Ranked Last

China has always been ranked No1 in many ways, may it be its population, foreign exchange reserves, exports numbers, growth numbers, carbon emission etc. So it was a surprise to find China in one particularly odd occasion where it is ranked last. Yes, the Shanghai Stock Exchange CI was ranked last in the latest year to date world's stock market performance. It has only yesterday overtaken Vietnam's HCM stock market as the worst performer according to Bloomberg's data. Year to date, the market has dropped slightly more than 50% due to slow down of the economy, rising cost and its impact on corporate profits. Its PE which once peaked in October 2007 of almost 50x or 6,000 points has now gone down to less than 21x or 2,800 plus; which is well below its average PE of 36x.(Please refer to chart provided by "seekingalpha" below for further details).

So is it a good time now to enter China? The Chinese Government has been of late sending signals to the market that it may ease its monetary policy after its inflation declined and growth stalled. The latest June's CPI was 7.1% which was far better than the February's data of 8.7%. The growth for the 2Q was slower at 10.1% as compared to last full year of 11.9%. So by easing monetary policy, the corresponding effect besides encouraging growth and increasing corporate profits would be a shot in the arm for stock market. However, we have to be careful here as China's interpretation of monetary easing may have different meaning other than reducing interest rate.(currently at 7.47% which was unchanged since half a year ago) It may also means lowering the minimum reserve requirement ratios, slower currency appreciation by physical intervention and easing existing credit curbs for properties and business. I believe China will take this window of opportunity to reassess and fine tune its monetary policy while monitoring the on going world economic slowdown, spiralling inflation, weakening stock and property markets and probably the second wave of credit crisis from the US. I believe even if Shanghai were to go up from here (as they hate to be ranked LAST), the upside will probably be capped as the easing of monetary policy alone will not spark a major catalyst for the stock market. It may need further Government actions to spur the market on. The fact that there are many investors who are still caught with shares at the high and awaiting for a chance to dispose them higher may limit the upside of the market.

* Anwar was arrested zealously and released quietly within 24 hours...what does that mean??

* Spain's construction group Martinsa-Fedesa Sa, a company with assets of 10.8b Euro files for bankruptcy protection last Tuesday making it the biggest victim so far of Europe's bursting real-estate bubbles.

* Proton blames its foreign adviser CSFB for its opportunity cost 'saga' of selling MV Agusta at 1 Euro. Shame on the 'savvy' Proton's Board, 'wira' Khazanah, 'perdana' Malaysian Government and Malaysians in general!!

* Thailand's central bank raised interest rate by 0.25% to 3.5% yesterday after holding the rate at 3.25% since last August 2007. We will also be raising our interest rate soon probably after Badawi's goodies package tomorrow and June's CPI announcements.

Taken for a ride again (pun intended)

TheStarBiz:Harley-Davidson Inc has signed an agreement to purchase Italian motorcycle maker MV Agusta Group.The heavyweight motorcycle manufacturer said under the agreement, the company would acquire 100% of Agusta shares for about 70 million euros, which includes the satisfaction of an existing bank debt for around 45 million euros. “The agreement also provides for a contingent payment to (Agusta chairman) Claudio Castiglioni in 2016, if certain financial targets are met,” the company said in a statement posted on its website. Agusta is privately held, with the Castiglioni family owning 95% of shares. Proton Holdings Bhd once held 57.75% equity in MV Augusta Motors SpA, which it purchased for 70 million euros in December 2004. It subsequently divested the stake to GEVI SpA for one euro in March 2006.

The sale, which drew strong criticism from the local carmaker’s then top management who had negotiated the MV Agusta stake purchase, helped Proton to write off the unit’s losses from its accounts.Agusta has significantly slowed production in 2008 due to financial difficulties. Harley-Davidson chief executive officer Jim Ziemer said the acquisition was primarily to expand Harley-Davidson’s presence and footprint in Europe. Retail sales of Harley-Davidson motorcycles have grown double-digit in Europe in each of the last three years, following company’s increased strategic focus on global markets. “Following closing, the first priority will be to appoint a leadership team to include a new managing director and to resume the manufacture of current models,” the statement said, adding that Claudio Castiglioni would continue his role as Agusta chairman.

MyTake: This subject has been discussed and criticized extensively more than 2 years ago. I am sure today's news has finally confirmed that our "savvy" Proton Board and "wira" Khazanah have made a very unwise investment decision to sell off MV Agusta for 1Euro. Proton is definitely a laughing stock of the investing world now.We tend to attract attention for all the wrong reasons, don't we. I will not go through the details of the sale but will only summarised the "realised" profit and loss for the respective parties.

Proton Holdings Bhd

Purchase consideration 70m Euro

Less: Sales consideration 1 Euro

Loss 69.99m Euro or 99.9%!!

(According to Proton, the company lost about RM500m on the sale of MV Agusta)

Gevi SpA

Purchase consideration 1 Euro

Less: Sales consideration 70m Euro

Profit 69.99m Euro or 69.9m%!!

(Gevi SpA is "supposed" to be a special purpose vehicle. No information is given with regards to the shareholders but I believe it is related to the family of Castiglioni and "friends")

To inflict further pain to our already wounded hearts, MV Agusta has earlier managed to sell the Husqvarna, a division of MV Agusta which manufactures sporty off road motorcycles to BMW for an undisclosed amount. Unconfirmed sources say it is around 90m Euro? As such, the opportunity lost becomes worse for Proton but better off for Castiglioni and "friends". Looks like both Proton and Khazanah(43% share owner) have some serious explanation to do. But will they ever explain? They have already said Proton wants to "move on" after selling the debt ridden MV Agusta. One of the reason put forward earlier to sell MV Augusta was that "in the event MV Agusta falls into bankruptcy, Proton would be subjected to a contingent liquidity for an amount up to RM923m". Were the company/decision makers "ill advised" or "short changed"? I can't help but wonder whether other investment/business decisions made recently were ill advised too egs., calling off abruptly on going discussions with GM and Volkswagen, etc. (psst...the next time you want to sell Lotus, please inform me first, maybe I can afford it la!!!)

Some financial information on Proton. For the fiscal year ended March 31 (FY08), Proton's unaudited results showed that revenue was RM5.6b and net profit was RM202.8m. As a comparison, for the FY07, revenue was RM4.9 billion but a net loss of RM589.5mil. Its cash in hand was RM1.2b, an improvement from previous year's 626million. Proton's Malaysian passenger car market share is about 24% as compared to its "younger brother" Perodua which has a market share of 33%. (Note: Proton's market share in 2000 was more than 60%). What is in store for Proton? Although its results have improved, we really need to see whether Proton can deliver (TIMELY/QUALITY) with its new models eg Persona and Saga against its competitors and how successful are its overseas sales in Iran, Thailand and China. Also to assess is what will be the impact on Proton from the soon to be discussed revamped National Automotive Policy? I view of the current competitive and depressed market, I will give Proton a missed for now.

* Japan kept its rates on hold at 0.5% while lowers its growth forecast. (latest 2008/09 estimates 1.2%, earlier estimates 1.5%)

* China's growth probably slowed to 10.3% in the 2Q2008 (previous 3Qs was 10.6%) as exports slowed. June CPI was 7.3%(May 7.7%)

* Bloomberg: Japan's top 3 banks (Mitsubishi UFJ, Sumitomo Mitsui and Mizuho Financial) have exposure in Fannie/Freddie's debts amounting to USD44b while Taiwan's Cathy Financial has USD6.6b. It will be a matter of time other major banks and countries will announce their exposures with Fannie/Freddie. So far Goldman Sachs, George Soros and Jim Rogers have criticised the US government for its intervention. Jim Rogers says that the US Treasury Department's plan to shore up the GSEs(Government Sponsored Enterprise) is an "unmitigated disaster".

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* Petronas net profit for the year ending March 2008 is RM61b or a 31% rise a year ago due to higher crude, petrochemical and lng prices. Total dividends paid or payable amounting to RM30b(2007:RM20b).