Q1/08:US100 billion pulled out of Equity Funds

FT.com: Investors worldwide pulled close to $100bn (€63.3bn) out of equity funds in the first three months of this year – a record shift that accelerates a longer-term trend away from US and western European stock markets. Equity funds suffered outflows of $98bn in the quarter ending March 28, according to Emerging Portfolio Fund Research, which tracks retail and institutional flows. The funds had inflows of $19bn during the same period last year and inflows of $49bn in the same period for 2006.

EPFR said the outflows were because “the credit squeeze linked to the US subprime debt mess weighed on investor confidence and global growth”. The outflows also accelerate a trend for investors to put their money either in ultra-safe cash options such as money market funds, or into riskier markets and high-fee products such as hedge funds. They are abandoning the middle ground of mainstream equity and fixed income funds, especially in the developed markets.
Investors pulled $70bn from US, Japan and Western Europe funds during the quarter, compared with inflows last year and in most previous years.

Funds enjoying inflows were nearly all focused on Taiwan, Russia, the Middle East and Africa. Emerging markets funds as a group had outflows of $20bn, compared with a small outflow of $1.6bn in the same period last year. Money market funds continued to see record inflows during the first quarter, adding another $140bn to reach record assets of $3,500bn. The funds are running well ahead of last year’s record $240bn in inflows.

Brad Durham, managing director of EPFR, said: “It is clear there is a huge amount of cash on the sidelines to be deployed when global markets stabilise.” Commodity funds also enjoyed inflows, of $3bn, three times the level of last year.

The big long-term flows from equity funds, which have long been the mainstay product of the asset management industry, is resulting in growing urgency among fund management companies to find new strategies and products.More than half the 25 largest mutual fund firms in the US had outflows in the first two months of this year, according to data from Financial Research Corporation. Fidelity, Barclays Global, Franklin Templeton, State Street and Legg Mason were the main losers. The FRC data, which are not yet available for March, exclude money market funds.

US stock funds fell by close to 9 per cent during the quarter, the biggest drop in five years, according to Bloomberg data. The fall was more than the Standard & Poor’s decline of 7.4 per cent during the period.

Several well-known managers, including Legg Mason’s Bill Miller, have suffered outflows in recent months as they had stakes in financial services firms badly hit by the credit squeeze.

For the record, the fall for the Asia-Pacific/US/UK markets for the 1st Quarter are as follows:-

1) Shanghai (-34%)
2) Bombay (-22.5%)
3) Nikkei (-18%)
4) Hang Seng (-18%)
5) KLCI (-14%)
6) STI (-13%)
7) FTSE (-12%)
8) Jakarta (-11%)
9) S&P500 (-10%)
10) Kospi (-10%)
11)Dow Jones (-7.6%)

Why did we fall more than Dow Jones?? Are we the ones having subprime mess??

Rice on the Rise

TheStar: The Government has no plans to increase the price of rice at the moment in view of the surging price of the commodity. Deputy Prime Minister Datuk Seri Najib Tun Razak said the Government was monitoring the situation closely.

"At the moment, there are no plans to increase the price. There must be enough rice stockpile in the country. Obviously, we have to look in terms of supply to ensure enough stockpile," he told reporters Monday after the launch of Dayang Enterprise Holdings Bhd's prospectus for its upcoming listing on Bursa Malaysia here. Asked whether it would mean that the Government would provide more rice subsidies, Najib said: "I have not seen the figures yet but there are no plans to increase the price."

On measures planned by the National Price Council on the matter, he said the council just had one meeting before the general election and it would hold another meeting to discuss efforts to control prices of goods so that the people would not feel the pressure from the rising prices of essential items.

Asked whether Malaysia was facing difficulty in securing rice supply, he said: "We know the market is tighter now. We will step up efforts to increase the supply of rice as part of stockpiling."

On whether the Government would source rice from outside, he said: "We have to source from around the region." He added that efforts to increase rice production in the country was also being intensified but that would take a longer time.

MyTake: Are we heading for a rice crisis soon? Already there are panicky situations in rice importing countries like Philippines, Singapore and Hong Kong where the supplies to the supermarkets were quickly snapped up as worries of increase in the price and drop in stockpile due to inadequate supply by the rice importers were speculated. The price of rough rice futures traded in the Chicago Board of Trade is about USD19 per hundred weight (or 100 pound) compared to US10 per hundred weight in September 2007. This represents an increase of 90% in 7 months! Analysts commented that the major exporting countries (Thailand, India, Vietnam, China and Indonesia) could be starting to default on orders due to rapidly rising domestic rice prices. The matter is worsened by the fact that global production is expected to match global consumption and as such world stock pile would be falling progressively. I believe the impact on rice crisis will not be big in Malaysia as presently, only 30% of the rice in Malaysia is imported overseas. The most important thing the Government needs to do is to ensure stockpile is sufficient and constant monitoring of imports while hoarding by locals are strictly prohibited and penalised. However, unfortunately, we will not be able to escape the price rise of rice due to the rising cost of production and higher import price. For the record, as per BERNAS's annual report 2006, the country through her 9MP, is targeting to be self sufficient by 2010 in which the production is expected to reach the 90% level of national consumption. 'BERNAS', is the successor of Lembaga Padi Beras Negara (National Paddy and Rice Board) a government body entrusted to regulate the paddy and rice industry in Malaysia. BERNAS is not only involved in procuring, processing, importing, trading and distributing rice, it also handles public funds for subsidies of rice production.

Smart Investing/Trading for the week ending March 28 2008

Weekly US Markets Update and Outlook

U.S. stocks face employment, earnings tests

Jobs report, first-quarter earnings to bring crumbling fundamentals in focus

MarketWatch: Stocks will continue to test the market's newfound resilience next week, as investors look to close the first quarter and cast aside jitters from the credit crisis. However, concerns about the U.S. economy are likely to return amid a slew of key numbers culminating with the employment report Friday.

"Pretty much everybody expects a recession," said Sam Stovall, senior investment strategist at Standard & Poor's. "But with most people still forecasting a fairly mild recession, investors are keeping their fingers on the pulse of the economy." On Friday, the Dow Jones Industrial Average finished down 86 points to 12,216. The S&P 500 index shed 10 points to 1,315, while the Nasdaq Composite dropped 19 points to 2,261. Stocks had posted gains in the previous week, after the near collapse and subsequent bail-out of Bear Stearns -- which, together with massive interventions by the Federal Reserve -- seemed to put a floor under a market that has fallen sharply since last October.

But with investors now looking ahead to the end of the first quarter on Monday, money managers are scrambling to ditch under-performing stocks to buy better performing issues in order to embellish portfolios. "We're seeing end-of-quarter window dressing," said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "People are getting out of some stocks and we saw that in Citigroup and other financials [Friday], with money flowing into other areas such as techs."

Quarterly pain

Shaken by the biggest credit crisis in decades, the market put in a dismal performance for the first quarter to date. There remains one trading session for the quarter.

With the start of a new month next week, investors will also start looking toward the first-quarter earnings season, and be on alert for possible profit warnings from companies struggling with the impact of the credit crisis and a slumping economy.

Latest : U.S. Treasury Secretary Henry Paulson is calling for extensive, wide-ranging reforms to the way the government regulates financial markets, including proposals to give the Federal Reserve more power and create new bodies to monitor mortgages and other transactions. He is schedule to provide more details on Monday morning.

Weekly KLSE Composite Index Update and Outlook

ICap: After being bearish for the first quarter of this year, its MACD is now mending gradually from a bearish mode, suggesting more recovery ahead. Looking at the steady growth path of the world economy, this trend look unlikely to end abruptly even if the US economy falters. Nevertheless, the KLSE still needs a lot more volume to enable it to race ahead impressively. It is coming.

The Poor Billionaires of Zimbabwe

The Seattle Times: Zimbabwe's economy is so destitute that just the cost of running Saturday's election will lurch the nation toward bankruptcy.

Once a regional economic powerhouse and food exporter, Zimbabwe now relies on humanitarian food aid. Its towns and rural roads are lined with threadbare children in rags, or barefoot men.

With inflation running at 100,000 percent, President Robert Mugabe recently announced that prices would remain fixed at February levels. But after printing trillions of Zimbabwean dollars to fund 700 percent pay raises to civil servants and gifts of cars and tractors to rural chiefs, the government has been unable to deliver on that promise. Independent economists say inflation has now risen to 200,000 percent and predict it could rise to 500,000 percent by May.

Even just manning the 9,000 polling booths puts a severe strain on government finances. Mugabe's desperate election spending spree could be his last, analysts predict. The financial implosion could be the beginning of the end for the 84-year-old president, even if he clings to power in Saturday's presidential and parliamentary elections.This is yet to come crashing down on us. It's a tsunami ... waiting to crash down in the form of massively high inflationary pressures," said independent economist John Robertson. A decade ago, the money pumping through Zimbabwe's economy was worth $350 billion. Now the nation's money supply amounts to just $98 million, according to Robertson. "That amount of money is not enough for any important project for the country. If you were to build a shopping center, that would not be enough to finish the job," he said.

Many have predicted Mugabe's downfall as the country lurched into chaos in recent years, but he's proved a wily political survivor who delights in taunting rivals. Mugabe, who has run the nation since it became independent in 1980, needs more than 50 percent of the vote to avoid a second round of balloting. His main rival, opposition leader Morgan Tsvangirai, has seen a surge of support, even in rural areas that are normally Mugabe strongholds.

The wild card is Simba Makoni, a former member of the ruling ZANU-PF, who is hoping to attract enough support from disenchanted ruling-party and opposition supporters to come out on top. A recent poll of nearly 1,700 voters gave Tsvangirai 29 percent support, Mugabe 20 percent and Makoni 9 percent. Mugabe has warned he will not tolerate protests from the opposition should they lose. Reports in recent days of 3 million excess ballot papers being printed have fueled fears the regime will rig the vote.

Adding to the above, some disturbing statistics include 1) 1 in 5 adults is infected with HIV, 2) women have a life expectancy of 34 years-lowest in the world and 3) Unemployment rate is more than 80%. For information, officially USD1=30,000 Zimbabwean dollars but in real life, the USD1 will get you about 35 mil Zimbabwean dollars (this figure fluatuates daily in the black market) Converted to ringgit would be RM1 =10.9 mil Zimbabwean dollars. Imagine having a teh tarik and roti telur for morning breakfast in a food stall in Zimbabwe will cost you about 24 mil dollars....Lets hope that Zimbabwean will be able to vote for a change...the citizens do not deserve such harsh living conditions.

Maybank: Tiger on the prowl

Reuters: Shares in Malaysia's biggest lender, Malayan Banking Bhd (Maybank), tumbled to a 3-1/2-year low on Thursday after it offered to buy Bank Internasional Indonesia (BII) for US$2.7 billion (RM8.64 billion). Maybank surprised investors on Wednesday by saying it would pay US$1.5 billion for 56% of Indonesia's sixth-largest lender -- a 23% premium to Tuesday's share price -- and would offer to buy out the bank's minority shareholders for US$1.2 billion.

"The price tag... was more than 50% higher than we assumed for a mediocre franchise," Citigroup said in a note, downgrading Maybank to a sell from a buy. It slashed Maybank's target price to RM8.38 a share from RM10.63. Maybank shares fell as much as 11% to RM8 a share in the first few minutes of trade, its lowest level since August 2004. At 0126 GMT, the stock fetched RM8.35.

The offer price represented 4.6 times book value, expensive even when compared with Chinese banks that trade at between 3.3 and 5.4 times book value, according to Reuters data.

My Take: Only last week, Maybank(MBB) had announced it would acquire a 15% stake in Vietnam's An Binh Bank for RM430 mil. Here is what I know about the BII deal based on available reports and newspapers:

Sellers, Sorak Financial (75% owned by Fullerton Financial(a wholly owned subsidiary of Singapore's Temasek), 25% owned by Kookmin Bank) made 5 fold on this 2001 investment!!

Temasek also part owns PT Bank Danamon Indonesia, the No 5 Bank in Indonesia by assets.

BII is a commercial bank with US6 bil in assets, 230 branches and 700 ATMs. Owns WOM Finance, Indonesia's 3rd largest finance company.

After acquisition effects on MBB: 1) Increase overseas revenue contribution from 19% to 28% in 2 years , and will boost profit a year latter, 2) Gross loan will be increased from 20% to 30%, 3) purchase does not lift MBB's status as the fourth largest bank in SEA by assets.

Other information: The book value of 4.6X is about double the average valuation of Indonesia's publicly traded banks. The top four banks are trading at 3.9X.

MBB's acquisiton of IBB, which was internally funded, was part of a long term strategic plan to be a regional bank. It realised that the market share in Malaysia is dwindling fast as there were relentless efforts from other Malaysian and overseas banks to grab a piece of the saturated market. By going to selected high growth economies like Indonesia, Thailand, Vietnam, Pakistan etc, MBB hopes to tap on the largely untouched markets which has higher profit margin. Some analysts believed that the high premium was required as 1) not many available and clean banks to be sold in Indonesia, 2) better earnings visibility, 3) lower investment risks, given the current political landscape and economy.

Technically speaking:

MBB's share price touches RM8.00 during the intraday but closes at RM8.40. This is the lowest price in more than 5 years. The bonus adjusted price shows that MBB did not have a good run during 2007. It peaks early 2007 at 11.04 and was on a downtrend mode the whole year then before going up again during early 2008. The share price were on down trend again till now. The RSI is at an oversold 44.77 level but the price needs to stabilised soon before a technical buy call can be made. Need to watch out for the MACD's positive crossover. However, for value investors, MBB's current price is a value buy for the longer term.

Vietnam's stock markets: End of Roller Coaster Rides?

Thomson Financial: Vietnam will cut the daily trading band for stocks to 1 percent from 5 percent from Thursday in a bid to halt the freefall of share prices on its fledgling bourse, officials said. The announcement helped the main Ho Chi Minh Stock Exchange (HOSE) recover somewhat Wednesday. The benchmark VN Index rose 8.03 points or 1.6 percent to close at 504.67, a day after it plunged below the 500-point mark.The State Securities Commission announced the new intra-day trading band for the HOSE on its website.

It also cut the trading band at the smaller Hanoi Securities Trading Center from 10 percent to 2 percent per day.

To fight inflation, Vietnam's communist government has in recent months raised interest rates and banks' reserve requirements and taken other steps to reduce credit growth and the money supply. But the measures have led to a liquidity crunch that has accelerated the trend of investors fleeing the small stock market.

The HOSE's main index hit its peak of 1,170 points in March 2007, but has become Asia's worst-performing bourse this year as many domestic investors have switched to gold and real estate amid a property boom.

Deputy Prime Minister Nguyen Sinh Hung, trying to calm investors, has said repeatedly that the stock market has 'already reached the bottom.'

At the smaller Hanoi bourse, the main index rose 8.74 points or 5.25 percent to close at 175.31 on Wednesday

My Take: Signs of desperation in Vietnam's investing community. The measure taken by the Vietnamese authorities is very drastic and bold (and shocking to the investing communities as rules were broken to suit a situation). I cannot imagine coming to work on a "bad market day" and see only sellers on the trading screen without any buyers because all the stocks have hit the limit down prices since the trading band for the stocks is a lowly 1-2%.. It is like prolonging a dying process ....."die slowly".

Bursa's new measures: More Questions than Answers

In his keynote address at the Invest Malaysia 2008 Conference yesterday, Abdullah, who is also the Finance Minister, said Malaysia would continue to build upon its strong foundations and take its economy to the next level.

The measures announced yesterday are:-

1. Merging the main and second boards of Bursa Malaysia and revamping the Mesdaq. On completion of the exercise, there will be two new boards instead of three currently;

MyTake: What equal opportunity to the second boarders? (according to SC) What's the point if after merging, second board rules and requirements will be followed. Standards will be lowered. Seems that SC wanted more companies to be listed and Quantity of companies is the main objective of the SC rather the Quality. Foreign funds are interested in quality ones which are easily available in our neighbouring markets; we need to buck up and send the right signals to the investing communities.

2. Bursa Malaysia will establish a market-making framework, where market makers will be obliged to be present in the market at all times to provide liquidity. This initiative will also help price discovery and promote innovation;

MyTake: Good move but transparency and intergrity by brokers and investment banks are upmost important for it to be fair and orderly.

3. The government will extend its existing “green lane” process for bond offerings to all domestic or foreign issuers that are rated “AAA” by domestic rating agencies or a minimum “BBB” rating by international agencies. Such issuances are “deemed approved” and issuers will only need to submit their applications to the Securities Commission (SC) as a matter of formality;

MyTake: I am not sure about the bonds' quality with such liberalised approval framework.

4. Ringgit bond issuers with “deemed approved” status will be exempted from trust deed and trustee requirements, something that is in line with international practices; and

5. The government will allow for the establishment of a third credit rating agency, where foreign strategic partners can hold up to 49% equity interest.

MyTake: Why do we need a 3rd agency after RAM and MRC? Competition? I would say most importantly any agency must operate on international standards or higher. Having said that, earlier S&P's AAA ratings on some U.S bonds/mortgages are really a joke.

Stop Complaining the Fed...Buy Quality Credit

The better than expected results from the existing home sales February and the 5-fold increase in Bear Sterns selling price has provided some market cheers lately. Some of the analysts are turning cautiously optimistic with their calls lately. Below is one example of such report:-


Morgan Stanley(MS) strategist Teun Draaisma and his team are “turning strategically positive on higher-quality credit”: "There is now deep value in the sector for investors with a medium-term investment horizon. Tactically, risks remain, given the poor outlook for the economic cycle and lingering financial system instability. However, recent Fed action suggests that the funding crisis for higher-quality assets has turned the corner. We now see a good tactical entry point for what is a medium-term deep-value trade".


With valuations now fully priced for the current recession - added to the fact that prices have been driven this wide by deleveraging, not just “fundamentals” - it is, Draaisma says, time to stop fighting the Fed.

After a slow start last year, the Fed’s most recent actions are an aggressive and effective response to the current crisis, in our view. In particular, the Primary Dealer Credit Facility (PDCF) provides a big boost for investment grade assets, which have dramatically underperformed thus far in this bear market.

But to be clear here, the MS team are not sounding the all-clear for credit markets in general, while for equity investors the fact that corporate earnings will be seriously disappointing means the bear market in stocks continues - notwithstanding a likely “bear market rally” encouraged by the stabilisation of credit.

Japan: U.S.! Learn from us!

FT.com: The US should inject public funds into its financial system, which is undergoing a worse crisis than that experienced by Japan during its non-performing loan crisis, according to Japan’s financial services minister. “It is essential [for the US] to understand that given Japan’s lesson, public fund injection [into the financial sector] is unavoidable,” Yoshimi Watanabe told the Financial Times.

Although “it is very difficult for Japan to convey such a message to a foreign government ...Japan could, for example, convey – through the G7 [meeting of finance ministers] or central bank governors’ meeting – Japan’s lesson and that we are prepared to take co-ordinated action if necessary” to help resolve the situation, Mr Watanabe said.

US and European central banks are to consider the possibility of using public funds to purchase mortgage-backed securities as a potential remedy for the crisis.

The remarks are the first public expression of concern by a Japanese cabinet minister that the impact of the current financial market turmoil could be much more serious than Japan’s experience during its “lost decade” of abnormally slow economic growth in the 1990s.

Mr Watanabe warned unless swift and appropriate action was taken by world leaders, the financial market turmoil could lead to a severe dollar crisis. He said the world’s huge excess liquidity has started flowing out of the US. If that flow were to be extended, it could lead to unprecedented problems.

“One thing is to fix the hole in the bathtub,” he said. “[But] we must recognise that the current crisis is not as straightforward as past dollar crises.”

He had no comment on whether Japan might cut interest rates in a co-ordinated response. Any decision would be made by the Bank of Japan, responsible for monetary policy but headed currently by an acting governor.

The minister said that while the US credit turmoil was structurally similar to Japan’s at the time of its bad debt crisis, there was an important difference in that risk in Japan was contained in the banking sector. In the US, it had been dispersed widely into other areas of the financial industry. So “it is not clear how big the hole [in the US] is because the fire has spread to products other than securitised products”.

MyTake: True. The US should follow Japan's foot steps by injecting public funds into its financial system during this crisis. (period) However, unlike Japan, the US has acted fast in admitting to the problem by embarking aggressive loose monetary policy. Japan's problems in the 1990s are due to asset bubble and the many interlocking business relationships among the rich corporate group. The Japanese authorities were woefully slow in stepping in to resolve the non performing loans until the collapse of the property and stock markets. Further, the Japanese nature of "do not disturb the peace" mentality and pride in the society also plays a part for the reason why corporates failed and did not come clean in disclosing their defaulted loans. Many believe, "the lost decade"'s loans are still siting in many Japanese banks until today. BOJ still maintains a zero interest rate policy. During the early 1990s, the Nikkei stock average fell 63% from its peak in December 1989 of 38,916 and land prices fell between 3% and 6% for eight successive years. Did the Dow Jones or S&P500 dropped that much to date?

P/S Today, land prices are a quarter of what they were at the height of the bubble, a long way from the days when land in Tokyo's plush Ginza district fetched more than $1.5m a square metre.

What would you do....... in KT?

Good questions with good answers?

Q1. What would you do as a parent if your children do not listen to your advise?

A. (1) You could just keep quiet, (2) spank (discipline etc) your children or (3) explain to them nicely and politely.

Q2. What would you do as an employer if your employees do not listen to your instruction?

A. (1) You could find out what was the problem, (2) give them a warning letter and if no further improvement, sack them.

Q3. What would you do as a head if your members do not listen to your instruction?

A. Same as in (2)

Q4. What would you do as a Ruler.... if your PM does not listen to your advise?

A. ???

What happened to our Rukunegara, Kesetiaan kepada Raja dan Negara?

Smart Investing/Trading for the week ending March 21 2008

Weekly US Markets Update and Review

Stocks look to strengthen gains after Bear Stearns drama

Bear Stearns bailout, dollar strength mark a key turn for markets

Marketwatch: Stocks will enter the final week of the first quarter with investors hoping to build on nascent gains scored after the near-collapse and subsequent bailout of investment firm Bear Stearns.

Supportive actions by the Federal Reserve, a stronger dollar, and a plunge in commodities prices all seemed to mark a key turn in the credit crisis gripping markets.

"The Bear Stearns story was kind of like the turn-around everybody was waiting for," said Paul Nolte, director of investments at Hinsdale Associates. "In any crisis, things keep getting from bad to worse until something breaks. In this crisis, something did break and that was Bear Stearns."

After a week rocked by even wilder swings than those witnessed since the start of the year, stocks recovered to post their first weekly gains in four weeks, even if the week was shortened by the Good Friday holiday. The Dow Jones Industrial Average rallied 3.5%, the broad S&P 500 index rose 3.3%, and the tech-heavy Nasdaq Composite gained 2.1%.

Bear shocker

Global markets first went into a tail-spin after as news emerged that Bear Stearns was near collapse. On Monday, the Fed backed a deal for JP Morgan Chase to buy Bear Stearns for $236 million, or a mere $2 a share. The 85-year-old investment firm, whose mounting losses linked to bad home loans marked the onset of the credit crisis last summer, saw its shares collapse 84% on Monday.

Yet, the market managed to surmount the trauma on Monday, throwing on some fireworks on Tuesday, after the Fed delivered a 75-basis-point cut in its key interest rate. The Dow rallied 420 points, or 3.5%, its best one-day gain since July of 2002.

Along with the Bear Stearns bail-out and a set of extraordinary measures to boost liquidity in convulsing credit markets, the Fed's move on rates -- aimed at boosting the ailing U.S. economy down the road -- seemed to provoke another positive development for stocks.

Dollar firms, commodities plunge

In cutting the Fed funds rate to 2.25%, the central bank refrained from giving the market everything it wanted.
After the Bear Stearns drama, markets were expecting the Fed to cut rates by a full point to 2%. The Fed showing restraint in cutting rates, while also expressing renewed concerns about inflation risks, providing some limit on how many dollars the central bank was ready to flood the system with. With the dollar back bouncing from record lows and holding firm throughout the week, most dollar-denominated commodities, from crude oil to gold and wheat saw some of their biggest drops in years, after rallying since last August, when the credit crisis began exploding into the open.

After hitting a record high of $1,034 an ounce Monday, gold's subsequent sharp drop led it to post a 8.3% decline for the shortened week. Crude oil briefly slid below $100 a barrel on Friday, after hitting a record high of $112.75 last Friday, and finished the week at $101.84.

A stronger dollar and sliding commodities were also seen as a sign that some degree of confidence was returning in markets. Commodities had been used as -- not only a hedge against inflation -- but a safe haven from the turmoil in credit markets.

Bounce for stocks?

While few are willing to call an end to the credit crisis and the downward slump of the U.S. economy, action in the markets over the past week is leading some analysts to believe some sort of short-term bottom might have been found for stocks.

"We have upgraded our view of the equity market to positive /neutral as a result of the Federal Reserve's recent dramatic measures and the subsequent tremendously positive investor response," said Ken Tower, market strategist at Covered Bridge Tactical.

"The economic outlook may be as murky as ever and risk in the financial system remains high, but it's quite possible that the lion's share of falling expectations will soon be behind us," he said.

Should the market's attention return to economic news, next week will bring a number of key reports: data on February durable goods orders on Wednesday, the final reading of fourth quarter growth on Thursday, and on Friday, February personal income data, which will provide a snapshot of the health of consumers. Monday will bring existing home sales for February, and the Chicago manufacturing survey for March. Tuesday will bring consumer confidence numbers for March. Besides durable goods, Wednesday will see the release of new home sales numbers for February. Besides the GDP, important data released on Thursday includes the weekly jobless claims numbers. On Friday, another consumer sentiment survey, this time by the University of Michigan will be released.

"Whether the market has found a bottom or not, I'm not convinced yet, but people seem to have accepted that a recession is upon [us]," said Hinsdale's Nolte. "The here and now is obviously not terrific and won't be for a while, but people in the market are looking forward to 4 or 5 months out, and that maybe things might start improving then.

Weekly KLSE Update and Outlook

Comments on Weekly KLSE Composite index " It is crucial that the KLCI does not break the support line because a decisive breakdown will see further downside volatility. After the US Federal Reserve cuts the federal funds target and discount rates by 75 basis points and the encouraging new Cabinet line-up, I Capital believes that confidence in the stock market and economy would be gradually restored. However, the KLCI still needs more fresh politically positive leads to sustain any rally"

Vietnam hit by high inflation

Bloomberg: Vietnam plans to widen the dong's trading band to 2 percent, giving more scope for the currency to gain and slow the fastest inflation in more than 12 years.

The wideneing of trading band came about when Vietnam recorded an inflation of 15.7 percent in February from a year earlier. Allowing the dong to strengthen would reduce the cost of importing dairy products, cooking oils and petroleum goods.

``Inflation is generally a problem in Vietnam, but it's specifically a problem in food prices, especially imported food, and oil prices,'' said Matthew Hildebrandt, an economist at JPMorgan Chase Bank in Singapore. ``You need to find a way to limit the impact from imported goods.''

Consumer prices jumped about 6 percent in January and February alone, ``posing great challenges'' for the Vietnamese economy, according to the statement. ``Given global prices are set to increase more, this may have a strong impact on Vietnam's socio-economic development,'' it said.

Reuters: Vietnam's central bank on March 10 widened the dong/dollar daily trading band to +/-1.0% from +/-0.75% previously, as part of a series of measures to tackle double-digit inflation .

Bankers said Hanoi's recent moves signalled a willingness by the authorities to let the currency rise at a faster pace to help offset the rising cost of imports for oil products and food and so help cap inflationary pressures. Vietnam had until recently pursued a policy of pushing the dong down gradually against the dollar to bolster export competitiveness.

The currency started rising towards the end of last year, a trend underpinned this year by central bank measures to tighten monetary conditions. The dong has appreciated about 2.6% from August last year when it started rising against the dollar.

MyTake: If inflation is not contained, a country is vulnerable to face hard landing. Vietnam, similarly to China and Indonesia, is in a state of transition and developing. Conventional monetary measures like raising interest rate and reserve requirement may not be adequate and as such administrative intervention is needed. Adding to the above, due to rising prices especially food, there will be tremendous pressures for industrial factories to maintain or find factory workers who are willing to work on current wages. Strikes and job hopping will force factories to increase their cost of production and possibly to relocate to other parts of the country where labour are still abundant so as to remain competitive.The once red hot stock and often volatile stock markets of HoChiMinh and Hanoi were also not spared by the current tight monetary policy. Both markets are down by more than 40% since December 2007.Great headwind ahead for this young and vibrant country in maintaining growth, stability and foreign investments while fighting a hugh inflation rate at hand.

"Sell" call on Bursa

BusinessTimes: FOREIGN research houses, Merrill Lynch, Citigroup and CLSA Asia Pacific, are recommending a "sell" on shares of stock exchange operator Bursa Malaysia Bhd.Merill, in a report dated March 11, derived a fair value of RM5 on Bursa, which is drastically short of its closing price of RM8.30 yesterday and the lowest target so far of at least 16 research houses that track the stock. Citigroup and CLSA Asia Pacific cut their target price on Bursa this week to RM7.08 and RM8 respectively. Merrill, which derived the fair value based on a dividend discount model, said it expects falling trading velocity and lower clearing fees to affect Bursa's earnings this year.

The new clearing fees, which took effect from January 1 this year, was announced in Malaysia's national budget late last year.The fee was cut from four basis points to three basis points of trade value, while the cap has been doubled to RM1,000 per trade. According to Merrill, Bursa's management is hopeful that the change will not hurt revenue with the increase in the capable to offset the lower headline clearing fee. The research house nevertheless estimates that Bursa could see a minimum four per cent loss of revenue from this. It also voiced surprise at "the almost complete lack of attention" paid by the analyst community to the impact of the clearing fee cuts. It expects Bursa to make a net profit of RM215 million this year, which is about 17 per cent lower than a consensus forecast of RM260 million. Bursa made RM241 million in 2007. Citigroup, in its report on March 17, lowered its earnings forecast for Bursa for 2008 to 2010 by 29 per cent to 35 per cent, citing lower trading volumes, lower effective clearing fees and slower growth in the derivatives business. It expects volumes to stay sluggish over the next two quarters before improving in the final quarter of 2008. CLSA, meanwhile, maintained its "underperform" call on Bursa.

MyTake: ML's Target Price is RM5.00, Citigroup's is RM7.08 and CLSA's is RM8.00 Imagine only last year, Bursa's price has gone up to about RM16.90. Valuing Bursa's fair value is extremely difficult as a stock brokers' income is very extreme at both ends. The conditions of the market plays a very important role on whether a broker makes or breaks for the period. Technically, Bursa is currently in an oversold position. Bursa's support price is about RM8.00 which was also reached during the subprime sell down in August 2007. Strong floor for this stock is at RM5.50 - RM6.00

CLSA - KLSE to fall to 1,150 by year-end

Bloomberg: MALAYSIA'S stocks will likely extend declines this year, led by builders and developers on rising political uncertainties after the ruling coalition’s worst election performance, CLSA Asia-Pacific Markets said. Loong Chee Wei, a strategist at CLSA, said the nation’s Kuala Lumpur Composite Index may fall to 1,150 by year-end, from an earlier target of 1,320, he wrote in a report March 18. Loong on February 29 cut his rating on Malaysia to “neutral” from “overweight” and reduced his benchmark index forecast to 1,320 from 1,560.

MyTake: CLSA has changed its stance 2 times during a period of 3 months this year! This is certainly not right as investors will lose confidence with CLSA for being such short sighted in their calls, which seems to follow where the wind blows. I failed to understand why they say that the market will fall to 1,150 by year-end. We are currently about 30 points away to 1,150.Why not now?? Since it is a Neutral call, does it mean that the market will hang around the current region of 1,180 for the next 9 months or so and will drop back to 1,150 by year end? Just 30 points difference!! Will these people be more responsible and passionate with their call? Where is the foresight?

Global credit crunch timeline

2006 - US housing market slows after two years of interest rate rises. Defaults on subprime loans-high risk mortgage lending-increase

Feb 2007 - HSBC sets aside funds to cover bad debts in US subprime loans

June - US investment bank Bear Stearns reveals two of its hedge funds-once worth US1.4 bil -now worthless due to subprime-back securities

July - German industrial bank IKB announces US subprime-related losses

Aug - Federal Reserve, European Central Bank pump funds into markets as interbank lending dries up. Germany's Bundesbank announces rescue plan for IKB. Fed cuts discount rate by half point-stock markets surge. Britain's Barclays Bank borrows 1.9 bil pounds from Bank of England emergency funds

Sept - Britain's fifth largest mortgage lender, Northern Rock, struggles to raise funds from lenders -Bank of England injects US55 bil, British government forced to guarantee deposits after run on bank by worried savers

Oct - Swiss bank UBS writes down US3.4 bil, Citigroup announces US6.5 bil loss, Merrill Lynch records US8.4 bil loss

Nov - Citigroup writedown increases to US11 bil. Fed pumps US47.25 bil into the banking system - biggest injection of funds since September 11 attacks. Dollar sinks to record low against euro, 26 year low against sterling

Dec - Central banks, including Fed and ECB, injects US40 bil into money markets. Bear Stearns takes US1.9 bil writedown

Jan 2008 - President Bush unveils US150 bil stimulus plan. French bank Societe General losses US7.2 bil in fraudulent trading

March - Bear Stearns, overwhelmed by spike in demand from lenders, bailed out by Fed and JP Morgan Chase. JP Morgan buys Bear Stearns for just US2 per share -US236 mil

Source: Graphic News

Have we Bear-ed enough?

Asian stock markets rose Wednesday as investors welcomed a hefty U.S. interest rate cut of 0.75% to 2.25% and a rally on Wall Street overnight. The Dow Jones closed up 420 points or 3.5% to 12,393. Sentiment was also lifted by better-than-expected earnings from major U.S. investment banks Goldman Sachs and Lehman Brothers, easing concerns about fallout from the global credit crisis.

Japan's benchmark Nikkei 225 index rose 2.48% to 12,260, while Hong Kong's Hang Seng index was up 2.26% to 21,867. Australia's main index rose 3.6%, and markets in South Korea, China and India were also sharply higher. The KLSE closed higher to 1,187 or up 0.55%. The intra-day high was 1,207.

Generally, everyone is interested to know whether the markets have reached its bottom and recovery is on its way. This is perhaps the most frequently asked question in the financial markets today!!

MyTake: As we all know, the US economy is currently facing 3 major problems, ie credit crunch arising from the fallout of subprime housing loans, inflation and growth. (some may want to include "mistrust" as the fourth problem).What the Fed is doing currently is correct because by reducing interest rate, growth would be achieved despite the effects could be felt months latter. Secondly, the fact that the Fed is providing some breathing space for the market by pumping in liquidity, extending financing and loosening the financing collars of the lenders will ultimately help to put stability in the credit markets. I suspect the Fed will let inflation takes care by itself as a slowing down economy will in effect lowers the demand for goods and services and thus inflation. The dollar weakening is a problem but it will also be corrected as the economy gets back into stronger footing or by "intervention". The bigger issue is that the Government needs to make sure its citizen stays in their home and not runaway and not servicing the housing loans. I think the catalyst needed for the market to start its meaningful uptrend is not here yet but will only come about when Warren Buffett and the likes start buying in the market or when states and pension funds, national funds or even tax payers monies are being used to prop up badly beaten stocks (HK uses it successfully in 1998) and the buying of defaulted housing loans and schemes from banks and companies. These type of intervention is not talked about as it touches on bail-out, especially this year is an election year. However, if things get real tough, these desperate measures will probably save the day.

Overhang for Steel Stocks

UOB KayHian: The failure of Chinese steel mills to reach an agreement on the price for their 2008/2009 iron ore imports with the Australian ore suppliers – Rio Tinto and BHP BIlliton – will likely create an overhang for steel stocks dependent on imports until the talks are wrapped up.

Given the chasm between the two countries, an agreement is unlikely any time soon and could drag until June.The Chinese mills expect the two Australian suppliers to accept the 65% price rise that Brazil’s CVRC - had earlier agreed with the Chinese and Japanese steel mills about two weeks ago.

Australian mines want higher ore price rise. However, the Australian miners want much more – they want to equalise the price of ores imported from Brazil and Australia. In general, the port price of ores of similar grades imported from Australia is at least US$30/tonne cheaper than that of Brazilian imports because of the lower shipping cost arising from the shorter distance from Australia to China. The Australian miners want a share of the cost savings in freight and so are demanding ore price increases of well over 70% - or else one of them, Rio Tinto, has openly threatened to sell more of its ores on the spot market. Spot ores now fetch about US$210/tonne compared to the US$108/tonne that CVRD has agreed with the miners. (The new contract rates agreed with CVRD will be effective from Apr 08 to Mar 09, which ties in with Japan's new
fiscal year.)

Global ore trade are in hands of three miners. About 90% of the marginal increase in the global iron ore trade comes from China as its steel sector produces about one-third of the world’s steel output. Almost 80% of the world’s trade in seaborne iron ores are in the hands of three miners – CVRD, Rio Tinto and BHP Billiton - allowing them to extract huge increases for their ores. The Chinese are handicapped by a fragmented steel market, so it is hard to gain any leverage from being the world’s biggest importer of iron ores.

Higher China ore output not enough. China has been trying to raise its output of ores, but it is still not enough to meet demand. In general, they are low-grade ores of 35% iron content compared to the average grade of 65% for imported ores.

My Take: I believe the Chinese will have no choice but to subscribe to the Aussie's demand as the latter can sell the ores at a much higher price at the spot market and will be quickly taken up by international buyers. (The other main exporters of iron ore are India, Russia and Iraq but they are of lesser quality and output). The Chinese will buy because there is a sustainable demand in China for steel products. Furthermore, the fact that the 10 ten millers in China only has 33% market share in the country's steel industry compared to Japan's top five millers who have at least 70% of market share, only show Chinese millers have little leverage in negotiation of iron ore pricing. The increase in the primary cost of production(iron ore, coal and freight charges) by the millers will be passed on to the consumers but if the price is too high, consumers may take on the lower quality steel. Millers in China are pressured to have a modern, efficient and environmentally friendly blast furnace plant and they do not come cheap. This industry is facing massive challenges ahead.

A Perak Story-Final Part

Upon realising the Village Head has been angered by the nonsensical thoughts and actions of the Families, the Families got together after dinner and trashed out all their problems at the dinner table and came to the agreement to support the leader, Member C, selected by the Village Head. The Families seemed to be determine to make their staying together in the large house works.

Village Head, who is full of wisdom and compassion, also instructed the Families to write him an undertaking to agree on the Head selected to avoid future dispute; which all Families duly complied. Upon receiving the undertakings, Village Head solemnised the appointment of Member C as the Head of the House. There was a sigh of relief by all families as they cheered the successfully formed union despite of the initial setback. In the meantime, the rich and powerful family which was kicked out of the house earlier could only watch with awe and still wondering what went wrong with them! The Village Head was heard proudly saying that the success in ironing out the matter was due to 1) avoidance of personal interest and gain, 2) selecting a leader irrespective of race and religion but based on experience and qualifications, ie merits, 3) give and take attitude towards problem solving and 4) common sense. It is a major step forward. By joining hands, a major disaster is averted. Hopefully, the union will be a major success and will be copied by others over and over again.

A happy and understanding family is an important hallmark in striving to build purposeful, effective, and democratic institutions of government.

"The family is the foundation of this society. And here's what I know. It's the place where we find deep human fulfillment, and where we find love. It is where character of our nation is shaped, and where values are forged. Families provide us with comfort and encouragement, compassion and hope, mutual support and unconditional love. No family is perfect, but every family is important." (President Bush, 2002)

Smart Investing/Trading for the week ending March 14 2008

Weekly US Markets Update and Outlook

Stocks turn to Federal Reserve to ease the pain
Bear Stearns bailout spooks investors, a reminder that credit crisis runs deep

Marketwatch: U.S. stocks next week will turn to the Federal Reserve, hoping it will deliver hefty cuts in interest rates after concerns about the possible collapse of investment firm Bear Stearns on Friday dashed investors' hopes that the end of the credit crisis gripping global markets was in sight.

Bear Stearns jolted markets Friday, saying that liquidity, or the company's ability to fund its businesses, had "deteriorated significantly" in 24 hours. The 85-year-old investment firm, deserted by its clients and counterparties, was forced to accept an extraordinary bailout package from the Federal Reserve and banking giant J.P. Morgan Chase The move failed to reassure investors, who saw it as yet another sign of how serious the credit crisis that started with bad home loans last summer has become.

Shares of Bear Stearns plunged 47% on Friday, taking its financial peers down along with it, as well as the broader market.However, the market finished little changed on the week, with the Dow gaining 0.5%, the S&P 500 down 0.4%, and the Nasdaq basically flat.

Investors can expect more news from the ailing financial sector next week, with Bear Stearns posting quarterly results Monday after the close, followed by fellow investment firms Goldman Sachs on Tuesday, and Morgan Stanley on Wednesday.

Confidence in Fed

After the Bear Stearns news, market bets that the central bank will cut interest rates by 75 basis points next Tuesday jumped, pricing in a 100% chance of such as move, compared with 88% previously. The market also sees over 50% odds of an additional 25 basis points -- which would bring short-term interest rates to 2% from the current 3%.

But some investors said that confidence in the central bank's ability to turn the credit crisis around has begun to ebb in the market. Friday's action marked a dramatic turnaround for the market, which had surged on Tuesday when the Fed announced extraordinary measures to boost seized-up credit markets. The Dow rallied over 400 points, while the S&P and Nasdaq saw their biggest one-day gains in more than five years.

The big rebound had led some investors and analysts to observe that a bottom may be near in the market. On Thursday, those hopes were further boosted by a report from Standard & Poor's, which said that the bulk of write-downs linked to bad home loans was probably behind for banks.

The market had managed to overcome concerns over the collapse of another financial institution, Carlyle Capital, a bond fund affiliated with private-equity firm Carlyle Group.

The slumping U.S. dollar, which reached new record lows against the euro and multiyear lows against the Japanese yen, led to another surge in Treasury bonds and in the price of gold, which topped $1,000 an ounce. The Fed lowering interest rates much further, which results in flooding the system with U.S. dollars, further pressures the U.S. currency against its major counterparts, and leads to less confidence in the value of holding U.S. assets.

Recession

All the worries about financial institutions and credit markets, meanwhile, are being compounded by the belief of many investors, analysts and economists that the U.S. economy is headed toward, or has already entered into, a recession.

Next week, investors will turn to more economic data.

Monday will see the release of the New York region manufacturing survey for March, and the National Association of Home Builder index for March. Besides the Fed meeting, Tuesday will bring data on new residential construction in February. On Wednesday, producer prices and industrial production data for February will be released. Thursday will bring data on weekly jobless claims, leading indicators for February and the Philadelphia region manufacturing survey.

Light at the end of the tunnel?

According to David Rosenberg, chief U.S. economist at Merrill Lynch, increasing acceptance by markets that a recession is at hand might mean that a turn-around in markets might not be far around the corner.

In a note, Rosenberg pointed out that a recent Wall Street Journal showed that 71% of economists believe the economy is heading for recession, with 53% predicting a first quarter contraction and 45% seeing one in the second quarter as well.

He also made reference to the front cover of the latest BusinessWeek, which reads "Waking up to the recession." "That is the most obvious sign that a lot of what we have been talking about for the past year has now become mainstream thought and priced in, or at least largely priced in," Rosenberg wrote. "It is time to start focusing more on what could turn us bullish."

However, the Merrill economist said that predictions the recession will be mild might continue to prevent the market from complete capitulation, which would be needed for the market to turn around.

Weekly KLSE Update and Outlook

"The 9.5% massive decline in a single day was attributed to panic selling in response to worries over political uncertainty. Since the KLCI has been falling this year, its MACD is entrenched in the bearish territory. However, its RSI is oversold and the KLSE is attempting to stage a technical rebound. As the overall market undertone is weak, would it merely be a dead cat bounce or would it be excellent buying opportunities? I Capital thinks the latter makes more sense". (I Capital)

A Perak Story

This story happens in Perak. Not too long ago, there were these three humble and poor families from different background trying to live together harmoniously in a big house which was left behind by a rich and powerful family who left abruptly and suddenly. (heard that they were chased out after living there for 50 years)

As the three families were trying to make their living together works, the consensus was to have a head of the house and deputies to manage the house and run the daily chores.

Families A, B and C proposed a representative member each to be elected. For fairness, they suggested the Village Head to select the most qualified candidate. After pondering over for a day or two, the Village Head selected Member C as the Head as he was the most qualified for the job. Families for Members A which was considered much larger and stronger objected and condemned the selection but subsequently said sorry to the Village Head for their outburst. Family A says Family C was the weakest and the smallest family in the group. Shortly, Family Members of B threatened to walk away and suggested to move out from the house. "Has new found fortune and fame gone into their heads???", asked the Village Head.

Village Head was very pissed with what was going on and instructed the family members to sort out their problems and do not bother him again until they have worked out a plan to stay together. In the meantime, the powerful family who move out abruptly came knocking at the door of the big house demanding to get in again and demanding the bickering families to get out. Will the powerful family be able to get in?? The story continues....ahhhh dammed ...

Is Bernanke More Concerned About a Recession, Inflation, or the Credit crunch?

DailyFx:

The Federal Reserve is pulling out all the stops, as the Bank announced on Tuesday morning that they would expand their securities lending program in an attempt to instill stability in the financial markets. Furthermore, the Fed joined forces with the ECB and SNB to triple the size of existing swap lines, which will allow them to borrow dollars from the US central bank and then lend the dollars to their own banks. The moves indicate that the Fed is now in panic mode as they fight to prevent a seizure in the credit markets. How about that pesky inflation issue? Crude oil has gone on to hit yet another record of $110/bbl, but with economic indicators pointing towards recession, the FOMC has brushed off the building price pressures and will continue to slash the fed funds rate aggressively.

The U.S. Federal Reserve has come up with yet another way to kick-start the credit markets, if only its innovations would start working already. This latest plan allows, the Fed to let the big brokerages offload their hard-to-sell mortgage holdings for easy-to-sell Treasury bonds. Interest rate cuts, which have brought the federal funds rate to 3.0% from 5.25% since September, have not achieved the goal of loosening up tightened lending conditions, so investors cheered this new approach.

It was evident as the Dow jumped 417 points, or 3.6%, to 12,157, while the S&P 500 soared 47 points, or 3.7%, higher to 1,321, and the Nasdaq led the way with a 4.0% leap, adding 86 points, or 2,256. Asian shares rebounded on Wednesday, with major indices gaining around 2 percent.

The U.S. dollar was unable to sustain the strong rally that had seen the currency rebound from record lows against the euro on Tuesday, with many sceptical that the liquidity steps will solve the fundamentals problems faced by credit markets. Expectations the dollar may soon resume its slide stopped a decline in oil prices, keeping U.S. crude futures within touch of a record high near $110 a barrel, while gold edged higher after its recent retreat from a peak hit last week.

Some market analysts are of the opinion that the new measures were implemented to rescue certain brokerage firms (eg Bear Sterns) and financial institutions to aid their liquidity problems and part of Fed's move buy time in reducing of interest rate by 0.50% instead of the widely anticipated cut of 0.75% coming March 18.

Stock Market Tsunami

We have earlier seen a "political tsunami" on Saturday and today, we experienced a "stock market tsunami". The KLCI falls 123 points to 1,173 or almost 10% at the closing bell. This drop was one of the biggest fall in 10 years never seen after the 97/98 crisis. The wipeout was also recorded as a "first" since Bursa was suspended for an hour at 2.58pm as the fall triggers the 10% fall Rule in a single session of trading. The intraday fall was 139 points.

In this tsunami, many politically linked counters eg MRCB, KHSB, Tenaga, Puncak, Equine, Jaks, KPS were hit by panic selling and at the closed of the market, KPS and Equine had their 2nd limit down within the trading day. In total, the day closed with 1.2 billion shares changed hand with 26 counters up and 905 counters down!

The selling were mainly from retail investors and from funds particullary the foreign funds who sold earlier last week. The market lacked support from the local funds particulary from State Government funds as these funds were practically without guidance and advise from the top bosses as they probably either being replaced or put on notice due to changes in state government. The fact BN failing to regain 2/3 majority has been likened as a weak and politically unstable government. Many of the mega billions "corridors" project are being relooked and scrutinised again by the fund managers as they may not materialised or would be revised to a smaller scale, thus affecting margin, valuation, pricing of stocks and prospects.

This stock market tsunami has forced me to revised my outlook earlier for the KLCI of 1,270-1,200. It has way passed the Fibonacci retracement of 50% (1,210) and is well on its way to 61.8% which is 1,130 if political uncertainties continue to cloud the market. However, value investors will probably welcome a value buy now. If it does not rebound from 1,130, the KLCI will probably make an attempt to revisit 900 points. I hope we will not visit the 900's again while the ruling party and the opposition try to negotiate/sort out many issues, policies and differences for the betterment of our country. From now on, po-li-ti-ca-lly-linked counters will be looked at with suspicion as a "bo-leh ki-kah?" counters (ki - hokkien word for up)