Archive for the ‘SE Asia’ Category

Malaysia : expanding bonds

flag of malaysiaAlready one of the largest bond markets in Asia, Malaysia is working to expand its bond activity horizontally and vertically, extending the scope of existing products while planning to offer new products to attract more funds.

As part of these efforts the Malaysian stock exchange is looking to encourage wider bond activity, having announced plans to launch a secondary trading platform for bonds, including Islamic paper.

Though no exact timeline has been set for the move, Raja Teh Maimunah Raja Abdul Aziz, Bursa Malaysia‘s global head of Islamic capital markets, said the introduction of a secondary bond trading platform was a response to demand from retail investors and would improve transparency.

“The only way to bring retailers on would be through the exchange,” she said in an interview with the Reuters news agency in early October. “The over-the-counter market is not transparent in terms of pricing so you cannot get the retailers to come on.”

Once issued, there is little trading in most Islamic bonds, with Raja Teh describing the focus on fixed income as a defensive investment. Defensive or not, there are some, such as Mohd Razlan Mohamed, the chief executive officer of Malaysian Rating Corporation Berhad (MARC), who question the timeliness of the proposed secondary trading platform.

“The local markets are not ready for a secondary trading system for three reasons, investors can invest in bond funds already, which provides them with exposure; there are cost implication for bond issuers, this will drive up costs; and thirdly, this is for sophisticated investors only, most don’t understand a lot of the existing products on the market.”

For Steven Choy, the chief executive officer of Cagamas Berhad, Malaysia’s national mortgage corporation and leading securitisation house, said there needed to be more issuance to develop the secondary bond market.

“We are already the largest in South-east Asia, the third in Asia, but it is mostly buy-and-hold insurance companies who want long term-paper and they do not trade. Therefore, we need more depth and issuance,” he told OBG.

The government has moved to address the question of issuance, setting up Danajamin Nasional, a state-owned institution tasked with providing financial guarantees to issues of private debt and Islamic securities, in March this year as part of its economic stimulation programme.

The agency was provided with a paid-in capital of $290m when established, a figure officials said could be doubled, and its charter allows it to offer insurance for investment-grade public debt or Islamic securities totalling up to $4.3bn.

On October 8, Prime Minister Datuk Seri Najib Razak told a press conference that Danajamin had already received seven applications so far, though he did not clarify whether these had been finalised.

While the government believes Danajamin will broaden the base of the bond sector and encourage more investors to buy into the market, not all agree, taking issue with the agency’s focus on the already well-served triple-A bonds segments.

Cagamas’ CEO warns that rather than strengthen the bond market, Danajamin could have an adverse effect by targeting triple-A bonds to the exclusion of others.

“Danajamin’s role in the market has been to distort it. If they issue for only triple-A bonds then who will buy BB for example,” said Choy.

With the economic crisis having hit at lesser rated bonds, there has been a drying up of credit for smaller companies, according to Razlan.

“Up until Q2 2008 business was good, but then risk aversion set in and investors did not even want to know about single-A rated bonds, they would only look at triple-A bonds,” he said. “No one wanted to invest or underwrite these bonds yet they form 30-40% of the market. This was not because of a lack of liquidity but risk aversion.”

Tan Sri Datuk C Rajandram, the executive deputy chairman of Rating Agency Malaysia Holdings (RAM), concurs, saying that the demand side has become more risk averse, with bonds lower than AA not coming onto the market.

“The economy is down and so the requirement for funding has also dropped. Much will depend on the stimulus packages,” he said in an interview with OBG. “Everyone is avoiding the corporate sector, with no attraction to place bonds on the market, even though in Malaysia banks are very liquid.”

Though most experts agree that there are high levels of liquidity in the market, more needs to be done to increase the appeal of bonds below triple-A. According to a report issued on October 9 by MARC, the value of newly rated bonds assigned and announced in Malaysia for the first nine months of the year totalled $9.3bn, mainly at the top of the ratings range.

While this trend is expected to continue in the short term, with the Malaysian economy set to move out of recession and post solid growth next year, investors could be less adverse to a bit of risk, and more enthused for bonds.

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Positive transportation figures, indicate good news for Malaysia ETF

CB018552Like many sectors of the Malaysian economy, the country’s transport industry has experienced a decline in activity due to the global recession. Though there are some signs that Malaysia‘s transporters are again moving in the right direction, other signals suggest a full recovery is still some time off.

There was mixed news for the transport sector in data released by the Department of Statistics on August 26, which showed that while still in recession, the rate of negative growth in the Malysian economy is slowing. Having declined by 6.2% in the first quarter of 2009, GDP contracted by 3.9% in the second, the curve being smoothed out due to increased public spending and positive growth in private consumption. This should be encouraging for the transport sector, which has seen productivity fall as demand for moving cargo locally and internationally plunged.

Less equivocal data indicating an improvement in the sector came in early August, with statistics showing a sharp rise in cargo-handling activity at Malaysia‘s ports. Movements of containers at the country’s 10 major ports rose by 10.2% in the second quarter compared to the first three months of the year, with 3.79m twenty-foot equivalent units (TEUs) being handled against 3.44m TEUs in the first quarter. Of the second-quarter figure, 2.49m TEUs was trans-shipment traffic, up 11.7% on the previous quarter; 670,718 TEUs carried exports, a rise of 10.2%; and the remaining 640,469 TEUs containing imports, a 4.4% increase.

While a solid performance, the six-month total of container movements was still down 7.7% on the January-to-July figure for 2008, though this decrease in activity is far less than that recorded by some of Malaysia’s near neighbours, with throughput at ports in Thailand and the Philippines down by 35% and 20.6%, respectively.

Another hint that the transport sector is on the road to recovery was a jump in commercial vehicle sales, which hit a six-month high in July, with 4800 units rolling off the lots, almost 20% higher than the previous month.

Exhibiting robust health is national carrier Malaysia Airlines (MAS), which posted its best-ever quarterly net profit in the April-to-June term, bouncing back from losses of $193.7m in the first quarter and $244m in the second. Key to the airline’s return to form was an aggressive advertising campaign, cost reductions, cutting fares on off-peak flights to increase passenger take up, and reversing losses on fuel hedging.

It is not just MAS that benefitted from the steep drop in fuel prices, one of the transport sector’s highest costs. In the 12 months to the end of July, transport charges had fallen by 19.9%, according to figures released by the Department of Statistics in mid-August, though this could reverse as the price of fuel has once again started to climb. Month on month, transport charges rose by 0.1% in July, in line with the overall movement of the consumer price index.

If, as is widely predicted, the Malaysian economy continues its push out of recession in the third quarter and returns to positive growth in the fourth, the upturn should carry the transport sector in its wake, especially if the pick up in domestic demand is matched by that in the country’s export markets. Our expectation is that this would confirm that the iShares MSCI Malaysia Index Fund (NYSE:EWM) is set to add to its succesful growth over the last 6 months. The Malaysia ETF has not exploded as some of its emerging market counterparts, but has shownsteady & sustained growth, with very little volatility. A solid buy in torrid times.

Malaysia ETF

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MyStockVoice.com is now alive & kicking

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It’s taken a while & it’s been an interesting experience, but am pleased to say that we released MyStockVoice.com into public beta. For me personally, there have been a few challenges, “assisted” along the way by re-locating with my family from Switzerland to Slovakia.

The team at Connection Services who have designed & support the MSV platform have been excellent, especially when responding to an ever changing set of requirements. MyStockVoice started as this WordPress blog, where I could muse on my views on Emerging Markets & BRIC economies. A conversation with a friend who works in the City (London) encouraged me to look at doing something a little more. The original format, was a forum, then a newswire service & now it’s a fully fledged blog publication platform. So you can imagine how happy my colleagues at CSL were, when I tripped back every few months & said “right, this is what we are doing now”

Our aim at MSV is to provide an ever widening audience with value insights into what is rapidly becoming a major topic for hedge funds, investment managers & retail investors alike : BRIC & Emerging Markets. International stocks traded on US exchanges are becoming ever more popular, especially via Depositary Receipts (ADR,ADS,ADN) , for the more cautious or long minded, a number of ETF (Exchange Traded Funds) have sprung up to service the appetite to take part in these growing economies.

Covering all the major regions, MSV provides focussed channels into a variety of sectors & also specific categories for Macro Econmics, ADR & ETF investing. We are pleased to be working with some well established names from the investment community, along with faculties such as Knowledge at Wharton, the Economics Faculty at Beijing University, Skolkovo Business School in Moscow & Cranfiedl University in the UK.

Our strapline is “your community … your voice”  & to reflect this, we will be bringing our readers plenty of new unique content. Much of my time in the last two to three months has been spent contacting individual bloggers & also online media services that are based in the regions covered. In this way, we can present a “blend of thought”, that will allow our subscribers to formulate informed opinions on their own particular areas of interest.

So, enough jawing from me, but to close, Alex, Chris & myself would like to thank the team at CS & all the people that have had input into the project. We sincerely hope that you enjoy the MSV experience & are always open to new ideas, partnership opportunities & most of all feedback.

Many thanks

Paul

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Vale to sweep up as Rio “fails” in Chinese espionage fiasco

bulk ore carrierThis post from China News Wrap is significant, as it’s sourced locally from International Financial News, which is a Peoples Party owned newspaper. China informs Australia that proof is irrefutable (sic) Basically the Chinese authorities are not going to back off, having been snubbed over the Chinalco deal. I reckon this will run & be very detrimental for both Rio & BHP Billiton. Anyyone else noted that both firms have been talking up inventories being built up elsewhere ? The real deal is in the 2nd last paragraph of the story :

“At the same time, although Rio Tinto had made statements last week emphasizing that it would ‘continue its iron-ore operations in China’, the actual situation does not seem to reflect this. The overseas media yesterday reported that shipments of spot market iron-ore from Brazil to China soared to record highs in July, which could be related to the Rio Tinto case. Australia seems to have temporarily suspended its exports of spot market iron-ore to China. Data from the shipping company AXSMarine indicates that orders for shipments to China from Australia’s main iron-ore port fell to 12 this month, while orders for shipments from Brazil reached the record high of 31. This means that China’s demand for iron ore is still strong.”

so basically VALE is picking up the slack & would also seem to be enjoying it too, if this piece from Reuters is anything to go by :

Vale Resists China Price Cut Request on Demand Gain

“Politically Vale has done well with its customers by letting the Australians settle first,” Cliff said. In the first quarter, China took 66.5 percent of Vale’s total iron-ore sales of 52.1 million metric tons, up from 32 percent a year earlier.”

Regular readers of MyStockVoice will know that I’m a big fan of Vale, so, long VALE is a no brainer & I have felt that BHP is a little toppy for a week or so, may instigate a short. RTP I’ll leave for bigger fish to swim with.

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Malaysias construction industry builds momentum

petronas kuala lumpurMalaysia‘s construction industry is set to rebound from the slowdown of the local economy, with both private and state funds flowing to new projects that are helping to boost confidence as the country works to increase future supply of infrastructure and property.

On the back of increased funding for construction projects being distributed by the state, part of the government’s $19bn economic stimulus programme, along with other scheduled capital works investments, analysts are predicting solid growth for the industry and are recommending investors to buy into local construction stocks.

According to Terence Wong, an analyst at CIMB Investment Bank, stocks in the building sector will outperform the rest of the Malaysian market, with enough projects being launched to benefit all companies in the sector.

“Construction is the must-own sector in Malaysia because pump-priming will come through and it will come through aggressively over the next few years,” Wong told the Bloomberg news agency on July 20.

Shares in some of Malaysia’s largest building companies, such as Gamuda, IJM Corporation and WCT have performed strongly, and the construction index of the Kuala Lumpur stock exchange has gained 27% so far this year. Shares in all three companies have risen by some 50% this year.

CIMB is not the only one advising investors to plough into construction stocks, with OSK Research upgrading its recommendations for WCT from “trading buy” to “buy” on July 20 after the firm won four infrastructure contracts worth more than $210m.

The government too would welcome the apparent upswing in the construction industry, being able to point to concrete results from its stimulus package at a time when some analysts are still predicting a slow recovery.

A recent report from the Malaysian Institute of Economic Research (MIER) predicted GDP to slow by -4.2% this year, downgrading earlier forecasts of -2.2%. The MEIR based its expectations on weak business and consumer sentiment.

There are signs, however, that positive sentiment is returning, with a study by independent market research agency InsightAsia Research in mid-July showing that Malaysia’s consumer confidence index had risen to 94 in the second quarter, not far short of the neutral level of 100 and well up from 83 in the first three months of 2009.

Combined with this is data from Malaysian Resources Corporation (MRCB) showing that new-build construction levels in Malaysia are currently on the rise, in part assisted by lower materials costs. Since peaking at $1105 last year, steel prices have fallen by 50%.

“We can definitely look forward to better times, especially with cheaper materials prices now,” MRCB’s group managing director, Shahril Ridza Ridzuan, told theMalaysian Star on July 13.

Lower costs and growing confidence will both support the recovery in the construction sector, giving investors more incentive to commit to new projects.

Along with the larger projects, government funding is also being directed towards smaller developments, such as upgrading local roads and services, constructing new schools, health centres and state buildings, and improving communications infrastructure.

It is not just state funding that is priming the construction industry’s pump. The sector was also bolstered by the news in mid-July that Merapoh Resources Corporation had found investors willing to put up the money for a $10bn crude oil refinery facility in the Yan district in the state of Kedah.

While much of the work has been contracted to South Korea‘s SK Engineering and Construction Company, Malaysian firms are expected to benefit from subcontracting projects and through supplying materials, with Merapoh saying it would give 30% of its project’s contracts to local companies. The project is set to have an immediate impact, with work due to start shortly and with the refinery and supporting infrastructure scheduled to be completed by 2014 at the latest.

Funding apart, the construction industry should also benefit from the government’s programme of economic reforms, which have included liberalising the services and opening the financial sectors to higher levels of foreign involvement, both through investment and employment of overseas personnel.

The government has also changed the regulations dealing with foreigners acquiring property, removing the requirement for state approval for transactions involving a dilution of bumiputra, the Malaysian term for ethnic Malays, or government interests for properties valued at $5.6m and above.

Additionally, sales of commercial property and industrial land worth more than $140,000 to overseas buyers will not require approval, though from January 1, 2010, the minimum threshold of residential units that can be sold to foreigners will be doubled from the current $70,000 to $140,000.

All these measures could act as a stimulus in the residential and commercial property markets, in turn driving demand in the construction industry. Unlike the more immediate effects of the government’s spending programme, any surge in building spurred by the reform package could take longer to make itself felt.

Malaysia’s construction industry is again on the move, with its shorter- and medium-term prospects far brighter than they were six months ago.

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Indonesia : Breaking up Newmont interest not so simple

newmont logoAs we previously reported in Miners to benefit from change to Indonesian Law ,  foreign mining companies operating in the country are required to sell 51% of their local holdings back to the government after 5 years of commercial operation. However, Newmont (NYSE : NEM), will only be asked to relinquish 17% of its subsidiary, PT Newmont Nusa Tenggara (PTNNT), as 20% of this entity is already held by a local partner. An international arbitration panel on March 31 gave Newmont and minority partner Sumitomo Corp. a 180-day deadline in which to divest 17% of PTNNT to local buyers, ruling that the companies were in default of their contract of work for failing to meet divestiture schedules in 2006-2008.

A consortium of three local governments in Indonesia have appointed PT Multicapital to help finance the purchase of a 10 percent stake in a unit of Newmont Mining Corp, a local mining official said on Saturday. The governments of West Nusa Tenggara province, West Sumbawa regency and Sumbawa regency, the three areas where the mine is located, and Multicapital would form a joint venture company to negotiate a price with Newmont, Heryadi Rachmat, the head of West Nusa Tenggara provincial mining office, said.

“Out of six potential investors, we find Multicapital to have the best interest for the local government and a good track record in investment,” Rachmat told Reuters by telephone.

There was an initial agreement for the local governments and Multicapital to split revenue 25 percent and 75 percent respectively, Rachmat said without elaborating.

Local media has reported Multicapital is a subsidiary of PT Bumi Resources, Indonesia’s biggest coal miner. A Bumi spokesman could not immediately be reached for comment. Bumi has previously tried to buy shares in PT Newmont Nusa Tenggara, which operates the Batu Hijau copper and gold mine in Sumbawa island, eastern Indonesia. Last year Bumi, which is linked to the family business of Indonesia’s welfare minister Aburizal Bakrie, entered an initial agreement to buy 31 percent of Newmont’s local unit. Under a memorandum of understanding, the governments of Sumbawa regency, Sumbawa Barat regency and Nusa Tenggara Barat would buy the shares but turn them over to Bumi. The deal did not materialize.

The new investment plans follows a prolonged dispute between foreign shareholders at PT Newmont Nusa Tenggara (NNT) and the government over divestiture obligation.In late March, an arbitration court ordered the foreign owners of PT NNT to sell a 17 percent stake to the Indonesian government within six months, of which a 10 percent stake should go to the local governments. Under the terms of the contract, foreign investors in PT NNT must sell 51 percent of the shares in the unit to local investors.

PT Pukuafu Indah, an Indonesian mining group, previously bought 20 percent of the unit, while Newmont and Japan’s Sumitomo Corp own 45 percent and 35 percent respectively.The foreign owners began offering NNT shares for sale in 2006, initially offering a 3 percent stake for $109 million. The following year they offered a 7 percent stake worth $282 million, and another 7 percent stake worth $426 million in 2008.

A resolution of the case is seen by analysts as crucial for Indonesia’s plans to attract foreign investment into sectors such as mining to drive economic growth and create jobs. But following the arbitration court’s ruling, the two sides have failed to reach an agreement on a valuation for the unit.

Newmont has valued the whole of NNT at $4.9 billion and has started negotiations with the government over the price. The government said it planned to use an independent appraiser to value the unit.

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Malaysia : “Dynamic Democracy” could harm FDI

CB018552Like the country’s economy, Malaysia’s political scene is experiencing a shake up, with some events directly linked to the fallout from the global financial crisis and others of a more domestic nature. Though Malaysia’s ruling Barisan Nasional (National Front, BN) comfortably won last year’s general election, the coalition headed up by the United Malays National Organisation saw a fall in support, with the main opposition parties – the Democratic Action Party, the Islamic Party of Malaysia and the People’s Justice Party – all more than doubling the number of seats held.

The general election of March 8 last year may prove to be a watershed in Malaysian politics, in more ways than one. For the first time since the country gained independence in 1957, the BN failed to secure a two-thirds majority in the 222 seat lower house. Though it retained control of the house of representatives by returning 140 deputies, this was well down on the 199 seats won in March 2004.

Opposition parties took a combined 47.8% of the national vote, their best-ever performance with a total of 82 seats, a massive increase from the 19 held following the 2004 poll, and have been better positioned to act as an alternative to the government.

Since the election, the pace of politics in Malaysia appears to have shifted up a gear. The BN’s poor electoral result saw Prime Minister Badawi Abdullah stand down in April and replaced by the deputy prime minister and finance minister, Datuk Seri Najib Tun Razak. Almost immediately, the government started wheeling out a range of new policies, aimed at reviving the flagging economy and laying the foundation for the future, one where Malaysia is more closely integrated with the rest of the world.

These reforms included dropping the mandatory 30% share holding by ethnic Malays in businesses operating in services industries, a further opening up of the financial sector to foreign investors and reducing the state’s role in the economy.

Not all of these reforms have proved universally popular with some groups concerned that their economic base could be eroded. However, while driven by economic expediency and the need to attract more foreign investment, the reforms could also have a very direct impact on the country’s political scene.

By winding back many of the long-standing policies that protected the interests of the ethnic Malay community, the BN will be looking to woo back voters from the Chinese and Indian minorities, large numbers of whom deserted the ruling coalition at the last poll and threw their weight behind opposition parties.

While the opposition made a strong showing in the March election, it did not come close to gaining power, nor is it likely to in the immediate future if Najib’s reforms prove both popular and successful. It is hard to say whether the increased support at the ballot box represents a growing well of dissatisfaction with the BN or just a temporary setback handed to the ruling coalition in the form of a protest vote.

The BN has also worked to weaken the opposition alliance, throwing out feelers in June to PAS over the party joining the government, a proposal ultimately rejected late that month. Though the offer was turned down, it did spark heated debate within the alliance and PAS itself, with the conservative wing of the party having favoured the move, while other members remaining keen on going to the next general election, due in 2013, as part of the anti-BN bloc.

One imponderable in Malaysia’s political mix is the forthcoming trial of the former deputy prime minister, Ibrahim Anwar, on charges of sodomy, allegations the country’s best-known opposition leader strongly denies. In turn, Anwar claims the charges are part of a campaign to discredit and remove him from the political arena, similar to a case that was opened against him in 1998, which led to his conviction and imprisonment.

The trial, due to commence on July 8, has the potential to ratchet up political tensions in Malaysia, just at a time when the government is appealing for unity in order to combat the effects of the global economic downturn.

On July 6, Moody’s Investors Service warned that the main risk to the implementation of the government’s reforms, which it described as timely, was political tension.

“If the adversarial relationship between the government and the opposition leads to legislative or policy gridlocks, then the private sector’s response to growing investment opportunities could be muted,” said Anand Mitra, Moody’s lead sovereign analyst for Malaysia said.

Despite this serious blow to the opposition, the government is wary of any political tensions the trial could throw up, and the scrutiny Malaysia’s political and legal system will be subjected to by the international community, preferring the country to be in the headlines for other reasons.

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