My Random Walk

Taiwan’s february export orders continued to contract in year-on-year terms, but the extent of contraction has eased compared to -41.7% in Jan09. Aside from the base effects resulting from Chinese New Year, there has been news that electronics industry received rush orders since last month, due to the restocking needs of downstream clients, and reviving demand from China due to Chinese government’s promotion of a home appliance subsidy program in rural regions. Manufacturers are under less pressure to cut industrial capacity, as they have cleared out some of the inventory overhang through drastic production reduction in the past several months, although inventories remain high if compared to the current shipment levels.

With effect from yesterday, the official trading band for USD/VND is wider at ±5% compared to ±3% previously. The decision to widen the band was announced by the Vietnamese government yesterday, one day after its economic growth estimate for 1Q09 to 3.1% from 4.0-4.5% previously. The last band widening occurred last
November - one month before the government devalued by 3% in December. The above developments affirm my view for the VND to depreciate against USD by another 4% this year to 18200 because of slower economic growth. Historically, there is a strong correlation between the annual depreciation pace of the VND and real GDP growth in Vietnam.

Changes in the local currency government bond auction calendar released by Bank Negara Malaysia on March 20 have been positive for the MGS market. The government is scrapping 10Y and 20Y auctions and moving supply to the front end of the yield curve in response to sharply higher yields at the long-end and in anticipation that funding its stimulus package will be easier with shorter-dated bonds than longer-dated bonds. At this point demand remains a big question mark and long-end yields could rise again. I continue to prefer long positions at the front end of the MGS curve. The 3Y MGS yield, because of supply concerns, is trading way above what I would consider a fair-value range.

Last but not least, house prices in Dubai dropped 19.1% in 4Q2008 as investors pulled out of an over-supplied market, according to a new survey published on Monday, but overall values climbed 10.8 percent last year. Just under 50 percent of the 55 locations surveyed across the world recorded positive price growth on an annual basis in 2008, according to the 2009 UK property adviser’s Knight Frank/Citi Private Bank Wealth Report.