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The Twist In The Commodities Tale

| 5/2/2013 9:00 PM Thursday

Vikas Gattani is a seasoned financial industry veteran with over twenty-two years of experience in trading and investment management in the Asia Pacific financial markets. He was formerly CIO of the internal hedge fund group of JP Morgan Asia and has also run the Asian Investments group at Merrill Lynch, Hong Kong. Vikas is the founder and CEO of Progress Capital, a multi-family office run out of Singapore, which manages assets for ultra-high net worth individuals.

The idea of this article is to provide fortnightly investment/financial market-related news/views in high growth Asia Pacific markets excluding India. It is intended to provide information and eventual investment opportunities for readers of DSIJ who would like to diversify their investment horizon outside of India.

The Twist In The Commodities Tale

On May 5, 2013, Malaysia will witness a major political event - its national general elections. This election will decide the fate of the ruling PM Najib’s UMNO party, which is contesting against a coalition of opposition parties led by the country’s former Finance Minister Anwar Ibrahim. This contest is being keenly watched, especially in the background of the UMNO’s uninterrupted single party rule in Malaysia since 1963.

As for the markets, the Korean won has been under pressure as easy monetary policies by the Bank of Japan (BOJ) have weakened the yen, which has fallen by almost 20 per cent against the dollar over the past six months. This makes manufacturers in Japan more competitive relative to those in Korea. On April 17, 2013, South Korea unveiled a USD 15.5 billion supplementary budget, which the government said will boost the country’s GDP growth by 0.3 per cent and add 40000 jobs. North Korea’s missile threats have also added pressure, pushing the currency to an eight-month low of 1144.82 to the dollar, but have since rallied over two per cent after witnessing signs of its willingness to restart talks with the US.

The G-20 Finance Ministers and central bankers met for two days starting April 18, 2013 in Washington. The member nations seemed less concerned about currency wars and sovereign debt blowouts, and instead wanted to promote economic growth initiatives. Japan was not singled out or blamed for the huge yen depreciation. In fact, the yen has been given an all-clear to proceed as planned. The focus, however, was on Europe and the two themes of ‘austerity and spending’. The Eurozone governments were urged to promote growth and reject hard debt cut targets. With the US hitting a soft patch and China seemingly growing at a slower pace, it is no surprise that the ‘G-20 neglected’ Japan and would prefer to see a pickup in global growth instead.

The People’s Bank of China (PBOC) will free up trading in its currency by allowing more market participants and lower transaction costs as the next step in exchange rate reform. Just last year, the PBOC had doubled the band to one per cent on either side of its daily reference rate, which was set at 6.2342/dollar on April 17, 2013. Premier Li Keqiang said that he would deepen exchange rate reform and open up the economy further to market forces.

 

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