Shaw Capital Management Korea: Postal Reform Rollback

The Japanese government has decided to revise the

proposed reforms of the postal system …

Shaw Capital Management Korea: One of the world’s largest financial institutions

The government now proposes to absorb Japan Post

Network Co. and Japan Post Service Co. into Japan Post

Holdings on October 1, 2011.

The newly consolidated holding group will continue

to have two financial units, turning the system into a

three-company structure, from the current five

companies (currently, the system consists of Japan Post

Holdings Co. and four units — a postal service, a savings

bank, a life insurance company and a retailer for the

services of the other three).

Under the new plan, the current Democratic Party of

Japan-led government (DPJ) also plans to double the

maximum amount of deposits that Japan Post’s banking

unit can accept per person from the current ¥10 million

to ¥20 million and to raise postal insurance coverage

from the current ¥13 million to ¥25 million.

The government is also likely to hold on to more than

a third of the postal group’s shares in a turnaround

from full privatization — this will enable the

government to veto any major changes in the firm.

The bill with these latest changes, is expected to be

submitted to the Diet.

“We made the bill’s outline with the aim of ensuring

that Japan Post will sufficiently offer universal services

throughout the nation”, Shizuka Kamei, Japan’s Finance

Minister, told reporters at a press conference.

The Japan Post group provides insurance services

through its 24,000 post offices across the nation

especially in rural areas where private banks have little

or no presence or have trouble gaining the trust of

locals, and holds savings accounts for about 57 million

people.

The group as a whole employs about 226,000 people

and, with assets of more than ¥300,000 billion, sits at

the heart of a system of public institutions that own

almost half of Japan’s national debt.

Moreover, it helps to keep the government’s cost of

borrowing low even as its gross debt closes in on 200%

of annual output.

Japan Post was nominally privatised in 2003; with the

reforms spearheaded by former Prime Minister

Junichiro Koizumi, the champion of structural reforms

for a more market-oriented economy.

Under the previous plan, Japan Post’s financial units

were to be fully released from government control by

2017. With these latest moves, Prime Minister Yukio

Hatoyama’s government, which took power last

September from the long-ruling Liberal Democratic

Party (LDP), is halting the sale of its shares to maintain

control over the company’s plentiful assets, long a

source of public financing.

Behind the proposal is the government need for a

growth strategy.

In the fiscal 2010 budget, general-account expenditures

stand at a record ¥92 trillion, so politicians are pushing

for postal savings to be used to finance their policies.

But these proposed changes to postal reform raise

numerous concerns.

First of all, if the massive postal group attracts even

more money with the lifting of the savings cap, it will

hamper private-sector financial businesses and spark

an outflow of funds from private banks.

Tadashi Ogawa, chairman of the Regional Banks

Association, says raising the deposit cap is “truly

regrettable” because small regional banks in particular

will be affected in times of financial crisis because

depositors may flee to Japan Post Bank.

Moreover, the two subsidiaries — the postal bank and

insurance company — are likely to be permitted

substantial operational freedom.

This would, for example, enable them to offer housing

loans or sell cancer insurance policies.

The uneven public-private playing field, however,

would no longer be just a domestic problem. The US

and Europe have already expressed concerns about

these developments.

Also, creating an even bigger public financial entity

will loosen the government’s fiscal discipline through

increased purchases of government bonds (JGBs) and

accelerate wasteful spending on public works projects.

The system of public institutions buying JGBs has been

central to the economic status quo that has kept Japan

afloat since its stock market plunged in 1990.

“The revision will be a turning point for the worse”,

says Naoko Nemoto, a banking analyst at rating agency

Standard & Poor’s in Japan.

The deep misgivings over public spending originate

from the way postal savings were used for years.

The money had long been used to fund unnecessary

public projects such as highways, bridges and airports

in the middle of nowhere via the Finance Ministry’s

fiscal investment and loan program, which was

reformed in 2001.

These expenditures were not only inefficient but also

lacked transparency because they were made through

government-affiliated organisations.

Creating an even bigger public financial entity is also

risky because it will distort the entire interest-rate

structure of financial markets, where loans with higher

risks should reflect higher returns.

If a public institution extends loans with below-market

interest rates to support certain industries, we are back

to the government ‘picking winners’ or worse just

backing losers.

In other words, this is yet another example of how the

DPJ is mis-managing the Japanese economy, pandering

to voters and reversing necessary reforms passed by

the Koizumi government.

Shaw Capital Management Korea: World Trade

The fall-out from the failure of the Doha Round of trade

liberalisation measures, and the impact of the recession,

are continuing to increase the threat of further

protectionist restrictions on world trading activities.

The US Commerce Department has recently launched

an investigation into whether certain forms of

aluminium made in China is being dumped, or sold at

less than its fair value, in the US; and the Chinese

Commerce Ministry has responded by launching its

own anti-dumping enquires into imports of

caprolactam, a widely-used synthetic polymer, from

both the US and Europe, and has finalised the ruling

on some nylon imports.

These developments are not likely to lead to early and

dramatic changes; but they do provide a further

illustration of the dangers if the global economic

recovery does not accelerate and lead to a relaxation

of the pressures in the trading system.

Shaw Capital Management August 2010: Financial Markets

Sentiment in the financial markets has improved over the past month. There has been further evidence that

the recovery in the global economy is continuing; the sovereign debt crisis in Europe has not yet produced a major casualty; there has been a modest rally in the euro; and the Chinese authorities have announced that they intend to adopt a “more flexible” policy towards the renminbi that is expected to allow it to appreciate at a slightly faster rate.

Shaw Capital Management August 2010: Financial Markets - These developments have suggested that the gloom was overdone. The effect in the currency markets had been to slightly weaken both the dollar and the yen, as the “risk appetite” amongst investors and traders has increased, and to strengthen the commodity-linked currencies and ease the pressures on the euro. Sterling has also improved over the month, helped by the measures announced by the new coalition government in the UK, both before and during the recent budget statement, to significantly reduce the huge fiscal deficit.

Shaw Capital Management  views on financial market - But overall movements in the major currencies have been fairly small, and there is still considerable optimism about prospects.

The latest evidence on the performance of the US economy has enhanced the prospects for the dollar, and this should also continue to provide some stability for the yen.

The sovereign debt problems in Greece, Spain, Portugal, and even in Italy, continue to worsen, and may well lead to defaults and put further pressure on the single currency system.

There must also be serious doubts about the latest improvement in sterling.

The new government in the UK is making credible efforts to reduce the size of the fiscal deficit; but it faces a daunting task, and will find it very difficult to maintain its tough stance.

There is therefore a serious risk of a crisis in the UK currency market, and so it is crucial that the international agencies prepare contingency measures to enable them to act quickly if the situation appears to be running out of control.

The latest available evidence on the performance of the US economy; show the recovery from recession remains on track.

Retail sales were 1.2% lower in May than in April, emphasising the cautious mood amongst consumers; non-farm payrolls increased by 431,000 in May, but 411,000 jobs were accounted for by temporary government hiring to complete the 2010 census, leaving the increase in “real” jobs well below expectations; new home starts fell sharply in May following the withdrawal of government measures to prop up the market, and existing home sales also fel.

And the M3 measure of broad money growth is also continuing to decline because of weak loan demand from reliable borrowers, and the reluctance of the banks to lend to anyone else. There are offsetting factors in the strength of the manufacturing sector; and consumer confidence figures remain reasonably strong.

The Commerce Department has recently revised its estimate of growth in the first quarter of the year down to a 3% annualised rate; but this rate may not have been maintained in the current quarter; and this has already led to a strong plea to Congress from the government to authorise additional spending programmes costing up to $50 billion “to keep the recovery on track”, it is not clear how Congress will respond.

The Fed chairman, Ben Bernanke’s recently testimony to Congress; that the pace of the recovery will not be strong enough to fix the jobs market or reduce the budget deficit without further help, also argued that, despite the size of that deficit, “to avoid sharp, disruptive shifts in spending programmes and tax

policies in the future, and to retain the confidence of the public and the markets, we should start planning now how we will meet these budgetary challenges”. This view about the economy is repeated in the statement after the latest meeting of the bank’s Open Market Committee, and so, although the bank believes

that the recovery is continuing, it is not surprising that it is quietly considering what steps it might have to take if the recovery unexpectedly falters.

There has been a modest recovery in the euro from a low-point in the early part of the past month, although it is still ending the period slightly lower.

The economic background in the euro-zone is continuing to improve, and there has been evidence of support for the euro, particularly from the Swiss National Bank, which reported an increase in its foreign currency reserves of more than $100 billion in May. But the benefits have been limited by the on-going sovereign debt problems amongst some member countries of the euro-zone, and especially by the serious deterioration in the situation in Spain, and so the improvement that has occurred remains very fragile.

esul. T y �� �� ith a true open architecture advisor.

Our philosophy is simple: almost every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Before Shaw Capital Management South Korea launched the open architecture revolution, investors had to make the unhappy choice between selecting an advisor who was independent, but unsophisticated (the traditional pension and endowment consulting firms), or selecting an advisor who was sophisticated but had conflicting interests (global banks, trust companies, money management firms).

Today, virtually all investors faced with the challenge of managing a significant pool of capital can access open architecture advice.

Portfolio Recommendations: Shaw Capital Management Korea

We have made no changes in the balance of our portfolios this

month. The strength of the equity markets is encouraging, and we

expect that the global economy will continue to recover, and push

the markets even higher by year-end.

Portfolio Recommendations: Shaw Capital Management Korea. Market Developments. Economies virtually everywhere have been recovering for some months, the question is what to do post-crisis. For some, like Ireland, Iceland

and Latvia, there is little option but severe and immediate public sector retrenchment. For most however there is a choice: on the fiscal side

cuts (or tax rises) now, or later spread over a long period. On the monetary side, continued printing of money or cessation and even reversal.

In fact this is one of those periods when the ‘independence’ of central banks, that is their independent authority to set interest rates and

the extent of money printing, is a disadvantage for the economy, all of which need at present careful coordination of monetary and fiscal

policy.

Portfolio Recommendations: Shaw Capital Management Korea. There has been an increase in the risks in the bond market; the

current situation, with the latest attempts to resolve the Greek

debt crisis achieving only limited success, and a sudden weakening

in the world bond market emphasising the funding problems that

are affecting the entire bond market.

Portfolio Recommendations: Shaw Capital Management Korea. Independence of Central Banks. Economies virtually everywhere have been recovering for some

months, the question is what to do post-crisis. For some, like Ireland,

Iceland and Latvia, there is little option but severe and immediate

public sector retrenchment.

For most however there is a choice: on the fiscal side cuts (or tax

rises) now, or later spread over a long period. On the monetary

side, continued printing of money or cessation and even reversal.

In fact this is one of those periods when the ‘independence’ of

central banks, that is their independent authority to set interest

rates and the extent of money printing, is a disadvantage for the

economy, all of which need at present careful coordination of

monetary and fiscal policy.

At Shaw Capital Management we give you the information and insight you need to make the right investment choices.

We look forward to working with you and being the open architects of your financial well being.

Every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Our philosophy is simple: almost every investor will achieve better long-term risk-adjusted results by working with a true open architecture advisor.

Before Shaw Capital Management South Korea launched the open architecture revolution, investors had to make the unhappy choice between selecting an advisor who was independent, but unsophisticated (the traditional pension and endowment consulting firms), or selecting an advisor who was sophisticated but had conflicting interests (global banks, trust companies, money management firms).

Today, virtually all investors faced with the challenge of managing a significant pool of capital can access open architecture advice.

The UK and the Budget: Shaw Capital Management Korea

In the UK it is obvious that there is no possibility of continuing

with budget deficits of some 13% of GDP, the present prospect if

no action is taken.

Unfortunately however the recent UK Budget produced no credible

plan for dealing with this problem. It swept it into the lap of the

new government after the May election, whatever that government

is.

The UK and the Budget: Shaw Capital Management Korea. The UK cannot delude themselves that rapid resumed growth will

lead to a rapid return of the previous revenue streams. UK growth

in most forecasts, ours included, is projected as slow.

In our view there is a good reason: the continuing shortage of oil

and raw materials worldwide prevents rapid growth for the world

as a whole and since emerging market economies are continuing

to grow rapidly that restricts the growth possibilities in countries

like the UK and other developed countries.

We are already seeing inflation spread into China and other

emerging countries, forcing a tightening of policy.

It seems likely that this tightening will be enough to restrain world

growth to rates that will not push commodity prices much higher.

So even the fast-growing world economies are being forced to limit

their growth ambitions; as for the UK they are achieving ‘recovery’,

but hardly enthusiastic growth.

All this will only change when innovation in raw material use has

freed up net world supplies.

Fortunately the flexibility of the UK labour market has restricted

the jobs fallout. Unemployment has peaked below 8% (just over 5%

on the benefit-claimant measure) as people have opted for wage

freezes or cuts and shorter hours … so there is underemployment

but not the disaster of double-digit unemployment rates.

But this environment is one in which tax revenues will not recover

much and in which the demands for public spending will continue.

Time will tell how big the ‘structural deficit’ … that will emerge

once the recovery is complete … may be.

But policy decisions cannot wait until this is better known. So in

this Budget the need was to produce a five-year public sector

adjustment plan.

Two things should guide this plan: keeping the taxes down and

competitive, so that growth and innovation resume, and restoring

efficiency in public spending.

The UK and the Budget: Shaw Capital Management Korea. Spending cuts

To begin with the last, the current government unleashed a massive

surge in public spending from 2000, raising it by 8% of GDP before

the crisis raised it by more again.

Everyone knew that without reform and gradual increases, such

money would be wasted; there is no practical way to spend such

vast sums without raising wages and wasting money on speculative

projects.

Productivity in the public sector duly slumped and public sector

remuneration including pensions has surged past the private sector

where market forces suggest pay should be higher to reflect greater

insecurity.

The UK and the Budget: Shaw Capital Management Korea. To reduce public spending back to where it started in 2000 as a

share of GDP (at around 36%) would require it to grow in real terms

by about 16% less than real GDP over the next five years.

Since total GDP growth over that period is likely to be about 10%,

that means that spending must be cut by about 1% a year in real

terms.

This is a feasible target. The UK Treasury under Gordon Brown

became a brute instrument of spending increase, oddly somewhat

against the protests of some departments worrying about wasteful

effects. The UK Treasury was never traditionally like this … very

much the opposite, a place from which wringing money was like

getting blood from stones.

It should be returned to its traditional function of restraint; Treasury

control, old-style, is the best instrument for forcing departments

to find the economies they privately know they can make.

Taiwan’s Economy: by Shaw Capital Management Korea

With gross domestic product clocking 10.2% growth from a year ago in the

fourth quarter, and 4.2% from the previous quarter, Taiwan returned to

pre-financial crisis growth levels. In spite of the strong recovery in the

second half of the year, Taiwan’s economy still shrank by 1.9% in 2009.

The government expects GDP to grow 4.7% this year, an upward revision

from its previous forecast of 4.4% growth. With rising new orders Taiwan’s

economy has entered a sustained expansion cycle.

Taiwan’s exports rose 75.8% in January to US$21.75 billion from US$12.37

billion a year earlier and imports in January more than doubled to US$19.25

billion from US$8.97 billion a year earlier.

Taiwan had a trade surplus of US$2.49 billion in January, bigger than the

government forecast of a US$1.93 billion surplus. The island had a trade

surplus of US$1.65 billion in December.

Taiwan will lower investment barriers for its technology companies to do

business in China. This sector is the latest to benefit from tighter economic

ties between the mainland and the island.

Shaw Capital Management – New Economy - Although we have seen an explosive decade of growth and cycle in the economy, the bombs have been filtered out leaving the economy poised for steady and certain growth. Smart money is now wise to the problems the past few years, lessons have been learned, and the best investments are now at hand.

We have seen extraordinary growth in technology, but at the same time a buffering and selection process in industry. Although the infrastructure is stable for the moment, there are new technologies emerging, which would otherwise have been lost in the chaotic trends of recent times. This settling of the infrastructure will allow these new technologies to become visible more easily, but fast response time is critical.

Poised for Growth. Based on the stabilized infrastructure and upswing and recovery in the economy, business is poised for an explosive period of growth as smart money now focuses in on those business models and innovations designed for success. These select companies are key to your financial growth and your future wealth.

But how to determine which companies are the movers. Short term trends only show day to day trading and market momentum. These are important indicators to a markets early acceptance of a company. The real key is having industry knowledge, and understanding how a company fits into the evolving New Economy over time.

What is required is a group of professionals working together sharing, discussing, and evaluating those market trends and the companies which will be filling the needs of industry over time. Through careful research the Shaw Capital Asset Management Korea staff of investment professionals document and compare the relative strengths of the hottest new companies and affiliates. Staff origins and histories are reviewed. Only those companies with the strongest and most consistent foundations are considered.

From those companies with strong foundations of support, the technology and product offerings are then compared in search of the stellar products which address industry needs for a stable fit into the economy, but also do so in a fashion which goes beyond just "filling a gap" in the market. In other words, a strong company and equally strong and visionary products.

This type of dedication and selection is what allows us to be a driving force behind the evolution of the New Economy.

Shaw Capital Management: Brazil’s Economy

Brazil’s economy emerged from a deep but short recession in the second

half of last year. The economy is expected to grow by at least 5.5% this year.

But along with economic growth, expectations of higher inflation have also

returned.

Shaw Capital Management Korea: Brazil’s  Economy - The government’s target for annual consumer price inflation is 4.5%. To contain inflation Brazil’s central bank has raised banking reserve

requirements on term deposits from 13% to 15%. In addition to the increase

in reserve requirements, the bank also restored additional charges on cash

and term deposits to 8% from 5% and 4%, respectively.

According to the Central Bank President Henrique Meirelles, the changes

were necessary to neutralize the impact of excess liquidity brought by

reserve requirement reductions made in 2008, amid the onslaught of the

global financial crisis. However, for the central bank it would be a politically

difficult task to raise interest rates in the run up to Brazil’s presidential,

congressional and other elections in October.

Shaw Capital Management Korea: Brazil’s  Economy - The government has launched a new investment trust to invest in the domestic Brazilian economy. BM&F Bovespa, the São Paulo equities and

derivatives exchange is to raise its stake in the CME Group of Chicago, the

world’s biggest exchange group, to 5% in an attempt to attract more

institutional and retail investors to Brazil.

Shaw Capital Management Korea: Brazil’s  Economy - The plan for the two exchanges is to work together to develop a new multiasset electronic trading platform based on the CME’s Globex system.

President Lula da Silva, the most popular President in Brazilian history, would like to see October’s presidential election as a plebiscite on his eight years in power. He is asking voters to transfer his success to Ms Dilma

Rousseff, his chief minister, whose candidacy has been endorsed by his Workers’ party (PT).

Shaw Capital Management Korea: Brazil’s  Economy - Ms Rousseff is further to the left than the present administration, but she has pledged not to make a sudden change of direction. The investors and

voters believe her so far.

We look forward to working with you and being the open architects of your financial well being.

Our goal is to provide consistent quality investment advice to our clients. Although the stock market provides many facets of opportunity for today's investor, there are always just a few stellar markets or niche companies at any given time. It is true that in a healthy market, investments yield favourable returns in a given growth area. The key is to pick those investments that are driving the trends and will become tomorrow's brightest stars.

One problem is proper allocation of research resources. It is true there is power in numbers, and teams of researchers will generally spot and confirm trends that the individual investor would miss. But on the other hand, too broad of an effort will squander research resources and loose sight of those special investments in an overwhelming sea.

Developing Strategic Research Capital. By having broad and robust resources, then viewing and deploying those resources in a multi-dimensional fashion, a balanced research model is created yielding greater and more focused results. In short, Research Capital. To achieve this result, research is targeted to different dynamics of the market rather than a flat view of just general market trends.

Market trends are viewed across a broad spectrum for change and interaction with associated segments, and then for life and duration of changes.

From this initial analysis comes the ability to focus resources on those segments and opportunities that will shine brightest and meet your investment goals. This is the result of a properly developed research program yielding the greatest return of Research Capital, in short a wealth of specific focused knowledge to provide the depth of advice you need to make the right decision.

At Shaw Capital Asset Management your investment is important to us. That same care in managing our Market Analysis Research Strategy provides you with the information you need to make the right choice.