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||Asean Affairs 1 October 2012
ASEAN Market Preview
By Shayne Heffernan Ph.D.
Best value in terms of exchanges right now are Shanghai, trading at 10 times earnings and Singapore trading at around 11, I am avoiding Thailand as the exchange is already trading at 18 times earnings so other investments look more attractive this week.
Do I think things are good? No I don't Europe does not have the money to deliver on the limitless bail out, riots are increasing and while they governments talk about their commitment to the Euro how many will hold that commitment if it will result in them losing an election. More cracks will appear in the EU and more trouble is ahead.
USA debt levels are spiraling, the QE3 move will add to inflation and unemployment remains an issue, I do think the US Fed has been an active market buyer and responsible for much of the recent market rally, I am looking for bargains in the USA but will not be a buyer until we see a substantial fall.
Chinese factory and business conditions data will kick off a numbers-heavy calendar for markets. Manufacturing PMI, due on Monday, is expected to show a second straight month of contraction.
A snapshot of U.S. manufacturing activity will be provided on Monday when the Institute for Supply Management releases its September index. The September ISM reading is expected to show another month of contraction, but at a slightly slower pace than in August. On Wednesday, the ISM will release its U.S. services-sector Purchasing Managers' Index, which could show a slight deceleration in the pace of growth in the non-manufacturing sector.
In the latest issue of its World Economic Outlook, the IMF said most emerging markets have become resilient to external shocks because of prudent policies implemented over the past decade.
It said these policies have strengthened the domestic economies of emerging markets and made them less vulnerable to unfavorable developments in advanced economies.
The IMF was referring partly to measures intended to cut government budget deficits and, in turn, slash the percentage share of their debts to the size of their economies.
It was also pointing to measures implemented by central banks that aided in the accumulation of foreign exchange reserves and the stability of the banking sector.
“The recent decade has really been exceptional—for the first time, emerging market and developing economies have performed better than advanced economies as measures by time spent in expansion,” the IMF said in the report.
Emerging economies have benefited from their “improved policy frameworks and the ample policy space—room to maneuver without undermining sustainability—these improvements have created,” the IMF added.
Meantime, the outlook for the United States and the eurozone, which serve as key export markets, remains uncertain. The US economy continues to suffer from high unemployment and lackluster growth while many European countries are facing a prolonged fiscal and banking crises.
That sets the theme for the weeks trading, there is still value in Asia but the USA and Europe remain risky.
The S&P 500 hit a high of 1,474.51 in mid-September before pulling back by a bit more than 2 percent. A run at 1,500 seems possible, but the flurry of economic and world events ahead probably will prevent a major advance in the coming week.
Monetary policy is also on the list of market catalysts this week. Federal Reserve Chairman Ben Bernanke is scheduled to speak on Monday and the minutes of the latest FOMC meeting are set for release on Thursday. The week's agenda includes meetings of the European Central Bank, the Bank of England and the Bank of Japan.
Moody's said earlier this month that if budget talks next year fail to produce a plan that lowers the U.S. debt-to-output ratio over time, it would "expect to lower the rating, probably to Aa1.
Higher long-term interest rates could squeeze some fixed income investors and put pressure on a still fragile economy.
The EuroCrisis Continues: Spain's debt levels are set to rise next year, piling pressure on the government to apply for aid as it pours funds in to cash-strapped regions, an ailing banking system and rising refinancing costs, its budget showed on Saturday.
Spain's debt as a ratio of gross domestic product will reach 90.5 percent by end 2013, according to the document presented to parliament for approval, almost three times that registered before the property bubble burst in 2008.
The budget aims to make savings of around 13 billion euros ($16.7 billion) next year, largely by deepening already unpopular cuts in public sector wages, education, health and social services, fuelling anti-austerity protests.
Asia is where you need to be invested
Fueled by rising incomes and a half billion new consumers by 2020, Asia will dominate the global economy over the next few decades, forcing the world’s financial and security architecture to reflect the rise of emerging nations.
This point, made by Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy, at the 12th annual Leadership Forum in New York, was countered by billionaire investor George Soros, who said that many emerging powers do not have strong internal systems, such as democratic institutions, to play a leading role on the global stage.
The forum — titled “Defining the Future: How Emerging Powers Will Shape The World Order” and co-sponsored by Strategic Review, an Indonesian journal of leadership, policy and world affairs — brought together Mahbubani, Soros and Lakhdar Brahimi, the United Nations Special Representative for Syria.
Indonesian President Susilo Bambang Yudhoyono, who delivered the keynote address, laid the groundwork for the debate when he said the seismic power shifts now underway would continue to have an impact as the Cold War gives way to “Warm Peace.”
“One of the challenges of the Warm Peace is how to accommodate the rise of emerging powers such as Brazil, Argentina, India, Indonesia, China, Turkey and Saudi Arabia,” he said. “Economic growth is what makes a country strong, and it determines a country’s influence in the community of nations.”
The emerging powers, he added, are even more influential today given the gloomy economic outlook in the developed world. “As a result, emerging powers are not just hard to ignore but they are new partners in reshaping the global landscape,” the president said.
This point was picked up by Mahbubani, who argued that despite uncertainty in the short term, the long-term outlook appeared bright as growing numbers of people from emerging powers join the ranks of the middle class.
“Indonesia is part of the larger story and the key word is confidence, which is incredibly high within the emerging countries,” he said.
“But how do we restructure the global order to reflect this significant change? The UN Security Council must change as the current permanent members are dictators as they cannot be voted out.”
Soros, however, was not convinced, saying that the collapse of the Soviet Union and other past emerging powers proved that democracy and freedom of expression are vital components of a nation’s power.
“We must consider this when we talk about the emerging powers and the West, especially so for China. Will it become an open society? That is the single most important development for the world to consider,” he said.
Mahbubani countered by urging bystanders to not underestimate China, because that would be dangerous.
“The Chinese Communist Party of today is very different from the past. More than 70 million Chinese travel every year and they can see how the rest of the world is developing,” he said, adding that the Western mindset is a black-and-white one and cannot comprehend the complexity of China.
Another region of the world that is poorly understood is the Middle East, Brahimi said. The region, he noted, has had many false starts but the Arab Spring has given people a new voice and they are not going to be silenced.
The West, he added, is too preoccupied with Iranian President Mahmoud Ahmadinejad, who will soon leave office.
“But Iran is an ancient civilization that has been around for a long time and will continue to be around in the future.”
Shayne Heffernan Ph.D.
Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
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