New stock biases for new times. Why ETF's are more then half dead money.
Growth and consumtion stocks. ETF's are boring and Inflation remain tame in the US/EU, despite the big Guru's long predictions.
As pointed out at our member lounge recently that with interest rates rising further now in Thailand we must be more careful with exposure to just pure high dividend stocks which I here advocated with full vigour for many years. Growth stocks with dividends should be more favoured, hence my new new pick PHOL (5.10), along with others. BTW, DEMCO is in the Thai news again today having been awarded another new 880 million Baht contract.
High income stocks with little growth prospects will have stronger winds going against them from now on. This is one reason why I am more tamed with selections like TVO and TICON (as just 2 examples). TVO I just visited last week and got to know well…realize the Bualuang earnings estimate there is well too high -and there remains an oversupply of soybean meal. It will be interesting to note how long it takes Bualuang to tame down their to high earnings estimates.
Cleary noted in the past member article I am more excited with DEMCO, PYLON, KBS (as recent examples) and now PHOL. I favour these as earnings grower over just high income!
The model portfolio is difficult to administer as everytime I make a change I create headaches for myself, the choices are not time adjusted and the above 4 choices will encumber its performance just 2 weeks before the 6 month anniversary. Also, I will have to adjust the model stocks for the changes made along the way as well as add the dividends. It’s a nightmare which I now already fear. For years I have shown outperformance in the many models and yet it seems to make no difference in attracting proven non-believers. The current model portfolio is coming to an end by June 17 so did not want to encumber my job further ever more with all these new solid ideas, going forward.
One thing we know for sure and many local studies have shown this over the years- that after all the "housewife's, short term Johny’s and trading" noises, over time, say 2-3 years, nothing moves Thai stocks up and p/e ratio's higher here or down, then earning growth or lack thereof. I think this will only be more so in the foreseeable future due to rising interest rates, as noted.
Studies I am familiar with have shown this again and again, over the past 20 years. Surely in the short term there is always all kinds of market noise and volatility (which damages and impacts the impatient) but don't get sidetracked: as earnings growth or lack thereof, more then anything else is what moves valuation and stocks, up or down! Sorry for the repeat. I know to have shown over the years that I can excel in picking earnings growth stocks, not just high income stale small cap's.
If there is any sell-off in my recent stated favourites, DEMCO, KBS, PYLON, PHOL, I would remain to be the strong buyer of all 4 with lately last week adding PHOL. Of course I still like many of the other core choices like MAJOR, SNC, WORK, TRC, AJ. SITHAI as well but realize it’s a bit of a laggard as well. SITHAI will have a good year this year, but next year is still a bit uncertain? I visited SITHAI last week with the Chairman and will soon write the company update here. ASIAN I know less about and STPI might sleep a bit longer. CPALL remains my big cap which has done soo well.
Surely many Asian stocks have had a nice run over the past couple of years, Thailand included.
The average p/e here in general is higher then in Western markets, which has never happened before, at least not in a long time. Asian stocks in general need to deliver on investor expectation or face a new de-rating. Of course many of our selections, mid cap and smaller cap, are still cheaply priced on a p/e ratio -and so remain favoured. MAJOR trades at a p/e of around 15 which is not cheap, but its historical p/e is closer to 20 and it has strong earnings growth this year and next, as explained previously.
The West in general (Australian and New Zealand obviously less on this) remains in the doldrums. Most people don’t realize that the credit crunch, bank bailouts and recession only accounts for some 9% of the increase in long-term public debt burdens in the major advanced economies. The remaining 91% of the long term fiscal pressure is due to the growth of public spending on pensions, health care and entitlements. Clearly Asia has neither of the above 2 problems.
This is one reason why I have questioned the dire inflationary predictions made by so many gurus, for some years already now. Yet still not happening. I guess keep predicting and it will happen. Not least folks like Marc Faber. Still, there is no inflation in the US and the drop of in housing and labour costs (always two huge expenses here), is further containing inflation in the US especially.
Speaking of which, I just read in a local news paper that Marc Faber made a contribution in that poorly written book “Investor Guide of Thailand”, now just in its second edition. This I viewed is as a sort of an indirect endorsement. That book is mostly a rag... full of fear-mongering and immature investor understandings. The author is an investor amateur Mr. Faber should not have associated himself with that, in my view. More seasoned members recall I reviewed this book in full, just a couple of years ago. ***
The rise in the monetary base, especially in the US, compensates the decline in bank lending and the decline in the velocity of money. The differences in monetary policies between the East and the West should ensure that Asian currencies remain well bid.
Last but not least, I remain very convinced that so called ETS investors in Asia got it wrong.
There are many self acclaimed “wealth managers” and “fee only” advisors out there with all their fancy methods and ways advocate big investors to only consider various ETF’s and forget all else. Big brokers love it as it generates trading commissions without individual stock picking risk. Yet investors into Asia which favour such ETF (funds which are low commissions but then only track the index) are likely to invest well more then half their capital in “dead money”. Asia’s very different stage in the economic cycle argues against investing in such indices (EFT’s) now more then ever, as these funds are heavily underexposed in exactly the sectors which are likely to do best, moving forward. Chinese wages for example are increasing some 17% per year according to Bloomberg -and Thailand’s minimum wage will likely double over the next 2-3 years. It seems obvious that economic rebalancing is occurring as housholds will grab a bigger share of nationanl income, thus increasing consumption power, yet such stocks along with growth stocks do not feature in any EFT’s to any large degree at all, if any!
Stocks linked to growth, local consumption and away from banking and mega large energy stocks etc. must be favored. Workers all around Asia (especially Thailand and China) are about to get a fairer shake, which is great for consumption! Needless to say again, when one invests in an ETF here today one gets a stake in Banks, infrastructure, energy…when in fact what one wants to own is the unfolding Asian consumption boom besides a portfolio of growth stocks with lower p/e and still some nice dividends.! ETF’s own little if any on either.
Best Regards,
Paul A. Renaud.
