By Ooi Kok Hwa
In this article, we will look into whether we should buy shares online or use our existing remisier’s services to execute trade
COMMISSION rates for Internet trading and cash upfront transactions will be fully negotiable next year.
Although the full details on the actual implementation are not available yet, if the commission on Internet trading drops to a low of 0.15% (it may be even lower for some stockbroking firms), retailers may be tempted to execute the online transactions themselves without going through their remisiers.
Based on the existing structure, most retailers are paying a brokerage fee of about 0.6% per transaction. Assuming some stockbroking companies are willing to offer commission rates of 0.15% for Internet trading, there will be savings of 0.45% for retailers who trade online.
Nevertheless, we need to understand that transaction costs have two main components: explicit cost and implicit cost.
Explicit cost is the direct cost of trading, such as brokerage commission, stamp duties and clearing fees. Implicit costs are indirect trading costs like opportunity cost, market impact and missed trade costs.
Opportunity cost is the loss of opportunities due to the time retailers are required to spend on executing stock transactions instead of focusing on their main business or their work.
If you are working and have limited time to monitor the stock market, you may still need the remisier’s services to execute stock transactions.
I personally feel that it is really not productive to stay in front of the computer just to execute a few stock transactions. Sometimes, it can be quite time consuming getting the best price.
Any retailer who wants to trade online needs the necessary skills to be able to read market movements. He needs to know whether the current price is the best price to buy, or wait for a while because he may get a cheaper price later.
Market impact is the realised profit or loss reflecting the price movement of a share from the price decided on to the execution price.
Since remisiers follow market movements throughout the day, they should be able to read those movements better than we do.
They may not be able to get the best price in every trade but if they are able to save one or two bids lower than your intended purchase price, the cost saving can be quite substantial.
For example, your remisier is able to get one bid lower for you when you want to purchase a stock priced at RM1.50. You will save 1 sen over RM1.50, which is 0.67%.
Assuming your remisier is able to do that in eight out of 10 trades, the average cost saving will be 0.53% (8/10 x 0.67%).
This saving will still be greater than the commission of 0.45% that you would have saved through online trading.
Besides, you have not taken into consideration the time you could have saved and the opportunity loss on your current business if you spend too much time on share trading. The extra 0.45% that you pay is for your remisier’s skills.
As mentioned earlier, besides opportunity costs and market impact, there are other implicit trading costs, like missed trade costs.
Missed trade costs arise from the failure to execute a trade in a timely manner.
If you split a purchase of 20 lots of Stock A into two equal limit orders when the quote for Stock A is RM11.00 to RM11.10, the first order is executed at the buying price of RM11.00, after which the quotation moves up to RM11.10 to RM11.20.
The second order is placed and executed at RM11.10. You are paying an additional 10 sen (or 0.9%) for the remaining 10 lots.
Missed trade will cost you an additional 0.45% (0.5 x 0.9%) as 50% of your remaining stocks were traded at a price that was 0.9% higher.
A good remisier should be able to save you the above implicit costs. In this competitive business environment, remisiers need to continue upgrading their skills in order to give better services to their clients.
Wednesday, December 19, 2007
Consumer Spending To Remain Robust
The CEO Outlook 2008 continues with the views of Tan Sri Liew Kee Sin, Alain Crouy and Rajah Kumar, from the property development, cement and consumer electronics sectors respectively. Liew, who leads the country's biggest property development company by market value, looks forward to spillover effects of RM9bil that may be released from the Employees Provident Fund's monthly withdrawal scheme. Crouy at Lafarge Malayan Cement welcomes fairer prices for cement after they had remained unchanged for many years following the Asian financial crisis. Rajah Kumar, who heads Philips, expects consumer spending to continue to be healthy as consumers become more affluent and look for innovative lifestyle products.
Tan Sri Liew Kee Sin
Managing director and CEO
SP Setia Bhd Group
What is your outlook for the property market next year?
The property sector is on a growth trajectory, having benefited significantly from sweeping changes geared towards making Malaysia the top real estate investment destination as well as stimulating domestic home ownership. The FIC easing on foreign ownership and the real property gains tax exemption have put Malaysia on the radar screen of international investors.
Foreign interest in local properties is gaining momentum, as reflected in new price benchmarks. The retirement and holiday home market is beginning to attract more interest from tourists. Foreigners are also keen on commercial developments with many Middle East consortia purchasing properties en bloc or taking equity interest in projects.
We believe foreigners’ appetite for local properties will continue unabated as they are betting on an under-valued market with significant upside potential.
Moreover, the unlocking of some RM9bil worth of funds from the Employees Provident Fund is set to unleash a profound spillover effect on the industry. The higher purchasing power arising from the monthly EPF withdrawal will enable contributors to upgrade to better homes.
Collectively, we believe the broad-based boost from these initiatives will be sustained into 2008. Underpinned by the stable economy and attractive financing packages, we believe the property sector will continue to thrive next year.
What are some of the opportunities and challenges for industry players going forward?
Thanks to the slew of pump-priming efforts to revitalise the property sector, market demand has picked up. The Government’s efforts to enhance the public delivery system have also contributed to increased investor confidence; foreign investors are also beginning to invest in the special economic zones such as the Iskandar Development Region (IDR) and North Corridor Economic Region (NCER).
With the spotlight shifting to the Malaysian market, the stage is set for industry players to seize the opportunities and aggressively promote their products to the world. But liberalisation of the industry brings about increased competition. Foreign buyers are accustomed to the demanding and exacting standards of developed nations so the challenge is to meet these expectations.
Moreover, the entry of foreign developers into the local market also means that local players would be subject to greater scrutiny by consumers who are increasingly spoilt for choice.
Demand-wise, the domestic market will continue to expand organically by virtue of the nation’s young demographics. With 60% of the population below 30 years of age, the group will form the core base of housing demand as wealth creation and family formation increases. Developers that can distinguish their value proposition by identifying untapped potential and demonstrating superb delivery capability and branding prowess will garner greater market share and stay ahead of the pack.
Which property sector and what development types offer the best potential for your company?
SP Setia has set its sights on becoming a fully-integrated developer with a complete suite of projects spanning the entire property spectrum.
Building on our position of strength in Malaysia, we are also expanding geographically with Vietnam being our first stop overseas. We believe this will not only diversify S P Setia’s product offerings but also continue to drive future earnings growth and value creation for stakeholders. We are confident that our latest ventures will dovetail neatly into the upswing in the high-end and commercial sub-sectors.
Recent news reports show that a luxury condominium in the KLCC vicinity changed hands at RM2,100 psf compared with the developer’s price at RM800 psf in 2005. Industry figures revealed that in 2006, 45% of the value of office transactions was by foreigners, compared with 19.3% the year before and 1.9% in 2004. Investments in office buildings also grew 119% in 2006 over 2005 to RM2.7bil from RM1.2bil, driven primarily by real estate investment trusts (REITs) and foreign investment funds.
The statistics point to the vast potential to be tapped in these new market segments. While pursuing these new ventures, we will also stay focused on the mass and mid-end housing market, which continues to provide a stable stream of income for the Group.
What are the challenges and issues being faced by the industry and what is the possible impact on your company?
Like any other industry, the fortunes of the property sector are dictated by the economic climate. The rising cost of doing business caused by the spike in oil as well as raw material prices has exerted tremendous pressure, particularly on the construction and real estate related industry. On one hand, developers are finding it increasingly hard to absorb the escalating costs as this will shrink margins but on the other, passing the buck to the consumer is also not possible due to the affordability threshold.
The perennial problem of poor quality workmanship remains an issue. This is largely due to the shortage of quality and skilled manpower as well as the high dependence on foreign labour, given that locals continue to shun the sector.
To mitigate this, we benchmark our high-end homes using the Singapore-developed CONQUAS quality measurement standards. For mass housing, all our contractors are subjected to stringent in-house quality control criteria. Outperformers will be rewarded while those who are not up to par will be penalised.
I think the most pressing need to ensure the country’s long-term vitality is to devise a new economic model that completely weans itself off the “subsidy mentality” and protectionist policies.
Malaysia cannot afford to distance itself from the wave of globalisation or we will fall behind with the rise of new economic stars such as China, India and now Vietnam.
The only way to go forward is to open up, enhance competitiveness and fully integrate Malaysia into the world’s free market. For instance, there should not be oligopolies permitted in critical industries such as cement and steel production, which have caused artificially inflated prices and created supply problems that add to the cost burden for the construction and property industry.
Even the fuel subsidy for the public cannot be continued indefinitely. Malaysians need to be prepared to face global realities even if it means we have to go through the painful adjustment period.
What are some of the interesting property launches that can be expected from your company?
We will be rolling out a range of products under our five product brands in 2008. To mark our foray into the luxury high-rise sector, we will be launching Setia Sky Residences. Situated on six acres in Jalan Tun Razak, Kuala Lumpur, this striking landmark comprising luxury serviced apartments will enjoy spectacular views of the KLCC Twin Towers. Another project is Duta Grandé, an ultra luxurious development in the upscale Bukit Tunku neighbourhood.
With just 15 units of select bungalows on 6.2 acres of freehold land, Duta Grandé aims to set a new price benchmark at RM30mil per bungalow.
Under the commercial brand, we recently launched our first mixed use project named Setia Walk in Puchong to good response. Positioned as a one-stop lifestyle destination, the RM800mil Setia Walk is a creative hybrid of retail and residential components. Other similar niche projects to be launched include Setia Nexus 1 in Klang with a gross development value (GDV) of RM200mil.
We also have ambitions to develop sizeable retail and commercial cities in the foreseeable future. These include Setia City in Shah Alam and Setia EcoCity in Johor Baru, which will be undertaken in phases with construction expected to start as early as next year.
We will also be launching a number of projects under our award-wining “Eco” brand of green-themed developments. These include the RM2bil Setia Eco Gardens in Johor Baru and the RM1.2bil Setia Eco Villas in Cyberjaya. This popular concept will also be exported to Vietnam via our first project in Vietnam, EcoLakes near Ho Chi Minh City.
Alain Crouy
President and CEO
Lafarge Malayan Cement Bhd
What is the crux of the problem which resulted in builders and contractors crying foul over the high prices in major building materials like steel bars and cement?
Builders and contractors are our customers and if there is a wrong perception over the prices of our products, we are pleased to provide our perspective on the issues.
The perception of the current cement price being high is a result of cement having been sold, for many years after the Asian financial crisis, at unsustainably low levels (including in 2005 where builders and contractors enjoyed steep discount in prices for a six-month period), which did not provide the industry with reasonable returns.
The price of cement remained unchanged for 11 years between 1995 and December 2006. The situation became untenable a few years ago when prices of fuel, electricity and materials as well as transport cost started to surge recently, resulting in a 40% increase in total costs.
Since 1995, the only revision of the cement price was the 9% increase in December 2006. Even after such revision, the cement price in Peninsular Malaysia is still one of the lowest in South-East Asia and still significantly lagging behind the 40% cost increase, with an insufficient return on investment for the cement industry.
The Automatic Pricing Mechanism (APM) proposed by the Government in April is a measure that would bring more responsiveness to industry’s cost movements. With a more orderly mechanism for price adjustments, builders and contractors will be able to take into account such price movements in their budgets, planning and project bids.
Is it true that developers are at the mercy of building material manufacturers, which can command higher prices for their products despite the ceiling prices for cement and steel?
Cement is sold in accordance to the ceiling price set by the Government, including a commission for distributors for the cement which is not sold directly to end users.
Furthermore, cement constitutes only a small portion of construction costs of residential or commercial properties, although it constitutes a slightly higher proportion in infrastructure works.
For example, in a double-storey house, the cost of cement is approximately 5% to 7% of total construction costs. A 10% revision in the ceiling price should then translate into a 0.5% to 0.7% increase in the total cost of construction.
Would it be fair to ask the Government to open the local cement and steel market, and leave local prices to the free market?
In a free market economy where there is no price control, prices of goods will be determined by market forces.
As Malaysia is a trading nation, we believe that for market efficiency, cement could be in the future be considered for exclusion from the price control list.
At the current price of cement on the domestic and on the international markets, however, and taking into account the cost of freight necessary to bring in the cement, importing cement into Malaysia would not be economically viable.
Also, we believe that innovation and quality can be important differentiating factors vs potential imports. In the last two years, Lafarge has introduced two new products - Avancrete for bag users and Mascrete Pro for bulk users to better meet their needs.
At the end, the proposed implementation of the APM will allow government controlled price to more responsively mirror free market price movements and would be a good interim step towards letting local prices to follow free market flows as mentioned in the question.
What is the 2008 outlook for raw material/feedstock prices for building material manufacturers? Please compare the past two to three years performance and the supporting drivers for further growth in demand.
The drivers of cement demand growth will be the implementation of the Ninth Malaysia Plan (9MP) projects, stronger private investments and consumption, hopefully leading to more construction of residential, commercial and industrial properties. No significant increase in cement activities has been seen in the last two years and, in fact, cement demand has stayed flat since 2004. We hope to see a growth of 4% to 5% in the domestic cement market for the next two to three years.
With the recent surge in sea freight rates and commodity prices such as crude oil and coal, production costs are expected to increase considerably in 2008 compared with 2007. If the high crude oil prices lead to the Government’s withdrawal or reduction in price subsidy for diesel and gas, transport costs and electricity prices are likely to increase. It is, therefore, important that the ceiling price of cement be reviewed again with the implementation of the APM.
What are the immediate and long term measures that should be considered by the Government/associations to help remedy the current distortion in building material prices, and artificial shortage in supply (as claimed by developers) as well as better coordination in the supply chain between manufacturers and builders?
It is true that, during the third quarter of this year, there was a short supply of cement in a limited number of places in the country. This was due to the unfortunate conjunction of several simultaneous unplanned plant shutdowns for maintenance by several producers during the same period. We helped those manufacturers who had problems to limit the disruptions as much as possible.
With domestic cement demand at only about 70% to 75% of total cement industry capacity, there is still a major overcapacity in the industry and ample cement supply to serve all the needs of the Malaysian domestic market.
This situation is likely to continue at least for the next four to five years despite the expected growth of the Malaysian market as the industry, in addition to gradually redirecting its exports to serve the domestic market, is also developing the use of blended cement, which adds to capacity.
An increase of the cement price and the proposed implementation of APM will improve the situation in the cement industry and allow for the long term supply of Malaysia’s cement needs throughout the 9MP and beyond.
Rajah Kumar
Chairman & CEO
Philips Group of Companies, Malaysia
What is your outlook on consumer spending for 2008?
With the promising economic outlook, I believe that consumer spending will continue to be healthy in 2008. We are almost back to the pre-recession growth rate, although many consumers are still quite cautious when it comes to high value items. The recent rise in electricity and fuel prices has also sparked increased interest in energy efficient appliances, an area in which Philips is the leader.
The buoyant mid to high-end residential housing market will also drive the demand for premium electronic products into 2008.
Also with the increase in government expenditure such as additional increments for police and army workforce; a 100% increase in the Cost of Living Allowance (COLA) and; a revision of pension payments for retired civil servants, we can expect a bigger impact on the economy arising from the multiplier effect of the collective monetary adjustments for civil servants.
How was consumer spending in 2007?
Consumer spending bolstered by rising incomes, led economic expansion in the first half of 2007. There were a few drivers for the increase in spending. Firstly, private consumption rose in conjunction with strong growth in home ownership, buoyed by low interest rates. The Government’s announcement to allow EPF contributors to offset or pay their housing loans also encouraged the growth in home ownership.
From this, it is only natural to see excellent growth in demand for consumer lifestyle products, ranging from household appliances, entertainment electronics and also our new range of Ambilight TVs.
Secondly, in the second half of this year, private consumption was given further support from significant pay increases for public sector employees. This coupled with a drop in the unemployment rate this year and the Government’s price control on staple products allowed for more spending dollars for the average household.
What is your expectation of spending at the higher end? Please define ‘higher end’ in your industry.
As Malaysians become more affluent and knowledgeable, they tend to spend more on lifestyle products.
Philips’ key business focus is in the continuing innovation in healthcare and lifestyle products. More than 50% of Philips global revenue now comes from products that are less than three years old.
Most of them are high-end, high-tech products, but with our brand promise of Sense and Simplicity.
Currently, there is increasing appeal for green products. Consumers are more aware of the threat of global warming and are looking at alternative avenues to be more energy efficient.
The lighting solutions offered by Philips, although slightly more expensive than traditional light bulbs, provide substantial savings on electricity consumption in the long run. Knowing that lighting represents up to 30% of a home’s energy consumption, it is clear that remarkable savings in electricity cost can be achieved with smart lighting choices.
In the latter part of this year, we launched a new range of consumer LED lighting solutions that are 90% more energy efficient.
We have high-end green products in all categories of lifestyle and healthcare segment such as Ambilight TV, digital audio video players, Achieva MRI machines and also garment care and personal care products.
How has the tourism dollar helped to boost consumer spending? What further measures can be introduced to boost tourism?
Medical tourism is a strategic area that has gained much attention from both Government and the private sector. In order to draw health tourists to Malaysia, our medical facilities should continue to be world-class and be at the leading edge of technology and patient care.
Philips is unique in using its competencies in lighting, display and healthcare systems and products to provide ambient intelligent diagnostic suites where patients experience a friendly and conducive environment for undergoing diagnostic examinations and treatment.
This lifestyle experience in a healthcare environment will attract our local population as well as tourists as human beings are increasingly averse to stress.
What are the new challenges during a time when consumers are said to be spoilt for choice?
I would look at it positively and call it rightfully that consumers are now more empowered to make their choice. In the past, it was about introducing new and innovative products with better design features at the right price point.
Today, consumers are more discerning; they demand products that address their environmental concerns, enhance their lifestyle and that are aesthetically pleasing as well. For example lighting. There is now a shift from fluorescent and tungsten bulbs to LED lighting. Instead of viewing lighting as purely functional, consumers today want lighting to enhance their living or working space, save energy and be environmentally-friendly - all at the same time.
The challenge remains as always to recognise fast-evolving consumer trends and lifestyle changes and being flexible and forward-thinking enough to compete effectively for consumers’ mind share and purchasing ringgit.
Tan Sri Liew Kee Sin
Managing director and CEO
SP Setia Bhd Group
What is your outlook for the property market next year?
The property sector is on a growth trajectory, having benefited significantly from sweeping changes geared towards making Malaysia the top real estate investment destination as well as stimulating domestic home ownership. The FIC easing on foreign ownership and the real property gains tax exemption have put Malaysia on the radar screen of international investors.
Foreign interest in local properties is gaining momentum, as reflected in new price benchmarks. The retirement and holiday home market is beginning to attract more interest from tourists. Foreigners are also keen on commercial developments with many Middle East consortia purchasing properties en bloc or taking equity interest in projects.
We believe foreigners’ appetite for local properties will continue unabated as they are betting on an under-valued market with significant upside potential.
Moreover, the unlocking of some RM9bil worth of funds from the Employees Provident Fund is set to unleash a profound spillover effect on the industry. The higher purchasing power arising from the monthly EPF withdrawal will enable contributors to upgrade to better homes.
Collectively, we believe the broad-based boost from these initiatives will be sustained into 2008. Underpinned by the stable economy and attractive financing packages, we believe the property sector will continue to thrive next year.
What are some of the opportunities and challenges for industry players going forward?
Thanks to the slew of pump-priming efforts to revitalise the property sector, market demand has picked up. The Government’s efforts to enhance the public delivery system have also contributed to increased investor confidence; foreign investors are also beginning to invest in the special economic zones such as the Iskandar Development Region (IDR) and North Corridor Economic Region (NCER).
With the spotlight shifting to the Malaysian market, the stage is set for industry players to seize the opportunities and aggressively promote their products to the world. But liberalisation of the industry brings about increased competition. Foreign buyers are accustomed to the demanding and exacting standards of developed nations so the challenge is to meet these expectations.
Moreover, the entry of foreign developers into the local market also means that local players would be subject to greater scrutiny by consumers who are increasingly spoilt for choice.
Demand-wise, the domestic market will continue to expand organically by virtue of the nation’s young demographics. With 60% of the population below 30 years of age, the group will form the core base of housing demand as wealth creation and family formation increases. Developers that can distinguish their value proposition by identifying untapped potential and demonstrating superb delivery capability and branding prowess will garner greater market share and stay ahead of the pack.
Which property sector and what development types offer the best potential for your company?
SP Setia has set its sights on becoming a fully-integrated developer with a complete suite of projects spanning the entire property spectrum.
Building on our position of strength in Malaysia, we are also expanding geographically with Vietnam being our first stop overseas. We believe this will not only diversify S P Setia’s product offerings but also continue to drive future earnings growth and value creation for stakeholders. We are confident that our latest ventures will dovetail neatly into the upswing in the high-end and commercial sub-sectors.
Recent news reports show that a luxury condominium in the KLCC vicinity changed hands at RM2,100 psf compared with the developer’s price at RM800 psf in 2005. Industry figures revealed that in 2006, 45% of the value of office transactions was by foreigners, compared with 19.3% the year before and 1.9% in 2004. Investments in office buildings also grew 119% in 2006 over 2005 to RM2.7bil from RM1.2bil, driven primarily by real estate investment trusts (REITs) and foreign investment funds.
The statistics point to the vast potential to be tapped in these new market segments. While pursuing these new ventures, we will also stay focused on the mass and mid-end housing market, which continues to provide a stable stream of income for the Group.
What are the challenges and issues being faced by the industry and what is the possible impact on your company?
Like any other industry, the fortunes of the property sector are dictated by the economic climate. The rising cost of doing business caused by the spike in oil as well as raw material prices has exerted tremendous pressure, particularly on the construction and real estate related industry. On one hand, developers are finding it increasingly hard to absorb the escalating costs as this will shrink margins but on the other, passing the buck to the consumer is also not possible due to the affordability threshold.
The perennial problem of poor quality workmanship remains an issue. This is largely due to the shortage of quality and skilled manpower as well as the high dependence on foreign labour, given that locals continue to shun the sector.
To mitigate this, we benchmark our high-end homes using the Singapore-developed CONQUAS quality measurement standards. For mass housing, all our contractors are subjected to stringent in-house quality control criteria. Outperformers will be rewarded while those who are not up to par will be penalised.
I think the most pressing need to ensure the country’s long-term vitality is to devise a new economic model that completely weans itself off the “subsidy mentality” and protectionist policies.
Malaysia cannot afford to distance itself from the wave of globalisation or we will fall behind with the rise of new economic stars such as China, India and now Vietnam.
The only way to go forward is to open up, enhance competitiveness and fully integrate Malaysia into the world’s free market. For instance, there should not be oligopolies permitted in critical industries such as cement and steel production, which have caused artificially inflated prices and created supply problems that add to the cost burden for the construction and property industry.
Even the fuel subsidy for the public cannot be continued indefinitely. Malaysians need to be prepared to face global realities even if it means we have to go through the painful adjustment period.
What are some of the interesting property launches that can be expected from your company?
We will be rolling out a range of products under our five product brands in 2008. To mark our foray into the luxury high-rise sector, we will be launching Setia Sky Residences. Situated on six acres in Jalan Tun Razak, Kuala Lumpur, this striking landmark comprising luxury serviced apartments will enjoy spectacular views of the KLCC Twin Towers. Another project is Duta Grandé, an ultra luxurious development in the upscale Bukit Tunku neighbourhood.
With just 15 units of select bungalows on 6.2 acres of freehold land, Duta Grandé aims to set a new price benchmark at RM30mil per bungalow.
Under the commercial brand, we recently launched our first mixed use project named Setia Walk in Puchong to good response. Positioned as a one-stop lifestyle destination, the RM800mil Setia Walk is a creative hybrid of retail and residential components. Other similar niche projects to be launched include Setia Nexus 1 in Klang with a gross development value (GDV) of RM200mil.
We also have ambitions to develop sizeable retail and commercial cities in the foreseeable future. These include Setia City in Shah Alam and Setia EcoCity in Johor Baru, which will be undertaken in phases with construction expected to start as early as next year.
We will also be launching a number of projects under our award-wining “Eco” brand of green-themed developments. These include the RM2bil Setia Eco Gardens in Johor Baru and the RM1.2bil Setia Eco Villas in Cyberjaya. This popular concept will also be exported to Vietnam via our first project in Vietnam, EcoLakes near Ho Chi Minh City.
Alain Crouy
President and CEO
Lafarge Malayan Cement Bhd
What is the crux of the problem which resulted in builders and contractors crying foul over the high prices in major building materials like steel bars and cement?
Builders and contractors are our customers and if there is a wrong perception over the prices of our products, we are pleased to provide our perspective on the issues.
The perception of the current cement price being high is a result of cement having been sold, for many years after the Asian financial crisis, at unsustainably low levels (including in 2005 where builders and contractors enjoyed steep discount in prices for a six-month period), which did not provide the industry with reasonable returns.
The price of cement remained unchanged for 11 years between 1995 and December 2006. The situation became untenable a few years ago when prices of fuel, electricity and materials as well as transport cost started to surge recently, resulting in a 40% increase in total costs.
Since 1995, the only revision of the cement price was the 9% increase in December 2006. Even after such revision, the cement price in Peninsular Malaysia is still one of the lowest in South-East Asia and still significantly lagging behind the 40% cost increase, with an insufficient return on investment for the cement industry.
The Automatic Pricing Mechanism (APM) proposed by the Government in April is a measure that would bring more responsiveness to industry’s cost movements. With a more orderly mechanism for price adjustments, builders and contractors will be able to take into account such price movements in their budgets, planning and project bids.
Is it true that developers are at the mercy of building material manufacturers, which can command higher prices for their products despite the ceiling prices for cement and steel?
Cement is sold in accordance to the ceiling price set by the Government, including a commission for distributors for the cement which is not sold directly to end users.
Furthermore, cement constitutes only a small portion of construction costs of residential or commercial properties, although it constitutes a slightly higher proportion in infrastructure works.
For example, in a double-storey house, the cost of cement is approximately 5% to 7% of total construction costs. A 10% revision in the ceiling price should then translate into a 0.5% to 0.7% increase in the total cost of construction.
Would it be fair to ask the Government to open the local cement and steel market, and leave local prices to the free market?
In a free market economy where there is no price control, prices of goods will be determined by market forces.
As Malaysia is a trading nation, we believe that for market efficiency, cement could be in the future be considered for exclusion from the price control list.
At the current price of cement on the domestic and on the international markets, however, and taking into account the cost of freight necessary to bring in the cement, importing cement into Malaysia would not be economically viable.
Also, we believe that innovation and quality can be important differentiating factors vs potential imports. In the last two years, Lafarge has introduced two new products - Avancrete for bag users and Mascrete Pro for bulk users to better meet their needs.
At the end, the proposed implementation of the APM will allow government controlled price to more responsively mirror free market price movements and would be a good interim step towards letting local prices to follow free market flows as mentioned in the question.
What is the 2008 outlook for raw material/feedstock prices for building material manufacturers? Please compare the past two to three years performance and the supporting drivers for further growth in demand.
The drivers of cement demand growth will be the implementation of the Ninth Malaysia Plan (9MP) projects, stronger private investments and consumption, hopefully leading to more construction of residential, commercial and industrial properties. No significant increase in cement activities has been seen in the last two years and, in fact, cement demand has stayed flat since 2004. We hope to see a growth of 4% to 5% in the domestic cement market for the next two to three years.
With the recent surge in sea freight rates and commodity prices such as crude oil and coal, production costs are expected to increase considerably in 2008 compared with 2007. If the high crude oil prices lead to the Government’s withdrawal or reduction in price subsidy for diesel and gas, transport costs and electricity prices are likely to increase. It is, therefore, important that the ceiling price of cement be reviewed again with the implementation of the APM.
What are the immediate and long term measures that should be considered by the Government/associations to help remedy the current distortion in building material prices, and artificial shortage in supply (as claimed by developers) as well as better coordination in the supply chain between manufacturers and builders?
It is true that, during the third quarter of this year, there was a short supply of cement in a limited number of places in the country. This was due to the unfortunate conjunction of several simultaneous unplanned plant shutdowns for maintenance by several producers during the same period. We helped those manufacturers who had problems to limit the disruptions as much as possible.
With domestic cement demand at only about 70% to 75% of total cement industry capacity, there is still a major overcapacity in the industry and ample cement supply to serve all the needs of the Malaysian domestic market.
This situation is likely to continue at least for the next four to five years despite the expected growth of the Malaysian market as the industry, in addition to gradually redirecting its exports to serve the domestic market, is also developing the use of blended cement, which adds to capacity.
An increase of the cement price and the proposed implementation of APM will improve the situation in the cement industry and allow for the long term supply of Malaysia’s cement needs throughout the 9MP and beyond.
Rajah Kumar
Chairman & CEO
Philips Group of Companies, Malaysia
What is your outlook on consumer spending for 2008?
With the promising economic outlook, I believe that consumer spending will continue to be healthy in 2008. We are almost back to the pre-recession growth rate, although many consumers are still quite cautious when it comes to high value items. The recent rise in electricity and fuel prices has also sparked increased interest in energy efficient appliances, an area in which Philips is the leader.
The buoyant mid to high-end residential housing market will also drive the demand for premium electronic products into 2008.
Also with the increase in government expenditure such as additional increments for police and army workforce; a 100% increase in the Cost of Living Allowance (COLA) and; a revision of pension payments for retired civil servants, we can expect a bigger impact on the economy arising from the multiplier effect of the collective monetary adjustments for civil servants.
How was consumer spending in 2007?
Consumer spending bolstered by rising incomes, led economic expansion in the first half of 2007. There were a few drivers for the increase in spending. Firstly, private consumption rose in conjunction with strong growth in home ownership, buoyed by low interest rates. The Government’s announcement to allow EPF contributors to offset or pay their housing loans also encouraged the growth in home ownership.
From this, it is only natural to see excellent growth in demand for consumer lifestyle products, ranging from household appliances, entertainment electronics and also our new range of Ambilight TVs.
Secondly, in the second half of this year, private consumption was given further support from significant pay increases for public sector employees. This coupled with a drop in the unemployment rate this year and the Government’s price control on staple products allowed for more spending dollars for the average household.
What is your expectation of spending at the higher end? Please define ‘higher end’ in your industry.
As Malaysians become more affluent and knowledgeable, they tend to spend more on lifestyle products.
Philips’ key business focus is in the continuing innovation in healthcare and lifestyle products. More than 50% of Philips global revenue now comes from products that are less than three years old.
Most of them are high-end, high-tech products, but with our brand promise of Sense and Simplicity.
Currently, there is increasing appeal for green products. Consumers are more aware of the threat of global warming and are looking at alternative avenues to be more energy efficient.
The lighting solutions offered by Philips, although slightly more expensive than traditional light bulbs, provide substantial savings on electricity consumption in the long run. Knowing that lighting represents up to 30% of a home’s energy consumption, it is clear that remarkable savings in electricity cost can be achieved with smart lighting choices.
In the latter part of this year, we launched a new range of consumer LED lighting solutions that are 90% more energy efficient.
We have high-end green products in all categories of lifestyle and healthcare segment such as Ambilight TV, digital audio video players, Achieva MRI machines and also garment care and personal care products.
How has the tourism dollar helped to boost consumer spending? What further measures can be introduced to boost tourism?
Medical tourism is a strategic area that has gained much attention from both Government and the private sector. In order to draw health tourists to Malaysia, our medical facilities should continue to be world-class and be at the leading edge of technology and patient care.
Philips is unique in using its competencies in lighting, display and healthcare systems and products to provide ambient intelligent diagnostic suites where patients experience a friendly and conducive environment for undergoing diagnostic examinations and treatment.
This lifestyle experience in a healthcare environment will attract our local population as well as tourists as human beings are increasingly averse to stress.
What are the new challenges during a time when consumers are said to be spoilt for choice?
I would look at it positively and call it rightfully that consumers are now more empowered to make their choice. In the past, it was about introducing new and innovative products with better design features at the right price point.
Today, consumers are more discerning; they demand products that address their environmental concerns, enhance their lifestyle and that are aesthetically pleasing as well. For example lighting. There is now a shift from fluorescent and tungsten bulbs to LED lighting. Instead of viewing lighting as purely functional, consumers today want lighting to enhance their living or working space, save energy and be environmentally-friendly - all at the same time.
The challenge remains as always to recognise fast-evolving consumer trends and lifestyle changes and being flexible and forward-thinking enough to compete effectively for consumers’ mind share and purchasing ringgit.
Tuesday, December 18, 2007
Domestic Consumption Still Strong
KUALA LUMPUR: Domestic consumption in the country will remain strong although growth may not be in double digit next year, Second Finance Minister Tan Sri Nor Mohamed Yakcop said.
He said as the base grew bigger, growth might not “be that strong''.
“I think the domestic consumption figures are good. We are seeing double-digit figures now. However, the growth will continue to be strong because of the action that we have taken as well as the higher income,” he told reporters after the launch of Naza Group of Companies' latest car, Forza, yesterday.
Nor Mohamed reiterated that domestic consumption would continue to be a significant factor in the country's growth for many years. Private consumption for the third quarter grew to 14% from 13.1% in the preceding quarter.
Should there be a dent in growth in the US, Malaysia would not be very much affected because the country had diversified from exports to domestic consumption and investments as well as increasing exports to more countries, he said.
On rising crude palm oil (CPO) and crude oil prices, the minister said this would benefit the country.
Nor Mohamed did not think the CPO price was too high and felt that it would be sustained for a few more years.
“I think the price will hold and continue to be strong because of demand from the growing middle class in China and India. At present, their per capita consumption of palm oil is low,” he added.
On the country's budget deficit, Nor Mohamed said this would be reduced to 3.2% of gross domestic product (GDP) this year from 3.3% last year. The Government is targeting a deficit of 3.1% of GDP next year.
The CPO futures contract has crossed RM3,000 per tonne, having gained more than 50% over the past year. The CPO physical price for December south was traded at RM2,910 on Friday, while the benchmark contract for March 2008 delivery last traded at RM2,930.
He said as the base grew bigger, growth might not “be that strong''.
“I think the domestic consumption figures are good. We are seeing double-digit figures now. However, the growth will continue to be strong because of the action that we have taken as well as the higher income,” he told reporters after the launch of Naza Group of Companies' latest car, Forza, yesterday.
Nor Mohamed reiterated that domestic consumption would continue to be a significant factor in the country's growth for many years. Private consumption for the third quarter grew to 14% from 13.1% in the preceding quarter.
Should there be a dent in growth in the US, Malaysia would not be very much affected because the country had diversified from exports to domestic consumption and investments as well as increasing exports to more countries, he said.
On rising crude palm oil (CPO) and crude oil prices, the minister said this would benefit the country.
Nor Mohamed did not think the CPO price was too high and felt that it would be sustained for a few more years.
“I think the price will hold and continue to be strong because of demand from the growing middle class in China and India. At present, their per capita consumption of palm oil is low,” he added.
On the country's budget deficit, Nor Mohamed said this would be reduced to 3.2% of gross domestic product (GDP) this year from 3.3% last year. The Government is targeting a deficit of 3.1% of GDP next year.
The CPO futures contract has crossed RM3,000 per tonne, having gained more than 50% over the past year. The CPO physical price for December south was traded at RM2,910 on Friday, while the benchmark contract for March 2008 delivery last traded at RM2,930.
Thursday, December 13, 2007
EPF: Unit Trust Charges To Be Halved
EMPLOYEES Provident Fund (EPF) members will pay 50 per cent less in service charges for unit trust investments effective January 1 2008.
EPF said the service charges would be capped at three per cent and fund management institutions are not allowed to impose charges above that.
"Members can enjoy better returns from their investment in unit trusts with the lower service charges," EPF chief executive officer Datuk Azlan Zainol said in a statement issued yesterday.
He said the capped charges, approved by the Finance Ministry, was in the interest of EPF members and fund managers.
Currently, members pay about five to six per cent in service charges, which is relatively higher compared with countries such as Singapore, the UK, Japan and the US.
Azlan said a study commissioned recently by the EPF revealed that a major factor affecting the investment returns for members is the high service charges imposed by the fund management institutions.
EPF said the service charges would be capped at three per cent and fund management institutions are not allowed to impose charges above that.
"Members can enjoy better returns from their investment in unit trusts with the lower service charges," EPF chief executive officer Datuk Azlan Zainol said in a statement issued yesterday.
He said the capped charges, approved by the Finance Ministry, was in the interest of EPF members and fund managers.
Currently, members pay about five to six per cent in service charges, which is relatively higher compared with countries such as Singapore, the UK, Japan and the US.
Azlan said a study commissioned recently by the EPF revealed that a major factor affecting the investment returns for members is the high service charges imposed by the fund management institutions.
More Flexible Market Rules
To attract new listings and fend off regional competition, the Securities Commission will no longer require firms selling shares to the public to provide profit forecasts
By Adeline Paul Raj
THE Securities Commission (SC) will introduce more flexible rules early next year to attract fresh listings on the stock exchange and boost the market's competitiveness in the region.
Among other things, it will no longer require firms going for a listing to provide profit forecasts.
Instead, directors will have to provide an enhanced discussion and analysis on the company's financial condition and prospects.
Also, to encourage foreign listings, firms with foreign operations will be subject to the same listing criteria as those with domestic operations.
These changes are in line with international best practices, chairman Datuk Zarinah Anwar said.
She announced the new measures, which will be detailed in guidelines to be released in January, in her keynote address at the initial public offering (IPO) conference organised by Bursa Malaysia Bhd yesterday. Some of the measures will take effect from January 2.
"It is our objective to strengthen the positioning of Bursa Malaysia as a preferred listing destination for domestic companies, as well as to attract foreign companies to consider a primary or secondary listing.
"That's why we have to try and ensure that our listing rules and criteria are very much in line with international standards," she said.
The measures may help increase the number of new listings next year to as many as 40, said Bursa Malaysia's chief executive officer Datuk Yusli Mohamed Yusoff.
The number of IPOs in Malaysia has slowed down considerably in recent years, with just 25 so far this year compared with 40 last year and 79 previously. In comparison, Singapore attracted 52 IPOs and Hong Kong, 62, at the end of September.
Yusli attributed the lower numbers at home to more stringent quality-control vetting.
"I think there's been no shortage of companies wanting to come to list, but there's been a higher rejection rate (lately) as we want to attract only the best-quality companies," he said.
He believes the new SC measures will not only result in fresh listings but also encourage dual listings as well as merger and acquisition activities.
On the removal of profit forecasts, Zarinah explained that the move is to help develop a more well-informed breed of investors.
"We would like investors to make their investment decision not on the basis of one figure provided by the company, but a whole spectrum of information with regard to the business sustainability, prospects, risks and financial condition," she remarked.
By Adeline Paul Raj
THE Securities Commission (SC) will introduce more flexible rules early next year to attract fresh listings on the stock exchange and boost the market's competitiveness in the region.
Among other things, it will no longer require firms going for a listing to provide profit forecasts.
Instead, directors will have to provide an enhanced discussion and analysis on the company's financial condition and prospects.
Also, to encourage foreign listings, firms with foreign operations will be subject to the same listing criteria as those with domestic operations.
These changes are in line with international best practices, chairman Datuk Zarinah Anwar said.
She announced the new measures, which will be detailed in guidelines to be released in January, in her keynote address at the initial public offering (IPO) conference organised by Bursa Malaysia Bhd yesterday. Some of the measures will take effect from January 2.
"It is our objective to strengthen the positioning of Bursa Malaysia as a preferred listing destination for domestic companies, as well as to attract foreign companies to consider a primary or secondary listing.
"That's why we have to try and ensure that our listing rules and criteria are very much in line with international standards," she said.
The measures may help increase the number of new listings next year to as many as 40, said Bursa Malaysia's chief executive officer Datuk Yusli Mohamed Yusoff.
The number of IPOs in Malaysia has slowed down considerably in recent years, with just 25 so far this year compared with 40 last year and 79 previously. In comparison, Singapore attracted 52 IPOs and Hong Kong, 62, at the end of September.
Yusli attributed the lower numbers at home to more stringent quality-control vetting.
"I think there's been no shortage of companies wanting to come to list, but there's been a higher rejection rate (lately) as we want to attract only the best-quality companies," he said.
He believes the new SC measures will not only result in fresh listings but also encourage dual listings as well as merger and acquisition activities.
On the removal of profit forecasts, Zarinah explained that the move is to help develop a more well-informed breed of investors.
"We would like investors to make their investment decision not on the basis of one figure provided by the company, but a whole spectrum of information with regard to the business sustainability, prospects, risks and financial condition," she remarked.
Wednesday, December 12, 2007
‘Investment Outlook Remains Positive’
KUALA LUMPUR: Malaysia’s investment outlook next year is expected to remain positive despite the challenges from rising inflation and external risk, said Alliance Finance Group chief executive offi cer Datuk Bridget Lai.
In a statement yesterday, Lai said given the sustained economic growth and the government’s initiatives such as promoting the growth corridors – Iskandar Development Region, Northern Corridor Economic Region and Eastern Corridor Economic Region – the investment environment is expected to be optimistic.
“Growth for the coming year will be broad-based with the services sector expected to remain the key driver on the supply side, on the back of strong sub-sectors like business services, real estate, finance and insurance.
“On the demand side, private investment is expected to cushion the moderation in
consumer spending, while the announcement of corridors and implementation of Ninth Malaysia Plan should sustain the public spending momentum,” she said.
Lai, however, said rising inflation risk remained a key risk to the current robust picture.
“While Malaysia has been building up it resilience over the years, we are still susceptible to external environment.
“Inflation will also be a key concern in 2008 amid expected administrative price increases. High inflation may curb consumer spending,” she said.
She said Malaysia, as one the largest producers of crude palm oil in the world, is expected to benefit from the high prices of crude oil and crude palm oil underpinned
by robust demand from China, India and Europe.
Lai said the global market is expected to face a challenging time with sub-prime worries expected to linger into next year.
“The global credit market is experiencing a credit squeeze arising from the sub-prime crisis to force more prudent lending by financial institutions and an increased risk premium on financial instruments,” she said. – Bernama
In a statement yesterday, Lai said given the sustained economic growth and the government’s initiatives such as promoting the growth corridors – Iskandar Development Region, Northern Corridor Economic Region and Eastern Corridor Economic Region – the investment environment is expected to be optimistic.
“Growth for the coming year will be broad-based with the services sector expected to remain the key driver on the supply side, on the back of strong sub-sectors like business services, real estate, finance and insurance.
“On the demand side, private investment is expected to cushion the moderation in
consumer spending, while the announcement of corridors and implementation of Ninth Malaysia Plan should sustain the public spending momentum,” she said.
Lai, however, said rising inflation risk remained a key risk to the current robust picture.
“While Malaysia has been building up it resilience over the years, we are still susceptible to external environment.
“Inflation will also be a key concern in 2008 amid expected administrative price increases. High inflation may curb consumer spending,” she said.
She said Malaysia, as one the largest producers of crude palm oil in the world, is expected to benefit from the high prices of crude oil and crude palm oil underpinned
by robust demand from China, India and Europe.
Lai said the global market is expected to face a challenging time with sub-prime worries expected to linger into next year.
“The global credit market is experiencing a credit squeeze arising from the sub-prime crisis to force more prudent lending by financial institutions and an increased risk premium on financial instruments,” she said. – Bernama
Malaysia Ranks 16th Among Top 25 Destinations For FDI
NEW YORK: Although China and India continue to rule the roost, Malaysia has been rated 16th among the 25 top destinations for foreign direct investments (FDI).
China is the world's number one FDI destination with India taking the second spot while three other Asean nations are also in the list - Singapore at seventh, Vietnam 12th and Indonesia 21st, according to a study by global strategic management consultancy A.T. Kearney.
The current malaise in the credit markets does not seem to have dampened corporate plans for a fresh flush of FDI, according to the study that was based on a survey of top executives conducted since the subprime crisis began this summer.
The assessment of senior executive sentiment at the world's largest companies found corporate investors optimistic about the prospects for developing nations and increasingly targeting them for more corporate investments in the years ahead, according to Kearney's FDI Confidence Index.
The index provides an overview of the prospects for international investment flows. Companies that participated in the survey accounted for more than US$3.8tril in global revenue.
While China and India remain uncontested as the leading FDI destinations in the 2007 index, 15 of the most attractive FDI destinations are developing markets.
Brazil, the United Arab Emirates (UAE) and Russia figure in the top 10 destinations.
South Africa and other Gulf states (Bahrain, Kuwait, Oman and Qatar) made their debut in this year's index while Vietnam, Malaysia and Indonesia are returning to the index's top 25 most attractive destinations.
Emerging markets have also registered the strongest investor optimism, with India, China, Brazil, the UAE and Vietnam experiencing the most positive change in investment outlook in the past year, according to executives. – Bernama
China is the world's number one FDI destination with India taking the second spot while three other Asean nations are also in the list - Singapore at seventh, Vietnam 12th and Indonesia 21st, according to a study by global strategic management consultancy A.T. Kearney.
The current malaise in the credit markets does not seem to have dampened corporate plans for a fresh flush of FDI, according to the study that was based on a survey of top executives conducted since the subprime crisis began this summer.
The assessment of senior executive sentiment at the world's largest companies found corporate investors optimistic about the prospects for developing nations and increasingly targeting them for more corporate investments in the years ahead, according to Kearney's FDI Confidence Index.
The index provides an overview of the prospects for international investment flows. Companies that participated in the survey accounted for more than US$3.8tril in global revenue.
While China and India remain uncontested as the leading FDI destinations in the 2007 index, 15 of the most attractive FDI destinations are developing markets.
Brazil, the United Arab Emirates (UAE) and Russia figure in the top 10 destinations.
South Africa and other Gulf states (Bahrain, Kuwait, Oman and Qatar) made their debut in this year's index while Vietnam, Malaysia and Indonesia are returning to the index's top 25 most attractive destinations.
Emerging markets have also registered the strongest investor optimism, with India, China, Brazil, the UAE and Vietnam experiencing the most positive change in investment outlook in the past year, according to executives. – Bernama
Ringgit Rises To All-Time High
By LOONG TSE MIN
PETALING JAYA: The ringgit rose to an all-time high yesterday as players sold off dollars in anticipation of a possible interest rate cut at the US Federal Reserve (Fed) Open Market Committee meeting on Tuesday.
The ringgit closed at 3.3125/3155 against the greenback compared with 3.3155/3185 on Monday. It had hit an intra-day high of 3.3100, its best level since the local currency was de-pegged.
The market largely expects a 25 basis-point interest rate cut from the Fed, which will lower interest rates and make the dollar less attractive to hold.
A chartist at a local investment bank said: “A 25 basis-point cut is already priced into the market and would unlikely cause much of a stir on Wall Street.
“Nonetheless, most investors would opt to stay on the sidelines on the off-chance that the Fed decides to surprise the market with a larger than expected rate cut of maybe 50 basis points.”
An economist interviewed earlier said the local unit (trading at 3.34 at the time) still lagged other regional currencies against the dollar in value terms on a trade-weighted basis.
“However, the appreciation must be in an orderly fashion.
“This is necessary to avoid not just currency volatility itself but also volatility in the commodities market.”
Another economist agreed, adding: “The region will be looking at the Chinese yuan. We can’t be too strong against the yuan due to export competitiveness, among other things.”
Meanwhile, AFP quoted dealers in Asian markets as saying that while a 25 basis-point cut was seen as the most likely outcome of the Fed meeting, after last week’s robust non-farm payrolls data and some stronger than expected housing data on Monday. The dealers also said a 50 basis-point cut remained a possibility as the Fed tried to fend off a severe economic slowdown.
The newswire also quoted Ashraf Laidi at CMC Markets in New York as saying: “A less generous easing (of below 25 basis points) will likely disappoint a shaky stock market and curtail risk appetite.
“Renewed selling in equities will weigh on higher yielding currencies.”
Meanwhile, the local unit ended the day mixed against other major currencies.
It firmed up against the Singapore dollar at 2.2965/3000 against Monday’s 2.3002/3039 and was stronger against the Japanese yen at 2.9579/9611 versus 2.9666/9704 a day earlier.
The ringgit, however, softened against the euro at 4.8727/8778 compared with 4.8579/8633 on Monday.
It was also weaker against the British pound at 6.7790/7865 yesterday compared with 6.7590/7644 on Monday.
PETALING JAYA: The ringgit rose to an all-time high yesterday as players sold off dollars in anticipation of a possible interest rate cut at the US Federal Reserve (Fed) Open Market Committee meeting on Tuesday.
The ringgit closed at 3.3125/3155 against the greenback compared with 3.3155/3185 on Monday. It had hit an intra-day high of 3.3100, its best level since the local currency was de-pegged.
The market largely expects a 25 basis-point interest rate cut from the Fed, which will lower interest rates and make the dollar less attractive to hold.
A chartist at a local investment bank said: “A 25 basis-point cut is already priced into the market and would unlikely cause much of a stir on Wall Street.
“Nonetheless, most investors would opt to stay on the sidelines on the off-chance that the Fed decides to surprise the market with a larger than expected rate cut of maybe 50 basis points.”
An economist interviewed earlier said the local unit (trading at 3.34 at the time) still lagged other regional currencies against the dollar in value terms on a trade-weighted basis.
“However, the appreciation must be in an orderly fashion.
“This is necessary to avoid not just currency volatility itself but also volatility in the commodities market.”
Another economist agreed, adding: “The region will be looking at the Chinese yuan. We can’t be too strong against the yuan due to export competitiveness, among other things.”
Meanwhile, AFP quoted dealers in Asian markets as saying that while a 25 basis-point cut was seen as the most likely outcome of the Fed meeting, after last week’s robust non-farm payrolls data and some stronger than expected housing data on Monday. The dealers also said a 50 basis-point cut remained a possibility as the Fed tried to fend off a severe economic slowdown.
The newswire also quoted Ashraf Laidi at CMC Markets in New York as saying: “A less generous easing (of below 25 basis points) will likely disappoint a shaky stock market and curtail risk appetite.
“Renewed selling in equities will weigh on higher yielding currencies.”
Meanwhile, the local unit ended the day mixed against other major currencies.
It firmed up against the Singapore dollar at 2.2965/3000 against Monday’s 2.3002/3039 and was stronger against the Japanese yen at 2.9579/9611 versus 2.9666/9704 a day earlier.
The ringgit, however, softened against the euro at 4.8727/8778 compared with 4.8579/8633 on Monday.
It was also weaker against the British pound at 6.7790/7865 yesterday compared with 6.7590/7644 on Monday.
Friday, December 7, 2007
After China, Vietnam Will Be World's Factory
Investors who see the boom in Vietnam’s two-wheeler market as a sign of Vietnam’s young labour force yearning for the tools it needs to plug into a global supply chain will win, says the writer.
By Andy Mukherjee
THE four million motorcycles on the streets of Ho Chi Minh City offer a remarkable - if somewhat noisy - testimony to the prosperity that beckons Vietnam.
A US$900 (US$1 = RM3.34) Honda may not be everyone's idea of affluence. However, it has the same pride of place in this rapidly industrialising nation as a bullock cart in an agrarian society.
Young men and women - many of them migrants from rural areas - commute to large, modern factories on the outskirts of the city on bikes they are proud to own and scared to lose.
This mobility is so crucial to the workers' productivity that some employers in the city formerly known as Saigon have even begun buying insurance, at their own expense, against the risk of bikes being stolen from their factory premises.
Investors who take the boom in Vietnam's two-wheeler market as a harbinger of a burgeoning mass market may be disappointed for a few years. Those who see the lust for bike ownership as a sign of Vietnam's young labour force yearning for the tools it needs to plug into a global supply chain will win.
After China, Vietnam is emerging as the world's next factory of choice for labour-intensive goods.
One can see that in the changing composition of the country's exports. Rice and coffee - two of Vietnam's biggest agricultural exports - are now becoming less significant to the US$61 billion economy than textiles. Footwear shipments are gaining prominence over seafood.
The other fast-growing export industry is furniture.
Exports of wood-based products have grown 24 per cent from last year to more than US$2 billion.
James Koh, a Singapore businessman, makes dining tables and chairs in Vietnam for customers around the world, including Williams-Sonoma Inc's Pottery Barn stores in the US.
Koda Ltd, of which Koh is the managing director, also has factories in Malaysia and China. Yet, it's Vietnam's lower costs that are prompting the company to expand capacity here by 25 per cent.
"The labour cost in Vietnam is half that of China, while worker productivity is about the same," says Koh.
Starting next year, the government will increase the mandated minimum wage for foreign-funded companies in Ho Chi Minh City and Hanoi, the national capital, by 13 per cent to one million Vietnamese dong, or US$62, a level that is still affordable, Koh says.
Chinese-made goods have become increasingly expensive in the US for the past six months. That gives Vietnamese manufacturers an opportunity to win a bigger share in their largest export market.
Vietnam's accession to the World Trade Organisation in January has provided its textile industry with quota-free access to the US. Joining the WTO regime has also caused a 37 per cent surge this year in overseas investment commitments to US$13 billion.
The biggest draw of the country is clearly its labour.
The median age in Vietnam is 25 years. The workforce isn't just young, but also literate and healthy: The proportion of people who are undernourished has been cut in half over the past three decades.
The risk for Vietnam is inflation, which accelerated to 10 per cent last month, the fastest pace in three years.
In the short run, Vietnam must stand ready to sacrifice some economic growth to halt the increase in prices, especially of construction material.
If left unchecked, inflation will become a drag on Vietnam's competitiveness even if the central bank doesn't allow the dong's nominal exchange rate to appreciate.
On the whole, though, Vietnam is on the road to prosperity.
The swanky Louis Vuitton and Gucci showrooms that have sprung up in Ho Chi Minh City may be a bit premature in a country where the annual per-capita income was US$723 last year.
The time for the Vietnamese consumer will undoubtedly come.
With a population of 85 million, and an economy that the International Monetary Fund forecasts to grow more than eight per cent this year and next, the Southeast Asian country will soon represent a sizeable domestic market.
For now, the Vietnamese producer is the bigger opportunity.
There is, however, no room for complacency.
Cheap labour makes it relatively easy for a country to enter the global supply chain, but it has to work hard to stay in.
Especially now, when a seemingly simple task like attaching four legs to a rectangular piece of American poplar wood and shipping it back to the US has become too complex to undertake without overseas capital and expertise.
First, there is a minimum investment in technology without which large orders from retailers are impossible to win. Each of the Taiwanese-built assembly lines that Koda is installing in its new Vietnam factory costs US$300,000.
Second, buyers in Europe are demanding more exacting environmental standards from their vendors, such as a minimum use of packaging material, Koh says. Americans, meanwhile, are getting fussy about making all shipments terror-proof.
Most importantly, no retail store - European or American - wants a sweatshop scandal at any of its suppliers' units.
Like most developing countries, Vietnam is dogged by corruption and red tape. It must strive to improve its record now that it's getting the investments it needs for the workers to graduate from motorcycles today to cars in the future. - Bloomberg
By Andy Mukherjee
THE four million motorcycles on the streets of Ho Chi Minh City offer a remarkable - if somewhat noisy - testimony to the prosperity that beckons Vietnam.
A US$900 (US$1 = RM3.34) Honda may not be everyone's idea of affluence. However, it has the same pride of place in this rapidly industrialising nation as a bullock cart in an agrarian society.
Young men and women - many of them migrants from rural areas - commute to large, modern factories on the outskirts of the city on bikes they are proud to own and scared to lose.
This mobility is so crucial to the workers' productivity that some employers in the city formerly known as Saigon have even begun buying insurance, at their own expense, against the risk of bikes being stolen from their factory premises.
Investors who take the boom in Vietnam's two-wheeler market as a harbinger of a burgeoning mass market may be disappointed for a few years. Those who see the lust for bike ownership as a sign of Vietnam's young labour force yearning for the tools it needs to plug into a global supply chain will win.
After China, Vietnam is emerging as the world's next factory of choice for labour-intensive goods.
One can see that in the changing composition of the country's exports. Rice and coffee - two of Vietnam's biggest agricultural exports - are now becoming less significant to the US$61 billion economy than textiles. Footwear shipments are gaining prominence over seafood.
The other fast-growing export industry is furniture.
Exports of wood-based products have grown 24 per cent from last year to more than US$2 billion.
James Koh, a Singapore businessman, makes dining tables and chairs in Vietnam for customers around the world, including Williams-Sonoma Inc's Pottery Barn stores in the US.
Koda Ltd, of which Koh is the managing director, also has factories in Malaysia and China. Yet, it's Vietnam's lower costs that are prompting the company to expand capacity here by 25 per cent.
"The labour cost in Vietnam is half that of China, while worker productivity is about the same," says Koh.
Starting next year, the government will increase the mandated minimum wage for foreign-funded companies in Ho Chi Minh City and Hanoi, the national capital, by 13 per cent to one million Vietnamese dong, or US$62, a level that is still affordable, Koh says.
Chinese-made goods have become increasingly expensive in the US for the past six months. That gives Vietnamese manufacturers an opportunity to win a bigger share in their largest export market.
Vietnam's accession to the World Trade Organisation in January has provided its textile industry with quota-free access to the US. Joining the WTO regime has also caused a 37 per cent surge this year in overseas investment commitments to US$13 billion.
The biggest draw of the country is clearly its labour.
The median age in Vietnam is 25 years. The workforce isn't just young, but also literate and healthy: The proportion of people who are undernourished has been cut in half over the past three decades.
The risk for Vietnam is inflation, which accelerated to 10 per cent last month, the fastest pace in three years.
In the short run, Vietnam must stand ready to sacrifice some economic growth to halt the increase in prices, especially of construction material.
If left unchecked, inflation will become a drag on Vietnam's competitiveness even if the central bank doesn't allow the dong's nominal exchange rate to appreciate.
On the whole, though, Vietnam is on the road to prosperity.
The swanky Louis Vuitton and Gucci showrooms that have sprung up in Ho Chi Minh City may be a bit premature in a country where the annual per-capita income was US$723 last year.
The time for the Vietnamese consumer will undoubtedly come.
With a population of 85 million, and an economy that the International Monetary Fund forecasts to grow more than eight per cent this year and next, the Southeast Asian country will soon represent a sizeable domestic market.
For now, the Vietnamese producer is the bigger opportunity.
There is, however, no room for complacency.
Cheap labour makes it relatively easy for a country to enter the global supply chain, but it has to work hard to stay in.
Especially now, when a seemingly simple task like attaching four legs to a rectangular piece of American poplar wood and shipping it back to the US has become too complex to undertake without overseas capital and expertise.
First, there is a minimum investment in technology without which large orders from retailers are impossible to win. Each of the Taiwanese-built assembly lines that Koda is installing in its new Vietnam factory costs US$300,000.
Second, buyers in Europe are demanding more exacting environmental standards from their vendors, such as a minimum use of packaging material, Koh says. Americans, meanwhile, are getting fussy about making all shipments terror-proof.
Most importantly, no retail store - European or American - wants a sweatshop scandal at any of its suppliers' units.
Like most developing countries, Vietnam is dogged by corruption and red tape. It must strive to improve its record now that it's getting the investments it needs for the workers to graduate from motorcycles today to cars in the future. - Bloomberg
US Faces Sharp Slowdown But No Recession: OECD
PARIS: The US faces a sharp slowdown in economic momentum next year as it grapples with a "bleak" housing market but should escape recession, The Organisation for Economic Cooperation and Development (OECD) predicted yesterday.
The OECD in its twice yearly assessment of global prospects slashed its 2008 growth forecast to 2.0 per cent from its earlier projection in May of 2.5 per cent.
It recalled that a downturn in US house sales and construction has been under way since early 2006, "and the latest data indicate that the slump is getting worse." It said: "The immediate outlook for the US housing market is bleak: housing permits, starts and surveys of builders' sentiment are all at low levels and continue falling almost without interruption." As a result, the OECD said that "GDP (gross domestic product) should decline to well below potential in 2008" before rebounding in 2009.
But OECD chief economist Jorgen Elmeskov said in a preface to the report that "accelerated adjustment in the US housing sector ... will drag down growth to low levels in the near term, but will not trigger a recession and will only modestly push up unemployment."
The downturn in the US housing sector, brought on by a wave of foreclosures in the high-risk mortgage market, has roiled global financial markets since August and led to a credit crunch.
The US economy should expand 2.2 per cent in 2009, it said. - AFP
The OECD in its twice yearly assessment of global prospects slashed its 2008 growth forecast to 2.0 per cent from its earlier projection in May of 2.5 per cent.
It recalled that a downturn in US house sales and construction has been under way since early 2006, "and the latest data indicate that the slump is getting worse." It said: "The immediate outlook for the US housing market is bleak: housing permits, starts and surveys of builders' sentiment are all at low levels and continue falling almost without interruption." As a result, the OECD said that "GDP (gross domestic product) should decline to well below potential in 2008" before rebounding in 2009.
But OECD chief economist Jorgen Elmeskov said in a preface to the report that "accelerated adjustment in the US housing sector ... will drag down growth to low levels in the near term, but will not trigger a recession and will only modestly push up unemployment."
The downturn in the US housing sector, brought on by a wave of foreclosures in the high-risk mortgage market, has roiled global financial markets since August and led to a credit crunch.
The US economy should expand 2.2 per cent in 2009, it said. - AFP
KL Shares Seen Continuing Climb
The market is showing signs that it will be pushed up for the year-end, a dealer with a foreign brokerage says.
MALAYSIAN stocks should continue their climb today, buoyed by strong regional markets and broad buying in plantations, financial services and power stocks, a dealer and an analyst said.
“The buying sentiment should continue today,” said OSK Securities research chief Kenny Yee.
“Yesterday’s regional performance and the strong US market gives some indication of how the local market will do today. We’re in uncharted territory now.”
The benchmark Kuala Lumpur Composite Index yesterday ended 0.9 per cent higher at a record high of 1,440.39 points, boosted by plantation stocks IOI Corp and Sime Darby and state power firm Tenaga Nasional.
The December futures contract put the index at 1,445 and the January contract put it at 1,442.
“The market is showing signs that it will be pushed up for the year-end,” a dealer with a foreign brokerage said. “We see continued buying momentum by foreign and local investors.”
He said fund managers were particularly interested in buying shares such as IOI, stock exchange operator Bursa Malaysia and plantations-to-energy group Sime Darby.
The Dow Jones industrial average gained 1.30 per cent to 13,619.89. - Reuters
MALAYSIAN stocks should continue their climb today, buoyed by strong regional markets and broad buying in plantations, financial services and power stocks, a dealer and an analyst said.
“The buying sentiment should continue today,” said OSK Securities research chief Kenny Yee.
“Yesterday’s regional performance and the strong US market gives some indication of how the local market will do today. We’re in uncharted territory now.”
The benchmark Kuala Lumpur Composite Index yesterday ended 0.9 per cent higher at a record high of 1,440.39 points, boosted by plantation stocks IOI Corp and Sime Darby and state power firm Tenaga Nasional.
The December futures contract put the index at 1,445 and the January contract put it at 1,442.
“The market is showing signs that it will be pushed up for the year-end,” a dealer with a foreign brokerage said. “We see continued buying momentum by foreign and local investors.”
He said fund managers were particularly interested in buying shares such as IOI, stock exchange operator Bursa Malaysia and plantations-to-energy group Sime Darby.
The Dow Jones industrial average gained 1.30 per cent to 13,619.89. - Reuters
Higher Asean Spending Power
NEWS ANALYSIS
By LOONG TSE MIN
THE expected continued weakening of the US dollar could mean higher spending power for people in Asean countries, including Malaysia.
Kenanga Investment Bank economist Wan Suhaimi Saidi is targeting 3.25 to the dollar for the ringgit by end-2008 and a 3.35 to 3.40 by Dec 31.
With an expected fuel price and electricity rates hike on the horizon, is it really true that Malaysians will have more money to spend?
Well, local economists seem to think so.
OSK Investment Bank economist Sia Ket Ee said the country's fundamentals were strong and the sustained trade surplus, continued foreign direct investment flows and favourable growth story, all point towards an appreciation of the local currency, leading to better spending power.
Another plus point for the strengthening of the ringgit against the greenback is that the exchange rate has actually lagged behind the theoretical rate on trade-weighted basis.
“This means that despite the strengthening of the ringgit in recent months, there is room for further appreciation,” Sia said.
Many would now be asking whether a rising ringgit will hurt exports but according the economists, the scenario has changed.
Instead, a weaker US dollar to regional currencies is now desirable.
It will go some way in correcting the “global trade imbalance” that is resulting in huge trade deficit being faced by the US and that the US government has been frequently commenting on.
Sia said: “This trade deficit cannot go on forever, the world cannot sustain this”.
A rebalancing of the trade deficit will lead to healthier long-term global economic growth, said both economists.
Another reason why the region can sustain a weaker dollar is that 10 years after the Asian financial crisis, economies in the region are fundamentally stronger and less dependent on exports.
At the same time, savings rates in many countries remain very high.
However, Wan Suhaimi cautions that while the US dollar might weaken, “in the investment world, there will still be an affinity to the US dollar” as the US is still the world's largest economy.
He expects the dollar to stabilise in late 2008, before the market assesses the currency again.
By LOONG TSE MIN
THE expected continued weakening of the US dollar could mean higher spending power for people in Asean countries, including Malaysia.
Kenanga Investment Bank economist Wan Suhaimi Saidi is targeting 3.25 to the dollar for the ringgit by end-2008 and a 3.35 to 3.40 by Dec 31.
With an expected fuel price and electricity rates hike on the horizon, is it really true that Malaysians will have more money to spend?
Well, local economists seem to think so.
OSK Investment Bank economist Sia Ket Ee said the country's fundamentals were strong and the sustained trade surplus, continued foreign direct investment flows and favourable growth story, all point towards an appreciation of the local currency, leading to better spending power.
Another plus point for the strengthening of the ringgit against the greenback is that the exchange rate has actually lagged behind the theoretical rate on trade-weighted basis.
“This means that despite the strengthening of the ringgit in recent months, there is room for further appreciation,” Sia said.
Many would now be asking whether a rising ringgit will hurt exports but according the economists, the scenario has changed.
Instead, a weaker US dollar to regional currencies is now desirable.
It will go some way in correcting the “global trade imbalance” that is resulting in huge trade deficit being faced by the US and that the US government has been frequently commenting on.
Sia said: “This trade deficit cannot go on forever, the world cannot sustain this”.
A rebalancing of the trade deficit will lead to healthier long-term global economic growth, said both economists.
Another reason why the region can sustain a weaker dollar is that 10 years after the Asian financial crisis, economies in the region are fundamentally stronger and less dependent on exports.
At the same time, savings rates in many countries remain very high.
However, Wan Suhaimi cautions that while the US dollar might weaken, “in the investment world, there will still be an affinity to the US dollar” as the US is still the world's largest economy.
He expects the dollar to stabilise in late 2008, before the market assesses the currency again.
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