Overseas funds are pulling out of six major Asian emerging equity markets at a pace unseen since the global financial crisis of 2008 – withdrawing US$19 billion (S$25.68 billion) from India, Indonesia, the Philippines, South Korea, Taiwan and Thailand so far this year, according to data compiled by Bloomberg.

While emerging markets shone in the first quarter, suggesting resilience to Federal Reserve tightening, that image has shattered over the past two months.

With American money market funds now offering yields around 2 per cent – where 10-year Treasuries were just last September – and prospects for more Fed hikes, the bar for heading into riskier assets has been raised. Headlines on trade disputes that could hit Asian exporters haven’t helped.

“It’s not a great set-up for emerging markets,” James Sullivan, head of Asia ex-Japan equities research at JPMorgan Chase & Co, told Bloomberg TV from Singapore. “We’ve still only priced in about two thirds of the US rate increases we expect to see over the next 12 months. So the Fed is continuing to get more hawkish, but the market still hasn’t caught up.”

While many emerging-market investors and analysts have praised Asian economic fundamentals, pointing to world-leading growth rates and political stability, some are starting to raise red flags as global liquidity starts to shrink. The Bloomberg JPMorgan Asia Dollar Index sank to a 2018 low on Monday, extending two weeks of declines after the Fed and European Central Bank both took steps toward policy normalisation.

Yet some still remain optimistic. Bank of America Merrill Lynch expects some of the regional currencies including the baht and the Philippine peso to appreciate slightly by the end of the year, a research note sent on Monday showed. Six of 10 best-performing emerging currencies so far this year are in Asia, led by the ringgit’s 1.2 per cent advance and the Chinese yuan’s 1.1 per cent gain.

Developing nations including Turkey, Indonesia, India and Argentina have raised rates, while Brazil’s central bank has sold extra foreign-exchange swap contracts in an effort to stabilize their markets.

In Asia this week, the Philippine central bank, which raised its key rate in May for the first time since 2014, is expected to lift the benchmark again by 25 basis points to 3.5 per cent, a Bloomberg survey shows.

The Bank of Thailand will keep its benchmark unchanged at 1.5 per cent the same day, according to a separate Bloomberg survey, though JPMorgan for one sees an increase coming next quarter. The baht has tumbled 4.6 per cent against the dollar this quarter, despite Thailand having a current-account surplus in excess of a whopping 9 per cent of gross domestic product. Thailand is also in the midst of the longest stretch of 3.5 per cent plus GDP growth since the early 2000s, according to the IMF.

Thai Finance Minister Apisak Tantivorawong, for his part, said Monday he’s not concerned about capital outflows, and the country’s central bank need not follow the Fed in raising rates. Meantime, the baht hit its 2018 low in Monday trading.

“Having raised the rates at its meeting in May for the first time since 2014, we think the BSP will follow through with another hike [this] week. But as inflation is seen to peak soon, that will probably mark the end of this tightening cycle,” Capital Economics said in a report, referring to the Bangko Sentral ng Pilipinas.

“The Fed (US Federal Reserve) up to this point may have just been a secondary consideration for the BSP, but last night changes things,” HSBC said in a research note dated June 14.

The bank was referring to the Fed’s signal that it might raise rates twice more this year, whereas many were expecting only one more hike after last week’s increase.

HSBC thus believes that the Fed’s most recent guidance would “factor in heavily” at the BSP’s meeting today, leading to the second 25-basis point rate hike for the year. “We don’t believe this marks the start of a tightening cycle for the BSP. In fact, we believe that with the exception of a more hawkish Fed and the recent dollar rally, domestic economic conditions no longer favour additional monetary tightening,” the research noted.

Capital Economics noted that last week, BSP governor Nestor Espenilla Jr gave a “little indication of the [central] bank’s next move, stating only that they will ‘be examining closely all the potential drivers of future inflation’.”

While the headline rate nudged up last month to 4.6 percent, it came in lower than expectation, both Capital Economics and HSBC noted.

“The [BSP’s] latest survey showed a slight moderation in inflation expectations,” Capital Economics added.

HSBC said it would bode well for the BSP to strike a more neutral tone after this week’s policy meeting “to stem any significant outflows and further weakness to the currency.”

“There are a few factors likely to push inflation higher over the next couple of months, including higher oil prices, a weaker peso and another increase in tobacco taxes,” Capital Economics said.

The proposal will also save the government some 500 million ringgit as it will not need to re-negotiate with Singapore since the plans that have been put in place by the authorities in the republic will not be disrupted.

According to sources, the Council of Eminent Persons (CEP) has been briefed on the alternative plan that utilises the existing double-track infrastructure of Keretapi Tanah Melayu (KTM).

The only major difference is the travelling time of 130 minutes to Singapore compared with 90 minutes by the HSR.

This could be made possible if the government were to allow third parties to operate rail lines owned by KTM.

“The third parties would be prepared to invest in better locomotives and run operations on a commercial basis,” said a consultant.

“Travel time can potentially be reduced.”

Notwithstanding the travel time, the key feature of the alternative proposal of utilising and upgrading existing railway infrastructure would bring about good rail connectivity to Singapore at a substantially lower cost.

“Cost will be shaved by more than 50 billion ringgit, which is 70 per cent lower compared with (building) the HSR. This does not include land acquisition cost and possible cost overruns incurred by the HSR project,” a source said.

“The upgrading of the existing railway tracks would involve minimal land acquisition, minimal disruption to existing system and complement the entire national railway network.

“It would not lead to a duplication of railway lines.”

The HSR is one of two projects that had been taken off the shelf for the time being under the Pakatan Harapan government led by Mahathir Mohamad.

The other is phase three of the Mass Rapid Transit project.

Mahathir had said that the distance between Malaysia and Singapore is short at only 350km and if the existing railway infrastructure is upgraded, it can improve travel time significantly.

The CEP is helping the government achieve its election promises within the first 100 days. High on the list of the CEP is to look into areas where the government can save cost, without compromising on quality, and improve governance as well as the handling of public finances.

The constraints on public spending came about amid the move to abolish the goods and services tax and revelation that the federal government debt is more than 1 trillion ringgit.

Sources said central to the upgrading plans of the existing KTM network was to improve the existing double track infrastructure whereby it could cater for standard gauge and meter gauge trains.

This can be done by putting up a single line next to existing double track.

“Effectively, the tracks will be able to cater for trains running on standard gauge and meter gauge, which is the existing infrastructure,” said a source.

Meter gauge tracks are narrower, which causes the train to travel at a slower speed. In contrast, standard gauge tracks are wider and allow trains to travel at a higher speed. They also provide more stability.

The HSR, between Malaysia and Singapore, is to run on a completely new alignment and travels at speed of 320km per hour.

The alternative plan is to upgrade the existing railway tracks by using most of the railway alignments. The travelling speed with standard gauge trains is about 200km per hour.

Sources said that upgrading the existing infrastructure would be cheaper compared with the suggestion by some quarters to extend the Express Rail Link (ERL) from the KL International Airport (KLIA) to Singapore, a venture that could potentially cost at least 30 billion ringgit.

“The suggested ERL extension plan would involve a completely new alignment from KLIA and there is not much of a difference in travelling time compared with the plan to upgrade the existing infrastructure,” said a source.

The ERL is operated jointly by YTL Group and Lembaga Tabung Haji. It is a line currently servicing the Kuala Lumpur Sentral to KLIA route via stations in Bandar Tasik Selatan and Cyberjaya. ERL has said that it is prepared to extend the line to Melaka if the government approves the plan.

“The advantage for the ERL is that there is an existing station that can be upgraded to incorporate an immigration clearance check post,” said a source.

 Malaysia’s Finance Minister Lim Guan Eng told a group of entrepreneurs that it is time that Malaysia gave some healthy economic competition to Singapore.

“We must have the can do spirit. For example, why must we lose to Singapore every time? Beat them at their own game, you can do it. Penang has beaten them many times,” he told a group of entrepreneurs here at the Malaysian Global Innovation & Creativity Centre’s (MaGIC) Global Accelerator Programme (GAP).

“I’m not being anti-Singapore here but I’m just trying to motivate you that you can do it! After all if you look at Singapore, they use many of our people (talents),” Lim added

He noted that the Singaporeans are really good in marketing noting they have laid bold claims to being the originator of several delicacies that were common to both Singapore and Malaysia.

“Chicken rice is theirs?… if you’re not careful fried kuay teow will also be theirs (someday),” Lim said to laughter from the audience. – The Star

Third telco selection delayed again

The Philippines’ third telco initiative has stalled as the oversight committee members crafting the draft rules for the selection process were unable to overcome big differences on how it should be implemented.

Eliseo Rio Jr, acting secretary of the Department of Information and Communications Technology (DICT), said the terms of reference (TOR), delayed for months now, were not approved during their meeting on Friday.

“It’s disappointing,” said Rio, who declined to comment further.

In the days leading to Friday’s meeting, Rio expressed optimism they could soon publish the terms of reference, which would outline how the government would award a coveted set of 3G, 4G and potential 5G radio frequencies.

These will be used by a new contender to provide mobile services like calls, text messaging and internet browsing.

The selection of a third telco is linked to President Duterte’s earlier threat to break the PLDT Inc and Globe Telecom duopoly, which in recent months have announced their commitment to improve their mobile and fixed-line networks.

Rio, a former commissioner of the National Telecommunications Commission under whose watch the operator of Sun Cellular first broke the PLDT-Globe duopoly, declined to say why the TOR was not approved, nor what were the next steps in the process. – Philippine Daily Inquirer

Hyflux given 6-month break from creditors

Singapore’s Hyflux is seeking about S$200 million in rescue financing and is in preliminary talks with more than 25 interested parties, lawyers for the water and power company said yesterday as the Singapore High Court gave it a six-month reprieve from creditors.

The company is also in discussion with four parties on a possible sale of its Tuaspring Integrated Water and Power Project, and Hyflux founder Olivia Lum told the court in a June 14 affidavit that she was “confident” that improving conditions will allow the plant to be sold at or above its $1.3 billion book value. – The Straits Times

The SBV recently announced it is drafting a circular in a move to discourage cross-ownership among banks and encourage transparency in the capital contribution sources of shareholders.

Under the draft circular, a revision of Circular No 06/2015/TT-NHNN, banks must bring their ownership thresholds in line with limitations stipulated in Article 55 of the Law on Credit Institutions before June 30 next year.

Under the law, individuals are not allowed to own more than 5 per cent of the charter capital of a bank, while the permitted ratio for an institutional shareholder should not be more than 15 per cent, save for some cases such as ownership in distressed or equitised banks and ownership by a strategic foreign investor.

The central bank will impose harsh penalties on banks that fail to meet the deadline. Penalties include disapproval of the bank’s proposals regarding top positions, such as members of the board of directors and supervisory board and the CEO.

Non-compliant shareholders will also have their dividend rights and right to serve on the board of directors suspended, in addition to being prohibited from increasing their stake in their respective banks.

Besides the cross-ownership among banks, the Government has also take measures to prevent cross-ownership between banks and subsidiaries.

Under the Law on Credit Institutions, which was passed by the National Assembly and came into effect on January 15 this year, bank leaders are prohibited from taking up senior positions in other businesses.

The revised law has so far contributed in reducing cross-ownership between banks and subsidiaries as many banks have recently reshuffled their leadership at their respective 2018 annual general meetings of shareholders to comply with the new central bank regulation.

Banking expert Can Van Luc said many bank leaders had to resign from their positions as chair of the board of directors or CEO of business firms to continue managing banks. A number of business owners also had to give up chairmanship positions at banks to comply with the new law.

They were the most obvious examples of the decrease in cross-ownership, Luc said.

He said cross-ownership in banks has also been put under control as a result of their listing in stock markets. Stock market listing means information, especially those related to internal management and the ownership rate of shareholders, must be made public and subjected to close monitoring by the State Securities Commission.

However, experts suggested that a close supervision is still needed as some individuals can take advantage of loopholes in the law.

Finance and banking expert Nguyen Tri Hieu said that while the new law had a good impact on transparency in the area of ownership, State agencies must still monitor activities closely as some individuals who do not take leadership positions in banks may still have governing powers.

Signed in Phnom Penh, the agreement was facilitated by the Securities and Exchange Commission of Cambodia (SECC).

SECC director-general Sou Socheat said since its launching three years ago, Cambodia’s derivatives market is showing of progress.

“After launching the market in 2015, we are seeing noteworthy improvement as the sector gets more awareness and confidence,” he said.

Derivatives trading consists of two main entities, a brokerage firm and central counterparty that acts as a clearing house.

Cambodia’s capital market regulator announced late last year that it would suspend the issuance of new central counterparty licences to derivatives trading firms, claiming capping the market at four was sufficient in serving current demand.

The SECC has, to date, granted licences to four central counterparty companies and 14 derivatives brokers. According to Socheat, however, currently, more than 10 brokerage firms applying for derivatives trading licences.