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9 Apr 2020

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Extract from 'RISK ALERT' dated 13-Jan-2020

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HEAD in the SAND

On 13-Jan-2020, I wrote an opinion piece on the risk of adopting half-yearly corporate results reporting.

Little did I know that a Black Swan event would strike so soon and with such magnitude and intensity on a global scale.

Naturally, this would result in the weakening of corporate balance sheets; increasing risk for retail investors. The extend of which we will only know in Jul-Aug this year instead of Apr-May. 

Meanwhile, some weaker companies could face existential crisis during this period; potentially wiping out risky investments.  

So, am deeply disturbed when I learn that SGX RegCo will be suspending 'entry into Financial Watch-List', when transparency and confronting reality is most needed.

Am of the opinion that the magnitude of the fallout from COVID-19 on corporate balance sheet is yet to reveal itself. 

The Global Financial Crisis in 2008/9 was a financial crisis. This one is a Global Economic Crisis. 

A head in the sand mentality is not good corporate governance. 


Please exercise great caution.

Fasten your seat belt. 

9 Mar 2020

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Since the commencement of China's makeshift hospitals, the number of Covid-19 patients have gradually declined. On 2-Mar, the country closed the first of sixteen makeshift hospitals. At its peak, there were 13,000 beds in 16 makeshift hospitals to treat infected patients. 

Going Global

Meanwhile, the virus have gone global, infecting thousands in South Korea, Italy, Iran and close to 100 countries in all. Mortality rate currently remained stable at 3.4%. 

Like China, Covid-19 will eventually peak and decline as scientist & doctors learns to treat this illness. A warming season could also aid in the recovery process; giving us time to develop the necessary vaccines. 

Black Swan

From an economic perspective, Covid-19 is likely to reshape the global supply chain fundamentally as it exposes economic and healthcare vulnerabilities. This will probably happen gradually over many years rather than 'overnight.'

Whether the combination of trade war, Covid-19 among other risks would trigger a global recession is difficult to predict at this juncture. To an extend, it depends on governmental fiscal & monetary policies as well as the gravity of Covid-19 spread among global population. 


Global equity markets had been volatile these past weeks; selling on fear. This has opened an opportunity for value investors to accumulate quality companies for long term investment. 

At some point, the general population would realise that the probability of death from cardiovascular disease, diabetes, cancer and even accidents is substantially higher than Covid-19 at this juncture. 

In time, we will learn to live with it like H1N1, SARS and common flu that claim the lives of thousands yearly. 

Rather than living in fear; the best thing to do for oneself is to eat healthy, practice good hygiene and live life. Time passed, will not return.


28 Jan 2020

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Source: The Straits Times, Channel News Asia and CNN. 

The recent 2019-nCoV epidemic have caused much fear and panic among societies. Headlines have been reporting sharp increase in the number of confirmed cases in China and around the world daily; giving the impression that the virus is still spreading like wildfire.

While a single death is always one too many; it is wise to take a step back and view our current predicament in perspective. 


Infected Cases - Test & Count

The daily increase in number reflects the number of patients tested positive for 2019-nCoV. Not the rate of increase in the spread of virus. The substantial jump in positive count in part is due to increased staff sent to Hubei. Initially 450 medical staff then increased to almost 6,500 in a matter of days. 

So, more staff, more equipments, more people tested; hence more cases confirmed daily.

Infected population and rate of increase is unknown. 


Death in part was likely due to a substantial surge in patient load. Imagine our local A&E patient load increasing by 100 times. Many urgent cases would be left untreated for a period. 

Chart: Notice how death rate fell as the number of medical staff increases. 


Daily sharp increase in infected cases to an extend is due to the expanded capacity to test suspected patients. 

Lockdown and Quarantine

Lockdown, quarantine at home, increased hospital beds will gradually contain the spread of virus.

What we can do

Practice good hygiene: wash hands regularly, eat healthy and sleep well. If ill, wear mask and see a doctor. 

Support our over-stretched healthcare workers in spirit and whichever way we can. 


For Retail Investors in SGX Equities

13 Jan 2020

On 9-Jan-2020, SGX RegCo announced the scrapping of quarterly reporting for firms except for riskier companies. These risky companies includes those whose auditor have raised alarm. Remaining companies only need report their financial half-yearly. This new ruling takes effect from 7-Feb-2020. 

The announcement did not explain in detail its rationale for this change other than ... 

  • ' ... to enhance its regulatory regime by taking a more targeted approach.' and 

  • to 'brings us in line with other global markets, including Hong Kong, Australia, the U.K. and other E.U. countries. 

Some explanation through news feed were:

  • " ... to be more targeted, even surgical so as to ensure compliant companies aren't overburdened while non-compliant companies receive more attention." (The Straits Times, 10-Jan-2020)

  • 'Experts, ... They believe the move announced yesterday by the regulatory arm of the Singapore Exchange (SGX) will not adversely affect transparency but will relieve firms of significant cost burdens. (The Straits Times, 10-Jan-2020)

There were many other amendments in light of the new ruling:

  • Interested-person transactions

  • Significant acquisitions

  • Financial assistance to third parties

  • Rights issue and

  • Changes in earning prospects. 


From a retail investor perspective, I view these changes as a step backward in building a regulatory environment that nutures highly competitive and potentially global companies. 

"More targeted approach"

While SGX is responsible for listing good and healthy companies into the exchange and SGX RegCo is taking a proactive approach in targeting riskier companies; it is investors that eventually bore the risk of a company performance. Hence the final decision regarding risk should rest with investors. Taking away quarterly reporting increases investment risk in particular the ability to react timely to changes in the risk profile of a company, especially small & medium enterprise. 

"In line with global markets"

Referencing exchange practices in Hong Kong, Australia, U.K. and other E.U. countries for decision; and excluding dominant exchanges in U.S. and I think Japan as well, borders on confirmation bias. The latter exchanges house global companies, many of which have changed the way we live. Following 'other global markets' do not reflect independence of thought & innovative thinking in defining a unique value proposition for SGX. 

"Companies are overburdened"

Timely reporting is one of the most critical management & investor tool. It allows executive and investors to take early actions to explore opportunities or manage risk. If a company view quarterly reporting burdensome, it is a red flag in itself.

While reporting would take up much time 20 years ago; the proliferation of software & computing power have dramatically shorten time-to-report and at a much lower cost.

Global companies in U.S. could report quarter results within 30-days. Most of our simple structured corporations requires 45 to 60 days to report unaudited results.

In today's highly competitive environment it is liken to investors having to read history every 4-1/2 months and now 7-1/2 months after the fact  (companies given 45-60 days to report results).

It also increases the risk of insiders exploiting this longer reporting duration to their advantage, rules aside. 

"Relieve firms of significant cost burden"

When a company decides to list in the local stock market, it was already a known fact that quarterly reporting & reporting cost is a given. That it is a significant cost burden years after raising public funds is simply absurd. 


Depending on SGX RegCo to target riskier companies is not a viable option. History of corporate failure have shown that:

  1. By the time annual audit flag a going concern or material uncertainly, it is usually long after the fact. 

  2. A black swan event like in 2008, could render many healthy businesses becoming a going concern within months. 
  3. The investor community is much more apt at sounding out risky companies e.g. short-sellers, fundamental analysts or investor communities. 


SGX RegCo role is in regulation and ensuring transparency. Not to decide for investors which company is riskier relative to others. 

This new ruling should have little impact on large insurance funds, mutual funds, sovereign wealth fund or private equity which typically invest in established companies for very long term. 

However, retail investors will have to be mindful of the added risk, primarily because the community typically invest or trade in micro, small and medium size companies where a company's balance sheet can weaken dramatically over a short period; unlike larger companies that require a longer period for creative destruction to run its course. 

We now have to be more vigilant, work a little harder, and  perhaps look a little further to invest our hard earned savings. 

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