IS THE worst of the financial crisis over? Depends on who you ask and what the definition of ‘the worst’ is - if it’s the credit crunch that’s being referred to, then the answer is probably yes. But if it’s the consequent impact on earnings and the economy, then the answer is probably no.

A couple of weeks ago, the answer the market would have given was a resounding yes to all questions - Wall Street was shooting up, the US Labor Department released a surprisingly robust April employment report (more on this later), and stocks in this part of the world were being lifted along with the euphoria.

There was no such thing as bad news, all news were good news, and Wall Street investment banks too were speaking of the light at the end of the tunnel, though as with incumbent politicians and government-appointed officials, this was perhaps only to be expected.

Friday’s drop in the US, however, came after bigger-than-expected losses at American International Group and news that the firm needs to raise US$12.5 billion in capital. According to wire reports, it would appear that this has thrown a spanner in the works and has led to a rethink as to whether more shocks and large capital-raising exercises lie ahead.

A word about the April’s US employment report is perhaps warranted. Barron’s columnist Alan Abelson described it in the May 5 issue as a brilliant narrative worthy of winning the Pulitzer Prize for Fiction: the increase in employment came from the birth/death adjustment, which was a figure created to capture additional jobs of firms too new to be captured by the survey, he pointed out.

According to Mr Abelson, an astonishing 8,000 jobs were added in the financial sector via this adjustment, a mystifying figure given that the sector is currently laying people off. Equally incomprehensible was the 45,000 jobs created in construction, a sector that is hardly booming and is indeed suffering one of its sharpest downturns ever.

So, is the worst really over? Maybe. Our sense is that the probability of a major upheaval has diminished for the time being, though it remains to be seen what other new bubbles the US Federal Reserve’s actions have inflated and what might happen if these burst.

If we were to attempt to attach probabilities to various scenarios, it might read something like this: probability of the market suffering a major blowout within the next month - 10-15 per cent; probability that the US market has underestimated the extent of its economic slowdown - 50-60 per cent; and probability of stocks posting a positive return from now till year-end - 40-50 per cent.

Obstacles include oil at above US$125 a barrel and the likelihood of the US Fed not cutting its interest rates for the rest of the year.

BCA Research in its latest Global Strategy report said it believes that the equities rally is not over yet and recommended that investors stay the course. ‘The rally in global stock prices may have advanced to a point where some corrective action could take place. Nevertheless, the broad picture remains unchanged: The US economy is weak but is probably moving onto a recovery path. The developing world remains strong and the growth profile in that part of the world is unlikely to change very much either.’

‘The biggest risk to the global stock market rally is oil,’ BCA maintained. ‘The escalating crude market is creating increasing stress for the world economy. Nevertheless, we are probably not at the ‘choking point’ yet, especially if borrowing costs could fall further.’

The early part of the week ahead will see local blue chips come under some pressure because of Wall Street’s Friday plunge, but as always, much thereafter depends on expectations of what Wall Street might do in the days ahead. Also a given is that Hong Kong will set the pace as it has always done, as investors grapple with the question of whether the worst is really over.

Source : Business Times - 12 May 2008

THANKS to a turnaround in its joint ventures, MCL Land yesterday reported a first-quarter net profit of US$5 million, up from just US$1 million in the year-ago period. Earnings per share rose to 1.36 US cents from 0.27 US cents.

Revenue for the three months to March 31 was US$365,000 - compared with US$393,000 for the year-ago period.

However, the property firm was helped by contributions from joint ventures which stood at US$4.94 million, against a loss of US$355,000 a year earlier.

The firm said its Q1 revenue arose primarily from rental income from its investment properties.

Also, the underlying profit for the period was US$5 million, compared with US$0.2 million in the first three months of 2007. ‘This improvement was due mainly to the completion in March of The Grange, the group’s joint-venture project in Singapore, and the sales of the remaining 12 shops at the Kuala Lumpur Suburban Centre in Malaysia.’

MCL added that construction work on its development projects is progressing well. ‘The Grange obtained its Temporary Occupation Permit in March 2008, and The Esta and Mera Springs are expected to complete in the second half of the year.’

The group secured a 99-year leasehold land parcel in Yishun Avenue 1 in March. Its purchase of another site - Casa Nassau at Upper East Coast Road - is expected to be completed in July.

Looking ahead, MCL said financial market uncertainties and the global economic slowdown could affect the residential property sector here in the short term.

‘However, favourable economic fundamentals should mean that the longer term prospects remain positive. The expected completion of Mera Springs and The Esta in Singapore should benefit MCL Land’s overall performance in 2008.’

Its shares rose 5 cents to close at $1.98 yesterday.

Source : Business Times - 30 Apr 2008

LOWER profits from development projects in Singapore and China sent third-quarter profits at GuocoLand plunging from $34.4 million last year to just $2.6 million.

The 93 per cent drop was on the back of a less painful 27 per cent fall in revenue to $104 million for the three months to Mar 31.

Although GuocoLand did not give details about the earnings fall, analysts said that a fair amount of profit had already been recognised for earlier projects while some developments have yet to be launched.

There is still plenty happening on all fronts. In Singapore, it has launched three developments - Le Crescendo, The View@Meyer and The Quartz.

GuocoLand said sales of about 90 per cent have been achieved at the first two projects. It has also launched the remaining units of The Quartz with about 57 per cent sold.

Its residential apartments at West End Point in Beijing are almost fully sold.

The firm had earlier bought a company - Beijing Cheng Jian Dong Hua Real Estate Development - which is undertaking the Dongzhimen project in Beijing.

This project is linked to several disputes centring on loans from various parties. Legal action has been launched in some cases.

GuocoLand also faces legal tussles, with the Hainan Trade Bureau claiming that ownership of a company, now under GuocoLand, should revert to its original owners.

Things seem more settled in Malaysia, where GuocoLand is planning to launch the Oval Apartments, a development in Kuala Lumpur City Centre.

In Vietnam, the company is finalising the sale of the Phase 1 units of the residential part of The Canary, a development next to Vietnam Singapore Industrial Park, north of Ho Chi Minh City.

Earnings per share came to 0.31 cents compared with 5.64 cents last year.

Net asset value per share was $2.26 as at March 31, compared with $2.30 as at June 30.

The shares ended unchanged at $3.55 yesterday.

<em>Source : Straits Times - 19 Apr 2008</em>

GROWTH in the booming construction industry slowed unexpectedly in the first quarter, after racing along at a frenetic pace for much of last year.

The sector, tipped as one of the economy’s key growth drivers this year, grew by just 14.6 per cent in the first two months, down from more than 20 per cent for most of last year.

Economists were surprised by what they said amounted to a contraction in the industry, but they remained confident that growth was still healthy and in line with their forecasts for the year, which ranged from 10 per cent to 25 per cent.

Most suggested that profits in the construction sector could have been hit by higher raw material and labour costs. Construction costs have risen 40 per cent in the past two years and are expected to jump by another 15 per cent to 20 per cent this year.

United Overseas Bank economist Ho Woei Chen also said that after several successive quarters of strong growth, a slowdown in one quarter ‘is to be expected’.

She and other experts, however, are still positive over the sector because of major projects in the pipeline, such as the Sports Hub in Kallang, as well as the integrated resorts.

CIMB-GK economist Song Seng Wun expects the first-quarter figure released by the Government yesterday to be revised up when fuller data comes out next month.

He noted that the estimates covered only January and February, which included a break for the Chinese New Year holiday.

With last month included, the growth figure should go up, he said, adding that better performances should also come in for the later quarters this year.

‘The intention is to get everyone up and running as quickly as possible in an environment where cost continues to be an issue, so we should see accelerated activity in the sector as developers try to finish projects,’ said Mr Song.

Construction firms also expressed surprise at the figures.

‘Everyone’s still very busy, so right now, we should be at the peak for the sector,’ said Mr Goh Yeow Lian, the executive chairman and managing director of building contractor Wee Hur.

Source : Straits Times - 11 Apr 2008