China Minzhong: Initiated long position.

Anyone who is a follower of Jim Rogers would know that he is always asking people to become farmers and he is quite serious. Jim is of the opinion that farm incomes will increase exponentially in the next few decades. This stems partially from his belief that we should be invested in real assets like agricultural commodities which would retain their value in the face of heightened inflation around the world.

Recently, I have been looking at China Minzhong, a company which the Government of Singapore Investment Corporation (GIC) has a 17% stake in. Prudential reduced its stake to less than 5% while Templeton increased its stake to above 5%.

There is an abundance of research which has been done on China Minzhong and it is mostly good. Here are links to some analyses:

1. CIMB (14 Feb 2012)
2. Kim Eng (14 Feb 2012)

China Minzhong has made some large capital expenditure last year and it would take some time to show positive results. The longer term picture looks promising and buying on weakness could be rewarding for anyone who takes a longer term perspective here.

See slides presentation dated 13 Feb 2012: here.

1. Net income margin is consistently above 25%.
2. NAV per share: RMB 5.70 (approximately S$ 1.14)
3. Net gearing ratio: 0.11x
4. Current ratio: 2.7x
5. Half year EPS: RMB 0.48 (approximately S$0.096)

Expectations are for second half of its financial year to show higher EPS.

Technically, China Minzhong's share price emerged from a terribly persistent downtrend at the start of the new year. It then took a while to overcome resistance provided by the 100dMA before hitting a road block set by the 200dMA. It is now supported by the 50dMA and if that goes, we could see a retreat to the 100dMA which is currently at 93c.

Notice that volume has been higher on white candle days and lower on black candle days in recent sessions. Volume seems to be reducing as price pulled back. Consolidation could continue for a while more as weaker holders are shaken out.

I have initiated a long position today at 98.5c. If its share price were to weaken to 93c, I would probably add to my position. 93c is, in my opinion, a very important support if it should be tested. If it should break, we could see price retreating to test the lows of 2011 with 84c as an immediate target.

Saizen REIT: AK71 responds to a forum.

This is almost all of my very long comment in Wealth Buch in response to certain things said in a forum on Saizen REIT:

I have talked about the Japanese debt situation and how this has no impact on Saizen REIT before:

Japan's debt issue and Saizen REIT

As for the S$/JPY exchange rate and how the strong JPY is likely to weaken in time, we have to remember that exchange rate is bilateral in nature. The JPY could also weaken if the S$ strengthens.

MAS is allowing the S$ to strengthen in order to contain inflationary pressures. Will it allow the S$ to strengthen much more? If it does, would it not impact our exporters negatively? MAS is likely to be very cautious.

The residential real estate which Saizen REIT is vested in is below replacement cost. This means that no one in his right mind would construct new buildings. The supply side has stalled. The demand for inexpensive accommodation is strong and I have a blog post on this recently.

Asterisk Realty: Advisory for Japanese real estate

Saizen REIT owns freehold properties. Income distribution is therefore perpetual, ceteris paribus.

As for rental rates lowering 4% in Saizen REIT's latest tenancy renewals, how much of its total tenancy were so affected? Would such a trend continue?

The assumption that rental rates would continue to lower in Japan is just an assumption and is something waved around by people who think that Japan is going to the Land of the Dodos.

Jim Rogers is long JPY and believes that it will remain strong.  Marc Faber believes that people are so bearish on Japan and have written it off that it is a strong contrarian play. The JPY is still viewed as a safe haven.

In recent months, China's purchase of JGBs caused the Japanese government some concerns. The Chinese recognise the safety of JGBs compared to US Treasuries and have been diversifying away from the latter. As long as there remains a strong demand for the JPY for various reasons, the JPY is likely to stay strong. It's simple economics of supply and demand.

The recent revival of interest in Japanese real estate because of the sector's amazing yield is likely to increase demand for the JPY too. People who want to invest in Japanese real estate must pay in JPY.

It is not wrong to say that the high yield is normal for real estate in Japan but such high yield is not normal for real estate in some other countries, countries in which investors would like to get better returns for their money.

Related posts:

Saizen REIT: AGM on 19 Oct 10.
Japanese real estate: Has it bottomed?

Buying gold? Wait for a correction.

Jim Rogers predicts "more turmoil" in the currency markets, more problems in the stock market, weakness in bonds and, ultimately, inflation.

 
Posted Oct 06, 2010 07:30am EDT by Aaron Task

"Gold could correct for a few months [but] the bull market in gold is not over - far from it," he says. "I'm much more bullish on agriculture than I am even on gold. I own both."

In the meantime, he owns the Swiss franc, euro and yen but is not actively short any currencies, including the greenback.

In case of a correction, I see immediate support at US$1,250 an ounce, followed by US$1,200 an ounce.

Related post:
Gold can double from here over the next 5 years.

Gold nearing US$1,300 an ounce.

Gold is currently at US$1,293.50 an ounce and silver is at US$21.05 an ounce, even higher than just a week ago when I said "I see immediate support for gold at US$1,260.00 an ounce and immediate support for silver at US$20.20 an ounce.  Gold is now challenging resistance at US$1,270.00 and if it does break this, it could go much higher."

The Fed seems ready to increase liquidity in the US economy and this could possibly cause the US$ to depreciate further. What this might translate into is greater inflationary pressure in the USA in time and I have been a staunch believer of this eventuality as informed by Dr Marc Faber and Mr. Jim Rogers.

The worst thing to invest in would be the US government bonds (treasuries) as bondholders would basically be seeing their wealth eroding away as the US$ depreciates in value.  This is precisely why the Chinese government is so concerned since they are the world's largest holder of US$ debt, after Japan. However, in the short term, they could see bond prices bumping upwards because the Fed would buy bonds to keep interest rates low in an effort to encourage borrowing by the private sector.

Could gold go much higher?  It is my believe that it would but it would not be a straight line up.  The real value of gold is closer to US$2,000 an ounce and this would take time to materialise. So, for anyone who is thinking of having some exposure to the precious metal, it is my opinion that buying on pullbacks as supports are retested would be the way to go.

Related posts:
Gold and Silver highest in the last 12 months.
Real value of gold.

Some views from Marc and Jim.

Marc Faber thinks that the Fed would embark on more quantitative easing (aka print more money) in September or October:



Jim Rogers says to buy silver as it is 70% below its all time high:



Jim Rogers also mentioned that sugar is a good investment because a lot of it is being used in the production of alternative fuel.  Now, with the US limiting offshore drilling for crude oil, shortages might develop and that could mean higher crude oil prices in future.  I would keep an eye on CPO price which has been recovering strongly lately.  That affects CPO counters like Golden Agriculture.

Related posts:
Gold or silver?
Why Golden Agriculture?

Do not fear the selldown.

It is safe to say that there is a lot of fear in the air. Palpable? Almost. What are we to do? Well, I am sure everyone has his or her own opinion as to the best strategy in such a situation.  Maybe, I shouldn't be so sure. So, what do I think? Well, I have been sharing my thoughts in this blog and what I now think is largely the same as before.

For a stock which is clearly in a downtrend, sell into strength at resistance.  It might be a lower high but it is still a high.  We don't want to sell at a low.  Then, wait patiently for it to form a base or to rebound and form a higher low.  It would be safer to take up a long position then.

Not all stocks are in a downtrend.  For stocks of businesses with strong fundamentals with their uptrends still intact, buying at supports is still the way to go. Look to the technicals for possible negative divergence as a warning sign.  Certain stocks might be rangebound and if the businesses have strong fundamentals, buying at the support of the trading range is what I would do.

Generally, our motivations for being in the stock market would determine the strategy that we adopt.  For me, I am primarily in the stock market to secure a passive income stream.  So, I would accumulate stocks with strong fundamentals which provide high yields. Examples are AIMS AMP Capital Industrial REIT, LMIR, Saizen REIT and SPH.

I also invest in growth stocks but these are generally not known for big dividend payouts and I invest in these with a view to trade.  Examples are Golden Agriculure and Healthway Medical.  Recently, I tried my hands at CapitaMalls Asia and lost some money, if you remember.

Do I think we are having a meltdown? Are we going into another recession or even a depression? I don't think so. Informed by Jim Rogers and Marc Faber, I have talked about the next crisis being a currency crisis and we are seeing the precursors of that crisis.  For now, I believe that the stock market will be going higher in time. Fiat currencies are not going to do a disappearing act.  Governments around the world will not allow a collapse.  So, in crises, we find opportunities.

There would be some people who want to sell away all their shares now, fearing a meltdown, keep their cash and wait.  There would also be those who are keeping all their shares, believing them to be good investments, and would be buying more shares at lower prices to average down.  In both instances, I would say, look to the technicals as we want to avoid selling at the lows or buying at resistance. We should not be afraid but we should stay cautious. Good luck to us all.

Related posts:
What are investors to do in downtrend?
A correction? An opportunity.

Gold at US$1,210 an ounce.

I started buying gold bullion coins in March/April 2009, believing that it is a hard currency that has intrinsic value unlike fiat currencies which are flawed.  Jim Rogers and Marc Faber have greatly influenced the way I look at current day world economics and I take their views to heart.

When I started this blog last Christmas Eve, one of my first posts was on the subject of gold. The last time I bought some gold bullion coins was in March this year and I gave one to my dad for his birthday and I just gave one to my mom for Mothers' Day. Last year, I gave each member of my family a gold coin as well and the value of those coins have gone up quite a bit by now.

I strongly believe that we need some hard currencies as a hedge against fiat currencies and inflationary pressures. Physical gold is the most accessible precious metal in Singapore at a "fair" price. There are issues but it's a lot better than the situation with physical silver, for example.

I continue to believe that every person should have some physical gold as a long term hedge against all other forms of investments and cash. This could be gold jewelry as well for people who do not like the idea of buying gold coins just for keeps, but, of course, we would be paying for workmanship and wastage in such instances. Some would buy gold coins with commemorative messages and we would be paying a higher price for numismatic value in such instances.  For me, I still prefer the boring 1oz Canadian Maple Leaf as I buy gold for its intrinsic value.

Gold closed at US$1,210 an ounce on Friday. Translated, to buy a 1oz gold bullion coin at UOB now, we would have to pay about S$1,880.  This compared to when I first started buying last year at about S$1,400 an ounce, the numbers speak for themselves. Check gold and silver prices at UOB.

Of course, gold price will not move up in a straight line.  Prices almost never do.  I would look out for dips and corrections to buy more gold.

I will also be looking out for opportunities to increase my exposure to silver as I believe that it is undervalued when compared to gold.

Related posts:
Gold: to buy or not to buy?
Gold or silver?

Two great minds on Greece and gold.

I found these clips of recent separate interviews with Marc Faber and Jim Rogers as they shared their views on Greece and gold.  Make good sense, as usual.

5 March 2010
Marc Faber on CNBC - Greece and gold.



26 March 2010
Jim Rogers on CNBC - Greece and gold.





Related posts:
Gold as an insurance against inflation.
Gold or silver.
Real value of gold.

Noble Group

A friend told me recently that Noble Group was 9c a share in 1999. It closed the 2009 at $3.25. That's a 36x returns over 10 years!!! I've not done any research on any financial engineering the company might have done in the last 10 years. So, this observation might be too simplistic.

Looking at the numbers, I find valuation for Noble rather mind boggling. To buy at the current valuation, one must be extremely optimistic about the future earnings of the company. Well, Jim Rogers thinks that prices of commodities will continue to rise in the years ahead. If we believe him, then, it might be better to buy directly into commodities or companies producing these commodities rather than commodities trading companies. I remember Musicwhiz did some FA on Noble and Olam. So, I shan't go into details here. The link to his blog is in my blogroll. As is my style, if the FA fails, I do not bother to go on to the next step which is to do a TA.

However, what worries me is that even some usually very cautious investors I know are euphoric about Noble. From a TA standpoint, if the trend is not broken, continue riding it. Having said this, Noble's rapid climb in price does not look sustainable. So, I'm doing a TA out of curiosity. The negative divergence between price and volume on the weekly chart is quite plain to see. After breaking multiple wMAs in May, it tested the 100wMA support in July and off it went hugging the upper limits of the Bollinger bands since. The shorter term 20wMA has pulled away from the longer term 100wMA and 200wMA. The spread is now quite susbtantial. Using two sets of Fibo lines, it looks as if the current price of $3.25 is at resistane. A pullback is on the cards but with such positive sentiments bouying the counter, the 20wMA, at $2.70 this week, might just be able to support the price. That would be a 15% pullback. To my friends who are vested, stay vigilant. If the 20wMA breaks, there is quite a fair bit to fall.

Bungee jumping, anyone?

Under normal circumstances, if we were given a choice to stay safely on land or to jump off a bridge, I think we would choose to stay on land. If we were guaranteed safety if we were to jump off a bridge and collect an experience of a lifetime, would we do it? Many still wouldn't or else bungee jumping would become a very common pastime.

Last night, I had dinner with a few friends and as usual, we talked about investments as well. We all have friends who are very risk averse and would rather leave their money in the banks and collect 0.125% interest p.a. Some are "smarter" and leave their money in one year fixed deposits and collect 0.7% interest p.a. Now, we are talking about people with excess cash, beyond what they need in the event of unemployment over a period of 6 months. They are safely on land or so they think.

The threat of wealth erosion by inflation is very real and leaving our hard earned money in bank accounts to collect <1% p.a. isn't the wisest thing to do. The Monetary Authority of Singapore lifted its 2010 inflation forecast to between 2.5 and 3.5% on 19 Nov 2009. Land we were standing on which seemed firm just now might quickly become quicksand. Jim Rogers says that the worst thing to be in now is cash. It's perhaps an exaggeration but I think we get the idea.

There are many financial instruments which would "guarantee" higher returns but few would provide the liquidity which the stock market has. All financial instruments carry an element of risk to varying degrees. Make no mistake, the stock market has plenty of risks but it also has ample rewards for those who are equipped properly to traverse the difficult terrain. Having the right skills and, dare I say, right companions would make the journey a smoother one. Ultimately, do our due diligence and make our own decisions. We have no one to blame for our failures but ourselves.

There are many reasons why people would not venture into the stock market. Fear of losing money is probably the main reason. Not everyone has the mental strength to overcome this fear to move their money out of their "risk free" savings accounts into the stock market. We have friends who say they "cannot lose a single cent" and that they "would lose sleep at night if they have money in the stock market". It would be better to leave them be. Till this day, I have not had the good fortune of knowing anyone who had only made money in the stock market and did not lose a single cent. People who ask for 100% safety for their money (in nominal value) would have to settle for <1% annual yield.
Things Singaporean: SRS, CPF-OA and CPF-SA.

Real estate as a hedge against inflation

For the last year or more, I kept hearing and reading the word "deleveraging". Companies and individuals are all busy deleveraging. So, basically, people are saving more money, paying off their debts and spending less. Overall, it gives an impression that leveraging is undesirable and should be done away with.

Marc Faber famously said that, in Asia, the family run businesses in Hong Kong and Singapore have very little debt. Many rich families in Singapore don't have any mortgages. He thinks that Asian real estate will continue to do well. This gels with what Jim Rogers thinks about how we should own some real estate and he, in a recent interview in New York, actually said that he would buy some US real estate now if he were staying there.

In my posts on the subject of gold, I mentioned that I buy gold as a hedge against inflation and that I do not trade gold. We could also buy other tangible assets which would keep pace with or grow faster than inflation and protect or grow our wealth in the process. However, most of us are not in the same league as Marc Faber or the rich families he mentioned.

So, what are we to do if we want a piece of the action and own some Asian real estate? Do we work very hard to save money before we buy that piece of real estate? 100% cash upfront and without a housing loan? Or do we put down 20% and borrow 80%?

Quite simply, like any other investment, the answer lies in timing. Buy when the market is depressed or just turning up and hold for the long term. If you believe that the world is going to see extraordinary inflation in future, this is one thing we should do if we have the means. If we have the money, pay 100% cash upfront. If we only have 20% to <100% of the value, take a housing loan for the balance. As an example, I bought private real estate 6 years ago and took a loan for 80% of the price. The valuation is now 80% higher. If I were to rent it out, I would realise a yield of 7% p.a. This is much higher than the interest rate on the bank loan I'm servicing. Capital appreciation plus steady passive income. Sounds like a high yield stock? Sure does. Having said this, we have to keep an eye on the interest rates. If that goes up significantly and we do not have the means to pare down the outstanding loan amount drastically, it might be time to let go. If I had told myself 6 years ago that I should work harder and save more money before taking the plunge, I would have worked harder, saved more money but ended up poorer. The next time the property market has a correction in price, bear this in mind and take the plunge, if you have not done so already. Inflation is a powerful force. If we have the means, we must do all we can to protect ourselves against it. Buy Japanese real estate

New global economic leadership

The USA was not always the global economic leader. It took its current place more or less after the world wars. Before the USA, the UK was the leader. The Sterling Pound was worth a lot more than what it's worth today. I remember my parents and my grandparents keeping the Sterling Pound. The exchange rate was S$7 to a Sterling Pound, if I remember their accounts correctly. So, global economic leadership shifted from the UK to the USA.

Now, Jim Rogers has said this many times and I agree with him: economic leadership is shifting once more and the next 100 years will see Asia taking over the reigns of global economic leadership and he expects China to take the lead.

That's why I've also shared my views with friends that my favourite currencies, apart from gold, are the RMB and the Indonesian Rupiah. I've a bit of all three and intend to accumulate more gold. The RMB and the Rupiah are fiat currencies like the US$ but they have not been abused and are not as flawed.

The Chinese economy is large and dynamic. However, it has to undergo a huge behavioral and structural transformation for the Chinese to consume more and to rely less on exports. Why do I say this? Let's look at Indonesia. It has a population of 240 million, a far cry from China's 1.6 billion, and private consumption is 60% of its GDP. In China, private consumption is only 36% of its GDP.

Many might or might not know this but "China's consumption-to-GDP ratio has dropped by nearly 15 percentage points since 1990 and continues to deteriorate in the aftermath of the financial crisis. The sources of China's low consumption rate are both behavioral and structural." This was in a recent report by McKinsey.

Asia might be the future economic powerhouse of the world and China might become the leader but the journey has only begun.

Real value of gold

To look at gold as a hedge against inflation, we have to look at the real value of gold over time. For example, if someone bought gold at the peak in 1980, he would still have lost money after taking inflation into consideration today.

If someone had bought gold in 1914, he would have gained about 200% in the course of the last century after taking inflation into consideration. It is not an amazing return.

Everything must be put in context. I am a buyer of gold today but I will be a seller of gold one day, I'm quite sure.

With US government printing money and with almost 0% interest rate, inflation is likely to become a serious problem in future. As mentioned by Jim Rogers many times over, gold will probably see US$2,000 an ounce again.

The following chart is taken from an article on inflation adjusted value of gold by Barry Ritholtz - October 7th, 2009, 11:30AM: