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December 11, 2009 • 8:28 am 0

ETF: BlackRock ETF Landscape Industry Review November 2009

BlackRock has just published the November 2009 edition of its monthly ETF Landscape Industry Review. This report is a review of the Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) industry through the end of October 2009.

At the end of October 2009 the global ETF industry had 1,859 ETFs with 3,327 listings and assets of US$941.85, from 97 providers on 40 exchanges around the world.

Download report hereBlack Rock ETF Lamdscape November 2009

Source: MondoVisione, 11.12.2009

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November 19, 2009 • 9:56 am 0

Asia:NPLs and SMEs to provide distressed opportunities

Distressed specialists define their terminology and give their take on the market at the second AsianInvestor/FinanceAsia Distressed and Troubled Asset Investing Summit, held in Tokyo.

“What exactly is distress?” reflected AsianInvestor editor Jame DiBiasio at a panel he moderated on Monday at the Tokyo Distressed and Troubled Asset Investing Summit. “Is it a good asset from a distressed seller, or an asset itself that is in bad shape?”

The panel of distressed experts plumped for the former — they want good assets that are being flogged off by an imperilled owner.

“We prefer something that requires re-engineering, assuming that there is some enterprise value left,” said Steve Moyer, a portfolio manager at Pimco. “Banks couldn’t afford to take the losses on clearing portfolios of loans until they rebuild capital. That accomplished, they can begin the process.”

Edwin Wong, a former distressed-investing managing director at Lehman Brothers, and regarded by some in those halcyon days as the finest exponent of distressed investing practice in the hemisphere, recently started his own fund management company, SSG Capital Management.

“Unlike the Asian crisis of the late 1990s, in which all sizes of companies went bankrupt, we’re not seeing it this time around so much with the big companies,” he said. “However, private companies and smaller corporates have built up a lot of leverage, and that’s where we see the main opportunity in China, India and Indonesia.”

In answer to the old conundrum ‘what is the most famous thing that Belgium has ever produced?’, perhaps Michel Lowy will be a contender, if his new firm SC Lowy succeeds.

Lowy says distressed investors have been sharpening their pencils for the past 18 months, expecting lots of deals, only to be disappointed by the available opportunities. He hopes that will change as commercial banks finally bite the bullet and sell off non-performing portfolios.

He also perceives differences geographically in the structure of opportunities on offer. “In North Asia and other sophisticated Asian economies, there is a weighting towards public companies,” Lowy says. “Elsewhere in Asia, there are more family-owned companies. The latter are often in places where the creditor has more limited rights. It’s going to be harder to gain control of a company there by converting debt to equity.”

Source: AsianInvestor.net, 18.11.2009

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November 12, 2009 • 10:37 am 2

Global warming threat for Asia financial hubs – Yangtze ‘facing climate threat’

The report, produced by WWF, the environmental pressure group, puts the two financial hubs in the top 10 cities threatened by climate change in Asia, the region widely believed to be most vulnerable to rising global temperatures.

It warns that Hong Kong is in danger from higher sea levels, which are likely to rise 40cm-60cm in China’s Pearl River delta by 2050, increasing the area of coastline that is vulnerable to flooding by up to six times.

Costs imposed by typhoons are also likely to rise dramatically, the report says, noting that 14 of the 21 extreme storm surges between 1950 and 2004 occurred after 1986.

The number of nights when Hong Kong temperatures rise above 28°C has risen almost fourfold since the 1960s, while the number of winter nights when the temperature falls below 12°C is predicted to fall from an average of 21 to zero within 50 years.

For Singapore, the report says, the sea level is forecast to rise by 60cm by the end of the century, eroding coastal protection and decreasing the shoreline of the city state, making it more vulnerable to storm surges and flooding.

The report says climate change could also increase the prevalence of dengue fever. The number of cases has been rising in periodic outbreaks and the last significant peak, in 2007, saw the third highest number of outbreaks ever.

Dhaka, the Bangladeshi capital, heads the list of the most vulnerable cities, mainly because of its position in a big river delta already subject to periodic flooding, its low average height above sea level and its poverty, which makes protection and adaptation more difficult.

Other cities at risk include Jakarta and Manila, which rank equal second, Calcutta and Phnom Penh, which are equal third, Ho Chi Minh and Shanghai, equal fourth, Bangkok, fifth, and Kuala Lumpur, which ties with Hong Kong and Singapore for sixth place.

The report calls on developed countries to agree to shoulder the bulk of the costs required to reduce greenhouse gas emissions, to finance an adaptation fund to pay for changes required in developing countries, and to provide recompense for losses and damage caused by climate-related catastrophes.

However, the report also says that vulnerable cities and national governments should take action themselves, including better management of coastal habitats and ecosystems.

The report is timed to influence the 21 heads of government attending this week’s Asia Pacific Economic Co-operation summit in Singapore, before the global climate change summit in Copenhagen next month.

Source: FT, 11.11 2009 by Kevin Brown in Singapore

The Yangtze river basin is being increasingly affected by extreme weather and its ecosystems are under threat, environmentalists say.

In a new report, WWF-China says the temperature in the basin area of China’s longest river has risen steadily over the past two decades.

This has led to an increase in flooding, heat waves and drought.

Further temperature rises will have a disastrous effect on biodiversity in and along the river, the report says.

The WWF – formerly known as the World Wildlife Fund – predicts that in the next 50 years temperatures will go up by between 1.5C and 2C.

The group’s report is the largest assessment yet of the impact of global warming on the Yangtze River Basin, where about 400 million people live.

Data was collected from 147 monitoring stations. The report’s lead researcher, Xu Ming, said the forthcoming Copenhagen negotiations on climate change would have an obvious and direct influence on the Yangtze.

“Controlling the future emissions of greenhouse gases will benefit the Yangtze river basin, at the very least from the perspective of drought and water resources,” he said.

The report says the predicted weather events and temperature rises will lead to declines in crop production, and rising sea levels will make coastal cities such as Shanghai vulnerable.

Some of the problems could be averted by strengthening river reinforcements, and switching to hardier crops, its authors suggest.

Source: BBC, 10.11.2009

Filed under: Asia, China, Energy & Environment, Hong Kong, India, Indonesia, Japan, Malaysia, News, Risk Management, Singapore, Thailand, Vietnam , , , , , , , , , , , , , , , , , , , , , , , , , ,

November 11, 2009 • 4:48 am 0

Why China and Japan Need an East Asia Bloc

Withering exports and asset bubbles have forced Asians – especially China and Japan — to work harder at free trade pacts.

All kinds of proposals have been floated about creating an Asian bloc a la European Union. Bilateral and multilateral free trade agreements (FTA) have been suggested for various combinations of Asian countries. Lately, there’s been a flurry of new ideas as Japan’s recently installed DPJ government seeks to differentiate from the ousted LDP.

By promoting ideas that lean toward Asia, DPJ’s leadership is signaling that Japan wants less dependence on the United States. This position offers a hope for the future to Japanese people, whose economy has been comatose for two decades. Closer integration with Asian neighbors could restore growth in Japan.

Whenever global trade gets into trouble, Asian countries talk about regional cooperation as an alternative growth driver. But typically these talks die out as soon as global trade recovers. Today’s chatter is following the same old pattern, although this time global trade is not on track to recover to previous levels and sustain East Asia’s export model. Thus, some sort of regional integration is needed to revive regional growth.

Which regional organization is in a position to lead an integration movement? Certainly not ASEAN, which is too small, nor APEC, which is too big. Something more is needed – like a bloc rooted in a trade pact between Japan and China.

ASEAN’s members are 10 countries in Southeast Asia with a population exceeding 600 million and a combined GDP of US$ 1.5 trillion in 2008. The group embraced an FTA process called AFTA in 1992, which accelerated after the 1997-’98 Asian Financial Crisis and competition with China heated up. When AFTA began, few gave it much chance for success, given the region’s huge disparities in per capita income and economic systems. Today AFTA is almost a reality, which is certainly a miracle.

ASEAN has succeeded beyond its wildest dreams. These days China, Japan, and South Korea join annual meetings as dialogue partners, while the European Union and United States participate in regional forums and bilateral discussions.

China and ASEAN completed FTA negotiations last year, demonstrating that they can function as an economic bloc. Now, China is ASEAN’s third largest trading partner. Indeed, there is a great upside for economic cooperation between the two.

Before the Asian Financial Crisis, the ASEAN region was touted as a “miracle” by international financial institutions for maintaining high GDP growth rates for more than two decades. But some of that growth was built on a bubble that diverted business away from production and toward asset speculation. This developed after credit expansion, driven by the pegging of regional currencies to the U.S. dollar, encouraged land speculation. ASEAN’s emerging economies absorbed massive cross-border capital due to a weak dollar, which slumped after the Federal Reserve responded to a U.S. banking crisis in the early 1990s by maintaining low interest rates.

Back then, I visited companies in the region that produced goods for export. I found that, despite all the talk of miracles, many were making money on financial games — not business. At that time, China was building an export sector that had started exerting downward pressure on tradable goods prices. Instead of focusing on competitiveness, the region hid behind a financial bubble and postponed a resolution. Indeed, ASEAN’s GDP was higher than China’s before the Asian financial crunch; now China’s GDP is three times ASEAN’s.

China today faces challenges similar to those confronting ASEAN before the crisis. While visiting manufacturers in China, I’ve often been discovering that their profits come from property development, lending or outright speculation. While asset prices rise, these practices are effectively subsidizing manufacturing operations – an asset game that can work wonderfully in the short term, as the U.S. experience demonstrates. When property and stock markets are worth more than twice GDP, 20 percent appreciation would be equivalent to four years of business profits in a normal economy. You can’t blame businesses for shifting their attention to the asset game in a bubbly environment. Yet as they focus on finance rather than manufacturing, their competitiveness erodes. And you know where that leads.

I digress from the main focus for this article — regional integration, not China’s bubble challenge.

So let’s look again at ASEAN’s success. In part, this reflects its soft image: Other major players do not view ASEAN as a competitive threat. Rather, the FTA with China has put pressure on majors such as India and Japan to pursue their own FTAs with ASEAN. Another dimension is that the region’s annual meetings have become important occasions for representatives from China, Japan and South Korea to sit down together.

In contrast to ASEAN’s success, APEC has been an abject failure.
Today, it’s simply a photo opportunity for leaders of member countries from the Americas, Oceania, Russia and Asia. APEC was set up after the Soviet bloc collapsed, and served a psychological purpose during the post-Cold War transition. It was reassuring for the global community to see leaders of former enemy countries shaking hands.

However, APEC is just too big and diverse to provide a foundation for building a trade structure. So general is the scope that anything APEC members agree upon would probably pass the United Nations. Now, two decades after end of the Cold War, APEC has clearly outlived its usefulness and is withering, although it may never shut down. APEC’s annual summit still offers leaders of member countries a venue for meetings on the sidelines to discuss bilateral issues. Maybe the group is useful in this way, offering an efficient venue for multiple summits concurrently.

Although ASEAN has succeeded with its own agenda, and achieved considerable success in relation to non-member countries, it clearly cannot assume the same role as the European Union. Besides, should Asia have an EU-like organization? Asia, by definition, clearly cannot. It’s a geographic region that includes the sub-continent, Middle East and central Asia. Any organization that encompasses Asia as a whole would be as unwieldy as APEC.

I am always puzzled by the word “Asia,” which the Greeks coined. In his classic work Histories, it seems ancient Greek historian Herodotus primarily referred to Asia Minor — today’s Turkey, and perhaps Syria — as Asia. I haven’t read much Greek, but I don’t recall India being included in ancient Greek references. So as far as I can determine, there is no internal logic to treating Asia as a region. It seems to encompass all places that are neither European nor African. Africa is a coherent continent, and Europe has a shared cultural past. Asia belongs to neither, so it shouldn’t be considered an organic entity.

Malaysia’s former prime minister Tun Mahathir bin Mohamad Mahathir was a strong supporter of an East Asia Economic Caucus (EAEC) which would have been comprised of ASEAN nations plus China, Japan and South Korea. But because Japan refused to participate in an organization that excluded the United States, the idea failed.

Yet there is some logic to Mahathir’s proposal. East Asia has a shared history, and intra-regional trade goes back centuries. Population movements have been significant, and as tourism takes off, regional relations should strengthen. One could envision a future marked by free-flowing capital, goods and labor in the region.

Yet differences among the region’s countries are much greater than in Europe. ASEAN’s overall per capita income is US$ 2,000, while it’s US$ 3,500 in China and US$ 40,000 in Japan. China, Japan, South Korea and Vietnam share Confucianism and Mahayana Buddhism, while most Southeast Asian countries embrace Islam or Hinayana Buddhism, and generally are more religious. I think an EU-like organization in East Asia would be very hard to establish, but something less restrictive would be possible.

Because Japan turned down Mahathir’s EAEC idea, there was a lot of interest when recently elected Prime Minister Yukio Hatoyama’s proposed something similar – an East Asia Community — at a recent ASEAN summit. Hatoyama failed to clarify the role of the United States in any such organization. If the United States is included, it would not fly, as it would be too similar to APEC. Nor could such an organization be like the EU. But if Japan is fully committed, the new group could assume substance over time.

The Japanese probably proposed the community idea for domestic political reasons. Yet the fundamental case for Japan to increase integration with the rest of Asia and away from the United States grows stronger every day. Despite high per capita income, Japan remains an export-oriented economy, having missed an opportunity to develop a consumption-led economy in the 1980s and ’90s. In the foolish belief that rising property prices would spread wealth beyond the industrial heartland in the Tokyo-Osaka corridor, the government of former Prime Minister Kakuei Tanaka pursued a high-price land policy, discouraging the middle class from pursuing a consumer lifestyle as they saved for property purchases.

Even more seriously, high property prices have been a major reason for Japan’s rapidly declining birth rate, as land prices inflated living costs. Now, facing a declining population and public debt twice GDP, Japan has few options for rejuvenating the economy by promoting domestic demand. It needs trade if it hopes to achieve any growth at all. Without growth, Japan will sooner or later suffer a public debt crisis.

Japan’s property experience offers a major lesson for China. Every Chinese city is copying the Hong Kong model — raising money from an increasingly expensive land market to fund urban development, leading to rapid urbanization. But this is borrowing growth from the future. Rising land prices lead to rising costs and, hence, slower growth and the same rapid decline in the birth rate that Japan experienced. Unless China reverses its high-land price policy, the consequences will be even more disastrous than in Japan or Hong Kong, as China shifted to the asset game much earlier in its development.

Yet I digress again. The point is that Japan has a strong and genuine case that favors more integration with East Asia. The United States is unlikely to recover soon and with enough strength to feed Japan’s export machine again. There is no more room for fiscal stimulus. Devaluing the yen to gain market share is not an option as long as Washington pursues a weak dollar policy. Without a new source of trade, Japan’s economy is doomed. Closer integration with East Asia is the only way out.

In addition to Hatoyama’s EAC proposal, a study jointly sponsored by China, Japan and South Korea is considering the possibility of a FTA. Of course, ASEAN could offer a template for any new East Asian bloc. ASEAN has signed an FTA with China and is talking with Japan and South Korea. If they all sign, regional integration would be halfway completed.

Whatever proposals for East Asian integration, the key issue is a possible FTA between China and Japan. Adding other parties avoids this main issue. China and Japan together are six times ASEAN’s size and 10 times South Korea’s. Without a China-Japan FTA, no combination in East Asia would truly support regional integration.

Five years ago, I wrote an op-ed piece for the Financial Times entitled China and Japan: Natural Partners. At the time, a prevailing sentiment was that China and Japan were antithetical: Both were still manufacturing export-led economies and could only gain at the other’s expense. I saw complementary demographics and capital: Japan had a declining labor force and China needed to employ tens of millions of youths migrating to cities from the countryside. China needed capital and Japan had surplus capital. And their trade relations indeed tightened, as Japan had increased the Chinese share of its overall trade to 17.4 percent in 2008 from 10.4 percent in ’04.

Today, the situation has changed. China has a capital surplus rather than a shortage. Demographic complementarity is still good and could last another decade. As China shifts its development model from resource intensive to environmentally friendly, a new complementarity is emerging. Japan has already made the transition, and its technologies that supported the transition need a new market such as China’s. So even without a new trade agreement, bilateral trade will continue growing.

An FTA between China and Japan would significantly accelerate their trade, resulting in an efficiency gain of more than US$ 1 trillion. Japan’s aging population lends urgency to increasing the investment returns. On the other hand, as China prepares to make a numerical commitment to limiting greenhouse gas emissions at the upcoming Copenhagen summit on global warming, heavy investment and rapid restructuring are needed for its economy. Japanese technology could come in quite handy.

More importantly, a China-Japan FTA would lay a foundation for an East Asian free trade bloc. The region has a population of 2.1 billion and a GDP of US$ 13 trillion, rivaling the European Union and United States. Blessed with a low base, plenty of capital, sound technology and a huge market, the region’s GDP could easily double in a decade.

Trade and technology are twin engines of growth and prosperity. No boom is sustained without one or the other. And when they come together, the boom can be massive. Prosperity seen over the past decade, for example, is due to information technology along with the opening up of China and other former planned economies. But these factors have been absorbed, forcing the world to find another engine. An integration of East Asian economies would be significant enough to play this role.

The best approach would be for China and Japan to negotiate a comprehensive FTA that encompasses free-flowing goods, services and capital. This task may appear too difficult, but recent changes have made it possible. The two countries should give it a try.

It would be wrong to begin by working out an FTA that includes China, Japan and South Korea. That would triple the task’s level of difficulty, especially since South Korea doesn’t have a meaningful FTA with any country. To imagine that the Seoul government would cut a deal with China or Japan is naive. China and Japan should negotiate bilaterally.

A key issue is that China and Japan should put economics before politics. If the DPJ government wants to gain popularity by increasing international influence rather than boosting the economy, then all the current speculation and discussion about an East Asia bloc would be for nothing. But if DPJ wants to sustain power by rejuvenating Japan’s moribund economy, chances for a deal are good.

While Japan is talking, China should be doing. China should aggressively initiate the FTA process with Japan. Regardless of China’s current difficulties, its growth potential and vast market are what Japan will never have at home nor anywhere else. Hence, China would be able to compromise from a position of strength.

Some may say a free trade area for East Asia is beyond reach. However, history belongs to the daring. The world has changed enough to make it possible. China and Japan should seize the opportunity.

Source: Caijing, 10.11.2009 by Andy Xie, guest economist to Caijing and a board member of Rosetta Stone Advisors Ltd.

Full article in Chinese

Filed under: Asia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, News, Singapore, Thailand, Vietnam , , , , , , , , , , , , , , , , , , , , , , , , ,

October 23, 2009 • 9:49 am 1

ASEAN markets cross trading links in demand – TABB Group

In new equity markets research published today, TABB Group says US and European demand for electronic linkage to Association of Southeast Asian Nations (ASEAN) exchanges is strong and primed to expand, as seamless access will attract brokers already trading in other parts of Asia. However, there is a wide range of needs across the different market segment, including direct market access (DMA), low-cost versus real-time market data, advanced order types, and reliable trading platforms.

TABB’s senior analyst Kevin McPartland, who authored the ASEAN Equity Markets Pinpoint report, an industry update on equity trading in the ASEAN region covering the Indonesia, Philippines, Thailand, Vietnam, Malaysia and Singapore exchanges, says the global financial crisis had little impact on growing buy-side demand for trading in ASEAN markets.

“More seamless access will drive brokers already operating in other parts of Asia to begin trading in the ASEAN markets,” he says, with the sell side set to benefit most from that seamless access. Explaining that the availability of real-time market data is crucial for all trading in the ASEAN markets, and that real time data is a requirement for the sell side even when trade volumes are low or non-existent, he adds, “High costs and time zones do tend to limit buy-side market data usage outside of the region.”

Addressing the relationship between the buy side and sell side, McPartland says that although no single broker currently dominates across all Asian markets, over 90% of buy-side firms are unwilling to give brokers full discretion over their orders. However, while the buy side does look to their brokers for market access, they agree that more seamless access would lower costs for execution and market data. There is also significant support for the idea of central ASEAN execution venue, McPartland adds.

The report’s in-depth coverage includes 24 charts:

  • Support for a central ASEAN venue
  • Improving ASEAN trading
  • Sell-side interest in ASEAN linkage
  • % of bulge-bracket participants trading in each market
  • Impact of the financial crisis on ASEAN interest
  • Roadblocks to sell-side trading in ASEAN markets
  • Buy-side broker usage – all Asia ·
  • Buy-side broker usage – ASEAN markets
  • Top brokers by country (by # of mentions)
  • Bulge-bracket participants trading in each market
  • Mid-tier participants trading in each market
  • Buy-side interest in a seamless ASEAN linkage
  • Roadblocks to buy-side access of ASEAN markets
  • Average number of buy-side orders per week
  • Average blended commission rates (bps)
  • % for which counterparty risk is an issue
  • Importance of each component when trading in ASEAN markets
  • Markets providing real-time market data to sell side
  • Market data sources for sell side
  • Markets providing real-time market data to buy side
  • Reasons for buy side’s lack of market data
  • How the buy side trades ASEAN markets
  • % of buy side using multiple data providers ·
  • Sell-side and buy-side market data providers

TABB Group collected data through interviews with heads of electronic trading from 12 top global broker-dealers, 9 hedge funds and 14 institutional asset managers. On the buy side, participants had combined global assets under management (AuM) of approximately $6 trillion and are currently trading in Asia from slightly under $10 million to over $5 billion monthly.

Source: MondoVisione, 23.10.2009

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September 8, 2009 • 1:41 am 0

Patsystems Selected As Technology Provider For Indonesia Commodity And Derivatives Exchange

Patsystems is pleased to announce that it has been selected as the preferred technology supplier for the newly established Indonesia Commodity and Derivatives Exchange (ICDX). Patsystems will provide ICDX with the complete exchange solution which includes the trade matching engine, clearing and settlement platform, pre-trade risk management and the front-end execution platform.

Using Patsystems’ robust and scalable exchange platform, ICDX will run on advanced, low-latency technology. The flexible, internet deployable front-end trading platform will be easy-to-use and suitable for all types of traders. ICDX will benefit from Patsystems’ global network of customers, which will automatically bring thousands of traders to the ICDX market.

Operating from a country renowned for being amongst the world’s largest producers of agricultural commodities and industrial raw materials, the ICDX is poised to serve as a major venue for price discovery, benchmark pricing and risk management. The Patsystems’ exchange solution will facilitate the integration of electronic trading among this multitude of domestic producers and traders, and provide access to international customers who want to participate in this deep marketplace.

Megain Widjaja, Managing Director of ICDX, said: “Patsystems empowers ICDX to provide open connectivity, which enables global market access to ICDX and the ability to collaborate with other exchanges around the world. Together, we are confident that we can create a successful marketplace.”

Barry White, Regional Director of Asia Pacific, said: “Being selected as the key technology provider for ICDX fully illustrates the breadth of Patsystems capabilities with the provision of exchange, clearing, trading, and risk management technology. Our systems are flexible enough to be used independently, or in this case, integrated into one comprehensive front to back turnkey solution.”

Source: Patsystems, 08.09.2009

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August 12, 2009 • 2:48 am 0

ConvergEx Rolls Out Five Additional DMA Connections to Emerging Markets

ConvergEx, a provider of investment technology solutions and global agency brokerage services, has added five new direct market access (DMA) connections: NASDAQ Dubai, the Indonesia Stock Exchange, the Taiwan Stock Exchange, the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

With these additional markets, ConvergEx now offers DMA connections in 65 destinations around the world, as well as over 110 global markets through its portfolio and sales trading businesses. Clients can access these electronic connections through any ConvergEx supported front-end trading system, including all major order management (OMS) and execution management (EMS) platforms, the company explained. “These new connections keep our clients at the forefront of rapidly growing and increasingly important emerging marketplaces,” said William Capuzzi, president of ConvergEx’s G-Trade Services.

“Our clients appreciate the unique investment opportunities these markets offer as well as the ease of access our connections provide. ConvergEx understands the importance of building and maintaining state-of-the-art technology and lightning fast connections so we always keep one step ahead of client demand.”

Source: Securities Industry News, 11.08.2009

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July 6, 2009 • 9:25 am 0

Beware of rising Asian stock markets

Investors who were bold enough to stay invested in Asian equities from the latter part of last year onwards are reaping the rewards of their bravado. The closely watched MSCI Asia ex-Japan Index was, after all, up 41% in the three-month period ending May 15. The sharp gains in Asian shares have, not surprisingly, triggered a bandwagon effect of investors trying to get in on the action and hoping that they’re not too late to cash in later on.

The notion that Asian companies have strong balance sheets is great, if you’re a bondholder.

For investors who are looking for a quick buck, Asian equities — or equities in any market for that matter — isn’t the place to find it. Short-term, Asian stock markets remain volatile and the fact that they have risen by so much in such a short span of time make it even more dangerous ground. If anything, the markets look poised for a correction. It may come later rather than sooner, because the momentum chasers are keeping markets afloat for now, but it will come.

“The global economy has not yet recovered to a healthy state,” says Nick Scott, Hong Kong-based CIO for Asian equities at BlackRock. “The rally in March and April is based upon investor relief that things may not be as bad as was predicted, rather than concrete evidence that the worst is over and a recovery is imminent.”

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For investors who are in this for the long haul — with one year being the minimum investment horizon — then the scenario is vastly different. Asian stock markets are generally expected to outperform US and European markets over the long run. The reasons for this optimism is plentiful, including the region’s relatively strong domestic consumption, sound fiscal position, ability to counteract external shocks with central bank reserves and fiscal spending, less dependence on exports, stronger financial systems, and so on and so forth.

Halbis Capital Management, for one, has kept its bullish long-term view of Asian equities intact.

“Overall, we believe the market is showing signs of stabilisation that should allow bottom-up investors such as ourselves to focus once again on picking the right stocks,” says Ayaz Ebrahim, Hong Kong-based CEO of Halbis Capital Management. “In the last few months of turbulence, investors have focused more on shifting between defensive and cyclical sectors rather than assessing the fundamentals of the companies themselves.”

Still, even for long-term investors, fund managers and analysts are sounding out the alarm bells and warning against chasing the momentum. Waiting for that correction is seen as the best option.

“It is very hard to predict how equities will perform over the next 12 months, particularly following such a strong rally,” says Peter Elston, Singapore-based Asian strategist at Aberdeen Asset Management. “We are still in a period of economic turbulence, in which conditions in the short- to medium-term may either improve or deteriorate unpredictably.”

Alex Ingham, a London-based emerging markets fund manager at Aviva Investors, believes that a pause in the current rally is “almost certain”.

What investors should be mindful at the present are the changes in fundamentals of listed companies, risk tolerance of investors and company-specific outlook. These are the factors that will shape the investment landscape going forward.

“We are beginning to see some discrimination emerging in the markets, different sectors and businesses are starting to demonstrate their ability to either recover more quickly or improve their cost competitiveness,” says Colin Ng, the Hong Kong-based regional head for Asia-Pacific equities at MFC Global Investment Management, the asset management arm of Manulife Financial.

Structural return on equity and earnings growth potential remains higher in Asia than in the world’s developed markets, says BlackRock’s Scott, who like many fund managers is particularly optimistic on the long-term prospects of China and India.

“China of course is the focal point,” says Victor Lee, Hong Kong-based regional investment manager at JP Morgan Asset Management. “We may indeed see China outperforming global markets as the fiscal packages continue to gain traction. It has strong deposit base and fiscal power to keep its economy on track.”

Scott says the strengthening links between China and Taiwan may also throw up some interesting opportunities as mainland companies acquire stakes across the Strait. He believes that India’s economy has cooled as foreign funding has dried up, but that has created some insulation from the collapse in global demand.

Not everyone’s a fan of China.

Desmond Tjiang, Hong Kong-based CIO for Asia ex-Japan equities at Fortis Investments, is wary of the rally in Chinese shares and doubts it is sustainable.

“The consensus overweight in China is a risk because that market is overcrowded,” says Tjiang, who is bullish instead on Indonesia. He believes that the strong domestic consumption in Indonesia, citing that country’s urbanisation, infrastructure, and domestic consumption trends.

Rajiv Jain, managing director for international equities at Vontobel Asset Management in New York, says the notion that Chinese domestic demand is going to rescue the region in fiction.

“Chinese domestic consumption is less than that of the UK,” Jain notes. “An increase there isn’t going to move the needle.”

Worse, it’s in China where the greatest overcapacity exists in areas such as steel and cement. China’s infrastructure spending program is good at boosting GDP figures by adding capacity, but does nothing to help corporate profitability.

Moreover, Jain is sceptical about the ability of government stimulus programs to ultimately boost corporate earnings.

“We don’t trust any government. Why do investors have such confidence in Beijing? Chinese steel companies are being instructed to produce more and not lay off workers, at a time when capacity utilisation rate are at their lowest in 50 years.”

Too many investors are mesmerised by the Asian growth story, but Jain calculates that over the long term, Chinese corporate earnings growth rates have been about the same as America’s — but Chinese stocks are priced far more ambitious.

Jain says the past five years were a bubble and have clouded investors’ expectations about growth in China and other Asian markets. The argument that Asian corporate balance sheets are strong is fine for bondholders but doesn’t equate to earnings growth.

Source:AsianInvestor, 03.07.2009 by Rita Raagas De Ramos

This is an excerpt from a story that originally appeared in the June edition of AsianInvestor magazine. To learn more about the content in the magazine, please contact Stephen Tang at stephen.tang@asianinvestor.net

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May 13, 2009 • 12:45 am 0

Emerging Markets in the global crisis and beyond- May 2009- DeutscheBank

download: Emerging Markets in the global crisis and beyond – May 2009-DB

Source: DB 05.05.2009

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May 4, 2009 • 11:57 pm 1

Emerging Asia inflation tumbles, more rate cuts seen

Inflation rates slowed once again in emerging Asia, pointing to a fresh round of interest rate cuts in Thailand and Indonesia as the region battles to reinforce tentative signs that economies may be on the path to recovery. Indonesia said annual inflation stood at 7.3 percent in April, its lowest level since December 2007, while South Korea also reported a fall in April inflation to a 14-month low of 3.6 percent. However, Thailand saw a fourth straight month of falling prices or deflation with April consumer prices falling 0.9 percent from a year earlier.

Core consumer prices in Japan fell 0.1 percent in March from a year earlier, heralding what the Bank of Japan expects to be two-years of deflation although the central bank has dismissed the idea of an economically damaging spiral of falling prices.

Prices are tumbling across the world as buyers tighten their belts in the face of the global recession and because of the collapse in commodities prices from record high levels last year. Crude oil for example, has dropped to around $50 a barrel from its near $150 record set in July.

Central banks globally have slashed rates in the hope that cheaper credit will spark a revival in their economies. Government have spent hugely on fiscal stimulus package and some data suggests the worst of the crisis may be over.

In Asia, exports have collapsed as recession in major demand centres such as the United States and Europe hammered demand. But signs that the recession is easing has raised hopes that Asia’s export engine may see a return of some demand, albeit from low levels.

Indeed, major exporters South Korea and Japan have both seen a pick up in monthly exports even if they are still much lower than year-earlier levels. Annual falls in exports elsewhere have become less severe.

SOME WILL CUT, SOME WILL NOT

In Thailand, the fall in prices is seen as largely technical and reflective of the sharp falls in the past year in commodities prices rather than the result of falling demand.

The latter is feared by policy makers because it can add an extra weight on growth or push an economy deeper into recession.

“With very, very little risk of inflationary pressures, and with monetary conditions still fairly tight, there remains a scope to cut rates to support growth,” said Carl Rajoo, an economist at Forecast in Singapore said of the Bank of Thailand.

“The central bank is likely to make a measured cut in May, and then wait and see before additional loosening is started,” he said.

The Bank of Thailand is due to review policy next on May 20, when analysts expect a 25 basis-point cut in the policy rate to 1.00 percent, the lowest level since the central bank started targeting inflation in 2000.

The Bank of Thailand has already cut its policy rate by 250 basis points since December to support an economy widely seen as in recession and pressured not only by the global downturn but by political unrest.

In Indonesia, an easing in food price pressures and a 14 percent rise in the rupiah against the dollar since early March, making imports more expensive, has weighed on prices.

Inflation has come down steadily from above 12 percent just seven months ago giving the central bank room to keep cutting interest rates to support Southeast Asia’s largest economy, whose exports are falling at close to 30 percent.

“We expect Bank Indonesia to cut rates by 25 basis points in May and (in) June,” said Helmi Arman, an economist at Bank Danamon in Jakarta. The central bank next meets on Tuesday.

However, South Korea’s central bank is seen holding fire for now.

It has skipped rate cuts at its last two meetings and is expected by financial markets to leave rates unchanged at a record low of 2.0 percent at its next meeting on May 12.

Inflation has fallen steadily, but growing optimism the economy may be starting to turnaround suggests the central bank will save its monetary ammunition for now. Since the financial crisis blew up last year, it has cut rates by an unprecedented 325 basis points.

South Korea’s inflation rate fell to 3.6 percent in April, its lowest level in 14 months but with some signs in the trade-reliant country that exports are picking up, the central bank is unlikely to use inflation as a cue to cut rates again.

The Philippines is expected to report on Tuesday that its consumer prices inflation fell to a 16-month low of 4.7 percent in April, also paving the way for the central bank to cut its overnight borrowing rate, already a 17-year low of 4.5 percent, at its next meeting on May 28.

Source: Reuters, 04.05.2009

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April 28, 2009 • 11:56 pm 0

Asian electronic trading revenues to decline – TABB

Electronic trading revenues are anticipated to fall in the Asia-Pacific region, while the development of dark pools is expected to stall, according to new research from consultancy TABB Group.

In ‘Asian Equity Trading 2009’, TABB predicts that income from electronic trading will slip 16.9% to $815 million this year, from $981 million in 2008. This follows a similar decrease of 17.7% in institutional value traded in the previous 12 months, a drop that affected overall trading strategies in Asia, according to TABB.

“In the second half of 2008, there was a significant pullback leading into the first quarter of 2009,” said Matt Simon, TABB Group analyst and author of the report. “Traders saw liquidity sink.”

The study, which examines institutional trading across Japan, Hong Kong, Korea, Australia, Singapore and Taiwan, estimated that dark pool uptake in Asia-Pacific would take longer to develop than in the US and Europe. TABB predicted that by 2010 3.5% of value traded would be matched off-exchange in Japan and 1.5% in the five other market centres examined. Volatile market conditions have also marked a return to VWAP/TWAP algorithmic trading strategies from buy-side traders in the region, the report added.

Despite the decline in electronic trading revenues, global expansion in the region is expected to continue, driving connectivity to new markets such as Malaysia, Thailand and Indonesia.

Source: The New Trader, 23.04.2009

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April 24, 2009 • 3:01 am 0

Asian equity electronic trading revenues to sink in 2009 – Tabb

Equity electronic trading revenues in Asia Pacific are set to see a 17% fall this year, with liquidity sinking during the downturn, according to research from Tabb Group.

Tabb predicts revenues will drop to $815 million, down 16.9% from $981 million in 2008. This follows a 17.7% decrease in institutional value traded from 2007 to 2008, a year-over-year drop that has affected overall trading strategies across Asia.

Tabb says the global downturn hit just as electronic trading was taking hold in the region, forcing many hedge funds to curtail electronic strategies or simply shutter operations.

Matt Simon, Tabb analyst and report author, says: “In the second half of 2008 there was a significant pullback leading into the first quarter of 2009. Traders saw liquidity sink.”

The research also highlights the slow rate of dark pool trading adoption in the region. Dark pools are estimated to account for at least 10% of all equity trading in the US whilst the introduction of MiFID has spurred their growth in Europe.

They are far less popular in Asia although last month Goldman Sachs launched its Sigma-X dark pool equity trading system in Hong Kong, while CLSA, Instinet and Investment Technology Group also run platforms in the region.

Yet Tabb estimates that only 3.5% of value traded will be matched off-exchange in Japan by 2010, up from 1.2% in 2008. In Hong Kong, Korea, Australia, Singapore and Taiwan, there will be just 1.5% traded off-exchange, although this compares to a paltry 0.3% in 2008.

Other trends indentified by the report include continued global expansion, which is driving connectivity to new markets such as Malaysia, Thailand and Indonesia

In addition, buy-side firms have returned to volume-weighted average price (Vwap) and trade weighted average price (Twap) strategies amidst current volatile market conditions. Meanwhile demand for transaction cost analysis is increasing with 35% of buy-side firms using some type of independent TCA.

Source: Finextra, 23.04.2009

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April 23, 2009 • 12:08 am 0

Singapore’s Take on Islamic Finance

Singapore’s plunge into the Islamic finance scene did not come as a surprise to many in the industry. Seeing the Islamic finance industry take-off in Malaysia and with Hong Kong and Indonesia playing catch up, Singapore’s obvious move was to take on this ethical form of financing with formidable force. Despite being the first Asian country to fall into a recession, which prompted the government to declare the situation as the worst ever for it, the Lion City was still optimistic about launching its first Sukuk at a signing ceremony last month. Eureka – Islamic_Finance_News article

Monetary Authority of Singapore (MAS) managing director Heng Swee Keat described the Sukuk as the Shariah-compliant equivalent of Singapore Government Securities (SGS) and said it was of the highest credit standing. He assured investors that it would be given equal regulatory treatment as SGS, such as qualifying as an asset in the computation of capital and liquidity requirements, and as eligible collateral for tapping MAS’ liquidity.

“MAS is committed to the facility, issuing to meet the needs of financial institutions that are carrying out or plan to carry out Shariah-compliant activities in Singapore, as this will strengthen their ability to meet their capital and liquidity requirements.” He added.

Research and consulting firm Cerulli Associates released a report recently on the Islamic finance industry in Singapore, focusing on the Islamic funds available in the republic. According to it, Hong Kong and Singapore have been financial services hub rivals in Asia and their competition has now extended to Islamic finance. The report states that the Islamic finance is not to cater for their relatively small Muslim populations, but rather to encompass all areas of financial services as well as attract the petro-dollars from the Middle East.

Describing Hong Kong’s and Singapore’s effort as wholesale as opposed to Malaysia’s and Indonesia’s “more retail approach”, Cerulli said the Singapore government had decided several years ago that as trade with its Middle East counterparts increased, there would be a need for an Islamic finance industry. Its Middle East trade doubled to US$37 billion in four years to the end of 2007.

“MAS has been proactive in trying to create a level playing field for the conventional and Islamic approaches – in 2005, for example, it remitted the additional stamp duties that Islamic financing arrangements on property were incurring, and allowed banks to offer Murabahah financing,” the report stated.

Cerulli added that income tax and goods and services tax (GST) treatments for Shariah-compliant financing arrangements and Sukuk were clarified and given a level playing field as conventional products. “Retail investors in Murabahah are now given the same regulatory protection under Singapore’s Bank Act as any conventional depositor. And a 5% concessionary tax rate was announced in February 2008 on income derived from qualifying Shariah-compliant financial activities, including lending, fund management, insurance and reinsurance.”

Cerulli noted that the significant step in Singapore’s Islamic finance push came with the formation of the Islamic Bank of Asia (IB Asia) in June 2007. Singapore’s largest bank, DBS, holds the majority share in the bank together with Middle East investors. IB Asia has since opened a representative office in Bahrain. It focuses on Shariah-compliant commercial banking, corporate finance, capital market and private banking services.

According to Cerulli, the Sukuk issuance working on reverse inquiry that would be issued based on the needs of the republic’s financial institutions could boost the development of Islamic finance. However it would not be the republic’s first issuance as there have been several other issuances such as the MBB Sukuk Inc established by Maybank that raised US$300 million two years ago.

Cerulli observed that Singapore has its own Shariah index, the FTSE SGX Asia Shariah 100 Index, which is designed to be used as a basis for exchange-traded funds and over-the-counter trading instruments although it maintained that none have yet been launched. “There are currently six managers with Shariah funds registered in Singapore who are collectively responsible for assets worth about US$470 million, although this figure was somewhat higher prior to the current financial crisis.”


Click on the image for an enlarged preview

Shariah-compliant funds have also found a place in Singapore. Cerulli states that NTUC Income, a cooperative insurance society and a leader in life and general insurance with more than 1.8 million policyholders, currently offers the republic’s two largest Shariah funds.

The Amanah Bond Fund is managed by RHB Investment Management and CIMB-Principal Asset Management. It had US$157 million under management at the end of October last year. The other fund is NTUC’s Amanah Equity Fund, described by Cerulli as a global passive product, which is managed by State Street Global Advisers and has US$164 million under management. NTUC also offers a Takaful fund, jointly managed by NTUC Income and Wellington International Management with US$55 million under management.

Cerulli’s report also notes that other local players offering funds include UOB Asset Management, Singapore Unit Trusts (SUT) and Swiss-Asia Financial Services. UOB Asset Management offers the Afdaal Asia Pacific Equity Fund, for which CIMB-Principal Asset Management is the advisor. SUT, a member company of Malaysia’s Permodalan National Berhad (PNB) Group, has two Shariah-compliant funds: the Ethical Value Fund and Ethical Growth Funds, both being global equity products; while Swiss-Asia Financial Services launched its first Shariah fund, an absolute return Asian equity product named the Mashriq Fund, in July 2006.

According to Cerulli, the largest Shariah-compliant investment product sold in Singapore to-date was by a group called Pacific Star Investment and Development, which sold the now closed Baitak Asian Real Estate Fund at US$600 million. On offshore funds, Cerulli states that the available Shariah-compliant funds from the offshore managers are the DWS Noor range, including an Asia-Pacific equity fund, China equity fund, Global select equity fund, Japan equity fund and a precious metals securities product. “All are sold in Singapore (though they are domiciled in Ireland), as are CIMB Islamic’s Asia-Pacific equity fund and several HSBC products, domiciled locally under the HSBC-Link Ethical brand,” it added.

Source: Eurka Hedeg, Islamic Finance News, 22.04.2009

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January 12, 2009 • 8:58 am 0

Asian Exchanges: Opportunities in Asia’s SouthEast Asian Markets

MALAYSIA-With the financial crisis expected to slow technology adoption throughout the Asia-Pacific region in the coming year, many are expecting some of Asia’s smaller exchanges to play a growing role in the market.

The Vietnam, Thailand and Malaysia exchanges, for example, lag behind some of their neighbors in terms of trading technology. These markets lack some of the basics, and technology vendors in the region will benefit as they fill in the gaps.

Malaysia introduced a new trading platform in early December aimed at improving latency and allowing traders to access the exchange electronically. “As the Malaysian marketplace progresses, we must leverage new technologies to allow market users and investors access to more trading opportunities,” says Dato’ Yusli Mohamed Yusoff, CEO of the Bursa Malaysia Berhad. As the exchange goes, local brokerages will likely follow suit, adopting new technologies to stay competitive.

Traders and technology vendors also have their eyes on Vietnam and Thailand. GL Trade is planning on adding Thailand to its own DMA platform in 2009, going through local brokerage Seamico Securities Public Company Ltd.

Vietnam operates with an electronic matching system, but traders are still waiting for the exchange to improve its communication with brokerages. Other small exchanges are expected to come on the scene in 2009, including the Cambodian Stock Exchange, a joint venture between the Korea Exchange and the Cambodian government. The exchange may be small, but for technology vendors, the new markets will help keep sales up in tough times.

Source: Watersonline by Lauren Hilgers, 06.01.2009

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January 6, 2009 • 7:08 am 0

Asia facing growth shock as economic slump deepens

Singapore’s economy may shrink more than previously forecast in 2009, foreshadowing a deepening slump throughout the region as exports and manufacturing contracted further in China, South Korea and Australia.

China’s manufacturing declined for a fifth month in December, South Korea’s exports fell by more than 15% for a second month, and Australian manufacturing shrank, reports on Friday showed.

Singapore’s economy may contract as much as 2% this year, worse than a November prediction, the government said on Friday.

“Asia is facing a growth shock with indicators suggesting the contraction will be as sharp as during the depth of the Asian financial crisis,” said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. “There will be more fiscal pump-priming and monetary-policy loosening forthcoming over the next three to four months.”

Public spending packages and interest-rate cuts by governments and central banks around the world have failed to reverse a worldwide economic slump and the worst credit crunch in seven decades. Asia’s export-driven economies are slowing as demand for their products diminishes amid recessions in the US, Japan and Europe.

Overseas shipments by India are also falling, and Vietnam this week said its 2008 economic expansion was the weakest in nine-years.

Among Southeast Asia’s three biggest economies, Thailand says it’s at risk of falling into a recession this quarter, while Indonesia and Malaysia expect growth this year to be the slowest since 2001.

‘Tough time’

The World Bank last month predicted international trade will shrink in 2009 for the first time in more than 25 years. Exports account for about 32% of Asia’s gross domestic product, according to the World Bank. Japan, China’s Hong Kong, Singapore and New Zealand are already in recession.

Singapore’s recession this year may be the worst in its 43-year history, Citigroup Inc economist Kit Wei Zheng wrote in a note. “It’s going to be a tough time across Asia,” said Alvin Liew, an economist at Standard Chartered Plc in Singapore. “We don’t see any bright spots in the Singapore economy, especially in the first half.”

Singapore’s Chartered Semiconductor Manufacturing Ltd and Taiwan Semiconductor Manufacturing Co, two of the world’s three largest custom-chipmakers, last month lowered their earnings projections amid delayed orders and a slump in demand.

In South Korea, President Lee Myung-bak on Friday pledged to help bring down interest rates amid concern the economy may enter its first recession since 1998 by June as exports slow and consumer spending weakens. Overseas shipments fell 17.4% in December, after a 19% decline the month before.

Worst to come

“We won’t waste a minute or a second in examining economic conditions every day and coming up with measures,” Lee said. “Most of all, we have to ensure money flow in the markets.”

The worst global financial crisis since the Great Depression in the 1930s will deteriorate further, said New York University Professor Nouriel Roubini. “The entire global economy will contract in a severe and protracted U-shaped global recession that started a year ago,” Roubini said. “A hard landing for emerging-market economies may also be at hand.”

Still, HSBC’s Neumann forecasts a rebound in Asian growth in the second half of 2009 as government spending boosts domestic consumption. “Governments across the region have promised a very significant fiscal stimulus,” Neumann said.  “We believe that Asia will be able to generate enough domestic demand to lead a recovery in growth

Source: Intellasia / Chinadaily 05.01.2009

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