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ASEAN STOCK WATCH Asean Affairs   28 May 2012

ASEAN Market Outlook

 By Shayne Heffernan Ph.D.

This week only the highest quality stocks should be considered as Europe heads for disaster, local markets will suffer.

Keep your money in your pockets this week as we expect to see a substantial run on Banks in Europe. The inability of politicians to address in any real way the troubles created in Europe is approaching the end game according to Economist Shayne Heffernan.

The Euro STOXX volatility index has shot up more than 100 percent since mid-March when concern Spain might not be able to meet the disastrous austerity targets, Greece failed to form a Government and the political circus continued.

Next we will see investors, corporations and institutions take the prudent step of cutting exposure to Europe, pulling out funds at a record rate and bringing Europe’s banks to the brink of collapse.

With more than $1.2 trillion in Spanish, Portuguese, Italian, and Irish debt, Europe’s lenders now face a serious deposit flight risk and rising defaults elsewhere in the Euro Markets.

If Greece return to the drachma, its currency probably would suffer an immediate devaluation of as much as 75 percent against the euro, spurring widespread defaults on foreign loans.

The Euro itself is valued at only 80 should there be a continued pattern of default.

Banks in Greece, Ireland, Italy, Portugal, and Spain saw a decline of €81 billion ($103 billion), or 3.2 percent, in household and corporate deposits in the 15 months through March, according to the European Central Bank. On March 30, Greece had €160 billion of bank deposits, down almost €75 billion from the peak in 2009, central bank data show. Lenders in Germany and France saw an increase in deposits of €217 billion, or 6.3 percent, in the same period.

The rate of funds leaving Europe is accelerating as Merkel pushes on with the austerity measures that benefit Germany at the expense of other nations in Europe.

As the EuroCrisis continues, several possible outcomes have emerged according to Economist Shayne Heffernan.

1. Europe finds the money for a real bail out of Greece, Spain, Italy, Portugal, for now this seems unlikely.

2. Greece leads the mass exit of the Euro and will be followed by Spain, Italy, Portugal and possibly others, this is now a real possibility and would allow for these countries to devalue their own currency and manage an exit from recession.

3. The Euro gets devalued, either by the Banks or by the ECB, a real value on the Euro post Greek default is around 80c according to estimates from LTN Asia’s leading economic research house.

Regardless of which outcome results from the muddled mess the Euro Politicians created the only real interest the rest of the world has is the deleveraging of Euro Banks.

Based on estimations from Shayne Heffernan the maximum result of Europeans selling off their assets is an 8% fall in the US markets that would be short lived.

Former Greek prime minister Lucas Papademos warned Greece may run out of money by the end of June if international bailout funds are cut off following next month’s election, a newspaper reported Sunday.

“From late June onwards, the ability of the government to fund its obligations fully depends on the approval of the subsequent installments of loans from the EFSF and the IMF,” To Vima newspaper quoted Papademos as saying in a leaked memo.

“The available funds in the Greek government will be reduced gradually from about 3.8 billion euros on May 11 to about 700 million euros on June 18 and from June 20 will enter negative territory at the level of around one billion euros.”

Center-left To Vima said Papademos made the warning in a memo to President Carolos Papoulias dated May 11 that was then circulated to party leaders as they tried to form a coalition after an inconclusive May 6 vote.

Greece in 2010 committed itself to a reform program in return for hundreds of billions of euros (dollars) in bailout funds from the European Union bailout fund EFSF and the International Monetary Fund.

The major US indices were mixed Friday as traders again looked to events across the Atlantic amid thin trade ahead of a long holiday weekend.

The Dow Jones Industrial Average and the Nasdaq fell in early trade while the S&P 500 rose modestly.

Tremors in Spain’s banking market set the tone.

Spain’s stock market suspended trade in Bankia’s plunging shares as reports said the struggling lender may seek up to 20 billion euros ($25 billion) from the state to stay afloat.

Bankia requested the suspension ahead of a board meeting to decide on a recapitalization plan, “in view of the lack of precision on the figures” ahead of its decision, the bank said in a statement.

That fuelled fears of a bank run, which would send ripples through the global banking system.

The Dow was down 23.91 points (0.19 percent) to 12,505.84 an hour after the open.

The Nasdaq was down 4.96 (0.17 percent) to 2,834.42.

The S&P index was modestly in the black, rising 0.34 (0.03 percent) to 1,321.02.

Dow components Caterpillar, Boeing and American Express were all down close to one percent.

Microsoft, Procter & Gamble and Intel carved out modest gains.

Bond prices rose as yields fell. The yield on the ten year Treasury bond fell 0.01 points to 1.75 percent, that on the 30 year fell 0.01 points to 2.84 percent.

Monday is a holiday in the United States.

Friday in Asia
Tokyo closed up 0.20 percent, or 17.01 points, to 8,580.39, Sydney eased 0.66 percent, or 26.6 points, at 4,029.2, while Seoul was 0.53 percent, or 9.7 points, higher at 1,824.17.

Hong Kong ended 0.25 percent, or 47.01 points, higher at 18,713.41 and Shanghai was down 0.74 percent, or 17.42 points, at 2,333.55.

– Taipei fell 53.26 points, or 0.75 percent, to 7,071.63.

HTC shed 3.95 percent to Tw$413.0 while TSMC was 0.74 percent lower at Tw$80.0.

– Manila rose 0.44 percent, or 21.75 points, to 4,925.97.

Metropolitan Bank and Trust rose 0.95 percent to 85.30 pesos and Universal Robina gained 1.98 percent to 59.10 pesos but SM Investments fell 0.22 percent to 668.50 pesos.

– Wellington was down 0.28 percent, or 9.96 points, at 3,486.23.

Contact Energy was flat at HK$4.80, Fletcher Building gained 0.16 percent to HK$6.17 and Telecom eased 0.78 percent to HK$2.56.

– Singapore closed 0.24 percent, or 6.78 points, lower at 2,772.75

Singapore Telecom dropped 0.65 percent to Sg$3.08 and DBS Bank fell 0.38 percent to close at Sg$13.17.

– Jakarta ended down 2.1 percent, or 82.36 points, to 3,902.51.

Car maker Astra International declined 2.8 percent to 65,850 rupiah, cement maker Indocement Tunggal Prakarsa fell 4.7 percent to 17,200 rupiah, and telecommunications company Indosat fell 5 percent to 4,250 rupiah.

– Kuala Lumpur shares ended 0.19 percent, or 2.87 points, higher at 1,551.12.

Axiata Group shed 0.2 percent to 5.43 and Genting lost 0.4 percent to 9.95 ringgit.

– Bangkok edged up 0.63 percent, or 7.05 points, to 1,132.83.

PTT dropped 1.92 percent to 307 baht, while Siam Cement added 0.30 percent to 332 baht.

– Mumbai was flat, down 4.48 points or 0.03 percent to 16,217.82.

India’s private steel maker jindal Steel fell 2.59 percent to 456.45 rupees while the country’s largest passenger car maker Maruti Suzuki fell 2.46 percent to 1,117.05.

Shayne Heffernan Ph.D.  

Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408 Fax: +65 6329 9699
Email :
Suite 53 Athenee Tower
63 Wireless Road, Lumpini, Pathumwan, Bangkok 10330
New York 347 5th Avenue, Suite 1402-508 NY, NY 10016


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