JR: "UK has nothing to sell"

Jim Rogers(JR)'s advise with reference to the pound and the UK economy pushed the country deeper into its financial gloom. With a very troubled housing and financial service sector, JR's statements push the already nervous investors over the edge. In fact, the advise spark a Sterling sell-off resulting it sitting at a 23 year low against the USD and an all-time low against the Yen. Questions have emerged whether the UK will be able to ride out this financial storm and how soon or earned the reputation as being the second European Union country after Iceland to fail in this crisis. Are the fundamentals of the UK that weak? Will the RBS, Lloyds and Barclays be nationalised soon? Will the country be able to retain its AAA ratings? Will pound near parity with the USD? Will the London Olympics 2012's projects get stuck? One thing I am sure, despite all this, the country will still have their famous football clubs and pubs, just to name a few.

FT.com: The pound is a currency with no underpinning and should fall against the dollar and the euro, says Jim Rogers, chairman of Rogers Holdings and co-founder of the Quantum Fund with George Soros.

He says his view reflects the UK’s dire economic situation: “It’s simple, the UK has nothing to sell.”

Mr Rogers says the two main pillars of support for sterling have been North Sea oil and the strength of the UK financial services sector, in particular, the City of London’s role.

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But Mr Rogers says just as North Sea oil is running out, so London’s standing as a major financial centre is set to suffer.

“I don’t think there is a sound UK bank now, at least, if there is one I don’t know about it,” he says.

“The City of London is finished, the financial centre of the world is moving east.”

“All the money is in Asia. Why would it go back to the West? You don’t need London,” says Mr Rogers.

Mr Rogers thinks the pound is more vulnerable than the dollar or the euro.

He says the UK housing market is arguably in a worse state than that of the US, given pockets of strength in the US and prices that are sliding across the board in the UK.

Meanwhile, he says, the UK is in worse shape economically than the eurozone, where most countries are not big debtors and do not run huge trade deficits.

“If the UK discovers more North Sea oil, I might change this view,” he says. “But I don’t see that happening.”

* China's economy grew 6.8% in the 4Q; slowest in 7 years. For the year, the economy grew 9% in 2008.

* South Korea's economy shrank 5.6% in the 4Q.

* BNM has lowered its key interest rate by 75 basis point to 2.5% yesterday. Pretty sharp and desperate?

* Japan keeps its key interest rate at 0.1%.

* Come July 6, KLCI will be replaced and be known as FTSE Bursa Malaysia KLCI (30 largest main board companies based on investable market capitalisation. We will have a tough time getting used to it!

Time to invest in China?

The report below from Morning Money was written by Louis Basenese an Associate Investment Director of The Oxford Club and a regular contributor to Investment U. This article first appeared in Investment U a week back. Like Jim Rogers, this investment manager seems to be very bullish with China and even provided 11 reasons why he is keen in buying China shares. Well, is he too early to call China a BUY? I just understand China's urban unemployment rate jumped for the 1st time in 5 years to 4.2% as of December 2008. Also, there were over 550,000 Chinese laid off in the last 3 months of last year. What will it be for the up and coming GDP figures and other economic data? Ugly also. Me? I will keep watching...till it turns really ugly.

1) The truly “smart money” is buying, not selling.

To be fair, the reason Bank of America “took a little money off the table,” according to spokesman Bob Stickler, is because of its own financial condition and need to raise cash. Same goes for the Royal Bank of Scotland. Yet, looking past these institutions, the truly smart money is loading up on China. Mark Mobius, the king of emerging markets, sums it up best, “We’re having a wonderful time buying tremendous bargains.” Statistics from research firm EPFR Global indicate the rest of the smart money is following suit. Funds investing in emerging-market stocks raised their Chinese holdings to the highest level since 1995. We should, too.

2) Chinese stocks are cheap.

Ridiculously so. If legendary investors like Warren Buffett salivated over U.S. stocks trading at 12 times earnings, they should be rabid over Chinese stocks. Based on the MSCI China Index, the average Chinese stock trades for less than eight times earnings. Share prices are contracting, but earnings keep growing. Based on the severity of the sell off, you’d think every Chinese company was unprofitable and headed for bankruptcy. Yet the fundamentals remain rock solid. The average Chinese company is still growing earnings by 30%, according to a recent report in China Securities Journal. Compare that to the estimated 12% earnings decline in the fourth quarter for the companies in the Standard & Poor’s 500 Index, and the bargain valuations make even less sense.

3) Chinese investors learned a tough, but necessary, lesson.

During the height of the China mania, retail investors viewed the stock market as an ATM. They lined up by the millions to open brokerage accounts. But much like our infamous dot-com bubble, Chinese day traders and novice investors got a very painful reminder of what happens when the “Greater Fool Theory” reaches the last idiot. The important thing, however, is that the correction served a higher purpose. It began the process of flushing the extreme irrationality from the market. So we can be certain the next leg up will be governed by fundamentals, not hype.

4) Oil is much cheaper.

One of China’s biggest challenges was to keep a lid on inflation, while still maintaining its breakneck pace of economic growth. That was no easy task with oil at close to $150 a barrel, as the cost of shipping, food and fuel were rapidly increased. Keep in mind, China imports a net 3.3 million barrels of oil a day. Now that oil prices are down considerably, we can cross one big inflation risk off the list.

5) The economy is NOT in a recession.

Sure, it’s slowing down, but China is still on track for a solid 6% expansion based on analysts’ estimates. And 8% if you believe the government statistics. Regardless of who ends up being right, compared to the contraction in the United States, such a high rate of growth is downright explosive.

6) Massive foreign reserves.

The last time Chinese stocks were this cheap was during the Asian financial crisis. Back then, most Asian countries were running huge deficits. But this time the roles are reversed. As of December, China boasted of having $1.95 trillion in foreign reserves. And counting. If necessary, the government can deploy these surpluses to keep economic growth humming along.

7) Personal savings.

Unlike Americans that spend more than they earn, the Chinese save an amazing 35 cents of every dollar they bring in. This provides yet another cushion against any slowdowns. But also an enormous opportunity for future growth. As China’s economy develops, and affordable insurance and health care become ubiquitous, expect the Chinese to get comfortable spending more of their hard earned cash.

8) The consumer is just getting started.

The country’s burgeoning middle class, now the size of the entire United States, is just getting started. The McKinsey Quarterly estimates that it will take two decades before these nouveau riche reach their full spending potential. As we know from our own experience and prosperity - 70% of GDP in the United States is attributed to consumer spending - the consumer is an engine of economic growth. In other words, the global recessionary headwinds are no match for the Chinese consumer.

9) Forget what Westerners think, locals are optimistic.

We know consumer confidence plays a big role in the success of our own economy. It flat out stinks right now in the United States, and the economic conditions reflect that. But in China, it’s an entirely different situation. A recent survey from the Pew Research Center shows that most Chinese people (86%) feel positive about where their country is headed. And that’s up from 25% just six years ago. If they overwhelmingly see good things on the horizon, we should believe them.

10) The “mother of all stimulus plans.”

While the massive government stimulus package has yet to take hold in the United States, rest assured it will. The same goes for the $586 billion the Chinese government is pumping into its economy. As a fund manager for BlackRock Inc. (BLK) notes, China’s “got the mother of all stimulus plans” when you factor in the government spending, savings rates and the rapid decline in commodities prices.

11) The Best China Bets.

Make no mistake, the shooting-fish-in-the-barrel-stage of China investing is long over. Simply buying the iShares FTSE/Xinhua China 25 Index ETF (FXI) won’t cut it anymore. It’s too obvious.

So how do we play the next bull charge in China?

Well, last week, I offered up one compelling small-cap Chinese play, E-House Holdings Ltd. (EJ). I’d stick to that theme - small caps, with the strongest growth profiles. And that puts China Security & Surveillance (CSR), a leading provider of digital surveillance technology, and A-Power Energy Generation Systems (APWR), a power equipment company, at the top of my list. For those with a more conservative bent, I’d stick to large-cap, blue chip, best-of-breed China stocks - ones like China Mobile Ltd. (ADR: CHL), the world’s largest phone company. It sports a solid balance sheet, increasing profitability and a temporarily cheap valuation.

Whatever you do, don’t wait too long. The Chinese New Year holiday gets underway Jan. 25. When it’s over, don’t be surprised if the Chinese markets start fresh and get back to their winning ways.

I say that because the strong economic underpinnings, which lined investors’ pockets with gold from 2004 to 2007, remain well intact. Whether the next leg up will produce the same 450%-plus returns remains to be seen. But rest assured, the catalysts are in place to make it possible.

* Bird flu on the rise in China?

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* Bloomberg: Singapore economy may shrink to record 5% adding to pressure for stimulus.

* Toyota is poised to end General Motors' 77 year reign as the world's largest automaker when the US company reports on its 2008 global sales today.

HSBC replies

Of late, HSBC has been rumoured to require cash injection in order to keep its ship chugging along the stormy financial waters. Morgan Stanley for example, predicted the bank needs between USD20-30b of equity and halve its dividend in order to bolster its Balance Sheet. No recovery is anticipated in its results until 2011.

The news of the second financial bailout for the British banks and the staggering 70% fall of RBS yesterday compounded the already bruised European banks share prices, including HSBC. It is true as a 12 month analysis saw HSBC's share price peaking at HKD140 in May last year but has now gone down to HKD58. (refer here for share price movements). A drop of almost 60%.

HSBC has been "quick" to respond to the negative comments and says that it has ample of capital and do not need any help from anybody. It also added that, these "negative" analysts need to apologize once their predictions do not come true! Wow, we need more of such optimism(but truthful ones) in the market! Get ready your ang pow money to scoop the high dividend yield HSBC?

The Standard:Banking giant HSBC (0005) has refuted rumors that it is seeking capital support from the British government, saying it cannot "envisage circumstances" when such action would be necessary.

"HSBC has long been one of the world's most strongly capitalized banks and is committed to maintaining this position," the lender said in a statement in response to speculation that it would receive a cash injection when London announced yesterday a second bailout package for banks.
HSBC was on a list of lenders that could receive Bank of England funds in the first rescue plan unveiled in October. But HSBC rejected that offer, saying it had ample capital and needed no help from the central bank.

David Eldon, former chairman of Hongkong and Shanghai Banking Corporation, the local arm of HSBC, concurred saying the lender has no funding needs. He also said HSBC is only a victim of recent fund-raising activities by foreign banks.

Eldon cast doubt on statements by investment bank analysts that HSBC needs to raise funds, saying the London-based lender has always had a prudent policy regarding its capital base. Eldon said the analysts need to apologize once their predictions are proved wrong. Big investment banks including Morgan Stanley and Goldman Sachs have issued reports in recent weeks revising downward their forecasts on HSBC, and slashing their target prices for the lender's shares to as low as HK$52. They also predicted that the bank will cut dividends. Amid the bearish sentiment, shares of HSBC continued to nosedive in Hong Kong yesterday, losing 3 percent to close at HK$62.30, the lowest in more than 10 years. The bank's share price has shed around 15 percent since the beginning of this year.

Eldon also said he supports the Hong Kong Monetary Authority's proposal to take up all banking regulatory functions.


* Obama, the 1st Black President and the 44th President of the USA will be inaugurated today. Above. Dennis Haysbert played the accomplished President David Palmer in "24".

* YahooFinance: RBS expects full year loss up to 28B pounds due to a goodwill impairment charge related to the acquisition of ABN Ambro. The loss is probably the biggest loss ever by a British corporation.

* Forbes: South Korea's finance minister and top regulator replaced. President says reshuffle aimed at boosting economy.

* China Premier Wen says toughest year ahead since 2000.

* Jim Rogers said investors should be worried about USD, sell government bonds and buy raw materials, China stocks and the Japanese yen.

* FinancialDaily: Khazanah's December 31 portfolio down by 36.5% compared to 7 months ago. The investment now stands at RM33.7B. Also to note is Khazanah do not support LCCT in Labu plan.....??

Broken glasses everywhere

So Perwaja was finally listed today. It was touted as the listing of the year based on its sheer size (market capitalisation of RM1.6b) and on its "from rags to riches" story. The opening and closing for the stock was very disappointing to many investors who have gone through the IPO selection process in which they have to pay RM2.90 per share. The shareholders via Kinsteel also stand to lose although not as much as the IPO subscribers. The disappointment came with the fact that the share has been recommended a BUY by research analysts who gave the fair value price of the stock from RM3.70 to RM4.90. Could the 1st day blues of Perwaja linked to the expected further softening of steel prices and lower demand in the future and also the current weak market sentiment all together or are there something else? Are all the analysts which have MBAs and CFAs under their belts got the figures all messed up? I believe the disappointing price is due to a combination of all the above factors and more particularly due to the current weak market sentiment...mind you our market has gone down more than 25% this year. I have attached above a summary of companies listed this year to date and below are some findings why I draw from this conclusion.

Listing day-

* Of the 14 companies listed, more than half of the companies closed on the first day below IPO level.

* Of the 6 main board companies listed, 4 companies closed on the first day below IPO level.

* Of the 4 2nd board companies listed, only 1 company closed on the first day below IPO level

* Of the 4 Mesdaq companies listed, 3 companies closed on the first day below IPO level.

Conclusion

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If really want to subscribe for IPO, go for 2nd Board companies. Making money from IPO in general on the first day of listing = 42% chance only. No more 100% success stories!

Post Listing-

* Of the 4 2nd board companies listed, 2 of them are doing better than the IPO price now while 2 others are not.

* Of 4 Mesdaq board companies listed, 1 is doing better than the IPO price now while 4 others are not.

* Of 5 Main board companies listed, none is doing better than IPO price now.

(Excluded Perwaja because we do not have its post listing data)

* Todate, for the main board companies, the price compared to IPO price is down from 16 to 35%.

Conclusion

Based on the above and looking at the current market sentiment, I would say there is no point subscribing for IPO shares now as we can buy them cheaper on post listing days. If you REALLY REALLY need to subscribe IPO shares, 2nd board companies stand a better chance of making money. However, it is better to sell off the shares during listing day or a few days closed to listing day as only 3 out of 13 companies managed to do better than the IPO price post listing. But....it is always good to do our own homework on the companies we intend to invest and the sectors they are in as good companies could be sold down irrationally by panic sellers. Stick to our own valuation and conviction.

* Bloomberg: Richmond Fed Reserve President publicly clash with Paulson on Fannie and Freddie calling both companies to be privatised rather than backed by Government but owned by shareholders. He proposed both companies to be nationalised, then split up and sold off.

* BT: Jim Rogers will be in KL on August 23 but his talk is only exclusive for CITI Gold customers!

* BT: P1 finally launches its WiMax applications yesterday. Unfortunately, the coverage areas are still very limited and I really hate the "bulky" looking modem. Suggest to wait for newer versions and better coverage first.

* South Korea's regulators are making new listing easier while making delisting harder for troubled companies. Times are bad!

* Hanoi and HCM's stock market trading ranges have been widened. HCM +/-5% (from 3%) and Hanoi +/-7% (from4%)

* Datuk Lee Chong Wei- RM300k and RM3k monthly pension...coming in too young and too early????? Will this player loose his drive and hunger???

* FinancialTimes: Indonesia is pushing to develop a larger Islamic market. It has recently appointed HSBC, Standard Chartered and Barclays Capital to handle its global Islamic Bond program to boost the sukuk market. Malaysia is the world's leading sukuk market issuing about half of the USD51.5b issued last year.

Letting off some hot air only?

Many analysts have turned bearish on the plantation sector. They are maintaining their underweight call and are keeping their crude palm oil assumptions of between RM2,500 to RM3,000 per tonne. (refer here - analysts' rationale). However, some says the fall is only temporary and the "hot air balloon"(and not bubble) is just letting of some hot air for the onslaught upwards again. Jim Rogers is one of them. (Refer here also for some of his other predictions). I tend to agree with him as historically, commodities bull cycle generally last at least 20 years!

Bloomberg: Jim Rogers, who in April 2006 correctly predicted oil would reach US$100 (HK$780) a barrel and gold US$1,000 an ounce, said the fundamentals for commodities are ``astoundingly'' good.The bull market for commodities "has a long way to go,'' said Rogers at an investor conference in Australia. The bull market may end by 2020 based on historical cycles, he said. The Reuters/Jefferies CRB Index had its biggest monthly decline in 28 years in July reversing course after its best first half in 35 years. "We are going to have plenty of setbacks in commodities but when they happen please keep your heads about you, do some more homework, and if you decide that thing is still OK I would suggest you might think about buying more commodities,'' Rogers said.

* Anwar to be charged tomorrow for Sodomy No 2. We have a government which is very "obsessed" with Anwar and thinks of nothing but how to stop/silence the man himself. This is definitely very wrong.

* Australia central bank signals first rate reduction in 7 years. As noted yesterday, the drop in the commodity prices will put more pressure on the AUD.

* S&P has upgraded Malaysian shares to"Market Weight" (ie Neutral) from "Under Weight". It also targets KLCI to hit 1,400 points from earlier estimate of 1,300 points.

* Bloomberg: More reported losses. BNP Paribas's (France's largest bank) 2Q net profit fell 34% as it wrote down debt backed by bond insurers and increased risky loans provisions. Cathay Pacific reports first half yearly loss in 5 years on record jet fuel costs.

Jim Rogers Buying Yuan and Chinese Stocks

DJ UPDATE: Investment guru Jim Rogers said Monday he started buying into Chinese and Taiwan stocks in the last few weeks. Stocks in mainland China have declined in a "nice correction," he said at a media briefing in Hong Kong, and if there is another drop in the market, Rogers said he would "buy a lot more." Rogers, who co-founded the Quantum Fund with George Soros in the 1970s, recommended looking closely at companies that are less affected by economic slowdowns such as those in the water purification, agriculture and power generation sectors. On the other hand, he is staying away from China''s real-estate sector, which the Chinese government is trying to cool down. Rogers said he started buying Taiwan stocks five to six weeks ago. "For the first time in 60 years, there''s peace between Taiwan and China," which benefits both economies, he said of his decision. Taiwan stocks rallied after the island''s presidential elections last month amid expectations that Ma Ying-jeou, Taiwan''s new president, will boost the economy by improving ties with China. Fund managers have been buying shares in Taiwanese companies with business interests in China, as well as tourism-related stocks, which stand to benefit. Rogers, who noted that this is the first time he has bought into Taiwan, has been investing through indexes. He has also been investing in specific industries, but declined to give more details.

Along with his recent investments in China and Taiwan, Rogers said he is bullish on the Chinese yuan, which he called "the safest investment now versus the U.S. dollar."Rogers said he has holdings in the yuan, or renminbi, and plans to buy more of the currency." China does seem willing to let the RMB appreciate more," he said ,forecasting a "several hundred percent" gain in the currency over the nextfew decades. By contrast, Rogers said he is very pessimistic on the outlook for the U.S. dollar but still believes there will be a rally sometime very soon. He said that when that rally comes, he plans to sell the rest of his U.S. dollars. Despite the run up in commodities prices thus far, Rogers sees much more room to go. Most commodities are still well-below their all-time highs, he said, with sugar 80% below its all-time high and coffee 50% below its record. Growing global demand is putting pressure on supply and, unlike stocks, commodities are finite and take a long time to develop and bring to market. The last significant oil field was discovered 40 years ago, he said, adding that he expects oil to rise to US$180 a barrel or higher over the course of the commodities bull run, which could continue for 10 to 20 years. Crude oil for May delivery settled at $106.23 a barrel on Friday. Commodities are vulnerable to any sudden shock such as an unexpected war or Fannie Mae going under, but stocks are also vulnerable, he said. Rogers said that after the 9/11 attacks, commodities recovered much more quickly than stocks.

His views on the US markets are as follows:-

* Federal Reserve is causing its own downfall

* US consumers to face a long and painful economic malaise(similar to the lost decade in Japan in the 1990s or the 1970s stagflation in the US)

* Americans do not understand that they are facing an economic problem

* Although Federal Reserve is engineering a US economic rebound by creating an ultra weak dollar, no country in history has emerged from a financial crisis by "debasing its currency"

* Federal Reserves's mandate is to have a sound currency and employment.; not "bailout investment bank"

* Predicted gold to surge to US3,500 an ounce (when??)

* markets have not corrected yet

We will probably have to be patient to see whether this former hedge fund manager's predictions will come true or not. Will be revisiting this topic whenever some of the forecasts come near.