Friday, June 8, 2012

Investment Policy of China and how you can benefit

In one of the rare interviews by the Chairman and CEO of the world's most important and probably the largest Sovereign Wealth Fund, CIC, China Investment Corporation, spoke with the WSJ.

His views are pretty much identical to mine which is why I choose to link up here.

1. European problem will rise, not because of financial instability but due to political instability. All 27 countries in the Eurozone or the 17 in the Euro will not be able to reach consent on any issue well in time.

"By comparison, in August 2008, when Hank Paulson launched the TARP scheme, everybody expected it to pass the House immediately. Anybody with sanity would approve it because it would save the U.S. economy. But it turned out that it didn’t pass the House in the first vote. It took them another week to pass the TARP. That caused a lot of losses. Even in a single country like the U.S., it took such challenges to get consensus, let alone Europe, which has 27 member states. The U.S. had a second chance to solve its problems, but Europe may not have many chances."

2. China has stayed out of Europe since more than one year now.

"We have reduced our exposure to that. We sold down our exposure to peripheral countries a long time ago, before any loss was incurred."

3. China wishes to invest in Latin America and South Africa aside from Asia. Of course, they have directed more of their investments internally in China more than anywhere else.

"Mr. Lou: Right now, we’re underweighting on developed countries, and overweighting on emerging markets.

The one economy we have the most confidence in is China. We’re trying to look for investment opportunities with a China angle or a China factor. We’re focusing a lot of attentions on our neighboring countries.

We’ve already made investments in Brazil and South Africa. We’re bullish on Africa and Latin America."

4. Commercial Real Estate: This is again one of my favourite investment areas for last 2-3 years since it generates visible investment cash flows;

"In Asia and emerging markets, they don’t have fully developed public markets. So we’re looking more at alternative investments including private equity, infrastructure and direct investment, which should suffer less from the European crisis.

Take real estate, for example. We recently invested in two commercial buildings in Moscow city, the new city. They are quite promising."

5. On the farce that was the Facebook IPO.

"Mr. Lou: I can’t understand it. Such opportunities as Facebook are not for us."

6. China will get to become a strong contender to being an international reserve currency and have an open currency freely tradable, as has been my view.

They have taken lot of steps in the last few years, such as signing agreement with various countries on yuan trade settlement such as Japan, Russia, India, issuing yuan bonds and loans, allowing London, Dubai and HK to deal in yuan bonds and issuing USD bonds of various state owned corporates on a very regular basis to create an international bond yield curve etc. besides maintaining an extremely stable and appreciating price of the yuan which only a strong country can manage with a firm focus on the future.

"Mr. Lou: From an observer’s point of view, it’s time to open up. But today may not be the right timing. There is a crisis going on. But after the crisis, it might be time."

We must listen to what the world's most savviest and most invisible people who are decision makers and influencers of Government and international investment policy and have control over billions of dollars of investment funds have to say and simply follow in their footsteps. They are more important than Warren Buffet simply because they have more influence and follow directions of Governments and we can easily ride on their coat tails while protecting and preserving our capital and make it grow.

June 7, 2012, 6:58 PM HKT
Q&A: CIC Chief Lou on Crisis in Europe, Investment Focus

Saturday, April 7, 2012

Global Perspective on Prime Property & Wealth 2012

A very interesting report issued by Citi Private Bank and Knight Frank on Mar 28, 2012.

I suggest you read this carefully since this shows important future global trends on where to invest?.

https://www.privatebank.citibank.com/pdf/wealthReport2012_lowRes.pdf

Some key take aways from the report are:

- There are now 63,000 people worldwide with $100m or more in assets, according to Ledbury Research, which specialises in monitoring global wealth trends.

- There are now 18,000 centa-millionaires in the region covering South-East Asia, China and Japan.This is more than North America, which has 17,000, and Western Europe with 14,000.

- By 2016, Ledbury Research expects that this region will have extended its lead, with 26,000 centamillionaires, compared with 21,000 in North America and 15,000 in Western Europe.

- The London School of Economics professor Danny Quah forecasts that by 2050 the world's economic centre of gravity, a theoretical measure of the focal point of global economic activity based on GDP, will have shifted eastwards to lie somewhere between China and India (see map, p8). Professor Quah calculated that in 1980 it was in the middle of the Atlantic.

- It is estimated that by 2050, India will be the largest economy in the world at USD 85.97 USD trillion GDP at PPP - Purchasing Power Parity.

- In 2010, USA was at USD 14.12t of GDP, China at USD 9.98t, Japan at 4.33t and India at 3.92t. All data in PPP for GDP.

- In 2050, composition will be India at USD 85.97t of GDP China at USD 80.02t, US at USD 39.07t and Indonesia at USD 13.93t. All data in PPP.

- In terms of important cities, Dubai is at 8th standing in growing importance, behind Beijing and Shanghai at the top, as well as London and Singapore and Sao Paulo ahead of it. But the fact that Dubai appears today as important is remarkable. And despite Dubai's troubles in the recent past, it has been voted the 13th Most Important City in the World today!

MOST IMPORTANT NOW
1 London
2 New York
3 Hong Kong
4 Paris
5 Singapore
6 Miami
7 Geneva
8 Shanghai
9 Beijing
10 Berlin

MOST IMPORTANT IN 10 YEARS
1 London
2 New York
3 Beijing
4 Shanghai
5 Singapore
6 Hong Kong
7 Paris
8 Sao Paulo
9 Geneva
10 Berlin

GROWING IN IMPORTANCE TO HNWIs THE FASTEST
1 Beijing
2 Shanghai
3 London
4 Singapore
5 Hong Kong
6 New York
7 Sao Paulo
8 Dubai
9 Mumbai
10 Paris

- The average real estate price rise in 2011 was highest in Kenya, Miami and Bali. While real estate prices declined most in Mumbai (worst) along with Mallorca and Milan.

- Price falls in Singapore, Sydney and Shanghai – tellingly among the fastest growers in last year's PIRI survey – confirm the unravelling of speculative price booms in Asia Pacific.

- WHAT ARE THE FUTURE SUPER PRIME MARKETS?

There is certain to be an expansion of the list of superprime markets – the growth of global wealth will ensure that – but I don't expect a rapid rise in the numbers. Take a look at the list of current locations and they share
one fundamental benefit – these are mature markets with depth of liquidity, where owners can almost dictate the timing of their exit.

In 2009, $41.6bn of private money was invested globally in commercial property, according to Real Capital Analytics. This jumped to $57.4bn in 2010, and rose to $70.6bn in 2011. This is quite remarkable considering the fall in investment seen by some other asset classes in 2011, as investors responded to mounting uncertainty in the global economy.

A popular saying, which we often hear repeated by investors from the Middle East, is: "Property may get sick, but it never dies." That sums up the thinking of many wealthy individuals who are targeting property today.

- How do you view property as an investment class and what sectors have you invested, or are considering investing, in?

I think trophy assets are probably the most resilient and successful investment options at the moment, and will be for the foreseeable future.

- Why are the wealthy increasingly turning to commercial property as a safe investment?

Prime office and retail buildings in perceived safe-haven locations like London can offer annual yields that are as reliable as government bonds, but with the upside of potential capital growth.

- Why are wealthy individuals choosing to invest in art, wine and sport?

At a time of turmoil in the markets, art, wine and sport look like steady investments, routinely outperforming indices such as the FTSE 100. And if times get really hard, investments of passion can still be enjoyed.

- The charts on Page 60 and 61 for performance of real estate prices in various cities globally and select commodities over past 5 years are very interesting.

- On Page 63, it is noticed that Dubai is No. 10 globally for Quality of Life ahead of Monaco and Vancouver or Toronto and Madrid! While for Economic Activity it rises to No. 7 globally, ahead of powerful cities like Frankfurt, Berlin or Bangkok. Overall, Dubai is No. 13 globally.

If you require any help, to purchase luxury real estate (residential, commercial or income generating hotels) anywhere in the world or need any investment ideas to bounce off, please do not hesitate to contact me.

Stay tuned...

Citigroup Study Shows Asian Rich Topping North American

Thursday, February 23, 2012

Why Gold is a buy again! Still!

On 28 Dec 2011, when gold touched a low of USD 1,520, I had suggested to buy more and more Gold...in US dollars or AUD or CAD so you get double profits of appreciating currencies as well as rising gold!

Today Gold has touched USD 1,760, which is a profit of 15.7%, or a minimum of 14% depending on price purchased or if purchased on average basis.... in less than 2 months!

All below mentioned reasons of gold price rising continue to remain valid.

However, another reason is bailouts of banks, airlines, oil companies, real estate companies and various other companies globally by the Governments.

The more the Governments 'bail out'or give loans to companies, the more the gold will rise.

Please see attached chart of Monetary Base of the USA. It was rising gradually from 1981 until 2008 when the bail outs began in USA.

The monetary base jumped from USD 863bn to USD 2.66 trillion which is a rise of USD 1.8 trillion and is 208% rise in 3.5 years.

Since June 1994, when monetary base was at USD 404 bn, it took 14 years during a BOOM period with Middle Eastern wars in Iraq and Afghanistan which took 3.5 years in percentage terms to rise by an equivalent percentage.

This debasement of money and printing of dollars by the US Govt at a much faster pace has led to more and more money supply in the system and despite ZERO interest rates, the global trade or global GDP refuses to rise significantly while gold continues to rise at a similar faster pace.

In 2008 until 2010, US Govt bailed out their companies, In 2011 and 2012 Europeans and China bailed out their companies, now India is just starting up bail outs of their own companies. Just the country changes but the bailing out continues with global monetary base rising faster than ever!

This is a solid reason to buy more and more gold if you believe US and Europe and Japan etc will continue to spend more to make GDP grow, or bail out failing companies or give tax reductions to public, or reduce unemployment then gold will be the investment that will continue to rise.

If you missed the boat in Dec, there is still time to buy gold to hedge your positions, not against inflation, but the growing list of global companies who get bailed out and hence reduce the purchasing power of USD and all major currencies, which can be protected by investing in gold and silver only, which do not have Govt risk and combined with the buying power of the ever rising population, the price of gold/silver continues to rise.

It used to be US and Europe were large consumers of gold and other metals and commodities which has now been replaced by China, India, Brazil and other Asian nations over the last decade.

Stay tuned....and buy Gold and protect and grow your hard earned savings!


----- Original Message -----
From: MANOJ NATHANI
At: 12/28 12:38:59

Gold is down today to USD 1,587 due to new rules from China to control the gold speculation.

If we look at the attached chart, we see that Gold has been consistently rising since 2001, when it touched USD 280 levels.

We can also see a downward blip in Sept 2008 when the world's financial system was almost about to collapse and only Lehman Brothers went bankrupt but various other 'insolvent' banks of the USA were allowed to continue at the cost of the American taxpayer and the '99%' masses who continue to pay the price for the high handedness of the American banking system through more debt, more job losses, weak real estate pricing, no lending, weak stock and bond markets and insolvent businesses. We have entered a vicious cycle of DEBT - BANKRUPTCY - JOBLESSNESS -

Until Lehman collapsed in Sept 2008, we can see gold rising gradually, however, thereafter, as Governments around the world started printing more and more money, Gold started rising in a parabolic manner instead of a gradual arithmetic rise. Hence, we can actually time the rise of gold and show high degree of correlation to the 'bailing out' of privately owned banks and other large financial companies despite allegations of wrong doing and fraud.

Gold has always remained over its 50 day average and now is at that level again. This level indicates strong support and gold has remained above this level since 2002 except for the 5 month period Aug 2008-Dec 2008.

Of course, if gold drops below its 50 day average of USD 1,583, then it may go slightly more lower, but chances are quite low.

Next support of 100 day average is at USD 1,414 and 200 day average at USD 1,173.

Meanwhile, Historical price of Gold and US 10 year bond yield:

Dec 96 - USD 367      6.41%
Dec 97 - USD 289      5.74%
Dec 98 - USD 288      4.64%
Dec 99 - USD 288      6.44%
Dec 00 - USD 272      5.11%
Dec 01 - USD 278      5.05%
Dec 02 - USD 348      3.81%
Dec 03 - USD 415      4.24%
Dec 04 - USD 438      4.21%
Dec 05 - USD 517      4.39%
Dec 06 - USD 636      4.70%
Dec 07 - USD 833      4.02%
Dec 08 - USD 882      2.21%
Dec 09 - USD 1,096    3.83%
Dec 10 - USD 1,420    3.29%
Dec 11 - USD 1,587 - as on date...US 10 yr Yield 2.00%

There is a strong negative correlation between interest rates on USD bonds with Gold, when USD 10 year bond yields go down, gold rises.

Meanwhile, doubling of Gold price took over 8 years from 1997 to 2006.

From 2006, gold doubled only in less than 4 years from 2006 to early 2010.

While from Dec 2008, it took only two years to double up, from  USD 882 to USD 1,600 levels today.

Point here is that gold is doubling up due to:

1. More money in circulation and debasement of the 'value of money' in almost all currencies. More money in reality means higher national debt, which is the cause of problems in Ireland, Greece, Portugal etc and ultimately leads to higher prices in precious metals. US debt is over USD 15 trillion and rising while Eurozone debt is at USD 3 trillion and rising. Japanese debt is legendary and the highest.

2. Rising global population of upto 7 billion now, which was 6 billion only until 12 years ago, 1999, hence rising demand.

3. Declining mining and exploration of all major commodities such as oil, gold, silver etc.

4. 'Safe haven' status of gold since it not backed by any 'unstable' or 'risky' sovereign Govt.

5. Until the 'real' rate of return, i.e. actual/nominal yield on US bonds less inflation which is running high due to oil and other increases such as fertilisers, food, pharmaceuticals, car prices etc. This applies to all countries where inflation is higher than both GDP growth or respective yields.

In my view, today and this week is a great buy of physical gold and averaging it on purchases on a weekly or bi weekly basis, at every dip and holding it over the next few years until the global crisis can be controlled and some sort of stability and growth is seen.

I expect gold to rise to USD 2,000 levels shortly as most major banks such as UBS (USD 2,050), Barclays (USD 2,000), Goldman (USD 1,810), Citibank, JP Morgan, Morgan Stanley (USD 2,200) have already said in their research over the last few weeks! Some of these banks may be wrong or trying to 'cheat' their clients, but all cannot be wrong!

Stay tuned....

Saturday, February 18, 2012

12.5% return in USD p.a. : From the land of Samba

Brazil is a country of charming people with less than 200m Brazilians.

It has significant advantages to most other similar sized large economies:

1. It's population is limited to 190m people approx. as per latest census data available.

2. Its unemployment rate is better than most countries at 4.7%.

3. Its currency, the Brazilian Real has appreciated over 55% in past 10 years since 2002, from 3.87 to 1 USD in Sept 2002 to 1.71 to the USD today.

Unlike most other countries such as India which has performed ZERO in past 10 years and is still at 49 level since 2002 until date despite all the volatility in between.

South African Rand has appreciated only 35% over past 10 years from 11 to USD to 7.71 today, unlike Brazil which is 55% up.

Indonesian currency has appreciated only 12% from 10,210 in 2002 to IDR 8,958 today.

Chinese Yuan has appreciated 23% since 2002, from 8.27 to USD to 6.30 today.

In the neighbouring region, Mexican currency has DEPRECIATED from 9 to the USD to 12.75 to the USD today with a currency loss of 41%!

Under this scenario, Brazil looks to be the strongest in the whole world if not in Latin America and the leader of Latin America.

Brazil has slightly underperformed over the last 2 years and this can be associated to the global crisis and the change of Presidency from President Lula to President Dilma on Jan 1, 2011. Still, its currency appreciated from 1.90 levels to 1.70 level today, an approx gain of 29% since Feb 2009 in past 2 years. Only its stock market index, Bovespa, has underperformed from 69,000 level 2 years ago to 65,000 level today.

Some tight regulations such as 2% tax on any new incoming funds to reduce international hot money flowing into equity and fixed income markets in order to bring only serious investor money to Brazil in 2009 and then in 2010, thereafter, this tax was increased to 4% and further to 6%.

However, in Dec 2011, this tax rate was eliminated and brought down to zero which brings us to the New Year in 2012, today, and the immense opportunity that lies ahead of us.

4.
Some comparable USD bonds issued by Rep. of Brazil (BBB rated) are below:

Issue Date    Maturity Date    Coupon    Price Today    Yield
Jan 2006      Jan 2037               7.125%       USD 139        4.50%
Jan 2005      Feb 2025               8.75%        USD 151        3.75%
March 2001 Apr 2024               8.875%      USD 152        3.58%
Jan 2000      Jan 2020                12.75%      USD 168        3.00%

You will observe that as the issue date comes closer to today and the Brazilian economy does better - as reflected by the rising strength of its currency - the COUPON keeps declining, which is another indicator of strength. This shows that Brazil is now able to borrow money at much cheaper rates than it could 10 years ago!

This cannot be said most other countries including Western Europe which sometimes are paying more and sometimes just little less, but certainly not down from 12.75% in 2000 to 4.5% levels today over the past 10 years alone!

5.
Not only Brazil's population is lower, hence it has lesser social problems than other countries, but its banking and real estate sectors are quite robust.

For example, the Debt to GDP ratio of Brazil is close to 66% which is 93% for USA, 220% for Japan and 142% for Greece! India is at 69% while Germany is at 83%.

This makes Brazil much more nimble and with potential to rise much more faster in the coming years ahead.

Brazil's GDP growth is estimated to grow at 3.50% in 2012 on a GDP size of USD 2.1 trillion valued at USD 73.5bn. In 2011, they averaged 3.72% and in 2010 was 7.57%.

6.
The Chart of Rep. of Brazil 2041 maturity bond is attached.

This was issued in Oct 2009 and is trading at USD 117 level with a yield of 4.50% in USD p.a. This is the latest bond in USD issued Govt of Brazil in 2009.

Its size is USD 2.9bn with a rating of BBB by all 3 agencies.

Minimum size is USD 100k and is guaranteed by the Govt of Brazil.

It had gone down below USD 100 until May 2011, however, since then has robustly risen to USD 117 today.

I believe it is a good buy, despite the longer dated maturity because as we have seen in Ireland, Greece or Dubai, that countries cannot fail though their problems may continue and the sooner they resolve their problems, then the bonds do come back if issued by Govt or Govt entities.

However, in the case of Brazil, they have no problems at all, according to data shown above, and therefore, their long dated bonds should continue to rise.

I expect them to rise to USD 125 levels which is 8% capital gain plus 4.5% interest for a total potential yield of 12.50% within one year.

I also expect the bond price to rise to USD 135 levels within 3 years while generating 4.5% p.a. coupon for a TOTAL cumulative yield of 30.50% within three years in USD.

Over the next 5-7 years, this bond has the potential to rise to USD 150-155 levels while generating 4.5% p.a. return annually.

This has happened in bonds issued previously so there is no reason it will not happen in this bond mainly due to the strong fundamentals of the Brazilian economy.

Stay tuned...

Sunday, January 22, 2012

Chinese Premier signs trade agreements while visiting UAE plus China gives loan to save India

Chinese Premier Mr Wen Jiabao in Dubai, near Armani Hotel, Burj Khalifa on Jan 17 2012
The most interesting thing happened during a lunch meeting when I bumped into Chinese Premier - Wen Jiabao - in Dubai on Tuesday Jan 17, 2012 near Armani Hotel, Burj Khalifa and indeed said hello to him! 

I consider him to be the MOST powerful man in the world today, even more than US President Obama!

Picture of the Chinese Premier attached while visiting Saudi, Abu Dhabi and Dubai.....

......in search of oil to replace Iranian oil in the event US-Iran crisis escalates any further, since China imports almost 25% of Iranian oil amounting to 500,000 barrels per day from the 2m barrels produced by Iran daily!

Although, I am betting that US is backing off....

1) considering that they have delayed their military exercise with Israel this week in the Gulf due to 'budgetary constraints' until further notice AND 

2) they have given 6 months to everyone while sanctioning Iranian Central Bank for oil export embargo which clearly is a sign of weakness. I mean if you wish to sentence somebody you have to do it immediately and not AFTER 6 months!

3) Plus USA is very worried that Iranian sphere of influence is strengthening in Latin America (USA's traditional backyard which until recently was under USA's thumb) since Iranian President visits Venezuela, Cuba, Ecuador and Nicaragua every year and is building stronger ties in the region and enhancing trade while gaining international strength and support since Iran is the only country defying USA openly - despite all the sanctions and he is received extremely warmly in these 4 countries!

4) China and Russia have announced that they will veto any UN resolutions against Iran. While China and Russia have doing more business between each other, but they are tacitly supportive of Iran since they supply major arms and aircrafts to Iran and purchase oil from Iran. For example, China buys more than 25% of Iran's oil.

Meanwhile.....China also saves India!

This is a very good news for India's USD denominated convertible bonds issued by hundreds of corporate issuers, 400 approx, to be more precise, that China has supported Reliance Communication, owned by Indian billionaire, Anil Ambani and provided his company a loan of USD 1.18bn at 5% for 7 years through 3 major Chinese banks.

I was very worried that this USD 1.5bn repayment coming due on Mar 1 2012 may default since this is the LARGEST bond repayment in USD by ANY Corporate issuer from India. Everyone in the institutional category was focused on this maturity being one of the largest corporate houses in India with the largest single bond size in India.

This convertible (FCCB) bond was issued by Reliance Communications during the peak of India in 2007 for 5 years at INR 44.11 (todays INR/USD rate is at INR 51.00, hence a loss of 15.62% plus 27% interest for a total increase of approx 42.62% from a sum of USD 925,300,000 outstanding, approx USD 1bn, hence a payment amount of approx. USD 1.42bn was required on Mar 1, 2012).

With conversion price established at INR 661.23 at issue time in 2007, todays price is at INR 89, which indicates very strongly, that no investor would convert into equity, hence the zero coupon bond issued at USD 100.00 shall redeem at USD 127.69 almost mandatorily, except for a default, which has now been averted. Bond trades at USD 123 level today (since maturity on 1 Mar is at USD 127.69 and has increased steadily from USD 115 levels in Oct.

It is with a huge sigh of relief, that we all rejoice that there is ONE backstop to this world's debt problems called CHINA!

Thank God for China, else, I wonder what would, Europe, Japan, Australia, India, Middle East, Africa and Latin America and of course USA, do!!.... Chuckle..chuckle... but hey, China also has to save itself so that makes it the saviour of the ENTIRE world!

And some people doubt that China will not rise but may collapse...though the facts state that it continues to help almost every single country around the world! 

Question is: How could China fail, if it is still helping others with billions of dollars?

The facts are that USA's Secretary of Treasury, was in China last week, probably on a quarterly trip since last few years.

The Spanish and Brazilian Presidents were in China in Apr 2011.

The VP of USA, Joe Biden, visited China in Aug 2011.

The President of France and Romania were in China in Aug 2011.

The President of Pakistan was in China in Aug 2011.

The Sri Lankan PM visited China in Sep 2011.

Chinese PM visited India in Dec 2010 while Indian PM visited China in April 2011 to attend a BRICS meeting.

UK PM David Cameron visited in Nov 2010 and Chinese PM visited UK, Germany and Hungary in Jun 2011.

The Head of EFSF Fund from Europe was in China in Oct 2011.

While Russian President, Putin visited China in Oct 2011 to sign some gas deals.

Japanese PM was in China on 25 Dec 2011 to sign CNY-JPY agreements to avoid USD trade.

As of today, the S. Korean President has just landed in China for a visit. The North Koreans have visited twice after many years in 2011 due to change of leadership and the death of the erstwhile N. Korean President.

And the Canadian PM, Stephen Harper is expected to visit China in Feb 2012.

While guess where the Chinese PM is on Jan 17, 2012..... in UAE, visiting Saudi and UAE!

Stay tuned...

Billionaire Anil Ambani’s Reliance Taps Chinese Loans After Stock Plunge
By Anurag Joshi and Mehul Srivastava - Jan 18, 2012 10:29 AM GMT+0400

Saturday, January 21, 2012

Well Said....

Bankers and Advisors, especially from the 'Swiss Private Banks' and top fund managers who are being diligently followed by bankers and advisors in most other countries worldwide have sold the story of 'managing assets' to clients without actually contributing to the growth of money of their clients and devoured the fees and enriched themselves which has led to mistrust of advisors and bankers, not to mention decline in assets and hence the fees. This has led to many a top private banks to fail (think ING, Lehman) and several hedge funds to collapse and cases like Madoff and MF Global to surface. Wish they would keep client's interest at heart, at least going forward.

Dilbert says it beautifully...


Tuesday, January 10, 2012

New Bond Issue - Hutchison Whampoa 5yrs & 10 yrs - USD

Hutchinson Whampoa is a great company involved in following businesses, as a conglomerate. It also meets my criteria of cash in this turbulent time, of having USD 13bn cash on their balance sheet.

1. Infrastructure & Energy - Involved in Power and Utility in HK, China and UK, Largest energy integrated producer in Canada - over USD 50bn market cap in this sector
2. Property - Largest in HK and China, Rental Portfolio 14.4m sq Ft.
3. Retail - Globally with over 9,400 stores across Asia and Europe
4. Telecom - Leading telecom operator with base of 60m customers in 11 countries
5. Ports - World's largest private port operator with 52 ports in 26 countries

ISSUER:            Hutchison Whampoa International (11) Limited
GUARANTOR:          Hutchison Whampoa Limited
FORMAT:            Reg S / 144A
STATUS:            Senior unsecured
RATINGS:            A3 (Moody's) / A- (S&P) / A- (Fitch)
ISSUE SIZE:        US$ Benchmark
TENOR:              5-Year            |        10-Year
SPRD GUIDANCE:      T+ 275 Area      |        T+275 Area
TERMS:              SGX Listing, 200k/1k denoms, NY Law
EXP TIMING:        Today's business
JOINT BOOKS:        Goldman Sachs, HSBC, JP Morgan

Despite market uncertainities, their revenues grew 25% over 2010 (9 month period) in 2011.

While EBITDA growth was 37% for the same nine month period in 2011 versus 2010.

Please note this issue has a minimum denomination of USD 200,000 and USD 1,000 thereafter.

Indicative coupon for 5 year is at 3.60% p.a.
Indicative Coupon for 10 years is at 4.75% p.a.

Comparables:

Hutchinson Whampoa, Issued Sept 2009, maturing Sept 2015 (5 yrs maturity), Coupon 4.625%, trading today at USD 105.50

Hutchinson Whampoa, Issued Sept 2009, maturing Sept 2019 (10 years maturity), Coupon 5.75%, trading today at USD 110.85

Hutchinson Whampoa, Issued Apr 2009, maturing Apr 2019 (10 years maturity), Coupon 7.875%, trading today at USD 122.00

Hutchinson Whampoa, Issued Nov 2003, maturing Jan 2014 (10 years maturity), Coupon 6.25%, trading today at USD 108.00

Hutchinson Whampoa, Issued Feb 2003, maturing Feb 2013 (10 years maturity), Coupon 6.50%, trading today at USD 105.00

They also have a Perpetual security issued in Oct 2010, which perhaps is the only Perpetual security in the world which is currently trading at just slightly above USD 100 levels.

So, if you have any safe money to park in USD, I would suggest to carefully consider this issue and invest.

This is a safe and solid company with excellent track record over last several decades, owned by Mr Li Ka Shing from HK, who invests during turbulent times and his businesses are in very resilient industries and sectors and are globally diversified. And, the bond is being guaranteed by the parent company directly.

I expect rise in bond value as credit risk diminishes, even though US yields may end up rising a bit, from current 2% level for 10 year US Treasuries.

In order to invest in this new issue, you need to hurry today itself over the next few hours, by 2-3pm Dubai time today, before the new issue window closes today and the bond starts trading from tomorrow onwards.

The Story of RBS and its impact on Dubai...

In one of the biggest job losses in Europe in 2011/12, RBS is set to announce over 10,000 job cuts for RBS bankers this week.

RBS is a storied company with very interesting history over the past 5 years. It was founded in 1767 by a Royal Charter. In 2005, the Queen and the Duke of Edinburgh opened the new HQ building of RBS in Edinburgh.

It must be noted that RBS is one of the largest banks in the WORLD with revenues of GBP 31.8 bn in 2009 and GBP 29.6bn in 2010.

The then Chairman, Sir Fred Goodwin was a very aggressive banker and set out to create his legacy during the boom times. He went on an acquisition spree to make RBS the biggest bank in perhaps the whole world!

They also took a 10% stake in Bank of China in 2005.

His crowning moment was in 2007 when RBS, along with Fortis (Belgium) and Santander (Spain) took over ABN AMRO Bank for a staggering USD 100bn, the largest banking takeover in the history of banking.

We all know how that ended...but just to recapture those memories.....

ABN AMRO Bank could not be digested by all 3 top banks since global crisis started unfolding....

Fortis went bankrupt and Belgian Govt had to bail them out.

Santander, went through trouble but due to its takeover being only in Latin America, was able to manage it somehow, due to Santander's market strengths in that region. But the Spanish downturn of 2011, submerged their stock from EUR 12 in 2009 to EUR 5.65 today (52.9% down).

Meanwhile, RBS kept going under.....gradually, purely due to its systemic importance to the UK banking system.

In 2008, UK Govt bailed them out and took over 58% stake in the bank.

In 2009, the UK Govt gave more money to bail the bank, and took the stake upto 68%.

Finally, in 2010, UK Govt gave them more money and stands currently with a 84% stake in RBS Bank.

The UK Govt is going silly trying to close the various risky and unprofitable businesses but the 2009/2010 slight recovery delayed the inevitable.

Now, RBS is firing bankers like never before, thanks to the 2011 European crisis, which continues to get worse, with EUR declining and loan losses rising, unemployment rising and inflation rising due to oil prices and other factors.

They only had a GBP 3.6bn loss in 2009 and GBP 1.1bn loss in 2010. 2011 results are still awaited. I am sure they are equally bad, hence the job cuts.

Since April 2008, when RBS issued a GBP 12bn rights issue, their stock has been decimated.

From a peak of GBP 6.0263 in March 2007, it trades at GBP 0.2078 today, a loss of 96.55%. Just last one year, from Jan 11 to Jan 12, it has lost 47%.

Only in the month of Oct 2008, when the UK Govt took the 58% stake in RBS and 2 other major banks and injected a total of GBP 37bn in 3 banks, the RBS stock price plumetted from GBP 1.86 to GBP 0.6750 in ONE MONTH.

Some of the major names in UK, owned by RBS today, due to its acquisition spree are as follows:

National Westminster Bank
Royal Bank of Scotland
Adam and Company
Child & Co
Drummonds Bank
Coutts & Co
Ulster Bank
RBS Coutts
RBS International

Under the RBS Insurance brand, RBS owns multiple brands and is the No. 1 motor insurer in the UK:

Churchill Insurance
Direct Line and Direct Line for Business
Devitt Insurance
Green Flag
NIG
Privilege
UKI Partnerships which underwrites the: Churchill, Direct Line, Tesco Bank, 
Egg, Mint, Mini, BMW, Peugeot, Suzuki, Vauxhall, Lloyds TSB, MBNA, NatWest,
Pearl, Prudential, Royal Bank of Scotland and Ulster Bank insurance brands.
and
Tracker, the UK's number one supplier of vehicle tracking services.

While down in Dubai, the impact of UK banks in trouble seems like an endless string of departures from the business as well as the city of Dubai. UAE happens to be one of the major contributing countries to RBS balance sheet and profits, partly due to the ABN AMRO acquisition.

ABN AMRO left Dubai in 2008 due to its acquisition by RBS. ABN's Private Banking arm continues to operate in DIFC on a standalone basis which is now 100% owned by the Dutch Govt.

Then, RBS decided to leave Dubai, and was acquired by ADCB in 2010. However, RBS Coutts, the Private Banking arm continues separately and they keep on refocusing their businesses ever since they arrived in Dubai in 1999.

Finally, Lloyds Bank in Dubai is now up for sale with news out in the market today and probably ADCB will take them over too.

EFG International, a Swiss Private Bank also shut shop prior to Dec 31 and will finally depart within the next few months from Dubai.

Fortis Bank from Belgium also shut shop in Dubai in 2009 and were acquired by their staff as a Management Buy Out, MBO and renamed.

I would not like to add here about Lehman closing in Sept 2008 and being bought over by Nomura nor I would like to say here that Merrill Lynch was merged with Bank of America in 2008....But I said it, nonetheless!

Nor would I tell you that Clariden Leu was merged with Credit Suisse in 2011 or that Rabo Bank sold Sarasin Bank in Dec 2011! Or that ING went bankrupt and was purchased by OCBC as Bank of Singapore in 2009.

Unfortunately, this global financial crisis has affected European banks a lot (even more than the US banks) and they continue to withdraw from businesses worldwide. Except for Lehman and Merrill Lynch from USA, all others mentioned above are European banks.

In fact, banks from most countries outside of Europe continue to do well.

However, we are still not at a stage where I would recommend to buy stocks or bonds of ANY Financials worldwide at this point of time.

RBS Faces Nuclear Winter as CEO Dismantles Goodwin's Bank
2012-01-10 08:40 GMT
Source: Bloomberg
By Liam Vaughan and Howard Mustoe
    

Monday, January 2, 2012

Performance of 2011 and Future Outlook


Happy New Year and best wishes for all success and safer investment opportunities going forward!

I would like to share two websites if you wish to deal in physical gold/silver which are a good resource for comparing prices across gold and silver brokers:

www.comparegoldprices.com
www.comparesilverprices.com

Let's analyse a few investment opportunities, both on profit making and loss making sides for the year gone by:

Bonds were the best asset class aside from gold while all other asset classes such as real estate and stocks tumbled across countries and some individual stocks hit rock bottom.

Let's start with the good ones...

1.
Gold closed last Dec 2010 at USD 1,420.
Gold closed Dec 2011 at USD 1,566
A solid gain of 10.28%

If you sold it around USD 1,800 or USD 1,900 levels in Aug/Sept, the gain would have locked in, but this continues to be one of the best ideas even going forward. Gold when compared to stocks or bonds over the last 11 years since Jan 2000 shows a rise of 556% until Dec 2011 while S&P 500 shows 87% and Emerging Markets EAFE (Europe, Australia and Far East) Index shows only 84% OVER 11 years. This shows Gold has outperformed every single asset class over the past 11 years AROUND THE WORLD. Please see attached chart.

One thing, I would like to say here is that unlike stocks, bonds, funds, ETF's, fixed deposits (GIC's for the Canadians), real estate etc, gold and silver 'assets' besides diamonds, art, wine etc that are not taxable if purchased in physical form and sold anywhere in the world. There is no accounting for physical gold when you buy or sell anywhere i.e. no capital gains taxes etc. Wealth taxes may apply in US or India etc but can be protected.

This is the 'trick' many seriously rich investors have used over centuries to protect and grow their wealth.

This is one more reason why gold will not fall and has been my profitable idea for quite some time now.

2.
My most favourite bond from Govt of Singapore AAA rated.

This bond closed Dec 2010 at USD 102.50 with yield of 3.95%
Now, Dec 2011, Temasek bond 2019 closed at USD 110.

So, a gain of USD 7.50% plus interest of 3.95% for a solid gain of USD 11.45%!

This bond could have been sold at USD 111 levels as well couple of times in between or loan/overdraft taken against it to create liquidity.

This bond compares to US Treasury 10 year whose yield declined from 3.29% yield to 1.87% p.a. but the US Treasury bond price rose only from USD 94 to USD 107 over 1 year, and gave a return of 13% gain plus 3.29% interest for a net yield of 16.29%, however, it was a very impossible task to predict this last year, with all the uncertainty surrounding America and its banks etc.

That's because, no one in the world could have predicted the Japan earthquake in March, Arab Spring from Feb 2011 onwards or the catastrophic Greek/Spanish problems due to which USD became stronge - despite being weak - purely because it is the world's sole reserve currency and has some safe haven status still left.

In reality, while investing from here in Asia and Middle East, Temasek is the only bond which is a real AAA, at least it was, all through this last year and I believe it will, despite oncoming issues in Singapore per se (lower GDP, slow trade, weakening real estate etc) but Temasek is a stand alone cash rich financial company holding over USD 1 trillion if not more in assets. Temasek is exiting major stake in a Pakistani bank NIB and booking losses due to UBS investment etc.

This was the best bond out there through 2011 and almost nothing compares to it and you will know that I have been a strong believer in this bond for two years now due to its inherent strengths.

If you know of any bond, whose price went up 7.5% or even 5% in USD, I would like to hear from you and find out more about the company.

I do know Taqa Abu Dhabi 2017 bonds rose during 2011, due to their safe haven status by about 3% and Mubadala 2016 as well by 2%. But, this was due to the unprecedented Arab Spring events where Abu Dhabi when compared to Egypt and Bahrain etc shows strength in 2011, more so than it did in 2010.

This idea of mine has paid rich dividends even during the world's worst crisis and not only safeguarded the wealth but grew it above inflation and when compared to other assets, was a superb and an outstanding performer!!

3.
AUD
It was at 1.02 level last year and finished 2011 also at 1.02.

Which means the return on currency appreciation was zero!

However, of course, like astute investors, we booked gains of 4-5% and more, at least twice during the year, by buying AUD each time it dipped below 1.00 and selling when it went to 1.03 or 1.10 levels.

However, last year this currency gave 6% in fixed deposits and 5% in bonds and still does as on date.

I would really not like to compare this zero performance with any other currency, but since you ask...

GBP started at 1.56, ended at 1.55, loss of 0.5%.
EUR started at 1.33 and ended at 1.29, loss of 3%.
BRL started at 1.66 and finished at 1.86, loss of 12%.
INR started at 44.70 and finished at 53.06, loss of 18.70%!

Except for JPY and CNY, all other currencies had a loss, some of them very significantly.

Even high interest rates in Brazil and India could not protect the downfall of the currency.

Hence, in USD terms, all investors who invested in Brazil and India or many other places lost money in simple fixed deposits as well. We cannot compare investors who invested in bonds and stocks because India, for example, had the distinction of being the worst performing market globally in 2011 and all USD bonds have losses of 5-10% while stock market declined over 25% .

AUD, again, has been one of my most profitable ideas for over 2 years due to its basic strength and its strong correlation with China and supplier of 37% of world's coal exports and substantial metals.

4.
S&P 500 was a good place to invest last year. It comprises 500 of the world's and America's largest companies. It gave a loss of 0.003% all through the year despite a 30% volatility between 1,099 to 1,363 points. It started at 1,257.64 and also closed at 1,257.60

I had said this last year that US economy will go down but its stock markets will rise and both will disconnect. This theory of mine has been now verified and did extremely well and the facts point to the same. At least, it did not lose money, when compared to most other countries worldwide in 2011 and same will continue going forward.

Now, on to the bad ones...

1. Most investors talked about Citibank shares, at least until last year. Citi was reverse split in May 2011 so price could rise from USD 4.50 to USD 45 level.

I was asked by many for my views to buy again and I have been negative on banking sector especially in Europe and USA for almost 2 years or perhaps even longer.

Citigroup shares started the year at a phenomenal price of USD 47.30 and closed at an even more phenomenal price of USD 26.31 for a loss of 44.3% over the full 2011.

Same was case for all banks in US and Europe. JP Morgan tumbled 23.3%, Bank of America tumbled 60.8% and the mighty Goldman too tumbled 47.75%.

BNP lost 37.4%, UBS lost 28.2% while Deutsche lost 24.8%. This is without accounting for any EUR currency losses if you earn and save in USD.

2.
Greece and Italian Govt bonds and all European bonds declined significantly.

Greek 2019 bond declined from EUR 70 to EUR 34 today, so you would have lost 51% while earning 10.75% return for a net loss of 40.25%.

Italian Govt 2020 bond declined from EUR 100 to EUR 82 today while earning 4.45% p.a. leading to an effective simple loss of 13.55%.

If you were 'lucky' to hold a fixed bond of RBS, one of the world's largest banks in Europe, from UK, it declined from EUR 95 to EUR 80 levels while earning 7% pa for a net loss of 8%.

Most other European bank bonds were same, with losses between 5-15%.

If you bought Perpetuals of European banks, then no one could have helped you.

Credit Agricole bank (one of the Top 3 in France) whose Perpetual declined from USD 105 to USD 87 today for a loss of USD 18% while earning 9.75% p.a. for a loss of 8.25%.

One of the classic cases was Perpetuals of HSH Nordbank, a German bank, which WAS one of the banks who used to finance shipping around the world. Its perpetual declined from USD 40 to USD 21 with a coupon of 7.25%, if they paid that. Loss being 11.25%. Imagine, in end 2008, this was at USD 95 levels and declined to USD 30 levels stayed there until 2011 when it went to USD 60 levels in Apr 2011 and then went down to USD 21 today. Of course, this bank has filed for bankruptcy and their CEO and others sued for 'accounting mistakes'.

3.
We have covered currencies like Turkish Lira, South African Rand, Indian Rupee, Brazilian Real, Malaysian Ringitt, EUR etc which incurred substantial losses for holders of those currencies.

These currencies shall continue to decline as not only the USD provides a safe haven status but US economy is showing signs of recovery over 2012 and 2013 and will be the first one to recover due to its geo political strategy (think Iran, Libya, Egypt etc) and when compared to China, India, Europe, it will certainly do better.....

Stay tuned....and have a Fantastic 2012!

Bonds Prove Best Financial Asset for 1st Time Since at Least ‘97
By Cordell Eddings- Bloomberg