Budget 2009: Salient Points

Malaysiakini: The following are the salient points in Prime Minister Abdullah Ahmad Badawi’s 90-minute 2009 Budget speech. The 2009 Budget is Abdullah’s fifth since taking over as prime minister from Dr Mahathir Mohamad in October 2003.

Malaysian Gov't to spend record RM208 bil for 2009.

The total expenditure was set at RM207.9 billion for 2009 compared to RM176.9 billion in 2008. Of this amount, RM154.2 billion is for operating expenditure, while RM53.7 billion is for development expenditure. In 2008, the operating expenditure was RM128.8 billion and RM48.1 billion for development expenditure.

Budget deficit up

The budget deficit is estimated to be 3.6 percent of GDP in 2009 and 4.8 percent of GDP in 2008. Abdullah had in the previous year’s budget speech forecast a deficit of 3.1 percent for 2008.

Economic growth slowing

GDP growth for 2009 is estimated at 5.4 percent and 5.7 percent for 2008. The most recent official forecast is for GDP growth in 2008 is 5 to 6 percent.

Cut in income tax, more rebate

Those earning below RM35,000 per annum will get rebate of RM400 compared to RM350 previously.Those earning between RM35,000 to RM50,000 per annum will get a one percentage point reduction in their marginal tax rate to 12 percent from 13 percent previously. Those in the highest bracket of RM250,000 per annum will get a similar reduction to 27 percent from 28 percent previously. Current tax exemption medical benefits to be extended to maternity expenses and traditional medicine, namely acupuncture and ayurvedic.

Free electricity

Those whose use less than RM20 of electricity per month will not be charged.

One-month bonus for civil servants

Government servants will get one-month bonus or at least RM1,000 to be paid in two installments - in September and December. Those from Sabah and Sarawak will get free airfares to go home every two years, beginning January 2009.

Special allocations for Sabah, Sarawak

Sabah to get an additional allocation of RM580 million for upgrading infrastructures, while Sarawak will get RM420 million.

Hike in cigarette taxes

Excise duty will rise by 3 sen per stick from 15 sen to 18 sen. There was no increase last year. Smokers will have to pay up to 60 sen extra for a 20-pack.

Staff training incentives

Firms can claim working capital allowance for upgrading their staff skills.

50% cut in toll charges for buses

Toll charges for buses to cut by 50 percent for the next two years beginning Sept 15. However, not cut in tolls at border entry points- Johor Causeway, Second Link and Bukit Kayu Hitam.
The government is to compensate toll operators RM45 million per year for this loss of revenue. To improve public transportation, the government has allocated RM35 billion in the next five years.

Benefits for transport operators

Government to provide RM3 billion in soft loans under public transportation fund to be administered by Bank Pembangunan to finance acquisiton of buses and rail assets. Government will also reduce toll charges for all buses for 2 years beginning 15 Sept 2008.

Eligibility criteria for welfare help raised

The eligibility criteria will be raised to RM720 per month of household income from RM400 previously for Peninsular Malaysia. The eligibility criteria will be raised to RM830 per month of household income for Sarawak and RM960 for Sabah.

Low-income pensioners to get more

Those who have serve for at least 25 years will get pension of at least RM720 permonth.

Interest income exempted

Interest income of 5 percent on fixed deposits with banks exceeding RM100,000 to be exempted.

Import duties cut or removed

Government to reduce import duties on various consumer durables from between 10 to 60 percent to between 5 and 30 percent. This includes blenders, rice cookers, electric kettles.
Government to fully exempt import duty on several food item, i.e. vermicelli, biscuits, fruit juices, canned sweet corn.

Diesel-engine vehicles to benefit

Government to reduce road tax on private passenger vehicles with diesel engine to the same level as petrol engines.

Incentives for food security

From the RM5.6 billion provided under the National Food Security Policy for the 2008 to 2010 period, the government will in 2009 allocate RM300 million to increase fish landings and RM1 billion for padi farmers to increase production. Poultry farmers will also get incentive in the form of a reinvestment allowance of 60 percent for a period of 15 years for expansion of chicken and duck farms to increase poultry output.

Funds for fertilisers and pesticides

Allocation of RM475 million in the form of agricultural inputs, fertilisers and pesticides to assist padi farmers.

Help for low-cost housing

Allocation of RM330 million for 4,400 units of Program Perumahan Rakyat, 1,500 units of PPR Bersepadu and 600 units of PPR Dimiliki. In addition, Syarikat Perumahan Negara Bhd to build 33,000 low-cost houses.

Stamp duties for home owners slashed

Purchase of medium-cost houses up to RM250,000 to get 50 percent reduction in stamp duty on transfer document and loan agreement.

More for public education

Education Ministry to get RM31 billion allocation to benefit 5.8 million students, RM1.6 billion to finance additional posts created following the opening of 26 primary and 41 secondary schools and the additional expenditure for maintenance, food assistance, scholarship, per capita grant and new equipment. Government to build 110 new primary and 181 new secondary schools. Higher Education Ministry to get RM14.1 billion, of which RM8 billion is for operating expenditure of public institutions of higher learning, RM4.4 billion for development expenditure and RM627 million for polytechnics and community colleges.

Additional sums for growth corridors

To utilise RM6 billion out of the RM10 billion additional allocation from the mid-term review of the Ninth Malaysia Plan.

Cheaper hybrid cars

100 percent import duty and 50 percent excise duty on new hybrid CBU cars, with engine capacity below 2,000cc will be given to franchise importers. The exemption is for two years to prepare for the local assembly of such cars.

Tax exemptions for Islamic capital markets

Tax exemption to be given for three years on fees and profits earned by institutions undertaking activities relating to the arranging, underwriting, distributing, trading on non-ringgit sukuk.

Police to get more funds

Allocation of RM5.4 billion to enhance the Royal Malaysian Police.

What’s not in 2009 Budget

No lowering the Employee Provident Fund contribution.
No hike in gambling taxes or alcohol duty.
No increase in the number of food items under price control.

"Build Think"? Why Not "Think Build"?

There were three major corporate news on Maybank today; (1) its June 2008 results, (2) a glimpse of its 8 year vision and aspirations and (3) the RM8m acquisition of BinaFikir - a 2002 incorporated company with paid up RM650,000. Interestingly, Khazanah's current MD Azman Mokhtar was the founder and the MD for BinaFikir from 2002 till 2004. I am a bit tired commenting Maybank's recent deals which are sometimes difficult to logic and comprehend unless you think of it negatively. Anyway, this is just my opinion. Sigh!

BT: Maybank yesterday reported a lower net profit of RM2.93 billion for the year ended June 30 2008 on account of increased provision for bad loans for a non-refundable deposit made in its bid to gain control of an Indonesian bank. Maybank reported a profit of RM3.18 billion last year. During the period just ended, the bank made provision of RM483.3 million.The amount was largely provision for a non-refundable deposit it paid to buy out PT Bank Internasional Indonesia (BII). The acquisition ran into problems when Bank Negara Malaysia revoked its approval after Indonesian market regulators introduced certain changes in securities rules, which it said could put Maybank at risk.Without the provision, Maybank would have posted a 1.3 per cent increase in net profit to RM3.22 billion, according to group managing director Datuk Seri Abdul Wahid Omar. (refer here for the complete article).
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BT: MALAYAN Banking Bhd wants to become a "truly regional" financial services group and be among the top five in terms of assets and market performance in South and Southeast Asia by 2015. The country's largest bank also aspires to be "the undisputed leader in Malaysia across all high margin and profitable products and segments". The vision is in Maybank's eight-year blueprint that is due to be launched next month. The performance improvement programme will be implemented in two "horizons", group managing director Datuk Seri Abdul Wahid Omar said at a press conference in Kuala Lumpur yesterday.

The first horizon, from September till 2011 and called "Leap 30", will focus on 30 initiatives related to all of Maybank's major business sectors including consumer, enterprise, Islamic and investment banking and talent development." The initiatives will be rolled out rapidly with results consistently tracked and measured to ensure continuous innovation and change in the current practices. "Maybank, Wahid said, will strengthen its operations in seven out of 10 Asean countries while continuing to look out for opportunities in other markets.

Under the second horizon, the bank expects to expand its reach to India, the Gulf countries and certain provinces in China from 2011. Meanwhile, Maybank yesterday announced the acquisition of BinaFikir Sdn Bhd, a holder of capital market services licence, for about RM8 million. The bank also appointed BinaFikir managing director Rashdan Mohd Yusof as cheif operating officer of Aseambankers Malaysia Bhd. BinaFikir executive director Feisal Wan Zahir, 38, was appointed as Aseambankers head of investment. Both appointments are effective September 1. Rashdan, 37, is expected to be promoted soon as he has been chosen to replace Surachet Chaipatamanont as chief executive officer of Aseambankers.

* Malaysia Today ordered to blocked by MCMC? The more you hide, the more we seek!!

* The Australian: According to Japan's National Police Agency, Yakuza gangs are terrorizing the Tokyo Stock Exchange. The organised crime syndicates have mounted widespread assault on the country's financial markets that may have left hundreds of listed companies riddled with mob connections. It has under its payroll professionals in the field of auditors, accountants, brokers, bankers etc.

* The Standard: China is rumoured to consider dividend tax cut to boost shares. The tax is currently at 20%. Such move is at best short term.....

* Bloomberg: Pakistan imposes its 2nd emergency trading limits (refer here for the 1st restriction) to halt stock slides as the benchmark index went down by 42% in 5 months. From today, until 7-10 days latter, the index has been set not to be able to fall below yesterday's closing.
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* The Standard: The Chinese central government departments misused or mismanaged more than 46b yuan last year, including using disaster relief money to buid government offices and diverting funds to speculate in stocks.

In Global financial services we trust

Temasek released its latest set of financial results yesterday. In brief, Temasek's net profit doubled to SGD18.2b for the year ended March 2008 with its portfolio value increasing about 13% to SGD185b, helped by a SGD10b injection by the Singaporean government. The improvement of net profit from SGD9.1b posted last year was aided by asset sales of more than tripled to SGD17b from SGD5b a year ago. Temasek has warned of further contagion from the global credit crisis but continues to see long term opportunities in financials and would not cap its investment in that sector. Below is an interesting article on some of the reasons behind Temasek's relentless push to invest in global financial services companies that are currently facing tremendous distress but having a good long term potential. Come to think about it, we as investors should also be doing so, albeit on a smaller scale...

Bloomberg: Temasek Holdings Pte, Singapore's $130 billion sovereign wealth fund, said it has ``great confidence'' in Merrill Lynch & Co.'s Chief Executive Officer John Thain and plans to raise its stake. Temasek, Merrill's biggest shareholder, received U.S. antitrust approval yesterday to raise its stake to between 13 percent and 14 percent. Temasek first announced last month its plan to boost its holding in Merrill from 9.4 percent. Merrill has a ``great franchise which has existed through many crises through a long period of time,'' Micheal Dee, Temasek's senior managing director of international, said in a Bloomberg Television interview yesterday. Temasek invested about $5 billion in Merrill since Dec. 24 after Thain, 53, replaced Stan O'Neal, who was ousted following the firm's biggest quarterly loss in its 93-year history. Merrill's writedowns are about 10 percent of the more than $500 million of credit losses by banks amid the subprime meltdown.

``The bottom line is financial institutions are still asking for more capital,'' said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $108 billion. With sovereign funds, ``there's still plenty of capital out there, so they're looking for somewhere to park that money.'' Danielle Robinson, spokeswoman for Merrill, the third-largest U.S. securities firm, declined to comment yesterday.

`Long-Term Horizon'

Temasek, wholly owned by Singapore's finance ministry, has been increasing investments in global financial services companies to take advantage of a stock-market slump that erased about $10 trillion in market value in the past year. The MSCI World/Financials Index has dropped 33 percent in the period. ``Because our reserves are invested with a long-term horizon, this long-term orientation will keep us from selling in panic in a market downturn,'' Lim Hwee Hua, Singapore's minister of state for finance, said in Parliament today. ``The downturns also offer opportunities for our agencies to invest in good quality assets at prices that are attractive from a long-term perspective.''

The sovereign fund, run by Chief Executive Officer Ho Ching, 55, said July 29 it was putting a further $900 million in Merrill after it was compensated for the initial investment. Temasek said it will use a $2.5 billion reset payment for losses from its earlier purchase toward buying $3.4 billion of Merrill stock, and the securities firm will book the reset as an expense. Singapore's Sovereign Funds Government of Singapore Investments Corp. or GIC, the bigger of the city state's two sovereign funds, invested about $18 billion in UBS AG and Citigroup Inc. in the past year. GIC manages the country's reserves while Temasek was created 34 years ago to take over state assets including Singapore Airlines Ltd.

Merrill shares have fallen 55 percent since Temasek's first investment on Dec. 24. The stock fell 10 cents to $24.10 in New York Stock Exchange composite trading yesterday. Temasek, which yesterday said profit doubled in the year ended March, said its decision to further increase its stake was based on Thain and his management team. ``We had great confidence in John Thain; we had great confidence in the rest of the management and the board,'' said Dee, a former Morgan Stanley banker who joined Temasek this month. At least a dozen U.S. lenders and credit unions have been closed by state and national regulators since 2007 as mortgage markets collapsed. Columbian Bank and Trust Co. of Topeka, Kansas, closed Aug. 22, becoming the ninth U.S. bank to collapse this year. Columbia had $752 million in assets and $622 million in deposits.

Banking Stakes

Temasek is confident about its Merrill investment because the U.S. banking system is diversified enough with thousands of lenders to handle the failure of a small group, Dee, 52, said. ``The strength of the American financial system is the diversity and that no single bank or no single group of banks is really that large,'' he said. The U.S. Federal Trade Commission said in a statement that it cleared the transaction early, letting Temasek make an investment. Thain, the former Goldman Sachs Group Inc. president who also ran the New York Stock Exchange, was named chief executive officer of Merrill in November, the first outsider to lead the firm. His appointment was effective Dec. 1. Temasek is also the biggest shareholder of London-based Standard Chartered Plc and Singapore's DBS Group Holdings Ltd, and owns stakes in Barclays Plc, India's ICICI Bank and lenders in Indonesia, South Korea and Pakistan. The banks make up 40 percent of its portfolio. Chairman S. Dhanabalan said on Aug. 21 Temasek may buy more shares in Merrill and expects the stake will boost the value of its portfolio in the ``long term.'' Banks and securities firms have raised more than $350 billion in the past year after the writedowns and credit losses caused by the collapse of the U.S. subprime mortgage market, data compiled by Bloomberg show.

* Bloomberg: Thailand has raised its benchmark interest rate for a 2nd consecutive month to tame inflation by raising 25 basis point to 3.75%.

* The WSJ: Russian President Medvedev backs breakaway regions of Georgian territories South Ossetia and Abkhazia. He is not afraid of cold war but does not seek it!!!

* Reuters: Vietnam cuts retail petrol prices by 5.6% yesterday, the 2nd cut in 2 weeks. The 92 octane before the 2nd cut retails at 17,000 dong(or USD1.03) per litre.

The dreadful "S" word

As the Olympic flame goes out in Beijing last Sunday, China has turned back its attention to the economy and stock markets again...although I think China did not even take its eyes off the "two" at any point of time. It seems that China is trying to do everything it can to boost up its slowing economy and sagging markets and to provide measures and reasons why investors should stop selling their stocks further. China's economy and stock markets have been hit by issues like natural catastrophes, high inflation, slowing of growth, an appreciating yuan, hot money and also as noted below the overhang of state owned stocks awaiting release in the open market. Below is the latest possible move targeting the stock markets by the Chinese authorities apart from earlier measures egs. providing guidelines on selling by major shareholders via off market deals, increased disclosure on esos, lower stamp duty to encourage stock transactions, delaying IPOs launches etc. All these measures were implemented to prevent investors from SELLING but sadly were without much success.

Bloomberg: China may let investors sell bonds that can be swapped for shares to deter equity sales and support the nation's stock market, the world's worst performer this year. The China Securities Regulatory Commission is studying exchangeable bonds as part of a package of measures to restrict sales of shares in state-owned companies, said a Beijing-based official of the regulator who declined to be identified before a proposal is made public. The plan would enable state shareholders to raise funds without selling stock on the market, limiting supply as trading restrictions end on more than $1 trillion of government holdings. A cut in trading taxes and curbs on initial share sales failed to halt a 55 percent slump in the benchmark index this year. ``This measure will help ease the pressure placed on the market by state-owned shares,'' said Victor Wang, a Hong Kong- based analyst at UBS AG. ``Investors' sentiment is quite low and the government has been trying to bolster market confidence by limiting massive share sales.'' As much as 8.7 trillion yuan ($1.3 trillion) of government holdings become tradable through 2010, according to local data provider Wind, an overhang that's weighing on investors just as inflation and a slowing economy threaten to undermine earnings growth.

China's benchmark CSI 300 Index soared 7.9 percent on Aug. 20, its biggest gain since April, on speculation the government would announce plans to support a market that has lost $2 trillion in value this year. The index gained 162 percent last year, the world's best performer. It declined 2 percent to 2,349.25 as of 11:30 a.m. Lockup restrictions are set to expire on shares accounting for more than half the combined $2.29 trillion capitalization of the Shanghai and Shenzhen markets. The overhang is the legacy of a 2005 government-led shakeup that converted non-tradable shares into common stock that can be bought and sold on exchanges.

Under the commission's plan, shareholders wanting to sell after lockups expire would have to transfer their stakes to a third party such as a clearing house, according to the official. They would then be allowed to sell bonds to investors that could be swapped for the shares later. The commission doesn't have a timetable for the plan, the official said. The rules haven't been completed and it's unclear if the bonds can be traded before they are turned into common stock, the person said. The measures being considered will include more transparent information disclosure when holders of state-owned companies' shares place sales through block trades, and working with the state-asset supervision agency to monitor transfer of those shares, according to the official.

* Arif got wacked by Anwar in Permatang Pauh's By-Election today. As at now, losing by more than 15,000 votes. Welcome back, Anwar!

* Ringgit got wacked today as our interest rate was kept unchanged. The rate now is 1 USD: RM3.391 ....Dec 08' Crude Palm Oil got wack to RM2,400 per tonne today losing almost RM200.00

* AP: China Life says profit down by 32% for the 1st half compared with same period last year due mainly to downturn of the capital markets. Net profit for the period was USD2.3b or US 8 cents per share.

* Bloomberg: German business confidence index probably fell to a 3 year low in August as recession loomed based on a survey of economists. There was a 0.5% contraction in the 3 months through June due to a drop in construction, company investment and consumer spending. The total growth forecast for the country for the year is 1.7%(2007: 2.5%).

* Bloomberg: Bank of England may cut interest rates by year end as the economy slows?

* Vietnam's inflation rate is expected to hit 28% in August due to increase in prices of food, transportation, housing and construction. (a 17 year high) The government expects inflation to be around 25% for the year. At the moment, Vietnam's prime interest rate is at 14%.

Technical Analysis - August 25 2008

S&P500 (1,292, last week 1,298 or -0.46% w.o.w)

The daily MACD, although still in a positive uptrend is in a danger of negative hook down due to some selling during the beginning of week. The daily DMI(+ and -) which was in an early positive crossover is also in a danger of turning bearish again. This week will be a crucial week to determine the direction of the daily index. The weekly charts has improved but awaiting positive crossover if daily index can improve during this week. The index is likely to trade between 1,260 and 1,330. Incidentally, the resistance level of 1,330 is the index’s 200 day-ema.

KLSE CI (1,086, last week 1,095 or -0.82% w.ow)

The daily charts continued to be weak. There was a weak technical rebound last week. There is a possibility of a continued technical rebound this week evident in the daily stochastics. It is advisable to sell into this rebound. A new low was created last week at 1,065. The index has fallen into bearish mode again with the strong 1,120 (ie 200-day ema) broken convincingly. The index is expected to trade between 1,050 and 1,150.

HangSeng (20,392 , last week 21,161 or -3.6% w.o.w ).

Similar with KLCI, the daily charts continued to be weak. There is a possibility of a technical rebound this week evident in the daily stochastics. It is advisable to sell into this rebound. A new low was created last week at 20,389. It is advisable to sell into this rebound. The index has fallen into bearish mode again. Immediate support is at 19,800 while resistance at 21,000 and 22,000.

Nikkei 225 (12,666, last week 13,019 or –2.7% w.ow)

The daily MACD and DMI(+ and -) have broken down are all in a bearish mode. The weekly MACD has also hooked down during last week. The index is expected to trade between 12,500 to 13,500. The index face major resistance at 13,300.

* Following China? AP: Japan is drawing up an economic stimulus package worth USD73b to help business and consumers cope with the high fuel and commodity prices. An article about Japan/China was posted here before. Japan's nominal GDP is about USD4.3T and as such the effect of the stimulus is about 1.7% of GDP.

* Bloomberg: Thailand's economy expanded slower at 5.3% in 3 months ended June 30.(earlier estimates 5.8%). The central bank is likely to leave the key rate unchanged at 3.5% as it needs to keep growth from stalling. Inflation in July was 9.2%.

* BT: Malaysian monetary policy commitee will also like to keep OPR unchange at 3.5% when they meet today. A poll done shows 10 of the analysts expect the OPR to be unchanged while 4 were of the opinion that the rate would be increased by 0.25% to 3.75%. Meanwhile our ringgit got slammed again at mid day- 1USD: RM3.3645. Are we not getting poorer by the day?

* BT: Shell Malaysia: Enough oil and gas for the next 400 years- the challenge now is finding ways to get at the reserves.

* AP: US gas prices dropped by 15% in the last 2 weeks. It peaked at USD4.11 per gallon in July and currently hovers around USD3.70 per galloon.

Smart Investing/Trading for the week ending August 22 2008

Weekly US Markets Update and Outlook

U.S. stocks to focus on financials, housing data
Possible Lehman takeover, Fannie Mae-Freddie Mac bailout also on radar

MarketWatch: Stocks next week will take their cues from fresh data on housing and consumption, while the fate of mortgage giants Freddie Mac and Fannie Mae, as well as the future of investment firm Lehman Brothers, will likely keep investors on their toes. Among other factors likely to move markets will be Democratic presidential candidate Barack Obama's pick for vice president. Oil prices, which fluctuated wildly over the past week, also will stay on investors' radar screens. But analysts say the ailing financial sector, where the fallout from the credit crisis continues to take its toll, will be on top of the agenda next week. Among economic data on the docket for next week are the Case-Shiller home price index and home sales figures for July. The consumer confidence index along with personal income and consumption figures for August will provide a snapshot on U.S. consumers. After posting gains since mid-July, the stock market still seems still unable to get past the continued fallout of bad home loans that have led to a global credit crisis and mountains of losses for financial firms. But stocks rallied Friday amid mounting speculation that Lehman Brothers might be the subject of an outright acquisition and that the U.S. government might bail out Fannie Mae and Freddie Mac jumped 197 points, or 1.7%, to end at 11,628, with 28 of its 30 components gaining ground, led by financials stocks J.P. Morgan Chase. Major stock indexes still ended the week lower, after falling three out of the past five sessions. Despite Friday's rally, the Dow finished the week down 0.3%, the S&P lost 0.5% and the Nasdaq Composite dropped 1.5%. Front-month crude-oil futures gained 0.7% this week. Crude surged 5% on Thursday as tensions between the U.S. and Russia flared up. But on Friday oil slumped more than 5% to close at $114.59 a barrel, pummeled by a rising dollar.

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Stocks' strong gains Friday were also supported by comments from Federal Reserve Chairman Ben Bernanke, who said he expected U.S. inflation to moderate this year. The comments fueled speculation that the Fed will keep interest rates low for the near future. The Federal Open Market Committee, the Fed's rate-setting arm, will release minutes from its last meeting on Tuesday. Shares of Lehman Brothers jumped 5% after Korea Development Bank, which is in talks with the troubled Wall Street firm, was quoted as saying that one of the options on the table is an outright acquisition.

Monthly KLSE Composite Index

I Capital: The KLCI seems to have followed the trend of the other equity markets in falling. The technical readings have been painting a picture of doom. However, as any bear would have to eventually end, the KLCI has now hit its long-term uptrend support line. Whether it will fall below this or rally from here will depend, to an extent, on Malaysia's political developments, and more crucially, the global economy. Both are stories waiting for a final chapter.

* Today marks the last day of the Beijing Olympic games. Farewell Beijing, Hello Manchester! What will be in store for the Chinese markets post Olympics?....well the story will start unfolding tomorrow.....

Commodities turning bullish again?

Bloomberg: Commodities headed for their biggest weekly gain in 33 years as oil traded near its highest for more than two weeks and a weakening dollar revived demand for raw materials as alternative assets. The Reuters/Jefferies CRB Index of 19 commodities soared 3.7 percent to 405.92 in New York yesterday. A settlement at that level today would mark a 6.2 percent gain for the week, the most since July 1975. The dollar headed for its first weekly decline against the euro since July 11, while oil climbed past $121 a barrel after jumping more than $5 yesterday.

A rebound in the CRB and a resumption of the dollar's decline may stall a rout in commodities that has sent the index down 14 percent from a record on July 3. Raw materials priced mostly in dollars often move in the opposite direction to the U.S. currency. ``Speculators' stomachs are nearly empty, so they have the appetite to buy more,'' Bob Takai, general manager of financial services at Sumitomo Corp., said by phone in Tokyo. ``Buyers for oil will emerge from here and the price is going to go up.''

Gold for immediate delivery was little changed at $835.99 an ounce, after advancing 2.9 percent yesterday. Every commodity on the CRB except hog futures moved higher yesterday. Nickel was up 8.2 percent, cocoa rose 6.8 percent and silver 5.2 percent. Commodities are gaining on speculation demand will increase from China as the country resumes work at factories and infrastructure projects that were shut or slowed during the Olympics.

MyTake: Can the buying momentum be sustained? If we ignore all the "noises" and eliminate all the panic or irrational buy/sell(or speculation), commodities should be on an uptrend over the longer term. The reasons are mentioned here and here before.

* Is she really not resigning? On economic news...Malaysia's July inflation reaches 8.5%. Ringgit worsened to 1USD:3.34 Ringgit.

* Petrol and diesel price 1st reduction effective after 12.00am August 23...RON92 -15sen, RON97 -22sen, diesel -8sen.....yawn yawn should I be so excited? yawn yawn yawn.....

* BT: Due to the increase in cost of raw materials like steel sheets and plastic resin, Panasonic will soon raise prices of its electrical household appliances.

* BT: GPacket will return to profit early next year because growth of its software business will offset the higher cost of its wireless internet access business. Puan, I am still waiting for you to dazzle me with you good set of results.

* The Standard: Investors should not put their hopes on market -saving measures by the mainland government-warned Li Ka-shing.

* CNBC: South Korea props up the won again today. It sold USD when won touches 1,056.6 per USD1. The won recovered to 1.051.3 towards closing.

* Malaysian government being sued - today's newspaper reported Nurin's father and a raped school girl are having a go at the government for negligence.

Can China save the Sun?

DailyFx: Japan’s Merchandise Trade Balance saw the surplus shrink further in July, registering at 91.1 billion yen versus 235 billion expected and 138.6 billion in the preceding month. The contraction in the trade surplus came courtesy of a spike in imports: inbound shipments rose at the fastest pace in two years at an annualized rate of 18.2% on higher oil prices. However, exports surged 8.1% having fallen -1.8% in the last release, the largest drop in seven years. Exports to Asia surged 12.7%, with China leading the way seeing outbound shipments rise 16.8%. By comparison, exports to the EU rose just 4.1% and those to the US fell -11.5%. This comes on the heels of yesterday’s JPMorgan report saying China will introduce a fiscal stimulus package in the near term.

All this adds up to very good news for Japan: the external sector is a major driver of growth for the world’s second largest economy, which inched closer to recession having seen GDP shrink -0.6% in the second quarter. The top question going forward will be whether Japan can sustain such favorable trade results as the world economy decelerates. Slowing global demand will not leave China unscathed, and it remains to be seen if their hunger for Japanese goods will remain as robust after the Olympic Games are over.

MyTake: Bloomberg also reported today that China has marginally overtaken the US as Japan's largest customer in July. The export to China in July amounted to 1.29T Yen as compared to export to the US of 1.28T Yen. The exports to the US have been on a declining rate for the passed 11 months. Will this new finding coupled with the fact that China will soon introduce an economic stimulus package worth RMB400b pull Japan from its brink of recession? To me, Japan will not be able to leverage on China to get them out of this eminent recession. Japan's economic policies have all this while rely on the US and largely ignored China and I believe this realisation that "China cannot be ignored" comes in a bit too late as other countries like S.Korea and Taiwan have taken the early start advantage. Furthermore, I do not think China need to start its economic surplus as the economy is still growing at a pace of 10% pa. Even if the stimulus is effected the RMB400b against China's GDP of around RMB30T is rather small as it represents only 1% of the GDP. The effect of such stimulus package like the ones given out in the US are at best temporary and may not even spill over the countries like Japan. Japan does not need to be too bothered with recession as it will definitely sluggishly goes into it, but while it goes into one, it really needs to start having structural changes, improving FDIs and consumer spending, reforming the capital markets, improving on its productivity and ensuring their property market does not come crashing down. Then at least the pain of recession will not be that bad.


* Avril Lavigne -too sexy for Malaysia?

* BT: Perwaja is the 3rd worst performer in recent 1st day IPOs as it closed 15% lower on its maiden trading. The worse performer was Luxchem (-29%) and the 2nd place was Signature(-16%).

* BT: Capital Land (SEA's largest real estate company) plans to list a RM2b property trust company by the end of the year. Will it then escape the 1st day blues most IPOs are facing now?

Broken glasses everywhere

So Perwaja was finally listed today. It was touted as the listing of the year based on its sheer size (market capitalisation of RM1.6b) and on its "from rags to riches" story. The opening and closing for the stock was very disappointing to many investors who have gone through the IPO selection process in which they have to pay RM2.90 per share. The shareholders via Kinsteel also stand to lose although not as much as the IPO subscribers. The disappointment came with the fact that the share has been recommended a BUY by research analysts who gave the fair value price of the stock from RM3.70 to RM4.90. Could the 1st day blues of Perwaja linked to the expected further softening of steel prices and lower demand in the future and also the current weak market sentiment all together or are there something else? Are all the analysts which have MBAs and CFAs under their belts got the figures all messed up? I believe the disappointing price is due to a combination of all the above factors and more particularly due to the current weak market sentiment...mind you our market has gone down more than 25% this year. I have attached above a summary of companies listed this year to date and below are some findings why I draw from this conclusion.

Listing day-

* Of the 14 companies listed, more than half of the companies closed on the first day below IPO level.

* Of the 6 main board companies listed, 4 companies closed on the first day below IPO level.

* Of the 4 2nd board companies listed, only 1 company closed on the first day below IPO level

* Of the 4 Mesdaq companies listed, 3 companies closed on the first day below IPO level.

Conclusion

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If really want to subscribe for IPO, go for 2nd Board companies. Making money from IPO in general on the first day of listing = 42% chance only. No more 100% success stories!

Post Listing-

* Of the 4 2nd board companies listed, 2 of them are doing better than the IPO price now while 2 others are not.

* Of 4 Mesdaq board companies listed, 1 is doing better than the IPO price now while 4 others are not.

* Of 5 Main board companies listed, none is doing better than IPO price now.

(Excluded Perwaja because we do not have its post listing data)

* Todate, for the main board companies, the price compared to IPO price is down from 16 to 35%.

Conclusion

Based on the above and looking at the current market sentiment, I would say there is no point subscribing for IPO shares now as we can buy them cheaper on post listing days. If you REALLY REALLY need to subscribe IPO shares, 2nd board companies stand a better chance of making money. However, it is better to sell off the shares during listing day or a few days closed to listing day as only 3 out of 13 companies managed to do better than the IPO price post listing. But....it is always good to do our own homework on the companies we intend to invest and the sectors they are in as good companies could be sold down irrationally by panic sellers. Stick to our own valuation and conviction.

* Bloomberg: Richmond Fed Reserve President publicly clash with Paulson on Fannie and Freddie calling both companies to be privatised rather than backed by Government but owned by shareholders. He proposed both companies to be nationalised, then split up and sold off.

* BT: Jim Rogers will be in KL on August 23 but his talk is only exclusive for CITI Gold customers!

* BT: P1 finally launches its WiMax applications yesterday. Unfortunately, the coverage areas are still very limited and I really hate the "bulky" looking modem. Suggest to wait for newer versions and better coverage first.

* South Korea's regulators are making new listing easier while making delisting harder for troubled companies. Times are bad!

* Hanoi and HCM's stock market trading ranges have been widened. HCM +/-5% (from 3%) and Hanoi +/-7% (from4%)

* Datuk Lee Chong Wei- RM300k and RM3k monthly pension...coming in too young and too early????? Will this player loose his drive and hunger???

* FinancialTimes: Indonesia is pushing to develop a larger Islamic market. It has recently appointed HSBC, Standard Chartered and Barclays Capital to handle its global Islamic Bond program to boost the sukuk market. Malaysia is the world's leading sukuk market issuing about half of the USD51.5b issued last year.

Are Asian FX reserves really big enough?

We have in recent times hold on to the believe that many Asian foreign exchange reserves are in a healthy pink and are likely weather the worse of economic storm. Over the past decade, the governments in countries like China, Taiwan, Malaysia, South Korea, Thailand and Philippines have been building up extensively the reserves account via increased trade and investment (and possibility hot money). The large reserves have enabled countries like South Korea, Thailand, Philippines and Indonesia to sell off part of their USD holdings in a bid to improve their currency in order to fight the ever increasing inflation. A recent study conducted by IMF challenges the above notion. IMF has proposed a newer and reflective way to analyse foreign exchange reserves by comparing it against the gross external liabilities rather than with imports, debts due within a year or broad money supply and GDP. It is always difficult to get reliable data on gross external liabilities as it comprises private and public borrowings (ie debts), equity claims and real estate investments. So this study done by IMF is a good source of information and reference.

Reuters: A new study by the International Monetary Fund could fuel an uneasy feeling already stirring in financial markets that some Asian central banks are drawing down their currency reserves a bit too fast for comfort. In a challenge to conventional wisdom, including that of the Fund, two IMF researchers say the huge war chests in most Asian countries are not too big in light of the potential for international capital flows to come to a screeching halt. "Except in China and possibly Malaysia, reserves in emerging Asia cannot be considered excessive, when compared to what would be optimal from a precautionary motive standpoint," Marta Ruiz-Arranz and Milan Zavadjil wrote in a working paper. Asian currency reserves have quadrupled since the financial crisis in the region a decade ago. Even excluding China, they have more than doubled in nominal terms, a buildup that is still controversial. As far back as mid-2003, Ken Rogoff, the fund's chief economist at the time, memorably said that putting aside reserves for a rainy day was one thing; building Noah's Ark was another. Topping up stockpiles depleted by the crisis as self-insurance against a repeat of that trauma was a natural policy response. But the reserves then kept growing as central banks intervened in the currency markets to hold down their exchange rates. In doing so, critics say, Asia built up external surpluses that exacerbated global imbalances, paid for American consumers to live beyond their means for too long and bottled up inflationary pressures at home that are now bursting forth. And developed economies seem to be chasing each other into recession as banks unwind the lax lending, to subprime mortgage borrowers and others, that Asian vendor financing made possible. It's quite a charge sheet, so it is all the more refreshing to find a stout defense of reserve accumulation from the IMF itself.

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For a start, Ruiz-Arranz and Zavadjil wrote, the reserve buildup has reduced Asia's vulnerability to the fallout of the global credit crunch and so is helping to maintain financial stability in the region. What is more, they present evidence that holding reserves significantly lowers the interest rate that private borrowers pay on their foreign debt, because lenders are more confident they will be repaid. Asia may be flooded with reserves as measured by conventional yardsticks: the ratio of reserves to three months of imports; to external debt due within a year; to broad money supply; and to gross domestic product. But these benchmarks are out of date, Ruiz-Arranz and Zavadjil argue. In an era of footloose money, when an abrupt reversal of capital flows can cause output and consumption to slump, they say it makes more sense to judge the adequacy of reserves against a country's gross external liabilities. Just how much a country should hold back for that rainy day depends, they say, on the nature of its liabilities - foreign direct investment cannot turn tail in the same way bank deposits can - and on how volatile they are. While a one-size-fits-all benchmark is inappropriate, they calculate that reserves currently cover less than a third of emerging Asia's external liabilities. And that ratio has been slowly declining or has held steady across Asia, except in China and Malaysia, Ruiz-Arranz and Zavadjil say.

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An estimate by Reuters puts the region's total reserves at $4.35 trillion at the end of June. That is up $425 billion so far this year compared with a year earlier. But Sue Trinh, a currency strategist at RBC Capital Markets in Sydney, said reserves in Asia excluding China had shrunk by about $70 billion since April as central banks sold dollars to prevent their exchange rates from falling even faster. "It's just as well that they've built up all these FX reserves in the past few years because they're now much better positioned to use them as needed," she said. Asia is not running out of reserves. For now, the cloud of anxiety is no bigger than a handkerchief. But traders are on their guard. "When markets question the sustainability of policy choices, they don't wait for the actual breaking point," said Daniel Hui, a currency strategist at HSBC in Hong Kong. "They extrapolate out and say 'is this sustainable?"'

* Bloomberg: Australia's central bank says it may cut rate "soon" to shore up growth. Its interest lending rate is now at 7.25%.

* Forbes: Japan is widely expected to hold on to its super low interest rate of 0.5%. The central bank has today warned that its economy will remain sluggish in the near term.

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* TheEconomicTimes: JP Morgan says China is mulling an economic stimulus package of at least USD30-60b and may ease monetary policy by the end of the year.

Technical Analysis - August 18 2008

S&P500 (1,298, last week 1,260 or +3% w.o.w)
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The daily charts; especially the MACD continues to improve during last week. The daily DMI(+ and -) are still in an early positive crossover. The index has managed to stay around 1,298 to maintain in the 2nd level uptrend channel line mentioned weeks ago. The weekly charts has improved but awaiting positive crossover. The index is likely to trade between 1,260 and 1,330. Incidentally, the 1,330 is the index’s 200 day-ema.

KLSE CI (1,095, last week 1,120 or -2.2% w.ow)
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The daily MACD has turned negative during the week after another round of selling. The DMI (+ and -) continued to move away from each other indicating weaknesses. The weekly charts have also worsened. There is a possibility of technical rebound this week as it is nearing its July low 1,089. It is advisable to sell into this rebound. The index has fallen into bearish mode again with the strong 1,120 (ie 200-day ema) broken convincingly. The index is expected to trade between 1,050 and 1,150.
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HangSeng (21,161, last week 21,885 or -3.3% w.o.w )
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Similar with KLCI, the daily MACD for Hang Seng has turned negative during the week after another round of selling. The DMI (+ and -) continued to move away from each other indicating weaknesses. The weekly charts have also worsened. There is a possibility of technical rebound this week as it is nearing its July low 20,998. It is advisable to sell into this rebound. The index has fallen into bearish mode again. Immediate support is at 20,500 while resistance at 22,000.


Nikkei 225 (13,019, last week 13,168 or –1.1% w.ow)
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The daily MACD chart is still positive but at a very crucial level of breaking down while DMI(+ and -) continued to break away negatively from each other during last week. The weekly MACD is also at the crucial stage of hooking down but still managed to stay afloat for now. The weekly MACD has been on a positive crossover since April this year. The index is expected to trade between 12,500 to 13,500 The index face major resistance at 13,300.
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* International Herald Tribune: Standard Chartered Bank and RBS plan to set up Islamic banking subsidiaries in Malaysia. Malaysia has 12 full fledged Islamic Banks. As at last year it had sharia-compliant assets worth RM157b or about 12.8% of total banking system.

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* The Standard: The Shanghai Composite Index dropped more than 3% today due to selling of coal producers stocks after a hike in the coal export tax and by a drain of funds into China South Locomotive and Railway Stock Corp as the firm got listed.

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* No RM1m but RM300k-Lee Chong Wei. Congratulations...for giving your best effort!

Dark clouds await

Recent data from Japan suggest that the world’s second biggest economy is finally tipping into recession. The Cabinet Office revealed on Wednesday that the economy had shrunk by an annualised 2.4 per cent during the first quarter of the financial year. Worse still, Japan’s terms of trade — the income gained on a given volume of imports and exports — are falling at their fastest pace in 28 years. Below provides some insight what Fund Managers think would likely be the future economic direction for Japan and the world economy.

IStockAnalyst: Expectations for a recession in Japan have increased, a monthly fund manager survey by Merrill Lynch showed Wednesday. In the August survey, a net 46 pct of 35 fund managers for Japan said that the country is likely to experience a recession in the next 12 months, up sharply from 6 pct in July. A net 57 pct expect the Japanese economy to weaken in the coming 12 months, up from 52 pct in the July survey. Corporate earnings are also widely expected to deteriorate, with a net 57 pct thinking that earnings-per-share growth at Japanese companies will decline over the next 12 months, up from 38 pct in July. Meanwhile, inflation expectations came down. In August, a net 54 pct of the fund managers said that Japan's consumer price index will rise over the 12 months, but the proportion is down from 77 pct in the previous month. The survey also showed that a net 18 pct of global fund managers expect global core inflation will be lower in the coming 12 months. Two months ago in June, a net 33 pct said inflation would be higher. David Bowers, an independent consultant to Merrill Lynch, called this "an extraordinary change of view in inflation." The change in the fund mangers' view of inflation appears to be generally reflecting dim prospects for the world economy. For instance, 24 pct of the global fund managers said in the August survey that a recession is already at hand. Still, they might have overreacted to the recent fall in oil prices. Karen Olney, head of Merrill Lynch's European equity strategy, said, "It will take several months of slowing global growth to be sure that the inflationary dragon has been slain."

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* 2 winning games away to have a million ringgit in his pocket?

* Vietnam has slashed retail petrol prices up to 5.3%. The cut came 3 weeks after Hanoi unexpectedly raised fuel prices by as much as 36% in July. Why do we have to wait till September for the cut? Singapore has revised petrol prices downward for the 5th time?

* Bloomberg: US banks repossession almost tripled in July and the US foreclosure filings increased 55% from a year earlier as falling prices cut home owner equity, accelerating the decline.

* A total of RM37m of windfall levy (1st instalment) was paid by the IPP companies to the Government yesterday. Payment under protest?

Pariah market

No...this article is not referring to our Bursa Malaysia.... it is about the Russian stock market. The market which has been holding up well from the beginning of the year has been tumbling down badly since beginning July. The downfall does not come as a surprise as the economic performance, fall in crude oil prices and the deployment of armies into Georgia are pulling the market downwards. The country seems to be in the wrong side of the road lately.

Bloomberg: Russia's RTS stock index is turning into the world's worst performer this quarter as tumbling oil, a war in Georgia and the probe of a steel company remind investors owning shares in the former Communist nation can be perilous. The RTS fell 22 percent since June 30, even after President Dmitry Medvedev halted the invasion of Georgia yesterday, sending the index up 3.5 percent. The retreat this quarter is the steepest among indexes in the world's 20 biggest stock markets, according to data compiled by Bloomberg. While the slump pushed valuations of the 48 companies in the index to the lowest level since March 2006, Firebird Management LLC, Credit Suisse Group's Clariden Leu and Banco Santander SA are avoiding the country. The government's investigation of steel producer OAO Mechel comes five years after the state's assault on OAO Yukos Oil Co., while its decision to send tanks into Georgia shook confidence in Medvedev. ``This bounce should be sold,'' said Ian Hague, the New York-based founding partner of Firebird, who reduced Russian stock holdings in the past three months to less than half of the $1.8 billion he had invested in countries that made up the former Soviet Union. ``Russia will be a pariah. It is a pariah. It's difficult to do anything other than reduce your exposure,'' Hague said yesterday after returning from Tbilisi, the Georgian capital.

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`Bad to Worse'

JPMorgan Chase & Co. cited the ``risk that non-conventional methods may be used to control inflation,'' when it cut Russian stocks to ``underweight'' last month. The New York-based bank also said that economic ``momentum'' was slowing in the world's biggest energy exporter. Russia's annual inflation rate was 15.1 percent in both May and June, matching the highest level in five years, data from the Federal Statistics Service show. The International Monetary Fund estimates the country's economic growth will slow to 6.8 percent this year from 8.1 percent in 2007. The Washington-based fund expects a 6.3 percent expansion in 2009, which would be the weakest since 2002. ``Unfortunately, the global and even the Russian macroeconomic picture is going from bad to worse,'' said Zina Psiola, who manages $1.1 billion in Russian stocks at Clariden Leu in Zurich.

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* ACA working hard....

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* Reuters: Japan's economy contracted 0.6% in the 2nd Q on quarterly basis....joining NZ, N.Korea, Ireland, Spain? ...more bad data to come out soon.

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* The Age: FDI in China rose 44.5% in the 1st 7 months of the year compared with the same period last year. During the last 7 months the FDI received amounted to USD60.7b. This item is one of the major contributor to China's hugh foreign exchange reserves which now stands at USD1.8T.

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* BT: According to Cargill Asia Pacific, the plunge in palm oil futures is directly linked to falling soya bean prices.