fish tank, which i had kept for more than 5 years! Some relates fish tank to "feng shui", but really for me, watching fish "roaming" around in the fish tank and displaying its respective behaviour really gives me a great relaxing moment and a great way to relief stress. The reason we had to give it away was due to the fact that we could not find a suitable spot to house the tank.

So, it is time to unpack and get things sorted out in the right order! I could not believe it actually took me 2 days just to organize the kitchen alone! As at now, sadly, much of my study and bedrooms are still in a mess! It didn't help the fact that myself and my wife had to travel to Singapore to attend a special seminar presented by the many acclaimed world's number 1 success coach, Anthony Robbins. I have heard much good things about him and his world famous coaching workshop "Unleash the Power Within". Indeed, meeting him for the first time was truly a mind-blowing encounter! For those who would like to attend his workshop, i would strongly recommend it!

Moving into a new Home!

It's been almost 2 years my new piece of property has been ready for occupation and it has certainly taken me a while to decide what I wanna do with it! This is a four-bedroom apartment (better known as condominium in this part of the world) with decent club facilities and pool. Originally my plan was to renovate and move into this apartment in 2006 but the plan was thrown into disarray as out of a sudden (it happened last year), my mum whom was then staying with me, suddenly called it a day and decided to leave us and spend time with God instead! It was a freak accident and my mind (to renovate the place) was simply not there for several months thereafter. When I have finally got over it, my wife and I was contemplating whether to rent out the property or live in, given that I now have a smaller family of three. We felt that we needed to make a decision quickly as we needed to maintain the overheads of both properties. Finally we jointly decided that moving into a larger space is what we should do, given that our child will grow and probably needs more space to play. Perhaps, we may have a second child and of course, we get to enjoy it as well.

Well, we started shopping for new home furnishing and took us a while too to find the right people to help us to renovate our new home. I expected a fairly quick piece of renovation as we do not plan to do any structural amendment. Though simple it may seem, the renovation actually took more than 3 months to complete! The bizarre thing was, my contractor cum designer, actually told me previously that the renovation work would complete in 2 weeks!! I admit there was some variation order but in mind, these are not significant...so how he turned 2 weeks to 3 months is really beyond my wildest imagination!

Anyhow, the good thing is the renovation is finally over, and we could now witness the beauty of a new home. However, before we could pack our bags and move into our new home, we need to pack up from our old home and this has turned out to be much tougher than i thought! Never could I imagine the number of things that were hidden under our "radar", swept "under the carpet", hidden underneath our bed or kept inside untouched boxes! No doubt there are lots of "rubbish" which I should get rid of, but on the other hand, there are also hidden "treasures" which I told my wife that we could perhaps turn them into cash by auctioning them in eBay! I told my wife that this will be her little internet project to embark on but look quite puzzled on how to do it... I told her that do not worry too much as I have a few buddies who are learning the trade of selling in eBay and I can get them to show us how. Besides the saleable items, we decided that there are items such as clothings that are in good condition should be given away as charity. Our way to express our small contribution to the society....

So, finally, we have picked 31st August to be the day we move over to the new home. This day also happens to be my country's 50th year of independence (National Day)! So, perhaps I should sing national anthem at my new home to jointly celebrate the occasion!

In the meantime, my "packing" order is still undone.....so I believe I really need to speed up in order to catch the "moving truck"(my appointed Mover who will transport all my stuff from the old home to new!). Oh by the way, it was my Mover who picked this date, so it wasn't me who forced him to work on a public holiday!

My next key task is to refurbish my old home so that it could turn into a rental property. I shall talk more about this in my next post.

How Does One Value A Stock Market Index?

Stock market indices are calculated from the quotes of the stocks of which they are composed. It is therefore a sort of average. If an index rose 2%, then it just means the average share price rose by 2%. The number of stocks included and the exact way the calculation is done, is different from one index to another. For example, the Dow Jones Industrial Average is composed of 30 stocks, the 30 biggest companies in the US. The S&P 500 contains (you guessed it) 500 stocks, weighted by their size, and is therefore more representative for the economy as a whole. Kuala Lumpur Composite Index (KLCI), on the other hand, is composed of 100 top companies stocks. KLCI is a market value weighted indice, where price is weighted relative to the number of shares, rather than their total value.

So how do one determine how a particular index should be valued? Let's take a closer look at KLCI for example. It is now trading at about around 1,300. So is it cheap or expensive? The answer, however, can be very subjective, depending on the data compiled by different investment analysts. In principal, one should look at the forward one-year projected corporate earnings (eg., 2008) for a start. Compare that against the projected fair value of the component stocks, and one will get the Projected Price relative to earnings per share (PE) Ratio. The sum of all the component stocks' PE ratio will become a major factor to the would-be value of the stock index. So if one analyst's view of the forward PE as encouraging, he or she may place KLCI at say 1400, as the fair value by the end of the year. Get the point?

However, there is a major twist here! The key complication here is everyone is entitled to a different opinion. Some may be bullish over a particular stock's future earnings, another may be bearish. So the end result can be dramatically different! For example, a particular analyst may be recommending a buy on our low cost budget carrier, Air Asia but another analyst may recommend a sell (which is true right now, depending on one's ability to buy into Air Asia's growth story versus the high gearing which can be a real risk in view of the company's aggressive plan to expand their planes!) So at the end, I would say, the final decision belongs to the investor's self judgment as to who to believe, based on his or her instinct and knowledge of the matter and economy!

Someone asked me this question....given KLCI was trading at around 1300 in 1993, surely Malaysia's index is considered expensive now given that it is now trading at close to that number. The answer lies in how well companies perform and their projected earnings. At the end of the day, fundamentals and future prospects hold the key to any market rises.

Back to the question, is KLCI index cheap or expensive? Let's look at this table:








(Source: CIMB Investment Bank Research)

At 1300, KLCI is trading at around 14x PE. So judge for yourself whether it is cheap or expensive. It is interesting to see that if we go by the 25-year average of 20x PE, KLCI should be trading at 1,880!!

The End of Yen-carry Trades?

With the recent meltdown and volatility of global financial markets, there has been signs of significant withdrawal of Yen carry trades around the world's financial markets. Yen carry trades had been the biggest contributor to global flush of liquidity, aided by the low interest rates in Japan and therefore investors resorting to investing in high yielding assets globally by borrowing cheap Yen, which implies low cost of funding. Due to the fear of financial credit crunch as a result of US subprime financial woes, investors have become risk averse (due to rising currency, i.e, Yen) on high yield and risky assets, such as equity related securities, which therefore sparked the selling off of such assets globally. The rise of Yen could become a double-edged sword, in the sense that the cost of borrowing increases, and at the same time the exchange rate for the currency of domain investment destinations weakens against Yen.

Moreover, with the expected upcoming improvement in Japanese economy, it is harder to expect interest rates in Japan would be kept at such low level. In fact, it is likely that Bank of Japan may raise interest rates further sometime this year.

All this could be a signal that Yen-carry trades will continue to be liquidated going forward. The bad news is volatility in global financial markets may continue to persist from time to time until the amount of Yen carry trades become less significant. How long? I am afraid this will be a journey, not an event!

How Subprime Mortgages Can End Up In Your Investments

I came across this article in a local business magazine which sums up nicely how knowingly or unknowingly subprime mortgages can end up in one's investments. I believe you are aware that the current subprime woes have massive sell-down on global financial markets, due to major concern on potential tightening on global liquidity, significant losses on global funds with exposure to subprime and ultimately impact on global economy. The following is the money trail of subprime:

Cycle 1
- Buyers with weak credit background secured housing loan from (subprime) lenders and typically pay annual mortgage rates that are at least 2% points higher than average bank lending rates

Cycle 2
- Mortgage brokers, mostly based in California, collaborate and form partnerships with the once profitable subprime lenders and Wall Street;

Cycle 3
- Subprime lenders attracts people with exotic mortgages without documentation-free loans, which do not require evidence of income or savings.

Cycle 4
- Large Banks / wholesalers buy the subprime loans. They then bundle the debt and sell it to Wall Street firms.

Cycle 5
- Wall Street banks package subprime loans into mortgage-backed securities and collaterised debt obligations (CDO). Sales of CDOs reached USD2.4trillion in 2006!

Cycle 6
- When a bank creates a CDO, it meets with credit raters to discuss the quality of the contents, including subprime debt. They then divide the CDO into portions in to get the desired rating for each portion.

Cycle 7
- CDOs include a mix of bonds and securities backed by mortgages and home equity loans. In 2006, an estimated USD100billion worth of subprime debt went into USD375billionin CDOs sold in the US.

Cycle 8
- Investors invest in CDOs because they offer higher returns than bonds given the same rating. Banks, insurance companies and pension funds take on more risks in pursuit of higher yields.

At the end, when housing property in US collapses, this led to many subprime borrowers defaulting their loans, thus causing a chain of reactions across the entire financial market!

The above event is a true classic result of human greed, as demonstrated by all parties who decided to be part of this high risk lending scheme, all with the hope of making huge returns.

As always, some degree of prudence is desirable in any investment decisions.

Why Hedging Is Important

If you ask most retail investors, most will tell you that they only know how to make money one way, that is, take profit when the asset price rises. What happens when one's prediction goes opposite way? One simply loses money. During stock market downturn, it is not difficult to find that many investors sell on panic mode, either to minimize or to cut losses. In truth, no matter how good you think you are in picking the best stocks, chances are your prediction may turn out the other way due to various factors such as false information, poor market sentiment or other external factors driven by politics, change of governmental policies or regulations, etc.

It is important therefore to hedge against your investments, or simply put, to reduce your exposure risk in any particular investment instrument. Remember the game of blackjack in a casino? A card player may opt to purchase an "insurance"against banker's cards having a blackjack and therefore stand to minimize losses if banker's cards do turn out to be such. The same applies to investment trading. An investor can hedge against its investments by separately entering into a hedging instrument such as options and futures, so that he protects his investments against unforseeable losses in the event the market movement goes the opposite direction. This is commonly practiced by institutional investors of money market instruments and corporations who have significant exposure to foreign currency and commodity such as crude oil and other raw materials. For example, if one expects crude oil prices to rise above USD70 per barrel when current price is USD50, an airline company may decide to enter into a options contract at say USD60 to hedge its position on crude oil to prevent further cost escalation. If actual price exceeds USD60, one stands to gain due to cost savings. However, if price falls below USD60, one stands to lose as he now is required to pay a higher price for the commodity.

In stocks, one may also use derivative instruments such as options or futures to hedge against one's investment portfolio. Technically, to hedge one would invest in two securities with negative correlations. The idea of hedging is therefore not to make more money but essentially to reduce one's exposure risk or to reduce losses, in the event of adverse market movement. Bear in mind that if the investment one is hedging against makes money, one will have typically reduced the profit that you could have made, and if the investment loses money, one's hedge, if successful, will reduce that loss.

In an adverse market condition such as the current stock market turbulence caused by US subprime and credit woes, an investor who has had a proper hedging technique would have safeguard his or her investments by reducing the amount of potential losses.

The downside of hedging is that often it is a more complex tool and it is never easy to achieve a perfect hedge. Do not rule out the possibility that things could still go wrong even with hedging. Just bear in mind that the objective of hedging is to reduce losses over one's exposure, not to make more money.

On the flip side, one could also use the above derivative instruments to make a speculative profit rather than hedging. I shall look at speculation vs hedging on another day.

A Real Threat on Liquidity Crunch?

Global markets have truly suffered a highly turbulent moments since last week, contributed by the extreme volatility in Wall Street as a result of its worsening subprime woes and impact on credit crunch. More and more subprime lenders and even investment bankers around the world were either issuing warnings, reported major losses and some investment funds were even being stopped from further withdrawals. This has a serious impact on credit and tightens liquidity in the global market, which had been previously high in abundance and provided huge appetite for high yielding investments and as a result, led to a major uprise in all major assets classes.

Now, liquidity is under a serious threat as last Friday, the European Central Bank, the Bank of Japan and US Federal Reserve together pumped USD162.5 billion into the world financial systems to head off a major crisis of confidence. The last time US Federal Reserve did this was after the 911 event. This was an act of reassurance, which suggest that Governments around the world are ready to supply credit in order to restore the confidence and avoiding panic around the globe.

In Asia (ex Japan), the scenario was somewhat different. Although central banks of Singapore, Indonesia and South Korea were also quoted to be on standby mode to supply funds to the market, it never happened or at the most, it was only a token of intervention. This suggest the risk of subprime exposure in Asia is far less significant. This could be due the fact that Asia led by China and India has seen tremendous and sustainable growth for the past few years and thus increased intra-Asia trade and reduced dependency on US. The continued economic growth of these two countries will likely spearhead support of such trend.

Unlike the previous crash in February, the current volatility in Wall Street may prolonged for the next one to two months as the subprime woes may not have bottomed out. So it may take a tad longer time this time for the dust to settle and for global investors to restore confidence.

However, in any deep lying problems there lies potential opportunities, particularly for the Asia stock markets. As the Asia growth stories continue to unfold, it is a matter of time investors confidence will be restored, particularly the fact that US economy is still at a healthy growth despite the subprime problems. In fact, the subprime mortgage factor should not overly impair US economy as the pain is confined to the subsegment of the property market and financial institutions. After all, the total subprime loans only made up 4% of the total loans in US.

Malaysia's New Northern Economic Region

First we had the Southern Economic Region, named Iskandar Development Region (IDR), reminiscent of the special economic region of China's Shenzhen, which closely link with its counterpart Hong Kong. In IDR's case, it's an open economy that targets foreign investors focusing on service related sectors, tourism and properties with close collaboration with neighbour Singapore.

Over the past 2o years, Malaysia's economic growth and competitiveness has been built around the manufacturing industries, particularly the Electronic and Electrical industry. With the emergence of China, India and now Vietnam, Malaysia's competitiveness has suffered serious threat as its cost escalates and competitive edge deteriorates. Agricultural sector has also remained stagnant over the years. In realization of the need to continue boosting Malaysia's economic growth going forward and bringing these sectors that had served Malaysia well in the past to a higher level, here comes the realisation of a new economic region that serves to propel the country to the next frontier. The investment amount potentially total 177billion Malaysian Ringgit (USD51.2 billion) in mostly private funding over 18 years to turn its mainly agricultural and manufacturing north into a logistics, food-processing and tourism hub by 2025.

There are about 4.3 million people living in this region, in which ethnic Malays forms the majority of the population, other than Penang state. About two-thirds of them are in the region's rice-growing areas. The average annual income of around 2,477 Malaysian ringgit (USD717) per household, is the lowest among the six regions in the country except for the east coast (Kelantan and Terengganu). With the NCER, the Government aims to increase annual income by three fold and boost GDP four fold by 2025. In addition, it is expected to create 500,000 jobs by 2012, doubling to a million by 2018.

The biggest beneficiary is expected to be the state of Penang, where currently high tech electronic and electrical manufacturing dominates both in the island and main land. For the past decade, the state's economy had stagnated or deteriorated due to a number of manufacturing companies moving their base to other more attractive low-cost base countries such as China. Also, it's competitiveness has suffered due to its failure to move manufacturing up the value chain. Real invention from Research and Development remains weak. So, one of the main objective is to move up the value chain such as enhancing output from research and development. But there lies other more ambitious plan. Malaysia intends to convert Penang into a major transportation and logistics hub, by building centralized and integrated infrastructure and transportation links, including highways, bridges, railway and monorail services, expansion of air links and airport to cater for budget airlines.

Other key targets include:
- enhance tourism and tourism spending;
- become a modern food zone, helping the country to increase its efficiency in food production

A grand plan indeed, but will it be successful or is this another potential mega project flop in the making? The Government do mean business, as the formation of a central implementation agency appears to suggest so. The central agency will be a government body under a council to be chaired by Malaysia's Prime Minister and comprising the deputy PM, the chief ministers of Penang, Perlis, Kedah and Perak, as well as some cabinet ministers. It will be responsible for implementing the detailed planning and will launch a one-stop centre.

Later, I shall look into where are the potential opportunities it could bring to investors.