PP 7767/09/2011(028730)

Economic Highlights
Global
•MARKET DATELINE

19 October 2010

1 IMF Softened Its Stance On Capital Controls

2 US Industrial Production Fell In September, But Foreign

Investors Bought More US Financial Assets In August

3 Singapore’s Non-oil Domestic Exports Slowed Down In

September

Tracking The World Economy...

Today’s Highlight

IMF Softened Its Stance On Capital Controls

The International Monetary Fund (IMF) has softened its stand on capital controls, as it warned that capital flooding into
Asia could lead to excessive exchange-rate moves, asset bubbles and financial instability. It touted capital controls as
a means to moderate the vast inflows to prevent another financial crisis. The unusual joint endorsement of capital
controls, policies that the IMF has until recently resisted, highlights how the growing gap in the performance of different
parts of the global economy is pushing policymakers in new directions. It also highlighted that, perhaps, allowing currency
to appreciate alone may not be sufficient in doing the job of slowing down capital inflows. This is especially the case
where “carry-trade” activities are quite common due to interest rates that are extremely low in developed countries and
developing as well as emerging economies’ markets are not deep enough to absorb the inflows. The IMF’s remarks came
as governments in Asia and emerging economies are looking for ways to lean against the substantial inflow of foreign
capital.

Separately, Brazil stepped up its efforts on 18 October to control capital inflows by raising taxes on foreign investments
in fixed-income securities for the second time in a month. It raised the so-called IOF tax on foreign inflows to 6% from
4% previously. The moves aim to curb foreigners’ appetite for short-term investments and curb the US dollar inflows
that have contributed to the real’s 7.1% gain in the past three months, the biggest among major Latin American
currencies.

Earlier, Thailand also imposed a 15% withholding tax on interest payments and capital gains earned by foreign investors
on Thai bonds, while India signaled that it may intervene in the currency markets to slow down the appreciation of the
rupee.

The US Economy

Industrial Production Fell In September

◆ US industrial production fell by 0.2% mom in September, compared with +0.2% in August and +0.7% in July.
This was the first decline in more than a year, suggesting that industrial activities have weakened. The
slowdown was due to a decline in manufacturing production and a slower growth in mining output. These were made
worse by a sharper drop in utilities output. Manufacturing production fell by 0.2% mom in September, after easing

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

A comprehensive range of market research reports by award-winning economists and analysts are Page 1 of 3
exclusively available for download from www.rhbinvest.com
 19 October 2010

to +0.1% in August and from +0.6% in July. This was dragged down by a decline in the production of computers
& electronic products, while the production of machinery fell by a larger magnitude during the month. These were,
however, mitigated by a pick-up in the production of motor vehicle & parts, which rose by 0.5% mom in September,
a rebound from a sharp drop of -6.3% in August. Excluding autos & parts, manufacturing production fell by 0.2%
mom in September, after rising by +0.5% in August. Consequently, industrial capacity utilisation rate eased slightly
to 74.7% in September, from 74.8% in August and compared with 70.5% a year ago. Similarly, the capacity
utilisation rate in the manufacturing sector moderated to 72.2% in September, from 72.3% in August and compared
with 68.1% a year ago.

Foreign Investors Bought More US Financial Assets In August

◆ Purchases of US dollar-denominated financial assets such as equities, notes and bonds by foreign investors
increased to US$128.7bn in August, from US$61.2bn in July and a low of US$35.3bn in May. This was the third
consecutive month of picking up and the second highest thus far this year, suggesting that investors are still keen
to invest in the US market. The pick-up was reflected in an increase in net purchases by foreign private investors,
which rose to US$113.1bn in August, from US$69.0bn in July and a low of US$16.6bn in June. This was attributed
to higher net purchases of US Treasury notes & bonds, in anticipation of monetary easing by the US Federal Reserve.
This was, however, offset partially by a slowdown in net purchases of government agency debt, corporate bonds and
during the month. Similarly, the net purchases by central banks rose to US$23.5bn in August, after slowing down
to US$4.8bn in July. This was due mainly to a pick-up in net purchases of US Treasury notes & bonds. Although
higher net purchases of US dollar-denominated financial assets by private investors would provide a support to the
US dollar, the currency has turned weaker in recent months.

Asian Economies

Singapore’s Non-oil Domestic Exports Slowed Down In September

◆ Singapore’s non-oil domestic exports slowed down to 22.7% yoy in September, from +30.8% in August.
This suggests that the country’s exports are slowing down, but remain resilient. The slowdown was due to slower
increase in the exports of electronic products, which eased to 21.2% yoy in September, from +34.8% in August and
the peak of +43.9% recorded in June. This was on account of a decline in the exports of PC parts and a slowdown
in the exports of ICs, IC parts and diodes & transistors, which were mitigated by a pick-up in the exports of disc
drives. These were made worse by a more moderate increase in the exports of non-electronic products, which
slackened to 23.7% yoy in September, from +28.4% in August. This was attributed to a slowdown in the exports
of pharmaceutical products, which was mitigated by a pick-up in the exports of petrochemical products. As a whole,
a slowdown in exports has contributed to a softer real GDP growth in the country, which weakened to 10.3% yoy
in the 3Q, from +19.6% in the 2Q. On an annualised basis, the economy contracted by 19.8% in the 3Q, after easing
to 27.3% in the 2Q.

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI
and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under
such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on
generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to
opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This
report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not
warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall
give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest
in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual
financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for
all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages
investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an
investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents
accepts any liability for any loss or damage arising out of the use of all or any part of this report.

A comprehensive range of market research reports by award-winning economists and analysts are Page 2 of 3
exclusively available for download from www.rhbinvest.com
 19 October 2010

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and
financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading,
brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or
otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any
company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding
company and the respective directors, officers, employees and agents of each of them. Investors should assume that the
“Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities
have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been
reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,”
including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have
received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive
factors and firm revenues.

A comprehensive range of market research reports by award-winning economists and analysts are Page 3 of 3
exclusively available for download from www.rhbinvest.com