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ASEAN STOCK WATCH Asean Affairs   29  November  2010

Emerging Markets of Asia are set for a rally

Shayne Heffernan

The Emerging Markets of Asia are set for a rally this week as well, most will recover from minor falls over the last week of trading and will head on to establish new highs in the weeks to come. Singapore features in our research this week.

China Sunsine Chemical Holdings Ltd SGX: CSS, Sunvic Chemical Holdings Limited Singapore AS7 are among our best buys of the week. Also in Singapore Golden Agri-Resources, OLAM, Noble and GENTING rate as strong buys.

PTT and PTTEP look set for a good recovery this week in Bangkok along with UVAN and IVL.

In Malaysia CIMB, Yee Lee, GENTING and DiGI look like they will deliver gains as well. Kuala Lumper should see a recovery in Palm Oil Prices that will lift local sentiment.

Jakarta will see good run ups on the Coal Sector, and Agriculture will feature as a major gainer. BUMI, IDX, ARWD, are all good buys Monday.

Around the world:

Wall St Outlook

Europe’s problems continue but not even they will stop a Wall St Rally this week, strong holiday spending and a much improved US employment situation will be enough to lift the Street this week.

The same fear mongering headlines dominated the news in November, consistent reports that Europe’s debt crisis could spiral out of control have driven stocks off their highs hit in the first few days of November.

So let’s put some perspective on that, since November 5, the S&P has fallen 3.1 per cent after adding 17 per cent over the two months before that, so the fall remains within a range that we would expect as a pause in a Bull Market.

At Friday’s close, the S&P 500 was down 0.9 per cent for the week, almost matching the Dow’s 1 percent drop, culminating a short week in the USA with a thinly traded fall.

The Irish story seems to be the same nonsense that was published during the Greek Crisis, which passed as will the news beat up on Ireland. In fact Irish stocks, especially banks look pretty good.

In news that does matter, the signs are clear that there is a gathering recovery in the employment market. The government’s nonfarm payrolls report on Friday is set to be another sign of a turnaround in hiring that could boost stocks through the end of the year, IF, there are any dips this week buy them as Friday will deliver a good rally.

Black Friday reports suggest holiday shopping got off to a good start. The S&P retail index rose more than 5 per cent in the run up to Black Friday. This points to an increasingly bullish view of US consumer spending after a string of stronger indicators on jobs, sentiment and spending.

This Friday’s payrolls report is expected to show the economy added 143,000 jobs in November, according to our research. If we are correct, the jobs data will fit a pattern of growing strength in the labor market.

As Paul Ebeling said in August, “The fact is that as part of the economic cycles, unemployment is and has been proven to be a trailing indicator of consumer spending, the historical evidence shows that this indicator peaks a year after consumer spending and hits the lowest range six to twelve months after the dip in consumer demand.”

October certainly proved this to be true, USA companies hired at their fastest pace since April, the government’s payrolls data showed, while the latest weekly initial claims for unemployment benefits have dropped to their lowest in over two years. November consumer sentiment rose to the highest level since June. October consumer spending also gained.

The early evidence from Black Friday suggested shoppers were spending and that discounts were not as deep this year as last, potentially helping to lift retailers’ margins as they look for the best holiday season in three years.

Black Friday marks the start of the holiday spending when U.S. retailers traditionally turn a profit, or go into the black for the year.

The National Retail Federation said that nearly 60 million Americans plan to hit the stores over the weekend, while another 78 million might join the crowds of shoppers. The NRF will provide an update on Sunday.

Retailers on the front lines will publish same-store sales data on Thursday when they will likely comment on the weekend’s events.

Europe’s debt crisis could cause the odd dip. Prophets of Doom predicting the euro’s demise are getting serious attention, although not the type they need. Europe is not going to change or fall apart, Europe is very young and is just finding its feet, it will be around for a very long time.

European Commission President Jose Manuel Barroso denied on Friday that a financial rescue plan was in the works for Portugal and called a newspaper’s report that Portugal was under pressure to seek a bailout “absolutely false,” while Spain said it did not need help to manage its finances. But the market was less sanguine and stocks took a nose dive.

In my opinion, European stocks may be getting hit too hard and that strong companies are getting caught up in the general selling. There are huge bargains in the European Financial Sector.

Periods of decline in November have worked off the S&P 500’s overbought condition. The index has been finding support at around 1,180 and resistance at 1,200. That may serve as a short-term trading range.

In reality, Bullish sentiment has been on the rise again.

Bullish sentiment rose 7.4 percentage points to 47.4 per cent, according to the latest sentiment survey by the American Association of Individual Investors. Bullish sentiment has now spent 12 consecutive weeks above its historical average of 39 per cent despite some drops in November.

On Ireland

US firms have invested more in Ireland than in Brazil, China, India and Russia combined, says Joanne Richardson, CEO of the American Chamber of Commerce.

The clout of those businesses was on display on Thursday when Finance Minister Brian Lenihan, fresh from announcing 15 billion euros in spending cuts and domestic tax rises, addressed the American Chamber of Commerce’s annual Thanksgiving lunch.

In between the pork and pheasant terrine and the roast turkey, he reassured a ballroom full of US business chiefs that Ireland’s 12.5 per cent corporate tax rate was untouchable.

That tax rate, far lower than in the other countries of Western Europe, has been Ireland’s calling card in competing for international investment. It infuriates European neighbours that are now funding Ireland’s bailout and think it competes unfairly with their higher rates, but it remains popular in Ireland.

Ireland’s main political parties are committed to keeping it, and even argue with each other over who will do a better job defending the low rate from outside meddlers that want it hiked.

With growth slowing in the United States and Europe, Barry O’Leary, head of Ireland’s investment promotion agency IDA, has his eyes on attracting investment from Asia. The IDA has opened offices in Mumbai, Shanghai, Moscow and Sao Paolo, and is opening new ones in Shenzen, Singapore and Bangalore.

Foreign firms are not frightened off by the chaos in the domestic economy, which does not really affect them since they don’t rely on Ireland’s domestic demand for customers or on its financial system for funding, he said.

“Ireland has such a strong track record of companies operating here and they are not caught up in the domestic financial system.”

The IDA’s O’Leary says foreign direct investment was responsible for 110 billion euros of Ireland’s 159 billion euros in exports last year.

For the Irish, the biggest question is whether the foreign companies will be able to provide jobs. For now, they seem to be the only source of them.

Brian Murphy, CEO of the Irish branch of recruitment firm Morgan McKinley, Ireland’s biggest professional recruiter, says job vacancies are now just half of what they were before the bust. Most of that loss has been among firms serving the domestic market, while demand for workers among multi-nationals has held up much better and is now growing.

Multi-nationals made up just 40 per cent of the vacancies on Morgan McKinley’s books before the crisis but now make up nearly two thirds, Murphy said. Employers are looking for computer programmers, experts in pharmaceuticals and life sciences, accountants, supply-chain managers and other skilled workers.

With unemployment at 14 per cent instead of 4 per cent, there are a lot more applicants for those vacancies, which is only good news for foreign firms who will now find Irish workers “more competitive in the wage space”, Murphy said.

Richardson rattles off the names of US firms that have announced plans to hire in Ireland in recent months: Ebay, IBM, Google, GE Healthcare, Covidien.

Facebook opened its office last year, hiring 200 people. Video game company Activision Blizzard hired 800.

Intel, whose $US7 billion, 360 acre “centre of manufacturing excellence in Europe” in county Kildare is perhaps the grandest monument to Ireland’s export-driven boom, is looking for a Senior Silicon Validation Engineer and a Thin Films Deposition Engineer, among other vacancies.

Shayne Heffernan

USA Strong Buys

Dividend Stocks

Grupo Aeroportuario (NYSE:ASR)

Price/Share*: $49.29 Annual Dividend: $4.71 Dividend Yield: 9.56%

Pay Date: 06/01 Ex-Dividend Date: 05/14 Record Date: 05/18

Grupo Aeroportuario del Sureste, S.A.B. de C.V. (ASUR) is a Mexican airport operator with concessions to operate, maintain and develop the airports of Cancun, Cozumel, Huatulco, Merida, Minatitlan, Oaxaca, Tapachula, Veracruz and Villahermosa in the southeast of Mexico. As operator of these airports, ASUR charges airlines, passengers and other users fees for the use of the airports’ facilities. The Company also derives rental and other income from commercial

activities conducted at its airports, such as the leasing of space to restaurants and retailers. As of December 31, 2009, Cancun had approximately 29,725 hotel rooms. During the year ended December 31, 2009, it served approximately 15.5 million passengers. As of December 31, 2009, 15 Mexican and 80 international airlines, including United States-based airlines, such as American Airlines and Continental Airlines, were operating directly or through code-sharing arrangements in its airports.

Formula Systems (NASDAQ:FORTY)

Price/Share*: $16.65 Annual Dividend: $1.80 Dividend Yield: 10.81%

Pay Date: 12/31 Ex-Dividend Date: 01/08 Record Date: 01/12

Formula Systems (1985) Ltd. (Formula) is a global information technology (IT) solutions and service


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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