Malaysia’s Doctor Order Dismissal
2012 May 16 by admin
Malaysian shares tried to preserve modest gains as thousands poured into Kuala Lumpur’s central square to call for an end to political detentions and demand a fair contest between opposition parties and the long-dominant BN, which hopes to regain a two-thirds majority in elections likely to be called soon by Prime Minister Najib. His predecessor Mahathir continues to be an active influence and has urged “new blood” to limit government abuses he claims subverted the original intent of pro-Malay economic preferences. The minority Chinese and Indian communities have protested discrimination and rival groups led by Anwar Ibrahim, who has twice been acquitted of criminal charges, have seized on popular anger to insist on the removal of post-independence business and security provisions. GDP growth has revived on a combination of better electronics exports and domestic demand, but the former depends on the global end-user and supply chain cycle while the latter may waver with near-term energy subsidy reductions to narrow the persistent budget deficit. Banks have also been instructed by regulators to slow breakneck housing lending as prices jumped 10 percent the past year. With inflation again on the agenda from rising utility costs and credit, the central bank has recently allowed the currency to appreciate slightly without intervention, as foreign inflows into local bonds remain at 5 billion ringitt monthly. It has also encouraged Islamic sukuk placement from the region and Middle East targeting domestic buyers as the financial standards board housed in its building further promotes common instruments and oversight worldwide. Officials point out that food and fuel prices are unlikely to spurt with the peninsula’s rich commodities endowments, although plantation company listings have lost favor with a pause in palm oil values.
Indian cultural and corporate ties remain close as growth there slowed to 6 percent in the last quarter and the benchmark interest rate was slashed 50 basis points on a settled inflation reading. The fiscal and current account gaps continue to deteriorate as the budget statement raised the specter of additional retroactive foreign investor taxation, spurring a sovereign ratings outlook shift to negative. Portfolio equity outflows have resurfaced in part because of difficulties in mutual fund joint ventures with Fidelity deciding after asset and distribution limits to exit altogether. A long-awaited new pension scheme will fix management fees and prohibit insurance company clients that are a logical fit elsewhere. T. Rowe Price has been embroiled in disputes over personnel and advertising since taking a stake in the former UTI monopoly. Stock exchange relations with overseas institutions will be tested by the promise of direct individual entry and an activist holder fight against the Coal India selloff that favored state bidders in an operation underscoring the patient’s tentative health.
Pakistan’s Symbolic Strength Feats
2012 May 13 by admin
Pakistani shares led Asia through April with an over 20 percent advance as the government looks to finish its term with leader Gilani only receiving a nominal court sanction for alleged corruption, and the Finance Ministry touted 4 percent GDP growth comeback during the annual IMF spring meeting without renewing a program plea. Repayments on the suspended original $10 billion arrangement will fall due in coming months as the reserve drop already exceeded 25 percent the past year on the trade deficit and uneven remittances which too have recently rallied. The rupee is off the 90/dollar low, but capital inflow in the current fiscal year is just $200 million although bargain prices have lured external bond investors. The exchange boost has been attributed to a tax decision protecting participants’ fund sources if they hold for several months in contrast to earlier revenue and money laundering mandates designed to raise the 10 percent of GDP collection take. A handful of consumer and infrastructure listings have reported good earnings despite electricity and credit slack, and a free-trade opening with India with bilateral commerce at $2.5 billion created excitement. Double-digit inflation lingers and the budget gap will again top 5 percent of GDP as domestic official borrowing rises at ten times the annual private sector pace. The delegation indicated during its Washington visit that a new US economic assistance pact was under negotiation which will emphasize anti-poverty as well as venture capital efforts for income and business support in recognition of the “negative development impact” of the decade-long war against Islamic extremists that has killed an estimated 45,000 civilians and soldiers there. Optimists point to an eventual “peace dividend” as now unfolding on the subcontinent in Sri Lanka with GDP growth at double Pakistan’s rate as monetary tightening damps inflation. It has succeeded with a $2 billion IMF standby which was extended through July after delays and liberalized foreign access to the high-yield local bond market to help bridge the large current account deficit. The currency has recovered and new prudential controls aim to curb rapid bank lending expansion.
Human rights investigations into civil war actions however continue to block full tourism and aid resumption in a pattern also touching neighboring Bangladesh, where the exchange has struggled to assert frontier momentum. Opposition figures and trade unionists have disappeared and been targeted by the Hasina Administration which returned to caretaker power under army guidance before scheduled elections in 2014. It managed 5 percent economic growth this fiscal year and just negotiated a $1 billion Fund credit line to cover spiking oil import costs. At the end of 2011 a suspected military coup led by Islamist proponents was thwarted on mixed evidence beyond consideration in principle.
Central Asia’s Off-Center Interference
2012 May 4 by admin
Kazakh bank external debt was again marked down and shunned as BTA requested another round of creditor concessions from the committee comprised of well-known houses like Ashmore and JP Morgan who had previously acquiesced to two-thirds reduction. The state investment fund, in pursuit of assets reportedly stashed abroad by its former chief executive, a relative of President Nazarbaev, rejected help after a missed payment on the restructured 2018 Eurobond. The estimated hole is $5 billion, and larger Halyk Bank has urged the government to liquidate the unit to end the continued slide. System non-performing loans remain one-third of the total, with S&P placing it in the “high risk” category. With hydrocarbons’ upswing GDP growth should hit 6 percent on inflation around the same number, but demand is cooling for main customers China and Italy. The budget deficit lingers and the projected current account surplus at 4 percent of GDP could be endangered by income repatriation as foreign energy firms try to cope with ever shifting ownership and royalty divides. International reserves have rebounded to $35 billion with an additional $45 billion available in the backup stabilization fund but the central bank continues to draw on the pool to maintain the exchange rate corridor established post-crisis. Rumors of the President’s ill health have been rampant after recent parliamentary elections which allowed formal opposition, and the stock market has been a frontier leader on his promise of “people’s ipos” to distribute wealth to all citizens as a legacy. His reputation has been battered by oil field unrest and a lackluster agricultural harvest that may reintroduce food shortages. In neighboring Mongolia popular mining share flotations have also been announced, but the key South Gobi coal project was recently challenged by authorities over dealings between Canadian and Chinese developers. The company which is dual-listed in Hong Kong and Toronto experienced a 10 percent price drop and its auditor resigned on the inquiry. The sovereign-guaranteed Development Bank issued a 5-year bond in March yielding 5.75 percent on eager appetite but soon after the former President was arrested on corruption charges underscoring political fragility in the run-up to parliamentary elections. GDP growth and inflation are running at double-digits with a persistent fiscal deficit despite adoption of a responsibility law.
The country has exited its IMF program, unlike in Georgia further afield where a new $400 million precautionary arrangement was just inked. Elections are approaching with strong opposition to the US-educated president and his party, as the government tries to emphasize public-private partnership potential in resort building and other areas which brought a visit from New York real estate mogul Donald Trump. Unemployment is over 15 percent, and the current account gap is 12 percent of GDP, which investors may not have foremost on their mind considering novelty value in an exotic EMBI sub-index.
Indonesia’s Bashed Bric Hurl
2012 April 24 by admin
Indonesian shares finished a lackluster quarter as the BRICS summit passed in New Delhi with no invitation for group entry and mass protests erupted against long-telegraphed fuels subsidy cuts to keep the budget deficit at 2 percent of GDP. Investors were already dubious about premium valuations over the regional norm and the corporate governance defects highlighted by the board of directors fight in major listing Bumi Coal where the family owners sidelined international outsiders. The cooking oil and petrol transfers absorb one-fifth of spending, and the government wants to use the proceeds for infrastructure after passing landmark land access and power and transport sector changes while better targeting help for the poorest. Inflation may double to 7 percent with the shift, on a more modest 6 percent economic growth forecast. Wage demands have risen in advance with sporadic labor unrest, and President Yudhoyono in the final stages of his second term has publically endorsed their cause. Consumption may flag under these conditions as the current account heads toward a deficit and the capital account inflows pause from their recent record pace. Commodity export prices are off with the country a net petroleum importer and relying on heavy equipment purchase abroad. Foreign holdings of local debt may dip below their post-crisis 30 percent share as the central bank continues to purchase large amounts for system stability and liquidity management purposes. An external sovereign bond was easily placed in January, and private direct and portfolio investors are asked to provide one-quarter the estimated 2 trillion rupiah funding envelope for electricity, port, and road projects through 2015. A March review by rater S&P points out that energy tariffs are “low, inflexible and non-transparent.” The PLN monopoly unilaterally renegotiated contracts, which as a whole are poorly enforced according to the World Bank’s Doing Business measure. The new land acquisition statute is designed to slash costs and timing, and infrastructure guarantee and public-private partnership mechanisms have been upgraded.
Domestic state banks remain the dominant long-term money source, and the burgeoning Islamic sukuk market is well suited for risk-sharing as an alternative. The agency predicts FDI in these critical sectors could double as a share of GDP to 4 percent with “efficient administration,” but notes that lasting confidence will entail a series of policy and practical steps. The neighboring Philippines under President Aquino likewise unveiled a PPP push as the fiscal gap continues to come in under 3 percent of GDP. It has signed on to the US government’s Partnership for Growth aid effort which emphasizes power supply revamp, and exchange-listed privatizations are foreseen in the mix. Overseas worker remittances are intact as anti-corruption moves try to break from the past and prove their firmness.
Greater China’s Hard Land Lumps
2012 April 18 by admin
Hong Kong shares slackened on the dramatic arrest on bribery charges of the Kwok brothers whose firm has controlled a commercial and residential land empire for decades, just a week after self-declared populist Leung was elected chief executive in a tightly-managed race following a scandal involving the previous candidate Henry Tsang which flaunted ties to the island’s wealthy. Widening income inequality and poverty have suffused political debate amid the post-crisis property boom, and the new leader has promised to confront tycoons’ power despite his early role in supporting breakneck housing expansion. Developer stocks have long been under the microscope as the Monetary Authority attempts to brake lending alongside Beijing’s existing curbs that were reiterated at the latest gathering of top officials before the upcoming reshuffle. The enclave still suffers from a shortage of affordable flats underscored by the saga of Mr. Tang’s illegal wine cellar which itself was bigger than typical units. The economy may only grow 1 percent this year on re-export retrenchment as the outgoing government tries to find additional revenue for small-business and social spending. The soft patch and rich-poor divide have resurrected calls for universal voting and re-examination of the dollar peg as the renimbi again noticeably slips against the greenback for the first time since the mid- 1990s Asian financial crisis. In Taiwan following the re-election of President Ma electronics and manufacturing sales are also drifting and to pay for fiscal stimulus his team may impose capital gains tax. Investor wariness increased over the move in the wake of sudden Chinese naval activity in the area and several mooted joint banking ventures across the strait. Oil import costs further hamper prospects and the central bank may consider cuts in already low benchmark rates.
On the mainland the future politburo composition is in doubt with the unexplained purge of Chongqing boss Bo amid coup and Mao-era Cultural Revolution return warnings. The military has gotten a hefty budget rise and citizen revolts against provincial official land grabs and arbitrary treatment have brought in consensual replacements. Hong Kong brokers who have been idle even with reduced lunch breaks enjoyed a burst of activity with China Minsheng Bank’s $1.5 billion capital raising, although it is believed to have large local government loan exposure which regulators wish to extend without write-downs over the medium term. One-fifth of these portfolios at close to $300 billion have been improperly classified in the safest category, they stipulated at the same time. Municipal pension funds have also been criticized for riskier allocation against established guidelines, and authority to issue debt will be confined to pilot efforts as debris is cleared from the hidden crash.
Korea’s Breakthrough Trade Trudges
2012 March 27 by admin
Korean shares retrieved momentum from activation of the free trade agreement with the US, despite a monthly current account deficit on softer exports and confusion over an apparent nuclear testing moratorium for food aid deal with the North’s new leader. Representatives from Washington and Pyongyang meeting in Beijing struck the arrangement following a period of saber-rattling across the demilitarized zone as the respective sides girded for transition. For upcoming elections, candidates have urged Seoul to take a wait-and-see approach as joint-venture operators seek to revive light manufacturing and tourism projects. The powerful chaebol conglomerates after failed attempts in the past remain reluctant to re-engage especially as they come under criticism at home for poor governance and unfair competition with small business. They have withdrawn from the baked goods business dominated by shopkeepers after lawmakers expressed outrage, and top executives are under indictment for alleged embezzlement and insider transactions which contribute to “discount” single digit p/e valuations on the exchange. GDP growth, aided by front-loaded fiscal priming, is at 3.5 percent and the central bank has been on hold as higher oil prices again threaten the inflation target. Regulators slowed the pace of household credit expansion to 5 percent in the last quarter as banks have tightened standards and consumption may suffer from the hangover. European lenders continue to cut their claims on overall external debt of $400 billion, with companies on track for a record $30 billion in bond issuance this year to rollover maturities. State-owned utilities are raising money for overseas acquisitions, and foreign investors have jumped into local government paper for a 7 percent share despite the re-imposition of withholding tax. They get yield pick-up and follow new central bank debt buyers including China and Switzerland.
The Chinese relationship is part of burgeoning bilateral securities ties which recently featured allotment of a mainland QFII quota for the $300 billion National Pension Fund in line with its regional equity diversification strategy. The won has fluctuated frequently with such capital movements and global risk appetite, and the authorities have intervened regularly although their hand is less visible than in the 2008-09 squeeze. Korean instruments may soon appear in the quarterly trading favorite tally of industry group EMTA, following Hong Kong’s sudden popularity as a yuan proxy vehicle. According to its 2011 annual report volume was off 5 percent to $6.5 trillion with two-thirds dedicated to local activity. Of the total, corporate and Eurobond segments are almost equal, with Latin America and Europe the top regions. In Asia, Indonesia has been a large exposure but with the central bank now holding 12 percent the amount outstanding the trigger is on a short fuse.
Mongolia’s Missed Mining Veins
2012 March 22 by admin
Mongolian debt and equity frontier index entry ambitions were dashed after the landmark Tavan Tolgoi 30 percent coal mine flotation was postponed from this quarter until September, in position as the biggest and most widely held listing. At an estimated 6.5 billion tons, it is a vast untapped deposit and the state company owner working with foreign contractors has already agreed to supply China. One-tenth the offering is to be distributed to all citizens, a move critics, recalling early post-communist voucher experiments, have dismissed as an election year ploy. Global underwriters competed tenaciously for the mandate on the expectation of high investor interest and potential sale through foreign exchanges, with Hong Kong and London already hosting natural resource companies. The delay followed a critical IMF report under a staff monitoring program citing overheating and commodity price risk. GDP and private sector credit growth are running 20 percent and 50 percent respectively, and inflation too continues at a double-digit pace. Spending, including 3 percent of GDP in subsidized loans to small enterprises and cashmere processors, will breach fiscal responsibility law provisions, and a recently-created Development Bank nominally dedicated to infrastructure funding could drain additional sums. International reserves are at a record $2 billion and bolstered by a renimbi swap line with China’s central bank, but currency appreciation against the dollar along with copper export values have tapered. Monetary policy has been tightened with interest rate and reserve requirement hikes, but real rates remain negative and macro-prudential steps in particular to moderate rapid mortgage lending are absent. NPL numbers understate the problem and related-party exposures with greater systemic consequences are heavy in the Fund’s view. It laments “discipline erosion” since the post-2008 emergency standby arrangement was completed, and sees parallels with the boom and bust cycle then which Mongolian officials argue they have tried to tame following both developing and industrial economy “best practices.”
In contrast with the reprise there the IMF at the same time declared progress in the case of Iceland’s extrication from its spectacular banking system meltdown. GDP growth has finally turned positive and fiscal consolidation is proceeding despite government debt still at 100 percent of output. Capital controls have been extended through next year to allow more time for household and corporate balance sheet restructuring, final court decisions on currency and inflation-indexed instruments, and financial and operational repairs at the remaining three main commercial banks. The state mortgage fund’s solvency is still in doubt, local government borrowing poses a further burden, and overall prudential supervision suffers from enforcement and transparency gaps leaving scope for future eruptions, the review concludes.
China’s Latin America Loan Lurches
2012 March 15 by admin
As Chinese-Latin American government development loans at almost $40 billion in 2010 surpass the traditional Bretton Woods providers with a focus on natural resource and renimbi-dominated facilities, an Inter-American Dialogue report investigating practices and terms finds they are stricter and more expensive than portrayed in popular criticism. The region has taken half of overseas commitments though CDB, the Ex-Im Bank and ICBC, and the 90 percent infrastructure and heavy industry concentration is greater than with Western sources. Venezuela, Ecuador, Argentina and Brazil have been the major recipients with Carcacas’ $35 billion tally to date a contrast with its $5 billion Inter-American Development Bank support. Their size is typically over $1 billion and CDB’s rates are commercial such as in Argentina’s 2010 railway project at 600 basis points over Libor, while Ex-Im’s concessional mandate slightly undercuts its US counterpart. Since 2005 of $75 billion tracked three-quarters have come from the former institution and while policy conditionality is not attached Chinese goods purchase “almost always” features. That element not only ensures Mainland business but reduces default risk, in the think tank’s view. Over half of recent deals have been loans-for-oil but they are done at market prices, and not through guaranteed quantities as a “last resort” when external funding is otherwise unavailable or shunned. On the environment the Equator Principles that voluntarily guide OECD credit agencies and international project financiers do not apply, but Beijing has adopted preliminary guidelines although enforcement is uncertain. The monograph concludes that Latin borrowers pay a premium with equipment and employment “strings” for this new pool. Its “greatest concern” may be reinforcing reliance on primary commodities instead of encouraging a diverse growth path, but the arrangement can be “win-win.”
Venezuelan President Chavez will hope the relationship translates at the ballot box after Miranda state governor Capriles got 65 percent for a resounding victory in the opposition primary versus 30 percent for Zulia head Perez. He is now the Democratic Unity standard-bearer for the October election and is twenty years younger and advocates an economic platform of gradual control removal. The incumbent will continue a spending binge which increased government outlays 50 percent in 2011 while private investment cratered on 30 percent inflation. The sovereign and oil company PDVSA are prepared for another $10 billion in debt issuance until the poll to extend largesse and satisfy dollar demand under artificial exchange rates. The imminent supply has tempered a rally as the best EMBI performer on glimmers of a post-Chavez era. The consumer products giant Polar, energized by the possibility, may sue the regime for inadequate compensation for seized holdings as longtime adversaries generate momentum.
India’s Ground Crew Grimaces
2012 March 13 by admin
Indian shares paused after an early year 20 percent-plus run on resumed net portfolio inflows as Kingfisher Air, founded by a flamboyant entrepreneur, followed the state airline into dire straits on a crushing debt and back tax load. Exposed banks pressed the government to devise a rescue as the central fiscal deficit again breaches the responsibility law target on economic growth falling below 7 percent. Inflation has moderated to that level allowing the central bank to tweak the cash reserve ratio, but official borrowing appetite sustains higher rates. In aviation, foreign investment in Indian carriers may finally be approved as a partial response, but wariness is embedded after recent reversals of telecom and retail store licenses. Important provincial elections in the coming months will dictate the room for coalition-opposition compromise on such issues, with contests in Uttar Pradesh and elsewhere drawing on appearances from Congress party scion Rahul Gandhi as his mother prepares to transfer leadership. The 40-year old is seen as a future candidate for prime minister and has avoided entanglement in Hindu nationalist quarrels and his age is in marked contrast to the octogenarian incumbent Dr. Singh. While the rupee has recovered ground with a lift from expatriate allocation, the current account deficit stands out in the region amid gloomy industrial output numbers. To buttress the external position and respond to Chinese competition South Asian free trade has received a fresh push after realization that the original SAARC initiative gained minimal traction. A services deal was signed with Sri Lanka, Bangladesh’s textile exports can enter duty-exempt, and bilateral delegations committed to quadrupling the current $2.5 billion exchange with traditional enemy Pakistan.
Diplomats have also tried to broker a solution to the president’s ouster in the tourist haven of the Maldives islands after intervening in another attempted coup 25 years ago. The deposed head Nasheed had been a global advocate for climate change action on evidence of rising sea waters threatening to swallow the Indian Ocean chain. A small foreign aid program has also provided capital goods import and training facilities in Nepal and Afghanistan. It has steered clear of large infrastructure projects which are China’s focus and have displayed a poor track record at home. A recent study by the economic planning body underscored the enduring gap in fixed-investment at under 30 percent of GDP. Public sector banks such as SBI, again seeking recapitalization, have been the main funding sources despite earlier recommendations from the same advisory panel to boost private institutional investor, corporate bond and derivatives depth so that they reach altitude.
Bangladesh’s Forsaken Vortex Victims
2012 March 8 by admin
Bangladeshi shares were off 30 percent through February at the nadir of the MSCI Frontier group as authorities scrambled to contain the correction’s financial system fallout and intensified negotiations for an IMF extended credit facility. The Dhaka exchange is down one-third from its end-2010 peak despite organization of an official rescue fund after disgruntled retail investors demanded an investigation into the collapse which uncovered unchecked margin lending and insider dealing beyond the scope of securities commission enforcement. Banks had direct exposure through their capital which will be limited to 25 percent of the total under new rules, and also through separate subsidiaries which were under-supervised at the same time credit-deposit ratios veered toward 100 percent on annual double-digit portfolio expansion. State-owned institutions may be weakest in equity and liquidity terms, and along with the central bank have been big government debt buyers to plug the 4 percent of GDP budget deficit. Growth churns at 6 percent on healthy garment exports and remittances, but inflation is at twice the figure on imported fuel and food expense. Lower aid inflows contributed to current account slippage and reserve depletion last year as the currency depreciated 7 percent against the dollar. Tax revenue lags at just over 10 percent of output, and electricity and fertilizer subsidies absorb one-fifth of spending. With the oil company’s imminent needs for non-concessional borrowing, an initial speculative-grade sovereign rating was obtained in 2010. Monetary policy has been tightened and strides toward greater interest and exchange rate flexibility are on course, but progress could be faster and corporate governance remains subpar, the latest IMF Article IV report comments. In an effort to boost accountability the Dhaka and Chittagong bourses are to be demutualized and cross-border links with India are under consideration as free-trade arrangements deepen with tariff cuts.
In Sri Lanka equity performance to date has also been negative as post-civil war growth eases from the recent 8 percent and rupee devaluation aggravates inflationary tension. Foreign reserves dropped 25 percent to $6 billion the past year and the central bank hiked rates and introduced credit curbs to choke import appetite. Infrastructure rebuilding and tourism have underpinned rebound despite commercial and diplomatic unease over the regime’s authoritarian tendencies and nepotism. The 10 percent overseas ownership ceiling on domestic bonds was bumped slightly, but another external issue is not on the horizon after consecutive oversubscriptions. Investors have drawn parallels with Vietnam’s low reserve level as it faces steep short-term repayment obligations. Money has gone instead into shares up 20 percent on the advent of single-digit inflation and trade balance improvement as the Tet New Year ushered in an overweight offensive.