Saturday, June 5, 2010

Wall Street hit by jobs data and European worries

NEW YORK:'' Stocks cascaded to their lowest close since February on Friday, June 4'' after May's jobs figure slammed investors already reeling from worry over another developing debt crisis, this time in Hungary, according to Reuters.

Data showed the U.S. economy added fewer-than-expected jobs last month, with a large portion of those being temporary hirings for the U.S. Census. Investors rapidly reversed bets made during the week as expectations for a blowout number grew, leading up to the report.

Wall Street, which is down 12.5 percent since the April 23 closing high for the year, sold off broadly, led by economically sensitive sectors, including industrials, TECHNOLOGY [] and small-caps, on concerns that the economy will recover by fits and starts.

"It was extremely disappointing," said Robert Froehlich, senior managing director of The Hartford Mutual Funds in Simsbury, Connecticut.

"We know that employment is the lagging indicator, but ... we've been saying that for a year. There comes a time where we're really going to have to see that number pick up."

The drop in stocks follows Wall Street's first back-to-back advances since late April. Worries that Europe's sovereign debt troubles could spread flared again after a Hungarian official said the country was at risk of a Greek-style crisis, driving the euro to a more than four-year low against the dollar.

The Dow Jones industrial average .DJI dropped 323.31 points, or 3.15 percent, to 9,931.97. The Standard & Poor's 500 Index .SPX lost 37.95 points, or 3.44 percent, to 1,064.88. The Nasdaq Composite Index .IXIC tumbled 83.86 points, or 3.64 percent, to 2,219.17.


The CBOE Volatility Index or VIX .VIX, Wall Street's favorite barometer of investor fear, shot up 20.43 percent to 35.48.

"The new worry over Hungary is rekindling sovereign debt issues. The additional uncertainty is naturally lighting a fire beneath the VIX as premiums on options boost volatility," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut.

Large manufacturers were among the Dow's biggest losers, with manufacturer Caterpillar Inc (CAT.N) sliding 5.5 percent to $57.76, and conglomerate United Technologies Corp (UTX.N) dropping 4 percent to $65.13.

For the week, the Dow lost 2 percent, the S&P 500 fell 2.3 percent, and the Nasdaq shed 1.7 percent.

Financial stocks also ranked among the worst performers, with the KBW Banks index .BKX down 4.4 percent. JPMorgan Chase & Co (JPM.N) slid 3.5 percent to $37.75, while Bank of America Corp (BAC.N) fell 2.9 percent to $15.35.

Decliners carried the day handily, outnumbering advancers on the New York Stock Exchange by a ratio of more than 9 to 1, while on the Nasdaq, nearly eight stocks fell for every one that rose.

Further exacerbating the pressure on Wall Street were concerns from Europe about Societe Generale's (SOGN.PA) derivatives business. The company said it would not comment on market talk about the bank's derivatives operations.


The Labor Department said the U.S. economy added 431,000 jobs in May -- far short of the 513,000 that Wall Street had expected. The unemployment rate dropped to 9.7 percent in May from 9.9 percent in April.

Even so, analysts said it didn't alter their view that the economy is stabilizing, although gradually, with many expecting unemployment will remain high for some time.

"We interpret it that this is confirmation that we are not going to have a V-shaped type recovery, but are in a below- average recovery," said Hank Smith, chief investment officer of Haverford Trust Co. in Philadelphia.

"We think it will morph into a sustainable expansion, albeit below average."

The S&P 500 fell below 1,070, which had been considered a support level for the market. The index closed just below the intraday low the market reached during the so-called "flash crash" on May 6.

BP Plc (BP.L)(BP.N) began capturing some oil spewing from the ruptured oil well in the Gulf of Mexico. The company also put off a decision on whether to pay its next quarterly dividend as some politicians have demanded. BP's U.S.-listed shares fell 5.3 percent to $37.16. - Reuters

#Stocks to watch:* BCorp, Octagon, George Kent, Transmile

KUALA LUMPUR: Key regional markets will again face a volatile week on Monday, June 7 as sentiment will take a hit from the decline on Wall Street when the indices fell to their lowest since February.

On Wall Street, stocks fell after the US economy added fewer-than-expected jobs in May. Another developing debt crisis, this time in Hungary, also weighed on the markets, according to Reuters.

The Dow Jones industrial average fell 323.31 points, or 3.15%, to 9,931.97. The broader Standard & Poor's 500 Index lost 37.95 points, or 3.44%, to 1,064.88. The Nasdaq Composite Index tumbled 83.86 points, or 3.64%, to 2,219.17.

Stocks to watch on Bursa Malaysia include Berjaya Corp Bhd, OCTAGON CONSOLIDATED BHD [], George Kent (Malaysia) Bhd and Loh & Loh Corp Bhd, TRANSMILE GROUP BHD [].

Business tycoon Tan Sri Vincent Tan said on Saturday he will donate to charity all the RM525 million accrued from the sale of his 70% stake in Ascot Sports Sdn Bhd to BERJAYA CORPORATION BHD [].

Reports state Tan is donating all the proceeds in a move to counter allegations from'' some quarters that he has been unjustly enriched by the sale of the sports betting entity.

Meanwhile, Octagon Consolidated has proposed a corporate exercise to raise up to RM139.65 million which would involve the issuance of irredeemable convertible unsecured loan stocks (ICULS).

The exercise would involve the renounceable rights issue of up to RM139.65 million nominal value of five-year 5% ICULS at 100% of its nominal value. This would be on the basis of two 30 sen ICULS for every 50 sen share held.

The consortium of Loh & Loh-George Kent-Hazama has secured the RM317.6 million contract for part of the massive Pahang-Selangor raw water transfer project tendered out by the government.

George Kent (Malaysia) Bhd and Loh & Loh Corp Bhd said in separate statements in Friday, June 4 the contract was for Lot 1-3A Semantan intake pumping station and related works of the raw water transfer project.

Transmile Group's subsidiary Transmile Air Services Sdn Bhd has been served with a winding-up petition after defaulting on the payment of its debt notes.

The'' petition was presented to the High Court, Kuala Lumpur on May 19 and the petition was served and received on Friday. The matter is fixed for hearing on July 29.

Transmile Air had issued commercial papers/medium term notes with an aggregate face value of RM105 million. It had defaulted in the payment of the notes due on Aug 29, 2008.

Vincent Tan donates RM525m to charity from Ascot sale

KUALA LUMPUR: Business tycoon Tan Sri Vincent Tan will donate to charity the entire proceeds of RM525 million accrued from the sale of his 70 per cent stake in Ascot Sports Sdn Bhd to BERJAYA CORPORATION BHD [], according to Bernama.

He is donating the entire proceeds to counter wild allegations made by some quarters that he has been unjustly enriched by the sale of the sports betting entity.

Tan said the money would be disbursed by his foundation, Better Malaysia Foundation, to provide scholarships, finance poor students as well as fund medical assistance.

"It has also been insinuated that in the process, some government officials and political parties have also benefited. None of this is true," he said at a press conference here Saturday, June 5.

Also present was his son, Datuk Robin Tan, the Chief Executive Officer of Berjaya Corporation.

He also took to task opposition political parties and those critical of the move to legalise sports betting when they very well know that billions of ringgit were lost through such means.

Tan estimated that illegal sports betting in Malaysia amounted to a staggering RM20 to RM30 billion annually.

By legalising it, he said the government would be able to receive an estimated annual revenue of between RM1 billion and RM3 billion, a move which would help partly compensate government coffers, if and when, subsidies are reduced or removed.

He said illegal sports bookies were in cohorts with illegal money lenders or "Alongs" which led many Malaysians to sink into deep debts.

In contrast, in legal sports betting, punters would have to pay cash and no credit would be involved.

On opposition states Selangor, Penang and Kedah which have declared they would not allow sports betting, Tan said Berjaya Corp would appeal to the state governments to reverse their decision taking into account that rampant illegal sports betting was doing much damage to the country.

He said Berjaya Corporation would be able to start operations in September through 220 Sports Toto outlets. Sports Toto has a total of 680 outlets in the country.

Asked how the RM525 million sales figure was arrived at for Ascot Sports, he said it was based on an achieveable profit guarantee of RM125 million per year which amounted to RM375 million for three years plus a net price earnings ratio of six times.

"I get zero sen from this," said Tan.

Asked whether he would sue a "fugitive blogger" for making such wild allegations that he was enriching himself from the deal and that government officials had benefited from the deal, he said: "No point (in suing them), we will be wasting our time, they most probably will be bankrupt."

He also said the board of trustees for the foundation included Tun Dr Lim Chong Eu, Tan Sri Paduka Dr Saleha Mohamed Ali, Tan Sri Abdul Rahim Din, Robin and himself. - Bernama

Friday, June 4, 2010

Regional markets slip in early trade

KUALA LUMPUR: Regional markets, including FBM KLCI, fell in early trade on Tuesday, June 1, given the lack of direction with Wall Street closed on Monday, and the lingering euro zone debt crisis that has weighed on investor sentiment in Asia.

At mid-morning, Japan's Nikkei 225 fell 0.84% to 9,686.48, the Shanghai Composite Index lost 0.94% to 2,567.74, the South Korean Kospi down 0.85% to 1,627.23, Singapore's Straits Times Index fell 0.66% to 2,733.83 while Hong Kong's Hang Seng Index opened 0.8% lower at 19,600.57.

Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi in a note to clients on Tuesday said that whilst markets in Asia have reacted positively over the last two trading days, the European sovereign debt problems have not gone away.

Short-term market liquidity has returned to buy up oversold stocks that have plunged over the last fortnight, he said.

"Maintain a wary eye over Europe, and clients should protect their positions with a relevant stop-loss (in case of any further blow ups in Europe that will affect Asia-Pacific markets including Malaysia).

"Do not be lulled into a false sense of complacency as the massive European debt problems still persist," he said.

At Bursa Malaysia Securities, the FBM KLCI fell 7.45 points to 1,277.56 at 10.05am, dragged by losses at key blue chips including Tanjong, BAT, YTL and Maybank.

Losers thumped gainers by 224 to 89, while 145 counters traded unchanged. Volume was 201.68 million shares valued at RM70.86 million.

Tanjong was the top loser, falling 50 sen to RM17.50, BAT lost 24 sen to RM43.94, YTL down 18 sen to RM7.16 while Maybank declined nine sen to RM7.25.

Other major losers included Tenaga, Kossan, GUH Holdings, Harbour-Link and Far East Holdings.

Kenmark was the most actively traded stock in early trade with 90.6 million shares done. The counter fell 4.5 sen to 6 sen after it resumed trade Tuesday.

Its share price tumbled on Monday after top officials of the company went missing, leaving suppliers and at least two local financial institutions that had extended loans amounting to at least RM72 million high and dry.

Kenmark's independent directors Zainab Abu Bakar and Yeunh Wee Tiong on Monday informed Bursa Securities managing director James Hwang and deputy general manager Goh Kim Chon have resigned from the company.

Other actives in early trade included Talam, Saag, E&O, KNM and Green Packet.

FBM KLCI falls in early trade

KUALA LUMPUR: The FBM KLCI fell 3.10 points to 1,281.91 at 9.05am on Tuesday, June 1, dragged by losses at key blue chips including BAT, Sime, Maybank and the Genting duo.

BAT fell 26 sen to RM43.92, Sime Darby down eight sen to RM7.67, and Maybank and Genting Malaysia lost five sen each to RM7.29 and RM2.73.

Meanwhile, Genting, Unisem, Carlsberg and Gamuda fell four sen each to RM6.76, RM2.75, RM4.80 and RM2.91, respectively.

Kenmark was the most active stock in early trade with 35 million shares done. The counter fell 6.5 sen to four sen.

European Central Bank warns of more bank loan losses

FRANKFURT/MADRID: The European Central Bank warned on Monday, May 31'' that euro zone banks face up to 195 billion euros in a "second wave" of potential loan losses over the next 18 months due to the financial crisis, and disclosed it had increased purchases of euro zone government bonds, according to Reuters.

As the euro recouped losses but remained on the back foot after a cut in Spain's credit rating and China warned that the global economy remained vulnerable to sovereign debt risks, Spain assured investors it would reform its rigid labor market even if employers and trade unions cannot agree.

The ECB said euro zone banks would need to make provisions for further losses this year of 90 billion euros, and 105 billion in 2011, on top of some 238 billion euros in bad debts written off by the end of 2009. That was the first time it has given an estimate for next year.

Although total write-downs from bad loans and securities between 2007 and the end of 2010 were likely to be lower than previously expected, the ECB said in its latest Financial Stability Report, write-downs this year and next year would be still larger if heightened sovereign debt risk and the impact of government belt-tightening dragged down economic growth.

The ECB began buying up mostly Greek, Portuguese and Spanish bonds on May 3 in a contentious move to calm debt markets and support an $1 trillion stabilization package for the euro agreed by the European Union and the International Monetary Fund.

The central bank said in a statement it had settled 35 billion euros in bond purchases by May 28, up from 26.5 billion a week earlier. It did not detail the nationality of the debt but ECB officials have said it is mostly from south European countries hardest hit by financial market turmoil.

The ECB acknowledged in its report that euro zone debt tensions may force it to delay a phasing-out of cheap lending operations designed to help banks through the financial crisis.

After Lehman Brothers collapsed in September 2008, the ECB began offering euro zone banks unlimited, flat-rate loans in a bid to revive inter-bank lending and keep credit flowing to the real economy.

ECB governing council member Axel Weber, president of Germany's powerful Bundesbank, urged a tight cap on the bond buying program and said the extraordinary steps taken to ease the euro zone debt crisis posed a risk to price stability.

"The purchases of government bonds in the secondary market should not overshoot a tightly-capped limit," Weber said in a speech prepared for delivery in Mainz, Germany. He did not suggest a figure.

Spain, the fourth-largest euro zone economy, saw its credit rating downgraded a notch by Fitch Ratings agency from the maximum AAA to AA+ late on Friday after a 15 billion euro austerity program squeaked through parliament by a single vote.

Market reaction to the downgrade was limited, partly because U.S. and British markets were closed for holidays on Monday.

The euro recouped losses incurred after the Spanish debt downgrade to trade at around $1.23 but remained on the back foot as the downgrade highlighted ongoing structural weaknesses in the euro zone. The 10-year Spanish-German bond spread widened only slightly but Spanish stocks fell 0.7 percent while the index of leading European shares gained 0.4 percent.

Labor Reform

Spanish Economy Minister Elena Salgado told a conference in Madrid that the government aimed to pass a much anticipated labor market reform by the end of June with or without consensus with the unions and business representatives.

The minority Socialist administration extended the deadline for an agreement by one week from Monday but officials have said the social partners are still far apart.

The left-leaning daily El Pais said the government planned to allow companies to make greater use of cheap work contracts for a broader range of employees, reducing redundancy payments and making it easier to fire workers.

Trade unions have threatened to strike if the government imposes the reform by royal decree, a move that would set the ruling Socialists on a collision course with their traditional allies in organized labor.

In a sign of continued international concern about the impact of Europe's problems, China warned that Europe's struggle to contain ballooning debt posed a risk to global economic growth, raising the specter of a double-dip recession.

Premier Wen Jiabao, addressing business leaders during an official visit to Japan, issued his warnings a day after France admitted it would struggle to keep its top credit rating.

"Some countries have experienced sovereign debt crises, for example Greece. Is this kind of phenomenon over? Now it seems that it's not so simple," Wen said. "The sovereign debt crisis in some European countries may drag down Europe's economic recovery.

He added it was too early to wind down stimulus deployed during the 2007-2009 financial crisis.

Governments around the world ran up record debts during the $5 trillion effort to pull the economy out of its deepest slump since the Great Depression and now face a tough balancing act: how to reduce debt without choking off growth.

ECB Governing Council Member Mario Draghi warned that austerity programs by European governments could snuff out a fragile recovery unless they were coordinated internationally.

Economic sentiment in the euro zone fell in May, defying analysts expectations of a slight improvement, in part due to the wave of austerity announcements.

However, ECB President Jean-Claude Trichet said the economy may expand more than expected in the second quarter.

The fact that not just fiscally weak southern European countries, but also nations such as France and Germany at the euro zone's core are under pressure to cut debt and deficits amassed during the financial crisis, is adding to concerns.- Reuters

Astro targets 100,000 customers for new video recording capabilities

KUALA LUMPUR: Astro, Malaysia's leading pay-TV broadcaster, is targeting 100,000 customers to have video recording capabilities on Astro B.yond by the financial year ending Jan 31, 2011, its CEO Datuk Rohana Rohzan said.

She said on Tuesday, June 1 that Astro has set another bechmark in Malaysia's broadcast industry through the launch of a recording service for Astro B.yond subscribers made possible through "Astro B.yond Personal Video Recorder" (PVR) and an external hard disk drive.

Rohana said the recording service would enable customers to enjoy "more convenience and value" in television viewing as they are able to record, rewind, pause and play their favourite programmes and would not miss a moment.

"The Astro B.yond PVR gives customers the ease of mind, convenience and the freedom of being able to walk away at crucial television moment because they can always rely on Astro B.yond PVR to catch what they've missed," she said after launching the Astro B.yond PVR which is a new high definition (HD)-enabled box.

The less-than-perfect storm has picked up momentum

In our last Sunday evening piece on May 9th, titled 'Is it Contagion or a Less-than-Perfect Storm?,' we attributed the current market turbulence to the confluence of several factors rather than to Greek contagion alone.

Our list of non-Greek factors included regulatory and fiscal reform, monetary tightening in China, U.S. mid-term elections, geopolitical concerns, and the Gulf of Mexico oil spill, which has become the largest U.S. spill in history with resulting long-term implications for oil companies and offshore drilling.

More recently, we have had to expand this list to include the still unexplained May 6th 'flash crash,' growing geopolitical tensions in Korea, Thailand, and the Middle East (all hot spots that we will discuss on our client call this Thursday1), and persistent signs of stress in the short-term funding market, exacerbated by the potential for bank credit rating downgrades with the passage of financial reform.'' In addition, newspaper headlines are touting the worst May since 1940 for the stock market.'' Clearly, the less-than-perfect storm has picked up momentum.

Not surprisingly, this combination of factors has continued to weigh on capital markets.'' Since their respective peaks in mid-April, the MSCI Europe Index is down 18%, the FTSE 100 is down 17%, the MSCI Emerging Markets Index is down 12% and the S&P 500 is down 11%.

What is particularly notable over the last few weeks is the increase in the 3-month London Interbank Overnight Rate (LIBOR) and the related LIBOR-OIS and TED spreads, which measure short-term credit and liquidity risk.2'' Today's market participants keenly focus on movements in these measures because they widened leading into the 2008 global credit crisis and did so well ahead of corporate bond or equity market distress.

The key question we and our clients face is if this current equity downdraft and widening of short-term credit spreads is the harbinger of either a further major drop in the financial markets and a double-dip recession or simply one of many corrections we are bound to have for the foreseeable future in the face of the uncertainties mentioned above. ''

To address this question, we review current economic fundamentals, which continue to signal recovery and growth in most corners of the world.

We also explore how today is very different than 2008, given where we are in the economic cycle, the liquidity of U.S. financial institutions and expanded Federal Reserve policy tools, the existence of non-fundamental factors that may be contributing to widening spreads, fair valuations in equities, high yield, and real estate, and, finally, pessimistic investor sentiment.

Taken together, these differences versus 2008 suggest that another huge decline in the equity markets or a double-dip recession is unlikely.'' That said, we recognize that investor sentiment can shift quickly and dramatically, and sustained negative sentiment can become self-fulfilling.

The Latest Economic Data

The latest economic data illustrate that on balance the global economic recovery continues, and in fact, the OECD raised its global growth forecasts this past week. ''

In the U.S., the economic recovery continues and leading indicators point to forward growth.'' On the positive front, May consumer confidence measures were stable or improving, with the Conference Board Consumer Confidence Index jumping to its highest level since March 2008 on an improved 6-month outlook for business and labor market conditions.

Less positive, however, were the new order numbers in several manufacturing surveys; they remained firmly in growth territory but did weaken from April.'' In addition, housing data remains mixed with existing and new home sales robust in April but home prices as measured by the Case Shiller Home Prices Index falling modestly in March.

In Euroland, economic activity data remained favorable but consumer sentiment deteriorated.'' On the positive front, initial estimates for Q1 2010 GDP showed modest 0.2% growth from Q4 2009, and both the May manufacturing and services PMIs point to continued economic growth in Q2.

Consistent with these readings, business confidence generally remained stable in Germany and improved modestly in both France and Italy as companies anticipate a weaker euro may benefit exports and fiscal reform may hold down labor costs.'' Neutral to negative, however, was the modest fall in consumer confidence in all three of these major European economies amidst the sovereign debt crisis and pending fiscal reforms.'' ''

Japan's economic data have generally reflected a solid recovery, benefiting from strong exports.'' Q1 2010 GDP increased at a 4.9% annualized pace and accelerated from growth in the prior quarter.'' The new offers/applicants jobs ratio, which is a leading indicator, improved modestly.'' ''

Data in China remained robust in April, with industrial production and retail sales growth stable at 18%-19% year over year.'' Broad money supply grew 21.5% year over year despite recent increases in bank reserve ratios to help moderate economic growth and inflationary pressures.

Economic data broadly remains supportive of a continuation of the global recovery.'' Moreover, we believe it is important as well to distinguish between a deceleration in the rate of growth, which is evident in some measures above, and a decline in economic growth, which is not evident.

Is Today Developing into Another 2008?

The economic, policy, and financial market backdrops are very different today than in 2008, suggesting this market downdraft is more likely a correction than the start of a major market decline and a double-dip recession.

First, the economy is in the early-to-mid stages of a cyclical recovery as opposed to the end of a long period of economic expansion, as was the case in 2008. Underlying data demonstrate that the U.S. and other major economies are in the nascent phases of economic recovery, the OECD estimates that all of its member countries are in fact producing output below their capacity, and leading indicators point to continued growth in the quarters ahead.

In addition, monetary policy remains lax, which is traditionally supportive of equity appreciation and economic growth.'' By comparison, in late 2007 and early 2008, almost all OECD countries were generating GDP above their potential, monetary policy was much tighter, and leading indicators were signaling future economic contraction.

Second, U.S. financial institutions are better capitalized and major central banks such as the Federal Reserve already have a playbook to enhance liquidity if necessary.

To-date, it appears that U.S. banks have not experienced significant funding issues, in part because of several changes in the past two years:'' U.S. financial institutions have cut their reliance on short-term commercial paper by approximately half; they have raised capital such that their Tier one ratios (which measure their ability to absorb losses) have increased to 11% from 8-9%; and they have cleared up the uncertainty around asset values on their balance sheets.

In addition, the Federal Reserve has shown its propensity to act swiftly, re-instating its program to loan U.S. dollars to the European Central Bank (ECB) to enhance liquidity for European financials.'' Interestingly, only $6.4 billion has been drawn from the facility, compared with $430 billion at the peak of the crisis, suggesting it still remains less expensive for European banks to borrow U.S. dollars in the open market than through the ECB and Fed swap lines. ''

Third, the recent widening of funding spreads no doubt reflects renewed concerns about liquidity and credit risk.'' That said, spreads remain well below peak levels and often not discussed is the impact that new SEC regulations and potential financial reforms may be having on spreads.'' More specifically, new SEC regulations require money market funds to hold at least 30% of their portfolio in assets that can be converted to cash within 5 days and to shorten the weighted average maturity of their portfolio from 90 to 60 days.

As a result, money market funds' desire for shorter duration assets has likely pushed longer-term funding spreads higher.'' In addition, money market funds may be more hesitant to lend to banks given speculation that ratings agencies, including S&P, may downgrade bank credit upon the passage of financial reform if government support of the institutions is perceived to be reduced or eliminated.

Fourth, the major developed equity markets are less expensive today on an absolute basis than they have been historically.'' Heading into 2008, the picture was starkly different, with most equity markets trading above their historical averages.'' As a result, there is a greater margin of safety built into valuations today than in late 2007, when the market peaked.'' That said, it is important to be aware of both relative and absolute valuations when considering the attractiveness of any given market, as well as what is driving the cheapness.

For example, while Euroland equities are attractively valued on an absolute basis, they are at best fairly valued relative to the U.S.'' In addition, Spain and Italy are the main drivers of Euroland equities' attractive absolute valuations, as are European financial stocks broadly.'' As such, an investor would have to be comfortable with these sources of dislocation to buy Euroland at the index level.

By comparison, Germany'an economy that stands to benefit from global growth and a weaker euro, has a relatively healthy fiscal position and seems to be a favorite among investors recently'is only modestly undervalued on an absolute basis. And, in fact, Germany is expensive on some metrics relative to the U.S. and is also one of the few equity markets that is up YTD on a local currency basis.'' These nuances lead us to prefer U.S. and Japanese equities to Euroland equities. ''

A similar valuation story is found in the U.S. high yield market and real estate.'' The 9.7% default rate that is currently implied by high yield spreads is comfortably above the 6-7% range suggested by historical precedent at this point in the cycle, as well as the 2-5% estimates of Moody's and S&P.'' With respect to real estate, public REITs today trade modestly below their historical average using normalized cash flow.'' In 2007, this sector traded close to all-time highs.

Lastly, while investor sentiment is pessimistic today, this can be an important contrary barometer to the likely direction of the market.'' Unlike the relatively bullish sentiment and investor flows that prevailed throughout much of 2007, today's investors remain highly skeptical.

To wit, the recent American Association of Individual Investors survey revealed almost 2 bears for every bull, a reading in the 92nd'' percentile historically. Moreover, according to Lipper FMI, investors pulled $5.3 billion from equity mutual funds during the past week (the largest outflow since March 2009) and withdrew $16.7 billion including ETFs (the largest outflow since at least the summer of 2002).'' Because major market tops typically occur when investors are bullish and fully invested, the prevailing negative sentiment is a positive contrarian factor.

Potentially adding to investors' pessimistic inclination lately is the often-cited Wall Street adage 'Sell in May and Go Away.' This saying originated in England as 'Sell in May and go away.'' Go away till St. Leger's Day.''' St. Leger's Day marks the last leg of the English Triple Crown and typically takes place in mid-September.

It was viewed as the end of summer vacations and the resumption of trading in the markets; however, over time investors have interpreted the saying as 'stay away' through October.3

While there does seem to be some historical credence to this idiom, given that the average monthly returns from May through October are only 0.26% vs. 1.05% from November through April, much of the difference results from weakness in the month of September, not the early summer months.

Moreover, the economy's position in the business cycle is a far more important determinant of equity performance than any seasonal pattern per se.'' On the back of last year's cyclical recovery, the S&P 500 was up 18.8% between May and October, 2009. As such, we don't lend much credence to this Wall Street proverb.

In short, there are enough material differences between today and 2008 to make a repeat of that crisis unlikely.'' Of course, we recognize that market sentiment remains fragile and that negative perceptions can quickly become reality.'' Market sentiment does, however, work both ways, as a more optimistic shift can also lead to a sharp rally, as we have seen at times in recent weeks.

What are the Investment Implications?

On the positive front, the global economic recovery continues, policy is largely accommodative, the Fed has tools to help ease short-term liquidity constraints, and valuations are undemanding relative to history.

On the negative side, structural challenges will likely persist with high sovereign debt levels requiring fiscal consolidation and/or higher taxes, not to mention the confluence of factors adding to the uncertain backdrop.

Whether or not these longer-term structural issues actually undermine the current cyclical recovery will depend critically on investor confidence, which as we mentioned earlier, is the hardest factor to predict.

Therefore, our hurdle rate to add risk to the portfolio has increased, and we have reduced our risk exposure since early April.'' Our base case remains that ultimately policy responses globally will be sufficient to remove extreme tail risk and that global growth will remain intact.'' As such, we recommend that clients who can weather the volatility build toward or maintain their long-term strategic weights as absolute valuations are undemanding and economic data remains supportive.

For those clients who are underweight, we suggest using recent weakness to first average into U.S. equities and real estate.'' For the non-U.S. portion of the portfolio, we advise clients to fund Japanese equities first in light of attractive absolute and relative valuations.

With respect to European equities, which offer attractive absolute valuations but neutral relative valuations and significant uncertainty, clients should wait to allocate assets if they do not want interim volatility but may choose to slowly build positions if they have a long time horizon and prefer to be opportunistic.

Fourth consecutive quarter of GDP growth in OECD area

KUALA LUMPUR: Gross domestic product (GDP) in the Organisation for Economic Cooperation and Development (OECD) area rose by 0.7% in the first quarter of 2010, the fourth consecutive quarter of growth for the area.

In a statement published Monday, May 31 on its website, the OECD said strong GDP growth continued in the United States (0.8%) and Japan (1.2%).

GDP growth was more subdued in both the euro area and the European Union (0.2%), it said.

Italy returned to positive GDP growth in the first quarter of this year (0.5%), after the small decline of the previous quarter, while the pace of the recovery eased in both France and the United Kingdom and was unchanged in Germany.

"Relative to a year earlier, GDP in the OECD area returned to positive growth (2.5%) after five consecutive quarters of contraction.

"With the exception of the United Kingdom (where GDP was 0.2% lower than a year earlier), GDP was above the level recorded in the previous year in all other major OECD economies, with a large rebound in the case of Japan (4.2%)," it said.

Asian markets decline at midday

KUALA LUMPUR: Asian markets, including Bursa Malaysia, fell in the morning session on Tuesday, June 1, due to weaker investor sentiment amidst persistent worries about the global economy given the lingering Euro debt crisis as well as data indicating a slowdown in China's manufacturing output.

China's factory output eased last month as gradual policy tightening took a toll on new orders, suggesting to some economists that Beijing will take its time before nudging interest rates higher, according to Reuters.

But a pair of surveys of manufacturing executives pointed to a loss of momentum, not a sudden stop, in the world's third-largest economy, which is underpinned by rising incomes and vast infrastructure spending, it said.

Crude palm oil for the third month delivery rose RM19 per tonne to RM2,420 while crude oil fell seven cents per barrel to US$73.90. Meanwhile, gold advanced US$2.80 per ounce to US$1,219.

Taiwan's TAIEX Index fell 1.12% to 7,291.74, the Shanghai Composite Index lost 1.01% to 2,565.95, South Korea's Kospi Index fell 0.90% to 1,626.47, Singapore's Straits Times Index down 0.78% to 2,731.18, Japan's Nikkei 225 down 0.73% to 9,697.69 and Hong Kong's Hang Seng Index shed 0.66% to 19,634.39.

At Bursa Malaysia Securities, the 30-stock FBM KLCI fell 0.60% or 7.73 points to 1,277.18, while the broader FBM 100 declined 50.80 points to 8,377.32. Losers led gainers by 415 to 130, while 199 counters traded unchanged. Volume was 352.69 million shares valued at RM223.13 million.

The FBM KLCI was dragged by losses including at Maybank, Sime Darby, IOI Corp, Genting and Tenaga.

Tanjong was the top loser this morning, and fell 60 sent to RM17.40. Maybank fell eight sen to RM7.26, Sime Darby and Genting lost six sen each to RM7.69 and RM6.74, IOI Corp lost four sen to RM4.87 while Tenaga fell five sen to RM8.30.

Meanwhile, CIMB and Axiata lost two sen each to RM6.76 and RM3.75, respectively.

Among gainers, Tradewinds added 24 sen to RM3.09, Bintulu Port up 16 sen to RM6.48, Petronas Dagangan gained 14 sen to RM9.09 while Panasonic rose 10 sen to RM16.90.

Kenmark was the most actively traded counter in the morning session with 139.68 million shares done. The stock lost 6.5 sen to 4 sen.

Other actives this morning included CIMB, Talam, E&O, SAAG and KNM.

Global semicon sales up 2.2% m-o-m in April to US$23.6b

KUALA LUMPUR: Worldwide semiconductor sales rose 2.2% month-on-month in April to US$23.6 billion from $23.1 billion in March, according to the Semiconductor Industry Association (SIA).

Sales increased by 50.4% from April 2009 when sales were $15.7 billion.

Sales for the first four months of 2010 were $92.6 billion compared to $60.1 billion for the same period in 2009, an increase of 54.2%.

All monthly sales numbers represent a three-month moving average.

In a statement on Tuesday, June 1, SIA president George Scalise said global sales of semiconductors grew at a healthy rate in April, surpassing the previous monthly record level of November 2007.

He said that as expected, both the year-on-year and sequential growth rates moderated slightly.

The unusually high year-on-year comparison is a reflection of the trough of the recession in early 2009 compared to strong demand today, he said.

"Important contributors to current growth of semiconductor sales include the worldwide adoption of 3G wireless communications and consequent investment in infrastructure and recovery of demand from the enterprise, automotive and industrial sectors.

"Going forward, we expect semiconductor sales will return to historical seasonal patterns. Future growth of the industry remains heavily dependent on the continued global economic recovery, and in particular, on continued growth in the developing markets that are the largest demand drivers for our products," he said.

SIA will release its mid-year forecast on June 10.

FBM KLCI down in early trade

KUALA LUMPUR: The FBM KLCI extended its losses in early trade on Wednesday, June 2, in line with the decline at regional markets following the weaker overnight close at Wall Street.

US stocks fell on Tuesday as energy shares slid after the latest failed attempt to halt the oil spill in the Gulf of Mexico and the US government announced a criminal probe into the disaster.

Investors punished shares of companies directly involved with the spill and losses accelerated into the close following the news of the investigation.

At 9.05am, the FBM KLCI was down 3.28 points to 1,279.69, dragged by losses at key blue chips amidst cautious trading.

Among the major losers in early trade, Genting and Maybank fell seven sen each to RM6.69 and RM7.31, IOI Corp down six sen to RM4.89, while Public Bank, BAT and Pos Malaysia fell four sen each to RM11.40, RM44.06 and RM2.58, respectively.

Gainers included Mudajaya that added five sen to RM5, KKB Engineering, Top Glove and KLCC Property up four sen each to RM1.54, RM12.20 and RM2.94 while Kossan rose three sen to RM7.23.

Kenmark was the most actively traded counter with 21.26 million shares done. The stock added half a sen to 6.5 sen. Other actives in early trade included Tejari, Talam, KNM, Iris Corp and Ranhill.

OECD sec-gen: No double-dip recession

LJUBLJANA: The world should not slip into double-dip recession despite austerity measures in some major economies, the head of the Organisation for Economic Cooperation and Development said on Tuesday, June 1.

"No, I do not see a double-dip, I do not see a recurrence of the recession," OECD Secretary-General Angel Gurria told a news conference when asked if such a recession could happen again, given budget cuts in many countries.

The OECD is a group of free market democracies that is expanding its membership of 31 mostly developed market economies to include an increasing number of emerging economies, such as Slovenia, which was formally approved last week.

Gurria said latest indicators show there is a chance that low growth and high unemployment could persist for years which can only be prevented by necessary policy changes.

"What we see in the medium term, let's say 5, 7 years, is a relatively low level of growth, a relatively high level of unemployment and relatively high budget deficits. ... What can change this projection? Well, policies," he said.

"After we have stabilised the financial system, after we have plotted a medium- and long-term fiscal plan, we have to have also medium- and long-term structural policies so that the recovery is sustainable".

He also said the euro zone's help package to its indebted member Greece should calm the jittery markets.

"Considering that the total debt of Greece is about 300 billion (euros), 110 billion on the table is an enormous amount of money and it should give peace of mind," Gurria said. - Reuters

#Stocks to watch:* AirAsia, Paramount,PLUS, Oriental Food

KUALA LUMPUR: Markets are expected to see downside pressure on Wednesday, June 2 after the overnight slide on Wall Street, extending the losses for the second day.

On Wall Street, stocks fell on Tuesday as energy shares slid after the latest failed attempt to halt the oil spill in the Gulf of Mexico and the U.S. government announced a criminal probe into the disaster. Investors punished shares of companies directly involved with the spill and losses accelerated into the close following the news of the investigation.

Stocks to watch on Wednesday are AIRASIA BHD [], Paramount Corp Bhd, Oriental Food Industries Holdings Bhd and PLUS EXPRESSWAYS BHD [].

AirAsia Bhd has received an extension of the investment allowance incentive for another five years to June 30, 2014. The incentive is backdated from July 1, 2009.

With the extension, AirAsia is entitled to claim an income tax exemption in the form of an investment allowance of 60% on qualifying capital expenditure (capex) incurred within the period, which can be set off against 70% of statutory income for each year of assessment.

Paramount Corp Bhd, via its subsidiary Omni Assets Sdn Bhd (OASB), has entered into a sale and purchase agreement with Cyberview Sdn Bhd and Setia Haruman Sdn Bhd for the purchase of a 50.01-acre parcel of land in Cyberjaya for RM78.42 million cash.

Paramount said the purchase would be funded via its internal funds and bank borrowings. The freehold land within the Cyberjaya flagship zone is currently a vacant site, and is designated for residential use.

Oriental Food Industries Holdings Bhd has adopted a dividend policy of paying at least 35% of net profits to shareholders, starting from the financial year ending March 31, 2011 (FY11).

The manufacturer and exporter of snack food and confectionery has proposed final dividends comprising two sen per share tax-exempt and two sen per share franked-dividend less tax for FY10. It had earlier declared three interim tax-exempt dividends totalling six sen per share for FY10.

Oriental Food said the total dividend payout for the year amounted to RM5.7 million, representing about 46% of the group's unaudited net profit of RM12.4 million.

PLUS Expressways Bhd group registered higher traffic volume in April, with the Linkedua Expressway (Malaysia-Singapore Second Crossing) and Elite Expressway (North-South Expressway Central Link) recording the most growth.

PLUS said Linkedua Expressway's passenger car units (PCU) totalled 1.76 million, representing a 22.8% increase from a year earlier. Year-to-date, the Malaysia-Singapore Second Crossing's PCU amounted to 6.74 million, growing by 22.5% year-on-year.

AIG says will stick to original deal with Prudential

HONG KONG: American International Group (AIG) said it would not consider revising the terms of a deal for its Asian life insurance unit with British insurer Prudential Plc, in a move that threatens to derail the industry's largest ever transaction.

Separately, Prudential said in a statement it had offered to cut the deal's value to US$30.38 billion ' offering US$23 billion in cash and about 2.16 billion new Prudential shares.

It noted AIG's announcement and said it was considering its position.

Prudential and American International Group Inc reopened negotiations last week to salvage the deal for Hong Kong-based AIA after many shareholders said Prudential was overpaying in its move to become Asia's dominant insurer.

Prudential was seeking US$21 billion from investors to partly fund the transaction, the biggest-ever rights offer by a British company. Shareholders are due to vote on the deal on June 7.

A collapse of the deal would be a blow to AIG boss Robert Benmosche, who wants to repay part of the US$132 billion bailout the US insurer received in 2008 to stay in business.

It would also put Prudential CEO Tidjane Thiam in a tough position as he had championed the AIA deal, the insurance sector's biggest-ever takeover, arguing it gave the 162-year-old British insurer a rare opportunity for a commanding presence in fast-growth Asia.

"It's going to be hard for Prudential to gather support for the vote they need, after having gone out saying they are renegotiating and failed to do so," said one source familiar with the transaction. ' Reuters

World markets start off June in the red

KUALA LUMPUR: Asian, European and US markets started off June in the red with investors cashing out as a slowdown in Asian manufacturing added to doubts about the pace of an economic recovery.

Analysts painted a gloomy outlook on the horizon for global markets, cautioning investors not to be lulled into a false sense of complacency as the massive European debt problems still persist.

However, secretary-general of the Organisation for Economic Cooperation and Development (OECD) Angel Gurria gave an assurance the world should not slip into double-dip recession despite austerity measures in some major economies.

Hong Kong's Hang Seng Index fell 1.36% to 19,496.95, Taiwan's Taiex Index lost 1.15% to 7,289.33, the Shanghai Composite Index declined 0.92% to 2,568.28, the South Korean Kospi shed 0.66% to 1,630.4 while Singapore's Straits Times Index fell 1.35% to 2,715.44.

European markets were also in the red, falling between 2.5% and 3.5% while US stocks opened weaker. The Dow Jones Industrial Average dropped 0.73% to 10,062.72. The Standard & Poor's 500 Index fell 0.83% to 1,080.35. The Nasdaq Composite Index declined 0.68% to 2,241.77

At Bursa Malaysia, the FBM KLCI clawed back late in the afternoon session to limit its loss to just 2.04 points or 0.16% lower at 1,282.97. It had earlier fallen as much as 10.45 points to an intra-day low of 1,274.56.

Volume was 653.23 million shares valued at RM758.3 million. Losers led gainers by 487 to 200, while 214 counters traded unchanged.

Year to date (YTD), most key Asian markets have suffered losses, with the Shanghai Composite Index down 21.63%, the Taiex 10.98%, the Hang Seng 10.86%, the Nikkei 225 7.91%, the Kospi 3.11%, and the STI 6.29%. The FBM KLCI stayed in the black and was up 0.8% YTD.

A survey showed manufacturing activity in the eurozone expanded in May at a considerably more sluggish pace than in April, while separate data showed the pace of China's factory output eased last month.

The dismal outlook was offset by the latest data from the US. The country's CONSTRUCTION [] spending rose unexpectedly in April, recording its largest monthly increase in nearly 10 years.

The US manufacturing sector expanded in May for a 10th straight month but at a slower pace than in April while employment rose slightly to its best level in six years, according to Reuters.

MIDF Research head Zulkifli Hamzah said that in a weak market environment, it was always hard for the Malaysian market to decouple from its regional counterparts.

He said comments by Nouriel Roubini, the New York University professor who predicted the global financial crisis, placed the Asian markets in perspective.

'Roubini said that the Brazilian, Chinese and Indian economies may be overheating and developing asset bubbles. In this regard, there are signs that the property bubble in China is bursting given that Chinese property stocks declined today,' he said.

The Shanghai Securities News reported that real estate closings in Beijing, Shanghai and Shenzhen in May plunged as contract numbers dropped by as much as 70% from April.

'As of close today at 1,283 points, the KLCI had rebounded 3.1% from a recent intra-day low of 1,244. It is a good excuse for investors to take profit and wait for the market to bottom out.

'After all, the market is heading into the World Cup month, during which trading volume had historically shrunk by as much as 50%,' said Zulkifli.

Meanwhile, Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi said the European sovereign debt problems had not gone away, and that short-term market liquidity had returned to buy up oversold stocks that have plunged over the last fortnight.

'Maintain a wary eye over Europe, and clients should protect their positions with a relevant stop-loss (in case of any further blow ups in Europe that will affect Asia-Pacific markets including Malaysia),' said Lee in a note to clients on TUesday, June 1.

At Bursa Malaysia on Tuesday, among the major losers were Tanjong plc that fell 66 sen to RM17.34, HONG LEONG BANK BHD [] down 15 sen to RM8.40, MISC BHD [] down eight sen to RM8.35 and TENAGA NASIONAL BHD [] down five sen to RM8.30.

Meanwhile, SIME DARBY BHD [], Axiata Group Bhd and TELEKOM MALAYSIA BHD [] lost three sen each to RM7.72, RM3.74 and RM3.32, respectively.

RAM Ratings reaffirms Aeon Credit?s RM400m debt notes

KUALA LUMPUR: RAM Rating Services Bhd has reaffirmed the enhanced long-term rating of AA1(bg) for AEON CREDIT SERVICE (M) BHD []'s RM400 million debt notes with a stable outlook.

It said on Wednesday, June 2 the enhanced long-term rating of the company's conventional and Islamic commercial papers/medium-term notes (CP/MTN) programme, reflects the strength of the unconditional and irrevocable guarantee extended by three banks.

The banks are Bank of Tokyo Mitsubishi UFJ Ltd, Mizuho Corporate Bank Ltd, and MALAYAN BANKING BHD [], based on the weakest-link approach. At the same time, the short-term rating of the conventional and Islamic CP/MTN programme was also reaffirmed at P1.

RAM Ratings said Aeon Credit provides easy-payment schemes and personal financing as well as the issuance of credit cards. It is one of the largest non-bank players in the Malaysian consumer-financing industry; it is estimated to capture the biggest share of the domestic motorcycle-financing market.

Meanwhile, Aeon Credit Service Co Ltd of Japan - through its 56.7%-interest in AEON Credit - continues to play a crucial role in the Company's business direction and strategies.

"Aeon Credit's lending exposure to the low-to-medium-income segment, although through a vast base of customers with small loan amounts, exposes the company to relatively higher credit risk," it said.

This was based on the comparison with commercial banks as the debt-servicing capabilities of the individuals were often more susceptible to adverse changes in economic conditions.

Amid the recent recession, the ratios of both the company's newly classified non-performing loans (NPLs) and loan-loss expenses against its average gross loans inched up to 5.4% as at end-FY Feb 2010 (end-FY Feb 2009: 4.1% and 4.3%).

"That said, Aeon Credit's lucrative net interest margin of 18.7% in FY Feb 2010 provides a strong buffer to absorb credit costs (FY Feb 2009: 19.6%). Overall, the Company's asset quality is still deemed healthy, albeit slightly weaker in FY Feb 2010. Going forward, Aeon Credit's rate of NPL formation is anticipated to moderate as the economic recovery gains traction," it said.

FBM KLCI remains in the red at mid-morning

KUALA LUMPUR: The FBM KLCI stayed in negative territory at mid-morning Wednesday, June 2, dragged by losses at key blue chips including Maybank, Tanjong and DiGi.

At 10am, the index lost 3.39 points to 1,279.58, with 102.98 million shares traded. Losers led gainers by 133 to 109, while 138 counters traded unchanged.

The decline at Bursa Malaysia was in line with the overall cautious stance of investors across Asia following the weaker closing on Tuesday at Wall Street.

It also coincided with Maybank Investment Bank Bhd trimming its 2010 year-end target for FBM KLCI from 1,410 to 2.5% to 1,375 or 2.5% lower, representing 16 times 2010 earnings.

In a note Wednesday, Maybank IB said the 1Q 2010 earnings season revealed a deceleration in earnings growth and fewer earnings surprises.

Consumer and auto earnings were unusually strong, it said.

"We have revised index earnings growth up 1.9 percentage points, up to 18.2% in 2010, and 11.8% in 2011.

At Bursa Malaysia, among the major losers were Tanjong Plc and KFCH that fell 14 sen each to RM8.30 and RM17.20, while Maybank, DiGi and Dutch Lady lost 10 sen each to RM7.28, RM22.80 and RM12.10.

Other losers included Jetson, Allianz, Supermax and Sindora.

The gainers included AV Ventures that rose 21 sen to RM1.01, AIC Corp up 12 sen to 77 sen, Box-Pak up 11 sen to RM1.38, and Tradewinds up six sen to RM3.02.

Meanwhile, Mudajaya, Guan Chong and KPS gained five sen each to RM5, 77 sen and RM1.27, while Top Glove Corp added four sen to RM12.20.

Trouble-laden Kenmark continued to be the most actively traded counter with 35.97 million shares done. The stock gained half a sen to 6.5 sen.

Other actives included Tejari, PM Industries, Zelan, Maxis and Talam.

Two Merrill Lynch units fined HK$3.5m

HONG KONG: The Securities and Futures Commission has fined two units of US investment bank Merrill Lynch HK$3.5 million (RM1.47 million) after an executive's cover-up of losses in a trading account went undetected for nearly a year.

The watchdog said Merrill Lynch did not have adequate internal controls to manage its trading records, while the senior management of the two units ' Merrill Lynch (Asia-Pacific) and Merrill Lynch Futures (Hong Kong) ' failed to adequately manage the risks.

The SFC and Merrill Lynch on Monday, May 31 refused to comment on whether the managing director, who was not identified, received any penalty.

An SFC probe found that from December 2007 to October 2008, the managing director had mismarked a trading book in exotics options by manipulating valuation input. The managing director also accessed the computer system without authority to alter pricing on various occasions.

These activities inflated the value of the option trading by US$25 million, which resulted in the actual trading loss not being reported internally. The firm's other trading books did not have a problem, it said.

"Licensed corporations must have effective procedures in place to manage risks of trading books," said Mark Steward, the SFC's executive director of enforcement. "For books that deal in illiquid assets which have low price transparency, more robust measures must be in place. The proper implementation of an effective risk management framework could have enabled Merrill Lynch to detect the mismarking earlier."

In the SFC statement, Merrill Lynch accepted that its systems and controls fell short of expectations and said it had taken remedial steps to address the compliance weaknesses.

The SFC accepted that Merrill Lynch's misconduct was not intentional and the firm co-operated. A number of brokerage firms have been fined. In March, Tsun Chi Yuen Securities was fined HK$2 million for breaching the commission's code of conduct. A month earlier, it fined Fukoku Investment (Asia) HK$2 million for failing to detect and stop an unlicensed firm from carrying out an alleged "boiler room" scam.

The biggest SFC fine was HK$38 million in June 2008 imposed on ICEA Securities and ICEA Capital for internal controls and compliance systems problems. In 2005, ICEA had paid HK$30 million to the SFC as settlement in exchange for not admitting wrongdoing over its sponsorship of Euro-Asia Agricultural (Holdings) in 2001. ' South China Morning Post

OSK Research lowers target price for Wah Seong to RM2.85

KUALA LUMPUR: OSK Research has maintained its buy call on Wah Seong Corp at RM2.21 but lowered its target price to RM2.85 (from RM3.35).

It said Wah Seong's 1QFY10 results were below expectations, mainly due to the lower revenue generated in the engineering, renewable energy and E&P services divisions, although this was offset by higher revenue from the pipe coating, pipe manufacturing and trading divisions.

"Hence, we are downgrading our FY10-11 earnings by 19%-26%.

"We believe that the stock's potential upside lies with the management's review of a new three- to five-year strategy going forward since the JV with Socotherm is no longer in its plans," it said.

Dubai Holding unit posts US$6.2b loss in new hit

DUBAI: Dubai Holding Commercial Operations Group (DHCOG) posted a US$6.2 billion loss for 2009 on Tuesday, June 1 due to Dubai's property crash and said it had access to emergency funding if needed, in the latest setback to the emirate's finances.

DHCOG said it was in talks with banks to roll over debt, was considering asset sales and was renegotiating balances owed to trade creditors after the crash put its cash flow under severe pressure.

DHCOG is a unit of Dubai Holding, the conglomerate owned by the emirate's ruler that belongs to the matrix of firms commonly known as Dubai Inc, which was badly battered by the financial crisis and remains in negotiations with creditors.

Concerns about the overall debt burden of Dubai's state-linked companies mounted after Dubai announced a standstill on repaying US$26 billion in debt as it restructured conglomerate Dubai World. It unveiled a US$9.5 billion rescue plan for the firm in March.

DHCOG had originally delayed reporting its full-year earnings twice, saying in a statement to Nasdaq Dubai in April that the delay was due to complexities in consolidating results of its units.

The company said it restructured its real estate businesses in 2009 and that there was no need to restructure outstanding debt as talks continued with banks to roll over existing facilities. The postponement in reporting earnings had sparked speculation that Dubai Holding could be the latest government-related entity hit by the financial crisis that severely damaged Dubai's property market.

Dubai Holding owns a substantial portfolio of brands, locally and internationally, in the property and hospitality sectors, organised under three major groupings: DHCOG, Dubai International Capital (DIC) and Dubai Group.

DHCOG said in addition that it faced a damage claim of 2.1 billion dirhams from a customer that was pending arbitration.

DIC, the investment arm of Dubai Holding, requested on Thursday a three-month extension on a US$1.25 billion syndicated loan repayment, fueling concerns of more debt troubles to come at Dubai Inc. ' Reuters

SC amends unit trust fund guidelines

KUALA LUMPUR: Investors holding foreign currencies can now invest directly into a class of unit trust funds denominated in that foreign currency as opposed to converting their investment sum into ringgit, the Securities Commission (SC) said on Tuesday, June 1.

This was among some of the changes that the regulator had put into immediate effect following amendments to the Guidelines on Unit Trust Funds (GUTF).

In a statement, the SC said the amendments facilitated a multi-class structure for unit trust funds that would give investors greater flexibility and further promote cross-border offerings of Malaysian unit trusts.

Following the amendments, a single unit trust fund can now offer multiple classes of units over a single investment pool.

Each of these classes of units will have different features, such as the fees and charges imposed and the currency in which it is denominated. Therefore, investors will be able to select the class that matches their preference and investment objective.

"For example, investors may have the choice of paying an upfront fee with lower annual fees or higher annual management fees in lieu of an upfront fee. This enables better matching of the investment preferences for different investor groups," the SC said.

It said the amendments were also envisaged to facilitate the growth of cross-border offerings of Malaysian unit trust funds under the Mutual Recognition Agreements (MRAs) which the SC had signed with the Dubai International Financial Centre and Hong Kong.

More information on the amendments are available on the SC's website.

Kenmark falls on resuming trade

KUALA LUMPUR: Kenmark Industrial Co (M) Bhd's shares were the most active in early trade on Tuesday, June 1 when the stock resumed trade after being suspended Monday.

At 9.20am, some 60.6 million shares were traded. The counter fell five sen to 5.5 sen.

Kenmark's share price tumbled on Monday after top officials of the company went missing, leaving suppliers and at least two local financial institutions that had extended loans amounting to at least RM72 million high and dry.

Kenmark's independent directors Zainab Abu Bakar and Yeunh Wee Tiong on Monday informed Bursa Securities managing director James Hwang and deputy general manager Goh Kim Chon have resigned from the company.

The independent directors said they had on Saturday gone to the company's premises at Port Klang and noted that the premises have been sealed.

"The independent directors then met up with the former executives to seek clarification and was duly notified that the MD has not been contactable since May 25.

On May 26, certain suppliers had gone into the company's premises to recover their stock and raw material, the independent directors said.

The former executives also informed EON Bank Bhd has been duly notified of the situation and EON Bank on May 27 placed their security guard at the premises and EON Bank would appoint a receiver over the assets of the company.

The independent directors said they will make an appointment to meet with Bursa Securities on Monday on the matter as they were willing to co-operate with all parties concerned.

Khind to acquire land for RM7.84m for commercial development

KUALA LUMPUR: KHIND HOLDINGS BHD [] has proposed to acquire a parcel of freehold land measuring 65,340 sq ft in Setia City, Precint 1, a commercial development in Shah Alam, from S P Setia Bhd's unit Bandar Setia Alam Sdn Bhd for a total of RM7.84 million or RM120 per sq ft.

Khind said the land would be developed for a commercial office building, for the company's own use as well as for letting out, allowing it to tap into recurrent rental income as a source of revenue.

"The company may also enjoy future potential capital appreciation in view that the property market will continue to grow in tandem with improving economic climate in Malaysia as well as regionally," it said in a statement on Tuesday, June 1.

The company expects to fund half of the land purchase via bank borrowings and the other half from internal funds. Its gearing level will increase to between 0.35 and 0.4 time from 0.05 times based on Khind's audited accounts as at Dec 31, 2009.

HSBC Amanah: Asian sukuk sales seen strong in 2010

KUALA LUMPUR: Sukuk issuers in Asia are likely to sell at least 10%-20% more of Islamic paper this year with the European debt crisis seen having limited impact on Asia's growth prospects, HSBC Amanah said on Tuesday, June 1.

Malaysia and Indonesia would probably remain the region's main sukuk issuers although centres such as Hong Kong, Japan, Singapore and South Korea would emerge as issuers over time, said Mukhtar Hussain, HSBC Amanah's global chief executive.

"In Asia we have positive economic growth, we have relatively high savings rates, we have liquid markets," Hussain said in an interview.

The US$1 trillion (RM3.3 trillion) Islamic finance industry is looking to Asia to shore up the sukuk market as Gulf issuers ' the other bastion of Islamic bond sales ' struggle to recover from the impact of Dubai's debt crisis.

Global sukuk sales totalled US$23.3 billion last year, off the record US$34.3 billion logged in 2007, according to Standard & Poor's.

Malaysia, Pakistan and Indonesia together accounted for just over half of total global sukuk issuance last year, according to Thomson-Reuters data.

A Reuters poll of Islamic finance practitioners in April predicted that sukuk issuance would range between US$26 billion-US$28 billion or top US$28 billion this year.

Asia's booming economies, such as China and India, are seen as engines of growth although the World Bank warned on Monday developing countries would suffer if Europe's governments fail to deal with their debt problems.

Mukhtar, who is also chief executive of HSBC Bank Malaysia, said the bank would retain a growth path for the rest of the financial year after posting a 20% rise in net profit in the first quarter.

"We hope that in 2010, we'll achieve a positive outturn following what was a challenging 2009 for HSBC," he said.

The lender plans to open two new conventional banking branches in Malaysia this year, Mukhtar said. He declined to give an investment figure. ' Reuters

KEURO reduces stake in Talam

KUALA LUMPUR: KUMPULAN EUROPLUS BHD [] (KEURO) has sold more shares in TALAM CORPORATION BHD [], with the latest disposal of 28.2 million units representing a 1.04% stake in the latter at 13.5 sen per share for net proceeds of RM3.8 million.

In a statement on Tuesday, June 1, KEURO said the shares were sold through Bursa Malaysia Securities Bhd giving rise to a net profit of RM2.11 million or 0.45 sen per share.

Its net assets will also increase by 0.45 sen to 18.9 sen per share.

KEURO said the effect of the disposal was to reduce its gearing ratio from 2.95 times to 2.83 times. It said the book cost of the shares was RM1.69 million.

It said the shares arose from conversion of redeemable convertible secured loan stock-D on May 31, 2010 subsequent to the acquisition of the RCSLS-D on May 20, 2010.

KEURO said 60% of the sale proceeds would be used to repay lenders and creditors, while the balance would be used to pay for Talam financial instruments acquired from a third party approved by KEURO's shareholders at an EGM held in November 2009.

All the payments will be made by June 5.

AirAsia gets 5 year extension of investment incentive

KUALA LUMPUR: AIRASIA BHD [] has received an extension of the investment allowance incentive for another five years to June 30, 2014. The extension is backdated from July 1, 2009.

With the extension, AirAsia is entitled to claim an income tax exemption in the form of an investment allowance of 60% on qualifying capital expenditure (capex) incurred within the period, which can be set off against 70% of statutory income for each year of assessment.

The approval is subject to the conditions that'' the qualifying capex incurred follows guidelines as prescribed by the Perintah Cukai Pendapatan (Pengecualian) (No 12) 2006 and shall exclude any aircraft not based in Malaysia.

Yen falls as Japan PM quits; euro weak on Noyer remarks

LONDON: The yen fell on Wednesday, June 2 after the resignation of Japanese Prime Minister Yukio Hatoyama, while the euro was weak after European Central Bank board member Christian Noyer said the currency was not "unusually" low.

The yen hit a two-week low against the dollar after Hatoyama and his powerful No 2 resigned to try and boost the ruling party's faltering fortunes in an election next month. His likely successor, Finance Minister Naoto Kan, is seen taking a tougher stance in fighting yen strength.

The euro meanwhile hovered close to a four-year low versus the dollar after Noyer told a German business daily that the single currency's exchange rate against the dollar was at around a 10-year average, which is "by no means an unusually low level".

The euro clawed back some losses, however, after government sources in Brazil, India, Japan and South Korea said they would not stop investing in the weakening currency.

Traders also said investors were wary of renewing short euro positions after taking a hit from the currency's sharp upswing on Tuesday following its slide to a four-year low of $1.2110 on trading platform EBS, though sentiment was still negative.

"The big theme is still one of a weak and vulnerable euro. Very few investors are ready to put on long euro/dollar positions, and any spikes are due to profit taking on short positions," said Niels Christensen, currency strategist at Nordea in Copenhagen.

"The political situation in Japan could give a reason for brief yen selling, but it is likely to be limited because risk aversion is still very much on the table," he added.

At 0807 GMT, the euro was steady against the dollar at $1.2224, looking increasingly vulnerable to another sell-off against the dollar on mounting concern that the euro zone's debt crisis is spreading to its banking system.

Against the yen the euro gained 0.7% to ''112.10, while the dollar rose 0.7% to ''91.61.

"The market may become cautious over the possibility of government moves to restrain yen strength because Kan has shown his preference for a weaker yen," said Masafumi Yamamoto, chief FX strategist in Japan at Barclays Capital.

"But given no signs that business leaders have complained to the current government about a higher yen, the chance of Japanese currency intervention remains very low," Yamamoto said.

Sterling gains
Sterling outperformed, hitting an 18-month high versus the euro, after British insurer Prudential said it was withdrawing from a $35.5 billion deal to buy American International Group Inc's Asian life insurance business.

Traders said Prudential had put in place a series of currency hedges, selling sterling against the dollar, when the initial bid was announced in March and these positions would need to be unwound.

Against the dollar, sterling gained 0.7% to $1.4746.

The US dollar rose 0.1% against a basket of currencies to 86.744, hovering not far below a 15-month high as market players looked ahead to key US jobs data on Friday expected to give more evidence of a strengthening economy. ' Reuters

3i eyes new Asia investment from growth fund

SINGAPORE: 3i Group plans to invest almost a third of of its '1.2 billion (US$1.5 billion) growth capital fund in Asia and North America, targeting stakes in Asian companies in consumer, oil & gas and healthcare.

Mark Thornton, a partner and Southeast Asia head of the UK-listed private equity firm, told Reuters on Wednesday, June 2 he saw increasing opportunities in Asia as the financial crisis had made businessmen more inclined to sell part of their companies.

"3i is sensing here that there's a changing attitude. There's more aversion to taking on debt, there is a recognition that actually to sell part of the company and put the money in the bank for a rainy day is a good thing to do," he said.

"The entrepreneurs are also recognising that the world is a lot of more complex and is less predictable."

Looking to capitalise on companies seeking investments from minority investors, 3i closed its growth capital fund in March, raising about '400 million from external investors and contributing some '800 million from its own balance sheet.

Thornton, who said 3i typically considers 100 companies before investing in one, said the timing was good for the growth capital fund, given volatile markets.

The fund requires partners to invest 1% of their own money into each deal, Thornton said, adding investments made in the companies will be for a period of four to five years.

It hopes to make two to three times the money invested in the companies over that period, he said.

3i manages ''9.63 billion (US$14.10 billion) worth of assets globally, including external funds.

Southeast Asia
Thornton, who joined 3i's Asia-Pacific business in 2000 after spending five years with the group in the UK, said the company is looking at three to four interesting opportunities in Southeast Asia and could invest anywhere from $30 million-$100 million each in at least one or two companies this year.

3i is seriously looking at Indonesia, with consumer, consumer finance, healthcare and oil & gas being the key sectors.

Thornton, who is a chartered accountant, said the company is looking to list oil services firm Franklin Offshore, in which it has an about 30% stake, but is not in a rush to do an IPO due to volatile markets.

"We will wait until the timing is right. It could be next year, it could be in three years," he said.

Last year, sources had told Reuters that 3i was looking to sell its stake in Franklin Offshore, but shelved its plan. JPMorgan was advising on the deal.

The need to raise cash had been reduced after it raised ''732 million in a heavily-discounted rights issue.

Thornton said larger institutional investors in the private equity business were likely to outperform smaller players going forward.

"The world is more complex and the more sophisticated investors who have more resources, a bigger network and more sector experience are likely to differentiate themselves from the smaller, less experienced generalist investors."

He said it will prove challenging for the industry as a whole to make positive returns on many of the investments that were made in 2007 and 2008 pre-crisis or at the peak.

"Therefore you will see a shakeout in the industry over the next two to three years. The funds that can make positive returns will differentiate themselves." ' Reuters

Loh & Loh expects to secure 20% to 25% of RM2b govt projects

KUALA LUMPUR: Loh & Loh Corporation Bhd expects to secure 20% to 25% of the government projects it has tendered for and most of which are water-related projects.

Its chief executive officer Jason Loh said on Wednesday, June 2 the RM2 billion of jobs consists mainly of water projects in Malaysia, some of which were carried over from last year.

Loh & Loh is among the companies prequalified by the government to build the light railway transit railway extension lines in the Klang Valley.

The conmpany, which made its foray recently into property development, will launch two more gated high-end projects in the Klang Valley and expects revenue contributions from property development to "solidify" this year.

"We expect property contributions to revenue to rise to about 30% of revenue this year from 20%-25% presently," Loh said after the AGM.

China iPhone plant workers to get 30% raise

TAIPEI: Production line workers at iPhone maker Foxconn's southern China manufacturing hub will get a 30% pay rise, after a string of deaths at the site focused attention on working conditions in a region experiencing growing labour unrest.

Taiwan's Hon Hai Precision Industry, owner of Foxconn, said on Wednesday, June 2 that the cash component of wages would rise by 30% effective immediately, more than the 20% rise the company had talked about late last month.

It said the higher increase reflected rising prices in China, and it hoped to earn workers' respect and raise efficiency.

The rise came as Japan's Honda Motor offered a 24% wage hike to end a sometimes violent strike at a car parts plant in a region dubbed the world's workshop.

"(Foxconn) has to do this as a more aggressive measure to prevent the company's reputation from being hurt more. But it's unlikely the whole thing will calm down because of the raise," said Sean Chen, who manages T$16 billion (US$500 million) for Cathay Securities Investment Trust in Taipei.

"The move will sure put increasing pressure on other manufacturers in southern China. Keep in mind, though, it's been China's policy to improve wages for its workers. It's just the Foxconn incident that might have accelerated that."

Hon Hai's shares fell as much as 2% in a broader market down 0.5%, while Foxconn shares shed 1.4% in Hong Kong.

A total of 10 workers have died at the company's base in southern China this year, all apparently suicides. The deaths have triggered investigations by Apple and other big clients, including Dell Inc.

Apple CEO Steve Jobs, in his first public comment on the events, said on Tuesday that the deaths were "troubling", but the factory "is not sweatshop".

"It's a difficult situation," Jobs said at the D8 annual gathering of top TECHNOLOGY [] executives. "We're trying to understand right now, before we go in and say we know the solution."

Reasons for the apparent suicides are not totally clear, and analysts said wages may not be a major factor, if a factor at all.

However, demands for higher pay among workers in south China are likely to increase as a labour shortage in the region increases and gives workers more leverage.

"In Shenzhen, where the Foxconn factory is located, I think a basic wage of 2,000 yuan a month is absolutely necessary. That's double what it is at the moment," Geoffrey Crothall of the China Labour Bulletin told Reuters Insider in an interview.

But many companies would be able to absorb the costs given their materials and shipping costs are dropping.

"Companies are largely going to absorb these costs and try to recoup them with higher export volume," said Glenn Maguire, Asia chief economist at Societe Generale.

Analysts also noted that business models may change as the era of cheap south China labour comes to an end.

In a research note, JP Morgan said a 30% wage rise could cut Hon Hai's 2010 net profit by 10%, but there would be less impact in 2011. It believes the company will step up efforts to convince customers to move to less costly inland areas of China and may seek price rises. ' Reuters

Asian markets dip at midday

KUALA LUMPUR: Asian markets, including FBM KLCI extended their losses at midday Wednesday, June 2 given the general weak investor sentiment amidst lingering uncertainties in the global economic outlook.

At the regional markets, Japan's Nikkei 225 slipped 1.4% to 9,575.89 at noon as the yen's retreat slowed in the wake of Prime Minister Yukio Hatoyama's resignation.

Elsewhere, the Shanghai Composite Index fell 1.6% to 2,527.27, Taiwan's TAIEX Index lost 1.59% to 7,173.54, Hong Kong's Hang Seng Index declined 0.45% to 19,409.88 while the Singapore Straits Times Index added 0.39% to 2,725.98.

The FBM KLCI slipped 0.25% or 3.25 points to 1,279.72 at noon, dragged by losses including at Maybank, IOI Corp, DiGi and MISC.

Volume was 267.1 million shares valued at RM246.23 million. Losers led gainers by 265 to 191, while 231 counters traded unchanged.

Crude palm oil futures for the third month delivery rose RM16 per tonne to RM2,448 while crude oil fell 50 cents per barrel to US$72.08.

Gold declined 20 cents per ounce to US$1,225.45.

Earlier, Maybank Investment Bank Bhd said it was trimming its 2010 year-end target for FBM KLCI from 1,410 to 2.5% to 1,375 or 2.5% lower, representing 16 times 2010 earnings.

In a note Wednesday, Maybank IB said the 1Q 2010 earnings season revealed a deceleration in earnings growth and fewer earnings surprises.

Consumer and auto earnings were unusually strong, it said.

"We have revised index earnings growth up 1.9 percentage points, up to 18.2% in 2010, and 11.8% in 2011.

At Bursa Malaysia, among the top losers at midday was Maybank that fell 11 sen to RM7.27, IOI Corp lost five sen to RM4.90, MISC and YTL Corp fell three sen each to RM8.32 and RM7.34, respectively, while DiGi fell 10 sen to RM22.80.

Genting Malaysia fell two sen to RM2.78, while Genting and Axiata lost one sen each to RM6.75 and RM3.73, respectively.

Other losers included Kossan, Dutch Lady, Panasonic and PacificMas.'' ''

AV Ventures was the top gainer at noon and added 21 sen to RM1.01; NSTP gained 10 sen to RM2.50, Degem up eight sen to RM1.03 while AIC Corp and Tan Chong advanced seven sen each to 72 sen and RM4.11.

Other gainers included Ajiya, Parkson and Euro Holdings.

Kenmark was the most actively traded stock with 66.8 million shares done. The stock added half a sen to 6.5 sen. Other actives included CIMB, AirAsia and KNM.

PM: No decision yet on subsidies

KUALA LUMPUR: The government has not made a final decision yet whether to reduce or scrap subsidies, said Datuk
Seri Najib Razak.

The Prime Minister said the government was still carefully studying what should be done with regard to subsidies.

"As stated before, we are visualising the impact (on the country's future) if we don't do anything about it," he said when asked by reporters whether the government planned to cut incentives for small and medium-scale enterprises (SMEs), besides reducing or abolishing subsidies for a number of commodities.

He replied that the incentives for SMEs would continue. "SMEs and subsidies are separated issues. Don't mix the two."

Earlier, the prime minister visited 'SMIDEX 2010-SME Innovation Showcase', here.

To another question, Najib said the Tenth Malaysia Plan (10MP), to be tabled soon, would contain elements based on the New Economic Model (NEM).
On some non-governmental organisations' objection to the NEM, he said: "They have their opinions on it. But let me make my speech first (on the 10MP)." - Bernama

Pos falls on net profit decline

KUALA LUMPUR: POS MALAYSIA BHD []'s share price declined on Tuesday, June 1 after the national courier's net profit plunged to RM1.63 million in its first quarter from RM22.84 million a year earlier.

The decline in net profit was due to the adoption of FRS139 and specifically, the stating of the fair value of its investment in Transmile Group.

At 9.48am, its share price fell four sen to RM2.63 with 27,400 shares traded.

Maybank IB cuts FBM KLCI year-end target to 1,375

KUALA LUMPUR: Maybank Investment Bank Bhd on Wednesday, June 2 trimmed its 2010 year-end target for FBM KLCI from 1,410 to 2.5% to 1,375 or 2.5% lower, representing 16 times 2010 earnings.

In a note Wednesday, Maybank IB said the 1Q 2010 earnings season revealed a deceleration in earnings growth and fewer earnings surprises.

Consumer and auto earnings were unusually strong, it said.

"We have revised index earnings growth up 1.9 percentage points, up to 18.2% in 2010, and 11.8% in 2011.

"FRS 139 has had little impact on earnings or valuation. We are trimming our 2010 year-end target to 1,375 (-2.5%), representing 16 times 2010 earnings," it said.

Maybank IB said selected sectors and stocks remain excellent value, and that one of the themes that had yet to be priced in is one of growth in consumer spending.

"We are more positive on consumer names such as F&N, Carlsberg, KFC Holdings, Genting, Media Prima, Proton and QL Resources. Other top picks are in CONSTRUCTION [] (WCT, Hock Seng Lee), oil & gas (SapuraCrest, MISC), RHB Capital and Hartalega.

"We believe many recovery themes have run their course and in a non-conducive global environment, the market will attempt but fail to regain its upward trend. Equity returns would then be more a function of stock-picking than sector preference/allocation," it said.

Khazanah heads overseas with Parkway

KUALA LUMPUR/SINGAPORE: Malaysian state fund Khazanah's US$835 million bid for Parkway may signal the start of more focused, major acquisitions abroad to help Malaysia Inc venture beyond its cosy home market.

Khazanah's biggest foreign acquisition aims to double its stake in Parkway Holdings, Asia's biggest listed hospitals operator which owns Mount Elizabeth and Gleneagles hospital in Singapore, and manages chains in India and China.

The move, which caught potential suitor India's Fortis Healthcare and the market by surprise, has drawn attention to the strategy of Khazanah, whose US$28 billion assets are mostly concentrated in Southeast Asian financials, healthcare and telecoms.

"It's consistent with their (Khazanah's) strategic thrust to be in healthcare," said Michael Lai, associate director of investment at Fortress Capital Asset Management.

He said Khazanah's move gave it first mover advantage over Fortis.

"Healthcare assets are quite lucrative in this part of the world. I think it is a bit of a strategy whereby if someone wants to buy over my assets and I don't want to sell, I might as well offer first," said Lai, who helps to manage about RM200 million at Fortress.

The Malaysian fund's mandate is to make strategic investments on behalf of Southeast Asia's third-biggest economy, and also oversee a programme to transform state-owned companies beset by inefficiencies into global players.

Khazanah has been less aggressive than Singapore state funds GIC and Temasek, which hold assets totalling over US$400 billion and have invested in Western banks and real estate.

The Parkway bid has put some investment banks, hungry for more deals from the Malaysian government, in a bind and could make them less keen to pitch for a mandate from Fortis.

"Anyone who has a franchise here would find it very hard to challenge the Malaysian government," said a Singapore-based banker, who asked not to be named.

Khazanah's move comes as the Malaysian government, in a bid to revive the country's stock market, pledged to lure foreign portfolio funds back by increasing the market's free-float.

The fund was told to progressively divest its non-core assets and last year, made a total of eight divestments worth RM3.1 billion. It has said the asset sale programme will continue this year.

Warchest may grow
Khazanah is not bulging with cash unlike the deep pocketed Government of Singapore Investment Corp (GIC) with its US$300 billion in assets or multi-billion-dollar Chinese and Middle Eastern funds.

It does not receive a constant supply of surplus cash from the Malaysian government, itself struggling to cope with persistent fiscal deficits. Instead, it relies on dividend income and gains from stake sales, mirroring Singapore's Temasek.

But with the Malaysian government looking to cut Khazanah's stakes in state-owned firms as part of broad economic reforms, the fund may have a bigger warchest to do more deals. The fund does not disclose details of its cash holdings.

Deutsche Bank estimates Khazanah's exposure in the market as of late last year represented 8% of MSCI Malaysia component stocks.

These are meaningful in large-cap companies such as a 28% stake in top Malaysian dealmaker CIMB, state utility Tenaga and a 45% stake in mobile phone operator Axiata.

"They still have a big balance sheet. If they think something is strategic like healthcare, they will look at it," said a banker, who has covered the fund.

"Their main focus is Malaysia and Southeast Asia, but they do look at stuff in China, India and the Middle East."

Bankers said Khazanah may also look at telecom and banks, but are likely to back Axiata or CIMB for such ventures.

Khazanah is led by Azman Mokhtar, who was appointed as managing director in 2004 by former Malaysian Prime Minister Abdullah Ahmad Badawi.

Azman, a former British Chevening scholar and ex-head of research at the Malaysian operations of UBS and Salomon Smith Barney, is aided by seven executive directors of investment, most of them with a banking background.

Khazanah's investments have been restricted to Asia. It wasn't one of the sovereign wealth funds that invested in struggling US banks during the credit crunch in 2008 like Temasek which is becoming more of an investment company.

"Khazanah is moving more of their investments outside of Malaysia. But their strategic role is still very much in place ' to develop Malaysia Inc," said Lim Jit Soon, head of equities research Southeast Asia, at Nomura Securities. ' Reuters

Labour dept to help 400 Kenmark workers find other jobs

PUTRAJAYA: The Labour Department will assist the 400 stranded workers from Kenmark Industrial Company in Port Klang to find alternative employment, preferably in the same locality.

Director-General of Labour Datuk Sheikh Yahya Sheikh Mohamed Yahya told Bernama on Wednesday, June 2 that labour officers would register the workers and match them with respective employers.

The workers ' 200 locals and the rest foreigners ' were shocked to find the company premises locked when they reported for duty on Monday.

It is now apparent that the company ' dealing in furniture and listed on the main board ' was under receivership and was put on PN17 status following loan defaults and letters of demand from EON Bank and Export-Import Bank of Malaysia Bhd.

Meanwhile, the Malaysian Trades Union Congress (MTUC) had also offered to assist the workers.

Its vice-president, A Balasubramaniam, said those needing assistance could approach the congress officials who would be going to the site to help register them.

Balasubramaniam said the government should assist the foreign workers to switch their work permits to new employers without any penalty to enable them to continue working in the country.

He felt that it was unfair to send these workers home because they had paid huge sums to agents to get work here.

"Some of these workers have been here only for a year and they have yet to recover the cost of their permits.

"They should at least be allowed to work until the expiry of their present permits," he added.

Balasubramaniam said employers who needed local workers could also draw on the 200 locals from the company who were now unemployed. ' Bernama

US stocks fall

NEW YORK: Stocks fell on Tuesday, June 2 as energy shares slid after the latest failed attempt to halt the oil spill in the Gulf of Mexico and the U.S. government announced a criminal probe into the disaster, according to Reuters.

Investors punished shares of companies directly involved with the spill and losses accelerated into the close following the news of the investigation.

"It's the fact that no one can really quantify the cost of the BP disaster out there," said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas.

"There's so much uncertainty, investors are stepping to the sidelines."

U.S.-listed shares of BP Plc (BP.L)(BP.N), which owns the well, tumbled 15 percent. The losses signaled growing frustration over the difficulty of sealing off the worst oil spill in U.S. history.

The Dow Jones industrial average .DJI dropped 112.61 points, or 1.11 percent, to 10,024.02. The Standard & Poor's 500 Index .SPX fell 18.70 points, or 1.72 percent, to 1,070.71. The Nasdaq Composite Index .IXIC gave up 34.71 points, or 1.54 percent, at 2,222.33.

Decliners carried the day on the New York Stock Exchange, outpacing advancers by almost 4 to 1.

BP's American Depositary Receipts have now lost about $75.03 billion since the April 20 rig explosion, and the stock has the lowest price-to-earnings ratio of any of the major oil companies as a result of the fall.

Halliburton Co, which performed some work on the well, lost 14.8 percent after Goldman Sachs removed the company from its "conviction buy list.

Transocean (RIG.N), which owns the rig, slid 11.9 percent to $50.04, while the S&P energy index .GSPE shed 4.3 percent.

Markets were choppy throughout the day and had earlier found support from data that showed manufacturing expanded for a tenth straight month in May.

In addition to the stronger-than-expected manufacturing data, CONSTRUCTION [] spending recorded its largest gain in nearly 10 years in April, government data showed.

Despite the positive U.S. data, investors worry about what impact the euro zone's debt crisis will have on global economic growth. Indeed, data showed a more sluggish pace in euro zone manufacturing, while the rate of China's factory output eased.

On the upside, Apple Inc (AAPL.O) rose 1.5 percent to $260.83 as a successful international launch of its iPad prompted analysts to raise earnings and sales estimates.

In merger news, ev3 Inc (EVVV.O) jumped 17.4 percent to $22.22 after Covidien Plc (COV.N) agreed to buy the maker of stents and other vascular devices for $2.6 billion. Covidien shares slipped 2.7 percent to $41.24.

Regarding the oil spill investigation, the FBI and other federal agencies, will participate.

"If we find evidence of illegal behavior, we will be forceful in our response," U.S. Attorney General Eric Holder said in New Orleans. - Reuters