Happy New Year - Ushering in 2014

Dear readers,

We at Eden Advisors wish you a happy new year. It remains to be seen but it seems that the world is on an ascension to new highs and recovery is here. Stay smart, stay hungry and always remember

Everything that counts does not necessarily be counted and everything that counts cannot necessarily be counted.
- Albert Einstein

EdenAdvisors

Best places to invest for 2014 - Crisis hit countries / companies (Part2of4)

Countries badly hit in the financial crisis of 2008 leading up to the European crisis - Spain, Greece, Portugal (or companies with proxies to this markets) seems to offer alluring prospects for the discerning investors. As we can see the world economy seems to be turning a corner with growth prospects coming in as global equities begin hitting all time high and currencies such as USD, EUR and the British Pounds are all strengthening showing the evident trend that the smart money (or herd money) may be heading back to developed countries away from the emerging markets.

That often brings about the best opportunities not by bottom fishing - but when you see that the recession has indeed ended - thats about the best time to go in.

From the way I see it, the USA stock market can go both ways - having reached an all time high by surpassing 16,000 on the DJI, my gut is that it could run up another 10-15% by mid 2014. But the smart money doesn't really like to bet on guess whether businesses are going to do well, they want certainty and that can be a hard thing to come by given the following two points.

- Stock prices have hit an all time high for DJI and S&P500. 
- With the Fed tapering on 18 Dec 2013, bond prices are expected to fall given a drop of 10 bln in monthly bond purchases from 85bln to 75bln.

With such a situation, should you go for equities or go for bonds? The contrarian principle requires you to avoid all time high purchases while it just doesn't make sense to go against the Fed if they are going to cause bond prices to collapse.

Which comes to my point - Find the gems in the countries turning the corner - good business models that have yet to be taken notice of, they can be in resource companies - gold (fallen significantly) or construction companies in european and american companies - some of which you have proxies on the local exchange here in Singapore.

More importantly, how does one exactly see the turnaround of a company/country?

Companies
1) Companies who previously were in the red have start to show green shoots of positive earnings
2) Order books are starting to build up plus management announcing their positive outlook for the year ahead.
3) Banks are beginning to extend more credit facilities to companies and companies are beginning to raise more capital from both rights/bonds (do note that the usage of the proceeds should be scrutinize with much detail as sometimes the companies do not use them productively)

- As always, the best companies know when to use their cash and when to save their bullets for the right moment.
- Local gems include companies with a low p/b value such as Liongold or beaten down resource companies such as Noble Group, Olam, Wilmar and Golden Agri Resources.
- Turnaround companies with new management, business plans and corporate finance experts - CCM group, GRP ltd and ICP ltd
- Asset manager - distressed asset purchase remains the flavor of the coming decade with more and more companies undergoing restructuring, opportunities remain abound. One local company engaging in such a situation - Global Investment Limited

Countries
1) Falling unemployment rates
2) Rising GDP figures
3) Rising housing purchases, domestic spending and income (Often being able to be seen from increase in taxes)

With that being said, following the coattails of brilliant investors and thinkers may also prove a prudent strategy. The following are countries in perspective.

Spain
Why it makes a good investment?

• Bill Gates (the world's richest man) is betting on a recovery in Spain by taking a 6% stake in Spanish infrastructure group Fomento de Construcciones & Contratas.
• Additionally, he is note alone in betting on the recovery as Spain ranked as the world’s 14th-ranked destination for foreign direct investment, with a total $28 billion in inward flows.
• Bond prices have stabilized for the country - showing the faith investors have in the government's actions
• The Spanish government is learning from Germany's unemployment problems from 2003-2007 and taking the right steps by pushing down labor costs (which have spiral up too much from 2001 - 2007 at a rate of 4% p.a.) - what many call the low cost manufacture revolution.
• 'Spanish unit labor costs fell 4 percent from 2008 to the first half of 2012, and the decline relative to the euro area average amounted to 10 percentage points, according to data compiled by Commerzbank AG in Frankfurt. As the implementation of the new labor law allows for further wage cuts, Spain may outstrip the 16 percentage-point decline against the euro region that Germany achieved in the decade through 2008, said Joerg Kraemer, Commerzbank’s chief economist'
• Tourism continues to be a strong pull for the country - and personally I love the country Barcelona (not for the pickpockets though) 
• Spanish language is still spoken by many latino countries in south america making it a big player in the future of South American (Emerging market growth)

Sources: 

1. http://www.businessweek.com/articles/2013-10-22/why-bill-gates-is-making-a-155-million-bet-on-spain
2. http://www.bloomberg.com/news/2012-12-19/rajoy-drives-spanish-revolution-with-low-cost-manufacture.html

Problems
1. Europe's population has not exactly found their way out of employment - Among the Member States, the lowest unemployment rates were recorded in Austria (4.8 %), Germany (5.2 %) and Luxembourg (5.9 %), and the highest rates in Greece (27.3 % in August 2013) and Spain (26.7 %). Source: Eurostat
2. Youth unemployment in Spain remains high at 53.2% compared with its other EU compatriots - this leaves much room to imagination as youths can be quite a ruckus bunch leading to a possibility increase in petty crimes, social unrests, riots etc.
3. Creation of jobs will take at least 5 years, any contrarian bets on a turnaround for this country can easily be unravelled by another financial crisis that may be looming around the corner.

*In Greece (55.4 %), Spain (53.2 %), Portugal (37.7 %), Italy (35.3 %), Slovakia (34.0 %) and Ireland (30.4 %) youth unemployment rates were particularly high. Germany (8.1 %), Austria (8.7 %) and the Netherlands (9.5 %) were the only Member States with a youth unemployment rate below 10 %. Source: Eurostat

Greece
1. For a country heavily reliant on exports and tourism, this country was doing a terrible job at keeping the country safe for tourists - I heard of a exchange student who was mugged on a train station by 6 individuals....apparently they didn't take anything in the end because his pants was too tight - wallet couldn't be removed.
2. Olive oils - definitely something more the world could use. Nothing too exciting happening in Greece just that agriculture and tourism - beautiful places like Santorini should warrant a visit with your other half/ family etc.

Portugal
For a country with no Singapore embassy (I think it can be hard to explain the merits of investing in such a place) - my friend had her passport 'pickpocketed', it took an entire day to convince the airlines to give us a chance to get to Vienna to get a temporary replacement. Thank God for good Singapore immigration team (MFA) who liaised with the companies and such.

I am not an expert on Portugal, nor will I try to be, but I do think this country has potential - you can even get a 5 year residency (Golden Visa) if you invest in a property there. Do see the following portion for more information on Portugal 
http://www.portugalglobal.pt/EN/InvestInPortugal/investorsguide2/Paginas/Investor%27s%20Guide.aspx

Cheers, share the word and leave a comment.
Wishing you a blessed christmas in advance!
Yours sincerely,
Bobby

DBS report on Myanmar

Hi all,

DBS has a really comprehensive analysis on Myanmar. Do take a look to widen your perspective of the exciting economic prospects this country holds.

http://www.dbs.com/insights/conference/2013/CountryBriefing01_Myanmar.pdf

Go BIG or go home - Yoma Strategic Holdings (Special analysis)

Dear readers,

As a follow up to a reader's request, here is an analysis of Yoma Strategic Holdings. 

1) Building up the conglomerate story
- Real Estate and Construction
- Agriculture
- Retail
- Luxury Tourism
- Automotive

Real Estate/ Construction/ Retail
The real estate story is largely intact. As the middle class begins to grow in the myanmar, the demand for quality houses continues to grow. Yoma has the equivalent reputation of capitaland (Singapore company) and it would do well to serve this. Impressively, we have begin to see the return of overseas burmese back to myanmar to help their country - restart.

Small initiatives that have great potential include a small sales office in Singapore for burmese nationals to buy houses at star city.

Mitsubishi Estate has teamed up with Yoma to work on the Landmark development 
'Located opposite Trader’s Hotel and adjacent to Boyoke Aung San market, the US$350 million project will include office buildings, serviced apartments, a hotel and a mall when completed.' This is a highly primed location and its really a very good place for future Grade A offices.

Also being built is the telecoms tower for Ooredoo - one of the winner of the telecommunications bid, such deal savvy moves speaks well of the companies ability to win deals and connect with the right partners for future growth and good yield projects.

Collaboration with Parkson to start Parkson retail mall starting a possible mall trend "similar to the Singapore retail mall story".

Agriculture
Although not a big contributor to the company as yet, agriculture has a potential. Currently being run by the former Director General, Department of Agriculture Planning in the Myanmar government. Good connections definitely are a plus in this case.

Luxury Tourism
Having bought over a hot air balloons business for $10m, the former management joined Yoma team to manage the business. Being a rather profitable business already, the business has interesting potentials as increasingly more tourists are coming to myanmar.

Automotive
With the relaxation of automotive ownerships by the burmese governments, the price of a toyota altis fell from US100,000 to about US20,000 overnight. An amazing phenomenon which would definitely lead to more ownership of cars. Yoma having a strong partner in Volkswagon is definitely in the right position having won the deal to running the after sales service centre for Volkswagon.

2) Management
Serge Pun being a well known, well connected businessman who has gone through losing everything to making a comeback is the right person to place your money on. In my opinion, he is comparable to Chua Thian Poh of Ho Bee Land group, another well connected, well respected businessman who has gone from rags to riches to rags and to riches again.

Serge Pun's successors and his sons, Cyrus Pun, executive director having graduated from London School of Economics runs the real estate department. The alternative director to Serge Pun, his other son Melvyn Pun is a former goldman sachs almuni, where he spent 12 years at Goldman Sachs in Hong Kong, where he was Managing Director, Head of Asia Ex- Japan Corporate Solutions Group. He currently heads SPA group, a sister company of Yoma.

Given the number of sizable experts in corporate finance - CEO included. I believe the company may be in a good position to utilize any possible debt and capital raising for future growth.

3) Valuations
Giving Yoma a market valuation is quite a tricky situation, should we priced in the conglomerate story? Should we add on the fact that there is a severe lack of quality pure myanmar listed company on the market? Does the management deserve a high premium on its deal savvy moves?

While the above are valid questions, it can be rather difficult to justify a P/E of 45.32 at current prices of 0.755. That being said, consider the following merits

Aberdeen asset management, a long only company with strong Graham investment principles invested in the company at $0.8/share - coatail investing may be a strategy that works here. Jim rogers owns the shares too, at a much lower price though.

Real estate is the right theme for a country where the demand is severely outstripping the supply. The first mover advantage as well as the visibility of Mr Serge Pun and well known individuals (Soros, Jim Rogers, Digicel, Volkswagon, Parkson) just to name a few want to work with this company just shows that they understand Yoma's position in the market.

Catalyst - Strong earnings would come from Star City development as well as the landmark development grade A office.

Personal conclusion

As a last note, I own 2 lots of this company and it is my dream to own 50 lots of this company because I believe it is the right company for the long run. A valuation purely on numbers call for a sell on this stock, I feel personally in 10 years, this company could be worth 3 times its current value. Additionally, I believe this is a possible 'buy and hold forever' company. Conglomerate building stabilizes the company, opening up of the country helps to boost business connections and ties, and finally the citizens own growing income can help are trends that this company continues to ride on. Highly qualitative in merits at the current moment.