Published September 3, 2009

Rains improving in key palm oil states

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(KUALA LUMPUR) Rains have weakened in key oil palm growing regions in Malaysia, due to El Nino, although recovery may be on the cards from September onwards, the head of the country's meteorology department said on Tuesday.

Triggered by an abnormal warming of the east Pacific Ocean, El Nino sapped rains in Sabah and Sarawak states, in East Malaysia, by 30-40 per cent as well as in Johor, in mainland Malaysia, by 50 per cent in August.

The three states jointly account for roughly 70 per cent of production in Malaysia, the world's No2 supplier of the vegetable oil.

Malaysia's Meteorology Service director-general Yap Kok Seng said there will be a recovery this month with mainland Malaysia getting normal rainfall while Sarawak gets 20 per cent lower rainfall and Sabah 10 per cent less.

'Beyond September till the end of the year, in the best scenario with a weak to moderate El Nino . . . Sarawak and Sabah are expected to receive up to 10 per cent below the monthly average rainfall,' he said in an interview.

Traders and plantation owners said better rains from September onwards could improve palm oil yields and bring forward the uptick in production to October from the end of the year.

'The impact of drier weather in August has done its damage to yields in Sabah but September will see a recovery. October will be the peak production month overall,' said Velayuthan Tan, chief executive of Sabah-based IJM Plantations .

The improvement in rains might be due to El Nino aiding the north-east monsoon winds that bring more rainfall across Asia, analysts and scientists have said. 'For the months of November to December, Malaysia is under the northeast monsoon where heavy rain usually occurs in the east coast of peninsular Malaysia, Sabah and Sarawak,' Mr Yap said. 'A 10-20 per cent below average rainfall (during this time) is considered a mild impact.' - Reuters

Published September 3, 2009

KL denies it is reviewing pay-TV operator's licence

Report had said plan was to make Astro carry more pro-govt content

By S JAYASANKARAN
IN KUALA LUMPUR

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KUALA Lumpur has denied a news portal's report that it was reviewing the licence for a Malaysian satellite pay-TV broadcaster in a move to make it carry more pro-government content.

Envy of rivals: Astro has exclusive licence to supply direct-to-home satellite TV and radio services

The Malaysian Insider news-portal had said yesterday that the Information Ministry was reviewing Astro All-Asia Networks' licence in a bid to promote more programming favourable to the government.

But the government denied it. 'There is no such thing,' Reuters quoted an official familiar with the ministry's plans.

The media is tightly controlled in Malaysia and newspapers require a permit which is annually renewed. But the Internet has made nonsense of the regulation and a host of blogs and newsportals critical of the government have sprung up in recent years.

Indeed, the Internet was one of the reasons why the ruling National Front government stumbled to its worst ever loss in last year's general elections. It has also lost six straight by-elections in Peninsular Malaysia since March last year and may have been the reason why the Information Ministry briefly contemplated filtering the Internet. The plan was abandoned after Prime Minister Najib Razak nixed it.

Astro is 44 per cent owned by tycoon T Ananda Krishnan and 22 per cent by state agency Khazanah Nasional and incurs the envy of its competitors because it possesses an exclusive licence - until 2017 - to supply direct-to-home satellite TV and radio services. It was listed on the Kuala Lumpur stock exchange in 2003

Other competitors vying to supply pay-TV services through other means - cable or via the Internet - have failed largely because Astro locks in exclusive supply contracts with its content providers like Discovery, HBO and the BBC. Indeed, Astro's near-monopoly of the sports channels - because of its capacity to pay - has made it the target of attacks from envious competitors.

Not everyone in government is enamoured with the pay-TV operator though. The content on some of Astro news channels like Al Jazeera or BBC - interviews with opposition leader Anwar Ibrahim or coverage of demonstrations in Kuala Lumpur, for example - must grate on Kuala Lumpur's sensibilities.

But a senior Astro official told BT that there were 'no real issues.' He said that the company had been in talks with the government for 'almost a year' for migration to a new licence under the new multimedia act but stressed that the company 'would be no worse off' under the new licence.

'We are currently negotiating on the terms. They just want to make sure that we are on the same licence as all other TV stations,' Tammy Toh, Astro's head of communications told Reuters.

A second government official told Reuters that the talks related to Astro's regulatory environment, for example its ability to raise prices without reference to the government as it did recently when it raised the cost of its sports package.

That, however, seems unlikely. Astro's original licence allows the operator to increase prices of content - sports packages have risen astronomically in recent years - and the 'no worse off' clause insisted upon by Astro would make it hard for the government to regulate pricing.

Published September 3, 2009

Reits bank on placement, rights issues for now

By EMILYN YAP

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BANKS may have loosened their purse strings but many real estate investment trusts (Reits) here are sticking to rights issues or private placements for funds - despite their dilutive effects.

Since June, another five Reits have conducted such exercises to raise more than $1.23 billion. Investors were not too pleased in some cases and sold out, driving unit prices down. Why would some Reits rather incur the wrath of unitholders than turn to banks?

For Reits looking to trim gearing, there are few other fund raising options. While credit conditions have certainly improved, 'leverage' remains a dirty word and many would prefer to repay debt than to refinance or borrow more. Frasers Commercial Trust was one which made a cash call in June for this.

'Peer pressure' keeps Reits particularly disciplined. With many paring down debt in the last few months, those with relatively higher leverage ratios would start drawing the wrong kind of attention from watchful analysts and investors. Just two out of 13 Reits have gearing levels exceeding 40 per cent, a CIMB report this week shows.

While refinancing may have become easier, there is no saying if credit might tighten again. Banks are still exposed to the recession - the default rate on commercial mortgages held by US banks, for instance, more than doubled in the second quarter from a year ago.

Rolling over debt in unstable times means that refinancing fears can haunt again and again. A DBS Vickers report last week found that Reits have just $1.89 billion of debt maturing next year. But this will surge to $3.28 billion and $4.28 billion in 2011 and 2012 respectively. So cutting debt still seems the prudent thing for many Reits to do.

Even Reits willing to borrow more from banks may not have much room to do so. Some analysts are expecting further asset value writedowns - particularly for commercial property. If this happens, gearing for affected Reits (determined by comparing debt with assets) will rise with or without an increase in borrowings.

In fact, CIMB believes that asset devaluation could trigger more equity raising by Reits. The cash would reduce debt, counter the effect of lower asset values and keep gearing stable.

Reits looking to buy assets but are not keen to raise debt will also value funds from rights issues and private placements. Starhill Reit raised $337.3 million recently not just to reduce debt, but also to capitalise on acquisition and asset enhancement opportunities.

CIMB further suggests in its report that Frasers Centrepoint Trust, CapitaMall Trust and Suntec Reit could also expand their portfolios and issue cash calls.

It helps that the stock market has surged, allowing Reits to issue new units at better prices. Fortune Reit, for example, announced a HK$1.9 billion (S$353.2 million) rights issue last week with new units going at HK$2.29 apiece - a large discount from the last traded price of HK$4.10 then. The rights issue price would have been much lower if the exercise had happened at the end of last year, when units traded at just HK$1.99.

Banks may be more willing to lend, but many Reits will want to keep their hands in unitholders' pockets until economic skies are clear again.

Published September 3, 2009

Safeguards in place even if PAP loses: MM

Singapore reserves, top posts protected by President

By LEE U-WEN

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(SINGAPORE) There are many safeguards in place should the opposition manage to displace the People's Action Party at a future general election, said Minister Mentor Lee Kuan Yew yesterday evening.

'I believe that whatever we learn, with the free market, you must expect a glitch and a failure. It happens regularly.' - MM Lee

He gave the assurance that Singapore's reserves would be protected, and that the country's top officials - such as those from the police and the army - could not be changed without first getting the President's consent.

'We've set in place a President with blocking powers, so any opposition that comes in will find that they cannot touch the reserves,' he said during a dialogue session at a gala dinner at the Shangri-La Hotel to mark the fifth anniversary of the Lee Kuan Yew School of Public Policy.

'Otherwise, they promise the sky and spend the money and all our savings will go in five years,' he told his 800-strong audience that included key Cabinet ministers, senior civil servants, diplomats and academics.

He noted how the President could count on his Council of Advisers, comprising experienced economists and businessmen, to advise him on what would be best for the country going forward.

Mr Lee said that the system in Singapore allows any opposition the chance to displace the PAP government peacefully. 'If you can win an election, so be it. And at some time, some place, we will not be able to find a team that can equal an opposition team. And on that day, we deserve to be out. If we become corrupt, inefficient and can't deliver, we're out,' he said.

'We can't guarantee that each time we will produce a better team than the opposition. I don't see any problem at the next election, but maybe at the next one, and the opposition manages to get a good team. Then we're at risk.'

During the lively hour-long dialogue, which was moderated by LKY School dean Kishore Mahbubani, Mr Lee was asked a series of questions by the audience on numerous topics, including his views on the progress of China and India, and on leadership succession.

One subject that came up twice was the global financial crisis, and when asked about what he thought were the key causes of the unprecedented economic meltdown, the Minister Mentor boiled it down to a lack of regulation and the belief that a free market was the best way to go.

'Maybe we learn from this, maybe we won't. I believe that whatever we learn, with the free market, you must expect a glitch and a failure. It happens regularly. So if you believe that you learn from this and there will be no more crises, that's silly. It won't happen that way,' he said.

'We are in the middle of a crisis we haven't gotten out of. I think the consultation will be how to make sure that we don't go further deeper in this recession,' he said. 'When we are out of it, we will begin the more difficult task of how to improve the system. But no improvement can ever prevent another breakdown.'

Earlier in the evening, Prof Mahbubani paid tribute to the school's achievements, having started from a small public policy programme with 40 students and 11 professors in 2004 to become globally recognised as Asia's leading public policy school with over 325 students from 53 different countries.

He announced that the LKY School and the NUS Business School will launch a new Master in Public Administration and Management taught in Chinese. He also revealed that former United Nations secretary-general and Nobel laureate Kofi Annan has agreed to become the first Li Ka-shing Professor at the school from next February.

Before he took his leave, Mr Lee presented awards to major donors that have helped raise $16.5 million for the school in celebration of its fifth birthday. Together with the government's one-for-one matching grant, the total sum raised came to $33 million.

Published September 2, 2009

Recovery seen as Media Prima turns around

Group posts RM8.5m Q2 profit after RM23m loss in Q1

By S JAYASANKARAN
IN KUALA LUMPUR
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MEDIA conglomerate Media Prima swung back to profitability in its second quarter, indicating that the Malaysian economy was recovering. Historically, the company's earnings have been highly correlated with growth in gross domestic product.

For the quarter to June 2009, the firm registered a net profit of RM8.5 million (S$3.47 million) compared to a RM23.2 million loss for the previous quarter. Even so, the company recorded a loss of over RM14 million in the first half of the year.

The firm is Malaysia's largest media conglomerate with interests in print (the New Straits Times Press), television (four free-to-air television channels in Malaysia and a loss-making one in the Philippines), three radio stations and outdoor advertising.

It is also an overtly 'political' firm as it is controlled, in part, by the United Malays National Organisation (Umno), the dominant party in the ruling Barisan Nasional coalition. In practical terms, this usually manifests itself in editorial and board changes every time there is a power shift within Umno.

The company's turnaround has prompted several securities houses - ECM Libra and Arab-Malaysian Bank, for example - to issue a buy call on its stock based on the hope that it signalled a gradual recovery in television advertising expenditure (adex) which is the main driver (75 per cent) of Media Prima's earnings.



Unlike in Western economies where television consumes the biggest share of adex, in Malaysia the print media gets the biggest slice. But television's share is growing.

According to Nielsen, television's share of adex rose to 35 per cent in the first half of the year compared to 33 per cent in the corresponding period last year. Meanwhile, the print media's share declined to 54 per cent from 57 per cent during the same time.

Indeed, analysts expect this trend to be sustained because of demographics. Half the country's population is under the age of 25 while a full 40 per cent are under 40. The huge young population, according to analysts, will skew adex towards television.

If the trend is borne out, Media Prime is likely to be the biggest beneficiary going forward as it commands television viewership of 52 per cent of all households and it holds 85 per cent of television's adex.

In calling it a buy, Arab-Malaysian Bank said that Media Prima was the best proxy to ride on the economic recovery. In addition it said that television adex was slated to rise next year given such major events as the World Cup and the Commonwealth Games.

It estimated the stock's 'fair' value at RM2 compared to its current price of around RM1.40.

Published September 2, 2009

M'sian earnings outlook brighter on Q2 results

Analysts expect smaller profit fall this year, possible rebound next year

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIAN corporations could see a smaller drop in earnings this year following their better-than-anticipated results in the second quarter, which have also boosted expectations that earnings could rebound by double digits next year.

Shaping up: Warmer response to new launches is raising hopes of a resurgent property market ahead

Analysts rate the outlook to be more positive for construction and property, as well as banks which exceeded expectations in the second quarter.

Stockbroker Hwang- DBS-Vickers saw the proportion of companies that disappointed in its universe of coverage drop to 18 per cent in Q2, 10 per cent less than in the preceding quarter.

Almost similar to the last quarter, some 18 per cent beat its expectations, but 64 per cent or nearly 10 per cent more than in the first quarter posted earnings that were within expectations.

Intensely criticised for its ill-timed acquisitions of Bank Internasional Indonesia and Pakistan's MCB Bank, the country's largest financial group Maybank was the biggest disappointment after it decided to write off nearly RM2 billion (S$817 million) in impairments on the banks.

However, its counterparts Bumiputra-Commerce, Hong Leong, EON Capital and RHB Capital proved more resilient in managing the effects of the global financial crisis, beating the consensus forecast, albeit mainly on better non-interest income.

In a market focus report, HwangDBS said it favoured the sector because non-interest income was expected to remain robust on the back of an improved pipeline of debt and equity deals in the second half, as well as stronger growth on lower provisions and an expansion in loans.

Although the construction sector turned in a range-bound performance in the quarter just past, it expects positive news flow in the coming 12 months on the back of pump-priming efforts to throw the spotlight on the sector.

Greater clarity should emerge in the national budget next month on planned spending, but the larger outstanding projects include a new RM2 billion low cost carrier terminal in Sepang by 2011-2012, the interstate water project, and infrastructure for Iskandar Malaysia.

The outlook for the property sector is also considered brighter. Earnings came in within expectations in the second quarter, but warmer consumer response to new launches - especially in the Klang Valley and Penang - have raised hopes that a resurgent property market might not be too far off.

Property players think prices could soon be revised upwards should the take-up rates continue to be encouraging. The gradual roll back of incentives would boost margins further.

HwangDBS expects earnings to contract by some 8 per cent this year, with the main drag coming from plantations largely owing to lower crude palm oil price assumptions of RM2,300/ mt versus RM2,864/mt last year.

Corporate earnings are projected to rebound 15 per cent next year on lower provisions and higher non- interest income for banks as the capital markets recover, as well as the absence of foreign exchange losses for plantations.

Published September 2, 2009

Safe hands with a big load to carry

By SIOW LI SEN

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TO ITS many critics, DBS can at least tick one complaint off. The bank is hiring a soon-to-be local, a move that should satisfy those who bemoan the trend of certain large Singapore companies picking foreigners for their top posts.

Joining DBS as chief executive in November is Citibanker Piyush Gupta, a permanent resident awaiting his Singapore citizenship. His appointment is subject to regulatory approval, the bank said yesterday.

Since 1998, when Ngiam Tong Dow stepped down as CEO to make way for American John Olds, who was then followed by Frenchman Philippe Paillart and two more Americans - Jackson Tai and Richard Stanley (the latter died of leukaemia in April while in office) - none of the appointments have met with unqualified success. Which probably is why some observers have felt justified in wondering why not appoint a local or DBS insider who could be just as good, (or bad).

In picking Mr Gupta, who is Citigroup's CEO for Southeast Asia Pacific, DBS has gone for familiarity, a safe pair of hands. A career banker, he is unlikely to rock the boat by taking needless risks. And he is quite adept in dealing with regulators having been Citi country officer in Indonesia, Malaysia and Singapore.

India-born Mr Gupta, who joined the US bank in New Delhi in 1982 when he was 22, displayed a wild side only very briefly in 2000 when he tried being an Internet entrepreneur during the dotcom boom. He returned to Citi's fold in 2001 when he went on to serve as Citi Country Officer in Malaysia and Singapore before becoming CEO for Citi in Southeast Asia Pacific.

Starting from India, his banking experience has been honed in South-east Asia, more specifically Indonesia and Malaysia. Mr Gupta is joining DBS at a relatively benign period, unlike his predecessor Mr Stanley who entered the bank in May 2008 when the global financial crisis was in full swing.

DBS does not need fixing. The economy is clearly recovering - whether the bounceback will take the shape of a U or V, or be sustainable, is another matter. While more bad loans will hit the bank, they are not expected to wreak material damage.

But Mr Gupta does face an uphill task at DBS if his brief is to regain the momentum that the bank has lost to the competition. Since it overpaid for Hong Kong's Dao Heng Bank back in 2001, DBS has not had any meaningful acquisition. It missed opportunities in the region, notably Indonesia, and it exited Thailand after nine expensive and difficult years in 2007.

Indonesian banks enjoy the highest growth and returns in the region, and while DBS has tried to expand its network there, it lags behind local rivals United Overseas Bank and OCBC Bank, which managed to buy into domestic banks.

DBS may be South-east Asia's largest bank, yet Malaysia's No. 2 CIMB has a bigger footprint in the region, said Morgan Stanley analyst Matthew Wilson.

At home, Mr Gupta will have to tackle DBS's mountain of deposits and make it work for both customers and shareholders. He also has the unenviable job of regaining Singaporeans' trust in the structured notes arena.

While Great Eastern, a unit of OCBC Bank, is basking in customers' goodwill over its full refund for badly performing structured products, DBS is preparing to fight investors in court over its ill-fated High Notes.

DBS also faces angry investors in Hong Kong as it has offered to compensate investors only in cases where there was evidence of questionable sales practices. But this is where Mr Gupta's Citi experience could help. RBS analyst Trevor Kalcic said Citi is well regarded when it comes to customer service and retail banking.

He also has a lot of South-east Asia experience which will be good for DBS which needs to enhance its regional footprint, said Mr Kalcic.

But one sceptic notes that a DBS CEO is a much bigger role than any of his past positions. And being at Citi for essentially your entire career may be limiting, he added.

A banker who knows his limits, however, may not be a bad thing at all.

Published September 1, 2009

Najib calls for unity in National Day address

He warns that Malaysians 'can lose it all if we are not careful'

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(KUALA LUMPUR) Malaysia's premier made a plea for unity in the multi-cultural nation yesterday, as celebrations to mark its independence anniversary were marred by fresh racial and religious rows.

Togetherness: Celebrations to mark Malaysia's 52nd anniversary of independence were marred by fresh racial and religious rows

Mr Najib called on Malaysians to 'repair the bridges and tear down the divisive walls' that exist between the races here even 52 years after nationhood and the end of colonial rule.

'Bear in mind that what we have now will not necessarily become better. On the contrary, we can lose it all if we are not careful,' he said in his first National Day address since coming to power in April.

Mr Najib has launched a 'One Malaysia' campaign to address barriers between the nation's ethnic groups - Muslim Malays who dominate the population, and ethnic Chinese and Indian minorities.

The new premier is working to win back support from Malaysia's minorities, who swung towards the opposition in national elections last year that handed the ruling coalition its worst-ever results.

Racial and religious rows continue to erupt, including an incident last Friday when Muslim protesters trampled on a severed cow's head in protest at the building of a Hindu temple.

Politicians from all sides condemned the explosive action, and police said that they would launch an investigation over whether the act constituted sedition - an extremely serious charge.

However, the organisers were defiant, refusing to apologise and rejecting responsibility for the incident.

Veteran opposition lawmaker Lim Kit Siang said that racial politics had only increased in recent times, and that the 'One Malaysia' campaign had failed to unite the country.

'There is a further polarisation of race and religion, with the hardening of intolerant attitudes and stances, creating situations unseen or unheard of in the previous history of the nation,' he said. 'Let all patriotic Malaysians of goodwill recognise the danger signals to our plural society.'

Last month, the dramatic case of a Muslim model who was sentenced to be caned for drinking beer also highlighted concerns that the nation's secular status is under threat as Islamic law becomes more influential.

Kartika Sari Dewi Shukarno, 32, was arrested at a hotel nightclub and sentenced to six strokes of the cane, in a rare prosecution using religious laws that ban alcohol for Malaysia's majority Muslim Malays.

As concerns mounted that Malaysia's reputation as a moderate country was under threat, the authorities abruptly announced the case was to be reviewed and put the punishment on hold indefinitely. -- AFP

Published September 1, 2009

Stocks 'in early phase of 3-5-year bull market'

Singapore expected to benefit from its direct domestic plays, says AMPCI

By LYNETTE KHOO

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GLOBAL equities are at the early stage of a three-to-five-year bull market, said Kerry Series, head of Asia Pacific Equities at AMP Capital Investors (AMPCI).

Optimistic outlook: Asian stocks could outperform on the back of stronger earnings growth and investor demand, according to AMP Capital Investors

Mr Series, who spoke to BT in Singapore yesterday, noted that Asian stocks could outperform on the back of stronger earnings growth and investor demand.

Despite the market run-up in the last few months, valuations are still at fair levels, he noted. Since March, Asian ex-Japan stocks have gone from historical lows of nearly one time price-to-book (P/B) to its long-term average of 1.8 to 1.9 times P/B.

This compares to a high of three times P/B. Return on equity (ROE) has bottomed to 11 per cent for the region.

'As the global and regional economies improve in the next year or so, we will see ROE rising back to 13-15 per cent,' Mr Series said.

'As the global and regional economies improve in the next year or so, we will see ROE rising back to 13-15 per cent.' - Mr Series

'Stocks ought to move in line with earnings from here,' he added. 'In Asia's case, earnings growth next year could be as high as 25 per cent but the return on equity only 15 per cent.'

Mr Series' optimism in Asian stocks is founded on the region's resilience amid the global financial crisis.

He also projected an asset allocation shift over the next few years as global investors shift their money away from the United States, Europe and Japan into Asia ex-Japan.

At the same time, the downside risk is muted, he added. While there is concern over the sustainability of economic recovery and the risk of inflation, Mr Series felt that these fears would not materialise in the next few years.

Stimulus measures by governments around the world have been supportive of growth and, if needed, governments would pour out more stimulus to sustain the recovery, he said. There is also a structural shift towards domestic demand driving Asian economies.

'I would recommend investors buy Asian equities now with the intention of holding them long-term for at least three to five years to benefit from this strong profitability that we will see in Asia in the next few years,' Mr Series said. 'Any sell-offs would be an opportunity to increase their exposure on Asian equities.'

He advocated a sectoral approach over a country-specific strategy, citing bright spots in financial services, property, retail, healthcare and tourism as well as in resources, commodities and energy sectors.

Singapore is expected to benefit from direct domestic plays such as the financial services, property, healthcare and tourism sectors.

For stocks in China, Mr Series also does not expect any tightening by the Chinese government to bring about further market correction. There is still cash on the sidelines that has not been put to work yet and this would mean that any correction will be shallow, Mr Series said.

In line with its investment view, AMPCI is raising its exposure in Asia through a newly launched AMP Capital Asian Equity Growth Fund and expanding its equities team in Asia. It currently has close to A$100 billion (S$120.7 billion) in funds under management.

Being one of the few financial institutions globally to hold a qualified foreign institutional investor (QFII) licence, AMPCI also invests directly in the China A-share market through its listed AMP Capital China Growth Fund.

Published September 1, 2009

China's growth - economic or accounting miracle?

By R SIVANITHY

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BY now, most investors would be familiar with the China growth story - possibly 10 per cent GDP growth which has powered the country's stock markets' rise of more than 80 per cent this year alone. Even though there has been the occasional warning about a speculative stock market bubble, there is a smug belief that because this year is the 60th anniversary of the founding of the People's Republic of China, an image-obsessed government keen to cement the country's reputation as the next big economic powerhouse will do its utmost to ensure the party carries on - pretty much along the lines of the US, where the Treasury and Federal Reserve have pumped trillions into the system to keep Wall Street afloat and to keep up the appearance of a recovery.

This much is the conventional wisdom with regard to China - buy because you cannot lose, especially if the government is on your side. But conventional wisdom can always be challenged and for those who feel inclined to do a bit of probing, there's plenty to ponder.

Take the 8 per cent second-quarter growth which grabbed most of the headlines. Less conspicuous was that exports in June actually declined by 21.2 per cent year-on-year while first-half exports fell 20 per cent. These lesser-known figures beg the question: where did the growth come from?

The answer is, of course, the government. Late last year, a stimulus package equal to 14 per cent of GDP was launched to stimulate consumer demand and judging by the figures so far, it looks like it's working.

However, according to American Enterprise Institute visiting scholar John Makin, creative accounting plays a big part in creating the impression of robust growth.

In a recent article titled 'China: Bogus Boom?' (see http://www.aei.org/outlook/ 100061), Dr Makin wrote that the target 8 per cent annual growth figure will surely be achieved because the country's economic statistics are based on recorded production activity rather than expenditure growth, the latter defined as the sum of consumption, investment, government spending and net exports.

'The US stimulus package, for example, attempts to boost GDP by undertaking measures that will boost consumption, investment and government spending. China, however, decrees mea-sures that will generate recorded increases in production spending,' Dr Makin wrote.

'Once China had announced the 8 per cent growth target, it began to disburse funds directed at sharp increases in public works spending. It is important to understand that the disbursal of funds is recorded as GDP growth. So the government can easily control the pace of growth by the pace at which it releases funds that have already been allocated in the stimulus package to the creation of higher growth or production numbers,' he added.

'The same convention, counting production and shipments as de facto outlays by end-users, is employed with respect to retail sales data in China.

'Shipments to retailers are counted as retail sales on the apparent assumption that ultimately all goods shipped will be sold at some point in the future. China's nominal retail sales have been rising at a rate of around 15 per cent year-over-year over the first half of 2009 because that is the rate at which shipments to retailers have been occurring. There is very little data available to measure actual sales by recipients of the shipments to ultimate consumers.'

Quite correctly, Dr Makin questions the true health of the China economy and warns of inflationary pressure brought on by loose monetary policy.

Possibly the first - and only - broker to cast some doubt on the China 'miracle' story is DBS which, in its August Markets Update last week, warned against over-reliance on government support that it thinks can be withdrawn suddenly anytime over the next 12 months.

DBS also referred to the China market's high valuations, which it describes as 'unsustainable'. DBS is not wrong - according to Bloomberg's analytics, the Shanghai Composite sells for 31 times earnings and is supported by a paltry 1.4 per cent dividend yield, while the Shenzhen Composite's figures are much worse - 67 times earnings and 0.7 per cent dividend yield. Neither set of figures can be described as 'cheap', so the conclusion has to be that the market is expensive and is running on liquidity, much of which has been provided by the government. Such must have been the conclusion reached by most investors who yesterday sold off China stocks, dragging the major indices 7 per cent lower.

Given the high dependence of the local market on daily, minute-by-minute shifts in the Hang Seng Index, and because of the latter's reliance on events in China, local investors would thus do well to stay nimble and not place too much faith or money on the China growth story because the economic miracle could well be founded on an accounting miracle instead.

Published September 1, 2009

CIMB a contender in retail banking ring

Bank hopes to reel in customers with mobile squad, high interest rates

By JOYCE HOOI

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(SINGAPORE) In Singapore, where CIMB Bank Singapore stands a David amongst the local Goliaths of retail banking, the Malaysian banking group is carefully loading its slingshot and taking aim.

Mr Mak: 'If you don't have an ability to collect deposits, your ability to lend is also curtailed.'

For the past year, the group has been quietly operating a retail banking outfit under the CIMB Bank Singapore brand. Now, the group has deemed it the right time to formally sound the battle-cry, with an official launch in late September.

'Late last year, we decided that we wanted to increase our presence in Singapore,' said Mak Lye Mun, CIMB Bank's chief executive officer.

From an almost non-existent deposit base in mid-2008, the bank now has $400 million in retail deposits, reeling in depositors with its 1.2 per cent interest rate per annum and low minimum fixed deposit amount.

'People are asking if we are overpaying at 1.2 per cent when other banks are giving 0.2 per cent. The important thing to ask is, are other banks underpaying instead?' said Mr Mak.

With the restrictions on foreign banks applying to CIMB Bank, which is not part of the Qualifying Full Bank scheme, the odds are stacked against this pint-sized contender. There is a two-branch cap on banks like CIMB. Currently, it has one at the Singapore Land Tower and another at Wilkie Edge.

Nevertheless, an unperturbed Mr Mak has found a way to reach local depositors with a 'mobile squad' of bankers.

Started in June, a team of 60 CIMB bankers has been deployed to visit retail banking customers to help them with a myriad of banking activities, from opening a new account to collecting a cheque for deposit.

'Most people would rather not go to a bank branch. And branches cost money, while mobile bankers don't take up as much space. We can be both efficient and save money,' said Mr Mak.

The mobile squad is expected to grow to 80 personnel by the end of this year. Since end-2008, CIMB Bank's headcount has also grown, from 100 to 313 employees, as it geared up to be a challenger in the retail banking scene.

'Retail banking is key. If you don't have an ability to collect deposits, your ability to lend is also curtailed,' said Mr Mak. Along with larger lending power will come a bigger share of the rights offering pie, something that CIMB Bank is clearly eyeing.

While CIMB Bank might be the underdog in Singapore, it is the second biggest consumer bank in Malaysia, and its claim to regional domination is clear.

Since 2007, it has been making acquisitions at a prodigious rate, buying Bank Thai in Thailand and Bank Niaga in Indonesia, and stamping the CIMB brand on their outlets.

The move to gain a retail toehold in Singapore is as much motivated by the local market as well as by the desire to keep its Indonesian and Thai customers loyal, even when on holiday in Singapore.

Mr Mak also pointed out that the strategy works the other way around.

'Our value proposition to local customers is that we are offering a South-east Asian service. So, when Singaporeans travel, their credit cards and benefits can be used in Thailand, Malaysia and Indonesia as well,' said Mr Mak.