The Next Market Selldown??

The stock market rally (Bear market rally? greenshoots rally? you name it) started somewhere in March 2009. It has been about 3 months, and now its finally CORRECT. Is this the signal to sell?? Or time to buy more?? Focus on Price vs Value and bet BIG when the margin of safety is BIG, preferably above 100%!!
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US stocks tumble, Dow in biggest fall since April 20

NEW YORK: Bad economic news and doubts about the U.S. market's ability to rally dealt stocks a huge setback.

The Dow Jones industrials fell 187 points Monday, their biggest drop since April 20. All the major market indexes fell more than 2 percent.

Other markets too fell. Japan's Nikkei average lost 1 percent, while Britain's FTSE 100 fell 2.6 percent, Germany's DAX fell 3.5 percent and France's CAC-40 lost 3.2 percent.

Trading volume was light, suggesting an absence of buyers rather than a flood of sellers rushing to dump stocks, but the pullback nonetheless was another sign that the market's spring rally has stalled.

The slide began in Asia and Europe and spread to the U.S. as a strong dollar pushed commodities prices sharply lower.

Stocks of energy and materials producers have been lifting the market in the past month so the drop in prices left stocks without an important leg of support.

Meanwhile, new worries about the economy emerged after an index of manufacturing in New York indicated that demand weakened in June.

The weaker report from the Federal Reserve Bank of New York ran counter to the gradual improvement traders have grown accustomed to with other economic readings.

Analysts said stocks are also losing ground because investors are questioning what it will take to move the market higher.

Ahead of Monday's slide, the S&P 500 had jumped 39.9 percent since skidding to a 12-year low on March 9.

Investors have been betting on an economic recovery but questions about how long that might take are poking holes in the rally.

The unease about the economy's recovery have kept stocks from rising as quickly in recent weeks as they did in March and April.

The Dow and the S&P 500 index are up 12 of the past 14 weeks, and the last four straight weeks.

But traders are having a harder time wringing advances from stocks as questions remain about whether unemployment, still-weak home prices and inflation will trip up a resurgence in the economy.

Harry Rady, chief executive of Rady Asset Management, said stocks have risen too fast given how troubled the economy remains.

"The market just seems to keep driving the car into the wall and then wonders why it can't keep driving," Rady said.

The Dow fell 187.13, or 2.1 percent, to 8,612.13, and returned to a loss for the year.

The broader Standard & Poor's 500 index fell 22.49, or 2.4 percent, to 923.72.

The Nasdaq composite index fell 42.42, or 2.3 percent, to 1,816.38.

About eight stocks fell for every one that rose on the New York Stock Exchange, where volume came to a light 4.55 billion shares, up from Friday's 4.39 billion.

In other trading, the Russell 2000 index of smaller companies fell 15.00, or 2.9 percent, to 511.83.

Volume does tend to slow in the summer as traders take vacations, but thin volume could indicate there is less conviction behind the market's moves.

Both indexes still are showing a gain for 2009.

Overseas trading was influenced by the dollar, which rose against most other major currencies following weekend comments from Russia's finance minister, Alexei Kudrin, that the greenback likely would remain the world's reserve currency.

Investors have been worried in recent weeks that foreign governments would seek to spread their reserve cash holdings beyond the dollar.

That would cut into demand for the currency.

Commodities including oil tend to be a hedge against a weak dollar.

So, when the greenback is stronger, investors feel less need to protect themselves against it and they start selling commodities.

That in turn tends to pull down the stocks of basic materials producers who profit from higher prices.

Overseas, Japan's Nikkei average lost 1 percent, while Britain's FTSE 100 fell 2.6 percent, Germany's DAX fell 3.5 percent and France's CAC-40 lost 3.2 percent.

Bond prices mostly rose, driving yields down.

The yield on the benchmark 10-year Treasury note, a benchmark widely used for setting home mortgage rates, fell to 3.72 percent from 3.80 percent late Friday.

The dollar's rise helped send oil prices lower. Light, sweet crude fell $1.42 to settle at $70.62 per barrel on the New York Mercantile Exchange.

Investors often welcome falling commodities prices because the lower costs will have benefits across the economy.

But traders have also been looking for gains in commodities because that could signal resources are becoming more scarce as demand improves.

Commodities producers fell Monday. Aluminum maker Alcoa Inc. and Freeport-McMoRan Copper & Gold Inc. slid.

Alcoa fell 78 cents, or 6.5 percent, to $11.21, while Freeport-McMoRan fell $3.37, or 5.8 percent, to $55.14.

In corporate news, Goldman Sachs lowered its rating on Wal-Mart Stores Inc. to "Neutral" from "Buy," seeing few catalysts that could push the stock higher.

The retailer fell $1.38, or 2.8 percent, to $48.46.

Nick Kalivas, vice president of financial research at MF Global, said traders are cautious ahead of quarterly earnings reports this week from Best Buy Co., FedEx Corp. and BlackBerry maker Research in Motion Ltd., all of which are important in their industries.

"It might keep us sideways or lower if we can't get some good news from some of these numbers," he said.

Trading volume remained light Monday, as it has been for weeks.

That indicates fewer traders are standing behind the market's moves. - AP

End of bear market rally draws nigh

End of bear market rally draws nigh, says Ambrose

KUALA LUMPUR: The food and beverage (F&B) and consumer product sectors have shown no signs of slowing down and will lend support to the local stock market at the end of a bear market rally, said Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose.

“Companies like Nestle, F&N, Guinness and BAT have an export angle but we are not seeing a slowdown in sales for these companies,” Ambrose told The Edge Financial Daily on the sidelines of the 23rd Asia-Pacific roundtable organised by Asean ISIS and ISIS Malaysia here on Tuesday.

“Spending within the domestic consumer market will hold banks up,” he said, adding that Malaysian banks had not been affected by the toxic debts in US and European banks. “Banks appear to be still willing to lend and Bank Negara has made it its priority to ensure that credit is still available.”

Ambrose added that if consumers were willing to face risks or suffer temporary losses, investments in the property development sector also held promise for further improvement.

“We’ve come this far without facing massive asset price appreciation, so we’re doing all right,” he said.

Ambrose said while Malaysia was experiencing a decline in exports, the economic conditions could have been worse. For instance, he said an increase in petrol and diesel prices would have a greater impact on the broader Malaysian society.

“The economy may have contracted 6.2% in 1Q09 but traffic along the North-South Expressway was up 3.5%, so I don’t think Malaysians are feeling that bad,” he said.

“My personal view is that we are nearer to the end of a bear market rally than the beginning and it won’t go on for much longer,” Ambrose said, reflecting on his stance in defensive sectors such as the F&B and consumer product.

http://www.theedgemalaysia.com/business-news/15643-end-of-bear-market-rally-draws-nigh-says-ambrose.html

Genting 1Q net profit falls 51.5% to RM213m

KUALA LUMPUR: Genting Bhd reported a 51.5% decline in net profit of RM213.12 million for the first quarter ended March 31, 2009 from RM439.41 million a year ago, as earnings were impacted by impairment loss from Star Cruises Ltd and weaker plantations performance.

Announcing the results on May 28, it expressed concerns about the remaining period of this year as its prospects may be impacted by the uncertainty from the pace of global economic recovery. Concerns about the spread of the Influenza A (H1N1) virus might also affect consumers’ sentiments and visitations to Genting Highlands Resort, it added.

During the first quarter ended, Genting’s revenue declined 4% to RM2.07 million compared with RM2.16 billion. Earnings per share fell to 5.77 sen from 11.87 sen.

Its leisure and hospitality division recorded marginally lower revenue for 1Q09, despite better performance from the Malaysian-based operations. Genting Highlands Resort posted higher revenue and profit due to increased volume of business. This increase was offset by the lower revenue from the UK casino operations due to the weaker UK economy.

However, the power division saw its revenue rising mainly from the Kuala Langat power plant, which benefited from higher energy charges. This was offset by higher operating cost of its China-based Meizhou Wan plant, arising from higher coal prices.

The plantation division was affected by lower palm products prices and a decrease in fresh fruit bunches production, while the Property Division was impacted by the softer property market conditions. The Oil & Gas Division was affected by lower average prices, resulting in lower revenue and profit.

“The group was also impacted by an impairment loss of RM30.4 million in respect to the Group’s investment in Star Cruises Ltd, no one-off gain and lower share of profit from jointly controlled entities and associates in 1Q09,” it added.

http://www.theedgemalaysia.com/business-news/15218-genting-1q-net-profit-falls-515-to-rm213m.html

Invest Young Or Old??

Better late than never?
COMMENT
By TAY HAN CHONG

RECENTLY in a family gathering, I noted a change in my brother-in-law. A self-professed fine food and wine lover, he had declined an offer to drink at lunch. And he spoke fondly of his gym session that day, which apparently is now a regular routine! Strange indeed coming from him. Naturally our curiosity took over as we probed deeper into this change of lifestyle.

As it turns out, he’s always been “suffering” from high cholesterol levels since early adulthood. Previously, he conveniently dismissed it as hereditory and that he could do nothing about it, until recently. His cholesterol level has risen significantly in recent years that he is advised to go on medication. Whilst the medication could help regulate his cholesterol level, it is a life-long commitment with potential side effects that could damage his liver! So although one problem is solved, another complication is possible.

But going on medication is not Hobson’s choice for him, there is still an alternative – more exercise and regulated dietary intake (like cutting back on rich food). He bravely refused medication and instead converted to a healthier lifestyle. His motivation? The wife’s support aside, it was also that he can then continue to live and eat and enjoy his food and drinks, albeit more sparingly. So better some than nothing.

Despite good advice and sound guidance for years, his action recently was only triggered when he was faced with the inevitable.

As he said, “better late than never”, which is so true! But I would suggest something that requires a little more foresight – “better early than late”. And this same principle should be applied to our financial planning.

When you start young, the financial world is truly your oyster.

When you are older and plagued with medical conditions, then you might find it tougher to get insurance. Generally, insurance has exclusion clauses for pre-existing conditions. If you are already diagnosed with certain conditions or conditions that are pre-disposed to certain illnesses, then you may no longer be insurable. Insurance favours healthy individuals at the point of underwriting.

In some cases, you may be insured despite certain pre-existing medical conditions. The policy may then exclude specific illnesses, or if it does include, it is likely to cost you a significantly higher premium. This is termed as “loading” to account for a significantly higher risk under taken by the insurer.

Insurance at an older age will definitely cost you more than when you are younger, everything else being equal. Generally, age is a reflection of risks and therefore when you are older and of a higher risk, you pay more. My wife bought her first policy as an undergraduate, paying only RM100 a month. A few years and one bronchitis episode later, she bought a similar policy with less favourable terms for more than double the premium!

What this means is very clear. Insurance is cheaper and easier to underwrite and approve when you are younger and healthier. Many policies are auto-renewable or guaranteed renewal as long as the policy never lapses. So a person who is healthy at the point of insurance can continue to be insured even when he or she subsequently develops health conditions. So it pays to be insured earlier in life rather than later.

The advantage of youth and health is also relevant to investments as well. More importantly, it actually allows us to learn valuable lessons early in life.

Time is valuable when it comes to investing your money. When you are 20 to 30 years away from retirement, you can afford to make mistakes with your investments. There is time to recover from it. Conversely, when you are already at the doorstep of retirement, you should only be invested in conservative investments so that your nest-egg is not subject to the volatility of risky investing.

It can be proven that if you invest consistently (no ad hoc market punting) over a 10- or 20-year period, the chances of experiencing a negative return is almost zero, even for a pure equity portfolio. In fact, it is conceivable that such long term investing could give a return that is higher than risk-free cash deposit interest.

Such long-term investing rides over business cycles and is able to recover from market shocks such as the Asian financial crisis, oil shocks and technology bubble burst. I am sure, in time, we will also recover from this round of the financial crisis and global recession.

Learn from your mistakes early, forgive yourself but don’t forget the lessons. I have a friend who, during the Asian financial crisis lost his house and savings through losses in share margin trading. He was 30 years old then. It took him almost eight years to recover and pay back his debts but he has learned his lessons especially when taking risks. Now he only sets aside an amount that he can afford to lose completely for margin trading (he has resisted topping up endlessly during margin calls).

Funds for children’s education and retirement are kept separate. He now knows that he cannot afford to play with this part of his money. His example is a good one because sometimes our emotions take over when punting in the market becomes so addictive. Much like the reason why you should never put your life savings in casinos. He has learned his lesson. I hope readers don’t need to experience it for themselves to empathise with him.

I suppose we all have that natural bit of inertia in us. Why should we plan for retirement when we just graduated from university at the tender age of 22 years? After all, we still have another 30 to 40 years to go before retirement. Why should we worry about our children’s education at their birth? That would be 18 years before they go to university. Such is the inertia in our way of thinking that we will constantly push things to tomorrow and beyond. Just like my brother-in-law who has been pushing his health to its limits for years until he is faced with the inevitable – go on medication for life or change his lifestyle.

Must we put ourselves in such a bleak situation before we make a life changing choice? Here in lies the difficulty. If you are reading this and feel that there is still no rush, then you may need a a bit of reflection and a reality check. If you feel a sense of regret for not doing something earlier, then at least plan and do something now. No one can turn back the clock, but it is up to ourselves to make the future better, after all “it’s better late than never”.



Source: http://thestar.com.my/news/story.asp?file=/2009/5/23/business/3948192&sec=business

Chinese equities not so hot

HONG KONG: Expensive valuations, weak economic fundamentals and government meddling in the operations of companies are making Aberdeen Asset Management wary of Chinese equities, a fund manager said.

The recession in the US and other western economies is hurting Chinese exports and manufacturing and local consumption is not rising fast enough to pick up the slack. Those conditions may bring pain for firms in the next year or two, said Nicholas Yeo, Hong Kong and China equities manager for Aberdeen.

"With US consumer confidence down, what's there for Chinese manufacturers? To be frank, not much," Yeo said in an interview yesterday.

"People talk about domestic consumption as the next engine, but it's too early to tell as well." Chinese consumption only accounts for 5 per cent of worldwide spending, limiting its global influence.

Chinese exports, the country's traditional growth engine, fell 22.6 per cent in April from a year earlier, marking their sixth straight monthly decline.

Weak external demand has also exacerbated overcapacity in some industries, which could dampen the outlook for earnings growth in industrial companies in 2010, Yeo said.

Yeo added that Hong Kong and China stocks are overpriced in the short term, given their extended rallies. China's Shanghai Composite index is up 43 per cent in 2009, the second-best performing major market in the world.

With about US$20 billion (US$1 = RM3.53) in Asian assets excluding Japan, UK-based Aberdeen is one of the region's biggest retail fund managers.

Aberdeen's US$300 million China fund owns roughly 30 companies including China Mobile, China Merchants Bank as well as oil and gas producers PetroChina and CNOOC.

The fund also includes Hong Kong property developers Hang Lung Group and Sun Hung Kai Properties, and retailers Li Ning Co and Giordano International.

Aberdeen prefers exposure to China through Hong Kong-listed stocks, and is cautious on Chinese companies because they are relatively young and lack experience in managing through major economic downturns, Yeo said.

"The Chinese companies have not seen the bad times yet," he said. "That's why when it comes to investment decisions, they tend to have a blue-sky optimism that is factored in the decision-making process."

China's state-owned enterprises, which are often required to align their business with Beijing's political ambitions, also present another challenge for Aberdeen, Yeo said.

"There's a risk - you're not just buying into the company risk, you're buying into the sovereign risk as well," he said.

Yeo favours PetroChina and CNOOC because of their upstream assets, but does not like Sinopec because its refining business is closely tied to government policy.

The fund shuns China's coal miners such as China Shenhua Energy due to its exposure to a sole commodity and its operational standards, he said.

China's B-shares now trade at an average of 2.8 times book value, while Hong Kong companies trade at 2 times. Both valuations are higher than the long-term average of 1.7 times, Yeo said.

In a few cases, however, the fund manager is willing to accommodate richer valuations for long-term growth. - Reuter

http://www.btimes.com.my/Current_News/BTIMES/articles/erdeen/Article/

Billionaire Li Tells Investors to ‘Be Careful’ on Stock Market

Billionaire Li Tells Investors to ‘Be Careful’ on Stock Market

May 22 (Bloomberg) -- Billionaire Li Ka-shing, who warned of a bubble in China’s stock market months before it plunged, said Hong Kong investors should be cautious about buying shares after the benchmark index surged 52 percent since early March.

The comments from Hong Kong’s richest man yesterday follow his March 26 statement that investors with cash should consider buying equities and real estate. The Hang Seng Index has surged 22 percent since then.

“If you ask me if the stock market can go higher, it’s possible,” said 80-year-old Li, known as ‘Superman’ locally because of his investment acumen. “But be careful, the economy still has some problems this year.” Li spoke to reporters after the annual shareholder meeting of his flagship real estate company Cheung Kong (Holdings) Ltd.

The Hang Seng has climbed 52 percent from a four-month low on March 9 as investors speculated stimulus packages by governments worldwide, including a 4 trillion yuan ($586 billion) spending pledge by the Chinese government, will ease the global economic slump.

“It was quite a downbeat statement from Li but probably a sensible one,” said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. “A lot of retail investors will listen to that.”

Hong Kong’s economy could shrink by as much as 6.5 percent this year, according to government forecasts, which would be the biggest decline since the data series began in 1962. A May 19 report showed Hong Kong’s jobless rate rose to the highest in three years.

Hang Seng Drop

“Recovery in the stock market usually comes before the economy, but it’s not every time,” said Li. His estimated fortune of $16.2 billion is the second highest in Asia, after Mukesh Ambani’s $19.5 billion, Forbes magazine said in March.

The Hang Seng Index dropped 3.4 percent in the week ended May 15, the biggest decline since the week ending March 6, amid concern stocks were too expensive relative to earnings prospects. The average valuation of companies on the gauge climbed to 15.8 times reported profit on May 19, the highest since January 2008.

Li said on May 17, 2007, that China’s stock valuations at the time “must be a bubble” and prices were likely to decline. The Shanghai Composite rose 30 percent through the end of that year, only to plunge 65 percent in 2008.

The billionaire is still recommending property as an investment. Real-estate investors are “sure to make money” over the next 3 to 4 years, he said today, adding that he’s still buying land in China.

Stable Prices

Hong Kong home prices may rebound to levels seen in early September, before the global financial system imploded, Centaline Property Agency Ltd. said on May 16. Centaline’s home- price index has jumped 13.3 percent this year.

In April, Hang Lung Properties Ltd. Chairman Ronnie Chan said Hong Kong home prices are unlikely to fall further and Goldman Sachs Group Inc. upgraded local property companies to “neutral” from “cautious.”

Shares of Cheung Kong, Hong Kong’s second-largest developer by market value, fell 1.2 percent to HK$83 yesterday. The stock has gained 13 percent this year, lagging behind the Hang Seng’s 20 percent advance. The Hang Seng Property Index, which tracks six developers, jumped 26 percent over the same period.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWiePiHhsoMI&refer=home

Recovery unlikely to be anytime soon!!!

Recovery unlikely to be anytime soon, says Lin

KUALA LUMPUR: While supportive of the increased spending via the stimulus measures, Malaysia’s economy is not expected to recover as long as the global economy is not showing any tangible sign of a turnaround, said Tan Sri Dr Lin See Yan.

The former deputy governor of Bank Negara Malaysia (BNM) and a member of the Prime Minister’s Economic Council and Innovation Council is doubtful that the economy will recover by the second half of this year, as envisaged by some.

“I think that in times like these, it is better to err on the side of aggressive stimulus spending. However, while some of the recent data might show that the worst is over, less worse does not necessarily mean recovery.

“While I do not want to be a pessimist, I just cannot see how the global economy can recover when the United States and Europe, which together account for around US$15 trillion (RM53.25 trillion) to US$16 trillion in consumption, continue to be mired in recession,” Lin said in an interview with The Edge Financial Daily last Friday.

Lin said while China appeared to be doing well domestically, it was not in a position to act as the engine of growth for the global economy. “China’s total economic consumption of over US$1 trillion is just a fraction of those of the US and Europe,” said Lin. (well said!!)

Bloomberg recently reported that the US recorded a rise in the number of people collecting unemployment insurance, which surged in the prior week to 6.56 million, setting a record for the 15th straight week, and a clear indication that companies were still not hiring.

Commenting on BNM’s statement that the current overnight policy rate of 2% was accommodative enough to support growth, Lin concurred, saying that however, the main issue here was access to capital for businesses.

“There is no point in continuing to cut the interest rate level if it does not lead to an increase in access to funds, or when only a fraction of the cut is passed on to consumers,” Lin said.

He commended the move by the government to guarantee credit for small and medium-sized enterprises (SMEs), saying that right actions were being taken to tackle the crux of the problems faced by businesses.

“If the situation is not rectified, there is a danger of us falling into a liquidity trap, a situation where the lower cost of borrowings is not leading to an increase in access to capital,” he said.

The authorities have taken a slew of measures to ensure access to capital by businesses, such as Credit Guarantee Corp (M) Bhd’s partnership with financial institutions to guarantee loans to SMEs and the setting up of the BNM-backed SME Assistance Guarantee Scheme (SAGS). In addition, Danajamin Nasional Bhd, armed with an initial capital of RM1 billion, became operational last Friday, tasked with insuring up to RM15 billion in private debt and Islamic securities.

On the recent recovery in the equity markets, which saw the KLCI surging over 20% to breach the 1,000-mark, Lin said this could most likely be due to “pessimism fatigue” among investors. He noted that corporate earnings were still weak, and it was important for the stimulus packages to have the right combination of programmes to help businesses scale upwards.

Lin said Prime Minister Datuk Seri Najib Razak’s administration had the opportunity to bring the economy to the next level, but there was still a lot more to be done. “The main challenge now has shifted to that of managing expectations, where the government has to be on top of the situation and bring optimism back to consumers. A real recovery is only possible when there is a real demand for goods and services,” added Lin.

http://www.theedgemalaysia.com/business-news/14311-recovery-real-or-wishful-thinking.html