Tuesday, April 28, 2009

That uncomfortable feeling that won't go away

There is an item of news today, a part of which reads like this:

Bumiputra and Indian investors have been asked to take up the remaining two billion Amanah Saham Malaysia (ASM) units as the Chinese have already snapped up their quota of 999mil units.

“I hope the bumiputras and Indians will not let this opportunity go,” Deputy Prime Minister Tan Sri Muhyiddin Yassin said in his speech yes­­terday when closing the Malaysia Unit Trust Week organised by Permodalan Nasional Bhd, which began on April 18.

“This clearly shows the level of understanding among the Chinese when it comes to in­­vestment and financial planning for the future.”

I cannot help this very, very uncomfortable feeling after having read the news report and, in particular, the verbatim quote of the DPM.

I can't explain it.

I know the DPM isn't trying to make me uncomfortable. But, unfortunately I do feel uncomfortable.

I was looking at how attractive the Bond yields were.

But, after reading this news report I had this strange feeling that the only reason why I could appreciate the attractiveness of the Bond yields was because of my ethnicity.

Is it because of my ethnicity that I can appreciate Bond yields?

That inference screams violently against all the skills that I picked up during the course of my being educated and taught - at primary school, at secondary school, at the undergraduate level and, at the post-graduate level.


Eric said...

Welcome to "race-based" politics. Others call it racist, but it is probably Manglish, just like money politics which apparently differs from corruption.
Please believe the obviously trustworthy BN guys when they tell you "it is good for you".

Dhahran Sea said...

I suppose one can "read" Muhyiddin's remark in several ways, depending on one's inclination... but to me its a FACT of LIFE in good ol' Malaya: the Malays & Indians either DON'T have the money to buy those leftover units, or IF they have the money, they would rather invest in some quick-rich schemes (like the Madoff thing)... while our friends the Chinese DO have the money to invest (otherwise, they wouldn't have filled up their quota already)... of course, again, one can also argue that those "super rich" Malays or Indians & their cronies (I wonder how many Malays & Indians will make it to the TOP 20 RICHEST Malaysians this year?) wouldn't want to invest in low return instument like these, in the first place? (Problem with this argument is, WHY the Chinese took up all their quotas... MUST be GOOD investment, right?)... I guess it boils down to this: one believes in what one WANTS to believe in, no matter what...

hishamh said...

I readily believe that many Malays and Indians don't have the financial resources to buy these units.

But I'd like to add a further interpretation to this - Malays also have access to ASB, which Chinese and Indians don't. ASB consistently pays better than any of the other PNB funds, mainly because there's a bonus payment on top of the dividend yield. Unless you're up against the RM200k investment limit, you'd rationally put your money there first before considering any of the other funds.

Patricia said...

You say: 'Is it because of my ethnicity that I can appreciate Bond yields?'

I say: 'Is it because of my ethicity that I can't, and therefore am duh?!'

I so know what you're saying. This leaves a strage taste in my mouth, and a nasty frisson down my back.

In Bolehland, it's always about cina, india or melayu, isn't it? No other reasons apply.

de minimis said...

bro hishamh

I suppose the question to put to the politicians is, whether the lack of financial resources is due to inherent ethnicity or innate culture and its attendant values.

Maybe the question would be better answered by non-politicians.

hishamh said...

I see too much Indian and Chinese poverty to believe being poor and needing special favours is a Malay 'prerogative' - I will forbear from making any comments about conflating race with intelligence. Ok, it's a stupid idea. I expect and expected better from the DPM.

Anonymous said...

de minimis,

I too share this '.. strange taste in my mouth, and a nasty frisson down my back.'

But my takes r from different angle.

There r consistent questions about how PNB can/could pay such high dividends for their various unit trusts, even during economic trying time. Those paid for the ASN, in fact defy logical commercial sense!

The numbers & frequencies of unit trust offering by PNB recently r also cause for concerned.

Why goes to the market to gather funds when the current economic situation demands consumer spendings to uplift the stagnant commercial activities?

Base on the current economic activities & ROI, can the promised dividends be justified?

Could that recent series of unit trust offerings a base building move for the Ponzi pyramid created?

Or r those dealers/schemers in PNB have a better economic crystal ball than all the 'brains' outside its sphere of influence?

The spider sense cant helps trickling a Ponzi/Madoff/Stanford scandal waiting to explore.

It could be another 'cooperative snakes' scheme that has been snowballed into a monster, that nothing, & I mean nothing, can stop it. The ONLY way is forward & continuing pyramidal base building efforts.

Like all Ponzi scheme, all those late comers will be hit hardest & that will be the thought to be sleep over with.


hishamh said...


PNB's returns are at best competitive. They are by no means high compared to some of the other unit trusts in past years.

There's really nothing sinister in how it's done. In good times, returns are decent but not great - anything over a certain return is put in reserve. But in bad times, that reserve can be used to maintain returns.

Second, PNB is a long term value investor. If your investment horizon is 5-10 years, stocks look awfully cheap right now. Hence the call for funds.

Anonymous said...


Pls lah – ‘PNB's returns are at best competitive’?

Judging from the historical returns published so far (do check these data vis-à-vis PBB unit returns) it’s more than competitive! And once again, it defies commercial logic!

U said it yrself – ‘In good times, returns are decent but not great - anything over a certain return is put in reserve. But in bad times, that reserve can be used to maintain returns.’ So, where r that reserves now?

Yr word – ‘If your investment horizon is 5-10 years, stocks look awfully cheap right now. Hence the call for funds.’

Then, why not ultilise the said reserve for this investment opportunity? Instead, this reserve is used to pay HIGH dividends! What business sense? Or is it the unwritten policy of PNB for ultra high dividends for ASN/ASB comes what may?

Moreover, the current market needs liquid funds now for fiscal stimulants, why shores up this liquid fund for whatever? All over the world, almost all govts worth their socks, r releasing cheap funds into the market to stimulate the dying commercial spending. & yet right here the govt & the biggest investment trust fund r doing the opposite!

Is there any cheap long term investment now that will pay top ROI? Nobody knows where lies the barometer of the current world market. Nobody knows whether any current investments CAN guarantee 100% decent returns in 5 -10 yrs. Just look at the investments of Temasek & GVICorp of S’pore for their misguided takes in Merry Lynch & Goldman Sachs. These r termed long term & what r they now, just less than 6 months down.

This is VERY contrarian in economic outlook! Thus my take about PNB’s crystal ball!

In the early days of PNB investments, its returns were almost guarantee as the shares r dirt cheap due to the govt share allocation policies. In fact in almost any local IPO that PNB had a take, the returns were phenomenal! There is NO rocket science involved here.

However, with the dried up of get-rich-quick IPO, PNB can NO longer sustain its mode of operation. High dividends pay-out with low investment cost is the story of the past. Thus PNB has no choice but to go to the market for funds, And one mother lode that’s not been explore is the savings of the non-Malay M’sians.

IMHO the current fund raising is a disguise use to help pay for the ‘required’ high dividends so that the unit holders will continue to put their money with the unit trusts. However, if the current bear trap persists worldwide then the redemption of unit will happen. By then, where & how to continue the pyramidal base building for the high dividend yield? Something will give! Thus. my notion of Ponzi/Madoff/Stanford scandal waiting to explore.


jim said...

ditto. Feel the same, too.

hishamh said...

Point by point:

1. I see the returns report every month. Yes, at best PNB returns are 'competitive' but not outsized. The big difference you are seeing is the volatility of returns over time - PNB volatility is very low, others are much higher. So Public looks really bad right now, but they looked really, really good two years ago. Over the long term, the returns are approximate, it's just that PNB returns don't go up and down like a yo-yo.

2. The reserves are where they should be - already invested and earning returns.

3. Why the govt/PNB call for investment? You have to distinguish between funds saved in the banking system, or should I say trapped in the banking system, as against funds that go to the government where it will be spent, or PNB where it will be invested.

Funnily enough some of that investment might just turn out to be in MGS, in which case the money goes to the government where again it will be spent rather than hoarded by the banks.

You can check for yourself at BNM's website what banks are doing:


Banks have RM175 billion on deposit at BNM, and not lending it out. They don't have to keep it there because the stat reserve ratio has been cut to almost nothing. That money could fund the mini-budget 6 times over.

4. Every investment carries risk - and betting against Goldman Sachs given their 1Q performance isn't one I'd take. And 6 months isn't exactly what I would call long-term. But stocks now are relatively cheap by many valuation models. As the saying goes, you should buy when there's blood on the streets.

5. Capital gains aren't the only way to earn returns. Dividends are another, so is M&A. No rocket science needed for either. The Synergy Drive exercise for example netted a gain of RM30+ billion on relisting.

6. If it is a ponzi scheme, then there wouldn't be individual limits on investment would there?

Anonymous said...

Point by point;

1)I too read economic data every day. What u said – ‘The big difference you are seeing is the volatility of returns over time - PNB volatility is very low, others are much higher.’ True! But when one does an average over time for whatever period, the discrepancies will show, especially when both faced the same back-ground environment over the same period. Economy is a dynamic science; volatility is part of its inherent parameter. Over time all volatilities will be smooth out & a trench will show. Pls do view PNB’s dividend pay out in this light, ok? Unless PNB does have a crystal ball that consistently out-plays the economic reality. Then this is voodoo science NOT economy!

2)Ya, the reserves r there – in fixed assets if I interpret u right. Where is the liquid cash? Don’t they know about asset leverage, especially during the current ‘blood on the street’ scenario, where bank interest rates r sooo low. Unless nobody, sorry no banks, r willing to take mortgage of those fixed assets. Then the quality of those fixed assets come into mind.

3)U said – ‘..funds that go to the government where it will be spent, or PNB where it will be invested.’ Fine. Govt spending will stimulate economic activities. But will PNB investment does the same? Bearing in mind PNB is an investment fund, spending should not be in her blood! U still has not answer where can PNB invest to justify the expected ROI over the time frame u quoted. Funny indeed, as u said ‘Funnily enough some of that investment might just turn out to be in MGS,’ R u sure that the returns on MGS can justify the high ASN/ASB dividends? Bloody hell, EPF must have sleeping on the job, as more than 80% of its investments r in MGS. & yet the EPF dividends r in no way comparable with PNB’s.

4)Pls re-read my takes on the investments of Temasek & GVICorp of S’pore.

5)Ha, talk about ‘The Synergy Drive exercise’. Where is the on paper gain of RM30+ billion on re-listing now? Is PNB comes out top on this exercise? On long term? U tell me.

6)It will help to remove the doubts about the ponzi scheme iff PNB can be transparent in its investments. That I believe is harder than getting out of Hotel California, as the song goes. The setting of individual limits can be read as anything - spread the risk, hp6 policy envision etc etc.


hishamh said...

This is getting interesting.

1. I was actually referring to detailed returns data on local unit trusts, not economic data.

2. Actually undistributed income (the “reserves”) is always reinvested in equities and cash or cash equivalents. PNB as an investment holding company can invest in fixed assets. But publics’ funds in the unit trust funds cannot be so used under the terms of the trust deeds. And no, SC does not look the other way when it comes to PNB.

3. Hardly fair to compare with EPF, as their asset allocation is 80% debt instruments and 20% others, while PNB is almost the opposite. The difference in asset allocation is sufficient to explain the 2.0-2.5% difference in yield. I’m frankly amazed how EPF manages to generate the returns they do considering the handicaps they operate under and the fact that their fund size is three and a half times bigger than PNB.

As to where to invest – returns to the KLCI from 1998 to 2008 including reinvestment of dividends averaged 10.2% (cumulative 112%). If you take 2007 as the cutoff date, the returns average 21.6%, or a cumulative 216%. Data is from Bloomberg by the way.

4.I’ve reread it and I still don’t understand your point. A long term investment should be judged at the end of the investment horizon, not after six months. The Goldman investment looks like a good deal right now, Merrill not so much.

5. I’m told with the KLCI at around 900, it would be +RM10b. Should therefore be a bit higher now.

6. Major shareholdings and general asset allocation is always published annually with the fund managers report. I don't think being any more transparent than that is a good idea from a regulatory perspective.

pywong said...

I am a bit concerned that everyone in this blog is arguing using a unit of measurement that could go bust if the USD crash. The RM is merely a unit of measurement or a unit of exchange.

A large portion of the backing for the RM is the USD. Although Bank Negara does not disclose the make-up of its basket of foreign currencies, it is probably not far from the global average of 63% in USD.

What is the point of talking about returns when the purchasing power drops drastically?

As investors it would be wise to hedge by having part of our assets in gold and/or silver.

Anonymous said...

Now, this is indeed getting interesting!

Will give u a detail point-by-point when I cleared up the desk tasks at hand.

Will try to do with statistical data to prove the points too.

Suffice for now here;

1)‘..detailed returns data on local unit trusts, not economic data’ Now this is something to chew on. From the off-hand data that I’ve compiled, none of the local unit trusts actually performed any better than the KLCI over time! Yet, PNBs’ r the only exception, thus the voodoo science. BTW, local unit trusts must reflect local economic data as there is where they make their bread. If PNBs’ r again exception, as shown in their non-volatility, then this is truly voodoo with quantum mechanic interpretation – an expected high dividend policy produces high dividends!

2)Will show u when the data is compiled. A word of caution – ‘SC does not look the other way when it comes to PNB.’ It did & in many occasions! The Synergy Drive listing has many overlooks. Ouch! most of the time, just that the decisions were been covered over with flowery & technical jargons that joe public does not chew on.

3)U mentioned about PNB’s takes in MGS, I just tag it with EPF! ‘The difference in asset allocation is sufficient to explain the 2.0-2.5% difference in yield. I’m frankly amazed how EPF manages to generate the returns they do considering the handicaps they operate under and the fact that their fund size is three and a half times bigger than PNB.’ I too don’t get it – how to account for that 2.0-2.5% difference in yield. And yet I can somehow understand the cash-cow handicaps that EPF operated under. One more thing, consider that their fund size is three and a half times bigger than PNB, EPF could do a lot more leverages even taking their investment policy guidelines into consideration. The 20% of that others is still very huge – unless it has been used mostly non-productively & incurred investment-wise inefficiencies.

4)Merry Lynch is gone & to recover back the original investment in Goldman Sachs will take more than 10 yrs, by last count. That’s iff Goldman Sachs is still there over this period. These investments of Temasek & GVICorp of S’porer supposed to be long term (5-10 yrs). Look what happened just after 6 months! & they r supposed to be investment professionals!

5)So paper wealth is a OK? Gains & losts, all on paper. Then where is the true wealth been generated physically? I suppose the next big property company from PNB is that same exercise – paper wealth & let the suckers suffer, long term, after the IPO! Meanwhile on the portfolio holding of PNB, another 'jewel' is been created thus justify another round of high dividends from the paper wealth.

6)’I don't think being any more transparent than that, is a good idea from a regulatory perspective.’ I think this is counter-productive. This is like treating the investment public like idiotic children. Always about minimum disclosures for the good of country, publics, peace & harmony etc etc. We r talking about economic investments here NOT about politics. Unless of course u take PNB’s investments as purely political then we r back to square one, ie. my notion of Ponzi/Madoff/Stanford scandal waiting to explore.


hishamh said...


International reserves matter primarily with respect to funding international transactions, not to purchasing power. A "crash" in the USD would raise the relative value of all other currencies - the impact on purchasing power would only be to Americans.

The other impact as noted would be to reduce the relative value of everyone's USD holdings - which means that everyone has an incentive to prevent said "crash".

Not to say that a depreciation of the USD can't or won't happen. Between Jul 2001 to Jul 2008, the USD fell about 25% in nominal terms, and a bit less than that in real terms. Current USD strength is likely to reverse, but I don't expect it to do more than revisit last year's lows.

What you say would have been true before 1972, under the Bretton Woods system with fixed exchange rates based on the USD.

Under the current system, curencies are in essence government promissory notes, and retain their value solely on each government's credibility and powers of taxation.


I await your analysis with bated breath.

On the last point though, I was thinking more in terms of market fairness. Knowing the composition and asset allocation of a big player means you can do things like front loading. Prices would under those circumstances be a lot more volatile, and reflect market speculation more than company and market fundamentals. I don't see how that helps anyone.