Who offers best deal?

Geither’s ‘plan’ to fix the banking system seems to be little different than the failed plans of late-2008. The clarity was beyond one of confidence that insolvency is an increasingly reasonable presumption to make about the banks. The market already gave a heavy thumb down to the Geither’s plan. Media reports of the four program sizes suggest the new plan will be financed using the remaining TARP funds. Deservedly so and perhaps it is time to stop fidgeting with confidence gadgets and get down to some old-fashioned work, otherwise, it will end up as a cold toast, indeed. The books need to be opened, prices – some necessarily obtained – need to be matched with assets. Some banks would survive, some will need to be sold, perhaps to the US taxpayers, at least temporarily.

Quintupling the size of the program to 1 trillion from the initial $200 billion suggests that this program will work ultimately, but it takes time and the market seems to be hoping for more clarity than was provided thus far.

On the hand, Singapore Exchange (SGX) has unveiled 28 securities for the first batch of extended settlement (ES) contracts that begin trading on February 20. Most of the securities are component stocks of the Strait Times Index.

An ES contract is a margin-based product that allows investors to buy into an underlying stock at the transacted price on the day of the trade without paying the full amount upfront. Investors could buy a stock at a margin that ranges between 5-20% of the cost and they have up to 38 days to settle the deal, which is 35 days longer than for normal securities investments. Of course, the risk is that if its 5x leverage, or 20% down, it could be a possibility that the shares might not be picked up as losses are more than 20% deposit prior to T+38 and this will cause a slanted risk being borne by the broking houses and remisiers.

At the same time, I am seeing greater potential in China, even though it is still very much saddled with bad economic numbers. I think still China is still the place to invest your money. Lenovo announced that it was so pessimistic about the US market that it was going to concentrate its effort on Asia and especially in China, where it already gets 45% of its sales. FedEx is closing down its Asia hub in the Subic Bay, Philippines, and moving it to Guangzhou, one of the southern China’s most important manufacturing centres. According to a FedEx spoke-person – the market in China is bigger than the entire market of Southeast Asia. Meanwhile, Yum Brands, which operates KFC and Pizza Hut, opened 500 new restaurants in China last year.

My view – this succinctly tell you why China should be the most important part of any Asian investment strategy. I am expecting Chinese stocks to see a major bottom in the next couple of months that this will be one of the greatest buying opportunities you will see for years.