U.S. Weakness Spells Trouble For Asia

Global economies are interdependent now !!

The Hong Kong and Korean markets have been weak over the past two days, and with good reason. They are very dependent on the U.S. consumer's appetite for their exports.
According to Lombard Research, 8% of Korea's entire GDP depends on exports to the U.S. For China, 7.5% of their GDP is due to exports to the U.S.

The Koreans and Chinese are well aware of this dependency, and they have been trying to shift more exports to Europe, with some success. Nine percent of Korea's GDP consists of sales of goods to Europe; 7% in China's case, according to Lombard Research.

The worry here is that if the U.S.'s consumption of imports suddenly slows down, domestic consumption in Korea and China may not pick up the slack.
There are additional risks to these countries: a rising chorus of protectionist rhetoric in both the U.S. and Europe.

The implications are clear: a sluggish U.S. economy will adversely affect growth in key emerging markets. This highlights the interdependency of the global economy

The Teddy Bear's Stage.....

Some Question to be ask tonight ( 27 July 2007 ):

What will happen today?

• The risk is to the downside, because the markets can easily drop another 3% to 5% before a sufficiently large number of people ask questions about oversold conditions.



• There has been a lot of technical damage, and we're approaching the weekend.



• Q2 GDP may not have the impact it usually has. Traders yesterday were already saying that the world was a different place from Q2 in light of the tightening in credit.



• In fact, we're seeing if the strong GDP may be a negative, since traders are now agitating for a rate cut from the Fed.
  

Can we get a sustainable bounce?

• If the market comes to believe that the Fed will step in and lower rates later in the year, that would help.


• Also, clear signs in a month or two that banks and brokers were able to sell some of their LBO(Leverage Buyout) debt will go a long way toward calming markets

What is the main bear argument?

• Credit and housing deterioration is creating a systemic crises that will lower the markets. Bears say the markets should not be 3% off all time highs with energy, credit, & housing major issues.
  
• Many stocks in S&P were viewed as takeover targets. A "closed" sign on the debt markets is bad news.
  

What is the main bull argument?

• Housing and credit issues do not represent systemic risk to the global markets


• Repricing of leveraged bonds is good


• At end of summer, when repricing occurs,much of the LBO debt will be sold, and stocks will get a lift in September and October when the markets realize the sky has not fallen.


• In the meantime, the banks are not losing money on the LBO mezzanine loans--they are in fact earning interest on it.


• No LBO deal has collapsed, and it's unlikely a major one will collapse.


• The global growth story is the key. IMF raised its global growth forecast. China is the largest contributor to global growth this year. They see faster growth In Germany, China, Russia, India.
  

Why is the market so volatile?

• The repricing of risk is the main reason.


• Some also note that the elimination of the short-sale tick rule may be a factor in the market's volatility. This rule, which required that shorting of a stock could only be done on an uptick or sideways move (but not a downtick), was eliminated a few weeks ago. It is difficult to sort this out, because the recent period of volatility also corresponds with the concerns in the credit market. Most agree that removal of the rule is adding some degree of additional volatility.
  

Can we get an oversold bounce looking like a possibility?

• Yes, at any moment. A surprising number of traders have covered some shorts position. But, any uptick is consider a correction for further Short !!

The Game is START !!!

U.S. stocks tumbled as concern about loan defaults increased, investors balked at funding takeovers and companies including Exxon Mobil Corp. reported earnings that missed analysts' estimates.

Home Sales
New homes sales in the U.S. fell 6.6 percent in June, more than the 2.7 percent drop economists had forecast, signaling no end to the real-estate slump that's weakened the economy. Purchases of new homes in the U.S. dropped 6.6 percent in June, the most since January, to an annual pace of 834,000 last month from a revised 893,000 rate the prior month that was less than previously estimated, the Commerce Department said.

Concern takeovers are costing more to finance also pushed down stocks. About $3.07 trillion in global mergers and acquisitions helped send the S&P 500 and Dow average to records earlier this month.

10-year Bond yield

The yield on the benchmark 10-year note fell 6 basis points, or 0.06 percentage point, to 4.84 percent at 11:01 a.m. in New York, according to bond broker Cantor Fitzgerald LP. It earlier declined to 4.81 percent, the lowest since May 22. The price of the 4 1/2 percent security maturing in May 2017 rose 15/32, or $4.69 per $1,000 face amount, to 97 13/16. Yields move inversely to bond prices.
Ten-year notes yield 21 basis points more than two-year debt, the widest the gap has been since June 26.
The government will auction $13 billion of five-year notes at 1 p.m. New York time.
``Once bucked 4.88 percent on the 10-year note, you're going to have pretty clear sailing to 4.78 percent''

U.S. Durable-Goods Orders Excluding Transport Decline

Orders for U.S.-made durable goods such as computers and telephone equipment unexpectedly dropped in June for a second month as consumer spending slowed. Demand for goods meant to last several years, excluding airplanes and motor vehicles, fell 0.5 percent, after a revised 0.2 percent drop in May

Consumer spending -- which kept the economy alive for most of the past year -- is slowing, leading companies to order less from America's factories. Federal Reserve policy makers have said a lack of business investment is a risk for an economy already hurt by the biggest housing slump in 16 years.

New Zealand Raises Key Interest Rate to Record 8.25%

New Zealand's central bank raised its benchmark interest rate to a record 8.25 percent and said borrowing costs may be high enough to contain inflation, triggering a decline in the nation's currency.

The chance of a rate increase at the central bank's next review on Sept. 13 is 11 percent, according to an index calculated by Credit Suisse. New Zealand's dollar bought 80.13 U.S. cents at 12:25 p.m. in Wellington from 80.36 cents immediately before the statement. The currency this week reached 81.10 U.S. cents, the highest since it began freely trading in March 1985.

Central banks worldwide are grappling to curb inflation pressures. Bank of England's policy makers this month increased their benchmark rate to 5.75 percent. The Bank of Canada this month raised its key rate for the first time in more than a year to 4.5 percent.
Traders increased bets the Reserve Bank of Australia will raise its benchmark rate to 6.5 percent next month after a report yesterday showed consumer prices rose faster than economists expected in the second quarter.

What make China Mobile so Precious

China Mobile Limited (the "Company", and together with its subsidiaries, the "Group") was incorporated in Hong Kong on 3 September 1997. The Company was listed on the New York Stock Exchange and The Stock Exchange of Hong Kong Limited on 22 October 1997 and 23 October 1997, respectively. The Company was admitted as a constituent stock of the Hang Seng Index in Hong Kong on 27 January 1998. As the leading mobile services provider in China, the Group boasts the world's largest unified, contiguous all-digital mobile network and the world's largest mobile subscriber base. In 2006, the Company was once again selected as one of the "FT Global 500" by Financial Times, and the "The World's 2000 Biggest Public Companies" by Forbes magazine. Currently, the Company's corporate credit rating is A/Outlook Stable by Standard and Poor's and A2/Positive Outlook by Moody's (respectively equivalent to China's sovereign credit rating).
The Company operates nationwide mobile telecommunications networks in all 31 provinces, autonomous regions and directly-administered municipalities in Mainland China and in Hong Kong SAR through these thirty-two subsidiaries.
As of 31 December 2006, the Group had an aggregate staff of 111,998 and an aggregate mobile telecommunications subscriber base of over 301.2 million, and enjoyed a market share of approximately 67.5 per cent. in Mainland China. The Group's GSM global roaming services covered 219 countries and regions and its GPRS roaming services covered 138 countries and regions.
The Company's majority shareholder is China Mobile (Hong Kong) Group Limited, which, as of 31 December 2006, indirectly held an equity interest of approximately 74.57 per cent. of the Company through a wholly-owned subsidiary, China Mobile Hong Kong (BVI) Limited. The remaining equity interest of approximately 25.43 per cent. of the Company was held by public investors.

Major Reasons

~Number of Subscriber reach 332 million in China untill June 2007.

~JP Morgan and UBS upgraded China Mobile From hold to buy

~China is going to announce the first 3G license holder by end of this year.(90% is going to China Mobile)

In Conclusion

A Gigantic company with a EPS 22.5rmb and the world largest mobile operating company, it is difficult for CM to plunge. So there is no reason for this counter to go wrong. Remember China Goverment is soon to announce it 1st 3G licence to China Mobile. Why must it issue to CM ? the answer is if not China Mobile then who else ???

China Raises Rates After Fastest Economic Growth in 12 Years

China raised interest rates for the third time since March to cool an economy that grew at its fastest pace in 12 years last quarter, stoking inflation.

The benchmark one-year lending rate will increase to 6.84 percent -- the highest in more than eight years -- from 6.57 percent, starting tomorrow, the People's Bank of China said today on its Web site. The one-year deposit rate will jump to 3.33 percent from 3.06 percent.
China is trying to stop the flood of cash from record trade surpluses from fueling inflation, asset bubbles and overcapacity in manufacturing. Consumer prices rose by the most in almost three years in June because of a spike in food costs. Factory and property investment has surged.

The inflation rate was 4.4 percent last month. That's more than returns on bank deposits, encouraging households to bet on stocks instead and making it harder for the government to cool the share market.

Urban fixed-asset investment climbed 26.7 percent in the first six months, accelerating from the 24.5 percent increase for all of 2006.
China is under pressure to allow faster appreciation of the yuan to slow the flood of money into the economy from an export boom and ease trade tensions with the U.S. and Europe.

Export Boom

The world's fourth-largest economy expanded 11.9 percent in the second quarter from a year earlier. China exported $112.5 billion more than it imported in the first six months, an increase of 84 percent from a year earlier. The CSI 300 Index of stocks has climbed 95 percent this year after more than doubling in 2006. Rising food prices, high stock and property prices and excessive liquidity from the trade surplus.

The central bank has ordered lenders to set aside larger reserves of money five times this year. The government also plans to soak up cash by selling 1.55 trillion yuan ($205 billion) of bonds as part of setting up an agency to manage some of the country's $1.3 trillion of foreign-exchange reserves. The National Development and Reform Commission, China's top economic planning agency, forecasts the trade surplus will widen to a record $250 billion to $300 billion this year, up from $177.5 billion in 2006.

China's Bonds May Drop Further on Rate, Tax Moves

Chinese bonds, Asia's worst performers this year, will drop further should the central bank raise interest rates and cut taxes on deposit income, according to China Galaxy Securities Co.
The government may seek to make bank accounts more attractive after inflation prompted households to seek higher returns in stocks and property. Parliament approved a cut in the 20 percent tax last month, without setting a date.
``Bonds may fall further because it seems likely that the deposit interest tax will be cut by half,'' said Feng Chen, a Beijing-based fixed-income analyst at Galaxy, the nation's biggest securities brokerage by assets. ``The bond price has included the forecast of a hike of about 27 basis points.''
A government report yesterday showed the economy expanded 11.9 percent in the second quarter from a year earlier, the fastest in 12 years, reinforcing speculation that the People's Bank of China will raise rates for a third time this year. The consumer price index climbed 4.4 percent in June, higher than China's one-year deposit rate of 3.06 percent.
The yield on three-year bonds rose 1.3 basis points to 3.44 percent yesterday, according to the China Interbank Market. The debt's yield has risen 1 percentage point so far this year. The 2.66 percent security due February declined 0.03, or 0.3 yuan per 1,000 yuan face amount, to 98.08.
The bond market has slumped 2.6 percent this year, the worst performer among 10 local-currency debt markets tracked by HSBC Holdings Plc. It slumped as the central bank raised interest rates twice and increased the reserve requirement of banks five times to mop up excess money in the economy.

China's GDP Grows at Fastest Pace in 12 Years

China's economy grew at the fastest pace in 12 years in the second quarter and inflation accelerated the most in nearly three, adding pressure on the government to raise interest rates and cool investment.
Gross domestic product expanded 11.9 percent from a year earlier, the statistics bureau said in Beijing today, up from 11.1 percent in the first quarter. Inflation climbed to 4.4 percent in June, breaching the central bank's annual 3 percent target for a fourth month.

``China will continue to strengthen and improve macro- economic controls in the second half of this year,'' the statistics bureau said in today's statement. China's export- fueled growth will probably also fan tension with the U.S. and Europe, which contend that an artificially low yuan unfairly favors its exporters. The figures ``appear to give policy makers little room to delay a lending and deposit rate hike,'' said Martin Haigh, head of Asian sales trading at Cazenove Asia Ltd.,

The central bank is expected to increase the benchmark one- year interest rate from 6.57 percent and the deposit rate from 3.06 percent at least once more this year

Stocks in U.S. Poised for 10 Percent Drop, Options Bets Show

Bets in the options market against the Standard & Poor's 500 Index have exceeded wagers it will rise by a 2-to-1 margin for a month, the longest since Bloomberg began compiling the data in 1995.

That's seen as a warning sign the market is due for a decline of 5 to 10 percent after the S&P 500 rose to two records last week, say managers of almost $1 trillion at Morgan Stanley Global Wealth Management, National City Private Client Group and Russell Investment Group. The Leuthold Group, whose flagship fund has beaten 99 percent of similar funds over the last five years, expects the S&P 500 to slide as much as 19 percent by the end of the year.

The options market is ``a bell ringer,'' said David Darst, who oversees $728 billion as chief investment strategist at New York-based Morgan Stanley's private banking unit. ``On a short- term basis, the market's ahead of itself and could have a pullback.'' Darst, who cashed in some stocks in the past 12 months, said the market could drop as much as 10 percent.

The increase in so-called put options coincides with analysts' outlook for the worst corporate earnings since 2002. Retail sales slid in June by the most in almost two years, a signal that near-record gasoline prices and falling home values are taking a bigger toll on consumers than economists had forecast.

Hence, it is predicted there will be a sharp fall correction coming to the town before continue our journey to 1442 .... Becarefull......!!!

Not yet ... Not yet......

We think rising risk aversion could lead to some weakness in share prices in Q307, which would present a buying opportunity. We remain positive on the near-term prospects for the market. Although valuations are no longer at value levels, we believe accelerating earnings momentum, rising dividend yields, and increasing ROE should continue to support a re-rating to our forward PE estimate of 16.5x (end-2007 KLCI target of 1,442). We expect the following themes to support a favourable environment for upward earnings estimate revisions:


Start of the property up-cycle.
We believe the residential property sector’s typical up-cycle has just begun. Based on our estimates, we think the typical property cycle in Malaysia lasts four years from trough to peak. We estimate residential property sales could reach RM40bn in 2008 (up 33% from 2006levels).

— Additional incentives to stimulate the property sector (recent incentives included the easing of foreign ownership restrictions and waiver of the real property gains tax) should further support the up-cycle. We believe these new measures could lead to a more broad-based rise in the property sector, which could potentially lead to a more balanced growth profile for the Malaysian economy.

Ninth Malaysia Plan:
financing not an issue. Although most major highimpact Ninth Malaysia Plan infrastructure projects have not yet started, the federal government registered a 148% YoY rise in development spending in Q107. We expect several high-impact Ninth Malaysia Plan infrastructure projects to break ground in H207 and support our GDP forecast of 5.6%.

— A quick look at the revenue side suggests the federal government continues to enjoy windfall profits from Petronas (the national oil company) and higher dividends from government-linked companies (GLCs).

— Although not our base-case scenario, we think this gives the Malaysian government flexibility to lower taxes to stimulate domestic consumption. We see several scenarios for tax cuts: 1) a reduction in personal income tax rates (we estimate a 100bp reduction would free up around RM600m), and 2) a reduction in the stamp duty (most likely in the property sector).

Potential earnings surprises.
We believe our FY07-09 EPS estimates could prove conservative in view of: 1) higher loan growth and lower loan loss provisions for banks; 2) higher average CPO prices; and 3) a possible tax break for PLUS Expressways. Potential earnings downside, however, could come from the energy sector because of higher fuel costs and from Proton.

— Accounting for these four items, a scenario analysis indicates our FY07
growth forecasts could increase to 25.8% (from 20%), while our FY08 and FY09 EPS growth estimates could increase to 11.8% and 9.2% (from 8.7% and 8.6%), respectively.

The Tankan Survey ....

"Tankan Survey is an economic survey of Japanese business issued by the central Bank of Japan, which it then uses to formulate monetary policy. The report is released four times a year in April, July, October and mid-December.

The survey covers thousands of Japanese companies with a specified minimum amount of capital, although firms deemed sufficiently influential may also be included. The companies are asked about current trends and conditions in the business place and their respective industries as well as their expected business activities for the next quarter and year. "

Confidence among Japan's largest manufacturers held near a two-year high and companies said they're increasing spending, supporting the central bank's argument for a third interest-rate increase in seven years.
The Tankan, Japan's most closely watched business survey, showed confidence among large manufacturers was unchanged at 23 points in June from March and near December's two-year high of 25, the Bank of Japan said in Tokyo today. The result matched the median estimate of 26 economists surveyed by Bloomberg News. A positive number means optimists outnumber pessimists.
Sentiment among non-manufacturers held at a 15-year high of 22 points for a third quarter as the export-led expansion creates jobs and spurs consumer spending. The survey supports expectations that the bank will raise rates as soon as August.
``The good business environment for the manufacturing sector is spreading to the non-manufacturers and I think that might have something to do with growing household income,'' said Masayuki Kichikawa, a senior economist and currency analyst at Mitsubishi UFJ Securities in Tokyo. The survey result is ``somewhat'' supportive of a rate increase in August, he said.
The yen traded at 123.24 per dollar at 9:50 a.m. in Tokyo compared with 123.09 before the report was published. The yield on Japan's benchmark 10-year bond fell 1 basis point to 1.855 percent.