During a period when we have terms such as "Trade WAR", "Trade Friction", "Trade Skirmish", "Trade Scuttle" - it just means that we are living in a world where we cannot do without TRADE. With trade, it also means more people, goods, food are transported. With trade means more roads, bigger ports, more flights, more containers, oil are traded. Think about it. In the context of business, transportation and trade, in several aspects there are big winners - Alibaba, Amazon, Airasia, Maersk, Hutchison, Keppel Port, Grab - but trade also create ecosystems where the middle size players, small players are able to survive and some consequently thrive.
Some of things that the US government is pushing for example, i.e. more electronics being manufactured in US will not happen in a big way. Today, China, perhaps is contributing 80% to 90% of the world's electronics manufacturing. That percentage will not grow anymore as China has over the last few years been rethinking its economy model from largely producing to more consumption based - but it will take time but eventually they will succeed. While the percentage will not grow, the total will continue to grow - for the next decade at least.
So what does it means? Some other countries such as Vietnam, Malaysia, Indonesia, even India will slowly take over the small role of producing for the world. (With that, Malaysia for example will even experience bigger trade volume.) Unfortunately, Malaysia has stagnated to some extent, and we are still being considered as an alternative place for large medium and large manufacturers. With that though, Malaysia will ever need bigger ports, more and bigger roads, IT systems, logistics companies.
Today, it is inconceivable that US will be growing its manufacturing base in a big way, as its economic base has passed that. It will not be manufacturing textiles, furniture, phones, shoes in a large way but what will happen is that high end products such as planes, machines, may still be from there.
Many commentaries I find have also said that the so-called Trade War seems more like a "Technology War". It is not surprising considering the attention given to one of China's more respected company, Huawei - as the world is moving towards usage of technology and electronics.
Looking back into Malaysia. What will the Trade War bring to us? Malaysia still has a strong manufacturing base. We do have talent, infrastructure for that - although it is never enough, no country has enough. Both US, China and some of the large companies that are in between i.e. from Germany, UK, Japan - will always look for alternatives. It has been proven that Vietnam has been the main beneficiary. Malaysia, is another alternative. Hence, while the world will trade a little less, Malaysia may not be that affected when comes to physical goods trade as goods may be manufactured and traded off from here. The hike in oil price will be curtailed as demand may soften. But out logistics companies, transportation related companies, toll roads especially such as PLUS will not be that affected. In fact, these sectors' fundamentals will improve.
I have hoped that our government sees through this. We need more technology companies, talents. MESTECC has to look at how to encourage more creation of tech companies rather than focusing on plastics (i.e. what harms it brings), solar, LYNAS. MITI has to look at making Malaysian companies ready for this change. Which is, more Malaysian companies taking opportunities rather than solely dependent on foreign investments. From this part, I still do not see the light.
However, with the last 7 months uncertainties - I think there will still be uncertainties riding through 2019 - coming from Malaysia and the world. Like someone whom I know said, she is still uncertain over what will happen to toll businesses as it seems the government is allocating RM1 billion to pay the concessionaires next year while in the past they claimed that it could have easily been solved through buying out of these concessions. (If you read my previous articles, one will understand that it is not that easy - as these businesses, financing have already been intertwined - if one is taken away, the other will collapse - just like playing Jenga and in a situation where there are only very few pieces to hold one another. Many whom are hoping for toll elimination or even simple reduction just do not see the complexities although it has been made into simplified context during the election period.)
The massive drop in the market has also created opportunities - one has to continue to look for well-run, good companies and hopefully those that are less dependent on government and their "flippings and floppings". (In a way, I can understand as they are still in learning mode - many newbies, although it is hopeful that the learning can be much faster.)
I have hence decided to buy 7000 units of Freight Management. Why? Because it is a company that has dropped in its price but not value, lesser affected by some drastic change in where the world has moved into in terms of e-commerce and trade and less affected by government's action.
For Freight, if we understand what caused its stagnation in the past 3 years and looking at its growth trend for the longer term i.e. revenue (micro), macro economy situation, I think it is cheap as it is currently at 5.5x PE and having about 6% dividend yield.
With that Happy New Year to all readers!
http://www.intellecpoint.com/2018/12/trade-is-theme.html
