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||Asean Affairs 7 September 2012
ASEAN Markets to Rally
By Shayne Heffernan Ph.D.
The European Central Bank agreed to launch a new and potentially unlimited bond-buying program despite the fact that they are operating with very limited reserves, what does this mean? It means the ECB will begin the biggest Money printing exercise in History.
“No ex-ante quantitative limits are set on the size of outright monetary transactions,” said Draghi as he readies the printing press.
The more conservative Bundesbank chief Jens Weidmann rightfully had expressed concern that intervening in the bond market would break the ECB taboo of financing euro zone member states. Other ECB policymakers see a greater urgency to stop a collapse in Spain and Italy and prevent the euro zone crisis from deepening.
And is the Money printing was not enough, Draghi tied the whole deal to the IMF Austerity plan that has helped to exacerbate the EuroCrisis, Draghi said the ECB would only help countries that signed up to and implemented strict policy conditions, with the euro zone’s rescue fund also buying their bonds, and preferably with the IMF involved in designing and monitoring the conditions.
But not even Draghi is a believer, he added a clause that preempts further defaults by European States.
Not bad enough yet, don’t worry it gets worse, Draghi said all bond purchases would be “sterilized” by taking in an equivalent amount in deposits from banks to avoid any risk of inflation, from that statement we can conclude Europe’s Banks have unlimited funds to match the unlimited Bond buying.
Asked about ECB bond buying and a conflict of interest between Spain and Germany, Rajoy told Germany’s Frankfurter Allgemeine Zeitung: “It is good to have principles in life. But sometimes it is also good to be flexible.”
And his statement sums it up, this is a trick to disguise the rampant and unlimited printing of Euro, it does not address growth in the region and it back-ends it to the cash strapped banks of Europe, in short it is a new Crisis in the making.
Singapore's manufacturing economy contracted for the second consecutive month in August.
According to data released on Tuesday by the Singapore Institute of Purchasing & Materials Management (SIPMM), the purchasing managers index (PMI) was 49.1 in August, compared with 49.8 in July
A PMI reading of below 50 indicates that the manufacturing economy is generally declining.
The 0.7 point drop from the previous month is in line with weakness in regional PMIs, with China, South Korea, Taiwan and India also seeing declines in factory orders.
But Singapore's electronics sector PMI rebounded from a contraction to expand at 50.7 in August, up 1.5 points from 49.2 in July.
Experts say the sector could just provide the needed lift for manufacturing output in the next month or so.
At Racer Technology's Singapore facility, which makes components for security and medical devices, production goes round the clock seven days a week.
With its order book boosted by its European and US customers, the firm aims to record a turnover of S$50 million this year, about S$10 million higher than what it made in 2011.
Willy Koh, CEO, Racer Technology, said: "Until end of this year, the order is there. It's a very consistent order until end of this year for medical products."
But bright spots like Racer enjoying strong US and Europe orders are few and far between as manufacturers in Singapore continue to see another month of faltering demand.
Singapore's overall PMI in August was pulled down by falling new orders and contraction in stockholdings of finished goods and imports.
As the economy regained its footing, Thailand's outward foreign direct investment (OFDI) slowly took off again after 2000, and it has grown markedly since. By early this year, the stock of Thailand's OFDI reached US$33 billion, almost 15 times the amount in 2000.
The rise of Thai OFDI is part and parcel of the growing new role of developing economies as "home country" sources, rather than the traditional "host country" recipients, of multinational corporations. With their rapid global expansion, emerging-market multinational enterprises (EMNEs) from large developing economies have made international headlines as muscular newcomers vis-a-vis established multinationals from the West.
Thai firms are still some way behind their larger emerging-market peers in quantity and global reach. In the 2011 Boston Consulting Group Global Challengers Report, which lists the top 100 sizeable and most expansive firms from developing economies, only four hailed from Thailand, namely the CP group, Indorama Ventures, PTT and Thai Union Frozen Products. That foursome was dwarfed by China's 33 and India's 20.
The sparse presence of Thai multinationals in the global arena reflects their latecomer status and limited size and scope of activities. Although a few pioneers such as CP and Siam Cement groups may have penetrated overseas markets since the 1990s, most firms only started paying serious attention to international expansion in the last decade.
Protection from foreign competition at home, combined with a relatively large domestic market, has made Thai firms more domestic-oriented and complacent than their counterparts in smaller countries such as Singapore or Malaysia. Thai firms, therefore, tend to seek growth via diversification into other industries at home rather than pushing boundaries to expand abroad.
The intensifying competition amid growing regionalisation and globalisation has altered the mindset. Some larger Thai firms have grown in capabilities and confidence to believe that a global presence is desirable and within their reach. From simply exporting, some have undertaken bolder steps of directly investing overseas. Given the early stage of their internationalisation, the size and scope of their international activities are growing but are still limited.
The JCI closed at 4,102.86 after 3.36 billion shares valued at Rp 3,090 trillion ($322 billion) changed hands, according to Bloomberg data.
Shares in Unilever Indonesia gained Rp 600, growing 2.26 percent to Rp 27,100 at closing. Indonesia’s biggest automotive company, Astra International grew 1.45 percent, closing at Rp 7,000 a share.
Bank Rakyat was up Rp 150, posting a 2.11 percent gain to close at Rp 7,250.
Shares in Bank Mandiri, Adaro Energy, Borneo Lumbung Energy and Metal and Timah were flat.
Telekomunikasi Indonesia shed 0.52 percent, closing at Rp 9,550 a share.
The expected announcement of a new bond-buying program by the ECB drove investor sentiment across Asian markets, said Bertrand Reynaldi, a research analyst at Indonesia’s eTrading Securities.
“The markets today were affected by the ECB meeting tonight,” he said. “Not just Indonesia, but all of Asia and Europe. The sentiment drove the markets higher.”
ECB President Mario Draghi is expected to unveil a new bond-buying program intended to bring down the high borrowing costs of Spain and Italy. Without some way to reduce the interest rates on the bonds they sell, the two nations could be pushed into asking for a bailout, following a path taken by Greece, Ireland, Portugal and Cyprus.
“It won’t save Europe but it will keep Spanish yields and Italian yields down for now and give Europe’s leaders another 3-6 months to come up with bigger and better plans for a real solution,” said analysts at DBS Bank Ltd. in Singapore.
But analysts also expressed skepticism about whether the move was sufficient to resolve the debt crisis affecting the 17 nations that use the euro when the world’s major economies are suffering sluggish growth.
“I do think reality is setting in, that there is only so much the ECB can do. At the end of the day, the macro data doesn’t look great. So there’s probably an inclination for the markets to drift until a lead comes in from the macro side,” said Lorraine Tan, director at Standard & Poor’s equity research in Singapore.
She said she didn’t expect a big improvement in key economic data until the fourth quarter of 2012.
“If China starts to show better numbers that will make an impact. But we really don’t expect to see too much change in the numbers until September data rolls around.”
KLCI index lost 23.02 points or 1.40% on Thursday. The Finance Index fell 1.41% to 14500.27 points, the Properties Index dropped 1.56% to 1026.08 points and the Plantation Index down 1.44% to 8400.1 points. The market traded within a range of 22.79 points between an intra-day high of 1635.95 and a low of 1613.16 during the session.
Actively traded stocks include NEXTNAT, INGENS, GLOTEC, HUBLINE, SCOMI, JCY, MAYBANK, SKPETRO, TM and YTL. Trading volume decreased to 1302.96 mil shares worth RM1989.62 mil as compared to Wednesday’s 1354.10 mil shares worth RM1700.24 mil.
Leading Movers were BAT (+110 sen to RM64.10) and YTLPOWR (+1 sen to RM1.68). Lagging Movers were AXIATA (-20 sen to RM6.02), CIMB (-20 sen to RM7.54), MAYBANK (-14 sen to RM9.00), GENTING (-24 sen to RM8.70) and PETGAS (-54 sen to RM18.64). Market breadth was negative with 157 gainers as compared to 739 losers.
Ramon S. Ang, chief operating officer of San Miguel Corp., has expressed confidence the country will hit its target of landing on the top third of countries ranked for global competitiveness by 2016.
The World Economic Forum (WEF) released Wednesday its global competitiveness report, which showed that the Philippines leaped by 10 notches to the 65th spot among 144 countries surveyed.
The latest ranking put the Philippines at the upper half of surveyed countries for the first time.
Ang, who spearheaded SMC’s entry into Philippine Airlines, said that given current trends in the economy and governance, it was possible that the country would hit its medium-term global competitiveness target.
“I am very sure the Philippines will still do better,” Ang told reporters in an interview Wednesday night on the sidelines of the 50th anniversary celebration of Metrobank.
The results of the latest WEF survey on global competitiveness, which taps businesses as respondents, showed that the Philippines improved the most in the area of government institutions.
Guillermo Luz, co-chairman of the Philippines’ National Competitiveness Council (NCC), said Wednesday in a press briefing that the significant improvement in the area of government institutions could be credited to the ability of the Aquino administration to convince the business community that reforms, especially in the area of transparency and efforts to curb corruption, are being implemented in government agencies.
Yesterday in Asia
Tokyo edged up 0.01 percent, or 0.75 points, to 8,680.57 while Seoul advanced 0.38 percent, or 7.21 points, to close at 1,881.24.
Sydney rose 0.80 percent, or 34.1 points, to finish at 4,312.9 after Qantas Airways jumped 6.67 percent at Aus$1.20 on an announcement it has tied up with Emirates Airlines as part of a global alliance to turn around its international arm.
Hong Kong was 0.34 percent, or 64.23 points, higher at 19,209.30 and Shanghai climbed 0.70 percent, or 14.24 points, to 2,051.92.
– Wellington rose 23.89 points, or 0.65 percent, at 3,693.54.
Telecom Corp. was up 0.41 percent to NZ$2.465 and Air New Zealand increased 3.24 percent to NZ$1.12.
– Manila closed flat, edging down 0.10 points to 5,150.11.
Alliance Global Group rose 1.33 percent to 12.22 pesos, while Metropolitan Bank and Trust fell 15 centavos to 91.95 pesos.
– Taipei fell 40.72 points, or 0.55 percent at 7,326.72.
Taiwan Semiconductor Manufacturing Co. shed 1.1 percent at Tw$81.1 while Hon Hai Precision was 0.45 percent lower at Tw$88.4.
– Singapore closed down 0.22 percent, or 6.64 points, to 2,989.26.
DBS Group gained 0.56 percent to Sg$14.26 while Keppel Land fell 1.49 percent to Sg$3.30.
– Jakarta ended 0.67 percent higher, or 27.51 points up, at 4,102.86.
Mining company Aneka Tambang rose 1.61 percent to 1,260 rupiah, automotive company Astra International gained 1.45 percent at 7,000 rupiah and Bank Negara Indonesia rose 0.66 percent to 3,800 rupiah.
– Kuala Lumpur dipped 23.02 points, or 1.40 percent, to 1,617.99.
Axiata Group lost 3.2 percent at 6.02 ringgit, while AirAsia fell 3.2 percent to 3.38. British American Tobacco gained 1.8 percent to 64.10 ringgit.
– Bangkok rose 0.82 percent, or 10.08 points, to 1,243.92.
Electricity firm EGCO dropped 1.67 percent to 118 baht, while medical services company BGH gained 2.78 percent to 111 baht.
– Mumbai rose 0.19 percent, or 32.93 points, to 17,346.27.
India’s third-largest software firm Wipro rose 4.43 percent to 377.5 rupees while Bharat Heavy Engineering slid 3.20 percent to 201.35 rupees.
Shayne Heffernan Ph.D.
Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
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