Dream & Achieve It

HDFIV Report Card @ 7 Nov 08

2008-11-07T01:54:00.001-08:00

Performance:
HDFIV is at the moment outperforming KLCI by 8.50% (30 Sept 08: 8.90%) at a loss of 24.32% (30 Sept 08: 14.54%) while KLCI suffered a loss of 32.82% (30 Sept 08: 23.44%). There was a dip in terms of performance during the month - bringing down our performance below KLCI's as IOI and Lion Industries had a major dip. Both stocks recovered and we are back on track in terms of outperforming KLCI.

Portfolio:

With our short term trading stratety, we have managed to reduce our cost per share in Lion Industries Berhad from RM1.391 to RM1.160 (19% decrease). We have also added Genting Berhad into our portfolio.

Asset Allocation:

21% cash available for short term trading and continuous cost averaging down.

How You Should View Bad Financial News

2008-10-30T10:04:00.000-07:00

Hey shareholders... will be updating our fund's performance soon. Will be away for eye laser operation tomorrow and hopefully eyesights return in time for me to update by next Monday.

Worried about endless bad financial news recently? Read on...

"Stock markets worlwide are crashing and reaching historical lows...", so you turn on the television to catch the latest market news, so you flip pages of business sections to check how the market is doing or so you hear colleagues talk about not the right time to buy. But instead of logging to CNBC or CNN, imagine that you can tune in to Benjamin Graham Financial Network ("BGFN"). By the way, Benjamin Graham was a great teacher to Warren Buffett. On BGFN, the audio doesn't capture the famous sour clang of the market's closing bell; the video doesn't home in on brokers scrurrying across the trading floor of stock exchanges like angry dogs. Nor does BGFN run any footage of fund managers telling how bad the market is going to be in the next few months.

Instead, the image that fills your TV screen is the facade of the KLCI, festooned with a huge banner reading: "SUPER SALE! 50% OFF". A promoter girl announces brightly, "Stocks became more attractive yet again today, as the KLCI dropped another 5% on heavy selling volume - the third day in a row that stocks have gotten cheaper. Plantation investors fared even better, as leading companies like IOI Plantation Berhad lost another 10% on the day, third consecutive day of 10% drop, making them even more affordable. That comes on top of the good news of the past year, in which stocks have already lost half of its value, putting them at bargain levels not seen in years. And some prominent analysts from big houses like CIM Bank are optimistic that prices may drop still further in the next few months with their sell calls."

The newscast cuts over to top market strategiest, Mr Top Market Strategist of Top Research Firm, who says "My forecast is for stocks to lose another 15% by year end. I'm cautiously optimistic that if everything goes well, stocks could lose 30%, maybe more."

"Let's hope Mr Top Market Strategist is right," the newscaster says cheerily. "Falling stock prices would be fabulous news for any investor with longer time horizon."

(The above article was modified based on an article in page 222 of "The Intelligent Investor, The Definitive Book on Value Investing")

Testing... Mobile edition

2008-10-02T01:18:00.000-07:00

Testing... Testing... Testing 1 apps

HDFIV Report Card @ 30 Sept 08

2008-09-30T02:25:00.000-07:00

Performance:
HDFIV extended its run on outperforming KLCI by 8.90% (22 Sept 08: 8.39%) at a loss of 14.54% (22 Sept 08: 14.40%) while KLCI suffered a loss of 23.44% (22 Sept 08: 22.79%. The outperformance is partly contributed by the additional capital of RM6,600 for month of Oct 08, demonstrating the power of cost of averaging and continuous investment on constant basis. I have added a new bar graph for "cash position over net asset value" with reading on the right axis.

I was watching CNBC yesterday night on the debate by the House of Representatives in US over the pros and cons of the financial-rescue plan of USD700 billion. However, I was too tired and fell asleep, only to discover that the rescue plan has been voted down at vote of 228 to 205. Investors in US became jittery and as a result Dow Jones dropped by 777 points, apparently a historical record. This morning, our KLCI followed negatively by dropping by more than 20 points but recovered at the end of the day.

Portfolio:
We talked about incorporating short term trading strategy in our portfolio strategy last week. To reiterate, this short term trading strategy ("STTS") is basically to take advatange of choppy price movements but SUBJECT to (a) our fund size which has been relatively big in view of the 8th period; and (b) prices we go in for the trading has to make sense in terms of fundamental (a price that we are prepared to hold or can cost average our current investment).

This week, as part of the SSTS, we have bought 1,600 units of IOI Corporation Berhad at RM4.20 with targeted short term selling price at RM4.50-RM4.60 within contra period. As mentioned, the price we enter into has to make sense in terms of value. By buying 1,600 units at RM4.20, we have also averaged out our cost per share to RM5.05 from RM6.40 (21% lower). So, we have flexibilities in terms of make small and quick gain or continue to hold for longer term with lower cost per share.

During the week, we have also acquired 3,500 units of Lion Industries Berhad at RM1.38 per unit. Lion Industries Berhad is a steel player in Malaysia and a valuation done by OSK Investment Bank Berhad has build my interest in the stock. Will talk about the counter in another article but very quickly, here is an extraction of the valuation:

Profit from steel business for year ended June 2008 (price earnings of 4.8 times) = RM3,463 million
Total investment in Lion Forest Industries, Parkson Holdings Berhad, Lion Diversified Holdings Berhad = RM1102 million and by putting a conservative discount of 40%, the total investment in these listed companies are worth RM661 million.
By adding the profit from steel business and investments in listed companies, the company is worth RM4,124 million or RM5.75 per share.

Asset Allocation:

Comfortable level of cash at 21% after acquisition of IOI and Lion Industries.

Strategy:
Will await for next financial plan by US. I am of the view that that the USD700 billion plan which has been voted down will be finetuned as the US financial market can't afford to continue to be in the dire situation it is in now.

HDFIV Report Card @ 22 Sept 2008

2008-09-22T02:12:00.000-07:00

Performance:
HDFIV is currently beating KLCI by 8.39% (15 Sept 08: 6.96% at a loss of 14.40% (15 Sept 08: 15.96%) while KLCI suffered a loss of 22.79% (15 Sept 08: 22.47%. KLCI dropped below 1,000 points last week and managed to rebound with plantation sectors playing a major role.

Our fund has managed to widen the gap with KLCI's performance with IOI's price rebounding due to stronger CPO price.

Portfolio:
We did a minor reshuffling of portfolio to take advantage of our relatively larger fund size. We will allocate a small portion of our fund for short term trading to take advantage of prices yo-yoing in the uncertain market. Downside of such strategy is of course limited as the prices that we are going in are still attractive in terms of value. We have bought 1,500 units of BJTOTO at RM4.38, averaging down our cost per unit from RM4.74 to RM4.50 (10% cheaper) and at the sametime raising our exposure on BJTOTO from 10% to 28% of our fund. We have also disposed of 1,400 units of IOI at RM4.60 with losses of RM467. We are willing to realised loss as the strategy is to sweep back the stock at at lower price with expected profits to be made. This is a short term trading strategy deployed to take advantage of price movements but subject to (1) our fund is relatively big to be able to allocate a small percentage for shor term trading; and (2) prices we go in for short term trading has to make sense in terms of fundamental.

Asset Allocation:
Cash remained at about 20% after our portfolio reshuffling to incorporate short term trading strategy.

Strategy:
Generally, in my opinion, the investors are pretty tired with the political development. In fact, if Datuk Seri Anwar Ibrahim is unable to topple the Governement by his self-imposed deadlines, guess the market might settle down with some short term stability. Market will be very much driven by development in the US. At the time of writing, Dow Jones IA and regional markets have been showing positive results due to the huge plan by the Government to save the dying investment banks in the US.

We have cash and will continue to average down our holdings.

HDFIV Report Card @ 15 Sept 2008

2008-09-15T03:59:00.000-07:00

Performance:

HDFIV is currently beating KLCI by 6.96% (5 Sept 08: 7.80%) at a loss of 15.96% (5 Sept 08: 11.75%) while KLCI suffered a loss of 22.47% (5 Sept 08: 19.55%). KLCI continued to be dragged down by political uncertainties as well as the performance of plantation stocks. Our fund has managed to maintain the gap with KLCI's performance notwithstanding the drop in IOI's price.

Portfolio:

No purchases and sales this week.

Asset Allocation:

Allocation of idle cash into fixed deposit for 1 month period.

Strategy:

To watch out for tomorrow's political development.

HDFIV Report Card @ 5 Sept 2008

2008-09-05T03:21:00.000-07:00

Performance:
HDFIV is currently beating KLCI by 7.80% (29 Aug 08: 5.79%) at a loss of 11.75% (29 Aug 08: 11.50%) while KLCI suffered a loss of 19.55% (27 Aug 08: 17.29%). KLCI continued its downtrend as Dow Jones Industrial Average suffered a 300 over points drop as well as the political uncertainties that have yet to see any light at the end of the tunnel. Our fund has managed to extend our gap with KLCI's performance with the contribution of our holdings that have been holding relatively steady during the week as well as the dilution of losses from our monthly cash inflow.

Portfolio:
No purchases and sales this week.

Asset Allocation:
Cash increased to about 20% from 7% after the monthly cash inflow.

Strategy:
With the exciting date i.e. 16 Sept 08 around the corner, we would prefer to stay on the sideline during this period. We are not timing the market but waiting for opportunity to sweep some cheap stocks if KLCI happened to react badly on political developments. Stocks under radar are Resorts World and Bursa Securities.

HDFIV Report Card @ 29 August 2008

2008-09-01T19:51:00.000-07:00

Performance:

HDFIV is currently beating KLCI by 5.79% (27 Aug 08: 5.50%) at a loss of 11.50% (27 Aug 08: 12.91%) while KLCI suffered a loss of 17.29% (27 Aug 08: 18.41%). KLCI recovered about 20 plus points on Friday ahead of the announcement of Budget 2009.

Portfolio:
No purchases and sales this week.

Asset Allocation:
7% cash (27 Aug 08: 7% cash).

Strategy:
Our holdings are registering single digits losses except for Bursa and Waseong-Wa. Next immediate strategy is to acquire new cheap stocks or to average out Bursa. Bursa remained top pick in view of its cash hoard and simple business model.

EPF a Contrarian Like Us?

2008-08-27T22:33:00.000-07:00

Stumbled upon this article in the Edge Weekly written by Kathy Fong. It was titled "EPF ups stakes in plantation companies".

According to Kathy, the EPF appears to be contrarian in terms of stock picking on Bursa Malaysia lately. Although many probably think that buying plantation stocks, which are currently undergoing a sharp correction, is a little like catching a falling knife. The EPF, however, is pouring money into plantation counters. The recent decline in CPO prices does not seem to worry it.

Sounds like what HDFIV is doing? The recent decline in CPO prices does not worry us too. In the article itself, the managing director Gerald Amrbose from Aberdeen Asset Management Snd Bhd also made a comment that is very in line with HDFIV's strategy. He said "Over the long term, we've made the point that the supply of edible oil will be limited because of scarcity of agriculture land. If it becomes alternative fuel, we are not just eating it but also burning it. But it is just that there are little bubbles resulting in some uncertainties in the shor term."

However, as a fund management company, Aberdeen Asset Management have shorter term investment horizon and concerned about possible excess supply when th eworld economy slows down, the rising fertiliser costs that eat into planters' margin and changes in policy on biofuel in some European countries amid inflation worries.

Majority of research houses in Malaysia have downgraded the plantation sectors and stocks under coverage. Again, not a concern to us because I can guarantee the houses will upgrade them when CPO goes up.

HDFIV Report Card @ 22 August 2008

2008-08-22T02:48:00.000-07:00

Performance:
HDFIV is currently beating KLCI by 5.50% (20 Aug 08: 4.24%) at a loss of 12.91% (20 Aug 08: 15.11%) while KLCI suffered a loss of 18.41% (20 Aug 08: 19.34% ). Crude palm oil price rebounded as well of recoveries of commodities prices in the United States propelled KLCI slightly higher. IOI was the top performer in the fund this week with recovery from RM4.80 to RM5.15.

Portfolio:
No purchases or sales this week.

Asset Allocation:
Staying at 7% cash (20 Aug 08: 7% cash)

Strategy:
Brokers and remisiers revealed that funds are buying back into IOI Corporation Berhad after the massive sell down that caused the share price of IOI to drop from RM8.00 plus to RM4.00 plus. Reason is the higher crude palm oil price. Now people, investors, speculators are looking at crude palm oil hitting RM3,000 per tonne again. Such development is very short term based for simple reason - movement in daily crude palm oil does not have immediate impact on the operational and financial performance of IOI as the company may be able to hedge prices if they want or leave it exposed. But what is happening is investors are reacting to movement of crude palm oil and make buy and sell decisions of IOI stock based on movement in crude palm oil.

In other words, the increase in crude palm oil may not be sustainable in three days time (for example) and after three days, buyers might dump IOI stock if crude palm oil decreases again.

We will just have to take advantage of these movements and continue to accumulate stocks when it's below our cost as we believe crude palm oil is a commodity with no real substitute in the world. Further, any increase in crude oil will make crude palm oil viable for biodisel as well, creating another source of demand for crude palm oil. And I am wondering when CIMB Research will start to come back with another buy call with "increase in crude palm oil price" as one of the key re-rating catalyst.

HDFIV Report Card @ 20 Aug 2008

2008-08-20T05:42:00.001-07:00

Performance:

HDFIV is currently beating KLCI by 4.24% (8 Aug 08: 2.87%) at a loss of 15.11% (8 Aug 08: 12.81%) while KLCI suffered a loss of 19.34% (8 Aug 08: 15.69%). No sight of recoveries in KLCI's performance. Key concerns remained as global economies moving into recession (or already have) as well as the political uncertainties in Malaysia.

Portfolio:
No new purchases or disposals this week. IOI announced its quarterly results this week. Summary of results are available in next article.

Asset Allocation:
7% cash.

Strategy:
KLCI is currently at 1,000-1,100 level but we have underweighted on cash. We will continue to acquire battered stocks with monthly cash inflow. Current unrealised loss is not a main concern due constant inflow of funds. For a simple illustration, current loss of 15.11% can be easily averaged down to 7% with the cash inflow of RM30k plus in the next six months. That is excluding interest income on the cash deposits. Many would argue that KLCI is still heading downwards and now is not the right time to buy. Question back to them is how low before we should start buying? More often than that, proponents of "You should not buy now!" will start buying at higher than our costs as they will only start to buy when KLCI starts to trend up. No doubt, profits can be made as KLCI is trending upwards but these proponents will continue to practise buying at higher price with profit taking (after making minimal profits). Of course, they will argue that they have proper loss cutting mechanisms in place etc.

Don't think we will be able to stop arguing if I continue to write about different strategies adopted by different practitioners. Our fund style is simple - buy when no one is buying (as you can see now) and sell when everyone is selling (which you will see later as in 2-3 or even 4-5 years down the road). If KLCI drops to 800 points, we will still be smiling as our cash coffer is replenishable on a monthly basis, providing us continuous bullets to tackle the market.

Listen to Research Analyst! Or Should You Not?

2008-08-11T05:17:00.000-07:00

On 26 February 2008, CIMB Research issued a Trading Buy call with target price of RM10.00. IOI Corporation Berhad ("IOI")'s share was trading at RM8.05. A Trading Buy means the stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months. The target price of RM10.00 is approximately 24% over its current price of RM8.05. In fact, the target price has been upped from RM9.40 to RM10.00 based on a forward price to earnings ratio of 24 times. KLCI was trading at
1,375.43.

In the same report, CIMB Research has also raised their international CPO price forecasts by 10% to USD1,045 per tonne for 2008, and by 15% to USD1,060 for 2009. Local Malaysian CPO price is expected to go up by 9% to RM3,150 per tonne for 2008 and RM2,900 per tonne for 2009.

On 11 March 2008 (after the general election's results), IOI dropped to RM6.65. KLCI was trading at 1,206.54 (down by 12% from 1,375.43). Now, wondering what is the target price now? Well, it's RM8.30, down from RM10.00 (down by 17%). Reasons quoted for the lowered target price are (a) downgrade in overall market price to earnings ratio following poor showing by incumbent government during the recent general election (b) a weaker outlook for the property sector as confidence in the sector will be eroded by political uncertainty and weak stock market performances, and (c) risks of additional taxes on the planters if government delays price increases on certain controlled items.

Note that the downgrade in target price was amongst others DUE TO WEAK STOCK MARKET PERFORMANCE. The price to earnings for IOI has been cut from 24 times to 20 times. In other words, at 24 times PE, the target price is RM10.00. At 20 times PE, the target price is RM8.30. What say you if you have heed the call and bought in at RM8.05? And interestingly, the buy call was also supported by CPO price uptrend and potential acquisitions.

On 18 April 2008, KLCI was trading at 1,267.82 (recovered slightly from the 11 March 2008's selldown). IOI has recovered to RM7.30. CIMB Research continued to yell a call with price target of RM8.20. Key supporting for the call are CPO price uptick and potential M&As.

On 29 May 2008, Dato' Yeo How, the group's executive director of finance and corporate affairs resigned. IOI was trading at RM7.10 and the price target is now RM8.40. Key share price triggers including rising CPO price and potential M&As. KLCI was trading at 1,261.82.

On 16 July 2008, the buy call that has been yelled all this while has been toned down to Neutral, meaning the stock's return is expected to be within +/- 5% of a relevant benchmark's total return. IOI is now trading at RM6.50 and the target price has now been revised down to RM7.80. Well, no more mention of rising CPO price... in less than a month's time. KLCI was trading at 1,119.42 (dropped by 11% from 29 May 2008's level)

Best part is on 18 July 2008 when IOI was trading at RM6.10 and KLCI was at 1,105.04 (further drop from 16 July 2008), CIMB has now downgraded the price from RM7.80 to RM6.50! One of the reason is CPO price to peak this year!!!! Key re rating catalysts are softening CPO price, lower crude oil price and higher than expected operating costs.

As you can see in the chart below, the CPO price was trading at above RM3,500 on 29 May 2008 and CIMB Research expects the CPO price to continue to rise. My big question is why is that within two months time, the target price has been cut by a huge RM2! As can be seen in the chart again, not only that the CPO price did not rise significantly but instead has started it's decreasing trend to about RM2,800 plus today.

I have always been a keen reader of CIMB Research's report. However, it just doesn't make any sense when buy and sell calls are made based on KLCI movement. When market is good, PE of 24 times are pegged but when market is trending down, PE was slashed to 20 times. So, what if naive uncle and auntie investors follow your call? Shouldn't your analyst is good enough to predict that CPO price is already peaking at RM3,500? Why is that your analyst still forecasted a rising CPO price when market was doing well but then talked about CPO price peaking when market is on downtrend? Would the price target stays at RM10.00 if market where to trade at above 1,300 level?

In the end, should we listen to you or not? Buy calls when market is good and sell calls when market is down. Any fundamentals? Sounds to me like your rationale was 'created' to justify your buy and sell call, depending on market movements rather than the other way round where you make the call based on fundamentals irregardless of market movements.

HDFIV Report Card @ 8 August 2008

2008-08-11T04:29:00.000-07:00

Performance:
HDFIV is currently beating KLCI by 2.87% at a loss of 12.81% while KLCI suffered a loss of 15.69%. KLCI continued to be weighed down by slump in global economies as well as the political uncertainties in Malaysia.

Portfolio:
We have averaged out our cost in IOI Corporation Berhad via additional purchase of 1,400 units at RM4.88. Average cost has been brought down to RM5.63 from RM6.60. We continue to adopt the stance in accumulating this plantation stock which have been battered down from it's high for the year at RM8.60 (in 15 January 2008) - a decrease of 43%. 1 month and 3 months high were recorded at RM6.7 and RM7.65 respectively.

Asset Allocation:
Cash position dropped from 24% to 7% after our investment in IOI Corporation Berhad.

Strategy:
We have been taking a very contrarian approach so far with regards to our investments, especially in Bursa Malaysia Berhad and IOI Corporation Berhad. Research houses have been calling for a sell on these stocks and naturally the stock prices have reacted by trending downwards. We have been ignoring these calls and these calls are basically made on 12 months basis and have been very market-based. Check out a coming article on a recent analysis of a research house buy and sell call on IOI.

How to Fully Utilise a Bank's Products

2008-08-06T04:26:00.000-07:00

A Chinese man walks into a bank in New York City and asks for the loan officer. He tells the loan officer that he is going to China on business for two weeks and needs to borrow $5,000.

The bank officer tells him that the bank will need some form of security for the loan, so the Chinese man hands over the keys to a new Ferrari parked on the street in front of the bank. He produces the title and everything checks out.

The Loan officer agrees to accept the car as collateral for the loan. The bank's president and its officers all enjoy a good laugh at the Chinese for using a $250,000 Ferrari as collateral against a $5,000 loan.
An employee of the bank then drives the Ferrari into the bank's underground garage and parks it there.

Two weeks later, the Chinese returns, repays the $5,000 and the interest, which comes to $15.41.
The loan officer says, 'Sir, we are very happy to have had your business, and this transaction has worked out very nicely, but we are a little puzzled. While you were away, we checked you out and found that you are a multi-millionaire. What puzzles us is why you would bother to borrow $5,000? The Chinese replies: 'Where else in New York City can I park my car for two weeks for only $15.41 and expect it to be there safely when I return.'

HDFIV Report Card @ 8 August 2008

2008-08-01T04:00:00.001-07:00

Performance:
HDFIV is currently beating the KLCI 2.63% at at loss of 10.26% while KLCI suffered 12.89%. Dividend declared by both Bursa and Public Bank of 16.5% and 30.0% of par value respectively.

Porfolio:
No additions or disposals of stocks this week.

Asset Allocation

Cash position increased from 15% to 24% with monthly contribution.

Strategy:
Will continue to monitor prices of existing holdings for cost averaging.

HDFIV Report Card @ 28 July 2008

2008-07-28T05:21:00.000-07:00

Performance:

HDFIV currently is beating KLCI by 1.63% at a loss of 11.52% while KLCI registered loss of 13.15%.

Porfolio:
We have managed to accumulate stocks in gaming, banking, stock exchange, oil and gas as well as plantation over the past few months. 40% of our porftfolio lies in Public Bank Berhad, the bank that has solid track record over the years in terms of generating profits and providing returns via dividend and capital growth.

Asset Allocation:

We have been on a monthly basis accumulating stocks or averaging out purchases. Cash remains at 15% at the moment since it is near month end. Cash coffer expected to increase in month August 2008 with new contributions.

Strategy:

The decision to include volatile stocks such as Bursa in the porffolio will result in volatility in our portfolio's return. Further, any rise or fall in KLCI will have direct impact on our portfolio as all our holdings except for Wah Seong warrants are KLCI components. However in the event KLCI rebounds, we stand to reap the gain. Such volatility is mitigated with the benefits of monthly inflow. We will keep to our strategy of stock accumulation at various levels of prices. Fear is still greatly felt in the market at the moment due to political uncertainties. That is why we are accumulating despite calls from analysts and research houses to sell or hold.

What Warren Thinks...

2008-07-16T05:18:00.000-07:00

Happened to stumble upon an article (http://money.cnn.com/2008/04/11/news/newsmakers/varchaver_buffett.fortune/) by Fortune on what Warren Buffett thinks about the current economy, the credit crisis and much more.

Have quoted a few FAQs from the article which I felt are meaningful:

Q: I know you had a paper route. Was that your first job?
A: Well, I worked for my grandfather, which was really tough, in the [family] grocery store. But if you gave me the choice of being CEO of General Electric or IBM or General Motors, you name it, or delivering papers, I would deliver papers. I would. I enjoyed doing that. I can think about what I want to think. I don't have to do anything I don't want to do. It might be wonderful to be head of GE, and Jeff Immelt is a friend of mine. And he's a great guy. But think of all the things he has to do whether he wants to do them or not.
Seane Lynch: Warren doesn't or probably never aspire to be a CEO of a very complex company. His whole life is spent on doing what he really likes and do at best - investment.

Q: How do you get your ideas?
A: I just read. I read all day. I mean, we put $500 million in PetroChina. All I did was read the annual report. [Editor's note: Berkshire purchased the shares five years ago and sold them in 2007 for $4 billion.]
Seane Lynch: Warren can just read annual reports, talk to management and close a deal with a price he sees right. That easy?

Q: What should we say to investors now?
A: The answer is you don't want investors to think that what they read today is important in terms of their investment strategy. Their investment strategy should factor in that (a) if you knew what was going to happen in the economy, you still wouldn't necessarily know what was going to happen in the stock market. And (b) they can't pick stocks that are better than average. Stocks are a good thing to own over time. There's only two things you can do wrong: You can buy the wrong ones, and you can buy or sell them at the wrong time. And the truth is you never need to sell them, basically. But they could buy a cross section of American industry, and if a cross section of American industry doesn't work, certainly trying to pick the little beauties here and there isn't going to work either. Then they just have to worry about getting greedy. You know, I always say you should get greedy when others are fearful and fearful when others are greedy. But that's too much to expect. Of course, you shouldn't get greedy when others get greedy and fearful when others get fearful. At a minimum, try to stay away from that.

Q: By your rule, now seems like a good time to be greedy. People are pretty fearful.
A: You're right. They are going in that direction. That's why stocks are cheaper. Stocks are a better buy today than they were a year ago. Or three years ago.

Q: But you're still bullish about the U.S. for the long term?
A: The American economy is going to do fine. But it won't do fine every year and every week and every month. I mean, if you don't believe that, forget about buying stocks anyway. But it stands to reason. I mean, we get more productive every year, you know. It's a positive-sum game, long term. And the only way an investor can get killed is by high fees or by trying to outsmart the market.
Seane Lynch: So, you think the Malaysian economy is going to do fine? If yes, should you go into stocks now?

HDFIV Report Card @ 11 July 2008

2008-07-14T04:00:00.000-07:00

Where Are We?

2008-07-14T03:00:00.000-07:00

High inflation due to rising food prices and oil. Economy growth is slowing down and major countries in the world are heading towards recession. You can call that stagflation. Construction and properties industries are basically bleeding to death soon with rising material costs like steel, cements, bricks and transportation costs. The rakyat are not having enough disposable income to live a normal life. Our government is busy hurling allegations against the opposition. You bombed a pitiful Mongolian lady, shout the opposition. You poked a pitiful young lad's ass, shout the government. Now I declare, now I don't declare (because I am under duress when I declared).

Here we are. Trapped in a rubble worst than those caused by a 9 magnitude earthquake.

From the day we started our fund i.e. 1 March 2008, KLCI has since dropped 14%. Our fund, as expected, also suffered a drop in value by about 10%. Key point here is to continue to be able to outperform the KLCI. We are now outperforming KLCI by 4% as of last Friday. We have 30% in the form of cash (approximately RM10,000) and have the benefit of cashinflow every month. We can easily average out some of our cost of investment but the strategy now is to keep the proportion intact, adopt a defensive stance while monitoring the political situation. Stocks are cheap at the moment but as mentioned, we will retain the RM10,000 cash.

Financial Teasers 22 May 08

2008-05-23T03:05:00.001-07:00

Top Stories

Moody's retains law firm to review CPDO ratings process
In response to a recent Financial Times article, Moody's has retained law firm Sullivan & Cromwell to do an external review of the agency's process for rating European constant proportion debt obligations. Moody's had rated complex debt products higher than warranted because of a glitch in its computer models but did not fix the error for nearly a year, despite senior staff knowledge. Meanwhile, U.S. Sen. Charles Schumer, D-N.Y., has called on the SEC to investigate the situation. Financial Times (21 May.)

Dark pools work to prevent "gaming," catch perpetrators
Both broker-dealer-owned and independent dark pools are getting tough on "gaming," or the use of trade information by another party for financial gain. The potential problem intensifies as more liquidity flows into the dark pools. Tabb Group estimated that at least 10% of daily volume is running through dark pools. A Tabb report from last year found that 60% of buy-side participants surveyed said the gaming threat affected their decision on whether to interact with the pools. Financial News Online (22 May.)

Canadian court ruling could derail buyout of BCE
The Quebec Court of Appeal ruled that bond holders of BCE were unfairly treated when the company's board of directors approved a $52 billion buyout offer from the Ontario Teachers' Pension Plan and its partners. BCE and its proposed buyers said they plan to appeal the lower-court ruling to the Supreme Court of Canada. Attorney John Finnigan, who is representing the bond holders, said if BCE and the buyout group want the deal to be completed, they will have to start over. Canada.com (CanWest News Service) (22 May.)

Group warns about liquidity battle in energy contracts
The Futures and Options Association warns that if the looming fight between IntercontinentalExchange and the New York Mercantile Exchange regarding control of liquidity in energy contracts heats up, London's energy market could get burned. The exchanges, along with LCH.Clearnet, are battling over competing clearing services. The FOA is concerned that the liquidity will be split between clearinghouses, raising regulatory issues. Financial Times (21 May.)

Auction-rate securities leave investors in a bind
Investors of auction-rate securities are facing the dilemma of either waiting for the market to get back on track or find a way to get their money back. Individuals' financial situation plays a large part in the decision. Those who can afford to leave the money might be rewarded with higher yields, while those who need the money now will likely have to pay either interest on a loan from their brokerage or take a discount and allow their adviser to buy the securities.
Bloomberg (22 May.)

Oil price hits more than $135 a barrel in Asia

In Asia, oil reached a record high price of more than $135 a barrel today and then retreated. Concerns about supply, increasing global demand and a declining dollar are keeping crude futures moving up. Analysts are starting to question what will stop oil prices from increasing as they continue to set new records almost daily. Although there are technical indications in the futures market that crude might drop, few analysts are ready to call an end to the rally. ClipSyndicate/Bloomberg (22 May.)

, Associated Press (22 May.)

Asian governments deal with record oil prices differently: While some Asian governments are subsidizing fuel costs for consumers to keep inflation in check, others are raising energy prices to reduce the impact on their budgets. "We see fiscal positions deteriorating in countries that subsidize the local cost of oil," said Robert Subbaraman, chief economist at Lehman Brothers Asia. "If oil prices stay persistently high at these levels, these kinds of measures can do more damage than good." Bloomberg (22 May.)

NRG Energy makes $11.3 billion bid for struggling rival
Calpine, a troubled power wholesaler with dual headquarters in Houston and San Jose, Calif., has revealed that its rival NRG Energy made an unsolicited bid of roughly $11.3 billion in stock. NRG, which confirmed the offer, is attempting the takeover only months after Calpine emerged from operating under bankruptcy protection. Associated Press (22 May.)

Market Activity

Japanese, Australian shares up despite oil concerns
Shares in Tokyo and Sydney, Australia, shrugged off a global slump in equity markets to reverse earlier losses and finish the day with gains. Tokyo's Nikkei increased 0.4% and Sydney's S&P/ASX 200 edged up 0.1%. Meanwhile, South Korea's Kospi and China's Shanghai Composite both slid 0.7%, Hong Kong's Hang Seng Index dropped 2% and Taiwan's Weighted Price index fell 0.4%. Singapore's Straits Times Index and Indonesia's Jakarta Composite both fell as well, 1.1% and 1.4%, respectively. MarketWatch (22 May.)

Credit crisis spurs derivatives market's rapid expansion
The Bank for International Settlements said in a report that the market for derivatives expanded 44% to $596 trillion from 2006 to 2007, the fastest expansion in at least a decade. The market, which includes derivatives on debt, commodities, currencies, interest rates and stocks, was spurred by the global credit crisis as many used the contracts to hedge against losses. ClipSyndicate/Bloomberg (22 May.) , Bloomberg (22 May.)

Most Brazilian companies cancel, postpone IPOs
With nearly two-thirds of last year's new stocks in Brazil losing money, most of the country's companies planning initial public offerings have either canceled or postponed their plans. Banco Fibra, PST Eletronica, Norse Energy do Brasil and more than a dozen other companies in Brazil, which has the best-performing equity market in the world, have delayed or withdrawn IPOs this year. Bloomberg (21 May.)

Economics

Experian: U.K. better positioned to weather storm than U.S.
Experian, the biggest credit information agency in the world, said U.K. banks started tightening lending standards two years ago, putting Britain in a better position to ride out the financial crisis than the U.S. Experian CEO Don Robert said the quality of credit portfolios in the U.K. is holding up, while the company has seen the housing market woes spread to credit cards and other areas of the market, resulting in "real evidence of the weakening consumer in the U.S." Telegraph (London) (22 May.)

Japan's trade surplus drops by more-than-expected 46.3%
Falling exports to the U.S. combined with the rising cost of energy imports caused the trading surplus in Japan to plunge 46.3% in April. The figure underscores the pressure that Japan is facing caused by the global economic downturn, analysts said. Increased shipments to rapidly expanding emerging markets are helping. Channel NewsAsia/Agence France-Presse (22 May.)

Iceland's central bank expected to boost or hold interest rate
Nine economists surveyed by Bloomberg expect the Central Bank of Iceland to either raise its benchmark interest rate today or hold it steady. The bank is struggling to reverse significant decline in the country's currency, the krona, and curb inflation, which is accelerating at its fastest pace in 18 years. Last week, central banks from three other Nordic countries offered to provide emergency funding to prop up Iceland's currency and financial system. Bloomberg (22 May.)

Geopolitical/Regulatory

Influential group calls for pan-EU "super regulator"
A group of former European premiers and finance ministers has sent an open letter to the European Commission and European Union president criticizing the financial industry and calling for an EU-wide regulator to prevent future crises. The letter takes aim at bankers' compensation, risk taking by financial institutions, lack of transparency in the markets and loss of business ethics. Telegraph (London) (22 May.)

Financial Products

Study predicts issuance of CDOs will likely disappear
A report by Aite Group predicts that the market for collateralized debt obligations is headed for oblivion. Data show that $226 billion worth of CDOs backed by asset-backed securities were issued two years ago. So far in 2008, only $1.5 billion worth of the CDOs have been issued. "As capital has become more dear, credit rationing, particularly applied to mortgages, has become de rigueur at lending institutions," said John Jay, the report's author. "With less collateral to securitize into CDOs and no ready buyers in sight, ABS CDO issuance has virtually disappeared." FinancialWeek (21 May.)

PowerShares launches first ETFs of ETFs
The PowerShares Autonomic Global Asset Portfolios are the first exchange-trade funds of ETFs. The three funds track indexes of ETFs developed by New Frontier Advisors, a Boston advisory firm. They were launched this week on the American Stock Exchange. The funds represent different risk levels and asset allocation strategies. Index Universe (20 May.)

Ethics

Judge: SEC lacks authority to fine advisers who aid, abet fraud
A ruling by the District Court in Washington might make it more difficult for the SEC to fine financial advisers found guilty of aiding and abetting fraud. After finding Robert Radano guilty for the illegal activity, District Judge Colleen Kollar-Kotelly said under the Investment Advisers Act of 1940, the SEC does not have the authority to fine Radano. "What the judge is saying is that the statutory language to fine adviser aiders and abettors is not in the Advisers Act," said Jane Stafford, managing member of Stafford & Associates. InvestmentNews (19 May.)

Financial Teasers 20 May 08

2008-05-20T03:00:00.000-07:00

The U.S. has seen its dependency on imported oil dip for the first time since 1977. Imports comprised 57.9% of oil consumption in the first three months of the year, down from 58.2% last year. Americans are using less because of high prices and because more ethanol is in use, said Guy Caruso, head of the U.S. Energy Information Administration. Financial Times (19 May.)

Microsoft targets Yahoo's search advertising operation

In its renewed romance of Yahoo, Microsoft has proposed several ideas for a pairing, including a revenue-sharing partnership and Yahoo selling its search advertising operation. Yahoo is under pressure to negotiate some kind of partnership or deal after resisting Microsoft's earlier buyout offer. Yahoo's future might depend on reaching a decision to sell or outsource some of its advertising business, Stifel Nicolaus analyst George Askew said. Microsoft has made it clear that it plans to build its search advertising business one way or another. San Jose Mercury News (Calif.) (19 May.)

Buffett keeps eyes on Europe for takeover targets

Investor Warren Buffett said he's concentrating on Europe, not emerging markets, for companies that his Berkshire Hathaway might be interested in buying. "You want to fish in a pond where the fish are, and Europe is a much better pond," he said. Buffett is on a four-city European tour designed to form relationships that might identify purchase targets for his investment and holding company. Bloomberg (19 May.)

Study: Quantitative fund managers must reassess models

These are tough days for quantitative fund managers. A study by the CFA Institute released last week found that a reliance on similar market factors has made it hard for many quant managers to generate returns. "If your model uses only public information, then everyone else has the same insights," said Michael O'Brien, head of European distribution at Barclays Global Investors. "Quant managers have traditionally taken their insights from the world of academia, but in the future they will have to rely less on this." The study found a need for managers to "update models continuously." FinancialWeek (20 May.)

Big consumer predicts platinum price will keep rising

One of the world's biggest users of platinum foresees a further 15% price increase in the next six months. Metals and chemicals group Johnson Matthey said global platinum output fell 4.1% in 2007, creating a shortage. That is likely to worsen this year as South African mines suffer disruptions because of the country's severe electricity disruptions. Financial Times (19 May.)

Alternative energy projects large and abundant

Forbes.com has identified the biggest and boldest projects that the world has seen so far. They include a geothermal project tapping into the volcanic heat below Indonesia; solar arrays in Australia and California's Mojave Desert; and wind farms in the Texas panhandle and off the coasts of England and Norway. Financial Post (Canada) (16 May.)

Japan expects to come out victorious in credit crisis

While other developed countries cope with the troubling ripples of the credit crisis, domestic and overseas markets should drive a recovery in Japan by the end of this year. Most Japanese financial institutions avoided exposure to subprime loans and dodged the worst of the fallout. Japan will also benefit as the falling dollar forces exporters to diversify their markets away from the U.S. China became Japan's largest export partner last year, and sales to Russia and oil-producing countries in the Middle East are strong. Telegraph (London) (20 May.)

Market Activity

Lack of news lowers Asian markets

Asian stock markets sank Tuesday as investors turned cautious in the absence of market-moving news. Hong Kong led the declines, with the Hang Seng Index down 1.8% after China Mobile reported lower-than-expected growth in telephone subscribers. MarketingWeek (subscription required) (20 May.)

U.K.'s gap in bond yields creates doubt about inflation fight

Investors appeared skeptical of the Bank of England's ability to fight inflation rising at its fastest rate in more than a decade. The gap has widened in recent months between the yields on index-linked U.K. government bonds and conventional bonds. The broader gap shows that bond investors want to pay increasingly higher prices for inflation protection. ClipSyndicate/Bloomberg (20 May.) , Financial Times (19 May.)

Economics

In unanimous decision, Bank of Japan holds interest rates

After dropping its growth outlook, the Bank of Japan decided Tuesday to keep interest rates steady. The overnight lending rate in Japan, at 0.5%, is the lowest among the world's major economies. "There are no options for the Bank of Japan other than to adopt a policy status quo," said Yasunari Ueno, chief market economist at Mizuho Securities. "It won't raise rates until around July next year at the earliest. At the same time, we don't expect a cut." ClipSyndicate/Bloomberg (19 May.) , International Herald Tribune/Bloomberg (20 May.)

Aussie dollar peaks on possible interest rate hike

The Australian dollar punched to a 24-year high Tuesday against the U.S. currency when traders priced in expectations of a coming interest rate hike by the Reserve Bank of Australia. Records of the RBA's May meeting showed that central bank policymakers discussed raising a key cash rate to fight inflation that is at a 17-year high. The Sydney Morning Herald (20 May.)

Brazilian president vows to fight rising inflation

Brazilian President Luiz Inacio Lula da Silva said the government will fight accelerating inflation. Economists predicted that consumer prices will jump to 5.12% this year, a central bank survey shows. Brazil's central bank is expected to raise its key interest rate by a half percentage point to 12.25% at its meeting June 3-4. Bloomberg (19 May.)

Geopolitical/Regulatory

U.S. change to global accounting standards could jolt

The widely expected U.S. adoption of international financial reporting standards could lead companies to dress up their bottom line. Of about 130 companies reconciling accounts from foreign filers using IFRS in 2006, 63% increased their earnings over GAAP reporting by a median 11.1%, according to a study by accounting analyst Jack Ciesielski. The most frequent differences were in the accounting for pensions, share-based compensation and derivatives, his analysis found. FinancialWeek (19 May.)

Nigeria to reform state oil company into private firm

Nigeria's president said the country's dominant and corrupt state oil company will be turned into an efficient private business once a reform process finishes sometime next year. President Umaru Yar'Adua heads a committee whose proposals on restructuring Nigerian National Petroleum Co. are expected in a couple of weeks. Nigeria is the world's eighth-largest oil producer, and the product is the country's main foreign currency earner. Agence France-Presse (18 May.)

Egypt says no tax is coming to reassure investors

Egyptian officials said they have no plans to impose a capital gains tax, hoping the reassurance will stop a slide in stock markets of more than 10% since the start of last week. The plunge came after President Hosni Mubarak announced new tax measures to raise US$2.6 billion for a 30% pay raise for public employees. Investors said the government failed to communicate its intentions, creating fear that more steps were coming and the sell-off of Egyptian shares. Financial Times (20 May.)

Financial Products

Gold in high demand despite decreased production

At the same time that gold production has dropped to its lowest in five years, demand by investors is booming. Demand for gold exchange-traded funds doubled from the first quarter of 2007, the World Gold Council said. MarketWatch (20 May.)

S&P starts new agribusiness composite index

Standard & Poor's has created a composite index that tracks both global agribusiness companies and farm commodities. S&P's Global Agribusiness Composite Index meshes subindexes based on crops and livestock with its agribusiness equities tracker. The new model will be less volatile, the company said. Structured Products (19 May.)

Ethics

SEC sues former AOL execs over inflated ad revenue

Eight former AOL executives overstated online advertising revenue by $1 billion, the Securities and Exchange Commission said in a lawsuit against them. The allegedly inflated revenue increased AOL's stock price, allowing it to buy Time Warner in 2000 for $184 billion to form the world's largest media company. The merged company's market capitalization has now fallen to about $56 billion. Four of the executives agreed to settle with the SEC without admitting or denying the allegations and to disgorge a total of $8 million. Forbes (19 May.)

Financial Teasers 24 April 2008

2008-04-24T19:25:00.000-07:00

Top Stories

Defaults of subprime-related credit vehicles mount
Defaults of credit vehicles based on subprime mortgages have risen from $54 billion at the beginning of this year to a current total of $170 billion, according to Total Securitization. The mounting defaults in the U.S. housing market have hindered the collateralized debt obligation market. Ambac recently reported more than $3 billion of mortgage-related charges. Financial Times (23 Apr.)

Fitch sees some defaulted bonds recouping 10 cents on dollar
The expected tide of corporate bankruptcies is expected to leave unsecured bondholders with much less than the historical average recovery of 42 cents on the dollar. Owners of a third of high-yield, high-risk bonds rated B+ or lower may get no more than 10 cents, New York-based Fitch Ratings said. About 22% are likely to get 11 cents to 30 cents. ClipSyndicate/Bloomberg (23 Apr.) , Bloomberg (23 Apr.)

Sam's Club limits rice sales
Wal-Mart's U.S. warehouse unit, Sam's Club, has restricted purchases of some types of rice. The price of this food staple has more than doubled in the past year as China, Vietnam and India curbed exports to protect local supplies. Sam's Club limited customers to four bags of jasmine, basmati and long-grain white rice per visit. The U.S. warehouse clubs are trying to protect their business customers, like smaller restaurants and caterers, said food industry consultant Jim Degen. Bloomberg (24 Apr.)

Brazil, too, holds back on rice exports
Brazil has joined several Asian rice exporters in temporarily halting foreign sales to ensure domestic supply amid rising world prices. Brazil will not meet requests by African and Latin American countries for shipments totaling nearly 500,000 tons of rice, Agriculture Minister Reinhold Stephanes said. Brazil has 1.6 million tons of rice in government warehouses. CNBC (23 Apr.)

Steel prices climb on overseas demand, fewer imports
Steel prices have hit record highs in the U.S. this year, despite a slump in the auto and construction sector. Analysts say the factors driving prices higher include strong global demand, fewer imports from overseas mills, continued appetite from parts of the construction industry, and a jump in input costs. MarketWatch (23 Apr.)

Many oppose housing bailout by Congress
Talk in Congress of bailing out distressed homebuyers is sparking a backlash on new Internet sites created to oppose the plan. Los Angeles attorney and blogger Morgan Ward Doran created Nationalbubble.com because "I just got really angry." Doran argues that lenders, brokers and homebuilders made huge profits by overbuilding and pushing poorly underwritten loans. Now they want taxpayers to cushion their fall, Doran said. CNNMoney.com (23 Apr.)

Report: Gazprom to take over TNK-BP with majority stake
Russia's gas export giant Gazprom will buy majority control of oil major TNK-BP by the end of the year, the Vedomosti daily newspapers reports, citing unnamed sources close to the management of both companies. BP is a 50% owner of TNK-BP, and the other half is held by a group of Russian billionaires. Analysts had predicted a forced sale to a state firm with close ties to the Kremlin such as Gazprom. Reuters (24 Apr.)

Speculators seen as helping drive up world food prices
Biofuel demand and weather disruptions have been blamed for shortages driving up the price of food. But blame is spreading to hedge funds, index funds, pension funds and investment banks. Analyst Greg Warner of the Chicago grain wholesaler AgResource says the current wheat market is unprecedented. He estimates that financial investors now hold the rights to two complete annual harvests of one type of grain, soft red winter wheat. Spiegel Online (23 Apr.)

Market Activity

Asian markets mixed, Chinese shares up on tax cut
Asian stock markets posted mixed results Thursday, although Chinese markets soared after Beijing slashed a tax on share transactions. The tax cut reverses the increase Beijing imposed last year to slow surging stock prices. The Shanghai Composite index climbed as much as 9.6% Thursday before slipping back. Shenzhen's All Share index jumped 8.5%. MarketWatch (24 Apr.)

Apple beats Wall Street, quarterly profits over $1 billion
Apple reported profits of $1.1 billion in its second quarter, or $1.16 per share, to outdistance Wall Street expectations. Macintosh computers continued to sell strongly, with shipments of 2.3 million units, up 51%. ClipSyndicate/Bloomberg (23 Apr.) , CNET (23 Apr.)

Boeing Q1 profits up 38%, CEO predicts strong year
Boeing's first-quarter profits rose 38% to $1.2 billion, with earnings per share up 43%, thanks to strong results in commercial plane, military aviation and space businesses. Boeing expects another strong year, Chairman and CEO Jim McNerney said, despite its well-publicized loss of a massive Air Force tanker contract and long delays in its premium 787 airplane project. AviationWeek.com (23 Apr.)

China's listed companies see combined profits up 55%
Combined profits on the more than 400 listed Chinese companies climbed 55% in the first quarter, thanks largely to Beijing reducing the corporate income tax. Real estate companies saw their combined profits rise nearly fourfold. Other sectors with a growth rate of 200% or more were agricultural, forestry, animal husbandry and fisheries, and information equipment. China Daily (Beijing) (24 Apr.)

Economics

Interest-rate derivatives indicate Libor may rise more
Interest-rate derivatives point to possible continued increases in the London Interbank Offered Rate for dollars as banks remain reluctant to lend to each other. After a high of 90 basis points earlier this week, the Libor-OIS spread is now 88 basis points. Market insiders speculate that lenders have manipulated the Libor to keep their borrowing costs from increasing. Bloomberg (24 Apr.)

Geopolitical/Regulatory

China may recall ship carrying arms to Zimbabwe
China says it may recall a ship carrying weapons bound for Zimbabwe. South African port workers refused to unload it. Mozambique and Angola refused it access to their ports. Zambia, which chairs the Southern African Development Community, said the weapons could deepen Zimbabwe's election crisis. A Chinese Foreign Ministry spokeswoman said the arms contract was signed last year and was "unrelated to recent developments" in Zimbabwe. Reuters (22 Apr.)

China bans funds from buying certain corporate debt
The China Securities Regulatory Commission has ordered the country's funds to avoid buying unsecured medium-term corporate debt. Although The People's Bank of China said earlier this month that it would allow the sales, the regulator said it needs additional time to determine whether the trading volumes will be active enough. The commission didn't mention whether the order applies to banks, insurers and other companies. Bloomberg (24 Apr.)

Futures industry asks Indian PM to scrap tax
The U.S.-based Future Industry Association has asked India's prime minister to end plans to tax commodities futures trading. India's commodities markets were created five years ago and already have entered the ranks of the top 10 exchanges in the world. The growth is due to India's growing economy, vast agricultural sector, and the traditional demand of its people for gold and silver. Financial Times (23 Apr.)

Financial Products

UBS derivatives fund to focus on shipping futures
UBS plans to introduce a derivatives index for institutional investors that tracks coal and iron ore prices and the Chinese economy. The UBS Blue Sea index will be built on shipping futures, specifically dry-bulk forward freight agreements. UBS aims to create the alternative asset for banks and hedge funds hunting for a market not affected by the credit crunch or U.S. economic slowdown. Financial Times (23 Apr.)

Ethics

Samsung saga shows how families rule South Korean economy
The resignation in disgrace of Samsung Group's chairman underlines a paradox of South Korea: the fast-growing, modern economy is still dominated by a handful of family fiefdoms. The 30 largest family groups, known as chaebol, control almost 40% of the economy, the Bank of Korea estimates. The New York Times (24 Apr.)

Berjaya Sports Toto May Breach Barrier

2008-04-24T00:48:00.000-07:00

On 18 February 2008, the Biz News section of the New Straits Times newspaper (page 41) talked about Berjaya Sports Toto Bhd staging a technical rebound (on its share price) on market talk of a major shareholder taking private the company.

The company had then made annoucement to clarify that after due and diligent inquiry with its directors, major shareholders and all such other relevant persons familiar with the matter of the Company, none of the aforesaid has any plans to privatise the company, as reported in the said news article.

On 22 April 2008, the rumour of privatisation resurfaced with Berjaya Land Berhad's intention to spend up to RM250 million to buy more of Berjaya Sports Toto Bhd shares from the open market. The intention was seen to be a prelude to the privatisation of the latter.

Now, what is a privatisation?
Main shareholders bring a company for listing by issuing and selling new shares to the public. The price of these shares create wealth to existing owners because the public or new investors are willing to pay for the new shares. Privatisation is the opposite of a listing. The major shareholders is now willing to pay the public investors a price to buy back all the shares that the major shareholders do not own.

Why privatise?
There are few reasons for privatisation and a common reason is that the major shareholder(s) feel that the company is undervalued by the investors. Hence, they would like to take the opportunity to purchase back all the shares not own by them and delist the company.

Impact of privatisation to our investment?
In most cases and especially if the company is a favourite among investors, the major shareholder(s) need to pay a price higher then market value in order to be able to buy the shares from the public/investors. The public/investors want to be compensated for letting go the shares of the company they liked. If that materialises, our investment can be realised at a higher valuation than our cost of investment and of course enabling us to register a profit.

Berjaya Sports Toto Continued Its Share Buyback

2008-04-24T00:02:00.000-07:00

Subsequent to the dividend declaration, Berjaya Sports Toto continued to manage its capital via the share buyback programme. During the period from 7 to 12 March 2008, the company paid RM10 million to purchase a total of 2,030,072 shares at price ranging from RM4.82 to RM5.10.

The price paid was above our cost of RM4.77 (after dividend).

We continue to like the stock for its dividend payout and the continuous share buyback programme, which is a way to return excess capital to its shareholders.

Financial Teasers 21 April 08

2008-04-21T19:24:00.001-07:00

Top Stories

U.K. unveils unprecedented bond swap plan
Britain's central bank moved to help the U.K.'s ailing banking system with an unprecedented £50 billion injection. The Bank of England will allow lenders to swap assets for government-backed bonds in an attempt to restore confidence sapped by the credit crunch. Finance minister Alistair Darling tried to head off criticism of the plan by insisting the move was not a bailout and that Britain's banks would have to repay the credit. ClipSyndicate/Bloomberg (21 Apr.) , The Times (London) (21 Apr.) , Financial Times (20 Apr.)

Traders doubt banks' worst days are done
Bets against bank stocks intensified again with speculators lining up more put option contracts, which offer insurance against share price falls. The negative sentiment appeared early last week after news of Wachovia's first-quarter loss and its need to raise $8 billion in added capital, said Andrew Wilkinson, senior market analyst at Interactive Brokers. "People are beginning to understand how big the iceberg is, but there is still an overwhelming sense of fear out there," he said. Financial News Online (21 Apr.)

BofA to sell shares in China bank to raise capital
Bank of America is planning to sell part of its 9% stake in China Construction Bank, sources say. BofA is also considering exercising its options to buy more shares in China's second largest bank at prices will below market rates. The bank's two-pronged approach is an effort to offset writedowns while preserving relations with the Chinese bank. Financial Times (21 Apr.)

Speculators not to blame for grain prices, U.S. board to say
Hedge funds and other speculators are not responsible for rising agricultural commodities prices, U.S. regulators will say this week. The U.S. Commodity Futures Trading Commission is meeting farmers and traders on Tuesday and will say prices have been driven by high demand, weather, government trade restrictions and the impact of the weaker dollar. Financial Times (20 Apr.)

Biotech crops draw new interest with global grain shortage
Farmers and food producers who have avoided genetically modified grains because they feared consumer backlash are changing their minds as food prices soar. After prices tripled in the past two years, manufacturers in Japan and South Korea are for the first time buying genetically modified corn to use in soft drinks, snacks and other foods. The New York Times (21 Apr.)

Hedge funds to pump up to $8 billion into National City
The 10th-biggest U.S. bank is set to receive an infusion of $7 billion to $8 billion from a group of mutual funds and hedge funds. National City Bank is expected to announce the deal with the group, which is led by the private equity firm Corsair Capital. Financial Times (21 Apr.)

Oil tops $117 a barrel after OPEC refuses to increase output
Crude oil spiked above $117 a barrel after OPEC denied pleas from the U.K. and Japan to increase output. The oil cartel's secretary-general blamed the historically high price on a weak dollar and speculators. Bloomberg (21 Apr.)

Market Activity

Asian markets climb on optimism, Chinese action
Asian stock markets advanced Monday as optimism and government action in China lifted investors. Shares traded in Shanghai and Shenzhen rose after Chinese regulators announced rules Sunday designed to support markets that have lost more than 40% since fall. Exporters such as Canon Inc. and Honda Motor Co. headlined the surge in Tokyo after the dollar gained ground against the yen. Financial firms such as Commonwealth Bank gained in Sydney on hopes the global credit crunch may be ending. MarketWatch (21 Apr.)

Interbank bonds in China rise more than 50% in Q1
China's interbank bond market rose to $67 billion in the first quarter, up nearly 52% from last year, the People's Bank of China said. Most of the total came from short-term bonds and so-called policy financial bonds, the central bank said.
People's Daily (China) (19 Apr.)

Economics

Dollar's plunge helps U.S. multinationals
Coca-Cola, IBM and Google all boosted first-quarter earnings thanks to the declining value of the dollar. Economic growth in Europe, China and Brazil is helping companies that get most of their revenue from abroad. The dollar's 6.4% decline against a basket of currencies this year made U.S. products cheaper overseas and increased the value of foreign sales when they are converted to dollars. Bloomberg (18 Apr.)

Spain pushes stimulus package to counter housing bust
Spain's government rushed approval of tax cuts and stimulus spending aimed at kick-starting an economy burdened by slumping house prices and the global credit shortage. Madrid is tapping a budget surplus for the program expected to cost $28 billion over two years. The measures include a $637 tax rebate to all workers and pensioners. Bloomberg (18 Apr.)

Consumer credit looms as next threat, Citigroup says
The massive losses beating up the banking industry have come from troubled corporate and leveraged loans. There's more trouble on the horizon as consumers default on credit cards and loans, Citigroup says. Telegraph (London) (21 Apr.)

Geopolitical/Regulatory

Energy-rich nations in control at Rome meeting
A global trend toward resource nationalism -- energy-rich countries maximizing their returns -- is not expected to let up at a forum in Rome. Consumer countries and international oil companies seeking greater access to oil and gas fields are finding that the producing countries are in control.
ClipSyndicate/Bloomberg (21 Apr.) , Reuters (20 Apr.)

German firms fear China backlash over Tibet protests
German business leaders worry they will lose out if China uses its economic power to retaliate against Western criticism of its Tibet crackdown. Germany has more than 200,000 jobs dependent on exports to China. Spiegel Online (20 Apr.)

Refugees flooding out of Zimbabwe
The flow of people into South Africa has surged in the three weeks since Zimbabwe's disputed election and during the violent crackdown that followed, South African and Zimbabwean human rights groups say. Robert Mugabe's government in Harare is using food as a weapon and giving much of the United Nations-donated grain to supporters of the ruling party, said a Zimbabwean who crosses the border often to trade. "As we speak," he said, "people are starving." International Herald Tribune (21 Apr.)

Financial Products

Report reveals shift in investment habits in Asia
A report from Barclays Capital shows that Asia's affluent private investors are increasingly interested in more conservative investment products than leveraged, short-term financial vehicles. In its Wealth Management survey of Asia excluding Japan, BarCap found that the three most important product features are growth, diversification and liquidity, according to wealth managers. Financial Times (20 Apr.)

Ethics

FSA criticised for handling of Global Trader Europe
The Financial Services Authority is being criticised for allowing Global Trader Europe to continue writing new business for more than a month after the broker informed the agency that it was in trouble. GTE's management brought in the FSA in to address problems with the client that eventually led to GTE's collapse, sources say. GTE's clients are expected to lose a high percentage of their cash. Telegraph (London) (21 Apr.)

SEC, states investigate auction-rate bond market collapse
U.S. states and the Securities and Exchange Commission are among those investigating the virtual disappearance of the auction-rate bond market. Citigroup predicted last week that the $330 billion market that started to unravel in February will "cease to exist." Borrowers are replacing the bonds, whose yields are set through periodic auctions, because the market's collapse raised borrowing costs for taxpayers to as high as 20%. Bloomberg (21 Apr.)

HDFIV Report Card @ 18 April 2008

2008-04-18T04:31:00.000-07:00

Performance
We are registering a return of 5.76% so far, outperforming KLCI by 9.41% since inception (on 1 March 2008). KLCI is still down 3.66% since 1 March 2008. Berjaya Sports Toto and Bursa Malaysia are the top performers for our HDFIV this week, both registering returns of 7% and 6% respectively due to increase in price and the dividend income.

Purchase
No purchase this week.

Sell
No selling this week.
Asset allocation
We are holding about 25% cash and 75% equity at the moment.

Financial Teasers 17 April 08

2008-04-17T04:33:00.000-07:00

Top Stories

Rice rockets as grain prices rise
Rice futures in Chicago climbed for a fourth day as Turkey and the Philippines sought to buy the grain and global supplies dwindled. Wheat, corn and soybean prices also rose. "Compared with other grains, rice is the latest one to join the commodities rally," said Hiroyuki Kikukawa, an analyst at IDO Securities in Tokyo. ClipSyndicate/Bloomberg (17 Apr.) , Bloomberg (17 Apr.)

Australia's years of drought key to rice shortage: Six years of drought have dried up 98% of Australia's rice crop. The drought's effect on rice has produced the greatest impact on the rest of the world and is a key factor in skyrocketing prices. Many scientists believe it is an early signs that global warming is beginning to reduce food production. International Herald Tribune (17 Apr.)

Welch calls into question Immelt's credibility
General Electric Co. chief executive Jeffrey Immelt has to repair his credibility after the company surprised investors by cutting its profit forecast for the year, former CEO Jack Welch said. GE said financial market turmoil cut the value of investments and hurt end-of-quarter deals. The shares fell the most in more than two decades on April 11, the day the lower profit target was announced. "The company has to convince investors that something is going to change," JPMorgan Chase analyst Steve Tusa said. The New York Times (17 Apr.) , Bloomberg (16 Apr.)

Worries of gamed Libor rate may raise money-market rates
Money-market rates that began surging last year as the U.S. housing slump worsened may jump again on concerns British banks may be deliberately understating their borrowing costs. The British Bankers' Association threatened to ban members that give misleading quotes to rig the daily Libor average of rates at which the banks lend to each other. The Bank for International Settlements said in March some lenders may be manipulating the Libor fixing process to prevent their borrowing costs from rising. Bloomberg (17 Apr.)

Investment banks seeking replacement for Libor: Investment banks are exploring replacements to a key benchmark for short-term interest rates, the London interbank offered rate, amid frustration with the way that the index is constructed. Libor is used for settlement of interest rate contracts on many of the world's futures and options exchanges. The Wall Street Journal (subscription required) (17 Apr.) , Financial Times (16 Apr.)

U.K. works on plan to ease mortgage funding shortage
The British Treasury is understood to be completing a plan whereby the Bank of England would allow banks to trade mortgage-backed assets for government bonds instead of cash. The goal is to get the credit markets moving and lenders would be able to use the bonds as collateral for loans between themselves. "We have taken and will continue to take measures to try to ease the liquidity pressures in the financial sectors," said Sir John Gieve, deputy governor of the central bank. The Times (London) (17 Apr.) , Telegraph (London) (16 Apr.)

Report: Freddie Mac to ease conditions for big home loans
Freddie Mac is expected to announce a deal with Wells Fargo & Co., JPMorgan Chase & Co., and Citigroup Inc. that would make more funds available for big home loans. The agreement would open up loans between $417,000 -- the normal limit on mortgages that can be sold to Freddie Mac and Fannie Mae -- and the new $729,750 limit set by the economic stimulus package in February, the Wall Street Journal reported. Reuters (17 Apr.)

U.S. trends likely to push corn prices higher
Record U.S. corn prices, up more than 50% from a year ago, are likely to rise even further. American farmers are off to a slow start planting this season's crop due to rains and soggy fields. Farmers have switched more land from corn to high-priced soybeans. Reuters (16 Apr.)
Top debt rating for Brazil seems less certainBrazil has seen so many improvements in its macroeconomic performance in recent years that investors thought an investment grade bond rating would come soon. Analysts and ratings agencies are concerned that Latin America's largest economy may not be able to sustain its pace of GDP growth, and that it will struggle with rising inflation. "The country still has a relatively modest growth record," said Shelly Shetty, lead analyst on Brazil at Fitch Ratings. "Are we confident the volatility in Brazil's growth has been reduced? That's what we're looking at." Financial Times (16 Apr.)

Market Activity

Exporters, resources lead Asian stock markets increase
Gains on Wall Street spread to Asian stock markets Thursday. Tokyo shares gained on confidence in exporters such as Honda Motor Co. Resource companies in Sydney and Hong Kong rose amid talk that mining giant BHP Billiton could renew its takeover effort of rival Rio Tinto. Chinese stocks remained volatile after the central bank moved to cool inflation by increasing reserve requirements on banks. MarketWatch (17 Apr.)

Results from JPMorgan, Wells Fargo draw investor backing
In this financial climate, it seems investors are happy with any news short of complete disaster. JPMorgan Chase and Wells Fargo recently reported profit drops, which triggered a rally for troubled bank stocks. Analysts and investors alike seem somewhat soothed by news that two of the strongest U.S. banks remain well-capitalized and profitable despite the continuing crisis. ClipSyndicate/Bloomberg (16 Apr.) , The Wall Street Journal (subscription required) (17 Apr.)

Bottom call by bank CEOs doesn't sway investors
The heads of JPMorgan Chase & Co., Lehman Brothers Holdings Inc., and Goldman Sachs Group Inc. all say the worst days are over for banks. Investors have shown they don't believe it. Total write-downs were about $97 billion at the end of December, then surged to $181 billion by the end of February. Until banks disclose the full extent of their write-downs and credit losses "people are going to sit on the sidelines," said Rose Grant, managing director of Eastern Investment Advisors. ClipSyndicate/Bloomberg (16 Apr.) , Bloomberg (16 Apr.)

Bond traders disappearing in poor-performing Colombia
Colombian brokerages are pulling back from bond trading as the country has become the worst performer of Latin America's major debt markets. Colombia's benchmark bonds dropped 17% in the past two years. The country's five biggest bond trading firms have slashed the number of traders they employ by 80% in that time. Bloomberg (17 Apr.)

Rio Tinto shares rise on talk of higher BHP offer
Shares in Rio Tinto rose to a four-month high in Sydney Thursday on rumors that mining rival BHP Billiton may increase its $147 billion hostile bid. Rio Tinto in February rejected a sweetened all-stock offer by Melbourne-based Billiton, saying the bid undervalued the mines and growth prospects of the world's third-largest mining company. ClipSyndicate/Bloomberg (17 Apr.) , The Sydney Morning Herald (17 Apr.)

Economics

Fed's Beige Book shows inflation up, growth rate down
New data from the U.S. Federal Reserve Bank show a worrying increase in inflation along with a growing economic slowdown. The downbeat Beige Book summary of regional economic conditions said manufacturers planned to raise selling prices to recover increases in their raw material costs. Analysts viewed the report as supporting another Fed interest rate cut on April 30. Reuters (16 Apr.)

U.S. retailers cutting back -- on financial data
Along with grim economic times, American retailers are revealing less of the financial information they have long shared with investors. This year, Starbucks, CVS Caremark, Macy's, and Jos. A. Bank have stopped the standard industry practice of reporting monthly sales and estimating quarterly profit. The stores say practices are outdated and encourage short-term decision-making. Others suspect the real reason is to avoid issuing embarrassing numbers that can drive down a retailer's stock price.The New York Times (17 Apr.)

Global banking regulators look to toughen standards
The world's top banking regulators moved to toughen rules that the credit crisis exposed as too lax. The proposals from the Basel Committee on Banking Supervision, which sets global standards for banking regulation, aim to patch weaknesses in the global regulatory structure. The committee said the measures would push banks to establish risk-management methods and improve procedures for valuing and disclosing assets. Financial Times (17 Apr.) , The Wall Street Journal (subscription required) (17 Apr.) , International Herald Tribune/Reuters (16 Apr.)

China's central bank boosts capital reserve ratio to 16%
China's central bank announced that it will raise the amount of money lenders are required to hold in reserve by half a percentage point, to a record 16%. The People's Bank of China has raised the ratio three times this year and 10 times last year. Goldman Sachs says the increase demonstrates the central bank's monetary tightening strategy, which the investment bank maintains will not be enough to control expansion or inflation. People's Daily (China) (17 Apr.)

Financial Products

Claymore launches first solar exchange traded fund
The Claymore/MAC Global Solar Energy Index fund, which tracks 25 mostly foreign companies that make equipment, produce materials or provide services related to solar energy, launched earlier this week. Index Universe notes that only about 200 publicly traded companies have solar energy interests. U.S. News & World Report (15 Apr.)

Global banking regulators look to toughen standards
The world's top banking regulators moved to toughen rules that the credit crisis exposed as too lax. The proposals from the Basel Committee on Banking Supervision, which sets global standards for banking regulation, aim to patch weaknesses in the global regulatory structure. The committee said the measures would push banks to establish risk-management methods and improve procedures for valuing and disclosing assets. Financial Times (17 Apr.) , The Wall Street Journal (subscription required) (17 Apr.) , International Herald Tribune/Reuters (16 Apr.)

China's central bank boosts capital reserve ratio to 16%
China's central bank announced that it will raise the amount of money lenders are required to hold in reserve by half a percentage point, to a record 16%. The People's Bank of China has raised the ratio three times this year and 10 times last year. Goldman Sachs says the increase demonstrates the central bank's monetary tightening strategy, which the investment bank maintains will not be enough to control expansion or inflation. People's Daily (China) (17 Apr.)

Financial Products

Claymore launches first solar exchange traded fund
The Claymore/MAC Global Solar Energy Index fund, which tracks 25 mostly foreign companies that make equipment, produce materials or provide services related to solar energy, launched earlier this week. Index Universe notes that only about 200 publicly traded companies have solar energy interests. U.S. News & World Report (15 Apr.)

Financial Teasers 14 April 08

2008-04-14T21:15:00.000-07:00

World leaders meeting in Washington agreed to support a World Bank "New Deal" to hold down climbing food prices that have led to riots in some poor nations. The call for donors to provide $500 million for short-term food relief came on the final day of the World Bank and International Monetary Fund spring meetings. Financial Times (13 Apr.)

Paulson urges poor countries to avoid food, energy controls: U.S. Treasury Secretary Henry Paulson urged developing countries struggling with soaring food and energy costs not to use price controls or subsidies. Direct government intervention may do more economic harm than good to long-term growth, Paulson said in a speech to the World Bank's development committee in Washington. They "tend to create fiscal burdens and economic distortions while often providing aid to higher-income consumers or commercial interests other than the intended beneficiaries," he said. Bloomberg (13 Apr.)

Wachovia to raise billions to shore up balance sheet

Wachovia, which dived into adjustable-rate mortgages with the acquisition of Golden West Financial Corp., is expected to announce as early as today that it plans to raise several billion dollars in fresh capital from outside investors. It appears likely that Wachovia will receive a cash injection of up to $7 billion, and investors will receive shares priced at a 15% discount to the bank's Friday share price. Financial Times (14 Apr.) , The Wall Street Journal (subscription required) (14 Apr.)

Deutsche Bank, Citigroup have most unsold LBO loans

Banks worldwide hold about $200 billion of unsold leveraged buyout debt. Deutsche Bank, with $55 billion, has the largest share of the debt, followed by Citigroup with $43 billion, according to a BNP Paribas report. Bloomberg (11 Apr.)

World Bank considers super fund plan for Africa

The International Finance Corp., the private-sector lending arm of the World Bank, might encourage sovereign wealth funds to invest in a super fund that would channel money into Africa's emerging markets. IFC Chief Executive Lars Thunell said the proposal is to develop a new asset class, not simply aid. Last week, World Bank President Robert Zoellick asked SWFs to invest 1% of their assets in African equities. Financial Times (13 Apr.) , Bloomberg (12 Apr.)

Individuals see cash frozen in auction-rate securities

Retail investors who thought their money was safe in auction-rate securities have learned their money is stuck since trading in the securities seized up two months ago. Though Wall Street heavyweights and major corporations also have been stung, many of them appear to have bailed out of the market ahead of individuals. Institutional investors held just 30% of all auction-rate securities issues at the end of last year, down from about 80% two years earlier. The New York Times (13 Apr.)

Property prices falling in more of the world's boom areas

The bursting U.S. housing bubble is mirrored in dropping real estate prices in Ireland, Spain, the Baltic states and parts of India. Experts predict that some countries, like Ireland, will face an even tougher adjustment than the U.S., with the possibility of a wholesale collapse of the property market. International Herald Tribune (14 Apr.)

Delta, Northwest to pursue merger without pilots deal

The long-discussed merger of Delta and Northwest airlines may take off this week without agreement on how the combined carrier would sort out seniority status for 11,000 pilots. Sources told the Atlanta Journal-Constitution that Delta will try to cut a deal with its 6,000 pilots, announce the merger, and negotiate with Northwest's 5,000 pilots later. Seniority-rights battles "could go on for years," airline analyst Robert Mann said. The Atlanta Journal-Constitution (free registration) (13 Apr.)

Market Activity

Asian stocks drop on falling GE profits, consumer spirits

Bad news from the U.S. overshadowed the Group of Seven's promised support for the dollar, depressing Asian stock markets on Monday. GE's surprise 6% profit drop on Friday made investors shudder ahead of the upcoming quarterly earnings season. Asian markets also reacted to a report that U.S. consumer sentiment hit its lowest level since 1982, a year of low growth and high inflation. International Herald Tribune/Reuters (13 Apr.)

Bond market regaining faith, quits bidding up Treasuries

In an indication that bond markets are returning to normal, traders have quit paying huge premiums for U.S. Treasury bonds. Three weeks ago, traders were willing to lend cash at rates 2 percentage points less than the Fed's target for overnight loans if they could obtain Treasuries as collateral. Now, the gap is back in line with the 0.06 percentage point average in the 10 years prior to August, when subprime mortgage losses spread. Bloomberg (14 Apr.)

Profits for Philips Electronics falls 75%

Royal Philips Electronics NV said first-quarter profit fell 75% from last year due to falling U.S. TV prices and its sale of shares in Taiwan Semiconductor Manufacturing Co. Europe's largest consumer electronics maker sold most of its chip assets in a shift to areas with more stable earnings, such as medical equipment and lamps. ClipSyndicate/Bloomberg (14 Apr.) , Bloomberg (14 Apr.)

Metal, mining firms from emerging markets flock to LSE

IPOs by metals and mining companies on the London Stock Exchange and Alternative Investment Market exceeded all other sectors last year. The 22 deals raised €4.5 billion. The LSE is poised for another good year thanks to emerging markets' metal and mining firms. Last week it announced IPOs from the sector worth €1.6 billion. Financial News Online (11 Apr.)

Economics

G7 warns of intervention to prop up dollar

Finance ministers and central bank governors from the world's seven biggest economies warned they may intervene in currency markets to support the weak dollar. The new posture is seen as a U.S. concession after European governments complained the euro's rise to record highs is the result of the dollar's plunging value. ClipSyndicate/Bloomberg (13 Apr.) , The Times (London) (14 Apr.)

ECB leader says Europe can't afford interest rate cuts

The European Central Bank is unable to cut interest rates this year because inflation is likely to top the allowed limit of 2% in both 2008 and 2009, a bank policymaker said. Yves Mersch, who heads Luxembourg's central bank, is at least the fourth ECB policymaker to suggest last week that the bank ECB will ignore the IMF's advice to cut interest rates in line with the U.S. Federal Reserve and the Bank of England. Bloomberg (14 Apr.)

Spreading inflation may force U.S. to veer from easy money

U.S. officials have started talking about action against the dollar's falling value at a time when inflation has seemed secondary to Washington. The Fed's easing of the money supply is the opposite of the normal inflation cure. Group of Seven finance ministers said Sunday they could intervene to support the dollar. The G7 hopes tough talk will be enough, said Eswar Prasad, a Cornell University economics professor and former International Monetary Fund official, but he thinks markets will see it as a bluff. Reuters (13 Apr.)

European executives see gathering economic clouds

Some of Europe's leading executives believe the eurozone will be hit with the worst effects of the credit crunch within six months. European chief executives have been more optimistic than their U.S. rivals, in part because of their international scope and focus on emerging markets. But with the euro at record highs and booming raw material prices, many executives are growing worried about the wider impact of the U.S. recession. Financial Times (13 Apr.)

Geopolitical/Regulatory

G7 leaders vow regulation to balance financial excesses

Governments of the Group of Seven free-market democracies promised action against the financial excesses that have led to global economic fears. Leaders promised that within 100 days they would set higher bank capital requirements and direct banks to reveal the full extent of their losses in their first-half earnings reports. Reuters (12 Apr.)

Paulson welcomes IMF tracking of currencies, sovereign funds

U.S. Treasury Secretary Henry Paulson said the International Monetary Fund should improve its surveillance of currency exchange rates and sovereign wealth funds. Paulson welcomed the IMF developing a set of best practices for sovereign funds and said it also should work with countries receiving the state-controlled investments. CNBC/Reuters (12 Apr.)

Financial Products

PowerShares launches actively managed ETF for stocks

Invesco PowerShares Capital Management LLC has launched the first exchange traded funds that will actively manage investments in stocks. The three new PowerShares ETFs will disclose their holdings daily on a website for the funds. The portfolios may only be changed on the last business day of each week, according to the PowerShares prospectus. InvestmentNews (11 Apr.)

Ethics

ANZ to investigate conduct involving failed brokerage

ANZ Banking Group will conduct an internal review to assess whether any employee has breached policies or ethical standards in securities lending. Secured creditors of Opes, which included ANZ, stepped in after Australian brokerage Opes Prime was put in receivership. The creditors sold the shares that Opes clients had placed with the failed stockbroker in a bid to recoup more than $1 billion in loans Opes owed. Opes Prime clients say in lawsuits that the shares still belong to them and want them returned. The Sydney Morning Herald (14 Apr.)

Financial Teasers 11 April 08

2008-04-11T20:11:00.000-07:00

Top Stories

Subprime barometer shows shortcomings
Dealers and investors trying to find a price for mortgage securities have drifted toward the imperfect ABX derivative index. The index tracks a portfolio of U.S. subprime mortgage bonds, which are infrequently traded compared with elements of other cash and derivative benchmarks. Investors have seen the index move far and fast on little fundamental news. Financial Times (10 Apr.)

Paulson to discuss creating stronger mortgage regulator
Treasury Secretary Henry Paulson plans to meet next week with the leaders of Fannie Mae, Freddie Mac and the Senate Banking Committee to hammer out legislation creating a stronger regulator for the mortgage sector. Paulson has helped expand the mortgage giants' investment holdings to ease the housing crisis, but has so far failed to work out a deal for a new regulator. Reuters (10 Apr.)

Expecting losses, Citigroup investors want to know plans
Citigroup is expected to report another major quarterly loss next week, but that news may be secondary. The banking giant is looking to shed businesses, reduce costs and tighten up business as investors press for reassurance that bank has the losses under control. "They're moving in the right direction, by divesting non-core assets, right-sizing the company and freeing up liquidity," said Chris Armbruster, an analyst at Al Frank Asset Management. CNBC/Reuters (10 Apr.)

Food price spikes help, hurt farming countries
High grain prices are making Latin American farmers rich and restoring the treasuries of many countries in the region, but consumers are hurting. Some governments have banned exports of staple foods or imposed price caps. Peru is promoting potato flour as an alternative to wheat. Argentines are encouraged to eat pork or chicken instead of grain-fed beef. Reuters (10 Apr.)

Philippines seeks wheat after China rejects sale
The Philippines finds itself searching for stocks of wheat in addition to rice after an overture to China was turned down. The episode highlights the growing problems food-importing nations face at a time of thinning grain supplies and rising prices. Bloomberg (11 Apr.)

Iceland buckles under global financial crisis
Iceland has been hard hit by the global financial crisis, and its government is searching for ways to fight off creditors. The country, once a symbol of economic prosperity, has seen its currency take an unprecedented plunge. The krona has dropped 20% against the euro so far this year. Spiegel Online (10 Apr.)

Market Activity

Asian markets mostly gain; GE stuns with 6% profit drop
Japanese, Indian and Chinese shares advanced on Friday on news that the subprime woes may be nearing an end. However, shares in Australia dropped for a fourth consecutive day. Meanwhile, General Electric shocked the market with a 6% decline to $4.3 billion in profits in the first quarter. MarketWatch (11 Apr.) , MarketWatch (11 Apr.)

Auction-rate securities market down by 15%
The market for auction-rate securities that used to be so appealing to U.S. municipal borrowers is shrinking by at least 15%, or $51 billion. Higher rates and a stalled market have led borrowers to convert or plan to replace at least $43.1 billion of the debt. Bloomberg (11 Apr.)

Economics

Bank of England cuts rate, with little immediate effect
The Bank of England cut a key interest rate by a quarter point to 5%, but it brought little immediate result. The central bank's statement didn't focus on recession threats but on inflation. Three-month interbank lending rate futures failed to drop and two mortgage lenders increased their fixed rate deals. Telegraph (London) (11 Apr.) , Financial Times (10 Apr.)

ECB holds rate at 4%
European Central Bank President Jean-Claude Trichet kept interest rates unchanged Thursday, as he has throughout the credit crunch, despite demands for action. Trichet has focused on battling inflation, now at a record 3.5% in the region. "We have one needle in our compass. We have to deliver price stability," he said. Critics say Trichet and the ECB have their heads in the sand and can't see the coming tidal wave. Telegraph (London) (11 Apr.)

Growing U.S. trade deficit surprises economists
The U.S. trade deficit grew from a revised estimate of $59 billion in January to $62.3 billion in February, the Commerce Department reported. The increase surprised economists because the economic slowdown was expected to suppress demand for foreign goods. Instead, import sales had their biggest jump in nearly a year. The New York Times (registration required) (11 Apr.)

China's trade surplus down 10.8% in first quarter
China's trade surplus dropped to $41.42 billion in the first quarter, a 10.8% decline year over year, according to China Customs. Total trade volume was $570.4 billion, a 24.6% increase, with exports at $305.9 billion and imports reaching $264.5 billion. China Daily (Beijing) (11 Apr.)

Geopolitical/Regulatory

G7 finance chiefs differ on how to respond to crisis
Group of Seven finance chiefs, meeting in Washington today, will probably disagree on how to address the global financial crisis. The officials plan to discuss market regulation to prevent a future crisis, but some analysts worry they won't broach the current market distress. The finance chiefs are expected to urge the private sector to ramp up efforts to ease the turmoil.
ClipSyndicate/Bloomberg (11 Apr.) , Bloomberg (11 Apr.) , Reuters (11 Apr.)

Bernanke says financial reforms needed quickly
Federal Reserve Chairman Ben Bernanke said that although the ongoing market turmoil is complicating efforts, overseers of the global financial system need to quickly take action to boost market confidence. "We do not have the luxury of waiting for markets to stabilize before we think about the future," he said. ClipSyndicate/Bloomberg (10 Apr.) , Reuters (10 Apr.)

IMF chief says U.S. rejected oversight program
Dominique Strauss-Kahn, head of the International Monetary Fund, said the U.S. refused to implement the fund's suggestions for supervising the financial markets. Most European countries implemented the IMF's Financial Sector Assessment Program, which requires assessments of the financial sector by an expert team, Strauss-Kahn said. The IMF can not be held responsible for "lack of supervision," he said. Reuters (10 Apr.)

Countries line up for Chinese free trade agreements
China secured its first free trade pact with a developed nation, closing a pact with New Zealand on Monday. The pact is seen as a means for China to acquire dairy products, food and raw materials -- products crucial to its economic expansion. Other countries are scrambling to secure similar deals with China. Forbes (09 Apr.)

Analysis: Chavez resumes nationalizations, socialist strategy
In the past week, Venezuelan President Hugo Chavez has moved to nationalize steelmaker Ternium Sidor, which is controlled by Techint of Argentina, as well as the Venezuelan operations of Mexico's Cemex. This comes over objections from Argentina and Mexico and shows Chavez is pursuing his strategy of developing a socialist state. International Herald Tribune/Reuters (10 Apr.)

Financial Products

Barclays launches FX volatility indexes
Barclays Capital launched BetaVol, Smart BetaVol and AlphaVol. The three FX volatility indexes are aimed at providing portfolio diversification and protection against sudden market downturns. "The FX volatility market has grown dramatically," said Andy Kaufmann, co-head of FX structuring at Barclays Capital. Structured Products (10 Apr.)

Blue Sky launches third tranche of Protected Income Plan
Blue Sky's third tranche of its Protected Income Plan offers a fixed growth rate of 10% per year over six years. PIP III's income payments are fixed and are not linked to the portfolio's performance. The plan requires a £10,000 minimum investment and closes on May 23. Investment Week (10 Apr.)

Ethics

Broker pleads guilty to participating in insider trading
Samuel Childs, 35, pleaded guilty to participating in an insider-trading ring in a case that involved former employees from UBS, Morgan Stanley, Bear Stearns and Bank of America. Childs, the last of more than a dozen defendants to plead guilty, said he accepted money in exchange for not reporting suspicious trading activity at Assent, the securities broker-dealer where he was employed. Reuters (10 Apr.)

HDFIV Report Card @ 11 April 2008

2008-04-11T20:05:00.000-07:00

(will try to update the chart later - unable to upload at the moment)

Performance
Kuala Lumpur Composite Index ("KLCI") increased from 1,221.98 (4 April 2008) to 1,246.79 (11 April 2008), representing an increase of 2.0%. Hengdai Equity Fund IV ("HDFIV")'s registered a return of RM26.64 or 0.31%, down from 1.37% in the previous week. So far, HDFIV is beating KLCI by 6.61%, lower compared to 9.54% a week ago. KLCI had a small rally on Wednesday and Thursday, increasing from 1,228.63 to 1,246.79, mostly boosted by plantation stocks. At the moment, our portfolio does not hold any plantation stocks hence not riding up together with the KLCI.

Purchase

Bought 700 units of Bursa Malaysia (Stock code 1818) today at RM8.70.

Sell

No disposals during the week.

Asset Allocation

We have increased the equity exposure to 76% after today's purchase of Bursa Malaysia. That leaves a cash buffer of about 24% which will easily replenish itself back to 50% thereabout come the third month's capital inflow.

Note: Asset allocation shows the three main categories that our money lies in. The main category which we are expected to invest in to make the return that we wanted is Equities. Secondly, Fixed Income is in the form of fixed deposits that provides stable but low return. This second category provides small return when the cash is yet to be utilised for investment. As there is a lock-in period for fixed deposit such as at least for two months (if the amount is less than RM5,000), there is a need to maintain cash in the form of 'pure' cash, which is the third category. The set back of holding 'pure' cash ("Cash") is that we do not earn any return at all.

Financial Teasers 10 April 08

2008-04-10T21:35:00.000-07:00

Top Stories

Yahoo, Microsoft collect allies in takeover battle
Source: CNBCYahoo is lining up partners to defend against a threatened takeover by Micrsoft. Yahoo will begin running Google's search ads alongside some of Yahoo's search results. Yahoo also may be close to a deal with Time Warner's AOL. Time Warner is considering folding its AOL unit into Yahoo, giving Yahoo cash to buy back its own shares. Meanwhile Microsoft was reported to be talking to News Corp. about a joint bid for Yahoo. CNBC (09 Apr.) , The Mercury News (San Jose, Calif.) (09 Apr.)

Volcker says credit crisis rooted in easy U.S. spending
Former Federal Reserve Chairman Paul Volcker said spendthrift Americans can blame themselves for the country's economic upheaval. "Financial crises do not happen in a vacuum and the current U.S. banking debacle is linked to imbalances in an economy that favored spending at the expense of saving," Volcker said Wednesday at a conference in New York. Forbes (10 Apr.)

Investor Wilbur Ross shopping for deals among banks, thrifts
A billionaire who made his fortune buying battered companies in the steel, coal and textile industries now is turning to banks and thrifts for bargains. "I believe the next phase of the cycle will be the failure of depositary institutions," Wilbur Ross said. Big banks can attract cash from sovereign wealth funds when they need more capital, but smaller and regional banks may not have that option, Ross said. Reuters (10 Apr.)

RWE offers up to £11 billion for British Energy
German utility company RWE offered up to £11 billion for British Energy, the U.K.'s nuclear operator. The power company would earmark its £4 billion share of the sale to a fund for the cleanup of nuclear reactor sites. British Energy is still considering whether to sell to one bidder or a consortium. Financial Times (09 Apr.)

Gazprom, Eni discuss gas pipeline from Libya to Europe
Russia's Gazprom and Eni of Italy are discussing a partnership to pipe natural gas from Libya across the Mediterranean to Southern Europe. The deal would increase Europe's dependence on Russia's state-controlled gas company. "Europe is sleeping as Gazprom makes every effort to become a global player and increase its grip on Europe," said Igor Tomberg, an energy expert at the Institute of World Economy and International Relations in Moscow. International Herald Tribune (09 Apr.)

Venezuelan oil minister says tax applies to all exporters
Venezuela plans to collect its planned windfall oil tax from all exporting private companies, including joint ventures formed with the national oil company, the country's oil minister said. The tax will bring in several billion dollars a year, Oil Minister Rafael Ramirez said. The government last week announced the new tax will take 50% of oil revenues above $70 per barrel and 60% of revenues above $100 per barrel. Reuters (09 Apr.)

IMF says commodities should keep Africa from slump
Africa should be able to avoid the global economic slowdown as an unceasing demand for commodities keep exports from the world's poorest continent flowing, the International Monetary Fund said. Africa's economy will probably expand 6.3% this year and 6.4% in 2009, compared with 6.2% last year, the IMF said in its World Economic Outlook report Thursday. In January, the IMF predicted Africa would expand by 7% this year. Bloomberg (09 Apr.)

Market Activity

Asian markets mixed; Seoul, Hong Kong rise from early lows
Asian stock markets were mixed Thursday, with declines recorded in Tokyo, Australia, New Zealand and Singapore. South Korea's Kospi rebounded from early declines after the country's central bank left a key interest rate unchanged at 5%. MarketWatch (10 Apr.)

Banks to use exotic derivative to hedge counterparty risk
Counterparty risk has become a huge issue in the massive over-the-counter derivatives market, prompting banks to develop a weapon against the risk. Risk managers will soon be able to use a revamped version of the so-called contingent credit default swaps to hedge exposure to other market participants. Financial Times (09 Apr.)

Economics

BoE faces tough call on interest rates, ECB likely to hold steady

Economists are urging the Bank of England to cut interest rates by at least a quarter point, citing falling housing prices, the dismal growth forecast and increased rates from mortgage lenders. But the bank's Monetary Policy Committee is also seeing the price of Brent crude soar to more than $109 a barrel and a strong performance from the manufacturing sector. Still, most forecasters expect the committee to cut the rate to 5% while a survey of economists expects the ECB to hold rates steady. ClipSyndicate/Bloomberg (10 Apr.) , Telegraph (London) (10 Apr.) , Bloomberg (10 Apr.)

IMF warns of 25% chance of global recession
The International Monetary Fund cut its forecast for growth in Western economies and said there is a one-in-four chance of worldwide recession. The IMF also warned that while the euro is overvalued, the Chinese renminbi and Japanese yen are undervalued. The fund said the UK will probably grow by about 1.6% in 2008 and 2009, much less than predicted by Chancellor Alistair Darling. Telegraph (London) (10 Apr.) , The Scotsman (Edinburgh) (10 Apr.)

Yuan rises to new mark against dollar
China's currency rose Thursday to trade at less than 7 yuan to the dollar, the first time the yuan has reached that mark since China unpegged it from the dollar in 2005. The yuan has gained 4.47% this year. People's Daily (China) (10 Apr.)

Dollar may emerge stronger after U.S. recession
If historical trends hold, a U.S. recession will signal the dollar's recovery from its long slide. In four of the past five recessions going back to the early 1970s, the dollar went higher after the downturn ended than it had been four months before it began. Some experts think the dollar will begin climbing in this year's second half, while others say it will be no sooner than the end of the year. Reuters (09 Apr.)

China's trade surplus down 10% in first quarter
The spreading economic slowdown has cut global consumer demand, shrinking China's quarterly trade surplus for the first time in more than three years. The trade surplus narrowed to about $41.6 billion in the three months to March 31 from a year earlier, Bloomberg News reported. Foreign direct investment almost doubled to $27.4 billion from a year earlier, the Ministry of Commerce said. Bloomberg (10 Apr.)

Geopolitical/Regulatory

Banks promise new rules to avert next credit crisis
The Institute of International Finance, representing hundreds of the world's largest financial companies, publicly acknowledged that banks made mistakes in the lead-up to the credit crisis and promised new rules to prevent a repeat. "We want to demonstrate we can do a better job within the industry," said Josef Ackermann, chief executive of Deutsche Bank and chairman of the institute's board. ClipSyndicate/Bloomberg (09 Apr.) , Financial Times (10 Apr.) , International Herald Tribune (09 Apr.)

New Bank of Japan head brings Chicago School mindset
The compromise candidate just confirmed as the Bank of Japan's new governor brings with him a free-market outlook gained from his education at the University of Chicago. Masaaki Shirakawa is believed to be resistant to the interest rate cuts some say are necessary. Goldman Sachs Group Inc. and Morgan Stanley say Japan is already in recession. Bloomberg (10 Apr.)

Nepal goes to polls day after violence kills at least 8
Polls in Nepal opened Thursday for an election seen as the best way to bring Maoist guerrillas into a parliamentary democracy. At least eight people were killed in three incidents in the tense western hill region. Nepal's 17.6 million voters will choose a special assembly that will rewrite the constitution and govern the nation in the meantime. International Herald Tribune (10 Apr.)

Financial Products

Deutsche Bank opens funds after spike in food prices
Deutsche Bank has launched two funds in Singapore that give retail investors a chance to profit from the rising cost of food. The DB Platinum Agriculture Funds (one in euro, the other in dollars) track the bank's own agriculture index, which invests in futures contracts. The funds drew $750 million in three weeks. Financial News Online (10 Apr.)

Ethics

Accounting rules "irretrievably broken"
A report by members of the Financial Accounting Standards Board and the International Accounting Standards Board concludes that the accounting rules for banks' off-balance-sheet interests must be overhauled. "Completing a final standard by mid-2011 will be extremely difficult, perhaps impossible," the report says. Financial Times (09 Apr.)

U.S. prosecutors show corporations leniency
Under the Bush administration, the Justice Department -- once the prosecutor of corporate giants like accounting firm Arthur Andersen -- has turned to agreements that avoid court. Justice has entered so-called deferred prosecution agreements with more than 50 companies suspected of wrongdoing over the last three years. Some legal experts think the policy shift has led companies to test the limits of corporate anti-fraud laws. International Herald Tribune (09 Apr.)

Financial Teasers 8 April 08

2008-04-08T20:30:00.000-07:00

The huge price jump in agricultural and mining commodities is boosting the economies of the world's poor countries. Will they improve their economic future by investing the bounty? The lessons of the oil price boom of the 1970s suggest the answer depends on a country's political choices, says Pranab Bardhan, an economics professor at the University of California at Berkeley. International Herald Tribune (08 Apr.)

WaMu to stop offering mortgages through independent brokers

Washington Mutual plans to focus on offering mortgages through its retail bank branches as it puts an end to the wholesale side of the business. Legend Mortgage CEO Mitch Ohlbaum said a WaMu representative told him that Thursday is the last day to submit loan applications. Meanwhile, Washington Mutual appears set to receive a $5 billion cash injection from TPG. BusinessWeek (07 Apr.)

China to finance bulk of new Syrian oil refinery

China and Syria will team up to build an oil refinery in eastern Syria. China National Petroleum Corp. said an agreement the two countries signed last week calls for China to pay 85% of the cost to construct a refinery with a capacity of about 110,000 barrels a day. Forbes/Associated Press (08 Apr.)

Phase two of Novartis swoop for Alcon priced at $28B

Source: CNBCNovartis will become the world's biggest maker of eye-care products with a two-stage purchase of Alcon Inc. from Nestle SA. Novartis is buying 25% for $11 billion and has an option to buy another 52% for $28 billion. Nestle says it will use the money to reduce debt and expand its health-foods unit. CNBC (07 Apr.) , Bloomberg (07 Apr.)

Permira opens private equity office on U.S. West Coast
The U.K.-based private equity group Permira plans to expand its U.S. operations by opening a new West Coast office this year. The new location will focus on buying stakes in technology companies. Financial Times (07 Apr.)

Market Activity

Asian shares fall on profit-taking

Asian markets retrenched Tuesday as concerns of rising prices for crude oil and other raw materials hurt airline and steel stocks. Shares of Japanese financials declined when investors locked in profits after a strong run. Matt McKeith, head of equity dealing at First State Investments, called it a "breather" after "several good up days" for Asian shares. MarketWatch (08 Apr.)

Convertible issuance soars in Asia, falls elsewhere

Issuance of convertible bonds reached record levels in the Asia-Pacific region in the first quarter of 2008, according to Thomson Financial, but issuance dropped in the rest of the world. China was for the first time one of the top issuers, second only to the US, in part because of a $4.2 billion offer from Sinopec. Japan, Singapore and Malaysia also made the top 5. Financial Times (07 Apr.)

Other News

Percentage of firms with distressed debt hits 5-year high Financial Times (08 Apr.)
Alcoa Q1 profits cut in half by weak dollar, costly energy

Source: CNBCHigher energy costs and a weak dollar overcame a surge in the price of aluminum, cutting in half Alcoa Inc.'s first-quarter profit. The aluminum producer missed Wall Street's earnings expectations by 5 cents a share, but investors instead focused on high metals prices. "I think the fundamentals for aluminum could be quite strong over the next couple of years," said Brian Hicks, co-manager at U.S. Global Investors' resources fund. CNBC (07 Apr.) , Reuters (08 Apr.)

Economics

Rising wages, costs in Asia pushing inflation in West
Rising energy and labor costs have forced exporters even in poor countries to increase prices. While producers are passing on their higher prices, American consumers are able to buy less from exporting countries because of the falling value of the dollar. That contributed to U.S. consumers paying 4% more in the past year. But so far, Asian exporters have passed along only a portion of their costs. International Herald Tribune (07 Apr.)

Uptick in Indian wages, falling dollar turn IT services nearshore

North American companies are turning away from India as their offshore IT site in favor of the Western Hemisphere. A company used to be able to save 40% to 50% by hiring Indian firms to handle IT and other services, said Atul Vashistha, chairman at management consulting firm neoIT. But if the dollar keeps falling and Indian wages keep rising, that differential would shrink to 10%, he said. Spiegel Online (07 Apr.)
IADB lending mark shows Latin American expansionThe Inter-American Development Bank last year approved more loans and guarantees for projects in Latin America and the Caribbean since the debt crisis of 1999. "Much of the bank's lending last year was focused on investments that will help our members to deepen and consolidate the gains from booming commodity exports and growing trade with new markets in Asia," IADB President Luis Alberto Moreno said. Bloomberg (07 Apr.)

Vietnam's middle class becoming a prized market

Its emerging urban middle class could turn Vietnam into one of Asia's biggest consumer markets, said Tung Kim Nguyen, a partner at Indochina Capital. Investors attending the Credit Suisse Asian Investment Conference were told Vietnam's other advantages included political security, an appreciating currency and plans to privatize more state-owned firms.
FinanceAsia.com (08 Apr.)

Geopolitical/Regulatory

Financial officials call on governments to work together

Source: CNBCAhead of the Group of Seven meeting in Washington this week, several top financial leaders have called for a coordinated government effort to prevent another crisis and protect the global economy. So far, no firm proposals have emerged and U.S. officials have kept unusually quiet.
CNBC (08 Apr.) , CNBC/Reuters (08 Apr.)

Former SEC heads criticize proposed Bush revamp of agency

Three former leaders of the U.S. Securities and Exchange Commission say the Bush administration's proposed overhaul of financial regulation would weaken the agency. SEC chiefs under Presidents Reagan, Clinton and George W. Bush said it was wrong to change the SEC's approach to one that solves problems through informal discussions with market actors. "We have to have an enforcement approach," said David Ruder, an SEC chairman under Reagan. Bloomberg (08 Apr.)

Mortgage brokers oppose Fed rules on fee disclosure

The public comment period ends Tuesday for proposed Federal Reserve rules aimed at limiting abusive mortgage lending. One rule would bar mortgage brokers from receiving yield-spread premiums unless consumers state in writing that they understand their broker will be paid more for arranging their higher-rate loan. Mortgage brokers say the proposed Fed rules are unfair. MarketWatch (07 Apr.)

China allows banks to buy shares on U.S. markets

Chinese banks will be allowed to buy on U.S. stock markets for institutional investors, the country's banking regulator said. The banks also will be permitted to invest in U.S. mutual funds if they get approval from U.S. regulators, the China Banking Regulatory Commission said. Chinese banks are already allowed to direct money into markets in Hong Kong, Japan, the U.K. and Singapore. Financial News Online/Dow Jones Newswires (07 Apr.)

Financial Products

Technical standard sought for credit derivatives market

The scope of counterparty risk if Bear Stearns had collapsed last month, potentially scarring the $45 trillion credit derivatives market, galvanized regulators and bankers to fix flaws in the market's infrastructure. The New York Federal Reserve has pushed to computerize over-the-counter derivatives processing to improve the speed and accuracy. Many trades are still confirmed by e-mail, instant messaging and fax. Financial Times (07 Apr.)

Financial Teasers 4 April 08

2008-04-04T19:00:00.000-07:00

Top Stories

Hedge funds face new threat as investors bail
First, banks started pulling hedge fund credit lines and demanding greater security against loans. Hedge funds were forced to sell assets and incur heavy losses. Now, investors are pulling out of the hedge funds, increasing the risk of more fire sales of assets to raise capital to meet withdrawals. Financial Times (03 Apr.)

Officials, executives defend their actions in Bear Stearns takeover
Testifying before the Senate banking committee, top Wall Street executives and federal officials for the first time publicly explained the negotiations that led to JPMorgan Chase buying
Bear Stearns. Officials from the Federal Reserve, SEC and Treasury defended their roles in the deal and the government's rescue of the investment bank's creditors. ClipSyndicate/Bloomberg (03 Apr.) , International Herald Tribune (04 Apr.) , Bloomberg (04 Apr.)

Late payments by U.S. borrowers reach 16-year high
A study by the American Bankers Association found that 2.65% of U.S. consumer loans were at least 30 days past due in the fourth quarter. That's up from 2.44% in the third quarter and from 2.23% in the fourth quarter of 2006. The results show that credit trouble has spread from mortgages into other types of debt. Reuters (03 Apr.)

Spike in food prices triggers panic in developing nations
The prices of rice, corn, wheat and other food staples have been rising the past couple of years, but recent spikes have sparked food riots in Morocco and Yemen and driven governments to radical steps to make sure they have enough. Egypt, for example, has banned rice exports for the next six months. Economists say the problem stems from farmers planting crops for biofuel rather than food. ClipSyndicate/Bloomberg (04 Apr.) , The Washington Post (04 Apr.)

Thailand denies rumors it will reduce rice exports: Thailand, the biggest exporter of rice in the world, is not planning to reduce rice exports, according to a government official. "We are confident that Thailand has ample supply for both domestic consumption and exports," said Apiradi Tantraporn, head of the Commerce Ministry's Foreign Trade Department. The Guardian (London)/Reuters (03 Apr.)

Venezuela plans tax on oil sales to boost revenues
Venezuela's Congress is expected this week to give initial approval to a tax measure that will take half of oil revenues above $70 per barrel, and 60% of revenues above $100 per barrel. "Because of high oil prices, oil companies have excessive earnings that go beyond reasonable levels of profitability," legislator Angel Rodriguez said. "One way to distribute them to our people, who are the owners of the oil, is to create this tax."
CNBC/Reuters (03 Apr.)

Moody's warns about Latin America's maturing corporate debt
Moody's Investors Service said the amount of corporate debt in Latin America that will mature in the last six months of this year will reach $6.8 billion, up from less than $2 billion in the first half of the year. If the debt market slump continues, the companies may have trouble refinancing. "Debt maturities should be the main area of focus for liquidity risk in the region," Moody's analysts wrote. The "big spike in maturities in the second half of the year will test investor appetites for Latin American credit and the ease of corporate access to alternative sources of financing." Bloomberg (03 Apr.)

Analysis: Asian banks to emerge from subprime crisis OK
Analysts say that Asian banks will face losses related to the U.S. subprime meltdown, but they won't be as severe as the losses hitting UBS, Merrill Lynch and Bear Stearns. "They are nowhere near as embroiled as the large U.S. and European banks," said Jason Rogers, a credit analyst at Barclays Capital. Reuters (04 Apr.)

Other News

Former UBS chief launches campaign to overhaul bank Financial Times (03 Apr.)

Merger set up tumultuous decade for Citi The New York Times (registration required) (03 Apr.)

Market Activity

Asian markets mostly down, Sydney inches up
Japanese stocks ended the week down and Australian shares were propped up by gains by oil and mining companies. Tokyo's Nikkei 225 Average fell 0.7%, South Korea's Kospi slid 0.2% and India's Sensex dropped 2.2%. Meanwhile, the S&P/ASX 200 in Sydney gained 0.2%. Markets in Shanghai, Hong Kong and Taipei were closed Friday for a holiday. MarketWatch (04 Apr.)

Collapse of auction-rate securities market hits student lenders
No student loan-backed municipal bonds were sold in the first quarter of 2008, a situation that hasn't occurred in nearly 40 years, according to Thomson Financial. The lack of debt sales by public student-loan agencies is a result of the collapse of the auction-rate securities market. Bloomberg (04 Apr.)

Samurai bond issuance soars to nearly $5 billion
Yen-denominated bonds issued in Japan by foreign institutions more than quadrupled from $1.12 billion in the first quarter of 2007 to $4.95 billion in the same quarter this year. The boost in issuance of Samurai bonds highlights the attraction to Japan as a funding source during the global credit crisis. Financial Times (04 Apr.)

Economics

Bernanke says full benefit of rate cuts not yet realized
Federal Reserve Chairman Ben Bernanke said the full effect of the Fed's recent reductions in interest rates has not yet been realized by the economy. "Further actions will have to depend on how the economy evolves and we are looking of course at both sides of our mandate, growth and inflation," Bernanke testified at a Senate hearing. ClipSyndicate/Bloomberg (03 Apr.) , Reuters (03 Apr.)

RBA governor indicates Australia's economy is slowing
Glenn Stevens, governor of the Reserve Bank of Australia, said he expects inflation to hover around 4%. "I can't tell you at what point (interest) rates can start to come down," Stevens said. "I can't even promise that they might not rise again." The bank believes the Australian economy may be slowing, but Stevens said more evidence is needed. Forbes/Associated Press (03 Apr.) , The Herald Sun (Melbourne, Australia) (04 Apr.)

Investment banks boost borrowing from discount window
The Federal Reserve reported Thursday that large Wall Street banks averaged more than $38 billion in daily borrowing from the Fed's discount window. That's up from just under $33 billion the previous week and $13.4 billion during the first week the lending facility opened to the investment banks. CNBC/Associated Press (03 Apr.)

Service sector, jobless reports point to economic slowdown
For the third consecutive month, the U.S. service sector contracted in March. Meanwhile, government data show that the number of workers applying for unemployment benefits jumped to the highest level since September 2005. The reports reinforce concerns that the U.S. economy is sputtering. ClipSyndicate/Bloomberg (03 Apr.) , Reuters (03 Apr.)

Geopolitical/Regulatory

EU finance officials meet to address economic woes
Finance ministers and central bankers from the 27 European Union nations are meeting in Slovenia today and Saturday to address a slowdown in the region's economy and climbing inflation rates. They will try to develop a joint response to these problems, and the 15 countries that use the euro will discuss the currency's rapid acceleration against the dollar. ClipSyndicate/Bloomberg (04 Apr.) , International Herald Tribune (03 Apr.) , Forbes/Associated Press (04 Apr.)

Financial Products

Credit Suisse launches first ETN from its new platform
Credit Suisse's first exchange-traded notes began trading on the New York Stock Exchange. The ETN is tied to the Credit Suisse Global Warming Index, which is made up of 50 top ranking stocks of companies that take on climate change. Credit Suisse is the seventh issuer to enter the American ETN market. Structured Products (03 Apr.)

Ethics

SEC accuses London-based Pentagon Capital of fraud
The SEC has filed a complaint against Pentagon Capital Management, a London-based hedge fund, and its CEO, Lewis Chester, for allegedly scheming to defraud U.S. mutual funds and investors. The suit claims Pentagon defrauded the funds through deceptive market timing and late trading. Lawyers for Pentagon said they are confident they have legal and factual defenses to the claim. Reuters (03 Apr.)

Marubeni, Lehman both say they are victims in scam
Lehman Brothers is suing Marubeni, an influential Japanese trading company, over an allegedly fraudulent banking scheme. The Japanese trading company says it, too, is a victim in the scam. This Financial Times article outlines the case, the players involved and the questions surrounding the deal. Financial Times (03 Apr.)

HDFIV Report Card @ 4 April 2008

2008-04-04T18:30:00.000-07:00

Performance

Kuala Lumpur Composite Index ("KLCI") decreased from 1,256.54 (28 March 2008) to 1,221.98 (4 April 2008), representing a decrease of 2.8%. Hengdai Equity Fund IV ("HDFIV")'s registered a return of RM101.94 or 1.78%, down from 4.39% in the previous week. Reason for the decrease is due to the lower valuation of Malayan Banking Berhad and a larger capital base in view of the new shareholders and as well as the impact from 2nd month's inflow of capital.

So far, HDFIV is beating KLCI by 9.94%, consistent with 9.76% a week ago.

Purchase
No purchases during the week.

Sell
No disposals during the week.

Asset Allocation
With additional capital coming from new shareholders and 2nd month's inflow of capital, equity allocation has decreased from 71% to 42%. We are again holding back a comfortable cash buffer of 58%. This comfortable cash buffer will allow us to snap up some cheap stocks that took some beatings during this week. Hapseng Plantations Berhad is currently in my radar as the stock plummeted to one year low of RM2.57 on 3 April 2008. The stock recovered some lost ground by closing at RM2.65 today.

Note: Asset allocation shows the three main categories that our money lies in. The main category which we are expected to invest in to make the return that we wanted is Equities. Secondly, Fixed Income is in the form of fixed deposits that provides stable but low return. This second category provides small return when the cash is yet to be utilised for investment. As there is a lock-in period for fixed deposit such as at least for two months (if the amount is less than RM5,000), there is a need to maintain cash in the form of 'pure' cash, which is the third category. The set back of holding 'pure' cash ("Cash") is that we do not earn any return at all.

Financial Teasers 2 April 08

2008-04-02T19:02:00.000-07:00

Top Stories

Lehman increases capital-raising to $4 billion
Shares of Lehman Brothers jumped nearly 18% after it boosted its capital-raising plan from $3 billion to $4 billion due to strong demand. The investment bank has apparently dispelled fears that it would suffer a fate similar to that of Bear Stearns, defying speculators who had bet on Lehman's demise. Financial Times (02 Apr.)

UBS to cut jobs after subprime losses of $37 billion
UBS chief executive Marcel Rohner said that the banking giant, which is losing its chairman, Marcel Ospel, had planned jobs cuts in investment banking and will announce the extent of those cuts, along with other measures, in the coming weeks. The Zurich-based bank revealed that losses stemming from the U.S. subprime meltdown have reached $37 billion -- far larger than the next most exposed banks, Merrill Lynch and Citigroup, with losses of $24 billion and $18 billion. Many in the market took the UBS disclosure as a sign that the worst of the credit crunch may be over. The Times (London) (02 Apr.) , Telegraph (London) (02 Apr.)

Denmark, Sweden to merge postal services, sell shares
In an effort to boost competitiveness, Sweden and Denmark are planning to merge postal services and then sell shares in the new company. "The logic behind the merger is based on the rapid changes in the market," said Maud Olofsson, Swedish industry minister. "Both companies today face three common challenges: European deregulation, more competition and electronic alternatives." Bloomberg (01 Apr.)

Companies pour money into Egypt, despite global turmoil
Despite the ongoing credit crisis and slowdown in Europe's economy, companies from Europe and the Persian Gulf are dropping money in Egypt, betting that a spending boom is just beginning. Analysts, however, warn that increasing inflation threatens to halt the boom. And while the growing middle class is enjoying Egypt's new prosperity, the benefits are not yet reaching the lower classes. Reuters (02 Apr.)

U.S. auto sales drop 8% in first quarter
Buyers steered clear of car lots in the U.S. in the first three months of 2008 as concerns about economic uncertainties led sales to drop 8% from the same quarter the previous year. In March, year-over-year sales were down 12%. General Motors posted an 18.9% drop in sales, Ford Motor's sales were down 14.2% and Chrysler was off 19.4%. ClipSyndicate/Bloomberg (02 Apr.) , BusinessWeek (01 Apr.)

"Grid parity" essential for solar power to thrive
During a panel discussion at Credit Suisse's Asian Investment Conference, a theory emerged that in order for solar power to be a cost-effective alternative for governments, "grid parity" with other energy sources is essential. Governments are struggling with whether to subsidize the nascent industry, but advocates of the technology say consumers will be willing to pay for it. FinanceAsia.com (02 Apr.)

Market Activity

Asian markets advance following rally on Wall Street
Speculation that the worst of the global credit crisis is over boosted Asian markets today. Tokyo's Nikkei 225 Average gained 4.2%, while the Hang Seng Index in Hong Kong jumped 3.2%. The S&P/ASX 200 in Sydney increased 2.6%, New Zealand's NZX 50 index was up 1.7% and China's Shanghai Composite climbed 0.6%. South Korea's Kospi gained 2.4% and Taiwan's Weighted Index advanced 2.2%. MarketWatch (02 Apr.)

Bursting of Shanghai's stock market bubble hurts small investors
In the span of two years, share prices in China soared more than 500%, triggering a frenzy of stock buying. A year ago, the market started to drop, and the Shanghai Composite index has plunged 45% since its high in October. Millions of small investors have become major casualties of the bursting of Shanghai's stock market bubble. Other parts of Asia, including India, Japan and Vietnam, are experiencing similar trends. The New York Times (registration required) (02 Apr.)

European exchanges face challenge as IPO market dries up
Visa's $16.9 billion IPO helped buoy the NYSE Euronext in the first quarter. European exchanges have not been so lucky. In Europe, just $700 million was raised through flotations in the first quarter, compared with $13.8 billion in the first quarter of 2007. Visa's exceptionally large transaction shows that capital is still available, despite the downturn in the market. Financial News Online (02 Apr.)

Economics

Asian Development Bank lowers economic growth forecasts
The global economic slowdown is hurting Asian exports and China's and India's expansions are cooling, leading to the Asian Development Bank's reduction in its growth forecasts for the region. The ADB predicts that Asia, not including Japan, will grow 7.6% in 2008, down from the 8.2% estimate in September. In 2007, Asian economies grew at a rate of 8.7%. Bloomberg (02 Apr.)

Congress to question Bernanke on his latest moves
Ben S. Bernanke, chairman of the Federal Reserve, will testify before two congressional committees this week, and he is expected to be questioned about the Fed's role in the
Bear Stearns rescue and other recent developments. "We want to know about precedent," said Sen. Charles Grassley, R-Iowa. "... People are willing to take chances if they think that the federal government is going to step in and bail them out all the time." Bloomberg (02 Apr.)

Japanese banks' overseas loans increase to 8-year high
A report from Nikkei reveals that outstanding overseas loans by Japan's banks reached an eight-year high at the end of February because of turmoil in the money markets. Non-Japanese companies are turning to banks because they are not able to raise capital on the financial markets. Financial institutions in the U.S. and Europe, meanwhile, are scrambling to shore up their balance sheets and have therefore reined in lending. Japan's banks, as a result, are able to choose the most promising companies and projects. MarketWatch (01 Apr.)

Geopolitical/Regulatory

Bush to push agenda at NATO summit, but success uncertain
At the NATO summit in Bucharest this week, President George W. Bush is expected to make some headway, although his status as a lame-duck president may hinder his success. Wess Mitchell, research director for the Center for European Policy Analysis, said Bush will likely win commitments of more ground troops in Afghanistan and may get the OK for a missile-defense project that includes facilities in Poland and the Czech Republic. However, Mitchell said, Bush will likely fall short in his bid to offer NATO membership to Ukraine and Georgia. The Christian Science Monitor (02 Apr.)

China calls cooperative bond with U.S. valuable
China's new government told Treasury Secretary Henry Paulson that it remains committed to regular, ongoing talks with the U.S., placing particular importance on the twice-yearly "Strategic Economic Dialogue." Paulson is working to accelerate the rise of the yuan and open China's markets to foreigners. ClipSyndicate/Bloomberg (02 Apr.) , CNBC/Reuters (02 Apr.)

Sources say Mugabe lost Zimbabwean presidency; next move unclear
Zimbabwean President Robert Mugabe was defeated in his bid for re-election over the weekend by Morgan Tsvangirai, leader of the opposition Movement for Democratic Change, according to sources familiar with the election. However, Mugabe has not yet released the results of the election. Some say the controversial leader is seeking a "safe exit," while others speculate he is trying to manipulate the outcome. AllAfrica Global Media/Business Day (02 Apr.)

EU again delays plans to update mutual fund framework
Charlie McCreevy, internal market commissioner for the European Union, said plans to update the legal framework for mutual funds, known as UCITS, are being delayed once again. EU officials are now seeking advice from national securities regulators. The result may be that the EU scraps the proposal. Reuters (02 Apr.)

SEC's entrance into "fair value" debate disappoints many
Bankers and insurers were eagerly anticipating news from the Securities and Exchange Commission that it would possibly rescind the use of "fair value" accounting, at least temporarily. Instead, the regulator asked the companies for more disclosure. "The SEC walked to the line but they backed away from it," said a senior insurance official. "It is fair to say there were strong hopes of something more." Financial Times (02 Apr.)

Financial Products

SocGen's ETF arm rolls out water-, energy-linked funds
Societe General's exchange-traded fund arm, Lyxor Asset Management, has launched two new funds. The Lyxor ETF World Water is tied to the World Water Index, made up of 20 stocks active in the three water-related areas: utilities, infrastructure and treatment. The Lyxor ETF New Energy follows the World Alternative Energy Index, which is also made up of 20 stocks. These stocks focus on renewable energy, decentralized energy supply and energy efficiency. Structured Products (01 Apr.)

Financial Teasers 1 April 08

2008-04-01T18:58:00.000-07:00

Top Stories

UBS writes down $19 billion, plans capital-raising effort
UBS reported a $19 billion write-down on losses related to U.S. real estate, resulting in a net loss of more than $12 billion in the first quarter. Now, the Swiss bank plans to raise $15 billion through a rights issue of shares. Chairman Marcel Ospel will not seek re-election and is expected to be succeeded by Peter Kurer, who is currently the general counsel and a board member of UBS. ClipSyndicate/Bloomberg (01 Apr.) , International Herald Tribune/Reuters (01 Apr.)

IBM suspended from bidding for U.S. government contracts
The U.S. Environmental Protection Agency is investigating International Business Machines Corp. and has suspended IBM from seeking new contracts with all government agencies. The EPA is looking into whether IBM violated the government's ethical-bidding provisions on a bid submitted to the EPA two years ago. Reuters (31 Mar.)

Some U.S. farmers plan to switch from corn to soybeans
American farmers said they plan to significantly reduce the number of acres in which they plant corn and boost their soybean crops, according to a new government report. Doing so would likely alleviate worldwide shortages of cooking oil, which have driven up prices and adversely impacted poor countries. However, a smaller corn harvest would likely result in a boost in prices for meat in the U.S., as most corn is used to feed animals. International Herald Tribune/Reuters (01 Apr.)
N.Y. activist hedge fund Pardus halts investor redemptions
Pardus Capital Management LP, a New York-based activist hedge fund, is indefinitely suspending investor redemptions, according to a Wall Street Journal report. Meanwhile, the value of many of the hedge fund's holdings are dropping. Pardus is working to get several of the companies in which it owns stock to make changes. For example, the hedge fund has been trying to get Delta Air Lines and United Airlines parent UAL Corp. to merge. CNNMoney.com/Thomson Financial (01 Apr.)

Northern Rock's plan to repay government includes staff cuts
In its effort to repay £23 billion of the £24 billion it owes the U.K. government by the end of next year, Northern Rock plans to slash its staff by a third, reduce its balance book by half and drop 60% of its mortgage holders. Although it may raise the hopes of U.K. Chancellor Alistair Darling, Executive Chairman Ron Sandler's ambitious plan depends on the condition of the housing market and predicts losses for the next three years. Financial Times (31 Mar.)

Thousands of workers walk off job at Nike contract plant
Thousands of Vietnamese workers at the Taiwanese-owned Ching Luh plant that makes shoes for Nike walked off the job on Monday. The workers are demanding a 20% increase in their pay as consumer prices are soaring, officials said. The average monthly salary for the workers is $59. Google/Associated Press (01 Apr.)

Market Activity

Asian markets end mixed with Tokyo up, Shanghai down
Asian markets closed mixed today, with Japan, Hong Kong and New Zealand up and China, Indonesia and Taiwan down. The Nikkei 225 Average and Hong Kong's Hang Seng Index each gained 1.3% while the Korean Composite Index inched up 0.3% and New Zealand's NZX-50 advanced 1.8%. Meanwhile, Shanghai's Composite Index dropped 3%, Indonesia's Jakarta Composite fell 2.3% and the Weighted Price Index of the Taiwan Stock Exchange slid 0.6%. MarketWatch (01 Apr.)

Lehman to raise $3 billion to quiet talk of instability
Lehman Brothers Holdings plans to raise $3 billion through a convertible preferred share offering to put an end to questions about the bank's balance sheet. Demand for the offering appears strong. Several large institutional investors have already agreed to purchase at least $2.5 billion of it. Bloomberg (01 Apr.) , CNBC (31 Mar.) , Reuters (31 Mar.)

Issuance of equity-linked bonds plummets in first quarter
Issuance of equity-linked bonds survived the first part of the credit crunch, but the number of deals issued in the first quarter dropped 50% compared with the fourth quarter of last year, according to Dealogic. "Issuance has been hit in the past four to six weeks as sentiment has worsened among the hedge fund community, the traditional buyers of this kind of paper in Europe," said Rossitza Haritova, European convertibles analyst with Nomura. Financial Times (01 Apr.)

Criticism of cholesterol drugs hits shares of Schering, Merck
Shares of Schering-Plough Corp. plunged nearly 26%, while shares of Merck & Co. dropped about 15% after a panel of doctors recommended patients try older cholesterol drugs rather than Vytorin and Zetia. "Everyone is going to be watching [prescription] trends," said David Heupel, a portfolio manager with Thrivent Investment Management. "For the next month if not longer, it's all going to be about how quickly Vytorin and Zetia ... decline." Reuters (31 Mar.)

Economics

Reserve Bank of Australia holds interest rates at 7.25%
The Reserve Bank of Australia may raise interest rates in the near future, depending on upcoming inflation data, but for now the central bank has left rates at 7.25%, a 12-year high. Analysts expected RBA to hold interest rates steady as it needs more time to assess the effects of previous rate increases. ClipSyndicate/Bloomberg (31 Mar.) , The Sydney Morning Herald (01 Apr.)

Confidence among Japanese manufacturers continues to drop
A survey by the Bank of Japan shows the confidence of the country's large manufacturers has declined to a four-year low and the outlook for the next quarter is even more bleak. The data reinforce speculation that Japan's central bank may reduce interest rates this year. "The BOJ faces a difficult situation, with a growth slowdown coming at a time when consumer prices are rising," said Joseph Kraft of Dresdner Kleinwort. International Herald Tribune/Reuters (01 Apr.)

Geopolitical/Regulatory

Paulson plan seen as victory for investment banks
More than a year ago, Wall Street executives were expressing their concern about overregulation and the threat of excessive litigation as it was hindering America's ability to compete in the global financial stage. They urged Washington to ease up, and although they didn't get their wish then, they may get it now. The proposal from Treasury Secretary Henry Paulson may deliver streamlined regulation to Wall Street investment banks. The New York Times (registration required) (01 Apr.)

King warns of "radical change" in banking rules
Bank of England Governor Mervyn King said Monday that banks will likely face tougher rules following the credit crisis. In a speech to the Bank of Israel in Jerusalem, King said financial regulators and central banks are considering significant changes for Wall Street and the City. Telegraph (London) (01 Apr.)

Financial Stability Forum considers unorthodox strategies
At a meeting of the Financial Stability Forum, which is coordinating the global response to turmoil in the markets, participants discussed strategies to ease the credit crisis. The ideas include temporarily suspending capital requirements, purchasing mortgage-backed securities with public funds and recapitalizing the banks with taxpayer money. Financial Times (31 Mar.)

Gross expects increased regulation of investment banks
Bill Gross, manager of Pimco Total Return, said JPMorgan Chase's government-backed acquisition of Bear Stearns and the Federal Reserve's decision to allow investment banks to borrow from its discount window will result in increased regulation of Wall Street banks. The tougher regulations will cut into the profits of the investment banks, Gross said. FinancialWeek (31 Mar.)

FSA offers warnings about "green" market risks
The Financial Services Authority has issued a 37-page study about risks associated with the emissions-trading market. The risks include insufficient data, false claims about the green credentials of emissions-trading firms and investors being sold products that are not suitable for the market. Telegraph (London) (01 Apr.)

Financial Products

Merrill launches indexes tied to carbon-emissions markets
Merrill Lynch has developed a series of indexes that track the value of carbon-emissions credits, according to the firm's head of global commodities research, Francisco Blanch. The indexes are designed as investment vehicles and Merrill would like to see them used in exchange-traded notes or funds. CNNMoney.com/Investor's Business Daily (31 Mar.)

Ethics

French regulator to proceed with charges in EADS case
The Autorite des Marches Financiers, France's stock market regulator, said its investigation of insider trading at EADS, the parent of Airbus, will lead to charges. The regulator said it will notify those involved in the case and will "immediately" transfer the investigation to the prosecutors' office in Paris. Google/The Press Association (01 Apr.)

Financial Teasers 31 March 08

2008-03-31T22:06:00.000-07:00

HDFIV Report Card @ 28 March 2008

2008-03-28T19:15:00.000-07:00

Performance

Kuala Lumpur Composite Index ("KLCI") increased from 1,189 (on 21 March 2008) to 1,256.54, representing an increase of 5.7%. Hengdai Equity Fund IV ("HDFIV")'s registered a return of RM223.94 or 4.39%, up from -0.87% in the previous week.

So far, HDFIV is beating KLCI by 9.96%, slightly higher than 9.77% a week ago.

Purchase

HDFIV made an investment of 150 units of Malayan Banking Berhad at RM8.30 per share. The all in cost per share is RM8.36.

Sell
No disposals during the week.

Asset Allocation

We have increased our equities from 61% to 71% this week, still leaving a comfortable buffer in the form of fixed income and cash. The cash buffer, coupled with the incoming cash by next month, should provide sufficient capital to average down if the market continuest to plummet.

GangBang Team Got Another Two

2008-03-28T18:55:00.000-07:00

During the open period of our Hengdai Equity Fund IV, we have another two new shareholders, namely Aunty Hong and Mei. Please refer shareholding structure (Section 3 of the Fund Agreement) below after the inclusion

Indon Bet

2008-03-27T20:52:00.000-07:00

Malayan Banking Berhad ("Maybank") roared and surprised investors today by announcing that it would pay USD1.5 billion or roughly RM4.8 billion for a 56% stake in Indonesia's sixth largest lender, namely Bank Internasional Indonesia ("BII"). The price tag commands 23% premium to the Indon bank's share price on Tuesday and would also offer to buy out the Indon Bank's minority shareholder for USD1.2 billion or roughly RM3.8 billion.

Is that a good news?

Maybank's shares tumbled to a 3 1/2-year low today to about RM8.20-RM8.30.

"The price tag... was more than 50% higher than we assumed for a mediocre franchise," Citigroup said in a note, downgrading Maybank to a sell from a buy. It slashed Maybank's target price to RM8.38 a share from RM10.63.

At the first few minutes of opening of the stock market, it dived to RM8.00, its lowest level since August 2004. The price offered to buy BII represented 4.6 times book value, considered expensive even when compared with Chinese banks that trade at between 3.3 and 5.4 times book value, according to Reuters data.

"Short term pain, long term gain", echoed local research houses like CIMB and OSK. I agreed. At RM8.30, Hengdai Equity Fund invested 150 units based on the remaining cash on hand. Do not worry about the minimum brokerage fee (that jacks up the total cost since the units purchased were low at 150 units) as I have managed to purchase those units from a related fund that took up 1,000 units.

We report more about this week's investment - The Indon Bet. Stay tuned.

Financial Teasers 27 March 08

2008-03-27T20:42:00.000-07:00

Top Stories

Moody's downgrades billions worth of complex credit products
As the assets underlying complex credit products continue to deteriorate, Moody's Investors Service has slashed the ratings of more than $25 billion worth of the products. The downgrades were mostly taken on collateralized debt obligations, and Moody's said further downgrades are possible. Financial Times (26 Mar.)

FGIC's mortgage loss exposure exceeds legal risk limits
FGIC Corp. said it may have to raise capital to beef up its loss reserves because of a lawsuit against German bank IKB. The bond insurer also said its exposure to mortgage losses has exceeded the risk limits set by New York state insurance law. While FGIC maintained that the issue is a "technical violation," an insurance analyst called it a "bombshell." Reuters (26 Mar.)

Write-down speculation drives up cost to protect banks' debt
Speculation that the tightening of the credit markets will force banks to take additional asset write-downs is boosting the cost of protecting the banks' debt. Credit-default swaps on Citigroup increased to 168 basis points, a 13-point increase, while contracts on Deutsche Bank were up 10 basis points to 91. Bloomberg (26 Mar.)

Equity loans the latest flash point in mortgage crisis
Lulled by ever-increasing home prices, millions of Americans borrowed against their home equity, to the tune of $1.1 trillion. Now, with housing prices declining, the home-equity loans are fueling the next round in the credit crisis. The New York Times (registration required) (27 Mar.)
Moody's forecasts expansion of Islamic finance in Africa
Moody's Investors Service said that as Africa attracts investments and economic growth continues, the continent's Islamic finance industry expanded from $18 billion at the end of last year to as much as $235 billion. Anouar Hassoune, an analyst at Moody's, reported that only 37 financial institutions in Africa currently provide Shariah-compliant services as the sector is still in its "infancy." Bloomberg (26 Mar.)

E-mail sets up lawsuit over failed Clear Channel deal
In July, Bain Capital and THL Partners say, they received a misdirected e-mail from Credit Suisse about how the banks planned to renege on the lending agreement for the private-equity firms to buy Clear Channel Communications. On Wednesday, Bain and THL sued the bank consortium, including Citigroup, Credit Suisse, Morgan Stanley, Royal Bank of Scotland, Deutsche Bank and Wachovia, over the collapsed $19.5 billion takeover. The New York Times (registration required) (27 Mar.) , The Wall Street Journal (subscription required) (27 Mar.)

Moody's: Credit crunch may hinder Russian companies
Moody's Investors Service said that the tightening global credit markets may force Russian companies to find alternative funding sources. Matthias Hellstern, an analyst with Moody's, wrote in a report that because of prolonged under-investment, Russia's metal, mining, telecommunication and energy firms need "significant capital injections." Bloomberg (27 Mar.)

Other News
New Nova Bolsa exchange to be world's third largestMercoPress (Uruguay) (26 Mar.)

Market Activity

Shanghai Composite drops 5.4% to lead Asian market slide
China's Shanghai Composite plunged 5.4% as most Asian markets fell today, fueled by fears about the slowdown in the U.S. economy and global financial markets. The Nikkei 225 Average slid 0.8% while Australia's S&P/ASX 200 and South Korea's Kospi both edged down 0.2%. The benchmark Hang Seng Index, however, drifted between positive and negative territory. MarketWatch (27 Mar.)

Citigroup raises $1 billion by offering higher interest
Citigroup sold $1 billion worth of 10-year bonds yielding more than 300 basis points over similar U.K. government notes. "It is difficult to see the rationale of a bank raising 10-year money at spread levels well above those paid by lesser rated non-financial borrowers," said Georg Grodzki, head of credit research at Legal & General Group. "The rating agencies are unlikely to be pleased about a bank raising senior funds at spread levels well out of line with its credit rating." Bloomberg (26 Mar.)

South Korean fund opts against U.S. Treasuries as yields drop
South Korea's National Pension Service, the fifth-largest pension fund in the world with $220 billion in assets, said it will not buy U.S. Treasuries right now because of low yields and a desire to diversify. Safe-haven-seeking investors and interest rate cuts by the Federal Reserve have driven down Treasury yields recently. Financial Times (27 Mar.)

Economics

Bank of England plots radical action to fight credit crunch
Mervyn King, governor of the Bank of England, signaled that the central bank is planning radical measures to ease the credit crunch. King told the Commons Treasury Committee that current conditions are "the sorts of circumstances in which central bank action is necessary to prevent a major shock to the system as a whole." The Times (London) (27 Mar.) , Financial Times (26 Mar.) , Telegraph (London) (27 Mar.)

Australian banks healthy, central bank chief says
Glenn Stevens, governor of the Reserve Bank of Australia, says the country's banks have remained profitable with adequate capital reserves during the global credit crunch. "There is very little direct exposure to the U.S. subprime problems," Stevens said. "The main reason for the resilience is many years of robust economic growth, sound regulatory foundations and prudent risk management." Bloomberg (27 Mar.) , The Sydney Morning Herald/Reuters (27 Mar.)

Germany braces for collapse of global financial system
The turmoil roiling the global financial system has hit the German economy hard, prompting the country to prepare for a serious meltdown. The situation has forced Bundesbank, like many other central banks around the world, to consider radical and controversial measures to curb the crisis. Spiegel Online (26 Mar.)

BOJ official says uncertainty plagues Japan's economy
Kiyohiko Nishimura, deputy governor of the Bank of Japan, said uncertainty over the nation's economic outlook is high and that the central bank "will act in a flexible manner." Finance Minister Fukushiro Nukaga, meanwhile, expressed concern about the yen advancing against the dollar, which is hurting the earnings of exporters. Forbes/Associated Press (27 Mar.)

Geopolitical/Regulatory

Regulators may rein in ratings agencies
The International Organisation of Securities Commissions said ratings agencies, such as Moody's Investors Service and Standard & Poor's, may face a new code of conduct that prevents them from recommending ways to create structured debt securities. The organization also urged independent reviews of how the agencies assign ratings. Bloomberg (26 Mar.)

Fed may gain power, influence at SEC's expense
As officials consider the lessons learned from the ongoing financial crisis and ways to prevent a future crisis, some industry insiders are proposing that the Federal Reserve should emerge with a larger role. Former regulators say a shift in power and influence from the Securities and Exchange Commission to the Fed is likely. Bloomberg (27 Mar.)

Regulators investigate cross-border fees by Visa Europe
Acknowledging that it has no evidence of wrongdoing, the European Commission has launched a formal investigation into whether Visa Europe violated price-fixing laws with the fees levied against cross-border transactions. Last year, the commission ruled against MasterCard's similar fees. International Herald Tribune (26 Mar.)

Financial Products

Terror-Free Index Series to launch
The Conflict Securities Advisory Group and the FTSE Group have joined forces to launch a Terror-Free Index Series. The series of three indexes weeds out hundreds of non-U.S. companies that do nonhumanitarian business with Sudan, Syria, North Korea and Iran, countries considered to be "sponsors of terrorism" by the State Department. FinancialWeek/Investment News (26 Mar.)

U.S. Futures Exchange to launch contracts on Sensex
On April 4, the Chicago-based U.S. Futures Exchange will roll out futures contracts on India's benchmark equity index, the Sensex. In November, officials from the Bombay Stock Exchange and the USFE worked out the deal that allows U.S. investors to participate in India's booming equity market without American depositary receipt authorization. FinanceAsia.com (27 Mar.)

Ethics

Citigroup to pay Enron, forgo claims to settle fraud case
Rather than go to trial, Citigroup has agreed to settle the fraud litigation against it by paying $1.7 billion to Enron Creditors Recovery Corp. and dropping more than $4 billion in claims. Citigroup had been scheduled to face what is left of Enron late next month in a trial before U.S. Bankruptcy Judge Arthur Gonzalez, who has handled the case since the beginning. ClipSyndicate/Bloomberg (26 Mar.) , Houston Chronicle (26 Mar.)

Probe into New Century failure partially blames accountants
An investigation commissioned by the Justice Department into the collapse of New Century Financial found that the subprime lender's accounting firm, KPMG, condoned and enabled "significant improper and imprudent practices." Echoing charges that emerged about Arthur Andersen after the Enron scandal, the report of the five-month inquiry places some blame on the accountants. The New York Times (registration required) (27 Mar.)

2008-03-26T21:20:00.000-07:00

Top Stories

Goldman forecasts global credit losses to hit $1.2 trillion Goldman Sachs
estimates the current market turmoil will result in $1.2 trillion in global credit losses and that Wall Street will bear 40% of the losses. "U.S. leveraged institutions have written off less than half of the losses associated with the bursting of the credit bubble," Goldman Sachs economists said in a research note. "There is light at the end of the tunnel, but it is still rather dim." Reuters (25 Mar.)

Global turmoil makes China even more cautious
With global markets in turmoil, corporate China is moving gingerly to balance the risk and reward of international investment. The caution was evident in the decision of Citic Securities, one of the largest brokerages in China, to back away from a $1 billion investment deal with Bear Stearns. MarketWatch (25 Mar.)

JPMorgan to absorb Bear's prime brokerage, clearing
JPMorgan Chase executives say Bear Stearns' prime brokerage and trade processing businesses, which employ about 800, will be integrated into JPMorgan's current operations. Bear's clearing business generated net revenue of $1.2 billion in the last fiscal year. Reuters (26 Mar.)

Brazil's Vale says merger with Xstrata failed
Merger negotiations between Brazilian iron ore producer Vale and Swiss rival Xstrata have failed and Vale says it plans to consider other takeover targets. Vale CEO Roger Agnelli said the deal collapsed over marketing rights, but another source said the two sides were unable to agree on a price. Analysts had valued the Swiss company as high as $90 billion. The Sydney Morning Herald (26 Mar.)

India's Tata Motors to buy Jaguar, Land Rover from Ford
Tata Motors, the largest automaker in India, has agreed to buy Jaguar and Land Rover from Ford Motor Co. in a deal estimated to be worth as much as $2.5 billion. The purchase has been in the works for nearly nine months while Ford and Tata hammered out retrenchment, pension liability, and parts supply, among other issues. ClipSyndicate/Bloomberg (25 Mar.) , Business Standard (India) (26 Mar.)

Banks apprehensive about Clear Channel buyout
The banks that had agreed to finance the $19.5 billion takeover of Clear Channel Communications are now balking. Bain Capital and Thomas H. Lee Partners, the private equity buyers, and Clear Channel may take the banks, including Citigroup, Morgan Stanley, Deutsche Bank, Credit Suisse and Wachovia, to court to force the deal, sources say. The New York Times (registration required) (26 Mar.)

M&A likely in technology sector as valuations fall
With valuations of technology companies falling, the major players see attractive takeover opportunities while the targets have few options. The tech bellwethers are taking advantage of the credit crunch, which has limited the options of their private equity competitors, by using their billions to make deals. Executives at eBay predict they will make as many as nine acquisitions in 2008, about twice as many as usual.
BusinessWeek (25 Mar.)

Market Activity

Little movement in Asian markets, but panic eases
Japanese shares dropped on exporter losses while stronger commodity prices helped boost resource stocks to prop up Hong Kong and Australian markets Wednesday. The Nikkei 225 Average slid 0.9% while Singapore's Straits Times Index and Taiwan's Weighted index inched down 0.1%. The Hang Seng Index gained 0.6% as Australia's S&P/ASX 200 and China's Shanghai Composite advanced 0.5%. MarketWatch (25 Mar.)

Thornburg plans to sell $1.4 billion in bonds
Thornburg Mortgage Inc. plans to sell $1.4 billion in bonds in a private placement as it attempts to avert bankruptcy. Shares of the troubled jumbo mortgage lender soared following the announcement. The company is awaiting approval from the New York Stock Exchange to issue new securities. ClipSyndicate/Bloomberg (25 Mar.) , Financial Times (25 Mar.) , CNBC/Reuters (25 Mar.)

Bank revenues drop on fewer IPOs in Asia
Investment banks, including Morgan Stanley, Credit Suisse, Goldman Sachs and UBS, have seen their revenues from equity capital markets plummet in Asia as fewer companies opt to go public. Bank fees from Asia, not including Japan, have dropped by as much as
70.9% so far this year, according to data from Thomson Financial. Financial Times (25 Mar.)

Economics

Treasury, Fed efforts may leave taxpayers liable for billions
Efforts by the Treasury and the Federal Reserve to curb the financial crisis may put American taxpayers on the hook for billions of dollars, despite White House opposition to using public funds for a bailout. Experts say taxpayers could be liable if the emergency action to save
Bear Stearns and the push to allow government-sponsored enterprises to buy more mortgage bonds run into trouble. Bloomberg (26 Mar.)

Euro rises against dollar, yen
A survey showing German business confidence rose in March caused the euro to rise against the dollar Wednesday. Europe's single currency also rose against the yen. Bloomberg (26 Mar.)
U.S. consumer confidence hits lowest level since 1973

The Conference Board's measure of consumer confidence plunged to 64.5 in March, the lowest level in about 35 years. Since December, the index has dropped 29% or 26.1 points. "Confidence in the state of the economy continues to fade," said Lynn Franco of the Conference Board Consumer Research Center. "Looking ahead, consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon." ClipSyndicate/Bloomberg (25 Mar.) , FinancialWeek (25 Mar.)

Japan's exports up in February, but U.S. slowdown a threat
Despite an economic slowdown in the U.S., exports from Japan were up 8.7% in February compared with the same month the previous year. Solid shipments of goods to Europe and Asia helped make up for reduced demand from U.S. "The biggest risk to Japan's exports is the United States," said Junko Nishioka, a Japan economist at ABN Amro. "If a U.S. slowdown continues to an extent that cannot be offset by demands from Asia and Europe, Japan could no longer rely on decoupling." International Herald Tribune/Reuters (26 Mar.)

Geopolitical/Regulatory

FSA to propose tougher scrutiny of top U.K. banks
The Financial Services Authority is expected to propose greater scrutiny of major British financial institutions in the wake of the Northern Rock meltdown. The watchdog has been harshly criticized for its supervision of the bank. The FSA's report, due out today, will recommend that the regulator bolster its supervision teams and increase direct contact with the banks. ClipSyndicate/Bloomberg (26 Mar.) , Financial Times (25 Mar.)

Central banks unable to keep banks from hoarding cash
The central banks have tried to inject liquidity into the financial system, but they have not persuaded banks to relax their credit standards. In the U.S., U.K. and eurozone, bank borrowing costs actually rose, despite optimism in the stock markets and the efforts of the Federal Reserve, Bank of England and European Central Bank. Financial Times (25 Mar.)
Financial Products

Amex launches Bear Stearns actively managed ETF
The American Stock Exchange has launched what it says is the first actively managed exchange traded fund on the market, the Bear Stearns Current Yield Fund. "We are excited to mark another important milestone in the development of the ETF industry," said Scott Ebner, senior vice president of Amex ETF Marketplace. "YYY provides investors with access to a transparent, professionally managed portfolio of short-term fixed income securities." InvestmentNews (25 Mar.)

Israeli bank rolls out structured dollar deposit
Bank Leumi of Israel recently launched a structured dollar deposit that is designed to offer exposure to agricultural commodities, including soybeans, corn and wheat. Structured Products (25 Mar.)

New GangBang Member

2008-03-25T23:57:00.000-07:00

As approved by all the shareholders of Hengdai Equity Fund IV ("HDFIV"), we now have a new contributor to the fund of RM300 per month. The inclusion of the new member brings the total cash inflow to RM4,400 per month.

Section 3 of the Fund Agreement is amended accordingly:

Financial Teasers 25 March 08

2008-03-25T20:26:00.000-07:00

Top Stories

Regulators allow banks to boost MBS holdings
The Federal Housing Finance Board announced Monday that regional U.S. banks will be able to temporarily increase their holdings of mortgage-backed securities. This latest effort to stabilize the mortgage markets enables the banks to boost their holdings of Fannie Mae- and Freddie Mac-issued securities. ClipSyndicate/Bloomberg (24 Mar.) , Reuters (24 Mar.)

Loophole in JPMorgan's original bid for Bear shines spotlight on lawyers
JPMorgan Chase's original offer for Bear Stearns included a clause that could have required JPMorgan to guarantee Bear's trades even if the deal failed. The legal loophole may have helped spur the increased offer and has focused attention on the high-powered lawyers who wrote the deal. It is unclear whether the clause was a mistake or an attempt to gain the loyalties of clients and employees at Bear. Financial Times (25 Mar.)

China's banks to trade gold futures
When China allowed trading of gold futures earlier this year, the China Banking Regulatory Commission barred commercial banks from the market. But a notice on the regulator's Web site says banks that meet specific criteria will now be allowed to trade. "That's great news for the gold futures market, which is not operating that well," said Hu Yuyue of Beijing Technology and Business University. "Commercial banks can provide more liquidity and stability to the market, after all, they hold huge capital." China Daily (Beijing) (25 Mar.)

Palestinian wealth fund takes a different path
As head of the Palestine Investment Fund, Mohammad Mustafa views the fund's mandate a bit differently than those of other sovereign wealth funds. In the three years since Mustafa took over, the fund has shifted from investing mostly in foreign companies to trying to help the Palestinian economy. "We want to play a different role, to move from being a financial vehicle to a vehicle for sustainable development in Palestine," Mustafa said. Financial Times (24 Mar.)

Congo to cancel mining contracts thought to be corrupt
The Democratic Republic of Congo is planning to cancel or renegotiate numerous mining contracts, according to Deputy Mines Minister Victor Kasongo. Many of the contracts are thought to be corrupt, and the government said it is trying to ensure that its mineral wealth is benefiting its people, he said. The Global Witness campaign says an inquiry into the mining contracts should have been made public. BBC (20 Mar.)

Some investors see post-election opportunity in Zimbabwe
The upcoming presidential election in Zimbabwe could bring significant policy changes to a country suffering from astronomical inflation and economic ruin. Many foreign investors have fled, but some are betting that opportunities in sectors such as power, construction and telecommunications will follow Saturday's vote. Reuters (24 Mar.)

Icahn, keeping heat on Motorola, sues for access to documents
Billionaire Carl Icahn, who holds 6.4% of Motorola's stock, is suing the company for access to documents on its efforts to revive its mobile-phone business, corporate jet use, hiring and more. At this year's annual shareholder meeting, Icahn will try again to win board seats. ClipSyndicate/Bloomberg (24 Mar.) , BusinessWeek (25 Mar.)

Market Activity

Australian, Hong Kong shares soar after long holiday
Led by gains in Hong Kong and Australian shares, most Asian markets advanced Tuesday. The Hang Seng Index jumped 4.1%, while the Hang Seng China Enterprises Index soared 4.8%. Australia's S&P/ASX 200 gained 4.2%, while the Nikkei 225 Average was up 1.8%. Shanghai's Composite index, however fell 1.7%. MarketWatch (25 Mar.)

JPMorgan's increased bid sends Bear Stearns shares soaring
Facing shareholder pressure, JPMorgan Chase boosted its offer for Bear Stearns from $2 a share to $10 a share. "Clearly, this increases the chance the deal goes through," said James Ellman, a portfolio manager with Seacliff Capital. "But there are still going to be employees and shareholders unhappy with $10 a share." The revised bid sent Bear shares soaring, but the deal is far from done. CNBC/Reuters (24 Mar.)

Economics

With Bear deal, Bernanke pushes Fed into new territory
Chairman Ben Bernanke, in trying to restore confidence in the markets, is leading the Federal Reserve into unchartered territory. The latest move has the Fed hiring BlackRock to manage and sell $30 billion of Bear Stearns' assets. The assets will be placed in a company that the Fed creates. Bloomberg (25 Mar.)

Lower interest rates put new pressure on money market funds
Already suffering from the subprime meltdown, money market funds are facing new pressure as interest rates drop, causing fund yields to narrow. The result is significantly diminished returns after deducting management fees. Some funds are waiving the fees and others are believed to have received liquidity support from their parent companies. Financial Times (24 Mar.)

Economists: Emerging economies won't drag West out of slump
From Dell to Kellogg's, Western businesses are courting the increasingly wealthy Asian consumer. But economists say emerging economies will not save the U.S. and Europe from a serious economic downturn. "It's mathematically impossible to see a major decrease in U.S. consumption being made up by the Chinese and Indians," said Stephen Roach, Morgan Stanley's head of Asian business. Roach said India and China together account for just a sixth of U.S. demand. The Times (London) (25 Mar.)

Australian, New Zealand dollars gain against yen, greenback
The New Zealand and Australian dollars climbed against the yen and the U.S. dollar Tuesday. Gains against the yen were attributed to stock gains that spurred investors to purchase higher-yielding assets funded by Japanese loans. "Risk-taking appetite has improved," said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. "Investors feel a bit more comfortable in buying higher-yielding currencies including the Aussie and kiwi." Bloomberg (25 Mar.)

Geopolitical/Regulatory

EU walks fine line between consumer, business interests
The European Commission, the executive arm of the European Union, is being blasted by industries as difficult to work with and a threat to regional security. Some say the commission is adopting consumer-pleasing initiatives that hinder business to boost its popularity. Commission supporters say it is rooting out situations that hurt competition and take advantage of dominant market positions. International Herald Tribune/Reuters (24 Mar.)

Rudd's first major overseas tour includes U.S., U.K., China
Australian Prime Minister Kevin Rudd leaves for an 18-day tour that includes stops in the U.S., Britain, Belgium, Romania and China. Rudd's agenda includes everything from the global credit crisis to the wars in Afghanistan and Iraq. His first stop will be the U.S. where he will meet President George W. Bush and Federal Reserve Chairman Ben Bernanke. The Age (Melbourne, Australia) (25 Mar.)

Medvedev opposes allowing Ukraine, Georgia to join NATO
Russia's incoming president, Dmitry Medvedev, says security in Europe could be threatened if Ukraine and Georgia win membership in NATO. Medvedev's warning is expected to increase pressure on NATO to vote against allowing the states to join its "membership action plan" at an upcoming summit in Bucharest. Financial Times (24 Mar.)

Financial Products

Barclays new ETNs track currencies in Asia, Middle EastBarclays Global Investors plans to launch three new exchange-traded notes: Asian and Gulf Revaluation, Intelligent Carry Index ETN and Global Emerging Markets Strategy. The notes, which have already picked up $150 million, will track currencies in the Middle East, Asia and other emerging markets.
CNNMoney.com/Investor's Business Daily (24 Mar.)

Commentary: Industry developing many actively managed ETFs
Until now, it was up to advisors to generate Alpha using industry-provided Beta products, such as exchange-traded funds. Now, the industry is developing a number of actively managed ETFs, a sign that it is ready to take some responsibility, writes Toronto-based consultant Richard Kang. Seeking Alpha (25 Mar.)

HDFIV Report Card @ 21 March 2008

2008-03-24T00:05:00.000-07:00

Performance

Kuala Lumpur Composite Index ("KLCI") fell from 1,194 (on 14 March 2008) to 1,189 (on 21 March 2008), representing an marginal drop of 0.4%. Hengdai Equity Fund IV ("HDFIV") made it's maiden investment in Berjaya Sports Toto Berhad during the week and net asset value dropped by 1%. The decrease is due to the valuation of Berjaya Sports Toto Berhad's share price based on closing price and after paying for minimm brokerage commission. In the above graph, I have added a new line in brown colour. The new line represents the performance of HDFIV vis-a-vis KLCI's. To illustrate, when the line is showing 10% at a certain date, it simply means that the return of HDFIV is 10% more than KLCI's return.

Purchase

HDFIV made an investment of 600 units of Berjaya Sports Toto Berhad at RM4.82 during the week. Basis of investments are set out in http://seaneinvest.blogspot.com/2008/03/riding-on-gamblers-when-times-are.html.

Sell

No disposals during the week.

Asset Allocation

We have put about 61% of our money into equities, leaving a comfortable buffer in the form of fixed income and cash. The cash buffer, coupled with the incoming cash by next month, should provide sufficient capital to average down if the market continuest to plummet. On the other hand, you may ask why are we not keeping 100% cash when the market is going down. The answer to that is the market is very volatile at the moment with lots of development in the United States as the Federal Reserve gave their best shots in saving financial institutions. The impact is that KLCI may swing both ways. We wouldn't want a scenario where KLCI rebound and we end up holding no stocks at all.

Stock Sniffing

2008-03-19T19:16:00.000-07:00

As Hengdai Equity Fund IV ("HDFIV") has made its maiden investment in Berjaya Sports Toto Berhad ("Bjtoto"), we will be sniffing the stock for its financial results, corporate developments and other announcements that may affect the underlying value of the company.

As long as the story still gels in nicely, we will keep the stock in our portfolio. On the other hand, if the share price drops due to "fear" in the market, we will sweep in more stocks. Sounds simple but it takes alot of courage to sweep in more stocks when the price drops. There is still a tendency to ponder on this question - Is there something bad happening in the company that causes the drop in the share price that I am not aware of? This fear in mind might delay or even stop the decision to sweep in more stocks, hence losing the opportunity to average down the cost per share before the share price recovers.