Friday, June 12, 2015

The World’s Worst Investment Bubble Will Burst Soon

Investment bubbles always look so obvious in hindsight. But when you’re in the middle of one, it’s hard to fight the crowd, even if that little voice in your head tells you to run for the hills.

Why? Bubbles produce compelling narratives that give people reasons to believe. The Internet is changing everything. Housing prices never go down. Tulips are the most precious commodity on God’s green Earth, etc.

Now the same thing is happening again in China, a market that has had one huge bubble burst only recently. The Shanghai Composite index briefly topped 6,000 in October 2007 only to plummet to just above 1,700, a sickening 70% plunge in only 12 months.

But a mere seven years later, Shanghai is above 5,000 again, and the bulls say more gains lie ahead, even though China’s economy is slowing dramatically and some valuations already are stratospheric.

They’re counting on China’s central bank to keep cutting rates. It already has
reduced them three times in the past six months. Sound familiar?

Also, the Chinese government has eased trading restrictions on foreign investors. On Tuesday, index provider MSCI said it “
expects to include China A shares in its global benchmarks” once it works out some issues with Chinese regulators. A flood of institutional money would presumably follow.

Indeed, mutual fund company Vanguard said last week it would gradually increase the number of mainland China-traded A shares in its Emerging Markets Stock Index Fund 
and ETF.

This macro “story” has powered Shanghai 150% higher in the past 12 months. Shenzhen and other mainland markets with riskier, more speculative stocks have nearly tripled.

With the animal spirits unleashed, average Chinese investors are piling in. In a reverse of what happened in the U.S. in the 2000s, Chinese investors fleeing a busted housing market have thrown their money into stocks. Talk about going from the wok to the fire!

Consider these worrisome signs:

• China’s GDP growth slowed to 7% in the first quarter, the slowest since the Great Recession, and that figure
may be overstated by 1 to 2 percentage points, according to Capital Economics.

• Analysts project earnings growth of companies listed on Shanghai and Shenzhen will be 7% in 2015, the
lowest in three years, Reuters reported. The biggest culprits: banks grappling with a surfeit of bad loans.

• ChiNext, an exchange focused on startups, is trading at 140 times last year’s earnings, “
in the same league as Nasdaq … at the height of the dotcom frenzy,” The Economist wrote.

• According to one estimate, nearly 85% of China-listed companies are trading at higher multiples today than they did at the previous top in 2007.

• Margin debt is skyrocketing, up more than fivefold in a year to around 2 trillion yuan (about $320 billion), an “unprecedented” 8.9% of the market capitalization of the Shanghai and Shenzhen exchanges. “This could already be the
highest level of margins vs. free float in market history,” wrote Macquarie, and perhaps the fastest increase in margin debt we’ve ever seen.

• From January 2014 through mid-May,
225 IPOs came to market on China’s A-share markets, with a mean price appreciation of 418% and trailing-12-month price-to-earnings ratio of 92, according to Morgan Stanley.

• In the four weeks after the government allowed investors to have more than one trading account, individuals opened 12.8 million new accounts. Chinese retail investors generate
90% of all trades, reports Barron’s, higher than the historical average of 80%.

Unfortunately, Chinese investors don’t seem to have learned from their mistakes in the last bubble, maybe because they’re not the same people. And the newbies are hardly sophisticated investors: The Economist cited a study that said more than two-thirds of them left school before the age of 15.

Meanwhile, the so-called “smart money” is cashing in its chips: Both Morgan Stanley and BNP Paribas recently turned bearish on Chinese stocks.

Jonathan Garner, Morgan Stanley’s chief Asia and emerging markets strategist,
downgraded China stocks for the first time in more than seven years, citing “the weakest corporate profits since 2009.” “We’d like to recommend taking some profits,” he told Bloomberg.

I’d put it even more strongly. Back in October 2007, I called China’s stock bubble the
Mother of All Manias and wrote:

“… Some day, as sure as the sun rises in the East every morning, this market will come crashing down around our ears.

“… Too many novices are engaging in what looks much more like gambling and speculation than long-term investing ...

“Trust me, this can’t last — it never has. The only question is when it will end.”

I stand by those words today. If you’ve had the dumb luck — and don’t kid yourself that it’s anything else — to have made money in the latest China stock mania, I have five words of advice:
Get. The. Hell. Out. Now.

Sunday, June 7, 2015

Jho Low Used US$260 Million 1MDB Cash To Take Over UBG.

The Edge Weekly has published an exposé on how businessman Low Taek Jho, or Jho Low, had in 2010 used US$260 million of 1Malaysia Development Bhd's (1MDB) cash to do a take over of UBG Bhd.

In its latest issue, the business weekly said Low was helped by executives of 1Malaysia Development Bhd (1MDB) and PetroSaudi International and it published emails between them as proof of the scheming.

The Edge said that at the time Low surreptitiously made the general offer for UBG via Javace Sdn Bhd, he already owned a substantial stake in UBG through Masterpiece Sdn Bhd.

He never disclosed that he was the offeror of the takeover which is a breach of securities law.

The weekly also said that Low was able to hide his involvement in the takeover through the help of the PetroSaudi group and The Edge also showed emails between Low and executives at 1MDB and PetroSaudi as proof of complicity.

UBG was the financial vehicle of then Sarawak chief minister Tun Taib Abdul Mahmud but it sold RHB Bank in 2007 and was left with nearly RM2 billion cash which was what attracted Low to first buy into the company. – The Edge Weekly, June 7, 2015.

Refer here to understand more what is really happen!!!

Thursday, June 4, 2015

Statement On 1MDB from Bank Negara Malaysia

As the nation's Central Bank, Bank Negara Malaysia is entrusted to promote the stability and integrity of the financial system and the sustainability of our economy. Widespread news reports and commentaries regarding 1MDB have raised questions on whether the Central Bank has continued to uphold the trust that has been placed on the Bank.

The purpose of this statement is to provide clarity on the role of the Central Bank with respect to any resident entity, including 1MDB, that makes investments abroad or obtains offshore borrowings under Section 214 of the Financial Services Act 2013 and under the Exchange Control Act 1953 that was in force prior to 2013. All investments that exceed RM50 million per calendar year and any offshore borrowings that exceed RM100 million by resident entities require the Central Bank's approval. 

In relation to this, all submissions that were made by 1MDB have had to comply with the same approval criteria that is applied to submissions by other business entities. If the criteria is not met, the submission will be rejected. No leniency or special exceptions were accorded to 1MDB.

In accordance with the legislation administered by the Bank, the following developments will trigger formal investigations:
i) When monies for which approvals are given are not used for the purpose indicated in the submission;
ii) When incorrect or false information are provided in the submission; and
iii) Failure to comply with the conditions in the approval.

As part of an investigation process, the Bank will issue a legal directive requiring information pursuant to the relevant Acts that the Central Bank administers. This will require the Board and Management of the entity to provide the information within a specified time frame. Under the Financial Services Act 2013, the penalty for failure to meet this request can result in a fine of up to RM50 million or up to 10 years in prison or both.

In relation to cross border movements of funds, the Bank also relies on financial intelligence authorities in the foreign jurisdictions to bring to our attention irregular or suspicious transactions made in their jurisdiction. Such arrangements for information sharing must conform to international protocols. 

The arrangements require that the information be kept confidential and any breach will lead to the termination of such arrangements. These arrangements also provide for the Bank to share the information with relevant domestic investigation authorities after securing the permission of the foreign authorities.

The scope provided under the Central Bank's legislation does not provide powers for the Central Bank to investigate in areas such as fraud, tax evasion, corruption, cheating and criminal breach of trust. These will need to be pursued by other law enforcement agencies.

With respect to 1MDB, a formal enquiry has commenced to examine any contravention of the Central Bank's rules and legislation. This has involved the issuance of a legal directive requiring information from the entity. 

The Central Bank is also taking statements from individuals involved in the governance process and obtaining information from other relevant domestic and foreign parties. In addition, Bank Negara Malaysia has forwarded information received from foreign authorities to the relevant investigation agencies after obtaining the permission from the foreign authorities.

The Central Bank wishes to emphasise that further disclosure of details of the investigation may undermine the outcome of the investigation. The Central Bank is doing everything within the powers provided under its legislation, including collaborating with other agencies, to contribute towards a swift resolution of the matter.

Bank Negara Malaysia
03 June 2015

© Bank Negara Malaysia, 2015. All rights reserved.

Monday, June 1, 2015

Stick With Me On 1MDB or Resign, Najib Tells Ministers

KUALA LUMPUR — Malaysia Prime Minister Najib Razak is said to have issued an ultimatum to his Cabinet last Friday (May 29), telling ministers to resign if they did not support him over the rehabilitation of debt-ridden state fund 1Malaysia Development Bhd (1MDB), Utusan Malaysia reported today (June 1).

The UMNO mouthpiece said, according to a source, none of the ministers declared he or she would not support the prime minister on 1MDB.

Mr Najib was said to have issued the ultimatum soon after Finance Minister II Ahmad Husni Hanadzlah finished laying out the road map for 1MDB’s restructuring to the ministers.

“The prime minister told members of his Cabinet who were not with him on the 1MDB issue to resign, but not one person did so,” the source told the Malay daily.

Utusan also noted that Mr Najib’s ultimatum followed the statement by Barisan Backbenchers Club chairman Shahrir Samad, who last Tuesday (May 26) urged ministers, who did not agree with the collective decision of the Cabinet on 1MDB, to resign.

Mr Shahrir was expressing his agreement with UMNO’s Gua Musang MP Tengku Razaleigh Hamzah, who said the entire cabinet was collectively responsible for 1MDB’s controversies which have sapped public confidence over the government’s handling and transparency over the Finance Ministry-owned firm with debts of RM42 billion (S$15.5 billion).

Mr Husni, who has been made the government’s spokesperson on 1MDB, had said the company had entered into a binding agreement with Abu Dhabi’s International Petroleum Investment Company (IPIC) and its subsidiary, Aabar Investments (Aabar), where IPIC would pay 1MDB US$1 billion (S$1.35 billion), on or before June 4 this year.

The US$1 billion payment would be used to repay a US$975 million loan, in advance of its due date, to a syndicate of international bank lenders, Mr Husni had said.

Amid negative reactions that the money from the Abu Dhabi companies would see 1MDB incur more debt, the firm’s president and group executive director Arul Kanda Kandasamy issued a statement denying that the US$1 billion was a loan and that it was money IPIC was returning based on an earlier agreement. THE MALAYSIAN INSIDER

’Proof’: Najib Solely Responsible for 1MDB, says Pua

Opposition wants PM to explain his clearly demarcated role in the scandal-ridden 1MDB.

tony pua, najib, 1MDB

KUALA LUMPUR: The Opposition wants Prime Minister Najib Abdul Razak to immediately schedule an official Ministerial Statement in Parliament during the current sitting to give a full and complete explanation on “the mother of the mother of the mother of all scandals” in Malaysia, the 1MDB heist of the century.

“Najib should drop all pretence of ignorance and give up the farcical charade that 1MDB was a healthy and salvageable company because he was only acting to deny his own culpability and protect his own interest in the matter.”

Petaling Jaya Utara MP Tony Pua was commenting on the latest “exposé” by the alternative media which “confirmed” via documents available in the public domain that the entire responsibility for the RM42 billion 1MDB scandal “implicitly” lies with the Prime Minister.

He was referring to a special Clause 117 – inked on 27 February 2009 according to Malay Mail Online – in the Memorandum and Articles of Association (M&A) of the Terengganu Investment Authority (TIA), 1MDB’s predecessor company, obtained by Malaysiakini and Malay Mail Online. “The special clause places absolute powers over the company’s decisions in the hands of the Prime Minister.”

Apparently, the reading is that the 1MDB Board of Directors was likewise merely a rubber stamp body for decisions made by Najib.

Hence, said Pua, Najib who was also Finance Minister “must in particular explain in full his involvement in the initial USD1 billion investment in Petrosaudi International Limited and the additional USD1 billion in loans extended to Petrosaudi”.

He must also explain, added Pua who is also DAP National Publicity Secretary, “his approval for the direct payment of more than USD1 billion to Good Star Limited, a company controlled by one Penangite, Jho Low”.

“He must also explain whether USD260 million was siphoned from 1MDB, as alleged, and used for the acquisition of the UBG Bhd banking group from the latter’s substantial shareholder, Sarawak Governor Taib Mahmud’s family vehicles,” said Pua.

In addition, continued the MP, Najib must also explain why 1MDB proceeded to raise bonds amounting to USD6.5 billion by paying fees in excess of 10 per cent to Goldman Sachs International, as well as why a costly guarantee was sought from Abu Dhabi’s International Petroleum Investment Corporation (IPIC) for USD3.5 billion of these bonds.

Most importantly, warned Pua, he must disclose exactly where all the above 1MDB’s money was today. “All of the above have led to 1MDB’s horrendous predicament today where it has no money to repay its mountain of debt nor service its interest amounting to some RM2.5 billion annually,” lamented Pua.

Delving into the TIA documents exposed by the alternative media, Pua pointed out that the special Clause 117 dictates that the Prime Minister must give his “written approval” for any TIA deals, including the firm’s investments or any bid for restructuring.

Other salient points in the M&A:

The Prime Minister’s written approval includes “any financial commitment (including investment), restructuring or any other matter which was likely to affect the guarantee given by the Federal Government of Malaysia for the benefit of the company, national interest, national security or any policy of the Federal Government of Malaysia”.

Other matters which need the Prime Minister’s written approval are amendments to the company’s M&A as well as all appointments and removal of directors and senior management team of TIA.

Therefore, stressed Pua, the above exposé debunked all previous attempts by the Prime Minister to disassociate himself from the management and operations of 1MDB.

When the 1MDB scandal was first exposed by the UK-based Sunday Times and The Sarawak Report, he recalled, the former reported on 1 March 2015 that “the Malaysian Government said the Prime Minister was not involved in the day-to-day operations of 1MDB, which was run by a professional and experienced team”.

Previously, said Pua, even in Najib’s letter of demand sent to him on 21 November 2014 over his alleged defamatory statements with regards to 1MDB, his lawyers stated unequivocally that “contrary to your defamatory statements… our client being the chairman of the Board of Advisors of 1MDB only renders advice to the Board of Directors of 1MDB which is tasked on the management and operation of 1MDB.”

In fact, said Pua, “he was even more involved in the matter directly than we, the 1MDB’s harshest critics, had anticipated as his role was specifically cast in stone in the company’s M&A”.

With the confirmation on TIA, argued Pua, all the responsibility over the colossal RM42 billion of debt and billions of ringgit of losses and missing cash falls directly and entirely on the shoulders of the Prime Minister.

Earlier, on Tuesday, 1MDB’s President and Group Executive Director Arul Kanda said in a statement issued via Bernama that the Memorandum and Articles of Association, and the financial accounts of the company have always been available to the public via the Companies Commission of Malaysia (CCM).

“Any suggestion that these documents were leaked, or that the details contained within them have not been previously disclosed, are false and we regret that insinuations are being made to this effect,” said Arul Kanda in the statement. The statement was issued, he said, as a clarification to recent press reports concerning those documents.