Expectations of further monetary easing by governments in some of the world’s largest nations kept prices of equities and commodities afloat — despite predictions of weakness in global economic growth.

Last week, the International Monetary Fund (IMF) pared its growth forecasts for the world economy, now expecting growth to taper down to 4.2% in 2011 from 4.8% in 2010. The downgrade was attributed to persistent sluggishness in the US economy as well as austerity measures in Europe in the aftermath of the region’s sovereign debt crisis.

Elsewhere, the US’ extremely loose monetary policy has led to US dollar weakness against most major currencies in the world — and sparking talks of a budding “currency war”. The US Federal Reserve is widely expected to announce a second round of quantitative easing in its November policy meeting.

Last week, the Bank of Japan surprised by moving first, cutting its already low short-term rates to zero and creating a new public and private assets purchase programme — up to ¥5 trillion (RM190.1billion) — to infuse greater liquidity into the financial system. Some see this as a pre-emptive move by the Japanese government to maintain downward pressure on the yen. Last month, it intervened in the currency market for the first time in six years to temper the yen’s rise.

With global demand flagging, countries are increasingly tempted to devalue their currencies in order to gain a competitive advantage in the export market.

Emerging economies have been the primary destination for all that liquidity. Rising capital inflows, from investors seeking higher yields, could create potentially greater volatility in the equity, currency and property markets further down the road. In the near term, however, asset prices appear likely to stay upbeat, supported by the wall of liquidity.

Investors should keep an eye on the upcoming corporate reporting season for 3Q10, and in particular, management guidance on the outlook for the current and next quarters. On the home front, the Budget 2011, slated for Friday, may offer investors some leads.

The FBM KLCI gained 1% to close at 1,481 points last Friday. Trading volume on the local bourse remained fairly robust, maintaining an average daily volume in excess of one billion shares.

Our model portfolio under-performed the benchmark index. Total market value for our basket of 14 stocks was down 2% to RM489,850. Although we had seven stocks closing higher and only five ending lower, with two other trading unchanged, the portfolio was dragged down by heavy losses in HELP International. The stock lost 10.3% to close at RM2.55 after trading ex-entitlement for its 3-for-5 bonus issue.

Including our large cash reserves, the total portfolio value was down by a lesser 1.41% to RM709,067.

Last week’s losses pared our model portfolio’s cumulative returns since inception to 343.2% on our initial capital of just RM160,000. Nevertheless, we continue to outperform the FBM KLCI, which was up by about 129% over the same period, by some distance. Our total profits are very substantial at RM549,067, of which RM336,964 has already been realised.

For prudence’s sake, our model portfolio tends to hold quite a significant amount of cash, for which no interest is imputed. Of late, our cash holdings have risen further, in part, due to proceeds from the privatisation exercise for Tanjong plc.

We are monitoring the market for buying opportunities. However, valuations for the broader market have risen following strong gains in the past months. And with the global economic outlook still somewhat uncertain, we are taking a more cautious stance, for now.

As such, we have decided to move some funds into real estate investment trusts (REITS), which offer fairly good yields on relatively low risks. We acquired 20,000 units each in AmFIRST REIT, Al-Aqar KPJ REIT and Quill Capita Trust for a total consideration of RM66,600.

AmFIRST owns and manages assets totalling just over RM1 billion and is currently trading below its net assets value (NAV) of RM1.35 per unit. We estimate a gross yield of about 8%.

Al-Aqar is the first Islamic healthcare REIT in the world. Its investments are primarily hospital buildings, worth a collective RM1.1 billion, which are leased to KPJ Healthcare under long-term agreements. Yields are estimated at 6.3% at the current unit price of RM1.15.

Quill is among the cheaper valued Malaysian-listed REITs, in terms of price to net assets value — currently trading at only 0.8 times its NAV of RM1.22. The unit trust has been a laggard, under-performing the benchmark index, and is a candidate for re-rating. We estimate income distribution to total about 7.9 sen per unit for the current year, which would give a gross yield of 7.9% at the prevailing price.

Last week’s purchases pared our cash holdings to RM152,617, or a comfortable 22% of our total portfolio value.

Elsewhere, Masteel went ex-entitlement for a rights issue of up to 107 million five-year warrants on the basis of one warrant for every two shares held. The rights to the warrants, which closed at 17.5 sen last Friday, will cease trading on Oct 12. We intend to subscribe for our full entitlement of 10,000 warrants, priced at 18 sen, which are slated for listing on Nov 2. The exercise price is fixed at 67 sen.

We have also adjusted our shareholdings and average cost of investment in HELP following the company’s 3-for-5 bonus issue exercise. Our total number of shares held increased to 56,000 while the average cost of investment was revised down to just 96 sen, compared with last Friday’s closing price of RM2.55. — InsiderAsia


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, October 11, 2010.