Japan: December Exports on the Up

A Reuters report filed today showed that Japan’s exports rose 12.1 per cent in December from a year earlier. This was based on Ministry of Finance data and is more than economists’ median forecast for a 7.6 per cent rise.

Exports to Asia, which account for more than half of Japan’s total exports, rose 31.2 per cent from a year earlier.

The trade balance came to a surplus of 545.3 billion yen (RM20.7 billion), below the median estimate for a 590.0 billion yen surplus.

So, it is good news for the second largest economy of the world.

UK: Out of Recession at Long Last!

I have just noted a Reuters report from London. This is great news that the UK is finally out of recession.

Let us read the report.

"Britain only just crept out of an 18-month recession at the end of 2009, suggesting any monetary tightening remains a long way off and raising fears about the prospects for recovery ahead of an election due by June.

The Office for National Statistics said yesterday gross domestic product rose by 0.1 per cent between October and December, well below analysts’ forecasts for growth of 0.4 per cent and lower than all the predictions in a Reuters poll.

For 2009 as a whole, the economy shrank by 4.8 per cent — the worst yearly performance since records began in 1949.

The Labour government has been banking on a strong bounce back to growth to help overturn its poor opinion poll ratings before an election expected in 100 days, but these weaker than expected figures make a political comeback even trickier.

But Business Secretary Peter Mandelson told Channel 4 News he expected the preliminary figures to be revised higher. The next estimates are due open on Feb 26 and could yet be revised upwards or downwards.

Chancellor Alistair Darling said signs of sluggish growth provided all the more reason to maintain government spending plans, attacking the Conservatives’ call for imminent and tough action to reduce a record budget deficit.

“You can see there is a lot of uncertainty and therefore you would expect as you come out of recession for things to fluctuate,” Darling said.

“I think we are now on a path to recovery ... you need to maintain your support, don’t pull the rug from under our feet at the very time that we can see recovery.”

Darling said he was sticking with his forecast that the economy would grow by up to 1.5 per cent this year.

Sterling tumbled and gilt futures rose after data, which also showed output fell 3.2 per cent from the same period a year ago. From peak to trough, the economy contracted six per cent — far worse than the downturns of the early 1980s and 1990s.

“We know there are significant headwinds in Q1,” said Ross Walker, an economist at RBS Financial Markets. “Overall, the headline is disappointing but actually the underlying picture looks more worrying.”

Most analysts predict the Bank of England will halt its £200 billion (RM1.1 trillion) asset buying programme — designed to pump money into the economy — next month, but yesterday’s GDP figures reinforced expectations that any interest rate rises from the current record low of 0.5 per cent are many months away.

Nonetheless, whichever party wins the election will have to enact dramatic fiscal tightening at some point to rein in a record budget deficit, which will be a major drag on growth.

The government has a four-year plan to halve the deficit — set to top 12 per cent of GDP this year. But the Conservatives, ahead in opinion polls, say that is inadequate and pledge to start tightening fiscal policy this year, earlier than Labour.

“After this great recession, any signs of growth are welcome,” said Conservative economics spokesman George Osborne.

“We urgently need a new model of economic growth that includes a credible deficit reduction plan that keeps mortgage rates low, creates jobs and doesn’t choke off recovery.”

While Prime Minister Gordon Brown has argued his decisions have helped Britain weather the global storm, the UK is the last of the major economies to exit the downturn.

The latest figures may also increase doubts about the pace of global recovery as Britain is also the first G7 country to report GDP figures for the fourth quarter.

Evidence from the euro zone suggests its economy may have grown at a glacially slow rate in the last quarter of 2009 and the first quarter of this year.

Britain’s recession was the longest on record and policymakers expect a long slog to get the economy back to pre-crisis levels, warning the road to recovery will be rocky.

The Bank has said the extent of any fiscal consolidation will have an impact on monetary policy and analysts say sharp cuts in government spending and big tax rises may result in interest rates having to stay lower for longer to compensate.

Some economists agreed with Mandelson that preliminary estimates of GDP could be revised upward but there are also concerns about the strength of private demand, which will need to improve greatly to establish a sustainable recovery."

I do hope we will al lretrun back to normalcy soon.

Capital Inflows to Emerging Markets

Private capital inflows to emerging markets are set to soar by two thirds this year as countries like Brazil and China drive global recovery, the Institute of International Finance (IIF) said today.

Emerging markets seemed to be aware of risks from hot money — short-term, yield-chasing cash inflows, the global banking association said. Mature economies need to come up with credible plans to tackle spiralling debt and liquidity, it said.

“We face a situation that in my more than 50 years in banking is without precedent,” said William Rhodes, First Vice Chairman of the IIF’s Board said at a media conference in Zurich on the eve of the World Economic Forum meeting in Davos.

“We are seeing rising levels of private capital flows moving into emerging market economies not only because these are demonstrably good places to invest in, but also because their growth prospects look decidedly more favourable than the rather meagre ones of the mature economies,” he said.

The IIF is an association of financial services firms with over 380 members worldwide. Rhodes, who is also senior vice chairman at Citigroup, said hot money flows, as well as rising inflationary pressures, were posing a tough challenge to governments and central banks in some emerging countries.

The IIF noted a significant risk of renewed excesses, which needed to be monitored by investors and policymakers, though Rhodes struck a note of confidence: “I believe that there is an acute sensitivity to this in key capitals.”

Central bankers have also warned that huge capital flows into emerging market assets may create new bubbles and add fresh instability to the global financial system.

G20 ACTION Rhodes said the global economy was on the mend but risks remained. “The global economy and its financial system are out of the emergency ward,” he said. “However, they are still far from being in sound health.”

The global economy should grow by 3.2 per cent in 2010 after a drop in global output of 2.5 per cent in 2009, the IIF said.

Mature economies are set to grow by 2.4 per cent, emerging markets should see growth of 6.1 per cent this year.

Net capital inflows to emerging markets were set to rise to US$722 billion from an estimated US$435 billion in 2009 driven by a rebound of direct investment and commercial bank lending , the IIF said.

IIF chairman Rhodes urged the Group of 20 developed and emerging nations to take joint action to secure the recovery and long-term growth prospects.

The G20 had to roll back protectionist measures in trade and finance such as unilateral regulatory reforms or special taxes, which could damage the financial system, he said.

Governments in mature economies, in particular, needed a clear strategy to bring budgets in order and central banks had to show credible — Reuters

Malaysia: A Good Year for Property in 2010

The Malaysian property market is expected to improve further this year.

Having chalked up have registered transactions worth RM75.42 billion last year, the property market is expected to improve further in 2010 in line with the economic recovery.

The transactions involved 337,990 properties as compared with the 340,240 valued at RM88.34 billion in 2008, said the director general of Valuation and Property Services Department, Finance Ministry, Datuk Abdullah Thalith Md Thani.

He said the challenging economic and financial environment had affected the overall performance of the Malaysian property market last year. "2010 will be a good year for all. The property market for this year will improve as the number of transactions involving new housing and construction activities, increases," Abdullah Thalith said at the Third Malaysian Property Summit 2010 on 26 January 2010.

He pointed out that Malaysia is expected to steer towards a recovery path this year, driven primarily by domestic demand, with commodity prices for rubber, crude oil and palm oil also improving.

These, he said would increase the confidence level among consumers and provide a positive impact for the property sector.

"The demand for properties is returning," he added.

Abdullah Thalith said the government would continue to implement appropriate measures to restore confidence and market sentiment.

He said the liberalisation of Foreign Investment Committee (FIC) guidelines, would increase the competitiveness of Malaysia, as a preferred investment destination.

Furthermore, Abdullah Thalith said acquiring properties in Malaysia would be more attractive, as FIC approval is no longer required.

He said the review of the Real Property Gains Tax (RPGT) would also augur well for the property industry.

So, looking at the potential prices of all building materials moving up, new housing will be more costly.Already, one can see a good secondary market for choice property in certain attractive areas. The very sight of massive renovation taking place in these areas suggest all will be well for property in 2010.

IMF:Good News!

Reuters just reported that the International Monetary Fund has sharply raised its growth forecasts for the world economy in 2010, saying the recovery from the global financial crisis had been stronger than expected.

In its latest update of the World Economic Outlook, the IMF said the world economy will expand by 3.9 per cent in 2010, much higher than its October projection of 3.1 per cent.

It said next year economic activity would rise further to 4.3 per cent.

This is good news.

JAKS: Towards Better Horizons

Is this counter worth a second look?

Let us see what is next in store for JAKS.

JAKS will put out a private placement of 10% of its shares to interested parties within a year. The 48,219,717 shares to be issues will come with a warrant each. The exchange rate of the warrants will be determined by the volume weighted average price of 5 days for a selected period and is exchangeable for JAKS shares on a 1:1 basis. The allowable period for the conversion exercise of the warrants is 5 years. The maximum discount off JAKS share price for the conversion,if at all, will not be less than 10%

JAKS can expect a maximum of RM48.2 million to flow into its coffers from this exercise. The application of funds will be as follows:

a) RM20 million for working capital. It will be utilized in the first 12 months

This will be channeled to business operations,administration and operating expenses

b) RM27.2 mil for business expansion and other investments

This amount will be directed towards the development of the thermal power plant in Vietnam on a built-operate-transfer mode.

c) RM 1.0 as expenses for the private placement

The revenue to be earned from the warrant conversion exercise will be kept for use for new investment.

Assuming the ESOS exercise is fully taken up and the placement meets maximum success, the share structure distribution will be as follows:

ESOS: 7.58%.

Private placement: 8.33%

Warrants Conversion: 8.33%

The current borrowings of JAKS is RM127.065 million.

The gearing for JAKS will improve from 0.27 currently to 0.21 when the whole ESOS exercise, private placement and warrant conversion gets off the ground.

The retained profits which is currently RM8.369 million will rise to RM9.601 after the full exercise.

Net earnings will drop proportionately to the new issuance of shares.However, this private placement will positive contribute to group earnings through fund utilization of working capital , business expansion,the settlement of bank borrowings and other potential investments.

The lowest price of JAKS was 31 sen and the highest is RM1.08. the going price today which is a really bad market day is 76 sen.

JAKS has been involved from the outset in the water industry. It manufactures mild steel pipes and trades them as well as steel hollow sections. It had a setback in Selangor where there was a contractual breach of a supply contract. This causes the fortunes of JAKS to wane. A legal action is mounted by JAKS against the parties concerned which includes PUAS,SYABAS and the Selangor government. The legal action is under case management.

So not as to be stuck to the old water sector which has become too crowded, JAKS has proposed to lead a consortium to build-operate-transfer a 2X600MW coal fired plants in Hai Duong province in North Vietnam, Negotiations are actively pursued on power purchase agreements and other related ones. JAKS expects all this to be 'in the bag' by 2010.

Demand for power is high in Vietnam which is expected to grow at 15% annually.
Current domestic power generation is insufficient.

JAKS is currently undergoing a corporate debt restructuring scheme announced on 19 October 2009 and has yet to implement the ESOS.

With the potential takeover of the water management of Selangor by the Federal authority,plans could be afoot by Kumpulan Perangsang Selangor (KPS) to ensure that they acquire some of the major packages from the Pahang-Selangor Water Transfer project. KPS owns some interest in JAKS.

So, do you think this is the right price to enter the market for JAKS at 76 sen?