How The West Was Won & Lost - Why Has This Not Been The Headline For The Past Week???

Almost every major international papers have made this their headline news for the past few days - well, not in Malaysia apparently. With two gigantic Free Trade Agreements (FTAs) entering into effect on New Year’s Day—China- Asean and India-Asean—Asia’s economic interlinking has taken off. Asia has for long been divided into self-contained sub-regions like South Asia, West Asia, Central Asia, Southeast Asia and East Asia. Now, Asean’s two path-breaking FTAs with Asia’s second (soon to be first) largest economy, China, and third largest economy, India, enmesh the fortunes of South Asia, Southeast Asia and East Asia into a mosaic. Together with the currency swap agreements among South Korea, Japan and China, these FTAs signal a definite turn towards Asian countries viewing each other as valuable partners, markets and investors.

For decades, the target of reference for Asia’s leading economies was the West. The FTAs couldn't have come at a more ironic time. Now China is about the major engine of growth to lift the global trade. It is also timely as the US and EU are at a weakened position economically. Talk about salting the wounds. The financial meltdown since 2008 has reconfigured these horizons and brought home the imperative for Asian producers to diversify their export markets away from just the West.

A similar pattern of China's successful engagement with neighbors can be seen in the Shanghai Cooperation Organization with Russia and Central Asia and, less successfully, in the six-party talks in northeast Asia over North Korea's nuclear program. With the exception of China's trans-Himalayan border, promotion of regional multilateral institutions has progressed hand-in-hand with strengthening bilateral relationships.

Every country in Southeast Asia has benefited from broader and deeper relations with China, and ASEAN as a regional organization has been strengthened by China's involvement.China's single most successful gesture in its regional relations. In 1997, China held the value of the yuan steady against the dollar while the Southeast Asian currencies were falling. Its neighbors were impressed that China could succeed where they failed, and they were grateful that China prevented a race to the bottom in currency devaluations.

Since August 2008, China has pursued exactly the same policy, but its effects on Southeast Asia are the opposite of a decade earlier. Now the yuan's peg to a declining US dollar is forcing neighbors to compress their currency values in order to maintain market share. China's neighbors wonder how long currency compression will last and what will happen when the yuan finally does revalue. There is little reassurance from China, and no claim that it is helping the neighborhood.

World's Third Largest Free-Trade Zone Takes Full Effect Between ASEAN and China / 31 Dec 09

A free-trade agreement between China and 10 member states of the Association of Southeast Asian Nations (ASEAN) will come into force on 1 January 2010, liberalising trade and investment in an economic zone covering 1.9 billion people. IHS Global Insight Perspective Significance China and South-East Asian countries will tomorrow establish the world's third largest free-trade area, after the European Union (EU) and the North American Free Trade Area (NAFTA). Coming into effect, the ASEAN-China Free Trade Agreement (ACFTA) is set to cover 1.9 billion consumers and an estimated trade volume of US$1.2 trillion, with a combined GDP of US$6 trillion. Implications The FTA is a key milestone for Asian regional integration, heralding a more open market for goods and services in the region. While zero tariffs for 90% of the agreed products, and the removal of 6,682 import duties on Chinese goods, offer great business opportunities for some, not all are enthusiastic. The ACFTA raises economic and political concerns in South-East Asia over China's increasing dominance. Outlook The ACFTA is likely to provide a major boost to regional trade and investment following a year of sharp economic slowdown. Given the similarity of ASEAN and China's industrial structures, competition in domestic markets will increase, however, provoking fears particularly in those less economically developed ASEAN countries. For China, the ACFTA offers great prospects of being able to sate its enormous hunger for natural resources. New Year's Day 2010 marks the establishment of the world's third largest free-trade area between China and the ten member states of the Association of Southeast Asian Nations (ASEAN). Under the ASEAN-China Free Trade Agreement (ACFTA)—signed in 2002—China, Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand will eliminate barriers to investment and enforce zero tariffs for 90% of the agreed products, ranging from textiles to steel and vegetable oils. This will require the average tariff rates charged by ASEAN countries on Chinese products—currently at 12.8%—to be cut to 0.6%, while average tariffs imposed by China on ASEAN goods are set to fall from 9.8% to 0.1%. The late participants to ASEAN—namely, Cambodia, Laos, Myanmar, and Vietnam—will follow behind gradually reducing tariffs and totally eliminating them by 2015. The new free-trade zone will have an estimated trade volume of US$1.2 trillion and a combined GDP of US$6 trillion. It will cover 1.9 billion consumers—more than any other regional economic block. Clearly, this marks a huge milestone for Asian regional integration, traditionally less advanced in comparison with Europe and the Americas, as the region has played "catch up" in recent years. Although the realisation of ACFTA brings huge opportunities for both China and ASEAN, it also raises concerns over China's increasing economic and political domination in South-East Asia. China's Expanding Economy—Driving Force Behind Integration The rise of China in economic and political terms has been the most important development in pushing Asian integration further. The ACFTA framework agreement was signed in 2002 and was the first stand-alone free-trade agreement signed by China. The agreement followed China's joining of the WTO and its decision to start pursuing a regional trade policy that led to the initiation of negotiations on free trade with the ASEAN bloc. Evidently, from China's point of view, the ACFTA will help in securing access to South-East Asia's abundant natural resources. Despite the economic downturn, China's economy is expanding and it needs resources to satisfy its hunger for energy. Closer trade relations with South-East Asian countries also provide China greater control over the crucial nexus between the Indian and Pacific Oceans. There is also the opportunity to strengthen political ties within a region that has traditionally been under strong Japanese influence. ASEAN Opportunities and Fears The ACFTA is set to determine regional co-operation and trade relations in 2010. What ASEAN seeks through the ACFTA is to gain greater market access for exports and the ability to attract more foreign direct investment (FDI). "In 2010 we are sending as a strong signal that ASEAN is open", Sundram Pushpanathan, of ASEAN, told Agence France-Presse yesterday, indicating that the pact is set to offer huge benefits for ASEAN economic growth, too. In particular, as U.S. and European demand for ASEAN exports plummets following the global economic crisis, China's growing economic interaction will generally be very welcome. Given the huge economic and development disparities within ASEAN, the impact of the free-trade regime will, however, be felt differently across the region. Under the ACFTA Early Harvest programme, China granted ASEAN economies very beneficial terms to export more competitive agricultural products to China, bringing benefits to grassroots-level farmers in South-East Asia. However, as soon as the clock strikes midnight tonight, small- and medium-sized farmers and enterprises throughout ASEAN will face a harsh reality—they will need to compete with more price-competitive imports from China. Rising fears and subsequent social tensions have already been evident in some countries. Earlier this month, the Indonesian government came under mounting pressure from the country's domestic industries to delay full implementation of the ACFTA. A number of business associations proposed a temporary exemption of 11 additional industries from the FTA. The proposed exemption list included textiles, footwear, steel and iron, food and beverages, plastic, transportation, tools, electronics, forestry and plantations, the downstream chemical industry, the creative industries, and machinery. While the government opted not to take an eleventh hour appeal further, it has agreed to seek a delay in eliminating import tariffs on over 300 goods that are deemed too "fragile" to compete with cheaper Chinese imports. Indonesia is still "committed to the [agreement]… but we will ask for a tariff modification on 303 products whose competitiveness we consider has declined because of the global economic crisis", said Edy Putra Irawadi, Deputy Minister for Industry and Trade at the Co-ordinating Ministry for the Economy. Outlook and Implications Even though ACFTA's final realisation comes after years of gradual implementation, it is still a landmark event, promising great opportunities for traders and investors and raising the region's status in the international trade arena. No doubt there will be challenges too. What the ACFTA does not mean, however, is that China-ASEAN integration is complete. Instead, it will provide further impetus for deeper economic co-operation between the two entities. Further progress is expected to be made across the board, including laws and regulations on the free-trade area; construction of infrastructure facilities; agriculture and rural co-operation; sustainable development; and cultural and social exchanges. Although bilateral trade between China and ASEAN has already exploded over the past decade, the most eagerly awaited advancements that the ACFTA is expected to bring are in the fields of greater trade and investment volumes. China and the ASEAN bloc are already each other's fourth largest trading partners, and trade volumes have been growing from US$105.88 billion in 2004, to US$202.5 billion in 2007. This is nevertheless likely to increase significantly now, with ASEAN's secretary expecting exports to China to grow by 48%, while China's exports to ASEAN will increase by 55.1%. Integrated markets and lower market risk and uncertainty are also expected to generate more foreign investment into ASEAN countries, not just from China, but also from U.S., European, and Japanese companies. In addition to this positive impetus, there will be increasing competition which will likely decrease the enthusiasm for integration among the general public in those involve countries, for example particularly in Indonesia. All in all, the realisation of ACFTA represents a turning point in the Asian economic and political sphere, and is another indication of China assuming a leading role in the South-East Asian region, where it looks set to stay.

p/s photos: Reon Kadena

The Nasties Of Hot Money In Asia

Is there "hot money" in the system? Yes, the Fed's and ECB's low interest rates policy has already started the USD carry trade a few months back, and it could add a Euro carry trade to its banner soon. So, where do you think the money is headed or has been residing? Its Asia. The easy way to see where it has been headed over the past few months is to look at Asia's strongest currency this year. At the top of the heap was the Indonesian rupiah, followed by the Korean won and then the Indian rupee. So much so that the central banks at South Korea and Indonesia have expressed strong concerns over the inflow of hot money into their system. Beware of the current gains you have been seeing in stocks, property and currency in these two countries. They could just as easily disappear overnight. It also appears that the new favoured son by these carry trades is Taiwan.

Hence, we may well appreciate the efforts of Bank Negara a bit more over the past 18 months because Zeti refused to join in the bandwagon to "allow" the ringgit to appreciate too much. Rightly or wrongly, much of the hot money bypassed Malaysia and the ringgit because the ringgit is still not "that accessible and free-floated". By maintaining a disciplined approach, Bank Negara has basically staved off any future problems that may have to do with hot money moving too fast into the system and then too fast out of the system.

Many have been wondering why the Malaysian markets did not rise by as much as their regional peers. In fact Malaysian stock market has been in the bottom quartile in performance when compared to other Asian bourses. A huge part of the answer lies in the currency issue just discussed. Safe to say that taking that point further, we may argue that much of the rise in asset prices in other Asian markets may have been mostly "inflated" by the liquidity rush.

Is the region in grave danger of a collapse when these funds exit? What would cause the funds to exit? Well, if the Fed starts to raise rates, not likely over the next 6 months at least. Well, if there is a fresh war or political instability somewhere that causes people to rush to the reserve currency, and/or a massive jump towards risk aversion. The key I guess, is to monitor the rumblings and big trades in USD and the interest rate policy discussions.

On November 10, 2009, Taiwan's Financial Supervisory Commission barred foreign investors from parking their money in time deposits after bringing funds into the country. Plus, foreign investors will not be allowed to extend the deposit maturity beyond three months. Until now, foreign investors were allowed to deposit 30% of the inflows in time deposits for three months with a possible extension for another three months. Portfolio investors can still invest 30% of the net inflows in government bonds, money market instruments, money market funds and derivatives. As of October 2009, foreign investors had parked US$15.5 billion in Taiwan dollar accounts, almost five times the level considered appropriate by the central bank. The central bank has voiced concerns that beside investing in Taiwanese stocks, foreign investors were putting money into Taiwan Dollar deposits to earn interest plus currency arbitrage given the appreciating Taiwan dollar.

The move follows large capital inflows into Taiwan's dollar accounts recently which is putting upward pressure on the Taiwan Dollar and hurting export competitiveness. The central bank has been intervening in the FX market and had recently hinted at capital controls to contain currency strength.

This need not be an explosive issue as it seems that the central bankers in the affected countries are aware of the situation. The danger is when the central bankers do not have the political will to act as they should, or they act too slow to temper the liquidity inflow. One can easily reduce the inflow with various measures, so as to minimise the ill-effects of withdrawal of these kind of hot money.

Funnily, the US Federal Reserve Bank of Philadelphia president Charles Plosser said that the capital flows into Asia are a result of a stronger recovery in the region. He added that the flows are not such that he would consider them to be threatening or inconsistent with fundamentals. OMG, the danger is when enough people in high places in Asia believe that diatribe. These are not long term FDI, its short term, its a play on currency outlook and interest rate differentials, is short term - how in the world can Plosser say its not threatening. It can move asset prices up by 30%-50% in 6 months, and we know its seriously never going to be long term, so when they exit, how can Plosser say that it won't be threatening???!!!


p/s photos: Reon Kadena

A Good Lesson in History & Etymology

Its a wonder that we use phrases so often but do not know why or how they came about. Below are some wonderful historical context on some of these phrases. Its good to know. Etymology has never been more fun.

Cost An Arm & A Leg In George Washington's days, there were no cameras. One's image was either sculpted or painted. Some paintings of George Washington showed him standing behind a desk with one arm behind his back while others showed both legs and both arms. Prices charged by painters were not based on how many people were to be painted, but by how many limbs were to be painted. Arms and legs are 'limbs,' therefore painting them would cost the buyer more. Hence the expression, 'Okay, but it'll cost you an arm and a leg.' (Artists know hands and arms are more difficult to paint) Big Wig As incredible as it sounds, men and women took baths only twice a year (May and October) Women kept their hair covered, while men shaved their heads (because of lice and bugs) and wore wigs. Wealthy men could afford good wigs made from wool. They couldn't wash t he wigs, so to clean them they would carve out a loaf of bread, put the wig in the shell, and bake it for 30 minutes. The heat would make the wig big and fluffy, hence the term 'big wig.' Today we often use the term 'here comes the Big Wig' because someone appears to be or is powerful and wealthy.

Chairman
In the late 1700's, many houses consisted of a large room with only one chair. Commonly, a long wide board folded down from the wall, and was used for dining. The 'head of the household' always sat in the chair while everyone else ate sitting on the floor. Occasionally a guest, who was usually a man, would be invited to sit in this chair during a meal. To sit in the chair meant you were important and in charge. They called the one sitting in the chair the 'chair man.' Today in business, we use the expression or title 'Chairman' or 'Chairman of the Board..'

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Losing Face
Personal hygiene left much room for improvement. As a result, many women and men had developed acne scars by adulthood. The women would spread bee's wax over their facial skin to smooth out their complexions. When they were speaking to each other, if a woman began to stare at another woman's face she was told, 'mind your own bee's wax.' Should the woman smile, the wax would crack, hence the term 'crack a smile'. In addition, when they sat too close to the fire, the wax would melt . . . Therefore, the expression 'losing face.'

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Straight Laced
Ladies wore corsets, which would lace up in the front. A proper and dignified woman, as in 'straight laced'. . Wore a tightly tied lace.

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Not Playing With A Full Deck
Common entertainment included playing cards. However, there was a tax levied when purchasing playing cards but only applicable to the 'Ace of Spades.' To avoid paying the tax, people would purchase 51 cards instead. Yet, since most games require 52 cards, these people were thought to be stupid or dumb because they weren't 'playing with a full deck.'

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Gossip
Early politicians required feedback from the public to determine what the people considered important. Since there were no telephones, TV's or radios, the politicians sent their assistants to local taverns, pubs, and bars. They were told to 'go sip some ale' and listen to people's conversations and political concerns.. Many assistants were dispatched at different times. 'You go sip here' and 'You go sip there.' The two words 'go sip' were eventually combined when referring to the local opinion and, thus we have the term 'gossip.'

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Mind Your P's & Qs
At local taverns, pubs, and bars, people drank from pint and quart-sized containers. A bar maid's job was to keep an eye on the customers and keep the drinks coming. She had to pay close attention and remember who was drinking in 'pints' and who was drinking in 'quarts,' hence the term 'minding your'P's and Q's '

p/s photos: Reon Kadena

Secrets Exposed: How To Make A Woman Happy!!!

How to make a woman happy...

It's not difficult to make a woman happy, a man only needs to be:
1. a friend
2. a companion
3. a lover
4. a brother
5. a father
6. a master
7. a chef
8. an electrician
9. a carpenter
10. a plumber
11. a mechanic
12. a decorator
13. a stylist
14. a sexologist
15. a gynecologist
16. a psychologist
17. a pest exterminator
18. a psychiatrist
19. a healer
20. a good listener
21. an organizer
22. a good father
23. very clean
24. sympathetic
25. athletic
26. warm
27. attentive
28. gallant
29. intelligent
30. funny
31. creative
32. tender
33. strong
34. understanding
35. tolerant
36. prudent
37. ambitious
38. capable
39. courageous
40. determined
41. true
42. dependable
43. passionate
44. compassionate

WITHOUT FORGETTING TO:
45. give her compliments regularly
46. love shopping
47. be honest
48. be very rich
49. not stress her out
50. not look at other girls

AND AT THE SAME TIME, YOU MUST ALSO:
51. give her lots of attention, but expect little yourself
52. give her lots of time, especially time for herself
53. give her lots of space, never worrying about where she goes

IT IS VERY IMPORTANT:
54. Never to forget:
* birthdays
* anniversaries
* arrangements she makes


HOW TO MAKE A MAN HAPPY:
1. Show up naked or just wearing a cotton tee.
2. Bring beer.
3. Hand over the remote.
4. Discuss how to rank the following women on attractiveness, sexiness, as a lover: Jessica Alba, Megan Fox, Scarlett Johanssen.


p/s photos: Reon Kadena

GDP Country Growth Rates For 2009

Below is an interesting piece from Bespoke Research tabulating the expected GDP growth rates for 2009. Only China and India are expected to register positive year on year expansion. The rest are in various stages of contraction. What's interesting is the BRICs are doing very well relatively, with the exception of Russia, mainly due to its own undoing, excessive reliance on resources exports and not enough investments into infrastructure and services.

The other interesting point is that resource rich countries do not have it so bad, in fact they are among the better performers.

Below are the 2009 estimated GDP growth for 21 countries. As shown, only China and India are expected to actually grow in 2009, while the other countries are expected to contract. China's 2009 GDP growth estimate is at 7.66%, while India's is at 4%. The US is closer to the top of the list than the bottom with an estimate of -2.49%. It ranks only behind Canada among other G-7 countries. Japan and Germany are expected to see the biggest contraction in GDP in 2009 at -6.61% and -6.06% respectively. The UK is at -3.74%, Russia is at -2.77%, and France is at -2.75%.

p/s photos: Reon Kadena

Current PE Ratios Comparison & Buffett's Latest Interview

In a recent interview with Warren Buffett:

On whether he will cash out of Goldman Sachs:

No, no, no. I will keep those Goldman warrants right through their full -- they've got four and a quarter years or so to run. But I think we'll make a lot of money out of those.

On the possibility of the United States losing its AAA Rating:

As long as you're issuing money and you're issuing debt in your own currency, you can print money. The U.S. -- no, I think we will have a AAA for not only as long as I live, but as long as you live, which is more important.

On whether unemployment will continue to rise:

It’s going higher—business has not bounced back. We have not come off the bottom yet. It will work out in the end. Since 1776 it’s been a mistake to bet against America . America solves its problems. How soon, nobody knows. But we have not come off the bottom yet. And it will work out in the end.

On inflation in the United States :

What we’re doing raises the probability significantly of very significant inflation down the road—not this year or next year or the year after that, but we’ve taken actions and they were appropriate actions… it will have consequences and nobody knows exactly what they will be and how effective we will be at draining a system we’ve been flooding, but the probability of significant inflation has gone up.

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Bespoke came up with the current P/E ratios for these countries. Please note that its current ratios and not forward ratios. Below is a chart showing these valuations. As shown, Russia currently has the lowest P/E ratio at 6, followed by Italy (10) and France (11). At 14, the US is more attractive based on its P/E ratio than most countries. Taiwan has the highest P/E at 60, and the UK is surprisingly bad at 34. It's valuation is worse than China's. Germany also has a very high P/E ratio at 27. Malaysia's is at a fair 18x.

p/s photos: Reon Kadena