Wednesday, 22 August 2012

Buy Malaysian shares, sell Facebook stocks?

Malaysia ranked in top spot by Morgan Stanley analysts for third quarter investment

PETALING JAYA: The local bourse may see renewed interest among investors as robust domestic demand and government spending on infrastructure drive earnings among companies.

Morgan Stanley Research analysts said in a recent report that the country was ranked at the top spot for the third quarter based on valuation, profitability, earnings and performance.

“Malaysia's attractive ranking is driven by a combination of attractive dividend yields, under ownership levels, improvement profitability and relatively strong performance momentum,” they said.

They added that the country's current dividend yield of 3% was higher than its three-year average. They said that according to EPFR Global, a funds flow and asset allocation data provider, investors continue to position the Malaysian stock market 210 basis points underweight compared to the MSCI Asia ex-Japan benchmark.

They said profitability in terms of return-on-equity basis has improved to 12.7%, higher than the three-year average. “One quarter relative price performance for MSCI Malaysia has also been strong as it was the second best performing market in Asean,” they said.

While MSCI South-East Asia consensus earnings growth estimates had been revised down by 23 basis points last week, MSCI Malaysia earnings were revised up by 54 basis points.

“MSCI Thailand estimates was revised down the most, by 41 basis points, followed by MSCI Singapore 40 basis points, MSCI Indonesia 10 basis points and MSCI Philippines 4 basis points,” they said.

They said consensus growth estimates for 2012 were 14.4% for Malaysia, Indonesia (9.3%), Philippines (8%), Singapore (3.1%) and Thailand (14.2%).

On a year-to-date basis and relative to the performance of MSCI Asia ex-Japan, MSCI Malaysia declined 1.5%, MSCI Indonesia contracted 7.2%, MSCI Thailand gained 9.2%, MSCI Singapore rose 12.4% and MSCI Philippines jumped 14.7%.

On a sectoral basis, Malaysian utilities was revised up 94 basis points while industrials was revised down 35 basis points.

Meanwhile, The Institute of Chartered Accountants in England and Wales said in a report that although growth prospects for Asean had fallen substantially in line with the deteriorating conditions around the world, “Malaysia is still going fairly strong as domestic demand remains relatively buoyant.”

It said that like other countries such as Indonesia and the Philippines, the basic story of rising middle class incomes in Malaysia persisted despite diminished prospects for investments due to lower profits for exporters.

It forecasts growth to slow down to an annual average of 3.8% in the second half (after growing 5.1% in the first half) due to external headwinds.

“Elections this year or next year bear some political risk, but in the event of a peaceful outcome, growth should rise by 3.5% in 2013. A recovery of its trading partners should see the country's gross domestic product rise by 4% in 2014,” it added.

By FINTAN NG  fintan@thestar.com.my

Is Facebook director signalling to others to rush out of Facebook stocks?

19.16  -0.85 / -4.26%

SAN FRANCISCO: Peter Thiel was the first investor to take a gamble on Facebook Inc. Now some people are wondering whether, in selling most of his stake, the Facebook board member is signaling to others that it's time to rush for the exits.

Thiel, the co-founder of PayPal who invested in Facebook in 2004, sold roughly $400 million worth of Facebook shares last week as the first restrictions barring insider selling were lifted.

The sales, which were conducted as part of a stock sale plan that Thiel entered into in May, have dealt another blow to Facebook's reputation among some investors in the wake of a rocky debut that has wiped out roughly 50 percent of its market value. And it has raised questions about whether Thiel's move conflicts with his responsibilities as a Facebook director.

"It's a vote of no-confidence from a board member," said Max Wolff, an analyst at Greencrest Capital.

"If he wants to serve primarily as a self-interested investor, that's fine. But then you can't be the on the board. Boards of directors are not made up of people whose primary interests are in their checkbook," said Wolff, who said he believed Thiel should resign from the board.


A spokesman for Thiel declined to comment.

"From a shareholder standpoint, if a VC is going to be on the board you'd like to think that they still have a large position in the company and that they're interested in making it be more valuable," said Walter Price, a portfolio manager at RCM Capital Management which does not own Facebook shares. "It sends a mixed message when they sell most of their stock and they still stay on the board," he said.

The 44-year-old Thiel still owns roughly 5.6 million shares of Facebook, worth around $107 million at Tuesday's closing price of $19.14 per share.

That stake means he still has "skin in the game," said James Post, a professor of management at Boston University who specializes in corporate governance issues.

"The worst you can say is that it may reflect perhaps a questionable judgment about getting rid of all these shares at a time when such big questions are looming about Facebook's future," said Post. But he said he believed that Thiel's sales do not disqualify him from serving on the board.

The stock sales are the latest in a seemingly endless string of setbacks and controversies to plague Facebook since its highly anticipated IPO in May.

The world's No. 1 online social networking website, with roughly 955 million users, experienced brisk demand for its shares when it was a private company and became the only U.S. company to debut with a market value of more than $100 billion.

But technical glitches with the Nasdaq stock exchange marred the stock's first day of trading and concerns about the company's slowing revenue growth have pressured the company's shares since then.

Thiel, who has an undergraduate degree from Stanford University in philosophy and a law degree from Stanford Law School, was among Facebook's first believers.

He invested $500,000 in Facebook at a $5 million valuation in September 2004, seven months after the company was created by Mark Zuckerberg in a Harvard dorm room. In 2006, one of Thiel's investment firms, the Founders Fund, participated in a $27.5 million funding round along with Greylock Partners, Meritech Capital Partners and Accel Partners.

The Facebook investment is by far the most successful of Thiel's investments, which have also included stakes in LinkedIn Corp , Yelp Inc and SpaceX.

Thiel sold 16.8 million shares of Facebook at the IPO for $38 a share, for total proceeds of roughly $640 million. And he sold a significant number of shares through a private transaction in 2009.

Facebook, which declined to comment on Thiel's stock sales, said in its prospectus in May that the company believes Thiel should serve on the board because of his "extensive experience as an entrepreneur and venture capitalist, and as one of our early investors."

It's common for early investors, such as venture capitalists and angel investors, to have seats on the boards of companies they've backed. And venture firms typically distribute shares of the company to their limited partners following an IPO, so that the venture fund's investors can get a return on the investment.

But there are no "hard and fast rules" for when those investors should exit the board after a company's IPO, said Nick Sturiale, a partner at venture capital firm Jafco Ventures.

"It's usually a discussion between the CEO and the board member and the partnership whether they stay, and for how long," he said.

John Doerr, a partner at venture capital firm Kleiner Perkins Caufield & Byers, is on the board of Google Inc and was on the board of Amazon.com Inc until 2010 - both companies that Kleiner funded.

If the fund that a director represents sells its stake after the IPO, the director should also consider stepping down, said Charles Elson, a University of Delaware finance professor specializing in corporate governance.

The topic sparked a lively debate on Tuesday, as venture capitalists and technology company executives unleashed a rash of Twitter messages and blog posts to defend or criticize the insider sales.

Fred Wilson, a principal with Union Square Ventures, noted in a post on his personal blog that insider selling is to be expected following an IPO.

"Those who took the risk of losing all the capital they bet on 20 year old Mark Zuckerberg are entitled to their return," wrote Wilson.

Earlier report from print edition

WASHINGTON: If you bought Facebook shares in the May initial public offering (IPO) and held onto them, by Monday you would have lost more than half your investment and not see any encouraging signs of making your money back.

Three months after the largest tech share issue ever on US markets, Facebook fell to a new low below US$19 (RM60) a share, compared to the US$38 (RM120) underwriters charged for the 421 million shares they sold.

Although the stock bounced back to close at US$20.01, IPO investors were still holding huge losses with not much hope of a quick reversal, analysts said,.

Some key investors were still cashing out on Thursday and Friday, billionaire Peter Thiel, who invested in Facebook first in 2004, sold off nearly 80% of his huge holding, according to a filing with the Securities and Exchange Commission on Monday.

Thiel's average price for 20.6 million shares was US$19.73 still a handsome profit for such an early backer of the website, but not a demonstration of confidence in the company's potential to rebound.

Facebook raised US$16bil when it went public on May 18, giving it a nominal market value of a stunning US$104bil and raising hopes of a new dotcom boom on US markets.

The company's business promise was huge marketing access to the 900 million users of the world's leading social network and data about them that marketers prize.

But analysts said that the large number of shares sold, the high IPO price, and the overall skittishness of investors in a soft overall economy, had undermined market support for the company.

“They just put way too many stocks out at once... before the market was ready to absorb so many shares,” said Michael Pachter of Wedbush Securities.

The price struggled around the US$30 range in the weeks after the issue, with the underwriters undergoing a beating and lawsuits for allegedly having privately lowered their earnings forecasts for the company days before the IPO.

The shares then fell to the low-US$20s range at the end of July when Facebook issued an uninspiring quarterly earnings report.

And last Thursday the price plummeted when a ban on pre-IPO investors such as Thiel selling their shares was lifted many apparently sold.

That lockup applied only to 270 million shares. A further 1.2 billion shares, those controlled by Facebook employees, will be freed from lockup on Nov 14.

While undoubtedly Facebook founder Mark Zuckerberg and other top figures will hold on to most of their shares, anything added to market liquidity is, at this point, downward pressure on the price.

Analysts are debating whether the stock is now a bargain based on Facebook's earnings potential.

“Over the long term, the trade is about the fundamentals of the business, and the fundamentals remain very positive,” Pachter told AFP. He called the problem of a share oversupply “just noise”.

Social media expert Lou Kerner also downplayed the selling pressure.

“We remain very positive,” he said. “Facebook will figure how to monetise mobile, the dollars will find their way.”

New York University finance professsor Aswath Damodaran was more sceptical. After Facebook's quarterly earnings report, he cut his original US$27 a share “intrinsic value” estimate to below US$24.

“The earnings report was a disappointment to markets, revealing less revenue growth than anticipated and an operating loss.” But at US$19, he still is not sure of the investment's merit, given the potential overhang of sellers.

“Facebook remains a company with vast potential (their user base has not shrunk), no clear business plan (is it going to be advertising, product sales or something else) and poor corporate governance,” he wrote on his blog Musings on Markets.

“Eventually, the intrinsic' truths will emerge, but it may be a long time coming.”

Another longtime bear on the stock, Trip Chowdhry of Global Equities Research, retains deep doubts even at US$19 a share. “Facebook doesn't have the technology to monetise social actions,” he said. “With what we know right now, the price should be in the low teens.” - AFP

Citadel urges U.S. to okay Nasdaq's Facebook IPO payback plan

NEW YORK: Citadel LLC urged U.S. regulators to approve Nasdaq OMX Group's $62 million compensation plan for firms harmed by Facebook's May 18 glitch-ridden initial public offering.

Citadel's market making unit bought and sold over $3.8 billion worth of Facebook stock during the IPO and "incurred losses protecting retail investors from the problems caused by Nasdaq," the firm said in a letter on Tuesday to the Securities and Exchange Commission.

Nasdaq filed its all-cash plan with SEC in July.

Regulations cap the exchange's liability at $3 million a month for problems caused by technology issues, and the Facebook accommodation plan would temporarily raise that amount, though not to a level anywhere near the upward of $500 million lost by the major retail market makers in the IPO.

"While the extent of exchange immunity from liability for mishandling orders is an important and complex public policy issue, we submit that any commission consideration of this issue should be addressed at a later time," Citadel said.

Citadel lost around $30 million due to the IPO, a person familiar with the situation previously told Reuters.

Wednesday is the deadline for interested parties to submit comment letters to the SEC on Nasdaq's proposal.

The other top retail market makers involved in the IPO were Swiss bank UBS AG, Knight Capital Group, and Citigroup's Automated Trading Desk.

UBS said it lost more than $350 million when the lack of timely order confirmations by Nasdaq caused UBS's internal systems to re-enter orders multiple times.

A spokeswoman for UBS, which has said it may take legal actions against Nasdaq to recover the full extent of its losses, said the firm had no comment.

Knight said it lost $35.4 million due the IPO. A spokeswoman at Knight said it is still unclear as to whether the firm will formally comment on Nasdaq's reimbursement plan. A source familiar with the firm's plans told Reuters Knight is likely to accept Nasdaq's offer.

A spokesman for Citi, which sources have said lost around $30 million, could not confirm if the firm would submit a comment letter.

The all-cash $62 million reimbursement plan is $22 million larger than Nasdaq originally proposed. The prior proposal was made up mostly of trading rebates, which drew loud protests from other exchanges and market makers.

A Nasdaq spokesman could not immediately be reached for comment. Spokesmen for New York Stock Exchange operator, NYSE Euronext, and No. 3 U.S. equities exchange, BATS, said their companies did not plan to file comment letters with the SEC. A spokesman for No. 4 exchange, Direct Edge, was not immediately available for comment.

In a regulatory filing on August 3, Nasdaq said it is the subject an investigation by the SEC, as well as eight lawsuits by investors and one by trading firms, for its role in Facebook's problematic debut.

While Nasdaq said it believes the lawsuits are without merit, it said it expects "to incur significant additional expenses in defending the lawsuits, in connection with the SEC investigation and in implementing technical changes and remedial measures which may be necessary or advisable." - Reuters

Facebook at half-price: Which way now? 


WASHINGTON: If you bought Facebook shares in the May IPO and held onto them, by Monday morning you would have lost more than half your investment -- and not see any encouraging signs of making your money back. 

Three months after the largest tech share issue ever on US markets, Facebook fell to a new low below $19 a share, compared to the $38 underwriters charged for the 421 million shares they sold.

Although the stock bounced back to close at $20.01, IPO investors were still holding huge losses with, analysts said, not much hope of a quick reversal.

Some key investors were still cashing out -- on Thursday and Friday, billionaire Peter Thiel, who invested in Facebook first in 2004, sold off nearly 80 percent of his huge holding, according to a filing with the Securities and Exchange Commission Monday.

Thiel's average price for 20.6 million shares was $19.73 -- still a handsome profit for such an early backer of the website, but not a demonstration of confidence in the company's potential to rebound.

Facebook raised $16 billion when it went public on May 18, giving it a nominal market value of a stunning $104 billion and raising hopes of a new dotcom boom on US markets.

The company's business promise was huge: marketing access to the 900 million users of the world's leading social network and data about them that marketers prize.

But analysts said that the large number of shares sold, the high IPO price, and the overall skittishness of investors in a soft overall economy, have undermined market support for the company.

"They just put way too many stocks out at once... before the market was ready to absorb so many shares," said Michael Pachter of Wedbush Securities.

The price struggled around the $30 range in the weeks after the issue, with the underwriters undergoing a beating and lawsuits for allegedly having privately lowered their earnings forecasts for the company days before the IPO.

The shares then fell to the low-$20s range at the end of July when Facebook issued an uninspiring quarterly earnings report.

And last Thursday the price plummeted when a ban on pre-IPO investors such as Thiel selling their shares was lifted -- many apparently sold.

That lockup applied only to 270 million shares. Another 1.2 billion shares, those controlled by Facebook employees, will be freed from lockup on November 14.

While undoubtedly Facebook founder Mark Zuckerberg and other top figures will hold on to most of their shares, anything added to market liquidity is, at this point, downward pressure on the price.

Analysts are debating whether the stock is now a bargain based on Facebook's earnings potential.

"Over the long term, the trade is about the fundamentals of the business, and the fundamentals remain very positive," Pachter told AFP. He called the problem of a share oversupply "just noise".

Social media expert Lou Kerner also downplayed the selling pressure.

"We remain very positive," he said. "Facebook will figure how to monetize mobile, the dollars will find their way."

New York University finance professsor Aswath Damodaran was more skeptical. After Facebook's quarterly earnings report, he cut his original $27 a share "intrinsic value" estimate to below $24.

"The earnings report was a disappointment to markets, revealing less revenue growth than anticipated and an operating loss."

But at $19, he still is not sure of the investment's merit, given the potential overhang of sellers.

"Facebook remains a company with vast potential (their user base has not shrunk), no clear business plan (is it going to be advertising, product sales or something else) and poor corporate governance," he wrote on his blog Musings on Markets.

"Eventually, the 'intrinsic' truths will emerge, but it may be a long time coming."

Another longtime bear on the stock, Trip Chowdhry of Global Equities Research, retains deep doubts even at $19 a share.

"Facebook doesn't have the technology to monetize social actions," he said. "With what we know right now, the price should be in the low teens."

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