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ASEAN STOCK WATCH Asean Affairs   19 June 2012

ASEAN MArket Outlook

 By Shayne Heffernan Ph.D.

Signs of slowing growth amid Europe’s turmoil could mean the Fed, which began a two-day meeting today, could extend its so-called Operation Twist, according to JPMorgan Chase & Co. (JPM) and Jefferies & Co. The program involves selling short-term debt and buying longer-term bonds. A more aggressive response could be warranted if the Fed see high costs in a slowdown of growth.

The central bank may expand its balance sheet, extend Operation Twist and/or lengthen its short-term interest rate guidance beyond late 2014, Goldman Sachs Group Inc. chief economist Jan Hatzius wrote today.

“A decision not to ease is tantamount to a tightening,” he wrote in an e-mailed report to clients today. “At this point we’d be quite surprised if we saw no easing.”


GVK Power and Infrastructure is seeking to raise $500-600 million by selling a stake in its Singapore arm and is in talks with government of Singapore Investment Corp for a potential deal, two sources with direct knowledge of the matter said.

The Indian developer of airports, power projects, roads and mines will sell a minority stake in GVK Coal Developers (Singapore) Pte Ltd, the sources said, adding that a deal may be a precursor to a Singapore listing of the unit that holds coal assets in Australia.

The sale will help fund the huge capital spending needed to develop the mines in Australia and reduce debt linked to the $1.26 billion purchase last year.

GVK Power is looking to sell a stake in GVK Coal Developers as soon as possible, Group CFO Issac George said on Monday, declining to identify prospective investors or the potential size of a deal. “There are people who have approached us, who have shown tremendous amount of interest,” he said.

A spokeswoman with the Singapore sovereign fund declined to comment.

GVK acquired the Australian assets to secure long-term coal supplies for the group’s power projects in India and to meet demand in other regional markets.

Shares in GVK Power rose 4.8 per cent on Tuesday, beating a 0.3 per cent gain in the broader Mumbai market, after the Reuters report on the likely stake sale in the unit.

Still, the group’s market value of $384 mn is only a fraction of what it was three years ago.

GVK Coal, whose Australian mines may produce 84 million tonnes of coal a year at full capacity, may have a bigger market value than its parent, one of the sources said, without elaborating.

Indian infrastructure builders have been struggling because the government has been dragging its feet on project approvals.

Private equity investments in Indian infrastructure slumped 60 per cent to $183 million in 10 transactions during the quarter ended March from $459 million in 16 transactions a year earlier, according to industry tracker

Poor infrastructure is also a bottleneck to India’s economic growth, which slowed to 5.3 per cent in the March quarter, the weakest annual pace in nine years.


Local authorities foresee further fallout from the crisis in the euro area on Thailand’s financial market and export sector, even though Greece’s election results promise no break-up of the single currency zone for now.

The worst is not yet over given the fundamental problems in the euro area, the Bank of Thailand’s Monetary Policy Committee and Financial Institutions Policy Committee said in a joint statement after their first-ever meeting yesterday.

Together, though praising Thailand’s solid economy and financial system, they expressed concern that the chronic euro crisis would remain the biggest risk, as this could destabilise global financial markets and economy.

In the near term, volatility in the domestic financial market is imminent on periodic tight demand and supply for foreign currencies. In the long term, Thailand will inevitably be affected when the euro crisis drags down the global economy, they said.

Policy options were discussed at the meeting to mitigate possible impacts on the stability of the Thai economy and financial market, central bank Governor Prasarn Trairatvorakul said. The committees see no need for any measures for now, but developments in the euro area must be closely monitored.

“Though the pro-bail-out parties won the election, it does not mean that all problems are solved. The risks are not wiped out 100 per cent. It remains to be seen,” he said.

The financial market saw heavy volatility yesterday. According to Thai Bond Market Association data, global funds bought US$1.9 billion more Thai government debt than they sold this month through June 15. The baht was unchanged at 31.47 per US dollar after reaching 31.33 earlier, the strongest level since May 22, according to data compiled by Bloomberg.

Prasarn insisted that the central bank had nothing to do with the baht’s recent appreciation. He noted that despite the sell-offs in the bond and stock markets, foreigners remained net buyers and there was no sign of significant capital outflow.

At the ThaiPublica Forum yesterday, Kanit Sangsubhan, director of the Fiscal Policy Research Institute, said the medium- and long-term problems in the euro area had yet to be solved. There is a 20-per-cent chance that Europe, earlier expected to witness a 0.9-per-cent economic contraction this year, may suffer as much as a 5-per-cent shrinkage in gross domestic product. That would squash the Thai GDP growth forecast from 5.5 per cent to 2.2 per cent this year.

While saying that Greece’s election result just eased some investor concerns, Bandid Nijathaworn, former deputy BOT governor, and Supavud Saichuea, managing director of Phatra Securities, said Thailand should stay alert for the indirect impacts. Europe accounts for less than 10 per cent of Thailand’s exports but 18 per cent of exports from China, which is a major market for Thailand.

Bandid said that unlike 2008-09 when boom times in emerging markets helped bolster export demand, the Thai export sector might suffer and this could lead to financial problems. Supavud said that if Italy and Spain had to continue dealing with fears of contagious impacts, market volatility was warranted.

As European companies are expected to face tight liquidity amid bank deleveraging, the Export-Import Bank of Thailand anticipates defaults or delayed payments for Thai goods. To help Thai suppliers, the bank is cutting the penalty rate for exporters and the export paper discount rate, as well as providing export credit insurance and risk-evaluation services. Kanit Sukonthaman, president of the bank, also urged exporters to buy export credit insurance to cover all orders.

Like global bourses, the Stock Exchange of Thailand’s main index soared yesterday, only to close at 1,163.41 points, down 2.32 points or 0.20 per cent. In May, the SET gave up 7 per cent on the compound negative factors from the euro area.

So far this month, foreign investors’ net sales have reached 8 billion baht ($254 million), with 875 million baht ($27 million) added yesterday. Year to date, they remain net buyers, with a position of 61.1 billion baht ($194 million).

SET president Charamporn Jotikasthira said volatility should remain in the next month or two, depending on the formation of the new government in Greece and its actions to navigate the country out of the debt storm. Greece’s election ended with pro-bail-out parties winning more votes than anti-bail-out Syriza. The world heaved a sigh of relief, as Greece will stay within the euro zone for now, with fresh financial injections from the European Union and International Monetary Fund to keep it afloat.

However, leaders arriving for the Group of 20 summit in Mexico still have European instability concerns at the front of their minds as the crisis there continues to weigh on the global economy.

“Sunday’s outcome represented a step forward, but there remain huge challenges ahead,” Erik Nielsen, chief economist with Italy’s Unicredit bank, told Deutsche Presse-Agentur.


Vietnam aims to speed up economic growth to 6-6.5 percent in 2013 from this year's anticipated pace of 5.5-6.0 percent, the government said.

In a statement on a government website late on Monday, Vietnam also said it plans to restructure the country's financial markets and to keep consolidating state-owned businesses. No details about such restructuring were given, and officials weren't available for comment on Tuesday.

In 2011, Vietnam's gross domestic product (GDP) expanded by 5.89 percent.

Getting the economy to grow by up to 6.5 percent next year "would be quite a jump," said Alan Pham, chief economist of VinaCapital, a fund management firm in Vietnam.

This year, growth and industrial output have slowed from 2011.

For the first quarter of 2012, Vietnam reported that GDP grew 4 percent from a year earlier, the slowest pace in three years. It has projected expansion of 4.31 percent for the first half of this year.

Inflation, a serious economic problem, also slowed, falling below 10 percent a year in May for the first time since October 2010.


With the Group of 20 summit opening this week likely to be dominated by the economic crisis in Europe, President Susilo Bambang Yudhoyono will aim to get the interests of developing countries high on the main agenda, his aides say.

Yudhoyono arrived in Los Cabos, Mexico, on Saturday for the seventh G-20 Summit, which brings together leaders of 20 major economies.

“Indonesia will take advantage of this summit to encourage the creation of a more conducive climate to speed up recovery from the financial crisis, particularly in the euro zone,” Teuku Faizasyah, Yudhoyono’s special aide for international relations, said on Sunday as quoted by state news agency Antara, adding that Indonesia wouuld propose several measures.

Indonesia was one of the few G-20 economies to post strong economic growth in 2011. Last year, the combined GDP of the G-20 increased 2.8 percent, a marked deceleration compared to the 5.0 percent growth it recorded in 2010.

Yudhoyono, speaking en route to Mexico, said he expected Indonesia to play a more active role in the G-20. “The world expects that as part of the G-20, Indonesia can do something for the world,” he said.

But to able to contribute to the global discourse, he said Indonesia had to maintain strong growth at home.

Part of this, he said, was accelerating growth through developing small- and medium-scale enterprises. In Indonesia, SMEs have proven to be the backbone of the economy and could serve as a national safety net in times of crisis, he said.

Stronger cooperation between the government and the private sector was also needed, the president said.

At the same time, Yudhoyono acknowledged that Indonesia’s subsidy policy and investment climate had always been the focus of attention of G-20 states.

“We are often pressured with regard to our subsidy policy,” he said. “I will tell the G-20 that the subsidies help the very poor.”

Yudhoyono said Indonesia’s investment climate “still has to improve,” adding that the government was prioritizing infrastructure development toward this end.

However, Agustinus Prasetyantoko, an economist at Atma Jaya University in Jakarta, said Indonesia’s role in the G-20 was as a cheerleader.

“We have little bargaining power and mostly serve as a market for the products of developed countries,” he said.

Ahmad Erani Yustika, an economist at the Institute for Development of Economics and Finance, said Indonesia failed to take advantage of its place in the G-20.

“We have not used the forum to make the global economy a fair playing field. We always succumb to developed countries that push for the liberalization of our economy without fully assessing the impact to our people,” he said.

Yudhoyono, however, called on Indonesians to play a bigger role. “We have our strengths, we are developing and this should drive us to take a firmer stance on the global stage,” Yudhoyono said.

“We need to think bi g and realize that we are a regional power and can bring solutions to the table,” he added.


Fitch Ratings, an international agency that evaluates the creditworthiness of countries and corporate entities, has maintained its main credit rating for the Philippines at one notch below investment grade, citing both favorable and unfavorable economic developments.

In a statement, Fitch said it was keeping the “foreign-currency issuer default rating (IDR)”—which is used as guide by foreign creditors and investors in evaluating a country’s creditworthiness—at BB+. This score is one notch below investment grade.

It also kept the “local currency issuer default rating”—which applies to local creditors and investors—at “BBB-”—which is an investment grade.

Fitch said the outlook for both ratings was “stable,” which meant the ratings were likely to remain the same for about a year.

The decision of Fitch to keep its previous ratings for the Philippines and assign a “stable” outlook on said ratings has reduced the country’s chances of getting an investment grade for its foreign-currency IDR within this year.

The Philippines, which is losing to its neighbors in terms of foreign direct investments, has been pitching for an investment grade for its foreign-currency IDR.

Economic managers believe that an investment grade will help the Philippines attract more job-generating foreign investments.

Growth rate next to China

“The ratings and outlook are supported by strong external finances, a track record of macroeconomic stability, favorable economic prospects, and falling public debt ratios,” Philip McNicholas, director in Fitch’s Asia-Pacific Sovereign Ratings group, said in a statement.

The Philippine economy grew by 6.4 percent in the first quarter of this year, the second-fastest rate in Asia for the period, next to China’s 8.1 percent.

Moreover, the Philippine government’s outstanding debt has fallen to just about 50 percent of the country’s gross domestic product (GDP) from over 80 percent in 2004.

The decline in the government’s debt burden indicates its improved ability to service its liabilities, Philippine economic managers said.

Nonetheless, Fitch said there were also factors that drag the country’s creditworthiness and thus offset the impact of the favorable indicators.

Needs improvement

“However, structural weaknesses, including low average income, a weak business environment, and a low fiscal revenue take weigh on the credit profile,” Fitch’s McNicholas added.

Although there are improvements in the government’s fiscal standing, Fitch believes these are still not enough to merit an investment grade. It said the government’s revenue collection should increase at a faster pace so its debt burden can decline further.

Household incomes in the Philippines are also lower than most Southeast Asian countries. This makes the country less attractive for business.

“Average incomes are low and the level of human development is poor,” McNicholas said.

Poverty incidence in the Philippines stood at 26.5 percent in 2009, one of the highest in Asia, according to latest poverty statistics.

It takes time

Fitch expressed optimism on the ability of the Aquino administration to improve the country’s creditworthiness. It said, however, that the reforms of the current administration would take time before significant benefits are derived.

“The Aquino administration’s reform agenda has focused on tackling perceived shortcomings in governance and poverty and has the potential to address longstanding structural weaknesses. However, it will likely take time to feed through to the sovereign credit profile,” McNicholas said.

Yesterday in Asia

Tokyo tumbled 0.75 percent, or 65.15 points, to 8,655.87 and Sydney shed 0.33 percent, or 13.6 points, to 4,123.3 and Shanghai gave up 0.66 percent, or 15.26 points, to 2,300.80.

Hong Kong closed flat, dipping 11.14 points to 19,416.67, while Seoul was also almost unchanged, edging up just 0.06 points to 1,891.77.

– Singapore climbed 0.64 percent, or 18.19 points, to 2,842.41.

Olam International gained 4.26 percent to 1.96 and United Overseas Bank added 1.38 percent to 18.35.

– Taipei closed 0.11 percent, or 8.37 points, lower at 7,273.13.

Smartphone maker HTC rose 3.9 percent to Tw$386.0 while Taiwan Semiconductor Manufacturing Co. was 0.37 percent lower at Tw$80.5.

– Manila closed 0.62 percent higher, adding 31.20 points to 5,081.61.

Alliance Global Group rose 0.86 percent to 11.70 pesos but Calata Corp. bucked the trend to dive 12.36 percent to 10.78 pesos.

– Wellington added 0.70 percent, or 24.71 points, to 3,480.38.

Air New Zealand closed up 0.58 percent at NZ$0.87, Fletcher Building gained 0.16 percent to NZ$6.31 and Telecom was 1.81 percent higher at NZ$2.54.

– Kuala Lumpur gained 0.77 percent, or 12.25 points, to 1,594.98.

Plantation giant Sime Darby added 0.41 percent to 9.85 ringgit, while financial firm CIMB Group Holdings gained 0.53 percent to 7.55. Fajarbaru Builder Group lost 2.21 percent to 0.89 ringgit.

– Jakarta closed 0.54 percent, or 20.66 points, higher at 3,880.82.

Coal miner Adaro jumped 4.7 percent to 1,330 rupiah, gold and nickel miner Antam advanced 3.9 percent to 1,330 rupiah and Telkom gained 1.3 percent to 7,600 rupiah.

– Bangkok rose 0.83 percent, or 9.68 points, to 1,173.09.

PTT added 1.21 percent to 335 baht and Banpu gained 0.86 percent to 468 baht.

– Mumbai edged up 0.9 percent, or 157.97 points, to 16,859.80, regaining some of the losses made a day earlier on a surprise central bank decision to keep interest rates unchanged.

Reliance Industries, India’s largest private company, rose 2.6 percent to 737.25 rupees while software exporter Infosys fell 1.3 percent to 2,478.55 rupees.

Shayne Heffernan Ph.D.  

Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
3 Raffles Place #07-01
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This year in Thailand-what next?

AseanAffairs   04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More


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