Friday, 31 August 2018

The Support And Resistance Lines For KLCI – From A Histogram Perspective


In technical analysis charting, support and resistance levels are two important parameters to determine entry and exit points, coupled with volume information.  This method however, requires some users’ discretion to “draw” the lines on the chart.  This could lead to ambiguity.  One method to overcome this uncertainty is by using histogram.

Histogram may help the user determine the high frequency of common price points, without relying on a “eye-balling” technique to draw the line.  Furthermore, it has an advantage over the line drawing technique, which is the ability to tell the strength of the support or resistance levels.

The other flexibility of histogram is that it can use any parameter of the end-of-day (EOD) data to construct the chart.  One may use either daily high or low point, or even both points to build the histogram as long as the information is available.

Technical charts, either candlesticks or bar chart, generally are time based.  The histogram is a frequency-based chart, a straight forward tool to identify high occurrence activities.  It can be used for other purposes as well such as daily price range target determination, and technical indicators accuracy evaluation.

Chart 1 below shows the volume weighted histogram of weekly closing price of KLCI from June 2009 till August 2018.  Clearly from the chart, 1630 is a strong support line.  In fact, the post GE14 political uncertainty that caused KLCI to plunge 12% from mid-May to end-of June, found strong support at these regions and subsequently reversed the downtrend.  At the time this article was written, KLCI was trading at 1820, the immediate support based on the histogram is 1810.  The next resistance line for KLCI is at 1865.



                                             Chart 1: Volume Weighted KLCI Weekly Closing Price Histogram

Thursday, 30 August 2018

Porter’s Five Forces of Competitive Position Analysis


What is it?

Michael E. Porter of Harvard Business School (HBS) used a simple framework for evaluating competitive strength. This was developed in 1979.  Strategic analysts often use Porter’s five forces to understand whether new products or services are potentially profitable.

Porter’s five forces of competitive position analysis:

  The five forces are:
1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another.
2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the: number of buyers in the market; importance of each individual buyer to the organisation; and cost to the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate terms.
3. Competitive rivalry. The main driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness.
4. Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of customers switching to alternatives in response to price increases. This reduces both the power of suppliers and the attractiveness of the market.
5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate.
Arguably, regulation, taxation and trade policies make government a sixth force for many industries
What are the benefits?
Five forces analysis help organisations understand the factors affecting profitability in a specific industry. It could help in making better decisions; whether to enter a specific industry; whether to increase capacity in a specific industry; and develop competitive strategies.

Actions to take
Actions to Avoid
  • Use this model where there are at least three competitors in the market
  • Consider the impact that government has or may have on the industry
  • Consider the industry lifecycle stage – earlier stages will be more turbulent
  • Consider the dynamic/changing characteristics of the industry
  • Avoid using the model for an individual firm; it is designed for use on an industry basis

Reference

Wednesday, 29 August 2018

Impeach Trump and There Will Be Meltdown?


U.S. President Donald Trump warned on Thursday (August 23, 2018) that “markets would crash” and “everyone would be very poor” if he is impeached. This is against the backdrop of conviction of two of his closest former aides.  Trump warned that the current uptick in the economy leading into the “largest bull run in history” will evaporate.

One could say that Maduro in Venezuela and Trump in U.S. seem to share a similar disjoint with reality. Trump supporters are daring Democrats to initiate impeachment, confident that the narrative of economic growth and the fight against illegal immigration will spur Republicans to retain the majority in the mid-term elections. Most scholars appear to agree that the President cannot be criminally indicted in office but can be impeached.

So will a meltdown happen? A U.S. economic crisis is a severe, sudden upset in one part of its economy – it could be stock market crash (of 20% or more), a spike in inflation (which could happen with trade wars), or a series of bank failures (a’la 2008). They have lasting effects and may not always lead to a recession. And the U.S. has a crisis every ten years or so. Causes are always different. This one is probably a Trumpian initiative. But results are the same – high employment, near-bank collapse and a possible contraction.

Modern U.S. economic history predicts the next crisis will occur in 2018-2020. The first sign is usually an asset bubble. The next is the “get rich quick” ads everywhere and the third symptom is “irrational exuberance”. And every U.S. crisis has an impact on an open economy like Malaysia. So it is best for us, as a nation, to cushion the impact with solid reserves, better liability management and strengthening of domestic consumption and investment.

And how do I protect myself? These five steps could help:

(i)         Pay off all credit card and other personal debt;
(ii)        Have 6-9 months’ worth of living expenses as cash;
(iii)       Devise a financial plan for your needs;
(iv)       Rebalance all allocation twice a year to protect you when the crisis hits; and
(v)        Secure new streams of income.


References
1.  The Times of India, August 23, 2018
2. The Balance – U.S. Economic Crisis History and Warning Signs





Tuesday, 28 August 2018

The “New Malaysia”: The Way Ahead


On August 29, 2018, there is a forum at Sunway University on the above topic. Panel speakers for the most part, incredulously, are from UMNO. The very people who created the “Old Malaysia”. How could they define the “New Malaysia”? They with their “old” baggage and continued mantra of race and religion will have no chance of forging a New Malaysia. Institutionalised corruption, kleptocracy and values from a misguided leadership cannot and will not understand the “Way Ahead”. They as a group owe an apology to all Malaysians. Even now the former PM speaks without contriteness. What more of his underlings!

Aliran in its issue of 24 May 2018, said “if we are to lift Malaysia out of the septic tank of poor governance... we must adhere to the principles of good governance and the rule of law”. Although some work has been done, there is a lot more to address. Institutional reforms should include for example, the creation of an Independent Police Complaints and Misconduct Commission (IPCMC) and the repeal of laws contrary to a human rights framework. A closure on missing persons like Pastor Raymond Koh and others; a re-orientation of behaviour of many “front-line” agencies like Immigration; proper accounting of misdemeanours by a Corruption and Reconciliation Commission; recognition of the UEC, acceptable oil royalties to Sarawak and Sabah, and a full implementation of the Malaysia Agreement. Why is this important? It impacts the economy and livelihoods of people. So for us to grow above 4.5%, we need to put right the wrongs of yesterday.

Undergirding this and more, must be prayer. For every good man or woman, there are ten others waiting to destroy them. So it is for every Malaysian to pray for our leaders so that they will be “strong and courageous”.

Selamat Hari Merdeka!



Reference
Aliran, 24 May 2018





Monday, 27 August 2018

Hot Deals for Monday WW35'2018


Welcome to Hot Deals for Monday, where you have opportunities to Buy or Sell!

Opportunity 1

Company dealing in outdoor and gym equipment, has been in business for 15 years.  NTA around RM7.5 mil.  Profit ranging from RM0.5 mil – RM1.0 mil.  Profit guarantee is feasible.  Offering price RM5.0 mil.


Opportunity 2

Client looking for profitable assets in consumer products - hair care, home care and personal care.


Opportunity 3

Client looking for confectionery manufacturing and stores in ASEAN - Cakes, Cookies, Ice-creams, Biscuits, Chocolates etc.


Opportunity 4

Client wants to build solar plant (100MW).  Looking for suitable land (300 acres) in Kedah/ Perak/ Sabah.


Opportunity 5

Client wants to build gas-fired power plant.  Early stage. Suitable J-V Partner to support initial development cost is important.


Opportunity 6

Oil Palm estate over 2,000 acres in Kedah.  With potential for property development. 

If you are interested in the above opportunities or would like to offer your hot deals, please contact info@mpcap.com.my or 603 - 2283 1170 for further details!





Friday, 24 August 2018

P2P Financing Platform Operators License In Malaysia


The Securities Commission Malaysia (SC) announced on 5th July 2018 that it is inviting parties interested to operate equity crowdfunding (ECF) or peer-to-peer (P2P) financing platforms to submit applications for registration with the SC. Applications must be submitted to the SC latest by 7 September 2018.

As at June 2018, the SC has registered seven ECF operators and six P2P financing operators. These platforms have benefited more than 300 micro, small, and medium enterprises (MSMEs) to raise a total of RM118 million capital through more than 1,000 successful campaigns.

The salient points of the licensing guidelines are as follows:

·        All P2P operators must be locally incorporated and have a minimum paid-up capital of RM5 million.
·        A P2P operator must establish systems and controls for maintaining accurate and up-to-date records of investors’ monies held.
·        A P2P operator must carry out investor education programmes.
·        The P2P operator must ensure that investors’ monies are properly safeguarded from conversion or inappropriate use by its officers.
·        The P2P operator must have in place processes to monitor anti-money laundering requirements.
·        The P2P operator must have in place processes or policies to manage any default by issuers including using its best endeavours to recover amount outstanding to investors
·        Only locally registered sole proprietorships, partnerships, incorporated limited liability partnerships, private limited and unlisted public companies, will be allowed to be hosted on the P2P platform.
·        The following entities are prohibited from raising funds through a P2P platform:
o   Commercially or financially complex structures (i.e. investment fund companies or financial institutions);
o   Public-listed companies and their subsidiaries;
o   Companies with no specific business plan or its business plan is to merge or acquire an unidentified entity (i.e. blind pool);
o   Companies that propose to use the funds raised to provide loans or make investment in other entities.
·        Will the IT systems utilized in the operationalization of the P2P market be proprietary/ off-the-shelf/ outsourced? (If outsourced, please specify arrangements and how you will ensure it meets the requirement in the Guidelines).

Of those currently operating, 51% of market share of fund raised (Nov 2016 – Jan 2018) is held by Funding Societies, a partner of MP Capital Advisory Sdn. Bhd.  Default rates are minimal and reflects the stringent process followed.




Thursday, 23 August 2018

Top Five Challenges Faced by Business


Running a successful business is a daunting task. Adapt, change or stay viable is the key to survival. So what are the top five challenges for a business?

1.         Uncertainty

No matter what type or size of a business, uncertainty of regulation, markets, competition, technology are some of the never ending issues. Securing new contracts or mandates is key to driving short-term goals. So long-term value destruction may be the price for reactive, short-term focus. Reading trends and changes in the marketplace require some expertise.

2.         Cash Flow

To sustain operations, cash flow is key. Assets are secondary, especially if they are not generating cash. One former PM used to remark “Cash is king”, he is only partially right. Unless it is invested in generating cash flow, it remains in the “Dead Sea”. Improving processes, monitoring debtors/creditors ageing, staff levels and other revenue/expense items provide the base for better cash management. And for some it is a daily affair.

3.         Competition

Knowing the competition is important for survival. Their unique selling point and how best to overcome them is of significance. An independent party could be of help.

4.         Regulation

            As markets and technology shift so do rules and regulation. Impact of risk and regulatory compliance are added costs for any business. But it is worth the effort for sustained performance.

5.         Technology

            Pace of change is running exponentially. Flexibility and innovation are key to survival. External consultants provide that vital function in integrating multimedia and social media for marketing of services.

Many other challenges remain and may include branding, talent retention, supply chains, customer preferences, behavioural patterns and understanding changes in international markets. One needs to engage an independent expert for any particular area of interest.



References
1. Challenges Small Businesses Face in 2018, Eileen Conant (www.powerhomebiz.com)
2. 4 Big Challenges Businesses Face in 2018 and How to Tackle Them, Sylvia Schwartz (https://www.sage.com/en-gb/blog/big-challenges-businesses-face/)
3. The 10 Biggest Challenges Businesses Face Today (and need consultants for), (https://www.hiscox.co.uk), March 24, 2017
4. Top Ten Problems Faced by Business, Lean Methods Group (www.leanmethods.com)






Wednesday, 22 August 2018

Perfect Storm and Open Economies


Although economic conditions in East Asia remains favourable, headwinds are developing, especially for second half of 2018. The landscape on capital flows, investment and consumption have all turned cautious. Some are due to external factors while others are more internal in nature. The U.S. has been instrumental in stirring-up tariffs, sanctions and currency wars. And for many nations, it is not easy to negotiate with a USD20 trillion economy.

The World Bank in its June 2018 report (Global Economic Prospects: The Turning of Tide?) suggested a modest slowdown in the region (excluding China). Growth may taper to 5.3% in 2019 (predicated on moderating demand, tightening monetary measures and a general easing of commodity prices). For China, growth is around 6.3% in 2019, lower than 6.5% anticipated for 2018. And all this before the recent Trumpian measures.

Increased protectionism creates a climate of uncertainty for trade and investment. And more open the economy, the harder the hit. So capital flows are stressed, markets experience volatility and asset prices and currencies depreciate. If a combination of downside risks materialise, slowdown is sharper than forecast – meaning a shaving of 1-1.5% of current GDP forecasts.

Malaysia is an open economy with total trade to GDP at 136% (World Bank Report, 2017). Other nations in ASEAN reflect the following:


Trade (% of GDP)
Cambodia
125
Indonesia
40
Laos
76
Myanmar
46
Philippines
71
Singapore
322
Thailand
75
Vietnam
200
                                Source: World Bank / Trading economies

So for open economies external shocks amplify impact on GDP as much as domestic vulnerabilities. And what is an open economy? One in which a country trades with other nations and where the ratio (trade to GDP) is 1.0 or above – a measure (it can also be expressed in %) of its openness! In the above table, Singapore is the most open economy followed by Vietnam, Malaysia and Cambodia. Both China and India are low on this scale at 38% and 41% respectively. What does this mean? Well, China and India will have lesser impact from external shocks as compared to Singapore and Malaysia.

Reference
Global Economic Prospects: The Turning of the Tide?, World Bank, June 2018.




Tuesday, 21 August 2018

Costs of Major U.S. Wars


Brown University’s Watson Institute for International and Public Affairs found that an average American taxpayer spends USD23,386 on post 9/11 wars. By end fiscal 2018, the overall U.S. spending on wars in Iraq, Syria and Afghanistan could reach USD5.6 trillion. Even if the U.S. stopped spending on wars now, the cumulative interest cost could add more than USD7.9 trillion to the U.S. national debt (of USD21 trillion).

The table below shows estimates of U.S. war costs (excluding Syria) in 2011 prices and from World War 1:


USD (billion in constant FY2011)
World War 1
334
World War 2
4,104
Korea
341
Vietnam
738
Persian Gulf
102
Iraq
784
Afghanistan (up to 2011)
321

“Imagine” (as John Lennon says), if the same amount is used for hospitals, schools, industry, research, innovation and poverty eradication we will have a better world. But some wars are justified – if it is against Nazi Germany or Imperial Japan or a demagogue who massacres innocent people. Then who determines justification? Surely not one nation, as Iraq has proven to be!

Reference
1. U.S. Spend $5.6 Trillion on Wars Since 9/11, More Than Three Times What Pentagon Estimates, Paul Ratner (November 10, 2017)
2. Cost of Major U.S. Wars, Stephen Daggett (June 29, 2010)




Monday, 20 August 2018

Hot Deals for Monday WW34'2018

Welcome to Hot Deals for Monday, where you have opportunities to Buy or Sell!

Opportunity 1

Company dealing in outdoor and gym equipment, has been in business for 15 years.  NTA around RM7.5 mil.  Profit ranging from RM0.5 mil – RM1.0 mil.  Profit guarantee is feasible.  Offering price RM5.0 mil.





Opportunity 3

Client looking for profitable assets in consumer products - hair care, home care and personal care.


Opportunity 4

Client looking for confectionery manufacturing and stores in ASEAN - Cakes, Cookies, Ice-creams, Biscuits, Chocolates etc.


Opportunity 5

Client wants to build solar plant (100MW).  Looking for suitable land (300 acres) in Kedah/ Perak/ Sabah.


Opportunity 6

Client wants to build gas-fired power plant.  Early stage. Suitable J-V Partner to support initial development cost is important.


Opportunity 7


Oil Palm estate over 2,000 acres in Kedah.  With potential for property development.


If you are interested in the above opportunities or would like to offer your hot deals, please contact info@mpcap.com.my or 603 - 2283 1170 for further details!





Friday, 17 August 2018

Turkey: Currency, Tariffs and a Pastor


Turkish lira has dropped by over 40% this year. Is this a fallout from debt-fuelled growth, tariffs by Trump, or the arrest of an American pastor?

Turkey, a NATO member, had tariffs on steel and aluminium raised to 50% and 20%, respectively as a response to inconclusive talks last week. The U.S. is the biggest destination for Turkish steel exports – 11% of export volume.

The Turkish economy grew by 7% in 2017 supported by borrowings in foreign currencies by Turkish companies. Bulk of the revenue stream of these companies is in the local currency, the Turkish lira, while debt obligations remain in foreign currencies. A crisis waiting to happen!

Five European banks have significant exposure in Turkey. Europe is nervous because it depends on Turkey to restrain the flow of migrants from conflict zones. More than 4 million displaced people live in Turkey. Any significant flow of migrants will raise further opposition in Europe.

Then there is the American pastor put on trial for espionage and terror-related charges for a failed coup attempt in 2016. That’s fuel for the right-wing Evangelicals in the U.S. And Trump satisfied them with sanctions. But is the American pastor the real issue?

Turkey plans to buy Russian S-400 Triumf missile defense system for USD2.5 billion. Moscow claims it is effective against U.S. F-35 stealth fighter jets, a product of Lockheed Martin. U.S. and NATO officials want to prevent the Russian system from accumulating information on the sixty-four F-35s to be delivered to Europe (Norway, Britain, Italy and Netherlands) by end 2018 and 2019. U.S. lawmakers are seeking to block any transfer of the F-35 jets to Turkey.

Then there is the Russian built, nuclear plant (USD20 billion) under construction near the Mediterranean coast at Akkuyu. Putin also had talks with Iran and Turkey on the future of Syria.

What about other countries? India is moving forward with its purchase of the Russian S-400 Triumf air and missile defense system for USD5.5 billion. China is another buyer of the Russian system.

So now the U.S. is arrayed against Russia, China, Iran, India, Turkey, Cuba, Venezuela, Canada, Mexico, European Union and North Korea. What a combination – from communists and Islamic republics to free democracies and NATO members!

References: 
1.      Why Turkey’s currency is plunging and what it means
By David McHugh and Suzan Fraser, August 13, 2018

2.      Russia Sells Turkey Missiles It Claims Can Take Out F-35s
Kayhan Ozer, The Associated Press, April 3, 2018

3.      India to US: Sanctions won’t stop Russian air-defense system purchase
By Daniel Cebul, June 7, 2018