Effects of Subprime finally beginning to show
Multi-billion dollar write-downs, quarterly losses in the tens of millions of billions of dollars instead of large profits that investors around the world and Wall Street are used to seeing, and boardroom tussles and resignations. Welcome to the aftermath of subprime.
After a summer and early autumn that seemed to show that some of Wall Street's biggest firms had survived the storm (keep in mind the Dow also set a record high as well), the flood waters are receding and the real damage is now showing. To use a midwestern analogy that is all too familiar for people in my flood prone home state of Ohio "the levy held and kept the main part of town safe, but now the water is going down and the damage is worse than we thought" (for added affect, try saying that in your best southern accent).
Earnings season seemed to be the revealing and deciding factor in all this subprime drama. After months of thinking we had made it through the unprecedented saga of subprime, everyone had to do a quick reality check when banks started reporting huge, multi-billion write-downs of bad loans, and major financial behemoths like Merrill Lynch were suddenly reporting enormous quarterly losses not seen in ages at the company.
Subprime also claimed its first boardroom casualty this week as Merrill Lynch CEO Stan O'Neal will retire, apparently under pressure after Merrill's abysmal earnings. It should be noted though that he will get about US$161.5 mln in retirement benefits though.
Even Singaporean lenders, for the most part untouched by the subprime saga -or so one thought- are feeling the heat. While not as severe as what its US counterparts are experiencing, the proof was in the pudding in the earnings announcements. UOB saw a nice 8.2% rise in its net profit for Q3, but it came in short of analysts' expectations thanks to...you guessed it! Subprime issues in the U.S.
So it doesn't seem we are out of the woods yet with subprime, and to use a rather morbid analogy, "the flood waters may be receding but the casualties are gonna surface."
Let's hope the damage is minimal...
After a summer and early autumn that seemed to show that some of Wall Street's biggest firms had survived the storm (keep in mind the Dow also set a record high as well), the flood waters are receding and the real damage is now showing. To use a midwestern analogy that is all too familiar for people in my flood prone home state of Ohio "the levy held and kept the main part of town safe, but now the water is going down and the damage is worse than we thought" (for added affect, try saying that in your best southern accent).
Earnings season seemed to be the revealing and deciding factor in all this subprime drama. After months of thinking we had made it through the unprecedented saga of subprime, everyone had to do a quick reality check when banks started reporting huge, multi-billion write-downs of bad loans, and major financial behemoths like Merrill Lynch were suddenly reporting enormous quarterly losses not seen in ages at the company.
Subprime also claimed its first boardroom casualty this week as Merrill Lynch CEO Stan O'Neal will retire, apparently under pressure after Merrill's abysmal earnings. It should be noted though that he will get about US$161.5 mln in retirement benefits though.
Even Singaporean lenders, for the most part untouched by the subprime saga -or so one thought- are feeling the heat. While not as severe as what its US counterparts are experiencing, the proof was in the pudding in the earnings announcements. UOB saw a nice 8.2% rise in its net profit for Q3, but it came in short of analysts' expectations thanks to...you guessed it! Subprime issues in the U.S.
So it doesn't seem we are out of the woods yet with subprime, and to use a rather morbid analogy, "the flood waters may be receding but the casualties are gonna surface."
Let's hope the damage is minimal...
Labels: Merrill Lynch, subprime, UOB
OCBC: Sulking won't win friends, or investors
It's incredible to think that in this day and age, when there is so much focus on corporate transparency, companies still sideline analysts (and sometimes journalists) because they don't like what they write. Shareholders are increasingly conscious about what and how much they are being told by companies they have invested in. So when OCBC Bank decided to omit one analyst in particular from its invitations list for its forthcoming earnings announcement November 6, it is not only at odds with current trends. It actually says more about the company than anything negative the analyst could ever have written.
The story revolves around Matthew Wilson, who has apparently been less than complimentary in his research reports about OCBC. The Edge Singapore carries the full story in its "Edgewise" column titled "OCBC snubs Morgan Stanley analyst" in the October 29 issue. It reports that Wilson upset senior executives with his critical views on OCBC's regional expansion plans, and its endowment mortgages. In turn, they decided to leave him off the invitations list.
The Edge quotes OCBC's Head of Corporate Communications Koh Ching Ching as saying "We have not banned anyone in any way. Whether we invite any particular investor, analyst, fund manager or journalist to any of our various briefing events is at our discretion." (Aha. So, what would happen if Wilson was to show up anyway? Would he be admitted?) Koh goes on to say that the results and presentation slides, as well as the webcast, are free to access by anyone.
That may well be true, and I don't profess to have any indepth knowledge about the company's thinking. But they didn't accuse Wilson of being rude or obnoxious. Just that his reports contained "inaccuracies" (reported by The Edge). So let's take The Edge's headline "OCBC snubs Morgan Stanley analyst" and the contents of the story at face value. This is the sort of headline and story most companies would work hard to avoid. Assuming the story is accurate, it raises four critical points:
I find the growing arrogance at OCBC quite disturbing. One wonders whether other analysts attending the November 6 briefing will ask OCBC management why Wilson is not there. Then OCBC will have lost control over the issue. Remember six or seven years ago, when Business Times journalist Christopher Tan was apparently banned from ComfortDelGro briefings because he criticised the CEO's growing pay package at a time when diesel subsidies for cabbies were being cut? ComfortDelGro backed down.
It's time OCBC did, too.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
The story revolves around Matthew Wilson, who has apparently been less than complimentary in his research reports about OCBC. The Edge Singapore carries the full story in its "Edgewise" column titled "OCBC snubs Morgan Stanley analyst" in the October 29 issue. It reports that Wilson upset senior executives with his critical views on OCBC's regional expansion plans, and its endowment mortgages. In turn, they decided to leave him off the invitations list.
The Edge quotes OCBC's Head of Corporate Communications Koh Ching Ching as saying "We have not banned anyone in any way. Whether we invite any particular investor, analyst, fund manager or journalist to any of our various briefing events is at our discretion." (Aha. So, what would happen if Wilson was to show up anyway? Would he be admitted?) Koh goes on to say that the results and presentation slides, as well as the webcast, are free to access by anyone.
That may well be true, and I don't profess to have any indepth knowledge about the company's thinking. But they didn't accuse Wilson of being rude or obnoxious. Just that his reports contained "inaccuracies" (reported by The Edge). So let's take The Edge's headline "OCBC snubs Morgan Stanley analyst" and the contents of the story at face value. This is the sort of headline and story most companies would work hard to avoid. Assuming the story is accurate, it raises four critical points:
1. Criticism not welcome. OCBC's actions indicate the company does not tolerate alternative viewpoints. Which is an irony, given that there is already a wide variety of viewpoints, as shown by the fact that there are five Buy recommendations, seven Outperforms, six Holds and one Underperform call (source: Reuters). So, when will investors be "uninvited" from Annual General Meetings, because management doesn't like their questions or comments?(Story continues after the poll)
2. Analysts are critical to communications. Many companies clamour for analyst coverage because of the status is bestows, and the liquidity in its shares in generates. That's why the SGX-MAS Research Incentive Scheme was even created. Clearly, OCBC is spoilt by the fact that at least 19 analysts cover the stock, and doesn't think leaving out the Morgan Stanley analyst matters. But surely they must understand the damage this does to their reputation by snubbing one. He is still a "critical communicator", more so because he is with a global financial institution, not a Singapore-only broker. One cannot imagine Wilson will be more complimentary of OCBC and tell his clients globally how wonderful OCBC is, as a result of being left off the invite list. Is this really what OCBC hoped to achieve?
3. Getting personal achieves nothing. CEO David Conner doesn't like it when journalists get personal in their questioning. Yet senior management seems to be getting personal with one analyst. Play the ball, not the man! If anything, Wilson should be the first analyst OCBC invites, to influence his reports. Or as The Edge concluded, "you cannot reshape opinion if the messenger is not around". No wonder OCBC didn't win any awards at the recent Investors' Choice Awards.
I find the growing arrogance at OCBC quite disturbing. One wonders whether other analysts attending the November 6 briefing will ask OCBC management why Wilson is not there. Then OCBC will have lost control over the issue. Remember six or seven years ago, when Business Times journalist Christopher Tan was apparently banned from ComfortDelGro briefings because he criticised the CEO's growing pay package at a time when diesel subsidies for cabbies were being cut? ComfortDelGro backed down.
It's time OCBC did, too.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Labels: analyst, Matthew Wilson, OCBC, The Edge
Tiger Airways: A wolf in budget clothing
When Singapore Airlines CEO Chew Choon Seng told an AP reporter on the first commercial A380 flight to Sydney last week that Tiger Airways would be going public at some stage, I almost choked on a fur ball: A budget carrier going public sounds wacky. Afterall, budget carriers are low-margin operations by definition. Bring down the value provided to passengers so you can bring down the price. Just like banks which face so-called "margin compression" when interest rates are low, budget carriers have to operate in an industry which is not designed to generate huge profit. But I think there is more to it than that.
Chew's comments were as follows:
Clearly, budget carriers can be profitable. But cast your mind back to all the discussion about budget carriers when they first came about a few years ago. There was a lot of talk of quick attrition (which is exactly what happened to ValuAir), as they struggled to make money on small fares. They were seen as a necessary evil, as market-disrupting operators like AirAsia came onto the scene, which were going to eat away at the profits of the full-service carriers.
But what has actually happened? Singapore Airlines is more profitable than ever, and while clearly the airline industry has gone through tough times I don't hear about another Delta or United going to the wall. On the contrary! (Story continued below poll)
What this leads to is two possibilities:
1. Budget carriers are making slim margins, and the only reason the current owners would want to list them is to sell-away low-return investments, or
2. Budget carriers actually do very well, offering special fares long in advance and keeping fares which are close to the full-service carriers for near-term bookings.
Chew's further comment is telling:
But Chew's final comment is perplexing:
So the STI at or near records is not optimal?
Then when?!?!
Oil prices are above US$90 a barrel, sure, but they're unlikely to fall far, even if they do come down.
So again, if not now, when?
To comment on this blog, visit the Investor Central Blog.
Mark Laudi
Chew's comments were as follows:
Chew also said Tiger Airways, in which the Irish founders of Ryanair hold a stake, will eventually sell shares to the public.
"The plan for Tiger is to eventually go to the market. It will go to the market when conditions are right," he said.
Clearly, budget carriers can be profitable. But cast your mind back to all the discussion about budget carriers when they first came about a few years ago. There was a lot of talk of quick attrition (which is exactly what happened to ValuAir), as they struggled to make money on small fares. They were seen as a necessary evil, as market-disrupting operators like AirAsia came onto the scene, which were going to eat away at the profits of the full-service carriers.
But what has actually happened? Singapore Airlines is more profitable than ever, and while clearly the airline industry has gone through tough times I don't hear about another Delta or United going to the wall. On the contrary! (Story continued below poll)
What this leads to is two possibilities:
1. Budget carriers are making slim margins, and the only reason the current owners would want to list them is to sell-away low-return investments, or
2. Budget carriers actually do very well, offering special fares long in advance and keeping fares which are close to the full-service carriers for near-term bookings.
Chew's further comment is telling:
"Our Irish partners in Tiger are not exactly pressing for an IPO (initial public offering)."In other words, Tiger is actually earning a fabulous return. A wolf in budget clothing.
But Chew's final comment is perplexing:
"They want to go to the market when conditions are optimal and it's not right now."I see.
So the STI at or near records is not optimal?
Then when?!?!
Oil prices are above US$90 a barrel, sure, but they're unlikely to fall far, even if they do come down.
So again, if not now, when?
To comment on this blog, visit the Investor Central Blog.
Mark Laudi
Labels: budget carrier, public listing, Singapore Exchange, Tiger Airways
Singapore to KL flights: Going to be a race to the bottom now
Ah, the smell of deregulation in October. The news has finally broken that Air Asia, who has long sought to break into the KL to Singapore air route, will finally get its wish soon as Malaysian officials gave the green light for 2 flights a day, as well as flights to be operated by a Singaporean budget carrier (it's almost a sure bet that that will be Tiger Airways).
Competition for consumers is good, it drives companies to perform better and offer quality products and services priced competitively. SQ and MH have long held an almost absolute monopoly on this route for years, and prices have been sky high. A recent check of a weekend roundtrip flight to Kuala Lumpur came in at S$436. Air Asia will undoubtedly bring that price down, possibly as low as $60 each way (Tony Fernandes, Air Asia CEO has alluded to the price being as low as this amount).
What you will see then is a race to the bottom. Whether or not SQ or MH price their flights as low as Air Asia remains to be seen, but if it is any indication of how an LCC moving on to a highly lucrative route works out for the major carriers, look at the United States. In the markets that Southwest Airlines operates, prices have come down, and quite often on the exact same routes, Southwest is the same price as United Airlines or American Airlines.
Lower prices will ultimately mean thinner margins for MH and SQ. But there is some good news here on the business side of things. SQ owns 49% of Tiger Airways, so at least all is not lost.
What this ultimately means for you? Well, cheaper prices and fares for starters. For the airlines, and their bottom line, thinning margins as things become tighter. This particularly holds true in the United States but not so much here in Asia. We'll wait until the flights take off to see just exactly what happens.
-Curtis Bergh
Competition for consumers is good, it drives companies to perform better and offer quality products and services priced competitively. SQ and MH have long held an almost absolute monopoly on this route for years, and prices have been sky high. A recent check of a weekend roundtrip flight to Kuala Lumpur came in at S$436. Air Asia will undoubtedly bring that price down, possibly as low as $60 each way (Tony Fernandes, Air Asia CEO has alluded to the price being as low as this amount).
What you will see then is a race to the bottom. Whether or not SQ or MH price their flights as low as Air Asia remains to be seen, but if it is any indication of how an LCC moving on to a highly lucrative route works out for the major carriers, look at the United States. In the markets that Southwest Airlines operates, prices have come down, and quite often on the exact same routes, Southwest is the same price as United Airlines or American Airlines.
Lower prices will ultimately mean thinner margins for MH and SQ. But there is some good news here on the business side of things. SQ owns 49% of Tiger Airways, so at least all is not lost.
What this ultimately means for you? Well, cheaper prices and fares for starters. For the airlines, and their bottom line, thinning margins as things become tighter. This particularly holds true in the United States but not so much here in Asia. We'll wait until the flights take off to see just exactly what happens.
-Curtis Bergh
Labels: Kuala Lumpur, Malaysia Airlines, Singapore Airlines, Tiger Airways
SembCorp Marine: Who's to blame?
The announcement by SembCorp Marine (SCM) that its Director, Group Finance had entered into unauthorised foreign exchange transactions left more questions open than it answered. In this commentary, we infer some of the answers ourselves.
First, how did Jurong Shipyard (JSPL) pay US$83 mln to an unnamed bank for foreign exchange transactions, without anybody knowing? While it's still not entirely clear whether this payment was authorised, it seems incredible that such a payment could have been made without arousing suspicion.
Second, it follows that perhaps foreign exchange speculation was authorised, but these loss making transactions specifically were not. We need clarity on this. If, in fact, the company knew about foreign exchange transaction, but didn't specifically authorise the ones that were loss-making, the company would need to explain what it was doing speculating in the forex markets when their main job is building oil rigs. Could it be that the transactions were part of a legitimate hedging program?
Third, how is it that a special committee set up to investigate what happened consists of the people who should have been checking on this sort of thing in the first place! Namely, Chairmen and some members of the Audit and Risk Committees.
Fourth, what time frame did all of this take place in? Clearly, the longer the foreign exchange transactions had been open, the more other people should have known about them.
Fifth, the language in the press release is very interesting.
"In light of the reasonable prospect of legal proceedings and to enable SCM and JSPL to obtain legal advice with respect to possible claims, as well as any claims by JSPL in relation to the Unauthorised Transactions…"
Legal proceedings by whom, and against whom? On first glance, the company may well sue its Director, Group Finance Wee Sing Guan but on reflection, does SCM not have the intention of making good on the transactions in question, leading to claims by the banks?
While the Business Times prematurely condemmed Wee as having misled the company (I have seen neither an admission, nor a court decision to this effect), it reliably informed us of the good news that "this event is unlikely to have any impact on Jurong Shipyard's operations, saying 'it's business as usual' (oh, happy days – just like China Aviation Oil thankfully continued business while retail investors were bleeding).
Thursday, November 1 is the day when hopefully some of these pressing questions will be answered. That's the day SembCorp Marine announces Q3 earnings.
To comment on this blog, visit the Investor Central Blog.
Also watch MyStockBriefing tonight on the Investor Central website for analyst commentary on this issue.
Mark Laudi
First, how did Jurong Shipyard (JSPL) pay US$83 mln to an unnamed bank for foreign exchange transactions, without anybody knowing? While it's still not entirely clear whether this payment was authorised, it seems incredible that such a payment could have been made without arousing suspicion.
Second, it follows that perhaps foreign exchange speculation was authorised, but these loss making transactions specifically were not. We need clarity on this. If, in fact, the company knew about foreign exchange transaction, but didn't specifically authorise the ones that were loss-making, the company would need to explain what it was doing speculating in the forex markets when their main job is building oil rigs. Could it be that the transactions were part of a legitimate hedging program?
Third, how is it that a special committee set up to investigate what happened consists of the people who should have been checking on this sort of thing in the first place! Namely, Chairmen and some members of the Audit and Risk Committees.
Fourth, what time frame did all of this take place in? Clearly, the longer the foreign exchange transactions had been open, the more other people should have known about them.
Fifth, the language in the press release is very interesting.
"In light of the reasonable prospect of legal proceedings and to enable SCM and JSPL to obtain legal advice with respect to possible claims, as well as any claims by JSPL in relation to the Unauthorised Transactions…"
Legal proceedings by whom, and against whom? On first glance, the company may well sue its Director, Group Finance Wee Sing Guan but on reflection, does SCM not have the intention of making good on the transactions in question, leading to claims by the banks?
While the Business Times prematurely condemmed Wee as having misled the company (I have seen neither an admission, nor a court decision to this effect), it reliably informed us of the good news that "this event is unlikely to have any impact on Jurong Shipyard's operations, saying 'it's business as usual' (oh, happy days – just like China Aviation Oil thankfully continued business while retail investors were bleeding).
Thursday, November 1 is the day when hopefully some of these pressing questions will be answered. That's the day SembCorp Marine announces Q3 earnings.
To comment on this blog, visit the Investor Central Blog.
Also watch MyStockBriefing tonight on the Investor Central website for analyst commentary on this issue.
Mark Laudi
Labels: foreign exchange transactions, Jurong Shipyard, SembCorp Marine, Wee Sing Guan
Uni-Asia: Why was it listed so cheaply?
The first thing that strikes you about Uni-Asia is not just the big fluctuations in its shareprice since listing August 17, but what now seems like an incredibly low price that it fetched during the listing process. It offered 65.4 mln shares at 55 cents, giving it a price-to-book ratio of just 1.06x, and a price-to-earnings ratio of 5.5x. When average volumes hit 36 mln, and the stock reached an intraday record of S$2.79, it was trading at a P/B ratio of around 4x, and a P/E ratio of around 22x.
Now, I'm not going to comment on the investigation by the Singapore Exchange into possible price manipulation, which was called for by 33 retail investors who had gone to see the Securities Investors Association (Singapore) about their concerns. I do not profess to have any knowledge of whether there was any price manipulation or not. The company has also said it also doesn't have any knowledge of what caused the price to fluctuate so much.
But it sure seems strange that they let the stock go so cheaply in the first place. For the answer to this question we have to go back to the original prospectus, in which they say:
In relation to the existing major shareholders, the prospectus has this to say:
These have given their assurance (page 57) that they would not be selling any shares for six months from listing – a time period which has not yet expired. So even if they did give away the shares too cheaply during the IPO (but why would they do this?) they would still not be permitted to sell the shares at this time. At worst, it seems, the shares were just "coming off a low base".
What is your theory?
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Watch the BlogCast on video
Now, I'm not going to comment on the investigation by the Singapore Exchange into possible price manipulation, which was called for by 33 retail investors who had gone to see the Securities Investors Association (Singapore) about their concerns. I do not profess to have any knowledge of whether there was any price manipulation or not. The company has also said it also doesn't have any knowledge of what caused the price to fluctuate so much.
But it sure seems strange that they let the stock go so cheaply in the first place. For the answer to this question we have to go back to the original prospectus, in which they say:
Our Company presently has no intention of purchasing our own Shares after the listing. However, if we decide to do so later, we will seek our Shareholders’ approval in accordance with our Articles and the rules of the SGX-ST.
Our Company will make prompt public announcement of any such share purchase and has also given an undertaking to the SGX-ST to comply with all requirements that the SGX-ST may impose in the event of any such share purchase.
In relation to the existing major shareholders, the prospectus has this to say:
Uni-Asia was established in Hong Kong in 1997 by founders Motokuni Yamashiro, Kazuhiko Yoshida, Michio Tanamoto and Takanobu Himori who were Japanese bankers. Each of the founders has over 25 years experience in the banking industry working in corporate loan syndication and structured finance arrangement. Mr. Himori left our Company in March 2004. The other founders continue to lead the business and as at the Latest Practicable Date, they own, directly and indirectly, a significant aggregate equity interest in Uni-Asia of approximately 23.9%.
These have given their assurance (page 57) that they would not be selling any shares for six months from listing – a time period which has not yet expired. So even if they did give away the shares too cheaply during the IPO (but why would they do this?) they would still not be permitted to sell the shares at this time. At worst, it seems, the shares were just "coming off a low base".
What is your theory?
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Watch the BlogCast on video
Labels: IPO, Singapore Exchange, Uni-Asia
Who Really Reads Annual Reports?!
Most investors either don't have the time, the expertise, or the inclination to plough through a hundred page annual report, particularly if they own several or many stocks and receive on average one annual report a week. Which begs the question: why do companies spend all that money and resources sending them out in hard copy?
This is an important issue, for several reasons. First, cost. Here are two images from the Portek Annual Report, which went out to shareholders this week.
Check out the colours, design and photography. It may not seem like a lot of money to spend S$50,000 or so on printing and mailing the annual report, particularly if the design, layout and photography already cost a lot of money. But that leads me to the second point, and that is, the environment. In the past, shareholders may not have cared too much about this, but as the proliferation of sustainability reports shows it is of increasing concern to shareholders. And if shareholders demand companies stop wasting a lot of paper (my copy of the Portek annual report will go into the recycling bin, with only a few pages having been read) then companies should respond.
I'm not saying companies should not bother producing annual reports. On the contrary, they are an important part of corporate disclosure and transparency. Beyond that, they are a source of pride for companies, because they sum up all their achievements over the previous financial year.
But the file is already sent to the printer in electronic format. It seems to me to make most sense to email the same file to shareholders as well. Or at least, to give shareholders the option of receiving the annual report this way.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
This is an important issue, for several reasons. First, cost. Here are two images from the Portek Annual Report, which went out to shareholders this week.
Check out the colours, design and photography. It may not seem like a lot of money to spend S$50,000 or so on printing and mailing the annual report, particularly if the design, layout and photography already cost a lot of money. But that leads me to the second point, and that is, the environment. In the past, shareholders may not have cared too much about this, but as the proliferation of sustainability reports shows it is of increasing concern to shareholders. And if shareholders demand companies stop wasting a lot of paper (my copy of the Portek annual report will go into the recycling bin, with only a few pages having been read) then companies should respond.I'm not saying companies should not bother producing annual reports. On the contrary, they are an important part of corporate disclosure and transparency. Beyond that, they are a source of pride for companies, because they sum up all their achievements over the previous financial year.
But the file is already sent to the printer in electronic format. It seems to me to make most sense to email the same file to shareholders as well. Or at least, to give shareholders the option of receiving the annual report this way.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Labels: Annual Reports, Portek, sustainability report, Xpress
"Trust" me
No I'm not asking you to trust me personally, I'm talking about trusts listed on the exchange. We have everything these days from ships to property, planes (soon with GE Altitude Aircraft Leasing about to list), and in my opinion in ten years just about everything imaginable will be listed. Why? Well I think the direction is already there.
Buses, Trains, Parks, Roads, you name it, soon it will have a trust and it will be available on an exchange near you to take a stake in.
Tell us what you think about trusts. Are they a good investment? Do you like them? Do you hate them? Post away below everyone and be sure to come back in ten years and tell me if I was wrong or not!
-Curtis Bergh
Buses, Trains, Parks, Roads, you name it, soon it will have a trust and it will be available on an exchange near you to take a stake in.
Tell us what you think about trusts. Are they a good investment? Do you like them? Do you hate them? Post away below everyone and be sure to come back in ten years and tell me if I was wrong or not!
-Curtis Bergh
Labels: SGX, unit trusts
Cut The Vague Disclosures And Get Specific
Singapore companies have improved significantly in terms of corporate disclosure and transparency. But there is one area in particular which needs a good hard look, and it’s time for companies and the authorities to draw the line and say – no more! I am referring specifically to directors’ pay, and the propensity of companies to not disclose precisely how much their directors earn. As shareholders, we have a right to know.
Directors of the boards of management play the important role of checking on what management gets up to. Their fiduciary duty is to ensure the accounts are up to scratch, and to check executive management’s direction is in the best interests of the company and shareholders. They are the “keeper of the company”, acting as checks-and-balance on the executives running the day-to-day affairs.
Therefore, the irony is all the grater that this noble role does not seem to extend to disclosure of how much they get paid. Very few companies disclose the exact dollars and cents. They merely state the range of salaries, such as “less than $250,000”, “between $250,000 and S$500,000”, and so on.
This is annoying enough when existing public companies do this in their annual reports. But it’s even worse when debuting companies do this in their prospectuses. We are expected to write cheques to subscribe for shares to people we often have never heard of, and with no track record. For them to enter salary bands, rather than precise figures, is like writing them a blank cheque! Yet CEOs are regularly put under significant scrutiny. As shareholders, we ought to know how much directors get paid, too. It’s our money.
In a sense, directors bear the burden of compliance, and if something goes wrong it’s their neck on the line. They ought to be compensated for this. In addition, some directors add significant value to management, through their own experience, their contacts, and so on. And retail investors need to keep perspective, that directors may only show up to monthly or quarterly board meetings, but their responsibility to the company and their fiduciary duty applies every day of the year.
Further, retail investors are far better off now than they were even ten years ago, thanks to continued refinements by the Singapore Exchange, and the presence of the Securities Investors Association (Singapore), which continually puts pressure on boards to improve.
But the issue of salary bands needs to improve. And in the absence of action by the authorities, it’s up to shareholders to push for it.
Directors of the boards of management play the important role of checking on what management gets up to. Their fiduciary duty is to ensure the accounts are up to scratch, and to check executive management’s direction is in the best interests of the company and shareholders. They are the “keeper of the company”, acting as checks-and-balance on the executives running the day-to-day affairs.
Therefore, the irony is all the grater that this noble role does not seem to extend to disclosure of how much they get paid. Very few companies disclose the exact dollars and cents. They merely state the range of salaries, such as “less than $250,000”, “between $250,000 and S$500,000”, and so on.
This is annoying enough when existing public companies do this in their annual reports. But it’s even worse when debuting companies do this in their prospectuses. We are expected to write cheques to subscribe for shares to people we often have never heard of, and with no track record. For them to enter salary bands, rather than precise figures, is like writing them a blank cheque! Yet CEOs are regularly put under significant scrutiny. As shareholders, we ought to know how much directors get paid, too. It’s our money.
In a sense, directors bear the burden of compliance, and if something goes wrong it’s their neck on the line. They ought to be compensated for this. In addition, some directors add significant value to management, through their own experience, their contacts, and so on. And retail investors need to keep perspective, that directors may only show up to monthly or quarterly board meetings, but their responsibility to the company and their fiduciary duty applies every day of the year.
Further, retail investors are far better off now than they were even ten years ago, thanks to continued refinements by the Singapore Exchange, and the presence of the Securities Investors Association (Singapore), which continually puts pressure on boards to improve.
But the issue of salary bands needs to improve. And in the absence of action by the authorities, it’s up to shareholders to push for it.
Labels: directors pay, salary bands, SIAS
EI-Nets: Thinking out of the box
For as long as companies abide by the letter of corporate disclosure laws – without offering their own theories why their stocks are heavily traded – there'll be a need for us at Investor Central. Case in point: EI-Nets. It's been at the top of the Top Volume charts several times over the past weeks, leading to a query from the Singapore Exchange on October 4. At the time, EI-Nets said it had nothing to announce. The company's Executive Deputy Chairman Liau Beng Chye may well be justified in not commenting on market talk. But the market would have been better informed if he had referred to two announcements in particular which could be responsible for traders' interest, even if they at least one of them is not strictly within the control of the company.
The first is spelled out in Ashley Choo's story on Investor Central on October 5, detailing the involvement in the company by Dr Anthony Soh from Asia Growth Capital, who already subscribed to a substantial stake in late September for a fraction of the current price.
The second reason came to light this afternoon, when EI-Nets posted the auditors' opinion on its recent earnings announcement. In it, Deloitte & Touche said:
Heavy going.
In the same disclosure, the board counters:
It recounts previous announcements, including the investment of Dr Soh.
Clearly, companies have better things to do than to constantly remind investors of previous announcements. But if companies were able to see better the point-of-view of investors, rather than just going by the letter of the law, it would help shareholders join the dots.
For as long as they don't, we at Investor Central will be keeping our jobs.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
The first is spelled out in Ashley Choo's story on Investor Central on October 5, detailing the involvement in the company by Dr Anthony Soh from Asia Growth Capital, who already subscribed to a substantial stake in late September for a fraction of the current price.
The second reason came to light this afternoon, when EI-Nets posted the auditors' opinion on its recent earnings announcement. In it, Deloitte & Touche said:
We understand from the directors of the company that they have been evaluating various strategies to improve operating performance and financial position of the company and the group to enable the company and the group to continue to operate as going concerns. It is presently not possible to determine the eventual outcome of such strategies.
The matters set out in the paragraph above indicate the existence of material uncertainties which cast a significant doubt on the company’s and group’s ability to continue as going concerns.
Heavy going.
In the same disclosure, the board counters:
The Board of Directors refers to the above audit opinion on going concerns matters and are of the view that the Company and the group is able to operate and continue as going concerns.
It recounts previous announcements, including the investment of Dr Soh.
Clearly, companies have better things to do than to constantly remind investors of previous announcements. But if companies were able to see better the point-of-view of investors, rather than just going by the letter of the law, it would help shareholders join the dots.
For as long as they don't, we at Investor Central will be keeping our jobs.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Labels: Anthony Soh, Asia Growth Capital, corporate disclosure, EI-Nets, Liau Beng Chye
F&N: There's gotta be more to it!
The story dished up by the Business Times this morning in relation to Fraser & Neave is so full of holes, I am having trouble grasping why the paper even published it.
In essence, the BT story titled "F&N Gets Extra Shield With New Chairman In Place" says:
1. The board has fought off Heineken as a potential suitor
2. Some members of the board are congratulating themselves over this
3. The arrival of Lee Hsien Yang as Chairman – effective today – will "bolster its defenses"
If this story is actually true, shareholders should be extremely angry.
First, my blood boils when I read that F&N "has been bolstering its defences against a possible takeover bid by global brewing giant Heineken".
Hullo?!
It is the board's job to ensure shareholders get value for their investments. If this means accepting a well-priced takeover, so be it!
Second, the story says F&N "has been doing all it can to ensure that it remains a Singapore-owned entity." Where was this ill-placed sentimentality when Colony Capital bought the Raffles Hotel (arguably, an institution far more deserving of rescue from foreign hands than a soft-drink, beer and publishing company)?
Third, if Temasek really did invest because board member and celebrity accountant Nicky Tan brokered a S$900 mln investment, the question has to be asked whether Temasek is deviating from its often-stated philosophy of investing for purely commercial, and never political or parochial reasons. Further, it would be in shareholders' interests to know whether Mr Tan received a fee for his services, given that the company has an apparent predisposition to paying its board members extra consultancy fees.
Fourth, it cannot be true that "Mr Lee's appointment is just one of the moves it has made to stop [a Heineken takeover] from happening", because Mr Lee himself was at the buying-end of one of the most contentious takeovers of Australian corporate history. As SingTel chief he oversaw the purchase of Optus, which brought forth all sorts of concerns about Singaporean ownership and the potential for military information carried by Optus' satellites to fall into Singapore hands (that argument, incidentally, was just as ill-founded as supposed concerns that F&N would fall into foreign hands). Are we now to believe Mr Lee will argue black and blue against a Heineken takeover? If Mr Lee is worthy of his reputation – which I believe he is – he will argue in favour of a takeover bid by anyone who offers the right price.
Further, if Lee is the "extra shield" against a takeover (as the headline states), what was previous Chairman Michael Fam? A walk-over? Hardly, because no deal with Heineken was done.
There are other issues with this story.
First, it does not explain how – if at all – this has anything to do with the sudden departure of Chief Executive Dr Han Cheng Fong. Could it be that he alone argued in favour of letting Heineken make a bid?
Second, the story has no sources, other than a few references to comments made in other contexts by Dr Han and Heineken Chief Siep Hiemstra. How the paper then managed to conjure up phrases like "the story can now be told" (who did he get permission from?) and "Apparently, there was more to it" (according to whom?) is beyond me. At best, he has been sitting on this story for ten months (who is his responsibility to? BT readers or the board of F&N?). At worst, he is a pawn in someone else's game which is feeding the public a red herring for their own agenda.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
In essence, the BT story titled "F&N Gets Extra Shield With New Chairman In Place" says:
1. The board has fought off Heineken as a potential suitor
2. Some members of the board are congratulating themselves over this
3. The arrival of Lee Hsien Yang as Chairman – effective today – will "bolster its defenses"
If this story is actually true, shareholders should be extremely angry.
First, my blood boils when I read that F&N "has been bolstering its defences against a possible takeover bid by global brewing giant Heineken".
Hullo?!
It is the board's job to ensure shareholders get value for their investments. If this means accepting a well-priced takeover, so be it!
Second, the story says F&N "has been doing all it can to ensure that it remains a Singapore-owned entity." Where was this ill-placed sentimentality when Colony Capital bought the Raffles Hotel (arguably, an institution far more deserving of rescue from foreign hands than a soft-drink, beer and publishing company)?
Third, if Temasek really did invest because board member and celebrity accountant Nicky Tan brokered a S$900 mln investment, the question has to be asked whether Temasek is deviating from its often-stated philosophy of investing for purely commercial, and never political or parochial reasons. Further, it would be in shareholders' interests to know whether Mr Tan received a fee for his services, given that the company has an apparent predisposition to paying its board members extra consultancy fees.
Fourth, it cannot be true that "Mr Lee's appointment is just one of the moves it has made to stop [a Heineken takeover] from happening", because Mr Lee himself was at the buying-end of one of the most contentious takeovers of Australian corporate history. As SingTel chief he oversaw the purchase of Optus, which brought forth all sorts of concerns about Singaporean ownership and the potential for military information carried by Optus' satellites to fall into Singapore hands (that argument, incidentally, was just as ill-founded as supposed concerns that F&N would fall into foreign hands). Are we now to believe Mr Lee will argue black and blue against a Heineken takeover? If Mr Lee is worthy of his reputation – which I believe he is – he will argue in favour of a takeover bid by anyone who offers the right price.
Further, if Lee is the "extra shield" against a takeover (as the headline states), what was previous Chairman Michael Fam? A walk-over? Hardly, because no deal with Heineken was done.
There are other issues with this story.
First, it does not explain how – if at all – this has anything to do with the sudden departure of Chief Executive Dr Han Cheng Fong. Could it be that he alone argued in favour of letting Heineken make a bid?
Second, the story has no sources, other than a few references to comments made in other contexts by Dr Han and Heineken Chief Siep Hiemstra. How the paper then managed to conjure up phrases like "the story can now be told" (who did he get permission from?) and "Apparently, there was more to it" (according to whom?) is beyond me. At best, he has been sitting on this story for ten months (who is his responsibility to? BT readers or the board of F&N?). At worst, he is a pawn in someone else's game which is feeding the public a red herring for their own agenda.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Labels: Business Times, Conrad Raj, F N, Fraser Neave, Han Cheng Fong, Lee Hsien Yang
Weather and the Markets: Balderdash
It storms, the market goes down. The sun comes out, the market goes up. Sound familiar? Well, it may happen from time to time but its not an exact science. Generally speaking this seems to be the trend though (for whatever crazy reason). Bad weather rolls in and its pandemonium and chaos.
We've never really debated this on the blog but nows the time.
I think its a bunch of bologna. Garbage. Balderdash, whatever you want to call it...weather directly affecting the markets? Give me a break...it's a little rain people!
It's not like we have to deal with hurricanes, blizzards, and freak nor'easters that the eastern seaboard of the U.S. deals with from time to time. In those cases, yes, that will affect the markets only because they are extremes. Hurricanes regularly intrude into the Gulf of Mexico, often shutting down oil rigs cutting energy production thus affecting oil prices, which, have a certain influence on the market.
But here in Singapore, its just rain...big freaking deal.
For instance, today at around 12, some storm clouds rolled in and the market dipped a bit. Hmm. I can recall a few times in the past when it was the same sort of situation; storm rolls in, market dips.
Why is it that this happens from time to time? We have blizzard's left and right in the U.S. where traders are wading through knee deep snow on Wall Street just to get to the floor of the NYSE and things seem to be fine?
For me, I think its a load of garbage that there is an adverse affect on the market (or there appears to be) when it storms. The exchange is indoors people. Come to think of it, the exchange really doesn't physically exist anymore here since its all electronic anyway. It's not like we have things outdoors.
There is a big debate going on about this, so please, post away with your views and opinions. Does weather affect the market? With my tone of the above you should be able to figure out the answer to that for me is a resounding "NO!"
Just google this topic and you'll get a lot of hits.
Leave comments, take a side, and have a great weekend.
We've never really debated this on the blog but nows the time.
I think its a bunch of bologna. Garbage. Balderdash, whatever you want to call it...weather directly affecting the markets? Give me a break...it's a little rain people!
It's not like we have to deal with hurricanes, blizzards, and freak nor'easters that the eastern seaboard of the U.S. deals with from time to time. In those cases, yes, that will affect the markets only because they are extremes. Hurricanes regularly intrude into the Gulf of Mexico, often shutting down oil rigs cutting energy production thus affecting oil prices, which, have a certain influence on the market.
But here in Singapore, its just rain...big freaking deal.
For instance, today at around 12, some storm clouds rolled in and the market dipped a bit. Hmm. I can recall a few times in the past when it was the same sort of situation; storm rolls in, market dips.
Why is it that this happens from time to time? We have blizzard's left and right in the U.S. where traders are wading through knee deep snow on Wall Street just to get to the floor of the NYSE and things seem to be fine?
For me, I think its a load of garbage that there is an adverse affect on the market (or there appears to be) when it storms. The exchange is indoors people. Come to think of it, the exchange really doesn't physically exist anymore here since its all electronic anyway. It's not like we have things outdoors.
There is a big debate going on about this, so please, post away with your views and opinions. Does weather affect the market? With my tone of the above you should be able to figure out the answer to that for me is a resounding "NO!"
Just google this topic and you'll get a lot of hits.
Leave comments, take a side, and have a great weekend.
Labels: Rain, Singapore Market, weather
Oestrogen In the Boardroom
I interviewed Banyan Tree's independent director, Mrs Elizabeth Sam recently for a story I did. While she may not be the head honcho of the group, it was thrilling to talk to a woman who have achieved so much over the years and still have time to sit down at the hairdresser's to get her hair coloured and done.
So I wonder if I'll be like her one day.
I'm sure many other girls think about it too.
But when you look through the list of board members in Singapore's listed companies, you can hardly find anybody like Mrs Elizabeth Sam.
No I don't think this is a case of sexism where gender is used as a prerequisite to get to the top of the corporate ladder.
I believe it's more a case of qualifications. See a lot of women drop off the corporate ladder to care for their families at the peak of their careers.
So women may not be as qualified as the rest ie. the men who go on to gain more experience as they work.
Obviously, there's no point putting someone in the boardroom just because she's a woman but not qualified enough to make meaningful opinions.
Or are they? The issue lies in the qualifications required to get into the boardroom. Mrs Sam has 40 over years of experience in the financial sector including being Chairman of SIMEX – what SGX was previously known as.
What if we changed the qualifications to the amount of time and effort spent on nurturing her household members? If she can care for her family, she jolly can do the same for a company
If we want more diversity of opinions in a boardroom, we want different experiences, not someone with the same set of skills with the only difference in skin or gender.
So I wonder if I'll be like her one day.
I'm sure many other girls think about it too.
But when you look through the list of board members in Singapore's listed companies, you can hardly find anybody like Mrs Elizabeth Sam.
No I don't think this is a case of sexism where gender is used as a prerequisite to get to the top of the corporate ladder.
I believe it's more a case of qualifications. See a lot of women drop off the corporate ladder to care for their families at the peak of their careers.
So women may not be as qualified as the rest ie. the men who go on to gain more experience as they work.
Obviously, there's no point putting someone in the boardroom just because she's a woman but not qualified enough to make meaningful opinions.
Or are they? The issue lies in the qualifications required to get into the boardroom. Mrs Sam has 40 over years of experience in the financial sector including being Chairman of SIMEX – what SGX was previously known as.
What if we changed the qualifications to the amount of time and effort spent on nurturing her household members? If she can care for her family, she jolly can do the same for a company
If we want more diversity of opinions in a boardroom, we want different experiences, not someone with the same set of skills with the only difference in skin or gender.
Labels: career, Elizabeth Sam, Oestrogen, sexism, SGX, women
The OTC Market: "Mission Impossible"
Congratulations are in order for PhillipCapital, which went through a great deal of effort to launch the Over-The-Counter (OTC) Market: a simple, cheap way for companies to raise money. When it was launched more than a year ago, it held great promise to cover the middle ground between venture capital and a full public listing on the Singapore Exchange. However, as PhillipCapital acknowledged in a newspaper report this morning, things haven't quite gone their way. Given that the Singapore Exchange is planning a second board to rival the Alternative Investment Market (AIM) in London (here is an excellent briefing on the SGX's plans, written by Wong Partnership), it would appear that Phillip's OTC Market is dead in the water. Only three companies have listed. Their share prices have barely budged. And one of the companies themselves is quoted as saying they may well have considered a Sesdaq listing, if the option had been available earlier. So, what can PhillipCapital do? And why should you care?
The OTC Market had – and still has – a lot going for it: it had no rivals in the intermediate funding area, with venture capital and bank loans at the lower end, and an SGX listing at the higher end. Further, it has the backing of one of Singapore's most popular retail stock brokerages. Given that you must sign a disclaimer during a lengthy registration process, the "quality" of shareholders is also significantly higher (there are unlikely to be as many 'come-for-the-food' AGM attendees with OTC-listed companies). And there is no shortage of companies which would like to have the experience and prestige of being publicly listed without the associated costs.
The problem is that the SGX's New Market (or whatever they end up calling it) will hit the OTC where it hurts, in four ways:
1. Cost. The cost of a New Market listing will be lower, and while perhaps not as low as the S$170,000 it costs to list a company on the OTC Market, other advantages of a New Market listing are likely to negate the difference.
2. Quality. Shareholders will be able to be sure of the quality of the companies because rigorously selected Sponsors will have to keep watch over the companies they bring to the New Market for at least three years. While Phillip probably does a good job in keeping watch over OTC-listed companies, it has the air of a private investment club, rather than a public market. Sunshine is the best disinfectant, but there's very little light shed on OTC-listed companies.
3. Disclosure. Due to the unregulated nature of the OTC Market it cannot advertise. Receiving an email from Phillip advising of a new company listing is so cloak-and-dagger, it's like being on the set of the 'Mission Impossible' film and receiving a top secret message that will "self-destruct in five seconds". Disclosures by companies about their operations are not made public. By contrast, corporate governance and transparency for SGX-listed companies has been steadily improving (although there's still room for improvement).
4. Liquidity. Resulting from the three foregoing points will be increased liquidity. That alone is already worth the extra cost and disclosures that a New Market listing will bring with it, compared to an OTC Market listing.
All this is not to say that the OTC Market cannot survive. But clearly, it needs to attain a much higher profile – both in terms of the market itself and the companies listed on it – to be able to compete with the SGX New Market.
Mark Laudi
Do you think the OTC Market can survive? Go to the Investor Central Blog to post your views.
The OTC Market had – and still has – a lot going for it: it had no rivals in the intermediate funding area, with venture capital and bank loans at the lower end, and an SGX listing at the higher end. Further, it has the backing of one of Singapore's most popular retail stock brokerages. Given that you must sign a disclaimer during a lengthy registration process, the "quality" of shareholders is also significantly higher (there are unlikely to be as many 'come-for-the-food' AGM attendees with OTC-listed companies). And there is no shortage of companies which would like to have the experience and prestige of being publicly listed without the associated costs.
The problem is that the SGX's New Market (or whatever they end up calling it) will hit the OTC where it hurts, in four ways:
1. Cost. The cost of a New Market listing will be lower, and while perhaps not as low as the S$170,000 it costs to list a company on the OTC Market, other advantages of a New Market listing are likely to negate the difference.
2. Quality. Shareholders will be able to be sure of the quality of the companies because rigorously selected Sponsors will have to keep watch over the companies they bring to the New Market for at least three years. While Phillip probably does a good job in keeping watch over OTC-listed companies, it has the air of a private investment club, rather than a public market. Sunshine is the best disinfectant, but there's very little light shed on OTC-listed companies.
3. Disclosure. Due to the unregulated nature of the OTC Market it cannot advertise. Receiving an email from Phillip advising of a new company listing is so cloak-and-dagger, it's like being on the set of the 'Mission Impossible' film and receiving a top secret message that will "self-destruct in five seconds". Disclosures by companies about their operations are not made public. By contrast, corporate governance and transparency for SGX-listed companies has been steadily improving (although there's still room for improvement).
4. Liquidity. Resulting from the three foregoing points will be increased liquidity. That alone is already worth the extra cost and disclosures that a New Market listing will bring with it, compared to an OTC Market listing.
All this is not to say that the OTC Market cannot survive. But clearly, it needs to attain a much higher profile – both in terms of the market itself and the companies listed on it – to be able to compete with the SGX New Market.
Mark Laudi
Do you think the OTC Market can survive? Go to the Investor Central Blog to post your views.
Straits Times Index Revamp: now even less relevant
The Straits Times Index will be relaunched next year with thirty stocks, but we think this will face lift will not hide its wrinkles, or lengthen its life span. Rather, it will hasten its demise. And that's a good thing. The Straits Times Index is at odds with the Singapore Exchange's tie-up with FTSE Group to develop new indices for our market which adhere to global standards (a move which is to be applauded). After all, an index is supposed to provide a benchmark. What's the point of having a benchmark which does not apply consistently across the globe? The sooner we let go of this relic, the better.
The new Straits Times Index reminds me a lot of the Dow Jones Industrial Average in the United States. It also consists of thirty stocks. But while it might be interesting to look at the so-called top stocks (we could debate the composition) it is of little use to investors. The S&P 500, which obviously takes many more stocks into account, is a far better barometer of the market.
Similarly, even when the Straits Times Index still had 48 or 50 stocks (in terms of the consistency, the STI was pretty useless to begin with) it represented only around 60% of the total market capitalisation of SGX-listed equities. We need an index that adheres to global standards, and is more inclusive of the market.
I would acknowledge a counter-example in the All Ordinaries Index in Australia. It has more shares than the S&P/ASX-200, but is no longer considered the benchmark. But again, the old index gave way to the new, in the same way I think the Straits Times Index's days are numbered. For many years until 2000 the All Ords was the benchmark everybody looked at, largely because there was nothing better around. When the Australian Stock Exchange sold its indexing business to Standard & Poor's, and the S&P/ASX index series was created, the All Ords was recognised for the dinosaur it was. Even though it was cut back to the top 500 stocks by market cap (and applying the other criteria which these large indexing companies apply, such as freefloat), the S&P/ASX-200 became the new benchmark. The extra 300 stocks the All Ordinaries Index covered made up such a small percentage of the market that the S&P/ASX-200 became considered as far more representative of the stocks that mattered. So, the index with fewer stocks became the benchmark of choice.
However, I don't think we will see the index with fewer stocks, that is, the Straits Times Index, to remain the benchmark in Singapore, in the same way that we don't consider the S&P/ASX-20 or the S&P/ASX-50 as the benchmark in Australia. Too few stocks, too unrepresentative in market cap terms of the entire market.
Therefore, I cannot see a logical reason to keep the Straits Times Index. In my view, the only reason why FTSE is persevering with the Straits Times Index is due to nostalgia, to provide a cross-over period until the new FTSE indices become more established, or because of SPH's continued involvement in the indexing business. None of them good enough reasons to keep it.
My prediction is the Straits Times Index will be relegated to a second mention on the evening news, just as the All Ordinaries now plays second fiddle to the S&P/ASX-200, and the Dow Jones Industrials Average is always only mentioned in conjunction with the S&P 500.
The new benchmark to watch is the FTSE ST All Share Index. With 98% of the market covered, it will be far more relevant to what's going on. And because "FTSE ST All Share Index" is such a mouthful, and continues with the free advertising for a newspaper, we're just going to call it the "Footsie-All Share Index" or the "All Share Index".
Mark Laudi
The new Straits Times Index reminds me a lot of the Dow Jones Industrial Average in the United States. It also consists of thirty stocks. But while it might be interesting to look at the so-called top stocks (we could debate the composition) it is of little use to investors. The S&P 500, which obviously takes many more stocks into account, is a far better barometer of the market.
Similarly, even when the Straits Times Index still had 48 or 50 stocks (in terms of the consistency, the STI was pretty useless to begin with) it represented only around 60% of the total market capitalisation of SGX-listed equities. We need an index that adheres to global standards, and is more inclusive of the market.
I would acknowledge a counter-example in the All Ordinaries Index in Australia. It has more shares than the S&P/ASX-200, but is no longer considered the benchmark. But again, the old index gave way to the new, in the same way I think the Straits Times Index's days are numbered. For many years until 2000 the All Ords was the benchmark everybody looked at, largely because there was nothing better around. When the Australian Stock Exchange sold its indexing business to Standard & Poor's, and the S&P/ASX index series was created, the All Ords was recognised for the dinosaur it was. Even though it was cut back to the top 500 stocks by market cap (and applying the other criteria which these large indexing companies apply, such as freefloat), the S&P/ASX-200 became the new benchmark. The extra 300 stocks the All Ordinaries Index covered made up such a small percentage of the market that the S&P/ASX-200 became considered as far more representative of the stocks that mattered. So, the index with fewer stocks became the benchmark of choice.
However, I don't think we will see the index with fewer stocks, that is, the Straits Times Index, to remain the benchmark in Singapore, in the same way that we don't consider the S&P/ASX-20 or the S&P/ASX-50 as the benchmark in Australia. Too few stocks, too unrepresentative in market cap terms of the entire market.
Therefore, I cannot see a logical reason to keep the Straits Times Index. In my view, the only reason why FTSE is persevering with the Straits Times Index is due to nostalgia, to provide a cross-over period until the new FTSE indices become more established, or because of SPH's continued involvement in the indexing business. None of them good enough reasons to keep it.
My prediction is the Straits Times Index will be relegated to a second mention on the evening news, just as the All Ordinaries now plays second fiddle to the S&P/ASX-200, and the Dow Jones Industrials Average is always only mentioned in conjunction with the S&P 500.
The new benchmark to watch is the FTSE ST All Share Index. With 98% of the market covered, it will be far more relevant to what's going on. And because "FTSE ST All Share Index" is such a mouthful, and continues with the free advertising for a newspaper, we're just going to call it the "Footsie-All Share Index" or the "All Share Index".
Mark Laudi
Labels: FTSE, market capitalisation, revamp, Singapore Exchange, Straits Times Index
F&N's Guessing Game Is No Good For The Company
No one wants to talk about the big elephant standing in the room. But we are. And we are not just going to talk about it, but we are going to put a name to it as well. The one question media organisations have been skirting around, but which must be answered, is why CEO Dr Han Cheng Fong left Fraser & Neave so suddenly. Amazingly, despite all that’s been written about his departure, no one has been game to say why. Least of all, F&N itself.
The media has correctly made the connection between the fact that the CEO of six years is leaving just before former SingTel CEO Lee Hsien Yang takes over from Michael Fam as Chairman on October 15. At best, this is sheer coincidence. There are plenty of people at F&N who've officially denied that CEO Dr Han Cheng Fong's surprise departure last Friday was due to the personalities involved.
But how come no one has dug deeper and asked, if not personalities, then what?
The company announced last Friday that "the cessation arises from differences of opinion with the Board which are unconnected with the financial position or performance of the Company or its subsidiaries". The reason the company announced this much is because the Singapore Exchange forced it to, under new regulations where companies can't just say "for personal reasons", or similar meaningless sweeping statements, which simply open the floor for wild speculation. Because, we all know no one ever leaves a job just "for personal reasons".
But it didn't say why he left. It just listed why he didn't leave. He didn't leave because of personality clashes. He didn't leave "because of the financial position of the Company or its subsidiaries".
Why did he leave, then?! Is this supposed to be some sort of guessing game? The point of the SGX's new regulations was for companies to become more transparent, not to keep investors guessing. F&N may have followed the letter of the law with its original disclosure. But did it follow its spirit? Afterall, by keeping the market guessing, you now have the rumour mill going strong.
For example, here are some theories floating around in the market for why Dr Han left. For the litigious among you, no, we have no evidence any of these are correct or incorrect.
1. He left because he's long had an acrimonious relationship with the board. I've heard this a couple of times, one person even quoting conversations overheard in a Silver Kris lounge. But why is this only blowing up now, after six years in the job? And so shortly before Lee Hsien Yang's arrival?
2. He left because he couldn't work with incoming chairman Lee Hsien Yang. Despite this being the obvious implication of all the speculation, I find this hard to believe. Afterall, Lee managed Singapore's largest company before taking on the appointment of Chairman at F&N. His management team motto at SingTel was, "we're a star team, not a team of stars". Doesn't sound like the sort of person who elbows other people out just because he doesn't like them, or because they have different views.
3. Dr Han left because Lee wants to be CEO of F&N, not just the Chairman. This is more interesting. Afterall, the Chairman is taking on the role of CEO until a replacement for Dr Han is found. When Michael Fam leaves October 15, that "Chairman & CEO" will be Lee Hsien Yang. Could it be that Lee wants an executive appointment, in addition to Chairman? He already stirred controversy by being paid a consultant's fee, in addition to becoming Chairman.
I am also disinclined to believe this theory. The Chairman & CEO's roles at SingTel were split. SingTel has won awards for strong corporate governance. I find it hard to believe Lee Hsien Yang will implement anything short of the same standards at F&N. Therefore, this theory will be disproved the moment a successor in the CEO's seat is found, separate to the Chairman.
Questions, questions, questions.
And all of these could have been avoided if F&N just laid out the facts. Instead, it is going to be the subject of more and more speculation. Is this the sort of start Lee Hsien Yang wants at the company?
Mark Laudi
The media has correctly made the connection between the fact that the CEO of six years is leaving just before former SingTel CEO Lee Hsien Yang takes over from Michael Fam as Chairman on October 15. At best, this is sheer coincidence. There are plenty of people at F&N who've officially denied that CEO Dr Han Cheng Fong's surprise departure last Friday was due to the personalities involved.
But how come no one has dug deeper and asked, if not personalities, then what?
The company announced last Friday that "the cessation arises from differences of opinion with the Board which are unconnected with the financial position or performance of the Company or its subsidiaries". The reason the company announced this much is because the Singapore Exchange forced it to, under new regulations where companies can't just say "for personal reasons", or similar meaningless sweeping statements, which simply open the floor for wild speculation. Because, we all know no one ever leaves a job just "for personal reasons".
But it didn't say why he left. It just listed why he didn't leave. He didn't leave because of personality clashes. He didn't leave "because of the financial position of the Company or its subsidiaries".
Why did he leave, then?! Is this supposed to be some sort of guessing game? The point of the SGX's new regulations was for companies to become more transparent, not to keep investors guessing. F&N may have followed the letter of the law with its original disclosure. But did it follow its spirit? Afterall, by keeping the market guessing, you now have the rumour mill going strong.
For example, here are some theories floating around in the market for why Dr Han left. For the litigious among you, no, we have no evidence any of these are correct or incorrect.
1. He left because he's long had an acrimonious relationship with the board. I've heard this a couple of times, one person even quoting conversations overheard in a Silver Kris lounge. But why is this only blowing up now, after six years in the job? And so shortly before Lee Hsien Yang's arrival?
2. He left because he couldn't work with incoming chairman Lee Hsien Yang. Despite this being the obvious implication of all the speculation, I find this hard to believe. Afterall, Lee managed Singapore's largest company before taking on the appointment of Chairman at F&N. His management team motto at SingTel was, "we're a star team, not a team of stars". Doesn't sound like the sort of person who elbows other people out just because he doesn't like them, or because they have different views.
3. Dr Han left because Lee wants to be CEO of F&N, not just the Chairman. This is more interesting. Afterall, the Chairman is taking on the role of CEO until a replacement for Dr Han is found. When Michael Fam leaves October 15, that "Chairman & CEO" will be Lee Hsien Yang. Could it be that Lee wants an executive appointment, in addition to Chairman? He already stirred controversy by being paid a consultant's fee, in addition to becoming Chairman.
I am also disinclined to believe this theory. The Chairman & CEO's roles at SingTel were split. SingTel has won awards for strong corporate governance. I find it hard to believe Lee Hsien Yang will implement anything short of the same standards at F&N. Therefore, this theory will be disproved the moment a successor in the CEO's seat is found, separate to the Chairman.
Questions, questions, questions.
And all of these could have been avoided if F&N just laid out the facts. Instead, it is going to be the subject of more and more speculation. Is this the sort of start Lee Hsien Yang wants at the company?
Mark Laudi
Labels: F N, Fraser Neave, Han Cheng Fong, Lee Hsien Yang, Michael Fam
2020, No more tourists?
“Global warming will hurt countries highly reliant on tourism: UN report” --Abstract from Today newspaper, October 3.
Singapore does not have any natural resources, period. The only thing that we have is human resources, and we have been banging hard on that, leveraging everything we can to ensure the Singapore economy stays afloat.
Some examples of how Singapore make-do with human resources, we have the 'world-class' education system, dealing extensively in the service or manufacturing industry and not forgetting the other important point, the tourism industry.
In an article in Today's paper dated October 3rd, it cautioned that over the years global warming may impact tourism in Singapore and around the world. But today's topic in focus is Singapore and how this piece of news is going to affect the tourism industry knowing that Singapore needs it.
What was stated in that paper was that the overall travel demand is expected to increase between 4% to 5% annually with overall international arrivals speeding up to 1.6 bln by the year 2010. It also added predictions of having 'fewer frosts' and more days facing more than 35 degree celsius, and that 'holidaymakers from Europe, Canada, the US and Japan, are more likely to spend holidays in or near their home countries to take advantage of longer summers'.
At this point of time where we're talking about F1 Grand Prix, integrated resorts, we don't really see the threat--- yet. Maybe in time we would.
My reasons:
First, Singapore is already near the equator and as Singaporeans may testify, that the heat here is hot and humid. With more global warming, not just tourists, even Singaporeans may decide to stay home 'because of the hot weather'.
Second, tourism-related industries like hotels, places of interest and attraction may not see much foreigners who would prefer to stay at cooler climates instead. Airlines would have lesser passenger flow.
On the hind-side, the clubs and pubs may flourish as it operates at night where the heat is not as intense. It is probably one of the motivators to get people out of their house.
Third, global warming in the long run might affect Singapore's port businesses. With much heat throughout the world, ice in the Antarctica will melt, increasing water-levels worldwide. When that happens, ships will no longer feel the need to pass through Singapore as the waters are deep enough to bring in their ships straight to their destinations in Asia.
The list could go on, but here are my thoughts on this issue. Let's take this discussion onto the next level and leave your comments.
Nurwidya Abdul
Singapore does not have any natural resources, period. The only thing that we have is human resources, and we have been banging hard on that, leveraging everything we can to ensure the Singapore economy stays afloat.
Some examples of how Singapore make-do with human resources, we have the 'world-class' education system, dealing extensively in the service or manufacturing industry and not forgetting the other important point, the tourism industry.
In an article in Today's paper dated October 3rd, it cautioned that over the years global warming may impact tourism in Singapore and around the world. But today's topic in focus is Singapore and how this piece of news is going to affect the tourism industry knowing that Singapore needs it.
What was stated in that paper was that the overall travel demand is expected to increase between 4% to 5% annually with overall international arrivals speeding up to 1.6 bln by the year 2010. It also added predictions of having 'fewer frosts' and more days facing more than 35 degree celsius, and that 'holidaymakers from Europe, Canada, the US and Japan, are more likely to spend holidays in or near their home countries to take advantage of longer summers'.
At this point of time where we're talking about F1 Grand Prix, integrated resorts, we don't really see the threat--- yet. Maybe in time we would.
My reasons:
First, Singapore is already near the equator and as Singaporeans may testify, that the heat here is hot and humid. With more global warming, not just tourists, even Singaporeans may decide to stay home 'because of the hot weather'.
Second, tourism-related industries like hotels, places of interest and attraction may not see much foreigners who would prefer to stay at cooler climates instead. Airlines would have lesser passenger flow.
On the hind-side, the clubs and pubs may flourish as it operates at night where the heat is not as intense. It is probably one of the motivators to get people out of their house.
Third, global warming in the long run might affect Singapore's port businesses. With much heat throughout the world, ice in the Antarctica will melt, increasing water-levels worldwide. When that happens, ships will no longer feel the need to pass through Singapore as the waters are deep enough to bring in their ships straight to their destinations in Asia.
The list could go on, but here are my thoughts on this issue. Let's take this discussion onto the next level and leave your comments.
Nurwidya Abdul
Labels: 2020, Antarctica, F1 Prix, Global warming, heat, tourism
Minimum bids announcement missed the point
The Singapore Exchange's revision to its minimum bid schedule will be welcomed by retail investors. At least, those who really understand what the point is of restricting bid sizes for stocks priced above certain levels. For example, stocks which are priced between S$5 and S$10 could previously only be traded in increments of S$0.05 (five cents, in everyday language). And stocks which traded above S$10 could previously only move up and down in increments of S$0.10. Now, stocks between S$1 and S$10 can be traded in 1 cent increments, and stocks above $10 in 2 cent increments (table below).
Big deal! Why we need to have these minimum bid sizes anyway, rather than let every stock be traded in 1 or half cent increments is beyond me. These things aren't an issue in other markets - why should they be an issue here?!
But what the revisions, announced September 19, really missed in my view was a revision of the minimum board lot nonsense. I am yet to come across a decent explanation why stocks can only be traded in lots of 1,000. This is possibly the biggest barrier to retail investors than anything else. For example, I just checked the price for DBS, and it last traded at S$22.50. In other words, the minimum investment in DBS is S$22,500. SingTel and SIA have gone around this issue by offering smaller board lots (example: SIA 200).
Arguments in favour of preset board lots usually centre around the inefficiency created when someone is trying to sell, say, 429 shares in OCBC, and there are two buyers of 185 and 344 shares respectively. I fully understand that this gets messy very quickly as to whose order gets filled, and what happens when half-filled orders need to get filled. But other markets around the world can cope with this. Why can't ours?
But let's assume we retain a minimum board lot system, so we retain a semblance of order. Why does the minimum board lot need to be 1,000? Everyone has a different view on what the minimum board lot size needs to be. Assuming a stock is priced at 65 cents, you need S$650 to buy one lot. This is too much for some, pittance for others.
I've heard some reasons why board lots are maintained at 1,000: because large cap companies don't want a large body of "riff-raff" of retail investors on their share registry. A high barrier-to-entry assures only people who can afford to throw S$22,500 at a time will "graduate" to their registry. But I didn't hear DBS complain about too many retail investors on its registry when its stockprice was just S$9 a few years ago.
Another reason I've heard: the SGX wants to promote trading of warrants, and by making it more affordable to trade warrants covering DBS they are providing an avenue to track its price without buying the underlying stock. Again, I find this hard to believe, given the risky nature of warrants compared to stocks.
Solution to all this: pick a low board lot size - say, 100 - so you retain the order board lots present, while making stocks more affordable to everyone. Sure enough, the 65 cent stock example above translates into an investment of just $65. Trading commissions already come up to at least S$25. But at least more people will be able to buy DBS for $2,250 or more, rather than $22,500.
What are your thoughts?
Go to http://investorcentral.blogspot.com and leave your comments.
Mark Laudi
Big deal! Why we need to have these minimum bid sizes anyway, rather than let every stock be traded in 1 or half cent increments is beyond me. These things aren't an issue in other markets - why should they be an issue here?!
But what the revisions, announced September 19, really missed in my view was a revision of the minimum board lot nonsense. I am yet to come across a decent explanation why stocks can only be traded in lots of 1,000. This is possibly the biggest barrier to retail investors than anything else. For example, I just checked the price for DBS, and it last traded at S$22.50. In other words, the minimum investment in DBS is S$22,500. SingTel and SIA have gone around this issue by offering smaller board lots (example: SIA 200).
Arguments in favour of preset board lots usually centre around the inefficiency created when someone is trying to sell, say, 429 shares in OCBC, and there are two buyers of 185 and 344 shares respectively. I fully understand that this gets messy very quickly as to whose order gets filled, and what happens when half-filled orders need to get filled. But other markets around the world can cope with this. Why can't ours?
But let's assume we retain a minimum board lot system, so we retain a semblance of order. Why does the minimum board lot need to be 1,000? Everyone has a different view on what the minimum board lot size needs to be. Assuming a stock is priced at 65 cents, you need S$650 to buy one lot. This is too much for some, pittance for others.
I've heard some reasons why board lots are maintained at 1,000: because large cap companies don't want a large body of "riff-raff" of retail investors on their share registry. A high barrier-to-entry assures only people who can afford to throw S$22,500 at a time will "graduate" to their registry. But I didn't hear DBS complain about too many retail investors on its registry when its stockprice was just S$9 a few years ago.
Another reason I've heard: the SGX wants to promote trading of warrants, and by making it more affordable to trade warrants covering DBS they are providing an avenue to track its price without buying the underlying stock. Again, I find this hard to believe, given the risky nature of warrants compared to stocks.
Solution to all this: pick a low board lot size - say, 100 - so you retain the order board lots present, while making stocks more affordable to everyone. Sure enough, the 65 cent stock example above translates into an investment of just $65. Trading commissions already come up to at least S$25. But at least more people will be able to buy DBS for $2,250 or more, rather than $22,500.
What are your thoughts?
Go to http://investorcentral.blogspot.com and leave your comments.
Mark Laudi
Coming down the home stretch of the trading year
It's been quite an interesting year, and as we near the home stretch we wanted to make this blog much more interactive. After all, who wants to hear my diatribes against the market detractors and being right when I said not to panic when the market was down (again)!
The final three months of trading are well underway, and the STI hit a new record today on the first day of the month. Surprised? Well, tell us if you are.
But let's summarize what the market has been up to so far this year:
-February: Major regulatory announcements and reforms were announced in China that sent a shockwave across the trading world. Shanghai Composite dropped more than 10% leading to a worldwide selloff. Singapore was down as well.
-April Flowers Bring May Showers! Things start to look a bit better, market for the most part recovers from the February selloff. In July, the Dow sets a new all time record high at 14,000, as well as a new high on the S&P. Singapore, goes back up.
-Subprime rears its ugly head: Subprime issues emerge in the United States and spread globally as well. Market pulls back in the U.S., and in Singapore.
-October: STI rebounds at a new all time high on the 1st. Wall Street recovers after Bernanke and company cut interest rates 50 basis points.
So that's the year in a nutshell. Tell us what you think will happen for the rest of the year and where you think the STI will be at on the last day of trading for 2007.
Curtis Bergh
ArchivesThe final three months of trading are well underway, and the STI hit a new record today on the first day of the month. Surprised? Well, tell us if you are.
But let's summarize what the market has been up to so far this year:
-February: Major regulatory announcements and reforms were announced in China that sent a shockwave across the trading world. Shanghai Composite dropped more than 10% leading to a worldwide selloff. Singapore was down as well.
-April Flowers Bring May Showers! Things start to look a bit better, market for the most part recovers from the February selloff. In July, the Dow sets a new all time record high at 14,000, as well as a new high on the S&P. Singapore, goes back up.
-Subprime rears its ugly head: Subprime issues emerge in the United States and spread globally as well. Market pulls back in the U.S., and in Singapore.
-October: STI rebounds at a new all time high on the 1st. Wall Street recovers after Bernanke and company cut interest rates 50 basis points.
So that's the year in a nutshell. Tell us what you think will happen for the rest of the year and where you think the STI will be at on the last day of trading for 2007.
Curtis Bergh
Labels: SGX, Singapore Market, STI, Straits Times Index
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