Friday, 28 August 2020

A Boomerang Worth RM6.61 Billion?

The Minister of Finance reported on Monday, 24 August 2020, that the PH Government had awarded RM6.61 billion contracts (101 in number) by way of direct negotiations. This was during the 22 months PH was in power. Is that true? And under what criteria could a Government conduct direct negotiations?

The Ministry of Finance (“MOF”) has five conditions for direct negotiations:

       i.         Urgent need;
     ii.         Compatibility issues;
    iii.         One supplier for product/service;
    iv.         Security/strategic importance; and
     v.         Bumiputra party has fulfilled all requirements

Perhaps, one could add that if intellectual property rights or real property rights are unique for the project; competitive process is too expensive; and, where competitive process will fail to produce a satisfactory offer into the above list. (These are conditions for consideration and not part of the MOF’s current criteria).

The term “direct negotiations” refers to exclusive dealings between an agency of the Government and a counterparty without undergoing a competitive process. The closed nature of direct negotiations can create opportunities for dishonest (or partial conduct) with allegations (or perceptions) of corrupt conduct. Measures could be taken to mitigate the risk of corruption and ensure adequate levels of integrity.

There were twenty Ministries responsible for the 101 projects that were awarded via direct negotiations, from May 2018 to February 2020. Of this, five Ministries had projects worth more than RM100 million in total.

No. of Contracts
Value (RM’m)
Ministry of Transport
Ministry of Defence
Ministry of Home Affairs
Ministry of Communications and Multimedia
Ministry of Housing and Local Government

The total of RM6.45 billion constitutes 97.6% of the grand total of RM6.61 billion in question. Two ministries – Home Affairs and Housing and Local Government – have Ministers in the present PN Government.

Under the Ministry of Transport (“MOT”), the single largest project was the Klang Valley Double Tracking (Phase II) worth RM4.475 billion. This project constituted 68% of the total of RM6.61 billion listed under direct negotiations. The double tracking contract was originally awarded by BN and PH negotiated down the price from RM5.3 billion to RM4.5 billion, or a “savings” of about RM800 million. The shareholders include LTAT. Surely this must have cleared the Cabinet of that time!

Then the Ministry of Defence awarded Airod Sdn Bhd (“Airod”) contracts worth RM670 million. Airod is owned by NADI Malaysia, which is the vehicle of MOF (and Tan Sri Ahmad Johan).

Others include Datasonic Technologies (RM270.7m), TM (RM251.2m) and MYTV (RM254.5m) -- a Syed Mokhtar company which had its original award in 2014. If it is a GLC or a MOF-owned, then the taxpayer still benefits. Otherwise, one could allege perceptions of the wrong kind.

Whatever the case, it seems the boomerang launched by MOF is coming home to roost! Couldn’t the Minister review the direct negotiations contracts done by PH and that of BN and presented how respectable PN is compared to the earlier administrations?


1.  Direct Negotiations: Guidelines for Managing Risks, Independent Commission Against Corruption, New South Wales, August 2018
2.     Siaran Media, Menteri Kewangan Malaysia, 26 August 2020
3.     The Star, 27 August 2020

Thursday, 27 August 2020

In a Covid World: Growth or Value Stocks?

Apple, Microsoft, and Amazon each have a market cap in excess of $1 trillion. Why? In part because these companies have kept a steady eye on growth.

Meanwhile, Warren Buffett, considered by many to be the greatest investor of our time, has amassed a personal fortune of $73 billion. Why? Because he’s kept a steady eye on value.

Growth is typically defined by earnings per share (EPS) and sales per share (SPS). High growth rates often drive higher “earnings multiples,” meaning investors show a willingness to pay more per unit of current earnings, with the expectation that growth should eventually “catch up,” so to speak.   

How do investors typically measure these so-called “multiples?”

·       Price-to-earnings ratio (P/E). Basically, this is a company’s stock price divided by earnings per share. It could be based on the past 12 months’ earnings per share (“trailing P/E”) or on the company’s projections (“forward P/E”).
·       Price-to-book value ratio (P/BV or P/B). This is the stock price divided by the stated value of its net assets (total assets less intangible assets and liabilities).

Growth stocks tend to show up in fast-growing industries like technology, pharmaceuticals, and other modern industries. Think of “FAANG” stocks: Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google parent Alphabet (GOOGL). These are among the classic growth stocks of our day.

Conversely, value stocks typically have low P/E and P/B ratios and lower expected growth rates. Financial companies, automakers, and commodity producers are often priced at low valuations, and thus get called “value stocks.”

If you’re looking at individual stocks, consider looking first at the industry. Is it associated with growth? Next, consider the P/E and P/B ratios. Here’s one common rule used by some analysts: if the P/E is above 20, and/or the P/B is above 3.0, it’s probably a growth stock.

As bad as the pandemic has been, and as much as the economy has suffered, no crisis lasts forever. This might give value a fighting chance versus growth as the world emerges from this unprecedented period. The so-called “growth-value” spread recently hit levels last seen two decades ago during the dot-com boom. When spreads reached historic levels, it can often point to a change in the weather.

The chart shows only through December 2019, but the growth side continued to accelerate in the first half of 2020 as FAANGs, biotechnology firms, and semiconductors gained ground.

FIGURE: GROWING GROWTH? Over long periods, both growth and value have had periods of outperformance. But in recent years, growth has been the clear winner. Data source: MSCI. 

Another way to track how they’ve performed differently, as mentioned earlier, is to compare P/B ratios. About a decade ago, the average P/B for growth stocks was around 4, versus around 1 for value stocks. Today, P/B remains around 1 for value, but it’s zoomed up to around 8 for growth. That’s the highest P/B for growth since 2000. 

Growth likely benefited recently because so many investors wanted large, familiar names that had weathered challenges like the 2008 recession and a 2015–16 “earnings recession.” But you could argue the move reflected a scramble away from value as much as one toward growth.

As the economy reopens, people are getting back out again, but growth stocks keep making new highs. COVID-19 is viewed by most economists as a temporary shock to the economy. With many predicting improved conditions in Q3 and beyond, will growth stocks continue their climb?

It’s a complicated picture, to say the least. Academic financial gurus Eugene Fama and Kenneth French famously declared value (in the form of low P/B ratios) to be one of the best factors for stock selection. But their subsequent research suggested that growth factors of profitability and reinvestment may be very similar in impact to value factors. It’s uncertain which matters more statistically.

Believe it or not, some of today’s steady dividend cash cows were once the upstart disruptors. Consider IBM, which has a dividend yield of more than 5%. In the 1960s, IBM was part of the “Nifty 50,” which also included stocks like General Electric (GE) and Johnson & Johnson (JNJ). Those companies were arguably the Apple and Tesla (TSLA) of their day.

So. when it comes to choosing growth versus value, it’s hard to say definitively which one is better. It may come down to your objectives:

·       Are you looking for potential income?
·       What’s your time horizon and risk tolerance?

Today’s highflier may be tomorrow’s low-P/E, dividend-paying value stock. Plus, investing doesn’t have to be an either-or, vanilla-or-chocolate, heads-or-tails decision. Choosing a mix of growth stocks and value stocks can help you build a diversified portfolio.


1.     Viraj Desai, Growth vs. Value Stocks: Which Is Right for Right Now?
2.     Kelly Bogdanova, Growth versus value investing in a Covid-19 world
3.     Mark P. Cussen, Value or Growth Stocks: Which Is Better?

Wednesday, 26 August 2020

Malaysian Manufacturers Need Two Years for Business Recovery ?

The Star

Malaysian manufacturers are pessimistic about their business recovery. Over two-thirds need four months to two years to restore business to pre-Covid 19 levels. This is based on sluggish growth projected globally.

Revenue and profitability have been impacted negatively in the past 6 months. Only 8% enjoyed higher revenue/ profit – and these were glove makers. About 46% of the respondents in the survey done by FMM – MIER say they will cut down production. Currently, they are operating at 50% of capacity.

About 42% of the respondents are planning to cut costs by reducing up to 30% of workforce by December 2020. Retrenchments will continue into 2021 albeit at a slower pace – 10% to 20%.

In terms of business sustainability, about 34% of respondents believe their companies may not survive beyond 12 months. Government support on wage subsidies and loan moratorium are key to survival. The most vulnerable group, micro enterprises, may need cash assistance. FMM suggested the loan moratorium period be extended to December 2020. This will help with recovery and retention of workers.

The unemployment rate is between 4.9% to 5.3% (for June/May) according to the Department of Statistics, Malaysia. That suggests close to 800,000 people are unemployed. More graduates will try to join the labour market and many will take a year or more to find suitable employment.

The Government has to address these issues – loan deferments, cash advances, employment – in a practical one-year action plan if the economy is to achieve any semblance of growth in 2021.


1.     Two-thirds of Malaysian manufacturers need up to two years to return to pre-pandemic levels — survey, 19 August 2020, The Edge
2.     Almost half of manufacturers plan 30% job cuts by year-end — FMM-MIER survey, 19 August 2020, The Edge

Tuesday, 25 August 2020

Covid-19: Four Airlines That Will Survive

Source: Rate a Cabin Crew

Some airlines are going bankrupt. Many are selling or pledging their assets, doing their best to survive the crisis. However, there are some airlines much stronger than we expected. They are backed by extremely wealthy owners and ready to survive the pandemic. Below are top 4 airlines that are well equipped to survive according to Amanda Collins from

1. Chinese Government Airlines – Air China, Chinese Eastern and Chinese Southern

These three airlines are Government owned and plays a major role in expanding the influence of China all over the world. Chinese government has trillions of dollars in deployable capital and virtually unlimited options and reasons to keep these airlines flying. Even if it takes several decades of operating at losses, the owners of these airlines are well determined to keep them flying.

2. Qatar Airways

Qatar Airways is owned by the Qatari government which has over $350 billion in known assets worldwide. During the blockade imposed by Qatar’s neighbors several years ago, Qatar Airways single handedly saved the country from starvation flying in essentials including milk and bread from Turkey and Iran as well as dairy cows from far off countries such as New Zealand. The airline flew aircraft even during the peak of the pandemic crisis. A diverse fleet, superior product and access to virtually unlimited funds makes Qatar Airways one the most resilient airlines to survive the crisis.

3. Etihad Airways

Etihad Airways is the flag carrier of UAE, owned by the Abu Dhabi royal family. Abu Dhabi royal family owns Sovereign Wealth Fund and Investment companies Abu Dhabi Investment Authority (ADIA) and Mubadala which has assets under management worth over $1 Trillion. Other major assets include ADNOC, the oil company owned by Abu Dhabi government.

Etihad virtually has access to any amount of money it needs. Etihad is also a strategic asset to Abu Dhabi. Hence, no matter what, Etihad will keep flying.

4. Singapore Airlines

Singapore Airlines is owned by the Singapore government in the form of majority shares and is a vital link to the Asian business hub. Without a national airline to provide travel link to the country, the economy will collapse which makes the Singapore government take a ‘whatever it takes’ approach to support the airline. The government poured in over $8 billion in June 2020 to improve the liquidity of the airline.

Some carriers like Emirates are not on the list because the Governments do not have enough resources to support the airline for an unlimited period. In US, all airlines are public limited companies which put a limit on the cash it can access. The major US airlines have tens of billions of dollars in liquidity but that can last only for a certain period of time. If debt rises exponentially, shareholders will lose confidence and will end up in insolvency.

Amanda Collins, Top 4 Airlines That Will Survive the Covid-19 Crisis No Matter What

Monday, 24 August 2020

Effects of Covid-19 on the Malaysian Economy

The Department of Statistics Malaysia undertook a special survey on the above. A total of 4,094 companies/firms participated in the survey. The feedback includes qualitative opinion on the effects of Covid-19 on the economy.

On Government’s incentives, surprisingly over 34% were satisfied or very satisfied. Many (52.1%) perceive Prihatin Package could ease their financial burden. That sounds as if recovery could be soon. Is that true? What do you think?

Special Survey “Effects of Covid-19 on Economy and Companies/Business Firms”, Department of Statistics Malaysia

Friday, 21 August 2020

Warren Buffet: Write Down Your Why

There are several reasons you might decide to invest in a certain company. But Berkshire Hathaway CEO Warren Buffett says there's one you should always avoid: Buying a stock merely because you think it's going to increase in price. That's because even the best investors aren't able to predict how the market will perform. Instead, you should invest in companies that you both understand and believe will offer long-term value, according to Buffett. No matter how much or how little you're buying, you should be able to get your reasoning down on paper without relying on outside resources.

"Everybody when they buy a stock should be able to take a yellow pad" and write down exactly why they plan to invest in that company, Buffett said in a CNBC interview. Investors should not worry about how the stock will perform in the near term. Buffett recommends focusing on businesses that will hold their value over time.

Buffett follows three general rules when deciding which companies to invest in: "First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price," he wrote in his 2019 annual letter to Berkshire shareholders. That said, any individual stock can over- or under-perform, and past returns do not predict future results. Beginner investors are encouraged to look into low-cost index funds instead, which are less risky.

Having said all that, Covid-19 has punished Warren Buffet’s Berkshire Hathaway with USD9.8 billion write-down due to Precision Castparts. Berkshire still has cash of USD146.6 billion and had just USD797 million in equities in second quarter (this is excluding purchase of Dominion Energy for USD4 billion).

1. Warren Buffet Recommends a Simple Exercise Before You Buy Any Stock: Write Down Your Why, Emmie Martin, Feb 24, 2020 (

2. Pandemic Punishes Warren Buffet as Berkshire Hathaway Takes Bid Writedown, Reuters, August 9, 2020

Thursday, 20 August 2020

Working 40 Hours A Week: Is It Too Much?

“Eight hours labour, eight hours recreation, eight hours rest,” Robert Owen, a Welsh manufacturer and labour rights activist divided the day into three equal eight-hour parts.

In the 1800s, people in manufacturing worked nearly 100 hours per week. Today, 40-hour work has been implemented in many developed countries (e.g. Europe, UK). In fact, people working in Denmark, Sweden and Norway with fewer hours per week tend to be more productive, happy and healthy. Even in Indonesia, the labour law prescribes normal working hours as 40 hours per week. Meanwhile in Malaysia, the Malaysian Employment Act defines the workweek as 48 hours, with a maximum of eight working hours per day and six working days per week.

Working more than 40 hours a week benefit no one. A 2004 report published by the CDC’s Department of Health and Human Services provides a summary of 52 applied psychology studies on the impact of extended shifts and regular overtime. Across the board, the studies found the impacts were negative—both for employers and employees:

·       People who regularly work overtime are less healthy. They’re more likely to gain weight, fall ill, and get injured on the job.
·       People are less alert and more likely to make mistakes after the 8th hour of work.
·       People who routinely work extended hours and overtime are less productive.

Overwork can also lead to sleep deprivation and stress. BNM's 2018 Annual Report stated that higher labour productivity comes with higher wages and not by the duration of working time.

But is 40 hours a week still too much? The 40-hour workweek is rooted in industrialism. Modern advances in technology have provided today’s workers with the tools to work anytime and anywhere. Therefore, people can, and do continue working after they leave work for the day, check their work email at night and even on weekends. On average, people work an extra seven hours a week outside of the office. This makes us depend 100% fully on our current job – our only source of income.

NEF (the New Economic Foundation), an independent think-and-do tank in fact suggested a radical change in 40 working hours to 21 hours. And 21 hours is close to the average that people of working age in Britain spend in paid work. Moreover, it could help address a range of urgent, interlinked problems: overwork, unemployment, over-consumption, high carbon emissions, low well-being, entrenched inequalities, and the lack of time to live sustainably, to care for each other, and simply to enjoy life.

People today have less time to enjoy their lives because the eight hours that they have each day for fun are filled with chores and errands—more rote tasks to handle. This has led some people to claim that the 40-hour workweek is too long.

There is still not enough evidence yet to conclude either 40 hours or 21 hours is better for an employee to work in a week. It depends on the nature and culture of an organisation. But HR could consider the potential benefits of lesser working hours when deciding the standard working hours of a company.

Which do you prefer? free polls

1.     Jessica Greene, Is 40 hours a week too much? Here’s what history and science say
2.     NEF (2010), 21 hours - Why a shorter working week can help us all to flourish in the 21st century

Wednesday, 19 August 2020

Are We Expecting a V-Shaped Recovery?

Malaysia’s economy contracted by 17.1% in Q2 2020 – worse than the AFC in 1998. The Chief Statistician of Malaysia says that in April, GDP contracted by 28.6%, in May it was -19.5% and June had -3.2%. Slower contraction in June was observed in all sectors, except for manufacturing and agriculture - both had growth of 4.5% and 11%, respectively.

Given the contraction in April-June, the full year GDP is at best -3.5% to -5.5% in 2020. The Malaysian economy is expected to stage a V-shaped recovery with growth projected to be 5.5% to 8% in 2021.

The Department of Statistics Malaysia has shown this in infographics as below:

Source: DoSM

The problem starts after the moratorium period in September. This is when companies/ firms need to meet debt obligations. Many are not ready for that! The optimistic view from BCG is recovery beyond Q3 of 2021 while McKinsey projects Q3 of 2022. And if one looks at IATA it is 2023 or beyond. Only businesses with deep financial resources can survive. Most economists believe in a U-shape rather than a V-shape. And some go on to suggest an L-shape. Whatever the alphabet, a vaccine available will certainly shape-up matters.

Bank Negara: Worst is behind us, the Star, 15 August 2020
Malaysian Economy contracted by 17.1%, worst since 1998, RinggitPlus, 15 August 2020

Tuesday, 18 August 2020

TikTok Sale: What Does Microsoft Want?


The artificial-intelligence software used in TikTok scans videos posted for substance, form, and meaning, and uses that material to recommend more. You don’t have to search for people you are interested and follow. Instead, you download it, watch a few videos, and TikTok starts recommending more. And the recommendations are surprisingly effective.

Trump has given Microsoft 45 days (by September 15) to seal a TikTok deal. Microsoft might be pursuing TikTok’s global operations, and Trump has signed an executive order to block all U.S. transactions with ByteDance (and Tencent) starting September 20.

Microsoft’s acquisition of TikTok may look unusual. Microsoft is about productivity, not entertainment. Its experience with consumer businesses is mixed, the successful stewardship of TikTok is not assured — think of the search engine Bing or the takeover of Nokia’s smartphone business, both ended in failure.

Young people are now growing up in an environment dominated by Android, iOS and Chromebooks in classrooms. With Google Docs, it is possible to grow up without needing any Microsoft software or services. TikTok gives Microsoft a connection to millions of youngsters. Like how Microsoft used Xbox Live to fuel parts of the company’s research for future projects. TikTok could help correct a Microsoft blind spot and even change how its other software and services are developed.

The other tech giants already have social data to train their AI algorithms on — Amazon has Twitch, Google has YouTube, and Facebook has multiple social apps where users post video content. A transformative Microsoft-TikTok tie up could help create meaningful competitive position, leveraging other Microsoft brands like LinkedIn, Minecraft and Xbox.

Microsoft once teamed up with News Corporation and NBC Universal back in 2006 to launch its Soapbox on MSN Video service. It failed against YouTube and was shut down a few years later, leaving Microsoft to adopt YouTube as the primary way it shares its own videos. Microsoft also experimented with its own social network, Socl, back in 2012 before shutting that down five years later. And now the company is planning to acquire TikTok.
What do you think? Is the acquisition worth the risk?


1.     What Would Microsoft Do With TikTok? August 3, The New York Times
2.     Emil Protalinski, ProBeat: Microsoft wants TikTok for the same reason the U.S. fears China
3.     Tom Warren, Why Microsoft Wants Tiktok

Monday, 17 August 2020

“THE ROAD TO UNFREEDOM” Russia, Europe, America

We are living in dangerous times, Timothy Snyder argues forcefully and eloquently in his book, “The Road to Unfreedom.” Leaders and followers, are irresponsible, rejecting ideas that don’t fit our preconceptions, refusing discussion and rejecting compromise. Worse, many are prepared to deny the humanity and rights of others.

The road to unfreedom, as Snyder sees it, is one that runs right over the Enlightenment faith in reason and the reasonableness of others — the very underpinning, of western institutions and values. Recent examples, found around the world, demonstrate both how important conventions and mutual respect are as a way of maintaining order and civility — and how easily and carelessly they can be smashed. Just think of President Trump’s regular impugning of the loyalty of those who work for the American government, CDC or the FBI.

So many in the U.S. no longer care about understanding themselves and their pasts as complex and ambiguous. Rather many look for comforting stories that claim to explain where they came from and where they are going. Such stories relieve them of the need to think and serve to create powerful identities. They also serve the authoritarian leader who rides them to power.

Snyder makes a valuable distinction between the narratives of inevitability and those of eternity. The former are like Marxism or faith in the triumph of the free market: They say that history is moving inexorably toward a clear end. The latter do not see progress but an endless cycle of humiliation, death and rebirth that repeats itself. Not surprisingly these often draw on powerful religious iconography. Both, as Snyder points out, produce intolerance of those who disagree.

Liberal democracy is being undermined from within.  In addition to the general malaise Snyder identifies, “The Road to Unfreedom” also points to human agency — in particular that of Vladimir Putin. At home and abroad Putin has willing collaborators and “useful idiots,” as Lenin supposedly called them. Yet the evidence is that Putin is ruthless in his determination to hang on to power and destroy those he perceives as enemies of Russia, a large group.

He has used covert and not so covert means (think of the “volunteers” in eastern Ukraine who drove Russian Army trucks) to destabilize neighbouring governments and to stir up dissent in countries from France to the United States. Within Russia, as recent elections illustrate, he bends the Russian people to his will through a mixture of coercion and persuasion. As Snyder says in one of his incisive comments, Putin’s dominance is based on “lies so enormous that they could not be doubted, because doubting them would mean doubting everything.”

To understand Putin, Snyder argues persuasively that you must understand his ideas - a strange and toxic mixture of fascism, religion and 19th-century notions about race and the struggle for survival. His pronounced use of sexual imagery would also interest Freud. There is a stress on power and virility and corresponding fears of sexual nonconformity. Putin and his obedient press regularly attack gays and gay rights as part of a Western conspiracy to destroy Russia.

So what can the concerned citizen in the U.S. do about the decay in public life? As Snyder says, keep digging for the facts and exposing falsehoods. As Thucydides, the father of history, said, “Most people, in fact, will not take trouble in finding out the truth, but are much more inclined to accept the first story they hear.” Mistrust one-sided accounts of the past or the present. “The Road to Unfreedom” is a good wake-up call. We may not agree with all of Snyder’s conclusions, but he is right that understanding is empowerment.

The Road To Unfreedom, Russia, Europe and America, Timothy Synder, Tim Duggan Books