10 - 14 November 2008

It is worth noting that China kicked off the week with an announcement that it is going to implement a USD586 billion fiscal stimulus plan over the next two years. That produced a brief rally Monday morning, but like other government relief efforts, the market was reluctant at this point to place a lot of faith in its effectiveness. For the week, most of the markets were down with the exception of China. In Hong Kong, shares of Chinese oil companies like CNOOC and PetroChina moved higher after the stimulus package. Nevertheless, the benchmark Hang Seng index declined 4.92% down to close at 13,542.66 points. After the bell, Hong Kong’s government declared that the city’s government had entered recession, with a third-quarter GDP decline of 0.5%. Optimism that China will announce another rate cut or lower the reserve requirement ratio for banks lifted sentiment on the mainland, sending the Shanghai Composite index up by 3.05% on Friday to 1,986.44 points. Elsewhere in Singapore, the FTSTI was down 104.35 points to close at 1,759.14 points. Korea’s KOSPI slipped 46.23 points to close at 1,088.26 points for the week while Thailand’s SET was the worst performing market, down 7.30% to close at 429.97 points.  

Over in U.S., the debate over whether to provide the U.S. auto industry government aid was a hot topic all week. No decisions were made, although reports Friday indicated the matter will garner Congressional deliberation in the coming week. Specifically, Treasury Secretary Paulson told the world Wednesday that it was determined that purchasing illiquid mortgage-related assets is not the most effective way to use TARP funds and that he had essentially reached that decision by the time the TARP plan was agreed to by Congress on Oct. 3. It was a stunning revelation given how much emphasis had been placed during the hearings on how effective that approach would be for stabilizing the financial system. The U.S. will have its share of explaining to do at the G20 meeting this weekend where heads of state are convening to discuss ways to tackle the current financial crisis and to prevent such a thing from happening again.  While there was a lot of fanfare leading up to the meeting, it is unlikely that any monumental agreements will be reached given the lame duck status of the Bush administration and the sheer difficulty of 20 members reaching a consensus in such a short period.

Lowered earnings guidance from several other retailers, including Wal-Mart, Kohl's, JC Penney, Nordstrom and Abercrombie & Fitch, as well as weekly jobless claims reaching a 25-year high of 516,000 and a report that October retail sales declined 2.8% from September, raised concerns over collapsed in consumer spending.

Domestically, Bursa Malaysia was lacklustre over the week, with the index falling 1.4% to close at 881.65 points.  The positive mood on Monday gave way to another wave of selling for the rest of the week, mirroring the weakness in the Dow Jones. Even a 6.7% Dow Jones rally on Thursday did not succeed in lifting the KLCI more than one point during Friday’s trading, suggesting continued market pessimism. Investors also stay on the sidelines to scrutinise the corporate earnings numbers. Nevertheless, the KLCI outperformed the region as up to Thursday the index was down 1.5% vs. the MSCI FExJ index’s fall of 6.9%. Average daily trading values fell 12% to RM987.3m (RM1.1bn last week), which is 2% below the three month average of RM1bn. On the economic front, the Industrial Production Index for September sank for the first time in 18 months on lower output from manufacturing, mining and electricity sectors. The rinngit continued to weaken against the U.S dollar and plunged to 3.5991 last Thursday.

Economic News

US: Non farm payrolls recorded 240,000 job losses in October, bringing the year's total job losses to nearly 1.2m. This came higher than market estimates for a loss of 200,000 jobs. The unemployment rate rose to 6.5% from 6.1% in September and higher than economists' forecast of 6.3%. Initial jobless claims reached 516,000 for the week ended Nov. 8. That's the highest total since the week ended Sept. 29, 2001, two weeks after the attacks against New York and Washington, when 517,000 initial claims were filed.

Malaysia:  Fitch Ratings has revised the outlook on Malaysia to "Stable" from "Positive" on the likely impact on the balance of payments of lower oil and other commodity prices. The revision was due to the deterioration in external demand conditions for electronics exports. Industrial production dropped 1.7% yoy after a revised 1.2% gain in August. Manufacturing production dropped 0.8% in September. Mining output fell 4.8% in September and electricity production decreased 2.2%.