Published December 15, 2008
MALAYSIA INSIGHT
2 states take money destiny in own hands
By PAULINE NG
KL CORRESPONDENT
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IF STATES held by the Opposition suspected that federal government funding was likely to be dicey after the unexpected tsunami that was the March general election, the global financial crisis has made it doubly harder.
With so many sectors and states clamouring for more money, funding will obviously have to be prioritised. Which is why the initiative taken by some states to better manage their own destinies is a step in the right direction.
Penang, which fell to the Opposition coalition Pakatan Rakyat, for example, has managed to attract RM8 billion (S$3.3 billion) in investments in the first nine months of the year, compared to RM4.8 billion for the whole of 2007.
A number of these investments would undoubtedly have been the result of past efforts by the previous Gerakan state government.
But Penang is not sitting on its laurels. Its new chief minister, Lim Guan Eng, last week told an international economic summit in Hong Kong of plans to transform the island state into a smart shop - with a focus on moving up the information and communication technology (ICT) chain - from a sweatshop.
Penang may be a sweatshop of sorts, but by Malaysian standards, it has one of the highest per capita income. It is considered one of the largest electronics manufacturing hubs in the region, multinational companies often citing its highly skilled and talented workforce as a key reason for locating their plants there.
The Pearl of the Orient has a lot going for it, the latest being Unesco's bestowal of World Heritage City status, an honour that it won together with Malacca. Tourists to Penang readily rave about its heritage buildings, delicious hawker food and scenic beauty. Little wonder then the island is one of the most popular states with many foreign retirees looking to relocate there under the Malaysia My Second Home Programme.
Infrastructure being a vital component in Penang's transformation plans, the state has invited proposals from the private sector to address its public transport problems, this taking of the bull by the horns coming after the federal government shelved plans for a promised monorail and outer ring road project.
Wisely, Penang has decided that it should attempt a solution rather than waiting indefinitely for the requisite funds.
Other Malaysian states are also starting to think of leveraging on their individual strengths and attractions.
Terengganu, for example, has turned the annual monsoon rains to its advantage with the Monsoon Cup, drawing visitors to the state at season when most would stay away. Even so, Terengganu has some of the country's best beaches and diving spots and its rustic charm is a hit with home-stay visitors looking to experience village life.
The state is also resource-rich. Although a Barisan Nasional governed state, it will soon be making history of sorts through the establishment of its very own RM10 billion sovereign wealth fund which would be initially seed-funded by the federal government.
The current Malaysian King, and also the state's ruler, Tuanku Mizan Zainal Abidin has proposed the establishment of the Terengganu Investment Authority fund to ensure that the 5 per cent annual royalty that the state receives from Putrajaya as oil and gas payments is spent wisely and in the long-term interest of the state, rather than on dubious projects which have brought little improvement to the state.
It is an open secret that Tuanku Mizan has been less than impressed by how the royalties have been spent over the past 20 years and wants the professionally run fund to invest in projects that will pay a steady stream of income when the state's oil and gas reserves are no more.
How well the two state governments will manage their mandate remains to be seen. But the states' initiatives could possibly be a source of conflict for Putrajaya. While it ought to laud any move to be less dependent on federal funding, it must also be keenly aware that the states might well demonstrate far greater returns on investment simply by better policies, planning and accounting, as well as less wastage.
Tuesday, 16 December 2008
Published December 15, 2008
Wall St walks away from car wreck stronger
Analysts heartened by Friday rally but brush off impact of expected rate cut
By ANDREW MARKS
NEW YORK CORRESPONDENT
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WHAT if the US central bank lowers interest rates this week and no one cares?
A respite: Analysts are upbeat about a rebound this week if financial help for carmakers materialises
That could well be the case, for the Fed will be pushing against a string with yet another short- term interest rate for a credit system already awash in cheap money when it meets tomorrow.
'A rate cut will accomplish approximately nothing,' says Joel Naroff, president of Naroff Economic Advisors.
The US stock market will likely remain fixated on the embattled car industry. It is hoping that President George Bush will step into the void that Congress left last week when Senate Republicans killed legislation that would have given GM and Chrysler, the two sickest members of Detroit's Big Three, enough of a financial band-aid to see it through the next two or three months.
The most significant event for Wall Street last week, in fact, involved the stock market's reaction to another round of awful economic data and Congress's decision to spurn the increasingly desperate carmakers.
Investors could easily have used the rejection of the US$14 billion in loans to GM and Chrysler, and its dangerous implications for not just several hundred thousand workers but the entire economy, as an excuse to send the stock market on another of its several-hundred-point, multi-per cent sell-offs.
Instead, stocks recovered from an early plunge on Friday that saw the Dow Jones Industrials sink as low as 200 points in intra-day trading to finish with solid gains for the day.
The rebound wasn't enough to make up for a bigger plunge on Thursday as the Congressional bailout plan for the Big Three neared collapse. But the resilience - helped by word from the Treasury Department that it was considering using the remaining US$15 billion of the first, US$350 billion allocation of TARP bailout money to keep the carmakers afloat until the new congress convenes late next month - heartened market analysts.
'The stock market is showing a greater ability to shrug off bad news, and that's helping us make lower lows, bringing a sense of relative stability to the trading environment,' observed Marc Pado, chief investment strategist at Cantor Fitzgerald, who expects stocks to stage a modest Santa Claus rally in the final 12 trading days of the year.
'I think the rally would already be underway if not for the trouble with the automakers' bailout last week. Assuming the administration offers them the financial help to make it through the next month or so, stocks have a good shot at a bounce this week,' he says.
He is quick to add that while he's encouraged by the recent trends, he's not prepared to call a bottom. This is a sobering thought, considering that even a rally of 20 per cent would leave stocks in bear market territory, in light of the 25 per cent losses the major market averages have suffered since September.
'No matter what happens in the next two weeks, this will still be a bear market when we start 2009, and that will probably hold through for most of the next twelve months,' he says.
But on Friday, neither the grim prospects of the coming year, nor the possibility that GM or Chrysler might file for Chapter 11 in the coming weeks, which would surely set off a wave of bankruptcies and layoffs in related industries, was enough to keep investors from buying all the way to a 65-point, or 0.75 per cent, advance for blue chips, which closed the day at 8,629.28.
For the week, the Dow still ended down by 0.1 per cent, but both the broader S&P 500 and the tech-heavy Nasdaq chalked up a weekly gain.
Investors will have to show similar resilience in the face of bad news this week if stocks are to continue to build on last Friday's bounce. This week major economic numbers are expected to offer further proof of the economy's distress. The numbers will counter upbeat news of any funding for GM and Chrysler and an expected interest rate cut of 50 basis points tomorrow or Wednesday, bringing the Federal Funds rate down to half a per cent.
Wall Street is also bracing for the first trickle of fourth quarter earnings this week. The year's final quarter is still not done for most companies, but several of this week's early reporters are of significant interest to investors, offering an early view on what analysts are expecting to be a fourth quarter growth rate of 5.9 per cent, down by nearly half, from 10 per cent just a week ago.
'We'll likely be into negative growth numbers by the time we really get into reporting season in January,' says Thomson Reuters' John Butters.
Wall St walks away from car wreck stronger
Analysts heartened by Friday rally but brush off impact of expected rate cut
By ANDREW MARKS
NEW YORK CORRESPONDENT
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WHAT if the US central bank lowers interest rates this week and no one cares?
A respite: Analysts are upbeat about a rebound this week if financial help for carmakers materialises
That could well be the case, for the Fed will be pushing against a string with yet another short- term interest rate for a credit system already awash in cheap money when it meets tomorrow.
'A rate cut will accomplish approximately nothing,' says Joel Naroff, president of Naroff Economic Advisors.
The US stock market will likely remain fixated on the embattled car industry. It is hoping that President George Bush will step into the void that Congress left last week when Senate Republicans killed legislation that would have given GM and Chrysler, the two sickest members of Detroit's Big Three, enough of a financial band-aid to see it through the next two or three months.
The most significant event for Wall Street last week, in fact, involved the stock market's reaction to another round of awful economic data and Congress's decision to spurn the increasingly desperate carmakers.
Investors could easily have used the rejection of the US$14 billion in loans to GM and Chrysler, and its dangerous implications for not just several hundred thousand workers but the entire economy, as an excuse to send the stock market on another of its several-hundred-point, multi-per cent sell-offs.
Instead, stocks recovered from an early plunge on Friday that saw the Dow Jones Industrials sink as low as 200 points in intra-day trading to finish with solid gains for the day.
The rebound wasn't enough to make up for a bigger plunge on Thursday as the Congressional bailout plan for the Big Three neared collapse. But the resilience - helped by word from the Treasury Department that it was considering using the remaining US$15 billion of the first, US$350 billion allocation of TARP bailout money to keep the carmakers afloat until the new congress convenes late next month - heartened market analysts.
'The stock market is showing a greater ability to shrug off bad news, and that's helping us make lower lows, bringing a sense of relative stability to the trading environment,' observed Marc Pado, chief investment strategist at Cantor Fitzgerald, who expects stocks to stage a modest Santa Claus rally in the final 12 trading days of the year.
'I think the rally would already be underway if not for the trouble with the automakers' bailout last week. Assuming the administration offers them the financial help to make it through the next month or so, stocks have a good shot at a bounce this week,' he says.
He is quick to add that while he's encouraged by the recent trends, he's not prepared to call a bottom. This is a sobering thought, considering that even a rally of 20 per cent would leave stocks in bear market territory, in light of the 25 per cent losses the major market averages have suffered since September.
'No matter what happens in the next two weeks, this will still be a bear market when we start 2009, and that will probably hold through for most of the next twelve months,' he says.
But on Friday, neither the grim prospects of the coming year, nor the possibility that GM or Chrysler might file for Chapter 11 in the coming weeks, which would surely set off a wave of bankruptcies and layoffs in related industries, was enough to keep investors from buying all the way to a 65-point, or 0.75 per cent, advance for blue chips, which closed the day at 8,629.28.
For the week, the Dow still ended down by 0.1 per cent, but both the broader S&P 500 and the tech-heavy Nasdaq chalked up a weekly gain.
Investors will have to show similar resilience in the face of bad news this week if stocks are to continue to build on last Friday's bounce. This week major economic numbers are expected to offer further proof of the economy's distress. The numbers will counter upbeat news of any funding for GM and Chrysler and an expected interest rate cut of 50 basis points tomorrow or Wednesday, bringing the Federal Funds rate down to half a per cent.
Wall Street is also bracing for the first trickle of fourth quarter earnings this week. The year's final quarter is still not done for most companies, but several of this week's early reporters are of significant interest to investors, offering an early view on what analysts are expecting to be a fourth quarter growth rate of 5.9 per cent, down by nearly half, from 10 per cent just a week ago.
'We'll likely be into negative growth numbers by the time we really get into reporting season in January,' says Thomson Reuters' John Butters.
Published December 15, 2008
breakingviews.com
Don't get Madoff, get even
By HUGO DIXON
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WHAT were funds of funds doing backing Bernard Madoff's alleged US$50 billion Ponzi scheme? Didn't they do due diligence? Didn't they spot the red flags that might have suggested that something was fishy?
These are the questions investors who may have seen their money wiped out will be asking. And the madder they get, the more they are likely to try to get even.
For investors who got suckered when they met Madoff's intermediaries at the Palm Beach County Club or one of the many other posh US golf courses where Madoff swung his driver, there may be little restitution. Ditto for those who invested through insubstantial funds of funds with little capital of their own. But, in some cases, there will be deep pockets.
The deepest of these pockets appear to be outside the US. First, there's Santander, the Spanish banking giant. Optimal, its Swiss-based fund of funds operation, had US$3.1 billion of money invested with Madoff. Given that it only had six billion euros (US$8 billion of S$12 billion) in funds under management at the end of last year, that's quite a lot of eggs in one basket.
Then, there's Unicredit, the Italian banking group. Pioneer Investments, its Dublin-based fund manager, has indirect exposure to the Ponzi scheme through 'feeder funds' that channelled money into Madoff.
Pioneer isn't saying how big its exposure was - but the Financial Times says that two of its funds had 'substantially all' of their US$835 million invested in Madoff.
A large number of Swiss private banks were also exposed. The total exposure of Geneva-based banks alone is more than US$4 billion, according to Le Temps. Then there's BNP Paribas, the French bank, which has exposure, according to the Wall Street Journal. Meanwhile, Man Group, the London-based fund manager, had roughly US$350 million lodged with Madoff via its RMF operation. The alleged fraud has also affected Nomura. The Japanese broker marketed a feeder fund to its clients.
The massive alleged fraud is hugely embarrassing to all these substantial institutions. At the very least, it will undermine their reputations as savvy investment advisers. More likely, investors will demand compensation.
How will these substantial institutions then react? One option will be to say no. But they could then face a slew of lawsuits for alleged negligence. Lawyers, including the class-action firm of Sonn & Erez, are already churning the waters in search of aggrieved Madoff clients.
Investors in other funds managed by these deep- pocketed Madoff feeders who have not been affected might also lose confidence and take their money away - damaging their entire fund management franchises.
Another alternative will be to pay up. That's what Santander did earlier this year after it had put some of its private bank customers into Lehman Brothers' investment vehicles. Voluntary compensation can be costly - especially for banks whose capital bases are being hammered from all sides. But, in the long run, it may be less expensive than toughing it out.
breakingviews.com
Don't get Madoff, get even
By HUGO DIXON
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WHAT were funds of funds doing backing Bernard Madoff's alleged US$50 billion Ponzi scheme? Didn't they do due diligence? Didn't they spot the red flags that might have suggested that something was fishy?
These are the questions investors who may have seen their money wiped out will be asking. And the madder they get, the more they are likely to try to get even.
For investors who got suckered when they met Madoff's intermediaries at the Palm Beach County Club or one of the many other posh US golf courses where Madoff swung his driver, there may be little restitution. Ditto for those who invested through insubstantial funds of funds with little capital of their own. But, in some cases, there will be deep pockets.
The deepest of these pockets appear to be outside the US. First, there's Santander, the Spanish banking giant. Optimal, its Swiss-based fund of funds operation, had US$3.1 billion of money invested with Madoff. Given that it only had six billion euros (US$8 billion of S$12 billion) in funds under management at the end of last year, that's quite a lot of eggs in one basket.
Then, there's Unicredit, the Italian banking group. Pioneer Investments, its Dublin-based fund manager, has indirect exposure to the Ponzi scheme through 'feeder funds' that channelled money into Madoff.
Pioneer isn't saying how big its exposure was - but the Financial Times says that two of its funds had 'substantially all' of their US$835 million invested in Madoff.
A large number of Swiss private banks were also exposed. The total exposure of Geneva-based banks alone is more than US$4 billion, according to Le Temps. Then there's BNP Paribas, the French bank, which has exposure, according to the Wall Street Journal. Meanwhile, Man Group, the London-based fund manager, had roughly US$350 million lodged with Madoff via its RMF operation. The alleged fraud has also affected Nomura. The Japanese broker marketed a feeder fund to its clients.
The massive alleged fraud is hugely embarrassing to all these substantial institutions. At the very least, it will undermine their reputations as savvy investment advisers. More likely, investors will demand compensation.
How will these substantial institutions then react? One option will be to say no. But they could then face a slew of lawsuits for alleged negligence. Lawyers, including the class-action firm of Sonn & Erez, are already churning the waters in search of aggrieved Madoff clients.
Investors in other funds managed by these deep- pocketed Madoff feeders who have not been affected might also lose confidence and take their money away - damaging their entire fund management franchises.
Another alternative will be to pay up. That's what Santander did earlier this year after it had put some of its private bank customers into Lehman Brothers' investment vehicles. Voluntary compensation can be costly - especially for banks whose capital bases are being hammered from all sides. But, in the long run, it may be less expensive than toughing it out.
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