Economics & Strategy Moody's downgrade puts market on the tether for now Technical View Cautious trade is advocated This weekly report is contributed by contact capitalcorp	ECONOMICS & STRATEGY (for the week of 27-31 July 1998) Moody's downgrade puts market on the tether Economic data from the Asian region continues to show no signs of recovery. Although current account balances have improved sharply, this has come almost entirely from a plunge in imports, indicating weakness in domestic demand. Export demand has been very disappointing despite the massive currency devaluations. The latest trade numbers show negative year-on-year (yoy) export growth virtually across Asia (with the exceptions of Indonesia, Philippines, China and Korea). In Malaysia, exports (in US$ terms) tumbled by 9.7% y-o-y for the first five months of the year, while cumulative imports fell by a higher 22% y-o-y. This is in sharp contrast to Mexico's experience, when its exports surged almost immediately after its infamous Dec 94 peso devaluation. Saving the banking system, pump-priming the economy and a gradual easing of interest rates are policies the Malaysian government has chosen to ride out this recession. Further currency depreciation appears to be a risk the government is willing to take to arrest the economic slowdown. The country needs an estimated RM16b to recapitalise the banks via the proposed Special Purpose Vehicle (SPV), RM10b for Danaharta to buy and manage bad loans, RM12b to revive strategic infrastructure projects and RM7b for various socio-economic projects. The asset management company or Danaharta is expected to start operating in August. Besides allowing banks to focus on disbursing loans to viable businesses, Danaharta would help provide a floor to asset prices by allowing assets to be sold quickly. The longer it takes for assets to clear, the more potential buyers will adopt a wait-and-see attitude. Besides the often-voiced concern that Danaharta may be used to bail out troubled companies or individuals, our specific concern is that weak or failing financial entities which made bad lending decisions are prevented from sinking. A handful non-financial institutions are expected to fold within the next year or two, and it is not too far-fetched to expect one or two financial institutions to "gracefully" collapse. The government said that it will offer bonds valued at US$10b to finance Danaharta's operations. The agency's initial funding target is US$2.4b (or RM10b). The government has not tapped the global bond market since 1990 and its foreign debt commitments are not pressing. Estimates are that short-term foreign debt stands at US$15b (c. 30% of total foreign debt) compared with foreign reserves of about US$21b. The six-point economy recovery action plan may have its schedules hampered by the latest revision of country ratings by S&P and Moody's. The international roadshow to promote its impending bond issue has been derailed, but we expect this to be a temporary setback to the government. More likely than ever, the resources at EPF and Petronas remain close to its reaches. Download Full Report To view these reports in their original form, please ensure that you have the Adobe Acrobat Reader plug-in. << back
back to left brain
Another malaysian resource site hosted by Malaysian Internet Resources
* Opinions expressed by Capitalcorp do not represent that of MIR Communications Disclaimer These reports are prepared by Capitalcorp on the basis of publicly available information and other sources believed to reliable. It is provided for information purposes only and cannot be considered as an offer to sell, or a solicitation of any offer to buy. While reasonable care has been exercised to ensure the content is accurate and opinions given are fair and reasonable, Capitalcorp makes no representation as to its accuracy and completeness. Under no circumstances should this report be relied upon as such. From time to time, Capitalcorp or its affiliates or officers or employees may have a position or interest in the shares, options, rights and/or warrants of the said subject of this report, to the extent permitted by law. These reports are provided solely for the the clients of Capitalcorp, who are expected to seek advice from their stockbrokers or investment advisors without reliance on this report. Neither the company nor any director, officer or employee shall accept any liability whatsoever for any direct or consequential loss arising from investment decisions based on these reports. These reports may not be reproduced, distributed or published by any recipient in any manner for any purpose without the expressed consent from Capitalcorp. Reproduction and/or circulation of these reports in other countries may be prohibited under certain securities laws. We advise readers to seek Capitalcorp's advice on this matter. The company or the analysts hereby disclaim any liabilities that may arise from such unauthorised acts.