Author Archive

Posted on September 1, 2010 - by kevinscully

Double dip or mild recovery in the US…..the uncertainty is causing a boom in the bond market and low volumes in equities……

I had an informal lunch with some academics and fund manager veterans last week to test the waters.

It is timely in that we have Fed Chairman Bernanke Bernanke, in his Aug. 27 speech to central bankers and economists in Jackson Hole, Wyoming, indicating that the US economy is not growing as fast as expected and added that the Fed was ready to step in to avert a recession.  This apparently caused a rally in the US markets last Friday.  The slowdown in US GDP growth happens to coincide with the ending of fiscal stimulus packages.  This means that domestic consumption is not stong enough to offset the absence of fiscal spending but domestic consumption is still growing albeit modestly.

The chart above doesnt seem to be that worrying but for the fact that expectations for Q2-2010 GDP were for more than 2% GDP growth…..this is now down to 1.9%.  Unemployment is also likely to remain high.   Chad Evans, Fed Chief for Chicago feels that the risk of a double dip have risen but this is not yet the likely scenario. Read more…

Posted on August 25, 2010 - by kevinscully

InvestFair 2010……some questions posed to the panel on Themes for 2010….from Genting to where the STI Index will be by the end of 2010

InvestFair 2010 was held at Marina Bay Sands……the YOG made getting their last Saturday a bit difficult for me because the roads were closed and only opend at 1pm.  Finding parking at the Convention Centre wasnt difficult especially when your daily rate could be as high as S$30.00.  The building is still under construction so signs and directions were a problem.

Our session was well attended….the hall was full with standing room only.  I thought I would share some interesting questions here:

Genting Singapore

Gabriel originated this question by saying that investors shouldnt trust analyst recommendations given that many analysts who had calld sels on Genting were now calling BUYs….with some citing the “luck” factor as a basis of the recommendation.   At current levels, he said that Genting was the most expensive listed casino in Asia…..I take that to mean that its a bit to pricey now….for investors who dont own the stock.

I dont follow the stock directly but have followed Genting Bhd and Resorts World before.  I think the main issue with Genting is whether the revenue it reported is sustainable…..when a casino opens and is new, especially in Singapore, our first, there is what I call the novelty effect.  We saw this in Sands Macao which recouped its investment costs in nine months.  What is more important to me is sustainable revenue and profit and we are likely to only see this in year 2 or 3 when the novelty wears off and also in the face of competition from the region.

Intutively, I agree with Gabriel, that if its the most expensive listed casino in Asia…..the risk reward doesnt favour medium investors entering at these levels. Read more…

Posted on July 28, 2010 - by kevinscully

Singapore’s June 2010 industrial production rose 26.1% (below forecasts of 36.7%) caused mainly by Biomedical…

…but I am more interested in the electronics data

On a month on month basis, industrial production declined by 23.4 mainly because Biomedical grew only at 29.8% from more than 100% in May 2010.  More details can be found at the EDB website here.

Back to electronics – this is important to me because 40% of my Stock Picks are electronics/technology stocks.  The electronics data for June 2010 expanded by 46.8% – led by a 74.9% rise in semi-conductor equipment.  data storage declined by 9.4% mainly from the relocation of capacity out of Singapore.   I remain bullish on the electronics and technology sector – although some moderation of the heady growth in the first half of 2010 is expected in the second half of this year.  In a recent investment seminar, our analysts reviewed the electronics sector and recommended nine stocks in the sector (four more than in my Stock Picks).  Read the slides and understand what factors are driving electronics and also the downside.  The rerating and rebound in the US markets over the last few days has been on the back of the Q2-2010 reporting season.  I believe the same will drive the Singapore market and in particular the electronics stocks higher.  Broadway results are due this Wednesday…..keep an eye out for them. Read more…

Posted on July 26, 2010 - by kevinscully

Stock markets are currently directionless!

…this explains the low volumes as investors try to digest the mixed signals and even double dip concerns

I have been bullish about stocks despite the Euro debt crisis mainly because I felt the Euro problems were mainly confined to the PIGs which were small countries and the largest among them, Spain, had no problems with its recent Government bond auctions.  The recent strength in the Euro probably signals that this view is growing that while we may have austerity cuts, the weaker Euro will promote services and exports which should offset some of the public sector spending cuts.

But economic growth in some of the major economies has started to falter…..as fiscal and monetary packages started to end.  The biggest concern was from the US where a recent comment by Fed Chairman Bernanke in his semi-annual briefing of the Senate Banking activity, signalled a weaker than expected US economy but NO remedial action yet.  There were two Bernanke comments which spooked investors: a) “somewhat weaker outlook for the economy” ; b)  “unusually uncertain” economic outlook.  While he did acknowledge that the FED would take action if the economy started to falter……he added that no action was required now !.   This to me means more moderate growth but not negative growth…….which is why I am bullish because it means that the Fed and other Global Central Banks would need to keep interest rates at near zero levels for at least another year.  This is good for stocks who are all now trading at earnings yields in excess of 8% and on historically low PERs. Read more…

Posted on July 21, 2010 - by kevinscully

Adding Fuxing China Group to my Stock Picks……today

Last Friday at our “Investment Strategy for a Volatile Market” seminar organised by Lim & Tan I/we were asked what China stock/s investors could look at.  I told the attendees that we already had two China stocks in My Stock Picks (Sinomem and China Animal Healthcare).  I was thinking of adding another – Fuxing China Group.  We have already produced an initiation report on China Fuxing Group on July 16, 2010.  I was intending to add Fuxing to my list this Monday but had to make an unexpected trip to Penang that day.  The shares of Fuxing rose more than 10% on Monday on high volume but retraced a little yesterday (see Chart below).

The key reasons for looking at Fuxing are: Read more…

Posted on July 14, 2010 - by kevinscully

Why I remain bullish on stocks and the Singapore market……its linked to the World Cup, Summer Holidays and AgBank ?

First let me apologise for the sparse and intermittent postings on my Blog.  A combination of work, school holiday break and most recently some minor health problems including a surgical procedure yesterday have limited my ability to write regularly.  This should improve now that I am recovering and as we enter the Q2-2010 reporting season.

I have been bullish since the recent “correction” not double dip started with the problems in Europe.   I saw the correction as being long overdue from the rally which started in March 2009.   The correction was also technical with many major indices cutting down through their 50, 100 and 200 moving averages.  The VIX index also moved up sharply when the European credit crisis started and has since come down to a comfortable level in the mid-20s.  Remember I highlighted that a sustained fall in the VIX below 30 would be a good signal to slowly consider coming back into the market.  Its now at 24.43 (see chart below).

Read more…

Posted on July 5, 2010 - by kevinscully

China Animal Healthcare – raises US$45mn through a placement to Blackstone Capital Partners VLP…..what does this mean for one of my Stock Picks

China Animal asked for a trading halt yesterday morning and released its announcement at close to mid-night.  The China Animal annoucement details its US$45mn fun raising with new strategic investor Blackstone Capital Partners VLP.

The management are viewing the placement to Blackstone Capital as another affirmation by a global fund house as to its fundamental merit.  China Animal already has Legg Mason, Fidelity and soon Blackstone as shareholders.  This affimation is important given the spate of S-chip scandals which has impacted all S-Chips (good and bad).  Overtime, the good ones will stand out via their track record, disclosure and how they treat minority shareholders.

The US$45mn fund raising from Blackstone is in the current form:

a) placement of  20mn new shares in China Animal at S$0.35

b) US$40mn convertible bond (CB) due in 2015

A summary of the CB terms is appended below:

a) US$40mn amount with zero coupon

b) completion expected by end of July 2010 with a long stop date in September 2010 (ie the deal expire)

c) Conversion price – there are a few conditions here. Read more…

Posted on June 28, 2010 - by kevinscully

Jaya Holdings Limited – stock is undervalued compared to its historic valuations and its peer group

I met the management of Jaya Holdings recently and came away feeling positive about the company.   Read more details in our premium section.

Jaya’s problems started in mid 2009 during the financial crisis when a surge of deliveries, too much short term debt and a cut on bank lines resulted in a credit squeeze.  The company appointed NTan Advisory in June 2009 to resolve the matter.  This was successfully done in early 2010 through a debt restructuring scheme which converted the short term loans into a US$ term loan for five years with no prinicipal repayment for the firs two years and an uneven principal repayment for the last three years..  But when the announcement of the financial diffculties started in June 2009, the shares of Jaya fell from S$0.65 to S$0.34 (see chart below). The shares are today back to where they were before the announcement, ie S$0.65-S$0.66. Read more…

Posted on June 22, 2010 - by kevinscully

Back from a short break…stock market technical indicators looking positive except for China…..

Just got back from a short break with the family – missed the flood on Orchard Road but did see some pictures of it.   Not enjoying the World Cup – problems with the Germany, French, Italian and UK teams seems to be caused by the Euro crisis now filtering into the soccer areana too.

Back to the stock markets.  Trading volumes remain low which is seasonal and also probably affected by the World Cup.  Bearing that in mind, certain technical indicators which I follow are giving bullish or positive signals:

a) VIX index continues to fall and is now at the 23-24 level – this is a very positive sign for stocks – and was one of the key indicators I mentioned in my recent presentation at the AICE seminar. Read more…

Posted on June 7, 2010 - by kevinscully

Market Outlook – summary of the main points during my presentation at AICE (Asian Investment Conference and Exihibition) last Saturday

Last Saturday I was invited to give my brief views about the market outlook and then participated in a panel discussion on the same topic.   The panelists included Tony Sagami (Harvest Advisors), Tan Teng Boo, MD& Fund Manager (Capital Dynamics), Vasu Menon, VP, OCBC Bank’s Wealth, Management Unit. Moderator: David Gerald and myself.  A copy of the slides can be found at the bottom left hand side of our research website.

The key highlights of my presentation are as follows:

a) Global GDP growth forecasts in 2010 are better than 2009 with OECD growth now higher by 10% from 1.9% to 2.2% while Asian growth has increased from 6.8% to 8-8.5%.

b) problems in the EU will continue but unless France and Gernany falter – its unlikely to get worse although more smaller economies could have problems.  Hungary which caused the sell off in the US markets last Friday on comments about its financial health has an annual GDP of US$127bn – compared to US$177bn for Singapore and is about half the size of Greece.

c) stock markets have all breaches that 100 and 200 day moving averages and are in a technical correction thankfully on low volume

d) but this correction given the strong gains made in 2009 is a long overdule healthy correction and NOT a double dip. Read more…