Understanding the Chinese mind

BROWSING through my library during the holidays, I came across a book on comparative Western and Chinese philosophy that had an old saying: “Every Chinese person is a Confucian when everything is going well; he is a Taoist when things are falling apart; and he is a Buddhist as he approaches death.”

 Chinese culture is like ancient pyramids of different worldviews built over one another. The earliest was animism, where one believed different gods; the Book of Changes taught two sides to every story; Confucianism was about knowledge of self; Taoism about following the natural Way; Legalism about ruthless pragmatism and order; Buddhism about letting it go. In the 20th century, China imported Western influences from Marxism to science and technology.

It is commonly believed that the Chinese think very differently from Westerners. Western minds are considered logical and scientific, whereas the Chinese mind is supposed to be elliptical, contextual and therefore relational. One possible reason is the ideogramatic nature of the Chinese language, based on pictures rather than alphabets, which positions everything in relation to everything else.

The Chinese word for crisis is both risk and opportunity; for contradiction an impenetrable shield facing an unstoppable spear. Chinese thinking tends to sees things within systemic context and history, probably because the fount of Chinese philosophy is the I Ching or the Book of Changes, circa 1049 BC, which is essentially dialectic in tradition, seeing the world as emerging from the conflict, synthesis and evolution from contradictory opposites.

Western science and intellectual tradition stems primarily from Greek Aristotlean logic, which is reductionist and linear, reducing complex ideas into simple theories and principles that could deduce, explain and predict the future. Aristotlean logic prevailed in the West, until the German philosopher Hegel (1770-1831) developed dialectics based upon the concept that everything is composed of contradictions, with gradual changes becoming crises. Karl Marx (1818-1883) built on Hegelian dialectics into historical change through class struggle and dialectic materialism, whereas Mao Zedong fused Marxism into Chinese agrarian reality to form a theory of revolutionary knowledge through practice.

In the 20th century, natural science, such as physics, mathematics and biology began to evolve away from the social sciences, particularly economics. The Anglo-Saxon tradition of linear, logical thinking continued to dominate in social science, through philosophers such as Karl Popper, who rejected the vagueness of dialectics. On the other hand, quantum physics, quantum mathematics, biology and information theory began to evolve into binary worldviews whereby change in nature evolved through the synthesis or erosion of opposites. This is much closer to ancient Chinese and Indian views that saw the world in constant change.

What has been missing so far has been a synthesis of the two divergent worldviews.

In his new book Antifragility: How to live in a world we do not understand, Black Swan author Nassim Taleb introduced option theory as a general tool to bridge dialectic thinking with mainstream bell curve statistics. The normal “bell curve” distribution is a widely used statistical tool for decision making in mainstream social science. Social scientists look for statistical significance in the high probability (95%) or “robust” zone of the bell curve, tending to ignore low probability events (2.5% each) in the long tails.

By ignoring the long tail events that occur rarely but have large impact when they occur, mainstream thinking like the economic profession missed systemic events like that 2008 financial crisis. There are of course two long tails, one being the “bad” Black Swan events that create systemic damage when they occur.

The other is the upside or “good” long tail events. Nassim calls “anti-fragility” as good actions that compensate for “fragility”, the bad events.

Intuitively, Taleb has reframed Chinese philosophy in modern mathematics with a scientific explanation. What he calls the central Triad of exposures Fragile, Robustness and Antifragile has the analogy in the Chinese trinity of female (ying), Golden Mean and male (yang).

The Confucian concept of Golden Mean seeks to avoid extremes and take the safe middle path. But Taleb's insight shows why the Golden Mean gets into trouble, because playing safe and mainstream ignores the uncertainty of Black Swan events that could eventually damage the system as a whole. Prudence and conservatism through adopting the Golden Mean prevents the practitioner from adopting “antifragile or (good) high risk-high payoff” strategies that would compensate for the uncertain unknown bad Black Swan events.

A Buddhist would immediately recognise the need to build up good deeds to compensate for the bad deeds that may befall oneself.

By not taking risks, Chinese dynasties that adopted Golden Mean strategies became closed societies that eventually imploded when disaster struck. On the other hand, in the run up to the Industrial Revolution, Western societies took large risks with high payoffs, in science, technology and even colonialism. Western society compensated for fragility by taking anti-fragile measures. No risk, no gain.

The easiest way to think about options and antifragile strategies is in stock market investment. Suppose you adopt a conservative strategy that follows what the market does on average (follow the index). If however the market suddenly drops by 30%, and your portfolio declines by 30%, you will never recover your capital if you continue to adopt market following Golden Mean strategy. To recover or do better, you have to take small bets on risky shares that are “anti-fragile”, meaning that if they win, they win big.

Antifragility loves volatility. Making small mistakes will avoid large mistakes. The more you try to be stable, the more unstable you become, which Keynesian disciple Hyman Minsky rediscovered as “stability creating instability.”。

Taking non-linear options on high risk-high return ventures was exactly what Deng Xiaoping did in his opening up strategy. He knew that the risks of failure were high (and unknown) but taking options by opening up new development zones and new policies created new payoffs and growth areas that were not imagined by the critics.

In 2013, Deng's successors may be making new, anti-fragile options.

THINK ASIAN By ANDREW SHENG

Andrew Sheng is president of the Fung Global Institute.

May 2013 be a year of productivity?

We must make sure Malaysia and the rest of the world keep going forward this new year.

WISHING people a “Happy New Year” or “Kong Xi Fa Cai” or “Selamat Hari Raya” or “Happy Deepavali” and “Merry Christmas” is something I enjoy doing very much.

The invention of e-mail, SMS and other more recent phone applications have made me a serial “wisher” and if you are on my contact list, you should have got a message from me.

For the coming 2013, I wrote a little ditty and it reads:
“Every New Year brings new hope,
Every New Year brings new joy,
Let’s make sure 2013 will bring more,
Let’s make 2013 a GREAT year”

Ninety per cent of those who got my message replied politely but most of them just treated it as another “wish”.

I would like to stress that my wish for everyone is a deep-felt one and it’s one that I mean with all sincerity – 2013 is an important year not only for us in Malaysia but also the world.

As this article is being written, the TV and wires are reporting that the Republicans and the White House have just made a last-minute deal to avoid the US economy from going over the “fiscal cliff” which would drive the US and possibly the Western world into a recession immediately.

There can be many criticisms levied against President Barack Obama and the other US politicians of leaving it until so late to come to a compromise on a very important matter with global impact.

But the successful conclusion just before midnight of New Year’s Eve augurs well for everyone. At least we started 2013 on a positive footing.

The stock markets in Asia reopened on the first day of trading of the New Year in positive territory. That’s a good start.

Avoiding the fiscal cliff is just one of many global issues that the world inherited from 2012 and needs to be overcome in 2013.

Among the more urgent ones are:

> The Euro Zone financial crisis. Nothing done seems to have had any effect and even the mighty German economy is beginning to waver under the weight of the problem. Other big economies like Spain, Portugal, Italy and France all seem to be resigned to the fact of a prolonged downturn.

The world needs to start treating economic ailments the way it treats terrorism and war – by doing it with an all-out effort.

I accept that there is no single cure for a downturn because most are caused by different situations.

However, the urgency in treating and handling economic issues is downright embarrassing.

An example is the World Trade Organisation that was set up more than 20 years ago and until today has hardly made any significant headway except to be a very expensive talk shop.

> The horrifying disintegration of Syria. The way the world has allowed this nightmare to carry on is unbelievable.

All they have done is pay lip service at best or at worst, send one side or the other more weapons that will only prolong the suffering.

The problem of the wide media publicity given to this civil war is that it has made people immune to the violence and abuses that is going on there.

Each time we see a new video coming out of that country that shows death and destruction, all we tend to do is shrug our shoulders and remark “another day in paradise”.

This has to stop. We have to care and, in 2013, we should all act as one to prevent such carnage from continuing.

> Back home in Malaysia, our attention will be focused on the GE 13 which I will bravely say will take place before April 7.

Does this mean that all our energy and attention will be centred on the first quarter of the year?

I hope not. Our energy will be needed even more after that.

Yes, this general election will be the mother of all political battles – the kind where brothers take on brothers and husbands bravely challenge wives’ political ideology.

I will not be wrong to say that both sides on the political divide have already hardened their stand – all are prepared not only for the polls but also to up the ante to a feverish pitch.

Let’s hope the pitch just stays feverish and measurable by the thermometer. Yes, there is much at stake for both sides – it’s political survival for some of the key characters in our political theatre.

Because much of it is about personal survival, certain personalities may want to take the feverish pitch past the measurable level.

I do not want to dwell on who has what at stake but I would like to caution all politicians that the country needs to move on after the votes are counted.

They must not create a situation where the country cannot move forward or backwards.

Malaysia cannot afford to be stuck in another 60 months of political quagmire caused by turning everything into a political issue whether it’s a Olympic silver medal or how long before Selangor runs out of water.

I hope the whole country will wake up after polling day, take in the results and quickly get back to work because there will be more than 154 days to go before the end of 2013.

Malaysia has burst into a quick trot in its catch-up with the rest of the world in 2012, let’s not waste all that to tantrums thrown by sore losers in a political race.

A very down-to-earth colleague, in reply to my greetings, wrote: “It’s just another day. So think young, stay healthy and better be good.”

While she may have meant the New Year’s day – I think it is also apt for the day after election.

Happy New Year.

WHY NOT?
By WONG SAI WAN saiwan@thestar.com.my

Executive editor Wong Sai Wan spent his New Year’s eve at a friend’s place toasting to a bright future for everyone.

‘The year of shame 2012’ get any worse in 2013?

THE year 2012 has been labelled “the year of shame'' for the banking industry.

It doesn't matter that such nasty name-calling refers more to the problems at British banks.

Whatever happens in London is bound to attract world interest as it is a major financial centre vying for top spot with New York.

When scandals fall in thick, the tarnish on the banks there becomes even more significant.

To make matters worse, it is now apparent that the Libor interest rate rigging problem is more widespread than originally thought.



Source: Accounting Degree.net (click to link and enlarge)

It was not just a case of a few bad apples causing the rot, said The Guardian.

The problem was cultural, the report said, implying that it would require a wide spectrum of action to overhaul mindsets and unhealthy practices, possibly from ground level.

This requires much work on an international platform as there is no knowing how far and deep the rot has spread.

No doubt, banks in London and New York are the major players in the financial industry, and the other smaller players are feeling the heat as the ripple effect wears on.

As arrests related to the Libor rigging are ongoing, reports liken the revelations and subsequent documentation to a “blizzard.''

A blizzard is a severe snowstorm that often affects visibility, and points to very difficult weather conditions.

In banking and Libor rigging, in particular, this possibly refers to the layers of greed, conspiracy and corruption among the people responsible for conducting the trades.

Going into 2013, more arrests, fines and revelations are expected; the blizzard, therefore, is expected to be stronger.

In view of such a possible scenario, what are the central banks and other banks supposed to do to prevent any international backlash?

Not to underestimate the long-drawn effects of bank weakness, these external parties should quickly cooperate on an international basis to share information, iron out potential problems and try to prevent a big crisis from erupting.

With sound and consistent monitoring, a lot of negative effects can be pre-empted and, thus, avoided.

PLAIN SPEAKING By YAP LENG KUEN The Star

Associate editor Yap Leng Kuen wonders if it is too late to find a shield from blizzards.

Related posts:
The Libor fuss!
HSBC Bank fined $1.92 billion for money laundering

Created by www.accountingdegree.net

The new year 2013 will continue with the trends of of the passing year

The new year will start with two economic crisis events in the United States but otherwise, we can expect 2013 to continue with the trends of the passing year. 

IF 2012 is the year that did not bring about the end of the world, then 2013 should be the beginning of a new era, according to the Mayan prophecy.

But it is unlikely the new year will herald a brand new age for the world as a whole.

More probably, it will continue the trends in the old year but in more pronounced and deeply felt ways.

The year 2013 starts with the United States falling off the “fiscal cliff” or else escaping from that at the last moment.

If the fiscal cliff takes effect fully, up to four percentage points of GNP are expected to be sucked out of the US economy due to tax increases and government spending cuts combined, thus resulting in a new recession.

Another problem will soon reach crisis point.

The US government debt will reach its mandated limit around now, and President Barack Obama and Congress will have one to two months to negotiate an increase in that limit before the administration runs out of money to pay for its operations or service its debts.

Thus, we can expect the first two months of 2013 to be preoccupied with the drama of the US politics on debt, taxes and government spending.

It seems that the President-Congress and Democrat-Repub­li­can bitter battles of the last few years will return at the start of Obama’s second term.

If so, the United States’ political paralysis will be reflected in economic policy deadlocks.

The economic crises in the United States, and how they play out, will have a big impact on 2013 worldwide, especially since Europe is already in the midst of a recession.

With the uncertainties in the major developed economies, and the softening of the economies of China, India, Brazil, most developing countries will face economic difficulties this year but the extent of this is to be seen.

On the political front, the ongoing economic turmoil will lead to political changes in many European countries, and the future of the European Union and the Eurozone will themselves come under significant strains.

The next chapter of the Middle East drama is quite unpredictable. Israel, with its right-ward tilt, is expected to become even more aggressive, as its recent plan for more settlements in Jerusalem shows, and this may increase its isolation further.

But whether the Palestinian parties can unite and take advantage of its strong resistance in Gaza, its new UN-adopted status as a state, and the decline in Israel’s international support, is to be seen.

The Iran nuclear issue will continue to occupy news attention, with the Western countries having to decide whether to negotiate with Iran or intensify the sanctions (or both) or prepare for a military attack (thankfully, this does not seem likely).

The Syrian civil war will still dominate the TV channels as it enters another phase and perhaps an end-game, while the continued struggle for Egypt’s future political and social system will also have major effects on the region and the world.

In Asia, the world will watch closely whether the final stage of China’s leadership change-over to the new President Xi Jinping and Prime Minister Li Keqiang in March will begin a new era or continue the policies of the past decade.

Malaysia will have its place in the global spotlight with the general election, which will most likely take place in March.

Whatever the results, this closely contested election will be a watershed in the political life of the nation.

India, too, is in a state of significant political and economic flux, and 2013 will be used by the political parties and forces to prepare for the climax of the general election in 2014 and it is anybody’s guess who will come up on top.

Even as politics and economics continue to occupy the most attention, 2013 will remind us with greater force that Nature forms the bedrock of our societies and our civilisation.

The passing year brought its share of natural disasters to rival those of the previous recent years, and 2013 could even see worse extreme weather events around the world.

Global greenhouse gas emissions continue to increase despite greater awareness about the dangers of climate change.

Last week’s big floods in Malaysia’s east coast states could be a harbringer of worse to come in the country and the region.

The Philippines, having suffered a typhoon in its southern region in early December, had to cope with another big storm in its central region last week.

These are reminders that each country should improve its natural disaster preparedness as well as finalise its national strategy to address climate change.

And there are many other environmental issues to give high priority to, including water scarcity and quality, deforestation, biodiversity conservation, toxic chemicals and wastes and pollution of all types.

It will be an interesting year ahead.

Happy New Year to all readers of Global Trends!

Global Trends By MARTIN KHOR

 Related posts:
US Fiscal Cliff poses threat to economy worldwide! 
Cliff' worries may drive tax selling on Wall Street

Protecting your data

I REFER to the report “Personal Data Protection Act to come into force Jan 1” (The Star Dec 12 - reproduced below).

Symantec Corporation welcomes the enforcement of Malaysia’s Personal Data Protection Act.

In today’s digital economy, personal data of consumers has become a rich source of information and data for businesses seeking to address the needs of their customers better, whether this is in the form of better targeted advertising, or services tailored to the needs of particular customers.

With the introduction of the Act, Malaysia recognises that as the custodian of so much customer data, companies and organisations also have a responsibility to their customers to ensure that the information they hold is accurate, and adequately protected.

While global multinationals have had a lot of experience in this area, due to similar legislations in the United States and Europe, for many of the local smaller enterprises in Malaysia, this is a new frontier.

With the rapid adoption of IT technology to improve the customer experience, through web portals or affinity and membership programmes, these enterprises have also collected a lot of personal data of their customers, and today share similar responsibilities under the Act.

Small and Medium Businesses (SMBs) are an important part of Malaysia’s economy as they constitute 99.2% of the total business establishments, contribute about 32% of Gross Domestic Product (GDP) and 59% of total employment.

SMBs are also a crucial part of the ecosystems as partners of multi-national corporations (MNCs) as they do business in Malaysia.

However, it is also increasingly apparent that MNCs see a risk in doing business with partners who are not able to protect the sensitive data being shared with them.

In 2011, 18% of all targeted cyber attacks globally were on enterprises with 250 employees or less. In the first half of this year, Symantec saw this percentage double to 36%.

Cybercriminals recognise that because of the lower security posture of SMBs, they are much easier targets, who would also have information (their own or partners’ customer data, or Intellectual Property) which can be stolen and monetised.

In addition, compromised systems of SMBs are also used as stepping stones into the systems of their business partners.

It is thus important that SMBs recognise the exposure they have to cyber attacks, and the possible damage to their companies, through loss of reputation, business, and even legal censure, in the case where cybercriminals are able to steal data from inadequately protected systems.

In the more than two years since the enactment of the Act in Malaysia, the cybersecurity threat landscape has increased in complexity and scale. News of large scale breaches of companies database have been a constant and even the largest and best protected systems have not been spared.

It is thus timely for the Government to also consider the introduction of mandatory breach notification within the Act.

This would be in line with many other jurisdictions which have either implemented such legislations or are in the process of doing so.

Mandatory breach notification is an important part of any data protection legislation as it gives a definitive course of action to companies of what must be done in the case of a data breach.

By informing affected stakeholders, this also gives them the opportunity to take the required remedial actions (such as changing passwords, or having their financial institutions change their credit card numbers) to mitigate the consequences of the breach.

While it is recognised that this may increase the regulatory overheads of the Act, and represent an increased burden on companies, but the resulting improved consumer confidence in the data protection regime as well as e-commerce can only be helpful to Malaysia, as it moves towards developing its own digital economy.

NG KAI KOON Symantec Corporation Kuala Lumpur

Personal Data Protection Act to come into force Jan 12013

KUALA LUMPUR: The Personal Data Protection Act, aimed at preventing the abuse of citizens' personal data for commercial purposes, will come into force on Jan 1, said Deputy Information, Communications and Culture Minister Datuk Joseph Salang.

He said the Act, which was passed by Parliament in 2010, plays a crucial role in safeguarding the interest of individuals and makes it illegal for corporate entities or individuals to sell personal information or allow the use of data by third parties.

Many quarters, he said, felt that the enactment of the Act was timely as it would facilitate the transfer and transmitting of personal and often very important information seamlessly.

"It gives the public more control over their personal data. Whenever consent is required for data processing, it'll have to be given expressly rather than impliedly or be assumed," he said in his keynote address at the Second Annual Personal Data Protection Summit, here on Wednesday.

He said organisations would need to embark on continuous data privacy audit exercises to ensure compliance with the law as they now faced increased responsibility and accountability in processing personal data disclosed to them.

Salang said that to administer this piece of legislation, the Personal Data Protection Department was established on May 16, 2011.

Under the Act, offenderscan be jailed for up to two years or fined RM300,000, or both, if convicted.
Salang urged the public to be careful about information they shared online, especially in social media applications.

"Unfortunately, this is an 'open window' to our lives which makes it easier for those with nefarious intent to obtain information and use it for their own ends," he cautioned. - Bernama
 

FBM KLCI hits all-time high; Bulls set to explore uncharted territory

Global inflows into Asia, Window-dressing help push up Malaysian stock market

above: FBM KLCi Weekly chart (click to enlarge)  

PETALING JAYA: The FTSE Bursa Malaysia KLCI Index (FBM KLCI) closed at an all-time high of 1,681.33 points yesterday, courtesy of global inflows into Asia and window dressing activities in local funds.

The local benchmark index also recorded an intra-day high of 1,686.70 points. It closed 7.17 points, or 0.25%, higher to 1,681.33.

Total turnover was 858.83 million shares valued at RM1.27bil. Gainers outpaced losers 436 to 255 while 345 counters remained unchanged.

“The market is behaving in a fairly predictable manner. According to past patterns, the market should be sustainable until as late as the second week of January,” said Interpacific Research head Pong Teng Siew.

He added that the market would most probably see a slight dip before it started rising again on a Chinese New Year rally.

“This is a two-tiered market, with many of the biggest blue chips doing well. However, it does not necessarily reflect a true representation of the entire market,” Pong said.

Alliance Research analyst Teoh Chang Yeow said although the FBM KLCI created a new record high of 1,686.70 points yesterday, the lack of follow-through buying interest saw it easing slightly.

“This pushed the benchmark index down below the 1,680-point level to a day's low of 1,678.58 points before settling at 1,681.33 points,” he said in a report.

He expects FBM KLCI to trade below 1,678.58 points on Dec 31, 2012, as analysis of the overall daily market action on Friday suggested that buying power was weaker than selling pressure.

On Friday, Asian markets were largely unaffected by the looming fiscal cliff woes of the United States. Instead, they paid more attention to the depreciating Japanese yen, which is a result of possible further monetary easing. The Nikkei 225 Index gained 0.70% to 10,395.18 points on news of a huge injection stimulus by the Bank of Japan.

In key regional markets, the Hang Seng Index rose 0.21% to 22,666.59 points; Shanghai's Composite Index gained 1.24% to 2,233.25 points; Taiwan's Taiex was 0.67% higher at 7,699.50 points; South Korea's Kospi gained 0.49% to 1,997.05 points, while Singapore's Straits Times Index moved 0.25% up to 3,191.80 points.

“While we are quite encouraged by the development here, it is still a fairly buoyant time for Asia,” Pong said.

At Bursa Malaysia, plantation stocks were among the top performers on firmer crude palm oil (CPO) prices brought on by the removal of export duty on palm oil effective Jan 1, 2013.

Plantation stock Batu Kawan Bhd rose the most, gaining 30 sen to RM18.30, while Sarawak Oil Palms Bhd moved 19 sen up to RM5.85. PPB Group Bhd gained 14 sen to RM11.36 while Sime Darby Bhd was up 10 sen to RM9.49. However, Kuala Lumpur Kepong Bhd fell 16 sen to RM21.94.

Among the top gainers were British American Tobacco (M) Bhd which rose 84 sen to RM61, Petronas Dagangan Bhd up 24 sen to RM23.60, and Allianz Malaysia Bhd gaining 24 sen to RM7.08.

Top losers include Guinness Anchor Bhd, which was down 16 sen to RM16.48, JT International Bhd falling 12 sen to RM6.55 and IQ Group Holdings Bhd losing 12 sen to close at 38 sen.

US light crude oil was 11 cents higher at US$90.98 while spot gold fell US$3.18 to US$1,660.93.
The ringgit weakened against the US dollar at 3.0612.

By WONG WEI-SHEN
weishen.wong@thestar.com.my

Bulls set to explore uncharted territory

TREND ANALYSIS BY K.M. LEE

REVIEW: Growing worries that a budget deal could not be reached and a downbeat data on consumer morale in the United States and Germany prompted investors to liquidate risky assets.

In nervous trading, Wall Street's leading index, the Dow skidded 120.88 points to 13,190.84 and crude oil prices dived US$1.47 to US$88.66 a barrel the previous Friday.

Many people had expected the domestic front to kick off the final week of 2012 on a soft platform, but surprisingly, Bursa Malaysia was pretty upbeat, with the benchmark FBM Kuala Lumpur Composite Index (FBM KLCI) opening up 3.97 points to 1,662.82.

Asian equities steadied in quiet pre-Christmas trade, rebounding from huge losses previously on optimism the fiscal cliff problem in the United States would be resolved eventually. Taking the cue from a firmer regional trend, some institutional funds continued to indulge in year-end “window dressing” activity but interest was concentrated on certain quality issues.

Elsewhere, second and lower liners were mostly flat to lower on lack of retail participation. The apparent mixed landscape and dull volumes were clearly displayed on the scoreboard. Though the key index advanced a significant 10.55 points to 1,669.40 at the settlement, losers outnumbered winners by 324 to 279, with only 620 million shares done on Monday.

Most bourses worldwide were closed for Christmas. Major markets like Japan and China, which stayed open, sustained the uptrend lifted by exporters' counters due to weaker yen.

In spite of the bullish ambiance, the local bourse opened little changed, up 0.1 point to 1,669.50 in an initial deals, pending a clearer picture to emerge on Wednesday. The overall market sentiment was cautious, but “window-dressing” activities were very much alive, although no evidence of broad-based buying was sighted. But, as the key index crawled nearer to the historical peak, some players opted to book profit and their action somewhat capped the upside.

In range-bound session, the FBM KLCI fluctuated between an intra-day high and low of 1,673.19 and 1,665.83 before finishing at 1,671.58, up 2.18 points in thin turnover. Bargain hunters continued to dominate and rises in the blue chips lifted the key index 2.58 points higher to 1,674.16 on Thursday and an extra 7.17 points to 1,681.33, off an early new all-time high of 1,686.70, boosted by regional gains yesterday.

Statistics: For the week, the principal index climbed 22.48 points, or 1.4% to 1,681.33 yesterday, compared with 1,658.85 at the close on Dec 21. Total turnover for the four-day holiday week amounted to 2.920 billion shares worth RM3.941bil, versus 3.875 billion units valued at RM6.57bil traded during the regular previous week.

Technical indicators: Soon after slipping below the 80% bullish line, the oscillator per cent K reversed up quickly and climbed above the oscillator per cent D of the daily slow-stochastic momentum index to trigger a short-term buy on Thursday. Similarly, the 14-day relative strength index returned to the bullish territory, ending at 78 points level yesterday.

Meanwhile, the daily moving average convergence/divergence (MACD) histogram sustained the upward thrust, in tandem with the daily trigger line to retain the bullish note. Weekly indicators improved further, with the weekly slow-stochastic momentum index strengthening and the weekly MACD on the verge of calling a buy.

Outlook: The bulls bounced back from the danger zone with a vengeance late last month to give Bursa the fourth consecutive weekly gains. Based on the daily chart, the FBM KLCI had penetrated the previous record of 1,679.37 to establish a new all-time of 1,686.70 in early deals yesterday.

Apparently, the major breakthrough was not accompanied by great volumes, but we were not so concerned, as many big players were still on extended holidays. Hence, no matter how you look, it is a bullish breakout and the most important point is the bulls had somewhat removed the threat of a “double-top” reversal.

With more investors returning to the marketplace after the vacations and taking up fresh positions for the new year ahead, they can expect the market to firm deeper into the uncharted territory going forward.

Technically, indicators are painting a promising pictogram, suggesting a steadier trend this week. If there is an absolute change in the sentiment, the culprit would be a breakdown in the budget talks, coming from the United States.

The immediate upside is to challenge the 1,700 points psychological level. Thereafter, resistance is expected at every 20 points or 30 points intervals. Current support is pegged at the ascending 14-day and 21-day simple moving averages, resting at the 1,659 points and 1,643 points respectively.
---------------------------------------------------------------------------------

Test of 1,597.08 or a window-dressing decline?   FBM KLCI – May reverse near the key 1,597.08 all-time high.

Support: 1,562 to 1,581 Resistance: 1,596 to 1,597
Strategy: The FBM KLCI gained 10.50 points to close at 1,596.33 last Friday. The local market moved  uneventfully  until  last  Friday,  when  very  obvious  low-volume  1Q  window-dressing activities emerged. Volume shrank from 1.94b to 1.25b shares last Friday.

above: FBM KLCi Weekly chart (click to enlarge)  

The obvious areas for the FBM KLCI are in the 1,562 to 1,581 zone. The next resistance levels of 1,596 and 1,597 may see heavy liquidation activities. The FBM KLCI consolidated in a tight range of  801  to  936 from October  2008  to  April  2009,  but  broke  above  its  resistance  level  of  936.63 (Wave  a/B)  in  April  2009  and  surged  to  an  all-time  high  of  1,597.08  on  11  July  2011.  Its intermediate  Wave  b/B  low  was  836.51. We  traced  out  a  Wave  c/B  (of  the  Flat  3-3-5  variety) rebound phase to its all-time high of 1,597.08 (c/B). A downward “killer” large-scale “Wave C” is now in place and has only just begun, with a temporary low formed at 1,310.53 (Wave a/C). A temporary rebound wave (Wave b/C) is underway and may take the shape of yet another Rising Wedge pattern (as shown on the chart above).

If the index breaks the second upper Rising Wedge trend line, we would revise our Wave Count of an extended A-B-C correction to 1,310.53, and the current wave would be an extended Fifth Wave  of  the major  Flat  correction from the  801.27 low.  Trade  cautiously,  as the  index  may  be peaking soon with bearish divergent signals.  We favour this second “overbought scenario” for the index. A test of the 1,597.08-resistance (and all-time high) could be met with heavy selling.

 

Some  stocks  we  like  are:  AMMB,  ARMADA,  BAT,  CRESNDO,  CYPARK,  DIGI,  HLBANK, JTIASA, KLK, KMLOONG, LBS, MHC, SOP, TAANN, TAKAFUL, TM and YTL.

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Dim global growth prospects in 2013

Dim global growth prospects in 2013

The year 2012 is coming to a close, leaving behind many problems. Most are man-made originating in politics.

Yet, sadly, there are no major political leaders who have the credibility, charisma and strength of character to garner the needed political resolve to set their own nations or the world on the righteous path of sustainable growth.

The re-election of US President Barack Obama helped a little. As I write, even if he is able to persuade opposition Republicans in Congress to a deal to avoid the looming “fiscal cliff” (self-inflicted arrangement involving US$600bil of indiscriminate tax hikes and “sequester” cuts in military and welfare spending, bringing on a 3% reduction in 2013 fiscal deficit), the resulting cuts and taxes will invariably become a drag on growth estimated by most to be at least 1% of gross doemstic product or GDP in 2013.

The downside risk to global growth is likely to be exacerbated by the spread of the ongoing austerity to most advanced nations. Thus far, the recessionary fiscal drag has been centred on the eurozone periphery and United Kingdom. Latest indicators point to it spreading to the eurozone's core (including Germany and France) and Japan.

This only confirms the International Monetary Fund (IMF)'s contention that excessive front-loading of fiscal austerity will “dim global growth prospects in 2013.”

The recent near simultaneous leadership changes in China, Japan and South Korea offer East Asia a fresh opportunity for reconciliation after a period of tension.

The region's three biggest economies now appear to be confidently over the hump following the Tokyo and South Korean elections last week and Beijing's leadership “jockeying” resolved by last month. But, realistically, they continue to face headwinds from a stumbling world economy.

North Korea's rocket launch last week adds to regional uncertainty. So does continuing unrest in Syria and the Middle East.

Critical to the well-being of nations is how they will use this opportunity to get their ties back on track.

Enter 2013

The year 2013 is a big step following a tough year. To me, six events had dominated:

(i) Europe held the world's fate in its unsteady hands for most of the year. It took the European Central Bank (ECB) president Mario Draghi's promise “to do whatever it takes to save the euro” to rid the sting out of the crisis, with a later pledge of “unlimited” bond buying;

(ii) The impact of the war in Syria and Morsi's uneasy presidency in Egypt;

(iii) Leadership transition in four of the world's five largest economies, with “elections” in United States, France, Japan and China ushering promises of new approaches to politics and policy making;

(iv) Serious political disputes in the East Asia seas;

(v) recent massive anti-Putin unrest in Russia; and

(vi) Serious transformation moves in Myanmar.

Today they still continue to dominate. For the moment, it is too soon to tell what their politics will bring in 2013. But one thing is for sure: Global business gloom has deepened since the third quarter of 2012 and is likely to persist.

I think there are some important lessons.

First, investment risks have turned more political. US businesses today have more than US$1 trillion in cash reserves and committed facilities awaiting investment. For them, the nightmare is Washington staying gridlocked, four days before falling off the “cliff.” Hopefully, like before, the “game of chicken ends at the last minute.”

Second, even a small economy like Greece (barely 2% of eurozone economy) can have a material impact on global business sentiment as the “Grexit” drama showed.

Third, the European episode pointed clearly that governments can't cut and grow. One of the important takeaways from 2012 is that it is critical to always focus on the big picture and not be grappled by event risks as these come and go.

As a US civil rights activist once said: “For all its uncertainty, we cannot flee the future.” So as we step into 2013, nations just have to embrace risks and learn to manage and live with them. Scurrying away will not help.

OECD slashes forecast

Paris-based rich nations' think-tank OECD (Organisation of Economic Co-operation and Development) said in mid-December that its composite leading indicators (CLIs) point to widely differing growth outlooks among its 34 member states.

Signs are of a modest pick-up in United States and the United Kingdom, slowdown in Canada and Russia, and deepening recession in the eurozone (including significant slackening in Germany and France) and in Japan, and possibly Brazil.

OECD's CLIs are designed to provide early signals of turning points between economic expansion and slowdown, based on extensive data that have a reliable history of signalling changes in activity.

Overall, barring worst fears won't come to pass, combined OECD GDP will only rise 1%1.5% in 2013, not much change from 2012, with a modest pick-up to 2%2.5% in 2014.

Not unlike IMF's forecast, OECD growth will only expand if eurozone deals seriously with its political and debt crisis, and the United States finds a timely credible path to avoid the “cliff.”

Absent such actions, world growth would slide into another downturn, with deepening recession in the eurozone periphery, and contraction or stagnation at the core and related advanced nations. What's needed is “very careful policy steering”.

Eurozone manufacturing kept contracting in November for a 16th month. Data show signs of recession extending into 2013 as policymakers struggle to come to grips with the crisis. For businesses and investors, the October Markit survey concluded that in 2013 companies can expect challenging sales and profits, causing many to focus on cost cutting.

Eurozone: ECB slashed its forecast for the eurozone in 2013, signalling another difficult year ahead. Echoing the IMF, it now expects growth of between shrinking at 0.9% to a growth of 0.3% next year (minus 0.5% in 2012).

The level of uncertainty was reflected in its first attempt to forecast 2014 at 1.2%. “Gradual recovery should start later in 2013” (GDP shrank 0.1% in the third quarter of 2012).

As the eurozone slipped into recession for the second time in four years, Germany's growth slowed down to 0.2% in the third quarter of 2012 (0.3% in the second quarter); expectation is for it to expand 0.4% in 2013 (from 1.6% in 2012). However, Germany faces a “favourable environment on the back of expansionary monetary policy”. Expect some revival later on in the second half of 2013, following better-than-expected jump in investor sentiment in December.

Industrial output in Germany fell 2.4% in October (minus 1.6% in September); France reported a 0.6% drop while Spain and Portugal had increases of 1.2% and 4.8% respectively.

“France is facing conditions much worse than Germany it's fast becoming aligned with its southern neighbours of Spain and Italy.” Germany, given its openness, cannot “prosper alone; it has a particular interest in the welfare of its partners”.

Nevertheless, eurozone's peripheral shows little sign of recovery: GDP continues to shrink because of fiscal austerity, euro's excessive strength and severe credit crunch. Already, social and political backlash against more austerity is becoming overwhelming with strikes, riots, violence and rise of extremist politics.

They just need growth. Another year of muddling through only revives old risks in a more virulent form in 2013 and beyond.

The United States: Growth in United States remained anaemic at 1.5%2% for most of 2012. Political and policy uncertainties abound. Fiscal worries are centred on four key areas: taxes, spending, stimulus and borrowing.

The United States needs:

(i) A package exceeding US$1 trillion in revenues over 10 years and set in motion a tax reform process in 2013 to limit tax deductions and lower rates for businesses and individuals;

(ii) A package of spending cuts with less generous social benefits, health spending reductions and cuts in selected mandatory programmes, including military;

(iii) Some short-term stimulus measures, especially on infrastructure projects and on education and R&D; and

(iv) Raising the debt ceiling now.

Already, with continuing impasse even at this late hour, forecasters are downgrading growth expectations for 2013. “It's a dangerous situation,” says Nobel Laureate P. Krugman. “The opposition is lost and rudderless, bitter & angry as it lashes out in the death throes of the conservative dream.”

All this is happening at a time of significant game changes boosting the outlook:

(a) Housing is recovering;

(b) Manufacturing re-engineering is underway;

(c) The third quarter 2012 growth is up 3.1% (1.3% in the seconbd quarter), with consumer spending rising 1.6% and unemployment down to 7.7%, its lowest since 2008;

(d) Pent-up demand is awaiting to be unleashed upon clarity on the future fiscal pathway; and

(e) New future in energy transformation, especially from low cost shale oil and gas.

But first, the daunting task to regain business and consumer confidence needs to begin now. Because of continuing uncertainty, consensus forecast chances of 24% for greater than 3% growth in 2013, same as chances of a recession.

On the whole, they expect growth of 2.3% in 2013, better than three months ago. But, this won't materially help the 12 million jobless. Even by 2014, unemployment is unlikely to be lower than 7%.

East Asia and Pacific (EAP): World Bank's December update places growth in China and developing East Asia at 7.5% in 2012 (against 8.3% in 2011) in the face of weak external demand.

Growth in EAP is still the highest among the developing world and constituted 40% of global growth, but is set to recover to 7.9% in 2013.

EAP (excluding China) will grow 5.6% in 2012, 1% higher than in 2011 due mainly to a rebound of activity in Thailand, strong growth in the Philippines, and relatively modest slowdown in Indonesia and Vietnam. Malaysia held a steady course.

For the entire region, easy fiscal and monetary policies supported growth. Next year, the region will benefit from continued strong domestic demand and the mild expected global recovery, especially in the second half of 2013.

I agree with the World Bank that most EAP nations have retained strong underlying macroeconomic fundamentals and should be better able to withstand external shocks. But many risks remain, including open vulnerabilities in the eurozone that could readily lead to renewed financial market volatility, and global slowdown: The United States falling off the “cliff” resulting in a loss of growth push for EAP; potential hostility arising from political territorial tensions in the Asian seas; and fallout from unexpected developments in Syria and the Middle East.

However, the robust growth in services this year reflects strong domestic support derived from continuing rising incomes. As these trends gather strength, services can be expected to emerge as a new growth driver in EAP.

For the region, latest business sentiment surveys have turned positive for the fourth quarter of 2012, reversing two consecutive quarters of declines, while global uncertainties remained the biggest concern for the region's firms.

China is expected to grow by 7%-9% in 2012 (9.3% in 2011), the lowest since 1999, due mainly to lower domestic demand growth reflecting the 2011 stabilisation measures. World Bank expects China to expand 8.4% in 2013 fuelled by fiscal stimulus and faster effective implementation of large investment projects.

Indications are the recent slowdown has now bottomed out: The third quarter 2012 GDP rose 7.4%, below the historical trend and the lowest in 14 quarters, but its quarter-on-quarter growth reached a 9.1% annual rate in the third quarter of 2012. Growth is, however, expected to slacken to 8% in 2014 as productivity and labour force growth tail off.

Consumer prices will likely continue to fall, averaging 2.8% in 2012, but will rise moderately to 3.3% in 2013 as growth picks up and the lagged effects of easy monetary policies in the second half of 2011 take hold.

China's policy challenge is to balance the trade-off between supporting growth and reforming. But, priority remains at implementing targeted tax cuts, health and social welfare spending and large-scale social housing to support consumption.

What, then, are we to do?

Geopolitical uncertainties will engulf 2013. Consumers, corporate and investors are bound to remain cautious and risk adverse even scared.

But prospects in EAP look bright and the region continues to have ample fiscal space to counter the impact of external shocks.

Much of the global uncertainties are still being generated in Europe. It's messy there right now, but the recovery of Europe will come some day.

Today, the ratio of stock market value to GDP averaged worldwide at 80%. In peripheral Europe, this ratio ranged from 23% in Greece to 38% in Portugal akin to where Asian counterparts were in 1998. Italy's total stock market value is today about the same as Apple's.

R. Sharma of Morgan Stanley made these and other insightful comments in the Financial Times, with this refrain: Is Italy worth no more than Apple? Food for thought.

Look at it this way. We all have to keep the perspective in approaching 2013 in order to avoid our own self-made “cliff.”

WHAT ARE WE TO DO
BY TAN SRI LIN SEE-YAN

 ● Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who speaks, writes and consults on economic and financial issues. Feedback is most welcome; email: starbiz@thestar.com.my.

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Food for blog

< Chan: Whenever we attend an event, there is live tweeting, live blogging, Facebook updates and we ask questions that our readers pose to us.

 

DO YOU remember Doogie Howser, MD, an American television comedy-drama starring Neil Patrick Harris as a teenage doctor?

If you were a child in the 1980s, you could not have missed it. Howser kept a diary on his computer and the episodes ended with him making an entry in the diary. That was possibly our first introduction to what is now known as web log or blog.

According to Merriam Webster’s Dictionary a blog is a website that contains an online personal journal with reflections, comments, and often hyperlinks provided by the writer.

Blogs have become tremendously popular among Malaysians as they look for an alternative source of information to supplement what is being reported in mainstream media.

By the end of last year, marketing research company NM Incite tracked over 181 million blogs around the world, up from 36 million only five years earlier in 2006.

So how big is blogging? NM Incite says three out of the top 10 social networking sites in the United States — Blogger, WordPress and Tumblr — are for consumer-generated blogs.

Blogger is the largest of these sites with more than 46 million unique US visitors during October 2011, making it second only to Facebook in the social networking category, and Tumblr was the fastest-growing social networking or blog site on the top 10, more than doubling its audience since last year from home and work computers to 14 million unique visitors.

Overall, these three blogging websites combined for 80 million unique visitors, reaching more than one in every four active online users in the US during October 2011.

And who are these bloggers and what else do they do online? A study by NM Incite indicates that women make up the majority of bloggers, and half of bloggers are aged 18 to 34.

Most bloggers are well-educated: seven out of 10 bloggers have gone to college, a majority of whom are graduates and about one in three bloggers are mothers, and 52% are parents with children under 18 in their household.

Yang: Blogging with passion will eventually allow you to do it full time.

Besides this, bloggers are active across social media: they’re twice as likely to post/comment on consumer-generated video sites like YouTube, and nearly three times more likely to post in message boards/forums within a month.

According to Nuffnang, Asia-Pacific’s first blog advertising community, bloggers generate income through ads placed on blogs by various brands, and become part of a close-knit community through a vast range of exclusive events and contests.

“In Malaysia, blogging started growing exponentially in 2007 when Malaysians started seeing its commercial viability,” said Nuffnang co-founder Timothy Tiah.

Nuffnang has approximately 250,000 bloggers on its books and Tiah revealed that almost 50% of them are active.

“In the US, some bloggers have successfully evolved into full-fledged media companies that employ full-time writers and editors,” said Tiah who believes blogs and traditional media can co-exist.

“Clients do not view blogs as an alternative to traditional media. We are benchmarked against Twitter and Facebook.

For example, having an editorial piece in the New York Times supersedes one by an online publication,” Tiah explained.

Local blogging heroes such as Paul Tan and Vernon Chan, and Singaporean Dawn Yang agree that blogging with passion will eventually enable one to do it full time.

Chan said his site (vernonchan.com) was born out of the love for technology.

“I enjoyed writing but in 2009, I decided to take it more seriously and focused my writing on gadgets and tech-related news,” said the former graphic designer.

“The blog now operates as a tech website with four writers on board.

“The tech scene is fragmented with plenty of players, but it’s healthy competition.

“I look up to sites like amanz.my and soyacincau.com as they were pioneers in this field,” he added.

Chan said that to remain competitive, a blogger needs to focus on speed, frequency and being current.

“Whenever we attend an event, there’s live tweeting, live blogging, Facebook updates and we ask questions that our readers pose to us,” said Chan.

He walks around with a tablet, two smartphones, a laptop, a DSLR camera and is always connected with his readers thanks to U Mobile broadband.

Tan echoed Chan comments and added that an honest blogger serves the reader and not the advertiser.

“We have gotten ourselves in trouble with a particular company a few times as they were not happy with some of the comments from the readers that were published on the website.

“They stopped inviting us for test drives and events for a while, but we serve our readers, and readership is currency, ” said Tan, the founder of paultan.org, a leading motoring website in Malaysia.

Tan also debunked the myth that people will read any content as long as its free online.

“Online readers are looking for something fast so it is important to be quick.

“We do live updates and we have trained our readership,” said Tan, whose company now owns popular Malay blog site, Ohbulan.com among others.

Tan did not mince his words when asked to comment about bloggers who only write advertorials.

“There are bloggers who only attend events if they are paid and will only write a blog posting if there’s a monetary exchange,” he said.

Across the causeway, controversial fashion and lifestyle blogger Dawn Yang (clapbangkiss.xanga.com/) was in Kuala Lumpur recently to attend an event and the 27-year-old told MetroBiz that she started blogging to keep in touch with her friends.

“It started by accident but in 2005, I won an online competition as Singapore’s hottest blogger. That opened many doors for me,” said Yang who was sent to Taiwan for a year to be an artist.

She also secured several endorsement deals from international brands to promote their brands on various platforms.

“Blogging has evolved over the years with Twitter, Instagram and Facebook. We can’t just operate on one platform,” said Yang.

Blogging in Malaysia is seen as an easy way to make a quick buck, but to quote blogging guru Alister Cameron: “As I have repeatedly written in one form or other, blogging is not about writing posts. Heck, that’s the least of your challenges. No, blogging is about cultivating beneficial relationships with an ever-growing online readership, and that’s hard work.”

By Nevash Nair