Technical Analysis - June 30 2008

S&P500 (1,278, last week 1,318 or -3.03% w.o.w)

The daily charts continue to weaken. For weekly charts, MACD has just turned negative hook down. The MACD Hist has also turned negative. The weekly stochastics is at the lowest point and there is a possibility the index may stage a rebound during the week. The index needs to stay above 1,280 to stay within the uptrend support line since 2003. If it fails, the index may have support at 1,250 and 1,220. If it managed to rebound, the resistance is at 1,325.

KLSE CI (1,191, last week 1,207 or - 1.3% w.ow)

The daily charts continue to weaken. The weekly MACD and MACD Hist are negative. The index has found many sellers at 1,210 and as a result faced tremendous downward pressure during last week. The index needs to stay above 1,190 to be avoid falling off the 2004's uptrend channel. Major headwind ahead.The index is expected to trade between 1,150 and 1,210.

HangSeng (22,042, last week 22,746 or -3.1% w.o.w )

The daily charts continue to weaken. The weekly MACD and MACD Hist are negative. Immediate support is at 21,600 and 21,000 while resistance is at 23,500. The index needs to be supported at 21,500 to avoid falling off the 2004's uptrend channel. Major headwind ahead.

Nikkei 225 (13,544, last week 13,942 or -2.90% w.ow)

The daily charts have weakened further. For weekly charts, MACD is still in a positive crossover but started to bend downwards to -195. The weekly MACD Hist is still positive. The index has dropped off from the current short term uptrend line. Since 13,800 is broken, the immediate support is at 13,500 but the weakening of daily indicators would pressure the index to trade between 12,900 to 14,000.

* Baring Asset Management's view on Anwar's new sodomy allegation and its impact on Malaysian stocks: "Anwar makes good headlines but don't matter in the long term".

* Singapore based Jim Rogers: "Investors should avoid the dollar and buy commodities which is the best investment for this year".

* A Chinese investment fund manager won the bid to have lunch with Warren Buffett by bidding USD2.1m in the most expensive charity auction ever held on eBay.

* Siemens, the German engineering and electronics company plan to cut 17,000 mostly white-collar workers world-wide as it seek to reduce its cost base. Other recent lay offs are: Goldman Sachs, Citi, WaMu in tens of thousands, BOA 7,500, Volvo 2,000 etc. Watch out for the coming employment figures!!

.

* Will the US Senate's 'End Speculation Act' which calls for an increase in margin requirements as a blunt tool to tackle price speculation be debated? Last Thursday, the House of Representatives passed a legislation ordering regulators to curb immediately excessive speculation in commodity markets.

Smart Investing/Trading for the week ending June 27 08

Weekly US markets update and outlook

.

Markets to wade further into uncharted territory

Jobs report, oil near $143 to keep traders on edge

MarketWatch:Stocks next week are expected to enter the third quarter on uncertain footing after the Dow Jones Industrial Average briefly fell into bear-market territory this week, battered by record oil prices and a slumping financial sector. It's going to be a very interesting week; it's going to be a very dangerous week," said Paul Mendelsohn, chief investment strategist at Windham Financial Service. Mounting concerns about consumers and the economy will bring oil prices and the June employment report, which will come out Thursday because of a holiday-shortened week, into sharp focus. Also on Thursday, the European Central Bank is widely expected to raise interest rates, a move that would likely further pressure the dollar and might further lift commodities prices. A weaker U.S. currency tends to boost the price of dollar-denominated commodities, such as crude, as it makes them cheaper for holders of other currencies.

Enter the bear

Stocks finished the week sharply lower, with oil near $143 a barrel, ailing financials and concerns about the economy all catching up to a market that has now lost nearly 20% from its 2007 highs, which would mark an official entry into bear-market territory. After sliding nearly 360 points on Thursday and falling further on Friday, the Dow finished the week 4.2% lower at 11,346. The blue-chip index is on track for its worst June since 1930. The Dow also has now lost nearly 20% since its Oct. 9, 2007 record high of 14,165. The S&P 500 Index ended the week down 3% at 1,278.38. The broad index, which market experts use as a gauge for the overall market, is now off 18.1% from its high of 1,562 points on Oct. 10, 2007. But while panic may have been averted, financial firms and credit markets continue to feel pain.

.

KLSE Technical Update and Outlook

I Capital on the weekly KLSE CI. As the MACD and DMI continued to be bearish, the weekly RSI is getting near to an oversold position. Recently, the bears have been in cotrol due to the stubornly high crude oil prices and rising inflationary pressure. It is important to note that a break below the support level of 1,150 - 1,160 may jeopardize the conviction of the longer-term uptrend. If the bears are able to do so, then it could lead to a more dramatic pullback until the picture is clear enough for the bulls to step back in.

* Here we go again. Anwar and sodomy. BN's or Opposition's plan? or self inflicted?

.

* Mugabe sworn in as Zimbabwe's president for the 6th term in a one-man election that is widely denounced by world leaders as illegitimate. Is that all world leaders will do? *&%@!

.

No eye see

BT: TAN Sri Dr Zeti Akhtar Aziz is not resigning from her role as governor of Bank Negara Malaysia (BNM), Second Finance Minister Tan Sri Nor Mohamed Yakcop said yesterday, quashing rumours. Zeti's recent resignation from the board of Khazanah Nasional Bhd, the government's investment arm, had some quarters speculating as to whether it could be a precursor to her quitting Bank Negara. "No, no such thing," Nor Mohamed told reporters, when asked for comment. Khazanah had said in a statement last week that Zeti, who was appointed to its board on July 2000, had resigned, effective April 21. Bank Negara later explained that she had resigned to avoid any potential conflict of interest as Khazanah was becoming more active in its investments in financial institutions in Malaysia and abroad.

MyTake:

.

Briefly on Khazanah

Khazanah which is owned by MOF(Inc) has more than 50 companies valued in excess of USD25b in various sectors. Its local investments include CIMB, RHB, Proton, PLUS, MAS, Malaysia Airports, Telekom, TNB, Time, TimedotCom and the UEM Group. Foreign investment is still small but assets investment is set to rise from the existing 12% level. Recently, it has been aggressively buying into overseas companies and so far most of the recent purchases by Telekom/CIMB are EXPENSIVE while the payback period is long and unclear. There are looming questions why Khazanah is venturing into politically unstable markets and why it should be paying for an arm and a leg in a "buyers" market we are currently facing.

Briefly on Zeti

Zeti joined BNM in 1985 and was promoted as an Acting Governor in 1998 after the 5th Governor and his assistant, Ahmad Don and Fong Weng Phak, resign a day after Bank Negara announced that the country is officially in recession following 2 successive contractions in gross domestic product in the 1st and 2nd Q of 1998- by -2.8% in 1Q and -6.8% in 2Q. The resignations also followed rumour that a rift between the bankers and Mahathir over economic policies. Zeti became the 7th governor in 2000. So far, the longest serving governor is Jaffar Bin Hussien "forex player" (working together with Top Cat) who served for almost 9 years. Some of Zeti's credentials include Grade A governor for 5 years in a row since 2002 by Global Financial Magazine. In the same assesment, Fed Reserve Chairman Ben Bernanke was graded a "C" grade for his "feeble" response to the subprime mortgage meltdown. Zeti is highly regarded as the prime mover for Malaysia's success in international islamic banking finances. All in all, BNM is highly respected locally and globally with Zeti at the helm.

Although Khazanah gives "avoiding potential conflict of interest' as the reason for Zeti's resignation, I believe Zeti resigns from Khazanah partly due to non agreement on investment strategies/timing and pricing of investments/policies/management style. (...maybe the disagreement also includes the recent pay hike of GLC's CEOs? hehe). Who in their right frame of mind is willing to gamble billions of hard earned ringgit on investment in politically unstable countries? High risk high gain? Did you not smell a rat, Top Cat? (pun intended). Honestly, will YOU Badawi, Top Cat and Azman Mokthar invest in these countries if the monies are yours and not the rakyat's?

* Remember this shameless racist woman Hamidah Osman(BN:Sg Rapat Assemblyman). A real snake.

* Bill Gates retires from Microsoft yesterday and thrusting Steve Ballmer CEO into the limelight.

* NZ's economy contracted 0.3% in 1Q 2008 and is on the brink of first recession in 10 years. Benchmark interest rate is 8.25% and expecting to cut interest rate soon. The trade deficit for May is USD148m. Time to sell your NZ dollars?

* Japanese gasoline could increase by 8-10 yen per litre to 180 yen per litre in July.(or RM5.50)

Lies and deception

The names are finally released in our local newspapers today. Raja Petra's statutory declaration which detailed the murder of Mongolian model Altantuya Shaaribuu has now caused a stir and angst among those who were named in the declaration. They persons alleged to be involved in the murder are Rosmah, Colonel Aziz Buyong and his wife Norhayati. The sworn statement also claimed that Badawi, Khairy and an unnamed ruler as being aware on the matter. Here are some initial comments made by those in the know as reported in the media:-

Badawi:

"Najib, Rosmah not involved in Altantuya murder". "I have not received such a military report and it is not acceptable for Raja Petra to make such a claim".

Najib:

"Everything is total lies, fabrication and total garbage".

Khairy on the allegation that he is keeping the military intelligence report :

"I don't have. I have not kept such report and I don't know anything about the murder"

Raja Petra on the above comments:

"They can charge me and I will then reveal all in court. I have no comments. I have said enough about Umno, the Government and the judiciary in my website".

The police was said to have questioned Rosmah, Aziz, Norhayati and Khairy but not Badawi and the Ruler yet. So will the AG and the police act and investigate on this "mind boggling' and provocative declaration by Raja Petra or simply say no case? Lies and deception, broken promises and half truth are part of our human society. We could lie to to get out of trouble, to cover a mistake, to save "lives, face, friend", to "gain", to convince others and ourselves and to avoid punishment. Will those named in the declaration sue Raja Petra for defamation and for telling a BIG lie? Does Raja Petra really have reliable evidence for such sensational allegations? What have Abdul Razak Baginda and two others detained got to say about these latest news? Will we ever know who is lying and who is not? Will the truth wins the day? I leave you with a poem titled "One lie leads to another lie" by Francis Duggan and is read as follows:-


One lie leads to another lie

so called reputable people we so often are misled
And one lie leads to another lie as we often have heard said
And to cover up for one lie another lie you must tell
'Tis a thorny path to heaven but an easy path to hell.

One lie leads to another lie that always is the case
Your first lie for deception and your second to save face
And when you are faced with the truth the truth you will deny
And to lie to you comes easy so you tell another lie.

One lie leads to another lie if what you say is untrue
Then another lie you must tell and your lies won't stop at two
But the truth of guilt will free you though the truth can be hard to speak
And to lie is always easy and 'tis easy to be weak.

Look at ex President Bill Clinton to millions of people he lied
When his affair with Monica Lewinsky in public he denied
Had he told the truth in the first place of guilt he would have set himself free
But he took for him the easy option and he lied quite easily.

One lie leads to another lie and to more lies that will lead
And to cover for the lies you've already told a good memory you need
And though the truth at times is hard to speak the truth will serve you best
For the truth will always ring true in a lie detector test.

Yeah....why don't we use a lie detector test on the people involved? Problems solved.....



* An Italian architect Dr David Fisher said he is poised to start construction on a 80 storey sky scrapper in Dubai that will be "the world's first building in motion". The movements of the floors will be powered by wind turbines. No cost estimates were given but it is said to be sold at USD3,000(RM9,800) psf for the apartment units upon completion!

* Still on property. AmResearch: Capital Land(Singapore) bought 62% of Sungai Wang Plaza for RM595m. This works out to be RM1,165 psf. The research company also states that Capital Land's recent purchase of Gurney Plaza is at RM1,100 psf. It also compared MidValley Mega Mall's valuation at RM1,435 psf and Suria KLCC's at RM2,500 psf.

* The Fed does not sound hawkish yesterday. On the same day, ECM's president Trichet said that the risk of inflation becoming entrenched in Europe are "particularly accute" and thus reinforcing expectations that the bank would raise interest rates at its meeting next week.

* TheStandard/HSBC: Money managers around the world have reduced their exposure to equity funds by USD273b over the past 3 months.

How hawkish are you Ben?

Today is the day Fed Reserve's Chairman Ben Bernanke needs to "talk and sound" like a hawk; some may agree that he has turned into one already. Why you may ask? Well, with the likelihood that US interest rate to remain unchanged in today's FOMC meeting, there is a strong possibility the USD will be weaken further in the coming months. As Bernanke could not raise interest rate at this juncture, the best he could do is to talk hawkish in the near term in the eyes of the market players...and they say talk is cheap. This is important due to the fact that European Central Bank(ECB) has been "perceived" to be raising its interest rate in July and if the US interest rate stays unchanged or not being "forward hawkish" it will results USD being sold down in favour of the high yielding Euro. A weak USD will results a more severe rise of oil and commodities prices in the coming months. It will make Bernanke job really tough fighting inflation while saving a faltering economy which has not shown signs of improvement yet.

Bernanke has for the passed 8 months or so reduced interest rate from 5.25% to 2% now. In doing so, his main objective was to avert a banking crisis (caused by the property bubble and subprime loans crisis). Although a major financial crisis may have been avoided, Bernanke has now to deal with the high inflation(and also growing unemployment) and an a weak economy. Further, inflation expectation seems to have risen further now. Rising costs will eat into company's profit margin and as it does, cost cutting measures will be on the way including retrenchment of workers etc.

There seems to be pressure to increase interest rate soon to fight inflation but when? The answer is ASAP but can the still weak economies take it? In order to raise interest by August(next FOMC meeting), the US economy needs to be in a better footing by then and as such economic data for the next 2 months would be crucial for a hunch whether interest rate will rise again. Further, Bernanke would certainly hope that ECB would wait at least till August before raising its interest rate. A good understanding between the two central banks is crucial so that the economic recovery in the US is on track. I guess however, ECB would get plenty of criticism and wrath from the European countries if it does that for siding the US instead of its own countries. It will be good if ECB or Fed could coordinate their policies together to fight inflation, otherwise our world economy will have to face further major inflationary, growth and unemployment issues then. Currently, Eurozone's interest rate and inflation rate for May are 4% and 3.7% respectively, while the US are 2% and 4.2% respectively.

* The above is TopCat. According to our Finance Minister Yakcop, despite at rise of 78sen in petrol price recently, the actual increase for the poor is only 23 sen due to the RM625 rebate offered. Care to work out the details Mr TopCat? How do you classify poor; is a motorcycle owner considered poor and a car owner is rich, do you mean a person who does not travel a lot using a vehicle etc is considered poor? Have you actually considered the impact of rise in petrol/diesel on our food and energy prices? Is our oil exporting Government trying to fast forward recession in our economy by raising gasoline prices due to the "mistakes" of its past?

* TheStar: The May 2 Cyclone Nargis in Myanmar has to date claimed more than 138,000 lives. As a comparison, the May 12 Sichuan earthquake in China has to date claimed more than 80,000 lives.

* What do both PM of Thailand and South Korea have in common? Both are under tremendous siege at the forth month as a PM. Our PM, Badawi although not new, will be entering his 4th month too as a PM for his second term this coming July....will he has the same fate too??

* Walter Kwok of SHKP says that he has made an effort to mend his relationship with his family by putting recent events down as misunderstandings.

* Investors/Consumers confidence in the UK, Germany, Japan, South Korea, Singapore and the US are already falling to their lowest levels as spiralling food and energy costs sapped people's spending power. Also we have witness the following countries raising their interest rates to fight inflation including countries in Mexico, India, HK (on mortgage rate) and Australia.

GPacket to miss June's target

Here's a quick update on Green Packet(GP). Seems like GP's plan to deploy WiMax broadband commercially by the first half of 2008 has been delayed. According to Bernama, PACKET One Networks (Malaysia) Sdn Bhd, a subsidiary of GP plans to make its WiMax service commercially available in the Klang Valley only in the third quarter of 2008. "This will upon completion of ongoing user trials", said Michael Lai, chief executive officer of Packet One. The questions now are when is the actual commencement date of 3rd quarter? (July 1 or Sept 30), what would the financial impact be and will the 1st mover advantage be taken over by the "hush-hush" YTLe? As mentioned here previously, GP must ensure that its WiMax roll out is a success as much of the future earnings depends on it. Perhaps, GP wants to make sure they are "really ready" before they step into the unknown wilderness of WiMax. Meanwhile, GP's share price has lost about 56% to RM1.23 since its May's high of RM2.80. There were lesser share buyback activities by the company for the last one month (only 46,000 shares at around RM1.29 -RM1.39). Also during the same period, Goldman Sachs International sold off another 1,231,000 shares in the open market and has now ceased to be the substantial shareholder of the company. So much for confidence huh? also Puan...do you need to consider revising downwards your "internal target" of triple digit growth in revenue for GP this year?

* Mexico raised borrowing cost for the 1st time in 8 months last Friday to tackle inflation. If the European Central Bank were to raise its rate by one-quarter of a percent next month as expected to fight inflation, it would stand at 4.25% or more than double the Fed rates of 2%. (For our information, May's CPI for US and Euro zone are 4.2% and 3.7% respectively). The impact of raising interest rate in Europe will cause currency traders to throw the USD in favour of the higher yielding Euros. It will slow down Euro Zone economies but will lead to higher commodity prices and spoke inflation further in the US. What can the Central banks do now? What will be Fed's interest rate decision tomorrow? Bernanke has already hinted dangerously a raise in interest rate in the US could come as early as August. Are the economies of the US and Euro Zone in stagflation already where government policies may do more harm than any good to the economy?

* Another inflationary play. BHP Billiton Ltd won a 85% rise in the benchmark price for iron ore from China following a similar deal made by Rio Tinto Ltd. (discussed here previously -freight premium). The price tops the 65-71% rise that Vale received earlier this year.

* FT.com: Vietnam temporarily suspended all gold imports in a bid to tackle the country's spiraling trade deficit and to help support the dong. It was noted that import of gold to date before suspension was 45 tonnes or USD1.7b (2007: 70 tonnes or USD1.6b).

* ST: According to EU statistics, Luxembourg and Ireland are the richest countries in EU while Bulgaria is the poorest.

Technical Analysis - June 23 2008

S&P500 Chart (1,318, last week 1,360 or -3.08% w.o.w)

The daily charts continue to weaken. For weekly charts, MACD is very close to have a negative hook down. The MACD Hist however is positive. The index has failed to support 1,360 and below the 200 day exponential moving average; as such the index has failed in staying on the uptrend channel. There may be an attempt to stay above the 200 day exponential moving average of 1,317 but the downward pressure may be too great. The best it could manage now is to stay sideways. The index is expected to trade between 1,282 and 1,370.

KLSE CI (1,207, last week 1,229 or - 1.8% w.ow)

The daily charts continue to weaken. The weekly MACD and MACD Hist are negative. The index was not able to support 1,210 and as a result is facing tremendous downward pressure ahead. It went to a low of 1,189 during the week. The index is expected to trade between 1,150 and 1,250.

HangSeng (22,746, last week 22,592 or +0.7% w.o.w )

The daily charts continue to weaken. The weekly MACD and MACD Hist are negative. The Index need to stay above 22,333 to avoid falling into the downtrend channel. Immediate support is at 22,333 and 21,600 while resistance is at 23,600.

Nikkei 225 (13,942, last week 13,974 or -0.2% w.ow)

The daily charts have weakened further. For weekly charts, MACD is still in a positive crossover and improved to -170 and the MACD Hist is positive. The DMI (+ & -) however, has a hook down while the ADX has weakened at 21. The index is bunching up closely on the uptrend line but the weakening of daily indicators would pressure the index to trade between 13,800 to 14,600. If 13,800 is broken, the immediate support is at 13,500.

.

* Jeddah: Producers and consumers do not seemed to agree over the core factors driving steep oil price hikes. In the meeting, Saudi has agreed to pump more than 9.7m barrels per day if market requires.(Total world wide oil production is 85m barrels per day). Saudi blames oil speculators and not supply constraint as the main problem. US on the other hand blames supply constraint. Why can't they set up a commission to investigate recent futures trading contracts for crude oil and give a more constructive explanation to us rather than arguing until the cow comes home??

.

* Candle in the wind....becomes candle in the sun. Zimbabwe's opposition leader Morgan Tsvangirai has pulled out of Zimbabwe's presidential runoff this Friday citing the election was no longer credible and the loss of life among his supporters was simply too high. Why give up only now? This is one of the few places in the world that a single person can destroy the future of a country for own self benefit....poor helpless Zimbabweans....what can we do to help?

.

* TheStar: Singapore and Hong Kong are offering incentives and ammending laws respectively to compete with Malaysia in a USD1.3T global Islamic bonds. We better not walk or run from now, we have to fly as we may be overtaken by these aggressive and performance centric countries soon.

Smart Investing/Trading for the week ending June 20 2008

Weekly US Market Update and Outlook

Stock market comeback faces triple threat

MarketWatch: U.S. stocks on Monday will attempt to recover from some hefty losses next week. The Dow Jones Industrial Average ended at 11,842.69, off 220.4 points, or 1.8%, for the session. It lost about 465, or 3.8%, on the week. Friday's finish marked the Dow's lowest close since March 10, when it settled at 11,740. Any comeback will likely be contingent on three factors: the price of crude oil, any hints of inflation, and developments in the troubled financial sector. "Obviously this market is in lockstep with three things, the most important of which is the price of a barrel of oil," said Art Hogan, chief market strategist at Jefferies & Co. On Friday, stocks sank as crude-oil futures gained, a trend that played throughout the week, as the weaker U.S. dollar added to the allure of oil and other commodities as a currency hedge. More trouble in the financial sector compounded market anxiety.

And, while investors fretted about the impact of rising energy costs on the already soft economy, the credit crisis and its ongoing impact on the troubled banking sector last week continued unabated. Merrill Lynch on Friday warned of investor capitulation on the regional banking sector, with analysts envisioning further dividend cuts as likely to be on the horizon. The broker cut its median earnings estimate for regional banks for 2008 by 15%, with J.P. Morgan analysts chiming in a prediction of further efforts to replenish reserves in the sector. "Merrill sees investors effectively throwing in the proverbial towel when it comes to bank stocks. With capitulation come buying opportunities, normally. A normal year 2008 has not been thus far," said Nadler. Of the Dow's 30 components, 29 posted losses, with blue-chip financials among the hardest hit. Citigroup Inc. fell 4.3%, American Express Co. fell 3.4% and American International Group Inc. declined 3%. The S&P 500 fell 24.9 points, or 1.9%, to 1,317.93, with all 10 of the index's industry groups posting declines, led by consumer discretionary, off 3.1%. The S&P closed with a weekly loss of 3.1%. The Nasdaq Composite Index dropped 55.97 points, or 2.3%, to close at 2,406.09, giving the technology-laden index a loss of 3.1% for the week.

Bonded

As stocks sank, bond prices climbed, with the yield on the benchmark 10-year note, which moves in reverse of its price, falling to 4.16%. The U.S. dollar declined against most currency rivals, while the price of gold climbed. And, with the price of crude already on the rise, the climb was further fueled by a published report of an Israeli dry run of an attack on Iranian nuclear facilities. Crude for July delivery climbed $2.69 to end at $134.62 a barrel on the New York Mercantile Exchange, while uncertainty ahead of a meeting of oil producers and consumers this weekend in Saudi Arabia and China's hike in fuel prices helped push prices down 0.2% for the week In addition to energy concerns, next week brings a slew of reports that could shed further light on whether other costs are climbing as well. "We will also be scouring the economic data calendar for signs of inflation," said Hogan. The economic docket looks to be a busy one, particularly in regards to the ailing housing sector. Analysts expect the S&P/Case-Shiller Home Price Index will fall to 168.8 in April from 172.2 in March, with the report slated to be released Tuesday. The second day of the week also brings June consumer confidence, which is projected to weigh in at a 16-year low. On Wednesday, investors will receive durable goods in May, with the data expected to show a 1.0% rebound, along with an expected small hike in May new home sales, which are projected to rise to 530,000. Thursday brings final first-quarter GDP, which analysts expect to be revised up to 1.2% from an initial 0.9%, along with initial jobless claims and existing home sales for May. The May personal income report is due on Friday, along with a measure of consumer sentiment. Added to the mix is the Federal Open Market Committee, or FOMC, which on Tuesday begins a two-day meeting, with Federal Reserve Chairman Ben Bernanke and his colleagues widely expected to step up talk about the risks of inflation, while not hiking benchmark lending rates from the current 2% "Fed projections on economy and inflation are also likely to be revised higher, laying the groundwork for a hike or two this fall," wrote analysts at Action Economic

.

KLSE Technical Update and Outlook

I Capital on Plantation Index: Interestingly, the trend of Plantation Index is contrary to that of the KLCI. As it retests its resistance level of 8,000, its DMI is bullish and its MACD has also just crossed into the bullish territory. ...If there is plenty of volume support, a breakout of its ascending triangle resistance should start a new uptrend move. Thus, the Plantation Index would still provide some cushion to the broader KLCI.

* 100 days after- courtesy of The Malaysian Insider.

* CIMB finally sets its foot in Thailand. It won a bid to buy 42.1% stake in Bank Thai plc for RM577.4m. The buy of 2.10 baht translates to 59% premium of the last traded price of Bank Thai or 2.91x of its March 31 book value. CIMB is expected to offer to buy the rest of the bank shares and would in total cost the Malaysian bank RM1.9b. Bank Thai is the 9th largest bank in Thailand in terms of assets. However, this bank has exposure to collateralized debt obligations of about 1.96b baht in its accounts.

A mountain too high

China foreign currency reserves have been growing rapidly since 1997. The total reserves in April this year is a staggering USD1.8T. What causes it to rise, is it good or bad and what will be the economic consequences if the size of reserves continued to ballooned further or if the balloon burst midway? Below is my summary on the subject.

A mountain of reserves

Here are some hard facts about China's foreign exchange reserves. In 1997, foreign exchange reserves is only USD2.3b. It reaches USD1T in Oct 2006 and since then it has reached USD1.8T in April 2008. China's reserves is about 20% of world's total reserves of USD8.7T. Most of this monies are stockpiled in US Treasury bonds and other foreign assets. At present levels, China can finance for about 1 1/2 years worth of its imports (generally it is recommended to have 3 - 6 months buffer). In April itself (inflow of USD74.5b), China attracts approximately USD103m of inflow per hour! The rise can be explained by 3 main reasons: 1) increase in trade current account surplus, 2) Inward FDI flows and 3) speculation on RMB appreciation. According to Lehman Brothers, April's FDI and trade surplus account for only USD24.3b. It suggested the balance of USD50.2b is due to surge in speculators taking positions on the rising Chinese interest rates and an appreciating yuan.

Sterilization process

In theory, flows of foreign monies into China should push up the yuan. If left unchecked it would also give rise to higher inflation, increased money supply and over investment. To avoid these undesirable consequences, what the Chinese government did was to go through a process known as "sterilization" ie by buying up the surplus foreign currency by issuing bonds (to banks, insurance and securities companies) to mop up the yuan it has paid for the dollars.

What to do with the reserves?

So far, the Chinese government has been very prudent with the management of the reserves. In the main, the reserves have been invested in low yielding US Treasury bonds, and US government companies' bonds like Fannie Mae and Freddie Mac and other foreign assets. Some of the reserves were also given to China Investment Corp to manage which to date were quite "unlucky" to have invested in Morgan Stanley and Blackstones. There were arguments whether these reserves could instead be used to further benefit the poor and maintain subsidies.

A mountain of 'debts'?


Having too much of a good thing will always lead to a problem. As China aggressively sterilize its ever increasing foreign reserves, the government bonds issued were also rising correspondingly. This is a problem as China will not be able to raise interest rate too much which could handily be used to fight inflation. I believe China was left to fend inflation by raising its banks reserves ratio. China has been raising its Reserve Ratio Requirement for the last 16 times, the next one will be June 25 to 17.5%. Notice also the lending rates remains unchanged for the passed half year or so at 7.47% and deposit rate is at 4.14%. Question is how long can China last without raising interest rate in view of the rising inflation? If it does, cost of capital would be increased compared to the low yielding bonds invested by China overseas. Another worry is, what if USD drops further, will the lower value of investment in US Treasury bonds give rise to liquidity problem to China in the future?

What has been done?

So far, China has done the following to reduce its reserves but without much success. There has been cut in export subsidies, slight appreciation of RMB; yuan has risen 20% since 2005(ie after abandoning its RMB peg), introduction of overseas investment vehicle; CIC, hike in banks Reserve Ratios, relaxation of foreign currency control to invest overseas and curbing over lending(to curb speculation) and over investment in properties and business.

Speculation

Due to China's current monetary policy, speculation plays a large part why the reserves went up so much. This "big one way bet on the currency" has been around since 2001 when China was admitted into WTO. Off late, the "size of unexplained" rise of reserves is a grave concern. The concern is what would happen it the speculators completely do a u turn and pull out the monies out of China. The outflows could damage the country's economic, financial and foreign exchange stability. It could also drag the economies of other countries doing business with China along the way.

What can be done now?

So far, many analysts including the ones from World Bank, believe a one off revaluation of yuan is the best way to deal with the speculators on the currency. How much revaluation is the question. Is 15%, 20% etc sufficient? The other solution was to change China's monetary policy of a managed float on a narrow band to a policy of greater foreign exchange rate flexibility. Some form of capital controls may be also be introduced. It will be interesting to learn how the Chinese will overcome this 'happy but thorny problem' which needs to be address sooner than latter. In the meantime, China will just live for another day living dangerously.


* World Bank raised China's full year inflation forecast to 7% from 4.8%.


* China raised its retail gasoline and diesel prices up to 18% yesterday. China will also increase power tariff by nearly 5%. Will this move together with this Sunday oil meeting in Jeddah dampend the crude oil prices?

* Walter Kwok fom SHKP had a harmonious board meeting today - his first as a non-executive director. He has yet to decide whether to drop or proceed with the libel case against his two brothers.

* YTLe's WiMax plan received a boost with a tie up with Sprint Nextel's Xohm business unit. When asked about the roll out plans, Francis Yeoh just said. "ASAP!" How soon is soon ?

* Mexico's stock exchange which was just become a listed company will seek to increase the fees charges on equity trades as part of a wider strategy to put the interests of shareholders by raising profit. The current brokerage rate is 0.75%. The new rate will be 1%. Wow, so good for brokers?

RBS : Be prepared for a 'nasty' period

I do not wish to cause any fear and panic after posting the article below. Everyone is entitled to their view and it is no different for RBS which a year ago correctly warned the lurking danger of credit markets. I hope all of us can read this article with a pinch of salt while doing our own assessment of the markets and individual companies we are interested as it could represent a bargain. There are bound to have optimism and pessimisim as after all, the direction of market is determined by demand and supply. I hope to revisit this article again after September to see whether RBS's forecast comes true and accurate again for the second time.

Telegraph.co.uk: The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. "A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist. A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets. RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets. "I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.

"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate. RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage. "Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.

US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit. The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.

"The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said. Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates. "The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said. Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.

In the meantime, Morgan Stanley has warned of "catastrophic event" as ECB fights Fed Reserve over monetary strategy. It says such situation is similar to the 1990s in which the outcome in 1992 deadlock was a major currency crisis and a recession in Europe.

* Vietnam dashed hopes of a significant reduction in prices of rice in the short term as it imposes a minimum export price of USD800 a tonne for new contracts and reiterated an export limit of 3.5m tonnes this year. (2007: 4.5m tonnes)

* Thailand's opposition party lodged a motion of non-confidence against chef PM Samak Sundaravej in a fresh challenge to his 4 month old government. Who says only Badawi faces such a wrath!

* TheStar: Brunei will charge foreign registered cars, mainly from Malaysia B1.18(RM2.83) per litre of gasoline as compared to its local price of B53 cents(RM1.27) per litre. Where did they learned such 'smart' policies ah?

* Malaysia's CPI for May was 3.8%. This data is getting more and more misleading and irrelevant by the month....Wonder why?....

* Bush urges Congress to end the off shore oil drill ban since 1990s of the east and west coasts to improve supply constraint. Apparently, there is about 18b barrels of oil which can last for about 2 1/2 years. Question. Will there be sufficient drilling ships available? The industry is already facing severe shortage of equipment and manpower. The drilling cost of deepwater rigs have reached USD600,000 per day (2002:150,000 per day)

YTL and market sell down

The KLCI closed down 15 points or 1.2% today and ended at 1,212.59. The intraday low was minus 19 points which was 1 point below the crucial support level of 1,210.00. Volume was lowly normal of 475,000 shares. What was so different in today's market compared with the other 2 earlier tradings of the week , besides lacklustre? Well, sorry no prize for guessing it right, it is the announcement made by YTL. Yes YTL is Datuk Yong Teck Lee who announced that he and two other MPs from Sabah Progressive Party(SAPP) will table a non-confidence vote towards Badawi in the coming Monday's parliament meeting. Of course the 3 will not create any impact on Monday but what is worrying is the opening of foodgates for further possibility of more MPs leaving BN. The predictions from Tengku Razaleigh and Anwar seems to carry credibility these days. I believe the next few days will be most crucial. If any further jump ships or voice of discontent were to be made public, Badawi's days in office could be reduced further. Our country which for many years touted as having a stable government has to deal with an unfamiliar situation now. Yes, we have dealt with the March 10 sell down earlier with gusto but will YTL starts the catalyst for the second political and stock market tsunami soon? Chart wise, as noted here earlier, if 1,210 - 1,220 are not being saved at all cost, the market is pointing to a sell down soon. (I really hope I am wrong on this) Lets wish we are somewhere else when the tsunami begins to unleash its power...


* Philippines foreign portfolio investment shows net outflows in May of USD158m (April USD49.9m) If Malaysia, Indonesia and Thailand are bundled together with Philippines as emerging markets, I am very sure foreign funds would also have done their selling in these countries.

* Shanghai Composite Index shot up more than 5% today at 2,941 . There was speculation that Beijing is on the brink of allowing state-set national fuel prices to rise. A notable gainer is Sinopec which went up 9% today.

* Bank of Korea: Economy of North Korea contracted by 2.3% in 2007 (2006: -1.1%).

* Britain's CPI for May rose 3.3% (April 3%) due to higher food prices and household energy bills (Government's target was 2%). Bank of England signals that a sharp slow down will curb inflation.

* Lehman Brothers: China's foreign reserves grew by USD74.5b in April to a total of USD1.8T. FDI and trade surplus account for only USD24.3b. It suggested the balance of USD50.2b is due to surge in speculators taking positions on the rising Chinese interest rates and an appreciating yuan.

* For our records (TheStarBiz), Nazir Abdul Razak(CIMB) gets an average RM780,000 remuneration per month, Amirsham (former Maybank) RM225,000 per month, Wahid (former Telekom)RM148,000 per month and Khatib (TNB, will get unconfirmed 100% pay rise). According to Khazanah's MD: We have to pay enough, and we have to pay fairly. How much is enough and fair my dear MD? Do we need "maverick" CEO to run government linked companies? Has the return been outstanding for these companies or just enough and fair?

Business, politics and Gaijin investors

Japan is the third-largest economy in the world in purchasing power parity terms and the second-largest at market exchange rates. It also boasts one of the world's largest markets, with a population of just under 130m. GDP growth is forecast to average 1.4% a year in 2008-12. Japanese economy has been overshadowed by the economic success from the emerging of China, India and Middle East countries. On the overall, the Japanese market remains the most closed market in the industrialised world and faces criticisms in terms of corporate governance especially from its ever demanding foreign shareholders. The country seems to be making headway although at a slow pace. Below is a warning statement raised by the Head of Tokyo Stock Exchange regarding the country's challenges ahead if Japan's companies and policies makers remain non committal about corporate governance and the high economic cost of practicing protectionism and fending off foreigners. My comments are in RED.

Business Standard: Japan will be forced to sell its assets cheaply to emerging economies such as China and India unless Japanese corporations raise their capital efficiency and enterprise value, the head of the Tokyo Stock Exchange warned on Thursday. Atsushi Saito said it was his "personal fear" that within 20 years the world's second largest economy would have to tap overseas investors to finance its debt — now at 170 per cent of gross domestic product — by selling property and other national assets at rock-bottom prices. "We will face a disastrous situation. Our grandsons and great-grandsons will carry very huge, tragic debt, thanks to their grandparents . . . (and will) have to rush to China, India, the Middle East (and say) ‘please help us'," he told the Financial Times.

Japan's debt is very high indeed. As a comparison, the country with the highest debt per GDP is Zimbabwe (190%) while the lowest is Luxemburg (2.6%) The other countries of interest are Singapore (95.3%), the US (36.8%), Malaysia (41%) and Hong Kong (12.8%) (refer here for the detailed list). The Japanese government borrowed vast sums of money and spent it in partly unsuccessful attempts to stimulate the Japanese economy during the 1990s "lost decade" (also discussed here previously).

Saito, a champion of good corporate governance as critical to raising the value of companies and boosting the national wealth, said those opposed to bringing Japanese corporate governance in line with the west's would "eventually dampen the future price of Japan". The Tokyo stock market has seen the benchmark Nikkei average plunge more than 20 per cent since July.

Corporate governance is a big subject. It was widely mentioned during the 1997 Asian Financial crisis and during the collapse of American companies like Enron and Worldcom in 2001. I believe the key to better corporate governance lies with the engagement of Shareholders with the Management and Board of the company to achieve the desired accountability. Management should strive to give a reasonable return to shareholders via egs a higher Return on Equity (ROE) and other financial ratios and pay particular attention to cost and expenses and its impact on environment. Management should always remember the shareholders are the rightful owners and it should always execute their work with the most prudential fiduciary duty. Further, Boards appointed should contain independent Directors who should have independent means to assist in their duty to monitor the accountability of Management on behalf of Shareholders.

About half of Japan's listed companies are trading below book value.

In another word, these companies are better off be broken into parts and be sold off rather continuing to be a going concern.

Saito's warning comes amid growing concern that poor corporate governance, which has led to the adoption of excessive takeover defence measures and stymied mergers and acquisition activity, is sapping the competitiveness of Japanese companies and the vitality of the economy. "At present Japan is alright, but it is like the Titanic just after (it hit the iceberg)," said Takaaki Wakasugi of the Michigan Ross School of Business, University of Michigan. "People are still singing and dancing but the Japanese economy is sinking."

Recent takeover bids by foreign parties were proven unsuccessful. It should be noted that despite Japan's success to fend off foreign control, foreigners are still very much attracted to Japan as they owned more than 25% of Japanese shares and accounted for more than 60% of trading in the stock exchange. Their high shareholdings have been proven useful to pressure policy makers and companies to push for sweeping reforms and greater shareholding democracy. According to an article in The Economist, foreigners want Japanese firms to take on independent directors, refrain from introducing poison-pill defences, unwind defensive cross-shareholdings and unload their cash by increasing dividends, among other things. More than 600 firms had adopted poison-pill defences by 2007, twice as many as in 2006. And cross-shareholdings increased in 2006 and 2007, having fallen for almost a decade.

The TSE is drawing up measures to improve the corporate governance of listed companies and guidelines for takeover defences to prevent them being used to entrench management. This week a group of ruling Liberal Democratic Party parliamentarians presented a report to Yasuo Fukuda, the prime minister, proposing reforms to the management of the public pension fund to improve returns.The Council for Fiscal and Economic Policy is calling for the break-up of Japan's Y149,000 billion ($1,380 billion) Government Pension Investment Fund into smaller units, to be managed by investment professionals competing with each other to raise returns from the average 2.9 per cent between 2002 to 2007 — when Canada's public pension fund returned a 9.1 per cent average.

The Council which was appointed by the prime minister also proposes 1) takeover of Japanese firms be made easier and reduction of corporate tax rate, currently at 40% and 2) TSE to establish new rules to discourage anti-takeover defences. These are good steps forward as Japan needs to get rid of the meddling of old bureaucrats who still remained as advisers to government affairs. Most of these advisers are reluctant to change and adopt a culture of "preserving stability and saving face" which does not promote transparency and questioning the authorities accountability. Only time will tell whether Japan will be able to work comfortably on these corporate governance guidelines proposed by the western world (including the Sarbanes-Oxley Act 2002) and whether it will promote long term value for the Japanese enterprises.

* The Sun: Dealers Association of Malaysia says petrol consumption in the country has dropped almost 30% following the 41% hike in prices early this month. However, it believes consumers will get over it and return to their old pattern of fuel usage.

* Thaksin Shinawatra blames the alignment of planets for his country's current economic and political woes.

* Reuters: US rate futures have been pricing in 2 quarter point Fed hikes by Oct, racing ahead of analysts expectation that the US interest rate to stay at 2% for the rest of the year and well into the next.

* UOBKayHian: Expects minimal direct economic losses from the torrential rains based on history of non significant impact on agriculture and economy. It fears summer drought rather than torrential rain. So far the direct economic losses from snow storm is estimated to be RMB150b and Sichuan major earthquake is RMB200b.

Technical Analysis - June 16 2008

S&P500 Chart (1,360, last week 1,361 or -0.00% w.o.w)

The daily charts continues to weakens. For weekly charts, MACD has slowed down on positive cross over. The MACD Hist is positive. The DMI (+ & -) has weakened drastically and now showing negative crossover and the ADX is at 18. The daily charts needs to pull all stops otherwise the Index is destined to fall further. The index is just about 1,360 which is the crucial minimum level to be within the uptrend channel created since March 14 2008. (Note: For the last 5 sessions, the index was below the 1,360 level). The index has a big task and major headwind ahead. The index is expected to trade between 1,330 and 1,400

.

KLSE CI (1,229, last week 1,249 or - 1.6% w.ow)

The daily charts continues to weakens. The weekly MACD which nearly crossed over at -23 are now showing downward pressure again. The index needs to quickly form support at 1,210 and 1,220 levels in the next couple of weeks if it intends to start a brand new uptrend channel again but this channel will be at a much slower pace compared to the March uptrend channel earlier. If the index goes below 1,210, hugh selling is anticipated. The index is expected to trade between 1,210 and 1,250

.

HangSeng (22,592, last week 24,402 or - 7.4% w.o.w )

The daily charts has worsened tremendously during the week. The weekly DMI (+ & -) is at a negative hook down and the ADX is at 21.The weekly MACD has just a day ago turned negative and as a result MACD Hist has also followed suit. The Index need to stay above 22,333 to avoid falling into the downtrend channel. Immediate support is at 22,333 and 21,600 while resistance is at 23,600.

Nikkei 225 (13,974, last week 14,489 or -3.5% w.ow)

The daily charts deteriorated during the week and the daily MACD and MACD Hist has a negative cross over 4 days ago. For weekly charts, MACD is still in a positive crossover and improved to -185 and the MACD Hist is positive. The DMI (+ & -) however, has a hook down while the ADX has weakened at 23. The index is bunching up closely on the uptrend line and is expected to trade on uptrend between 13,800 to 14,600. If 13,800 is broken, the immediate support is at 13,500.

* UN Chief: Saudi plans to increase oil production by 200,000 barrels per day or increase in production by 2% next month. Do you think it is enough to trigger a sell down on oil? The 300,000 barrels per day increase in May was largely ignored by the market last month.

* The Standard: "Shanghai Composite Index fell 17% or 591 points over 8 consecutive days to close at 2,868 on Friday. Fund flows show money flowed out China and HK Funds last week of USD1.3b. The money leaked out into Japan, Global equities and US funds as reported by data provider EPFR Global".

* HK plans to develop a crude oil futures market aimed at setting a benchmark that would give Asian consumers and importers some bargaining power against Western counterparts. Currently Asian uses mainly Dubai futures as a reference. Note: Gold futures will be launched in the 2nd half of 2008 in HK.

* BNM: Malaysia may use interest rate as a tool to tame inflation if there is a "generalised" increase in prices. BNM's overnight policy rate remains at 3.5% and is up for a review on July 25.

* FinanceAsia.com's recent poll of Malaysia's best managed companies has concluded that Public Bank Bhd is the best company in Malaysia under catergories: management, corporate governance, investors relations and commitment to a strong dividend policy. Amongst the other winners are Maybank, CIMB Group, DiGi, Media Prima, Airasia, Masteel, Deleum, PetGas, IOI and BAT. Mr Gerard Nathan(Tanjong) is named the best CFO in Malaysia.