Financial Teasers 31 March 08

Top Stories

Paulson's plan for regulatory overhaul raises concerns

Treasury Secretary Henry Paulson will unveil proposals for overhauling the regulation of U.S. markets that include giving broader powers to the Federal Reserve to oversee "market stability." The proposals would also merge the Securities and Exchange Commission and the Commodity Futures Trading Commission. "It would be Congress and the president essentially giving a blank check to a regulator over which they have very little power," said Michael Greenberger, a former CFTC official and a professor at the University of Maryland in Baltimore. Bloomberg (31 Mar.)

Accelerated growth of sovereign-wealth funds likely to continue

The highest-profile sovereign-wealth funds have $3.3 trillion of assets under management, according to estimates by the International Financial Services London. That figure is expected to grow to $10 trillion by 2015. However, there are other investment vehicles that are controlled by governments, including Japan, Sweden and the U.S., that account for roughly $3 trillion.
Financial Times (30 Mar.)

India emerges as global player

India has gone through a transformation in recent years following the demise of the state-run socialist system. A new middle class has emerged with a large appetite for goods and services, reshaping the country and triggering an economic boom. Indian companies are using their increased earning power to make overseas acquisitions. The development is part of an overall strategy to announce the arrival of India on the global scene. International Herald Tribune/Associated Press (30 Mar.)

Pernod Ricard acquires Absolut parent for $9.24 billion

Beating out other bidders including Bacardi, Fortune Brands and Diageo, Pernod Ricard has reached a deal to buy Vin & Sprit, which makes Absolut vodka, for $9.24 billion. The Swedish government, which has been pushing privatization of government-owned businesses, put Vin & Sprit up for sale. International Herald Tribune (31 Mar.)

Hops shortage spells trouble for brewers

A severe supply shortage of hops is forcing some brewers to make adjustments, including ingredient substitutions and decisions to brew different types of beers. The shortage is a result of poor yields in the U.S. and Germany, flooding and droughts around the world and a switch to corn and other crops by some farmers. MarketWatch (28 Mar.)

Thai bank selects JPMorgan for new trade mandate

Thailand's Kasikorn Bank has chosen JPMorgan Treasury Services as its trade-processing partner. JPMorgan will provide risk-mitigation and financing services to support the growing trade business needs of the Thai bank's clients. In return, JPMorgan will gain access to Kasikorn's Thai network, credit support and infrastructure. FinanceAsia.com (31 Mar.)

National Bank of Kuwait plans Islamic bank in Switzerland

National Bank of Kuwait is working with a Saudi Arabian financial institution to develop an Islamic private bank in Switzerland. Islamic banking has experienced strong growth despite the credit crunch. Moody's said industry assets are up about 20% since last summer. Ibrahim Dabdoub, chief executive of NBK, said the bank has applied for regulatory approval. Financial Times (30 Mar.)

HSBC's new private banking services in China to target wealthy

HSBC Holdings said it has received approval from Chinese regulators to offer private banking services in Beijing, Shanghai and Guangzhou. The bank said the minimum initial deposit from clients will be $1 million as it focuses on individuals with a net worth of $10 million or more. Numerous foreign banks are striving to enter China's market for services aimed at affluent individuals. International Herald Tribune/Reuters (31 Mar.)

Market Activity

Asian markets fall as "global funding woes" continue

Declines in shares of financials dragged down Asian markets today, with exporters adding to the fall in Japanese stocks. The Nikkei 225 Average was down 2.3% and the Topix index fell 2.5%. The Shanghai Composite lost 3%, a reflection of investors' disappointment that rumored measures by the government to boost the stock market did not materialize. Meanwhile, the Hang Seng Index fell 1.9% and South Korea's Kospi and Australia's S&P/ASX 200 index each ended up 0.1%. MarketWatch (31 Mar.)

Australia's benchmark index posts worst quarter ever

The S&P/ASX 200, Australia's benchmark share index, plunged 15.5% in the first quarter as the credit crunch and concerns about a U.S. recession raged. The index became the benchmark in 2000. Meanwhile, the All Ordinaries index, the former benchmark, fell 15.7%. "The debt market issue has to be resolved before we get more clarity on financial stocks and markets generally," said Greg Goodsell of ABN AMRO. "I suspect there are more losses to be written off there." The Sydney Morning Herald/Reuters/Australian Associated Press (31 Mar.)

China's once-booming IPO market nearly grinds to a halt

Last year, China overtook the U.S. as the largest market in the world for initial public offers of equity. Concerns about oversupply and falling stock prices have caused the market to slow significantly. "The bubble is bursting after rampant speculation pushed prices of newly listed shares to ridiculously high levels at the peak of China's stock bull run late last year," said Zheng Weigang, head of research at Shanghai Securities.
Reuters (28 Mar.)

States investigate troubled auction-rate bond market

Officials in Massachusetts and other states are starting to look into the ongoing trouble in the auction-rate bond market as recent failures have driven interest rates up as high as 20%. On Friday, William Galvin, Massachusetts' secretary of state, said he is investigating how dealers, including UBS, Merrill Lynch and Bank of America, marketed the auction-rate securities. Meanwhile, UBS dropped the value of its clients' auction debt by about 5%. Bloomberg (31 Mar.)

Economics

Economists say Europe's central banks may lend Fed a hand

Economists at Royal Bank of Scotland Group and Lloyds TSB say the Bank of England and European Central Bank are about to take steps to boost liquidity and spur lending. Cuts in interest rates could be next, they say. "If the European central banks were to adopt more Fed-style measures, it would go a long way to helping the Fed tackle the crisis," said Neil Mackinnon, chief economist at ECU Group Plc. Bloomberg (31 Mar.)

Spain takes steps to ease fallout as housing boom ends

The Spanish government has introduced a number of tax breaks and other benefits to cushion the blow as the country's housing boom grinds to a halt. Jose Luis Rodriguez Zapatero, the Spanish prime minister, is accelerating government spending to prevent a fire sale on real estate. Spain has a home-ownership rate of 86% and the housing market meltdown is dragging on the economy. Bloomberg (28 Mar.)

German agency predicts up to $600 billion in global shortfalls

BaFin, the Federal Financial Services Authority in Germany, cautioned that global financial institutions may see shortfalls of as much as $600 billion before the financial crisis ends. The agency also fears the crisis may spread to "other financial institutions outside of the banking sector," including hedge funds, retirement funds and insurance companies. Spiegel Online (29 Mar.)

Geopolitical/Regulatory

Brown, Bush to create working group on banking issues

President George W. Bush and U.K. Prime Minister Gordon Brown are planning a working group that will propose regulations and oversight of the banking system. The group will include senior treasury and regulatory figures from both countries. The leaders are also expected to discuss greater co-operation between London and Washington on financial issues when they meet at the NATO summit in Bucharest this week. Financial Times (30 Mar.)

China urges banks to assess investors' risk tolerance
Following the liquidation of a qualified domestic institutional investor fund, the China Banking Regulatory Commission is once again urging banks to fully assess the risk tolerance of their investors. The regulator said it will require banks to highlight risk warnings in investment product manuals and agreements. People's Daily (China) (28 Mar.)

Financial Products

Barclays woos investors in Hong Kong with Legends fund

Barclays is striving to entice investors in Hong Kong with its new Investment Legends Fund, which will invest in commodities, funds and companies owned by well-known managers including Warren Buffett, Bill Gross and Jim Rogers. The fund will start out with 40% of its assets in commodities, 40% in equities and 20% in fixed-income products, according to a Barclays brochure.
Bloomberg (31 Mar.)

HDFIV Report Card @ 28 March 2008

Performance

Kuala Lumpur Composite Index ("KLCI") increased from 1,189 (on 21 March 2008) to 1,256.54, representing an increase of 5.7%. Hengdai Equity Fund IV ("HDFIV")'s registered a return of RM223.94 or 4.39%, up from -0.87% in the previous week.

So far, HDFIV is beating KLCI by 9.96%, slightly higher than 9.77% a week ago.

Purchase

HDFIV made an investment of 150 units of Malayan Banking Berhad at RM8.30 per share. The all in cost per share is RM8.36.

Sell
No disposals during the week.

Asset Allocation

We have increased our equities from 61% to 71% this week, still leaving a comfortable buffer in the form of fixed income and cash. The cash buffer, coupled with the incoming cash by next month, should provide sufficient capital to average down if the market continuest to plummet.

Note: Asset allocation shows the three main categories that our money lies in. The main category which we are expected to invest in to make the return that we wanted is Equities. Secondly, Fixed Income is in the form of fixed deposits that provides stable but low return. This second category provides small return when the cash is yet to be utilised for investment. As there is a lock-in period for fixed deposit such as at least for two months (if the amount is less than RM5,000), there is a need to maintain cash in the form of 'pure' cash, which is the third category. The set back of holding 'pure' cash ("Cash") is that we do not earn any return at all.

GangBang Team Got Another Two

During the open period of our Hengdai Equity Fund IV, we have another two new shareholders, namely Aunty Hong and Mei. Please refer shareholding structure (Section 3 of the Fund Agreement) below after the inclusion

Indon Bet

Malayan Banking Berhad ("Maybank") roared and surprised investors today by announcing that it would pay USD1.5 billion or roughly RM4.8 billion for a 56% stake in Indonesia's sixth largest lender, namely Bank Internasional Indonesia ("BII"). The price tag commands 23% premium to the Indon bank's share price on Tuesday and would also offer to buy out the Indon Bank's minority shareholder for USD1.2 billion or roughly RM3.8 billion.

Is that a good news?

Maybank's shares tumbled to a 3 1/2-year low today to about RM8.20-RM8.30.

"The price tag... was more than 50% higher than we assumed for a mediocre franchise," Citigroup said in a note, downgrading Maybank to a sell from a buy. It slashed Maybank's target price to RM8.38 a share from RM10.63.

At the first few minutes of opening of the stock market, it dived to RM8.00, its lowest level since August 2004. The price offered to buy BII represented 4.6 times book value, considered expensive even when compared with Chinese banks that trade at between 3.3 and 5.4 times book value, according to Reuters data.

"Short term pain, long term gain", echoed local research houses like CIMB and OSK. I agreed. At RM8.30, Hengdai Equity Fund invested 150 units based on the remaining cash on hand. Do not worry about the minimum brokerage fee (that jacks up the total cost since the units purchased were low at 150 units) as I have managed to purchase those units from a related fund that took up 1,000 units.

We report more about this week's investment - The Indon Bet. Stay tuned.

Financial Teasers 27 March 08

Top Stories

Moody's downgrades billions worth of complex credit products
As the assets underlying complex credit products continue to deteriorate, Moody's Investors Service has slashed the ratings of more than $25 billion worth of the products. The downgrades were mostly taken on collateralized debt obligations, and Moody's said further downgrades are possible. Financial Times (26 Mar.)

FGIC's mortgage loss exposure exceeds legal risk limits
FGIC Corp. said it may have to raise capital to beef up its loss reserves because of a lawsuit against German bank IKB. The bond insurer also said its exposure to mortgage losses has exceeded the risk limits set by New York state insurance law. While FGIC maintained that the issue is a "technical violation," an insurance analyst called it a "bombshell." Reuters (26 Mar.)

Write-down speculation drives up cost to protect banks' debt
Speculation that the tightening of the credit markets will force banks to take additional asset write-downs is boosting the cost of protecting the banks' debt. Credit-default swaps on Citigroup increased to 168 basis points, a 13-point increase, while contracts on Deutsche Bank were up 10 basis points to 91. Bloomberg (26 Mar.)

Equity loans the latest flash point in mortgage crisis
Lulled by ever-increasing home prices, millions of Americans borrowed against their home equity, to the tune of $1.1 trillion. Now, with housing prices declining, the home-equity loans are fueling the next round in the credit crisis. The New York Times (registration required) (27 Mar.)
Moody's forecasts expansion of Islamic finance in Africa
Moody's Investors Service said that as Africa attracts investments and economic growth continues, the continent's Islamic finance industry expanded from $18 billion at the end of last year to as much as $235 billion. Anouar Hassoune, an analyst at Moody's, reported that only 37 financial institutions in Africa currently provide Shariah-compliant services as the sector is still in its "infancy." Bloomberg (26 Mar.)

E-mail sets up lawsuit over failed Clear Channel deal
In July, Bain Capital and THL Partners say, they received a misdirected e-mail from Credit Suisse about how the banks planned to renege on the lending agreement for the private-equity firms to buy Clear Channel Communications. On Wednesday, Bain and THL sued the bank consortium, including Citigroup, Credit Suisse, Morgan Stanley, Royal Bank of Scotland, Deutsche Bank and Wachovia, over the collapsed $19.5 billion takeover. The New York Times (registration required) (27 Mar.) , The Wall Street Journal (subscription required) (27 Mar.)

Moody's: Credit crunch may hinder Russian companies
Moody's Investors Service said that the tightening global credit markets may force Russian companies to find alternative funding sources. Matthias Hellstern, an analyst with Moody's, wrote in a report that because of prolonged under-investment, Russia's metal, mining, telecommunication and energy firms need "significant capital injections." Bloomberg (27 Mar.)

Other News
New Nova Bolsa exchange to be world's third largestMercoPress (Uruguay) (26 Mar.)

Market Activity

Shanghai Composite drops 5.4% to lead Asian market slide
China's Shanghai Composite plunged 5.4% as most Asian markets fell today, fueled by fears about the slowdown in the U.S. economy and global financial markets. The Nikkei 225 Average slid 0.8% while Australia's S&P/ASX 200 and South Korea's Kospi both edged down 0.2%. The benchmark Hang Seng Index, however, drifted between positive and negative territory. MarketWatch (27 Mar.)

Citigroup raises $1 billion by offering higher interest
Citigroup sold $1 billion worth of 10-year bonds yielding more than 300 basis points over similar U.K. government notes. "It is difficult to see the rationale of a bank raising 10-year money at spread levels well above those paid by lesser rated non-financial borrowers," said Georg Grodzki, head of credit research at Legal & General Group. "The rating agencies are unlikely to be pleased about a bank raising senior funds at spread levels well out of line with its credit rating." Bloomberg (26 Mar.)

South Korean fund opts against U.S. Treasuries as yields drop
South Korea's National Pension Service, the fifth-largest pension fund in the world with $220 billion in assets, said it will not buy U.S. Treasuries right now because of low yields and a desire to diversify. Safe-haven-seeking investors and interest rate cuts by the Federal Reserve have driven down Treasury yields recently. Financial Times (27 Mar.)

Economics

Bank of England plots radical action to fight credit crunch
Mervyn King, governor of the Bank of England, signaled that the central bank is planning radical measures to ease the credit crunch. King told the Commons Treasury Committee that current conditions are "the sorts of circumstances in which central bank action is necessary to prevent a major shock to the system as a whole." The Times (London) (27 Mar.) , Financial Times (26 Mar.) , Telegraph (London) (27 Mar.)

Australian banks healthy, central bank chief says
Glenn Stevens, governor of the Reserve Bank of Australia, says the country's banks have remained profitable with adequate capital reserves during the global credit crunch. "There is very little direct exposure to the U.S. subprime problems," Stevens said. "The main reason for the resilience is many years of robust economic growth, sound regulatory foundations and prudent risk management." Bloomberg (27 Mar.) , The Sydney Morning Herald/Reuters (27 Mar.)

Germany braces for collapse of global financial system
The turmoil roiling the global financial system has hit the German economy hard, prompting the country to prepare for a serious meltdown. The situation has forced Bundesbank, like many other central banks around the world, to consider radical and controversial measures to curb the crisis. Spiegel Online (26 Mar.)

BOJ official says uncertainty plagues Japan's economy
Kiyohiko Nishimura, deputy governor of the Bank of Japan, said uncertainty over the nation's economic outlook is high and that the central bank "will act in a flexible manner." Finance Minister Fukushiro Nukaga, meanwhile, expressed concern about the yen advancing against the dollar, which is hurting the earnings of exporters. Forbes/Associated Press (27 Mar.)

Geopolitical/Regulatory

Regulators may rein in ratings agencies
The International Organisation of Securities Commissions said ratings agencies, such as Moody's Investors Service and Standard & Poor's, may face a new code of conduct that prevents them from recommending ways to create structured debt securities. The organization also urged independent reviews of how the agencies assign ratings. Bloomberg (26 Mar.)

Fed may gain power, influence at SEC's expense
As officials consider the lessons learned from the ongoing financial crisis and ways to prevent a future crisis, some industry insiders are proposing that the Federal Reserve should emerge with a larger role. Former regulators say a shift in power and influence from the Securities and Exchange Commission to the Fed is likely. Bloomberg (27 Mar.)

Regulators investigate cross-border fees by Visa Europe
Acknowledging that it has no evidence of wrongdoing, the European Commission has launched a formal investigation into whether Visa Europe violated price-fixing laws with the fees levied against cross-border transactions. Last year, the commission ruled against MasterCard's similar fees. International Herald Tribune (26 Mar.)

Financial Products

Terror-Free Index Series to launch
The Conflict Securities Advisory Group and the FTSE Group have joined forces to launch a Terror-Free Index Series. The series of three indexes weeds out hundreds of non-U.S. companies that do nonhumanitarian business with Sudan, Syria, North Korea and Iran, countries considered to be "sponsors of terrorism" by the State Department. FinancialWeek/Investment News (26 Mar.)

U.S. Futures Exchange to launch contracts on Sensex
On April 4, the Chicago-based U.S. Futures Exchange will roll out futures contracts on India's benchmark equity index, the Sensex. In November, officials from the Bombay Stock Exchange and the USFE worked out the deal that allows U.S. investors to participate in India's booming equity market without American depositary receipt authorization. FinanceAsia.com (27 Mar.)

Ethics

Citigroup to pay Enron, forgo claims to settle fraud case
Rather than go to trial, Citigroup has agreed to settle the fraud litigation against it by paying $1.7 billion to Enron Creditors Recovery Corp. and dropping more than $4 billion in claims. Citigroup had been scheduled to face what is left of Enron late next month in a trial before U.S. Bankruptcy Judge Arthur Gonzalez, who has handled the case since the beginning. ClipSyndicate/Bloomberg (26 Mar.) , Houston Chronicle (26 Mar.)

Probe into New Century failure partially blames accountants
An investigation commissioned by the Justice Department into the collapse of New Century Financial found that the subprime lender's accounting firm, KPMG, condoned and enabled "significant improper and imprudent practices." Echoing charges that emerged about Arthur Andersen after the Enron scandal, the report of the five-month inquiry places some blame on the accountants. The New York Times (registration required) (27 Mar.)

Top Stories

Goldman forecasts global credit losses to hit $1.2 trillionGoldman Sachs
estimates the current market turmoil will result in $1.2 trillion in global credit losses and that Wall Street will bear 40% of the losses. "U.S. leveraged institutions have written off less than half of the losses associated with the bursting of the credit bubble," Goldman Sachs economists said in a research note. "There is light at the end of the tunnel, but it is still rather dim." Reuters (25 Mar.)

Global turmoil makes China even more cautious
With global markets in turmoil, corporate China is moving gingerly to balance the risk and reward of international investment. The caution was evident in the decision of Citic Securities, one of the largest brokerages in China, to back away from a $1 billion investment deal with Bear Stearns. MarketWatch (25 Mar.)

JPMorgan to absorb Bear's prime brokerage, clearing
JPMorgan Chase executives say Bear Stearns' prime brokerage and trade processing businesses, which employ about 800, will be integrated into JPMorgan's current operations. Bear's clearing business generated net revenue of $1.2 billion in the last fiscal year. Reuters (26 Mar.)

Brazil's Vale says merger with Xstrata failed
Merger negotiations between Brazilian iron ore producer Vale and Swiss rival Xstrata have failed and Vale says it plans to consider other takeover targets. Vale CEO Roger Agnelli said the deal collapsed over marketing rights, but another source said the two sides were unable to agree on a price. Analysts had valued the Swiss company as high as $90 billion. The Sydney Morning Herald (26 Mar.)

India's Tata Motors to buy Jaguar, Land Rover from Ford
Tata Motors, the largest automaker in India, has agreed to buy Jaguar and Land Rover from Ford Motor Co. in a deal estimated to be worth as much as $2.5 billion. The purchase has been in the works for nearly nine months while Ford and Tata hammered out retrenchment, pension liability, and parts supply, among other issues. ClipSyndicate/Bloomberg (25 Mar.) , Business Standard (India) (26 Mar.)

Banks apprehensive about Clear Channel buyout
The banks that had agreed to finance the $19.5 billion takeover of Clear Channel Communications are now balking. Bain Capital and Thomas H. Lee Partners, the private equity buyers, and Clear Channel may take the banks, including Citigroup, Morgan Stanley, Deutsche Bank, Credit Suisse and Wachovia, to court to force the deal, sources say. The New York Times (registration required) (26 Mar.)

M&A likely in technology sector as valuations fall
With valuations of technology companies falling, the major players see attractive takeover opportunities while the targets have few options. The tech bellwethers are taking advantage of the credit crunch, which has limited the options of their private equity competitors, by using their billions to make deals. Executives at eBay predict they will make as many as nine acquisitions in 2008, about twice as many as usual.
BusinessWeek (25 Mar.)

Market Activity


Little movement in Asian markets, but panic eases
Japanese shares dropped on exporter losses while stronger commodity prices helped boost resource stocks to prop up Hong Kong and Australian markets Wednesday. The Nikkei 225 Average slid 0.9% while Singapore's Straits Times Index and Taiwan's Weighted index inched down 0.1%. The Hang Seng Index gained 0.6% as Australia's S&P/ASX 200 and China's Shanghai Composite advanced 0.5%. MarketWatch (25 Mar.)

Thornburg plans to sell $1.4 billion in bonds
Thornburg Mortgage Inc. plans to sell $1.4 billion in bonds in a private placement as it attempts to avert bankruptcy. Shares of the troubled jumbo mortgage lender soared following the announcement. The company is awaiting approval from the New York Stock Exchange to issue new securities. ClipSyndicate/Bloomberg (25 Mar.) , Financial Times (25 Mar.) , CNBC/Reuters (25 Mar.)

Bank revenues drop on fewer IPOs in Asia
Investment banks, including Morgan Stanley, Credit Suisse, Goldman Sachs and UBS, have seen their revenues from equity capital markets plummet in Asia as fewer companies opt to go public. Bank fees from Asia, not including Japan, have dropped by as much as
70.9% so far this year, according to data from Thomson Financial. Financial Times (25 Mar.)

Economics

Treasury, Fed efforts may leave taxpayers liable for billions
Efforts by the Treasury and the Federal Reserve to curb the financial crisis may put American taxpayers on the hook for billions of dollars, despite White House opposition to using public funds for a bailout. Experts say taxpayers could be liable if the emergency action to save
Bear Stearns and the push to allow government-sponsored enterprises to buy more mortgage bonds run into trouble. Bloomberg (26 Mar.)

Euro rises against dollar, yen
A survey showing German business confidence rose in March caused the euro to rise against the dollar Wednesday. Europe's single currency also rose against the yen. Bloomberg (26 Mar.)
U.S. consumer confidence hits lowest level since 1973

The Conference Board's measure of consumer confidence plunged to 64.5 in March, the lowest level in about 35 years. Since December, the index has dropped 29% or 26.1 points. "Confidence in the state of the economy continues to fade," said Lynn Franco of the Conference Board Consumer Research Center. "Looking ahead, consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon." ClipSyndicate/Bloomberg (25 Mar.) , FinancialWeek (25 Mar.)

Japan's exports up in February, but U.S. slowdown a threat
Despite an economic slowdown in the U.S., exports from Japan were up 8.7% in February compared with the same month the previous year. Solid shipments of goods to Europe and Asia helped make up for reduced demand from U.S. "The biggest risk to Japan's exports is the United States," said Junko Nishioka, a Japan economist at ABN Amro. "If a U.S. slowdown continues to an extent that cannot be offset by demands from Asia and Europe, Japan could no longer rely on decoupling." International Herald Tribune/Reuters (26 Mar.)

Geopolitical/Regulatory

FSA to propose tougher scrutiny of top U.K. banks
The Financial Services Authority is expected to propose greater scrutiny of major British financial institutions in the wake of the Northern Rock meltdown. The watchdog has been harshly criticized for its supervision of the bank. The FSA's report, due out today, will recommend that the regulator bolster its supervision teams and increase direct contact with the banks. ClipSyndicate/Bloomberg (26 Mar.) , Financial Times (25 Mar.)

Central banks unable to keep banks from hoarding cash
The central banks have tried to inject liquidity into the financial system, but they have not persuaded banks to relax their credit standards. In the U.S., U.K. and eurozone, bank borrowing costs actually rose, despite optimism in the stock markets and the efforts of the Federal Reserve, Bank of England and European Central Bank. Financial Times (25 Mar.)
Financial Products

Amex launches Bear Stearns actively managed ETF
The American Stock Exchange has launched what it says is the first actively managed exchange traded fund on the market, the Bear Stearns Current Yield Fund. "We are excited to mark another important milestone in the development of the ETF industry," said Scott Ebner, senior vice president of Amex ETF Marketplace. "YYY provides investors with access to a transparent, professionally managed portfolio of short-term fixed income securities." InvestmentNews (25 Mar.)

Israeli bank rolls out structured dollar deposit
Bank Leumi of Israel recently launched a structured dollar deposit that is designed to offer exposure to agricultural commodities, including soybeans, corn and wheat. Structured Products (25 Mar.)

New GangBang Member

As approved by all the shareholders of Hengdai Equity Fund IV ("HDFIV"), we now have a new contributor to the fund of RM300 per month. The inclusion of the new member brings the total cash inflow to RM4,400 per month.

Section 3 of the Fund Agreement is amended accordingly:

Financial Teasers 25 March 08

Top Stories

Regulators allow banks to boost MBS holdings
The Federal Housing Finance Board announced Monday that regional U.S. banks will be able to temporarily increase their holdings of mortgage-backed securities. This latest effort to stabilize the mortgage markets enables the banks to boost their holdings of Fannie Mae- and Freddie Mac-issued securities. ClipSyndicate/Bloomberg (24 Mar.) , Reuters (24 Mar.)

Loophole in JPMorgan's original bid for Bear shines spotlight on lawyers
JPMorgan Chase's original offer for Bear Stearns included a clause that could have required JPMorgan to guarantee Bear's trades even if the deal failed. The legal loophole may have helped spur the increased offer and has focused attention on the high-powered lawyers who wrote the deal. It is unclear whether the clause was a mistake or an attempt to gain the loyalties of clients and employees at Bear. Financial Times (25 Mar.)

China's banks to trade gold futures
When China allowed trading of gold futures earlier this year, the China Banking Regulatory Commission barred commercial banks from the market. But a notice on the regulator's Web site says banks that meet specific criteria will now be allowed to trade. "That's great news for the gold futures market, which is not operating that well," said Hu Yuyue of Beijing Technology and Business University. "Commercial banks can provide more liquidity and stability to the market, after all, they hold huge capital." China Daily (Beijing) (25 Mar.)

Palestinian wealth fund takes a different path
As head of the Palestine Investment Fund, Mohammad Mustafa views the fund's mandate a bit differently than those of other sovereign wealth funds. In the three years since Mustafa took over, the fund has shifted from investing mostly in foreign companies to trying to help the Palestinian economy. "We want to play a different role, to move from being a financial vehicle to a vehicle for sustainable development in Palestine," Mustafa said. Financial Times (24 Mar.)

Congo to cancel mining contracts thought to be corrupt
The Democratic Republic of Congo is planning to cancel or renegotiate numerous mining contracts, according to Deputy Mines Minister Victor Kasongo. Many of the contracts are thought to be corrupt, and the government said it is trying to ensure that its mineral wealth is benefiting its people, he said. The Global Witness campaign says an inquiry into the mining contracts should have been made public. BBC (20 Mar.)

Some investors see post-election opportunity in Zimbabwe
The upcoming presidential election in Zimbabwe could bring significant policy changes to a country suffering from astronomical inflation and economic ruin. Many foreign investors have fled, but some are betting that opportunities in sectors such as power, construction and telecommunications will follow Saturday's vote. Reuters (24 Mar.)

Icahn, keeping heat on Motorola, sues for access to documents
Billionaire Carl Icahn, who holds 6.4% of Motorola's stock, is suing the company for access to documents on its efforts to revive its mobile-phone business, corporate jet use, hiring and more. At this year's annual shareholder meeting, Icahn will try again to win board seats. ClipSyndicate/Bloomberg (24 Mar.) , BusinessWeek (25 Mar.)

Market Activity

Australian, Hong Kong shares soar after long holiday
Led by gains in Hong Kong and Australian shares, most Asian markets advanced Tuesday. The Hang Seng Index jumped 4.1%, while the Hang Seng China Enterprises Index soared 4.8%. Australia's S&P/ASX 200 gained 4.2%, while the Nikkei 225 Average was up 1.8%. Shanghai's Composite index, however fell 1.7%. MarketWatch (25 Mar.)

JPMorgan's increased bid sends Bear Stearns shares soaring
Facing shareholder pressure, JPMorgan Chase boosted its offer for Bear Stearns from $2 a share to $10 a share. "Clearly, this increases the chance the deal goes through," said James Ellman, a portfolio manager with Seacliff Capital. "But there are still going to be employees and shareholders unhappy with $10 a share." The revised bid sent Bear shares soaring, but the deal is far from done. CNBC/Reuters (24 Mar.)

Economics

With Bear deal, Bernanke pushes Fed into new territory
Chairman Ben Bernanke, in trying to restore confidence in the markets, is leading the Federal Reserve into unchartered territory. The latest move has the Fed hiring BlackRock to manage and sell $30 billion of Bear Stearns' assets. The assets will be placed in a company that the Fed creates. Bloomberg (25 Mar.)

Lower interest rates put new pressure on money market funds
Already suffering from the subprime meltdown, money market funds are facing new pressure as interest rates drop, causing fund yields to narrow. The result is significantly diminished returns after deducting management fees. Some funds are waiving the fees and others are believed to have received liquidity support from their parent companies. Financial Times (24 Mar.)

Economists: Emerging economies won't drag West out of slump
From Dell to Kellogg's, Western businesses are courting the increasingly wealthy Asian consumer. But economists say emerging economies will not save the U.S. and Europe from a serious economic downturn. "It's mathematically impossible to see a major decrease in U.S. consumption being made up by the Chinese and Indians," said Stephen Roach, Morgan Stanley's head of Asian business. Roach said India and China together account for just a sixth of U.S. demand. The Times (London) (25 Mar.)

Australian, New Zealand dollars gain against yen, greenback
The New Zealand and Australian dollars climbed against the yen and the U.S. dollar Tuesday. Gains against the yen were attributed to stock gains that spurred investors to purchase higher-yielding assets funded by Japanese loans. "Risk-taking appetite has improved," said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. "Investors feel a bit more comfortable in buying higher-yielding currencies including the Aussie and kiwi." Bloomberg (25 Mar.)

Geopolitical/Regulatory

EU walks fine line between consumer, business interests
The European Commission, the executive arm of the European Union, is being blasted by industries as difficult to work with and a threat to regional security. Some say the commission is adopting consumer-pleasing initiatives that hinder business to boost its popularity. Commission supporters say it is rooting out situations that hurt competition and take advantage of dominant market positions. International Herald Tribune/Reuters (24 Mar.)

Rudd's first major overseas tour includes U.S., U.K., China
Australian Prime Minister Kevin Rudd leaves for an 18-day tour that includes stops in the U.S., Britain, Belgium, Romania and China. Rudd's agenda includes everything from the global credit crisis to the wars in Afghanistan and Iraq. His first stop will be the U.S. where he will meet President George W. Bush and Federal Reserve Chairman Ben Bernanke. The Age (Melbourne, Australia) (25 Mar.)

Medvedev opposes allowing Ukraine, Georgia to join NATO
Russia's incoming president, Dmitry Medvedev, says security in Europe could be threatened if Ukraine and Georgia win membership in NATO. Medvedev's warning is expected to increase pressure on NATO to vote against allowing the states to join its "membership action plan" at an upcoming summit in Bucharest. Financial Times (24 Mar.)

Financial Products

Barclays new ETNs track currencies in Asia, Middle EastBarclays Global Investors plans to launch three new exchange-traded notes: Asian and Gulf Revaluation, Intelligent Carry Index ETN and Global Emerging Markets Strategy. The notes, which have already picked up $150 million, will track currencies in the Middle East, Asia and other emerging markets.
CNNMoney.com/Investor's Business Daily (24 Mar.)

Commentary: Industry developing many actively managed ETFs
Until now, it was up to advisors to generate Alpha using industry-provided Beta products, such as exchange-traded funds. Now, the industry is developing a number of actively managed ETFs, a sign that it is ready to take some responsibility, writes Toronto-based consultant Richard Kang. Seeking Alpha (25 Mar.)

HDFIV Report Card @ 21 March 2008

Performance



Kuala Lumpur Composite Index ("KLCI") fell from 1,194 (on 14 March 2008) to 1,189 (on 21 March 2008), representing an marginal drop of 0.4%. Hengdai Equity Fund IV ("HDFIV") made it's maiden investment in Berjaya Sports Toto Berhad during the week and net asset value dropped by 1%. The decrease is due to the valuation of Berjaya Sports Toto Berhad's share price based on closing price and after paying for minimm brokerage commission. In the above graph, I have added a new line in brown colour. The new line represents the performance of HDFIV vis-a-vis KLCI's. To illustrate, when the line is showing 10% at a certain date, it simply means that the return of HDFIV is 10% more than KLCI's return.



Purchase

HDFIV made an investment of 600 units of Berjaya Sports Toto Berhad at RM4.82 during the week. Basis of investments are set out in http://seaneinvest.blogspot.com/2008/03/riding-on-gamblers-when-times-are.html.

Sell

No disposals during the week.

Asset Allocation

We have put about 61% of our money into equities, leaving a comfortable buffer in the form of fixed income and cash. The cash buffer, coupled with the incoming cash by next month, should provide sufficient capital to average down if the market continuest to plummet. On the other hand, you may ask why are we not keeping 100% cash when the market is going down. The answer to that is the market is very volatile at the moment with lots of development in the United States as the Federal Reserve gave their best shots in saving financial institutions. The impact is that KLCI may swing both ways. We wouldn't want a scenario where KLCI rebound and we end up holding no stocks at all.

Note: Asset allocation shows the three main categories that our money lies in. The main category which we are expected to invest in to make the return that we wanted is Equities. Secondly, Fixed Income is in the form of fixed deposits that provides stable but low return. This second category provides small return when the cash is yet to be utilised for investment. As there is a lock-in period for fixed deposit such as at least for two months (if the amount is less than RM5,000), there is a need to maintain cash in the form of 'pure' cash, which is the third category. The set back of holding 'pure' cash ("Cash") is that we do not earn any return at all.

Stock Sniffing

As Hengdai Equity Fund IV ("HDFIV") has made its maiden investment in Berjaya Sports Toto Berhad ("Bjtoto"), we will be sniffing the stock for its financial results, corporate developments and other announcements that may affect the underlying value of the company.

As long as the story still gels in nicely, we will keep the stock in our portfolio. On the other hand, if the share price drops due to "fear" in the market, we will sweep in more stocks. Sounds simple but it takes alot of courage to sweep in more stocks when the price drops. There is still a tendency to ponder on this question - Is there something bad happening in the company that causes the drop in the share price that I am not aware of? This fear in mind might delay or even stop the decision to sweep in more stocks, hence losing the opportunity to average down the cost per share before the share price recovers.

Financial Teasers 19 March 2008

Top Stories

Fed's interest rate cut spurs fear of inflation
The Federal Reserve's interest rate cut has heightened fear of inflation. If the Fed miscalculates and pumps too much cash into the system, demand could rise and drive up prices, many economists say. "The good news is that this will take pressure off of housing prices," said Kenneth Rogoff, a Harvard economics professor. "The bad news is that it will be very painful to squeeze the inflation out of the system when this mess is all over." ClipSyndicate/Bloomberg (19 Mar.) , The Washington Post (19 Mar.)

Price of insuring debt soars for some Wall Street banks
Traders say that some Wall Street investment banks are being priced as riskier than the debt of developing nations like Turkey and Nigeria, or banks in troubled regions of the world. The cost of insuring Bear Stearns' debt last week was higher than for Kazakh banks, one trader said. Reuters (18 Mar.)

Wachovia says Merrill Lynch is riskiest broker after Bear
Merrill Lynch is the riskiest major broker after Bear Stearns, says Wachovia Capital Markets analyst Douglas Sipkin. He cites Merrill's $30.4 billion exposure to subprime collateralized debt obligations, a liquidity ratio of 52 and the industry's highest leverage. Reuters (18 Mar.)

Analysts: High CDS spreads tempt even cautious investors
Conservative investors are entering the stressed credit default swap market, showing just how high the spread levels are, analysts say. Pension funds, insurance companies and other "real money" investors have shied away from the market in recent months, but a brave few have decided that the potential gains outweigh the risk of short-term losses. Financial Times (18 Mar.)

Regulators may reduce Fannie, Freddie's capital requirements
The Office of Federal Housing Enterprise Oversight may ease the capital requirements imposed on Freddie Mac and Fannie Mae so that they can invest more in the mortgage market, sources say. The mortgage companies have agreed raise more capital as part of the deal. Bloomberg (19 Mar.)

Gold falls as dollar rises on lower-than-expected rate cut
The dollar gained after the Federal Reserve cut interests rates less than expected, forcing gold below $1,000 an ounce. "Investors saw the very, very strong dollar movement, which made them think that maybe we are heading towards a recovery," said Mark Hansen, director of trading CPM group. CNNMoney.com (18 Mar.)

Analysts say Yahoo trying to get Microsoft to boost offer
Yahoo, in a recent report to its board, predicted its operating cash flow will nearly double in the next three years to $3.7 billion. Analysts say the presentation is an effort to press Microsoft into increasing its $44.6 billion takeover bid. Red Herring (18 Mar.)

U.K. judge decides against Exxon Mobil
Ruling against Exxon Mobil Corp., British Judge Paul Walker tossed out a court order to freeze $12 billion in Petroleos de Venezuela SA's assets. Walker said that type of order is used only in cases of international fraud. "In the present case there is no suggestion whatever of fraud on the part of (Petroleos de Venezuela) or any entity or person associated with it," Walker said. Associated Press (19 Mar.)

Water may offer discerning investors long-term returns
Growing populations, dietary changes and increased living standards are increasing the demand for water, while pollution and climate change threaten the supply. Water, some analysts say, may emerge as an asset class that offers investors long-term gains. Reuters (18 Mar.)

Airlines try to offset soaring fuel prices
Airlines are considering job cuts and grounding planes to cope with soaring jet fuel prices. Delta Air Lines said it has discussed voluntary layoff packages with 30,000 employees, hoping at least 2,000 will accept.
MarketWatch (18 Mar.)

Market Activity

Led by Australia, Asian markets up on Fed move, good news
Australia finished today's trading session with a 4% increase. That led a rally in Asian markets that was fueled by investor relief over the Federal Reserve's interest rate cut. Japan and South Korea jumped more than 2%, while Hong Kong and Singapore were both up before trading closed. Better-than-expected results from
Lehman Brothers and Goldman Sachs also helped lift markets. CNBC (18 Mar.)

Lehman, Goldman post better-than-expected earnings: Profits at Lehman Brothers and Goldman Sachs were down more than 50%, but both firms beat quarterly estimates and touted that they had plenty of liquidity. The results, combined with the Federal Reserve's latest rate cut, boosted shares of investment banks Tuesday. "The earnings themselves were not material, but they did provide confidence that the financial standing of these companies is not impaired," said Richard Bove, a Punk Ziegel analyst. CNNMoney.com/Investor's Business Daily (18 Mar.)

Investors flock to Visa's IPO, raising $17.9 billion
Visa Inc. raised $17.9 billion in the largest ever initial public offering in the U.S. Investors pounced on the IPO because the company does not have direct exposure to the credit crisis and its potential for growth is expected to be huge. Visa sold more than 400 million class A common stock at $44 per share. ClipSyndicate/Bloomberg (18 Mar.) , Reuters (19 Mar.) , The New York Times (registration required) (19 Mar.)

Market bets JPMorgan will be forced to increase Bear bid
Investors appear to be betting that JPMorgan Chase, which agreed to buy Bear Stearns at a bargain-basement price on Sunday, will have to either boost its offer or give way to another bidder. Some industry observers, however, question whether holders of Bear bonds are actually driving up the price by buying the stock so they can vote for the JPMorgan bid. FinancialWeek (18 Mar.)

Economics

ECB boosts liquidity in banking system by €25 billion
The European Central Bank allocated €202 billion in liquidity -- €25 billion above estimated liquidity needs -- to the banking system Tuesday to ease anxiety in the money markets. The amount suggests the central bank isn't troubled by this week's higher money market rates. International Herald Tribune/Associated Press (18 Mar.)

Paulson acknowledges "sharp decline" in U.S. economy
Treasury Secretary Henry Paulson, while not conceding that the U.S. had entered a recession, did acknowledge that the economy is in "sharp decline." "There's no doubt that the American people know that the economy has turned down sharply ... . Much more important is what we do about it," Paulson said.
Reuters (18 Mar.)

Corporate liquidity down for first time in nine years
Corporate liquidity dropped by $250 billion in the second half of 2007, according to Treasury Strategies. It was the first time cash and short-term investments of non-financial companies dropped in the nine years Treasury Strategies has been tracking the data. "As companies have tightened up, they're shrinking balance sheets just a little bit by borrowing less," said Anthony J. Carfang, co-founder of the firm. FinancialWeek (19 Mar.)

Geopolitical/Regulatory

Japanese politicians fight over BoJ post
The Bank of Japan will have no governor after Toshihiko Fukui steps down today. The House of Councillors rejected the government's first nominee, and the same fate is expected for the second, Koji Tanami, governor of the Japan Bank for International Co-operation. ClipSyndicate/Bloomberg (18 Mar.) , The Daily Yomiuri (Japan) (19 Mar.) , Agence France-Presse (18 Mar.)

FSA warns banks to take care with regulatory valuations
The Financial Services Authority is warning banks that the "fair" values of their assets could differ for regulatory and accounting purposes. The UK watchdog has met with banks and auditors to scrutinise the valuation techniques but has not altered its rules. Financial Times (18 Mar.)

Obama urges Americans to move beyond racial prejudices
Democratic presidential hopeful Barack Obama, striving to distance himself from his former pastor, spoke in Philadelphia about transcending racial prejudices. Tuesday's speech drew comparisons to John F. Kennedy's 1960 address in Houston to Protestant ministers. ClipSyndicate/Bloomberg (19 Mar.) , Bloomberg (19 Mar.)

Financial Products

S&P rolls out first real-time indexes for renminbi, rupee
Standard & Poor's currency indexes, the Indian Rupee index and the Chinese Renminbi index, replicate the performance of the rupee and the renminbi against the U.S. dollar. The indexes were created to offer exposure to emerging countries that are currently without a liquid currency futures market. Structured Products (18 Mar.)

Ethics

Quattrone bets on comeback in California's tech corridor
Frank Quattrone is launching a new tech-savvy investment bank called Qatalyst Group that will focus on mergers and acquisitions and new business investing. But can the man who helped spur the Silicon Valley boom replicate his success under a cloud of "ethically questionable" business practices?
BusinessWeek (18 Mar.)