Macquarie:
Proof that Singapore retail investors are ignorant
It's not every day I go in to bat for a particular stock, but I have been watching the Singapore-listed Macquarie funds in quiet disbelief. The two funds I am talking about are Macquarie International Infrastructure Fund, and Macquarie MEAG Prime REIT. Here we have a collection of assets so poorly understood by the market that they provide what I personally believe to be an incredible investment opportunity. I hasten to add that I am not a licensed financial advisor, and this is not a solicitation to do anything with your money. That's your decision entirely. But it seems to me that the only reason the Macquarie funds haven't moved is because Singapore investors don't understand them.
MIIF is a collection of stakes in other listed and unlisted Macquarie funds. Specifically, they are the Macquarie Airports Trust, one of its first infrastructure funds that is listed on the Australian Stock Exchange. Macquarie Communications Group, DUET and NYSE-listed Macquarie Infrastructure Company are others. On the unlisted side, it owns parts of Arqiva (the former ntl broadcast), Canadian Aged Care, Brussels Airport and a bundle of others. It certainly is an eclectic collection of investments with communications infrastructure making up 27% of their holdings, airports 20%, utilities 17% and ports, transport, storage and aged care less than 9% each. Their investments are located in the UK (37%), Australia (14%), Canada (12%), Belgium (11%) and France, China, the US, Denmark, Sweden, Germany and Italy each less than 9%.
I don't have intimate knowledge of the assets it owns, nor any inside knowledge about how business is going. I only have information they made public to go on. But having followed the Australian market for many years at CNBC I have watched Macquarie grow from strength to strength. It is Australia's only listed merchant bank, and a few years ago decided that rather than just help other investors buy decent assets, they would buy the assets themselves. Banking support is, naturally, provided by the parent company. They call Macquarie "the millionaire's factory", and with good reason! Talk to the folks at Macquarie. They are in a league of their own.
Given the stature they enjoy in Australia, it is kookie to say the least that Singapore investors should be giving this fund the cold shoulder. MIIF is trading at a six cent a share discount to its Net Asset Value, and is yielding 8.4%.
Hullo?!?! A 6 cent a share discount??? 8.4% yield? Is there anybody out there?
Macquarie MEAG Prime REIT is not much different. It owns parts of Wisma Atria and Ngee Ann City. It's a fund that is much more easily understood than MIIF because investors can go to the buildings and take a good look themselves.
Price to book? Just under 1. In other words, buying units in this fund you get the assets at a slight discount to cost, with no upside factored in.
Clearly, the underperformance of these stocks is a worry for investors. A stock that doesn't appreciate isn't great no matter how much of a discount it's priced at. I've also heard the view expressed that MIIF shareholders were miffed when the fund bought into the Canadian Aged Care business. They asked: what the hell do I want to invest in Canadian Aged Care for?!
But they are missing the point. Macquarie invests where there's money to be made. They don't care how it's made (within legal and ethical boundaries, of course). And neither should investors. Unfortunately this speaks of the lack of maturity of Singapore retail investors. They'd rather chase CapitaLand to three times book value and pile in and out of SIA, in the face of global worries. That's because these are easily understood stories. They don't require too much thinking. Follow the herd, that's easier. Even if you don't make any money.
Well, you don't have to dig too deep to find some gems. In fact, usually you don't even need to dig. Just clear the top soil a little, and there it is. Singapore investors are quite blind. If they're not making money they only have themselves to blame.
MIIF is a collection of stakes in other listed and unlisted Macquarie funds. Specifically, they are the Macquarie Airports Trust, one of its first infrastructure funds that is listed on the Australian Stock Exchange. Macquarie Communications Group, DUET and NYSE-listed Macquarie Infrastructure Company are others. On the unlisted side, it owns parts of Arqiva (the former ntl broadcast), Canadian Aged Care, Brussels Airport and a bundle of others. It certainly is an eclectic collection of investments with communications infrastructure making up 27% of their holdings, airports 20%, utilities 17% and ports, transport, storage and aged care less than 9% each. Their investments are located in the UK (37%), Australia (14%), Canada (12%), Belgium (11%) and France, China, the US, Denmark, Sweden, Germany and Italy each less than 9%.
I don't have intimate knowledge of the assets it owns, nor any inside knowledge about how business is going. I only have information they made public to go on. But having followed the Australian market for many years at CNBC I have watched Macquarie grow from strength to strength. It is Australia's only listed merchant bank, and a few years ago decided that rather than just help other investors buy decent assets, they would buy the assets themselves. Banking support is, naturally, provided by the parent company. They call Macquarie "the millionaire's factory", and with good reason! Talk to the folks at Macquarie. They are in a league of their own.
Given the stature they enjoy in Australia, it is kookie to say the least that Singapore investors should be giving this fund the cold shoulder. MIIF is trading at a six cent a share discount to its Net Asset Value, and is yielding 8.4%.
Hullo?!?! A 6 cent a share discount??? 8.4% yield? Is there anybody out there?
Macquarie MEAG Prime REIT is not much different. It owns parts of Wisma Atria and Ngee Ann City. It's a fund that is much more easily understood than MIIF because investors can go to the buildings and take a good look themselves.
Price to book? Just under 1. In other words, buying units in this fund you get the assets at a slight discount to cost, with no upside factored in.
Clearly, the underperformance of these stocks is a worry for investors. A stock that doesn't appreciate isn't great no matter how much of a discount it's priced at. I've also heard the view expressed that MIIF shareholders were miffed when the fund bought into the Canadian Aged Care business. They asked: what the hell do I want to invest in Canadian Aged Care for?!
But they are missing the point. Macquarie invests where there's money to be made. They don't care how it's made (within legal and ethical boundaries, of course). And neither should investors. Unfortunately this speaks of the lack of maturity of Singapore retail investors. They'd rather chase CapitaLand to three times book value and pile in and out of SIA, in the face of global worries. That's because these are easily understood stories. They don't require too much thinking. Follow the herd, that's easier. Even if you don't make any money.
Well, you don't have to dig too deep to find some gems. In fact, usually you don't even need to dig. Just clear the top soil a little, and there it is. Singapore investors are quite blind. If they're not making money they only have themselves to blame.
Boom market: Buy in, or cash out?
We've been through this plenty of times.
Yet people are still tempted by the booming good times and daily reports of indices hitting new highs.
And to think we've always been taught by investment gurus to “buy in when the market is down”.
There's a good reason for that.
After all, how much further up can the stock, or index, run if it's been rising for a while for no attributable reason?
Take the Straits Times Index's current situation.
Try as we may, we simply cannot find one reason for the Singapore market's upswing.
Were there stellar earnings to be pushing the index up?
Perhaps a couple, but the stocks themselves didn't perform that well.
Was it oil prices?
No, because crude futures started to gain ground about the same time the market began to head upwards.
Maybe it's the Federal Reserve's decision to keep interest rates unchanged at 5.25%.
But there's nothing that compelling to push the STI up by 2.3% in under a week.
Same goes for the US market, though Cramer on thestreet.com says perhaps it's an 'Election' theme.
Well at least they've got that.
What do we have in the Singapore market?
So should we buy in, or sit on the sidelines for a bit now?
I say we hold our cash back and wait for the dust to settle.
Serene Lim
Yet people are still tempted by the booming good times and daily reports of indices hitting new highs.
And to think we've always been taught by investment gurus to “buy in when the market is down”.
There's a good reason for that.
After all, how much further up can the stock, or index, run if it's been rising for a while for no attributable reason?
Take the Straits Times Index's current situation.
Try as we may, we simply cannot find one reason for the Singapore market's upswing.
Were there stellar earnings to be pushing the index up?
Perhaps a couple, but the stocks themselves didn't perform that well.
Was it oil prices?
No, because crude futures started to gain ground about the same time the market began to head upwards.
Maybe it's the Federal Reserve's decision to keep interest rates unchanged at 5.25%.
But there's nothing that compelling to push the STI up by 2.3% in under a week.
Same goes for the US market, though Cramer on thestreet.com says perhaps it's an 'Election' theme.
Well at least they've got that.
What do we have in the Singapore market?
So should we buy in, or sit on the sidelines for a bit now?
I say we hold our cash back and wait for the dust to settle.
Serene Lim
CapitaLand:
Will a Chinese Retail REIT give good returns?
Real Estate Investment Trusts have a reputation for growing slowly and paying out a high percentage of their earnings in dividends. They earn their money from renting out their shop, office or industrial space, and taking a pre-agreed chunk of their tenants' revenue. Singapore REITS have also grown by continually buying additional properties. Without these acquisitions, their growth would be limited to increasing their tenants' rents. CapitaLand's China Retail REIT, however, may not have this benefit.
Here's the background:
CapitaLand announced before the holiday that it had received conditional approval from the SGX to launch its Chinese Retail REIT, a first on the exchange. This means that they are going to take the Chinese shopping malls which they own through private trusts and sell to investors through a publicly listed REIT.
It will be called CapitaRetail China Trust, and will consist of seven malls: three in Beijing, one in Shanghai, one in Zhengzhou, one in Inner Mongolia and another in Anhui. It has a deal to build 21 malls with Wal-Mart as the anchor tenant, with an option for another 14. The REIT will have the first right of refusal to buy any other properties from CapitaLand's private funds, should they decide to sell them.
There was no other information given about the possible returns on the REIT other than the fact that 'CapitaLand views the retail industry in China as a strategic growth area and intends to participate in the growing retail market in China through CRCT.'
CapitaLand told Reuters that it will raise 'roughly' about S$320 mln but gave no further details.
CapitaMall Trust, one of Singapore's biggest retail landlords, will take a 20% stake in the REIT, saying it 'believes that the investment in CRCT will be yield-accretive in nature, so that Unitholders can expect to enjoy a higher distribution per unit'.
The problem for CapitaLand is that according to the China Economic Net, 'Chinese REITs are difficult to create because of the high taxes involved in transferring Chinese properties into off-shore companies, which are needed to ensure rental income can be packaged regularly into shareholder dividends.'
Higher taxes means unitholders will get a lower yield from the REIT.
Also the retail market in China might not perform as well as what CapitaLand expects, with the Chinese government raising consumption taxes to reduce the gap between the rich and the poor.
On the other hand, CapitaLand has stated that this will be a long term investment, and with the Beijing 2008 Olympics just around the corner, this REIT might have come just in time to cash in on it.
Sofar, CapitaLand has been a pretty good bet on China. The stock has jumped around 220% over the last 3 years, compared to a 50% rise in the Straits Times Index. But trading at 2.25x book value and a PE ratio of 123 times (!!!), the stockprice doesn't have a lot of room for error, if CEO Liew Mun Leong and his team take any missteps.
Desiree Pakiam
Here's the background:
CapitaLand announced before the holiday that it had received conditional approval from the SGX to launch its Chinese Retail REIT, a first on the exchange. This means that they are going to take the Chinese shopping malls which they own through private trusts and sell to investors through a publicly listed REIT.
It will be called CapitaRetail China Trust, and will consist of seven malls: three in Beijing, one in Shanghai, one in Zhengzhou, one in Inner Mongolia and another in Anhui. It has a deal to build 21 malls with Wal-Mart as the anchor tenant, with an option for another 14. The REIT will have the first right of refusal to buy any other properties from CapitaLand's private funds, should they decide to sell them.
There was no other information given about the possible returns on the REIT other than the fact that 'CapitaLand views the retail industry in China as a strategic growth area and intends to participate in the growing retail market in China through CRCT.'
CapitaLand told Reuters that it will raise 'roughly' about S$320 mln but gave no further details.
CapitaMall Trust, one of Singapore's biggest retail landlords, will take a 20% stake in the REIT, saying it 'believes that the investment in CRCT will be yield-accretive in nature, so that Unitholders can expect to enjoy a higher distribution per unit'.
The problem for CapitaLand is that according to the China Economic Net, 'Chinese REITs are difficult to create because of the high taxes involved in transferring Chinese properties into off-shore companies, which are needed to ensure rental income can be packaged regularly into shareholder dividends.'
Higher taxes means unitholders will get a lower yield from the REIT.
Also the retail market in China might not perform as well as what CapitaLand expects, with the Chinese government raising consumption taxes to reduce the gap between the rich and the poor.
On the other hand, CapitaLand has stated that this will be a long term investment, and with the Beijing 2008 Olympics just around the corner, this REIT might have come just in time to cash in on it.
Sofar, CapitaLand has been a pretty good bet on China. The stock has jumped around 220% over the last 3 years, compared to a 50% rise in the Straits Times Index. But trading at 2.25x book value and a PE ratio of 123 times (!!!), the stockprice doesn't have a lot of room for error, if CEO Liew Mun Leong and his team take any missteps.
Desiree Pakiam
When will Thai Beverage's stock collapse?
It's been a remarkably tough time for Thai Beverage. It was denied a public listing in its home country because of opposition by anti alcohol lobbyists. The affable CEO of the Stock Exchange of Thailand Kittiratt na Ranong, whom I have worked with on the SET Awards, and who ran a pretty professional outfit from what I could see, quit when ThaiBev listed on the Singapore Exchange instead.
But what's even more remarkable about this story is how well the stock price has held up.
Background:
The latest whammy for the maker of Chang Beer came in the last week from the Thai government of Prime Minister General Surayudh Chulamont. First, the Food and Drug Administration banned alcohol advertising on October 18. This means you will no longer see any advertisements for alcoholic products on television, on billboards or in newspapers, and you won't hear them on radio either. Second, the Public Health Ministry is considering raising the drinking age to 25 years of age.
The good news – if any can be found in this tale of woe – is that Thai Beverage barely spends money on advertising its mass or "economy" products.
The bad news – and there's lots of it – is that Thai Beverage relies heavily on advertising to build up its premium brands. But it will likely focus their marketing efforts more on distribution, "which we clearly have an advantage", they said. At the same time, "launching new products will be increasingly difficult, with higher barriers to entry to the Thai alcoholic beverage industry".
"Television advertising is by far the most effective means for the introduction phase of a new product", which is presumably the reason why the government wanted to ban it.
Perhaps the worst aspect of all this is that "it is unclear what impact the new policy will have on the consumption of alcoholic beverage in Thailand in the long run". Markets just love this sort of uncertainty. Not!
Restrictions on point-of-sale promotional material "undoubtedly means that younger generations of Thais will eventually grow up with limited exposure to alcoholic beverage products", although given the absence of similar experience overseas means it's hard to quantify the impact of all this.
You could barely have heard a company use more plain and director language to paint a more glum long term outlook.
Sounds pretty dire, right?
How did the stock price react?
Not at all.
Thai Beverage is still hanging around the 28 to 29 cent range, which it entered into two months ago. The analyst call as surveyed by Reuters is still on average an 'outperform' with a price target of S$0.32.
I cannot understand why. According to Reuters data, at S$0.29 the stock is already trading 3.2 times higher than its book value of S$0.09.
3.2 times book value! My goodness! That's how much DBS paid for Dao Heng Bank in Hong Kong in 2002 and was roundly criticised.
If it wasn't for the fact that it was likely to pay a dividend of about S$0.01 per share (according to the Reuters forecast) I don't know why anyone would buy into such a problematic business!
The only explanation that I can find for why the stock is still so well supported is that local investors don't understand it. Institutions own only 3.6% of the firm.
Can't wait for the Q3 results on November 7. Maybe that will be the wakeup call people need.
Mark Laudi
But what's even more remarkable about this story is how well the stock price has held up.
Background:
The latest whammy for the maker of Chang Beer came in the last week from the Thai government of Prime Minister General Surayudh Chulamont. First, the Food and Drug Administration banned alcohol advertising on October 18. This means you will no longer see any advertisements for alcoholic products on television, on billboards or in newspapers, and you won't hear them on radio either. Second, the Public Health Ministry is considering raising the drinking age to 25 years of age.
The good news – if any can be found in this tale of woe – is that Thai Beverage barely spends money on advertising its mass or "economy" products.
The bad news – and there's lots of it – is that Thai Beverage relies heavily on advertising to build up its premium brands. But it will likely focus their marketing efforts more on distribution, "which we clearly have an advantage", they said. At the same time, "launching new products will be increasingly difficult, with higher barriers to entry to the Thai alcoholic beverage industry".
"Television advertising is by far the most effective means for the introduction phase of a new product", which is presumably the reason why the government wanted to ban it.
Perhaps the worst aspect of all this is that "it is unclear what impact the new policy will have on the consumption of alcoholic beverage in Thailand in the long run". Markets just love this sort of uncertainty. Not!
Restrictions on point-of-sale promotional material "undoubtedly means that younger generations of Thais will eventually grow up with limited exposure to alcoholic beverage products", although given the absence of similar experience overseas means it's hard to quantify the impact of all this.
You could barely have heard a company use more plain and director language to paint a more glum long term outlook.
Sounds pretty dire, right?
How did the stock price react?
Not at all.
Thai Beverage is still hanging around the 28 to 29 cent range, which it entered into two months ago. The analyst call as surveyed by Reuters is still on average an 'outperform' with a price target of S$0.32.
I cannot understand why. According to Reuters data, at S$0.29 the stock is already trading 3.2 times higher than its book value of S$0.09.
3.2 times book value! My goodness! That's how much DBS paid for Dao Heng Bank in Hong Kong in 2002 and was roundly criticised.
If it wasn't for the fact that it was likely to pay a dividend of about S$0.01 per share (according to the Reuters forecast) I don't know why anyone would buy into such a problematic business!
The only explanation that I can find for why the stock is still so well supported is that local investors don't understand it. Institutions own only 3.6% of the firm.
Can't wait for the Q3 results on November 7. Maybe that will be the wakeup call people need.
Mark Laudi
MP3 wars: Slash and burn.
Summer's out and school's in.
This, apparently, also means a wardrobe makover and a back-to-school goodie bag for some US schoolgoers.
Included in the gift pack are a personal computer and an iPod.
At least that's how it looks like when, according to thestreet.com, Apple says its notebook and iPod sales “were helped by a robust back-to-school season”.
iPods, in particular, have become more affordable after Apple cut prices.
Even so, the company reported a higher quarterly profit and revenue for Q4.
If Apple's slashing prices off its famed MP3 players, you can expect its competitors to follow suit.
Creative Technology has a whole range of Zen variants to consider and a set of Apple iPod accessories to produce.
So on one hand, it has to contend with lowering prices to make volume sales and on the other, it is producing something for the competitor.
Is there a win in this for Creative at all?
I think not.
Especially when Microsoft is launching its new Zune “music and entertainment project” at Christmas, also referred to as the “iPod killer”.
Unlike Apple and Microsoft, who both have other product segments to fall back on, Creative seems to be struggling to grasp on to something it can call its winner.
Sure, it's got its soundblaster and various popular products, but it seemed like it was putting all its eggs in the MP3 basket after it declared war on Apple's iPod monopoly.
Maybe Sim Wong Hoo's got to start wearing jeans before he can come up with a fighter of a product in his own realm.
Because the way I see it, his toys are not going to survive Christmas without dragging the company down with them.
Serene Lim
This, apparently, also means a wardrobe makover and a back-to-school goodie bag for some US schoolgoers.
Included in the gift pack are a personal computer and an iPod.
At least that's how it looks like when, according to thestreet.com, Apple says its notebook and iPod sales “were helped by a robust back-to-school season”.
iPods, in particular, have become more affordable after Apple cut prices.
Even so, the company reported a higher quarterly profit and revenue for Q4.
If Apple's slashing prices off its famed MP3 players, you can expect its competitors to follow suit.
Creative Technology has a whole range of Zen variants to consider and a set of Apple iPod accessories to produce.
So on one hand, it has to contend with lowering prices to make volume sales and on the other, it is producing something for the competitor.
Is there a win in this for Creative at all?
I think not.
Especially when Microsoft is launching its new Zune “music and entertainment project” at Christmas, also referred to as the “iPod killer”.
Unlike Apple and Microsoft, who both have other product segments to fall back on, Creative seems to be struggling to grasp on to something it can call its winner.
Sure, it's got its soundblaster and various popular products, but it seemed like it was putting all its eggs in the MP3 basket after it declared war on Apple's iPod monopoly.
Maybe Sim Wong Hoo's got to start wearing jeans before he can come up with a fighter of a product in his own realm.
Because the way I see it, his toys are not going to survive Christmas without dragging the company down with them.
Serene Lim
The haze: A new excuse for bad earnings
Companies try to find excuses for poor earnings results to mask the failings of their sales departments. In the US, snowstorms or heatwaves are often named as the reasons for sluggish earnings, when the real problem often lies in the clouded heads of their senior management. In Singapore, where the weather rarely deviates from tropical heat, companies have not had the dubious benefit of similar excuses. Until now. The smoke haze blowing across the Straits of Malacca from Indonesia could well be just the ticket to explain away poor results. How many companies will dare to use it?
Earnings season starts in earnest this week and the haze will not likely have had an impact on their quarterly results ended September 30. But if they have noticed an impact in the new quarter, then the onus is on them to say so! Questions will be asked of companies which don't provide such guidance when they report earnings in the coming weeks, but which lay the blame on slumping sales and profits on the haze when they report their next quarterly financial results in 90 days from now.
Clearly there are examples of companies which will obviously be affected, such as the DHL hot air balloon currently offering rides to view the skyline from Beach Road. Aerophile says business has been badly impacted.
Lifebrandz, which runs the popular nightspots of Ministry of Sound and Hed Kandi, an alfresco bar which can seat 180 people, might see lower turnout, because people choosing to spend quiet weekends at home, as reported in the Straits Times, than patronise these places.
But what's the bet other companies with far more tenuous links to the haze will claim force majeure. After all, most companies publish in their earnings statements about their outlook that 'barring unforeseen circumstances, they expect...'. Will the haze be an unforeseen circumstance in this case, particularly when companies start reporting about the current quarter?
There are, of course, companies which will not be impacted negatively by the haze at all! On the contrary, they will benefit. These companies include Osim, which sells air filters alongside their popular massage chairs.
Our award for just-in-time public relations goes to the folks at FinancialPR, which posted this doozy on behalf of Best World International.
The first paragraphs sounded like a market-moving corporate disclosure alright: "Best World International Limited, ("Best World" or the "Group"), a company specializing in the development and distribution of quality health and lifestyle products for its regional direct selling members has increased its marketing efforts to educate consumers about the benefits of negative ions, especially in view of the current hazy environment."
But the rest was a pure sales job, starting with the very next sentence: "Being compact in size and light in weight, the BWL Negative Ionizer is elegantly designed to be placed either at home or in the office."
The - wink wink - "disclosure" ended with the tip that:
To inform the public about the benefits of the Negative Ionizer, Best World frequently hosts workshops in its HQ premises at Level 15 East Wing Toa Payoh HDB Hub. Members of the public can contact BWL hotline at (65) 6342 0888 or visit http://www.bwl.com.sg for more information on the Negative Ionizer."
Now, it's understandable Best World will want to make the most of the hazy weather to boost sales.
One just wonders whether the corporate disclosure page of the SGX website is the right place for it.
Mark Laudi
Earnings season starts in earnest this week and the haze will not likely have had an impact on their quarterly results ended September 30. But if they have noticed an impact in the new quarter, then the onus is on them to say so! Questions will be asked of companies which don't provide such guidance when they report earnings in the coming weeks, but which lay the blame on slumping sales and profits on the haze when they report their next quarterly financial results in 90 days from now.
Clearly there are examples of companies which will obviously be affected, such as the DHL hot air balloon currently offering rides to view the skyline from Beach Road. Aerophile says business has been badly impacted.
Lifebrandz, which runs the popular nightspots of Ministry of Sound and Hed Kandi, an alfresco bar which can seat 180 people, might see lower turnout, because people choosing to spend quiet weekends at home, as reported in the Straits Times, than patronise these places.
But what's the bet other companies with far more tenuous links to the haze will claim force majeure. After all, most companies publish in their earnings statements about their outlook that 'barring unforeseen circumstances, they expect...'. Will the haze be an unforeseen circumstance in this case, particularly when companies start reporting about the current quarter?
There are, of course, companies which will not be impacted negatively by the haze at all! On the contrary, they will benefit. These companies include Osim, which sells air filters alongside their popular massage chairs.
Our award for just-in-time public relations goes to the folks at FinancialPR, which posted this doozy on behalf of Best World International.
The first paragraphs sounded like a market-moving corporate disclosure alright: "Best World International Limited, ("Best World" or the "Group"), a company specializing in the development and distribution of quality health and lifestyle products for its regional direct selling members has increased its marketing efforts to educate consumers about the benefits of negative ions, especially in view of the current hazy environment."
But the rest was a pure sales job, starting with the very next sentence: "Being compact in size and light in weight, the BWL Negative Ionizer is elegantly designed to be placed either at home or in the office."
The - wink wink - "disclosure" ended with the tip that:
To inform the public about the benefits of the Negative Ionizer, Best World frequently hosts workshops in its HQ premises at Level 15 East Wing Toa Payoh HDB Hub. Members of the public can contact BWL hotline at (65) 6342 0888 or visit http://www.bwl.com.sg for more information on the Negative Ionizer."
Now, it's understandable Best World will want to make the most of the hazy weather to boost sales.
One just wonders whether the corporate disclosure page of the SGX website is the right place for it.
Mark Laudi
STI at a record high:
"When others are buying, I’m scared"
I am beginning to get very scared for investors. The run-up in the Straits Times index has been great to watch – unless you're shorting the market. It hit an intraday high today (Oct 16) of 2,684 and settled around Friday's record high. But the higher it goes, the more worried I get that we're going to have another May-style correction.
Here's why:
1. Earnings season. If we had a terrific earnings season behind us with lots of positive outlook commentary from companies, then I could sleep easier. But we haven't. At least, not yet. Earnings season is only going to get underway this week. The Singapore Exchange noted in its earnings announcement last week that equities trading was down in the first quarter, saved in part by a big rise in derivatives trading. As a value investor I don't pay much attention to momentum trading. But it worries me that these gains have been achieved on relatively low volumes. Right now the market is being pushed into record territory by "me-too" money coming in. That is, people who are joining the rally because the market has already had a good run. That is the WORST possible time to be jumping in.
2. The US day of reckoning. I'm not a big believer in the armageddon story for the US financial system. But clearly I am keeping my eye on how American consumers are going to pay off their credit cards and consume enough to keep the factories of the world ticking over and growing, all while they are facing plateauing or falling house prices, homes against which they borrowed in the first place. Clearly, something has got to give. Muddling through (=slower, if any, economic growth as consumers slowly and painlessly unwind their debt) seems like the best option right now, compared to the alternative: a full-blown recession, massive debt restructuring and a consumer who won't spend until the credit cards are repaid and the home loans have been brought under control again.
3. Analysts aren't talking about stocks. I had breakfast with a well-known equities strategist on the weekend. Naturally I asked him about how worried he is over the US situation. He said the best bet right now is Singapore property! If the government is going to achieve even 10% of its targeted population growth (mostly through immigration, it seems) over the next five to ten years, then all of the currently empty private condos are going to be snapped up, and we could see some spillover into HDB as well.
Before jumping on this equities bandwagon, it's worth keeping Warren Buffet's famed contrarian line in mind: "When other people are scared, I'm buying. When other people are buying, I'm scared."
So, are you scared, or are you buying?
Mark Laudi
Here's why:
1. Earnings season. If we had a terrific earnings season behind us with lots of positive outlook commentary from companies, then I could sleep easier. But we haven't. At least, not yet. Earnings season is only going to get underway this week. The Singapore Exchange noted in its earnings announcement last week that equities trading was down in the first quarter, saved in part by a big rise in derivatives trading. As a value investor I don't pay much attention to momentum trading. But it worries me that these gains have been achieved on relatively low volumes. Right now the market is being pushed into record territory by "me-too" money coming in. That is, people who are joining the rally because the market has already had a good run. That is the WORST possible time to be jumping in.
2. The US day of reckoning. I'm not a big believer in the armageddon story for the US financial system. But clearly I am keeping my eye on how American consumers are going to pay off their credit cards and consume enough to keep the factories of the world ticking over and growing, all while they are facing plateauing or falling house prices, homes against which they borrowed in the first place. Clearly, something has got to give. Muddling through (=slower, if any, economic growth as consumers slowly and painlessly unwind their debt) seems like the best option right now, compared to the alternative: a full-blown recession, massive debt restructuring and a consumer who won't spend until the credit cards are repaid and the home loans have been brought under control again.
3. Analysts aren't talking about stocks. I had breakfast with a well-known equities strategist on the weekend. Naturally I asked him about how worried he is over the US situation. He said the best bet right now is Singapore property! If the government is going to achieve even 10% of its targeted population growth (mostly through immigration, it seems) over the next five to ten years, then all of the currently empty private condos are going to be snapped up, and we could see some spillover into HDB as well.
Before jumping on this equities bandwagon, it's worth keeping Warren Buffet's famed contrarian line in mind: "When other people are scared, I'm buying. When other people are buying, I'm scared."
So, are you scared, or are you buying?
Mark Laudi
Blu-ray or HD-DVD? None for now, thank you.
Blu-ray and High Definition DVD technologies were to have been launched in the second half of last year, but adoption uncertainties have kept disc manufacturers at bay.
People are just not willing to pay for something that is not a sure thing.
And that is what's causing companies like Anwell Technologies to re-think their projections.
It was already developing machines that make both Blu-ray discs and HD-DVDs a year ago.
(Anwell issued a profit warning yesterday, citing “uncertainties of the third generation optical disc format” for causing the delay in disc manufacturers' capex plans.)
The dilemma is understandable.
The war between the two camps of backers is reminiscent of the VHS-Betamax video battle (which VHS won).
The Blu-ray Disc Association includes Sony, Hewlett-Packard, Dell, Walt Disney Pictures and Television and Apple.
HD DVD has fewer backers but of similar repute: Microsoft, Toshiba, NEC, Paramount Pictures and Warner Brothers.
There aren't any signs of either supporters letting up:
Sony is launching its Blu-ray recorder in December this year and its much-anticipated PlayStation 3 (equipped with a Blu-ray player) in November.
Meanwhile, Microsoft's Xbox 360 HD-DVD player will be available in mid-November.
Datapulse Technology and Anwell both think it is cheaper to make HD-DVDs than Blu-ray discs.
This is because existing DVD-making equipment can be upgraded easily to manufacture HD-DVDs.
But I digress.
The safest locally-listed player in all of this is must be Swing Media Technology.
CEO Matthew Hui once told me it will take about 5 years for consumers to switch to the two new formats.
In other words, he's not thinking of hitching onto either technology just yet.
Well, looking at Anwell's profit warning, Swing Media seems to be doing right, standing at the sidelines.
Risk-adverse as he may seem, Hui may be the only one in this war that'll come out relatively unscathed.
For now.
I just wish my brother could take a leaf out of Hui's book and stall his decision on getting that new Playstation 3.
Serene Lim
People are just not willing to pay for something that is not a sure thing.
And that is what's causing companies like Anwell Technologies to re-think their projections.
It was already developing machines that make both Blu-ray discs and HD-DVDs a year ago.
(Anwell issued a profit warning yesterday, citing “uncertainties of the third generation optical disc format” for causing the delay in disc manufacturers' capex plans.)
The dilemma is understandable.
The war between the two camps of backers is reminiscent of the VHS-Betamax video battle (which VHS won).
The Blu-ray Disc Association includes Sony, Hewlett-Packard, Dell, Walt Disney Pictures and Television and Apple.
HD DVD has fewer backers but of similar repute: Microsoft, Toshiba, NEC, Paramount Pictures and Warner Brothers.
There aren't any signs of either supporters letting up:
Sony is launching its Blu-ray recorder in December this year and its much-anticipated PlayStation 3 (equipped with a Blu-ray player) in November.
Meanwhile, Microsoft's Xbox 360 HD-DVD player will be available in mid-November.
Datapulse Technology and Anwell both think it is cheaper to make HD-DVDs than Blu-ray discs.
This is because existing DVD-making equipment can be upgraded easily to manufacture HD-DVDs.
But I digress.
The safest locally-listed player in all of this is must be Swing Media Technology.
CEO Matthew Hui once told me it will take about 5 years for consumers to switch to the two new formats.
In other words, he's not thinking of hitching onto either technology just yet.
Well, looking at Anwell's profit warning, Swing Media seems to be doing right, standing at the sidelines.
Risk-adverse as he may seem, Hui may be the only one in this war that'll come out relatively unscathed.
For now.
I just wish my brother could take a leaf out of Hui's book and stall his decision on getting that new Playstation 3.
Serene Lim
And the winner is… Universal Studios!
And the winner is… Universal Studios!
Or at least, it should be.
Going on the information that’s been made public already, Genting International is not just the apparent front-runner in the bid for the Integrated Resort and Casino on Sentosa Island. In my opinion, it should be the eventual winner! Here’s why:
The Marina IR is geared for conferences and business-centered facilities, because it is closer to the Central Business District. But Sentosa requires more family-oriented attractions.
Bahamas-based Kerzner and CapitaLand are partnering to bring in award-winning architect Frank Gehry to build the resort at Sentosa, should they win the bid. Little else is known about the proposal they have put together, remaining the most tight-lipped of the bidders.
The URA currently has a display in its Maxwell Road headquarters which trumpets the advantages of cities having well-designed buildings. Apart from being nice to look at, apparently, it brings in the tourists. But any structure on Sentosa is hardly going to feature on postcards of Singapore’s city skyline. If Gehry’s architectural genius was going to have an impact on a winning bid, he should have teamed up with bidders for the Marina IR (Las Vegas Sands).
Meanwhile, private company Eighth Wonder is teaming up with Australia's Publishing and Broadcasting Limited (PBL), Macau's Melco and US-based gaming operator Isle of Capri. Together they plan to build a S$5.5 bln resort, the biggest bid so far. The resort will include a Crown Casino (the same name as the one run by PBL in Melbourne), and a six-star Crown-branded hotel. They also have Starwood on board, which would build a hotel under the ‘W’ brand.
The consortium is confident that they will be able to attract the type of cliente that the Singapore Tourism Board is after: the high rollers. Much of PBL's casino revenue is derived from contributions from the big spenders and PBL CEO James Packer told the Business Times that he is confident that the numbers and quality (ie, how much they will spend) of the customers they can attract remains competitive.
Genting is throwing around similar superlatives. It wants to build a S$5 bln resort together with sister company Star Cruises. The resort will create 45,000 jobs and it expects to attract 10 million visitors a year by 2015. American architect Michael Graves would to build 460-room boutique hotel on the site.
But it actually doesn’t matter who Universal Studios is partnering. Each of the foreign and local contenders brings their own set of strengths (and weaknesses) to the table. But a Universal Studios theme park would be tremendous for Singapore, and would, in a sense, be the “killer app” for Sentosa, which has been wooing Singaporeans with an invigorated image and advertising campaign. Genting International’s involvement is just by-the-by. Afterall, would the ships of Genting’s sister company Star Cruises stop calling at Singapore if Genting lost the bid? I don’t think so. Does Genting’s acquisition of the UK’s largest casino operator Stanley Leisure really bring in that many more tourists to Singapore? Probably not.
But Universal Studios? That’s something else.
Addendum: 12/10 12pm: The CEO of Kerzner, Butch Kerzner has passed away in helicopter accident. CapitaLand CEO Liew Mun Leong said that both companies are fully committed in their bid for the IR.
Desiree Pakiam
Or at least, it should be.
Going on the information that’s been made public already, Genting International is not just the apparent front-runner in the bid for the Integrated Resort and Casino on Sentosa Island. In my opinion, it should be the eventual winner! Here’s why:
The Marina IR is geared for conferences and business-centered facilities, because it is closer to the Central Business District. But Sentosa requires more family-oriented attractions.
Bahamas-based Kerzner and CapitaLand are partnering to bring in award-winning architect Frank Gehry to build the resort at Sentosa, should they win the bid. Little else is known about the proposal they have put together, remaining the most tight-lipped of the bidders.
The URA currently has a display in its Maxwell Road headquarters which trumpets the advantages of cities having well-designed buildings. Apart from being nice to look at, apparently, it brings in the tourists. But any structure on Sentosa is hardly going to feature on postcards of Singapore’s city skyline. If Gehry’s architectural genius was going to have an impact on a winning bid, he should have teamed up with bidders for the Marina IR (Las Vegas Sands).
Meanwhile, private company Eighth Wonder is teaming up with Australia's Publishing and Broadcasting Limited (PBL), Macau's Melco and US-based gaming operator Isle of Capri. Together they plan to build a S$5.5 bln resort, the biggest bid so far. The resort will include a Crown Casino (the same name as the one run by PBL in Melbourne), and a six-star Crown-branded hotel. They also have Starwood on board, which would build a hotel under the ‘W’ brand.
The consortium is confident that they will be able to attract the type of cliente that the Singapore Tourism Board is after: the high rollers. Much of PBL's casino revenue is derived from contributions from the big spenders and PBL CEO James Packer told the Business Times that he is confident that the numbers and quality (ie, how much they will spend) of the customers they can attract remains competitive.
Genting is throwing around similar superlatives. It wants to build a S$5 bln resort together with sister company Star Cruises. The resort will create 45,000 jobs and it expects to attract 10 million visitors a year by 2015. American architect Michael Graves would to build 460-room boutique hotel on the site.
But it actually doesn’t matter who Universal Studios is partnering. Each of the foreign and local contenders brings their own set of strengths (and weaknesses) to the table. But a Universal Studios theme park would be tremendous for Singapore, and would, in a sense, be the “killer app” for Sentosa, which has been wooing Singaporeans with an invigorated image and advertising campaign. Genting International’s involvement is just by-the-by. Afterall, would the ships of Genting’s sister company Star Cruises stop calling at Singapore if Genting lost the bid? I don’t think so. Does Genting’s acquisition of the UK’s largest casino operator Stanley Leisure really bring in that many more tourists to Singapore? Probably not.
But Universal Studios? That’s something else.
Addendum: 12/10 12pm: The CEO of Kerzner, Butch Kerzner has passed away in helicopter accident. CapitaLand CEO Liew Mun Leong said that both companies are fully committed in their bid for the IR.
Desiree Pakiam
North Korea’s nuclear test: How should investors react?
Ah, there’s nothing like a bit of uncertainty to provide investors with a buying opportunity. Just as the market appeared to be heading up in a straight line, here we are finally taking a breather that provides a buying opportunity to those who missed out on the rally.
Don’t get me wrong, no one wants war in Northeast Asia – not even the regime of Kim Jong Il, which, through its twisted ideology, thinks it is actually preventing a war with its nuclear test. No one wants ordinary North Koreans to starve, or suffer more than they already have over the last fifty years. But if you look at this issue in the cold light of day from the point-of-view of investors in Singapore Exchange-listed stocks, you will soon realise that the 1.3% decline in the Straits Times index this morning was quite unwarranted.
Here’s why:
First, nothing has changed. We’ve known about the possibility of a nuclear test for some days now. What we got this morning was only confirmation. Equity markets trade on speculation all the time. Confirmation usually sends stocks heading in the other direction (which is where the addage “Buy on rumour, sell on fact” comes from).
Second, stocks in the country that has most to lose have actually retraced their declines. The benchmark South Korean index, the Kospi, fell 2.8% but retraced some of its losses during the afternoon. And these guys are right near the action. Sure enough, Singapore’s economy is small and susceptible to shocks in other countries. But if there was a resumption of hostilities on the Korean Peninsular, any detrimental impact on the Singapore economy would pale by comparison to the detrimental impact there. So, if it’s good enough for bargain hunters to come back into the Korean market, it’s good enough for the Singapore market.
If anything, the decline in the Straits Times index is more likely due to investors taking profits after the recent strong run. Investors should be paying more attention to the upcoming earnings season. Its impact will likely be of greater magnitude than North Korea’s nuclear test.
Mark Laudi
Don’t get me wrong, no one wants war in Northeast Asia – not even the regime of Kim Jong Il, which, through its twisted ideology, thinks it is actually preventing a war with its nuclear test. No one wants ordinary North Koreans to starve, or suffer more than they already have over the last fifty years. But if you look at this issue in the cold light of day from the point-of-view of investors in Singapore Exchange-listed stocks, you will soon realise that the 1.3% decline in the Straits Times index this morning was quite unwarranted.
Here’s why:
First, nothing has changed. We’ve known about the possibility of a nuclear test for some days now. What we got this morning was only confirmation. Equity markets trade on speculation all the time. Confirmation usually sends stocks heading in the other direction (which is where the addage “Buy on rumour, sell on fact” comes from).
Second, stocks in the country that has most to lose have actually retraced their declines. The benchmark South Korean index, the Kospi, fell 2.8% but retraced some of its losses during the afternoon. And these guys are right near the action. Sure enough, Singapore’s economy is small and susceptible to shocks in other countries. But if there was a resumption of hostilities on the Korean Peninsular, any detrimental impact on the Singapore economy would pale by comparison to the detrimental impact there. So, if it’s good enough for bargain hunters to come back into the Korean market, it’s good enough for the Singapore market.
If anything, the decline in the Straits Times index is more likely due to investors taking profits after the recent strong run. Investors should be paying more attention to the upcoming earnings season. Its impact will likely be of greater magnitude than North Korea’s nuclear test.
Mark Laudi
SIA: Airbus Compensates. So What?
After a second round of delays due to wiring problems, Airbus will be paying Singapore Airlines damages.
Analysts expect it to come up to about S$300 mln.
Singapore Airlines will still be the first to fly a super-jumbo A380, to be delivered next October.
It was supposed to arrive early this year.
So does that figure make up for what SIA could've made between early this year and October 2007?
I think not.
So why do investors seem so happy about this compensation?
Perhaps the gravity of the situation has yet to sink in.
Qantas and Emirates have both expressed their disappointment on the delivery hold-back and have started to review capacity needs.
Even if SIA hasn't publicly announced rethinking the same issues, its executives have got to be scratching their heads now trying to get around this.
Crew originally slated to be A380-trained will have to be redeployed since they can only be safety-trained to operate two fleet of aircraft at one time.
Plans to handle heavily-loaded flights will have to be revised.
SIA's Vice-President of Public Affairs told AFP they are “already missing out on incremental growth on some routes because of the plane's late arrival”.
He adds that for routes like Singapore-London, SIA had wanted to replace the three Boeing 747 flights with the A380.
Before I joined Investor Central, I was flying with the airline as a stewardess.
Several routes like that would always be fully-loaded and I was often told by passengers on those routes how difficult it was to secure seats on those sectors.
This means many would have turned to other airlines for their flying needs.
So SIA exposed their customers to their competition, just like that.
Now if it had the A380 now, things would be very different.
Revenue and profit projections would be very different.
So yes, Airbus awarding SIA damages is good, but it really should not be seen as something THAT fantastic.
In this aspect, we should only start rejoicing when the super-jumbos are brought in.
Whenever that may be.
Serene Lim
Analysts expect it to come up to about S$300 mln.
Singapore Airlines will still be the first to fly a super-jumbo A380, to be delivered next October.
It was supposed to arrive early this year.
So does that figure make up for what SIA could've made between early this year and October 2007?
I think not.
So why do investors seem so happy about this compensation?
Perhaps the gravity of the situation has yet to sink in.
Qantas and Emirates have both expressed their disappointment on the delivery hold-back and have started to review capacity needs.
Even if SIA hasn't publicly announced rethinking the same issues, its executives have got to be scratching their heads now trying to get around this.
Crew originally slated to be A380-trained will have to be redeployed since they can only be safety-trained to operate two fleet of aircraft at one time.
Plans to handle heavily-loaded flights will have to be revised.
SIA's Vice-President of Public Affairs told AFP they are “already missing out on incremental growth on some routes because of the plane's late arrival”.
He adds that for routes like Singapore-London, SIA had wanted to replace the three Boeing 747 flights with the A380.
Before I joined Investor Central, I was flying with the airline as a stewardess.
Several routes like that would always be fully-loaded and I was often told by passengers on those routes how difficult it was to secure seats on those sectors.
This means many would have turned to other airlines for their flying needs.
So SIA exposed their customers to their competition, just like that.
Now if it had the A380 now, things would be very different.
Revenue and profit projections would be very different.
So yes, Airbus awarding SIA damages is good, but it really should not be seen as something THAT fantastic.
In this aspect, we should only start rejoicing when the super-jumbos are brought in.
Whenever that may be.
Serene Lim
Chemoil Energy: The one that got away
Chemoil Energy announced yesterday that it was withdrawing the IPO, giving 'considerations relating to valuation' as the sole reason for backing out.
Joint bookrunners JPMorgan, Morgan Stanley and UBS had decided to lower the bottom end to US$0.55 per share on the final day of bookbuilding, compared to the initial price range of US$0.65 to US$0.85, even though this would have raised much less than the intended US$374 mln.
It would have been the second largest IPO after Thai Beverage to launch this year on the Singapore market, had it proceeded with its decision to list. It first announced that it intended to list on the SGX exactly a month ago, citing that Singapore's 'good corporate governance' made it an ideal place.It did not want to list in the United States, stating that its obligations under the Sarbanes-Oxley Act made it very expensive to launch an IPO there, even though the marine fuel supplier was based in California.
Chemoil has given no indication that it will seek to list in Singapore or any other Asian bourse in the near future.
It seems investor interest in the company was insufficient, despite all the media attention and a one-day extension for placement.
There could be several reasons behind the lackluster performance for the placement of Chemoil's shares.
First, the falling oil price, close to the psychological barrier of US$60 per barrel, might have scared off investors on the concern that demand for fuel was declining.
Second, as Jean Chua from the Business Times wrote, quoting an unnamed source, 'The company does not have peers within the Singapore market or globally, so it was a bit difficult to understand.'
While it may be difficult to understand what the company does, there are numerous sources where investors can get information about the company.
There would have been roadshows organised at Raffles Place, there is the company website and there was no shortage of media coverage regarding the IPO.
So there is not excuse really to not to try to understand what the company does.
Also it is good that the company does not have peers in what it does, because it means that there is no competition at all.
At the end of the day, it it might boil down to the fact that maybe the Singapore market is not ready for a pioneer of an IPO like Chemoil.
Joint bookrunners JPMorgan, Morgan Stanley and UBS had decided to lower the bottom end to US$0.55 per share on the final day of bookbuilding, compared to the initial price range of US$0.65 to US$0.85, even though this would have raised much less than the intended US$374 mln.
It would have been the second largest IPO after Thai Beverage to launch this year on the Singapore market, had it proceeded with its decision to list. It first announced that it intended to list on the SGX exactly a month ago, citing that Singapore's 'good corporate governance' made it an ideal place.It did not want to list in the United States, stating that its obligations under the Sarbanes-Oxley Act made it very expensive to launch an IPO there, even though the marine fuel supplier was based in California.
Chemoil has given no indication that it will seek to list in Singapore or any other Asian bourse in the near future.
It seems investor interest in the company was insufficient, despite all the media attention and a one-day extension for placement.
There could be several reasons behind the lackluster performance for the placement of Chemoil's shares.
First, the falling oil price, close to the psychological barrier of US$60 per barrel, might have scared off investors on the concern that demand for fuel was declining.
Second, as Jean Chua from the Business Times wrote, quoting an unnamed source, 'The company does not have peers within the Singapore market or globally, so it was a bit difficult to understand.'
While it may be difficult to understand what the company does, there are numerous sources where investors can get information about the company.
There would have been roadshows organised at Raffles Place, there is the company website and there was no shortage of media coverage regarding the IPO.
So there is not excuse really to not to try to understand what the company does.
Also it is good that the company does not have peers in what it does, because it means that there is no competition at all.
At the end of the day, it it might boil down to the fact that maybe the Singapore market is not ready for a pioneer of an IPO like Chemoil.
Korean Exchange: Why buy into the SGX?!
A comment from the Korean Stock Exchange that it plans to invest in other markets around the region might sound interesting at first. Afterall, there is nothing like interest from a potential investor to drive a stock price higher. But it's curious that the Korea Exchange should even be contemplating such a move. A cross-trading deal with the Singapore Exchange is expected to be announced this month, reports the Wall Street Journal. So why bother making an investment or even merging? It makes no sense to me.
Let's be honest: stock exchanges are like any other business. They apply their technology to provide services to customers for a fee. There may be some benefit in consolidating the back-office in order to save costs, but only if the technology platforms used by the organisations are the same or similar. Perhaps they can save costs by consolidating human resources, finance and other functions. But even then, is that really feasible when working across offices separated by different work cultures and timezones? And anyway, even if they could bridge those gaps, would these synergies be enough to warrant a merger? There is the lure of exposing companies currently listed on your market to the traders and investors in the market you are merging with – but even then, most retail investors buy stocks in the market in which they live (we have done some very interesting research about this), and institutional investors usually engage a broker who can buy and sell shares on their behalf, no matter where those shares a listed. A trading linkage is at best sufficient, at worst superfluous.
Remember the SGX's trading link with the ASX? What a golden opportunity wasted (please see my earlier blog about this). But it proves that in order to attract investors in the other market, you need a lot more than just a technical ability to do so. There must be a concerted marketing effort to ensure it's actually used.
If the Korea Exchange was to make an investment in the SGX, it should do so entirely for commercial reasons, and not because it thinks it can get synergies out of a trading link. The SGX is trading at 8x book value and 24x earnings. With a yield of 4.3% it's attractive alright, but not much more attractive than many other possible investments. Hong Kong Exchanges and Clearing is significantly more expensive (13x book, 45x earnings), with a lower yield (1.2%). The Australian Stock Exchange (10x book, 25x earnings, yield 2.5%) isn't much better. Bursa Malaysia doesn't have the size nor sophistication to be really interesting to the Korean Exchange, let alone the right numbers (3.5x book, 35x earnings). So the investors in a newly-demutualised Korea Exchange might wonder whether these multiples are worth paying for. I doubt it.
The Korea Exchange could do worse than invest in the SGX as a company. But if the cultural divide to the Australian market was too wide to bridge, and with people wondering whether an SGX-Bursa link will work, I'd say a merger or workable cross-border link to Korea has the odds stacked against it.
ArchivesLet's be honest: stock exchanges are like any other business. They apply their technology to provide services to customers for a fee. There may be some benefit in consolidating the back-office in order to save costs, but only if the technology platforms used by the organisations are the same or similar. Perhaps they can save costs by consolidating human resources, finance and other functions. But even then, is that really feasible when working across offices separated by different work cultures and timezones? And anyway, even if they could bridge those gaps, would these synergies be enough to warrant a merger? There is the lure of exposing companies currently listed on your market to the traders and investors in the market you are merging with – but even then, most retail investors buy stocks in the market in which they live (we have done some very interesting research about this), and institutional investors usually engage a broker who can buy and sell shares on their behalf, no matter where those shares a listed. A trading linkage is at best sufficient, at worst superfluous.
Remember the SGX's trading link with the ASX? What a golden opportunity wasted (please see my earlier blog about this). But it proves that in order to attract investors in the other market, you need a lot more than just a technical ability to do so. There must be a concerted marketing effort to ensure it's actually used.
If the Korea Exchange was to make an investment in the SGX, it should do so entirely for commercial reasons, and not because it thinks it can get synergies out of a trading link. The SGX is trading at 8x book value and 24x earnings. With a yield of 4.3% it's attractive alright, but not much more attractive than many other possible investments. Hong Kong Exchanges and Clearing is significantly more expensive (13x book, 45x earnings), with a lower yield (1.2%). The Australian Stock Exchange (10x book, 25x earnings, yield 2.5%) isn't much better. Bursa Malaysia doesn't have the size nor sophistication to be really interesting to the Korean Exchange, let alone the right numbers (3.5x book, 35x earnings). So the investors in a newly-demutualised Korea Exchange might wonder whether these multiples are worth paying for. I doubt it.
The Korea Exchange could do worse than invest in the SGX as a company. But if the cultural divide to the Australian market was too wide to bridge, and with people wondering whether an SGX-Bursa link will work, I'd say a merger or workable cross-border link to Korea has the odds stacked against it.
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