Stabilisation Fund to the rescue

As most of the world markets sank to their worse 1st half drop in years; a growing number of the Asian countries are contemplating to start or activate their Stabilisation Fund to prop up the markets. Some of the Asia Pacific markets and their drop for the 1H of 2008 are as follows:- Vietnam -60%, Shanghai -50%, Bombay -33%, NZ -22%, HangSeng -21%, Malaysia -18%, Australia -17%, Singapore -16%, Jakarta -15%, Korea -12%, and Taiwan/Japan -11% (S&P -13%). Such "stabilisation" move will always have its share of supporters and critics. Similar to any investments, it is important that the Stabilisation Fund needs to have a good plan and strategy with regards to the timing of entry, companies to invest in and investment horizon. The Fund must avoid at all cost buying lousy companies just to bail them out because it is a "national asset" or it belongs to a certain "well connected person".(...sounds familiar). The Fund will also need to ensure sufficient monies are available to defend in worse case scenarios, eg continuous prolong selling in the equity market or 2- prong attacks by speculators on its futures market and currency. Here is a writeup on the planned market "stabilisation" move by Taiwan, Vietnam and Pakistan.

FT.com: Several Asian countries are looking at spending billions of dollars on shares to support plunging stock markets in a move likely to be welcomed by global investors who fear emerging markets may be about to suffer further dramatic falls. The development follows a 13 per cent fall this year in the MSCI Asia Pacific index, which looks as though it will end the month on Monday with its worst first-half performance since 1992, when it sank by 23 per cent as the Japanese economic bubble deflated.

Government officials in Taipei, where the local market dropped to a five-month low on Friday, said the cabinet had called on government pension and insurance funds to buy more domestic shares and to hold their investments for a longer period. Economic and financial ministers and central bank officials met over the weekend to discuss how to boost investor confidence. They stopped short, for now, of ordering the use of a T$500bn ($16.4bn) National Stabilisation Fund designed to support markets in times of volatility caused by non-economic events. However, the board of the fund, which was last used during political turmoil after the 2004 presidential election, will meet again on Friday.

In Vietnam, state media reported that the stock exchange and securities regulator was setting up a stabilisation fund to support a market that has lost nearly two-thirds of its value this year as inflation surged.

And in Pakistan, the Karachi Stock Exchange is coming under increasing pressure to use a Rp30bn ($442m) stabilisation fund set up last week for use in “volatile circumstances”. It had one of the hottest stock markets in the world in 2007, but its loss of nearly one-third in value since April has created “systemic risk”, the KSE said.

Official intervention to support share prices has a long history in Asia. One of the most successful examples was in 1998, when the Hong Kong government bought shares in the aftermath of the Asian financial crisis to support the value of the assets backing the territory’s currency, which is pegged to the dollar. Japan started to intervene in the stock market in 1991 after prices halved after the “bubble economy” burst. Interventions continued for several years, but more than a decade later the Nikkei average is only worth a third of its value in 1989. “The success [of official support] depends on one thing only: how cheap the market is,” said Khiem Do, head of multi-asset at Baring Asset Management in Hong Kong. “The price-earnings ratio has ideally to be below 10 times, or no higher than the mid-teens, and then you have some chance of it working.” Taiwan is currently trading at about 11 times forecast profits, Pakistan at 14 and Vietnam at about 10, he said.

* Even Google is saving electricity! New electricity tariff takes effect today. Be prudent with your usage. Every kWh counts. Briefly, for electricity usage lower than 200kWh, the rate is the same as previously ie at 21.8 sen per kWh, between 201kWh and 400kWh, the rate is 34.5 sen per kWh unit. The rates will be higher as the usage increases. In general, electricity rates is poised to rise by 18% for homes and 26% for business users.

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* Some news on world economies and interest rates-

1. IMF forecasts world's economic growth to slowdown in 2008 to 3.7% from 4.9% in 2007.
2. Zeti says Malaysia's growth to slow down to 4.5-5% this year. Earlier's estimates were 5-6%.
3.China's Central Bank Governor says inflation in China likely to ease in the next couple of months but would consider raising interest rate if it remains high.
4. At least 16 countries have raised interest rates this month to curb price pressures.

* Bloomberg: Rio Tinto wins record 97% iron ore price increase from steel makers from Asia matching its agreement with the Chinese mills earlier.

* WSJ: World Trade Center rebuilding will be pushed back to at least 2015 and will cost up to USD3b more than planned. A press briefing is scheduled on Monday.

* Transparency International: Most corrupted countries in the world are Myanmar/Somalia, Iraq, Haiti, Uzbekistan, Sudan, Chad, Afghanistan, Laos and Congo. Least corrupted are New Zealand, Denmark and Finland.

* Good I take, Bad.......? Will 'poster boy" Tengku Zafrul(Karya Equity/Tunemoney-AirAsia/Avenue/ECM/Hush/"etc") wins in his RM800m bid to take over Northern Utility Resources Sdn Bhd, a debt ridden but highly potential IPP with balance of 20 years concessions(1998-2028). It supplies and bills directly to factories in Kulim Hi Tech Park?