What? Another RM8 billion?

Just when the government thinks things may be going lovey-dovey, MIER drops the clanger!

To fight recessionary pressures which will contract the Malaysian economy by 4.2%, MIER has advocated another financial fillip. Put RM8 billion more into the market.

To date, the government has already put in RM67 billion in two stimulus packages of cash and guarantees to defend the economy which is expected to experience between 4 and 5 per cent contraction in 2009.

MIER said the economy needs pure government spending of RM30 billion or 4 per cent of GDP but the combined stimulus packages only had about RM22 billion for that while the rest was what they termed as "padding that doesn't mean much".

"We need more government spending to make a critical impact. There may be a case for another RM8 billion in pure government spending."

MIER supports the recent reforms aimed at opening up the economy. It said that it was a good beginning but the full impact would only be felt when the economy recovers.

"Our forecasts are not really impacted by these long-term measures," MIER said.

MIER had revised Malaysia's 2009 growth forecast downwards from -2.2 per cent previously to -4.2 per cent, and expects negative growth for the second and third quarters and a slight growth in the fourth quarter.

It also revised its growth forecast for 2010 to 2.8 per cent from 3.3 per cent previously.

Several MIER surveys however indicated that business and consumer confidence had improved in the second quarter of the year, possibly influenced by government measures to support the economy.

The Business Conditions Index (BCI) and Consumer Sentiments Index (CSI) passed the 100 points threshold that separates an expansion from a contraction, said MIER.

The BCI gained 44.1 points to 105.2 in the second quarter, indicating that business confidence has regained strength. The CSI rose 26.9 points to 105.8 in the second quarter.

MIER said Malaysia remains one of the stronger economies in the region with sound fundamentals but that the crisis, while easing, is still ongoing.

RCE-Shaping up to be a Star?

I attached this write-up from Absolute Return Investment's blog.

Read wehat he wrote and then consider whether it is alright to jump on the bandwagon of this legal Ah Long business.

Background

RCE Capital is the only listed non-financial institution that provides personal loans to government servants. Its business falls under the Moneylenders Act, 1951, which requires a money lending license and this is renewable yearly. The loans are made in tie-ups with cooperatives, with direct salary deduction via Angkasa (National Cooperatives Organisation of Malaysia) which minimizes the incidence of non-performing loans. RCE’s competitive edge lies with its strong delivery network (distribution and collection) and short approval time.

RCE imposes an effective rate of 16% for personal loan which is the highest in the market. The maximum loan offered by RCE is RM100,000 and the maximum repayment period is 10 years. Additionally, monthly deductions must not exceed 60% of take home pay. Effective interest rate charged at 15-16% is one of the highest in the market vs. cost of fund at approximately only 6%.

Earnings outlook:

Expect RCE to maintain >20% loan growth

Receivables growth is strong, registering 30-40% growth per annum due to increase in salary for government employees. The company is planning a second private placement of up to 10% of its total shares to fund working capital requirement. There is plenty of room for growth as personal loan and micro credit market remain largely untapped in Malaysia and RCE is well positioned to benefit from the growth due to its strong network. Current market share of total monthly collection by Angkasa is <10%.

Business appears sustainable, 6x PE, >20% growth, >25% ROE

4Q09 net profit rose to RM18.5m (+47% yoy, +2% qoq) mainly due to strong receivables growth. This translates into 2.6sen EPS.

Let’s do a simple estimate:

Assuming flat growth (very conservative) in the next 4 quarters, total EPS of 10.4sen values the stock at 6x PE. At current price (RM0.615), the stock is really attractive: (1) investors are buying into a 6x PE stock with >20% growth rate and ROE >25%. Stocks like this typically trade above >10x PE, even during bad times. With improvement in market sentiment, it is not surprising to see the stock’s PE move above 10x. (2) Business model and earnings is sustainable. Direct salary deduction reduces risk of non performing loan. (3) Brokers’ reports have target price ranging between 80sen and RM1.00. Plenty of upside even at current share price. This is a real chance to possess our very own money lending business at an attractive price.

So, are you game to Ah Long as well?

The Politics of Attrition

Post March 8,2008 has experienced some interesting development on both sides of the political divide. The trend is continuing decay by attrition.

On the BN side,PM Najib has tried to retain the old and he has put in some new faces into his Cabinet. However, he has left Khairy Jamaluddin the ex-Premier son-in-law out in the cold. This has drawn flak from mostly the younger UMNO members. These personalities will have a tougher time retaining their political posts at the next election.Again, some faces were routinely shifted to ambassadorial positions.
Retaining some old faces continue to be an issue.

There have also been some reshuffling of UMNO liaison chiefs at the state level which seems to be good. The recent Manik Urai by-elections showed that with a new man in Kelantan, things are turning rosy once more.

On the MCA side, things have unraveled once again. Despite Najib's effort to provide some role to Chua Soi Lek, the Deputy, in BN, ugly attempts to bring Chua to the MCA Disciplinary Committee in early August is going to turn nasty between rival factions. Moreover, rumours abound that some old guards led by Chua Jui Meng are deserting the party for PKR.

As for Gerakan, it has actually lost everything. Koh Tsu Koon's ascension as a Senator and Minister in the Prime Minister's Department is generally inconsequential. The party will likely disappear into dust come the next election.

As for the MIC, despite not in the Cabinet, Samy Vellu continued to show strength. However, there are no good quality leaders to succeed him and so battle royales can be expected. The registration of a HINDRAF party will also cause MIC some concern as it will certainly take away votes. Those in MIC who do not like the strutting manner of Samy will likely join this new party.

PPP is already a goner and will be in limbo come the next election.

The only parties in BN that will likely be standing strong are from Sabah and Sarawak.

As for the Pakatan Rakyat, PAS's apparent invincibility has been tested in Manik Urai. It is now more vulnerable than ever before. The party is split right in the centre between the Erdogans and the fundamentalists. The very fact that half the party is willing to meet up with UMNO to discuss Malay and Muslim Unity does not bode well for the party currently. Its weakness is shining through the chinks in its armour.

As for the DAP, the Perak debacle has caused undue strain on the party. Not only have they lost power in Perak to BN, they have been constantly kept on their toes by scandals, the High Chapparal issue and MACC action. They may be weakened a little bit both through intra and inter- coalition party struggles but generally they will remain strong because of loyal ground support.

PKR is the joker in the pack-the weakest link in Pakatan Rakyat. They have all kinds of opportunists in their ranks and their patriotism to PKR is at best, suspect. All BN needs to do is to create dissension and all hell will break loose in PKR. PKR is likely to lose its control in all states come to next election if it does not clean house.

Looking at the total picture, it is weak on both sides but there is a better chance of rebuilding in BN than in Pakatan Rakyat.

With Anwar fighting Sodomy II, I wonder whether his charisma can stand him in good stead to discipline the hotheads within PKR and at the same time make sure that PAS and DAP can still see eye to eyee on many issues to maintain harmony in Pakatan Rakyat until the next General election.

Arms of Death

The Lord of War is a very engrossing movie based on actual events.

The plot centers around the necessary evil of having gun-runners marketing weapons of destruction to warring nations particularly in Africa.

In this film, Nicholas Cage plays the role of a Ukrainian arms dealer domiciled in New York. As long as there are impending conflicts, arms are traded for cash, drugs or conflict diamonds. The break-up of the Soviet Union unleashed the largest storage of unused weapons to be used for wars from Bosnia, Liberia to Sierra Leone. Also "Lords of Wars" are required these days by arm manufacturers in the five permanent member nations of the Security Council of the UN to surreptitiously move out arms into zones of conflicts as 'part of industrial production'.

Good show.

Knowing the end is Near

Knowing is another disaster movie incorporating science and aliens.

Whisperers which are alien beings select humans to transplant to other worlds as a solar flare will lay waste to Earth.

In this movie a young girl, Lucinda could predict exact co-odinates, time and deaths of many disasters including 911. Her grand-daughter Abby was to inherit that gifting. Also selected was Caleb, the son of a lecturer, the Nicholas Cage character.

As Nicholas Cage discovered all the numbers were exact dates, he tried to salvage the situation but failed.

The world finally was wiped out by the solar flare. Quite a scene as huge waves of fire swept across the cityscape of New York.

Quite an interesting movie.

Polling Positive Economic Vibes

Since economic recovery can come about by a concerted confidence building exercise, there are many polls conducted these days to take the pulse of industry captains to get their expert viewpoints on what is the state of the economy and what is their forecast of the return of better times.

Reuters conducted a poll and have this to report.

"China is on track to reach its 8 per cent growth target this year, while Asia's worst hit economies Singapore and Taiwan will see a sharp turnaround next year as the continent rebounds, a Reuters poll shows.

The poll, which covered estimates from more than 100 analysts in 12 economies, forecasts gross domestic product in Singapore and Taiwan will shrink by just over 5 per cent this year — deteriorating from a previous poll in March, which forecast they would both contract 4.9 per cent.


While this year will be Singapore's worst ever and Taiwan's weakest performance since records began in the 1950s, the worst does appear to be over for the export-reliant economies. Both will see the sharpest turnaround in Asia from recession to growth next year, the poll shows.

Singapore already leapt out of recession in the second quarter and the poll forecasts the island economy will rebound 4.4 per cent next year while Taiwan's GDP will increase 4 per cent.

Signs that China's economy is picking up after a sharp slowdown is boosting trade, while fiscal stimulus across the continent is helping stem the downturn. But while economists foresee a rebound in Asia next year, that assumes an upswing in the United States.

"Recent data from China has indicated that their economy is building momentum, supported by their fiscal stimulus, and data from Korea and Taiwan show exports appear to have bottomed out," said David Cohen at Action Economics.

"There are still clouds over how much of this can be sustained: a lot will depend on global export demand and that will largely hinge on how much the U.S. and European economies can turn around."

China will continue to see the fastest growth in Asia, expanding by 8.8 per cent in 2010 after an estimated 8 per cent expansion this year. India is set to grow 7.2 per cent during its financial year to March 2011, up from an estimated 6.3 per cent expansion in the year ending March 2010.

The forecasts for next year are slightly better than in the March poll amid signs that exports are declining less sharply than early in the year and consumption in the United States and Europe may be stabilising.

Inflation is benign for most of Asia, and consumer prices are declining in Thailand and a few other economies. However, the poll shows prices are likely to pick up next year as the economic climate improves, notably in India where inflation is forecast to average 5.5 per cent in 2010.

That means the downtrend in interest rates is probably over. New Zealand is expected to see the sharpest increase in rates by the end of next year, by 125 basis points, while South Korea's benchmark policy rate is set to increase by 100 basis points.

That will spur currencies. The Kiwi dollar, which is forecast to depreciate slightly between now and the end of the year, will rally 8 per cent next year. The South Korean won, which was quoted at 1,282 to the dollar today, is set to gain 13 per cent between now and the end of next year as the economy expands 4 per cent in 2010.

Indonesia will be Southeast Asia's best performer, growing 5 per cent this year and 5.9 per cent in 2010, as its more domestically driven economy insulates it from the export downturn.

Malaysia and Thailand should enjoy a modest rebound next year, of 4 per cent and 3 per cent respectively, after struggling with weak exports this year.

Australia is the only one of the 12 Asia-Pacific countries where growth will slow next year, to 0.5 per cent for the year ending June 2010 from an estimated 0.8 per cent for the year through June 2009.

Neighbouring New Zealand is starting to shake out of recession but growth next year of 2.2 per cent will be modest compared with growth in Asian economies.

"The big picture points to an extended period of relatively subdued growth over a number of years as the economy rebalances," said Cameron Bagrie, chief economist at ANZ-National Bank.