Tuesday, May 26, 2009

Economists Positive On Economy After 1st Quarter

THE Malaysian economy probably bottomed out in the first quarter, with market expectations of an improvement leading to growth again in the last quarter.

Economists said they expected manufacturing output in the first quarter to fall nearly twice as much as in the fourth quarter of last year, although the services sector was likely to continue registering growth.According to a Business Times poll, the economy is expected to contract 3.47 per cent in the first quarter.

Gross domestic product (GDP) this year is forecast to contract 1.52 per cent before turning around and growing 3.2 per cent next year.

Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz, who will release the first quarter GDP data tomorrow, had said that the economy might show signs of improvement in the third quarter and subsequently register growth in the final quarter.

DBS Bank economist Irvin Seah has revised downward his forecast for first quarter GDP to -3.4 per cent from 0.5 per cent.

"We had earlier expected Malaysia's economic growth cycle to bottom out in the middle of the year, but higher frequency data such as exports and industrial production numbers are suggesting that the worst of Malaysia's quarterly GDP growth is probably now behind us, that is, in the first three months of the year," he said.

Seah said the main drag on the economy in the first quarter came from the external front, in line with the region's poor export performance.Malaysia 's exports collapsed in the first quarter, posting an average contraction of about 20 per cent year-on-year and pushing industrial output into reverse gear for a decline of about 16 per cent.

Seah expects the manufacturing sector to be the worst hit, with growth likely to fall by about 21 per cent in the first quarter, while the key services sector is expected to grow 5.3 per cent.

He is looking to an improvement in GDP growth numbers to -2.8 per cent, -1.7 per cent and 3.2 per cent in the next three quarters.

Citi economic analyst Leon Hiew said that while the January-March period was likely to see the first quarterly real GDP contraction since 2001, the latest March data suggested that Malaysia might already be at or past the bottom.

The drop in first quarter GDP will likely prompt a downgrade in the official forecast for the year, possibly to -1 to -3 per cent, he added.

Selena Ling, an economist with OCBC Bank, described the upcoming first quarter data as a "reality check" that the Malaysian economy was not immune to the global recession and would prompt the government to revise downward its growth forecast.

"Should the unfavourable combination of a domestic recession and easing commodity prices persist, the policy implications may be that the door is not ironclad for further interest rate cuts down the road," she said.

TA Research economist Patricia Oh also expects the economy to contract for the first three quarters before resuming growth in the fourth.

"The fiscal stimulus measures may be reflected by the end of the year, while private consumption is likely to rebound as consumer sentiment improves," she said.

- By Rupa Damodaran

Wednesday, May 20, 2009

Market To Remain Active

Market to remain active on pump-priming moves

Kenanga's head of research says he is maintaining his year-end target for the Kuala Lumpur Composite Index at 1128.

THE local market is expected to remain active, in terms of trading volume and value, due to the government's pump-priming initiatives, says Yeonzon Yeow, head of research at Kenanga Investment Bank.

"At this point, the market volume and value traded seems to be healthy, drawing back both local institutions and, to a certain extent, foreign institutions," Yeow told reporters after K&N Kenanga Holdings Bhd's shareholders meeting yesterday in Kuala Lumpur.Speedy implementation of the initiatives under Budget 2009 and stimulus packages will help compensate for the sharp fall in Malaysia's exports.

Exports fell for a sixth straight month in March as overseas shipments dropped 15.6 per cent from a year earlier.

Yeow said he was maintaining his year-end target for the Kuala Lumpur Composite Index (KLCI) at 1128.

The KLCI ended 11.48 points higher at 1023.49 yesterday, driven by overnight gains on Wall Street. Gainers outnumbered losers 544 to 158 and turnover was 1.754 billion shares valued at RM1.599 billion.

Yeow is optimistic about the local market, saying that it is a matter of time before signs of an economic recovery were in sight.

He said the banking sector is doing better as seen in the rising of non-interest income and loan growth experienced in the first quarter of 2009.

"Sentiments have turned very positive as seen three weeks ago when I was visiting manufacturers in Penang. Many said they are having better visibility of up to three months as opposed to a visibility of one week experienced last December," he added.

He also said that influenza A (H1N1) would not have a significant impact economically on retail sales and cross-country businesses in Asia.Meanwhile, Kenanga group director Tengku Zafrul Aziz said the group has implemented key performance indicators to track individual deliverables under Kenanga's transformation plan.

The transformation plan is aimed at growing the group's financial services, becoming cost-efficient and enhancing profitability within a year.

Kenanga's latest initiative will also see the group strengthening its investment banking unit, which has secured some RM1 billion worth of mandates under its private debt securities services.

Tuesday, May 19, 2009

Palm Oil Above RM3,000?

SINGAPORE: Palm oil futures traded on the Malaysia Derivatives Exchange could exceed RM3,000 a tonne "very quickly" because of a "strong" increase in consumption and production problems, an industry analyst said.

There was "a powerful bull market which has yet to realise its full potential," Bloomberg quoted Dorab Mistry, director of Godrej International Ltd, as saying yesterday in remarks prepared for an industry conference in Tokyo. Palm oil traded yesterday in Malaysia at about 14% less than Mistry's target threshold.

India, the largest consumer of palm oil after China, may boost consumption of all vegetable oils to 12.8kg per head per year in the 12 months to October, about 12% more than the year before, Mistry said in the remarks. Godrej is one of the largest importers of edible oils into India.

"Price-conscious markets like India will chase palm," he wrote in the address, saying there had been a "phenomenal" rise in the nation's usage of vegetable oils. "India's imports of vegetable oil will continue to exceed the previous year's.

"Palm oil for July delivery dropped 3.2% to RM2,580 a tonne at the 12.30pm trading break. Still, the world's most consumed cooking oil has advanced 52% this year. In 2008, the contract plunged 44% amid the global recession.

"It is not wise for me to speculate on how high prices will go," Mistry wrote, without giving a precise forecast. "However, the powerful injection of liquidity in all our economies must create inflation at some point down the road.

"Central banks worldwide have been printing money to combat the global recession, triggering concern that inflation may accelerate. Some investors buy commodities, including palm oil, to hedge against increasing consumer prices.

Palm oil exports from Malaysia to India in the first four months of the year more than tripled to 608,440 tonnes, according to independent cargo surveyor Societe Generale de Surveillance (SGS). The surge made up for the 12% drop in exports to China to 1.14 million tonnes from the same period a year ago, SGS said.

Global demand for five major edible oils, including palm oil and soybean oil, will probably rise by 4.5 million tonnes in 2008-2009, matching the increase the previous year, Mistry said. Still, global supply growth will slow to 2.85 million tonnes compared with 5.65 million tonnes in the last crop year, he said.

Mistry didn't give a forecast for soybean oil, while highlighting a reduced soybean harvest in Argentina, and lower-than-expected planting in the US.

Soybean oil traded in Chicago has gained 12% this year to 37.66 cents a pound at 12.45pm Singapore time yesterday. The oil trades at a 14.9% premium to palm oil, according to Bloomberg data.

Meanwhile, ECMLibra Investment Research remained overweight on the plantation sector, but was looking to review its call on the sector depending on production expectations at home and soy market developments abroad.

Wednesday, May 06, 2009

When Investing, Control Your Greed And Fear

We need to know who we are in order to do well in stock market investing.

THE recent strong market rally caught many investors by surprise again.

Most investors, including some analysts, predicted earlier that it was just a bear market rally. They have been hoping the market will turn down again. Unfortunately, it has been moving up strong without looking back.

For investors who have not invested during the recent low in March 2009, they are getting very worried as they are not benefitting from the recent rally. They may even wonder whether they should jump in now in order not to miss the boat.

Another group of investors, who have managed to catch some stocks at cheap prices during the previous market low, are also facing the dilemma of whether to lock in their gains now or continue to hold on to their gains. Some even regretted selling their stocks too early last month.

We all know that it is very difficult, in fact impossible, to predict stock market movement. Most investment gurus will refuse to time the market.

Howard Kahn and Cary Cooper published a book titled “Stress in the Dealing Room” in 1993. According to their surveys done on 225 dealers, 73.8% of them suffered from fear of “misreading the market.” Most dealers have the same problem of acquiring and handling information.

We believe that in order to do well in stock investing, we need to know ourselves, especially in controlling our emotion on greed and fear.

Due to information overloading, our emotion is highly influenced by the news that we read. Each time we feel that the market is getting bullish and time to buy stock, the overall market will collapse the moment we enter.

On the other hand, the moment we fear that it will drop further and we have decided to cut losses, we will notice the market will recover after that. Most of the time, the prices of stocks that we sold were at the lowest of the recent fall.

In order to control our greed and fear, we need to ask ourselves whether the market has discounted the news that we have received.

For example, many analysts have been bullish lately, having the opinion that the worst may be over for the market based on the recent economic indicators which showed that the overall economy may have stopped contracting or is on its way to recovery.

Nevertheless, the recent strong market rally would have discounted this bullish news. In fact, we need to ask ourselves whether the current stock prices can be supported by the fundamentals for certain listed companies.

In our experience, in most cases, the moment we feel like buying stocks is the best time to sell them while the moment that we feel like selling them is in fact the best time to buy. We can apply this contrarian theory quite successfully in most periods.

Sometimes, if we are taking in too much contradicting information and, as a result, get confused over the market direction, we feel that the best strategy is to stay away from the market until we have a better and clearer picture of the overall market or the economic situation.

We should not be influenced by other opinions.

There are times that we need to follow our heart. Sometimes, our hearts try to warn us from taking hasty investment decisions. However, we refuse to follow our intuition but instead, choosing to get influenced by others or the information that we read and ending up making mistakes.

In conclusion, we need to maintain our concentration.

We should not be led by the market sentiments regardless whether it is on the way up or crashing down fast. We need to go back to the fundamental of economic situation and the companies’ performance and future prospects.

One way to minimise the feeling of regret is to stagger our purchase and selling. We will only know the peak when the market starts turning downwards and vice versa. Therefore, by staggering, we will have an averaging effect rather than taking a one-time hit, especially if it is at the wrong timing.

Bernanke Sees U.S. Recovery This Year

WASHINGTON (Reuters) – The U.S. economy will begin to turn up later this year provided the financial sector continues to mend, although unemployment will remain high for a while, Federal Reserve Chairman Ben Bernanke said on Tuesday.

In testimony prepared for delivery to a congressional committee, Bernanke sounded more confident that a recovery was at hand than he had in recent weeks.

He said the U.S. housing market may be bottoming after a three-year slide, and pointed to tentative signs of a rebound in consumer spending, which is the driving force behind the economy.

"We continue to expect economic activity to bottom out, then to turn up later this year," Bernanke said in the testimony to the Congress' Joint Economic Committee.

However, he added that even after the recovery begins, "the rate of growth of real economic activity is likely to remain below its longer-run potential for a while."

That will leave slack in the economy, keeping inflation low, which in turn suggests that the central bank will keep interest rates low for some time.

The Fed dropped benchmark overnight interest rates to near zero in December. After a meeting on April 28-29, it repeated that it would likely hold borrowing costs at an unusually low level for "an extended period."

Bernanke mentioned the so-called "stress tests" regulators have been conducting at the 19 largest U.S. banks, but he offered no insight into the findings.

Final results from the tests, aimed at determining whether the firms have a big enough capital cushion to withstand a deeper downturn, are expected to be released on Thursday.

He also said the Fed would soon release more details on the various lending programs it has launched to try to ease the credit crisis, including information on the number of borrowers and the collateral accepted.

While he stopped short of agreeing to name borrowers, as some lawmakers have requested, he acknowledged that the central bank had a responsibility to keep Congress and the public informed about its lending programs and balance sheet.

That has become a contentious issue as the central bank has extended massive amounts of loans to banks as well as other firms that have not traditionally turned to the Fed in its role of lender of last resort.

"I want to commend you for establishing greater transparency at the Fed," Representative Carolyn Maloney, chairman of the Joint Economic Committee, said in a statement.

"To be sure, there are fewer 'secrets of the temple' today, but I know you will appreciate that we must continue to work to strike a better balance between institutional interests and the public's right to know how their money is being spent," the New York Democrat said.

Sunday, May 03, 2009

Which Sectors To Benefit?

THE bad times will end. It is just a matter of when. It is hard to mark that date on our calendars as recent economic data keep presenting a mixture of horrific tales (of more challenges to come) and hopeful signs (that the worst is over and recovery could be sooner than expected).

It’s not surprising then that among market pundits, there are widely contrasting views as to whether the road ahead for the global economy is going to be a U-, V-, W- or L-shaped recovery. (A recovery pattern with a U shape indicates a slow and gradual recovery process, while a V shape indicates a fast and strong recovery once prices have hit the bottom.

A W shape indicates a sharp rebound that will be followed by another decline before recovery sets in again, while the L shape indicates minimal rebound following the trough.)

But just as a majority of us have started to subscribe to the optimistic view that the global economic crisis has already hit bottom and is now climbing its way up after falling off the cliff, a bug suddenly comes our way.

The outbreak of swine flu over the week has now dampened whatever tentative signs of an earlier-than-expected economic recovery.

There are now concerns that the disease will bug several industries namely tourism, food and transportation, and deepen the recession of several major economies, particularly the United States, and prolong the recovery process of others.

Reports about the new bug are likely to hog the headlines over the short term; and hence, cast a dark cloud over some of the leading stock markets in the world, with major casualties expected to be the aviation and leisure counters.

On a positive note, however, it is widely believed that the swine flu can be contained before it reaches pandemic level.

This is based on the previous experiences of governments worldwide in handling the outbreak of other deadly diseases such as the severe acute respiratory syndrome (SARS) and bird flu.

In addition, analysts believe that the effects of the swine flu on the Malaysian market are likely to be muted.

Defensive play
Still, given the current market condition, most analysts agree that the storm has yet to abate.

Hence, defensive sectors such as gaming, rubber glove, consumer and utility such as power and telecommunications are still the preferred bets for at least up to the first half of the year.

These defensive sectors have one thing in common - demand for their products and services are relatively inelastic. This element ensures stability in their income flow.

Take the gaming sector. Its appeal lies in its luck factor. In good and bad times, the gaming arena provides consumers with the opportunity to make easy money. So, numbers-forecast operators such as Tanjong plc and Berjaya Sports Toto Bhd are expected to continue enjoying brisk sales irrespective of the current market conditions.

Even for casino operators such as Genting Bhd and Resorts World Bhd, customer attendance is likely to remain resilient.

OSK Research in its report says it expects the negative impact of the swine flu outbreak on Genting Highlands visitors’ arrivals to be insignificant.

It believes that casino patronage, which contributes more to Resorts’ earnings, would reflect greater resilience as a large majority (85%) of them comprises the captive domestic day-trippers market.

Meanwhile, the rubber glove sector, as a proxy to medical services, has been one of the biggest gainers since the recent outbreak of the swine flu. The sector is a direct beneficiary from the present turn of events.

Share prices of rubber glove makers surged over the week on expectations that the epidemic would spur demand for their products.

OSK Research in its recent report says rubber glove manufacturers are likely to experience a one-off jump in sales orders due to a strong chance of stock replenishment as most of their customers have been holding minimal stock level in anticipation of slower demand amid the global economic crisis.

The research outfit, which has an “overweight” call on the rubber glove sector, views Hartalega Holdings Bhd and Kossan Rubber Industries Bhd as the main beneficiaries as more than 90% of their gloves are dedicated to the medical segment, with the US and Europe being their largest markets.

Despite the volatile market environment, low-risk sectors such as utilities and consumer staples (food and tobacco) will unlikely see much of a financial impact.

This is because consumers in general do not have much discretion to eliminate consumption of the goods and services provided by these sectors (even though consumers may have turned more cautious in their spending as their disposable incomes come under pressure in view of the poor job market outlook).

In addition, most of these counters have high dividend yields, which makes them especially resilient during these challenging times.

Pump-prime beneficiaries, crude revival
While defensive sectors are safe bets, OSK Research head Chris Eng believes that performances of those counters could lag behind sectors that are seen as direct beneficiaries of the Government’s stimulus packages going into the second half of this year.

With that, he advocates a change of strategy, barring any other unforeseen shocks to the economy.

Eng’s bullish sentiment on the construction and building materials (such as steel and cement) sectors is shared by most analysts, who believe that these sectors are likely to see an increase in order books in the next few months as the roll out of the government stimulus packages intensify.

Ultimately, the performances of construction and building materials sectors boil down to how the government is going to spend the stimulus monies, says MIDF Research head Zulkifli Hamzah.

Meanwhile, the second half of the year will also likely witness a recovery of crude oil prices from the present average of US$50 per barrel level to the US$60 per barrel level.

This scenario is mainly underpinned by the production control as implemented by the Organisation of the Petroleum Exporting Countries, says TA Research head Kaladher Govindan.

With that, most expect investor interest in oil & gas counters to be revived by the second half of the year in tandem with the expected rise of crude oil prices.

When crude oil prices fell from its peak of US$147 per barrel in July last year to around US$40 per barrel early of the year, many oil and gas projects, especially those involving non-conventional and deepwater oil, were rendered not commercially viable to carry out. As such, there will be more oil & gas projects coming on stream if crude oil price regains its upward momentum.