Analysts see gold hitting US$1,200 in three months

Saturday March 15, 2008

Analysts see gold hitting US$1,200 in three months

By LAALITHA HUNT

laalhunt@thestar.com.my

PETALING JAYA: US gold futures, which surged to a record US$1,001.50 on Thursday, is likely to breach US$1,200 an ounce within the next three months.

MIMB Investment Bank Bhd technical analysis manager Lee Cheng Hooi said gold could hit new highs this year on expectations of further Federal Reserve rate cuts and inflationary concerns.

“Based on monthly trends, gold prices are seen to be strong as investors see gold as a real and tangible asset and safe value haven amid economic uncertainties,” he added.

Aseambankers chief economist Suhaimi Ilias said gold was used as a hedge against the weakening dollar and inflationary pressures.

“History also proves that traditionally, gold is favoured during inflationary periods,” he said, adding that gold would continue its upward trend due to the volatility in the dollar.

TA Securities head of research Kaladher Govindan concurred that gold price, which was also driven by soaring crude oil prices that had scaled to a record US$111 a barrel, would continue to rise due to the weak US economy.

According to an AFP report, Asian economic giants China and India have also boosted demand for the precious metal, which is used in jewellery, dentistry and electronics.

“Gold, which is priced in dollars, becomes cheaper for buyers using other currencies when the US unit falls in value. The dollar slumped on Thursday against both the euro and yen as fresh credit jitters swept across global markets,” the report said.

The report added that gold price had risen by about 17% so far this year, spurred also by supply problems in the world's largest producer, South Africa.

“Stoppages by miners protesting unsafe working conditions and ongoing power cuts in South Africa have hampered supplies,” it said.

On the local front, Datuk Andrew Kam Tai Yeow, chairman and chief executive of London-listed Malaysian gold miner Peninsular Gold Ltd, said the overwhelming global demand for gold bode well for the local gold mining industry.

The company has invested RM60mil in the East Coast Economic Region to build a plant in Raub, Pahang. The plant, expected to start production soon, will be able to extract 85% of the gold residue left in mine tailings.

“We would consider increasing our investment as we see a lot of potential, going forward,” he said.

However, trading in local jewellers such as Poh Kong Holdings Bhd and DeGem Bhd was thin despite the recent spike in gold price.

An analyst attributed this to the local political situation and global volatility.

The upward trend in gold price would not necessarily translate into higher share prices for gold jewellers; instead investors preferred to invest in the commodity itself, the analyst added.

S&P: End in sight for US subprime writedowns

Star,Saturday March 15, 2008

S&P: End in sight for US subprime writedowns

By LOONG TSE MIN

PETALING JAYA: Standard & Poor's Ratings Services (S&P) has issued a positive report stating that US banks' subprime mortgage write-downs could be coming to an end, but analysts are unconvinced on expectation that there would be more writedowns from outside the sector.

The analysts said problems were emerging in other types of bonds, including prime bonds such as agency bonds issued by home financing agencies Fannie Mae and Freddie Mac, and student loans agency Sallie Mae.

They said with about US$200bil of sub-prime related provisions already made, it was not far off from S&P's estimate of total write downs. In its report the same day, S&P raised its estimate of total sub-prime mortgage write-downs to US$285bil from US$265bil.

MIMB Investment Bank head of equity research Pong Teng Siew, when contacted by StarBiz said there was plenty of scope for more downgrades, adding that senior tranches of sub-prime securities, i.e those with first claim on assets, had yet to be downgraded.

He said the US Federal Reserve's rescue package announced on Tuesday would direct as much as US$200bil to banks and investment houses and would largely be spent on securities swaps with banks for AAA-rated securities, some of which were sub-prime related. He said most of investment community in the US was not impressed because these AAA securities could be further downgraded.

Meanwhile, Reuters quoted Payden & Rygel portfolio manager Mike Kagawa in Los Angeles as saying in reaction to S&P's report: “They must be seeing something I'm not. I just don't see it.”

However, most US analysts credited S&P's report with helping US stocks to rise for a second non-consecutive trading day this week.

The Dow Jones Industrial Average finished up 35.3 points, or 0.3%, to 12,145.7 on Thursday.

Aseambankers in its daily research note yesterday attributed the S&P report to the S&P500's 2.6% rebound from its overnight low to close at 1,315 points.

However, the research house added: “We remain cautions since the Bloomberg tally of the sub-prime related losses to date have reached only US$188.3bil, which means there could still be substantial write-downs ahead, going by S&P's assessment.”

“Moreover, the market has not factored in rising delinquency of marginal and even some prime mortgages, as well as credit card loans.

“Overall, we remain cautious on global equities given the present stagflation-like scenario in the US,'' said Aseambankers, which added that Thursday night's rebound could be a 'bear trap'.

The research outfit said it expects a “downside bias” to the global bourses as well as the KL Composite Index for the second quarter.

AIG faces new credit jitters

Saturday March 15, 2008

AIG faces new credit jitters

NEW YORK: Shares in American International Group (AIG) fell as much as 8% on Thursday on concern the world's largest insurer could face larger-than-expected losses from a credit derivatives portfolio that has already led it to US$11bil in writedowns.

“AIG believes the economic losses from its (credit-default swap) exposures are unlikely to exceed US$900mil. However, our analysis suggests losses of US$3bil, with downside to more than US$13bil if the fixed-income crisis deepens,” Morgan Stanley analyst Nigel Dally wrote in a research note.

Default swaps are akin to an insurance policy on underlying securities, including collateralised debt that have exposure to the subprime mortgage crisis.

Morgan Stanley's analysis of likely economic losses at AIG was related to a CDS portfolio managed by AIG Financial Products, which led the insurer to record its biggest-ever loss in the fourth quarter.

On a quarterly earnings call with investors last month, AIG said by current estimates of a worst-case scenario, it could record losses on the swap portfolio of up to US$900mil.

“If the fixed-income crisis deepens, these losses, coupled with escalating credit losses and lower earnings from segments exposed to the residential housing crisis, could lead to a capital shortfall at the company,” Dally added in the note. – Reuters

IJM’s new unbilled sales in Penang at RM160mil

IJM’s new unbilled sales in Penang at RM160mil

By DAVID TAN

davidtan@thestar.com.my

PENANG: IJM Properties Sdn Bhd has about RM160mil of unbilled sales from its new property launches in Penang since November 2007.

The amount was part of its total unbilled sales of some RM580mil, managing director Teh Kean Ming told StarBiz.

“In Penang the contribution comes from Nautilus Bay, a landed residential scheme located off the Jelutong Expressway, and Platino, a luxurious condominium project in the MetroEast mixed-development scheme next to the Penang Bridge,” he said.

The Nautilus Bay project
The RM190mil Nautilus Bay project, completed recently, comprises 78 three-storey terrace houses with built-up areas of 2,600 sq ft.

Priced between RM780,000 and RM1.2mil, the Nautilus Bay is about 85% sold.

“The buyers are mainly locals and Singaporeans,” Teh said.

He added that Nautilus Bay was IJM’s first project in Penang to employ build-and sell concept and having obtained certificate of fitness.

On Platino which was launched last November, Teh said the scheme comprised two tower blocks of 228 detached condominiums.

“There are five units on each floor with built-up areas ranging from 1,800 to 2,800 sq ft.

“We have sold about 60% of the units, which are priced from RM700,000,” he said, adding that the project was scheduled for completion in 2010.

US dollar bounces back from record lows

US dollar bounces back from record lows

By YVONNE TAN

yvonne@thestar.com.my

PETALING JAYA: The US dollar bounced back from record lows yesterday on talk that central banks would intervene in the foreign exchange market.

However, expectations of a hefty rate cut by the Federal Reserve (Fed) and the weak US economy continued to undermine investor confidence in the greenback, analysts said.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said: “Given that the financial markets are pricing in at least another 50 to 75-basis-point cut in the Fed’s fund rate next week, the dollar weakness will be exacerbated.

“We may see the ringgit dipping below the psychological RM3 per US dollar mark in tandem with the strengthening of other Asian currencies.”

The greenback fell to a record low against the euro and a 12-year low versus the yen on Thursday after increasing credit-market losses threatened the stability of hedge funds.

The weaker-than-expected US retail sales in February also helped drag down the currency to its lowest level in decades.

On Thursday, the dollar, the world's largest reserve currency, fell to as low as 1.5651 to a euro and below 100 yen for the first time since 1995. The dollar, however, rose yesterday after securities firms speculated that central banks would take action and intervene to curb the currency's slide.

The unit traded at 1.5577 euro early yesterday and at 100.41 yen after sliding to 99.77 on Thursday.

The US Dollar Index traded on the ICE Futures, the benchmark that measures the dollar's performance against six major currencies, hit a record low of 71.701 points yesterday.

Aseambankers economist Ahmad Saifuddin Morat said he would not be surprised if the ringgit reached 3.0 to the dollar by the end of this year.

“The appreciation is faster than expected,” he said.The ringgit was slightly lower against the dollar at 3.1600/1650 at 5pm yesterday against 3.1560/1600 at Thursday’s close.

Dealers maintained that the ringgit would extend its gains as the Fed was expected to cut the Federal funds rate next week, causing the dollar to face another round of selling.

RAM's Yeah said the downtrend in Malaysia's exports to the United States would continue into this year unless local exporters reduced prices to maintain market share there.

“Rather than just the exchange rate, further adjustments in the global imbalance will have to come in the form of stimulating higher domestic demand in the Asian countries,” he added.

Transparency and political stability on investors’ minds

Star , Saturday March 15, 2008

Transparency and political stability on investors’ minds

COMMENT
By JOSEPH CHIN

A NEIGHBOUR was renovating his house and the contractor was intent on cutting corners by using cheap cement bricks to build a wall.

The contractor’s argument was that once he had plastered the wall, it would still look good despite the cheap bricks, which can be broken by just one blow with a hammer. The bricks cost about 14 sen each, fire-rated bricks, 17 sen and clay bricks, about 25 sen.

I asked the contractor whether he would live in the house he was renovating, and if his workmanship was sloppy. It was only after this that he opted for fire-rated bricks.

Just like building the wall, the bricks of integrity, honesty and good corporate governance have to be put solidly in place in nation building.

What investors want are transparency, an honest and fair Government and certainty in an effective political leadership which cuts across all racial barriers.

One week has passed since the general election, which saw Barisan Nasional (BN) denied the crucial two-thirds majority. Malaysia is now undergoing a test if the country is built on a solid foundation of racial and religious tolerance, and visionary political stewardship.

The throes of uncertainties are part of the painful democratic process. Racial issues have to be tackled and the losers assured they are not left out of the mainstream of economic development. Until these issues are clarified, foreign investors could be hesitant to put their money in the local stock exchange or commit to investing in projects.

Last Monday, the investing community’s initial reaction was to sell down stocks due to the uncertainties, both locally and globaly. Over the past week, the KL Composite Index has fallen 101.49 points to 1,194.84, wiping out RM70.34bil in market capitalisation.

The head of a local fund management company said that in the short term, there would be a slowdown in the economy and continued weak market conditions due to the current uncertainties at the political leadership level.

Foremost on his mind and that of other fund managers is the hope that the Federal Government and the five states now under Opposition can set aside their differences and focus on rebuilding investor confidence.

The bigger picture is the future of the country and whether the two parties can hammer out a strategy to ensure continued economic growth, political stability and racial harmony.

“We want transparency, better corporate governance and an efficient utilisation of resources,” the fund manager said.

The shares of companies that are transparent, have good corporate governance and are well managed generally command 15% to 20% premium over those of their peers.

Investors also want more transparency in the tenders for Government projects, which would avoid wastage of resources and eliminate cronyism.

Currently, Barisan Nasional still has control of Parliament and the economy, including the government-linked companies' (GLCs) transformation process and other projects funded and driven at the federal level, says Credit Suisse Securities.

“The main difference is that there is a meaningful, highly educated and eloquent Opposition which will provide a check and balance in Malaysian politics that has been absent for years.

“This should help curb the excesses of the past,” it said in a report on Wednesday.

Hence, the onus is on the BN and the Opposition to overcome their ideological differences and combine their strengths to put Malaysia on a stronger economic footing.

Leaders urged to resolve uncertainty

Star, Saturday March 15, 2008

Leaders urged to resolve uncertainty

PETALING JAYA: Political leaders should come together and speedily resolve the uncertainties faced by the country and business community.

“The outlook is uncertain and that is reflected in the equity and bond markets,'' said Datuk Nazir Razak, group chief executive officer of CIMB Bhd.

Urging the leadership and political parties to act speedily, he said the current situation was not very pro-business and the quicker it was resolved, the better.

CIMB's strategy is to increase its overseas exposure; however, it is still the local business that contributes the bulk of earnings. “We will do what we can, but it is still mostly local (business that is most significant),” Nazir said.

Even the outlook for the bond market has changed.

From left: RAM group deputy executive chairman Datuk C. Rajandram, Datuk Nazir Razak, Securities Commission chairman Datuk Zarinah Anwar and RAM group chairman Tan Sri Siti Norma Yaakob.
Two months before the election, about RM24bil was raised compared with just RM7.3bil approved in the previous corresponding period. However, the situation now was totally different, observed Nazir, and the uncertainty was not good for the business environment.

He was speaking yesterday evening after receiving the lead manager awards won by CIMB Investment Bank for the number of bond deals arranged and value of deals closed under Rating Agency Malaysia Bhd's (RAM) League Award 2007.

AmInvestment Bank executive director Pushpa Rajadurai noted there was ample liquidity, close to US$100bil, in the financial system to back up the projects under the Ninth Malaysia Plan.

“Unlike in other countries, Malaysia has the money to back up its projects,'' she said. As such, it is critical that the projects must go on and be delivered.

At another function yesterday evening, Panasonic Malaysia Sdn Bhd managing director Hiroshi Nakamura said it was not easy to determine the type of impact the local political situation would have on businesses locally.

“That is a tough question to answer, at least from a foreigner's point of view,” he told StarBiz before his farewell dinner yesterday.

“However, I certainly hope the Government will manage the situation properly and minimise whatever impact it would have (on businesses) locally,” he said.

Nakamura did add that the local political situation, should it have a negative impact on the economy, could hurt foreign investors' confidence and foreign direct investment in Malaysia.

“All the foreigners are watching very quietly and carefully to see what is going to happen,” he said.

“Malaysia is competing with many emerging countries such as Vietnam. From a foreigner's point of view, the political stability in a country as well as its economic well-being would definitely determine an investor's choice,” he added.

The atmosphere at the book launch of Senior Leadership Teams organised by the Hay group yesterday evening could be summed up as optimistic yet cautious.

While most greeted the change in the political landscape of the country with enthusiasm, they have taken a wait-and-see stance. A management consultant in his 30's said: “These are exciting times.”

Several from the mixed crowd comprising mainly corporate types and some from non-governmental organisations said it remained to be seen whether the administrations in non-Barisan Nasional (BN) governed states could deliver or govern, given the squabbling even before the dust had settled on the election in Perak.

Tan Sri Yong Poh Kon, president of the Federation of Malaysian Manufacturers, said in a statement yesterday: “Ongoing efforts to enhance efficiency of the public delivery system and improve the effectiveness of development policies at all levels and in all sectors should receive new impetus in commitment and fervour from all stakeholders.''

At the RAM awards, CIMB Investment Bank's Islamic division also bagged the lead manager awards for the number of deals and issue value.

The investment bank and its Islamic unit also received Special Merit Awards for being the country's top lead manager in 2007 for corporate bond and corporate sukuk markets.

However, the Special League Achievement Award 2007 went to Kuwait Finance House (M) Bhd, in recognition of its feats within RAM's league table, premised on the number of deals, value of deals closed and market share.

The Blue Print Award category (accorded to distinctive, ground-breaking bond or sukuk deals) went to Cagamas SME Bhd, the issuer of the best newly structured finance benchmark deal totalling RM600mil synthetic securitisation of SME loans. The lead managers were Aseambankers Bhd and Citibank.

Malakoff Corp Bhd won the award for the most innovative deal of the year for its RM6.2bil senior and RM1.7bil non-conservative junior sukuk musyarakah. It was lead managed by CIMB Investment Bank.

Binariang GSM Sdn Bhd won for the most outstanding deal of the year for RM19bil senior and RM3.02bil non-convertible junior sukuk musyarakah.

Lead managers for the RM19bil senior sukuk musyarakah were ABN AMRO Bank Bhd, AmInvestment Bank Bhd, Aseambankers Malaysia Bhd, CIMB Investment Bhd, RHB Investment Bank Bhd and OCBC Bank (M) Bhd. Lead manager for the RM3.02bil non-convertible junior sukuk musyarakah was CIMB Investment Bank.

The Industry Recognition Award for outstanding contribution to elevating Malaysia's standing in the global financial market went to Aseambankers.

Weak market won’t derail UEM World revamp

Saturday March 15, 2008

Weak market won’t derail UEM World revamp

PETALING JAYA: The current weak market sentiment is unlikely to derail UEM World Bhd's corporate exercise.

An analyst with a foreign brokerage said the group seemed “serious” in achieving the purpose of the exercise, which was to streamline its operations and propel growth.

“It's a matter of pricing for the moment, but there is still time. Prices could recover a few months down the road,” she said, adding that the group had the prerogative to revise the offer.

Last month, UEM World proposed to transform the conglomerate into a pure property player with the eventual listing of UEM Land Sdn Bhd.

The exercise involves a restricted offer for sale (ROS) of shares in four listed subsidiaries – Pharmaniaga Bhd, UEM Builders Bhd, Opus International Group plc, and Cement Industries of Malaysia Bhd – at a 15% premium to a one-month weighted average market price.

In addition, the UEM World shareholders will receive UEM Land shares.

UEM World will then sell off all its unlisted businesses and undertakings to UEM Group for RM13.9mil.

UEM Group will underwrite the remaining shares not acquired under the ROS, which ensures a capital repayment of RM1.26 per UEM World share.

Minority shareholders who decline the ROS can opt for 125 UEM Land shares and cash of RM124.82 for every 100 UEM World shares held.

The proposal, however, is subject to various regulatory approvals.

“The group can make adjustments once the approvals have been secured,” a source said.

Another analyst at a bank-backed brokerage shared a similar view, saying that based on current prices, minority shareholders would not be enticed to accept the ROS.

“Why should they, when they can buy in the open market at much cheaper prices?” he said.

Also, UEM Group would be paying a much higher premium for the shares since some of the companies' share prices had dropped in the recent sell down, the analyst said.

“A possibility is to change the reference price while maintaining the 15% premium,” he added.


UEMWRLD : [Stock Watch] [News]Star

By MARTIN CRUTSINGER, AP Economics Writer 10 minutes ago

By MARTIN CRUTSINGER, AP Economics Writer 10 minutes ago

WASHINGTON - The Federal Reserve said Friday that it has voted to endorse an arrangement to bolster troubled Bear Stearns Cos. and stands ready to provide extra resources to combat a serious credit crisis.
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The Fed announcement came in a brief two-sentence statement that was issued as stocks were plunging on Wall Street over worries that a plan to ease a liquidity crisis at Bear Stearns Cos. might not work.

"The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system," the board said.

The statement said that the board had voted unanimously to approve the arrangment announced by JP Morgan Chase and Bear Stearns earlier on Friday.

The plan will provide secured funding to Bear Stearns for an initial period of 28 days, seeking to provide short-term relief for Bear Stearns.

Treasury Secretary Henry Paulson praised the Fed's leadership and said that the country's financial system would be able to weather the problems.

"As we have been saying for some time, there are challenges in our financial markets and we continue to address them," Paulson said in a statement. "This is another challenge that market participants and regulators are addressing. We are working closely with the Federal Reserve" and the Securities and Exchange Commission.

Paulson said he appreciated the leadership of the Fed "in enhancing the stability and orderliness of our markets."

The action by the Fed board in Washington represented an endorsement of a rescue effort for Bear Stearns that had already been arranged by JPMorgan and the Federal Reserve's New York regional bank.

It was seen as a last-ditch effort to save the investment bank, which on Friday acknowledged its serious financial problems after a week of denials.

JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.

The Securities and Exchange Commission issued a statement saying it has been "in close contact" with Treasury, the Federal Reserve and the Federal Reserve Bank of New York during discussions concerning an agreement by J.P. Morgan Chase & Co. to provide a secured loan facility to The Bear Stearns Companies.

"We will continue to work closely together in a way that contributes to orderly and liquid markets," the SEC said.

US STOCKS-Market briefly falls more than 2 pct

(Updates with stocks extending losses)

NEW YORK, March 14 (Reuters) - U.S. stocks extended losses on Friday, with all three major indexes briefly falling more than 2 percent, as shares of financial companies sold off on concerns about the fallout from Bear Stearns' (BSC.N: Quote, Profile, Research) liquidity issues.

The Dow Jones industrial average .DJI was down 194.08 points, or 1.60 percent, at 11,951.66. The Standard & Poor's 500 Index .SPX was down 24.76 points, or 1.88 percent, at 1,290.72. The Nasdaq Composite Index .IXIC was down 37.19 points, or 1.64 percent, at 2,226.42. (Reporting by Caroline Valetkevitch; Editing by James Dalgleish)