Launching of Association of Financial Advisers (AFA)

31^stOct 2012 would be a historic day for Malaysia financial planning industry with the launching of newly formed Association of Financial Advisers (AFA) at Lanai Kijang, Bank Negara Malaysia. From now onwards, AFA will effectively represent all the Licensed Financial Advisers and Corporate Unit Trust Advisers (CUTA) Firms. The association is approved by Registrar of Societies on the 16th August 2012 with the support from Bank Negara Malaysia.

In conjunction with its launching, AFA also held its inaugural financial advisers conference titled “Charting New Frontier – FA the Future”. During the conference, audiences were empowered with up to date practices by Bank Negara and Securities Commission. Then, an interesting forum on the Future of Malaysia Financial Advisers Industry was discussed with everyone attentions. How we benchmark ourselves with other countries? We heard some success stories from Singapore and Hong Kong.

It was a successful milestone event for financial planners and CUTAs judging by the numbers of financial practitioners who attend the event. Product manufacturers, such as insurance and unit trust companies, started to realize the potential influences of financial planners and CUTAs in distributing their products and services. This signifies the bright future of financial planning industry moving forward, in line with the Capital Master Plan 2 by Securities Commission of Malaysia. There is no better time to be a licensed financial planner now.

This is a guest post contributed by Alex Yeoh, a licensed financial planner with VKA Wealth Planners. Finance Malaysia is glad to have Alex's input on financial planning matters. You may contact him via alexyeoh@vka.com.my

Net Worth Update (October 2012)

Highlights

Net worth for October increased by a mere 0.15% due to the fall in my commodities fund and the unexplained selldown in Biosensors. I believe the sound management and good fundamentals of Biosensors are making current prices look attractive. Biosensors is currently on a short term downtrend and the next important event will be the release of its financial results on 7 November 2012.

Cash/cash equivalents decreased by $2927.68 due to the purchase of 3 lots of Biosensors. Stock holdings increased by $3420 for the same reason.

Sandy is a Negative

Don't believe the argument that natural disasters fuel economic growth.  That argument is only true if what is being destroyed is something that should have been demolished in the first place.  Otherwise, things like "Sandy" should be viewed as a net wealth loss.  So, who steps up to make up for the wealth loss....the government?

Governments at all level are broke.  Sandy will only exacerbate the problems of state and local governments and everyone knows the federal deficit is on a path to disaster.  So, there is no silver lining here.

The loss is not confined to destruction.  Shutting down New York City and much of the East Coast for two days is not going to be completely made up later.  Some substantial loss is inevitable from the shutdown.

Sandy is a reminder that bad things can happen randomly. It is also a reminder of why people and governments should save for a rainy day.  Sometimes it rains.

New Fund: AmTactical Bond

Still remember one fund called AmDynamic Bond fund? If yes, you definitely knew the superb performance of that bond fund, which had became the flagship fund for AmMutual for past years. However, it was sad that, since few months ago, no more subscription was being allowed for AmDynamic Bond fund because it has reached the maximum limit set by regulators. In other words, too hot the demand for that fund. Then how?

Because of that reason, AmMutual is proud to launch another new fund, AmTactical Bond fund, which was managed by using the same strategy, but with a little bit more flexibility. The Fund aims to provide income and to a lesser extent capital appreciation by investing primarily in bonds.

How Flexible is it?

The Fund seeks to achieve its objective by investing primarily in sovereign, quasi-sovereign and corporate bonds including convertible bonds. There is NO minimum rating for a security purchased or held by the Fund.

To construct the portfolio of the Fund, the Investment Manager will analyse the general economic and market conditions. The Investment Manager will also analyse and compare securities in terms of expected returns against assumed risk by analyzing credit rating and duration of the securities, where the Investment Manager will select securities that will deliver better returns for a given level of risk. In addition, the Investment Manager may also consider securities with a more favorable or improving credit or industry outlook that provide potential capital appreciation. The Fund’s investment is subject to active tactical duration management, where duration of the Fund will be monitored and modified according to interest rate outlook without any portfolio maturity limitation.

Asset Allocation

• 70% - 98% invested in bonds;
• 0% - 28% invested in other permitted investments; and
• a minimum of 2% will be invested in Liquid Assets.

AmTactical Bond is suitable for investors who:

• are willing to assume risks associated with investing in securities with long duration (i.e. there will be no portfolio maturity limitation) and low credit ratings (i.e. there will be no minimum rating for the securities purchased or held by the Fund); and
• have an investment horizon of more than three (3) years.

Click here to download the prospectus

Source: AmMutual

The Fiscal Cliff

The President, in the third and final debate with Governor Romney, said that sequestration was "not going to happen."  Wonder what he knows that we don't?  In any event, it has already happened in some sense.  The expectation of increased tax rates and of sequestration are already playing into the economy.

Business folks don't wait until January to make decisions.  They are making them now.  Business has ground to a halt in the US, excepting a spurt in housing and the buoyant energy sector.  The combined impact of Dodd-Frank, of Obamacare, of the expiration of the Bush tax cuts, and of the coming sequestration are enough to scare any self-respecting entrepreneur about America's future.

We are already careening down the fiscal cliff. 

The question is, if the President loses his re-election bid, can we climb back out of the abyss.  That depends upon what a President Romney would prioritize.   In the short run, the economy needs the government to step back.   Rolling back some of the draconian measures at the EPA would be a start.  Giving the green light to the Keystone project would be a dramatic symbolic gesture that would also create a lot of high paying jobs almost immediately.

But, to get real prosperity, we will need real tax reform that lowers marginal rates, the repeal or gutting of Obamacare and the repeal or gutting of Dodd-Frank.  Absent these items, the economy is not likely to ever be what it once was.

We've been going through one of the most anti-free market periods in American history (there have been others).  Do Americans still believe in free markets?  Does Romney?

Even a Romney presidency may not reverse the tide against free markets, but who knows?  We can and should hope for the best.

New IPO: Astro Malaysia Holdings

The Return of a Pay TV Giant!!! Astro Malaysia Holdings (AMH) is poised to list on Bursa's Main Market on 19th Oct with a market cap of RM15.6bil. The largest pay-TV operator in Malaysia has a de factor monopoly, commanding a 99% market share. Are you excited, again?

Background

AMH is the leading media entertainment group in Malaysia with 3,100,000 customers and one of the largest in South East Asia. It is primarily engaged in the creation, aggregation and distribution of content over multiple delivery platforms including TV, radio, publications and digital media within Malaysia.

What's the different from the then delisted entity?

Recall that Astro All Asia Networks (AAAN) was the one taken private in 2010 by its single largest shareholder Astro Holdisngs SB. Meanwhile, AMH is effectively the domestic media business arm of previously-listed AAAN.

How good was Astro Malaysia Holdings?

• A monopoly in the pay TV segment with 99% market share
• A capital intensive industry, creates a high barrier for new entrants
• A buffet of content with presently 156 channels of which 68 are home grown channels. The increase in broadcasting capacity to 180SD and 102 HD channels with the launch of Measat-3B in 2014 will help boost ARPU and subscriber base.
• Multi platform content distribution would enable the group to reach out to more customers

After the good things, let's have a look at some potential risk that AMH may face:

• The group is subject to extensive regulation with its license subject to renewal;
• The group’s exclusive satellite rights would end in 2017;
• Its business is dependent on its infrastructure namely MEASAT-3 and MEASAT-3A and the launch of MEASAT-3B in 2014. Any failure to its existing satellites or delay in launching MEASAT 3B would interrupt its business operations;
• Competition from incumbent IPTV player such as Hypp TV and the highly anticipated Asian Broadcasting Network could erode its market share. However we foresee this as a longer term threat.
• Escalating rate of subscriber churn rate may decrease the group’s profitability given the presence of illegal set up boxes in the market such as skybox;
• Unable to source or procure content at reasonable rates.
• Its IPTV and OTT services may be affected by disruptions, delays and other difficulties from third-party network and broadband service providers just to list a few.
• Exposure to foreign currency risk since the purchases of setup boxes, international content cost and transponders lease payments are mainly denominated in USD would impact its operations.

Then, how attractive is the pricing? Is it expensive? Based on different valuation method, below is the fair value given by various research houses:

Source: Various including research report from TA and OSK.

Taxing the Rich As a Political Issue

It plays well to say that some hedge fund guru who makes $ 100 million per year should pay higher taxes.  Who can't sympathize with the view?

But, of course, that is never what is actually proposed by the Obama folks.

Instead the "tax on millionaires and billionaires" is aimed at the very large group of Americans who make far less than a million dollars per year.  The Obama "tax on the rich" aims it's bazooka at Americans who make $ 250,000 or more.  How did that group get labeled "millionaires and billionaires?"

There are a lot more families with income between $ 250,000 and $ 1,000,000 than families with income above $ 1,000,000, so Obama's plan is to soak the folks that aren't millionaires and billionaires, but, perhaps, aspire to be.  Worse, anyone aspiring to join the $ 250,000 plus crowd should take note.  This bazooka is aimed at your economic future. 

No point in starting that new business or hire that extra employee!  The President is your new future partner and is planning to sell you a new "protection" scheme on your future income, reminiscent of Al Capone days, by taking a higher percentage of that future.  Can't increase the number of millionaires and billionaires, can we? Heaven forbid!

This is the same rhetoric that recently led France to adopt a 75 percent tax rate on "millionaires and billionaires."  The few such people remaining in France are planning their move to Luxembourg, Monaco, or Switzerland.  Why remain in a country that doesn't want you?

The "fairness" argument put forward by Obama is really a direct attack on the very idea of free markets and property rights.  The middle class gets its largest boosts in wealth and income when the economy grows and "fairness" takes a back seat to economic growth.  Emphasizing "fairness" is a ticket to economic stagnation with an ultimate destination of modern Greece.

New Fund: TA Total Return Fixed Income Fund

Just another new fund from TA Investment Management (TAIM)? Think again... In fact, this is the first bond fund launched by TAIM and it will take on the other bond funds in the market with a "Wow" effect. Why? Believe me, you gonna put this fund into your radar of unit trust investment. And, you will know why after reading this post.

The TA Total Return Fixed Income Fund is a feeder fund which invests a minimum of 95% of its NAV into the PIMCO Funds: Global Investors Series plc - Total Return Bond Fund (SGD Hedged) and the balance in liquid assets. What? PIMCO !!! Yup, it's the leading global investment management firm, especially on fixed income investment.

5 Reasons Why you should invest into this Fund?

1. Total Return Strategies, Global Diversification & Flexibility
   It aims to maximize the total return, consistent with preservation of capital and prudent investment management by investing 2/3 of its assets in a diversified portfolio of fixed income instruments of varying maturities.
   
   
2. Higher Potential Returns at Lower Risk
   The core bond investment fund is broadly diversified to include all fixed income asset classes. Target fund is 90%-100% invested in investment grade bonds.
   
   
3. Proven Consistent Track Record
   The Target fund has recorded consistent and positive annual returns since launch, even amid the prolonged crises across the globe.
   
   
4. High Recognition
   Superbly high ratings have been assigned by independent investment research providers, such as Morningstar, Lipper and S&P.
   
   
5. Expert Management --- PIMCO
   Once again, it was managed by PIMCO, has been investing money on behalf of a wide range clients including over 70% of Fortune 100 companies. PIMCO has a history of long-term performance in both bull and bear markets, with benchmark-like risk.
   

By investing into this fund, now you can leverage on the expertise of PIMCO to diversify your investment portfolio to include fixed income. It's superb track record already spoke for itself, in which we should rest assured with.

Source: Fund prospectus

The Uncertainty Trade-Off

The main reason that free markets struggle to achieve political legitimacy is that outcomes can be unpredictable.  There can be booms, busts, cycles, and anxiety.  In a regime like the old Soviet Union, there was no anxiety and no booms and busts.  There was simply perpetual stagnation.  Is there anything in between these two alternatives?

Probably not.

The idea of a 'mixed economy' is a common staple of university courses in economics and politics, but one wonders if a 'mixed economy' is a stable outcome.  Once a large part of the population derives its income from government, then a 'mixed economy' has a tendency to move more toward a government-dominated economy.  People vote their economic interests.  Public school teachers, once the most conservative voters in America are now among the most liberal voters.  Why?  They vote their economic interests, which they identify with the liberal economic policies that expand government and boost the compensation for public employees generally.

The modern political debate is a debate about whether the current political dynamic will take the US in the direction of the old Soviet model or try to apply the brakes before things become irreversible.   Unfortunately, there is no real political support for truly free markets (the acid test would be the public attitude toward abolishing minimum wage laws).  The best that can be done is to try to slow the growth of the power of our government overlords.

The heavy hand of government has crushed our financial system and put our economy in a straight jacket. It can get worse.

But, things could get better.  Just freeing up our financial system could spark a major economic recovery in the US.  Whether a Romney administration would have the political courage to roll back the damage done by Sarbanes-Oxley and Dodd-Frank is debatable.  But, there is no chance that the US economy can prosper if  Obama is re-elected.  Only government will grow in the Obama blueprint for America.

Smirkin' Joe

Smirking and rolling his eyes as a substitute for discussing policy, Joe Biden showed why the US economy and foreign policy has been run into a ditch.  Neither Biden nor Obama has any real interest in the issues of the day.  The discussion of the catastrophe in Libya provided an excellent summary of the Obama Administration's approach to life:  "We will get to the bottom of this!"  Really?

Biden seemed to think that any real discussion of policy was unnecessary.  His attitude was so condescending that it made one wonder what he and Obama really think of the American people.  The idea that government knows everything and the people are sheep to be lead was so pervasive in Biden's attitude, that it is easy to see why the Obama Administration feels that it doesn't need to produce budgets, programs, plans or anything.  Just smirk your way forward.

Biden constantly interrupted Congressman Ryan and talked over Ryan during Ryan's time.  Biden's contempt for the democratic process was on display throughout the debate.

Ryan, on the other hand, was polite and stuck to message.

Hopefully, the American public can see who believes in free markets and free people and who doesn't after this remarkable debate.

Should we learn from Robert Kiyosaki from now on?

When news broke out that "Rich Dad, Poor Dad now a Bankrupt Dad", everyone was so excited to share it out to their circles of friends. Maybe thanks to the interesting news title created to attract the attention of us. In fact, it succeed (because it reaches Finance Malaysia attention now). Well, since we're a financial related blog, we must blog about this hyped news without second thought. Should we learn from Robert Kiyosaki from now on?

About the Bankruptcy...

According to UK dailymail, "the financial guru behind New York Times bestseller Rich Dad, Poor Dad has filed for bankruptcy on one of his companies after losing a $24 million judgement." Read carefully... It's on one of his companies, not under his own name. Meaning, Robert Kiyosaki didn't bankrupt. Then, what's the difference?

The liability of the debt was limited to the extent of the company only. It's doesn't affect the other business or on Robert Kiyosaki personal either. Doesn't it a smart move by Robert? Should we learn from him on this matter?

No doubt, there was nothing wrong for Robert to do it that way. He saved $24 million by simply closing down one of his companies. However, in terms of business ethic, he should not practice that way. Some more, he was rich enough to pay for it (we assume). Agree? This might be an interesting debate between personal interest and business ethic. Don't you think that we should learn from someone whom can be a role model in good personal value also? This world is not about money only. Let's look at the example below to differentiate it.

This is the activities we did to look for money:

Money with ethic => Being employed or doing business ourselves

Money without ethic => Robbery, burglary, kidnap...

Plantation: Start of a sector 'SELL-OFF' or CPO prices to recover? (Oct 2012)

While CPO prices have declined 20% over the past one-month to M$2,300/t, share prices of our upstream plantation universe have not reacted materially moving by -8% to +3% (-3% to +3% for our top picks) Key question hence is whether this raises the risk of a further sell-off in plantation stocks or will CPO prices recover?

Key reasons for the CPO price fall:

1) High inventory levels amid the current high output season.

2) Some easing in demand (though not materially) mainly from slower bio-diesel production.

3) Softening crude oil prices.

4) Better soybean supply prospects with improved weather.

Will CPO prices weaken further?

CPO’s price competitiveness to soy-oil and crude oil is now at its best since the previous economic crisis in late-2008. CPO's price discount is currently at US$340/t to soy-oil (spot) versus its historical mean discount of US$160/t. CPO at current spot levels of M$2,300/t is also already discounting crude oil prices at US$72/bbl based on the bio-diesel breakeven support (spot crude oil price: US$112/bbl).

Hence, we see limited downside risk at these levels and expect CPO prices to recover by 1Q13 as inventories are drawn down during the low output season by end-2012/early-2013 and with substitution demand likely to kick in given the extreme tightness in soybean supply. This is until palm oil and soybean supply recovers from 2Q13 with prices to ease again from then.

The ratio of CPO price (in US$/t) to crude oil price (US$/bbl) has fallen to 7.3x, the lowest level since the previous economic crisis in late-2008 (historical mean ratio of 9.2x). This reflects palm oil's increased competitiveness versus crude oil in the bio-diesel segment.

Stock recommendations...

We maintain UWs on AALI, IOI, LSIP and GENP and would look to sell these stocks now. Quality stocks like KLK (Neutral) may also be vulnerable short term due to rich valuations. Our key OWs - BWPT, SIME, FR and SIMP are implying 2013E CPO prices of M$2,600-2,700/t at current levels (higher than spot) and could succumb to near term selling pressure – we would look to accumulate on weakness given the support of young plantations and strong volume growth longer term, while SIME remains a defensive large cap play with valuation support.

Source: J.P.Morgan research report

The Global Economy Weakens

The global economy is deteriorating.  There are no real bright spots.  The BRICs are slowing, Europe is in chaos, and the US is stuck in the mud.  For all the promises that governments make, real economic progress for the average person comes only when economies are growing.  Economies can only grow when markets are free and individuals are willing to take risks to make money. 

Unfortunately, no modern politicians seem committed to free markets.  Romney is probably better than the alternative, but even Romney sees government as an important player in the economy.  His Massachusetts history gives one pause.  The real problem is that Americans and Europeans generally believe that twenty or twenty five years in the work force deserves eighty years of compensation.  The arithmetic doesn't work for that.  Something has to give.

Things like social security and medicare are not affordable.  No society can afford them.  What is playing out in Europe and will someday play out in the US is the outcome of an unaffordable dream.  Someone has to save and invest or eventually there will be nothing to consume.  Free markets are the only institutions that can bring forth the necessary savings and investment to provide for our youth and our elderly.  No other system can do it.

Economic growth is not a luxury good.  It is an absolute necessity if we are to educate our children and take care of our elderly.  Dividing up a stagnant pie -- the Obama plan -- is to give up on the future.  Hopefully, Romney will win the election and the Paul Ryan influence will move the US back toward free markets and out of the quagmire that we find ourselves in.

RHBRI Market Outlook & Strategy 4Q2012: Stormier Outlook

RHB research institute (RHBRI) is of the view that it could still be a choppy few months for the equity market in the 4Q given weakening economic fundamentals in the major world economies and fears of an imminent general election on the home front. Whilst more rounds of quantitative easing have been unveiled in the developed world, the big question in investors’ minds is how all these quantitative easing measures will translate to better global economic outlook. Having said that, equity still stands up vis-a-vis the unappealing returns of the alternative asset classes, such as cash and bonds and any good news is still likely to prompt a rally in equities.

How was Malaysia fared?

And, what's the strategy now?

Thus far, Malaysia has fared relatively well in the global financial crisis, and this is partly on account of low reliance on foreign funding of its banking system and more importantly, the progress in the implementation of the Economic Transformation Programme to boost domestic demand and cushion the economy against the downside risk from the external sector. As a result, the economy has bucked the trend and its real GDP growth is projected to pick up to +5.4% in 2013, from +5.0% estimated for 2012. This will translate to sustained earnings growth of around 6.0% in 2013 to create new shareholders’ values for investors.

We believe after a phase of correction and consolidation, the market will come back as the huge bond purchase programmes in the Eurozone and the US will push investors out of low-yielding cash and bonds over time into riskier assets such as equities. As the general election could be delayed to March 2013, our end-2012 FBM KLCI target remains unchanged at 1,690. Assuming global situations stabilize in six to nine months time and the global economic recovery is intact, our end-2013 FBM KLCI target is 1,815, based on 15x 2014 earnings.

Whilst our core strategy remains defensive, we believe investors would still need to accumulate fundamentally-robust stocks on weakness in order to outperform the market. In addition, as the search for yield will likely remain a key driver for both retail and institutional investors in the 4Q, high divided-yielding stocks will also continue to outperform the market, in our view. Sector-wise, our key overweight are telecommunications and banking, although we also have an overweight stance on the utilities and healthcare sectors.

Source: RHBRI research report

New Fund: AmIncome Flexi

In view of current uncertainties still lingering around investment universe, bond was considered as one of the asset class that most investors seeks to preserved their asset value, albeit lower risk. Just as the name of the fund, it's a flexible bond fund which has an interesting early repayment features. Let's have a look.

The Fund is a 3-year close-ended bond fund that aims to provide annual income distribution throughout the duration of the fund. To achieve the investment objective, the fund intends to invest its NAV in a portfolio of domestic and/or foreign sovereign issued bonds and corporate bonds.

• Domestic bonds:
  --> minimum credit rating will be “A” rated by RAM or MARC’s equivalent. 
• Foreign bonds:
  --> minimum credit rating will be “A” rated by their respective local credit rating agencies which denotes strong capacity to meet financial commitments and/or “BB” rated by S&P or Moody’s equivalent at the time of investment.

As this is a close-ended fund, the Investment Manager will purchase bonds which will be held until its respective maturity. These bonds will generally have shorter or similar maturity tenure to the Fund’s maturity. The Fund employs a flexible investment strategy as follows:-

1. The Investment Manager will not actively adopt a trading strategy unless there are changes or expected changes in interest rates resulting in bond price changes, for the purpose of maximizing returns of the Fund over the Fund’s tenure of three (3) years;
2. The Investment Manager may also at its discretion dispose off a bond to mitigate currency risk for the benefit of the Fund; and
3. The Investment Manager may also opt to dispose off a bond when it has achieved at least 15% cumulative return before its maturity, and return the proceeds of the bond (which includes principal and realised gains such as coupons received, capital gains and currency gains) to the investors.

In the event of a credit downgrade, the Investment Manager may liquidate the particular bond affected if the Investment Manager at its discretion feels that there is a likelihood of credit default. Changes in credit rating will have no impact upon the price of the bond at maturity. However, if the Investment Manager chooses to sell the bond prior to the bond’s maturity, it may result in a capital loss and this will be borne by investors of the Fund. A credit downgrade means that credit risk is increased but does not constitute default.

The Fund may be investing in countries where the regulatory authority is a member of the International Organisation of Securities Commission (IOSCO) which include but not limited to Malaysia, Australia, New Zealand, Korea, Hong Kong, Singapore, Philippines, Indonesia and Thailand. As the Fund may invest in foreign currencies denominated bond, the Investment Manager may use derivatives for currency hedging purpose.

Early Repayment Mechanism?

When a bond held in the Fund has achieved 15% cumulative return at any time before its maturity, the Investment Manager may sell down the bond and realize the gains. The proceeds of the bond (which includes principal and realised gains such as coupons received, capital gains and currency gains) will be returned to the investors. In this respect, NAV of the Fund will be reduced accordingly and the units of the Fund will be adjusted according to the proportion of that bond in the Fund. This will result in Unit Holders holding lesser units after Early Repayment. In the case of Early Repayment, there will be no adjustments to NAV per unit of the Fund.

The Fund is suitable for investors who seek:

• an investment that provides regular income and potentially higher returns than the 1-year AmBank (M) Berhad Conventional Fixed Deposit Rate (fixed as at Commencement Date); and
• an investment that provides lower risk than equities.

Source: AmMutual

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Budget 2013: What's the view by Foreign research houses?

Hmmm... Yup, the title is correct. We at Finance Malaysia blog would like to hear the views from Foreign analysts only this time. Why? Because they tend to be more independent (we think), and we know that readers like you can easily access to local research reports. So, we made the decision to only show you what is written by foreign analysts as below:

Phillip Capital Management: An earnest & all-around Budget?

"People’s livelihood, affordable housing and tax issues topped the pre-budget wish lists. Weeks before the announcement, there were many discussions about the Budget 2013 in the media and various conjectures about the budget outcome. Everybody in town was anxiously waiting for the Prime Minister’s speech to reveal the Budget 2013, hoping the wish in one’s heart and mind will come true. TV camera shots have shown that people have been in high spirits cheering for the Santa Claus during the speech. We think Barisan Nasional has successfully drawn up the budget that appears to benefit the majority of people especially the middle-income segment just to keep in voters’ good graces.

However, off the radar of the camera shots, people are debating about the fiscal deficit that has been running for the 15th straight year and the high level of government debts which is approaching 55% to GDP. People expect their money to be used more efficiently to improving the competitive landscape, cutting wastage and leakage, commitment towards more R&D. Although Budget 2013 will bring down the fiscal deficit to 4% of GDP and disclosed that the deficit will continue to narrow to 3% by 2015, people still question if the budget is drafted in earnest. Only time will tell!

Overall, we think there is no big surprise from the Budget 2013 and will not have big impact to the market. However, there are some sectors that will benefit and should get some boosts from the budget such as consumer, construction and oil & gas."

UOB Kay Hian: Reining In Spending...

"The market-neutral Budget 2013 again reaches out to the lower to lower-middle income segments with cash handouts and a cut in tax rates, but reins in the overall deficit with marginally lower government expenditure. Highlights include the establishment of business trusts, a modest real property gain tax (RPGT) hike, and incentives for the oil & gas (O&G) sector. Potential winners are beneficiaries of business trust structures that enable cash distributions, such as BToto and DiGi, selected consumer stocks, particularly BAT (no duty hike), as well as micro-lending institutions like RCE and MBSB, while minor losers are high-end property developers due to modest RPGT rate hikes.

Promoting the establishment of business trusts... A key proposal of Budget 2013 is the establishment of business trusts which add vitality to the capital market (hence making Bursa a minor beneficiary), but more importantly allow a handful of local companies to optimise their capital structure and distribute surplus cash. Potential beneficiaries are cash flow-rich companies with suboptimal capital structures (cash-rich or under-leveraged) that are constrained by a lack of shareholder reserves.

…and O&G investments, which include a 10-year 100% Investment Tax Allowance for investments in refinery activities with regard to petroleum products, and an enhanced 100% income tax exemption on statutory income for the first three years of operations for liquefied natural gas (LNG) trading companies under the Global Incentive for Trading (GIFT) programme.

Strategy: We continue to advocate a defensive strategy amid a peakish market, cautious external outlook and a potentially early general election (GE13). Thematically, we like:

1. beneficiaries of business trust creation,
2. in the O&G sector, beneficiaries of rising exploration and production (E&P) activities, such as Perisai, and significant property owners at Pengerang, and
3. selected beneficiaries in various iconic government developments – Iskandar Malaysia and Tun Razak Exchange (TRX).

Our key top picks are BToto, DiGi, Gamuda and SapuraKencana. Smaller-cap favourites include MPHB, Perisai, Top Glove and Tradewinds Plantation while MRCB is a key situational stock. Meanwhile, we have upgraded BAT to HOLD (target price raised to RM57.70 from RM49.00) as we now foresee a rising momentum in volume recovery without a duty hike."

This is Austerity?

Why are France and Spain (and everywhere else in Europe) in deep fiscal trouble?  -- Too many promises by government without any plans to come up with the money to pay for the promises.

So, what are France and Spain doing?  Spain's recently proposed 'austerity' budget includes a one percent increase across the board to pensioners.  Paying pensions is Spain's number one government expense.  So, why not make it even higher?  How about France?  Newly elected Socialist President Francois Hollande took quick action to move France's retirement age to 60 from 62.  He may as well have moved it to 40 for what little chance France has of paying future retirees.

No austerity plan in Europe touches things like retirement, public employee largesse, and laws that mandate hours and rule out employee terminations.  So, in reality, nothing of any real significance is taking place except that the Eurozone is taking on more debt and rolling the printing presses.

You wonder why anyone thinks that anyone should work at all?  Why not simply print Euros and Dollars and everything will be fine.  That seems to be the mindset in Washington and Brussels.