Trader's diary 11/7/13

By Smoking Gun

Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

World equities rallied on 11/7/13 in the aftermath of Bernanke's comments. Dow and the S&P 500 registered new highs at the close of trading. At home, the Straits Times Index surged 1.9% earlier. Despite that, it was not really a good trading market today on the SGX as the surged was mainly concentrated on index linked stocks while most of the trading stocks remained subdued. We only introduced 200,000 shares of Kori to our trading portfolio yesterday at 4.50pm 11/7/13 at 0.41 within our rules of maximum of 10% per single stock exposure. As we are building up the portfolio, invested portion of the portfolio is only 18% whilst the uninvested cash is at 82%.

We based our decision to purchase Kori on the following criteria.

1. M over the past few days of 11.57, 156.63, 14.86 and followed today with a huge surge to 2,509.

2. Surge in M accompanied by strong price action up 7.9%

3. Decent volume in value terms of $6.4m

4. Big jump in MFI from 22.57 to 37.9

Our earlier buy Hiap Hoe had a good surge in the morning, touching a high of 0.78 before tapering off to close at 0.755. MFI showing an increasing trend which shows sustained interest while the M is still at elevated levels of 390.45 earlier today despite tapering off from the previous days 463.09. 

Markets today will get a boost from the strong showing of the US and European markets. Conditions elsewhere look supportive. Will be a good trading day today.

New Fund: AmAsia Pacific REITs Plus

Do you remember the AmAsia Pacific REITs fund? I'm sure you have heard about it. Yes, backed by its success story, AmInvestment Management Bhd has launched a new version called AmAsia Pacific REITs Plus. The word "Plus" is used as a continuation of the AmAsia Pacific REITs and the fund may invest in listed equities in the real estate sector.

The fund aims to provide regular income and to a lesser extent capital appreciation over the medium to long term (at least 3 years) by investing in real estate investment trusts (REITs) and equities in the real estate sector.

What's the strategy?

Minimum 70% in REITs and a maximum of 29% in listed equities in real estate sector, which are in the Asia Pacific region. This is the asset allocation of the fund. Diversification in terms of country and different REITs sub-sectors (etc. residential, commercial and industrial) is expected.

An active allocation strategy will be employed by fund manager, based on macroeconomic trends and REITs market outlook of respective countries in Asia Pacific region. Meanwhile, bottom-up security selection strategy will be used for equities, with focus on undervalued companies.

Who is suitable for this fund?

• Those who wish to have investment exposure in real estate sector through a diversified portfolio of REITs and real estate equities in Asia Pacific region.
• Those seeking regular income and to a lesser extent capital appreciation over medium to long term

What's AmInvest aiming?

4% payout on yearly basis, which AmInvest said is achievable and is higher than fixed deposit rate offered by banks. AmInvest favors Australia, Singapore and Japan for REITs and China, Indonesia and Thailand for listed equities.

Click here to download the fund prospectus

Model Portfolio - Start Date 10/7/2013

By Smoking Gun

Disclaimer: This is a mock portfolio and all trades referred in the the context of this mock portfolio are purely hypothetical based on actual prices observed during actual trading. This mock portfolio only serves merely to demonstrate the methods in my stock picking and trading strategy and does not represent a solicitation or recommendation to buy and sell any security or financial instrument. The content on this site is provided as general information only and should not be taken as investment advice. The ideas expressed are solely my opinions. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

My Trading Journal
I started this blog to record my thoughts and ideas on trading stocks. There are many blogs and forums on Singapore equities and some of them are really informative and insightful. I don't intend to go that route with my blog due to my time commitments, although once a while, I intend write at length on certain subjects. However, readers can have an objective assessment of my methods of stock picking and trading philosophy by assessing the performance this mock trading journal. The starting position is $1m and the inception date is 9/7/13

I have only two simple trading rules for this portfolio which are as follows;
1. Maximum Exposure into any given stock at any time - 10% of portfolio
2. Minimum Stock Positions as % of Portfolio - No minimum

At 4.40 pm, 10/7/13, I bought 130,000 shares of Hiap Hoe at 0.74 for a total gross trade value of 96,200 which is within my 10% single stock exposure limit rule. Hiap Hoe fulfilled all the criteria on the P8118.com system and so enforced our conviction to buy.

First thing we look for is the reading on the M Index as compared to the previous five days (bottom right hand side table). Hiap Hoe's latest M reading is at 463.10 compared to 64.61, 27.66 and 16.07 for the previous 3 days which represents a significant leap in trading activity for the stock. (100 being normal trading volume for any given stock). The next thing we look at is whether the jump in M is accompanied by a positive price action, as this implies that there is a surge of buying interest in the stock due to the bidding up of prices and volume buildup. Conversely, we ignore those high-M stocks with negative price action. In this regard, Hiap Hoe is up by 3c, so it confirms the first criteria.

To support our trading decision, we look at the other indicators to provide further validation. The MFI and BrH has to be trending up over the last five days. So for Hiap Hoe, again no problem there as well as the other indicators look very healthy with nice steady rise. We will look at the MFI for signals to sell, normally if it drops 3 points from the high watermark point, we will exit the positions. In this regard, the high watermark is 54.58 as of today. This means if the MFI drops to less than 51.58 we will exit the position even at a loss. If the MFI climbs to say 56 tomorrow, then the exit signal will be triggered when MFI is at less than 53 and so on.

I will try to update the values of the Mock Portfolio on a daily basis although I may not be able to give full commentaries due to other commitments. However, feedback is welcome and appreciated.

Singapore Market Overvalued?
I was attending an investment seminar organized by a private bank a week ago, and the key takeaways from their experts were;
1. The expected tapering of US QE has moved significantly forward to 2014 as compared to 2015
2. Bond yields and interest rates are expected to trend upwards
3. All asset classes to experience headwinds, equities will still outperform in Japan and Europe and places where monetary policy remains easy.
4. Gold prices set for rebound.
5. Singapore equity market is very richly valued as compared to peers and risk sudden outflows in capital due to several factors i.e. rise in US interest rates, China economic woes worsening etc. At 16X prospective earnings, Singapore looks fully valued

Name	P/E	P/B	Est P/E	Est P/B
HANG SENG INDEX	9.47	1.31	18.46	2.67
KARACHI 100 INDEX	9.44	1.76	17.74	1.52
Straits Times Index STI	12.95	1.41	16.54	2.22
CSI 300 INDEX	11.05	1.53	16	1.77
S&P/ASX 200 INDEX	19.55	1.89	14.79	2.84
NZX 50 Gross Index	20.15	1.87	14.47	1.59
HO CHI MINH STOCK INDEX	13.62	1.76	14.17	1.34
SRI LANKA COLOMBO ALL SH	12.21	1.69	13.56	1.75
KOSPI INDEX	26.86	1.07	13.55	2.1
TAIWAN TAIEX INDEX	22.14	1.7	13.35	2.18
FTSE Bursa Malaysia KLCI	16.92	2.34	11.92	2.04
STOCK EXCH OF THAI INDEX	16.6	2.3	11.33	2.01
NIKKEI 225	26.05	1.55	9.97	1.07
NSE CNX NIFTY INDEX	16.21	2.52	9.72	1.22
JAKARTA COMPOSITE INDEX	17.93	2.81	9.52	1.4
PSEi - PHILIPPINE SE IDX	18.82	2.81	8	1.66
Name	P/E	P/B	Est P/E	Est P/B
CAC 40 INDEX	15.62	1.23	14.66	2.26
DAX INDEX	15	1.43	13.56	1.75
FTSE 100 INDEX	16.14	1.8	11.79	1.17
STXE 600 € Pr	18.51	1.62	11.75	1.66
S&P 500 INDEX	15.75	2.38	9.73	1.22
Source: Bloomberg

Given this challenging environment, stock picking becomes even more critical for investing/trading success.

"X"pensive AirAsia X IPO ?

Slate for its debut trading tomorrow (10th July 2013), can AirAsia X follows the footsteps of its sister company AirAsia? What would happen tomorrow pretty much depends on the fair value given by various research houses.

AirAsia X is a leading long haul low cost carrier since operating on Nov 2007, primarily in the Asia Pacific region. Currently, it serves 14 destinations acorss Asia, Australia and the Middle East, with 11 A330-300 planes.

Investment analysis:

1. Benefits from synergies as part of AirAsia group
2. Strong brand name
3. Operate in the fast growing aviation market in the world
4. Lowest unit cost base in the region
5. Strong ancillary income at RM141/pax and expected to grow further

How about the risks?

1. High jet fuel price
2. World crisis i.e. war, terrorism, epidemic outbreak
3. Slowdown in world economy
4. Emergence of other long-haul LCCs
5. Delaying of KLIA2 which may hamper its growth prospects
6. Strengthening of USD against MYR, because 79% of its debt is denominated in USD

So, what's the fair value?

Either Rm1.40 or Rm1.20 given. Seems like this is not an exciting IPO for investors. Anyway, tomorrow debut most likely will remain in positive territory because there is a "king card" in hand. Yes. Maybank Investment Bank will be the stabilizing manager who can purchase up to 15% of the total number of shares offered under the IPO. No worry.

New Fund: Eastspring Investments Target Income Fund 2

In the current low interest rate environment, investors continue to chase for yields which resulted in strong demand for close-ended bond funds that potentially offers higher return than fixed deposits. Keeping this in mind, Eastspring Investments is launching a new fund.

The fund endeavors to provide regular income during the tenure of the fund (3 years), by investing in local and/or foreign debt securities.

Investment Strategy

A minimum of 70% will be invested in local and/or foreign debt securities, while the remaining of not more than 40% may be invested either in non-rated debt securities and/or debt securities rated below investment grade rating.

• lower than BBB3 rating by RAM; or
• below investment grade rating by other rating agencies

Although the fund is expected to invest up to 40% in non-rated issuers and/or issuers rated below investment grade, there is a risk that this limit may be exceeded as issuers of investment grade debt securities held within the portfolio may be downgraded by rating agencies and thus resulting in the fund's over exposure in such category.

Additionally, up to 30% may invested in money market instruments, and worth to note that the fund may exercise Early Repayment. As such, this is a moderate risk fund, instead of low risk.

The fund is suitable for investors who:-

• seek regular income distribution;
• have 3 years investment horizon; and
• have a moderate risk tolerance.

Click here to download fund prospectus

Latest BNM measures to Curb Excessive Household Debt (July 2013)

Hot from oven. Bank Negara Malaysia (BNM) today announce some measures to address the alarming household debt among Malaysians. As reported, household debts have continued to increase at a strong pace, averaging at an annual rate of 12% over past 5 years. While this has been supported by positive income and employment conditions, in the more recent period, there has been a growing trend in the offering of financial products that are not in the long-term interest of consumers.

What does this mean?

This includes extended financing tenures of up to 45 years for house financing and 25 years for personal financing!!! Wow... Is it too long the tenure? While this may reduce the monthly repayments, in the long run, this increase the overall debt burden of households. If we don't stop this kind of practice, it will encourage excessive debt accumulation by households and increase the vulnerability of this sector.

Hence, BNM has to take actions...

The implementation of a set of measures aimed at avoiding excessive household indebtedness and to reinforce responsible lending practices by key credit providers. These measures, which take effect immediately, complements the earlier measures introduced since 2010 to promote a sound and sustainable household sector.

What are the measures?

1. Maximum tenure of 10 years for financing extended for personal use;
2. Maximum tenure of 35 years for financing granted for the purchase of residential and non-residential properties;
3. Prohibition on the offering of pre-approved personal financing products.

Who will be affected the most?

For sure, borrowers (excessive one) will be short-handed. However, those good quality borrowers will not be affected. Meanwhile, the hands of financial institutions once again being tighten further. It will definitely impact the loans growth, but with a more quality growth. Property sector will face some minimal impacts, given most of the loan approved is within 35 years of financing.

For Finance Malaysia, this is good news for our country's financial sector. Excessive household debts, coupled with poor quality loans, will endangers the financial system. Worth to highlight here is the pre-approved loan is being banned now. Long time ago, Finance Malaysia is very uncomfortable with such offerings, with the intention to "indulge" bank clients to borrow. Now, we are relieve. Do you agree?

New Fund: OSK-UOB Capital Protected Essentials Fund

As the world population continues its growth led by the emerging countries coupled with the higher purchasing power, the demand for the essentials or basic commodities (i.e. those that we use daily such as cotton for clothing, corn and sugar for food, crude oil for energy) have significantly increased. Further, with the imbalance of increase in demand and slower growth in supply, this has also resulted in a situation where consumers now and going forward have to pay more for fuel, clothing and food.

With the expectation of further increase in the prices of these essentials or basic commodities, OSK-UOB has established a fund that will capitalize on the price movements of these essentials or basic commodities, which is OSK-UOB Capital Protected* Essentials Fund.

Fund Asset Allocation:

Indicative Asset Allocation

Over The Counter (OTC) Option:

A 4-year option whose underlying reference is a basket of 4 commodities, i.e. Brent Crude Oil, Cotton, Sugar and Corn, and each commodity is represented by a listed futures contract.

Why it also called "Memory Option" ?

This is because the option is structured to provide 4 annual coupon payments during the tenure of the fund, if at the relevant observation date, all of the 4 underlying reference commodities prices are greater than or equal to their initial reference prices determined at the commencement date of the fund. It has a "memory" component i.e. the annual coupon payable can be carried forward if it failed to met the conditions for a particular year.

103% Capital Protection?

Yes. The capital protection covers the investors' capital investment and includes the 3% sales charge payable by investors.

Hence, the fund is suitable for investors who:

1. have a low risk tolerance;
2. seeks capital protection*;
3. seek potential returns from commodities essential to our daily lives;
4. have a medium term horizon; and
5. seek income

Download the fund prospectus here

Source: OSK-UOB Investment Management

* Investors are advised that the fund is not a guaranteed fund. Capital protection is provided through investments in ZNIDs and not by a guarantee. Consequently, the return of capital is SUBJECT TO the credit/default risk of the issuers of the ZNIDs and may result in losses.