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Just back from a short break with the family in ShenZhen and Macau. Friends I met there shared anecdotal evidence that the economy is weakening fast. On the golf course, I was told that a normal caddy would do 2 flights per day but now its one flight every two or three days. The spas and karaoke lounges are also empty. In ShenZhen and Dongguang, the number of corporate failures is in the thousands as most of these are export oriented companies which have been impacted by the slowdown in the global economy. In Macau, the Venetian was impressive but the level of activity was slow....during and after the weekend. Anyway its an impressive casino and I am wondering whether our own IRs will even be able to come close in terms of grandeur and casino traffic.
Back to the Singapore market, I was not surprised by the rally in the STI Index to pass the 1800 level. I also read in the newspapers this morning that some market watchers are calling that the worse is over and that markets have bottomed. This is being too optimistic....the market's strength is coming from thin trading where even on low volumes blue chip index stocks can rise. Banks and property led the bounce off the 1600 level but its another BEAR rally.....more downside ahead especially into Q1-2009.
Why am I still so bearish that the worse is yet to come ??
First the economic data from the US, EU, Japan and even China is getting worse and unemployment is rising. Even the World Bank and IMF chiefs are warning of an even worse 2009 compared to H2-2008. Second, the wave of hedge fund selling is NOT OVER.....and deleveraging is still continuing. Many of my friends who have invested in Hedge funds have been informed that redemptions are being frozen until the third quarter of 2009 because capital markets are depressed and illquid. This means that the hedge fund redemption selling is still not over. Thirdly, we see job redundancies rising and many companies shutdown production by one to two months because of a huge build-up of inventory.
The market probably had a wake up call that the worse is yet to come when DBS announced its huge rights issue today of 1:2 at $5.42 which would raise around S$4bn in new money. This is apparently not for acquisition but to strengthen its balance sheet with Temasek agreeing to underwrite one third of the issue. I have a few questions on the rights which given the weakness in the share price today probably means that other investors have similar concerns.
Firstly why is the discount on the rights so steep ? If the S$4bn is not for acquisition then does it imply some potential damage to DBS' balance sheet given the weak economy ? The fact that DBS was already trading at a price to book discount to OCBC and UOB means that the market was already cognizant of the poorer asset quality of DBS compared to the other two banks. The next concern by the market is that the other two banks would also be doing similar fund raisings in the near future.
Let me remind investors about the 1997 Asian Financial Crisis where our bank NPLs were more than 10% and the bank share prices traded to a low of 0.5 times price to book.....Is this crisis worse or better than the Asian Financial Crisis ? Many people including myself are of the view that this is the worse crisis since the great depression - so it should be worse than 1997 - this means higher than 10% NPLs and a possibility of trading below 0.5 times price to book. If our banks trade down to those levels and given there one third weighting in the STI Index - the index could fall to the 1200 level ! So don't be fooled by the recent firmness - its got no legs because market volumes are very low.
Source: NRA Capital - Kevin’s Blog[caption id="attachment_1319" align="alignright" width="162" caption="Photo by azrainman"][/caption]
Just back from a short break with the family in ShenZhen and Macau. Friends I met there shared anecdotal evidence that the economy is weakening fast. On the golf course, I was told that a normal caddy would do 2 flights per day but now its one flight every two or three days. The spas and karaoke lounges are also empty. In ShenZhen and Dongguang, the number of corporate failures is in the thousands as most of these are export oriented companies which have been impacted by the slowdown in the global economy. In Macau, the Venetian was impressive but the level of activity was slow....during and after the weekend. Anyway its an impressive casino and I am wondering whether our own IRs will even be able to come close in terms of grandeur and casino traffic.
Back to the Singapore market, I was not surprised by the rally in the STI Index to pass the 1800 level. I also read in the newspapers this morning that some market watchers are calling that the worse is over and that markets have bottomed. This is being too optimistic....the market's strength is coming from thin trading where even on low volumes blue chip index stocks can rise. Banks and property led the bounce off the 1600 level but its another BEAR rally.....more downside ahead especially into Q1-2009.
Why am I still so bearish that the worse is yet to come ??
First the economic data from the US, EU, Japan and even China is getting worse and unemployment is rising. Even the World Bank and IMF chiefs are warning of an even worse 2009 compared to H2-2008. Second, the wave of hedge fund selling is NOT OVER.....and deleveraging is still continuing. Many of my friends who have invested in Hedge funds have been informed that redemptions are being frozen until the third quarter of 2009 because capital markets are depressed and illquid. This means that the hedge fund redemption selling is still not over. Thirdly, we see job redundancies rising and many companies shutdown production by one to two months because of a huge build-up of inventory.
The market probably had a wake up call that the worse is yet to come when DBS announced its huge rights issue today of 1:2 at $5.42 which would raise around S$4bn in new money. This is apparently not for acquisition but to strengthen its balance sheet with Temasek agreeing to underwrite one third of the issue. I have a few questions on the rights which given the weakness in the share price today probably means that other investors have similar concerns.
Firstly why is the discount on the rights so steep ? If the S$4bn is not for acquisition then does it imply some potential damage to DBS' balance sheet given the weak economy ? The fact that DBS was already trading at a price to book discount to OCBC and UOB means that the market was already cognizant of the poorer asset quality of DBS compared to the other two banks. The next concern by the market is that the other two banks would also be doing similar fund raisings in the near future.
Let me remind investors about the 1997 Asian Financial Crisis where our bank NPLs were more than 10% and the bank share prices traded to a low of 0.5 times price to book.....Is this crisis worse or better than the Asian Financial Crisis ? Many people including myself are of the view that this is the worse crisis since the great depression - so it should be worse than 1997 - this means higher than 10% NPLs and a possibility of trading below 0.5 times price to book. If our banks trade down to those levels and given there one third weighting in the STI Index - the index could fall to the 1200 level ! So don't be fooled by the recent firmness - its got no legs because market volumes are very low.
Source: NRA Capital - Kevin’s Blog
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Just back from a short break with the family in ShenZhen and Macau. Friends I met there shared anecdotal evidence that the economy is weakening fast. On the golf course, I was told that a normal caddy would do 2 flights per day but now its one flight every two or three days. The spas and karaoke lounges are also empty. In ShenZhen and Dongguang, the number of corporate failures is in the thousands as most of these are export oriented companies which have been impacted by the slowdown in the global economy. In Macau, the Venetian was impressive but the level of activity was slow....during and after the weekend. Anyway its an impressive casino and I am wondering whether our own IRs will even be able to come close in terms of grandeur and casino traffic.
Back to the Singapore market, I was not surprised by the rally in the STI Index to pass the 1800 level. I also read in the newspapers this morning that some market watchers are calling that the worse is over and that markets have bottomed. This is being too optimistic....the market's strength is coming from thin trading where even on low volumes blue chip index stocks can rise. Banks and property led the bounce off the 1600 level but its another BEAR rally.....more downside ahead especially into Q1-2009.
Why am I still so bearish that the worse is yet to come ??
First the economic data from the US, EU, Japan and even China is getting worse and unemployment is rising. Even the World Bank and IMF chiefs are warning of an even worse 2009 compared to H2-2008. Second, the wave of hedge fund selling is NOT OVER.....and deleveraging is still continuing. Many of my friends who have invested in Hedge funds have been informed that redemptions are being frozen until the third quarter of 2009 because capital markets are depressed and illquid. This means that the hedge fund redemption selling is still not over. Thirdly, we see job redundancies rising and many companies shutdown production by one to two months because of a huge build-up of inventory.
The market probably had a wake up call that the worse is yet to come when DBS announced its huge rights issue today of 1:2 at $5.42 which would raise around S$4bn in new money. This is apparently not for acquisition but to strengthen its balance sheet with Temasek agreeing to underwrite one third of the issue. I have a few questions on the rights which given the weakness in the share price today probably means that other investors have similar concerns.
Firstly why is the discount on the rights so steep ? If the S$4bn is not for acquisition then does it imply some potential damage to DBS' balance sheet given the weak economy ? The fact that DBS was already trading at a price to book discount to OCBC and UOB means that the market was already cognizant of the poorer asset quality of DBS compared to the other two banks. The next concern by the market is that the other two banks would also be doing similar fund raisings in the near future.
Let me remind investors about the 1997 Asian Financial Crisis where our bank NPLs were more than 10% and the bank share prices traded to a low of 0.5 times price to book.....Is this crisis worse or better than the Asian Financial Crisis ? Many people including myself are of the view that this is the worse crisis since the great depression - so it should be worse than 1997 - this means higher than 10% NPLs and a possibility of trading below 0.5 times price to book. If our banks trade down to those levels and given there one third weighting in the STI Index - the index could fall to the 1200 level ! So don't be fooled by the recent firmness - its got no legs because market volumes are very low.
Source: NRA Capital - Kevin’s Blog
