Investment Weekly - September 15th 2003 - Don't forget skew - 62
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Investment Weekly - August 19th 2002 -11
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Investment Weekly - September 30th 2002 - 17
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Investment Weekly - November 25th 2002 - 25
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Northern Trust economist
Investment Weekly - December 9th 2002 - 27
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Investment Weekly - February 10th 2003 - 33
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Investment Weekly - March 10th 2003 - 37
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Investment Weekly - March 31st 2003 - Narrowing of minds on risk - 40
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Investment Weekly - April 7th 2003 - Value/growth debate - 41
Investment Weekly - April 14th 2003 - HSBC/Hang Seng Bank yields - 42
Investment Weekly - April 22nd 2003 - SARS will be just another blip - 43
Investment Weekly - April 28th 2003 - Efficient frontier tactics - 44
Investment Weekly - May 5th 2003 - Theoretical market cap is cheap - 45
Investment Weekly - May 12th 2003 - Mortgage expenses exceed deposit income - 46
Investment Weekly - May 19th 2003 - The market needs some irrationality  - 47
Investment Weekly - May 26th 2003 - HK's credit rating is not right - 48
Investment Weekly - June 2nd 2003 - Stock supply has dried up - 49
Investment Weekly - June 9th 2003 - Risk/reward favours equities - 50
Investment Weekly - June 16th 2003 - Revealing Morningstar - 51
Investment Weekly - June 23th 2003 - HSBC calling - 52
Investment Weekly - June 30th 2003 - What is the best fit for the HS Index? - 53
Investment Weekly - July 7th 2003 - Where's the property market right now? - 54
Investment Weekly - July 14th 2003 - Portfolio update - 55
Investment Weekly - August 4th 2003 - See nothing, hear nothing - 56
Investment Weekly - August 11th 2003 - Equity yields cheap - 57
Investment Weekly - August 18th 2003 - China overheating/Sell H shares into rallies - 58
Investment Weekly - August 25th 2003 - Time to increase risk profile of portfolio - 59
Investment Weekly - September 1st 2003 - Will CEPA bring expected earnings? - 60
Investment Weekly - September 8th 2003 - Consecutive monthly gains history - 61
Investment Weekly - September 22nd 2003 - HSI's meaningfulness/GDP to value ratio - 63
Investment Weekly - September 29th 2003 - Balance of Payments assumptions - 64
Investment Weekly - October 6th 2003 - BoP suplus means more upside - 65
Investment Weekly - October 13th 2003 - The importance of property - 66
Investment Weekly - October 20th 2003 - Real M3 growth & Pigou - 67
Investment Weekly - October 27th 2003 - The issue of scale in equity markets - 68
Investment Weekly - November 3rd 2003 - The four stage bull market - 69
Econpapers
Stern NYU
Investment Weekly - November 10th 2003 - IPO absorption - 70
Investment Weekly - November 17th 2003 - Super low interest rates - 71
Investment Weekly - November 24th 2003 - Rugby World Cup winner correlation - 72
Investment Weekly - December 1st 2003 - Before & after interest rate rises - 73
Investment Weekly - December 8th 2003 - IPO track record  - 74
Investment Weekly - December 15th 2003- Third phase has arrived - 75
Investment Weekly - January 12th 2004 - Entering classic bull market top - 76
Investment Weekly - January 19th 2004 - Net sellers into liquidity rally - 77
Investment Weekly - February 2nd 2004 - HSI at 21x PER, what sort of a top is this? - 78
Investment Weekly - February 9th 2004 - IPO financing calculator - 79
Investment Weekly - February 16th 2004 - The real effects of inflation - 80
Investment Weekly - February 23rd 2004 - The power of dividends - 81
RePEc Ideas
Bankecon
Investment Weekly - March 1st 2004 - Hang Seng Dogs  - 82
Investment Weekly - March 8th 2004 - Lucky number stocks - 83
Investment Weekly - March 22nd 2004 - Conspiracy and Newton's theories - 84
Investment Weekly - March 29th 2004 - Sharpe ratio/Sell in May and go away? - 85
InvestorWords
Investment Weekly - April 5th 2004 - Moving averages crossed - 86
Fat Prophets
Investment Weekly - April 19th 2004 - What will 11,600 look like? - 87
About the author
and disclaimer
Investment Weekly - April 26th 2004 - Property and equities lag - 88
Investment Weekly - May 3rd 2004 - HSBC's influence on the downside - 89
Investment Weekly - May 10th 2004 - Weak equities won't hurt economy -  90
Investment Weekly - May 17th 2004 - Four asset yields confirm 10,900 on HSI - 91
Investment Weekly - May 24th 2004 - EPS drives HSI but not recently  - 92
Investment Weekly - May 31st 2004 - A double top at 14k  would match pre-rate rise performances - 93
Investment Weekly - June 7th 2004 - Dividend expectations altered in CPI cycles  - 94
Investment Weekly - June 14th 2004 - A combination of four models - top formed - 95
Investment Weekly - June 21st 2004 - Turnover velocity's double top  - 96
Investment Weekly - June 28th 2004 - Average traded price at low levels - 97
London Metal Exchange
Investment Weekly - July 5th 2004 - Profit/dividend attitudes 6 months on  -  98
PIMCO
Investment Weekly - July 12th 2004 - Soft PRC landing debate/rates, blurring future  -  99
Investment Weekly - July 19th 2004 - 3 bond value sectors/switch to utilities-  100
There are three classes of stocks in Hong Kong that should be valued by investors as bonds. They are: utilities, banks and investment property companies. The reason they are valued using the same techniques as bonds is because of their relatively high levels of recurrent income. Bonds display a similar characteristic. So, how do these three sectors perform in a rising bond yield scenario?
Neatideas
Investment Weekly - July 26th 2004 - Portfolio management checklist - 101
I have recently found a checklist from Morning Star's Guide To Mutual Funds. It refers to the buying and selling of mutual funds, but it can be applied to owning individual stocks or a portfolio of investments.
Investment Weekly - August 9th 2004 - Decision theory/risk & turnover combos - 102
Following on from the last newsletter's portfolio checklist discussion, this week's will be devoted to the science of buying and selling equities within the confines of what psychologists call, decision theory.
Investment Weekly - August 16th 2004 - The heat is on - 103
As I prepare to head off on my two-week summer break, I thought it would be worthwhile revisiting the Hang Seng Index monthly return and Hong Kong's average temperature chart, again. Partly for a slightly lighthearted look at how the index performs relative to the weather, but also because the lethargy of this summer's stock market performance has reached boiling point, and a trend decision has to be made soon. The temperature chart below suggests better things ahead.
Investment Weekly - September 6th 2004 - Bank on it  - 104
The new reality is that the index has pushed briefly through 13,000, the Government has revised up its GDP forecast to 7.5%, real HK$ interest rates are negative, local bond yields have collapsed to 4.06% and local banks are now expected to grow their profits by 19% this year. The inclusion of bank profits within this “list of things that have changed” is important because all the other factors feed into the bank profitability forecasts and therefore will drive the direction of local equity prices
Investment Weekly - September 13th 2004 - Cost of credit  - 105
The recent interim results season produced some major surprises, and some notable trends that could provide a support element to the local equity market.
Investment Weekly - September 20th 2004 - Not so miserable   - 106
Hong Kong’s CPI figure for August will be released later this week, giving investors another reason to be positive about local asset prices. Investors can add another month of data to calculate Hong Kong’s Misery Index (which is a combination of the inflation and unemployment rates). The adjusted Misery Index adds interest rates, and with the US Federal Reserve certain to raise its Fed Funds rate another 25bp this week and Hong Kong banks certain to follow, this will add further to the rise in the adjusted Misery Index so far this year. However, the Misery Index, which was devised in the early 1970 to measure the impact of that decade’s Oil Shocks, does not necessarily indicate economic gloom, particularly for Hong Kong’s consumption/asset-driven domestic economy.
Investment Weekly - September 27th 2004 - What's with AMI?   - 107
August's CPI was in line with our prediction last week of +0.8% YoY. This will be last time for a while that this newsletter will talk about the Misery Index , but we feel must inform you of our refinements of the Index, so as to provide an even more compelling outlook for local asset markets.
Investment Weekly - October 4th 2004 - BoP update, waiting for 14k   - 108
I have received several inquiries recently about why this newsletter has not included any buy recommendations in the past nine months (the last addition to the model portfolio was Cheung Kong on March 22). In the past nine months we have sold eight stocks and bought only the one. The reason for this aversion for Hong Kong equities is simple: none of the stocks in our universe (which is limited to the Hong Kong stock market) have been cheap enough to purchase, and the dividend/revenue stocks that we might consider buying are trading at yields below our recommended threshold of 3.91% - i.e. the average yield of the current portfolio.
Investment Weekly - October 11th 2004 - Property outlook, outdoes all - 109
Investors in Hong Kong are currently spoilt for choice. For instance: Midland Realty has recently announced that residential property prices are set to rise 50% in the next three years (16.7% annualized return), Lehman Brothers has just issued an equity linked note (ELN) which it claims has the potential to rise 40% in four years (annualized return of 10%). In between both of these claims is the fact that, in the past 13 years, the Hang Seng Index has produced an average annual return of 13%.
Navellier
Investment Weekly - October 18th 2004 - Collusion at the auction - 110
We brought up the topic of equity related conspiracy theories in March – immediately after the Madrid bombings. We are bringing the issue up again following another bombshell. If Hong Kong’s local property developers wanted to conspire to get a message across to the Government, they certainly did so at last week’s “disappointing” land auction.
Investment Weekly - October 25th 2004 - Don't short yourself - 111
The short selling of individual Hong Kong equities is generally restricted to institutional investors, due to the practicalities involved with borrowing the stock that is to be shorted. Trading patterns related to the amount of short selling can be a good indication as to how large investors view the future performance of individual stocks and the overall market.
Investment Weekly - November 1st 2004 - Q&A - 112
This week’s newsletter will take the form of a question and answer session.
Investment Weekly - November 8th 2004 - December year highs   - 113
It’s a subtle change, but lifting the trading range this week to 13,000 to 14,000 is significant because the top of the range would represent a new high for the year. However, there is statistical evidence to suggest that the index may not close this month at the year high level.
Investment Weekly - November 15th 2004 - Screen favorites for 14,000+   -  114
The decision by HSBC to cut interest rates last week is a clear indication that it believes the speculative positions in the Hong Kong dollar are here to stay for a while (certainly until the next FOMC meeting on December 14 and probably further out). HSBC should have a good picture of the amount of speculative positions currently built into the local dollar due to its role as the main clearing bank in Hong Kong. Its decision also suggests local equity prices still have some more upside and 14,000 on the index in November is looking less likely to be the year high (this ties in with our comments in last week’s newsletter).
Investment Weekly - November 22nd 2004 - Overall, aggregate positive - 115
The global debate about the revaluation of the Renminbi has reached fever pitch, but the outward symbols of the conversation have only really revealed themselves in three policy changes in China (two interest rate hikes and a loosening of overseas assets transfers), and an increase in the aggregate balance of Hong Kong’s banking system. The implications of the resurgence of local liquidity conditions for the local equity market are profound.
Decisionpoint
Investment Weekly - November 29th 2004 - Three week window   - 116
A weak outcome for the Hang Seng Index was strong resistance at 14,000. This was confirmed in the afternoon sessions of last Thursday and Friday. After the euphoria of closing at a 44 month high on Tuesday, the sucking sound of liquidity drainage began at just before 3.00 pm local time on both days. That is about the time of day when European trading desks send in their basket trades for the day. The sound of money leaving will likely continue, but there is a good chance that the final act will not be played out until mid-December.
Investment Weekly - December 6th 2004 - Intervene fear, equities out of breadth  - 117
There are two types of economic intervention – hard and soft. The Chinese are becoming past masters at it. Earlier this year, the Chinese authorities attempted to slow down its overheating economy with directives, but in the end, had to raise interest rates. Recently, there have been several soft interventions in Hong Kong’s financial markets. But, as investors are generally ignoring the warnings, hard interventions may be necessary, putting a heavy risk of a correction in local equity prices.
Investment Weekly - December 20th 2004 - 2005 forecast - valuation pressures - 118
This will be the last newsletter of the year, but rather than looking back on the year that has just passed, it will be dedicated solely to foretelling the future of Hong Kong equity prices. At this moment in time, the signs are not good, with the prospects that the average return for local equities in 2005 will range from 0 to +5%.v
Asia Charts
Investment Weekly - January 10th 2005 - Review of investment values  - 119
This newsletter was first published in March 2001. Although it is a little premature to start celebrating its third anniversary, our new readers may wish to understand how the newsletter is structured; what investment strategy it employs and how it has managed to survive through a 52% mid-point swing (or 5,857 points) of the Hang Seng Index, and in the process generated a 18.2% yearly return. For our regular readers the following may sound familiar, but it is particularly important at this time for all equity investors to be reminded of some simple, but useful, fundamental investment values.
Investment Weekly - January 17th 2005 - Return to fundamentals  - 120
Recent commentaries about the local stock market have been dominated by two themes or concepts (RMB revaluation and Macau). While trading ideas are useful for momentum investors, they tend to drown out the fundamentals of a particular market. This newsletter is definitely biased towards the latter style of investment philosophy. So it is important at this time to reiterate the fundamentals of the local equity market - particularly as the two concepts begin to wane in importance.
Investment Weekly - January 24th 2005 - Index pressured by rates outlook  - 121
It will have to take a little more time for Hong Kong equity investors to realize the current fundamentals of the local stock market. Last week’s gains were mostly technical in nature, and have not altered the short-term direction of the market. By our calculations, the crossing of the 20 and 100 day moving averages of the Hang Seng Index is due to occur in early February. This current inevitability will result in automatic program trade sells on a technically weak-looking Hang Seng Index chart.
Samuel Brittan
Investment Weekly - January 31st 2005 - Waiting for the cross - 122
It may just be an ironic co-incidence, but there is a good chance that the next crossing of the Hang Seng Index’s 100 and 20 day moving average will occur around the same time that the Federal Reserve decides to raise US interest rates again. Fed Funds Futures traders are in total agreement that interest rates will be lifted another 25 basis points this week. However, Hong Kong equity investors are still in a state of denial with regards to the impact the rate rise will have on local equity valuations.
Investment Weekly - February 7th 2005 - Small/large cap performance  - 123
It is appropriate for local stock market commentators to concentrate on the level of the Hang Seng Index. After all, the index accounts for 70% of the market value of the Hong Kong stock market. But, for value investors, which are likely to become more and more populous as this year progresses, the other 30% of the market can, and has, offered superior performance compared with its larger cousins.
Efficient Frontier
Investment Weekly - February 21st 2005 - Rates and the index  - 124
There should be only one thing on Hong Kong equity investors’ minds at this time: how long before local interbank rates normalize relative to US dollar interest rates. The chart below shows the extent to which local interest rates could rise before this happens but, as always, the timing is uncertain. Forecasts are hampered by the lack of any precedents. However, there are plenty of instances to show that local equity prices underperform other asset classes during periods of rising interest rates.
Investment Weekly - February 28th 2005 - Yield choices - 125
There are three distinct forces influencing equity investment decisions at this time: and none of them seem to be taking a leading role. This explains why the index has lost some volatility recently. In the first two months of this year, the index has averaged ~13,754, with a standard deviation of 231 points (1.6% of the average) . This compares with the index’s average of 12,918 for the whole of 2004, with a standard deviation of 749 points (5.8% of the average). Are any of these influences about to gain the upper hand? Thus producing a revival of volatility?
Deutsche Bank database
Investment Weekly - March 7th 2005 - Political risks  - 126
Hong Kong has had its fair share of political controversies (pre and post handover). When overseas institutional investors assess their regional asset allocations, political risk is a consideration that they do have to take into account.  Measuring political risk is subjective, but it is relatively safe to say that the political risk premium for Hong Kong equities had been falling in recent years. This trend may have reversed on Wednesday last week, following news reports of the pending resignation of Hong Kong’s Chief Executive, Tung Chee-wah.
Goldman Sachs
Investment Weekly - March 21st 2005 - Change in property/bank metrics  - 127
The 2004 results season is now in full swing, and, apart from the increase in dividend payments that we noted in our last newsletter, another noticeable factor from the results has been the share performance of companies that have demonstrated pricing power, compared to those that have reported a reduction in bargaining power with their customers.
Investment Weekly - April 4th 2005 - Cash is king/dividends divine - 128
To borrow Dickens: These are the best of times (for cash) and the worst of times (for equities/bonds). This newsletter focuses primarily on equities, but their relationship with various asset classes is the defining view for equities in general. The view on cash interest rates is clear: returns are rising and are set to rise further. The views on bond and equities yields are anchored in place by expected higher returns on cash. Buying a one-year bond now will require the investor to endure mark to market losses - until maturity. If the investor requires cash during the year, selling the bond could be a painful experience. Borrowing against the collateral could be an option (please contact your bank account officer for more details).  Buying equities is fraught with difficulties, and there is no guarantee of income or capital gain. The market’s mantra is loud and clear: cash is king (but equity dividends could be divine).
Morgan Stanley
Investment Weekly - April 11th 2005 -Hibor should double - 129
Local banks have been making the headlines for lots of reasons in the past two weeks. Their decisions on interest rates, on both sides of their balance sheets, have already had a direct effect on local equity prices with the Hang Seng Index (for wont of a better proxy for the market (see last week’s newsletter)) falling 4.8% in March. 
Investment Weekly - April 18th 2005 - Real interest rate impact - 130
Real interest rates are a powerful driver for asset prices. Anyone still living in a residential property in Hong Kong bought six months before October 1997 will still be suffering from the impact. In the 12 months before “Black October” real Hong Kong dollar interest rates were negative by nearly 2%. As real interest rates turned positive, the price that investors were willing to pay for future income expanded as the discount rate investors applied to those earnings declined. There was another short period of negative real interest rates in the summer of last year (as the chart below shows). However, it was so brief that it is likely that its impact will be much less than the 1995/97-period.
Investment Weekly - April 25th 2005 - Rising Inflation's bad for HK stocks - 131
Inflation has reared its ugly head and reduced visibility down to a month or so. US financial markets are resigned to the fact that the Fed will raise interest rates by another 25bp at its next meeting in May. Hong Kong banks may follow, particularly if the latest inflation figures in Hong Kong (+0.8% YoY in March) start to reflect the impact of the weak US$ and higher oil prices. Equity investors must take note of inflation and the impact that it can have on equity market performances
CSFB
Investment Weekly - May 3rd 2005 - China bank IPOs driving rates - 132
Financial markets visibility in Hong Kong is very low right now. Local interest rate markets are in turmoil, causing HK$ overnight interest rates to swing from 0.75% to 1.8% in a week. Here’s why: the Deputy Head of the Hong Kong Monetary Authority and a senior figure from HSBC were quoted as saying that they expect more capital inflows into Hong Kong, as speculators bet on the revaluation of the RMB. Hong Kong dollar currency traders were quoted in the same newspaper as saying they saw no signs of these speculative inflows. They cited the lack of an increase in the aggregate balance as proof. Also, as soon as the HK$ forward discount hit 900, there were takers everywhere. Traders covered short positions on Wednesday, lifting rates rapidly. So, what’s happening? It’s all to do with circular references (to coin a spreadsheet term).
Investment Weekly - May 9th 2005 - Sellers' liquidity - 133
As liquidity flows continue to disrupt our standard fundamental analysis of the value of Hong Kong equities, we have turned this week to the theme of asset liquidity, and its measurement. Our investment advice this week is to sell into strength.
Investment Weekly - May 17th 2005 - g turns negative - 134
We are tempted to discuss the RMB’s revaluation this week, but the amount of noise in the financial markets is so loud right now that our voice would be just one of many. Just for the record, we reiterate our view that the RMB will be revalued in the future, when conditions are right to do so. In the short term, with the recapitalization of China’s banks about to start next month, we would not expect any sort of announcement while this important process is proceeding.
Investment Weekly - May 23rd 2005 - Yield gap range - take your pick - 135
The sight of the Head of the Hong Kong Monetary Authority nervously looking at his laptop during the announcement of the new trading bands of the Hong Kong dollar’s exchange rate with the US$ was a little disconcerting. The usually impeccably prepared Joseph Yam appeared uneasy. Perhaps he was thinking back to previous calls to introduce a cap on the dollar when the floor was first introduced in September 1998.
Investment Weekly - May 30th 2005 - Where they attacked - sell EFNs - 136
A quite unusual event occurred on Tuesday last week. The yield on the two year HK$ Exchange Fund Note fell below three-month Hibor. The last time this happened was on 6th April 2001. The two-year note has only been in existence since 19th November 1991 (about 3,341 trading days ago). In that time its yield has fallen below the benchmark Hibor rate on 417 occasions or 12.5% of the time.
Investment Weekly - June 6th 2005 - A different PEG (ratio) - 137
There are many forms of risk. For equity investors there are four key risks: bankruptcy risk, liquidity risk, earnings risk and speculative risk. The first two can be safely navigated by simply looking carefully at the balance sheet of a company (although owners of Orient Power (0615.HK) and Moulin (0389.HK) would probably not have seen the trouble these companies are in by looking at their financials). There hasn’t been a major corporate bankruptcy in Hong Kong for many years, so sticking to large companies can greatly reduce the risk of bankruptcy. For retail investors, investing in large, liquid, stocks can also reduce liquidity risk. This leaves earnings and speculative risk.
Investment Weekly - June 13th 2005 - Either way, lower prices ahead  - 138
The debate about the impact of rising interest rates on local residential property market has intensified in recent weeks. The bulk of opinion seems to agree that there will be a slow-down in property market activity and a gentle decline in residential prices for the rest of the year due to rising interest rates. Prices and activity are then expected to revive in 2006.  However, some dissenting voices are calling for a severe decline (20-25%) in property values in 2006. On balance, the implications for local equity prices, using either scenario, are negative.
Investment Weekly - June 20th 2005 - Hutch is up to something  - 139
At gweilo weddings the bride is supposed to wear: something old, something new, something borrowed, something blue. This quirky tradition neatly symbolizes our view on the recent purchase of Sunday Communications (0866.HK) by PCCW (0008.HK) and Hutchison’s (0013.HK) recent decision to sell a 20% stake in Hong Kong International Terminals. The engagement has been announced and wedding bells will eventually follow.
Investment Weekly - June 27th 2005 - Change of rates/market view  - 140
For the first time in six months, we are raising the expected trading range of the Hang Seng Index. There are two reasons for the decision: first, it would appear that there has been a change in the market’s view regarding local interest rates and second: the new recent-high recorded last Tuesday - in very high volume changed the direction of the market.
Investment Weekly - July 4th 2005 - Rates to peak soon, market break out  - 141
At the time of writing, the Hang Seng Index has averaged 13,794 since the beginning of the year. This is close to our prediction, made on December 20, 2004, that the index would achieve a 0% to +5% movement compared with the average of the index in 2004 of 12,913. At the half way stage of the year, we are taking this opportunity to reassess our forecast for the next six months and we have raised our target for the Hang Seng Index for the next six months to 16,500.
Investment Weekly - August 1st 2005 - Is it very far?  - 142
I’ve just returned from a holiday in the UK.  I flew there on Cathay Pacific - Hong Kong’s flagship carrier. The cost of the tickets was the cheapest (on a relative basis) I had ever paid in 20 years of enduring the “London red-eye”. Cathay is currently running a TV advertisement in which a small child constantly asks her parents “is it very far?” (my little one found it amusing to mimic the ad). The child eventually stops asking when a stewardess gives her an ice cream.
Investment Weekly - August 8th 2005 - Random walking  - 143
Following on from my visit to the UK, the main business headlines while I was there was take over battle for Rover by two Chinese carmakers. The other subject of note was my father’s complaints about the slowdown in the UK economy and HSBC’s service in the UK. Despite my wife’s valiant efforts, UK retail sales fell in July for the fifth month in a row and the Bank of England cut interest rates last week to stem the weakness in the economy.
Investment Weekly - August 22nd 2005 - China upgrade potential  - 144
Having just returned from a brief trip to Shenzhen, it has become quite clear to the author why overseas investors get excited about the prospects for China, and why they will continue to invest in Hong Kong as a proxy for that potential.
Investment Weekly - August 29th 2005 - Back to school  - 145
This week is the last of the summer holidays for most of Hong Kong’s school children (and parents). For many children (and parents) the fear of the unknown is about to descend on them, as they are about to move on to a higher level of schooling (whether it be kindergarten, primary, secondary or tertiary). However, once these children have settled into their new learning environments, their concerns will dissipate, and some sort of normality will prevail. This process (of fear of the unknown and eventual settling into a new regime) has been mirrored in the performance of the local stock market in recent weeks and should prevail in the weeks ahead.
Investment Weekly - September 5th 2005 - Kicking up a storm  - 146
It may appear cynical to discuss natural weather phenomena after the destruction caused by Hurricane Katrina in the Southern states of the US, but there are several implications for local equity investors to consider.
Investment Weekly - September 12th 2005 - Disney fantasy  - 147
“Oh, East is East, and West is West, and never the twain should meet”, wrote Rudyard Kipling, possibly about Hong Kong’s Disneyland. The world’s fifth Disneyland was officially opened yesterday, to great fanfare and one or two complaints. Will this epitome of American entertainment flop again as it did in Tokyo and Paris, and should the local equity market get excited about the economic prospects of Disney?
Investment Weekly - September 19th 2005 - All in the curves  - 148
The summer hiatus is over (trips away, toddlers, typhoons and toons), so it is time to get a bit more serious about local equities. The subject matter of this week’s newsletter highlights relates to the key investment issue for local equity investors over the next six to 12 months – the shape of the interest rate yield curve. We also explain the strong correlation between the curve and local bank shares’ relative performance, and point out that for banks to outperform: the rest of the market will have to suffer.
Investment Weekly - September 26th 2005 - Gold, oil relations  - 149
For statisticians, today’s financial markets are offering some interesting divergences and therefore some potentially profitable mean reversions. Here is a list of some of the divergences on offer: gold and oil price, short and long-term HK$ interest rates, rising property prices and rising (worsening) affordability in Hong Kong, and different benchmark lending rates at local banks.  Why are these usually tight relationships breaking up at this time, and what will be the impact of a return to their norms for local equity prices?
Investment Weekly - October 3rd 2005 - Goldilocks to Humpty Dumpty  - 150
George Orwell, in his essay “Politics and the English Language” lists four simple rules that writers should follow if they wish to convey a message clearly. They are: What am I trying to say? What words will express it? What image or idiom will make it clearer? Is this image fresh enough to have an effect? Financial commentators have been (over)/using the nursery story of Goldilocks to describe the current state of the US economy (not too hot and not too cold). However, this image is starting to lose its appeal, and the antonym of the Goldilocks analogy is starting to emerge. This time it involves another nursery rhyme figure: “Humpty Dumpty”. This more fragile story involves the breaking of an egg-shaped person, who was sitting precariously on a wall, into tiny pieces, resulting in the impossibility of ever putting the egg back together again.
Investment Weekly - October 10th 2005 - No double top  - 151
The Hang Seng Index came with 16 points of making a new intra-day year-high in the afternoon session of last Tuesday, only to lose 4.3% or 670 points in the next two trading sessions (i.e. Thursday morning).  What happened, and should investors be worried? Is this the October syndrome again?
Investment Weekly - October 17th 2005 - Weighty issues  - 152
Last week’s newsletter contained two messages: the index is likely to fall (we lowered the index’s range): but there is no need to panic (this is not a double top). The index did fall (mostly during Wednesday afternoon), but, as usual, there were also some signs of panic. In particular, there was heavy selling of China Mobile stock. In fact, the selling was so intense that its 10% fall in the past two weeks accounted for 30% of the drop in the index. Therefore, in order to understand the underlying cause of the +700-point decline in the index so far this month, it is necessary for investors to delve into the world of telecom earnings and valuations to discover the root cause of the sell down of China Mobile.
Investment Weekly - October 24th 2005 - Anatomy of the market  - 153
The SARS outbreak is still very fresh in the memory. No one in Hong Kong would ever want a repeat of the incident. Which is why, when Donald Tsang stated quite categorically on September 29th that “bird flu will come to Hong Kong”, there was a sense of disbelief. Only, it would seem, in hindsight, the stock market reacted. This is understandable. It is very rare that a general population would immediately accept that a crisis is inevitable, but hard-nosed money managers see the world very differently. They measure risk on a daily basis. Interestingly, most local market commentators have rarely mentioned bird flu as a possible reason for the market’s recent correction. In the past week, it has started to appear at the end of the list of reasons why the market has fallen so much and so quickly. In the weeks ahead, it will move up the list, and will eventually become the sole and most important reason. Investors should take the threat of bird flu very seriously. The government is already briefing businesses and the population about what measures it would like to see taken, and what it is doing to prepare for an outbreak. Should investors panic at this prospect? Has the recent correction fully accounted for an outbreak? The answer to both questions is: No.
Institutional Investor
Investment Weekly - October 31st 2005 - Fearful winter  - 154
Today is Halloween, which is a day for superstitious, ritualized, role-playing. The day is significant for equity investors in that it is a time for facing up to one’s fears and, appropriately, it also marks the first day of winter (the peak hu man influenza season). As the English philosopher, Bertrand Russell once said: “Fear is the main source of superstition. To conquer fear is the beginning of wisdom”.
Investment Weekly - November 7th 2005 - Property is: prosperity  - 155
Investment Weekly - November 14th 2005 - Taylor and the HKMA  - 156
Financial markets are dominated by rules. One such rule is the Taylor Rule, devised by Stamford professor John Taylor in 1993. It states that real US$ short-term interest rates should be determined by three factors: 1) where actual US inflation is relative to the targeted level that the Federal Reserve wishes to achieve, 2) how far economic activity is above or below its "full employment" level (considered 5%), and 3) what the level of the short-term interest rate is that would be consistent with full employment.
Investment Weekly - November 21st 2005 - Asset activity at SARS levels  - 157
Hong Kong’s asset markets have ground to an almost standstill.  In the two main asset markets it feels a bit like the SARS period again, and there is good evidence to support this.
Investment Weekly - November 28th 2005 - AMI on track, 16k back on track  - 158
The contents of the minutes of the Federal Open Market Committee meeting of November 1 have changed the entire complex of Hong Kong’s equity market. The index has rallied through the gap in the chart and looks set to test the 16,000 level. Before October, this was the level that most commentators had predicted the index would close the year.
Investment Weekly - December 5th 2005 - Index levels after a rate cease  - 159
A permanent characteristic of a bull market peak is an expansion of the market’s PER. In other words, prices are rising faster than earnings growth. This is not happening for Hong Kong equities at this time. However, the PER contraction that has been prevalent for the past 18 months is showing signs of bottoming, and this trough in the PER may also coincide with a re-acceleration in earnings growth which, since August has been slowing.
Investment Weekly - December 12th 2005 - 2005 a year of two halves  - 160
This will be our last investment weekly of the year. A review of this year’s performance can be summed up in a saying often used in sports: it was a year of two halves. Play was flat in the first half and a lot more interesting in the second.
Investment Weekly - January 9th 2006 - 2006 a year of two halves  - 161
Sorry for the long break, but batteries need to be recharged on a regular basis. Our last newsletter pointed out that the index should be around 15,300 at the time of the publication of this newsletter. I am glad to say that the index did indeed increase while I was on leave, and that the quantum was about average for the performance of the market whenever I take time off. So, having successfully predicted the performance of the past three weeks, what are we predicting for the next 12 months? The following is a recording of a question and answer session with the author.
Investment Weekly - January 16th 2006 - What else, other than rates?  - 162
The batteries in this stock market have been fully charged and they have given the market a major boost of electricity. The index has risen 5% YTD in heavy turnover. The spark that started the fire was the minutes of the last FOMC meeting in December. But there had to be something else to produce such a major reaction, as the wording was vague enough to leave some doubt about the timing of the last interest rate hike of the current cycle. Here are some possibilities.
Philippa Huckle
Investment Weekly - January 23rd 2006 - Higher volatility: get used to it  - 163
Equity investors have not experienced the sort of volatility they experienced last week for a very long time. The message here is simple: get used to it. There is more to come. Without volatility, there can be no returns.
Investment Weekly - February 6th 2006 - No perfect pricing ahead of results  - 164
Bank of East Asia will kick off the reporting season in Hong Kong at the end of this week. The announcement will coincide with the finale of one of Wall Street’s most turbulent reporting seasons in recent memory. Will Hong Kong see similar swings in mood? The answer is probably not: because expectations are “perfectly priced”, but on the downside.
Investment Weekly - February 13th 2006 - The case for small caps  - 165
Here’s the bull case for small capitalization stocks. The investment thesis is quite simple. Mostly, simplicity represents clarity of thought. First a definition: Small means: stocks below the radar screens of most institutional investors; small means: speculative, with relatively low levels of liquidity, therefore small means: superior returns.
Investment Weekly - February 20th 2006 - Spin-off prospects  - 166
Bank of East Asia will kick off the reporting season in Hong Kong at the end of this week. The announcement will coincide with the finale of one of Wall Street’s most turbulent reporting seasons in recent memory. Will Hong Kong see similar swings in mood? The answer is probably not: because expectations are “perfectly priced”, but on the downside.
Investment Weekly - February 27th 2006 - Springs and curves  - 167
Short-term interest rates are normally lower than long-term yields because long-term investors expect a higher return for the risk that their investment will lose value if interest rates rise before it matures. That risk is typically perceived as greater the longer a bond is outstanding. However, this relationship has broken down in recent weeks, with US Treasury short-term rates lower than long-term rates. This inversion began in December and has become more permanent, and deeper, in recent weeks.  In Hong Kong, the inversion of the curve has been present for a significantly longer period of time, but the discussion about this has been non-existent. It’s time to rectify this.
Investment Weekly - March 6th 2006 - Small cap tips - 168
In our February 13 newsletter, we championed the future performance of small sized companies in Hong Kong, but left the subject somewhat in mid-air, because there was no mention of how to go about taking advantage of the call. We hope to rectify this by passing on some useful tips about how to navigate around the world of the mini-chip.
Investment Weekly - March 13th 2006 - Blink and the tipping point - 169
I have just finished reading Malcolm Gladwell’s latest book - Blink. His 300-page amalgamation of anecdotes challenges the reader to understand the power of thinking – without thinking - by pointing out that, in many instances decisions and actions are influenced by the sub-conscience rather than sound logic. In many cases, snap decisions are better than well thought-out ones. He uses terms such as “thin slicing, fists and giss” and attempts to explain what processes were used in my hurried decision to buy the book in the first place (the cover, the first paragraph or previous associations with the author’s name etc).
Investment Weekly - March 20th 2006 - Capital vs income - ex-div  - 170
Now that the 2005 results season is nearing its close, there is a pressing issue for investors regarding capital versus income. When a stock goes ex-dividend, the share price is adjusted lower by the quantum of the dividend per share declared. Shareholders are then entitled to receive the cash when the dividend is paid. But which would you prefer, a lower share price and the income: or would you prefer to sell before the price adjusts and skip the cash? What has been the effect of a stock going ex-dividend in the past? Does the share price adjust upwards again? Here are some answers, using a an example of a large sized company
Investment Weekly - March 27th 2006 - The beginning of the end  - 171
This week marks the end of the month, the end of the quarter and the end of the interest rate cycle (or near enough). Fund managers will be making predictions for the next quarter and making investment decisions regarding the weightings of stocks/sectors within their portfolios. Here are some predictions about how the week will pan out, and how the Hang Seng Index would have performed for the month and the quarter, and we will also provide some incite into how the critical second quarter of this year will look like.
Investment Weekly - April 10th 2006 - The mania begjns  - 172
The break above 16,000 last Monday was significant for several reasons: 1) the index broke above its medium term resistance level 2) it broke the back of the shorts and 3) it confirmed the start of the final stage of the third wave of the current bull market.  The final stage of a bull market is usually characterized by a kind of mania a sort of buzzword. At this moment, no one has actually named the mania that has just started to arrive. We would like to take this opportunity to give the mania a name: we are calling it “currency bubble”.
Investment Weekly - April 24th 2006 - The politics of the markets  - 173
Two weeks is a long time in politics and the stock market. Sometimes the two issues (politics and stocks: not weeks and time) are inextricably linked. Here’s our take on the three defining issues (economics, fund flows and interest rates) that lifted the Hang Seng Index 500 points in three trading sessions last week and how politics shaped these events.
Investment Weekly - May 1st 2006 - Give and take but 18k remains  - 174
The politicians gave and the politicians have taken away. After feeding the market with one hand (QDII etc), the Chinese authorities have taken away much of the positive impact by raising RMB lending rates by 0.27% last week and the politicians are talking about introducing other austerity measures. Unlike economic fundamentals, politicians are unscientific and quite unpredictable. Investors obviously dislike negative surprises and valuation premiums will need to be lifted to take into account this new risk factor.
Investment Weekly - May 8th 2006 - Reading between the lines, not overbought  - 175
Reading Hong Kong’s vast array of newspapers has always produced a constant source of amusement for the author and has recently provided strong evidentiary proof that there is still (at least) another 1,000 points in the Hang Seng Index in the short term.
Investment Weekly - May 15th 2006 - Placement impact  - 176
The surprise share placement via Citibank by Sun Hung Kai Properties last week has many commentators wondering what are the implications of the decision and the impact on sentiment towards Hong Kong equity prices and more importantly residential property prices. Here is our take on the placement.
Investment Weekly - May 22nd 2006 - The end is nigh  - 177
George Soros once summed up his investment philosophy as follows: “money is make by discounting the obvious and betting on the unexpected.” There are three obvious trends that have been discounted since Hong Kong equity prices bottomed in July 2004, and some unexpected events that have yet to occur that investors need to be aware of.
Hong Kong Warrants
Investment Weekly - May 29th 2006 - Left shoulder formed  - 178
One of the disadvantages of writing a bi-lingual investment newsletter for publication on Monday morning is that it needs to be written on Thursday (so it can be translated), which is one day before the most important day of the week: Friday. This not going to be a newsletter full of excuses for the amount of incorrect calls made over the years. I remember a BBC interview with the noted economist John K. Galbraith recently, where he gruffly explained that he “does not make predictions, because people only remember the ones that are wrong”. I hope no one remembers last week’s call (for a possible 2,000-point rally in the Hang Seng Index in 11 trading days to June 2) for too long! Perhaps the chart was upside down. We noted that Soros has made and lost billions.
Investment Weekly - June 5th 2006 - It's globalization  - 179
There are several contradictions currently circulating around the world’s financial markets (why are equity valuations not at peak levels and yet equity markets appear to be sending signals of an impending bear market; why are global economic growth predictions rising at this time; why are asset prices falling in tandem when a flight from one should benefit another). The answers to these questions can be explained when one considers the impact that globalization has had on financial markets.
Investment Weekly - June 12th 2006 - Fed to raise 50bp, "is it safe?"  - 180
The majority of phone calls I have received recently about the stock market have reminded me of the famous triptych, so expertly delivered, by Laurence Olivier when playing the evil dentist in the movie Marathon Man, “Is it safe? Is it safe? Is it safe?” My answer has been: no. Here’s why.
Investment Weekly - June 19th 2006 - Support lines broken, PRC support?   - 181
The Hang Seng Index held above 15,200 last week but several technical support levels were broken the most important of which was the long-term support line from the SARS low. Recapturing the upside will very much depend on whether China can find some way to support local equity prices as it did when it kick started the bull run with CEPA
Investment Weekly - June 26th 2006 - England's World Cup & the Index   - 182
It would appear at first glance that a discussion about the Hang Seng Index’s performance during previous football World Cups is not a serious enough discussion considering that US Federal Reserve is about to raise interest rates again this week. However, one foregone conclusion can follow others, and while you can get odds on a football team winning a top competition, there are no odds being offered that the Fed will get tough and become more competitive.
Investment Weekly - July 3rd 2006 - Three themes   - 183
There are three sub-plots to this week’s newsletter (a telecom bun fight, a market break out and two stock picks). Linking the three stories together was difficult, but there is a common pattern. The key to a leverage-buy out is the source of funding by the bidder. The target company/asset is only a secondary consideration. Without the support of banks (including the central kind), there can be no leverage. Hong Kong is not known for hostile bids. They have usually ended in failure (for various reasons). The latest one is heading the same way. The local stock market has been consumed with fear (which has overwhelmed the greed of April). It will continue to drift next to its larger comparable index (the Dow Jones) until central banks make their minds up about global liquidity. If central banks reign in money supply as expected, leverage deals will dwindle away, along with equity markets. Despite the gloomy prospects, there are special situations that will perform even while overall markets are weak (see our two stock picks).
Investment Weekly - July 10th 2006 - Holiday rebound   - 184
I will be taking my annual leave this week, so the newsletter will return on the last week of the month. Regular readers will remember that whenever the author of this newsletter goes on holiday, local equity markets rally. The rally is not because the biggest pessimist around has left town for a couple of weeks (generally I am quite positive about Hong Kong’s short term economic/social/strategic future). I suspect that there is a little bit of holiday mood feeling about July.
Investment Weekly - July 31st 2006 - Double top, cash up   - 185
Investment Weekly - August 7th 2006 - Cross-roads  - 186
Investment Weekly - August 14th 2006 - Liquidity the key  - 187
If this sounds like a broken record, there’s a very good reason: the message is very important. We have talked about the importance of 17,300 on the Hang Seng Index for the past fortnight. We are going to talk about it again, because now that the target has been reached, where the index heads from here will be crucial for Hong Kong equity investors for the next three months.
RBS (HK)
Investment Weekly - August 21st 2006 - Mea Culpa - 18k back in view  - 188
Investment Weekly - August 28th 2006 - Blindsided - turn towards PRC  - 189
No sooner had we signaled the “all-clear” for local equity prices than we were blind-sided by China’s decision to raise interest rates, causing a 3% correction in Hong Kong equity prices last week. Our take on the interest rate increase naturally concentrates on the equity market angle, rather than the economic implications of the move (which we deem to be positive). From an equity market perspective, the lifting of RMB deposit rates was of much greater consequence to Hong Kong equity prices than the lifting of lending rates because it threatens a major driver of potential upside: PRC liquidity.
Investment Weekly - September 4th 2006 - Implications of generosity  - 190
It is said that Hong Kong (and Asia’s) richest person holds such a dominant position in the economy that for every HK$100 spent, he collects HK$10. Mr. Li Ka-shing has turned 78 years old, and is looking to the future – to his legacy. It was not too surprising to hear that he plans to donate a third of his net worth to his charity – The Li Ka-shing Foundation. The odd thing about the announcement was the lack of comment about the financial impact of his decision. Overall, we view Mr, Li’s generosity as a long-term negative for his stable of companies (Cheung Kong/Hutchison etc).
Apollo Investment
The Daily Reckoning
AIMS Investment
Investment Weekly - September 11th 2006 - Flying above the clouds  - 191
Having majored in geography at school and having worked for a Japanese investment bank for six years, I have been aware for quite a while of the popularity of “cloud charts”. I thought it would be appropriate to show the Hang Seng Index’s cloud chart this week, bearing in mind the dark clouds hanging over the index last week. The chart is open to varying degrees of interpretation with 17,100 a crucial component. In my view the chart indicates 1) possible support for the index above the cloud top at 17,100 2) the correction last week could have been a turning point if the index moves into the cloud and 3) our “blue sky” call from two weeks ago is still in tact, providing the index remains above 17,100.
Investment Weekly - September 18th 2006 - HK$ liquidity is parked in futures  - 192
The Oxford English Dictionary’s defines the verb to speculate as “to engage in conjectural thought or writing: buy or sell commodities etc. in expectation of a rise or fall in market value: engage in risky financial transactions.” I suspect that most readers believe that to speculate means to “take risky bets”. However, by clarifying the definition with the adverb “relatively” to describe risk, then suddenly speculation is not such a bad thing: it all depends on one’s perspective
Investment Weekly - September 25th 2006 - EM bubble burst?  - 193
Investment Weekly - October 2nd 2006 - Records are made to be broken  - 194
It’s Mid-Autumn festival in China. For many Hongkongers, this is a time to return back home. I have to admit that I was gripped by a sense of foreboding at this thought last Tuesday as the number of Hang Seng Index September futures contracts traded, passed the 50,000 a day average, and broke the previous all time high set in April 2006. Word from the money markets was that there were major sellers of HK$ trying to push the TT up to HK$7.80/US$1 (futures sellers was the initial reaction). There was a genuine feeling that money was also returning home – and by the suitcase load.
Investment Weekly - October 9th 2006 - Records are made to be broken  pt 2 - 195
We could have titled last week’s newsletter: “Records are made to be broken”. This week may sound like a broken gramophone record, but equity markets are saying:”the song remains the same”. One record that we didn’t mention last week was that the Hang Seng Index broke its all-time-high month-end close, at 17,543. Will Hong Kong shares follow the Dow Industrial’s lead and close above its day-close record high? The answer is yes, and soon. Will there be an October crash to spoil the party? Not based on current information.
Overseas investors have increased their participation in Hong Kong stocks over the years. The last survey by the Stock Exchange reported that overseas investors conducted 44% of all trades for the year-end September 2005 (compared with the 10 year average of 38%). At the same time, the value of China companies as a percentage of total market capitalization has also increased. These parallel trends are illustrated in the chart below. When ICBC lists next week, PRC companies will account for more than half of the market’s total value. This raises the question: Are there cultural differences in the investment styles of overseas and local investors based on their choice of gambling vehicle (poker vs mahjong)? We suggest there are, and that locals should start thinking 21, while overseas investors should better understand the subtleties of the game of mahjong.
Investment Weekly - October 16th 2006 - Mahjong vs poker - 196
AA Stocks
Investment Weekly - October 23rd 2006 - Markets are like a doughnut - 197
There is no doubt in my mind that Krispy Kreme produces the best, commercially made doughnuts, of all time. The adulation of an all-time best is appropriate just as global equity markets are approaching or have broken their all-time highs recently. While eating a Krispy Kreme doughnut at one of their newly-opened outlets in Hong Kong I was reminded of two investment truisms both of which relate to a circle: the first is that equity investors can not take out of a market more than what companies themselves make in profits, and that secondly, investing in equities is another such zero-sum game. In other words: to paraphrase Forrest Gump: investing is like a box of assorted Krispy Kreme doughnuts: the end result should always be an empty box.
Investment Weekly - October 30th 2006 - The circus Big Top is comin' - 198
When I was very much younger, I used to love to go to the circus. I was always amazed by the sight of the Big Top and excited at seeing the high wire act and the trapeze artists – and, of course, I found the clowns to be extremely amusing. I imagine, by now, you may have already guessed what this week’s newsletter is all about.
Investment Weekly - November 6th 2006 - Philippa's curves - 199
I have a friend - let’s call her Philippa - who took the rather bold step of resigning from her job before she had secured another. She had no preconceptions about what she was going to do with herself, but she had the notion that she would spend more time looking after her young daughter and “taking it easy” for a while. She did try a couple of job interviews, but only half-heartedly. Suddenly, she met an ex-colleague at an interview and was offered a job on the spot - with a 15% pay rise. The new job would mean working closer to home and to her best friend, while picking up 10% more pay each month. I was never in any doubt that if she wanted to she could land a nice position somewhere, because, as I used to constantly tell her, the unemployment rate of Hong Kong’s blue-collar service industries is zero. Service companies are falling over themselves to hire new talent. This bodes well for employees, but the impact on equity prices will eventually be negative, particularly if the revival of the Phillips Curve debate continues.
Investment Weekly - November 13th 2006 - HSBC and HKMA battle it out  - 200
The sequence of events that transpired early last week had the all the hallmarks of monetary skullduggery - but should be seen in the context of a long running battle of wills that has deep implications for Hong Kong’s financial markets. For more on this three-part tale of mystery and intrigue, read on.
Investment Weekly - November 20th 2006 - Who's paying big prices?  - 201
It’s quiz time. Answer the following questions correctly and perhaps you may end up make better investment decisions in the future. The title of the quiz is: who’s paying big prices? Answers follow:
Investment Weekly - November 27th 2006 - Market value/GDP debate  - 202
There are many ways to value a stock market. Most investors will use price earnings ratios or price to book value or price to cashflow per share. Occasionally, an economist might mention the market capitalization to GDP ratio. This ratio is useful for an overall view of the market because, generally speaking, a stock market’s value represents the sum of the output of an economy (plus a premium for intangibles). In the case of Hong Kong, the market cap to GDP ratio has had significant predictive powers, because it telegraphed the 1997 and 2000 “big tops” - as the chart below illustrates.
Investment Weekly - December 4th 2006 - Galileo, Galileo  - 203
I have a Galileo thermometer in my bathroom at home. Galileo (the Italian astronomer) invented the thermometer in the 1600s - although Archimedes first discovered the buoyancy theory behind the instrument. This is the reason why the thermometer is in my bathroom, rather than in another room in the house. Hong Kong has just experienced its warmest November in 120 years, which meant that the weights inside the thermometer had stayed firmly at the bottom of their sealed glass cylinder – that is, until this morning (eureka!). The thermometer works on the theory that changes in temperature alter the density of the fluid inside the cylinder, allowing the various weights to rise and fall proportionately within the cylinder. That was a long introduction, but my point is that the pressure (risk) on equity prices is increasing, thus causing stock prices to rise (return) in proportion. One visible sign of the increase in risk was the 500-point dive in the Hang Seng Index last Tuesday. The pressure is coming from the debate about the expected cooling of global economic activity next year and the consequences of the slowdown on currency and equity valuations.
Investment Weekly - December 11th 2006 - 2007 equity forecast  - 204
With only 13 trading days left in the year, this week’s newsletter will be consist of our usual end of year review and outlook for the new year ahead.
Asia Sentinel
Investment Weekly - January 8th 2007 - Seven predictions for two thousand seven  - 205
Making predictions for the year ahead is a mug’s game. If you get them half right you are probably doing well. We shall test our skills this week, with seven predictions for two thousand and seven. If they sound impossible or difficult to imagine, consider that the China Enterprise Index has just risen 25% in three weeks, Bangkok fell 20% in a single day and that ICBC has a larger market capitalization than HSBC (remember that Tom Online was bigger than Swire during the 2000 tech bubble).
Investment Weekly - January 15th 2007 - Not warranted  - 206
We didn’t include one of our predictions for 2007 last week, because it requires a whole newsletter to explain and fits with our third prediction that the stock market will reach a Big Top this year. The prediction is simple enough: the ratio of put to call covered warrants listed in Hong Kong will rise from the current split of 1:3 - but the implications are far reaching. The rise in put warrants will meet demand for share price downside protection - as we predict that the market is set to reach a cyclical peak this year.
Investment Weekly - January 22nd 2007 - Outflow correlations  - 207
If liquidity is confidence, then there has been plenty of confidence in Hong Kong equities recently. Average daily turnover and volume figures (HK$56 billion and 45 billion respectively) since mid-December have far exceeded averages for the whole of 2006 of HK$33.7 billion and 38 billion. Yet, there is a sense that, in fact, the opposite is true, and that the liquidity has an element of fear and a certain lack of confidence about it. This worry has manifested itself recently in the weakness of the HK$, suggesting some sort of liquidity outflow from the stock market. From our vantage point, we have seen no signs of a major outflow of liquidity, with short term interest rates continuing to hover at relatively low levels. In any case, stock market liquidity and the HK$ are weakly correlated with the level of stock prices in Hong Kong.
Investment Weekly - January 29th 2007 - TP upgrades galore  - 208
I have to admit straight away that this week’s newsletter has an element of personal guilt attached to it. In my previous career, as a stock market analyst, I have been guilty of raising a target price of a particular stock, when the share price hits my target, simply because I understood that sometimes prices get out of sync with fundamentals. This happens most frequently at market tops, and is happening with increased frequency in recent weeks. The issue we wish to discuss is that the reason given by most analysts for a target price (TP) upgrade is usually an earnings estimate increase when in fact the main reason for the increase is due to that great investment intangible – PER expansion.
Investment Weekly - February 5th 2007 - Self-fullfilling prophecy  - 209
As the volatility of local equities has risen in recent weeks, investors are asking: where should I look for guidance regarding the market’s direction: New York or Shanghai? In the past, there was no doubt that the answer would have been Wall Street, but increasingly, equity investors believe they should pay more attention to the Shanghai-A share index. We disagree, and instead, we suggest you look to China Mobile.
Investment Weekly - February 12th 2007 - Unusual price movements  - 210
Since the beginning of the month 86 companies have issued notices on the web-site of the Hong Kong Stock Exchange regarding unusual share price and volume movements. That’s 11 announcements a day, or 2,150 annualized. As there are only 1,172 listed companies in Hong Kong, then either there are going to be a lot of repeat offenders, or each company has to make these statements about twice a year. Of course, as you would expect, the directors have, in each of the 86 notices, pledged that they do not know why their companies’ share price has moved so unusually. We note that China Mobile has not had to make such an announcement, despite our observations about its unusual share price movements recently.
Footnoted.org
Investment Weekly - February 26th 2007 - Char siu - 211
It never ceases to amaze me that after more than 20 years in Hong Kong, one is still able to discover new aspects of Chinese New Year traditions. This year’s confusion about whether the new lunar year is the year of the golden or fire pig (or boar) brings to mind the confusion still running through the local stock market recently (will the next 12 months be a year of golden fortune, or will everything burn down). Unfortunately, a auspicious first day gain, actually is a sign that the year of the fire pig may well be scorching hot, but will end in flames.
Investment Weekly - March 5th 2007 - Market risk - Who wants to stay public? - 212
It has been called “China’s latest export”. Commentators have been busy welcoming China’s equity markets to the global community after the 9% plunge last week sparked a chain reaction. We see this as a short term, market event situation, rather than an economic calamity. However, the net result in the long run will be more selling of “risky” equities and more emphasis on “safer” bonds and private equity funds by long-term institutional investors.
Investment Weekly - March 12th 2007 - Listen to teacher - 213
It has been a remarkable last couple of weeks. Equity investors have been acting like schoolchildren, sometimes cute: sometimes naughty. Sometimes listening to their elders: sometimes not. What is so interesting to learn is that investors that have been around financial markets a long time (like your author) find it baffling that stock markets continue to act irrationally and child like, even though, collectively, participants should know better. I blame myself, and others of my financial era (the teachers) for not forcing our experiences on to the newer participants (the children) of our global financial markets.
Investment Weekly - March 19th 2007 - HSBC parallels - 214
According to stock market analysts and the press, HSBC’s profit warning last month was its first ever. I can confirm that this is only technically true. In January 1991, HongkongBank announced to a stunned investment community in Hong Kong that it earned enough profits in 1990 to pay the same amount of dividend it paid in 1989.
Investment Weekly - March 26th 2007 - Symmetry everywhere, cash out - 215
I was recently given a one yuan coin by a taxi driver as part of the change for the HK$20 I had given him to pay for the journey home. He meant to give me a one HK$ coin, but because the two coins are identical in size and color, it is very difficult to tell them apart. I’m not going to harp on again about the value of the two coins, but it does seem odd to me that the two are being valued differently. They should move in value - symmetrically. You can find symmetry almost everywhere: in currencies, in buildings and in the path of equity markets.
Investment Weekly - April 2nd 2007 - Feels just like it should - 216
I should apologize to any readers who have not heard of the UK funk band Jamiroquai, but I’m about to use the lyrics from one of their songs to illustrate current market sentiment. “Feels just like it should” is one of the band’s more raunchy grooves, and its a little risqué too. But it hits all the right notes for this week’s newsletter.
Investment Weekly - April 16th 2007 - SarbOx to shrink Hong Kong IPO pipeline  - 217
There is a looming threat to Hong Kong’s financial status, and it will have long term negative ramifications. China’s starting to find its feet as a financial power house. Its stock market’s value recently surpassed Hong Kong (at about the same time that Europe proclaimed that its combined equity markets overtook the US, as the largest stock market in the world by market value). Both China and Europe are basking in the accolades, and are making serious threatening noises to established leading markets
Investment Weekly - April 23rd 2007 - It's a trap  - 218
Last Thursday’s +400 point decline in the Hang Seng Index can be interpreted in two ways: 1) it was another bear trap or 2) 5th March was real. At this time, we would have to say that the evidence points to the former, because the decline was driven by the same factors that sparked the sell off in early March (Shanghai market weakness caused by interest rate worries and a strong yen vs the US$ - on carry trade unraveling). Probably the only issue for traders to ponder is whether the increase in turnover in recent weeks confirms the head and shoulders or triple top formation on the chart.
Investment Weekly - April 30th 2007 - Loose credit lose  - 219
According to www.mortgageimplode.com 63 mortgage lenders have gone bust due to rising delinquency in the US sub-prime mortgage market, and more are expected. The Bank of England, amongst others, has warned that lax credit standards are the biggest threat to global financial stability. They cite the sub-prime meltdown as an example. In the meantime, the bulls are saying that China’s economy is overheating, but in a good way, because most of the heating has been fuelled by bank lending – which, as everyone knows, is based on a wink and a nod. How have these issues come to pass?
Investment Weekly - May 7th 2007 - PRC to raise CAR  - 220
China has raised interest rates and bank reserve requirements 10 times in the past 12 months. The logic behind the moves was an attempt to slow bank lending and cool asset markets. This strategy has clearly failed. So, what next? There have been several suggestions offered recently, but they all seem to be angled directly at the asset markets – which are the outward sign of the problem. The ideas include: a capital gains tax on stock market profits, increasing the supply of stock and increasing the QFII pool. But the root of the issue, in my opinion, is loose credit standards following the recapitalization of China’s banking system. In order to stem bank lending, regulators should impose stricter capital ratios on banks.
Fifth year anniversary edition
Investment Weekly - May 14th 2007 - Property view  - 221
Hong Kong residential property has been a major underperforming asset in recent years. Lee Shau Kee’s observation that equity investing is more profitable than selling properties holds true.
Investment Weekly - May 21st 2007 - Regrets, they'll have a few..... - 222
There has been more than enough said about the insignificance of the decision by China’s bank regulator to allow China’s banks to invest half of their Qualified Domestic Institutional Investor (QDII) quotas in Hong Kong equities (because Hong Kong is the only stock market they can invest in). The US$7.25 billion is equivalent to 13% of total net foreign assets held by Hong Kong banks at the end of March or 2.8% of China’s balance of payments. It’s a tiny percentage. It’s equal to one day’s trade on the stock exchange of Hong Kong. It would not move Hibor a jot, say traders. So why did 17 stocks  last Monday generate HK$41 billion in turnover, equal to 43% of a record daily turnover of HK$95 billion? Who bought, why and will they regret it?
Investment Weekly - May 28th 2007 - Irony of PRC's Blackstone buy in - 223
I have been humored by the headlines written recently about China’s US$3 billion investment in private equity fund manager, Blackstone. Deutsche called it a marriage of two bubbles, while others have noted the irony that China will receive “non-voting, common units” (just like its population). This irony has not been lost on global bond markets recently. China’s is the largest purchaser of global bonds. Diversifying these fund flows to alternative investments means that a major source of cheap global liquidity must get more expensive if China diversifies away from Treasuries and bunds. Rising costs of funds will, in turn, choke off the driving force behind the private equity binge. China has signaled its intention to break the virtuous circle we discussed in our March 5th newsletter.
Investment Weekly - June 4th 2007 - Different  view of the Peg - 224
Someone out there is not taking the investment theory of “buy on rumor: sell on fact” very seriously. Apart from the fact that the hike in China’s stamp duty “rumor” was expected to push share prices lower (the “rumor” usually pushes stocks higher), but no sooner as one group sold “on fact”, another “bought on rumor” again (it wasn’t short covering, because PRC investors can’t short). To be honest, I don’t think anyone is thinking clearly about China’s stock markets right now. But that is one story. The more important issue for Hong Kong investors is the sudden rise in HK$ interest rates in recent days. That is a story with plenty of rumor and fact, and provides lots of opportunities for traders.
Investment Weekly - June 11th 2007 - Shorting won't do it - 225
One of the problems with Chinese stock market is the inability of traders to hedge their long positions. This will begin to be resolved when China introduces a futures contract in August. The next step after that would be to introduce short selling. But the Chinese may want to consider the following case before drafting the rules on short selling individual stocks, to ensure that the playing field is as level as possible and that it does not necessarily follow that having the ability to short a stock or a market reduces volatility risk. The following example fits the current outlook for PRC shares (heading lower, with positive one-off announcements designed to ease the decline in prices) and the impact of hedging on volatility.
Investment Weekly - June 18th 2007 - Smith's leaving disruptive - 226
The resignation of Michael Smith as CEO and chairman respectively of HongkongBank and Hang Seng Bank has shocked the tightly-knit banking community of Hong Kong for several reasons. His decision to leave for ANZ has important negative implications for the share prices of Hong Kong’s two largest banks.
Investment Weekly - June 25th 2007 - Double arbitrage - 227
One of the problems with Chinese stock market is the inability of traders to hedge their long positions. This will begin to be resolved when China introduces a futures contract in August. The next step after that would be to introduce short selling. But the Chinese may want to consider the following case before drafting the rules on short selling individual stocks, to ensure that the playing field is as level as possible and that it does not necessarily follow that having the ability to short a stock or a market reduces volatility risk. The following example fits the current outlook for PRC shares (heading lower, with positive one-off announcements designed to ease the decline in prices) and the impact of hedging on volatility.
Investment Weekly - July 2nd 2007 - China's right moves - 228
The diagram below is a simplified picture of the current state of the Chinese economy. It also illustrates what the Chinese authorities need to do in order to right the imbalances in the economy, before they topple over under their own weight. This week is the 10th anniversary of Hong Kong’s change in sovereignty and is also the 10th anniversary of the devaluation of the Thai baht - the event that triggered the Asian Financial Crisis. Lessons from the Crisis have been learnt, and, as a result, an asset price collapse in China should be avoided. This in turn should extend the current run of record share prices in Hong Kong (at least for China shares).
Freakonomics
Stumbling and Mumbling
Investment Weekly - July 9th 2007 - Two drivers for the summer - 229
There are currently two opposing trends for Hong Kong-listed equities: PRC shares are moving higher and the rest are floundering.  There are also two views regarding the risk outlook for bonds and equities: more risk for bonds: less for equities. These two forces are likely to drive the prices of individual equities for the rest of the summer.
Investment Weekly - July 16th 2007 - Liquid measurements - 230
Hong Kong’s sarcastic bunch of equity traders has renamed the abbreviation for Qualified Domestic Institutional Investor (QDII) to Quite Dramatic Illegal Inflows. They have every right to be cynical, and ask: how long is this piece of string?
Special Newsletter -  The Rise and Fall of Venice - a Lesson for Hong Kong?
The similarities between the medieval city of Venice and modern-day Hong Kong extend beyond their position as major transit points of East and West trade. The resemblances also extend to political, industrial and socio-economic comparables. This paper will outline the performance of the economy of Medieval Venice between the periods 1413 to 1630 , with particular attention to the decline of Venice as a major trading and financial center due to changes in global trade routes. This study may provide a useful indicator for the future of Hong Kong as its economy adapts to the potential loss of business caused by the future development of China’s economy.
Investment Weekly - July 23rd 2007 - Optimist/pessimist and only a C-  - 231
It is past half term and exams have just finished. So I thought I’d revisit my seven predictions for 2007, and mark out the progress. Overall, I’m not doing very well at the moment. But, ever the optimist, there is still hope that some of the predictions will come true before the end of the year. As the saying goes: “It’s better to be an optimist who is sometimes wrong: than a pessimist who is always right”. Here’s the update (with a running total):
Investment Weekly - July 30th 2007 - Politics of investing with Chinese chararcteristics-  - 232
I love writing and imagining the political intrigues that swirl around this town. Here are four recent stories which were reported in the local press and how, as an independent commentator, I am able to interpret them without fear or favour.
Investment Weekly - August 20th 2007 - Big top is close at hand - 233
I‘ve been on holiday in Phuket for the last two weeks, so I have been very attached from the turmoil of the markets during that time. Just as well, because plenty has been written and said about what is currently happening to financial markets, but because the commentators have been in the middle of the maelstrom they have tended to react based on sentiment rather than seeing things from under the clear blue skies of a warm sunny beach. Here’s my take on recent events.
Hussman
Investment Weekly - August 27th 2007 - Mutual and personal - 234
For non-Hong Kong residents, the above, insightful, lyrics by cyber-band Gorillaz’s Damon Alban require some explanation. The plea to the Lord, at the beginning, is to both the Lord above and anyone else in authority. He is begging for attention because he believes he is witnessing the decline of Hong Kong. The junk boats and English boys no longer exist. Alban is referring to Colonial Hong Kong and its (still) famed reputation for shopping. The electric fences are still at the border with China (but are slowly being dismantled – along with Star Ferry and Queen’s Pier etc). Hong Kong is being swallowed up, but it is bite-sized morsel compared to China. As we are constantly being told (re-educated), China (which can be seen from the top of Lion Rock Hill) is big and getting bigger - fast. She will therefore be able to save us from anything terrible that might crop up (SARS, stock market volatility etc). The radio station refers to battle for control of the last bastion of “free speech” colonial civil service – Radio Television HK. Alban assumes it will disappear and along with it Hong Kong’s importance. Hong Kong is superficially beautiful most of time (in a concrete and glass sort of way), but it has nothing at its core, (it’s just a vacuum with a wealthy benefactor).
Investment Weekly - September 3rd 2007 - Positives and negatives balanced - 235
At times of extreme pressure, I find it a good idea to make lists. This provides the writer with an opportunity to step back and look at both sides of an argument. Here’s my current list for the Hong Kong equity market.
Investment Weekly - September 10th 2007 - PRC capacity means no decoupling, rate cut - 236
A distinguished Bank of England Governor, Montagu Norman, once told an economist: "your job is not to tell us what to do, but to explain to us why we've done what we have." I think someone ought to pass this message on to the raft of economists currently trying to predict two major economic events: 1) will the Fed lower interest rates, and 2) will the slowdown in the US economy affect the rest of the world. At the moment, the consensus seems to suggest a Fed Funds rate cut (odds were increased by the jobs number last Friday) and the US economy is decoupled from the rest of the world. Both are wrong, in my opinion.
Investment Weekly - September 17th 2007 - Activists activate activity - 237
Recent studies have shown that shareholder activism is not a good thing for share prices, unless there is a bid involved. Two recent developments have shown this to be true – for now.
Investment Weekly - September 24th 2007 - Battle of the titans - 238
There are good reasons why anyone who wishes to provide investment advice in Hong Kong must register with the Securities and Futures Commission (SFC). The advisor is bound by the rules and regulations of the SFC. In particular, registered advisors are required to disclose any investments that they may have, and are not allowed to front run their investment advice.
The Economist blog
Investment Weekly - October 1st 2007 - If it's expensive - buy it - 239
There is only one word to describe the recent performance of the Hang Seng Index: obscene (in a familiar sort of way). The Index has just achieved its biggest quarterly increase (+25%) since the fourth quarter of 1999 (when the index surged 33%). Interestingly, the index closed the 4Q 1999 with a 63% year-on-year increase. The index is currently 55% higher compared with a year ago.
Investment Weekly - October 8th 2007 - It's a 60:40 scenario - 240
The risk/reward equation for the Hang Seng Index has turned quickly to a 6 to 4 proposition. For poker players, this is a clear signal to hold bets (see newsletter from October 16th, 2006 - Mahjong vs poker, for more on the subject).
Investment Weekly - October 15th 2007 - No idea - 241
I’ve been reading the Birth of Plenty by William Bernstein, and attempting to match his hypotheses with Hong Kong and China’s economic and social development. The crux of the book can be found in the following sentence in the first chapter: “New technology is the powerhouse of per capita economic growth; without it, increases in productivity and consumption do not occur.”Bernstein follows up with the four elements necessary for innovation to prosper: the rule of law, capital, ideas and efficient communications. I wonder if Hong Kong’s chief executive has read the book. I suspect he may have, but he seems to have missed one of the legs of the table. As Bernstein points out, not having one of the four will result in disaster for the economy in question.
Investment Weekly - October 29th 2007 - Global war of words - 242
I’ve picked a World War theme this week with two warnings from Churchill and the German Hindenburg. An apt (adjusted) quote from Winston Churchill: A stock market commentator “needs the ability to foretell what is going to happen tomorrow, next week, next month, and next year; and to have the ability afterwards to explain why it didn’t happen”. With this thought in mind, I would like to foretell the following: 1) the Fed will not cut interest rates this week 2) the market will focus on 3Q results of the World’s Local Bank – HSBC – due out next Monday. The market is braced for a terrible set of results: which should put a rocket up its share price after they are announced and 3) the average price of stocks traded in Hong Kong should rise in line with the general increase in stock prices. Actually, I’ve cheated a bit, because I already know that point three is wrong. However, I can explain why the prediction is wrong and why this indicator is a negative omen for Hong Kong equities.
Investment Weekly - November 5th 2007 - Voting with feet - 243
This is the second time this year that I am cashing out of the Investment Weekly Model Portfolio. The first time was in March (March 26th 2007 - Symmetry everywhere – cash out). At that time I was proven wrong, and it is possible I could be wrong again. But I don’t care. If there is a golden rule of investing, it is this: it is so easy to buy: but so much more difficult to sell. We are taking some chips off the table, as a cushion against a possible correction.
Investment Weekly - November 12th 2007 - More cuts to come, back to 2003-04 - 244
There was always a strong chance that Hong Kong banks would lower their lending and deposit interest rates last week, and the chances of even more cuts are high. Overnight interest rates are currently below 1%, and local banks, which are net lenders on the interbank market, are losing money under this scenario.
Dealbreaker
Investment Weekly - November 19th 2007 - It's in the threes - 245
There are threes to be found, everywhere. The 13% correction from the all-time high came to a sharp halt mid-day last Monday. The brakes were applied just as the index was resting on three major support lines. Sometimes technical analysis works, and sometimes it doesn’t. Last week, the charts worked just fine. Can the chart predict the next move? Not necessarily. But the charts are showing three scenarios to watch for. 1) Will the index break below its supports - as it did in August? Or 2) will it bounce to the height of the left hand shoulder and form a head and shoulders pattern? Or 3) maybe even breakout and achieve more new highs? The index is at its third turning point of the year (hence the 3x increase in volatility).
San Fran Fed eco papers
Investment Weekly - November 26th 2007 - Applying Pascal's Wager - 246
Should investors in Hong Kong shares apply Pascal’s Wager right now? The French philosopher’s argument stated that the consequences of not believing in God are more severe than the consequences of believing.  If you're wrong, you lose nothing; if you're right you win everything. A matrix for the gambit is illustrated as follows (modified for the stock market, of course).
Investment Weekly - December 3rd 2007 - Incorrection over, leading from the front - 247
The Hang Seng Index fell to an intraday low of 25,861 on November 22. This was a 19% decline from the intraday all time high of November 1. Classic corrections are usually 10%. Was the 19% fall an incorrection? Has the incorrection been corrected now that the index is trading 10% below the high? Is this a correct assumption? What next?
FTAlphaville
Investment Weekly - December 10th 2007 - Only 2.5 out of 7 - 248
This year has flown by, with excitement galore and a stellar performance by local stocks. As I promised last week, I shall humble myself and admit how many predictions (see January 8 newsletter – Seven for 2007) I got wrong this year. Drum roll for the result: two and a half out of seven (in other words pretty pathetic).
Investment Weekly - January 14th 2008 - Eight for 2008 - 249
The current slowdown in global economic growth is being dubbed “The North Atlantic Financial Crisis” (NorAt FC). This moniker is a deviation of the Asia-Pacific Financial Crisis (AsP FC) of 10 years ago. However, while the outcome should be the same, there are several distinct differences between the two events. It is these differences which will define the performance of Hong Kong equities this year, and are the basis for my eight predictions for 2008.
Investment Weekly - January 21st 2008 - Welcome to the bear market - 250
Welcome to the 250th edition of this newsletter: and to the bear market. It’s confirmed. It’s official. The break below 26,000 last Tuesday was the death knell for the four and half year, 276%, bull market. The final nail in the coffin were delivered by two pieces of news out of China last week that many Panglossian strategists have apparently missed - because they were too busy looking at the prairies and missed the banyan trees. First, ever-tardy Moody’s downgraded the debt rating of China property play, Shimao (because they have bought too much land!!), and second, property prices in China in December stalled compared with November (thus scotching any thoughts that there will be some sort of de-coupling between China/Hong Kong and the North Atlantic Financial Crisis). Beijing’s clampdown on credit growth and prices (supposedly ahead of Chinese New Year) has scared the hell out of free-market capitalist investors who had been convinced that Beijing is playing by the same economic rules as everyone else. The optimists are going to slowly realize that Hong Kong equities are about to be squeezed in a vice where economic growth in both the US and China are simultaneously slowing. As that happens, Hong Kong equity prices will have to get very ugly.
Investment Weekly - January 28th 2008 - Anatomy of the bear - 251
The anatomy of a Hong Kong equity bear market is not as bad as some might believe - providing that there are no extensions. For patient investors, the wait will be over as fast as you can say: “optimistic bear or pessimistic bull” - six times. 
Investment Weekly - February 4th 2008 - TP downgrades everywhere - 252
As an ex-analyst, now fund manager (proprietary), I have always treated analysts’ views on stock prices of the companies’ that they cover with a big dose of skepticism. My view is that if an analyst has an inkling of an idea about what the price of an individual stock should be doing, he/she should not be number crunching, but should be sitting in my seat.
Investment Weekly - February 18th 2008 - Traders have their days - 253
I find it hard to believe that the remaining bulls out there are serious. It’s pretty hard to avoid the facts but here they are: the US and global economy is currently slowing down (there’s no decoupling here) and central banks are aggressively cutting interest rates to reduce the interest burden of corporates and consumers, the US Government is adding to its budget deficit by giving cash away (big mistake), financial institutions have seen their capital seriously depleted following the write-down in value of performing assets, reduced capital hampers banks’ ability to lend, core corporate earnings are slowing (thus raising the likelihood of higher non-performing loans for banks). In the meantime, equity valuations are not expensive, but they are not cheap either, not yet anyway. 
Investment Weekly - February 25th 2008 - Distractions - 254
Financial market commentators/analysts are required to generate income for their employees these days by coming up with unique perspectives on the issues of the day. They are no longer independent thinking, loss leaders, because they have become  heavily influenced by the people who pay their wages or assess their performances. This is a step backwards, in my opinion. Unfortunately, commentators have had a chance to display this tendency recently, as the news flow has been coming from corporate board rooms, providing them with plenty of distracting cover
Investment Weekly - March 3rd 2008 - HSBC's turn confirms bear market - 255
For close followers of HSBC, it should come as no surprise that the stock has started outperforming the Hang Seng Index. The chart below illustrates the contrarian nature of the beast of Hong Kong.
Investment Weekly - March 10th 2008 - Cash and dividends premium - 256
The Hong Kong equity market has entered the storm before the hurricane. The divergence in performance last week of HSBC, Hang Seng Bank and Wing Lung Bank was startling signal of how fickle investors will treat new climatic information. The build up to HSBC’s 2007 results were as grim and foreboding as an approaching typhoon. The view for Hang Seng was as bright as the recent weather here. So how is it that HSBC continued its outperformance after announcing record provisions: while the view and share price of Hang Seng turned particularly bleak? How come investors were so damming of Wing Lung’s extra provisions and dividend payout cut that they wiped HK$1.2 billion off its value in two short sessions? The key to all these answers is cash and dividends.
Investment Weekly - March 17th 2008 - Change the rules of the rollercoaster - 257
Anyone who has ever ridden a traditional rollercoaster will understand how equity investors are feeling right now. I’m not referring to the ups and downs, but by the fact that on a rollercoaster, the rider, generally, only feels fearful on the way down. Even after the bottom has been reached, there are still gravitational forces working, causing some discomfort before the carriage makes its way back up to the next peak.
Investment Weekly - March 31st 2008 - Less need to be "gup" - 258
Cantonese is an amazingly expressive language. The tone/sound of each character actually describes the word. For instance, “teem” means sweet, while “shoon” means sour. They sound like they are. Unfortunately, recent generations of Hongkongers have become linguistically-lazy and have often adopted English words and translated them literally, so taxi is “duk si”. In a reversal of this trend, I would suggest that the Guppy Multiple Moving Average chart below is derived from the Cantonese for anxious or “gup”. It aptly describes current investment sentiment. Guppy is, in fact, the name of the analyst that popularized the chart (which comprises of a series of short and long term exponential moving averages). The idea is that the short term averages represent traders and the long term averages represents institutional investors. The meeting of the two sets of averages represents a joining of views of these two divergent groups. A large divergence represents frothy behaviour by short term speculators. It is not supposed to pin-point tops and bottoms of markets. It is purely a sentiment indicator.
Investment Weekly - April 7th 2008 - Reality check - 259
Let’s put a few things into perspective, before you go running off to buy Hong Kong equities following last week’s market action 1) it’s been all HSBC 2) financial shorting restrictions are in place and 3) currencies are all over the shop.
Investment Weekly - April 14th 2008 - Not really insider buying - 260
There’s a palpable feeling of relief around global financial markets these days. While it is fair to say that risk premiums are being reduced following central bank intervention (Northern and Bear) and potential investigations into short selling activity (which is spooking the hell out of traders), there is no real conviction yet (equity market turnover remains low). I am sticking with a short term top of 24,900 on the Hang Seng Index (see Investment Weekly March 31st 2008 – Less need to be “gup”). It’s where the resistance meets and intertwines. Not even talk of insider buying will break its bind.
Investment Weekly - April 21st 2008 - Currency linked divergences - 261
Something happened in the middle of March that seems to have altered previously tight correlations involving three different assets, traded in three different places (London, Shanghai and Taipei) relative to Hong Kong. The root cause of this divergence of confidence seems to be linked to expectations about Hong Kong’s currency.
Investment Weekly - April 28th 2008 - What goes down -  must go up - 262
Outsiders find it hard to understand the concept of Capitalism with Chinese Characteristics (3Cs).  One way to describe it would be a parent leading a child through its teen years – make space for the teenager to explore the outside world, but, at the same time, provide control through the continued offer of shelter. Free-market capitalism is more like a 20-30 something, that has left home and is fending independently, but with the knowledge that sometimes, the family can provide support.
Investment Weekly - May 5th 2008 - What's with emotion? - 263
The line from the movie Wall Street from Gordon Gecko: “first lesson in business, don’t get emotional about stocks” is a timeless truism, but, sometimes I get upset when I read some of the drivel coughed up by Hong Kong’s financial journalists/analysts. Two offending pieces appeared last week, and they got my blood boiling for their lack of accuracy and misplaced logic.
Investment Weekly - May 12th 2008 - Testing times - 264
These are testing times for equity investors and commentators. It is taking all my strength not to get testy about recent information, particularly when there are disastrous profit warnings and the testing of the resolve of China’s leaders.
Investment Weekly - May 19th 2008 - Asset risk relationships altered - 265
This may not the exact right time to reflect on the possible consequences of the current financial malaise - because it hasn’t really finished yet. But I think it’s fairly safe to say that there will be some effects that will be entrenched into the global financial system even before the grand finale. The most obvious outcome is that the relationship between bonds/credit and equities, as asset classes, will be altered permanently
Eastsouthwestnorth
Investment Weekly - May 26th 2008 - Property higher using two cows - 266
I have been posed an interesting question: how can Hong Kong residential property- prices continue to rise (+36% in three years), even though local equities are in a bear market? I answered this valid question with some “you have two cows” jokes.
38 Thoughts
Investment Weekly - June 2nd 2008 - That was the week that was - 267
I’m often asked what is it about following Hong Kong equities that I find so fascinating. I could reply that it is days like last Monday and Friday that keep the interest flowing. During the week traders had to digest: a HK$15 billion revenge attack on Friday by traders against a badly handled announcement relating to the Index’s largest constituent, evidence of a major disintegration of the family run banking/property business model of Hong Kong companies, bad corporate governance, the collapse of a market that accounted for 20% of traders business caused by snooping by the government’s corruption body. All these issues will raise risks for Hong Kong equities, keeping traders and commentators on their toes.
Investment Weekly - June 9th 2008 - Who's not over paying? - 268
When I conducted a Local Bank Sector Seminar in late 1996, there were 13-listed local banks in Hong Kong. When the dust finally settles after the conclusion of the current spate of privatizations, there will be only eight local bank groups still listed with only 5 survivors from the seminar). One of the latest banks to leave the list is Wing Lung Bank, which has been sold to China Merchants Bank for 2.91x book value. Here’s why I believe both sides of this latest deal will be reasonably happy.
Investment Weekly - June 16th 2008 - Cut to burst the oil bubble - 269
When I wrote on January 28th (see January 28th newsletter – Anatomy of a bear market) that the bottom of the current bear market would be in June, I was reasonably confident of the prediction. The call was based on the average duration of previous downturns. As we head further into the month of June, I’m feeling quietly confident that the prediction will come true – providing the ECB finally decides to wake up.
Investment Weekly - June 23rd 2008 - One down, two to go - 270
I need to clarify a couple of points relating to last week’s rather radical ideas (that the ECB should cut interest rates and the Chinese should remove its oil subsidies) to revive the dollar, prick the oil bubble and reduce global inflation. It would appear, at first glance, that cutting interest rates and removing subsidies would be inflationary, and are thus counter-intuitive under current circumstances. Not so. Simply put: EU/global inflation has not spiked recently because of demand push (unemployment rates are too high and consumer confidence is too low for this to be true), and, higher oil prices in China would reduce the demand and, therefore, eventually, reduce oil prices.
Investment Weekly - June 30th 2008 - Profit expectations must fall - 271
Bear markets are all about contraction, as investors take into account the higher risks to earnings due a slowdown or decline in economic activity. The most visible crunch is the decline in the benchmark index. Yet, as I pointed out in last week’s newsletter, the Hang Seng index is still 10% higher than it was a year ago. Worse, according to consensus estimates, earnings for Index constituents show a 10% increase on a collective basis compared to estimates made last year for 2008, while the index’s PER is actually higher than a year ago at 15.7x (vs 15.4x). This situation must, and will, change.
Investment Weekly - July 7th 2008 - Rock and a hard place - 272
There are characteristics (psychological and technical) within the complete cycle of an equity market that are repeated regularly. I have paraphrased Mr. John Train’s interpretation of these markers here:
Investment Weekly - July 14th 2008 - There were once three brothers - 273
The following is an abbreviated version of a parabolic parable. There were once three bakers. Two brothers owned bakery shops, but could not agree on how to run the family business. In the meantime, far away, a third brother, the maker of the bread sold by the elder brothers, was dressing himself up, in his finest finery, before his declaration that in fact, he is the rightful owner of the family business with the opening of a newly renovated bakery. Unfortunately for the new pretender, the price of his manna was falling, as the two brothers continued to argue. So, the younger brother is looking to literally scatter manna from heaven (in the form of free loaves), in the hope that prices may rise again, and give the impression that his grand design will be a success.
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Investment Weekly - July 21st 2008 - False turn - 274
False signals are trading opportunities (if you have the right mentality to spot them). It shouldn’t be too surprising to find that false signals only occur in down markets. In a sense this is the nature of the beast. On the way up, optimism abounds, and prices can only go higher (no one ever says “it’s time to exit, panic sell”). But when prices are declining, there will always be occasions when investors believe the worst is over. One of those occasions cropped up last Friday. It also happened on June 3-5.
Investment Weekly - July 28th 2008 - Nothing's changed - 275
It doesn’t really matter when the following headlines were printed, except to say it was more than 40 years ago (actually it was July 14, 1967).  The main point is that the issues that were being written about on the front page of The Times of London, are strikingly familiar to today. I read them with a slight tinge of regret, that the issues discussed back then have still to be really addressed some 40 years later.
Investment Weekly - August 18th 2008 - Collectivism over Liberalism - 276
I’m really enjoying the Olympics. There’s so much to write about. I don’t remember Athens or Sydney providing so much food for thought. China’s medal haul has been unbelievable. The Communist Party propagandists, that are running the show, have been in full force, hoping that the dent to consumer confidence from the huge decline in the Shanghai Composite in recent weeks will be compensated by the massive amount of Chinese winners at the games.
Investment Weekly - September 1st 2008 - Superficial impressions - 277
China has impressed me in two ways in the past fortnight. The first occasion was with the superficial management of the recently finished Olympic Games. The second was the economic management of the recently built port city of Xiamen, which I visited last weekend (which explains why there was no newsletter last week).
Investment Weekly - September 8th 2008 - Hurricane symmetry - 278
For a while, I have to admit, I was very unsure about what exactly was happening to the Hang Seng Index. The index had been whipping around the 20,900 neckline support, while individual stocks were doing things that were not consistent with the news-flow. Then it suddenly dawned on me: the irrationality currently being exercised is the same that was very evident in the 3Q of 2007. However, instead of prices rising for no rational reason: they are falling for no rational reason. This is further evidence, in my view, that the index is reaching some sort of big cyclical bottom.
Investment Weekly - September 22nd 2008 - Passing passions - 279
The passionate state of denial of Wall Street’s remaining independent investment bankers is palpable. How can so many smart and innovative people not see the changes on their way? Passion is a powerful force, and it is working its way through the world’s financial markets. Fear, as equally destructive as any of the other four human passions of love, hate, avarice and jealousy, has swept all before it, while avarice, the most cunning of the senses, sits back and wonders what went wrong.
Investment Weekly - October 6th 2008 - Not as bad - 280
September was the fifth worst monthly performance for the Hang Seng Index since I began watching the market in 1985. That means that 2008 has managed to produce the fourth and fifth worst monthly performances. I was quoted on the front page of the SCMP in October 1997: “I was here in ‘87 and for Tiananmen Square, but this ranks as number one”. If was asked to produce a quote again, it would probably say something like: “I was here in ‘87 and for Tiananmen Square and SARs, as well as the Asian Financial Crisis, but this US banking crisis is no where near as bad because the markets have been prepared and governments have acted swiftly to contain the pain of this latest financial correction.”
Investment Weekly - October 20th 2008 - Chicken Licken fall - 281
I was on holiday during the “Great Fall” of the week of October 13, when, apparently, the sky fell on Chicken Licken (HS Index -16% the largest WoW decline since January 22nd this year, the week the bear market officially started – see January 21st newsletter – Welcome to the bear market). If you are unaware of the fable of Chicken Licken, Wikipedia’s description should suffice: “A chicken jumps to a conclusion (that the world is ending, even though it was only an acorn landing on her head) and whips the populace into mass hysteria, which the unscrupulous fox (short sellers, permabears etc) uses to manipulate them for his own benefit, some times as supper.”
Investment Weekly - October 27th 2008 - Currency unwind, the last in the garden - 282
I’ll be candid with you: I’m a born-optimist. Consequently, I’m feeling very sheepish right now, as everyone turns so pessimistic and so Candide-like. If only the general public had more information, perhaps they would not be quite so fearful, perhaps all would be well in the garden. So here’s the latest financial news - without the hype.
DSG Asia
Investment Weekly - November 3rd 2008 - End of the world as we know it - 283
I couldn’t resist it: as soon as I got home last Monday, I searched the web to listen to the jolliest song about Armageddon I know: REM’s “It’s the end of the world as we know it”. I was particularly keen for my children to listen to song and the punch-line, “but I feel fine”. It may turn out that October 27th will be the bottom of the current down-cycle that many commentators are dreaming of, and that, from now on, the world as we knew it prior to last Monday has ended and a new era has just begun.
Investment Weekly - November 10th 2008 - Like a plant - 284
I’m going to move away from the week-in week-out noise of the market and look how plants and the markets intertwine. It’s the only way to stay sane with volatility this high.
Hongkongbulls
Investment Weekly - November 17th 2008 - It's a trap! - 285
If you’re looking for a simple description of last week’s action, I can think of nothing more eloquent as those famous words spoken by Admiral Akbar as his fleet arrived at the forest moon of Endor, only to discover that the Empire was lying in wait: “It’s a trap”.
Investment Weekly - November 24th 2008 - Rebalancing exercise - 286
I have to start with a disclaimer. The following text is for your reference only. If you act on anything written here you are doing so on your own head.
Investment Weekly - December 1st 2008 - Empathy and sympathy - 287
I have some empathy and sympathy for the author of Liar’s Poker, Michael Lewis. Empathy, because I joined the investment banking industry as an analyst in 1988 knowing little or nothing about financial markets (other than a two year stint as the editor of a banking magazine). I left the industry, disillusioned, 10 years later. Sympathy because of the poor state he’s in.
Investment Weekly - December 8th 2008 - Superstitious minds - 288
For a while I didn’t think it was possible, but after a lot of hits and misses, and after repeated efforts, I think I’ve managed to disguise a message in the following text. An event, I believe might upset some readers, but I’ve always wanted to be a radical empathizer of a lost cause. This week’s newsletter is unusual in that it contains a lot of tantalizing hidden messages, as well as insights about how traders have always been intrigued by the workings of the human mind – in particular, how, as a species, we are bound by our instincts rather than following the logic that is sometimes so obvious - even to an untrained mind. Consider, for a moment, the happy coincidence of the very timely joining of planets and the moon last week.
It must be hard being so disliked, but HSBC is not making life any easier for itself. Fortunately, because of its financial muscle, it has the advertising-starved press on its side. So, while its competitors 1) complain that HSBC’s massive advertising campaigns are vulgar - considering the times 2) are revolted that HSBC has not had to ask for Government assistance 3) are horrified by the bank’s very public criticism of Government capital injections 4) grieve that HSBC saw things coming well before they did and 5) are bursting with envy that the bank can book profits by shorting property deals or because it has the capital/temerity to offer US$5 billion in extra loans to its customers, the bank is seeking ways to prop up its benevolent public image (just like your average run of the mill short seller) via the media.
Investment Weekly - December 15th 2008 - Press the press - 289
Investment Weekly - January 12th 2009 - Nine for 2009 - 290
A month is a long time between newsletters. However, the holiday break has allowed me plenty of time to reflect on what has happened in the past 12 months and to consider the future. One thing I think is certain, as with every financial crisis, conditions are different after the event. Whether they are better or worse is open to interpretation. I have therefore taken the trouble to rate possible future changes, as illustrated in nine predictions for 2009, as they would affect Hong Kong equity prices, with the upshot that there will be more negatives around than positives in 2009.
Investment Weekly - January 19th 2009 - All talk about HSBC - 291
It‘s almost as tedious as listening to the whining politicians and their henchmen in the press about how dire the economic situation has become, but I need to keep returning to the same subject matter. However, I have a flea to scratch and it’s irritating if I don’t deal with.
Investment Weekly - February 9th 2009 - Looking back for clues - 292
If anyone wants to understand what a modern banking system looks like during a major financial crisis, there is no better example than Hong Kong’s experience during 1998. In a sense the causes and effects were similar to what is happening with the current financial crisis – with only one major difference, the impact only affected one portion of banks’ balance sheets.
Investment Weekly - February 16th 2009 - Mr G marks his shorts - 293
I’m having a hard time trying to explain to laymen the mechanics of the so called mark-to-market rule that banks are currently struggling with. I try and explain it, but in the end it sounds more like mark to madness. The part that most people don’t understand is this: if you haven’t sold, how come you’ve lost money? I guess I sort of know how US Treasury Secretary Tim Geithner felt as he was drafting his speech to the House Finance Committee last week. He could have blinded them with the intricacies of wonderfully baffling world of accounting and economics, or he could have decided to give up trying to explain the details because no one would understand him anyway. He obviously decided on the latter, thus providing plenty of ammunition for those horrid, sour-pusses, the seemingly un-cooperative Republicans and, of course, those recent rare-breeds, short sellers.
Investment Weekly - February 23rd 2009 - No PIIGS to SPRIIGs - 294
For the Spanish speaking peoples of the world, this has been a rough siete dias. The bad news started with the stunning revelation that 80% of the investors in a real estate fund run by Santander wanted their money back – pronto. The US$2.4 billion in withdrawals was obviously too much to ask and Santander (who, it has to be said, has skirted a lot of pot holes recently) responded with a 10% now, maybe another 10 later offer. South American/Caribbean depositors at Standford International Bank have not been as lucky, as they bid adios to their unprotected cash and US$8 billion worth of 4.5%pa US$ certificates of deposit (JPMorgan CDs yield 1.75%). Unfortunately, Spanish flu is highly contagious, and, in our interconnected mondo, what goes down in the Spanish Main has a knock-on effect everywhere else.
Investment Weekly - March 2nd 2009 - Why be public? - 295
Investment Weekly - March 9th 2009 - Careful what you wish for - 296
There is a real possibility that if the shorts are not careful, they could end up with everything, but it would all be worth nothing. The general rule of investing in equities is that it’s a zero sum game. However, in the current environment (Moody’s is forecasting the 300 investment grade companies will default on their debt this year – compared with 101 last year) the shorts with their millions will have nothing to read, no where to wine and dine, nothing to listen to, nothing to buy. They may well still have friends, but they will mostly be other short sellers, and, to be honest, short sellers don’t sound like very interesting company to me.
Investment Weekly - March 16th 2009 - Can't be a pimp and a prostitute too  - 297
Protectionism is starting to appear, and Bank of America’s decision to ban the hiring of foreign MBAs is probably the tip of the wedge. Protecting your corner has been the driving force of capitalism for the past near 50 years (think not what your country can do for you etc). This greed, selfishness etc has had its comeuppance, and President Obama (the figurehead for those hard-line Socialists Pelosi and Reid) is tearing up the rule book. Worker power is taking over manager power: but only after the managers make one last attempt at stiffing the system by attempting to be both pimp and prostitute. The biggest pimps of course are PIMCO (pronounced pimp co) and their ilk. Someone needs to tell Mr. Big and his side-kicks that you can’t have your cake and eat it too.
Investment Weekly - March 23rd 2009 - Right to mark dates   - 298
There are three dates coming up that investors should pay particular attention to. Two of the days are known, March 31 and April 2. The other date depends on when US Treasury Secretary Geithner is ready. The outcomes of the three days are skewed towards the downside for global, and therefore, Hong Kong equities
Investment Weekly - March 30th 2009 - Amber light   - 299
The three parts of a financial markets (up or down) cycle can be visualized as a traffic light (just as Karl Marx envisioned that capitalism destroys itself in three phases). Since the bear market officially started in January 2008, the lights have been red. I think it is safe to say that the lights have just changed to amber. Get ready, but don’t go yet.
Investment Weekly - April 6th 2009 - Let's get sentimental   - 300
A name-sake of mine at Portales Partners was quoted by Reuters as saying that the changes in mark-to-market rules announced by FASB last week would not have a significant impact on bank profits. This could be right and it could be wrong - because we do not know how banks/auditors are valuing/classifying their investments. However, the changes will have a major impact on sentiment. Above and beyond what impact the changes will have on bank profitability, it shows that elected leaders/regulators are listening. Fortunately, the politicians are listening to the longs, rather than those lazy shorts (who will now have a lot more investigating to do).
Investment Weekly - April 20th 2009 - Three strategies (L.M.ST)  - 301
This newsletters’ model portfolio cannot be classified as available for sale or trading, because the intention of the portfolio is to produce a return on investments using a long-only buy and hold strategy. For some investors this is a boring approach to investing - they would much rather day trade or look to take advantage of momentum trends. Here are the performances of these three strategies (Long, Momentum and Very Short – L.M.VS) using the Hang Seng Index, for your consideration, and advise on which one will perform the best when the light turns green.
Investment Weekly - April 27th 2009 - Bank stress  - 302
The market’s obsession with the US bank stress test is a curious one because bank regulators are constantly stress-testing the institutions under their watch - that is what they do: mostly. Hong Kong’s bank regulator, the Hong Kong Monetary Authority has built a reputation as being a ferocious stress-tester (particularly after the Asian Financial Crisis). This persona has manifested itself very clearly in recent weeks and is likely to be the considered the template for other, “less stringent” regulators in the future. Unfortunately, if not handled correctly, this could result in below-average bank profitability and possibly a delay in economic recovery.
Investment Weekly - May 11th 2009 - No contradiction here  - 303
If you are confused about the conflicting financial markets information you are receiving, let me help you clear things up. If you are confused about the conflicting financial markets information you are receiving, let me help you clear things up.
Investment Weekly - May 18th 2009 - The divvy on dividends - 304
If a bank in Hong Kong wants to do almost anything, it must first either inform or ask permission from its regulator - the HKMA. This includes hiring and firing senior members of staff or appointing someone to the board of directors. In other words, bank dividend payments are decided by Government vetted/approved directors/executives. I’m not sure what all the fuss is about because US bank directors are also approved by the Government, aren’t they? They can be removed as easily as they are approved. The same system of oversight is true of China’s state owned companies. In this part of the financial jungle, the Government has always had a big say in what goes on within corporates - including who pays taxes on what, where and when.
HS Index
HKEx
Investment Weekly - May 25th 2009 - Central to bankers - 305
It used to be, in the days of colonial rule in Hong Kong, that if ever there was a problem that required an answer, Hong Kong officials could pick up the phone and call someone in Whitehall for help. Quite often, the answer was simply a repetition of what was already the practice in the UK. Hong Kong’s soon the retire central bank chief, Joseph Yam would have been privy to many of those early exchanges, particularly those relating to the banking system. As a career civil servant, he would have understood the rationale behind the decisions and would have been coached in their interpretation by the likes of John Bembridge, Piers Jacobs, David Nendick, David Carse and, of course, his current boss Donald Tsang.
Investment Weekly - June 1st 2009 - Tips to insure profits - 306
This might be a backronym, but according to a programme I just watched on the history of coffee, the word “tip” stands for “to insure (sic) profits”. Apparently, it was the inscription on pots into which coffee house patrons of 17th century London would throw their spare coins. Appropriately, these shops were congregated around Jonathan’s Coffee House in Change Alley. It was from those coffee shops in the square mile surrounding London’s stock/commodity/shipping exchanges that insurance giant, Lloyds of London, sprang, as well as many of the old fund management houses/brokers of Europe (Cazenove, Schroders, Rothchilds etc). Hong Kong has a fine tradition of generating plenty of stock tips (contrast this with conservative American investors, who buy Treasury Inflation Protected Securities (TIPS)). I’m not sure if Hong Kong’s stock punter class are aware that tips was originally suppose “to insure profits” for the owners rather than the patrons, but they have certainly had an easy ride making profits of late. Can the punters get on their bikes and peddle hard enough to keep the momentum going? Or will corporate owners take their profits?
Investment Weekly - June 8th 2009 - PMI mystery - 307
Equity investors have been very focused recently on the readings of surveys of purchasing managers around the world.  This has been a curious change in emphasis away from the usual economic indicators such as unemployment, inflation and retail sales. As far as I’m aware, business surveys in the past were given very little credence by the markets either in bull or bear markets. So why has there been this sudden change in focus?
Investment Weekly - June 15th 2009 - The law of the jungle - 308
Most investors and primary school aged children have poor discipline. Their lack of experience and short memories make them prone to indiscipline and unpredictable behaviour. I’ve been reading Kipling’s The Jungle Books to my youngest son each night as a means of establishing some sort order into his life before bedtime. It’s been working, as Kipling’s characters, Mowglii, Shere Khan, Bagheera, Kaa and Baloo are fascinating and, as it is usually quite late my little one is usually asleep before I finish the third page (which is why this newsletter is usually no longer than three pages).
Investment Weekly - June 22nd 2009 - Prepare for risk - 309
In 2002 I was involved in a decision that drastically altered the risk profile of an organization. My involvement was to formulate an independent view on a trend that was going on, almost unnoticed, within the local banking scene. The question that was posed was this: as Hong Kong’s economy continues to mature, how can local banks generate returns on equity commensurate with their recent past performance?
Investment Weekly - June 29th 2009 - Summertime blues - 310
We are heading into the usual summer doldrums, and indicators are showing a lull in activity on the Hong Kong’s stock market. The two main liquidity gauges are starting to show signs of fatigue, while short selling is on the up and the number decliners are on the rise. Capital inflows have artificially lowered interest rates and are distorting the near term outlook. This should keep the index moving around the 18,300 fair value mark.
Investment Weekly - July 6th 2009 - What he made off with - 311
There are two important lessons from the Bernie Madoff Affair (besides the obvious such as: cheaters never prosper, where was the regulator and how did he do it): first diversify and second ignore the rhetoric.
Investment Weekly - July 13th 2009 - Stocks wait for capex and stocks - 312
There is a basic formula for determining the profits generated by an economy. It states that profits are equal to: consumption (less wages), capital expenditure, inventories, government spending (less taxes) and exports (less imports). As we head into the half-term earnings reporting season, investors have a good handle on C, GS and trade, but, as usual, have little information about capex and inventories. These should be the key factors that managers should be addressing. Unfortunately, analysts’ questions hardly ever concentrate on these areas - so we may never know the full profit picture. Here are my guesses about what company managers are likely to say about the various components of their profits.
Investment Weekly - July 20th 2009 - Just what the DR ordered - 313
There was only one headline worth reading last week, and its effect was a 9% surge (1,551 points) in the Hang Seng Index. The gist of the article on Wednesday was that finance officials in Shenzhen are proposing a new cross-border scheme that would allow mainlanders to invest in the Hong Kong-listed H shares of mainland companies through depositary receipts (DR) traded on the Shenzhen stock exchange
Investment Weekly - July 27th 2009 - What reputation? - 314
There is a common saying often used by the Hong Kong press that sounds daunting each time it is rolled out, but, unfortunately for the doom and gloomsters editors, has about as much bite as a wet towel. The offending phrase “damaging Hong Kong’s reputation as a global financial center” was blurted out again last week following news that local banks will compensate Lehman Bothers mini-bond holders to the tune of 60% (rising to as high as 80%) of their face value. There are two conclusions to the lack of impact of the settlement announcement: either the decision will not impact Hong Kong’s reputation or Hong Kong doesn’t have a reputation to damage
Investment Weekly - August 24th 2009 - What recession/bear market? - 315
The whole financial world has gone mad. Apparently, while I was away on my usual summer holidays, a big part of the European economy pulled out of recession and China’s stock market entered a bear market. Although the first statement could be technically correct, the audience has no idea what it means, while the other technicality is pure poppycock, which well-informed China watchers have summarily dismissed
Investment Weekly - August 31st 2009 - Interference - 316
There has been a lot of talk about how Government intervention has helped prop up economic activity recently. Stimulus packages may be the devil incarnate according to History buff, Niall Ferguson, with dire, long-term, consequences for budget deficits, but short term traders are not interested. Paul Krugman believes stimulus is a necessary evil if we are to get the world’s economies moving again. The Chinese mandarins in Beijing agree with the latter view, but only on the premise that once in a while, horns need to be reined in – just as they are doing so now.
Investment Weekly - September 7th 2009 - Can't beat squiffy Beidaihe - 317
Most investors know the saying “Don’t fight the Fed”, but we in Asia have a more potent catchphrase: “Can’t beat Beidaihe”. It’s a well known fact here that China’s political leaders head to the nearest beach resort to Beijing to cool down and plot the future. There’s another saying, which is slightly less known, which uses the word squiffy to describe how China’s leaders, even when slightly tipsy while on their holidays, can still tweak equity markets at will. It’s basically a word play on the ubiquitous QFII. 
Investment Weekly - September 14th 2009 - Harmony and stability - 318
I’m not sure how seriously the market took the news that China’s main financial regulator (SASAC) had issued a guidance note stating that it would be acceptable for mainland banks to default on certain commodity derivative contracts because they were not transparent enough. It is the type of defiant proclamation that seeps out of China on a regular basis, and so, it seems to have been ignored - as the others generally are. However, this may be one of those rare occasions when ignoring China’s hubris could be dangerous.
Investment Weekly - September 21st 2009 - A global peg? - 319
Hong Kong’s leaders are constantly harping on about how they want the SAR to be a global financial centre. Unfortunately, this dream can never be fulfilled while its currency remains detached from the rest of the world and limited in scope as it is. A point in case is the overstated impact that mainland IPOs have on the Hong Kong dollar
Investment Weekly - September 28th 2009 - Cynics everywhere - 320
Oscar Wilde described a cynic as a person that knows the price of everything and the value of nothing. He probably wasn’t thinking about stock market investors, but his insight seems to have encapsulated the current reality of global equity markets. There seem to be cynics everywhere right now. Basically, these are investors who did not believe the solidity of the March lows and are trying to understand why they should believe equity values now, despite the surge in prices around the world.
Investment Weekly - October 5th 2009 - All the world's a stage - 321
I spent a good two hours watching the celebrations marking the 60th anniversary of the founding of the People’s Republic of China in Tiananmen Square last week. The marching was impressive as the world watche China’s actors on the big stage. As I come from a military family I think I’m quite qualified to comment on the precision of China’s goose-stepping armed forces. But there was something odd about the precision. It was the fact that China’s military leaders, or maybe the organizers, deemed it necessary that all the militia on parade had to be the same height (apparently 1.75m) and weight. There was no deviation from this requirement. Everyone was the same.