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CapitaMalls Asia: Closed at $1.90 support.

CapitaMalls Asia closed at $1.90 support today on reduced volume. My overnight BUY queue at $1.90 was filled. Lowering volume as share price consolidates at support. Nice.

MFI formed a higher low suggesting firm demand. Higher lows on the RSI suggest positive buying momentum. It is not clear yet if share price would break out of resistance next.  Immediate resistance is now provided by the declining 50dMA at $1.95 while immediate support is at $1.90.

If price should weaken and close below $1.90, I would turn cautious and stop accumulating. If the low at $1.83 were not compromised in such an instance, I would buy more as another uptrend forms. If the low at $1.83 were taken out, we would want to wait for selling pressure to peter out before venturing back in. What would be the new low then?

If price moved higher and took out resistance at $1.95 convincingly, expect resistance at $2.00, $2.04 and $2.09. As we can see, CapitaMalls Asia is not just a long term buy based on FA but one that is based on TA too. The wall of worries is a tall one indeed.

I will be going on a working trip from tomorrow and would be kept busy. I might not be able to access the internet conveniently. Although I will try to log in and update my blog, I cannot guarantee that I would be able to do it. I will be back in Singapore this Saturday. Good luck to everyone in the meantime.

Related post:
CapitaMalls Asia: Borrowing on the cheap.

Saizen REIT: Divestment of K1 Mansion Morioka

It has been some time since Saizen REIT sold any building from its YK Shintoku portfolio. It divested K1 Mansion Morioka to an independent private investor for a cash consideration of JPY 55,631,452 (S$0.9 million). This building, located in Morioka, was built in August 1995 and comprises 6 residential units and 6 parking lots. The sale is at a discount of approximately 6.7% to valuation.

Referring to the annual report, as of 30 June 2010, K1 Mansion Morioka was 100% occupied and brought in a total annual rental income of JPY6,900,000. This means a gross yield of 12.4%. A good deal for the buyer.

Following loan repayment from sale proceeds of this divestment, the remaining balance of the YK Shintoku CMBS is about JPY 5.4 billion (S$84.6 million). Considering the cash reserves of JPY 0.5 billion (S$7.8 million) maintained by YK Shintoku under the loan agreement, the net outstanding loan of YK Shintoku is about JPY 4.9 billion (S$76.8 million).

Tea with AK71: Interest rates and inflation.

A topic on interest rates seems serious enough. Why have I put it under "Tea with AK71"? Well, it is because I want to talk about it in a more informal tone. It gives me an excuse to ramble and not be too careful in the way I write.

In the last one year, many have been talking about interest rates and how the low interest rates won't last and would go up in time. It seems to be a relatively safe prediction and, in general, I agree but when would it go up and by how much? That's the difficult question.

What goes up must come down one day and what is down would go up too. It is how things in the world achieve equilibrium. There could be exceptions but let's ignore these to keep this chat going.

I might have mentioned this in my blog before. I cannot remember. Think of China and what they are doing. They have increased interest rate more than once in the last few months due to inflationary pressures. Is increasing interest rates the only way to fight inflation? Well, there are many tools available and interest rate is just one tool. Like all tools, it has its limitations.

China has also increased bank reserves requirement in an attempt to reduce money supply. Interest rate and money supply are useful to a point in controlling inflation which are domestically created. They have little impact on exogenous factors.

The Chinese have a huge problem with inflation and much of that is imported. Remember that only a third of the Chinese economy is driven by domestic consumption. This is very different from Indonesia's 60%. How much of the inflationary pressure in China is due to rampant domestic over-consumption, therefore?

Raising interest rates won't help much and could make things worse. The more effective way to reign in inflation is what the Singapore government did: allow its currency to appreciate. Singapore too has a small domestic economy. The Chinese know that they have to let the RMB appreciate and they are just delaying the move.

The RMB is way undervalued and it is the main culprit in causing rampart inflation in China as the booming Chinese economy is heavily reliant on many imports just to keep its industries humming along. Its energy needs is just one such example.

The Singapore government does not use interest rate to control inflation. It uses the Singapore Dollar which floats against a basket of currencies of its major trading partners. If the MAS should hike interest rates (which it can't) to combat inflation, it could have a bigger problem on hand. Why?

Many Asian countries already have a problem of hot money flowing in, money looking for better returns. This money is usually from developed countries which are doing quantitative easing in the hope of jump starting or keeping their economy above water. In these countries, interest rates are more likely than not close to zero.

Money will go to where it is treated best and so, although the interest rates are pretty low in Singapore, a lot of money still find its way to our small island. For example, a 0.8% interest rate plus the prospect of  a 5% appreciation against its country of origin is very attractive for such funds.

The inflows have to be put to productive use and lenders (banks) will mostly offer relatively low interest rates to entice borrowers. More cheap debt and inflation continues. So, combating inflation is not a simple matter of increasing interest rates. If only it was that simple.

Now, one day, when the Chinese government decides to float the RMB more realistically, what would happen to companies with investments in the PRC? What would happen to CapitaMalls Asia?

Another point, since the Singapore government does not use interest rate to control inflation and if an increase in interest rate could be a bad thing instead as it encourages more hot money inflow, what would be the interest rates be like in Singapore for the next 12 months?

To both sets of questions, I have answers. However, seeing that my formal education in Economics ceased at "A" Levels, I shall not reveal what I think. I could be wrong, of course.

I think I need something bracing after this heavy blogging. Tieh Kuan Yin, anybody?