5 "New" Rules for Safe Investing

1. Buy and Hold
History has repeatedly proved the market's ability to recover. The markets came back after the bear market of 2000-2002. They came back after the bear market of 1990, and the crash of 1987. The markets even came back after the Great Depression, just as they have after every market downturn in history, regardless of its severity.

Assuming you have a solid portfolio, waiting for recovery can be well worth your time. A down market may even present an excellent opportunity to add holdings to your positions, and accelerate your recovery through dollar-cost averaging Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/buy-and-hold.aspx#ixzz1ZC8MiDKw


2. Know Your Risk Appetite
The aftermath of a recession is a good time to re-evaluate your appetite for risk. Ask yourself this: When the markets crashed, did you buy, hold or sell your stocks and lock in losses? Your behavior says more about your tolerance for risk than any "advice" you received from that risk quiz you took when you enrolled in your 401(k) plan at work.

Once you're over the shock of the market decline, it's time to assess the damage, take at look what you have left, and figure out how long you will need to continue investing to achieve your goals. Is it time to take on more risk to make up for lost ground? Or should you rethink your goals? Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/risk-appetite.aspx#ixzz1ZC8qhVwu

3. Diversify
Diversification is dead … or is it? While markets generally moved in one direction, they didn't all make moves of similar magnitude. So, while a diversified portfolio may not have staved off losses altogether, it could have helped reduce the damage.

Holding a bit of cash, a few certificates of deposit or a fixed annuity along with equities can help take the traditional strategic asset allocation diversification models a step further.
Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/diversify.aspx#ixzz1ZC921poy

4. Know When to Sell
Indefinite growth is not a realistic expectation, yet investors often expect rising stocks to gain forever. Putting a price on the upside and the downside can provide solid guidelines for getting out while the getting is good. Similarly, if a company or an industry appears to be headed for trouble, it may be time to take your gains off of the table. There's no harm in walking away when you are ahead of the game. Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/know-when-to-sell.aspx#ixzz1ZC9IVW7b

5. Use Caution When Using Leverage
As the banks learned, making massive financial bets with money you don't have, buying and selling complex investments that you don't fully understand and making loans to people who can't afford to repay them are bad ideas.

On the other hand, leverage isn't all bad if it's used to maximize returns, while avoiding potentially catastrophic losses. This is where options come into the picture. If used wisely as a hedging strategy and not as speculation, options can provide protection. Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/leverage.aspx#ixzz1ZC9XvuWx

Everything Old Is New Again
In hindsight, not one of these concepts is new. They just make a lot more sense now that they've been put in a real-world context.

In 2009, the global economy fell into recession and international markets fell in lockstep. Diversification couldn't provide adequate downside protection. Once again, the "experts" proclaim that the old rules of investing have failed. "It's different this time," they say. Maybe … but don't bet on it. These tried and true principles of wealth creation have withstood the test of time.
Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/old-is-new.aspx#ixzz1ZC9pYbAD

Investing can (and should) be fun. It can be educational, informative and rewarding. By taking a disciplined approach and using diversification, buy-and-hold and dollar-cost-averaging strategies, you may find investing rewarding - even in the worst of times.

Read more: http://www.investopedia.com/slide-show/5-tips-for-diversifying-your-portfolio/conclusion.aspx#ixzz1ZCCNZVfl

SEPTEMBER 26, 2011, 10:12 AMMERGERS & ACQUISITIONS

Berkshire Hathaway to Buy Back Shares

BY DEALBOOK

Charles Dharapak/Associated PressWarren E. Buffett, chief of Berkshire Hathaway.

It looks as if Berkshire Hathaway’s “elephant gun” of $43 billion in cash will also be pointed at itself.

Warren E. Buffett’s company announced on Monday that its board had authorized the repurchase of the company’s class A and class B shares at premium of as much as 10 percent over the current book value.

The company did not disclose how big the buyback would be, but said the repurchases would not be made if they reduced Berkshire’s cash holdings below $20 billion.

The cash war chest was highlighted in February, when Mr. Buffett told investors he was on the hunt for acquisitions. “Our elephant gun has been reloaded, and my trigger finger is itchy,” he wrote.As of June 30, Berkshire had more than $43 billion in cash.

The use of cash for share buybacks is unusual for Berkshire, which has preferred to use it for acquisitions.

Berkshire Hathaway’s class A and class B shares.

In its 2000 annual letter, the company said “we will not repurchase shares unless we believe Berkshire stock is selling well below intrinsic value,conservatively calculated.”

Shares of Berkshire, however, have slumped this year. The class A shares are down 12.2 percent, while the class B shares are down nearly 10 percent.

Rehda finds hope in housing market outlook despite negatives

Tuesday September 27, 2011

Rehda finds hope in housing market outlook despite negatives
By FINTAN NG
fintan@thestar.com.my



KUALA LUMPUR: The Real Estate and Housing Developers' Association Malaysia (Rehda) is “cautiously optimistic” of the housing market outlook in the first half of next year despite a marked increase in building material and labour costs as well as a slowdown in economic activity.

A Rehda survey found that 41% of the developers who responded were optimistic of the first six months of 2012 compared with the second half of this year, where 48% said they were optimistic.

Most respondents in the survey said prices would likely rise by up to 20% in the second half of this year, with 47% of respondents planning to increase selling prices by at least 15%. The survey showed that launches in the period were equally split between strata-titled and landed properties.

Speakers at the Rehda update on the property market for the first half of the year said a number of factors, including government policies and the overall volatility of global capital markets, made developers cautious of the outlook.


Yam: ‘We appeal to the Government not to tinker too much with regulations concerning the industry as this will cause more uncertainty.’
The briefing also included the participation of RAM Holdings Bhd group chief economist Yeah Kim Leng, who gave an overall view of the global and local economies.

Rehda president Datuk Seri Michael Yam said the industry was concerned about how the local economy would be affected by external forces including the pressure on the sovereign debt ratings of Malaysia's developed market trading partners.

He said there were also concerns about the proposal to assess housing loans based on net income rather than gross income.

“We appeal to the Government not to tinker too much with regulations concerning the industry as this will cause more uncertainty,” Yam said.

Rehda KL chairman N.K. Tong said the more cautious outlook could be due to the timing as developers could not tell that far ahead how the property market would be performing.

“There's more uncertainty, so the respondents are not as optimistic compared with the second half of 2011, with the percentage of those who responded they were neutral on the outlook for the first half of 2012 rising to 39%,” he said.

Yam said that based on the survey findings, property launches of the second half of the year so far remained “business as usual” compared with the first half of the year where launches continued to be healthy with encouraging demand.

“Property prices have been rising partly due to the roll-out of Economic Transformation Programme projects,” he said, adding that the costs of building materials and labour continued to be major challenges for the industry.

Yam said although the 70% loan-to-value ratio for a third residential property purchase had had minimal impact, it was now taking from nine to 12 months to sell up to 70% of launched properties compared with before the imposition of the ruling.

Meanwhile, Yeah said that despite the evidence of weaker forward economic indicators, the economy was facing a slowdown and not a recession.

“However, this is on a baseline assumption that there will be no synchronised slowdown in the developed economies. If only one or two regions face a slowdown then the local economy will be able to sustain growth at the lower end of the Government's 5%-6% target,” he said.

Yeah said there would likely be more volatile fluctuations in the commodities and capital markets. “It will be prudent to factor into corporate planning that growth in the developed economies will be slow in the next three to five years while Asian economies will still be growing although growth have been revised downwards,” he added.

Yeah said that while banks had not tightened sufficiently in lending, there were expectations that they would be more selective going forward. “A few indicators suggest that we're still relatively resilient in terms of consumption with non-residential loans still very strong,” he said.

Yeah said rising household debt levels remained a concern as it could expose households to further shocks and systemic problems.

Indonesia’s Stock Market Value to Lure Investors, Panin Says

Indonesia’s Stock Market Value to Lure Investors, Panin Says

By Berni Moestafa and Chan Tien Hin - Sep 12, 2011 6:12 PM GMT+0800

Indonesian stocks have become more attractive to overseas investors after the world’s fourth-most populous nation overtookMalaysia as Southeast Asia’s second- largest equities market by value, PT Panin Sekuritas said.

“Foreign investments into Indonesian stocks will likely increase as portfolios are weighted in line with the size of a nation’s stock market,” Winston Sual, who helps manage $991 million at Jakarta-based Panin Sekuritas, said in a Sept. 9 interview. The firm’s $407 million Panin Dana Maksima fund has climbed 40 percent in the past year, beating 35 rival funds, according to data compiled by Bloomberg.

The value of Indonesian equities surged 17 percent to $416 billion this year to Sept. 9, surpassing Malaysia’s $407 billion to become the ninth-biggest stock market in Asia. Singapore’s stock market is the biggest in Southeast Asia at $523 billion. The Jakarta Composite index (JCI) has risen 8 percent in 2011 through last week, compared with a 3.3 percent drop in the FTSE Bursa Malaysia KLCI Index.

Foreign investors stepped up buying of Indonesian shares as China and India increased demand for coal and palm oil, benefiting companies such as PT Bumi Resources and plantation owner PT Astra Agro Lestari. Rising incomes have also spurred domestic spending, lifting consumer companies including PT Astra International, the biggest automotive retailer.

“Indonesia’s economy is the largest in Asean and it is resilient because of strong domestic consumption,” Panin’s Sual said, referring to the Association of Southeast Asian Nations.

Faster Growth

The Indonesian economy, the largest in Southeast Asia, will likely expand 6.5 percent this year, the fastest pace since the 1998 Asian financial crisis, President Susilo Bambang Yudhoyono said Aug. 16. That compares with the Malaysian central bank’s estimate for growth of as much as 6 percent.

Indonesia’s stock index dropped 2.6 percent to close at 3,896.12 in Jakarta, its biggest drop since Aug. 19. The Kuala Lumpur benchmark index slid 1.6 percent to 1,446.26, compared with a 1.9 percent fall in the MSCI Emerging Markets Index.

Bank Indonesia kept its benchmark interest rate unchanged on Sept. 8 at 6.75 percent for a seventh month to help support domestic consumption, which accounts for about 56 percent of the economy.

People Factor

Indonesia’s population of 243 million ranks behind only those of China, India and the U.S. By contrast, Malaysia has about 28 million people and Singapore 4.7 million, U.S. Census Bureau data show.

“There will be more investments going into the stock market as people are looking for a growth story,” Lye Thim Loong, who helps manage about $770 million at Libra Invest Bhd. in Kuala Lumpur, said. “We have been very actively investing in Indonesia. You have the population to sustain a domestic consumption story.”

Overseas investors bought a net $1.7 billion of Indonesian shares this year through August, according to data compiled by Bloomberg. Foreign investors sold a net 500 million ringgit ($166 million) of Malaysian stocks this year through August, according to data from the Kuala Lumpur stock exchange and Credit Suisse Group AG.

To contact the reporter on this story: Berni Moestafa in Jakarta atbmoestafa@bloomberg.net; Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net


http://www.bloomberg.com/news/2011-09-12/indonesia-s-stock-market-value-to-lure-investors-panin-says-1-.html

Risk versus Returns

The Dark Side Of Investing

Dec-5-2008

The Dark Side Of Investing

Debt Levels Alone Don’t Tell the Whole Story

By FLOYD NORRIS

Published: September 23, 2011

AS the world’s central bankers and finance ministers gather in Washington this weekend for the annual meetings of the International Monetary Fund and World Bank, government debt is at the top of the agenda. Some governments can no longer borrow money and others can do so only at relatively high interest rates. Reducing budget deficits has become a prime goal for nearly all countries.

Multimedia

Graphic

Why Some European Government Debt Seemed Deceptively Small

But looking only at government debt totals can provide a misleading picture of a country’s fiscal situation, as can be seen from the accompanying tables showing both government and private sector debt as a percentage of gross domestic product for eight members of the euro zone. The eight include the largest countries and those that have run into severe problems.

In 2007, before the credit crisis hit, an analysis of government debt would have shown that Ireland was by far the most fiscally conservative of the countries. Its net government debt — a figure that deducts government financial assets like gold and foreign exchange reserves from the money owed by the government — stood at just 11 percent of G.D.P.

By contrast, Germany appeared to be in the middle of the pack and Italy was among the most indebted of the group.

Yet Ireland was slated to become one of the first casualties of the credit crisis, and is now among the most heavily indebted. Germany is doing just fine. Italian debt has risen only slowly. The I.M.F. forecasts that Ireland’s debt-to-G.D.P. ratio will be greater than that of Italy by 2013.

It turned out that what mattered most in Ireland was private sector debt. As the charts show, debts of households and nonfinancial corporations then amounted to 241 percent of G.D.P., the highest of any country in the group.

“In Ireland, as in Spain, the government paid down debt while private sector grew,” said Rebecca Wilder, an economist and money manager whose blog at the Roubini Global Economics Web site highlighted the figures this week. She was referring to trends in the early 2000s, before the crisis hit.

Much of the Irish debt had been run up in connection with a real estate boom that turned to bust, destroying the balance sheets of banks. The government rescued the banks, and wound up broke. Spain has done better, but it, too, has been badly hurt by the results of a real estate bust.

The story was completely different in the Netherlands, which in 2007 ranked just behind Ireland in apparent fiscal responsibility. It also had high private sector debt, but most of those debts have not gone bad.

The differences highlight the fact that debt numbers alone tell little. For a country, the ability of the economy to generate growth and profit, and thus tax revenue, is more important. For the private sector, it matters greatly what the debt was used to finance. If it created valuable assets that will bring in future income, it may be good. Even if the borrowed money went to support consumption, it may still be fine if the borrowers have ample income to repay the debt.

That is one reason many euro zone countries are struggling even with harsh programs to slash government spending. With unemployment high and growth low — or nonexistent — it is not easy to find the money to reduce debts. And debt-to-G.D.P. ratios will rise when economies shrink, even if the government is not borrowing more money.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

http://www.nytimes.com/2011/09/24/business/debt-numbers-alone-tell-little-about-fiscal-stability.html?_r=1&ref=business

Think You Can Time the Market? (Conclusion)

Jul-6-2011

Think You Can Time the Market? (Conclusion)

Past performance is no guarantee of future results

On a recent episode of Matson Money Live, we discussed a very important segment of the difficulties of market timing and why it isn’t a right for any investor to try. We even dusted off some deleted scenes from the Navigating the Fog of Investing movie from Dr. Lyman Ott.


http://www.matsonmoneylive.com/?p=2923

Short-term volatility is to be expected, and doesn’t mean that your portfolio isn’t working. (video)

Aug-8-2011

An Important Message for Every Investor

Inevitably downward market volatility causes stress, anxiety and in some cases panic. My message today for investors is not to lose sight of your long-term goals and time horizon. Short-term volatility is to be expected, and doesn’t mean that your portfolio isn’t working. While it goes against all of our human instincts, this is the time to remain disciplined and rebalance. For those of you feeling distressed, confused, or anxious talk to your coach and get your questions answered. Your long-term peace of mind is on the line.

http://www.matsonmoneylive.com/index.php?paged=3

How Bad Is It?

Aug-26-2011

How Bad Is It?

After several weeks of severe market decline, we analyze how this downward volatility compares historically with other market drops.

Nobody Ever Calls It Market Timing! (video)

http://www.matsonmoneylive.com/index.php?paged=2

Aug-26-2011

Nobody Ever Calls It Market Timing!

The lure of market timing is strong, appealing to our instinctive nature to move toward that which helps our survival and away from painful market conditions.

(Episode 111, Part 3)

Your Portfolio Sucks (video)

http://www.matsonmoneylive.com/?p=3198

Your Portfolio Sucks

Based on the analysis of thousands of actual investor portfolios, we look at what actual investors are doing to sabotage their own portfolios.

(Episode 113, Part 2)

Investors should tread cautiously

Investors should tread cautiously
M Allirajan, TNN | Sep 23, 2011, 12.06AM IST

With the markets losing ground steadily, investors should buy equities at regular intervals. Safe havens such as fixed deposits and fixed maturity plans should be tapped only for the short-term. "People tend to be completely one-sided with asset allocation during such (turbulent) times," said Jayant Pai, vice president, Parag Parikh Financial Advisory Services. A one-sided approach, experts say, would spell trouble.

Take for instance gold as an asset class. Too many investors are chasing the metal because of economic uncertainty. The mad chase itself is pushing the prices up to record level, and a steep correction is imminent, said market watchers. "Investors should be cautious. They must not invest lump sum amounts in any asset class," says Anil Rego, CEO, Right Horizons, a wealth management firm.

In the case of bank FDs, investors should lock their money only for 3-6 months. "Choose short-term options and keep rolling them over. Don't lock your funds in three or five year instruments as equity markets would have turned for the better by that time," Pai said.

Fixed return products, such as non-convertible debentures issued by corporate houses, are more risky as in several cases they turn out to be mostly unsecured instruments. It is better to go for instruments issued by top-rated companies, said financial advisers.

While fixed maturity plans (FMPs) are attractive now, they would lose their sheen once the direct taxes code comes into effect, analysts said. Moreover, FMP returns, unlike bank FDs, are only indicative. The good old FDs may offer lower post-tax returns but offer an assured interest income besides ensuring safety of the principal amount.

Though investors would not lose money in debt mutual funds (MFs), they should also understand that products linked to NAV (net asset value) are not completely safe, say experts.

The biggest challenge is to make investors understand that they need to actually increase their overall exposure to equities during such turbulent market conditions, say advisers. "Investors should be buying more equity-related products as their proportion in the portfolio keeps coming down in a falling market," said Pai.

A systematic investment plan (SIP) in equity MFs spread over a year would work well, said Rego. Investors can also consider an SIP in income funds, he said. The bottom line is, don't go overboard on any asset class and follow the original asset allocation plan by making necessary adjustments.

http://timesofindia.indiatimes.com/business/india-business/Investors-should-tread-cautiously/articleshow/10083683.cms?prtpage=1

Selected Bursa counters 2 (COASTAL, DLady, GENM, Latexx, MBB, UMW)

Selected Bursa counters 1 (Guinness, Petdag, PBB, LPI, Nestle)

Hot stock: Crown (Australia): The odds are looking pretty good for Crown.

Hot stock: Crown
Greg Fraser
September 21, 2011


The odds are looking pretty good for Crown.

Crown is still the king of Australian casino businesses.

There is a high-stakes game being played out between Crown’s Melbourne and Perth casinos and Echo Entertainment Group’s newly renamed The Star Casino in Sydney.

Echo has spent $960 million on its upgrade but Crown will have spent almost $2.1 billion across its two casinos by the time everything is finished.


Crown has consistently upgraded its properties to avoid the dangerous ‘‘tired’’ tag that can easily sap patronage and earnings.

The company has always produced a nice mixture of gaming and non-gaming earnings that has become the norm for all casino resorts.

But the headlines usually focus on the glamour and mystique of the high rollers, who last year put about $40 billion on Crown’s gaming tables in Australia.

This lucrative business generated $486 million of revenue for Crown last financial year and should continue to contribute earnings growth following the latest incarnation of its private gaming suites.

Crown’s VIP customers come mostly from Asia, where there are an increasing number of fabulous gaming destinations to play, including Singapore and Macau. The latter is already the world’s largest gaming city, eclipsing Las Vegas in recent years.

Fortunately, Crown had the foresight to get an early seat at the Macau table, where it owns a one-third share in the listed Melco Crown Entertainment (MCE). MCE owns a casino licence and two large casinos, plus some options for growth. The Altira Macau is aimed at Asia’s junket players, while the much larger City of Dreams attracts both high rollers and the mostly Chinese mainland visitors now flocking to Macau for the chance to gamble legally.

Crown’s investments across all its properties will taper off after this year so its free cash-flow generation is about to take off. The timing is looking good, with the Macau business now full steam ahead and gaming activity in Australia steady despite the slow economy.

Price

At the current share price, just less than $8, investors are paying for the Australian casinos only and getting the Macau investments free when the whole package is really worth about $11. Crown’s major shareholder, James Packer, has been buying more stock recently and the company itself is conducting a $240 million share buyback.

The odds are looking good on this one.

Greg Fraser is an analyst at Fat Prophets.

Read more: http://www.watoday.com.au/money/investing/hot-stock-crown-20110920-1kj1z.html#ixzz1Yj7YfneJ

More clout for housing costs (CPI versus RPI)

Chris Zappone

September 23, 2011

The role of housing costs in inflation has been cemented in the latest Bureau of Statistics consumer price index assessment. Photo: Erin Jonasson

HOUSING costs will figure larger in official inflation figures to come, after a reweighting of the consumer price index by the Australian Bureau of Statistics.

The bureau yesterday released its latest weighting of average expenditures of households, with the share of housing rising 2.7 percentage points to 22.3 per cent from a 19.53 weighting in the June-quarter 2005 weightings.

''This simply implies that should the cost of compatible new houses fall, then this is more deflationary for headline CPI given the bigger weight,'' said Annette Beacher of TD Securities.

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Ms Beacher cautioned that CPI excludes existing house prices.

Interest rate uncertainty, along with worries about the health of the local and global economy, have cooled activity in the market.

In the ABS reweighting, new homes bought by owner-occupiers rose to a 8.67 per cent share of the basket of goods from 7.87 per cent in the last weighting using June-quarter 2005 prices. The change was due to ''both a price and volume increase'' in new home costs.

''The volume increase was driven by additional new residential construction driven by population growth in the capital cities and an increase in the average size and quality of new dwellings,'' the ABS said.

Rents will also figure larger in the CPI basket of goods, with their weights increasing to 6.71 per cent from 5.22 per cent in the last weighting in 2005.

While falls in the housing market could have a deflationary effect on CPI, said Moody's Economy.com analyst Katrina Ell, ''there could be a moderate upward bias given the greater weighting given to housing which is seeing rent and utility increases''. The share of utilities in the CPI weightings rose from 3.1 per cent in 2005 to 3.61 in the updated figures.

Insurance and financial services as a share of CPI dropped to 5.1 per cent, from 9.31 in June-quarter 2005 prices, as the ABS removed indirect charges related to deposits and loans.

The reweighting comes after the ABS revised the seasonally adjusted methodology on CPI last week, lowering its reading of core inflation to 0.6 per cent in the second quarter from the 0.9 per cent reported in July. The headline inflation figure was a reported 3.6 per cent in the June quarter.

Read more: http://www.smh.com.au/business/more-clout-for-housing-costs-20110922-1kn7k.html#ixzz1Yj3jffsB

What is the US-Europe turmoil's impact on Asia?

Thursday September 22, 2011

What is the US-Europe turmoil's impact on Asia?

Can Asia stand alone and be decoupled from the West?

WHY should Asian stock markets react negatively if America does not create any new jobs? This is the question on everybody's lips, especially those who have argued that Asia can stand alone and Asian growth has decoupled from American growth.

But the news on Sept 5 that most Asian stock market indices dropped appreciably because America did not create jobs in August, must in fact mean that Asia cannot stand alone and is not decoupled from the West. The West can still influence what happens in most Asian economies including Singapore, Malaysia, the Philippines and Thailand because these Asian economies are linked to America and Europe through the real and financial economy.

The real economy in many Asian economies are dependent on and in fact compete for greenfield investments in the form of foreign direct investments (FDI) from America and Europe. They are also dependent on America to absorb the manufactured exports from the multinational corporations (MNCs) operating from Asia. Asian stock markets and bond markets are also open to foreign portfolio investments that are managed by foreign hedge funds.

In fact, it has been said the peaks and troughs of Bursa Malaysia are determined by foreign portfolio investments and the floor of the Bursa Malaysia is maintained by government investments in government-linked companies (GLCs) listed on Bursa Malaysia.

A man looking at a stock quotation board outside a brokerage in Tokyo. The Nikkei 225 index added 0.23% to 8 ,741.16 points yesterday. — Reuters

The foreign ownership of stocks in Bursa Malaysia, for example, is quite high and amounts to about 22%. Recently the bond market in Malaysia got a boost because of the large inflow of foreign portfolio investments into the bond market, including the sukuk bond market.

The Asian banking system is also linked to the West as there are numerous branches of foreign banks in Asia and an increasing number of Asian banks are setting up branches in the West to participate in the financing of trade. The financial links are then kept alive by the banks and the capital markets.

If America does not create jobs then it means that the recovery from the recession is slow and this means that incomes will not grow and hence consumption will not grow in America.

Most of the exports of East Asian countries are destined to the USA and Europe although there has been some growth in exports to China. If American consumption does not grow then the demand for manufactured goods from countries like Malaysia will fall. If this happens investor confidence in the Malaysian economy might turn negative. If American jobs do not grow, then American GDP will not grow and may even fall if the recession gets worse.

It has been found that Asian economies are very sensitive to changes in the GDP of the USA. A study by, for instance, Bank of America (BoA) Merrill Lynch found that if the US GDP declines by 1%, it will have the impact of reducing GDP by 1.7% in Singapore; 0.8% in Malaysia; 0.4% in Thailand, 0.3% in the Philippines and Indonesia. It is clear then that the more an economy is dependent on trade as a percentage of its GDP, the more it is affected by an economic crisis in the USA. The sensitivity of GDP growth to changes in the GDP of the USA is then a function of the trade dependence of the Asian countries. Singapore, for example, is more trade dependent than Indonesia and hence its GDP is more sensitive to movements in the GDP of the USA.

If Asian countries are not able to keep up their export momentum, their incomes will drop and their companies may not generate more profits.

In fact profits might fall and this may lead investors to sell the stocks of the companies negatively affected by the fall in exports. If incomes go down as a result of the drop in external demand then savings will drop and the amount of funds available for margin financing of stocks might fall. Tighter loan conditions or credit conditions may persuade investors to move out of the market and this may cause stock prices and the market index to fall.

So American jobs mean an increase in aggregate demand for manufactured goods from Asia and this translates into increased incomes and increased demand for Asian stocks.

If Asian exports decline then the demand for Asian currencies will decline and this will trigger a depreciation of the local Asian currencies, which will mean that foreign portfolio managers will not be attracted by the prospects of an appreciating local currency.

If the money supply declines as a result of the drop in exports, then interest rates will rise and this will cause the price of stocks and bonds to tumble because there is an inverse relation between asset values and interest rates.

The rate of job creation in a crisis economy such as America, which is linked to the real and financial economies of Asia, has therefore a significant effect on the stock market performance of the dependent Asian economies.

In August, for example, foreign investors sold more than RM3.8bil worth of Malaysian stocks because of the fall in the S&P credit rating of America and the European debt crisis because of the expectation that the external demand for Malaysian exports will decline. As a result, the FTSE Bursa Malaysia KLCI Index fell 6.6% in August.

The writer is a visiting senior research fellow at the Institute of South-East Asian Studies (ISEAS) in Singapore.