The Madness of Crowds

Despite all the data, charts and back testing of information, investors will always turn to mush during times of panic. When panic sets in, our logical side takes a backseat. If we are strong willed, are we being obstinate or clever. If we rush in and out, are we smarter or dim witted? 

What do we know:

a) that the developed nations are in a big pile of you know what ... will they be able to dig themselves out of it? ... probably ... the question is just a matter of how long will it take

b) can we realistically assess the carry on effects onto the global economy?... mind you, there will be ... there already has been since the subprime crisis ... how much more of an impact? ... federal and state budgets will come under the microscope, a lot of cutbacks at their domestic fronts (US, Greece, Spain, Italy) .. those companies and industries dependent more on that areas will be affected (medical care, pharma, defence, some banks) ... yes, more will be unemployed from the civil services

c) one thing for sure, whatever measures they adopt, we will be in for a much longer period of near zero interest rate in the developed markets, that doesn't take a lot for stocks to outperform ... naturally, in times of panic, investors will shun stocks and commodities and opt for bonds .. once calm has returned, a move back to stocks will be swift, in fact even a rush for them

d) besides interest rates, there is a lot of liquidity in the financial system, and will stay that way for at least another 12-24 months, in fact we may see QE3 (not the ship) sooner than we think ... that liquidity cannot stay in bonds too long as the yields there are very pathetic ... already we are seeing enormous bubbles in certain currencies, namely AUD, Swiss Franc, yen as alternatives to the dollar, these so called newer safe havens and commodity currencies will actually bring more economic malaise to their countries over the mid term

e) while all the new measures are being hammered out, for them to work, their currencies must depreciate gradually and sustainably over the exorcism period ... which is to say that emerging markets currencies must rise correspondingly ... which is to say emerging markets equity will be the flavour of the year for the next 6-12 months

f) why there wouldn't be a meltdown ... for all the negatives cited above, most companies in developed markets (save for those mentioned in affected industries) are holding a lot of cash and many do their business globally already ... if you ask me, I think the subprime mess have had and will have had a bigger impact financially than the current sovereign debt crisis ... and most companies have been able to ride that out well over the past 24 months because of emerging markets' vibrancy, and thankfully emerging markets have been doing a lot more business with each other and not the developed nations

g) charts and data, risk profiling studies have been posted for the past few days in this blog, if all that is not enough to persuade you to move back into stocks, then you should just forget about reading for more information, because you already have another opinion or your minds will never get to a conclusion anyway

Do we seek more information to justify or support our views, or do we really seek out information to consider more factors. No opinion will offer 100% guarantee, or else you can put joss sticks in front of my shrine of complete knowledge. We do what we can, look for point of views that talk sense, is persuasive and considers as much facets as they can fathom. If you view CNBC or Bloomberg TV, there will be 100 opinions going in tangents on specific issues ... these are noise. Take a view ofter due consideration, don't blame anyone, make your bet ... or do nothing, that is a viable option as well.

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Jerneh Revisited

Below are the two postings on Jerneh. Caveat emptor.

Tuesday, April 13, 2010

Jerneh

Jerneh shot up on a news article in Star Biz today, which reported that Singapore Business Times wrote that Jerneh Asia was poised to sell its 80% stake in Jerneh Insurance to a foreign player, likely to be HSBC for around RM700m.

Do the math backwards; 80% x RM700m = RM560m. Now you divide by the number of shares in Jerneh Asia which is 180.7m = RM3.09 per share cash. Mind you if the report is correct, Jerneh Asia would still have the listed vehicle.

The History: Jerneh Asia Berhad (Jerneh) was incorporated on 18 October 1995 and listed on the KLSE Main Board on 23 September 1996. The Company was founded as an investment holding company for the purpose of acquiring Jernah Insurance Corporation Sdn Bhd (JIC) as part of a scheme to list the latter on the Bursa. On 30 April 1997, JIC was converted into a public company known as Jerneh Insurance Bhd (JIB).

JIB commenced operations in 1971 as the insurance arm of KUOK Group of Companies and expanded to include clientele outside the Kuok Group. In 1999, the Jerneh group started to expand both locally and regionally as well as diversifying from general insurance. It began with the taking over of Paramount Assurance Berhad; that of Jerneh Insurance (HK) Ltd & Taishan Insurance Brokers in Hong Kong and 40% of Taishan Insurance Brokers Ltd in Hong Kong and Philippines; KRM Reinsurance Brokers Philippines and 40% of Generali Asia NV of the Netherlands.

In FY2000, it acquired the balance 60% of Taishan Philippines and KRM. Generali Asia is a joint venture with Assicurazioni Generali of Italy which has both life and general insurance in Philippines and Thailand. In March 2006 Generali Asia expanded to Indonesia with operations of PT Asuransi Jiwa Asia Mandiri Prima, a life insurance company.

Today the subsidiaries and associates operate in Malaysia, Hong Kong, Philippines and Thailand. The General Insurance division offers a range of products and services. It caters to the insurance needs of small and large-sized businesses and personal lines business. The range of general insurance products and services include property and pecuniary insurance, liability insurance, marine insurance, personal accident insurance, medical insurance, motor insurance, construction and engineering insurance, Foreign Workers' Compensation Scheme and Foreign Workers' Insurance Guarantee.

Kuok Brothers Sdn Bhd (36.98%); BHR Enterprise Sdn Bhd (15.47%) and Sable Investment Corporation (7.12%) are the main shareholders of the company as of 22 December 2009.

Jerneh has done well and looks good.

Sunday, March 28, 2010

Clear For Jerneh

It was a revealing article in The Edge where Jerneh Asia spokeswoman said "We are concentrating on the corporate exercise of the insurance business ... we are still in the midst of talking to the relevant parties on a stake sale.." How to deny but not really deny!



Robert Kuok does not "play up" his counters. Jerneh Asia was below RM1.50 as early as November last year. There were two big ramp up sessions, the first was a couple of months back when it went to RM2.40, and the recent one which we are in the midst of - which went above RM2.80.

There was a corporate announcement in December last year that Bank Negara had no objection in principle for it to commence talks with relevant parties keen to acquire its 80% stake in Jerneh Insurance Bhd. That looked pretty clear to me.

There could two options, a sale or a privatisation. Robert Kuok has been streamlining its business activities in Malaysia disposing the sugar unit to Felda for RM1.29bn. I think Robert is getting out of businesses where he cannot see the ability to be a major player regionally. Looking at where his net worth has been getting the bulk of the incremental wealth from - its, properties and palm oil.

There are plenty of interest now in Jerneh's business, in particular after Prudential scooping AIA. Read the Great Eastern (Overseas Assurance) article in the link below:

http://malaysiafinance.blogspot.com/2010/03/prudential-aia-great-eastern.html

The final question is what price. Its NTA is RM2.41. Looking at similar deals, they have been between 1.5x to 2.5x. Jerneh' insurance business is well managed and should be priced at a premium to recent deal but probably would be closer to 2.0x. This makes for a range of between RM3.61-RM4.82. Caveat emptor people, but it looks good.



NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

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Petronas To Put Bursa Back On The Radar

Petronas is Malaysia's premier state-owned company, but as a publicly owned company it could be worth more than $200 billion and would dominate the country's stockmarket.

According to Deutsche Bank, Petronas could potentially make up 40% of Malaysia's weighting in the MSCI Asia ex-Japan index if it was to list in its entirety (MSCI is a free float-adjusted market capitalisation index that is designed to measure the equity market performance of countries in the region).

Based on a price-to-earnings ratio of 15 times, Petronas could be worth up to $207 billion, according to Investment and Pensions Europe. This would make Malaysia's largest state-owned company close to the same size as the country's total equity market capitalisation today, almost doubling the total market size to $464 billion from $257 billion.

Publicly listing more of Petronas's operations, say analysts and market participants, is critical to stimulating greater growth in the markets. According to Deutsche, if the government were to release a proposed 25% of its equity share, it could potentially bring Malaysia's weighting back on par with Singapore, which currently accounts for 6.6% of the MSCI Asia ex-Japan index. It would also put the country ahead of its biggest regional competitors, such as Indonesia, Thailand and the Philippines. Malaysia currently holds a weighting of 3.8%, but the addition of more Petronas shares to the market could raise this to 6.4%.

To put this into another context, if the government chose to only release a further 20% of its equity interest in the company's downstream operations, such as its LNG [liquid natural gas] and refinery businesses, it could result in an increase to $191 billion from $79 billion of Malaysia's MSCI weighting.

Petronas's total listed assets on Bursa Malaysia currently have a total market capitalisation of $5.62 billion. Within the holdings group, the companies that have been listed are MISC, Petronas Dagangan, Petronas Gas and KLCC Property Holdings.

In April this year, MISC, which is a key subsidiary and specialist in global marine transportation and logistics services, hired J.P. Morgan, Maybank and Credit Suisse for the listing of its marine engineering unit Malaysia Marine and Heavy Engineering (MMHE). Its IPO is now scheduled to take place in September. This follows a $1.5 billion rights issue for MISC in February, arranged by RHB Capital. A market capitalisation of about M$7 billion ($2.2 billion) is expected for MMHE, assuming a net profit of M$350 million and the company being listed at a price-to-earnings ratio of 21 times, according to analysts.

The announcement to list MMHE came as a surprise to some analysts. OSK Research, for example, had expected Petronas to list parts of its petrochemicals business instead, specifically Petronas Carigali and Malaysia LNG. OSK Research had calculated that the market capitalisation of Petronas's petrochemicals companies would be about M$50 billion ($15.1 billion). This is based on a 2009 net profit of M$5 billion for these two companies and the assumption that the shares would be listed at a price-to-earnings ratio of 10 times. Within the petrochemicals sector, a M$50 billion market cap dwarfs the local peers.

While the listing of MMHE is good news, from the analysts' perspective there is much more value for Petronas and the market if it was to list its more profitable downstream operations, such as the petrochemicals, LNG and refinery businesses. A partial listing of this nature would push Malaysia's Asia ex-Japan MSCI market capitalisation to $123 billion and the country's weighting to 5.95%.

Investors and analysts are pushing for such a listing because a move to further publicly list parts of its operations could result in other Malaysia-based companies following suit.

Staying competitive

According to Dealogic figures, the Malaysian primary equity market reached its zenith in 2002 when it raised $1.65 billion. By 2008, this volume had dropped drastically to $174 million. If you look at other signposts, such as foreign direct investment (FDI), the nation is falling behind its peers. AmResearch estimates that 35.4% of FDI flows into Southeast Asia went to Malaysia in 1980, while less than 1% went to Vietnam. By 2008, both countries attracted about $8 billion in FDI each.

However, with the roll-out of the so-called New Economic Model and a commitment by Malaysian Prime Minister Najib Tun Razak to lift the country from a middle-income to a high-income economy by 2020, the markets appear to be on the mend.

Many of the government incentives are aimed at attracting FDI. Previously, if a company was to list on the Bursa Malaysia, only a maximum of 40% could be held by foreign investors. Now, in certain sectors, foreigners can own as much as 70%. Plus, non-Malaysian investors can own 100% of a commercial property asset, if it is bought from a non-Bumiputra controlled entity.

Simply, reforms like this not only expand the investor pool but also potentially attract a more seasoned investor-base into the country.

This article was first published in the June 2010 issue of FinanceAsia magazine.

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Where Is Oil Headed To For The Rest Of 2010?

Oil broke through the US$85/barrel mark in intraday trading on April 1, 2010, sparked by positive economic signs from China and reduced jobless claims in the United States. An acceleration in manufacturing activity in China, according to two industrial surveys, and Japan's most recent report on business sentiment prompted investors to think that increased industrial activity could push up oil demand. A dip in U.S. jobless claims also added to confidence. The Wall Street Journal says the rise comes despite other lackluster data from the United States; a March 31 data release from the U.S. Department of Energy showed a greater-than-expected rise in oil inventories and gasoline stockpiles.



Oil prices dropped more than US$10 per barrel in a week to US$76 on May 7, 2010 on Greek debt worries, unraveling oil's price gains to US$87 since news of an oil leak in the Gulf of Mexico. Nonetheless, oil remains above its US$33/barrel nadir at the beginning of 2009 thanks to the gradual global recovery and increasing demand from non-OECD countries, particularly China. Oil futures prices gained 7% in 2009. Oil supply is likely to recover further in 2011, along with a slight pick-up in demand.

Many expect WTI crude to trade between US$70-US$95, a narrower range than in 2009, and average closer to US$80 per barrel in 2010, higher than the 2009 average of about US$62 but well below that of 2008 (just under US$100 per barrel). The monetary policy stance of the Fed will continue to support energy commodities, but uncertainty about U.S. and Chinese monetary tightening and regulatory changes poses a risk. Increased production from OPEC and non-OPEC members should offset a continued, gradual demand recovery.

Erste Group, in its March 2010 special report on oil, project oil prices to continue increasing mildly in the first half of 2010, targeting at US$90-100. During the second half of 2010, they expect oil prices to dip to the US$60 area or even lower due to expected divergences between supply and demand.

Erste Group projected in its March 2010 special report on oil that oil supply will recover further in 2010. There is enough oil around, but problems associated with the structure of supply, such as the decreasing new oil field ratio, make a clear case for higher prices in the long term. They forecast that, assuming at the current new field ratio, production volume will increase to 125 million barrels by 2030, up from the current 86 million barrels. Demand should pick up again slightly in 2010. OECD demand will rise for the first time since 2005, but the upswing will mainly be supported by countries outside the OECD, especially China. If the economic recovery continues, the high inventories can be gradually drawn down in 2010. The IEA expects global energy demand to double by 2050. The IEA also expects oil demand to increase from 85 million barrels currently to 105 million barrels by 2030.

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