Tuesday, 31 August 2004

Japan's industrial output flat in July

In a further sign that Asia's industrial machine is facing a slowdown, Japan has just reported flat industrial output for July. Excerpt:

Japan's industrial output in July was unchanged from June, falling below market expectations, and raising concerns that the country's economic recovery may be topping out, economists said... Data released by the the Ministry of Economy, Trade and Industry showed that output in July was pressured by a slowdown in production of electronic parts. Economists had expected production to grow 1.0 percent month-on-month, after June's decline of 1.3 percent...

Economists said output, which has been expanding since early 2002, is leveling off partly because manufacturers of electronics parts and devices are curbing production to reduce inventories. The ministry data released Tuesday showed inventories dropped 2.0 percent in July from June while shipments expanded by 0.4 percent...

Daiwa Institute of Research economist Junichi Makino said as a result of industry drawdowns, liquid crystal display (LCD) panel makers "have already passed through the worst phase of inventory adjustment and the overall production environment is expected to improve gradually." At the same time however, Makino cautioned that the environment for the broader technology sector could deteriorate further, led by semiconductor processing equipment makers and chipmakers.

Of late, economists appear to be making a habit of being disappointed. The slowdown is real and economists should adjust their expectations more quickly. In my opinion, the only question is whether the slowdown will continue or whether economic growth will stabilise in the near future.

US consumer spending revives

Consumer spending in the US rose 0.8 percent in July, reversing a 0.2 percent fall in June. However, personal income rose only 0.1 percent.

Without a bigger rise in income, I don't see the growth in consumer spending being sustained going forward.

Core personal consumption spending price index -- the Fed's favorite inflation measure -- was steady in July, putting its annual rate at 1.5 percent.

Monday, 30 August 2004

IPO illusions

Excerpt from a report in The Straits Times today.

Investors are becoming increasingly disillusioned with initial public offerings (IPOs) after buying into companies going public at what subsequently turned out to be the peak of their business, say industry observers... Investors gripe that companies over the past year or so have gone for a listing amid a scenario of rising profits and a recovery in the regional and global economies — yet, inexplicably, just a few months after making a much-feted debut, they post poor results.

Is this supposed to be a revelation?

IPOs involve existing owners selling parts of their business. Obviously, they would want to get the best price possible. Investors buying from such insiders need to go in with their eyes wide open.

Some inexperienced investors learn this the hard way.

Friday, 27 August 2004

Japanese economy softening

The Japanese economy is following the worldwide trend -- in other words, it's slowing down.

Japan July jobless rate 4.9 percent, analysts see no economic stumble
Japan's jobless rate rose to a worse-than-expected 4.9 percent in July but the government said the uptick in unemployment was mainly caused by young people leaving positions to search for new jobs. Economists also downplayed suggestions that the rise in joblessness signalled a stumble in the country's economic recovery...

"In the past several weeks we've had some mixed data. And so people are trying to really gauge where momentum is at at the moment," said JP Morgan economist Ryo Hino. "We still think that GDP (gross domestic product) is still capable of three percent or just below... throughout next year," in terms of annualized quarter-on-quarter growth. "If economic growth remains on that level, then we're still in good shape," Hino said...

In a separate report, the Ministry of Health, Labor and Welfare said the ratio of jobs on offer to job seekers rose just 0.01 points from a month earlier to 0.83 in July, meaning there were 83 jobs on offer for every 100 job seekers. It was the highest ratio since March 1993, the ministry said, which economists said showed positions were going unfilled as workers lacked proper skills, especially in high-tech fields...

Other government data showed that spending by Japanese households headed by salaried workers rose a lower-than-expected 2.9 percent in July from a year earlier while deflationary conditions persisted with core consumer prices in the same month down 0.1 percent from June... Economists were wary of putting too much emphasis on spending data that is typically erratic, although the July number was below expectations for a real 5.3 percent increase, according to the Nihon Keizai Shimbun.

Signs of a global economic slowdown are becoming as repetitive as inventory buildup in the technology sector. Little wonder then that the Japanese stock market appears to have shrugged off the news, the Nikkei 225 rising 80.26 points or 0.7 percent today to close at 11,209.59.

July industrial output: Singapore up, Korea down

Industrial output figures from Asia are showing a mixed picture.

The Economic Development Board reported yesterday that Singapore's industrial output in July rose 19 percent from a year ago, led by electronics. On a seasonally adjusted basis, industrial production rose 2.9 percent from the previous month, reversing the 3.5 percent decline in June.

The picture in South Korea is less rosy. South Korea's July industrial production increased 12.8 percent from a year ago for the sixth straight month of double-digit growth, the government said this morning. However, production was down 0.1 per cent from the previous month.

Looks like South Korea needs the interest rate cut by the Bank of Korea two weeks ago.

Thursday, 26 August 2004

Investors shrug off rising inventories at TPV

TPV Technology, the world’s number 2 computer monitor maker, nearly doubled second quarter profits on soaring sales and forecast a strong second half despite falling prices. Behind the news, though, was the all-too familiar story of rising inventory, particularly for LCDs (see "TPV's Q2 profits surge as it outsells Samsung LCDs").

Despite this, over the last two days of trading, the stock has risen almost 5 percent. It looks like investors have discounted rising inventories in the technology sector.

US durable goods up, housing cools

Mixed news for the US economy.

Durable Goods Orders Up; Homes Sales Down
Orders for U.S. durable goods posted a larger-than-expected rise in July, but new home sales showed signs of buckling under the weight of higher interest rates, two government reports showed on Wednesday.

Orders for long-lasting goods gained 1.7 percent in July, their biggest monthly increase since March, the Commerce Department said. Orders aside from transportation were up a smaller 0.1 percent. June durables orders were revised up, to a 1.1 percent advance from a previously reported 0.9 percent jump.

The Commerce Department said July new home sales slid to 6.4 percent to a 1.134 million annual rate, their slowest pace since December. Analysts had expected a 1.29 million pace.

In a separate report, the Mortgage Bankers Association said new applications for U.S. home loans fell last week. The group's market index, a measure of mortgage activity, declined 6.3 percent last week to 646.3 from the previous week's 689.4.

The rise in durable goods orders is encouraging.

However, housing is a leading indicator of consumer spending, as consumers tend to buy goods for their new homes. A drop in housing bodes ill for consumer spending.

Singapore Airlines buys planes

Singapore Airlines, which prides itself in maintaining a young and reliable fleet, is buying more aircraft.

Singapore Air in 7 billion Boeing deal
Singapore Airlines, Asia's most profitable carrier, said Wednesday that it had chosen Boeing to supply as many as 31 new long-range jetliners, a deal that could be worth more than $7 billion... Singapore Airlines said that it had signed a letter of intent to buy as many as 31 Boeing 777-300ER aircraft in an order valued at about $7.35 billion, according to Boeing's list prices. Chew Choon Seng, the chief executive of Singapore Airlines, said Boeing and Airbus had competed fiercely for that deal. The order will help Boeing, the No.2 maker of jetliners, in its fight to regain market share from No.1 Airbus. Singapore Airlines has signed firm orders to take delivery of 18 of the new planes between 2006 and 2010. General Electric will supply GE90-115B engines for the new planes, its first order from Singapore Airlines.

It looks like higher oil prices are not deterring Singapore Airlines from investing in the future. The more recent slide in oil prices, though, should be good news for the airline.

Monday, 23 August 2004

Hong Kong consumer prices rise

According to the Worldwide Cost of Living survey conducted twice yearly by the Economist Intelligence Unit (EIU), Hong Kong is the twelfth most expensive city.

That does not stop them from celebrating a little rise in prices.

Hong Kong Records Slight Inflation
Consumer prices in Hong Kong rose 0.9 percent in July on year, snapping nearly six years of deflation, the government said Monday.

The government said in a statement renewed domestic demand and rising import prices helped drive consumer prices higher.

It added the rise was also due to last July's low prices.

Saturday, 21 August 2004

Google starts trading

Google shares are finally listed, and doing well, rising on its first two trading days (see "Google's Two-Day Gain: 27.4%")

Personally, I think that Google is a great search engine. I'm not so sure about it as an investment, though.

See also "Google Sets Possible Precedent for IPOs".

Equities up even as oil approaches $50

Most equity markets were up this week, surprising considering that oil prices reached record highs approaching US$50 a barrel.

U.S. Stocks Climb; S&P 500 Index Has Biggest Weekly Gain in 10 Months

European Stocks Rise for First Week in Three; Ericsson, Nokia Shares Gain

Japan's Topix Stock Index Rises This Week, Led by Ito-Yokado; Taiwan Gains

It looks like investors are getting used to high oil prices.

Chip equipment orders flattening

More confirmation on the slowdown in the chip industry.

When The Chips Are Down
A new report shows that semiconductor industry orders flat lined in July and any recovery could be fading.

A report published Thursday by Semiconductor Equipment and Materials International (SEMI), an industry trade group, showed that orders for equipment used to produce chips totaled $1.610 billion in July, up just barely from $1.609 billion in June. The book-to-bill ratio was a dismal 1.05, meaning that $105 worth of orders were received for every $100 of product billed for the month. That's down from 1.07 in June and 1.15 in February.

Investors ignored the news and shares of equipment vendors Applied Materials, Novellus and KLA-Tencor all ended higher today...KLA said orders in the current quarter could rise or fall as much as 10%...

"We think that current chip industry upcycle will be shorter and less robust than we earlier expected," says S&P analyst Amrit Tewary. Growth in 2005 should be only around 10%, he says, and 2006 will be a flat to down year. Today, Standard and Poor's lowered its 2004 earnings estimate for market leader Intel saying that the industry may be peaking.

...Thomas Weisel Partners analyst Eric Gomberg...expects any slowdown to be a modest one, not like the industry's last downturn, which occurred during the bursting Internet bubble. "In 2001 PC units were down, which had never happened before," he says. "In 2005 a number of markets may decelerate year over year, but we expect every end market to grow, which would cause it to be a shallow down cycle."

...Moors & Cabot analyst Patrick Ho says slowing orders may just be an ordinary part of the business cycle. "I think we're in a seasonal pause," he says. "We usually get some slow months in June and July."

So are the chips really down or is this just a seasonal pause? Well, one doesn't necessarily preclude the other. I suspect that demand will pick up again, but probably not at the same rate as the earlier part of the year.

Thursday, 19 August 2004

Applied Materials' results beat forecasts

Applied Materials reported fiscal third quarter results that beat analysts' forecasts.

Applied Materials Reports Profit in 3Q
Applied Materials Inc., the world's largest supplier of machines that make computer chips, Tuesday said surging sales in its latest quarter surpassed its own and Wall Street estimates.

The Santa Clara-based company earned $440.1 million, or 26 cents a share, on revenue of $2.24 billion in the fiscal third quarter ended Aug. 1.

In the same quarter last year, the company reported a loss of $36.8 million, or 2 cents a share, on revenue of $1.09 billion. Those results included restructuring and other charges. Excluding charges, the company earned $78.5 million, or 5 cents a share.

For the latest quarter, analysts were expecting earnings of 25 cents a share on sales of $2.14 billion, according to Thomson First Call.

The company reported that orders remained strong.

"I'm confident in looking forward to continued growth in the second half of 2004, and expect further growth in 2005 given the expected continued global economic expansion," said Chief Executive Mike Splinter.

However, analysts were not so optimistic.

CBS MarketWatch reported that Brett Hodess of Merrill Lynch has "lowered his earnings estimates because Applied Materials' product mix was shifting toward more lower-margin services and spares sales".

Jeff Hwang wrote at The Motley Fool that the company's "momentum has slowed, and Applied Materials' fourth-quarter guidance offers little to suggest otherwise".

Wednesday, 18 August 2004

Singapore's non-oil exports grow strongly in July

Singapore's exports continue to grow strongly in July. Non-oil domestic exports last month rose 2.6 percent from June after adjusting for seasonal patterns, reversing a 6.9 percent fall the previous month. Compared to July last year, exports were 17.6 percent higher.

Ominously, though, non-oil retained imports of intermediate goods declined by 3.3 percent in July from a monthly earlier after adjusting for seasonal variations. This could be an indication that manufacturing activity may decline in the near future.

US economy rebounding

In an indication that the US economy still has some strength, factory output and housing both rebounded in July.

Factory production rose 0.6 percent in July, reversing June's 0.2 percent drop. Industrial production as a whole was up 0.4 percent last month.

Housing starts also rose strongly last month by 8.3 percent.

Meanwhile, the consumer price index dropped 0.1 percent last month, mainly due to a fall in energy prices. Excluding energy and food, consumer prices rose 0.1 percent. Consumer prices had risen 0.3 percent in June and 0.6 percent in May.

Looking at last month's figures in the context of the previous months', the overall picture to me is one of a moderate economy in terms of both production and inflation.

Tuesday, 17 August 2004

Economic slowdown

In my latest article, "World economy slows", I wrote: "If there were any doubts that the world economy is decelerating, they must all have been dispelled by now."

There's more news in The Straits Times today to corroborate that view.

The Federal Reserve Bank of New York reported yesterday that the business conditions index of its Empire Manufacturing Survey fell to 12.6 this month from last month's 35.8 and the lowest reading this year.

Some opinions from economists on the state of the US economy extracted from The Straits Times today:

[W]e see reasons why the slowdown is likely to prove more persistent. — Jan Hatzius et al, Goldman Sachs.

A best-case scenario is that the economy is decelerating sharply in the current quarter, but is still on track to achieve above-trend growth in the second half. — Kathleen Camilli, Camilli Economics.

The enthusiasm is calming but things are still growing and strong. — Tim Rogers, Briefing.com.

And on the world economy:

As I see it, the risks on the downside outweigh those on the upside by a factor of three to one. I would now assign a 40-percent probability to a recessionary relapse in the global economy next year. — Stephen Roach, Morgan Stanley.

It is premature to conclude that the world economy is heading for a serious slowdown. We still need more evidence to be worried. — Chua Hak Bin, DBS.

What we are seeing is a deceleration in growth momentum in several countries. It is not a sharp slowdown in economic activity, but a slight moderation in growth. — P. K. Basu, Robust Economic Analysis.

And on the Singapore economy:

[T]hanks to China, the rest of Asia is well-positioned to ride out any slowdown in the world economy...For Singapore's external sectors, things are hunky-dory. — P. K. Basu, Robust Economic Analysis.

I generally agree with those in the camp who see some moderation in growth, but it is not going to be serious...we will still see the lower end of the government's recently revised 8 to 9 percent growth forecast. — Choy Keen Meng, National University of Singapore.

So the consensus view is that there is a slowdown, but the exact severity is still a question mark.

NatSteel to do without steel

NatSteel is selling its steel businesses in Singapore and the region, as well as its brandname, for some S$486 million to India's Tata Iron and Steel (see "NatSteel selling steel business, name to Tata Steel for S$486m").

It's no surprise to me, actually. The reality is that it is tough for a Singapore-based company to be dealing with a natural resource which the country doesn't produce. And while the local market has been a profitable one for a long time for NatSteel because of its monopoly status, the market is mature. Growth opportunities lie mainly in the region, especially China, for which it has relatively little competitive advantage.

The NatSteel management will now concentrate on its non-steel businesses, which include chemicals, engineering, construction, property and investment

In the meantime, of course, it should also find a new name for the company.

Solitaire still haunts SembCorp

An old, disputed contract from more than a decade back is still haunting SembCorp. Excerpt from a Dow Jones Newswires interview with SembCorp deputy chairman and chief executive Wong Kok Siew last week:

In 1993, SembCorp won a S$230 million contract from Allseas Marine Contractors SA to convert the Swiss company's bulk carrier Solitaire into a pipe-laying vessel. When SembCorp allegedly failed to finish the job on time, Allseas sued.

After years of legal wrangling, SembCorp in 1998 set aside S$150 million in provisions for the contract. In late June, however, it warned that the provisions may not be sufficient, after a U.K. court ruled against the Singapore company. Hearings are underway to assess the amount awardable to Allseas; the court will hear SembCorp's counterclaims in 2005.

While saying that SembCorp's operating performance in 2004 should be better than in 2003, Wong cautioned during the group's results briefing Wednesday that this was "excluding any impact of the outcome of the Solitaire arbitration."

SembCorp's group financial officer, Lim Joke Mui, assured, however: "Our shareholders' funds is worth S$2 billion. I don't see why we can't bear the impact of Solitaire."

To maintain double-digit earnings growth, SembCorp is seeking to grow its overseas operations...

Acquisitions, however, will be "opportunistic buys" at the "right price" and SembCorp won't be raising funds in the market, Wong said.

No doubt, the company will try to project confidence in its ability to handle the fallout from the legal dispute. Others are not so sure.

In a recent research note, Citigroup Smith Barney's Lim Jit Soon estimated that if the company compensates Allseas with a payment of S$529 million, the group's gearing would rise to 1.1 times. At half time, its net gearing ratio was 0.6 times.

"While the rise in gearing is not expected to threaten the financial viability of the group, there will be questions surrounding a cash call to bolster its balance sheet for future growth," Lim wrote.

The Solitaire case could be seen as a reminder that with more business comes more risk. So, despite Wong's assurance, the company may have to seriously consider a cash call if it insists on a growth-oriented strategy.

Monday, 16 August 2004

STI edges up amid falls in rest of Asia

Asian stock markets were mostly down today, as reported by Bloomberg:

Asian stocks fell, led by exporters such as Toyota Motor Corp. and Samsung Electronics Co., after oil prices climbed and a report showed an unexpected drop in U.S. consumer confidence.

"We're right in the middle of pricing in the potential impact of surging oil prices and a slowdown in the global economy," said Yasumasa Nishimura, who manages $181 million in Japanese equities at Dai-Ichi Kangyo Asset Management Co.

The Morgan Stanley Capital International Asia-Pacific Index, which tracks the performance of more than 900 companies, slid 0.9 percent to 85.17 at 5:15 p.m. in Tokyo. Japan's Nikkei 225 Stock Average shed 0.7 percent to 10,687.81. The Topix index lost 1.1 percent to 1084.64. Both indexes closed at the lowest since May.

Singapore was an exception, with the Straits Times Index (STI) edging up 0.25 percent to close at 1,877.6. The Singapore market was probably helped by news that retail sales for June rose an unexpectedly strong 17.6 percent from a year ago.

Smaller Singapore stocks, however, were hammered down. The UOB Sesdaq Index plunged 2.08 percent to close at 88.93, a one-year low.

The UOB Sesdaq Index is now down 19.3 percent year-to-date. In contrast, the STI is up 6.4 percent year-to-date.

It appears that the flight to quality is well underway, normally a sign that we are late in a bull market.

Saturday, 14 August 2004

US trade deficit hits record high

The US trade deficit just refuses to go away.

Dollar slumps against sterling after record high US trade deficit
The dollar slumped against all major currencies after record high US trade deficit figures for June shocked the markets.

Official figures showed the trade deficit rocketed to 55.8 billion dollars in June from 46.8 billion in May, and against expectations for the deficit to narrow slightly to 46.9 billion.

"The figure took everyone by surprise and put a huge strain on the dollar," said Gary Noone, currency analyst at MMS International. He added that the shock was even greater because of speculation beforehand that the deficit was likely to be narrower than earlier predictions.

Sterling settled comfortably above the 1.84 level, compared with 1.8240 just before the trade data was released.

Looks like the US dollar is set to resume its downward journey.

Bank of Korea cuts interest rate

South Korea's interest rates are going in the opposite direction to everyone else's.

South Korea slashes key interest rate to stimulate economy
South Korea's central bank slashed its key interest rate for the first time in 13 months in a bid to stimulate the economy which has been suffering from lacklustre domestic demand.

In a move economists said signalled an end to the country's tight monetary policy, the Bank of Korea lowered its overnight inter-bank call rate target for August by a quarter point to 3.5 percent. The rate had been on hold since July last year.

The reduction, which took the markets by surprise prompting a sharp uptick in share prices, reflects growing concerns about slower growth in the world's 11th largest economy.

It's a reminder -- if one is needed -- that the world economy is not in great shape.

Oil bubble?

It's getting fashionable to call everything a bubble.

Asia Pacific: Bubble Fight - Oil vs. Property
Andy Xie (Hong Kong)
The global economy has experienced Japan’s property bubble in 1980s, the investment bubble in Southeast Asia in the 1990s, the IT bubble between the Asian Financial Crisis and 2000, and a global property bubble since. The demand impact from the property bubble has created an oil bubble. The oil bubble, however, is different from previous bubbles. It creates inflation and forces central banks to raise interest rates. That could deflate the property bubble, which would in turn kill the oil bubble also. If the global property bubble deflates in an environment of rising interest rates, it will likely lead to a global recession. I put the odds for such a scenario at 30% for the second half of 2005.

While I wouldn't go so far as to describe oil as a bubble, there is no doubt that speculative activity is responsible for at least some of the price increase.

And of course, all the bubbles could deflate if interest rates keep rising.

See also:

Global: Geology, Statistics, and Economics: What Are Markets Saying About Oil?

Global: Geology, Statistics, and Economics -- What Are Markets Saying About Oil? (Part II)

Friday, 13 August 2004

More signs of slowing sales and rising inventories in tech sector

There were more bad news from the tech sector over the last few days, although there are some bright spots.

Cisco Drops After Chambers Says Customers 'Cautious'
Shares of Cisco Systems Inc., the world's biggest maker of computer-networking equipment, fell as much as 11 percent after Chief Executive Officer John Chambers forecast slowing sales growth and said customers are "more cautious" about the economy...

...National Semiconductor Corp. yesterday [10 August] cut its first-quarter sales forecast, triggering a decline in computer chip stocks.

"Most CEOs I talk to have put a little bit of caution on their optimism and termed it 'moderate growth'," Chambers, 54, said in an interview yesterday. Last quarter, Chambers said executives were becoming more optimistic.

Inventories rose 39 percent to $1.21 billion in the fourth quarter and will remain high for the rest of the year as Cisco stocks up on its routers, switches and consumer products to more quickly meet demand, Chief Financial Officer Dennis Powell said...

Cisco last night reported profit rose 41 percent to a record $1.38 billion as sales increased 26 percent to $5.93 billion, the biggest growth in three years.

Sales will increase at a slower pace this quarter than last quarter, Cisco said. Some investors were expecting 3 percent growth, Eiswert said.

Revenue will grow 16 percent to 18 percent from a year earlier, Powell said. That's a slowdown from the fastest growth in more than three years in the current period, and would generate sales of $5.92 billion to $6.04 billion.

Cisco's fourth-quarter gross margin, or the percentage of revenue left after subtracting the cost of goods sold, fell to 68.4 percent from 68.8 percent in the preceding three months.

The gross margin will be between 67 percent of sales and 68 percent this quarter, Cisco said.

Yesterday, it was Hewlett Packard's turn, although the news was mitigated by a better outlook from Dell.

H-P fires 3 executives after lower-than-expected earnings
A surprise, lower-than-expected earnings report cost three Hewlett-Packard executives their jobs and sent shares down 13% Thursday — the same day rival Dell reported its highest revenue ever.

H-P, the No. 2 PC maker behind Dell, reported net income of $586 million, or 19 cents a share, in its fiscal third quarter. Excluding some charges, H-P earned 24 cents a share, 7 cents less than expected...

Another bad sign: H-P reported a $472 million increase in inventory from the previous quarter...

H-P's woes appear to be internal, company-specific issues, not signs of industrywide weakness, says Pacific Crest Securities analyst Brent Bracelin.

Dell CEO Kevin Rollins said he had seen no signs of a slowdown. "This is just better execution by some companies than others," he said. Dell's inventory declined in its fiscal second quarter, and its server sales were up...

Dell's revenue of $11.7 billion rose 20% from $9.8 billion a year ago. Rollins attributed the jump to an overall increase in IT spending and market share gains.

Net income of $799 million, or 31 cents a share, was up from $621 million, or 24 cents a share, a year ago. The numbers met revised projections Dell made in July.

In the current quarter, Dell expects revenue of $12.5 billion and earnings per share of 33 cents.

IBM also appears optimistic.

IBM sees growth spurt, looks to hire 18,800 workers in '04
IBM said Thursday that it expects to hire 18,800 employees this year, an 88% boost over what it forecast at the start of the year...

... IBM pointed to rising sales in consulting, grid computing and Linux-related businesses as rationale for expanding its workforce. IBM now expects to end 2004 with 330,000 workers, its highest total since it employed 344,000 staffers in 1991.

"We do see growth, unlike some of our competition," says IBM spokesman Clint Roswell.

It's not quite all gloom in the tech sector, but analysts hoping for the sector to prop up the economy and the stock markets would probably be disappointed.

Wednesday, 11 August 2004

Fed funds rate up, STI down

The Federal Reserve yesterday raised the federal funds rate to 1.50 percent from 1.25 percent.

The economy "appears poised to resume a stronger pace of expansion going forward," the Federal Open Market Committee, the central bank's top policymaking group, declared in its statement yesterday. The committee said that the recent "softness likely owes importantly to the substantial rise in energy prices."

US stock prices made their biggest gains in two months following the rate hike as many investors were encouraged by the Fed's optimistic outlook. The Dow Jones industrial average gained 130 points, or 1.3 percent.

Today, Asian stocks failed to show the same enthusiasm, closing mixed. Japan's Nikkei 225 rose 0.9 percent to 11,049.46. However, the Morgan Stanley Capital International's Asia-Pacific excluding Japan Index slid 0.5 percent.

In Singapore, the Straits Times Index fell 0.3 percent to close below the 1,900 level at 1,896.19. Losses were mitigated by gains by finance stocks, with the All-Singapore Equities Finance Index rising 0.6 percent, helped by good second quarter earnings for OCBC. The property sector took the brunt of the market's fall, the All-Singapore Equities Property Index plunging 3.2 percent.

Tuesday, 10 August 2004

TSMC, UMC defy chip gloom

Many analysts have downgraded the chip industry on concerns of excess chip supply and inadequate demand (see "Terrible week for tech stocks"). Apparently they forgot to tell TSMC and UMC.

The Taiwanese companies, the world's two leading foundry service providers, yesterday reported record-high July sales, confounding analysts' forecasts (see "TSMC, UMC July sales defy gloom, hit record highs")

"Neither Taiwan Semiconductor Manufacturing Co. (TSMC) or United Microelectronics Corp. (UMC) gave reasons for the strong numbers, but both have said the PC sector was showing signs of picking up in the current quarter," Reuters reported.

"The surprisingly strong results came as investors dumped semiconductor stocks, fearing a pile-up of chip inventory lower down the tech production chain would herald the start of a downturn for the cyclical industry."

The Reuters report also pointed out that the results were in line with the foundries' own estimates.

"TSMC had forecast third-quarter shipments to grow 4 to 5 percent from the April-June period, while prices would remain steady or even edge higher," it said.

"UMC, which is sprinting to catch up with TSMC, expected third-quarter shipments to rise 15 to 16 percent sequentially, while prices would gain 3 to 4 percent."

Nomura Securities analyst Rick Hsu rates TSMC shares a "strong buy" even though many peers have cut the issue to neutral ratings or worse.

Hsu said he saw a "big, big disconnect" between corporate fundamentals and share prices because of the market's worries about inventory. UMC is valued at 13.2 times historical earnings, compared to 13.95 for TSMC and 20.5 for Intel Corp.

TSMC Chairman Morris Chang had said in July that he expected inventory levels to go back to normal by the end of the year with continued growth for the semiconductor sector in 2005, scoffing at worries of a looming downturn.

Monday, 9 August 2004

Singapore economy still going strong

In his National Day speech yesterday, Prime Minister Goh Chok Tong gave a rosy picture of the Singapore economy. Excerpt from The Business Times:

Growth for the full year is likely to hit 8-9 per cent, Mr Goh said last night. That's the fastest pace in four years and matches that of China, the world's fastest growing economy.

'The economy is growing strongly,' Mr Goh said in a National Day message entitled 'Flying Singapore Higher' - his last as Prime Minister. 'Growth for the first half was 10 per cent,' he said. 'For the whole year we can expect growth to be between 8 and 9 per cent. Now is a good time for me to hand the controls to a new captain and his crew.'

Channel NewsAsia reported that earlier today, Deputy Prime Minister Lee Hsien Loong told reporters at a National Day observance ceremony that Singapore's gross domestic product grew at about 11 to 12 percent in the second quarter.

Saturday, 7 August 2004

Venture steady amid market fall

The Singapore market gave up a significant part of Thursday's gain yesterday.

The Straits Times Index, which had risen 31.85 points on Thursday, fell 12.95 points yesterday, closing at 1,922.75. Rising oil prices was a dampener across the market.

Big losers included CapitaLand (down 3.9 percent), City Development (down 3.9 percent), Singapore Press Holdings (down 3.5 percent) and Singapore Airlines (down 2.7 percent).

One stock that managed to hold on to Thursday's gain was Venture Corporation. It closed unchanged for the day.

Venture yesterday reported that its second quarter earnings was S$64 million, 10 percent above the corresponding period last year. However, revenues fell nine percent to $684 million.

The one-time tech darling has seen a slowdown in its earnings for the past two quarters. Compared to average annual growth rates of over 30 percent in the past few years, its growth rates in the last two quarters have only been around 10 percent.

This has resulted in its share price badly underperforming the market -- the stock, which closed at S$16.60 yesterday, is down 17 percent so far this year, compared to a rise of 9 percent in the Straits Times Index.

However, Wong Ngit Liong, Venture's chairman and CEO, expects business activity to pick up significantly in the second half.

"Overall we expect the second half to be a lot stronger, based on the inputs we have, based on the pipeline activities, based on the orders that we see streaming into the company. This is our expectation, that it is going to be stronger than the first half of 2004," Wong said.

Venture currently trades at a P/E ratio of 17, which is at the lower end of its historical range.

Job growth disappoints again

Yesterday, the US Labor Department reported that the American economy added 32,000 net jobs in July, the lowest gain since December last year and well below economists' expectations of over 200,000 jobs.

The US stock market reacted by plunging yesterday, the S&P 500 coming off 16.73 points or 1.5 percent to finish the day at 1063.97. This is the second successive day that the index had fallen over one percent, the previous day's fall being the result of the increase in oil prices, which incidentally also rose yesterday.

So far, this has been an economic recovery in which job creation in the US has been largely disappointing. Overcapacity and offshore outsourcing have clearly been major drags on employment in the US.

With the US economy now decelerating, it's probably about time for economists to start moderating expectations of further payroll increases.

Thursday, 5 August 2004

STI surges to highest since 2001

The Straits Times Index surged today, rising 31.85 points or 1.7 percent to 1,935.70, its highest close since February 2001. Declining oil prices helped boost Singapore stocks, as well as stocks in Korea and Taiwan.

The Singapore market was probably also helped by positive sentiments generated by good results from two of the country's leading companies.

Yesterday, Creative Technologies reported that its fourth quarter ending June jumped 43 percent from last year to S$11.4 million, helped by strong sales of MP3 players and other personal digital entertainment devices. Sales rose 35 percent.

SingTel reported a net profit of S$700 million for the first quarter to June, down 41.5 percent from the corresponding quarter last year but beating analysts' forecasts for a gain of S$579-600 million. The steep drop in profit was due to exceptional gains reported for last year.

The STI has now decisively broken the 1,900 level which had been a resistance earlier this year. Normally, this is a good sign, but the rise appears narrowly based. The broader All-Singapore Equities Index was up a smaller 1.2 percent, while the small-cap UOB Sesdaq Index was up only 0.6 percent and, at 95.52, remains 21 percent below its 2004 high of 121.02 in February.

The technical picture is still unclear, but the divergence may be indicating that the bull market may be on its last leg.

Wednesday, 4 August 2004

Temasek on the prowl again

The Singapore government's investment holding company, Temasek, is on the acquisition trail again. This time, it's for shipping giant Neptune Orient Lines (NOL).

Yesterday, Temasek made an offer to buy all the shares of NOL it does not own for S$2.80 a share. Temasek currently owns about 30 percent of NOL.

Temasek did not give any specific reason for buying NOL. A spokesman told The Straits Times: "We are an Asian investment company and we actively manage our investments."

I'll take that at face value. I suspect that Temasek hopes to ride on the global trading boom resulting from China's increasing participation in the world economy, and believes that NOL is well-placed to benefit from it.

The acquisition price translates to a P/E ratio of about 4.7 based on historical earnings, or about 3.9 based on 2004 earnings. Based on these valuations, the acquisition price is not high.

However, it must be said that NOL is a highly-geared company and its earnings have been very volatile over the past few years. The company reported losses in 2001 and 2002.

Other recent news on Temasek purchases:

Temasek ups stake in Hana Bank to 9.3%

Temasek picks up stake in Apollo Hospitals

Temasek to invest $30m in ICICI One Source

Sunday, 1 August 2004

US stocks up despite weaker-than-expected GDP

Stocks in the US rose on Friday, despite the fact that GDP grew only 3 percent in the second quarter, much lower than expected.

The S&P 500 rose 1.29 points or 0.1 percent to 1,101.72. The Dow Jones Industrial Average rose 10.47 points or 0.1 percent to 10,139.71. The Nasdaq Composite Index was up 6.30 points or 0.3 percent to 1,887.36.

For the week, the S&P 500 gained 1.4 percent, the Dow added 1.8 percent while the Nasdaq jumped 2.1 percent.

Analysts attributed the good showing to strong corporate profits. Of the 406 companies in the S&P 500 that have reported second quarter results so far, profits surged an average 28.2 percent.

Reports on Friday also suggest that while the US economy may be slowing down, there is still considerable strength in it.

The National Association of Purchasing Management-Chicago reported that its index of manufacturing activity rose to 64.7 in July from 56.4 the previous month. The University of Michigan's index of consumer sentiment rose to 96.7 in July, the highest since January.

Many economists have been warning of an impending slowdown in the US economy, so it has largely been discounted in financial markets.

If the economy proves more resilient than expected, we may yet see a strong run-up in stock prices in the second half of the year.