Left Brain Right B - the DBS Vickers Securities Equities Research

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Regional Equity Strategy 4Q 2009 Strategy Overview: Asia Equity Singapore: Break of dawn (Irvin Seah, irvinseah@dbs.com, extracted from “Economics – Markets – Strategy, 4Q09” dated 17 September 2009) • The economy emerged from the recession with a remarkable 20.7% (QoQ, saar) expansion in the second quarter • The recovery was largely led by the manufacturing sector on the back of pharma and electronics • The labour market has stabilised and job losses have been lower than earlier expected • GDP growth is expected to register -3.0% in 2009 and 5.2% next year • Inflation should average 0.0% in 2009 and 1.7% in 2010 • The exchange rate policy stance should remain unchanged in the forthcoming policy review in October A broad-based turnaround in manufacturing The turnaround in the manufacturing sector has been nothing short of remarkable. After having hit the bottom around Jan-Feb09, both NODX and the industrial production index (IPI) have embarked on a “V-shape” recovery. While the surge in pharmaceutical output (probably due to the H1N1 outbreak) as well as restocking in the electronics industry have been widely cited as the key reasons behind the stronger manufacturing numbers, it should be noted that the recovery in the manufacturing sector has in fact been rather broad-based. All key manufacturing segments have recorded significant improvements in output over the last few months. While the sustainability of the surge in pharmaceutical output remains questionable, continued improvement in the other industries going forward should be able to offset any potential downside risks in the pharmaceutical industry. For example, most recent PMI readings have remained above the crucial 50 level, reflecting the expectation that the manufacturing sector will continue to expand. In addition, leading indicators for the electronics industry, namely the electronics PMI as well as the US SEMI book-to-bill ratio, have continued to point to stronger electronics performance. In fact, the SEMI book-to-bill ratio has went above the parity threshold for the first time since Jan07. This could well signal the end of the doldrums for the electronics sector. Nonetheless, some segments within Singapore’s electronics industry have been plagued by a structural “hollowing out” problem. The disk drive segment is a good example, which saw disk drive maker, Seagate, announcing the retrenchment of 2,000 workers as it continues the relocation of its manufacturing operations out of Singapore. Nonetheless, most recent (Jul09) NODX and IPI were up by 6.1% and 23.0% respectively as compared to the previous month. Consumer sentiment worldwide has improved significantly and as a result, NODX and IPI have continued to trend higher. The manufacturing sector is now expected to register a smaller decline of 5.4% YoY in 2009, up from - 10.2% previously. Forecast for NODX growth in 2009 has also been lifted to -11.9%, up from -16.1%. Growth forecasts lifted Overall, the improving outlook in the external economic environment should continue to underpin the recovery in the Singapore economy. The fiscal and monetary measures introduced by government around the world have helped to “jump-start” the global economy. While downside risks remain, such as the weakness in the labour markets of the developed economies, improving fundamentals globally, particularly in Asia, should help to sustain the recovery process. Domestically, in addition to the short-term policy responses that have helped the economy to weather this recession relatively well, measures to strengthen its longer term competitiveness and moves to solidify the foundation of its economic structure will further ensure continued robust growth going forward. More importantly, the same openness of the Singapore economy that has brought about its deepest recession in decades should also enable it to recover faster and stronger than many other countries. We are maintaining our full-year GDP growth forecasts for 2009 and 2010 at -3.0% and 5.2% respectively. Page 29 “This report has been re-printed with permission from DBS Group Research (Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report
Regional Equity Strategy 4Q 2009 Strategy Overview: Asia Equity Malaysia: Bump and grind (Irvin Seah, irvinseah@dbs.com, extracted from “Economics – Markets – Strategy, 4Q09” dated 17 September 2009) • GDP growth in the second quarter registered a solid 13.4% QoQ saar • The recovery was driven largely by domestic demand • Exports and industrial production continue to grind north, pointing to a more robust recovery going forward • Full year GDP growth forecast for 2009 and 2010 are raised to -2.9% and 4.5% respectively • Inflation is also likely to be higher at 0.7% in 2009 and 1.6% in 2010 • Bank Negara will likely start hiking rates in 3Q10 Outlook turning brighter Economic data around the world have been heading up, reflecting the improving fundamentals of the global economy as recovery sets in. Despite the fact that headline GDP growth has remained negative on a year-on-year basis, the overall outlook of export dependent economies such as Malaysia has improved significantly, in line with the more favorable external economic conditions. Exports have been grinding gradually northward, growing by an average of about 2.3% MoM sa from Feb09 onwards after hitting a bottom in Jan09. Likewise, industrial production is also heading in a similar direction given the improvement in export demand. In fact, the increase in imports of capital goods (exclude transport equipment) in recent months seems to suggest that producers are gearing up for stronger orders ahead. And judging from the sharp spike-up in the SEMI book-to-bill ratio, they have every reason to do so, especially for electronics manufacturers and those in related industries. The SEMI book-to-bill ratio went above the crucial parity level for the first time since Jan07. A reading above one indicates that the global semicon and to some extent, the electronics industry are in expansion mode. And the atest reading of 1.06 for Jul09 could well provide a hint of better things to come for the electronics as well as the overall manufacturing industry. Domestic economic conditions have also made the turn and are improving. While unemployment rate has risen to 4.0% in 1Q09, up from 3.1% in 4Q09, higher frequency data are in fact showing significant improvement in the domestic economy. For example, motorcycle and car sales have started to pick up after the slump earlier in the year. The indices on business and consumer sentiment compiled by the Malaysia Institute of Economic research (MIER), which literally fell off the cliff in 4Q08 and 1Q09 have also turned around. In addition, as the positive effects of the MYR 67bn stimulus package continue to filter through the system, consumer sentiment and business activity will certainly improve further. And domestic demand, traditionally an important engine of growth for Malaysia especially when external demand is weak, should once again provide the much needed support for the economy in the current recovery phase. Growth forecast raised While the general growth outlook in the coming quarters is expected to remain positive, the trajectory of the growth profile is likely to be more subdued as compared the second quarter. Global monetary policy direction is expected to remain accommodative in the medium term while governments around the world are also likely to persist with their earlier expansionary fiscal policies until a more robust recovery is secured. The positive impact of these policy measures as well as the global recovery will continue to cascade down to Malaysia’s export-oriented sectors. Domestic driven industries will benefit from the fiscal stimulus package introduced by the government as well as the improving employment outlook and consumer sentiments. Under such scenario, our full year GDP growth forecast for 2009 of -4.0% was beginning to look rather conservative. As such, we have revised this year’s GDP growth forecast to -2.9%. Growth forecast for 2010 has also been raised to 4.5%, from the earlier forecast of 3.8%. Page 30 “This report has been re-printed with permission from DBS Group Research (Regional Equity Strategy) of DBS Bank Limited” disclosures on page 37 of this report
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Left Brain Right B - the DBS Vickers Securities Equities Research

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