Vietnam’s stock market

While people in the US are debating how high inflation really is, Vietnam’s inflation is >20% compared with last year in both April and May.  To combat high inflation rate, interest rate in Vietnam is now ~14%, and while the real estate frenzy in Vietnam maybe cooling down, the stock market has essentially crashed.  Basically, the stock market tripled its value from 2006 to late 2007, but then lost 60% of the value from late 2007 till now in about half a year.  The market Domestic investors are now disgusted and totally given up with the stock market, and it’s mainly foreign institutions that are buying up shares now.

The situation may seem dire in Vietnam, and there are in fact many risks involving its banking systems, sovereign debt repayment, currency fluctuations, etc., but I believe this is mainly the growing pain of a developing country forging forward towards capitalistic economy.  Hot money has flowed too quickly into the country, and domestic investors are new and inexperienced in the capitalistic market,  and caught up in the frenzy.  Nonetheless, Vietnam’s companies are still growing  30-50% annually, and Vietnam is attracting manufacturers from all over Asia to open shops there.  Also, as China’s labor costs keeps rising, many manufacturers are migrating from China to Vietnam, since Vietnam’s cost is still very cheap in comparison.   Vietnam also has a very young population in comparison with its neighboring countries, and Vietnamese is a hard working crowd.

As domestic investors flee the Vietnam stock market, I believe this is an excellent chance for foreign investors to step in and buy this dip.  Nonetheless, it’s not easy for foreign investors to buy Vietnam’s shares, and there’s not a lot of investment vehicles to easily invest in Vietnam (e.g. there’s no single focus mutual fund or ETF on Vietnam).

To read more on news in Vietnam, the following link is a good start:

http://english.vietnamnet.vn/news/

Sony’s conundrum

Since the last post about Sony, Sony’s stock had a swing between $40/share to $50, basically going from ~$43/share to $50/share and dropped to $40/share and now back to $50/share today.

As mentioned, the reason I believe in Sony is because Blu-Ray had become the de facto standard of HD storage media. With this, I believe Sony will continue to see improvement on its Playstation unit, and the future benefits will be huge. However, one should realize that Sony is more than just Playstation, and there are many factors affecting Sony’s results:

• Sony/Ericsson cell phone unit – it’s not doing well lately, and will likely see further squeeze from RIM/iPhone, etc.
• TVs – It can be losing ground to lower price competitors, but Sony seems to be addressing this.
• Computers – no major short-term or long-term challenge in this area other than Apple, but this is nothing new.
• Sony’s Media – its picture and music unit seems to be doing ok.
• Others – Sony has many other businesses such as Sony Financial Holdings (an insurance company). In today’s environment, one never knows how a financial company will do.
• Exchange rate – Sony’s recent plunge to $40/share coincides with Yen’s appreciation over USD. USD can certainly plunge again, although lately it has firmed up a bit.

Therefore, beware of the various factors when one considers Sony as an investment.

Blood on the streets – EDA sector IV

A lot of financial news happened in the EDA industry since the last post.  PDF Solutions have reported worse than expected results, and the stock fell from $5.6/share to $4.3/share on April 15.  Volume spiked, analysts downgraded, and hopes were dashed.  Cadence posted on April 23 Q1 loss instead of profits, but its stock was not affected much.  Magma dropped a bomb on itself on May 1, offering grim fiscal Q1 guidance, and its stock promptly dropped ~30% from ~$9.5/share to ~$7/share.  Therefore, Magma has unwillingly joined the ‘cut-in-half’ EDA crowd.

While PDFS had dropped a lot after their earnings announcement, its stock has since climbed steadily back, and is currently at $5.22/share.  CDNS is now at $11.12/share, and MENT is at $10.14/share.

Of Cadence, Mentor, PDF Solutions, and Magma, I have participated in the equity play in Cadence, PDF, and Mentor, although I am already out of Mentor since the put I wrote never got exercised.  The reason I invested in CDNS and PDFS are as follow:

Of Cadence, I am basically assuming CDNS is experiencing its normal business cycle of over-aggressive accounting to under-delivering, its normal swing between $20+/share to ~$10/share.  I believe that CDNS will still stay in business for a long time, and will continue its all-you-can-eat model, and once in a while will gobble up smaller EDA companies.  Of PDF Solutions, I think it will experience difficult business environment since almost their customer base is shrinking, but has intrinsic value worthwhile to speculate that it has the potential to pop on better business environment, or possible acquisition.

Also, as crazy as it may sound, if one is to speculate on EDA stock price cycle, now is a good time since you can now ‘diversify’ on multiple ‘cut-in-half’ EDA stocks, instead of having concentrated risk on just one, which can always turn out to have specific product/business/execution problems and end up sinking the specific company.  This way, it’s more a strategy to speculate on an industry rather than a single company.

Of the other two ‘cut-in-half’ companies, Mentor and Magma, I am actually hearing good things on Mentor about its Sierra Design unit.  I will actually consider buying Mentor, or write more puts for the stock.  For Magma, it has fallen to a point attractive enough for an acquisition, just for the big guys to take out a competitor and be able to firm up pricing a bit.  However, as many in the industry can tell you, Magma will be hard to swallow due to management mentality, and it can either be a difficult acquisition, or a much higher premium has to be paid, making acquisition not as likely at this point.  Nonetheless, I have considered writing puts on the stock, but the volume is just too low on the options, with the bid/ask price too high.  In any case, I will monitor the stock and may pull the trigger at some point of time.

* Appendix – diversification

When upper management sells their own company’s stock, they always use ‘diversification’ to justify it.  If that’s really true, people should sell at both good and bad times, and timing of their own stocks should not matter at all.  However, consider the following, and observe the timing:

• Mentor insiders ‘diversify’ until Aug 07, ~$14/share.
• PDF Solutions insiders ‘diversify’ until Feb 08, ~$8/share.
• Magma insiders ‘diversify’ until Feb 08, ~$10/share.
• Cadence insiders are true to the diversification strategy, still ‘diversifing’ in Feb 08 after its stocks plunged.  And for this, I am considering writing options on CDNS.