Friday, July 31, 2009

Cash for old cars, similar to Malaysia's, wildly popular in US

From the Star Online:

WASHINGTON: The White House said Thursday it was reviewing what has turned out to be a wildly popular "cash for clunkers" program amid concerns the US$1 billion budget for rebates for new auto purchases may have been exhausted in only a week.

Transportation Department officials called lawmakers' offices earlier Thursday to alert them of plans to suspend the program as early as Friday.

But a White House official said later the program had not been suspended and officials there were assessing their options.

"We are working tonight to assess the situation facing what is obviously an incredibly popular program," White House press secretary Robert Gibbs said of the Car Allowance Rebate System.

"Auto dealers and consumers should have confidence that all valid CARS transactions that have taken place to date will be honored."

Gibbs said the administration was "evaluating all options" to keep the program funded.

A Transportation Department official said the department was working with Congress and the White House to keep the program going.

The administration officials spoke on condition of anonymity because they were not authorized to speak publicly about the discussions.

The CARS program offers owners of old cars and trucks $3,500 or $4,500 toward a new, more fuel-efficient vehicle.

Congress last month approved the program to boost auto sales and remove some inefficient cars and trucks from the roads.

The program kicked off last Friday and was heavily publicized by car companies and auto dealers

Through late Wednesday, 22,782 vehicles had been purchased through the program and nearly $96 million had been spent.

But dealers raised concerns about large backlogs in the processing of the deals in the government system, prompting the suspension.

A survey of 2,000 dealers by the National Automobile Dealers Association found about 25,000 deals had not yet been approved by NHTSA, or nearly 13 trades per store.

It raised concerns that with about 23,000 dealers taking part in the program, auto dealers may already have surpassed the 250,000 vehicle sales funded by the US$1 billion program.

"There's a significant backlog of 'cash for clunkers' deals that make us question how much funding is still available in the program," said Bailey Wood, a spokesman for the dealers association.

The clunkers program was set up to boost U.S. auto sales and help struggling automakers through the worst sales slump in more than a quarter-century.

Sales for the first half of the year were down 35 percent from the same period in 2008, and analysts are predicting only a modest recovery during the second half of the year.

So far this year, sales are running under an annual rate of 10 million light vehicles, but as recently as 2007, automakers sold more than 16 million cars and light trucks in the United States.

General Motors Co. spokesman Greg Martin said Thursday the automaker hopes "there's a will and way to keep the CARS program going a little bit longer." - AP
At an average of $4000 per rebate for a new car, the US government has just goosed auto sales by some 250,000 units in just a week. Just to keep things in perspective, 10 million sales is equivalent to 192,000 units per week on average. This will push up the annual run rate to over 10 million most likely.

Auto sales are a major component for world trade as the US generally imports most of its components for cars. China may sell a lot of cars, but most of the components are made in China. Getting the sales up is a necessary positive to get the world economy back on track.

Thursday, July 30, 2009

Carlsberg: Excise duty increase on liquor unlikely

From the Business Times:

CARLSBERG Brewery Malaysia Bhd's chief believes there may not be an excise duty hike for brewers this year.

This would be a bad time to do so as the market has just started to improve following three years of no duty hikes, managing director Soren Holm Jensen said.

He expects consumption of beer and stout in Malaysia to increase by a "low single-digit" percentage this year.

Brewers raise product prices when the government imposes higher duty and this results in consumer turning to cheaper and black-market alternatives. With that, the government stands to lose potential revenue, he noted.
Jensen estimated that the illegal market in Malaysia has dropped to about 20 per cent now.

"I don't expect (a hike) this year ... but that's just a gut feeling," he said yesterday on the sidelines of a press briefing on the company's purchae of Carlsberg Singapore.

Some analysts, however, think that with the government having to deal with a widening budget deficit, a higher excise duty on beer may be possible. The present excise duty of RM7.40 a litre is the second highest in the world, after Norway.
I sure hope not. Not after they splurged some 387 million on a Singapore distribution that they lost revenues from a couple of years ago. Lets see how this pans out. After the revenues and profits from the Singapore are adjusted, how much dividend growth is left? Financing isn't the cheapest right now. I don't see them growing anywhere outside of GDP. Singapore and Malaysia are both affected badly with negative GDP this year.

They cut dividends this year for "growth opportunities." Singapore isn't really a growthy place, it is quite matured.

Wednesday, July 29, 2009

Ranhill to slowly exit oil and gas

From the Business Times:

Ranhill Bhd (5030)is expected to slowly phase itself out from the oil and gas (O&G) sector, as its heavy investments in the sector particularly in Indonesia and Sudan hasn't borne much success, said an industry source.

Business Times understands that Ranhill is currently in the process of farming out its O&G concessions in the Philippines and Indonesia.

"It is a business decision. Ranhill has farmed out some of the concessions and will complete the rest over the next few months," the source said.

Ranhill's ill-timed ventures in the O&G sector resulted in the company suffering a net loss of RM690.5 million for the year ended June 30 2008, versus a net profit of RM116.8 million previously.

Ranhill, buried under RM4.02 billion of debts as at June 30 2008, however, is expecting a short in the arm within the next two months time, said the source, as it will be getting RM900 million from sale of its water assets in Johor.
In March, Ranhill's indirect unit, SAJ Holdings Bhd, which holds a licence to supply water in Johor, hived off the water assets to Pengurusan Aset Air Bhd (PAAB), the water asset management arm of the Finance Ministry Inc.

Under the deal, the government was to pay RM4.03 billion for the assets and RM3.18 billion in liabilities held by SAJ Holdings.

SAJ is one of Ranhill's most valuable assets as it holds a 30-year concession starting from March 1 2000 to supply water to 861,700 users in Johor, but the sale is expected to result in a net gain for the group.

Meanwhile, the source said that Ranhill's biggest stakeholder Tan Sri Hamdan Mohamed has aborted plans to take the group private due to global uncertainties.

For the nine months ended March 31 2009, Ranhill posted a lower net profit of RM6.02 million versus RM28.87 million in the same period a year ago.
A failure, but at least they move on. It's very tough for a company to suddenly go into a new industry and find success. They don't have the infrastructure, savvy, and clients that companies already in the field take years to grow. Investors should take caution. A mess up like this doesn't speak well for the board and management which will most probably be kept in place.

Monday, July 27, 2009

PM asks Maxis to Relist on the Bursa

From the Business Times:

Prime Minister Datuk Seri Najib Razak said he has suggested that Maxis be re-listed on Bursa Malaysia to boost liquidity and attract investors to the stock market.

The suggestion was made during his recent working visit to Saudi Arabia. Maxis is a wholly-owned subsidiary of Binariang GSM Sdn Bhd, an investment holding company whose shareholders include Saudi Telecom Company.

Najib said Maxis has been told about the proposal and was "considering it very seriously".

"It will also make investors more enthusiastic about our capital market because they have a large portfolio to invest in a company that is well managed. Hopefully, it will happen fairly soon," he said at a press conference in Putrajaya yesterday.
The Prime Minster of Malaysia has asked that Maxis be re-listed on the Bursa. I did realize that the PM probably will show quite a bit of support toward the investment industry, but publicly asking a company to re-list is probably a little out of character for politicians, let alone Malaysia.

Anyhow, Najib is an economist so given his background it doesn't seem out of character. Furthermore, his brother is CEO of one of the largest investment banks in Malaysia, and obviously Maxis could generate quite a bit of revenue for CIMB if they chose to re-list through them. So, the PM's background and personal interest is there for the investment industry to get a lot of government support in the future.

Friday, July 24, 2009

Risky versus Non-Risky assets

So far one of the most dynamic themes in world financial markets has been risky v. non-risky assets.

I've taken a chart of FXY, TLT, EEM, FXA, SPY, and BRZ.

FXY is the Japanese Yen currency etf.
TLT is the US long term government bond index.
FXA is the Australian Dollar currency etf.
BRZ is the Brazillian dollar currency etf.
SPY is the S&P 500 equity etf
EEM is the emerging markets equity index.




One year chart of Risky and non-Risky assets.

Here, we see an obvious inverse correlation of the risky and on-risky assets. The yen is considered non-risk asset because it is one of the countries who's currency was used to fund the risky asset purchases. Government bonds have also been more nevegatively correlated to the riskier assets, going up when the other is going down and vice versa.

So, here we have a problem. The way these items trade, a lot of economists somehow contradict themselves. For instance, some of them say the long bond yield will go up due to all the money in the system, yet the economy will be growing below trend and the stock market will be lousy for a while.

So by this account, US government bond prices will continue to fall but due to the inverse correlation that is prevalent, the risky asset prices will go up, all this with a sub-par economy. Shouldn't stock prices be pathetic with a sub-par economy? But they just might go up if the correlation holds. So who is right? the economists or the inverse correlation relationship between the assets?

Also, inflation is to be subdued because the price of housing will come under pressure and rent will decrease, regardless of a possible commodity price increase because the rent portion in inflation numbers is quite heavily weighted. Also, world demand has been incredibly anemic and will continue to do so for the immediate future, that doesn't bode well for commodity prices. Demand destruction has a huge impact on the price due to the high elasticity of commodities.

The stimulus plan and monetary easing will take time to work. The multiplier effect also will take time to course through the economy. In addition, the banks aren't lending a lot of their capital out because they are saddled with bad assets. Also, commercial real estate is just beginning to get hit hard by the recession. All this leads me to believe that US government bonds will still do well even if the recession ends soon. The anemic growth will still put us in a period of government bonds doing better than risky assets.

Economists seem to be talking in much quicker time frames as if they will happen all at once. The correlation will stand and thus the risky assets will start going down again. Later on, maybe 1-2 years down the road, government bond prices will start to erode and riskier assets will do well once again, but not for quite some time.

It's a quite a leap of faith for predicting so far ahead, but if things progress faster or the system gets cleaned out faster than I think (more likely the latter), I'll be the first to change my outlook.

IOI Corp plans RM1.2b cash call

From The Business Times:

Plantation group IOI Corp Bhd (1961)plans to ask as much as RM1.22 billion from shareholders to fund its spending, investment opportunities and repay some of its debts.

IOI Corp plans to use the money within two years upon receiving it but has yet to determine how much will be for capital expenditure and debt repayment.

However, it will ask its single biggest shareholder, Progressive Holdings Sdn Bhd, to buy all of the shares under its entitled portion. Progressive, owned by Tan Sri Lee Shin Cheng's family, holds 40.64 per cent of IOI Corp.

"The proposed rights issue will enable the company to raise the requisite funds without incurring additional interest expenses as well as to minimise any potential cash outflow in respect of interest servicing," it said in a statement to Bursa Malaysia yesterday.

IOI Corp has proposed to issue up to 420.99 million new shares under a renounceable rights issue priced at RM2.90 per share. It will be done on the basis of one rights share for every 15 existing shares.

Shares of IOI Corp closed 4 sen up to RM4.98 yesterday.

It expects to conclude the proposal by year-end. The plan will need the approval of its shareholders, the Securities Commission and Bursa Malaysia, among others.

However, the final number of its rights shares may change, taking into account new shares that could be issued under a stock option scheme and the conversion of an exchangeable bond programme.
Looks like companies still need to raise cash. I don't think we've seen the end of the cash raising times yet. With an anemic recovery, companies will realize it will be tough going for quite some time.

Thursday, July 23, 2009

DiGi Q2 net profit falls

From The Business Times:

DiGi.COM Bhd (6947), the country's third largest mobile operator, says its second-quarter net profit fell 21.3 per cent to RM234.5 million due to higher cost of its third-generation (3G) rollout.

However, the group remains "cautiously optimistic" for the medium to long term, as it believes it can capitalise on the changing market dynamics and grow its existing businesses as well as tap new growth opportunities.

"We are actively managing our costs to meet shareholders' expectations on cashflow and yields. In tandem with that, we have solidified our value proposition to customers, focusing on relevant, easier and better deals in everything we do.

"I am convinced we have taken steps in the right direction to strengthen our long-term financial standing. We are already on track to meet our financial guidance of a higher operating cash flow than last year," said DiGi chief executive officer Johan Dennelind in a statement yesterday.

DiGi's revenue in the quarter ended June 30 2009 grew a marginal 1 per cent to RM1.2 billion due to lower usage by the low income segments amid the current economic slowdown.

The mobile phone operator also reported a 6 per cent drop in earnings before interest, tax, depreciation and amortisation (Ebitda) of RM521.5 million in the quarter from a year ago.

For the six months period, DiGi's net profit dropped 13.4 per cent to RM588.5 million from RM509.9 million before. Revenue for the same period grew by 3 per cent to RM2.42 billion, against RM2.36 billion a year ago.

"We are faced with challenges from the economic recession. We acknowledged revenue and margin pressures due to weakened customer spending, but we are responsive to customers' call for greater savings.

"Although the operating environment remains tough, we are holding up well versus competition," Dennelind said.

DiGi will pay an interim single-tier exempt dividend of 49 sen per share for the year ending December 2009 on 18 September 2009.

It now has 7.23 million customers, comprising 1.18 million postpaid users and 6.05 million prepaid users.

Data revenue, comprising of text messages, ringtone downloads and others, also declined in the second quarter compared to the first quarter this year.

Mobile data revenue fell by 5 per cent to RM233 million, against RM246 million in the first quarter.

Revenue from text messages declined by 6 per cent to RM157 million.

Mobile data revenue now contributes 19.6 per cent to the group's total revenue, against a 20.7 per cent contribution in the first quarter.
Looking at the article, the optimistic comments at the beginning soon turn to dust as soon as I read 1% revenue growth. Furthermore, Digi users are considered less affluent. People aren't trading down from more expensive plans, they are just cutting back on spending. 6% revenue decline in text messaging says it all. Texting is as cheap as one can get with mobile communications.

Digi is supposed to be somewhat of a growth-like company and the revenue is not very growth-like. Overall, this is a horrible earnings report for the company, but just as bad for Malaysia's economy as people are cutting back on expenditures.

Wednesday, July 22, 2009

Update on the Malaysian Bond market

From The Edge:

THE 3/5 MGS spread has fallen to about 80 basis points (bps) since it peaked at 128 bps on March 12, 2009. However, it is still very high compared with its 5-year simple average of 30 bps or 10-year simple average of 38 bps.

In this paper, we argue that the 3/5 spread will narrow in the next one to two weeks, after which it will widen for a period of three to four months and may even exceed the 128bps high recorded in March.

Chart 1 shows the actual historical 3/5 spread movement of the current MGS benchmarks (MH8/12 and MH4/14) since the former became a benchmark, while Chart 2 shows the movement of the three- and five-year benchmarks’ yields.



3/5 year bond spread

The rest of the article addresses how to trade the bond and upcoming spread, but I'll just note some information which the spread may narrow or widen. Maybank predicts the spread will narrow for a couple of weeks and then widen for a couple of months. Essentially, they are saying that the riskier 5 year bond will still lower in price and produce higher yields.

I tend to agree for this in the longer term outlook of 6-12 months and even more as Malaysia is in the midst of a giant fiscal stimulus which they would finance through issuing bonds. But, we might have a period of flight to more safe assets first and a lot longer than Maybank will be predicting.

At the same time, a lot of people who have made back quite a bit of money are parked on the sidelines waiting for the market to go down. It is possible, the market has more to run up from even this particular high point.

When we do see that, yield spread will probably widen quite a bit for a pop before coming back down for a longer than 1-2 week period, and possibly go back up again a year or two from now. It is too early to call how long the flight to safety will be, from a couple of months to more especially if economic data is weak.

Tuesday, July 21, 2009

Bloomberg editorial column about Malaysia

From Bloomberg:

Malaysia is in the global financial pages, and for a change it has little to do with sodomy.

Normally, when Asia’s No. 10 economy makes the front page overseas, it’s about Anwar Ibrahim’s legal woes. And the former deputy prime minister and opposition leader will soon be back in court facing charges he had illegal sex with a man. The steamy case has been distracting policy makers since the late 1990s.

Now, Malaysia finds itself in the international press for the right reasons: changes that may leave the nation more competitive and prosperous in the years ahead.

In his first 100 days in office, Prime Minister Najib Razak eased rules governing overseas investors, initial public offerings and property purchases, peeling back decades of benefits to ethnic Malays as the nation faces its first economic contraction in a decade.

If you are a foreign company in Malaysia or a locally listed business, you no longer need to set aside 30 percent of equity to indigenous, or Bumiputera, investors. Overseas ownership thresholds in the fund-management industry and at local stockbrokers also were raised.

While much more needs to be done, these steps send an important signal. It’s that the nation of 27 million is open for business again after five years of drift and indecision under Prime Minister Abdullah Ahmad Badawi.

Window of Opportunity

Had Abdullah had the courage and foresight to implement these changes five years ago or even two years ago, Malaysia might be a very different place today. He didn’t and one of Asia’s most resource-rich nations lost a rare window of opportunity to compete with China, India or even Indonesia. Last week’s deadly hotel bombings in Jakarta didn’t send panic through Asian markets the way they did in the past -- a reminder of how far Indonesia has come.

Better late than never, though. The good news is that Malaysia is working to buttress its stature with investors, many of whom avoided the place after the 1997 Asian crisis.

“We are at a critical juncture,” Najib, 55, said in Kuala Lumpur last month as he began dismantling policies his prime- minister father established 38 years ago. “Failure or hesitation to act now will have long-term ramifications for the nation.”

Hesitation still reigns, of course. Najib, for example, is sticking with a broader goal. It increases ethnic Malays’ share of Malaysian corporate equity to 30 percent from a 2004 estimate of 19 percent. Also, investments will still be overseen by regulators in certain industries, such as water, to safeguard “the national interest,” Najib said.

Awkward Capitalism

It’s an awkward brand of capitalism. Affirmative action is normally aimed at minority groups. In Malaysia, it benefits the majority at the expense of minorities. Those of Indian and Chinese descent pay more for homes and compete for some jobs, university admissions and contracts, only after Malay slots have been filled.

If Malaysia wants to know why it’s not a bigger blip on investors’ radar screens it need only look at these policies. They aren’t around because of good economics, but in spite of it. Najib should be more aggressive in creating fair conditions for non-Malays and foreign investors.

The world won’t wait for Malaysia. Economies as diverse as China, India, Indonesia, Thailand and Vietnam are evolving in ways that enable them to leapfrog peers in a short span of a few years. Developing economies need to watch their backs.

And then there’s Singapore, the beneficiary of many of Malaysia’s best and brightest seeking a more merit-based economy. Najib’s decision to order that math and sciences again be taught in Malay, rather than English, is a step backward.

Step Backward

Like it or not, English is the global business language, and Malaysian students should be honing their skills whenever possible. Politicians such as former Prime Minister Mahathir Mohamad said the reversal will be a disadvantage to Malaysia.

This is a time for smart policy making. Malaysia’s gross domestic product may shrink more than previously thought as the global crisis reduces exports and household spending, the Malaysian Institute of Economic Research said last week.

The economy will probably contract 4.2 percent in 2009, almost double the 2.2 percent decline that the institute predicted in April. It lowered the 2010 growth forecast to 2.8 percent from 3.3 percent. It’s a sign that the ripple effects of global turmoil are still flowing this way.

Malaysia’s $187 billion economy shrank 6.2 percent in the first quarter. Najib has unveiled 67 billion ringgit ($19 billion) of stimulus measures. More will be needed with the research institute predicting a 22 percent plunge in exports of goods and services this year.

Anwar’s sodomy trial will soon resume and grab some of the global spotlight. Sordid news tends to do that. It would be a mistake to let it eclipse Najib’s plans to fight crime, cut corruption and improve public transport. He also is pledging to raise education standards and the quality of life for the poor.

The real concern is follow-through. Malaysian politicians are big on glossy, headline-grabbing plans to revitalize the economy. They are less successful at implementing those visions. It’s time for Malaysia to stop talking and start doing.

I'm a little late to the huge long term issue of English medium of science and mathematics being reverted to Malay. I mainly keep up with the more immediate affecting issues, but nevertheless I was shocked when this ruling came out. Clearly Najib has to play to the more Malay ultra-nationalist side, but instead of that, allocate more money and incentives towards the rural schools for English. Politics are a problem here especially when there is no strong party in power.

A lot of solutions can be made in place of the change, but our politicians lack the implementation foresight, the long term foresight, and the accountability foresight. For instance, why is the education minister who is failing horribly at implementing English given a second chance? Why is he around? He has no idea how to do this right.

Obviously if you give the job of implementing a new education program to a person who never has done it before, how could you expect results? And much less from a government official who probably has never needed to change in his whole entire career. The educational system in Malaysia has probably never changed since former PM Tun Mahathir Mohamad made the ruling to switch from English to Malay some 30 years ago.

You need real educational consultants to come in and do it right. You don't keep the same official who doesn't have the chops to do it right in the first place. In my opinion, if no progress has been made after a few years, give him the axe. Drastic change involves drastic actions to see it through.

I come from a strong English background. When executives in the United States that invest in Malaysia do not see well written, constructed emails, I know what they are thinking: Thank goodness we are only trusting them with the lowest of jobs. That's where we stay, while the number of compeititors will keep increasing and continue to leapfrog us.

Monday, July 20, 2009

Stimulus project awarding process doesn't add up to goals

From The Star:

Project implementation under the stimulus packages is on track and the Government is confident that by the fourth quarter, the economy may see some positive growth and some recovery by early next year.

Among some of the measures being considered are:

● improvement in efficiency and quality of spending through competitive bidding to obtain value-for-money;

● cutting back on discretionary expenditure;

● restructuring subsidies to ensure that they remain well targeted;

● further improvement in tax collection through productivity gains in tax administration; and

● new ways to monetise Government assets which include land, buildings and facilities.

On the implementation of the stimulus packages, Aziz said improvements were already seen through various measures and mechanisms put in place to expedite and track the progress of the projects.

Several rules and regulations have been relaxed, largely relating to the award of contracts and procurement of services,’’ he said. Among these are:

Yup, probably expected as they got to give out money in a big way! I wonder how many millionaires with connections will be created building useless projects at the expense of tax-payers! But anyways, lets give them the benefit of the doubt.

● the limit for procurement of goods and services through quotation is now increased from RM200,000 to RM500,000;
This is ludicrous, they said they wanted to relax the rules and regulations, well this just gives the contractor more room to charge more.

● class F contractors awarded projects under the stimulus package are now eligible to apply for payment to commence work amounting up to 10% of the contract value or a maximum of RM20,000, whichever is lower;
I'm not a genius here, but if they up the limit to 500,000, why is the limit still set at 10% or maximum of 20,000. Did they decide to change one number and forget the other? hmmm..

the authority to appoint consultants and approve consultancy fees has been delegated to procurement boards and quotation committees at the respective ministries and agencies. This is related to development projects, studies pertaining to physical and non-physical projects as well as environment and land surveys works; and
More delegation, less oversight, more kickbacks, more waste of taxpayer's money.

● the tender advertisement period has been shortened to 14 from 21 days previously.

A Project Management Unit (PMU) was set up at the finance ministry to manage the day-to-day operational issues of project implementation, while a technical committee chaired by Aziz himself meets weekly to ensure the smooth implementation of the stimulus packages.

The PMU reports fortnightly to the Economic Council which is chaired by the Prime Minister to track the progress of the implementation of programmes and projects. “The impact of both stimulus packages is expected to be felt in the third and fourth quarters of the year,” Aziz added.

“Data from the PMU indicate that the current pace of project implementation is on track and according to our expectations. The second package only commenced on March 10 and only RM1.6bil has been spent. Once we have gone through the project preparation stage, the award of contracts can begin.

“It takes three to four months to complete this stage. Once we have cleared the preliminary stages and projects are on the ground, we are confident that by the fourth quarter, we may see more positive growth and some recovery by early next year,’’ Aziz said.

Under the second package, the fiscal injection of RM15bil is divided into operating and development expenditure of RM5bil each for this year and a further RM5bil for development expenditure next year.

On the current economic situation, Aziz said: “Notwithstanding the continued decline in world trade, we have seen in recent months some signs of improvement especially in the slower pace of decline in global industrial output and firmer commodity prices.’’

Despite some of these encouraging signs, global trade is expected to remain fragile and being a globally integrated economy, Malaysia’s exports will remain sluggish.

Amid the increased uncertainties in the external environment, the domestic economy is likely to improve in the last quarter and register a mild recovery next year, supported by the two stimulus packages and monetary easing.

I'm not too encouraged by what I read today. I thought the measures were supposed to relax the rules and cut the red tape, but it seems that they just want to increase the limit for contracts. I see nothing in the article regarding easier ways for companies to get on with their projects.

Friday, July 17, 2009

Govt may need to spend RM8b more next year

From the Star:

The Malaysian Institute of Economic Research (Mier) says the Government may need to spend another RM8bil next year if the economy continues to be weak.

“If the recovery is weak and tepid, the Government will have no choice but to introduce another stimulus package of RM8bil next year,” said executive director Prof Datuk Dr Mohamed Ariff Abdul Kareem.

Ariff said the country’s fiscal deficit may reach 9% in 2010 because of the extra spending.

“Next year will still be difficult and the Government may need to spend more to boost growth,” he said.

The Government has already announced stimulus packages worth RM67bil that are expected to bring its fiscal deficit to 7.6% this year.

On top of the 60 billion RM package, we are currently thinking of another 8 billion RM. Why do we have to spend money in unproductive ways? Is government spending the best option we have at the moment? Why not spend this money on making us more efficient uses instead of useless buildings and roads here and there.

With all this money, we can build our own power plants and not have to pay such a huge premium for power to private power producers or we can have a state of the art public transport system. Instead, we'll probably see lots of kickbacks and fattening of corrupt people's pockets.

Thursday, July 16, 2009

Astro may face stiff competition from TM

From The Star:

Astro All Asia Networks Plc, the country’s sole pay-TV operator, is expected to face stiff competition from Telekom Malaysia Bhd’s (TM) upcoming Internet Protocol television service (IPTV), but will likely remain dominant in the short term, analysts said.

IPTV is television content delivered interactively to homes via broadband connection.

“TM is starting from scratch, from building infrastructure to content offerings to customer base. It will take a while to show the results and will not be an overnight change; all will depend on TM’s IPTV development, infrastructure and content,” an OSK analyst said.

Maybank Investment Bank sees a greater threat to Astro from TM’s IPTV service.

“TM’s IPTV product (due to be rolled out by the first quarter 2010) may erode Astro’s net additions and average revenue per user (ARPU),” said Maybank Investment analyst Yin Shao Yang.

“Astro may retain attractive content, especially sports, but at higher prices due to competitive bids from TM,” he told clients in a research note.

Yin said TM would be a more formidable foe to Astro than MiTV, a pay-TV product launched in Sept 2005, which went bust by Oct 2006. The TV station faced lack of subscribers due to its unattractive content.

“TM however, with a huge cash pile of RM4bil, is better able to compete with Astro,” he reckoned.

I've been saying all along that TM will be moving into the triple play arena with a high possibility of Astro eating the dust. They are using landed lines versus satellite transmission which is always more reliable in bad weather. Plus, TM with their state of the art infrastructure will be able to transmit HD quality signals while Astro has been sitting on their laurels.

No.1 most read story in the star business section, remember you heard it here first.

Wednesday, July 15, 2009

Metal dealers see adverse impact in new steel policy

From the Business Times:

SMALL- and medium-sized steel fabricators in the oil and gas sector will pay more for raw materials and may face irregular supply if the government goes ahead with a new policy for the steel sector next month.

"The new policy, which takes place on August 1 2009, is not really liberal as it seeks to re-introduce import tax on seven sectors which are currently tax-exempted," said Metal Dealers Association (MDA) of Kuala Lumpur and Selangor president Lim Sin Seong.

The sectors are steel products for use in automotive, electrical and electronics, shipping, oil and gas, furniture, exporters and licensed manufacturing warehouse/free zone companies.

"Customs officers insist that we pay 50 per cent import duties when the cargoes, under Asean Free Trade Area, are eligible for the CEPT (common effective preferential tariff) 5 per cent tax. We don't know if this is part of the new policy but lack of communication is causing us to lose a lot of money," he said.

I wonder if this is part of the steel liberalization plan. The 50% import duties are a bit rough if they were to do away with the current 5% that metal fabricators currently use. Even to reduce it to 25% in august for the new policy would be a steep price hike compared to the previous 5%. I doubt people won't complain if their company's costs for materials goes up 20% in one year!

Tuesday, July 14, 2009

REIT firms targeting Northern Investors

From The Star:

Real estate investment trust (REIT) companies are now targeting investors in the northern region, particularly the high net-worth individuals and “men on the street.”
»They hope to channel some of these funds into REIT « GAN KIM KHOON

OSK Investment Bank Bhd (equity capital markets) director Gan Kim Khoon said there were over RM354bil in fixed deposits and savings of individuals in the country waiting for REIT companies to tap.

“They hope to channel some of these funds into REITs, which are high yielding and low risk in nature,” he told StarBiz after a one-day roadshow on REITs-Investors Outreach Programme recently.

The REIT companies from Kuala Lumpur that took part in the event included Axis REIT Managers Bhd, AmFirst ARA REIT Managers and AmanahRaya-JMF Asset Management.

“Outside Kuala Lumpur, REITs have little exposure from large companies, and participation by individual investors is also small,” Gan said.

Investment in REITs presently offered the best yield, ranging from 8.5% to 12% yearly, based on current earnings, he said, adding: “In such a challenging climate, there are not that many stocks that can give you such yields. It is better than putting funds in fixed deposits.”
Stewart Labrooy ... ‘After upgrading, the valuation increased to over RM140mil’

Meanwhile, Axis REIT Managers chief executive officer Stewart Labrooy said the company regularly implemented asset-enhancement exercises to increase the value of its assets.

“Last year we injected about RM3.5mil to upgrade one of our office buildings, Wisma Kemajuan, in Petaling Jaya. After upgrading, the valuation for the property increased to RM52mil, compared with the original valuation of RM29mil in 2005,” he said.

He said Axis REIT recently spent RM8mil on two of its commercial properties which were originally valued at RM106mil.

“After upgrading, the valuation increased to over RM140mil.

“Through such asset-enhancement exercises, we create more value-added space, which in turn attracts more tenants, and increases our income from rentals,” he said.

I'm not entirely sure how a 3.5 million renovation can increase the property value of a building some 79% from 29 to 52 million. I doubt the renters would pay an additional 79% in rental increase after the renovation. The second number, spending 8 million to get an increase from 106 to 140 million, sounds more reasonable.

Currently, the US is having a property appraisal problem and a lot of countries will be looking at whether their own appraisal system works in light of the financial crisis.

Friday, July 10, 2009

Follow up thoughts on China's arrest of Rio Tinto Executive

Kevin Rudd, the prime minister of Australia, needs to figure out what is going on and whether he will deal with China strongly or bend to China's will. Right now, this situation is making Kevin Rudd look gutless and a China lap-dog. This could drive down his popularity at home in Australia where he campaigned based on his diplomatic prowess and supposedly strong ties with China.

China Claims Evidence Shows Rio Tinto’s Hu Stole State Secrets

From Bloomberg:

China said it detained Rio Tinto Group’s Stern Hu, head of iron ore operations in the country, after obtaining evidence he stole state secrets.

“Competent authorities have established the evidence before they took action against anyone,” the foreign ministry’s spokesman Qin Gang said in a regular press briefing in Beijing. Hu, an Australian national, and three Rio workers, all Chinese citizens, were arrested by the Shanghai state security authority, the official Xinhua news agency reported earlier today.

Chinese mills and iron-ore producers are continuing the longest-running negotiations in the 40-year history of setting annual prices for the steelmaking material. China, the largest buyer, rejected Rio’s push for a 33 percent price cut, which was agreed to by rivals in South Korea and Japan, and is seeking a steeper discount to counter losses as demand drops.

Hu “is suspected of stealing Chinese state secrets for foreign countries and was detained on criminal charges,” the ministry’s Qin said. The act “caused huge loss to China’s economic interest and security,” Qin said, without elaborating on how Hu stole the secrets.

Rio’s staff stole state secrets by corrupting employees at Chinese steelmakers, the China Business News reported on its Web site, citing the Shanghai state security authority.

This reeks of desperation. Is it coincidence, the Chinese government arrest the long-term negotiator after long term contract talks have failed? Sounds like China is taking these long-term negotiations a bit personally. Who's the big bully now?

Some of the comments claim that iron ore manufacturers should bend to China's will. I doubt they will, seeing how China reacted to the unsuccessful contract negotiations. China will come to them after the smoke has cleared, obviously China still wants the long term contract. Probably the suppliers will demand more due to the risk that China will pull a similar stunt.

Thursday, July 9, 2009

Key Interest rate at Appropriate level

From the Business Times:

BANK Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said the key interest rate is at the appropriate level now but the central bank would not rule out future cuts.

"Right now, under the scenario that we have expected, this is the appropriate interest rate level. But, we cannot rule out in this very uncertain world what will happen in the external environment.

"We see our domestic economic conditions being stable and certain sectors show trend towards positive growth, but the external environment remains very uncertain," Zeti said in Kuala Lumpur yesterday.

The overnight policy rate (OPR), which banks use to set their lending rates, is currently at 2 per cent, after Bank Negara cut it by 150 basis points between November and April.

The central bank is now more focused on the availability of loans.

" ... what is very encouraging is that the growth of lending has continued to be sustained in the region of 10 per cent," she added.

Zeti also said that the country's second-quarter economic growth will be similar to the first, and expects the economy to improve in the second half and next year, partly driven by the government's stimulus package.

The Malaysian economy contracted 6.2 per cent in the first quarter.

"It's being aggressively implemented and we expect to see the effects in the third and fourth quarters. It will be important in sustaining domestic demand," she explained.

Lower interest rates work best when people can refinance. A large change in the magnitude of interest rates does a have a profound effect on the economy. I'm not too sure if a 3.5%-2% interest rate will be enough. There may be more loan growth, but no re-finance loan growth which will effectively give people extra income. What's the point of lower rates if the magnitude of the rate change isn't big enough to warrant refinancing a loan?

Wednesday, July 8, 2009

Glomac cuts sales target by half

From The Star Online:

Glomac Bhd is cutting its property sales target by half for fiscal 2010 as the global economic downturn hit buyers’ confidence, said a top executive on Tuesday.

The property developer aimed to sell houses, shoplots and offices worth about RM400mil in the year to April 2010, down from its previous target of RM800mil, said managing director Datuk Fateh Iskandar Mohamed Mansor.

“At this moment in time, looking at the weak take-up rate of our properties, I have to be conservative,” he told Reuters in an interview.

The company was in “advanced talks” to sell en bloc a 25-storey corporate tower at Glomac Damansara, a mixed commercial and residential development, said Fateh.

The building had a market value of about RM170mil, he said.

“We hope to complete the sale by the end of the year. If that happens, these are bonuses,” said Fateh.

I'm not holding my breath for a recovery in property any time soon. We'll see if the unemployment rate picks up end of this month in step with the property market. Unemployment has been much lower compared to the rest of the world, but that will start to change. Nothing has quite an affect on banking and property as high unemployment rate does.

Tuesday, July 7, 2009

UMW's subsidiary Rig contract terminated

From The Star Online:

A UMW Holdings Bhd subsidiary’s US$170mil (RM565.51mil) contract to provide a drilling rig to PCPP Operating Co Sdn Bhd, off the coast of Sarawak, has been terminated.

UMW told Bursa Malaysia yesterday that PCPP, which comprised Petronas Carigali (Malaysia), Petrovietnam (Vietnam) and Pertamina (Indo-nesia), would not be implementing the contract.

In August 2008, PCPP awarded the contract to UMW’s 85%-owned UMW Standard Drilling Sdn Bhd.

UMW said it was in discussions and negotiations with other production sharing contract operators in Malaysia with regard to the rig concerned, known as NAGA 2, adding that it expected NAGA 2 to be in operation by September.

Coinicidence? You be the judge. I posted a blog about UMW's 800 million ringgit bond sale on June 23, 2009. They've already completed the bond sale and then suddenly, a large canceled project.

California Credit Rating Cut Close to Junk After IOUs

From Bloomberg:

California’s credit rating was cut for the second time in as many weeks by Fitch Ratings after a stalemate over how to close a $26 billion budget deficit forced the most-populous U.S. state to pay some bills with IOUs.

Fitch lowered its rating of California’s general obligation bonds by two steps to BBB from A-, placing the debt two ranks above so-called high-yield, high-risk junk ratings, and said the state may be cut further. The credit-rating company last lowered its assessment of California on June 25.

California, the largest issuer of municipal bonds, last week began issuing IOUs for the second time since the Great Depression as Governor Arnold Schwarzenegger and lawmakers remained deadlocked over the budget cuts needed to make up for revenue lost because of the recession. California Controller John Chiang said the step was needed to conserve cash.

“The downgrade to ‘BBB’ is based on the state’s continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis,” Fitch said in a statement.

The Fitch action affects $79 billion of debt -- $69.3 billion of general obligation bonds, rated BBB, and $9.7 billion of appropriations credits, rated BBB-.

Schwarzenegger, a Republican, and Democratic leaders of the Legislature remained divided over how to fix the budget after a meeting in the governor’s office late yesterday. Assembly Speaker Karen Bass, a Los Angeles Democrat, said she was “discouraged” and criticized Schwarzenegger for seeking to link government reforms to a budget deal.
The article is mainly self explanatory, but for a state government to endure downgrades to a level of BBB speaks exactly how bad things are at the moment. States almost never get that kind of treatment. The US government treasuries seems to be the only place now where money is safe at the moment. This could change of course.

Monday, July 6, 2009

US Job Report suggests that Green shoots are mostly Yellow weeds

Some excerpts from RGE Monitor:

The June employment report suggests that the alleged ‘green shoots’ are mostly yellow weeds that may eventually turn into brown manure. The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10 percent by later this summer, around August or September, and will be closer to 10.5 percent if not 11 percent by year-end. I expect the unemployment rate is going to peak at around 11 percent at some point in 2010, well above historical standards for even severe recessions.

The other element of the report that must be considered is that, for the summer, the Bureau of Labor Statistics (BLS) is still adding between 150,000 and 200,000 jobs based on the birth/death model. We know the distortions of the birth/death model – that in a recession jobs created within firms are much smaller than those created by firms that are dying. So that’s distorting downward the number of job losses. Based on the initial claims for unemployment benefits, it’s more likely that the job losses are closer to 600,000 per month rather than the figures officially reported.

The other important aspect of the labor market is that if the unemployment rate is going to peak around 11 percent next year, the expected losses for banks on their loans and securities are going to be much higher than the ones estimated in the recent stress tests. You plug an unemployment rate of 11 percent in any model of loan losses and recovery rates and you get very ugly losses for subprime, near-prime, prime, home equity loan lines, credit cards, auto loans, student loans, leverage loans, and commercial loans – much bigger numbers than what the stress tests projected.

There are also signs that there may be forces leading to a double-dip recession, sometime toward the second half of next year or towards 2011. If oil prices rise too much, too fast, too soon, that’s going to have a negative effect on trade and real disposable income in oil-importing countries (US, Europe, Japan, China, etc.). Also concerns about unsustainable budget deficits are high and are going to remain high, with growth anemic and unemployment rising. These deficits are already pushing long-term interest rates higher as investors worry about medium- to long-term stability. If these budget deficits are going to continue to be monetized, eventually, toward the end of next year, you are going to have a sharp increase in expected inflation - after three years of deflationary pressures - that’s going to push interest rates even higher.

For the time being, of course, there are massive deflationary pressures in the economy: the slack in the goods markets, with demand falling relative to supply-and-excess capacity. The rising slack in labor markets, which are controlling wages and labor costs and pushing them down, implies that deflationary pressures are going to be dominant this year and next year.

But eventually, large budget deficits and their monetization are going to lead – towards the end of next year and in 2011 – to an increase in expected inflation that may lead to a further increase in ten-year treasuries and other long-term government bond yields, and thus mortgage and private-market rates. Together with higher oil prices driven up in part by this wall of liquidity rather than fundamentals alone, this could be a double whammy that could push the economy into a double-dip or W-shaped recession by late 2010 or 2011. So the outlook for the US and global economy remains extremely weak ahead. The recent rally in global equities, commodities and credit may soon fizzle out as an onslaught of worse- than-expected macro, earnings and financial news take a toll on this rally, which has gotten way ahead of improvement in actual macro data.

I pulled some interesting sections from RGE Monitor's article by Nouriel Roubini regarding the current US job numbers.

Last month's job losses were quite decent at 360k compared to the trend of 500k job losses a month. But this blip might be explained by the distortions caused by the birth/death model that the BLS is recently employing. Adjust 360k by 150-200k jobs a month, we are back at 500k job losses a month, about where the trend currently is.

Higher unemployment has a huge effect on the stress tests., so bank losses will get larger. Analysts using the stress test results for their earnings projection will need to adjust for higher unemployment.

Deflationary pressures will be around for this year and next, adding on to the idea that the recent commodity rally looks like a head fake.

And this "W" shaped recovery a lot of economists are talking about seems more like a recovery with ups and downs instead of a double bottom. The recovery will be weak, recessions will now be weak, basically, a stagnant economy. Inflation might rise further into the future.

Saturday, July 4, 2009

May's Total Trade down 29%

From the Business Times:

EXPORTS in May fell 29.7 per cent, worse than what was expected, mainly due to the plunge in commodity prices and the continued weak demand for electrical and electronic items worldwide.

Imports sank by 27.8 per cent from the same month a year ago while total trade fell 28.9 per cent.

A Business Times poll had forecast May exports to contract 28.83 per cent, with imports also down by 23.91 per cent.

But exports rose 4.5 per cent in May to RM42.95 billion when compared with April, The International Trade and Industry Ministry said.

What was more worrying was that imports fell by 2.3 per cent to RM32.93 billion from the month before.

"...it suggests that not only is export demand weak, but that firms expect it to remain that way for sometime to come and that domestic demand is also struggling," said Singapore-based IDEAglobal economist Philip McNicholas.

Bank Islam economist Azrul Azwar Ahmad Tajudin said the latest trade numbers confirmed views that the gross domestic product (GDP) for the second quarter will be no different from the first quarter.

GDP shrank by 6.2 per cent in the first quarter.

"Since the current recession is much export-driven, it will take a resounding turnaround in global demand for an export-dependent country like Malaysia to return to positive territory.

"I am cautiously convinced that a a positive GDP growth, albeit marginal (less than 1 per cent), will resume in the fourth quarter of 2009 as the reflationary effects of the two stimulus packages should filter through by then," he said.

Commodity exports may yet remain under pressure for the June and July numbers, said Standard Chartered's Alvin Liew.

"Especially when we note that global oil prices were rallying and peaked at US$147 per barrel in July 2008 before collapsing in the second half.

"This would continue to exert a significant negative base effect on Malaysia's crude oil and crude palm oil exports in June and July, before rapidly disappearing as we go into the second half of the year."

The top five export destinations for the month were Singapore (RM6.17 billion), China (RM4.95 billion), the US (RM4.94 billion), Japan (RM3.46 billion) and Thailand (RM2.40 billion). They accounted for more than half of the total exports.

Exports to the US, Malaysia's biggest export market, which slumped by 39.8 per cent compared to a year ago, showed an improvement in May, with a 7.7 per cent increase versus April.
With trade numbers down 30%, expect something similar to the the -6.2% GDP growth in the first quarter for Q2 GDP. Some economists are looking for 4Q positive growth, but it will be incredibly anemic if there is any. Growth will either be a little bit negative or a little bit positive. Not too sure what everyone is getting excited over.

Friday, July 3, 2009

UDA considering REIT

From the Business Times:

PROPERTY and leisure group UDA Holdings Bhd said it is considering a plan to raise up to RM500 million by selling shares through a real estate investment trust (REIT) in two years, as it looks at ways of unlocking value from its property assets.

UDA, a unit of the Minister of Finance Inc, plans to list a retail REIT in Malaysia, which would include BB Plaza in Kuala Lumpur, Greentown Mall in Ipoh and Plaza Angsana in Johor Baru, managing director Datuk Jaafar Abu Hassan said.

"We are considering (to raise money through) a REIT, but the plan is subject to stakeholders' views and opinions," Jaafar told Business Times yesterday.

The group will undertake a detailed study before it embarks on the plan.

UDA is targeting RM400 million in revenue this year and to maintain its 2008 net profit.

For fiscal year 2008, UDA posted a net profit of RM28.8 million on revenue of RM313.3 million.

Jaafar attributed the higher revenue to its 14 on-going projects in the Klang Valley, Penang, Johor and Pahang, worth a combined RM900 million.

"We will launch more projects this year. The business has to move despite the turmoil," Jaafar said.
A lot of property holding companies will find that the recession will take longer than anyone expects and that it would be wise to take opportunities to monetize assets so they don't face a cash crunch a few years down the road. The prices the company may get for listing may not be so good, but at least the bond holders will find it harder to jack up the rates on bond refinancing day, especially if the company has cash.

Thursday, July 2, 2009

Malaysia sees negative 2009 exports growth

From the Business Times:

In its 2008 report released today, MITI also said that despite the economic slowdown in Japan, the US and European Union (EU), Malaysian exports to these countries will remain significant.

"Electrical and electronic (E&E), chemicals and chemical products, machinery, appliances and parts will continue to be Malaysia's major export products," it said.

Malaysia's emerging regional export markets, which include West Asia, Africa and South Asia are expected to maintain their demand for Malaysia's export of E&E products, chemicals and chemical products, jewellery and processed food and thus continue as important export destinations for Malaysia in 2009, it added.

"The manufacturing sector will continue to be the leading export sector which has contributed to 70 per cent of total monthly exports throughout 2008," it said.

MITI said E&E products would remain as Malaysia's largest contributor to total exports despite the negative growth in 2008.

Other Malaysia's mainstay export products in 2009 are crude and refined petroleum, liquefied natural gas (LNG), palm oil and crude rubber, it added.

Singapore, the US, Japan, China and Thailand remained Malaysia's top five trading partners in 2008.
Malaysia has a long way to go if it is trying to make itself a nation that does not depend on exports for growth. I for one, think it is fine to depend on strong export market for growth. If this is the case, policy should be directed towards this area. Malaysia wants to have the best of both worlds, less dependence on the world for exports during the downturn, yet in recovery wants to benefit from global growth. It's a dilemma, which do you help, the export oriented industries or trying to develop home grown sustainable growth. Doing both has a strong chance of getting you here nor there.

Spending unnecessarily destroys wealth. If Malaysia wants to grow through exports then they can by hunkering down for the recessions. Eventually global growth will pick up and then they can come out of the downturn stronger than all the other nations spending needlessly.

Unfortunately, the way things are going now, I'm not sure exactly which way Malaysia wants to go.

Crabtree & Evelyn files for bankruptcy, KLK so far unaffected

From Bloomberg:

Crabtree & Evelyn Ltd., the maker of soaps, gifts and toiletries sold in 126 stores in 34 states, filed for bankruptcy protection in New York, citing a decline in consumer spending.

The company, based in Woodstock, Connecticut, reported $46.2 million in assets and $33.2 million in liabilities in today’s bankruptcy petition.

“We are confident that Chapter 11 gives us the opportunity to restructure the company with a business model that will be sustainable for long-term growth,” Stephen Bestwick, the retailer’s acting president, said in a statement.

Crabtree & Evelyn is wholly owned by Kuala Lumpur Kepong Bhd., a Malaysian company that also owns palm oil and rubber plantations. The company is Malaysia’s third-largest palm oil producer.
KLK will likely take a hit on goodwill. Not sure exactly sure how much, but Crabtree & Evelyn were an acquired company. KLK currently carries goodwill of around 255 million RM from the 2008 annual report. Investors have seemed to shrug off the news, although the US filing hasn't shown up in the announcements at Bursa Malaysia yet.


Kuala Lumpur Kepong Bhd. Stock price

Wednesday, July 1, 2009

PM to remove 30% requirement for IPO requirements

From the Business Times:

On Malaysian companies seeking a listing on Bursa Malaysia, he noted that they would previously have to sell a 30 per cent stake to Bumiputeras and also ensure a quarter of the shares are held by public investors.

From now on, however, with the 30 per cent rule scrapped, companies only need to offer half of the public spread to Bumiputera investors.

This effectively means that Bumiputeras will hold at least 12.5 per cent in initial public offerings.

"I think this is a good, bold move.

It should bolster market sentiment and in the mid-to-long term, small investment banks will benefit from doing more fund-raising exercises,"said Chris Eng, head of research at OSK Investment Bank, of the new move.

Najib stressed that he remained committed towards enhancing economic participation by Bumiputeras.
The listing requirements for the Bursa Malaysia are effectively reduced to just 12.5% from 30%. It's a chore to find these Bumiputra Investors and a burden to the companies that want to list. The companies would have to offer Bumiputra investors a lower price to entice them to invest, which a lot of them would just sell off after the IPO after making a quick buck.

Prime Minister Najib has been relatively quiet on how he wants to develop the country ever since he took the post a few months ago. We will probably see a lot of deregulation in the fianancial indsutry as his brother is the CEO of the largest investement banks in Malaysia.

Some people speculated that Prime Minister Najib might follow in the more command style of leadership as former PM Mahathir, but I don't think so.

I think that we should look at his brother, Nazir Razak, as he will surely be advising Najib who I believe is uncomftable with the economic direction of the country. It's not his background. Nazir Razak runs his company, CIMB, like any competitive corporate entity.

Deadweights are cut off and the top performers stay just like in any world class investment bank. So, he believes in competition, and definitely not free handouts, in which the NEP will most likely see abolishment. I'm sure Nazir Razak believes in free economy and any barriers to trade should be removed.

Nazir Razak has Najib's ear and will definitely convey a more open and modern, forward looking style of development. Look for existing barriers to economic prosperity being dealt with and a more competitive and open society.

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