Sunday, December 22, 2013

2014 could be tough

All signs point towards a tougher condition for 2014. Firstly, cost of goods will definitely be much higher with the multitude of increases in fuel price, electricity, possibly toll, assessment for those who stays in KL etc. One thing for sure, these increases would usually cause chain reactions where if not kept in check it will cause substantial inflationary pressures.

One of the stocks which have been under pressure already is Parkson dropping more than 30% from the time I bought it. Parkson is more of a retailer targeting the richer people or higher middle income nowadays with outlets in expensive locations such as KLCC, Pavilion, 1Utama and in Beijing, China I remember seeing an outlet in one of the most expensive streets near Tiananmen Square. When times are tough, the luxury goods are the ones to suffer the most. People will probably go to a Padini rather than a Marks and Spenser outlet. In 2009 for example, Walmart which targets the general lower and middle income group was the only Dow 30 stock that was higher for the year. The other 29, like Microsoft, Bank of America, GM etc were down for the year.

AEON is unlike Parkson where its market are more for the average people. So are Giant, Tesco etc.

Similarly, beer in Malaysia is probably a more luxury item targeting the non-Muslims. One can say that many people tend to shift to wine etc., but that too. In the most recent, quarterly report this is what Guinness Anchor ("GAB") had to say. GAB is the distributor and brewer for Tiger, Heineken and Anchor. It is the larger of the two between GAB and Carlsberg. It says that it is in fact feeling the heat, after several measures by the government - so fast already?

During tougher times, investors should go for defensive stocks - this does not mean one should look for cash to hold as it seems that governments all over the world are printing more and more money and I just do not know what to predict out of it. It seems to me that the period of low interest rates will continue to persist but yet economies are moving quite slowly. Last Thurs or Fri, US just announced a very good quarter with GDP growing 4.3%. This is one good sign.

Malaysia is quite different, possibly facing tougher moments in near future, as only the last few years, BR1M was introduced, petrol price was not increased, while the country's debt was on the increase. While giving direct money to the public is good, surely, this cannot persist which is why the reduction in subsidies we are seeing now. The more I look at it, the more I think the government has just no choice but to allow them to happen. The right thing to do? Let's see the results in 2014.

So, what should we do for 2014. For me, I would be more careful. As I have been, financial and property sectors are always a danger. I have been avoiding these sectors for a long time and it seems that I have not been too wrong although they do not face deterioration in market cap and price but the increase were not great. Look at Maybank, CIMB. The ones that are probably doing better is Hong Leong Bank, RHB Capital.

Properties. Look at this announcement by BNM. As one now should know DIBS will not do the trick in slowing the property prices but brakes on interest capitalisation scheme would just do the trick - hopefully as high property prices would just put people in tougher situation as property is one of the largest ticket item for any family or individual.

Do not expect tough prices or to be launched properties to drop as the developers are used to these prices nowadays, and will not drop prices, but slow down launches - and with inflation, their costs will definitely be higher. So are the challenges in hiring foreign workers, now.

So, what are defensives? Food staples - good, strong brands. Companies that do lots of exports as it seems some of the countries are picking themselves up again - remember one of my article on latitude tree earlier. Perhaps palm oil stocks again? - if they ever drop to a good price point?

Rubber gloves may be still strong, although it seems that Hartalega nowadays is winning against Top Glove. Toll roads as with higher petrol price, people have no choice but to use shorter or faster route although this may not be popular stocks.

Anything, do let me know.
Anyone who have been asking me whether do I look into averaging down for Parkson - I do not, as I am still saving the money for Keuro's rights and I do not see selling any of my stocks for now, as NTPM, MAHB, DKSH, Padini seems to me defensive enough.


GL said...

hi Felicity...with Parkson now significantly down and potentially the condition now for Parkson may have changed as compared to question would be not about averaging down but would it be one that make sense to cut loss?...if it is that Parkson's fundamental have changed via a vis current and potential future outlook.

Betronist said...

Felicity, I also bought into Parkson when it first touches RM3.80 level but I sold it at loss to buy other bargains. The move was partially inspired by a saying of Mr Cheah Cheng Hye during his talk. He answered to a question about cutting losses that he never had a cut-loss level but he CUTS MISTAKES. If he thinks he has made a wrong call, he will cut it regardless of gain or loss. So I cut my mistake.

Not saying that Parkson is a bad investment, but everyone who buys into Parkson is buying a turnaround story, which is very much a speculation of event. I was once believing in the turnaround story, but now I rather pass this bet (still believing though). I would still buy into it if it is ridiculously cheap (it is cheap right now, but not ridiculously cheap).

Parkson is having 2 enemies now--property cost & online shopping, and I don't see them temporary in nature. People of China surf Taobao like Malaysians surf Facebook everyday. A friend of mine who has a business in Shanghai, receive package after package of goods from Taobao everyday in his office (for the staff). Also, no one knows when the property in China us cooling down, we better don't try to forecast.

Wishing you a happy X'mas and merry new year. :)

felicity said...

Cut loss is for sure many times I have done in a lot of stocks. Some of them are really silly stocks which I have made my investments in especially early days.

Parkson, on the other hand has invested quite a bit recently into owning shopping complexes, Vietnam, Indonesia. For sure that will have resulted in some retreat in performance financially. Parkson is also not a silly stock. A lot of times, when you do a cut-loss, it is due to they are stocks which we do not have a strategy when investing - due to short-termism. One does not cut-loss due to some bad results - cut mistakes I agree.

Betronist said...

Felicity, I still think that over the long term, the business of Parkson (especially China) is gonna be tough. Though I believe they can sail it through, it will be no longer an awesome business as it once was. The similar story of Amazon making Wal-Mart headache.

I like their strategy in S.E.A. too. For that, I would rather buy Parkson Retail Asia (Sg).

felicity said...

You are probably right but I see China as different as it's urbanization is growing much faster than US for example. The problem for Parkson in China is competition and slowing growth. It is reporting 7+% and I am thinking it may not be actual 7% as reported - Chinese officials are famous for misreporting and extrapolating numbers.

Yes, as I see it, Parkson is diversifying into other countries besides China. Asia is very different from US or Europe. Each and every country has its own sets of challenges and Parkson by moving into Vietnam, Sri lanka, Indonesia fast could be actually facing challenges which it is not reporting.

Just as an example, Carrefour - it is moving away from malaysia, Thailand. Tesco is now only in Thailand and Malaysia for SEA despite doing well in these 2 countries. One can't expand the Wal-Mart way as each and every country in Asia is very different.

Big Sea said...

Hi Felicity,

I have been shifting the focus of my portfolio from personal financing to export industry. Bye bye to MBSB and AEONCR.

I believe in the recovery of developed nations. Apart from holding Latitude. I am also heavy on PROLEXUS and MAGNI. Both are in the garment industry and both are OEM for NIKE.

Both are having a profit margin that is rather thin. However, the industry is simple, unlikely to face technology changes and therefore the PPE[Purchase of Plants and Equipments] are low for few years, contributing to nice cash flow.

PROLEXUS is more aggressive on growth, less track record, just starting to share dividen.
MAGNI has a better track record, dividen has been consistent but less ambitious.

Betronist said...

Felicity, thanks for replying. Very good point and useful info.

MS said...

Hi there. Want to ask you. What about IHH ? It has dipped a lot.

felicity said...

IHH is a performing company, but is way too expensive. EPF has been supporting the price so that it does not look bad for Khazanah.

AdCool said...

There is a new policy review by the China Government on Single Child Policy. Hence, there could be an increased of consumer spending on household for those parents who are qualified to go for 2nd child.

Retails and consumer spending in China for 2014 may get a boost due to this latest policy review. Besides, 2014 is a Horse year and many Chinese still traditionally prefer to get a child born in such years such a Horse, Dragon, etc.

newbie said...

Yeah,admittedly 2014 doesn't look too promising.But hopefully you'll be here to provide us with guidance and be the guiding light in the not so bright future.Have a happy,healthy and prosperous 2014,Felice.Thanks for answering my queries in the last.

GL said...

Happy New Year Felicity and all!
Insightful inputs from yourself and Fung on Parkson, thanks. I supposed it's the perspectives of long vs short term investment style though...I used to cut loss when price drop 10% though it seems i lose more in the long run when experimenting with Wiliam O Neil's canslim strat previously...anyway, it's a matter of stock pick and investment horizon I supposed. By the way, i was in Parkson Seremban yesterday and could see how the management is really working on the co...much more pleasant shopping experience with the facelift! ... Many thanks for your thoughts throughout 2013! Cheers.