THE statement that Asian financial markets have enough liquidity to withstand any market pullback should lend a note of calm even in the face of renewed fears over the eurozone crisis.
Source from (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2012/5/9/business/11255302&sec=business
Published: May 09, 2012
Market players, agreeing with the statement by Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz, said Malaysia's financial sector has ample liquidity.
The large local funds also have the capability to come into the market and buy up stocks with value.
There is a possibility that markets may retreat but what is more important are the steps taken to mitigate the situation.
“The economies of Asean+3 are in relatively very good shape,” said Datuk Lee K. Kwan, deputy group CEO and head of corporate banking, treasury and markets, CIMB Group.
“There is little exposure and reliance on foreign currency funding; most Asean+3 central banks have accumulated large amounts of foreign exchange reserves; they are in much better fiscal shape and running high savings rate that are more than sufficient to fund the productive sectors of the economy.
“Liquidity is ample. What is not noticed internationally is that ever since the 1997/98 crisis, most Asean+3 countries have significantly de-risked, especially in terms of leverage and exposure to foreign currency funding, and strengthened their financial systems significantly to be in a much better position to absorb external shocks.
“Every year, the improvement and capacity to absorb shocks has increased markedly,” said Lee.
With the slowdown in Europe, there is a focus to further develop and integrate the regional Asean+3 local currency bond and equity markets in line with the exponential growth of intra Asean+3 in real trade of imports and exports.
“In fact, we should focus on building up cross border issuance and cross border investing activities especially the Asean+3 regional local currency bond markets so that Asean+3 is better able to invest in itself and across the region.
“They should not just invest in US dollars and eurodollars for their money to be recycled back into high growth Asean+3 economies and charged wider credit spreads due to our lower international credit ratings,” said Lee.
“The recently concluded Asian Development Bank meetings in Manila of Asean+3 central bankers and finance ministers clearly articulated this objective in addition to increasing intra Asean+3 regional cooperation where the amount of funds available to member Asean+3 nations has now doubled to increase the shock absorbency of the Asean+3 region.”
Pong Teng Siew, head of research at Interpac Securities, noted that local funds, in search of value, had been selling since February.
“They don't like the way foreign funds have been driving up stock prices and are waiting for buying opportunities on market dips,” he said. Interestingly, said Pong, foreign funds may be leaving many countries but not Malaysia where many of them are still parked.
Overall, it is a time for caution as several factors point to troubling times for the market:
Slow earnings growth of 10% to 11%,
Earnings slowdown in some of the biggest weighted stocks like banks,
Slowdown in the overall property market and
Easing off in palm oil prices.
In Europe, the situation is not good as liquidity injected by the European Central Bank has little permanent effect.
There may be a window of opportunity in the middle of the year when the European Stability Mechanism (ESM) comes in. The ESM is a more flexible mechanism with a bigger fund and wider powers.
“That should help matters,” said Pong, recalling the wild swings in the market during August, September and October of last year.
“Markets go on a wild swing when there is lack of confidence,” said Pong. “What happened in those three months can happen again once confidence is broken.”
Another reason for caution is the fact that while Europe looks risky, the US economy looks quite fine only until the end of the year.
By next year, tax implications and fiscal consolidation issues will be hitting the US economy where government spending is likely to be curtailed.
Associate editor Yap Leng Kuen prays for calm and sanity to prevail.
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