Wednesday, December 28, 2011

Kenanga Research 2012 Economic Outlook

The year 0f 2011 saw a confluence of mishaps, with the MENA unrest, Japan disaster, US debt ceiling scare and Eurozone's can of worms. We believe that it is very unlikely that 2012 will contain more uncertainties than 2011. After the convergence of these "Black Swan" events, there is also a lot of divergence in the recovery, making it difficult to coordinate economic policy.

  1. Firstly, there is a 2 speed-global recovery as developing economies, particularly Asia, is outperforming the West.
  2. Secondly, within Europe itself, there is a lot of divergence in how each country is coping with the crisis. Only Germany, Sweden and Switzerland have so far returned to pre-crisis growth levels; whilst Greece, Portugal and Ireland are clearly outliers in terms of demand growth.
  3. Finally, there is a lot of mixed recovery in Japan as well, where companies with capital of at least 1bn yen are back to nearly full capacity production as early as May. However, companies with capital between 10m and 100m yen will take longer to recover as their profits fell by 40% in 2Q11, compared to their larger counterparts, whose profits fell by only 4%.
2012 Outlook would be better?
Manufacturing momentum will only truly pick up in 4Q12. Given the bearish external conditions, we believe that the manufacturing recovery is still premature and that it could soften again in 1Q12. In fact, for 2012, we forecast that manufacturing growth will only exceed the 5%-threshold in 4Q12, based on our expectations that developed economies will only show some significant improvements towards end-2012. Collectively, US, Eurozone and Japan constitute more than a third of our total trade, so despite the growing importance of intra-regional trade, Malaysia cannot post a sexy growth number as long as this trinity is still faltering.

Policymakers in developed economies will be inclined to adopt 2012 as the "year of fiscal austerity". The extent of their cost-cutting is really the key to how 2012 will fare. If they overdo it, this will derail the already fragile recovery and could tilt the scale towards a recession. The Eurozone fiscal problem is still the number one risk for the global economy in 2012. We think that the more likely scenario is that Eurozone will choose to maintain its solidarity and they will continue to wade through the mess. Since we are expecting a pick-up in 4Q12, generally we believe that Eurozone is doing the best it can under the circumstances, although we would like to see politicians respond faster to market conditions.

We are maintaining our in-house GDP growth forecast of 5.1% and 5.0% in 2011 and 2012 respectively. The OPR is a sure bet to stay at current levels and our inflation forecast would depend on the timing of the General Election. A recurring theme in this report is time. The ETP projects need time to kick in, Americans needs more time to enjoy expiring fiscal stimulus, Eurozone needs to stall in hopes of better prospects and even the efficient Japanese find that 2012 is nearly upon them with a lot of rebuilding still left wanting. Time is of the essence.

Malaysia inflation to moderate. 
We forecast that inflation will still be able to ease to 2.9% in 2012 from an estimated 3.2% in 2011 despite the rise in global oil and food prices. Again, this is primarily due to a high-base effect but it is also because our economy is quite insulated thanks to our fuel subsidies. Our expectations for the ringgit to appreciate throughout the year will also help to reduce imported inflation from tainting our CPI.

Interest rates to stay pat. 
With expectations of a ringgit appreciation as well as easing inflation, there is no way BNM will hike the OPR from its current 3.00% level. As for the possibility of a rate cut, BNM will only exercise this option if a severe negative shock occurs.

Source: Kenanga Research

Tuesday, December 27, 2011

CIMB: Domestic Drivers to steady the ship in 2012

CIMB research remain cautious on Malaysia's growth outlook for 2012 as several factors will put the brakes on growth - slower export growth due to the fragile western economies as well as slower consumption and investment growth due to heightened uncertainty and volatile financial markets. The implementation of ETP and stimulus measures cannot take up all the slack left by weak exports.

Slowing growth, rising risks
We expect GDP growth to slow to 3.8% in 2012 from an estimated 5% in 2011. The factors that shape the prognosis are:

  1. continuing weak global growth, pressured by volatile financial markets and Europe's sovereign debt worries;
  2. a downturn in Malaysia's export cycle;
  3. an expected slowing of consumption and investment due to worries over economic conditions

What to expect in 2012?
While not forecasting a global recession, a combination of fiscal tightening and a potential bigger financial shock from the debt crisis are expected to result in weaker global growth in 2012.

  1. Limited growth for the US economy. Its recovery is fragile and could succumb to any big external shocks, especially from Europe. This could lead to a double-dip recession. The sluggish recovery of the labor market as well as housing deflation will dampen household spending.
  2. The Eurozone is already in recession in 4Q11 and this will persist in 2012 as the persistent sovereign debt worries, volatility in financial markets and fiscal austerity will weigh significantly on growth. These braking factors will certainly raise the risk of more severe deleveraging, credit contraction and economic drag as the negative feedback loop between the banking system and the real economy becomes entrenched.
  3. China and India to continue growing, albeit at a slower pace due to the laggard impact of monetary tightening measures as well as a less favourable external environment. There are still fears of a hard landing for China.




Domestic demand cushions against weaker exports
With the export engine throwing a spanner in the works, the pressure is on domestic demand to keep the economy going, underpinned by both private spending and public investment. The key drivers of consumer spending are stable income and favorable employment prospects. But concerns over weaker growth prospects and volatile stock markets will bite into discretionary spending. Also, global uncertainties will throw a damper over the investment activity.

Macroeconomic policies: What to expect?
For 2012, the government is not straying from its path of fiscal sustainability as it targets to bring down the budget deficit from 5.4% of GDP in 2011 to 4.7%. The high level of debt constrains the government's ability to take on additional risk on its balance sheet. If the country does not commit to a credible fiscal reduction plan, it runs the risk of a downgrade of its credit rating in the event of a major change that pushes the fiscal deficit off track.


Monetary policy will continue to support activity
There is still a risk of food inflation. For 2012, inflation was expected to moderate to estimated 2.2% due to:

  1. weaker economic growth;
  2. easing commodity prices;
  3. a high base due to the fuel and sugar price hikes in 1H11

Persistent growth concerns, both global and domestic, coupled with expectations of easing inflationary pressures will enable the central bank to maintain an accomodative monetary policy. The tone of its policy statement on 11 Nov 11 suggests that growth is more of a worry than inflation, signalling the central bank's readiness to reverse its monetary course if domestic conditions deteriorate. An early rate cut in 1Q12 is still a possibility and end-2012 OPR to be targeted at 2.50-2.75% (3% at end-2011).

Source: CIMB Research

Monday, December 26, 2011

HwangDBS: Volatility will continue in 2012

Global Overview
The market will continue to be challenging and it is tough to make a judgment call at this juncture. News and headlines rather than fundamentals will continue to drive markets and as such, volatility will continue into 2012 largely driven by the lack of clarity with regards to the Eurozone debt crisis, the US debt problem compounded by slowing growth in the US economy. There is no quick fix or immediate resolution to these issues as the problems plaguing developed economies are deep rooted fundamental issues such as mounting debt, low growth and high unemployment.


In the case of the European Union, the fragmented economic and political governance of their common monetary union is working against them as leaders struggle to find an equitable solution to giving aid to highly indebted countries in the South of Europe such as Greece, Spain, Italy and Portugal, without overburdening financially stronger countries such as Germany and France. And for the US, their economy has not recovered since the Global Financial Crisis in 2008 as evidenced by weak home prices and the stubbornly high unemployment rate.


As such, we expect global growth in the next two to three years to be slow and challenging as the G3 economies; US, European Union and Japan, try to resolve their economic problems. The G3 economies contribute 55% of the total world Global Domestic Product (GDP), combined. Even growth from the Emerging Markets (EM) such as China and India will not be able to pick up the slack left by the G3.

However, it is not all doom and gloom. The potential remains in the EM where the structural growth story remains intact supported by strong fundamentals: rising middle class income, young population, stronger government reserves and healthier corporate balance sheet. Inflation in this region is no longer a threat and is seen to be easing. This means that there will be more room for the governments to maneuver and start its policy loosening cycle. Brazil’s central bank took lead in cutting interest rate end-August 2011, after which many other economies follow suit.

A positive point to note is, there is still a lot of liquidity sitting on the sidelines. That will be supportive for the market as long as market sentiment remains confident. That said, we are cautious on the economic and market outlook for 2012 due to the headwinds coming our way from the external front.

From a macro perspective, our investment strategies and tactics in 2012 will be guided based on the following five pointers:
  1. Attractive Valuations. Currently, there are some buying opportunities. However, those are not at rock bottom prices yet.
  2. Economic Data Improvement. The US economy has been surprisingly resilient and this is showing in its encouraging production and employment data. Meanwhile, China may be entering a monetary loosening phase, considering inflation is no longer a threat. The latter will bode well for the China’s stock market, which is directly correlated to market liquidity. On the other hand, positive production data from the US translates to a pick up in production and business in Asia.
  3. Shock and A "WE" in Policy Action. We are still not seeing this happening at a sustainable level just yet. The coordinated efforts by the global central banks such as the Bank of England, Bank of Japan, European Central Bank and the Swiss National Bank in cutting rates for the US Dollar liquidity swap lines and the agreement achieved at the EU Summit on 9 December 2011 were good start. But, more needs to be done to ‘awe’ the market.
  4. Market Stops reacting to Negative News. Not yet, as of time of writing. 
  5. Elevated Cash Levels. About half of the smart money is sitting on the sidelines, while the other half is slowly flowing back to the market. What will change this trend is a sustained normalization in the market trend before the bulk of the money comes back in. Besides, most of the smart money have already sold down their positions and come January 2012, the market should see a brief pick up (barring any major events happening) due to the Capricorn Effect.
What can Investors Do?
Always buy into companies with solid fundamentals, strong corporate governance and management team, and a healthy balance sheet. Keep a defensive stance by investing in high quality dividend yielding stocks and consider fixed income assets in your investment portfolio (if you have not already done so) to smoothen volatility.

If you cannot stomach the volatility in the stock market and it keeps you up at night, an option would be to consider dividend-yielding or fixed income unit trust funds. It provides consistent income with the added kicker of capital appreciation, while keeping volatility at a manageable level. Then, average-in, rather than taking the plunge to lower the overall cost of investment and avoid timing the market, as even the professional investor could not get the market timing right all the time.


Source: HwangDBS Investment Management

Wednesday, December 21, 2011

Malaysia Financial Sector Blueprint 2011 - 2020


Bank Negara Malaysia today released the new Financial Sector Blueprint. Themed "Strengthening Our Future", the Blueprint charts the future direction of the financial system over the next ten years.

The growth of the financial system should be ultimately anchored to the growth in the real sector. Based on the rate of growth of the economy projected for the next decade, the financial sector is envisaged to expand to six times of GDP in 2020 from 4.3 times of GDP currently. Meanwhile, the contribution of the financial services sector to nominal GDP is expected to grow from 8.6% of nominal GDP to between 10 and 12% by 2020. 



Recognising the increasingly complex linkages, both between the various components of the financial system and the greater international connectivity and regional financial integration, the Blueprint moves away from the sector-based approach of the previous Financial Sector Masterplan (FSMP).


There are 9 focus areas under the Blueprint to further advance financial sector development to drive Malaysia's transition to a high value-added, high-income economy with adequate safeguards to preserve financial stability:


  • Effective intermediation for a high value-added and high-income economy - This entails the mobilisation of diverse savings to productive investments in Malaysia and to meet the needs of both businesses and households. A vibrant risk-capital ecosystem to support innovation-driven economic activities and start-up ventures will be developed. The initiatives will also include enhancing the provision of large and long-term project financing for infrastructure development.

    To cater to Malaysia's growing affluent segment and maturing population, emphasis will be placed on enhancing the provision of financial services for wealth management, retirement and long-term healthcare. The development of a vibrant private pension industry is also expected to enhance the role of pension funds as a key source of funding for the longer-term and risk-based financing needs of the economy.

  • Developing deep and dynamic financial markets - Efforts will be directed towards improving the liquidity, depth and participation in the money, foreign exchange and government securities markets in Malaysia, in enabling more effective intermediation, transfer of risks and management of liquidity, and meeting the diverse needs of a more developed and internationally integrated economy.

    The foreign exchange administration rules will be progressively liberalised to further raise efficiency in financial market transactions. The development of vibrant domestic foreign exchange and money markets, and ensuring sound risk management and corporate governance practices by financial market players, will be an important agenda in the development of our financial system.

  • Financial inclusion for greater shared prosperity - The aim is to enable all members of society, including the underserved, to have access to and usage of quality, affordable and essential financial services. Initiatives will focus on developing more innovative delivery channels such as agent banking to enhance the outreach of financial services in a cost-efficient manner and expansion of the range of products and services such as more flexible micro financing products, long-term contractual micro saving products, and microinsurance and microtakaful products to cater to distinct financial needs of all segments of society.

  • Strengthening regional and international financial integration - As the Malaysian financial sector assumes a larger role in mobilising regional and cross-border funds and supporting the needs of both Malaysian corporations expanding abroad and corporations that invest in Malaysia, efforts to strengthen Malaysia's international financial linkages will be pursued.

    Moving forward, Malaysia's investment policy will be guided by two key considerations - (i) prudential criteria and (ii) the best interest of Malaysia criteria, which includes the effect of the investment on Malaysia's economic activity, particularly in catalysing new high value-added activities, contribution towards enhancing international trade and investment linkages and impact on financial stability, including the level of competition. A further consideration in assessing the best interest of Malaysia is the continued presence of strong and well-managed domestic banking groups that continue to mobilise a significant share of resident deposits, as this is important for the orderly growth and development of the financial sector. 

  • Internationalisation of Islamic finance - While Malaysia has made significant inroads in becoming an international Islamic financial centre, efforts will continue to be undertaken to enhance the Islamic financial ecosystem. This will entail developing a more conducive environment for the mobilisation of higher volumes of international Islamic financial flows from a diverse range of players to be channelled through innovative Islamic financial instruments. In strengthening the legal and Shariah frameworks and further advancing Malaysia's thought leadership in Islamic finance, a single legislated body to be the apex authority on Shariah matters in Islamic finance will be established. 

  • Regulatory and supervisory regime to safeguard the stability of the financial system - A comprehensive legislative framework will be enacted to reinforce a sound, transparent and accountable system for effective regulation and supervision. Focus will also be accorded towards enhancing capital and liquidity standards of financial institutions in line with international standards as well as raising their governance and risk management standards. As the financial sector grows to be more regionally-and internationally-connected, greater cross-border collaboration will be pursued with other supervisory authorities.

  • Electronic payments for greater economic efficiency - Accelerating the migration to electronic payments (e-payments) will be emphasized. In the next ten years, the Bank targets to increase the number of e-payment transactions per capita from 44 transactions to 200 transactions, and reduce cheques by more than half from 207 million to 100 million per year. Measures to achieve this aim will include providing the right price signals to encourage the switch from paper-based payments to e-payments, and facilitating wider outreach of e-payments infrastructure, such as point-of-sale terminals and mobile phone banking.

  • Empowering consumers - A comprehensive and holistic approach towards consumer protection and education will be pursued in collaboration with various stakeholders. The aim is to promote a culture of mutual responsibility shared between consumers, who are empowered with the knowledge, skills and financial literacy to manage their personal wealth, and financial service providers, who uphold fair and responsible dealings in the conduct of their business.

    The infrastructure to support greater consumer empowerment will be strengthened through establishing a single consumer credit legislation, integrated dispute resolution system and an enhanced credit information framework. Measures to promote financial capability among consumers through the integration of financial curriculum at schools and targeted financial literacy programmes based on life events will be pursued. 

  • Talent development to support a more dynamic financial sector - A Financial Services Talent Council will be established to drive, oversee and coordinate talent development efforts in the financial sector. Other initiatives include developing talent for entry level, promoting continuous learning for the existing workforce, and attracting talent from abroad. Ensuring an adequate supply of skilled talent to meet the challenges in the new financial landscape will require greater collaboration and coordination among various agencies beyond the financial sector.


The Blueprint charts a vision and direction for the Malaysian financial sector for  the next ten years that will support Malaysia's long-term ambitions. To ensure the achievement of the desired outcomes, a robust implementation and monitoring framework will be put in place, including update on the progress of the implementation of the Blueprint.




Source: Bank Negara Malaysia

Tuesday, December 20, 2011

Protectors of Treasure Island: Border Dragons of the Offshore Financial System



Several hundred years back, the City of London was protected by a great stone wall, and access was controlled via several key gates. Aldersgate was in the north, Ludgate was to the west, Aldgate was in the east, and on the south end of London Bridge there was Bridge Gate. Later, others were added, like Bishopsgate, Moorgate, Cripplegate, and Newgate. Nowadays, the physical wall and gates have slipped out of popular memory. To many modern commuters into the City, the Moorgate is nothing but a station on the Northern Line of the London Underground.

Recently, a wing of the Occupy movement set up camp just up the road from Moorgate, in Finsbury Square. Another wing set up in an old building in Sun Street. Like the original St. Paul’s Camp, the new camps seem  like incongruous outposts amidst the black sheet glass and metal frames of buildings housing financial giants. The protesters have managed to take temporary control of small areas of physical space, and yet, do they really have true accessto the City?

It seems to me that the walls of the City are still there, only nowadays you can’t see them. They exist in codes and institutions, cultures and hidden political forces, architectural styles and subtle symbols whispering you don't belong here. Finding ways of passing these hidden gates is a great and worthwhile challenge. Before that can be done though, it's good to get a sense of the ancient boundaries of the City. That's why I've been recently visiting the border dragons.

TAKE ME TO YOUR LEADER
The City border dragons are sentinels on plinths, totem-like creatures lurking at the ancient entrances to the City, originally to warn travelers and act as toll-booths. They’re sometimes called griffins, but they’re actually dragons, dog-like dragons with wings and a forked tongue. Maybe they’re like small versions of Cerberus, Hade’s three-headed hound of darkness that guards the underworld across the river Styx. Indeed, you do find three of them as you cross over the river Thames – two on the south side of London Bridge, and one in the middle of the road on the south side of Blackfriars Bridge.

So where are the others found? The largest border dragon is found at the Temple Bar on Fleet Street, perched by the Royal Courts of Justice like a nazgul from the Lord of the Rings. There are two smaller ones keeping watch in the street next to Chancery Lane tube station on High Holborn. See if you can find the others. There’s one lurking somewhere on Goswell Road in the north, and one next to the Broadgate complex. There's one around Moorgate, and another guarding the area before the Tower of London, somewhere on Byward street.

My favourite border dragons though, are on the Victoria Embankment by Temple Place. They’re slightly larger than most of the dragons, and strangely enough, they used to reside above the entrance to the London Coal Exchange which was demolished in 1963. Word on the street is that they took off and flew into the night, landing on Victoria Embankment two years later.

Some have suggested that the dragons are creatures from mystical treasure islands known as offshore tax havens. Indeed, the City is at the centre of a giant web of such havens, a beating financial heart drawing in money from the opaque offshore jurisdictions and pumping it back out to them again, keeping a global system of secrecy alive. The vast majority of hedge funds and SPVsfor example, are incorporated in places like the Cayman Islands, even though they’re managed from offices within London and the US. It poses something of a headache for tax authorities, and also places something of a burden on the broader society which does not have access to the offshore realms. Indeed, it's an open question as to how much of the City of London is even in London, and how much is situated within excel spreadsheets on computers in Bermuda and the British Virgin Islands.

I COME IN PEACE
Certainly the City incorporates a lot more physical space than meets the eye. It’s like that scene in The Lion, the Witch, and the Wardrobe where the door to Narnia is found. Hidden doors abound in the City, and they lead to parallel universes on Caribbean Shores and Swiss Cantons

So where does this leave access? I'm not sure. The border dragons mark the ostensible borders of the City, but the true borders are scattered and fragmented by a world of shell companies and registered addresses. And we haven't even got into the cultural and political boundaries yet. I guess we’ll have to work on this access issue a bit more in due course. I’ve had controversial views on it before, and they need to be refined.

In the mean time, take some photos of dragons. Put a funny hat on its head, or give it some bling accessories. Please do send the photos on me. I’ll be sure to put them up.

Sunday, December 18, 2011

New Fund: Public Islamic Savings Fund


The Public Islamic Savings Fund (PISVF) is  an Islamic equity fund that seeks to provide income over the medium to long-term period by investing in a diversified portfolio of primarily Shariah-compliant Malaysian stocks which offer or have the potential to offer attractive dividend yields. PISVF may also invest in Shariah-compliant growth or recovery stocks that have the potential to eventually adopt a dividend payout policy.



As the Fund focuses its investments mainly in the domestic market, PISVF offers investors an opportunity to capitalise on Malaysia’s resilient economic growth prospects in the medium to long-term. The performance of selected Shariah-compliant sectors of the Malaysian economy is expected to remain supported by sustained consumer and investment spending over the longer term.

To achieve increased diversification, the Fund may also invest up to 30% of its net asset value (NAV) in selected foreign markets which include  Singapore, Taiwan, South Korea, Japan, Hong Kong, Thailand, Indonesia, Philippines, Luxembourg and other permitted markets.


Growth Prospects for the Malaysian Economy

The Malaysian economy is expected to expand by 4.5% in 2011 and 5.4% in 2012 supported by resilient domestic demand amid higher investment spending and firm private consumption. Despite the anticipated slowdown in external demand amidst a more challenging global economic environment, Malaysia’s domestic economy is supported by  sustained  growth in disposable income, favourable demographic trends and affordable lending rates.



Over  the medium to long-term, higher investment spending under the Economic Transformation Programme (ETP) is expected to boost the performance of  selected Shariah-compliant sectors in Malaysia. The communication sector should experience an increase in activities with targeted rollout of 10 content and infrastructure projects with an estimated investment value of RM51billion. This sector offers promising growth prospects as improved communications infrastructure is expected to contribute to the enhancement of business transactions, improvement in information flow and formation of new knowledge in developing high valued human capital in the coming years.

Meanwhile, the consumer sector should continue to benefit from sustained consumer spending in tandem with  resilient incomes. Consumer spending is projected to grow on the back of increased urbanisation, favourable demographics and the government’s efforts to promote tourism activities. To date, the government has announced a total of 12 out 27 projects in the retail and tourism industries with an estimated value of RM25billion under the ETP. 

Furthermore, the 2012 Federal Budget announced in October 2011 contained a wide range of measures to enhance the economic well-being of the lower income, middle-class and the elderly groups. These measures are expected to enhance household disposable incomes and support consumer spending.

The oil & gas sector is also a major beneficiary under the ETP with the national oil company PETRONAS spearheading the initiatives. Since the launch of the ETP, 12 out of 65 projects have been announced with  an estimated investment value of RM88.2billion.

Lastly, the infrastructure sector should experience an increase in activities with the roll-out of projects such as the RM40 billion - RM50 billion Greater Kuala Lumpur Mass Rapid Transit (MRT) project and numerous new highways in the Klang Valley.




Source: Public Mutual

Saturday, December 17, 2011

How did Singapore's Cooling Measures Impact Malaysia's Property Sector? (Dec 2011)

On 7th Dec 2011, the Singapore government announced that it would impose an Additional Buyer's Stamp Duty (ABSD) to moderate investment demand for private residential property and promote a more stable and sustainable market. This is needed in view of the stubbornly high inflation rate in Singapore amidst the slowing demand from developed markets. For those who don't know, inflation rate in Singapore was mainly contributed by surging property prices.


The ABSD was effective 8 Dec 2011. After the announcement, property-related stocks slumped last week, following by a slump in banking stocks because of an expected slower housing loan growth. The latest measures are a near-term negative for property developers with an anticipated trend in lower average selling prices and transactional volumes, which will hurt profitability. Nevertheless, most large-cap property developers in Singapore are relatively well diversified, not just across sectors (industrial and commercial), but also geographically.

Under the latest cooling measure, the ABSD will be added on top of the current Buyer's Stamp Duty, and apply to the purchase price or market value of the property (whichever is higher) according to the type of purchase as below:

  1. ABSD of 10% for foreigners and corporate entities buying any residential property
  2. ABSD of 3% for permanent residents who already own one property, and buying the 2nd and subsequent residential property
  3. ABSD of 3% for Singaporean citizens who already own 2 properties, and buying the 3rd and subsequent residential property.


What's the Impact on Malaysian Property Sector and Developers?
Because of our closely linked economies, some of our property players already ventured into Singapore property market, such as Sunway, SP Setia, IOI Corp and YTL Land. According to OSK research report, Sunway has 4 ongoing projects with a total GDV of around SGD1.7bn under its 30:70 joint venture with Ho Hup Group and a small wholly owned project with at GDV of SGD32.8m. Two of the projects, which are under the Executive Condo (EC) and Design, Build and Sell Scheme (DBSS), are exempted from the ABSD. While the remaining three ongoing projects, coupled with another upcoming project (GDV: SGD357m), are under private development (PD) which is subjected to the ABSD. However, with its ongoing PD projects already achieving a strong take-up rate at around 70%, we believe the impact on Sunway will be rather minimal.

Sector wise, Finance Malaysia believes that there will be a in-flowing of money to our shore given its proximity to Singapore, coupled with the attractively packaged Johor's Iskandar Development Region (IDR). This would be a timely process where IDR is gaining traction with basic infrastructures were almost completed. Those developers which had already jumping into IDR may benefits from the announcement. Tebrau Teguh, being one of the most sensitive stocks linked with IDR may see some buying interest. 


Asia property sector to deteriorate?
A combination of excess liquidity, low interest rates and a robust macroeconomic outlook has pushed prices up over the last few years. As a result, housing affordability for low and middle income families has worsened across the region, with low interest rate slightly cushioning the adverse effect of higher prices. Several central banks have intervened and introduced regulatory measures - such as higher minimum down payments (etc. Msia) and more land releases for construction (etc. Singapore) - to cool down the markets and slow credit expansion.

Within a specific market, the prime segment should hold up better than the mass-market segment. Should the real estate market correct instead, steep corrections for the mass segment are unlikely because of the following reasons:
  1. Rental Yields still appear attractive in the current low interest rate environment;
  2. Residential vacancy rates are low in many Asian cities, especially in Hong Kong and Singapore (not in the case for Msia);
  3. Governments are well aware of the potential negative spillover effects of a strong housing market downturn to the overall economy. Thus, they are more proactive in making monetary decision to juggle between tightening or loosing the monetary policies.

Thursday, December 15, 2011

New Fund: ASM Syariah Capital Protected Sector Linked Fund


ASM Investment Services Bhd had recently launched its latest fund called "ASM Syariah Capital Protected Sector Linked Fund". It is a close-ended fund with limited subscription period and a maturity of 3 years.


For this Fund, it aim to provide investors with capital protection upon the maturity of the Fund as well as to give investors potential returns higher than the rate of return of the 12-month Kuala Lumpur Islamic Reference Rates (KLIRR), being the selected Fund’s performance benchmark.

Please read on for more information...


To achieve the capital protection objective, the Fund will invest not less than 88% of the Fund’s Net Asset Value (NAV) in 3-year Islamic Negotiable Instruments of Deposits (INIDs) issued by several premier financial institutions in Malaysia. This will potentially protect investors capital, including a sales charge payable by investors.

To realize the potential return objective, the fund will invest up to 12% of the Fund’s NAV in quality Shariah-compliant equities of various sectors in Bursa Malaysia. These equities have been identified as the leaders of their respective sectors under the Economic Transformation Programme (ETP). The Fund’s name thereby reflects the composition of the Fund’s portfolio consisting of INIDs and each sector’s leading equities.







Source: ASM Investment Services

Monday, December 12, 2011

Suitpossum's Ecologist article No.2: Four strategies of subtle financial subversion

COMING TO A CINEMA NEAR YOU
Last week I got published in The Ecologist. The article was called A four-step guide to bypassing high street banks. This is my second article for the magazine (my first was on food speculation), and this time the aim was to sketch out how people might engage in financial protest, not by waving placards, but by changing debit cards.

Many people agree in principle that major high-street banks have too much power, and that they frequently abuse that power. Nevertheless, many individuals don't necessarily have the time, or inclination, to protest about it directly in the manner of the Occupy protesters. There's been a lot of discussion about how to make financial protest more inclusive (including this piece by Kenth Gustaffson on a type of ‘virtual occupy movement’), but perhaps one of the most profound (and often overlooked) forms of protest is to distance yourself from mainstream finance by withdrawing deposits and avoiding using the services.

The article is pretty straightforward. It goes through four (UK-focused) strategies:
  1. You can move your money to a more socially responsible bank like the Co-Operative Bank, or to building societies and credit unions
  2. You can invest savings in socially responsible alternatives, including certain investment funds and specialist investments with environmental or social benefits
  3. If you need a loan, you can bypass the mainstream loan system and engage in peer-to-peer (P2P) finance or crowdfunding
  4. If you want to go bold, you can try detach from the mainstream currency system and use alternative currencies
THE ANSWER: BREAK MONOPOLY
Bypassing mainstream finance is not necessarily easy or convenient, and it's not a solution to the deeper structural problems of the financial sector. Change though, needs to come from many different angles. Regulatory and policy changes are needed, internal cultural changes are needed, and more competition is needed. Moving your money and getting involved in alternative finance is one way to boost competition, and one way to support sustainable finance innovation. It's an act of protest, but in encouraging financial diversity, it's also an act of creativity.

Please do check out the article. Any comments are most welcome, and I’d dig to hear any other suggestions for alternative strategies that I might have missed.

Thursday, December 8, 2011

OSK Strategy and Outlook (Dec 2011)

Essentially, with the uncertainties in Europe continuing amid a potential global slowdown in the economy, we will continue to see market volatility in the next few months. As such, we continue to advise investors to be patient and focus on Defensive counters, while looking out for opportunities to Trade. We continue to advocate Buying into Weakness when the KLCI falls towards the 1,300-pt level, focusing on Banks, O&G and Construction stocks while we advocate Selling into Strength on the same three sectors when the market rallies towards 1,500 pts.


Festive Cheer in December?

While we remain fairly defensive over the mid term, December may still be a bright spot amid the gloom. There is still a possibility of the traditional year-end rally and the just announced joint effort by various central banks, including the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, the Swiss National Bank and the Bank of Canada to provide liquidity may just convince markets that there will indeed be a coordinated global effort to tackle the sovereign debt woes.

These central banks will be reducing interest rates on dollar liquidity swaps by 50 basis points. While we doubt that this will be the magic pill for Europe and the world, there may just be enough optimism and hope left in December to see markets rise towards the year end. As such, we see a possibility that the KLCI may still rise to end the year in positive territory, close to our 1,533-pt year-end target, although ultimately economic woes in Europe should drag it down towards our 1,466-pt 2012 Fair Value.

Asian governments also getting into the act. The efforts by central banks is also being supported by Asian countries with the Chinese government cutting reserve ratios for its banks, while Thailand announced its first interest rate cut since August 2009. As such, there could also be a regional boost to support the global effort.

OSK Stock Picks for December 2011

Throwing in some cyclical names in December
Given our view that the KLCI may possibly rise in December with the coordinated efforts by central banks worldwide to put on a united front (at least till the end of 2011), we introduce more cyclical names into our Top Buy list, such as Maybank (replacing Axiata that has done very well) and Dialog (replacing the ever defensive KPJ Healthcare).


Source: OSK Research Report

Wednesday, December 7, 2011

RHBRI's Stock Watch (December 2011)

In contrast, the better-than-expected results of Maybank came mainly from lower-than-expected credit cost and minority interest charged, partly offset by weaker-than-expected non-interest income. In addition, the change in accounting treatment for the recognition of profit equalisation reserve also helped lift earnings.


The stronger-than-expected revenue growth of DiGi, on the other hand, came from stronger data and prepaid voice, aided by festivities, as well as improvement in consensus, were above our forecast on account of better-than-expected EBITDA margins on the back of lower other operating costs and supplies & materials expenses, as well as lower effective tax rate.

During the quarter, BAT experienced stronger-than-expected industry volume growth, while earnings of Genting Plantations were boosted by stronger-than-expected increase in FFB production.

The Under-performers...
Sector-wise, earnings of the semiconductor, building materials, construction, motor, transportation, oil & gas and healthcare continued to disappoint. In addition, the insurance sector which reported stronger-than-expected results in the previous two quarters, succumbed to higher-than-expected claims ratio (as in the case of MNRB Holdings and Kurnia Asia) and lower investment income (LPI Capital) and disappointed this time round.

In the semiconductor/IT sector, both MPI and Unisem sufferred from lower revenue and EBITDA margins on account of lower contribution from higher margin chip packages. The results of Notion Vtec, however, were above our forecast due to better EBITDA margins and operating income from the sales of raw material scrap.

Within the building materials sector, steel players continued to suffer from downturn in the industry and margin contraction as a result of lower selling prices of steel products. Out of the five steel manufacturers we cover, two earnings were below forecasts (CSC Steel and Ann Joo Resources), one in line (Kinsteel) and two above projections (Hiap Teck and Perwaja). In addition, the two cement manufacturers (Lafarge and YTL Cement) also experienced lower-than-expected sales volume and prices on account higher cement price rebates.



Of the eight construction stocks that we cover, two results were below our expectations (MRCB and TRC Synergy) and the other six within our forecasts (Gamuda, IJM, WCT, HSL, Fajarbaru and Eversendai). The variance of MRCB’s earnings against our forecast came largely from lower-than-expected billings for both construction and property divisions, and to a ceratin extent, the lower-than-expected margins. The earnings of TRC Synergy, on the other hand, were dragged down by higher start-up costs from infrastructure projects, particularly the RM950m “package A” main contract of the Kelana Jaya LRT Line extension project.



Similarly, results of the oil & gas sector were also below forecasts as four out of the 10 stocks we cover reported disappointing results (MMHE, Wah Seong, KNM and Perdana Petroleum), five within expectations (Petronas Chemicals, Petronas Gas, Wah Seong, Kencana and SapCrest) and one above forecast (Dayang Enterprise). As mentioned earlier, earnings of MMHE were below projection due to a drop in revenue from the E&C division. During the quarter, Wah Seong’s results were dragged down by forex losses on its contracts on hand and higher-than-expected minority interest, while that of KNM by provisions, likely for cost overruns incurred under legacy contracts won in 2009 to 1H FY2010. The earnings of Perdana Petroleum were hit by lower utilization of the company’s vessels and losses from associate,
Petra Energy due to the Kumang Cluster project. In contrast, Dayang’s earnings were above forecast, boosted by better-than-expected margins from the marine charter division and lower-than-expected interest cost.



Market Strategy: Stay Defensive

Despite the deepening euro debt crisis and a struggling US economy, global equities have been more resilient than what we had expected. However, in the absence of a concrete solution for the euro debt crisis and given that US politicians are too divided to resolve a dispute over taxes and spending, concerns are growing that things could turn from bad to worse in the months ahead. Consequently, we believe investors are still in for a volatile year ahead. Under such circumstances, we continue to advise caution, and this is reflected in our top picks, which include companies with stable cash flows and above-market yields.


Source: RHBRI report

Tuesday, December 6, 2011

Angående mina senaste tre blogg-inlägg

Sedan mina senaste tre bloginlägg skrevs har intressanta saker skett:

1) Sedan jag skrev mitt inlägg om Kina den 27 oktober har Kina sänkt reservkraven (den 30 november) för kinesiska banker, d.v.s. en penningpolitisk lättnad för en ekonomi som uppenbarligen brottas med sjunkande tillväxt. Och de verkar vilja få folk att förstå att de åter transformerats från hökar till duvor.

2) Sedan jag skrev mitt inlägg om Italien den 6 november har, den 16 november, premiärminister Silvio Berlusconi tvingats avgå efter 17års maktinnehav (av och till). D.v.s ett drastiskt försök till lösning för ett land med stora strukturella problem.

3) Sedan jag skrev mitt inlägg om en eventuell stundande bankkollaps den 25 november har de stora centralbankerna (Fed, ECB, BoJ, BoC, SNB, BoE) gått ut i en stor gemensam stödinsats (november 30) där korta dollarräntor sänkts kraftigt för att minska risken för en likviditetskris liknande Lehman Brothers krisen 2008. D.v.s. ett tydligt erkännande att man är fortsatt tvungna att hjälpa överbelånade aktörer.

Vad ska man säga om detta? Å ena sidan kan man förstås tolka dessa tre åtgärder som lösningen på de tre problem jag belyst i bloggarna. Å andra sidan kan man tolka åtgärderna som desperata åtgärder som inte är lösningen på de intrinsiska problemen. Välj själv!

Monday, December 5, 2011

The end of Europe’s liquidity crisis? (Dec 2011)

Well, many people already bored with the on-going Europe debt crisis, and subsequently liquidity crisis. This is like what we have seen in 2008 when Lehman Brothers collapses, which drags down the whole financial systems globally through liquidity crisis. The different is between company and country. Maybe some of us doesn't know how this chain effects rattles the global markets. So, let us start here.

The European Organisation chart of Debts
The root of the problem plaguing the market right now is Europe debt crisis, where Greece and few other European countries were highly in debts. They just simply cannot generate enough revenue (taxes) to support the economy itself. So, they resorted to seek for funding via borrowing by issuing sovereign bonds to finance their day to day operations. However, the debt is piling up intensively after 2008 global financial crisis until recently. Because the government does not have money, their bonds may go into default. So, they were forced to borrow some more, but with higher interest this round.

For them, this kind of measures are simply to prolong the problems and those debts were still there charging higher and higher interest. They are buying time, hoping their economies will survive and growing in the future to repay back whatever they borrow now. What a pretty picture?

Who is the main borrower?
Congratulations, the winners go to French banks. They are the main source of funding for these troubled ladden countries. As long as these banks charges those countries interests, everything is good for banks but bad for countries. What if those countries really go bankrupt? French banks may follow suits too.

So, the pretty solution is to write-off from the book of borrowers (French banks). Why French banks still need to accept the offer? Depending on the % of write-off, banks at least got something better than nothing. Right?


How the liquidity problem set in?
Debt writing-down means that the assets of French banks were being slashed. Last month, there is a 50% hair-cut for Greek debts and the amount will reflects in the books of these banks in the next few quarters. Now, you know why rating agencies are cutting 15 European banks' rating last week?

Sigh... But, not yet ends?
After the hair-cut, banks may having liquidity issues next. They doesn't have enough capital to borrow and this may dampened the whole financial system, thus, businesses and public facing difficulties to finance their expansion or consumption. Don't worry, angels were always by our side.

Angels (not Santa) come before Xmas...
Last week, 6 central banks globally take an important step toward dealing with the problems in Europe by pledging to continue provide funding to global banks (especially European banks). These angels are US Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. They would lower the pricing on US dollar liquidity swap arrangements effectively easing the liquidity problems faced by European banks.


This action dissolves one of the stumbling blocks in global financial system. Risk plays a role when one bank lends to another. In the current environment, banks likely don't believe that they are being compensated enough for the risks they face by lending out. With the dollar swap lines, banks can instead go to their central banks for short-term loans, provided that they have good collateral. Win-win situations? Yup. I think so because one can solve the liquidity problem, while US successfully creates a huge demand for its sliding currency.

Thursday, December 1, 2011

New JPJ Summon Charges? (Dec 2011)

Don't know whether this is true or not, JPJ (Jabatan Pengangkutan Jalanraya) have recently unveiled a set of new charges for traffic offenders. As a Malaysian with proper financial planning, sometimes we simply cannot ignore those "saman" issued by JPJ for various offences. It can eat into our money. By carefully study the charges being imposed by JPJ, we can estimate the amount associated with various traffic offences for proper "saman" planning.


Traffic Summon Charges
Price quoted below are nett without further discount, bargaining are subject to price increase without further notice.



Speeding: 

Exceeding 1 - 20km/h = $130 + 4 Demerit  Points. 

Exceeding 21 - 30km/h = $150 + 6 Demerit Points. 

Exceeding  31 - 40km/h = $180 + 8 Demerit Points. 

Exceeding 41 - 50km/h = $200 +  12 Demerit Points + Court. 
Exceeding 51 - 60km/h = $200 + 18 Demerit Points + Court. 
Exceeding 61km/h = $200 + 24 Demerit Points + Court. 

Careless Driving = $150 + 6 Demerit Points. 
Inconsiderate Driving = $170 + 9 Demerit Points + Court. 
Dangerous Driving = $200 + 24 Demerit Points + Court + Vehicle Compounded. 
Illegal Racing = $200 + Vehicle Confiscate + Court. 
Fail to put on Seat Belt = $120 + 3 Demerit Points. 
Double White Lines = $130 + 4 Demerit Points. 
Phone and Drive = $200 + 12 Demerit Points + Phone Confiscate.

DO NOT hold your handphone in your hand when you drive even with loud speaker or ear piece. 

Drink Driving (1st offence) = Up to $5,000 Fine and, or Jail Term + License Suspended + Court. 
Drink Driving (2nd offence) = Jail Term + Fine + Court. 

Making an illegal U Turn when there's no U-Turn sign = $70 . 

Fail to Signal when changing lanes = $70 . 

Driving at night without Headlights or Taillights switch on after 7pm = $30 . 

No Number Plate =  $70. 

Obstructed Number Plate = $70. 

Obscured Number Plate  = $70. 

Number Plate Of Unapproved Type = $70 


Demerit Point System : 
Let's say you have 0 point on 1st January 2011, and you committed the offence of Failing to Put on Seat Belt. So now, you will have 3 demerit points and this will last for 1 Year. 

If during this 1 year you have no demerit points offence at all, your 3 demerit points will be gone on 1/1/2012. 

But, if during this one  year, From 1/1/2011 - 1/1/2012, you committed another offence with demerit points, your very first offence will be extended for another year until 1/1/2013. 


The information in this post is purely for readers reading pleasure only. Finance Malaysia Blog does not take responsibility on the content written here, and readers should find out the real facts themselves.