Sharing The Music

Many of you might not miss my Radio Jukebox by Imeem. For those who do, the reason why I took the thing out was that Imeem finally settled with the music companies, in that when users put the jukebox outside of Imeem, they will only play each song for 30 seconds, which is quite annoying. So, I took it off. If you want to hear the full songs and playlists, you have to listen to them at the Imeem site. As in most things in life, they are a lot better when shared out. Those who liked my selections (I think I have over 30 playlists), you can access the songs through the site via my account:



http://www.imeem.com/

Click LOGIN

email: malaysiafinance@gmail.com

password: Salvatore

Click CREATE

(wait for 30 seconds)

It will then load all my songs playlists. Left click on any playlist will reveal the songs. Right click on the playlist, then click VIEW PLAYLIST will play the songs in a new tab.

Enjoy!!!


p/s photo: Nia Ramadhani

Dissecting Temasek

Temasek now has a professional outsider as CEO following Ho Ching's resignation. Of course you can put a spin on the motivations and pressures and developments which led to that. Herein lies the trouble with many big asset management unit. Is it a personality driven outfit? Is there just one person dictating matters? Safe to say that Temasek have very well paid sector leaders managing their portfolio. How does the asset allocation strategy work? Every company has their own culture and ways of doing things. For a proper fund manager to work well, they have to believe what they bought and believe that when they sell, its their call. Anything else that gets in the way would diminish the "empowerment" element.

Good fund managers need to have the autonomy, yes they can be part of the strategy exercise on capital, currency and asset allocation meetings... but when the decision to buy and sell arrives, it has to be the fund manager's call. If everything is collective, then in the end, there will be no responsibility, as it is collective. Fund management is such that somebody has to take the blame or the glory. If you pay someone good enough, they won't mind doing things collectively.

How strong a personality in dictating matters, will somehow cloud the brilliance and contribution of top fund managers. Good fund managers have to be accountable, and to be accountable you have to let them live and die with their decisions. The decision to appoint an outsider, Charles Goodyear (ex-BHP) as CEO indicates to me that the powers to be want to make the entire organisation more like a proper fund management unit. That proper processes and boundaries properly laid out in making investment decisions.

Rightly or wrongly, too many investing decisions by Temasek have been on "relationship basis" such as the Indonesian banks and the ill fated Shin Corp deal. I am guessing here but those looked like decisions being mainly pushed and promoted by one person. The second part was that there was no understanding and appreciation of the "cultural nuances" when investing in sensitive big companies in your neighbouring countries. You cannot just treat these decisions purely on assets and liabilities, and expect the rule of law to fall into place. Certainly a fund as big as Temasek should know what they can do, should do and should tread carefully ... to me, thats where Temasek failed spectacularly over the past 10 years.

-------------------------------------

Hence when markets fall, it is not surprising to see the value of Temasek’s portfolio falling as well. The figure above shows major global stock indexes – nearly all of them have dropped more than 30 percent in 2008, with some losing more than 40 percent. The (not shown in figure) MSCI (Singapore) and MSCI (Asia ex-Japan) stock indices are good benchmarks for Temasek’s performance: 31 percent loss against the 44 and 45 percentage losses suffered respectively. Furthermore, Temasek’s drop “is exactly in line with the MSCI world share index”.

Temasek is also not the only ‘sovereign wealth fund (SWF)’ to lose money. According to The Economist’s report on 22 January this year, “Gulf foreign-reserve funds and SWFs (the distinction is often blurry) lost $350 billion last year, or 27% of the value of their assets”. Though Temasek has failed to produce results, it has not failed spectacularly, giving assurance to the public their money has not been squandered away. In fact a 31-point loss is arguably a better performance, given the context of the market.

Finally, Temasek is not plagued with structural financial problems. While it may have bled money in Barclays and Merrill Lynch, and also encountered problems with Shin Corp and the Indonesian government, it has made other sound investments too, such as in the Bank of China and China Construction Bank. Its losses are likely to be reversed once the recession ends, the banking system is fixed, and investors are once again confident in the markets. Public anger directed at Temasek over its losses, if any, is unreasonable – Temasek is not an immediate failure.

While the Western financial world fears an onslaught of SWFs with hidden agendas, Singaporeans fear that Temasek has skeletons in its closets. There are three broad categories of problems which Singaporeans can express some reasonable suspicions: Temasek’s lack of transparency, soundness of its investment strategy and Temasek’s relationship with the giant local companies here.

The first problem is a recurrent theme. A recent Wall Street Journal article summed it up nicely

“it has never provided historical financials to back up its claim of an 18% compounded annual “total shareholder return” by “market value,” nor has it released detailed results showing how money flows among its subsidiaries, the holding company and its government shareholder. Temasek outlines its compensation arrangements but doesn’t say how much it pays its top executives”.

What is the definition of ‘transparency’? Should Temasek publish its consolidated financial report like any other listed company, not just its summary – which is already quite detailed in stating its goals and investments? What stuff do Singaporeans want to see which is not publicly available?

The essence of this transparency issue is not regarding Temasek’s financial status, but more on its vague goals and the perception that it is a government-run body.

Temasek should be transparent for its own good – a pragmatic and financial purpose. Together with the GIC, they can detail their internal workings, goals and strategies to create a force of certainty and stability in the financial market. If Temasek, for no known reason, decides to give up its stake in a company, it will lead to speculations, rumours and uncalled panic, and Temasek will eventually be affected. More importantly, political tensions can be reduced in sensitive investments, as it has learnt in Thailand. Surely such benefits of transparency can better achieve its bureaucratically-crafted goal, “maximise long-term shareholder value as an active investor and shareholder of successful enterprises”?

The second problem is the soundness of Temasek’s investment strategy. Some have criticised it for pursuing a ‘high-risk strategy’, and so expose Singaporeans’ money to unnecessary losses. Temasek is not a low- or high-risk investor. Stashing money in fixed deposits or bonds are safe, but may not secure high returns. Similarly, pumping money into hedge funds or real estate speculation may offer higher returns, but Temasek is unlikely to be doing that. It is more likely Temasek is a mid-risk investor which made some bad decisions in Barclays and Merrill Lynch (Temasek’s losses cannot be fully attributed to just these two banks; as mentioned, it depends on the performance of stock markets worldwide).

Temasek holds stakes in companies in diverse sectors, ranging from financial services to consumer lifestyle to technology. Critics will jump at this again, arguing that diversification ought to act as a shock-absorber. However, 2008 was an unprecedented year where everything seemed to be going downhill. Even diversification may not work in such exceptional times, when confidence level is zilch in the market; but it will probably work once the economy recovers.

With the appointment of Charles Goodyear as chief executive, it looks set to diversify into asset classes such as commodities, where he has had experience. Benefit of the doubt can be extended to Temasek over its investment strategy, and Singaporeans need not be anxious that aggressive, high-risk investments will bleed them.

The third problem is the consistent link drawn between Temasek and companies where it is a stakeholder. Singapore’s commanding heights – the telecommunications, energy, industrial, transport and banking sectors – are anchored by local firms such as Singtel, Mediacorp, Singapore Power, SembCorp, PSA, SMRT and DBS. Some of these local firms were originally owned by the Singapore government to stimulate the growth of new industries, which then cut a route for private capital once viability was shown. As the economy grew, the government transferred part or all shares to Temasek, which is supposed to be an investment manager for the Ministry of Finance.

Temasek has stated clearly it is not involved in the commercial running of its companies. The evidence suggests so: in 2002, a battle was fought between DBS and 98 Holdings for NatSteel. Though Temasek owned shares in all three firms, there is no evidence to show it was the puppet master of this saga. Furthermore, Temasek firms such as SembCorp and Keppel compete actively against each other in their respective fields. Yet there are lingering doubts, especially when one of Temasek’s ‘investment themes’ is to ‘deepen comparative advantage’ – one can guess it means the ‘national champions’.

Singaporeans should be more rightly concerned at the government’s tendency to pick winners. The government’s current role in the economy is most prominent in their attempts to nurture dynamic comparative advantage in promising industries. Other countries do so through protectionism or creating state-owned enterprises to monopolise the industry, but Singapore does it through fiscal incentives and infrastructure investments to attract FDI. Electronics, pharmaceuticals, tourism, digital media etc – these industries are not grown from the bottom, but deliberately nurtured from the top.

The problem with this is not the government’s inability to pick winners – pharmaceutical output was partly responsible for vigorous growth before last year – but economic development in Singapore has reached a stage where orderly planning may not lead to the next frontier. Technological innovations and capital stock accumulation are required to expand the economy’s productive capacity; attracting FDI has done a fine job, but the next step must be taken. Singapore needs to unleash the local, so-called ‘creative forces’ for long-term growth.

Temasek is a prime example of the government’s belief of orderly mobilisation of resources to tap on market forces. Temasek’s grip on some local giants such as Mediacorp and Singapore Power may be essential for national security reasons, but ownership and control of the vital companies by foreign firms can be limited through regulations. But from a commercial perspective, Temasek owns shares in them simply because they are profitable. Not everyone believes so, again, due to their image problem of being government-directed.

Temasek and the local giants symbolise the sometimes unfathomable economic thinking of the government. On one hand, it says it does not interfere in the commercial running of national champions; on the other hand, its continued stakes in them evokes a nagging feeling the government believes such firms should still be tied to their aprons, for unknown reasons. The Singapore government combines a strange mixture of socialist and free-market thought in the economy –national champions, state-led planning, heavy public subsidies on housing, healthcare and education; free-trader, fiscally conservative and aversion to welfare as to polyesters.

To be sure, Singapore’s development can be identified as ‘dirigisme and free markets’. But it is time the state reduces its direct influence. Signs have been encouraging; the government decided on two casinos, and both are now being built by foreign firms, not TLCs or GLCs. The ‘creative forces’ can come from both local and foreign, but it’s unlikely they will come from the government.

p/s photos: Reiko Azechi

Gov Of Singapore Investment Corp's State Of Affairs

Investors and the general public whacked Temasek and GIC royally over their portfolio losses over the past 12 months. Please search and distinguish between GIC and Temasek (you can get previous postings on that by keying in Temasek or GIC on this site's search button above). I was very severe on Temasek, and rightly so, they performed well when the wind is beneath their wings, and they made rather exceptional sector bets. For all the good brains and minds money can buy, not ONE was able to predict the banking crisis, the property loans debacle, the excessive credit card debt phenomenon, etc... That indicated to me that they just read analyst reports with no desire to walk the data (the need to go to the ground, talk to the participants and see how things were done). All they needed to do was talk to some of those new borrowers, check with ratings agencies on how they rated the papers, how did the papers got their triple A rating, etc. If you are going to invest $1bn into IOI Corp, you should not only talk to management, but walk around the plantations, see how they actually managed them, how the staff behaved, what they do to stop pilferage, how do they hedge their positions, how do they do their forward sales, how they go upstream and downstream, talk to a few of their major suppliers and clients, etc... Temasek and to a certain extent GIC, did not do the dirty work.

Again, Temasek hastily sold its Bank of America stake recently, and the share price has almost doubled what they sold at within weeks. At least GIC had the good sense to ride out bad decisions. If anything, one should be looking to buy now, not sell. Yes, they should NOT have bought before, thats too late to rectify, now they should be looking at their prospects moving forward. Unless Temasek really thinks that Bank of America has a greater chance of going to $4.00 than $25.00 over the next 2-3 years, then sell... what Temasek is doing to cutting off both limbs to get rid of an ugly mole.

Anyway, here is a more tolerant view on GIC and how they do things a lot better than Temasek. Take note of the personalities behind these two vehicles to understand the nuances in management and genuine ability.


The Government of Singapore Investment Corporation (GIC) says it will maintain its investments in Citigroup and UBS, despite the gloomy outlook for Western financial institutions.

This comes days after news that Temasek Holdings had sold its stake in Bank of America (BOA), resulting in an estimated loss of several billion dollars.

GIC currently has an 11 per cent stake in Citigroup, while its stake in UBS amounts to about nine per cent.

Observers say UBS and Citigroup have significant holdings in Asia and other high growth regions, which could recover more quickly from the downturn. And this could benefit GIC in the long term.

Arjuna Mahendran, Head of Asia Investment Strategy, HSBC, said: "By investing in these two very large investment banks, an investor who has a strategic holding in the equity of those banks would perhaps have access to the deal flow that emanates from their investment banking operations. And that is a huge positive if you are running a large sovereign wealth fund."

• GIC manages well over $100b from country's forex reserves and fiscal surplus - estimates of its assets under management range from $140- $300 bn. A plausible estimate is $220b in mid 2008
  
• Lee Kuan Yew suggested that GIC's assets had fallen by 25% from the peak and GIC invested too early in Citi and global banks. It's equity allocation has fallen to 45-50%. Other estimates suggest it lost $33b in 2008. It started to possess 7% more of cash in mid-2007
• A 25% losses would actually mean it outperformed global equity and had losses perhaps slightly less than other SWFs with similar portfolios
• Returns: It has averaged annual returns of 7.8% for last 20 years (slightly above the benchmark MSCI global with 7% returns) with Asian crisis, tech bust and credit crisis depressing returns in recent years. Average annual return in 25 years ending in 2006 was 9.5%
• Investment approach: Primarily a portfolio investor but has taken some larger stakes more recently including $6.9 b in Citigroup, Plans to increase investment in UBS in spite of losses on $10 b investment made in Jan-08; invested $1.5b in Sintonia and several property joint ventures in Europe and Asia. It is also rumored to be the lead investor in a new TPG fund. About one-third of the assets are managed by external managers, with two-thirds managed internally
  
• Investments in the U.S., EU and Japan still make up 80% of its portfolio, despite increase in exposure to Emerging markets. Equity share fell to 44% of its portfolio from about half two years ago, investments in alternative assets such as private equity and real estate rose to 23% from 20%. Cash made up 7% as of March.
• The shift to cash early in credit crisis meant it had cash on hand to invest in UBS.
• Regional: The Americas made up 40% (34% U.S.) of its assets, down from as much as 45% two years ago. Investments in Europe rose to 35% from 25%. Asia now accounts for 23% of its investments, with Japan making up almost half of them
  
• GIC: Uncertain global economic growth and financial market prospects and falling global liquidity make high returns challenging. Plans to increase investment in emerging markets via private equity funds to avoid political backlash
• Based on Singapore's balance of payment and international investment position AUM of around $220b seems plausible
• GIC along with ADIA recently agreed on code of conduct for SWF with U.S. and was a key player in IMF code of conduct: SWF decisions should be based solely on commercial grounds rather than geopolitical goals; More disclosure of strategies would reduce uncertainty and build trust; Recipient countries should have predictable, proportionate investment frameworks not protectionist barriers, nor should they seek to direct SWF investment.

p/s photo: Cherrie Ying Choi Yee

US Banks Giving Money Back - Good Problems To Have

Now that 3 major banks have applied to return TARP funds, we have the confusion that a seemingly positive move is being viewed with possible negative ramifications. By allowing them to give money back means they will no longer be under the "jurisdiction" of the US government. This will mean that they are more open to give out good salaries and good bonuses without having to consider the views or pressure from the government. This will allow the to recruit "better staff" who will be lured with a more generous compensation scheme. It is likely that the government will be delaying these 3 banks to give money back until more banks are at a better footing so as to be not be disadvantaged by the developments. Overall, these are good problems to have.

---------------------------

Goldman Sachs and Morgan Stanley have formally asked the Federal Reserve for permission to repay a combined U$20 billion (S$29 billion) in federal bailout money.

The requests are pending, and no decision has been made on whether the investment banks will get approval to repay the money and sever ties with the Troubled Asset Relief Programme, according to two people familiar with the matter.

A JPMorgan spokesman declined to comment on whether the bank also has requested permission to repay. Goldman Sachs and Morgan Stanley representatives also declined to comment.

The Federal Reserve, the main regulator for all three banks, would have to approve any decision on repaying bailout funds.

Goldman and Morgan, which each received US$10 billion, initiated talks with the Fed in the past few weeks, according to the people.

The banks were among nine large financial institutions that took an initial US$125 billion in bailout money in October after the collapse of Lehman Brothers threatened to trigger a financial catastrophe.

If their requests are approved, Goldman and Morgan would be the first among the nine banks to repay bailout money. Twelve smaller banks have returned nearly US$1.2 billion in government money so far.

More than 570 banks have received about US$198 billion in bailout funds. Banks that want to repay bailout money must be able to replace the funds by raising capital without guarantees from the Federal Deposit Insurance Corp.

The issue of repaying the money is a sensitive one for the government. By allowing strong banks to abandon the bailout and its restrictions, it risks putting weaker banks at a disadvantage, analysts say. A big concern is that high-level employees of bailed-out banks could defect to rivals that have paid back the funds.

The government 'stress tests' on the 19 largest US banks found that 10, including Bank of America Corp and Citigroup Inc, needed to raise additional capital to survive a worsening recession.

Goldman Sachs and JPMorgan were among the nine banks found to have enough capital. Morgan Stanley needs an extra US$1.8 billion in capital, the stress tests ruled. The bank has already begun raising the money through stock offerings


p/s photo: Choi Jeong Won

Where Are We In This Financial Crisis & Recovery?

Where are we in the global crisis? Are we recovering yet? Why are stock prices rushing upwards when the real economy still looked unsettled? I have tried to convey some answers in my posts before. Let's look at some more related factors:

a) economic statistics - no doubt the stats that have been coming out are still bad, but we have to remember that economic stats are dated, things that are dated means we all should know already, they do not tell us something we don't already know, we went through it, we read about how many companies have been downsizing, we read about plunging commodity price and the Baltic Dry Index, we hear about the number of foreclosed homes ... hence the main aim when looking at economic stats now is to look for signs of recovery, then we have to distinguish between year on year, quarter on quarter and month on month data, year on year is the hardest to calibrate - we already know that things will be very bad on a yoy basis, thus we look at comparative yoy figure for the past few months, yoy figures are important in that it takes out seasonal effects - its the same month as last year, month on month is deceptive because of seasonal effects e.g. figures for February (Chinese New Year effect / holidays / front loading) when compared to March will have the seasonal effect, which is why it is safer to look at quarter on quarter as it would indicate a more genuine trend change ... considering where we are in the recession cycle, everyone should be looking at the rate of decline, or rather the changes to the rate of decline to get at hints of recovery

b) bad news discounted - just how much of the bad news has been discounted, we can only guess, but when you take into consideration the spike in risk aversion over the last 7 months (which can be measured), it is reasonable to assume that prices have more than discounted the bad news because a depletion of confidence and a spike in risk aversion will lead to oversold markets, and thats where we are coming back from, an oversold position

c) bear market rally - in the beginning I would call it a bear market rally, but since February I think its a cyclical market rally, many who call this a bear market rally are those who totally missed out profiting from the rally, the more it rallies, the louder will those who did not buy will shout that it is a bear market rally ... you will also notice that those fundamentals driven experts have gone a lot quieter in recent weeks as the markets continued to climb because they have been wrong and wrong week in week out, hence the only people still shouting are technical analysts, or rather those chartists who also failed to spot the rising trend are now calling for a massive correction ... nobody wants to be wrong and at the same time not being able to make some money when others have traded profitably, beware of the underlying reasons why some people are saying certain things

d) what could go wrong - markets will seize up again if there are major unknowns appearing again, such as if a few big banks were to collapse, or that some of them would require another bailout in the hundreds of billions again, that is not likely after the "stress test" that did not please many people, to me its a very good move by Geithner because it opens up the books and sores for all to see, only with another round of panic will the bond markets seize up, and when they do, the risk aversion will return, looking at what has transpired, that risk has be lowered significantly

So, yes, foreclosures will be bad, unemployment may still rise ( I expect them to peak by end of June/July 2009), pockets of Europe will still be very bad, but the focus has shifted to investors looking for signs of recovery, and every time economic stats DOES NOT say that, markets will just drift lower, but not correct massively, as the amount of liquidity and the need to have an exposure in order not to miss out, will counterbalance the markets in the weeks and months ahead.


p/s photo: Jessie Chiang

Outlook For Asian Currencies For Rest Of 2009

Why is it important to look at currency outlook? If you are investing in stocks or bonds in an emerging country, the outlook for the local currency is very critical. The outlook will sway foreign and institutional investors one way or the other in global capital flows. You will only invest aggressively in things that will go up - currency bullishness becomes a major factor in calculating the absolute returns for foreign and institutional investors. there is not much point if a local stock market returns 12% in a year if the local currency whacks 8% off their net returns. Yes, you can do hedging blah, blah... but the crux is still good confluence of positives when making an asset allocation decision. You do not want to have so many "conflicting variables" in your asset allocation model. Good currency outlook = good equity outlook.

• YTD Currency performance as of May 4, 2009: Worst-performers-> Singapore (-2.63%), India (-2.47%), Vietnam (-1.69%), Pakistan (-1.69%), Malaysia (-1.67%), Thailand (-1.29%), Philippines (-1.18%), Taiwan (-0.81%), South Korea (-0.02%), HK (-0.01%) Best-performers-> China (+0.05%), Indonesia (+7.86%)
• In the beginning of 2009, heightened global risk aversion and investor redemption from EMs had led capital outflows from Asia and hence currency depreciation. Since March, however, all major Asian currencies are on an appreciation path with the exception of Vietnam. During March 6- May 4 period, South Korean Won gained from -18.6% ytd to -0.02% ytd and Indonesian Rupiah gained from -5.9% ytd to 7.86% ytd, whereas Vietnamese Dong have lost its value from 0.1% ytd to -1.69% ytd
  
  Causes
• Equity fund inflows: diminishing risk aversion among global investors have led continuous FII inflows to Asian equity markets with ytd net flows to a positive $1.6bn in mid-April 2009 and 4-week average as strong as those experienced in 2006 and 2007 (Citi). Attractive valuations, relatively sound economic fundamentals and aggressive fiscal and monetary stimulus policies have supported the current rally in equity markets
• Easing external balances: Asian exports will continue to contract through most of 2009 due to sharp contraction in global demand, however the extent of export drop has been easing since Feb/Mar 2009. Imports contracting greater than exports in some countries is containing risks to the trade deficit
• Improving liquidity condition: Although it remains tight in some countries, dollar liquidity has improved considerably when compared to Fall 2008. Countries needing dollar liquidity have adequate access to bilateral and Chiangmai currency swap agreements as well as aid from bilateral sources, multilateral agencies and international groups to avoid IMF assistance
  
  Outlook
• Risks: in spite of recent currency appreciation path, Asian currencies still face some downward pressures due to easing capital flows. Slowing GDP growth and bleak earnings outlook may drive out FII inflows. Furthermore, FDI has already started to contract due to cutbacks in capex, debt inflows are under pressures because of declining interest rate differentials with the U.S. and external bank borrowings is also waning amid global credit crunch; this may lead to capital outflows and currency depreciation. Countries with stronger FDI prospects and/or stronger fiscal and currency account positions are less vulnerable to currency depreciation than their regional peers
• Central Banks: Increasing number of central banks might favor undervalued currencies to support exports and growth (especially as interest rate cuts are approaching low levels in many countries with the risk of deflation which have been ineffective to stimulate lending and the size of fiscal stimulus is constrained by fiscal deficit). In the face of growing deflationary pressures, currency depreciation might also help to contain deflationary risks by raising import inflation
• DBS: Asian currencies have been appreciating on the back of rising equities on improving prospects for economic recovery. Most bullish currencies, Chinese Yuan and Hong Kong Dollar, are those where their spot rates have broken below their 100-, 200- and 400-day moving averages. The next most bullish currencies are the Asian NIE currencies (Taiwan Dollar, South Korean Won and Singapore Dollar) by virtue of their high dependence on the external sector for growth. In Southeast Asia, the Malaysian Ringgit and Indonesian Rupiah clearly outperformed the Thai Baht. The Philippine Peso, and to a lesser extent the Indian Rupee, do not appear to be as enthusiastic in embracing appreciation from recovering stocks
• Asian Development Bank: Although most Asian currencies are expected to recover somewhat over the course of the year, further depreciation is possible in the near term amid continued deleveraging and as weaker exports reduce dollar earnings in the region
• Nomura: Asia has the highest average fundamental undervaluation based on Flow Equilibrium Exchange Rate (FEER) and Stock Equilibrium Exchange Rate (SEER) of the emerging regions, and this will provide a strong support for Asia FX appreciation when capital flows stabilize
• Citi: Near-term outlook more mixed as appreciation trend moved faster than expected, and vulnerable to relapse of risk aversion, but longer-term appreciation view maintained
• Citi: Currency depreciation is expected as Swine Flu outbreaks would have greater proportional impact on non-tradable/services than they would on tradable sectors; one should therefore expect the relative price of non-tradables to fall vis-a-vis tradables, which would imply the real depreciation of one's exchange rate. This should be particularly for small open economies where this relative sectoral shift has a more notable impact
• Scotia: While the Chinese authorities profess confidence in the economic outlook, they will be willing to countenance only a marginal appreciation of the renminbi vis-a-vis the U.S. dollar in 2009. Despite the rally in the local equity securities market, the appreciation trend in India will not persist with the export outlook relatively bleak and political uncertainties unlikely to be resolved by the election. The Korean Won has been a major beneficiary of the diminished risk aversion among global investors in spite of the persistent weakness in the domestic economy, whereas Thailand's political uncertainties may tend to discourage investment inflows and encourage capital flight although current account surplus provides some support
• Standard Chartered: Given the fundamentals are solid and growth prospects are bright, KRW, PHP, INR, IDR to lead the rally in AXJ currencies in H2 2009 just as they led the AXJ currency correction in 2008. Small, open economy currencies such as SGD, MYR, TWD,THB, VND will weaken on slowing growth, capital outflows, global recession

p/s photo: Deborah Priya Henry

The Relevance Of Velocity Of Money & Confidence

The story below is meant to be a funny story, but it also helps to explain the importance of velocity of money and confidence. Confidence in markets, financial well bring and job security have a great impact on the economy. To restore financial health, it is important for people and governments to spend and not just save. All fiscal stimulus are there to help with spending, especially when the public refuses to spend. Thats mainly the reason why Japan is still in the doldrums since the early 90s till even today, because Japanese save and save. South Korea attacked the Asian financial crisis by spending ferociously, not just the government but the general public took on the advice to spend with gusto and hauled itself out of recession faster than the rest. As irresponsible as it may sound, to continue to spend is a patriotic duty.

-------------------------------

It is August. In a small town on the South Coast of France, holiday season is in full swing, but it is raining so there is not too much business happening. Everyone is heavily in debt.

Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.

The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes E100. The butcher takes the money and races to his supplier to pay his debt. The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.

The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit. The prostitute goes quickly to the hotel, as she was owing the hotel for her hourly room use to entertain clients.

At that moment, the rich Russian is coming down to reception and informs the hotel owner that the proposed room is unsatisfactory and takes his E100 back and departs.

There was no profit or income. But everyone no longer has any debt and the small town's people look optimistically towards their future.

p/s photos: Chen Kuang Yi

A Tribute To My Favourite Chips

Every time I am in Sydney, the first thing I will buy is my favourite chips, Smith's Chicken Crinkle Cut Chips. My relatives think I am silly when I load bags of it back with me. Last year when I was in Bali for a sales conference, I was pleasantly shocked to find Smith's chips at a convenience store and they had chicken flavour as well, I was further shocked to find out out that I had to pay US$4.50 for one bag! But had to. So, if you come across these chips while traveling, grab one quick.

The history of Smith's Chips dates back to when Smith's Potato Chips Ltd was first formed by Frank Smith in the UK after World War 1. The history of Smith's Chips in Australia began, however, in 1931 when the first chips were produced by Frank Smith and George Ensor in leased premises in Sydney's Surry Hills. These chips were originally made in 20 gas fired cooking pots, packed by hand and distributed by Nestle Confectionery vans. In 1932, Smith's Potato Chips (Australia) was formed and sold its early chips in three penny packets, 24 in a tin. The legendary "twist of salt" sachet was contained in these packs before pre-salting was introduced in later years. In 1945, a continuous cooker process was introduced to replace the individual cooking pots. In 1960 the production of a one shilling pack for movie theatres and a box pack for four shillings was initiated.

In 1961 Smith's introduced its first flavoured chip - Chicken. This flavour is still one of the more popular flavours in the crinkle cut range. In 2002, Smith's celebrated 70 years since Smith's Potato Chips (Australia) was formed. Recently Smith's introduced a thin cut potato chip, called "Smith's Selections Thinly Cut" under its iconic brand name. The Smith's crinkle cut chip is known as "Smith's Classic Crinkle Cut". Both Smith's products are available in a range of flavours. Smith's is still known as... "The Original and the Best" and the Smith's brand is the number one selling potato chip in Australia.

Asian Tigers Should Be Roaring Back Earlier Than The Rest

There are strong indications that most of the Asian economies will lead the global recovery. For one, most of Asia can still invest massively into building infrastructure. Secondly, the fiscal stimulus adopted averaged some 4% of GDP in 2009 which is actually more than what the US did. The much weaker commodity prices provided a huge kicker to these economies as most are voracious consumers. In fact it is estimated to have a net effect of raising GDP by 2 to 3 percentage points.

The Economist: Economists are revising up their forecasts for China’s GDP growth this year: 8% may now be possible even if American consumers remain frugal. There is a myth that China’s growth depends on American consumers. In fact, if measured on a value-added basis (to exclude the cost of imported components), China’s exports to America account for less than 5% of its GDP.

There is more argument, however, over the smaller, more export-driven economies, such as Hong Kong, South Korea, Singapore and Taiwan. Robert Subbaraman, an economist at Nomura, offers several reasons why they are likely to remain sluggish for the time being. The recent rise in exports and production, he argues, largely reflects the fact that firms are no longer running down stocks. This will provide only a temporary boost unless global demand picks up. Firms’ spare capacity also means that investment will continue to fall, while rising unemployment threatens to dent consumer spending. Nor is China’s stronger growth likely to save the region. Over 60% of China’s imports come from the rest of Asia, but about half of these are components that are assembled in China and then sold to the rich world.

In its latest economic outlook on Asia, the IMF forecast that the region excluding China and India would grow by only 1.6% in 2010, largely because it expects the American economy to be flat. However, Peter Redward of Barclays Capital argues that Asia can recover earlier and more strongly than elsewhere. In 2010, he reckons, the smaller Asian economies could grow by almost 4%, or close to 7% once China and India are added in.

One reason for his optimism is his explanation for why the Asian economies were hit so hard in the first place. Asians are often blamed for saving too much and spending too little, but Mr Redward argues that the main reason for their plight was that manufacturing accounts for a much larger share of GDP than elsewhere. Industries such as cars, electronic goods and capital machinery are highly cyclical. In rich and emerging economies, GDP fell furthest last year in countries with the largest share of manufacturing. This, in turn, could imply a sharp recovery.

A second reason for expecting a stronger bounce is that fiscal stimulus in Asia is bigger than in other regions (see chart). China, Japan, Singapore, South Korea, Taiwan and Malaysia have all announced fiscal packages of more than 4% of GDP for 2009, twice as large as America’s stimulus this year. The pump-priming should also work better in Asia than in America or Europe, because modest corporate and household debts mean that tax cuts or cash handouts are more likely to be spent than saved. Banks, moreover, are in much better shape and so have more freedom to support an increase in domestic spending.

As the world’s largest importers of oil and other commodities, the tiger economies have also benefited hugely from the fall in prices over the past year. This has acted like a tax cut, boosting real incomes and profits. Asia has enjoyed a gain from cheaper oil of almost 3% of GDP this year. Add in lower prices for food and raw materials and the total gain could match the governments’ stimulus (though the danger remains of a renewed spike in oil prices).

Pessimists maintain that Asia has always been pulled out from previous recessions, such as the 1998 financial crisis, by strong exports to the West. However, a recent analysis by Frederic Neumann and Robert Prior-Wandesforde, both of HSBC, finds that, contrary to received wisdom, Asia’s recovery from its 1998 slump was led not by exports, but by consumer spending. Exports to the West did not surge until 2000. The region’s current-account surplus actually shrank between 1998 and 2001.

Thanks to a large fiscal stimulus and the healthier state of private-sector balance-sheets in most economies, domestic spending (consumption and investment) should revive earlier in emerging Asia than elsewhere, rising by perhaps 7% next year, up from 4-5% this year. America’s domestic demand is expected to remain weak in 2010 after falling sharply this year. Indeed, add in Japan and total Asian domestic spending (at market exchange rates) looks set to overtake America’s next year.

But what of emerging Asia’s longer-term prospects? Much of the increase in Asian domestic demand this year and next will come from government investment. Unlike rich countries, emerging Asia has room to keep investing in infrastructure for several years but governments need to encourage more consumption to fill the gap after the infrastructure projects are completed. Asian households’ low rate of consumption and borrowing means that they have huge scope to spend more. Better social safety-nets might encourage Asians to save less. Governments also need to lift households’ share of national income by reducing their bias towards capital-intensive manufacturing and encouraging more labour-intensive growth.

Ultimately, relatively robust expansion in domestic spending should help most Asian economies to keep growing faster than the rest of the world. But the tigers are unlikely to return to their heady growth rates of recent years. Nor would that be desirable given the impact on inflation and the environment.

Suppose that net exports contribute nothing to growth, and that domestic demand grows at roughly the same pace as it has in the past five years. Then emerging Asia could see annual growth of almost 7% over the next five years (around 8% in China, a more modest 5% in the smaller economies). That might sound disappointing for economies that enjoyed average growth of 9% in the three years to 2007. But it would still be around three times as fast as in the rich economies.

p/s photo: Carmen Soo

How Much Is That Car In The Window?

Every time I am in Sydney, I never fail to compare car prices here with the ones we pay back home. Cringe worthy ... it also helps to explain why so many expats in Malaysia end up driving beaten down pathetic cars because they just could not allow themselves to pay such exorbitant prices for the cars in Malaysia.

I am looking at the papers now and saw that one can drive away with Bentley Continental Flying Spur, its in silver tempest, and even though its a demonstrator, I think its exceptional at A$339,950 (RM850,000).... or you can opt for the Aston Martin V8 Vantage Coupe for just A$288,888 (RM740,000).

OK, lets bring things down to earth. The new 2009 Special Edition Toyota Camry Touring, drive away at A$29,990 (RM75,000)... do you want to cry now??? Oh, it also comes with 17" alloys, rear lip spoiler, dual zone aircon and ta-dah... a 6 disc CD changer.

Let me browse some more, a new Honda CRV Sport goes for A$39,990 (RM100,000). Aaah.. they have a small promotion on Volvo cars: you can drive away a new Volvo XC70 for A$60,000; an S80 for A$74,000; or and XC90 for A$72,000. Just multiply by 2.5x.

Even the starter Porsche Boxster, brand new is going for just A$113,000!!!

I have mentioned this many times, how much longer do we need to subsidise the Protons and Peroduas. Look at the average per capita of Malaysians, and how much of our spending power has been going down the drain thanks to that one item... CARS!!! You get developed countries with 3x or 4x our per capita income paying about 40% cheaper for car prices - mana kepala hotak engkau???.. Its a hugely inefficient allocation of resources. I don't mind supporting our local industries for a few years to get them to grow up strong... but gawd... how many fucking years NOW, 15??? 20??? A whole generation has been basically GIVING money to Proton and Perodua... do it this way... JUST TAKE THE DEDUCTION FROM OUR PAY PACKET instead, why bother???

p/s photos: Angelababy

Remembering Leslie Cheung

He is without doubt, and I am deliberately using the present tense, the most gifted and talented artiste we have in Asia. I came across these two TV shows on youtube and found them to be fascinating. One was done by a German TV station Arte, and I was very pleased to watch a fitting, correct and well researched tribute to Leslie. Thankfully it had English subtitles and is highly watchable and impartial. The fact that it was done by a group of people that does not even speak Cantonese or Mandarin says a lot about passion and professionalism of that group of people. The song the producers chose at the end of the documentary, an exceptionally beautiful and haunting Spanish song (I think about a bird..), was very apt as alluding to a bird that had no legs and would not land or could not land, and that the only time it landed was to die.

The second show was all the more interesting as it was the only interview done by Momo Mo Shun Kwan on her talk show. Many fans do not even know that Momo was about the only woman that Leslie openly declared his love to. They actually went out as a couple for an extended period. He even wanted to marry her, and he even admitted to having proposed to her. Unfortunately her feelings for him did not go as far his but they remained very close friends. Hence the interview carries a lot more weight and under current.

Update On Marketocracy Portfolio

Fund Performance for salvadordali's Mutual Fund

May 05, 2009

fund rankings
		For the six month period ending March 31, 2009 your fund outperformed 97.8% of the other funds on our site. Your forum and other privileges are based on this ranking

My portfolio was started on 1st August 2008. Marketocracy lets you manage a virtual portfolio of $1M in a simulated trading environment, allowing you to track your performance accurately and compare your fund management skills to other investors and professional fund managers. Yes, they do take into account transaction cost as well. If your track record turns out to be one of the best, you could be hired to help manage a real fund at Marketocracy. It's a great place to learn, and a great place to prove your talent. They also have important rules to ensure that you are running an actual investing portfolio and not just sitting on cash:

• No position can exceed 25% of your total portfolio value.
  
• Half your portfolio must be comprised of positions under 10% each.
  
• Your cash position isn't limited by this guideline, although you must be 65% invested

My fund was smartly called SMF, or Salvador Mutual Fund (no, not the foul language acronyms you are thinking). So far so good, although the first couple of months was iffy. SMF fund performance in orange colour.

The main objective of the fund is to beat the S&P 500. For the past 6 months, the S&P 500 has gained1.33% while my fund has gained 51.1%. There are usually rules which dictate that you must be at least 60% or 80% invested at all time, and your aim is to beat the index. If you can consistently beat the index, you should be golden. If you look at the turnover rates, I have increased the trading activity over the past two months as I think the recovery is still volatile and is more suited to be traded.

modern portfolio theory, you basically aim to beat the index, based on the premise that:

over the long run stocks offer superior returns

hence if you consistently beat the index, over the long run, you should have superior returns

SMF m100 S&P 500 DJIA Nasdaq

recent returns vs. major indexes
		Beating Today MTD QTD YTD SMF 5.72% 5.71% 32.23% 39.14% S&P 500 1.74% 3.57% 13.48% 0.98% DOW 1.21% 2.97% 10.54% -4.17% Nasdaq 0.28% 2.14% 14.75% 11.23%

recent returns
		RETURNS Last Week 10.72% Last Month 19.90% Last 3 Months 46.54% Last 6 Months 51.11% Last 12 Months N/A Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception 0.27% (Annualized) 0.35% S&P500 RETURNS Last Week 5.72% Last Month 7.44% Last 3 Months 9.35% Last 6 Months 1.33% Last 12 Months N/A Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception -26.58% (Annualized) -32.68% RETURNS VS S&P500 Last Week 5.00% Last Month 12.46% Last 3 Months 37.18% Last 6 Months 49.78% Last 12 Months N/A Last 2 Years N/A Last 3 Years N/A Last 5 Years N/A Since Inception 26.85% (Annualized) 33.02%

		Symbol Price Value Portion of Fund Gains Inception Return EXM $9.50 $57,000.00 5.38% $48,418.60 51.01% BRCD $5.96 $89,400.00 8.43% $28,839.56 47.62% Details BAC $12.69 $76,140.00 7.18% $36,233.22 27.27% Details ERX $34.00 $170,000.00 16.04% $46,937.10 29.08% Details F $6.26 $125,200.00 11.81% $17,135.62 15.86% QSII $55.14 $55,140.00 5.20% $12,248.72 12.97% WFR $18.71 $112,260.00 10.59% $6,496.56 6.14% DLTR $42.78 $66,736.80 6.30% $3,035.54 3.66% GCH $10.14 $72,571.98 6.85% $1,111.51 1.27% Details ACTG $4.67 $56,040.00 5.29% $170.70 0.18% Details SXE $25.22 $75,660.00 7.14% -$12,300.47 -13.98% Details

p/s photos: Angelababy