Source: The Star Online
NEW YORK: Stocks added to an already impressive run Thursday as another round of earnings reports gave investors new reasons to be optimistic about the U.S. economy.
The Dow Jones industrial average rose its highest level in nearly nine months with a gain of 84 points and the Nasdaq composite index traded above 2,000 for the first time since October.
The latest reports struck on a theme that has played out for weeks: Times are tough but companies aren't doing as badly as had been feared. Many have chopped costs to produce profits well beyond the market's modest expectations.
Motorola Inc. said it used deep cost cuts to wring a profit from its latest quarter.
Analysts had expected a loss.
Goodyear Tire & Rubber's shortfall was half what had been expected and Dow Chemical Co.'s CEO said he believes the U.S. economy "has found bottom."
A surprise drop in the number of people continuing to seek unemployment benefits gave investors even more reason to put money into stocks.
With one day to go, the Dow is up 8.4 percent this month, its strongest July since 1989, when it gained 9 percent.
A much-anticipated report on the overall output of the economy is sure to drive the market's direction on Friday.
Stocks are up 13 percent since July 13 when investors bet correctly that Goldman Sachs Group Inc. would report enormous earnings.
Since then, other profit reports have brought hope that the longest recession since World War II might end this year.
AT&T Inc., chip maker Intel Corp. and heavy equipment maker Caterpillar Inc. all posted results that outran expectations.
Three out of four companies in the S&P 500 index that reported second-quarter results so far have topped analysts' expectations, according to Thomson Reuters. About 300 of the 500 companies have reported.
Analysts said the end of the month is pressuring money managers and traders to show they have kept up with July's steep rally. Often, the summer months are quieter than the rest of the year on Wall Street as traders take vacations.
Some of the buying is likely tied to short-covering, where investors have to buy stock after having earlier sold borrowed shares in a bet they would fall.
"People kind of got caught a little flat-footed here. The summer is supposed to be slow," said Jon Merriman, chief executive of Merriman Curhan Ford in San Francisco.
The Dow rose 83.74, or 0.9 percent, to 9,154.46 after being up as much as 176 points.
The Standard & Poor's 500 index rose 11.60, or 1.2 percent, to 986.75.
It rose to nearly 997 during the day.
It hasn't traded above 1,000 since November.
It was the highest close for the Dow and the S&P 500 index since Nov. 4.
The Nasdaq advanced 16.54, or 0.9 percent, to 1,984.30. It rose to nearly 2,010 in morning trading, its first move above 2,000 since Oct. 3.
The index is up 56 percent from its low of 1,269 in March.
It was the highest finish for the index since Oct. 1.
The Russell 2000 index of smaller companies rose 9.42, or 1.7 percent, to 557.80.
About for stocks rose for every one that fell on the New York Stock Exchange.
Volume came to 1.4 billion shares compared with 1.3 billion Wednesday.
Stocks made little progress in the four days prior to Thursday but some break in the buying had been expected after the steep gains.
Investors rewarded the latest companies to beat expectations. Motorola rose 62 cents, or 9.4 percent, to $7.19.
Goodyear rose $1.97, or 14.2 percent, to $15.86. Dow Chemical rose $1.26, or 6.2 percent, to $21.53.
General Electric Co. led the Dow Jones industrial average higher after a Goldman Sachs analyst raised his rating on the stock and predicted the industrial conglomerate won't have to split off its lending arm under financial industry reform proposals circulating in Congress.
The stock rose 85 cents, or 6.9 percent, to $13.11.
Bond prices were mixed after a successful auction of $28 billion of seven-year notes.
Weak demand at auctions earlier in the week raised concerns that the government might have to offer higher returns on bonds to lure in investors, which would have the negative effect of raising borrowing costs on loans such as mortgages.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.62 percent from 3.67 percent late Wednesday.
Light, sweet crude rose $3.57 to settle at $66.92 a barrel on the New York Mercantile Exchange after tumbling 6 percent Wednesday on fears economic growth in China would slow and curb demand for resources. - AP
Friday, July 31, 2009
Amanah Saham 1Malaysia open for subscription from Aug 5
Source: The Star Online
KUALA LUMPUR: Permodalan Nasional Bhd (PNB) will offer for subscription the RM10 billion Amanah Saham 1Malaysia, from August 5 at a fixed price of RM1 per unit.
This would be the largest fund offering to date by PNB.
Prime Minister Datuk Seri Najib Razak said at the launch of the fund Friday that the fresh injection of liquidity would boost the equities market as well as other investment instruments
KUALA LUMPUR: Permodalan Nasional Bhd (PNB) will offer for subscription the RM10 billion Amanah Saham 1Malaysia, from August 5 at a fixed price of RM1 per unit.
This would be the largest fund offering to date by PNB.
Prime Minister Datuk Seri Najib Razak said at the launch of the fund Friday that the fresh injection of liquidity would boost the equities market as well as other investment instruments
Thursday, July 30, 2009
Share Prices End On Mixed Note
Source: Bernama.Com
KUALA LUMPUR, July 30 (Bernama) -- Share prices on Bursa Malaysia were mixed at close as investors shifted interest from bluechips to the lower liners, dealers said.The bluechips were weaker due to follow through profit taking from yesterday while the lower liners saw some buying interest."I think the CI now is under technical correction and it could hit a bottom of 1,134 before we see a rebound," said SJ Securities's technical analyst Phua Kwee Hock.He said investors will also be looking at US economic data namely the unemployment data and the second quarter gross domestic product growth, which is due for release later Thursday.
"Overall, the market expects the US data to be neutral but we never know," he said, adding that the market was anticipating a contraction in the US GDP but not more than 1.5 percent.
The FTSE Bursa Malaysia Kuala Lumpur Composite Index closed lower by 3.82 points lower today at 1,160.66, after opening 0.73 point lower at 1,163.75.The Finance Index went up 1.899 points to 9,477.6, the Plantation Index fell 24.85 points to 5,598.83 while the Industrial Index eased 25.03 points at 2,537.0.The FBMEmas Index dropped 7.71 points to 7,836.66, the FBM Top 100 decreased 14.08 points to 7,621.58, the FBMMesdaq Index jumped 34.71 points to 4,144.87 and the FBM2BRD Index rose 63.33 points to 5,234.29.Advancers beat decliners by 353 to 240 while 254 counters were unchanged, 385 untraded and 32 others suspended.Leading the actives, KNM Group inched up one sen to 87.5 sen while SAAG Consolidated and Tebrau Teguh added half a sen each to 28.5 sen and 83.0 sen respectively.Newly-listed oil and gas crane services provider and manufacturer, Handal Resources surged 44 sen to RM1.16 at close after making a debut on the second board with a 18-sen premium at 90 sen today.Among heavyweights, Sime Darby slipped 10 sen to RM8.00, Maybank eased five sen to RM6.50, Bumiputra-Commerce rose 10 sen to RM10.30 and Tenaga increased five sen to RM8.15.
The Main Board volume decreased to 615.100 million shares worth RM1.396 billion compared with 1.131 billion shares valued at RM1.913 billion on Wednesday.Turnover on the Second Board increased to 84.188 million shares worth RM62.509 million versus 79.820 million shares worth RM30.525 million previously.The Mesdaq volume however rose to 53.314 million shares worth RM9.964 million from 38.150 million shares valued at RM5.899 million.Warrants went down to 30.089 milion units worth RM4.659 million from 47.188 million units worth RM9.545 million previously.On a sectoral basis, consumer products accounted for 27.581 million shares traded on the Main Board, industrial products 127.243 million, construction 47.422 million, trade/services 203.009 million, technology 14.418 million, infrastructure 22.561 million, finance 57.353 million, hotels 1.026 million, properties 81.365 million, plantations 28.658 million, mining 406,000, REITs 4.002 million and closed/fund 52,100.
KUALA LUMPUR, July 30 (Bernama) -- Share prices on Bursa Malaysia were mixed at close as investors shifted interest from bluechips to the lower liners, dealers said.The bluechips were weaker due to follow through profit taking from yesterday while the lower liners saw some buying interest."I think the CI now is under technical correction and it could hit a bottom of 1,134 before we see a rebound," said SJ Securities's technical analyst Phua Kwee Hock.He said investors will also be looking at US economic data namely the unemployment data and the second quarter gross domestic product growth, which is due for release later Thursday.
"Overall, the market expects the US data to be neutral but we never know," he said, adding that the market was anticipating a contraction in the US GDP but not more than 1.5 percent.
The FTSE Bursa Malaysia Kuala Lumpur Composite Index closed lower by 3.82 points lower today at 1,160.66, after opening 0.73 point lower at 1,163.75.The Finance Index went up 1.899 points to 9,477.6, the Plantation Index fell 24.85 points to 5,598.83 while the Industrial Index eased 25.03 points at 2,537.0.The FBMEmas Index dropped 7.71 points to 7,836.66, the FBM Top 100 decreased 14.08 points to 7,621.58, the FBMMesdaq Index jumped 34.71 points to 4,144.87 and the FBM2BRD Index rose 63.33 points to 5,234.29.Advancers beat decliners by 353 to 240 while 254 counters were unchanged, 385 untraded and 32 others suspended.Leading the actives, KNM Group inched up one sen to 87.5 sen while SAAG Consolidated and Tebrau Teguh added half a sen each to 28.5 sen and 83.0 sen respectively.Newly-listed oil and gas crane services provider and manufacturer, Handal Resources surged 44 sen to RM1.16 at close after making a debut on the second board with a 18-sen premium at 90 sen today.Among heavyweights, Sime Darby slipped 10 sen to RM8.00, Maybank eased five sen to RM6.50, Bumiputra-Commerce rose 10 sen to RM10.30 and Tenaga increased five sen to RM8.15.
The Main Board volume decreased to 615.100 million shares worth RM1.396 billion compared with 1.131 billion shares valued at RM1.913 billion on Wednesday.Turnover on the Second Board increased to 84.188 million shares worth RM62.509 million versus 79.820 million shares worth RM30.525 million previously.The Mesdaq volume however rose to 53.314 million shares worth RM9.964 million from 38.150 million shares valued at RM5.899 million.Warrants went down to 30.089 milion units worth RM4.659 million from 47.188 million units worth RM9.545 million previously.On a sectoral basis, consumer products accounted for 27.581 million shares traded on the Main Board, industrial products 127.243 million, construction 47.422 million, trade/services 203.009 million, technology 14.418 million, infrastructure 22.561 million, finance 57.353 million, hotels 1.026 million, properties 81.365 million, plantations 28.658 million, mining 406,000, REITs 4.002 million and closed/fund 52,100.
Unit trust industry expected to grow 25% to 30%
Source: DALJIT DHESI (THE STAR ONLINE)
PETALING JAYA: The net asset value (NAV) of the unit trust industry is expected to chart 25% to 30% growth this year underpinned by growing investor confidence from improving global capital markets, according to Federation of Investment Managers Malaysia (FIMM) president Tunku Ya’acob Tunku Abdullah.
He said the 25% to 30% improvement in NAV for the year was a reasonable expectation, given the country’s strong economic fundamentals.
As at end-June, the NAV of the industry was RM164bil, an increase of about 22% against RM134bil at end-2008. NAV refers to the value of the underlying assets held by a fund, minus liabilities.
Tunku Ya’acob said the recent stabilisation and gradual improvement in the world capital markets would bring about better investor sentiment.
Once confidence was restored, investors would be more comfortable taking on higher risk levels, he added. He said to date, there had been no major redemptions or panic selling of unit trust funds by investors in Malaysia compared with other markets worldwide.
“According to Bank Negara’s statistics as at April, there was more than RM300bil in savings and fixed deposit accounts. In view of the current low interest rate environment, some of these funds will eventually find their way into unit trust funds which offer better growth potential,” he said in an email reply.
MAAKL Mutual Bhd CEO Wong Boon Choy said the company expected to see continued improvement in investor confidence in the second half of this year.
The Government’s stimulus packages and their related multiplier effects would help cushion the impact of the sharp external downturn and set the stage for economic recovery in the second half year, he added.
Public Mutual Bhd CEO Yeoh Kim Hong said with risk aversion receding, investors were now selectively repositioning their portfolios to participate in the market uptrend.
This had helped the industry pick up in terms of NAV and sales of equity funds, she said, adding that the company expected the industry to remain resilient in the second half year.
However, HwangDBS Investment Management Bhd head of equities Gan Eng Peng felt that the investment appetite of investors had been affected in the last few months as only a small number was focused on making money, opting instead to preserve wealth and “bullet proof” their finances and businesses.
On fund performance, Tunku Ya’acob said judging from the six-month data, local conventional and Islamic equity funds had been doing relatively well.
“Over the six-month period, the conventional or non-Islamic equity fund sector gave an average return of about 17%. Over the same period, the local Islamic equity fund sector recorded an average return of about 16%,” he noted.
Yeoh said on a year-to-date basis, funds invested in regional markets had outperformed those invested solely in the local market as regional markets had broadly outperformed the domestic market.
Selected sector funds such as real estate funds had outperformed other funds as the regional property markets had stabilised, she added.
Gan said the new stock exchange barometer, the FTSE Bursa Malaysia KL Composite Index (FBM KLCI), was expected to further lift the industry in terms of institutional investor participation.
Institutional investors would not confine their investment portfolio to the 30 counters but also tap the larger opportunities available in the market, he said, referring to the 30 index-linked stocks that make up the FBM KLCI.
According to Wong, the soon-to-be-launched online electronic system, known as E-Pilihan Pelaburan Ahli (E-PPA) for the withdrawal of EPF savings for members to invest in unit trusts, will also help improve the industry’s growth.
The new system is expected to cut the current withdrawal process time from one to two weeks currently to three to five days.
Tunku Ya’acob said investor education was essential to push the industry to a higher level as it was vital for investors to understand the merits of investing early and for the long term.
To better communicate the risk profile of each fund to investors, FIMM has introduced the Fund Volatility Factor (FVF) disclosure for unit trust funds of at least three years.
The FVF is a measure of the rise and fall of a fund’s returns over a period of time relative to its average returns.
Citibank to expand branches
Source: The Star Online
KUALA LUMPUR: Citibank Bhd, the locally incorporated subsidiary of Citigroup Inc, will set up another four branches in the country early next year from the current seven.
Citigroup chief executive officer Vikram Pandit, on a tour of the US-based financial services group’s Asian operations, told reporters Thursday this was part of the strategy to expand the footprint here.
Pandit, according to Bloomberg, was visiting employees in Malaysia, Singapore and Hong Kong to boost confidence following the departure of the group’s regional head Ajay Banga.
Citigroup made a US$28 billion loss last year as a result of the financial crisis.
Meanwhile, Citibank chief executive officer Sanjeev Nanavati said the bank would submit an official application soon to set up an Islamic subsidiary.
KUALA LUMPUR: Citibank Bhd, the locally incorporated subsidiary of Citigroup Inc, will set up another four branches in the country early next year from the current seven.
Citigroup chief executive officer Vikram Pandit, on a tour of the US-based financial services group’s Asian operations, told reporters Thursday this was part of the strategy to expand the footprint here.
Pandit, according to Bloomberg, was visiting employees in Malaysia, Singapore and Hong Kong to boost confidence following the departure of the group’s regional head Ajay Banga.
Citigroup made a US$28 billion loss last year as a result of the financial crisis.
Meanwhile, Citibank chief executive officer Sanjeev Nanavati said the bank would submit an official application soon to set up an Islamic subsidiary.
Wednesday, July 29, 2009
DiGi named most innovative firm
Source: The Star Online
SHAH ALAM: DiGi Telecommunications Sdn Bhd has been named Malaysia’s most admired company for innovation by Wall Street Journal Asia for the third year running .
In a statement, the company said the Asia 200 Most Admired Companies survey also graded DiGi number three in the overall ranking of Malaysia’s Top 10 companies, up a notch from last year
DiGi was listed third for the Long-term Vision category and fifth for Quality.
The survey covered Asian companies that traded on stock exchanges as well as multinational companies that did extensive business in the region.
DiGi chief executive officer Johan Dennelind said the company was passionate about exceeding its customers’ expectations.
“For us, innovation is about bringing meaningful differences to our customers by making our mobile and internet services relevant, easy and affordable,” he said.
He said the company was thrilled with this recognition and would continue to push the boundaries in ensuring excellent customer experience
Government approves more lottery games
Source: Rachael Kam (The Star Online)
Move will curb rise in illegal gaming operators
PETALING JAYA: All three number forecast operators (NFOs) in the country will benefit in the longer term as the government tries to curb a rise in illegal gaming by increasing the number of legal lottery games, although Berjaya Sports Toto Bhd (BToto) may face some initial pressure from new games awarded to its rivals, analysts said.
Multi-Purpose Holdings Bhd’s 51% subsidiary, Magnum Corp Sdn Bhd, has received approval for a new 4-digit (4D) game which will incorporate a jackpot element, slated to be launched at end-2009, Multi-Purpose told Bursa last Friday.
The move will certainly reduce the market share of illegal operators, and hence benefit all the NFOs in the long run, said OSK Research.
The illegal numbers market is estimated at 1-to-1.5 times that of the legal NFO market, which was valued at about RM8bil as at end-2008, according to OSK Research.
“Given that Magnum has the single largest market share in the 4D game and that the game is known to be the most popular in the illegal NFO market, we expect this move to give a significant boost to Magnum’s revenue growth,” the brokerage told clients in a research note.
The research house said the government had always resisted the move to increase gaming taxes as it would only give leeway for illegal operators to gain market share at the expense of the legal operators.
“The latest move to offer a jackpot element in the 4D game is a signal that the government remains serious in reducing the leakages to illegal operators,” OSK said, noting that illegal operators were unable to offer jackpots where the roll-over sum was typically too high for an illegal operator to match.
Gaming and corporate taxes are estimated to amount to more than RM1.5bil per annum.
OSK said although the approval of the new 4D game for Magnum might result in BToto facing a marginal slip in its market share, especially for its 4D games, it was unlikely to cause a drastic drop in BToto’s revenue growth.
“BToto’s non-4D games have a significantly higher matrix and hence the tendency for a higher jackpot roll-over element, which is the main contributor of the group’s super-normal growth rates,” the brokerage noted.
Currently, BToto’s 4D games contribute about 70% to 75% of its total NFO revenue.
OSK reckons that Tanjong Plc, which runs its gaming operations via Pan Malaysian Pools Sdn Bhd, may get a share of the action.
“We believe that the government may also offer a jackpot element in Tanjong’s 3D and potentially, 4D games, so as to be seen as providing a more level playing field for NFO operators,” it said.
OSK has maintained its “overweight” rating on the sector, and recommended a “buy” call on Tanjong with a target price of RM18.60.
It pegged BToto at a target price of RM5.60 and expected the company to remain a defensive, high-dividend yield play.
HwangDBS Vickers Research agrees that the policy makers’ initiatives to introduce more measures in the NFO industry is crucial to help players regain lost ground due to the rise in illegal gaming activities.
“As such, it is likely that Tanjong (rated ‘buy’) may also receive approval for a new game for its gaming operation,” the research house said in a note.
“We believe that the potential impact on the new games would be minimal on Tanjong’s bottom line, especially in the first one to two years of the operation,” HwangDBS said.
The brokerage believes investors should continue to focus on Tanjong’s strong fundamentals with resilient earnings from both its NFO and power generation businesses, and an attractive net yield of 5%.
It has maintained a “buy” call on Tanjong with a target price of RM19.25.
Malaysia's benchmark interest rate likely to stay
Source: Yeow Pooi Linf (The Star Online)
Economists say Bank Negara may take a wait-and-see stance
PETALING JAYA: Bank Negara is expected to keep the benchmark interest rate unchanged at 2% at its monetary policy meeting today, say economists contacted by StarBiz.
David Cohen, an economist with Action Economics in Singapore, said the central bank could afford to “wait-and-see” since inflationary pressures had eased while economic indicators of regional economies were showing improvement.
“Things have bottomed out regionally and I suspect that Malaysia will follow in the same trend,” he said in a telephone interview.
Cohen, nonetheless, cautioned that there were still a lot of uncertainties within the world economies and if Malaysia’s economic data continued to weaken, Bank Negara might have to reduce rates further.
RAM Holdings Bhd economist Dr Yeah Kim Leng concurred, adding that the central bank would “keep its fingers on the trigger but not pull it yet as the bullet will come in handy” if there were signs that the global or domestic economy were heading towards a “double-dip” recovery.
So far, the strong monetary, financial and fiscal policy responses rolled out simultaneously across the world have helped avert a global depression in the first-half year. China, for example, saw a gross domestic product growth of 7.9% in the second quarter, he said.
Malaysia’s contraction in output and export, like its regional export-oriented peers, had slowed down while consumer and investor confidence was on the upturn, as reflected by the recent stock market performance, he added.
Business investment in the real economy, meanwhile, might still be held back by lingering concerns over the possibility of a slip-up in the recovery process of the United States and European economies, Yeah said.
Forecast Pte Ltd economist Joanna Tan also believed that Bank Negara was likely to keep rates unchanged but added that the downtrend in inflation had increased the scope for monetary easing.
“Given previous rhetoric on frontloading of rates and the impact of fiscal stimulus in the second half of the year, Bank Negara is likely to keep rates unchanged while monitoring closely the growth-inflation situation,” she said.
Yeah said Bank Negara had much room to cut rates further if domestic demand were to deteriorate more than expected, given that inflation rate had slipped into negative territory in June (minus 1.4%) mainly due to higher base-effect.
Maybank Investment Bank economist Suhaimi Ilias, however, considered the present level of record low overnight policy rate sufficient since global and local economies were showing signs of bottoming and turning around.
The policy focus would be on availability rather than cost of credit, hence the measures like government guaranteed scheme for loans for working capital and industrial restructuring, as well as bonds like Danajamin and microcredit initiatives, he said.
Economists say Bank Negara may take a wait-and-see stance
PETALING JAYA: Bank Negara is expected to keep the benchmark interest rate unchanged at 2% at its monetary policy meeting today, say economists contacted by StarBiz.
David Cohen, an economist with Action Economics in Singapore, said the central bank could afford to “wait-and-see” since inflationary pressures had eased while economic indicators of regional economies were showing improvement.
“Things have bottomed out regionally and I suspect that Malaysia will follow in the same trend,” he said in a telephone interview.
Cohen, nonetheless, cautioned that there were still a lot of uncertainties within the world economies and if Malaysia’s economic data continued to weaken, Bank Negara might have to reduce rates further.
RAM Holdings Bhd economist Dr Yeah Kim Leng concurred, adding that the central bank would “keep its fingers on the trigger but not pull it yet as the bullet will come in handy” if there were signs that the global or domestic economy were heading towards a “double-dip” recovery.
So far, the strong monetary, financial and fiscal policy responses rolled out simultaneously across the world have helped avert a global depression in the first-half year. China, for example, saw a gross domestic product growth of 7.9% in the second quarter, he said.
Malaysia’s contraction in output and export, like its regional export-oriented peers, had slowed down while consumer and investor confidence was on the upturn, as reflected by the recent stock market performance, he added.
Business investment in the real economy, meanwhile, might still be held back by lingering concerns over the possibility of a slip-up in the recovery process of the United States and European economies, Yeah said.
Forecast Pte Ltd economist Joanna Tan also believed that Bank Negara was likely to keep rates unchanged but added that the downtrend in inflation had increased the scope for monetary easing.
“Given previous rhetoric on frontloading of rates and the impact of fiscal stimulus in the second half of the year, Bank Negara is likely to keep rates unchanged while monitoring closely the growth-inflation situation,” she said.
Yeah said Bank Negara had much room to cut rates further if domestic demand were to deteriorate more than expected, given that inflation rate had slipped into negative territory in June (minus 1.4%) mainly due to higher base-effect.
Maybank Investment Bank economist Suhaimi Ilias, however, considered the present level of record low overnight policy rate sufficient since global and local economies were showing signs of bottoming and turning around.
The policy focus would be on availability rather than cost of credit, hence the measures like government guaranteed scheme for loans for working capital and industrial restructuring, as well as bonds like Danajamin and microcredit initiatives, he said.
Tips for retail investors to stop losing money in stock market
Source: Ooi Kok Hwa (Star Online)
IN the stock market, there are two main types of investors – smart investors and retail investors. While smart investors have been able to make money from the stock market, the majority of retail investors suffer losses most of the time.
As the market saying goes, only one out of 10 investors can make money from the stock market. The rest always incur losses in the stock market.
Some retail investors believe they can make quick money from the stock market. They believe that investing in the stock market is one of the best ways to accumulate wealth in a short period of time.
However, due to lack of proper financial training, investing knowledge and intelligence, they always find themselves at the losing end. When they are excited about investing, the stock market may be nearing to the peak.
On the other hand, when they are suffering losses, losing patience about investing and intending to cut their losses in the stock market, the market may be touching the bottom, and that, in fact, is supposed to be the best time to invest.
A majority of retail investors seldom pay attention to the stock market. They will only start doing so when newspapers or TV news headlines show that the market is touching a new high.
Driven by greed and the thought of making fast money, they will follow their friends or tips from their brokers to invest without paying much attention to the fundamentals of the stocks.
Due to lack of discipline to cut losses, more often than not, they find themselves holding on to a lot of poor quality stocks when the market collapses to a very low level.
We believe that the majority of retail investors do buy a mixture of good and poor quality stocks. However, they tend to hold on to poor quality stocks and sell the good ones when the stock market collapses.
This is because when the stock market crashes, poor quality stocks will drop much faster than good fundamental stocks.
Most retail investors find it difficult to sell poor quality stocks as the stocks may drop far lower their buying prices within a short period of time.
As retail investors refuse to admit their mistakes, they will hold on to these stocks, hoping to break even again in the future.
Unfortunately, they overlook one important market saying, which is: What goes up may come down, what goes down may never go up.
We may have emotional feelings about stocks but we should not refer to our purchase prices to determine whether we can cut our losses.
Our purchase prices are only important to us; they mean nothing to the overall market.
As our purchase prices may be much higher than those of other investors, even though we may not be able to sell the stocks, other investors, especially the company owners, can still liquidate their stocks.
We need to be careful when trading in speculative stocks especially those with prices that are much higher than the book values of the companies. The book value of a company reflects the owners’ costs in the company.
Hence, even though the stock prices tumble to a very low level, as long as the prices are still higher than the book values, a lot of company owners can still liquidate the stocks as their market prices are still higher than the cost invested.
For example, assuming the stock of a company is at the book value of only 30 sen and the stock price before the rally is 50 sen.
Due to the bullish sentiment and speculative play, the stock price may be pushed up to RM3. If our purchase price in the company is RM2, selling lower than RM2 means cutting a loss.
However, unfortunately, a lot of retail investors, instead of cutting losses continue to average down their purchase prices.
They may start averaging down their purchase prices at RM1.50, RM1, 80 sen and 50 sen.
If the company has poor fundamentals and has been incurring huge losses over a long period of time, averaging down our purchase prices this way means we will be incurring more losses.
While we are doing this, the owner of company can still sell the stock at 50 sen as his investment cost is only 30 sen!
Malaysia market set to test 1,200-point level
Source: YVONNE TAN (The Star Online)
FBM KLCI rises for fifth day to finish at one-year high
PETALING JAYA: The current liquidity run may push the benchmark index beyond the 1,200-point level “soon” but concerns are mounting that the market may have become too expensive.
“It (the index testing 1,200) could be as early as August.
“There’s a lot of money out there in search of returns in the current low-interest rate environment,” said Pong Teng Siew, head of research at Jupiter Securities.
The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) raced on for the fifth day yesterday to finish at a fresh one-year high, up 15.95 points to 1,172.38.
Nineteen stocks in the 30-stock index ended higher. Around 1.1 billion shares changed hands in trades valued at RM1.63bil.
At current levels, the market was priced at 17 times price-earnings to 2009 earnings, which was the level reached during the bull run in 2007. “Valuations are looking a bit too rich,” Pong said.
Since the start of July, the index has risen some 9%, extending the rally which started in April. Year-to-date, it has surged more than 30%.
Chris Eng, head of research at OSK Research, has advised traders to “sell into strength”.
“It (the index reaching 1,200) could be sooner than we earlier expected,” said AmResearch managing director and regional head of equity research Benny Chew.
He said the current rally could also be fuelled by high hopes that corporate earnings would be positive in August.
AmResearch has said the FBM KLCI would achieve 1,190 points by the first quarter of next year. Corporate earnings were expected to post a 17% growth next year from a contraction of 8% this year, the house said.
“I think the liquidity run will carry into the next month or so; (and) any correction should be ‘gentle’,” Pong said.
At Bursa Malaysia, major gainers yesterday were mainly blue chips which make up the index. Among the gainers were Sime Darby Bhd which added 25 sen to RM8.15, British American Tobacco Bhd which ended up 25 sen to RM45.25 and IOI Corp Bhd which finished 22 sen higher at RM5.
Major losers included PPB Group Bhd and Petronas Gas Bhd, which lost 20 sen and 10 sen to RM14.30 and RM10.20 respectively.
Among the more actively traded stocks were KNM Group Bhd, TA Enterprise Bhd and Lion Corp Bhd.
Stock markets across the globe have rallied in recent weeks bolstered by strong gains on Wall Street which were fuelled by better-than-expected corporate earnings.
Regionally, markets were mainly up yesterday. Singapore’s Straits Times Index and Hong Kong’s Hang Seng Index finished up 1.84% each.
Separately, at a function yesterday, Bursa Malaysia Bhd chief executive officer Datuk Yusli Mohamed Yusoff said the merger of the main and second boards was on track for the launch on Aug 3.
“We’ve tested it, all systems are ready,” he said.
He said he hoped the new structure would be more facilitative of new listings.
“We would like to see some of the small and medium companies merge. Based on feedback, we believe foreign investors would like to see much bigger companies in the market,” he said.
BURSA MALAYSIA: KL Shares Up, Hit New High At Close
Source: Bernama.Com
KUALA LUMPUR, July 28 (Bernama) -- Share prices on Bursa Malaysia ended higher with the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI), hitting a new high Tuesday with interest centred on key heavyweights, especially finance and plantation stocks, dealers said.
At 5.00pm, the FBM KLCI rose 15.95 points to a year high of 1,172.38, after opening 1.4 points higher at 1,157.83. It saw an intra-day high of 1,174.01.
Jupiter Securities head of research, Pong Teng Siew, attributed the gains mainly to the new flush of liquidity in the market.
"The participation in our market came mainly from local investors and some foreign participants," he said, adding that the local stocks still had more room to grow.
Pong expects the resistance level to be between 1,200 and 1,220 in the near term.
"We still have between 30-50 points to go," he said.
The Finance Index soared 105.14 points to 9,512.77, the Plantation Index surged 141.78 points to 5,687.94 and the Industrial Index was 19.63 points higher at 2,565.82.
The FBMEmas Index advanced 103.69 points to 7,905.20, the FBM Top 100 increased 100.83 points to 7,689.37, the FBMMesdaq Index jumped 29.66 points to 4,150.32 and the FBM2BRD Index advance 32.09 points to 5,236.25.
Advancers beat decliners by 492 to 192 while 249 counters were unchanged, 299 untraded and 32 others suspended.
Total volume went up to 1.123 billion shares worth RM1.633 billion from yesterday's 987.228 million shares valued at RM1.215 billion.
Topping the actives, KNM eased one sen to 89.5 sen, Lion Corporation increased 2.5 sen to 52 sen, SAAG Consolidated eased half a sen to 29.5 sen and Genting jumped 12 sen to RM3.
Among heavyweights, Sime Darby increased 25 sen, Maybank and Bumiputra-Commerce jumped 10 sen each to RM6.55 and RM10.20 respectively while Tenaga advanced five sen to RM8.10.
The Main Board volume declined to 933.135 million shares valued at RM1.571 billion from yesterday's 987.228 million shares worth RM1.215 billion.
Turnover on the Second Board eased to 94.278 million shares valued at RM41.503 million from 220.272 million shares worth RM80.632 million yesterday.
The Mesdaq volume decreased to 28.707 million shares valued at RM5.171 million from 33.515 million shares worth RM55.464 million.
Warrants increased to 60.233 million units worth RM12.716 million from 30.311 million worth RM66.130 million previously.
On a sectoral basis, consumer products accounted for 54.241 million shares traded on the Main Board, industrial products 226.592 million, construction 65.542 million, trade/services 324.814 million, technology 14.346 million, infrastructure 26.424 million, finance 80.917 million, hotels 7.108 million, properties 98.397 million, plantations 30.204 million, mining 197,000, REITs 4.093 million and closed/fund 256,600.
KUALA LUMPUR, July 28 (Bernama) -- Share prices on Bursa Malaysia ended higher with the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI), hitting a new high Tuesday with interest centred on key heavyweights, especially finance and plantation stocks, dealers said.
At 5.00pm, the FBM KLCI rose 15.95 points to a year high of 1,172.38, after opening 1.4 points higher at 1,157.83. It saw an intra-day high of 1,174.01.
Jupiter Securities head of research, Pong Teng Siew, attributed the gains mainly to the new flush of liquidity in the market.
"The participation in our market came mainly from local investors and some foreign participants," he said, adding that the local stocks still had more room to grow.
Pong expects the resistance level to be between 1,200 and 1,220 in the near term.
"We still have between 30-50 points to go," he said.
The Finance Index soared 105.14 points to 9,512.77, the Plantation Index surged 141.78 points to 5,687.94 and the Industrial Index was 19.63 points higher at 2,565.82.
The FBMEmas Index advanced 103.69 points to 7,905.20, the FBM Top 100 increased 100.83 points to 7,689.37, the FBMMesdaq Index jumped 29.66 points to 4,150.32 and the FBM2BRD Index advance 32.09 points to 5,236.25.
Advancers beat decliners by 492 to 192 while 249 counters were unchanged, 299 untraded and 32 others suspended.
Total volume went up to 1.123 billion shares worth RM1.633 billion from yesterday's 987.228 million shares valued at RM1.215 billion.
Topping the actives, KNM eased one sen to 89.5 sen, Lion Corporation increased 2.5 sen to 52 sen, SAAG Consolidated eased half a sen to 29.5 sen and Genting jumped 12 sen to RM3.
Among heavyweights, Sime Darby increased 25 sen, Maybank and Bumiputra-Commerce jumped 10 sen each to RM6.55 and RM10.20 respectively while Tenaga advanced five sen to RM8.10.
The Main Board volume declined to 933.135 million shares valued at RM1.571 billion from yesterday's 987.228 million shares worth RM1.215 billion.
Turnover on the Second Board eased to 94.278 million shares valued at RM41.503 million from 220.272 million shares worth RM80.632 million yesterday.
The Mesdaq volume decreased to 28.707 million shares valued at RM5.171 million from 33.515 million shares worth RM55.464 million.
Warrants increased to 60.233 million units worth RM12.716 million from 30.311 million worth RM66.130 million previously.
On a sectoral basis, consumer products accounted for 54.241 million shares traded on the Main Board, industrial products 226.592 million, construction 65.542 million, trade/services 324.814 million, technology 14.346 million, infrastructure 26.424 million, finance 80.917 million, hotels 7.108 million, properties 98.397 million, plantations 30.204 million, mining 197,000, REITs 4.093 million and closed/fund 256,600.
Magnum’s new 4D game long-term gain for industry
Source: The Star Online
PETALING JAYA: Magnum Corp Sdn Bhd’s recently obtained approval for a new 4-digit (4D) game containing a jackpot element would benefit the numbers forecast operations (NFO) industry as it will reduce the market share of illegal operators.
Multi-Purpose Holdings Bhd (MPHB), which has a 51%-stake in the company, said in a filing to Bursa Malaysia last Friday that the game was scheduled for an end-2009 launch.
OSK Research Sdn Bhd analyst Keith Wee said in a report Tuesday that the Government’s approval of the new game was seen as a move to reduce the market share of illegal 4D game operators, which was estimated to be one to one-and-a-half times larger than the legal NFO market.
He said given the popularity of 4D games in the illegal NFO market, this latest move was a signal that the Government remained serious in reducing the market share of illegal number operators since increasing taxes would only provide opportunities for such operators to gain market share.
“Gaming and corporate taxes are estimated to amount to more than RM1.5 billion per annum,” Wee added.
He said over the longer term, the move would enhance the legal NFO market and provide a level playing field for the three listed NFO firms - Berjaya Sports Toto, MPHB and Tanjong plc.
PETALING JAYA: Magnum Corp Sdn Bhd’s recently obtained approval for a new 4-digit (4D) game containing a jackpot element would benefit the numbers forecast operations (NFO) industry as it will reduce the market share of illegal operators.
Multi-Purpose Holdings Bhd (MPHB), which has a 51%-stake in the company, said in a filing to Bursa Malaysia last Friday that the game was scheduled for an end-2009 launch.
OSK Research Sdn Bhd analyst Keith Wee said in a report Tuesday that the Government’s approval of the new game was seen as a move to reduce the market share of illegal 4D game operators, which was estimated to be one to one-and-a-half times larger than the legal NFO market.
He said given the popularity of 4D games in the illegal NFO market, this latest move was a signal that the Government remained serious in reducing the market share of illegal number operators since increasing taxes would only provide opportunities for such operators to gain market share.
“Gaming and corporate taxes are estimated to amount to more than RM1.5 billion per annum,” Wee added.
He said over the longer term, the move would enhance the legal NFO market and provide a level playing field for the three listed NFO firms - Berjaya Sports Toto, MPHB and Tanjong plc.
Tuesday, July 28, 2009
Bursa Malaysia To Introduce Commodity Murabahah House Next Month
Source: Bernama.Com
KUALA LUMPUR, July 28 (Bernama) -- Bursa Malaysia Bhd plans to introduce a fully electronic web-based Syariah commodity trading platform next month.
Its chief executive officer Datuk Yusli Mohamed Yusoff said the Commodity Murabahah House (CMH) is the world's first fully Syariah compliant commodity trading platform.
Initially, the commodity to be traded on CMH is crude palm oil, he told a press conference here Tueaday.
"We will start with domestic players. We expect participation from the Gulf Cooperation Council (GCC) countries early next year," he said.
Yusli said Bursa Malaysia spent a few million ringgit to develop CMH.
CMH is a Malaysian Islamic International Finance Centre initiative operated by Bursa Malaysia's fully Syariah compliant wholly-owned subsidiary, Bursa Malaysia Islamic Services Sdn Bhd.
It is an international spot commodity platform that facilitates commodity-based Islamic financing and investment transactions under the Syariah principles of Murabahah, Tawarruq and Musawwammah.
Trades will be ringgit-denominated but efforts are being undertaken to make it multi currency capable, providing more choice, access and flexibility for international financial institutions to participate.
Bursa Malaysia expects daily transactions of up to RM1 billion for CMH.
Bursa Malaysia and 26 palm oil suppliers, financials institutions and trading participants have signed a memorandum to participate in CMH.
KUALA LUMPUR, July 28 (Bernama) -- Bursa Malaysia Bhd plans to introduce a fully electronic web-based Syariah commodity trading platform next month.
Its chief executive officer Datuk Yusli Mohamed Yusoff said the Commodity Murabahah House (CMH) is the world's first fully Syariah compliant commodity trading platform.
Initially, the commodity to be traded on CMH is crude palm oil, he told a press conference here Tueaday.
"We will start with domestic players. We expect participation from the Gulf Cooperation Council (GCC) countries early next year," he said.
Yusli said Bursa Malaysia spent a few million ringgit to develop CMH.
CMH is a Malaysian Islamic International Finance Centre initiative operated by Bursa Malaysia's fully Syariah compliant wholly-owned subsidiary, Bursa Malaysia Islamic Services Sdn Bhd.
It is an international spot commodity platform that facilitates commodity-based Islamic financing and investment transactions under the Syariah principles of Murabahah, Tawarruq and Musawwammah.
Trades will be ringgit-denominated but efforts are being undertaken to make it multi currency capable, providing more choice, access and flexibility for international financial institutions to participate.
Bursa Malaysia expects daily transactions of up to RM1 billion for CMH.
Bursa Malaysia and 26 palm oil suppliers, financials institutions and trading participants have signed a memorandum to participate in CMH.
RON 95 petrol launched, Shell targets 1m users
Source: The Star Online
PETALING JAYA: Shell Malaysia aims for one million motorists to use its new Shell Unleaded 95 (RON 95) fuel by Sept 1, says Shell Malaysia Trading Sdn Bhd and Shell Timur Sdn Bhd managing director Datuk Mohzani Abdul Wahab.
“We are targeting also by Sept 1, all our Shell petrol stations (over 900) in the country will be ready to offer this new fuel,” he said yesterday at the official launch of Shell Unleaded 95.
Mohzani said the new fuel was now available at Shell Alisha station in Batu 3, Federal Highway Klang-bound and by the first week of August, another Shell station in the Klang Valley would be ready to offer the RON 95 fuel.
“The introduction of the new Shell Unleaded 95 is to show our commitment to support the Government initiative to introduce RON 95 nationwide on Sept 1,” he said.
He added that staff had been stationed at the Shell Alisha station to assist customers seeking information and helping to address their concerns on RON 95 apart from educating Malaysian motorists on what Shell Unleaded 95 was all about.
“This is very much part of Shell’s commitment to ensure that our customers are aware of the differences in fuel, because not all fuels are the same and it is important that they can make an informed choice of the fuel that meets their need,” he said.
He also said by Sept 1, Shell would also introduce the new UERO 2M diesel fuel at the same diesel price.
Interested motorists can visit the Shell Malaysia website to read up on RON 95 or call Shell’s customer service centre.
Shell is also working with various motoring media, both print and online to help educate motorists on RON 95
Monday, July 27, 2009
Malaysia’s palm oil exports rise 10%
Source: The Star Online
PETALING JAYA: Malaysia’s palm oil exports rose 10% from July 1 to July 25 compared to the same period in June, according to checks carried out by cargo surveyors.
According to cargo surveyor Societe Generale de Surveillance, a total of 1.08 million tonnes of palm oil were tracked in the period compared to the same period in June, where 983,345 tonnes were tracked.
In an earlier report, Intertek said palm oil exports rose 9.9% from July 1 to July 25 compared to the same period in June.
It said 1.11 million tonnes of palm oil were tracked compared to 1.01 million tonnes from June 1 to June 25.
PETALING JAYA: Malaysia’s palm oil exports rose 10% from July 1 to July 25 compared to the same period in June, according to checks carried out by cargo surveyors.
According to cargo surveyor Societe Generale de Surveillance, a total of 1.08 million tonnes of palm oil were tracked in the period compared to the same period in June, where 983,345 tonnes were tracked.
In an earlier report, Intertek said palm oil exports rose 9.9% from July 1 to July 25 compared to the same period in June.
It said 1.11 million tonnes of palm oil were tracked compared to 1.01 million tonnes from June 1 to June 25.
Equity investment: What is tick size and how do investors benefit
Source: The Star Online
EQUITY investment strategies take account of many factors, including tick sizes which are set by a stock exchange.
Here is a primer on tick sizes and how investors benefit from a smaller value.
This educative article is in conjunction with the introduction of a smaller tick size which will be made available by Bursa Malaysia and is planned for implementation on Aug 3.
Equity investors rely a lot on research and information to forecast the potential price appreciation of a stock. This ranges from fundamental analysis of the company to a technical analysis of its historical price movements. There is also a little known indicator known as a spread that can be used by investors to gauge the near-term movement of a particular stock. A stock’s spread is closely influenced by a “tick size”.
Understanding Spreads. Every share that trades on the stock market has a best buy and a best sell price. The best buy price is the highest price in the order book placed by interested buyers for a specific share while the best sell price is the lowest price in the order book placed by interested sellers.
These two prices are determined by demand and supply, which can be seen as a negotiation process between two parties.
The spread is the difference between a share’s best buy and best sell price. The general belief is that a consistently large spread signals low volume for that respective stock.
On the other hand, a narrow spread can indicate that a transaction will occur soon. For example, a stock with a buy/sell price of RM10 and RM10.02 suggests that buyers and sellers are very close to making a trade. If the narrow spread continues, volume for the respective share is expected to be high. A wider spread means that greater changes in the share’s buy or sell price is needed before a transaction can conclude.
Tick Sizes in a Spread. The magnitude of a stock spread is influenced by the tick size or the minimum tick size structure.
This refers to the smallest allowable price variation between the buy and sell price of a stock. The spread of a share can narrow if the tick size is reduced.
In the past few years, many global stock exchanges reduced their permitted tick size as this initiative was found to boost liquidity and efficiency to the capital market as a whole.
To stay competitive and relevant, Bursa Malaysia is also implementing a smaller minimum tick size for all shares and exchange traded funds (ETFs) trading on the local market (see table 1 and 2). Under the new structure, a share with a buy price under RM5 will have a new tick size of 1 sen instead 5 sen. This means, interested buyers or sellers of this respective stock can now enter a buy or sell price of 1 sen instead of 5 sen.
The equity ETFs on the main board also benefit from a smaller tick size. Smaller tick sizes encourage active trading as there are many benefits for retail investors (see box story).
The reduction of tick size is expected to attract more trading volume due to improved opportunities as investors now will have more choice of entering or exiting the market just by smaller trading ticks. In short, this reduction of tick sizes will enable price discovery, leading to a positive impact on market liquidity.
In respect to the bidding price for buying-in, the exchange will retain the 10 ticks. Arising from this, the buying-in price will be based on the current tick sizes instead of the new tick sizes to ensure that the buying-in price is attractive to potential sellers.
FBM KLCI may see more upside ahead
Source: Fintan Ng (The Star Online)
KUALA LUMPUR: The local bourse’s benchmark FBM KLCI index may see more upside ahead following higher crude oil and commodity prices boosting investors’ confidence.
Nymex crude oil and the local crude palm oil futures settled at higher prices last Friday.
OSK Research Sdn Bhd analyst Shin Kao Jack said in a report that the market could be establishing a new uptrend after rallying for eight out of the last 10 sessions and adding 95 points in the process.
HwangDBS Vickers Research Sdn Bhd said in another report that the index would be eyeing to test the 1,160 resistance level again anytime soon.
“A convincing breakout will then lift the benchmark index towards the next resistance mark of 1,190,” it said.
At 9.30am, the index was down 2.32 points to 1,153.56 while in Bursa Malaysia, 161 counters were up, 103 were down and 121 others were traded unchanged.
There were 110.44 million shares done with a total value of RM79.89 million.
Among plantation counters, IOI fell 8 sen to RM4.78, Kulim dropped 10 sen to RM7.10 while PPB gained 40 sen to RM14.
IJM dropped 10 sen to RM6.20, Genting was up 10 sen to RM6.45, Public Bank’s foreign tranche lost 10 sen to RM10.10 and TNB shed 10 sen to RM8.05.
Nymex crude oil in electronic trade was up 9 cents to US$68.14 per barrel.
Spot gold gained 17 cents to US$951.52 per ounce
KUALA LUMPUR: The local bourse’s benchmark FBM KLCI index may see more upside ahead following higher crude oil and commodity prices boosting investors’ confidence.
Nymex crude oil and the local crude palm oil futures settled at higher prices last Friday.
OSK Research Sdn Bhd analyst Shin Kao Jack said in a report that the market could be establishing a new uptrend after rallying for eight out of the last 10 sessions and adding 95 points in the process.
HwangDBS Vickers Research Sdn Bhd said in another report that the index would be eyeing to test the 1,160 resistance level again anytime soon.
“A convincing breakout will then lift the benchmark index towards the next resistance mark of 1,190,” it said.
At 9.30am, the index was down 2.32 points to 1,153.56 while in Bursa Malaysia, 161 counters were up, 103 were down and 121 others were traded unchanged.
There were 110.44 million shares done with a total value of RM79.89 million.
Among plantation counters, IOI fell 8 sen to RM4.78, Kulim dropped 10 sen to RM7.10 while PPB gained 40 sen to RM14.
IJM dropped 10 sen to RM6.20, Genting was up 10 sen to RM6.45, Public Bank’s foreign tranche lost 10 sen to RM10.10 and TNB shed 10 sen to RM8.05.
Nymex crude oil in electronic trade was up 9 cents to US$68.14 per barrel.
Spot gold gained 17 cents to US$951.52 per ounce
Sunday, July 26, 2009
MPI to attract RM20bil foreign investments
Source: The Star Online
PETALING JAYA: Malaysia Property Inc (MPI), a joint public-private sector initiative, is aiming to attract foreign investments worth RM20bil in the domestic real estate sector over the next 10 years.
The key players in MPI are the Economic Planning Unit, International Real Estate Federation (FIABCI) Malaysian Chapter, Real Estate Housing Developers’ Association (Rehda) and the Malaysian Institute of Estate Agents (MIEA).
MPI chairman Datuk Richard Fong said a budget of RM25mil would be set aside by property players in the private sector over the next five years to promote Malaysia as the preferred property investment destination.
“The Government has in principle agreed to match this amount contributed by players in the private sector, making the total pool of funds RM50mil,” he told reporters after the official launch of MPI here yesterday.
Fong said the funds would be used for promotional activities, including property exhibitions overseas in places like Britain, Hong Kong, Singapore and the Middle East.
“We want foreign investors to know more about the competitiveness of Malaysian properties in terms of price, against countries like Singapore and Hong Kong,” he said, adding that Malaysia was likely the only country in this region that allowed foreigners to buy freehold property, besides providing them with exemption from real estate property gains tax.
“If you take a residential property in Kuala Lumpur City Centre (KLCC), the price per square foot would be around US$600, against US$2,000 in a comparable residential location in Singapore or Hong Kong,” he noted.
Fong said MPI would not only act as a platform to create greater awareness of the attractiveness of Malaysian properties as an investment destination for foreigners but also support and assist the various players in the real estate sector, including providing feedback to the Government.
In his speech at MPI’s launching, which was read by Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop, Prime Minister Datuk Seri Najib Tun Razak said the Government would continue to facilitate investments in the Malaysian real estate sector given its key role in the country’s economy.
Najib noted that last year alone, the industry contributed close to RM11bil to the economy, representing a growth of nearly 10%, compared to 2007.
MPI would give specific focus on promoting the Malaysia My Second Home programme, in addition to marketing Malaysia as the preferred destination for multinational companies to have their offices here, the premier said.
Najib, who is also Finance Minister, said the current investment environment was especially inviting, with no restrictions on domestic funding for foreign investment in local properties, in addition to further deregulation in Foreign Investment Committee guidelines.
The Government spending provided for the two stimulus package worth RM67bil would further boost investors’ confidence, he said.
China economy growing again while US limps
Source: The Star Online
WASHINGTON (AP): It's a tale of two economies, China and the United States. The United States, the world's largest economy, remains mired in recession as do most of its fellow top industrial powers.
China, poised to pass Japan as the world's second-largest economy perhaps by late this year, recently announced its Gross Domestic Product grew by more than 7.1 percent in the first half of this year.
That puts it alone among the top 10 world powers whose economy has expanded in recent months, making it the first major country to emerge from the worst global slump since the 1930s. Many analysts suggest that China could help to lead the rest of the world out of the doldrums.
For China's part, it hopes the U.S. and other Western countries will also recover and revive their now-depressed demand for Chinese goods, further buoying the Chinese economy. U.S. officials, however, suggest that, with recession-shocked American consumers spending less and saving more, those glory days for Chinese exporters will not return anytime soon.
Economic and strategic cooperation among the two world economic superpowers tops the agenda as top officials from both countries hold a two-day meeting in Washington, beginning Monday.
"China is increasingly becoming a responsible citizen in the global community," said economist Allen Sinai of Decision Economics. "No longer lawless, no longer difficult to deal with, much more responsible. It is now a powerhouse among economies and finance. And it's a rich country."
China stands out as a case study in how government economic-stimulus can work. In the United States, there are fierce debates over whether President Barack Obama's $787 billion stimulus, passed by Congress in February, is having much impact. Designed to help create jobs, U.S. unemployment continues to rise at a steep pace and the economy is still shrinking.
By contrast, Beijing's $586 billion stimulus effort, put in place last November, has been hugely successful by nearly all accounts.
It freed up massive public-works spending and made bank loans more available, spurring a huge increase in Chinese construction and purchases of cars, homes and other goods.
If anything, some economists suggest the Chinese stimulus may actually be working too well, threatening to overheat the Chinese economy. That raises concerns that the flood of easy money will cause inflation and set the stage for the same kind of housing-credit "bubble" that triggered the U.S. financial meltdown.
Why did China's stimulus work when the U.S. version was slow to kick in?
For one thing, China had many of the programs, including public works projects, in the planning stages for two or three years so they got a head start once hit last year by the global downturn. China also didn't have to go through the tortuous gyrations that the Federal Reserve and Treasury did to inject money into U.S. banks in hopes of getting them to resume lending.
"Credit was flowing not because Chinese bankers were inherently confident about their economy. Credit was flowing because the Communist Party was telling the banks to lend," said Charles Freeman, former assistant U.S. trade representative for China affairs and now with the Center for Strategic and International Studies.
While exports may not be as much a driver of the Chinese economy as in the past, China is well situated to benefit in any upturn, particularly because of its reputation for manufacturing inexpensive products, said Freeman. "Cheap goods are relatively in demand in times of economic trouble, and so China is the first and last resort for cheap goods," he said.
In addition to better economic cooperation, Beijing is also Washington's most important partner in efforts to discourage or contain North Korea's nuclear ambitions. Still, the U.S.- Chinese relationship isn't all rosy.
There remain security concerns as China bulks up as a military superpower as well as an economic one.
And there is still much trade friction between the two countries. Many in Congress and in organized labor still view China warily as a fierce competitor for U.S. manufacturing jobs.
"New opportunities in President Obama's new green economy will go to big players like GM and to businesses in China, where the government understands global commerce is played by rules of prison football," said Peter Morici, a business economist at the University of Maryland and former chief economist at the U.S. International Trade Commission.
"China has more than 100 million rural underemployed workers who, if moved into factories, could replace every manufacturing job in the United States, Western Europe and Japan," Morici said.
China and the United States are each other's second-largest trading partner. But the trade is way out of whack. The U.S. trade deficit with China remains its largest, even though trade overall has been down because of the global recession.
The Economic Policy Institute, a union-funded think tank, says that China represents a staggering 83 percent of the entire U.S. trade deficit in non-oil goods, up from 26 percent in 2000.
There is also a long-simmering dispute between the U.S. and China over exchange rates. U.S. officials claim China's currency policies end up overpricing U.S. goods there and making Chinese-made goods less expensive in the U.S.
And, as the largest holder of U.S. debt - mostly in the form of Treasury bonds - Beijing holds vast economic leverage over the United States. Suddenly selling those Treasurys or significantly reducing its debt holdings could send shock waves through the global financial system and make it harder for the U.S. to finance its mushrooming debt.
Most economists believe China is unlikely to make any such moves, because it would reduce the value of its own vast holdings in Treasurys. But Beijing might slow down its purchases of Treasurys and other dollar-denominated investments, complicating efforts for the United States to finance a budget deficit expected to surpass $1.8 trillion this year and a cumulative national debt approaching $12 trillion.
Also, there's one area in which China has now surpassed the U.S. and remains the world leader, even if it's hardly an honor. It is now the world's largest carbon emitter.
U.S. policymakers recognize that costly steps taken by Western nations to reduce pollution to help control global warming will mean little if China, with its population of 1.3 billion people, does not join in the effort.
But so far, the U.S. has been unable to persuade China to work to lower its emissions. China argues with conviction that it has a right to develop rapidly in hopes of attaining Western living standards and that its per capita pollution remains a fraction of that in the U.S. It also claims to have made great recent strides in energy efficiency and cleaning up coal plants.
WASHINGTON (AP): It's a tale of two economies, China and the United States. The United States, the world's largest economy, remains mired in recession as do most of its fellow top industrial powers.
China, poised to pass Japan as the world's second-largest economy perhaps by late this year, recently announced its Gross Domestic Product grew by more than 7.1 percent in the first half of this year.
That puts it alone among the top 10 world powers whose economy has expanded in recent months, making it the first major country to emerge from the worst global slump since the 1930s. Many analysts suggest that China could help to lead the rest of the world out of the doldrums.
For China's part, it hopes the U.S. and other Western countries will also recover and revive their now-depressed demand for Chinese goods, further buoying the Chinese economy. U.S. officials, however, suggest that, with recession-shocked American consumers spending less and saving more, those glory days for Chinese exporters will not return anytime soon.
Economic and strategic cooperation among the two world economic superpowers tops the agenda as top officials from both countries hold a two-day meeting in Washington, beginning Monday.
"China is increasingly becoming a responsible citizen in the global community," said economist Allen Sinai of Decision Economics. "No longer lawless, no longer difficult to deal with, much more responsible. It is now a powerhouse among economies and finance. And it's a rich country."
China stands out as a case study in how government economic-stimulus can work. In the United States, there are fierce debates over whether President Barack Obama's $787 billion stimulus, passed by Congress in February, is having much impact. Designed to help create jobs, U.S. unemployment continues to rise at a steep pace and the economy is still shrinking.
By contrast, Beijing's $586 billion stimulus effort, put in place last November, has been hugely successful by nearly all accounts.
It freed up massive public-works spending and made bank loans more available, spurring a huge increase in Chinese construction and purchases of cars, homes and other goods.
If anything, some economists suggest the Chinese stimulus may actually be working too well, threatening to overheat the Chinese economy. That raises concerns that the flood of easy money will cause inflation and set the stage for the same kind of housing-credit "bubble" that triggered the U.S. financial meltdown.
Why did China's stimulus work when the U.S. version was slow to kick in?
For one thing, China had many of the programs, including public works projects, in the planning stages for two or three years so they got a head start once hit last year by the global downturn. China also didn't have to go through the tortuous gyrations that the Federal Reserve and Treasury did to inject money into U.S. banks in hopes of getting them to resume lending.
"Credit was flowing not because Chinese bankers were inherently confident about their economy. Credit was flowing because the Communist Party was telling the banks to lend," said Charles Freeman, former assistant U.S. trade representative for China affairs and now with the Center for Strategic and International Studies.
While exports may not be as much a driver of the Chinese economy as in the past, China is well situated to benefit in any upturn, particularly because of its reputation for manufacturing inexpensive products, said Freeman. "Cheap goods are relatively in demand in times of economic trouble, and so China is the first and last resort for cheap goods," he said.
In addition to better economic cooperation, Beijing is also Washington's most important partner in efforts to discourage or contain North Korea's nuclear ambitions. Still, the U.S.- Chinese relationship isn't all rosy.
There remain security concerns as China bulks up as a military superpower as well as an economic one.
And there is still much trade friction between the two countries. Many in Congress and in organized labor still view China warily as a fierce competitor for U.S. manufacturing jobs.
"New opportunities in President Obama's new green economy will go to big players like GM and to businesses in China, where the government understands global commerce is played by rules of prison football," said Peter Morici, a business economist at the University of Maryland and former chief economist at the U.S. International Trade Commission.
"China has more than 100 million rural underemployed workers who, if moved into factories, could replace every manufacturing job in the United States, Western Europe and Japan," Morici said.
China and the United States are each other's second-largest trading partner. But the trade is way out of whack. The U.S. trade deficit with China remains its largest, even though trade overall has been down because of the global recession.
The Economic Policy Institute, a union-funded think tank, says that China represents a staggering 83 percent of the entire U.S. trade deficit in non-oil goods, up from 26 percent in 2000.
There is also a long-simmering dispute between the U.S. and China over exchange rates. U.S. officials claim China's currency policies end up overpricing U.S. goods there and making Chinese-made goods less expensive in the U.S.
And, as the largest holder of U.S. debt - mostly in the form of Treasury bonds - Beijing holds vast economic leverage over the United States. Suddenly selling those Treasurys or significantly reducing its debt holdings could send shock waves through the global financial system and make it harder for the U.S. to finance its mushrooming debt.
Most economists believe China is unlikely to make any such moves, because it would reduce the value of its own vast holdings in Treasurys. But Beijing might slow down its purchases of Treasurys and other dollar-denominated investments, complicating efforts for the United States to finance a budget deficit expected to surpass $1.8 trillion this year and a cumulative national debt approaching $12 trillion.
Also, there's one area in which China has now surpassed the U.S. and remains the world leader, even if it's hardly an honor. It is now the world's largest carbon emitter.
U.S. policymakers recognize that costly steps taken by Western nations to reduce pollution to help control global warming will mean little if China, with its population of 1.3 billion people, does not join in the effort.
But so far, the U.S. has been unable to persuade China to work to lower its emissions. China argues with conviction that it has a right to develop rapidly in hopes of attaining Western living standards and that its per capita pollution remains a fraction of that in the U.S. It also claims to have made great recent strides in energy efficiency and cleaning up coal plants.
Saturday, July 25, 2009
Maxis to consider PM’s suggestion on relisting
Source: The Star OnlineKUALA LUMPUR: Maxis Communications Berhad will consider relisting soon following the suggestion by the Prime Minister for the company to relist on Bursa Malaysia.
A company spokesperson said in a statement released Saturday that a further announcement will be made at the appropriate time.
She said Datuk Seri Najib Tun Razak had asked the stakeholders of Maxis to consider the possibility of seeking a re-listing of Maxis on Bursa Malaysia to assist in the Government’s overall efforts to enlarge the market capitalisation of the exchange and range of large companies that attract institutional investor interest.
“When Maxis was privatised and de-listed in 2007, the stakeholders articulated the possibility of a re-listing of the company after internal re-structuring, some time in the future,” she said.
It is learnt that the initial public offer (IPO) may be launched as early as October and the company may be listed by the end of the year.
CIMB Investment Bank may be appointed to manage the IPO.
Sources said the listing is likely to be only for its Malaysian operations.
Maybank Investment Bank senior analyst Khair Mirza welcomed the move saying it was positive for the markets.
“Maxis needs a legitimate reason to return to the stock market and the call by the Prime Minister is timely.
“When it would be listed remains to be seen,” Khair said.
Last Thursday, Najib urged Maxis, the mobile-phone company bought out by T. Ananda Krishnan in 2007, to re-list in Kuala Lumpur to attract investors to the exchange.
Maxis, 25%-owned by Saudi Telecom Co, was assessing the proposal, Najib had said after returning from the Middle East.
“It has been conveyed to the management and they are considering it very seriously. Hopefully, it will happen fairly soon,’’ said Najib.
Maxis first sold shares in Malaysia in 2002. Before the company was taken private in June 2007, it was valued at about RM40bil on the stock exchange.
In its listing in 2002, Maxis shares were sold to institutional investors at RM4.85 each and retail investors at RM4.36. On its last day of trading in July 2007, the shares were traded at RM15.20 each
A company spokesperson said in a statement released Saturday that a further announcement will be made at the appropriate time.
She said Datuk Seri Najib Tun Razak had asked the stakeholders of Maxis to consider the possibility of seeking a re-listing of Maxis on Bursa Malaysia to assist in the Government’s overall efforts to enlarge the market capitalisation of the exchange and range of large companies that attract institutional investor interest.
“When Maxis was privatised and de-listed in 2007, the stakeholders articulated the possibility of a re-listing of the company after internal re-structuring, some time in the future,” she said.
It is learnt that the initial public offer (IPO) may be launched as early as October and the company may be listed by the end of the year.
CIMB Investment Bank may be appointed to manage the IPO.
Sources said the listing is likely to be only for its Malaysian operations.
Maybank Investment Bank senior analyst Khair Mirza welcomed the move saying it was positive for the markets.
“Maxis needs a legitimate reason to return to the stock market and the call by the Prime Minister is timely.
“When it would be listed remains to be seen,” Khair said.
Last Thursday, Najib urged Maxis, the mobile-phone company bought out by T. Ananda Krishnan in 2007, to re-list in Kuala Lumpur to attract investors to the exchange.
Maxis, 25%-owned by Saudi Telecom Co, was assessing the proposal, Najib had said after returning from the Middle East.
“It has been conveyed to the management and they are considering it very seriously. Hopefully, it will happen fairly soon,’’ said Najib.
Maxis first sold shares in Malaysia in 2002. Before the company was taken private in June 2007, it was valued at about RM40bil on the stock exchange.
In its listing in 2002, Maxis shares were sold to institutional investors at RM4.85 each and retail investors at RM4.36. On its last day of trading in July 2007, the shares were traded at RM15.20 each
Burgernomics and the ringgit
What Are We To Do
By TAN SRI LIN SEE-YAN (THE STAR ONLINE)
Based on purchasing power parity, the ringgit is undervalued by 47%.
I am often asked: What is per capita PPP income. What does US$5,000 income @ PPP prices mean? Off-and-on, the term PPP intrudes into our lives: via TV news, newspapers and economic reports. PPP stands for purchasing power parity – a theory in economics first developed by Swedish economist Gustav Cassel after World War I. Simply put, this doctrine states that the exchange rate is determined by the relative purchasing power of any two currencies.
The common sense of this is that the same amount of money should purchase the same product in any two countries (whence, the term purchasing power parity). That is, the purchasing power of money, expressed in one currency, should change pari passu in different countries. If US$5 buys a cup of Starbucks coffee in New York and the actual cost of the same Starbucks coffee in KL is RM12, then the exchange rate should be US$1=RM2.40 according to PPP. But the actual exchange rate is close to RM3.60, or 33% cheaper.
PPP in today’s world
Is PPP relevant? To answer, we need to backtrack. During World War I, trade was disrupted between the allies and halted with enemies. When trade resumed after the war, a choice of new exchange rates was required. Any return to pre-war rates would not have made practical sense since countries had experienced significantly differing rates of inflation because of the disruption of war.
Let’s say before the war, US$1=30Ff (French franc). Since then, the price level in France had risen, say, 20 times and in the United States, doubled. Prices in France has thus risen 10 times more than in the United States; so the new exchange rate should be US$1=300Ff based on PPP (i.e. exchange rate determined by relative purchasing power of the two currencies).
Thus, PPP served as a useful guide at a time of major international turbulence. It was also practical to use and easy to understand. But it’s also too simplistic and even unrealistic. The world is not perfect. It’s also complicated. Many non-trading factors and too many other considerations do come into play in determining an exchange rate.
Today, the world has become even more imperfect and much more complex. Adjustment to stability (if ever) is far from instantaneous. Often, it involves a complicated web of geopolitical considerations which work to derail the timing of an often long process. Recent developments have led to widespread structural disruptions not seen since the 1930s. As a result, the market price discovery mechanisms we have taken so much for granted no longer function as a reliable guide for decision-making.
Exchange rates, interest rates, retail prices and the range of other price indices have become too “manipulated” to make good economic sense, in the face of an eco-system that has now become neither capitalist nor communist. It is in times like these that we look for simple, practical benchmarks that can offer sensible guides to help us manage the myriad of risks that just won’t go away.
The Big Mac index
In today’s globalised world, we encounter difficulties in assessing the value of currencies. Readers also ask: Is it true that the ringgit is undervalued? Why is the US dollar still so strong? How much basis-in-fact is there? The Economist magazine publishes annually its Big Mac index. The latest appeared in this week’s issue. It calls this index a “light-hearted guide to valuing currencies, provides some clues”.
Interestingly enough, it is based on the PPP theory and uses the Big Mac hamburger as the benchmark product since it is standardised and sold in more or less the same form worldwide. Comparison of the purchase price of this “common” burger in domestic currencies against the US dollar price would yield a PPP exchange rate between any currency and the US dollar. In this way, the rate of exchange that leaves the Big Mac costing the same in US dollars anywhere in the world provides a “fair value”, or PPP benchmark.
For example, you actually pay US$3.57 for a Big Mac in the United States; in the United Kingdom, it costs £2.29 or equivalent to US$3.69 converted at the current market exchange rate. The implied PPP exchange rate is therefore £1=US$1.56 compared with the actual market rate of £1=1.61. That’s close enough to fair value. But this is not always the case.
Value of the ringgit
Take Malaysia. According to this index, the Big Mac costs RM6.77 or only US$1.88 (converted at current market exchange rate) which is about half its price in the United States. This means that the ringgit has a much higher purchasing power in Malaysia than in the United States! Look at this another way: the implied PPP exchange rate is US$1=RM1.90. But the actual market exchange rate is closer to RM3.60. Nearly double!! Based on PPP, the ringgit is undervalued by 47%.
By the same token, the index showed that the Chinese renminbi is similarly undervalued, by 49%; Thai baht by 47%; Indonesia’s rupiah by 43%; Hong Kong dollar by 52%; Taiwan dollar by 37%; the Philippine peso by 25%; and the Singapore dollar by 19%. It would appear that the currencies of China and Hong Kong and those of most emerging Asean economies are significantly undervalued by 40%–50% against the US dollar.
At the other spectrum, most major European currencies appear substantially overvalued vis-a-vis the US dollar: the euro by 29%, Swiss franc by 68% and Scandinavian currencies by 40%–70%. However, like the pound sterling, the Japanese yen and Australian dollar are close enough to the fair value on this basis. These are interesting comparative numbers.
Malaysia’s 2008 per capita income (at current market prices) was placed at US$7,738. On a PPP basis, the international Monetary Fund (IMF) estimated this income’s purchasing power to be in the region of US$14,000. A word of caution, however. The PPP is subject to many flaws. Indeed, many economists regard it as quite irrelevant these days. Why is this so?
PPP as a guide
For one thing, costing of the burger includes many local inputs (e.g. wages, rent, advertising, etc.) which tend to be lowest in the poorest countries. Perhaps, that is why the Big Mac is so overpriced in Europe. Worse, the outcome will be different for different single standardised products used.
To be really helpful, we will need a representative basket of goods and services (not just the Big Mac alone). Price indices, however, include many goods and services that do not enter into international trade. Moreover, the jury is still out on whether the exchange rate moves in response to price changes or the other way around. The causal relationship is very unclear.
The PPP works from a base rate, the legitimacy of which can be in doubt. Most important, it overlooks the often volatile supply and demand of foreign exchange arising from non-trade sources: long and short-term foreign investment, loan flows, transfers and other speculative movements of capital. Finally, in our imperfect world, government interventions (e.g. exchange control, trade restrictions and taxes) do affect the purchasing power of currencies.
Nevertheless, PPP remains in use simply because it is readily understood, has an unusually simple construct, and is very transparent. It appears to be more useful during periods of marked changes (especially in rates of inflation). Also, it acts as better guides to exchange rate misalignments among nations with similar levels of income.
Be that as it may, the latest Big Mac index points to interesting trends: major European currencies appear grossly overvalued vis-a-vis the US dollar, and many Asian currencies, overly undervalued. Or is it that the base currency – the US dollar - is way overvalued?
You can’t tell from the PPP exchange rates. Nevertheless, the theory can serve as a crude approximation. But, it cannot offer a satisfactory explanation of today’s exchange rates. Prof Gottfried von Haberler, my mentor at Harvard and a guru on exchange rates, used to say: After all, in the final analysis, people value currencies for what they will buy.
The Japanese lesson
In Asia, the Chinese renminbi is often singled out to be grossly undervalued (the PPP also shows this). Strong pressures to re-value have come from the United States and the IMF. However, these have eased with the recent global meltdown. The Japanese experience over three decades ago offers a valuable lesson in history.
From the 1980s into the mid-1990s, Japan bashing was in vogue in the United States, much as China bashing was in the Bush years. Back then, Japan’s large bilateral trade surplus led to the United States continually threatening it with trade sanctions. Consequently, “voluntary” export restrains were put into place and the yen was allowed to appreciate. It did so all the way from US$1=360 yen in 1971 to touch 80 yen in April 1985.
This unhinged the Japanese financial system and induced the bubble in stock and land prices in the late 1980s which eventually collapsed in 1991. This resulted in Japan’s unrelenting deflationary slump of the 1990s – known now as the “lost” decade. Japan has yet to fully recover and remains today in a zero interest liquidity trap.
The Bank of Japan has failed to re-ignite economic growth. The recent financial meltdown and global recession have not made matters any better. Yet, Japan’s trade surplus as a share of gross national product (GNP) has not been reduced in any significant way.
Of course, the world has since changed dramatically. Nonetheless, in my view, any renewed pressures to force a revaluation of the renminbi at this time will run the risk of: (i) possibly sending China into a similar deflationary slump that hit Japan during the 1990s; and (ii) destabilising its currency to the detriment of global growth recovery.
The state of the world economy remains delicate. It calls for prudence. In the final analysis, I don’t see how the US trade deficit can be bridged by simply revaluing China’s exchange rate. The key must lie in increased US national savings. This won’t be easy given the current weak US economy.
By TAN SRI LIN SEE-YAN (THE STAR ONLINE)
Based on purchasing power parity, the ringgit is undervalued by 47%.
I am often asked: What is per capita PPP income. What does US$5,000 income @ PPP prices mean? Off-and-on, the term PPP intrudes into our lives: via TV news, newspapers and economic reports. PPP stands for purchasing power parity – a theory in economics first developed by Swedish economist Gustav Cassel after World War I. Simply put, this doctrine states that the exchange rate is determined by the relative purchasing power of any two currencies.
The common sense of this is that the same amount of money should purchase the same product in any two countries (whence, the term purchasing power parity). That is, the purchasing power of money, expressed in one currency, should change pari passu in different countries. If US$5 buys a cup of Starbucks coffee in New York and the actual cost of the same Starbucks coffee in KL is RM12, then the exchange rate should be US$1=RM2.40 according to PPP. But the actual exchange rate is close to RM3.60, or 33% cheaper.
PPP in today’s world
Is PPP relevant? To answer, we need to backtrack. During World War I, trade was disrupted between the allies and halted with enemies. When trade resumed after the war, a choice of new exchange rates was required. Any return to pre-war rates would not have made practical sense since countries had experienced significantly differing rates of inflation because of the disruption of war.
Let’s say before the war, US$1=30Ff (French franc). Since then, the price level in France had risen, say, 20 times and in the United States, doubled. Prices in France has thus risen 10 times more than in the United States; so the new exchange rate should be US$1=300Ff based on PPP (i.e. exchange rate determined by relative purchasing power of the two currencies).
Thus, PPP served as a useful guide at a time of major international turbulence. It was also practical to use and easy to understand. But it’s also too simplistic and even unrealistic. The world is not perfect. It’s also complicated. Many non-trading factors and too many other considerations do come into play in determining an exchange rate.
Today, the world has become even more imperfect and much more complex. Adjustment to stability (if ever) is far from instantaneous. Often, it involves a complicated web of geopolitical considerations which work to derail the timing of an often long process. Recent developments have led to widespread structural disruptions not seen since the 1930s. As a result, the market price discovery mechanisms we have taken so much for granted no longer function as a reliable guide for decision-making.
Exchange rates, interest rates, retail prices and the range of other price indices have become too “manipulated” to make good economic sense, in the face of an eco-system that has now become neither capitalist nor communist. It is in times like these that we look for simple, practical benchmarks that can offer sensible guides to help us manage the myriad of risks that just won’t go away.
The Big Mac index
In today’s globalised world, we encounter difficulties in assessing the value of currencies. Readers also ask: Is it true that the ringgit is undervalued? Why is the US dollar still so strong? How much basis-in-fact is there? The Economist magazine publishes annually its Big Mac index. The latest appeared in this week’s issue. It calls this index a “light-hearted guide to valuing currencies, provides some clues”.
Interestingly enough, it is based on the PPP theory and uses the Big Mac hamburger as the benchmark product since it is standardised and sold in more or less the same form worldwide. Comparison of the purchase price of this “common” burger in domestic currencies against the US dollar price would yield a PPP exchange rate between any currency and the US dollar. In this way, the rate of exchange that leaves the Big Mac costing the same in US dollars anywhere in the world provides a “fair value”, or PPP benchmark.
For example, you actually pay US$3.57 for a Big Mac in the United States; in the United Kingdom, it costs £2.29 or equivalent to US$3.69 converted at the current market exchange rate. The implied PPP exchange rate is therefore £1=US$1.56 compared with the actual market rate of £1=1.61. That’s close enough to fair value. But this is not always the case.
Value of the ringgit
Take Malaysia. According to this index, the Big Mac costs RM6.77 or only US$1.88 (converted at current market exchange rate) which is about half its price in the United States. This means that the ringgit has a much higher purchasing power in Malaysia than in the United States! Look at this another way: the implied PPP exchange rate is US$1=RM1.90. But the actual market exchange rate is closer to RM3.60. Nearly double!! Based on PPP, the ringgit is undervalued by 47%.
By the same token, the index showed that the Chinese renminbi is similarly undervalued, by 49%; Thai baht by 47%; Indonesia’s rupiah by 43%; Hong Kong dollar by 52%; Taiwan dollar by 37%; the Philippine peso by 25%; and the Singapore dollar by 19%. It would appear that the currencies of China and Hong Kong and those of most emerging Asean economies are significantly undervalued by 40%–50% against the US dollar.
At the other spectrum, most major European currencies appear substantially overvalued vis-a-vis the US dollar: the euro by 29%, Swiss franc by 68% and Scandinavian currencies by 40%–70%. However, like the pound sterling, the Japanese yen and Australian dollar are close enough to the fair value on this basis. These are interesting comparative numbers.
Malaysia’s 2008 per capita income (at current market prices) was placed at US$7,738. On a PPP basis, the international Monetary Fund (IMF) estimated this income’s purchasing power to be in the region of US$14,000. A word of caution, however. The PPP is subject to many flaws. Indeed, many economists regard it as quite irrelevant these days. Why is this so?
PPP as a guide
For one thing, costing of the burger includes many local inputs (e.g. wages, rent, advertising, etc.) which tend to be lowest in the poorest countries. Perhaps, that is why the Big Mac is so overpriced in Europe. Worse, the outcome will be different for different single standardised products used.
To be really helpful, we will need a representative basket of goods and services (not just the Big Mac alone). Price indices, however, include many goods and services that do not enter into international trade. Moreover, the jury is still out on whether the exchange rate moves in response to price changes or the other way around. The causal relationship is very unclear.
The PPP works from a base rate, the legitimacy of which can be in doubt. Most important, it overlooks the often volatile supply and demand of foreign exchange arising from non-trade sources: long and short-term foreign investment, loan flows, transfers and other speculative movements of capital. Finally, in our imperfect world, government interventions (e.g. exchange control, trade restrictions and taxes) do affect the purchasing power of currencies.
Nevertheless, PPP remains in use simply because it is readily understood, has an unusually simple construct, and is very transparent. It appears to be more useful during periods of marked changes (especially in rates of inflation). Also, it acts as better guides to exchange rate misalignments among nations with similar levels of income.
Be that as it may, the latest Big Mac index points to interesting trends: major European currencies appear grossly overvalued vis-a-vis the US dollar, and many Asian currencies, overly undervalued. Or is it that the base currency – the US dollar - is way overvalued?
You can’t tell from the PPP exchange rates. Nevertheless, the theory can serve as a crude approximation. But, it cannot offer a satisfactory explanation of today’s exchange rates. Prof Gottfried von Haberler, my mentor at Harvard and a guru on exchange rates, used to say: After all, in the final analysis, people value currencies for what they will buy.
The Japanese lesson
In Asia, the Chinese renminbi is often singled out to be grossly undervalued (the PPP also shows this). Strong pressures to re-value have come from the United States and the IMF. However, these have eased with the recent global meltdown. The Japanese experience over three decades ago offers a valuable lesson in history.
From the 1980s into the mid-1990s, Japan bashing was in vogue in the United States, much as China bashing was in the Bush years. Back then, Japan’s large bilateral trade surplus led to the United States continually threatening it with trade sanctions. Consequently, “voluntary” export restrains were put into place and the yen was allowed to appreciate. It did so all the way from US$1=360 yen in 1971 to touch 80 yen in April 1985.
This unhinged the Japanese financial system and induced the bubble in stock and land prices in the late 1980s which eventually collapsed in 1991. This resulted in Japan’s unrelenting deflationary slump of the 1990s – known now as the “lost” decade. Japan has yet to fully recover and remains today in a zero interest liquidity trap.
The Bank of Japan has failed to re-ignite economic growth. The recent financial meltdown and global recession have not made matters any better. Yet, Japan’s trade surplus as a share of gross national product (GNP) has not been reduced in any significant way.
Of course, the world has since changed dramatically. Nonetheless, in my view, any renewed pressures to force a revaluation of the renminbi at this time will run the risk of: (i) possibly sending China into a similar deflationary slump that hit Japan during the 1990s; and (ii) destabilising its currency to the detriment of global growth recovery.
The state of the world economy remains delicate. It calls for prudence. In the final analysis, I don’t see how the US trade deficit can be bridged by simply revaluing China’s exchange rate. The key must lie in increased US national savings. This won’t be easy given the current weak US economy.
Stock picks in key sectors
Source: The Star Online
IN good or bad times, there is always value to be found. StarBizWeek polled several analysts’ views on their stock picks and have compiled a list of eight stocks from several key sectors.On the back of a 23% passenger growth and 77% load factor, analysts are expecting AirAsia Bhd’s quarterly results next month to surprise on the upside.
“Ancillary income will offset fuel price increase. It acts as the best defence against fuel price increase as every RM1 per pax increase will offset US$1 per barrel increase in fuel price,” says an analyst from ECM Libra.
He adds that ancillary income has doubled to RM29 per pax within the last two years and management targets to double it again to RM60 per pax by introducing more value-added services.
Meanwhile, AirAsia plans to defer the delivery of 15 A320 aircraft as it expects the construction of the new LCCT to be further delayed. Hence, capital requirement will be reduced by RM2.3bil while gearing will also be lowered.
“We reiterate our buy call on AirAsia with a target price of RM1.90. AirAsia is poised to outperform on consensus earnings upgrade in anticipation of strong second quarter results, sustained low fuel price and potential dual listing (or merger),” he says.
The analyst forecasts an 8.89% increase in revenue to RM2.87bil while net profit is expected to jump 211.13% to RM598.3mil for its year ending Dec 31, 2009. SP Setia Bhd
The recent abolishment of bumiputra equity requirement for mergers and acquisitions and Foreign Investment Committee approvals to improve the investability of Malaysian properties is likely to benefit the property sector.
The best proxy to a sector re-rating would be sector leader,
SP Setia Bhd. It is the largest developer by market cap and sales and is also a clear favourite among institutional investors.
n the first eight months of its financial year ending October 2009, the company hit a record RM1bil in sales. Unbilled sales rose to RM1.9bil, which is among the highest in the sector.
It is also expected to bring forward its RM5bil mixed development project near Midvalley in KL to 2010 (from 2013), which could mean upside to earnings.
“It has no plans for new launches in the next few months to concentrate on delivery. It will also not extend its 5/95 financing scheme beyond July, which could lead to margin expansion,” says HwangDBS Vickers analyst Yee Mee Hui.
Yee has raised her target price to RM5 from RM4.50 based on narrower 10% discount to its revised net asset value of RM5.54. For FY09, she is forecasting net profit of RM189mil on the back of RM1.2bil in revenue.
UEM Land Holdings Bhd
UEM Land is the largest land owner in Nusajaya, a key development area in Iskandar Malaysia, Johor. Its township development is set to benefit from closer ties between the Malaysian and Singapore governments.
CLSA Asia-Pacific Markets analyst Chee Wei Loong says that price differential remains wide with land in Singapore at least 40 times more expensive than in Johor.
“There have been talks to improve the economic linkages between Singapore and Malaysia, which will be a catalyst to improve property values in Johor,” he says.
The proposals include potential investments by the Singapore government in two iconic projects: building of a third link between the two countries and expansion of Singapore’s Mass Rapid Transit system to Johor Baru.
Khazanah Nasional has planned investments of about RM7bil, including the building of a RM1.1bil coastal highway linking Johor Baru to Nusajaya.
It is spearheading the development of a new financial district, education hub, international resorts and theme parks on 4,500 acres of land acquired from UEM Land in 2007.
“UEM’s share price is trading at a steep discount to an estimated RNAV/share of RM4. We believe newsflow of potential investors in Nusajaya, rather than immediate-term earnings prospects, will be a re-rating catalyst says Chee.
MISC Bhd
The outlook for the container sector is bleak but management initiatives to reshape the value-destroying division are positive, and losses could diminish.
“We like the stock for its defensive energy-shipping business, bright oil & gas sector outlook and good execution of strategies,” says Nik Hadi from CLSA Asia Pacific.
MISC is withdrawing from Grand Alliance, effective Jan 1, 2010. This will effectively end its participation in the Mediterranean or Asia-Europe trade lanes.
The focus will then be on the intra-Asia routes, the subcontinent India/Middle East to Asia trade.
CLSA is projecting losses at the division to decline from RM877mil in FY09 to RM525mil in FY10.
MISC’s parent, Petronas has said recently that it will continue to spend on upstream exploration and production activities.
In FY09, Petronas increased upstream capital expenditure to RM22.3bil, up 3.6%. The uptrend is likely to extend further and this bodes well for MISC’s offshore and heavy-engineering divisions.
At MISC’s price to book of 1.5 times (x), Nik Hadi does not expect the stock to retest its all-time low of 1x given a more resilient business model.
“At current levels, investors are getting the heavy-engineering division for free. Our sum-of-parts-derived target price of RM9.60 implies a total return of 12% and hence our ‘buy’ rating,” he says.
Downside risks are sharper than expected decline in shipping rates and cutbacks in Petronas’ capital expenditure.
QSR Brands Bhd
QSR Brands Bhd, the parent company of KFC Holdings Bhd and the owner of Pizza Hut, is aggressively expanding its quick service restaurant business in Malaysia and Cambodia. India is the group’s latest target market, with new outlets planned in Mumbai and Pune.
CIMB Research views QSR’s current share price as undervalued. Based on the latest closing prices, QSR’s 50.3% stake in KFCH is worth RM728mil, while the group’s current market value is just shy of RM800mil.
This indicates that the market assigned a small value to the growing Pizza Hut operation. Meanwhile, the management had been buying back shares in QSR, but not in KFCH over the past months.
QSR is 60% owned by Kulim (M) Bhd. Lembaga Tabung Haji has a 9.9% stake, while the Employees Provident Fund holds 5.8% share in the company.
CIMB Research, in a report dated July 10, has reduced QSR’s earnings forecast to account for higher start-up cost on its overseas operations, but sees QSR’s growth story as “attractive,” supported by compounded annual growth rate (CAGR) of 11.9% over the next three years.
It also noted that QSR’s share price valuation is cheaper compared to KFCH, while dividend yield is higher at 4.5%.
Fajarbaru Builder Group Bhd
Fajarbaru Builder Group’s order book stood at RM500mil as at end-March, which is a respectable size for a small second board-listed contractor with a market value of just RM140mil.
With no debts, cash in hand of RM87.5mil and a good execution track record in recent years, analysts say Fajarbaru will be a strong contender for upcoming public infrastructure works to be rolled out in the coming months.
Analysts predict that the firm would be able to meet market expectation of adding RM400mil worth of new jobs for this year. It had already secured a RM138mil job to build a hospital in Tampin, Negri Sembilan earlier this year. Five brokerages gave their profit forecast for the builder, with the mean prediction of 12.2 sen per share expected for year ended June 30, 2009.
Kencana Petroleum Bhd
Kencana Petroleum Bhd has proposed to sell new shares to raise as much as RM160mil. This will add to its existing cash pile of RM84mil.
Analysts say Kencana is looking to expand into the offshore support vessel business, and the fund raising exercise would help pay for the capital expenditure needed for the new venture.
Such vessels are the missing link in Kencana’s offshore operations.
The group’s current orderbook stands at RM1.9bil, made up mostly of oil and gas related fabrication works.
Chief executive officer Datuk Mokhzani Mahathir said last month that the group’s order book would remain healthy at least over the next three years with expected contract wins at home and abroad.
From October onwards, Kencana will start seeing recurring income from a 25% stake in a drilling rig contracted to Petronas.
Consensus estimates showed Kencana’s earnings would reach 13.6 sen for the year ending July 31. A steady crude oil price at above US$60 per barrel would keep sentiment on the oil and gas player intact.
Malayan Banking Bhd
An overwhelming 87% of analysts tracked by Bloomberg rated Malayan Banking Bhd (Maybank) as a “hold” at best.
Of the total 24 analysts, only three see the bank as a buy, saying that the country’s biggest bank is worth more than what the majority is willing to pay for it.
The market’s appetite for Maybank’s shares may have slowed after its share price surged 80% from a low in March. At RM6.40 on Thursday, the stock was well below where it was in early 2008 – before Maybank made what now looked like an ill-timed expansion into Indonesia and Pakistan.
Maybank’s current price-to-book value of around 1.6 times is at a discount to the industry’s average, but overrriding concerns about potential damaging impairment charges on overseas investment and loan loss provision are major turn-offs for investors.
Post a RM6bil rights issue announced earlier this year, Maybank’s key capital ratios will at “very healthy” levels.
Analysts expects the group’s solid local operations to keep the bank in the black for the current year ended June 30. The bank’s last quarter results are expected to be out by end of next month.
Malaysian shares seen down next week: Analyst
Source: 24 Jul 2009, 1624 hrs IST, AGENCIES
KUALA LUMPUR: Malaysian share prices are expected to drop next week following recent rallies, an analyst said Friday.
"There have been rallies for the past eight or nine days -- the market is becoming more and more overbought so we are looking at a healthy correction," Stephen Soo, technical analyst with local brokerage TA Securities, told AFP.
"We also expect the blue-chips to consolidate," he added.
Soo said he expected the bourse to trade between 1,165 and 1,188 points next week.
For the week to July 24, the Kuala Lumpur Composite Index gained 34.98 points, or 3.12 percent, to close at 1,155.88.
KUALA LUMPUR: Malaysian share prices are expected to drop next week following recent rallies, an analyst said Friday.
"There have been rallies for the past eight or nine days -- the market is becoming more and more overbought so we are looking at a healthy correction," Stephen Soo, technical analyst with local brokerage TA Securities, told AFP.
"We also expect the blue-chips to consolidate," he added.
Soo said he expected the bourse to trade between 1,165 and 1,188 points next week.
For the week to July 24, the Kuala Lumpur Composite Index gained 34.98 points, or 3.12 percent, to close at 1,155.88.
Friday, July 24, 2009
Bursa reduces tick size to boost market liquidity
Source: The Star Online
KUALA LUMPUR: Bursa Malaysia has reduced the structure of tick size or the minimum price variation between the buy and sell price for a stock, effective Aug 3.
In a statement yesterday, it said the tick size was reduced in line with the current practice by global developed markets and more importantly, to create market depth, enable price discovery and boost liquidity in the local equities market.
“Investors rely on information such as tick sizes to estimate future movement of a counter’s share price as well as form a gauge of market sentiment,” Bursa Malaysia Bhd chief executive officer Datuk Yusli Mohamed Yusoff said.
He said the exchange anticipated this reduction of tick size would broaden participation from investors who were poised to provide more liquidity to the local market as investors could enter and exit the market more easily.
In addition, the smaller tick size would enable investors and traders to take advantage of more trading opportunities with each price movement, however small.
“This is more evident with the advent of electronic access or Direct Market Access infrastructure which operates efficiently with smaller tick sizes,” Yusli said.
To investors, this revised tick size structure means that the minimum price change of listed securities is now smaller.
For example, currently, a RM5.10 stock is quoted in multiples of five sen which means that the next tick up is RM5.15 and the next tick down is RM5.05.
With the new tick sizes, investors can now quote in multiples of one sen, which will now see a RM5.10 stock go up to the next tick which is RM5.11 or next tick down, which is RM5.09.
Bursa said the equity exchange-traded funds (ETFs) would also benefit from the change. Currently, these ETFs have a tick size of one sen regardless of any price. In future, any ETFs below RM1 will have a tick size of 0.1 sen and ETFs that are priced between RM1 and RM2.995 will have a tick size of 0.5 sen.
For ETFs priced at RM3 and above, the new tick size will be one sen. Meanwhile, the bond ETF maintains its tick size of 0.1 sen. As to the bidding price for buying-in, Bursa said it would retain the 10 ticks.
Arising from this, the buying-in price would be based on the current tick sizes instead of the new tick sizes to ensure that the buying-in price was attractive to potential sellers, it added. — Bernama
KUALA LUMPUR: Bursa Malaysia has reduced the structure of tick size or the minimum price variation between the buy and sell price for a stock, effective Aug 3.
In a statement yesterday, it said the tick size was reduced in line with the current practice by global developed markets and more importantly, to create market depth, enable price discovery and boost liquidity in the local equities market.
“Investors rely on information such as tick sizes to estimate future movement of a counter’s share price as well as form a gauge of market sentiment,” Bursa Malaysia Bhd chief executive officer Datuk Yusli Mohamed Yusoff said.
He said the exchange anticipated this reduction of tick size would broaden participation from investors who were poised to provide more liquidity to the local market as investors could enter and exit the market more easily.
In addition, the smaller tick size would enable investors and traders to take advantage of more trading opportunities with each price movement, however small.
“This is more evident with the advent of electronic access or Direct Market Access infrastructure which operates efficiently with smaller tick sizes,” Yusli said.
To investors, this revised tick size structure means that the minimum price change of listed securities is now smaller.
For example, currently, a RM5.10 stock is quoted in multiples of five sen which means that the next tick up is RM5.15 and the next tick down is RM5.05.
With the new tick sizes, investors can now quote in multiples of one sen, which will now see a RM5.10 stock go up to the next tick which is RM5.11 or next tick down, which is RM5.09.
Bursa said the equity exchange-traded funds (ETFs) would also benefit from the change. Currently, these ETFs have a tick size of one sen regardless of any price. In future, any ETFs below RM1 will have a tick size of 0.1 sen and ETFs that are priced between RM1 and RM2.995 will have a tick size of 0.5 sen.
For ETFs priced at RM3 and above, the new tick size will be one sen. Meanwhile, the bond ETF maintains its tick size of 0.1 sen. As to the bidding price for buying-in, Bursa said it would retain the 10 ticks.
Arising from this, the buying-in price would be based on the current tick sizes instead of the new tick sizes to ensure that the buying-in price was attractive to potential sellers, it added. — Bernama
Canada's central banks says recession over
Source: The Star Online
OTTAWA: Canada's central bank is declaring the recession essentially over, saying the Canadian economy will begin growing this summer after nine months of stagnation and lead most of the industrialized world next year.
Bank of Canada Governor Mark Carney said Thursday the economy will grow this quarter.
The bank has dropped its April call for 1 percent contraction this quarter and now says the economy will instead expand by 1.3 percent annualized.
That will be followed by a 3 percent advance in the last three months of this year, and 3 percent growth next year.
But Carney says the economy remains dependent on government stimulus and his own conditional pledge to keep the interest rates at an historic low of 0.25 percent until mid-2010. - AP
OTTAWA: Canada's central bank is declaring the recession essentially over, saying the Canadian economy will begin growing this summer after nine months of stagnation and lead most of the industrialized world next year.
Bank of Canada Governor Mark Carney said Thursday the economy will grow this quarter.
The bank has dropped its April call for 1 percent contraction this quarter and now says the economy will instead expand by 1.3 percent annualized.
That will be followed by a 3 percent advance in the last three months of this year, and 3 percent growth next year.
But Carney says the economy remains dependent on government stimulus and his own conditional pledge to keep the interest rates at an historic low of 0.25 percent until mid-2010. - AP
Will Asia’s recovery lead the way?
Comment by Jong-Wha Lee (The Star Online)
Will Asia’s recovery lead the way?
Comment by Jong-Wha Lee
Economic indicators from developed economies remain mixed but Asia is showing much more favourable signs
WHILE the rest of the world struggles, developing Asia is shifting from recession to recovery.
Latest economic indicators from the world’s advanced economies remain mixed.
There are some signs of stabilisation – industrial output and consumer spending are, for example, falling much more slowly than they were. But stabilisation does not mean imminent recovery.
The pace of deterioration may be slowing, but a decline is still a decline. Unemployment is still on the rise. Consumer and business confidence has not recovered. It is clear that the recession has yet to bottom out in the United States and Europe.
In contrast, signs are much more favourable in Asia. Markets, which are typically the first indicators of recovery, are rebounding much more sharply here.
While the Dow Jones Industrial Average rose 11% in the second quarter, Japan’s Nikkei 225 jumped 23%. Equity markets in China rose 25%, India 53% and Vietnam 60%.
Asia’s real economy is doing much better too. Industrial production in South Korea, Singapore, and Thailand has been rising in recent months.
And while most economies in Asia have suffered their worst performance since the 1997/98 Asian financial crisis, we believe they have hit bottom.
The Asian Development Bank forecasts that growth in gross domestic product (GDP) for emerging East Asia will still be 3% this year.
While that’s a significant reduction from the 6.1% growth in 2008, it is growth nonetheless – and much better than other regions of the world. Will Asia lead the global recovery? Quite possibly.
We expect a V-shaped recovery – growth in the region is likely to rise to around 6% next year. However, this is still two percentage points below the 8% average growth between 2003 and 2007.
The reason is that while we expect government stimulus to boost domestic demand, we doubt the external demand that drove exports during the years prior to the latest crisis will return any time soon.
We now see the US economy contracting 3% this year while the economies in Europe and Japan will likely shrink 4.3% and 5.8% respectively.
China is leading the recovery in Asia. Aggressive government spending there – more than 7% of GDP this year, and 8% in 2010 – will fuel domestic growth. And that, in turn, should help other Asian economies recover as they fill Chinese demand for their goods.
China is the biggest offshore buyer of Korean products and the second largest for Japan, snapping up about a quarter of Korean exports and one sixth of Japan’s.
About 12% of total exports from the five largest South-East Asian economies – Indonesia, Malaysia, Philippines, Thailand, and Vietnam – go to China.
But that won’t be enough to restore developing Asia to the growth levels seen in recent years.
For that to happen, consumers in the world’s major economies also need to start buying Asia’s goods again. The United States, Japan and Europe remain major markets for Asian exporters.
Intra-Asian trade has grown rapidly in recent years, but remains largely based on parts and components rather than final goods. Asians still don’t buy finished products made in their own backyard.
In fact, economic growth in the US, Japan and Europe influences East Asia’s regional output at least as much as China’s does. Plus, China’s ability to sustain economic growth over 8% is also reliant on a global recovery to provide external demand for its exports.
Economic growth that relies on stimulus is not sustainable. Clearly, China or Asia alone cannot be the region’s sole engine of growth. Developing Asia needs two engines – China and, just as important, the major advanced economies.
The implications are clear. First, a rebalancing of the sources of growth is needed. Even if demand in advanced economies recovers to pre-crisis levels, that won’t be enough to meet Asia’s expanding exports.
The key for sustaining long-term economic growth in Asia is how to strengthen Asia’s own domestic and regional demand.
Governments can no longer rely on export-oriented development strategies. Strengthening social safety nets, broadening and deepening financial markets, supporting small and medium enterprises (especially in services), and increasing exchange rate flexibility will all help strengthen domestic demand.
But effective rebalancing requires both demand-side and supply-side polices. Developing more competitive and efficient domestic industries to serve domestic markets will take time.
Second, to avoid any repeat of the global financial crisis, the region’s policymakers should improve and streamline their regulatory and supervisory regimes, while reinforcing regional and global cooperation.
By and large, emerging East Asia’s financial systems and institutions were shielded from the direct impact of the global financial crisis.
The resilience of Asia’s banking systems has been attributed to reforms taken following the 1997/98 Asian financial crisis.
Nevertheless, current risk-management and prudential oversight are clearly insufficient.
Both banks and regulators must upgrade their systems to prepare for future risks and challenges.
The underlying causes of the current global turmoil – emanating from financial innovation and globalisation – stress the need to better supervise financial institutions and protect financial stability.
While Asia may already be on the path to recovery, a return to sustained and rapid long-term economic growth will require a rebalancing of the sources of that growth and the safeguarding of financial market stability
Will Asia’s recovery lead the way?
Comment by Jong-Wha Lee
Economic indicators from developed economies remain mixed but Asia is showing much more favourable signs
WHILE the rest of the world struggles, developing Asia is shifting from recession to recovery.
Latest economic indicators from the world’s advanced economies remain mixed.
There are some signs of stabilisation – industrial output and consumer spending are, for example, falling much more slowly than they were. But stabilisation does not mean imminent recovery.
The pace of deterioration may be slowing, but a decline is still a decline. Unemployment is still on the rise. Consumer and business confidence has not recovered. It is clear that the recession has yet to bottom out in the United States and Europe.
In contrast, signs are much more favourable in Asia. Markets, which are typically the first indicators of recovery, are rebounding much more sharply here.
While the Dow Jones Industrial Average rose 11% in the second quarter, Japan’s Nikkei 225 jumped 23%. Equity markets in China rose 25%, India 53% and Vietnam 60%.
Asia’s real economy is doing much better too. Industrial production in South Korea, Singapore, and Thailand has been rising in recent months.
And while most economies in Asia have suffered their worst performance since the 1997/98 Asian financial crisis, we believe they have hit bottom.
The Asian Development Bank forecasts that growth in gross domestic product (GDP) for emerging East Asia will still be 3% this year.
While that’s a significant reduction from the 6.1% growth in 2008, it is growth nonetheless – and much better than other regions of the world. Will Asia lead the global recovery? Quite possibly.
We expect a V-shaped recovery – growth in the region is likely to rise to around 6% next year. However, this is still two percentage points below the 8% average growth between 2003 and 2007.
The reason is that while we expect government stimulus to boost domestic demand, we doubt the external demand that drove exports during the years prior to the latest crisis will return any time soon.
We now see the US economy contracting 3% this year while the economies in Europe and Japan will likely shrink 4.3% and 5.8% respectively.
China is leading the recovery in Asia. Aggressive government spending there – more than 7% of GDP this year, and 8% in 2010 – will fuel domestic growth. And that, in turn, should help other Asian economies recover as they fill Chinese demand for their goods.
China is the biggest offshore buyer of Korean products and the second largest for Japan, snapping up about a quarter of Korean exports and one sixth of Japan’s.
About 12% of total exports from the five largest South-East Asian economies – Indonesia, Malaysia, Philippines, Thailand, and Vietnam – go to China.
But that won’t be enough to restore developing Asia to the growth levels seen in recent years.
For that to happen, consumers in the world’s major economies also need to start buying Asia’s goods again. The United States, Japan and Europe remain major markets for Asian exporters.
Intra-Asian trade has grown rapidly in recent years, but remains largely based on parts and components rather than final goods. Asians still don’t buy finished products made in their own backyard.
In fact, economic growth in the US, Japan and Europe influences East Asia’s regional output at least as much as China’s does. Plus, China’s ability to sustain economic growth over 8% is also reliant on a global recovery to provide external demand for its exports.
Economic growth that relies on stimulus is not sustainable. Clearly, China or Asia alone cannot be the region’s sole engine of growth. Developing Asia needs two engines – China and, just as important, the major advanced economies.
The implications are clear. First, a rebalancing of the sources of growth is needed. Even if demand in advanced economies recovers to pre-crisis levels, that won’t be enough to meet Asia’s expanding exports.
The key for sustaining long-term economic growth in Asia is how to strengthen Asia’s own domestic and regional demand.
Governments can no longer rely on export-oriented development strategies. Strengthening social safety nets, broadening and deepening financial markets, supporting small and medium enterprises (especially in services), and increasing exchange rate flexibility will all help strengthen domestic demand.
But effective rebalancing requires both demand-side and supply-side polices. Developing more competitive and efficient domestic industries to serve domestic markets will take time.
Second, to avoid any repeat of the global financial crisis, the region’s policymakers should improve and streamline their regulatory and supervisory regimes, while reinforcing regional and global cooperation.
By and large, emerging East Asia’s financial systems and institutions were shielded from the direct impact of the global financial crisis.
The resilience of Asia’s banking systems has been attributed to reforms taken following the 1997/98 Asian financial crisis.
Nevertheless, current risk-management and prudential oversight are clearly insufficient.
Both banks and regulators must upgrade their systems to prepare for future risks and challenges.
The underlying causes of the current global turmoil – emanating from financial innovation and globalisation – stress the need to better supervise financial institutions and protect financial stability.
While Asia may already be on the path to recovery, a return to sustained and rapid long-term economic growth will require a rebalancing of the sources of that growth and the safeguarding of financial market stability
U.S. Stocks Rally, Dow Tops 9,000 for First Time Since January
By Matt Townsend (Bloomberg)
July 23 (Bloomberg) -- U.S. stocks rose, sending the Dow Jones Industrial Average above 9,000 for the first time since January, as EBay Inc., Ford Motor Co. and AT&T Inc. posted better-than-estimated results and home resales increased more than forecast.
EBay rallied 9.7 percent as its earnings signaled consumers’ appetite for online commerce is starting to recover. Ford jumped 9.9 percent after topping analyst estimates by paring expenses and adding market share. AT&T added 3.2 percent as new customers of Apple Inc.’s iPhone bolstered profit. D.R. Horton Inc. led homebuilders higher after sales of existing homes increased for a third straight month.
The S&P 500 advanced 2.3 percent to 975.64 at 11:41 a.m. in New York, the highest intraday level since Nov. 5. The Dow Jones Industrial Average gained 181.98 points, or 2.1 percent, to 9,063.24. The Nasdaq Composite Index surged 2.3 percent for a 12th straight gain, its longest streak since 1992. Benchmark indexes for Asia and Europe also rose.
“It’s been a good earnings season, given the backdrop that was there,” said Sarah Hunt, a money manager who helps oversee about $6 billion for Purchase New York-based Alpine Mutual Funds. “When you look at some of the estimates, they are expecting a better second half.”
The S&P 500 has rallied 10 percent since July 10 as earnings topped analysts’ estimates at 75 percent of the 158 companies in the index that reported results, including Caterpillar Inc., Intel Corp. and JPMorgan Chase & Co. Profits have fallen 25 percent on average from a year ago, according to data compiled by Bloomberg, less than the 33 percent drop forecast by analysts as of July 17.
‘Doing Well’
“Relative to the estimates, it looks like they are doing well,” said Stephen Wood, who helps manage $136 billion as chief market strategist for North America at Russell Investments in New York. “Part of that is an expectations game. Analyst estimates tend to lag, so some of that is a catch-up.”
EBay climbed 9.7 percent to $21.34 as the company forecast revenue in the next three months will be $2.05 billion to $2.15 billion. Analysts had estimated $2 billion.
Ford increased 9.9 percent to $7.01. The only major automaker to shun a U.S. rescue reported a second-quarter loss, excluding some items, of 21 cents a share. The average estimate of analysts surveyed by Bloomberg was for a loss of 50 cents.
“Ford looks like it’s improving its balance sheet, and its cash position looks pretty good,” said Hayes Miller, who helps manage $38 billion at Baring Asset Management Inc. in Boston. “Not only do we not have a potential for bankruptcy, but it looks like it’s improving itself at a quicker pace than Chrysler and GM.”
AT&T Climbs
AT&T added 3.2 percent to $25.64 after reporting second- quarter earnings, excluding some items of 54 cents a share, beating the average analyst estimate by 5.3 percent.
All 13 companies in a gauge of homebuilders advanced after sales of existing U.S. homes rose 3.6 percent in June to an annual rate of 4.89 million, the National Association of Realtors said in Washington. Economists in a survey had forecast an increase of 1.5 percent.
3M Co. gained 6.1 percent to $68.62, the biggest advance in the Dow, after the maker of Post-it Notes and Scotch Tape reported second-quarter profit excluding some items of $1.20 a share, beating the average analyst estimate by 28 percent. The company also raised its 2009 earnings forecast.
Fifth Third Bancorp, Ohio’s largest lender, gained 15 percent to $8.07 after reporting second-quarter earnings of $1.15 a share, compared with a loss of 37 cents a share a year earlier.
McDonald’s, Qualcomm Slump
McDonald’s Corp., the world’s largest restaurant company, sank 4.3 percent to $56.33, the biggest drop in four months. Second-quarter revenue declined more than analysts projected on slowing consumer demand and a stronger U.S. dollar.
Qualcomm Inc. declined 4.2 percent to $46.41 after the company forecast fourth-quarter sales that fell short of some analysts’ estimates, raising concern that handset demand is still slowing. Separately, South Korea’s antitrust regulator said it plans to fine the world’s biggest maker of mobile-phone chips a record 260 billion won ($208 million) for anti- competitive practices.
CIT Group Inc. slid 17 percent to 72 cents. Advisers to bondholders that rescued CIT with a $3 billion loan said creditors should push the company into Chapter 11 bankruptcy after a debt swap next month, according to a person familiar with the matter.
July 23 (Bloomberg) -- U.S. stocks rose, sending the Dow Jones Industrial Average above 9,000 for the first time since January, as EBay Inc., Ford Motor Co. and AT&T Inc. posted better-than-estimated results and home resales increased more than forecast.
EBay rallied 9.7 percent as its earnings signaled consumers’ appetite for online commerce is starting to recover. Ford jumped 9.9 percent after topping analyst estimates by paring expenses and adding market share. AT&T added 3.2 percent as new customers of Apple Inc.’s iPhone bolstered profit. D.R. Horton Inc. led homebuilders higher after sales of existing homes increased for a third straight month.
The S&P 500 advanced 2.3 percent to 975.64 at 11:41 a.m. in New York, the highest intraday level since Nov. 5. The Dow Jones Industrial Average gained 181.98 points, or 2.1 percent, to 9,063.24. The Nasdaq Composite Index surged 2.3 percent for a 12th straight gain, its longest streak since 1992. Benchmark indexes for Asia and Europe also rose.
“It’s been a good earnings season, given the backdrop that was there,” said Sarah Hunt, a money manager who helps oversee about $6 billion for Purchase New York-based Alpine Mutual Funds. “When you look at some of the estimates, they are expecting a better second half.”
The S&P 500 has rallied 10 percent since July 10 as earnings topped analysts’ estimates at 75 percent of the 158 companies in the index that reported results, including Caterpillar Inc., Intel Corp. and JPMorgan Chase & Co. Profits have fallen 25 percent on average from a year ago, according to data compiled by Bloomberg, less than the 33 percent drop forecast by analysts as of July 17.
‘Doing Well’
“Relative to the estimates, it looks like they are doing well,” said Stephen Wood, who helps manage $136 billion as chief market strategist for North America at Russell Investments in New York. “Part of that is an expectations game. Analyst estimates tend to lag, so some of that is a catch-up.”
EBay climbed 9.7 percent to $21.34 as the company forecast revenue in the next three months will be $2.05 billion to $2.15 billion. Analysts had estimated $2 billion.
Ford increased 9.9 percent to $7.01. The only major automaker to shun a U.S. rescue reported a second-quarter loss, excluding some items, of 21 cents a share. The average estimate of analysts surveyed by Bloomberg was for a loss of 50 cents.
“Ford looks like it’s improving its balance sheet, and its cash position looks pretty good,” said Hayes Miller, who helps manage $38 billion at Baring Asset Management Inc. in Boston. “Not only do we not have a potential for bankruptcy, but it looks like it’s improving itself at a quicker pace than Chrysler and GM.”
AT&T Climbs
AT&T added 3.2 percent to $25.64 after reporting second- quarter earnings, excluding some items of 54 cents a share, beating the average analyst estimate by 5.3 percent.
All 13 companies in a gauge of homebuilders advanced after sales of existing U.S. homes rose 3.6 percent in June to an annual rate of 4.89 million, the National Association of Realtors said in Washington. Economists in a survey had forecast an increase of 1.5 percent.
3M Co. gained 6.1 percent to $68.62, the biggest advance in the Dow, after the maker of Post-it Notes and Scotch Tape reported second-quarter profit excluding some items of $1.20 a share, beating the average analyst estimate by 28 percent. The company also raised its 2009 earnings forecast.
Fifth Third Bancorp, Ohio’s largest lender, gained 15 percent to $8.07 after reporting second-quarter earnings of $1.15 a share, compared with a loss of 37 cents a share a year earlier.
McDonald’s, Qualcomm Slump
McDonald’s Corp., the world’s largest restaurant company, sank 4.3 percent to $56.33, the biggest drop in four months. Second-quarter revenue declined more than analysts projected on slowing consumer demand and a stronger U.S. dollar.
Qualcomm Inc. declined 4.2 percent to $46.41 after the company forecast fourth-quarter sales that fell short of some analysts’ estimates, raising concern that handset demand is still slowing. Separately, South Korea’s antitrust regulator said it plans to fine the world’s biggest maker of mobile-phone chips a record 260 billion won ($208 million) for anti- competitive practices.
CIT Group Inc. slid 17 percent to 72 cents. Advisers to bondholders that rescued CIT with a $3 billion loan said creditors should push the company into Chapter 11 bankruptcy after a debt swap next month, according to a person familiar with the matter.
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