What We Would Love from The New Govt – Full EC Reform

The Election Commission of Malaysia had been criticised over and over again for creating questionable actions that worry the Rakyat during the voting process. We believe that returning the confidence on EC is key under the new government.

The only way to clean the EC’s name is to proposed a full reform on how things should be done in GE15. With a long 5 years of time available, we believe that the commission have more than enough time to sort things out for the future of cleaner elections.

What We Would Like to Reform

(1) Educating The Public on Polling Procedures

We believe that this should be repeated every single election to new voters or as an update to what has changed over the years by EC. Every single time Malaysia goes to the polls, EC should list out the do’s and dont’s rather than relying on stupid Facebook posts shared over and over on our news feed or Whatsapp messages.

A gigantic ad campaign that creates awareness should be done by EC making sure every single voter is aware or prepare them to expect certain things.

Talking to polling station staffs, we learnt that there are criteria on how stained ballot papers could still be accepted. This wasn’t communicated by the EC to all of us.

Take for example, a marked ballot paper with an X in Pakatan’s box sees indelible ink stained on the Pakatan’s candidate boxes would still be accepted.

The ballot paper considered ‘undi rosak’ only happens when there is an X Pakatan’s box but the finger stain is in BN’s side of the paper. See illustration below. Note that only stains are allowed but not scribbles or writings on the ballot papers.

1.jpgFurthermore, Cycbertrolls caused a stir at the last minute the night before GE14, Facebook sharing & Whatsapp messages flew across the region and caused confusion all over with issues regarding attire that might jeopardise one’s voting chance.

EC should educate the public beforehand on their official Facebook page, TVs and newspaper ads before the election to lower negate internet trolls that love to cause a stir in the cyber world.

Worst still, cases where ballot boxes are sent into respective schools for safekeeping causes the public to swarm the cars that send those boxes thinking those are fake votes. You might be right and you might be wrong! Who knows? But the EC should explain how these ballot boxes would be dealt with and make the public aware of this issue.

There’s no point creating fights with the Federal Reserve Unit over confusion caused by EC. We are all Rakyat bersama confused by poor management on top!

(2) Make Voting Powers Even

In GE13, BN won 140 vs 82 seats while Pakatan Rakyat won 5.6 million vs 5.2 million votes that goes to BN. We didn’t manage to change the government in GE13 although Pakatan won more votes. The value of every single vote is different and it really creates unfairness from within.

We would use the data from GE13 since it had been compiled. We believe that only a full revamp would allow voting to be as fair as it is.

First, Parliament seats totaling 222 can be increased to 223 but would still be in place as these would represent the voice of the Rakyat.

Borrowed from America’s style of voting for the President, each state carries different voting power for the new leader due to its population.

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Meaning although Kedah has only 15 Parliament seats but the voting power would be increased to 18 in equivalent seat power to determine a new government.

The State’s preference to Barisan or Pakatan would be skewed towards how many seats they’ve won. Meaning if Pakatan wins 4 seats out of 6 in Malacca in this round’s election, it would contribute 8 equivalent seat power to the government’s vote.

That being the case,  states such as Kelantan or Terengganu won by PAS with 26 equivalent seat power be a problem that causes a hung Parliament.

Obviously the idea of seats power just a part of the plan to mediate the value of every vote. This is why we still think that GE13 is an ideal environment for this to work out where it is only Barisan versus Pakatan Rakyat and there’s unlikely case of a hung Parliament happening.

We could draw up something like this in just minutes, we really hope that EC could draw up a better one in the next 5 years.

This structure could also curb on problems regarding non-voters that felt their single vote would not count. The adjusted number might increase the voter turnout that might felt that they can actually make a difference just but turning up to vote.

(3) Automatic Voter Registration

Every adult in the country has the right for one vote State and one vote Parliament. Why not automatically register every single adult that is eligible to vote? Pejabat Pendaftaran Negara has all our details.

Again, automatic registration could increase the number of turnout knowing that they have been registered automatically and it is their duty to vote for the government. One might laze around thinking that since they have not registered and their vote might not make a difference, they might as well don’t vote at all

For some, procrastination continues over the course of their lives and ended up not voting for the last 30 years which is equivalent to 6 elections! What a waste.

If we pre-register a voter, all the voter has to do is to queue up during the upcoming general election. I can almost estimate that the voter turnout percentage would automatically increase with auto registration.

If a voted has been registered and still don’t turn up then it would already fall to the right of choosing not to vote.

(4) The Election Commission Should Have Power Above The Prime Minister

EC should be the power above the Prime Minister. The check and balance system isn’t in place to curb on the overpowering effect on the board that picks you for the government in the future.

‘Never bite the hand that feeds you’. EC could never see their power higher than the Prime Minister’s office if this continues. This is really another department that the current government should revamp in the near future.

In the past few years, Malaysia had given reasons to foreign media to portray that our elections aren’t fair as EC is under the Prime Minister’s office. We should repair that clearing our name from disgraceful issues like these with the new government in place.

EC should be as independent as it can be and detach itself from being part of the Prime Minister’s department, it is only fair that the finance ministry allocate an annual budget to finance the operations of EC.

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Election, Market Effects & Your Voting Outcome

We often avoid posting articles with high sensitivity towards politics but being an investor with Malaysian asset exposure, one couldn’t run from the biggest risk coming from election outcomes even with the slightest chance of a government change.

But for our followers who seek info on our page, it is only fair to give them some head up prior to GE14.

I guess we should add in a disclaimer saying “This is not a paid write up but a public service announcement by the analysis team of OM Capital” Thank You.

Outcomes

Obviously, only two outcomes from this election where the new government would be Barisan Nasional (BN) or Pakatan Harapan (PH). We could almost assume that PH would win by the number of votes based on GE13 results where 50.87% of total votes goes to Pakatan Rakyat.

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With Najib’s approval rating dropping over the years heading to GE14, it is likely that more votes would fall towards the opposition.

The introduction of GST, the scandals involving 1MDB, the participation of Dr. M in GE14, ringgit’s wild ride against many other currencies and the list goes on. The everyday rakyat might have had enough of this and this might spark a change with a shift of votes going to PH this round.

Sadly in Malaysia, one vote is not worth one vote in the parliament because there are seats with 30K voters versus seats with 150K voters. The power of 30K voters outweighs 150K voters, how cool is that? You can see the link below for explanation on this.

See Why isn’t every Malaysian vote Equal?

With that being said, the road to parliament is so much steeper for PH rather than the incumbent. Anyway let’s go back to the markets.

Currency

We start with currency since it’s the easiest. The MYR is stronger that ever and we recommend that you should start your exchange to foreign currency before GE14 (which we did last week) if you had plans for overseas travels or kid’s tuition fees.

Basically, the MYR will weaken based on historical facts after the election.

Let it be BN win or PH, we estimate that there would be a decline eventually.

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The drop in MYR would be gradual if BN stays. This had been the case in past elections and we do not think that this would change this time around. MYR is at its strongest since the scandals of 1MDB and we felt that months of no movement isn’t natural for the currency.

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We see a significant one day drop if PH wins. Due to market uncertainty and investor’s confidence towards the Malaysian Government Securities, we should see some capital fled if PH wins. Investors would make their way back when the economy stabilizes but that isn’t going to be fast.

With that, case close, MYR in our estimate would drop no matter what.

Markets

Tricky as it goes and similar to the votes, market knows which stock is bias to BN. Standard government linked companies such as Tenaga, Malaysian Airports, TM would see a slight boost due to stability.

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We estimate that if BN wins, KLCI will open on the high side possible breaking the all time high but sees gradually decrease over the next few weeks due to profit taking. This happened in GE13 and likely that would repeat itself this time around.

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But if PH wins, we estimate that there could be a 20% correction to come in place as markets hate uncertainty. A change of government would spark uncertainty for Malaysia’s economy causing markets to respond negatively in this matter.

PH Wins Spells Doom?

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No, not quite. Although it seems that if you voted for a government change, we are all doomed as we should see KLCI goes nuts touching 1,500 in no time.

As said earlier, the market hates uncertainty. The market isn’t pre-adjusting that a PH win will crash the Malaysian economy. The market is merely adjusting itself to be cautious prior to the implementation and results coming from the new administration. Order still remains with markets going volatile playing the guessing game.

Based on what happened 10 years ago when the opposition took office in Penang, plenty of issues needed to be addressed straight away to get them up to speed in ruling the state. Some even said that the opposition inherited a blank office without any paper trace on documents possibly destroyed due to obvious reasons.

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That being the case, we shouldn’t be shocked seeing an empty Putrajaya if PH would to win this time around.

It would definitely take some time for a rebuilding to happen if PH takes over but this shouldn’t be the only reason for you to take into account in your voting decision. Much like investing, voting decision had to be weighted towards providing long term benefits.

One shouldn’t let short term gains acting as if they were pain killers to a bigger problem. One should address a major issue such as initiating a major operation to remove a tumor to solve the problem once and for all. We believe that many voters do place their votes in factoring long term benefits rather than emotions since awareness had been rising significantly these past few years.

Evidently, the proof that handouts such as BR1M isn’t working anymore where many had realized that in the end, we are living in a circular economy. What goes around comes around. What had been given today will be paid through means such as an increase in GST rate in the future to cover the deficit.

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Voting for BN?

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If you believe in the coalition then everything would carry on the way it is. The economy will remain stable and the economy would continue booming the way it is like what it was previously. We also believe that the amount of scandals would be reduced.

Najib would still be in power as we believe that a replacement still isn’t clear for the top spot of the administration. The next 5 years will see an economic boom strong towards the sectors which in previous years favorable to Malaysia such as electronics. Sectors such as oil & gas will continue to see a decline in interest by the BN government not only ‘politically’ but also a real deteriorating segment in our economy.

We believe that votes that goes to BN are mostly seeking stability and ignoring scandals and likelihood of cronyism within the government. It’s as if our country couldn’t run from these elements and we should still expect one to close an eye regarding this issue. Not every single being is built equal and we should still respect that.

Verdict

We still think that BN will win this time around even with many problems and scandals exposed on the media. The seats advantage rather than votes advantage played a huge role in winning the parliament.

The General Election in Malaysia had always been this way and that favors the incumbent which is why that structure had remained the way it is.

Still, vote for the party which you think is suitable and believe in.

Do not give pity votes to party that you think they might lose as this practice is worst than not voting.

Even if PH wins 60% of votes but still doesn’t pocket the parliament, don’t be discouraged by this issue. If it were that easy, the victory would have came in 2013.

Learning that Donald Trump’s win happened, Brexit amazes us until today, we shouldn’t rule out that something crazy could jump out this time in Malaysia.

 

 

 

 

 

 

 

All You Need To Know on Markets & Election

Credits to Maybank for this report. An all you need or want to know package for the elections and market.

3 Outcomes in Their Report:

  1. Baseline, that BN wins with a majority at the parliamentary level, but short of two-thirds.
  2. Best-case, that BN secures two thirds majority.
  3. BN wins with a simple majority

So in their view, there is no way Pakatan winning this election, AGAIN…

Anyway have a look at the statistics and how market react prior and after the elections

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Products Likely Bound for US Tariff

The 25% tariff had been announced, the list would come out in the next 15 days. Let’s see which item would US be likely to set tariff on.

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  1. Wood Related

    As you can see wood and furniture items sees the biggest export to US from China. The ability for America to produce its own wood products is still possible. It is likely that tariff can be set on wood related exports.

  2. Office Machinery & Telecoms

    Yes but not all. Originally the first attack on China wasn’t really tariff but technological transfer. Trump stated that China is merely siphoning technologies from the US since most manufacturing goes there. This is why we would likely see tariff on machinery with designs originated from the US or the coalition gathered by Trump earlier. (Canada, EU, Korea, Japan)

  3. Leather

    Since leather is also huge at 26% and factoring those things could be produced in America, it should likely be in the tariff list.

  4. Metals

    Comes in at 24% where it become the first target. Not so sure on other forms of metal but it seems though other metallic elements could be possible.

  5. Lifestyle Items (Bags, Clothing, Shoes, Apparel)

    The whole segment would likely see tariff depending on how crucial its contribution is to China’s exports. Made in China Nike’s are a good example for the likelihood of a tariff implementation.

  6. Vehicles

    Another definite segment which tariff will be imposed. Car makers would have to re-route their products

We still think that this is a silly deal from Donald Trump. Take for example the steel tariff imposed earlier was said to be targeting China. But do you really think China could be hurt not exporting steel to US? The chart below could tells you otherwise. Only 1.6% of steel exports to US and Donald Trump thinks China will budge and lower prices?

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Trumpism is a protectionism policy but some stupidism is the mother of destruction.

New Guidelines for Malaysian REITs

Multiple new entries under the new guideline such as making REITs more REIT like by demanding 75% of the portfolio to be invested. It was only 50% based on the old guideline.

Strangely the new guideline allows them to do property development which make make REITs more developer like.

Take a look at the Maybank’s Report on new REIT guideline.

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What’s Holding The Market Back?

If you would to pull up the 3 indices for US, you will find that the reason markets need a little more boost to push through its previous high ties down to S&P500 and Dow Jones components.

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Nasdaq broke previous high after the major correction as if it did not have any resistance to pull it back where clearly it shows plenty of money running into the technology sector. You see stock like Amazon, Facebook price rallying trading at high price to earnings ratio, that proves that a lot of money racing into this sector.

Individuals who went through the dotcom bubble in year 2000 might tell you that the tech bubble is likely to happen again this time around. But if you really think of it, in today’s world, tech had become something very important for growth.

Assuming that consumption had stayed stagnant plus the availability of cheap cash isn’t present anymore, the moveable variable in the growth model could only come from tech itself.

If…

Y (growth) = aX+Technology

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The gradient for growth could be affect by external factors who contribute to consumption but its technology that’s able to push the minimum growth higher as shown in the chart.

A macroeconomic view into this situation can prove to us that S&P500 and Dow Sectors stick mostly to industrials (well its call Dow Industrial Average anyway). The stock price could only propel forward only if the economic forecast revises upwards.

But ironically, the revision of economic growth upwards comes more from technology improvement on an industrial’s output rather than increasing additional capacity. Consumption had been slow over the years and it is expected that more people are migrating towards the adoption of new technology rather than the consumption of old technology.

Technology had efficien-ize many parts of the industry that spur growth and contribute to the economy in this era and slowly the S&P500 components would see a higher tech contribution in time.

So, what’s holding the Dow and the S&P back? It’s clearly technological development and adoption rather than purely based on consumption to grow earnings.

Should You Increase Your Monthly Mortgage Payment Increase with Interest Rate Rise?

Well most of you with mortgage might already received the letter from your respective banks telling you that Bank Negara increases Overnight Policy Rate and they feel bad but still needs to charge you higher interest rates because the boss bank says so… While we keep Fixed Deposit rates fixed and revise maybe after CNY holidays.

Obviously, they didn’t ask you increase your monthly payments immediately on this month’s mortgage payment but you can pay more if you like. But the fact is, you will be bearing a higher amount of loan than what it was before the rate hike.

Now the question is, should you increase your monthly mortgage payment in tandem with interest rate rise?

Historically?

First, we look at some historical data.

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If you look at Consumer Price Index since 30 years ago, it rose 218% which meant that your plate of Nasi Kandar rose from RM5.00 to RM10.90 (that sounds more like it)…

But if you look at housing price index data, it rose higher than consumer price index over the same period to 272%. Note that this is overall in Malaysia. Major cities register higher inflation on housing.

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Over 30 years, assets such as real estate really fly high and in top cities such as Kuala Lumpur, Johor or Penang, we aren’t surprised to see a 400% rise.

Payment Schedule

Second, we take a look at housing loan payment schedule.

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The table above shows the total payments with different interest rates under a 30 year tenure for a RM500,000 loan.

Assuming that we see a 3.0% rise in interest rates over the next few years which we believe it’s possible. This brings most mortgages to roughly 7.6% interest per annul (one of the highest recorded so far in 2008). With that data, we came up with the table above comparing how much more you would have to fork out in the end.

You can see that over the course of 30 years assuming a permanent 3% rise in interest rates, at the end of life we are only looking at 37.73% rise in total payments. Comparing this value with the change in real estates prices, it far exceeds the inflationary boom for houses in Malaysia.

But one might felt that paying another 135 or 10+ years (possible with re-financing) is a complete burden. But it totally logical because long term payment weighs heavily for one with declining number of years to their life. The feel being debt free definitely feels good no matter what people tell you and we have no offense even if you plan to do so.

But in short, the bigger picture is that money not spent to pay up loan quickly could be used to obtained other financial assets like shares or merely sitting on fixed deposits because housing price change grows slow for the first 10 years but accelerates over the next 20.

Our advice is, don’t be too quick in repaying your mortgage with the rising rates. Take a good look at your wealth and plan a conservative approach in dealing with higher interest rates. Holding cash is good for rising rates and long term assets should be paid slowly even with the rise.


Obviously we made a few assumptions for this case:-

  1. Interest rates can spike to god knows where.
  2. Inflationary prices for CPI and HPI is based on historical. Nobody knows what the future is.
  3. Data comes from a very generalized view of the whole country.
  4. If housing crash would to happen, god knows how many years it would take to recover.

Why Did we Call a Buy on MIKROMB Yesterday?

As retail investors, one thing that is common to us is where to buy or to hold when a stock price declines rapidly. Since we recommend a falling knife catching trade yesterday (didn’t turn out good due to decline in earnings), I would highlight the criteria of a ‘safe trade’ catching a falling knife.

Intra-day Catching

First, let’s look at intra-day movements where the stock price had been subjected to intense selling pressure or merely consolidating at previous closing price.

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Usually when one sees illustration A, it might seem like the sign is clear where there are plenty of buying quantity and buyers are coming up to support the price.

This market forces are almost the opposite of what the naked eye sees. To an untrained eye, illustration A is a buy while B is a sell. But buyers and sellers queuing are never sincere with their orders. Orders are subjected to change and in modern times, it gets worst with computerised algorithm making these queues.

But always remember that the volume rule of thumb is still in play.

Low volume price rise = Temporary price rise

Condition 1

If the stock would to go up without much volume in play, the response might be lackluster towards the price increase. Sellers might not queue their stock but immediately they might realize that price had gone up and the stock they are holding to (probably stuck for a long time) needs to be unloaded.

Condition 2

High volume drop = Permanent price drop

The availability volume on the buy side is key for an institutional investor. A person who wants to unload big amount of share looks upon volume to unload. Illustration A fits the criteria.

In fact if you look at illustration B, one couldn’t unload much under these circumstances unless fraudulent cases hit the company so bad that everyone is planning to leave the shareholding immediately.

This is why initiating a buy on illustration B with thin volumes could benefit you more than buying with mostly where all the buyers are in illustration A. A low volume drop ensures that a stock could rebound quick similarly to sell, buyers would begin to realize it hits their target price.

Another bonus rule of thumb to remember always would be…

Think like an Institutional Dealer

These guys like to do block trades as it is easier to compute on the back end. As institution holding large percentage of a company it is hard to find the same party on the buying end to take up your stock. When opportunity comes, it is now or never. That is why a stock may lag years but could move in a blink of an eye.


So Why Did we Call a Buy on MIKROMB Yesterday?

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  1. Did you realize that with the OBV indicator, the rise previously was much higher than before? When OBV rises and forms a higher high, it is a sign of accumulation. We know that people are accumulating this stock prior to the release of results expecting good earnings report.
  2. If your accumulate the days since 1st November, you will find out similar data where accumulated net volume was up 11 million shares.2.jpg
  3. Probably the most important thing and you should never catch a falling knife unless you stock fits this criteria. Based on research, we know that MIKROMB is poised to continue its growth that it is showing so far.

    If you buy at the wrong point this time around but knowing that the stock still has plenty of room to grow, the decline would open up opportunities to buy lower. That is by far the best thing that could happen.

    Buying stocks with good fundamental still ensures that you win the long term game while suggestions in catching the falling knife provides an edge by possibility accumulating at low prices.