Foreign Currency potential and local loan interest rates

The financial crisis of 2008 brought to an end one of the longest periods of sustained global growth experienced in modern times.

While many Western economies experienced unsustainable, property-fuelled consumer booms, which boosted both their growth rates and their exchange rates, the prolonged phase of expansion allowed many emerging market economies to expand their shares of world trade, increase their currency reserves and improve their fiscal balances to a remarkable degree.

The end of that global expansion was certainly not good news for emerging markets, but its aftermath has revealed this remarkable shift in relative structural fundamentals between the economies of the old and new industrialised worlds.

As the world economy now picks up again, we expect favourable cyclical forces to combine with relative structural improvements to generate significant further capital inflows to emerging markets, driving notable potential strength of their currencies.

Of the cyclical forces, interest rates antheir likely future course are of course critical, but so too the resilience of domestic economic growth, or prospects for commodity prices in the case of the larger resources exporters. Brazil, Indonesia and Turkey offer such cyclical appeal here.

Combining these factors, here are some currencies which offer the most appealing blend of value, yield and cyclical attractions:

 The Mexican peso is among the cheapest of major emerging currencies. It should also be supported by economic recovery, a moderate interest rate pick-up of 4.5 per cent versus the US, and a relatively firm oil price, as Mexico is an oil producer.

 The South Korean won offers value on all metrics and should remain supported by the economic recovery and Korea's current and capital account surpluses.

 The Indian rupee is cheap on most, though not all, value metrics. The currency should be supported by a pick-up in foreign direct investments and overseas corporate borrowings, as well as a policy preference to use the currency to contain imported inflation.

 The Turkish lira is reasonably valued at current levels, and should remain supported by economic recovery and one of the highest yields among the liquid emerging market currencies.

 The Russian ruble is not overvalued and should remain supported by a significant economic recovery, a continuation of firm oil prices and a high interest rate.

 The Indonesian rupiah is neutrally valued, and should remain supported by economic recovery and an improving domestic political situation.

 The Brazilian real has already appreciated significantly, such that it offers no outright value appeal, but the currency remains well placed to benefit from a positive commodity market and good domestic growth. High interest rates are likely to attract foreign capital inflows.

These currencies have the potential to show total returns (interest rate carry plus potential spot currency appreciation versus the US dollar) in the region of 7-10 per cent in the coming year.

As individual currencies always carry certain political and idiosyncratic risks, it important to approach currency investment in a well-diversified manner, spreading exposure across a number of favoured currencies. In this way, a portfolio approach can gain exposure to the overall theme of favourable cyclical and structural drivers of emerging market currency appreciation, while limiting the drawdown risk from any individual currency.

THE credit crisis has brought about a lowering of local interest rates across the board for loans to Singapore SMEs. We have certainly taken advantage of this opportunity by procuring bigger loans for our local company's expansion and development.

LOWER interest rates are indeed a boon to SMEs during good and bad times. Lower interest rates translate into lower cost of capital and ultimately lowers the cost of doing business and improve cash flow.

Pursuit was able to generate our own working capital from internal sources and so did not have to borrow from banks. However, as we continue to grow and expand in the region, we may have to tap appropriate available external financing options to fund our expansion plans. Hopefully interest rates will continue to remain low and attractive. Interest rates to remain at the current level for probably the next six months. However, as the economy continues to grow, pushing up prices and nudging inflation upwards, interest rates may rise in 2011.

Furthermore, the government's Special Risk-Sharing Initiative (SRI) scheme which was introduced during the recession will be discontinued in January 2011 and there is expectation interest rates for bank loans to gradually trend up.

Silence is more than golden ......

It seems that the evidence for the benefits of silence continues to mount these days. Studies have demonstrated that silent meditation improves its practitioner's ability to concentrate.  Teachers who introduce silence into classrooms report that it fosters learning and reflection among the students.

Working adults and professionals involved with conflict resolution have found that by incorporating times of silence into negotiations they were able to foster empathy that inspires a peaceable end to disputes.  [ Maybe this is not workable in tense environment, such as manufacturing industry or shipyards where they are rush for time and schedule and the pressing need to deliver on time the construction project and this led to intense argument and many excuses for delay or work stoppages,etc]

The old idea of quiet zones around hospitals has found new validation in studies linking silence and healing.

If you have the means, you buy your luxury silence in the form of spa time, or products like quiet vacuums, which are always more expensive than their roaring bargain cousins. The affluent pay for boutique silence because, like silk on the flesh and wine on the palate, silence can kindle a sensory delight.

Unfortunately, in a world of diminishing natural retreats and amplifying electronic escapes, this delight is in ever shorter supply. The days when Thoreau could write of silence as 'a universal refuge' and 'inviolable asylum' are gone.

With all our gadgetry punching up the volume at home, in entertainment zones and even places of worship, young people today often lack any haven for quiet. These problems are everywhere, but can be especially acute in disadvantaged neighbourhoods.

Too many people think of silence only in terms of 'being silenced', of suppressing truth. In consequence, silence itself is now often suppressed.

People who appreciate the value of silence have, by and large, done a poor job of sharing their understanding, let alone making silence more accessible. Yet silence can be nourished in our larger spaces not just by way of an inward journey that most people lack the tools to embark upon, but via education and architecture.

Some of the imaginative work is being done today by urban planners involved with soundscaping. It is easier to create oases of quiet - by, for example, creating common areas in the rear facades of buildings with plantings that absorb sound - than it is to lower the volume of a larger area by even a few decibels.

And having access to these green oases can greatly enhance quality of life. A recent Swedish study found that even people who live in loud neighbourhoods report a 50 per cent drop in their general noise annoyance levels if residential buildings have a quiet side. These modest sanctuaries can provide at least a taste of silence, which is then recognised not to be silence at all, but the sounds of the larger world we inhabit: birdsong and footsteps, water, voices and wind.

Even a little bit of silence can create a sense of connection with our environment that diminishes alienation, and prompts a desire to discover more quiet.

The MBA Oath

With my MBA degree,  I solemnly recognise my role in the Singapore society, not many years left though....

•My purpose is to lead people and manage staff and resources to create better value that no single one can create alone.

•My decisions could affect the well-being of individuals and staff inside and outside my organization, today as well as the future.

I shall, therefore, carry out my duty within my ability  :

•I will manage my organization with sincerity and honesty, and will not advance my personal interests at the expense of my organization or the public society.

•I will understand and uphold, in good spirit, the laws and contracts governing my conduct and that of my organization.

•I will refrain from corruption, unfair competition, bias judgement, partiality or business practices harmful to society.

•I will protect the staff rights and dignity of all people affected by my organization, and I will reject any discrimination and exploitation.

•I will protect the right of future generations to advance their standard of living and enjoy a healthy world.

•I will report the performance and risks of my organization accurately.

•I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.

In exercising my professional duties according to these principles, I recognise that my behaviour have to set an example of integrity, eliciting trust and esteem from those I serve or to serve. I will remain accountable to my peers and to the organization as well as society for my actions and for upholding those standards.

This oath, I make freely and upon my esteem honour and dignity.

Why the single EURO currency fail to work?

THE crisis in Greece and the debt problems in Spain and Portugal have exposed the euro's inherent flaws. More than ten years of smooth sailing since the euro's creation, the arrangement's fundamental problems have become to surface with obvious reasons.

The single currency for 16 separate and quite different countries seem to have failed and the shift of single currency meant that individual member countries lost the ability to control monetary policy and interest rates in order to respond to national economic conditions. It also meant that each country's exchange rate could no longer respond to the effects of differences in productivity and global demand trends that have accumulated. The single currency weakens the market signals that would otherwise warn a country that its fiscal deficits were becoming excessive. A country with excessive fiscal deficits needs to raise taxes and cut government spending, as Greece does now, the resulting contraction of GDP and employment cannot be reduced by a devaluation that increases exports and reduces imports.

Why the United States is able to operate with a single currency, despite major differences among its 50 states? There are three key economic conditions - none of which exists in Europe - that allow the diverse US to operate with a single currency: labour mobility, wage flexibility and a central fiscal authority. When the textile industries in America's north-eastern states died, workers moved to the west, where new industries were growing. Unlike the unemployed workers of Greece, Portugal and Spain they do not move to faster-growing regions of Europe because of differences in language, history, religion, union membership, etc. Moreover, wage flexibility meant that substantially slower wage growth in the states that lost industries helped to attract and retain other industries.

US fiscal system collects roughly two-thirds of all taxes at the national level, which implies an automatic and substantial net fiscal transfer to states with temporarily falling incomes.

The European Central Bank (ECB) must set monetary policy for the euro zone as a whole, even if that policy is highly inappropriate for some member countries. When demand in Germany and France was quite weak early in the last decade, the ECB reduced interest rates sharply. That helped Germany and France, but it also inflated real estate bubbles in Spain and Ireland. The recent collapse of those bubbles caused sharp downturns in economic activity and substantial increases in unemployment in both countries.

The introduction of the euro, with its implication of a low common rate of inflation, caused sharp declines in interest rates in Greece and several other countries that had previously had high rates. Those countries succumbed to the resulting temptation to increase government borrowing, driving the ratio of government debt to GDP to more than 100 per cent in Greece and Italy.

Until recently, the bond markets treated all euro sovereign debts as virtually equal, not raising interest rates on high-debt countries until the possibility of default became clear. The need for massive fiscal adjustment without any offsetting currency devaluation will now drive Greece and perhaps others to default on their government debt, probably through some kind of International Monetary Fund-supported debt restructuring.

The euro was promoted as necessary for free trade among the member countries under the slogan 'One Market, One Money'. In reality, of course, a single currency or fixed exchange rate is not needed for trade to flourish. The US has annual trade turnover of more than US$2 trillion (S$2.8 trillion), despite a flexible exchange rate that has seen sharp ups and downs in recent decades. The North American Free Trade area increased trade among Canada, Mexico and the US, all of which have separately floating exchange rates. Japan, South Korea and other major Asian trading countries have flexible exchange rates. And obviously, only 16 out of EU's 27 member states use the euro.

Despite its problems, the euro may survive the current crisis but not all of the euro zone's current members may be there a year from now. In retrospect, it is clear that some of the countries were allowed to join prematurely, when they still had massive budget deficits and high debt-to-GDP ratios. Moreover, some countries' industrial composition and low rates of productivity growth mean that a fixed exchange rate would doom them to large trade deficits.

Some mechanism of enhanced surveillance and control may be adopted to limit future fiscal deficits. But even with a smaller group of member countries and some changes in budget procedures, the fundamental problems of forcing disparate countries to live with a single monetary policy and a single exchange rate will remain.


The euro rulebook doesn't work !

Business Times, Sept2010

WHAT does a country need to do to make a success of the euro? The European Commission and the European Central Bank would say the recipe is simple: Cut your budget deficit, slash wages, keep taxes competitive, boost your exports, and live with austerity.
There is just one problem: Ireland has been following precisely that formula and it hasn't done much good. The government is being squeezed at a time when the cost of bank bailouts is soaring. Blame it on the banks.
If there is one country that proves what a mess the single currency has become, it isn't Greece, or even Spain or Portugal. It's Ireland. When countries break the rules and then get into trouble, it isn't that surprising. But if they stick to the rulebook and still run into as many problems, it suggests there is something badly wrong with the system itself.

There was a stark reminder that Ireland is still a long way from market redemption, almost two years after the credit crunch burst the real-estate and asset bubble that had been building up in the country for most of the past decade.

Ireland now has its lowest rating since 1995. Irish bonds plunged on the news. The spread over German bunds widened to a record.
It isn't hard to understand why the decision was made. Ireland ran a budget deficit of 14.3 per cent of gross domestic product last year, the largest of any euro-area country. The gap will narrow to about 11 per cent this year, according to European Commission forecasts. That is a slight improvement, but hardly enough to reassure the bond market.

There is a mountain of debt building up and the economy remains in a terrible state. Over the past two years, it has shrunk about 10 per cent, one of the worst recessions in the developed world. There isn't much sign of a bounce back, either. The Irish central bank predicts the economy will expand 0.8 per cent this year, a figure it revised up from the 0.5 per cent contraction it forecast in April.

And yet, Ireland has been exemplary in its austerity drive. Public-sector salaries have fallen by an average of 13 per cent. Taxes have been raised where necessary, but not in a way that will hurt business. The Irish have been willing to tighten their belts and adjust to hard times. There was no sign of the street riots, strikes and political protests that took place in Greece.

Ireland is doing exactly what it has been told it should be doing. It is following the path laid down for Greece, Portugal and Spain, and doing so with admirable self-restraint and discipline. There ought to be some reward for all that effort. But there is very little sign of it.

Ireland had one of the most successful economies in the world when it joined the euro in 1999. All it has got out of monetary union is massive financial and real-estate bubbles, the collapse of which will scar the country for a generation.

If austerity doesn't work for Ireland, it is hardly going to help Greece, Portugal or Spain. The whole experiment with monetary union is doomed if the euro's leaders don't jettison their simple recipe.

"Developing Economies" overtaking Developed Nations with Innovations.....

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In the 80s’ US car producers were shock to find that Japan had replaced the United States as the world’s leading carmaker. How the Japanese beat the Americans on both price and reliability and how did they manage to produce new models so quickly. The answer was not industrial policy or state subsidies but business innovation. The Japanese had invented a new system of making things that was quickly dubbed “lean manufacturing”.

Developing countries are becoming hotbeds of business innovation in much the same way as Japan did from the 1950s onwards. They are coming up with new products and services that are dramatically cheaper than their Western equivalents: $3,000 cars, $300 computers and $30 mobile phones that provide nationwide service for just 2 cents a minute. They are reinventing systems of production and distribution, and they are experimenting with entirely new business models.

Why are countries that were until recently associated with cheap hands now becoming leaders in innovation? The most obvious reason is that the local companies are dreaming bigger dreams. Vietnam or Cambodia—they are relentlessly climbing up the value chain. Emerging-market champions have not only proved highly competitive in their own backyards, they are also going global themselves. There are now around 21,500 multinationals based in the emerging world. The best of these, such as India’s Bharat Forge in forging, China’s BYD in batteries and Brazil’s Embraer in jet aircraft, are as good as anybody in the world. The number of companies from Brazil, India, China or Russia on the Financial Times 500 list more than quadrupled in 2006-08, from 15 to 62. Brazilian top 20 multinationals more than doubled their foreign assets in a single year, 2006.

At the same time Western multinationals are investing ever bigger hopes in emerging markets. They regard them as sources of economic growth and high-quality brainpower, both of which they desperately need.

China produces 75,000 people with higher degrees in engineering or computer science and India 60,000 every year.

The world’s biggest multinationals are becoming increasingly happy to do their research and development in emerging markets. Companies in the Fortune 500 list have 98 R&D facilities in China and 63 in India. Some have more than one. General Electric’s health-care arm has spent more than $50m in the past few years to build a vast R&D centre in India’s Bangalore, its biggest anywhere in the world. Cisco is splashing out more than $1 billion on a second global headquarters—Cisco East—in Bangalore, now nearing completion. Microsoft’s R&D centre in Beijing is its largest outside its American headquarters in Redmond.

Knowledge-intensive companies such as IT specialists and consultancies have hugely stepped up the number of people they employ in developing countries. For example, a quarter of Accenture’s workforce is in India.

Both Western and emerging-country companies have also realised that they need to try harder if they are to prosper in these booming markets. It is not enough to concentrate on the Gucci and Mercedes crowd; they have to learn how to appeal to the billions of people who live outside Shanghai and Bangalore, from the rising middle classes in second-tier cities to the farmers in isolated villages. That means rethinking everything from products to distribution systems. These islands of success are surrounded by a sea of problems, which have defeated some doughty companies. Yahoo! and eBay retreated from China, and Google too has recently backed out from there and moved to Hong Kong. Black & Decker, America’s biggest toolmaker, is almost invisible in India and China, the world’s two biggest construction sites.

But the opportunities are equally extraordinary. The potential market is huge: populations are already much bigger than in the developed world and growing much faster ( chart1), and in both China and India hundreds of millions of people will enter the middle class in the coming decades. The economies are set to grow faster too ( chart 2). Few companies suffer from the costly “legacy systems” that are common in the West. Brainpower is relatively cheap and abundant: in China over 5m people graduate every year and in India about 3m, respectively four times and three times the numbers a decade ago.

This combination of challenges and opportunities is producing a fizzing cocktail of creativity. Because so many consumers are poor, companies have to go for volume. But because piracy is so commonplace, they also have to keep upgrading their products. Again the similarities with Japan in the 1980s are striking. Toyota and Honda took to “just-in-time” inventories and quality management because land and raw materials were expensive. In the same way emerging-market companies are turning problems into advantages.

Until now it had been widely assumed that globalisation was driven by the West and imposed on the rest. Muscular emerging-market champions such as India’s ArcelorMittal in steel and Mexico’s Cemex in cement are gobbling up Western companies. Brainy ones such as Infosys and Wipro are taking over office work. And consumers in developing countries are getting richer faster than their equivalents in the West.

Old assumptions about innovation are also being challenged. People in the West like to believe that their companies cook up new ideas in their laboratories at home and then export them to the developing world, which makes it easier to accept job losses in manufacturing. But this is proving less true by the day. Non-Western companies are becoming powerhouses of innovation in everything from telecoms to computers. [ Our company, a world-class rig builder,   has produced quite alot of innovative ideas in the IQC intiative producing feasible "short-cuts" and leading to more productivity and output and thus saving quite a substantial sums each year in building major offshore oil rigs, and it is such motion of getting all the thinking hats together coming out with workable ideas, some could have been overlooked to be day-to-day chore but when look deeper, you could save few hundred thousands especially in rig building business involving the need to take the "economy-of-scale" advantage ]

Re-invent innovative ideas

The very nature of innovation is having to be rethought. Most people in the West equate it with technological breakthroughs, embodied in revolutionary new products that are taken up by the elites and eventually trickle down to the masses. But many of the most important innovations consist of incremental improvements to products and processes aimed at the middle or the bottom of the income pyramid: eg.Wal-Mart’s exemplary supply system or Dell’s application of just-in-time production to personal computers.

The emerging world will undoubtedly make a growing contribution to breakthrough innovations. It has already leapfrogged ahead of the West in areas such as mobile money (using mobile phones to make payments) and online games. Microsoft’s research laboratory in Beijing has produced clever programs that allow computers to recognise handwriting or turn photographs into cartoons. Huawei, a Chinese telecoms giant, has become the world’s fourth-largest patent applicant. But the most exciting innovations—and the ones this report will concentrate on—are of the Wal-Mart and Dell variety: smarter ways of designing products and organising processes to reach the billions of consumers who are just entering the global market.

China and India say their country’s current economic situation is good (chart 3), expect conditions to improve further and think their children will be better off than they are. This is a region that sees opportunities in every difficulty rather than difficulties in every opportunity.

Now the emerging markets are developing their own distinctive management ideas, and Western companies will increasingly find themselves learning from their rivals. People who used to think of the emerging world as a source of cheap labour must now recognise that it can be a source of disruptive innovation also.