MOSCOW: Russian Prime Minister Vladimir Putin’s determination not to slash the rouble’s value comes at a price: it could send the spluttering economy even faster into recession, fuelling the public discontent he set out to avoid.

Despite intense pressure on the rouble from falling world oil prices, Putin has ruled out any sharp fluctuations in the currency, fearing that to take that step would revive voters’ painful memories of the economic turmoil in the 1990s.

His officials opted instead for a “salami slice” approach devaluing the currency in small increments over several months.

The central bank on Monday allowed the ninth mini devaluation of the rouble this month.

But analysts say that policy is freezing cash flow in the economy because banks, investors and consumers are expecting that the rouble will fall further and uncertain how far are hoarding their assets in foreign currency and refusing to spend.

“They (the government) are between the proverbial rock and a hard place,” said Chris Weafer, chief strategist with Uralsib.

“They are now having to balance what has become a fairly obvious need for a devaluation with the political risks of backtracking on a fairly clear statement from the prime minister,” he said.

The economic slowdown is already presenting the Kremlin with the biggest challenge to its rule in a decade, threatening to reverse the growth in incomes on which Putin had built his popularity and his firm grip on power.

The rouble has lost 17% of its value against a euro-dollar basket this year despite the central bank spending over US$100bil of its reserves on supporting it.

The country’s main stock markets are down about 70% from peaks in May, and analysts polled by Reuters predicted the economy next year to slip into recession for the first time in a decade.

Some analysts say the Kremlin’s fear of allowing a repeat of 1998, when the rouble crashed and the government lost that little public support it then had, is having the effect of making the problems worse.

“The central bank’s attempts to outplay the market will not only decrease reserves, but also suppress economic growth as money will not move,” Yevgeny Gavrilenkov, chief economist of investment bank Troika Dialog, wrote in a research note.

“Wage and tax arrears have started to appear as credit markets remain frozen, which is one more reminder of the 1998 situation,” he said.

Firms such as Toyota have already pegged their prices in Russia to the dollar in a major vote of no confidence in the rouble.

Unable to obtain credit or cash, Russian companies are laying off staff. The government said on Monday it expected the number of jobless claiming benefits to rise 69% next year.

That carries a political risk for Putin, still Russia’s dominant political force despite stepping down from the presidency in May to make way for his protege, Dmitry Medvedev.

Leonid Sedov, researcher with independent pollster Levada Centre, said popularity ratings for Putin and Medvedev are largely unchanged. But he added: “The protest mood, the readiness to take part in demonstrations, has grown.”

In the first half of this year, 18% of people polled by Levada said they believed anti-government protests were quite possible in their town or district. In the second half, that figure was up to 23%.

Protests earlier this month against a plan to raise import tariffs on foreign cars were a sign of the public mood.

Underlining the Kremlin’s nervousness on the issue, riot police in the Pacific port city of Vladivostok broke up an anti-tariff protest and arrested dozens of people.

“We are entering a phase when millions of people are losing their jobs, their savings, living standards will harshly decline,” said Garry Kasparov, a former world chess champion and Kremlin critic. “They have to blame somebody.”

Some market players speculate the central bank could use the long New Year break Russians are off work from Jan 1 to Jan 11 to push through a sharp devaluation of the rouble without attracting too much attention.

But analysts predict further mini devaluations. Economists polled by Reuters forecast that at the end of next year the rouble would stand at about 36 versus a euro-dollar basket, or only around 4% down on its level now.

“My guess is that they will continue that policy and go for a (gradual) devaluation for political reasons even though from the economic point of view it would be better just to have a one-off and say ‘We are done’,” said Uralsib’s Weafer.

“People associate devaluation with political crisis,” he said. “The government is simply paranoid that a devaluation could trigger these memories.” — Reuters

THE world’s stock markets, including Malaysia’s, have recovered lately.

Some analysts have viewed this recovery as window dressing activities while others have called it bear market rallies.

And there are those who wonder whether we have seen the worst.

They are eager to know whether the current stock market level has reflected all the negative news, like the sharp drop in consumer spending, higher unemployment rates or lower sales and lower profits for most of the listed companies in the coming corporate result announcements.

Every investor wants to know when will the market recover.

Some investors may be excited about the current stock market level as a lot of good quality stocks have been hammered down to attractive levels, and are keen to start accumulating them.

However, if the stock market continues to dip for long periods, certain investors may run out of “bullets” to average down their purchasing prices.

Then, they will start losing interest in the stock market as they do not have cash to purchase further and their earlier purchases also start to show losses.

We need to prepare ourselves for the market turnaround.

However, we need to be patient and wait for the right time to invest.

In this article, we will look into the past two major downcycles: the 1998 crash and 2000 crash versus the current 2008 crash.

From the table, it can be seen that the Kuala Lumpur Composite Index (KLCI) tumbled by almost 80% in a period of 18 months during the 1998 crash versus a drop of 45% in a period of 13 months during the 2000 crash.

The percentage drop and duration of the 2000 crash were much less severe and shorter compared to the 1998 crash.

For the current 2008 crash, our KLCI has plunged by 47% to its lowest level of 801 points on Oct 28.

If investors believe that the current crash is quite similar to the 2000 crash, then we may have seen the worst as the current percentage drop of 47% is near the 2000 crash of 45%.

However, if the 2008 crash mirrors the 1998 crash, then we may have to wait until the KLCI touches about the 300-point level (assuming the same 79.4% drop in the 1998 crash) before we can see any real recovery.

Hence, we may have to wait for another nine months or until September 2009 (assuming the same duration of 18 months).

We do not think the 2008 crash is similar to the 1998 crash.

Our current economic situation, like central bank reserves, the health of the banking sector as well as economic fundamentals, are much better compared to 1998. However, as mentioned earlier, we need to prepare ourselves for the worst.

What to expect from here on?

Our market will try to absorb all the negative news.

As long as the market continues to drop as a result of negative news, we know we have not seen the bottom yet.

We have to wait for the day when the stock market refuses to come down even when it is loaded with massive negative news; that should be the right time to buy.

Unfortunately, based on our past observations, by then most investors may not have any more cash to purchase or they will still worry about the economic situation.

Investors need to understand that stock market cycles are always ahead of economic cycles.

Normally, when the stock market hits the bottom, the economic situation is uncertain or is still getting worse.

l Ooi Kok Hwa is an investment adviser licensed by the Securities Commission and managing partner of MRR Consulting.

TOMORROW is the dawn of 2009 and unlike recent years, it is filled with trepidation and uncertainty. There is no escape from the rampant destruction caused by the bursting of the financial and consumer bubble in the US.

Of grave concern will be the first three months of next year as people look out for more Government measures to stimulate the economy in Malaysia. The effects of a RM7bil stimulus package have yet to be felt while reports say the money should be released to the various agencies from next month onwards.

Allocations are being made to stimulate private investments and the construction of schools and hospitals as well as the upgrading of police stations. However, people are now questioning if a bigger package is required in view of the latest developments, especially in the export and jobs sectors.

At this time Malaysians may even be confused about whether to spend or save.

For many years, our economy had been driven by domestic consumption and investments. With so much fear over job security, it is going to be a challenge for the Government to get people to spend and invest. At this stage, they may even be confused about whether to spend or to save.

The positive effect from lower contributions to the Employees Provident Fund is expected to kick in soon. To what extent that will help remains to be seen as many have opted to retain their original contribution.

There is spending on mega sales but is the momentum strong enough to bring up the economy? What about spending on big ticket items?

With inflation numbers and oil prices coming off, there should be more spending power. Reports indicate that the Government is looking seriously into the issue while getting traders to lower their prices.

On the investment front, there are occasional reports of small amounts being invested. Companies are reluctant to commit to large figures.

Even if they quote considerable sums of money, these are usually spread over a number of years.

That leaves us with the all important role of the Government in reviving the economy. China, which just announced a whopping US$586bil stimulus package last month, may come up with a second package as early as next month to further spur consumption. Taiwan, where the electronics sector is severely hit, has taken drastic measures to help its economy, such as giving out shopping vouchers to its people.

All over the world, people are talking of coordinated actions. If we are too slow to respond, it could appear that we are falling behind while others are streaking ahead.

We cannot just sit back and take comfort in the fact that we are less hit this round compared with the 1997 Asian financial crisis, therefore, we do not have to take such drastic action to recover.

Some feel that the direction may be clear but the plan is not moving fast enough on ground level. There are views that the delivery system has yet to catch up with the momentum since major reforms were introduced.

The feeling lingers despite efforts by the leaders to dispel that notion. Observers also point to the need for federal and state governments to work more cohesively and quickly.

People with cash are unlikely to release it until they are confident of the road ahead. Governments cannot totally shield their people from the current crisis that has the world in shock. At the very least, they can cushion the impact and work towards a soft landing.

·Senior business editor Yap Leng Kuen would like to see happier times for Malaysian consumers with a better pricing scenario and greater job security.

PETALING JAYA: Crude palm oil (CPO) prices will get the full impact of the rising La Nina weather risks, which are threatening major oilseeds and grain growing areas in the US and South America, by end-May 2009.

La Nina, usually marked by wet weather and abnormal heavy rainfall, was expected to disrupt the 2009 planting season for oilseeds and grains like soybean and corn in the US in March and April, a plantation industry consultant told StarBiz.

He said La Nina could also affect the harvesting season for soybean in Brazil and Argentina from February to April.

“All will depend on the length (time frame) of the La Nina weather pattern in 2009,” the consultant added.

He expects any disruption in planting or harvesting of soybean crops in 2009 would help bolster the currently-weak prices in most agriculture-based commodities, including CPO.

The world encountered a lengthy La Nina phenomenon from 1998 to 2001.

In 2001, it was reported that US farmers planted 1.6% less acreage of soybean and 4.8% less acreage of corn due to the wet weather caused by La Nina.

An analyst with a bank-backed brokerage said that increasing weather volatilities worldwide such as heavy rainfall in South-East Asia and drought in Australia last year led world markets to raise the risk premium for agricultural commodities.

In Malaysia, he said, abnormal heavy rainfall early last year created floods in major oil palm plantation areas like Johor and Pahang, giving a short-term boost in CPO prices.

Meanwhile, plantation stocks were traded higher on Bursa Malaysia yesterday as the CPO price closed above RM1,600 per tonne in line with soybean oil gains on the overnight Chicago Board of Trade.

Plantation giant IOI Corp Bhd closed eight sen higher at RM3.58 while Kuala Lumpur Kepong Bhd and Sime Darby Bhd both rose 10 sen to RM8.85 and RM5.20, respectively.

United Plantations Bhd increased 20 sen to RM10.60 and Asiatic Development Bhd was 10 sen higher at RM3.52.

On Bursa Malaysia Derivatives, the benchmark CPO for March delivery closed RM81 higher at RM1,671 per tonne.

The Star- Hanim Adnan

NEW YORK: Oil futures may rebound from their worst year to average US$60 (US$1 = RM3.48) a barrel next year as Opec makes record production cuts to counter the deepest economic slump since World War II.

The forecast, the median of 33 analysts compiled by Bloomberg, represents a 50 per cent gain from Tuesday's US$40.02. A 14 per cent reduction in supply, equal to 4.2 million barrels a day, pledged by the Organisation of Petroleum Exporting Countries will erode US crude inventories that rose 10 per cent this year as the slowing economy reduced world demand for the first time since 1983.

While oil tumbled from a record US$147.27 in July consumers in the US, Japan and Germany faced their first simultaneous recessions in six decades. The plunge risks curtailing investment in new rigs, refineries and alternative energy sources, setting the stage for a supply crunch later on.

Once we get through the crisis, we will find that support is higher than US$40 a barrel," said Sarah Emerson, managing director of Energy Security Analysis Inc in Wakefield, Massachusetts. "The decline in demand has already occurred. A lot of analysts were late coming to realise that. By next summer this market should be turning around."

Crude futures averaged US$100 this year, the highest since crude began trading on the New York Mercantile Exchange in 1983. Oil plunged along with commodities from copper to corn in the second half as world economies slowed in the credit crunch caused by US$1 trillion of losses and writedowns at the world's biggest financial companies.

TNK-BP, the Russian oil venture of London-based BP Plc, said December 11 it plans to cut investment next year and keep production "broadly flat." Saudi Arabia's 2009 budget has a deficit of US$17 billion as revenue at the world's largest oil exporter tumbles.

"A price extremely low today will mean prices very high three or four years from now," Paolo Scaroni, the chief executive of Eni SpA, Italy's biggest oil company, said in London on December 19. Royal Dutch Shell Plc, Europe's largest oil company, has postponed an agreement on extending its Athabasca oil-sands project in Canada and also delayed a plan to develop a US$3.5 billion coal-to-liquids project in Australia.

Analysts expect oil prices to rise through the year to US$70 a barrel in the fourth quarter as demand improves and Opec production curbs announced this month take hold. The US economy may return to growth in the second half of 2009, reviving consumption in the world's largest energy user.

"The main determinant of oil prices next year will be how deep is, and the duration of, the economic downturn," said Guy Caruso, who was administrator of the US government's Energy Information Administration from 2002 until September.

"Opec is trying very hard to stop the bleeding but it is chasing after something it can't control, another year of falling demand," Caruso said, now a senior energy and security adviser at the Centre for Strategic and International Studies in Washington. - Bloomberg

The Malaysian economy is not likely to slip into recession, but pro-growth policies must be in place to mitigate risks to the slower growth in 2009, says Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz.

"We believe the economy can ride out this challenging period because of the positive conditions that prevail - with our labour market relatively stable, access to financing and both the government and the central bank having the flexibility to implement stimulus," she told Business Times in an interview yesterday.

"Although there has been a slowing in our export growth in the second half of this year, our domestic demand has held its ground and we are still seeing some strong growth in the region of seven per cent," she added.

The central bank head also did not discount the possibility of a second round of stimulus package to boost growth for Malaysia.

"The key to achieving domestic demand is sustained private consumption and increased government expenditure. Should we require a further stimulus, the government has the flexibility to do so," Zeti said.

This is possible because the government's debt level is very low, at 34.8 per cent of gross domestic product (GDP). She said the central bank also has the flexibility to provide greater accommodation to growth.

Bank Negara estimates that the RM7 billion stimulus package announced by the government in November can contribute one per cent growth to the GDP next year if it is implemented effectively.

"When the stimulus package was announced, our assessment was based on a recovery in the global environment in the second half of 2009. So far, the policy response (in the West) has been piecemeal. With the resolution and stimulus measures, we believe recovery could occur in 2010.

"If conditions in the major economies worsen, then further stimulus will definitely be necessary to prevent our economy from slipping into negative territory," Zeti said.

While this would mean that the fiscal deficit to GDP (at 4.8 per cent in 2008) could widen further especially with reduced revenue from crude oil, it should be seen as temporary, she added.

"These are the times, during low level of indebtedness, that the government has to step in. It is very important not to allow the country to slip into recession where we'll have higher unemployment, negative growth and result in closure of businesses," Zeti said.

On the central bank's monetary policy, Zeti said it has the flexibility to lower interest rates and use other instruments to support growth, especially since it has projected inflation levels to decline to less than three per cent in the second half of 2009.

The central bank was strongly criticised in July for not cutting the benchmark interest rates amid soaring inflation levels of 7-8 per cent year-on-year but Bank Negara was one of the first to recognise a slower growth risk.

It cut the rate by 25 basis points in November to 3.25 per cent, to support domestic demand.

With the current stimulus package, the economy is on course to achieve a 2.5 to 3.5 per cent growth, but Zeti warned that external conditions could deteriorate further.

"That is why it is important to lend support to the domestic economy which has been able to hold its ground," she added.

Consumption in the second half of the year has been in the 7-8 per cent range, while investments have remained positive, growing 3-4 per cent.

Business Times- Rupa Damodaran

NEW YORK: The volatility in the stock market has eased, the banking system is steadier, and the most recent initial public offering (IPO) is holding up well.

Despite that good news, the slow US IPO market is unlikely to rebound until at least the middle of 2009, as investors traumatised by sharp drops in the stock markets this year will continue giving IPOs the cold shoulder, bankers say.

Much will hinge on the upcoming earnings season in late January, which will give investors a sense of how long the recession might last, and when companies give their outlook for the year, one banker said.

“We’re going to have the opportunity to test investor sentiment and market stability,” said Mary Ann Deignan, head of equity capital markets for the Americas at UBS Investment Bank.

Still, the VIX.VIX Market Volatility Index, has fallen to about 45 from a record close of 80.86 in November, an encouraging sign.

“The stock markets don’t need to be high, or even going up, they just need to be stable,” said Doug Baird, co-head of equity capital markets at Banc of America Securities LLC, adding that the VIX would need to fall below 30 to have any real effect on IPOs.

Another question mark will be the extent to which the current crisis curbs investors’ ability to invest in IPOs.

“If there’s been enough wealth destruction that it takes longer than normal for mutual funds to re-collect assets – that would prolong the drought,” Baird said.

That drought, which has worsened in recent months, led to a 43% decline in IPO volume over 2007. There has only been one IPO since August, a US$126mil deal by on-line university operator Grand Canyon Education Inc in November, one of the rare IPOs in 2008 still trading above its offer price.

The tough market in 2008 prompted 102 companies to pull out of the IPO pipeline, which now holds 127 IPOs estimated to raise US$26.2bil, according to Thomson Reuters data.

Of those, the larger, more established ones are most likely to be first out of the gate, the bankers said.

“Well-known, well-regarded brands are less risky than the start up doing the US$75mil IPO,” Bank of America’s Baird said. Such brands will get first crack at the market when it reopens, he added.

One of the largest deals in the pipeline is by Cloud Peak Energy Inc, a Wyoming-based coal producer, which is aiming for a US$1bil IPO. Another is by Mead Johnson Nutrition Co, a Bristol-Myers Squibb unit that makes children’s nutrition, also for a US$1bil stock flotation.

Energy companies make up the largest group in the pipeline, with 20 prospective IPOs. Other major sectors include high tech, with 19 companies, and the healthcare industry with 13.

The incoming Obama administration’s expected push for green tech and infrastructure increase the odds of IPOs in those sectors, UBS’ Deignan said.

“As the Obama administration articulates the kinds of programs it will support, and where stimulus program dollars are aimed, you will see Wall Street follow that money,” she said.

Deignan expects any resumption in IPO activity will lag follow-on offerings for the first few months of 2009, as struggling, already public companies fix their balance sheets.

After these companies recapitalize, there will be more room for IPOs.

“What will unlock the market is a for string of regular, straightforward companies to be able to go public and give investors good returns and trade well,” Deignan said.

And Baird, who has seen the IPO boom and bust cycle before, is sanguine about the market’s prospects.

“We’ve been through periods of time when IPOs disappeared, and then eventually came back with a vengeance,” he said. – Reuters

AS the US stock market heads into the last week of the year, what was inconceivable just 12 months ago is now a stark possibility: 2008 could be the worst year ever for Wall Street.

The US market’s most tracked benchmark, the S&P 500, is down 40.6% since last year’s close with only three trading days left in 2008. Given the market’s hair-trigger volatility this year, that’s just one bad day away from surpassing 1931’s 47.1% drop, the biggest yearly decline ever.

As it is, the market’s swoon this year will cement 2008’s place in history by at least one measure: eviscerated wealth. A record US$7.3 trillion of stock market value has been obliterated this year, according to the Dow Jones Wilshire 5000 index, the broadest measure of US equity performance.

Investors ran for the exits this year as a collapse originally thought to be contained to the US home mortgage sector morphed into a full-blown global credit crisis that now threatens global recession.

The fallout from frozen credit markets permeated all sectors from banks to autos to resources, while unemployment climbed, house prices plummeted and cash-strapped consumers curtailed their spending.

“How to sum up a year that has been plagued with financial crisis in every form and fashion that you could see and, at the same time, we have an economy that’s just imploding on itself,” said Jocelynn Drake, market analyst at Schaeffer’s Investment Research in Cincinnati, Ohio.

“If 2008 proved to be anything, I think it was a reality check for a lot of people.”

A cataclysmic year

Market watchers said it was a year unlike any they have ever seen. Among the casualties: the restructuring, acquisition or disappearance of such heavy hitters as Bear Stearns, AIG, Washington Mutual, Merrill Lynch and Lehman Brothers.

The global downturn forced central banks around the world to mount coordinated interest-rate cuts in an attempt to stimulate growth, pushing rates aggressively lower.

Earlier this month, the US Federal Reserve again cut rates to almost zero and pledged to undertake more unconventional methods to fight off the year-long recession.

While no one is feeling celebratory as the year draws to a close, analysts say the Fed’s offensive has bolstered optimism by showing the central bank is willing to take whatever steps are necessary to get credit flowing again.

Reasons for hope

The new year will also bring a new White House administration when Barack Obama is sworn in as president in January. Hopes for a new stimulus package have also buoyed the market of late as Obama’s picks for his economic team have been greeted favorably.

Obama is expected to unveil a government spending programme in areas including infrastructure building to reinforce boosts from the Fed.

Earlier this week, Vice president-elect Joe Biden said the new administration was close to nailing down a deal with congressional Democrats on the package, which aims to generate three million new jobs and could cost US$775bil or more.

“Next year, if it goes according to plan, will be a transition year from one of major disasters and financial distress to one of repair and gradual recovery,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

“Looking into the new year, the economic data is likely to continue to be very weak. However, the question really is: ‘How much of that bad news is already priced in, and how long will it last?’”

When Santa skips town

The lack of a significant year-end rally so far does not bode well for the market in the new year. With stocks unable to mount a Santa Claus rally this week, analysts said they will be looking to next week for a clue as to what to expect in 2009.

“A Santa Claus rally can offer clues as to what January, and thus the next year, might bring,” said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

Conversely, the absence of a rally could be a sign of more hefty losses to come, Zaro added.

Trading is expected to continue to be light this week, when markets will be closed on Thursday for the New Year’s holiday.

Among economic data on tap is Tuesday’s report on December consumer confidence index from the Conference Board, expected to read 45.0 versus 44.9 in November, according to a Reuters poll.

The Institute for Supply Management’s manufacturing index for December is expected on Friday, and is anticipated to show a reading of 35.5, down from November’s 36.2. A reading above 50 points to expansion, while a reading below 50 shows a contraction. – Reuters

BUSINESSMEN are bracing for a downturn next year, with many expecting business to be much slower than usual after Chinese New Year.

Economists expect economic growth to contract by about 50% next year compared with this year, while analysts are forecasting lower corporate earnings.

The Year of the Ox, which starts on Jan 26 on the Chinese calendar, looks like a year when most will have to slog at their work.

Amid the gloom, optimists among investors hope the US recession will come to a close by the end of next year, and as the stock market attempts to trade about six months ahead of the economy, it may bottom in mid-year.

Optimists have the market recovery of 1986 on their side. The bear market of the 1980s occurred in 1985 and 1986, both years when Malaysia’s nominal gross domestic product contracted, with 1986 seeing the more severe contraction. Yet, the market did not fall through the floor for the whole of that year.

In fact, it had hit bottom by May from which point, the Kuala Lumpur Composite Index (KLCI) rose about 40% at the end of 1986. From there, the KLCI ran all the way, by a further 80%, until the 1987 October crash.

In the more recent financial crisis, the market also took off, in September 1998, while the country was still in recession.

There is no consensus yet as to when the relentless recession in the US might retreat – there are optimists who see the recession ending next year and pessimists who do not see that happening till 2010.

The market has a fairly good record of efficiency – it seems able to sense when an economy in recession will soon recover.

Consumer speding shrivels

THERE is no sign yet when one of the key indicators for an economic recovery in the US will show up positive.

Data on consumer spending in most of the developed countries continue to deteriorate.

During the week, the US reported that sale of new homes in November was worse than any other month this year, in fact, it was worse than in any month in nearly 18 years.

It was also reported that disappointing retail sales in the US are likely to show that this December will be one of the worst holiday shopping seasons on record, while auto sales had plunged 37% in November. This is also the pattern of retail sales in Europe and Japan.

The US economy, an unusual one which grows by consumer spending, will not stabilise until consumers do not hold back their shopping even more.

The recession in the developed countries has caused all manner of economic activity to plummet – exports from Asia, commodity prices and transport movements.

Everyone knows that recessions recur through the years regardless of what governments do to prevent them – they can only try to make it less painful or prolonged.

It is also known that in time, recessions will pass, after all the excesses have been spent. It remains to be seen the extent to which consumer spending will recover in the US, but if consumers are burdened with debts and can’t spend as they did in the good years, the recovery will be a weak one.

Spending in Mexico

MEXICO and Malaysia have something in common – their people like spicy food.

They are also both dependent on oil revenue in their government budgets.

Oil experts forecast that Mexico will no longer be exporting oil by the end of next year.

Considering that Mexico has been one of the world’s biggest oil exporters, it must be pumping oil massively and consuming a lot of it domestically.

Like Malaysia, Mexico’s government relies on oil revenue for about 40% of its budget. That’s a very heavy dependence.

Several articles were published on websites last week on American concerns of economic and political instability south of the border when the Mexican government is deprived of surplus oil revenue.

That’s an experience for Malaysia to watch although its reserves for oil and gas should last longer than Mexico’s.

It is not unusual for countries to turn from oil exporter to importer. Indonesia is an example, having become an importer in recent years.

Different commodity-exporting countries maintain their own policies. Norway, the world’s third largest oil exporter, keeps most of its oil revenue in fixed deposits.

Chile also has a prudent policy in its export revenue of copper, its principal commodity. It has US$25bil in its sovereign wealth fund that was accumulated mainly when copper prices were high. That now stands the economy in good stead at a time of global crisis.

>C.S. Tan is an associate editor of The Star. He thinks everyone, including governments, should save for rainy days. He also hopes companies will not be too unkind to employees next year.

LONDON: Oil prices, which hit record highs above US$147 (US$1 = RM3.48) a barrel this year before plunging under US$33, risk slumping more in 2009 as recession curbs the world's appetite for energy, analysts say.

"We expect oil prices in early 2009 to remain under pressure given the weakening demand outlook and as global economies continue to slow," said Nimit Khamar, analyst at the Sucden brokerage in London.

"By the end of the second quarter, we expect prices should stabilise and find a floor, provided Opec can comply with their recent cuts and continue cutting output."

The crude market plunged in late December to reach the lowest points for almost five years as weak economic data around the world stoked concerns that a sharp global slowdown will ravage the market.

The Organisation of Petroleum Exporting Countries (Opec) oil producers' cartel, which pumps 40 per cent of the world's crude, is keen to prevent prices sliding further, as member nations look to protect their incomes.

However, Opec production cuts agreed in September, October and December have failed to stop the market sliding under US$33 earlier this month.

"Heading into 2009, we believe many commodity prices are set to overshoot to the downside in response to the worst downturn in economic activity since the Great Depression," added Deutsche Bank analyst Michael Lewis.

The market scaled record heights earlier this year on supply worries in key producing nations, sparking fears about runaway inflation globally.

But economists now fear that a plunging crude market will spark deflation - a prolonged drop in prices - that will further damage a global economy that is reeling from the impact of a credit crunch.

"2008 will go down as one of the most volatile and difficult years, ever for oil," said Peter Beutel, analyst at energy consultancy Cameron Hanover.

"It was a year that started with runaway prices and all the makings of the worst inflation in nearly three decades. It is ending with imploding deflation and the worst recession in seven decades," he added.

The market has plunged by as much as 78 per cent since hitting record heights five months ago, as traders fretted about the threat of a global recession - defined as two straight quarters of negative economic growth.

Recession has so far infected the eurozone, Japan and the US, while even Asian powerhouse China is experiencing slower growth as a global financial crisis takes its toll.

Major world powers have responded to the ongoing crisis with coordinated interest rate cuts and "stimulus" spending plans designed to lift their economies out of the doldrums.

US investment bank Merrill Lynch forecasts oil prices to average US$50 a barrel in 2009, as energy demand tumbles in the face of shrinking economic growth. - AFP

As the year comes to an end, Malaysian Industrial Development Authority director-general Datuk Jalilah Baba talks to HAMISAH HAMID about foreign direct investment flows, what to expect in 2009 and the promotion of Malaysia’s growth corridors.

QUESTION: WHAT are some of the biggest capital-intensive projects in Malaysia this year?

A: Major projects approved by Mida in 2008 include those by National Instruments, Honeywell, Ibiden, SunPower, First Solar and Q-Cell.

The benefits from the inflow of FDIs are tremendous. For instance, the solar panel manufacturers such as QCell and SunPower are creating opportunities for local companies to be suppliers, vendors and service providers such as glass manufacturers and wafer fabricators.

Their products are for export. This means that they use a lot of services such as ports, airports, freight forwarders and others.

When these investors set up their operations in other countries, their vendors (in Malaysia) follow them. Some of the spin-off from FDIs can't be quantified with money.

Q: As the major sources of FDI such as the US, Germany and Japan are facing recession, do you expect to see more FDI from the Middle East next year?

A: All this while, Middle East investors have been investing in Western countries but due to the development there, they are diverting to Southeast Asia. We want to attract them, but unfortunately, they are portfolio investors and not technology-based.

But they are opening up to manufacturing and high-tech sectors. They ask us for projects that they can invest in. So, we have packaged 14 projects for potential investors in the Middle East and they are evaluating them. Project owners will also give presentations to the investors. Hopefully, 2009 will be more successful (in attracting FDI from Middle East).

Q: Could you please elaborate on the promotion of growth corridors that has been creating confusion among investors?

A: It is a good idea to develop the growth corridors with their own strength and niche. However, when each corridor claims to be the one-stop centre (for investment), it has created some confusion among investors.

Actually, Mida is the main coordinator for all these growth corridors in terms of investment promotion. Investors who want to explore opportunities in these growth corridors can go to Mida.

Iskandar is a bit ahead (of all growth corridors) and they have their own committee that approves investments. Mida's deputy director-general is part of the committee. This committee only approves services projects and for the manufacturing projects, investors still have to go through Mida.

Q: You expect a slight slowdown in domestic investment this year. Why is that so?

A: In 2007, the domestic investment was RM26.5 billion, which was mainly contributed by three big projects by Petronas in the petrochemical industry. Between January and October this year, domestic investment was RM15 billion, but this is not due to global slowdown.

If we look at the trend, last year's domestic investment was a record high due to the three lumpy projects. In 2001, the domestic investment was RM5.2 billion, in 2002 it was RM6.3 billion, in 2003 RM13.5 billion, in 2004 RM15.6 billion, in 2005 RM13 billion and in 2006 RM25.7 billion.

We also need to see more participation of local companies under the umbrella of government-linked companies (GLCs). The GLCs are supposed to open doors for other local companies.

Q: Could you elaborate on the programme with Human Resources Ministry to retrain retrenched workers?

A: With retrenchment expected to increase, we are talking to the Human Resources Ministry on how to come out with a programme to re-train the workers in new technology. For the past two years, we have been reporting to the ministry, where we identify skills from the (FDI) projects, so the ministry can come out with specific training programme (for the workers).

Malaysia expects to maintain this year's foreign investment figures in 2009 despite the challenging global and domestic economic outlook.

Malaysian Industrial Development Authority (Mida) director-general Datuk Jalilah Baba said that approved foreign direct investment (FDI) of RM41.3 billion in the first 10 months had already surpassed last year's RM33.4 billion.

"So far, there are no withdrawals of projects or pulling out of negotiations," she told the media in Kuala Lumpur.

Mida had earlier targeted FDI this year to be the same as in 2007.

Jalilah said Malaysia was still attractive to foreign investors despite the global economic downturn and recession faced by major sources of FDI.

This was evident in the sustained inflow of foreign investment into the country, she said, adding that it reflected the conducive and cost-competitive business environment here.

To date, multinational corporations from more than 60 countries have invested in over 3,000 companies in the manufacturing sector.

Nevertheless, Jalilah anticipates a challenging year ahead given the global economic scenario and competition from new developing economies, European countries and some states in the US that are competing for high value-added industries.

However, she is optimistic that with concerted efforts, strategy and improved infrastructure to meet the changing nature of investment and business models, Malaysia will continue to draw foreign investors.

"We want to get more (FDI than in 2008), but we hope to maintain it," she said in response to a question.

Next year, Mida trade and investment missions will be more targeted and focused to include roundtable meetings with pre-identified high net worth companies and sectors.

It may also help foreign investors facing problems in securing financing from troubled foreign banks to obtain financing locally to ensure that the global credit crunch will not hobble FDI projects here, Jalilah said.

"We will introduce the companies to local financial institutions and see how the projects can be financed temporarily by these institutions. This way, the inflow of FDI into Malaysia will continue."

To date, Mida has matched three companies undertaking huge projects with domestic and Malaysia-based foreign financial institutions.

According to Jalilah, the failure rate of approved investment projects taking off is usually about five per cent.

"Last year the failure rate was five per cent, while 75 per cent of projects were already implemented; the balance are in various stages of implementation," she said.

Business Times- Hamisah Hamid

The local stock exchange has had a roller-coaster year, hitting a record high and then taking a turn for the worse as sentiment weakened after the general election and the global economic slowdown. As 2008 draws to a close, Bursa Malaysia chief executive officer Datuk Yusli Mohamed Yusoff tells GOH THEAN EU what’s in store for the new year.

QUESTION: 2008 has been a challenging year. Bursa's earnings (for the first nine months) have gone down by 52 per cent against last year. What's the outlook for 2009?

A: If the global economic situation does not improve, a sign of recovery does not appear. Maybe within the next few months, then potentially 2009 will be worse. But, if signs of recovery do appear within the next few months - as you are aware, the market tends to recover faster than the real economy - then you can expect the market to pick up. Then, there is a possibility next year may not be worse than this year. At the moment, it is still quite hard to predict. My view is that a lot of these signals or signs that we are looking would come out from the US.

Q: Analysts are saying that the market will be weaker in the first half and expect a recovery to begin in the second half. What are your thoughts?

A: What is important is for people to be able to see the bottom, because once we are able to see the bottom, we will know that things will start getting better. I think the assumption for today is that nobody is quite sure if we have hit the bottom, or when the bottom will be reached.

Hopefully, that will happen over the next few months. Once there's an agreement that a bottom has been reached, then you can expect the market to start picking up. So, first quarter of 2009, there will be a lot of focus on the data coming out from the US. As far as our economy is concerned, the government had announced a stimulus package. The focus here is to make sure the domestic economy remains fairly robust, and to keep the domestic economy robust, it is important for Malaysians to keep supporting the industry. So, we hope that the stimulus package will have a desired impact on the people.

A recession will happen if everything is sort of stagnant. That means people stop spending.

Q: Which area of Bursa's business do you expect to see growth next year?

A: Equities, because the situation is not clear at the moment. We are expecting probably less transaction in the business and stable revenue. We are hoping it will be similar. As for the derivatives, we are hoping that the derivatives market will do better next year.

Q: Why are you expecting the derivatives market to do better next year?

A: So far this year, we have seen the derivatives volume has been stable. Infact, for our palm oil contracts, we have seen slightly higher volume than last year. As you know, we have launched direct market access for derivatives, and we expect the amount of volume to increase over time.

We also expect the interest in crude palm oil futures contract to continue to grow, because as a commodity, it has become more and more popular.

Q: Bursa has big plans for 2009. There will be launching of direct market access for equities, introduction of a unified board and new Mesdaq, as well as launching of two new FTSE palm oil indices. Why introduce these products and services at a time when market sentiment is expected to be weak?

A: We believe that the current environment is the best time for us to do all these such as launching of the new system. Because, really, what we are trying to do is to play catch-up with the other markets. We want to take advantage of the current environment. At the same, the proposal of a unified board is also part of improving the market structure and to improve the quality of the company. As you know, companies in the second board have lost a lot of its shine since the crisis. As for the revamp of Mesdaq market, we want to make it easier for companies to list.

Q: Any further liberalisation next year?

A: I think liberalisation is an ongoing thing. So, as we progress, every aspect of our rules, may it be listing requirement or process, we will continue to engage with the industry and the market to get the feedback.

Wherever possible, we will look at relaxing the rules. We want to make it as easy as possible for people to do business here.

At the same time, if you notice some of the incidents that are going on, we might need to tighten some of the things. One of the areas would be corporate governance. Although we have made a lot of improvement on corporate governance over the last 10 years, there're still incidents of breach going on. When this type of things happen, we look at our rules, to see whether our rules are too relaxed or is it because our enforcement is not strong enough or is it something else.

We really don't want to tighten any more rules, if we can help it. We feel that certain things cannot have so many rules. If there are too many rules, then it will be more costly for companies to maintain their listing status.

Q: Some of the remisiers and brokers are calling for shorter trading hours. What's your view on that?

A: The shorter trading hours is something we have been looking at. We are currently discussing with the industry. We found that not everyone wanted shorter hours. So, we are still continuing our dialogue. If we can get majority of the players to agree on shorter trading hours, then we won't stand in the way. If we can have same amount or more amount of trading in shorter period, then why not? You could save the industry a lot of money.

Q: So, what can Bursa investors expect from you and the company in 2009?

A: We are working on a number of initiatives. Basically, we are trying to build a better quality market. The infrastructure will be better and the product range will be better.

But it all depends on the market conditions. If market condition improves, then we might see an improvement. But if the market condition stays the same or becomes worse, then be prepared for a tougher year.

Q: What is your current staff strength? Any plans to reduce workforce to cut costs?

A: We have about 600 people now. We have no plans to downsize. Obviously, we want to increase productivity and efficiency. We are trying to manage our costs and we are looking at ways to cut variable costs. This means we've got to be more careful with our travel costs, promotion costs, and advertising costs.

Q: You have been the CEO of Bursa for almost five years. Is this the toughest year so far?

A: Yes ... (but) every year has been different. This year, interestingly, it started out with a bang, our index hit the highest level. Then, unfortunately, it has been downhill ever since. But, having said that, because our market fell early (due to the) kneejerk reaction to the general election, so we had reached a lower level before the other market started to go down. What was comforting was that we seemed to have stabilised when the other market started falling.

Q: What are the challenges you have come across since you joined Bursa?

A: We have had our challenges. One of the biggest challenges we had was the launching of our system. Ideally, we wanted to launch our system earlier, at least a year earlier. In terms of retail participation, we have not made as much progress as we should have. What is important for the market is the quality of the retail investors, not quality in terms of how much money they have, but quality in terms of how much knowledge they have to invest. That is one aspect we think we did not gain as much progress as we wanted.

Business Times

WILL the year of the Ox be better for financial markets?

Typically, the Ox signifies prosperity achieved through fortitude and hard work.

The Ox is unswervingly patient, tireless and capable of enduring hardship without complaint. So, it is less surprising when JP Morgan chief Asian and Emerging Markets Equity Strategist Adrian Mowat says that the Ox holds better prospects than the Rat.

So strong is his conviction, that at about this time next year, he says investors will be having a banquet because equity markets have improved, and investors are feeling better about life.

“2008 was a horrible year for investors. The D word was not decoupling, it was deleveraging,” says Mowat.

Hence, just when everyone is giving up on fundamental analysis, Mowat says, it’s time to pay even closer attention.

Now, he says, is the best time to look at equity markets, as confidence is low and economic data have yet to show an improvement.

“You want to own equity. Come Chinese New Year onwards, you need to be having the right stocks. You need to start looking at stocks with resilient earnings. When the turn comes, the dispersion is going to be very high. Get out there and do the analysis,” urges Mowat.

He says Asia is right smack in a situation where there is a crisis happening in the West, hence asset prices in Asia are suffering.

“Investors can now buy stocks with good earnings stream at heavily discounted prices because of the crisis in the West. This crisis only makes the Asian economy stronger. Emerging markets will outperform other markets,” he says.

On a valuation basis, stocks are now cheaper than they were during the Asian financial crisis and the tech boom bust.

When the recovery sets underway, price earnings (PE) of stocks will trade above their discount levels.

“We’re potentially going to be seeing large dispersion of returns. This is going to be good for equities,” he says.

Mowat says investors are seeing the worst down leg this quarter.

The first quarter of 2009 won’t be as bad as this quarter.

He sees the recovery happening below potential growth rates because the US will be in the process of rebuilding its balance sheet.

“Yes, we’ll still be seeing bankruptcy and defaults, but these are lagging indicators and have already been priced in.

“What we’ll be seeing is a stabilisation of policy in the US. Incoming US president, Barack Obama has been quick to announce the people for his administration.

“This gives the market some comfort, and also helps confidence,” he says.

Mowat says it won’t be a surprise if technology stocks make a comeback.

As expectations in the sector have been so beaten down, it takes only a small change in demand to see a big difference.

“Technology stocks in emerging markets will return, and it won’t need to wait for demand from the US and Europe to return,” he says.

He advises investors to stay underweight on the cyclical and material stocks as in current times, one needs to invest in resilient companies.

“Companies that say, yes we are affected and we’re modifying our plans to cope with the challenging environment – buy these companies.

“Companies that say, no we’re not affected – sell these companies, as they have no sense of realism!” says Mowat.

Recovery soon ...

Emerging markets may be seeing a powerful V shape recovery in the making. Boosting this recovery is an environment of lower interest rates and fiscal stimulus policy.

He says the world is cyclical, and 2008 is what he calls the big ugly experiment.

In the US and the developed economies, consumption was holding up pretty well until the recent quarter.

Initially, US exports were holding up due to the growth in emerging markets up until the final quarter where demand and growth dropped.

He says the economy was losing momentum because of the measures taken to counter inflation.

“The derating happened because of a monetary derating policy, and we subsequently saw declining industrial production. Companies needed to get rid of their inventory. How do you do that? You stop production,” says Mowat.

The problem was made worse with the credit crunch unfolding. It was harder for companies to get letters of credit and working capital to finance their operations.

He says what investors are seeing so far is government policies responding to the market turmoil, and these include aggressive monetary policy and fiscal stimulus such as tax cuts.

When it comes to some of the measures taken, Mowat cautions to be careful of new infrastructure projects that are only just beginning.

“If these projects were only just implemented, it’s not going to make a difference until 2010. So unless they have already started, the people aren’t going to feel anything.

“If governments announce an infrastructure project, be critical. Make sure it can make a difference.

“Tax cuts are more important because it puts more money in people’s pockets,” he says.

An important indicator he notes is that in the last few months, investors have been in a situation where equities were dropping as economic data were worsening.

The cycle has now changed where capital markets are improving even as economic data had yet to improve. Inflation is also no longer an issue.

“We are now seeing a V shape recession. Things are beginning to improve. We’ve seen the worst selling in October. I think its time to position oneself in the market,” says Mowat.

“Don’t be surprised if markets are 50% higher in 2009 as we see a gradual normalisation of risk appetite. I don’t believe in paradigm shifts. I believe in long and short term cycles.”

Mowat, who tracks China closely, says that the biggest risk is if China fails to respond to its four trillion yuan stimulus package. However, he believes, the Chinese economy will respond.

Countries in financial surplus, he says, will clearly have a funding advantage as it means they have not over borrowed or over consumed.

With emphasis on that, Mowat favours China, Singapore, Taiwan, Thailand and the Philippines. On the other hand, countries in a savings deficit namely India, South Korea, Russia and Indonesia, he says, may see a “very uncomfortable credit cycle.”

“For emerging markets that have relied too much on commodities, you’re going to be seeing growth that was initially supernormal to almost non-existent.

“I worry about material and energy stocks. These are stocks from the last bull market and a lot of people still own them,” says Mowat.

Malaysia good but unlikely to lead

Malaysia will unlikely be the leader in this recovery. China will lead the story as it makes up some 30% of emerging market’s GDP.

In Malaysia, Mowat sees an acceleration in loan growth, aided by lower interest rates.

He says Malaysia is in a good position, as it has a meaningful surplus, and also the flexibility to adjust its monetary policy.

“It’s a story of pent-up demand, and the fiscal benefits that are coming through.

“Consumers now have more money to spend because of the lower petrol prices. Confidence is returning and the political risk aversion has also reduced,” says Mowat.

He says the stock market is typically 3 months ahead of the economy.

At end 2007, equity markets were falling when data were still strong.

“Right now, equity markets are climbing while data are still weak. So maybe the recovery is already happening.

“In Malaysia, I feel that the political risk is already priced in, hence the market may even surprise (to the upside),” Mowat says.

He is neutral on Malaysia. This is because when the recovery takes place, funds normally head first to the big liquid markets.

“Malaysia also has the issue of uncertain politics. For some of the commodity companies, you may see a very dramatic contraction in profits,” says Mowat.

“As countries move to a zero interest rate policy, what we’re seeing is a situation of the wheels spinning, but no traction because the appetite for risk is zero.”

“As risk appetite increases, we’re going to start seeing the ringgit appreciate. We’re now seeing a low point in currencies but by mid-2009, I see an improvement,” he says.

Mowat says redemptions are not leading indicators of an economy.

Nonetheless, with the amount of outflows Malaysia has seen, it’s equal to the 2006 and 2007 outflows combined.

So in essence, Malaysia is back to 2005 levels.

“Equities on SALE!!!” – screamed most stock markets earlier this year. “Equities – Further Reduction!!!”, the announcements continued into mid and late 2008, yet, investors watched from the sidelines. In retrospect, waiting was wiser than jumping in. What about now? After all, many stock markets have already lost more than half their values!

You, the rational investor, are thinking it’s crazy to buy now when stock markets are in a pool of red.

Alternatively, you, the ultimate bargain hunter, are waiting for the sign that says, “Equity on Final Sales, last 3 days only!”

It is exactly what millions of other investors are thinking as well. So when is the best time to buy so that you are buying at the low?

But then, when can we expect equities to be at their cheapest?

They are cheapest when the market is at its “worst” or the outlook is at the “bleakest” – where it is impossible for things to get any worse.

Let’s cast our minds back and think of the world economy after the technology crash in 2000, Sept 11, 2001, Enron and Worldcom crisis in 2002 and the Asian SARS episode in 2003.

Each crisis seemed to signal the end of the world as we know it. This crisis is no different! SARS caused the Asian markets to plunge but shortly afterward, they shot pass their previous highs.

If you had waited because you thought that SARS would plague Asia for a long time, you would have missed out on some of the most spectacular growth. Does it mean one should just take an early plunge during a crisis?

Then looking back further at 2001 after the technology crash – one could have easily believed it was the “final sale” and entered the market then.

Unfortunately, the markets continued to be shocked by acts of terrorism (Sept 11) and then betrayed by corporate giants like Enron and Worldcom.

Even the most rational investor who bought at these perceived low points may call it quits.

When the situation could not get any worse, it just did! Does it mean one should just wait and see? After all, I did describe the current crisis as the “First world financial tsunami” – have the waves stopped or is it an interlude before the next big one?

The equity market is like a roller-coaster ride, as it plunges headlong into a great fall, investors will lament and throw their hands up in despair.

A friend of mine jokingly said that her long-term investments may now be so long term that they would only benefit her grandchildren.

Are you prepared to buy when the situation is bad, so bad that it cannot get worse? That, by definition, is to buy at a low and maybe even the absolute lowest point.

Unless you are still on the roller coaster, you will not be able to enjoy the upswing when it passes the bottom of the great fall. And if you choose not to be on the roller coaster, then don’t complain that you are always unable to buy at a low.

In fact, the stock markets have always recovered months before the real economies hit the bottom.

A sensible approach is needed, coupled with great mental and emotional strength to overcome the fear of loss in such instances.

While it is silly to buy simply because markets are falling, sticking to fundamentals does work. Buy in anticipation of future re-growth at reasonable prices and persevere through possible set-backs – this is likely to succeed over the longer term.

If you have what it takes, I would suggest a regular drip into the market.

For example, if you have RM100,000, divide it into 10 lots of RM10,000 and then invest each lot into the market monthly. As you ride the market down, you can be assured that you are buying cheaper.

Of course, the best outcome is that, in the course of such regular investing, you manage to “catch” the bottom.

As I always believe, if you get value for your money, then you don’t have to worry about whether it’s cheap or expensive.

Tay Han Chong is senior vice-president and senior head of division, Personal Financial Services Division, UOB

Datuk Seri Nazir Razak has become synonymous with the CIMB Group. His pedigree and achievements have made him a highly-regarded personality in corporate Malaysia. Readers get to find out a little more about this man from his answers to their questions

1. People say you grew up in a well-known and rich family and therefore, may not quite understand nor have experienced a fall or real challenges. Is that true?
KHLow

I value my family background not for material comforts but for the emotional security and set of personal code of ethics it has instilled in me. As for career challenges, I can assure you that life as a rookie at CIMB was no bed of roses. To be honest, I struggled and almost surrendered a few times.

By now though I believe that I have demonstrated the track record, character and ability to do the job entrusted to me.

2. Set of rules is normally redefined by the person(s) in-charge, be in the corporate world or family unit. Do you use the same principle at home as you do at work?
Zaharah Rashid, Subang Jaya

Although I try to assist, due to my work schedule I leave home matters largely to my wife.

3. We have heard so much about your life at work. Can you tell us more about your life outside the office?
See Gaik Eng, KL

Life outside work centres around my family. I have been married to Azlina since 1992 - we met while studying together at Bristol University. Her father is Tan Sri Aziz Taha, a former Governor of Bank Negara and we have 2 kids, Arman and Marissa. I try to spend as much time as possible with them. We are not good at glitzy social events and are actually very private, preferring time with our extended family and a small circle of close friends, many of whom date back to our youth.

It is important to have a good work/life balance and working long hours at the office also means working harder to obtain quality time with your family.

As for sports, I find squash the most efficient form of exercise and Chelsea the best football team in the world!

4. Family support is key in one’s success. How do you reconcile that with the huge benefits it may bring you as your brother will be Prime Minister of Malaysia not too long from now?
Yasir Tamizi

Indeed, the most important influence in my career has been my wife Azlina. She believed in me even before I had a job. She’s very smart but more importantly we both grew up in families which value integrity and a strong sense of duty. So she has been a great sounding board and conscience. As for my brothers, we are close but have each deliberately kept separate career paths. This won’t change even when Najib becomes Prime Minister.

As for CIMB, I am determined that my family relationships must not detract from the very real successes that CIMB staff have worked so hard and for so long to attain.

5. How do you distance yourself or CIMB Group from the perception of having strong political connections in securing high-profile business mandates? Are other investment banks really in the same playing field with CIMB, then?
Mustaqim Zain

CIMB was Malaysia’s leading investment bank before I became its CEO in 1999. Since then we have not only successfully defended that position in Malaysia but we have expanded to become number 1 in M&A advisory in Singapore and a leading investment bank in Indonesia. I do not have any relatives in government in other countries.

I do not deny that connections of whatever form helps open doors but it’s always what you do in the room that matters. If you look at the team we have at CIMB Investment Bank, you will see a set of bankers with a track record that can justify winning any mandate. CIMB has also been successful at consumer banking – surely that cannot be attributed to political connections.

6. You are one of the few who practises meritocracy in staff recruitment/promotion. Have you had problems implementing this policy? How can you persuade others to do the same to raise our competitive advantage?
S. Paul

CIMB has always strived to be meritocratic. A successful organisation is one that keeps its people motivated. We try our best to ensure that those who do well are rewarded financially and in career progression, irrespective of gender, race or age. Every employee must believe that it is worth working hard.

Implementing a merit-based organisation in Malaysia and our other banks in the region is not easy; it is human to be biased towards one’s race, gender or even friend.

So management has to continuously intervene to keep managers objective and fair. For instance, we question managers who can’t run multi-racial or multi-gender teams. We remind our people of the need to challenge what comes naturally to them as individuals.

So, my best advice to others - Admit this human failing and take steps to counter it because it will enhance your organisation’s performance.

7. You have been in the banking industry for almost 20 years and during that time you have been instrumental in propelling CIMB to great heights. What are your plans for the next 10 years? Do you see yourself as a regulator, for instance?
Ratha

Over the next 10 years, I see myself continuing to spearhead CIMB Group and in particular, its transformation into an ASEAN banking group and then hand-over to an able successor. I am very committed to the CIMB agenda that has consumed me since 1989 and do not see myself in any other full-time role after this.

8. Your late father is seen as a people’s leader and you are seen as the single force behind CIMB’s success locally and abroad. Like your father, how can that be meaningful to you when there are people out there in your own country who are trying to make ends meet?
Ahmad Safuan Mokhtar, Project Management Consultant

I am very proud of the role that CIMB Group plays. Banks are crucial to any economy, not least for channelling savings for investments that enable economic growth. And economic growth drives employment and wealth creation without which we can’t even begin to discuss distribution of wealth.

CIMB is a socially responsible organisation and strives to supplement the Government’s welfare efforts through our RM100 million charitable foundation. Our CSR programme is acknowledged as one of the best in the country. Our Community Link is currently running 198 projects throughout Malaysia such as helping single mothers in Pulau Tuba, sponsoring English lessons for underprivileged kids in Sentul and so on.

9. What measures would CIMB take to tackle the current global crisis to avoid it becoming a victim of the “falldown”?
By Katherine, Selangor

We have limited exposure to international assets and dependence on foreign financing. This ensured that we were not materially hurt from the crisis itself. But as the crisis will have a severe impact on the economy as a whole next year, we have to watch our loan books, be vigilant about all types of risks and contain our operating costs.

10. What is your view of the NEP? Should it be abolished?
Hussein Hamzah, Johor

The NEP was meant to be a 20 year exercise that, according to Tun Razak in 1971, is “… not aimed at promoting any sectional interest but is a blueprint for the progress and unity of our Nation”.

The NEP has had many successes against poverty and in uplifting the economic well-being of Malays but it has now gone on for 18 years longer than the founding fathers planned and is sadly seen by too many as a major cause of national disunity.

Furthermore, since the NEP was introduced, the competitive landscape of nations has changed dramatically, the complexion of our economy has transformed and Malaysians are quite different too.

I would suggest that we set-up a closed door forum of the best and brightest Malaysians to openly discuss the future of the NEP. At the very least we need to change some out-dated implementation policies. On a related note, I also feel disturbed that we can’t even seem to talk about vernacular schools. Again, why not set-up a parallel forum to openly discuss all aspects of the education system so that future generations have a real chance of realising Bangsa Malaysia?

Government tries to sustain growth in worsening economic outlook

THE world’s leading economies are screeching to a halt, dragging down growth in the developing nations as well. In most countries, efforts to revive their economies or mitigate the effects of a global slowdown are aplenty.

Governments have been making a greater effort, from fiscal pump priming to drastic monetary policies, over the past few months to survive what is expected to be the worst recession since World War II.

And desperate situation calls for desperate measures. Several countries have slashed their interest rates to near zero levels recently, effectively making cheap money available as a means to stimulate their ailing economies.

The US started the ball rolling after the Federal Reserve pegged the key interest rate at a range of 0% to 0.25%. Hong Kong’s central bank followed suit by slashing its key interest rate to an all-time low of 0.5%, while Japan’s central bank has its key interest rate slashed to 0.1%.

While other countries have yet to resort to such unprecedented low interest rates, they have also reduced their key rates over the week.

For instance, China has already lowered its benchmark one-year lending and deposit rates by 0.27-percentage point to 5.31% and 2.25% respectively, while the European Central Bank will be reducing its interest rates early next year.

In Malaysia, another round of overnight policy rate (OPR) cut by Bank Negara is also looking more likely against this backdrop of global interest rate cuts amid a worsening economic outlook. Local economists are expecting the OPR cut next month to range between 50 and 75 basis points (bps) to 2.5% to 2.75%.

By reducing the country’s benchmark interest rate, the Government can enhance its efforts in sustaining Malaysia’s gross domestic product as the economic environment becomes increasingly challenging in the months ahead.

Theoretically, a lower interest rate, which implies a lower cost of borrowing, can help boost a country’s economy by stimulating business investment and consumer demand. Businesses will find more incentives to invest when interest rates are low, while consumers will be induced to apply for loans for big-ticket purchases such as cars and houses.

For the existing borrowers, on the other hand, the lower loan repayment would leave them with more disposable income to spend on other goods and services.

Last month, Bank Negara slashed the OPR – which had remained at 3.5% since March 2006 – by 25bps to 3.25% when the inflationary pressure began to ease in October.

Inflation, as measured by the consumer price index (CPI), fell from 7.6% year-on-year (y-o-y) in October to 5.7% y-o-y in November. This is mainly attributable to lower fuel prices, which the Government has gradually reduced since August when crude oil prices began to fall. The pump price of petrol is now RM1.80 per litre while diesel is sold at RM1.70 per litre, compared to their highs of RM2.70 and RM2.58 per litre respectively in June.

The CPI is expected to slide further in the months ahead as the lower commodity prices begin to have a wider effect on more goods and services. For instance, over the week, Domestic Trade and Consumer Affairs Minister Datuk Shahrir Abdul Samad said the Government was expecting food manufacturers to start reducing their prices early next year.

The continuous slide of inflationary pressure provides a conducive environment for Bank Negara to lower interest rates. On top of that, with the US interest rates near zero levels, the Government can maintain a wide positive interest rate differential with the US, which helps limit the outflow of portfolio funds from the country.

The Star- By Cecilia Kok

Any signs of less-than-dire economic outcome would batter govt bonds

THE US government bond market, which towers above other assets as the only bastion of strong returns this year, may crumble in 2009.

As the Panic of 2008 wreaked havoc with stocks, commodities and corporate bonds, fearful investors flocked to the perceived safety of government securities, powering the Treasury long bond to its best performance in a generation.

The Federal Reserve’s signals that it may buy longer US government maturities have added momentum to the epic rally, sending the benchmark 10-year Treasury note’s yield tumbling a huge 150 basis points to near 2% in just one month.

Since bond yields and prices move inversely, these plunges have delivered stellar gains to those holding Treasuries.

Meteoric gains

But with the US government expected to issue between US$1.5 trillion and US$2 trillion of debt into the US$5 trillion Treasury market to fund its unprecedented rescues for the financial system next year, the risk of a sudden drop in prices is growing, analysts warn.

“As an investor in the Treasury market I would be very careful,” said Carl Kaufman, portfolio manager for fixed income with Osterweis Capital Management in San Francisco.

Through Dec 19, the Barclays Capital US Treasury Index was up 14.96% year-to-date, a meteoric return compared with the US Standard & Poor’s 500 stock index, down about 40%, and US investment grade corporate bonds’ loss of about 7.4%.

US Treasuries are heading for their strongest year since 1995, but the market has already priced in a deflationary scenario akin to Japan’s “lost decade” of economic growth, most analysts agree.

The total return of the 30-year bond in the year to date is nearly 45%, putting the long bond on course for its best year since 1982, according to Barclays Capital. Then, former Federal Reserve chairman Paul Volcker started to win his battle against inflation, igniting a huge bond market rally.

Now, the long end of the Treasury market has had its best annual rally in more than a quarter century on investors’ deep fears of the global credit crisis and an unusually protracted and painful recession raising the risks of deflation.

Any signs of a less-than-dire economic outcome would batter Treasuries.

The deflation question

“Either we get deflation or not. If we get meaningful deflation, Treasuries will still be the place to be,” said Jay Mueller, senior portfolio manager with Wells Capital Management in Milwaukee, Wisconsin.

Deflation, an environment of broadly falling prices such as Japan experienced in the 1990s, exacerbates economic weakness because consumers and companies put off purchases. This scenario could push US yields down further, even matching the Japanese 10-year government bond’s 1.22%, Kaufman says.

However, “if we don’t get the deflation, that will make current Treasury yields look unrealistic and you will do a lot better in spread product (corporate bonds),” Mueller says.

During 2009, it will likely become clear whether deflation can be avoided, he says. Mueller puts the chances of the US economy skirting sustained deflation at about 60%.

If that near-miss happens, the economy will probably be very weak but not depressed, pushing up the US 10-year yield to about 2.25% a year from now, Kaufman says. — Reuters

On Tuesday, the 10-year note was yielding 2.17%, not far above its five-decade yield low of 2.04% hit on Dec 18.

No rich pickings

”From here, I don’t think you will get rich on the 10-year,” Kaufman says.

If the US economy were to show some feeble signs of recovery during 2009, then the 10-year note yield could rebound to say 3%, handing its holders a loss of 4.5% in total return, Kaufman adds.

If the United States were like 1990s Japan with enough economic weakness and deflation, then nominal government bond yields could stay very low despite hefty issuance, says Mueller. But Japan’s savings rate is very high, compared with a near-zero savings rate in the United States, which could make demand for US government debt weaker and allow Treasury prices to fall more easily, he warns.

“If you have enough weakness and deflation, Japan at least was able to float enough debt with nominal interest rates staying very low,” Mueller says. But he adds: “Japan’s domestic savings rate was much higher. Could we pull the same trick off?” — Reuters

IN July, families were wondering how they were going to make ends meet once the price of petrol bolted to RM2.70 a litre. The fuel hike caused prices across the board to surge and people had to redo their budgets to cope with higher costs.

The days of budget adjustments, sadly, are not over. In fact, things are taking a more serious tone. The subprime-induced US recession is now wreaking havoc throughout the world and families are now bracing for tougher times.

Job cuts, wage freeze and cost-cutting measures have accelerated as companies are being hit by what many consider to be the worst economic downturn since the depression of the 1930s. This also has an effect on families, especially when uncertainties might surround the job security of a family’s breadwinner.

“Some readers will definitely be retrenched in 2009. While it is likely the total number of unemployed in Malaysia will be relatively low compared to those now losing their jobs in the developed world, to the affected that will be no comfort whatsoever,’’ says Rajen Devadason, a licensed financial planner with MAAKL Mutual Bhd. He is also CEO of corporate mentoring consultancy RD WealthCreation Sdn Bhd.

“Therefore, it is crucial that while there is still viable employment, household breadwinners decide now to adopt a well-thought out budget that will help them preserve cash.’’

While there is limited room to cut expenses for most people, Devadeson says what is often more pragmatic is to simultaneously try to increase sources of income.

His four ideas are:

·Utilise EPF’s Account 2 options to reduce the principal sum outstanding on existing home loans. If possible, pay off the home mortgage as fast as possible.

·In homes with multiple cars, consider selling – quickly – any extra vehicles. If the older cars which are fully paid for are still in reasonably good shape and capable of running safely for at least another three years, then it makes sense to keep those and to sell the newer cars if doing so generates sufficient cash to pay off the existing hire purchase loans.

·Encourage teenage children to work around the neighbourhood by doing chores for cash. Urge them to contribute their added earnings into a family pool to build up cash reserves.

·In single breadwinner households, if the children are old enough to fend for themselves, having the traditional caregiver, usually the wife, also join – or rejoin – the workforce will be helpful in increasing cash inflows into the family coffers.

“Whatever unutilised additional cash flow generated should be channelled into a safe interest-bearing bank account or into a money market fund to build up an urgently needed family cash reserve buffer,’’ says Devadeson.

There is chance that the number of available jobs in 2009 may contract and if getting additional employment proves difficult, Devadeson suggests that people start a small family business.

“In really tough times, common options include running a food stall, washing cars, baking and selling cakes and cookies, cleaning houses, gardening and giving tuition,’’ he says.

He adds that many people will find such viable cash-generating options beneath them but such pride is something to be dispensed with during the tough times.

“Also, unnecessary expenses need to be slashed before doing so becomes unavoidable because of a job loss. That way extra cash can be channelled into savings even while normal income continues,’’ he says.

“As savings grow, the option to judiciously invest in ever cheaper cash-generating investment assets as the economy worsens will rise. Eventually, doing just that will plant the seeds for long-term future family prosperity in 2010 and beyond.’’

Abacus Advisory Sdn Bhd founder and CEO Carol Yip says the upcoming lean times will be an opportunity for families to take stock of what they have and to make substantive changes.

Yip says a family is like an organisation in which each member has an important role to play, and families should sit together and discuss any financial issues they face. “This can be used as a chance to educate your children and set financial goals for them,’’ she says.

Yip also says simple cost-saving rules such as switching off lights, cutting down on electricity and Internet usage could be set. “Families can use the money they have saved instead of their bonuses to pay for their next holiday,’’ she suggests.

She says parents have to lead by example, and practise what they are telling their children. “Action and behaviour is as important as words,’’ she says.

Another important advice is that both parents have to be on the same page. There is no point in one parent making the sacrifice while the other is out buying a second widescreen TV for the house. “Both parents must have common goals in savings and cost-cutting,’’ she says.

The fastest way to save as a family is to look at the activities the family does together. If a family goes out often to have expensive meals, a fast way would be to cut back on that.

The next tip to parents is to reassess the children’s extracurricular activities. “If parents are sending children for, say, piano lessons for the parents’ own fulfilment, perhaps they might want to reconsider if the child does not have any interest in pursing learning such an instrument,’’ she says.

A sensible thing might be for the non-working parent or an existing parent to take a second job should finances take a dip, but Yip says that might not be so easy. Firstly, a downturn means fewer job opportunities. And if one were to find employment, it could have an effect on family ties.

“It depends whether children are understanding or not. Some might feel more appreciative of the sacrifices being made by a parent to support the family,’’ she says.

Other issues will revolve around providing medical care for aging family members and a downturn might mean seeking cheaper but not necessarily lower quality heathcare.

“Family members also have to be aware of the current state of financial affairs in order to make a decision on what to do when an emergency arises,’’ she says.

the Star-By JAGDEV SINGH SIDHU

KUALA LUMPUR, Dec 24 (Bernama) -- Asia-Pacific economies are in for a tough 2009 as weak external demand will weigh on the region's export performance and investment.

In a report, 'Asia-Pacific Outlook 2009: Slowing on all cylinders' released here Wednesday, Moody's Economy.com economist, Sherman Chan, said the second half of 2008 was difficult, but 2009 would be even more challenging.

"Aggressive fiscal and monetary policy measures may help prevent a further deterioration in economic conditions, but much of 2009 will feel recession-like in most Asia-Pacific economies," she said.

Chan said no economy was immuned from the US-led downturn.

"Growth is expected to decelerate sharply in the first half of 2009, as all engines run out of steam.

"Those economies already in recession will continue to see harsh conditions through much of the year," she said.

She said Asia-Pacific economies would record sluggish growth at best in 2009 and some outright contraction.

Chan said rising unemployment would depress private consumption.

She said exports would slow considerably in the first half of the year and further fiscal stimulus and monetary policy easing would be implemented.

-- BERNAMA

WASHINGTON (AP) - A series of gloomy economic reports Wednesday showed U.S. consumers holding tight to their wallets with job losses expected to mount in the months ahead.

There was one glimmer of good news, however. Lower gas prices and widespread holiday discounts are giving consumers greater buying power.

Consumer spending, when adjusted for those price drops, rose last month after five months of declines, the Commerce Department said Wednesday.

But as companies in a wide range of sectors lay off workers, economists don't expect consumers to ramp up spending anytime soon.

November's inflation-adjusted increase in spending is "a temporary, one-month aberration in the downward trend of consumption,'' said Brian Fabbri, chief economist at BNP Paribas.

Brian Bethune, an economist at IHS Global Insight, predicted that consumer spending would fall at an annual rate of 2.5 percent to 3 percent in the current quarter, after a 3.8 percent drop in the third quarter, the worst in 28 years.

Consumer spending is closely tracked by economists because it accounts for two-thirds of gross domestic product, the broadest measure of economic output.

Without adjusting for inflation, the Commerce Department said consumer spending fell by 0.6 percent in November, the fifth straight month of decline.

Separately, the Labor Department said the number of Americans who filed initial claims for unemployment benefits rose to the highest level in 26 years, though the labor force has grown by about half since then.

New claims for jobless benefits jumped to a seasonally adjusted 586,000 in the week ending Dec. 20, from an upwardly revised figure of 556,000 the previous week.

The financial markets took the news in stride.

The Dow Jones industrial average closed up nearly 49 points, to about 8,468.

The economy has been mired in recession since last December, dragged down by declining home prices and clogged credit markets.

Consumers have lost trillions of dollars in household wealth as the stock markets and home prices have sunk this year.

On Tuesday, the government reported that the overall economy, as measured by GDP, declined at an annual rate of 0.5 percent in the July-September quarter although analysts think the contraction will accelerate dramatically in the current quarter.

Some economists are forecasting that GDP will plunge at an annual rate of 6 percent for the October-December period.

That would be the worst quarterly showing since 1982, though others estimate the decline for the fourth quarter about 4.5 percent.

In another report released Wednesday, the Commerce Department said orders for large manufactured goods dropped by 1 percent, less than the 3 percent economists had expected.

But that followed a large drop in October that was revised upward Wednesday to 8.4 percent.

The November decline was led by a huge drop in orders for aircraft and a smaller drop in autos.

Excluding the big decline in transportation, total orders rose 1.2 percent in November, the best showing since June.

And orders for non-defense, non-aircraft capital goods - a measurement that economists consider a proxy for business investment - rose 4.7 percent.

But durable goods orders are considered volatile and can be heavily revised, economists said.

"It takes more than one (month) to turn that report around,'' said Peter Kretzmer, senior economist at Bank of America.

A Labor Department analyst said auto-related layoffs were a key factor behind the rise in jobless claims.

The four-week average of initial claims, which smooths out fluctuations, rose to 558,000.

That's the highest since December 1982, when the economy was emerging from a steep recession.

There was some improvement in the number of Americans continuing to seek unemployment benefits, which dropped slightly to 4.37 million from 4.39 million the previous week.

Wall Street economists had expected that number to increase to 4.4 million.

Economists consider jobless claims a timely, if volatile, indicator of the health of the labor markets and broader economy.

A year ago, initial claims stood at 353,000.

The elevated level of new jobless applications is one of several signs that the labor market has deteriorated fast in recent months.

The Labor Department said earlier this month that employers cut a net total of 533,000 jobs in November, sending the unemployment rate to 6.7 percent, highest in 15 years.

Mass layoffs are taking place in a wide range of industries. Industrial conglomerate Textron Inc. on Tuesday said it has cut 2,200 jobs, while technology services provider Unisys Corp. said Monday it will eliminate 1,300 jobs.

Sovereign Bancorp Inc.'s bank unit said last week it is laying off 1,000 employees.

In the meantime, federal regulators are moving to sell the remnants of failed IndyMac Bank before year end, mopping up from the second-largest bank failure this year.

It was unclear Wednesday whether the government would sell off IndyMac as a whole or in pieces.

The Pasadena, Calif-based lender, which specialized in loans made with little down payment or proof of assets, failed in July as the U.S. housing market bubble collapsed.

Rates on 30-year fixed-rate mortgages fell to a record low for the second straight week, causing refinancing applications to surge to the highest level in more than five years, a month after the Federal Reserve pledged to channel billions to prop up the sinking U.S. housing market.

Freddie Mac, the mortgage company, reported Wednesday that average rates on 30-year fixed-rate mortgages dropped to 5.14 percent this week, down from the previous record of 5.19 percent, set last week.

The rate was the lowest since Freddie Mac's weekly mortgage rate survey began in April 1971 and the eighth straight week of declines.

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