Best World opportunity?

The following is taken from a Maybank Kim Eng Research report, if which I have made minor changes:

Best World prices fell following a negative Bloomberg article highlighting a government crackdown on alleged pyramid schemes in China, which prompted a SGX trading query.

Share prices for Herbalife, Nu Skin and USANA Health Sciences fell after China’s State Administration for Industry & Commerce announced a three-month campaign to police pyramid schemes, although it did not name any companies.

Given that the Chinese market is the key growth driver for the three global direct sellers, the regulatory clampdown could pose a significant risk on sales.

Best World has only recently made inroads into the Chinese direct selling market after obtaining its licence in Hangzhou city in Nov ’16

In 1H17, revenue from China contributed 48% of Best World’s overall sales of $100m, of which almost all stem from the export and manufacturing/wholesale segment.

Best World does not operate a pyramid scheme and will be introducing its direct selling operations in phases. The government crackdown is aimed at Ponzi schemes, which are illegal and is not directed against legitimate direct selling businesses.

As for now, Best World still operates the export model in China where it sells its premium skincare products primarily to beauty/hair salons, spa owners, etc. The model does not incentivise retailers to stock up on products (channel stock) as they would not receive any distribution gains, as opposed to the direct selling model.

Further, Best World has policies in place to prevent channel stocking, particularly in China, which could lead to pyramid schemes. Products sold in China are reportedly in short supply due to increased demand from consumer acceptance.

Following the selldown, Best World currently trades at 14.1x FY18 P/E, with consensus earnings growth forecast of 23%/16% in FY18/FY19.

Despite the near-term overhang on the stock, we retain Best World in the Market Insight Growth portfolio on the basis of its phenomenal earnings growth momentum as the group makes further inroads into China.

7 Up and 8 Down

The statistics of “Santa Rally” and “Sell in May and go away” are well known. But have you heard of “7 Up and 8 Down“? Likely, you have not! It means to buy in July and sell in August.
Please take a look at the Monthly Chart of STI. Green candle signifies up month,while red candle signifies down month. 
For months of July

In the 7 years of 2009 to 2017, the STI went up in the months of July 8 times, and went down 1 time (2015).

For the months of August

In the 7 years of 2009 to 2016, the STI went down all 8 times in the months of August. And as of 16 Aug 2017 today, it certainly looks like following the same pattern again!

Direction of months of July and August. 

Amazing? Check it out yourself in your own charts! Coincidence?

The market agrees with my view of SGD interest rates

When i ask investors who attend my seminars if SGD interest rate will increase in 2017, the majority took the view that Singapore will match US Fed increasing interest rates. For me, I have always told them that I will not be so sure if I were them.

My reasons are:

  • US economy doing well, is Singapore economy doing well?
  • If we follow US rates as we have been known to do so historically, won’t our currency be much stronger than our neighbouring countries? Won’t this make us noncompetitive? As far as I know, all asian countries, including China, are devalueing their currency.
  • I am a very keen bond investor, and have observed corporate bond market rally. Interest rates cant be increasing too much when smart institutional money are buying bonds.

Well, I have been proven right. While the US interest rate has increased 3 times in the last 7 months, look at what happened to our SGD interest rates. Its at 2017 low.

Note that I am not an economist, but I do keep abreast of macroeconomics.