The Cigarette Double U-Turns

It is now confirmed. Backpeddling is the name of  the game in Malaysia.

We should request our country to be named in the Guinness book of Records, not so much for making u-turns but more so for the string of them done in succession in such a short duration.

The latest is the U-turn to ban the sale of 14-stick cigarette packs.

Let us read on.

"This policy indecisiveness on the Government’s part may well spell the risk of dampening foreign investor sentiment towards the country.

The last-minute policy U-turn, confirmed last week by the Government, was totally unexpected and did not reflect well on the country as an ideal investment destination, especially among multinational companies, an industry observer said.

He said tobacco companies in Malaysia had actually started making adjustments for the ban on 14s pack since late last year.

“The sudden change in policy stance can be damaging to some companies in terms of competitiveness and lost business opportunities,” the industry observer explained.

“This is particularly so for those that have entirely phased out their production machinery for the smaller packs and exhausted their inventory of the products.”

Already, Philip Morris Sdn Bhd had made noise last week, threatening to take legal action over possible losses that it had to suffer due to the sudden policy deferment.

In Malaysia, tobacco is an oligopolistic industry dominated by three companies – British American Tobacco (M) Bhd (BAT), JT International Bhd (JTI) and Philip Morris.

Besides stiff competition amid a declining industry volume, tobacco companies also have to deal with illicit cigarettes, which, according to the Customs Department, is now at an all-time high of 38% of the total industry in the country.

“Definitely, there are going to be losers and gainers,”  A TA Research analyst said.“And depending on which perspective one is coming from, the policy deferment could actually be helping some companies to adapt, as the longer grace period could give them more room to manoeuvre.”

The rationale given by the Government was that it was not “withdrawing” the ban, but merely postponing it to January next year. This is to allow tobacco manufacturers more time to make the necessary changes and migrate their consumers over to the 20s pack.

The Government’s latest move to “extend the life for legal 14s pack” was also seen by some as a measure to curb the growth of illegal cigarettes. Already faced with the pressure of higher cost of living, more consumers, are going for the lower-priced contraband cigarettes.

The Government earlier noted that the exemption for regulations 9 and 16 of the Control of Tobacco Product Regulations 2004, which banned the manufacturing and sale of cigarette packs with less than 20 sticks, actually extended to the end of this year.

Most analysts saw BAT as the major benefactor of the policy deferment, as the company had the highest exposure to the 14s pack, which accounted for almost 50% of its sales.

The extension of the shelf life of the 14s packs means BAT could still derive revenue from this segment, which generally have higher profit margin compared with the 20s pack, for another six months.

On the other hand, there seemed to a consensus view that the effect on JTI was rather neutral, as the company had never been that dependent on its smaller-pack version in the first place.

The 14s-pack segment accounted for only around 30% of its sales. JTI’s forte had been on its value-for-money 20s pack segment."

Well, let us wait for the next U-turn or backpedal.

Postscript:

Hey, no need to wait. The Cabinet made another U-turn on their earlier U-turn and enforced the ban beginning this month. Walla!

No more subsidy for foreign students from July

As Idris Jala rambles on about subsidy and belt tightening, he forgot the leakage of subsidising foreign students. What gives? In classic salesman's parlance. "Tell your would-be customer what they need to know only.Don't tell them what they do not need to know!"

So, now Nordin spills the beans!

"Starting July this year, foreign students in Malaysia will have to pay their course fees in full because the government no longer subsidise them," Higher Education Minister Mohamed Khaled Nordin said.

Then,he put out an assurance as well saying local students will continued to be subsidised.

'This would mean that the amount of fees to be paid by foreign students would be the same as those imposed by private institutions of higher learning,' he added.

'I would like to assure the people that we have no plan to abolish the subsidy for local students in public higher learning institutions'.

"For foreign students, however, we no longer allow the provision of any kind of subsidy," he told reporters after presenting the letter of approval to Inti International University here today.

Mohamed Khaled said previously, some public higher learning institutions offered subsidised fees to attract international students.[You got to be joking seriously!]

"However, these universities have now grown in strength and are able to attract international students on their own without the subsidy. These students need to pay the fees in full," he said.

On the elevation of Inti University College to Inti International University, Mohamed Khaled said the institution fulfilled the criteria to be elevated into a university. [ I guess this is the right thing to do if they have actually achieve such standards. [Was an international academic audit been done on Inti to ensure enduring standards?]

He said that the recognition given to the university would help make Malaysia a higher education hub.

Inti International University, located in Nilai, Negri Sembilan, was set up in 1998 and has 5,500 students.

Morbid Month of May for Stocks

Most investors are looking forward to the month of June - and for good reason. The Dow Jones Industrial Average posted its worst May since 1940. [I think most markets did not fare any better after the May drubbing,no thanks to Greece!]

For the month, the Dow fell 7.9 per cent, the S&P shed 8.2 per cent and the Nasdaq lost 8.3 per cent. The declines were the worst for the Dow and S&P since February 2009 while the Nasdaq suffered its worst monthly drop since November 2008.

Europe was equally stung. The Dow Stoxx 600 hit an eight-month low on May 25, and Friday's decision by Fitch to downgrade the credit ratings of Spain suggests more tough times lie ahead.

Fitch cutting Spain by one notch to AA+, assigning it a "stable" outlook, according to a statement from London on Friday couldn't come at a worst time. It was double jeopardy! Spain has held the top rating at Fitch since 2003. Standard & Poor’s lowered Spain’s ratings to AA on April 28. The cut came days after Spanish lawmakers approved a round of austerity measures by a single vote.

"The process of adjustment to a lower level of private sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium-term," Brian Coulton, Fitch’s head of Europe, Middle East and Africa sovereign ratings in London, said in the statement.

The downgrade set aside news from a day earlier that China continued to view Europe as a key investment area, comments which sparked rallies across Europe and on Wall Street. [This speculative interpretation also worsened market situation!]

Yet, in keeping with the wild swings in volatility that seem to have become the norm recently, investors on Friday opted to sell.

The Dow Jones industrial average dropped 1.19 per cent. The Standard & Poor's 500 Index fell 1.24 per cent. The Nasdaq Composite Index declined 0.91 per cent.

For the week, the Dow slid 0.6 per cent. The S&P 500 gained 0.2 per cent and the Nasdaq added 1.3 per cent.

"Up until now it's been mostly Greece and the threat of Spain and Portugal and Ireland," Terry Morris, senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania, told Reuters.

"With Fitch actually downgrading Spain, it seems as if it is no longer a hypothetical, the contagion is now real."

Finance ministers and central bankers from the Group of 20 wealthy and developing economies will gather in South Korea this week to review Europe's debt crisis, financial reforms and efforts to rebalance the global economy. The meeting will lay the groundwork for a summit of G20 leaders in Toronto later in June.

With both the UK and US markets closed on Monday because of holidays, many investors will have a few more days to think about where to place their next bets.

In terms of the economic outlook, the US recovery appears to be shifting back a gear after rebounding at a faster pace earlier in the year.

This week there’s a glut of US data.

On Tuesday, there will be a report on construction spending in April and the ISM manufacturing index for May.

Wednesday's reports include Challenger layoffs data for May and US pending home sales for April with the latter seen rising 3.3 per cent, according to a Reuters poll.

Thursday's data includes the ADP national employment report, forecast to show an increase of 51,000 and the government's weekly initial jobless claims.

Later that day, April factory orders, expected to rise 1 per cent, and the ISM services index for May, expected at 55.6, will be released.

The US non-farm payrolls data will round out the week on Friday. The government report is expected to show 425,000 new jobs for the month, up from 290,000 in April, with the unemployment rate falling to 9.8 per cent from 9.9 per cent.

The US dollar is expected to fall against the euro in the coming week with investors betting that most of the bad news on European fiscal woes is already priced in with the single currency's 7 per cent decline in May.

Euro zone sovereign debt concerns remain in spite of a near US$1 trillion safety net set up by European officials to ward off any contagion from Greece, but investors are willing to bet that at least for now, the euro has touched solid support.

This was so particularly after China's Central Bank this week discounted a Financial Times report that Beijing was concerned about its euro zone bond holdings.

And though the monthly US jobs report is scheduled for Friday, investors are only likely to take their focus from Europe if tensions on the Korean Peninsula explode into conflict.

"It's probably dollar down a little bit with the fire put out for now in Europe," said TJ Marta, chief market strategist at Marta on the Markets in Scotch Plains, New Jersey.

"The euro could see a short covering rally but all bets are off if there is more risk." The euro last traded at US$1.2347.

For the week, the euro fell 1.6 per cent against the U.S. dollar, while the U.S. dollar rose 0.7 per cent against the yen. For the month, the euro fell 7.2 per cent against the U.S. dollar, while the U.S. dollar fell 3.2 per cent against the yen.

Any escalation from rhetoric to a border skirmish in Korea would rattle investors and prompt a flight into the relative safety of the US dollar. The yen would also gain, analysts said, with investors seen selling euro against yen.

Axiata: Upward Momentum

Axiata Group Bhd was upgraded to “buy” from “hold” at HwangDBS Vickers Sdn Bhd, with a raised share forecast of RM4.50.

The research house said in a report today it also increased the mobile phone company’s earnings estimate by 46 per cent for its 2010 financial year and by 39 per cent for 2011.

Its shares climbed 1.1 per cent to RM3.73 at 9:04 am local time, set for their highest close since May 19.-- Bloomberg

Rice Sufficiency:Another Neverending Issue

Sure we are. There is the fertiliser subsidy and other indirect subsidies. A clear example of indirect subsidy is the minimum price the government agency in this case Bernas must pay the farmers.As to the problems in this industry, it is too numerous that most smart people have got out of the industry.

At one time, we were aiming for self-sufficiency in case there is a security need. However, as usual, the government agencies lost track of their target. so, a lot of padi land were converted into mixed development and residential housing. Rice bowls are now almost gone in many states as housing developers encroached  on the diminishing padi hectarage.

 Now we have a Deputy minister asking an 'if' question. As if it is an issue to deal with rocket science!

So he said that Malaysia may continue to import rice if the cost of expanding the “Rice Bowl” areas in the country is higher than the cost of importing the commodity. Isn't this obvious?

Currently, the country was importing 30 per cent of the rice needs and the government was studying from the various aspects whether imports would be continued or otherwise. Who is studying may I ask? Another committee? A few PTD officers without field experience  or some agricultural officers without policy experience?

“We are studying whether to produce 100 per cent of our rice consumption or to continue importing 30 per cent of the national consumption, " he waxed lyrical.

At the moment, he said, emphasis would be given to efforts at upgrading the areas under the Muda Agricultural Development Authority (MADA) to produce better quality rice. This has nothing to do with quantity, my good man!

“Under the 10th Malaysia Plan, the ministry is allocating RM140 million to upgrade the areas under MADA. It includes giving compensation to residents because the rivers and canals in the MADA area are located on their land,” he said.

But where if the beef, my good man?

Are Sellers Tired at Wall Street?

Wall Street, still wracked by the eurozone crisis, has a long holiday weekend to recover from a miserable May before facing a packed economic calendar capped by the monthly jobs data.

"There's been a spike of jitters, but sellers are a bit worn out," said Gregori Volokhine of Meeschaert New York.

The market "is stabilizing. Volatility remains high, but no longer at crisis levels," he said.

"The crisis of confidence in the market is over."

Over the past week, the blue-chip Dow Jones Industrial Average fell 0.56 percent, to 10,136.63 ponts.

By contrast, the tech-rich Nasdaq composite gained 1.26 percent at 2,257.04 and the Standard & Poor's 500 index, a broad measure of the general market, edged up 0.16 percent to 1,089.41.

In May, the Dow plunged 7.9 percent, its worst monthly performance since February 2009 and its worst May since 1940.

The week got off to a rocky start as investors continued to fret about the developing financial crisis in the eurozone after Greece's close call with collapse.

Attention focused on Spain, where the central bank rescued a regional savings bank, CajaSur.

The fiscal strains in the eurozone sparked concerns that they could morph into a global financial crisis like the one that the followed the 2008 bankruptcy of US investment bank Lehman Brothers.

A huge blow came Wednesday, when the Financial Times reported shortly before the market closed that China, the world's largest holder of foreign-exchange reserves, was reviewing its eurozone debt holdings.

The euro plunged below 1.22 dollars, near a four-year low, and the Dow closed below the psychologically sensitive 10,000-point threshold for the first time since early February.

China dismissed the report Thursday, easing eurozone fears and sending the Dow up 2.85 percent.

On Friday, Fitch cut its credit rating on Spain, sending the market plummeting before it fought back to close off intraday lows.

Despite the whipsaw action, "this week has been far more healthy than we have seen in the last three or four weeks," said Marc Pado at Cantor Fitzgerald.

"A big part of this decline was to unwind positions that were representing higher risk for portfolios," he said.

"When you bounce it's important that the right stuff bounces: technology, retail, financial, those are the drivers of the economy, and that's what started to happen."

After the May maelstrom, investors have a long weekend -- with markets closed Monday in observance of the Memorial Day holiday -- to catch their breath.

They face four days of key economic indicators, including construction spending on Tuesday, auto sales on Wednesday and factory orders the following day.

But key labor data Friday promise to stir the most interest as investors try to gauge the sustainability of the fledgling recovery from the worst recession since the 1930s.

Most analysts expect the Labor Department to report nonfarm payrolls rose 500,000 in May, after a gain of 290,000 in April.

The expected jump in job creation would be largely due to temporary government hiring for the 2010 Census, analysts said.

The unemployment rate was forecast to slip a notch, to 9.8 percent, from 9.9 percent.

"We've had slightly more mixed data recently, so the jobs figure will be the test to see the strength of this economic recovery," Volokhine said, adding "there's always a risk of bad news"

Kill or be Gored

So, it has come to pass. Kill animals wantonly and you will also pay the price.

This matador is paying.