The Inevitable...Postage Rate Hike

After much speculation, I just got the confirmed news that POS Malaysia will increase the tariff or postage rate effective from 1st July 2010! Frankly, I foresee the rate hike is a matter of time, given that the last hike was way back in 1992!

As per the information that I have gathered so far, the postage increase will affect domestic postage stamps for standard mail below 50gram, non-standard mail below 100 gram, periodicals, and PosDokumen.

Here's the quantum of increase....
- For standard mail weighing up to 20 gram - RM0.60 to 0.70 (from the present RM0.30 to RM0.40).
- For others in general, the quantum of increase is 75%.

The higher postal tariffs effectively paves way for POS Malaysia to raise employees’ salaries (which is currently reported to be below the average government servant’s salary) by 30%.

In addition, the higher earnings will also pave the way for the company to undertake it's aggressive transformation plan such as potential mergers & acquisitions, revamping operational efficiency and cost reduction exercise.

No wonder it's share price has also shot up the past few days...let's take a look. "Someone" obviously knew this is coming for sure!

Is US stock market on verge of another big rally?

Some experts say investors are starting to believe that the U.S. stock market is on the verge of another big rally.

The fact is, Dow Jones Industrial Index have just posted new high above 10,800 compared to previous high posted in January 2010.

US's National Association of Realtors reported a drop in homes sales last month that wasn't as steep as forecast.

However, the report on housing was typical of recent economic numbers that have been somewhat better than expected but still point to a weak economy.

For now, it appears the sales numbers aren't disrupting hopes that the economy can recover even if there is only a slow stabilizing in the housing market.

A month ago, investors shrugged off an 11.2% drop in sales of new homes.

The market's continuing advance has been welcome but analysts are divided over whether stocks have run too far or if they have more to gain because of improvements in the economy. The story on investors is that they are afraid of missing out on further gains, after seeing the Dow making new highs.

On the other hand, investors seem optimistic about the health of corporate earnings for the January to March quarter.

Also, unlike the developed nations, Asia (excluding Japan) is still growing and certainly is the place to be at least for the next couple of decades. So despite America's and Europe's problems, it's a mere fact that there are certainly plenty of light at the end of tunnel elsewhere! It's a certainty that American companies will follow suit where the money is.

However, the issue on sovereign debts of Dubai and Greece has still not gone away, despite plenty or reassurances from various party.

As always, there are two sides of the coin to look at. One can be optimist or pessimist. May be one more for being neutral? Whatever it is, I always believe in following the trend, and that's where the smart money is. Current trend obviously still point to the north (up trend), supported by relatively strong volumes, amidst intermittent signals of danger looms!

Why do I say so? Well, simply the hot money (or better termed as liquidity) is still there, no matter what people say. The smart money has come to the realization that money has to be invested and parked somewhere (to counter inflationary stress), no matter fundamentally it's right or wrong!

However, the musical chair will stop one day of course....So until then, let the party moves on.

The Year of the Tiger, A Year Of Volatility?

The tiger is characterized by being energetic, optimistic, impulsive and restless. 2010 is the year of tiger in the Chinese lunar calendar (4708). People born in this year are believed to be adventurous, sensitive, emotional, risk-taking, smart, and straightforward by nature.

Chinese New Years falls on 14th February 2010. Celebrations start on the eve of the new moon and end 15 days later with the full moon lantern festival.

According to many Feng Shui master, 2010 Year of the Metal Tiger will be a Bad Year! Inside the Tiger, there is Wood, Fire and Earth elements. Here lies the "problem", ie., having no water element is the problem!

So, if the Feng Shui views were to be believed, then expect high volatility in the global stock markets for the year of 2010! Already we have seen glimpses of trouble started off by Dubai, followed by the PIIGS (Portugal, Italy, Ireland, Greece and Spain). With further tightening of lending by Chinese Government to curb speculative activities, and the imminent raise of interest rates by the U.S. in the near future, risk aversion will likely return to haunt the markets as USD-carry trades being unwinded.

Things can only return to the better unless the fundamental aspects of the real economy such as consumption, exports and employment return to normal.

Last but not least, I would like to wish all Chinese a Happy and Prosperous Chinese New Year!

New Roads to Travel,
New Skies to Conquer,,
New Dreams To Live,
New Hopes to Cherish,
It's the Beginning of Yet Another Year,
May it Be a Fulfilling Experience For You!
A Year of Excellent Health, Wealth, Happiness and Wisdom!
Happy 4708!

A Case of Reality Check

2009 was a stellar year for global stocks recovery. As I had written before, it was more hope than factual when global funds decided to take on an optimistic route. 2010 is expected to be a lot tougher, in the sense that what was expected last year must bear fruit this year, in order to sustain the bullish views across global economy and investments.

Last year (until the beginning of this year) we saw massive inflows of funds into emerging markets particularly like China, frenzily mopping up undervalued equity stocks and real estate properties. Property prices in Shanghai, for example, has even surpassed the previous highs made before the 2007 financial crisis! Things were beginning to look more bubblish and speculative than solid fundamental!

Problems began to emerge towards the end of 2009, in places like Dubai where they were not able to service their massive debts, to the point they need to be rescued by Abu Dhabi's sovereign funds.

Next in line comes some of the European countries commonly known as the PIIGS (being Portugal, Italy, Ireland, Greece and Spain) who appear increasingly unable to service their respective sovereign debts.

The key question in everyone's mind is that will this snowball into a global issue? Thus turning it into a double dip recession, as what some economists have predicted?

Worries about Europe caused the Euro to hit an eight-month low against the US dollar.

The perception of US Dollar may even turn to become a safe haven! Some analysts are also predicting a bullish rally on US Dollar this year against world major currencies!

China's Financial Market: Positive Reforms

China's latest decision in introducing derivative stock-index futures, short-selling and margin financing in equities are additional positive reforms designed to bring its markets in-line with other major global stockmarkets. Could this be also a further sign that China's financial markets are growing in maturity?

Personally, this is definitely setting the path to the right direction as China continues its effort to liberalize its markets, in order to become more competitive. However, in the short term, it may come at a cost to local Chinese investors as they require time to familiarize themselves with more sophisticated instruments. The degree of learning curve will definitely affect the outcome and return on investments too. For instance, margin financing may sound attractive to many people, in the form of easy availability of funds but if it's not managed properly and effectively, investors may find themselves landing in a bigger financial hole than they could ever imagine.

See related post "Is Margin Trading Right For You?"

Nevertheless, it is widely expected that the above reforms should help shrink the valuation gap that has kept yuan-denominated shares (A-shares) at a premium to similar shares listed in Hong Kong (H-shares) and Singapore (S-chips). The valuation gap between Hong Kong and China, for instance, could trade more than 50% such as what happened in August 2009.
The valuation gap between the two is often attributed to China's capital-account restrictions, which make it hard for average investors to buy shares in foreign markets.

With the availability of shorting mechanism, it will then be possible for qualified Foreign Institutional Investors to short the more expensive A-Share and buy cheaper H-share companies.

Short-selling refers to selling a particular stock first with the aim of buying back at a lower price later, for a profit.

HSBC have estimated the reforms will boost the amount of cash circulated on China's yuan-denominated stock markets by 200 billion yuan (US$29 billion) to 500 billion yuan during the next 12 to 24 months.

It will also be interesting to see if the H-shares will outperform Chinese stocks in the near future, once the above instruments were implemented.

With some believing that the introduction of index futures will help moderate share-price volatility, personally I have doubts that this will happen. Volatility will stay as long as there are abundance of liquidity in the market.

Nevertheless, one could certainly use index futures to hedge against stock holding risk, by shorting index future while being long on stocks.