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As we enter a new month (and a new quarter) David Rosenberg points out the mounting risks to equities as investors begin to price in very optimistic outcomes after a 70% rally in stocks. Attached are his 7 near-term risks to the market:

1) Last week’s bond auctions did not go well. It seems that Japan and China did not show much interest. The lack of bids was no better underscored than in the 7-year Treasury note auction where the median yield was 3.29% versus 3.05% a month earlier. April is a cruel month for the U.S. Treasury market, with 10-year yields rising in each of the past 4 Aprils and in 6 of the past 7, and by an average of 25 basis points. (As Alan Greenspan said on Bloomberg News last week, higher yields are “the canary in the mine”.)

2) That, in turn, could spook the equity market since another 25bps of upside pressure could then generate a fund-flow spiral as was the case in the summer of 2007 — 3.85% (where we are now) ostensibly is a trigger point for selling of mortgage bonds. As rates rise, homeowners are less likely to pay their mortgages early, which extends the life of the mortgage and that in turn encourages mortgage investors to neutralize the duration of their portfolios by selling T-bonds and notes. We have seen this happen before and while it will likely provide a nice buying opportunity given the deflationary headwinds the economy now faces, the prospect of a spasm in the Treasury market is worth considering. Every equity market correction in the past — 1987, 1994, 1998, 2000, and 2007 — was preceded by what turned out to be a brief but significant runup in yields. And, the more overvalued the equity market is, the more the downside risks if bonds begin to provide greater yield competition in the near-term. Jeffery Hirsch over at the Stock Trader’s Almanac is in today’s NYT predicting a 20-30% correction ahead. he notes the modest number of stocks hitting new 52-week highs with every new interim peak being reached by the overall market.

3) The leading indicators are all pointing to a slowdown, and this could show up in a critical data-release week in mid-April with retail sales on the 14th, industrial production on the 15th, and housing starts, as well as consumer sentiment, on the 16th. The broad money supply measures are contracting again as the Fed is no longer boosting its balance sheet at a time when both the money multiplier and money velocity are showing no signs of turning higher.

4) Greece will be put to the test in April when €15 billion of bonds have to be rolled over (through the end of May).

5) The Fed ceases to buy mortgage securities on Wednesday and this is happening at a time when mortgage rates have already climbed back above 5% and the housing market is showing signs of rolling over again. See Spike in Treasury Yields Jolts Mortgages on page C2 of today’s WSJ. There is also pressure from within the Fed (Plosser the latest) to soon begin to sell securities outright. One thing that is very likely on its way again is another 50bps hike on the discount rate — has anyone noticed the TED spread beginning to widen ahead of this? The banks, going forward, will not have easy access to the window and will have to rely on each other for funding.

6) April 15 looms as a critical day from a geopolitical standpoint. It is the day that the Treasury Department will issue its report concluding whether or not China is a currency manipulator. If it is viewed as such then trade sanctions are likely to ensue and very likely some bilateral tensions. This could be very good news for the bullion market (as well as the Bloomberg News report today stating that gold imports in India are surging right now — up six-fold from a year ago — as there are an expected 1 million marriages planned for April and May).

7) Speaking of geopolitical risks, President Obama has allowed U.S. relations with Israel to deteriorate to such an extent, and is handling the Iran nuclear situation with such a kid-gloves approach, that disturbing columns like this are now popping up in newspapers like the NYT, the National Post, and the WSJ. Even the prospect is enough to underpin the energy stocks, which are currently priced for $69/bbl on WTI.

When it comes to equity analysts Teun Draaisma is a must-read. The European equity analyst famously called for investors to sell stocks in June 2007 when the markets were flashing a “full house sell” signal. He then flipped bullish in November of 2008 as the markets were pricing in a much more severe situation than Draaisma saw unfolding.

He’s one of the few investors who actually got the downturn and the upturn correct and was able to connect the dots between cause and effect. In his latest strategy note Draaisma is saying the rally has gotten ahead of itself and that we’re due to for a correction as good news becomes bad news. In addition to being bearish about 2010 (see here), Draaisma says the better than expected growth in the near-term is putting more pressure on the Fed to raise rates and will lead to tightening measures sooner than most investors suspect:

“The rally since 5-February is nearing its end, we believe. Our thesis is that good growth will lead to tightening measures and struggling equity markets this year, just like in 1994 and 2004. The recent rally was larger than we expected, and in our eyes was due to:

1) there have been no positive payrolls or Fed language change yet (we even saw some loosening rather than tightening
measures last week, with the Greek bailout, the ECB keeping its wide collateral pool for longer and the Obama plan for troubled
mortgage borrowers).

2) sentiment had turned quite cautious in early February. Nevertheless, we do think the market peak associated with the start of tightening is near, and expect 2010 to show a volatile whipsaw pattern in equities. We expect good payrolls (April 2) and a Fed language change (April 30), some leading indicators are rolling over from multi-decade peaks (ECRI leading indicator for the US, OECD leading indicator for the world), and some sentiment surveys have turned more bullish.”

Draaisma believes the market will decline 11% in the next 3-6 months:

“The 3-6 month outlook: tactical caution. The last 12 months have been characterised by record stimulus and rising economic leading indicators. We think the next 6 months will be characterised by some stimulus withdrawal (as a reaction to good growth in Asia and US), and softening leading indicators. We reduced our equity exposure two months ago. We recommend selling into strength, and we think MSCI Europe will reach 1030 at some point later in 2010, down 11% from here.”

On a longer time horizon Draaisma says the markets remain entangled in a bear market and that investors should not be fooled by the cyclical bull within a secular bear:

“The multi-year outlook: the secular bear market that started in 2000 is not yet complete (pages 11-13). We believe the secular bear market is incomplete for a variety of reasons, including that banking crises and bailouts tend to precede debt crises; that the amount of debt has not been reduced yet (it only changed hands to the government); that equity valuations never reached end of bear market levels; and our historical analysis that equities tend to struggle for longer in the aftermath of secular bear markets. When the next earnings recession hits, perhaps in 2012, we expect equities to complete the bear market that started in 2000.”

Draaisma’s outlook isn’t exactly consensus, but then again, it never really has been. And that makes his research a breath of fresh air on Wall Street.

source HERE

Saya terpanggil untuk membuat artikel ini setelah mendapat idea daripada artikel Tom Dyson : How to build extraordinary wealth in the coming market chaos. Beliau mencadangkan strategi yang menarik yang mungkin kita dapat ambil iktibar. Strategi tersebut ialah

Dyson: Well, I still recommend keeping a large portion of your investment funds – say 70% or so – in the very safest things, like cash and the cash-like investments I mentioned earlier. Then I'd put about 25% into a basket of the safe dividend stocks that I've been recommending that pay an average of 9% or so. That leaves about 5% for speculating – short positions, small aggressive trades, and those kinds of things. Finally, I recommend a portion of your income from your dividend portfolio or your job go into blue chips. This can be as much or as little as you feel comfortable with… the most important thing is just to start building a position. And using this dividend strategy is the easiest and most inexpensive way I know to do it.

Disini, cadangan di atas dapat kita sesuaikan dengan suasana pelaburan negara kita, contohnya

70% - ASB (pulangan lebih 7%)
25% - Unit Amanah Public Mutual@CIMB (pulangan 9% - 20%)
5% - Saham BSKL (pulangan 10%-100%)

Bagaimana pula dengan simpanan KWSP?

Kita boleh gunakan strategi yang sama iaitu memperuntukkan jumlah pelaburan yang lebih tinggi ke atas pelaburan berisiko rendah. Contohnya, jika jumlah yang dibenarkan untuk kita membuat pelaburan dari simpanan KWSP ialah RM10,000 maka pecahan pelaburan adalah seperti berikut;

70% - ASW2020@ASD = RM7000
30% - Unit Amanah Public Mutual@CIMB = RM3000

Strategi ini mampu mengurangkan risiko kerugian dari segi jangka panjang terhadap wang simpanan KWSP yang dilaburkan apabila ekonomi negara dalam keadaan tidak menentu berbanding dengan memperuntukkan kesemuanya pada satu-satu unit amanah saja. Anda boleh semak kelayakan anda untuk mengeluarkan wang KWSP di http://www.kwsp.gov.my serta http://www.asnb.com.my






ASW2020


ASD

The Daily Crux: OK Tom, the last time we talked you recommended buying only the absolute safest companies because most stocks were too expensive. Well, they've become even more expensive now… But we just heard you're recommending blue-chip stocks to your readers.

Have you changed your mind? Are you bullish on stocks now?

Tom Dyson: Well, I can see why you'd think that, but the short answer is no – I haven't changed my mind.

I'm still quite bearish on stocks – but I have been recommending blue chips to my readers. This may sound counterintuitive, but I've got an interesting story that can help explain.

Earlier this month, I came across an unpublished memo from Sir John Templeton that just recently resurfaced. For those who don't know, Templeton was one of the original titans of Wall Street and the mutual fund industry. He passed away in 2008, but prior to his death, Templeton wrote a fascinating memo that basically was extremely pessimistic on the future of the U.S. and the whole world economy.

He had intended for the memo to be published, but it was lost after his passing until it was recently discovered in a filing cabinet.

In the memo, Templeton used phrases like "financial chaos," "the peak of prosperity is behind us," and "there have never been more dangers in my entire life than there are right now." I believe he lived into his 80s, so that statement goes back to the era of Great Depression.

So it was a bearish statement with a lot of gloomy predictions. And I thought it was interesting because not only were many of Templeton's predictions on target, but they also agree with much of what I've been telling my readers. So it really caught my attention.

Templeton saw big problems because there was just so much debt in our system – more than any other time in history. He also saw extreme overcapacity in almost every industry in the world. He thought this combination was a recipe for some very nasty problems.

He also predicted governments would aggressively try to bail out and fix these problems – especially the companies that made all these bad loans and held all these bad debts.

All that has happened is much like Templeton predicted in 2005 in this memo.

Another thing he talked about was that there's so much liquidity in the world that yields on money markets, bank accounts, cash investments, and bonds would be extremely low.

With the likelihood that governments would be printing money, bailing out, and basically devaluing their currencies, Templeton thought it would be almost impossible to protect oneself. He believed it would be very hard to find a safe place to keep money that offered a meaningful return.

Crux: That sounds a lot like what you've been saying in your 12% Letter…

Dyson: Absolutely. This is basically the same story that I've been telling my readers for months now.

And my approach has been to encourage my readers to invest in only the safest cash and cash-like investments, but I've had to work really hard to find cash-like investments that actually pay decent yields.

For instance, I've found some stocks that have huge cash balances, which basically makes them trade kind of like cash. They have very low volatility in their stock prices - even during 2008 these companies were rock solid and didn't see the big declines most of the market did.

Meanwhile, they pay solid yields. One I can think of pays an 8% dividend. Another pays a 4% dividend that's been rising every year and is likely to continue to rise.

So those were some of my favorite ideas to play what is likely to be a lot of financial chaos still to come.

Crux: Did Templeton have any thoughts on what might be safe? Did he provide any recommendations?

Dyson: He did, but they weren't what you might expect. His favorite investment to handle this financial chaos was not gold, not cash, not bonds. Templeton actually liked the stock market, which I found quite incredible.

But he didn't like just any stocks – in his memo he mentioned two specific characteristics.

He liked stocks with large profit margins that are likely to continue to have large profit margins, and stocks that sell their products to many different markets around the world.

I interpret that to mean that he thought the best place to be is in the very best quality blue-chip stocks. I would imagine he was talking about companies like Coca-Cola, Johnson & Johnson, Procter & Gamble, ExxonMobil, Intel, IBM, and Microsoft.

These are companies that have large profit margins, low debt, tons of cash, they're extremely well managed, and they do business all around the world with very entrenched market positions.

So that was something I found really interesting. This idea that in crisis, you want to have your money in stocks… it's something that not many people would think of naturally.

But I really like the idea. It offers a different approach to protecting your assets. You protect yourself from whatever shenanigans the government does with its currency, you protect yourself from bankruptcies and whatever crises hit the banks and the lending companies and the consumers, and you diversify yourself away from the USA – which may not be the epicenter of the crisis, but it's not far away.

So I really like the idea of owning blue-chip stocks, but I have major reservations about recommending them now.

As we're all aware, the stock market has risen substantially in the last year. It's been one of the best stock market rallies in history. And of course, blue-chip stocks have also risen a lot. In fact, readers who were with me during 2008 and early 2009 own many of the stocks I mentioned. We bought them in the heart of the crisis and we're showing fantastic gains on all of them.

But I see the potential for a significant short-term correction and maybe something more, so I'm not advising readers to take new positions in these stocks now. They've run up too much and are vulnerable to a pullback.

So where does that leave us? How can we get exposure to the stocks Templeton mentioned without putting our money at risk?

Fortunately, there's a way to do just that.

There's a dividend strategy that many investors aren't aware of that allows you to slowly build positions in the world's best blue-chip stocks.

Of course, you could just buy a few shares on a regular basis through your broker, but you'll end up spending a small fortune on commissions that'll eat up a big chunk of your potential return.

The great thing about this strategy is you can avoid the commissions and fees that you normally pay to buy these stocks. In fact, many times you can actually buy these stocks for less than the current market price. These savings can really add up over time.

So you're getting exposure to the best companies in the world. But you're building it slowly, so it's not as important that stocks are expensive today, and you're not at great risk from a big correction in the market.

In fact, corrections are actually a benefit with this strategy, because it allows you to take advantage of what's known as “dollar-cost averaging,” meaning you'll be lowering the average cost of the stock you own.

So over time you're able to build up enormous positions in companies like Templeton recommended – with fantastic profit margins that raise their dividends every single year, and have done so for decades and will continue for decades.

Obviously, this only works if you're a long-term investor. But it's one of the best ways to take advantage of the compounding effect of dividends, and is probably the surest way to build a fortune in stocks.

Templeton expected this financial crisis to last many years. Because of the nature of this strategy, you're likely to come out on the other side of these problems with a big portfolio of the best stocks in the world, without putting this money at undue risk.

Crux: That sounds great, but how does it fit in with your other recommendations?

Dyson: Well, I still recommend keeping a large portion of your investment funds – say 70% or so – in the very safest things, like cash and the cash-like investments I mentioned earlier.

Then I'd put about 25% into a basket of the safe dividend stocks that I've been recommending that pay an average of 9% or so.

That leaves about 5% for speculating – short positions, small aggressive trades, and those kinds of things.

Finally, I recommend a portion of your income from your dividend portfolio or your job go into blue chips. This can be as much or as little as you feel comfortable with… the most important thing is just to start building a position. And using this dividend strategy is the easiest and most inexpensive way I know to do it.

Crux: Sounds good, Tom. Thanks for talking with us.

Dyson: Thank you. My pleasure.

source Email.

Is war just around the corner? While in theory it would make perfect sense to distract Americans from the long road to US insolvency, and other more pressing issues such as the endless criminality all around us, in practice we have so far heard merely rumors.

The Herald of Scotland, however, may have credible proof that a US-led attack on Iran approaches and could be just days away. The newspaper has procured proof of an arms shipment to Diego Garcia, which consists of "of 195 smart, guided, Blu-110 bombs and 192 massive 2000lb Blu-117 bombs...put in place for an assault on Iran’s controversial nuclear facilities."

Additional insight comes from Dan Plesch, director of the Centre for International Studies and Diplomacy at the University of London: “They are gearing up totally for the destruction of Iran. US bombers are ready today to destroy 10,000 targets in Iran in a few hours." Is war imminent?

And will Obama repeat Bush's mistake with Iraq, resulting in a huge spike in oil, coupled with a rush to safety in dollars and/or gold? If inflation will not start on its own, its has to be kindled: preferably by a Blu-117 bomb. Is the relatively long period of market stability and low volatility about to come to a sudden end?

More from the Herald:

Hundreds of powerful US “bunker-buster” bombs are being shipped from California to the British island of Diego Garcia in the Indian Ocean in preparation for a possible attack on Iran.

The Sunday Herald can reveal that the US government signed a contract in January to transport 10 ammunition containers to the island. According to a cargo manifest from the US navy, this included 387 “Blu” bombs used for blasting hardened or underground structures.

Experts say that they are being put in place for an assault on Iran’s controversial nuclear facilities. There has long been speculation that the US military is preparing for such an attack, should diplomacy fail to persuade Iran not to make nuclear weapons.

Although Diego Garcia is part of the British Indian Ocean Territory, it is used by the US as a military base under an agreement made in 1971. The agreement led to 2,000 native islanders being forcibly evicted to the Seychelles and Mauritius.

The Sunday Herald reported in 2007 that stealth bomber hangers on the island were being equipped to take bunker-buster bombs.

And it gets worse, when one considers the eerie similarities with Operation Desert [blank]. We all know how that whole fiasco ended.

Contract details for the shipment to Diego Garcia were posted on an international tenders’ website by the US navy.

A shipping company based in Florida, Superior Maritime Services, will be paid $699,500 to carry many thousands of military items from Concord, California, to Diego Garcia.

Crucially, the cargo includes 195 smart, guided, Blu-110 bombs and 192 massive 2000lb Blu-117 bombs.

“They are gearing up totally for the destruction of Iran,” said Dan Plesch, director of the Centre for International Studies and Diplomacy at the University of London, co-author of a recent study on US preparations for an attack on Iran. “US bombers are ready today to destroy 10,000 targets in Iran in a few hours,” he added.

The preparations were being made by the US military, but it would be up to President Obama to make the final decision. He may decide that it would be better for the US to act instead of Israel, Plesch argued.

“The US is not publicising the scale of these preparations to deter Iran, tending to make confrontation more likely,” he added. “The US ... is using its forces as part of an overall strategy of shaping Iran’s actions.”

According to Ian Davis, director of the new independent thinktank, Nato Watch, the shipment to Diego Garcia is a major concern. “We would urge the US to clarify its intentions for these weapons, and the Foreign Office to clarify its attitude to the use of Diego Garcia for an attack on Iran,” he said.

For Alan Mackinnon, chair of Scottish CND, the revelation was “extremely worrying”. He stated: “It is clear that the US government continues to beat the drums of war over Iran, most recently in the statements of Secretary of State, Hillary Clinton.

“It is depressingly similar to the rhetoric we heard prior to the war in Iraq in 2003.”

The British Ministry of Defence has said in the past that the US government would need permission to use Diego Garcia for offensive action. It has already been used for strikes against Iraq during the 1991 and 2003 Gulf wars.

We are confident that the administration's diplomatic core is wildly spinning in advance of a possible incursion, and fully expect that Tehran will be exposed as a poison nest full of dirty, smelly CDS speculators who have been controlling the spreads on global credits ever since the late 70's, about the time Iran ceased being a most favored nation (forget that CDS did not come to the scene until the late 90's, at least Ollie North may get a cameo appearance as head CDS Novator). At worst, the Administration will coin a new term for the incursion's target, recycled appropriately from none other than the Oracle of Omaha: Weapons Of Mass CDS-based Destruction and Other Types of Mass Destruction that Speculators Do Good Too.

source HERE

How can you track the risk of significantly higher inflation?

Simple. Just follow the government long-bond market. If the market gets a whiff of double-digit, or even high single-digit, annual inflation, the U.S. bond market will collapse.

There's an ETF that makes it easy to follow the U.S. long bond market – TLT.

Here's the chart:



What you can see is that the government long-bond market peaked at the height of the banking crisis, just after the failure of Lehman Brothers, the near collapse of all of the investment banks, and the bankruptcy of Fannie, Freddie, and GM. Investors were scared to own anything other than government paper. Nobody was worried about inflation because the economy had come to a standstill.

Now, all of those forces are working in reverse – and Washington is pulling all the strings. The government can print as much money as it likes. But the dollar will fall in value. And its creditors will begin to demand much higher interest rates. You can bet on it. As interest rates rise, the value of existing government bonds – which have fixed coupon payments – will fall.

I'm not a chart reader. I don't put much stock in so-called "technical" analysis. On the other hand, I have seen that markets tend to bounce off certain prices a few times before making a big move – like a shark bumping its prey before eating it. TLT seems like it wants to break through that 90 barrier. It keeps "bumping" it.

I'd keep my eye on it.

source HERE

Malaysia’s central bank said it may increase interest rates further to avert asset bubbles and discourage risky investments by people seeking better returns, even as inflation will likely remain “modest” this year.

“We will review the conditions at our next monetary policy meeting and work towards further normalizing if necessary,” Governor Zeti Akhtar Aziz said in a March 12 Bloomberg Television interview in Kuala Lumpur. “Inflation will continue to be modest and therefore it would not prompt us towards tightening, but that does not preclude that we will continue to normalize interest rates.”

Malaysia raised its benchmark interest rate to 2.25 per cent this month, becoming the second Asian nation to increase borrowing costs as the region leads a recovery from the global slump. The central bank wants to prevent “financial imbalances” that could undermine the economy’s recovery from last year’s recession, Zeti said.

“There is no compelling evidence of asset bubbles in Malaysia based on current indicators,” Suhaimi Ilias, chief economist at Maybank Investment Bank Bhd. in Kuala Lumpur, said before the interview. Still “the risk is there if the interest rate is kept very low for an extended period as money searches for returns to beat inflation that is creeping up.”
China has started draining excess cash from the economy to prevent asset bubbles. Australia and Vietnam have raised borrowing costs as inflation accelerates, and the Philippine central bank last week pared back a lending program for banks.

Significant Risks

Keeping interest rates too low for too long may lead to the “mispricing of risks” by those who anticipate borrowing costs will stay low, as well as create asset bubbles, Zeti said. While the central bank doesn’t expect to see bubbles forming “on the horizon,” there are signs that people are buying higher- yielding assets “that pose significant risks,” she said.

Bank Negara Malaysia will monitor the strength of the economic recovery in deciding whether interest rates need to rise further, the governor said. Current borrowing costs are still “very supportive” of economic growth, Zeti said. The level at which rates are considered to be “normalized” would depend on the strength of the recovery, she said, adding that inflation won’t be “a factor” in 2010 even after taking into account possible increases in fuel and power prices.

The central bank, whose policy team next meets in May, raised its overnight policy rate from a record-low of 2 per cent on March 4, the first increase in almost four years, saying the economy’s recovery is “firmly established.”

Faster Growth

Malaysia’s gross domestic product expanded 4.5 per cent last quarter after contracting the previous nine months. Exports surged by the most in more than 11 years in January.

“We expect growth to improve from the levels we have seen in the fourth quarter,” Zeti said. “Certainly the first half of the year, all the signs are pointing to stronger growth” as domestic demand and investment recover, she said.

JCY International Bhd., a Malaysian supplier of hard-disk- drive components for Seagate Technology and Western Digital Corp., said last month it plans to spend 182 million ringgit ($55 million) in the financial year starting Oct. 1, 2010 to increase its capacity amid rising orders.

Inflation of about 2 per cent would be considered “modest,” Zeti said. Malaysia’s consumer prices rose for a second month in January, climbing 1.3 per cent from a year earlier from an average 0.6 per cent in 2009.

Should price gains accelerate further to 3 per cent, for example, “we would begin looking at what are the sources of inflation because if it was demand-induced then” the central bank would look at “tightening” monetary policy, Zeti said.

Ringgit’s Gain

Zeti refrained from raising interest rates in 2008 when consumer prices rose as much as 8.5 per cent in July and August amid soaring oil and commodity prices, saying inflation wasn’t driven by higher demand and would ease as global growth slowed. Malaysia’s policy makers aren’t “inflation targeters,” she said last week.

The Malaysian ringgit has climbed 2 per cent since the central bank’s decision to raise rates this month, making it Asia’s best-performing currency outside Japan during the period.

The currency’s appreciation has reflected Malaysia’s strengthening “fundamentals,” Zeti said.

“We have seen this level before and we are not concerned,” she said. “We have allowed our exchange rate to be market determined and we are there to ensure orderly market conditions. Our export sector has never relied on the exchange rate to gain competitiveness.”

Zeti, who said previously Malaysia will consider allowing the ringgit to be traded overseas once the country has a more developed foreign-exchange market, said in the interview the central bank has formed a task force involving the financial and banking industry to work toward developing the country’s foreign-exchange market “with a view to internationalizing” the ringgit.

“Once that market has become more vibrant and with the products and services being offered in terms of the forward market and so on, and in terms of hedging instruments, then we’ll look at internationalizing the currency,” she said. “Right now we don’t have a time frame.” -- Bloomberg

source HERE

PETALING JAYA: The local bourse’s benchmark FTSE Bursa Malaysia KL Composite Index, which has risen 2.9% from March 4 when Bank Negara announced a 25-basis point hike in the overnight policy rate to close yesterday at 1,321.43 points, will start to retrace from April as the region’s central banks begin to normalise their respective monetary policies.

Analysts believe that with the lack of fundamentals to fuel the rally further, the market would start to see outflow of funds as soon as central banks in the region start to raise their benchmark policy rates, which could commence next month.

“The risk of retracement is there, we see it starting from April. This month is still okay but much also depends on when China starts to raise interest rates,” OSK Research Sdn Bhd research head Chris Eng told StarBiz.

Last week, China’s premier Wen Jiabao warned of a latent risk in the country’s banks in a speech to the National People’s Congress and has targeted a reduction of new loans by 22% this year to 7.5 trillion yuan to stop speculation in the property market.

Although there was no talk of monetary policy tightening in Wen’s speech, analysts believe the People’s Bank of China would start raising interest rates soon as the country’s inflation rate rose 2.7% in February from a year ago, according to data released by the National Bureau of Statistics yesterday.

“We think the market will be quite volatile over the next four months and will move between the 1,250 and 1,400-point level before stabilising around 1,300 points towards year-end and start another rally next year,” Eng said.

He said the current market rally was largely due to foreign interest in select plantation and banking stocks only, with the larger capitalised stocks in both industries seeing the most play.

“There is a risk of money flowing out in an environment where sentiments are still cautious,” Eng said.

UOB Kay Hian (M) Holdings Sdn Bhd research head Vincent Khoo said although Malaysia had a leg-up due to the rate hike, which put the spotlight on the ringgit, the rest of the region would eventually catch up.

He expects the market to retrace to the 1,230-point level eventually, beginning in the second quarter.

“The two factors that will impact the markets will be the continued rise in global inflation and growth momentum slowing down; we see this happening over the second and third quarters,” Khoo said.

India is also facing expectations of a rate hike as a recent decision to raise fuel prices has stoked inflation while Thailand could start normalising interest rates as inflation starts to rise and economic recovery gains momentum.

The Bank of Thailand’s monetary policy committee issued a statement yesterday saying that the central bank would continue to closely monitor inflation and economic developments, a statement viewed by analysts as preparing the market for an eventual rate hike.

Morgan Stanley Research’s Shweta Singh, Tan Deyi and Chetan Ahya said in a report dated March 10 that the Bank of Thailand’s monetary policy committee statement, which placed more emphasis on inflation and economic developments, put the country one step closer to a normalisation of interest rates.

They expect policy normalisation by central banks in the region to begin in the second quarter as the growth cycle slowly firmed up and the rate hikes would depend on how pre-emptive the central banks want to be.

source HERE

KUALA LUMPUR: Banks have begun raising their base lending rates (BLRs) following Bank Negara’s move to lift the overnight policy rate (OPR) by 25 basis points last week.

Five of the largest banks in the country raised their BLR to 5.8%.

Malayan Banking Bhd (Maybank) and CIMB Bank Bhd were the first two banks to announce their interest rate hike from 5.55%.

The two banks raised their BLR and base financing rates to 5.8% effective today following Bank Negara’s OPR revision last Thursday.

In a statement, Maybank president and CEO Datuk Seri Abdul Wahid Omar said the interest rate revision was based on the recent adjustment in the OPR.

“We expect to see better growth from our core business segments, leveraging on the improving economic environment and as more customers take advantage of the diversity of our product and service offerings,” he added.

Public Bank will also raise its BLR to 5.8% today, according to Bank Negara’s banking info website.

“We are supportive of Bank Negara’s move to normalise interest rates as the economy regains stability and are immediately transmitting it to both savers and borrowers,’’ said CIMB group chief executive Datuk Seri Nazir Razak in a statement.

Nazir said it was the right time to raise interest rates as the economic environment had normalised and growth momentum was strong.

“We saw the fourth quarter gross domestic product (GDP) numbers and we are looking at a GDP growth north of 4% this year potentially,’’ he told reporters at the launch of CIMB Twin Yield Income Investment structured product yesterday.

“Those conditions suggest that it is time to normalise interest rates. As best as I can tell, it is a good decision.’’

CIMB also raised its savings and fixed deposit rates by up to 25 basis points.

The RHB banking group also raised its BLR for RHB Bank Bhd to 5.8% today.

In a statement, group managing director Datuk Tajuddin Atan said RHB would be balancing the increased borrowing rates by offering more competitive rates for depositors.

Hong Leong Bank Bhd will increase its BLR to 5.8% effective March 10.

Bank Negara raised the OPR as the economy has improved significantly and returned to its path to recovery.

“Given this improved economic outlook, the Monetary Policy Committee (MPC) decided to adjust the OPR towards normalising monetary conditions and preventing the risk of financial imbalances that could undermine the economic recovery process,’’ said Bank Negara in its monetary policy statement last week.

“At the new level of the OPR, the stance of monetary policy continues to remain accommodative and supportive of economic growth.”

A rise in interest rates is usually greeted with trepidation as economists typically worry about its impact on growth and demand.

This time around, that apprehension is not yet visible.

“At the moment the impact will not be great as it is coming off historic lows,’’ said AmResearch economist Manokaran Mottain.

The Association of Banks Malaysia said the increase in OPR would not impede access to financing nor affect the industry’s lending activities.

The banking industry recorded a loans growth of 8.6% in January and 7.8% in December.

Analysts said the impact the BLR increase would have on bank’s profits would depend on whether deposit rates would be raised by the same quantum.

They said bank margins were squeezed when interest rates were cut but they expected net interest margins to widen as interest rates rose.

source HERE

Most professional traders asked themselves the same question during last week's stock rally:

How is the market rising when I'm not buying stocks – and neither are any of my friends?

I have a chart for you showing why many of the smartest traders I know are asking themselves this question... and why they expect the market to head lower, at least in the short term.

Below is a chart that displays how some professional traders view the market. It shows the past nine months of trading in the big S&P 500 fund (SPY). Many days, this is the most frequently traded security on the market. It moves in lockstep with the benchmark S&P 500 index.



You'll notice this chart has more to it than the simple "line charts" you often see on television or in the newspaper. This chart contains much more information, which you can use to make smarter trades.

At the bottom of the chart, you'll see a series of red and black bars. These bars represent the trading volume in any given day. It's a visual representation of how much power the buyers have, versus how much power the sellers have. Red bars mark the trading volume on declining days; black bars mark the trading volume on advancing days. The taller the bar, the greater the volume.

As you can see, selling volume surged during several periods in September and October. This mass dumping of stocks is marked by (1). This burst of selling pressure is called "distribution."

After this dumping, the market went on to register new highs during November and December. This rally had no substantial buying power behind it, marked by the declining volume line (2). It's like someone threw a party and nobody showed up.

Selling power returned in a big way in mid-January... when the market registered several big declines on the biggest volume of the past six months (3). More punches to the market's gut. More distribution.

Then, in mid-February, the market managed to kick off another rally... which has brought the S&P within a whisker of its January high. But as you can see (4), this was another party that nobody attended. Volume was pathetic.

If you have heavy exposure to stocks, you should be concerned about this weak, low-volume rally. You see, the market must have a constant inflow of new money from giant investors like mutual funds, hedge funds, and pension funds in order to remain healthy. These are the folks who control billion-dollar portfolios. They are the "elephants"... and they are not buying into the market in any meaningful way.

Studying volume is no magic bullet for stock market profits. It's a "secondary indicator," not a primary indicator like price or valuation (stocks are expensive, by the way). But it is a useful gauge on your dashboard. And right now, volume is saying this rally is standing on feeble legs.

Good trading,

Brian Hunt

source HERE