During market uncertainties, there are two popular safe assets which is Gold and USD. This explain why the demand for these two assets is great, resulting them to become more valuable while equity market fell. We experienced the said scenario recently and let's see the chart below to gauge the Gold price movements.
"Gold prices collapsed from their August highs in September amid a broad commodity sell-off and despite intensifying concerns over sovereign debt issues in Europe. After exhibiting a remarkable correlation to real rates this year, particularly during the swift August rally, the sharp pullback in gold prices occurred with real rates mostly unchanged."
"Gold prices have now fallen back in line with our 3-month price target. As we expect gold prices will continue to be driven in large measure by the evolution of US real interest rates and with our US economic outlook pointing for continued low levels of US real rates in 2012, we continue to recommend long trading positions in gold and reiterate our 12-month price target of $1,860/toz", reported Goldman Sachs.
Why is it different this round?
Supposedly, gold prices should move in-line with USD. But, we see USD strengthening to months high while gold prices faced some setbacks lately. We at Finance Malaysia would like to guess the off-the-screen factors such as...
First, who is holding the most gold?
Second, who is in dire needs to sell gold reserves?
Of course, European countries (highlighted in yellow)
Now, you know why gold prices behave differently? Ha...ah. We are not surprise by the sell-down (if any), given the high valuations gold fetches when it recorded all-time high almost every days until $1,900/toz. Does Gold more important than cash right now? Yes for China, No for Europe.
Well, well, well... The newly announced Budget 2012 seems to be a very holistic one, which covers almost everyone (even the opposition MPs). In the budget, a total of RM232.8 billions was allocated to implement all Government development plans, which include the projects and programs under various plans, focusing on the well-being of the rakyat. But, there are a few interesting questions that Finance Malaysia would like to highlight here.
1) Is it too optimistic?
As we all know, the external environment is becoming more challenging once again due to slowdown in US, Europe and Japan (if not double-dip recession). This would definitely impact Malaysia as manufacturing sector still playing a crucial role in our country's growth. While IMF is revising downward the global growth next year, our Government is projecting a 5 - 5.5% growth this year, and 5 - 6% for 2012. I think we should be very happy if Malaysia can grow more than 4.5% for 2011 and 2012.
2) Budget Deficit to come down?
Taking into account the estimated revenue and expenditure, the Federal Government deficit in 2012 is expected to improve to 4.7% of GDP compared with 5.4% in 2011. As we all know, Petronas is the main contributor to Government's revenue, which is heavily relies on crude oil prices. How much is the estimated price Government based on 2012? It does not stated. Of course, it should be lower than current year. Am I correct?
3) Construction sector to be one of the main growth engine?
By setting a 7% growth forecast for Construction sector next year, is it too optimistic (yet again)? Given the current state of delayed tendering process, land acquisition dispute and change of project owners (MRT project), I doubt the execution part of the beautifully layout projects. Do remember that Hong Kong and Singapore takes more than 5 years just for planning for their MRT projects. And, if we can kick-start so soon, sure Malaysia Boleh!!!
4) Is it really Rakyat-centric?
Just as rakyat coping with high living cost, especially in urban areas, there is some relieves after the Government's latest various incentives and rebates. Subsidies on some of the basic food items were continued. Concurrently, our MPs also have higher allowance. This seems like a win-win situation. However, would the Government forgot about another very important item - petrol? As promised earlier, our petrol prices are adjusted according to market price. Judging from the fallen crude oil prices lately, why Government still not yet lower petrol prices? I believe this is definitely a better and more effective way to help rakyat.
A few weeks ago a group of wayward individuals met at Waterloo station. We hitched a ride on a train going north into the English wilderness. Bertrand was forward-thinking enough to have brought beers for the journey, a skill he learnt in his 10 years working for Deutsche Bank as a structured equity derivatives trader. Next to him was Ingo. Ingo does things that make my mind hurt, which involves channelling and managing innovation and systems design, in Sweden. Behind me was Neil. He works for the Young Foundation, helping to design things called Social Impact Bonds, ways of allowing private investors to get involved in financing early interventions that might reduce social malladies. He was chatting to David, who specialises in design, and in particular, new means of mapping and visualising the financial sector. Bertrand started talking about social CDOs, and that's when people on the train started to look at us funny. A girl sitting next to me asked me who we were. Um, how do you explain that? We kind of work in finance, but at the same time are trying to disrupt it, alter it, play with it. I gave her my card. "Come to the dark side", I said, "there are cool things going on". Enter the Finance Innovation Lab.
This is me, trying to talk on camera after three days of mind-disruption. We were talking financial reform and innovation, but most of all, the group of 21 of us were all together to discuss and map the potential future strategy and vision for the Finance Lab. The Lab was originally set up to bring people together under the common goal of finding out what a 'financial system that served people and planet looked like'. I'm a comparative newcomer to the group, but in the year or so that I've been hanging around I've seen the fantastic potential the Lab has to connect people, and to promote learning and collaboration. The next challenge though, is how to scale it up to the next level, to bring in new streams of funding, target more people, and incubate more projects. Jen Morgan, Charlotte Millar, Richard Spencer, Rachel Sinha, Tina Santiago, Maria Scordialos, Vanessa Reid and Hendrik Tiesinga set up the frameworks to help us to think about these questions, and then let it run. A particular discussion point concerned the extent to which the Lab should shift from its current role as a facilitating and connecting organisation, to an organisation with a more explicit focus on advocating specific policies. The process of shifting to a more political stance isn't likely to be easy, but that why Chris Hewett has come in to explore the possibilities for 'finance policy for a green economy', with support from the Gulbenkian Foundation, represented at the weekend by Louisa Hooper.
SPOT THE EX-GOLD TRADER
Note the beautiful setting, on the grounds of West Lexham, a fantastic enterprise on an old converted farm. Manager Edmund wants it to be a hub for community empowerment, permaculture, renewable energy and creative solutions for sustainability, so that suited us pretty well. In our crew was Niahm, a whirlwind helping to drive WWF's sustainable food initiative, Tasting the Future - concerned with issues around sustainable food systems. We had Bruce, one of the guys behind peer-to-peer lending site Zopa, and now launching Abundance, a means for retail investors to put their money directly into financing wind farms and solar energy. We had the guys interested in unorthodox monetary systems - including Ben, pushing the boundaries of the monetary reform debate, and Leander, working on nurturing the complementary currency ecosystem. I shared a room in an old piggery with Maxime, representing both France and the socially responsible investment community.
PURE INNOVATION
The Fellowship of the Ning
BERTRAND SHARES HIS FEELINGS
The Finance Innovation Lab is a great space for those looking to get involved in designing a sustainable financial system. The first point of contact for those who are interested in getting involved is the online network hosted by Ning, but the core team is working on setting up a new website with enhanced capabilities. The plans are grand. By 2013, I expect we should own a large part of Canary Wharf. Until then, we get our strength from diversity. It's certainly not just for financialismos. It's for anyone with an interest in sustainability, creative design, systemic thinking, chaos theory, food systems, climate change, social justice, and last but not least, all those who just like causing a little bit of havoc.
We still feel that there is downside to the KLCI although with non-GLICs supposedly close to maximum cash levels and GLICs supposedly not aggressively supporting the market up till now, further downside maybe somewhat less than our recession market bottom of 1086 points.
OSK: Normalised performance of September’s top stock picks
With Budget 2012 (to be announced on this Friday 7th Oct) around the corner, OSK has no major expectations of the budget except that it will probably be people friendly and include:
No further tightening of regulations with regards to the property sector which should be positive for property stocks
No hike in Brewery Tax which will be positive for Carlsbergy and Guiness
A 4.5 - 6.8% hike in Tobacco excise duties which will be mildly negative for BAT and JTI
A likely hike in Civil Servants salary as the last hike was in 2008 which will be positive for MBSB
OSK: Defensive Top 10 Buys
OSK remain defensive for now with expectations of a further drop in the KLCI although they do not see it dropping to our recession bottom of 1086 points. Given the volatile market conditions, it is difficult for us to forecast when the KLCI may fall past the 1300 points level although a break below is possible in October itself. As such, our recommendation is no longer "time-based" but rather "level-based".
For now, with 1300 points still some 6% away from current levels, we remain NEUTRAL on the market with our call still focused on Defensive stocks. A fall below the 1300 level will likely prompt us to upgrade our call on the market to a BUY.
OSK: Top 5 picks for the month of October 2011
With 3 of Top 5 Buys in September outperforming the KLCI and given the significant market uncertainty remaining, OSK keep its Top 5 Buys intact for October. Axiata, Petronas Gas, TM and KPJ are undoubtedly defensive stocks while selling may yet abate on foreign darling AirAsia with profit prospects improving as oil price drops. Aggressive Bottom Fishing is only recommended once the market breaks below 1300 points with names such as Genting, Parkson and Dialog coming to mind then.
Finally, there is a new fund from Hong Leong Asset Management (HLAM). The fund is designed to capture the vibrant growth of the Hong Kong capital market. The Hong Kong market has one of the world's leading securities exchange in the Asian region which is one of the fastest growing capital markets by market activity and new listings
Hong Kong, dubbed as Asia's most liquid exchange, acts as a key platform in the internalization of the Renminbi (RMB) currency. This allows investors to participate in the RMB appreciation potential via investments in equities and bonds.
The new Hong Leong Hong Kong Equity Optimizer Fund, being a growth fund, will invest primarily in equities and equity-related securities that are listed on the Hong Kong Exchange. Meanwhile, the balance may be invested in domestic and Hong Kong fixed income securities.
To achieve its investment objective, the Fund adopts an actively managed investment strategy which may include investment in common stock and depository receipts of companies, unit trusts funds, exchange traded funds (ETFs) and real estate investment trusts (REITs).
The Offshore Investment Adviser
GuocoCapital Limited (GCap) has been appointed as the offshore investment advisor for the Fund, in which GCap shall provide advice on the Manager's equity and equity-related securities in Hong Kong market. GCap is an established brokerage house with a diverse clientele, offering a full range of services, including modern delivery channels such as the Internet and the Automated Trading Hotline (IVRS). GCap is a wholly owned subsidiary of Guoco Group Limited which is a listed company on the Hong Kong Stock Exchange.
The Fund is suitable for investors who:
have a medium-to-long term investment horizon;
wish to participate in potential investment opportunities in the Hong Kong market;
are seeking primarily capital growth and to a lesser extent income; and
are willing to accept higher risk in their investments to obtain potentially higher returns
I will be a visiting professor at Zhejiang University in Hangzhou, China until the end of October and I might therefore not be able to write anything on my blog until then.
Titled "Perilous Crossroads; Challenging Times Ahead" RHB Research painted a not so rosy 4Q2011 outlook for KLCI. Undeniably, our market are in for a turbulent times and we do not know how the year will be ended. Bear or Bull market?
Below is the excerpt from the said report:
~ The US economic recovery has slowed to a crawl, while Europe is not just lurching from one crisis to another, it is lurching into a new one before the previous one is solved. There is growing risk that sustained weak confidence could exert downward pressure on demand and business activity worldwide.
~ Nevertheless, "double-dip" recession can still be avoided if political leaders get their acts together fast enough to contain the debt crises and avert a contagion given that global trade has not fallen off the cliff.
~ On the home front, we expect the Government to speed up the implementation of the Economic Transformation Programme, which coupled with resilient consumer spending, will provide some cushion to the weak external demand for the country's exports.
~ RHB has revised down our 2012's economic growth projection to 3.6% from 4.5% previously and compared with +4.3% estimated for 2011.
~ With a still cloudy global economic outlook, we believe it is still too early to "bottom fish" at this stage. As global headwinds remain strong and situations could get worse, we will continue to advocate a defensive investment strategy for investors.
~ Under such circumstances, we are of the view that high dividend yielding stocks with reasonably good growth potential would be more resilient and will likely outperform the overall market.
