Monday, November 24, 2014

Malaysia Jumps To No. 5

SMART STRATEGIES: Country improves from 20th place over past decade. MALAYSIA has jumped 15 notches over the past decade to fifth place in the latest world talent ranking basedon investment and ability to attract and retain talent.
In the IMD World Talent Report 2014 that surveyed 60 countries, Switzerland, Denmark, Germany and Finland were the top four.
IMD, a top-ranked business school in Switzerland, released the report on Thursday.

“The best-ranked countries have a balanced approach between their commitment to education, investment in developing local talent and their ability to attract overseas talent,” said IMD World Competitiveness Centre director Prof Arturo Bris.

“Countries with smart talent strategies are also highly agile in developing policies that improve their talent pipeline.”

For the investment and development factor, Denmark was ahead of Switzerland (second) and Austria (third) while Germany was fourth and Sweden fifth.

Switzerland was ranked top for the appeal factor, followed by Germany, the United States, Ireland and Malaysia.

Switzerland was also rated the highest for readiness, ahead of Finland, the Netherlands, Denmark and the United Arab Emirates.

The IMD report assesses a country’s ability to develop, attract and retain talent for companies that operate there.

It reflects three key factors: investment and development in home-grown talent; appeal, which is a country’s ability to retain home-grown talent and attract talent from overseas; and readiness, which reflects a country’s ability to fulfil market demands with its available talent pool.

--BTimes

Thursday, October 16, 2014

KLCI : South Pursuit

Well, It has been long while that I did not put up on coverage about our KLCI direction. Today I decided to do some short write up base on what I can see from this few days selling blood bath! 

Yesterday and today we are experiencing high market rout through out the world. This has been long due correction for KLCI progressing uptrend since 3 years ago. Our index has violated the uptrend line after breaking at 1860 in early Aug. Since then the index has weakening day by day and end up to the sell down for the pass 2 weeks. From the chart I can see that we are going to bottom out soon ranging between 175x-176x. Technical rebound is around the corner and I expect index to push up about 50 to 70 points before it decide which direction it plan to go. Let see will this materialize!
After the rebound, what I am concern is that the index might not easily break the strong resistance now set at 1850! It will definitely try few attempt to break this level. Even if it breakout the farther can reach will be 193x-194x than mostly will drop back below 1850! Let see how the index play up. Those who manage to grab and buy your favourite stocks in this few days sell down better to sell your holding when index reaching or almost reaching this 1850 level. Hold only stronger stocks or apply "wait and see" before decide any buying to avoid been trapped. Failure to penetrate or sustaining this critical resistance in short term will sent our index back towards 175x. If this level break we will be going to have cheap sales and lelong lelong to visit the very critical and important support which is at 1650! This level must not be breach. Once breach I would say this will be the end of our market uptrend!!!

That's all what I want to say. Good Luck All and Happy Trading. Cheers!!!

Monday, September 22, 2014

Budget 2015 – Five Things Najib Needs To Focus On

PRIME Minister and Finance Minister Datuk Seri Najib Tun Razak will be presenting Budget 2015 on Oct 10.

As the year 2015 will coincide with the final year of the Tenth Malaysia Plan (10MP), 2011-15, the budget would serve as a platform for the policymakers to take stock and outline short to medium-term economic initiatives and strategies for a final push of the 10MP and going into the 11th Malaysia Plan (11MP). Besides this, 2015 is also a big focus year, as it marks the implementation of the goods and services tax (GST) on April 1. The Government is expected to set Budget 2015’s deficit target at 3.0% of gross domestic product (GDP) (estimated 3.5% of GDP in 2014).

The budget is a matter of meeting competing priorities. Carefully crafted fiscal discipline carries the day. Clearly, the Government needs to increase spending allocation where they are critically needed and re-prioritise spending to ensure a sustainable economy. The daunting task and delicate balancing act is for Najib to draw up a radical and responsible budget and execute it well in the year ahead. Broadly, the budget should focus on five thrusts: fiscal consolidation, continued improvement in the management of public funds, sustaining investment momentum, productivity and innovation, controlling inflation and the rising cost of living as well as ensuring affordable housing.

Thrust One

There should be no compromise on fiscal consolidation to avoid the sovereign de-rating risk. Budget 2015 must get the balance right between supporting economic growth, primarily through productivity gains rather than imposing additional taxes, which will hinder investment performance, and generating operating surplus, primarily through productive spending and cost savings. The long-awaited multi-tier fuel price scheme based on income will be unveiled in the budget. Fuel subsidies are likely to come down, but the saving of this has been eaten away by higher cash handouts to low and middle-income households.

In Budget 2015, expectations are that the quantum of the 1Malaysia People’s Aid (BR1M) scheme will be increased by between RM150 and RM200 for eligible households. The quantum of increase could be higher to offset the impact of the GST implementation on the net disposable income of targeted households. We reckon that the guiding principle for prudent fiscal management is based on a targeted subsidy programme, aimed at reaching out to the needy groups, but some have questioned the sustainability of cash transfers, going forward. The worry is that conditional cash transfers can cause unintended consequences, including fiscal costs and perverse incentives to work harder for more income or to seek rent.


A fiscal consolidation strategy should be accompanied by better fiscal and financial control over public-private partnerships and state-owned enterprises, aimed at putting the gross public debt-to-GDP ratio, as well as contingent liabilities (loans guaranteed by the federal government), on a firm downward trajectory in the medium term. It is timely to revamp the public sector pension scheme to ensure fiscal sustainability whilst providing adequate retirement security and maintaining public sector workforce productivity. A migration to a collective defined-contribution plan from a defined-benefit pension system is best suited to meet the overarching goal of balancing the competing interests of public employees and taxpayers.

The Government may revisit the restructuring of its housing loan division (estimated outstanding loans of RM42bil), as part of efforts to consolidate the fiscal deficit and ease the Government’s financial burden. This initiative was mooted in Budget 2013, whereby the Government would appoint panels from commercial banks to manage new housing loans, effective January 2013. However, nothing has been implemented.

Thrust Two

There should be continued improvement in the management of public funds, with a view to increasing transparency and accountability in the management of public expenditure. The fiscal transformation programme entails radical and sustainable reform, not only in curtailing operating expenditure via subsidy rationalisation, but also in undertaking more cost-saving initiatives, including the implementation of a critical review and reform of the procurement system to combat wastages and leakages. The problem of overlapping spending schemes has to be avoided. A fundamental review is also required to weed out the country’s non-developmental, low-priority and unproductive expenditure, while focusing on growth-oriented spending. The “supplies and services” component made up 16% of total operating expenditure and 15.9% of total revenue in 2013. The authorities need to put in place tougher and more deterrent rules to stop rampant cases of financial mismanagement and leakages, as well as cost overruns of development projects exposed in the Auditor-General’s Report. Senior management of implementing agencies will have to assume greater accountability for the mismanagement of funds, poor judgement as well as carelessness in the monitoring of projects.

Thrust Three

Private investment has regained strong momentum to expand by 15.8% per annum in 2010-2013 (12.8% of GDP in 2010 and 16.7% of GDP in 2013) and 13.1% pa in the first half of 2014 (H1’14) (19.1% of GDP in H1’14). The challenge going forward is how to sustain investment momentum when the Economic Transformation Programme (ETP) hits its maturing phase in the years ahead. Additional measures and initiatives will be needed to ensure that stable, balanced private investment growth can continue in Malaysia.

The vitality of private investment needs to be given focus, as it is now ready to take over the driver’s seat as the Government continues to consolidate its fiscal balance sheet. It is vital, therefore, that Budget 2015 provides a clear outline and direction on how the Government intends to deal with the fuel subsidy rationalisation, tariff rebalancing structure, minimum wage and foreign labour policies. Be prepared and ready to reap the opportunities out of the Asean Economic Community (AEC) by 2015.
 

The Government needs to reaffirm Malaysia’s stable and transparent corporate tax regime, with a view of lowering the tax rate (currently at 25%) to a more competitive level regionally. In Budget 2014, the Government had pre-announced that the corporate income tax would be reduced by 1% pt from 25% to 24%, while the income tax rate for small and medium enterprises (SMEs) will be reduced from 20% to 19% from the 2016 year of assessment.
 
The budget needs to reflect on the vital importance of increasing productivity, creativity and innovation, the SME sector and seizing investment in domestic enterprises. The following measures could be considered in the budget:

1) qualifying capital allowance be given for companies involved in productivity and innovation enhancement in high value-added and knowledge-based industries, including services and trading companies,

2) accelerating the utilisation of ICT-supporting solutions by SMEs via tax deductions or tax credits,

3) enhancing the micro-loan programme and seed capital funding to encourage youth entrepreneurship. The Government should design a risk sharing scheme with participating financial institutions for loans to young SMEs, and

4) supporting entrepreneurs through intensive mentoring via public-private partnerships’ incubator programme. The funding will be used by participating organisations to provide entrepreneurs with intensive mentoring and other resources to develop their business.

Where enhancing skills is concerned, the Government must continue to critically review as well as strengthen policies that align skills training and capacity building with labour market needs. Providing graduates with the right skills is essential to further Malaysia’s economic prospects. Looking to harness the demographic dividend, the budget should re-allocate spending on a national multi-skill programme, including re-skilling and up-skilling to enhance employability and entrepreneur skills. The following initiatives can be considered:

1) providing tax credits to support tangible investments in productive and job-creating initiatives, and

2) setting up a dedicated fund (public-private partnerships) for supporting apprentices, apprenticeship technical training as well as internships for diploma students and graduates in high-demand fields.

Thrust Four

Managing the rising cost of living remains the Government’s priority. Higher inflation expectations will remain for some time, as consumers brace for the second wave of price inflation when the fuel subsidy reform likely resumes in the fourth quarter of 2014 (Q4’14) after the last fuel hike in September 2013 and the rollout of the GST on April1, 2015. Owing to concerns about the bunching impact of price increases on consumers and businesses, careful planning and sequencing on the timing of the subsidy rationalisation is deemed appropriate, allowing households and the business sector to digest the anticipated price pressures.

It is undeniable that consumer inflation will likely rise initially following the GST, but the higher inflation rate will wear off eventually after some months. What worries us is that this may not hold if prices are “sticky downward”, as businesses will continue to maintain profit margins despite enjoying lower input costs, the GST-imputed input tax rebate. It remains challenging for the Government to manage the GST-inflicted impact on domestic inflation during the transition period. The stepping up of the consumer awareness campaign, effective price monitoring and regulatory price check enforcement, especially at the initial implementation stage, as well as real-time price information on GST-imposed items, are vital to help rein in unfair price setting practices or curtail excessive profiteering. The budget is expected to roll out the list of zero-rated and exempt supplies goods and services. A Shoppers’ Guide, which indicates the price changes due to the GST implementation based on selected regions, should be widely disseminated and made available through all channels in Q4’14 or January 2015, so that consumers have more time to digest the information.
 
The budget is expected to unveil some initiatives to improve the supply chain of production, marketing and distribution channels of agriculture produce and essential food items to help stabilise prices and ensure sustainable supply. If warranted, there should be a fundamental review in terms of procurement, storage and distribution functions to strengthen the effectiveness of these agencies.

On mitigating the rising cost of living, the Government may provide a one-off GST voucher for eligible households and older Malaysians, especially those who are retired or have no income, as they are usually more affected by increases in the cost of living.

Thrust Five

On the issue of ensuring affordable housing accessible to targeted groups, a holistic affordable housing programme needs to be implemented to help close the gap of the demand and supply of affordable housing premised on three broad approaches to affordable housing - rental assistance, homeownership assistance and regulatory policies.

Regulation can be a powerful housing policy tool. However, often overlooked, land use and development regulations such as zoning policies, land use restrictions, development fees, sub-division and design requirements, as well as other regulations, have explicitly or implicitly limited or prevented the development of affordable housing in a jurisdiction. While some of these regulations are necessary, others can be hindered and, when reviewed or removed, should facilitate the supply of more affordable rental and home-ownership.

While there are incipient signs pointing to the easing of the property-buying frenzy, an element of housing froth would still be intact if left unchecked. It is too early for the Government to lift its cooling measures, as the current trend of property prices moderating is manageable, in tandem with the policy intention of keeping Malaysia’s property market stable and sustainable. Going forward, expectations are that property prices would remain firm or rise further, as the developers have factored in GST-related repricing and the re-costing exercise. The impending implementation of the GST from April 2015 onwards is causing a lot of uncertainties in the property market. Although residential properties that are for sale, purchase and rental will be GST-exempt, the higher development and input costs may be passed onto purchasers in terms of higher selling prices.
 
Excessive speculative property investment financed by over-leveraging would pose a systemic risk to the financial system. Over-investment in the property sector during good times could cause economic malaise when the growth cycle takes a negative turn, resulting in higher non-performing loans, and thus, increasing risks to the banking sector. Besides this, over-concentration in property development projects to support economic growth could lead to the misallocation of resources at the expense of other productive sectors.

Bank Negara is not likely to roll out new macro-prudential measures amid continued vigilance on the household indebtedness, especially for those earning between RM3,000 and RM5,000. Banks’ thorough credit risk assessment on eligible borrowers accompanied by the resumption of interest rate normalisation in July this year are likely to help contain the rise of unsustainable debt-fueled spending. At this juncture, Bank Negara is unlikely to take any policy risk that could trigger an over-adjustment. Growth in household debt has been moderating for six consecutive quarters as a result of Bank Negara’s macro and micro-prudential measures.

Lee Heng Guie is former research head of CIMB Investment Bank. --TheStar

Thursday, September 04, 2014

Rising Up The World Rankings

DESPITE the positive trend in Malaysia’s performance, the International Trade and Industry Ministry and its agency, the Malaysia Productivity Corporation, will continue their leading roles in coordinating efforts to further enhance the country’s competitiveness, which now ranks among the top 20 most competitive economies.
Enhancing competitiveness requires concerted efforts and commitment from both the public and private sectors, said International Trade and Industry Minister Datuk Seri Mustapa Mohamed.
“The government will continue to ensure the successful implementation of the national transformation policy, which encompasses the economic and government transformation programmes. This commitment does not only serve to facilitate the ease of doing business, but also serves to encourage the private sector to step up efforts to invest in technology and pursue innovation continuously,” he said in a statement on the latest Global Competitiveness Report 2014-2015 (GCR) by the World Economic Forum (WEF).
The report, which was released yesterday, ranked Malaysia 20th out of 144 economies ahead of developed economies such as Austria (21st), Australia (22nd), France (23rd), Ireland (25th) and South Korea (26th). In the previous year, Malaysia was in the 24th position out of 148 countries.
Among Asia-Pacific countries, Malaysia improved to the sixth position, out of 28 countries, from seventh last year, after Singapore, Japan, Hong Kong, Taiwan and New Zealand.
Malaysia is ahead of Australia (seventh), Korea (eighth), China (ninth) and India (16th).
“Malaysia remains the highest ranked among developing Asian economies and is ranked the second most competitive economy among the 24 countries that the WEF categorises in the transition stage from an efficiency-driven to innovation stage of development,” said Mustapa.
The GCR is published annually by WEF based on the Global Competitiveness Index that integrates both macroeconomic and microeconomic aspects of competitiveness.
It uses 70 per cent perception data obtained through the Executive Opinion Survey from high-level private sector executives and 30 per cent statistical data.
The report comprises 114 criteria, which are organised into 12 pillars of competitiveness, namely institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation.
Mustapa said WEF highlighted that Malaysia’s biggest improvement was in the institutions pillar, advancing by nine positions from 29th to 20th.
“This is evident from the positive responses of the business sector as reflected in the significantly improved perception-based indicators related to safety and security as well as corruption, thus contributing to the enhanced performance of the institutions pillar.
“Elsewhere, Malaysia ranks an outstanding fourth in the financial market development pillar, reflecting its efforts to position itself as the leading centre of global Islamic finance,” he said.
Malaysia stood out as one of the very few countries that had been relatively successful at tackling the issues of corruption and red tape as part of its government and economic transformation programmes.
Malaysia ranked fourth for the ease of government regulation and a satisfactory 26th in the ethics and corruption component of the index.
It ranked 11th for the quality of its transport infrastructure, reflecting a marked improvement in infrastructure and connectivity.
The Malaysian private sector was highly sophisticated, ranking 15th.
WEF also highlighted that amid the largely positive assessment, Malaysia has much to improve in areas of female participation in the workforce (119th), government budget balance (102nd), international Internet bandwidth (81st) and technological readiness (60th).
The top 10 continued to be dominated by advanced western economies and several Asian tigers.
For the sixth consecutive year, Switzerland is in the lead, followed by Singapore, the United States, Finland, Germany, Japan, Hong Kong, Netherlands, the United Kingdom and Sweden.

--Btimes

Wednesday, August 20, 2014

Malaysia’s Growth Is Sustainable And Real

THE Malaysian economy stands defiantly as the outlier in the region, remarked an economist in reference to how the market underestimated the strength in economic activities in the second quarter.

Both Thailand and Singapore averted recession in the second quarter (Q2), while Indonesia’s performance for the period showed the slowest in five years. 

The growth engines of many regions have stalled, namely the eurozone, an important trading partner of ours, although it has been encouraging to note that the United States has recovered. 

Malaysia’s strong 6.4 per cent growth in Q2 after recording 6.2 per cent in the first quarter will ease the mind of any doubters that the growth is sustainable and real. 


The economy has put up a solid growth number that is neither influenced by base effect or prices of export and commodities, which have been flat or trending down in Q2. Underscoring the strength of growth is exports, which have been accelerating since the third quarter of last year. 

And now with the strong showing in Q2 and the steady growth path going forward comes the dilemma, as put by another economist. 

Will the central bank continue with its hiking cycle in raising borrowing costs? 

If so, it will be anyone’s guess whether it will take place on September 18 or November 6. It will be a close call. 

Market watchers have studied Bank Negara Malaysia’s patterns in its monetary policy and one common trend they find is that there will be two consecutive hikes to normalise monetary conditions before it decides to stand pat. 

Nevertheless, an additional 25 basis points hike would bring the key benchmark interest rate to 3.50 per cent and that would complete the central bank’s normalisation process and with it, raise the real interest rates to the positive territory. 

Generally, two to three months is the measurement used as a lag period to measure the impact of any measure. 

Likewise, the impact of the hike in Overnight Policy Rate on July 10 is being carefully watched by the central bank officials — change in spending patterns of consumers and businesses as well as loan growth. 

Then financial imbalance was looked as a grave concern and that looks less worrying over the past few quarters. Our household debt level, which was one of the highest in the region, looks contained, especially now that the gross domestic product base has expanded. 

Those who favoured a tightening in the monetary policy this year argue that next year may not be ideal, considering the Goods and Services Tax (GST) would be rolled out, and not forgetting that the United States Federal Reserve, in all likelihood, would also raise the interest rate. 

The argument for the hike to come about in 2015, which some sections of the market hold is that we have a fairly benign inflation level, and hence the current 3.25 per cent is supportive of growth. 

However, a trigger could come when the GST is implemented as the inflation would spike and go beyond the central bank’s comfortable range of two to three per cent. 

Bank Negara has warned that the overall balance of risks for the global economy remains biased towards the downside, what with the uncertainty over policy adjustments and geopolitical tensions, which will drive volatility in the financial markets. 

But the monetary policy is not the only tool in the kit box, as Tan Sri Dr Zeti Akhtar Aziz, one of the most senior central bank chiefs in the world, often reminds the media. 

Macro and micro prudential measures are always there for the central bank to turn to. 

Instead of pinching the purses of the households, Bank Negara could raise the Statutory Reserve Requirement ratio, which is used to check on the liquidity level in the banking system. The last time it did so was in July 2011, when it was raised to four per cent. 

In all, the next two to three months will be eventful for the market. 

Apart from the Monetary Policy Committee meeting on September 18, there is the possible fuel revamp as part of the subsidy rationalisation programme. 

Come October, there is the 2015 Budget, an event that also brings with it policy adjustments. 

With the economy firing on all cylinders, market watchers will continue to be baffled with our performance for the rest of 2014. But they will also want to see if we can prove our fiscal discipline by reining in domestic debt.

--Btimes

Monday, August 04, 2014

Too Early To Worry About Correction

WALL Street’s worst week in two years was enough to get investors worried about whether a long-overdue correction is coming, but analysts are still leaning bullish. 

The S&P 500 ended the week down 2.7 per cent, its biggest weekly loss since June 2012, a decline that had followed several weeks of selling. 

The market is undoubtedly ripe for a correction — the current rally has continued for nearly three years without a decline of more than 10 per cent. 

The United States Federal Reserve looks closer to raising rates, and housing and auto sales figures suggest those markets may be softening, if only temporarily. 

“The summer has been just tough because there has been very little to buy,” said Kathleen Gaffney, portfolio manager of the Eaton Vance Bond Fund. 

“But I think what is happening is we are seeing the markets adjusting from an environment of lower interest rates to higher interest rates — and that’s producing volatility.” 

The Fed’s monetary policy has been favourable for the markets, and though it is expected to begin raising rates next year, the absence of wage pressures has kept moves in Treasuries yields relatively muted. 

While the spread between long- and short-dated Treasuries has narrowed of late, which tends to happen as the economy slows, the difference between the two-year and 10-year Treasury notes is more than two percentage points — still a favourable sign for economic growth. 

On Wednesday, the Fed gave a rosier assessment of the US economy while reaffirming that it is in no hurry to raise interest rates. 

The US central bank also, as expected, reduced its monthly asset purchases to US$25 billion (RM80.28 billion) from US$35 billion. 

Although government data on Friday showed US job growth slowed last month and the unemployment rate unexpectedly rose, recent economic data has been largely positive with growth in second-quarter gross domestic product at four per cent and favourable revisions to first-quarter gross domestic product. 

The CBOE Volatility index, Wall Street’s so-called fear gauge, jumped to 17.03 from 12.69 after Portugal’s Banco Espirito Santo reported an unexpectedly large loss for the first six months of the year that raised concerns about the bank’s solvency and after US employment cost pressures came in higher than anticipated. 

But the VIX remains well under the long-term average of about 20, and stock valuations remain reasonable. 

The S&P 500 is trading at an average price-to-expected earnings ratio of 15.4, which is not very stretched relative to the historical average of around 14.1. 

“The economic environment remains healthy. As such, volatility should decline and stocks should rebound,” said Jonathan Golub, chief US market strategist at RBC Capital Markets. 

Even so, the fact that the benchmark S&P 500 hasn’t been able to crack the 2,000 milestone, despite a few approaches, suggests some exhaustion is setting in. 

--Reuters

Saturday, July 26, 2014

S&P Upbeat On Malaysia’s Outlook

SOVEREIGN ratings agency Standard and Poor’s (S&P) is encouraged by the government’s announcement of the Goods and Services Tax (GST) and subsidy rationalisation programme.

S&P also expects Malaysia’s public debt to gross domestic product (GDP) ratio to drop to 2.9 per cent over the next three years. 

In a revised outlook from 3.8 per cent previously, S&P remarked on Thursday that Malaysia’s fiscal performance has improved more than expected. 

It said the government’s recent measures to reform subsidies and introduce GST at six per cent next year will help fiscal consolidation. 

“The government’s plan to balance the budget by 2020 is encouraging. However, its success depends on the initiatives to materially reduce the size of the total subsidy, the rationalisation of general expenditures and improvement of revenue collection,” it said in its latest outlook on Malaysia. 

S&P affirmed its “A-“ long-term and “A-2” short-term foreign currency sovereign credit rating, saying the stable outlook reflects its expectation for Malaysia over the next 24 months. 

The fiscal debt burden has been increasing since the government borrowed more for its stimulus spending in 2009. 

It expects net general government debt to peak at about 50 per cent of GDP this year, before declining gradually as fiscal consolidation efforts bear fruit. 

S&P said the percentage of foreign holders of ringgit-denominated Malaysia Government Securities rose sharply to 45 per cent last year. 

“Although foreign interest in local currency bonds offers a sovereign more funding diversification, high non-resident holdings leave the country’s capital market vulnerable to a sudden reversal in the flow of cross-border funds, which are often more volatile than domestic funds,” it warned. 

It expects stronger trade surpluses in the next two to three years. 

Malaysia’s strong external position is a result of years of persistent current account surpluses, although the narrow net external debt as a share of current account receipts turned positive for the first time due to the decline in foreign reserves. 

S&P said it may raise the sovereign credit ratings for Malaysia if stronger economic growth and the government’s effort to reduce spending, particularly in subsidies, reduce deficits further. 

It may lower the ratings if the government fails to deliver reform measures to reduce its fiscal deficits, increase the country’s growth prospects and prevent the external position from deteriorating. 

These reforms may include implementing the GST, reducing subsidies, boosting private investments, and diversifying the economy, it added.

--BTimes

Monday, July 14, 2014

Tech Earnings To Take Centre Stage

EARNINGS from some of the biggest United States technology companies will take centre stage this week, giving investors a chance to re-evaluate the sector’s health.

Big tech names set to report this week include Intel Corp and Yahoo Inc tomorrow; eBay Inc on Wednesday and Google Inc on Thursday. 

The tech sector has the highest projected earnings growth rate among the 10 S&P sectors for the second quarter at 12.3 per cent, its best quarter since the first quarter of 2012. This forecast marks a sharp rebound from a drop of 3.2 per cent just a year ago, according to a Thomson Reuters poll. 

Goldman Sachs analysts wrote in a note that the information technology sector “appears to be the most undervalued sector”, giving investors more reasons to be bullish on tech stocks. 

The implied earnings-per-share growth for the tech sector has been 5.4 percentage points above the S&P 500 on average over the past 10 years, but it is now just 1.0 percentage point above the benchmark index, according to the Goldman Sachs note.

 While the Dow Jones industrial average and the S&P 500 have hit record highs recently, the tech-heavy Nasdaq is still more than 700 points away from its all-time intraday high on March 10, 2000, suggesting to some investors that the sector may have more room to the upside. 

The tech sector’s earnings are “going to certainly be important because the market started to gain momentum as economic data got better”, said Quincy Krosby, market strategist at Prudential Financial, which is based in Newark, New Jersey. 

“We want to hear good solid numbers and if we get that from tech names, it will help.” 

Nine of the 13 sub-industries in the tech sector are expected to report higher earnings than a year ago, with semiconductors and semiconductor equipment having the highest growth rates within the sector, according to Thomson Reuters data. 

The Nasdaq is up 5.7 per cent for the year, while the semiconductor index is up 20.3 per cent. 

Among the 10 S&P 500 sectors, financials have the worst earnings forecast with a decline of 3.5 per cent from a year ago, according to Thomson Reuters data. Nine of the sector’s 21 sub-industries are expected to post a drop in earnings. 

Earnings from some of major banks this week will include JPMorgan Chase & Co and Goldman Sachs Group Inc tomorrow; Bank of America Corp on Wednesday and Morgan Stanley on Thursday. 

Analysts are expecting subdued results because a slowdown in revenue from mortgage refinancing and trading is offsetting gains from other areas like investment banking and money management. Higher legal, regulatory and compliance costs are also weighing on results. 

Wells Fargo & Co underscored some of those problems last Friday as the largest US mortgage lender reported a 39 per cent decline in revenue from that business. 

In addition to keeping a close watch on earnings, Wall Street will also tune in this week to what Federal Reserve chair Janet Yellen says when she makes a couple of trips to Capitol Hill. 

She is scheduled to testify on the US central bank’s monetary policy in a semi-annual appearance before the Senate Banking Committee tomorrow and the House Financial Services Committee on Wednesday. 

--Reuters

Friday, July 11, 2014

Bank Negara Raises Overnight Policy Rate by 25bps

KUALA LUMPUR: Bank Negara Malaysia (BNM) raised the overnight policy rate (OPR) by 25 basis points to 3.25% on Thursday, the first time since May 2011 with economists expecting the rate hike to address the potential rise in financial imbalances.

Alliance Bank Malaysia chief economist, Manokaran Mottain said the hike in the OPR was a "pre-emptive measure to prevent further disproportionate risk taking as well as reducing asset price misalignments". 

"While the central bank in previous instances had preferred to make use of macro prudential tools in reducing asset price bubbles risks, the rate hike will likely deliver greater traction in averting any excessive leveraging activities," he said.  
 BNM said the decision was made at its monetary policy committee (MPC) meeting as the latest economic indicators pointed to continued strength in exports and private sector activity in Malaysia. It also expected Malaysia's overall economic growth momentum to be sustained.
"The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 3.00% and 3.50% respectively," it said. "At the new level of the OPR, the stance of monetary policy remains supportive of the economy." 

BNM said going forward, the overall growth momentum was expected to be sustained while inflation has been relatively stable.  

"Exports will continue to benefit from the recovery in the advanced economies and from regional demand. Investment activity is projected to remain robust, led by the private sector." 

"Private consumption will be supported by stable income growth and favourable labour market conditions. The prospects are therefore for the Malaysian economy to remain firmly on a steady growth path," it said.  

BNM said inflation has been relatively stable as the effects of the price adjustments for utilities and energy continue to moderate. Demand driven inflation remains contained, it added.  

"Looking ahead, inflation is, however, expected to remain above its long-run average due to the higher domestic cost factors.  

BNM added amid the firm growth prospects and with inflation remaining above its long-run average, the monetary policy committee decided to adjust the degree of monetary accommodation.  

This normalisation of monetary conditions also aims to mitigate the risk of broader economic and financial imbalances that could undermine the growth prospects of the Malaysian economy, said the central bank.  

Alliance Bank's Manokaran said the MPC's decision to raise the OPR by 25bps was within expectation as well as market consensus.  

He pointed out that since the previous MPC meeting in May, financial markets had been influenced by this expectation.  

The ringgit rallied to RM3.172 against the US dollar on Wednesday, up 2.06% gain. At the close on Thursday, the ringgit was trading at RM3.182.  

"In the meantime, the rise in OPR will likely improve Malaysia's attractiveness amongst foreign investors, leading to stronger capital inflows, lower bond yields and an appreciating ringgit.  

"Looking ahead, we do not see the recently announced OPR hike to be the start of a monetary tightening process. At the new rate, the OPR remains accommodative of growth. In this regard, we expect the OPR to remain unchanged at 3.25% for the rest of 2014," he said.

--TheStar

Wednesday, June 25, 2014

Malaysia Dividend Yields Attractive To Investors

PETALING JAYA: Malaysia is the least favoured destination of foreign portfolio funds in Asia ex-Japan on a year-to-date basis, mainly due to expensive valuations and a defensive position at a time when most markets have been rallying. 

With the S&P 500 closing at its record high of 1,848.36 last Friday, and having gained 6.2% on a year-to-date basis, such a buoyant investing outlook has fuelled portfolio funds to put their money in the higher beta markets. 


On the other hand, with the S&P having made such strong gains, some analysts are starting to get jittery and may now consider relooking the defensive markets. Thus Malaysia, with one of the highest dividend yields in the region at 3.03%, could be a beneficiary. 

On the onset, Thailand would appear to be the least invested country by portfolio funds, with a net foreign outflow of US$1.2bil (RM3.84bil) as of June 17, according to Credit Suisse in a June 19 report. 

Nonetheless, a closer look revealed that this was due to an extraordinary transaction in 2013 amounting to US$6.6bil (RM21.12bil). 

Last April, Thailand’s biggest convenience store chain, CP All Pcl, acquired Siam Makro Pcl for US$6.6bil from Dutch firm SHV Holdings.

This isn’t actually a portfolio outflow. Thus, if this transaction were to be taken off, Malaysia would effectively be in last position with net outflows of US$277mil (RM886.4mil) as of June 17, according to Credit Suisse. 

“The disinterest in Malaysia is due to its high price-earnings ratio (PER) and price-to-book value (P/BV), which makes it rather uncompelling at the moment,” noted one analyst from a foreign research outfit. 

In 2013, the FTSE Bursa Malaysia KL Composite Index was trading at a PER of 18 times. For 2014, it is trading at a forward PER of some 17 times, and this is at a 20% premium to its Asian neighbours.

On a P/BV basis, Malaysia is trading at a P/BV of 2.3 times, making it the third most expensive exchange after the Indonesian and Bombay stock exchanges, which are trading at 2.46 times and 2.9 times, respectively.

The majority of the Asian markets are trading at a P/BV of below 1.5 times. 

Credit Suisse notes that over the past four months, net foreign buying in Emerging Asia, not taking into account China and Malaysia, has been at a whopping US$26.3bil (RM84.16bil), with India and Taiwan being the biggest recipients at US$9.6bil (RM30.72bil) and US$8.6bil (RM27.52bil), respectively. 

Over the last four months, net foreign buying was US$4.1bil (RM13.12bil) in Korea, US$3bil (RM9.6bil) in Indonesia and US$1bil (RM3.2bil) in the Philippines. 

“On a 12-month rolling basis, Malaysia is the least favoured market and is down by 0.9%, making it even more under-owned than Thailand which, ex the Siam Makro transaction, is down by 0.5%,” said Credit Suisse.

The net foreign buying is calculated as a percentage of market capitalisation.

“On this measure, Philippines is now 0.1%, Indonesia 0.5%, Emerging Asia ex-China 1%, India 1.1%, Korea 1.2%, Japan 1.4% and Taiwan 1.8%,” said Credit Suisse.

It added that Taiwan has now overtaken Japan as the most crowded market. 

“With net foreign buying in Japan on a rolling 12-month basis dropping from a high of 3.4% on Dec 31, 2013 to 1.4% currently, Taiwan at 1.8% has now overtaken Japan as the most crowded market for foreign investors,” said Credit Suisse.

--TheStar

Thursday, April 10, 2014

IMF Lifts Malaysia’s GDP Forecast To 5.2pc

KUALA LUMPUR: The International Monetary Fund (IMF) yesterday upgraded Malaysia’s growth forecast to 5.2 per cent this year and five per cent next year.

Malaysia’s growth forecast came in above the 4.9 per cent average growth forecast projected for five Asean economies. The rest are Thailand, Indonesia, Vietnam and the Philippines.

This is against a backdrop of uneven developments in the Asean economies, it warned, referring to Indonesia and Thailand, where investor sentiment is expected to be subdued. 

“Malaysia and the Philippines, however, are on a more positive trajectory,” it added. 

Ahead of its spring meetings for the IMF and the World Bank in Washington from tomorrow till April 13, the fund described the global economy as on a recovery trend, albeit uneven. 

Much of the impetus for growth is expected from advanced economies. 

Although downside risks have diminished overall, lower-than-expected inflation poses risks for advanced economies. There is also rising financial volatility in emerging market economies, and increases in the cost of capital will likely dampen investment and weigh on growth. 

Malaysia, the Philippines and Thailand are relatively more integrated with global trade and financial markets, and, in Malaysia’s case, it is also relatively more exposed to advanced economies in the trading of goods, unlike emerging markets like Brazil and India. 

Among its key findings, the IMF said the growth in the United States economy would typically raise emerging markets’ growth through a small boost to emerging market economies’ terms-of-trade growth. 

“The impact effect tends to be stronger for economies that are relatively more exposed to advanced economies in trade, for example, Malaysia and Mexico.” 

Adverse external financing shocks hurt economies  more when they tend to be more exposed to capital flow volatility, but the effects are less acute for some economies, despite their financial openness, which could be due to relatively strong macroeconomic positions like Malaysia. 

Chile and Malaysia are among the few economies that have tended to hold their domestic interest rates steady or have even cut them in response to higher EMBI (emerging markets bond index) yields. 

Comparing the correlation between economies with China and the US, the IMF said Argentina, Brazil, Colombia, India, Indonesia, Thailand, and Venezuela were closed related with China than that with the euro area or the US. 

In contrast, output growth in Chile, Malaysia, Mexico, Russia and Turkey is more correlated with growth in the US than with growth in China.

--BTimes