Saturday, November 6, 2010

China gets major stake in IMF in vote overhaul

WASHINGTON:'' In a historic decision, the International Monetary Fund board on Friday, Nov 5 agreed to boost the voting power of big emerging economies and make China the third leading voice of the global lender.

"This historic agreement is the most fundamental governance overhaul in the fund's 65-year history and the biggest ever shift of influence in favor of emerging market and developing countries to recognize their growing role in the global economy," IMF Managing Director Dominique Strauss-Kahn told a news conference.

Under the deal, first clinched by finance ministers of Group of 20 leading economies in South Korea last month, 6 percent of IMF voting shares will be transferred to "dynamic" emerging market countries from industrial economies.

The move would vault China over Germany, France and Britain into third spot behind the United States and Japan. It would also lift other large emerging powers India, Brazil and Russia into the top 10 ranks of the 187-member institution.

Emerging economies have gained more clout in the IMF, but Friday's shift is by far the most significant and amounts to an overhaul of the global economic order established when the IMF was set up after World War Two.

The IMF's member countries will vote on the plan in the coming weeks, after which some legislatures will need to ratify the changes.

The approval of the reforms came before next week's G20 leaders' summit in South Korea.

Strauss-Kahn said he did not believe this week's congressional elections in the United States, where Republicans won control of the House of Representatives, would delay approval of IMF reforms in Washington.

U.S.-China tensions have flared this year over business and trade, but especially over China's undervalued currency that Washington argues gives Beijing an unfair trade advantage.

Analysts believe that unless China allows its currency to rise significantly, the Obama administration may wait to submit to Congress the IMF reform plan for approval.

Strauss-Kahn said having a bigger say in the IMF came with greater responsibility in the global economy and China recognized that.

"I think (IMF reforms) may have an influence on the behavior of the Chinese authorities. They were willing to have this position, they were willing to be better represented in the IMF, which shows they do care about multilateral institutions," he said. "I expect they will behave, or have in mind the importance of their role." - Reuters

Regulators close three banks in US, 2010 total now 142

WASHINGTON: The number of bank failures this year surpassed the 2009 tally on Friday, Nov 5 when the Federal Deposit Insurance Corp announced it closed three more banks.

Friday's announcement brings the total failures to 142, moving past the 2009 total of 140.

FDIC Chairman Sheila Bair said recently that while the number of failures was expected to exceed the 2009 tally, the total assets of this year's failures will probably be lower.

In 2009 the total amount of assets held by failed banks was $169.7 billion and so far in 2010 the total is $89.3 billion, according to the FDIC.

On Friday, regulators closed K Bank in Randallstown, Maryland, which had about $538.3 million in assets and $500.1 million in deposits. Buffalo, New York-based M&T Bank will assume the deposits of K Bank and about $410.8 million of its assets, the FDIC said.

Regulators said they closed Pierce Commercial Bank of Tacoma, Washington, which had about $221.1 million in assets and $193.5 million in deposits.

Heritage Bank of Olympia, Washington agreed to assume the closed bank's deposits and assets, the FDIC said.

Also closed was Western Commercial Bank in Woodland Hills, California, which had about $98.6 million in assets and $101.1 million in deposits.

First California Bank , Westlake Village, California, will assume all the deposits and most of the assets, the FDIC said.

The three failures were expected to cost the FDIC's deposit insurance fund an estimated total of $244.9 million.

Washington Mutual, which had $307 billion in assets when it was seized in September 2008, remains the largest bank to fail during the financial crisis.

In a good sign for the banking industry, the FDIC said on Oct. 19 that due to lower than expected losses it is now estimating that bank failures will cost the Deposit Insurance Fund $52 billion from 2010 through 2014, compared with a prior estimate of $60 billion.

The Deposit Insurance Fund, financed by banks that pay into the fund, guarantees individual accounts up to $250,000.

Because of that lowered cost estimate and because the Dodd-Frank reform legislation laid out new rules for the insurance fund, the FDIC voted on Oct. 19 to forego a 3-basis-point increase in bank fees that had been scheduled to go into effect on Jan. 1, 2011. - Reuters

#Stocks to watch:* UEM Land, Sunrise, O&G, Sapura Resources

KUALA LUMPUR: Stocks at Bursa Malaysia and Singapore may play catch-up with the global markets and Wall Street on Monday, Nov 8 after Wall Street closed higher, spurred by political changes and more cheap money from the Federal Reserve.

On Wall Street, U.S. stocks rose for the fifth straight week as investors took heart from Republican gains in the elections and on news that more cheap money from the Federal Reserve was on the way.

According to Reuters, following a 3.6% rise in the S&P 500 this week, investors locked in profits on Friday, Nov 5, offsetting an unexpectedly strong payrolls report that reinforced optimism about the economy.

The Dow Jones industrial average edged up 9.24 points, or 0.08%, at 11,444.08. The Standard & Poor's 500 Index added 4.78 points, or 0.39%, to 1,225.84. The Nasdaq Composite Index rose 1.64 points, or 0.06%, to 2,578.98.

The S&P 500 has risen about 16% since September and indexes surged to two-year highs on Thursday, but investors began to question how long the upward trend could continue without a breather.

At Bursa Malaysia, stocks in focus would be UEM Land Bhd and its takeover of SUNRISE BHD [], oil and gas-related companies after crude oil hit a two-year high above US$87 a barrel and SAPURA RESOURCES BHD [].

UEM Land Bhd has proposed a conditional takeover for all of Sunrise Bhd shares at RM2.80 per offer share via a share swap or an alternative offer by the issuance of redeemable convertible preference shares. The merger would result in the enlarged group benefiting from the stronger combined asset base of over RM5 billion.

UEM Land said by leveraging on the Sunrise Group's robust financial strength and prospects, UEM Land is expected to be better positioned to accelerate its own business expansion and to secure new development projects.

UEM Land had offered to acquire Sunrise shares (excluding treasury shares) at RM2.80 which would be via the issuance of UEM Land shares at an issue price of RM2.10 each. Sunrise shareholders would receive about 1.33 consideration shares for every one offer share.

The second option was it would issue redeemable convertible preference shares of one sen each in UEM Land at an issue price of RM1 each. Sunrise shareholders would receive 2.80 RCPS for every one offer share.

The proposed offer is conditional upon UEM Land having received, before the close of the proposed offer, valid acceptances which would result in the offeror holding more than 50% of the voting shares of Sunrise.

Sunrise executive chairman Datuk Tong Kooi Ong said the proposed acquisition of Sunrise Bhd by UEM LAND HOLDINGS BHD [] will enable Sunrise to realise its value over a shorter period of time while allowing it to be part of a potential regional player.

"The acquisition will substantially enhance the capital structure and allows Sunrise to generate more sustainable earnings with possibility of new businesses," said Tong during a press conference following the announcement of the proposed acquisition on Thursday, Nov 4.

Meanwhile, oil and gas related counters could see rising interest following the sustained increase in crude oil price.

RHB Research Institute had said 'hot money' inflows into emerging markets and strengthened ringgit could be potential short-term drivers to commodity prices including crude oil.

'We understand that further monetary easing in the US could cause a rise in commodity prices including crude oil. While this could eventually stoke inflation, we foresee that rising crude oil prices would provide near-term support to the trading interest of the sector and potentially sustain the upward momentum in oil and gas stock share prices,' it said in a recent report.

RHB Research said it was reviewing its valuation targets for several oil & gas stocks under coverage as we foresee trading interest in the sector to persist in the near term. For Dialog and Kencana it rolled forward its valuations to CY11 EPS in line with its valuation for the market. It left its fair valuations of Wah Seong, KNM and Petra Perdana unchanged.

Sapura Resources Bhd could see trading interest after Ekuiti Nasional Bhd (Ekuinas) acquired a 51% stake in an integrated education provider APIIT/UCTI Education Group for RM102 million from Sapura Resources.

Ekuinas inked a share sale agreement with Sapura Resources on Thursday, Nov 5 to acquire the 51% for RM102 million, which hinges on the approval of Sapura Resources shareholders at an EGM to be held later and the completion of final due diligence.

Bernanke answers Fed's global critics

JACKSONVILLE, Florida:'' Federal Reserve Chairman Ben Bernanke on Friday, Nov 5 defended the U.S. central bank's bond-buying against beggar-thy-neighbor criticism, saying the return to a strong U.S. economy was critical for global stability.

He suggested doing so would bolster a dollar whose weakness has sparked cries of foul from Bogota to Beijing.

The Fed's decision to buy $600 billion of government debt has drawn scathing comments from nations which contend it is generating global instability by strengthen their currencies against the dollar, inflating asset bubbles and fueling inflation in their economies.

From Berlin German Finance Minister Wolfgang Schaeuble pronounced, "With all due respect, U.S. policy is clueless."

Bernanke, answering questions from college students in Florida, stressed that Fed policies aimed at giving a boost to the weak U.S. recovery would pay dividends around the world.

"I think it's important to emphasize ... that a strong U.S. economy, a recovering economy, is critical, not just for Americans, but it's also critical for the global recovery," Bernanke said.


The Fed's easy monetary policy, made even looser on Wednesday with the new bond-buying plan, has rankled emerging market economies and others, and it looks set to be a bone of contention at a Group of 20 nations summit in Seoul next week.

South African Finance Minister Pravin Gordhan said Fed policy "undermines the spirit of multilateral cooperation" that the G20 had sought to achieve. The money will find its way into financial markets of emerging nations with potentially devastating impact on their exports, he charged.

Bernanke said U.S. policymakers were fully aware of the dollar's importance in the global economy as a reserve currency. The dollar has weakened sharply and did so again after this week's decision on a new round of so-called quantitative easing.

"The best fundamentals for the dollar will come when the economy is growing strongly," Bernanke said. "That's where the fundamentals come from."

He told the students that while commodity prices have risen sharply, they were the exception amid generally muted prices for other products and should not cause a serious problem.

Bernanke said there was ample slack in the U.S. economy that will prevent producers from being able to fully price costlier commodities into finished products that consumers buy.

"Globally traded commodities like energy, food ... have been going up pretty sharply," he said. "Where there's a lot of slack in the economy ... it's very, very difficult ... for producers to push through those costs to the final consumer."


He added that once inflation pressures become visible, the U.S. central bank will be ready to modify its current stance of accommodative monetary policy to block inflation.

Official interest rates have been near zero for nearly two years.

"It's going to take some further growth and some further reduction in slack before we begin to see any kind of inflation pressure," he said.

Not all Fed officials share Bernanke's confidence that inflation can be held in check. Kansas City Federal Reserve Bank President Thomas Hoenig renewed his call for higher interest rates on Friday, saying in a speech to real estate agents that the new bond-sales program risks igniting inflation and another boom and bust cycle. [nN05193069]

Critics of the Fed's easy money policy might point to signs of improvement in the U.S. employment market, where employers added jobs for the first time since May, as evidence the new asset purchases are unnecessary. [nN04265378] But analysts said the pace of job creation as not enough to pull down the unemployment rate.

"It's still probably not enough to get the Fed convinced the unemployment rate is going to go down or inflation is going to go up," said John Canally, an economist at LPL Financial in Boston.

Most dealers polled by Reuters said they expect the Fed to have to expand or extend its program to boost the economy with asset sales. Economists at firms that deal directly with the Fed said they did not expect unemployment go below 9.3 percent before July 2011. - Reuters

Bank of America Corp fighting suits over $54 bln of MBS

CHARLOTTE, N.C.:'' Bank of America Corp said it is fighting various lawsuits involving roughly $54 billion in mortgage-backed securities, where investors allege it misrepresented the quality of the underlying home loans.

The largest U.S. bank by assets had put the figure at more than $375 billion in a securities filing issued earlier on Friday Nov 5, but later issued a statement slashing the figure in light of a Thursday court ruling in California.

The cases are part of a growing legal push by investors to force U.S. banks to rebuy billions in delinquent mortgages.

The California court ruled on Thursday to limit the number of mortgage-backed securities offerings at issue in a proposed class action case from $352 billion to $31 billion.

Investors have been asking courts to certify class-action cases, alleging banks made material misstatements and cut corners in creating the mortgages.

The suits seek unspecific compensatory damages and, in some cases, a repurchase of the mortgage by the bank, Bank of America said in its filing with the U.S. Securities and Exchange Commission.

The investors are asking for the loans to be repurchased at their initial value, with the lenders' eating the loss.

The actual amount in dispute in BofA's litigation is likely to be lower than the initial value of the securities, due to mortgage repayments, collateral held against the loans and borrowers who have partially paid off their mortgages.

Separately, the bank it expects its foreclosure costs to rise in fourth quarter 2010 and 2011, in part because of new standards imposed in the wake of a public outcry over so-called "robo-signers," who signed thousands of foreclosure documents without fully reviewing the cases.

In October, BofA halted foreclosures in all 50 states, as it reviewed its processes for any faults that could have caused improper foreclosures.

The bank has made changes to its systems, and since resumed filing 102,000 foreclosure affidavits in 23 states, while the halt is still in effect in 27 others.

A coalition of all 50 U.S. state attorneys general is probing the industry's practices, along with various other U.S. regulatory and congressional probes of the matter.

Bank of America said in Friday's filing that the changes to its foreclosure system will result in higher noninterest and legal expenses, and increased servicing costs.

The bank said it may also become the subject of added regulatory and legal scrutiny over foreclosures it has already completed, in addition to the probe of on-going seizures. - Reuters

US STOCKS-S&P 500 extends rally to 5th week

NEW YORK: U.S. stocks rose for the fifth straight week as investors took heart from Republican gains in the elections and on news that more cheap money from the Federal Reserve was on the way.

Following a 3.6 percent rise in the S&P 500 this week, investors locked in profits on Friday, Nov 5, offsetting an unexpectedly strong payrolls report that reinforced optimism about the economy. The market closed slightly higher.

"Because of these gains, I feel there's a relatively modest correction that's just around the corner," said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco. "But there's a lot of optimism out there, and the jobs picture is looking better."

A government jobs report suggested the sluggish recovery could be picking up steam. Non-farm payrolls rose a solid 151,000 in October, the first gain since May and more than double economists' expectations.


The news came two days after the Fed detailed a plan to buy $600 billion in government bonds over coming months to boost the economy, and three days after Republicans made gains in U.S. elections, signaling the possibility of a more business-friendly Congress.

"Good news is good news. The commodity markets and the stock markets all got everything they wanted this week, which is incredible," said Jeffrey Friedman, senior market strategist at Lind-Waldock in Chicago.

The Dow Jones industrial average edged up 9.24 points, or 0.08 percent, at 11,444.08. The Standard & Poor's 500 Index added 4.78 points, or 0.39 percent, to 1,225.84. The Nasdaq Composite Index rose 1.64 points, or 0.06 percent, to 2,578.98.

The S&P 500 has risen about 16 percent since September and indexes surged to two-year highs on Thursday, but investors began to question how long the upward trend could continue without a breather.

In a technical barrier, the 61.8 percent retracement of the slide in the S&P 500 from the historic highs in 2007 to the lows in March 2009 is 1,228.74, near Friday's session high of 1,227.08.

Kraft Foods Inc was the second biggest percentage loser on the Dow, falling 2.2 percent to $31.08 a day after it reported third-quarter revenue that was weaker than expected and commented on its 2011 forecast.

After the closing bell, Boeing Co fell 2.5 percent to $69.51 in extended trading on an Aviation Week report that said the Dow component expects delivery delays of its 787 aircraft.

The S&P telecommunications and healthcare sectors led the downdraft, with losses of 0.6 percent and 0.5 percent, respectively. Pharmaceutical companies were also lower, with Merck & Co down 2.6 percent to $35.70 and Pfizer Inc off 1.2 percent to $17.18.

Financials substantially outperformed other sectors, with the S&P financial index advancing 2.1 percent. The Fed is expected to soon allow some healthy banks to increase dividend payments, people familiar with the decision said late Thursday.

JPMorgan Chase & Co gained 2.9 percent to $40.94 and Bank of America shot up 1.9 percent to $12.36. Option traders furiously snapped up calls on the Financial Sector Sector SPDR fund, which rose 1.8 percent.

More than four stocks rose for every three that fell on the New York Stock Exchange, while on the Nasdaq, about five stocks rose for every four that fell.

Volume was strong, with about 9.40 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above the year-to-date daily average of 8.73 billion. - Reuters

Pre-Fed caution slows global stock, bond buys-EPFR

NEW YORK (Reuters) - Money flowing into global stocks and bonds slowed in the week to Nov. 3 as investors exercised caution ahead of anticipated policy easing from the Federal Reserve, fund tracker EPFR Global said on Friday, Nov 5.

The Cambridge, Massachusetts-based company said investors put about $3.78 billion into globally-tracked equity funds, the lowest since late August. Global bond funds attracted $3.4 billion, the lowest inflow since May, while investors pulled just under $2 billion from money market funds.

Investors did pour $1.4 billion into U.S. equity funds on Nov. 3, the day the Fed said it would buy $600 billion in Treasuries over the next eight months to drive down interest rates and stoke U.S. growth. But that wasn't enough to reverse a modest outflow on the week, EPFR said.

Few doubted the Fed would deliver more easing, but there was debate in the days before the announcement about the size and scope of its asset-buying program, with some expecting a more modest program that would have disappointed equity investors.

Expectations that Fed easing will further weaken the dollar suggested more tough times for Japanese exporters and prompted investors to pull cash from Japanese equity funds for the 18th time in the past 19 weeks, EPFR said.


Emerging market equities attracted more than $3 billion on the week, more than 85 percent of total equity fund inflows. This year, emerging equities have attracted $74.5 billion, not far from last year's record $83.3 billion inflow.

Chinese equity funds saw a $626 million inflow, followed by a $500 million inflow to Brazil and a $322 million inflow for Korea, EPFR said.

Record low interest rates in the United States and other developed economies have prompted widespread demand for higher-yielding emerging market assets.

Governments in Asia and Latin America have complained that Fed policy was driving up inflation in their economies and some have adopted capital controls to try to slow inflows.

Worries that more such policies may be around the bend slowed net flows into emerging market bond funds to their lowest in eight weeks, EPFR said.

Overall global bond funds still took in more than $1 billion on the week, though, with high yield bond funds inflows hitting a five-week high. Flows into U.S. bond funds climbed to nearly 89 percent of last year's record-setting total, EPFR said. - Reuters

GLOBAL MARKETS-Dollar jumps, stocks hold gains on US jobs data

NEW YORK: The dollar soared and stocks posted modest gains on Friday, Nov 5 after better-than-expected U.S. jobs data fueled hopes of faster economic recovery.

News that nonfarm payrolls rose by 151,000 in October -- more than double the expected increase -- supported the gains seen in stock markets during the past two sessions, after the Federal Reserve announced a second round of monetary stimulus.

Nikkei futures traded in Chicago were up 115 points to 9,600 points.

The U.S. dollar rallied against the euro and yen on the jobs data, which showed private companies hired workers at the fastest pace since April.

The dollar rose versus a basket of major currencies, with the U.S. Dollar Index up 0.96 percent.

Crude oil hit a two-year high above $87 a barrel before turning lower while gold hit a fresh record above $1,397 an ounce, also before paring its gains. Investors bought gold on fears the Fed's move announced Wednesday to buy more government bonds will spur inflation and weaken the dollar going forward.

The strong U.S. labor report helped copper flirt with record highs as it raised confidence in the prospects for increased demand in the world's largest economy.

Analysts had forecast a gain of 60,000 jobs in October, according to a Reuters poll. But the U.S. unemployment rate remained unchanged from the previous month at 9.6 percent, a reminder that stronger jobs growth was needed.

"It's both better than people had been looking for, and it's another nail in the coffin of a double dip," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, referring to fears the economy would slide back into recession.

However, the data was "still within the realm of a moderate recovery," Gault said, a view that seemed to be reflected on Wall Street, where markets hovered near break-even, in contrast to better gains in Europe and elsewhere.

MSCI's all-country world stock index rose 0.15 percent while the FTSEurofirst 300 index of leading European shares advanced 0.38 percent to 1,111.28.

Miners ranked among Europe's best performers as metal prices rallied sharply, with Shanghai zinc jumping 5 percent and London copper rising to fresh 27-month highs, within $200 of a fresh record. Copper rose to $8,655.00 per tonne.

U.S. stocks hovered near break-even as investors mulled a recent advance that had pushed the benchmark Dow Industrials and S&P 500 to their highest levels since September 2008, when markets posted their deepest slide since World War II.

The Dow Jones industrial average closed up 9.24 points, or 0.08 percent, to 11,444.08, while the Standard & Poor's 500 Index rose 4.79 points, or 0.39 percent, to 1,225.85. The Nasdaq Composite Index edged up 1.64 points, or 0.06 percent, to 2,578.98.

"Markets got a little boost from the jobs report, but the strengthening dollar is offsetting. In addition, the markets have been up all week and may be running into a little profit-taking," said Tom Bentz, broker at BNP Paribas Commodity Futures Inc in New York.

Markets jumped earlier in the week on the Fed's decision to pump an additional $600 billion into the U.S. economy through government bond purchases in hopes of pushing interest rates down further and stimulating demand.

While the jobs report will help bolster so-called risk markets and push oil prices higher, investors want to see sustainable gains in unemployment, said Mohamed El-Erian, who helps oversee more than $1.1 trillion as co-chief investment officer at Pacific Investment Management Co, or PIMCO.

"The longer-term impact will depend on the strength of the all-important hand-off to permanent sources of employment growth," El-Erian said.

Spot gold hit a fresh record of $1,397.80 an ounce, before paring much of that gain. Gold was up $1.10 at $1,393.30.

U.S. crude futures rose 36 cents to $86.85 a barrel, having touched $87.22 earlier, the highest intraday price since October 2008.

The euro was down 1.20 percent at $1.4027. Against the Japanese yen, the dollar was up 0.67 percent at 81.25.

U.S. Treasury debt prices fell, driving the 30-year bond's yield to its highest level since June, as the jobs data erased the safe-haven appeal of government debt.

The 30-year U.S. Treasury bond slid 1 point in price to yield 4.123 percent. The benchmark 10-year U.S. Treasury note fell 14/32 in price to yield 2.5394 percent.

Friday, November 5, 2010

Pharmaniaga MD resigns

KUALA LUMPUR: PHARMANIAGA BHD [] managing director Mohamad Abdullah has resigned from his post with effect from Thursday, Nov 4.

Pharmaniaga said an executive committee had been set up to manage the company. The exco members comprise of Datuk Mohamed Azman Yahya, Datuk Sulaiman Daud, Oh Kim Sun and Roshidah Abdullah.

In a separate statement, it said earnings for the third quarter ended Sept 30, were RM8.58 million versus RM6.06 million a year ago.

Its revenue edged up 1.3% to RM334.3 million from RM329.96 million a year ago.

Profit before tax surged 63.8% to RM15.4 million from RM9.4 million. Earnings per share were 8.03 sen versus 5.66 sen.

Nikkei up nearly 3 pct, books best week in year

TOKYO: Japan's Nikkei average jumped 2.9 percent on Friday, Nov 5 and booked its best week in a year, after the Federal Reserve's plans to buy more Treasuries prompted investors to seek risk elsewhere, prompting rallies in global stocks and commodities.

Short-covering of futures by foreign investors and advances for resource shares were behind the gains, analysts said. The Nikkei rose 4.6 percent on the week.

The benchmark Nikkei gained 267.21 points to 9,625.99, its highest close since Oct. 7.

The broader Topix added 2.3 percent to 834.98. - Reuters

GLOBAL MARKETS-Bulls rule as stocks, commodities climb

HONG KONG: Asian stocks rose for a fifth day on Friday, Nov 5, with commodity-related shares helping regional markets outperform other parts of the world this week after U.S. Federal Reserve action revived a move into riskier assets.

Major European stocks followed Asia higher, rising 0.2 percent in early trade ahead of key U.S. jobs data.

The October U.S. payrolls report due later on Friday is expected to reflect growth of 60,000 jobs, which while a relatively small amount would be the first increase since May and probably enough to keep the risk rally going.

The Fed's $600 billion bond-buying scheme unveiled on Wednesday, dubbed QE2 by traders and investors, has resulted in a scramble to buy laggard equity sectors, especially in emerging markets, and commodities.

It has also spurred a shift out of really long-dated debt on bets that the injection of cheap dollars will keep a reflation trade going.

"What QE2 has done is that it added confidence to our view," said Shane Oliver, director of investment strategy and chief economist for AMP Capital in Sydney.

"We further increased our exposure to Asia and emerging markets. QE2 provides more confidence that the flow of capital into emerging markets will continue and add more liquidity into asset markets," said Oliver, who helps manage investments of some $100 billion.

The ultimate consequences of QE2 are clear to many analysts, namely greater risks of capital controls in emerging markets, asset price bubbles and quickening inflation.

For now, though, investors have been putting cash to work in search of higher returns and worrying about the backlash later.

Japan's Nikkei share average led gains in Asian stocks a second day, rising 2.9 percent, with big exporters among the supporting factors for the index.

"Short-covering is the main driver of today's gains, but foreign investors appear to be picking up shares of companies that are sensitive to economic cycles such as trading houses after rallies in oil and gold," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities in Tokyo.

The MSCI index of Asia Pacific stocks outside Japan was up 0.9 percent, led by 2 percent gains in both the materials and energy sectors

The index is up around 5.6 percent so far this week, on course for the biggest weekly rise since July 2009. For the year to date, it has risen more than 15 percent, with much of the gains made in the last few months.


Hong Kong's Hang Seng index climbed nearly 1.4 percent on strong turnover, extending its rise this week to 7.6 percent, the largest weekly gain since May 2009.

Investors in Hong Kong have been ploughing money into large cap stocks such as HSBC Holdings Plc after focusing on small caps for much of the year, convinced the current rally has staying power.

The U.S. dollar index a measure of its performance against a basket of six other major currencies, held near an 11-month low, while the euro slipped to $1.4191 having risen to the highest since January overnight at $1.4283.

Chronic weakness in the dollar has been a prime factor lifting commodity prices across the board.

Three-month copper futures traded on the London Metal Exchange was up 1.5 percent to the highest since July 2008, having risen an unrelenting 20 percent since August.

Crude oil futures were also in the midst of a bull run, with the December contract up 0.5 percent to $86.88 a barrel December oil may try to hurdle the May 3 high of $87.15 a barrel throughout the global day, above which oil would be at its highest since October 2008.

Gold advanced to a fresh record high of $1,394 an ounce and then speculators took profits, causing the metal to reverse course and fall 0.3 percent on the day to $1,387.96.

Gold is up some 27 percent so far this year, benefiting from inflation hedges and a recurring inverse relationship to the dollar's performance.

Dealers were not convinced the precious metal's run this year was over.

"Once we've got the market doing what it wants to do, you've got to run with it," said Jonathan Barratt, managing director at Commodity Broking Services in Melbourne.

"I think the market is going to say, well, let's look at $1,400." - Reuters

Indonesia Q3 growth slips, weather blamed

JAKARTA:'' Indonesia's economy grew a surprisingly slow 5.82 percent year-on-year in the third quarter, data showed on Friday, Nov 5, with the central bank and analysts pinning the blame on rain that hit production in mining and agriculture.

Analysts said the data made it even more likely that the central bank will keep its policy rate on hold at a record low 6.5 percent well into 2011 as it tries to avoid encouraging an even bigger flow of investment capital to its markets.

Most Asian economies experienced strong growth in the first half of the year as they rebounded from the global recession, but like Indonesia, China, South Korea and Singapore reported a slowdown in the third quarter.

Indeed, Indonesia's 5.8 percent rise in GDP marked the first slowdown in the annual pace of expansion in Southeast Asia's biggest economy following four successive quarters of quickening growth.

"That is really low," said Helmi Arman, economist at Bank Danamon in Jakarta. "The risk to achieving the 6.1 percent figure for full-year growth is definitely to the downside now."

The central bank stuck to its full-year GDP growth forecast of 6.1 percent, which is in line with most analyst expectations.

Quarter-on-quarter GDP growth was 3.45 percent in the third quarter, the country's statistics bureau said.

Wellian Wiranto, Asian economist at HSBC in Singapore, said in a research note after the data that Indonesia's economic fundamentals remained strong despite the blip.

"The bulwark of consumption continues to be robust, complementing a further pick-up in investments. Even the usually lackluster government spending is adding to growth now," he said.

"Why the disappointing headline growth then? Rain. The same culprit that pushed up prices a few months ago had also hurt growth -- most evidently in the agricultural and mining sectors."

Indonesia's rainy season falls in the third quarter, and this year rainfall was particularly high, partly due to the impact of the La Nina weather phenomenon. Such heavy rains can damage crops and make mining activity difficult.

Trade was also weaker, reflecting the less robust external environment. Annual export-import growth slowed in the third quarter from the previous quarter, the data from the statistics bureau showed. Other expenditures including houshold consumption and government spending picked up.


At its monthly policy meeting on Thursday, Bank Indonesia left rates unchanged and said the main concern was surging inflows of foreign capital.

With recent inflation data benign and on course to be within the central bank's end-year target range, and the central bank anxious to avoid attracting too much foreign capital by widening interest rate differentials unduly, most analysts expect no rate rise until the second quarter of 2011 at the earliest.

Of 13 economists polled by Reuters, none had forecast third-quarter GDP growth of below 6.1 percent. The central bank had forecast growth of 6.3 percent in the quarter.

"Q3 GDP came in softer than expectations -- not surprising given that H2 headlines should moderate on higher base. Growth still held up on the quarter," said Joanna Tan, economist at Forecast in Singapore.

"The key downside risks to the economy will stem from the slowdown in the global recovery and the influx of speculative capital where a turn in risk appetites could spur an exodus of funds from the higher beta Indonesian assets."

Despite the surprisingly low figure, Indonesian markets showed little reaction to the data.

The stock market extended modest gains after the announcement and was up 0.66 percent at the closing of the first session at 0500 GMT, near a record high. The rupiah was hovering around 8,897, the same level as before the data was released.

Several analysts said that despite the unexpectedly weak data, growth was still on course to be around 6-6.2 percent in 2010.

"This is below expectations, but still leaves growth to be approximately 6 percent for 2010 at the year end," said David Cohen, economist at Action Economics in Singapore.

"It is a little disappointing, but should still leave investors feeling comfortable for the future outlook."

Economic growth in Indonesia rarely manages to stay above 6 percent for long, with economists saying poor infrastructure is a key drag on the economy.

HSBC profits "well ahead" of yr ago, bad debts fall

LONDON:'' Europe's biggest bank HSBC said on Friday, Nov 5 profits in the third quarter and for the year to date were "well ahead" of a year ago as bad debts continued to fall, mainly in the United States.

HSBC, which named a new chairman and chief executive six weeks ago after a damaging boardroom power struggle, on Friday said impairments in the third quarter fell to their lowest quarterly level since early 2007.

HSBC said trading revenues for global banking and markets, its investment banking arm, were lower in the latest quarter than a year ago, but remained high by historical standards. GBM made a first-half profit of $5.6 billion, its second best half ever.

The bank does not report full quarterly results. It made a pretax profit of $11.1 billion for the first six months of the year, more than double a year earlier as U.S. impairments dropped. - Reuters

Ekuinas buys 51% stake in education group for RM102m from Sapura

KUALA LUMPUR: Ekuiti Nasional Bhd (Ekuinas) is moving into the RM7.2 billion private education sector with its acquisition of a 51% stake in an integrated education provider APIIT/UCTI Education Group for RM102 million.

Ekuinas said on Thursday, Nov 4 it was acquiring the stake in Asia Pacific Institute of Information TECHNOLOGY [] (APIIT)/ Asia Pacific University College of Technology and Innovation (UCTI) Education Group from SAPURA RESOURCES BHD [].

Ekuinas inked a share sale agreement with Sapura Resources on Thursday, Nov 5 to acquire the 51% for RM102 million, which hinges on the approval of Sapura Resources shareholders at an EGM to be held later and the completion of final due diligence.

'This proposed investment provides the ideal entry for Ekuinas to move into the fast-expanding private education sector currently estimated at RM7.2 billion,' it said.

This is Ekuinas' fourth investment this year. Its three other investee companies are Alliance Cosmetics Group, TANJUNG OFFSHORE BHD [] and KONSORTIUM LOGISTIK BHD [].

Ekuinas chairman Raja Tan Sri Arshad'' Raja Tun Uda said: 'We are pleased with our proposed investment in APIIT/UCTI Education Group, which represents our first investment within the Malaysian education sector, one of the core sectors we identified for investment.

'The APIIT/UCTI Education Group provides an ideal investment platform for Ekuinas given its highly experienced management team with a strong track record of delivering growth and its established market position as a quality education provider.'

The statement said the APIIT/UCTI Education Group is profitable, with combined revenue growing at more than 40% per annum over the last three years, to hit RM83 million for the year ended Jan 31, 2010.

Student enrolment at APIIT/UCTI has been growing from 3,244 in FY2008 to more than 6,700 currently, boosted by the increase in foreign student numbers.'' Meanwhile, the Smart School is gaining popularity among residents within its catchment area with student numbers virtually doubled to nearly 1,000 students in 2010.

Ekuinas CEO Datuk Abdul Rahman Ahmad said the proposed investment in APIIT/UCTI Education Group provides an opportunity for Ekuinas to enhance equitable Bumiputera participation within the Malaysian private education sector. We will be working closely with its strong Management Team to aggressively grow the Group to become of one of the largest local and regional education groups, in line with Ekuinas' mandate to back Bumiputera companies with high potential for growth.'

Sapura Resources managing director Shahriman Shamsuddin said: 'Together with Ekuinas, we look forward to grow APIIT/ UCTI's market position as the provider of world class tertiary education and position our Smart School as a leading centre for pre-tertiary education whilst embracing a holistic approach. With Ekuinas as a partner, we hope to achieve these aspirations together.'

BOJ holds fire after Fed, says further easing an option

TOKYO: The Bank of Japan kept its monetary policy unchanged on Friday, Nov 5 and brushed off suggestions it might need to ease more just to keep pace with the Federal Reserve's latest $600 billion economic stimulus installment.

Still, Governor Masaaki Shirakawa said the central bank was ready to expand its own 5 trillion yen ($62 billion) asset buying plan announced only a month ago if the economy worsens.

Some analysts say the BOJ may have to relax its policy again before the end of the year to counter the effect the fresh supply of dollars may have on the yen, but Shirakawa stressed this was not a contest about who pumps more money into the economy.

"I do not see Japan and the United States as in a monetary easing competition," Shirakawa told a news conference.

"The degree of monetary easing cannot be measured simply by the amount of assets central banks purchase," he said, adding that the success of policy easing should be measured how effective it was in bringing down borrowing costs.

The BOJ is the third major central bank to hold fire after the Fed's Nov. 3 move to pump more money into the struggling U.S. economy by buying government bonds.

The scope of the plan broadly matched market expectations, sparing Japan a dollar sell-off and a sharp yen spike that could have forced the BOJ's hand.

That allowed the BOJ to focus on rolling out the asset buying plan, which starts early next week with government bond purchases. The central bank will also buy real estate investment trusts (REITs) and exchange-traded funds (ETFs) linked to Tokyo stock indexes.

Both the European Central Bank and the Bank of England kept their policies unchanged on Thursday, seemingly satisfied that the euro zone and Britain did not need as potent medicine as prescribed by the Fed for the U.S. economy.

As expected, the BOJ also unanimously voted to keep its rates effectively at zero and maintained the size of the asset buying plan. Shirakawa warned, however, that Japan's moderate economic recovery was stalling as growth in exports and output paused, suggesting that the BOJ was ready to loosen credit if necessary.

"What has been announced is not enough compared to the U.S. central bank's expansion of easing steps," said Susumu Kato, chief economist at Credit Agricole in Tokyo.

"The BOJ needs to further expand its easing measures to beat deflation and prevent the yen from appreciating further. It is expected to do so in the next few months."

The planned BOJ injection of little more than $60 billion pales in comparison with the Fed's plan, even given that the U.S. economy is nearly three times as big as Japan's.


In fact, by highlighting that contrast in size, Economics Minister Banri Kaieda suggested that Japan's central bank may face calls in the future for an expanded scheme.

The BOJ last eased its policy early in October by setting a new interest rate target in a 0-0.1 percent range, pledging to keep rates effectively at zero until the end of deflation was in sight, and by announcing the asset buying plan.

The size of the asset buying pool now effectively serves as the gauge of BOJ's monetary easing. By buying assets directly from the market, the central bank hopes the scheme will be more effective than its 2001-2006 quantitative easing campaign that targeted the amount of deposits commercial banks held at the BOJ.

The BOJ says its current scheme aims to reduce risk premiums and encourage private investment by targeting a broader range of assets than the Fed buys, including less conventional, riskier instruments. - Reuters

Thursday, November 4, 2010

Goldman Sachs ups Mulpha stake to 5.74%

KUALA LUMPUR: MULPHA INTERNATIONAL BHD [], which had seen active trade recently on news that its associate FKP Property was a takeover target, saw Goldman Sachs Group, Inc. accumulating more shares in Mulpha.

A filing with Bursa Malaysia on Thursday, Nov 4 showed Goldman Sachs had acquired 7.44 million Mulpha shares on Oct 29 and Nov 1. It acquired 2.44 million shares on Oct 29 and five million units on Nov 1.

The recent transactions increased its shareholding to 135.17 million shares or 5.74%.

The Edge FinancialDaily reported that FKP, was a possible takeover target by Stockland, a leading Australian property developer as it sought to expand its retail, residential or retirement assets.

Mulpha is the single largest shareholder with 24.8% equity stake in FKP. Stockland, the second largest shareholder, owns 14.9% in FKP which is listed on the Australian Stock Exchange.

Bank of England leaves rates at 0.5 pct, QE on hold

LONDON: The Bank of England left interest rates at 0.5 percent and kept its asset-buying programme on hold on Thursday, Nov 4 following signs Britain's economic recovery is not slowing as rapidly as feared.

The BoE's decision contrasts with a move by the U.S. Federal Reserve on Wednesday to buy $600 billion of bonds with new money over the next eight months, after what it called "disappointingly slow" progress towards its economic targets.

The rate decision had been anticipated by all 63 analysts in a Reuters poll. The only analyst who had forecast more QE this month when polled last week revised his call on Wednesday after firmer-than-expected services PMI data.

Unexpectedly strong UK growth data for the third quarter and surveys indicating that manufacturing and service sector activity is still growing may have encouraged BoE policymakers to hold off injecting any further monetary stimulus for now.

But there is a chance the UK central bank may eventually decide that more stimulus is needed to shore up the economy against deep government spending cuts, and a significant number of analysts reckon that could come in February.

One Monetary Policy Committee member, Adam Posen, voted in October for a 50 billion pound ($81 billion) expansion of the BoE's 200 billion pound asset purchase programme and is likely to have done the same this month, while Andrew Sentance will probably have reiterated his call for higher rates.

Minutes to the Nov. 3-4 meeting published on Nov. 17 will reveal whether either man was able to win broader support on the MPC. - Reuters

Malaysia Smelting posts RM37m losses in 3Q on impairments

KUALA LUMPUR: MALAYSIA SMELTING CORPORATION [] Bhd (MSC) posted losses of RM37.05 million in the third quarter ended Sept 30 compared with net profit of RM8.77 million a year ago after it made further impairment provisions totaling RM73.63 million.

MSC said on Thursday, Nov 4 that revenue rose 17.9% to RM719.96 million from RM610.66 million a year ago. At the pre-tax level, it posted losses of RM50.22 million compared with pre-tax profit of RM16.68 million. Loss per share was 49.4 sen compared with earnings per share of 11.7 sen.

During the quarter, the group undertook a valuation of its investment in KM Resources Inc which resulted in a surplus of RM65 million. This surplus was recognised as prior year's retained earnings.

'In line with the group's on-going review of its non-tin assets, the group made further provisions totaling RM73.63 million,' it said.

For the nine-months ended Sept 30, its revenue rose 44.5% to RM1.99 billion from RM1.38 billion, contributed by higher business volume and higher tin prices.

MSC recorded higher pre-tax profit before unusual items of RM67.55 million compared with RM18.19 million in the previous corresponding period. Net loss was RM58.20 million versus net profit of RM10.17 million.

US dollar printing is huge risk-China adviser

BEIJING: Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, Nov 4, a day after the Federal Reserve unveiled a new round of monetary easing.

China must set up a firewall via currency policy and capital controls to cushion itself from external shocks, Xia Bin said in a commentary piece in the Financial News, a Chinese-language newspaper managed by the central bank.

"As long as the world exercises no restraint in issuing global currencies such as the dollar -- and this is not easy -- then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament," he said.

Li Daokui, another academic adviser to the central bank, said loose money in the United States would translate into additional pressure on the Chinese yuan to appreciate.

"A certain amount of capital will flow into China, either through Hong Kong or directly into the mainland," Li said.

But he added that Beijing would stick to its own gradual pace in managing the yuan's rise. He also said that big gains in U.S. midterm elections by Republicans, who are seen as more friendly to free trade, had made him "a bit relieved" because political calls for China to let the yuan rise would likely quiet down.

The Federal Reserve launched a fresh effort on Wednesday to support the struggling U.S. economy, committing to buy $600 billion in government bonds despite concerns the programme could do more harm than good.

Policymakers from emerging market powerhouses in Latin America and Asia said they would come up with fresh measures to curb capital inflows following the Fed policy.

Wang Zihong, a U.S.-focused economist at the Chinese Academy of Social Sciences, a top government think tank, said the U.S. quantitative easing could add to inflationary concerns in China.

"It will put pressure on the dollar to weaken, thus pushing up global commodity prices, including oil. So it will increase imported inflation pressure in some countries, including China," he said.


But Wang dismissed suggestions that China might sell some of its vast stock of U.S. Treasuries as a way of punishing the United States and cutting Beijing's exposure to dollars.

"This is an emotional proposal. What will China buy after selling Treasuries? Do we have any idea? No, we are unable to think out an idea," Wang said.

Xia, the central bank adviser, said that it will take a long time for the global monetary system to improve and that China must be ready to hold the line on its currency policy and capital controls.

"We must keep a clear mind. We must not lead the world in financial regulation, nor simply follow the deeds of mature economies. We must think 'what is good for us'," he said.

China already has a regime of tight capital controls in place, limiting its vulnerability to the wave of liquidity that analysts say could be pushed towards emerging markets by easier U.S. monetary policy.

By closely managing the yuan's exchange rate, Beijing has also been able to blunt appreciation pressure in the face of a weakening dollar.

To better coordinate its policies, China should establish a team in charge of broad economic and financial supervision above its current network of financial regulators, Xia said.

As an academic adviser on the central bank's monetary policy committee, Xia does not have decision-making powers but does provide input to the policy-making process. - Reuters

KLCI advances, key regional markets up

KUALA LUMPUR: Stocks on Bursa Malaysia closed higher on Thursday, Nov 4, in line with key regional markets after the U.S. Federal Reserve's new bond-buying programme of up to US$600 billion perked up investors' sentiment.

The FBM KLCI rose 4.14 points to 1,511.74, but off the 52-week high of 1,513.41 in the morning. Turnover was 1.28 billion shares valued at RM1.61 billion. Advancing counters led decliners 436 to 332 losers while 326 stocks remained unchanged.

Reuters reported Japanese equities rose more than 2% and led the region after fears of a much stronger yen in the wake of the Fed decision were eased by a moderate market reaction, prompting foreign investors to cover their bets against stocks. The Nikkei 225 surged 2.17% to 9,358.78 and the Hang Seng by 1.62% to 24,535.63.

The ringgit strengthened to 3.081 per US dollar, spot gold increased US$13.20 to US$1,361.75 while crude palm oil futures for December delivery rose RM105 to RM3,186 per tonne.

At Bursa Malaysia, index-linked stock Petronas Dagangan surged 48 sen to RM11.58, PPB Group 20 sen to RM19.22, Genting 10 sen to RM10.68, Sime Darby six sen to RM8.93 and Public Bank four sen to RM12.78.

Kulim was top gainer, jumping 64 sen to RM11.94 after its corporate announcement to undertake a one into two share split, bonus issue and free warrants.

Star Publications which saw 313.31 million shares or 42.4% stake traded off-market, shed one sen to RM4.10. The stake belonged to MCA's investment arm Huaren Holdings.

Property stocks ended the day mixed after Bank Negara Malaysia's announced immediate curbs to check excessive speculation in the residential property market. It imposed a maximum loan-to-value (LTV) ratio of 70% for the third housing financing facility.

SP Setia rose five sen to RM1.12, LBS 1.5 sen to 64 sen and PJ Development 0.5 sen to 87 sen. However, Sunway City fell five sen to RM4.15, Glomac shed three sen to RM1.68 and Mah Sing one sen to RM1.87.

Among the major decliners were Masterskill Education, which fell 28 sen to RM2.40, Mentiga Corp 16.5 sen to 65.5 sen and Rock Chemical Industries 15.5 sen to RM1.75.

Pansar Bhd was most active for the day with 48.69 million shares traded followed by Talam with turnover of 41.96 million units. Pansar, which resumed trading, rose 11.5 sen to 61.5 sen.

Maybank IB Research maintained an "overweight" call on the property sector as Bank Negara's annoucement did not come a surprise given its intention to control speculation activities in the property sector.

"We expect temporary and minimal negative impact on property demand as domestic demand is still largely dominated by genuine buyers," the research house said.

Maybank fixes new shares issued under dividend reinvestment at RM7.70

KUALA LUMPUR: MALAYAN BANKING BHD [] has fixed the issue price of new Maybank shares to be issued under the dividend reinvestment plan at RM7.70 per share.

It said on Thursday, Nov 4 the issue price was based on the five-day volume weighted average market price (VWAMP) of RM8.99 per share up to and including Nov 3, being the last trading day prior to the price fixing date.

It also said the share price was set after adjusting for a gross dividend adjustment of 44 sen to the five-day VWAMP and a discount of 85 sen, which is approximately 9.9% discount to the ex-dividend VWAMP of RM8.55.

The book closure date pursuant to the final dividend and dividend reinvestment plan has been fixed for Nov 22.

The new Maybank shares arising from the dividend reinvestment plan will be listed on the Main Market on Dec 21.

Ramunia teams up with Korea's DMC to bid for projects

KUALA LUMPUR: RAMUNIA HOLDINGS BHD [] is teaming up with South Korea's Dongnam Marine Crane Co. Ltd to look into the possibility of bidding for cranes in the oil & gas (O&G) industry.

Ramunia said on Thursday, Nov 4 its unit O&G Works Sdn Bhd had signed an MoU with DMC to work out the framework for a potential collaboration.

The collaboration would be to tender and bid for contracts involving the engineering, design, procurement and fabrication of offshore pedestal cranes, marine cranes and any other make of cranes for the oil and gas industry and any other industries.

Ramunia said DMC is an offshore crane and deck crane professional manufacturer which owns a yard with facilities to carry out all range of crane manufacturing and fabrication works.

CIMB Thai divests BT Insurance for RM40.68m

KUALA LUMPUR: CIMB Thai Bank Public Co. Ltd has completed the divestment of its entire 99.99% stake in BT Insurance Co. Ltd for cash consideration of 392 million Thai baht (RM40.68 million).

CIMB Group Holdings Bhd said the divestment was completed on Thursday, Nov 4 and had ceased to be an indirect subsidiary.

Acquisition means Sunrise will realise value over shorter period, potential to be regional player

KUALA LUMPUR: The proposed acquisition of SUNRISE BHD [] by UEM Land Holdings Bhd will enable Sunrise to realise its value over a shorter period of time while allowing it to be part of a potential regional player, said Sunrise executive chairman Datuk Tong Kooi Ong.

"The acquisition will substantially enhance the capital structure and allows Sunrise to generate more sustainable earnings with possibility of new businesses," said Tong during a press conference following the announcement of the proposed acquisition on Thursday, Nov 4.

He cited Singapore-based CapitaLand Ltd, one of Asia's largest real estate companies, as an example of a successful merger that took two local players to the global stage. DBS Land and Pidemco Land merged in 2000 to form CapitaLand Ltd.

"Realistically, for me alone to try to turn Sunrise into a global player like CapitaLand would take the rest of my life. This way, it allows Sunrise to be part of a company that can compete regionally and globally," said Tong.

UEM Land had announced the proposed a conditional voluntary general offer to acquire Sunrise at RM2.80 per share or about RM1.39 billion on Thursday morning. The merged entity will have a landbank of about 12,000 acres and a combined asset base of about RM5 billion.

Tong along with Datuk Allan Lim Kim Huat and Tan Sri Tan Chee Sing have given their irrevocable undertakings to accept the offer in respect of their stakes totaling 40.3% in Sunrise.

"This is an indication by us to the shareholders and the public that we believe in the potential of this deal and that it makes sense," said Tong.

He acknowledged that the question of business "culture clashes" was foremost in his mind when the offer was first made, and stressed that it was crucial to the success of the new entity to retain the talents of both companies.

"What we will try to do is not to force a merger and allow the employees in the two companies to work parallel to one another. Over time and with more interaction, both parties will feel more comfortable. Hopefully, this will diffuse a lot of potential human issues that may arise," he added.

Also present at the press conference called by UEM Land were UEM Group Bhd group managing director and chief executive officer Datuk Izzaddin Idris and UEM Land managing director and chief executive officer Datuk Wan Abdullah Wan Ibrahim.

Izzaddin said that one of the driving factors for the acquisition is the talent theat Sunrise possesses. "We have to give recognition to Sunrise's employees for all they have achieved. We see universal values in both companies such as quality service and products. There are bound to be noises along the way but we think we can keep that minimal," he said.

Meanwhile, Wan Abdullah said the acquisition will allow UEM Land to participate in Sunrise's development in the Klang Valley, including in Mont Kiara, in the KLCC area and in Shah Alam. Sunrise, on the other hand, will be able to partake in UEM Land's developments in Nusajaya in Iskandar Malaysia, Johor.

"We are basically a township developer, and Sunrise has the expertise and proven track record in high-rises and integrated developments, so both companies will complement each other," said Wan Abdullah.

If the offer is successful, UEM Land will retain the Sunrise brand and its employees. Tong will remain as chairman of Sunrise, while Wan Abdullah will assume the position of managing director of Sunrise. Izzaddin will be appointed to the board of Sunrise.

Tong will also be named a director of UEM Land, and chair the Development Committee of both UEM Land and Sunrise.

The offer price of RM2.80 per share represents a premium of 30.4% to the one month volume weighted average price of Sunrise shares up to Nov 2, after taking into consideration the interim dividend of RM0.20 per share announced by Sunrise on Nov 3.

The proposed acquisition will be undertaken via a conditional voluntary general offer and as part of the terms, shareholders of Sunrise can elect to receive either 1.33 new UEM Land ordinary shares of RM0.50 each at RM2.10 per share, or 2.8 redeemable convertible preference shares (RCPS) at an issue price of RM1.00 per RCPS.

The RCPS are convertible into UEM Land shares at RM2.30 per share at anytime during the tenure of the RCPS, and are redeemable at 100% of their issue price only at maturity.

The offer is conditional upon UEM Land receiving acceptance of more than 50% of Sunrise shares from its shareholders. Upon successful completion of the offer, UEM Land will seek to delist Sunrise should it not have the requisite public shareholding spread to maintain its listing status on Bursa Malaysia.

The exercise is expected to be completed in the first quarter of 2011.

Read related story: Sunrise-UEM merger to result in combined asset base of over RM5b

Tenaga Nasional's maximum bonus shares revised to 1.119 bln

KUALA LUMPUR: TENAGA NASIONAL BHD [] said the maximum number of bonus shares has been revised to 1.119 billion and the additional listing application has been submitted to Bursa Malaysia Securities.

Tenaga said on Thursday, Nov 4 the revised maximum number was based on Tenaga's paid-up share capital of'' RM4.355 billion comprising of 4.355 billion shares as at Oct 19.

It also took into consideration Tenaga's'' ESOS Options amounting to 120.806 million as Oct 19, (including options which have been exercised but shares yet to be listed).

Tenaga added the maximum number of bonus shares was reduced since the initial announcement on Aug 26 after certain employees had ceased employment. This caused 102,625 ESOS options to cease to be valid.

JP Morgan: Buying opportunity in property share price weakness

KUALA LUMPUR: JP Morgan Asia Pacific Equity Research said any weakness in share prices from the Bank Negara Malaysia announcement on the imposition of a 70% loan-to-value cap (LVR) on mortgages for third PROPERTIES [] as 'a buying opportunity'.

In a research note issued on Thursday, Nov 4 it said the new ruling was clearly targeted at speculative buyers. Genuine first and even second time home buyers would not be affected, and would still be able to obtain financing of up to 90%.

'This is in line with guidance and not a surprise to the market. The government has already provided hints on this possibility over the past couple of months. Note however that even prior to this, banks have generally been stringent with the previous 90% ceiling LVR already not a common practice as much depends on the credit profile of each customer,' it said.

JP Morgan said on balance, it remains positive. In the short term, developers with higher exposure to the more speculative condo/high rise market (namely in the KLCC and Mont Kiara area, Klang Valley) and even for high-end landed properties in certain limited hot spot locations in Klang Valley (i.e. Desa Park City, Mutiara Damansara) and in Penang, could see some softening in demand.

'Overall however, we believe the move is positive for the long term sustainability and health of the sector,' it said.

It maintained its overweight on IJM Land and SP Setia, but preferred the former on valuation. The more speculative condominium market accounts for no more than 20% of sales for SP Setia and 35%-40% for IJM Land.

'For IJM Land, its strong branding, attractive product portfolio at the 'Light' project, and shortage of land in Penang island, also means that it should continue to fare better than most other condo developers, in our view,' it said.

JP Morgan said both companies could also benefit from upside to earnings from new projects i.e. from the commercial KL Eco City project for SP Setia to be launched by year-end, and from the Canal City residential project for IJM Land to be likely launched in 2011.

'We see any weakness in share prices from this announcement as a buying opportunity,' it said.

It said IJM Land was currently trading at a 30% discount to its RNAV of RM3.80/share, while SP Setia is already trading close to its RNAV of RM5.20/share.

During periods of strong liquidity and foreign inflows back in 2007 coupled with healthy sector fundamentals, SP Setia traded up to a 20% premium to RNAV.

#Flash* Masterskill hits fresh low

KUALA LUMPUR: Shares of Masterskill Education Group fell in late afternoon on Thursday, Nov 4, sliding to a fresh low of RM2.44.

At 3.01pm, it was down 24 sen to RM2.44 with 2.53 million shares done. It was listed in May and its offer price was RM3.80 and closed at RM9.96 on the first day.

A substantial shareholder FMR LLC & FIL Limited had been reducing its stake in the nursing education services group. Since Oct 14 to Oct 27, it had disposed of 1.16 million shares, reducing its stake to 8.92% or 36.55 million shares.

MRCB advances in active trade, TP at RM2.90

KUALA LUMPUR: Shares of MALAYSIAN RESOURCES CORP [] Bhd rose in active trade in late afternoon on Thursday, Nov 4 after it was recently upgraded by a local research house due to MRCB's strong proxy to the 10th Malaysia Plan (10MP).

At 3.21pm, MRCB was up 10 sen to RM2.17. There were 10.9 million shares done.

The FBM KLCI was up 1.87 points to 1,509.47. Turnover was 858.37 million shares done valued at RM1.01 billion. There were 371 gainers, 356 losers and 305 stocks unchanged.

Hwang DBS Vickers Research (HDBSVR) said MRCB strong proxy to 10MP projects and raised its target price to RM2.90

'We raised FY11-FY12F earnings by 13-27% after imputing larger new contract wins of RM600m p.a (vs RM400 million to RM600 million previously), and the launch of Lot D in 2H 2011 (GDV RM1.2 billion; average selling price RM900-RM1200 psf, JV with CapitaLand and Quill),' it said.

HDBSVR said it raised TP to RM2.90, also accounting for (i) higher RM1,200 psf ASP for the remaining 12 acres of land in KL Sentral premised on a scarcity premium for the strong maturing franchise. The last benchmark for office was Lot G at more than RM1,000 psf, similar for recent strata units for Lot B; (ii) higher values for its concessions, EDL and Duke, and (iii) inclusion of building services business at 10x CY11 PE.

HDBSVR said pending a formal participation in the Rubber Research Institute Malaysia (RRIM) land, MRCB seems set to capitalise on more 10MP projects, which carry stronger emphasis on environmental projects.

With the mass rapid transit (MRT) closer to receiving Cabinet approval, MRCB's fortune is even brighter with the red and green line converging at RRIM.

'It will benefit from: (i) better pricing power over our RM300 psf assumption. Every RM100 psf increase will raise our SOP by 7%, and (ii) it will likely receive a sizable portion of MRT CONSTRUCTION [] works for the portion leading to the RRIM land. Another wildcard could be MRCB's involvement in the redevelopment of Pudu Jail given its prior work for Gaya Bangsar condominium,' said the research house.

Emerging market policymakers vow to combat Fed's QE2

SEOUL: Policymakers from Brazil to South Korea and China on Thursday, Nov 4 pledged to come up with fresh measures to curb capital inflows after the U.S. Federal Reserve said it would print billions of dollars to rescue the economy.

The frosty reaction from emerging economies makes any substantive deal on global imbalances and currencies at next week's Group of 20 meeting that Seoul is hosting even less likely.

South Korea's Ministry of Finance and Strategy sent "a message to the markets" on Thursday saying it would "aggressively" consider controls on capital flows while Brazil's Foreign Trade Secretary said the Fed's move could cause "retaliatory measures"

The United States had wanted to use the G20, which groups developed and emerging market economies that account of 85 percent of global output, to agree firm numerical targets for current account balances and to reiterate a commitment not to undertake competitive devaluations.

"It doesn't seem to me that this is the kind of environment in which any country will commit to targets," said Credit Suisse currency strategist Olivier Desbarres.

"Why would the world's leaders come up with a much, much more prescriptive framework than that agreed by their finance ministers two weeks ago."

In the wake of the Fed's move to buy $600 billion of U.S. bonds, South Korea's central bank was seen selling its won currency on Thursday in a bid to cap gains after it hit six-month highs in the run-up to the Fed announcement.

Other high-yielding currencies also rose with the Australian dollar breaking through $1 to its highest levels since 1982.

In public, South Korean officials remained optimistic of a meaningful deal from the G20 but in private optimism of a pact backed by firm numbers has been tempered by opposition from Germany and China.

"It's very difficult to say that we will have numbers (out of the summit)," said a South Korean official who declined to be named but who had direct knowledge of the talks.

Chinese officials were more blunt in their assessment of the G20 process and appeared to dispute claims by South Korean officials that the group's emphasis on a wide range of economic indicators, not just currencies, had been beneficial.

Chinese central bank advisor Xia Bin said in a commentary piece in the Financial News, a Chinese-language newspaper managed by the bank, that "We must think 'what is good for us'."


Seoul has held off announcing controls on capital flows for fear of embarrassment ahead of the G20, but others who will participate have been less shy.

Emerging market powerhouse Brazil has announced a slew of measures over the past few weeks to curb the appreciation of the real currency by direct intervention in markets and doubling a tax on portfolio inflows.

"Looking more closely at the pattern of gaps between the tracking and the actual foreign exchange rate, one may find evidence of a small effect," Brazilian investment bank BTG Pactual said in a detailed study of the impact of measures taken.

"But it is exactly because the effect is indeed small - a couple of centavos in the Brazilian real price of one U.S. dollar - both in absolute terms and in relation to the overall fluctuations of the currency, that it does not stand out in the more cursory comparison between the tracking and the actual FX rate," it concluded.

Colombia announced last week a slew of measures to help counter the rise of its currency, including keeping money abroad, buying dollars in forwards markets and helping industry by cutting import tariffs.

In South Korea, repeated hints that there will be some form of controls appear to have been shrugged off by investors who bought more Korean bonds in October than at any time in the past year, according to official data released on Wednesday.

In fact Korea appears to be preparing as much for a time when the current bubble in emerging markets bursts as for dealing with current inflows.

"When risk appetite goes south and dollar liquidity tightens, you find Korean banks and corporates cannot roll over their foreign exchange debt," said Credit Suisse's Desbarres. - Reuters

GLOBAL MARKETS-Asia stocks, commodities climb after Fed

HONG KONG: Asian stocks rose to their highest levels since June 2008 and commodity prices rallied on Thursday, Nov 4 after the Federal Reserve's new bond-buying programme kept the hunt on for growth and higher yields.

Japanese equities rose 2 percent and led the region after fears of a much stronger yen in the wake of the Fed decision were eased by a moderate market reaction, prompting foreign investors to cover their bets against stocks.

After falling overnight, the U.S. dollar stabilised, with dealers hesitant to add to sizable bets against the currency after the euro touched a 10-month high, though traders pushed up copper and oil prices anyway.

There was still a plethora of events remaining this week that could inject volatility in asset markets, including policy meetings of the Bank of England, Bank of Japan and European Central Bank as well as the October U.S. payrolls report.

For Asia, after the Fed pledged to buy $600 billion of mostly mid-maturity Treasury debt, increased capital flows into the region will probably accelerate a process of reflation but also heighten the risk of more stringent capital controls.

"By undertaking more Treasury bond purchases, the hope is that risk appetite will provide the catalyst for people to spend, particularly corporates," Sean Darby, Asia strategist with Nomura in Hong Kong, said in a note.

"We expect Asian equities to remain well bid but the additional QE will raise the spectre of capital controls in ASEAN and parts of North Asia."

Japan's Nikkei share average was up 1.9 percent, with shares of big exporters among the biggest lifts to the index after the yen sold off overnight.

The MSCI index of Asia Pacific shares outside Japan edged up 0.8 percent, led by the commodity and TECHNOLOGY [] sectors.

Since September when speculation grew the Fed would have to print more cheap money and a chunk of those dollars would come to high-growth Asia, the index has risen 19 percent, exceeding returns on the MSCI all-country world index of 15 percent.

Hong Kong's stock market remained electric this week, with the Hang Seng up 1 percent on the day and extending gains so far this week to 5.6 percent compared with returns of 3.6 percent on the MSCI Asia Pacific ex-Japan index.


In currency markets, many dealers did not want to upset a weak U.S. dollar trend already in place before the Fed meeting, but quickly found other themes on which to trade.

The Canadian dollar was a big mover, with the U.S. dollar climbing 0.3 percent to C$1.0076 after the Canadian government surprised markets by blocking BHP Billiton's $39 billion bid for Potash Corp

The euro was at $1.4110 basically flat on the day, after hitting a high around $1.4175 on Wednesday.

Some investors were beginning to reassess the risks of keeping such negative bets on the dollar after the Fed decision was largely in line with expectations.

For example, fund managers at Edmond de Rothschild Asset Management said they were maintaining their short euro versus the dollar position after the Fed news.

"After rallying so strongly in the recent past, risky assets might inspire more caution. This would benefit the USD and provide overall protection for our positions," the firm said in a note.

Economic reflation trades were rampant in the commodities market, with three-month copper traded on the London Metal Exchange up 1.3 percent to $8,431.25 a tonne creeping back toward a two-year high reached last week.

Crude prices were poised for a fourth day of gains, up 0.7 percent on the day at $85.27 a barrel

Ten-year U.S. Treasury futures rose 0.5 percent to a one-month high while in the cash market, 5-year Treasury yields slipped 3 basis points to 1.08 percent, with 43 percent of the Fed's new plans for bond buying falling between 4 and 7 year maturities. - Reuters

Star Publications sees 42.4% stake done off-market

KUALA LUMPUR: STAR PUBLICATIONS (M) BHD [] saw 313.31 million shares done in an off-market deal on Thursday, Nov 4.

Stock market data showed the shares, representing 42.4%, was done at RM4.09 apiece at 11.51am.

The stake is owned by the company's single largest shareholder Huaren Holdings Bhd.

Star shares rose two sen to RM4.11 at midday.

Kulim surges to 52-wk high, FBM KLCI firmer

KUALA LUMPUR: Shares of KULIM (M) BHD [] traded to a 52-week high of RM12.08 on Bursa Malaysia on Thursday, Nov 4 following a corporate exercise announcement while the FBM KLCI was on positive territory in line with key regional markets.

At midday, Kulim was top gainer surging 58 sen or 5.13% to RM11.88 with turnover of 2.44 million shares that translated into RM29.15 million in value. Its shares had risen 57.3% year-to-date.

Kulim had announced a proposed share split of one 50 sen share into two 25 sen shares, and a one-for-one bonus issue after the share split. It also proposed to issue free warrants on a one-for-eight basis after the share split and bonus issue.

The FBM KLCI rose 3.07 points to 1510.67 after touching a year high of 1,513.41. Gainers outpaced losers by 363 to 310 while 308 counters traded unchanged. Volume was 695.0 million shares valued at RM632.55 million.

The ringgit strengthened to 3.083 per US dollar, spot gold added US$7 an ounce to US$1,355.55 while crude palm oil futures for December delivery rose RM59 to RM3,140 per tonne.

Hang Seng Index +1.18% 24,429.41 Taiwan's Taiex +0.72% 8,353.45 Singapore's Straits Times Index +0.13% 3,229.21 Nikkei 225 +2.05% 9,348.10 Kospi +0.33% 1,942.39 Shanghai Composite Index +1.32% 3,070.97 ''

At Bursa Malaysia, Petronas Dagangan added 26 sen to RM11.36, Genting 12 sen to RM10.70, UMW Holdings nine sen to RM6.89, Public Bank six sen to RM12.80, and IOI Corp two sen to RM5.86.

Pansar was most active stock with 40.26 million shares traded while Talam saw 34.10 million shares transacted at midday. Pansar rose 16 sen to 66 sen when it resumed trading.

Among the decliners were Teo Guan Lee Corp by 19 sen to RM1.50, Advanced Packaging 17 sen to RM1.42 and Padini 17 sen to RM5.03.

CIMB Research said KLCI's CY11-12 EPS forecasts were raised by 1-2.5% as it increased its forecasts for gaming and PLANTATION [] companies in view of the stronger-than-expected performance by Genting Singapore and CPO prices.

"The upgrades more than offset the cut in forecasts for other big caps such as Tenaga and UMW," the research house said.

Pansar jumps on requotation

KUALA LUMPUR: Shares of Pansar Bhd surged in early trade on Thursday, Nov 4 when they resumed trading after Bursa Malaysia Securities uplifted the company from the Practice Note 10 classification.

It opened at 66 sen, up 15 sen from the reference price of 50 sen. There were 5.02 million shares done.

At 9.08am, it was up 19 sen to 69 sen with 16.1 million units done.

Pansar had completed its restructuring scheme and this saw the listing and quotation of an additional 238 million new ordinary shares of 50 sen each at an issue price of 50 sen.


Kulim surges after corporate proposals

KUALA LUMPUR: Shares of Kulim Bhd surged in early trade on Thursday, Nov 4 after it announced a corporate exercise involving a share split, bonus issue and free warrants.

At 9.13am, Kulim was up 72 sen to RM12.02 with 548,000 shares done.

The FBM KLCI rose 3.52 points to 1,511.12. Turnover was 81.54 million shares valued at RM66.88 million. There were 180 gainers, 68 losers and 140 stocks unchanged.

Kulim proposed the share split of one 50 sen share into two 25 sen shares. It would then undertake a one-for-one bonus issue after the share split.

It also proposed to issue free warrants on a one-for-eight basis after the share split and bonus issue. Its shares rose 22 sen to close at RM10.66 with 1.61 million units done on Wednesday.

#Flash* UEM Land proposes conditional takeover for all Sunrise shares at RM2.80 per offer share

KUALA LUMPUR: UEM Land Bhd has proposed a conditional takeover for all SUNRISE BHD [] shares at RM2.80 per offer share via a share swap or an alternative offer by the issuance of redeemable convertible preference shares.

UEM Land said on Thursday, Nov 4 it would offer its shares at RM2.10 each to Sunrise shareholders on the basis of 1.33 UEM Land shares for every one Sunrise share.

UEM Land said the alternative offer would be the issuance of redeemable convertible preference shares of 1 sen each in UEM Land (RCPS) at an issue price of RM1 each where the Sunrise shareholders will receive 2.80 RCPS for every one offer share surrendered.

The proposed offer is conditional upon UEM Land having received, before the close of the proposed offer, valid acceptances which would result in the offeror holding more than 50% of the voting shares of Sunrise.

UEM Land and parties acting in concert with it are UEM Group Bhd and Khazanah Nasional Bhd.

It said under the RCPS alternative, assuming all the Sunrise shareholders elect for the RCPS alternative, UEM Land would raise up to RM1.8 billion upon full conversion of the RCPS.

On the rationale, UEM Land said the group's vast land bank in Nusajaya is expected to be the engine for growth and sustainable income over the mid-long term time horizon.

However, as the UEM Land Group's property development activities in Nusajaya are still under various stages of development, the UEM Land Group's current/historical profitability is not reflective of the value potential of such land holdings.

The proposed offer is expected to provide immediate enhancement to the UEM Land Group's earnings as it would be able to consolidate the financial results of the Sunrise Group and leverage on its strong existing pipeline developments.

UEM Land said based on public announcements made by Sunrise, the company plans to launch four projects with a total gross development value of RM3.2 billion in its current FYE 30 June 2011 whilst as at June 30, 2010, the Sunrise Group had unbilled sales amounting to RM861 million.

'By leveraging on the Sunrise Group's robust financial strength and prospects, UEM Land is expected to be better positioned to accelerate its own business expansion and to secure new development projects,' it said.

UEM Land said the proposed offer will provide an opportunity to combine two synergistic and complementary property businesses, i.e. Sunrise's property development business and UEM Land's macro township development business, to create a stronger and larger property company which offers more comprehensive and diversified product range.

'With the proposed offer, the UEM Land Group is expected to benefit from the stronger combined asset base of over RM5 billion, positioning itself to be the largest listed property development company in Malaysia in terms of total asset. By achieving such critical mass, the enlarged UEM Land Group is well-equipped to implement its growth strategy and to achieve its aspirations of regional expansion,' it said.

Satang unable to go ahead with probe due to lack of funds

KUALA LUMPUR: SATANG HOLDINGS BHD [] said it was unable to secure funds for Messrs. Ernst & Young to undertake an investigation.

The company said on Thursday, Nov 4 the probe was to have started on Oct 18 had not commenced due to lack of funds.

'The board has in the meantime requested a written quotation from another reputable firm of accountants to undertake the investigation in order to minimise costs and is now awaiting the same,' it said.

On Wednesday, Bursa Malaysia Securities rapped the company for the dissolution of the Audit Committee by the board of directors 'is inconsistent with the requirement to maintain an Audit Committee at all time' in accordance with Paragraph 15.09 (1) of LR.

'Bursa Malaysia also finds the company's rationale to dissolve the Audit Committee as stated in the announcement dated Nov 2,' it said, adding that any vacancy in the Audit Committee can be filled within three months.

The regulator then ordered Satang and its board of director to reinstate and reconstitute the Audit Committee for compliance with paragraph 15.09 of the LR with immediate effect and to furnish Bursa Malaysia documentation evidence which includes minutes of board meeting to confirm the same.

'The board is now advised that the Audit Committee cannot be dissolved. Being so, the board had taken immediate step to reinstate the Audit Committee with immediate effect,' it said.

OSK Research: Traders can accumulate MRCB above RM2

KUALA LUMPUR: While MALAYSIAN RESOURCES CORP [] Bhd (MRCB) is still trending higher along the mid-term uptrend line stretching all the way from the 2008 low, its rally has turned more aggressive since the beginning of September this year.

OSK Research said on Thursday, Nov 4 the sharp rally has caused its share price to trade further away from the mid-term uptrend line.

It added MRCB is now consolidating the rally by constructing a new support floor at above the RM2 level.

'Traders can consider accumulating the shares at above the RM2 level and wait for a breakout from the recent high of RM2.22 to extend further the sharp rally that started in September.

'We are eyeing the RM2.70 level as the upside target. Our cut-loss point is pegged at below the strong RM2 support floor while next support is seen at the RM1.80 level,' it said.

OSK Research maintains Buy on CI Holdings, TP of RM4.78

KUALA LUMPUR: CI Holdings Bhd reported respectable a year-on-year revenue and earnings growth of 24.1% and 43.2% to RM153.63 million and RM11.8 million respectively for 1QFY11, which were within its and consensus forecast.

OSK Research said the hearty numbers were mainly attributed to the strong growth of non-carbonated and isotonic drink sales. Despite spiraling raw material prices,

'EBIT margin improved by 1.2 percentage points y-o-y on better cost efficiency, higher other operating income and a stronger ringgit against the US dollar. In view of the in line results, we maintain our FY11 and FY12 earnings forecasts at RM45.3 million and RM52.9 million respectively. Maintain BUY, at a TP of RM4.78,' it said.

Hwang DBS Vickers Research sees markets perking up

KUALA LUMPUR: Hwang DBS Vickers Research said there sentiment across Asia may perk up on Thursday, Nov 4 after the US Federal Open Market Committee meeting last night.

Essentially, the U.S. policymakers ' while leaving interest rates unchanged ' have stated its intention to purchase a further US$600bn of longer-term Treasury securities by end-2Q11. This is slightly higher than market expectations, which then pushed up key equity indices on Wall Street by between 0.2% and 0.4% at the closing bell.

'Consequently, the benchmark FBM KLCI will probably show a slight positive bias ahead, making its way towards the resistance target of 1,525.

'Meanwhile, the international reserves report as at Oct 29 ' to be out this evening ' would give an update on the latest fund flows pattern following a sizeable fortnightly increase of US$4.8b in 2H of September and US$3.9 billion in 1H of October,' it said.

Hwang DBS Vickers Research said in terms of corporate development, property counters may come under the limelight after Bank Negara Malaysia has imposed a loan-to-value cap of 70% for the third property purchase.

Later in the evening, the interest will be on a joint announcement to be made by Sunrise and UEM Land regarding a possible merger exercise.

#Flash* US Fed to buy US$600b govt bonds to boost economy

WASHINGTON: The Federal Reserve on Wednesday, Nov 3 launched a fresh effort to support a struggling U.S. economy, committing to buy $600 billion in government bonds despite concerns the program could do more harm than good.

The decision takes the Fed into largely uncharted waters and is aimed at further lowering borrowing costs for consumers and businesses still suffering in the aftermath of the worst recession since the Great Depression.

The U.S. central bank said it would buy about $75 billion in longer-term Treasury bonds per month through the end of June 2011 and could adjust purchases depending on the recovery.

"The economy is slowly digging itself out of a deep hole," said Brian Bethune, economist at IHS Global Insight in Lexington, Massachusetts. "The Fed is making the right moves here to nudge the pace up a little..."

Critics within and outside the central bank fear the Fed's policy will lead to high inflation and worry that low interest rates in the United States risk fueling asset bubbles abroad.

But with the U.S. economy expanding at only a 2.0 percent annual pace in the third quarter of this year and the jobless rate seemingly stuck around 9.6 percent, the Fed had come under pressure to do more to stimulate business activity.


In the Federal Reserve's post-meeting statement, policymakers described the economy as "slow" and said employers remained reluctant to create jobs. They also called inflation "somewhat low."

"Progress toward (our) objectives has been disappointingly slow," the Fed said, referring to its dual mandate to maintain price stability and foster maximum sustainable employment.

With 14.8 million Americans unemployed, factories operating well short of capacity, and inflation well below the range the Fed would prefer, some officials at the central bank see the risk of a vicious deflationary cycle where consumers hold off on purchases, choking off economic growth.

The overall size of the bond buying program was slightly larger than the $500 billion that many analysts had looked for, though the pace of monthly buying fell short of expectations for something around $100 billion.

Market reaction was initially volatile but at the end of the day left the recent uptrend in stocks and downtrend in the U.S. dollar intact.

The Standard & Poor's 500 index of U.S. stocks rose just 0.37 percent after initial losses and the dollar fell against the euro. U.S. Treasury bond yields fell for shorter-dated maturities. Disappointment that the Fed did not expand buying to 30-year bonds led to a sharp rise in long-dated yields.

While doubts lingered about the ability of bond purchases to kick start a moribund economy, there was a sense in the market that the Fed was open to doing more if the recovery remains sluggish.

"The (Fed) is still leaning toward the easier side and views the program as being open-ended," said Ward McCarthy, chief financial economist at Jefferies in New York.

Nearly 90 percent of the Fed's purchases will be of Treasuries with maturities ranging from 2-1/2 to 10 years, the New York Fed said, adding it would temporarily relax a rule limiting ownership by the Fed of any particular security to 35 percent. It said holdings would be allowed to rise above that threshold "only in modest increments."


In response to the most severe financial crisis in generations, the central bank had already cut overnight interest rates to near zero and bought about $1.7 trillion in U.S. government debt and mortgage-linked bonds.

Those purchases, however, occurred when financial markets were largely paralyzed, and economists and Fed officials alike are divided over how effective the new program will be.

Indeed, Kansas City Fed President Thomas Hoenig and some other Fed officials worry further bond buying could do more harm than good by providing tinder for inflation that will ignite when the recovery finally gains traction. Hoenig voted against the action, his seventh straight dissent.

The impact of Fed monetary easing overseas has been significant. With the prospect of a long period of ultra-low returns in the United States, investors have flocked to emerging markets, pushing those currencies higher. Developing economies, worried about a loss of export competitiveness, have cried foul.

"We are all under attack by the relaxed monetary policy of the United States," Colombian Finance Minister Juan Carlos Echeverry told investors on Tuesday.

The Bank of Japan, which meets on Thursday and Friday, is also poised to launch a new round of bond buying. [ID:nTOE6A0098] The European Central Bank and Bank of England also meet this week, but are expected to leave policy on hold.

The Fed's policies also have repercussions for liquidity in Treasury bonds, the world's largest sovereign debt market where investors historically seek safe-haven from market stress.

The U.S. central bank already owns roughly 12.5 percent of all outstanding Treasury bonds and notes. If it were to buy $1 trillion more, as some economists expect it eventually will, the portion of its holdings compared with all outstanding Treasuries could jump to 27 percent.

A group of bond dealers that advises the U.S. Treasury expressed concerns about the possibility that a shortage of bonds could cause market disruptions, according to minutes from its Nov. 2 meeting released on Wednesday. - Reuters