Discrepancy = Anomaly = Opportunity In IJM Land

I have blogged about why I like IJM Land:

http://malaysiafinance.blogspot.com/2009/08/why-i-like-ijm-land.html

Curiously, I have been monitoring the price trends and volume activity in IJM Land and IJM Land-WA. Stranger still was the strong pick up in buying activity in IJM Land-WA over the past 3 days. The discrepancy and anomaly was that IJM Land stayed relatively still throughout the whole thing. IJM Land-WA has gained more than 8 sen over the last few days with the mother share barely budging.

Looks like smart money are piling into the warrant probably ahead of a significant uptick in the mother share very soon. Just giving the heads up here.


p/s photo: Elanne Kong Yuk Lum

Market Commentary

Just looking at the markets today, some may not know what to make of it. Its like uncertain and the energy is misplaced and incoherent. Looking at the leaders board, Konsort has raced up the volume list, the stock that links it up is Pelikan. They have a mutual substantial shareholder, look it up. There are talks that Pelikan is being planned for a MBO or a private equity buyout (part of the reason why I highlighted it as a buy below RM1.00). Both should be OK for a swift trade. Not encouraged, only for smart and savvy traders who can move in and out quick by looking at volume and trends.

The other thing one can surmise from the gainers is that the realignment caused by the "new" FTSE-KLCI 30 index, which I have highlighted as "very important". The adjustment process favours certain stocks which takes out some of their free float capacity. Hence look for firm support for Tanjong and Commerce.

Some strategic accumulation can be seen in IOI Corp, which looks to me to be a good base building level, or some "substantial shareholder" thinking that this is the "right levels" to accumulate strongly. Fergetabout UEM Land or Tebrau, never liked their run up as the story is still wishy washy. No follow through, corporate plans all habuk, tarak api punya. I don't like many stocks now as I think markets do look tired, but if you point a gun to my head to force me to buy one stock to hold till rest of they year, I would probably say E&O.


p/s photos: Elanne Kong & Janice Man

China's Lending Explosion

Is there anything wrong with China's lending spree. The central bank basically "advised" banks to ratchet up their lending, and the banks followed dutifully for the past couple of quarters with amazing results.

First of all, you cannot suddenly find so many attractive "borrowers" to lend aggressively to. Secondly, not many will say no when you offer to lend them money.

To be fair, this strategy pulled the domestic economy from falling further along with the ill effects of a global economy in crisis, but at what price. As I have mentioned before, this has to play itself out, and will not result in a sudden correction in property or stock prices in China. The liquidity rush will soon find its way into higher equity prices in China (hence bullish for the rest of the year for Chinese equity), and some may trickle back into Chinese property mart as well. Brace for high default rates when the music stops, probably after Chinese New Year in 2010.

China’s new lending more than doubled in June from a month earlier, increasing concerns bad loans and asset bubbles will emerge amid a credit boom.

New lending was 1.53 trillion yuan ($224 billion), the central bank said on its Web site today, bringing total lending this year to 7.4 trillion yuan. The calculation for new loans is preliminary, the central bank added.

The government is countering an export collapse by flooding the economy with money to fuel domestic demand. Rapid credit growth poses a risk to the nation’s lenders and a concentration of credit in some industries and businesses may damage the stability of the financial system, the banking regulator said yesterday.

Excess liquidity is fueling speculation and that means asset bubbles and wasteful investment. Already China recently failed to complete a $4.1bn auction of one-year government bonds, which suggested that investors are positioning for higher inflation caused by the credit surge.

Just something more to chew on, in 2005 Ernst & Young published a survey estimating that the bad loans in the Chinese banking system equaled close to $900 billion. Since then there has been enormous speculation in both the stock and real estate market. The average urban residential property prices fell by 15 to 30 per cent over the next two years from their levels at the end of 2008. Of course, by the end of 2008 they had already fallen from there 2007 highs. You cannot have real estate fall that much without having bad loans. Here is the juicy part, according to the prospectus for the Commercial Bank of China, it is illegal in China to foreclose on residential property.So what are bad loans? Bad loans = immediate write downs? No, they are then carried as what??? ... long term assets??? The reality is that no one knows exactly how bad the situation is in any bank. Information has value and is not disclosed unless required by law or for consideration. Since the banks in China are owned by the state, there is no legal requirement.


Something's gotta give ... but let's have a bull run first...

p/s photos: Elanne Kong Yuk Lam

Economic Indicators On The Up - Fears Overblown

The Bank of Japan on Tuesday upgraded its assessment of the economy for the second straight month, encouraged by signs that the worst of the economic downturn may be over. The BOJ board also voted unanimously to keep the unsecured overnight call loan rate unchanged at 0.10% while it gauges the effectiveness of previous measures. The board last lowered the policy interest rate in December by 20 basis points.

Following its May meeting, when the BOJ raised its economic assessment for the first time since July 2006, the central bank confirmed Tuesday that the economy has continued moving toward recovery over the past month.

"Japan's economic conditions, after deteriorating significantly, have begun to stop worsening," the central bank said in a statement released together with the rate decision.

In May, the BOJ said "exports and production are beginning to level out," though economic conditions have been deteriorating. Still, economic upgrades alone don't necessarily mean the bank will change its easy monetary policy anytime soon, as economic conditions remain on the weaker side. Market participants are waiting for a news conference by BOJ Governor Masaaki Shirakawa for more details on the bank's outlook and whether or not its policy stance may change down the road.

WASHINGTON -- Home construction climbed in May far above expectations, with single-family starts rising a third month in a row and giving more evidence of stability in the housing sector.

Separately, U.S. producer prices posted their largest annual decline in 60 years last month, suggesting that the prolonged recession continues to take pressure off inflation.

Housing starts increased 17.2% to a seasonally adjusted 532,000 annual rate compared to the prior month, the Commerce Department said Tuesday. Building permits rose; apartment construction surged. The 17.2% increase was much bigger than expected. Economists surveyed by Dow Jones Newswires forecast a 7.0% increase to an annual rate of 490,000.

Toll Brothers Inc. recently reported its fiscal second-quarter loss narrowed a little. The nation's largest builder of luxury homes posted a loss of $83.2 million, compared with a year-earlier loss of $93.7 million. It recorded smaller write-downs. The company operates in 21 states and last reported a profit nearly two years ago. Toll Brothers said it expects to deliver between 2,200 and 2,800 homes during the year, compared with an earlier, March view of 2,000 to 3,000 homes.

Tuesday's report on housing showed building permits in May increased 4.0% to a 518,000 annual rate. Economists had expected permits to rise by 2.4% to a rate of 510,000. April permits fell 2.5% to 498,000. But the problems of the housing sector are not over. Inventories are way too high, in relation to new-home sales, a key measure indicates. The ratio of those for sale to property sold in April exceeded 10 months.

Layoffs and tight credit are holding back sales. And mortgage rates have started rising, pushed by rising government bond yields. Investors are concerned about inflation because of increased spending in Washington meant to pull the economy out of recession. Freddie Mac data showed the average on a 30-year mortgage loan was 5.59% last week -- 73 basis points higher than the average four weeks earlier of 4.86%, an advance that could hurt demand for houses.

A report Monday indicated builder confidence faltered in June, after going up two straight months. The National Association of Home Builders index on builder confidence in sales of new, single-family houses fell to 15 from 16 in May. "The issues in the housing market are going to take some time to play out and won't reverse nearly as soon as some would like," Dan Greenhaus, a bond market analyst at Miller, Tabak & Co. in New York, said in reaction to the NAHB report.

Tuesday's data said starts in April dropped by 12.9% to 454,000; originally, Commerce reported April starts fell 12.8% to 458,000. Year over year, housing starts were 45.2% lower than the pace of construction in May 2008. Single-family starts climbed 7.5% to 401,000, after rising 3.3% in April and 1.1% during March. Construction of housing with two or more units jumped 61.7% to 131,000; within that category, groundbreakings of homes with five or more units -- or multifamily -- were 77.1% higher. Regionally, housing starts climbed 16.8% in the South, 2.0% in the Northeast, 11.1% in the Midwest, and 28.6% in the West. Nationwide, an estimated 51,200 houses were actually started in May, based on figures not seasonally adjusted. An estimated 48,100 building permits were issued last month, also based on unadjusted figures.

German economic expectations in June rose to 44.8 from 31.1 a month earlier and experts predict a recovery will start by year-end, the Center for European Economic Research said Tuesday. It was the highest reading since May 2006. Economists in a Dow Jones Newswires consensus forecast had expected a reading of 37.0. The center, also known as ZEW, after its German initials, said the increase showed that economic optimism is becoming entrenched.

"The assessment of the experts indicates that the economic downturn dynamics are currently coming to rest. They further see tendencies for a recovery at the end of this year," said the president of ZEW, Wolfgang Franz, who also heads the council of economic advisers to the government.

Survey participants also revised their assessments of the current situation, which in June rose to -89.7 from -92.8 the month earlier, the center said.

"What we see now for the first time (in a while) is that also the assessment of the current situation is improving," said ZEW economist Peter Westerheide.

In tandem with the economy, many of the 271 survey respondents expect inflation to return. Prices in Germany were mostly unchanged last month on an annual basis, official data showed recently. "A deflation scenario is not really on the horizon," as of now, Mr. Westerheide said. "Just a small minority of respondents" sees further downside price pressures, he added.

The experts also expect the European Central Bank, which sets interest rates for the 16 countries using the euro, to hold its policy rate steady at 1% over the next six months. ZEW's survey also showed that expectations rose across a number of industrial sectors. The more optimistic assessment was most prevalent in banking and investment products, Mr. Westerheide said.

WASHINGTON - The U.S. economy is healing faster than anticipated but still at an anemic pace that's unlikely to soon produce either jobs or inflation, according to the International Monetary Fund. In its annual review of the U.S., the IMF forecast that the U.S. economy would contract by 2.5% this year, compared with the 2.8% decline the IMF predicted in April. For 2010, the IMF forecasts the U.S. will grow 0.75%, rather than the zero growth it predicted two months ago.

The IMF said the U.S. was benefiting from monetary and fiscal stimulus, and from some improved stability in the financial markets. The tepid growth rate was likely to keep inflation in check in the short term, with the consumer price index expected to decrease 0.5% in 2009 and increase 1% next year, the IMF forecast.

John Lipsky, the IMF's deputy managing director, interpreted the recent increase in Treasury bond yields as a positive sign. He said the rise reflected "the effectiveness of policy in reducing fears of really serious negative outcomes," and an increased willingness of investors to search out riskier investments.

Longer term, the IMF said, the U.S. needed to "develop and communicate" a strategy for withdrawing monetary stimulus and fiscal stimulus. Otherwise, such stimulus "may stoke concerns about inflation and rising debt, exerting upward pressure on interest rates."

But the IMF advised the U.S. to start cutting back only after a "sustainable recovery is under way." The IMF didn't expect that to occur shortly.

Mr. Lipsky said the IMF didn't expect U.S. unemployment to stop rising until the second half of 2010, even if the U.S. economy grows somewhat before then. The IMF also warned that U.S. debt may rise to 75% of gross domestic product by 2011, nearly twice what it was in 2008 -- and higher than the 70% of GDP forecast by the White House.

"Looking forward, such a rise in debt may put significant pressure on Treasury bond rates," the IMF said.

Calling the administration's economic assumptions "relatively optimistic," the IMF said the U.S. needed to cut spending or boost revenue by an additional 3.5% of GDP through 2019 to keep to the debt levels sought by the White House -- 70% of GDP in 2019.

The IMF laid out a number of possibilities for boosting revenues, including reducing the deductibility of interest on corporate debt and on household mortgages, and raising energy taxes. Any one of those proposals would be a tough political sell in Congress. The U.S. Treasury, in a statement Monday, said the analysis reflected the IMF's "independent judgment" of the U.S. economy, and that the U.S. supported its public release. The statement didn't comment on the specifics of the analysis by the IMF.

p/s photo: Elanne Kong Yuk Lam