CLSA FengShui Predictions 2017

After a fowl year in 2016, how will you and the Hang Seng Index fare 

with the plucky Rooster in 2017? Our 23rd Feng Shui guide offers an 

alternative look at what’s in store this year to help the luck flow in your 

direction.

Feng Shui masters are valued in the Orient by those looking to foretell 

the future. If you're running a hedge fund, no doubt you'll take our 

sorcerer’s view on the year ahead with a pinch of salt, but curiosity if 

not superstition may get the better of you. 

So scroll on down and chick out all manner of forecasts for the year 

ahead. Our longstanding health warning holds: don’t get your feathers 

ruffled and take it too seriously! - CLSA

https://www.clsa.com/special/fsi/2017/

Bank Negara May Have Switched On A Bull Run

Post Published: 5 Dec 2016
Update: When I wrote the post, the majority canned my piece. But this is not a "I told you so" thing. It is so easy to be a critic, let's see how many would be willing to call me and say they were wrong. I bet you very few. When you post an opinion, the internet is a ghastly thing - it allows for unfettered brickbats that has little or no justification or arguments except "I don't think that's true". Is this all ego and pride? Do we all want "acknowledgement" and "praise"? Having a blog for 10 years, I have seen enough. I am also OK when people disagree but at least show some decency and point out why when you disagree. I don't need to be right all the time but at least I dare to say it and put it out there. The world is not all bar room talk... talk cock and thats it, nobody remembers. Make it count, people.

p/s the bull run has started on the local bourse a few days back...

The brave new rules in a brave new world by Bank Negara have set many tongues a-wagging. The media has been having field day slamming the "likely causes" of a weakening ringgit. Let's not get into that for now - we all know whats bringing it down. Let's address the consequences, the aftermath ... for now.

A weak ringgit is not all bad, unless you are travelling or importing stuff. Just travel domestic, and I don't have much sympathy for traders, I mean, they do not really add value, they just import and distribute at a higher price. If they cannot pass the price increase onwards, then biz will be affected, so let it be.

The fact that from now on companies have to convert 75% into ringgit of their proceeds IS A VERY MAJOR THING. I suspect the majority of listed companies with foreign proceeds have been largely keeping them in foreign currency for the last 12-18 months.

Let's be honest here, the ringgit is suffering largely due to the "confidence" issue, if our own major exporters keep keeping their foreign currency proceeds and not convert to ringgit, it can only exacerbate the situation. Its like your family has a crisis and all your members are deserting the clan. 

Then there are the exporters who are appealing for that figure to be 50% instead of 75% in order to keep buying "raw materials and goods". That very appeal shows that they have been keeping much more than 75% for I don't know how long - what about the "supernormal gains" these exporters have been reaping from "translation gains" for the past 12-18 months ... somehow just vanished in thin air!!??

Now, they cannot do it. I think for at least 1/3 of the listed firms that have been profitable, being forced to convert to ringgit will actually realise a lot of gains. Yes, these gains are one-off but still gains. Fr profitable exporters, they'd be profitable already at 3.5 to the dollar ... give them 4.0 or 4.4 ... they are laughing silently.

So, yes, Bank Negara has fast forwarded the next bull run, which I anticipate will NEED a few ingredients:

1) better oil prices (done, with the recent OPEC deal)

2) China led investments - construction, infra

3) strengthening ringgit from lows - done with BN's latest move

4) the speculation over upcoming elections

You will be getting very good results from most affected listed companies for their next 2 quarters - which will be further catalyst to the run.

So, you heard it here first!

Passengers - Go Watch It

Passengers. Brilliant story telling. Visionary yet believable. Like Martian, only better. Space travel, science, romantic, desolation, philosophical, mortality n its devastation, spectacular imagery. Being human n humane. 9.7/10

Casinos In Japan - An Assessment

This was considered unimaginable 15 years ago, but a group from LDP finally managed to push through the new bill. The new bill proposes allowing large-scale projects that will combine casinos with hotel, shopping and conference facilities. Attracting tourists is one of the key economic policies of Japan's Prime Minister Shinzo Abe and supporters say these developments will bolster the country's flagging economy and help support tourism after the 2020 Tokyo Olympics. The law urges the government to prepare legislation within one year to deal with problems connected with casino resorts, including gambling addiction and ways to prevent the involvement of organized crime groups.

Likelihood To Go All The Way: Despite a 2-1 disapproval by the public, the likelihood of this plan to come to fruition is very high. As you know to even get passed the Lower House would have required a lot, a lot of stamp signatures and collusion. Hiroyuki Hosoda, head of the main pro-casino parliamentary group and one of three casino proponents recently named to top LDP spots - is the key reason why as long as LDP is around and in power, this will get through. Japan's international tourism arrivals was 19.7m in 2015... compared to 30m for Macau and 15m for Singapore - so safe to say, the tourism angle will push the deal through.

Beneficiaries: Although the top operators' share prices went up slightly on the news, there are really only two serious contenders for the two casinos. Sands and Genting, fullstop. Why? Balance sheet strength (very important to the Japanese).GENS has cited potential passing of the Japan integrated resorts bill as one of its main reasons to sell its Jeju casino stake and get back S$588 million ($413.60 million) of capital. The other reason has to be the "Singapore experience" - which the Japanese can see, watch and follow. They would have liked the detailed planning, great execution, good rules to govern and restrict local population from over-gambling. They will probably frown on the Vegas experience - too gaudy, too bawdy and anything goes. They would have frowned at the Macau experience as well - uncontrolled chaos, overbuilding, soul-less, not family oriented enough, only bringing in "real hard core gamblers" (when they really want a more holistic family thing).

Local Beneficiaries:  Fuji Media, Tokyotokeiba, machine makers Sega Sammy and Konami Holdings Corp, as well H.I.S. Co Ltd  - a major travel agency jockeying to develop a casino in southern Japan. Property developers such as Mitsui Fudosan and Tokyo Tatemono.

The KEY:  In things like these, it is what ISN'T said that is more important. In order for Sands and Genting to nail the deal - its the partners they go with. The committee will have a handful of "important enough" local partners on their list, but will probably not enunciate them. It is up to the two to guess. It is always important for the Japanese to "balance the scales", i.e. who loses out in this new development should be "compensated somewhat. Currently the pachinko gaming has the biggest pull in gambling plus horse racing. Will need to "appease" the two. How big is pachinko gambling you say ... in 2015 it was approximately US$190bn.

The other key is selecting the location/partner - should not be near major cities, but accessibly via bullet trains/express rail because with 19.7m annual tourists a year, this will boom towards 30-40m a years when it actually opens, hence the need to divert. Plus it should not be near Disney's two resorts.

Covered Warrants - The Not So Silent Killer

One should never never punt on warrants with less than 1 year to expiry, especially covered warrants. I can safely bet that anyone who trades in covered warrants in the course of a year will have a 90% chance to sustain losses. 

Unfortunately, our markets have been in the doldrums for the past 6 months or so and that has caused some die hard players to only consider covered warrants, esp those index covered ones, in particular the highly volatile HSI covered (which kind of acts as a proxy to the even more volatile China exchanges).

Just have a look at the daily volume rankings, its always the covered warrants for the past few months. Strange as it may seem, if things continue, our local exchange will be trading mostly other countries' covered index warrants for the longest time - esp if the big guys introduce the Nikkei covered as well.

Why investors will lose big in the long run:

1) Time Value - These covered warrants are usually short in terms of time to expiry, usually less than 12 months. Investors are usually lured into covered warrants when their absolute price are less than 30-40 sen because they think they get a lot of leverage. But to get to 30-40 sen, it also usually meant that there is less than 6 months to expiry, and trust me, the time value diminishes rapidly. Even if the linked product stays stationary, you will find the price of the CW dropping.

2) Your opponent - Unlike a company's warrant, in CWs there are teams of experienced traders (issuers) with sophisticated models fighting you on the other side. If you think the role of issuing house is to MANAGE their gammas and betas, YOU'D be very wrong. The safest way to make money for issuers is just to manage and capture the premium, manage free float, and make sure you are well hedged. MUCH LIKE THE CASINOS - they almost never ever lose... so guess who wins and loses in the end. Better to go Genting, seriously.

Even when you keep wanting to buy, they will keep giving you the volume to buy. They can keep throwing new shares at you as long as the equation is right. What you see on the screen being offered is never what they "really can sell" to you.

3) Volatility - The die hards will say they trade only the highly volatile CWs such as HSI. Yes, thats a better strategy but I can also tell you that the higher the volatility, the higher the premium that is priced into these CWs, and it will take a hefty whack in movement to erase the premium before you see good gains.

4) One Sided - You know very well the issuers KNOW you can only take ONE SIDE of the equation. So overtime you show up on the screen, either you are buying or buying. At any point in time, they know how many people are long or short out there. Imagine playing black/red, but you can only bet red and the odds are always 0.7 to one instead of 1 to 1.

5) Timing - The nature of the product necessitates the need to TIME your entry point accurately. So, unless you are the type that can walk between raindrops to avoid getting wet - fergedaboudit.

The next time you think of trading a CW... just picture the trading/hedging teams at the banks, you can almost invariably see them laughing and chuckling to themselves at how easy it is to make money from the market (that means you and me).


p/s my first 8 years of my career was spent placing, trading and managing the house book on Japanese corporate warrants for Nomura and James Capel

Long Weekends

Law & Dis-Order ... Must Watch

I like TVB series generally but most are nothing much to shout about. But I must strongly recommend this one, Law Disorder ... about a bunch of lawyers in a firm. Its conniving, devious, thrilling, plot thickening with every episode and plot twisting till your stomach turns ... a place where no one is obviously the hero, a place where no one is entirely blameless or evil. 

I must commend on the new bunch of writers. Human relations are callous, no more Mr. Nice Guy TVB feel-good touchy-feely stuff here, everyone has their inner motivations and not all are grand and altruistic at all. There are no permanent friends or enemies, its gripping... if only every boardroom meeting in reality were like that.

Morality is always not set in cement, values can be argued, and there is no black or white, just different shades of grey. Watch it it, its better than Suits and Boston Legal.