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Shayne Heffernan is an Economist, Trader, Fund Manager and Venture Capitalist based in Asia. He also serves as Editor and contributor at www.livetradingnews.com, Founder of The Heffernan Group and currently building the company's financial services business in China. Major shareholder and CEO... More
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  • ASEAN Attracts Investors And Manufacturers

    Last year, the total trade between ASEAN and the United States showed a 9.2 percent increase, growing from $178 billion to $194 billion.

    ASEAN imports from the United States increased by 8.6 percent to $76.4 billion while exports grew 9.8 percent to $118. 2 billion.

    It said that the United States remained the fourth largest trading partner of ASEAN and, collectively, ASEAN is the fifth largest goods trading partner of the United States.

    In the investment side, it said that the United States remained the third largest foreign direct investor in ASEAN.

    According to the United States' data, last year, the US foreign direct investment stock in ASEAN countries was $159.6 billion, up 11.2 percent compared to 2010. ASEAN foreign direct investment stock in the United States demonstrated even stronger growth, increasing 13.1 percent to $24.6 billion.

    "Asean is the most attractive destination in the eyes of Japanese investors at this time. More and more new players are showing interest in investing here," says Setsuo Iuchi, the president of Jetro's Bangkok office.

    "The region has abundant natural resources and low-cost labour, and therefore it will continue to be our priority in foreign investment in the coming years."

    Each country in Asean has its own strengths in specific areas, and the investment models vary from one place to the next, said Mr Iuchi, who is also the chief representative for Asean and South Asia of the Japan External Trade Organisation (Jetro).

    But as a single entity, the region has been gaining momentum, capacity and credibility in world competitiveness. Japanese foreign direct investment in Southeast Asia last year was between 600 billion and 700 billion yen (220-260 billion baht) - more than what Japanese companies invested in China.

    In the first half of this year, according to the Board of Investment (BoI), Japanese investors applied for incentives for projects worth a total of 130 billion baht for incentives.

    "Half of the Japanese investors visiting my office for advice and guidance are interested in investing in Thailand," said Mr Iuchi. "The environment and the workers here are very warm and welcoming. And importantly, Thailand has a very fine location is being the centre of this region".

    AmCham Singapore said on Thursday its survey of 356 senior executives working for U.S. companies in the region showed that 21 percent planned to reduce reliance on China by moving some businesses to Southeast Asia over the next two years, up from 15 percent in a 2011 survey.

    According to AmCham Singapore, 92 percent of the executives surveyed said they were positive about investment opportunities in the Association of Southeast Asian Nations, or ASEAN - a regional grouping that comprises Indonesia, Thailand, Malaysia, Singapore, Vietnam, the Philippines, Myanmar, Cambodia, Laos and Brunei.

    Malaysia and the Philippines were the top choices for expansion, with both getting cited by 27 percent of respondents with plans to reduce their reliance on China. In a survey last year, 21 percent of those expecting to move some operations favored Malaysia, and 11 percent cited the Philippines.

    In the new survey, the next most favored destinations were Vietnam and Thailand, with 24 percent each. The proportion citing Vietnam was down from 34 percent in the 2011 survey, when it was the top choice.

    Indonesia was cited by 23 percent, compared with 11 percent last year.

    After two decades of focusing on trade, Chinese companies are now increasingly interested in investing in ASEAN. The turning point was in 2010, when the China-ASEAN Free Trade Agreement took effect.

    The pact created the third-largest free trade area in the world after the European Union and the North America Free Trade Area - Canada, the United States and Mexico. Its emergence prompted China's Vice-Minister of Commerce Gao Hucheng to note that "investment between both sides has entered a stage of more rapid expansion".

    ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam - 10 countries with 584 million people and a combined GDP of about $6 trillion in 2010, about the same as China's but with half the population.

    "Relative to trade, investment has been relatively low," said Frederick Gibson, an associate economist at Moody's Analytics who focuses on the region. "But the agreement in 2010 paved the way (for growth)."

    A number of initiatives are facilitating mutual investment in China and ASEAN countries.

    Investment attention turning to ASEAN

    The China Council for the Promotion of International Trade has an information platform on investment in ASEAN countries, including awards. The ninth edition of the China-ASEAN Expo, an annual event, will be held in Nanning, capital of South China's Guangxi Zhuang autonomous region, in September, highlighting the growing investment links between the two.

    By the end of 2010, more than 1,000 Chinese companies had invested about $2.9 billion in Indonesia, a jump of 31.7 percent from 2009. Chinese companies are also looking for acquisitions and joint ventures in sectors such as oil, gas and coal.

    Chinese telecommunications giant Huawei Technologies Co Ltd first started setting up subsidiaries and branches in ASEAN countries in 1999. By 2005, it was controlling about 20 percent of the mobile network market. In 2011, the company announced plans to lay underwater cables between Malaysia and Indonesia to provide more communication bandwidth.

    It has been particularly successful in Indonesia, though, according to Huawei Indonesia Deputy Director Dani K. Ristandi, it wasn't easy entering the Indonesian market. Despite initial difficulties, the company notched up a sales revenue of $1 billion in 2010.

    In Malaysia, Chinese companies are investing in high value-added petrochemical manufacturing, underlining the push toward more qualitative investment in the region, and not just resources extraction or cheap manufacturing. Eight Chinese companies are listed on the stock exchange in Kuala Lumpur, the largest of them being China Stationery, which went public last November.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TTF, THD, EIDO, IDX, EPHE, EWM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Aug 30 6:25 PM | Link | Comment!
  • Economist Shayne Heffernan Looks At The Upcoming Long Weekend In The USA

    This is shaping up as a rough long weekend for stocks, Friday we will hear from The Fed and the high hopes of QE3 will be dashed, Saturday China will most likly report a shrinking PMI and Europe is looking at a decade long recession.

    Everyone should be reviewing their current portfolio and selling off stock that are near their highs, sell anything trading at over 20 in PE terms, and if you are looking to buy then buy companies with low PEs and I would suggest a focus on Emerging Markets where the economies are still growing.

    As Warren Buffett has said, "be fearful when others are greedy and to be greedy only when others are fearful.

    CHINA

    China stocks are at a low point, the lowest since Feb 2009, often refereed to as the world's growth engine during the financial crisis, China is now facing difficulties as the EuroCrisis contagion reaches Asia.

    China's official manufacturing managers' index, due on Saturday, may have eased to a 9-month low of 50 in August, supporting the case for fresh easing measures by the central bank as the world's second-largest economy struggles against stiff global headwinds.

    Having cut interest rates in June and July, the central bank has been injecting cash into money markets to ease credit conditions further as the economy struggles to regather momentum after registering a slowdown for a sixth straight quarter in April-June, Reuters reports.

    A PMI reading below 50 suggests factory activity contracted, while a number above 50 points to expansion.

    A flash PMI published last week by HSBC showed factory activity contracted in August, the most in nine months on falling export orders and rising inventories, signaling fresh policy action may be needed to support growth.

    "It seems that August was not the bottom for the manufacturing sector. Exports have been weakening sharply entering the third quarter," said Wei Yao, China economist at Societe Generale in Hong Kong. "This may call for faster implementation of policy easing measures.''

    The official PMI has generally painted a rosier picture of factory activity than the HSBC PMI as the official survey focuses on big, state-owned firms, while the HSBC PMI targets smaller, private firms that have limited access to bank loans.

    There are also differing approaches to seasonal adjustment between the two surveys.

    A raft of weaker-than-expected economic data for July, including factory output growth that slowed to its weakest level in more than three years, has cooled market expectations for a quick turnaround in the economy.

    China's annual economic growth could pick up to 7.9 percent in the third quarter from a three-year low of 7.6 percent in the second quarter in response to government policy fine-tuning, according to a Reuters poll in July.

    The official PMI survey will be released on Saturday, at 0100 GMT, ahead of the final HSBC reading due to be published on September 3.

    No QE3

    QE3 will make no difference to the USA Economy, companies in the US are already sitting on a record cash hoard, adding to the cash with QE3 would run the risk of introducing inflation in to a high unemployment environment, a disaster for people and corporations.

    The Main reasons why there will be no QE3 are

    We are too close to the Presidential Election for the Fed to intervene in the Economy

    Low interest rates do not matter if banks are not lending to consumers and small businesses, and corporations that are able to borrow money will not lend or invest it. What ould be more effective is to make life easier for small business by dropping regulations and barriers to entry. Removing the rules imposed on banks under the ridiculous Volcker and Dodd-Frank legislation would also help.

    The greatest beneficiaries of the lowest rate policy are the corporations that need money the least, so how does that help?

    Lower interest rates do not provide a sufficient reward to lenders for taking on riskier loans and home mortgages. Therefore home mortgages, consumer loans and small-business loans may be easier to get if rates were higher. Obama's war on Banks has not built a great economy, it has reduced the level of activity and risk banks are willing to take, small business is one of those risks.

    By keeping short-term interest rates pegged near zero and pushing long-term rates below 2%, the FED is advertising that it has no faith in the recovery. If it does not have faith in the economy, they why should anyone else have confidence? It confuses me no-end that when the economy is so bad that QE3 seems justified that the market would rally, why? If the economy is in such a state that intervention is needed that is not an environment to invest in at all.

    The current slow recovery has lasted more than three years. Therefore, one can expect the economy to enter a new recession sometime within the next one to two years. If that happens, the FED must have resources to fight it, firing off a QE3 now would put the future at risk.

    QE3 would only add to the cash hoards of corporations, without making a dent in economic growth or unemployment.

    The best thing the FED can do for now is sit on the sideline and wait for the actions it has taken in the past to have their full effect. Doing nothing is sometimes the best action of all.

    What they could do is work to increase the pressure on Europe to reach a final outcome, not an endless political round about, if that means Europe collapses then, OK.

    EuroCrisis

    European banks have been encouraged to buy up the bad debts of ailing economies in southern Europe by the European Central Bank. At the start of this year, the ECB made over a trillion euros available in cheap loans for such purchases.

    The current estimated total of bad loans is double the 2008 figure. The most rapid rates of growth in bad loans have been recorded by banks in Italy, Spain and Greece. The massive rise in bad debt in the vaults of European banks has in turn led to a marked downturn in interbank lending. In June, these interbank transactions reached their lowest level since the outbreak of the financial crisis in 2007.

    It was the collapse in interbank lending in 2008 that prompted governments in Europe and around the world to pump trillions into the international banking system. In September of last year, the president of the European Commission, José Manuel Barroso, admitted that: "In the last three years, member states-I should say, taxpayers-have granted aid and provided guarantees of €4.6 trillion to the financial sector".

    Europe's statistics agency, revealed that the economies of both the eurozone and the European Union, which has 27 countries, shrank by a quarterly rate of 0.2 percent in the second quarter of the year. In the first quarter, output for both regions was flat. A recession is officially defined as two straight quarters of falling output.

    Europe's debt woes have been blamed for the sharp deterioration in the global economic outlook over the last few months. The region is the U.S.'s largest export customer and any fall-off in demand will hit order books, as well as President Barack Obama's election prospects.

    The 17-country eurozone is grappling with sky-high debt levels and record unemployment of 11.2 percent. Compared with the second quarter of last year, the eurozone's economy is 0.4 percent smaller.

    The region's economy would have slipped into recession had it not been for better-than-expected GDP figures from its two leading economies, Germany and France. Germany, Europe's biggest economy, posted quarterly growth of 0.3 percent, better than the 0.2 percent uptick forecast. France also beat expectations of a small contraction in its output to record no change in its economy for the second quarter.

    For those countries at the front-line of Europe's debt crisis, the figures make for grim reading. Unsurprisingly, Greece is faring the worst - its economy is 6.2 percent smaller than a year ago and back at the level it was in 2005.

    Portugal suffered a big 1.2 percent drop in output in the second quarter, compared with the previous quarter's modest 0.1 percent drop.

    Both Greece and Portugal have received financial bailouts from the other eurozone countries and the International Monetary Fund and were required to adopt tough austerity measures in return.

    Italy and Spain, the eurozone's third- and fourth-largest economies, shrank by 0.7 percent and 0.4 percent respectively in the second quarter.

    Both countries are struggling to convince markets they have a strategy to get a grip on their debts. Spain has even agreed to a bailout of its banks.

    Unemployment in Europe

    The jobless rate in the euro area reached the highest on record as the festering debt crisis and deepening economic slump prompted companies to cut jobs.

    Unemployment in the economy of the 17 nations using the euro reached a revised 11.2 per cent in May and held at that level in June, the European Union's statistics office in Luxembourg said today. That's the highest since the data series started in 1995. In Germany, unemployment climbed for a fourth straight month in July, a separate report showed.

    Policy makers are weighing options to counter the turmoil that has forced five euro-area nations to seek external aid, eroded investor confidence and pushed companies to trim their workforces. European Central Bank President Mario Draghi, who met with US Treasury Secretary Timothy Geithner yesterday in Frankfurt, has pledged to do everything to preserve the euro.

    Aug 29 4:41 PM | Link | Comment!
  • Shayne Heffernan ASEAN Daily Outlook

    Economist Shayne Heffernan Tales a Look at ASEAN

    Bernanke is due to address central bankers at an annual meeting in Jackson Hole, Wyoming, on Friday, with investors hoping he will outline plans for further measures to boost the world's number one economy. Stocks edged higher on Wednesday, continuing a string of low-volume sessions.

    Gross domestic product expanded at a 1.7 percent annual rate, the Commerce Department said on Wednesday, as stronger export growth offset a pull-back in restocking by businesses wary of sluggish domestic demand.

    While that was an improvement on the government's first estimate of 1.5 percent published last month and the composition of growth was fairly favorable, it was insufficient to cut into an unemployment rate that ticked up to 8.3 percent in July.

    The lack of stronger job growth, along with the uncertainty stemming from Europe's debt crisis and fears of big U.S. government spending cuts and tax hikes in 2013, could compel the U.S. central bank to offer additional stimulus by year end.

    Singapore

    Singapore's economy would expand by 2.9 percent this year before firming up to 3.4 percent in 2013, and Singapore has ample policy space to mitigate the effects of a steeper global growth slowdown or financial turmoil, the International Monetary Fund (IMF) said.

    "Singapore's growth performance over the past year has been driven by global and regional events," the IMF said Monday in a report.

    A poor second half of 2011, reflecting deteriorating global activity as well as regional supply disruptions from natural disasters, was followed by a strong bounce-back in the first quarter of 2012, as the easing of supply disruptions boosted manufacturing exports, reported Xinhua citing the report.

    Singapore's gross domestic product (GDP) growth was expected to weaken in 2012, even as inflation pressure remained high. The strong global growth impulse seen earlier this year has given way to tepid world demand, the global lender said in its annual economic and financial checkup of the Asian economy.

    Global financial turbulence has over the past year continued to cause volatility in Singapore's equity and currency markets. Housing prices and transaction volumes have moderated, particularly in the private housing market, but local banks' exposure to the real estate sector was high, added the IMF.

    Malaysia

    KLCI index lost 1.53 points or 0.09% on Wednesday. The Finance Index fell 0.04% to 14772.52 points, the Properties Index dropped 0.27% to 1056.21 points and the Plantation Index down 0.35% to 8609.79 points. The market traded within a range of 4.94 points between an intra-day high of 1650.52 and a low of 1645.58 during the session.

    Actively traded stocks include PASUKGB, UTOPIA, LUSTER, THHEAVY, INSBIO, UTOPIA-WA, TMS, INGENS-WA, THHEAVY-WA and PERMAJU. Trading volume increased to 1262.74 mil shares worth RM1295.65 mil as compared to Tuesday's 1210.79 mil shares worth RM1106.56 mil.

    Leading Movers were DIGI (+4 sen to RM4.84), IHH (+6 sen to RM3.17), UMW (+12 sen to RM10.22), PETDAG (+22 sen to RM22.82) and TENAGA (+1 sen to RM6.83). Lagging Movers were GENTING (-12 sen to RM9.02), GENM (-6 sen to RM3.30), KLK (-32 sen to RM23.24), AIRASIA (-5 sen to RM3.50) and PETCHEM (-3 sen to RM6.50). Market breadth was negative with 352 gainers as compared to 363 losers.

    Thailand

    -- Thailand's trade deficit widens in July as euro-zone crisis weighs on exports.

    -- Commerce ministry will revise government's 2012 exports growth target after Sept. 3 meeting.

    (Adds deputy minister's comments in third and sixth paragraphs, more trade data in fourth paragraph, production data in fifth paragraph, comments from finance minister in seventh paragraph, and comments from central-bank governor in final paragraph.)

    BANGKOK--Thailand's trade deficit widened in July as the euro-zone crisis continued to weigh on exports and pressure local production, the Ministry of Commerce said Wednesday.

    Based on raw customs data, exports fell 4.46% from a year earlier to $19.54 billion, while imports surged 13.73% to $21.29 billion, resulting in a trade deficit of $1.75 billion for July compared with June's $550 million deficit, Deputy Commerce Minister Poom Sarapol said at a news conference.

    The fall in exports was due to declines in both industrial and agricultural products, including electronics equipment, rice and rubber, he said.

    Over the first seven months of the year, exports declined 0.4% to $131.81 billion, while imports rose 10.50% to $143.90 billion, resulting in a trade deficit of $12.09 billion.

    Indonesia

    The JCI closed at 4,093.17 - the lowest since August 8 - on Wednesday, bucking regional trends as benchmark indices in Japan, South Korea and Singapore rose. Markets in Malaysia and mainland China dropped.

    Bumi Resources fell even further on Wednesday, dropping 13.16 percent and closing at Rp 660. The coal giant posted a $334.1 million loss in the first half of this year as it struggled to pay the interest on its large debt.

    The nation's second-largest coal producer, Adaro Energy, slid 2.86 percent, while Borneo Lumbung Energi & Metal fell 3.7 percent to close at Rp 520 as demand shifts amid weakening global demand.

    Shares in Indonesia's largest automaker, Astra International dropped 2.10 percent to Rp 7,000. State-owned enterprises continued to slide, with Bank Mandiri, Indonesia's largest bank by assets, falling 4.29 percent to close at Rp 7,800. Cement producer Semen Gresik dropped 3.88 percent to Rp 12,400 a share.

    Shares in the nation's largest telecommunications firm, Telekomunikasi Indonesia, remained flat on Wednesday.

    Investor activity will likely remain light ahead of US Federal Reserve Chairman Ben Bernanke's speech before central bankers on Friday in Jackson Hole, Wyoming. Bernake's comments are expected to shed some light on the state of the US recovery.

    Philippines

    The Asian Development Bank believes that the Philippines will attract more foreign private equity funds (PEFs) once the country activates its own $625-million infrastructure fund.Under the Philippine Investment Alliance for Infrastructure (Pinai), a pool of resources will be drawn from the Government Service Insurance System (GSIS), a unit of the Macquarie Group, APG Asset Management, and the ADB itself.

    GSIS will contribute the most with $400 million, while ADB will provide $25 million. The two foreign firms will account for the rest.Once it becomes operational, the government may tap the Pinai fund to finance some of its priority infrastructure projects.

    "[Pinai fund] is anticipated to generate a development impact well beyond the initial investment by leading to the launch of additional PEFs in the country, attracting additional foreign capital, and further developing domestic capital markets," ADB said in a paper on the Pinai fund. ADB said that with the Pinai fund, foreign PEFs would gain more confidence to do business in the Philippines.

    The development bank said that private sector investments in public infrastructure could reach 4 percent of the country's gross domestic product with the disbursement of the Pinai fund. "Equity direct investments create a significantly higher multiplier effect as new capital attracts additional investment and financing in underlying investments," ADB said.

    Spending for public infrastructure in the country is below 3 percent of GDP, below the 5-percent average for Southeast Asia. Insufficient infrastructure is often cited as one of the key reasons why the Philippines lags behind its neighbors in the area of attracting foreign direct investments.

    Yesterday in Asia

    Tokyo gained 0.40 percent, or 36.52 points, to end at 9,069.81 and Seoul added 0.64 percent, or 12.21 points, to 1,928.54. Sydney closed flat, edging down 0.07 percent, or 2.98 points, to 4,356.4 points.

    Hong Kong fell 0.12 percent, or 23.29 points, to 19,788.51 and Shanghai eased 0.96 percent, or 19.91 points, to 2,053.24, its lowest since February 2009.

    - Taipei rose 0.40 percent, or 29.21 points, to 7,391.15.

    Taiwan Semiconductor Manufacturing Co. was 0.36 percent higher at Tw$82.7 while leading smartphone maker HTC gained 2.01 percent at Tw$253.5.

    - Manila closed 0.39 percent higher, adding 20.10 points to 5,195.72.

    Metropolitan Bank and Trust rose 1.39 percent to 94.85 pesos and SM Prime Holdings added 0.29 percent to 13.80 pesos.

    - Wellington closed flat, edging down 0.66 points to 3,628.39.

    Telecom was down 0.2 percent at NZ$2.43 and Air New Zealand was flat at NZ$0.90.

    - Bangkok fell 1.05 percent, or 13.00 points, to 1,220.16.

    Energy firm Banpu gained 0.45 percent to 446 baht, while energy giant PTT lost 0.30 percent to 333 baht.

    - Kuala Lumpur stocks were flat, losing 0.09 percent, or 1.53 points, to close at 1,645.58.

    Kuala Lumpur Kepong Bhd fell 1.4 percent to 23.24 ringgit while PPB Group Bhd was down 0.7 percent to 13.98 ringgit.

    - Singapore was flat, closing up 0.05 percent, or 1.50 points, at 3,041.57.

    Olam International fell 2.01 percent to Sg$1.95 while DBS Group added 0.83 percent to Sg$14.62.

    - Jakarta closed 1.20 percent, or 49.68 points, lower at 4,093.17.

    Mining company Aneka Tambang fell 1.57 percent to 1,250 rupiah, Astra International fell 2.10 percent to 7,000 rupiah, while Indocement slid 3.12 percent to 20,200 rupiah.

    - Mumbai fell 0.80 percent, or 140.90 points, to 17,490.81.

    Sterlite Industries, the local arm of global resources group Vedanta, fell 4.69 percent to 99.6 rupees while leading motorcycle maker Bajaj Auto slid 3.96 percent to 1,627.25 rupees.

    Aug 29 4:33 PM | Link | Comment!
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