KWR
Advisor Economic Survey
Please
take a moment to participate in the following KWR
Advisor Economic Survey. Last month's results
are HERE.
To register your views on the questions below, please click on
the following link. This should take no more than about 5 minutes
of your time. Results will be published in the next edition.
Click THIS
LINK to
answer the following questions:
1) Where do you see the Nikkei at year-end?
2) Where do you see the Dow Jones Industrial Average at year's
end?
3) Do you believe Japan is in the midst of a sustainable economic recovery? (Please
answer on a scale of 1-10, 1 indicating extreme doubt and 10 indicating no doubt)
4) Who will win the U.S. presidential election?
5) Do you see another downleg in the US stock market during the summer?
6) Do you believe the government that is scheduled to be installed in Iraq on
June 30th will be judged to be a success in one years time? (Please answer on
a scale of 1-10, 1 indicating major failure and 10 indicating major success)?
Click THIS
LINK to see the answers from last month's
survey:
The
U.S. Stock Market – The Looming Uncertainty
By
Scott B. MacDonald
NEW YORK (KWR) Markets hate uncertainty. Unfortunately that
is the one thing that is in great abundance at the
present
time.
Brutal
and deadly attacks against foreign oil workers in Saudi
Arabia, ongoing conflict in Iraq, China’s threatening
behavior vis-à-vis Taiwan, North Korea’s
nuclear threat, and angst over interest rates in the
United States have opened a Pandora’s box of
investor anguish. Even the U.S. presidential election
offers no comfort as opinion polls indicate a close
contest. Yet there are other, more positive signals – strong
corporate earnings, ratings upgrades, and robust economic
growth over the last two quarters. Malls are reporting
a lot of foot traffic as the intrepid consumer is still
out buying goods from Wal-Mart. Consequently, the U.S.
stock market resembles a rollercoaster as bulls and
bears seek to push and pull investors along. Who is
right? Are we heading into another bull market period
or is there another lap in the multi-year bear market
looming? We lean toward the later.
The bulls argue the U.S. economy has returned to a path of
sustainable growth, which in turn will help rectify the fiscal
deficit and current account imbalance. The worst is over as
strong economic growth will translate into corporate America
going out and hiring. At last, the lagging indicator of unemployment
will fall – just in time for George W. Bush to win re-election.
The war against international terrorism will continue, but
is likely to be controllable. There is only a small likelihood
that a major attack will occur in the mainland United States – the
struggle against the Axis of Evil and its allies is to be found
elsewhere.
While some of the above bull scenario is accurate (stronger
and most likely sustainable growth as well as an improved corporate
performance), some of it is overoptimistic. The bears do have
some valid points. The U.S. economy is carrying too much debt.
According to Standard & Poor’ U.S. households continue
to set new debt records, with total debt (as of April 2004)
at 113% of after-tax income. The consumer at some point must
step back and replenish savings as the housing market is going
to cool and employment generation remains a gradual process.
We have already seen some correction in the housing market
as the most recent data showed an 11.8% decline in new home
sales -- the largest drop in 10 years according to the U.S.
Department of Commerce.
In addition, the fiscal deficit and current account imbalance
are not going away anytime soon. The latter could be greatly
complicated by the trade policies of both the Democrats and
Republicans, as both appear equally keen to be seen as the
greater protectionist. Consequently, we have moderately strong
economic growth, but weak confidence; improving performance
from the corporate sector, but a slow approach to hiring; and
a nation dependent on foreign trade and capital flows, but
lead by political parties preaching protectionism.
How does all of this play to the stock market? The short answer
is not very well. It sets an uncertain path in the weeks ahead.
June 30 looms as a potential swing date – the FOMC meets
to decide on interest rates and the U.S.-led coalition is scheduled
to hand over sovereignty to an Iraqi government. Both events
are important. The market anticipates an increase in interest
rates to begin a new cycle. The Fed has claimed it will begin
with a measured approach. We believe it will increase rates
by 25 bps in June, again in August (25 bps), and possibly once
more before the year-end – if the economic data supports
such an action. There is a deep concern that if the Fed moves
too quickly as it did in 1994, it could slow growth. We do
think the path to raising rates and containing inflation must
be carefully balanced with the fragile condition of the consumer
and the housing market. There is a possibility if growth is
slowed too much, these two parts of the economy could plunge – and
that would certainly send the market into a tailspin.
As for June 30 and Iraq, the Bush administration has invested
a considerable amount of its political capital into knocking
out Saddam Hussein and replacing his dictatorship with a democracy.
The invasion of Iraq was also expected to provide the American-led
world order with longer-term benefits. By holding Iraq, the
Americans could bring Saudi Arabia, Iran and Syria under pressure
to make changes in their countries – along the lines
of western democracies, while also putting acute pressure on
the state sponsors of anti-Israeli terrorist groups.
Instead, the Bush administration underestimated the Iraqi resistance
of the former regime (and new Islamic Jihadists), has been
embarrassed over the alleged justification for the war (weapons
of mass destruction which have not been found), and is now
seeking United Nations help in finding a way out of the Iraqi
mess. June 30, if all proceeds well, will begin to take the
monkey off the back of the Bush White House. If it is postponed
or the new interim government is unable to restore order (which
is a distinct possibility), the turnover could be problematic,
adding to market uncertainty (not to mention pressure on international
oil prices).
Post-June 30, markets will still have to confront uncertainty
around the U.S. presidential elections, which we expect to
be very close. We still regard the contest as Bush’s
to lose, considering that Senator Kerry has not made a sufficient
distinction between himself and the President in the minds
of many voters, the divided nature of the Democratic Party
(between the liberal and moderate wings which is hurting his
ability to make a clear-cut message), and the gradual improvement
in the economy. The Green Party candidacy of Ralph Nader could
also hurt Kerry in a close election, much as it did Al Gore
in 2000.
Despite that, Kerry has a track record of being a strong campaign
finisher – as witnessed during the primary season in
his performance against Howard Dean -- and there remains a
lot of things that can still go wrong for the Bush presidency
in terms of the economy and geopolitically.
We are in a multi-year bear market, which commenced in 2000.
Considering the relatively fragile nature of market confidence,
we think there is a strong chance of another pronounced downward
leg in the Dow before the end of the summer. It could be precipitated
by another major terrorist attack in the United States, a string
of bad economic data or a confluence of negative factors on
June 30 (a botched handover in Iraq and a sharp hike in interest
rates). It is going to be a long hot summer for the stock market
and gold is probably going to look better as the months move
along. We should add that although the short-term looks potentially
rocky, we do not see the U.S. economy falling back into a recession
and the stock market toward the end of the year could have
some bounce as some of the current uncertainties diminish.
Geopolitical
Issues - Saudi Arabia Dominates
By
Scott B. MacDonald and Robert Windorf
NEW
YORK (KWR) Oil prices briefly peaked above $42 a barrel
on Monday June 1, 2004. The primary driver of the price
spike
was a violent attack against foreign oil workers in
Saudi Arabia over the preceding weekend. In response,
OPEC members promptly vowed to increase oil production.
Oil prices fell…for now. However, we now have
in place the “al-Qaeda oil tax.” Although
more oil is to be pumped by OPEC, the threat of terrorist
actions against the oil fields and foreign workers
needed to work them, leave uncertainty of delivery,
hence ongoing upward pressure on prices. We see oil
prices at $35 on average for 2004 and $31 for 2005.
[Prices are also likely to stay above $30 in 2005 due
to the reluctance of the major international
oil companies to commit additional capital to major
new exploration efforts.]
Saudi Arabia is and will continue to be a critical battleground
in the war on international terrorism. With its major Muslim
holy places (Mecca and Medina) and the world's greatest oil
reserves, Saudi Arabia is the ultimate prize for al-Qaeda.
Should the House of Saud fall and be replaced by a new radical
fundamentalist regime, the rest of the region will be at
heightened risk. It is a historical fact that revolutionary
regimes seek to export their revolution - we have seen this
with the French, Haitian, Russian, Chinese, Cuban and Iranian
revolutions in the past. A potential radical Islamic regime
in Saudi Arabia would not be any different, especially considering
that much of the current al-Qaeda leadership looks upon the
world order as a clash of civilizations, which propels the
needs for a large, centralized and militarily well-equipped
Islamic state. Consequently, the recent round of attacks
in Saudi Arabia should be seen in both the light of international
oil politics, as well as the war on terrorism.
Over the weekend of May 29-30, a Saudi group affiliated with
al-Qaeda claimed responsibility for the May 29 attacks in
Khobar. The attack on foreign residences left 22 civilians
dead, 19 of them foreigners (mainly Westerners and Indians).
This was the fourth such incident involving suspected Islamist
militants in the Kingdom during May. It followed the May
1 attack in Yanbu on an oil installation that left five oil
workers dead, the May 20 clash between Saudi security forces
and militants near Buraida (in which most of the militants
escaped) and the May 22 shooting of a German expatriate in
Riyadh. Despite Saudi assurances that al-Qaeda was no longer
a force in the Kingdom, Khobar was followed by a new attack
on U.S. military personnel on June 2, when gunmen opened
fire on two vehicles leaving a military housing compound
south of Riyadh. No one was killed.
Khobar is significant for four reasons. First, the attack
was a skilled operation, reflecting well-disciplined training
and considerable forethought. The attackers wore uniforms
to disguise their approach, there was a specific choice of
targets (Westerners and Indians), indicating an solid knowledge
of the attack sites, and three of the attackers escaped.
In addition, the attack was very similar to the earlier Yanbu
attack: both assaults were against Western energy company
employees, struck several target sites and attackers dragged
the body of a victim behind an automobile. This was a calculated
and brutal action meant to shock.
Secondly, the assault on the House of Saud has intensified
as the terrorist action occurred on the oil rich eastern
side of Saudi Arabia. This marks a distinct shift from most
previous attacks, which took place along the west coast and
in and around Riyadh. As one intelligence service report
(Stratfor) notes: "The militants might be sending a
message to Saudi authorities -- as well as to foreigners
in the kingdom -- that no part of the country is safe from
attack. This will add to concerns of foreign firms -- already
looking to withdraw personnel and families from Saudi Arabia
-- and further strain the already taxed Saudi security forces."
A third point about Khobar, according to Stratfor, is that
the attackers went to considerable lengths to clarify they
were not out to harm Muslims. In the November 2003 Riyadh
apartment complex bombing 12 Arab nationals were among the
17 dead. This led to a public backlash against the attackers.
Consequently, the attack was careful to make a difference
between Muslims and non-Muslims. At Khobar, Muslims were
free to leave; non-Muslims were executed.
The fourth point about Khobar attack is that al-Qaeda or
an affiliated group claimed direct responsibility. The House
of Saud has been fighting two other more Saudi groups, the
Islamic Fighters of the Arabian Peninsula and the Brigades
of the Two Holy Mosques. In this case, a message delivered
on the jihadunspun.com Web site, the al-Quds Brigades of
al-Qaeda in the Arabian Peninsula, claimed responsibility
for the group, warning that further attacks were coming.
This marked a shift in post-attack tactics by al-Qaeda, and
could signal an even more aggressive plan of operations by
the al-Qaeda-linked militants in Saudi Arabia. The attack
on U.S. servicemen indicates that the fighting is not over.
In the aftermath of the Khobar attack, the Saudi government
actively claimed that it had the situation under control
and that all al-Qaeda cells in the country were now dismantled.
Sadly, the autocratic (and often repressive) nature of the
Saudi government, the painful lack of an official opposition,
and a lack of transparency all have meant that any opposition
groups to the House of Saud, moderate as well as radical,
are underground. The country's high unemployment (over 12%),
blatant corruption of the ruling family and its cronies,
and dependence on foreigners in the economy all add to societal
discontent that cannot be swept away by a few words.
This is not to argue that the House of Saud has done its
people poorly. As Middle Eastern specialist Milton Viorst
observed in 2001: “Whatever its flaws, Saudi Arabia
has risen from the desert in a few generations to have prospering
cities, efficient communications and transportation systems,
state-of-the-art factories and seaports, well-run universities
and hospitals.” Despite the concentration of wealth
at the top, there has been some spreading of wealth among
society and the Saudis as a people are probably the best
educated they have ever been. It should also be added that
though there is a growing undercurrent of discontent, Saudi
Arabia has never been a police state and throughout most
of its modern history there has been a high degree of social
order. However, that is beginning to change as more Saudis
are aware of the inequalities in society and there is an
increasing desire for greater accountability on the part
of the government.
Along these lines, al-Qaeda and its affiliates have in Saudi
Arabia transmitted a powerful message, combining the appeal
of social justice with that of radical Islam. Malise Ruthven,
author of Islam in the World (1984) provides an important
historical context between early Islam and today’s
al-Qaeda which is worth noting: “The Prophet of Islam
set his followers the impossible task of realizing the ideals
of Islam in a violent and wicked world, using the available
sources of political power…The utopian aspirations
of primordial Islam, though never fully realized, never ceased
to activate discontent and to provide the ideological fuel
for generations of Muslim revolutionaries.” Although
written before the advent of al-Qaeda as a household name,
Ruthven captures the issue in Saudi Arabia, the home of two
of Islam’s most revered holy places. For a number of
Saudis, al-Qaeda’s simplistic and religious message
of purity is in stark contrast to the corrupt and repressive
House of Saud.
Khobar is not an end of al-Qaeda in Saudi Arabia as stated
by the Saudi government, but the beginning of a well-planned
escalation of violence. Al-Qaeda is at war with the House
of Saud and the West. It is now hitting the House of Saud
where it hurts the most - in its pocketbook. We expect that
trend to continue.
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Contact: Dwight Ingalsbe email: ingalsbe@epfr.com
By
Sergei Blagov
MOSCOW
(KWR) Russia
has sent signals that it could clear the way for construction
of private oil pipelines as a way to increase petroleum
exports to the West. The move, if it takes place, would
signal an end to the long battle between Russia's private
oil companies and the state pipeline monopoly Transneft,
opening the door to a $4.5 billion project for shipping
oil to the United States and other Western markets.
Russia's oil pipeline monopoly OAO Transneft has been opposing
the private project, which would build a line from western
Siberia to the ice-free Arctic port Murmansk. Despite its
distance, Murmansk is closer to the U.S. market than the
Persian Gulf.
Russia’s oil majors -- led by embattled YUKOS,
including LUKoil, Tyumen Oil Company (TNK), and Sibneft
-- have been
lobbying in favor of a new U.S. export route through
the Arctic port of Murmansk. The project, which is scheduled
to start exporting in 2007, would pump up to 80 million
tons of oil per year, or 1.6 million barrels per day.
By building private pipelines, Russian private companies
aim to be free of direct Transneft control over export
volumes and transit fees. For instance, Transneft has requested
a tariff increase of 9 percent-11 percent in 2004. Transneft
didn't increase the fees it charges oil companies in 2003
but it requires hikes this year to finance pipeline expansion
and upgrades along existing routes.
Transneft, which now ships most of Russia's oil, boosted
the capacity of an oil pipeline and a Baltic Sea oil port
by two-thirds earlier last November month and expanded
the link by another 40 percent in early 2004. The pipeline
and the Primorsk port will be hauling 845,000 bpd by spring.
Transneft said it spent about $700 million to build the
pipeline and the oil terminal at Primorsk, north of St.
Petersburg, and plans to spend another $500 million on
expansion.
In the meantime, government control over Russian oil
pipelines has been cited as yet another hurdle hampering
development
of the country’s oil market. Russia has 46,800
km of pipeline some of which is more than 30 years old.
Some
pipelines have been modernized, but modernization of
the trunk pipeline network remains a priority. The existing
pipeline network operates at 99 percent capacity, limiting
Russian oil exports to 4 million bpd.
There are also important new pipeline projects such as
the Yamal – Germany project, which will require
the installation of 12,000 kilometers of large diameter
pipeline;
or the $5 billion North European Pipeline designed to
deliver 30 billion cubic meters of gas to Germany, Holland
and
UK.
The government controlled monopolies that control Russian
oil transport and the natural gas sector are stunting
industrial growth and undermining the interests of the
state and of
oil corporations, Russian LUKoil’s founder and chief
Vagit Alekperov stated last year. "It is obvious today
that state monopolism in any of its manifestations hinders
the development of the Russian oil and gas sector," Alekperov
said.
Russian companies "have all the necessary resources" to
boost production to 10-11 million bpd by 2010, from 8 mm
bpd at present, Alekperov claimed, adding that the only
obstacle blocking this growth is the lack of space in the
country's crowded pipelines. "Russia has an acute
need for 2.6-3 million bpd of new pipeline and loading
capacity," Alekperov said. But it was practically
impossible to attract the $10 billion to $15 billion needed
to finance such an expansion as long as the construction
and operation of pipelines remained under the control of
a state monopoly, he said. LUKoil’s leader stopped
short of naming either state-run pipeline monopoly Transneft,
which controls Russia's oil pipeline network, or gas
giant Gazprom, also controlled by the state.
The moves to expand capacity of the Russian oil pipeline
system have been seen as an indication that Moscow will
keep raising production and challenging the Organization
for Petroleum Exporting Countries (OPEC), while pursuing
policies aimed at the U.S. market. Russian companies are
trying to capture a 10 percent share of the U.S. oil market,
offering an alternative to OPEC. In 2003, Russian oil accounted
for about 1 percent of U.S. imports.
Russia is sitting on the world's richest natural wealth,
priding itself with an impressive ranking in the oil
ratings. With the country's proven 12 billion metric
tons of oil
deposits, Russia is the world's second biggest oil producer,
generating some 8 million barrels per day (bpd). It is
also the world's biggest natural gas producer. Russia’s
natural gas output reached 580 billion cubic meters in
2002, while the country’s reserves are some 47
trillion cubic meters.
Subsequently since 2000, Russian economic growth has been
driven by the oil and gas sectors. Despite a history of
resistance to foreign participation in the industry, Russian
companies now increasingly appear to see partnerships with
foreigners as an acceptable compromise between the perceived
need to keep the industry in Russian hands and the need
to attract foreign investments.
The Russian Ministry of Energy believes that foreign
investment of up to $70 billion could be attracted into
Russia’s
oil sector over the coming decade. Offshore the Russians
are looking to develop oil and gas reserves in the Northern
Seas (Barents, Kara, Pechora & Chukotka Seas), Sakhalin,
the Black Sea and the Caspian Sea. Future onshore oil
exploration work is focused on a number of sites in Western
Siberia
(Tyumen, the Yamal Peninsula, Khanti-Mansiisk, Tomsk,
Omsk, Novosibirsk), European North (Arkhangelsk, Komi,
Yamal
Nenets and Timan Pechora) Volga-Urals (Udmurtiya, Orenburg)
and Eastern Siberia.
Yet despite some domestic hurdles, Russia's rising oil
output has confounded OPEC. But in spite of growing oversupply
and a government promise to cut back, Russian producers
are showing no signs of slowing down. In January 2002,
the Russian government indicated it was considering a plan
to create a strategic oil reserve, which could help to
sop up the excess. But no more has been heard of the idea.
Russia has been keen to cooperate with OPEC as an “independent” oil
producer, presumably so as to buoy oil prices in the near
term. Riding on top of hydrocarbon exports, Russian government
officials have depicted a rosy picture of the country's
booming economy. President Putin has promised to double
the country’s GDP by 2010 and pledged that the average
Russian will "be happy" also by 2010, although
that magic date is well after the expiration of his maximum
constitutional presidential term. However, there have
been warnings that continued over-reliance on oil and
gas may
eventually push the nation into a vicious circle of debt
crises and an increasing dependence on commodity prices,
a pattern well known among developing nations.
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High
refining margins come to the rescue of India's
refiners
By
Kumar Amitav Chaliha
MUMBAI
(KWR) Indian oil companies are posting strong growth
in profits and healthy refining margins,
despite apprehension about the increasing
cost subsidizing petroleum product sales.
High refining margins have rescued state oil
companies from incurring losses from domestic
product sales because of a steep increase in
global crude prices. The government has barred
oil companies from increasing local product prices
since January, even as crude prices rose by a
third.
State oil companies are maximizing run rates
to capitalize on high refining margins. One outcome
of this is an increase in naphtha production
and exports. India exported 42,000 barrels per
day of naphtha in May, up 17 percent from April.
Increased Indian exports are putting pressure
on naphtha prices in Singapore, as most petrochemical
plants in North Asia are closed for routine maintenance.
According to traders in Singapore, excess cargoes
from India are hurting the market because there
is less demand now for naphtha. Mangalore Refineries,
Kochi Refineries and Indian Oil Corporation (IOC)
are exporting more naphtha by tender as industrial
consumers in India switch to cheaper natural
gas. Naphtha prices in India are around $6-$7
per million Btu, compared with around $4.70/MMBtu
for delivered natural gas.
State oil companies posted a 30 percent increase
in refining margins and profit growth of 20 percent
or more for the fiscal year to March 2004, compared
with the previous year. Bharat Petroleum Corporation's
net profit rose 36 percent, while refining margins
rose to $4.64 per barrel, up from $3.71 the previous
year. Net profits for Kochi Refineries and Chennai
Petroleum — stand-alone refiners owned
by Bharat and IOC, respectively — increased
by 21 percent and 32 percent. Margins for all
state refiners including IOC and Hindustan Petroleum
averaged around $4.50. Private sector player
Reliance Industries posted gross refining margins
of around $6 and posted a 49 percent increase
in profits before interest and taxes from its
refining business, compared with the previous
fiscal year. Senior Bharat officials admit that
high refining margins have protected the company’s
bottom line. Marketing margins for state oil
companies have suffered because of the product
price freeze.
Meanwhile, critics are accusing oil companies
of manipulating pricing formulas and overcharging
customers. Since the government deregulated the
oil sector in 2002, state oil companies evolved
a formula whereby refinery gate prices are set
at import-parity levels. The import parity price
is the sum of the actual product price, the cost
of transport and customs duties, which for most
products such as gas oil, gasoline and kerosene
are 20 percent. The import tax for crude is 10
percent, however. Also oil companies earn a margin
on transport charges, as they can pay lower fees
for crude but charge higher transportation costs
for products. Some say the refiners make an extra
$11 per ton through the “import parity” pricing
formula. This cushion has again helped refiners
absorb losses on domestic product sales in recent
months.
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India’s
New Government Slows Privatization
By
Kumar Amitav Chaliha
MUMBAI
(KWR) India’s new Congress Party-led government
says it is scrapping the country’s privatization
ministry and plans to retain control of the country’s
leading state-owned companies, including several
large oil firms.
Announcing the government’s new economic policy
program, Prime Minister Manmohan Singh said that
the Ministry of Disinvestment, which handled state
company sell-offs, was being abolished, with functions
taken over by the finance ministry.
He added that the top nine state companies — including
Indian Oil Corp. (IOC), Oil and Natural Gas Corp.
(ONGC), Hindustan Petroleum and Bharat Petroleum — would
remain in government hands. However, later comments
suggested that the sale of minority stakes has not
been ruled out.
The planned privatization of Hindustan and Bharat
was blocked by legal challenges last year, but the
former government proceeded with other sales of stakes
in energy companies in March. These included the $2.3
billion sale of shares in upstream producer ONGC.The
Congress-led
alliance is relying on leftist allies to form a government.
India’s largest communist party had described
the disinvestment ministry as “unnecessary”
and said that it would oppose the sale of profit-making
firms.
The common minimum program, the new government's
roadmap to economic and social policies in the next
five years, emphasizes a review of the reformist
Electricity Act passed by the previous government
and calls for delay in the restructuring of state
electricity boards. It does, however, offers the
private sector a role in power generation and distribution.
The ruling coalition also said that it plans to retain
majority control of state-run banks, continue with
food and fertilizer subsidies, and promote foreign
investment to help create jobs.
The government has agreed to pursue reforms in a
bid to place the economy on a 7%-8% growth rate,
according to the common minimum program document. “Generally,
profit-making companies will not be privatized,” the
policy document said. Singh, however, said there
was no bar on even profitable state firms selling
minority stakes. “We have to distinguish between
privatization and disinvestment,” he told reporters
after the policy announcement.
Initial market concerns about the change of government
have eased since it became clear that the new coalition,
while slowing privatization, would adhere to economic
reforms.
Are
Value Stocks and Defensives the Only Place to Be?
By
Darrel Whitten
TOKYO
(KWR) Surveys indicate that global investors are becoming
increasingly
anxious about inflation, and what this means for interest
rates and monetary policy. Monetary policy around the
globe (beginning with the FED’s policy) is seen
as too sanguine on inflation, and investors fear that
central bankers are falling behind the inflationary
curve–implying that when central banks do move,
they will have to tighten monetary policy more aggressively
than if they had moved sooner. The fear is that there
will be a repeat of 1994, when the FED raised rates
in rapid succession and caused a correction in the
stock market.
Consequently, these same global investors are becoming significantly
more risk adverse, and are adopting more defensive portfolio
allocations. The majority of these investors apparently remain
overweight Japan, although this weighting may also be at
risk if risk aversion progresses further.
The US “rate hike syndrome” has already caused
the US NASDAQ to drop below its 200-day moving average, indicating
that the current correction will be more prolonged. While
watching the NASDAQ, some Japanese investors pay more attention
to the Philadelphia SOX semiconductor index in terms of its
influence on the Japanese market. At this juncture, the Philly
SOX is in even worse shape than the NASDAQ. So much, in fact,
it has recently rallied from an oversold position.
Japanese semi majors such as Advantest and Tokyo Electron
have generally not participated in all but the early stages
of the 60% rally seen in the Japanese market, and moreover
have ignored their return to profitability. Tokyo Electron,
Japan's largest semiconductor and liquid crystal display
making equipment firm, booked an Y8.30 billion group net
profit for FY2003 to March, 2004, reversing its year-earlier
loss of Y41.55 billion. Brisk sales of chip-making tools
to Japanese and other Asian semiconductor and display manufacturers
lifted its group sales to Y529.65 billion, up 15% from Y460.58
billion a year earlier.
The company's group operating profit for the year rose to
Y22.28 billion, up from Y1.12 billion a year earlier. In
addition, for the January-March quarter, TEL’s orders
outstanding nearly Y262.3 billion, up about 90% from Y138.3
billion for the three months to March 2003. Orders in its
electronic components unit also rose 29% on year to Y8.7
billion during the quarter. Chip-making equipment sales were
particularly strong in Japan, Europe and Taiwan, and combined
semiconductor-making equipment sales in the three regions
stood at 65% of the firm's group sales. Conversely, full-year
chip-making equipment sales in the U.S., which accounts for
12% of total group sales, fell by 32% to Y50.6 billion. Moreover,
for the current year to March 2005, the company is forecasting
its group net profit to surge more than six times to Y52.0
billion, on sales of Y630.0 billion, up 18.9% YoY. According
to Tokyo Electron, appetite for capital investment among
global semiconductor makers is recovering rapidly and it
expects more demand for its products this fiscal year.
This notwithstanding, Tokyo Electron’s stock has been
falling since September of last year. It appears that analysts
and investors generally expect a peaking-out of the upward
phase of this silicon cycle in 2005. US market researcher
VLSI predicts that Q2 2004 revenues will in fact decline
for tool vendors following the end of the Japanese fiscal
year and buying cycle. If not, the semi equipment industry
is in danger of repeating the boom/bust cycle of 2000, achieving
two years' worth of growth in one, VLSI warns – a scenario
its analysts have been worried about for the past several
months. The favorable April B:B ratio followed seven consecutive
months of B:B ratios above parity. Meanwhile fab capacity
utilization rates were down from March's level of 88.5 percent
to 87 percent. Indeed, some semiconductor analysts are warning
of a peak in the silicon cycle as early as next month (June).
But PC demand, historically a major driver for semiconductor
demand, is in the midst of a major replacement cycle. According
to Gartner, nearly 100 million PCs are likely to be replaced
this year, with 120 million being swapped out in 2005. The
volume of replacements in the next two years will surpass
the number of units replaced in the run-up to Y2K in 1998
and 1999, Gartner said. In 2004, replacement units will drive
global shipments to 186.4 million - an increase of 13.6 per
cent over 2003.
Partially reflecting this, worldwide semiconductor equipment
revenues grew 24 percent to $11.9 billion in Q1, following
sequential increases of 16 percent in Q3 of 2003 and 14 percent
in Q4, according to VLSI Research. Indeed, if replacement
demand for PCs is as large as Gartner foresees, this demand
will come on top of already diversifying demand for semiconductors
from mobile phones, digital consumer electronics, and flat
panel displays–and it will diffuse through the semiconductor
industry, helping to support what the bears insist is the
beginnings of the bust portion of the silicon cycle.
In Japan Late-Cycle, Domestic and Defensive Sectors Have
Been Leading
Reflecting increasing risk aversion by investors, late-cycle,
defensive sectors have so far led 2004's performance, despite
strong upward estimate revisions in profits and evidence
that the economy is in the early stages of recovery and therefore
is surprising on the upside, both in the US and Japan.
Indeed, that is the hidden message behind the recent hard
line stance the auditors and the FSA (Financial Services
Agency) have taken regarding UFJ Holdings and the pressure
they are now under to clean up their loan books–i.e.,
what the FSA is saying to the banks is “reduce your
non-performing loans to levels required by 2005, and de-link
your balance sheets from the stock market so that Japanese
interest rates can normalize”. On the other hand, the
BOJ is not about to back off of ZIRP prematurely, which means
that when they do, they will be fully confident that Japan’s
economy and financial sector can handle it.
Yet the consensus of the major domestic think tanks for Japan’s
GDP growth in 2004 is 3.2%, with 1.6% growth foreseen in
2005. Behind such estimates is the assumption that Japan’s
business cycle will be peaking over the next six months.
But if Japan’s global competitiveness is indeed recovering,
what happens with earnings and the impact this will have
on stock prices is many times more powerful than the short-term
psychological impact of an eventual abandonment of Japan’s
zero-interest rate policy, or ZIRP.
Moreover, if investors are really worried about inflation
and rising interest rates, growth stocks at some point deserve
another look Historically, growth stocks outperform value
stocks as interest rates rise - as they are now. That could
happen again in this cycle, particularly as Japan’s
economy enters a secular recovery that would overlay a peaking
of the current business cycle.
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THE
POWER OF PURSE STRINGS: Asian consumers’ central
role in the region’s growth
By
Jonathan Hopfner
BANGKOK (KWR) Of all the economic dilemmas facing Asian governments few now
seem as pressing as how to persuade reluctant consumers to open up
their
pocketbooks.
While officials in the past tended to direct most of their energies
toward cultivating new export markets, luring foreign investors to
local bourses, or building up foreign exchange reserves, an increasing
number are realizing just how significant a contribution domestic spending
can make to overall expansion – a realization that, in some cases,
may have come too late.
In no two countries is this lesson being more starkly illustrated than South
Korea and Thailand – consumers in the former still struggling under a
mountain of debt and consumers in the latter just beginning to tighten their
purse strings after a borrowing and buying spree fueled by a few heady years
of stellar growth. How these scenarios play out in both countries is likely
to have just as much impact on their respective economies as external factors
such as oil prices and the performance of major export markets such as China
and the United States. A flurry of policy initiatives in both nations demonstrate
the increasing emphasis their governments place on nurturing domestic spending,
but questions remain as to whether the desired outcomes will be achieved.
In South Korea, the situation seems to be one of worrying imbalance. Perhaps
weary of the austerity brought on by the 1997 Asian financial crisis and the
International Monetary Fund bailout that followed, South Koreans responded
to historically low interest rates and credit-card giveaways by racking up
an record $13 billion in debt by the end of 2003. The same year, nearly 4 million
of the country’s 48 million people were three or more months behind on
debt payments. Credit card companies were soon forced to engage in massive
write-offs of defaulted debt, leading, in the most highly publicized case,
to the near collapse of LG Card Company, rescued only this January after its
creditors agreed on a 5 trillion won ($4.2 billion) bailout package.
The results of the consumer credit bubble have been, at least in terms of domestic
spending, extremely troublesome. According to the Bank of Korea, the economy
grew by just over 3 percent last year, but exports were responsible for 98.2
percent of this growth and domestic consumption a mere 1.8 percent, compared
to 42.7 percent and 57.3 percent, respectively, in 2002.
Startling figures, to be sure, but some point out there are indications that
things are about to get better – healthy exports in the first quarter
of this year pushed gross domestic product (GDP) growth up to 5.3 percent,
which appears to have given lackluster consumer confidence figures a superficial
boost. The National Statistics Office reported that consumer confidence rose
to a 19-month high of 99.9 percent in April – anything below 100 indicating
the pessimists outnumber the optimists.
Unfortunately, it appears that while they’re increasingly hopeful, Koreans
aren’t ready for any buying binges just yet. Private consumption is still
falling – by 0.3 percent in the first quarter. The Ministry of Commerce
also noted this month that combined sales at retail department stores dropped
by 1.7 percent in April, and are likely to plunge even further over the next
month or two.
The government’s response to the situation has been concerted – interest
rates have been kept at historic lows for nearly a year, taxes on high-end
goods such as cars and golf clubs were cut in March, and in May a program was
launched to help restore the bad credit of over 3 million individual loan defaulters.
Whether such moves will simply encourage Koreans to borrow more money and launch
the credit-bubble cycle all over again is open for debate, but what does seem
clear is that the initiatives will do little to shield consumers from shocks
that are looking increasingly probable. As the world’s fourth-largest
oil importer, oil price rises are particularly damaging for Korea, and a US
interest rate hike, coupled with China’s efforts to put the brakes on
its breakneck economic growth, would spell trouble for the Korean exporters
that are apparently single-handedly propelling the country’s growth.
A month or two of lackluster figures would wipe out much of the hesitant optimism
that just now appears to be taking root among Korean consumers. Therefore,
over the short-term, the Korean economy appears to be standing on very shaky
legs.
Thai officials, by all accounts well aware of Korea’s recent problems,
at least have the benefit of a form of hindsight to work with. The economy,
registering growth of over 6 percent, was one of the best performing in Asia
last year, and the stock market doubled in value. This prosperity was no doubt
based partially on a relatively weak baht, China’s appetite for Thai
exports, and foreign investor interest, but was also thanks to a consumer base
encouraged by low interest rates and government-initiated social spending programs.
The Bank of Thailand, however, is concerned that consumers have been encouraged
a bit too much for its liking. Mortgage loans soared nearly 15 percent last
year, and independent agencies like the Thailand Development Research Institute
have estimated that average household debt has reached over 6 times monthly
income, double what it was a decade ago. The response has been swifter and
certainly harsher than that seen in Korea; in January the central bank released
a master plan for the financial sector that will force many small-scale consumer
credit firms to merge with larger – and more heavily supervised – banks
or become extinct, and in March slapped new restrictions on credit card issuers,
including rules on when and how they’re permitted to market their products
to potential customers.
Such restrictions may not completely eliminate the risk of a Korea-style debt
bubble, but they do demonstrate a willingness on the government’s part
to take pre-emptive action – and a good thing, too, since last year,
according to the University of the Thai Chamber of Commerce (UTCC), consumer
spending accounted for nearly half of the country’s impressive GDP growth.
Thailand also faces many of Korea’s problems, of course – it too
imports oil, and depends heavily on the US and Chinese markets – as well
of a few of its own, like the unrest in the Muslim-dominated south. The stock
market has taken a beating so far this year, and the UTCC’s most recent
survey shows consumer confidence dropped in April to 101.6, a six-month low.
But the same survey also shows consumer spending continues to rise.
This relatively positive picture may be in part to the government’s sunny
rhetoric. Thai Prime Minister Thaksin Shinawatra has been careful to point
out that the government will continue to subsidize oil prices and monitor the
prices of basic commodities such as rice to ensure they don’t rise excessively,
and continues to insist growth will this year reach 7 percent. For now, at
least, the general public appears prepared to believe him.
Whether they address it with policies or pronouncements, the cases of Thailand
and Korea indicate governments across Asia would do best adopt a two-track
approach towards economic growth, monitoring domestic spending and consumer
confidence with the same diligence they’ve applied to foreign exchange
and encouraging exports, particularly given the affluence of the region’s
swelling middle class. External crises can arise and pass with astonishing
rapidity, but convincing consumers that it’s once again safe for them
to part with their hard-earned – or borrowed – cash seems a longer,
and infinitely more delicate, task.
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Chinese
IPOs – The Glow Is Gone – For Now
By
Scott B. MacDonald
NEW
YORK (KWR) Throughout the late 1990s and first
few years of this century,
China was hot. Everyone wanted to find a way to
play China. After all, Asia’s largest economy
was showing dynamic economic growth, political
stability (including a peaceful transfer of leadership),
and a growing middle class. The new China, fully
part of the global economy, needed (and still does)
vast inputs of oil, natural gas, coal, copper,
nickel, and alumina for industrial production and
a better national infrastructure. The expanding
middle class was hungry for foreign consumer goods.
The world rushed to meet these demands. China also
was willing to allow its vast numbers of companies
to seek foreign financing.
One aspect of this was the boom in Chinese equity Initial
Public Offerings (IPOs) over the last couple of years.
The NYSE has a total of 16 Chinese companies and there
is a sizeable number of OTC (Over The Counter) ADRs for
Chinese companies. According to The Asset, Chinese corporates
raised an estimated $6 billion through overseas IPOs
in 2003.
It was expected that Chinese companies would raise $7
billion in overseas markets via IPOs in 2004. That number
now looks unrealistically high for three reasons. First,
the Chinese government is seeking to slow the pace of
growth (9.4% in Q1 2004). Inflation is an increasing
worry. The big question is can Beijing manage a soft
landing in the economy (we think yes) or does China have
a hard landing ahead (many people are worried about this)?
Second, many investors are finally waking up and discovering
that Chinese companies have a poor track record with
transparency and disclosure. Considering that global
investors have been burned by Enron, WorldCom, Nortel
and Parmalat, Chinese companies do not look as attractive
as the did when the economic boom looked set to continue
forever. Investors are now asking questions and many
Chinese CEOs do not want to answer, hence the decline
in new IPOs.
The last factor is that many of the Chinese companies
that have issued IPOs already have not been stellar performers.
A number of investors complain that performance has not
met expectations and management doesn’t care.
Chinese IPOs are no longer on the menu – at least
for now. They will be back. However, in the interim,
the Chinese government has considerable work ahead in
terms of cleaning up its banks (filled with bad loans),
managing a slower pace of economic growth, and dealing
with the enormous challenge of meeting the rising expectations
of the population. For many investors the China glow
is gone. They have moved on to other places to invest.
But we expect that once the soft landing is managed,
those IPOs will be back. We hope everyone has learned
something from this last round of China mania – transparency
and disclosure do matter.
Venezuela – Total
Recall?
By
Scott B. MacDonald
NEW
YORK (KWR) Look for political uncertainty and turmoil
in Venezuela in the short-term. After months of
speculation
and legal wrangling, Venezuelan President Hugo
Chavez said June 3 that he is prepared for a referendum
on his term of office. Shortly after electoral
officials said that Chavez's opponents had collected
more than the 2.44 million votes required to prompt
a recall vote, Chavez stated in a nationally televised
speech, "I accept it. I hope that some people
realize -- if they are still confused -- that Hugo
Chavez is not the tyrant some say he is." The
referendum is likely to be scheduled for August
8.
The public response to the announcement that the referendum
was likely to go through was mixed. Pro-Chavez supporters
set fire to cargo trucks, severely beat up an opposition
lawmaker outside Congress and fired on the offices of
Caracas’ mayor, a prominent anti-Chavez figure.
Supporters of the referendum drive set off fireworks
and honked horns. Venezuela remains a highly polarized
society.
Chavez is calculating that the opposition will not be
able to maintain any degree of unity and if the referendum
goes against him, setting in motion a new election for
the presidency, he should be able to win with 35% of
the vote, which is what his political support has been
throughout the last couple of years. With an opposition
likely to produce multiple candidates, his chances of
winning are good. Even with the referendum Chavez remains
in relatively good shape. His current approval rating
is now at 42%, while the burden will be on the opposition
to make certain that enough voters get to the polls.
No doubt, the authorities will seek to dissuade voters
from turning out at the polls. It has already been reported
that any government workers signing the opposition petition
for a referendum have been fired (or are at least being
threatened). In a country with high unemployment and
a growing state sector, the possible loss of a job is
significant.
One other factor to consider is the role of the country’s
military. Although Chavez moved since the failed 2002
coup to purge elements opposed to him within the ranks,
there remain a core of “institutionalists” who
favor a non-political, constitutional role. They favor
upholding the referendum process. In contrast, there
are the new commanders who were put in place by the President,
who clearly identify their fortunes with Chavez. Annual
promotions take place in July and it is likely Chavez
could use this to further his control over the armed
forces.
The Venezuelan economy is not likely to offer Chavez
any help. Although real GDP growth is expected to grow
by 6% in 2004, on the back of high oil prices, this comes
after an 8.9% decline in 2002 and another decline of
9.2% in 2003 reflecting the damaging impact of the strike
at PDVSA, the state-owned oil company. In addition, the
private sector, one of the major sources of anti-Chavez
opposition, has been decimated by high inflation (up
to 27.1% at year-end 2003), political instability, government
controls over foreign exchange and the lack of growth.
Indeed, much of the upper and middle class that has had
the option to leave the country has done so. Considering
the deterioration in the economy and polarization of
its political life, foreign investment has not poured
into the country, though some credit has to be given
to the government for making all of its external debt
payments.
Venezuela faces a summer of uncertainty. Will the referendum
go ahead? Will the military intervene to stop it? Will
Chavez seek to bloc the referendum through the courts?
What happens if the President fails to win a majority
in August? Can the opposition pull together and provide
a more unified front, including enough support for a
single candidate to run against Chavez if they win the
August referendum? All of these questions are going to
percolate through Venezuela in the months ahead, leaving
considerable uncertainty. All the same, there remains
a strong possibility that Chavez may allow the referendum
to proceed with the view that he can win it, hence putting
to rest any constitutionalist threat to his rule for
several years. However, if opinion polls begin to go
against him and the opposition appears to be better organized
than in the past, we would not rule out Chavez seeking
new means to bloc the referendum.
By
Scott B. MacDonald
Japanese
Banks – And Now Comes the Hard Part: The most recent
earnings season for Japanese banks was the best in years.
Helped by an economic rebound, a higher Nikkei, and sustained
pressure by the government to clean up bad loans, the major
banks (with the notable exception of UFJ) posted solid
earnings. Now comes the hard part. As the banks look into
the current fiscal year that ends March 31, 2005, they
have to find ways to make money. That is going to be a
challenge. Lending alone will not provide a platform for
the generation of strong profits. While loans to small
and medium-sized companies and individuals through credit
cards are rising, total lending fell each month since the
Bank of Japan began tracking the figures in January 2001.
There are three reasons for the decline in bank lending
and the ongoing difficult nature of the market. First,
auto, electronics and other manufacturing companies are
cutting their borrowings as they move production to China
to reduce costs. Second, utilities are slashing expenditures
on new units to prepare for greater competition in the
domestic energy markets. Third, most of Japan’s top
corporations, with investment grade ratings, are seeking
fewer loans. Instead many of these companies are tapping
stock and bond markets in Japan. They are also willing
to tap foreign bond markets for cheaper funds. The impact
of all three trends is to reduce loan demand and credit
spreads, while loan margins are shrinking due to competition.
What is the solution for Japanese banks? The answer is
a greater movement into investment banking and other fee-advisory
services. The banks can also charge the borrowers more,
though may only accelerate the shift into non-bank finance
venues. U.S. banks have long made the shift to offering
non-lending fee income driven business. Almost 32% of Citigroup’s
record $5.27 billion net income for Q1 2004 came from its
global investment banking business, while half of the profit
came from its global consumer finance unit, including credit
card operations. In contrast, two-thirds of Mizuho’s
year-end 2004 gross profit was generated from its lending
business, while non-bank fee income was only 13%. The weakness
in the fee income side of the business is evident by the
following: Mizuho ranks 8th in equities underwriting, 10th
in local mergers & acquisitions advising and 3rd in
bonds underwriting.
March 31, 2005 is still far in the distance. Most major
Japanese banks are still enjoying the success of last year.
However, the path forward is going to be very challenging.
Japanese banks have considerable work ahead of them. Although
non-performing loans have fallen, they remain an issue.
In addition, the pace of economic growth could slow, making
the business environment more difficult. Consequently,
we think that Japanese banks are making a lot of progress,
but making good profits in the year ahead is going to be
even more challenging.
Pension Reform Ruckus: In early June, opposition lawmakers
attempted to pull a ruling Liberal Democratic party (LDP)
legislator from a podium in the Diet to prevent him from
announcing the passage of a bill seeking to reform Japan's
troubled pension system. Despite the effort on the part
of the opposition members of the Diet, committee head Masayuki
Kunii managed to announce the bill had been approved by
a majority in the upper house committee. Pension reform
has been a heated issue in Japan as the government is proposing
to cut benefits and raise premiums. Adding tension to the
issue, a number of Japanese politicians confessed to missing
pension premium payments, including Prime Minister Koizumi
and one-third of his Cabinet. In addition, two top politicians
stepped down from their posts after it was revealed they
had also skipped pension payments in the past. Katsuya
Okada, head of Japan's largest opposition Democratic Party,
pledged to try to block the legislation at all costs. Committee
approval clears the way for the bill to be enacted into
law by the full chamber, where Koizumi's LDP and coalition
partner New Komeito, enjoy a majority.
The Diet has been debating how to save the pension system
from insolvency, which is set to become a major election
issue in the July contest for the upper house of the Diet.
Japan's society is rapidly aging and many are apprehensive
the smaller work force of the future will not generate
a high enough level of premium payments to supply pensions
to the growing ranks of retired people.
North Korea – New Talks Scheduled: A new round of
six-nation talks seeking to end North Korea's nuclear weapons
programs will commence in Beijing on June 23. The third
round of six-nation talks will be preceded by two days
of preliminary negotiations involving lower-level officials.
Two previous rounds of high-level talks ended without any
breakthroughs in settling the standoff, which flared in
October 2002 when the United States said North Korea admitted
operating a secret nuclear program in violation of a 1994
agreement. Washington and its allies have been attempting
to arrange a new round of six-nation talks also involving
the two Koreas, host China, Japan and Russia by July, which
was agreed on by the nations when they last met in Beijing
in February. After the second round in February, the six
nations held their first lower-level meeting last month.
The so called "working group" discussions are
envisioned as trying to smooth the way and create an agenda
for a third round of high-level negotiations.
By
Scott B. MacDonald
 Chile – Inflation
Up: Chile’s central bank in early June announced that
its inflation rate forecast for 2004 is rising, largely due
to higher-than-expected oil prices. The old inflation forecast
for the year was 2%, It has been raised to 2.1%. Chile imports
90% of its oil needs.
China – Fitch
Calls for More Slowing Measures: On May 17, 2004 rating agency
Fitch stated that China needs to do more to rein in its breakneck
economic growth but a drastic slowdown is unlikely. According
to Brian Coulton, head of Asia Sovereign Ratings at Fitch: "Our
base case is not for a hard landing in China. Growth isn't
going to come crashing down to a halt." Fitch expects
China's economic growth to slow in the second half, with
2004's growth rate averaging around 8.5 percent and slowing
to around seven percent in 2005. Coulton added: "Our
view is the authorities in China have caught this boom early
enough, meaning a hard landing is not inevitable. It doesn't
mean they've done enough...we do want to see further measures
and in our view they do need to bring interest rates up," China
has not raised interest rates for nine years but media reports
have said that a rate hike is imminent. China is struggling
to slow its economy, which grew 9.8 percent between the first
quarters of 2003 and 2004. Financial markets are worried
that authorities may be moving too late to control growth
and that boom will turn to bust. Alternatively, the measures
to restrain the economy could themselves push it into a severe
slowdown.
Indonesia – Presidential
Elections: Campaigning began June 1 in Indonesia's presidential
race, scheduled for July 5. Five candidates are contesting
the elections, which will mark the first time Indonesians
will directly elect the country's president. According
to the most recent opinion polls, incumbent President Megawati
Sukarnoputri (with 11% of potential votes) trails former
Security Minister Susilo Bambang Yudhoyono (with 41% of
potential votes). Megawati has been in office for 2 and
half years, following the resignation of President Wahid.
Although she has restored some degree of political calm
to the country, many Indonesians believe her time in office
has been marked by indecisiveness and she has sadly demonstrated
a lack of initiative and new ideas. In comparison, Yudhoyono
comes across as a more disciplined political leader, capable
of providing stability as well as new ideas. The candidate
in third place in the polls is former general Wiranto,
who was one of the top military people under President
Suharto’s regime and is tainted by human rights abuses
in East Timor. He polls at 10 and has the support of Golkar,
which has a national organization and financing. Rounding
out the field are Amien Rais (4.4%) and Hamzah Haz (3%).
In other Indonesia news, the consumer price index rose at a faster-then-expected
6.5% in May compared to a year earlier, the most in seven months.
It is felt that faster inflation could force the central bank
to raise interest rates, which are close to six-year lows. Inflation
could average as much as 7% in 2004, higher than the government
forecast of 6%. There is also concern that higher rates could
break the pace of economic growth – not a good thing in
a country where people have been struggling on the economic front
since the debacle in 1997-98.
Mexico – The Political Pot Stirs: In early June, Mexico’s
political situation suddenly became a little more interesting
with the resignation of Energy Minister Felipe Calderon. Clearly,
his unexpected departure sent tremors throughout the Mexican
political establishment. Though the presidential elections are
two years away, Calderon's resignation was an indication that
the country’s political parties are preparing for battle.
As one long-time Latin American observer, Walter Molano, noted: “Although
we were never optimistic that the Fox Administration would pass
any of the structural changes, Calderon's resignation formally
killed energy reform. Fernando Elizondo Barragan, the new Energy
Minister, said that he would launch "Plan B," but he
failed to provide any details. Mexico is one of the two darlings
in the emerging markets, but it is also marching towards a new
sexenio crisis. It is too bad nobody really cares.”.
Malaysia – The
March 29th Elections: On March 29th, Malaysia voters
went to the polls to elect a new government. As was the
case over the last several decades, the ruling multi-ethnic
coalition, the Barison Nasional or BN, won handily, reasserting
the dominant role of the United Malays National Organization
(UMNO) within the majority Malay community. The BN captured
198 of the 210 (90%) seats in the federal parliament
or 64.4% of all votes cast (up from 56.6% in 1999 and
just below the 65% it scored in 1995). This was decidedly
good news for the standing Prime Minister Abdullah Badawi,
who had earlier assumed the leadership role from longstanding
Prime Minister Mohammad Mahathir. Despite considerable
speculation as the strength of the Islamic issue in swaying
voters to opt to non-BN parties, Badawi marked his first
outing as national leader with a sweeping victory, which
should provide him the opportunity to further put his
own personal stamp on the direction of the country.
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2004 - This document is for information purposes only.
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without the permission of KWR International, Inc.
While the information and opinions contained within
have been compiled by KWR International, Inc. from
sources believed to be reliable, we do not represent
that it is accurate or complete and it should be
relied on as such. Accordingly, nothing in this document
shall be construed as offering a guarantee of the
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to the purchase or sale of any security. All opinions
and estimates included within this document are subject
to change without notice. KWR International, Inc.
staff, consultants and contributors to the KWR International
Advisor may at any time have a long or short position
in any security or option mentioned in this newsletter.
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