Published April 3, 2009

STI skyrockets 6% on recovery hopes

US data, G-20 optimism help fuel powerful Asian rally

By R SIVANITHY

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(SINGAPORE) An improvement in US economic numbers ignited hopes yesterday that a recovery could be taking shape and sent the Straits Times Index up 101.08 points, or 5.9 per cent, to a three-month high of 1,803.34.

The rise was in tandem with gains elsewhere, led in the region by a 7 per cent jump in Hong Kong's Hang Seng Index and a 100-point rise in June futures on the Dow Jones Industrial Average.

Turnover here, excluding foreign currency issues, which dropped to a low $755 million on Wednesday, rose to 1.8 billion units worth $1.7 billion yesterday.

The last time the index closed at this level was Jan 9, when it ended at 1,806.02. In the three weeks since touching 1,456.95 on March 9, the index has gained 346.39 points, or 24 per cent, on hopes of a US-led economic recovery.

'Bear market rallies can be very powerful and can sometimes last a few months,' said a dealer, suggesting further upside is still possible. But most also admit that unless economic figures show clear signs of improvement, the upcoming earnings reporting season could slam the brakes on the market's rise.

Yesterday's push was fuelled by hopes that the US economy was improving, following improved residential construction figures and a manufacturing report that was bad, but not as bad as expected. Also helping were comments by officials that there are signs that coordinated international action to spur the global economy is gaining some traction.

'There's speculation that something good will come out of the G-20 meeting, so the buying is also in anticipation of this,' said a dealer. Leaders from the 20 nations started their meeting in London yesterday.

Assessing local news of a 13.8 per cent drop in private property prices in the first quarter, DMG & Partners said that although there will be more prospective buyers, most will only window-shop until prices become considerably more attractive.

'HDB prices should fall further on the back of economic weakness, job insecurity and filtering of interest into the mass market condominiums, which should result in an increase in bargaining power of buyers,' DMG said.

'While we are cognisant of units disposed at distressed prices in the secondary market, these remain selective ones. For the remaining year, we should see an increased quantum of such transactions, especially from the 10,000 units that will receive TOP (temporary occupation permits) in 2009. As such, we are keeping our neutral call for the property sector.'

In his latest market commentary dated April 1, fund manager Marc Faber said that the current bounce is because stock markets were heavily oversold and are experiencing a powerful bear market rally. 'While I do not expect any full-market recovery within the next few years (after that, we shall need to see how much money will be printed) I would not be surprised to see some further headway until summer 2009,' Dr Faber said.

'Very near-term, the stock market has become overbought and should correct. But for the immediate positive stance to be maintained, it is important that the November 2008 low of 741 for the S&P 500 not be violated on the downside.'

The S&P 500 closed at 811.08 on Wednesday.

Dr Faber also pointed out that although US residential construction appears to have stabilised, non-residential construction has only just started to contract, so talk of a recovery is premature.

Published April 3, 2009

G-20 strikes US$1 trillion deal to roll back recession

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(LONDON) World leaders agreed to a trillion-dollar deal yesterday to combat the deepest economic downturn since the Great Depression.

First order of business: US President Barack Obama (bottom right) greeting some of the world leaders and top financial officials yesterday as they prepare to pose for a group photo

The Group of 20 (G-20) leaders called for stricter limits on hedge funds, executive pay, credit-rating companies and risk-taking by banks. They also boosted the resources of the International Monetary Fund (IMF) and offered cash to revive trade to help governments weather the economic and social turmoil.

But they sidestepped the question of whether to deliver more fiscal stimulus in their own economies.

The group of leading industrial and developing nations also agreed to create a new supervisory body to flag potential problems in the global financial system.

'This is the day that the world came together, to fight back against the global recession. Not with words but a plan for global recovery and for reform and with a clear timetable,' British Prime Minister Gordon Brown, the summit host, said.

Mr Brown says the G-20 will create a new financial stability board to ensure cooperation across frontiers, to spot risks to the world economy and - together with the IMF - provide 'the early warning mechanism that this new global economy needs'.

Mr Brown says it is essential that the world does everything necessary to 'rebuild trust' and make sure 'a crisis such as this' never happens again.

World markets reacted positively. The index of top European shares was up 5 per cent after Japan's Nikkei gained 4.4 per cent. On Wall Street, the Nasdaq was up 4 per cent and the Dow Jones 3.6 per cent.

Mr Brown said that while there were 'no quick fixes', the decisions meant that 'we can shorten the recession and we can save jobs'.

French President Nicolas Sarkozy said the results were beyond what could have been imagined while German Chancellor Angela Merkel said that the package of measures agreed on by the leaders was 'very, very good'.

The G-20 agreement is 'a victory for common sense' and an 'important step towards order' in markets, Ms Merkel told reporters. The G-20 agreed to build a new 'financial-market architecture', a key German demand, she added.

Mr Brown said the leaders agreed 'there will be an end to tax havens that do not transfer information on request. The banking secrecy of the past must come to an end'.

He said leaders agreed to commit new resources of US$1 trillion that are available to the world economy through the IMF and other institutions.

This included US$250 billion of IMF reserve units called Special Drawing Rights.

'This is available to all IMF members,' Mr Brown said.

In addition, the IMF would see its own resources tripled, with up to US$500 billion of new funds.

The G-20 also ordered the IMF to sell billions of dollars of gold reserves to help the world's poor countries and a trade finance package worth US$250 billion over two years to support global trade flows. -- Reuters, AP, AFP, Bloomberg

Published April 2, 2009

MCA backs DAP's call for govt to buy out Plus

By PAULINE NG
IN KUALA LUMPUR

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CALLS for the government to take Malaysia's biggest highway concessionaire private appear to be gathering steam. A senior component party of the ruling federal coalition Barisan Nasional is the latest to back the idea.

The Malaysian Chinese Association (MCA) on Tuesday suggested that public interest would be better served if the government acquired the remaining shares in listed Plus.

Because its proposal comes on the heels of one made by the opposition Democratic Action Party (DAP), some view it as 'more of a political statement'.

However, the push comes amid hefty government compensation payouts to toll concessionaires. In the recent RM60 billion (S$25 billion) stimulus package, a whopping RM480 million was slated for toll subsidies so that consumers would ostensibly have more cash for other spending.

Proponents of a government buyback maintain that, in the longer term, it would be cheaper for the authorities to acquire these concessionaires.

Although there are more than 20 tolled highway concessionaires in West Malaysia, Plus is the main target since it operates the country's largest network of tolled roads, including the North-South Expressway (NSE).

Since the government's effective interest in Plus - mainly through Khazanah Nasional - is nearly 75 per cent, nationalising it ought to be easy, especially with the depressed share price.

Proponents say that a RM3.30 to RM3.50 per share general offer to minorities - over its current price of about RM3 - would only cost the government about RM4.6 billion. Together with Plus's long-term debts of about RM9.4 billion, the total acquisition cost would total RM14 billion - a sum that could be funded by the issue of government bonds.

Plus's cash flow remains strong, and MCA calculated that even excluding government compensation for scheduled increases not allowed, the company's cash flow amounted to RM1.1 billion to RM1.4 billion from 2004 to 2007.

'In terms of profit after tax margin inclusive of government compensation, the Plus business yields a profit margin of above 50 per cent from 2004 to 2008,' it said.

DAP, which first mooted the buy-back idea, feels that because of the strong earnings, the bonds could be repaid by 2015.

However, it is precisely because Plus is such a cash-cow that the government would prefer to keep the status quo, a banker observed.

MCA also questioned the lop-sided terms of agreements awarded to-date, noting that there were several issues that necessitate further deliberations and explanations at the Cabinet level.

Although the government is against privatising the concessionaires, it has found itself in an increasingly difficult position, with road users having to bear the burden of rising costs.

Last month, a decision to hike rates on five major highways was reversed over fears of a public backlash.