One step closer to earning the Charter - Passing CFA level 1!

I was a little shock when I saw my recent result of my CFA level 1. It was quite a challenging exam being almost practically a 6 hour exam. To add on the fact that my work at the bank barely afford me time to study (working from 8.30am - 9pm) on most days...squeezing in about 1 hour from 11-12pm after a 10pm dinner.

It was an amazing journey. I felt I didn't do enough, yet I still managed to pass despite the tough circumstances. I guess some key factors that helped were:

1) My university background as a finance student

2) My passion and continual learning for the capital markets/ financial news

3) My family and friends who were rather supportive during this period of time

One step closer to earning the charter! I made some plans to work on my weak points being Financial Reporting and Analysis and Derivatives. 

Thoughts on the stock market

World Cup fever
Its post world cup. Germany is cheering while Argentina licks its wounds as the world best player (Leo Messi) missed out on his crowning glory as the legend.

The german team is an amazing one. The destructive force that swept aside semi-finalist Brazil 7-1 was by no means a fluke. It was a careful planning of over 10 years of german youth academy. How the Bundesliga paired up with a long term government plan of training up world class youth talent that resulted in players such as Mesut Oezil, Sami Kheidra, Thomas Mueller and Toni Kroos.

Now you may ask me, what has soccer or Germany winning the world cup has to do with the stock market?

One word: Foresight 
Germany has long been at the forefront of engineering. When you think German, you think quality, you think goods that last perpetually forever. When you think of their companies - Siemens, Bosch, Volkswagon, Mercedes Benz, Audi etc. You find a very high quality product at a reasonable cost.

The German economy remains a testament to what makes a good company - strong balance sheet, a good product that people want, good quality, good management, prudent policies etc.

Now for the equity markets.

Here's what I believe is going to happen in the next 6-12 month horizon. The Fed tapering is in October. Singapore property market is going to remain a tad bit bearish (between 15-25% correction is still on the cards). It pays to note that the USA equity market is rather frothy at the moment with values at an all time high with volume falling in addition to tech IPOs like Alibaba about to wipe out a lot of liquidity from the market.

On the Asian markets, we see unclear direction as to what will happen. While the markets look slightly undervalued, there is looming macroeconomic risk with a possible Russian war and the very fact that this bull run is approaching a long period of little or no correction.... That being said, I believe a reasonable equity allocation of 30-50% for the next 3 months would be prudent. Notable stocks that I owe/looking at include:

1. Gallant Venture - Likely to benefit from the increased attention on Bintan, Batam assets paired together with a new indonesian president (Jokowi would be very good for business) - Current Price 0.33
2. OUE C Reit - Likely to benefit from the recent run up in commercial office rental revisions and other REITs movement. Trading below book value and at reasonable dividend yield of 7%. Current Price 0.80
3. Yanlord Land - China has undergone significant correction in the property market. Seemingly this developer still has a strong sales record within the past 2 years. In addition to Peter Lim and Kuok Khoon Hong's stake in the company. This company has a strong branding and strategic location placing that makes its company well valued. Also notable is that Capitaland and CDL (through First Sponsor Group Limited) are seeing the potential in china. Think theme - mass urbanization and affluence growth. Current Price: 1.13

Should you invest in Russia?

by Michael Yoshikami

Quote

Remember Russia is essentially a commodities economy. What will impact Russia more than sanctions is the current consumption rate of energy and other natural resources on a global and European basis. Also look to emerging market manufacturing growth for keys on the future slope for commodity prices.

Sanctions will have an impact on economic growth. Though there is little the global community can really do to Russia on a lasting basis, recent calls to reduce dependence on Russian exports by European Union members will have an impact. If you are buying Russia, you need to buy it based on assumption of slower growth rates.

Be prepared to take profits. Russia is one of the infamous BRIC countries and most strategists have a view, myself included, that BRIC countries are sure to slow as global growth slows. When the overreaction vanishes and valuations return to more normalized levels, that's when you need to carve some of the profit out of this position. You may believe in this country long term, but the short-term profit is what will likely be present for investors to harvest once the headline cease about Russian tanks.

I am not bullish long-term on the Russian economy. A slower-growth world, coupled with technology advances in alternative energy, will slow the Russian economy. Additionally, the level of corruption is so widespread that one wonders how much internal consumption has been soaked away by Russian companies and their chiefs.

But again, we are talking about capturing short-term opportunity. On the short-term, Russian equities have likely sold off more than they should have given current fundamentals and that's the opportunity provided to opportunistic investors amidst a frightening headlines.

Unquote

Fulll article : http://www.cnbc.com/id/101540552

Personal opinion:

The investment story in Russia is rather compelling. Several diversified funds such as RBL and RSX ETF may give some solid exposure to the country facing huge sanctions currently. The holding period should likely be more than one year and the commodities story for China is returning to its track.

In the meantime, hold on to your bullets. It likely be a bumpy ride till things are a little clearer (e.g. what the sanctions are specifically), whether  there are more to come. What is the country doing to mitigate such issues.

Best Places to invest for 2014 (Part3of4) - BRIC

Welcome to Part 3 of 4 of an EdenAdvisors special. In this series, we examine the investment theme coined by Goldman Sachs economist Jim O Neil in "Building Better Global Economic BRICs" - 2001 investment paper. In case you never heard of the term, they stand for the four countries of the emerging markets that could overtake the then G7 - USA, Japan, France, Germany, Italy, U.K. and Canada. The BRIC stands for:
Brazil, Russia, India, China

Even as of 2001, China's GDP was higher than Italy already. Fast forward 12 years, we see the sputtering economy of Italy, France and in some sense U.K while  U.S.A and Japan has crazy ballooning debts. Even then China continues to muscle on.

First up

Brazil
Why an investment there makes sense?
Stable government under Rousef, proximity to a burgeoning latino market that holds much potential to wealth.

Why it does not.

'After making a big push into the South American giant in search of raw materials such as iron ore, as well as a promising market for their consumer goods, Chinese executives have grown frustrated with stagnant economic growth, heavy costs and what they see as a political and popular backlash against their presence.'  - Reuters (Link)

Companies with Brazilian exposure

Commodity supply chain managers/owners - Wilmar intl/ Olam Holdings / Noble group

Shipbuilders/OSV/Oilrig builders - Keppel Corp/ Sembmarine/ Vard Holdings

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Russia

Key statistics

Real GDP growth (2012): + 3.4% 

GDP per sector (2012): Agriculture: 4.4% / 

Industry: 37.6% / Services: 58.0% 

Main exports: Oil and gas, wood and wood products,

metals, chemicals, weapons and military equipment

Main export partners (2011): Netherlands 12.2%, 

China 6.4%, Italy 5.6%, Germany 4.6%, Poland 4.2% 

Why an investment makes sense?

With a stable government in the form of president Vlamir Putin (elected till 2018) and prime minister Dmitry Medvedev. Putin is one solid president who has strong standing with his people (amid some small rebellions and unhappiness), I once recalled a newspaper article where he scolded a billonaire tycoon and forced him to sign some contact 'case in point was that putin was making things right and preventing the tycoon from abusing/mistreating his people'.

Natural Resources - Russia accounts for some 20% of the world’s gas reserves, 18% of the world’s coal reserves and 5% of the world’s oil reserves. Together with its hydrocarbon deposits, Russia is also home to one of the world’s leading mineral industries. From bauxite to iron ore, gold to platinum and a lot of mineral types in between, Russia ranks amongst the world’s top 10 in terms of both production and reserves.For example, Russia accounts for nearly 25% of the world’s diamond production by value. (KPMG - Russia) Special play - Gazprom

Consumer market - the Russian middle-class is expected to more than triple in the next eight years, rising from approximately 20m in 2011 to nearly 70m by 2020. As such, Russia is expected to become the largest consumer market in Europe by 2020, whilst its per capita GDP is expected to 

triple to USD 35,000. To illustrate, the Russian banking sector has been one of the fastest growing of the leading emerging markets over recent years, with a 26% CAGR over 2005-2012. (Source - BOAML, Russia 2020). Special play - Sberbank

Domestic fixed investments - With the winter olympics being held in 2014, as well as 2018 world cup and improving rail systems and Moscow ambition to be an international financial centre, increasingly more investments would be pumped into such areas. 

Silicon Valley? At a planned 400 hectares, Skolkovo will consist of a university and techno park aimed at attracting tech  start-ups and foreign investors with government grants. US companies such as Cisco, IBM and Microsoft have already committed to the project. As a special economic  zone, foreign companies will get tax-breaks and special treatment when it comes to visas and imports. With  construction well under way, the government has pledged USD 4.2bln for the project. (Source - KPMG)

Jim Rogers - Famed investor Jim Rogers suggests the Russian market may be undervalued and could present significant opportunity for investors. Rogers stated that after a recent visit to Russia he came away impressed with progress influenced by the actions of President Vladmir Putin. (Source - Emerging Money – by Steven Orlowski)

What are the risks?

1. Volatility of oil and gas prices/ commodities

2. Institutional framework for businesses 

3. Dynamics of social cohesion - egalitarian society and gini coefficients are things to look at. Citizens buy-in for long term investments are a necessity.

India

A culture strongly embedded with religious hierarchy that ensures that one stays within their own castes. Although the castes systems have been abolished, the underlying tone and adherence to one's roots make it hard for meritocracy to thrive in this country (at least not for a while).

Where to invest?

Specific themes for India would be the growing demographics, rise of middle class (think property, financial firms and luxury items).

Why not?

A country filled with bureaucracy and notably the largest democracy in the world, democracy in its purest form is a style that encourages too much variety of opinions with no proper decision making. 

India was put to the test with their hosting of the commonwealth games in 2010 - Check Out The Worst-Planned International Sports Event Ever. Its not a pretty sight.

A friend who travelled to india also told me that besides skyscrapers there are slums. A report stated that citizens have more handphones in the country than toilets. The whole system and infrastructure of the country is messy. In addition to the horror cases of rape/molest of foreign tourists or even locals.

Personal story - In 2010, I thought that BK Modi, an illustrious investor from India who first came to Singapore and bought MediaRing/Spice i2i (now known as Si2i). I seriously thought he was a serious entrepreneur with the track record. The company had two rights issues which failed terribly. I should have listened to my own voice of rationality that when BK Modi said that a $10m shortfall in valuation in one of the mobile companies he was acquiring didn't matter. If he says 10m doesn't matter, he is not taking the business seriously, I should have dumped all my stock then. In the end, I exited with a $3000 lost (a hefty 80% capital destruction). A seriously big amount for a university student then. It straighten all my thoughts and changed my perspective that I needed to evaluate my portfolio wisely. Today the stock languishes at 0.008 and nobody even cares about this cash burn company.

Outlook - I wouldn't touch any Indian investments with a 10 foot pole.  But some good companies out there include
1. JM Financial (New chairman designate - Former Citibank CEO)
2. Tata Group
3. IDBI bank

China

The best place to invest for the last 20 years. Does the allure still shine?

Jim Rogers mentioned that this century is the time for the Chinese - China to shine. Here's my thoughts on why he is right.
1. The country's population of 1.1bln gives plenty of opportunity for pretty much any industry. Think property, healthcare, retail, F&B.
2. The country has many many brilliant individuals who are returning back to the country (like a seaturtle returning to its nesting ground) - think corporate titans, scientists, engineers.
3. The country has been growing at 7-8++% for many years. It shows no signs of slowing down. Corporate billionaires are being minted almost yearly.
4. One word. Alibaba. The amazon, ebay, paypal and credit line all in one. Amazing.

Why not?
1. The country's ascension to power has left it choking on industrial smog that pollutes and threatens their own livelihood.
2. The one child policy has left a rather slanted population trend of Aging population and overly spoilt single childs (mostly males)
3. Property bubble has been growing and growing. Leaving many ghost towns and capital expenditure just wasted around the corner.
4. Following up point 3, many of the big 4 chinese banks are financing such assets. In addition, they have huge exposure to other forms of debt that the shadow banking system i threatening to create a calamity.

Themes and local SG players
- Yanlord (Pure high end civillian real estate + shopping malls)
- Capitaland and Keppel Land (Chinese property and real estate + shopping malls)
- Capitamall Asia (Chinese retail mall play)
- Mapletree GCC (A small play on chinese office/commercial property)
- K1 Ventures (a small but strong stake in ChinaAuto - the biggest distributor of automotive in china)
- Yangzijiang (Chinese shipyard and ship builder + oil rig building)
- Noble Group (Chinese State investment owns a stake in it) - commodities an interesting play
- Wilmar - Palm oil is highly sought after but price is controlled in China.

Not withstanding a recession/ property bubble bursting (which the authorities are taking prudent steps to control), Liew Mun Leong (Capitaland former CEO) did mention a conversation with Jamie Dimon before - Where is the best place to be building and selling property?
The answer: China. The growing middle class, the creation of the super-rich from tech savvy entrepreneurs and the very fact that increasingly, urbanization of the outskirts of china leaves much room for imagination. That China is a monster of an investment dream as the next global superpower.

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

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