Global Companies’ Earnings Results

If you invest globally, check out the Financial Times’ dedicated web page with a collection of the latest company earnings results around the world, including  those from the United States, Japan and Europe. This page can be found at http://www.ft.com/earnings. For Singapore-listed company results, the best source is the Business Times, where a tally of earnings will be usually published during earnings season. You can also refer to the detailed announcements published on the Singapore Exchange here. As usual, the headlines from both Financial Times and Business Times can also be found on CashBench at all times for your reference. Enjoy!

Jim Rogers: Chinese markets may collapse

Translated from Lianhe Zaobao (Chinese), 29 Jul 2009

Investor Jim Rogers told Bloomberg in an interview that the Chinese stock market has risen too quickly since November last year. The Shanghai Composite has already doubled and reached a peak since June 2008. This is not a good sign and the Chinese stock markets may collapse.

Mr. Rogers who is currently the chairman of Rogers Holdings opined that when stock prices rise too quickly, a collapse may be inevitable. Since November, he has not made any new investments in Chinese stocks. However, he has also not sold any shares that he bought through progressive investments since 1988. Mr. Rogers currently resides in Singapore and told Bloomberg “I much prefer to buy when things collapse”. In addition, Mr. Rogers disclosed that he currently prefers investing in commodities rather than shares, as China will require commodities to maintain a sustained economic growth.

He also disagreed with US Treasury Secretary Timothy Geithner that Chinese consumers need to increase consumption to boost economic growth. Instead, he said, “the Chinese consumers are already consuming more. The Chinese economy has such a remarkable performance because they have massive savings and investments. There is no need to tell them to increase consumption and not save”.

Asia Pacific markets continued to climb

Translated from Lianhe Zaobao (Chinese), published 28 Jul 2009

Market Performance
Stock Index	Closing Level	% Change
Manila	2732.62	2.1
Shanghai	3435.212	1.9
Shenzhen	1126.009	1.9
Singapore	2576.66	1.7
Tokyo	10088.66	1.5
Hong Kong	20251.62	1.4
Seoul	1524.05	1.4
Jakarta	2209.101	1.1
Bangkok	617.83	0.6
Kuala Lumpur	1156.43	0.1
Taipei	7028.43	0.1

As investors expect economic recovery to lead to positive knock-on effects on company earnings, Asia Pacific markets yesterday continued to rise. A fund manager from Credit Suisse Asset Management said an influx of hot money is driving up popular stocks, but there is a growing risk of capital being re-directed to selected markets where more IPOs are carried out.

Among Asia Pacific markets, Manila performed the best with a rise of 2.1% to 2732.62. This is despite a bomb threat at the Manila Stock Exchange. Popular stocks included blue chips such as Manila Electric and Ayala. After trading for the day ended, the Manila Stock Exchange clarified that the bomb threat was a hoax and trading will continue today.

Singapore’s market also rose 1.7% to 2576.66 and has risen 46.3% thus far this year. Among the top gainers are SingTel, UOB and DBS Holdings. These 3 stocks are responsible for a gain of 31 points in the STI index.

A trader said that as economic data is generally positive and earnings results announced to date are better than forecasted, investors are led to believe that stock markets have entered a period of recovery.

In other markets, Hong Kong and Tokyo have each rose 1.4% and 1.5% to 20251.62 and 10088.66 respectively. Shanghai and Shenzhen both rose 1.9% to 3435.212 and 1126.009. As of 9pm yesterday, Europe’s markets are generally rising, of which the FTSE in London has risen 0.1% to 4580.

Citigroup Equity Research expects the second-half performance of markets to be weaker than the second quarter. This is largely due to the continued mixed performance of exports in June. In particular, China’s exports continued to fall without any signs of improvement.

Structured Warrants on SGX

Warrants are traded on the Singapore Exchange (SGX) just like stocks, but how much do we really know about them? This is the first of a three-part series on CashBench that points out the key features of warrants and summarises all the important aspects that an investor MUST know before investing in warrants.

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Only for CashBench Group Members Those who join CashBench on Yahoo! Groups will immediately receive this entire three-part series on warrants in a single PDF report for easy reference, wherever you are. What's more, membership is free and you’ll also receive updates once a week or less often on new analysis, forecasts and news from CashBench! To join CashBench now, just provide your email address below.

What are Warrants:

Despite being traded like stocks, warrants are a form of derivative products such as futures and extended settlement contracts. As a derivative, the price of a warrant depends on a number of factors that are linked directly or indirectly to the price of an underlying asset. On the Singapore Exchange, the underlying asset of a warrant is usually a stock index (e.g. STI, Hang Seng, Nikkei 225, etc) or one of the larger companies listed on SGX (e.g. Capitaland, Cosco, DBS, etc). Outside Singapore, the underlying asset can be currencies, bonds, commodities or just about anything else that has a price attached to it. Investors who are very keen on warrants may eventually invest via Hong Kong as well since it has a larger market with more warrants to choose from.

Forms of Warrants:

Of the 3 forms, the structured warrant is the most common form in Singapore and will be the focus of this three-part series on warrants.

There are at least 3 forms of warrants available in Singapore, including company warrants, structured warrants and investment warrants. Company warrants are issued by a listed company that may be exchanged for new shares if the company’s share price reaches a pre-determined level. Structured warrants (also known as Covered warrants) and Investment warrants are issued by unrelated third-party banks such as Societe Generale, Macquarie or Deutsche Bank. Investors of structured warrants are not entitled to any stock dividends declared by an underlying company, unlike investment warrants. Of the 3 forms, the structured warrant is the most common form in Singapore and will be the focus of this three-part series on warrants.

Basics of Warrants:

Warrants come in 2 types, Call warrants and Put warrants. Both types will always have an exercise price (also known as strike price) which is used to determine if we have the right to buy or sell the underlying asset. How about an example? Let’s say we have bought a warrant with an exercise price of $15 and the underlying asset is DBS shares. With a call warrant, we will have the right to exercise the warrant and buy DBS shares at $15 if the share price of DBS moves to $15 or higher. On the other hand, a put warrant gives us the right to sell DBS shares at $15 if its share price becomes $15 or lower. In either scenario, we have benefited from a favourable movement of the underlying share price.

An even more specific example? Let’s say the share price of DBS climbed to $20 and we are still holding on to the DBS call warrant with a $15 exercise price. For every DBS share that we can buy through the warrant, we gain $5! Why? Simply because we are now entitled to buy DBS shares at $15 even though the market price for these shares is much higher at $20. If we can exercise our right and sell the DBS shares immediately back into the market, our gain per DBS share will be $20 - $15 = $5.

… a warrant is designed to have a short life and can expire quite quickly. New warrants can be issued with an expiry date of as short as 3 months.

However, a warrant is designed to have a short life and can expire quite quickly. New warrants can be issued with an expiry date of as short as 3 months. After a warrant is issued, we can buy or sell this warrant just like stocks until 5 trading days before its stated expiry date. If the DBS warrant we bought cannot be exercised because the underlying DBS share price did not move in our favour, the warrant expires worthless.

Another characteristic of warrants that investors must know is the exercise style. All call and put warrants can follow the European or American style. American-style warrants can be exercised at any time prior to its expiry date, while European-style warrants can only be exercised on its expiry date and not before. Fortunately, most warrants available on SGX belong to the European-style, simplifying one aspect for potential investors.

Comparing Warrants to Stocks:

… warrants allow us to invest with less money upfront and yet make bigger gains or losses …

There are at least 3 differences between warrants and stocks in Singapore that investors must be aware of. The first and most important difference is the leverage effect when investing in warrants. This means that warrants allow us to invest with less money upfront and yet make bigger gains or losses, as compared to investing the same amount of money in the underlying stock. The leverage effect is possible because warrants are much cheaper to buy than the underlying.

Using the DBS example again, each share of DBS may cost $12 to buy, but any warrants on DBS will cost much less, let’s say $0.50 per warrant. As the price of DBS shares change, the DBS warrant price also changes, but often by a much larger percentage. For this reason, we can get a larger gain or loss by investing in a DBS warrant compared to investing in DBS shares directly.

The other major difference between warrants and stocks is the limited life of a warrant. Stocks can be held for as long as you wish unless the company goes bankrupt. A warrant, however, always has a stated expiry date and is only appropriate as short-term investments.

Finally, the last difference is minor but nevertheless important to know. SGX charges a 0.04% clearing fee for stocks but a slightly higher clearing fee (0.05%) for warrants.

For more on warrants, do refer to the second and third articles that further explains why should we invest in warrants, factors that determine warrant prices, terms we will see when investing in warrants, investment strategies for warrants and all other important aspects that we must know before investing in warrants.

Get CashBench Updates via Facebook

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The bluest chips of Singapore

Following CashBench’s earlier introduction on how to pick out-performers, we have applied the concepts discussed to pick out the bluest of the blue chips in Singapore. Which are these? :)

[Photo: Plutor]

The blue chips of Singapore:

Blue chips usually refer to those companies that are very large and are typically the component stocks of a country’s key stock index. In Singapore, the blue chips are the 30 companies included in the FTSE Straits Times Index. Together, these 30 stocks represent the top 30 listed companies in Singapore by market capitalization and can capture the broad movements of the entire stock market in Singapore. For the latest list of companies within the STI and their recent closing prices, CashBench readers can refer to this page of the Business Times. But, not all blue chips are created equal. Which companies in the STI index should CashBench readers really take note of?

The two bluest chips on the Singapore Exchange:

Would you love to hold onto the shares of a company that consistently performs well in good times or bad. On the Singapore Exchange, there is indeed such a company based on past price movements. After analyzing the performance of all the STI stocks on a 1-year, 3-year and 5-year basis, there are only two companies that consistently ranks within the top 3 performers. They are SGX, the Singapore Exchange itself, and Jardine C&C! These 2 companies provide a positive annualised return, whether you are a shareholder of these companies for just 1 year, 3 years or 5 years. Take Jardine C&C for example, the return for a shareholder for the past 1 year is a respectable 10.50%, that’s really very good compared to the losses we’ve experienced from many other companies over the same period, even the blue chips! Over a 5-year period, the annualised return for Jardine C&C is 24.2% and 35.8% for SGX. To put this into perspective, if you have held these 2 companies for the past 5 years with an initial investment of say $5,000, it would have grown to $9,579 for Jardine C&C or $12,522 for SGX!

There is only ONE company that consistently … performed well based on a raw and risk-adjusted basis over the past 1 year, 3 years and even 5 years.

The only blue chip with a consistently top Sharpe ratio:

Recall in our earlier introduction that the Sharpe ratio is a good indication of the risk-adjusted performance of a company. Not only does it consider the raw performance of a company but also take into account how risky it is to be a shareholder. Using Sharpe ratio as a measure, there is only ONE company that consistently generates a Sharpe ratio among the top 3 of all STI companies. That company is again SGX. This means that on a historical basis, the SGX has performed well based on raw and risk-adjusted basis over the past 1 year, 3 years or even 5 years.

The favourite companies of punters?

Finally, CashBench will also highlight those companies within the STI that are subject to more volatile price swings relative to the other STI companies. Recall that higher volatility will mean these stocks will be more risky to invest in. Because of their higher volatility, these companies may be subject to more frequent trading by punters of the stock market, who will be less likely to hold onto them over a long period. Instead, the stocks are ideal for those who enjoy trading on a more frequent basis to capture those short-term periods where they enjoy an upward trend. The company that is consistently one of the top 3 volatile stocks among STI companies on a 1-year, 3-year or 5-year basis is NOL. Examples of other companies that also tend to have higher price volatilities include CapitalMall Trust, Golden Agri, Cosco Corp, Genting and Jardine C&C.

Notes: This analysis is based on historical price data for the current 30 STI companies up to 26 Jun 2009. Dividends declared or paid by these companies are not taken into consideration. STI companies not quoted in Singapore dollars are also excluded from analysis. The risk-free return for the Sharpe ratio is based on an average rate of 0.25% per year with deposit savings accounts. As usual, this analysis should not be taken to represent a solicitation to buy or sell any particular stocks in the STI.

The CashBench Forum

[Photo: alexdecarvalho]

CashBench introduces yet another service for readers who want to feel the pulse of the markets. The CashBench Forum is a search-engine that combs through pages from finance and stock investment forums in Singapore for current investor opinions.

Investor discussions on these forums are fast and furious, and the hourly volume is so huge that even the usual search engines like Google or Yahoo! will not be able to catch up. Instead, the CashBench Forum is streets ahead as CashBench tracks these pages much more frequently. In fact, the target is to offer CashBench readers recent discussions that have occurred over the past 6 hours. There are at least 3 key advantages in tracking investor opinions at CashBench:

• First, discussions from all tracked forums are listed together, you no longer have to visit each forum separately.
• Second, no more clicking from page 1 to page 10. All discussions are listed on a single scrollable page that you can see at one glance with eye-friendly fonts.
• Third, CashBench provides complementary information on the same page where these discussions are listed. These include the top business news stories, latest broker reports as well as quotes and charts of the STI and HSI indices amongst others. Readers will also have access to the latest analysis of the markets and securities found exclusively on CashBench.

For a start, the Channel NewsAsia Market Talk and Share Junction forums are tracked on the CashBench forum. The forums on ShareInvestor.com are very popular but have been excluded as they are only open to paid subscribers.

To see any discussion in full, just click on the discussion title or the direct links to the last post or the forum itself. Try it out and tell us what you think. For suggestions and feedback on the CashBench Forum, or on how CashBench can better meet your needs, do leave a comment or send an e-mail to CashBench.

How to select out-performers

There are many ways to select the stocks we want to buy. Some of us depend on forecasts and day to day events, others depend on gut feel, another group looks into the past for ideas, while there will be those who just plunge in and buy any stocks shooting up quickly. CashBench looks at one of these methods in detail.

[Photo: nDevilTV]

The four methods listed above are not exhaustive by any measure as investors can be very creative when choosing ways to make their buy or sell decisions. Of these four methods, however, only 2 can be consistently applied using numbers and analysis: (1) studying the past, or (2) analysing and forecasting the future. Here, CashBench will focus on looking into the past.

Why looking into the past is useful:

Any investor will know that the past does not guarantee the future. This is perfectly true, but looking into the past performance of stocks or any other assets is still needed and very useful overall. Why? Simply because the past gives us a foundation to base our investing decisions. Of course, the past is not sufficient to make the final call. The best approach is to make use of this foundation and then develop a forecast of the future and from there, make a final decision. If you feel that forecasting is too difficult, you need to minimally look into the past for clues on what stocks to buy and what to avoid.

In fact, all banks and asset management companies know the usefulness of historical performance, and readily provides this information for the range of unit trusts they sell. However, it is much less likely for full historical information on stocks to be provided. The typical stock brokerage firm will provide investors with charting tools that plot the performance of stocks on a 1-year horizon. This is rarely sufficient for an investor who wants to properly analyse the past performance of a stock. Given a choice, what are the 3 indicators we should look out for when studying historical information of stocks?

(a) Stock Return Performance:

“… 50% profit for a stock sounds very good, but if the profit was earned over a 10-year period, the simple annualized return is only 5% per year…”

Stock Performance is a very obvious indicator we need to know. However, historical performance can be reported in many different ways. The discerning investor will not only look at short-term performance over a week or a month, but also look at how the stock has performed over a 1-year, 3-year, 5-year or even 10-year period. Doing so will give you a very good idea if there’s any point in holding onto the stock. Another key performance measure CashBench readers must know is annualised return. This is the annual profit that an investor has enjoyed over a given period. For example, a 50% profit for a stock sounds very good. but if the profit was earned over a 10-year period, the simple annualized return is only 5% per year, which doesn’t sounds impressive anymore!

(b) Volatility of Return:

“A stock that is very volatile is also very risky. Only investors who can take the risk involved should buy these stocks.”

Volatility is another important indicator for stocks. However, it is not as well understood as stock performance. Put simply, historical volatility tells us how stable is the price of a stock.

For example, if a stock’s price stayed close to $5.50 for the entire year, it has low volatility. An investor who buys this stock is typically more certain of the price he has to pay today, tomorrow or even next month. However, the stock may not offer much potential for gains over a short period.

On the other hand, another stock may be much more volatile with a lot of price uncertainty. Its price may be $2 this week, but shoot up to $4.50 next week and then drop to $1 two weeks later. The investor will be much less certain how much profit or loss he can get from buying this stock. This stock is therefore risky to buy, and the investor may get a large profit or large loss over a short period.

As a general rule-of-thumb, a stock that is very volatile is also very risky. Only investors who can take the risk involved should buy these stocks.

(c) Risk-adjusted Returns:

This is yet another measure of stock performance, but takes into account the risk faced by an investor when measuring the performance of the stock he bought. The most common risk-adjusted measure is the Sharpe ratio. CashBench readers who have bought unit trusts will likely be familiar with this ratio. Besides stock performance, the Sharpe ratio considers 2 other factors.

“... aim to buy stocks that can out-perform risk-free returns. If not, why bother to take the risk with stocks!”

The first factor is the Risk-Free Return that we can get from guaranteed investments such as cash left in our savings and CPF accounts, or money invested in SGS Bonds. We are 100% certain that we will get our monthly or half-yearly interest from these investments, hence the gains we receive are risk-free. We must therefore aim to buy stocks that can out-perform risk-free returns. If not, why bother to take the risk with stocks!

Risk-Free Return is however subjective, and depends on where we get our spare cash to invest. If we use the rate for a Singapore savings account to represent risk-free return, it’ll typically be about 0.25% per year. If we use the rate for CPF ordinary accounts, it’ll be much higher at 2.5%.

The second factor in the Sharpe ratio is the volatility of a stock as explained earlier. Together, the Sharpe ratio can be presented using the following formula:

[ Stock Performance – Risk Free Return ] / Volatility

For most unit trust investors, they never need to calculate the Sharpe ratio themselves as it’s usually pre-calculated and presented in a unit trust fact-sheet. Stock investors are less fortunate, as the Sharpe ratio for stocks is less often provided.

“Stocks that have high volatility will get low Sharpe ratios even if they have very good past performance.”

A stock with the highest Sharpe ratio is usually the best choice for investment. It tells us that based on historical performance, this stock has out-performed the risk-free return that we can get elsewhere. Also, the return from this stock is the highest among all stocks being compared after taking into account the volatility of its price. Stocks that have high volatility will get low Sharpe ratios even if they have very good past performance. However, do note that negative Sharpe ratios are meaningless and should not be used as the basis for an investment decision.

CashBench does the hard work:

Now, you must be asking a very important question. Since pre-analyzed historical information of stocks is not that readily available, why bother knowing all these useless details? Here’s where CashBench makes a big difference. :) CashBench will be following up this post with the results of a detailed analysis on the blue chips in Singapore and around Asia. The indicators we have just discussed will be used to uncover stocks with good potential. Understand these indicators as discussed and then sit-back, relax, and look out for the next update from CashBench.