You could say that Myanmar won over Kevin Murphy at "min-ga-la-ba", or "hello" in Burmese. The American first came to this isolated land in the 1980s as a student and returned in the 1990s as a journalist. In 2002, he came back again - this time for good and as an investor. "You can say I was hooked early on," Mr Murphy, 51, said in Myanmar's capital, Naypyidaw, recently. "It's nice to see the rest of the world catching on." And how. EuroMoney's debut event in the nation that Rudyard Kipling once called "quite unlike any place you know about" attracted almost 900 participants. It was the largest influx of foreign investors Myanmar's 55 million people have ever seen. More than 100 years later, Kipling is still right about Myanmar, formerly known as Burma, being a world apart. Bankers visiting for the first time assumed travel agents were exaggerating about BlackBerrys and smart phones not working (they really don't). They dismissed warnings that credit cards aren't accepted, even at five-star hotels. All that blather about banks and merchants only taking pristine US$100 notes (the slightest crease or fold and you're toast) seemed overdone, until you found your wad of cash worthless and wondering how to pay for dinner. No, Myanmar isn't easy. UNLIKE CHINA On the bright side, Twitter works fine in a place that just a year ago was both a pariah and police state, a contrast with, say, China. You can update your Facebook page anytime you can find a Wi-Fi signal, again something you can't do in China. I was able to view YouTube clips of the violent 2007 crackdown on protesters by the military junta that ran the place before President Thein Sein unleashed reforms that took the world by surprise. Try typing "Tiananmen Square massacre" into search fields while visiting China. You are routed to tourism sites. "What the world must understand is Myanmar's opening is real and irreversible," said Mr Murphy, a Managing Director at Andaman Capital Partners in Yangon, also known as Rangoon. "Really, take it from someone who has been here through previous moments of hope that change was happening. It shouldn't be doubted." The China comparison is worth exploring further. China opened its economy without corresponding reforms to its political system. It retains an iron grip on freedom of speech, the press and the political narrative. Myanmar is doing the opposite: It's opening socially and politically before it even has an economy of which to speak. That is creating higher expectations than many Chinese have of their leaders. INCLUSIVE GROWTH Burmese tycoon Serge Pun put it well: "A year ago, our people were afraid of the government; now the government is afraid of the people. If our leaders don't deliver, and soon, with inclusive growth, things will get difficult and they know it." Myanmar's challenges are daunting. There are huge question marks about the role and influence of the military. What if, sceptics ask, the military fails to respect a victory by Aung San Suu Kyi's party in the next election in 2015? Confusion reigns over a recently passed investment law. How much access will foreigners really have to Myanmar's natural resources? Too little? Too much? Ethnic conflict is another challenge. Those in the West who idolise Ms Suu Kyi might be surprised to know her reputation at home is more mixed. Her silent treatment of the minority Rohingya Muslims irks human-rights groups and is a blemish on her status as a Nobel Peace Prize winner. Pendulum economics Myanmar is already facing pressures that China didn't until recently. The widening gap between rich and poor is a source of growing friction among China's 1.3 billion people. Discontent is rising amid reports of the obscene wealth being amassed by members of a ruling party that is communist in name only. Since Myanmar won't have the luxury of ignoring these risks, its development may go smoother than, say, Vietnam's, which investors often compare with Myanmar. Vietnam is seen as a prisoner to pendulum economics: Investor sentiment swings from heady optimism to dark pessimism. Vietnam hasn't built the institutions or found the right regulatory structure to shield itself from the whims of hot money. So, last month when the police arrested banking mogul Nguyen Duc Kien on vague charges that many feared smacked of politics, local markets tumbled. When the plight of one man imperils your economy, you have serious problems. Myanmar can avoid these boom-bust cycles by getting the basics right today. That means telling investors clamouring to cash in on one of Asia's last frontier markets to take a deep breath and be patient. Myanmar must craft investment laws that benefit the broader population. "The issue is building blocks," said Irish entrepreneur Denis O'Brien, the founder and Chairman of Digicel Group, a mobile-phone-network operator. "It's important for an economy to be able to walk before it can run." Myanmar probably doesn't aspire to become one of the Asian "tiger" economies - it wants to be its own. With any luck, Kipling will still be right about the place a century from now. BLOOMBERG |
2012-10-22
How Myanmar can avoid boom-bust cycles
How Myanmar can avoid boom-bust cycles
San Francisco delays vote on shoebox apartments
SAN FRANCISCO - Lawmakers here have postponed voting on a proposal that would make the city home to some of the smallest apartments in the country.
The city's Board of Supervisors had yesterday been expected to consider a building code change to allow apartments as small as 220 sq ft, or 20.4 sq m. Current regulations require apartment living rooms alone to be that size.
The tiny, efficient units would include a bathroom, kitchen and closet.
Supervisor Scott Wiener, who drafted the new legislation, asked to delay a preliminary vote on the issue until Nov 13 so that he could continue discussions with critics who fear the apartments would increase population density, strain city services and further crowd out families.
They are calling for a pilot project to test the new units before fully opening the door to construction.
According to the Associated Press, the construction of shoebox apartments was aimed at residents who are being priced out of the housing market as the region experiences a resurgent technology industry.
Proponents say the homes would provide a cheaper option for single residents. Average studio apartments rent for US$2,075 (S$2,550), according to research firm REALFACTS.
The micro-units, in contrast, are expected to rent for US$1,200 to US$1,700 a month, said Mr Wiener.
Critics counter that the units would not help families and could boost population density, straining public transit and other city services. "This has to be a pilot project and allow for further study before we end up like Singapore," said Ms Sara Shortt, Executive Director of the Human Rights Committee of San Francisco, a tenants' rights group.
In Singapore, new guidelines were announced on Sept 4- to take effect from Nov 4 - to curb the supply of shoebox apartments in suburban areas.
2012-10-18
Will We See a 5-Year High for the Dow?
After a brief pause, stocks – at least the main US indices, the S&P 500 and the Dow – have recovered most of their losses and returned to a bullish path. And why not? The conditions set by the Fed for QE3 all but guarantee that easing will continue – if not indefinitely, then for as long as Bernanke & Co. see fit; the stream of bad news from Europe has abated; China isn’t slowing as much as the market had feared; and the US economic news has been improving as well.
Just today we learned that the index of US leading economic indicators for September rose the most in seven months. The increase of 0.6 percent (economists had expected a 0.2 percent gain), however, follows a revised decline of 0.4 percent for August (from -0.1 percent).
The improving housing market is one of the reasons for the jump in the leading indicators: permits for home construction increased in September. This is consistent with other data we’ve been seeing.
For example, new home construction in the US is now at its highest level since July of 2008. According to Commerce Department figures, housing starts in September rose to an 872,000 annual rate, a 15 percent increase that exceeded forecasts. Building permits have jumped, too, and are now also at their highest levels since July 2008.
These record-low mortgage rates clearly help fuel demand for both old and new housing; also, the issue of oversupply that has plagued the housing market for a number of years is being worked through. Indeed, the combination of these two factors – low rates and a reduced housing stock – is symptomatic of how housing’s contribution to economic growth has been increasing as well.
And there is another issue that the improvements in housing add to the equation: the wealth factor. As conditions and prices improve, the consumer starts to feel better, and the wealth effect feeds through the economy. Consumer expectations, in fact, were a factor in the improved US leading indicators.
Consumer confidence is clearly improving. According to the Bloomberg Consumer Comfort Index, monthly expectations stand at their highest level since May; the overall index itself, while remaining in negative territory, has also reached a six-month high.
All this, including news from Europe and better economic reports from China, has led global asset managers to increase their allocations to equities and reduce them for bonds. According to a monthly survey by Bank of America/Merrill Lynch, 24 percent of fund managers now overweight equities. This is the highest number in six months, up from 15 percent in September. European and emerging market equities have been the biggest beneficiaries of the shift in risk appetite, according to the survey. The percentage of participants who are bullish on emerging markets, for example, rose to 32 percent in October from 19 percent the previous month – the biggest monthly rise in eight months.
The third significant factor instrumental in the monthly jump in the leading indicators index is the strong performance of equities. We as investors can all attest to that. And with small caps (such as the Russell 2000 index) and technology stocks (as represented, for example, by the NASDAQ 100) already well above previous 5-year highs, there is little doubt on the part of most market participants that the S&P 500 and the Dow will soon get there as well. That is, if the economic news does not deteriorate sharply.
Sharing from Dr. Stephen Leeb
EU Summit, Not about Fiscal Union, but Banking Union
We expect little news from the EU conference, Mr Cameron is expected to endorse further integration of the 17 Euro zone nations with the caveat that it cannot impede the 27 nation single market. In the German lower house of parliament Merkel spoke today proposing “a new element of solidarity” for troubled EU countries, funded by a financial transaction tax, it would be limited in time and help consolidate struggling countries budgets and pay for investment in their respective countries. A Franco led charge to speed up the introduction of a European bank supervisor has as expected hit a German wall, with Berlin worrying over the potential costs.
Interestingly Hollande’s interview today in 6 European newspapers shows that the Merkozy alliance is definitely a thing of the past and there will be increased tension between Merkel and Hollande in the coming months. France sold a total of €8bn of debt today with it tapping the July 2017 for just under €5bn at an average yield of 0.92%, down from 0.98% a month ago. He said, ““The subject of the summit isn’t fiscal union but banking union….The only decision we have to take, to confirm in fact, is the putting into place of a banking union by the end of the year, notably the first step, which is the banking supervision.”
UK retail sales exceeded expectations with Sales ex auto fuel +0.6% MoM (expected 0.3, previous revised up to -0.2%), YoY printed +2.9 (expected 2.4%, previous revised down to +2.9%), these numbers come on top of the good news we saw from the jobs numbers.
For the second time this month S&P and Moody’s have clashed over the rating of commercial mortgage backed securitisation deal. Moody’s today it said a European commercial bond which was awarded a top credit rating by S&P (Aaa) wouldn’t have received a top rating from them, due to the quality of the properties and complexity of the underlying loans. S&P retorted, “We believe our ratings reflect the creditworthiness of the securities in the transaction.” The deal allegedly took £1.4bn of UK property loans off RBS’s balance sheet.
Assuming nothing alarming comes from the conference the market will trade Spanish news until the last regional election, which is scheduled to be Catalonia’s in Mid-November, most in the market expects this is the final piece in the jigsaw and then Spain will request the bailout. We are getting to significant technical levels in both FI and FX and would monitor these closely for breaks or retracements. For now we are comfortable in staying short with a steepening bias.
2012-10-15
Spain will ask for a bail out until it is forced to?
Another week starts and we are still faced with the same deadlock : it does not look like Spain will ask for a bail out until it is forced to. So despite a bit of positive noise for risk this morning, following the doctrine change at the IMF regarding austerity and EU leaders mulling giving more time to Greece, rates have not really gone anywhere and do not really have far to go until the Spanish situation is clarified, one way or another. It also feels like the market does expect this bailout sooner rather than later (this is an assumption based on the price action on futures each time there is some sort of negative headline on Southern Europe) which is starting to be dangerous given the blatant Spanish reluctance.
In the meantime the volume of issuance started picking up again with several German and Austrian names issuing in USD, pushing the basis tighter despite lower spot. There are also talks of a new 5Y EFSF, the market reception for their last issuances has generally been rather cold, the spread and the book building will be another credibility test for the European Union.
2012-10-12
Expected Downgrade of Spain by S&P
Junk
The widely expected downgrade by S&P of Spain took place after most of the market had left last night. The rating has been cut to BBB-, one notch above junk and importantly with a negative outlook. Moody’s is due to make a decision within the next month, which could move Spain into sub investment grade and lead to the countries average rating from S&P, Moody’s and Fitch dropping below the watershed.
The IMF gave some breathing room to Athens and Madrid, with Christine Lagardesaying, "It is sometimes better to have a bit more time.....That is what we advocated for Portugal; this is what we advocated for Spain; and this is what we are advocating for Greece." This is in stark contrast to Berlin’s view, German Finance Minister Wolfgang Schaeuble told reporters today, "The IMF has time and again said that high public debt poses a problem......So when there is a certain medium-term goal, it doesn't build confidence when one starts by going in a different direction......When you want to climb a big mountain and you start climbing down then the mountain will get even higher." Conversely Lagarde blamed the slow pace of fiscal and banking union reform for contributing to the global slowdown.
Basel
In 2010 the G20 agreed that new Basel rules would be implemented at the start of 2013, rumours circulating today claimed European Union representatives and legislators from the European Parliament discussed delaying the deadline by up to one year. Although the Basel Committee on Banking Supervision didn’t announce an extension today, it did admit this week that some countries would miss the original date. European banks have been saying that the final details of the EU’s implementation are vague. Lenders believe that keeping to the original date would drive up costs further.
JEF
The much heralded Joint Economic Forecast Group which contains a number of institutions including Ifo, KOF and IHS Vienna, said today in its Berlin commissioned bi-annual report on Germany, that it was cutting its growth projections for Germany for 2012 and 2013 from 0.9% and 2%, to 0.8% and 1% respectively. Inflation will be 2.1% next year due to ECB loose monetary policy. Unemployment will be unchanged at 6.8%. They said, “Should the situation in the euro zone continue to deteriorate, this will also impact the German economy.....Over the forecasting period as a whole the downside risks prevail and there is a great danger that Germany will fall into a recession.”
Auctioned
Italy issued a total of €6bn 3y, 4y, 6y and 13y BTPS today. The 3y €3.75bn tap b/c was 1.67 (vs 1.68 for previous 4 auction average, it was 17 cts bid through (vs 15 cts for previous 4 auction average). The 4yr was more popular with b/c 2.22 (vs 1.68 for previous 4 auction average). The 6y saw b/s 2.46 (vs 1.51 for previous 4 auction average), 5cts under bid (vs 11cts for previous 4 auction average. Whilst the 13yr b/c was 2.04 (vs 1.64 for previous 4 auction average), being 7cts bid through (vs 17cts for previous 4 auction average). These successful auctions led to the first sustained bid of the week for the BTPS curve, with 2 & 10yr BTPS yields dropping almost 10bps.
The UK DMO sold £1.5bn 2024 inflation (RPI) linked gilts, b/c was 2.56 and average yield was -0.441%. The 10yr break-even rate widened the most in almost a month. Robert Stheeman, CEO of the DMO said in September that a possible change to the formula used to calculate the RPI has led to increased volatility in the UK Linker market.
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