Goodbye to BJCorp’s Investors

While everyone seems keen to take part in sports betting starting English Premier League on August, prime minister suddenly surrender to political wills for NOT allowing the license last night.

The license was said to be already given to Ascot Sports Sdn Bhd “orally”, and since then, Berjaya Corp (BJCorp) had acquired 70% stake in Ascot Sports for RM 525 million. Shareholders are happy and many analysts are setting high target price for BJCorp. Due to objections from various parties on sports betting, Tan Sri Vincent Tan (BJCorp largest shareholder and Ascot Sports’ owner) surprise us for donating the entire proceeds of RM525 million to charity.

Let’s examine the issue carefully…

1. If he is so confident, why Tan Sri Vincent Tan sell its stake in Ascot Sports before officially getting the green light?
2. Why not after, when he can fetch a higher value than RM525 million?
3. In the first place, why Tan Sri Vincent Tan would like to share the pie with investors?

It is expected that BJCorp will issue a statement on Monday in relations to this issue. Hope the press conference will went through smoothly. Take care.

Open up of China’s Currency Great Wall

While Malaysia is demolishing the Pudu Jail's walls, China announced that they will adopt a flexible currency exchange regime, ending more than 2 years of pegging with USD.

Before this, China have been criticized for manipulating the currency market, by keeping its Renminbi / Yuan low, in order to make Chinese products more competitive, creating a wide global trade imbalance. Specifically, U.S is pointing its finger towards China for causing US economy problems which could not be solve. However, China keeps on denying and refuse to let Yuan appreciates against USD.

Why suddenly change now?

In my opinion, I summarize it into 3 main reasons as below:

1.      G20 Summit is holding its meeting this week. Again, China would face an axe from world leaders talking about the same old issue – Renminbi. In order to avoid it, just before the meeting, China announces they will adopt a more flexible stance.

2.      Inflation was the main concern for China’s economy now due to rapid growing or expansions. Last month, China recording more than 3% inflation rate. If China do not want to raise interest rate, they must find way to cool off inflation, and one of the way is lowering down import prices by having a stronger currency.

3.      China is always on the look out for investments, from US Treasuries to Commodities; China is more active than before given its superb surplus for the past few years. Going forward, Europe’s assets may falls into their investing radar. And by having a stronger currency, China can buy more assets at cheaper price.

* Do not surprise if you saw many Chinese in Europe next few months.

Ugly Donation?

After I wrote about donating made easy with CIMB Cares, one particular company seems like responding to donation today. However, it did not boil down well at all. Why?

On 17th June, Tradewinds Plantation Bhd (TPB) held its annual general meeting. Among the topics discussed was its RM 10 million donation to Tan Sri Syed Mokhtar-owned Albukhary International University. The board of directors and management said the company donated the sum because it “had made a lot of profit in the previous financial years”. (The Edge Malaysia)

Shareholders of the company is questioning of this donation for a few reasons:
1. Donation consisted of 12% of FY2009 net profit of RM 51.5 million.
2. The University is controlled by its major shareholder and tycoon Syed Mokhtar.
3. Independent directors are silent.

If you are one the shareholder, what would be your reaction?

Company making profit should reward its shareholder, etc giving higher dividend, instead of donating a large sum of money to a university owned by its major shareholder. And sadly to say, dividends of this company have been stagnant for several years now. For me, I will be very frustrated and dump all my holdings and invest in a rival company.

10MP: Pretty, but not Sexy

After reading lots of articles regarding 10^th Malaysia Plan, I was forced to come out with my own version of article. In fact, a lot of those reports using the words like “mild positive” or “unsurprising” to describe the 10MP. So, I would like to come out with “Pretty, but not Sexy”.

Why I said so?

Pretty:

1.      The Government has allocated RM 230 bil for development expenditure under the 10th Malaysia Plan.

2.      Moving towards high-income economy with gross national income per capita is targeted to increase to RM 38,850 in 2015.

3.      12 national key economic areas were identified.

Not Sexy:

Instead of being economy spurring, I think 10MP was a problem solving plan. By looking at the sector allocation, construction sector clearly stands out, follow by power, tourism and property.

Breaking down the projects proposed, high weightage is on public transport, rural infrastructure and water supply. All of these were long time problems which have not been solved by previous Malaysia Plans. In view of the rising petrol prices, citizens were suffering, and the government keeps on subsidizing. Public transport upgrading or developing is a must, if the government needs to cut-subsidies.

Izzit Pretty? But, it’s not so sexy for me…

Hint: Malaysia had failed to achieve for the last 3 Malaysia Plans. Except this time?

The Importance of Insurance to the Economy

Still remember Obama’s health care bill which was passed recently?

Why Obama want every citizen of US to have a chance to insured themselves?

Because Obama knows the reasons below…

In reality, insurance cannot protect property or lives, but it can protect those insured against the adverse financial consequences of losing property and lives.

Likewise, an insured person cannot be protected against dying or disease, but the dependent is protected financially if such events occur unexpectedly. In any of such similar cases, the insured would be in economic dire straits if not for the financial protection conferred by insurance.

In short, insurance as an economic device provides the insured with financial certainty in an environment that is filled with the possibility of losses. In providing such benefits, insurance brings peace of mind to people – and to society at large.

Another benefit of insurance is its ability to provide for more optimal use of economic resources. Without insurance, individuals and businesses will have to create and maintain a relatively large contingent fund to meet the risks they have to assume.

To ensure the contingent fund is safe, it will be necessary to invest them in low yielding but secured investment like bank deposits. Effectively, this would deny the individual or business the opportunity to invest these funds more productively.

Imagine if everyone keeping their money in bank accounts?

Imagine if everyone spending lesser?

Imagine if everyone investing lesser?

In fact, our economy needs more and more money flowing, so that to create abundance of opportunities for businesses.

With insurance, the risk of loss is minimized or eliminated through transference or risks from the insured to insurance company. The contingent fund against such risks could also be created immediately.

New Fund: Public Optimal Growth Fund

On June 8, Public Mutual is launching a new fund, Public Optimal Growth Fund (POGF).

To achieve optimum returns for investors, this fund invests in a diversified portfolio of dividend and growth stocks in the domestic market.

According to Public Mutual’s CEO, global and regional equity markets had rebounded from multi-year lows in March 2009 on optimism that global economic activities would continue to strengthen on the back of government stimulus spending and supportive monetary policies.

“The domestic market should remain underpinned by the strengthening pace of economic recovery throughout the Asia Pacific region, resilient liquidity conditions and reasonable valuations,” she said.

Reality Check: Sustainable?

After experiencing a strong rally of more than a year, it’s time for us to take a step back, and figure out what is actually pushing the share market up to current level.

One year ago, Governments globally lowering down interest rate, pumping liquidity, were rolling out billions of economy stimulus packages. The purpose is to prevent our economy to down deep into depression. Well, these measures seem to be effective thus far. However, reality kicks in while more and more people are jumping into share market hoping it was not too late. Now, it was time for us to do some reality checks on our economy.

Perception 1:
The market is up because investors have confidence in the economy?

Reality check:
At first, they think is cheap and low interest rate environment (mega-sales).
Then, they scared losing the opportunity while others are investing (kia-su).
Then, they invest because others are investing (herd-mentality).

Are all of them really investing based on economy? Definitely NOT…


Perception 2:
Manufacturing sector is recovering with double-digit growth?

Reality check:

Manufactures are producing just to boost up their stocks level (re-fill), after months of decreasing demands and lower production last year. This is not demand-induced. This is to bring the stocks level back to normal, hoping to cater for better demand in the future. Anyway, the demand still not kicks-in and a lot of them already are facing higher prices of raw materials now. Clear example will be in electronics industry.

Perception 3:
GDP growth is above expectations this year?

Reality check:

GDP of a country is based on four main factors, namely government spending (G), domestic consumptions (D), export-import (E-X), and tangible investment activities (I).

G is activated due to stimulus packages.
D is activated due to incentives given.
E-X is activated due to the above reason (perception 2).
I is activated due to history low interest rate environment, and excellent share market performances too.

In fact, the effect of stimulus packages takes years to show the result. Incentives given are stopped now. Interest rate is inching up again.

In my opinion, the sustainable of our world economy need to count on the basic rule – demand and supply. We are producing now without a really strong demand. And, we need a better employment rate and business sentiments to create this demand. Sounds easy though, but many efforts are needed.

Preventing Malaysia to become the next Greece

“Malaysia will become the next Greece in 9 years” reported a daily, saying that if nothing is done to reduce the current budget deficit; we will become the headline of the world then. Sound scary? 9 more years left only…

 

As a preventive measure, Datuk Idris Jala, Minister in the Prime Minister’s Department, and the head of Performance Management and Delivery Unit (Pemandu), is proposing to cut subsidies that could save up to RM103bn over 5 years for our nation (see chart).

 

 

Amongst the key proposals are:

 

- Petrol prices will increase by 15 cents/liter in mid-year, and thereafter 10 cents every 6 months until 2014.
- Toll rates to increase as per concession agreements, except for those without alternative toll-free routes.
- Electricity tariffs will be raised by RM0.024/Kwh and thereafter RM0.016/Kwh every 6 months.

 

If implemented, the country budget deficit may see a small budget surplus of about 1% of GDP in 2012. And, inflation will rise to 4% in 2011-12 before easing to 3% in 2013.

To gather feedback from the public on its proposals, Pemandu had organized the Subsidy Rationalisation Lab on 27 May. According to Pemandu, the Government provided a total of RM74bn as subsidies in 2009.

Well, I supported the subsidy reduction and it should be done gradually over the next few years. While cutting subsidies will benefit the nation in the long run, Malaysians would face financial difficulties in the short to medium term. Anyway, this is a very good opportunity to test the spirit of 1Malaysia.

 

I think, if Rakyat can face it, Government must do following too.

1. Reducing red-tape of doing business.
2. Reducing Government’s total operating expenditure.
3. Be efficient or cost effective.
4. Besides rewarding, penalized or remove those non-performing civil servants.
5. Ensuring fair pricing of projects/deals, by using open-tender system.

These measures could prevent Malaysia for following Greece’s footstep also. It must be two ways actions, not only from Rakyat itself. Government should lead an example, so that Rakyat could face it voluntary.