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KL bourse seen extending losses

Posted: 04 Dec 2012 06:21 PM PST

Malaysian stocks are poised to extend losses after completing their worst month since September 2011 on concern the nation's ruling coalition may lose seats in elections, according to UBS AG and Goldman Sachs Group Inc.

The benchmark FTSE Bursa Malaysia KLCI Index retreated 3.7 per cent last month, after reaching a peak on Nov. 1. The gauge slumped to a five-month low on Nov. 27, dragging valuations to 14.7 times estimated profit, data compiled by Bloomberg show. Even after the declines, the KLCI Index is trading at a 28 per cent premium to the MSCI Emerging Markets Index.

Prime Minister Najib Razak said last weekend elections may come soon as his ruling Barisan Nasional, or National Front, alliance attempts to regain a two-thirds parliamentary majority it lost in 2008. The KLCI Index slumped 39 per cent that year, the most since 1997, on concern a stronger opposition would stymie government investment plans. UBS's Kelvin Tay recommends investors avoid Malaysian equities for now.

"The elections are going to be an overhang on the market," Tay, the Singapore-based chief investment officer for the southern Asia-Pacific region at UBS's wealth management unit, said in a Nov. 23 interview. "Where Malaysia is concerned, in the last three-to-four elections, whenever Barisan Nasional loses more seats, the foreign direct investment tends to drop. That's what the market is actually fearful of."

Favorite Market

The KLCI Index rose 0.2 per cent at 9:57 a.m. in Kuala Lumpur, with trading volume 36 per cent lower than the 30-day average, data compiled by Bloomberg show. The MSCI Asia Pacific Index fell 0.1 per cent.

Tay's favorite market is China, where the official target for economic growth this year is 7.5 per cent, compared with the 5 per cent Malaysia's government is estimating. Goldman Sachs downgraded Malaysian stocks to underweight in a Nov. 29 report, citing a preference for Indian equities.

"The Malaysian equity market has corrected in recent weeks, in part due to potential political uncertainty surrounding upcoming elections and investors rotating out of the year's earlier winners into other markets," Goldman Sachs analysts led by Timothy Moe wrote in the report.

Najib's National Front is seeking to extend its 55 years in power and improve on 2008, when it won elections by the narrowest margin since independence in 1957. The alliance holds 137 parliamentary seats out of 222, according to the Malaysian parliament website. The opposition has 76, while independent lawmakers hold the remainder.

Election Target

The National Front has revised its election target and is now aiming to regain its two-thirds majority, the Star newspaper reported on Dec. 2, citing Najib. The prime minister said in March winning a clear majority would be "challenging." Former Prime Minister Mahathir Mohamad said Sept. 20 that while the alliance would "most likely" win, the government would achieve weaker results than in 2008, the Malaysia Chronicle reported.

The KLCI Index's slump in 2008 was the worst annual performance since the 1997 financial crisis. The head of the opposition-led government in Selangor state said after winning power from the National Front in 2008 that he would review a contract awarded to Puncak Niaga Holdings Bhd. The stock sank 6.4 per cent to a 16-month low on March 18 that year, after news on the contract review was reported by the Star newspaper.

Foreign direct investment into Malaysia slid 14 per cent to US$7.4 billion in 2008, data from the World Bank show, after the election results and as the collapse of Lehman Brothers Holdings Inc. triggered a global financial crisis.

Underweight Malaysia

"We have been underweight Malaysia as we are not finding growth stocks at reasonable prices," Yuko Namaki, a Tokyo-based fund manager who helps manage US$282 billion in assets at Nomura Asset Management Co, wrote in a Nov. 29 e-mail. "The government seems to be focusing on preparing for the impending general election. Investor sentiment seems poor due to the uncertainty." She's been selling Malaysian equities in the past six months.

David Ng, who oversees about US$5.9 billion as chief investment officer of Hwang Investment Management Bhd, said on Nov. 27 he used last month's declines to buy shares of telecommunications companies. The premium at which the Malaysian gauge's price-earnings ratio trades over the MSCI Emerging Markets Index dropped that day to the lowest level since January 2011.

The KLCI Index climbed earlier this year amid speculation the government infrastructure spending pledged by Najib in 2010 will shelter the nation from Europe's debt crisis and a global economic slowdown. Thirty-day historical volatility on the gauge has averaged 7.3 this year, less than the MSCI AC World Index's 13.1, data compiled by Bloomberg show. KLCI Index stocks have an average dividend yield of 3.6 per cent, compared with the MSCI World's 2.8 per cent, the data show.

Less Risky

Demand for less risky assets is diminishing as confidence in global growth rises. The world economy is in its best shape in 18 months as the U.S. looks likely to avoid the tax increases and spending cuts known as the fiscal cliff, according to the latest Bloomberg Global Poll of investors.

KLCI Index companies posted average third-quarter profit growth of 4.9 per cent, lagging behind the MSCI Emerging Markets Index's 13 per cent, data compiled by Bloomberg show. Earnings of KLCI Index companies are predicted to increase 3.1 per cent in the next 12 months, compared with the MSCI gauge's 19 per cent, according to analyst estimates compiled by Bloomberg.

"I don't like Malaysian stocks right now," said UBS's Tay. "How do I justify telling you to buy Malaysian equities if there's no growth, the market doesn't look fantastic and there's no catalyst? It doesn't make sense." -- Bloomberg

Progress: Year-end decision on Petronas bid

Posted: 04 Dec 2012 06:46 PM PST

Progress Energy Resources Corp expects the Canadian government to decide by the end of the year on a C$5.19 billion (US$5.23 billion) takeover offer from Petroliam Nasional Bhd, Chief Executive Officer Michael Culbert said.

Progress, the Calgary-based natural gas producer, and Malaysia's state-owned oil company may go forward with a proposed liquefied natural gas export terminal in British Columbia even if Canada doesn't approve the takeover, Culbert said in a phone interview today. The government rejected the acquisition in October, saying it wasn't in the nation's net benefit. The companies re-submitted the request with unspecified changes.

"It's really something that's in the hands of the Canadian federal government," Culbert said of the takeover. "We're waiting, as others are, and we'll just wait to see what transpires here, which we hope to be by the end of the year."

Pacific Northwest LNG is one of several proposed facilities that would ship Canadian gas to markets overseas, including Asia. A glut in North American production from shale-rock formations caused the price of gas to reach a 10-year low in April. Liquefying the gas by cooling it to -161 degrees Celsius (-258 degrees Fahrenheit) reduces the volume and allows for shipment by tanker instead of pipeline.

Pacific Northwest LNG will cost an estimated C$9 billion to C$11 billion to build, the companies said today in a statement. The project, which may begin operating in 2018, is moving into the next design phase as the companies prepare for a final investment decision in 2014.

Facility Capacity

A joint venture to develop 20 percent of Progress's gas in the Montney Shale will also go forward regardless of Canada's decision on the takeover, Culbert said.

The export facility's capacity to handle 3.8 million metric tons of LNG a year may expand to 6 million if the takeover is completed, because Petronas would have access to Progress's entire position in the Montney, Culbert said. With almost 1 million acres, Progress Energy is the largest holder in the Montney, one of Canada's biggest proven shale-gas reserves with an estimated 49 trillion cubic feet.

The companies are seeking 20- to 30-year contracts from potential customers of Pacific Northwest LNG and are in the "early stages" of discussions, Culbert said. Petronas expects to take some of the facility's gas, he said. -- Bloomberg

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"Fiscal cliff" struggle prompts Republican infighting - Reuters

Posted: 04 Dec 2012 09:02 AM PST

U.S. President Barack Obama (2nd L, facing camera) meets with members of the National Governors Association (NGA) Executive Committee in the Roosevelt Room of the White House in Washington, December 4, 2012. REUTERS/Larry Downing (UNITED STATES - Tags: POLITICS BUSINESS)

Tue Dec 4, 2012 12:11pm EST

(Reuters) - Republicans in the Congress attacked each other on Tuesday over their leadership's "fiscal cliff" offer to Democratic President Barack Obama as a group of governors visited the White House to voice concern about the impact on the states of the year-end tax-and-spending deadline.

The disarray in Republican ranks over how far to compromise the party's anti-tax stance could complicate what are expected to be intense negotiations between House Speaker John Boehner and Obama. Each will need the backing of their respective troops in Congress in order to bargain credibly.

The fiscal cliff refers to steep tax increases and deep automatic spending cuts slated to start to take effect on New Year's Day. If Congress and Obama do not act to stop them, economists have warned the U.S. economy could be thrown back into recession.

The disagreements among Republicans surfaced as negotiations on a deficit reduction plan designed to supplant and avert the automatic cuts and tax hikes got more serious, with both parties having presented opening offers.

Senator Jim DeMint, a South Carolinian with a following among small-government conservatives, lashed out at an offer sent on Monday to Obama by Boehner, a fellow Republican.

"Speaker Boehner's $800 billion tax hike will destroy American jobs and allow politicians in Washington to spend even more," DeMint said in a statement.

In the House of Representatives, two first-term Republican Tea Party stalwarts - Tim Huelskamp of Kansas and Justin Amash of Michigan - were removed by party leadership from the powerful budget committee in what Huelskamp called "a vindictive move."

The Republican leadership offered no immediate explanation for the unusual action, but Boehner has had problems bringing in line the large Tea Party wing in the House. Elected to Congress in force in 2010, they regard the speaker as too much of a compromiser and tied his hands during talks in 2011 on raising the debt ceiling.

"The GOP leadership might think they have silenced conservatives, but removing me and others from key committees only confirms our conservative convictions," said Huelskamp.

Washington interest groups are now fully consumed by the cliff, and some are in a bit of a panic about what the talks might bring.

Tensions erupted on Tuesday at a forum convened by a fiscal responsibility group called Fix the Debt, which seeks to reduce the federal government's debt and includes a range of business, think tank and political leaders.

Audience members stood and repeatedly interrupted Republican Senator Rob Portman of Ohio as he attempted to make a speech. They urged protections from cuts for the Social Security and Medicare social safety net programs.

Others shouted down the protesters until they marched out of the forum, where Democratic Senate Finance Committee Chairman Max Baucus also made remarks.

U.S. stock markets opened slightly higher, with the benchmark Dow Jones industrial average up less than 1 percent after weeks of gyrations tied to the debate on Capitol Hill.

GOP OFFER MADE

In an important step, Boehner on Monday called for steep spending cuts, but gave no ground on Obama's proposal to raise tax rates on the wealthiest Americans.

The central dispute between the two parties has been what to do about low individual income tax rates that will expire at year-end. The low rates were first signed into law a decade ago by former President George W. Bush.

Obama wants to extend the low rates for 98 percent of taxpayers, but not for the top 2 percent. Republicans have insisted that the low tax rates be extended for the wealthy as well.

The White House dismissed Boehner's proposal within an hour of its being made public, the same treatment Republicans gave Obama's deficit reduction plan offered last week.

While the offers and counter-offers between Republicans and Democrats may ultimately create the conditions for actually getting in a room together and bargaining at length, so far the moves have been out in public and mostly for show.

Washington is awash in competing plans to cut the federal deficit. A think tank with ties to the Obama administration laid out another plan on Tuesday, urging the president to go bold and seek more concessions from Republicans on tax hikes.

(Reporting by Thomas Ferraro, David Lawder, Kim Dixon, Fred Barbash, Rachelle Younglai; Editing by Jackie Frank)

Iran claims to have seized US drone - Financial Times

Posted: 04 Dec 2012 08:55 AM PST

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