Goldman says China yuan move is attempt to get ahead of Fed

AUG 12, 201511:26 PM

[NEW YORK] China's shock devaluation of its currency is designed to cushion it from strengthening along with the dollar after a projected interest-rate increase from the Federal Reserve, according to Goldman Sachs Group Inc.

"This is about Fed liftoff most obviously and further dollar strength," Robin Brooks, chief currency strategist at Goldman Sachs in New York, wrote in a note to clients.

"It certainly makes sense for China's policy makers to buy some flexibility ahead of Fed liftoff, in particular since the fix had become very peg-like in its stability in recent months."

Goldman Sachs projects the dollar strengthening 20 per cent on a trade-weighted basis by the end of 2017.

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The yuan sank Wednesday, completing its biggest two-day rout since 1994 - when China ended a dual-currency system - and prompting the People's Bank of China to intervene. The central bank sparked the declines a day earlier when it cut its daily reference rate by 1.9 per cent.

China has stepped up efforts to boost traditional drivers of growth as new ones fail to offset slowing investment and trade. Developing markets are feeling the strain as domestic expansion slows, while the US nears its first interest-rate increase in almost a decade.

Until Tuesday, China had kept the yuan little changed against the dollar, effectively pushing it higher against other emerging-market currencies and hurting its exporters. A Bloomberg gauge of the dollar against 10 major trading partners has climbed 6.5 per cent this year, as futures traders raised the odds of a September rate increase to as high as 54 per cent last week.

"The market pressures have been for a weaker yuan, and in order to maintain the stability of the currency, the PBOC has basically been having to sell US dollars," said Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney.

"Maybe this is the PBOC stopping the defense of a stable yuan ahead of what the Fed may or may not do as early as next month." While the change is reminiscent of Swiss abandonment of the franc's ceiling versus the euro in January, which anticipated quantitative easing from the European Central Bank, China isn't looking to push the currency significantly weaker, according to Brooks at Goldman Sachs.

"Our bias is that the move overnight was more about buying flexibility as opposed to the beginning of a large devaluation trend," Mr Brooks wrote.

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Ringgit weakens to over 20-year low of 2.8538 against Singdollar

The Malaysian ringgit lost further ground against the Singapore dollar on Wednesday, trading at 2.8538 to the Singdollar at about 1:35pm, down from its close at 2.82 on Tuesday. 

PHOTO: AFP

AUG 12, 20152:47 PM

[SINGAPORE] The Malaysian ringgit lost further ground against the Singapore dollar on Wednesday, trading at 2.8538 to the Singdollar at about 1:35pm, down from its close at 2.82 on Tuesday.

This is the weakest that the ringgit has been against the Singdollar on record.

China's surprise devaluation of the yuan this week has lumped more pressure on the ringgit, Asia's worst-performing currency in the past 12 months.

Brent crude prices that have more than halved from their 2014 peak are hurting Malaysia's revenue as a net oil exporter.

The ringgit tumbled more than 1 per cent to 4.0025 a US dollar as of 11.02am in Kuala Lumpur.

"China's yuan move is recalibrating Asian currencies across the board," said Mr Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. "If the yuan drops another 5 percent to 10 percent, then 4.20 for the ringgit (against the US dollar) isn't far-fetched."

A government report on Thursday may show Malaysia's second-quarter economic growth slowed to 4.5 per cent from 5.6 percent in the previous three months, according to the median estimate in a Bloomberg survey.

That would be the slowest pace since early 2013.

The Southeast Asian nation's foreign-exchange reserves dropped below US$100 billion last month for the first time since 2010 to US$96.7 billion. The central bank will continue to "smoothen out excessive volatility," Ms Julia Goh, an analyst at Singapore's United Overseas Bank Ltd., wrote in a research note on Tuesday.

The monetary authority has spent US$25 billion defending the currency since July 2014, after adjusting for valuation effects, Mr Philip McNicholas, a Singapore-based economist at BNP Paribas SA, wrote in a July 24 report.

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Iceberg says PwC review fails to address market's concerns over Noble

By

Angela Tanangelat@sph.com.sg

Iceberg Research said on Wednesday that PricewaterhouseCoopers (PwC) has not challenged the realism of the assumptions made by Noble Group, but instead merely reiterated that the commodities group was in compliance with accounting standards. 

PHOTO: REUTERS

AUG 12, 20152:13 PM

Iceberg Research said on Wednesday that PricewaterhouseCoopers (PwC) has not challenged the realism of the assumptions made by Noble Group, but instead merely reiterated that the commodities group was in compliance with accounting standards.

"EY has answered the same question for years. Enron was largely in compliance with accounting rules. The PwC review fails to address the market's concerns. Investors want to know the real value of these MTM, not whether Noble successfully exploits accounting loopholes,'' said Iceberg.

The little known research group Noble accused of being linked to one of its former employees also took issue with the sentences which it described as "remarkable" even by auditors standards. These included:

* "This report may not be relied on by you" (underlined)

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* "Management is responsible for the measurement of the individual valuations and the overall valuation of the Contracts."

* "Our review of the valuation models was based on the Excel spreadsheet outputs produced by the Finance (valuation and product control) team." PwC has not worked directly with the contracts.

* "None of the contracts was a liability". PwC has not reviewed the negative MTM, which are future cash outflows.

With regards to Yancoal, Iceberg demanded that Noble's management explain why a stake worth US$12 million on the Australian exchange should be valued US$322 million on its balance sheet, down from US$522 million previously.

"They will do this for Yancoal. Then they will have to do it for every major MTM on the balance sheet,'' said Iceberg, unhappy over the poor disclosures over the forward curves and other key assumptions related to Yancoal.

On Wednesday, Noble shares were trading around S$0.505 each, down S$0.065, or 11.40 per cent. More than 126 million shares were traded.

Noble had engaged PwC to review the valuation of its contracts. PwC scrutinised 12 areas using 35 relevant criteria covering volumes, price, discount rates and reserves. The "relevant criteria" that it used were developed by Noble's management based on relevant requirements of fair value measurement under International Financial Reporting Standards (IFRS 13) and standard practices for deriving mark-to-market (MTM) valuations.

In its review, PwC said "Noble has adopted an approach to valuations which is consistent with the relevant criteria in all material respects".

    

Malaysia opposition party files suit against Najib, state fund 1MDB

A Malaysian opposition party on Wednesday filed a civil suit against Prime Minister Najib Razak and indebted state fund 1Malaysia Development Berhad (1MDB), the party said. 

PHOTO: REUTERS

AUG 12, 20152:07 PM

[KUALA LUMPUR] A Malaysian opposition party on Wednesday filed a civil suit against Prime Minister Najib Razak and indebted state fund 1Malaysia Development Berhad (1MDB), the party said.

A spokesman of jailed opposition leader Anwar Ibrahim's People Justice Party (PKR) said the suit against Najib and 1MDB was filed for electoral offences.

1MDB, whose advisory board is chaired by Mr Najib, and which has debts of more than US$11 billion, is under investigation for graft and financial mismanagement.

Last month, it was reported that investigators looking in to the alleged mismanagement at 1MDB had traced a payment of nearly US$700 million to a bank account under Najib's name.

Malaysia's anti-graft agency said last week the funds in Mr Najib's personal bank account were donations from the Middle East, and not from 1MDB.

The opposition party said the funds allegedly used for the 2013 elections were more than 26 times the permissible amount, news portal Malaysiakini reported.

REUTERS