The Essential of Stock Screening: Government Linked Companies

The series would focus more on how you could strategically pick or screen stocks based on the previous posting of The Importance of Stock Screening. It may include fundamental and technical elements as well as three main investment style; value, growth and balanced. 

Briefly, Government Linked Companies or GLC will be my first topic under stock screening series. In certain countries, GLC is equivalent to Government Owned Corporation or GOC or State-owned Enterpise (SOE) or Government Sponsored Enterprise (GSE). In the United Kingdom for instance, after a massive privatization initiative during Margaret Thatcher administration, you would notice the nature of British Broadcasting Corporation (BBC), London Underground Limited, Network Rail, Northern Rock, Lloyds Banking Group and The Royal Bank of Scotland.

Similarly, across Europe, you would find French's SNCF, Nexter, France Telecom and Air-France KLM, Netherland's ABN Amro and Belgium's Belgacom.  

In my opinion, GLC play is quite straightforward and to certain extent quite conservatively save. Why? Because we have witnessed so many GLC or government agencies were bailed out for the sake of saving the imperfection in the financial system including the United States' Fannie Mae and Freddie Mac. 

Having said that, at glance, you would notice that most GLC are operating under a natural monopoly condition. Meaning, the sector that they are in essentially controlled by the central government. Typically, you would find sector like telecommunication, power, petroleum, railways, airports, utilities, health care, postal service and last but not least banks. These sectors are critical sector that may provide growth (telecommunication, petroleum and postal service), value (banks) and balanced (utilities, health care, airports and railways) in your portfolio. 

I found that India, Indonesia and the United States have more GLC equivalent companies across country's key sectors. In India, through its Public Sector Undertaking (PSU), you would find State Bank of India, Bharat Petroleum, Coal India Limited, Hindustan Cables and Air India. Similarly in Indonesia and the United States, the GLC and GSE play important roles in the economy. 

Don't you think it would be safer to invest in them? Would India, Indonesia or the United States be bankrupt? 

The currency may be devalued and the economy may experience depression but they could not afford to see the system collapsed. Bail out will save the day. Period. 

In case of Malaysia, I prefer to go with the GLC like Axiata, +CIMB Malaysia , +Maybank , Petronas sub-companies, +SIME DARBY and +Tenaga Nasional Berhad because of the same reasons. Just have a look will ya?