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Friday, 22 January 2016

Hang Seng Index & The HK-USD Peg


Dear fellow traders, 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. To join my telegram channel : https://telegram.me/tradeview101 or Email me to sign up as private exclusive subscriber : [email protected] 

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Seeing Hang Seng keep on plunging day after day, breaking resistance after resistance, I felt there is something questionablee. Everything doesn't add up. After some level of analysis and research, I realised something important is going on in the market. Just to give you all some insight to the sell down in Hang Seng index:

1. The HKD is pegged to the USD. However, there is a major divergence that is happening now. 
Although HKD is pegged to the USD, US is currently hiking their interest rate whereas China is devaluing yuan after being incorporated in IMF. China's reason to devalue yuan is to make their export more competitive. This is one of their major ways to improve their on domestic growth concerns. On the other hand, the short sellers in the market is looking to exploit the growth concern of China to short the HKD. To maintain the peg between HKD and USD, HK policy makers have to either increase interests rate in tandem or continue to use their FOREX reserves. Although HK does have huge amount of FOREX reserves, China is not helping the case with their continuous devaluation of Yuan. 

2. As HKD is coming under attack by shorters, the equities market in Hong Kong clearly will trigger panic selling due to the fear of potential meltdown esp how it was during the 97 Asian Financial Crisis. Hence, there is constant sell down through out. 

3. Shorters of HKD will continue to attack the peg citing China growth concerns as a reason and the divergence between the China govt's devaluation of Yuan vs the US Fed's interests rate hike. This selling will continue until the divergence in policy is addressed by Hong Kong authorities.

 

4. Think back Malaysia's own market plunge in August 2015. Our currency plunge tremendously against the USD whereby shorters cited 1MDB,  oil plunge as the key reason for the weak outlook of Malaysia. This led to the massive selldown in the KLCI equities to a point of 1500 before it moderated. Hence, the correlation between the currency of a nation and the equities market works hand in hand. 

5. The question now is, will Hang Seng rebound and the will the HKD-USD peg survive? In my opinion, yes. Simply because the HKD-USD peg is one of the strongest in the world that has survive various financial crisis, like the SARS, Global Financial Crisis. In addition, Hong Kong has big brother China as the support. China government will not allow their economic bastion to face such challenge. It would tantamount to a challenge on their sovereignty. 

6. I am of the view that the Hang Seng index will rebound soon and the attack on the peg by short sellers of the HKD will ease. When the selling ease, the equities market will start to rebound. However, this can only happen if the divergence of policy between China devaluation of Yuan and US Fed Rate Hike is satisfactorily addressed by authorities.        

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Food for thought: 

Wednesday, 20 January 2016

Tradeview - 2016 When Fear Sweeps The Market (Upside vs Downside)


Dear fellow readers, 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. 

To join my telegram channel : https://telegram.me/tradeview101 or Email me to sign up as private exclusive subscriber : [email protected] 
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In my experience investing and trading all these years, there is a common scene that replays over and over again. The jubilence and noise during bull runs vs the pin drop silence of uncertainty and fear during bearish sell down. 

The thing about the market comes down to the very basic notion of supply and demand. Adam Smith's invisible hand is the most basic concept behind economics, whereby the invisible hands will dictate the demand and supply until an equilibrium has been achieved. Lets go back to the basics in such time of uncertainty and volatility. We take away all human elements such as emotions, agenda, interests, desire, greed etc. Lets focus solely on this theory of supply and demand.  


When there is an excess in demand, the price of the item will increase. Why? Because there is more demand for an item that is finite. People are willing to pay the highest price to obtain it. Now, when there is an excess in supply, the price of the item will fall. Why? Because there is insufficient demand for an item that is abundant. No one is willing to pay a high price as the item is easily obtainable.

Simple ain't it? Then let's try applying it to the share market. In this particular scenario, the item is the "stock". Let me reuse 2 of the counters I have highlighted in the past as example.


Value Stock No. 1: Magni Tech

When I called out Magni in December, it was trading at RM4.20. I decided to enter in anticipation of a good set of 2Q quarterly results. True enough, the results exceeded expectation. Magni achieved record quarterly results with a jump of 2.7 times EPS from 7.38 sens to 19.94 sens. There was even special dividend of 3 sens on top of the 5 sens interim dividend announced.
The very next day, the share price shot up all the way to RM4.69 before moderating around average price of RM4.55 for the past months. Even after it went dividend-ex date on 7 January 2016, the share price still hovered around the same range regardless of the routing of the oil price and global share markets. At 4pm today, Magni was down to RM4.27. I asked myself, "What is the upside and what is the downside?" The answer was clear to me. So I bought. 

Value Stock No. 3 : Cycle and Carriage Bintang 

When I first called out CCB on 30th October, it was trading at RM3.30. I decided to enter in anticipation of a good set of quarterly results. In fact, I knew it would be a good set of results. Simply by sheer deduction based on the number of Mercedes I noticed on the road whenever I am stuck in the peak hour traffic. You may think I am bluffing claiming by seeing Mercedes on the road, I would know CCB would do well. The thing is, what I saw wasn't Mercedes alone. I saw new Mercedes with new number plates. I saw the new S Class Hybrid, the E300 hybrid, the new C Class, the GLA, the CLA and the list goes on. Oh ya, I even bumped into Dato' Lee Chong Wei once in Publika while he was getting out of his new A-Class while handing the key to the valet. This was an indication to me to look into CCB recent results and read up on reviews that notable car bloggers have on the new cycle of Mercedes products. 

Indeed, the results exceeded expectation. For 9m15 EPS = 41.62 sens, even without annualising the earnings far exceed previous years. I called a FV amount to RM4.50. The next day, the share price shot up to RM3.45 and fell all the way to RM3.08 before moderating and averaging around RM3.60. In fact, just few weeks ago when the Mercedes boss gave his optimistic outlook on the future prospect, CCB shot to as high as RM3.93. Despite that, I held on and did not sell. Why? I know CCB intrinsic value is worth more and with such stellar earnings, I expect CCB to end strong and probably declared the huge dividend it was acustomed to declaring in the past despite the 2 years hiatus. At 4pm today, CCB was down to RM3.36. I asked myself, "What is the upside and what is the downside?" The answer was clear to me. So I bought. 



True, the oil price broke USD 28 per barrel again, Hang Seng was down 750 points, US futures Dow was down 350 points and the list of bad news goes on. However, the true question strikes me. What is the downside vs the upside?

Is Magni worth RM4.27? Or it is worth more? Is CCB worth RM3.38? Or is it worth more? Am I willing to buy to hold? Deep down, I was familiar with their true instrinsic value and I know the market is not pricing it fairly. I also know the market is driven by fear sentiment. All the Telegrams Groups and Forums that are usually bubbling with noise was awfully quiet. I even had to check my phone intermittently as I wondered was it my poor mobile signal affecting my internet connection. After establishing it was purely fear in the market and not technical error, to me it was a no brainer. Literally. I did not think twice to key in the order button. I just did it. After all, Magni's is the supplier of Nike. And, not forgetting, it is already 2016. 
                                 

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Food for thought: 

May good fortune come your way!

Disclaimer: This is not a recommendation to trade. It is merely the expression of the author's personal opinion and shall not be held responsible for potential gains or losses executed by readers.

Value Pick No. 5 (Perusahaan Sadur Timah Malaysia (PERSTIMA) Berhad)



Dear fellow readers, 

I have shared 4 value companies namely : 1.Magni  2.UPA  3.Apollo  4. FFHB
Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. To join my telegram channel : https://telegram.me/tradeview101
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Value Stock No. 4: Perusahaan Sadur Timah Malaysia (PERSTIMA) Berhad

With volatility in the market, I would suggest a more defensive pick and Perstima fits the bill. At current price, it is only trading at 10-11x trailing P/E while offering yields in excess of 6%. Given the above average dividend return, I think share price will be well supported. Further, Perstima has a strong balance sheet with a net cash position (RM0.96/share vs. current price of RM5.54). Considering this, the stock is priced at a mere 8-9x trailing P/E (ex-net cash).



What really excites me it is business prospects. Perstima has a monopolistic position in Malaysia with around 50-60% market share, granting it pricing power and the ability to maintain profit margins. For growth, it has exposure in Vietnam where the economy is still growing robustly. Further, Vietnamese Dong has strengthened against Ringgit over the past one year and this bodes well for Perstima. Another plus point is that its tinplates are used for the packaging of food, beverage and sanity cans, which are generally resilient in nature (non-discretionary consumer products).



Delving deeper into the financials, for the past 3 consecutive quarters, I observed that revenue and profit accelerated despite low tin prices. This was thanks to volume increase and forex tailwind. In turn, margins were lifted as well. I believe Perstima will continue to perform well in the upcoming quarters. To further back up my investment thesis, Perstima has raised its interim dividend to 18sen from 15sen recently, implying optimistic business prospects. 





At RM9.00 (60% upside), Perstima would reflect 16-17x trailing P/E and 14-15x on an ex-net cash P/E basis. On the other hand, dividend yield is still attractive at 4% at RM9.00 (assuming 38sen DPS - already paid out 18sen and typically the 2nd interim dividend is 20sen). I don’t think this back-of-the-envelope valuation is steep since this is a growth stock. Further, as EPS grow, the P/E would narrow while dividend payout would increase and hence, provide higher yields. FYI, Perstima’s payout ratio is between 60-70% (so much more room to dish out dividends) and yet the yield is superior compared to many listed companies on Bursa. However, as Perstima traditionally have been undervalued despite its monopolistic position, conservative individulas can provide a 15% discount for a conservative FV of RM 7.65.

To join my telegram channel : https://telegram.me/tradeview101
Email me to sign up as private exclusive subscriber : [email protected] 

Food for thought: 

Sacrifice is risking everything without guarantee. 
May good fortune come your way!

Disclaimer: This is not a recommendation to trade. It is merely the expression of the author's personal opinion and shall not be held responsible for potential gains or losses executed by readers.