Byron Wein: Preparing for a volatile year

Byron Wein’s latest commentary is out and he’s advised to be prepared for a volatile here, here he reviews his 2013 surprises, his thoughts on emerging markets, the US economy, Japan’s “third arrow”, interest rates and so forth. See below for a snippet and a direct link to the article.

In the second Surprise I thought that the economic momentum that was building in the latter part of 2013 would continue and that the U.S. economy would show growth in excess of 3%.  I also said that the unemployment rate would drop to 6% by year-end.  I had no idea that it would decline .3% in December, but that was primarily because the participation rate dropped.  I thought the unemployment rate would improve while the participation rate normalized to a somewhat higher level.  I expected the Federal Reserve to continue to reduce its monthly bond-buying program without having a negative impact on either the economy or the stock market.  Last spring, when then–Fed Chairman Ben Bernanke suggested he might taper, both the bond and stock markets reacted sharply, but in December when the first wave of tapering was actually announced, stocks continued to rise.  That’s because, by then, investors knew a reduction in bond-buying was coming but the economy itself was doing better.  As long as that is the case, further reductions in the Fed’s accommodation should be absorbed by the financial markets without a dislocation. 

Source: Blackstone

Insight: How Thaksin’s meddling sparked a new Thai crisis for PM sister

This is good thorough article on the cock-up that is the Amnesty Bill that the government pushed through and what repercussions that it has had upon the Pheu Thai party and the political situation it has led to today, in the end, as we’ve written before here, it comes down to the simple fact that…

But the self-exiled Thaksin wanted to come home, and would not take no for an answer.

Here’s another snippet and the link its provided below.

The aborted bill provided Yingluck’s long-dormant enemies with the ammunition they needed. On November 12, Suthep resigned from parliament along with eight other Democrat MPs. The protests began their evolution into an uprising against, first, the “Thaksin regime”, and then Thailand’s system of electoral democracy itself.

Source: Reuters

What happened this week 27/01 – 31/01

Thailand

  • Ministry starts loan auctions, Legitimacy of decision in doubt – The Public Debt Management Office (PDMO) will kick-start the bridging-loan auction today in hopes of mobilizing funds to repay rice farmers by the end of this month. (Bangkok Post, 29/01/14)
  • FTI: Manufacturing contribution to GDP to drop by 1% in 1Q14 — The Thai Federation of Industries (TFI) said that manufacturing contribution to GDP will drop by 1% in the first quarter, with the annual figure standing at a mere 2-3% growth. (Matichon, 29/01/14)
  • Chaos spook Japan industry – Japan’s financial and parts industries are concerned over Thailand’s prolonged political protests, which could drag down investment, said Deloitte Touche Tohmatsu Jaiyos. (The Nation, 29/01/14) Continue reading What happened this week 27/01 – 31/01

Stocks in the news (BSM, CENTEL, GLOW, PTT, RATCH, SCC) 31.01.14

BSM

BSM is preparing to launch two new products during March-April supporting 2014 revenue of Bt700mn, +30% YoY. It said revenue in 2013 beat its target of Bt500mn. It will focus on the healthcare market. (Khao Hoon, 31/1/14)

Comment: New products will not have much influence on its performance if the demand in the construction market is still low during Q1-Q2 of 2014

CENTEL

CENTEL aims at 2014 revenue of Bt19bn, +10% YoY. It expects to receive additional 5-6 hotel management deals. It expects more revenue from 2 hotels in Maldives. Although hotel business in Bangkok has been pressured, hotels in rural have performed well with 80-90% occupancy rate. (Khao Hoon, 31/1/14)

Comment: Mimicing MINT in terms of the food and hotel combination, however their growth in management contracts is certainly impressive

GLOW

GLOW reported 2013 net profit of Bt7.2bn, +33% YoY. Revenue from sales and service was Bt69.7bn, +18.1% YoY, due to higher electricity sales from GHECO-One power plant to EGAT. (Khao Hoon, 31/1/14)

Comment: We’ve loved GLOW for years, however we now view it more as a dividend play pending the right entry price Continue reading Stocks in the news (BSM, CENTEL, GLOW, PTT, RATCH, SCC) 31.01.14

Stocks in the news (AGE, CPALL, DEMCO, JMART, KBANK, LPN, PF, THAI) 30.01.14

AGE Subsidiary investing in two power plants —AGE is having subsidiary AGE Power Holdinginvest in two power plants. The first is in Sukhothai with 3 MW. The other is in Phichit with9.9MW. It expects coal sales grow to 4 million tons. (Khao Hoon, 30/1/14)

Comment: Now the forecast has increased to 4mil tonnes from 3mil in just a day!

CPALL will partner with PIM and Thai Chamber of Commerce (TCC) to hold CPALL SMEForum 2014 on penetrating CLMV markets for SMEs. CPALL plans to open 600 new branches andtargets 10,000 branches within the next five years. (Khao Hoon, 30/01/14)

Comment: CPALL has to keep its expansion plans otherwise they could lose out to BIGC and TESCO in the small format stores

DEMCO targets revenue growth of 10% this year with 95% of its current Bt3.3-3.4bn backlogready to be booked. It will bid for new projects and expects to win Bt3.5bn worth of new work tohelp push its backlog to Bt6.8-7bn. (Khao Hoon, 30/01/14)

Comment: We think the growth story here is fully priced in already, any miss on its earnings and the stock price could very well collapse. Continue reading Stocks in the news (AGE, CPALL, DEMCO, JMART, KBANK, LPN, PF, THAI) 30.01.14

1997 all over again? Nope.

There have been several articles going around that Emerging markets are in the beginning stages of 1997 Asian Financial Crisis part deux and how Thailand is going to yet again be affected.

We’ve gone through each data point thrown our way but in the end we disagree for Thailand. Quite simply:

  • I don’t see high debt levels on a corporate level, nor the country level, and the majority of loans are THB denominated.
  • The currency isn’t pegged like it was pre’97,
  • The Bank of Thailand has done a decent job thus far in accumulating reserves and managing rates and so forth.

Although one should never and say never and when looking around I think the best thinking to apply here is George Soros’ thoughts on reflexivity, see below for an exercept where he links his thinking to stock prices, one can simply replace stock prices with countries/currencies etc etc…

What should now be clear is that the so-called fundamentals that supposedly determine stock prices are not independently given. Instead, they are contingent on the behavior of financial markets. There are, indeed, myriad ways in which stock prices affect the fortunes of companies: they determine the cost of equity capital; they decide whether a company will be taken over or acquire other companies; stock prices influence a company’s capacity to borrow and its ability to attract and reward management through stock options; stock prices serve as an advertising and marketing tool. In other words, when financial markets believe a company is doing well, its “fundamentals” improve; when markets change their mind, the actual fortunes of the company change with them. Moreover, changes in financial markets also have far reaching macroeconomic consequences.

Source: http://www.project-syndicate.org/commentary/when-internet-boom-went-bust

Article thinking its 1997: The Economist

Article arguing against the above: Fortune

Stock in the news 29.01.14 (AGE, AIT, AOT, CPF, EA, SENA, TRC)

AGE

AGE to invest in a 9MW biomass power plant, a new line for its business. It is confident the biomass plant will bring in revenues of no less than Bt200mn per year. Coal sales for 2014 are to exceed 3mn tons this year, driven by strong demand from clients abroad. (Khao Hoon, 29/01/14)

Comment: AGE has been suffering for the past few years and this biomass plant won’t have much of an impact on the bottom line.

AIT 2013 best in 20 years — AIT says 2013 performance was its best in 20 years, with revenue of ~Bt6bn supported by more work delivered. It expects 2014 revenue of Bt6.2bn; current backlog is Bt4bn. It is preparing to bid for a Bt10bn project. (Khao Hoon, 29/1/14)

Comment: A wonderful growing dividend payer up until last year when the stock price appreciation wiped out the yield. The other issue is, they’ve recently raised equity (doubled it) in the hopes of pitching for bigger projects, but they didn’t inform shareholders what exactly yet.

AOT

AOT expects 2mn travelers to come to Thailand during Chinese new year over 13 days, -0.64% YoY, while airlines request 700 more flights. (Khao Hoon, 29/1/14)

Comment: Friends are saying that immigration queues are nonexistent at the moment Continue reading Stock in the news 29.01.14 (AGE, AIT, AOT, CPF, EA, SENA, TRC)

Taking over streets is legal?

Just out now, the Criminal Court rejects the DSI’s request for arrest warrants for 16 core members of the protestors for alleged violations of the emergency decree.

So wait, if I and a bunch of friends decide to take over a few key intersections then I haven’t done anything wrong? I won’t be arrested for this? Really?  I foresee a business opportunity in street parties…

Source: Bangkok Post

Which sectors drove the SET for the past 7 years

Out of curiouristy we did a quick backcheck of the past sectors that have driven the SET for the last 7 years. Upon seeing the results we do ask ourselves, why bother stock picking? We have to choose out of 550 companies a portfolio of 10 strong ideas, why not just pick a few strong sectors that will grow @ a multiplier to the economy instead? Probability-wise it makes more sense, then again if you’re not too silly you can beat these CAGR’s via making your own portfolio, still something to think about regardless.

Sector History

Note:

  • +10% Green
  • -10% Red
  • Excl. dividends
  • Data source: SETSMART