Market performance in 2008

Net cash companies

Australia's dollar may fall toward the 5 1/2-year low

By Candice Zachariahs
Dec. 15 (Bloomberg) -- Australia's dollar may fall toward
the 5 1/2-year low it touched in October at 60.1 U.S. cents as
commodity prices come under pressure from a slowdown in China,
its biggest trading partner, State Street Global Advisors said.
The Australian dollar has declined 32 percent since reaching
a 25-year high of 98.49 U.S. cents in July. Chinese industrial
output grew 5.4 percent in November, the weakest pace in almost a
decade, as export growth collapsed.
"There's a lot of gloom and doom already expected and seen
in the U.S. economy," said Chris Loong, head of currency
management and asset allocation in Sydney at State Street Global
Advisors, a unit of State Street Corp., the world's largest money
manager for institutions with $14.1 trillion under custody as of
Sept. 30. "Asia is more uncertain and that's probably the
greater risk for the Australian dollar."
The currency, which traded at 66.57 cents at 11:14 a.m. in
Sydney, may extend this year's decline if export markets slow
significantly, Loong said in an interview on Dec. 10.
Asia accounted for 71 percent of Australia's minerals
exports and 66 percent of its energy shipments overseas in 2007-
2008, according to the Australian Bureau of Agricultural and
Resource Economics. The nation's earnings from commodity exports
may be A$192 billion ($127 billion) in the year ending June 30,
2009, rather than A$214 billion as forecast in September.
"China's continuing demand for minerals and metals
commodities is key to the speed of turnaround in commodities
markets," it said in a report on its Web site.

China Slowing

The World Bank forecast growth in China will slow to 7.5
percent next year, with East Asian economies growing at the
slowest pace in eight years, in its annual Global Economic
Prospects report on Dec. 9. Reserve Bank of Australia Governor
Glenn Stevens said this month that China has slowed "much more
quickly" than forecast.
The next round of commodity price negotiations will show
"how much their slowdown can flow through into our export
markets and our industry and economic growth into 2009 and
2010," said Loong. "How much of a deceleration we'll get in
Chinese growth and our other export markets," will affect the
currency, he said.
Australia's dollar strengthened since the October trough as
the central bank bought a record A$3.15 billion in the market to
support the currency. Governor Stevens pruned interest rates
three percentage points since September to encourage domestic
spending and help the economy skirt a recession. Lower interest
rates make the nation's assets less attractive to international
investors seeking higher returns on their investments.
The low 60-cent level is "the bottom end of our valuation
range," said State Street's Loong. The mid-70 cent level would
be "roughly" fair value, he said.
"If we get past the point where people have more confidence,
they will be able to look at the Aussie and kiwi and say we're
happy to fund those currencies at those interest rates and those
commodity prices because the export markets are expected to
recover," he said.

TA Securities favours defensive and value stocks for 2009

TA Securities' top value stock picks are LCL Corp, KNM, Malaysia Airports, Kian Joo, QSR, Boustead Holdings, Gamuda, Tanjong, AirAsia and QL Resources

INVESTORS should stick to defensive and value stocks next year as the external environment will continue to be volatile and uncertain, TA Securities said.

The research house expects the Kuala Lumpur Composite Index (KLCI) to peak near 1,023 points, or at best 1,062 points, in the first quarter of next year, possibly March, and then trend downward for the rest of the year.

As such, it advised investors to buy defensive and value stocks at the start of the year and then sell ahead of a deeper correction in the second half of the year.

After that, investors should return to defensive mode.
"Investors should find solace in defensive high-yielding low-beta stocks that provide good capital appreciation as well as resilient business fundamentals," it said in its market strategy report for 2009.

Its top defensive stock picks are Resorts World, PLUS Expressways, Carlsberg, Asia File, DiGi, TM, JT International, Public Bank, Berjaya Sports and KFC.

TA advised investors to also buy value stocks as the recent heavy bashing in the stock market had left many stocks trading at undemanding valuations.

"It would be worthwhile to look at some of these battered stocks to ride on the future growth when the current turmoil settles," it said.

Its top value stock picks are LCL Corp, KNM, Malaysia Airports, Kian Joo, QSR, Boustead Holdings, Gamuda, Tanjong, AirAsia and QL Resources.

It sees probable downsides for the KLCI next year at 775, 615 or 559 points.

TA is maintaining its "overweight" call on the consumer, oil and gas, gaming and plantation sectors and is "neutral" on the construction, telco and power sectors.

It is "underweight" on the banking, automotive, property and technology sectors as these will be affected by the softer outlook for private consumption.

MALAYSIA OUTLOOK - Overwhelming downturn

10th December 2008

The slowdown in the economy in the third quarter,
from 6.7% in 2Q08 to 4.7% in YoY terms and down
to only 1.3% in QoQ annualised terms, largely
reflected the drag from net exports. Since then there
have been indications of slowing private sector
demand compounding the fall in exports.
This has triggered both fiscal and monetary easing.
However, these will provide only partial offset
against sharply declining export revenues. Even
with further interest rate cuts and fiscal measures
pushing the official deficit to 5.8% of GDP (with
additional off-budget expenditure at 1% of GDP or
more) we still believe recession is unavoidable,
maintaining our negative real GDP forecast for 2009.
Private consumption growth slowed in the third
quarter but was still buoyant at 6.5% QoQ
annualised. Auto sales have provided the first signal
of consumption turning down with a 14.7% YoY
contraction in October. This has taken the trend
level of auto sales down to late 2007 levels and
heading south.
Malaysia’s cyclical vulnerability stems from its high
export to GDP ratio at around 100% of GDP. The
slump in global demand will lead to tumbling export
revenues which will spill over to falling investment
and employment growth thereby leading to a further
cutback in consumption. The export downswing has
already started with a 6.7% YoY contraction in
October (US$ terms).
Malaysia is doubly exposed on the export front. It
has suffered a reversal in its terms of trade as oil and
commodity prices have fallen. This year, combined
oil, gas and palm oil exports comprised 26% of total
exports. This was 6ppt higher than in 2007
highlighting the boost to export revenues during the
commodity boom. This will be more than reversed
though, at current low oil and commodity prices
leading to a steep decline in export revenues.
The other exposed sector is electronics with a high
38% share of total exports confronting a severe
global electronics downswing. The effects on the
domestic economy are apparent from job losses and
declining wages in the manufacturing sector (see
second chart). Manufacturing employment
contracted by 1.6% YoY in the third quarter (even
before the 19% YoY contraction in electronics
exports reported in October) while manufacturing
wage growth slowed to 2% YoY, well below the
7.3% average wage growth in 2007.
The trade surplus remained buoyant at US$2.7bn in
October despite the dip in exports. However, larger
outflows on the capital account were evident from
falling foreign reserves which continued through
November. Reserves have fallen by US$28.1bn
from the June peak, equivalent to 22% of total
reserves. As export revenues continue to fall, the
external liquidity squeeze will counter the central
bank’s efforts at fuelling private sector demand
through further interest rate cuts.

Will US Dollar appreciate?

Martin father, J. Irving Weiss, wrote about the Great Depression before he passed away

"In just three short years between the peak of the stock market boom in 1929 and the bottom in 1932, it felt like the entire world was falling apart.

"The financial bubble burst.

"Giant companies failed.

"America lost 13 million jobs as unemployment surged to 25 percent.

"Industry cut its production nearly in half, and home construction plunged by more than four-fifths.

"Over 5,000 banks failed.

"And yet, despite it all, there was one all-important investment vehicle that not only survived, but actually thrived: The United States dollar.

"Why? Because of deflation and fear.

"Thanks to deflation, prices fell on virtually everything — commodities, farm land, homes, automobiles, consumer goods, even labor. And because of fear, investors shunned risk and sought the safety of cash in greenbacks. Result: The dollar's purchasing power and value surged."

That's What's Happening Today!

Today, like in the early 1930s, unemployment is surging, with over a half million jobs lost in the month of November alone.

As in the 1930s, America's largest financial institutions — Fannie Mae and Freddie Mac, Washington Mutual and Wachovia, Bear Stearns, Lehman Brothers, and Merrill Lynch ... even giants like AIG and Citigroup — have gone under, been bailed out or forced into shotgun mergers.

Most important, as in the 1930s, prices are falling, with fear driving millions to the safety of hard cash.

The net result: The U.S. dollar — virtually given up for dead not long ago — is now gaining steadily and rapidly in value.

In this midst of all the bad news, this is the one, outstanding ray of hope — for two reasons:

First, it indicates that, despite all the economic pain still ahead, the United States dollar will survive and thrive.

Second, it means you are now witnessing the first phase of a dollar rise that opens up some of the largest and steadiest profit opportunities of our lifetime.

So convert some of our assets to US$ and ride the up wave, of course at your own risk.

Recession in US began in December 2007

1 December 2008
http://finance.yahoo.com/banking-budgeting/article/106257/How-Long-Will-the-Recession-Last?
Longer than past downturns, and Wall Street's meltdown will slow the recovery.
Well, now it's official: we're in a recession. And we know when it began: December 2007, according to the official arbiter of business cycles, the National Bureau of Economic Research (NBER), which made the announcement Monday. So now the question is: When will it end, and how deep will it get?
There are good reasons to be worried about both of these measurements, as the headwinds facing the economy are powerful indeed. But it's best to resist the temptation to give in to predictions of unconditional gloom and take a cool-headed look at how this recession compares so far to the many other downturns we've survived.
On the likely depth of the recession, it has been often said that this may be the most severe recession "in decades." This statement is almost certainly true but not particularly informative, as the two most recent recessions, in 1990-91 and 2001, turned out to be famously mild and short-lived by historical standards. So the real question remains: "the deepest recession" in exactly how many decades?
The most intuitive, and legitimate, reference is the 1981-82 recession, which lasted a longer-than-average 16 months and led to a peak of 10.8% in the unemployment rate - by all standards, a pretty serious affair. Still, it would take an extraordinary amount of additional severe damage to today's economy over a fairly long period to drive the unemployment rate from its current 6.5% to double-digit territory.
It is also important to remember that the 1981-82 recession was almost deliberately caused by sky-high interest rates, in the titanic fight of Fed chairman Paul Volcker to drive inflation out of the system. In contrast, the Fed's response now has been to pull out all the stops in the other direction, including the precipitous lowering of short-term interest rates and a barrage of other actions. A somewhat more plausible comparison to the current downturn is the 1973-75 recession, commonly attributed to the surge in oil prices at the time. That one lasted a longer-than-average 16 months and led to a 9% peak in the unemployment rate.
Direct comparisons to the Great Depression have become more common in recent weeks, given the collapse of the stock market and consumer spending. But those comparisons overlook many key facts. During the Great Depression, the unemployment rate surged to 25% and GDP contracted by 28% between 1930 and 1932, an unthinkable prospect in today's environment, thanks to a long list of underlying differences between then and now.
For example, the banking system collapsed in its entirety during the Great Depression and the absence of bank deposit insurance at the time caused catastrophic erosion to household wealth and consumption. Today, FDIC insurance (and its recently elevated limit to $250,000) provides a significant cushion; the response of economic policymakers is immeasurably faster and more aggressive now; and the coordinated actions among the major economies today to address the root causes of the current episode are both impressive and totally unprecedented.
How long will this one last? The prevailing view: probably through the middle of 2009. Two points to highlight here:
First, such a prediction is not based on any particularly refined insight that economic forecasters have into the current recessionary dynamic. After all, economic forecasting has a well-deserved reputation for being a notoriously imperfect art (most definitely not a science).
The predictions about this recession lasting through mid 2009 are mostly based on the following simple calculation: Until the NBER's announcement on Monday, the prevailing view was that the recession probably started at some point last summer and it was likely to be about average in length, by historical standards. Given that the average length of the ten recessions since World War II has been 10.4 months, with a range of 6 months in the 1980 recession to 16 months in the 1981-82 one, the natural "placeholder" time frame for the end of this recession would appear to be the middle of 2009.
However, the fact that the recession is now already 12 months old, and clearly not approaching its trough yet, raises the distinct prospect that it will exceed the length of the 1973-75 and 1981-82 recessions (both at 16 months), making it the longest since the Great Depression (43 months, from August 1929 to March 1933). The crowd fond of making comparisons to the Great Depression will be quick to declare some kind of victory on this one.
Second, the prediction that this recession may end around the middle of 2009 is not unreasonable, but even if accurate it disguises the critical question: What kind of a recovery is likely to follow? The answer is: probably a gradual one, unlike the more typical (but not universal) pattern of the economy coming out of most past recessions roaring ahead, propelled by pent-up consumer demand.
The healing process of a deeply wounded banking system, that has already led to nearly $1 trillion of write-downs, will act as a weight around the neck of any economic recovery in the latter part of 2009. Banks will likely continue the slow process of recapitalization and cleaning up the mountains of toxic assets on their balance sheets for a period longer than just the next few quarters.
That task will become even more challenging in the months ahead, as the recession itself will tend to generate an additional amount of toxic assets in their portfolios, impairing their ability to resume a more normal pace of lending. So, even though the economy may technically emerge from the recession in the second half of 2009, the recovery may initially become more of an issue of semantics rather than a robust turnaround in economic activity.
To be sure, this is a major recession and its downside risks in the midst of a highly volatile financial market environment shouldn't be underestimated. There are reasons, though, to believe that its severity and length will ultimately be contained by an unprecedented array of economic policy measures, some already in place, others in the pipeline.
Despite a series of false starts with some of those measures by the Treasury, the Fed's seemingly limitless reserve of innovative actions and the incoming administration's commitment to put in place a particularly aggressive fiscal stimulus package should gradually gain some traction that will help stabilize the economy within the next three quarters or so.
Anthony Karydakis is a former chief U.S. economist for J.P. Morgan Asset Management and currently an adjunct professor at New York University's Stern School of Business.
Copyrighted, Fortune. All rights reserve

RESORTS - How low can it go ?

If Resorts share price returns to historical P/B trough of 0.9x this implies a share price of RM1.45 (FY09 PER 7.2x -36% downside risk). Foreign shareholding remains relatively high at 36% as at end Sept 08. Maintain UP with TP RM1.80.

High yielders ; Value pick

2nd December 2008
Dividend picks. In the medium term, concerns about growth
will likely continue to weigh on the market. In this
environment, we like stocks with relatively resilient dividend
flows. Despite projected slower economic growth, we
expect Public Bank’s operating parameters (asset quality,
loans growth, ROE momentum) to remain strong and
support dividend yields of 7-8%. Utility-type earnings at YTL
Power and PLUS Expressway should be relatively resilient to
sustain high dividend payouts. BAT should also be a safe
haven for dividend seekers.
Value stocks. With the market’s 40% YTD drop, several
stocks have tested lows last seen in 1998. Our picks here
are IJM Corp (0.5x FY10 BV, below 1998 low of 0.6x), WCT
(0.9x FY09 BV, versus 1998 low of 0.8x), AMMB (0.7x BV,
lowest since 1999) and KNM (0.9x BV, all-time low).
Downside for Sime Darby, Maybank and BCHB. On the
other hand, we see further downside for Sime Darby, being
the most expensive in the sector at 10.8x FY09F EPS with
projected 44% drop in earnings and lower dividends. For
Maybank, we see risks in the consolidation of its
acquisitions, especially BII, and are concerned about the
potentially higher borrowing costs it might incur for the rest
of its capital raising exercise. BCHB remains Fully Valued on
continued weak capital market activities. There could be
further increases in operating expenses resulting from the
consolidation of its acquisitions (i.e. Lippo-Niaga merger and
Bank Thai).