ASEAN KEY DESTINATIONS
Asean Stock Watch- June 20
Indonesia’s improving economy has triggered foreign investment inflows. However, concerns are rising that overseas money is too dominant in the economy, and that such development by foreigners will not benefit Indonesians.
The climb in overseas ownership in several sectors of the economy is often used as an indicator to show that our economy is dominated by foreign powers. Such increases in the financial and mining sectors, as well as in plantations, suggest that our economy is already dominated by foreigners.
However, the increase in overseas ownership in several sectors cannot be used to conclude that the Indonesian economy as a whole is dominated by foreigners.
When the country was gripped in financial turmoil in 1997 and 1998, foreign contribution — measured by subtracting gross domestic product from gross national product and dividing the difference by GDP — in Indonesia’s economy had risen significantly. The downfall of the economy forced Indonesian companies to sell some of their assets. At the same time, foreign companies were confident that the economy would get better and they invested, by buying those assets.
In 1999, foreign contribution in Indonesia’s economy increased to 7.62 percent. Therefore, we should remember that the increase in foreign ownership on several sectors of the economy was a consequence of the crisis more than a decade ago.
As the economy has improved, domestic businesses have been thriving and foreign contribution has been decreasing, declining to 4.87 percent in 2005 before dropping to 2.82 percent in 2010.
The faster-growing economy will eventually create wider job opportunities — with every one percentage point growth in the economy equivalent to the creation of 400,000 jobs. So, the strong economy — indicated by the pace of growth — is an absolute requirement to increase the nation’s welfare.
Fortunately, Indonesia’s economic growth has been getting better in the last few years. In 2010, our economy grew 6.1 percent and is estimated to grow at least 6.4 percent this year.
Looking at such economic data partially often draws the wrong conclusion. If domestic players believe the wrong conclusion, they will hesitate to expand their businesses and investments, at a cost to the economy.
Share prices on Bursa Malaysia are likely to rebound this week on mild bargain hunting in the emerging markets amid rising concerns over slower global economic growth.
Affin Investment Bank head of retail research, Dr Nazri Khan, said despite the low-volume-soft-session last week, the bank, however, saw signs of cautious buying this week due to the slowdown in the US economic recovery.
“We expect oversold bounce to continue next week back to a higher range of 1,560-1,570 level given the temporary bargain hunting in the emerging markets following the battering of stocks in the majority of the developed world,” he said on Friday.
He said as long as the soft patch did not evolve into panic selling, the bank would maintain its core view that any dip was a buying opportunity as recovery was steady but slow.
“The fact that Dow Jones closed below 12,000 for the seventh week free-fall (the longest slide since September 30, 2002) may suggest a short term undervalued market following a serious oversold situation although we agree that we don't see any selling climax yet to suggest a real medium term bottom,” he said.
Apart from that, the Volatility Index, the barometer of investors' anxiety, which jumped to its highest level in three months and Advisor Sentiment Index, which fell to a six-month low (with a whopping 48 percent investment advisers bearish over the next six months) may be another two indicators confirming buying opportunities in an oversold broad market, he said.
Nazri said the several initial public offerings recently, including MSM Holding and Bumi Armada on the local market, as well as RenRen, LinkedIn and Facebook in the global market, suggested that sentiment was still perceived by professionals as favourable for equities.
The market is expected to be affected by Greece's unresolved debt with most economists anticipating the European Union and the International Monetary Fund to release a minimum ten billion loan tranche to help Athens.
Domestic-wise, local investors would be supported by the latest Economic Transformation Programme initiatives announced recently as well as anticipation on possible free trade agreements with the Middle East, South Asia and the Americas.
For the week just-ended, the benchmark FBM KLCI was traded range-bound before closing the week higher on buying support from selected heavyweights like Maybank and Petronas Gas. The benchmark FBM KLCI closed the week 7.24 points firmer at 1,563.43.
The Finance Index surged 119.12 points to 14,747.07, Industrial Index increased 13.32 points to 2,773.78 and the Plantation Index rose 31.2 points to 7,887.69.
Weekly volume increased to 4.121 billion shares worth RM7.805bil from 3.674 billion shares worth RM6.608bil previously.
The main market turnover declined to 2.957 billion units worth RM7.585 billion from 2.606 billion units worth RM6.433bil previous week.
Philippine equities may continue to consolidate in what may be another volatile trading week. Lingering concerns about the health of the US economy and Europe’s debt problems may continue to haunt local equities, which broke its medium-term support of 4,200 last week.
“Expect continued weakness and heightened volatility in the market as locals track US market movements,” BDO Unibank Inc. said.
On Friday, the Dow Jones Industrial Average went up 42.84 points or 0.4 percent to 12,004.36, snapping a six-week losing streak.
Hopes of a favorable resolution to Greece’s debt problems intensified after Germany softened its stance in giving the debt-laden nation more loans, allowing Greece access to more financial support and avoiding a possible default.
But a stream of US economic indicators due this week such as existing home sales, jobless claims, new home sales, durable goods and gross domestic product are mostly biased towards weaker results.
“Hidden from view in an avalanche of poor economic numbers and the Greece-crisis, the US government remains locked in a battle with Congress as it seeks to raise the $14.3 trillion debt ceiling already reached last month,” said Jun Calaycay of Accord Capital Equities Corp.
“By the first week of August, the Obama economic team will run out of maneuvers, and without a compromise solution, the world’s largest economy will be in technical default of its obligations. This is not something an already roiled financial market needs at this time,” Calaycay added.
Also painting a negative bias was the magnitude of the drops in the previous week which saw sentiments swinging between cautious optimism and general pessimism from one day to the next.
The composite index fell under its 2.5 month, 135-points trading band after plunging 1.6 percent last week, opening up the prospects of a full retreat to and test of the 4,070 to 4,100 major support line, analysts said. A further breach presents an increasing probability of a slide towards the 3,970 to 4,000 range.
“Only a strong move above 4,250 will put the bulls back into play,” said BDO.
On a positive note, valuations of Philippine equities remain low based on PE multiples with local equities ranked along the median-line among 23 selected major global and regional peer markets, Calaycay said.
Singapore shares opened higher on Monday, with the benchmark Straits Times Index at 3,011.77 in early trade, down 0.21 percent, or 6.49 points.
Around 57.7 million shares exchanged hands.
Thai composite stocks index closed on Friday at 1,018.96, down 0.59 points, or 0.06 percent amid Bt 21.57 billion turnover.
Blue chip SET-50 index was at 709.71, down 0.76 point, or 0.11 percent.
Top five active (value) stocks: ADVANC, TOP, TRUE, JAS, PTT.
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