Asian Markets Mostly Up but Huawei, Trade War Loom Large

HONG KONG, May 21 — Asian markets mostly rose today but concerns about the Huawei row and broader China-US trade war kept investors on edge, with analysts warning the crisis could rumble on for some time.

Regional investors were spooked by a sharp drop in New York’s tech-rich Nasdaq after Google said it was beginning to sever ties with the Chinese telecoms giant, days after Donald Trump’s decision to bar it from the US market and put it on a sales blacklist.

The Huawei development — with the US citing national security concerns — has muddied the waters in the tariffs stand-off between Washington and Beijing, which was thought to have been close to conclusion at the start of the month.

And now some observers are warning that stalled talks between the economic superpowers might not see any progress before a hoped-for meeting between Trump and China’s Xi Jinping at the G20 in June.

“The market was a little optimistic that a trade deal would just get done here this month,” Brett Ewing, chief market strategist at First Franklin Financial Services, told Bloomberg News.

Dealers have “definitely come to terms with a longer term trade negotiation process”.

While the Commerce Department issued a 90-day reprieve on the ban on dealing with Huawei, saying breathing space was needed to avoid huge disruption, the two appear to be digging their heels in.

And yesterday China’s envoy to the European Union called the Huawei move “wrong behaviour”, adding “there will be a necessary response”.

Zhang Ming warned: “Chinese companies’ legitimate rights and interests are being undermined, so the Chinese government will not sit idly by.”

The developing crisis had a mixed impact on Asia’s tech firms, with Samsung Electronics, a rival to Huawei in the smartphone market, rallying 2.7 per cent.

Analysts say the US ban will damage Huawei’s ability to sell phones outside China, offering Samsung a chance to consolidate its position at the top of the global market.

But in Tokyo, Sony shed more than four per cent and Sharp was off 2.5 per cent, while Taiwanese chip giant TSMC shed 1.7 per cent.

In early trade London rose 0.4 per cent, Paris added 0.2 per cent and Frankfurt put on 0.6 per cent.

Pound suffers again

“As trade wars hurt demand in the US and China, Asian electronics manufacturers will feel considerable pain, in our view,” Tieying Ma, an economist at DBS Group, said.

After an initial sell-off, Shanghai’s composite index ended more than one per cent higher, with some observers concurring with Huawei boss Ren Zhengfei that the firm could absorb the impact of the ban.

“The global telecom supply chain can still work perfectly without the US suppliers,” said Sun Jianbo, president of China Vision Capital Management in Beijing.

“China and US are unlikely to allow the worst-case scenario, which involves putting up trade barriers on all fronts, as it will mean great losses for both parties. So the worst possible case may have been priced” into markets.

Sydney rose 0.4 per cent, Seoul added 0.3 per cent and Taipei was 0.7 per cent higher, with Manila, Mumbai, Bangkok and Jakarta all in positive territory.

But Tokyo ended down 0.1 per cent with Hong Kong dropping 0.3 per cent in the afternoon and Wellington closing off 0.2 per cent.

“The US-China trade war is in danger of assuming Brexit-like characteristics — long and drawn out with a series of false dawns, but with no discernible progress made after a lot of emotional noise,” said OANDA senior market analyst Jeffrey Halley.

On currency markets the pound fell again and remains lodged around four-month lows against the dollar as Prime Minister Theresa May struggles to get opposition Labour backing for her Brexit deal, meaning it is likely to fail on her fourth attempt to pass it through parliament next month.

There is growing concern May will step down if she loses again, leaving the path open for a hardliner who is keen for a no-deal divorce, which many experts say will be economically destructive.

Australia’s dollar sank 0.6 per cent against the greenback after central bank officials hinted at an interest rate cut to record lows when it holds its policy meeting next month.

Oil prices rose after major producers said supplies were sufficient and stockpiles still rising, but gains were capped by the China-US tensions.

Key figures around 0720 GMT

Tokyo – Nikkei 225: DOWN 0.1 per cent at 21,272.45 (close)

Hong Kong – Hang Seng: DOWN 0.3 per cent at 27,713.57

Shanghai – Composite: UP 1.2 per cent at 2,905.97 (close)

London – FTSE 100: UP 0.4 per cent at 7,337.00

Pound/dollar: DOWN at US$1.2707 from US$1.2725 at 2050 GMT

Euro/dollar: DOWN at US$1.1148 from US$1.1165

Dollar/yen: UP at 110.21 yen from 110.04 yen

Oil – West Texas Intermediate: UP 31 cents at US$63.41 per barrel

Oil – Brent Crude: UP 23 cents at US$72.20 per barrel

New York – Dow: DOWN 0.3 per cent at 25,679.90 (close)


Tabung Haji 1Q Net Profit at RM440m After Successful Restructuring

KUALA LUMPUR (May 13): Lembaga Tabung Haji (TH) posted a sustainable performance by recording a net profit of RM440 million in the first quarter ended March 31, 2019, as a result of the successful completion of its restructuring and rehabilitation process implemented at the end of December 2018.

During the quarter, TH’s earnings totalled RM623 million.

TH, in a statement today, said its financial position strengthened with total assets exceeding total liabilities of RM1.2 billion, supported by improved portfolio investment performance, as well as overall healthy quality of assets after impairment was made in 2018.

TH expects its revenue will continue to increase from the second quarter onward with the issuance of sukuk by Urusharta Jamaah Sdn Bhd which will provide a return of almost RM800 million a year and the implementation of a new investment adjustment process.

During the three-month first quarter, more than 91,000 new savings accounts were opened, thereby increasing the total number of TH depositors to 9.3 million, it said.

“As an institution that helps Muslims save for the haj, the fund management operations remained smooth without any interruption during the quarter.

“TH recorded new savings of RM4.3 billion, while withdrawals accounted for RM4.6 billion,” it said.

In the run-up to the haj season later this year, TH said extensive preparations were made during the quarter, including the implementation of various initiatives to ensure quality services to all pilgrims.

It said among the initiatives to be undertaken for this year’s haj season are improving the pre-depature process in the country which will shorten the waiting period at the Jeddah and Madinah haj terminals.

TH will also provide air-conditioned tents in Arafah to provide comfort, as well as address health-related risks due to the hot weather and prepare Malaysian meals for the pilgrims in Masyair (the grand assembly site).

The first haj flight is scheduled to depart on July 4, 2019, while the last flight on Aug 4, 2019, it added.


OPR Cut Provides Relief to Economy

KUALA LUMPUR: Bank Negara Malaysia’s overnight policy rate (OPR) cut is a necessary move to provide a relief to the economy despite coming in sooner than earlier expected, economists said.

This is especially true in the face of global uncertainties brought about mainly by the trade tension between the two largest economies in the world, they added.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid believes the OPR reduction was a pre-emptive measure to ensure the country’s economic growth continues to be sustainable.

“I think we need to view the objective of such policy response that is to provide support to the economy by making monetary condition very accommodative,” he said when contacted by the New Straits Times.

Afzanizam said this essentially would reduce the cost of funds that can help stimulate investment activities.

This will be backed by the revival of mega projects such as the East Coast Rail Link and Bandar Malaysia that would result in higher demand for corporate financing, he added.

Lower OPR would also mean slightly lower monthly commitment for existing mortgages or any financing contracts that have variable rate features, he said.

“Many would ask whether the latest move would impact the ringgit negatively. The OPR cut is part of a very medium-term kind of growth story and that should help the ringgit to appreciate over time,” he added.

Putra Business School business development manager Prof Madya Dr Ahmed Razman Abdul Latiff said analysts had expected the cut to happen in July. But recent developments especially on US-China tariff war had lowered confidence in the market and could slower the growth.

“Hence the reduction in rate is supposed to provide the stimulus by encouraging borrowings and not on savings,” he said.

Socio-Economic Research Centre executive director Lee Heng Guie said the central bank’s OPR cut would provide some relief to the local economy.

“The reduction does not signal that things are getting bad but rather to provide some relief, in light of uncertainties in the external market.

“The cut would also preserve the country’s economic stability that gives some relief to the market and investors,” he said.

Lee believes there will not be another series of rate cut as the government still has the spending to ensure the economy is growing.

Source: New Straits Times

Tabung Haji – SPV to rehabilitate underperforming assets

Image result for Tabung Haji - SPV to rehabilitate underperforming assets

TH’s Group MD announced that an SPV will take over its non-performing assets and rehabilitate them. It will issue RM10 billion sukuk and RM9.9 billion Islamic Redeemable Convertible Preference Shares (RCPS) to fund the exercise.

What are RCPS? Redeemable means the pref share holder can ask the SPV to pay back the value of the shares in cash. Convertible means it can be converted into ordinary shares in the SPV.

But what is Islamic RCPS? Are pref shares shariah-compliant?

Pref shares are normally issued to give priority in dividend payments compared to ordinary shares. If there is just so much money to pay dividends, the pref shareholder gets paid first and up to the amount agreed. The balance is then given to ordinary shareholders. In effect, ordinary shareholders “tanazul” their profit, which is accetable.

If the SPV gets into trouble and is liquidated, who gets paid first? If it is the pref shareholder, then it is not Shariah-compliant. You cannot tanazul losses. Both pref share and ord shareholders are co-investors in the SPV and must share in the losses proportionately according to their capital contribution.

Lembaga Tabung Haji (2)

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Today, the Minister in the PM’s Department confirmed that there is a RM4.1 billion shortfall in Tabung Haji. More worryingly, the problem is getting worse.

A PwC audit also revealed that financial engineering was used to enable dividends to be paid. TH management sold TH’s shares in Bank Islam Malaysia Berhad for RM2,551 million to realise a profit of RM553 million. They then bought back the same shares for RM2,688 million, incurring brokerage fees. The transaction lost RM137 million for the fund.

So in order to justify the dividend payments, TH did not mind losing more of the depositors’ money. This financial engineering was not disclosed in their financial statements.

TH also got their subsidiaries to declare dividends of RM510 million to boost up their profit but RM222 million remains unpaid, probably because the high dividend value is not sustainable.

The Cabinet has approved the setting up of an SPV to park and rehabilitate TH’s assets. The question is can the assets be turned around or there are more write-downs in the future.

The “best” news is that TH will now come under the supervision of Bank Negara to ensure a more prudential management of the fund and depositors’ money. Let’s hope there are no more such happenings going forward.

Lembaga Tabung Haji

Image result for TH’s assets are short of RM4 billion compared to their liabilities (depositors’ money) in 2016.

The following is based on what has been reported but yet to be confirmed by Lembaga Tabung Haji.

TH’s assets are short of RM4 billion compared to their liabilities (depositors’ money) in 2016. It’s now the end of 2018. Is the shortfall bigger? The 2017 accounts are not out.

Another report says that every RM1 of deposit is only backed by 80 sen of assets, a huge 20% capital loss!

It was also said that the accounts were faked to allow TH to pay dividends prior to GE14. The Tabung Haji Act requires its assets to be more than its liabilities before it can pay dividends. (Naturally! Otherwise, it is a Ponzi scheme of using capital to pay dividends).

To allow LTH to pay dividends again, it must increase its asset value. How? Apparently, there is a scheme to set up an SPV. Get the SPV to buy the assets from LTH at book value. Voila! LTH can continue to pay dividends.

But is this prudent? The problem hasn’t gone away, has it?

The SPV is to raise sukuk to buy the assets at an expensive price. How to service the sukuk? Another Government guarantee? TH depositors’ money is already guaranteed by the Government. Service financing obligations, pay dividends. Where is the money to come from? How did it become so bad?

How do you analyse stocks?

Image result for How do you analyse stocks?

There are two main types of analysis, namely fundamental analysis and technical analysis.

The fundamental analysis assesses the intrinsic value of a stock by examining all factors which can affect the security value. These include macroeconomic (e.g. the economy and industry) and microeconomic factors (e.g. financial performance, management). The objective is to arrive at a value that an investor can compare with its current price. Undervalued? Buy. Overvalued? Sell.

Fundamental analysis focuses on the company’s financial statements. It uses revenue, earnings, future growth, ROE, profit margins and other data to determine a company’s underlying value and potential for growth. One of the most famous and successful fundamental analysts is Warren Buffett.

Technical analysis focuses on price movement patterns, trading signals and other analytical charting tools to evaluate a security’s strength or weakness. Generally, people will use chart pattern software with indicators such as MACD, Bollinger Band, RSI, EMA and others. The indicator used is up to the user’s preference as there are many indicators available. People who use technical analysts are also referred to as chartists.

10-year bond issuance – ¥200bil

Image result for 10-year bond issuance – ¥200bil

Our Prime Minister managed to secure the Japanese Government’s agreement to guarantee a 10-year bond issuance of up to ¥200bil. The guarantor will be JBIC and the indicative coupon rate is 0.65%. There is no information on the indicative yield.

While some people in the market have been analyzing and commenting on the coupon rate, remember that it is the yield which is the actual cost of borrowing. That was how Goldman Sachs managed to make such an exorbitant profit on the 1MDB bonds.

In addition to the yield, there is also the question of foreign exchange movements on the final cost. All bond obligations (coupon and nominal value repayment) are in Yen. Remember how companies which issued Samurai bonds, Yankee bonds and Euro bonds were almost wiped out from Ringgit’s plunge during the 1997 economic crisis? However, we do not yet know whether hedging will be done to mitigate the forex risk.

In any case, it was an achievement to obtain the Japanese Government’s agreement on the Samurai bonds as it also signified to the world at large their confidence in the Malaysian economy.

Samurai bonds = issued in Yen, Yankee bonds = issued in USD, Euro bonds = issued in Euros.

FundMyHome (5)

What developer would participate in a scheme where he may receive only 80% of the house price?

Probably one who has unsold units. If it is an unsold unit (other than due to market conditions reason), can it be easily sold in 5 years’ time? What is the probability of it appreciating?

Another scenario is, in order to recover the 20% upfront, will there be an incentive for the developer to mark up the house price?

FundMyHome (4)

In (3), we concluded that HB will have to fork out more money to own the house if it appreciates. This is a bigger burden compared to a mortgage where the HB enjoys the appreciation in full without any additional liabilities.

What if the house depreciates? What is the order of priority to suffer the loss – HB, developer and investors?

1. The developer suffers the first loss (from the 20% he did not receive when the house was sold).
2. HB is next, up to the equity he has put in (20% of the original house value).
3. Lastly is the investors.

Although the HB has to absorb all the depreciation in a mortgage, he is not under threat of compulsory loss realisation (he has to sell the house if he cannot raise the refinancing amount in Year 5) as per the FMH scheme. He can opt to just stay in the house, which is what home ownership is, in the first place.