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ASEAN STOCK WATCH Asean Affairs  21 September 2012

ASEAN Market Preview

By Shayne Heffernan Ph.D.

Several economic indicators painted a sobering picture of the global economy. U.S. manufacturing closed out its weakest quarter in three years this month, and the number of Americans filing new claims for jobless benefits held near two-month highs last week. The U.S. data followed disappointing manufacturing reports from Europe and China.

The benchmark Standard & Poor's 500 Index has gained 5.9 percent since the beginning of August, driven higher mostly by expectations of more stimulus from central banks. A week ago, the Federal Reserve announced its third round of stimulus or quantitative easing, known as QE3, helping push stocks up last Friday within reach of five-year highs.

In a sign of bullishness, UBS raised its target level for the S&P 500 by the end of 2012 to 1,525 from 1,375 on Thursday, saying equity markets will climb after aggressive monetary easing by central banks.

"Over the short run, we believe that the 'risk on' trade will continue, with a rotation into the most volatile and economically sensitive stocks," UBS' chief U.S. equity strategist Jonathan Golub wrote in a research note.


Singapore

lam International, a global integrated supply chain manager of agricultural products and food ingredients, is pleased to announce that it has won the 2012 Asian Human Capital Award, at the Singapore Human Capital Summit in Sentosa, Singapore on 19 September 2012.

The first of its kind in Asia, the Asian Human Capital Award honours innovative and impactful people practices adopted by Asia-based organisations. Jointly sponsored by the Singapore Ministry of Manpower, INSEAD, CNBC Asia and Human Capital Leadership Institute, the Award showcases useful case studies and generates practical insights to address human capital challenges in the region.

Since its inception in 2009, more than 100 organisations from nine countries in Asia have participated in the Award. The 2011 version of the Award saw prestigious companies like Manila Water, HCL Technologies and Unilever Asia clinch its top prizes.

Accepting the award, Sunny Verghese, Group Managing Director and CEO of Olam, commented: "At Olam we believe that ultimately, our people are our true source of competitive advantage. We today employ over 17000 people worldwide of which 690 are part of our Global Assignee Talent Pool (GATP). These GATPs are managers and leaders that we recruit, develop, career path, deploy, reward and motivate on a centralised basis. We invest in developing them by putting them through a common rite-of-passage and providing them certain critical experiences that allows them to imbibe our DNA and culture."

"As CEO, while I focus on monitoring the key financial outcomes including Economic Profit, Return on Invested Capital, Return on Equity, Intrinsic Value etc., I focus even more on understanding the quality of our new hires, engagement scores, attrition rates, alignment within the organisation and our capacity to operate as One-Company because this will determine the financial and strategic outcomes that we will generate in the future."


Thailand

The floods that have hit some northern and central provinces of Thailand are unlikely to have any impact on the country's overall economic situation, Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said Wednesday.

The floods have affected only a limited area and were caused mainly by recent heavy rain, he told reporters after a meeting of economic ministers. In any case, many of the industrial estates that were hit by devastating floods late last year have prepared flood walls, which should prevent a repeat of last year's inundation.

In 2011, Thailand's industrial output was badly hit by flooding, with the economy barely registering any growth, and manufacturing around the world was disrupted after production of vital components from hard-disk drives to electronic car components ground to a halt.


Malaysia

Global Islamic financing is set to double in size between 2011 and 2015 with the sector increasingly viewed as a credible alternative to conventional finance following the global financial meltdown.

Hence, Standard & Poor's (S&P) expects the US$1 trillion global Islamic finance industry to grow 20 per cent over 2011-2015, doubling in size over the period.

"Issuers and investors have realised that the risk-reward balance in both conventional and Islamic finance are not fundamentally different," Standard & Poor's (S&P) Managing Director & Regional Head, Middle East Stuart Anderson said in a statement.

The global prospects for the Islamic finance industry will be the subject of a conference to be hosted by S&P in Dubai on Sept 25, 2012.

Titled "The Globalisation of Islamic Finance: Connecting the GCC with Asia and Beyond", S&P's Islamic finance conference will explore how enhanced links between the member countries of the Gulf Cooperation Council (GCC) and Asia can drive greater convergence and globalisation in the industry.

According to S&P, Islamic finance growth is currently led by member countries of the GCC region comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates as well as Asia.

Young, fast-growing Muslim populations; robust macroeconomic environments; and large infrastructure projects that require financing are the main drivers of this increasing growth.

"Malaysia leads the global industry while Saudi Arabia leads in the GCC," it said.

Over the last few years, the industry has taken major strides to achieve a broader consensus on Islamic banking structures.

"We have also seen stronger and more active support from domestic authorities, particularly through the creation of regulatory and tax frameworks, ensuring a level playing field between conventional and Islamic instruments," said Anderson.

A key development expected to drive globalisation and expansion of Islamic banking outside Asia and the GCC is the increasing attractiveness of sukuk among global investors.

At a time when conventional banks' appetite for term loans is declining, S&P believes that sukuk could become a key-funding source.

Sukuk issuance looks set to cross the US$100 billion threshold in September 2012, and is projected by S&P to grow 25 per cent over 2012-2015 to reach about US$200 billion a year in 2015.

Malaysia, Indonesia, and the GCC are expected to account for a combined 85 to 90 per cent of issuances mainly to finance infrastructure-related projects.

As of September 17 this year, new GCC issuances had totalled US$19.9 billion across all asset classes compared with US$19.4 billion of new issuances in all of 2011.

Asia, meanwhile, has seen sukuk issuance worth US$57.9 billion year-to-date, compared with US$64.9 billion in 2011.

In terms of number of issuances, the GCC accounted for about 50 issuances and Asia for 430 issuances so far this year compared with 44 and 437 respectively in 2011.

A recent S&P report sees growing infrastructure Sukuk issuances by GCC companies in Malaysian Ringgit providing a significant impetus to the development and globalisation of the Sukuk market, it added.


Indonesia

Shares of Bank Tabungan Negara, a state mortgage lender, rose 4.7 percent to the highest in more than three weeks on Wednesday, after the House of Representatives approved the lender’s plan to raise Rp 2.25 trillion ($236 million) from selling shares in a rights offer.

The approval would allow the lender to boost its lending while reducing its taxes.

“We agreed on the BTN rights issue,” said Emir Moeis, chairman of House Commission XI, which oversees fiscal and financial affairs. “This would be good way for BTN to improve its service to the public.”

Shares of BTN rose to Rp 1,350, the highest since Aug. 28, on the Indonesia Stock Exchange.

BTN, Indonesia’s largest mortgage lender, plans to sell more than 1.5 billion new shares, or 14.6 percent of the extended total shares, with proceeds from the sales estimated to be at Rp 1.76 trillion to Rp 2.25 trillion, Finance Minister Agus Martowardojo said on Wednesday.

The proceeds from the sale would help BTN increase its capital adequacy ratio — a bank health measure that reflects the extent of the bank’s capital that can cover its total loans — to 19 percent by 2016, Agus said.

BTN’s CAR stood at 15.6 percent as the first half ended, higher than the central bank’s minimum requirement of 8 percent. The ratio dropped from 15.9 percent in the same period a year earlie, as bank loans grew to Rp 72.1 trillion in the six-month period. That was an increase of 28 percent from Rp 56.5 trillion in the same period last year. Housing makes up 86 percent of the bank’s loans.

Agus said that the agreement could dilute the government’s stake in the lender to just 60 percent, from the current 71.9 percent. The rest is held by private shareholders.

“That will reduce the amount of [income] tax that BTN has to pay,” Agus said.

A company that sells at least 40 percent of its shares to the public gets a 20-percent income tax rate, lower than the normal rate of 25 percent, according to the 2008 tax law. That law encourages companies to sell their shares in the bourse.

BTN will offer the shares from the fourth week of October until the first week of November to gauge demand by investors.

The lender plans to set the final price by the end of November, so as to have the funds by December.


Philippines

Manila Electric Co., the country’s biggest power distributor, has urged the Energy Regulatory Commission to allow the use of short messaging service (SMS) as primary mode for customer notifications under the prepaid retail electricity scheme.

In a filing with the ERC, Meralco argued that using SMS would be a more viable alternative than installing an in-home display (IHD), which would entail more costs on the part of Meralco and its customers.

In particular, the SMS may be used for registration, loading of prepaid electricity credits, threshold warning, advice of disconnection and reconnection, balance inquiry, and remote disconnection and reconnection.

According to Meralco, incorporating IHD in the prepaid retail electricity scheme will require a modification of the system, which would entail additional capital and operating costs. Simply adding IHD devices would entail an estimated additional upfront cost of P170 million and IHD operating expenditures of P22 million.

Meanwhile, software enhancements to the system would require some additional P5 million, not to mention additional system hardware capital expenditure and service maintenance cost of around P848 million and P565 million, respectively, the distribution utility explained.

“Meralco submits that SMS implementation of sending and receiving prepaid retail electricity scheme account information, without the IHD, would serve the best interest of the consumers especially in terms of convenience, coverage, transparency, customer preference and efficiency, and offers the best value for service at the lowest cost possible,” the power firm noted.

“With Meralco’s proposed implementation, the customers can receive timely and necessary information without unnecessary incremental cost associated with IHD installation. Meralco submits that SMS implementation is the most practical and consumer-friendly solution, which is more than compliant with the … rules,” it further said.

The prepaid retail electricity service, or PRES, is one of the innovations introduced by the ERC so that consumers can have more power to control their electricity bills. Under the prepaid meter scheme, subscribers can monitor their electricity consumption in real time while their meter systems could warn them if and when the load is nearing zero to avoid automatic disconnection.

Meralco wants to start its technical pilot project for the prepaid retail electricity scheme by November 2012.

The technical pilot project in Angono, Rizal, will cover only 40 households, to ensure that all systems will be technically in order prior to the commercial pilot of the prepaid electricity scheme early 2013.

The commercial pilot project will, meanwhile, test the prepaid electricity scheme to cover a bigger area, roughly around 400 households in Angono, each of which has an average consumption of about 200 kilowatt-hours per month.

The pilot activities will also test the viability of the existing prepaid platform, the prepaid meters and the various vending solutions that may be deployed. More importantly, the pilot tests will determine if the prepaid retail electricity scheme will be a good business case for Meralco and will provide lasting benefits for its customers.

Once this scheme is proven feasible, Meralco will launch a wide-scale prepaid electricity scheme for 40,000 of its over 5 million customers within its franchise area.

Yesterday in Asia

Shanghai led the losses, tumbling 2.08 percent, or 42.99 points, to 2,024.84, its lowest since February 2009, at the height of the global financial crisis. Hong Kong ended 1.20 percent lower, shedding 250.99 points to 20,590.92.

Tokyo fell 1.57 percent, or 145.23 points, at 9,086.98, as the yen regained the ground it lost when the Bank of Japan announced a new round of easing on Wednesday.

Seoul lost 0.87 percent, or 17.55 points, at 1,990.33 while Sydney was 0.48 percent, or 21.1 points, lower at 4,397.2.

– Taipei fell 0.7 percent, or 54.36 points, to 7,727.55.

HTC slid 1.45 percent to Tw$306.0 while TSMC was 0.81 percent lower at Tw$85.3.

– Manila closed 0.42 percent lower, dropping 22.06 points to 5,294.97.

SM Prime Holdings shed 0.71 percent to 13.86 pesos and Philippine Long Distance Telephone inched down 0.07 percent to 2,828.0 pesos.

– Wellington was up 0.56 percent, or 21.38 points, at 3,819.28.

Telecom rose 0.87 percent to NZ$2.33.

– Singapore closed down 0.42 percent, or 13.02 points, to 3,062.61.

City Developments fell 1.88 percent to Sg$11.47 and Keppel Corp shed 0.62 percent to Sg$11.29.

– Kuala Lumpur dived 20.52 points, or 1.25 percent, to end at 1,625.59.

IOI Corp. Bhd lost 1.8 percent to 4.99 ringgit while Kuala Lumpur Kepong Bhd shed 0.4 percent to 22.16. YTL Corp. Bhd gained 0.6 percent to 1.80 ringgit.

– Jakarta fell 0.64 percent, or 27.19 points, lower at 4,217.52.

Coal company Bukit Asam slid 2.1 percent to 16,300 rupiah, tin company Timah lost 2.4 percent to 1,600 rupiah, and gold and nickel company Aneka Tambang fell 1.4 percent to 1,390 rupiah.

– Bangkok fell 0.22 percent or 2.78 points to 1,282.68.

Coal producer Banpu dropped 1.34 percent to 442 baht, while supermarket firm Makro lost 0.80 percent to 370 baht.

– Mumbai fell 0.79 percent, or 146.76 points, to 18,349.25.

India’s largest private firm Reliance Industries fell 2.70 percent to 832.15.

Shayne Heffernan Ph.D.  

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