Tuesday, June 24, 2008

Singapore and the WM industry

It is no secret that Singapore is trying to become the WM hub of Asia. One way we can do it is to attract the big firms to establish their WM operations here in SIngapore. Of course, most of them already had. Except for Wachovia, i am 100% sure everyone else in the top 10 list already have WM ops in Singapore.

Remember Singapore's 2 SWFs made major investments into distressed banks during the credit crunch? They were namely UBS, CitiGroup and Merrill Lynch. If the SWFs stake in these firms amount to 5% each, a quick sum of (1900 + 1800 + 1300) x 0.05 implies that the SWFs sorta have 250 billions AUM. If there is a 3% management fees for AUM, that will be a handsome 7.5 billion a year of implied profits. Wow. (By the way, that is not a very logical way of trying to see how profitable the investments into these banks are )

Rank Firm Assets under management Percent
(billions of dollars) change
(local
currency)
1 UBS 1,896 8.77%
2 Citigroup 1,784 24.06%
3 Merrill Lynch 1,309 8.27%
4 Credit Suisse 745 6.94%
5 JP Morgan 545 17.20%
6 Morgan Stanley 522 18.10%
7 HSBC 494 21.08%
8 Deutsche Bank 286 2.65%
9 Wachovia 285 38.35%
10 BNP Paribas 231 19.85%

Wednesday, June 18, 2008

World at US$139 per barrel

So we are at US$139/bbl now and there are enough speculation on the futures market that US$200/bbl can be a distinctive possibility by year end. What is the world coming to when oil becomes so pricey both in nominal and real terms? The impacts can definitely be wide and long-lasting. Its effects on politics can effectively usher in the next era of economical trends that may well define the end of this decade and the beginning of the next - protectionism.

Reports and news worldwide seemed to indicate that protectionistic governments are gradually finding their way back to power. High oil prices biting into the pockets of every single agent in an economy, is getting the people to push for more socialistic policies. Political parties that stick by the slogans of "keeping jobs in the country" "slap taxes on companies that shed jobs and move overseas" and "bring back fuel subsidies" are gaining popularity in turbulent times. They are imposing export quotas rather than letting the global market adjust demand and supply. They are bankrupting the nation with fuel subsidies rather than taking the painful steps of gradual accustomisation to high inflation. They are re-introducing labour immobilty rather than pushing mobility (mobility of labour can prevent the devastating impacts of wage-price spirals).

If this trend is to eventually happen, we may see stronger regionalisation rather than globalisation. Winners will be the eastern european nations who are admitted to the EU. They will take over China to become EU's production house. Production giants like China need to rely more on domestic and regional demand. The losers will be low cost producers that do not have a big domestic economy to rely on.

Thursday, April 17, 2008

Stocks I am Watching...

1. Olam (fair price to enter... $2?)

2. STI ETF

3. Yangzijiang (PE should be more attractive now compared to >40 PE ratio just half a year ago)

4. Ezra

5. Golden-Agri

Wednesday, April 2, 2008

Changing Times

Can't help but feel happy upon reading the news. I will not analyse about Mugabe's rule in Zimbabwe but i am glad that the election went well. To me, an apparent dictator can be unseated from a national elections means that the people truly wants a change, a new lease of life. It is easy for an individual with absolute power to corrupt absolutely and he can effectively stay in power. Therefore, congratulations to the people of Zimbabwe, this is your victory. Now lets hope the new president or government will rule this country well. I think Africa, though plagued with problems, can be very optimistic in this current era. With the help of the Chinese, they may just get pulled up from their current state. Give Africa 5 years of good governments and 10 years of solid institutions and smiles will return to this wonderful land once again.

Tuesday, April 1, 2008

They can write whatever they want

Financial journalism is something that amazes me all the time. I love the way these reporters try to justify every movement in the market with the latest bout of financial news. Today, UBS and Deutsche Bank announce yet another series of writedowns, close to US$ 20 billion. On a normal day, the markets would have crashed but the markets went up. Financial news commented that the rallies seen in European and US markets were signs that the markets welcome the disclosures and is a sign that the markets are bottoming. I bet if markets were to go the other way, the same journalists will report that the markets are still edgy, uncertainties still loom in the markets etc etc. A investor must truly know how to stand unaffected by these reports and truly rely on sound data to help him make his decisions.

However, it is far from easy to be neutral from biased-reports. Reports from consultancy firms, reserach arms of investment banks and other 'experts' all contain potential bias. I am a faithful follower of an investment-bank's weekly publication and their tone and assessment of the credit crunch have largely followed the rest of the market. I do not detect any fresh insights nor any privilege access to exclusive information.

Still awaiting the results of the Zimbabwe elections. My next post will be about Singapore's dividend stocks performances since the credit crunch began. Will Graham's theories prove the test of time?

Monday, March 31, 2008

Zimbabwe

Chang Qi is deeply concern with the Zimbabwe polls. Is freedom and democracy in Africa well and alive?

Sunday, March 30, 2008

Rising Food Prices

It is scary to see how prices of food and fuel have been skyrocketing for the past few years. Not sure if anyone see this coming, probably Jim Rogers. However, in every asset class and every industry, you will have one 'guru' naming that asset class/industry as the next big thing. Nassim's 'Fooled By Randomness' will teach us that Jim Rogers just got lucky. Maybe you can be that lucky if you prayed at every temple during your round-the-world biking tour.

Anyway, food and commodities inflation is nothing random. I believe it is once again marked by underlying economic trends. We have seen and heard this before - booming emerging markets lead to booming demand and thus prices go up. Simple demand-supply economics. However, economics also teaches us that supernormal profits drive supply upwards and margins to fall. In the medium term, supply will react and prices should not be too volatile.

Therefore, if information flows freely, farmers will engage in production that brings them the most profits. Production of food should increase and thus bring down prices. The problem is that farmers may not have access to markets and information. They harvest their crops and sell them to distributors who will bring the crops from rural areas to the consumers. I will argue that the current inflation in food benefits these group of middlemen, not the farmers. Therefore, the failure to see significant benefits in planting more cause farmers to respond slower to the high food prices.

The immediate step for many governments is to introduce export-controls for food items. That is a short term solution that is very ineffective for the long term. A for-free-market economist will argue that the agriculture sector should be fully exposed to the possibility of supernormal profits that they can make from international trade. Export-controls will deny that. In fact, government should improve market access such as allowing farmers to know the prices traded at different regions or provinces. Government should also try to improve the productivity of farmers.

Yes, I am trying to ask for higher incomes for the farmers. I do not find the situation of high food prices worrying as strong economic growth worldwide has made millions richer and increased their spending power. However, the agriculture industry in emerging economies such as China and India have suffered far too long. This is a chance for farmers to become richer, shrug off poverty and gain fair returns for their economic activities. In the 90s, people will capital and IT-know-how became rich. In the late 90s and early 2000s, people with hard commodities became rich. Now, its time for the farmers.