How GST affecting our Share investment?

This is another topic on GST awareness. This time we talk about share market investment, your share trading account and transaction costs. Every share investor should read this article. Let's start here...

Many share investors already started their "wait and see" approach since last week because many of us don't know how GST is going to impact our share investment after 1st April 2015.

Basically, each transaction consists of the following 3 types of charges:

1. Brokerage fee
   Normally, the charge is 0.42% (online trading) and 0.60% (offline trading). Some of you may find it to be as low as 0.10% (intraday trading). Yes, this fee is subject to 6% GST. After 1st April, it will become 0.4452% (online trading) and 0.636% (offline trading).
   
   
2. Clearing fee
   This fee is basically charged by Bursa Malaysia and it was fixed at 0.03% of the transaction amount. Yes, this fee is also subject to 6% GST and it will become 0.0318% after this.
   
   
3. Stamp Duty
   This is calculated as RM1 stamp duty for every RM1,000 trading value. Since this is another form of tax by government, stamp duty is NOT subject to GST. Remained unchanged.

In order to have a clearer picture, let's take an example of a 1,000 share of Maybank RM9.25 currently. The total trading value will be RM9,250.

• Before 1st April, the total cost will be
• Brokerage fee 0.42% = RM38.85
• Clearing fee 0.03% = RM2.775
• Stamp duty = RM10
• Total transaction cost = RM51.625

• After 1st April, the total cost will be
• Brokerage fee 0.4452% = RM41.181
• Clearing fee 0.0318% = RM2.9415
• Stamp duty = RM10
• Total transaction cost = RM54.1225

• So, the different for this example before and after GST is around RM2.50 and in terms of percentage, it's just a mere 4.8% more.

Then, how about capital gains from share investment?

Many investors sold their holdings before 1st April, thinking that any profit earned from share trading will subject to 6% GST. This is not the case. As usual, any capital gains from share trading in Malaysia are not subject to any tax including GST. Meaning, capital gains will remained as tax-free. No need to panic selling.

How about share dividend payout?

For dividend, it will remained the same unless you are using a nominee CDS account, in which there might be some administration fees involved that will be subjecting to 6% GST charge. Better switch to direct CDS account if you want to avoid these charges.

Conclusion

Yes, GST definitely will impact the overall share trading market, but the sentiment will be faded away very fast due to its minimal impact. GST aside, it's the emotional impact of the economy that will dampen our share investment. Happy trading !!!

Share Trading: Nominee vs Direct CDS account

Did you ever notice that when you open a share trading account with a broker, they will usually ask you whether you prefers nominee or direct CDS account? For an ordinary investor, we might not really understand what are the differences and benefits that you can enjoy for both types of CDS (Central Depository System) account.

Well, this is the very basic step every share trading investors should find out first, before approaching a share broker. Equipping yourself with the relevant basic knowledge in order to avoid starting at the wrong footstep. Agree?

This article may help you to understand the differences between these two type of account. Please refer to below comparison tables:

Account Opening Stage

How about the Trading Fees?Generally, the charges are the same for both accounts. Whereby, the normal brokerage fee is 0.42% per transaction with minimum RM12 for online transaction or minimum RM40 for offline transaction. Meanwhile, the clearing fee is 0.03% per transaction and stamp duty of RM1 per RM1,000 contract value.

How about Collateral Limit?

For those account which gave you some trading limit based on how much collateral you pledged into your trading account. Collateral such as cash and shares would give you a limit of 2-3 times of the total value pledged. This is good for those traders who want some flexibility, so that he/she still can buy shares although he/she don't has so much cash inside their trading account yet. Of course, investors need to settle the outstanding amount within T+3 trading days.

After Trading Stage

By comparing both account, share investor who owns a Direct Account can enjoy better savings on the "after trading" charges. However ,the main advantage that a Nominees Account holder can enjoy is the service of a share broker. The paperwork of corporate actions sometimes is very hard for investors to understand and make decision. And, many investors might missed out in replying those corporate actions if they were a direct account holder. If you're a nominee account holder, please make full use of your nominee charges. In summary, there is advantages and disadvantages to both accounts.

PS: All Margin/Pledge /Foreign Trading accounts are treated as Nominees CDS account.

This is a guest post contributed by Martin Heng Sin Soon, an Equity Dealer with RHB Investment Bank. You can open both nominee and direct account with him. He can be reached via email heng.sin.soon@rhbgroup.com.my

Budget 2015: Which Stocks to Watch?

After the Budget 2015, investors are bracing for the first trading day tomorrow. Before the opening session kicks off, what's the potential counters should investors focus on? How to relate those counters with Budget 2015 ?

The biggest beneficiaries...

Obviously, one of the biggest beneficiaries was construction sector with the announcements of various highways, MRT and LRT projects. Meanwhile, we can break it down to a few potential counters:

1. Gamuda:
   Another MRT line from Selayang to Putrajaya with an estimated RM23bil. With its expertise in tunneling works and PDP role of existing MRT line, Gamuda is the favorite to clinch the job again.
   
   
2. Bina Puri, Sunway and TRC:
   These are another few companies which already clinched some construction jobs for current MRT or LRT projects. The new line announced would definitely benefiting these counters, since they already have the experiences and also cost advantages.
   
   
3. IJM:
   When mentioned about the RM5bil West Coast Expressway (WCE) project, automatically IJM will comes into the picture.
   
   
4. Huayang and Sentoria:
   These two companies which involves in the building of affordable houses should benefiting from the PR1MA and various affordable housing scheme.

Other than construction sector, consumer sector also benefiting given the expanding lists of items being exempted from GST...

1. QL Resources
   The largest egg producers in the country would benefited after eggs was being listed as GST exempted item.
   
   
2. Nestle
   The largest food and beverage company would benefited after cocoa powder and coffee powder being GST exempted also.

How about the RM150mil financial assistance to SMEs for the purchase of accounting software? Yes...

1. Censof, YGL and IFCA MSC
   These are the major GST related software providers in the country. The latest financial assistance provided may speed up the enrollment process for SMEs to be GST registered companies, hence the need for such software.

With RM2.7bil going to spend within 3 years to further boosting the high-speed broadband services in the country, these two counters should be more than happy to heard the news:

1. Redtone
   Extensive track record in implementing and laying of under sea cables.
   
   
2. OCK
   The standalone telecom towers owner with extensive experience in building and maintaining telco towers. As announced, 1,000 new telco towers will be build.

That's it for all the beneficiaries of those good news. Wait...

Some counters may also benefiting purely because there is NO bad news being announced.

1. BAT
   The tobacco counter will smile in relieve simply because absence of duty hike as anticipated by many analysts.
   
   
2. Carlsberg and GAB
   These brewery counters also will smile after escaping from another round of duty hike. Moreover, the government efforts in promoting tourism industry seen as a positive news too.

Happy Trading...

Understanding "Special Purpose Acquisition Company" (SPAC). Is it Purely Speculative?

After almost 3 years since the listing of Malaysia's first special purpose acquisition company (SPAC) on Bursa Malaysia, many investors still don't know what's that and many investors skeptical about its existence. Let's us explore here...

What's SPAC ?

It's another product of Bursa Malaysia, which is very different from other trading companies or products on the stock exchange. Before investing into a company, what do we consider first? Company profits track record? Business model? Earnings growth projections? P/E ratio?... All of these info is UNAVAILABLE for SPACs during initial public offering (IPO).

In fact, a SPAC is floated without any business. It's up to the management to identify a suitable acquisition or merger (or more), and to secure shareholder approval to use IPO proceeds to pay for that deal. In Malaysia, a SPAC must complete at least a deal within 3 years after listing.

Without all those info, what could investors relying to? Obviously, the only visible reference was their management team. The success of a SPAC depends solely on the management team, which basically comprise of experience or expertise people to conclude a deal.

Then, this is very risky. Correct?

Undeniably, it's riskier than ordinary IPO investment. In order to safeguard investors interest and providing them some comfort, SC guidelines stated the following 2 key rules for SPAC:

1. 90% of the IPO proceeds raised must be placed into a trust account, and
2. If the SPAC fails to make a deal after the 3 years deadline, it will be liquidated and the trust money will be distributed to shareholders.

So, is it worth to invest in?

Yup. SPAC was very much like a speculative investing, without any fundamentals of a proper business in place. It solely depends on the management team to make it or break it. With the 3 year deadline, this puts SPAC in a dire needs to conclude a deal than the seller. This may adversely affecting the negotiation power of SPAC. Do you think that the deal negotiated in such manner could bring advantages to shareholder? Let's wait and see...

Top 3 Common Investing Mistakes

When coming to investing, do you wonder why retail investors always lose out? What are the common mistakes they made? In this article, Finance Malaysia blog pointed out the top 3 investing mistakes by retail investors.

The 3 common mistakes:

1. Trying to time the market.
   "Every often, investors thought that they can forecast the short-term direction of share market, or listen to other people (market timers). It's a big mistake. It was like a gamble, guessing the ups and downs. Can you see a gambler become millionaire?"
   
   
2. Being an active trader.
   "Buying blue-chip counters with long-term profits as a goal is the real way of investing. Don't trade actively which can resulting your goal being blurred along the way."
   
   
3. Using those high cost investing tools.
   "Every single penny you saved contributes to the total returns you gained from an investment. Investors should avoid those high charges investing tools to optimise their return. Can you guaranteed the company that charged higher perform better?"

Happy Investing !!!

TA 2013 Malaysia Outlook: Ride the Volatility

By TA Securities,

We believe 1H13 will be a choppy period and election concerns could drag down the FBM KLCI by 8% to 10% in the period before market rebounds in the 2H13. The impetus for revival will mainly hinge on the end of election overhang and strong domestic demand.

Sustained monetary easing on the back of low inflationary pressure and attempts to reduce budget deficits by cutting subsidies and channeling the savings to productive ventures are positive despite the short-term impact on earnings. Overall, domestic economy will play an integral role in sustaining confidence in domestic equities next year in the absence of any overwhelming micro drivers.

Corporate earnings for 9M12 were less robust and we forecast full year earnings growth for the FBM KLCI to be 9.4% only. Chances of a strong revival in the immediate-term are minimal based on external sentiment and dwindling demand in key export markets. Our earnings growth forecast of 8% and 8.4% for CY13 and CY14 is not compelling vis-a-vis key regional emerging market's 16.1% and 14.7% respectively. It could come under further pressure if the implementation of minimum wages had greater impact in raising the input cost than the intended increase in disposable income and spending. High likelihood of subsidy cuts (electricity tariff and fuel price increases) post 13th General Election would be negative on earnings and will prompt us to trim our CY13 and CY14 forecasts by 1.2% and 4.9% respectively.

How about Foreign Markets?

External factors will continue to dictate the market directions. The structural flaws cannot be undone overnight but expect bouts of positive improvements to kick in the 2H13 as fats are trimmed and jobs created. China could revive its domestic growth without stoking inflationary pressure but it can be destabilizing factor if its row with Japan escalates. The same applies to Iran and the West.

Can KLCI end Strong this year?

We derived our end-2013 target of 1,710 for FBM KLCI after applying 2008-2011 average forward PER of 14.3x on mid-cycle EPF of 120 sen. The underlying key assumption is that BN will return to power with slim majority. This target is a 5% discount to our bottom-up valuation of 1,800.

FBM KLCI performance before and after 2008 Malaysia's election

Strategy...

Sell-on-strength, especially overvalued defensive plays in the Consumer, Healthcare and Telco sectors and turn cash-heavy to accumulate high beta plays in domestic sectors, which are mainly related to Construction, Oil & Gas and Property sectors, in 1H13. Banking sector holds good buys based on their attractive valuation, still robust loan growth and bright chances of benefiting from ongoing domestic expansions.

Source: TA securities report

RHBRI Market Outlook & Strategy 4Q2012: Stormier Outlook

RHB research institute (RHBRI) is of the view that it could still be a choppy few months for the equity market in the 4Q given weakening economic fundamentals in the major world economies and fears of an imminent general election on the home front. Whilst more rounds of quantitative easing have been unveiled in the developed world, the big question in investors’ minds is how all these quantitative easing measures will translate to better global economic outlook. Having said that, equity still stands up vis-a-vis the unappealing returns of the alternative asset classes, such as cash and bonds and any good news is still likely to prompt a rally in equities.

How was Malaysia fared?

And, what's the strategy now?

Thus far, Malaysia has fared relatively well in the global financial crisis, and this is partly on account of low reliance on foreign funding of its banking system and more importantly, the progress in the implementation of the Economic Transformation Programme to boost domestic demand and cushion the economy against the downside risk from the external sector. As a result, the economy has bucked the trend and its real GDP growth is projected to pick up to +5.4% in 2013, from +5.0% estimated for 2012. This will translate to sustained earnings growth of around 6.0% in 2013 to create new shareholders’ values for investors.

We believe after a phase of correction and consolidation, the market will come back as the huge bond purchase programmes in the Eurozone and the US will push investors out of low-yielding cash and bonds over time into riskier assets such as equities. As the general election could be delayed to March 2013, our end-2012 FBM KLCI target remains unchanged at 1,690. Assuming global situations stabilize in six to nine months time and the global economic recovery is intact, our end-2013 FBM KLCI target is 1,815, based on 15x 2014 earnings.

Whilst our core strategy remains defensive, we believe investors would still need to accumulate fundamentally-robust stocks on weakness in order to outperform the market. In addition, as the search for yield will likely remain a key driver for both retail and institutional investors in the 4Q, high divided-yielding stocks will also continue to outperform the market, in our view. Sector-wise, our key overweight are telecommunications and banking, although we also have an overweight stance on the utilities and healthcare sectors.

Source: RHBRI research report

New IPO: IGB Reit

IGB REIT comprises of Mid Valley Megamall (retail; 1.72m sf NLA) and the Gardens Mall (retail; 0.82sf NLA) with a total appraised value of RM4.6b. Currently, Mid Valley Megamall is 99.8% occupied and the Gardens Mall is 99.7% occupied. Based on the IPO price of RM1.25, IGB REIT’s market capitalization would be RM4.3bn, making it the largest pure retail M-REIT. Following closely behind IGB REIT in terms of market capitalization size is Pavilion REIT (RM4.08b), Sunway REIT (RM4.02b) and CMMT (RM3.02b).

What are the key selling points for IGB REIT?

1. Prime asset with strategic location, huge catchment area and well connected transportation networks.
   
   
   
   
   
2. Diverse based of tenants to sustain rental income.
   
   
   
3. Low gearing provides ample room for acquisition growth. Based on IGB REIT’s Pro Forma Statement of Financial position, IGB REIT’s gearing ratio upon listing will be approximately 25.8%, which is below the average of listed MREITs of approximately 29.2% as at 31 Dec 2011. Hence, for future acquisition, IGB REIT has the flexibility to borrow additional RM1.1bn before reaching the statutory gearing level of 50%.

What's the fair value?
As shown below, different research house gave different fair value by using different method of valuations. To summarize it, the fair values estimated could give investors an upside potential of between 7.2% - 16%. Does this enough for you to consider to subscribe this IPO? Anyway, only 1% of the shares were being allocated to retail investors. Good luck.

Source: Various research report