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CARI CAPTURES • ISSUE 160

17 FEBRUARY 2014

CARI

CAPTURES

ASEAN REGIONAL

01 ASIAN MARKETS RALLY FOLLOWING YELLEN’S TESTIMONY ASEAN

CHINA

USA

- Janet Yellen

Source: Reuters.com

The MSCI’s index of Asia-Pacific shares excluding Japan rose by 1.6% following Fed Chair Janet Yellen’s first testimony to Congress, which stressed continuity and caution in US monetary policy. US tapering is to continue on its current course, reducing its bond buying program by $10 billion a month whilst the Federal Reserve maintains its low interest rate policy to stimulate a sluggish American job market; however, Yellen also affirmed the need for a more measured approach towards Fed plans, clarifying that the Federal Open Market Committee would reevaluate market conditions and consider putting a pause to tapering efforts should economic conditions deteriorate further Whilst Yellen’s statements served to stabilise volatile emerging markets, the South East Asian region also benefited from a variety of positive factors which fuelled market optimism; firstly, investors

were reassured by the disclosure of better-than-forecasted Chinese export numbers in January, which served to counteract disappointing Purchasing Managers Index (PMI) figures; secondly, the Asian market rally reflected a repositioning among investors as the recent selloff was perceived to have run its course; lastly, the news that Republicans in the House of Representatives had successfully raised the debt ceiling and avoided another government shutdown also served to reassure markets As with rallying equity markets, emerging market currencies also rose as investors were reassured and thus increased their consumption of riskier assets; meanwhile, US Treasury bond prices fell whilst yields rose following Yellen’s conservative approach to US monetary policy, giving rise to increased emerging market bond purchases

Google (30 Jan 2014)


CARI CAPTURES • ISSUE 160

02

17 FEBRUARY 2014

AGGRESSIVE EXPANSION IN ASIAN AVIATION

ASEAN

PHILIPPINES

INDONESIA

Asia-Pacific airlines are projected to collectively spend approximately US$2 trillion on new aircraft over the course of the next two decades as Low Cost Carriers (LCC) continue to fuel regional market growth. Currently, demand from Malaysia, Indonesia, the Philippines, and Thailand account for 1,200 planes being manufactured by Boeing and Airbus, with a projected further 10,940 to be ordered over the next two decades; whilst the increasing demand of airplanes indicates positive growth in the aviation industry, analysts such as Bertrand Grabowski, the head of aviation finance at DVB Bank SE, has cautioned that market optimism may be misplaced as “every airline expects its market share to grow, which cannot happen” Furthermore, the expected closure several full service airline competitors would mean that their respective aircraft fleets would need to be redeployed, dampening demand for new aircraft and increasing the likelihood that Asian airlines are currently overordering; the main orders for new planes come from VietJetAir, Air

THAILAND

MALAYSIA

Asia, Lion Air, and Myanma Airways Increased orders from the aforementioned enterprises for new aircraft come at a time as LCCs attempt to capitalize on emerging Asian markets fueled by strong middle class growth; Indonesia’s middle class alone is projected to double to 140 million people by 2020, from the 74 million individuals today, which will spur growth in the aviation industry in Indonesia by approximately 15% according to Boston Consulting Group analysis Furthermore, Raman Narayanan, Air Asia’s head of government relations for Southeast Asia stated that the aviation market in Asia is definitely large enough for the aforementioned order of planes, citing the fact that “Southeast Asia has 600m people who are divided by large bodies of water. Compare that with the US, where there are 320m people and a fantastic highway network. Or Europe, where there are 400m people and fantastic rail networks. And yet, while the US has 7,050 commercial aircraft in use and Europe has 4,200, southeast Asia still only has 1,050.” WSJ.com (9 Feb 2014) FT.com (14 Feb 2014)

Source: Amadeus.com

03

Foreign Investment Flows Into Indonesia

INDONESIA

Elections to Boost Economy 04 Indonesian INDONESIA

CHINA

Foxconn, the world’s largest contract manufacturer of electronics, intends to invest at least a billion US dollars into Indonesia over the course of three years for its newest manufacturing facility; meanwhile, an Iranain firm, Nakhle Barani Pardis Co. is looking to build a US$3 billion oil refinery in Indonesia. PT Kreasindo Resources Indonesia, an Indonesian petroleum firm, has signed a preliminary agreement with Iran’s Nakhle Barani Pardis Co. to build a US$3 billion oil refinery in West Java; the refinery is slated to initially refine 150,000 barrels of crude oil a day with 70% of profits being retained by Kreasindo The move follows recent developments in the removal of punitive US-Iran sanctions, which has paved the way for international trade to flourish as Iranian firms are able to begin international market operations for the first time in almost Meanwhile, Foxconn has signed a letter of intent with Governor Joko Widodo to build a billion dollar manufacturing facility within the outskirts of Jakarta; marking the Taiwanese based firm’s first foray into ASEAN’s largest economy Indonesia’s slowing wage increases, which were raised by 44% in 2013, but only 11% this year, is a key reason why firms have continued to actively invest in Indonesia WSJ.com (11 Feb 2014) WSJ.com (07 Feb 2014)

Despite the posed threat of political instability and public unrest, the impending Indonesian elections have bolstered economic growth through election-related spending and may even provide potential upsides to the Indonesian Rupiah. According to Indonesian Finance Minister Chatib Basri, April’s local assembly and parliamentary elections will serve to augment Gross Domestic Product growth by approximately 0.3% through election related spending; the Indonesian Government is slated to spend US$1.43 billion in order to organize elections within the third most populous country of the world, whilst television, printing, and advertising enterprises are to receive the bulk of campaign related spending In addition to said positive economic numbers, Morgan Stanley has projected the Rupiah to appreciate by 7.6% by the end of June should Jakarta Governor Joko Widodo win the presidency ; this is largely due to his perceived ability to run a strong, transparent and democratic administration despite the clandestine political climate The Rupiah, which has already at two month highs due to positive bond related capital raising activities, is also predicted to rise by only 4% should Joko Widodo not win the presidential elections With Cambodia and Thailand already experiencing levels of increasing public dissent and political unrest, it should be noted that the risk of capital outflows remains relatively high should the threat of such instability materialize in Indonesia Bloomberg (9 Feb 2014) FT.com (14 Feb 2014)

DISCLAIMER: The news articles contained in this report are extracted and republished from various credible news sources. CIMB ASEAN Research Institute (CARI) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Should any information be doubtful, readers are advised to make their own independent evaluation of such information.


CARI CAPTURES • ISSUE 160

05

17 FEBRUARY 2014

Islamic Finance’s Increasing Global Presence

MALAYSIA

06

Regional Tensions Rise as Foreign Relations Fray

PHILIPPINES

Islamic Finance Assets are projected to total US$2.1 trillion by the end of 2014 according to KFH-Research, a subsidiary of Kuwait Finance House Group, whilst the United Kingdom reaffirms its commitment to Shariah backed instruments. In 2013, Islamic Finance Assets, which represent 80% of all global Islamic banking assets, totaled an estimated $1.8 billion and grew by 16% Year-On-Year; KFH projects Islamic finance assets to reach US$2.1 trillion in 2014, with total banking assets equaling US$1.6 trillion, and contributions to the global Takaful industry(Islamic insurance) surpassing $US20 billion Growth opportunities for Islamic finance are expected to continue creating double digit growth in 2014, where regulatory developments and government policies that have been put in place by Malaysia and Saudi Arabia are set to spearhead Takaful growth, whilst Sukuk (Islamic Bonds) markets will continue to grow following their issuance into new sovereign nations; finally, multilateral organizations are slated to focus on growing Islamic finance instruments targeted at low to medium income customers moving forward KFH believes that four main pillars of focus that will grow the presence of Islamic finance are; firstly, to strengthen financial stability and interlinkages between Islamic finance jurisdictions; secondly, to invest into potential real sector economic activities such as infrastructural financing; thirdly, to expand the targeted demographic of Islamic Finance instruments; and lastly, to enhance awareness, and research development in order to foster increased industrial efficiency and innovation Albawaba Business (9 Feb 2014) Reuters (9 Feb 2014)

INDONESIA

SINGAPORE

Relations between Singapore and Indonesia fray as old wounds are reopened and escalating actions further add fuel to the fire; The Philippines affirms international arbitration concerning its disagreements with China as bilateral dialogue and consultations fail to settle territorial disputes. In a series of spiteful actions and escalating tensions, Singapore rescinded the invites of approximately 100 members of Indonesia’s military to Singapore’s military airshow following Indonesia’s decision to name a warship after two Indonesian marines convicted and executed by Singapore for the bombing of a bank in 1965; following which, Indonesian military chiefs decided to boycott said airshow in diplomatic protest to Singapore’s aforementioned actions The fracture in bi-lateral relations between Singapore and Indonesia comes after a period of progress which has led Indonesia to become Singapore’s third-largest trading partner, and the formation of a full diplomatic relationship Filipino foreign affairs spokesman Raul Hernandez recently released a statement emphasising that the Philippines was “committed to international arbitration before the International Tribunal for the Law of the Sea” concerning the South-China Sea conflict following the failure of bilateral dialogues and consultations to contain Chinese expansionism and gunboat diplomacy Said affirmations were firmly rejected publicly by Chinese statements, citing that the Beijing’s “nine dash line” gives China jurisdiction over the entire South China Sea and the West Philippine Sea, which the United Nations Convention on the Law of the Sea (UNCLOS) contradicts Though Sino-Filipino tensions have increased over China’s perceived expansionism and the Philippines’ strong emphasis on sovereign territory, it should be noted that the standing territorial dispute has not deterred the Chinese Red Cross from providing assistance to survivors of Typhoon Yolanda and contributions towards the reconstruction efforts. WSJ (11 Feb 2014) WSJ (7 Feb 2014)

07

12.1 Million Filipinos Now Jobless

PHILIPPINES Calamities in the fourth quarter of 2013 were reflected in the recently released unemployment figures in the Philippines; 12.1 million people were found to be jobless at the end of 2013. The economic conditions in the Philippines were hampered by a combination of Super-Typhoon Yolanda, the 7.2 magnitude Bohol earthquake and the Zamboanga City siege; all of which served to disrupt economic growth, foster higher rates of unemployment, and destroyed key infrastructure within the Philippines In a national survey that studied almost 1,550 respondents, 13.5% of the unemployed were found to be adults who quit their jobs, 10.4% were found to be retrenched, and 3.5% were first time job seekers; the demographics were also divided in terms of gender and age group, where 21.2% of men were unemployed, and 35.9% of women were unemployed, whilst, individuals of aged 18-24 accounted for 52.3% of the unemployed, 25-34 made up 33.1%, and 35-44 constituted 25% Whilst the government showcases its own defined level of unemployment to be 6.6 million Filipinos, it should be noted that the definition of an unemployed individual differs from that of the aforementioned study; fundamentally speaking, those who are “not available” for work due to health related issues or living conditions but yet are looking for work are not considered to be unemployed by the government, but are considered to be unemployed by said study Source: gfmag.com

Manila Bulletin (11 Feb 2014)

DISCLAIMER: The news articles contained in this report are extracted and republished from various credible news sources. CIMB ASEAN Research Institute (CARI) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Should any information be doubtful, readers are advised to make their own independent evaluation of such information.


CARI CAPTURES • ISSUE 160

08 MYANMAR MONITOR Politics Myanmar authorities have established new restrictions on visas for foreign journalists. Reporters will now be allowed to work in Myanmar for only a month but were previously granted three-month visas, with the option to renew inside the country. Myanmar recently climbed six places to 145th place in a 180-country ranking in the RSF World Press Freedom Index 2014. Radio Free Asia (14 February 2014)

The International Crisis Group issued a “conflict alert” on 12 February, warning that the Myanmar government’s plan of conducting a national census risked inflaming tensions. The ICG said the census is overly complicated as it has too many questions and is based on an old and much-criticised list of 135 ethnic groups. The government has dismissed the call and decided to proceed with the census in late March and early April this year. Mizzima (14 February 2014)

Myanmar’s President Thein Sein said 12 February that a federal system of government is the ultimate objective of his initiative of permanent peace with armed ethnic groups. His message on Union Day was welcomed by ethnic leaders demanding that more power to their regions through a federal system.

17 FEBRUARY 2014

Integration May 09 AEC Hurt Filipino BPOs ASEAN

PHILIPPINES

Implementation of the ASEAN Economic Community (AEC) may serve to hinder growth in Business Process Outsourcing (BPO) within the Philippines as regional trade and employment barriers fall. As one of the main proponents of Filipino economic growth, the BPO industry is projected to increase by 15% to US$15.3 billion in 2014, and US$27 billion in 2017 due to an increase in commitments from Chinese firms to set up facilities in the region, according to a report by the Oxford Business Group; the BPO sector, which earned US13.3 billion in 2013, was only second to remittances from overseas workers, which totaled US$22.5 billion in 2012 Also projected to create 120,000 new jobs annually for the next three consecutive years, the BPO sector plays a pivotal role in job creation; with seven of the top 100 outsourcing

destinations in the Philippines itself, the cities of Manila, Cebu, Davao, Santa Rosa, IIoilo City, Bacolod City and Baguio City all stand to benefit from future growth However, the Oxford Business Group warns that such growth is not guaranteed, especially with the implementation of an integrated ASEAN Economic Community; this is as, the AEC 2015 pledge facilitates lower regional trade and employment barriers, which then translate into lower production costs in other nations in Southeast Asia China, Malaysia, and India all stand to benefit from regional economic integration in regards to their BPO sectors should the 2015 pledge be fulfilled, however, this would also mean decline in BPO sector growth in the Philippines

The Philippine Star (12 Feb 2014)

10 MALAYSIA’S PRESS FREEDOM AT RISK ASEAN

MALAYSIA

Radio Free Asia (12 February 2014)

ECONOMY Myanmar announced on 12 February it is adopting the international measurement standards to issue gold bars for the first time. Myanmar will start selling gold with 99.9% purity in the international unit of gram, instead of the kyat, and international gold extracting and purifying standards will be adopted as well. International Business Times (14 February 2014)

Local businesses are hoping for more foreign investment in Myanmar, after the Export and Import Bank of the United States (Ex-Im Bank) began offering export-credit insurance, loan guarantees and direct loans for creditworthy export sales to Myanmar last week. The Irrawaddy (14 February 2014)

Total FDI in Myanmar was about US$1 billion in January and Singapore was Myanmar’s largest foreign investor, followed by Hong Kong, South Korea and Japan, according to newly released investment figures from the Directorate of Investment and Company Administration (DICA). Businesses from the city state are investing in hotels and other property development, tourism, agriculture and the energy market. The Irrawaddy (15 February 2014)

Foreign Affairs The US and Myanmar have agreed to cooperate in conserving a culturally significant teak wood monastery in Mandalay. US-funded specialists would train local craftsmen and government experts in preservation techniques over the next two years.

WO RLD

PRESS

FREEDO M

INDEX

117

BRUNEI

144

CAMBODIA

149

PHILIPPINES

130

THAILAND

145

MYANMAR

150

SINGAPORE

132

INDONESIA

147

MALAYSIA

171

LAOS

20 14

174

VIETNAM

Source: World Press Freedom Index 2014 Malaysia scores badly in an index that studied on press freedom across 180 countries and the ranking is the lowest as compared to previous rankings. The 2014 World Press Freedom Index released by Reporters Without Borders (RSF), an index that aims to study on media freedom 180 countries is based in seven aspects comprising the level of abuses, the extent of pluralism, media independence, the environment and self-censorship, the legislative framework, transparency and infrastructure Along with that, the World Press Freedom also produces a framework that allows governments to review their responsibilities by providing civil society with objective measures and provide international bodies with a good governance indicator as guidance As measured by the aforementioned index,

Malaysia ranked 147 out of 180 countries in the recent index, dropping 23 spots as compared to 2013’s performance where Malaysia was at 145 out of 179 countries and; in 2006, Malaysia ranked at 92; thus the latest performance is the country's worst ever Recent relevant events include the Home Ministry's rejection of a daily newspaper permit and the suspension of a news weekly

The Malaysian Insider (14 Feb 2014)

Business Standard (15 February 2014)

Editorial Team: Sóley Ómarsdóttir, Andrew Tan, Yee Ken Li and Tan Lay Yan Designer: Christina Chin and in collaboration with Tan Zheng Joo Consultant Editor: Tunku ‘Abidin Muhriz DISCLAIMER: The news articles contained in this report are extracted and republished from various credible news sources. CIMB ASEAN Research Institute (CARI) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report. Should any information be doubtful, readers are advised to make their own independent evaluation of such information.


CARI Captures 160 (17 Feb 2014)