Japan Unemployment Rises, Output Falls - (Bloomberg)

Japan’s industrial production decreased and the unemployment rate unexpectedly climbed in October, lifting bond prices and providing early signs that the country’s economy will likely shrink this quarter.

Factory output declined 1.8 percent from September, the sharpest drop since February 2009, the Trade Ministry said in Tokyo today. The jobless rate increased to 5.1 percent from 5 percent and the economy lost 180,000 jobs from a year earlier, the most since May, according to the statistics bureau.

The figures add to evidence that Japan’s economy may contract for the first time in five quarters, weighed down by the expiration of government stimulus measures and weak exports. While the economy may pick up next year, the Bank of Japan will likely continue to face pressure to keep monetary policy easy as demand remains sluggish.

“This quarter and the next will be the bottom for the economy,” said Takuji Aida, a senior economist at UBS AG in Tokyo. “This quarter we’ll see a contraction, and next quarter we’ll see growth around 1 percent. After that, we still won’t see anything strong, but we’ll see a gradual acceleration of growth.”

Japan’s real gross domestic product is expected to shrink at a 0.9 percent annualized pace in the three months through December, according to a survey of 42 economists by the Japanese government-affiliated Economic Planning Association.


Bonds Rise

Yields on Japan’s five-year government debt fell two basis points to 0.44 percent as of 9:55 a.m. in Tokyo after the release of the figures. The yen traded at 84.23 against the dollar at 10:17 a.m. in Tokyo, little changed from 84.27 before the unemployment report was released. The currency has gained more than 10 percent this year, threatening the value of companies’ overseas earnings.

Figures released last week showed exports grew at the slowest pace this year. Toyota Motor Corp. is among automakers scaling back output after a government subsidy program for fuel- efficient cars
ended in September, a factor that together with a stronger yen threatens profits.

Industrial production fell for a fifth month in October, after decreasing 1.6 percent in September. The median estimate of 25 economists surveyed by Bloomberg News was for a 3.2 percent decline.
Consumers rushed to buy vehicles before the end of the government’s subsidy program, helping the nation’s economy grow at a 3.9 percent annual pace last quarter.


Auto Output Falls

Toyota Motor, the world’s biggest automaker, said last week that its domestic vehicle production fell for a second month in October. Honda Motor Co. and Nissan Motor Co., Japan’s second and third largest automakers, also cut their domestic output.

Japan’s shipments of rolled-aluminum products increased at a slower pace last month than September as demand from the auto industry weakened after the government ended the subsidy program.

Exporter earnings are also under threat from the yen’s appreciation. Nikon Corp., the Japanese maker of cameras, lenses and chip-making equipment, this month cut its full-year operating profit and revenue forecasts, citing a stronger yen. The company revised its assumptions for the currency’s exchange rate to the dollar to 80 yen for the six months from Oct. 1, from 90 yen projected three months ago.


More Jobs

In one encouraging sign for hiring, there were 93 newly advertised jobs in October for every 100 people who started looking for work that month, the most since 2008, the Labor Ministry said in a separate report today. Economists consider it a leading indicator for employment. The job-to-applicant ratio climbed to 0.56, meaning there were 56 job openings for every 100 candidates.

As for production, manufacturers said they plan to increase output 1.4 percent in November and boost production 1.5 percent in December, a government survey included in today’s report showed.

The Japanese parliament passed on Nov. 26 an extra budget to fund a stimulus package aimed at fighting deflation and combating the stronger yen. To foster growth, the Bank of Japan last month cut its benchmark interest rate and created an asset- purchase fund.

PM to announce projects under ETP to boost oil and gas sector

Prime Minister Datuk Seri Najib Tun Razak is set to announce several new developments and entry point projects (EPPs) under the Economic Transformation Programme (ETP) today which will boost the oil, gas and energy sector.

Oil and gas analysts said the announcements could either include the awarding of big contracts, discovery of new oil finds or a new oil and gas policy.

Petroliam Nasional Bhd (Petronas), the government-owned oil and gas company, did say during its first quarter results briefing last month that it was drawing up a masterplan on its potential growth areas, in line with the ETP's emphasis on the oil and gas sector.

Under the overall ETP, Najib has announced eight early wins last month. Oil, gas and energy under the National Key Economic Areas (NKEAs) targets a 5% annual growth for the sector from this year to 2020. This target translates into an increase of RM131.4bil within a decade.

Under the ETP, there are some 12 EPPs as well as two business opportunities within the oil, gas and energy sector.

The first three EPPs would look at sustaining oil and gas production, which include rejuvenating existing fields through enhanced oil recovery, developing small fields through innovative solution and intensifying exploration activities.

Meanwhile, another two EPPs would look to enhance downstream growth by building a regional oil storage and trading hub and unlocking premium gas demand in Peninsular Malaysia.

Three EPPs are focused on making Malaysia the No. 1 Asian hub for oil and field services, by attracting multinational corporations to bring a sizeable share of their global operations to Malaysia, consolidating domestic fabricators and developing engineering, procurement and installation capabilities and capacity through strategic partnerships and joint ventures.

The final four EPPs look at building a sustainable energy platform for growth by improving energy efficiency, building up solar power capacity, deploying nuclear energy for power generation and tapping Malaysia's hydroelectricity potential.

The EPPs would contribute about RM47.1bil to gross national income to meet 2020 targets. An additional RM61.2bil would come from business opportunities and baseline growth.
(Source: The Star Online)

Capital Market Masterplan will address private pension fund, other issues - (Source: The Star Online)

PETALING JAYA: The second Capital Market Masterplan (CMP2) for Malaysia from 2011 to 2020, which is expected to be released before year-end, will address key areas such as the development of a private pension fund framework, boosting retail participation in the local stock market, working capital improvement and higher attention to governance.

Securities Commission (SC) market supervision managing director and executive director Datuk Ranjit Ajit Singh said that having a voluntary private pension fund system was a very important aspect of the agenda.

One of the things we've been working with the Government very closely is the development of the private pension fund framework. From the perspective of helping to build a number of institutions that will have pools of capital available to invest in the marketplace, it is a very important aspect, he told StarBiz.

If you look at any of the major countries that have successfully developed their capital markets after a certain point in time to reflect domestic demand side, it has been on the back of significant reforms in the pension systems that had occurred.

Ranjit, who was one of the participants at a recent roundtable discussion organised by StarBiz, stressed that the proposed pension system would be strictly voluntary and not touch on the mandatory system under the Employees Provident Fund.

He also said efforts would be made to encourage more retail participation into the local stock market.

For this to occur, there is a view that you need to be able to look towards not only types of products, but also the types of services that the broker dealers and other intermediaries can offer, for example a much higher Internet-based approach, if the broker wants to do that, should be facilitated.

So (there are) a lot of opportunities for more business models to be developed to bring in more participation, said Ranjit.

He also said the SC would like to see more risk taking occurring within the capital market.
We need to move away from an environment of risk avoidance to risk management and create more opportunities for a certain amount of products and investment styles that allow a little bit more of risk taking to occur within the capital markets.

That's why we have taken a view that we will continue in the path towards the liberalisation of the derivatives market, whether it's in the area of short-selling or in the area of allowing a greater degree of products available for the derivatives market to develop.

Ranjit said the capital market not only provided foreign investment opportunities but also to facilitate capital formation for Malaysian companies.

For that to exist, the capital markets must be able to offer an opportunity not just for the large companies in Malaysia but also those throughout the spectrum and therefore building up the venture capital equity sort of environment I think requires a lot more effort.

This will be a very important focus area moving forward, he said.

From the standpoint of skills, Ranjit said human capital and information infrastructure development is also very important.

You cannot aspire to become a developed market if you do not have the skills and talents available. Therefore, that is a very important aspect of what we will do as well.

And I think while we do all this, we need to ensure that governance gets the requisite attention and therefore, (looking at governance) looking at the ability of the markets to withstand shocks, is very important, he said.

Ranjit said that despite the severe shocks that the global financial system went through, Malaysia remained resilient.

As we go further, we don't want to lose sight of the fact that we also want a certain degree of resiliency to be present in the market.

A certain level of Government arrangements that are balanced, in terms of assuring that there isn't undue regulatory burden but at the same time investor protection and corporate governance requirements are in place to be able to ensure that investors and issuers will gravitate to markets which
have quality regulation, he said.

The SC introduced the first CMP in 2001. It was designed to be a comprehensive plan mapping the direction of the Malaysian capital market for 10 years (2001 to 2010).

The first CMP was intended to ensure that the capital market was well positioned to support national economic growth and to meet future challenges from regional competition and globalisation.

It detailed the vision, objectives and strategic initiatives for the Malaysian capital market to successfully meet future challenges.

Foreigners invest more in Malaysian Government Securities - The Star Online

Strong ringgit and investors looking for safe haven instruments among reasons

PETALING JAYA: The appreciation of the ringgit against the US dollar, rising interest rate and redirection of funds are among the reasons that have triggered an increase in foreign buying of Malaysian Government Securities (MGS).

MIDF Research chief economist Anthony Dass said the strong ringgit against the greenback had whetted foreign investors' appetite for domestic assets, including bonds, at least for the short term.

We think investors are looking at safe haven instruments like the MGS which yields a lower credit risk compared with corporate bonds, he said.

Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias said the major contributing factor to increased capital flows into the region was because international investors were redirecting their funds away from the troubled G3 (the United States, Japan and the European Union) economies and focusing their investments on high-growth regions in Asia.

RAM Holdings Bhd economist Jason Fong said the differing regional growth prospects between the East Asian economies and the West was one of the causes of the rise in the foreign ownership in MGS as debt in the advanced economies were becoming increasingly risky.

Apart from that, he said the increasing interest rate differential would allow for significant carry trade, the ringgit's steady appreciation and the excess liquidity in the advanced economies were other factors contributing to the rise in foreign holdings.

Excess liquidity in the advanced economies; specifically programmes such as the recent Federal Reserve actions to increase domestic liquidity will push foreign investors to emerging markets (such as Asia) for greater returns.

The foreign ownership of MGS stood at 26.8% as at Sept 30, the highest level since the data was compiled in 2005.

In January this year, foreign investors bought a total of RM45.04bil of MGS and has been on an uptrend. As at Sept 30, foreign investors had a total of RM67.97bil of MGS, representing an significant increase of more than 50%.

In September 2009, a total of RM35.2bil of MGS were bought by foreign investors against RM67.97bil in September 2010.

At this juncture, we do not foresee the need for any drastic policy change since Malaysia's balance of payments position is quite healthy with inflows being somewhat offset by outflows, Zahidi said.

This was reflected by the increased investments by Malaysian corporations outside the country evidenced by the turnaround in the net International Investment Position (IIP) to RM120.1bil in 2009 (suggesting that external assets are greater than external liabilities), he said, adding that the net positive value in the IIP implied higher direct investment abroad with total assets amounting to RM275bil in 2009.

According to Fong, the amount of MGS issued had reverted back to its pre-crisis level in recent months. However, he said, as the economy began to develop in the post-crisis period, there would be an increase in the supply of public debt as the Government plans to facilitate the nation's long-term growth programme the Economic Transformation Programme.

Budget 2011, he said, had pencilled in an increase in net issuance of public debt of up to RM51bil in the following year.

It translates to an expected aggregate gross issuance size of around RM96bil in 2011; compared with RM61bil in 2009 and RM55bil year-to-date in 2010.
However, this expected increase in issuance is supported by significantly lower long-term yields and can be sustainable if Malaysia reverts back to or surpasses its long-term growth trend.

Asked if the flow of foreign money would be a concern, MIDF's Dass said it should be regarded as an endorsement by investors who were confident of the country's macro management policies and the strength of Malaysia's currency.

Also it translates into a lower liquidity risk in the event investors wish to liquidate their MGS exposure for any specific reason. It is also less volatile, he added.

Fong did not view the rise in foreign ownership as a serious concern but said instead that it would add liquidity to the local debt market.

In the long run, it will increase foreign investors' interest in the domestic economy. Also, increased foreign participation has lowered the cost of long-term public debt.

He said it was particularly evident among the 10-year tenured MGS where the yields had been steadily declining since the second quarter of this year, and would thus assist in the Government's funding needs.

Hot money flows do not pose the same threat they did prior to the Asian Financial Crisis; Bank Negara's reserves are currently at around eight times retained imports as opposed to 3.4 times in 1997.

This build-up of reserves is largely due to Malaysia's persistent trade surplus since 1997 and is indicative of Bank Negara's considerable ability to combat against a sudden outflow of capital, Fong said.

Asked if the Government should introduce tax to control the strong inflow, Dass said it might cause some knee-jerk reactions and be viewed negatively. It might dampen the appetite towards such safe haven instruments, he added.

Fong opined that an increase in capital controls through tax or other monetary or financial rules should only be employed if there was excessive capital coming into or out of the domestic economy.

Despite this, it is important to note that many Asian countries, which have imposed different forms of controls recently, have experienced a range of results. Thus, both the timing and method of controls are important considerations before implementing measures to stem foreign capital inflows, he said.

Zahidi said the current situation was within the comfort zone and the central bank had been sterilising the inflows, causing stability in the monetary policy stance.

Although the IMF has been suggesting such a measure, we do not see the need to address it at this juncture the way other countries such as Thailand and South Korea did, unless the inflows start to destabilise the financial market in Malaysia.

N. Korea says U.S.-S.Korea exercises bring war closer

Source: Reuters By Jeremy Laurence and Danbee Moon

 

* Joint military exercises with U.S. to start Sunday
* U.S. aircraft carrier on its way - U.S. spokesman
* Currency, stocks close down
* Sounds of new fire near island cause panic
(Adds panic after sounds of artillery, markets close)

 

 

PAJU, South Korea, Nov 26 (Reuters) - North Korea said on Friday that impending military exercises by the South and the United States were pushing the region towards war, days after it launched its heaviest bombardment since the 1950-53 Korean War.

"The situation on the Korean Peninsula is inching closer to the brink of war due to the reckless plan of those trigger-happy elements to stage again war exercises targeted against the (North)," the North's official KCNA news agency said.

 

The aggressive language was typical for North Korean state-owned media but amid the heightened tension, it was enough to depress the won as much as 2.2 percent. The stock market closed 1.3 percent down.

 

There was brief panic in the capital Seoul in the afternoon when television reported sounds of artillery fire near Yeonpyeong, the island near the disputed maritime boundary which was shelled by the North on Tuesday.

 

But the military said the artillery fire was distant and no shells landed in South Korea. Yonhap news agency said it appeared to be a North Korean drill.

 

"Investors are growing more jittery ahead of the joint military exercise," said Kim Hyoung-ryoul, a market analyst at NH Investment & Securities. "The key concern is, whether North Korea will again take unforeseen, rash actions."

 

South Korean media said President Lee Myung-bak would name a career military man to replace the defence minister, who resigned after criticism that the government was too slow to respond to Tuesday's shelling. The government said it was still deciding.

 

The United States is sending in an aircraft carrier group led by the nuclear-powered USS George Washington to the Yellow Sea for the military exercises with the South Korean navy starting on Sunday.

 

Planned before this week's attack, the four-day manoeuvres are a show of strength which, besides enraging North Korea, have already unsettled China, its major ally and neighbour.

 

Washington is pressing China to rein in its ally North Korea to help ease tension in the world's fastest-growing economic region.

 

 

SPEAK TO HU

U.S. President Barack Obama is likely to speak with Chinese President Hu Jintao within days about the Korean situation, a White House official said, though no date had been.

But a Chinese foreign ministry spokesman said the focus should be placed on a revival of the stalled six-party talks grouping the two Koreas, Russia, China, Japan and the United States. He also expressed concern about the U.S.-South Korea military exercises.

 

"We have noted the relevant reports and express our concern about this," spokesman Hong Lei said.

China has long propped up the Pyongyang leadership, worried that a collapse of North Korea could bring instability to its own borders. Beijing is also wary of a unified Korea that would be dominated by the United States.

 

Reclusive and unpredictable North Korea has defied international efforts to halt its nuclear ambitions. It fired shells at Yeonpyeong off the peninsula's west coast on Tuesday, killing two civilians and two soldiers and destroying dozens of houses.

 

The attack marked the first civilian deaths in an assault since the bombing of a South Korean airliner in 1987.

 

South Korean troops fired back 13 minutes later, causing unknown damage. Members of President Lee's own party and opposition lawmakers accused the military of responding too slowly.

Hundreds of former South Korean soldiers held a protest rally in the border town of Paju on Friday, accusing the government of being too weak.

 

"The lazy government's policies towards North Korea are too soft," said Kim Byeong-su, the president of the association of ex-marines.

 

"It needs to take revenge on a bunch of mad dogs. We need to show them South Korea is not to be played with." (Additional reporting by Yoo Choonsik, Jack Kim and Kim Miyoung; Writing by Raju Gopalakrishnan; Editing by Nick Macfie and Ron Popeski)

China's Central Bank Pledges to Strengthen Liquidity Management

China’s central bank pledged to strengthen liquidity management and “normalize” monetary conditions after having twice this month ordered banks to hold more in reserves to curb inflation that’s at a two-year high.

The nation will use quantitative and price tools to manage liquidity, Hu Xiaolian, a deputy governor of the People’s Bank of China, said in a statement posted to the central bank’s website today. China will also control the pace of bank lending for the remainder of this year as it will be difficult to stay within the government’s 7.5 trillion yuan ($1.13 billion) target for new loans in 2010, she said.

Premier Wen Jiabao’s government has raised interest rates, increased the reserve requirement for banks and pledged to use price controls at part of efforts to rein in inflation that surged last month to 4.4 percent. Analysts at nine banks surveyed by Bloomberg News last week said they expected China to raise interest rates a second time this year.

“Beijing’s top concern is excess liquidity flooding the economy and fueling asset price inflation, so the policy stance is moving from accommodative to prudent, actually, more tightening,” Jinny Yan, an economist at Standard Chartered Plc in Shanghai, said before today’s central bank statement.

Inflation this year may also exceed the government’s 3 percent target for 2010, Zhang Ping, head of China’s top economic planning agency, said earlier this month. The more- than-estimate 4.4 percent increase in consumer prices in October was driven by a 10 percent surge in food costs, according to government statistics.

Inflation Target
China may set a higher inflation target of 4 percent for next year and tighten its monetary policy stance at the government’s annual economic work meeting to be held at the end of this year, the China Business News newspaper reported today, citing an unidentified person who has consulted on policy.

Rising wages, higher commodities prices and abundant liquidity are adding to inflation expectations, the central bank’s Hu said. Inflation pressure in China is also rising as the country attracts capital inflows because of increasing expectations for yuan appreciation, she said.

“The key task of monetary policy currently is to strengthen liquidity management, which is also a main way of normalizing monetary conditions,” Hu said.

Inflation Forecasts
Higher prices for food and services are prompting economists to raise their forecasts for inflation next year. Standard Chartered lifted its estimate last week to 5.5 percent from 4 percent, and UBS AG said Nov. 19 consumer prices will rise as much as 4.5 percent, compared with its previous range of 3.5 percent to 4 percent. Bank of America-Merrill Lynch revised its estimate to 4.5 percent from 3.6 percent.

The People’s Bank of China raised benchmark lending and deposit rates last month for the first time since 2007, two days before the government released statistics showing inflation accelerated in September to the fastest pace in 23 months.

A day before the release of October inflation data, the central bank raised the reserve requirement ratio for the nation’s lenders by 50 basis points and increased the reserve requirement once more last week by an additional 50 basis points. November’s inflation figure is due to be released on Dec. 13.

The U.S. Federal Reserve’s plan to buy $600 billion of Treasuries to pump money into the world’s biggest economy has also added to China’s inflation concerns. Chinese Central Banker Zhou Xiaochuan said last week that loose policies in developed economies may spark inflows of cash to China fueling concern about asset-price bubbles.

The central bank’s Hu said in today’s statement that the global economic environment remains “complex” and faces challenges from quantitative easing by developed nations.(Source: Bloomberg)

Malaysia to see stronger growth in 2nd half of 2011, says Zeti(update)

Zeti: Second half growth expected to moderate

KUALA LUMPUR: Malaysia will see moderate growth in the first half of 2011 and stronger growth in the second half, Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said on Tuesday.

Malaysia registered a 5.3 per cent Gross Domestic Product (GDP) growth in third quarter of 2010 as compared with 8.9 per cent in the second quarter.

"We will see this kind of (moderate) growth in the next two quarters and then by the second half we will see a stronger growth," she said when asked on the outlook of the first of quarter of 2011.

As for 2010, she said Malaysia was likely to have a growth of six to seven per cent.
Dr Zeti was met by reporters at the launch of Bursa Malaysia's Business Sustainability Programme by Prime Minister Datuk Seri Najib Tun Razak here.

Asked on the huge fund inflows into stock and bond markets, she said: "Right now because of our well developed and more matured financial market, we are better able to intermediate these flows.
"Hence, the situation is managable; it is not destabilising. All the markets in Malaysia have been functioning orderly and that is one of the country's strengths". - BERNAMA
(Source: The Star)

Singapore Says Economy to Expand 4% to 6% in 2011

It is said that Singapore economy will expand a record 15 percent this year, the fastest pace in Asia, even as slowing global growth threatens to damp export demand. The island’s currency rose.

According to its Trade Ministry,  Singapore Gross domestic product will grow 4 percent to 6 percent in 2011, the trade ministry said in a statement. The economy, vulnerable to swings in demand for its drugs and electronics, shrank less than previously estimated in the third quarter. The nation, which has had three recessions in the past decade, won’t experience one this year, the government said today.
The expansion has fueled inflation and prompted the central bank to allow faster currency gains even as neighbors Malaysia and Thailand refrained from tightening policy this quarter. While the global economy is “vulnerable” to risks of a slump in the U.S. and a sovereign-debt crisis in Europe, Asian demand will drive the region’s growth in 2011.

The island’s currency has gained about 8 percent against the U.S. dollar this year, and closed at a record S$1.2835 on Nov. 4. It rose as much as 0.3 percent to S$1.2987 a dollar before trading at S$1.3005 as of 10:48 a.m. local time.


Currency Appreciation

According to The Monetary Authority of Singapore it will steepen and widen the currency’s trading band while continuing to seek a “modest and gradual appreciation.” Meaning to say, Singapore uses its currency rather than a benchmark interest rate as its main tool to manage inflation.

As for the GDP, it has shrank at an annualized rate of 18.7 percent in the third quarter from the previous three months, ie less than the 19.8 percent pace initially estimated last month.

Meanwhile, the International Monetary Fund estimates that Singapore 15 percent forecast rates this year would be the fastest in the world after Qatar’s.


Europe, U.S. Risk

Asian economies have led a global recovery that’s been restrained by subdued expansions in Europe and the U.S., where the jobless rate remains above 9 percent. While the Bank of Korea increased interest rates for the second time in 2010 this week after inflation surged past the central bank’s ceiling, joining India and Australia in extending monetary tightening, others have paused.

Malaysia’s central bank last week left borrowing costs unchanged for a second meeting, and Thailand last month refrained from a third straight increase. Policy makers in the Philippines to Indonesia have avoided raising rates at all this year, in part to avoid offering a greater lure to inflows of speculative capital.

Singapore hasn’t had to take “extraordinary measures” against liquidity inflows, central bank Deputy Managing Director Ong Chong Tee said today. Concerns that capital flows to emerging markets are surging have been overstated and banks are “intermediating” the capital movements, though authorities are keeping a “close eye” on inflows, Ravi Menon, permanent secretary at the trade ministry, said at a briefing today.


Manufacturing Capacity

Manufacturing, which accounts for about a quarter of Singapore’s economy, climbed 14.3 percent from a year earlier in the three months through September, after surging 46.1 percent in the second quarter.

The construction industry gained 7.1 percent, while services grew 10.1 percent. The city’s two casino resorts run by Genting Singapore Plc and Las Vegas Sands Corp. have attracted millions to their gaming centers, while employment growth is boosting spending at malls and restaurants.

Singapore’s construction industry may shrink next year and the private home market may ease, the trade ministry said today. In August, the government announced measures to cool the property market, including increasing down payments for second mortgages and imposing a stamp duty on property held for less than three years.
(Source: Bloomberg)

Positive outlook for ringgit despite falling most in five months Tue

According to the CIMB Investment Bank Bhd regional rates and foreign exchange strategist Suresh Kumar Ramanathan, the ringgit is expected to retain its positive outlook despite falling the most in five months yesterday fuelled by concerns over capital controls and fears of a rebound in the US dollar.

The ringgit would still be strong and was one of the top performers in the region year-to-date.

This is because a big influence of its fall yesterday was only based on ‘fears’ brought about by a newswire report on caution over capital controls in the region as well as the ‘positive’ outlook for the US dollars.

Bank Negara did not revise the 2.75% overnight policy rate last week after three consecutive increases since March this year and warned against the risk of excessive capital inflows.

The central bank said greater vigilance was needed as the influx of funds might bring risks to macroeconomic and financial stability in emerging market economies.

The Group of 20 leaders summit in Seoul last week ended with a stance that developing nations could adopt regulatory steps to deal with capital inflows to help damp currency swings and prevent asset bubbles.
Suresh said the recent strengthening of the greenback was mainly due to trading players trying to lock in profits before Thanksgiving on Nov 25 as opposed to structured long dollar position. “We still retain the target for the ringgit against the US dollar at 3.02 for short term,” he said.

The ringgit slid 2.1 sen to 3.13 against the US dollar yesterday. But according D. Sivadass, a currency forwards trader at EON Bank Bhd quoted by Bloomberg, growth is tapering off and there is a veiled message against excessive fund inflows, especially the speculative type.

   
According to Suresh, the dollar is supported because of an aversion to risky currencies.

The country’s export growth had slowed to 6.9% year-on-year in September as the low-base effect was diminishing compared with the 10.6% growth in August.

Apart from Malaysia, other regional currencies also traded lower due to concerns over capital controls in the region to limit currency gains. ( Source: The Star Online)

BNM maintains OPR at 2.75 per cent

 Bank Negara Malaysia (BNM) has decided to maintain the overnight policy rate (OPR) at 2.75 per cent during its Monetary Policy Committee meeting.

The central bank said the global economic growth has moderated in the third quarter, with a sustained divergence in growth performance of the advanced and emerging economies.

According to BNM, the International financial market conditions have now become more volatile with the increased capital flows to emerging markets. The shift in global liquidity has brought with it risks to macro-economy and financial stability in the emerging market economies.

Meanwhile as for the Malaysian economy, the recent indicators on exports and external-related sectors have affirmed the earlier expectations for growth to moderate in the third quarter. Private consumption would benefit from the favourable employment conditions, firm commodity prices and accommodative financing environment while expansion in private investment was expected to be driven by increased capital spending in the domestic-oriented sectors.

It is believed that the prices are expected to rise at a modest pace in coming months in view of the rising global commodity and food prices, whereas inflation  is expected to remain moderate going into 2011. The central bank said the Monetary Policy Committee considered that the current OPR level as appropriate and consistent with the latest assessment of the economic growth and inflation prospects. “The stance of the monetary policy continues to remain accommodative and supportive of economic growth.

While domestic financial conditions remain orderly, greater vigilance will be accorded to the potential risks arising from large and volatile capital flows.” (Source: Bernama)

Singapore Seen Overtaking Malaysia 45 Years After Lee's Tears

                                Minister mentor of Singapore Lee Kuan Yew


Forty-five years after Singapore’s expulsion from a union with Malaysia left Lee Kuan Yew in tears on national television, the economy of the city-state he led to independence is poised to overtake its neighbor.

Singapore’s gross domestic product will cap its fastest annual growth this year since independence, rising as much as 15 percent to about $210 billion, while the economy of Malaysia, a country 478 times its size, will expand 7 percent to $205 billion, government forecasts show. The nations are scheduled to release their 2010 data by February.

The island that former economic adviser Albert Winsemius once said was considered a “poor little market in a dark corner of Asia” is now ranked by the World Bank as the easiest place to do business, has the world’s second-busiest container port, and boasts the highest proportion of millionaire households, according to the Boston Consulting Group.

“Singapore kept on moving to the next level as the world economy evolved and adjusted to market demands and investors’ interests,” said Lee Hock Guan, senior fellow at the Singapore- based Institute of Southeast Asian Studies. “Malaysia was struck by the curse of resource-rich countries: It didn’t optimize its human capital.”

From a low-cost manufacturing center for companies such as Texas Instruments Inc. in the 1960s, Singapore has become the world’s fourth-largest foreign-exchange center with a S$1.2 trillion ($932 billion) asset-management industry.

Rising Wealth

Smaller than New York City and the only Southeast Asian nation without natural resources, Singapore has grown 189-fold since independence in 1965, helping boost GDP per capita to $36,537 last year from $512. Malaysia’s economy expanded at one- third the pace during the same period and had a GDP per capita of $6,975 in 2009, up from $335 in 1965.

Malaysia’s growth fell to an average 4.7 percent a year in the past decade, from 7.2 percent in the 1990s, when former prime minister Mahathir Mohamad wooed overseas manufacturers, built highways and erected the world’s tallest twin towers.

“Development is like a marathon and all policies geared toward it must be sustainable and continuous,” said Thomas Lam, chief economist at OSK-DMG, a venture between Malaysian securities firm OSK Holdings Bhd. and Deutsche Bank AG. “Malaysia runs the marathon like a 100 meter event, so you see the initial spurt but not continuous progress in the race.”

Lam, 35, is one of 386,000 Malaysians who have become permanent residents or citizens of Singapore, a list that includes Health Minister Khaw Boon Wan and Oversea-Chinese Banking Corp. Chairman Cheong Choong Kong.

‘Greater’ Opportunity

“Singapore seems to offer greater career opportunity and mobility in my field,” said Lam, the second-most-accurate U.S. economic forecaster for 2008 to 2009 in Bloomberg surveys.

After more than 140 years under British rule, Singapore joined the Federation of Malaysia in September 1963 as Lee and his colleagues sought a bigger common market to cut unemployment and curb communism. The merger survived less than two years amid ideological differences and worsening relations between the United Malays National Organisation, which dominated the ruling Barisan Nasional coalition, and Lee’s People’s Action Party.

“For me, it is a moment of anguish,” Lee said on Aug. 9, 1965, the day Singapore became a sovereign state. “My whole adult life, I believed in Malaysian merger and unity of the two territories.” Lee, 87, was Singapore’s prime minister from 1959 to 1990.

‘Loss of Time’

Winsemius, the country’s economic adviser from 1961 to 1984, said he thought the merger was a “loss of time.” Credited with helping formulate Singapore’s industrial strategy, Winsemius, who died in 1996, said the general opinion of Singapore in the early 1960s was a country “going down the drain.”

The government acted by investing in export-based industries. It built new container terminals for Singapore’s port, the genesis of the country’s development; reclaimed land offshore to attract companies such as Exxon Mobil Corp. and Royal Dutch/Shell Group for a S$30 billion oil refining complex; and moved into high-tech industries like electronics and drugs.

“Economic development does not occur naturally,” said Ravi Menon, a senior official at Singapore’s Ministry of Trade and Industry. “This is where free marketers are disenchanted with Singapore. The government has never hesitated from guiding the development process or intervening in markets where it believes such intervention will lead to superior outcomes.”

Biomedical Research

The government invested about S$500 million in its Biopolis biomedical research hub after attracting drugmakers including Pfizer Inc. and Novartis AG. It cut corporate tax rates by nine percentage points since 2000 to 17 percent, compared with 25 percent in Malaysia.

BNP Paribas has a “buy” recommendation on Keppel Corp. and SembCorp Marine Ltd., the world’s biggest builders of oil rigs and two of the companies the government backed to propagate its industrial policy. Singapore Technologies Engineering Ltd., Asia’s biggest aircraft-maintenance company, was rated a “buy” by Deutsche Bank AG.

Singapore was kicked out of the union partly because Lee opposed Malaysia’s affirmative-action policy, which provides special rights to the ethnic Malay majority. While Malaysian Prime Minister Najib Razak has pledged to roll back key policies of ethnic favoritism, he told UMNO’s 61st General Assembly last month that the “social contract” that gives benefits to the Malays cannot be repealed.
                                                    

Malaysia's Prime Minister Najib Razak presents the budget for 2011 in Parliament, in Kuala Lumpur.



Najib’s Plan

“Singapore will overtake Malaysia because its focus is just on economic growth,” Mahathir, Malaysia’s prime minister from 1981 to 2003, said in an e-mailed response to questions. “There is no social restructuring goal such as fair distribution of wealth between races as we have in Malaysia.”

Najib is trying to return the Malaysian economy to the levels of growth that boosted stock prices almost fivefold in the decade through 1996. He set a goal of tripling gross national income to 1.7 trillion ringgit ($550 billion) in 2020, from 600 billion ringgit in 2009 and creating 3.3 million jobs.

His government unveiled an economic transformation program in September aimed at attracting investment, including $444 billion of programs this decade ranging from mass rail to nuclear power, led by private and government-linked companies. Najib is also taking steps to bolster the talent base, including plans for a teaching hospital with courses by Baltimore-based Johns Hopkins University and a new corporation tasked with luring back skilled Malaysians from overseas.

About 350,000 to 400,000 Malaysian citizens work in Singapore, including 150,000 who commute daily via buses and motorcycles to jobs in the city-state’s factories, kitchens and offices.

Export Model

“Singapore followed the export-led industrialization model to become a base for foreign manufacturers,” said Lee of the Institute of Southeast Asian Studies. “The main model for Malaysia for a number of years was import-substitution where it protected certain industries. That created inertia.”

Lee, a 52-year-old Malaysian who studied and lived overseas for more than 30 years, said he plans to return to live in Malaysia only when he retires.

Singapore beat 182 economies to take first place in the World Bank’s annual ranking of business conditions, which looks at property rights, taxes, access to credit, labor laws and regulations on customs and licenses. Malaysia climbed two steps to 21st, according to the Nov. 4 report.

Mercer Consulting ranked Singapore as Asia’s most livable city in May, even as it lags behind Hong Kong on measurements of personal freedom and media censorship. The government says restrictions on public assembly and speeches are necessary to maintain social and religious harmony among its 5 million people. The city was wracked by violence between ethnic Malays and Chinese in the 1960s.

The country must keep innovating to stay ahead, said Tomo Kinoshita, deputy head of Asia economics research at Nomura Holdings Inc. in Hong Kong.

“Singapore must keep searching for new markets,” Kinoshita said. “Less developed Asian countries are all growing quickly and trying to catch up.”

(Source: Bloomberg)

Malaysia May Hold Interest Rate to Support Growth as World Economy Slows

Malaysia’s central bank will probably keep interest rates unchanged for a second consecutive meeting to support its economy as global growth weakens and inflation eases.

Bank Negara Malaysia will leave its benchmark overnight policy rate at 2.75 percent tomorrow, according to all 16 economists surveyed by Bloomberg News. The central bank will release its monetary policy decision at 6 p.m. in Kuala Lumpur after its final rate-setting meeting for 2010.

A delay in adding to Malaysia’s three rate increases since early March would avoid widening a gap with borrowing costs in advanced economies that’s contributed to a 10.7 percent gain in the ringgit this year. Governor Zeti Akhtar Aziz said last week Asian policy makers are willing to act “collectively” on capital flows if needed, amid concern U.S. stimulus will push funds to the region.

The ringgit is this year’s second-best performing currency in Asia excluding Japan, behind the Thai baht. It rose 0.1 percent to 3.087 per dollar at 10:14 a.m. in Kuala Lumpur today. The benchmark stock index closed at a record high yesterday.



Financial Imbalances

Malaysia started raising rates before any other central bank in Asia this year to reduce what it said was the risk of financial imbalances that may be caused by keeping borrowing costs too low for too long. Policy makers increased the key rate by 0.75 percentage point from March to July.

India’s central bank raised borrowing costs for a sixth time this year on Nov. 2 and said the chance of further policy tightening in the “immediate future is relatively low.” The same day, the Reserve Bank of Australia unexpectedly increased its benchmark interest rate for the first time in six months.

Other Asian central banks are maintaining borrowing costs or delaying increases to avoid attracting capital inflows as the region’s growth lures funds at a time when Japan and the U.S. are keeping rates low to boost their economies. Bank Indonesia kept its benchmark interest rate at a record low last week.

The U.S. Federal Reserve last week announced plans to buy $600 billion of long-term government bonds in its second effort at so-called quantitative easing, aiming to stoke economic growth. Policy makers from Asia to South America have said the stimulus could depress the dollar and spark capital flight to emerging markets.

‘Appropriate’ Level

Zeti said in October the current rate level is “appropriate,” suggesting policy makers may wait before taking further action. Malaysia’s inflation rate fell to a three-month low of 1.8 percent in September.

“We don’t see inflationary pressures at this point in time, although we have strong demand,” Zeti said Oct. 26. “Interest rates at this point in time are at appropriate levels.”

Malaysia’s exports rose at the slowest pace in 10 months in September as shipments to the U.S. and China eased. The Southeast Asian economy, whose products include IOI Corp. palm oil and Intel Corp. computer chips, may experience some deceleration in the final quarter of 2010, International Trade & Industry Minister Mustapa Mohamed said last month.

Building Towers

Prime Minister Najib Razak, who expects growth to ease to a range of 5 percent to 6 percent next year from 7 percent in 2010, has unveiled projects including a 100-floor tower and mass rail systems to revive investment and spur economic expansion.

While Bank Negara Malaysia left interest rates unchanged at its September meeting, it is using other tools to prevent asset bubbles from forming.

The central bank this month placed a limit on the loan-to- value ratio for people taking out third mortgages to buy homes in a bid to moderate “excessive” investment and speculation in urban areas. A maximum lending limit of 70 percent took effect on Nov. 3. Banks such as Malayan Banking Bhd., the country’s largest lender, typically provide loans of as much as 90 percent of the value of a property.

(Source: Bloomberg)

China Posts Stronger Trade Surplus Ahead of G20

China's politically contentious trade surplus widened in October, lending fresh ammunition for foreign critics of its currency policy ahead of a G20 summit.

China's exports rose 22.9 percent in October from a year earlier, and imports increased by 25.3 percent, the official Xinhua News Agency said on Wednesday.

That left the country with a trade surplus of $27.1 billion, compared with a surplus of $16.9 in September.

The announcement of the surplus coincided with heated debate on global exchange rate polices in the run-up to a Group of 20 major economies summit in Seoul this week.

The United States has frequently criticized China, saying it deliberately undervalues its currency to boost exports.

In return, China has pointed its finger at the Federal Reserve's new $600 billion bond-buying program, saying the ultra-loose policy is putting pressure on the dollar and will result in a flood of cash flowing into the world economy, inflating asset bubbles.


China has yielded some ground on the currency, allowing the yuan [CNY=X 6.623 -0.0105 (-0.16%) ] to gain 2.85 percent since its depegging to the dollar in mid-June.


Weakening Demand

The slower-than-expected import growth could indicate softening domestic demand as the government wound down its massive economic stimulus unveiled in late 2008.

The median forecast of economists polled by Reuters last week was for exports to rise 23.5 percent and imports to grow 28.5 percent, resulting in a trade surplus of $25 billion.

"Import growth in October was weaker than expected, producing the big trade surplus. Import data usually fluctuates a lot, but the figure also showed that domestic demand in the second half is weak," said Gao Shanwen, chief economist with Essence Securities in Beijing.

"In the next two months, import growth will trend up while export growth will slow. The trade surplus will remain high, bringing pressure on yuan appreciation.

(Source: Reuters)

InsiderAsia’s model portfolio - 402

True to script, the US Federal Reserve announced a fresh round of quantitative easing to shore up flagging growth in the world’s largest economy last week. The central bank intends to buy Treasury bonds totaling some US$600 billion (RM1.85 trillion), more or less in line with market expectations, or about US$75 billion each month through to June 2011.

With short-term interest rates already near zero, the move is aimed at lowering the longer-term borrowing costs for consumers and businesses.

Nonetheless, market observers remain divided on the effectiveness of the programme on the domestic market where businesses are wary of making fresh investments without clear evidence of consumption growth. But consumer spending is picking up only very slowly in view of the stubbornly high unemployment rate. Households are still in de-leveraging mode while the housing market is languishing.

Pumping more money into a global financial system already sloshing with liquidity further raises the threat of inflation and asset bubbles, especially in emerging markets.

Most Asian currencies, including the ringgit, rose against the greenback after the Fed’s move. Currency appreciation would be painful for countries dependent on exports.

In a pre-emptive measure against excessive speculation in the local property market, and keeping housing affordable for the masses, Bank Negara announced a 70% loan-to-value cap for financing of third property and beyond.

Equity markets, on the other hand, are expected to stay buoyant in the near to medium term supported by increasing capital inflow seeking higher yields. Asian markets traded broadly higher last week.

On the home front, the FBM KLCI is now within spitting distance of its all-time record close of 1,516 points. The benchmark index finished at 1,511.7 points last Thursday. Trading volume held steady from the previous week, averaging roughly 1.27 billion shares daily. The local bourse was closed on Friday for Deepavali celebration.

Hot on the heels of Malaysia Marine and Heavy Engineering’s successful listing, the second Petronas unit, Petronas Chemicals Group launched its prospectus early last week. Based on the retail price of RM5.05, the initial public offering is set to raise some RM12.5 billion in proceeds and the company would have a market capitalisation of over RM40 billion. Its listing is tentatively slated for Nov 26.

Our model portfolio underperformed the benchmark index last week. Total market value for our basket of 17 stocks slipped 0.56% to RM548,950. Ten of our stocks closed in the red while five ended higher and two was unchanged for the week.

Among the bigger losers was Tanjung Offshore, which closed 4.3% lower at RM1.57. AmFirst REIT (-3.3%), White Horse (-2.7%), Pantech (-2.7%), HELP International (-2.1%) and Selangor Properties (-3%) too ended lower for the week. At the other end, Masteel was our best performer, gaining 8.9% to close at 97.5 sen while Quill Capita Trust was up 2.9% to RM1.06.

Including our large cash reserves, the total portfolio value was down by a lesser 0.44% to RM699,767. Last week’s losses pared our model portfolio’s cumulative returns since inception to 337.4% on our initial capital of just RM160,000. Nevertheless, we continue to outperform the FBM KLCI, which was up by about 133.7% over the same period, by some distance.

Our total profits are very substantial at RM539,767, of which RM336,964 has already been realised from previous shares sales. For prudence sake, our model portfolio continues to hold a significant amount of cash — for which no interest is imputed — totalling RM150,817, or a comfortable 22% of our total portfolio value.

Our 10,000 warrants for Masteel — acquired under the company’s 1-for-2 rights issue exercise — began trading on the local bourse last week. The warrants, which have a five-year maturity period and exercise price of 67 sen, closed at 40.5 sen last Thursday. Recall that we subscribed for the warrants at 18 sen apiece.

We kept our model portfolio unchanged and will continue to monitor the market for opportunities.
(This article appeared in The Edge Financial Daily, November 8, 2010)

Gold and precious metal funds top list in August

In the month of August, the best performing fund category was ahead by a mile. According to the Lipper FundMarket Insight Report, Equity Sector Gold & Precious Metals returned an average of 6.45% in the one month, while the runners up — Equity Sector General Industry Average and Equity Malaysia — returned a distant 1.16% on average.

In a mixed month for funds in Malaysia, Bond Asia Pacific (+0.36% on average) and Bond MYR (+0.58% on average) were in the list of the top performing classifications for August.

Reflecting the uncertainty in markets over economic growth, all fund groups except target maturity and unclassified funds turned in negative performance on average. “Equity funds returned minus 1.63% on average for August and were still negative (-5.7%) for the year to date. The presence of many poorly performing sectors on a macro level such as Equity Europe, which incidentally lost 18.14% over the last eight months, dragged down the returns of the equity asset class within the fund market,” said Lipper (Asean) research analyst Ivan Ng in the report.

For August the two best-performing equity funds were AmPrecious Metals (Equity Sector Gold & Precious Metals, up 8.27%) and CIMB-Principal KLCI-Linked (Equity Malaysia, up 5.10%), in accordance with the top-performing LGCs for August. At the bottom was Equityi Vietnam with a -8.80% loss.

On a year-on-year basis, a local focus beat a global one. Eight of the top ten equity funds were Equity Malaysia funds. “Lipper Equity Global funds generally did not have a good past 12 months, with five of the ten bottom-performing funds on a year-on-year basis coming from this LGC,” said Ng.

Local Bond funds were the top performers in the one-year ending Aug 31, with nine of the ten funds in the top-performing list belonging to the Bond MYR category. The best-performing Islamic bond fund was PB Islamic Bond (Bond MYR, up 10.91%), while the bottom-performing Islamic bond fund was MIDF Amanah Islamic Bond (Bond MYR, down 1.24%).

“Over the last three years the Lipper Leader ratings system managed to identify funds with a good risk-adjusted return; the top-performing bond fund over the last 12 months — AMB Income Trust (Bond MYR, up 13.37%) — led the charts in terms of returns, although its volatility was much higher compared to the other bond funds on the top-ten list,” said Ng.


This article appeared on the Personal Finance page, The Edge Financial Daily, September 23, 2010.

Measures in Promoting a Stable and Sustainable Property Market and Sound Financial and Debt Management of Households

Bank Negara Malaysia wishes to announce with immediate effect the implementation of a maximum loan-to-value (LTV) ratio of 70%, which will be applicable to the third house financing facility taken out by a borrower. Financing facilities for purchase of the first and second homes are not affected and borrowers will continue to be able to obtain financing for these purchases at the present prevailing LTV level applied by individual banks based on their internal credit policies. The measure aims to support a stable and sustainable property market, and promote the continued affordability of homes for the general public.

At the national level, residential property prices have increased steadily in tandem with economic development and the rise in income levels. This aggregate growth trend remains largely manageable and has not deviated from the long term trend in residential property prices. In the more recent period, however, specific locations, particularly in and around urban centres, have experienced faster growth, both in the number of transactions and in house prices. This is further supported by an increase in financing provided for multiple unit purchases by a single borrower, suggesting increasing investment activity that is of a speculative nature.

The targeted implementation of the LTV ratio is expected to moderate the excessive investment and speculative activity in the residential property market which has resulted in higher than average price increases in such locations. This has also led to increases in house prices in surrounding locations, thus contributing to the declining overall affordability of homes for genuine house buyers. This measure therefore remains supportive of the objective of encouraging home ownership among Malaysians which continues to be an important national agenda.

Introduction of the Financial Capability Programme

As part of the continuous efforts to raise the level of financial literacy and to promote sound financial and debt management by Malaysians, Bank Negara Malaysia also wishes to announce the introduction of the Financial Capability Programme. This Programme will be offered by Agensi Kaunseling dan Pengurusan Kredit (AKPK) through its establishments nationwide and will commence from January 2011. The Programme is aimed at equipping individuals with important knowledge for responsible financial decisions by gaining practical understanding and skills in money and debt management. This in turn will contribute towards preserving the sound financial positions of households and ensure that debt accumulation is commensurate with household affordability, including their ability to absorb interest rate adjustments and potential volatility to income and expense levels. Individuals particularly new prospective borrowers and young adults are strongly encouraged to participate in this specially designed programme. The details of the implementation of the Financial Capability Programme will be announced later in December this year.

(Source: Bank Negara Malaysia, 3 November 2010)

Malaysia reveals Economic Transformation Programme

The government announced the Economic Transformation Programme (ETP) to realise its ambition to turn the country into a high-income economy by 2020.Minister in the Prime Minister’s Department Senator Datuk Seri Idris Jala says the ETP will help Malaysia triple its gross national income (GNI) from RM660 billion (2009) to RM1.7 trillion in 2020.

This translates to an increase in per capita income from RM23,700 (US$6,700) to at least RM48,000 (US$15,000), meeting the World Bank’s high-income benchmark. To help achieve this, the government aims to sustain 6% GNI growth between 2011 and 2020.

The government is confident the private sector will be the primary driver for the push towards a high-income nation. A total over RM1.4 trillion is required for the duration of this economic push, with 92% of the funding expected to come from private sector investments, and public funding expected to take up the remainder.


Malaysian inflation rises 2.1% in August
In line with market expectations, Malaysia’s consumer price index (CPI) increased by 2.1% y-o-y in August for the sixth straight month, largely reflecting the carry-over effects of the cuts in subsidies on fuel-related products and sugar that took effect on July 16. This was higher than July’s 1.9% increase. Food prices remained elevated, rising by 3.1% in August, versus 2.9% in July, on still-firm domestic demand. Festive demand during Ramadan, as well as the Hari Raya Aidilfitri celebrations, should keep food inflation at high levels in September. The transport price index rose to 2.7% (2% in July) as the full impact of the fuel price hike kicked in.


Foreign reserves rise in SeptemberMalaysia’s foreign exchange reserves rose by US$650 million or RM2 billion in September to US$95.9 billion or RM313.3 billion as at Sept 15, compared with a marginal increase of US$150 million or RM500 million in August. This was likely driven by the repatriation of export proceeds and some inflow of foreign portfolio funds, which were offset partially by the payment of import bills. As it stands, foreign portfolio investment in fixed income paper rose by RM5.9 billion in July, compared with RM2.3 billion in June, after slowing down sharply to RM100 million in May. YTD, foreign exchange reserves have fallen by US$800 million. In ringgit terms, the reserves fell by RM18 billion after taking into account the revaluation loss due to the appreciation of the ringgit against major currencies. At the current level, the foreign exchange reserves are sufficient to finance 8.4 months of retained imports and cover 4.3 times the short-term external debt of the nation, compared with a high of 10 months of retained imports and 4.3 times short-term external debt cover as at end-February.


Inflation picks up in Singapore in August
Singapore’s consumer prices grew at a faster pace of 3.3% y-o-y in August, compared with 3.1% in July and a low of 0.2% in January. This was the fastest rate of increase in 20 months, indicating that price pressure is building up as economic growth picked up strongly in 1H2010. The pick-up in inflation was reflected in a faster increase in food prices, which inched up to 1.7% y-o-y in August, from 1.5% in July. This was made worse by a rebound in prices of clothing and footwear and faster increases in the costs of housing, education, healthcare and recreation services.


US home sales rebound but recovery remains weak
US existing home sales rebounded to increase by 7.6% m-o-m to an annual rate of 4.13 million units in August, after falling by a whopping 27% in July, the sharpest drop since data collection began in 1968. This was the first increase in four months but it remains to be seen whether the rebound is temporary. Nevertheless, it was an encouraging sign, especially following the end of the government’s tax incentive in April. The tax incentive offered certain buyers as much as US$8,000 in tax credit to sign a contract by April 30 and complete the contract by June 30. US lawmakers have since pushed the completion deadline to Sept 30. Y-o-y, existing home sales contracted by a smaller magnitude of 19% in August, compared with -25.3% in July. Despite the improvement, it was the second straight month of decline after showing positive growth for a year, pointing to a renewed weakness in home sales as the government’s support ended.


The Fed leaves rate unchanged
The US Federal Reserve left its federal funds rate at close to 0%. Its statement again promised that this rate would stay at “exceptionally low levels” for an “extended period.” The Fed also announced it would continue to make new purchases of Treasuries with the proceeds of its earlier investments. That policy was announced at its previous meeting last month.



US leading indicators point to expansion in economy
The US Conference Board’s index of leading indicators, which provides early signals on the direction of the economy over the next three to six months, grew at a faster pace of 0.3% m-o-m in August, after rising by 0.1% in July and compared with -0.2% in June. This was the second straight month of increase after a drop in June, suggesting that the US economy will likely continue to expand in the months ahead.


Eurozone’s August PMI falls
The eurozone’s preliminary purchasing manager index (PMI) for the manufacturing sector, released by Markit Economics in London, fell to 53.6 in September, from 55.1 in August and a high of 57.6 in April. This was the lowest level in seven months, indicating that the sector’s activities are weakening in line with a slowdown in the global economy.

Similarly, the PMI index for the services sector eased to 53.6 in September, from 55.9 in August and a high of 56.2 in May, indicating that the slowdown in the region’s services activities is catching up with manufacturing activities. As a result, the composite index for both manufacturing and service industries slackened to 53.8 in September, from 56.2 in August and a high of 57.3 in April. Economists say this means the region’s economic growth will likely slow down in 2H2010, after recording the fastest pace of growth in four years in 2Q, on account of a slowdown in exports and as the austerity measures by Europe’s highly indebted nations begin to be felt.


Industrial orders fell in July
The eurozone’s industrial orders contracted by 2.4% m-o-m in July, compared with 2.4% in June. This was the first decline in three months, indicating that industrial activities are likely to soften in the months ahead, in line with a slowdown in global economic activities. Industrial orders were dragged down by a drop in orders for intermediate and capital goods, which fell by 0.1% and 5.1% m-o-m respectively in July, compared with the corresponding rates of 0.1% and 3.8% in June. This suggests that the region’s exports and investment will likely slow down in the months ahead.




This article appeared in Corporate page of The Edge Malaysia, Issue 825, Sep 27-Oct 3, 2010