Vietnam is the new Greece.

Greece is so January. We now have our own potential Grecian tragedy unfolding in our own Asian backyard: it’s called Vietnam. Widening CDS spreads, devaluation of currency by 5%, officially shutting down the gold market to support the Dong, government threats to close small banks without adequate tier 1 capital (bank runs, anyone?), hoarding of USD despite a 12% yield on the local deposits…. the list is impressive. Expect Capitaland-made condos in Ho Chi Minh city to be denominated in USD soon.

From AsiaTimes “Vietnam as Asia’s first domino”

While global markets fret about European sovereign debts, could Vietnam be Asia’s first over-stimulated economic domino? With a wobbly currency, fast and loose bank lending and an absence of local confidence in the government’s economic management, Vietnam stands out as the region’s prime candidate for a sudden market re-evaluation of the financial impact of recently ramped and frequently misallocated fiscal spending.

On the back of massive government pump-priming, Vietnam last year outperformed several of its regional peers with 5.5% gross domestic product (GDP) growth. To counteract the global economic downturn, the government pledged economic stimulus packages amounting to a whopping 8% of GDP. Although less than half of that amount has actually been disbursed, on-budget spending and off-budget state bank lending propelled the economy through the global crisis.

With emerging signs of global recovery, the communist party-led government has signaled its intention to rein in the stimulus and return the economy to export-oriented growth. But a lack of policy coordination across state agencies and enterprises has further eroded local confidence in the government’s ability to control future inflation and to a significant degree has undermined central efforts to contain pressures on the currency and an overheating property market.

The disconnect between central command and peripheral resistance was made apparent last year when many export-oriented industries refused to cash in their export receipts at the official exchange rate for the dong against the US dollar. As of October, there was a 9% spread between the official and black market rates, and that gap drove the government’s decision in November to devalue the dong by 5% by expanding its permissible trading band. Even with that depreciation, financial analysts monitoring the situation say there is still a 5% spread between the official and black market rates.

One factor driving the distortion is the government’s interest rate subsidies, which were implemented last year as part of the stimulus package to encourage more local lending. The policy effectively reduced lending rates from 10% to 6.5% and drove huge new lending worth around $24 billion, or nearly 23% of GDP. According to Standard & Poor’s, a credit rating agency, Vietnam’s year-on-year loan growth was up 37%.

Financial analysts say that because there was virtually no underlying demand for working capital among state-owned enterprises (SOEs) and export-oriented private companies that received the bulk of the new credits, much of the money was recycled into the local stock market. The footloose liquidity contributed to making Vietnam’s stock market one of the world’s best performers during the first half of 2009; it then fell dramatically in the second half.

It’s unclear to financial and sovereign analysts how much of last year’s US$24 billion in new lending was lost to stock market speculation. Kim Eng Tan, a sovereign and public finance analyst at Standard & Poor’s, expressed his preliminary concerns about last year’s 37% loan growth rate. He said that the balance sheets of major Vietnamese banks were in “reasonable shape” at the end of 2008, but that “we’ll need to see what has changed after the new surge in lending”.

From the government’s perspective, the easy money aimed to forestall a spike in unemployment at a time when labor-intensive export industries faced a near collapse in global trade. The Communist Party leadership clearly wanted to avoid a repeat of the social instability witnessed in 2008 when inflation topped out at over 25% and labor unrest spread in both foreign and locally owned factories across the country.

Galloping inflation also contributed to a ballooning current account deficit as companies built up large inventories of imports to arbitrage anticipated higher prices and demand. The loss of economic control is known to have undermined the position of liberalizing Prime Minister Nguyen Tan Dung, whom some analysts estimate was only spared full-blown hyperinflation by the global economic downturn and its associated commodity price collapse. Some analysts believe that party conservatives could regain the upper hand at the 11th National Party Congress scheduled for January 2011.

Carlyle Thayer, a Vietnam expert at the Australian Defense Force Academy, points to reports that party conservatives had called for Dung’s resignation at a central committee meeting in 2008 over his perceived mishandling of the economy. The main policy divide between party conservatives and liberalizers concerns the pace and scope of Vietnam’s integration with the global economy and its impact on domestic stability and state control over the economy, according to Thayer.

“Conservatives seek to preserve one-party rule, maintain order and stability and state control over key sectors of the economy, which they regard as their ‘milk cows’,” Thayer wrote in e-mail correspondence with Asia Times Online. “It is clear that reform of state-owned enterprises has stalled, for example. Those [like Dung] pushing for increased global integration would like to see market forces play a greater role.”

While Dung’s broad economic and financial liberalization program is still on track, there are signs that conservative elements are asserting more influence over economic management. The State Bank of Vietnam (SBV) has required that small banks, which contributed to inflation through rampant lending in 2008, triple their underlying capital by year’s end or face closure. The government has also ordered closed gold exchanges across the country – a restriction that will come into full force in March in a bid to stop local dumping of dong for gold.

Pressures and distortions
New technocratic tests are emerging with signs of inflation, a rising trade deficit and sustained downward pressure on the dong vis-a-vis a globally weak US dollar. Even with last November’s 5% devaluation of the dong and a hike in baseline interest rates from 10% to 12%, state-owned enterprises and private companies continue to hoard dollars over dong, underscoring the lack of local confidence in the SBV’s ability or willingness to check inflation.

“The central bank needs to send a fairly stiff signal to the market that it is willing to defend the currency band, most likely by raising interest rates further,” said Sriyan Pietersz, head of research at J P Morgan in Bangkok. “Without that, they risk losing potential FDI [foreign direct investment] inflows due to a shaky currency.”

A $1 billion dollar-denominated bond issue was fully subscribed by foreign investors in January but analysts say that’s not enough to alleviate the new pressures building around the dong. The currency should get a short reprieve from Tet holiday-related remittance inflows this month, but many analysts believe the SBV needs to raise interest rates by at least another 3% to put a punitive local tax on those who convert dong to dollars.

As the SBV is the only official source of foreign exchange inside the country, the government maintains strict capital controls in defense of the dong. By law, companies and enterprises are allowed to hold only enough foreign exchange to pay debts and settle current trade transactions. Yet as of the third quarter of last year, 27% of all liquidity in the local financial system had fled dong for dollars, according to J P Morgan.

Despite the currency controls, SOEs are estimated to hold around $10 billion worth of mainly dollar-denominated foreign exchange. Notably, they have recently defied a government-issued circular decree addressed specifically to 10 large SOEs, including Vietnam Oil and Gas Group, Vietnam National Coal and Mineral Group and Vietnam National Chemical Corporation, requiring them to cash in their dollars for dong.

According to the circular, SOEs were to have turned over $3 billion of their foreign holdings to the SBV by the end of last year; as of early February, they had only released $300 million, according to analysts tracking the situation. The defiance, the same analysts say, has contributed to the SBV’s reluctance to inject more liquidity into the market to defend the currency. According to official statistics the SBV currently holds around $16 billion worth of foreign reserves.

While Vietnam clearly cribbed from China’s extraordinary fiscal response to the global economic downturn, Hanoi comparatively lacks the top-down controls that have allowed Beijing to put a more authoritative brake on its stimulus. As the recent tug-of-war over foreign exchange indicates, Vietnam’s big SOEs are still often run as the personal fiefdoms of politically powerful Communist Party members with enough clout to defy central directives.

Some analysts contend it is reassuring that Vietnam’s perennial loss-making SOEs are finally prioritizing profitability over state policy. To others, it underscores the sustained lack of transparency and accountability of big SOEs and raises worrying new questions about how the billions of dollars worth of bank loans they received last year were put to use. State-motivated lending that was last year funneled into stock market speculation now appears to be fast pumping up property prices, particularly in Ho Chi Minh City.

What’s clearer is that Vietnam still lacks effective policy coordination across state agencies and enterprises at a time economic authorities need to show the market a renewed commitment to maintaining macroeconomic and price stability. The lack of control also resurrects questions lingering about the central bank’s patchy handling of 2008’s inflationary surge and its technocratic capacity to head off new emerging inflationary pressures, including in the property market.

J P Morgan’s Pietersz says the relevant authorities are “very bright and committed”, but still “learning by doing” in managing the economy. Others say it is not clear that the internally divided government has the political will to roll back last year’s stimulus measures in the politicized run-up to next year’s National Party Congress.

“Ultimately, the government can’t close down the whole economy … but inflation expectations will have to be anchored somehow,” said Tan of Standard & Poor’s. “If inflation is kept high for a long time, it could be a serious vulnerability.”

A research analyst with a European investment bank estimates that Vietnam’s “day of reckoning” is “inevitable due to the government’s inability to raise revenues” and that the country will face more “convulsive devaluations” until the central bank is allowed more independence from party heavies.

Despite the recent pressure on the dong, Tan says Vietnam does not exhibit symptoms of a “classic currency crisis” because “external borrowing is still largely under control” and “FDI has held up well”. Unlike in the debt-binged countries hit by the 1997-98 Asian financial crisis, he notes, Vietnam’s debt burden is comparatively modest because it is wrapped up largely in low-risk, long-term concessionary loans.

But as market scrutiny over public finances intensifies in Europe, country-by-country risk in Asia will increasingly be determined by investor perceptions of how governments have managed and spent recently ramped fiscal measures. Locals in Vietnam have already made clear their mistrust of the government’s management and history shows foreign sentiment often lags but eventually follows indigenous leads in high-risk emerging markets.

As fears of state-led financial contagion rise in Europe, Vietnam seems the leading candidate for a parallel crisis of confidence in Asia.

Toyota: moving forward…into a brick wall.

Toyota seems intent on blowing itself up, in effect giving the failed US automakers like Ford and GM a HUGE bailout, by building deathtraps that can’t brake, accelerator pedals that get stuck, and airbags that don’t work. (Well, the last one was Honda, but I thought since Toyota was on a roll, they should put that little “upgrade” into their cars too, and ensure that no witnesses live to tell the tale of shoddy workmanship. They asked customers to drive cars back to workshops to get the accelerator/brake problem fixed, for crying out loud!). It has also transpired that the bosses actually knew about this wee little issue as far back as a year ago…of cars being possessed by the ghost of Sadako and accelerating suddenly for no reason. Coincidentally, none of the tens of thousands of Toyotas sold in Singapore are affected (scoff scoff). Only the 70-odd Priuses that suckers..cough cough…customers bought from Leng Kee. Really. Trust us. We want to kill only Americans (we haven’t forgotten Nagasaki), but Singaporeans are golden (we remembered when your guns were facing the wrong way).

This is one problem that won’t be fixed by a bow in front of cameras. Perhaps Toyoda and gang should consider the honorable way out…by getting into one of their Lexus (Lexi?) and speeding up to 180kmh.

From WSJ, “Secretive Culture Led Toyota Astray”

On Jan. 19, in a closed-door meeting in Washington, D.C., two top executives from Toyota Motor Corp. gave American regulators surprising news.

Evidence had been mounting for years that Toyota cars could speed up suddenly, a factor suspected in crashes causing more than a dozen deaths. Toyota had blamed the problem on floor mats pinning the gas pedal. Now, the two Toyota men revealed they knew of a problem in its gas pedals.

The two top officials from the National Highway Traffic Safety Administration “were steamed,” according to a person who discussed the meeting with both sides. As the meeting closed, NHTSA chief David Strickland hinted at using the agency’s full authority, which can include subpoenas, fines, and even forcing auto makers to stop selling cars.

Toyota had known about the gas-pedal problem for more than a year. Its silence with U.S. regulators, and other newly uncovered details from the crisis enveloping Toyota, reveal a growing rift between the Japanese auto maker and NHTSA, one of its top regulators. Regulators came to doubt Toyota’s commitment to addressing safety defects, according to interviews with federal officials and industry executives, and accounts of Toyota and NHTSA interactions the past year.

Even as computers have revolutionized car safety, efficiency, and performance, they’ve made those same cars increasingly hard to fix, and robbed arm-chair mechanics of the thrills of tinkering in the garage. WSJ’s Andy Jordan reports.

The heart of Toyota’s problem: Its secretive corporate culture in Japan clashed with U.S. requirements that auto makers disclose safety threats, people familiar with the matter say. The relationship soured even though Toyota had hired two former NHTSA officials to manage its ties with the agency.

Toyota’s troubles spread Tuesday when it recalled all Priuses to address a braking problem, even as executives suggested the step was unnecessary.

Toyota acknowledges the rift with regulators. “Believe me, we have changed our mind-set,” said Shinichi Sasaki, Toyota’s quality chief, referring to a heated December confrontation in Tokyo with NHTSA officials over floor mats. “We don’t believe this is going to be a problem in the future. We are completely on the same page with NHTSA.”

Toyota’s woes have roots in 2002’s redesigned Camry sedan, which featured a new type of gas pedal. Instead of physically connecting to the engine with a mechanical cable, the new pedal used electronic sensors to send signals to a computer controlling the engine. The same technology migrated to cars including Toyota’s luxury Lexus ES sedan. The main advantage is fuel efficiency.
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But by early 2004, NHTSA was getting complaints that the Camry and ES sometimes sped up without the driver hitting the gas. It launched its first acceleration probe, focusing on 37 complaints, 30 of which involved accidents, according to a NHTSA document filled out by Scott Yon, an agency investigator, dated March 3, 2004.

Mr. Yon and another NHTSA official, Jeffrey Quandt, discussed the case several times over the next 20 days with Toyota, according to a deposition by a Toyota official filed in a Michigan lawsuit related to one of the fatal crashes. In that accident, a 2005 Camry allegedly raced out of control for a quarter-mile, and sped up to 80 miles an hour from 25, before crashing and killing its driver.

By month’s end, Mr. Yon updated his NHTSA case file with a memo. It said NHTSA had decided to limit the probe to incidents involving brief bursts of acceleration, and would exclude so-called “long duration” incidents in which cars allegedly continued racing down the road after a driver hit the brakes.

The reason: Investigators decided it would be more effective to isolate any possible defect by zeroing in on shorter incidents, a Transportation Department official said. The shorter incidents looked more like “pure cases of engine surging due to a possible defect,” the official said. Longer incidents were excluded because they showed more signs of driver error such as mistaking the accelerator for the brake.

Messrs. Quandt and Yon didn’t respond to requests for comment.

Of the 37 incidents, 27 were categorized as long-duration and not investigated. On July 22, 2004, the probe was closed because NHTSA had found no pattern of safety problems.

Complaints kept rolling in. In 2005 and 2006, NHTSA got hundreds of reports of unintended acceleration involving Toyotas, according to Safety Research & Strategies, a consumer-safety research firm. On two occasions, Toyota filed responses arguing that no defect or trends could be found in the complaints.

In a Nov. 15, 2005, letter to Mr. Quandt, Christopher Tinto, a Toyota liaison with the safety agency, asked NHTSA to drop a preliminary probe into sudden acceleration by the Camry and Lexus ES, saying “there is no factor or trend indicating that a vehicle or component defect exists.” He used similar language in a June, 11, 2007, letter responding to a subsequent probe.

In March 2007, the agency opened a new probe, focusing on whether the gas pedal in the Lexus ES350 sedan could get caught beneath heavy rubber floor mats sold as accessories. It looked at five crashes, including four multivehicle accidents.

NHTSA sent surveys to 1,986 owners of ES350s. Six-hundred responded, and 59 said they had experienced unintended acceleration. Thirty-five attributed the surge to a floor mat pressing down on the gas pedal. The rest either didn’t specify or cited other possible explanations.

NHTSA officials worked on the probe with their main contact at Toyota, Christopher Santucci. The NHTSA team knew Mr. Santucci: He had worked there from 2001 to 2003. Mr. Santucci’s supervisor at Toyota, Mr. Tinto, had worked at NHTSA in the past, too. Messrs. Santucci and Tinto didn’t respond to requests for comment.

At one point, Mr. Santucci brought a Lexus ES350 to a parking lot outside Washington, D.C., for testing. Messrs. Yon and Quandt raced across the lot, hitting 60 mph before jamming on the brakes to measure the force needed to stop.

It’s common for NHTSA to work cooperatively with all auto makers in this way. NHTSA can do its own testing, but it generally relies on manufacturers to supply technical data. Its Office of Defects Investigation has only 57 employees to deal with some 35,000 complaints a year.

Car makers “are almost self-regulated,” said an auto-industry chief executive who has worked with NHTSA. Without makers’ help, there’s “no way for NHTSA to look into all these issues.” To spur cooperation, the agency has the power to force recalls and fine companies for providing misleading information or not providing safety information in a timely fashion.

Toyota for years has been one of the most difficult auto makers for regulators to deal with because it is resistant to being told what to do, said Joan Claybrook, a former NHTSA administrator who later became president of consumer-advocacy group Public Citizen until stepping down last year. But she also blamed the agency’s collaborative approach for undermining its role. “They have tremendous power and authority but they don’t tend to use it.”

A Transportation Department spokeswoman disputes that, saying: “NHTSA has the most active defect investigation program in the world. In the last three years alone [it] resulted in 524 recalls involving 23.5 million vehicles.”

By August 2007, NHTSA wanted Toyota to issue a Lexus and Camry recall to remove the floor mats Toyota blamed for the acceleration problems. “Toyota assured us that this would solve the problem,” said Nicole Nason, then NHTSA’s administrator.

In their probe, NHTSA investigators asked Toyota, “Are you sure it’s not the gas pedal?” Ms. Nason said. “They assured us it’s just the floor mat.”

Toyota says that, at that time, it had no indication of problems with the pedal design.

Toyota ended up recalling Camrys and ES350s from 2007 and 2008 model years. Owners were told to bring the cars to dealerships to get new mats. The action involved 55,000 cars.

After the recall, reports continued trickling in that it may not have resolved the issue. One major case was 2008’s spectacular fatal crash in Michigan. On April 19 that year, Guadalupe Alberto, 77 years old, was driving a 2005 Camry on Copeman Boulevard, a residential street in Flint. She was traveling about 25 mph when the car accelerated to 80, according a lawsuit against Toyota in Michigan. The car raced about a quarter mile before going airborne and colliding with a tree, killing Ms. Alberto, according to the suit, in Genesee County circuit court. The suit remains under way.

Floor mats couldn’t have been the cause. Ms. Alberto had removed hers days before the accident, said one of the attorneys handling the case against Toyota. The accident was similar in some ways to the “long duration” type excluded from NHTSA’s first probe in 2004.

A year later, NHTSA was asked to open a new probe by a Minnesota man who said his Lexus ES350 took off on a highway and raced for two miles before he regained control. Toyota filed a rebuttal, saying it believed a floor mat was the cause.

Separately, since December 2008 Toyota’s European unit had been looking into a problem causing cars in Ireland and England to surge or fail to slow. After months of testing, Toyota found the culprit: a plastic part in the pedal mechanism also widely used in the U.S.

Toyota redesigned the pedals for new cars coming off the assembly line. But it didn’t issue a recall in Europe or notify U.S. regulators. Nor did Toyota alert its U.S. unit to the situation in Europe, according to a person familiar with the matter.

Last month, Toyota’s Mr. Sasaki said the company didn’t alert U.S. regulators then because it didn’t see in the U.S. specific consumer complaints about sticky pedals, although a few complaints started to come in by early autumn.
Affected Models

Review details on models in each recall.

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Escalating Problem

Track the NHTSA-Toyota relationship.

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Recall Roadblocks

Timeline of major U.S. auto recalls

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The Europe issue hasn’t been linked to accidents and isn’t related to sudden acceleration because it happens near idle speeds. Toyota says it’s looking into other potential causes.

Toyota is still very much run by its Japan headquarters, despite being active in the U.S. since 1957. Top leadership doesn’t include U.S. executives. The Toyota officials who run the recall process are in Japan.

For reasons like these, Toyota often reacted relatively slowly to safety issues raised by NHTSA, according to three people familiar with Toyota’s inner workings.

“What has really happened is a breakdown in communications within Toyota” between its D.C. office and Japan headquarters, said one of these people. “The Washington office didn’t have the information it needed to provide to the government.”

In August 2009, another fatal accident in the U.S. put the problem in the spotlight. Mark Saylor, a California Highway Patrol officer, was driving a Lexus ES350 near San Diego when it accelerated to more than 100 mph. As the car careened out of control, one occupant called 911 to report the emergency. The call ended when the car crashed.

Everyone in the car died, including Mr. Saylor, his wife, daughter and brother-in-law. A tape of the 911 call drew attention to the acceleration issue.

The Lexus, a loaner from a dealer that Mr. Saylor was driving while his car was being serviced, did have the all-weather mats. And a previous driver of the loaner had told the dealer the mat had hit the pedal.

At NHTSA, patience was wearing thin. Its deputy, Ronald Medford, summoned Toyota officials to a Sept. 25 meeting in Washington, and told them they needed to act faster to more fully resolve the mat problem. Replacing mats wasn’t enough, he said. Toyota also had to alter its gas pedals to make sure they couldn’t get caught on mats.

On Oct. 5, Toyota recalled 3.8 million vehicles to fix the floor-mat issue, its largest ever recall.

But tensions kept rising. On Nov. 3, Toyota put out a statement saying NHTSA had concluded that “no defect exists” in the recalled vehicles. A day later, in an unusually public rebuke, NHTSA released its own statement calling Toyota’s “inaccurate and misleading.”

Around the same time, the two were at odds again over a completely different issue. Toyota recalled Tundra pickup trucks for a corrosion problem that could lead to the spare tire falling off. But the recall hadn’t come as quickly as NHTSA wanted, according to people familiar with the matter. Toyota had also been reluctant to include corrosion issues affecting the fuel tank, one person said.

On Jan. 8, Toyota amended its original recall to include the fuel-tank corrosion issue. In a letter to NHTSA. it stressed that it didn’t consider the issue “a safety related defect.”

Amid the clashes, NHTSA’s Mr. Medford and other officials flew to Japan. On Dec. 15 they stood before about 100 Toyota executives and engineers and explained Toyota’s obligation to comply with the U.S.’s defect-recall process, a Transportation Department official said.

Later, Mr. Medford met with a smaller group of Toyota executives. According to the official, Mr. Medford told them bluntly: Toyota was taking too long to respond to safety issues. He reminded them that Toyota is obligated under U.S. law to find and report defects promptly.

Mr. Sasaki, Toyota’s quality chief, said the meeting included a “debate” in which NHTSA objected to Toyota’s view that users needed to install the mats properly. NHTSA’s response, he said, was Toyota couldn’t expect that from every consumer. “NHTSA people expressed disbelief over Toyota’s view, and we received some harsh words from them,” he said.

On Jan. 4, NHTSA’s new chief, Mr. Strickland, was sworn in. His first crisis walked in the door Jan. 19, when two Toyota executives told him that Toyota’s Japan headquarters had known there was a flaw in the pedals, according to a person familiar with the situation.

A few days later, Toyota had the details of a 2.3-millon-vehicle recall worked out. But there was a hitch: Toyota didn’t have enough parts in hand to make repairs immediately.

At times, NHTSA gives car makers extra time to get replacement parts ready before recall notices go out. This time, it was too late. And regulators told Toyota it would have to stop selling cars. On Jan. 26, that’s what Toyota did.

Iran about to join nuke club? Markets, watch out below.

Now, this may be standard sabre rattling by the Iranian leaders, but when the Ayatollah starts making smug remarks about delivering a “punch that will stun world powers on 22nd of Bahman (Feb 11 to you mere mortals)”, you wonder if there’s some yellow cake somewhere (and not the kind that you celebrate birthdays with) that’s already strapped onto a payload delivery system, ready for display during the military parade in honor of the 31st anniversary of the Islamic revolution. If this happens, we can officially start selling Dow 5000/STI1000 hats (if that), and pray that Iran becomes the next consumer engine for the struggling world economy. If the nuke theory pans out, some hard questions will no doubt be asked: who supplied the material and equipment to bring Iran up to speed? I’ll give you a hint: the country in question starts with “C”, and it is well known for offering great prices.

Most of all, don’t forget your basic nuke lessons, boys and girls: when you see the flash, duck and cover.

From AFP “Iran anniversary ‘punch’ will stun West: Khamenei”

TEHRAN — Supreme leader Ayatollah Ali Khamenei said on Monday that Iran is set to deliver a “punch” that will stun world powers during this week’s 31st anniversary of the Islamic revolution.

“The Iranian nation, with its unity and God’s grace, will punch the arrogance (Western powers) on the 22nd of Bahman (February 11) in a way that will leave them stunned,” Khamenei, who is also Iran’s commander-in-chief, told a gathering of air force personnel.

The country’s top cleric was marking the occasion when Iran’s air force gave its support to revolutionary leader Ayatollah Ruhollah Khomeini, a key event which led to the toppling of the US-backed shah on February 11, 1979.

His comments came as Iran said it would begin to produce higher enriched uranium from Tuesday, in defiance of Western powers trying to ensure the country’s nuclear drive is peaceful.

This year’s anniversary is expected to become a flashpoint between security forces and supporters of opposition leaders Mir Hossein Mousavi and Mehdi Karroubi, who charge that the June re-election of President Mahmoud Ahmadinejad was rigged.

Opposition supporters are expected to stage anti-government protests on Thursday when the traditional regime-sponsored marches to mark the revolution take place across the country.

Mousavi renewed his call for demonstrations on the February 11 anniversary.

Just over a week ago, he and Karroubi had implicitly called for a gathering of their supporters.

“The 22nd of Bahman is upon us, truly it should be called the day of gathering,” Mousavi said on his Kaleme.org website Monday.

“I feel we have to participate while maintaining the collective spirit as well as our identity and leave an impression,” Mousavi said.

“Anger and bitterness should not take our control away.

“The clerics should know that since imprisonment, beatings, and other confrontational methods are done in the name of Islam and the Islamic regime, it is hurting Islam and we all should try to stop,” he added.

Anti-government protests were first triggered after the June 12 presidential election won by Ahmadinejad.

Over the past eight months, several thousand people were arrested. Some were released and others were given hefty prison terms, among them politicians, journalists and human rights activists.

Two protesters were tried, convicted and hanged in the aftermath of the election.

Khamenei told the air force personnel the “most important aim of the sedition after the election was to create a rift within the Iranian nation, but it was unable to do so and our nation’s unity remained a thorn in its eyes.”

China slaps tariffs on American chickens: “We’ve enough of our own in Nanjing Lu, thank you very much”

The trade war grows apace. While both sides are trying for soft blows to send “we won’t let foreigners tell us what to do” to the domestic market, and “it’s not too serious, so don’t escalate, ok?” to the foreign market, it’s only a matter of time before the Great Deflation that is 2010 results in a headlong rush towards grabbing as much of a shrinking consumer market as they can.

From Marketwatch “China to set anti-dumping measures on U.S. chicken”

China plans to impose tariffs of up to 105.4% on U.S. broiler chicken imports, starting Feb. 13, the Ministry of Commerce said Friday.

In a statement on its Web site, the ministry said the poultry products had been dumped at unfair prices onto the China market, causing “substantial damage” to the domestic chicken industry.
Obama Moves Toward Detente With Business Community

The Obama administration has cast some straws in the wind that suggest an effort at rapprochement with the business community. WSJ’s Gerald Seib reports on the White House’s new efforts to work together with the Chamber of Commerce.

The move is the latest in a tit-for-tat low-level trade war between the two nations, which has included U.S. anti-dumping actions against Chinese steel pipes ( See story on steel-pipe dispute), and Chinese threats to sanction U.S. firms providing arms to Taiwan ( See story on Beijing’s threats over Taiwan arms sales).

Those U.S. producers of broiler chickens who comply with an anti-dumping probe into the sales could face punitive damages of 43.1% to 80.5%, while those who don’t comply would see their shipments face the top tariff, the ministry said.

Broiler chickens refer to those raised mainly for meat.

The ruling was described as preliminary and follows an investigation launched in September on behalf of Chinese chicken producers.

The announcement came just days after the ministry accused the U.S. of falling back on protectionism in the face of the global financial crisis.

China decides to curb listed companies’ ability to “rob Peter to pay Paul”

The Chinese politburo has confirmed it, boys and girls: China is a massive soap bubble, drifting towards sharp thorns. How else do you explain the move by Chinese regulators to plug the ability of listed companies to raise capital through equity markets to repay bank loans. Think about this for a second. Companies now can’t make cash calls, issue new shares, or offer private placements, or otherwise milk shareholders, to pay off maturing debt. Presumably, the old guys in drab grey uniforms have decided that Rusal-like investments are thinly disguised efforts to rob Retail Investor to pay Bankers (not that retail investors could get a bite of Rusal, but you know what I mean). Good for them (the old men, not Rusal). But it sends some mighty lousy signals to the market.

If all of this sounds vaguely familiar to us here in new-Casino-land, that’s because you’ve seen cash calls issuing a plenty from the entire Singapore-REIT sector, and a rushed IPO by Tiger Airways – just to get the bucks needed to stop “Ah Longs” from splashing red paint on their respective doors. The main difference is that you won’t see our market masters at SGX stepping in anytime soon to issue such curbs, since Caveat Emptor is the byword here in Singapore (and generates the least amount of work for SGX staffers).

From FT “China curbs companies’ capital raising”

Chinese regulators have imposed a partial ban on listed companies raising capital from equity markets to repay bank loans or replenish working capital, amid a general tightening of liquidity and official curbs on soaring bank debt in the country.

At least 34 companies, mostly in the industrial and real estate sectors, have cancelled or reduced plans to raise money through private placements or secondary offerings in recent weeks.

Many of those companies said their plans were vetoed by the securities regulator, which said they are no longer allowed to raise money for working capital or repaying bank debt.

Some companies, including a number of listed cement producers, said they had been ordered to abandon their fundraising plans because they are in sectors identified by the central government as suffering from over-capacity.

The move to restrict secondary issuance in the equity market reflects curbs on bank lending that were imposed last month after loans issued in the first two weeks of the year hit Rmb1,100bn ($161bn).

The regulator has also moved to limit initial public offerings by real estate developers and some industrial companies following pronouncements from China’s State Council on the need to limit an incipient real estate bubble, regulate the flow of new bank loans and reduce overcapacity in some sectors.

China’s economic recovery last year was driven by a surge in state-controlled bank loans in what some economists have called the greatest financial and monetary easing in history.

The flood of liquidity has led to fears of overheating in the Chinese economy and official warnings over the creation of asset bubbles and the risk of inflation.

Following the lifting of a nine-month ban on new listings that ended in the middle of last year, companies were able to easily gain approval for IPOs and secondary placements but the relatively loose regulatory environment has now tightened.

Two companies in the past week have dropped below their IPO price on their trading debut, the first time this has happened in China for at least five years, raising fears the government may re-impose a temporary ban on new listings.

On Wednesday, China First Heavy Industries surprised the market by setting the price for its Rmb11.4bn IPO below the top of an indicated range.

One person familiar with government thinking said the regulator was likely to intervene in the pricing of IPOs and selectively reject IPO applications rather than halt them altogether.

The regulator is worried about companies using the equity market to repay loans and then taking out even larger bank loans that could turn sour in the future, damaging the health of the banking system.

“This policy will be revealed as extremely short-sighted if it results in companies going under because they can’t repay the banks or replenish working capital,” said Fraser Howie, co-author of Privatizing China.

“This comes down to the question of regulatory interference in the market; how is anybody going to decide the price of a Chinese share if the regulator is forever deciding who can or cannot sell them?”

China’s largest banks were forced to aggressively call back loans in the second half of January in order to meet newly imposed government lending quotas, according to Chinese media reports.

The China Securities Regulatory Commission, which oversees the Chinese equity markets, did not respond to requests for comment on Wednesday.

“We have hull breach”

“Captain’s log, supplemental, Stardate 2010.02.05.

Our encounter with the alien life form known as the PIIGS has taken nearly seven months off our painful progress upwards. Our mission to Dow 36,000 and STI 3,600 is now at serious risk of failure. Engineering is attempting to fix the hull breach from the photon torpedos that have hit us broadside, but that process  may take several months. Meanwhile, as the algo-trading nacelles remain unfixed, we are slowly but surely being pulled into a nearby black hole around which the world markets orbit.  But watching the financial newsfeeds filled with “Gold going to 2K, buy-REITs, buy-luxury-properties, Wilmar at 9, Genting at 1.50″ have given me and the crew a renewed sense of optimism. I have hope that…”

[sound of massive decompression]

GOP’s MA win causes Obama populist kneejerk: “China can’t vote”

Scott Brown, the new GOP Senator in MA, should be proud. His win has now pushed Obama into a succession of kneejerk populist reactions to show that the POTUS is doing something, anything, just to demonstrate that he’s doing something, anything. And, since banksters have bought and owned everyone in the Senate and Congress, which means Volcker’s Rule is a dead-man-walking before it was even born, Obama has decided to turn his populist guns on China. A focus group research run by the administration’s team must have revealed that (1) Americans blame China for stealing jobs, (2) Chinese migrant workers in Shenzen can’t vote in the Nov mid-terms, (3) banks don’t really care about this issue one way or another, since their main interest is in funding an infinite pipeline of empty condos for zero tenants, (4) international trade is screwed anyway.

From Reuters “Obama vows to get tough with China on currency”

President Barack Obama vowed to “get much tougher” with China on trade and currency rules to ensure U.S. goods do not face a competitive disadvantage, adding to a range of issues weighing on relations.

With U.S.-Chinese ties strained over U.S. arms sales to Taiwan and Obama’s planned meeting with Tibet’s spiritual leader, the Dalai Lama, the U.S. president said his administration was pushing China and other countries to enforce trade rules and further open their markets.

However, analysts cautioned against reading too much into Obama’s comments, saying his words were as much aimed at appealing to a domestic audience rather than to seriously put pressure on Beijing.

U.S. manufacturers have complained for years China’s currency policies give local companies an unfair price advantage. China says exchange rate policy is an internal matter.

“Even if China wants to adjust its exchange rate, it is nearly impossible for Beijing to meet the demands of the U.S. — this is China’s own business,” Li Jian, a researcher with a think-tank under China’s Ministry of Commerce, told Reuters.

Markets too were not counting on a brisk rise.

“Previous tough comments on the yuan from the U.S. administration have typically led nowhere,” said a U.S. bank dealer in Shanghai. “The market is not sure the latest comments by Obama will really lead to a tougher U.S. stance on the yuan.”

Offshore one-year dollar/yuan non-deliverable forwards (NDFs), a rough gauge of market sentiment, on Thursday implied a 2.8 percent rise in the yuan over the next 12 months, slightly less than on Wednesday. The yuan’s spot exchange rate, which is tightly controlled by the central bank, was nearly flat.

Obama told a meeting with Senate Democrats on Wednesday that Washington was trying “to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways”.

“One of the challenges that we’ve got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price,” he added.

Obama said he would not take a protectionist stance toward China, the world’s third-largest economy, warning that “to close ourselves off from that market would be a mistake”.

YUAN SEEN AS UNDERVALUED

The Peterson Institute for International Economics estimated China’s yuan was undervalued by about 30 percent against all world currencies and about 40 percent against the dollar.

Obama has twice declined to label China as a currency manipulator, but faces a third decision on that issue in April.

Finance ministers and central bank governors of the Group of Seven rich nations will discuss China’s currency this weekend in Canada, a U.S. Treasury official said.

“The Chinese currency issue is on everybody’s mind. It’s an issue for everybody,” the official said.

Zuo Chuanchang, a researcher with the Academy of Macroeconomic Research, a think-tank under the National Development and Reform Commission, said a row over the yuan would not lead to anything like a trade war.

“It’s very normal to see some disputes between China and the United States, but this doesn’t mean there will be a bust-up,” he said.

“It’s a political show, and it does really mean too much.”

Mid-term elections for U.S. Congress later this year are likely to be a test of the popularity of the policies of the Obama administration. With economic concerns uppermost in many voters’ minds, trade and currency tensions with China may become a electoral issue.

REVILED AS SEPARATIST

China on Wednesday warned Obama against meeting the Dalai Lama, reviled by Beijing as a separatist for seeking self-rule for Tibet. The meeting may happen as early as this month.

Beijing was already upset with Washington over a $6.4 billion U.S. weapons package for Taiwan, the self-ruled island that Beijing deems a breakaway province.

China has postponed a second round of free trade talks with Taiwan until after this month’s Lunar New Year holiday, though the Taiwanese side is downplaying any political reason for the delay.

The latest flare-up in Sino-U.S. ties also comes amid disagreements over Internet freedoms in China, after search engine Google Inc threatened to pull out over censorship and hacking attacks.

Beijing has become increasingly assertive about opposing the Dalai Lama’s meetings with foreign leaders and the issue is a volatile theme among patriotic Chinese, who see Western criticism of Chinese policy in Tibet as meddling.

The Dalai Lama fled Tibet in 1959 after a failed uprising against Chinese Communist Party forces who entered the region from 1950. He says he wants true autonomy for Tibet under Chinese sovereignty but Beijing says he seeks outright independence.

Previous U.S. presidents, including Obama’s predecessor George W. Bush, have met the Dalai Lama, drawing angry words from Beijing but no substantive reprisals.

The mother of all contrarian signals – S-chips make up 15% of Singapore trading volume

If this doesn’t send you running to Bukit Timah Hills, then nothing will. Despite the fact that S-chips make up 5% of the main board’s market cap, they now make up 15.4% of total trading volume in Jan. These guys are punching 3 times above their weight class, and I have a sneaky suspicion that algo trading (snipers anyone?) has contributed to the massive push in S-chips. Not meant as investment advice, but for those who are thinking of riding on this tiger, remember that, yes, you’re riding a tiger. And I don’t mean the one from the Hundred Acre Wood.

From BT “Stockmarket turnover gets off to a roaring start”

$38.2b Jan turnover is highest since last Sept; Chinese stocks made up 15.4%

Investors seem to have shrugged off the fear and uncertainty that plagued 2009, surging back into the stock market with a vengeance last month as the turnover of securities made a roaring comeback.

Total turnover in January for the mainboard, Catalist and Clob International hit $38.2 billion – the highest since last September and almost double the $19.8 billion in January 2009. In volume terms, total trading hit 45.2 billion shares last month.

Mainboard-listed stocks traded in Sing dollars accounted for the bulk of turnover at $36.6 billion, versus $19.2 billion in January last year.

Monthly figures can now be compared in a consolidated format on the Singapore Exchange (SGX) website, going back to July 2009. For the months before that, investors still have to consult the separate monthly listings on the website.

A year ago, the investment climate was very different. ‘The world was so gloomy then and people thought they were going to lose their jobs. Now the mood is generally positive,’ said CIMB analyst Kenneth Ng.

Whether last month’s trading volume can be sustained is another matter altogether. ‘January is usually a seasonal high,’ Mr Ng noted.

Other market watchers are also keeping an eye on liquidity.

‘The current concern is over the reduction in fiscal stimulus and credit tightening by central banks. These could potentially take out liquidity from the market,’ said Kevin Scully, executive chairman of NRA Capital.

‘If that happens, institutional liquidity could be lower than last year and the more expensive blue chips could underperform smaller stocks, which could still return some value.’

For all the hue and cry over S-chips and their scandals last year, the January month-end market capitalisation of China listings on SGX accounted for just $32.4 billion of the market’s total capitalisation of $650 billion – just under 5 per cent.

The turnover story for Chinese stocks, however, told a far more interesting story; they made up 15.4 per cent of total turnover value in January.

Combined with other foreign listings, non-domestic stocks made a formidable combination.

With Chinese stock turnover at $5.9 billion and other foreign stocks at almost $11 billion, together they made up slightly more than 44 per cent of turnover in January.

Data going back to last July shows Chinese and other foreign listings previously hovered below 40 per cent of monthly turnover prior to last month.

The newly consolidated figures also pool turnover from the futures and options markets, as part of the exchange’s strategy to move towards greater transparency.

This follows SGX’s move to add four new information announcement categories and revise two existing ones for issuers.

Race to the bottom: EUR is now the new USD.

Seems like it was only yesterday that everyone was evaluating the possible utilisation of US dollar bills to wipe fecal matter off their collective butts. But as with everything in life, all is relative. While the US Dollar may be Cottonelle (R), the Euro is now considered a nameless house brand that you pick up from the bottom levels of the shelves – thanks to Greece, and soon, perhaps, Spain.

From Bloomberg, “Euro Proving No Reserve Asset as Central Banks Shift”

Investors are pulling cash out of Europe at a record pace as central banks slow euro purchases, jeopardizing its status as a substitute to the dollar as the world’s reserve currency.

Last year, policy makers loaded up on euros, while analysts at Barclays Plc in London and Aletti Gestielle SGR SpA in Milan predicted central bankers would make good on threats to reduce the greenback’s dominance. Now the euro is down 8.4 percent since Nov. 25 in its fastest slide in 10 months amid concern that cash-strapped countries like Greece won’t pay their debts. Billionaire investor George Soros said Jan. 28 that there’s “no attractive alternative” to the dollar.

Traders have spurned European stocks in favor of shares elsewhere for a record 19 straight weeks, “clearly hurting” the currency by draining a net $13 billion from the market, said Geoffrey Yu, a UBS AG analyst. Investors are as bearish on the euro as they were when the 2008 financial crisis was pushing them to the dollar’s perceived safety, futures data show. After buying more euros than ever in 2009’s second quarter, central banks pared back, International Monetary Fund data show.

“The euro can fall further,” said Neil Mackinnon, a former U.K. Treasury official who is a London-based economist at VTB Capital Plc, the investment-banking unit of Russia’s second- biggest lender. “Sovereign-debt risk will continue to be a key theme,” he said. “The stresses created by the fiscal situation in Greece won’t go away quickly.”

Worst Since Inception

Without specifying a timeframe, Mackinnon predicted the euro will weaken to $1.20. If it finishes 2010 at that level, the year’s 16.2 percent loss would be the worst since the currency’s 1999 inception. The currency fell to an almost seven- month low of $1.3853 today, before trading at $1.3905 as of 9:21 a.m. in London.

In addition to concerns that the European Union will have to bail out Greece, speculation that growth will lag behind the U.S. and Japan and that the region’s debt load won’t return to pre-crisis levels for at least five years also are weighing down the euro, as well as assets denominated in the currency.

The Dow Jones Euro Stoxx 50 Index is among the world’s worst-performing primary equity gauges this year, dropping 9.4 percent in dollar terms, 2 1/2 times the Standard & Poor’s 500 Index’s loss.

The euro region’s economy will expand 1.2 percent this year, compared with 2.7 percent in the U.S. and 1.35 percent in Japan, median analyst estimates compiled by Bloomberg show.

Default Swaps

The cost of protecting $10 million in debt from 15 European governments for five years hit a record $91,060 a year last week, about double both September’s cost and the current price for insuring U.S. debt, data compiled by Bloomberg show. Prices for Portugal, Iceland, France, Greece and Germany swaps have risen the fastest in the world this year and are up about 55 percent on average, the data show. Greek debt insurance is now the developed world’s most expensive at almost $400,000.

“Greece is the catalyst, but it goes to the root of the entire structure of the euro,” said Adnan Akant, who helps oversee $39 billion as head of foreign exchange in New York at Fischer Francis Trees & Watts. “The U.S. and Asia are likely to outpace Europe in the economic recovery. That’s reason enough” to bet against the euro, he said.

At last week’s annual World Economic Forum in Davos, Switzerland, New York University Professor Nouriel Roubini said Europe’s fiscal woes are creating “a rising risk” that its single-currency alliance will splinter.

Pessimistic Roubini

“Down the line, not this year or two years from now, we could have a breakup of the monetary union,” Roubini, who predicted the financial crisis a year before it began, said in a Bloomberg Radio interview on Jan. 26. Speaking to Bloomberg Television at the same event, Soros said the euro’s “problems” make it an unviable substitute reserve currency.

The euro has fallen against each of the 15 most-traded currencies except Brazil’s real this year, dropping 5.6 percent versus the yen and 1.3 percent against the pound. The Euro Index, which tracks the currency versus the dollar, pound, yen, Swiss franc and Swedish krona, has fallen 3 percent in three weeks, its worst run in a year.

While the median Bloomberg survey forecast sees the euro appreciating to $1.42 by Dec. 31, that estimate has dropped five cents in seven weeks. Last year’s most accurate euro forecaster, UniCredit SpA in Milan, sees it losing 0.5 percent. Investors and analysts in Western Europe’s largest nations see the euro’s tumble continuing, a poll of Bloomberg users found last month.

Trichet’s Fuel

European Central Bank President Jean-Claude Trichet’s resistance to printing euros to revive growth fueled a nine- month, 21 percent rally versus the dollar that ended Nov. 25.

The Federal Reserve cut its interest benchmark to as low as zero and created new money to fund purchases of $300 billion in Treasuries and $1.25 trillion in mortgage-backed securities. The ECB didn’t start cutting its target rate until October 2008, more than a year after the Fed, stopped at 1 percent and committed 60 billion euros to buy covered bonds to boost an economy that’s almost as big as the U.S.’s.

“This is a historic moment — the start of debasement of the world’s reserve currency,” said Alan Ruskin, a Royal Bank of Scotland Group Plc currency strategist in Stamford, Connecticut, in March, four weeks after the dollar began plunging. Ruskin couldn’t be reached by phone or e-mail last week.

Diversification

Central banks that disclose currency breakdowns bought a record $60 billion worth of euros in 2009’s second quarter, more than half of their new foreign reserves in that period, according to IMF figures adjusted for exchange-rate changes using a methodology developed by Barclays Capital.

The purchases prompted speculation that U.S. attempts to spend itself out of the worst global recession in six decades would prompt policy makers worldwide to continue diversifying away from the greenback.

Instead, they reversed course, putting 15 percent of new reserves, or $17.8 billion, into euros in the next three months, the smallest share for any quarter in which policy makers’ reserves grew since early 2008, the adjusted IMF data show.

Central banks put 45 percent, or $52 billion, into dollars in the third quarter, up from 36 percent, according to the data. They had a record $7.5 billion in reserves as of Sept. 30 and disclosed currency breakdowns for 59 percent, IMF figures show.

Cash Flows

Investors are following central bankers’ lead. Those outside the euro zone sold a net 3.9 billion euros of the region’s equities, bonds and money-market securities in November, the first monthly outflow since July, ECB data show. Europe-based investors bought a net 11 billion euros of such securities from outside the region, the second monthly increase.

Money has flowed into U.S. stocks for 15 straight weeks, according to Yu, the London-based analyst for UBS, the world’s second-largest currency trader.

Debt in the region’s economies will swell to 84 percent of gross domestic product this year, from 66 percent in 2007, the year credit markets began to seize up, according to the European Commission. The U.S.’s debt will be 60 percent of GDP this year, according to the Congressional Budget Office.

Eight of 11 euro-area finance officials surveyed by Bloomberg in December said it will take at least until 2015 to bring debt sales down to where they were before Lehman Brothers Holdings Inc.’s collapse in September 2008 sparked the global financial crisis. Four predicted as much as a decade.

‘Anti-Dollar’

“Central banks are looking at ways of buying something other than euros,” Akant said. “The euro has been overvalued. Its best days were always as an anti-dollar trade, and now it’s losing that status.”

Werner Eppacher, who oversees $15 billion a year in trades as head of foreign-exchange at DWS Investment GmbH in Frankfurt, said investors outside Europe are “overreacting” to the euro’s drop.

“The euro is cheap at current levels,” Eppacher said. “We will use this emotional market environment to build up euro long positions. Sooner or later the negative news will be priced in, and then you have the best opportunities to buy the euro against currencies like dollar and yen and sterling.”

The current slide will help European exporters, Eppacher said. Companies listed in Europe’s Dow Jones Stoxx 600 Index get 35 percent of their sales from outside the continent, according to Bank of America Merrill Lynch.

‘After the Storm’

Fabrizio Fiorini, Aletti Gestielle’s head of fixed income, said he stands by his prediction of a “gradual decline” of the dollar. “I don’t expect these problems in Europe will be important for a long time,” said Fiorini, whose company oversees $10.5 billion. “After the storm, we can regain the dollar weakness trend.”

The euro’s losses began in November, the month after Greek stocks and bonds started tumbling as Prime Minister George Papandreou’s socialist government came to power. When the country’s 2009 budget deficit approached 13 percent of gross domestic product, Standard & Poor’s, Moody’s Investors Service and Fitch Ratings downgraded its credit in December.

The yield premium investors demand to hold Greek 10-year government bonds over German bunds widened to almost 4 percentage points last week, the most since the year before the euro’s 1999 introduction.

Investors are concerned a default by Greece would create a “vicious circle” of contagion in Europe, said Jim Reid of Deutsche Bank AG. Greece’s outstanding debt totals 254 billion euros, compared with Russia’s 51 billion euros before it defaulted in 1998 and Argentina’s 57.2 billion euros when it missed payments in 2001.

No Such Thing

“Greece will not default; in the euro area, default does not exist,” European Monetary Affairs Commissioner Joaquin Almunia told Bloomberg Television on Jan. 29 at the Davos forum. The day before, Trichet said he’s “confident” that Greece will take the right steps to reduce its deficit.

All euro economies this year will breach the EU’s budget- deficit ceiling of 3 percent of gross domestic product, the commission predicts.

If continental authorities don’t “step up their efforts to restore confidence” soon, investors “could start questioning the long-term strength of the euro,” said Michiel de Bruin, who helps manage about $28 billion as head of European government bonds in Amsterdam for F&C Asset Management.

Hedge funds and other large futures speculators had almost 73,000 bets that the euro will fall last week, more than twice the number of wagers that pay off on a rise, data from the U.S. Commodities Futures Trading Commission in Washington show. That’s the most bearish sentiment since October 2008, when the currency weakened 9.7 percent the month after Lehman’s collapse.

Delayed Rate Increases

Futures show investors expect lagging euro-region growth will delay the ECB from increasing interest rates, making the currency less attractive relative to cash from economies with higher borrowing costs. The yield on the three-month Euribor futures contract for December fell to an unprecedented 1.425 percent on Jan. 26.

European policy makers will keep their benchmark rate near its current record low 1 percent until the fourth quarter, while the Fed will abandon its near-zero rate in the third, median forecasts show.

“The first part of this year, three or four months, will see the euro decline because of the anticipation of the Fed moving sooner,” said Thanos Papasavvas, who helps manage more than $5 billion in currencies at Investec Asset Management Ltd. in London.

Unemployment Surprises

Following a Dec. 4 Labor Department report that the U.S. lost more than 100,000 fewer jobs in November than economists forecast, “we took off quite a bit of our euro-overweight position,” Papasavvas said. The dollar surged 1.3 percent against the euro, the most in about six months, after the jobs report.

Last month, the U.S. reported that unemployment was unchanged in December at 10 percent, and the EU said the euro- region’s rate increased to 10 percent that month. The U.S. rate for January, due for release Feb. 5, also won’t change, the median forecast shows.

Stuart Thomson, who helps oversee $100 billion at Ignis Asset Management in Glasgow, Scotland, started selling euros last month after being bullish on the currency last year. He sees it falling to about $1.25 in the next 12 months. “This is one of those years for the dollar to smile,” he said.

China: The continuing case of too much GDP, not enough tenants

Recent posts have already highlighted how the Chinese government and “guan-xi”ed property developers in China have adopted a Sidewinder “Fire-and-Forget” approach to boosting GDP numbers, never mind the fact that income (from tenancy) is still missing. So it was no surprise to see SCMP weigh in on the topic (contributed by our very own Toh Han Shih, no less – it’s good to see him up and running again).

Excerpts from SCMP “Ghost towns grow with urban development”:

China’s economic stimulus programme has accelerated the already aggressive pace of urban development in the country. But while investment in construction is creating much-needed infrastructure in some cities, it is also adding to the number of ghost towns with nearly empty facilities in other parts of the mainland.

The nation already has its share of empty edifices. Overlooking Beijing’s “Water Cube” swimming centre and “Bird’s Nest” stadium stands Pangu Plaza, a huge but little-used five-tower complex spanning the length of seven football fields. The project includes an office block, serviced-apartment buildings, a shopping centre and the Pangu 7 Star Hotel.

Although Pangu Plaza was completed two years ago, the shopping centre is mostly empty, with virtually no tenants and many outlets boarded up, Patrick Chovanec, a professor at the School of Economics and Management at Tsinghua University, said. “There are no lights in the offices. At night, people don’t seem to be home.”

A public relations executive at the Pangu hotel said the shopping centre and office building are still seeking tenants, adding: “Our hotel’s occupancy rate is alright, but this is the low season, so the occupancy is low at the moment.”…

Chovanec describes his visit to a development zone in Yingkou, a port city in Liaoning province, where an industrial zone and a residential zone with a marina are planned.

“The scale of this thing will take your breath away. It is comparable in scale to Pudong (Shanghai’s business district),” he said.

Yingkou’s development zone is under development and hence is mostly empty space.

A government building and a steel mill are possibly the only two buildings in the zone, Chovanec said. “The administrative building is this monstrous monolith. It’s almost empty except for a presentation.”

The steel mill was completed one year ago, added Chovanec. “It’s sitting there empty and they haven’t fired up the furnace. There is so much overcapacity in steel, they can’t sell what they make.”

Over in Guangdong, many residential units sit empty, said Neeraj Sawhney, a Hong Kong textile trader who often travels to the province.

“I have seen houses and shops built in second and third-tier cities in Guangdong in 2005 that are still empty,” he said. “Supply is much more than demand in these cities. Funding was easily available for developers, who went ahead and constructed, disregarding demand.”…

“If you spend money, you’ll make 8 per cent GDP growth,” Chovanec said. “Whether it’s productive is another question. The central government said to the provinces, give us your wish list. The local governments accelerated their projects.

“You got 10 to 20 years of infrastructure developments accelerated to a three-year time frame. Once you accelerate it like that, the vetting process gets thrown out the window.”

Although it is difficult to judge any single project as unviable, given that so many massive projects are being rolled out, the probability of waste increases, Chovanec said.

“All over the country, every province has at least one mega project. It’s one thing to build one mega project over a 10-year plan. It’s another thing to build this 10-year project in two years and do many of them all over the country. How much capacity expansion can the economy digest at one time?”

In Yingchuan, the capital of Ningxia province, 70 per cent of GDP growth last year was related to fixed-asset investment, according to the city’s officials.

You may also want to read “Chinese government pulls brake on lending, equity train leaves the rails”, to get a sense of how things are done in China. Say it and it will be done, never mind the “tearing up of LOCs” chaos to import-export businesses, while the container ships are somewhere in the middle of the Pacific.

Bailout for beginners: the AIG bailout in an easy-to-understand chart

Thanks to recent FOIA revelations, we now know that Goldman Sachs the vampire squid wasn’t the biggest beneficiary from the taxpayer funded bailout – it was SocGen, who received USD2.5B more. Old Europe shows that when it comes to sucking from the teat of Mammon, the Americans still have a thing or two to learn (ht Biz Insider):

CLSA: IRs “transformational” for Singapore, says RWS for punting heartlanders, MBS for uncaring elistist faces

CLSA just issued a buy-buy-buy report on the IRs, putting Genting at $1.50, based on a conducted tour (followed by dinner and burlesque show, no doubt) of the IR facilities. Comments from the analyst are given below:

Last Friday, we toured both IRs and met with management of Marina Bay Sands and Genting Singapore. The IR’s will be completely transformational for Singapore. We believe the Marina Bay Sands is likely
to become one of “the iconic developments” in all of Asia – given its location, size and architectural brilliance. RWS is fully complementary – targeting family visitors with a spectacular Universal Studios and huge casino space. BUY Genting Singapore with a S$1.50 price target.

One wonders how the 5% restriction of casino space is calculated. According to the same report, RWS and MBS casinos now hold the world record for the largest number of  tables amongst casinos anywhere in the frigging world, and that’s compared against locales which don’t have any sort of casino restrictions. The Singapore vocal minority (and the govt?) is going to learn that it’s never a good idea to bet against the house.

CLSA also goes on to explain the main differences between MBS and RWS.

Marina Bay Sands is Iconic

All investors were in agreement: MBS is ultra-impressive. We believe this is the best designed, mixed-use complex in Asia, even better than the Mid-Town project in Tokyo or Wynn Macau. MBS is a major step up from the Venetian, Macau. The location is unbeatable – nestling on the CBD’s water-front edge with easy access for the 5m relatively wealthy Singaporeans and SE Asian tourists. The imposing, fully contained space has a sufficiently diverse product offering.  The Retail promenade may become one of Asia’s best shopping destinations. A floating Louis Vuitton store on Marina Bay is one highlight. The only downside is timing. We believe April is very optimistic.
Resorts World Sentosa: Fun and friendly

From a design perspective, RWS is not comparable to MBS, in our view.  However, the two key aspects – Universal Studios and the casino – have been well executed and will be major drawcards. RWS will appeal much more to families and those seeking a fun experience. There is no pretence. Tourists from SE Asia will feel more comfortable here. We still expect a pre-Chinese New Year opening of the casino.

One final comment: I’ve also gone for a visit to RWS, though not as one of the privileged analysts with private tour, but as one of the “bought a ticket at the automated ticket machine at Vivocity” persons. Of course, I had to make my way down to the Casino (I brought along joss-sticks and hell money for the occasion), and was struck the fact that, out of a total of 23 gantries, 16 of them were for “Singapore/PR”, while only 7 were for “Overseas visitors”. So much for “we’re looking for foreign money” strategy. HDB aunties, you are SO welcome here.

SCMP gets on S-chip bash-wagon, says Singapore small investors suckered by glossy prospectus

From SCMP today “Mainland defaulters sting small investors”. For readers who want more details of the sad and sordid screwjobs conducted by Chinese triads businessmen on Singaporean savings, you may refer to this.

China may boast dazzling economic growth but that has failed to translate into profits for some bond holders and thousands of small investors in Singapore who have seen their investments in a group of mainland companies listed in the city state turn to dust.

Since late 2007, a spate of so-called S-chips – mainland companies listed on the Singapore exchange – have borrowed money then failed to repay the debts, with some becoming mired in fraud scandals.

Of the 11 S-chips that issued convertible bonds between 2005 and 2008, six have declared themselves unable to repay. Two of those six – steel group Delong Holdings and property developer Sunshine Holdings – have successfully restructured their finances while the rest remain locked in talks with creditors.

Convertible bonds are debt instruments that investors can convert into shares at a later date.

Another five S-chips failed to repay bank loans during 2008-9. The effects on their share prices have been, predictably, crushing.

“We are calling on the Beijing government to discipline these companies any way it can,” said David Gerald, the chairman of the Securities Investors Association of Singapore, which represents 4,000 small shareholders.

“But there is nothing else we can do. Singapore does not have the authority to police Chinese companies,” he said.

In June 2008, blue-chip investment bank Morgan Stanley sold US$109 million worth of convertible bonds issued by waste recovery group Sino Environment Technologies, based in Fujian , to a group of lenders including US investment firm Stark Investments.

Sino-Environment’s share price has since crashed from S$1.30 (HK$7.18) on the day it sold the convertible bonds to S$0.135 when the stock was suspended from trading in September.

During that period, Sino not only defaulted on its bonds – the Singapore-listed firm is also being investigated by the city state’s Monetary Authority, a person involved in the case confirmed, after its auditors Pricewaterhouse Coopers said they could not verify the whereabouts of US$85 million of Sino-Environment’s cash.

The Monetary Authority declined to comment.

China Printing & Dyeing, a textiles company, is one of the group of S-chips that could not repay bank loans.

It has fallen under what the Singaporeans call “judicial management”, the city state’s version of bankruptcy protection.

China Printing & Dyeing’s shares were suspended from trading in October 2008 when its chief executive Tao Shoulong and deputy chief executive Yan Qi, a husband and wife team, disappeared. The duo fled after a subsidiary announced it was unable to honour 2 billion yuan (HK$2.27 billion) worth of debts. The pair were subsequently arrested in Guangdong, according to numerous reports in Singapore. The company was delisted from the Singapore exchange last week, leaving its shareholders with nothing.

Then there was Yangtze River Delta aluminium company Ferro-China, which buckled under the weight of almost US$1 billion of debts in 2008 before entering mainland bankruptcy proceedings.

The most recent S-chip bond default came from China Milk Products Group, based in Heilongjiang, that produces bull semen and cow embryos for cattle breeders,

The vast majority of the investors who bought US$150 million worth of convertible bonds China Milk sold through Deutsche Bank in December 2006 have exercised an option to get their money back, a person close to the agricultural company confirmed.

China Milk’s net profit tumbled 73 per cent in the three months to last June compared to a year previously. The business was hit by last year’s tainted milk scandal on the mainland, which cut demand among dairy farmers for new livestock.

Epilogue: Stuyvesant town returned to creditors

The jackals devour the still warm carcass that once was Stuyvesant town.

From NYT “Huge Housing Complex in N.Y. Returned to Creditors”

The owners of Stuyvesant Town and Peter Cooper Village, the iconic middle-class housing complexes overlooking the East River in Manhattan, have decided to turn over the properties to creditors, officials said Monday morning.

The decision by Tishman Speyer Properties and BlackRock Realty comes four years after the $5.4 billion purchase of the complexes’ 110 buildings and 11,227 apartments in what was the most expensive real estate deal of its kind in American history.

The surrender of the properties, first reported by the Wall Street Journal, ends a tortured real estate saga that saw the partnership make expensive improvements to the complex and then try to rent the apartments at higher market rates in a real estate boom. But a real estate downturn and the city’s strong rent protections hindered those efforts, leaving the buyers scrambling to make payments on loans due for the properties, which have been a comfortable harbor for the city’s middle class since they opened in the late 1940s.

“We have spent the last few weeks negotiating in good faith to restructure the debt and ownership of Stuyvesant Town/Peter Cooper Village,” said the statement by the partnership. “Over the last few days, however, it has become clear to us through this process that the only viable alternative to bankruptcy would be to transfer control and operation of the property, in an orderly manner, to the lenders and their representatives.”

Metropolitan Life built the complexes for World War II veterans in the 1940s, when the city was in desperate need of new housing. It received tax breaks and other incentives in return for maintaining low rents. The buildings became home for generations of workers searching for an affordable spot in Manhattan.

But with the real estate market soaring in 2005, MetLife decided to sell. Tishman Speyer and BlackRock won an auction the following year.

This month, the partnership headed by Tishman Speyer defaulted on $3 billion in debt on the properties, and in the last few days secondary lenders have been calling to replace the partnership.

Under one scenario, Tishman would have been offered a long-term contract to operate the complex, but it rejected that plan. Lenders will now be looking for new managers for Stuyvesant Town, and its smaller adjacent property, Peter Cooper Village, where the rents are typically higher and the apartments more spacious.

The surrender of the property is a huge blow to Tishman Speyer, which controls Rockefeller Center and the Chrysler Building. When it spearheaded the Stuyvesant Town purchase, it projected itself as the best stewards of such an iconic property.

But instead Tishman Speyer and its partner BlackRock found themselves facing a mountain of debt. It had been negotiating since November to restructure $3 billion worth of loans and to hold on to the properties, which cover 80 acres east of First Avenue, from 14th Street to 23rd Street. But their reserves, once stuffed with $890 million for capital improvements, interest payments and renovations, were left virtually depleted.

The rents collected did not cover the mortgage payments, as the new owners failed in their efforts to increase net income by steadily renovating and deregulating vacant apartments while raising rents substantially.

For tenant advocates and urban planners, the sale underscored the loss of affordable housing in the city and the highly speculative financial structures that, they warned, would only end in disaster.

Contrarian alert 3: S-chips valuation gap with red chips “seen narrowing”

My final contrarian alert for the week. If this doesn’t send you running for the hills, then nothing will. The S-crap that have milked Singapore investors for all their worth is now seen by DB as “narrowing the gap” with red chips in HKSE. And how the DB analyst arrived at his “expectation” that some of the Chinese junk floating around in SGX will atually be taken private because of their “low valuations” is beyond my meager ability to fathom.

Let me try to field this one…

HELLO! The reason why some of the S-crap are “poorly valued” is because they are worth exactly that: C.R.A.P. I pity the fool who decides that it’s worthwhile sinking his money into a privatisation effort for what will probably make Ernst and Young / assorted bankruptcy lawyers / assorted divorce lawyers much much richer further down the road.

From BT “S-chip valuation gap with red chips seen narrowing”

THE valuation gap between S-chips and Chinese stocks listed in Hong Kong is expected to narrow this year amid expectations of higher corporate earnings, said Deutsche Bank in a report this week.

Despite this, it sieved out a handful of S-chips that are potential dual listing candidates this year, saying that more such Chinese companies listed in Singapore could be looking for a secondary listing in Hong Kong or seek privatisation because of low valuations.

‘At their peak, S-chips traded at a 10 per cent discount to Hong Kong-listed Chinese shares, or red chips, and 70 per cent at the trough,’ said analyst James Tan in the report.

‘The current 30 per cent valuation gap between S-chips and red chips should narrow, as a recovery in the economy should help lift earnings to warrant a higher re-rating to the red chips.’ With more dual listings, the valuation gap may also narrow as investors take advantage of arbitraging, he added.

Deutsche Bank screened S-chips based on the main board listing criteria in Hong Kong. These included a market capitalisation of more than HK$4 billion and public float of at least 25 per cent of total share capital. Such firms must have make sales of at least HK$500 million, profits of HK$20 million for the latest fiscal year with cumulative profits of HK$30 million for the first two years, and have a cumulative positive operating cash flow of at least HK$100 million for the past three fiscal years.

The potential S-chip dual-listing candidates picked by Mr Tan are China Hong- xing Sports, Cosco Corporation, Midas Holdings, People’s Food and Yangzijiang Shipbuilding. He also picked Raffles Education, a Singapore homegrown education group with significant China operations, as a potential candidate.

Mr Tan said that on a price-to-earnings basis, China Hongxing – a second-tier sports shoe player – trades at a 45 per cent discount to Chinese sports shoe peers in Hong Kong. Even after stripping out the comparison to first-tier shoe companies, China Hongxing is still trading at a 23 per cent discount to other second-tier sports shoe companies.

He added that China Hongxing, together with China Sports, China Zaino and Synear Food, are also privatisation picks.

Contrarian alert 2: Coface says crisis over, Singapore economy “as safe as Japan and Europe”

Whoa! Contrarian alert 2 just hit me right smack in the face! Coface, a country risk and economics rating agency which has recently upped its marketing presence in Singapore, has just issued an upgrade for said host country. According to the article in BT “Coface upgrades Singapore’s ratings”, Singapore’s economy is now ranked as safe as Japan and most of Europe (:-o). Ok, Coface quickly qualifies itself by saying that the rankings are more about the likelihood of private sector default than sovereign default, but trust me, when sovereign default comes to Japan and Euroland, what does Coface thinks is going to happen to local business. And in case Coface is still uncertain, please wiki/google “Japan Airlines Bankruptcy”.

From BT “Coface upgrades Singapore’s ratings”

Singapore’s risk rating has been upgraded by global export credit insurer Coface, which says that the two-year global credit crisis is now over.

The strong pick up in exports, gains in manufacturing, larger investment flows and a gradual return of private consumption, have all contributed to a better economic and commercial outlook for Singapore, Coface South Asia Pacific regional managing director Jean Claude Speitel told BT yesterday.

With an upgrade from A2 to A2-plus, Singapore is now Coface’s top-rated Asian country alongside Japan, and most of Europe. Coface upgraded 20 country ratings, easing the outlooks for most developed economies except Britain, Italy and Europe’s ‘Pigs’ – Portugal, Ireland, Greece and Spain – which were given A3 ratings, some still under a negative watch. Sweden was the only country to attain the highest rating of A1.

Coface, the world’s third-largest trade credit insurer and a unit of French bank Natixis, says that its country ratings reflect the average risk of companies in each country defaulting on payments and not sovereign debt.

As a trade-credit insurer, which covers the payment of trade receivables for vendors when a buyer is unable to pay, Coface itself was hard hit in the crisis that sent corporate insolvencies to record highs.

But payment defaults, which were still 19 per cent up in the first half of last year, declined 40 per cent in the second half of 2009.

While this global fall in payment defaults spells the end of the credit crisis, Coface chairman Francois David warned of threatening bubbles. ‘Indeed, bubbles, the source of all of the observed crises, reform at an incredible speed,’ he said.

There is the bubble forming in public debt. Coface says the need for sudden budget restrictions may cause companies more detriment and is of greater concern than sovereign defaults.

A second danger would be the asset price bubble forming in over-optimistic equity markets, where the sharp hikes in prices so far may be out of sync with recovery in the real economy.

Over-heating in China is third concern, as any sudden restriction of credit supply in sectors with overcapacity could destabilise companies. ‘Certain sectors such as clean and green energy technology could see excess optimism translate into overinvestment and bubbles,’ Mr Speitel said.

But he also thinks that China’s continued growth and the dynamism of emerging economies in the region will benefit Singapore, which is still highly dependent on exports and increasingly, Asian exports.

Expecting emerging economies to lead the way with 5.3 per cent growth this year, and industrialised ones to post 1.4 per cent growth, Coface foresees a soft 2010 recovery with world growth of 2.7 per cent.

Contrarian indicator alert: CIMB-GK wants to hire 25% more dealers in Singapore

Contrarian indicator alert: CIMB-GK’s most recent announcement that they’re reducing unemployment by 100 in Singapore, in anticipation of a tsunami of retail punting means that – in this blogger’s opinion – it’s time to upgrade the STI bear meter to Defcon 2.

From BT “CIMB-GK goes on hiring spree for 100 dealers”

CIMB-GK Securities will be hiring aggressively this year, beefing up its number of dealers by 100 to 500 as it seeks to become one of the top players in the local retail broking sector, its chief executive officer told The Business Times.

The unit of one of Malaysia’s largest financial services provider CIMB Group hopes that the hiring spree in retail broking will help it snare a 10 per cent market share in the local broking industry by the end of this year. CEO Carol Fong declined to reveal its current market share.

The dominant players in the market currently include UOB Kay Hian, Kim Eng Securities, DBS Vickers Securities and Phillip Securities.

Last year, CIMB-GK added about 100 dealers to bring its sales team to 400, which helped its market share for retail broking grow by 30 per cent from 2008. The group entered the Singapore market only in 2005, after taking over GK Goh Securities that year.

It is currently looking to expand its sales force to 600 over two years – meaning that it is likely to take on 100 more dealers in 2011.

Said Ms Fong: ‘This (retail broking) is the area we are hiring most aggressively. The retail participation in the market has gone up quite substantially in 2009 in terms of market share so I think we need to position ourselves to capture this increase in participation.’

She added that the 34 fresh graduates CIMB-GK hired last year as dealers under the Financial Graduate Immersion Programme (FGIP) – initiated by the Monetary Authority of Singapore to encourage financial institutions to hire – are also likely to remain with the firm.

‘It is our every intention to keep the 34 that we hired under the FGIP. We intend to keep them as long as they perform,’ said Ms Fong.

Apart from trying to increase its weight in the local brokerage sector, CIMB-GK is also seeking to strengthen its presence in regional markets like Indonesia, Thailand and Malaysia. It is seeking to hire 100 more dealers each in Indonesia and Malaysia, and 50 more in Thailand this year.

In short, ‘we are very big on retail expansion’, said Ms Fong.

CIMB-GK is holding its first recruitment drive for the year today, where it is looking to fill up 80 vacancies in four areas: corporate broking, private client services, retail sales, remisiers and proprietary traders. CIMB-GK said that there has been ‘overwhelming response’ from job-seekers, with about 320 applicants signing up to attend the recruitment drive.

China pulls emergency brake on lending, equity train leaves the rails

Breaking (or should I say “braking”) news from China: “BOC says new yuan lending must stop” (from WSJ).

Bank Of China has ordered its credit officials to halt any new yuan loans due to overly fast lending growth so far in January, a person familiar with the situation told Dow Jones Newswires on Wednesday.

The headquarters of the state-controlled lender has issued a notice to all of its branches to stop issuing new yuan loans and also curb foreign-currency denominated new loans, said the person, who asked not to be named.

The person said the bank didn’t say in the notice when new yuan loans will resume.

Any new loans, if they were to be extended, would have to be approved by the bank’s headquarters, he said.

As expected, this centrally-administered backseat driving order causes the Chinese equity train to leave the rails. As of this posting, the SSEC is down almost 3%, while HSI is down 2%. I’ve got to dig me up some of those bullish equity calls for 1H2010 from them advertising flyers I received. You know who you are….

MA win for GOP – the silent majority tells Obama: Screw you

A nobody by the name of Scott Brown (who was offered up by the GOP as a sacrificial lamb to the altar of Kennedy), actually WINS in a deep blue state. And this is a state in which the Dems outnumber the Republicans by 3 to 1.

If this isn’t a sign that Obama will end up being the most hated man in America by the time his term ends, then I don’t know what is.

And here’s a clip from John Stewart of the Daily Show, providing a succinct summary called “Mass Backwards” of how, in terms of political strategy, “… the Dems are in the nurse’s office because they’ve glued their balls to their thighs.” Highly watchable, and extremely accurate.

The Daily Show With Jon Stewart	Mon – Thurs 11p / 10c
Mass Backwards
www.thedailyshow.com
Daily Show Full Episodes Political Humor Health Care Crisis

GIC: “We’re gonna bet big on China. Hope it works out.”

Our leaders have a new theme for 2010: it’s called “Buy China”. In a stirring presentation in Taiwan reminiscent of Martin Luther King (not), GIC Dy Chair Tony Tan laid out his forecast (hope?) for the dawn of a golden age in Asia, in order to justify a double-down of Singapore reserves on the casino known as the Chinese economy. Coupled with the PM’s recent prep balloon on “GNP instead of GDP” as a more appropriate measure of Singaporean progress, be prepared for announcements of pending large scale investments from GIC, Temasek and a whole slew of Singapore GLCs into the Middle Kingdom. Think of this as “throwing inputs at China, and hoping something leaks out into Singapore GNP”.

From ST “Golden Age for Asia”

THE next 10 years might well be a ‘golden age’ for Asia, and the region could even become a new source of prosperity and stability for the world, Dr Tony Tan, deputy chairman of the Government of Singapore Investment Corporation (GIC), predicted on Monday.

That is because Asian countries – together with other emerging markets such as Brazil and Russia – will power global growth in the coming years, and the world’s investors will want to invest more in them.

But success will depend on the skill of Asian policymakers in dealing with the economic risks ahead, he warned.

Dr Tan was crystal ball-gazing at an economic forum organised by Taiwan’s prominent CommonWealth magazine in Taipei. In a keynote speech to 550 businessmen, he outlined how the world was likely to change after the global financial crisis.

The good news, he said, was that a global depression had been avoided. Global growth could hit 3 per cent to 4 per cent this year, up from a contraction of nearly 2 per cent last year.

But growth is likely to be uneven, with the strongest showing coming from the emerging economies, especially Asia. He emphasised that the United States and key parts of Europe would take much longer than people think to recover.

2010 is the year of the Sovereign Debt Crisis

The GFC is so 2007. For 2010, the fashionable new term is the SDC (aka Sovereign Debt Crisis aka Government Three-Card-Monty aka ‘Taxpayers will bend over…Again.’).

Roubini (Doc Doom himself) in Forbes, on “The Coming Sovereign Debt Crisis”

In 2009, downgrades and debt auction failures in countries like the UK, Greece, Ireland and Spain were a stark reminder that unless advanced economies begin to put their fiscal houses in order, investors and rating agencies will likely turn from friends to foes. The severe recession, combined with a financial crisis during 2008-09, worsened the fiscal positions of developed countries due to stimulus spending, lower tax revenues and support to the financial sector. The impact was greater in countries that had a history of structural fiscal problems, maintained loose fiscal policies and ignored fiscal reforms during the boom years. Going forward, a weak economic recovery and an aging population is likely to increase the debt burden of many advanced economies, including the U.S., Britain, Japan and several eurozone countries.

In 2008 and 2009, the decisions by these governments to do “whatever it takes” to backstop their financial systems and keep their economies afloat soothed investor concerns. But if countries remain biased toward continuing with loose fiscal and monetary policies to support growth, rather than focusing on fiscal consolidation, investors will become increasingly concerned about fiscal sustainability and gradually move out of debt markets they have long considered “safe havens.”

Most central banks will withdraw liquidity starting in 2010, but government financing needs will remain high thereafter. Monetization and increased debt issuances by governments in the developed world will raise inflation expectations. These governments will have to offer higher real yields or investors will move to more attractive emerging markets. Some countries will continue to witness increased credit default swaps. Higher yields and interest cost on debt will also hurt economic growth—by crowding out private consumption and investment, and reducing government’s productive spending. Several factors will likely influence investors’ perception about sovereign risk—a country’s debt financing ability, its status as a “safe haven” relative to other developed economies, politicians’ commitment to undertake fiscal reforms, exchange rate movements, and the debt maturity structure.

The UK, Spain, Greece and Ireland will face sovereign risk pressures, especially if their fiscal imbalances are not addressed immediately. Some eurozone members are quickly approaching their debt sustainability limits as deleveraging through devaluation is not an option for these countries. Countries like Germany—whose fiscal imbalances have deteriorated largely due to the economic and financial downturn—might have a greater capacity to stabilize their debt ratio. The U.S. and Japan might be among the last to face investor aversion—the dollar is the global reserve currency and the U.S. has the deepest and most liquid debt markets, while Japan is a net creditor and largely finances its debt domestically. But investors will turn increasingly cautious even about these countries if the necessary fiscal reforms are delayed. The U.S. is a net debtor with an aging population, weaker economic growth and risks of continued monetization of the fiscal deficit. Japan’s aging population and economic stagnation will reduce domestic savings.

Developed economies will therefore need to begin fiscal consolidation as soon as 2011-12 by generating primary surpluses, which can be accomplished through a combination of gradual tax hikes and spending cuts. However, an aging population, a sluggish economic recovery and higher unemployment will keep governments’ entitlement spending high and revenues subdued. These factors might also make tax hikes politically challenging. Fiscal consolidation efforts might not be strong until the bond vigilantes signal shifting to safer assets. To achieve credibility, governments will need to pass binding legislation enforcing tighter fiscal belts when their economies begin to recover on a sustained basis.

Advertising season begins in earnest: “Buy everything!”

Ah, the smell of newly minted flyers in the air. Nothing quite like it to start Monday morning off, downed with a generous helping of coffee and pepto. Never mind that:

- The STI has gone up by 100.6% (in cheque writing terms: One Hundred Point Six Percent) since its low in March
- Singapore is entirely dependent on the ability of the global economy to take half a step away from its sick bed without government crutches, and…
- The government is now planning to turn to GNP to justify civil service bonus calculations, since GDP is now apparently a “poor measure” of how Singapore functions as an economy

But like I said: never mind all that. Let’s see what the cheerleaders have to say about the equity investments looking forward:

From ST “Analysts bullish over earnings, Companies expected to deliver stellar results amid a V-shaped recovery”, i.e. a reprint of the Citi flyer.

STOCK market analysts expect a neat set of numbers from locally listed companies as they post their 2009 full-year results over the next few weeks.

Most are predicting healthy profits across the board – likely to lead to some upgrades of their forecasts for earnings of these firms further down the track.

One major reason for this is the improved corporate climate, as well as the cost-cutting measures that firms have undertaken during the recession.

‘We expect the earnings results to be spectacular. Given how sharp the recovery has been, this will translate into stronger earnings for companies. Some also took steps last year to contain costs. Thus, we expect surprises on the upside,’ said Dr Chua Hak Bin, Citigroup’s head of Singapore research.

And from BT “SGX trading volume surge seen as bullish”, i.e. a reprint of the DBS flyer.

The trading volume of stocks on the Singapore Exchange surged 72 per cent in the first two weeks of the new year compared with the daily average in the last quarter of 2009. Analysts view this as a bullish sign and suggest that the stock market could remain strong until at least mid-February.

The volume of securities which changed hands so far this year averaged 2.6 billion a day. In value terms, it was $1.9 billion – an increase of 40 per cent from the last quarter of 2009.

The last time trading activity was so hectic was in May 2009. That was seen as confirmation that the rally was real, and not a bear trap.

The increased liquidity, however, did not significantly lift the blue chips Straits Times Index. In the year to date, the STI advanced by just 0.4 per cent. However, small cap stocks have been the main beneficiaries of the increase in trading volume.

‘Clearly, liquidity is abundant in the markets, and with a positive economic outlook for this year, we believe markets are primed to head higher through the first quarter,’ said Timothy Wong, head of DBS Group Research. (Comment: that’s a hedge if I’ve seen one. “We expect markets to go up first quarter, thanks to the power of quants, but beyond that, we’re not willing to make any bets either way”)

Mr Wong says DBS Economics is optimistic on equities in the first quarter. ‘Growth momentum will be strong, and markets will be looking forward to the opening of the integrated resorts (IRs) and the spin off impact on the services sector in Singapore.’ (Comment: the ‘IR will save Singapore independently of whatever happens in the global market’ theory again)

The corporate reporting season should yield positive news, given the V-shaped economic rebound in the second half of last year, he added. Still, Mr Wong warned that the markets may be subject to profit-taking, and hence see some correction in the second and third quarters, as investors grapple with the initial signs of interest rate tightening.

But Mr Wong says DBS Economics would expect markets to rebound by the fourth quarter of the year once the focus shifts away from interest rates back to the growth outlook.

‘DBS Economics remains bullish on the growth prospects for Asia over the next three to five years, and this realisation should draw further inflows into the region,’ he said. Mr Wong foresees the return of the conditions prevailing in 1987-1997 when the world was enamoured of emerging markets and there was massive inflow of capital from the west into the region, which led to rapid investment growth.

For the full year 2010, his firm is expecting the markets to return 15-20 per cent, ‘which, while decent on a historic basis, may pale in comparison to the 50-60 per cent gains in 2009′.

So at this stage of the market recovery, what kind of stocks should investors be gaining exposure to?

Said Mr Wong: ‘We like stocks which are leveraged to the services sector and in particular the IR theme, for example, transportation, hospitality and high-end real estate.’

Another favourite is consumption plays that leverage on Asia, as well as Singapore’s growing role as an Asian hub. ‘We also like the oil and gas equipment and services sector on the expectation of a resurgence in orders for production platforms,’ said Mr Wong.

A visual guide to top US creditors: Singapore boleh 2.0!

Here’s an interesting and easy-reference chart which lists out the top creditors of the US of A. We Singaporeans are definitely punching way above our weight class – almost on par with India – at USD35.2 billion in USTs. Given what’s transpired in the last year or so, wonder if this list will soon be renamed to “Where are the countries stiffed by America”?

(courtesy of Visual Economics)

Throwing inputs at the Singapore economy, and hoping something sticks

I wanted to start off today’s post with a link to Mr. Lim Hng Kiang, who, in BT, says that “Recession threat recedes, but expect uneven recovery”

Integrated resorts, biomed and chemicals will give some boost, Hng Kiang says in economy update

The chances of the economy falling back into recession in 2010 are low, but its recovery in the months ahead is likely to be uneven with the growth momentum slowing in the second half of the year, according to Trade and Industry Minister Lim Hng Kiang.

Economic growth in the coming months may still be derailed if creeping trade protectionism spreads and shrinks global trade, but this likelihood is again low.

‘Thanks to the public commitment and exhortations by forums such as the G-20 and Apec, protectionism has largely been kept in check,’ Mr Lim told Parliament yesterday. ‘The threat today is lower than it was at the start of last year.’

Sigh. That such a statement could actually come from MTI reminds me of an old trader’s adage: “Hope is not a strategy”. Now that the G20 “rules” (and I mean “rules” in the loosest sense of the word, since where 7 failed to agree, we now expect 20 bickering giants to agree), we can only HOPE that the trade protectionism will go down. Given economic game theory, the lowest-risk response of governments struggling to calm down increasingly disgruntled constituents and to fight tooth and nail for any sort of consumption at all is to INCREASE barriers to trade. But, since Singapore is a price-taker, not a price-setter, I guess the best we can do is to HOPE for a lessening of trade and social tensions, but my gut tells me we’ll see worse to come.

Last year is likely to see the economy contract by 2.1 per cent, according to advance estimates. But Mr Lim said the global economy is turning around.

This was evident in the upturn in Singapore’s economy in the second and third quarters of 2009, when the economy posted a sharp rebound of 20.7 per cent and 14.2 per cent quarter-on-quarter growth respectively.

The final quarter saw a ‘moderate’ dip of 6.8 per cent, but Mr Lim brushed off the setback.

‘This does not imply a return to recessionary conditions,’ he said. ‘Instead, it largely reflects a moderation in the pace of recovery after the exceptionally strong expansion in the previous two quarters.’

His ministry expects the economy to grow 3-5 per cent this year.

‘External demand will continue to grow, but at a sluggish pace,’ Mr Lim said. ‘There will be some support from continued inventory restocking and a resumption in global trade.’

At home, the opening of two plants in the chemicals and biomedical sector, plus the rollout of the integrated resorts, will also provide some boost to growth.

Yet the pace of growth is likely to slow down in the second half of the year – as ‘the effects of global fiscal stimulus measures and inventory restocking wane’, Mr Lim said.

‘In addition, weak household balance sheets and persistently high unemployment, especially in the US, will weigh down on consumer demand in our key export markets,’ he added.

The jobless rate in Singapore is also tipped to stay up for ’some time’, even as the labour market has stabilised and overall employment expanded in the third quarter of 2009.

This I agree with Mr. Lim: in fact, the unemp numbers will go UP, since the reason why residential unemp numbers were kept under control for most of last year (but still went up, we note) was the fact that a whole bunch of people left the workforce to study (or attend SPUR) thus pushing down the denominator, Jobs Credit subsidized the cost of employment, and the buffer of transient workers were hit first by retrenchments. If we see a massive influx of people rejoining the labor pool in anticipation of a “recovering economy”, where do you think unemp will be headed? (hint: it’s not down).

Mr Lim noted that the recovery of the job market typically lags behind the recovery of the larger economy.

‘There are many jobs available for Singaporeans, at the rank-and-file and PMET (professional, managerial, executive and technician) level,’ he said. ‘These jobs can be found across a diverse span of industries, such as pharmaceuticals, clean energy, retail, food and beverage, hospitality, healthcare, aerospace, IT and finance. The integrated resorts coming up this year will also be recruiting.’

Translated in soon-to-be retrenched guy/gal language: “Look, forget about your ‘career’ at Seagate, ok? Seagate is yesterday’s news. You’ve got hands. You can be a croupier. You can wash test-tubes at big pharma. Take a couple of Adam Khoo’s classes, and call Merck in the morning.” The problem is structural, not cyclical.

But back to the main thrust of this article: the fact that we’re depending on – in Mr. Lim’s words – “Integrated resorts, biomed and chemicals [to] give some boost” demonstrates that we’re, once again, throwing big inputs (i.e. billions of dollars of our hard-earned savings into IP that belongs to other people) to give a fillip to the economy again. Seah Chiang Nee recently worried about Singapore’s lack of new ideas – albeit in the film and tech arena – but his worries mirror mine own. We are desperately casting about for new ideas, but we’ve fallen so far behind our traditional competitors like HKG and TWN that we’re now considered the cottage-end of the business.

From the Star, “Wanted: Ideas that pay”

In the global contest for innovation, Singapore is falling further behind at a time when its people are paying more and more buying them from others. By Seah Chang Nee.

(Synopsis: Like a relentless tsunami, high-tech gimmicks from abroad keep flooding Singapore to the detriment of home-grown innovative capabilities.)

AS ONE born here seven decades ago, I have been watching the quickened pace of new digital imports with a tinge of anxiety about Singapore’s future.

Take the latest high-tech Hollywood film Avatar that is mesmerising large audiences here with its awe-inspiring scenes of an imaginary planet.

In just two weeks, it had grossed a record-shattering US$1b worldwide. My family of four paid S$40 for two-and-a-half hours – roughly what an unskilled worker earns in a whole day.

Months earlier, Singapore was invaded by the Internet-phone, or I-Phone, with thousands of young people queuing up for hours and paying top dollars to lay their hands on one.

These were the latest digital innovations to hit our shores, some of them at heart-wringing costs.

The film, like the I-Phone, is a breakthrough in marketable ideas that are lapped up by young Singaporeans.

These kids are spending thousands of dollars on Blackberries, mini-computers and other mobile gimmicks to download music or network with each other. Many are teens who are still years away from their first job.

These are stuff they insist on having for their education – or so they say – and so papa and mama, including the poor, will have to finance it. An endless flow, because technology goes on and on.

Such imports do not necessarily pose great worries if Singaporeans can find benefit from using them.

“It is a drain because we ourselves lack innovation or the means to pay for it,” said a father of two teenage sons.

In short, Singapore’s move towards a higher-skill economy (to counter threats from countries like China and India) has fallen short of success.

In a competitive world when it comes to fresh ideas, Singaporeans – with their regulated, structured upbringing – are hugely handicapped. They are too compliant to venture into the unconventional.

As I watched Avatar’s widescreen magic, gripping my chair as its awesome plants and animals leapt at me, I thought of our own fledgling movie industry. They are separated by at least a generation.

Innovations and inventions are not just about high-faluting subjects like science and bio-medicine that postgraduates can deliver. More often than not, it involves turning simple ideas into what the public wants.

In 1993, the world was wowed by a film called Jurassic Park that transformed the movie business and almost killed off the industry in Hong Kong.

“After seeing this film who wants to watch ours?” a producer then asked. But some producers re-adapted, moved West and flourished.

On top of the pack were the Japanese and Koreans – and the older Bollywood – who succeeded in creating at least regional best-sellers with their own stories and cultures.

After returning from two years’ work as a journalist in Hong Kong, I wrote that with its laissez faire it was 10 years ahead of Singapore in the fields of movies, music and fashion.

Today the gap may have widened. Many of its top stars and producers have moved to California or improved at home to produce some world-beaters.

Singapore’s film-makers have made strides in the past decade, but they are too hobbled by regulations and sufficient talent to appeal to a world audience.

“Ours is still a cottage industry, not a global one,” said a retired cinema executive. “The advances in other countries are making our deficiencies even starker,” he added.

Even the Indonesians and Thais have produced horror movies with popular foreign appeal. I noticed they had even come up with their own Jet Li-type heroes, complete with lightning fast stunts.

The imported innovations do add value to our lives, but they have also made us more conscious of our creativity backwardness despite our huge investment on education.

I must admit that they have made me a little envious of the people who dare to experiment in, and come up with, winning tricks.

Singapore not only lacks that but is becoming too hooked on expensive Western products and services at a time when its own innovative competitiveness is dropping.

Even IT manufacturing, the mainstay of the economy, is facing possible extinction as factories move to cheaper countries.

Among the top 500 fastest growth tech companies in Asia Pacific countries, only two – or 0.4% – are in Singapore, compared with 99 in Taiwan, it was recently reported.

The republic appears to be losing some of its technological capacities.

For example, Seagate, the world’s largest maker of hard-disk drives, will close one of its factories and move to China by the end of this year.

Some 2,000 employees, many of them engineers, will be retrenched. Another giant, Motorola, shut its plant in 2008.

Earlier Chartered, the world’s second-largest semiconductor firm with nine chip plants spread across Singapore, Germany and the US, was taken over by an Abu Dhabi company, after years of losses.

Three other local tech firms were delisted in the last two years.

Many fear the relocations may signal the end of the republic’s role as a supplier of value-added computer parts to the world.

A post-crisis economic review is in progress to see what else Singapore can do to earn a living in the world.

Prime Minister Lee Hsien Loong cautioned his people not to expect a return of the pre-crisis growth rates of 7% or 8%. Instead, he expects from now on, Singapore should settle for 3% to 5% a year.

This means that value-added expansion in future will come mostly from innovative Singaporeans or companies, rather than by just providing service to the region.

For completeness’ sake: “GIC recognizes big loss in US property market”

Posted without comments. From today’s BT “GIC recognises big loss in US property project”

The Government of Singapore Investment Corp (GIC) has written down most of its US$675 million investment in a giant New York apartment complex that was bought at the height of the property boom in the United States but which has since suffered from the collapse of the housing market there.

The joint owners of Stuyvesant Town and Peter Cooper Village defaulted on their debts last Friday, following a US court ruling that dealt the project a death blow last October. It had been struggling for months as it failed to deliver the hoped-for returns amid the US economic recession.

GIC had invested US$575 million in a so-called mezzanine loan backed by the property – a subordinated loan that sits between ordinary debt and equity – and US$100 million in an equity stake.

BT understands that the entire US$575 million debt investment has been written down. It is unclear if GIC has also written down its equity investment in the property.

‘GIC recognised the losses following the ruling by the New York Court of Appeals in October 2009 which precipitated the default,’ a GIC spokesman said yesterday.

In 2006, US developer Tishman Speyer Properties and BlackRock Realty, a unit of fund manager BlackRock Inc, bought Stuyvesant Town and Peter Cooper Village – a sprawling, 11,200-apartment complex with 110 buildings along New York City’s East River – for US$5.4 billion, the biggest property transaction in US history.

While details of the deal were not made public, news reports citing people familiar with the deal say that it was funded by US$1 billion in equity from institutional investors including GIC, US$3 billion in debt that was pooled with other commercial mortgages and sold on as mortgage- backed securities or bonds, and US$1.4 billion of mezzanine debt that was also sold to institutional investors.

The other investors included pension funds such as the Florida State Board of Administration and the California Public Employees’ Retirement System or Calpers, as well as US mortgage finance companies Fannie Mae and Freddie Mac – which own the biggest portion of the debt, according to a Bloomberg report.

The Florida State Board of Administration and BlackRock have written off their entire investment in the property.

Completed in 1947, the apartment complex was built at the end of World War II to provide affordable housing for New York residents returning from the war. More than 70 per cent of its apartments remained under rent control that subsidised their tenants when the new owners took over in late 2006.

The owners planned to evict tenants who no longer qualified for the subsidised rents, and raise the rents for the apartments to at least the prevailing market rates. They also expected to further boost the rents the apartments could command by investing in new amenities for residents, to generate the returns needed to earn a profit on their investment.

But the project ran into difficulties when US housing prices collapsed and the economy slid into recession.

By last September, a fund set aside for renovation of the buildings and to pay interest on the debt used to fund the deal had been nearly depleted.

And on Oct 22, the New York Court of Appeals upheld an earlier court ruling last March that the owners had wrongly charged market rents on thousands of the apartments while receiving tax exemptions under the city’s rent-controlled housing programme.

GIC at forefront of impending CRE disaster in America: Singapore boleh!

It’s finally happened: Stuyvesant Town is in default. So we can kiss our US575 million goodbye (yes, it’s our money, and  for those who don’t like to count in USDs, it’s SGD 805,000,000 – even the geniuses at GIC have to concede that the number is equivalent to quite a few GCBs) . For background on this, see here and here. Just don’t sing “Toldja Boy”.

From WSJ “Tishman, BlackRock Default on Stuyvesant Town”

Tishman Speyer and BlackRock Inc. said Friday that they wouldn’t make a full scheduled debt payment to senior lenders on Stuyvesant Town and Peter Cooper Village, triggering default and leaving one of New York’s largest apartment complexes in limbo.

The joint venture “has been engaged in discussions with CWCapital, the special servicer acting on behalf of the lenders, and hopes to continue good-faith negotiations toward a potential restructuring of the debt,” the venture said in a statement.

CWCapital, which couldn’t be reached for comment, is expected to issue a notice of default over the payment, scheduled to be $16 million. The statement didn’t say how much, if any, of the payment was made.

The announcement shouldn’t affect the complex’s day-to-day operations, which have become a major concern for current tenants.

A venture led by Tishman Speyer Properties and a unit of BlackRock bought the 11,000-unit complex in 2006 in a top-of-the-market deal valued at $5.4 billion, hoping to push out longtime tenants and replace them with tenants paying higher rents.

But the highly leveraged deal has suffered amid New York’s weak economy. Also, in October, New York’s highest court ruled that owners improperly raised rents on thousands of units removed from the city’s rent-regulation program, a ruling that sent shock waves through New York’s real-estate community.

Well, it wasn’t hard to see this coming. But take heart, fellow citizens: despite our tiny size, we are at the forefront of one of the most damaging financial tsunamis about to hit the world in 2010. CRE Singapore boleh.

Temasek’s Alliance Financial Group internal probe, top execs on forced leave

No smoke without a fire? News from across the Causeway, and why we in HDBland should be at least 29% interested in developments affecting Alliance Financial Group.

First, on 4 Jan, from Reuters “Alliance shares down on probe report”

SHARES of Malaysia’s Alliance Financial Group Bhd fell after its unit Alliance Bank, one of the country’s smallest lenders, reportedly put several top executives on forced leave pending an internal probe.

Several top managers were told to go on leave just before Christmas as the bank investigated a share purchase transaction and a deal involving the sale and leaseback of several multi-storey commercial buildings, the New Straits Times reported.

The stock fell 6.7 per cent to RM2.52 at the 12.30 pm break, its biggest drop since October 28, 2008.
“We expect that the financial impact, if any, would be minimal and one-off,” said Kenanga Investment Bank in a note published today.

Singapore’s state investor Temasek Holdings owns 29 per cent of Alliance Financial via Vertical Theme Sdn Bhd, and Malaysia’s largest pension fund, the Employees Provident Fund, owns 13.9 per cent.

Followed by a quick update on 5 Jan “Alliance Bank said to have put several top execs on forced leave”

Alliance Bank Malaysia Bhd, the flagship Malaysian bank of Temasek Holdings and the investment arm of the Singapore government, is believed to have placed several of its top managers on forced leave pending completion on an informal internal investigation, people familiar with the matter said yesterday.

Business Times (BT) understands that the officials, who also include several branch level managers, were forced to go on leave just before Christmas, pending completion of the investigation.

Sources further say that at least one senior official had offered to resign over the matter.

Alliance Bank’s assistant vice-president of group corpororate affairs Agnes Ong Poh Choo declined to comment on the matter. She also declined comment on queries that the bank’s group chief executive officer Datuk Bridget Lai had tendered her resignation.

“We will need to decline to comment on these statements,”she said in an e-mail statement to BT.

Finally, a response was forthcoming from 6 Jan. From The Star (MY) “Alliance Bank: There’s no change in operations”

Amidst intense speculation over the position of Datuk Bridget Lai, group chief executive of Alliance Bank Bhd, the bank issued a statement yesterday to confirm that she had not resigned and that it was business as usual.

“Datuk Bridget Lai has not resigned. There is no change in the bank’s operations and we stress that it is business as usual for our customers, stakeholders and employees,’’ Alliance Bank said in its statement to Bursa Malaysia.

“The bank carries out investigations as part of its due diligence on corporate governance and board oversight,’’ the statement added.

Sources told StarBiz that Lai’s contract was approved by Bank Negara for renewal in September.

A tide of rumours had surfaced since Monday regarding Lai who is on annual leave, as group chief operating officer Shim Kon Teck is also said to be on leave.

The acting CEO is Choo Joon Keong, head of corporate banking.

A news report yesterday said Alliance was believed to have placed several of its top managers on forced leave pending completion of an internal probe.

The report went on to say that at least one senior official had offered to resign over “the matter’’.

In reaction, parent Alliance Financial Group’s shares shed 18 sen or 6.67% to close at RM2.52 yesterday, on a volume of 26 million shares.

Industry watchers are in shock and wondering what could have happened to the “Iron Lady of consumer banking.’’

It is said that Lai spent some time at Bank Negara yesterday morning explaining the situation; however, in matters pertaining to governance issues, it is the chairman and the bank’s board that will clarify on the position of their CEO.

In a statement, Lai said: “I am aware that rumours are circulating in the market that I have resigned from my post as group CEO of Alliance Bank. I wish to confirm that this is wholly untrue and that I have not resigned from the bank.

“I am aware that the rumours circulating are highly defamatory in nature and I wish to state that the rumours are again wholly untrue and without basis.

“The business of the bank continues and will continue as usual,’’ she added.

Some background on dear Bridget.

Starting as a bank teller, Lai became the first Malaysian to head Standard Chartered Bank’s consumer business, and was headhunted in 2005 by Temasek Holdings Pte Ltd which had bought a 29% stake in Alliance.

She rose through the ranks to become StanChart’s group head of sales, marketing and distribution for its global network.

She was based in Singapore when Temasek spotted and courted her for half a year before she decided to quit a successful career at StanChart spanning three decades.

Stay tuned as this news develops, space rangers!

ASEAN has just dropped its collective pants to China via FTA

Economic recovery on horizon, right? Everyone getting ready for inflation, no? Stocks are expected to go up 20% at least in 2010?

Well, contrarian that I am, the forecast that I’m making for 2010 for ASEAN economies is that things will get worse (for those who follow the teachings of Anthony Robbins, Rhonda Byrne, or their MLM upline mentor, please stop reading now).

Here’s an interesting read from BT, “China’s growing power unsettles its neighbours”

There’s a sense of disquiet over the implications of China’s seemingly boundless expansion

IN THE Dickensian depths of the Dunia Metal Works here (in Indonesia), all is cacophony: The bam bam bam of grease-drenched punches; the rhythmic clank of unspooling steel wire; the storm and stress of glinting, freshly minted nails cascading onto a broad metal table for boxing.

But for all the industrial din, Dunia is undergoing a painful slump. Today it runs at 40 per cent of its capacity, its domestic nail business imperilled – and its exports wiped out – by cheaper Chinese alternatives. ‘We have been competing with the Japanese and the Koreans,’ said Juniarto Suhandinata, the factory’s director. ‘But the Chinese – no chance.’

The Chinese are tough competitors, and Dunia is hardly the first to find out. But Mr Suhandinata’s lament speaks to something different: a sense of disquiet, even in developing Asian nations in Beijing’s orbit, over the implications of China’s swift, seemingly boundless economic growth.

China has long claimed to be just another developing nation, even as its economic power far outstripped that of any other emerging country. Now, it is finding it harder to cast itself as a friendly alternative to an imperious American superpower. For many in Asia, it is the new colossus. ‘China 10 years ago is totally different with China now,’ said Ansari Bukhari, who oversees metals, machinery and other crucial sectors for Indonesia’s Ministry of Industry. ‘They are stronger and bigger than other countries. Why do we have to give them preference?’

To varying degrees, others are voicing the same complaint. Take the 10 South-east Asian nations in the Association of South-east Asian Nations (Asean). Through September, ASEAN ran up a collective US$74 billion trade deficit with China. That is a sharp reversal of the surplus those nations enjoyed in most recent years, and it is prompting some rethinking of the conventional wisdom that China’s rise is a windfall for the whole neighbourhood.

Vietnam just devalued its currency by 5 per cent, to keep it competitive with China. In Thailand, manufacturers are grousing openly about their inability to match Chinese prices. India has filed a sheaf of unfair-trade complaints against China this year covering everything from I-beams to coated paper.

‘Market-oriented exchange rates’

The Asia-Pacific Economic Cooperation forum, the biggest regional group, last month urged the adoption of ‘market-oriented exchange rates’ for Asian currencies without mentioning China’s currency, which many economists say China keeps artificially undervalued to promote its own exports. China has taken some steps to mollify complainers. In April, it proposed a US$10 billion investment fund to help build badly needed roads, railways and ports in South-east Asia, and a US$15 billion fund to give Asian nations low-interest development loans. But it has so far done little to address regional and global unease over the value of its currency, the renminbi. Because the currency is lashed by effective government fiat to the sinking American dollar, China’s exports have become significantly cheaper in countries whose own currencies have not compensated for the dollar’s recent fall.

In Asia, the renminbi is doubly significant. During the 1997 Asian economic crisis, the values of many regional currencies collapsed, making their goods cheap to foreign buyers. The Chinese then won the gratitude of their neighbours by keeping the renminbi’s value fixed. That prevented a competitive spiral of devaluations that many economists feared might make the crisis much worse.

The latest financial crisis tells a different story: China’s exchange rate controls are cited as a leading cause of huge global imbalances that contributed to the collapse of 2008. This time, China has resisted pressure to untie the renminbi from the dollar and let it rise. And its neighbours’ exports have suffered as a result.

Michael Pettis, an economist and scholar with the China programme of the Carnegie Endowment for International Peace, argues that China can no longer pursue the same export-driven development model at a time when Western consumers no longer are able to gobble up whatever it and other Asian manufacturers produce.

Until 2008, Mr Pettis said: ‘Most of these countries ran trade surpluses, and the US was the countervailing trade deficit.’ ‘The entire model depended on the ability of an external agent – the US – to absorb trade deficits,’ he added.

Indonesia is especially vulnerable to the shift. It is the most populous and arguably the least economically advanced nation among the onetime Asian Tigers, and perhaps the least able to accommodate itself to a new regional order dominated by China. Didik J Rachbini, a professor and the founder of an economic research institute here, said that in the past four years, Indonesia had swung from more or less parity in bilateral trade to a deficit equal to one-third of its annual exports to China – and rising.

The lowly nail is one focus of tension. Making nails is not complicated: start with a bale of steel wire, shave it down to the proper diameter, then feed it into a punch that shapes the nail, cuts it and spits it into a bin. Labour and machinery account for 10 or 15 per cent of the cost of a nail. The rest is the cost of the wire.

Too many steel mills

And that is Indonesia’s problem.

‘Many Chinese steel factories have overcapacity, so they sell their wire very cheap,’ said Ario N Setiantoro, who leads the Indonesia Nail and Wire Factory Association. ‘Chinese nails enter the market here at about the same price as our wire.’

He is right. Most analysts say China has too many steel mills. Its excess steelmaking capacity equals the entire annual production of the world’s No 2 steelmaker, Japan. Beyond supply, Chinese state-run banks support industry with construction loans so cheap that credit can be almost free, holding down operating costs. China’s vast purchases of iron ore lock in volume discounts that Indonesia’s small steelmakers cannot match.

Irvan K Hakim, a co-chairman of the Indonesian Iron and Steel Industry Association, said he had aired complaints to Chinese officials for years. He did not appear optimistic about a meeting of the minds. ‘China is China, you know?’ he said, shrugging. ‘Even the US cannot talk to China.‘ – NYT

Then, consider this article from BT, “China open free trade area to rival world’s biggest”

China and Southeast Asia establish the world’s biggest free trade area (FTA) on Friday, liberalising billions of dollars in goods and investments covering a market of 1.7 billion consumers.

Eight years in the making, the Asean-China FTA will rival the European Union (EU) and the North American Free Trade Area in terms of value and surpass those markets in terms of population.

Officials hope it will expand Asia’s trade reach while boosting intra-regional trade that has already been expanding at 20 per cent a year.

‘In 2010 we are sending a strong signal that Asean is open,’ HE Sundram Pushpanathan, of the Association of Southeast Asian Nations (Asean), told AFP.

China has just overtaken the United States to become Asean’s third largest trading partner, and will leap Japan and the EU to become ‘number one’ within the first few years of the FTA, said Pushpanathan, deputy secretary-general for the Asean Economic Community.

Under the agreement, China and the six founding Asean countries – Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand – are to eliminate barriers to investment and tariffs on 90 per cent of products.

Later Asean members, including Vietnam and Cambodia, have until 2015 to follow suit.

Zhang Kening, the director-general of the department of international trade and economic affairs in Beijing, said the average tariff rate China charged on Asean goods would be cut to 0.1 per cent from 9.8 per cent.

Average tariffs imposed on Chinese goods by Asean states will fall to 0.6 per cent from 12.8 per cent.

Asean-China trade has exploded in the past decade, from US$39.5 billion in 2000 to US$192.5 billion last year, Mr Pushpanathan said.

At the same time, Asean-China trade with the rest of the world has reached US$4.3 trillion, or about 13.3 per cent of global trade.

Teng Theng Dar, chief executive of the Singapore Business Federation, said sectors likely to reap the most benefits from the FTA included services, construction and infrastructure, and manufacturing.

‘Other than product and service innovations, this is one great new business opportunity for the establishment of a regionally-based innovative supply chain for market reach and growth,’ he said.

Officials said there was more to the deal than sating China’s thirst for Asian raw materials like palm oil, timber and rubber, and opening up regional markets for its manufactured products, steel and textiles.

‘China and Asean countries are all export-oriented economies. A large proportion of our products target the US and EU markets… Generally neither side took the other’s market as its most important target market,’ Mr Zhang said.

‘But with the establishment of the China-Asean free trade zone, we think there is potential to improve or adjust this situation… Both sides have many goods that complement each other’s needs.’

Not everyone is happily singing the free-trade anthem, however.

At the 11th hour, industry groups in Indonesia, Southeast Asia’s biggest economy, and the Philippines are frantically pressing their governments to keep tariffs on vulnerable sectors until 2012.

‘These sectors aren’t ready to compete with imported Chinese products. If the government implements free trade now, these industries are surely going to die,’ Indonesian lawmaker Airlangga Hartarto said.

He cited 12 sectors including textiles, petrochemicals, footwear, electronics, steel, auto parts, food and drinks, engineering services and furniture.

‘For example, a local sack for sugar, rice and fertilizer costs about 1,600 rupiah (US$1.70) each. A Chinese sack costs about 800 rupiah each,’ he said.

Indonesian Footwear Association chairman Eddy Widjanarko said Chinese firms would take their share of the Indonesian market to 60 per cent from 40 per cent, costing some 40,000 local jobs.

Indonesian Furniture Producers Association executive director Tanangga Karim blamed the government for failing to level the playing field, and called for non-tariff protection in the form of strict safety and quality controls.

‘We have to admit that we aren’t ready to compete now with imported Chinese products,’ he said.

Mr Pushpanathan conceded that some local businesses would struggle.

‘In the short term there will be some adjustments that some countries have to make. Some local companies will lose their domestic market share but ultimately consumers will benefit,’ he said. — AFP

If it’s not already apparently obvious, here are the salient points from the articles:

1. Our savings (everyone in ASEAN) are now flowing outwards to funding capacity buildups in China. (see “trade deficit”) - which means that we’re now funding our competitors to produce even more cheap stuff that’ll put the final bullet in our producers’ still-warm body. Irony number 1.

2. Because all of us in ASEAN are export-oriented, there are only two ways we can “compete” against China (and I mean “compete” in the loosest sense of the word, since we’ve already lost the game):

 - Devalue our currency. (see “Vietnam devaluation” and “price of nail”). A vain attempt to protect production that’s already left the building, but guaranteed to be an absolutely LOUSY decision for importers and local consumers. Alternatively, we can always redirect our entire country’s workforce to either work as IR croupiers, or as oil rig production workers.

 - Raise protectionist barriers - but the recent FTA means that we’ve just made it even easier for China to swamp us. Why did the governments agree to this pants dropping? The great HOPE (that hopefully we can believe in) is that China will be a CONSUMER of all things ASEAN, rather than a competitor that it actually is. In gambling parlance, it’s called “double-or-nothing”.  Yet, as the deficits have shown, we’re now big net buyers of China made goods, not sellers. Anyone wants to bet money on whether China will become a net consumer in 2010? I didn’t think so. Neither does the US.

I weep for my kids.

Tiger Airways IPO facing headwinds

First, the magical hoped-for number was $420 million, thanks to whisperings from the salesmen of hope at Citi and Morgan Stanley. Now, reality has set in: it’s “about $200 -$250 m”. Yet again proving the ability of the “geniuses” at Citi and MS to properly read the market: take whatever price these guys give you, and slice off 50% from the top.

From the Independent, “Tiger Airways downsizes IPO in planned share sale”

SINGAPORE budget carrier Tiger Airways, which is part-owned by the Ryan family, will raise less than originally expected in a share sale next year, following a lukewarm response from potential investors, sources said yesterday.

Tiger Airways, which is 16pc-owned by the family which founded Ryanair, will raise a smaller-than-expected S$200-250m (€98-123m) in an initial public offering.

That’s below the S$420m shareholders had hoped to raise initially following feedback from bookrunners Morgan Stanley and Citigroup.

Citigroup and Morgan Stanley declined comment, while Tiger’s spokesman said the firm was considering an IPO (initial public offering) as one of several options.

Tiger, which plans to use the money to buy new aircraft and repay existing debt, is scheduled to file a draft prospectus next week.

The downsizing of Tiger’s planned IPO highlights investor concerns about the airline industry, which has been battered by falling travel and cargo demand and a rally in fuel prices.Besides the Ryan family’s 16pc stake, Tiger’s other shareholders include Singapore Airlines, which holds 49pc; Singapore state investor Temasek, which holds 11pc; and Indigo Partners, an investment firm, which owns the remaining stake.

Sources said about 90pc of Tiger’s IPO will comprise new shares with the balance coming from existing investors that want to cut their stake in the airline.

Stags looking for a one night stand with Tiger’s IPO will be well advised to take a hard look at the preliminary prospectus submitted to MAS. Cheaper fuel has the been the main reason why losses are not higher. From Business Day, “Tiger reveals $79.3m in losses as it readies for IPO”:

THE SINGAPORE Airlines-backed Tiger Airways has revealed that its Australian subsidiary has racked up $A79.3 million of losses in its first two years, outstripping the losses of its Singaporean parent in its first six years of operation.

The low-cost airline’s release of the preliminary prospectus for its planned listing on the Singapore Exchange shows it has hemmed in the huge losses it suffered last financial year, thanks largely to the fall in fuel costs.

Tiger, which started domestic services in Australia in November 2007, posted a $S8.3 million ($A6.7 million) loss in the six months to September 30 for all its operations.

This compares well with $S50.8 million of losses in the year to March 31, which, despite a profit from operations in Singapore, included a $A50.1 million loss from Australia.

Tiger said its Singapore operations had posted $S77 million of losses. The airline said there was ”no assurance” the losses could help offset its future tax bills once it was listed.

Despite being helped by the fall in fuel costs, Tiger’s seat revenue was flat in the six months to September 30. This was largely a result of heavy discounting, which saw Tiger’s average fares fall from $S110.60 to $S74.30 over the year.

According to some reports, Tiger is expected to raise as much as $S250 million from the IPO, which will be used to pay its $S100 million of short-term bank debts and fund its expansion plans in the Asia-Pacific region.

So, take $250 million from IPO, deduct $100 million for repayment of short-term bank debts (which was coming due, and which was probably the main reason for the rush to list in such a crappy market), and you’re left with $150 million. Given that the average Airbus 320 costs $70 million a piece, Tiger will again have to go to the banks again for MORE short-term debt to fund the purchases of 50 new planes (!!) Good luck with that.

But Tiger said it was ”well positioned to increase market share in Australia as a result of [its] lower cost base and attractive fares”.

Assuming, of course, it doesn’t keep up its habit of stiffing Aussies with last minute cancellations with no explanations. But then, being voted “Worst airline in Australia” will probably have no impact on its IPO, going by how the stock market is behaving nowadays.

So what do the shareholders do? Why, reward the CEO for losing money, for delivering lousy, unreliable service, and for betting the house on more plane purchases.

The airline also revealed it had amended the service agreement of its chief executive, Tony Davis. Under his new contract, Mr Davis will get a fixed salary of $S600,000 a year and a bonus of up to half his base salary each year. Mr Davis is also set to have a 2 per cent stake in Tiger when it lists.

Well, now there’s now an additional reason to list. Singaporean sucker, anyone?

”no assurance” the losses could help offset its future tax bills once it was listed.

Productivity spike seen in SGX PR department: All bark and no bite

The PR department in SGX seems to be taking a leaf from Obama’s book recently. Falling approval rankings for the Bailout Barack has seen an equal rise in populist statements that have lots of wordsmith, but zero action. So on that note, let us look at two recent PR announcements, and we’ll offer a free Babel Fish service to help translate into plain terms what they actually mean:

From BT “SGX enhances information flow to boost transparency”

SINGAPORE Exchange (SGX) has introduced changes to how listed companies post their announcements in a bid to improve transparency. The enhancements to the SGXNet Announcement Templates, the exchange said yesterday, are ‘part of its ongoing efforts in fostering a transparent and well-informed marketplace’.

‘This is to assist investors in retrieving information crucial to their investment decisions and to increase the level of disclosure by issuers.’ The changes, which will be effective Jan 10, 2010, comprise four new information categories and revisions to two existing announcement categories.

‘Any announcement that is inappropriately categorised will have to be re-filed under the appropriate template,’ said the SGX.

Translation: “We will get our web designers to include a couple of new directory folders on our website.”

There’s NOTHING here that increases transparency, other than to make it easier for lazy investors search through stacks of announcements. Of course, if four additional folders make it easier for SGX to deny culpability, why the hell not?

From BT “SGX hardening rules to bring errant outfits in line”

In a consultation paper issued yesterday, SGX said that when companies become the subject of an investigation of ‘irregularities or other wrongdoing’, they may require approval to appoint directors, chief executives (CEOs) and chief financial officers (CFOs). Controlling shareholders under investigation may be prevented from installing a proxy after being booted out from the company. SGX also seeks to cement its right to censure publicly or object to the appointment of key executive officers or directors if they have breached regulations or have ‘refused to cooperate with the regulators’.

Translation: “We will continue to issue the same mail merge letters, but this time we’ll end some sentences with exclamation marks to show how serious we are, by golly.”

What’s the difference between what’s currently happening and what SGX is proposing? Seriously, are we to believe that this is any different from regulating(not)-as-usual?

An outgoing CFO must also confirm with SGX that there are no irregularities or material differences in opinion with the board or management. This could act as a whistleblowing mechanism.

Translation: “We’ll ask for a copy of the annual report.” Again, NOTHING is different from what’s currently happening today. Which CFO doesn’t sign off on the report? And which CFO doesn’t officially leave for “personal reasons”?

Things won’t change as long as SGX’s main priority is to generate profits for its shareholders. As far as the CEO (who was double hatting at Prime Partners all the time he was in his current job) is concerned, the regulation department is a Cost Centre. And you know what happens to cost centres. We outsource them to India or China.

Oh wait, we already did.