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ASEAN STOCK WATCH Asean Affairs   18  April  2011

Asean markets anticipate a challenging week

Shayne Heffernan

Asean markets will have a challenging week this week as mixed signals are expected from Wall St Earnings disappoint while China and the Asean region continues to post high growth.

Local economies are in good shape and any US-led sell off is a great opportunity to gain more Asean exposure to equities and currencies.

On the currency front the Singapore dollar, the Thai baht and the Malaysian ringgit represent the best value/stability combination.

In equities, banks, agriculture and energy are must-owns.

An inflationary scare in the opening weeks of 2011 saw a widespread sell-off across emerging markets, but markets have staged a solid comeback since then as policy makers have taken various steps to rein in price pressures.

Even Japan’s earthquake and tsunami last month proved to be a speed bump for investors. While the Nikkei remains more than 7 percent below its pre-quake levels, the MSCI index of Asian stocks outside Japan has gained around 8 percent since March 11.

Emerging markets pulled in a net $1.2 billion in the week ending April 13 with the iShares MSCI Emerging Market equity fund pulling in a net $595 million, down from the prior week’s inflow of $1.6 billion.

China's central bank said on Sunday that it would raise lenders' required reserves by 50 basis points, the fourth time this year. This will have a negative impact in Asean today.

The move increases the required reserve ratio for the country's biggest banks to a record 20.5 per cent, another step in the government's campaign to absorb liquidity and control inflation.

Another negative came from the World Bank and the IMF, they said on Saturday that rising food prices, unanswered joblessness, Mideast turmoil and weak finances in advanced economies could still derail economic recovery.

'We are one shock away from a full-blown crisis,' said World Bank president Robert Zoellick about the surge in basic food prices.

Wall St Outlook

The CBOE Volatility Index fell on Friday to its lowest level since July 2007. It ended at 15.32, well below its mid-March high of 31.28.

"The final result for this week will be increased volatility, a possible sell off, but long term the rally will continue." said Shayne Heffernan.

However Shayne Heffernan is still looking to see a volatile week ahead, AA and Google disappointed and early this week the spotlight will be on the banks as earnings from Citigroup (NYSE:C), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) are released.

Citigroup (NYSE:C) has missed more than it has beat in the last few years, Morgan Stanley (NYSE:MS) has the best record of beating estimates and Goldman Sachs (NYSE:GS) missed in Q4 2010.

In general terms Shayne Heffernan is expecting financial institutions to report poorer numbers this quarter than a year ago, mainly because last year’s figures reflected the recovery from the economic crisis of 2008 and 2009, when many of the US’s largest banks teetered on the brink of collapse.

Technology results, including Intel, IBM and Texas Instruments should be better than the banks and this may fuel a technology rally, Remember this is a holiday-shortened week, Wall St markets will be closed on April 22 for Good Friday.

Last week the Dow Jones industrial average slipped 0.3 percent, while the Standard & Poor's 500 Index and the Nasdaq Composite Index each shed 0.6 percent.

The Standard & Poor's 500 index is up 25.8 percent since the start of September when the recent rally began.

Hefty gains in the price of oil and commodities in the first quarter, have fueled worries about the impact on USA consumers and companies, the rise in prices in other counties has had a lesser impct due to the falling value of the US dollar.

As a result of the falling dollar and shift in global fortunes markets in Africa, Asia and the Middle East will outperform the market in the USA.

The net analysts' mean earnings forecast for the S&P financial sector for the first quarter is down 3.4 percent in the past 14 days, but still the US economy and corporate profits are growing.

A big concern is that earnings estimates for Goldman Sachs are down 42.8 percent in the last two weeks, while the mean change in estimates for Citigroup Inc is down 6 percent in the last 14 days.

Analysts' mean earnings forecast for the S&P information technology sector is down 0.1 percent in the past 14 days.

Should there be a serious sell off Shayne Heffernan recommends buying stocks with a strong dividend history.

The Dividend Hot List


BlackRock Kelso Capital Corporation
Price/Share*:$9.99 Annualized Dividend: $1.28 Div. Yield: 12.81%
52-Week High:$12.97 % Off 52-Week High: -22.98% 52-Week Low: $8.68
Dynex Capital
Price/Share*: $9.58 Annualized Dividend: $1.08 Div. Yield: 11.27%
52-Week High: $11.00 % Off 52-Week High: -12.91% 52-Week Low: $8.70
Banco Santander S.A. (ADR)
Price/Share*: $11.87 Annualized Dividend: $1.02 Div. Yield: 8.60%
52-Week High: $14.80 % Off 52-Week High: -19.80% 52-Week Low: $8.65
BP Prudhoe Bay Royalty Trust
Price/Share*: $114.99 Annualized Dividend: $9.57 Div. Yield: 8.33%
52-Week High: $131.49 % Off 52-Week High: -12.55% 52-Week Low: $85.01




Shayne Heffernan brings more than 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over US$500m and 1 that reach a peak market cap of US$15billion. He has managed and overseen start-ups in Mining, Shipping, Technology and Financial Services.


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