A and H shares near parity

Near parity. Well, I think I have heard of this term being used quite commonly by financial commentators especially in the money markets these days. Remember months ago when the value of Canadian and AUD was close to the USD? Parity or Near parity term was used. Then only before year end, this word was used again. Sterling's drop to near parity with euro! Platinum near parity with gold! And now, near parity was used to compare China's A shares and Hang Seng's H shares which we all know for years having very much differences in price. Well, nothing is impossible as we are living in exciting times!

FT.com: The difference in the share prices of Chinese companies listed in both Shanghai and Hong Kong has narrowed dramatically in recent weeks and may disappear if the Chinese economy proves resilient in the slowdown.

The A shares of companies traded in Shanghai or Shenzhen were on average 16.1 per cent higher than the H shares of the same 56 companies listed in Hong Kong, compared with 44 per cent in early December and a peak of 108.1 per cent on 16 January 2008, according to the Hang Seng China AH Premium Index.

Mainland markets have different dynamics to those in Hong Kong. Shanghai was the world's best-performing market in 2007 thanks to huge demand by domestic investors who could not buy shares overseas.

But mainland retail investors have turned cautious after the Chinese market halved in 2008. The internationally oriented Hong Kong market has recovered from 2008's lows more quickly, narrowing the price gap.

The premium could even turn into a discount if foreign investors become "massively bullish" on Chinese companies and so bid up H shares in Hong Kong, said Khiem Do, head of Asian multi-asset at Baring Asset Management. "If A shares trade at a discount, that means overseas investors are going crazy about China again and they can't access the A share market, therefore they have to buy H shares." That could happen if China grows more than expected or if the US and other developed economies shrink further than feared in 2009, he said. "But there are some very big 'ifs' there."

Hong Kong shares have risen faster than their mainland counterparts, Mr Do said, partly because some investors shorted the Hang Seng and the Hang Seng Chinese Enterprises Index of H shares as proxies to hedge against other emerging markets. As markets recovered, they had to buy back the shares. "That's why the bounce has been so big."

Even now, the shares of some small companies such as Nanjing Panda Electronics and Sinopec Yizheng Chemical trade on mainland markets at about 4½ times their Hong Kong price. In theory there should be negligible differences be­tween shares listed on two or more stock exchanges.

But China has strict capital controls. They prevent arbitrageurs from buying shares of a dual-listed company cheaply in Hong Kong and selling them at a higher price on the mainland – a process that would eventually equalise prices.

"In Hong Kong and in Shanghai and everywhere else the methodology [of valuation] is the same, but prices do vary from the intrinsic value," said Steven Sun, senior China equity strategist for HSBC. "In the long run the difference should narrow."

* BT(Singpore): Toyota to shut plants for 11 days during February and March in order to cut bulging inventories as sales plummet.

* Bloomberg: Alcoa, world's largest aluminium maker, will fire 13,500 employees, 13% of its workforce and reduce production.

* Bloomberg: Obama says federal budget deficit is likely to approach USD1T for years to come as the government grapples with a recession and other spending demands.

* RGE: Will the US Treasuries be the next bubble to fall?

* Parkson shares slumped after saying sales growth in China slows. Currently it is trading at RM3.68 or down 60 sen.

* WCT- took in its second limit down at 92.5 sen but now hovering around RM1.13 . Aseanbankers cut WCT’s earnings forecast by 21 per cent for this year and 11 per cent for 2010.

* Refer here for Genting International's latest. Its share prices is currently at 48 SG cents.

* BT: OSK-UOB: KLSE unlikely to hit 1,000 this year.

* BT: Credit Suisse: Buy high beta stocks! eg Commerce, KLK, TMI, Tanjong and Plus.

Technical Analysis - November 24 208

S&P500 (800, last week 873 or -8.37% w.o.w )

Finally, the daily indicators have all succumbed to the selling pressure during last week. The daily MACD and Histogram have all shown a negative signal for the last 4 trading sessions while the daily Parabolic SAR is showing bearishness. For the weekly readings, the indicators continued to show weakness. Sell again on the rebound. Support is around 750 and resistance at 850.

KLSE CI (867, last week 882 or -1.7% w.ow)

The daily MACD remains in the positive but continues to weaken. However the Parabolic SAR which was positive the week before has turned negative for the last 2 trading sessions suggesting a downtrend is on the way. The daily ADX and DMIs are still giving a sell signal. The weekly charts are still in a negative territory. If the S&P500 index continues to give a SELL signal, the index will without doubt follow suit. The index is expected to trade between 830 and 950.

HangSeng (12,659, last week 13,543 or -6.5% w.o.w )

The daily indicators eg MACD are at a cross road now. If the index does not go up for the next 2 trading sessions, it will without doubt generate a SELL signal. As such it is crucial that the index perform well in the next few trading sessions. The weekly charts are still in a negative territory. If the S&P500 index continues to give a SELL signal, the index will without doubt follow suit. Support is seen at 12,000 and resistance at 14,000.

Nikkei 225 (7,911, last week 8,462 or -6.5% w.ow)

Just like the HangSeng, the daily indicators eg MACD are at a cross road now. If the index does not go up for the next 2 trading sessions, it will without doubt generate a SELL signal. As such it is crucial that the index perform well in the next few trading sessions. The weekly charts are still in a negative territory. If the S&P500 index continues to give a SELL signal, the index will without doubt follow suit. The index is expected to trade between 7,000 and 8,800.

* "D" is a dirty word in the finance world? Deflation, Deficit, Debt, Depression, Down, Dive, Devalue, Deleverage.....

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* AFP: IMF says global crisis will get worse and economic situation won't improve until 2010. So far, it has helped in financial distress countries like Iceland, Hungary, Ukraine, Serbia and Pakistan. Next in line would be Lativa. It has spent 1/5 of its USD250b fund in these countries in the last 2 weeks.

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* It will not stop till there is blood in the street? Now seen in Iceland after the economy fall apart with a banking collapse in October and its currency-Krona- has lost half of its value since January. I believe there will be more social unrest soon in many other less well "prepared" countries.

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* Will BNM cuts the OPR rate of 3.5% held since 30 months ago in their last rates meeting for this year? Half of the economists surveyed by TheEdge says so while another half says it will only cut in the 1Q2009.

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* BT: Goldman Sachs' s forecast on Genting International -maintains Neutral- TP 0.45 SG cents from 0.56 SG cents..

* YahooFinance: CitiGroup which will shed more than 50,000 jobs will get a USD306B loan guarantee and a USD20b of government cash.

Genting International- Some Updates

The recent news on Las Vegas Sands in financial trouble rattled many investors in general (details here), which include shareholders of Genting International. As you probably aware both Las Vegas Sands and Genting International were contracted to built and operate the only two intergrated resorts and casinos in Singapore. Any negative news from each party or the industry itself will surely create a panic. The worries were made worse when Moody's Investors Service has yesterday given a negative rating outlook for the gaming sector in Asia-Pacific over the next 12 to 18 months and this includes casinos and resorts in Australia, Malaysia and Macau. Basically, Moody's reported the gaming industry is facing increasing operating pressures due to slowing macro-economics, causing cutbacks in discretionary spending , regulatory changes affecting visitations and intense local competition. While Las Vegas Sands may be in a worse footing than Genting International, I do not think Singapore will allow the proposed casinos to fail and every effort will be provided to make sure the casinos will be built on time and a success in 2009(Las Vegas Sands) and 2010(Genting International). Below is a timely report by AmResearch which provide some simple comparisons between Las Vegas Sands and Genting international.

Las Vegas Sands Corporation (LVS) may default on debt and face bankruptcy, according to a Bloomberg report today. LVS, which had US$8.8bil in long-term debt as at end-June said in a regulatory filing that it probably will not be able to meet the requirements of loans arranged by financial institutions like Citigroup Inc and Goldman Sachs Group.LVS also said that should it fail to raise capital, then the group would need to immediately suspend portions, if not all, of its ongoing global development projects and consider other alternatives. This is in spite of the fact that just at the end of last month, LVS had said that the development of the Marina Bay Sands integrated resort cum casino (IR) project remains on track. Also, the Singapore Tourism Board had said last month that it was monitoring the situation and was holding talks with LVS.

We believe that Genting International Ltd (GIL) would not face the same financial predicament as LVS. The reason why LVS is being financially stretched is because of its huge regional expansion. LVS is not only developing casinos in the United States, it is also operating in Macau while in the middle of the Marina Bay Sands IR construction project in Singapore. In comparison, GIL faces construction risk only in Singapore. GIL’s casinos in Britain are already well in place. In fact, the group closed two of these casinos in 1HFY08 as part of a rationalisation and streamlining exercise. GIL had said many times that the “Resorts World at Sentosa” IR project would be completed within the budgeted cost of S$6bil and targeted completion timeline of 1Q2010. As at end-June 2008, GIL was in a net cash position of S$136.9mil. However, after taking into account the S$4.2bil borrowings for the IR project, we estimate GIL’s net borrowings at S$4.06bil. This translates into a net gearing position of 1.2x. In contrast, LVS’s net gearing was 3.5x as at end-June 2008. LVS recorded a net loss of US$8.8mil in 1HFY08.

We believe that the negative developments on the global casino front would affect Genting Bhd and GIL’s share prices. Hence, we maintain our HOLD recommendation on Genting Bhd. But, we recommend a BUY on Resorts World Bhd for its safe and recurring cash flows from domestic casino operations and healthy cash reserves of US$1.2bil.

For more information of GIL, a 54.4% owned subsidiary of Genting Bhd, details here.(Highlight Gent Int)

* BT(Singapore): Down sizing at no frill online finance firm Tune Money after poster boy CEO Tengku Zafrul resigns?

* Now IMF approves 12.3b Euro loan for Hungary.

* Court orders RPK to be freed today!

* Will the October's Non Farm Payroll declined by an anticipated 200k for the first time since March 2003 (September -159k)? Will the unemployment rate forecast to reach the highest level since June 2003? (September 6.1%)

* Yesterday BOE slashed its benchmark rate by 1.5 percentage points to 3% while ECB lowered its rate by a half point to 3.25%.

* More rate cuts. Bloomberg: South Korea cuts rates for the 3rd time in a month to stave off recession. It cuts interest rates by a quarter point today to 4%.

* TheEdge: Oil dives towards USD60 per barrel. Indonesia will reduce gasoline prices by 8.3% on December 8 and will introduce monthly adjustments for gasoline price. The new price will be RM1.75 per litre from RM1.90 (after conversion).

* What a volatile market today....like other Asian markets, our market went -26 points to -2 points for closing...it is really painful to sell in the morning and to see the price rose back in the evening.

The Hills are alive!

The hills are alive....dun worry...come up and play! This is probably what Lim Goh Tong will be saying if he is still alive today. Genting and Resorts shares were sold down drastically in recent weeks and investors were left scratching their heads wondering what has happened to their beloved stocks? Have the stocks been sold down by big funds because of 1) anticipate slowing down of the economy and the reduction of subsidies resulting lower visitors arrivals and spending, 2) competition from overseas gaming centres, 3) the cost over run of Resort World Sentosa in Singapore, 4) further losses in Stanley UK or 5) Genting Group's financial crunch? etc. AmResearch came out with some valuable insights and perhaps possible unfounded rationale for the selldown with special emphasis on Resorts World Bhd.

AmResearch: Genting Bhd’s share price fell 20 sen yesterday while Resorts World’s (“RWB”) share price declined 9 sen. Year-to-date, Genting Bhd’s and RWB’s share prices have weakened 31% and 28% respectively. We checked with management, who said that there are no negative corporate developments.

We attribute the weak share price performances to a few reasons.

First, fears of an increase in gaming tax or implementation of a windfall tax. Since these were not announced last week, there are fears that they might be announced during the budget. Currently, the gaming tax is 25% on casino wins from non-VIP customers and slot machines.

Second, Genting Group’s share prices have been falling in tandem with the de-rating of global gaming companies. Since the start of the year, share prices of companies like Las Vegas Sands and MGM Mirage have declined 9% to 48%. In fact, share prices of Las Vegas Sands and MGM reached their year-lows yesterday. Ex-Las Vegas Sands, the current simple average PE of the regional gaming companies is 23x for FY08F and 17x for FY09F. We reckon that the de-rating of regional gaming companies is due to a potential slowdown in casino activities resulting from uncertainties in the global economy. Macau gaming companies were also affected by concerns over an industry oversupply.

However, we believe that these concerns are misplaced for RWB as the group’s earnings are relatively resilient and domestic-centric. Even during the period of SARS in 2003, the group’s turnover only shrank 2.6% due to lower average spending/visitor. Visitor growth was still a positive 1.3% in 2003. More importantly, RWB’s cash reserves are expected to be rock-solid, forecast at RM4.4bn for FY08F. Free cash flows are envisaged to rise due to diminishing capex requirements. We estimate RWB’s FCF/share to improve from 17.2 sen in FY08F to 18.8 sen in FY09F. Capex is forecast at RM300m to RM400m annually.

In terms of earnings, we anticipate slower topline growth of 8% for FY08F compared to 14% in FY07. We are also assuming a 4% visitor growth for FY08F against 6% in FY07 and an average spending/visitor increase of 5% versus 8% in FY07. EBITDA margin is estimated to remain stagnant at 37% for FY08F. Our FY08F net profit forecast of RM1.28bn is 3.5% below consensus estimates of RM1.3bn.

We believe that the fall in RWB’s share price presents a good opportunity to Buy.(TP RM4.40) Also, it makes the case for the privatisation of RWB even more attractive for Genting Bhd. Ex-cash, RWB’s FY08F and FY09F PEs are 11x and 10x respectively. RWB’s last share buy-back was from 3 March to 10 March at prices between RM3.36 to RM3.68. As at 14 March, outstanding treasury shares amounted to 129.1m.

Technically, due to the sell down the daily indicators for RWB and Genting are all showing weaknesses. They may stage a technical rebound in the next few trading sessions due to their oversold position but most likely trade sideways in the near term. RWB is supported thinly at RM2.90 but strong support at RM2.50. Resistance are at 3.06 and 3.16. For Genting, it is supported at RM5.25 and at RM4.70 while resistance is at levels RM6.00 and RM6.25.

* China's inflation rate fell to 7.7% in May amid signs efforts to rein in food prices were finally taking hold. Meanwhile the PPI is still at a stubborn 8.2%. The Shanghai Composite Index however certainly did not take heart at the good CPI figures. It dropped nearly 2.2% today to close at 2,958. So the magic 3,000 number has been broken. Will the Doctor (discussed here previously) come in again to intervene the market for the second time? The failure to successfully intervene the market again will undermined the Doctor's credibility in the future.

* CIMB: The 30% windfall tax on IPP could potentially cut earnings of companies as follows:- YTLPower(TP RM2.50) =6 to 7% and Tanjung(TP RM20.30) =4 to 5% based on total assets rather than fixed assets. So far authorities have not spelt out the exact definition of Return on Assets(ROA). If fixed assets is used, the total impact would be greater.


* According to Forbes.com, the 2008 ranking by OECD countries ranked South Korea as having the longest working hours per year-2,357 hours followed by Greece-2,052 hours while the lowest working hours is in Holland-1,391 hrs.(note: US-1,797 hours). For some short facts. Assuming we calculate working days as follows, take 52 weeks x 5 days =260 days; less 10 days holiday = 250 days of working a year. South Koreans working hours per day 2,357/250 = 9.4 hours per day while Dutch's would be 1,391/250 = 5.56 hours. Did I hear somebody saying "lets go to Holland to work" or "not to work if we are in Holland"?