Exclusive Interview: 2011 8TV Hot Chef (美食型男) Jason Cha

Dubbed as one of the most handsome guy among the participants of popular 8TV shows Hot Chef (美食型男), Jason emerged as the ultimate winner, not by his look, but his cooking skills. Since then, he became a familiar face in Malaysia. Did you recognize Jason shopping at Mid Valley lately?

In order for us to understand more about him, below are some of the his personal details:

Full Name            : Cha Kian Heng

Age                      : 34

Hometown           : Ipoh, Perak

Status                  : Married

Hobby                  : Collecting Thai Amulets

Favourite Foods : Italian Pizza with many many cheese

Favourite Sports : Badminton

Favourite Sportsman : Fernando Torres (football player of Spain and Chelsea currently)

The Interview:

Q: What makes you decided to join the 8TV's 2011 Hot Chef competition?

I think the most important decisions normally associated with the most important people around us. Due to the encouragements from my family and girlfriend (now is my wife), I take up the challenges and never look back. I really appreciates their continuous supports throughout the competition.

Q: After winning the competition, how was your life? Any different?

Actually, I am living the my life the same. But, the only thing that was slightly different is the way I dressed up before going out. (Always prepared if someone want to take photos?)

Q: We know that emerging as a winner was not easy. In your opinion, tell us what makes you stand out from other participants?

Beside all the encouragements and supports from family, wife and friends, one thing for sure is always try our best, not going to give up easily, stay focus and be positive thinking. Many of the participants are doing very well during the competition and it's not easy for me to be the winner.

Q: On financial matters, what kind of investment you already made? Or, going to make? And why you choose that?

For investment, I will try to invest in my own industry (food and beverage) which I am more familiar with. I believes that in this industry, everyone have the opportunity to learn, share and work together. Looking forward to working with you all, if the opportunity arise.

Q: Finally, what's your words to our young Malaysians out there?

Hi young Malaysians, we must stay focus on our target. If that's what you want in the future, don't  give up easily no matter what happens around you. Lastly, stay calm and be positive thinking. All the best!!!

Thanks Jason for spending his time for the exclusive interview. All the best, Jason!!!

The Safe Deposit Box: Creating a Financial Wikileaks

If you were a bank employee with information about wrongdoing in your division, would you be happy to approach your senior management about it? The Whistleblower Improvement Act of 2011 would require just that, making financial whistleblowers report their concerns to company management rather than approaching government agencies directly. The act has been backed by Rep. Michael Grimm, a former FBI agent who spent a couple years undercover trying to bust dodgy stock brokerages for securities fraud. You’d think that experience would make him attuned to the problems of financial crime, but Michael Smallberg of POGO argues that “Rep. Grimm’s legislation would hobble SEC and CFTC enforcement, chill the flow of high-quality insider tips, imperil the safety and livelihood of whistleblowers, and give law-breaking companies an accountability escape hatch”.

WHO'S SCARIER? Your workmates, or Rep. Grimm?

I don't know enough about the proposed legislation to hold any definite views, but in any case GovTrackreckons that there’s only a 2% chance of the bill being passed. The greatest barriers to whistleblowing though, are social, not legal. It’s the threat of being shunned by colleagues, or passed over for promotion. Occasionally an employee just doesn't care about the social fallout, as in the case of Greg Smith’s public letter about Goldman Sachs, but more often than not they do. A life built around workplace social networks can act as a shield against speaking out against it. Potential whistleblowers doubt themselves, or don’t want to be seen as the one to spoil the party (Check out Joris Luyendijk's interview with a whistleblower). Legal support mechanisms do exist for whistleblowers, there’s little in the way of internal cultural support.

The Case for a Financial Wikileaks

That's why I reckon it's very important to have leak sites. They protect employees (to some extent) from senior management retribution, but also provide a way to bypass the social barriers to speaking out. Financial whistleblowers can currently make use of various leak sites (check out the Leak site directory), and regulatory agencies such as the FSAand the Serious Fraud Office do provide mechanisms for them. Wikileaks has previously been used for financial leaks regarding Julius Baer and Barclays, and in 2011 there was speculation that they were going to release a bombshell on Bank of America, based on emails obtained by Anonymous (In the end the emails ended up on bankofamericasuck.com and here, apparently showing dodgy dealings at a BoA subsidiary called Balboa, obtained via a leaker who claimed the bank was trying to cover it up).

DON'T MIND US, WE'RE JUST OBSERVING

Wikileaks though, has mostly made a name for itself in exposing political controversy. People don’t predominantly think of it as the place to go for corporate wrongdoing, and corporate disclosures on the site run the risk of being drowned out by the drone of government abuse. A group that does specialise in corporate disclosure is Anonymous Analytics, a wing of Anonymous specialising in "Acquiring information through unconventional means" (AKA hacking and subterfuge), and presenting it in the form of faux financial research reports. They made a stir last year for exposing potential fraud at Chaoda Modern Agriculture, a Hong Kong company that AnonAnalytics claimed was “overstating its cash balance, exaggerating its revenue, and falsifying its financial statements.” Last week they 'initiated coverage' on Huaboa International, calling it a 'pump and dump scheme with the primary objective of enriching its chairwoman'. AnonAnalystics specialises in 'primary research', but for a while it offered a dropbox facility for would-be whistleblowers. They recently shut that down, apparently because they were unable to deal with the volume of tips, comments and emails they received. Sounds like they need some more staff.

It's not just about crime
Organisations like AnonAnalytics are focused on overt cases of corporate fraud and headline grabbing controversies. Nevertheless, while having channels to expose criminality is important, there are many other equally valid reasons to create a leak site. Wikileaks release of the diplomatic cables, for example, didn't really reveal anything that controversial, but were fascinating because they offered a rare window into the internal culture of diplomatic life, the petty squabbles and power dynamics. It provided huge amounts of material for academic researchers and journalists to gain a better understanding of an otherwise opaque and closed area. There are very few such windows into the financial sector, and to date people have relied on various works of literary pop finance (e.g.Liar's Poker), and once off curiosities such as the Goldman Sachs Elevator Gossip twitter account to get mini-leaks about financial culture.

The Safe Deposit Box: A Tool for Transparency

JP MORGAN: DOWNLOAD INTERNAL STRUCTURE

It seems that there may be a case for a specialised financial leak site. Here's my back-of-the-envelope sketch for the Safe Deposit Box, a site focused on improving transparency in financial institutions (e.g. banks, funds) and commodity trading outfits, by providing a channel to encourage internal leaks. It could be curated by individuals with financial expertise, such that information leaked could be vetted for accuracy and presented correctly (something that non-specialist leak sites might not be able to do effectively). The site could be split into two divisions with different purposes:

1. A whistleblowing section to allow financial employees to expose dubious behaviour, such as instances of financial crime, market manipulation, insider trading, and rogue trading.
2. A transparency initiative focused on shedding light on the inner workings of financial institutions. This section would encourage employees to contribute information such as organisational structures, divisional strategies, risk exposures, compensation, and other info that helps to break the near impenetrable wall of secrecy large financial institutions frequently enjoy.

Many people intuitively understand the value of division 1, but division 2 is more tricky to justify. What's the point of transparency for transparency's sake? I would argue that banks and other financial institutions have huge political clout, and yet most citizens have almost no insight into their workings and strategies. For example, do most residents of Chicago have any idea of how a Morgan Stanley consortium came to be owning the city's parking metres? At a larger systemic scale too, it’s the very opacity of financial transactions that leads to increased systemic risk, which in turn impacts broader society. Providing a channel for financial employees to shed light on their organisations would thus have 1) a democratic empowerment benefit and 2) a research and regulation benefit, providing more material for citizens, academics and regulators to understand and monitor the sector.

The transparency initiative could be split into specific research domains that are of particular concern to researchers, campaigners and regulators. For example, domains could include:

• A high-pay transparency programme to gather leaked payrolls, compensation reports and other material to help in monitoring financial incentive systems
• A tax haven programme to gather lists of subsidiaries, offshore transactions and other material to help shed light on international tax avoidance systems
• A loan transparency programme to gather info on loan portfolios of corporate banking divisions, thereby helping to monitor socially and environmentally irresponsible lending
• A programme gathering info on banks' dealings with Polically Exposed Persons, authoritarian regimes, and dodgy individuals
• A systemic risk programme gathering info on prop trading levels, interbank risk exposures, and shadow banking systems
• A programme collecting info on poor customer service (Aka. treating clients as muppets)

I wouldn’t want to be too flippant about this. After all, in encouraging breaches to confidentiality this does border on illegality. Confidentiality though, is frequently used to block attempts to research real issues of concern. For example, in my research into the potentially damaging effects of commodity speculation, I hit a brick wall in trying to find out how much banks make in their agricultural commodity trading desks. They simply don't report it, and refuse any requests for the information. I'm of the opinion that it would be good for society to have some basic info in that regard, to assess whether this is a problem. Similarly, in my research into Glencore in the DRC, I’d love to find out the beneficial ownerships of the shell companies they do business with there. Is there any back office employee in Glencore who wants to send that to me?

SO NEAR, YET SO FAR: A TREASURE TROVE OF INFORMATION

I understand the problems of breaching confidentiality, and I know that leak sites are far from perfect. There are major issues of how such a site would be structured and who would have access to the leaked info. Would you use a (structurally and politically) centralised Wikileaks structure, or something more decentralised like OpenLeaks (set up by Wikileaks defectors, but still yet to launch). Is it better to promote something more conciliatory and collaborative, more like Wikipedia, to allow people with financial expertise to contribute knowledge? All these questions are worth asking. What I do know though, is that financial secrecy tends to benefit a pretty small swathe of society, whilst affecting a huge swathe, and I'm sure many financial workers would love an opportunity to spread the love by spreading the knowledge.

Then again, I have suspicion that such a site might attract the small problem of the financial blockade.

Impact of minimum wage policy from an economics perspective

Continue from previous post on "New Minimum Wage Policy", here we analyze the impact from an economics perspective. Many people said the new policy will jack-up the inflation figures due to higher production costs. Subsequently, it will dampen the GDP growth numbers. Is it true?

The impact on inflation and GDP growth is ambiguous. Setting a minimum wage would boost wages and consumption for workers who remain employed (likely to be the more productive workers, working in companies that have higher profit margin), but would hurt the profitability of businesses that are labor intensive and could potentially lead to higher unemployment rate.

The impact on growth will likely be a net negative in the short-run as it might result in raised cost without an increase in productivity. In the long-run, this policy may bring about a positive impact if it succeeds in encouraging workers to upgrade their skills or for companies to invest more capital to boost productivity.

From an economic standpoint, the minimum wage policy is not the best way to help the lower income households. A gradual phase-in of the minimum wage should help reduce some of the negative impact.

Unless the introduction of the minimum wage policy leads to a widespread upward adjustment in wages, there shouldn't be a significant impact on inflation.

Some SMEs claim that a minimum wage would bankrupt small firms which rely on cheap labor, from Indonesia, Myanmar and Bangladesh. The Malaysian Federation of Employers, whose members collectively hire 2 million workers, said it wants an exemption for the smallest employers and for the policy to be implemented over several years. Ex-PM Mahathir Mohd, who is very influential in the political scene, is also against the minimum wage policy as he believes that it would hurt Malaysia’s competitiveness, especially during economic challenging times.

Source: Credit Suissue report dated 19th March 2012

Minimum Wage Policy: Pain for SMEs?

Malaysia Prime Minister promised that there will be an important announcement on 1 May 2012 (Labor Day). Without much thought, it's very obvious that it was closely related to "Minimum Wage Policy" which already echoed by Government to win the heart of public. However, it receives much objections from private sectors, especially small-and-medium enterprises (SME) claiming that the new policy would impact on their balance sheets drastically. Really?

Impact of a minimum wage policy

As pressure mounts on the government to ensure that private sector workers in Malaysia earn salaries above the poverty level of RM760, Malaysia could set the minimum wage at RM900 for Peninsular Malaysia and RM800 for East Malaysia. According to World Bank, Malaysia's wages have risen by a CAGR of 2.6% over the past 10 years, while inflation has risen at a higher pace of 3.0-3.5%.

Source: Department of Statistics, Malaysia

Who is the BIG winner?

The new policy would benefit some 3.2million workers or about 1/4 of Malaysia's workforce. It was believe that foreign workers would also enjoy a minimum wage salary. Obviously, foreign workers could be the biggest beneficiaries, as they are the most likely group of workers who are currently paid below the proposed minimum wage levels.

Which Sectors could be the Worst hit?

According to MIER, the sectors which have the highest percentage of workers in the lower income bracket are listed below. This is no surprise as these industries have the highest proportion of foreign labor.

• Manufacturing (e.g. glove, food, wood-related and electronics)
• Retail (e.g. department stores and supermarkets)
• Hotel, F&B (e.g. restaurants, hawker centers and small eateries)
• Security and Landscape
• Agriculture including plantations, aquaculture and fishing industries

However, it was understand that the MNCs such as Nestle, AEON, Guinness and Carlsberg are already paying their general workers above the minimum wage levels. Meanwhile, local SMEs or manufacturing entities which rely heavily on foreign workers would be worst hit, such as Top Glove, Supermax and The Store, especially if they do not have pricing power to pass on the increased wage cost to their buyers. But, the graph below shows that Top Glove and Supermax may not be badly hit as mentioned above, due to its low weightage of cost on labor.

How about Palm Oil sector?

Luckily, the palm oil industry which rely heavily on foreign workers (1/3 of field workers), had already adjusted the salaries of their workers in 2011. So, it may not be as badly hit as the other sectors.

Next post, we look at the impact of the policy from an economies perspective. Stay tune.
Share this out if you felt that the info here is good for Malaysians. Thanks for your support.

Source: Credit Suisse, TA Research, Bloomberg, MIER

Should Government Abolish PTPTN Loans?

Once again, PTPTN (Malaysia National Higher Education Loan) came to the limelight lately with the wrong reasons. In conjunction with this, Finance Malaysia did a survey on Facebook Page asking our fans "Should Government Abolish PTPTN Loans?", and guess the answer given by majority of them? NO.

Emmm... What does this mean? It's pretty clear that majority of us thinks that PTPTN should be continue for the following reasons:

1. There is no FREE lunch in this world
2. Borrowers should repay what he borrows
3. The scheme did already help many financially distressed students pursuing tertiary education

Thanks for your participation in the survey. Yet, many readers keep asking Finance Malaysia, our view on this matter. Before answering you, we also highlighted that this blog is of freedom of speech, we're not political driven blog, and we tend to be political-neutral in writing. Below is our view on this issue:

1. We agreed that there is no free lunch, especially in Malaysia. We should change our mentality that Government owe us this and that things. We must put in our own efforts to make things happen, and Government's role is to facilitate the process to become easier and smoother. This is why PTPTN loan was offered at the beginning.
   
   
2. Regarding the interest rate charged, it's a mere 3% only. Does it really sky high? Definitely not. Why PTPTN charged 3%? This was because our inflation rate is around that figure. If you take last year inflation rate of 3.5% into calculation, PTPTN are making losses actually, although we repay back with 3% interest rate.
   
   
3. Without interest, anyone of us who qualify to go into varsities will take PTPTN loan, whether he/she is serious in his/her study or not. Why not borrow the money to spend, instead of study, if given free?
   
   
4. Without interest, what is the incentive for student to repay back the borrow amount as soon as possible? Without interest, I will be the one who use whatever money I have now to invest, do business, buy gadgets... last is PTPTN. Agree?
   
   
5. We believe this is one of the agenda purposely created by certain political parties to fish young voters, saying that they will abolish and cleared their outstanding PTPTN loan once they formed the new Government. (Please be neutral on this matter, then only think)
   
   
6. By writing-off the outstanding PTPTN loans amounting to billions of ringgit, Malaysia sure will went into financially distressed level. Then, all of the subsidies will be removed, public sector salary will be cut, all of us will protest because of this. Do you really want this to happen?
   
   

Anyway, this is one of the interesting preview running up to the anticipated general election. Finance Malaysia hopes that political parties from both sides should focus on things that really can benefiting the country. What's the point to form a new Government that will go into bankruptcy?

Before ending this posts, we must highlighted here that Government must clear the doubts by sorting it out fast. If not, many borrowers will wait and stop repayment in anticipating that Government will abolish it soon.

Another point was we lauded PTPTN's intention to reward those prompt and disciplined borrowers with a reduced 1% interest rate. However, why not PTPTN automatically reducing it without much hassle for borrowers to appeal? Now, borrowers must request > wait for revised terms and conditions agreement > print and sign > guarantors signatures > employers details > auto-deductions from salary > return back to PTPTN. Since these are eligible good paymasters, why not treati them automatically?

CDO + Trade Finance = CTO

Jag är ingen expert på ”trade finance”, jag vet t.ex. inte vad det heter på svenska, men jag kan å andra sidan en hel del om avancerade former av värdepapperisering och Collateralized Debt Obligation (CDO) skapade kring ”exotiska lån” (se t.ex. mina MiCDOs i 'The Microfinance Collateralized Debt Obligation: a Modern Robin Hood?).

Och?

Jo, faktum är att dessa två till synes väsensskilda områden av finans kanske är på väg att mötas. De nya Basel III reglerna är nämligen mycket hårdare i sin behandling av trade finance-lån i bankernas balansräkningar än tidigare versioner av Basel-reglerna och därmed öppnas det upp för gammal hederlig regulatory arbitrage. Idén är att ett antal lån till exportkreditnämnder (trade finance-lån) skulle kunna packas ihop och säljas vidare till andra investerare än banker, lämpligen sådana med lägre kapitalkrav. OK, detta har så vitt jag vet testats ngn gång tidigare, på 90-talet har jag för mig. Det nya är dock att storbanker som JP Morgan påstås fundera på att göra detta med det gamla hederliga Collateralized Debt Obligation (CDO) konceptet som bas! CDO + Trade Finance skulle vi kanske kunna kalla CTO (Collateralized Trade Obligation)? Detta låter hur som helst spännande tycker jag, inte minst som marknaden för trade finance är $10000 bn (= gigantisk). Man får bara hoppas att finansinspektionerna hänger med i utvecklingen så att inte ytterligare en bubbelkälla skapas. Kanske är vi ute ur kreditinnovationsdvalan som nu varat i flera år? Jag håller ögonen öppna! Och det borde studenter med intresse för credit också göra!

CIMB-Principle Strategic Income Bond Fund 2

What is CIMB-Principal Strategic Income Bond Fund 2?

Take advantage of the world’s interest in Asia with an investment that aims to provide regular income with potentially higher returns (as compared to Fixed Deposit)! Persistent low interest rates in US and Europe have driven demand for Asian bonds. In addition, credit conditions are improving and may lead to potential rating upgrades in the next few years (Fitch Ratings, ADB, Bloomberg, January 2012). This sustained demand means there will be strong support for Asian bond prices in the future.

The CIMB-Principal Strategic Income Bond Fund 2 portfolio will comprise both investment grade securities and high yield securities. The Fund may also invest into foreign bonds which are more aggressive in nature for potential higher returns. This enables you to benefit in Asia’s high growth prospects via a more stable asset class as compared to equities.

Investment Strategy

The Fund seeks to achieve its investment objective by investing between 70% to 98% (both inclusive) of its NAV in a diversified portfolio of bonds and other fixed and floating rate securities issued by governments, government agencies, supranational organizations and corporate issuers. The Fund may also invest in structured products and/or derivatives such as forward contracts, options, futures contracts or swap agreements, of which the underlying are related/linked to the above-mentioned securities. The Fund may also invest in High Yield Securities, subject to a maximum of 40% of its NAV. At least 2% of the Fund’s NAV are maintained in the form of liquid assets such as money market instruments and/or bank deposits for liquidity purposes.

Why this fund may work to your very benefits?

• Offer potentially higher returns than a fixed deposit account (against current CIMB FD rate of 3.15% p.a)
• Aim to payout income distribution annually
• Gain exposure in fixed income securities in the local and foreign bond markets
• May buffer against future interest rate fluctuations

Please be aware that this fund is a close-end fund, which means you cannot buy into this fund after the offering period.

Source: CIMB-Principal

Why Government Should NOT Guarantee JCorp Debt Refinancing?

It's becoming confusing for many people, especially outsiders (non-Malaysian), as to the role of Government to Malaysian corporate. And, it had been more confusing when Government dishes out lots of Goodies to certain groups of people (as long as they are eligible voters) citing to help bring down the burden of Rakyat. Good reason though. However, many of us know that this may short-lived just because of the coming general election. Anyway, this is part of the political gimmick usually played around the world. Nothing's wrong.

One end, our Government targeted to bring down the deficit numbers by cutting subsidies like Petrol prices. But on the other end, it dishing our cash just like what announced during Budget 2012, citing Government had made encouraging improvements in collecting taxes. Then, why not bring down the budget deficit of the country first? Does few hundred ringgits really make huge different for people?

A BAD example set by JCorp?

The latest movements by Government in corporate world is by GURANTEEING a fundraising exercise by Johor Corporation (JCorp) that will help the state agency to meet its immediate debt obligations.

JCorp, the strategic investment arm of Johor, announced that it planned to issue a sukuk wakalah Islamic finance instrument worth RM 3billion to be directed at redeeming the state-owned corporation's outstanding bonds worth RM3.2billion maturing at end-July. This is not an usual treatment by Government in providing support for fundraising schemes directed at refinancing existing debt.

Subsidiaries of JCorp

Why this may Backfire?

1. Bankers and investment analysts said the Government's move for JCorp sets a potentially negative precedent because it could encourage other financially distressed state agencies to propose similar debt restructuring programs. (source: TheEdge)
2. Guaranteeing means Government is liable for the fundraising exercise when things turn sour.
3. Does Government study thoroughly before guaranteeing? If the said corporate perform well, why it needs Government's backing? Is it because of high debt to asset ratio that scared away financial institutions?

By looking at the stable of companies under the umbrella of JCorp, Finance Malaysia don't think that it will go burst easily. However, the above concerns must be addressed to avoid future backfire. When state agencies doesn't do well, it definitely will affect the economy, subsequently Government. This is just a wake up call for relevant parties. Let's jom KFC...

Personal Income Tax for YA2011

Many readers asking us why we did not update the Personal Income Tax Relief for year of assessment 2011, and below the table explain why. Nothing special, because the tax relief for YA2011 was the same as previous year (2010). So, FM would like to use back the same table posted last year here.

Personal Tax Relief for YA2011

Last year, some of YOU commented that the table shown was very convenient for YOU to refer to based on the color used for different kind of tax relief. I think there is none other than FM who differentiate that way. This has shown that FM strives to innovate for the benefits of readers. Haha.

Blue color          : Tax relief that we can adjust easily in our daily life

Green color    : Tax relief for property not rented out with S&P signed between 10/03/09-31/12/10

Yellow color       : Tax relief related to life insurance premium

Light Red color : Tax relief related to child

By the way, FM would like to express our gratitude for 900 Facebook Page Fans, who continues supporting us along the way. Yeah, it's YOU!!! Thank you very much.

Related Links:
Personal Income Tax 2010: Residential Property
Tax Relief from Insurance YOU must know
Tax Benefits of Unit Trust YOU must know

RHBInvest: Now you can TRADE and FLY

Other than competitive brokerage fees, brokerage firms are battle it all out to gain market share by dishing out all kind of freebies. Those who did not make the move would definitely lose their market share to other competitors. Last year, we noticed that many brokerage firms were competing in fees charged. But, RHB investment bank has their own way - RHBInvest HOTTIE Rewards programme.

Let your investment take you on Vacation!!!

Under the programme, every broking transaction done on RHB's online share trading platform (RHBInvest) will be rewarded with loyalty points. Every RM1 spent on brokerage fees will earn 1 HOTTIE point and every HOTTIE point can be converted to 500 BIG points from AirAsia's BIG Loyalty global reward programme.

The accumulated BIG points can be redeemed for AirAsia's seats and for shopping at 1,500 BIG's associated partners and online merchants worldwide.

"We expect an improvement in participation. Most brokers are competing with real estate investment trusts and customer loyalty is waning. The idea of the reward programme is not to compete on price but to give more to clients from their brokerage," said RHB Investment Bank's head of equities broking.

Click here for more info on the reward programme

Source: RHBInvest

Banca Monte dei Paschi di Siena: il fine di campanilismo? - Part II

In April 2009 I wrote about the economic problems of Banca Monte dei Paschi di Siena, the oldest bank in the world. Little did I know how relevant the title of this blog actually was. Campanilismo is the Italian word for “local patriotism” and as any Italy-cognoscenti knows very well this is a classic Italian trait! In 1995 I attended Il Palio, the classic Siena horse race, for the first time. To me, this race is the epitome of campanilismo (and the opposite to a F1 race in, let's say, Bahrain....). The different wards of the city compete against each other in the central square of Siena and it is serious business. It is no game! Even for us who just like horses, however, it is a wonderful show of colors, celebrations and, above all, European civilian tradition (Il Palio is at least 500 years old). I really like it!

OK, the new, somewhat sad, thing I have just learnt is that the Palio in fact is financed (partially at least) by Banca Monte dei Paschi di Siena, or Babbo Monte as it is sometimes allegedly called by locals! Add this to the fact that Babbo Monte is in serious financial trouble, the bank’s share has fallen by two thirds since the financial crisis started, and you have another irritating piece of evidence of Europe´s current agonies. Even more troubling is the fact that the entire society of Siena relies on dividends paid by Babbo Monte for financing! Schools, communal services, healthcare etc. all is allegedly partly financed by the old local bank's dividends. And now the dividends have been slashed! So, when I wrote about the end of local patriotism I might have been more correct than I thought. If Babbo falls, I guess, so does "patriotisme Sienese"....

The moral of this tale is simply that, sometimes, modernization is actually not only good but essential. In Italy, this is probably truer than in any other place I know!

RHBRI: Market Outlook & Strategy 2Q2012

More Signs of Recovery

The tail risk from the euro-debt crisis has subsided after ECB opens its liquidity floodgates. Elsewhere, more signs of economic stabilization and recovery have emerged, particularly in the US. As the global economic recovery gains momentum, external demand for Malaysia’s exports will likely improve as the year progresses.

Domestically, consumer spending remains resilient, which will be reinforced by the progress in the implementation of the Economic Transformation Programme to sustain growth. We envisage the country’s economy to grow at 4.5% in 2012, albeit at a more moderate pace than the +5.1% achieved in 2011. This will underpin corporate earnings growth, projected at +12.2% and +7.9% for 2012 and 2013, respectively (+8.7% and +7.0% ex-Tenaga).

But, anticipate a short-term market pullback?

Notwithstanding improvements in the global economy, we continue to expect a market pullback and consolidation in the 2Q. In our view, apart from rising market caution ahead of the general election due to the uncertain election outcome, earnings will also have to play catch up for stocks with rich valuations before the market can scale new heights. On the external front, concerns on Mainland China’s economy and a potential risk of an oil-supply shock will also weigh down market sentiment.

Beyond the near-term pullback, we expect market sentiment to gradually improve as global economic uncertainties clear out. As central banks in advance countries have unveiled more quantitative easing programmes and pledged to maintain extremely loose monetary policy to support economic growth, global financial markets are still likely to be awash with liquidity. Consequently, we are maintaining our end-2012 FBM KLCI target at 1,650 based on 14.5x 2013 EPS.

Given our more upbeat view on the market for the 2H, we believe “buy on dips” is still the best strategy to outperform the market even though defensive stocks will provide greater stability for the portfolio, particularly in the 2Q. Sector-wise, our key overweight continue to be telecommunications, gaming, Plantation, oil & gas and consumer.

Source: RHBRI report