what's brewing?

what's brewing?

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3Q2015 Market Updates

So many things happening in the past 4 months or so.

Here’s the snippets

Market has been crazy volatile in the months of August and September. Lots of bond sell downs in the emerging market space, where and especially malaysia that wasnt spared from it. a combination of global risks, weak inflation and tighter financial conditions encourage the monetary policy heading to year end more dovish that before. on top of that, the emerging market assets have weakened largely due to commodities slump, slowdown in China (growth forecast below 7%?), strength in dollar as well as the possibility of US’ Feds policy tightening

Oil price again plummeted to below $50 level. Coupling that with slowdown in China and devaluation of yuan, have brought ringgit down to 17 years of historical low against dollar. It was crazy.

But as they say, whatever goes up must come down. Now we see market has somewhat less shaky, given that the US’ Feds ‘delaying’ interest rate hike and the market has also managed to price in the rate hike up until 1Q next year. Currently the US dollar position has also calmed a bit that brought ringgit level up a bit.

Brent crude oil hovers at below $50 level which serves as an indicative level for revenue generation forecast for the country. Now analysts are expecting the level will go up to $70 starting only in 2017 onwards. Hence, 2016 continues to be a volatile year.

Expectations from the market:-

  • Further targeted stimulus by PBoC on China stability
  • Abenomics aint working, sorry Mr. Abe. Japan is viewed to be facing a possible relapse into recession. Given that S&P has cut Japan rating to A+ from AA- in September due to economic support for Japan’s sovereign creditworthiness has continued to weaken in the past three to four years. Plus they are also in view that the govt’s economic revival strategy is not able to reverse the deterioration in the next few years.
  • US’ Fed hike by year end, up by 25bps. If not, then by 1Q2016.

Honestly none of analysts and economists I met is positive for 2016, at least for the first half. I’m not seeing any bright spot either.

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Weakening Ringgit, Strengthening Dollar

Global and domestic developments are affecting the volatility of Ringgit movement. Global developments would include the investor expectations relating to monetary policies of major central banks and the trends in crude oil and gas prices, where domestic factors include concerns about government linked entities and ratings related issues.

Ringgit has been underperforming against the strengthening US dollar, being Asia’s second worst performer YTD, behind Indonesia, where asian currencies tend to move together against the stronger USD. The pressure on MYR is largely driven by sentiments, rather than fundamentals. The analysts are expecting bad times for the country as well as the whole Asian region, at least until the second quarter is over. For countries under the emerging market space, it seems that only Eastern Europe where the growth has been picking up, but things arent looking that bright in the larger European space, with potential UK and Greece’s exit from Europe. Asia and latin america are both equally been under pressure due to weakening currencies and growth slow down, but on the positive side, most of the Asian countries are benefiting from lower oil price and less inflationary pressure. So yeay to other Asian countries but not Malaysia.

More bad news it seems with Fitch is said to be on track to downgrade the sovereign rating as short term view on Malaysia is not so positive, particularly on the debt ceiling and contingent liabilities. Their next review is due by end of July 2015 and until then, we just hope that the market has priced in the impact. As I talk to few fund managers, they’re currently staying away from our credit papers, due to the foreseeable risk of downgrade and MYR uncertainties.

While external developments are beyond the control of any open economy, every effort needs to be undertaken to bring about resolution to the domestic issues that confront our economy. Once these issues are resolved the performance of the currency is expected to be consistent with our sound economic fundamentals and growth prospects.

 

the YLDP

I have, on random days, asked my friends random questions and polled their answers for my own keep. Like earlier today I asked my colleagues who is their least desirable person in the market, or YLDP. I’m so busy, I know.

Here are some of their answers:-

  • loud mouthed guys. we dont mind loud people, really. but there are guys who always always make lame jokes and be really bingit about it.
  • annoying high pitched treasury sale people who always appear too bright on a monday morning. give em creeps apparently.
  • certain people from a certain (biggest) local investment bank. they’re, well, proud? only god knows why.

 

 

 

 

the thing about our market..

..is that its too small.

 

That everyone kinda knows each other and for some, the dirty stories behind them as well. For instance I know a girl who slept with a guy one day, and the next day everyone in the market gossiped about it. Pity her.

Besides that it is really difficult to avoid meeting ‘your least desirable person’ or ‘YLDP’ in the market. There are always sessions like conferences, seminars, market updates where there is a tendency to bump into YLDP.

I heard countries like India and Indonesia are the analysts’ favourite this year. So how fast can I move there?

Songs that made me go ‘Lost’

There are songs that really resonate with the scenes in the TV show. Like the ‘Man of Science, Man of Faith’ episode in Lost, where the character Desmond Hume was first introduced, Mama Cass Elliot’s ‘Make Your Own Kind of Music’ song was played in the background.

At first I was wondering who this man was and his relation to Lost..and then the lyric went ..“the loneliest kind of lonely, it may be rough goin'”..

bam! smack me in the head.

This is the guy who’s trapped inside a hatch. Lonely soul? I feel you, bro.

Then before that, in Season 1, I was first introduced to Damien Rice through his song Delicate, which was played in ‘In Translation’ episode, where Hurley was listening to this song via his CD player before it ran out of battery. And then during the last scene where Sun was standing at the shore with her bikini on and Charlie and Claire sat on the beach, along with the song, somehow the scene moved me. My favourite lyric goes like “..why do you sing with me, at all?”

Emerging Market : Indonesia Growth Target

(Bloomberg) — Indonesian President Joko Widodo says Southeast Asia’s biggest economy can achieve the official growth target of 5.7 percent this year. That could be a taller order than he anticipates.Widodo, who took office in October, inherited an economy fettered by years of under-investment in infrastructure, plunging commodity prices and the withdrawal of U.S. monetary stimulus. The central bank has kept monetary policy tight to protect a vulnerable rupiah and gross domestic product probably grew 4.9 percent last quarter from a year earlier, the slowest pace since 2009, according to a Bloomberg survey.

The president, known as Jokowi, is promising to rev things up by fast-tracking large road, port and power projects and cutting red tape. He’s seeking to woo investment and boost non-commodity exports, targeting an expansion of as much as 6.3 percent to 6.9 percent next year.

“We are confident to have the target of our economic growth” of 5.7 percent this year, the president said in a Feb. 2 interview in Jakarta. “But we must increase our exports volume and we must reform our bureaucracy. We must invite FDI.”

Yet the World Bank sees Indonesia growing 5.2 percent this year and 5.5 percent in 2016. The economy probably expanded 5.06 percent in 2014, according to a Bloomberg survey ahead of data due Feb. 5 in Jakarta. Here are five things that could stand in the way of Indonesia’s growth goal for this year.

Commodity Prices

The prices of Indonesia’s key commodity exports may not recover anytime soon. Coal has fallen further this year and has now more than halved in price since the end of 2010. Palm oil capped the biggest January decline since 2010 as demand weakens amid a supply glut, after slumping 16 percent in the past year.

While the plummeting price of crude presented Jokowi with an opportunity to scrap gasoline subsidies, it will also sap government revenue.

The state will lose about 158.8 trillion ($13 billion) of revenue because of the drop in oil prices, according to a Nomura Holdings Inc. research note last week by economists including Euben Paracuelles in Singapore. That negates much of the 230 trillion rupiah of budget funds freed up by the fuel subsidy overhaul.

Sticky Deficit

Indonesia was dubbed one of the fragile five emerging-market economies by Morgan Stanley in 2013 because its large external deficit made it vulnerable to capital outflows. While the shortfall in the current account has narrowed from a record 4.4 percent of gross domestic product in the second quarter of that year, Bank Indonesia is forecasting a deficit of 3 percent to 3.5 percent of GDP this year, compared with an estimate for about 3 percent in 2014.

The big infrastructure projects being promised by Jokowi could spur imports, putting pressure on the balance, according to Ndiame Diop, the World Bank’s lead economist for Indonesia. This persistent deficit makes it more difficult for Bank Indonesia to follow global peers in cutting borrowing costs to bolster economic growth.

Standard Chartered Plc said most of its Indonesian clients see the central bank holding or increasing its policy rate in 2015, according to a note released Feb. 3.

Implementation Risks

The stand-off between Indonesia’s police force and its anti-corruption agency, the KPK, has dominated local media in recent weeks. A failure by the president to show strong leadership could undermine his credibility for pushing ahead with economic reforms and cracking down on graft.

“There could be a rippling effect,” the World Bank’s Diop says. He also points out that about 50 percent of the central government budget is actually managed by sub-national governments, raising the possibility that the implementation of infrastructure and social spending will be slower than expected because of the difficulty in transmitting policy from the top.

Global Risk

The global economy is unlikely to provide much support to Indonesia this year, with weaknesses in Japan, Europe and China, Indonesia’s largest export market. Meanwhile, a recovery in the U.S. is forecast to prompt the Federal Reserve to raise interest rates, reducing the appeal of higher-yielding assets in emerging markets like Indonesia.

“This is going to be a very tough year externally,” Mari Pangestu, a former Indonesian trade minister, said in an interview with Bloomberg Television on Wednesday.

A strengthening U.S. economy and slowing growth in China is a “bad combination” for Indonesia as commodity prices will probably keep falling, said Benedict Bingham, the International Monetary Fund’s senior resident representative in Jakarta.

Time Lag

The economic overhaul being promised by Jokowi could take time to benefit the economy. Large infrastructure projects may take a while and the goal of lifting non-commodity exports is dependent on increasing the supply of skilled labor.

“Whether we can actually roll out the infrastructure projects fast enough is really the big question mark,” said Pangestu. “The concern is about implementation.”

The government also needs to review its trade and labor policies, which look more defensive rather than focused on winning global market share, according to Bingham.

“2015 needs to be seen as a year in which the foundations for the medium-term strategy are set,” he said. “It’s not going to be a year where the pay-off from this strategy is going to become immediately apparent.”

 

Stronger dollar and higher rates

Fed rate normalisation

Most analysts are forecasting an increase in fed fund rate and tightening of US monetary conditions, perhaps by second half of 2015. This move will impact  Asian countries, being the large recipients of QE flows and thus vulnerable to sudden stops in the flow.

Further to this, China slower growth and weak imports, as opposed to US’ stronger import would dampen Asia’s export recovery.

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Data from Bank of America Merrill Lynch

 Look where Malaysia is?

On the eastern side, Abenomics have failed to achieve the objectives (the three arrows) and Japan is thus likely to be in deflationary state. With the current state of low oil price, Japan as net energy importer would benefit from it, and BOJ has thus lowered its CPI forecast to 1% which has suggested that further monetary easing would be necessary. Subsequent to this yen is expected to go lower to 130 by year end (source: ABN Amro) and putting downward pressure on prices which in turns may delay their inflation target this year.

US is certainly benefiting from potential rate hike and stronger dollar. As we can see in the recent years there is a continuous upbeat in the US economy.

Certainly there are many more areas to look at, Malaysia for example as the exporter of oil impacted by the fell in oil price which has prompted the government to revise its 2015 budget. Greece crisis and Eurozone issues at large are another angle to look at which certainly have impacts on the global growth this year. On the other hand, Indonesia, India and Philippines are enjoying growth and positive outlook, stemming particularly from the policy revision, rebound in government spending and fiscal reduction pledge by their respective governments.

Off the trip to Bali

So, what happened was, I finally quit my job. Had a 3 weeks of much needed break before starting at my new job. Naturally I had to go somewhere, and Bali being my most fav island escapade, therefore off to Bali I went. Prior to Bali, I went to Jakarta for 4 days. Did some shopping, feasting and sight seeing. This time around I opt to use their train service as my hotel is situated near Sudirman train station. Went to Taman Ismail Marzuki, which hosted their local theatre, cinema, art gallery, book store, planetarium and spaces for various cultural performances; ideal for the likes of moviegoers and theater lovers. I didn’t manage to catch any of the shows there though due to the limited time I had. Getting there is relatively easy btw, from Sudirman station, take the train to Manggarai and change the train heading to Jakarta Kota, but get down at Cikini station. From there there’s plenty of taxis and bajaj that’ll take you to Taman Ismail Marzuki.

Sudirman station

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Cinema poster. This movie however wasn’t release yet .

I came back to KL on Saturday night. Sunday was spent on car and iphone repair works, laundry, last minute packing, a WEDDING and rushing off to the airport AGAIN at 2am! Phew! Didn’t manage to sleep that night but did doze off for a bit on my early flight to Bali. The views from the window plane were beyond beautiful early in the morning. Couldnt bring bulky dslr on this trip, hence this mediocre picture FML.

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This time around I didn’t plan much about the itineraries. I had a week to kill there with nothing much on my schedule. I was busy at work before and this trip was kinda unplanned for me, hence the hefty plane tix and nothing much on schedule. What I know was that I definitely gonna go to Padang Bai to swim and laze around at Bias Tugel beach. And also I would repeat Uluwatu this time. This was gonna be my first time in Padang Bai and third time in Uluwatu. As usual my first stop in Bali was Sanur. I love its night market that’s got plenty of delicious and cheap halal food. Perfect for traveller on a budget like yours truly. Pasar Sandhu is located at Jl. Danau Tamblingan. Gotta say that the food and vendors were pretty much the same since last time I been here in 2012.

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The next morning I headed out to Padang Bai. Like my previous visit, I use public transportation to get around. Not many people know this but the best way to move around between far out places in Bali is via bus. From Sanur to Padang Bai it’d cost me IDR75,000 via Perama Bus. Apart from Perama there’s Sarbagita bus service which is ideal if you need to move around to nearby places in Bali. Sort of city bus service. Initially Sarbagita was set up to cater to the tourist’s demand but sadly it’s not really popular with the tourists. Bad marketing, perhaps? I really hope these bus services stay as I really dont want to resort to using supir service.

Padang Bai

Padang Bai serves as a port to the neighbouring islands of Lombok and the Gili sisters. And for the more adventurous, yes there are ferries to Komodo island too. There are two beautiful beaches in Padang Bai; namely Bias Tugel beach and Blue Lagoon (which was featured in Eat Love Pray movie). Both requires a bit of trekking to get there. Blue Lagoon beach is tad bit smaller and further than Bias Tugel, and most of the people opt for motorbike to get there. I chose my accommodation that is nearest to Bias Tugel, but still it needed a bit of trekking to get to the beach.

And you wonder why would anyone fascinated with this hidden beach?..

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Bias Tugel beach

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Blue Lagoon beach

Diving in Padang Bai

Of course, I didn’t book diving trips prior because I wanted to look around on the price and availability of diving trips offered along Padang Bai area. Lesson learnt from diving trip back in 2012, dont rely on only dive trips available on the internet. Often times (though not all) the dive shops are run by the westerners and not by local people, hence the hefty price charged for dive trips. Thus this time around I decided to shop around for dive trips before securing any dive package. It didn’t take a long search though as I was quite impressed by the dive stories told by local instructor, Imade Widana or more fondly known as Pak Wi. He runs a small dive shop near to the port.

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Price per dive is about RM100 (nego for equipments) and of course, depending on the sites. Diving at sites that are further from the port is more expensive. And it’s better to at least possess an advanced diving license prior to diving in Bali as the currents are pretty rough there. But then again, dive sites in Padang Bai are relatively calmer than those in Nusa Penida (possibility of underwater currents at Crystal Bay site). Pak Wi is definitely a macro expert. He has the flare of spotting tiniest sea creatures, some were even smaller than an index finger. So if macros are your fancy, then go look for him in Padang Bai.