Strong growth projected for M'sia

By JAGDEV SINGH SIDHU
jagdev@thestar.com.my

Economists stick to full-year projections despite H2 slowdown expected
KUALA LUMPUR: The slowdown in economic data pointing to a cooling of the economy has some economists worried but many are sticking to earlier projections of strong full-year growth on the strength of the first-half numbers.
Economists said expectations of an economic slowdown in the second half of the year was anticipated but say the dip in export, industrial production and the health of the global economy adds to worries that next year would be more difficult to read.
“The stimulus packages and the huge low-base effect contributed to the strong first half but the picture globally is not pretty,” said an economist.
He said any slowdown would not lead to a recession this year given the momentum that had been built on so far but said next year’s performance, which would see slower economic growth, would be more worrisome.
The economy grew by 10.1% in the first quarter and 8.9% in the second quarter.
Uneasiness has cropped up after recent data came in on the soft side.
Export growth for August was 10.6% which was the fifth consecutive month of slower external trade and industrial production for growth for August was 4% after dipping to 3.4% after a reading of 9.3% in June.
Economists attribute the fasting month for the declines in export and also industrial production and believe a pick-up in September is imminent given the low-base effect from last year.
“Because of the low-base effect, the IPI for September could come in between 6% and 7%,” said an economist.
Economists had said external trade globally was sluggish given the direction leading indicators were pointing.
“Based on latest consensus forecast and our in-house calculations, the global economy is expected to average 3.7% year-on-year in the second half of 2010 after growing by 4.5% year-on-year in the first quarter of 2010 and 4.8% year-on-year in the second quarter of 2010,” said Maybank Investment Bank in a report recently.
While the general belief is that China would remain a locomotive for Asia, Malaysia’s export growth to China was a meagre 2.4% in August, causing some to wonder if that is a one-time blip. But the export growth rates to South-East Asia too have slowed in recent months and showed growth of 5.6% in August.
Working against exports has been the ringgit’s steep appreciation against the dollar this year which Maybank noted that apart from Malaysia, countries such as South Korea, Japan and Thailand were showing a significant slowdown in exports in recent months as their currencies gain strength.
Another insight to the health of the global economy is the appetite for companies to consume goods.
Global purchasing managers indices are still on the health side of 50 – anything below would mean a contract and a reading above 50 would mean expansion – but the global average has been falling over the past three months.
In Asia, the Purchasing Managers’ Index (PMI) for China shows an expansion with the index reading of 53.8 for September but in other parts of Asia where external trade is a big component of growth, the index reading is below 50.
Those countries with a reading below 50 are South Korea, Taiwan, Japan and Singapore.
“Softening PMI numbers alongside index of leading economic indicators also support the view that growth will be slower in the second half of this year,” said Maybank Investment Bank in a report.
An economist said a slight drop below a reading of 50 would not cause much stress but a reading in the mid-40 region would.
“The global PMI is a good indicator of trade,” said the economist.
While many are hoping that the last couple of months of economic data would not be a reflection of things to come, the message though has been clear.
“Going into 2011, very few people know what the outcome will be. It’s still uncertain.” said an economist.

Go Asia for consumption stocks

By FINTAN NG
fintan@thestar.com.my

WITH equity markets continuing to be volatile for the foreseeable future, wary investors will be looking for pointers on where to put their money.
The global economy is still confronted by a bleak US jobs market outlook and further troubles brewing in the eurozone which may affect wider Europe.
There is also growing realisation that earnings upgrades have run beyond underlying economic fundamentals and business conditions, prompting investors to pull back.
As reported earlier in StarBiz, investors may look towards the US markets for some sort of lead as Wall Street kicks off the second quarter’s earnings report.
However, future corporate earnings growth, and therefore of the economy, may not be rosy as stimulus measures taken to boost growth at the height of the financial crisis wane, or are withdrawn, and consumers in the developed world continue to tighten their belt.
A report by ECM Libra Investment Bank Bhd research head Bernard Ching dated July 14 shows three underlying themes for investing in the third quarter in the local equity market.
He recommends a switch to high-dividend yield defensive stocks for capital preservation, buying undervalued cyclical stocks with exposure to domestic demand and consumption recovery in Asian economies and riding on the strengthening ringgit.
“We favour a defensive strategy over the next three months until there is better clarity in the fourth quarter,” he says.
Ching suggests accumulating undervalued stocks predominantly driven by consumption growth domestically and in Asia in view of external uncertainty and concerns over domestic policy.
“While exports to advanced economies may come under pressure due to tepid consumption growth, we believe Asia will take the lead in global consumption growth,” he says.
He adds that investors should ride on to the strengthening ringgit as structural issues such as high unemployment and fiscal deficit in the US, eurozone and Britain will make their currencies less attractive.
Fund managers are also picking up on the domestic consumption story in Asia with Fortress Capital Asset Management Sdn Bhd chief executive officer Thomas Yong preferring China, Hong Kong and Singapore due to their still strong growth prospects.
“We like the domestic consumption stories in all these markets and therefore prefer the consumer products and retailing sectors there,” he says.
Yong adds that the consumer theme includes the automobile sector. “As an extension, the China and Hong Kong markets also offer numerous proxies to US recovery in consumption spending – particularly sporting goods manufacturers,” he says.
Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose says the stronger balance sheets of the public and private sectors in the Asean markets make them attractive.
He recommends exposure to plays on Asean domestic economic activity such as the banking, retail, property development and insurance sectors.
“As the developed world keeps real interest rates below zero and prints money, that liquidity will find the best returns in Asean,” Ambrose adds.
He points out that Asean’s banking sectoris “relatively unpolluted by worthless proprietary trading books, their fiscal balances are sounder (Malaysia’s deficit is high, but almost entirely funded domestically) and the man in the street has savings as opposed to his developed world counterpart’s debt.”
Ambrose says the surest bet is the gradual strengthening of Asian, and especially Asean currencies, against the greenback, euro, sterling and yen.
He believes gold should be an important part of any investment portfolio as insurance against the folly of mainly developed countries’ central banks.
While Ambrose feels that inflation is under control and not an immediate threat, “if you keep printing money, inflation will occur”.
Both Ambrose and Yong are wary of commodities with the former saying that commodity price movements are greatly influenced by the economic health of China, the biggest swing contributor to demand growth.
“Any slowdown could lead to commodity price weakness,” Ambrose adds.
Yong says Fortress Capital typically shies away from investing in exotics such as commodities but remains bullish on oil prices over the long term.
On bonds, he says the favoured segment of the market “is probably shorter duration higher credit rating issues”.

External factors to drive M'sian market this week

By FINTAN NG
fintan@thestar.com.my

 

PETALING JAYA: With no important local economic or corporate news save Bursa Malaysia Bhd’s quarter ended June 30 results scheduled for release this week, attention is likely to shift to US corporate earnings.
In the usually quiet summer months in the northern hemisphere, the US earnings reporting season for the quarter ended June 30 which starts today should provide some guidance to market movements at a time of uncertainty.
A stockbroker told StarBiz that trading this week would likely hinge on news from the United States and the euro-zone.
Dow Jones component Alcoa Inc, an aluminum producer, would kick off the earnings reporting season today on Wall Street.
The company’s performance would be watched by investors for an indication on where the economy is headed as aluminum is an important component of industrial and consumer products.
According to analysts’ estimates compiled by Bloomberg, profits at S&P 500 companies were projected to have increased 34% in the April to June period and by the same amount for the year.
In a report dated July 9, HwangDBS Vickers Research said the benchmark FBM KLCI might still be in the mood to add on gains, possibly climbing towards the immediate resistance level of 1,340 on improving sentiment.
Sentiments were likely boosted by Bank Negara’s 25-basis point hike of the overnight policy rate last Thursday and the accompanying monetary policy committee statement noted economic activity remained robust in the second quarter ended June 30.
The central bank added that although there would be some moderation in the pace of growth going forward, “the domestic economy is expected to remain strong with continued improvements in private consumption and investment, augmented by public investment spending”.
Besides corporate earnings, a slew of economic reports are scheduled for release this week in the United States including the Federal Open Market Committee’s minutes from the June 22 to June 23 meeting on July 15.
Federal Reserve officials have indicated that the benchmark fed rate would be kept at between zero and 0.25% for an extended period in order to help the economy recover faster as it grappled with slowing new home-sales and weaker private-sector jobs growth.
Other reports to look out for include initial jobless claims for the week ended July 10, which would be released this Thursday.
Markets received a boost late last week when the jobless claims for the week ended July 3 showed a decrease for those claiming benefits from 21,000 to 454,000.
Thursday would also see the release of data for industrial production for the month of June and the Empire Manufacturing index, an indicator of manufacturing output in the region covered by the Federal Reserve Bank of New York, for the month of July.
The Thomson Reuters/University of Michigan survey of consumer confidence, a monthly barometer of US consumer sentiments is scheduled for release on Friday.
The survey showed sentiments rose in June despite losses in US stock markets due to the euro-zone debt crisis.

Interest rates: The only way is up

By CECILIA KOK

IT has been a year of “free money”. Well, almost, especially so in developed countries such as the United States and Japan, where interest rates have sunk to near zero levels over the past one year.

In most other countries, including Malaysia, interest rates are nowhere near zero, but they have been hovering at their historical lows. So, in general, money in these countries has been generally “cheaper” than ever as well.

Now, let’s think of interest rates as the price of money and liquidity as the lifeblood of the economy.

From the time governments worldwide began slashing interest rates towards the end of 2008 and early 2009, they have essentially opened the tap for cheap money to flood the economy. They call it a loose monetary policy, and the strategy is to encourage businesses to borrow more to boost investments and households to save less and consume more to help bring life back to an economy seen then to be at risk of sliding down into an unprecedented, deep and prolonged recession.

To a certain extent, the strategy of a loose monetary policy has worked pretty well for most economies. But of course, the strategy wouldn’t have worked as effectively if not for the massive government spending on public projects and various other incentive programmes to stimulate their economies.

Rising stakes

But the stakes are rising, as the global economy gradually returns to a growth path.

For one, the low interest rates are seen to be fuelling the emergence of new asset bubbles, particularly in Asian economies such as China, Hong Kong, South Korea and Singapore, where property and equity prices have surged beyond what their fundamentals would justify.

There is also money chasing commodities, such as gold and crude oil, as investors seek to invest in assets that promise higher returns. And that has resulted in the prices of major commodities rising sharply.

The other concern pertains to the rise of inflationary pressure. The general price level of goods and services could accelerate as total demand in an economy continues to grow with the improving economy or as the rise of commodity and raw material prices continue to push up costs.

While the consensus view is that inflation is still a subdued risk for most economies at this stage, the next few months can present a different story. Already, the United Nations Food and Agriculture Organisation warned that global food prices had bounced back to a 14-month high last November. This could be just one of the signs of rising inflation risk.

The risk of inflation cannot be left unchecked, as it could result in the value of money being significantly eroded, and hence, the purchasing power of consumers diminished. So, amid the rising risk of new asset bubbles and inflation in a more stabilised and improved economy this year, the next sensible move expected of policymakers is to turn off the tap of super-cheap money by raising interest rates before their economies get overheated with other problems.

So far, Australia has been leading the world in raising interest rates. Since October last year, the country’s central bank has raised its benchmark interest rates three times by 25 basis points each to the present level of 3.75%. Local economists are now saying that the next meeting of policymakers at the Reserve Bank of Australia in February could result in a fourth consecutive rise in interest rates.

Most policymakers in other countries, including Malaysia, are still assessing the appropriate time to raise rates by weighing the risks of tightening too soon with remaining loose for too long.

Malaysia’s Monetary Policy Committee (MPC) at Bank Negara will meet at the end of this month to determine the level of the country’s benchmark interest rate, that is, the overnight policy rate (OPR), for the next two months. No change in the OPR is expected out this first meeting of the year.

In general, the MPC meets six times each year to decide on the direction of the OPR based on its outlook of the local economy and inflation expectations for the country. It is noteworthy that while one of the key priorities of the central bank is to ensure general price stability, policymakers do not actually have a targeted rate of inflation to determine the movement of the country’s key interest rates, unlike some other leading economies such as Britain, which has an inflation target of 2%.

The reason for this is that Bank Negara wants to be flexible in terms of providing ample support for economic activities in the country to expand.

One thing is clear at this moment – the pace of Malaysia’s economic recovery is already gaining momentum. Key economic indicators such as industrial output and trade have been showing consistent improvements over the past few months, and the country’s economy is seen to have broken out of recession in the fourth quarter of last year.

(For the first quarter of last year, Malaysia’s gross domestic product, or GDP, contracted 6.9%. The subsequent two quarters also saw a contraction respectively of 3.9% and 1.2%.)

But gauging the risks of rising inflation causing price instability is tougher as various factors come into play. Economists are cautious over the rising pressure of commodity prices as well as the Government’s restructuring of its subsidy schemes this year as part of its economic transformation plans.

Thus far the signal that Bank Negara has been sending out is that the current monetary policy stance is appropriate for the country, as it still believes the risk of inflation this year is modest. And while policymakers have not hinted at any rate change as yet, most private economists hold the view that the OPR is most likely to be maintained at 2% only until the middle of the year before the rate rise sets in in the latter part of the year.

Exactly when and at what rate, that’s anyone’s guess. But when the inevitable happens, the cost of obtaining credit will no longer be that cheap, although the incentive to save money in private banks will improve. For instance, mortgage and hire-purchase rates would rise, and so would savings rates as the fixed deposit rates.

And the uptrend of interest rates could also slow the rise of equity prices – which could be a good thing to prevent equity prices from overshooting beyond their fundamentals.

Certainly, the change in interest rates has a broader implication on the economy as a whole, but as in any case, if any change is necessary, a gradual one is vital to prevent any shock from happening.

Dubai crisis jolts markets, but early fears ease

NEW YORK: Dubai's debt crisis rattled world financial markets Friday, raising concerns that some banks could further tighten lending and stall the global economic recovery.

The possible spillover effects centered on fears that international banks could suffer big losses if Dubai's investment arm defaulted on its $60 billion debt.

Stock and commodity markets tumbled in New York, London and Asia as investors flocked to the U.S. dollar as a safe haven.

But earlier concerns that the crisis might trigger another financial meltdown seemed to ease after some analysts downplayed the risks for U.S. banks, which are thought to have little exposure to the Middle Eastern city-state.

U.S. stocks fell sharply but rebounded from their lows as investors concluded that the damage might be contained.

The Dow Jones industrial average lost about 155 points, or roughly 1.5 percent, in a shortened trading day, and other stock averages also sank. Oil prices plunged as much as 7 percent before recovering some ground later in the day.

"I don't think the collateral damage is going to be that great," said Jeffrey Saut, chief investment strategist at Raymond James.

"People will dig into this over the weekend, but I think balance sheets have healed enough to withstand a shock like this."

Still, the crisis in Dubai pointed to the vulnerability of the global economy despite signs of recovery.

Last year's credit debacle left major banks with billions in losses, forcing them to reduce lending to consumers and businesses.

Access to credit has improved in recent months, but analysts said Dubai's woes could make some banks more cautious.

That could further squeeze lending and weaken the recovery after the deepest recession in decades.

"What we need for the economic momentum to continue is for banks to feel confident about lending, and clearly what has happened in the last 48 hours is not a step in the right direction," said David Williams, banking analyst at Fox-Pitt Kelton in London.

Dubai's troubles caught investors by surprise.

A year after the global slump derailed the city-state's dizzying growth, its main investment arm, Dubai World, revealed this week it was seeking at least a six-month delay on repaying its $60 billion debt.

Credit agencies responded by slashing debt ratings on Dubai's state companies, saying they might consider the plan a default.

In recent years, Dubai has expanded with ambitious, eye-catching projects like the Gulf's palm-shaped islands and the world's tallest skyscraper in hopes of becoming a tourist-friendly Middle Eastern metropolis.

In the process, though, the state-backed networks nicknamed Dubai Inc. have racked up $80 billion in red ink.

The emirate may now need another bailout from its oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates.

In Europe, stock markets rebounded after Wall Street fell less than feared. Earlier, stock indexes in Hong Kong and South Korea tumbled 5 percent in response to the previous day's Dubai-related losses in Europe.

The Dubai crisis caused the dollar to spike higher against the euro and pound but slump against the yen, another traditional safe haven.

Speculation that the Bank of Japan might intervene by buying dollars or selling yen to aid Japanese exports helped the dollar recover after it had fallen to a 14-year low against the yen.

European banks appeared to be at most risk if Dubai World can't pay its bills. London-based lenders HSBC Holdings and Standard Chartered could face losses of $611 million and $177 million respectively, according to early estimates from analysts at Goldman Sachs.

Both have substantial Middle East operations.

South Korea estimated the country's financial institutions have just $88 million in exposure.

Construction firms from Japan, Australia and South Korea behind Dubai's recent development boom also might be on the hook. Among U.S. banks, Citigroup Inc. had $1.9 billion in exposure to the United Arab Emirates as of 2008, according to a JPMorgan research note.

But it's unclear how much of that was related to Dubai.

Citigroup declined to comment.

In the U.S., Dubai World owns at least eight office buildings and hotels, including the Mandarin Oriental and W Union Square hotels in New York and the Fontainebleau in Miami Beach, according to data supplied by Real Capital Analytics.

Its projects also include Dubai World's and casino operator MGM Mirage's deal to build the CityCenter project on the Las Vegas Strip.

Between October 2005 and April 2008, Dubai World bought 10 U.S. properties for about $9.7 billion, the Real Capital Analytics data showed.

Two of those properties, both office buildings in New York, were sold in November 2007 for a combined $2.4 billion.

But Dubai World's problems likely won't have a major effect on the U.S. commercial real estate market, said Dan Fasulo, managing director of Real Capital Analytics.

"They didn't acquire enough," Fasulo said.

"They have only been active for a few years."

But the effect on the banking system could eventually touch businesses and consumers.

Even if most banks could absorb any Dubai-related losses, the emirate's troubles could lead them to reevaluate and scale back lending.

That would make it harder for companies to borrow and to help sustain the global recovery, analysts said.

Others expressed concern that Dubai's woes could stall the buying behind asset booms in emerging markets in Asia and Latin America, which have attracted enormous capital amid investor enthusiasm for regions with rapid economic growth.

"I think it will make investors realize they need to be more discriminating about emerging markets," said Arjuna Mahendran, head of Asian investment strategy at HSBC Private Bank in Singapore. - AP

Uptrend continues

Saturday October 10, 2009

TREND ANALYSIS
By K.M. LEE

REVIEW: Bursa Malaysia kicked off the week little changed, with the benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) easing 0.19 point to 1,206.06 in initial deals amid dearth of fresh catalyst from abroad.

Overnight Dow shed 21.61 points to 9,487.67 on worries about the pace of economic recovery after US non-farm payrolls dropped more than expected in September, thus pushing the unemployment rate to a 26-year high of 9.8% while world crude oil prices sagged 87 cents to US$69.95 a barrel.

Elsewhere, trading in most regional bourses were directionless, with the major indices moving in and out of the positive territory before ending moderately lower on lack of support, as a long break in China, which was closed from Oct 1 to Oct 8 for National Day holidays, discouraged aggressive buying momentum.

Mirroring the sluggish offshore performance, the local bourse drifted sideways in dull business throughout, but the key index managed to chalk up some 10.20 points rise to settle at the day’s peak of 1,216.45, lifted mainly by mild bargain-hunting interest in select blue-chips in the afternoon, and a big jump in Kuala Lumpur Kepong Bhd (KLK) shares in the last minute due to an error in the bid order by a foreign brokerage house at RM17 a piece against RM13.74 previously.

Apparently, the uninspiring market breadth was clearly reflected in the scoreboard, with the losers beating winners by 354 to 238 at the end of Monday’s session.

After suffering a series of declines, overnight US equities finally ended their losing streak the next day, helped in part by positive data that showed the US services sector grew for the first time since August 2008 and upbeat comments about the large banks.

With most regional exchanges responding positively to a rebound in the US, many people had expected Bursa Malaysia to react accordingly, but a downward adjustment on an index-linked KLK stock following an unusual activity the day before, kept the market in the negative territory.

However, losses were minimal, with the FBM KLCI shedding 3.72 points to 1,212.73 on Tuesday, as gains elsewhere provided the cushion.

Subsequently, the local bourse turned mixed but with an upward bias, buoyed by positive economic data and confidence in the upcoming corporate earnings seasons, as well as a steadier performance in regional peers.

In range-bound trade, Bursa Malaysia climbed 5.88 points to 1,218.61 in mid-week.

Thereafter, the market powered ahead in the wake of fresh buying momentum, scaling an extra 11.48 points to 1,230.09 amid better sentiment on Thursday and an additional 3.73 points to 1,233.82 on light follow-through interest yesterday.

Statistics: For the week, the FBM KLCI gained 27.57 points, or 2.3% to 1,233.82 on Friday, versus 1,206.25 on Oct 2.

Total turnover for the week stood at 3.609 billion shares valued at RM5.912bil, against 2.991 billion units worth RM3.122bil traded in the pervious week.

Technical indicators: The oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were fast reaching the overbought area after flashing a buy on Oct 1.

Another short-term pointer, namely the 14-day relative strength index continued to improve, firming from the mid-range to the 70 points level yesterday.

Meanwhile, the daily moving average convergence/divergence (MACD) histogram climbed over the daily signal line to trigger a buy yesterday.

However, weekly measurements were very much the unchanged, with the weekly slow-stochastic momentum index curving down from the top and the weekly MACD in danger of falling below the weekly signal line.

Outlook: Bursa Malaysia traded firmer, with the key index hitting a near 16-month high of 1,236.89 during intra-day week session on renewed bargain hunting nibbling, largely encouraged by a solid showing in overseas markets.

According to the chart, the FBM KLCI had penetrated the recent peak of 1,231.49. Theoretically, a breakthrough of such would clear the path for an uptrend continuation and I am optimistic about the development ahead, given the improvement in global market sentiment and macro economy.

However, for the bulls to charge ahead in style, we need to see more concrete signs of economic revival and most importantly, bigger volumes.

Otherwise, the bulls will not run far from here, given the prevailing limited investors’ confidence and liquidity in the market.

Technically, indicators are on the mend, especially the daily MACD, suggesting a steadier trend this week, with initial resistance envisaged at 1,240-1,250 points band.

The next upper hurdle is resting at 1,260 points, followed by 1,280 points.

Support is expected at 1,231.49 points, 1,220 points, 1,196.46-1,200 points range. If the important lower floor of 1,191, also the 50-day simple moving average line is violated, investors should be prepared for more downward journey on increase liquidation pressure.

For first time in two years Americans get wealthier

But the collective American wallet is still almost 20 percent thinner than it was when net worth peaked two years ago.

WASHINGTON: For the first time in two years, Americans actually got a little wealthier.

Household wealth grew by $2 trillion, or about 4 percent, this spring, ending the longest stretch of quarterly declines on records dating back to 1952, the Federal Reserve reported Thursday.

Net worth - the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards - came to $53.1 trillion for the second quarter.

Stock portfolios came back to life this spring after the market hit its lows for the year in March, and home prices have stabilized.

But the collective American wallet is still almost 20 percent thinner than it was when net worth peaked two years ago.

Some analysts say it could take as long as four years for households to recoup trillions in losses and get back to where they were before the downturn struck in December 2007.

"Households saw $14 trillion of wealth get blown away by the recession, and they recouped $2 trillion of that in the second quarter. That's good news," said Brian Bethune, economist at IHS Global Insight.

"But they still have another $12 trillion to go to get back to where they were."

Many analysts expect the economic recovery to be lethargic, limiting further gains in the stock and housing markets.

That's why Scott Hoyt, senior director of consumer economics at Moody's Economy.com, thinks household wealth won't rise back to pre-recession levels until 2012 or 2013.

"It is going to take a while for Americans to regain lost ground and become as comfortable as they were before all this started," Hoyt said.

Even if the economy continues to improve, analysts say the erosion of wealth will keep Americans thrifty for years.

In fact, even as wealth grew, Americans trimmed their spending slightly in the spring.

The increase in wealth in the second quarter was led by stock portfolios, the Fed report said.

The value of Americans' stock holdings rose almost 22 percent from the first quarter - the first increase in two years.

Higher home prices helped, too.

The value of real-estate holdings rose 1.8 percent, the first gain since the end of 2006.

Home prices are still about 30 percent below their 2006 peak.

Home equity, the market value of a home minus what's still owed on the mortgage, has been dropping in recent years - first because more Americans used their homes to get loans and now because of falling home prices.

Collectively, U.S. homeowners had just over 43 percent equity in their homes in the second quarter, up only slightly from a record low in the first quarter.

Moody's Economy.com estimates nearly a quarter of all U.S. homeowners owe more on their mortgages then their homes are worth.

This week, Fed Chairman Ben Bernanke said the worst recession since the 1930s is probably over.

He warned that the pace of recovery probably won't be brisk enough to generate solid job growth and keep the unemployment rate - now at a 26-year high of 9.7 percent - from rising further.

Retail sales jumped in August by the most in more than three years.

But rising unemployment, the reduced wealth and still hard-to-get credit are expected to keep people cautious about spending in the months ahead.

Households are trimming their debt loads, too. Total household debt - including mortgages, credit cards, autos and other consumer loans - stood at $13.7 trillion in the second quarter, the Fed report said.

That's down slightly from $13.8 trillion in the first three months of this year. Debt peaked at $13.9 trillion in the spring of last year.

Americans' savings rate - savings as a percentage of after-tax income - rose to 5 percent in the second quarter, according to Commerce Department figures.

Analysts believe households are using that money to whittle down their debt. - AP

US unemployment rate at highest in 26 years

WASHINGTON: The unemployment rate jumped almost half a point to 9.7 percent in August, the highest since 1983, reflecting a poor job market that will make it hard for the U.S. economy to begin a sustained recovery.

While the jobless rate rose more than expected, the economy shed a net total of 216,000 jobs, less than July's revised 276,000 and the fewest monthly losses in a year, according to Labor Department data released Friday.

Economists expected the unemployment rate to rise to 9.5 percent from July's 9.4 percent and job reductions to total 225,000.

By contrast, in a healthy economy, employers need to add a net total of around 125,000 jobs a month just to keep the unemployment rate stable.

"It's good to see the rate of job losses slow down," said Nigel Gault, chief U.S. economist at IHS Global Insight.

But "we're still on track here to hit 10 percent (unemployment) before we're done."

The rise in the jobless rate was largely due to the government finding that the number of unemployed Americans jumped by nearly 500,000 to 14.9 million, while 73,000 people joined the civilian labor force.

Those figures are from a different survey than the report on total job cuts.

The civilian labor force usually grows as a recession winds down and optimism about finding work grows.

But as long as Americans remain anxious about their jobs, consumer spending isn't expected to rise enough to power a rebound.

"There isn't the underlying fuel there for strong consumer spending growth," Gault said.

Instead, most of the current rebound in the economy stems from auto companies and other manufacturers restocking inventories, which have plummeted as factories and retailers have sought to bring goods more in line with reduced sales.

Few economists think that can provide the basis for a sustainable recovery.

Gault forecasts the economy will grow at a 3.7 percent clip in the current July-September quarter, but expects that to fall to 2.4 percent by the fourth quarter and 2 percent in the first quarter next year.

Analysts expect businesses will be reluctant to hire until they are convinced the economy is on a firm path to recovery.

Many private economists, and the Federal Reserve, expect the unemployment rate to top 10 percent by the end of this year.

If laid-off workers who have settled for part-time work or have given up looking for new jobs are included, the so-called underemployment rate reached 16.8 percent, the highest on records dating from 1994.

That rate rose because the number of workers settling for part-time hours, either because their employer cut their work week or because that's all they could find, increased by about 300,000.

But earnings rose and the number of hours worked stayed above a recent record-low. Average hourly wages increased to $18.65 from $18.59, the department reported.

Average weekly earnings increased to $617.32.

The number of weekly hours worked remained at 33.1, above the low of 33 reached in June.

That figure is important because economists expect companies will add more hours for current workers before they hire new ones.

On Wall Street, stocks moved in a narrow range in midday trading. The Dow Jones industrial average added about 15 points, and broader indexes also edged up.

The recession has eliminated a net total of 6.9 million jobs since it began in December 2007. Job cuts last month remained widespread across many sectors.

The construction industry lost 65,000 jobs, which caused some economists to note that the Obama administration's $787 billion stimulus package hasn't yet stemmed layoffs in that industry.

"It doesn't look like a whole lot of those 'shovel ready' projects have been started," Joel Naroff, president of Naroff Economic Advisors, wrote in a note to clients.

Factories cut 63,000 jobs, while retailers pared 9,600 positions.

The financial sector eliminated 28,000 jobs, while professional and business services dropped 22,000.

Even the government lost 18,000 jobs, as the U.S. Postal Service cut 8,500 positions, and state and local governments laid off teachers and other school workers.

Health care and educational services was the only bright spot, adding 52,000 workers. And the pace of layoffs is slowing.

Job losses averaged 691,000 in the first quarter and fell to an average of 428,000 in the April-June period.

Other economic data released this week has been positive. The Institute for Supply Management, a trade group, said Tuesday that the manufacturing sector grew in August for the first time in 19 months.

On Thursday, the ISM said its service sector index rose to 48.4 last month, the highest level in nearly a year. Home sales, meanwhile, have increased for several months and prices are stabilizing.

Federal Reserve policymakers said in minutes from an August meeting that they expect the economy to recover in the second half of this year.

But labor market conditions are still "poor," the Fed minutes released Wednesday said, and many companies are likely to be "cautious in hiring" even as the economy picks up.

Some economists credit the stimulus package of tax cuts and spending increases, along with the Cash for Clunkers program, with contributing to a recovery.

But they worry about what will happen when the impact of the stimulus efforts fades next year.

Administration officials argue the stimulus has already saved about 135,000 jobs.

Labor Secretary Hilda Solis said Friday that funds are still being injected into the economy and will continue to spur recovery.

"The recession has done more damage than could ever be fixed in half a year," Solis said.

Vice President Joe Biden defended the stimulus package Thursday against Republican critics who say it is too costly.

"The recovery act has played a significant role in changing the trajectory of our economy, and changing the conversation in this country," Biden said.

"Instead of talking about the beginning of a depression, we are talking about the end of a recession."

Republicans criticized Biden's speech.

"The Democrats' rhetoric on their economic experiment doesn't match with the reality of millions of Americans remaining unemployed," said Republican Party chief Michael Steele.

"The stimulus was an economic experiment that failed Americans."

More job cuts were announced this week. Washington-based manufacturer Danaher Corp. said it will lay off about 3,300 of its roughly 50,000 employees, an increase from the 1,700 cuts it announced in the spring.

American Airlines said it is cutting 921 flight attendant jobs as it deals with an ongoing downturn in traffic and lower revenue. - AP

US economy improving, but jobs slow to come causing market to tumble

WASHINGTON: U.S. employers who have cut jobs over the past year are in no hurry to start hiring again just because the recession is tapering off.

From a North Carolina machine maker to an Oregon heating-and-cooling company, small business owners say they need to see several months of rising sales before they start adding staff.

Because labor is the biggest expense for most companies, that kind of caution is typical at the end of recessions.

After the last one, in 2001, unemployment kept rising and didn't peak until June 2003 - 19 months into the economic recovery.

This time around, some economists say unemployment may not return to healthy levels until 2013.

Companies have been slashing workers' hours, squeezing more work out of the employees who are left and relying on cheaper temporary staffers to fill the gaps.

In North Carolina, a company called Power Curbers, which makes barriers and curbs for subdivision, is finally breaking even after shedding 35 percent of its staff.

The owner, Dyke Messinger, plans no more cuts.

Yet he is wary of adding to the staff, which now numbers about 80. First he wants to see new orders.

"When you look out and see that the country has stabilized, that gives you confidence that you can hold on to everybody that you've got," he said.

"But we will be very hesitant to hire until business turns up."

Employers wiped out 247,000 jobs in July, far fewer than any other month this year.

The economy shrank in the second quarter at a much slower pace.

And businesses are seeing real results of a warming economy.

But that doesn't translate into job creation.

William Dunkelberg, chief economist for the National Federation of Independent Business, said a survey of small businesses found only about 7 percent of them added to their work forces in the second quarter of the year, while 24 percent cut jobs.

At the Three Monkeys restaurant and bar in St. Louis, customers show up more often for the Sunday brunch buffet and for drink specials.

It's a lot better than last winter, when people were canceling parties and staying home.

Still, it would take about 25 percent more business for owner Stephanie Demma to consider adding to her staff of 40.

Otherwise, higher payroll expenses would cut too deeply into profits.

"We've been doing well, but then again there haven't been any big gains," Demma said.

"We're staying steady."

Hiring should start again late next year, said Sophia Koropeckyj, managing director for Moody's Economy.com.

It's got a long way to go: The recession has eliminated 6.7 million jobs, and 14.5 million workers are unemployed and unable to find work.

When the economic crisis struck last fall, many employers steeled themselves for the worst, laying off workers, cutting hours, imposing unpaid furloughs and cutting benefits.

Now that economy is beginning to recover, some companies will find there are cheaper alternatives to bringing in new full-time workers.

For example, they can increase the hours worked by the employees they already have.

Right now, the average workweek is 33.1 hours, near a record low.

More significantly, businesses in this recession have managed to produce just as much with fewer workers.

From April through June, productivity surged by the largest amount in nearly six years, the government said Tuesday.

When business are producing as much or more with fewer people, that makes the job market even more dismal for the unemployed.

"There's a lot of wiggle room before (companies) actually need to hire a new worker," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, an industry research group.

George Brown has been forced to cut back on the hours of the maid at the two guest houses he runs on Chicago's North Side, where occupancy is down 10 percent.

She now works 25 hours a week instead of 40.

Brown said he will not raise her hours until his lost revenue comes back. "I'm happy with the progress" of the national economy, he said.

"But I don't think it's affecting my business yet."

Once the economy starts adding jobs again, employers who depend on battered industries like housing will probably be among the holdouts.

Dan Tyree, owner of Second Chance Auto Sales of St. Louis, doesn't expect to hire anytime soon.

Tyree said he'd have to double his revenue for several months before he'd consider adding a salesperson.

"Everyone's afraid to spend even $1,200 on a scooter," said Tyree, who laid off a salesman there recently and had to fill in on the sales floor himself.

And a month or two of hopeful economic news doesn't impress Teresa Penhall, who runs a small heating-and-air company called Absolute Comfort in Klamath Falls, Oregon.

The housing collapse forced her to lay off two workers. Now, it's just Penhall and her husband.

The workload would have to double before the company hires again, Penhall said. But she doesn't see much demand for big work these days - just modest repair jobs on old air conditioners.

"People are calling us - not by choice but because they are hot," she said.

Meanwhile a recurrence of investors' anxiety about the U.S. economy gave Wall Street its biggest loss in five weeks.

The major indexes fell 1 percent Tuesday as investors worried that the market's steep gains in the past month could unravel if the economy doesn't show more signs of strengthening.

Warnings about the health of banks and uneasiness ahead of the Federal Reserve's economic statement Wednesday led investors to dump financial stocks and wade into defensive areas like consumer staples companies and government debt.

Meanwhile, a record 10th straight monthly drop in wholesale inventories brought a fresh reminder that a recovery in the economy is likely to be gradual.

But many analysts said investors weren't panicking Tuesday.

They were taking a much-needed pause following a rally that seemed to be going at breakneck speed.

The Standard & Poor's 500 index had reached at its highest level since last fall, rising 15 percent in just four weeks and 49 percent from a 12-year low in early March.

"This sort of give-and-take is quite healthy," said Erik Davidson, managing director of investments at Wells Fargo Bank in Carmel, California.

"You're up 50 percent in five months. That's 10 percent a month. In quote-unquote normal markets that's five years worth of returns."

Moreover, traders often become jittery when the Fed policymakers meet to discuss interest rates.

It is widely expected that the central bank will hold interest rates at their historic low of essentially zero, but investors are waiting to see what the Fed has to say about the economy when the meeting concludes Wednesday.

"It's pretty clear that a lot of people are pulling back any bets pending what is going to happen with the Fed," said Max Bublitz, chief strategist at SCM Advisors in San Francisco.

There were some troubling developments during the day, however.

Downbeat comments from analysts about banks weighed on the market.

Analyst Richard Bove of Rochdale Securities predicted that bank earnings won't improve for the second half of the year and that many companies will post losses.

"It just takes the euphoria feelings off the table," said Dave Rovelli, managing director of trading at brokerage Canaccord Adams, referring to Bove's comments and recent optimism among investors.

With many traders on vacation, volume was light, which tends to skew price moves.

The Dow Jones industrial average fell 96.50, or 1 percent, to 9,241.45.

It had been down as much as 121 points.

It was the biggest drop since July 7, when the index lost 161 points.

The Dow slipped 32 points Monday.

The broader S&P 500 index also had its worst day since July 7, falling 12.75, or 1.3 percent, to 994.35.

The Nasdaq composite index fell 22.51, or 1.1 percent, to 1,969.73, while the Russell 2000 index of smaller companies fell 9.75, or 1.7 percent, to 562.12.

About three stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.2 billion shares compared with 1.1 billion traded Monday.

The Chicago Board Options Exchange's Volatility Index spiked in a sign of investors' nervousness.

The VIX, also known as the market's fear index, rose 4.1 percent to 26.01, its highest level in a month. It is down 35 percent in 2009 and its historical average is 18-20.

It reached a record 89.5 in October at the height of the financial crisis.

Bond prices jumped as stocks retreated.

The gains followed a solid showing at the first of the week's three auctions for a record $75 billion in debt.

Prices often fall when the government introduces supply to the market. The sale Tuesday was for $37 billion in three-year notes and the government will auction $23 billion in 10-year notes Wednesday.

Investors watching for a drop in buyers because that could force the government to increase the interest it pays, which would drive up borrowing costs for consumers and slow an economic recovery.

The yield on the three-year note, which moves opposite its price, fell to 1.72 percent from 1.78 percent late Monday.

The yield on the benchmark 10-year Treasury note fell to 3.67 percent from 3.78 percent.

Among banks, Citigroup Inc. fell 25 cents, or 6.4 percent, to $3.69. Wells Fargo & Co. slid $1.75, or 6.1 percent, to $26.89.

The KBW Bank Index, which tracks 24 of the largest U.S. banks, fell 4.4 percent.

Analyst downgrades made traders cautious about the overall economy.

Bond insurer MBIA Inc. tumbled 78 cents, or 12.6 percent, to $5.39 after J.P. Morgan Securities cut its rating on the stock over concerns the company could face steep losses from bad debt.

Yum Brands Inc. fell after an analyst at UBS lowered his rating on the company because of concerns about sales.

The parent of the Pizza Hut, Taco Bell and KFC fast-food chains fell $1.40, or 3.8 percent, to $35.13.

The day's economic readings were mixed.

The Commerce Department said businesses cut inventories at the wholesale level for a record 10th consecutive month in June.

The drop has contributed to the recession.

In one bright spot, sales rose 0.4 percent for a second straight month, the first back-to-back increases in a year.

The Labor Department said productivity - which measures the amount of output per hour of work - grew 6.4 percent during the second quarter.

Economists polled by Thomson Reuters were expecting growth of 5.3 percent. - AP

Equity investment: What is tick size and how do investors benefit

EQUITY investment strategies take account of many factors, including tick sizes which are set by a stock exchange.

Here is a primer on tick sizes and how investors benefit from a smaller value.

This educative article is in conjunction with the introduction of a smaller tick size which will be made available by Bursa Malaysia and is planned for implementation on Aug 3.

Equity investors rely a lot on research and information to forecast the potential price appreciation of a stock. This ranges from fundamental analysis of the company to a technical analysis of its historical price movements. There is also a little known indicator known as a spread that can be used by investors to gauge the near-term movement of a particular stock. A stock’s spread is closely influenced by a “tick size”.

Understanding Spreads. Every share that trades on the stock market has a best buy and a best sell price. The best buy price is the highest price in the order book placed by interested buyers for a specific share while the best sell price is the lowest price in the order book placed by interested sellers.

These two prices are determined by demand and supply, which can be seen as a negotiation process between two parties.

The spread is the difference between a share’s best buy and best sell price. The general belief is that a consistently large spread signals low volume for that respective stock.

On the other hand, a narrow spread can indicate that a transaction will occur soon. For example, a stock with a buy/sell price of RM10 and RM10.02 suggests that buyers and sellers are very close to making a trade. If the narrow spread continues, volume for the respective share is expected to be high. A wider spread means that greater changes in the share’s buy or sell price is needed before a transaction can conclude.

Tick Sizes in a Spread. The magnitude of a stock spread is influenced by the tick size or the minimum tick size structure.

This refers to the smallest allowable price variation between the buy and sell price of a stock. The spread of a share can narrow if the tick size is reduced.

In the past few years, many global stock exchanges reduced their permitted tick size as this initiative was found to boost liquidity and efficiency to the capital market as a whole.

To stay competitive and relevant, Bursa Malaysia is also implementing a smaller minimum tick size for all shares and exchange traded funds (ETFs) trading on the local market (see table 1 and 2). Under the new structure, a share with a buy price under RM5 will have a new tick size of 1 sen instead 5 sen. This means, interested buyers or sellers of this respective stock can now enter a buy or sell price of 1 sen instead of 5 sen.

The equity ETFs on the main board also benefit from a smaller tick size. Smaller tick sizes encourage active trading as there are many benefits for retail investors (see box story).

The reduction of tick size is expected to attract more trading volume due to improved opportunities as investors now will have more choice of entering or exiting the market just by smaller trading ticks. In short, this reduction of tick sizes will enable price discovery, leading to a positive impact on market liquidity.

In respect to the bidding price for buying-in, the exchange will retain the 10 ticks. Arising from this, the buying-in price will be based on the current tick sizes instead of the new tick sizes to ensure that the buying-in price is attractive to potential sellers.

This article is contributed by Bursa Malaysia

KLSE to shorten trading halt to an hour Aug 3

Bursa Malaysia has announced that effective August 3, 2009, the trading halt of stocks to disseminate material announcements by listed companies will be shortened to one hour from one trading session currently.

This will benefit listed companies as there will only be a minimal disruption of their securities from being traded, the exchange said in a statement.

Investors will also benefit from more trading opportunities as the suspension hours are significantly reduced. A trading halt refers to a temporary halt in the trading of listed securities upon the release of information that has material effect on the price of the securities.

Bursa Malaysia CEO Datuk Yusli Mohamed Yusoff said shortening of the halt period will enhance market efficiency as trading interruption is kept to the minimum, and both the issuer and investor will benefit from being able to trade with minimal interruptions.

Currently, Bursa Malaysia requires listed companies to make material disclosures to the exchange and these announcements are posted on Bursa Malaysia’s website, ensuring investors have continuous access to corporate information.

On 3rd August, the new suspension time will be as follows:

* For materials announcements that are made before the trading period starts (9am) as well as between 9am and 11am, a trading halt will be imposed for 1 hour from the time the material announcement is made. Order entry and modification will be allowed during this time and Theoretical Opening Price (TOP) will be calculated, but no matching of trades will take place.

* For material announcement that are released after 11am, the trading halt will be until the end of the trading session at 12:30pm. Similarly, where the material announcement is released after 3:30pm, the trading halt will be until the end of the trading session at 5pm. Order entry and modification is not allowed during this time, and TOP will not be calculated.

* For material announcements that are released between 1:30pm to 2:30pm, the trading halt imposed will be for 1 hour from 2:30pm. Order entry and modification will be allowed during this time and TOP will be calculated, but no matching of trades will take place.

* Where the material announcement is released between 2:30pm and 3:30pm, a trading halt will be imposed for 1 hour from the time the material announcement is made. Order entry and modification will be allowed during this time and TOP will be calculated, but no matching of trades will take place.

* A trading halt will not be imposed where the material announcement is released during the window period from 12:30pm to 1:30pm.

Consumer price index marks first annual fall in over two decades

Thursday July 23, 2009

By LAALITHA HUNT

PETALING JAYA: Malaysia’s consumer price index (CPI), the measure of the country’s inflation, declined 1.4% year-on-year in June, the first annual decline in over two decades.

The decline was due to the high base effect from last year’s fuel price hike, the department of statistics said yesterday.

This is the first annual fall in the CPI since August 1986, according to foreign media reports.

However, the CPI increased 0.1% in June from May, which saw a 2.4% rise.

The index for food and non-alcoholic beverages in June increased 3.4% from a year earlier, while the index for non-food items decreased by 3.7%, the statistics department said.

The CPI from January to June increased 2.5% to 111.7 compared to the previous corresponding period.

The index for food and non- alcoholic beverages as well as non-food increased by 7.2% and 0.2% respectively in the six-month period.

Kenanga Investment Bank Bhd economist Wan Suhaimi Saidi said the decline in June was temporary and would not affect the country’s monetary policy.

“We expect CPI to normalise to positive territory by the end of this year with the likely increase in electricity tariffs and upward fuel price adjustments soon,” he said.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng concurred that deflation was likely to be temporary due to rising commodity prices such as crude oil.

He cautioned that a liquidity-driven, instead of demand-driven rise in crude oil prices, could lift prices and harm economic recovery.


The full report from the Department

E. Asia economies may see 'V-shape' recovery

Published: 2009/07/23

EAST Asia’s rebound from the global economic crisis may be “V-shaped” and central bankers must retain expansionary monetary policies even as risks to the recovery dissipate, the Asian Development Bank said.

The economies including China, South Korea and Indonesia will probably grow faster than the 3 per cent estimated in March, before accelerating to 6 per cent in 2010, the Manila-based institution said in a report today, leaving its March forecasts unchanged. The estimates don’t include Japan, South Asia and Central Asian nations.

Asian policy makers, who have slashed borrowing costs and pledged more than US$950 billion of stimulus plans, have started saying their economies may be past the worst of the global recession. Economists are raising estimates for the region’s growth this year amid a recovery in China and as indicators show production declines may have bottomed.

“Emerging East Asia has entered the transition from recession to recovery, possibly V-shaped, with GDP growth sourced more from domestic stimulus than a resurgence in external demand,” the ADB said. “Monetary policy in the region needs to remain expansionary until the recovery gains substantial traction or large inflationary pressures re- emerge.”

The region’s exporters are still dependent on orders from the US, Europe and Japan, and trade in goods will “remain sluggish” until industrialized economies recover enough to rekindle demand, the ADB said.


‘Grown Rapidly’

“Trade within emerging East Asia has grown rapidly in recent years, but it remains largely based on parts and components rather than final goods,” it said. “The region has yet to provide final demand for its own exports.”

China’s exports will decline at a slower pace in the second half of this year if the world economy improves, Commerce Minister Chen Deming said yesterday. Malaysia’s overseas shipments will recover later than expected and won’t be past the worst for another “couple” of months, according to Trade Minister Mustapa Mohamed.

“Until stimulus in advanced economies begins to gain traction and households realign their debt and savings profiles, it is unlikely that external demand will drive the region’s export production back to full throttle any time soon,” the ADB said.

Domestic consumption is buttressing growth in some economies as the effects of government stimulus plans boost lending and spending, the lender said.


Stimulus Measures

“Domestic demand in emerging East Asia is expected to pick up gradually from the second half of 2009 as policy measures in the region gain traction and business and consumer confidence improves,” it said. “Ensuring the region’s stimulus packages are implemented effectively and efficiently is key to bolstering domestic demand in the face of the continued weakness in external demand.”

A slower recovery in the world’s biggest economies may hurt Asia’s growth prospects, the ADB said, highlighting the risks to the region. The International Monetary Fund and the World Bank lowered their forecasts for 2009 global growth in recent weeks, while leaders from advanced nations have said the recovery is too fragile to consider reversing more than $2 trillion in stimulus efforts.

“The recession in advanced economies could be much longer and recovery weaker than currently expected, exacerbating the external environment for emerging East Asia,” the ADB said. “Unintended policy errors, such as unplanned consequences of economic stimulus or premature policy tightening, could harm emerging East Asia’s growth prospects.”


Deflation Risk

A sustained period of deflation may also be a risk to growth, the report said. Consumer prices have fallen in Asian economies including China, Singapore, Malaysia and Hong Kong amid a decline in food and commodity prices.

“It remains too early to say that a bout of deflation has begun,” the ADB said. “Yet, continued depressed economic conditions, worsening labor markets, and lower food and energy prices are expected to increase disinflationary, and possibly deflationary, pressures throughout the region in 2009.”

Growth in China and Indonesia this year may be higher than the ADB estimated in March, the lender said today. It predicted a 7 per cent rate for China then, while forecasting a 3.6 per cent expansion in Indonesia.

“Amid the slowdown across most of emerging East Asia, China remains a major bright spot as it continued to grow at a healthy rate during the first half of the year,” the ADB said. “Continued strong growth in fixed-asset investment, which was given added impetus by the government’s massive stimulus package, managed to offset the effects of declining exports.”

The organization was more pessimistic on its forecasts for Malaysia, Thailand, the Philippines and Taiwan, saying “downside risks” to the outlook for the economies had increased since March. - Bloomberg

CPO seen to trade above RM2,000 in near-term

By HANIM ADNAN

PETALING JAYA: Crude palm oil (CPO) is expected to trade above RM2,000 per tonne in the near term despite stock in June seen rising for the second consecutive month, say analysts.

Malaysian Palm Oil Board (MPOB), in releasing its latest figures yesterday, said palm oil inventory rose 2.5% to 1.41 million tonnes in June from 1.37 million tonnes in May.

The higher inventory also did not disrupt palm oil exports in June, which was marginally higher at 1.27 million tonnes from 1.23 million tonnes the month before.

MPOB said CPO production for the month under review was 1.44 million tonnes, up from 1.39 million tonnes in May.

HwangDBS Vickers Research said in its latest plantation report that palm oil yields would not be affected by the El Nino phenomenon in the near term but “it will be apparent in the next 12 to 18 months.”

The research unit also expects temporary supply disruptions by next month as palm oil harvesters in Malaysia and Indonesia start their month-long fasting and possible shutdown in milling and harvesting activities during the Eid festival.

In addition, active replanting activities and lower fertiliser application among smallholders may affect local palm oil supply this year.

MPOB has reduced its palm oil production forecast this year to 1.75 million tonnes from 1.77 million tonnes earlier.

HwangDBS Vickers, meanwhile, expects CPO prices to range between RM2,000 and RM2,500 per tonne for the rest of this year.

The anticipated increase in soybean production in the United States later this year and South America early next year partly due to El Nino had mostly been priced in the recent CPO price correction.

Independent cargo surveyor SGS reported that exports from July 1 to 10 had increased to 387,379 tonnes from 280,927 tonnes in the same June period.

Yesterday, third month CPO September contract on Bursa Derivatives Exchange closed RM37 lower at RM2,010 per tonne.

KLCI may enter consolidation mode

Oil and gas related stocks could continue to gain investors' favour given the resilient crude oil prices and the possibility of rising inflation lifting commodity prices further, says a research head The termination by a Dubai investment authority of a memorandum of understanding with UEM Land over a major land sale, and the Sultan of Johor's opposition to the proposal for a third bridge linking Singapore and east Johor caused a sell-off in related lower liners last week, while blue chips fell in line with corrections in the region.

As a consequence, the Kuala Lumpur Composite Index (KLCI) tumbled 30.65 points, or 2.8 per cent week-on-week to close at 1,059.50, with losses in Maybank (-3.22 points), Tenaga (-2.37), Genting (-2.36) and Axiata (-2.31) representing a third of the benchmark index's fall. Average daily trading volume and value fell to 1.58 billion shares worth RM1.64 billion, from 2 billion shares worth RM1.72 billion in the previous week.

However, the launch of Invest Malaysia 2009 at the end of this month is expected to cushion any downside and sustain market vigour in anticipation of more favourable developments that will drive interest in government-linked companies in relation to the economic corridors as well as other public projects.

More market and business-friendly initiatives are expected to be announced during the event. Further measures to liberalise the economy and greater focus on the services sector are expected to reduce the economy's reliance on exports and the manufacturing sector.

Locally, except for the foreign reserves number, no other economic data are due for release this week. On the US front, important indicators related to its housing market, personal consumption, durable goods orders and the Federal Open Market Committee's decision on rate decision are due this week.

No unpleasant surprises are expected. These numbers are expected to be consistent with the signs of an impending recovery in progress after a bottoming out process as reflected in last week's jobless claims, business activity index and leading index. Easing concerns over inflationary pressures as shown by a fall in US long-term bond yields is also positive to ensure efforts to revive the economy are not marred by any monetary tightening over the next six months.

Easing concerns over inflationary pressures are not expected to take the shine away from commodities, especially crude oil. While there are mixed views on the recent surge in oil prices and the commodity's fundamental, it is important to note that the rise in oil prices has always been dominated by future expectations. As demand is expected to rise from current 83.1 million bpd as the economic recovery gains traction next year, the under-investment in the sector over the last nine months will raise concerns over future supply that will drive oil prices higher and activities in the oil and gas sector.

Thus, current weakness in share prices of stocks like KNM, Sapura Crest, Perisai Petroleum, Tanjung Offshore, Petra Energy and Pantech can be deemed as a good opportunity to accumulate.

Technical outlook

Bursa Malaysia shares eased on profit-taking last Monday, led by lower liners falling in line with the region after the G8 finance ministers hinted that they may withdraw stimulus spending if green shoots in the global economy gain pace. The KLCI subsequently dipped from a high of 1,095.72 to close flat, but the overall market was broadly weaker.

The local market tumbled over the next three days, mirroring corrections in the region and US sparked by falling commodity prices caused by the stronger US dollar. The local blue-chip index was sold off to a two-week low of 1,052.48, the lowest since June 1, prior to a rebound on Friday after less jobless claims and improving manufacturing data from the US renewed hopes that the global recession may be nearing an end.

Among the other indices week-on-week, the FBM-EMAS Index retreated 259.22 points, or 3.5 per cent, to close at 7,098.53, while the FBM-Small Cap Index (SCI) plunged 950.72 points, or 9.5 per cent, to 9,023.90. The plunge in lower liners, with construction and property stocks related to Iskandar Malaysia leading the losses, contributed to the severe correction in the SCI.

The daily slow stochastics indicator for KLCI has levelled off at the oversold region following last week's sharp decline, while the weekly indicator hooked down from the overbought level to register a bearish divergence. The same can be said of the 14-day Relative Strength Index (RSI) indicator (Chart 1), while the 14-week RSI slipped below the overbought mark to trigger a sell signal.

The daily Moving Average Convergence Divergence (MACD) trend indicator also registered a bearish divergence reading following last week's sell-off, while the weekly MACD signal line is levelling off to signal weakening uptrend. On the 14-day Directional Movement Index (DMI) trend indicator, the ADX line has turned lower for a reading of 37.21 last Friday, while the contracting +DI and -DI lines will trigger a sell signal if the index weakens further this week.

Conclusion

Daily and weekly momentum and trend indicators for the KLCI have worrying bearish divergence signals which do not bode well for short-term bulls and momentum traders this week. Conversely, the oversold daily slow stochastics will hook up for a buy signal for a potential technical rebound on further strength. Nonetheless, expect limited upside on a rebound as on the weekly chart, a bearish engulfing weekly candle has confirmed a major resistance at the 200-week SMA, which is levelling at 1,094.

Sector-wise, anticipate construction and property stocks related to Iskandar Malaysia to remain under pressure. However, oil and gas related stocks could continue to gain investors' favour given the resilient crude oil prices and the possibility of rising inflation lifting commodity prices further.

As for the downside for the KLCI this week, critical supports from the 30-day SMA at 1,052 and the rising lower Bollinger band at 1,036 must not be broken on a closing basis to maintain near-term upward momentum for the broader market. A more important retracement support is at 1,034, the 23.6 per cent Fibonacci Retracement (FR) of the uptrend from 836 pivot low of March 12 to the recent peak of 1,095.91 of June 12. A decisive breakdown below this crucial support will see more significant downside risk towards next retracement support of 38.2 per cent FR at 996. On the upside, expect immediate resistance at 1,073, next at 1,083 and then 1,090 to 1,095.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.

Traders caught by sharp market pullback

By YVONNE TAN

PETALING JAYA: The sharp market pullback this week caught many traders by surprise but analysts feel that the uptrend remains intact in the longer term.

“Valuations were too rich and a correction is healthy,” Kenanga Research head of research Yeonzon Yeow said.

The index had climbed 30% since the middle of March before correction set in earlier this week. From a peak of 1,095.91 points on June 12, the KL Composite Index (KLCI) dropped to a low of 1,052.48 on Thursday.

“I think there’s still about 10% to 15% of correction to go from the peak,” Yeow said.

“When we start seeing real economic recovery after the third quarter of this year and fresh catalysts come onstream, the market will react positively.”

Areca Capital Sdn Bhd chief executive officer Danny Wong also remains bullish on the market in the medium to longer term. “I actually think this is the start of a bull run and investors should accumulate on weakness,” he said.

“Asia will take the lead in the next couple of years. Compared with the pre-Asian financial crisis days, our gearing levels are lower, earnings stronger and we have a more resilient banking system.

“Already, we are near the bottom or off bottom, of an economic recovery.

“As equity recovery generally moves six months ahead of an economic recovery, I would say we are at the beginning of a bull run,” Wong said.

Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose concurs.

“With interest rates down all over the world, money tends to find its way to the most attractive investment and to me, that’s Asia,” he said.

However, he feels that the KLCI is going to “wobble around in this trading range for a very long time”.

“I don’t feel a soaring confidence about the West; my gut feel is that momentum has gone there, and if we are going to be following them, it’s going to be difficult,” Ambrose said.

“Certain quarters have priced in a full recovery there (but), I don’t believe in that.”

Pong Teng Siew, head of research at Jupiter Securities, believes the liquidity, which had been driving the market up in the recent rally, has reached its tail-end.

“The recent rally in Malaysia was supported primarily by domestic funds. The next peak might not happen until later this year as foreign funds gradually move into emerging markets following the easing of the interest rates there,” he said.

Investors indecisive despite global rally

By JAGDEV SINGH SIDHU

KUALA LUMPUR: The rally in global stock markets has stretched valuation levels and that has left some experts scratching their heads.

Indices in Europe are at a multi-year high and the surge in stocks has left investors wondering on their next course of action.

“Nobody knows what is going to happen next,’’ said Aberdeen Asset Management managing director Gerald Ambrose.

A rally in global markets, which was temporarily held back by the A (H1N1) flu, has seen valuations surge across the board.

Investors check shares prices at a private stock market gallery in Kuala Lumpur. The benchmark Kuala Lumpur Composite Index crossed the 1.000-point barrier on Monday. - AP

The rally in Europe in April, according to a Bloomberg report, had pushed market valuations on the Dow Jones Stoxx 600 Index to their highest levels in more than four years and investors had seen an end to the current global recession.

That wave of optimism has not been lost on stocks on Bursa Malaysia and has seen the benchmark KL Composite Index (KLCI) cross the 1,000-point barrier on Monday. The index closed flat at 1,008 yesterday.

Trading volumes in April, when the stock market really picked up steam, crossed the one billion mark on April 10 for the first time this year. Volume crossed the two billion level on April 27.

Another indicator that volatility globally has declined and the rally might have more legs to run is the drop in yields in long-term bonds in the United States. The decline in yields is seen as another indicator that the end of the current recession is getting close.

In the process of an optimism-fuelled current rally, the valuation of stocks on Bursa Malaysia has risen and is now at 12.84 times on earnings expectations for next year. Based on data from Bloomberg, the KLCI is trading at a current price-to-earnings valuation of 14.28 times.

“People are in a dilemma whether to chase stocks or not,’’ said a fund manager.

Part of that indecision lies in valuations prior to the market meltdown last year, which one analyst feels was not too far from the current forward valuations.

Nonetheless, experts say there is still value in the market depending on where you look.

“Some of the blue-chip stock valuations are high but, for the second-tier and mid-cap stocks, they are still cheap,’’ said Jupiter Securities head of research Pong Teng Siew.

Ambrose said stock picking should be based on companies and not the index, and he felt that betting on growth stocks might not be the most prudent investment decision at the moment.

He said price-to-earnings ratios were unreliable now and preferred to look at the price-to-book value of a stock.

KLCI fails to cross 1,000 mark

Published: 2009/05/02

Judging from its renewed rebound on Thursday, the KLCI is likely to stage another attempt to take out its major psychological resistance of 1,000.

SHARE prices on Bursa Malaysia moved sideways in consolidating their six-week gains over the last four trading days. The market's uptrend came to a stop when it took a breather. The Kuala Lumpur Composite Index (KLCI) continued to stay above its critical support of 950 points when it closed at 990.74 on Thursday.

The KLCI paused to catch a breather when it consolidated its recent gains on Monday. The index closed lower at 980.12, giving a day-on-day loss of 12.56 points, or 1.27 per cent.

The KLCI continued to stage a follow-through consolidation on Tuesday. It closed at 965.70, giving a day-on-day loss of 14,42 points, or 1.47 per cent.

Overall market sentiment remained upbeat on Wednesday. The KLCI continued to consolidate to its intra-day low of 952.37 before reversing our of its intra-day low into a marginal gain. It closed at 967.46, giving a day-on-day gain of 1.76 points, or 0.18 per cent.

Key heavyweight index-linked counters led the market recovery. The KLCI opened with a gap on Thursday. It closed higher at 990.74, posting a day-on-day gain of 23.28 points, or 2.41 per cent.

On the foreign front, New York's Dow Jones Industrial Average remained above its support of 8,000 over the last four trading days. The Dow closed at 8,168.12 on Thursday, giving a four-day gain of 91.83 points, or 1.14 per cent.

The tech stock heavy Nasdaq Composite Index staged an overhead breakout of its immediate resistance of 1,700 points. It closed at 1,717.30 on Thursday, giving a four-day gain of 23.01 points, or 1.36 per cent.

The KLCI's uninterrupted run-up was checked with a marginal loss at the market close on Thursday. The KLCI moved sideways to close at 990.74, giving a week-on-week loss of 1.94 points, or 0.20 per cent.

Of the other indices, the FTSE Bursa Malaysia Second Board Index added 6.46 points, or 0.15 per cent to 4,305.73 level while the FTSE Bursa Malaysia Mesdaq Index lost 155.45 points, or 3.20 per cent, to 3,488.07 level.

Following are the readings of some of the KLCI's technical indicators:

Moving Averages: The KLCI continued to stay above its 10-, 20-, 30-, 50-, 100- and 200-day moving averages.

Momentum Index: Its short-term momentum index continued to stay above the support of its neutral reference line.

On Balance Volume: Its short-term OBV trend stayed above the support of its 10-day exponential moving averages.

Relative Strength Index: Its 14-day RSI stood at the 70.73 per cent level on Thursday.

Outlook

The KLCI staged a minor rebound to its intra-week high of 996.60 on Monday, stopping out at this column's envisaged resistance zone (996 to 1,030).

Subsequent technical pullbacks sent the KLCI to its intra-week low of 952.37 on Wednesday, staging a successful re-test of this column's envisaged support zone (951 to 985).

Chartwise, the KLCI's technical rebound staged a successful re-test of its immediate downside support (See KLCI's weekly chart A3:A4) before bouncing off to close above its support of 990. It continued to stay above its resistance-turned-support trendline (A7:A8).

The KLCI's daily trend continued to stay above its intermediate-term uptrend (See KLCI's daily chart B5:B6) on Thursday. Earlier on Wednesday, the KLCI staged a successful re-test of its intermediate-term uptrend. It stayed above its intermediate-term downtrend (B3:B4).

The KLCI's daily and weekly fast Moving Average Convergence Divergence (MACD) indicators stayed above their respective slow MACDs on Thursday. Its monthly fast MACD continued to stay above its monthly slow MACD.

The KLCI's 14-day RSI stayed at 70.73 per cent level on Thursday. Its 14-week and 14-month RSI stayed at 60.68 and 43.39 per cent levels respectively.

The KLCI failed in its first technical attempt in taking out its major psychological resistance of 1,000 over the last four trading days. Instead, it consolidated with a trading range of 44.23 points.

Judging from its renewed rebound on Thursday, the KLCI is likely to stage another attempt to take out its major psychological resistance of 1,000. Key heavyweight index-linked counters will continue to drive the KLCI higher while second and third liners will continue to provide the excitement in trading.

Next week, the KLCI's envisaged resistance zone hovers at the 994 to 1,028 levels while its immediate downside support is at the 951 to 983 levels.

The subject expressed above is based on technical analysis and opinion of the writer. It is not a solicitation to buy or sell.

Don: Malaysian economy could be in for hard landing

By Roziana Hamsawi

Published: 2009/04/16

MALAYSIA's economy may experience a hard landing this year but it would not be as bad as Singapore and Hong Kong, said Professor Mervyn Lewis.

Singapore and Hong Kong, being the region's financial centres will suffer far worse, similar to what is being experienced in the UK.

"Countries with the biggest financial market would be badly affected," he told Business Times in an interview in Kuala Lumpur recently.

In economics, a hard landing means a rapid change from a situation of growth to slower growth or even no growth, as a country nears recession.

Bank Negara Malaysia expects a sharp contraction in the first half of 2009, based on the exceptionally high growth Malaysia registered in 2008. Malaysia's economy grew by 7.1 per cent in the first half of 2008.

However, for the full year, it grew by 4.6 per cent in 2008. But this year, the gross domestic product, the sum total of goods and services, could be a high of 1 per cent or a fall of 1 per cent.

The Asian Development Bank also forecasts a 0.2 per cent contraction for Malaysia this year before bouncing back to a 4.4 per cent growth in 2010.

"But Malaysia is not alone. It is not insulated from the crisis just like all other countries including Australia," said Lewis who is a banking and finance professor at the University of South Australia.

He is in Malaysia under the Securities Commission (SC) and University Malaya (UM) Islamic Finance collaboration. He is the first visiting scholar to be attached to UM for a month.

As part of the programme, the SC will host a public lecture by Lewis entitled "An Islamic Economic Perspective on the Global Financial Crisis" today. As part of his stint, Lewis will deliver a series of lectures, help in research as well as provide consultation on dissertations and thesis by post graduate students.

Economists: Too early to tell if markets have bottomed out

By FINTAN NG

PETALING JAYA: It’s too early to tell if the downtrend in the domestic economy and financial markets has bottomed out despite the more positive news flow and the stockmarket rallies of late, economists said.

AmResearch Sdn Bhd senior economist Manokaran Mottain said in a report that although the pace of drops in economic data had slowed, it was premature to claim that the manufacturing sector had started to recover.

Other indicators such as employment, household and private consumption as well as capital spending by businesses could still contract, thereby putting pressure on the overall economy, he reckoned.

Kenanga Research economist Wan Suhaimie Saidi said the decline in imports, in particular capital and consumption goods, showed clear indications of continued weakening domestic demand while the fall in the purchase of intermediate goods, which are goods used to produce finished products, was still down by 33.3% year-on-year and 6.2% month-on-month.

He added that this might indicate external demand could weaken further. February’s trade data showed that while exports were still down year-on-year, it increased by 3.4% compared to January. Imports, on the other hand, showed a decline of 8.4% month-on-month.

Industrial output data also showed signs of recovery, posting a slower decline of 14.7% year-on-year in February, against a 20.2% fall in January.

Prices of crude palm oil and crude oil futures have also risen, indicating that demand and economic activity may pick up again as the stimulus packages launched by various governments take effect.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng acknowledged that the latest numbers showed that things had started to stabilise.

“The downtrend looks like bottoming out as they have eased to declines of 10% to 20% compared to 20% to 40% before,” he said.

In particular, Yeah said China’s Purchasing Managers’ Index, which covered exports, inventories and production, had bounced off its lows and now stood at 52.4% in March.

“This is the first time it is above 50%, which indicates that domestic production is actually rising,” he said, adding that China’s recovery might provide some support to commodity-exporting countries.

Yeah said that while there were positive signs of stabilisation, there were those who regarded any recovery as patchy and unsustainable as long as the US, Japan and EU have not recovered.

“The subprime problems, which caused the financial crisis and wiped out wealth, have not been resolved and will continue to cast a pall on any silver lining in the US economy,” he said.