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Jan 2017 3

Central Banks Loosening Their Grip on Markets

 ENLARGEFrom left to right, the Federal Reserve, the European Central Bank and the Bank of England. All are expected to step back from the dominant role they have played in the markets in recent years. PHOTO: ...

 

From left to right, the Federal Reserve, the European Central Bank and the Bank of England. All are expected to step back from the dominant role they have played in the markets in recent years.ENLARGE
From left to right, the Federal Reserve, the European Central Bank and the Bank of England. All are expected to step back from the dominant role they have played in the markets in recent years. PHOTO: STEPHEN VOSS FOR THE WALL STREET JOURNAL; KAI PFAFFENBACH/REUTERS; ANTHONY DEVLIN/PA WIRE/ZUMA PRESS

 

By JON SINDREU

For markets, the era of the central bank may be starting to draw to a close.

In 2017, tightening monetary policy and brighter economic fundamentals could ease markets from the grip of the central banks whose policy in recent years has dominated trading in bonds, shares and other assets.

That shift portends big changes for investors, who already are repositioning in anticipation. A long period of ultralow interest rates and central-bank asset buying has boosted the prices of bonds and safe stocks. Now investors expect economic performance to catch up as a key driver, not least as they predict stimulus will stop expanding.

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That means the riskier assets that benefit more from growth are expected to take their end-of-year rally into 2017, while bonds and more defensive stocks will continue to suffer.

Analysts also expect that investors will now focus more on company profitability and credit risk, as they spend less time analyzing central bankers’ speeches word by word.

“We start going back to a world in which fundamentals matter a bit more," said Dean Turner, economist at UBS Wealth Management.

Since the financial crisis, central banks have unleashed massive asset-buying programs and kept interest rates at historically low or even negative levels to help stimulate growth and inflation. The European Central Bank currently buys €80 billion ($84 billion) in government and corporate bonds a month. The Bank of England also buys corporate and government debt. The Bank of Japan even buys stocks.

A company’s revenue tend to look more attractive when rates are low, which often boosts its stock. That helps explain why shares in the S&P 500 are currently trading at 17 times the earnings they are expected to generate during the next year, compared with a 10-year average of 14.4, according to data provider FactSet.

“The stock market hasn’t been earnings-led for a long time, it’s been bond-led,” said Scott Meech, a fund manager at Swiss private bank Union Bancaire Privée.

But many investors now see a limit to central banks’ stimulus. In December, the ECB extended its bond-buying program but plans to reduce its size starting in April, amid concerns that it was running out of assets to purchase. Shortly after, the Federal Reserve nudged up rates by a quarter of a percentage point and hinted at tighter policy in the future.

Some investors expect governments to fill the gap and take a bigger role in pushing growth and inflation. In the U.S., President-elect Donald Trump has pledged to increase infrastructure spending and ease financial regulation. Higher commodity prices also have boosted inflation expectations.

“Central banks, particularly the Fed, may well have less ability to tilt dovish if fiscal stimulus and deregulation help stimulate already recovering economies,” said Arnab Das, head of emerging-markets economic research at Invesco.

 

Since November, those shares in the MSCI World index more exposed to economic swings, or cyclical stocks, have gained 10%. Safer, or defensive, stocks on the index went up only 4.6%, despite having outperformed since the financial crisis. Relative to defensive stocks, the prices of cyclical shares are now at their highest since 2008.

Eurozone banks are a good reflection of this increased risk appetite: Their shares took a beating for much of 2016, but recovered some ground after a big rally in the past two months.

By contrast, global bonds have lost 5% in the past two months. Yields of 10-year Treasurys are at 2.446%. Yields move opposite in the opposite direction of prices.

The question is whether companies will prove profitable enough to justify the market’s risky bets for 2017. Projected earnings per share for the next year are currently at all-time highs for the S&P 500 and have recovered for the Stoxx Europe 600 as well, after falling at the end of 2015.

“Earnings are an improving trend across the world,” said Nigel Bolton, a fund manager at BlackRock Inc., the world’s biggest asset manager with $5.1 trillion under supervision. “We are now in this sweet spot for equities.”

In the third quarter, the U.S. economy expanded an annual rate of 3.2%, a two-year record. Investors are slightly more optimistic about economic prospects in the eurozone and Japan, two regions plagued by years of feeble growth. Stable 6.7% growth in China in the first three quarters of 2016 has calmed earlier fears of a painful crash.

“It’s true that central banks are stepping away, but they are stepping away for a reason,” said Fabio Bassi, chief European rates strategist at J.P. Morgan Chase & Co.

But risks remain: In recent years, corporate earnings have tended to disappoint. And the end of central-bank omnipresence, which is unlikely to fade quickly, has been called before.

Furthermore, the expected burst of government spending may not arrive. Fiscal policy remains subject to political constraints, such as fears about government debt piles.

“Absent the threat of a recession, we should not expect a broad plan to stimulate the economy financed by a deficit,” said Didier Borowski, analyst at Amundi Asset Management, Europe’s largest investor, which manages $1.1 trillion.

Write to Jon Sindreu at [email protected]

Source: Wall Street Journal

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Dec 2016 15

Fund managers say good time to buy shares as ringgit weak

 “We are buying into this market sale,” said Gan Eng Peng(inset filepic), equities head at Affin Hwang Asset. “The ringgit’s massive depreciation over the last three years is overdone", he said. KUALA LUMPUR:...

“We are buying into this market sale,” said Gan Eng Peng(inset filepic),  equities head at Affin Hwang Asset.  “The ringgit’s massive depreciation over the last three years is overdone", he said.

 

“We are buying into this market sale,” said Gan Eng Peng(inset filepic), equities head at Affin Hwang Asset. “The ringgit’s massive depreciation over the last three years is overdone", he said.

 

KUALA LUMPUR: Malaysia’s ringgit is falling at the fastest pace among Asian emerging markets, the 10-year bond yield just spiked to an eight-year high and the stock market is closing in on a record third straight annual loss.

But fund managers say it’s a good time to buy.

Mitsubishi UFJ Kokusai Asset Management Co said it’s looking to add to holdings of Malaysian sovereign debt after expectations for faster US interest-rate increases spurred a selloff. Areca Capital Sdn Bhd and Affin Hwang Asset Management Bhd see an opportunity to buy the nation’s shares.

“We have positioned ourselves for a market rebound,” said Danny Wong Teck Meng, chief executive officer at Areca Capital, whose stock fund has beaten 98% of its peers with an 11%annual return over the past five years.

 

“Malaysia is losing its core attractiveness, and the country doesn’t stand out like it used to compared to peers, but technically it’s oversold right now.”

A crackdown on currency speculators last month exacerbated outflows and saw the ringgit weaken even as oil rebounded, an unusual phenomenon for east Asia’s only net exporter of the commodity.

The ringgit has decoupled from oil and if it starts moving in tandem with crude again it should be poised for a sharp recovery, Areca’s Wong said last week before the Saudi announcement.

With more than a third of its local sovereign bonds held by foreigners, Malaysia is vulnerable to external shocks like Donald Trump’s election win. The ringgit has dropped 5.3% since Nov 8, almost twice as much as South Korea’s won, the next worst performer in emerging-market Asia.

The yield on Malaysia’s benchmark 10-year benchmark sovereign notes shot up 75 basis points last month, reaching an eight-year high of 4.46% on Nov 29 before falling to 4.1% by the end of last week.

“The ringgit will probably become more stable over a few months, and then we may consider increasing exposure to Malaysia,” said Tatsuya Higuchi, the Tokyo-based chief fund manager for foreign fixed income at Mitsubishi UFJ Kokusai Asset, which managed US$105bil at the end of September. Excluding the currency vulnerability, Malaysia is more attractive than most of its peers apart from higher-yielding Indonesia and India, he said.

The ringgit has lost 35% since the end of 2013 and the FTSE Bursa Malaysia KLCI Index of shares fell 12%, trailing gains of at least 17 percent in Thai, Indonesian and Philippine gauges. Foreign funds net sold Malaysian stocks in each of the six weeks through Dec 2, taking outflows this year to RM2.5bil.

“We are buying into this market sale,” said Gan Eng Peng, the Kuala Lumpur-based equities head at Affin Hwang Asset, whose Select Opportunity Fund beat 98% of peers with a 9.7% return in the past year.

“The ringgit’s massive depreciation over the last three years is overdone, he said.

Malaysian assets have rallied in December as the central bank said it would provide greater hedging flexibility in the onshore currency market after last month’s crackdown deterred investment. – Bloomberg

The Saudi move, which drove a jump of as much as 6.6% in Brent crude on Monday, is an extra tailwind.

“The combination of relatively sharper depreciation in the ringgit and a higher proportion of foreign holdings in local government bonds contributed towards a more acute risk aversion response in Malaysia,” said Victor Yong, an interest-rate strategist at United Overseas Bank Ltd in Singapore.

“Further dampening of currency depreciation pressures will be beneficial.” – Bloomberg

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Dec 2016 14

Oil output cut: M'sia to gain in form of lower depletion rate

BY GOH THEAN HOWEKUALA LUMPUR: NON-Organisation of the Petroleum Exporting Countries (Opec) producers, including Malaysia, will stand to gain from the recent agreement by the cartel to cut production. “Malaysia’s oil and gas...

BY GOH THEAN HOWE

KUALA LUMPUR: NON-Organisation of the Petroleum Exporting Countries (Opec) producers, including Malaysia, will stand to gain from the recent agreement by the cartel to cut production. “Malaysia’s oil and gas (O&G) sector, including the supporting industries, will benefit from higher oil prices even with a lower production volume. The net impact depends on the relative volume or prices,” Sunway University Business School economics professor Dr Yeah Kim Leng told Business Times yesterday. Malaysia and 10 other non-Opec producers agreed on Saturday to cut their oil output with the aim of ending the crude glut and reversing the fall in income, following the Opec agreement. He added that Malaysia would benefit from the Opec move despite having to cut production. “Let’s say Malaysia agrees to a five per cent production cut. But if the oil price is five per cent higher, its export earnings will remain the same or even slightly higher. “If there is a loss in revenue, the long-term gain will come in the form of lower depletion rate,” said Yeah. Public Investment Bank Bhd analyst Mabel Tan concurred with Yeah’s view. “We believe oil prices will see some stabilisation at the current US$50 (RM220.76) per barrel level next year, supported by demand and supply fundamentals. “At this stabilised level, capital expenditure spending should restart and, thus, spur activity for the sector,” said Tan in a research report. Brent crude oil prices traded at more than US$55 per barrel yesterday, their highest since July last year, following the announcement of production cut by non-Opec members on Saturday. The research house has an “overweight” recommendation on the oil and gas (O&G) sector with an unchanged estimation of US$50 per barrel. “We concede that despite oil prices possibly remaining pressured, we are seeing the end of the lower oil price cycle as well, based on historical trend and a recovery ahead. Thus, we are revising our recommendation to ‘overweight’ on the O&G sector,” said Tan. SapuraKencana Petroleum Bhd, Wah Seong Corporation Bhd and Bumi Armada Bhd are among the top picks for the research house. On November 30, Opec members, which produce around 40 per cent of the world’s crude, announced their intention to cut output by 1.2 million barrels per day beginning January 1 to 32.5 million bpd. Under that deal, Opec called on non-member producer countries to lower their output by 600,000 bpd. The 11 countries that agreed to cut a total of 558,000 bpd are Russia, Kazakhstan, Mexico, Oman, Azerbaijan, Malaysia, Bahrain, Equatorial Guinea, Sudan, South Sudan and Brunei.

 


 


Source: New Straits Times

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Dec 2016 8

Bank Negara's international reserves at RM399.6 billion

BY NST ONLINE KUALA LUMPUR: Bank Negara Malaysia’s international reserves amounted to RM399.6 billion (equivalent to US$96.4 billion) as at November 30 this year. The lower international reserves position reflected the...

BY NST ONLINE 

KUALA LUMPUR: Bank Negara Malaysia’s international reserves amounted to RM399.6 billion (equivalent to US$96.4 billion) as at November 30 this year. The lower international reserves position reflected the liquidity support in the foreign exchange market, the central bank said in a statement today. The reserves position is sufficient to finance 8.3 months of retained imports and is 1.2 times the short-term external debt. The reserves previously stood at RM407.8 billion (equivalent to US$98.3 billion) as at Nov 15 compared to RM405.5 billion (equivalent to US$97.8 billion) as at Oct 31.

 

 

Source: New Straits Times

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Dec 2016 7

Malaysia to set up tech trade hub in UK next year

Yasmin Mahmood speaks at a forum organised by Google Malaysia in Kuala Lumpur July 18, 2016. — Picture by Saw Siow FengKUALA LUMPUR, Dec 7 — Malaysia is working to set up a tech trade hub in the UK, its second largest...

Yasmin Mahmood speaks at a forum organised by Google Malaysia in Kuala Lumpur July 18, 2016. — Picture by Saw Siow Feng

Yasmin Mahmood speaks at a forum organised by Google Malaysia in Kuala Lumpur July 18, 2016. — Picture by Saw Siow Feng

KUALA LUMPUR, Dec 7 — Malaysia is working to set up a tech trade hub in the UK, its second largest technology investor, by early 2017 to focus on digital businesses.

Malaysian officials from the Malaysian Digital Economy Corporation (MDEC) are currently on a tour in the UK, signing Memorandum of Understanding (MoUs) with some cyber security groups there, The Telegraph reported.

MDEC CEO Datuk Yasmin Mahmood reportedly said that British firms have shown a lot more hunger since the referendum last June when Britons voted to leave the European Union.

“We do find that since the Brexit vote there is a lot more hunger, more interest in the other potential markets,” she was quoted saying.

“British firms have the potential to come into a leadership position in this geography (Malaysia and Southeast Asia).

“We were already working towards this before the vote, but now there is more receptivity from people who have not thought about Malaysia in the past.”

Among the MoUs signed were with PGI Cyber Academy in Bristol to provide training and consulting services in Malaysia; the University of Salford to work on technological research and development, and an exchange partnership with the Future Cities Catapult in London.

The London office will be only be MDEC’s second overseas office after one in Silicon Valley.

 

Source: Malay Mail

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Dec 2016 6

Less volatility in ringgit forex rate

Other measures to increase the demand for the ringgit included placing a cap on the amount that companies and individuals could invest locally or abroad in foreign currencies. PETALING JAYA: Volatility in the US dollar-...

Other measures to increase the demand for the ringgit included placing a cap on the amount that companies and individuals could invest locally or abroad in foreign currencies.

Other measures to increase the demand for the ringgit included placing a cap on the amount that companies and individuals could invest locally or abroad in foreign currencies.

 

PETALING JAYA: Volatility in the US dollar-ringgit foreign exchange (forex) rate is reducing, with the ringgit strengthening by 0.39% to RM4.4490 since the year’s lowest point on Nov 30.

This was following Bank Negara’s recent announcement detailing several measures to prop up the weakening ringgit, including requiring companies to repatriate three-quarters of their earnings from exports back to Malaysia by converting them into ringgit.

Other measures to increase the demand for the ringgit included placing a cap on the amount that companies and individuals could invest locally or abroad in foreign currencies.

Following the unexpected triumph of Donald Trump in the US presidential poll, the ringgit had weakened, with the implied yield of the one-month ringgit non-deliverable forwards (NDF) skyrocketing to 19.43% on Nov 11. Yesterday, the yield was at about 1.36%.

The significantly higher yields showed that investors wanted higher returns for the high risk a financial instrument carries.

Bank Negara attributed the forex fall to speculative positioning and had since assured that the domestic market fundamentals remain intact.

The central bank’s argument was justified on the notion of the widening spread between the one-month ringgit NDFs and the onshore ringgit spot rate. In a matter of hours after Trump’s success, the ringgit started to depreciate and the ringgit NDF-spot spread started to widen.

On Nov 11, the spread stood at about 14 sen but following Bank Negara’s initiatives, it had reached near parity at press time as the NDF rate was at RM4.45 per dollar.

Recall, just a day before the central bank’s announcement, the spread was at one sen, indicating the already reducing spread prior to the ruling.

UOB Kay Hian Malaysia Research said the requirement to have 75% of proceeds in the ringgit would have a modest to moderate positive impact on the ringgit.

“While this measure will be frowned upon, especially by foreign portfolio investors as any form of capital control is seen as anti-open market, it supports the ringgit because potential inflows from Malaysia-based exporters would offset the outflow by portfolio funds.

“As an illustration, 75% of Malaysia’s annual export proceeds amount to about 15% of Malaysia’s foreign reserves,” said the research house in a note.

On its part, Affin Hwang Investment Bank said that the steps taken by the central bank on the treatment of export proceeds would be important to build and accumulate possible higher forex reserves for the country, which could provide a safeguard against further weakness in the ringgit, as well as preventing excessive speculation in the forex market.

“We foresee the ringgit appreciating gradually against the US dollar, trading at 4.10 per dollar by end-2017,” said Affin Hwang, signalling a positive projected performance of the ringgit.

Source: The Star

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Dec 2016 5

Bursa Malaysia opens higher despite pessimistic investors

             An investor monitors share market prices at a brokerage firm in Kuala Lumpur, Malaysia, August 24, 2015. — Reuters pic KUALA LUMPUR, Dec 5 —...

An investor monitors share market prices at a brokerage firm in Kuala Lumpur, Malaysia, August 24, 2015. — Reuters pic

 

 

 

 

 

 

 

 

 

 

 

 

 

An investor monitors share market prices at a brokerage firm in Kuala Lumpur, Malaysia, August 24, 2015. — Reuters pic

 

KUALA LUMPUR, Dec 5 — Bursa Malaysia opened higher today despite investors being pessimistic over the market’s performance, dealers said.

At 9.04am, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) was up 1.11 points to 1,630.07 from last Friday’s close of 1,628.96.

The index opened 1.6 points higher at 1,630.56.

On the broader market, gainers led losers 85 to 50, while 125 counters remained unchanged, with 1,436 untraded and 21 others suspended. 

Turnover stood at 38.47 million shares worth RM13.08 million. 

Public Investment Bank Bhd said in a note that the FBM KLCI was set to open lower today after Wall Street ended last week on a hesitant note.

“Treasury bond prices rallied and the Dollar retreated, as participants digested the latest US jobs report and looked ahead to Italy’s constitutional referendum on Sunday,” it said. 

Meanwhile, RHB Research in separate note advised traders to maintain short positions, below the 1,636-point level.

The FBM Emas Index rose 7.64 points to 11,406.81, the FBMT100 Index edged up 7.62 points to 11,138.65, and the FBM Emas Shariah Index increased 12.98 points to 11,939.12. 

The FBM 70 was up 9.14 points to 13,085.55 and the FBM Ace gained 6.05 points to 4,784.62. 

Sector-wise, the Plantation Index was 17.09 points weaker at 7,701.15 and the Industrial Index improved 7.7 points to 3,071.24, while the Finance Index shed 9.96 points to 14,278.31. 

Of the heavyweights, Maybank added one sen to RM7.86, Sime Darby rose five sen to RM8.18 and IHH Healthcare improved two sen to RM6.40.            

TNB eased two sen to RM14.02 and Petronas Chemicals went down seven sen to RM6.81, while Public Bank was flat at RM19.64.

Of the actives, RGB International earned half-a-sen to 24.5 sen, MyEG rose three sen to RM2.30, while AtSystematization Bhd, Sumatec and Versatile were all flat at three sen, 5.5 sen and RM1.40 respectively. — Bernama 

- See more at: http://www.themalaymailonline.com/money/article/bursa-malaysia-opens-hig...

 

Source: Malay Mail

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Dec 2016 1

Oil price jumps 9% on Opec production cut deal, global stocks rise

Brent crude settled up $4.09, or 8.82 percent, at $50.47 a barrel. U.S. crude settled up $4.21 or 9.31 percent at $49.44. NEW YORK: Oil prices jumped around 9 percent on Wednesday as OPEC members sealed a deal to cut...

Brent crude settled up $4.09, or 8.82 percent, at $50.47 a barrel. U.S. crude settled up $4.21 or 9.31 percent at $49.44.

Brent crude settled up $4.09, or 8.82 percent, at $50.47 a barrel. U.S. crude settled up $4.21 or 9.31 percent at $49.44.

 
NEW YORK: Oil prices jumped around 9 percent on Wednesday as OPEC members sealed a deal to cut production, while upbeat U.S. economic data and comments from the U.S. Treasury Secretary nominee triggered a bond market sell-off, marking a miserable November for Treasuries.


Higher crude prices bolstered shares of energy producers and stock prices around the world, with the Dow and S&P 500 stock indexes touching record highs.

An improving view on global growth, led by the United States on hopes of tax cuts and federal spending under a Trump administration, rekindled the dollar's advance toward a near 14-year peak.

"Everything seems to be coming together for more growth and risk appetite," said Larry Milstein, head of agency and government trading at R.W. Pressprich & Co. in New York.

Gold lost its safe-haven lustre as investor confidence strengthened, posting its worst monthly loss since mid-2013.

The Organization of the Petroleum Exporting Countries has agreed its first output limiting deal in eight years in an effort to deal with a global supply overhang, an OPEC source told Reuters as the debates continued in Vienna on the size of each member's cuts.

Brent crude settled up $4.09, or 8.82 percent, at $50.47 a barrel. U.S. crude settled up $4.21 or 9.31 percent at $49.44.

The rally in energy shares helped lift the Dow and the S&P 500 to record intraday highs before retreating in late trading. The blue-chip U.S. stock indexes were also briefly boosted by bank stocks on bets of loosening of regulation under Trump and a Republican-controlled Congress.

The Dow Jones industrial average <.DJI> ended up 1.98 points, or 0.01 percent, to 19,123.58, the S&P 500 <.SPX> closed down 5.85 points, or 0.27 percent, to 2,198.81 and the Nasdaq Composite <.IXIC> finished down 56.24 points, or 1.05 percent, to 5,323.68.

For November, the Dow gained 5.4 percent, the S&P rose 3.4 percent and the Nasdaq increased 2.6 percent.

European stocks also advanced on a jump in oil companies <.SXEP>. But regional banks struggled after news Royal Bank of Scotland <RBS.L> failed a Bank of England stress test and Italian lenders fell before a referendum on the country's political system on Sunday. [.EU]

Europe's broad FTSEurofirst 300 index <.FTEU3> rose 0.53 percent at 1,350.85, raising its November gain to 0.9 percent.

The MSCI world equity index <.MIWD00000PUS>, which tracks shares in 45 nations, fell 0.50 point or 0.12 percent, to 413.43, reducing its monthly gain to 0.6 percent.

The jump in oil prices, together with stronger-than-expected data on U.S. private job growth and regional manufacturing on Wednesday, ignited a wave of selling in bonds, pushing benchmark U.S. yields toward their highest since July 2015.

An aversion to owning long-dated U.S. government bonds grew after U.S. Treasury nominee Steven Mnuchin told CNBC television: "We'll look at potentially extending maturity of the debt because eventually we're going to have higher interest rates."

U.S. 10-year Treasury note yield <US10YT=RR> rose 9 basis points to 2.39 percent, a tad below last week's 2.42 percent that was the highest since July 2015.

The German 10-year Bund yield was 4 basis points higher at 0.26 percent, while the Japanese 10-year yield edged up 1 basis point at 0.03 percent. <DE10YT=RR> <JP10YT=RR>

Bonds across the world lost about $2 trillion in market value since the Nov. 8 U.S. election before they recovered a bit this week, according to Bank of America Merrill Lynch <.MERGBMI> data.

Rising U.S. yields and upbeat domestic data pushed the dollar index <.DXY> up 0.59 percent at 101.53, which was short of the near 14-year high of 102.05 set last week. It was up about 3 percent for a second month in November.

Meanwhile, gold lost 8.2 percent in November for its biggest monthly decline since June 2013, largely pressured by the bets of a series of U.S. interest rate hikes over the next year as U.S. growth seemed to accelerating.

Spot gold prices <XAU=> fell $16.06 or 1.35 percent, to $1,172.28 an ounce. - Reuters

 

Source: The Star

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Nov 2016 30

How to Fill the Void Left by TPP

By Noah SmithThe Trans-Pacific Partnership, which would have created trade links between the U.S., Japan and a number of other Asian countries, is dead. Donald Trump has vowed to kill the pact on his first day in office...

By 

The Trans-Pacific Partnership, which would have created trade links between the U.S., Japan and a number of other Asian countries, is dead. Donald Trump has vowed to kill the pact on his first day in office. That won’t be a hard promise to keep, as the trade deal was already effectively dead -- Trump’s move is just a flourish.

The TPP had garnered opposition from both sides of the political spectrum -- Bernie Sanders supporters were dead set against it as well. Progressive activists walking past my house had “Stop TPP” buttons on their backpacks. If there was any policy that was doomed this election cycle, it had to be this one. I don’t really know, but I suspect that the TPP mostly acted as a scapegoat for more general fears about globalization -- a symbolic show of strength by skeptics of trade deals.

Killing the TPP will have only a small impact on the nation’s economy, just as passing it would have generated only small benefits. The real risks are to the U.S.’s international prestige, and to the economic health of key American allies.

The void that the TPP leaves will be filled by China and Russia. Already, these countries are pushing their own Asia-Pacific free-trade area. Trade deals have a major political component -- they cement alliances and give large countries more influence. By leaving Asian economic integration to China and Russia, the U.S. weakens its bond with key regional ally Japan, and passes up an opportunity to deepen an alliance with Vietnam. These and other Asian countries will now have every incentive to move closer to the U.S.’s big rivals.

 

The TPP would also have given an economic boost to U.S. allies. With a reliable market for its goods, Vietnam would have been better able to take advantage of export-led growth, sending it down the same path that worked for South Korea, Taiwan and others.

Japan, meanwhile, could have used the TPP to help its efforts to jump-start its large, ailing economy. The administration of Prime Minister Shinzo Abe has been trying to improve productivity by opening more of the country’s protected industries to international competition. TPP would have helped with that. The stronger Japan’s economy, the more the U.S. can rely on the country in case of a confrontation with China or North Korea.

But, oh well. What’s done is done. The question now is: How can the U.S. limit the risks from the TPP’s demise?

The biggest step would be to conclude a bilateral trade agreement with Japan. This would reassure the U.S.’s top Asian ally that America is still committed to its security and its economic advancement.

Japan is a developed economy, so a U.S.-Japan free-trade agreement wouldn’t put many American workers in danger. Instead, it would be a big opportunity for U.S. companies. Many of Japan’s industries are protected against foreign competition, mostly by non-tariff barriers and regulations. The most famous example is the auto industry, but service industries such as finance, telecommunications and retail are probably also very protected. It’s no coincidence that these industries are less productive in Japan than in the U.S., since they haven’t had to raise their game to fend off foreign competition.

Opening up Japan’s service sector through a U.S.-Japan free-trade agreement would stimulate Japanese companies to increase productivity by adopting modern business practices. But it would also potentially be a huge boon to U.S. exporters. Services, as opposed to goods, are an increasingly important part of what U.S. companies sell overseas.

But services aren’t the only area where the U.S. could sell more to Japan. Technology is another. The country that once gave the U.S. the Walkman and the VCR is now crazy for iPhones. U.S. tech products have real appeal in Japan, and a trade agreement could accelerate that trend.

A U.S.-Japan trade deal could be politically appealing to leaders in both countries. President Trump could sell an export-boosting measure as an example of “winning” at international trade. Abe could sell a U.S.-Japan accord as a bulwark of Japan’s security, as well as a structural reform to raise productivity. Both men could walk away claiming victory -- and both would be correct.

So while the TPP is dead, a U.S.-Japan trade deal should be the first thing to take its place. Japan is a large, wealthy ally that's too important for the U.S. to write off. By integrating the U.S. and Japan’s economies more closely, both countries can reap economic and strategic benefits.

 

Source: Bloomberg

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Smith at [email protected]

To contact the editor responsible for this story:
James Greiff at [email protected]

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Nov 2016 29

Bank Negara wants rules of NDF market to be changed

BY JOSEPH CHINBank Negara Malaysia Governor Datuk Muhammad Ibrahim: "Perhaps it is time to change the rules of the game." KUALA LUMPUR: Bank Negara Malaysia (BNM) wants a change in the rules for the offshore...

BY JOSEPH CHIN

Bank Negara Malaysia Governor Datuk Muhammad Ibrahim: "Perhaps it is time to change the rules of the game."

Bank Negara Malaysia Governor Datuk Muhammad Ibrahim: "Perhaps it is time to change the rules of the game."

 

KUALA LUMPUR: Bank Negara Malaysia (BNM) wants a change in the rules for the offshore ringgit non-deliverable forward  (NDF) market following the recent weeks of speculative position taking.

Saying that “perhaps it is time to change the rules of the game,” central bank governor, Datuk Muhammad Ibrahim said on Monday that the financial market players, especially those in the NDF market, need to be as transparent as the demands they expect of others. 

“Similarly, jurisdictions that govern them ought to make this opaque market more transparent and accountable,” he added in his keynote address at the Global Banking Leaders programme here,

Paradoxically, while there has been tremendous demand globally for transparency on governments and policymakers, the same level of intensity is not necessarily reflected for financial market players, he pointed out. 

StarBiz reported there has been a substantial selldown in government bonds, led by foreign selling, since the aftermath of the US presidential election. 

The rout in the country’s bond market saw the Malaysian Government Securities (MGS) yields rising at its fastest pace ever to around 15-month high in a matter of two weeks.  The ringgit is now hovering at its lowest levels in 19 years as a result of continued capital outflow. 

Speaking on recent developments in the ringgit exchange market and BNM’s announcements to reinforce and strengthen the market from being adversely impacted by speculative activities, he said:

“Our market activity and exchange rate should reflect the economic realities of Malaysia. As such, when it comes to the pricing of the ringgit exchange rate, it should never be disconnected from real economic activities in the onshore market,” he said.

He said in recent weeks, speculative position taking in the offshore ringgit NDF market has had adverse impact on the domestic foreign exchange market. 

“While the ringgit faced the same external shocks as many neighbouring countries, activities in this opaque market had exacerbated the depreciation pressure by disrupting the price discovery process. This, for me, should not be tolerated. 

“For a small but highly open economy like ours, we face unique challenges. The volatile and erratic movements in the financial markets render the opening up of financial markets and continuous liberalisation more challenging. 

“Nevertheless, as an economy that operates on free market principles, it is still a path we need to take. But we need to open up responsibly – we have to ensure the markets, players and products in our economy are transparent, fair and serve their intended purposes,” he said. 

Muhammad also said BNM had been taking measures to reduce the speculative and damaging influence of NDF since the early 2010s. 

“It is our responsibility to ensure orderly functioning of the foreign exchange market and maintain public confidence in the financial system. The recent actions by the Bank (BNM) are merely to reinforce our existing policy on offshore trading of the ringgit. 

“Besides reducing the detrimental effects of financial market speculation on our markets, these policy reinforcements are aimed at instilling greater transparency, integrity and fairness in our financial markets. This is our responsibility as regulators and policymakers, of financial market development that aspires to see a more open and transparent market,” he said.

Source: The Star

 

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