Apollo Investment Management
What's new archive - 2004

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31 Dec 04:
The Maritime Lanka news page is being updated with project-specific information, and the international team is closely following opportunities to help with relief and rebuilding there. Friends in Malaysia and Singapore are trying to work out how best to help the tsunami victims in Indonesia.

29 Dec 04:
Thanks to those who have enquired about the tsunami. All AIMS & Apollo staff are well. The premises, collection & equipment of the Maritime Archaeology Unit in Galle have been destroyed, but we are extremely relieved that all current members of the team, Nooit Gedacht staff & resident friends have been reported as safe. We are told that fresh water, medical supplies and food are still desperately short in the south of Sri Lanka, where logistics remain very difficult: the major international agencies are of course doing their best. Malaysia was affected less badly but there were homes destroyed: the Yayasan Sultanah Bahiyah is collecting clothing, blankets, towels etc for the displaced.

24 Dec 04:
Unocal's settlement of a human rights case over the Yadana pipeline has drawn international comment, much of it understandably focussed on the broad implications for corporate responsibility, and new legal risks for large companies. For an account of the project history, which involves a number of international oil companies as well as Petronas and PTT, read 'The Burma-Thailand gas debacle', which argues that expensive gas for Thailand has financed a military buildup in Burma.

3 Dec 04:
NAV of the Apollo Asia Fund rose 3.8% in November, to a new high of US$484.56. Charts.

29 Nov 04:
'One more neocon target: South Korea', warns Gary Leupp.

3 Nov 04:
The Far Eastern Economic Review was once indispensable - before it was taken over by Dow Jones. Michael Charnock points out that the new monthly outsourced edition will preclude others from using the title: "someone else might succeed where the mighty Dow failed so magnificently... financial losses are one thing, proven incompetence is quite another." James Borton highlights the irony of "a venerable Asia Pacific publication now silenced, not by an authoritarian Asian government, but rather by the citadel of freedom and capitalism": 'Wall Street blow to Asian media'. Philip Bowring's obituary is 'Without FEER'.

Into the breach, there is Asia Times, with one of the most detailed analyses I have seen yet on the potentially disastrous developments in Southern Thailand: B.Raman's 'Thai dilemma over Muslim anger'.

New doggerel: 'American Bye'.

2 Nov 04:
NAV of the Apollo Asia Fund rose 1.9% in October, to a new high of US$466.69. Charts.

27 Oct 04:
Latest irritation with the misnamed 'all-in-one info' from the Singapore Exchange: the last listed announcement for Oversea-Chinese Banking Corporation was dated 30 Sept... there is therefore a risk of overlooking a separate long list of announcements for October, under 'Oversea-Chinese Banking Corporation Limited (reg.no. 193200032W)'. The existence of that second option is not listed if you take the most likely route from the main menu of 'all-in-one-info', then choosing 'companies beginning with O'; only if sure that there have been more recent announcements are you likely to do a double-take, proceeding from the page which lists the Sept announcements to recheck, 'announcements by company name'.

Given the deficiencies of the SGX site, the desirability of officially-archived corporate announcements in any market aspiring to be efficient, as discussed in 'Financial disclosure: simple improvements for Asian markets', and the importance of such inexpensive measures for national capital allocation - it is a pity to see on the MAS website that it will discontinue corporate announcements from 1 Nov, and that we must rely on SGX thereafter. Let's hope that undivided responsibility prompts SGX to rethink.

Meanwhile the MAS webmasters could (1) add an obvious link to the useful but not necessarily known-by-name 'OPERA', where share prospectuses may be found (not under 'research & resource', or 'publications', or 'for the consumer'...), and enter a few keywords such as 'Singapore, share, public offer, IPO, prospectus, circular...' to ensure that members of the public can find such documents easily (local bulletin boards show that more than one investor has scoured the MAS website unsuccessfully); (2) cut down any moving parts which may have caused that page to take a good half-minute to load on my not-broad-enough-band connection, and check the 'skip intro' link; (3) ensure that contact details for direct feedback are readily accessible from all parts of their site.

For fair comparison, I just cleared the cache and asked my browser for http://sgx.com. Time for first content to appear: 50 seconds. Time to finish loading the first page: 2 minutes 15 seconds. Designers please note: this is with broadband, access to which is not universal. Our access is not usually quite this slow, but the problem of 12-click searches for a single document should be apparent, since at this pace each takes 27 minutes.

22 Oct 04:
Open Office usage in Asia should be boosted by an endorsement from Singapore's Ministry of Defence, which has decided not to update existing copies of Microsoft Office, after careful testing of Open Office since early last year. I have the same policy: I continue to use some Microsoft products on existing computers, but hope not to need any more. Unfortunately Microsoft receives bizarre support from some organisations which should know better: Bloomberg when last contacted was not only exclusively Windows-based but insisting on bundled purchase of Microsoft Office, and too many inexperienced web designers produce pages for Microsoft users without understanding HTML standards or the usage of other platforms. Asian governments have long been expressing interest in open source software, but adoption by major companies and government departments should accelerate takeup.

10 Oct 04:
The 3Q report is here; and I have compiled a separate list of simple improvements which could be made to financial disclosure in Asia, addressing availability, content, and format.

8 Oct 04:
Once among Asia's brightest prospects, Burma has been reduced to a basket case by its brutal & incompetent dictators. Desmond Tutu is scathing about the half-hearted international diplomacy (UN envoys are denied entry, Aung San Suu Kyi remains under house arrest, yet Myanmar officials are participating in the Asia-Europe meeting), and calls for a new effort to apply effective international pressure: 'Peace laureate's detention tests the world'. Meanwhile, recovery prospects are being sapped by the failure to provide adequate education for a whole generation: hope lies in the efforts of individuals like Dr Thein Lwin of Education Burma.

6 Oct 04:
NAV of the Apollo Asia Fund rose 6% in September, to US$458.05, slightly above the previous high. Charts.

Two interesting articles on China (both debatable, but not by me) are Andy Xie's 'The Final Frenzy', and Marshall Auerback's 'Guess who's coming to dinner?' which towards the end quotes statistics showing a startling 69% fall over six months in PRC floorspace under construction.

4 Oct 04:
More words unnecessary, picture suffices: Alan Greenspan as the Sorcerer's Apprentice, in 'Mr Bailout'. Developments at Fannie Mae must be testing his powers. Meanwhile, Bill Gross has joined the growing chorus of criticism at the US government's appallingly deceptive accounting practices (which understate inflation, and hence overstate growth and productivity) in 'Haute Con Job'. For those not already convinced, this is essential reading, and even the statistically-aware may be shocked that hedonic deflators now apply to 46% of the US consumer price index, including college textbooks.

26 Sep 04:
My comments on banks and abuse of customer trust received the following interesting reply from Campbell Millar of AMA Capital in New Zealand:

I was in the NZ Govt's Treasury during the main period of economic reform in NZ in the early 1980s. A large number of industries were state controlled/regulated and were being opened up. The standard argument against reform was that firms could not be trusted in situations where the good/service was: (a) complicated for the customer to understand, (b) relatively important to the customer, and (c) any adverse impacts for the customer may not show up for some time. The number of industries covered by these criteria was surprisingly large: banks, healthcare, education, law, investments/pensions, cars, wage bargaining, house building, electricity were some of the industries I remember where people earnestly argued could not be opened up to unregulated private firms. The Government "had" to have a strong role in ownership/regulation to protect the consumer from themselves.

It has been interesting to watch these deregulated industries over the past decade. Crisis has occurred, but often in unexpected areas. The main problem industries in NZ have been cars, education and house-building.

From my perspective if I have been asked to identify the industries being reformed where a crisis would occur, I would not have guessed cars, education and construction. I would have said banks, pensions and private hospitals. (This may just mean that these industries have not yet had their crisis - although employer pensions will not be a problem because they have all but disappeared).

The lesson I would take is that the trust issue you mentioned is at the core of a large number of industries, and is particularly difficult in newly deregulated industries where consumers and firms may not yet have learned that quality matters. But I think quality will win out. I guess the question is: in terms of your portfolio, why do you think a trust crisis is more likely in the banks rather than another industry (say private hospitals)?

My answer to the last question is that I do not, or at least not necessarily: I worry about what can go wrong in all of our holdings. (I am frequently taken by surprise when the answer is something unexpected: SARS, for example, came out of the blue.) Consensus estimates for the banks are probably too complacent on sustainability of fee income: it could still rise hugely, or go into reverse. My concern is mainly on consumer protetction, personalized by individual disasters experienced by friends at the hands of 'blue-chip' advisers. I agree with Campbell that consumers will ultimately become warier and more cynical, but financial issues can be harder to identify and to grasp than in the industries discussed. (Independent advice may be necessary to assess quality of construction, but the mandate is clear.) Moreover, some of the dangerous advice peddled by banks is given in good faith, by individual salesmen who may really believe that equities always go up in the long run, and who may not themselves understand the time bombs embedded in the small print of 'products'.

22 Sep 04:
Thirty years ago, individuals often turned to their bank manager for financial advice, assuming that it would be impartial; the bank manager was a trusted professional, along with the family doctor and solicitor. Over the years, banks have become more aggressive, driven by growth and ROE targets of the order of 20% (often set in an era of higher inflation, and often accompanied by ill- advised option schemes for the enrichment of executives). Fiduciary responsibility is rarely paramount, yet too few customers realise to what extent the relationship has changed. In this context, I note the comments of Japan's FSA, closing down four Citibank offices, on 'solicitation and sale of transactions that were not accompanied by presentation or explanation of risks', and 'numerous instances of unfair transactions... management places highest priority on making profits'.

Banks always did need to make profits, of course, but the issue is indeed the balance of interests between bank and customer, and between short-term profits and long-term relationships. This is a worldwide problem, and regulators have limited impact on corporate culture. Indeed, over-regulation is often counter- productive, as compliance with voluminous regulations may reduce the will to make independent ethical judgments. However, the public may become increasingly embittered with bankers and other financial intermediaries in the next downturn, and I fear further growth in the burden of regulation.

The fund currently has an unusually high 7% in bank shares, split between two of Asia's finest banking franchises, both very successful recently in growing fee income, which has compensated for squeezed interest margins. The trend to cross-selling is arguably in its infancy in Asia, and in both Hong Kong and South-East Asia the lending cycle still seems broadly favourable, but I have mixed feelings on the sustainability of fee income. Feedback is welcome.

9 Sep 04:
The blithe condescension with which US newspapers discuss the deficiencies of other countries suggests inadequate awareness of the creative accounting and spin deployed in US economic statistics (not just by US companies), and of the extreme unsustainability of its banana-republic finances. Two excellent articles by Walter J. "John" Williams on Prudent Bear highlight the methods and the magnitude, pointing out that the accrual-based 2003 deficit of the US government was a staggering US$3,700 billion. The 2003 Financial Report of the US Government is fascinating reading: a table showing that its net liabilities exceed US$34,825 billion is on page 12 (Acrobat p.17). This is US$120,000 per capita, well over 300% of GDP... and the auditors declined to sign off on the accounts.

2 Sep 04:
NAV of the Apollo Asia Fund rebounded slightly, to US$431.95 at end-August. Charts.

Investors concerned about the rule of law in Malaysia were cheered today when the Federal Court overturned the sodomy conviction of Anwar Ibrahim: the judge's speech is here.

13 Aug 04:
With markets turbulent, a mid-month update: NAV of the Apollo Asia Fund fell about 0.8% over the last fortnight, to approximately US$426.14 at today's Asian close.

3 Aug 04:
NAV of the Apollo Asia Fund rose 3% in July, to US$429.74, which is fractionally better than flat for the year to date. Charts.

13 Jul 04:
The 1969 annexation of West Papua by Indonesia is illuminated by newly-declassified documents: 'US sacrificed Papua to court Suharto'.

12 Jul 04:
John Hussman's column on the US market makes an interesting analogy with kinetic & potential energy: 'The physics of bounce'.

7 Jul 04:
Indonesian elections are fostering lively debate, at least, on major socio-economic issues - and a new law prescribes capital punishment for illegal logging. Meanwhile, an article on Thailand's free trade deals discusses the opacity and authoritarian high-handedness of the present government, which has been seen as effective and pro-business in the short run, but causes concern for the longer term.

6 Jul 04:
The second quarter report has been posted here.

5 Jul 04:
NAV of the Apollo Asia Fund rose 1.3% in June, to US$415.66. This represents a fall of 8.7% in the second quarter, and 3.1% for the year to date. Charts.

8 Jun 04:
I claim no Russian expertise, but enjoy reading the reports of Eric Kraus. 'Yukos cashflows: where have all the barrels gone?' goes on to ponder a possible shift in management incentives - salutary reading for investors in many markets.

7 Jun 04:
NAV of the Apollo Asia Fund recovered slightly in the second half of May but was down 4.2% for the month, closing at US$410.22; charts.

14 May 04:
The Apollo Asia Fund's NAV fell a further 9% in the first half of May, to an estimated $391.25 at today's Asian close. The current-year PE of our ordinary shares is now 9.5, and the net dividend yield is about 5.6%, so value is becoming more attractive than it has been in recent months, and we were bidding for some falling knives today. However, we have about 20% cash, and have so far not felt like deploying it all: the US still makes us very nervous.

I shall be travelling in China for the next three weeks: first to Qingdao for CLSA's conference, then Beijing, and overland from Lijiang to Lhasa. The end-month valuation may be finalised a couple of days later than usual, in the week starting 7 June.

4 May 04:
NAV of the Apollo Asia Fund fell 5.9% in April, to US$428.39; charts.

22 Apr 04:
Positive spin from Burma on the release of some prisoners should be read in conjunction with Andrew Marshall's update: 'Stone Age'.

20 Apr 04:
Another sterling watchdog service has been rendered by David Webb with his alert on loans to a group finance company by the Chinese oil giant CNOOC. Must read.

4 Apr 04:
1Q report posted here.

2 Apr 04:
NAV of the Apollo Asia Fund fell 0.4% in March, to US$455.44; charts.

10 Mar 04:
The junkmail plague has caused a number of readers to download the software we recommended a few months ago, and others to ask again for the link. This reminded me to check on the commissions which should have been flowing for WWF Malaysia. Grand total, zero - and the statistics which showed a fair number of downloads in Nov/Dec have disappeared. I queried this with the company, who say that the downloads may not have registered if the users had cookies turned off by default - which I assume most of you do - and that they would be happy to settle if I listed names, dates, card details etc - which I can't, but if any of you want to e-mail Paul Wiseman at affiliates@firetrust.com, that's fine by me. I will no longer recommend the affiliate programme, but the MailWasher software remains excellent. It is worth paying for MailWasher Pro, which has continued to improve - $29.95, but with 30 days' free trial: www.firetrust.com/products/pro. If you end up buying, please add a note telling the company that you found them through apolloinvestment.com and that they should credit WWF.

2 Mar 04:
NAV of the Apollo Asia Fund rose 4.2% in February, to US$457.14; charts.

27 Feb 04:
Jake van der Kamp has written an appropriately withering riposte in today's SCMP to the SFC's pompous and complacent columnist 'Dr Wise' ('not always its chairman Andrew Sheng') - who has advised us all to read the prospectus before subscribing to a new issue. Few investors are now allowed reasonable time to do so. Bureaucratic form (the eventual filing of voluminous verbiage) once again prevails over efficient function.

3 Feb 04:
NAV of the Apollo Asia Fund rose 2.3% in January, to US$438.91; charts.

29 Jan 04:
Nepal's recent history has been so dismal that the last time I recall any association with portfolio investment was a BZW account in the 1980s, when we could make the irresistible but flippant recommendation: "Forget bulls & bears; buy Yak & Yeti", while confident that trading volume would prevent anyone from taking us seriously. Asia Times has provided two depressing updates: 'Monarchy at a crossroads' and 'Trekkers' paradise is Nepalis' hell'.

9 Jan 04:
Two more useful overviews, from Andy Xie on 'China: dealing with growth bottlenecks' and from Richard Benson on the US$: 'Exporting inflation: the paradox of low money growth'.

7 Jan 04:
4Q report posted: 'Fun while it lasts' (but we still need new ideas, so please keep them coming).

6 Jan 04:
NAV of the Apollo Asia Fund rose 6.4% in December, to US$428.92: the cumulative gain was 28% for the quarter, and 142% for the year. Charts and brief comments.

Three useful overviews: from Jim Puplava on the US$, gold, and market psychology, from Andy Xie on the Asia-Pacific implications, and from Gary Leupp on North Korea for dummies.

Claire Barnes

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