Consumers cheated by banks

THE lawlessness that pervades the international banking industry and especially the large Western banks must raise serious questions as to what perpetuates such barbarous behaviour among the custodians of people's money.

A big part of it is that the banking industry operates on greed rewarding its key employees via commissions for businesses brought in, deals made, and products sold even if they were dubious in the first place.

This encourages among the industry a bunch of highly dishonest salesman who shield themselves behind a veil of professionalism to dupe and seduce customers into believing their products are good and their processes are strong, secure and fair.

And they are aided by ineffectual regulators who parrot the trite phrase that free markets should not be overly regulated but turn a blind eye when the biggest financial institutions amass massive positions to fix markets and deceive customers, making a mockery of market freedom.

The integrity of free markets was compromised because big players could affect the direction of markets, making the markets way less than perfect. Free markets basically became unfettered freedom to make money even at the expense of the market and the potential collapse of the world's financial system.

They did it yet again or to be more accurate they did it earlier but their misdeeds surfaced once more recently. UK's Barclay's bank made a US$453mil settlement with regulatory authorities in the United Kingdom and the United States for fixing the London interbank offered rate (Libor).

Now, it turns out that Barclay's may not be the only one. According to a Reuter's report, other major banks are likely to be involved and may try and go for a group settlement with regulators, the US' Commodities Futures Trading Commission and the UK's Financial Services Authority.

The banks being investigated include top names such as Citigroup, HSBC, Deutsche Bank and JPMorgan Chase. They all declined to comment to Reuters.

And one of these banks, Europe's biggest HSBC, has been found laundering billion of dollars for drug cartels, terrorists and so-called pariah states, in a scandal which almost overshadows the Barclays' one. That leads to the question of whether other banks were involved as well.

If they jointly fixed the Libor, the world's most used reference rate for borrowings and derivatives with an estimated US$550 trillion, yes trillion, of assets and derivatives tied to the rate, it will be a scandal of epic proportions and may result in settlements of an estimated US$20bil-US$40bil.

That settlement will only scratch the surface. Just 0.1% of US$550 trillion is US$550bil. That implies that if banks had been able to fraudulently fix Libor so that it was just 0.1 percentage points higher, customers throughout the world would have had to pay US$550bil more in interest charges in a year.

In March this year, five US banks, including Bank of America, Citigroup and JP Morgan Chase, made a landmark US$25bil settlement with the US government for foreclosure abuses.

Even so, only a small fraction of affected house buyers are expected to benefit from this. Many other banks, however, are relatively unaffected and have not been fully called to account for their role in the US subprime crisis, which could have caused a collapse of the world's financial system.

Banks which bundled together risky housing loans into credit derivative products and passed them off as those with higher credit rating than their individual ratings, aided by ratings agencies, got off scot free. No one was called to account.

That the financial system is still vulnerable and that all gaps have still not been closed is JP Morgan's recent loss of up to US$4bil from rogue trading by a London trader going by the name of The Whale.

There needs to be a new set of rules, regulations and behaviour one based on ethics, honesty, competency and checks and balances. Custodians of public money should be required to be above all else honest first and foremost.

They should be consummate professionals whose first duty should be to protect the deposits of customers and the bank's capital. They should not do anything which puts the bank at undue risk.

The insidious habit of rewarding those who bring in revenue with hefty commissions have to be stopped so that bankers do not take risks which put their banks at undue risk which will eventually require trillion of dollars in rescue from governments.

Regulators should again make clear demarcations between those financial institutions who are custodians of public money and those who are not and hold the former to much higher standards of accountability and integrity.

Shareholders of financial institutions who are custodians of public money should be led to expect a lower rate of return on their investments but they should also be led to expect a lower corresponding rate of risk befitting that of major institutions which are so vital for the proper functioning of the economy.

Enforcers should focus on bringing individuals responsible for these losses to book and throwing criminal charges at them which will put them behind bars for long periods of time, befitting their severity. Society at large tends to treat white-collar criminals with kid gloves.

When derivatives trading and deception brought major Wall Street firms such as Enron and WorldCom to their knees and eventual collapse in the early 2000s, enforcers brought to book key executives who are spending time behind bars.

But despite the near collapse of the world's financial system, despite fraudulent behaviour, despite misrepresentation and deception, despite selling structured products of dubious value and then promptly taking positions against them, despite fixing of reference interest rates, despite money laundering and despite many other crimes still to be unearthed, no one has been brought to account.

Fining institutions leaves those individuals responsible free. In fact, settlements made come with the agreement that there will be no prosecution of individual bank staff and gives major incentive for others to do the same.

They are safe in the belief that the institution will pay the price and they will go free in the event things turn wrong. Otherwise, they will end up millionaires and even billionaires. How convenient an arrangement!

There is anarchy in the financial markets and a state of lawlessness which encourages heists of unimaginable proportions without risk of punishment. If we don't watch it, the losses will do the world economy, and all of us, in.

Brazil's high powered economy

Key Points:
External headwinds most culpable in 2011 for poor equity returns, 2012 (thus far) has seen returns of 18.8%
Positive policy support should see the Brazilian economy stage a strong comeback in 2012
Growing consumer strength poised to benefit 2 key sectors - Consumer Sectors, Financials Sector
Demographic and Structural changes present investors with opportunities to benefit from Brazil's continuing transformation
Brazil currently offers potential upside of 27%, maintain 4.5 Star "Very Attractive" rating
After a horrid year in 2011 where it lost -24.7% as a combination of rate hikes to combat inflation and a weak global economic outlook took hold, the Brazilian stock market has come roaring back in 2012 with returns of 18.4%.

EXTERNAL HEADWINDS MOST CULPABLE IN 2011
Ever since the re-ignition of the European debt crisis in the middle of 2011, Brazil’s economy has faced significant headwinds.
The uncertainty took its toll on the local economy with economic activity deteriorating as both capacity utilisation and industrial production began to fall, leaving 3Q 2011 GDP coming in slightly negative at - 0.1% on a quarter-on-quarter basis.
Internally, Brazil had been fighting its nemesis that is inflation in 1H 2011, hiking its key Selic interest rate to 12.50% as it sought to cool an overheating economy which also suffered from rising commodity prices. In addition, lending curbs were introduced in an effort to reduce credit available and reduce Brazil’s demand-pull inflation.
As for the Bovespa, the materials, industrials and utilities sectors were amongst the hardest hit as a result of the above while the Financials benefitted from the initial rate hikes before succumbing to pressure emanating from troubled Europe as well as rate cuts in 2H 2011.

With the closure of 2011, 2012 has spelt much better news for the Latin American nation.

Currently, the Brazilian government has undertaken several measures ranging from the slashing of its key Selic rate to cutting taxes on various goods in an attempt to boost growth since 2H 2011. With the government prioritising growth over inflation control, we take a closer look at 2 key sectors which are poised to deliver.

CONSUMER SECTOR - FROM STRENGTH TO STRENGTH
Brazil’s domestic consumption story, based on demographic and positive structural changes is something that’s not new to investors. However, what investors might not know is that the story has continued gaining in strength. Retail sales in Brazil have been climbing higher and higher, growing by close to 7% for the second consecutive month on a year-on-year basis in November and December, on the back of rising real wages and historically low unemployment (thanks to job creation), with retail sales growing by 7% for the second consecutive month on a year-on-year basis as seen in Charts 1 and 2 below.

CHART 1: RISING RETAIL SALES & REAL INCOME















CHART 2: MORE JOBS, LESS UNEMPLOYMENT


The strengthening of incomes and the creation of more jobs has also seen family expenditure become more resilient as compared to the past.
During the financial crisis of 2008-2009, although family expenditure did not contract, this key component of Brazil’s’ economy saw its growth rate fall significantly from 7.7% to 2.7% on a year-on-year basis from September 2008 to December 2008 in spite of the seasonal effect normally seen in December (holiday sales).
In the most recent episode of the European debt crisis, family consumption held up significantly better and demonstrated its new-found resiliency with a less painful fall from a 5.6% growth rate in June 2011 to a 2.8% rate in September 2011 (Chart 3).

CHART 3: CONSUMPTION'S INCREASING RESILIENCE


Taking a closer look at the retail space, the decision by the government to cut taxes for household goods has seen the purchases of furniture and appliances continue to hold its pace of growth steady with data showing a healthy year-on-year gain of 15.3% in December 2011. Supermarket retail sales have like-wise kept up its pace of growth, registering a growth rate of 4.6% in the same period. However, retail sales for apparel & footwear have slowed as a result of a minor slip in consumer confidence as the weak external environment saw consumers reduce their discretionary spending.

Given the increased stature of the Brazilian consumer, both the Consumer Discretionary and Consumer Staples are expected to benefit from the resilience of Brazil’s consumption story and its growing strength.

FINANCIAL SECTOR - LONG TERM BENEFICIARY
The financial sector in Brazil has long been on the up and up. Credit loan growth in the country has been growing steadily over the course of the decade as a conflux of factors allowed such phenomenal growth.

The very same demographic and structural changes in Brazil that has seen the consumer sector do well have also positively impacted the Financials sector.
With increasing affluence, credit cards and loans to service mortgages (which in part is also due to urbanisation, a structural change), the Brazilian financials have a benefitted from the consumer boom.
Consumer credit has almost doubled over the past since December 2007, while default rates still remain in an acceptable range of 7-7.5%, a far cry from the 8.5% seen during the peak of the financial crisis in 1H 2009 (Chart 4).

CHART 4: CONSUMER CREDIT BOOM


Looking at the larger picture of total private sector loans outstanding, currently, the total amount of these loans only reach approximately USD 1.2 trillion, with a booming economy in the backdrop and as the Middle Class in Brazil grows, incomes increase and urbanisation takes place rapidly, the financials are a sector which is poised for further rapid expansion.

The decision by the Brazilian central bank to cut interest rates is a double-edged sword for financials as although it will cut the rate with which they lend at, the rate at which they borrow to fund their operations will be reduced as well. Historically, the average banking spread for Brazil has averaged 27% with the latest figure as of end December 2011 registering a reading of 26.9%, almost spot on with the long-term average (Chart 5).

CHART 5: AVERAGE BANKING SPREAD


While margins are important for banks, we believe that an increase in the growth of demand for credit in Brazil as a result of lower borrowing rates will more than sufficiently make up for any shortfall in profits as a result of a potential narrower lending spread.

CONCLUSION

Any country moving from an “Emerging Market” status to “Developed Market” status provides investors with several opportunities to capitalise on demographic and other structural changes; in Brazil’s case, the ever-growing consumer spending power and the need for financial services will see the Consumer Staples, Discretionary and the Financial Services sectors prosper.

At current levels, the Bovespa is trading at a price-to-earnings ratio of 9.0X based on 2013’s earnings, representing a potential upside of 27% (as of 7 March 2012) by then when compared to its fair value of 11.5X. We have a 4.5 Star “Very Attractive” rating on Brazil, and a 5 Star rating on the larger Global Emerging Markets.

China A-shares

Key Points:
The China A-shares market can present investors with a unique investment opportunity, as it differs in several aspects from the H-shares and red chips market, a market comprised of Hong Kong-listed Chinese companies. In particular, its sector weightings differ significantly
The valuation of the CSI300 index (a proxy for the China A-shares market) has reached an extremely attractive level
The market will give investors exposure to China’s economic growth story.The latest shift towards accommodative policy in both monetary and fiscal policies will set the Chinese equity markets for a rally, keeping a three-year investment horizon in mind .
The Chinese equity market is one favoured single-country equity market, keeping a three-year investment horizon in mind.
Use the Hang Seng Mainland 100 (HSML 100) index as a benchmark for the Chinese equity market. This benchmark comprises of both H-Shares and Red Chips, which are Hong Kong-listed Chinese companies. While these companies give exposure to the Chinese economic fundamentals, A-shares is a different asset class altogether, exhibiting some different characteristics and opportunities. In this article, we will look at the investment opportunities that lie in the China A-Shares market.

WHAT IS UNIQUE ABOUT THE A-SHARES MARKET?
The fundamental difference between the A-shares and H-shares or red chips market is the opportunities that exist to invest in them. A-shares stocks are only listed on the Shanghai and Shenzhen Stock Exchanges whereas H-shares stocks are listed in the Hong Kong Stock Exchange.

Due to regulatory restrictions in mainland China, foreign investors cannot freely invest in the A-shares market. There are currently only three types of investors who are qualified to invest in this market: Chinese citizens or companies, investors with a Qualified Foreign Institutional Investors ("QFII") status or investors with a Renminbi Qualified Foreign Institutional Investors ("RQFII") status.

Using the China Securities Index 300 (CSI300) index as proxy for the China A-Shares market.

Table 1: Summary of Differentiating Characteristics
A-Shares H-Shares Red Chips
Benchmark Index CSI300 Index HSML100 Index
Exchange Shanghai /Shenzhen Hong Kong Stock
Currency RMB HKD
Incorporated Mainland China Outside of Mainland China

Apart from being more restrictive, the A-shares market presents a whole different opportunity. First of all, stocks are denominated in its local currency (yuan) which means that investors will be exposed to currency movements, which is beneficial if you are expecting an appreciation of the yuan. Secondly, although some companies have dual listings in Hong Kong, the A-shares universe is much more fruitful and broad, comprising of over 2,000 stocks.

Finally, the sector allocation in the A-Shares market, as measured by the CSI300 index, differs significantly from that of the HSML100 Index. As we can see from Chart 1, the HSML100 index is heavily weighted in the financials, energy and telecommunication services sectors. On the other hand, the CSI300 index has a significantly larger weighting towards industrials and materials; this weighting reflects the Chinese economy’s actual GDP composition more accurately. Furthermore, we can also note that the CSI300 Index is more weighted towards the consumer sector, with consumer discretionary making up 8.1% of the index, as opposed to 5.0% for the HSML100 index. This means that A-shares investors will have a greater exposure to China’s domestic consumption story, which we expect will become increasingly important to the Chinese economy in the coming years.

CHART 1: SECTOR ALLOCATION OF THE A-SHARES AND H-SHARES/RED CHIPS MARKET



RECENT DEVELOPMENTS
As mentioned earlier, there are heavy restrictions in investing into the China A-Shares market. There will be some time before investors can freely invest directly into Chinese equity markets, but in the recent years and even months, we have seen some major steps made towards liberalising the Chinese currency as well as the equity markets.

QFII
One of the ways to invest in Chinese equities is via obtaining a QFII quota. The QFII quota was introduced in 2002 and since then 117 institutions have successfully received a license and quota. Up until 20 January 2012, US$22.2 billion worth of investment quota has been approved. However, the quotas under the QFII program are currently capped at US$30 billion.

Despite the fact that there are still some major obstacles, further efforts to liberalise the capital markets were seen by the introduction and approval of the first batch of RQFII quotas.

RQFII
RQFII is another way to invest in Chinese equities. The significant batch of RQFII quotas approved since end-2011 is a sign that China has intent to open up its capital markets further to foreign investors. 21 institutions and 20 billion yuan worth of RQFII quotas have been approved since end-2011. However, not only does the RQFII differ from the QFII program in its currency (RQFII uses Renminbi as opposed to US dollars), there is also a restriction of up to 20% that can be invested in equities using the RQFII quota, unlike the QFII quota. Nonetheless, we can observe the move as a signal that China will gradually liberalise its capital markets and liquidity for foreign investors will improve over time.

SEIZE THE OPPORTUNITY WHILE VALUATIONS REMAIN ATTRACTIVE!

Investing in the A-Shares market will expose investors to the same macroeconomic fundamentals of the Chinese economy as the H-Shares or Red Chips will. As we outlined in the article, Prepare for a Chinese Rally, we expect that resilient economic growth and a shift towards accommodative policy in both monetary and fiscal policies will set the Chinese equity markets for a rally, keeping a three-year investment horizon in mind. These two points are just as applicable to investing in the A-shares market.

H-Shares/Red Chips

The one fundamental difference important for investors is the market’s valuations. The HSML100 index is also trading at an extremely attractive level after its forward 12-month PE dipped below the 10.2X level, which is one standard deviation below its historical mean. Since the start of the year, the Chinese equity market has already embarked on a rally; however, valuations are still attractive as the HSML100 index’s 12-month forward PE was at 9.8X (as of end-February 2012), a 3.6% discount from the 10.2X level.


A-Shares

Some investors may already be aware that the A-shares market has historically been at a significant premium to the H-shares or red chips market. One of the reasons explaining this premium is due to the dominance of retail investors in the A-shares market, whereas other markets are dominated by institutional investors. The investment restrictions which bar foreign investors from participating, firstly limits the possible investors into the A-shares market. Secondly, there is a limited range of investment options open to people in mainland China, which is what pushes retail investors towards equity markets in order to park their money, pushing up the valuations of A-shares stocks.

As we can see in Chart 3, at its peak in 2007, the CSI300 index’s forward PE was trading at a 74% premium to the HSML100 index’s. However, the good news is that, in the recent two years, the two indices’ valuations have been converging. CSI300 index’s valuation is currently trading at a 9% premium (as of end-February 2012) to the HSML100 index’s, a significant decline from the historical average of 28%.


The tightening gap between the two indices’ valuations indicates cheapness of the A-shares market. Since the reasons which push A-share valuations at a premium will persist in the market as long as the market remains restricted, we should continue to see the market priced at a premium. Furthermore, in the past, when the premium between the two indices contract to such levels, the CSI300 index market has seen a steeper subsequent upside (compared to the HSML100 index).

CHART 2: A-SHARES TO H-SHARES AND RED CHIPS PREMIUM


On the other hand, as we can see in Chart 3, using a similar analysis as we did in evaluating HSML100 index’s valuations, we can see that the CSI300 index’s forward 12-month PE has dropped below its historical mean since 2010. Since then, it pierced through the 12.2X level towards the end of 2011, which is one standard deviation below its historical mean. Even though the index has rebounded along with other equity markets around the globe, valuations are still trading at a 12.5% discount from the 12.2X level (as of end-February 2012).

CHART 3: ESTIMATED MARKET VALUATION OF THE CHINA SECURITIES INDEX 300 (CSI300) INDEX


Apart from looking at the market’s PE ratio, it is also appropriate to look at the market’s estimated Price-to-Book ratio (PB) and estimated Return on Equity (ROE). Since the CSI300 index is composed largely of capital-intensive activities and financial institutions, such as companies in the materials and industrials sectors, PB is a suitable measure for its market valuation.

Intuitively, since PB is a valuation measure and ROE is a profitability measure, these two measures should be moving together since you would be willing to pay more for a more profitable company. If we look at Chart 4 however, we can observe that the PB of the CSI300 index has been steadily declining since the end of 2009. But this does not seem to merely represent a retreat from previously overvalued companies, because at the same time we saw ROE increase rapidly. Up until end-February 2012, the estimated ROE reached 19.4%, inching closer to the highest levels seen in 2008. The divergence in PB and ROE is a rare phenomenon which further indicates the attractiveness in the A-shares market valuation.

CHART 4: COMPARING PROFITABILITY WITH VALUATIONS OF THE A-SHARES MARKET



In conclusion, not only will the China A-shares market be supported by economic growth fundamentals and a shift towards accommodative policy, its valuation has also reached extremely attractive levels, if we consider PE, PB and ROE measures. According to our estimates, as of end-February 2012, the estimated PE for the CSI300 Index is at 10.3X and 8.3X for 2012 and 2013 respectively, significantly lower than its fair value of 15X.

Rallying higher and higher

After a disappointing 2011, global investors have been on a “risk on” mode in 2012. Recently, a better-than-expected sovereign debt auction result in Spain and Italy after their downgrades starts to improve market sentiment. In addition, the extended low interest rate decision by the Fed also gives support to many riskier assets such as equities and commodities.

In 2012 thus far, BRIC countries (Brazil, Russia, India and China) and Global Emerging Markets (GEMs) have outperformed the other parts of the world by a huge margin, in line with our earlier research calls for investors to overweight GEM and China. Our less-positive views on Europe, Malaysia and Indonesia have also been right, as evidenced by the sluggish performance of these markets thus far.

Table 1: Market Performance
Market/Sector Year-To-Date Return (%)
Russia 22.7
Brazil 18.8
India 16.5
Tech 15.1
Taiwan 13.7
Singapore 13.5
Thailand 13.5
GEMs 12.3
Hong Kong 12.0
Asia ex-Japan 11.7
China 11.0
Korea 10.7
Europe 8.2
US 7.7
Japan 6.9
Australia 4.7
Malaysia 3.2
Indonesia 1.7
Source: Bloomberg, as of 15 March 2012
excluding dividends and in RM terms


Bigger Bull Run To Come
Many investors may have missed the strong rally in January and February and they are worrying if the markets are “too high” to invest right now. We believe that even after the rally since the year began, our favourite markets in 2012 namely GEMs and China are still trading at extremely attractive valuation levels.

The potential upside for GEMs and China by end-2013 is about 52% and 87% respectively based on our relatively conservative projection (as of 15 March 2011). Don't forget that these, and most other markets, have not yet come back to pre-August 2011 levels. Weak sentiment still prevails and the bigger bull run is yet to come!

World's ageing population

WITH the world's population growing older, there will be a lot more elderly people willing and able to work longer periods in their lives in both developed and emerging economies.

According to the United Nations (UN) population division, the number of people over 60 years old is projected to grow from under 800 million currently (representing about 11% of the world's population) to over two billion by 2050 (accounting for about 22% of the world's population).

Increasing longevity, declining fertility (families having fewer children) and with people becoming more health conscious, the global age structure is changing rapidly.

This is leading to wide-ranging economic and social consequences that governments around the world have begun to tweak and make amendments to their retirement age policies.

The following are how some developed and emerging economies are managing the aging population situation.



The United States
According to the Administration on Aging (AOA), an agency under the US Department of Health and Human Services, persons 65 years or older numbered 39.6 million in 2009, representing 12.9% of the US population or about one in every eight Americans. By 2030, it estimates that there will be about 72.1 million older persons.

According to the Urban Institute, a US-based think tank that carries out non-partisan economic and social policy research, retirees are eligible to receive Social Security benefits at age 62 but these benefits are reduced progressively before they reach full retirement.

The full retirement age was raised from 65 to 66. A 1983 legislation raised retirement age for those who will turn 62 in 2000. The full retirement age will increase gradually again beginning with those turning 62 in 2017.

“Those retiring at 62 will receive only 70% of their benefits when the full retirement age is 67, compared with 80% for those who retired early when the full retirement age was 65,” it says.

It pointed out that since 1940, when Social Security began paying monthly retirement benefits, life expectancy at age 65 has increased 5.1 years for men and 6 years for women.

“The full retirement age would have to increase to 73 to have the same expected years of remaining life in retirement today as in 1940,” it says, adding that increasing the Social Security's retirement age has been gaining political traction in the US.

“In June 2010, the majority and minority leaders of the US House of Representatives both expressed willingness to raise the retirement age. This would promote work at older ages, improve the system's solvency by shortening retirements and reducing lifetime benefits, and better target benefits to the oldest Americans.”

China
According to data released by China's National Bureau of Statistics last year, the number of young people in the world's most populous country dropped significantly as a proportion of the population in 2010. Those under 14 years accounted for 16.6% of the population, down 6.3 percentage points from 2000.

The number of people over 60, however, rose by nearly three percentage points to 13.3% of the total population.

The Chinese government's family-planning policy, such as its one-child policy, also reduced annual population growth to below 1%, with the rate projected to turn negative in the coming decades.

According to the UN, more than 30% of China's population is expected to be aged 60 or older in 2050.

Last year, various news reports said the country is planning to push back the age at which workers can retire - due to its “aging population dilemma.”

The retirement age in China currently is 60 for men and 55 for female civil servants and 50 for female workers.

The Harvard Initiative for Global Health, in its working paper series titled “Population Aging and Economic Growth in China,” said despite a projected decline in China's economic growth going forward, its aging population is unlikely to create significant economic problems.

“Its highly productive economy is awashed with skilled workers and with those seeking to join the labour force. There is little prospect of a lack of workers leading to a marked slowing of growth in gross domestic product (GDP) or GDP per capita.

“To the extent that older workers are retiring, there are more than enough working-age people to fill their shoes and to support the daily needs of China's elderly population. Nevertheless, policy reforms in education, health, pensions, labour policy and internal migration - could make China's economic future all the more secure,” it says.

Japan
According to data by the UN in 2009, Japan has the oldest population with a median age of 44 years, with Japanese women having a life expectancy of 86 years, the highest in the world.

By 2050, the UN says it expects more than 40% of Japan's population to be 60 years old.

Japan is also expected to experience a significant increase in the number of centenarians, from less than 76,000 in 2009 to almost 800,000 in 2050.

“Consequently, by mid-century, Japan is expected to have the world's largest number and proportion of centenarians, since nearly 1% of Japan's population will be aged 100 years or over,” the UN says.

With this data, it's not surprising that Japan's aging population are willing to continue working as long as they are still able.

“According to a survey by Japan's Ministry of Health, Labour and Welfare, workers in general still have a strong motivation to continue working after age 60,” according to a 2011 working paper by the Harvard Initiative for Global Health.

It pointed out however that Japan's public pension system still uses an earnings test, which encourages early retirement and part-time work and thus deprives the country of a capable and willing older workforce.

“Compounding this problem is the predominance of mandatory retirement practices, typically at age 60, in Japanese firms.

“In order to avoid these negative effects of the public pension's earnings test and mandatory retirement on the labour supply behaviour of the elderly, the Japanese government has started to raise the pension-eligible age from 60 to 65 and to require employers to extend employment to age 65,” it says.

The working paper adds that this has had a significant impact, with the labour force participation rate for men aged 60 to 64 increasing from 71% in 2006 to 77% in 2009.


South Korea
South Korea's rapidly growing aging population has become a cause for concern that its economic growth potential could be seriously affected.

According to reports, the country's GDP grew just 0.4% in the fourth quarter of 2011 over the previous quarter, when from 1970 to 2011, its average quarterly growth was around 1.8%.

News reports, citing economists, said the dip in South Korea's economic growth was attributable to its aging population and structural problems. According to the UN, the country's population aged 65 and older is expected to reach 12.7 million in 2050.

But the South Korean government had already been contemplating extending its retirement age - even before announcing its lacklustre GDP figures.

Early last year, The Korean Herald reported that the South Korean government was considering raising the average retirement age to 60 from the present average of 57 to lessen the impact of the retirement the country's baby-boomers.

The report, citing an online survey that was conducted in 2010, revealed that 61% of the respondents considered a rise in retirement age necessary while 49% said they needed the skills and experience of older workers.
Neighbouring Asean countries
According to reports, Malaysia is currently in the final stages of drafting a new law that will see the retirement age in the private sector raised from 55 to 60.

In Singapore, the retirement age is set at 62. By 2012, employers would be obligated to re-employ workers aged between 62 and 65, and subsequently, 67 years of age and beyond.

According to data compiled by various government bodies in Singapore, including its Department of Statistics, the increasing life expectancy and low fertility rates had caused the proportion of residents in the country aged 65 and above to rise to 9.3% in 2011 from 7.2% in 2000.

A Singapore-based analyst says raising the retirement age was an obvious choice, given the increase in the country's aging population and life expectancy.

“With Singaporeans having an average life expectancy of over 80 years old, those who still can actually prefer to continue working as they need the money.”

According to Singapore's Department of Statistics, its average life expectancy in 2010 was 79.3 years and 84.1 years for males and females respectively.

Meanwhile, the retirement age in countries such as Thailand, Brunei and Indonesia is 60 years old.

Cathay Pacific dismal result

Cathay Pacific Airways Ltd, Asia's No. 4 carrier by market value, posted a bigger-than-expected 61% drop in 2011 net profit amid high fuel costs and a slowing global economy, and warned of a more challenging year ahead.

Global economic instability had continued in the first half of this year and jet fuel prices had risen further, Cathay, Hong Kong's largest carrier, said in a statement to the Hong Kong Stock Exchange.

“As a result, 2012 is looking even more challenging than 2011 and we are therefore cautious about prospects for this year,” chairman Christopher Pratt said in the statement.

Cathay might see a softening in premium air passenger demand in the first half of 2012 before an improvement in air cargo demand in the second half, Nomura analyst Jim Wong said in a research note before the results.


An airport apron controller vehicle is pictured in front of a Cathay Pacific Boeing B747-400 Aircraft on the runway at Frankfurt’s airport. — Reuters
He expected a recovery in Cathay's premium air passenger demand in 2013.

The notoriously cyclical global airline industry faces headwinds from high fuel prices and sluggish demand, particularly in the premium segment.

Cathay rival Singapore Airlines Ltd has cut cargo capacity and asked its pilots to take non-paid leave to counter the downturn.

Cathay, the world's largest air cargo carrier, reported an annual net profit of HK$5.5bil, down from a record high of HK$14.05bil in 2010 which included HK$3bil of profit from the sales of its interests in two units.

The result came slightly below an average forecast of HK$5.82bil from 17 analysts polled by Thomson Reuters. The cost of fuel, which is Cathay's biggest single expense, rose 44% to HK$12.46bil in 2011, it said.

Air China, the country's national flag carrier and 19%-owned by Cathay, contributed 31% of Cathay's consolidated pre-tax profit in 2011.

Shares of Cathay were down 2.8% at HK$15.14 after the results. They have risen about 14% this year compared with a 17% gain in the benchmark index.

Cathay stock slid about 38% in 2011, lagging a 20% fall in the main index.

Combined passenger traffic of Cathay and its unit Dragonair grew just 2.9% last year to 27.6 million while cargo throughput dropped 8.6% to 1.65 million tonnes as demand for its key markets in China and Hong Kong slowed.

Cathay Pac Air (0296.HK)
Chinese: 國泰航空公司; Mandarin Pinyin: Guótài
Hong Kong base international airline
52 weeks high:HKD20.15
52 weeks Low:HKD11.80
Current price:HKD15.20
Financial year end:31 December 2011

Results
2011
2010
Change

Turnover
HK$ million
98,406
89,524
+9.9%

Profit attributable to owners of Cathay Pacific
HK$ million
5,501
14,048
-60.8%

Earnings per share
HK cents
139.8
357.1
-60.9%

Dividend per share
HK$
0.52
1.11
-53.2%

Laos stock market has good future prospect

The Lao government didn't just have an eye on business profit, it also wanted to create a new tool to mobilise investment capital by opening the securities exchange, said a top stock market official.

Lao Securities Exchange Chairman and CEO Dethphouvang Moularat made the comment on Monday in response to public concerns about whether setting up the stock market had been a worthwhile investment. Only two companies have listed on the market and the trading value is very low.

The stock market's main income comes from the provision of transaction services for stock traders and the lease of offices. The low trading value has caused the public to wonder whether the several million dollars that went into the venture have been well spent.

Dethphouvang admitted that the Lao-Korean joint venture did not make a profit in its first year of business. But he said this was of no concern because the main purpose of the stock market was to make a profit in the long term, not in the short term.

The stock market expected to make a profit within the next 10 years or sooner if business boomed, he said, adding that ETL, Lao-Indochina Group and Lao World Group are expected to list this year.

A number of companies have expressed interest in listing on the stock market to mobilise investment capital but Dethphouvang was unable to give their names because they have not yet submitted an official request.

The participation of more companies in the stock market would encourage more people to buy shares, which would enable the market to make a profit sooner rather than later, he said.

The main purpose of the stock market was to give businesses another source of capital for growth, which in turn would help the government to create more jobs for Lao people.

As nearly every other country has a stock market, it was impossible for Laos to avoid doing likewise as it seeks to become internationally integrated.

Dethphouvang said the stock market had benefited Laos because in the past businesses could only obtain investment capital from banks, which could offer only short term assistance.

The stock market had an important role to play in helping the government to source investment capital for continued high GDP growth.

Laos needs US$15 billion over the next five years to secure annual GDP growth of at least eight per cent, of which 50 to 60 per cent will come from private investment.

Dethphouvang said the government had a number of measures in place to buffer the country against international stock market turbulence. These included limiting the rights of foreigners to own shares on the Lao stock market, which would prevent the rapid inflow and outflow of foreign reserves.

There are also measures to prevent investors from taking ownership of companies through the stock market. Many other countries allow investors to buy shares that give them ownership of a company.

Indonesia's private jet demand soars.

Business is booming for Indonesia's luxury jet charter firm Enggang Air Services and the company's CEO Donnie Armand tells CNBC he is planning to expand his fleet size to meet the growing demand.

"Private jets in the United States average 30-50 hours of flying time per month, we average around 75 hours per month, well above the industry," said Armand, adding that Enggang is going to place orders for two 20-plus seater business jets this week, bringing its fleet size to 6.

According to Armand, Indonesia will take delivery of an estimated $500 million worth of private jets this year. The country already has an estimated 18 jet charter companies operating in the domestic market, and this number is climbing.

Jakarta-based budget carrier, Lion Air is the latest Indonesian company to announce an order for private jets. The airline, which plans to launch its own private jet charters, confirmed on Wednesday at the Singapore Airshow that it had purchased two Hawker 900XP mid-sized business jets fora list price of $64 million, with options for two additional aircraft from the U.S-based manufacturer.

With this growing interest, international jet manufactures are identifying Southeast Asia's largest economy as a key target market in the region, in addition to China and India.

"I would single out Indonesia as the strongest market in Southeast Asia. It's been that way for the past 24 months, and going into 2012, I think it's going to continue to lead the region," said Pasha Saleh, Regional Sales director, Southeast Asia at Hawker Beechcraft.

Jose Costas, vice President for Marketing & Sales, Asia Pacific, for Brazil-based aircraft manufacturer Embraer, says that alongside the country's growing wealth, the topography of Indonesia is a large driver behind private jet travel.

"With over 17,000 islands spanning over 3,000 miles, companies need an efficient mode of transportation to shuttle employees between their headquarters and the locations of the mines, for example," Costas said.

Corporate executives in the mining, oil and gas and agriculture sectors are currently leading the demand for private jets.

"The demand for travel is enormous and the (domestic) airline network is not there yet," Costas added. Embraer, the fourth largest aircraft maker, has sold 8 executive jets, ranging from a list price of $9.5 million to $54 million, in the country since late-2004.

Asia, as a whole, currently remains a relatively small private jet market compared to the rest of the world, but the region will account for 16 percent or $40 billion of total orders over the next 10 years, according to industry estimates.

Pleasure Jets

While business travel makes up 90 percent of private jet usage in Indonesia, charter companies and manufactures are seeing growing interest around non-business, private jet travel by high net worth individuals looking for a weekend getaway. The country's millionaire population is set to treble to 100,000 by 2015 according to a report by CLSA and Julius Baer.

"High GDP growth has resulted in an increasing number of high net worth individuals who can afford this kind of luxury," Armand said, adding that some of the most popular destinations include the Maldives, Alice Springs and Phuket.

A 5-hour journey from Indonesia to Maldives on a chartered 14-seater private jet could cost up to $100,000 or approximately $7,100 per passenger, he said. This is around double the price of a Singapore Airlines business class ticket ($3,757) to the same destination.

Limitations to Growth

While prospects for the private jet sector in Indonesia are bright, industry experts say it is crucial for infrastructure surrounding private jets to improve in order for the segment to realise its full growth potential.

"A lot of the (smaller) airports that are developed don't necessarily have runways long enough to support some of the bigger (20-seater) airplanes," said Saleh.

However, Saleh says there are positive signs that indicate the government is moving in the right direction. The government's flight inspection division recently purchased a private jet to fly to different airports to check on safety conditions. "It's an indication of the government's willingness to meet demand," he said.

(source:CNBC)

Malaysia Islamic clerics forbid forex trading

Malaysia's highest Islamic body has issued an edict forbidding foreign exchange trading by Muslim individuals, saying such speculation violates Islamic law.

The National Fatwa Council ruled forex trading by money changers or between banks was allowable but trading by individuals "creates confusion" among the faithful, according to a report issued Wednesday by state news agency Bernama.

Council chair Abdul Shukor Husin warned "there are many doubts about it (forex trading) and it involves individuals using the Internet, with uncertain outcomes," Bernama reported.

"A study by the committee found that such trading involved currency speculation, which contradicts Islamic law," he was quoted saying.

A council official confirmed the ruling to AFP but gave no further details.

Islam lays out a strict code of ethics for business that forbids speculation and usury.

While Malaysia's brand of Islam is more moderate than in much of the Muslim world, some 60 per cent of its 28 million people are Muslim and remain subject to Islamic law in civil affairs.

In 2008, the National Fatwa Council banned yoga for Muslims, saying it could erode their faith.
That triggered an uproar from moderate Muslims, prompting then prime minister Abdullah Ahmad Badawi to wade in, saying Muslims could do yoga as long as it had no Hindu spiritual elements.

In my opinion,the reason for this banning is that the government will lose revenue in terms of brokerage and stamp duties.Just look at the number forecast outlets locally where Muslims are gambling in a big way.

China big soya bean consumer

China,the world's largest cooking oil user,soyabean importer and oilseed consumer signed agreements in Iowa to purchase 8.62 million metric tons of the oilseed from U.S. suppliers in a deal valued at $4.3 billion.

Soybeans will be supplied by companies including Cargill Inc., Archer Daniels Midland Co. (ADM), Bunge Ltd. (BG) and CHS Inc., Iowa Soybeans Association Chief Executive Office Kirk Leeds said today in Des Moines, Iowa, during a U.S.-China trade cooperation conference. Iowa Governor Terry Branstad is hosting a two-day visit by Chinese Vice President Xi Jinping, 58, who is slated to become president in March 2013. Iowa is the biggest U.S. producer of corn, soybeans, hogs and eggs.

“It is phenomenally important to have Vice President Xi here because it says that Iowa is an important place to do business,” Leeds said yesterday in an interview. “These agreements are the direct result of activities by U.S. soybean groups in China since 1981 to promote soybean-meal demand in livestock, chicken and aquaculture feed.”

China became the largest buyer of U.S. farm products in 2010, and last year boosted purchases to $22.17 billion, U.S. Department of Agriculture data show. The nation purchased 20.6 million metric tons of soybeans from the U.S. last year, or 60 percent of the total shipped overseas. China probably will increase purchases from all suppliers by 62 percent in the next decade to 90 million tons from a projected 55.5 million this year, the USDA said Feb. 13.

It would take half of the Iowa soybean crop just to feed China’s fish,” said Leeds, who will be traveling to China next month on a sales-promotion trip for the producer-funded organization. “Soybean profitability depends on international demand, especially from China.”

Additional sales agreements may be announced in Los Angeles on Feb. 17, bringing the total for this week above the 11.5 million tons reached during a similar trade visit in Chicago last year, Leeds said. The 2011 deals involved 21 purchase agreements valued at $6.7 billion.

Iowa farm exports to China in 2010 were 13 times larger than in 2000, data from Iowa Department of Agriculture show. Agriculture and related industries contributed 27 percent to the state economy in 2010 and 17 percent of Iowa workforce is employed in producing food.

Soybeans have jumped 5.1 percent this year on the Chicago Board of Trade, partly as hot, dry weather damaged crops in Brazil and Argentina, the two biggest exporters after the U.S. last year. Today, the price reached $12.765 a bushel, the highest since Sept. 27, on speculation that China may increase purchases from the U.S. to rebuild inventories and cushion against any additional adverse global weather later this year.

Earlier today, the government reported U.S. exporters sold China 116,000 tons of soybeans for delivery before Aug. 31.

China Grain Reserves Corp., is the manager of state stockpiles in China.

Tracking the weekly Dow.
Economic calender:Empire State Manufacturing Survey,Industrial Production,Housing Market Index,FOMC Minutes.
Dow Futures is two market days to expiry.

Weekly candlestick pattern as at 15/02/12.
Week 1:Bullish start.
Week 2:Spinning Top
Week 3:Bearish Pullback.
As at today,the Dow is heading for a healthy correction and will break through the month's low.
Since it opened with an unshaven bottom,it will try to make a touchup with a lower shadow.This can be easily done due to a tight range of a mere 345.43 points performed so far.
The market should be grateful for the EU to use Greek debts issue as a volatility tool to fool investors otherwise how are they going to make money from market fear.
Volatilty is golden opportunity and excitement.

Canada cheap stocks.

Canada offers wide range of investment in penny stocks.Opportunities are a plentiful in penny stocks with low capital outlay but good capital appreciation potential.

The most natural reason that Canada is a land full of penny stock opportunities is that it is a land full of natural resources.

The Canadian dollar gained for a third straight day against its U.S. counterpart for the first time in February as crude oil, the nation’s biggest export, touched the highest level in a month.

The currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, rose the most in almost two weeks and then pared gains as Greek Finance Minister Evangelos Venizelos said Europe’s wealthier countries are toying with the idea of expelling the country from the 17-nation euro area.

From oil, gold, and diamonds, to potash and other more industrial type commodities, there are immense stores of these within the Canadian borders and as such many companies setup shop and operate in Canada to seek out and find these resources. If and when they do the companies then face the decision to grow larger or become acquired by another company. In either case the investor is surely the winner.

The US surely outnumbers Canada in the number of securities listed in its various exchanges but the reality is that the US markets are rife with frauds. There are so many going on that it’s just not possible for the SEC to manage to find them all. So the frauds continue. In Canada however, the listing requirements for the Toronto Venture Exchange do make it more difficult for fraud to occur. Canada is also a much smaller investing landscape and most of the time the scam artists are only concerned with the bigger market so once again Canada remains safer than its southern counterpart.

So the Canadian small cap equities market is clearly more appealing than the US for the abundance of natural resources within the borders of this northern country and the security that is present in the equities market they are traded on. Until one of these factors changes, Canadian penny stocks will continue to be an investing segment that is worth paying attention to.

Vietnam,the emerging market ETFs

The thought of Vietnam brings up visuals of military carnage as seen on the nightly news of the 1960's. This is what Vietnam looks like today.

Yet, this small Southeast Asian country is still at war - with inflation. Nearing 20 percent, inflation crushed the Vietnamese economy in 2011. The Vietnamese government has recently taken strong and decisive action to curb inflation and return Vietnam to its previous prosperity.

Vietnam falls into the Emerging Markets sector. Two of the largest emerging market's ETF's Vanguard's (NYSEArca:VWO) and iShares (NYSEArca:EEM) do not list Vietnam among their top 10 holdings geographically. [Related: WisdomTree Emerging Market Small Cap ETF (NYSEArca:DGS), WisdomTree Emerging Markets ETF (NYSEArca:DEM)]

I have not found any Vietnamese stocks listed on the NYSE.

Market Vectors Vietnam ETF (NYSEArca:VNM) is the best way for investors to gain exposure to this truly emerging market.

VNM's holding are weighted in financials at 42.5 percent. Energy comprises 26.5 percent of this ETF with industrials 12 percent, materials 7.7 percent and consumer goods 9 percent. Although financials dominate, this is a diversified ETF and typical composition of an individual country index.

Average volume of 138K shares daily would not be considered heavy volume, but it is by no means illiquid or 'thinly traded'. What's important in the table is relative volume has traded at 2.4x the norm. Somebody is showing a lot of interest in Vietnam - rightly so. With 40 percent off the highs, VNM has a lot of room to move.

The Money Flow Index shows that buyers have come in strong after the December lows. Even more encouraging, the price has broken out of the descending wedge pattern and has made a higher high for the first time on the chart. The +/- Directional Index confirms that the bulls have made a decisive break out.

To test this price action as a true trend reversal, we need to see a pullback and support built. A pullback to $16 (the higher high breakout point) and recovery would be an ideal indication of a turnaround in Vietnam.

Catching a bounce at $16 to ride VNM up to its May 2011 highs would be nearly a 50 percent gain. Not bad for a "war torn" nation.

Under the World Trade Organisation (WTO)'s commitments, in 2012, Vietnam will allow securities companies and 100 percent foreign-invested fund management companies to operate in Vietnam.The first open-ended fund product with scale of 200-500 billion dong will be launched somewhere mid of 2012.

With its extremely cheap stocks on offer, Vietnam, rather than Indonesia, will be a great place to invest in this year, according to Forbes Magazine.

In an article recently published on Forbes Online, Peter Cohan recalls his visit to Singapore in January 2012 where he met with a hedge fund manager having invested in many Asian companies for years.

The hedge fund manager said that Indonesia used to be a great place to do business, but the best opportunity in the region in 2012 is to invest in Vietnam.

He studied the Vietnamese stock market and found 20 stocks with Price/Earnings (P/E) ratios of 2, cash flow growth of 14, and dividend yields of at least 12.

Cohan explained that a stock is cheap if its cash flow - the money left over after paying expenses - is growing faster than the P/E ratio.

A stock is a reasonable value if the ratio between a stock's P/E and its earnings growth or Price/Earnings to Growth (PEG) is 1.0 or below. By that measure, stocks in Vietnam are very cheap at 0.14 - dividing the P/E of 2 by the cash flow growth of 14.

In addition, Vietnamese stocks offer a very high dividend yield.

Their 12 percent yield is extremely high - particularly compared to the sub-1 percent rates that we are used to earning on our bank accounts, Cohan noted.

According to Cohan, the downward trend in the Vietnamese stock market in 2011 offers the chance for private equity investors to buy stakes in some of the country's biggest companies and the purchase is benefitting investors.

Cohan concluded that there are opportunities for businesses to invest in the banking, food and beverage industries in Vietnam, as its population increasingly moves from the lower to middle class income level and banks and food companies are willing to meet their demands.

Booming population face food crisis

The era of falling food prices has come to an end with the world population set to add another 2 billion people, according to Cargill Inc., the U.S. farm commodities trader.

The United Nations’ Food and Agriculture Organization has said global food output must rise 70 percent by 2050 to feed a world population expected to grow to 9 billion from 7 billion now and as increasingly wealthy consumers in developing economies eat more meat. Food prices tracked by the FAO climbed to the highest ever a year ago on surging grain prices.

“You don’t have to be a reviving bull on commodities to believe that the era, which went from the 50’s, 60’s to 70’s and early 80s, of ever decreasing food prices in real terms has probably come to an end,” Paul Conway, vice chairman of Cargill, said at the Kingsman sugar conference in Dubai yesterday. The conference is continuing through tomorrow when Jacob Robbins, managing director of global sweeteners at The Coca-Cola Co., are among the scheduled speakers.

The FAO food-price index averaged 228 points last year, 23 percent more than in 2010 and above the 200 points recorded in 2008, when food riots erupted from Haiti to Egypt. Prices since then have declined 11 percent by December.

Cargill, based in Minnesota, trades all kinds of farm commodities, including cocoa, soybeans, corn, sugar, meat, wheat and ethanol. Conway is based in Cobham, England. Wheat has doubled since the end of 2005, raw sugar is twice the price in December 2008 and orange juice climbed to a record last month.

Group of 20 farm ministers agreed to a plan last year in June to set limits on export bans and create a crop database to tackle what French President Nicolas Sarkozy called the “plague” of rising food prices.

As many as 925 million people already faced hunger worldwide in 2010, based on the FAO’s estimates. In response to the 2008 food price crisis, countries from India and Egypt to Vietnam and Indonesia banned exports of rice, a staple for half the world. Russia in 2010 banned cereal exports after the country’s worst drought in at least half a century destroyed crops and cut production, sparking a surge in grain prices across the world. Ukraine also restricted exports.

The desire to produce all the food needed locally is “complete nonsense,” Conway said. Export bans in 2008 were a consequence of the desire for self-sufficiency, he said. “That disrupted international trade and we believe exacerbated food price rises in that year,” he said.

The FAO’s index of 55 food items fell 2.4 percent to 210.99 points in December from 216.1 in November. The gauge slipped 4.1 percent in October, the biggest drop since March 2010, after rising to a record 237.9 in February. The January index is set for release on Feb. 9.

“The world’s farmers, some of the smartest businessmen that there are, can produce enough food to feed the next two billion people,” Conway said. “We are very confident about that. However, they need help.”

Burma's old debts

Burma owes $11 billion ($A10.4 billion) in sometimes-decades-old foreign debt and is negotiating with Japan and Italy to repay the outstanding sums, the finance minister says, disclosing the country's external debt for the first time in recent years.

Burma's economy was stunted for many years by mismanagement and by Western sanctions imposed as the long-ruling military failed to carry out democratic reforms. The military-backed but elected government that took office last year has pushed political and economic changes.

Finance minister Hla Tun told Parliament that as Burma makes reforms and expands its international relations, it has begun discussions on the debt with multilateral institutions and donor nations, including Japan and Italy.

He revealed the figures in Parliament on Tuesday, and politician Thein Nyunt recounted details to The Associated Press on Wednesday.

Hla Tun said $8.4 billion in debt dated from the socialist regime of the late general Ne Win between 1962-1988, and a $2.61 billion debt was incurred after a military junta took over in 1988, making a total of $11.023 billion.

He said the pre-1988 debt represented bilateral loans and borrowing from multilateral institutions that the government was unable to pay because loans and grants were stopped after the junta violently quashed a 1988 pro-democracy uprising. Available revenue at the time went into development projects.

The largest creditor before 1988 is Japan, with loans of $6.39 billion, he said, and the biggest post-1988 creditor is China with $2.13 billion.

Palm olein duty structure reform

Malaysia is drawing up an action plan, which will likely include reforms in its crude palm oil (CPO) export duty policy and a new fund estimated at over RM1bil, to assist local downstream players badly affected by Indonesia's palm oil export duty structure, sources said.

While the local CPO export duty has remained unchanged at 23% since the 1970s, Indonesia's CPO refined products export duties have been drastically slashed by more than half since October last year, and currently range from 3% to 20% .

Under the new duty structure, Indonesian palm oil refiners are expected to reap 5% to 8% higher profit margins compared with the traditional operating profit margins among Malaysian at 3% to 6%.

“The lower export duty means that the Indonesian refiners are able to offer refined palm products at very competitive prices compared with the local refiners which are getting higher priced CPO feedstock,” said a source close to the industry.

The Government is in the final stage of putting together appropriate measures for a rescue plan to help the RM6bil local palm oil downstream industry.

The Plantation Industries and Commodities Ministry, after meeting with parties concerned, had made two proposals the Industry Adjustment Fund (IAF) estimated at over RM1bil and a Fallback Plan for the oil palm companies, refiners, oleochemicals and biodiesel players.

The source pointed out that IAF, which would be generated from a new cess to be collected from upstream players, however, was met with strong opposition from the Malaysian Palm Oil Association and the Malaysian Estate Owners Association (MEOA).

This is in view of the plantation sector's existing list of taxes, cess, levy and export duty with total tax paid exceeding 46% annually or 20% more than the other sectors in the country.

The Fallback Plan on the other hand is generally supported by the local plantation players.

Among the measures are;

Maintaining the export duty on crude palm oil (CPO) and crude palm kernel oil (CPKO),

Lower duty on semi-finished palm oil products to prevent leakage,

Abolition of duty-free export quota for CPO and CPKO and

Indirect assistance to smallholders to offset any reduction in fresh fruit bunches (FFB) price.

According to an MEOA member, the association had conveyed its disagreement on IAF to the ministry in November last year.

He said that ME0A was generally positive on the Fallback Plan but sought changes to some of the measures proposed by the ministry.

The export duty of local CPO and CPKO must be lower than Indonesia but high enough to give Malaysian oil palm refineries a competitive edge against foreign refiners.

The proposed indirect assistance to smallholders to offset any reduction in FFB price must be given “only when the FFB price falls below RM400 per tonne,” he added.

In addition, the revenue generated from palm oil export and import duties must be utilised for the benefit of the palm oil industry such as funding for cooking oil subsidy with concurrent abolition of the Windfall Profit Levy.

Palm Oil Refiners Association (PORAM) CEO Mohamad Jaaffar Ahmad recently said oil palm refiners were badly hit by Indonesia's new tax structure.

There are 51 oil palm refineries in Malaysia and most of them are members of PORAM. Indonesia has reduced its export duty on RBD palm olein in bulk to 7% from 15% while the export duty on CPO is unchanged at 15%.

Previously, the price of Indonesian RBD palm olein FOB based on the 15% export tax was US$1,159 per tonne compared with US$1,162 per tonne from Malaysia.

However, the reduced tax at 7% would allow Indonesia's RBD palm olein to be sold at US$1,091 per tonne or at least US$71 cheaper than local RBD palm olein, added Jaaffar.

The total cost of processing/refining CPO into RBD palm olein among Indonesian refiners would also be lower by at least US$100 or at an estimated US$988 per tonne compared with local refiners.

Thailand's one-child-one-tablet

The Thai government will ink a 2.2 billion baht (US$70.6 million) deal with its Chinese counterparts next month to purchase 900,000 tablet devices for its students as it looks to fulfill its one-child-one-tablet promise made during the country's general elections last July.

In a report by the Bangkok Post on Monday, three Chinese manufacturers-ZTE, Huawei, and Lenovo-are in the running to produce the tablet, according to a source from the country's Office of the Basic Education Commission. The source added the price for one tablet is 2,340 baht (US$75), which is below the original target price of 3,400 baht (US$109).

The tablets will be distributed to 800,000 primary school students, while the remaining 100,000 will be issued to Prathom 4 (fourth-grade) students in the country, the report noted.

The one-child-one-tablet policy was one of the major election promises made by the Pheu Thai ruling party, and the cost of the project could rise to 33 billion baht (US$1.06 billion) should the government decide to issue the devices to all secondary school students too, the Bangkok Post stated.

Critics of the initiative, however, said the lack of suitable educational content was the main drawback while others were concerned if schools or parents are able to monitor the children's use of the tablets and to prevent them accessing inappropriate content, it added.

Hot dry weather in Argentina.

Argentina like most of her neighbours of South America is currently experiencing a dry weather spell which started early in the Southern Hemisphere.Average daily temperature is between 93 to 101 degree farenheit suitable to boil an egg without the gas stove.

The extreme heat is affecting most of the agriculture crops in most of the major growing areas as agricultural goods whether raw or processed still earn half of Argentine's foreign exchange.
Major agricultural produced were maize,soyabean and corn.
Argentina is one of the world's greatest food-producing exporting countries of the world.
It has a huge topography of arable land and the socio economy is largely dependent on the agrobase industries.

The geography of Argentina include 5 major regions, starting with the rain forest areas of the far-northeast along its border with Brazil; the swampy and flat Chaco plain; the fertile (almost treeless) grasslands of the central Pampas; the lengthy plateau of Patagonia that stretches to Tierra del Fuego, and the Andes Mountains along its western border with Chile.

The Pampas, one of the largest fertile plains in the world, covers almost one third of Argentina's land area. Bordered by mountains and the Atlantic Ocean, the legendary landscape of Patagonia displays huge forests, sizeable mountains valleys, and many cold-water lakes.

The Andes in Argentina contain advancing glaciers including the Perito Moreno glacier, as well as Cerro Aconcagua, the tallest mountain in South America.

Argentina is also home to impressive Iguazu Falls, and over 250 additional waterfalls of size.

Major rivers include the Colorado, Negro, Paraguay, Parana, Salado and Uruguay. The Uruguay and Parana flow together before meeting the Atlantic Ocean, forming the basin of the Rio de la Plata.

Buenos Aires,Cordoba and Santa Fe provinces account for nearly 4.8 million hectares (42%) of total soya bean acreage planted in Argentina.

Corn growing areas were 25 de Mayo and Pehuajo in northwestern Buenos Aires Province,Rio Cuarto and Marcos Juarez,Corral de Bustos in Cordoba,Santa Fe Province (Casilda and Canada de Gomez).

Corn is also roughly twice as expensive crop to grow as soybeans. Producers need hybrid seeds and more of fertilizer, especially urea, to grow higher yielding corn. Costs are approximately US$200 per hectare to grow corn compared to US$100 per hectare for soybeans. When farmer’s use saved seed for soybean, soybeans costs of production decrease by another US$30-40 per hectare.


Analysts said dry conditions in some areas of the country, especially in the south and west of the wheat region, might prevent planting intentions from being fully realised.

Dry weather has already cut hopes for crops in the European Union, Western Australia and, in particular, Kazakhstan and Russia, sending wheat prices jumping on international markets.

Fears are brewing for the coming of a so-called La Nina weather pattern, associated with cooler-than-normal Pacific water temperatures, and typically associated with dry weather in Argentina.
Drought was a big factor in a slump of more than 30% in Argentina's wheat area last year, with farmers also blaming government export curbs, which have been partly relaxed this year.

However, rain in many parts of Argentina's wheat belt has raised hopes among some analysts that the country can avoid significant La Nina damage this year, with the government blaming sowing delays largely on "constant rains" in the province of Buenos Aires.

The Argentine warnings came as analysts revealed further rises in prices of Russian wheat last week, with the grain, free-on-board, attracting $210 a tonne, compared with $198 a tonne a week before.

Russia and Kazakhstan, and potentially eastern Ukraine, are set for further hot and dry weather, with some areas forecast to receive temperatures of up to 42 degrees Celsius.

Tracking the Dow on Friday,06/01/12.
Dow Index Futures 10 marketdays to expiry.
Economic report:Employment situation.
Chinese New Year:23-24January (Dragon Year)

9:30am:--Bearish 50.0 points gap down.
Spillover of weakness in European stocks due to weak economic data.
10:30am:--First hour retracement to resistance from early low.
11:30am:--Breakout into bullish zone ending with a hangman.Better than expected employment data in the United States.
12:30noon:--Shooting star with a hammer.Usual pullback for morning session.
1:30pm:--2nd session started with a low near bear pivot support.
2:30pm:--Resistance breakout but were held back at the bull pivot.Bearish graveyard dojis.
3:30pm:--Day's support breached,spinning doji bull trap.
4:00pm:--Bearish selldown to bear pivot support.
The year started with good news that U.S. jobless rates is now at three years low.The economy is now on track to recovery but the euro zone is putting a brake as caution stepped in again ahead of next week bond sales by Spain and Italy.
There were worries over the rising borrowing costs in some euro zone countries.
The Dow's weekly ending candlestick is still in a bullish inverted hammer mode.
Thursday bearish hangman is hoovering above the weekly support line and was completely filled on Friday.
Despite the volatility,the overall Dow index is holding comfortably in the bullish zone.

Weather derivatives for Thailand

Central Thailand was hard hit by the worst floods in 70 years.
The abnormal heavy rainfalls in the Northern highlands caused the Mae Ping River(in Chiangmai) to swell and overflow into almost all low lying areas on its way out to the the Gulf of Thailand.

It was the night of September 28,2011 when the city of Chiangmai has a small effect of the flood.
There was no sign of warning when the flood water gushed into settlements in Nakhon Sawan during the night and within minutes reached as high as neck level.

Also affected were Ang Thong, Ayutthaya, Chai Nat, Chaiyaphum, Kalasin, Kampheang Phet, Khon Kaen, Lamphun, Lop Buri, Mae Hong Son, Mahasarakham, Nakhon Nayok, Nakhon Pathom, Nakhon Ratchasima, , Phichit, Phitsanulok, Prachin Buri, Saraburi, Sing Buri, Sukhothai, Suphan Buri, Ubon Ratchathani, and Uthai Thani.

Thsese seasonal weather phenomena has prompted Thailand considering to start trading of water derivatives, giving investors a means of hedging against disasters,the Securities and Exchange Commission said.

The regulator is studying the possibility of introducing contracts whose value would be linked to rainfall, or the level of water in the nation's major dams, said Vorapol Socatiyanurak, who started as secretary-general of the SEC in October. He declined to say when trading might begin.

Thailand is seeking to offer protection to investors in Southeast Asia's second-biggest economy after flooding in the central region killed almost 700 people and swamped about 1,500 industrial facilities. The waters may cause 1.3 trillion baht ($41.6 billion) of damage to the economy, prime minister Yingluck Shinawatra said on December 8. Intel Corp., the world's largest chipmaker, cut its revenue forecast this week as the floods disrupted personal-computer production.

"Flooding has become more frequent in Thailand, with much greater economic impact," Vorapol said in an interview in Bangkok . "The new security would offer investors, insurers and manufacturers an instrument to help alleviate financial losses in future catastrophes."

The contracts would also help protect farmers from the impact of floods and drought, Vorapol said.

The total face value of global weather-related derivatives grew by 20 percent between 2010 and 2011 to $11.8 billion, according to a May 20 report by the Washington DC-based Weather Risk Management Association. Demand growth was seen in contracts related to rainfall, snow, hurricanes and wind from industries such as agriculture, construction and transport, it said.

The majority of weather contracts are traded on the Chicago Mercantile Exchange. (CME) CME snow contracts, for example, are based on the exchange's Snowfall Index, a measure of average monthly snowfall in certain US cities. Traders "determine what amount of snowfall would be detrimental to their businesses and take futures or options positions based on that," the exchange said on its website.

"The new instrument is unlikely to help cover all exposure from water-related risk, but it's good to provide another alternative," said Sanya Harnpatanakitpanich, head of derivatives at Globlex Securities Co. Ltd, the nation's largest derivatives brokerage by trading volume. "The SEC and Stock Exchange of Thailand need major market makers such as foreign companies and domestic water utilities to assure the trading liquidity of water derivatives."

California-based Intel reduced its fourth-quarter revenue forecast on December 12 by about $1 billion, saying a shortage of hard-disk drives as a result of Thailand's floods is cutting customers' production of personal computers. Thailand is home to plants producing about a quarter of the world's hard-disk drives. Honda Motor Company and Toyota Motor Corporation also cut their profit estimates after the floods disrupted output.

Thailand's regulator also plans to relax rules to encourage bond sales by small and medium-sized companies whose access to investors may be hampered by low credit ratings, Vorapol said. Those issuers will probably be allowed to sell the bonds to some wealthy individuals, he said.

The SEC allows only Thai and foreign companies with investment-grade ratings to sell bonds to individual investors, he said. It may also allow more investment by mutual funds in bonds with credit ratings below investment grade, he said.

Vorapol, 56, was appointed the head of the regulatory agency for the nation's equity, bond and derivative markets in October. He has a doctorate from the University of Pennsylvania's Wharton School and was a lecturer at the National Institute of Development Administration, a state university.

Thailand's worst floods in half a century also destroyed millions of tons of crops and badly damaged industrial production.

The World Bank has estimated the damage at $45 billion and recovery and reconstruction needs at $25 billion. The National Social and Economic Development Board has slashed Thailand's economic growth forecast to 1.5 percent from 3.5 to 4 percent.
Tracking the Dow on the first day of trading year 2012.
Economic Indicators: ISM Manufacturing Index,Construction spending,FOMC Minutes.
Dow Futures expiry:13 market day to go.
Chinese New Year of the Dragon start on 23/01/12.
9:30am:--Bullish 180 points opening gap up.Traders back from the holidays in full force.Chinese manufacturing activities expanded in December also help the boost.

10:30am:--After finding an early high,index is now drifting with many dojis.
Germany unemployment figures fall to new record low.

11:30am:--Dark clouds hanging preparing for mid-morning breather.Europe debt crisis still in the clouds.

12:30noon:--Thunderstorm pullback but still have the firepower despite holding on below the bull pivot support. The opening gap is too far off to be completely filled.

1:30 pm:--Mild retracement to the bull pivot resistance.Signs of improved growth in the United States,chances of Federal Reserve not printing more money.

2:30pm:--Bulls back in the limelight.British manufacturing also within expectations.

3:30pm:--Pullback to bull pivot support.Military exercise in the MiddleEast Gulf by Iran and U.S.naval vessels in the area put fear on confrontations.

4:00pm:--Bull pivot support breached,bearish fears.
One year chart of year 2011 with bi-monthly candlestick.

A year where the Eurozone create havoc to the world's financial markets.
January-Febrauary:- started with a weak inverted hammer bull.The Euro zone debt crisis still overhanging but there was agreement to revamp the European Financila Facilities.
Suddenly nature took its toll in Sendai,Japan with another fear of radiation contamination.
March-April:-Bullish spinning top.
Portugal 78 bullion euro bailout funds approved and this help the bullish sentiment ofthe month.
May-June:--Bearish hangman at session year high.
Months of Greece tussle that finally got its another 12 billion euro lifeline.Germany threatened to get rid of the pest out of Euro zone.
July -August:-Market crash.It was quite normal to see a crash around these months prior to the anniversary of Black Friday's October crash.
There is also a very strange phenomena that when the U.S.Federal Bankers meet in Jackson Hole fo their annual retreat,the market will crash badly prior to their meetings.
September -October:--High volatility months.
Annual corporate book closing about to begin.Window dressing with the help of the ratings companies upgrading and downgrading to fulfil their year end agenda of housecleaning so that they can laugh all the way to the bank.
November- December:--Bullish hammering of the bottom.
Enough damaged has been done to fool the financial markets with ratings and misleading Eurozone bailout signals.