Mahathir Threatened

Yesterday, Mahathir had made clear that if PH does not join his unity government, his party Bersatu would nominate Muhyiddin Yassin for prime minister.

He emphasized that Muhyiddin has no qualm to accept UMNO MPs en bloc in his government. This implies that even UMNO MPs who are currently facing criminal charges, such as Zahid and Najib, will be back in power.

On the other hand, if PH were to choose to join his unity government, he would still be admitting UMNO MPs in his unity government but on a more discretionary manner. For more, go here.

This is a desperate move by Mahathir, which simply means that he is not only losing his plot but also losing in the Game of Thrones. A Mahathir on the verge of defeat is a very dangerous man. He is now on the verge of bringing on a constitutional crisis. For more, go here.

Our market will likely come under tremendous selling pressure due to the uncertainties from slowing economic growth, Covid-19 and now a potential political crisis of epic proportion. It is advisable to stay at the sideline until the strong headwind has blown over.

Malaysian Politics- The Art of the Possible and the Impossible

Despite what I professed earlier - to stay away from Malaysian politics - I must admit that I have failed. This thing keep roiling and turning in my head, and I'm here to share my 2-sen take on the current upheaval. 

As I see it, the problems within the current Pakatan Harapan (“PH”) coalition are two-fold, namely the succession issue and the reformation agenda of the original component parties. Anwar is using both issues to try to pin down a date for transition, which Dr M rejects.

On the surface, Dr M seems to be able to work along with DAP and Amanah, and most of the PKR team. In my opinion, Dr M’s current grand move is to completely isolate Anwar within PKR and PH coalition. If Anwar is fully marginalized - thru defection from within PKR and rejection by DAP and Amanah - then Dr M may not want to go thru with a new ruling coalition known as the Pakatan Nasional (“PN”). He can continue to rule with the current coalition, without Anwar and his decimated number of supporters, and with or without the addition of new parties in the PH coalition. I see the addition of the Sarawakian parties to be a net positive development in the current turmoil as it would help to dose off the fire of those who are clamoring for greater regional autonomy.  

As such, I believe the demise of the PH coalition and the formation of the new ruling PN coalition, including PAS and UMNO, are a bit premature. I feel that way because it is a very bitter medicine to swallow, not only just by the people but also by Dr M on two ground. Firstly, it would involve Dr M’s turning his back to the mandate that brought him back to power. That mandate was a rejection of UMNO and what it represented- corruption and abuse of power. Thus, to form a government with UMNO now would be unacceptable to many. Dr M the maverick may not care much for such niceties in his early days of climbing to the top but the 94 years old Dr M might not want to do so today unless his hand is forced.

The second reason I feel that a ruling PN coalition is still not a done deal, is simply because it is too extreme. It involves the rejection of DAP, and by extension, the Chinese community since DAP has the solid support of the entire Chinese community. This is the same community that has heeded Dr M’s call in 1999 and again in 2018. The rejection of the Chinese community will lead to the formation of an essentially Malay government which will put the nation down the road of even more racial politics. That's not something which Dr M would like to leave as his legacy.

In my opinion, the next few days will be crucial in determining the outcome of the current political imbroglio. If my view holds true, the political situation would return to normal (what’s normal these days?!) once the succession issue has been resolved. Those stocks that were sold down sharply this round, will rebound back.

****

By now, we know better what has happened over the weekend. In a political maneuver known as the Sheraton Move, Azmin tried to replace the PH coalition government with a new PN coalition government. The attempt failed spectacularly (here). To learn more, go here and here. 

While the situation is very fluid, it appears that Dr M is given a chance to continue to rule provided he can get additional MPs to join the PH coalition. If he succeeds, then he has the second chance to make a lasting change to the Malaysian political landscape. The last 22 months of neglect has reduced the flame of political reformation to the point that the people has lost all hope for the future of this nation. Can Dr M in his twilight years find the strength to reignite that fire from the amber that was once a roaring inferno? Can his comrades support him and work with him to move the nation forward? Only time will tell. (Updated on Feb 25)

MYEG: MACC's Highly Unusual Comment

Last Saturday, MYEG announced that it has received a letter from MACC which has purportedly confirmed that MYEG and its directors are not under investigation, nor a party to the investigation leading to charges against Zahid. The announcement on Bursa's website is here.

In addition, I have also looked at 3 sources- The Star, The Edge and FMT and in all of these reports, the party announcing that news was MYEG. There was no letter offered to support this announcement. Meanwhile MACC was completely silenced on this "confirmation or clarification" supposedly given to MYEG. Was MACC approached by The Star or The Edge about the issuance of this letter of confirmation/clarification? That was also absent. This is my take:

I have serious doubt about that comment. As reported, Zahid received money from X in return for helping X secured a contract/project from MYEG. Let’s breakdown the alleged offence in 2 parts. The 1st part is Zahid received money and X received contract/project from MYEG. The 2nd part is Zahid received a favor from MYEG and MYEG obtained/repaid an IOU from/to Zahid.

The amount involved and number of such “transactions” is significant; a total of 24 cheques worth over RM13 million between July 15, 2016 and Feb 8, 2017 were received by Zahid and the party(ies) that made the payments, subsequently secured contracts from MYEG.

If MACC chose not to investigate these offences, it will be in dereliction of its duties. Thus, I don’t put much weight on MYEG’s announcement that MACC has somehow “cleared” the company of any wrongdoing relating to the above alleged offence.

****

Chartwise, MYEG (RM1.38 as at 10.26am) has support at the horizontal line at RM1.33-1.35 or the intermediate uptrend line at RM1.05. The immediate resistance is at the horizontal line at RM1.40 or the short-term downtrend line at RM1.50.

Based on the above, I would recommend a SELL on MYEG at the current price.


Chart: MYEG's daily chart as at Oct 19, 2018 (Source: Malaysiastock.biz)

Zahid Hit with 45 Charges (UPDATED)

Today, our former Deputy Prime Minister, Ahmad Zahid Hamidi was charged in courts for committing 45 offenses, listed below:


For more, go here.

Of interest to us in the stock market are the following charges for receiving gratification:



My take is that the above charges could lead to legal liabilities for Datasonic Group Bhd ("DSONIC") if it can be proven that it offered money to induce the award of the contract by the Minister. In the case of MYEG, it may still be held liable if it were a party to an illegal act. If a company is found guilty of committing an offense, the company may be fined and/or the contract awarded may be terminated. Thus, I can see that implication of these gratification charges may have great impact on DSONIC than on MYEG. Nevertheless, since both companies are dependent on government's contracts in the long run, any blemish on its business conduct will impact its chance of success to secure new contracts or renewal of existing contracts.

*****

Chartwise, DSONIC has broken below the line connecting its recent lows, AB. 

Chart 1: DSONIC's weekly chart as at 19, Oct 2018_12.30 (Source: Malaysiastock.biz)

MYEG is now resting on its intermediate uptrend line at RM1.13. Its next support levels are at RM1.10, RM1.00 & RM0.95.


Chart 2: MYEG's weekly chart as at 19, Oct 2018_12.30 (Source: Malaysiastock.biz)

DSONIC has denied that it had issued any payment to the former DPM (here) while MYEG has requested a suspension of the trading of the shares on the exchange.

In view of the poor market sentiment, the negative news on DSONIC and MYEG will have longer negative implication. If you want to get into these stocks, you have to accept that the potential reward comes with high risk.

(Note: I have attempted to re-present this post with updated information as well as to tidy up the presentation. Alas, the presentation is still less than satisfactory.)

Gamuda: Time to Smoke the Peace Pipe!

Despite the 800 plus point drop on Wall Street overnight, our investors and punters will be glued onto Gamuda for the next few days. After 2 days of drum beating, senses have now begun to prevailed. The Prime Minister has indicated that the Government shall review the cancellation of the MRT2 Underground Contract that was being undertaken by MMC Gamuda.MMC Gamuda said that it would adopt an open book approach - which it refused to do previously - provided the review is undertaken by an international engineering consulting firm and its Intellect Property (IP) rights and commercially sensitive  information are respected.

If this review can break the deadlock and lead to cost-saving as well as MMC Gamuda remaining as the contractor, then the win-win solution has been achieved. Obviously the Government must not appear soft in this review and negotiation because we would be sending the wrong signals to other parties with whom the Government will negotiate next- such as the Chinese parties undertaking the ECRL project or the Singapore Government in the HSR project.

Meanwhile, Gamuda looks much more attractive after the big drop. It is now resting on the horizontal line at RM2.00. This could be a good entry to the best construction company in Malaysia.

Chart 1: Gamuda's monthly chart as at Oct 10, 2018 (Source: Malaysiastock.biz)

The second largest construction company, IJM has also dropped to a very attractive level of around RM1.40. Like Gamuda, this stock should have good support at the horizontal line of RM1.35, thus presenting a good entry to the stock.

Chart 2: IJM's monthly chart as at Oct 10, 2018 (Source: Malaysiastock.biz)

Given the big fall in US and the challenging fiscal position of our Government, I expect the near term outlook for our market to be weak. However the sharp drop in Gamuda and IJM gives us an opportunity to buy into these stocks at attractive price level. If you are a long-term investor, this opportunity should not be missed. Good luck!

Adenan Satem: A True Malaysian Leader

I'm deeply saddened by the sudden demise of Sarawak Chief Minister, Adenan Satem. In his brief rule as the Head of the Sarawak State Government, Adenan has shown us what it takes to be a leader in a progressive multi-racial, multi-religious society.

When you lead the Government, you are no longer the leader of your party or your coalition or your race. You have transcended to be the father of the state or the nation. As a father, you must act with fairness towards everyone. Many of our leaders failed in this test. They failed because they bowled to the pressure & the heat from their party, their coalition & their people and, thus, were unable to do the right thing for all the people and the state or the nation. If Malaysia ever hopes to progress as a developed nation - with a united citizenry - we must find more leaders like Adenan Satem.

Thank you, Adenan Satem. May your soul find eternal peace!


Via Malaysiakini

Brexit: Take Your Time

After a weekend of reading about Britain’s exit from the European Union (“Brexit”), I'm still befuddled by this unexpected and unwelcome event. Its immediate impact on the financial markets has been enormously painful. Global equity markets lost about USD2 trillion in value on Friday. We can expect volatility to remain for the next few weeks as the financial markets sort out the full implications of this development.

Brexit plunged the UK into a crisis as the Prime Minister Cameron has resigned to take responsibility for the loss. A caretaker government may step in until a successor has been elected in October. Cameron has wisely decided not to invoke Article 50 of the Lisbon Treaty to begin the withdrawal from the European Union (“EU”). This may buy time for the people to decide on the whats, hows and whens the next steps will be.

For now, there is still much confusion on the outcome of Brexit as well as a fair amount of buyer’s remorse. Among the “Leave” campaigners, they were many who simply didn’t believe the vote will be successful. Their fear was a poor showing which might weaken British’s position in any future negotiation with Brussels. Over the weekend, a petition for a re-vote attracted more than 3 million signatures. Interestingly, the petition was started by a “Leave” supporter.

How the political elites in London, Brussels, Berlin & Paris handle the Brexit outcome will be critical, not only for the future of UK’s position within the European Union but also the future of the EU as well as the UK. For the UK, an exit from the EU could lead to a breakup of UK. The Scots, which had voted in 2014 to remain in the UK, had voted this round overwhelmingly in favor of remaining in the EU. They are now clamoring for exit from the UK. For the EU, Brexit could lead to other nations withdrawing from the EU. There is much interest in not having Brexit or, if Brexit is inevitable, to make the exit a swift but painful affair.

Meanwhile HMS London is rudderless. The Conservatives will likely elect a new leader to spearhead Brexit in October. After all, Brexit referendum was Cameron's tactic of appeasing a faction in his party that wants the UK to exit the EU. Any deal negotiated by the new leader with Brussels is likely to be put before the people. Thus, the UK will probably have a second referendum in the form of a General Election where the Conservatives would argue for the people’s ratification of the Brexit deal while Labour party will argue against it. That General Election will decide the final exit from the EU. And, it's because of this likely General Election in a not-so-distant future that Labour party leader, Jeremy Corbyn is now experiencing a challenge within his party. Many of his party leaders want a more dynamic leader to lead them into the next General Election.

*****

Equity markets will remain volatile in the short-term because there will be plenty of talks about Brexit. After a while, the market will get bored because there will be no action taken to begin the process for the Brexit. Then the selling will subside and the recovery can begin. 

Our FBMKLCI is currently in a downward channel.  The immediate support will be at the horizontal lines at 1620 & 1600. If these lines are violated, the index may revisit its August 2015 low at 1500.

Chart: FBMKLCI's weekly chart as at June 24, 2016 (Source: ShareInvestor.com)

I will leave you with this thought of a strange world that we are living in today.  

Suppose They Gave A War and Nobody Came 

Suppose They Held An Election and Nobody Ran 

Suppose They Voted For Exit and Nobody Left

Brexit: A Surprise?!

As at 12:10pm, the Vote Count for UK's referendum on its membership in the European Union is heading in the direction of Britain exiting (or BREXIT). With 14.7% vote to be counted, the only way that the vote can change is the Remain vote must surpass the Exit vote by 21.7%. That's very unlikely.


Brexit Vote Count via Yahoo

The pounds get pounded and dropped 9.7% to 1.345 as at 12:10 pm Malaysian time.


Chart 1: GBP-USD's 30-min chart as at June 24, 2016 (Source:Investing.com)

Our FBMKLCI dropped 22 points to 22 points to 1617!

 
Chart 2: FBMKLCI's 30-min chart as at June 24, 2016 (Source: ShareInvestor.com)

We know that Brexit will likely impact a few listed companies directly. The Star newspaper - quoting a Maybank Investment Bankreport- listed down the major Malaysian investments in the UK: property developments (Battersea by SP Setia, Sime Darby), regulated assets (YTL Power), casino ops (Genting Malaysia (GENM), and renewable energy (KNM Group). The indirect impact is unknown. What's unknown is always very scary!! If you are scared, you sell in the market. I think we must remain calm in this maelstrom. I feel that the selling is overdone.

1MDB: The Mother of All Losses?!

P Gunasegaram contributed a damning article regarding 1MDB to Malaysiakini today. The article entitled "Game over for 1MDB & Najib?" gave an estimate of the losses suffered 1MDB: An incredible amount of RM44 billion!! That's double the amount that I thought we had lost in this horrendous affair.

To get a true sense of the magnitude of the loss, lets' take a look at the issue of PTPTN student loans. This was an issue that made me very unhappy with Anwar Ibrahim in 2012 when he proposed that the government should absorb the entire PTPTN loans outstanding. The total amount outstanding then was RM44 billion, owing by 1.99 million students. That's exactly the amount of money that P. Gunasegaram estimated that 1MDB had lost!! 

Imagine the benefit that could have accrued to the nation, had we not lost this money. We could have used the money to pay off the PTPTN loans owing by 1.99 million young Malaysians. Freed from the burden of repaying their student loans, these young Malaysians would have a better start in life; they could consume more or invest in their first homes. If you were like me - who object to this type of social experimentation - we can still put this saving to good use, such as setting PTPTN2. Imagine another 1.99 million students obtaining their study loan to finance their undergraduate degree which will prepare them for the challenges of the 21st century. Either way, our economy would have enjoyed a massive boost. Alas, that was not to be! Instead we lost it all. But, that's not all! The loss is continuing due to lower growth as a result of poor investors' sentiment and a higher cost of living due to our weaker ringgit.

If this nation is to move on, the people responsible for this debacle must be brought to justice. I have faith that there are still enough good men in our cherished institutions who will come together to bring this sorry episode to an end.

From Malaysiakini

1MDB In Default: Are You Surprised?

Those, who follow political development, are probably surprised that the stock market chose to react negatively on the news of 1MDB in default. After all, we lost billions of ringgit and yet there was hardly a crime in sight. Our Prime Minister has urged the nation to move on. Until now, hopeful....


From Malaysiakini

Signs of nervousness were felt last week when it was announced that 1MDB will not pay for the US$50.3 million debt payment in bonds on billions of dollars guaranteed by an Abu Dhabi state-owned sovereign wealth fund International Petroleum Investment Corporation (IPIC). USD-MYR rebounded to 3.94. Will it breach the resistance from the horizontal line at 3.95 as well as the downtrend line, RR at 4.00-4.01. We will wait & see.

 
Chart 1: USD-MYR's 4-hourly chart as at April 26, 2016_2.45pm (Source: Investing.com)

As at 3.15pm, our FBMKLCI was down 20 points. If FBMKLCI were to break below the 1690 level (breaching the support of the 20 & 30-week EMA lines), the recent market rally will likely have ended.


Chart 2: FBMKLCI's weekly chart as at April 26, 2016_2.45pm (Source: Investing.com) 

Be careful out there!