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    Gavekal Research

    Where The Rubber Meets The Road

    0
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    Did The BoJ Just Lay Down Its Cards?

    Jacques Rueff famously said that inflation subsidizes expenditures that give no returns with money that does not exist. According to this definition, yesterday’s decision by the BoJ to increase its asset purchase program from the existing ¥55trn to ¥65trn, all of which will be done through an additional purchase of long-term JGBs before the end of this year, should help the BoJ hit its new objective of a 1% annual increase in CPI. A reality...

    8
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    Bank Indonesia Bets On Growth

    Last week we explained the structural reasons why Indonesia is unlikely to realize the economic growth potential that has made it one of the darlings of emerging-market investors (Indonesia’s Missed Opportunity). This week we offer a more optimistic interpretation, based on a fascinating battle now brewing between the central bank, Bank Indonesia, and the commercial banks. In most countries, commercial banks lend recklessly until the central...

    3
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    Indonesia's Missed Opportunity

    4
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    Is The Asian FX Hedge Back?

    7
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    Monthly Chart Book - Asian Economies Face The 'Chinese Century'

    In this, our last and final monthly chart book before returning to our quarterly format, we take a close look at the main economies of northeast and southeast Asia, other than China. Over the past decade, all these economies have had to adjust to the reality of life as satellites of the neutron star that is China. Before the Asian Financial Crisis of 1997-98, China -- despite its spectacular growth rates -- only accounted for one-third of GDP...

    1
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    Burma's Cash-Poor Farming Sector

    While the recent flurry of interest in Myanmar/Burma has largely focused on its rich energy and natural resources potential, and possible low-end manufacturing/industry relocation, by far and away the largest employer of its 60 million population is the agricultural, rural economy. We recently read an excellent study by Burma expert David Dapice of Tufts University, called “Recapitalizing the [Burmese] Rural Economy”, based on a year-long, on-...

    0
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    Japan it is a-Changing - Really!

    Forecasting dramatic change in Japan has not been a rewarding exercise for most of the past two decades. Nonetheless, we believe that several catalysts are now aligning that could cause a change fairly soon in the recent status quo of high yen, low bond yields, undervalued equity market valuations and low volatility. The key factors include:

    13
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    Structural Pain in Philippine Exports

    Asian exporters have had a rough ride over the past year. But even in that company, the Philippines has had a staggeringly hard run, with exports falling for seven straight months, including November’s –19.5% YoY plunge. One would think it was the Philippines, rather than Thailand or Japan, that suffered a natural disaster this year...

    0
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    Mansions in Communist India

    We recently visited Kochi, a port city in the southwest Indian state of Kerala. Fort Kochi, formerly a Portuguese and then Dutch colony, is a major tourist destination. Most visitors take in Fort Kochi and then head down to the “backwaters” for a boat tour of this a chain of brackish lakes and waterways that head inland along the Keralan coast. The drive down from Kochi to the city of Alleppey, where most set off into the backwaters, yielded...

    0
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    Daily - Will 2012 Be Better for Asian Assets?

    For those of us based here in Hong Kong, 2011 was a year that saw soaring office rents, restaurants booked out, taxis hard to hail, airplanes and subway trains packed, and even bouncer-controlled queues at designer handbag shops. In other words, from the ground, it felt very much like a roaring bull market. The problem for investors, however, is that it did not trade like one. In fact, Asia underperformed in nearly all categories; stocks sold...

    0
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    Daily - The Not-So-Strange Stability of Communist Regimes

    Why do repressive regimes stick around for so long? And when they finally fail, why do they fail? Earlier this year we saw protests which toppled long-standing dictatorships in Tunisia in Egypt in a matter of weeks, and an insurrection that ended Muammar Qaddafi’s hold on Libya in a few months. Stable on the surface, it turns out these autocracies were built on foundations as sandy as the deserts they governed.

    0
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    Indonesia Gets Its Upgrade & Its Land Bill

    Last week was a good one for Indonesia. On Thursday Fitch Ratings upgraded Indonesia’s long-term debt to investment grade, and on Friday the parliament passed a hotly-debated land acquisition bill. The first piece of news brought immediate awards for bond holders, but we believe the second is actually more important for Indonesia’s long-term prospects.

    0
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    Europe's Drag on North Asian Exports

    A lot of ink has been spilt trying to analyze the impact of the ongoing EMU crisis with respect to Asian funding needs—after all, a significant share of Asia’s trade financing (USD) comes from European banks (see The Global Funding Environment and Asia). By contrast, there seems to have been less focus on what Euro crisis could mean for Asia’s export industry. And the signs here are not encouraging: Overall, developed world leading indicators...

    0
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    Singapore Property: A Big Change in the Pipeline?

    Singapore property has been a great investment story over the last few years and the city state has a number of key fundamental attributes that will allow it to continue to attract growth and business opportunities for many years to come. Yet unlike Hong Kong, another Asian financial capital that experienced a huge run-up in residential property values, few are calling for a sharp correction in Singapore. Indeed, both Hong Kong and Singapore...

    0
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    Daily - Getting Over Delhi-Belly

    A steady flow of terrible news has issued from the Indian sub-continent recently. The Sensex took a 1,000 point dive in the days following Prime Minister Singh’s embarrassing reversal on efforts to open India’s retail market to greater foreign investment. Meanwhile, India’s commerce ministry admitted to overstating national exports for April through November by US$9bn (4.5%) due to “misclassification and errors.” And on Monday industrial...

    0
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    Singapore's Surprising Austerity Move

    This is an interesting move. Two potential motives stand out:

    0
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    Japanese Manufacturers Move Abroad

    Japan’s merchandise trade surplus recently fell into deficit for the first time since 2009, as supply chain disruptions from the great earthquake take their toll. While this development may be temporary, it does draw attention to another, longer-term, trend. Japanese manufacturers have steadily increased their foreign investment in recent years, but many are now fast-tracking these plans to mitigate the effects of the high Yen and concerns...

    0
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    KORUS FTA: Another Nail in Japan's Coffin? by Will Freeman

    The Korea-US free trade agreement was finally ratified on November 22, 2011 after more than five years of negotiations. While the FTA will be most helpful to Korea domestic consumers, in terms of cheaper imports and the benefit of more competition, Korea will also receive a marginal competitiveness boost externally in the US market. Moreover, the FTA will help Korea continue to eat away at Japan’s share of the US export market.

    0
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    The Global Funding Environment & Asia

    After the post-Lehman global financial shock, Asian policymakers vowed to wean domestic entities from their dependence on foreign funding. After all, the pain caused by the Dollar squeeze—collapsing currencies, major bank losses on FX derivatives, corporate bankruptcies with goods abandoned at piers, etc—seemed unnecessary, in the sense many countries in the region are not exactly starved of capital resources. Saving rates are high, loan-to-...

    0
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    Japan: Something Will Have to Give, But What?

    In recent weeks, the European sovereign debt crisis has clearly entered into a new, more dangerous, phase with government bond yields across Europe’s periphery rising, and German bond yields no longer falling. As a result, the average European yield is soaring to new decade-long highs:

    0
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    Daily - Is the Rupee Sell-off Almost Over?

    As global risk assets sell off on back of the unfolding Euroland disaster, any good news is bound to get tuned out. Take for example India, where the Rupee remains under heavy pressure. Because India is an emerging market that depends on inflows to finance its current account and fiscal deficits (see India’s Borrowed Reserves and Other Headaches), the country remains vulnerable to liquidity squeezes (and we are now getting increasing signs of...

    0
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    Daily - Looking for Signs of EMU-Related Funding Stress in Asia

    European banks are essentially the world’s most global banks—providing, for example, more US$ loans to the rest of the world than US banks do. Indeed, the EMU played a lead role in the growth in the global funding market from 2000-2007—when total global cross-border claims on average grew by +5% of global GDP every six months (see chart), rising as high as US$22.5 trillion before the bust in 2008.

    0
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    Gavekal Research

    Floods and the Thai Investment Landscape

    Despite the extent of the Thai flood damage, often described as a slow moving tsunami, the SET however is up +7% since October 1st (and virtually flat in November, a very tough month for Asian assets). The reason for this resilience, is because the flooding has impacted on the revenues of only a very few of listed Thai companies. Indeed, despite total economic losses arising from the floods amounting to THB400-500bn (or 4-5% of GDP), the worst...

    0
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    Turning Japanese

    We dedicated a portion of the latest Monthly Chart Book to comparative demographics. In particular, we looked at the "prime worker ratio", or the ratio of people aged 20-59 to those 60+. This ratio is a significant determinant of long-term growth rates: if a country has a lot of people of prime working age and relatively few retirees, its tends to get higher growth rates.

    0
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    Don't Despair About Asia

    This year has been a difficult one for Asian fund managers. The US economy has struggled up until very recently, and the EMU crisis keeps getting worse no matter what politicians do. Meanwhile, the Asian economies have weathered this economic landscape surprisingly well (see A Different Asian Sell-Off). But contrary to what is suggested by the diverging economic fundamentals, most Asian markets have underperformed the OECD. Thus, it is not...

    0
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    Daily - So How Will Asia Fare as the EMU Falters?

    Yesterday’s blistering sell-off in Asian equities served as a reminder that we are all in this together: Europe’s financial crisis and likely coming recession will have global reverberations. Yet while politicians have been backed into the wall in the EMU, and to some extent the US (as the Super Committee hearing may soon remind us), in Asia the policy options are more numerous. Moreover, despite the region’s continued dependency on exports to...

    0
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    Daily - The Eerie Quietness of Japan

    In the midst of the 1907 panic, JP Morgan was asked by a reporter what the market would do in the coming weeks. He replied that “it will fluctuate”. A little over a century later, and with Europe confronting its own crisis, this observation definitely still applies (the World MSCI fell -8.9% in September, before rallying back +10.3% in October) though oddly enough, not in Japan! Indeed, against the backdrop of a massive spike in global equity...

    0
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    India's Borrowed Reserves and Other Headaches

    With its twin deficit status, India has seen the worst equity and currency performance of any major Asian country so far this year. One would expect that its foreign reserve position would reflect this disfavor, but in fact India’s foreign international reserves have expanded by nearly +7% in the past year, to $319bn, even as its trade deficit widened. How can we explain this conundrum?

    0
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    Australia: Implications of an Easing Cycle

    Last week the RBA cut the Australian policy rate from 4.75% to 4.5%, citing declining inflationary pressures. These falling pressures are symptomatic of a slowing domestic economy (see Australia’s Boom Fades), as Australia’s non-mining economy remains uncompetitive with the AUD around current levels. Thus, in absence of a sustained correction in the exchange rate, we expect more rate cuts over the coming quarters. Just how much the RBA eases...

    4
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    Has Japan Drawn a Line in the Sand on the Yen?

    The Yen plunged from an all-time high ¥75 to the USD to ¥79 on Monday October 31st, after the Bank of Japan intervened on the currency with a record ¥7.7trn (US$100bn) sold. This is Japan’s third intervention effort this year, but there are several notable features about this one that suggests the new Minister of Finance Azumi, who sets currency policy, will be more assertive than his predecessor (now Prime Minister Noda):

    2
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    Gavekal Research

    Italy or Indonesia?

    These days Asian sovereign fixed-income markets have qualities that few countries in the West can boast. Despite the 2009 stimulus spree, most nations in the region have reasonable debt-to-GDP ratios, undervalued currencies, ample foreign exchange reserves, relative political certainty, and strong growth rates. Great qualities—yet some of these countries still have yields that pay nearly as much as Italy’s beleaguered signature!

    0
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    Daily - BoJ Intervention Adds to a Strong Dollar Scenario

    After asking in Friday’s Daily whether the risk-on/weak US$ correlation should abate, we received enquiries from clients, who find this hypothesis puzzling and doubtful. Yet historically, there are a number of periods when risk and a strong US$ were not adverse (e.g., 1981 to 1985 and 1995 to 2000). Moreover, as we argued in A Structural Turning Point for Markets, from 1995-2008 a Ricardian growth model dominated, as comparative trade...

    0
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    Is Bank Indonesia Playing With Fire?

    However, the BI is often quick to cut policy interest rates but slow to hike them, usually due to political pressure from influential Jakartans (see Bank Indonesia Versus The World). Is the central bank taking a big risk with its premature easing? After all:

    0
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    Evidence Mounts That Thai Inflation Will Rise

    Earlier this month Thailand’s Finance Minister, Thirachai Phuvanatnaranubala, and the Bank of Thailand Governor, Prasarn Trairatvorakul, agreed to amend the Bank of Thailand’s inflation target. The target will be changed from core inflation of 0.5-3.0%, to total inflation of 3.0% +/-1.5%, effective from January 2012. Authorities argue that this is largely a cosmetic change that makes interpreting monetary policy easier for all concerned, and...

    0
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    Daily - Time for Asia to Outperform?

    Over the past year, macro-concerns have predominantly focused on Europe and to a lesser extent the US, but the equity market pain has been most acute in emerging markets—proving once again that these are markets one cannot emerge from in an emergency. For example, year to date, Hong Kong equities are actually underperforming Italian ones. Taiwan and China have fallen more than the Eurostoxx, and the Indian Rupee has shed a cool –11.5% against...

    0
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    Loans Called in for Indonesia's Bakrie Group

    Indonesia-watchers have been following with interest the news that banks had called in a US$1.35bn loan to the Bakries, one of Indonesia’s biggest and most politically influential business empires. This follows a -40% plunge in London listed Vallar/Bumi Plc since the loan deal last December—the Bumi shares were in used as collateral for a loan to Bakrie & Brothers, and their sharp fall has triggered a mandatory repayment ahead of maturity in...

    0
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    Vietnam: Small Big Steps to Economic Reform

    Vietnam, once a magnet for investors, has been off the radar for a while, suffering from chronic inflation, a run on the currency and a deflating property bubble. There have been headline defaults at state-owned enterprises, which account for 50% of capital investment but only 15-20% of GDP and 5% of employment. SOEs accessed cheap financing and invested in sectors unrelated to core business, becoming huge conglomerates with self-financing arms...

    0
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    The Return of Thaksinomics

    With Thaksin firmly behind the new Puea Thai (PT) government, facets of the former Prime Minister’s management style, branded “Thaksinomics”, have re-surfaced. These policies emphasized less reliance on the export-led, cheap labor model, and tried to stimulate domestic demand and entrepreneurship, backed by state-directed credit schemes. While this helped Thailand achieve fast growth during Thaksin’s rule from 2001-2006, we are less comfortable...

    0
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    An Outlook for Infrastructure Sector in Indonesia

    On our last visit to Jakarta, Raymond Atje, head of economics department at Indonesia’s Center for Strategic and International Studies, reckoned that growth in the country’s manufacturing industrieswas the crucial litmus test in bringing increased maturity to the Indonesian economy. The country’s manufacturing exports as a share of GDP are much smaller than regional ASEAN neighbors; commodities dominate the export sector. The country’s...

    0
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    Where Are We Compared to Sept. 15, 2008?

    The extreme market movements seen recently in Asia are reminiscent of the dark period that hit the region in late 2008. Lehman’s bankruptcy and the subsequent shock to global trade and demand showed that Asia’s positive fundamentals can disappear in the blink of an eye if OECD economies go awry (see Daily—A Binary World after Fed’s Latest Move). Yet the recovery from crisis also taught the world that Asia is capable of strong growth, even as...

    0
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    ASEAN Financial M&A

    ASEAN has experienced reasonably robust M&A and consolidation activity in recent months. The latest news in Malaysia is that of a proposed merger between RHB Capital and OSK Investment Bank that would create Malaysia’s largest stockbroker business. The deal was effectively promoted and sanctioned by Malaysia’ Employees Provident Fund, one of the two national pension funds, which is RHB’s largest shareholder.

    0
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    Daily - An Unlikely Beacon of Stability

    Over the course of the summer, volatility first spiked in equity markets. Shortly thereafter, corporate credit markets were affected. From there, exchange rates started to fluctuate violently and now commodities are leading the way down (copper had a shocking performance last week, and the WTI closed out its worst quarter since 2008 for a new one-year low). But amidst all this turmoil and volatility, the Yen-US$ exchange rate has been a beacon...

    0
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    Will Depreciating Currencies Stoke Asian Inflation?

    During the past year most investors have been keeping a watchful eye on Asian inflation indicators amid signs of a burgeoning regional inflation. Central bankers had been managing this problem primarily through interest rate hikes, and accepting some help from currency appreciation. However, in the past two weeks the Asian currency tide has turned and, thanks to the slowly unfolding USD liquidity squeeze, Asian currencies are now depreciating....

    0
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    A Different Asian Sell-off

    When the global risk-off trade started to really build momentum earlier this summer, we were quite heartened by the resilient performance of Asian currencies. To us, this implied that we were not yet in a full-blown liquidity squeeze, and that fundamentals still mattered. However, during the financial market sell-off of the past few weeks, it seems Asian currencies finally threw in the proverbial towel, with the Korean Won down nearly –9% for...

    0
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    Can Emerging Markets Rescue ASEAN Exporters?

    Exports are equivalent to 90% of Malaysian and 70% of Thai GDP, making them two of the most export-reliant countries in the ASEAN. But both countries now export a much smaller share to the US, Europe and Japan. In Malaysia, this share decreased from 47% to 29% in the last 10 years; in Thailand, from 53% to 30% (the US share dropped from 20% to 9%). Thus, the hope that emerging market demand would make up for any potential slumps in OECD demand....

    0
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    Indonesia Toughens Terms for Foreign Investors

    Jakarta’s upstream oil and gas regulator, BPMigas, is now seeking to raise the price paid by China’s CNOOC for gas sourced from West Papua by over +400%, from US$2.4 per mmbtu to US$12, to reflect existing global prices. This follows a recent successful renegotiation of gas price with Malaysia’s Petronas at another source. By comparison, gas sold to Japan often goes for US$13-18 per mmbtu. The China deal remains unchanged since it was first...

    0
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    Revival of the Trade Balance as a Kospi Indicator? by Jeonghee Lee

    Korea experienced its first proper bull market in the 1980s, due to the liquidity benefits that came with a narrowing trade deficit and eventual surplus. As Korea’s external trade position improved, the foreign debt-to-GDP ratio fell from around 50% in the early 1980s to less than 15% by 1990. With this improvement in domestic liquidity conditions, naturally some of that money found its way into the local stock market. It is this history that...

    0
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    Malaysia's Private Investment Quandary

    Malaysia’s level of domestic investment has been low since the Asian crisis. The country has invested at a rate of 20-25% of GDP over the last decade, well below the 30-50% before the Asian crisis, as private investment has collapsed from well over 25% pre-crisis to about 12%:

    0
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    The Australian Dollar Not as Safe as it Seems

    In recent weeks we have recommended the Singapore Dollar and Malaysian Ringgit as relative safe haven currencies amid the current turmoil. But now that Swiss have drawn a line in the sand, precipitating flows to Asia, will our view on the overvalued Australian Dollar change?

    0
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    Is the Singapore Dollar the New Swiss Franc? by Joyce Poon

    With Switzerland joining the currency debasement race, first the rich and gradually even the average Joe on the Street will look for alternative stores of value for their savings. Here in Asia, two currencies stand out the most as beneficiaries of the search for a new safe haven.

    0
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    Yields attract Asians to Australian Property Market

    Even despite the high level of AU$ and worries about the outlook of the Australian economy, Singaporean and Malaysian investors have continued pouring money into the country’s property market, particularly in office and industrial properties, where prices in Australia are still trading at about -20% off their 2007 peak capital values. Prime Grade A office space in Sydney and Melbourne now offers investors yields of around 7% per annum, much...

    0
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    An Exciting Election by Singapore Standards

    While the President’s position in Singapore is largely ceremonial, the election process which the city underwent over the weekend was anything but. While Tony Tan, the stalwart of the ruling PAP party won and seen as a proxy for the Lee Kwan Yew and Lee Hsien Loong style of government won the race out of 4 possible candidates, he still won only 35% of the vote and defeated his nearest rival, Tan Cheng Bock, by less than a 0.5% margin, or barely...

    0
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    Noda and Japan's Nuclear Future

    In yesterday’s Five Corners, we noted that Japan’s latest “Yen intervention” plan is basically a dressed-up commodities war chest, with much of the US$100bn provided in credit likely to finance purchases of global commodity assets (see Japan’s Latest ‘Commodity’ Intervention). This fund would appear to confirm that Japan’s stated turn away from nuclear power is real, rather than just rhetoric. Yet yesterday Finance Minister Noda was named as the...

    0
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    An Atypical Investment Scenario

    Recently we had a client write to us from India to ask, basically—what in the world is wrong with the global investor? From his perspective, the fundamentals of the OECD are just begging for a major asset re-allocation to emerging markets—such as India (ahem). It is now increasingly likely that many of the OECD economies will remain anemic for years, due to the triple whammy of consumer deleveraging, fiscal austerity and debt deflation. In such...

    3
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    Japan's Latest 'Commodity' Intervention

    For those wondering why Japan’s latest currency intervention is being financed by US$ forex reserves, instead of freshly printed Yen, there is a logical explanation: it is not really an operation to weaken the Yen. More accurately, last week’s program to “assist exporters hurt by the strength of the Yen” is essentially a commodities subsidy program by another name.

    0
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    Chinese Power Firms in India

    With India in the process of massively expanding its power generation capacity (targeting US$400bn of investment in the sector over the next five years and an additional 100,000MW of additional electricity capacity), Chinese power equipment makers have been making big inroads into the sector, winning contracts at the expense of their Indian rivals. Chinese banks have approached Delhi for permission to finance at soft rates more than US$50bn of...

    0
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    Rising Minimum Wage Trend in Asia

    Wage increases in China have been pushing some business to relocate or consider relocating to other Asian countries. But higher inflation is forcing other countries to push up minimum wage laws to promote social stability. According to AFP, Vietnam will hike minimum wages by up to almost +50% for some companies in its major cities such as Hanoi and Ho Chi Minh, effective October 1st, to help workers cope with one of the region’s highest...

    0
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    Daily - Japan Prepares for a New PM

    The promise of an extended US ZIRP has pushed the Yen to fresh highs against the US$, despite threats of further BoJ interventions. Very visibly, Japanese corporates are concluding: “Hey, if it’s a zero interest rate, I can get that at home!” Domestic investors are also repatriating capital en masse, pushing JGB yields back below 1% precisely at the time when the Japanese balance sheet should be pushing investors to run the other way. So here we...

    0
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    Sing Property Update

    Sales of private homes in Singapore have continued strongly in the second quarter, up +21.6% QoQ, with the number of transactions in both the new and secondary sales markets up to 8,458 from the 6,598 deals in the first quarter.

    0
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    Fading Supply Side Disruptions From Japan

    The US economy ground to a virtual halt in the first half of the year, sparking double dip concerns around the world. Surveys pointed towards a gloomier outlook wherever one cared to look. While it is hard to conclude that the US economy is free from trouble, some recent Asian numbers signal a potential lift for global growth—a fading supply chain disruption from the Japanese earthquake.

    0
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    The BoJ Intervenes...To Little Effect

    On August 4th, the Bank of Japan intervened in the FX market, as the Yen broke through 77 to the USD. Impressively, this included the BoJ using Y4.5trn to suppress its currency, double what it used in September 2010, and possibly larger than the amount used by the entire G7 following the March earthquake. Less impressively, of course, was that the intervention had all the staying power of a hedge-fund, private equity, or commodity-trading group...

    0
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    Which Are The Best Asian Safe Haven Currencies?

    As we discussed in Friday’s Daily (see More Ugly Currencies Will Not Help), with the future purchasing power of the US Dollar and the future existence of the Euro in doubt, investors are struggling to identify the currencies which will allow them to best preserve their capital Given recent price actions, the commodity currencies, the Yen, the CHF and gold all seem frothy. The recent price surge in the traditional safe-havens, combined with...

    0
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    Daily - Who Will Lead Out of the Bear Market?

    Following yesterday’s further sell-off, almost every single equity market is now in bear market territory. Almost every equity market is also deeply undervalued against bonds, against gold and against real estate. And needless to say, almost every market is deeply oversold. So why aren’t investors (ourselves included) getting more excited about the opportunities currently offered up by equity markets? The easiest answer is that the uncertainties...

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    Will the Sell-Off Trigger More Policy Cooperation?

    What is causing the selling panic? As usual, there are many possible answers, but the two mentioned most often in market reports and newspaper headlines—the US credit downgrade and the crisis in Italy—are probably overplayed. The US downgrade may inspire lurid headlines, but it has to be viewed by the markets as a non-event or a joke. Indeed, US Treasury bonds enjoyed one of their biggest ever rallies the day after S&P’s announcement, and...

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    Daily - What Impact Will the Latest Currency Interventions Have?

    In the past 24 hours, we have witnessed the Swiss National Bank slash interest rates to as close to zero as possible while easing CHF refinancing options for domestic banks, and the Bank of Japan come into the market to push down Yen from close to its post-war high of ¥76.25/US$. Needless to say, both economies are struggling to cope with the overvaluation of their domestic currencies (even if the CHF is by far looking more expensive than the...

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    A New Singapore Residential Property Index

    The National University of Singapore’s (NUS) real estate department has created an index that monitors the prices of private residential units, including “shoebox apartments,” or private homes that are no more than 47 square meters (500 square feet). These tiny apartments have made overall home prices in Singapore more volatile, according to NUS: shoe box apartments have rocketed up +62% since March 2009, significantly outpacing the +51% overall...

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    The Thai Government's Populist Mandate

    The new Thai government has a lot on its plate. Following its decisive win, the Pheu Thai Party (PT), lead to victory by Thaksin’s sister Yingluck Shinawatra, now has to follow through on its populist campaign pledges. These include a minimum daily wage of THB300 nationwide, an increase of +40-60% depending on locale; a rice price guarantee system that hikes prices by +50%; doubling civil servant salaries; debt refinancing for 5 million farmers...

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    Will the BoT's Independence be Compromised?

    Earlier this month, prospective Thai Finance Minister Suchart Thadathamrongvej caused market jitters when he argued that Thailand should adopt a managed exchange rate regime similar to that in Singapore or China. Although Prime Minister-designate Yingluck Shinawatra countered Suchart’s outlandish statements two days later, these comments do remind us that there are three important monetary policy issues to consider in the wake of Thailand’s...

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    Daily - Slowing Growth Fails to Halt AUD's Rapid Rise

    In May we opined that the over-valued Australian Dollar was due to decline, as the resources boom was not flowing through to the rest of the economy (see Australia’s Boom Fades: What Next for the AUD?). Since then the economic releases have generally supported this thesis: leading indicators have continued their declines; house prices have dropped by -1% YoY and are now down –3% YTD; private credit is now shrinking (total credit -0.1% MoM in...

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    Daily - Rising RMB Leaves Room for Further Asian Appreciation

    Michael Pettis, a professor based in China, recently made an interesting point. He said he does not care who is to blame for the “great imbalances” of the past few years: whether the problem was due to excessive consumption in the US, or excessive savings in Asia. What matters in today’s world is that the Western consumption binge is over. The US consumer is deleveraging, and this trend shows no signs of abating. How will Asia deal with this new...

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    Private Equity in Cambodia

    We met up last week in Bangkok with Doug Clayton, founder of Leopard Capital, Cambodia’s first private equity fund, which also invests in Laos, Vietnam, Bangladesh and Haiti. We talked about the potential risks of investing in these frontier markets and the common perception that the assets of companies in places like Laos and Cambodia can sometimes be hard to quantify.

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    Daily - Is Weakness in Tech Hardware a Broader Indicator for Global Trade?

    There was some hope, after the Global Financial Crisis, that the tech hardware cycle would become less volatile. The idea was that tech firms in countries such as Taiwan, Japan and Korea would merge or step out of the game, reducing capacity and thus gaining future profitability power. This hope quickly died, in part because money has been so cheap and abundant in the post-GFC period that capacity-expansion discipline went straight out the...

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    South Korea's SOE Debt Problem

    After recording three years of budget deficits during Asian crisis in the late 1990s, South Korea has kept its fiscal budget in balance for more than a decade, and now is often highlighted by international organizations like the OECD and the IMF as one of the few governments with sound and stable fiscal policy. While the average G20 country’s debt-to-GDP rose sharply from 78% in 2007 to 97% in 2009, and is expected to rise to 115% in 2015, Korea...

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    Japan's Government Further Hampers Recovery

    Japanese corporations have generally been slow to embrace the offshoring benefits of globalization, and instead they have preferred to maintain production close to home. However, in the past few years, these preferences have been worn down by a stubbornly high Yen (at least relative to the Korean Won), which has persuaded companies to increasingly move segments of their supply chain outside of Japan (see A Catalyst for a Structural Shift in...

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    Daily - No Choice But Reform for the OECD Welfare State

    These days, it is easy to feel despondent about the fate of the developed world, what with the bills rising for the bailout of the weaker EMU countries, Japan struggling under Herculean debt loads as it rebuilds from natural disaster, and now Moody’s putting the US on watch for a credit downgrade as Congress and the administration haggle over a debt-ceiling deal. And unlike even just three years ago, rich-nation governments now have much less...

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    Daily - Pyeongchang 2018 Brings Korean Equities Into Focus

    There are really only a few sporting events that we like to attend: the Rugby Sevens (when you get bored, you can always watch the rugby), the six nations (assuming France does not lose to Italy), the Rugby World Cup (incidentally, the last batch of tickets have just gone on sale on the official website. We have our allocation so are happy) and the Winter Olympics. We were secretly hoping that Annecy would get the nod for the 2018 games. After...

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    A Speech By Mongolia's Ambassador to China

    We recently attended the opening launch cocktail event for Quam Asset Management’s Mongolia fund, which included a speech and presentation by the Mongolian Ambassador to China in Beijing, as well as a number of prominent HK businessmen. The ambassador ticked off a number of the positive forces driving the Mongolian economy and welcomed private investors, citing the country’s lowest corporate tax rate in Asia (10%), its possession of over 60% of...

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    A Deal With Thaksin?

    As we pointed out in yesterday’s Daily, the electoral victory of the pro-Thaksin Puea Thai Party was decisive enough to hope for a peaceful transition of power. A closer outcome might have left more room for the military to intervene, claiming “vote-buying,” fraud or some other pretext. But there is another reason for an expected peaceful transition: according to Shawn Crispin, a 30 year veteran correspondent in Thailand, in the run-up to Sunday...

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    The Tangled Web of India's Fuel Policy

    As we have highlighted in previous research (see Subsidies – Pushing Beyond The Tipping Point, Peels of Discontent, India’s Surprisingly Tough Budget), high inflation and budget deficits remain two of India’s most pressing macroeconomic concerns. One significant contributor to India’s deficit is its fuel policy—which will likely cost the government some 2.4% of GDP in the current fiscal year. Yet the country’s fuel policy is so convoluted, that...

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    Will the Australian Housing Boom Turn to Bust?

    We argued in Australia’s Boom Fades that the Australian Dollar is over-valued, even before considering the impact of a potential commodity slowdown or housing bust. Here we consider one of these bear cases—that of a housing bust.

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    Daily - The Good and the Bad in Thailand's Election

    Even those who consider the return of “Thaksinomics” to Thailand a potential disaster, have to concede that it has happened in the best possible way. With the decisive victory of the populist Puea Thai party in yesterday’s parliamentary vote, Thailand will likely be spared a post-election “event.” Were the election closer (PT won an estimated 264 of 500 seats), then the opposition could have considered claiming fraud, which might have propelled...

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    "Vote No" in Thailand

    Casual observers of Thailand’s elections culminating on July 3rd, mistakenly equate the royalist Yellow Shirt PAD (i.e. those who helped oust Thaksin and shut down Bangkok’s airport a few years ago), with the ruling Democrat DP party. In fact, for the upcoming election, the PAD has basically split from its own political party, and has been publishing campaign posters urging voters to vote “no!”, in other words to tick the option on the ballot...

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    Daily - The Important Level in the World MSCI

    In April 2010, the MSCI peaked around 880 on fears over Greece and the end of QE1. In November 2010, the World MSCI pulled back from that level as emerging markets stopped being the force pushing global markets and economic activity higher. In March 2011, following the devastation in Japan, the World MSCI fell to 876 before rebounding hard; and today, the global equity index stands roughly at the same level, below its 200-day moving average, on...

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    A Lunch with a Malaysian Chief Minister

    When attending one of those functions where a politician tries to attract economic investment to his area of domain, it is unusual for the speaker to start off by making jokes about his time spent in jail. But this was the case at a luncheon hosted by Lim Guan Eng, chief minister of Penang, the small but economically busy Malaysian state. Lim is also the secretary general of the Democratic Action Party, the predominantly Chinese party that is...

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    Japan's Current Sword of Damocles

    The potential restructuring for TEPCO continues to cast a long shadow over Japan’s equity market. For investors the questions are simple and straightforward: is Japan’s largest electric utility solvent, and if not, who will compensate the victims of the nuclear meltdowns? Will the burden fall on creditors, or will taxpayers pick up the bill? And is there any hope for equity holders? Unfortunately, while the questions are simple, the answers are...

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    Will Korea's "Construction Boom" Take Place?

    With his professional background as a long-time former employee and CEO of one of South Korea’s major construction companies, Korean President Lee Myung-bak’s passion for construction and civil engineering projects are well-known to investors. But even so, President Lee’s release of 11 different sets of market deregulation in his first three years in office are impressive. And undeniably, the administration’s efforts to encourage development...

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    Daily - Crisis & Opportunity and the Asian Bond Market

    Investors may recall that after international capital fled the region in the Asian Financial Crisis, regional leaders vowed to create deeper local bond markets as a way to lower their dependence on fickle foreign financing. In the Chiang Mai Initiative, policymakers agreed to normalize bond-trading rules across nations, strengthen trading platforms, issue more sovereign local-currency debt to provide benchmarks for corporate issuers, etc. The...

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    Daily - Japan, Tepco and the Lack of Political Leadership

    The tragedy which struck in Japan three months ago undeniably laid bare the best, and the worst, of the country. The best has been the courage, stoicism and sense of community displayed by the Japanese people; a moral strength which reminded us that the pain threshold in Japan, and the willingness to sacrifice oneself for the greater good, is so high as to make widespread beliefs of a looming default unlikely. Meanwhile, the worst has been the...

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    Politics, Populism and Uncertainty in Thailand

    Despite the political schisms that still loom over Thailand, local investors have been supporting the stock market even as foreigners are losing faith (foreign investors net sold of -US$220mn for May). Thais are feeling confident because the economy is running at full steam, with robust exports, expanding domestic demand and strong foreign investment (e.g., FDI applications increased +58%YoY in 1Q11 alone, of which three fifths is from Japanese...

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    GaveKal Daily - To What Extent is Japan Behind the Current Soft Patch?

    Most recent economic releases point to a “soft patch”—not just in the US, where housing, consumer confidence and manufacturing PMIs have lately been weak, but in many other parts of the world as well. Recent days have witnessed negative surprises from countries as varied as Korea and India, Spain and Norway. With that background, yesterday’s disappointing US manufacturing ISM data and poor ADP employment report caused a significant flight to...

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    Political Skies Darken for the Chaebols

    When South Korea’s President Myung-Bak Lee took office in early 2008, he quickly set about empowering Korea’s chaebols. Himself a former CEO of a large construction company back in the days when Korea’s politically spoiled conglomerates enjoyed privileges at the expense of consumer rights and individual political freedom, President Lee did his best to re-establish the chaebols’ old clout. The government deregulated restrictions on cross-...

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    GaveKal Daily - Why Singapore's Growth Rate May Have to Slow

    It seems ironic that, at a time of eye-popping economic growth in Singapore (1Q11 GDP +8.3% YoY and 22.5% QoQ), and just after a very generous government budget, the ruling People’s Action Party (PAP) experienced the worst-ever blow to its legitimacy in this month’s general election. Although the PAP is nowhere near losing its supremacy (the PAP’s 60% vote share translated into 81 out of 87 parliamentary seats), the city-state’s opposition...

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    Australia's Boom Fades: What Next for the AUD?

    Carry-trading is sometimes described as picking up pennies in front of a steamroller; but sometimes, the gains can amount to more than pennies! Take the AU$-US$ trade of the past twelve months as an example. Investors long the AU$ and short the US$ are sitting on total returns of 25.5% over the past 12 months—that’s quite a handful of pennies. However, in recent trading sessions, it has felt as if the AU$’ momentum has been rolling over. So is...

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    Vietnam: Rising Dragon-by Gavin Bowring

    There were once hopes that Vietnam was on the fast-track to BRIC-like emerging market status. But in spite of high economic growth, Vietnam is still plagued by widespread economic mismanagement. This is perhaps most sharply illustrated by the fact that, while other high-growth Asian countries spent the last year trying to curb rapid currency appreciation amid strong inflows, Vietnam’s central bank has been forced to devalue the local currency....

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    Rising Currency Risks in Korea

    As most investors know, South Korea has a long and painful history of dealing with the aftermath of excess foreign borrowing. After it suffered a painful US$ crunch during the financial crisis, Korea responded with a two-pronged policy strategy: i) lowering the capital-account risk through sharper monitoring of foreign short-term debt levels, and ii) maintaining a weak KRW to boost the economy through exports. At first glance, this seems to have...

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    GaveKal Daily - The BoJ, Japanese Banks and Risk Assets

    In A Wall of Money, we reviewed how the Japanese tragedy of early March had triggered an impressive swell in the Bank of Japan’s balance sheet. Having learnt from its post-Kobe earthquake mistake, the BoJ this time around was making sure that banks would be supplied with as much liquidity as needed. This would prevent any fire-sales of domestic or foreign assets, repatriation of capital and a surge in the Yen, while also ensuring that any short-...

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    Mitigating the "Sell in May" Rule

    The ‘Sell in May and Go Away’ rule has a pretty good reputation on equity markets. Its accuracy is usually presented in these terms: on average since year Y, the performance of equity markets from May to September (or October, depending on the version) has been much lower than from November to April. For example, since 1998 the S&P500 declined on average by -1.3% during the May-to-October period, and gained +4.7% during November-to-April....

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    An Aging Dividend for Korean Stocks?

    Like many other Asian countries, South Korea faces the demographic challenge of a rising dependency ratio and the peaking of its working-aged population (see chart). The country’s so-called “1958 Year of The Dog Generation”— equivalent to Japan’s “Dankai Generation”, but about 10 years younger as Korean baby boomers were born after the Korean War—will gradually start retiring in the next 10 years. It seems reasonable to expect the Korean economy...

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    Central Banks Pass the Parcel

    Despite successive rounds of tightening by many countries in the region, Asian central banks largely remain way behind the curve, with robust monetary aggregates and, in many cases, negative real interest rates. But given that the Fed has failed to lead by example in tightening, countries that should be reining in capital further have become hesitant and reluctant to tighten too fast, on fears of inviting destabilizing inflows and driving their...

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