Malaysia: Outsourcing Undercuts Electronic Sales

This is the second year in a row that US electronic companies in Malaysia will face a sharp fall in export sales. The main cause is the continuing trend to outsource manufacturing processes to reduce costs.

Let us read this Reuters report.

Kuala Lumpur, May 10 — US electronics firms in Malaysia expect a second year of steep fall in export sales in 2010, an industry body said today, as firms continue to outsource manufacturing processes to cut costs.

The value of electronics shipments by the 20 members of the Malaysian American Electronics Industry group, or MAEI, will drop by nearly one-fourth to RM57.3 billion this year.

The group includes some of the world's biggest players including Dell, Intel and Motorola.

In 2009, total export sales were at RM70 billion, down 16 per cent from 2008.

The forecast sharp fall was due to “a change in manufacturing strategy from internal to outsourcing,” said MAEI chairperson Wong Siew Hai.

“Excluding this change, MAEI's export sales is expected to grow by 10.8 per cent in 2010,” Wong told reporters.

MAEI members contributed about a third of Malaysia's total electrical and electronics exports.

Since the global financial crisis two years ago, the MAEI member companies have started to outsource some of their operations to local manufacturers and other cheaper hubs such as China, said Wong, a former Intel senior executive.

He said the demand outlook for the industry remains positive after the latest data showed global semiconductors sales grew by more than half in the first quarter of 2010 from the same period in 2009.

Capital expenditure by the MAEI members are forecast to rise by nearly a quarter this year as they hire more workers and expand their operations to meet growing demand.

“Originally we thought it was an inventory restocking, but I think that was gone. I think we are past the inventory status,” said Wong.

New Accounting Method likely to Affect Property Stocks

The International Financial Reporting Interpretations Committee on Real Estate Development (IFRIC 15), which will become applicable for the accounting period commencing July 1, is likely to affect investor sentiment in property stocks, analysts said.

Under the new ruling issued by the Malaysian Accounting Standards Board, property developers are to recognise revenue based on the completion method instead of the percentage-of-completion method in current practice.

ECM Libra Capital Sdn Bhd research head Bernard Ching said the new ruling could deter shareholders that based their investments on a company’s earnings.

“Investors that are not so sophisticated and less informed about the company’s operations will be deterred when they notice that the company’s earnings aren’t so consistent,” he told StarBiz.

“Fundamentally, this new ruling does not change anything as there is no cashflow impact. The only difference is recognition of the company’s accounting profits,” said Ching.

He said developers exposed to strata-high-end projects, which often take three years (as opposed to landed residential projects that take only two years) to complete would be most affected.

“Developers with projects that are few and spaced would have the most impact as opposed to say, township developers that have more projects. Large companies with good track records are least likely to see any impact.”

Ching said a way around this was for developers to become more transparent with their investors.

“The bulk of the listed property companies do not engage their investors. Companies like Sunrise Bhd are great at engaging investors, as they have regular analyst briefings and are quite transparent with their projects.”
“It’s up to the developer to be more transparent with their launches. Companies that consistently make headlines will continue to do well under the new ruling.”

An analyst from a local bank-backed brokerage who requested anonymity called the new ruling “silly.”
“It’s a silly rule. What is wrong with the way earnings are reported that requires it to be amended? Whoever came up with the ruling I feel has zilch industry experience.
“In terms of dollars and cents, it’s business as usual for the developers. Only on paper does it look different. However, it would deter investor confidence as company earnings would look choppy.”

He, however, added that the reaction, if any, would be temporary.

“Investors who are not aware may be shocked and this may create a knee-jerk reaction. But I think after a while, they will adjust.”
The analyst said he wasn’t going to revise his outlook for property stocks because of a “change in accounting rules.”

“A company’s share price is based on cashflow, not on accounting profit. A change in accounting rules does not mean the company isn’t making money.”

Affin Investment Bank, in a recent research report, said earnings for developers were expected to be lumpy and volatile, and might appear negative on the surface.

“Analysis on profit and loss, such as profit margins, (including quarterly earnings) will be tough, as it will be purely based on the guidance from developers on their job completion schedule. Earnings from newly launched properties can only be seen two to three years after the properties are completed.

“As such, valuations based on earnings are not quite valid to reflect future earnings prospects. Instead, valuations based on RNAV (revised net asset value) will be widely used to assess the relative attractiveness of different property stocks,” it said.

The research house does not anticipate developers to continuously launch projects just to have a healthy balance sheet.

“The property sector is known to be cyclical in nature and pretty much depends on economic conditions. Despite the adoption of IFRIC 15, we believe developers will still launch new properties at the best and right time that they reckon.

“Rolling out new properties regularly to smoothen out earnings does not make sense as developers will have to carry higher inventory, especially during bad times, which slows down turnaround time.”

It also said developers with fewer launches and smaller landbanks could be badly affected.

“Earnings could be in the red for a few years before we see positive earnings contribution from property sales. Furthermore, companies which have established a dividend policy may not be relevant anymore and investors and analysts will have to depend on guidance from management.”

Well, this will be a great time to buy property stocks when the weak holders give out!

EU:The Euro Defence Package

This is a newly posted report from AP.

In consonance with IMF action, the European Union finance minsiters sprung into action on Monday on a euro720 billion EU and International Monetary Fund safety net for troubled eurozone countries, hoping it will keep markets from targeting the weaker members of the 16 countries that use the embattled euro.

Under the three-year aid plan, the EU Commission will make euro60 billion ($75 billion) available while countries from the 16-nation eurozone would promise bilateral backing for euro440 billion ($570 billion).
The IMF would contribute an additional sum of at least half of the EU's contribution, or euro220 billion, Spanish Finance Minister Elena Salgado said.

The EU's monetary affairs commissioner, Olli Rehn, said the agreement "proves that we shall defend the euro whatever it takes."

The agreement was reached after marathon 11-hour talks in an emergency finance ministers' meeting hastily convened Sunday amid concerns that the financial crisis sparked by Greece's runaway debt problems had begun to spread to other financially troubled eurozone countries such as Portugal and Spain.

Earlier report

Brussels: European Union finance ministers were considering a euro500 billion ($645 billion) defense package for the embattled euro, hoping it will suffice to keep markets from targeting the eurozone's weaker members, EU sources said late Sunday.

Rushing in frenzy to finalize an agreement before Asian markets officially open Monday, the ministers were discussing an aid plan that would have the EU Commission make euro60 billion ($75 billion) available while countries from the 16-nation eurozone and the IMF could combine with a promise to back bilateral loans and guarantees for up to euro440 billion ($570 billion).

Spanish Finance Minister Elena Salgado, speaking as she arrived for an emergency meeting of the European Union's finance ministers in Brussels, said they were determined to safeguard the currency used by 16 of the EU's 27 member states.

The euro has come under increasing pressure since the financial meltdown of one of its members, Greece.
France and Germany, the two largest members of the eurozone, agreed on measures to resolve the European financial crisis, according to a two-sentence statement from French President Nicolas Sarkozy's office Sunday.

But Britain sought to maintain a clear monetary line between the problems of the euro and its cherished pound.

"I am very, very clear that if there is a proposal to create a stability fund for the euro, that has got to be a matter for the euro-group countries," British Chancellor Alastair Darling told the BBC.

"What we can't do is to provide support for the euro. That has got to be for those countries that use the euro."
The ministers hoped to announce a deal before trading opened in Asia, if a qualified majority of the 27 EU finance ministers sign on.

Sarkozy's office said he spoke with President Barack Obama and the two leaders agreed on "the need for a large-scale response to the current disorders that are affecting the markets."

The EU's slow response to the crisis and its failure to keep Greece from reaching the brink of bankruptcy triggered slides in the euro and global stocks last week, and intensified fears the crisis would spread to other countries with shaky finances such as Spain and Portugal.

"We are going to defend the euro," said Salgado, who presided over the Brussels meeting.

"We have to give more stability to our currency ... We will do whatever is necessary" to reach agreement.
EU sources have said the measures could involve extending a euro50 billion financial support facility that has already been available to some EU nations outside of the eurozone and bringing the ceiling up to euro110 billion.
There also has been talk about a system of loan guarantees. Some economists have urged the European Central Bank to support the bond market by buying government bonds.

Bank President Jean-Claude Trichet said last week the bank did not discuss such a step at its Thursday meeting but stood ready to take unspecified additional measures if appropriate.

Ministers are pushing to have something approved by the time stock markets open Monday because vague promises have been unable to calm market turmoil over the past weeks.

"We need to make progress today because in the night, when the markets are opening, we cannot afford disappointments," said Swedish Finance Minister Anders Borg.

"We now see herd behaviors in the markets that are really pack behaviors, wolf pack behaviors," he said.

If unchecked, "they will tear the weaker countries apart. So it is very important that we now make progress."
Some eurozone nations blamed the fragile governments and a lack of European cooperation for the crisis.
"I'm against putting all the blame on speculation," said Austrian Finance Minister Josef Proell.

"Speculation is only successful against countries that have mismanaged their finances for years."
Fear of default led to investors demanding high interest rates that Greece could not pay, forcing it to seek a bailout; the risk is that market skepticism will make Portugal and Spain pay more and more to borrow, worsening their plight.

"We have to take decisions that will restore the stability of the euro, for the eurozone and we have to work on the mechanism which will be comprehensive and efficient to restore stability," said French Finance Minister Christine Lagarde.

Early Saturday, the eurozone leaders gave final approval for an euro80 billion ($100 billion) rescue package of loans to Greece for the next three years to keep it from imploding.

In Washington on Sunday, the board of the International Monetary Fund approved its euro30 billion ($40 billion) share of the bailout.

While EU finance ministers hashed out an agreement of their own, the approval by the IMF in Washington was enough to push the euro higher in early Asian and Pacific trading to $1.2893 from the $1.2731 it bought in New York on Friday.

IMF: Spartan Workout for Greece

This has roiled world equity markets for more than a week precipitating massive sell-out from Wall Street to Shanghai. Bursa was not spared in spite of its nascent growth lately.I do hope that this will stop the hemorrhaging.

There is welcome news form the International Monetary Fund today.It has put up nearly US$40 billion to help bail out Greece and appease investors' fears of a spreading European debt crisis.

Let us read the AP Report.

The IMF's executive board met in Washington Sunday to approve a three-year, euro30 billion loan for the debt-plagued nation, part of a $140 billion package (euro110 billion) negotiated with other eurozone countries.

With hundreds of billions in debts and a budget deficit of 13.6 percent of gross domestic product, Greece was just weeks away from default when eurozone finance ministers agreed to activate a rescue.
Greece has enacted tax hikes and deep cutbacks in government spending as a condition of the bailout.
The austerity measures have sparked riots and social unrest in the nation.

"The Greek government should be commended for committing to an historic course of action that will give this proud nation a chance of rising above its current troubles and securing a better future for the Greek people," IMF Managing Director Dominique Strauss-Kahn said.

"Today's strong action by the IMF to support Greece will contribute to the broad international effort under way to help bring stability to the euro area and secure recovery in the global economy," Strauss-Kahn said.

Eurozone leaders on Saturday approved a $100 billion package of loans to help keep Greece from imploding. Greece will have access to about $7.1 billion (euro5.5 billion) from the IMF on May 12, and will be able to tap a total of about $51.5 billion in combined IMF and EU funds this year.

Athens needed to see the first installment of loans before it is due to pay out about $11 billion (euro8.5 billion) on 10-year bonds that come due on May 19.

It had raised some cash on its own ahead of the looming bond payment, but not enough to cover the whole amount.

Together, the IMF and EU bailouts give Greece enough money to avoid having to raise private funds for two years, IMF officials said.

By that time, Greece hopefully will be strong enough economically to borrow through private debt markets, IMF deputy managing director John Lipsky said in a call with reporters Sunday.

Earlier attempts to stabilize the Greek economy failed to reassure jittery investors, Lipsky said.

He said Sunday's action sends a signal that "the international community is willing to do whatever it takes to help Greece's government overcome the severe challenges it's facing."

Eurozone ministers also are meeting Sunday to consider other measures aimed at stabilizing global markets that were rocked last week by fears that Greece's debt crisis will spread to other EU nations such as Portugal and Spain and hobble the global economic recovery.

Rushing to finalize an agreement before Asian markets officially open Monday, the ministers were discussing a defense plan for the embattled euro.

A proposed aid plan would have the EU Commission make euro60 billion ($75 billion) available while countries from the 16-nation eurozone and the IMF would promise to back bilateral loans and guarantees for up to euro440 billion ($570 billion).

EU sources say the ministers hope such a euro defense package would suffice to keep markets from targeting the eurozone's weaker members.

President Barack Obama continued pressing European leaders to craft a solution robust enough to stabilize markets after volatility last week that rivaled market swings during the peak of the 2008 financial crisis.
Obama called German Chancellor Angela Merkel and French president Nicolas Sarkozy on Sunday to discuss the importance of European Union nations "taking resolute steps to build confidence in the markets," said White House press secretary Robert Gibbs.

Well, would this allay stock market fears this week?

PM Najib: To Walk the Talk

The time for rhetoric and sloganeering are but over.

It's time to aggressively walk the talk. It is time to genuinely seek talent across the board to help develop the economy. The much annoying  and irritating rent-seeking mentality must go!

Let us read what PM has in store for the bumiputeras and other deserving non-Malay citizens who can contribte meaningfully to national growth.

The Najib administration has abandoned the policy of helping just one or two Bumiputera businessmen as it does not bring economic or political benefit to the grouping.

Instead, Prime Minister Datuk Seri Najib Razak said his government would focus on prospective entrepreneurs who genuinely qualify for assistance and have the potential to venture abroad.

“People come to see me, asking me to approve contracts. I can do so but this is not the way to help the Malays as we don’t want to help only one or two of them. We want to help them overall,” he told reporters after opening the Penang Malay Economic Convention here today.

Former prime minister Tun Dr Mahathir Mohamad’s ambitious industrialisation policy in the 1980s saw a group of Bumiputera businessmen taking over privatised government projects and services in aviation, telecommunications, land and sea transport, and other services.

Some of them were linked to Umno and a few had to be bailed out by the government when the Asian financial crisis hit in 1997/1998. Most were linked to former finance minister Tun Daim Zainuddin and also sacked deputy prime minister Datuk Seri Anwar Ibrahim.

Recently, a group of businessmen linked to the Malaysian Malay Chamber of Commerce had proposed a RM50 billion buyout of all tolled roads and highways in the country through a special purpose vehicle called Asas Serba.
They had promised to cut toll rates by 20 per cent and said they would finance the deal through bonds. Some analysts have called their plan unworkable while the Pakatan Rakyat insists the government nationalise the toll roads as most were controlled by government-linked company, UEM.

Najib stuck to his line of helping more people, saying there was no short cut to helping them but that the government also does not want to help undeserving Bumiputera entrepreneurs.

The government had previously assisted Bumiputera entrepreneurs via contracts and equity holdings, but this did not have the desired results, and instead, leakages occurred along the way.

“Today, we give shares to the Malays, tomorrow it will be owned by others and this is what we mean by leakages and we don’t want this to occur again.

“If we look at Bumiputera shareholdings, how much is still left in the hands of the Malays? The numbers will be shocking if we mention it,” he said.

The prime minister said if there were no leakages, the 30 per cent Bumiputera equity holding meant for the grouping would have already placed them on a stronger footing economically.

“Maybe something was not right then, that’s why we need the New Economic Model,” Najib said, adding that the government, in their pursuit to help Bumiputeras, would not neglect the other races who qualify for help.
He also called on Bumiputera entrepreneurs to establish business networks in order for them to progress.
Najib, who is also Finance Minister, said with networking, it would be easy for the government to extend assistance to help them prosper at the state, national, regional and international level.

“Business networking will help small-and-medium enterprises to secure business from big corporations and not solely depend on government contracts,” he added.

He said that via business networking, government assistance would be more business-friendly, transparent and sustainable.

Can we see action as the people wants performance now.........?.

Tunku Abdul Aziz: The Visionary of Wisdom

I read his article, "1Malaysia: Another Morning Glory?" and I liked it.I like the analogy and I liked  his hindsight views of the wherewithal of 1Malaysia. His analysis on what Najib can do with his clarion call of 1 Malaysia is spot on. We can do with more doyens like him.

Let us read and improve our mental horizon.

MAY 8 — An old English friend of mine, the late Humphrey Ball, the Malacca lawyer, once described Malaysia, his adopted country, as a morning glory — a reference to “a climbing plant with flowers shaped like trumpets that open in the morning and close in late afternoon.”

Having lived among us for so long, he was used to putting up with our little foibles, and if he was irritated by them, he kept his feelings very much to himself. Humphrey was the quintessential English gentleman.

We were having breakfast and it was a lovely morning and the city looked splendid. In between another cup of tea and a round of toast and marmalade, he surveyed the Kuala Lumpur skyline from the veranda of the Selangor Club and declared that from his experience, many of the state of the art concrete and stainless steel structures that were jostling for breathing space in the ever expanding concrete jungle of Malaysian towns and cities would go the way of all the other buildings he had seen in this country — in wreck and ruin within a few years.

“You know, Tunku, Malaysia is not unlike the morning glory,” he intoned.

Humphrey was, of course, right. We are good at building with the help of legions of exploited foreign labour. Maintenance is not part of the equation and we see this not only in the state of our buildings but also our suburban roads.

We neglect to repair a small hole as soon as it appears in the road until it becomes big enough to maim or kill a motorcyclist or damage a car. The Government, both Federal and State, is lucky that suing the authorities for negligence has not become a common feature of Malaysian life.

This is because the overwhelming majority of our people are ignorant of their rights. The time is not too far away when, as in the US and other developed countries, the authorities will be held legally accountable for their actions — in this instance, their lack of action.

Humphrey’s morning glory best describes our general attitude and approach to civic or public duty and responsibility. We undertake a government construction project with a lot of trumpeting and enthusiasm, but we seldom ever complete it successfully.

We see hundreds of such monuments to crony capitalism and entrenched, systemic corruption in every state of the nation. This is what happens when governance is driven by political rather than rational considerations. When meritocracy is on the backburner instead of in the driver’s seat, this is to be expected.
Datuk Seri Najib Razak may mean well in what he says about policy reforms, but will he be allowed the freedom to act effectively? Present indications are that he will be allowed to talk about his vision of a united and prosperous Malaysia ad infinitum.

His rival and other powerful political minders know that there is not much harm done to existing policies that benefit the party as long as they control and curtail his actions. He may not know it, but he has already caught the morning glory disease of beginning with a bang and ending with a deafening whimper.
Najib must wish he had not spent so much public money that is needed more urgently elsewhere to launch his 1 Malaysia, which looks destined for an early demise, like the morning glory of Humphrey’s evocative analogy. 1 Malaysia will forever remain a puerile offering of a confused mind that is best forgotten before the nation is subjected to further ridicule.
Please do not get me wrong. I have, all my life, promoted racial unity and integration, the acceptance instead of tolerance of cultural diversity, long before Najib even thought about these unifying elements.

But my version of 1 Malaysia is one that provides equal opportunity for all, based on the principles of justice and fair play.
My 1 Malaysia is a Malaysian Malaysia where all citizens are treated equally and discrimination in any shape or form is outlawed.
My 1 Malaysia is Middle Malaysia where extremism in economic, social, and political terms is totally expunged, and where the notion of racial supremacy is killed as soon as it rears its ugly head.

My 1 Malaysia will be free of the contradictions such as we see in our existing policies that favour a particular section of the Malaysian community to the detriment of sustainable overall development.

For the life of me I cannot see Najib delivering on my order. Can you, my fellow Malaysians? — mysinchew.com

Don't you agree that this is a gem of an article?

Indonesia:Fastest Q1 Growth

Indonesian economy probably expanded at fastest pace since 2008.

Indonesia’s  last quarter growth displayed data indicating the fastest growth ever for sometime as record-low interest rates boosted consumer spending in South East Asia’s largest economy and exports and investment recovered.

Gross domestic product grew 5.79% in the three months to March 31 from a year earlier, compared with 5.4% in the previous quarter, according to the median forecast of 20 economists in a Bloomberg News survey.

That would be the fastest pace since Sept 2008. Indonesia’s statistics bureau is due to release the data on May 10 in Jakarta.

Bank Indonesia has left its benchmark interest rate at 6.5% since August and urged lenders to expand credit That’s lifted earnings at companies including PT Bank Rakyat Indonesia.

So, this will be good for companies like Maybank and Axiata.