Wednesday, September 27, 2006
Some Business Lessons
Its been an amazing week, probably the best week in golf for a very long time. Not that I am a particularly good golf player, I mean, I tell people I am a "natural", no lessons required..., yea, a natural 120! But, I play more for laughs and don't take my golf too seriously. So, what went wrong (again) for the Americans??
1) Technically and on merit, the US players in general are ranked higher on the world stage, though if more European players played on the US tour, they could figure higher in the rankings. However, without a doubt, you have Woods and Mickelson, its like having Ronaldhino and Drogba in your team. It was so obvious, the Americans were too individualistic in spirit and attitude. Just look at them standing together in a group, while golf is a very solo thing, the Ryder Cup is certainly not.
Biz Lesson - No point hiring or having primma donnas in your company, even though they may be highly qualified unless they come with strong people skills as well, and can get acceptance quickly. Nothing ruins a company faster than a "virus" in the team. It distracts and distances.
2) Team spirit and comraderie are not useless feel-good stuff. Just look at the European team. They run on things other than their ability. You can sense that they are playing more for each other, while the Americans, especially Woods and Mickelson were largely playing for themselves and concerned with how they'd be viewed. To cultivate "team spirit", one must be genuine, it cannot be forced. Tom Lehman knows the team needed team spirit but the characters just did not gel.
Biz Lesson - Team spirit cannot be coerced. It has to cultivated genuinely. Aligning common interests and goals. They have to fight for something more than themselves. The sense of achievement for the team. A lot of it could be due to the fact that Europeans play more team sports when they were younger, while American golfers tend to concentrate on golf from young, hence golf is very much a personal, solo game - you play for yourself. In Europe, you have football, rugby, cricket, etc... and coming from various countries under a common "association" brings with it a sense of "for the greater good". This is empowerment, you empower the players by signalling them as a crucial team members just by being picked from a pool of high quality players. Just look at how disappointed Thomas Bjorn felt after realising he had not been picked by Woosie. By bringing the idea of having the cream of the crop, they feel empowered to performed. If you look at the rookies in the US team, they don't even know why they were picked in the first place. Too many rookies.
3) No money involved. When no money is involved, what are you playing for?? Does the Ryder Cup mean more to the Europeans than the Americans, you betcha. Most Europeans make a lot less money than the American golfers (with the exception of the top few), there is a history, there is a bit of David vs Goliath thing, and the ugly American fans a behaviour a few years back still leaves a sour taste ... and as a group, the Europeans are really good buddies, and not just people you meet at golf tournaments. I don't think Woods and Mickelson would have each other over their house for dinner, would you?
Biz Lessons - Most employees will be motivated enough with monetary incentives, but it will not be enough - things like personal enrichment, sense of achievement, loyalty, recognition, respect, being empowered are all essential things as well.
4) Individuals vs Friends. Most of the Americans came over in their private jets, enough said. Most Americans play only in America. Europeans are more cosmopolitan, open and need I say it, humble. What's with the aggressive high-fives, fist-pumping, adrenaline hoo-yeahs ... the irritable "get in the hole" mostly by the Americans. Humility, quiet dignity, no need to rub it it when you are in front...
Biz Lessons - Always better to have team players.
5) Empowerment. Look at Woosie's captain's picks, Darren Clarke and Westwood. They did not get picked on just merit but on trust and belief on the part of Woosie, both won all their matches.
Biz Lessons - People will feel appreciated and valued when they are recognised and given proper responsibility / recognition, especially when the chips are down. They dig deeper.
Received a well written reply on my post on oil prices, my comments in blue.
Hi Dali, nice write-up on the energy sector. However there are a few points that are quite confusing. Hopefully you can clarify further. Thanks. You have mentioned that oil price should not drop too much too fast as that could easily ignite good-feelings among consumers (especially in the US where their housing starts and activity depends largely on sentiment and liquidity). Too fast a drop may cause housing figures in the US to spike up and may leave the Fed with no choice but to raise rates again come the next round. If I remember correctly, the FED's have to raise interest rate 17 times this year to control inflation which is mainly due to the spike in oil prices. As such,it would be safe to say that,with the current downtrend in the oil price inflation should moderate and this renders further increase in rates by Fed's unjustifiable. The Fed's are concern about the housing market too but it is not the only indicator that they look for to determine the interest rate directions. My take is that,if the housing market growth is good and yet inflation is within limits, the Fed's will not increase rates further as it will impede economic growth.
(Your views are correct. However, we may be assuming that the Fed incorporated too much weightage on oil in their rate hike decisions. If you postulate correctly, 17 times straight - the first 10 times had nothing to do with oil as oil only starting behaving bullishly over the last 2 years. Inherently, the US economy was supported by the strong domestic consumerism especially in housing. Many peopl question why the US can allow such heavy deficits and yet many governments keep buying their Treasuries. It boils down to 3 main pillars - military supremacy (leader of the free world, it has more implied economic leadership); US consumption supported because investors are willing to buy US assets, be it Treasuries, stocks, real estate, etc... the whole system is underpinned by US superiority in technology and business productivity (especially in finance, medical stuff and retail); thirdly, the whiole world thinks that normal US citizen has very low savings rate compared to the rest of the developed / developing world, that's because most did not incorporate housing as a form of savings, in fact ask any American, the bulk of their assets are tied in housing. Hence I view housing as a very important factor in the eyes of the Fed. Strong housing prices also acts as a refinancing tool for further consumerism, which is what the Fed fears the most. That will eat away at "savings" and raise their average debt financing levels. Hence, when you take away the oil factor, the wait and see attitude by many may turn into an avalanche in housing starts. Bears watching closely.)
Amaranth hedge funds,as its name implies, its a hedge fund. My question is,why are they not hedge in their investment portfolio? Too much are invested in the energy sector which resulted in significant losses in its funds.
(Yes, hedge funds are supposed to be hedged in some way or another, but it is not imperative unless written into their charter or code of conduct / discipline when asking for investors to invest. Most in fact are pure long or short, even when they have long and short, they are not properly hedged in the same sector or currency. Generally, those trading with quant models may be closer to being called a hedge fund. Hence to most, hedge funds are simply labeled a such to reward performance with a 20% cut on gains and promote secrecy.)
You have mentioned that you expect oil price to be in the range of USD62 - USD64 for the rest of the year. However, I would like to point out that most oil analyst report or articles that I have read predicts a lower range of about USD50 - USD60. Some of the reasons cited are : 1) More funds are expected to suffer losses and this will cause many funds to reduce or pull out completely their investment in the energy sector thus causing the price to plummet further. 2) IEA predicts a lower demand for energy consuption next year. 3) Probe on BP for price manipulation by the US authorities. 4) A large amount of speculative premium are not there any more. 5) New energy discoveries. 6) Increase in usage of alternative energy source such as biodiesel,ethanol,solar and etc. 7) Calmer geopolitical enviroment.Iran is willing to negotiate now.Less riots in Nigeria. 8) Opec is not cutting production now.Cutting production by the oil cartel might backfire according to some analyst.Part of the premium in the oil price is due to the market perception that there are no or limited extra capacity currently. By cutting production this fear premium is removed. Predicting oil price is highly debatable and your guess is as good as mine. However its a relieve that price had fallen and we look forward that the government will not increase our petrol price next year.
( If you remember just 3-4 months back, we read tons of article on why "oil prices will stay above US$80 and have a likelihood to challange for US$100 within 12 months" - who hasn't come across dozens of these articles. Unfortunately, when we are bearish, we whip ourselves into a frenzy and everything is half-empty. And we do the opposite when the sun is shining and the bulls are dancing gaily in the fields. We have to balance with realism, terrorism is not over, OPEC can easily reduce output, there are still pockets of violence in oil producing countries especially in Africa ... so blue skies are hurricanes which has been given some botox... it ain't pretty when the medicine runs out...)
Tuesday, September 26, 2006
sopskysalat said: One issue in everyone's mind, "is the oil dropping too fast and too much?"
I did mention before that we needed the oil price not to drop too much too fast as that could easily ignite good-feelings among consumers (especially in the US where their housing starts and activity depends largely on sentiment and liquidity). Too fast a drop may cause housing figures in the US to spike up and may leave the Fed with no choice but to raise rates again come the next round. That is the danger. However, when we look at the down trend in oil price, it looks too fast and smooth. The massive losses suffered by the hedge fund Amaranth could cause some of the hedge funds to also unwind their positions. Just how big is hedge funds? Amaranth lost a US$6 billion bet in natural gas and there are 7,000 hedge funds, so its anybody's guess as to how much big bets are placed on oil and gas futures. We have to remember that oil and gas futures have been on a sharp uptrend for the last 2 years, a trend is your friend, and with the Israel/Lebanon thing this year, one can asume most funds better on higher prices. If you mark the correction in oil and gas prices, it only started a few weeks back, and hence we haven't seen the last of the blood-letting in some hegde funds. We can expect a few more hedge funds to report bloodied returns.
Locally, the sharply lower oil prices now questions the viability of biodiesel. According to some estimates, the processing and logistics cost combined means the oil would have to stay above US$55 for biodiesel to remain competitive. That is on an open market, but we have to remember that given the choice, certain countries, in particular, Europe and US would choose to favour biofuels. That will come in the way of lower taxes, duties or even incentives. Thus it could push the cost-competitive price of oil down to US$50 and still be viable for biodiesel. Like I said before, the company jumping in early into biodiesel may be a bit riskier. The smarter old dogs like PPB, IOI, KL Kepong have all stayed away, because the rationale is there will not be "supernormal profits" with producing biodiesel. The delivery logistics and consumer acceptance are not certain. To me, biodiesel is just another arm of downstream for palm oil, nothing spectacular. Yes, it may add 10%-15% to new consumption a year, and that will be reflected in CPO prices, which benefits all producers, not just biodiesel producers.
Why is oil prices falling? Beside the hedge fund effect, the main thing boosting prices for the past 6 months have been fear. Especially fear of Iran imposing sanctions or disrupting supplies should the Lebanon and Israel conflict escalate. Some have even factored in the possibility that the hurricane damage to the US gulf coast refineries may exacerbate the problem. Both turn out to be wet-fuses. Fundamentally, US Energy Department figures released showed that crude oil inventories were 5% higher than a year ago, and diesel and heating oil inventories were 11% higher.
Psychologically, the oil price rally have faded somewhat. The bull rally in oil lasted almost 2-3 years, and within that time, traders and hedge funds played among themselves, like a pack of wolves with a carcass, they can whip themselves into a frenzy, now that the dust has settled, they realise that its still just one carcass. Due to the prolong period of the bull phase, it forced a lot of government and private sector initiatives to come up with solutions to high oil prices. Biofuels and wind farms ventures were rushed out with many private equity funds launched to promote new renewable energy ventures. Like it or not, a trend has started, it may take some time before any of these new energy sources replaces fuel, but just 5% in 2 years time will take a lot of pressure off oil prices. Its a cumulative thing.
Of course, all that also depends on how OPEC reacts, so far when oil reached US$61, Saudi Arabia said that the current oil price was reasonable. Hence we may only see OPEC coming out with real cuts in supply should it fall below US$55 or thereabouts.
To answer the question: yes, oil is dropping too fast; but it has probably overshot on the downside, I see oil stabilising around US$62-64 for the rest of the year. Oil at the current price brings more benefits than the negatives, i.e. potentially higher rates by Fed.
Friday, September 22, 2006
I was talking with a friend on how many government and semi government bodies needed to brand themselves just like the private sector companies. We remember the branding by Standard Chartered Bank of old. Who can forget the very effective slogan/branding:
BIG, STRONG & FRIENDLY
That worked well, very well indeed. A lot of companies nowadays do not stand for anything, if you do not know what drives at the core of your company, you do not deserve the full value of how well your company is doing, because you did not appreciate how/why the company did well. So, these companies will be doomed when trouble and strife come-a-looking for them. If you did not know why you did well, you will not know what to do when the shit hits the fan. Good fortune comes more from good luck for these companies rather than from good planning and execution.
If you ask CIMB's top management about their branding and core values, you can bet they have an answer, and their strategy to get to where they are now is not by accident. It is easy for all companies to say employees are the core of the company, but what did the company do to "execute as a strategy". Just look at CIMB, recruited well, pay even better, empower them to allow them to dictate terms and grow their units, do not micro-manage ... Just looking at the first few items, most companies would not even get their gears started - but they will mouth them in annual reports and emblazoned them as corporate slogans. That's also why most GLCs fail, the failure to incorporate ideals/objectives with execution ability. Many can write well and come up with reams of good thoughts (i.e. Mahathirism to the max), execution... well, if it happens, its more due to luck rather than good planning and execution.
So, for Bursa Malaysia, the branding/slogan would look something like this
DEFENSIVE, HIGH YIELDING & LAGGARD
Actually, the first two are good things, we are defensive nowadays due to the good fundamentals surrounding the ringgit, good trade figures and surpluses and room for more appreciation over the next 2 years. High yielding, well, I have already mentioned that we pay the best dividends in the region. Laggard, well, that speaks for itself. Some say that the reason why the local index is a laggard is because it is weighted excessively towards the few big stocks, i.e. the top 10% probably determine 50-60% of the index component. Hence the poor performance of these group will skew the performance of the whole group. Yes, that might be the case, but there are big and small companies as well in every country. Why are the big ones in our country not performing well? We got gas, we got oil, we got oil palm ... all did spectacularly well over the last 3 years and still we look like Bangladesh Stock Exchange. Big or small may skew the index but it does not detract from overall poor performance.
Thursday, September 21, 2006
"whereiszemoola" has posted a brilliant blog on Bumi Armada, dated 16th September. In fact, it should be required reading for everyone at the SC and Bursa. There is alsoa substantive commentary by Claire Barnes of the respected Appollo Investment Management company, which invested in Bumi Armada. She articulated very well on why rules/regulations get bent and the SC/Bursa did not do the right thing for minority investors. You wonder why our index still trails the regional markets, this is symptomatic of the disease invading the entire system. Unbelievable to see Ananda Krishnan being involved in something like this... and even more ludricous to see reports that after delisting, they will now try to list it again ... you think all investors are cows or mushrooms?? The experience for one international fund manager was soured, and it is just the tip of the iceberg. Sure enough, most of those at SC were not responsible for what happened, now is the time to turn the tide. The public whipping of Aeneas is good, let it continue.
xatomic wrote: Hi Salvatore, I follow your blog quite often and always do admire your freespoken and candid views on the market and other interesting issues.I would appreciate your views on Tenaga now if you can do a write-up, especially the warrants coz I remember you wrote bout it before last time. Tenaga-CB seems to be trading at ridiculously low premium compared to its counterpart Tenaga-CA. At the current price relative to the mother share, the premium is only 5.7% compared to 18.6% for the latter.The expiry date difference is only 3 months and gearing is much higher, so why the difference in valuations? Is the market undervaluing the warrant now?
Tenaga-CA 28/1/08 Ex px RM7.96 Warrant px RM2.04
Tenaga-CB 19/10/07 Ex px RM4.54 Warrant px RM0.79
Tenaga-CA premium would be 2.04+7.96 divided by 10.00 = 0%
Tenaga-CB premium would be (2 x 0.79)+ (2 x 4.54) divided by 10.00 = 6.6%
So, in actual fact Tenaga-CB is costlier than Tenaga-CA. The crux being the CA is one warrant for one Tenaga share while the CB is two warrant to convert into one Tenaga share. So you would have to buy 2 CB warrant to get the same effect. In terms of gearing CA would get a gearing of 10.00/2.04 = 4.9x. For CB, the gearing should be calculated as 10.00/2 x 0.79 = 6.3x. CB has a higher gearing, CA has 3 months more till expiry, so in my assessment, both are fairly valued with CA being more a value proposition if one were to consider buying now as the premium is zilch.
Wednesday, September 20, 2006
A payout of 77% on Malaysian horseracing is just way too low, especcially for place bets and win bets on favorites. If they (turfclubs + totalisator + government) seriously want to try to get a chunk of the bookie turnover they have to increase the payout. By increasing the dividends, by rebates or both. If they combine this with state-of-the-art technology, then the bookie only has one advantage left: punters can bet with them on credit. Both Singapore and Hong Kong have started giving rebates, when will Malaysia wake up?
My Take - Yes, that's the third pillar of eradicating illegals. I mean, the NFO payout ratio is even worse. Racing clubs should aim for 85% at least, then life would be a lot tougher for bookies. Right now bookies can comfortably offer 20% discount on each ticket and still come out on top.
Rebates for big ticket bets is a wierd thing. Its like racing clubs are acknowledging the strength of illegal bookmaking. But the small punters lose out. The rebates almost matches the discounts given by illegals, but the clubs must look deeper into why they bet with illegals - convenience, no cash upfront, can bet last minute, sometimes even cancelling bets last minute - fear of bookies absconding is surprisingly low, unlike 4D illegals, where people who bet big would want to bet with the official operator and not illegals.
But cleaning up Malaysian/Singapore racing will take a huge effort, you have to implement and see that rules are being exercised, suspend and fine accordingly. Plus increase prize money substantially. Sack all the club and committee members of existing turf clubs, put in professional managers at all levels - stewards, stipes, starters, vets, committee members - racing in our country is just as hard to move as the politics, its ingrained and vested interest abound. Everyone is a crony, has a crony ...
Monday, September 18, 2006
hi dali, perhaps if the tight old beancounters so adept at kiasuness there did not put such a tight squeeze on the fees, yields and spreads, given the current market conditions, the investment bankers would've made their chinese walls a bit more transparent ala david copperfield?? and does anyone seriously think the kiasu kings down south would award their only pleasure island to a MALAYSIAN company thats already taken so much money from their countrymen for the last few decades? somemore without even a local partner? (unless they commit, say, 6 bil US? hahahah just like TM (aka Totally Mad Bhd?) buying M1.. another hahahah) I would rate genting a SELL (on strength-lar..) the research houses are still being too kind.different matter - i hope david's got nothing to do with the landmarks buy??..
hi, any chance you have take a look at Genting international, do you think it is a buy at current level 33-34ct, before the award of the Sentosa IR?
My Take - There is a lot of positives being priced into Genting at the moment. They have a slice of London Clubs, which is being bidded a lot higher by Harrahs. They look to be in the driving seat to secure Stanley Leisure. Even though their NTA will get whacked, properties like that does not come around so often. The casino business is quite competitive and there are not that many areas left where you could put your foot down. Growing organically is also very difficult. Las Vegas and Cotai strip are saturated, or in Macau's case, getting saturated. The last 2 bastion where there is concentrated population with high liquidity are HK/China and UK (Europe and Australia are too dispersed in numbers), hence you need to be there. Like it or not, Genting has to be an international casino player, if not, it will get marginalised (look at Resorts World). As for the Sentosa thing, most people are pricing in a 70% success chance. Hence the upside is limited even if Genting gets it. But the sell down could be bigger if they don't get it. (I think they will get it... ). As for Landmarks, its a silly move, and I'm sorry but I think DC has his fingerprints all over that deal. The assets within Landmarks are OK, especially the power plant. The hotels are OK also, but in the eyes of everyone they will perceive that the casino license in Bintan might be a lure. In the eyes of the assessing committee for Sentosa IR, you don't need to give them that kind of doubt in their minds that should Genting not get Sentosa, then they will try to compete with a mega casino in Bintan. The whole thing leaves a bitter taste in the mouth. The timing of the deal sucks, better to have not done it. As for the Singapore authorities, I think they will handle it professionally, yes, bad blood and everything, but Singapore also needs Malaysia, plus the big sell-off every now and then (Alliance Bank, big buildings, etc..). Plus this one, Genting International will the vehicle, listed in Singapore, it will allow for Singaporeans to have access to the growth of the company, all things being equal.
hi there, can you elaborate further on the following "The double whammy came when Resorts World just raised RM1.1 billion in a convertible note issue, lead managed by CIMB. Wallah… in less than a week, CIMB came up with a 100 million call warrants on Genting. A call warrant necessarily means the issuing house is betting on no-conversion or that the Genting’s stock price will be flat or down in the near future." If they issued call warrant, shouldn't the issued manager deem bullish on the counter? I do not get you on why it is deemed bearish and it is linked to no conversion of the note?
My Take - Again, all things being equal, an issuer of a covered/call warrant does not need permission from the company or owners. They make money from the issue price of the CW. If I were to take RHB Cap at RM2.70, I could issue a CW probably at RM0.27, thus giving it a 10x gearing. When you buy the thing at issue price, I will pocket the premium (27 sen). If I issue 20 million, I get RM5.4m. Assuming the conversion price is also at RM2.70 over 10 months, you would only seriously consider converting if the share price traded above RM3.00 - that's because you bought the CW at 27 sen plus you would have to pay the conversion price of RM2.70 = RM2.97, and you add in the commissions, so RM3.00 is the bare minimum before you would want to convert. So, there is a huge comfort zone for the issuer. However, if RHB Cap is involved in a takeover catfight and rises to RM3.40, there will be plenty of conversion demand, and the issuer will have to come up with RHB Cap shares at RM2.70 to deliver or pay the difference. So, an issuer generally is betting for a flat or downtrending share price in the near future.
Of course, an issuer could hedge by buying all the necessary shares at RM2.70 first in anticipation - but who bears the cost of buying and holding the bloody shares? What if the shares then drop to RM2.50, who bears the losses? That would totally wipe out the 27 issue price profit! A prudent issuer of CW would have some sort of hedging strategy ( I hope). A very simple and riskless one would be to engage the owners of the shares to sign over an option. For example, I could go to Lim Kok Thay and ask him to sign over an option to allow me to buy 10m Genting's shares at RM24.50 for 10 months. In return for that, I may have to share the premium/issue price with the owner, but I am covered totally. There are other trading strategies and hedging strategies that can be employed when issuing CW, and in managing the position over the time span, but generally you want the share to go down for maximum profits.
That should be simple enough, get a bad share... but the issuer's dilemma is they also need a share where there has substantive interest, hence the IOI Corp covered warrant and now Genting. It also needs to have decent free float and share capital - so that it will be very hard to manipulate and not get hit by sharp syndicates. Can you imagine, doing a CW on Tebrau? It will be popular, my god, the volatility!!! Buyers of CW need to be careful, the issuers are always giving out wonderful names to invest such as Maxis, Genting, Astro, IOI, etc... they all have good fundamentals and seems an easy buy, plus the gearing is the big lure, isn't it. But as an issuing house, I have two factors in my favour, one is time premium, which dwindles down very fast. The other is the secret weapon that nobody will tell you - these stocks all have VERY LOW VOLATILITY or beta, means they do not move up and down like a yo-yo but tracks the index very closely. A warrant of any kind is a geared instrument, which lives and breathes on volatility, a thing that has no volatility, might as well go and put into time deposit. I think I can issue a CW now with great confidence, Petronas Gas at RM9.00, I will be generous la, I give you gearing of 15x at an issue price of RM0.60. Conversion at RM9.00 over 10 months. Can you see me laughing to the bank... heck I can even make it sweeter for you by giving you 20x gearing la at an issue price of RM0.45. I'd probably still pocket the premium as the stock probably won't go anywhere in 10 months. So approach ALL covered/call warrants with caution.
Sunday, September 17, 2006
But Corporate Credentials Soar
Genting International’s bid for Stanley Leisure is a good move, even though its NTA would take a whack. There are not that many gaming properties available with the size as Stanley Leisure or London Clubs. Genting has to make the move even though that was probably hastened by Harrah’s bid for London Clubs. What would piss the management off a bit is that Citigroup is advising its Stanley Leisure bid, but Citigroup’s research has rated Genting as Neutral/Reduce in ratings terminology. With the firm implementation of the Chinese Wall, the research side would not have any inkling on the investment banking’s strategy and vice-versa. Only Genting’s management has access to both division. While Genting may find the situation a bit awkward, there is nothing much it can do. Neither can the investment banking side do much persuasion.
The double whammy came when Resorts World just raised RM1.1 billion in a convertible note issue, lead managed by CIMB. Wallah… in less than a week, CIMB came up with a 100 million call warrants on Genting. A call warrant necessarily means the issuing house is betting on no-conversion or that the Genting’s stock price will be flat or down in the near future. If I was running the Genting group, I’d be a bit pissed off, wouldn’t you. Its gratifying to note that investment banking houses, local and foreign, did the right thing. If it was 5 or 10 years ago, you can bet that the research report would align itself with the investment banking work flow and that the call warrant would not appear … at least not so soon.
To the eyes of international institutional investors, Genting’s corporate governance record would improve a few notches. It show’s management’s impartiality and professionalism in its corporate strategy. Nonetheless, over drinks I am sure the Genting management would be bitching in private. Give them business, also can get backhanded slap in the face. Still, Genting comes out smelling like roses.
Wednesday, September 13, 2006
Following the blog on the same topic last week, the privatisation / M&A juggernaut seem to be gaining fervour. First the rumoured Esso Malaysia, then an actual bid by QSR for KFC, and then Intan Utilities. Rather than focus on those, it might be good to look at other likely potentials, it is not a coincidence that the bulk of the concentration will be in banks:
1) RHB Capital - The debate continues with respect to the pricing for RHB Capital. While many analysts peg a likely buyout price at RM3.30-3.40, there are good reasons that the buyout price could even be higher (current price RM2.60), closer to RM4.00 owing to the implied pricing betwwen RHB and Utama.
2) Affin/Boustead - Not a particularly well managed bank but Boustead should be asking for at least RM2.10 (current price RM1.70). This will also boost Boustead's RNAV from the present RM2.82 to RM3.00. Boustead's pretty illiquid and now trades at RM1.86. Could be interesting should the Esso Malaysia deal materialises as well, but that's an IF.
3) EON Capital - DRB-Hicom should be looking to sell its 20% stake in Eon Capital. A price for a sale is pegged at RM8.00-RM8.40 a share (currenct price of Eon Capital is RM5.70). DRB-Hicom will then see its RNAV rise from RM2.20 to RM2.40, but bearing in mind that it currently already trades at a deep discount to RNAV at RM1.40, I am not sure if a sale of EON Capital will even move DRB-Hicom's share price much.
Of course, these stocks would not move in the direction suggested until a concrete deal has been struck. But should volume activity jumps consistently, then at least we can have a headstart in assessing their likely target prices.
Tuesday, September 12, 2006
Plus, The Temporary Demise Of Plantations
As we are still in a generally uptrending market, the correction in second and third liners seem to be over for now. Major bourses were affected by a sharply lower oil price and similar weakness was to be found in many commodities and its related stocks as well. Again, I have to stress that we do not want oil prices to drop sharply and significantly as it may propel inflationary forces. Though second and third liners have recovered somewhat today (e.g. Iris, Mobif, DCIB, Tebrau, Sanichi, etc..), I do not think syndicates are well at all, plus at the back of their minds they have Bursa/SC with strong big canes aiming and waiting for them. Thus I do not believe the recovery in second and third liners will be a prolong one, just bringing up the bottom a bit, punters should not be overly excited.
The sharply lower oil prices at US$65 would cause a natural correction in certain palm oil stocks, particularly those with planned biodiesel plants. One thing that investors must be aware is to note why certain big plantation companies have not ventured to build biodiesel plants yet. That should be a clue. Biodiesel is trendy thanks to exceptionally high oil prices. However, if we were to take into consideration the duties and taxes plus logistics, biodiesel (palm oil) would only be worth producing provided oil prices stay above US$55. Having said that, most governments would want to encourage alternative fuels, hence they will provide relief via tax reliefs, subsidies, etc... thus making it possible to operate profitably even if oil were to fall to US$50 even.
Larger plantation companies such as KLK, IOI Corp and PPB have not really ventured into biodiesel owing to its incomplete business model. the delivery, logistics and acceptance. The viability and conversion of engines, plus efficiency and performance issues. If I was running a plantation company, I would not invest yet in a biodiesel plant also because, the real benefits is in higher palm oil prices and not biodiesel because there are players entering the segment left, right and center ... biodiesel has very low barriers to entry, there is nothing one can do better or has an edge. Its just another demand or downstream product. So if a company is into olein products already, its justthe same as in biodiesel, just another segment. We must remember, there is not much first-mover advantage here. Plus the biodiesel producers do not really make supernormal margins, sure the margins now are healthy but not excessively so and wouldn't be for long.
Hence, the best play would be to have exposure to maturing plam oil as they will reap more benefits on higher prices over the next 2 years. Biodiesel will already produce a new segmental demand and push prices higher - that is reality. Still prefer KLK, B Kawan and PBB Oil Palms.
Monday, September 11, 2006
Britain's Stanley Leisure agreed on a cash offer from Genting International (listed in Singapore) that values the UK casino firm at 639 million pounds (US$1.2 billion).Genting, which already owned a fifth of Stanley, bought a further 5.3 percent stake on Sunday from its founder and Chairman Leonard Steinberg, the two companies said. Steinberg, who built the group from a single betting shop in Belfast 50 years ago, also gave an irrevocable undertaking to accept the offer and granted Genting a call option on his remaining 5.3 stake.Genting said it now owned or had commitments for 30.5 percent of the shares in Stanley, owner of the high end Crockfords casino in London's Mayfair district. Stanley Leisure and rival London Clubs, nearly 30 percent-owned by Genting, had been in merger talks until last month, when London Clubs agreed a 279-million-pound takeover by Las Vegas-based Harrah's Entertainment. Genting, which had been viewed as a potential bidder for both UK firms, said at the time it was reviewing its strategic options.
Some had previously expected a three-way merger between Genting, London Clubs and Stanley Leisure.Genting's 860 pence-a-share offer on Sunday represents a premium of about 26 percent to the closing price of Stanley's shares the last business day before it announced it had received an approach on Sept. 4.
The move is a very good one for Genting. It is quite pointless to try and build and grow casino business globally as footprints have been made throughout, better to buy established franchises. If one were to look at the casino business globally, it basically taps into the liquidity of the place. Hence it is better to match places with high real estate values and personal earnings with casinos. Small European countries have high earnings and decent real estate prices but the population distribution is fragmented, hence the casinos are smaller and less leveraged. Casinos in UK is a controlled thing and Genting MUST secure either Stanley Leisure or London Clubs because they probably will never surface again unless the new owners are in trouble. To get a controlling foothold in Stanley will propel Genting International as major player in the casino business, especially IF they also get the coveted Sentosa IR project. Then Genting International will only miss out on the Macau strip exposure. Not a bad thing really as capital investment and competition have heated up considerably in Macau now. Back to the high real estate values, it allows for liquidity to be tapped on a personal level. Ask anyone, their highest percentage of net worth usually resides in property. Hence revenue per person to casinos should be match with density per square km, plus high real estate values per sq ft. UK fits the bill very well. It also bodes well that UK has a good sprinkling of Asian faces (highest gaming revenue per person).
What about Japan, good real estate values but no casino to speak of. They usually make their way to South Korea casinos and sometimes the US. One thing which many casinos do not appreciate about Japanese high rollers is they prefer a high level of discreet, individualised, polite, very quiet, little conversation environment - hence Macau is not for them, even the Las Vegas is too glitzy. They prefer some of the smaller European casinos.
Hence things look very rosy for Genting International, but not so good for Resorts World. Bearing in mind Resorts is basically the casino on the hill and the hotels. Growth is constrained by population in malaysia and helped by the fact that it is the sole licensed casino. Resorts World has been hovering between RM11-12 for the longest time but many research analysts put the value of Resorts at RM15-17, only a smart minority pegs it closer to RM9-10. Why am I bearish on Resorts World:
1) Exposure to Malaysian gamblers, minus Malay community, the growth is limited.
2) Failure to recognise that the younger crowds do not like casino games that much.
3) Failure to recognise that casinos are competing for the same gaming dollar as football, horse racing and 4-D. Casino games are closer in characteristics to 4-D, while more gamblers prefer gambling with games that have more variables and/or inside information / edge in analysis / such as football or horse racing - Resorts is limited by that.
4) The Singapore IR projects, the Macau strip - you can bet the high rollers will avoid Resorts World.
5) The company's management still markets the company as a growth company, fergetaboutdit already. The company can save itself by presenting itself as a high dividend yielding company. Start by declaring a target dividend yield or setting aside of a high percentage of profits for dividends. Then you can get RM13-14 a share, futile to think it can go any higher.
p/s Genting Berhad owns 61.3% of Genting International.
Pet Peeve About Genting - I think I speak for the majority of Malaysians when I say that our pet peeve is when Singaporeans pronounce Genting as "Jenting". That is not how you pronounce it!!! I am so sorry guys, its Genting as in "Getaran Jiwa" or "Gerakan" ... OK ... you have been reminded now!
Saturday, September 09, 2006
- of cabbages and kinks - said...
I would be grateful if you explain this statement: "Bank Negara's international reserves at a steady US$79.3 billion, meaning the ringgit should see at least room for a 5% gain over the next 12 months." How does the reserves affect the appreciation? Why 5% ?
I see 5% gain over the next 12 months, not because of the reserves, the reserves act as a basis for supporting a stronger ringgit over the near to medium term. The reserves do point to better management of ins and outs. If you look at the correction in emerging marts in May, it was swiftly followed by a correction in currencies of emerging marts, but there were three or four currencies which rebounded well. Besides the Chinese yuan, which was managed, so it did not move much - the currencies which rebounded well included the Brazilian real and ringgit, bit "where there is surpluses in trade and reserves". My statement only lends crednce to my opinion that the ringgit will have more institutional followers (not fresh shorts) when BN allows the ringgit to appreciate in tandem with the yuan. If you market the currencies next to each other for the last 6-9 months, you will find that the ringgit has the closest correlation to the yuan, and thats not coincindental.
Friday, September 08, 2006
Fitch You Too ...
As reported in Bloomberg today, Fitch Ratings came out with some good constructive criticisms, some so-so ...
Sept. 8 (Bloomberg) -- Malaysia's plan to reduce its budget deficit next year isn't enough to win the country a rating upgrade because the government is still spending too much and its debt is too high, according to Fitch Ratings.Fitch won't review its A- rating, the seventh-highest investment grade, for Malaysia, said James McCormack, head of Asia sovereign ratings at Fitch.``If you look at overall deficit levels in Malaysia and you look at government debt levels, they're not in line with the sovereign ratings, .. The debt levels are too high, the government spends too much money, and the budget has taken a problem and really has not improved it at all.''
My Take - The 4-5 years following 1998 was a necessary step to give the economy some platform shoes to stand on, no need to criticise that, it was a necessary move. The last 3 years, should have taken a harder stance to trim the debt levels. The recent Budget saw a 31% increase in spending - danger is that with UMNO and general elections likely by 2H2007 and 1H2008 respectively, that kind of spending might have to accelerate even more next year. However, Fitch might have been too rash with the Budget increase, Badawi is counting on the increase in petroleum taxes from Petronas to fund the increase, and we can afford to do it and should do it.
Fitch Ratings said that Malaysia has posted budget deficits since 1998, when the government started spending more than it earned to revive an economy hurt by the Asian financial crisis. The deficit is forecast to fall to an eight-year-low of 3.4 percent of gross domestic product, or 20.2 billion ringgit, next year. Government revenue is expected to rise 12 percent to RM134.8 billion next year, with oil-related revenue accounting for RM53.7 billion, or 40 percent of the total, the finance ministry said in a report last week. '`In a high oil price environment they really should have improving government finances and they're not,'' McCormack said. ``It's a concern.'' Fitch and other rating companies have said Malaysia needs to reduce its government debt more aggressively before ratings can be raised.
Standard & Poor's, which has an A- rating on Malaysia's foreign currency sovereign debt, said on Sept. 5 it's keeping the rating unchanged. These international ratings agencies look too much into fiscal deficit. Still, Malaysia can finance this deficit domestically, and it looks like they are reducing their external debt going into 2007, which is actually an encouraging sign.
My Take - The present rating is fine, no need to garner a higher rating yet. Bank Negara's international reserves at a steady US$79.3 billion, meaning the ringgit should see at least room for a 5% gain over the next 12 months. These economic levers are there to cushion the deficit issue. As usual, the ratings agency has been too severe in its views. Though I believe there is something wrong with Malaysia's stock markets, the deficit is not one of the reasons. Fitch you, somehow I think a local/Asian should be speaking for Fitch Ratings ... hmmm.... McCormack / McCormick, isn't that a spice rack??!!
Thursday, September 07, 2006
It must be funny when the papers blared that the Malaysian market is at a 6 year high, and you look at it and it felt like a 6 year low. What is so great about hitting a 6 year high?? Tons of markets have went past that already. Let me qualify first, I still think KLCI will test 1,000 by year end and 1,050 by 1Q2007, even with that performance, there are deeper issues with listed Malaysian companies that needed to be addressed. Am I being harsh? Well, just look at the pre1997 crisis index levels, and where they are now:
KLCI 1,077. Now 955. -11%
Hang Seng 15,196. Now 17,096. +12.5%
Dow Jones 6,823. Now 11,373. +66%
Jakarta Composite 724. Now 1,470. +103%
Straits Times Index 1,921. Now 2,505. +30.4%
SE Thailand 527. Now 692. +31%
Philippines Comp 2,447. Now 2,405. -2%
I have selected the big ones for comparison, and the regional indices because they are most comparable as we all had the Thai baht crisis, and we all have had the SARS effect, etc... What is so amazing is that Thailand, which was where the Asian financial implosion started, and Indonesia, they both took IMF's remedy, are now 31% and 103% higher than precrisis levels - ???? Even Hang Seng which suffered horribly owing to the fact that they did not devalue (unlike the ringgit which is still 30% from precrisis levels vis-a-vis the USD), has now surged past precrisis levels, suicides with charcoal and jumping off buildings have subsided substantially in HK.
All that is most galling when oil prices have remained very firm over the last 2 years, and we have tons of it. Something is horribly wrong. I can explain the 2005 markets for Malaysia as foreign funds betted early for a free float of the ringgit but was pretty pissed off in the end. If you talk about fundamentals, not many realise that KLCI stocks present the best dividend yield among the regional markets, averaging 4.8%, while HK's was only 3.4%, Singapore at 3.9%, Thailand at 4.3% and Indonesia a paltry 2.6%. So is it a growth issue? Maybe... some ideas on what is wrong have already been said. So, even when KLCI hits 1,000... we shouldn't be that happy. Look at the volume, remisiers want to kill themselves already at a 6 year high!
Tuesday, September 05, 2006
& News Headlines
Steve Irwin, what a guy, very unfortunate but lived his life full and well, died doing what he loves. I think if you ask him now if he would do everything the same knowing what would happen to him ... he would say "sure matey, no worries". Its the spirit of the guy that gets to you, whether you like him or not, its infectious. Cheers, mate!
Today's newspaper headlines in the business pages in Malaysia:
The Star: KLCI Rises To 6-Year High, Ringgit Strengthens Against US Dollar
NST: Local Stock Mart Hits 6-Year High
Only one paper did not have such exuberence, The Sun. Somehow, today's market did not mirror the exuberance of The Star and NST. Despite hitting a 6-year high, it does not mask the underlying structural weakness with Malaysian listed stocks (please read blog on what's wrong with Malaysian companies/Bursa).
There was a report in Business Times stating that there was RM28 billion in market cap to be taken off the stock market if all the privatisation deals announced in 2006 were to be completed. The deals cited include:
- Amcorp RM883m
- Southern Bank RM6.7b
- Koa Denko RM55m
- Johor Port RM398m
- Guocoland RM291m
- Malakoff RM9.3b
- OYL RM7.6b
- UBS RM98m
- UDA RM529m
- Worldwide RM304m
"Where Is Ze Moola" (you can access his credible blog by clicking on the link on the right column) wrote in his blog: "... the privatisation and the subsequent delisting of the listed subsidiary, this one i really dun like at all. It's just totally unfair to the minority shareholder and it makes a total mockery of the whole stock exchange. Listed Companies should not be given the approval so easily to privatise their listed subsidiary company in which the general investing public is forced or threatened with the issue of delisting. And as mentioned earlier once the company is delisted this offers the investor no transparency rights at all. So when a listed company is able to list and delist their subsidiary companies as per their whimps and fancy this would make a total mockery of the stock exchange. And what about the general offer price for the minority shareholders stake in that listed company? Would the minority shareholders get an offer that is fair or would the minority shareholder be placed in a disadvantage position? Would the premium offered over the existing share price to adequately compensate the minority investors? If no, this ultimately means that the minority investors would never be given a chance to being adequately compensated for the permanent withdrawal of a good investment opportunity. And if this is the case, then this would contradict the government's plan to woo more investors into Bursa Malaysia cause investing would have indeed turned very unattractive, a game which is very biased against the investing public.."
1) Differentiate first between privatisation and M&A, when it comes to Southern Bank (which will be absorbed under Commerce Group) and Malakoff (will be under MMC Corp) - hence those companies are not missing from the market cap of listed companies, just under a different banner
2) Real privatisation and taking of the company from being listed totally will have the impact of depriving investors from participating in the future growth of the company. Examples include Worldwide and OYL (well, in OYL's case, you can still invest via Daikin Industries)
3)For the first group, its not a big issue actually, the minority shareholders usually get a premium to market price plus they can usually opt for cash or shares in the parent company doing the acquisition, so the actual exposure to growth is still there, and any undervaluation of the acquired company would still be within the acquirer company
4) For me, the issue is when a company is completely taken off the block. For example Worldwide, many minority shareholders buy for the long term as its NTA is anywhere from RM4.00 - RM5.00 while the market price traded usually closer to RM2.00. Naturally its a no-brainer for controlling shareholder to privatise the company especially with excellent cash flow. Merchant bankers worth their salt would be scrambling to lend money to the owners to do the buyout and get healthy advisory fees in return in an almost risk free scenario. The G.O. at RM3.50 seems rich compared to the market price for the last 12 months, does that mean minority shareholders should be appeased? The straight forward answer is NO. M.I.s invested for the long term to realise the full value of the company, even though RM3.50 is a huge premium to average market price, we do not know M.I.s entry price or investing objectives. While we cannot expect the controlling shareholder to offer RM5.00, we do expect a closer price to underlying value of the company.
5) Part of the problem of growing privatisation is that the market does not value shares properly. Worldwide has been trading way below NTA for such a long time, and there are tons of other shares like that (including Landmarks till the tussle for control recently). Hence the rise of privatisation is a VERY GOOD TREND as it will encourage more investors to seek out mis-priced stocks, and it will also encourage more controlling shareholders to issue G.O.s to take undervalued companies private.
6) If you can find 10 stocks trading 30%-40% below NTA, we still have to be careful as not all are candidates for privatisation. Cash flow is a prime consideration, it must be good. Then the NTA must be mostly in realisable state or more like current assets rather than hard-to-convert assets (such as plantation lands). We also have to look for potential catalysts, no point loading up 10 undervalued companie cause you could be holding for 5 to 10 years before anything happens. All stocks move only when we can identify catalysts or trigger factors. For example, why bother buying Landmarks at RM1.00 when nobody is doing anything, you can start when they started doing the REIT on Sungei Wang Plaza, you then can really load up when Syed went in as the prospects have changed enormously by then.
So, the SC and Bursa have to be careful when listed companies are taken off completely from the exchange, need to ensure M.I.s are not compromised. This drives at the very basic objectives of a capital market/exchange - you have a stock market to allow companies to raise capital and to allow investors to participate in the growth of the companies. When companies are taken off, make bloody sure the small investors are not screwed. That's because in deciding for privatisation, the deal hugely favours the controlling party already - hence someone must look out for the long-suffering small tenacious investor.
Monday, September 04, 2006
Though the SC and Bursa have done well over the last couple of months when it comes to being more stringent and vigilant with syndicates and meaningless IPO applications that cannot stand on its legs. That's the regulatory part. What irks many foreign investors, local funds and investment pros in Asia is that the country, Bursa, EPU and Finance Minister seem to be clueless as to the real problems affecting Malaysian listed stocks - the really sad thing is that most of them do not even think that there are significant problems affecting Malaysian stocks. Let's consider the tell-tale signs:
Singapore has surged way past Malaysia. Of course, to be fair, KL cannot compete as a financial center with HK and Singapore - how to compete, I mean to simplify rules, regulations, application procedures, turnaround times, tax codes... all are very "difficult" right??!! What is most galling is that Singapore exchange has surpassed in market cap for oil and gas stocks - and the country does not even have a drop of oil or gas to speak of!!?? Very soon, Singapore will surpass market cap for plantations even... can you believe that??!! The authorities concerned always manage by "reacting" and not being proactive enough, we do not anticipate problems or have a solid hold on the bigger picture ... now they know of the problems ... will it be too late to addresss the problems??
5 years ago, KLSE was still the top dog when compared to stock markets of Thailand, Indonesia and the Philippines. Yes, we are still top in market cap when compared to the 3, but if anyone were to match up the monthly trading volume/value activity, Malaysia comes in LAST - that is not coincidental, its a big symptom of something inherently wrong with the markets and authorities. Are we willing to acknowledge that?!! If we do not think there are grave problems to begin with, we won't be able to address the real issues.
Market velocity is low, talking about it, going on road show won't help. Everyone knows where Malaysia is, everyone knows the top 30 stocks, no point going to London or New York to blab about the South Johor miracle in the making or the reinvention of GLCs via KPIs - that is not addressing the real problems. Want to address the real problems:
a) be more flexible with minimum bumiputra participation
b) be more upfront, consistent and professional with treatment of foreign investors (e.g. DIGI), minority shareholders (e.g. no more mandatory G.O. waivers in the name of national interest) and regulations
c) force state funds and GLCs to lower their shareholdings, anything more than 40% is way too much, to encourage better participation rate in stock market, GLCs need only hold 33% - you will see an enormous rerating if the government comes up with this gradual policy over a 2 year period, will go a long way to improve market velocity
d) take on best practices in global standards, e.g. REITs, make the dividends tax free
e) liberalise as many sectors as possible, where we cannot compete, let them perish in the name of capitalism, nonned to protect any sector, if they cannot compete globally, we should not be operating/producing in that sector (e.g. auto, if we cannot produce good cars competitively, let it perish, we then buy cars from better producers and at a cheaper rate, why be stubborn over mistakes). In the present days of globalisation, there is no longer a need to makes sure critical industries are a must have in every country - trade barriers are way down, we can buy anything and everything in a near tariff free environemnt, why do we need to have the auto sector, heck we can even dismantle the cement and steel sectors if they are unable to compete - the more we keep subsidising to protect them, we are just keeping them alive at our own cost, it does not add to our overall productivity. This way, we eliminate what we cannot produce efficiently, and we compete in areas we can compete well
f) ensuring all GLCs, government bodies, semi govenment vehicles such as MIMOS, MTDC, Mavcap, etc... to have accountability, deliverables, regular management audit, execution ability, KPIs (yes that too is a start) ... and actual "punishment" when they fail and not park them somewhere less visible
g) use professional managers, do not favour entrepreneurs with big projects, unless they have proven themselves - e.g. with the Proton situation, for heaven's sake, give it to Sime Darby, at least we will be assured that they will put professional managers to turn it around, instead of hoping an entrepreneur will be able to do the job
A deeper analysis would be needed to answer why volume is so much higher in Bangkok, Jakarta and surprisingly Manila. I have some ideas but let's see if we are willing to look at our own selves first, instead of looking to others. But, does anyone has the political will to effect the changes, many reading this in higher places will nod but think I do not appreciate the "political suicide" and the vested interests involved which makes the task quite insurmountable. So, are we going to leave it at that? Malaysia is like in between the Philippines (too liberal) and Singapore (too strict) when it comes to politics. Not doing anything owing to hands being tied reminds me of being very much like Japan's bureaucracy, it took them 13 years to come out of the prolonged recession because their hands were tied, too much vested interests causing nothing concrete can be done. We are lucky in that we have tons of natural resources, we are rich in that sense and that can cover a multitude of sins and transgressions .... oh, but we could be so much more, so much better.
btw ..... the Budget... its OK, talk of pumping up the economy.. I want to laugh la... do you really want to see economic activity perk up, just do ONE thing... GET ALL GOVERNMENT DEPTS TO PAY ALL BILLS THAT ARE MORE THAN 3 MONTHS OVERDUE ... then you can see a mini economic miracle ... all the construction firms, odd jobs/utilities companies, services contractors would be nodding their heads gleefully. Talk about trickle-down effect... When a government dept delays payments for 9 months or a year that basically wipes 5-8 percentage points from the margins, so if a contractor or services operator works on 10% or 15% margin, its almost like they work for nothing??? Be fair, be professional, don't eat into business' margins. Manage your cash flow well, after all its a BUDGET right, then budget la...
Friday, September 01, 2006
Economy - The underlying economy is strong, not as strong as China or India but strong. Jobs are there. The most important factor is housing, a lot of Americans have a lot of savings tied into housing. A robust housing market over the last 3 years have allowed many to tap into the gains via revaluation or trading up of properties. The one thing which threatened to derail the economy was fuel prices, which caused iflationary pockets in the system. As mentioned before, if it wasn't the higher fuel prices, it would be the stronger consumer spending to put on the inflationary pressures. So, either one or the other, the higher oil prices have flattened housing stats, which was sufficient to give the Fed balls not to raise rates.
Is the US economy slowing? Not really, consumer spending is still there as the gains made or locked up in properties is still substantive. Jobs are still there. US companies have never had so much cash in their system. But its not charging ahead.
Equity - Companies never have so much cash in the books. private equity never had so much money to spend. Put them together, bigger M&A activity will follow, which will have the effect of raising industry valuations whenever A company is acquired. The government bond yield and corporate bond yield differential is in the lower end, indicating little risk of over-valuation in companies - a good set up for bull run to continue. The weaker US dollar kind of works well for everyone, including the Americans. What we want to see is a gradual weakeneing, maybe anothe 3% for the rest of the year and another 5% next year. All in all, US markets have a higher upside than most Asian markets including Malaysia. My targets for S&P 500 is 1,450 (+11.2% from current levels) by 1Q2007, and the Dow at 12,500 (+9.8% from current levels). Currently, the S&P 500 is at 1,303 while the Dow is at 11,381.