Amartya Sen: An enduring insight into the purpose of prosperity

An enduring insight into the purpose of prosperity

By Amartya Sen
Published: September 21 2004 03:00

Friedrich Hayek's combative monograph The Road to Serfdom had a profound impact on political, economic and social thinking in the decades that followed its publication 60 years ago, serving as an intellectual manifesto against socialist planning and state intervention. But are Hayek's ideas and arguments of any interest today, after the downfall of communism and the emergence of neo-liberalism as the dominant ideology of contemporary capitalism? I would argue that they remain extremely important.

Consider Hayek's insistence that any institution, including the market, be judged by the extent to which it promotes human liberty and freedom. This is different from the more common praise of the market as a promoter of economic prosperity. A huge part of economic theory is concerned with the prosperity argument, going back to Adam Smith and David Ricardo. That connection is indeed important, and it is not surprising that so much attention has been devoted to seeing the market mechanism from this perspective - defending its achievements as well as disputing particular claims and proposing qualified endorsements. Yet Hayek was surely right to insist on clarity regarding the purpose of seeking prosperity. Markets have to be judged, he argued, by their role in advancing freedoms, not just in generating more income (as Hayek once said: making money can be of interest only to the miser). This integrative perspective demands that we be concerned both with the outcome of market processes (including the economic prosperity it may generate and the extent to which that would advance human freedom) and with the processes through which these results are brought about (including the liberty of action that people have in an institutional system).

It is the perspective of seeing markets and other institutions in terms of their role in advancing freedoms and liberties of individuals that Hayek brought into singular prominence. It may be pointed out, in contrast, that despite the title of Milton Friedman's famous book (with Rose Friedman), Free to Choose, the criteria by which Friedman tends to defend the market mechanism are not liberty and freedom, but prosperity and utility ("being free to choose" is seen as a good means - a fine instrument - rather than being valuable in itself). Even though a few other economists, James Buchanan in particular (and, to some extent, John Hicks), have presented insightful ideas on a freedom-centred line of reasoning, it is to Hayek we have to turn for the classic articulation of this way of seeing the merits of the market mechanism and what it gives to society. I am not persuaded that Hayek got the substantive connections entirely right. He was too captivated by the enabling effects of the market system on human freedoms and tended to downplay - though he never fully ignored - the lack of freedom for some that may result from a complete reliance on the market system, with its exclusions and imperfections, and the social effects of big disparities in the ownership of assets. But it would be hard to deny Hayek's immense contribution to our understanding of the importance of judging institutions by the criterion of freedom.

A second contribution of Hayek is of particular relevance to thinkers on the right of the political spectrum. In The Road to Serfdom, he gave powerful reason to indicate why explicit provision has to be made by the state and the society for the deprived and the dispossessed. While Hayek is often taken to be uncompromisingly hostile to any economic role of the state (other than what is needed to support the market mechanism), and certainly late in his life he gave grounds for thinking that this could indeed be his view, nevertheless in The Road to Serfdom Hayek's position is much broader and inclusive than that. Now that the welfare state is often under such attack, it is worth recollecting that the pioneering manifesto that championed the market mechanism on grounds of freedom did not reject the need for a welfare state and provided a reasoned defence of it as an institutional necessity.

A third contribution of Hayek is of particular interest to those on the left of the political spectrum. Hayek's critique of state planning is mainly based on a subtle psychological argument. He was particularly concerned with the way centralized state planning and the huge asymmetry of power that tends to accompany it may generate a psycho logy of indifference to individual liberty. As Hayek put it: "I have never accused the socialist parties of deliberately aiming at a totalitarian regime or even suspected that the leaders of the old socialist movements might ever show such inclination." One of Hayek's central points was that "socialism can be put into practice only by methods of which most socialists disapprove".

We can hardly ignore the massive accumulation of evidence - before and after publication of The Road to Serfdom - of tyrannical use of bureaucratic power and privilege, and the political and economic corruption that tends to go with it. Hayek's central point here was to note that even though socialism has a strongly ethical quality, that is not in itself adequate to guarantee that the results of trying to implement it will be in line with its ethics, rather than being deflected and debased by the psychology of power and the influence of administrative arbitrariness.

Hayek was insightful in drawing attention to a basic vulnerability that goes with unrestrained administrative authority, and in explaining why social psychology and institutional incentives are extraordinarily important. To take the massive evidence in socialist practice of departures from expected behaviour to be no more than easily avoided individual aberrations would be comparable to blaming the "few bad apples" to whom the leaders of the coalition forces point in Iraq when they refuse to consider the systematic corruptibility underlying the torture and brutality of an unrestrained system of imprisonment. Incidentally, Hayek's psychological insights into administration also tell us something about the genesis of those terrible contemporary events.

Our debt to Hayek is very substantial. He helped to establish a freedom- based approach of evaluation through which economic systems can be judged (no matter what substantive judgments we arrive at). He pointed to the importance of identifying those services that the state can perform well and has a social duty to undertake. Finally, he showed why administrative psychology and propensities to corruptibility have to be considered in determining how states can, or cannot, work and how the world can, or cannot, be run.

As someone whose economics (as well as politics) is very different from Hayek's, I would like to use the 60th anniversary of The Road to Serfdom to say how greatly indebted we are to his writings in general and to this book in particular. Dialectics is critically important for the pursuit of understanding, and Hayek made outstanding contributions to the dialectics of contemporary economics.

The writer, Lamont university professor at Harvard University, was awarded the Nobel prize for economics in 1998

September 29 Philippine Stock Market Daily Review: Profit taking Continues

September 29 Philippine Stock Market Daily Review

Profit taking Continues

If news confounds ordinary investors based on the causal relationships between events to market activities, particularly to that of record crude oil prices, yesterday and today’s contrasting demeanor of the financial markets in Wall Street and Asia is a perfect example. Yesterday, Bloomberg attributed New York’s decline, as well as Asia’s to High Oil price jitters, today, it seems that Energy issues represented by oil boosted most of the major bourses from its pathetic performances for the past sessions. According to Edgar Ortega of the Bloomberg, “Energy shares are the best performers among the S&P 500's 10 industry groups this year amid surging crude prices. The index of oil producers, drillers and refiners has jumped 24 percent in the period, compared with a decline of 0.2 percent in the S&P 500. Technology and consumer shares declined amid concern higher energy costs will crimp profit growth…An index of metal miners and chemicals producers in the S&P 500 climbed 2.2 percent, for the biggest gain among the benchmark's 24 industry groups.” So which is which, high oil prices hurts stocks or high oil provides better earnings for oil producers hence good for stocks? Go Figure.

Well the rising commodities seen in Oil, energy and metals have buoyed energy and mining issues in the US, Europe and in Asia. However, in the Philippines, the ‘no-brainer’ investment received a no-brainer response from the speculative proclivities of domestic investors mesmerized by hype and spin tall tales among the punter’s favorite issues. The Oil issues in fact, represented by its OIL index was sold down today (HAHAHAHAHA!!!) and is THE Largest Decliner among industry indices while the MINING index was hardly changed. Wow such incredible myopia!!!

The Phisix fell for the second session to close 3.99 points down or .23%. It looks as if the locals shifted their profit taking activities to some blue chips as Bank of the Philippine Islands (–1.08%) and Ayala Land (-3.07%), both of whom were supported by foreign buying, and San Miguel A. Meanwhile, Ayala Corp was the sole blue chip expended by foreign money as the Ayala parent firm dropped 1.63%.

Foreign money remained bullish and in control of the market commanding about 56.39% of today’s turnover with a net positive inflow to the market amounting to P 150.467 million or about 19% of the day’s output with most of these inflows directed to SM Primeholdings (unchanged). On the broad market, foreign capital acquired 11 more issues than it sold meaning the foreign investors were still bullish, acquiring stocks on most blue chips as well as in the broad market. Although, the general sentiment as reflected by the advance decline differentials remained in favor of the bears, by 42 to 28 while industry indices were mostly down except for the Mining and Commercial Industrial, largely lifted by Globe Telecoms up 1.88%. The second tier issues of the Phisix or our punter’s favorites, namely Metro Pacific (+3.7%%), Digitel (+4.81%), DM Consunji (+1.94%) and Filinvest Land (+1.73%), cushioned the drop of the Phisix indicative of an easing profit taking moves by local investors.

Going into the last trading session of the week as well as the last trading days of the month we may expect some action to pick up as local investors seemed to have eased on selling (and may reverse) while foreign money continues to support the market.

Helen Pridham of the Timesonline: Oil your chance to strike it rich?

Oil: your chance to strike it rich?

By Helen Pridham, Personal Finance correspondent

As the price of crude oil scales new heights, topping $50 a barrel for the first time in New York on Monday night, the immediate cause of the price surge might be different - this time attributed to violence and uncertainty in Nigeria and around the west African oil fields - but the fundamental reason remains the growing imbalance between supply and demand.

The same situation exists in other commodities such as base metals. All this is good news for the natural resources sector, which has performed strongly over the past year.

Future prospects for the sector continue to look extremely promising according to Ian Henderson, the manager of JPMorgan Fleming Natural Resources fund, who says, "We believe we are very early in a multi-year bull market for commodities."

The background to this is many years of underinvestment in mining and exploration coinciding with growing worldwide demand for natural resources, particularly from China, India, and other developing countries.

Even though economic growth in China is expected to slow from more than 10 per cent to around 7 per cent in the next couple of years, this rate of growth is still extremely high by western standards and will still mean a strong demand for commodities and therefore lead to continuing price rises. For instance, oil demand in China is expected to rise by a further 8 per cent next year, reaching 500,000 barrels per day.

Robin Batchelor, an investment manager on the Merrill Lynch World Mining Trust says, "What you see in China is structural change. China wants consumer growth and this means changing patterns of behaviour which is leading to greater and greater demand for energy and raw materials.

For investors, getting a stake in this area provides useful diversification as well as the prospect of attractive returns, says Henry Rising, the head of research at stockbrokers Christows. "We believe you have to look beyond ordinary equities nowadays for returns. With resources there is a real growth story, especially if you look at the industrialisation of China."

This view is echoed by Mick Gilligan, an associate director in fund research at the stockbrokers Killik & Co. "The supply and demand backdrop for energy and commodities is very encouraging. They look quite exciting areas at the moment and not ones you want to be underweight."

A gradual decline in investment in mining and exploration in the last 20 years has lead to a real shortage in commodity stocks. Ian Henderson points out that the stocks of base metals above ground have almost run out. "There has been a complete miscalculation of demand because it was based just on demand from the OECD countries, which only accounts around one-seventh of the world's consumers. Now China has become the biggest importer of everything. Many of the things it was previously exporting, such as coal, oil, steel and zinc, it is now importing to meet its own consumption."

He is surprised that more investors are not taking notice of the sector, especially as there are still plenty of companies on good valuations. "One example is First Quantum, a copper mining company which operates in Zambia which will be producing more than 5 per cent of the world's copper in a year's time. It is on a profits to earnings ratio of less than seven, yet it has tremendous prospects."

Energy is a key investment area for resources funds. Mr Henderson believes there is an "incredible complacency about energy". He says that people who are expecting the oil price to fall back again will have a rude awakening. This year has seen the biggest increase in the demand for oil in history. China alone has upped its demand by 20 per cent over the past year.

Unlike the oil crisis in the 1970s, which was brought about artificially by Opec, this time there have been increases in production by the oil producers' cartel, yet the price of oil has continued to rise. While production in areas such as the North Sea and Alaska are declining in output and traditional oil producing giants such as Saudi Arabia and other Opec states fail to influence the global oil price, it is variations in supplies from Russia, Venezuela and Iraq which has impacted the world oil market, where underinvestment in refinery capabilities - especially in the United States - has had a greater impact on prices.

Mr Batchelor says that the best way to benefit from these trends is through small and medium-sized exploration companies, rather than traditional oil giants such as BP or Shell, where growth potential is limited. The example of Cairn, the Scotland-based company which has seen its share price rise more than 300 per cent this year on the back of exploration finds in India, is the prime example.

Companies operating in relatively underdeveloped areas, such as north and west Africa, can add particular value, says Mr Batchelor.

Coal is another area which Mr Henderson finds interesting at present. "In North America, 52 per cent of energy production comes from coal and most new power stations are coal-fired, but here too there is a shortage of supply."

The shortage of traditional energy supplies is stimulating greater interest in alternative energy. Mr Batchelor, who is also the lead manager on the Merrill Lynch New Energy Technology investment trust, says, "There are signs that things are moving in the right direction. The cost of wind turbines, for example, is falling while the price of coal and natural gas is rising, so traditional energy is getting more expensive while new energy is getting cheaper."

Renewable energy is now the fastest growing part of the energy market but Mr Batchelor admits that the scale is very different to traditional energy suppliers. "It takes time to change people's behaviour patterns but I think as more companies look at their cost base and the price of energy, they will turn increasingly to alternative energy. It won't happen overnight but it will happen slowly but surely over the next few years. In the energy sector, it really is a case of past performance being no guide to the future."

Mr Gilligan agrees. "At some point, alternative energy will be a good investment but it will be difficult to get the timing right. This is probably a classic case in favour of a regular monthly investment in order to ride out the volatility in this market."

The main risk for the energy and resources sector at present is the possibility of a sharp slowdown in global growth, but Mr Henderson points out that the on-going industrialisation of emerging markets will continue to underpin the market. "There may be wobbles along the way, but basically I think the process is unstoppable."

Financial Times: Forex trading volumes hit record levels

Forex trading volumes hit record levels

By Jennifer Hughes and Krishna Guha

Published: September 28 2004 15:59

Last updated: September 28 2004 19:53

Trading on the world's foreign exchange markets has leapt to a record $1,900bn a day, driven by renewed interest in currencies as an asset class and the return of hedge funds specialising in currency bets.

Turnover in currency and interest rate derivatives sold by banks also soared to new record levels, according to a three-yearly survey by the Bank for International Settlements.

The rapid growth in financial market transactions - far in excess of the growth in world trade - is a sign of growing integration of global capital markets and increasingly sophisticated risk management by companies and investors.

After slumping amid the introduction of the euro, which eliminated the currencies of some of the world's biggest economies, trade in foreign exchange bounced back between 2001 and 2004.

The BIS said investors disappointed by equity returns and low bond yields were searching out new forms of investment, including currencies.

Macro hedge funds - specialising in big currency bets - were back in business after having been eclipsed by funds betting on equities.

Growing activity in Japanese interest rate options signalled that the Japanese economy was stirring back to life.

But key features of the market have endured. The dollar rules supreme as the world's dominant currency, involved in 89 per cent of all currency trades. London retains its position as the world's capital for foreign exchange trading, with a stable market share of 31 per cent.

The last BIS survey in 2001 had shown daily volume of $1,200bn, equivalent to almost $1,400bn at today's exchange rates.

Trading in derivatives, including currency options, interest rate swaps and forward rate agreements, leapt by 76 per cent to $1,200bn a day, the BIS said, based on constant exchange rates.

Volumes were well above what market watchers expected. Many predicted volumes would have risen to about $1,500bn as a result of growing interest in the market and the strong trends produced by the dollar's decline.

The BIS report is considered the most authoritative on the currencies markets, which trade round the clock and across borders every day of the week.

The jump in trading volumes underlined the status of foreign exchange as the biggest single market in the world.

The report cited "investors' interest in foreign exchange as an asset class alternative to equity and fixed income, the more active role of asset managers and the growing importance of hedge funds" as reasons behind the growth of the market.

Ian Stannard, currency strategist at BNP Paribas in London, said: "We're seeing a lot more participation by investor groups who haven't actively managed currency risk before. FX [foreign exchange] is being seen more as an asset class in its own right."

The weakening of the dollar against other currencies over the past two years has provided a strong trend which has drawn new players into actively dealing in currencies.

Many investment banks attributed part of the strength of their trading profits last year to the moves in foreign exchange.

Reuters: Argentina cenbank ups gold reserves to 55.1 tonnes

UPDATE 1-Argentina cenbank ups gold reserves to 55.1 tonnes
Tue Sep 28, 2004 05:47 AM ET

LONDON, Sept 28 (Reuters) - Argentina's central bank bought more gold in July and August, taking its gold reserves up to 1.77 million troy ounces by the end of August, or 55.1 tonnes, according to data on the bank's website.

The bank confirmed in August that it had bought 42 tonnes of gold in the first half of 2004 to diversify its reserves after the end of the peso's one-to-one peg against the dollar in early 2002.

The bank's website showed that gold reserves were at 1.72 million ounces (53.5 tonnes) in July and 1.37 million ounces (42.6 tonnes) in June.

Spot gold was trading at $410.25/411.00 by 0941 GMT, compared with $408.70/409.50 late in New York on Monday.

Dow Jones UK PRESS: Pressure Grows On G7 To Agree US Dollar Devaluation

DJ UK PRESS: Pressure Grows On G7 To Agree US Dollar Devaluation

09/26/2004Dow Jones News Services
(Copyright © 2004 Dow Jones & Company, Inc.)

LONDON (Dow Jones)--U.S. President George Bush is being urged to signal a dollar devaluation of up to 20% to rebalance the global economy ahead of Friday's Group of Seven and International Monetary Fund meetings in Washington, the U.K.'s The Business newspaper reported.

Senior U.S. administration officials in Washington have over the past few days tried to influence the White House and U.S. Treasury to put pressure on the G7 to agree to a dollar depreciation in its final statement, the newspaper said.

Recent data have shown the U.S. current account and trade deficits running at record levels, and economists have said a dollar depreciation is needed to rein these in.

The euro was quoted at $1.2260 in late New York trade Friday, compared with $1.2273 on Thursday. The dollar was fetching Y110.64 versus Y110.63, and CHF1.2624 versus CHF1.2598. The pound was trading at $1.8041, up from $1.7982.

The G7 will also call on the world's oil producers to take further action to bring down prices, The Sunday Times reported. Crude oil reached almost $49 a barrel in New York Friday, amid continued concerns that high energy costs will sap global growth.

Spurring economic growth will be high on the agenda at the meetings of G7 finance ministers and central bankers next week, U.S. Treasury Secretary John Snow said Friday.

"The promotion of economic freedom, opportunity and growth throughout the world will be a key topic," he said in a statement in New York City.

G7 officials meeting in Washington next week will be representing Canada, Italy, France, Germany, Japan, the U.K. and the U.S. Officials from China will also be present.

-By Neil Keane; Dow Jones Newswires; +44-20-7842-9495;

(END) Dow Jones Newswires
09-26-04 0623ET

September 28 Philippine Stock Market Daily Review: Locals Panic

September 28 Philippine Stock Market Daily Review

Locals Panic

The Phisix tumbled during the later portion of the trading session to close 14.25 points lower or down by .81%, alongside the majority of the Asia’s bourses. Bloomberg’s Michael Tsang attributes the fall to concerns of rising oil prices, “Asian stocks fell after oil surged to above $50 a barrel, raising concern higher fuel costs will stifle economic and earnings growth…Crude oil for November delivery rose as high as $50.35 a barrel in after-hours electronic trading on the New York Mercantile Exchange and was recently at $50.32. Futures haven't been at those levels since they started trading in 1983. Oil prices climbed 36 percent this quarter.”

Well dissecting the domestic market we find that foreign money remained upbeat with local issues accumulating P 107.060 million (US$ 1.898 million) worth of assets representing about 14.2% of today’s output while they likewise accounted for a slight majority or 53% of today’s activities. In addition, overseas investors bought 10 more issues than they sold in the broader market indicative of their upbeat outlook with Philippine equity assets. Furthermore, among the blue chip issues only Ayala Corp (-3.17%) took the brunt of the foreign selling together with minor outflows seen in Globe Telecoms (-3.19%). Coincidentally, these two heavyweights weighed on the Index while the rest of the field posted inflows from overseas money and were largely unchanged (PLDT, ALI, SMCB and SMPH) except for BPI who defied the bearish sentiment and rose by 1.09%.

While the blue chips were slightly affected by the late day sell off we note that declining issues led advancing issues by 56 to 19 or almost 3 to 1. Aside, industry indices were mixed with three decliners led by the All (-1.28%) index, Commercial Industrial (-1.07%) and the Property (-.84%) Index while three recorded advances OIL (+1.88%), Financial (+.53%) and Mining (+.21%). All these shows that the locals whom were unusually cautious since last week took these negative developments (cascading peso, surging oil prices, regional decline, et. al.) as possible trigger to the profit taking activities seen today even as foreign money continued to amass on the blue chips and other select issues. And the sharp declines of the recent local punter’s favorites, namely MPC (-6.9%), Digitel (-5.68%), Filinvest Land (-5.08%), DM Consunji (-3.73%), Union Cement (-5.55%), Empire East (-8.33%) et. al., simply attest to these developments.

Relative to the technical picture, the latest failed attempt to breach the resistance barrier of the 1,770’s levels could in the interim signal a bearish top or a ‘double top’ formation which means that the Phisix could fall further in the coming sessions, although today’s activities can be hardly be seen as such yet, given its premature phase. A breakdown from the 1,693 support level would in effect be confirming this bearish formation.

So far foreign money has provided the support to our market even as the fickle local investors found their catalysts to take profits. It remains to be seen if today’s sell off would be carried over in the following sessions and if it would affect the outlook of the broad market. However, the fundamentals for foreign money (easy money landscape, global liquidity and less correlation to the US markets) to invest in emerging market remains while the market’s historical patterns, cyclical shifts, seasonal strength and technical picture still points to a year end rebound.

New York Times: Japan set to label China as war threat

Japan set to label China as war threat
James Brooke

NYT ~~article_owner~~ Wednesday,

September 15, 2004

Koizumi advisers reportedly urging a shift in strategy

TOKYO Reflecting growing wariness between the two giants of Asia, an advisory panel to Japan's prime minister will recommend that China be viewed as a potential military threat for the first time, a newspaper here reported Wednesday.

Since the end of World War II, Japan has regarded its main military threat as coming from the north, Russia, and from the west, North Korea. But now, according to the report in Japan's leading business newspaper, Nihon Keizai, the 10-member advisory panel to Prime Minister Junichiro Koizumi will recommend that China, its neighbor to the southwest, be regarded as a potential military threat.

Although China has about 10 times the population of Japan, its traditional dominance of Asia was in remission during the 20th century as it was hobbled first by civil war and Japanese military rule, then by half a century of communist economic policies.

With the recent market-oriented economic boom, China's economy is expected to surpass that of Japan in 15 years. Already it is investing heavily in military spending.

“While the Russian military capability in the Far East has dropped dramatically in the last 15 years, conversely, China has gone on a big spending boom,” Lance Gatling, an American aerospace and defense consultant, said in an interview Wednesday. “They are looking at a deep-water navy, more offensive weapons, reconnaissance satellites.“The panel will not call it directly a military threat, but the concern about a conflict between Taiwan and China is quite real, and Japan is concerned about getting drawn into that.”

Japanese and American officials have held discussions this week about the possibility of permitting U.S. and Japanese military flights to an island with a civilian landing strip that is almost halfway between Okinawa and Taiwan. According to a Washington-based defense expert visiting Tokyo, Japan is considering the request, along with a proposal to build a port on the island, Shimoji Shima, that would be able to berth Japanese ships equipped with antimissile batteries. In recent years, Japan has used the missile and nuclear program of North Korea as public justification for its growing partnership with the United States in developing a missile defense. This has allowed Japanese military planners to avoid talking about China, one of the world's five major nuclear powers.

Japanese officials hope to avoid getting drawn into any conflict between China and Taiwan, a former Japanese colony that Beijing regards as a breakaway province. However, the East China Sea is seeing a rise in direct tensions between China and Japan.Boatloads of Chinese nationalist groups, allegedly privately financed, have tried to land this year on the Senkakus, about 160 kilometers, or 100 miles, northwest of Shimoji Shima. This uninhabited archipelago is claimed by both nations.

In addition, China has started laying a gas line across the seabed toward an area that Japan claims as its exclusive economic zone. While the Chinese drill for gas, a Japanese survey boat is conducting its own research.

“Since China is deploying military vessels, there are people saying this is a matter for our Self-Defense Forces, and I am really worried,” Yukio Okamoto, a former prime ministerial aide for Okinawa, said in an interview, referring to the Japanese armed forces.

While military tensions appear to be on the rise, booming trade with China is credited with pushing much of Japan's current economic recovery.

With Toyota recently announcing a $500 million investment in China, China is expected to displace the United States this year as Japan's top trading partner.

However, this economic bonanza could be threatened by widespread anti-Japanese sentiment in China and by Koizumi's visits to Yasukuni, a Shinto shrine to Japan's war dead.

“Toyota is worried about a Chinese boycott,” an aide to Koizumi said Wednesday. Referring to heavy pressure by Japanese businesses on Koizumi to improve relations with China, he said: “Japan is starting to lose contracts.”

The New York Times

Economist: This is not America

This is not America
Sep 24th 2004 From The Economist Global Agenda

As the Federal Reserve continues to tighten America’s monetary policy, will central banks in East Asia follow suit?

AMERICAN interest rates exert a gravitational pull over global capital, which emerging markets find hard to escape. When interest rates are low in America, investors flock to emerging markets in search of higher yields. But when the Fed nudges rates up, as it did for the third time in three months on Tuesday September 21st, the flow of capital to emerging markets normally ebbs, forcing their central banks to raise interest rates if their currencies are not to fall.

But in this tightening cycle, the emerging markets of East Asia are enjoying some unaccustomed room for manoeuvre. The “automatic” link between their rates and American rates is slipping, argues Julian Jessop of Capital Economics, a consultancy. Hong Kong, which maintains a hard peg to the dollar (backed by a currency board), will have to raise rates, but South Korea has already cut them once this year and may do so again (see chart). Taiwan may raise rates by a quarter of a percentage point, but seems in no great hurry. Meanwhile, the monetary authorities in China, the most closely watched emerging market of all, seem determined not to be rushed into anything.

East Asian currencies are certainly under pressure at the moment. But the pressure is upward. This has yet to show up in their exchange rates. The Malaysian, Chinese and Hong Kong pegs to the dollar have held firm. The Singaporean and Taiwanese dollars have strengthened slightly against the American variety in the past year, as has the South Korean won, but the monetary authorities in each of these countries have resisted any strong upward movements in their currencies.

Suppressed in the currency market, this pressure to appreciate shows up instead in the current-account surpluses these economies run and the mountain of dollar reserves they have amassed. Their combined current-account surplus amounted to well over $100 billion last year and their hoard of reserves is currently worth about $1.2 trillion.

In short, East Asia is becoming a region of dollar creditors, not dollar debtors. Singapore, Taiwan and China have long enjoyed this position; South Korea and Malaysia, however, were chronic borrowers until their financial crises in 1998. Since then, they have embraced the virtues of thrift, saving more than they invest each year, and parking the excess in copper-bottomed dollar assets.

The Chinese authorities alone now hold $483 billion in reserves, much of it in American Treasury bonds. They will meet the man who has written all those IOUs next week in Washington, when, for the first time, Chinese officials will be invited to join John Snow, America’s treasury secretary, and the other finance ministers from the G7 group of rich nations, at one of their annual summits.

The meeting will be tense, because America is a remarkably ungrateful debtor. Instead of thanking China for buying its assets, it denounces it for not buying enough of its goods. It complains that China’s exporters are stealing a march on its own manufacturers and demands that the Chinese revalue the yuan to dull their competitive edge. Mr Snow will repeat this call next week, urging the Chinese to introduce more “flexibility” in their exchange-rate arrangements. A truly flexible exchange rate can move either way, of course. Mr Snow only cares that China’s moves up.

China faces a dilemma common to all the dollar creditors in the region, argues Ronald McKinnon of Stanford University. If they let the dollar fall against their currencies, they would suffer a capital loss on their holdings of dollar assets. A cheaper, more competitive dollar is a boon to the American manufacturer, but a bane to the holder of dollar assets. Indeed, the very fear of such a capital loss can bring it about, if it prompts private holders of dollars to flee from the greenback into the domestic currency. In East Asia, emerging markets have almost as much to fear from a run into their currencies as from a run on them.

In China, despite its thicket of capital controls, speculators have already placed bets on a revaluation of the yuan. The authorities have kept a peg of 8.28 to the dollar since 1994. But though the yuan’s value abroad has remained rock-steady, its value at home has slipped. Inflation is now running at 5.3% per annum. In the past, the People’s Bank of China has talked about raising interest rates if inflation crossed the “bearable limit” of 5% (real rates—ie, adjusted for inflation—are now zero). But to do so would invite further speculative flows into the yuan.

Which brings us back to the Fed. As it raises interest rates, American assets will yield better returns. This will encourage holders of these assets to keep them, rather than dumping them in favour of yuan, won or ringgit. Thus, a tighter monetary policy in America will relieve some of the upward pressure on the currencies of East Asia. In the months ahead, the monetary authorities of emerging markets will be watching the Fed as closely as ever. But this time they may not scurry to follow its lead.

Financial Times: Global economic expansion fuels rebound in foreign direct investment

Global economic expansion fuels rebound in foreign direct investment

By Frances Williams in Geneva

Foreign direct investment is on the rebound this year after three years of steep decline fuelled by global economic expansion and rising company profitability, the United Nations said yesterday.

In its annual world investment report, the UN Conference on Trade and Development (Unctad) also said services offshoring was still in its infancy but was fast approaching a "tipping point" that could see a dramatic takeoff in the relocation of services jobs to lower-cost countries.

However, adopting measures to force service jobs to stay at home would be shortsighted, Unctad said. Protectionist measures were likely to destroy rather than save jobs in the longer run.

Inflows of foreign direct investment (FDI) fell by 18 per cent last year to $560bn (€454bn, £311bn) less than half the 2000 peak of $1,400bn, said the report.

The drop mirrored a 20 per cent decline in the value of cross-border mergers and acquisitions, which have emerged as the key driver of FDI, especially in the industrialised world, since the late 1980s.

While FDI inflows to rich nations slumped 25 per cent last year, inflows to developing countries rose 9 per cent to $172bn in 2003 from $158bn in 2002. Nearly two-thirds of this went to the Asia-Pacific region, with China accounting for $54bn, slightly more than in 2002.

China became the largest recipient of FDI inflows last year (not counting "transhipped" investment through Luxembourg) as flows to the US halved to $30bn, the lowest level since 1992. Germany and the UK also recorded much lower inflows than in 2002.

However, FDI outflows from rich countries rose modestly last year. Together with the improved economic climate and increased cross-border mergers activity, "that suggests that a recovery is under way in 2004", said Carlos Fortin, officer-in-charge of Unctad.

Though inflows and outflows should balance, in practice they diverge because of differences in collection methods, coverage and so on. Statistics are also subject to revision. Thus China was reported as overtaking the US in FDI inflows in 2002, whereas the latest data suggest the US was then still ahead before falling behind last year.

The services sector now accounts for two-thirds of FDI flows and about 60 per cent of the existing FDI stock, from less than 50 per cent a decade earlier.

The most far-reaching changes were taking place in services that can be supplied from abroad using information technology. While researchers have estimated that 2m-5m services jobs could shift offshore over the next five to 10 years, the numbers could be far greater, Unctad said.

"Most multinationals haven't even started offshoring," said James Zahn, an Unctad economist. "What we're seeing may just be the tip of the iceberg."

Ireland, Canada, Israel and India account for more than 70 per cent of the total market for offshored services. www.unctad.org/wir

EmergingPortfolio.com: Investors fuel up EM and developed market equity funds

Investors fuel up EM and developed market equity funds

Investors pumped a net $1.52 billion into developed and emerging markets equity funds tracked by EmergingPortfolio.com Fund Research (EPFR) in the week ending September 15. Rising share prices globally, lower oil prices and solid economic data that was not too strong as to spark worries of rapid monetary tightening helped to encourage investors back into equity funds after six straight weeks of outflows. And the continuing rally in emerging markets debt helped the Emerging Market Bond Funds to their sixth straight week of net inflows.

EPFR tracks equity funds with $1.06 trillion in assets on a weekly basis and fixed income funds with assets of $97 billion. The firm collects flows and allocations data directly from about 7,000 funds with $3 trillion in assets registered in the world’s major fund domiciles, including the US, Luxembourg, Ireland, UK, Caymans, Guernsey, etc. As a result, EPFR’s asset coverage of international developed and emerging market fund groups is the largest and most diverse among fund trackers and more accurately represents global institutional investor sentiment.
Equity Fund Flows*Cumulative 2004 net fund flows by fund category to Sept 15

The combined Emerging Market Equity Funds tracked by EPFR with $106.6 billion of total assets received $349.2 million of fresh money. And even the diversified Global Emerging Markets (GEM) Funds enjoyed inflows for the first time since the week ending July 7. These funds took in $109 million from investors, reducing their year to date outflows to $5.38 billion. Asia ex-Japan Equity Funds enjoyed their fourth straight solid week of interest from capital sources by taking in an additional $154.8 million. These funds have received $528.7 million in the last four weeks, increasing YTD total net inflows to $3.3 billion, or nearly 13% of their beginning of year total assets. Latin America Equity Funds have received net inflows for five straight weeks and the week’s $20.2 million of inflows gives the fund group net inflows of $5.6 million so far this year while EMEA Equity Funds have received inflows for seven weeks running and are the flows leader among EM equity funds in percentage terms: the $1.6 billion of YTD inflows amounts to 19.6% of their total assets.

The runaway fund group leader in terms of total value of inflows are the Global/International Equity Funds. The 1,150 funds tracked by EPFR with $246.7 billion of assets have absorbed $11.2 billion of new money so far this year, representing a little more than 5% of their total assets at the beginning of 2004.

The YTD leaders in percentage terms are the Japan Equity Funds, with net inflows of a whopping $8.87 billion, or 54.4% of their beginning of year total assets. These 205 funds with $27.8 billion in assets tracked weekly by EPFR saw outflows of $39 million in the latest week. It was a modest loss considering the previous week these funds took in $325 million of new money.

US Equity Funds received net inflows for the first time in seven weeks, taking in $847.3 million of net investor contributions during the week. EPFR tracks 2,150 US Equity Funds with $609 billion in assets on a weekly basis. YTD these funds have taken in only $902 million of net inflows.

As European share prices have hit 10-week highs and the euro has held its ground against the dollar, investors have seen fit to squirrel away some money into the Europe Equity Funds for two consecutive weeks. These funds took in $109.2 million in the latest week but have had outflows of $838.5 million year to date.

A surge in the supply of emerging markets debt during early September did nothing to depress the appetite of investors for this asset class. The 249 dedicated Emerging Markets Bond Funds tracked by EPFR posted net inflows for the sixth straight week as nearly $2.4 billion worth of new issues from Brazil, Turkey and the Philippines hit global markets.

For the week ending September 15 the EPFR-tracked EM bond funds - which currently have $17 billion worth of assets under management - took in $33 million. Since August 5 these funds have pulled in a net $322 million and inflows on a year to date basis stand at $516.9 million.

Furthermore, strong demand for the higher quality debt that these funds rotated into during April and May was reflected in their portfolios, which posted a collective gain for the seventh straight week. During that run the value of the fund’s collective portfolios has climbed by $690 million.

Emerging markets debt continues to benefit for the current perception that US interest rates, and hence the return on safer US debt instruments, will not rise rapidly in the foreseeable future. As a result, investors have shifted their attention back to the higher yields available in the emerging markets.

Improving fundamentals in key markets, confirmed by a slew of ratings upgrades, has made it easier for investors to swallow the risk that comes with this asset class. Venezuela and Brazil are the latest countries to have their credit ratings upgraded. Russia aside, the recent political, policy and macroeconomic news has been supportive. Brazil (strong GDP growth), Turkey (efforts to converge on EU membership), Venezuela (post-referendum stability) and India (better than expected 2004-05 budget) have all contributed to the generally positive sentiment.Finally, Global Bond Funds tracked by EPFR posted net inflows of $143.7 million, their seventh straight week of net investor contributions. These 252 funds with $81 billion in assets have enjoyed net inflows of $3.58 billion so far this year, amounting for 4.9% of their total assets.

September 23 Philippine Stock Market Daily Review: Low Interest Landscape Fuels Foreign Buying

September 23 Philippine Stock Market Daily Review

Low Interest Landscape Fuels Foreign Buying

Oops, while yesterday’s chart formation and market internals emitted negative signals leading this analyst to forecast a possible retracement today, apparently foreign money anteed up on their holdings of local equity assets even as Wall Street succumbed to a sharp decline last night. This underscores the folly of short term forecasting.

In the past newsletters we have noted of two salient factors that may lead foreign money’s attraction to Philippine Equity assets; first the low interest rate environment. Yesterday marked another threshold low for US 10 year note, from Bloomberg “U.S. Treasuries rose, pushing the yield on the 10-year note below 4 percent for the first time since April”. Despite the US Fed’s reserve third rate hike this year, the rally in governments bond prices globally signal the imminent top of the rate increases. Hence the proclivity of international fund managers to eye on markets with high-risk high-yield potentials and with low correlation to the US markets. Second, the disconnect with the US financial markets, today’s fierce rally in spite of Wall’s Street’s morose outlook in its equity markets simply highlights the Philippine Market’s independence from the major global bourses. As of the moment, the Phisix is one of the minority gainers among the Asian bourses, including Pakistan and China’s Shanghai. While one day does not make a trend the recent gamut of divergences has slowly been molding.

Foreign money controlled trading activities that accounted for 56.79% of the today’s aggregate output and soaked up on the local equities assets to the tune of P 132.257 million. Naturally, the concentration of the sprightly accumulations were on the blue chips. Of the 8 major cap issues 6 posted capital fluxes from overseas investors with the meat going to the Property heavyweights, SM Primeholdings (+1.61%), and Ayala Land (+1.56%). PLDT (+3.0%), which had been sold down for the past three sessions by portfolio money, posted a reversal and is the third largest recipient from investors abroad. Only Globe Telecoms (-1.38%) and Ayala Corp (unchanged) registered negligible outflows. Obviously, the correction in Globe Telecoms was more than offset by the gains of PLDT. PLDT together with the key property heavyweights and San Miguel B (+1.43%) also on foreign buying buoyed the Phisix by 14.68 points or .85% for the fourth straight session. The rest of the field except for Globe Telecoms were neutral for the day.

Market breadth showed the bulls ahead of the bears by a slim margin 33 to 30. Moreover, industry indices were tilted towards the bears as declining indices (Banking and Finance, Mining and the ALL index) edged out advancing indices (Commercial Industrial and Property) by 3-2 with the Oil index unchanged. However, foreign money bought more issues than it sold in the broadmarket.

The figures above tells us that:

First foreign portfolio money are manifestly are becoming more bullish.

Second, the locals, whom have evidently slowed on their rotational buying binges in the general market, has limited their actions to a few issues and sold the broadermarket hence the tight advance decline differentials. Today’s darling is Gokongwei’s Digitel (+13.43%) the only major telco player whose share prices have lagged its contemporaries for over a year.

Lastly, in spite of all of the headline ‘fire and brimstone’ outlook on the local economy, the Phisix has managed to outperform major market as the US. Could this be a sign that investors have discounted the Philippine economic conundrum or does it show that the seemingly flagging US economy is in a more critical condition than ours, hence the aggressive inflow?

"Economic death" for the Philippines in two years without new taxes: Arroyo

"Economic death" for the Philippines in two years without new taxes: Arroyo

MANILA, (AFP) - President Gloria Arroyo warned that the Philippines risked a "painful economic death" within two years unless taxes are raised to avert a feared debt default.

In a statement printed in the Philippine Star newspaper, she urged the country to "suffer the pain now and experience the gains two years hence (rather) than postpone the pain and die a painful economic death two years from now."

Popular opposition is posing a key stumbling block to Arroyo's bid to balance the national budget through increased taxes.

The eight-month budget deficit rose to 111.1 billion pesos (1.98 billion dollars) in August, compared to the full-year ceiling of 198 billion pesos or 4.2 percent of the gross domestic product (GDP), the finance department said Tuesday.

On Monday Fitch Ratings warned Manila of a potential sovereign credit downgrade if no tax measures were passed by year's end. Manila's government securities are now two notches below investment grade.

"The government cannot subsist on borrowed funds all the time ... (because) the interest payments will catch up with us," Arroyo said.

"If we remain in denial and refuse to take our situation seriously, the world may just impose the truth upon us. When that time comes, the Philippines would be the financial pariah of the world."

A survey by Manila-based Pulse Asia polling organisation last week found that 78 percent of Filipinos "see no need to impose new taxes as long as the government strengthens its tax collection efforts."

Arroyo said the government needed 180 billion pesos more in annual revenues to ease the burden on government debt, which she said stood at 71 percent of GDP -- the third highest in Asia.

She has asked Congress to pass a series of tax laws that would raise at least 80 billion pesos a year.

House of Representatives Speaker Jose de Venecia warned last week, however, that his colleagues were likely to pass only four bills this year and that the extra income would be up to 60 billion pesos short of the target.

Bear, Stearns and Co. analyst John Stuermer said recent sovereign issues by the Philippines showed it "still has fluid access to the capital markets and that press comments comparing the Philippines with Argentina are grossly exaggerated."

However, "the persistence of a budget deficit in a range of 4.0-5.0 percent of GDP is steadily raising the overall public sector debt burden and will make public debt management an increasingly difficult task without more meaningful fiscal reform."

Stuermer predicted that Arroyo would have a hard time getting reform measures passed by Congress despite winning a fresh mandate in the May presidential elections.

He also criticized her government for its reluctance to discuss its borrowing requirements "on a total public-sector basis" instead of just the requirements of the national government budget.

He estimated Manila's financing requirements this year at 3.3 billion dollars, including bonds issued by the loss-making state utility National Power Corp.

Arroyo said that while the economy grew at a respectable 6.2 percent clip in the first half and the government has not defaulted on its obligations, the situation "can deteriorate as fast as we are building our precious and hard-earned gains."

Yahoo Asia: China overtakes United States as top destination for foreign investment

China overtakes United States as top destination for foreign investment

GENEVA (AFP) - China overtook the United States as a top global destination for foreign direct investment (FDI) in 2003 while the Asia-Pacific region attracted more investment than any other developing region, a UN report said.

China's strong manufacturing industry helped the country attract FDI last year worth 53.5 billion dollars, compared with 52.7 billion in 2002, the United Nations Conference on Trade and Development (UNCTAD) said in its annual report on investment flows.

Meanwhile, foreign investment in the United States, traditionally the largest recipient of such money, plunged by 53 percent last year to reach 30 billion dollars, the lowest level in 12 years, according to data from UNCTAD's World Investment Report 2004.

Flows to the Asia-Pacific region as a whole rebounded over the year to 107 billion dollars from 94 billion in 2002 driven by strong economic growth and a better investment environment, the agency said.

China was expected to continue to attract foreign companies, analysts said.

"According to our analysis, FDI in China has not peaked although their economic growth rates have fallen," UNCTAD economist James Zhan told journalists.

The outbreak of deadly Severe Acute Respiratory Disease (SARS) only had a marginal downward effect on investment activity as Asia emerged from the decline in foreign investment it had experienced since 2001, the report noted.

"Prospects for a further rise in foreign direct investment flows to Asia and the Pacific in 2004 are promising," UNCTAD's Deputy Secretary General, Carlos Fortin, said in a statement.

But the distribution of the new wealth was uneven across the region, with most of the money -- 72 billion dollars -- concentrated in north-east Asia.

Flows to south-east Asia rose 27 percent to 19 billion dollars, while the south merely received six billion dollars in FDI.

Resource-rich central Asia recorded 6.1 billion and 4.1 billion dollars flowed into the west.

The manufacturing sector remained the dominant factor that pulled investment into China, but a rise in investment in the services industry was noted elsewhere in line with the global trend, UNCTAD said.

Services, including finance, tourism, telecommunications and information technology, formed a growing proportion of foreign direct investment stock in the region -- up to 50 percent in 2002, the most recent figure available, from 43 percent in 1995, UNCTAD said.

UNCTAD said the growing tendency to shift some business activities overseas to places where labour costs are low but the workforce is skilled helped to raise the region's profile.

Asian companies were also growing in power and reach as investors in other regions, according to the Geneva-based agency.

China and India were joining Malaysia, South Korea, Singapore and Taiwan as sources of foreign direct investment, it said.

Asian firms, such as Hutchinson Whampoa of Hong Kong, Singapore's Singtel and Samsung of South Korea, again dominate the UNCTAD list of the top companies from the developing world.

Buttonwood of the Economist:The bond markets speak

The bond markets speak
Sep 21st 2004 From The Economist Global Agenda

Growth is slowing, inflationary dangers are subsiding and interest rates are near their peak. That, at least, is the message from bond markets around the world

IN TRUTH, there should be few duller things in life than investing in government bonds, a matter of clipping the coupons and getting the principal back upon maturity. Only marginally more exciting, in other words, than the M25 on a Friday afternoon or Haydn’s early string quartets. Yet government-bond markets the world over have been strangely fascinating in recent weeks because they have been rising sharply when in times past they would have fallen with a thud. After all, the price of oil is again barrelling upwards and the Federal Reserve—setter, for better or worse, of the world’s risk-free rate of interest—is raising that rate. The benchmark federal funds rate went up again on Tuesday September 21st, to 1.75%, the third increase this year. But the yield on ten-year Treasuries has dropped to a whisker over 4%; on Bunds, their German counterparts, to roughly the same level; and on Japanese Government Bonds to under 1.5%.

To be sure, there are some distorting factors driving Treasury bond prices higher and yields lower. Buying by Asian central banks, and the Bank of Japan (BOJ) in particular, is one of them. In a spree that lasted until March this year, the BOJ comfortably bought more dollars (on behalf of the finance ministry) than anyone else in history, and plonked the proceeds in Treasuries. Though it has now stopped these dollar purchases, it still has plenty of cash in the bank ($122 billion at the end of August) that it wants to invest in higher-yielding Treasuries. In both July and August, it bought $15 billion of Treasuries. Still, given the huge size of the Treasury market, such purchases probably only account for a small fraction of the fall in yields. Whether you agree with it or not, the message from the bond markets is clear: global growth is slowing, inflationary risks are transient and falling, and interest rates are nearing their peak.

The fall in Treasury yields has been as dramatic as it has been unexpected, to most investors at least. Ten-year yields peaked in the middle of June at 4.9%, and have ratcheted down ever since. Indeed, the bear market in bonds for the past year or so has really only consisted of two sharp sell-offs: from the middle of June until early September last year, and from the middle of March this year until the middle of June. Both sell-offs were caused largely by better-than-expected jobs numbers, and if anything look to be as much of an aberration as the employment reports that caused them. Despite the inflationary scare earlier this year, bond prices have actually risen in more weeks over the past year and a half than they have fallen.

That is decidedly odd. For short-term interest rates in America are still strikingly low. Real rates—that is, adjusted for inflation—are, in consequence, still negative. Very negative, in fact. Consumer-price inflation in America is currently about 3%, which makes real interest rates around -1.25%. The number-crunchers at Goldman Sachs have found that since the early 1960s, the real Fed funds rate tended to fall to just below zero at the trough of interest-rate cycles, and then rose to a couple of percentage points above it within a year. This time round, the real Fed funds rate only fell to nothing a year after the trough of the cycle at the end of 2001, and has averaged about -1.5% ever since. Monetary policy, in other words, is still very loose. If the past is a guide, and assuming that inflation remains where it is, the Fed funds rate would need to rise to 3.5-4% to bring real rates back in line.

Yet the futures market thinks that the Fed will put up rates by only another half a percentage point or so, to about 2.25%, and then stop. The reason lies in growth and inflation expectations, both of which have been falling. America’s giddy growth rate certainly seems to be slowing. The economy grew by an annualised 2.8% in the second quarter, having grown by 4.5% in the first. It is unlikely to grow much more in the third quarter.

Alan Greenspan, the Fed’s chairman, thinks this only a temporary lull; and the strong performance of equities and corporate bonds recently suggests that investors are giving him the benefit of the doubt. The key therefore seems to be inflation, which is low and getting lower. In August, core inflation—ie, stripping out energy and food—rose by only 0.1% for the third month in a row. And overall inflation will continue to fall too, or so investors think: the inflation expected in ten-year inflation-indexed Treasuries (so-called TIPs) has fallen by six-tenths of a percentage point since June.

To anyone raised in the 1970s, such expectations are astonishing. Oil is now over $46 a barrel, the real Fed funds rate is still negative, the dollar is weak and looks set to get weaker, the budget deficit is climbing to the stars, yet still markets expect inflation to fall. It seems to defy logic.

Yet logic there is. The high oil price is a tax on America, or indeed on any other country that doesn’t pump more of the stuff than it consumes. But it can be passed on to consumers in higher prices, or lower growth, or both. The market seems to have decided that it is being passed on only in the form of lower growth. It is not the only tax that is coming due: by the end of this year, consumers are to be hit by the withdrawal of tax rebates of a more traditional sort. And if growth and demand are slow enough, and competition from manufacturers elsewhere (particularly in Asia) stiff enough, consumer inflation will fall.

That, it seems, is the big change from the 1970s. And given the level of bond yields the world over, it seems to be a global phenomenon. If this is indeed the case, the more surprising thing to Buttonwood’s eye is not the level of government-bond yields, even though much disinflation is taken on trust, but the level of the stockmarket, which seems to ignore it entirely.

Islamic Terrorism: Facing the Realities lifted from Martin Spring's On Target

Islamic Terrorism: Facing the Realities

Martin Spring's On Target Private Newsletter

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A friend has forwarded me this analysis from an anonymous source, whose family “has lived in this region for almost 200 years.” I consider it important enough to report almost in its entirety.
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My remarks refer to the region stretching from Pakistan to Morocco, and its place in world events. It predominantly Arab, predominantly Moslem, but includes many non-Arab and also significant non-Moslem minorities.

I put aside Israel and its own immediate neighborhood because Israel and any problems related to it, in spite of what you might read or hear in the world media, is not the central issue, and has never been the central issue in the upheaval in the region.

The millions who died in the Iran-Iraq war had nothing to do with Israel. The mass murder happening right now in Sudan, where the Arab Moslem regime is massacring its black Christian citizens, has nothing to do with Israel. The frequent reports from Algeria about the murders of hundreds of civilian in one village or another by other Algerians have nothing to do with Israel.

Saddam Hussein did not invade Kuwait, endanger Saudi Arabia and butcher his own people because of Israel. Egypt did not use poison gas against Yemen in the 60s because of Israel. Assad the Father did not kill tens of thousands of his own citizens in one week in El Hamma in Syria because of Israel.

The Taliban control of Afghanistan and the civil war there had nothing to do with Israel. The Libyan blowing up of the Pan-Am flight had nothing to do with Israel. I could go on and on and on.

The root of the trouble is that this entire region is totally dysfunctional, by any standard, and would have be even if Israel had joined the Arab league and an independent Palestine existed for 100 years.

The 22 member countries of the Arab league, from Mauritania to the Gulf States, have a total population of 300 million -- larger than the US and almost as large as the European Union before its recent expansion. They have a land area larger than either the US or all of Europe.

These 22 countries, with all their oil and other natural resources, have a combined GDP smaller than that of Netherlands and Belgium together, and only equal to half of the GDP of California alone. Within this meagre GDP, the gaps between rich and poor are beyond belief, and too many of the rich made their money not by succeeding in business, but by being corrupt rulers.

The social status of women is far below what it was in the Western world 150 years ago. Human rights are below any reasonable standard, in spite of the grotesque fact that Libya was elected to chair the UN Human Rights commission.

According to a report prepared by a committee of Arab intellectuals and published under the auspices of the UN, the number of books translated by the entire Arab world is much smaller than what little Greece alone translates. The total number of scientific publications of 300 million Arabs is less than that of 6 million Israelis.

Birth rates in the region are very high, increasing the poverty, the social gaps and the cultural decline.

And all of this is happening in a region which only 30 years ago was believed to be the next wealthy part of the world. And in a Moslem area which developed, at one point in history, one of the most advanced cultures in the world.

This creates an unprecedented breeding-ground for cruel dictators, terror networks, fanaticism, incitement, suicide murders and general decline.

Almost everybody in the region blames this situation on the United States, Israel, Western civilization, Judaism, Christianity -- on anyone and anything except themselves.

A Totally Disfunctional Environment

There are millions of decent, honest, good people who are either devout Moslems, or not very religious but grew up in Moslem families. They are double victims of an outside world which now develops Islamophobia, and of their own environment, which is totally dysfunctional.

The problem is that the vast silent majority of these Moslems who are not part of the terror and of the incitement, do not stand up against it.

They become accomplices, by omission, and this applies to political leaders, intellectuals, business people and many others. Many of them can certainly tell right from wrong, but are afraid to express their views.

The events of the last few years have amplified four issues, which have always existed, but have never been as rampant as in the present upheaval in the region. These are the four main pillars of the current world conflict, or perhaps we should already refer to it as "the undeclared World War Three.”

► The first element is the suicide murder.

Suicide murders are not a new invention, but they have been made “popular”, if I may use this expression, only lately.

Even after September 11, it seems that most of the Western World does not yet understand this weapon.

It is a very potent psychological weapon. Its real direct impact is relatively minor. The total number of casualties from hundreds of suicide murders within Israel in the last three years is much smaller than those due to car accidents.

September 11 was quantitatively much less lethal than many earthquakes. More people die from AIDS in one day in Africa than all the Russians who died in the hands of Chechnya-based Moslem suicide murderers since that conflict started. Saddam killed every month more people than all those who have died from suicide murders since the Coalition occupation of Iraq.

So what is all the fuss about suicide killings?

It creates headlines. It is spectacular. It is frightening.

It is a very cruel death with bodies dismembered and horrible severe lifelong injuries to many of the wounded. It is always shown on television in great detail. One such murder, with the help of hysterical media coverage, can destroy the tourism industry of a country for quite a while, as it did in Bali and in Turkey.

But the real fear comes from the undisputed fact that no defence and no preventive measures can succeed against a determined suicide murderer.

This has not yet penetrated the thinking of the Western World. The US and Europe are constantly improving their defences against the last murder, not the next one.

We may arrange for the best airport security in the world. But if you want to murder by suicide, you do not have to board a plane in order to explode yourself and kill many people. Who could stop a suicide murder in the midst of the crowded line waiting to be checked by the airport metal detector? How about the lines to the check-in counters in a busy travel period?

Put a metal detector in front of every train station in Spain and the terrorists will get the buses. Protect the buses and they will explode in movie theatres, concert halls, supermarkets, shopping malls, schools and hospitals. Put guards in front of every concert hall and there will always be a line of people to be checked by the guards and this line will be the target, not to speak of killing the guards themselves.

You can somewhat reduce your vulnerability by preventive and defensive measures and by strict border controls, but not eliminate it, and definitely not win the war in a defensive way.

What is behind the suicide murders? Money, power and cold-blooded murderous incitement, nothing else.

It has nothing to do with true fanatic religious beliefs. No Moslem preacher has ever blown himself up. No son of an Arab politician or religious leader has ever blown himself up. No relative of anyone influential has done it.

Wouldn't you expect some of the religious leaders to do it themselves, or to talk their sons into doing it, if this is truly a supreme act of religious fervour? Aren't they interested in the benefits of going to heaven?

Instead, they send outcast women, naive children, retarded people and young incited hotheads. They promise them the delights, mostly sexual, of the next world -- and pay their families handsomely after the supreme act is performed and enough innocent people are dead.

Suicide murders also have nothing to do with poverty and despair. The poorest region in the world, by far, is Africa. It never happens there.

There are numerous desperate people in the world, in different cultures, countries and continents. Desperation does not provide anyone with explosives, reconnaissance and transportation. There was certainly more despair in Saddam's Iraq than in today’s Iraq, and no one exploded himself.

A suicide murder is simply a horrible, vicious weapon of cruel, inhuman, cynical, well-funded terrorists, with no regard to human life, including the life of their fellow countrymen, but with very high regard to their own affluent wellbeing and their hunger for power.

The only way to fight this new popular weapon is identical to the only way in which you fight organized crime or pirates on the high seas: the offensive way.

Like in the case of organized crime, it is crucial that the forces on the offensive be united and it is crucial to reach the top of the crime pyramid. You cannot eliminate organized crime by arresting the little drug dealer in the street corner. You must go after the head of the "family".

If part of the public supports it, others tolerate it, many are afraid of it and some try to explain it away by poverty or by a miserable childhood, organized crime will thrive and so will terrorism.

The United States understands this now, after September 11. Russia is beginning to understand it. Turkey understands it well. I am very much afraid that most of Europe still does not understand it.

Unfortunately, it seems that Europe will understand it only after suicide murders will arrive in Europe in a big way. It will definitely happen. The Spanish trains and the Istanbul bombings are only the beginning.

The unity of the civilized world in fighting this horror is absolutely indispensable. Until Europe wakes up, this unity will not be achieved.

► The second ingredient is words. Or more precisely, lies. Words can be lethal. They kill people.

It is often said that politicians, diplomats ,and perhaps also lawyers and business people, must sometimes lie, as part of their professional life. But the norms of politics and diplomacy are childish in comparison with the level of incitement and total absolute deliberate fabrications, which have reached new heights in the region.

An incredible number of people in the Arab world believe that September 11 never happened, or was an American provocation or, even better, a Jewish plot.

You all remember the Iraqi Minister of Information, Mouhamad Said al-Sahaf, and his press conferences when the US forces were already inside Baghdad. Disinformation at time of war is an accepted tactic. But to stand, day after day, and to make such preposterous statements, known to everybody to be lies, without even being ridiculed in your own milieu, can only happen in this region.

Sahaf eventually became a popular icon in the rest of the world as a court jester, but this did not stop some allegedly respectable newspapers from giving him equal time. It also does not prevent the Western press from giving credence, every day, even now, to similar liars.

If you want to be an anti-Semite, there are subtle ways of doing it. You do not have to claim that the Holocaust never happened and that the Jewish temple in Jerusalem never existed. But millions of Moslems are told by their leaders that this is the case.

When these same leaders make other statements, the Western media report them as if they could be true.

It is a daily occurrence that the same people who finance, arm and dispatch suicide murderers, condemn the act in English in front of western TV cameras, talking to a world audience, which even partly believes them.

It is a daily routine to hear the same leader making opposite statements in Arabic to his people and in English to the rest of the world.

Incitement by Arab TV, accompanied by horror pictures of mutilated bodies, has become a powerful weapon of those who lie, distort and want to destroy everything.

Little children are raised on deep hatred and on admiration of so-called martyrs, and the Western world does not notice it because its own TV sets are mostly tuned to soap operas and game shows.

I recommend to you, even though most of you do not understand Arabic, to watch Al Jazeera, from time to time. You will not believe your own eyes.

But words also work in other ways, more subtle.

A demonstration in Berlin, carrying banners supporting Saddam's regime and featuring three-year old babies dressed as suicide murderers, is defined by the press and by political leaders as a “peace” demonstration. You may support or oppose the Iraq war, but to refer to fans of Saddam, Arafat or Bin Laden as peace activists is a bit too much.

A woman walks into an Israeli restaurant in midday, eats, observes families with old people and children eating their lunch in the adjacent tables and pays the bill. She then blows herself up, killing 20 people, including many children, with heads and arms rolling around in the restaurant.

She is called martyr by several Arab leaders and an “activist” by the European press. Dignitaries condemn the act but visit her bereaved family… and the money flows.

There is a new game in town: The actual murderer is called the military wing, the one who pays him, equips him and sends him is now called the political wing, and the head of the operation is called the spiritual leader.

There are numerous other examples of such Orwellian nomenclature, used every day not only by terror chiefs but also by Western media.

These words are much more dangerous than many people realize. They provide an emotional infrastructure for atrocities. It was Joseph Goebels who said that if you repeat a lie often enough, people will believe it. He is now being outperformed by his successors.

► The third aspect is money.

Huge amounts of money, which could have solved many social problems in this dysfunctional part of the world, are channelled into three concentric spheres supporting death and murder.

In the inner circle are the terrorists themselves. The money funds their travel, explosives, hideouts and a permanent search for soft vulnerable targets.

They are surrounded by a second wider circle of direct supporters, planners, commanders, preachers, all of whom make a living, usually a very comfortable living, by serving as terror infrastructure.

Finally, we find the third circle of so-called religious, educational and welfare organizations, which actually do some good, feed the hungry and provide some schooling -- but brainwash a new generation with hatred, lies and ignorance.

This circle operates mostly through mosques, madrasas and other religious establishments, but also through electronic and printed media that incite. It is this circle that makes sure that women remain inferior, that democracy is unthinkable, and that exposure to the outside world is minimal.

It is also a circle that leads the way in blaming everybody outside the Moslem world for the miseries of the region.

Figuratively speaking, this outer circle is the guardian, which makes sure that the people look and listen inwards to the inner circle of terror and incitement, rather than to the world outside.

Some parts of this same outer circle actually operate as a result of fear from, or blackmail by, the inner circles.

The horrifying added factor is the high birth rate. Half of the population of the Arab world is under the age of 20, the most receptive age to incitement, guaranteeing two more generations of blind hatred.

States Finance Terror

Of the three circles described above, the inner circles are primarily financed by terrorist states like Iran and Syria, until recently also by Iraq and Libya, and earlier also by some of the Communist regimes. These states, as well as the Palestinian Authority, are the safe havens of the wholesale murder vendors.

The outer circle is largely financed by Saudi Arabia, but also by donations from certain Moslem communities in the United States and Europe. And, to a smaller extent, by donations of European Governments to various non-governmental organizations and by certain United Nations organizations, whose goals may be noble, but they are infested and exploited by agents of the outer circle.

The Saudi regime, of course, will be the next victim of major terror, when the inner circle will explode into the outer circle. The Saudis are beginning to understand it, but they fight the inner circles, while still financing the infrastructure at the outer circle.

Some of the leaders of these various circles live very comfortably on their loot. You meet their children in the best private schools in Europe, not in the training camps of suicide murderers.

The Jihad "soldiers" join packaged death tours to Iraq and other hotspots, while some of their leaders ski in Switzerland.

Mrs Arafat, the wife of the Palestinian leader, lives in Paris with her daughter and receives tens of thousands of dollars per month from the allegedly bankrupt Palestinian Authority, while a typical local ringleader of the Al-Aksa brigade, reporting to Arafat, receives only a cash payment of a couple of hundred dollars for performing murders at the retail level.

► The fourth element of the current world conflict is breakdown of respect for civilized values.

The civilized world believes in democracy, the rule of law including international law, human rights, free speech and free press, among other liberties. There are naïve, old-fashioned habits such as respecting religious sites and symbols, not using ambulances and hospitals for acts of war, avoiding the mutilation of dead bodies, and not using children as human shields or human bombs.

Never in history, not even in the Nazi period, was there such total disregard of all of the above as we observe now. Every student of political science debates how you prevent an antidemocratic force from winning a democratic election and abolishing democracy.

Other aspects of a civilized society must also have limitations. Can a policeman open fire on someone trying to kill him? Can a government listen to phone conversations of terrorists and drug dealers? Does free speech protect you when you shout fire in a crowded theatre? Should there be death penalty for deliberate multiple murders?

These are the old-fashioned dilemmas. But now we have an entire new set.

Do you raid a mosque, which serves as a terrorist ammunition storage? Do you return fire, if you are attacked from a hospital? Do you storm a church taken over by terrorists who took the priests hostages? Do you search every ambulance after a few suicide murderers use ambulances to reach their targets? Do you strip every woman because one pretended to be pregnant and carried a suicide bomb on her belly? Do you shoot back at someone trying to kill you, standing deliberately behind a group of children?

Do you raid terrorist headquarters, hidden in a mental hospital? Do you shoot an arch-murderer who deliberately moves from one location to another, always surrounded by children?

All of these happen daily in Iraq and in the Palestinian areas. What do you do? You do not want to face the dilemma. But it cannot be avoided.

Suppose, for the sake of discussion, that someone would openly stay in a well-known address in Teheran, hosted by the Iranian Government and financed by it, executing one atrocity after another in Spain or in France, killing hundreds of innocent people, accepting responsibility for the crimes, promising in public TV interviews to do more of the same, while the Government of Iran issues public condemnations of his acts, but continues to host him, invite him to official functions and treat him as a great dignitary.

Figure out what Spain or France would have done, in such a situation.

The problem is that the civilized world is still having illusions about the rule of law in a totally lawless environment. It is trying to play ice hockey by sending a ballerina ice-skater into the rink or to knock out a heavyweight boxer by using a chess player.

In the same way that no country has a law against cannibals eating its prime minister, because such an act is unthinkable, international law does not address killers shooting from hospitals, mosques and ambulances, while being protected by their government or society.

International law does not know how to handle someone who sends children to throw stones, stands behind them and shoots with immunity, yet cannot be arrested because he is sheltered by a government. Nor how to deal with a leader of murderers who is royally and comfortably hosted by a country which pretends to condemn his acts or just claims to be too weak to arrest him.

The amazing thing is that all of these crooks demand protection under international law and define all those who attack them as war criminals -- with some Western media repeating the allegations.

The good news is that all of this is temporary, because the evolution of international law has always adapted itself to reality. The punishment for suicide murder should be death or arrest before the murder, not during and not after.

After every world war the rules of international law have changed and the same will happen after the present one. But during the twilight period, a lot of harm can be done.

► What can be done about it?

The picture I described here is not pretty. What can we do about it? In the short run, only fight and win. In the long run only educate the next generation and open it to the world.

The inner circles can and must be destroyed by force. The outer circle cannot be eliminated by force. Here we need financial starvation of the organizing elite, more power to women, more education, counter propaganda, boycott whenever feasible, and provide access to Western media, the Internet and the international scene.

Above all, we need a total absolute unity and determination of the civilized world against all three circles of evil.

When you have a malignant tumour, you may remove the tumour itself surgically. You may also starve it by preventing new blood from reaching it from other parts of the body, thereby preventing new "supplies" from expanding the tumour. If you want to be sure, it is best to do both.

But before you fight and win, by force or otherwise, you have to realize that you are in a war, and this may take Europe a few more years. In order to win, it is necessary to first eliminate the terrorist regimes, so that no government in the world will serve as a safe haven for these people.

Iran and Other Remaining Terrorist States

I do not want to comment here on whether the American-led attack on Iraq was justified from the point of view of weapons of mass destruction or any other pre-war argument, but take a look at the post-war map of Western Asia.

Now that Afghanistan, Iraq and Libya are out, two-and-a-half terrorist states remain: Iran, Syria and Lebanon, the latter being a Syrian colony. Perhaps Sudan should be added to the list.

As a result of the conquest of Afghanistan and Iraq, both Iran and Syria are now totally surrounded by territories unfriendly to them. Iran is encircled by Afghanistan, by the Gulf states, Iraq and the Moslem republics of the former Soviet Union. Syria is surrounded by Turkey, Iraq, Jordan and Israel.

This is a significant strategic change and it applies strong pressure on the terrorist countries.

It is not surprising that Iran is so active in trying to incite a Shiite uprising in Iraq. I do not know if the American plan was actually to encircle both Iran and Syria, but that is the resulting situation.

The number one danger to the world today is Iran and its regime.

It definitely has ambitions to rule vast areas and to expand in all directions. It has an ideology, which claims supremacy over Western culture. It is ruthless.

It has proven that it can execute elaborate terrorist acts without leaving too many traces, using Iranian embassies. It is clearly trying to develop nuclear weapons. Its so-called moderates and conservatives play their own virtuoso version of the good-cop versus bad-cop game.

Iran sponsors Syrian terrorism. It is certainly behind much of the action in Iraq. It is fully funding the Hizbulla and, through it, the Palestinian Hamas and Islamic Jihad. It performed acts of terror at least in Europe and in South America and probably also in Uzbekhistan and Saudi Arabia. And it leads a multinational terror consortium which includes, as minor players, Syria, Lebanon, and certain Shiite elements in Iraq.

Nevertheless, most European countries still trade with Iran, try to appease it, and refuse to read the clear signals.

Money: the Life-Blood of Terrorism

To win the war it is also necessary to dry up the financial resources of the terror conglomerate.

It is pointless to try to understand the subtle differences between the Sunni terror of Al Qa’ida and Hamas and the Shiite terror of Hizbulla, Sadr and other Iranian inspired enterprises. When it serves their business needs, all of them collaborate.

It is crucial to stop Saudi and other financial support of the outer circle, which is the fertile breeding-ground of terror.

It is important to monitor all donations from the Western world to Islamic organizations, to monitor the finances of international relief organizations, and to react with forceful economic measures to any small sign of financial aid to any of the three circles of terrorism.

It is also important to act decisively against the campaign of lies and fabrications and to monitor those Western media who collaborate with it out of naivety, financial interests or ignorance.

Above all, we must never surrender to terror. No one will ever know whether the recent elections in Spain would have yielded a different result, if it were not for the train bombings a few days earlier. But it really does not matter. What matters is that the terrorists believe that they caused the result and that they won by driving Spain out of Iraq.

The Spanish story will surely end up being extremely costly to other European countries, including France. In the long run, Spain itself, too, will pay even more.

Is the solution a democratic Arab world? If by democracy we mean free elections but also free press, free speech, a functioning judicial system, civil liberties, equality to women, free international travel, exposure to international media and ideas, laws against racial incitement and against defamation, and avoidance of lawless behaviour regarding hospitals, places of worship and children, then yes, democracy is the solution.

If democracy is just free elections, it is likely that the most fanatic regime will be elected-- the one whose incitement and fabrications are the most inflammatory.

We have seen it already in Algeria and, to a certain extent, in Turkey. It will happen again, if the ground is not prepared very carefully.

On the other hand, a transitional democracy, as in Jordan, may be a better temporary solution, paving the way for the real thing, perhaps in the same way that an immediate sudden democracy did not work in Russia and would not have worked in China.

I have no doubt that the civilized world will prevail. But the longer it takes us to understand the new landscape of this war, the more costly and painful the victory will be.

Europe, more than any other region, is the key. Its understandable recoil from wars, following the horrors of two world wars, may cost thousands of additional innocent lives, before the tide will turn.

September 22 Philippine Stock Market Daily Review Correction Looms

September 22 Philippine Stock Market Daily Review

Correction Looms

After a blazing start which saw the Phisix gain by about 1%, profit taking dominated the late day leading the Phisix to close slightly higher by 7.02 points or .42%.

The market was essentially mixed, the gains of the Phisix was underpinned by the marked advances of Globe Telecoms (+3.33%) and property heavyweights Ayala Land (+1.58%) and SM Primeholdings (+1.63%). All three issues posted the largest capital flows from overseas investors. On the other hand, three blue chip issues weighed on the market, namely Ayala Corp (-1.53%), Metrobank (-1.75%) and San Miguel B (-1.42%). The former two were hobbled by foreign selling.

Foreign money once again dictated on the activities of the market accounting for 61.07% of the day’s output. Aside, foreign money posted a net inflow of P 39.260 million (US$ 698,576) even as they sold more issues among the blue chips (4 outflows-3 inflows-1 no transaction) and in the broader market. Since foreign money commanded the pace of the market, 7 of the 9 heavy cap issues (except Metrobank and San Miguel B down 1.42%) made the top ten most active lists with a combined share of 75.5% of today’s output.

Sentiment was generally mixed as declining issues led advancing issues 43 to 37. Meanwhile industry indices were also evenly distributed among gainers and losers. Among the gainers are the Property, Commercial Industrial and the ALL index. The losers list included the Financials, Mining, and Oil. It’s such an irony considering that crude oil prices are now headed for the $47 per barrel level while Petroenergy the only company actively generating oil revenues (among the oil exploration companies) from its African Well was sold down today. Speaks highly of the nature of our investor’s mindset.

Obviously the market was driven no less than the intense foreign interest in Globe and the main property heavyweights even as they sold heavily in PLDT (unchanged) and Bank of the Philippine Islands (unchanged). Globe Telecom appears to have ensnared the leadership mantle from its main rival to assume the market’s frontrunner. Meanwhile foreign interest with property issues continue to provide the supporting to role to the Phisix as local investors seemed to have paused from their recent aggressive buying stance.

The slowdown or the profit taking activities envisaged during the close of the trading session could presage for further declines tomorrow, any dips could be seen as a buying window. Aside, if one would consider the technical picture of the Phisix in Japanese Candlesticks today’s activities appears to limn a ‘shooting star’ pattern which connotes of an interim bearishness in the offing.

September 21 Philippine Stock Market Daily Review: A Reprise of Yesterday

September 21 Philippine Stock Market Daily Review

A Reprise of Yesterday

It was much of a reprise of yesterday’s activities characterized by foreign money shoring up the index heavyweights, ergo lifting the index, while the locals were still on a profit taking mood resulting to a mixed broad market.

The Phisix closed higher for the second consecutive session by 18.47 points or 1.09% on moderate volume of P 880.007 million (US $15.658 million) and was the second best performer among the broadly buoyant Asian Bourses next to Taiwan, as of this writing. While the Peso volume turnover on the surface looked impressively sturdy, dissecting the figures show that special block sales and cross trades accounted for 54.61% of today’s output. This means that board transactions, net of the special block sales of Ginebra San Miguel and the cumulative cross transactions, amounted to only P 399.399 million (US $ 7.107 million).

Capital fluxes from foreign money registered a positive P 97.496 million representing about 11.08% of today’s output. Similar to yesterday, ALL index heavyweights accounted for inflows EXCEPT for PLDT (-1.1%). However, the issue that tallied the most influxes was Aboitiz Equity Ventures (+3.03%). Aside, foreign money bought more issues on the broadmarket than it sold and these buying support practically lifted all the INDEX issues again except PLDT, namely Globe Telecoms (+2.94%), Ayala Corp (+4.83%), Metrobank (+3.63%), Ayala Land (+1.61%), Bank of the Philippine Islands (+1.12%) and SM Primeholdings (unchanged). Of course, as your prudent investor-analyst forecasted in his latest newsletter, this we believe, is largely due to refreshed expectations of continued accommodative global monetary policies which provides foreign money institutions opportunity to lever on their investment funds.

On the broadmarket, internals exhibited a mixed sentiment despite the rise of the key benchmark. Declining issues edged advancing issues by 32 to 29, while number of trades for the day continued its fall to 107. On the other hand, industry sub-indices were mostly up led by the Financials (+1.46%), Commercial and Industrial (+1.033%) and the Property index (+.48%), while the Mining (-1.24%) and the ALL (-.12%) index posted declines. The Oil index remained neutral in spite of the fact that crude oil price trades at the $46 per barrel levels.

While we have rightly seen the foreign money plays into the index in the past two sessions what puzzles your analyst is the continued easing of local participation in the market. One enlightening event is that where previously the bulk of foreign money went almost singlehandedly into PLDT, in the past two sessions it has spread among the blue chips giving PLDT the market leader since 2003’s run-up a much deserving rest.

And another observation, the rise in Aboitiz Equity Ventures as noted above has been primarily due to cross transactions (the largest share for today) by a single broker. In other words, about 96.94% or 45.498 million shares (data from citiseconline.com) of the traded shares of AEV were executed by a single broker distributed into four fluctuations which obviously resulted to the 3.03% rise. Any abnormalities, go figure.