Published November 3, 2008

Cosco missing some money from Russia

By VINCENT WEE

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COSCO Corp Singapore's Cosco (Zhoushan) Shipyard unit yesterday announced that it is owed US$12.4 million by the owner of three Russian-owned fish processing vessels that it undertook repair works for.

The repairs were carried out from August 2007 to October this year. After completion of the work, a sea trial was carried out on Oct 20. However, the crew unexpectedly changed the vessels' course and did not return to their original point on the following afternoon. To compound the situation, 15 Cosco shipyard workers were on board at the time.

However, with the assistance of the Chinese government, the 15 workers returned safely to Cosco Shipyard yesterday. Only US$3.8 million of the US$16.2 million total contractual price for the repair has been paid.

Cosco Shipyard has demanded payment of the outstanding sum in line with the terms of the contract with the owner of the vessels. It is unclear if Cosco has possession of the vessels.

The outstanding sum is not expected to have a material impact on Cosco's net tangible assets and earnings per share for the year ending Dec 31, 2008, the company said.

Cosco shares closed two cents higher at 77.5 cents last Friday.

Published November 3, 2008

Broking research must adapt to prevailing conditions

By R SIVANITHY

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ANALYSTS have had to take a bit of a roasting in the popular press recently, especially those who maintained their 'buy' calls on China steel maker FerroChina in August/ September when markets everywhere were crashing, the China story had long lost its lustre and the full extent of the credit crunch was becoming painfully obvious.

To be honest, it's not just 'buys' on FerroChina over the past couple of months that have cost the profession a large slice of its credibility but also those on the Singapore Exchange (SGX), banks, property stocks - in short, anything and everything. As a learned observer noted recently, analysts were irrationally exuberant at a time when this was clearly not justified.

How to repair the damage inflicted on a profession that many view as being second-class to begin with, and is often made a convenient scapegoat when things go wrong?

In our view, the best way would be to admit that, in an environment fraught with uncertainty and one where volatility is likely to remain high for the next several months, setting one-year price targets may be of little use and the practice should be temporarily suspended.

(Research critics might well remark at this juncture that targets of any kind are of no use even when the environment is benign let alone uncertain, but in the interests of furthering this discussion we'll leave aside such scepticism for now and assume that some targets are better than none.)

Now, because clients demand some visibility in terms of where prices may head, an appropriate compromise would be to replace the 12-month view with 3-month and 6-month targets with the qualifiers that the 3-month figure is a trading call while the 6-month number is for those with a longer time horizon.

In essence, this suggestion requires brokers to be adaptable and to abandon their current arguably outdated model if rapidly changing prevailing conditions justify it.

Some houses have already segregated their research functions into two - one side that generates day-to-day, short- term trading recommendations, and another which services institutional clients who presumably have a longer-term investment horizon. As a result, it may be argued that brokers have already adapted to differing research needs.

But it's worth noting that some purely institutional houses have shortened their time frames (possibly in response to customer demand); in an 'underweight' on Neptune Orient Lines last Thursday, for example, JPMorgan's target price of $1.10 and pessimistic outlook was not based on a 12-month view but six months instead.

More of the same would in all likelihood be well received by a market where sentiment can swing between the wildly positive and wildly negative in seconds.

A second feature is one we've written about many times before: namely, the need to expand greatly on the present brief treatment given to risk.

Investing is all about juggling risk against return but while analysts spend an inordinate amount of energy calculating target prices and highlighting the potential returns, there is usually very little attention devoted to the accompanying risk.

Cynics might argue that analysts are not in the business of alerting customers to possible losses but instead are paid to highlight potential profits - in which case undue focus on risk might jeopardise business.

But as the recent fiascos involving DBS's High Notes and Lehman's Minibonds show, understating or ignoring risk is enormously irresponsible and can have massive repercussions.

In order to regain some of their lost credibility, researchers might want to try a different tack: instead of always telling customers just how much money they can make, analysts should also write about how much they can lose.

Published November 3, 2008

Super rich suffer paper losses in October rout

By CHEW XIANG

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(SINGAPORE) Around the world the absurdly wealthy got badly bloodied in October's market freefall, with paper losses in the hundreds of billions after their companies' stock prices plummeted.

A few billion poorer: Bill Gates lost US$3.2 billion in the value of his Microsoft shares; Warren Buffett could have lost US$5.29 billion based on his 350,000 Berkshire shares; Lakshmi Mittal may have lost US$50 billion on paper since May; and Li Ka-shing's wealth just about halved in October to US$14 billion

In the US, shares lost US$2.5 trillion in October, according to the Dow Jones Wilshire 5000 Composite Index, which tracks almost all actively traded stocks there. It's the worst drop since October 1987, when Black Monday saw the Dow Jones Industrial Average lose 22.6 per cent in a day.

In India, the Sensex lost 23.9 per cent through October; Shanghai was down 24.6 per cent, and Japan's Nikkei dropped 23.8 per cent. Hong Kong fell 22.5 per cent, while the Straits Times Index shed 24 per cent.

Not surprisingly, the world's richest people became a lot poorer over the month.

Billionaire Bill Gates lost US$3.2 billion in the value of his Microsoft shares, taking his worth down to just under US$18 billion. This includes only the nominal value of his holdings in the software giant.

Fellow American billionaire Warren Buffett saw the share price of his investment holding company Berkshire Hathaway drop US$15,110 over October to a still-healthy US$115,490 per share for the month. This meant a US$5.29 billion loss based on his 350,000 Berkshire shares.

Earlier last month, Forbes Magazine said Mr Buffett had overtaken Mr Gates as the wealthiest American, based on share price movements in September. It said that while 17 billionaires on Forbes' list lost more than US$1 billion in that month, Mr Buffett managed to increase his worth by US$8 billion to US$58 billion.

In the same month, Microsoft founder Mr Gates saw his fortune fall to US$55.5 billion from US$57 billion, according to Forbes' calculations. He had been ranked top of its American rich list for 15 years.

Elsewhere, the world's second richest man Carlos Slim, whose telecommunications empire gave him a net worth estimated at US$58 billion at end-September, lost US$20 billion in the first three weeks of October, according to CNBC.

ArcelorMittal's Lakshmi Mittal, who along with his family owns 623 million shares, or 43 per cent, of the steel giant, may have lost US$50 billion on paper since May, according to reports from India.

In October, ArcelorMittal's share price fell over 40 per cent to just over 20 euros on several European exchanges, valuing his holdings at about 12.5 billion euros (S$23.5 billion) - down 9.5 billion euros in just four weeks. The company is listed in Amsterdam, Brussels, Madrid and Paris, as well as New York, where it last traded at just over US$26.

Closer to home, Hong Kong tycoon Li Ka Shing's wealth just about halved in October, based on his holdings in Canadian energy company Husky Energy, Hong Kong's property giant Cheung Kong Holdings and flagship conglomerate Hutchison Whampoa.

Mr Li may be worth about US$14 billion now, compared to about US$26 billion at end-September, as Husky has seen its share price fall from C$44.20 at the start of the month to C$36.20 last Friday. Cheung Kong and Hutchison Whampoa closed the month 15 and 30 per cent down respectively.

In Singapore, Kwek Leng Beng and family may have lost S$780 million from their holdings in property firm City Developments through Hong Leong Holdings, Hong Leong Investment Holdings and Hong Realty - collectively worth S$2.7 billion when October began.

On Friday, City Development shares traded at S$6.30, down from S$8.79 at the start of October. Mr Kwek and his family were estimated to be worth US$1.2 billion when Forbes magazine published its latest Singapore rich list in August.

Veteran banker Wee Cho Yaw lost almost S$1 billion in the month after his flagship United Overseas Bank lost 22.5 per cent in October to S$13.02. He is now worth about S$3.2 billion, down from more than S$4 billion.