By Rakteem Katakey
Indian Oil Corp., the nation’s biggest refiner, will increase spending 23 percent to boost capacity even as it borrows more to cover losses from selling fuels below the cost of crude oil.
The state-owned company plans to spend 135 billion rupees ($2.8 billion) in the year ending March 31 to add processing capacity and build chemical plants, Serangulam V. Narasimhan, finance director, said in an interview in New Delhi. The refiner’s total debt has risen to 350 billion rupees from about 320 billion rupees in May, he said yesterday.
Indian Oil, set to increase processing capability 33 percent by 2012, imports about 75 percent of its crude and sells fuels below cost to help curb inflation. The refiner is adding capacity to meet demand that is rising as much as 5 percent annually in the world’s second-fastest growing major economy, Chairman Sarthak Behuria said in a separate interview yesterday.
“Raising money for planned investments has never been a problem as they can borrow from state-run banks,” said Niraj Mansingka, a Mumbai-based analyst at Edelweiss Capital Ltd., who recommends investors buy Indian Oil shares. “They need to increase capacity and upgrade refineries to improve cash flows and produce better quality fuels.”
The stock has climbed 29 percent in Mumbai this year compared with a 51 percent gain in the Bombay Stock Exchange’s Sensitive Index. Indian Oil rose as much as 1.7 percent to 559.35 rupees and closed at 551.25 rupees.
Losses, Costs
Pump sales were profitable in the last two months and are losing money in June because the cost of crude has risen, Narasimhan said.
The company’s cost of importing crude oil has surged to $2.5 billion a month from $1 billion in February, Narasimhan said. Crude prices in New York have more than doubled from a low of $33.98 a barrel on Feb. 12 on signs the worst economic crisis since World War II may be easing. Oil traded at $71.92 a barrel at 6:33 p.m. Indian time.
The government last raised prices of gasoline and diesel in June 2008 as oil surged. Prices were cut in December and January after crude slumped from a record $147.27 a barrel in July.
Indian Oil needs to add 3 million to 3.5 million metric tons of refining capacity each year, Chairman Behuria said. The company will commission about 300 billion rupees worth of projects this year, Narasimhan said.
The company and its units plan to increase refining capacity to 80 million metric tons of crude a year by 2012 from the current 60.2 million tons, he said.
Spending Plan
About 110 billion rupees will be spent this year on building new assets and 25 billion rupees on maintenance work at Indian Oil’s eight refineries, Narasimhan said.
The refiner is building a 15 million-ton-a-year plant at Paradip in eastern Orissa state and increasing capacity at refineries at Panipat in northern India, Gujarat in the west and at its Chennai Petroleum Corp. unit.
“Bulk of the investment will go into these,” Narasimhan said at his office. “There are so many projects on hand. We have to prioritize.”
Indian Oil has got approval for a 149 billion rupee loan for the Paradip refinery, according to SBI Capital Markets Ltd., which helped arrange the funds. The refinery is expected to cost 335 billion rupees, SBI Capital said May 14.
Saturday, June 20, 2009
Air India Asks Employees to Help Tide Over ‘Crisis’
Air India, which has delayed salary payments, asked employees to help the country’s national carrier tide over the financial crisis it’s facing.
“It is a fight for survival,” Arvind Jadhav, chairman and managing director, said in a release that contained his comments to employees. “The current financial crunch being faced by Air India needs to be viewed in the global context as the aviation industry worldwide has been passing through turbulent times.”
The chairman’s appeal comes after the Air Corporation Employees Union, the largest workers’ group in Air India, said June 17 that it was considering a strike to protest against the carrier’s decision to pay this month’s salary two weeks late.
The union has written to the management on the late payment and will decide on the strike later, said D.K. Shetty, president of the group. The union represents about 13,000 of the carrier’s 31,000 employees, he said.
Air India is faced with the same issues that others in the aviation industry have been contending with, Jadhav said.
“All airlines in India and abroad have been experiencing low fares, poor load factors, drop in premium travel, decline in cargo loads and low yields due to market conditions created by the global recession,” the chairman said.
Jadhav cited measures taken by airlines such as Singapore Airlines Ltd. and British Airways Plc to combat the effects of the financial crisis.
The airline has sought funds from the government, which owns the company.
Government Help Sought
“Air India has approached the government of India, as the owners of our airline, for infusion of funds both by way of equity and soft loans,” Jadhav said. “We are hopeful that the government of India will extend a helping hand soon.”
The airline is talking with the labor unions to apprise them of the financial situation facing the carrier and the industry, Jadhav said.
Air India yesterday said it has asked senior executives to go without pay in July as the company faces a cash crunch. Jadhav “has requested all executives at the level of general managers and above to voluntarily forego salary and productivity-linked incentive payable in the month of July 2009,” according to the airline’s Web site.
India’s national carrier may have had losses of more than $800 million in the financial year ended March 31, according to the Centre for Asia Pacific Aviation.
A drop in travel demand forced Jet Airways (India) Ltd., the nation’s biggest carrier by market value, to cut jobs and benefits for some of its 13,000 employees to help save as much as $600 million this financial year.
“It is a fight for survival,” Arvind Jadhav, chairman and managing director, said in a release that contained his comments to employees. “The current financial crunch being faced by Air India needs to be viewed in the global context as the aviation industry worldwide has been passing through turbulent times.”
The chairman’s appeal comes after the Air Corporation Employees Union, the largest workers’ group in Air India, said June 17 that it was considering a strike to protest against the carrier’s decision to pay this month’s salary two weeks late.
The union has written to the management on the late payment and will decide on the strike later, said D.K. Shetty, president of the group. The union represents about 13,000 of the carrier’s 31,000 employees, he said.
Air India is faced with the same issues that others in the aviation industry have been contending with, Jadhav said.
“All airlines in India and abroad have been experiencing low fares, poor load factors, drop in premium travel, decline in cargo loads and low yields due to market conditions created by the global recession,” the chairman said.
Jadhav cited measures taken by airlines such as Singapore Airlines Ltd. and British Airways Plc to combat the effects of the financial crisis.
The airline has sought funds from the government, which owns the company.
Government Help Sought
“Air India has approached the government of India, as the owners of our airline, for infusion of funds both by way of equity and soft loans,” Jadhav said. “We are hopeful that the government of India will extend a helping hand soon.”
The airline is talking with the labor unions to apprise them of the financial situation facing the carrier and the industry, Jadhav said.
Air India yesterday said it has asked senior executives to go without pay in July as the company faces a cash crunch. Jadhav “has requested all executives at the level of general managers and above to voluntarily forego salary and productivity-linked incentive payable in the month of July 2009,” according to the airline’s Web site.
India’s national carrier may have had losses of more than $800 million in the financial year ended March 31, according to the Centre for Asia Pacific Aviation.
A drop in travel demand forced Jet Airways (India) Ltd., the nation’s biggest carrier by market value, to cut jobs and benefits for some of its 13,000 employees to help save as much as $600 million this financial year.
Friday, June 19, 2009
Indian Stocks Rise; Infrastructure, Software Exporters Advance
Indian stocks rose, paring the benchmark index’s first weekly decline since early March, as Larsen & Toubro Ltd. led construction companies higher on speculation the government will boost public-works spending.
Larsen, India’s biggest engineering company, gained 5.7 percent. A media report said the government would set up a company to provide assistance to highway developers. Bharat Heavy Electricals Ltd., the largest power equipment maker, climbed 2.9 percent.
“There is a lot of expectation that a boost in infrastructure spending will be announced in the budget,” said Shashank Khade, who helps manage $300 million in assets at Kotak Securities in Mumbai. India’s budget is due July 6.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 256.36, or 1.8 percent, to 14,521.89. The gauge posted a 4.7 percent drop this week, its first weekly decline in 15.
The S&P CNX Nifty Index on the National Stock Exchange climbed 1.5 percent to 4,313.60. The BSE 200 Index added 1.8 percent to 1,761.66. Nifty futures for June delivery advanced 1.5 percent to 4,326.
Infosys Technologies Ltd. led software exporters higher after better-than-estimated economic reports in the U.S., their largest export market.
Larsen climbed 5.7 percent to 1,497.05 rupees. Bharat Heavy Electricals gained 2.9 percent to 2,088.85 rupees.
Road Finance
India plans to set up a road finance company that will provide debt to highway developers, ET Now television channel reported today.
Infosys, the nation’s No. 2 software developer, rose 2.6 percent to 1,770.40 rupees. Tata Consultancy Services Ltd., the largest, added 0.9 percent to 379.80 rupees.
U.S. reports showed jobless claims fell and that the manufacturing contraction in one region of the nation slowed. Indian software exporters derive more than half their revenue from the world’s biggest economy.
Overseas funds sold a net 2.27 billion rupees ($47 million) of Indian stocks June 17, according to the stock market regulator.
The following stocks were among the most active in Indian trading today:
Opto Circuits India Ltd. (OPTC IN) rose 7.5 percent to 161.4 rupees after posting a profit increase of 13 percent to 402.39 million rupees in the three months ended March 31.
Suzlon Energy Ltd. (SUEL IN) gained 11 percent to 111.05 rupees after the company said it plans to hold a meeting of its bond holders on June 25. The company has $121.37 million of bonds outstanding, it said in a statement yesterday.
Tata Steel Ltd. (TATA IN) added 6.3 percent to 412.55 rupees. India’s biggest steel producer said it raised prices of some products by as much as 750 rupees ($16) a metric ton as local demand increased. Prices of hot-rolled and cold-rolled products were increased by between 500 rupees and 750 rupees a ton in some regions, spokesman Sanjay Choudhry said by phone, without giving the percentage increase.
Larsen, India’s biggest engineering company, gained 5.7 percent. A media report said the government would set up a company to provide assistance to highway developers. Bharat Heavy Electricals Ltd., the largest power equipment maker, climbed 2.9 percent.
“There is a lot of expectation that a boost in infrastructure spending will be announced in the budget,” said Shashank Khade, who helps manage $300 million in assets at Kotak Securities in Mumbai. India’s budget is due July 6.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 256.36, or 1.8 percent, to 14,521.89. The gauge posted a 4.7 percent drop this week, its first weekly decline in 15.
The S&P CNX Nifty Index on the National Stock Exchange climbed 1.5 percent to 4,313.60. The BSE 200 Index added 1.8 percent to 1,761.66. Nifty futures for June delivery advanced 1.5 percent to 4,326.
Infosys Technologies Ltd. led software exporters higher after better-than-estimated economic reports in the U.S., their largest export market.
Larsen climbed 5.7 percent to 1,497.05 rupees. Bharat Heavy Electricals gained 2.9 percent to 2,088.85 rupees.
Road Finance
India plans to set up a road finance company that will provide debt to highway developers, ET Now television channel reported today.
Infosys, the nation’s No. 2 software developer, rose 2.6 percent to 1,770.40 rupees. Tata Consultancy Services Ltd., the largest, added 0.9 percent to 379.80 rupees.
U.S. reports showed jobless claims fell and that the manufacturing contraction in one region of the nation slowed. Indian software exporters derive more than half their revenue from the world’s biggest economy.
Overseas funds sold a net 2.27 billion rupees ($47 million) of Indian stocks June 17, according to the stock market regulator.
The following stocks were among the most active in Indian trading today:
Opto Circuits India Ltd. (OPTC IN) rose 7.5 percent to 161.4 rupees after posting a profit increase of 13 percent to 402.39 million rupees in the three months ended March 31.
Suzlon Energy Ltd. (SUEL IN) gained 11 percent to 111.05 rupees after the company said it plans to hold a meeting of its bond holders on June 25. The company has $121.37 million of bonds outstanding, it said in a statement yesterday.
Tata Steel Ltd. (TATA IN) added 6.3 percent to 412.55 rupees. India’s biggest steel producer said it raised prices of some products by as much as 750 rupees ($16) a metric ton as local demand increased. Prices of hot-rolled and cold-rolled products were increased by between 500 rupees and 750 rupees a ton in some regions, spokesman Sanjay Choudhry said by phone, without giving the percentage increase.
China tells Google to end foreign site access
Beijing has ordered Google to stop users of its Chinese-language service accessing overseas websites in the biggest blow to the world’s leading search engine in China since it started operating there four years ago.
In a move that could disrupt Google’s growth in China, which now has more internet users than the US, the Chinese government said it had told Google to suspend foreign searches and a feature that automatically suggests multiple search results once typing commences in the search window.
EDITOR’S CHOICE
Google has rude awakening in China - Jun-19
John Gapper: technology is for revolution (and repression) - Jun-19
Solid Oak steps up China ‘net nanny’ storm - Jun-19
Tech blog - Feb-24
US firm warns PC makers over Chinese software - Jun-17
Digital Business: Google shows how the web was won - Jun-17
The action comes amid a storm of outrage among Chinese internet users over Beijing’s order that every new PC sold in the country be equipped with censorship software, ostensibly to block pornography. One senior US internet figure said the move against Google appeared to be an attempt to deflect attention away from the domestic censorship uproar by redirecting concerns about pornography against a foreign company.
According to state media on Friday, authorities said Google was being “punished” for linking to pornographic content.
On Thursday, in a “law enforcement talk”, the government announced that it was ordering the company to suspend foreign searches and automated keywords, according to Xinhua, the official news agency, and China Central Television, the main state broadcaster.
Searches on Google.cn were still turning up foreign websites several hours after the announcement. However, the automated keyword feature had been disabled. Google confirmed on Friday it had met government representatives on Thursday “to discuss problems with the Google.cn service and its serving of pornographic images and content based on foreign language searches”.
The company was undertaking a thorough review of its service and believed it had addressed most of the problems, it said.
Observers said the crackdown was likely to be a mixture of the government’s recent hardline approach on censorship and increasingly bitter rivalry with Baidu, a domestic search engine, which holds a 59 per cent market share.
Although the authorities accused only Google of allowing links to lurid content, similar material could be found on Baidu.
China surpassed the US as the nation with the world’s largest internet population last year and has about 300m users.
The government has been clamping down on various sites for months in the name of a campaign against “vulgar” online content.
“If these restrictions are kept up for more than a few days, they will have a huge impact on Google’s business in China,” said Edward Yu, chief executive of Analysys, an internet research company in Beijing.
“Traffic will drop quickly because users will find it extremely cumbersome to search without automated keywords and will feel they cannot find results they are looking for, such as foreign travel and shopping information.”
Google has been growing aggressively in China over the past year and its market share exceeded 30 per cent for the first time in the first quarter of this year, according to Analysys research.
In a move that could disrupt Google’s growth in China, which now has more internet users than the US, the Chinese government said it had told Google to suspend foreign searches and a feature that automatically suggests multiple search results once typing commences in the search window.
EDITOR’S CHOICE
Google has rude awakening in China - Jun-19
John Gapper: technology is for revolution (and repression) - Jun-19
Solid Oak steps up China ‘net nanny’ storm - Jun-19
Tech blog - Feb-24
US firm warns PC makers over Chinese software - Jun-17
Digital Business: Google shows how the web was won - Jun-17
The action comes amid a storm of outrage among Chinese internet users over Beijing’s order that every new PC sold in the country be equipped with censorship software, ostensibly to block pornography. One senior US internet figure said the move against Google appeared to be an attempt to deflect attention away from the domestic censorship uproar by redirecting concerns about pornography against a foreign company.
According to state media on Friday, authorities said Google was being “punished” for linking to pornographic content.
On Thursday, in a “law enforcement talk”, the government announced that it was ordering the company to suspend foreign searches and automated keywords, according to Xinhua, the official news agency, and China Central Television, the main state broadcaster.
Searches on Google.cn were still turning up foreign websites several hours after the announcement. However, the automated keyword feature had been disabled. Google confirmed on Friday it had met government representatives on Thursday “to discuss problems with the Google.cn service and its serving of pornographic images and content based on foreign language searches”.
The company was undertaking a thorough review of its service and believed it had addressed most of the problems, it said.
Observers said the crackdown was likely to be a mixture of the government’s recent hardline approach on censorship and increasingly bitter rivalry with Baidu, a domestic search engine, which holds a 59 per cent market share.
Although the authorities accused only Google of allowing links to lurid content, similar material could be found on Baidu.
China surpassed the US as the nation with the world’s largest internet population last year and has about 300m users.
The government has been clamping down on various sites for months in the name of a campaign against “vulgar” online content.
“If these restrictions are kept up for more than a few days, they will have a huge impact on Google’s business in China,” said Edward Yu, chief executive of Analysys, an internet research company in Beijing.
“Traffic will drop quickly because users will find it extremely cumbersome to search without automated keywords and will feel they cannot find results they are looking for, such as foreign travel and shopping information.”
Google has been growing aggressively in China over the past year and its market share exceeded 30 per cent for the first time in the first quarter of this year, according to Analysys research.
Citigroup Asia Executive Banga Leaves for Top MasterCard Role
June 20 (Bloomberg) -- Ajay Banga, Citigroup Inc.’s most senior executive in Asia, left the U.S. bank for a role at MasterCard Inc. that puts him in line to succeed Chief Executive Officer Robert Selander.
Banga, 49, will become president and chief operating officer at MasterCard, whose stock more than quadrupled since its debut in May 2006, the company said in a statement yesterday. Selander, 58, cedes his president’s title Aug. 31 and continues as CEO, MasterCard said. Banga spent 13 years at Citigroup, the New York-based lender propped up by $45 billion of U.S. rescue funds.
Banga’s exit is a blow to Citigroup CEO Vikram Pandit, who said in a speech this week that the bank would look abroad for growth as the U.S. economy slows. The government is taking a 34 percent stake in Citigroup after $36 billion of losses in six quarters. MasterCard, the second-biggest card network after Visa Inc., didn’t need money from the Treasury’s Troubled Asset Relief Program and isn’t subject to any curbs on pay.
“This is huge,” said Bill Smith, founder of Smith Asset Management Inc. in New York, who holds about 200,000 Citigroup shares. “This guy was talent.”
Banga will get a salary of $800,000, a $4.2 million signing bonus and $4.9 million in restricted stock, according to a regulatory filing by Purchase, New York-based MasterCard. The bonus will be paid in two equal installments, the first within 30 days after he starts and the second a year later, according to the filing. While he would forfeit the signing bonus if he leaves before the year is over, he gets to keep it if he isn’t named CEO by June 30, 2010, the document said.
Succession Planning
For 2008, Citigroup gave Banga a $500,000 salary and a $3.6 million “deferred cash retention award,” payable in equal installments over four years, according to a March 20 filing.
“This is really a thoughtful step in the succession- planning process,” said Harvey Greisman, a spokesman for MasterCard. Selander and Banga weren’t available to comment, he said.
Citigroup will name a successor for Banga “shortly,” the company said in a regulatory filing yesterday.
Profit at MasterCard has fallen for two straight quarters as the recession cut into consumer spending. The company lost more than half of a $59 billion portfolio of U.S. debit-card users after JPMorgan Chase & Co. decided to shift more business to Visa, people familiar with the matter said last month.
MasterCard shares have risen 13 percent this year. Citigroup is down 53 percent.
International Career
Citigroup is focusing on overseas markets after the bank’s overdependence on U.S. consumers stoked its financial woes, Pandit, 52, said in the June 16 speech in Detroit. The bank has been hobbled by writedowns on subprime mortgage bonds and an increase in consumer-loan losses.
“The executives at the top that are not the top three have to really say to themselves, ‘How long is it going to take me to get to where I aspire to?’” said Jeanne Branthover, head of the global financial services practice at Boyden Global Executive Search Ltd. in New York. “They are definitely going to be recruited for the top or the second-to-the-top jobs at other firms.”
Banga, a graduate of the Indian Institute of Management, joined Citigroup in 1996 as head of marketing in India for the consumer business. In 2000 he was promoted to head CitiFinancial and the U.S. consumer assets division. In 2002 he took over the retail bank in North America, and in 2005 he was named to head Citigroup’s international consumer-banking and finance businesses. He moved to Hong Kong in early 2008 after being named by Pandit to oversee all of the bank’s businesses in Asia.
He worked at Nestle SA for 13 years, in sales, marketing and management roles, and worked for PepsiCo, where he helped expand the company’s fast-food franchises into India.
Banga, 49, will become president and chief operating officer at MasterCard, whose stock more than quadrupled since its debut in May 2006, the company said in a statement yesterday. Selander, 58, cedes his president’s title Aug. 31 and continues as CEO, MasterCard said. Banga spent 13 years at Citigroup, the New York-based lender propped up by $45 billion of U.S. rescue funds.
Banga’s exit is a blow to Citigroup CEO Vikram Pandit, who said in a speech this week that the bank would look abroad for growth as the U.S. economy slows. The government is taking a 34 percent stake in Citigroup after $36 billion of losses in six quarters. MasterCard, the second-biggest card network after Visa Inc., didn’t need money from the Treasury’s Troubled Asset Relief Program and isn’t subject to any curbs on pay.
“This is huge,” said Bill Smith, founder of Smith Asset Management Inc. in New York, who holds about 200,000 Citigroup shares. “This guy was talent.”
Banga will get a salary of $800,000, a $4.2 million signing bonus and $4.9 million in restricted stock, according to a regulatory filing by Purchase, New York-based MasterCard. The bonus will be paid in two equal installments, the first within 30 days after he starts and the second a year later, according to the filing. While he would forfeit the signing bonus if he leaves before the year is over, he gets to keep it if he isn’t named CEO by June 30, 2010, the document said.
Succession Planning
For 2008, Citigroup gave Banga a $500,000 salary and a $3.6 million “deferred cash retention award,” payable in equal installments over four years, according to a March 20 filing.
“This is really a thoughtful step in the succession- planning process,” said Harvey Greisman, a spokesman for MasterCard. Selander and Banga weren’t available to comment, he said.
Citigroup will name a successor for Banga “shortly,” the company said in a regulatory filing yesterday.
Profit at MasterCard has fallen for two straight quarters as the recession cut into consumer spending. The company lost more than half of a $59 billion portfolio of U.S. debit-card users after JPMorgan Chase & Co. decided to shift more business to Visa, people familiar with the matter said last month.
MasterCard shares have risen 13 percent this year. Citigroup is down 53 percent.
International Career
Citigroup is focusing on overseas markets after the bank’s overdependence on U.S. consumers stoked its financial woes, Pandit, 52, said in the June 16 speech in Detroit. The bank has been hobbled by writedowns on subprime mortgage bonds and an increase in consumer-loan losses.
“The executives at the top that are not the top three have to really say to themselves, ‘How long is it going to take me to get to where I aspire to?’” said Jeanne Branthover, head of the global financial services practice at Boyden Global Executive Search Ltd. in New York. “They are definitely going to be recruited for the top or the second-to-the-top jobs at other firms.”
Banga, a graduate of the Indian Institute of Management, joined Citigroup in 1996 as head of marketing in India for the consumer business. In 2000 he was promoted to head CitiFinancial and the U.S. consumer assets division. In 2002 he took over the retail bank in North America, and in 2005 he was named to head Citigroup’s international consumer-banking and finance businesses. He moved to Hong Kong in early 2008 after being named by Pandit to oversee all of the bank’s businesses in Asia.
He worked at Nestle SA for 13 years, in sales, marketing and management roles, and worked for PepsiCo, where he helped expand the company’s fast-food franchises into India.
Obama Reluctant to Toughen Stance on Iran
WASHINGTON — With Iran on a razor’s edge after a week of swelling protests, the Obama administration has fended off pressure from both parties to respond more forcefully to the disputed election there. But if Iranian authorities carry out their latest threat of a more sweeping crackdown, the White House would reconsider its carefully calibrated tone, officials said Friday.
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Iran’s Top Leader Dashes Hopes for a Compromise (June 20, 2009)
Ayatollah, Calling Britain Enemy No. 1, Taps Into Deep Distrust Rooted in History (June 20, 2009)
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Administration officials said events this weekend in Tehran — when demonstrators plan to rally in defiance of the authorities — would be a telling indicator of whether President Obama would join European leaders and lawmakers on Capitol Hill in more harshly condemning the tactics of the Iranian government.
Congressional Republicans and conservative foreign-policy experts stepped up their pressure on the White House to take a firmer stand in support of the demonstrators, even as Mr. Obama worked to keep Democrats from breaking openly with him on Iran.
For now, administration officials said they had not been swayed by criticism that Mr. Obama’s refusal to speak out more had broken faith with democracy advocates in Tehran, or by the fact that European leaders and even members of his own party in Congress had responded more assertively than he had.
In an interview with CBS News on Friday, Mr. Obama spoke cautiously about warnings by Iran’s supreme leader, Ayatollah Ali Khamenei, of bloodshed if the protests go on. “I’m very concerned, based on some of the tenor and tone of the statements that have been made, that the government of Iran recognize that the world is watching,” Mr. Obama said.
Mr. Obama, officials said, was determined to react to events as they unfold, rather than make statements that might play well politically but hinder his longer-term foreign-policy goals. The administration still hopes to pursue diplomatic engagement with Iran on its nuclear program.
Still, one senior official acknowledged that a bloody crackdown would scramble the administration’s calculations. The shadow of Tiananmen Square — in which Chinese tanks and troops crushed a flowering democracy movement in Beijing — has hung over the White House this week.
Mr. Obama continued to face pressure at home not to miss an opportunity to align the United States with a potentially historic shift in Iran. On Friday, both houses of Congress threw full support behind the rights of protesters to challenge the election results. In the House, lawmakers voted 405 to 1 to adopt a nonbinding resolution condemning the violence against demonstrators. The Senate passed a similar resolution later in the day.
“This resolution is not about American interests,” said Representative Howard L. Berman, a California Democrat who is the chairman of the House Foreign Affairs Committee. “It’s about American values, which I believe are universal values: the values of the rule of law; of participatory democracy; about individual liberty and about justice.”
The resolution, though firm, was softened after negotiations between Mr. Berman and the chairman of the House Republican Conference, Representative Mike Pence of Indiana, who was pushing for a tougher rebuke of the Iranian government. Democrats were aware of White House concerns about statements that could open the United States to charges of interference, and administration officials said the resolution largely echoed Mr. Obama’s public comments. “My guiding principle on this resolution was, Do no harm,” Mr. Berman said in a telephone interview.
While he said the United States was not taking sides, other lawmakers were. Representative Bob Inglis, Republican of South Carolina, said the election had clearly been fraudulent. “Rigged elections don’t produce outcomes that people can believe in,” he said. “We the people of the United States should stand boldly with the people in Tehran and elsewhere in Iran who are saying, ‘We yearn to breathe free,’ who want to govern themselves; this is their moment.”
The European Union also took a markedly tougher line than Mr. Obama, issuing a statement condemning the violence that resulted in loss of life. The union’s 27 national leaders also “condemned the crackdown against journalists, media outlets, communications and protesters,” which they said were “in contrast to the relatively open and encouraging period in the run-up to the election.”
Speaking afterward, Prime Minister Gordon Brown of Britain said: “It is for Iran now to show the world that the elections are fair. It is also the wish of the world that the repression and the brutality that we have seen in the last few days is not something that is going to be repeated.”
The Obama administration has resisted such language, worrying that full-throated American backing for the protesters would harm their cause by making them more susceptible to being labeled by Iranian officials as tools of Washington. Administration officials note that their muted response has not prevented the turnout at protests from growing by the day.
Mr. Obama has won support from across party lines. Henry A. Kissinger, the former secretary of state, said on Fox News: “I think the president has handled this well. Anything that the United States says that puts us totally behind one of the contenders, behind Moussavi, would be a handicap for that person,” he said. Mir Hussein Moussavi is the main challenger to the declared victor, President Mahmoud Ahmadinejad.
Some experts on Iran say a stronger United States response could provoke a violent backlash.
“If we overtly take sides, the regime could well react with a massive and bloody crackdown on the demonstrators using the pretext that they are acting against an American-led coup,” said Karim Sadgadpour, an Iranian expert at the Carnegie Endowment for International Peace.
The United States, he said, should quietly lobby other countries, from Turkey and India to France and Japan, to press Tehran about human rights abuses and the fairness of the election. It is not clear if the United States has done that, but a senior official said the White House understood if “our allies choose to lean in a different direction.”
Mr. Obama’s cautious approach, officials said, was also driven by a belief that Iran is unlikely to loosen its commitment to its nuclear program, regardless of who ends up in the president’s office. The ultimate authority over that, they note, resides with Ayatollah Khamenei.
Yet some Iran experts argue that the administration may soon have to re-evaluate its view of the supreme leader, who they say has been tarnished by his erratic response to the tumult in Tehran.
“If Ahmadinejad survives, it will be on the back of a Tiananmen-style crackdown,” said Abbas Milani, the director of Iranian studies at Stanford University. “If Moussavi prevails, it will be on a wave of reformist sentiment.”
David M. Herszenhorn contributed reporting from Washington, and Stephen Castle from Brussels.
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Iran’s Top Leader Dashes Hopes for a Compromise (June 20, 2009)
Ayatollah, Calling Britain Enemy No. 1, Taps Into Deep Distrust Rooted in History (June 20, 2009)
Times Topics: Ali Khamenei | Iran
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Administration officials said events this weekend in Tehran — when demonstrators plan to rally in defiance of the authorities — would be a telling indicator of whether President Obama would join European leaders and lawmakers on Capitol Hill in more harshly condemning the tactics of the Iranian government.
Congressional Republicans and conservative foreign-policy experts stepped up their pressure on the White House to take a firmer stand in support of the demonstrators, even as Mr. Obama worked to keep Democrats from breaking openly with him on Iran.
For now, administration officials said they had not been swayed by criticism that Mr. Obama’s refusal to speak out more had broken faith with democracy advocates in Tehran, or by the fact that European leaders and even members of his own party in Congress had responded more assertively than he had.
In an interview with CBS News on Friday, Mr. Obama spoke cautiously about warnings by Iran’s supreme leader, Ayatollah Ali Khamenei, of bloodshed if the protests go on. “I’m very concerned, based on some of the tenor and tone of the statements that have been made, that the government of Iran recognize that the world is watching,” Mr. Obama said.
Mr. Obama, officials said, was determined to react to events as they unfold, rather than make statements that might play well politically but hinder his longer-term foreign-policy goals. The administration still hopes to pursue diplomatic engagement with Iran on its nuclear program.
Still, one senior official acknowledged that a bloody crackdown would scramble the administration’s calculations. The shadow of Tiananmen Square — in which Chinese tanks and troops crushed a flowering democracy movement in Beijing — has hung over the White House this week.
Mr. Obama continued to face pressure at home not to miss an opportunity to align the United States with a potentially historic shift in Iran. On Friday, both houses of Congress threw full support behind the rights of protesters to challenge the election results. In the House, lawmakers voted 405 to 1 to adopt a nonbinding resolution condemning the violence against demonstrators. The Senate passed a similar resolution later in the day.
“This resolution is not about American interests,” said Representative Howard L. Berman, a California Democrat who is the chairman of the House Foreign Affairs Committee. “It’s about American values, which I believe are universal values: the values of the rule of law; of participatory democracy; about individual liberty and about justice.”
The resolution, though firm, was softened after negotiations between Mr. Berman and the chairman of the House Republican Conference, Representative Mike Pence of Indiana, who was pushing for a tougher rebuke of the Iranian government. Democrats were aware of White House concerns about statements that could open the United States to charges of interference, and administration officials said the resolution largely echoed Mr. Obama’s public comments. “My guiding principle on this resolution was, Do no harm,” Mr. Berman said in a telephone interview.
While he said the United States was not taking sides, other lawmakers were. Representative Bob Inglis, Republican of South Carolina, said the election had clearly been fraudulent. “Rigged elections don’t produce outcomes that people can believe in,” he said. “We the people of the United States should stand boldly with the people in Tehran and elsewhere in Iran who are saying, ‘We yearn to breathe free,’ who want to govern themselves; this is their moment.”
The European Union also took a markedly tougher line than Mr. Obama, issuing a statement condemning the violence that resulted in loss of life. The union’s 27 national leaders also “condemned the crackdown against journalists, media outlets, communications and protesters,” which they said were “in contrast to the relatively open and encouraging period in the run-up to the election.”
Speaking afterward, Prime Minister Gordon Brown of Britain said: “It is for Iran now to show the world that the elections are fair. It is also the wish of the world that the repression and the brutality that we have seen in the last few days is not something that is going to be repeated.”
The Obama administration has resisted such language, worrying that full-throated American backing for the protesters would harm their cause by making them more susceptible to being labeled by Iranian officials as tools of Washington. Administration officials note that their muted response has not prevented the turnout at protests from growing by the day.
Mr. Obama has won support from across party lines. Henry A. Kissinger, the former secretary of state, said on Fox News: “I think the president has handled this well. Anything that the United States says that puts us totally behind one of the contenders, behind Moussavi, would be a handicap for that person,” he said. Mir Hussein Moussavi is the main challenger to the declared victor, President Mahmoud Ahmadinejad.
Some experts on Iran say a stronger United States response could provoke a violent backlash.
“If we overtly take sides, the regime could well react with a massive and bloody crackdown on the demonstrators using the pretext that they are acting against an American-led coup,” said Karim Sadgadpour, an Iranian expert at the Carnegie Endowment for International Peace.
The United States, he said, should quietly lobby other countries, from Turkey and India to France and Japan, to press Tehran about human rights abuses and the fairness of the election. It is not clear if the United States has done that, but a senior official said the White House understood if “our allies choose to lean in a different direction.”
Mr. Obama’s cautious approach, officials said, was also driven by a belief that Iran is unlikely to loosen its commitment to its nuclear program, regardless of who ends up in the president’s office. The ultimate authority over that, they note, resides with Ayatollah Khamenei.
Yet some Iran experts argue that the administration may soon have to re-evaluate its view of the supreme leader, who they say has been tarnished by his erratic response to the tumult in Tehran.
“If Ahmadinejad survives, it will be on the back of a Tiananmen-style crackdown,” said Abbas Milani, the director of Iranian studies at Stanford University. “If Moussavi prevails, it will be on a wave of reformist sentiment.”
David M. Herszenhorn contributed reporting from Washington, and Stephen Castle from Brussels.
Thursday, June 18, 2009
Thai Exports Tumble the Most in at Least 17 Years (Update1)
June 19 (Bloomberg) -- Thailand’s exports fell the most since at least 1992 in May as the worst global recession since the Great Depression eroded demand for products.
Shipments dropped 26.6 percent from a year earlier to $11.7 billion, Permanent Secretary for Commerce Siripol Yodmuangcharoen said in Bangkok today. That’s the steepest slide since Bloomberg began tracking the data and compares with a 26.1 percent contraction in April.
The contraction in exports may ease in the coming months as manufacturers including Hana Microelectronics Pcl and KCE Electronics Pcl ship more products. Thailand’s industrial output fell the least in five months in April as manufacturers resumed filling orders after customers started rebuilding stockpiles in anticipation of improving demand.
“We are still walking in a tunnel but we have started to see the light at the end,” said Kanit Sangsubhan, director of the Finance Ministry’s research institute and a Bank of Thailand board member. “Demand from China and the rest of Asia will help our exports.”
A pick up in export orders boosted manufacturing output in April, Amara Sriphayak, a Bank of Thailand official, said on May 29. Richard Han, chief executive officer at Hana, said the same day that demand had accelerated in May from April.
Imports fell 34.7 percent to $9.25 billion, the smallest decline since December, as manufacturers bought more components used to build exports. The drop follows a 36.3 percent slide in April. The trade surplus in May narrowed to $2.41 billion from a $595 million excess a month earlier.
Thailand’s economy shrank 7.1 percent in the first quarter after a collapse in exports, which make up about 70 percent of gross domestic product. Prime Minister Abhisit Vejjajiva said on June 9 “the worst is behind us” and he expects GDP will return to annual growth in 2010
Shipments dropped 26.6 percent from a year earlier to $11.7 billion, Permanent Secretary for Commerce Siripol Yodmuangcharoen said in Bangkok today. That’s the steepest slide since Bloomberg began tracking the data and compares with a 26.1 percent contraction in April.
The contraction in exports may ease in the coming months as manufacturers including Hana Microelectronics Pcl and KCE Electronics Pcl ship more products. Thailand’s industrial output fell the least in five months in April as manufacturers resumed filling orders after customers started rebuilding stockpiles in anticipation of improving demand.
“We are still walking in a tunnel but we have started to see the light at the end,” said Kanit Sangsubhan, director of the Finance Ministry’s research institute and a Bank of Thailand board member. “Demand from China and the rest of Asia will help our exports.”
A pick up in export orders boosted manufacturing output in April, Amara Sriphayak, a Bank of Thailand official, said on May 29. Richard Han, chief executive officer at Hana, said the same day that demand had accelerated in May from April.
Imports fell 34.7 percent to $9.25 billion, the smallest decline since December, as manufacturers bought more components used to build exports. The drop follows a 36.3 percent slide in April. The trade surplus in May narrowed to $2.41 billion from a $595 million excess a month earlier.
Thailand’s economy shrank 7.1 percent in the first quarter after a collapse in exports, which make up about 70 percent of gross domestic product. Prime Minister Abhisit Vejjajiva said on June 9 “the worst is behind us” and he expects GDP will return to annual growth in 2010
TSMC revives its strategy for investment
Published: June 19 2009 03:00 | Last updated: June 19 2009 03:00
Taiwan Semiconductor Manufacturing Company, the world's largest contract chipmaker, has become one of the first big technology companies to bet on a recovery by restoring investment plans curtailed only months ago.
Morris Chang, TSMC's founder, who returned as chief executive a week ago , said yesterday that the company planned to boost its manufacturing capacity and technological prowess.
He likened the economic downturn to a Greek tragedy, with the first act being the financial crisis and the second being the global economic slowdown.
"In the end, there must be a third act: recovery," Mr Chang said. "For our industry, I feel the worst is over. The path to recovery is long and may have some twists and turns . . . but the trend is upwards."
TSMC saw its biggest fall in revenue to date in the first quarter, but is expecting sales to recover in the second quarter on the back of customers replenishing stocks and on strong Chinese demand for electronics.
Speaking at a conference, Mr Chang said that TSMC now planned about $1.9bn in capital expenditure this year, around the same amount as last year. I n April , the group said it would cut capital expenditure by about 20 per cent this year to $1.5bn.
TSMC also aims to increase research and development spending by 20 per cent this year, mainly through expanding its 1,200-strong research and development team by 30 per cent and adding a further 90 people to its design technology team.
Capital spending across the semiconductor industry is expected to fall nearly 45 per cent this year to $24.3bn, according to Gartner , the research company.
It said in a report, however, that equipment spending by chip companies had bottomed out in the second quarter and predicted that capital investment next year would reach $29.4bn, 21 per cent more than this year.
"The impact of the economic crisis has hit the semiconductor equipment industry hard, but signs of life are returning," said Klaus Rinnen, managing vice-president at Gartner.
TSMC is struggling with shrinking industry profit margins, which it said had averaged 21 per cent in 2004 but fell to 15 per cent last year.
It has established a unit to diversify away from chips by investing in "green" energy and LED industries.
Taiwan Semiconductor Manufacturing Company, the world's largest contract chipmaker, has become one of the first big technology companies to bet on a recovery by restoring investment plans curtailed only months ago.
Morris Chang, TSMC's founder, who returned as chief executive a week ago , said yesterday that the company planned to boost its manufacturing capacity and technological prowess.
He likened the economic downturn to a Greek tragedy, with the first act being the financial crisis and the second being the global economic slowdown.
"In the end, there must be a third act: recovery," Mr Chang said. "For our industry, I feel the worst is over. The path to recovery is long and may have some twists and turns . . . but the trend is upwards."
TSMC saw its biggest fall in revenue to date in the first quarter, but is expecting sales to recover in the second quarter on the back of customers replenishing stocks and on strong Chinese demand for electronics.
Speaking at a conference, Mr Chang said that TSMC now planned about $1.9bn in capital expenditure this year, around the same amount as last year. I n April , the group said it would cut capital expenditure by about 20 per cent this year to $1.5bn.
TSMC also aims to increase research and development spending by 20 per cent this year, mainly through expanding its 1,200-strong research and development team by 30 per cent and adding a further 90 people to its design technology team.
Capital spending across the semiconductor industry is expected to fall nearly 45 per cent this year to $24.3bn, according to Gartner , the research company.
It said in a report, however, that equipment spending by chip companies had bottomed out in the second quarter and predicted that capital investment next year would reach $29.4bn, 21 per cent more than this year.
"The impact of the economic crisis has hit the semiconductor equipment industry hard, but signs of life are returning," said Klaus Rinnen, managing vice-president at Gartner.
TSMC is struggling with shrinking industry profit margins, which it said had averaged 21 per cent in 2004 but fell to 15 per cent last year.
It has established a unit to diversify away from chips by investing in "green" energy and LED industries.
Australian, N.Z. Dollars Rise on Stocks, Pare Weekly Declines
June 19 (Bloomberg) -- The Australian and New Zealand dollars advanced against the yen, paring their first weekly declines since May, as gains in Asian stocks and U.S. equity futures spurred demand for higher-yielding assets.
The two currencies rose for third day versus the dollar as interest rates of 3 percent in Australia and 2.5 percent in New Zealand attracted investors to the South Pacific nations’ assets. The Australian and New Zealand currencies have moved in line with the Standard & Poor’s 500 Index about 80 percent of the time this year and tracked the Nikkei 225 Stock Average more than 90 percent of the time.
“We’ve seen improving risk appetite as sentiment towards the global economy improves,” said Danica Hampton, a currency strategist in Wellington at Bank of New Zealand Ltd. “That’s provided support to growth-sensitive currencies like the Aussie and kiwi.”
Australia’s currency strengthened 0.4 percent to 77.33 yen as of 11:36 a.m. in Sydney from yesterday in New York. It has still lost 3.3 percent this week. The so-called Aussie gained 0.3 percent to 80.06 U.S. cents, paring its loss this week to 1.4 percent.
New Zealand’s dollar advanced 0.3 percent to 61.70 yen and gained 0.2 percent to 63.87 U.S. cents. It is still down 2.5 percent versus the yen and 0.7 percent against the greenback over the past five days.
The Australian dollar may advance towards 80.75 U.S. cents and New Zealand’s currency may gain to 64.50 cents, Hampton said.
Stocks Gain
Asian stocks rose today after U.S. reports on jobless claims and manufacturing yesterday added to evidence the recession in the world’s largest economy may be bottoming.
The Labor Department said continuing jobless claims fell by 148,000 to 6.69 million, the first drop since January. The Conference Board’s index of leading economic indicators climbed 1.2 percent and a Federal Reserve report showed Philadelphia- area manufacturing shrank at the slowest pace in nine months.
The Australian and New Zealand dollars slid this week after the South Pacific nations’ central banks signaled room for interest-rate cuts.
Investors buying the New Zealand currency expecting a strong recovery may be disappointed, central bank Governor Alan Bollard said June 17.
“We expect the economy to begin growing again toward the end of the year, but the recovery is likely to be slow and drawn-out,” Bollard said in a speech in Wellington. “It could also be erratic.”
The Reserve Bank of Australia said yesterday it sold A$1.4 billion ($1.12 billion) of its own currency in May, the biggest net sales by the bank since February 2004, as the Aussie rose by a record that month.
‘Still Fragile’
Policy makers in Australia and New Zealand “are trying to highlight that the recoveries, or the green shoots, we’re seeing are still fragile and if currencies and interest rates trend higher they are at risk of being destabilized,” Hampton said. “There has been some fear that we will see risk aversion resurface.”
Australia today sold A$700 million of bonds maturing April 2012 at a weighted average yield of 4.53 percent. The so-called bid-to-cover ratio at the auction was 1.9.
Australian government bonds declined for a third day. The yield on the benchmark 10-year note gained 14 basis points, or 0.14 percentage point, to 5.75 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 1.031, or A$10.31 per A$1,000 face amount, to 96.332.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.89 percent from 3.88 yesterday.
The two currencies rose for third day versus the dollar as interest rates of 3 percent in Australia and 2.5 percent in New Zealand attracted investors to the South Pacific nations’ assets. The Australian and New Zealand currencies have moved in line with the Standard & Poor’s 500 Index about 80 percent of the time this year and tracked the Nikkei 225 Stock Average more than 90 percent of the time.
“We’ve seen improving risk appetite as sentiment towards the global economy improves,” said Danica Hampton, a currency strategist in Wellington at Bank of New Zealand Ltd. “That’s provided support to growth-sensitive currencies like the Aussie and kiwi.”
Australia’s currency strengthened 0.4 percent to 77.33 yen as of 11:36 a.m. in Sydney from yesterday in New York. It has still lost 3.3 percent this week. The so-called Aussie gained 0.3 percent to 80.06 U.S. cents, paring its loss this week to 1.4 percent.
New Zealand’s dollar advanced 0.3 percent to 61.70 yen and gained 0.2 percent to 63.87 U.S. cents. It is still down 2.5 percent versus the yen and 0.7 percent against the greenback over the past five days.
The Australian dollar may advance towards 80.75 U.S. cents and New Zealand’s currency may gain to 64.50 cents, Hampton said.
Stocks Gain
Asian stocks rose today after U.S. reports on jobless claims and manufacturing yesterday added to evidence the recession in the world’s largest economy may be bottoming.
The Labor Department said continuing jobless claims fell by 148,000 to 6.69 million, the first drop since January. The Conference Board’s index of leading economic indicators climbed 1.2 percent and a Federal Reserve report showed Philadelphia- area manufacturing shrank at the slowest pace in nine months.
The Australian and New Zealand dollars slid this week after the South Pacific nations’ central banks signaled room for interest-rate cuts.
Investors buying the New Zealand currency expecting a strong recovery may be disappointed, central bank Governor Alan Bollard said June 17.
“We expect the economy to begin growing again toward the end of the year, but the recovery is likely to be slow and drawn-out,” Bollard said in a speech in Wellington. “It could also be erratic.”
The Reserve Bank of Australia said yesterday it sold A$1.4 billion ($1.12 billion) of its own currency in May, the biggest net sales by the bank since February 2004, as the Aussie rose by a record that month.
‘Still Fragile’
Policy makers in Australia and New Zealand “are trying to highlight that the recoveries, or the green shoots, we’re seeing are still fragile and if currencies and interest rates trend higher they are at risk of being destabilized,” Hampton said. “There has been some fear that we will see risk aversion resurface.”
Australia today sold A$700 million of bonds maturing April 2012 at a weighted average yield of 4.53 percent. The so-called bid-to-cover ratio at the auction was 1.9.
Australian government bonds declined for a third day. The yield on the benchmark 10-year note gained 14 basis points, or 0.14 percentage point, to 5.75 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 1.031, or A$10.31 per A$1,000 face amount, to 96.332.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.89 percent from 3.88 yesterday.
Wednesday, June 17, 2009
Indian Stocks May ‘Consolidate,’ Add Cash, UBS Says
June 18 (Bloomberg) -- Indian shares, Asia’s second-best performers this quarter, may “consolidate” following a 57 percent gain in the benchmark stock index, UBS AG said.
The brokerage has turned “less bullish” because further gains will be limited and as companies take advantage of the rally to sell stocks, analysts Suresh A Mahadevan and Navin Gupta wrote in a report today. UBS is increasing the cash component in its model India portfolio to 5 percent and raising the weighting of so-called defensive shares including health- care and telecommunications companies, they said.
The Bombay Stock Exchange Sensitive Index’s surge this quarter makes it the fifth-best performer globally among the 89 benchmark indexes tracked by Bloomberg. In Asia, only Vietnam has advanced more.
“Over the medium term, we believe fundamentals and liquidity are likely to support higher valuations,” the analysts wrote. “However in the short term, given the sharp rally, we expect the market to consolidate.”
The brokerage raised its March 2010 target for the Sensex to 16,750 from an earlier forecast of 13,500, the report said. That’s a 15 percent gain from yesterday’s close.
The estimate is based on a price-to-estimated earnings multiple of 14.9 times, UBS said. The benchmark index is currently valued at 14.7 times next year’s earnings, according to data tracked by Bloomberg.
Cash, Drug Stocks
Investors should now hold 5 percent of their Indian portfolio in cash and place 1.5 percent of their funds in pharmaceutical companies, after previously allocating a zero weighting in the two, according to UBS’s model portfolio. The brokerage raised its weighting for so-called consumer staples shares to 7.5 percent from 4.7 percent.
UBS boosted technology services to “overweight” from “neutral,” saying an economic recovery in the U.S. and Europe and a consolidation will drive further gains for IT companies. The “underperformance” of telecommunications companies including Bharti Airtel Ltd. prompted the brokerage to upgrade the industry, the report said.
To fund the changes, investors should reduce their holdings in metals and engineering companies after a rally in the shares, UBS said.
They should cut their holdings in Reliance Industries Ltd., India’s most valuable company, as refining margins decline amid increased capacity, UBS said. The brokerage today cut its rating on the stock to “sell” from “neutral.”
The brokerage has turned “less bullish” because further gains will be limited and as companies take advantage of the rally to sell stocks, analysts Suresh A Mahadevan and Navin Gupta wrote in a report today. UBS is increasing the cash component in its model India portfolio to 5 percent and raising the weighting of so-called defensive shares including health- care and telecommunications companies, they said.
The Bombay Stock Exchange Sensitive Index’s surge this quarter makes it the fifth-best performer globally among the 89 benchmark indexes tracked by Bloomberg. In Asia, only Vietnam has advanced more.
“Over the medium term, we believe fundamentals and liquidity are likely to support higher valuations,” the analysts wrote. “However in the short term, given the sharp rally, we expect the market to consolidate.”
The brokerage raised its March 2010 target for the Sensex to 16,750 from an earlier forecast of 13,500, the report said. That’s a 15 percent gain from yesterday’s close.
The estimate is based on a price-to-estimated earnings multiple of 14.9 times, UBS said. The benchmark index is currently valued at 14.7 times next year’s earnings, according to data tracked by Bloomberg.
Cash, Drug Stocks
Investors should now hold 5 percent of their Indian portfolio in cash and place 1.5 percent of their funds in pharmaceutical companies, after previously allocating a zero weighting in the two, according to UBS’s model portfolio. The brokerage raised its weighting for so-called consumer staples shares to 7.5 percent from 4.7 percent.
UBS boosted technology services to “overweight” from “neutral,” saying an economic recovery in the U.S. and Europe and a consolidation will drive further gains for IT companies. The “underperformance” of telecommunications companies including Bharti Airtel Ltd. prompted the brokerage to upgrade the industry, the report said.
To fund the changes, investors should reduce their holdings in metals and engineering companies after a rally in the shares, UBS said.
They should cut their holdings in Reliance Industries Ltd., India’s most valuable company, as refining margins decline amid increased capacity, UBS said. The brokerage today cut its rating on the stock to “sell” from “neutral.”
Japan’s Government, Central Bank Agree Worst of Recession Over
June 18 (Bloomberg) -- Japan’s government and central bank agree that the worst of the deepest postwar recession is over.
Demand is picking up even though “the economy is in a difficult situation,” the Cabinet Office said in Tokyo yesterday. The Bank of Japan said the world’s second-largest economy has “begun to stop worsening.”
Evidence the economy has turned a corner has mounted as companies bolstered industrial output at the fastest pace in 56 years in April and exports recovered from unprecedented declines. Central bank Governor Masaaki Shirakawa said this week he is “cautious” about the rebound because renewed demand may only be temporary.
“Policy makers are raising their economic assessments to reflect recent improvements, but they remain pretty cautious about the outlook,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “Exports are starting to turn around, but that doesn’t guarantee production will keep rebounding and support employment.”
The Nikkei 225 Stock Average rose above 10,000 for the first time in eight months last week and consumer sentiment climbed to a 14-month high in May. Stocks have retreated 2.9 percent this week and the yen has strengthened against the dollar on concern a recovery in the U.S., Japan’s largest export market, isn’t a sure thing.
“It seems clear the economy bottomed out between January and March,” Japan’s Finance Minister Kaoru Yosano told reporters at a press briefing yesterday. “There are signs the decline in personal spending on some items is ending.”
‘Engines Turn’
It may take some time before Americans start spending again. President Barack Obama said in an interview that unemployment may climb to 10 percent from the current 25-year high of 9.4 percent.
“You’re starting to see the engines of the economy turn,” Obama said. Still, he added that “it’s going to take a long time” for a full-fledged recovery as households work off the debt accumulated during the real-estate boom.
Japan’s export dependence has caused it to suffer the most from the global recession. Gross domestic product fell at an annual 14.2 percent pace in the three months ended March 31, the steepest contraction since records began half a century ago. Analysts surveyed by Bloomberg expect the economy to grow this quarter, which would be the first expansion in a year.
“The upgrades by the BOJ and the government just mean the worst is over,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. “The U.S. recovery will be postponed until the middle of next year so it’ll be impossible for Japan to have a solid recovery.”
‘Delicate Stage’
Economists say the economy may stutter after recovering from its worst contraction on record as Prime Minister Taro Aso’s 25 trillion-yen ($260 billion) stimulus plans wear off. The government said in yesterday’s report that rising unemployment may also discourage consumer spending and damp growth in the coming months.
“The Japanese economy is still at a delicate stage,” said David Cohen, head of Asian forecasting at Action Economics in Singapore. “At the end of the day, much will remain dependent upon the outlook for global export demand.”
Optimism that the worst is over doesn’t mean the Bank of Japan is preparing to raise the key overnight lending rate, which has stayed at 0.1 percent since being cut in December.
“Given that employment and wages are deteriorating and deflation risk is rising, it’s difficult to expect a rate hike anytime soon,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The central bank won’t likely raise rates until fiscal 2011 at the earliest,” he said, referring to the year ending March 2012.
Job Shortage
Deteriorating prospects for consumers are also a risk, the Cabinet Office said in yesterday’s report. The unemployment rate rose to a five-year high of 5 percent in April and economists surveyed by Bloomberg expect it to climb to a record 5.8 percent next year. About two work seekers are competing for a single spot, the most severe job shortage on record.
“We aren’t in a recovery phase,” said Fumihira Nishizaki, director of macroeconomic analysis at the Cabinet Office. “There is a risk that Japan’s economy will deteriorate again.”
Demand is picking up even though “the economy is in a difficult situation,” the Cabinet Office said in Tokyo yesterday. The Bank of Japan said the world’s second-largest economy has “begun to stop worsening.”
Evidence the economy has turned a corner has mounted as companies bolstered industrial output at the fastest pace in 56 years in April and exports recovered from unprecedented declines. Central bank Governor Masaaki Shirakawa said this week he is “cautious” about the rebound because renewed demand may only be temporary.
“Policy makers are raising their economic assessments to reflect recent improvements, but they remain pretty cautious about the outlook,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “Exports are starting to turn around, but that doesn’t guarantee production will keep rebounding and support employment.”
The Nikkei 225 Stock Average rose above 10,000 for the first time in eight months last week and consumer sentiment climbed to a 14-month high in May. Stocks have retreated 2.9 percent this week and the yen has strengthened against the dollar on concern a recovery in the U.S., Japan’s largest export market, isn’t a sure thing.
“It seems clear the economy bottomed out between January and March,” Japan’s Finance Minister Kaoru Yosano told reporters at a press briefing yesterday. “There are signs the decline in personal spending on some items is ending.”
‘Engines Turn’
It may take some time before Americans start spending again. President Barack Obama said in an interview that unemployment may climb to 10 percent from the current 25-year high of 9.4 percent.
“You’re starting to see the engines of the economy turn,” Obama said. Still, he added that “it’s going to take a long time” for a full-fledged recovery as households work off the debt accumulated during the real-estate boom.
Japan’s export dependence has caused it to suffer the most from the global recession. Gross domestic product fell at an annual 14.2 percent pace in the three months ended March 31, the steepest contraction since records began half a century ago. Analysts surveyed by Bloomberg expect the economy to grow this quarter, which would be the first expansion in a year.
“The upgrades by the BOJ and the government just mean the worst is over,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. “The U.S. recovery will be postponed until the middle of next year so it’ll be impossible for Japan to have a solid recovery.”
‘Delicate Stage’
Economists say the economy may stutter after recovering from its worst contraction on record as Prime Minister Taro Aso’s 25 trillion-yen ($260 billion) stimulus plans wear off. The government said in yesterday’s report that rising unemployment may also discourage consumer spending and damp growth in the coming months.
“The Japanese economy is still at a delicate stage,” said David Cohen, head of Asian forecasting at Action Economics in Singapore. “At the end of the day, much will remain dependent upon the outlook for global export demand.”
Optimism that the worst is over doesn’t mean the Bank of Japan is preparing to raise the key overnight lending rate, which has stayed at 0.1 percent since being cut in December.
“Given that employment and wages are deteriorating and deflation risk is rising, it’s difficult to expect a rate hike anytime soon,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The central bank won’t likely raise rates until fiscal 2011 at the earliest,” he said, referring to the year ending March 2012.
Job Shortage
Deteriorating prospects for consumers are also a risk, the Cabinet Office said in yesterday’s report. The unemployment rate rose to a five-year high of 5 percent in April and economists surveyed by Bloomberg expect it to climb to a record 5.8 percent next year. About two work seekers are competing for a single spot, the most severe job shortage on record.
“We aren’t in a recovery phase,” said Fumihira Nishizaki, director of macroeconomic analysis at the Cabinet Office. “There is a risk that Japan’s economy will deteriorate again.”
Asia Day Ahead: U.S. Stocks Fall; Cantillon Said to Shut Funds
June 18 (Bloomberg) -- U.S. stocks fell for a third straight day after Standard & Poor’s downgraded the credit ratings of 18 banks, overshadowing gains in health-care shares as Congress prepares legislation to overhaul the industry. Cantillon Capital Management LLC, a $4.5 billion asset- management firm run by William von Mueffling, is closing its two hedge funds to focus on traditional investing, according to people familiar with the matter.
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U.S. lenders slid after Standard & Poor’s reduced its credit ratings on 18 banks, including Wells Fargo & Co., Capital One Financial Corp. and KeyCorp, citing tighter regulation and increased market volatility. Keycorp dropped 7.8 percent.
Obama Lays Out ‘Sweeping Overhaul’ of Financial Rules
President Barack Obama proposed the most sweeping overhaul of the U.S. financial regulatory system in 75 years, seeking to correct a “cascade of mistakes” that toppled major securities firms, froze credit markets and destroyed $26.4 trillion in stock market value around the world.
Cantillon Said to Close Hedge Funds in Strategy Shift
Cantillon Capital Management LLC, a $4.5 billion asset- management firm run by William von Mueffling, is closing its two hedge funds to focus on traditional investing, according to people familiar with the matter.
Wall Street Calls Obama’s Mortgage-Market Debt Plan a Burden
The Obama administration’s plan to shore up the market for mortgage bonds by forcing banks to keep some on their books faces resistance on Wall Street, as bankers call the measure burdensome and a hindrance to new lending.
MAIN ECONOMIC RELEASES TODAY World Bank Releases Its Quarterly Update on Chinese Economy India’s Wholesale Price Index Seen Dropping 1.48% in June 6 Week Reserve Bank of Australia Foreign-Exchange Transactions Report
MAIN ANALYST UPGRADES/DOWNGRADES *BHP BILLITON RAISED TO ‘OUTPERFORM FROM ‘NEUTRAL’ AT MACQUARIE *PREUKSA REAL ESTATE RAISED TO ‘BUY’ FROM ‘SELL’ AT TRINITY *SWIBER UPGRADED TO ‘OUTPERFORM’ FROM ‘UNDERPERFORM’ AT CIMB *SEKISUI HOUSE CUT TO ‘NEUTRAL’ AT CREDIT SUISSE *SEPTENI CUT TO ‘HOLD’ FROM ‘BUY’ AT KBC SECURITIES *PING AN CUT TO ‘SELL’ AT UBS ON ‘STRETCHED VALUATION’ *CHINA SHIPPING RAISED TO ‘OVERWEIGHT’ AT MORGAN STANLEY *CSR RAISED TO ‘OVERWEIGHT/CAUTIOUS’ AT MORGAN STANLEY
ASIAN MARKETS
The Nikkei 225 futures contract due in June fell 155 points to 9,670. The Hang Seng Index futures for June dropped 167 to 17,870. The S&P/ASX 200 Index futures contract due in June slipped 4 to 3,866 at 6:59 a.m. in Sydney.
U.S. Stocks Fall, Led by Banks on Downgrade; Health Shares Gain
U.S. stocks fell for a third straight day after Standard & Poor’s downgraded the credit ratings of 18 banks, overshadowing gains in health-care shares as Congress prepares legislation to overhaul the industry.
Treasuries Decline as Investors Shift Focus to Debt Auctions
Treasury 10-year notes fell, snapping a four-day rally, as investors turned their attention to next week’s three note auctions, part of the government’s record borrowing to stimulate the economy.
Dollar Drops to Two-Week Low on Reduced Bets Fed Target to Rise
The dollar dropped to the lowest level versus the yen in two weeks as slower-than-forecast monthly inflation in May led traders to reduce bets the Federal Reserve will boost the target lending rate.
European Stocks Drop for Fourth Day; Iberdrola, Sainsbury Fall
European stocks fell for a fourth straight day, the longest stretch of declines since February, amid concern that the three- month rally has outpaced the prospects for earnings growth.
German Bonds Rise as Stocks Drop on Waning Earnings Optimism
German 10-year bonds advanced as stocks fell on speculation the three-month equity rally has outpaced the prospects for corporate earnings growth, fueling demand for the safest assets.
Gold Gains in N.Y. as Dollar Falls Against Euro; Silver Climbs
Gold prices advanced in New York as the dollar fell against the euro, boosting demand for the metal as a store of value. Silver also rose.
Crude Oil Rises as U.S. Supply Declines, Fuel Demand Increases
Crude oil rose for the first time in four days after a government report showed a bigger-than-forecast inventory decline and an increase in fuel demand.
HIGHLIGHTS FROM NEWSPAPERS
Calsonic Kansei May Book Loss of 10 Billion Yen, Nikkei Says
Calsonic Kansei Corp. will probably report a group operating loss of about 10 billion yen ($104.6 million) for the April-to-June quarter, largely because of shrinking demand for car air-conditioning systems as Nissan Motor Co. cuts production, Nikkei English News said, without identifying a source for the information.
TOP STORIES/MOST READ ON BLOOMBERG
U.S. Banks Slide After S&P Rating Cuts on Regulation
U.S. lenders slid after Standard & Poor’s reduced its credit ratings on 18 banks, including Wells Fargo & Co., Capital One Financial Corp. and KeyCorp, citing tighter regulation and increased market volatility. Keycorp dropped 7.8 percent.
Obama Lays Out ‘Sweeping Overhaul’ of Financial Rules
President Barack Obama proposed the most sweeping overhaul of the U.S. financial regulatory system in 75 years, seeking to correct a “cascade of mistakes” that toppled major securities firms, froze credit markets and destroyed $26.4 trillion in stock market value around the world.
Cantillon Said to Close Hedge Funds in Strategy Shift
Cantillon Capital Management LLC, a $4.5 billion asset- management firm run by William von Mueffling, is closing its two hedge funds to focus on traditional investing, according to people familiar with the matter.
Wall Street Calls Obama’s Mortgage-Market Debt Plan a Burden
The Obama administration’s plan to shore up the market for mortgage bonds by forcing banks to keep some on their books faces resistance on Wall Street, as bankers call the measure burdensome and a hindrance to new lending.
MAIN ECONOMIC RELEASES TODAY World Bank Releases Its Quarterly Update on Chinese Economy India’s Wholesale Price Index Seen Dropping 1.48% in June 6 Week Reserve Bank of Australia Foreign-Exchange Transactions Report
MAIN ANALYST UPGRADES/DOWNGRADES *BHP BILLITON RAISED TO ‘OUTPERFORM FROM ‘NEUTRAL’ AT MACQUARIE *PREUKSA REAL ESTATE RAISED TO ‘BUY’ FROM ‘SELL’ AT TRINITY *SWIBER UPGRADED TO ‘OUTPERFORM’ FROM ‘UNDERPERFORM’ AT CIMB *SEKISUI HOUSE CUT TO ‘NEUTRAL’ AT CREDIT SUISSE *SEPTENI CUT TO ‘HOLD’ FROM ‘BUY’ AT KBC SECURITIES *PING AN CUT TO ‘SELL’ AT UBS ON ‘STRETCHED VALUATION’ *CHINA SHIPPING RAISED TO ‘OVERWEIGHT’ AT MORGAN STANLEY *CSR RAISED TO ‘OVERWEIGHT/CAUTIOUS’ AT MORGAN STANLEY
ASIAN MARKETS
The Nikkei 225 futures contract due in June fell 155 points to 9,670. The Hang Seng Index futures for June dropped 167 to 17,870. The S&P/ASX 200 Index futures contract due in June slipped 4 to 3,866 at 6:59 a.m. in Sydney.
U.S. Stocks Fall, Led by Banks on Downgrade; Health Shares Gain
U.S. stocks fell for a third straight day after Standard & Poor’s downgraded the credit ratings of 18 banks, overshadowing gains in health-care shares as Congress prepares legislation to overhaul the industry.
Treasuries Decline as Investors Shift Focus to Debt Auctions
Treasury 10-year notes fell, snapping a four-day rally, as investors turned their attention to next week’s three note auctions, part of the government’s record borrowing to stimulate the economy.
Dollar Drops to Two-Week Low on Reduced Bets Fed Target to Rise
The dollar dropped to the lowest level versus the yen in two weeks as slower-than-forecast monthly inflation in May led traders to reduce bets the Federal Reserve will boost the target lending rate.
European Stocks Drop for Fourth Day; Iberdrola, Sainsbury Fall
European stocks fell for a fourth straight day, the longest stretch of declines since February, amid concern that the three- month rally has outpaced the prospects for earnings growth.
German Bonds Rise as Stocks Drop on Waning Earnings Optimism
German 10-year bonds advanced as stocks fell on speculation the three-month equity rally has outpaced the prospects for corporate earnings growth, fueling demand for the safest assets.
Gold Gains in N.Y. as Dollar Falls Against Euro; Silver Climbs
Gold prices advanced in New York as the dollar fell against the euro, boosting demand for the metal as a store of value. Silver also rose.
Crude Oil Rises as U.S. Supply Declines, Fuel Demand Increases
Crude oil rose for the first time in four days after a government report showed a bigger-than-forecast inventory decline and an increase in fuel demand.
HIGHLIGHTS FROM NEWSPAPERS
Calsonic Kansei May Book Loss of 10 Billion Yen, Nikkei Says
Calsonic Kansei Corp. will probably report a group operating loss of about 10 billion yen ($104.6 million) for the April-to-June quarter, largely because of shrinking demand for car air-conditioning systems as Nissan Motor Co. cuts production, Nikkei English News said, without identifying a source for the information.
Tuesday, June 16, 2009
Asian Stocks Fall for Third Day on Growth Concern; BHP Drops
June 17 (Bloomberg) -- Asian stocks fell for a third day, led by mining companies and banks, after U.S. President Barack Obama said unemployment in the world’s largest economy may reach 10 percent.
Jiangxi Copper Co., China’s biggest producer of the metal, sank 3.3 percent as metal prices dropped amid concern demand will decline. Westpac Banking Corp., Australia’s biggest lender by market value, dropped 2.6 percent after a government official said it’s too soon to say the economy avoided a recession. Sekisui House Ltd. jumped 3.9 percent in Tokyo, pacing gains by developers as the central bank raised its assessment of the economy for a second month.
“We’re probably more into a grinding period for the economy rather than a rapid recovery,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State, which holds about $102 billion. “We’ve avoided the Armageddon scenario, but it doesn’t mean we’re back to the brave new world that we were all in a few years ago.
The MSCI Asia Pacific Index lost 0.3 percent to 101.74 at 2:46 p.m. in Tokyo, having swung between gains and losses at least seven times. Japan’s Nikkei 225 Stock Average added 1 percent, while the Topix Index gained 0.9 percent as a weaker yen boosted prospects for export earnings.
Hong Kong’s Hang Seng Index lost 1.3 percent, with China Resources Gas Group Ltd. tumbling 13 percent as Credit Suisse Group AG and Morgan Stanley offered to sell their stakes in the company. Australia’s S&P/ASX 200 Index dropped 1.3 percent, led by ports and rail operator Asciano Group, which slumped 12 percent after it increased the size of a share sale. The Philippines Composite Index sank 2.9 percent.
The MSCI Asia Pacific Index’s 3.4 percent drop in the past three days pared its rally from a five-year low on March 9 to 44 percent. The rally drove the average valuation of companies in the gauge to 1.5 times the book value of assets, the highest level since September, according to Bloomberg data.
Copper Drop
Futures on the Standard & Poor’s 500 Index added 0.2 percent. The gauge slid 1.3 percent yesterday as Best Buy Co., the world’s largest electronics retailer, posted disappointing sales.
In an interview with Bloomberg News, U.S. President Obama predicted a 10 percent unemployment rate even as he said the “engines” of an economic recovery have begun to turn. Obama is due to unveil his plan to revamp financial market regulation later today.
Jiangxi Copper slipped 3.3 percent to HK$12.74. Mitsubishi Corp., which gets more than half of its profit from commodities, slipped lost 1.3 percent to 1,857 in Tokyo. Alumina Ltd. sank 4.9 percent to A$1.45 in Sydney.
Copper prices in New York sank 1.4 percent yesterday as the U.S. Federal Reserve said industrial production sank in May. In London, a gauge of six metals dipped for a third day, the longest losing stretch since February.
Australian Banks
BHP Billiton Ltd., the world’s biggest mining company, sank 3 percent to A$35.36 in Sydney. Its credit-default swaps, the cost of protecting its debt, had their biggest gain since Oct. 22 on speculation it is planning an acquisition.
Westpac dropped 2.6 percent to A$19.34. Australia & New Zealand Banking Group Ltd. fell 2.1 percent to A$16.45. Commonwealth Bank of Australia, the nation’s largest mortgage lender, lost 1.3 percent to A$37.60.
The MSCI Asia Pacific Index slumped as much as 51 percent in the past year as the financial crisis dragged economies including Japan into recession. Australia’s economy unexpectedly grew 0.4 percent in the first quarter after contracting a 0.6 percent in previous three months, government figures released on June 3 showed.
“Celebration would be premature,” David Gruen, executive director of the Australian Treasury Department’s Macroeconomic Group, said in a speech late yesterday. “The global recession, and its Australian counterpart, still has some way to run.”
Taking Profit
The MSCI gauge climbed more than 10 percent for a second month in May, which hasn’t happened since the two months ended 1993. Stocks on the index trade at 23 times estimated profit, more than the MSCI World Index’s 15 times, Bloomberg data show.
“Some people are taking profit as the market has risen too fast,” said Naoki Fujiwara, who oversees the equivalent of $3.7 billion at Shinkin Asset Management Co. in Tokyo. “Investors’ appetite for bargain hunting is surprisingly strong.”
Japan’s Sumitomo Forestry Co. surged 12 percent to 777 yen, while Sekisui House jumped 3.9 percent to 989 yen. Morgan Stanley upgraded the stocks to “overweight” and lifted its outlook on the country’s real estate sector to “attractive,” saying home orders probably bottomed in the first quarter and should benefit from tax breaks.
Daiwa Investment
Daiwa Securities Group Inc. gained 0.6 percent to 651 yen. The company will invest 10 billion yen ($104 million) in DA Office Investment Corp., the Nikkei newspaper reported today, without citing anyone. Daiwa said it is not the source of the Nikkei report. DA Office, which denied the report, wasn’t traded as orders to buy outnumbered those to sell.
In Hong Kong, China Resources Gas plunged 13 percent to HK$5.10. Credit Suisse and Morgan Stanley are offering a combined 166 million existing shares at HK$4.30 to HK$4.60 each, according to an e-mail sent to fund managers yesterday.
Asciano slumped 12 percent to A$1.28 after the Australian ports and rail operator increased a share sale by 18 percent to A$2.35 billion ($1.86 billion) to slash debt.
Jiangxi Copper Co., China’s biggest producer of the metal, sank 3.3 percent as metal prices dropped amid concern demand will decline. Westpac Banking Corp., Australia’s biggest lender by market value, dropped 2.6 percent after a government official said it’s too soon to say the economy avoided a recession. Sekisui House Ltd. jumped 3.9 percent in Tokyo, pacing gains by developers as the central bank raised its assessment of the economy for a second month.
“We’re probably more into a grinding period for the economy rather than a rapid recovery,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State, which holds about $102 billion. “We’ve avoided the Armageddon scenario, but it doesn’t mean we’re back to the brave new world that we were all in a few years ago.
The MSCI Asia Pacific Index lost 0.3 percent to 101.74 at 2:46 p.m. in Tokyo, having swung between gains and losses at least seven times. Japan’s Nikkei 225 Stock Average added 1 percent, while the Topix Index gained 0.9 percent as a weaker yen boosted prospects for export earnings.
Hong Kong’s Hang Seng Index lost 1.3 percent, with China Resources Gas Group Ltd. tumbling 13 percent as Credit Suisse Group AG and Morgan Stanley offered to sell their stakes in the company. Australia’s S&P/ASX 200 Index dropped 1.3 percent, led by ports and rail operator Asciano Group, which slumped 12 percent after it increased the size of a share sale. The Philippines Composite Index sank 2.9 percent.
The MSCI Asia Pacific Index’s 3.4 percent drop in the past three days pared its rally from a five-year low on March 9 to 44 percent. The rally drove the average valuation of companies in the gauge to 1.5 times the book value of assets, the highest level since September, according to Bloomberg data.
Copper Drop
Futures on the Standard & Poor’s 500 Index added 0.2 percent. The gauge slid 1.3 percent yesterday as Best Buy Co., the world’s largest electronics retailer, posted disappointing sales.
In an interview with Bloomberg News, U.S. President Obama predicted a 10 percent unemployment rate even as he said the “engines” of an economic recovery have begun to turn. Obama is due to unveil his plan to revamp financial market regulation later today.
Jiangxi Copper slipped 3.3 percent to HK$12.74. Mitsubishi Corp., which gets more than half of its profit from commodities, slipped lost 1.3 percent to 1,857 in Tokyo. Alumina Ltd. sank 4.9 percent to A$1.45 in Sydney.
Copper prices in New York sank 1.4 percent yesterday as the U.S. Federal Reserve said industrial production sank in May. In London, a gauge of six metals dipped for a third day, the longest losing stretch since February.
Australian Banks
BHP Billiton Ltd., the world’s biggest mining company, sank 3 percent to A$35.36 in Sydney. Its credit-default swaps, the cost of protecting its debt, had their biggest gain since Oct. 22 on speculation it is planning an acquisition.
Westpac dropped 2.6 percent to A$19.34. Australia & New Zealand Banking Group Ltd. fell 2.1 percent to A$16.45. Commonwealth Bank of Australia, the nation’s largest mortgage lender, lost 1.3 percent to A$37.60.
The MSCI Asia Pacific Index slumped as much as 51 percent in the past year as the financial crisis dragged economies including Japan into recession. Australia’s economy unexpectedly grew 0.4 percent in the first quarter after contracting a 0.6 percent in previous three months, government figures released on June 3 showed.
“Celebration would be premature,” David Gruen, executive director of the Australian Treasury Department’s Macroeconomic Group, said in a speech late yesterday. “The global recession, and its Australian counterpart, still has some way to run.”
Taking Profit
The MSCI gauge climbed more than 10 percent for a second month in May, which hasn’t happened since the two months ended 1993. Stocks on the index trade at 23 times estimated profit, more than the MSCI World Index’s 15 times, Bloomberg data show.
“Some people are taking profit as the market has risen too fast,” said Naoki Fujiwara, who oversees the equivalent of $3.7 billion at Shinkin Asset Management Co. in Tokyo. “Investors’ appetite for bargain hunting is surprisingly strong.”
Japan’s Sumitomo Forestry Co. surged 12 percent to 777 yen, while Sekisui House jumped 3.9 percent to 989 yen. Morgan Stanley upgraded the stocks to “overweight” and lifted its outlook on the country’s real estate sector to “attractive,” saying home orders probably bottomed in the first quarter and should benefit from tax breaks.
Daiwa Investment
Daiwa Securities Group Inc. gained 0.6 percent to 651 yen. The company will invest 10 billion yen ($104 million) in DA Office Investment Corp., the Nikkei newspaper reported today, without citing anyone. Daiwa said it is not the source of the Nikkei report. DA Office, which denied the report, wasn’t traded as orders to buy outnumbered those to sell.
In Hong Kong, China Resources Gas plunged 13 percent to HK$5.10. Credit Suisse and Morgan Stanley are offering a combined 166 million existing shares at HK$4.30 to HK$4.60 each, according to an e-mail sent to fund managers yesterday.
Asciano slumped 12 percent to A$1.28 after the Australian ports and rail operator increased a share sale by 18 percent to A$2.35 billion ($1.86 billion) to slash debt.
Mahindra to Help India Beat China to U.S. Auto Market
June 17 (Bloomberg) -- Mahindra & Mahindra Ltd., India’s largest maker of sport-utility vehicles, is betting its diesel pickup trucks can beat the Chinese to the U.S. market.
Early next year, Mumbai-based Mahindra plans to start selling small 2- and 4-door pickups with a diesel engine that meets California’s strict exhaust rules. U.S. plans for Chinese brands such as Chery Automobile Co. and Geely Automobile Holdings Ltd. have yet to materialize, five years into their announcements.
“Once you establish the brand, volumes will come,” Pawan Goenka, Mahindra’s president in charge of the automotive business, said in a June 16 interview. “There is a hole available to us which is not populated.”
Mahindra’s trucks will arrive in the U.S. even as recession and job losses have pushed auto sales to the lowest in three decades, triggering bankruptcy filings for General Motors Corp. and Chrysler LLC. A weak economy and cheaper diesel prices may help the Indian automaker win buyers seeking a bargain, said industry analyst Eric Noble.
“It’s not a bad time to launch a durable, value-oriented brand,” said Noble, president of Car Lab, an Orange, California-based consulting firm for automakers. “There’s no real competition in compact trucks with a diesel powertrain.”
“Totally Unknown”
With a brand that’s “totally unknown” to U.S. customers, an Indian automaker will face the same challenges Hyundai Motor Co., Toyota Motor Corp. and Honda Motor Co. faced when they entered the world’s largest economy, said Puneet Gupta, a New Delhi-based analyst at CSM Worldwide Inc. In India, Mahindra makes Scorpio and Bolero SUVs.
“It’s a big challenge,” Gupta said. “Selling a very cheap vehicle may not work. Selling in a matured market may also spoil your reputation if your product is not up-to-the expectations of customers there.”
Mahindra’s shares have more than doubled this year in Mumbai trading. That’s the best performance in the benchmark 30- share Sensex index during that period.
The vehicles will be “competitive” with similar vehicles in the range of $20,000 to less than $30,000, Goenka said, without giving a specific price. The company has spent between $60 million and $70 million in reworking its Scorpio SUV into a pickup for the U.S. market. Mahindra has set up a network of 336 dealers throughout the country.
Fuel Economy
Mahindra expects the pickups to get at least 30 miles per gallon in highway driving and carry a payload of at least 2,600 pounds. By comparison, Toyota’s gasoline-engine Tacoma, the best-selling small pickup in the U.S., gets 26 mpg on the highway and can carry 1,570 pounds in its bed. Diesel engines are generally at least 20 percent more fuel efficient than gasoline engines.
Key to Mahindra starting sales on schedule will be completing U.S. crash and safety tests by August, said Larry Daniel, senior vice president of sales and marketing at Global Vehicles U.S.A. Inc., Mahindra’s distributor.
“We’re cutting it close, but are confident the trucks will do well in the tests,” Daniel said in a June 12 interview.
Plans for U.S. models from China’s Chery, first announced in late 2004, failed because of disagreements with its U.S. distribution partner Visionary Vehicles LLC. Chrysler LLC also abandoned plans to sell Chery-made cars in the U.S. Geely, China’s biggest privately owned carmaker, hasn’t met its initial goal of selling cars in the U.S. by 2008 amid talks with Ford Motor Co. on buying its Volvo Car unit.
GM’s Small Car
Last month, GM agreed with a United Auto Workers request to build small cars at an unnamed U.S. assembly plant instead of importing them from overseas. Detroit-based GM’s initial plan was to sell a U.S. version of a car built by Chinese venture partner SAIC Motor Corp., according to the Associated Press.
The first highway-legal Chinese car in the U.S. may be the Coda sedan, a battery-powered model that Santa Monica, California-based Miles Electric Vehicles plans to retail in California in late 2010. The model will be supplied by China’s Hafei Motor Co.
Mahindra was set up in 1945 as a franchise to assemble Jeeps of Willys, according to its Web site. The automaker later had a partnership with Ford Motor Co. and now makes the Logan sedan with Renault SA in India.
India Engineering
While China’s auto market has drawn more attention, India’s experience in the industry is longer, broader and more sophisticated, said Noble. China is the world’s largest auto market in the first five months of the year, ahead of the U.S.
“Probably half the global vehicle structural analysis for automakers gets done overnight in India,” Noble said. “Indian engineers have been part of the fabric of the automotive industry for 15 years. China’s engineering capabilities are much more nascent.”
Honda, which entered the U.S. pickup market four years ago with the midsize Ridgeline model, said Mahindra should be viewed as a serious competitor.
“We discount any new entrants at our own peril,” John Mendel, Honda’s U.S. executive vice president, said in a June 11 interview. “I think they can get it right.”
Early next year, Mumbai-based Mahindra plans to start selling small 2- and 4-door pickups with a diesel engine that meets California’s strict exhaust rules. U.S. plans for Chinese brands such as Chery Automobile Co. and Geely Automobile Holdings Ltd. have yet to materialize, five years into their announcements.
“Once you establish the brand, volumes will come,” Pawan Goenka, Mahindra’s president in charge of the automotive business, said in a June 16 interview. “There is a hole available to us which is not populated.”
Mahindra’s trucks will arrive in the U.S. even as recession and job losses have pushed auto sales to the lowest in three decades, triggering bankruptcy filings for General Motors Corp. and Chrysler LLC. A weak economy and cheaper diesel prices may help the Indian automaker win buyers seeking a bargain, said industry analyst Eric Noble.
“It’s not a bad time to launch a durable, value-oriented brand,” said Noble, president of Car Lab, an Orange, California-based consulting firm for automakers. “There’s no real competition in compact trucks with a diesel powertrain.”
“Totally Unknown”
With a brand that’s “totally unknown” to U.S. customers, an Indian automaker will face the same challenges Hyundai Motor Co., Toyota Motor Corp. and Honda Motor Co. faced when they entered the world’s largest economy, said Puneet Gupta, a New Delhi-based analyst at CSM Worldwide Inc. In India, Mahindra makes Scorpio and Bolero SUVs.
“It’s a big challenge,” Gupta said. “Selling a very cheap vehicle may not work. Selling in a matured market may also spoil your reputation if your product is not up-to-the expectations of customers there.”
Mahindra’s shares have more than doubled this year in Mumbai trading. That’s the best performance in the benchmark 30- share Sensex index during that period.
The vehicles will be “competitive” with similar vehicles in the range of $20,000 to less than $30,000, Goenka said, without giving a specific price. The company has spent between $60 million and $70 million in reworking its Scorpio SUV into a pickup for the U.S. market. Mahindra has set up a network of 336 dealers throughout the country.
Fuel Economy
Mahindra expects the pickups to get at least 30 miles per gallon in highway driving and carry a payload of at least 2,600 pounds. By comparison, Toyota’s gasoline-engine Tacoma, the best-selling small pickup in the U.S., gets 26 mpg on the highway and can carry 1,570 pounds in its bed. Diesel engines are generally at least 20 percent more fuel efficient than gasoline engines.
Key to Mahindra starting sales on schedule will be completing U.S. crash and safety tests by August, said Larry Daniel, senior vice president of sales and marketing at Global Vehicles U.S.A. Inc., Mahindra’s distributor.
“We’re cutting it close, but are confident the trucks will do well in the tests,” Daniel said in a June 12 interview.
Plans for U.S. models from China’s Chery, first announced in late 2004, failed because of disagreements with its U.S. distribution partner Visionary Vehicles LLC. Chrysler LLC also abandoned plans to sell Chery-made cars in the U.S. Geely, China’s biggest privately owned carmaker, hasn’t met its initial goal of selling cars in the U.S. by 2008 amid talks with Ford Motor Co. on buying its Volvo Car unit.
GM’s Small Car
Last month, GM agreed with a United Auto Workers request to build small cars at an unnamed U.S. assembly plant instead of importing them from overseas. Detroit-based GM’s initial plan was to sell a U.S. version of a car built by Chinese venture partner SAIC Motor Corp., according to the Associated Press.
The first highway-legal Chinese car in the U.S. may be the Coda sedan, a battery-powered model that Santa Monica, California-based Miles Electric Vehicles plans to retail in California in late 2010. The model will be supplied by China’s Hafei Motor Co.
Mahindra was set up in 1945 as a franchise to assemble Jeeps of Willys, according to its Web site. The automaker later had a partnership with Ford Motor Co. and now makes the Logan sedan with Renault SA in India.
India Engineering
While China’s auto market has drawn more attention, India’s experience in the industry is longer, broader and more sophisticated, said Noble. China is the world’s largest auto market in the first five months of the year, ahead of the U.S.
“Probably half the global vehicle structural analysis for automakers gets done overnight in India,” Noble said. “Indian engineers have been part of the fabric of the automotive industry for 15 years. China’s engineering capabilities are much more nascent.”
Honda, which entered the U.S. pickup market four years ago with the midsize Ridgeline model, said Mahindra should be viewed as a serious competitor.
“We discount any new entrants at our own peril,” John Mendel, Honda’s U.S. executive vice president, said in a June 11 interview. “I think they can get it right.”
Obama Sees 10% Unemployment Rate, Chides Wall Street Critics
June 17 (Bloomberg) -- President Barack Obama offered stern words for Wall Street and a prediction of 10 percent U.S. unemployment even as he said the “engines” of an economic recovery have begun to turn.
“Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected,” Obama said, referring to criticism of the government’s growing role in the economy and markets.
Obama, in an interview with Bloomberg News on the eve of the release of his plan to revamp financial-market regulation, voiced confidence the economy would recover soon, while warning that robust growth was needed if the U.S. is to rein in its budget deficit without raising taxes on most Americans.
“You’re starting to see the engines of the economy turn,” Obama said. Still, he said, “It’s going to take a long time” for a full-fledged recovery as households work off the debt accumulated during the real estate boom.
The jobless rate will continue to climb from its current 25-year high of 9.4 percent as employers are slow to take on new workers, the president said. “Jobs are a lagging indicator,” he said, while adding that he didn’t have “a crystal ball” to predict when unemployment will start to decline.
Praise for Bernanke
Obama, 47, gave high marks to Federal Reserve Chairman Ben S. Bernanke for his role in fighting the financial crisis. Bernanke “has done an extraordinary job under extraordinary circumstances,” the president said during the interview in the East Room of the White House. He declined to say whether he would nominate Bernanke, 55, for another four-year term when his tenure runs out in January.
Ahead of today’s regulatory announcement expected at 12:50 p.m. in Washington, Obama pledged to make the derivatives market, which he called a system of “enormous risk,” more transparent. He also said it is important for the U.S. to maintain fiscal discipline to ensure investors in China and around the world keep buying U.S. government debt.
“The No. 1 risk of the next crisis would be that the foreign lenders take a look at this situation and decide it’s too risky,” said Peter G. Peterson, senior chairman of Blackstone Group International Ltd.
While expressing confidence in the long-term prospects for the economy, the president stressed the necessity of making tough reforms, including overhauling the health-care system, to generate the growth needed to reduce the budget deficit.
Growth and Taxes
He left open the possibility he would have to raise taxes on most Americans to decrease the deficit if growth were too weak. He also indicated he might tax the most-expensive employer-provided benefits to help pay for his health-care revamp. Both would reverse pledges he made during the campaign.
“If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes,” Obama said. “If we’ve got anemic growth, if we don’t have a strategy for recovery without bubbles, which is essentially what we’ve had over the last couple of recovery cycles, then we’re going to continue to have problems.”
The president has repeatedly said he would keep his presidential campaign pledge to cut taxes for 95 percent of working Americans while rolling back tax breaks for households making more than $250,000 a year.
During the campaign, Obama opposed taxing employer-provided health-care benefits, a proposal gaining traction among Senate Democrats to pay for a $1 trillion health-care plan.
He said he preferred other means of funding the legislation, including reducing itemized deductions for the wealthiest Americans and focusing on cutting health-care costs.
‘Vigorous Debate’
Still, he said, “Congress is having a vigorous debate on the Hill, and I don’t want to predetermine the best way to do this.”
“I’ve already put forward what I think is the best way, but let me see what comes out of the Hill,” Obama said.
Only five months into a presidency that inherited the worst financial meltdown since the 1930s, Obama’s self-described “extraordinary” actions to stem the crisis have reached a critical juncture. He will now be tested less on his crisis- management skills and more on the policies that have extended the government’s reach into private industry.
Obama is assuming ownership of his bank-bailout plan, $787 billion economic-stimulus package, auto-industry restructuring and proposals to revise financial-market regulations.
New Terrain
He is also navigating new terrain as a steward of some of the best-known corporations, from General Motors Corp. to Citigroup Inc., asserting the kind of control unseen since former president Harry Truman tried to force action on the steel industry in 1952.
Obama has set a goal by the end of this year to complete legislation to curb climate change as well as overhaul health care. On foreign policy, he is picking up where past presidents have failed -- to reignite an Israeli-Palestinian peace deal, as he confronts foreign policy crises from Iran to North Korea to Pakistan.
The president comes at these challenges with a 67 percent approval rating, putting him above former presidents George W. Bush and Bill Clinton at the same point in their presidencies, according to the latest Gallup polling.
In a sign of the high stakes, Obama stepped up his sales pitch. Yesterday’s series of interviews as well as a Rose Garden press conference on North Korea that also touched on Iran and his regulatory, economic and health-care proposals followed his June 15 address before the American Medical Association in Chicago and a June 11 Wisconsin town hall on health care.
Financial Regulations
The president today will announce his proposal for revamping financial regulation. Many of the changes must be approved by Congress, where jurisdictional and ideological clashes may shape the final legislation.
Crafted by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, the plan would put the Federal Reserve in charge of regulating companies whose collapse could damage the entire financial system. It would also create a new agency to oversee consumer financial products, such as mortgages and credit cards.
The proposal encompasses areas ranging from derivatives to executive pay to the mortgage-backed securities that helped fuel the housing boom and touch off the credit crisis.
“Derivatives are a huge potential risk to the system,” he said. “We are going to make sure that they have to register, that they are regulated, that you have clearinghouses.”
Derivatives are contracts whose values are tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.
Role in Economy
The president also said he would like the government to get out of the economy when it can.
“As soon as this economy has stabilized, we want the market to do what it does best, and that is produce jobs, invest,” he said.
He brushed aside concerns that the rise in Treasury bond yields would stifle an economic recovery by pushing up borrowing costs for homebuyers. The 10-year Treasury note yield has increased 0.57 percentage point since May 14.
Obama said Treasury yields are rising because investors have grown “more confident that we may have avoided the very worst scenarios” for the economy and are putting their money into investments with higher returns.
Skittish Investors
Still, he warned that long-term deficits would deter international investors, including China, which holds $767.9 billion of U.S. debt. China has already shifted purchases of Treasuries into shorter-maturity securities amid concern about unprecedented debt sales.
“There’s no doubt that, at some point, you know, whether it’s the Chinese, the Koreans, the Japanese, whoever else has been snatching up Treasuries are going to decide that this is too much of a risk,” Obama said.
The Standard & Poor’s 500 Index has gained 15 percent since Obama’s Jan. 20 inauguration, compared with a decline of 9.6 percent in the first five months of the Bush administration and an increase of 3 percent under Clinton. Corporate bonds have returned 11.5 percent, according to Merrill Lynch & Co. index data, and companies have sold about $680 billion of debt, a record pace, Bloomberg data show.
The president said his plan to re-regulate markets would include a “systemic regulator” to oversee the “entire financial system” and catch risky activity “before the crisis occurs.”
His toughest language was reserved for those on Wall Street who criticize his administration for putting too many restrictions on aid, including limits on executive compensation.
“When I hear some of the commentary that’s been creeping up about, “You know, it’s time for government to get out of the economy. And what’s the Obama administration doing?’ I have to try to remind them -- all we’re doing is cleaning up after the mess that was made,” Obama said.
“Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected,” Obama said, referring to criticism of the government’s growing role in the economy and markets.
Obama, in an interview with Bloomberg News on the eve of the release of his plan to revamp financial-market regulation, voiced confidence the economy would recover soon, while warning that robust growth was needed if the U.S. is to rein in its budget deficit without raising taxes on most Americans.
“You’re starting to see the engines of the economy turn,” Obama said. Still, he said, “It’s going to take a long time” for a full-fledged recovery as households work off the debt accumulated during the real estate boom.
The jobless rate will continue to climb from its current 25-year high of 9.4 percent as employers are slow to take on new workers, the president said. “Jobs are a lagging indicator,” he said, while adding that he didn’t have “a crystal ball” to predict when unemployment will start to decline.
Praise for Bernanke
Obama, 47, gave high marks to Federal Reserve Chairman Ben S. Bernanke for his role in fighting the financial crisis. Bernanke “has done an extraordinary job under extraordinary circumstances,” the president said during the interview in the East Room of the White House. He declined to say whether he would nominate Bernanke, 55, for another four-year term when his tenure runs out in January.
Ahead of today’s regulatory announcement expected at 12:50 p.m. in Washington, Obama pledged to make the derivatives market, which he called a system of “enormous risk,” more transparent. He also said it is important for the U.S. to maintain fiscal discipline to ensure investors in China and around the world keep buying U.S. government debt.
“The No. 1 risk of the next crisis would be that the foreign lenders take a look at this situation and decide it’s too risky,” said Peter G. Peterson, senior chairman of Blackstone Group International Ltd.
While expressing confidence in the long-term prospects for the economy, the president stressed the necessity of making tough reforms, including overhauling the health-care system, to generate the growth needed to reduce the budget deficit.
Growth and Taxes
He left open the possibility he would have to raise taxes on most Americans to decrease the deficit if growth were too weak. He also indicated he might tax the most-expensive employer-provided benefits to help pay for his health-care revamp. Both would reverse pledges he made during the campaign.
“If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes,” Obama said. “If we’ve got anemic growth, if we don’t have a strategy for recovery without bubbles, which is essentially what we’ve had over the last couple of recovery cycles, then we’re going to continue to have problems.”
The president has repeatedly said he would keep his presidential campaign pledge to cut taxes for 95 percent of working Americans while rolling back tax breaks for households making more than $250,000 a year.
During the campaign, Obama opposed taxing employer-provided health-care benefits, a proposal gaining traction among Senate Democrats to pay for a $1 trillion health-care plan.
He said he preferred other means of funding the legislation, including reducing itemized deductions for the wealthiest Americans and focusing on cutting health-care costs.
‘Vigorous Debate’
Still, he said, “Congress is having a vigorous debate on the Hill, and I don’t want to predetermine the best way to do this.”
“I’ve already put forward what I think is the best way, but let me see what comes out of the Hill,” Obama said.
Only five months into a presidency that inherited the worst financial meltdown since the 1930s, Obama’s self-described “extraordinary” actions to stem the crisis have reached a critical juncture. He will now be tested less on his crisis- management skills and more on the policies that have extended the government’s reach into private industry.
Obama is assuming ownership of his bank-bailout plan, $787 billion economic-stimulus package, auto-industry restructuring and proposals to revise financial-market regulations.
New Terrain
He is also navigating new terrain as a steward of some of the best-known corporations, from General Motors Corp. to Citigroup Inc., asserting the kind of control unseen since former president Harry Truman tried to force action on the steel industry in 1952.
Obama has set a goal by the end of this year to complete legislation to curb climate change as well as overhaul health care. On foreign policy, he is picking up where past presidents have failed -- to reignite an Israeli-Palestinian peace deal, as he confronts foreign policy crises from Iran to North Korea to Pakistan.
The president comes at these challenges with a 67 percent approval rating, putting him above former presidents George W. Bush and Bill Clinton at the same point in their presidencies, according to the latest Gallup polling.
In a sign of the high stakes, Obama stepped up his sales pitch. Yesterday’s series of interviews as well as a Rose Garden press conference on North Korea that also touched on Iran and his regulatory, economic and health-care proposals followed his June 15 address before the American Medical Association in Chicago and a June 11 Wisconsin town hall on health care.
Financial Regulations
The president today will announce his proposal for revamping financial regulation. Many of the changes must be approved by Congress, where jurisdictional and ideological clashes may shape the final legislation.
Crafted by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, the plan would put the Federal Reserve in charge of regulating companies whose collapse could damage the entire financial system. It would also create a new agency to oversee consumer financial products, such as mortgages and credit cards.
The proposal encompasses areas ranging from derivatives to executive pay to the mortgage-backed securities that helped fuel the housing boom and touch off the credit crisis.
“Derivatives are a huge potential risk to the system,” he said. “We are going to make sure that they have to register, that they are regulated, that you have clearinghouses.”
Derivatives are contracts whose values are tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.
Role in Economy
The president also said he would like the government to get out of the economy when it can.
“As soon as this economy has stabilized, we want the market to do what it does best, and that is produce jobs, invest,” he said.
He brushed aside concerns that the rise in Treasury bond yields would stifle an economic recovery by pushing up borrowing costs for homebuyers. The 10-year Treasury note yield has increased 0.57 percentage point since May 14.
Obama said Treasury yields are rising because investors have grown “more confident that we may have avoided the very worst scenarios” for the economy and are putting their money into investments with higher returns.
Skittish Investors
Still, he warned that long-term deficits would deter international investors, including China, which holds $767.9 billion of U.S. debt. China has already shifted purchases of Treasuries into shorter-maturity securities amid concern about unprecedented debt sales.
“There’s no doubt that, at some point, you know, whether it’s the Chinese, the Koreans, the Japanese, whoever else has been snatching up Treasuries are going to decide that this is too much of a risk,” Obama said.
The Standard & Poor’s 500 Index has gained 15 percent since Obama’s Jan. 20 inauguration, compared with a decline of 9.6 percent in the first five months of the Bush administration and an increase of 3 percent under Clinton. Corporate bonds have returned 11.5 percent, according to Merrill Lynch & Co. index data, and companies have sold about $680 billion of debt, a record pace, Bloomberg data show.
The president said his plan to re-regulate markets would include a “systemic regulator” to oversee the “entire financial system” and catch risky activity “before the crisis occurs.”
His toughest language was reserved for those on Wall Street who criticize his administration for putting too many restrictions on aid, including limits on executive compensation.
“When I hear some of the commentary that’s been creeping up about, “You know, it’s time for government to get out of the economy. And what’s the Obama administration doing?’ I have to try to remind them -- all we’re doing is cleaning up after the mess that was made,” Obama said.
Monday, June 15, 2009
Principles that must guide new financial regulation
Published: June 16 2009 03:00 | Last updated: June 16 2009 03:00
When the Obama administration releases a framework for reform of US financial regulation tomorrow - accompanied by announcements in the European Union and other financial centres - it will be the first step in the most significant regulatory overhaul since the Great Depression. As proposals give way to the rough-and-tumble of the legislative process, lawmakers should be mindful of certain core principles that are integral to the fair and efficient functioning of financial markets.
Now is the time to overhaul the financial regulatory structure. Simply put, the current system failed to identify systemic risks, much less manage them. It proved incapable of protecting investors or even recognising the magnitude of the threat they faced. It is a system characterised by confusing overlaps in some areas and perilous gaps in others.
Today's regulatory structure evolved in piecemeal fashion over the past eight decades, with short-term responses to successive financial crises heaped one atop another. Getting our regulatory house in order requires constructing a new foundation, rather than taping broken windows and patching cracked walls.
What principles should frame a truly modern and proactive regulatory architecture of the 21st century?
First, financial regulatory reform must protect investors and restore investor confidence. That demands a new approach to regulation. Innovative financial instruments blend elements of equity, debt and insurance - but regulators today only focus on their own specific area of responsibility. We must close the gaps, ensuring all market functions are supervised by an appropriate regulator. This is crucial if we are to ensure that no single institution is large enough to threaten the entire system.
Second, financial oversight must be rationalised and harmonised. Seven federal regulators with overlapping missions and fragmented supervision oversee US markets and financial institutions. Increasingly, government officials and experts in banking law recognise that the US needs a single, strong prudential regulator to ensure the safety and soundness of our banking system, reduce the problem of "too big to fail" and provide true accountability. Both Tim Geithner, Treasury secretary, and his predecessor have proposed consolidation of bank regulation. It is time to act.
Today's financial markets are increasingly borderless and US regulators must work in harmony with their counterparts around the world. This could be accomplished by establishing a strengthened Financial Stability Board, which the Obama administration and the Group of 20 have recommended.
Third, a new system must bring complex financial instruments out of the shadows. What cannot be seen cannot be regulated properly. The solution: trade standardised deriv-atives on regulated exchanges rather than opaque over-the-counter markets, as Mr Geithner has proposed.
Lack of transparency contributed mightily to the seizure of credit markets, as investors struggled to properly price and analyse risk. Many financial institutions still do not fully understand the exact composition and value of the financial products that have wrecked their balance sheets. Regulated exchanges have a track record of transparency and reliability that served investors well through many periods of market disruption.
Fourth, a new regulatory system must stress smarter regulation, not over-regulation. Quality, not quantity, is the test. With 39,000 employees of financial regulatory agencies, the US already has more than 12 times as many regulatory personnel as the UK's 3,100, although its gross domestic product is only seven times bigger. Simply adding regulators to this existing army would not have prevented the meltdown.
Regulatory overreaction would limit access to capital markets, dampening the entrepreneurial energy that is critical to any sustained economic recovery. It would also drive companies and jobs to overseas markets. Investors, businesses small and large, and our financial markets cannot afford regulatory overkill.
The administration's enthusiasm for reform is a hopeful sign that a modernised regulatory structure is achievable, but it will take bold leadership to ensure that the principles necessary for this reform survive the coming legislative battle.
When the Obama administration releases a framework for reform of US financial regulation tomorrow - accompanied by announcements in the European Union and other financial centres - it will be the first step in the most significant regulatory overhaul since the Great Depression. As proposals give way to the rough-and-tumble of the legislative process, lawmakers should be mindful of certain core principles that are integral to the fair and efficient functioning of financial markets.
Now is the time to overhaul the financial regulatory structure. Simply put, the current system failed to identify systemic risks, much less manage them. It proved incapable of protecting investors or even recognising the magnitude of the threat they faced. It is a system characterised by confusing overlaps in some areas and perilous gaps in others.
Today's regulatory structure evolved in piecemeal fashion over the past eight decades, with short-term responses to successive financial crises heaped one atop another. Getting our regulatory house in order requires constructing a new foundation, rather than taping broken windows and patching cracked walls.
What principles should frame a truly modern and proactive regulatory architecture of the 21st century?
First, financial regulatory reform must protect investors and restore investor confidence. That demands a new approach to regulation. Innovative financial instruments blend elements of equity, debt and insurance - but regulators today only focus on their own specific area of responsibility. We must close the gaps, ensuring all market functions are supervised by an appropriate regulator. This is crucial if we are to ensure that no single institution is large enough to threaten the entire system.
Second, financial oversight must be rationalised and harmonised. Seven federal regulators with overlapping missions and fragmented supervision oversee US markets and financial institutions. Increasingly, government officials and experts in banking law recognise that the US needs a single, strong prudential regulator to ensure the safety and soundness of our banking system, reduce the problem of "too big to fail" and provide true accountability. Both Tim Geithner, Treasury secretary, and his predecessor have proposed consolidation of bank regulation. It is time to act.
Today's financial markets are increasingly borderless and US regulators must work in harmony with their counterparts around the world. This could be accomplished by establishing a strengthened Financial Stability Board, which the Obama administration and the Group of 20 have recommended.
Third, a new system must bring complex financial instruments out of the shadows. What cannot be seen cannot be regulated properly. The solution: trade standardised deriv-atives on regulated exchanges rather than opaque over-the-counter markets, as Mr Geithner has proposed.
Lack of transparency contributed mightily to the seizure of credit markets, as investors struggled to properly price and analyse risk. Many financial institutions still do not fully understand the exact composition and value of the financial products that have wrecked their balance sheets. Regulated exchanges have a track record of transparency and reliability that served investors well through many periods of market disruption.
Fourth, a new regulatory system must stress smarter regulation, not over-regulation. Quality, not quantity, is the test. With 39,000 employees of financial regulatory agencies, the US already has more than 12 times as many regulatory personnel as the UK's 3,100, although its gross domestic product is only seven times bigger. Simply adding regulators to this existing army would not have prevented the meltdown.
Regulatory overreaction would limit access to capital markets, dampening the entrepreneurial energy that is critical to any sustained economic recovery. It would also drive companies and jobs to overseas markets. Investors, businesses small and large, and our financial markets cannot afford regulatory overkill.
The administration's enthusiasm for reform is a hopeful sign that a modernised regulatory structure is achievable, but it will take bold leadership to ensure that the principles necessary for this reform survive the coming legislative battle.
Asian Stocks Drop on Growth Concerns; Yen, Treasuries Advance
June 16 (Bloomberg) -- Asian stocks fell, giving the MSCI Asia Pacific Index its biggest drop in a month, after a New York manufacturing report missed economist estimates and commodity prices sank. The yen strengthened and Treasuries rose.
Toyota Motor Corp., the world’s No. 1 automaker, fell 2.6 percent in Tokyo. Sony Corp., which gets 24 percent of its sales from the U.S., retreated 2.7 percent. PetroChina Co., China’s biggest oil producer, fell 4.7 percent in Hong Kong and Rio Tinto Group, the world’s third-largest mining company, slumped 4.2 percent in Sydney as oil and copper prices fell. Declines in Asia extended a global slump that dragged the MSCI World Index down by the most in two months yesterday.
“Some may have believed that the deterioration of the global economy had ended, but that’s not the case,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $52 billion in Tokyo. “Those who bought stocks on a perception the economy would improve are now selling on reality.”
The MSCI Asia Pacific Index sank 2.2 percent to 101.30 as of 12:57 p.m. in Tokyo, the biggest drop since May 14. The gauge has surged 44 percent from a more than five-year low on March 9 amid speculation the global economy is recovering.
Japan’s Nikkei 225 Stock Average fell 2.6 percent to 9,781.30 as the central bank left the overnight lending rate unchanged at 0.1 percent today. Hong Kong’s Hang Seng Index slumped 3.2 percent.
The Kospi Index dropped 1.1 percent in Seoul as MSCI Inc., whose stock indexes are tracked by investors with about $3 trillion in assets, left South Korea unchanged as an emerging market. The country, the Asia Pacific’s sixth-largest stock market, had been under review for an upgrade to developed status.
Manufacturing Contraction
Konica Minolta Holdings Inc., which makes printers, slumped 6.2 percent in Tokyo after Credit Suisse Group AG downgraded the stock. Australia’s Nufarm Ltd., which supplies farm chemicals, sank 12 percent after cutting its profit target. Among stocks that rose today, Macquarie Communications Infrastructure Group surged 26 percent after receiving an increased takeover bid.
Futures on the Standard & Poor’s 500 Index dropped 0.1 percent. The gauge slid 2.4 percent yesterday, the most since May 13, as the Federal Reserve Bank of New York’s general economic index fell to minus 9.4 in June from minus 4.6 the previous month. Economists in a Bloomberg survey had expected the gauge to stay unchanged. Readings below zero for the index signal manufacturing is shrinking.
‘Moderate’ Recovery
The New York data was the latest in a string of figures that have made some investors more cautious on economic growth prospects. Japan’s government reported on June 8 that the country’s current-account surplus narrowed in April as exports slumped. Overseas shipments declined 26.4 percent last month from a year earlier, China’s customs bureau said on June 11.
“Investors expected the global economy will recover at a fairly fast pace, but this view is changing to one that a recovery will remain moderate,” said Fumiyuki Nakanishi, a strategist at SMBC Friend Securities Co.
Toyota, which gets 31 percent of its revenue from North America, sank 2.6 percent to 3,730 yen. Sony, the maker of the PlayStation 3, lost 2.7 percent to 2,560 yen.
Japanese exporters also fell as the yen’s gains against all 16 of the most-traded currencies threatened the value of overseas sales. The currency advanced 0.9 percent to 133.83 per euro after climbing to 133.24, the highest level since May 28. It rose to 96.96 per dollar from 97.84.
Safe Havens
Treasuries and the yen rose as the decline in stocks increased demand for safer assets. Treasuries gained for a fourth day, the longest winning streak in five months. The yield on the benchmark 10-year note fell two basis points to 3.69 percent according to BGCantor Market data.
PetroChina slumped 4.7 percent to HK$8.57 as crude oil fell today for the third-straight day in New York. Cnooc Ltd., China’s largest offshore oil producer, dropped 5.3 percent to HK$9.93.
Rio Tinto slumped 4.2 percent to A$72.33 after copper futures dropped 3.6 percent in New York yesterday, the most in almost two weeks. BHP Billiton Ltd., the world’s biggest mining company, fell 1.8 percent to A$36.33.
Materials and energy stocks are the best performing of the MSCI Asia Pacific Index’s 10 industries in the past month as investors bet demand for raw materials will pick up as the global economy recovers. The International Monetary Fund raised its growth forecast for the U.S. economy yesterday.
Rising Valuations
“The green shoots of an economic turnaround continue to appear, but the question is whether markets have priced in a bumper harvest,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “People are now turning their attention to the appropriateness of stock prices.”
The MSCI gauge climbed more than 10 percent for a second month in May, which hasn’t happened since the two months ended 1993. The rally since March has driven the average valuation of companies in the gauge to 1.5 times the book value of assets, the highest level since Sept. 26, according to Bloomberg data.
Konica Minolta fell 6.2 percent to 980 yen, paring its climb in the past six months to 43 percent. Credit Suisse Group lowered its recommendation to “underperform” from “neutral” saying the shares may have “overheated.”
Nufarm tumbled 12 percent to A$10.68 after it cut its earnings forecast on lower-than-expected weed killer sales.
Macquarie Communications, which invests in television and radio-transmission towers, surged 26 percent to A$2.93. Canada Pension Plan Investment Board raised its offer for the company by 20 percent after shareholders threatened to block the purchase.
Berjaya Sports Toto Bhd., Malaysia’s biggest number-betting operator, rose 4.8 percent to 5.20 ringgit after fourth-quarter net income jumped 67 percent and the company announced a special dividend.
Toyota Motor Corp., the world’s No. 1 automaker, fell 2.6 percent in Tokyo. Sony Corp., which gets 24 percent of its sales from the U.S., retreated 2.7 percent. PetroChina Co., China’s biggest oil producer, fell 4.7 percent in Hong Kong and Rio Tinto Group, the world’s third-largest mining company, slumped 4.2 percent in Sydney as oil and copper prices fell. Declines in Asia extended a global slump that dragged the MSCI World Index down by the most in two months yesterday.
“Some may have believed that the deterioration of the global economy had ended, but that’s not the case,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $52 billion in Tokyo. “Those who bought stocks on a perception the economy would improve are now selling on reality.”
The MSCI Asia Pacific Index sank 2.2 percent to 101.30 as of 12:57 p.m. in Tokyo, the biggest drop since May 14. The gauge has surged 44 percent from a more than five-year low on March 9 amid speculation the global economy is recovering.
Japan’s Nikkei 225 Stock Average fell 2.6 percent to 9,781.30 as the central bank left the overnight lending rate unchanged at 0.1 percent today. Hong Kong’s Hang Seng Index slumped 3.2 percent.
The Kospi Index dropped 1.1 percent in Seoul as MSCI Inc., whose stock indexes are tracked by investors with about $3 trillion in assets, left South Korea unchanged as an emerging market. The country, the Asia Pacific’s sixth-largest stock market, had been under review for an upgrade to developed status.
Manufacturing Contraction
Konica Minolta Holdings Inc., which makes printers, slumped 6.2 percent in Tokyo after Credit Suisse Group AG downgraded the stock. Australia’s Nufarm Ltd., which supplies farm chemicals, sank 12 percent after cutting its profit target. Among stocks that rose today, Macquarie Communications Infrastructure Group surged 26 percent after receiving an increased takeover bid.
Futures on the Standard & Poor’s 500 Index dropped 0.1 percent. The gauge slid 2.4 percent yesterday, the most since May 13, as the Federal Reserve Bank of New York’s general economic index fell to minus 9.4 in June from minus 4.6 the previous month. Economists in a Bloomberg survey had expected the gauge to stay unchanged. Readings below zero for the index signal manufacturing is shrinking.
‘Moderate’ Recovery
The New York data was the latest in a string of figures that have made some investors more cautious on economic growth prospects. Japan’s government reported on June 8 that the country’s current-account surplus narrowed in April as exports slumped. Overseas shipments declined 26.4 percent last month from a year earlier, China’s customs bureau said on June 11.
“Investors expected the global economy will recover at a fairly fast pace, but this view is changing to one that a recovery will remain moderate,” said Fumiyuki Nakanishi, a strategist at SMBC Friend Securities Co.
Toyota, which gets 31 percent of its revenue from North America, sank 2.6 percent to 3,730 yen. Sony, the maker of the PlayStation 3, lost 2.7 percent to 2,560 yen.
Japanese exporters also fell as the yen’s gains against all 16 of the most-traded currencies threatened the value of overseas sales. The currency advanced 0.9 percent to 133.83 per euro after climbing to 133.24, the highest level since May 28. It rose to 96.96 per dollar from 97.84.
Safe Havens
Treasuries and the yen rose as the decline in stocks increased demand for safer assets. Treasuries gained for a fourth day, the longest winning streak in five months. The yield on the benchmark 10-year note fell two basis points to 3.69 percent according to BGCantor Market data.
PetroChina slumped 4.7 percent to HK$8.57 as crude oil fell today for the third-straight day in New York. Cnooc Ltd., China’s largest offshore oil producer, dropped 5.3 percent to HK$9.93.
Rio Tinto slumped 4.2 percent to A$72.33 after copper futures dropped 3.6 percent in New York yesterday, the most in almost two weeks. BHP Billiton Ltd., the world’s biggest mining company, fell 1.8 percent to A$36.33.
Materials and energy stocks are the best performing of the MSCI Asia Pacific Index’s 10 industries in the past month as investors bet demand for raw materials will pick up as the global economy recovers. The International Monetary Fund raised its growth forecast for the U.S. economy yesterday.
Rising Valuations
“The green shoots of an economic turnaround continue to appear, but the question is whether markets have priced in a bumper harvest,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “People are now turning their attention to the appropriateness of stock prices.”
The MSCI gauge climbed more than 10 percent for a second month in May, which hasn’t happened since the two months ended 1993. The rally since March has driven the average valuation of companies in the gauge to 1.5 times the book value of assets, the highest level since Sept. 26, according to Bloomberg data.
Konica Minolta fell 6.2 percent to 980 yen, paring its climb in the past six months to 43 percent. Credit Suisse Group lowered its recommendation to “underperform” from “neutral” saying the shares may have “overheated.”
Nufarm tumbled 12 percent to A$10.68 after it cut its earnings forecast on lower-than-expected weed killer sales.
Macquarie Communications, which invests in television and radio-transmission towers, surged 26 percent to A$2.93. Canada Pension Plan Investment Board raised its offer for the company by 20 percent after shareholders threatened to block the purchase.
Berjaya Sports Toto Bhd., Malaysia’s biggest number-betting operator, rose 4.8 percent to 5.20 ringgit after fourth-quarter net income jumped 67 percent and the company announced a special dividend.
India’s ‘Not for Sale’ Legal Market Draws U.S., U.K. Law Firms
June 16 (Bloomberg) -- Two weeks before Clifford Chance LLP said it would fire as many as 100 lawyers in London and New York, the world’s largest law firm by revenue announced an alliance with India’s AZB & Partners to expand operations there.
The firms said in January that they were establishing a referral relationship that would give Clifford Chance a way to serve clients doing business in India, which bans foreign firms from practicing in the country. This month London-based Clyde & Co. and ALMT Legal announced a similar association, saying they would look to merge once it was “permissible.”
These alliances and the increased hiring of Indian lawyers come as U.K. and U.S. law firms are fighting a collapse in work from their financial clients. India is a logical countertrend. For the past five years, Asia’s third-largest economy grew at the fastest pace since independence in 1947. Lawyers are betting India will be a growth market for them once they’re allowed in.
“Most international law firms are looking at doing more” in India, said Sunil Gadhia, chief executive officer of London- based Stephenson Harwood LLP. It’s “a market where firms can generate more business” than in Western economies, he said.
“India’s a place you have to be, from a global business franchise standpoint,” Goldman Sachs Group Inc. India head Brooks Entwistle told 66 European and North American law firms attending a Mumbai conference of the International Bar Association in March. Some of the firms, barred from practicing in India since a 1995 court order, have set up India teams in nearby locations, including Singapore, to serve companies doing Indian deals.
‘Bullish’
“Indian corporates are very bullish,” said Sandeep Katwala, India group head of London’s Linklaters LLP, which allied with Mumbai-based Talwar Thakore & Associates in 2007. Since the election “we’ve seen more mandates in the capital markets than for the last six to eight months,” he said.
Private equity firms’ interest in pre-IPO investments also has revived from “virtually nothing for a few months,” due to positive sentiment following the government’s re-election last month and a belief in the economy’s underlying strength, he said.
“The outlook for India is very promising -- more than any other Jones Day market, in my view,” said Jeffrey Maddox, a Hong Kong-based partner of the Washington-based firm, which works with New Delhi-based P&A Law Offices, which a Jones Day partner set up in 1995.
In February, Jones Day hired Sushma Jobanputra, a Barclays Capital managing director who was previously a lawyer with Linklaters, to join its India practice based in Singapore, Maddox said.
‘Same Basic Problem’
“Most international firms have the same basic problem as us: We service our clients globally, and India is a big market,” said Chris Wyman, the India practice head of London- based Clifford Chance. “If you’re trying to have a global footprint, then ignoring India is nonsense.”
In November, Clifford Chance hired Rahul Guptan from Amarchand & Mangaldas & Suresh A. Shroff & Co., the top Indian legal adviser on acquisitions. He works in its India capital markets group based in Singapore.
The London firm and AZB, which has offices in Mumbai, Delhi and Bangalore, “would want to have a presence working alongside one another as soon as we could,” said Wyman, who plans to spend a few months in AZB’s Mumbai office.
“It’s difficult to operate in a market where you don’t have a base,” said Andrew Harrow, managing partner of the India group at Allen & Overy LLP, which entered a referral, training and joint marketing relationship in 2008 with India’s Trilegal.
Swamped
The 15 or so Indian firms worth partnering with have been swamped with offers from global firms seeking an advantage over competitors, according to Reena Sengupta, whose RSG Consulting has published a study of the Indian legal market.
“Liberalization of the legal sector isn’t going to be top of the government’s agenda, but with its strong mandate, we may see it in two years rather than five,” she said.
India’s central bank licensed New York-based White & Case LLP to set up a liaison office in Mumbai in 1994, when the government at the time was first opening the economy to foreign investment. Chadbourne & Parke LLP of New York and Ashurst LLP of London were also licensed.
Indian lawyers opposed these operations, winning an interim ruling in the Mumbai High Court in 1995 that local lawyers have a monopoly on practicing law in the country. Government proposals to allow foreign lawyers in have also been opposed.
White & Case pulled out voluntarily after the ruling, as did Chadbourne, though Ashurst remains in New Delhi. No new licenses are being issued.
Illegal Practice
Indian lawyers argued that foreign lawyers with offices in India were illegally practicing even when they advised clients on non-Indian law, such as matters related to global transactions. In 2007, the law ministry filed an affidavit disagreeing with this point. A court decision is pending.
“We can’t help those countries where legal services are facing negative growth by letting their firms come to India,” Lalit Bhasin told the March IBA conference. “India’s legal sector is not for sale,” the Society of Indian Law Firms president said.
While other Indian lawyers, such as Cyril Shroff, believe deregulation of the Indian legal market is “at some stage inevitable,” the Amarchand Managing Partner said in an interview that his firm plans to stay independent.
“We will have the critical mass, both in terms of depth and breadth, to deal with the challenges,” he said. Suhail Nathani, one of the founders of Economic Laws Practice in Mumbai, said the eight-year-old firm is currently focused on organic growth rather than a foreign alliance.
Continued Opposition
Indian lawyers told Law Minister Veerappa Moily in a June 8 meeting that they continued to oppose opening the legal market to foreign law firms.
Katwala of Linklaters rejected the notion that global firms like his see India just as an alternative to slowing home markets. Even with rapid growth, India’s legal market won’t exceed that of the U.S. or U.K. in the next 10 years, he said.
“That’s not what’s driving us,” he said. “If deregulation doesn’t happen for, say, five years, I don’t think we’d scale down our focus, simply because our clients want us to be involved.” The decision to invest in India was taken “a long time ago,” he said.
Not every law firm focused on India feels an alliance is essential. An exclusive relationship isn’t “at present” the best strategy for Freshfields Bruckhaus Deringer LLP, said Pratap Amin, head of the firm’s India practice.
Freshfields
The London-based firm, advising Africa’s largest mobile- phone company, MTN Group Ltd., on a merger with India’s Bharti Airtel Ltd., has about 25 lawyers in its India practice, mainly in London, he said. It works with three or four Indian firms.
White & Case, which terminated an alliance with Mumbai- based India Law Services in 2005 and closed its liaison office in 2008, is still “fully prepared” to take advantage of liberalization, according to Nandan Nelivigi, a New York-based partner in the firm’s India practice.
“India is a ‘must have’ when the rules for entry of foreign law firms are clear,” he said. “Everything will be up for grabs at that time, and I don’t believe any of the participants in tie-ups have really agreed upon all the big issues which would need to be addressed and can only be addressed when the rules are clear.”
“The Indian legal market is important, not so much for today, but for the future,” said David Jacobs, the head of Chicago-based Baker & McKenzie LLP’s India practice. Foreign acquisitions by Indian companies more than tripled to $13.9 billion in 2008 from $4.5 billion in 2005, and India “will be restored as one of the dominant global economies in our lifetimes,” he said.
Security Risks
The risks to that scenario are the global financial crisis and security issues, said Jacobs, who spent 46 hours in his 16th-floor Mumbai hotel room in November while it was besieged by terrorists. Jacobs said a second such attack could discourage foreign investment in India.
Ashurst, the one international firm that maintains an Indian office, doesn’t practice law there currently. It will continue to work with three or four Indian firms when it’s allowed to set up a legal office, according to India practice head Richard Gubbins. The office, staffed by a former civil servant, provides advice on how the government works, he said.
“I suspect foreign firms, even once they have been allowed to set up in India, won’t be allowed to practice Indian law for some considerable time,” Gubbins said.
The firms said in January that they were establishing a referral relationship that would give Clifford Chance a way to serve clients doing business in India, which bans foreign firms from practicing in the country. This month London-based Clyde & Co. and ALMT Legal announced a similar association, saying they would look to merge once it was “permissible.”
These alliances and the increased hiring of Indian lawyers come as U.K. and U.S. law firms are fighting a collapse in work from their financial clients. India is a logical countertrend. For the past five years, Asia’s third-largest economy grew at the fastest pace since independence in 1947. Lawyers are betting India will be a growth market for them once they’re allowed in.
“Most international law firms are looking at doing more” in India, said Sunil Gadhia, chief executive officer of London- based Stephenson Harwood LLP. It’s “a market where firms can generate more business” than in Western economies, he said.
“India’s a place you have to be, from a global business franchise standpoint,” Goldman Sachs Group Inc. India head Brooks Entwistle told 66 European and North American law firms attending a Mumbai conference of the International Bar Association in March. Some of the firms, barred from practicing in India since a 1995 court order, have set up India teams in nearby locations, including Singapore, to serve companies doing Indian deals.
‘Bullish’
“Indian corporates are very bullish,” said Sandeep Katwala, India group head of London’s Linklaters LLP, which allied with Mumbai-based Talwar Thakore & Associates in 2007. Since the election “we’ve seen more mandates in the capital markets than for the last six to eight months,” he said.
Private equity firms’ interest in pre-IPO investments also has revived from “virtually nothing for a few months,” due to positive sentiment following the government’s re-election last month and a belief in the economy’s underlying strength, he said.
“The outlook for India is very promising -- more than any other Jones Day market, in my view,” said Jeffrey Maddox, a Hong Kong-based partner of the Washington-based firm, which works with New Delhi-based P&A Law Offices, which a Jones Day partner set up in 1995.
In February, Jones Day hired Sushma Jobanputra, a Barclays Capital managing director who was previously a lawyer with Linklaters, to join its India practice based in Singapore, Maddox said.
‘Same Basic Problem’
“Most international firms have the same basic problem as us: We service our clients globally, and India is a big market,” said Chris Wyman, the India practice head of London- based Clifford Chance. “If you’re trying to have a global footprint, then ignoring India is nonsense.”
In November, Clifford Chance hired Rahul Guptan from Amarchand & Mangaldas & Suresh A. Shroff & Co., the top Indian legal adviser on acquisitions. He works in its India capital markets group based in Singapore.
The London firm and AZB, which has offices in Mumbai, Delhi and Bangalore, “would want to have a presence working alongside one another as soon as we could,” said Wyman, who plans to spend a few months in AZB’s Mumbai office.
“It’s difficult to operate in a market where you don’t have a base,” said Andrew Harrow, managing partner of the India group at Allen & Overy LLP, which entered a referral, training and joint marketing relationship in 2008 with India’s Trilegal.
Swamped
The 15 or so Indian firms worth partnering with have been swamped with offers from global firms seeking an advantage over competitors, according to Reena Sengupta, whose RSG Consulting has published a study of the Indian legal market.
“Liberalization of the legal sector isn’t going to be top of the government’s agenda, but with its strong mandate, we may see it in two years rather than five,” she said.
India’s central bank licensed New York-based White & Case LLP to set up a liaison office in Mumbai in 1994, when the government at the time was first opening the economy to foreign investment. Chadbourne & Parke LLP of New York and Ashurst LLP of London were also licensed.
Indian lawyers opposed these operations, winning an interim ruling in the Mumbai High Court in 1995 that local lawyers have a monopoly on practicing law in the country. Government proposals to allow foreign lawyers in have also been opposed.
White & Case pulled out voluntarily after the ruling, as did Chadbourne, though Ashurst remains in New Delhi. No new licenses are being issued.
Illegal Practice
Indian lawyers argued that foreign lawyers with offices in India were illegally practicing even when they advised clients on non-Indian law, such as matters related to global transactions. In 2007, the law ministry filed an affidavit disagreeing with this point. A court decision is pending.
“We can’t help those countries where legal services are facing negative growth by letting their firms come to India,” Lalit Bhasin told the March IBA conference. “India’s legal sector is not for sale,” the Society of Indian Law Firms president said.
While other Indian lawyers, such as Cyril Shroff, believe deregulation of the Indian legal market is “at some stage inevitable,” the Amarchand Managing Partner said in an interview that his firm plans to stay independent.
“We will have the critical mass, both in terms of depth and breadth, to deal with the challenges,” he said. Suhail Nathani, one of the founders of Economic Laws Practice in Mumbai, said the eight-year-old firm is currently focused on organic growth rather than a foreign alliance.
Continued Opposition
Indian lawyers told Law Minister Veerappa Moily in a June 8 meeting that they continued to oppose opening the legal market to foreign law firms.
Katwala of Linklaters rejected the notion that global firms like his see India just as an alternative to slowing home markets. Even with rapid growth, India’s legal market won’t exceed that of the U.S. or U.K. in the next 10 years, he said.
“That’s not what’s driving us,” he said. “If deregulation doesn’t happen for, say, five years, I don’t think we’d scale down our focus, simply because our clients want us to be involved.” The decision to invest in India was taken “a long time ago,” he said.
Not every law firm focused on India feels an alliance is essential. An exclusive relationship isn’t “at present” the best strategy for Freshfields Bruckhaus Deringer LLP, said Pratap Amin, head of the firm’s India practice.
Freshfields
The London-based firm, advising Africa’s largest mobile- phone company, MTN Group Ltd., on a merger with India’s Bharti Airtel Ltd., has about 25 lawyers in its India practice, mainly in London, he said. It works with three or four Indian firms.
White & Case, which terminated an alliance with Mumbai- based India Law Services in 2005 and closed its liaison office in 2008, is still “fully prepared” to take advantage of liberalization, according to Nandan Nelivigi, a New York-based partner in the firm’s India practice.
“India is a ‘must have’ when the rules for entry of foreign law firms are clear,” he said. “Everything will be up for grabs at that time, and I don’t believe any of the participants in tie-ups have really agreed upon all the big issues which would need to be addressed and can only be addressed when the rules are clear.”
“The Indian legal market is important, not so much for today, but for the future,” said David Jacobs, the head of Chicago-based Baker & McKenzie LLP’s India practice. Foreign acquisitions by Indian companies more than tripled to $13.9 billion in 2008 from $4.5 billion in 2005, and India “will be restored as one of the dominant global economies in our lifetimes,” he said.
Security Risks
The risks to that scenario are the global financial crisis and security issues, said Jacobs, who spent 46 hours in his 16th-floor Mumbai hotel room in November while it was besieged by terrorists. Jacobs said a second such attack could discourage foreign investment in India.
Ashurst, the one international firm that maintains an Indian office, doesn’t practice law there currently. It will continue to work with three or four Indian firms when it’s allowed to set up a legal office, according to India practice head Richard Gubbins. The office, staffed by a former civil servant, provides advice on how the government works, he said.
“I suspect foreign firms, even once they have been allowed to set up in India, won’t be allowed to practice Indian law for some considerable time,” Gubbins said.
European, Asian Stocks Decline; U.S. Index Futures Retreat
June 15 (Bloomberg) -- European and Asian stocks fell on speculation share prices have outstripped the prospects for earnings with the MSCI World Index trading at the highest level relative to profits in four years. U.S. futures slid.
BHP Billiton Ltd., the world’s biggest mining company, and Royal Dutch Shell Plc, Europe’s largest oil producer, retreated more than 2.8 percent as copper, lead and crude decreased. TomTom NV, Europe’s largest maker of car-navigation devices, slid 7.6 percent after saying it plans to raise 430 million euros ($596 million) selling shares.
The MSCI World fell for a second day, losing 1 percent at 10:33 a.m. in London. The gauge of 23 developed markets has surged 43 percent since March 9 on speculation the $12.8 trillion pledged by the U.S. government and Federal Reserve will end the deepest economic contraction since the Great Depression.
The rally has left the index trading at 18.2 times earnings, the most expensive level since 2004, weekly data compiled by Bloomberg show.
“Equity valuations have gone from exceptionally cheap to neutral territory,” said Bob Parker, who helps oversee about $600 billion as vice chairman of Credit Suisse Asset Management in London. “For the rest of June, we’ll probably trade sideways or give up some of the gains. There is a serious concern, justifiably so, of a number of constraints on growth recovery going into 2010.”
Budget Deficits
Group of Eight finance ministers began drawing up contingency plans for rolling back budget deficits and bank bailouts as the economy shows signs of recovery and investors start worrying about inflation.
Officials meeting in Lecce, Italy, over the weekend said it’s prudent to consider what exit strategies to deploy once global growth is secured and asked the International Monetary Fund to examine how to do so without reigniting the two-year crisis. At the same time, they said it’s premature to rein back more than $2 trillion in stimulus packages.
European payrolls contracted by the most on record in the first quarter as the recession forced companies to eliminate jobs. Employment in the 16-member euro region dropped 0.8 percent from the fourth quarter, when it fell 0.4 percent, the European Union statistics office in Luxembourg said today.
Europe’s Dow Jones Stoxx 600 Index slipped 1.7 percent today as all 19 industry groups declined. The MSCI Asia Pacific Index lost 1.5 percent, retreating from the highest level since October. Futures on the Standard & Poor’s 500 Index fell 1.3 percent.
Copper Slides
BHP slid 2.8 percent to 1,444 pence, while Rio Tinto Group, the world’s third-largest mining company, decreased 5.3 percent to 2,950 pence.
Copper declined in London on speculation supply may outpace demand in China, the world’s largest consumer, as the country’s imports climbed to record levels for the fourth month and domestic stockpiles jumped to the highest in nearly 15 months.
Shell sank 3.2 percent to 1,596 pence, the biggest intraday retreat in more than five weeks. Crude oil for July delivery dropped as much as 1.9 percent to $70.71 a barrel on the New York Mercantile Exchange.
Aker Solutions ASA gained 1.5 percent to 56 kroner after Goldman Sachs Group Inc. upgraded shares of Norway’s largest engineering company to “buy” from “neutral,” and added them to its “conviction buy” list.
The brokerage boosted its recommendation on oil-service companies to “attractive” from “neutral,” saying the industry has “underperformed integrated oils” and the exploration and production sector since mid-2007.
TomTom, Holcim
TomTom slid 7.6 percent to 6.91 euros. The company plans to raise funds in a fully committed rights offering and through a private placement. The manufacturer said its lenders also agreed to change the terms of its financial covenants to provide “greater headroom.”
TomTom has 1.16 billion euros of net debt after it bought navigation firm Tele Atlas for 2.9 billion euros to gain access to the market for digital maps and to expand services.
Holcim Ltd. slipped 1.1 percent to 61.3 Swiss francs. The world’s second-biggest cement maker agreed to buy Australian operations from Cemex SAB de CV for A$2.02 billion ($1.61 billion) to enter the markets for concrete and crushed rock.
The Swiss company aims to raise about 2 billion francs ($1.84 billion) by selling as many as 55.4 million shares in a rights offer to pay for the purchase, it said today. The price is equal to 6.6 times Cemex Australia’s earnings.
BHP Billiton Ltd., the world’s biggest mining company, and Royal Dutch Shell Plc, Europe’s largest oil producer, retreated more than 2.8 percent as copper, lead and crude decreased. TomTom NV, Europe’s largest maker of car-navigation devices, slid 7.6 percent after saying it plans to raise 430 million euros ($596 million) selling shares.
The MSCI World fell for a second day, losing 1 percent at 10:33 a.m. in London. The gauge of 23 developed markets has surged 43 percent since March 9 on speculation the $12.8 trillion pledged by the U.S. government and Federal Reserve will end the deepest economic contraction since the Great Depression.
The rally has left the index trading at 18.2 times earnings, the most expensive level since 2004, weekly data compiled by Bloomberg show.
“Equity valuations have gone from exceptionally cheap to neutral territory,” said Bob Parker, who helps oversee about $600 billion as vice chairman of Credit Suisse Asset Management in London. “For the rest of June, we’ll probably trade sideways or give up some of the gains. There is a serious concern, justifiably so, of a number of constraints on growth recovery going into 2010.”
Budget Deficits
Group of Eight finance ministers began drawing up contingency plans for rolling back budget deficits and bank bailouts as the economy shows signs of recovery and investors start worrying about inflation.
Officials meeting in Lecce, Italy, over the weekend said it’s prudent to consider what exit strategies to deploy once global growth is secured and asked the International Monetary Fund to examine how to do so without reigniting the two-year crisis. At the same time, they said it’s premature to rein back more than $2 trillion in stimulus packages.
European payrolls contracted by the most on record in the first quarter as the recession forced companies to eliminate jobs. Employment in the 16-member euro region dropped 0.8 percent from the fourth quarter, when it fell 0.4 percent, the European Union statistics office in Luxembourg said today.
Europe’s Dow Jones Stoxx 600 Index slipped 1.7 percent today as all 19 industry groups declined. The MSCI Asia Pacific Index lost 1.5 percent, retreating from the highest level since October. Futures on the Standard & Poor’s 500 Index fell 1.3 percent.
Copper Slides
BHP slid 2.8 percent to 1,444 pence, while Rio Tinto Group, the world’s third-largest mining company, decreased 5.3 percent to 2,950 pence.
Copper declined in London on speculation supply may outpace demand in China, the world’s largest consumer, as the country’s imports climbed to record levels for the fourth month and domestic stockpiles jumped to the highest in nearly 15 months.
Shell sank 3.2 percent to 1,596 pence, the biggest intraday retreat in more than five weeks. Crude oil for July delivery dropped as much as 1.9 percent to $70.71 a barrel on the New York Mercantile Exchange.
Aker Solutions ASA gained 1.5 percent to 56 kroner after Goldman Sachs Group Inc. upgraded shares of Norway’s largest engineering company to “buy” from “neutral,” and added them to its “conviction buy” list.
The brokerage boosted its recommendation on oil-service companies to “attractive” from “neutral,” saying the industry has “underperformed integrated oils” and the exploration and production sector since mid-2007.
TomTom, Holcim
TomTom slid 7.6 percent to 6.91 euros. The company plans to raise funds in a fully committed rights offering and through a private placement. The manufacturer said its lenders also agreed to change the terms of its financial covenants to provide “greater headroom.”
TomTom has 1.16 billion euros of net debt after it bought navigation firm Tele Atlas for 2.9 billion euros to gain access to the market for digital maps and to expand services.
Holcim Ltd. slipped 1.1 percent to 61.3 Swiss francs. The world’s second-biggest cement maker agreed to buy Australian operations from Cemex SAB de CV for A$2.02 billion ($1.61 billion) to enter the markets for concrete and crushed rock.
The Swiss company aims to raise about 2 billion francs ($1.84 billion) by selling as many as 55.4 million shares in a rights offer to pay for the purchase, it said today. The price is equal to 6.6 times Cemex Australia’s earnings.
Sunday, June 14, 2009
Recession places groups in mood to expand
15th June - 2009
Nearly three-quarters of owner-managed businesses plan to make an acquisition or establish a joint venture within the next three years as they take advantage of opportunities for expansion created by the downturn.
A further 21 per cent plan to expand abroad, according to a survey by Baker Tilly, the professional services firm, of more than 300 directors of companies with turnover ranging from £5m to £50m-plus.
But more than half of the respondents predicted more redundancies and expected a further drop in sales in the coming year. The snapshot was taken in December and February, before the signs of economic recovery started to appear.
Thirty-eight per cent said they expected to make an acquisition over the next three years and 35 per cent said they expected to establish a joint venture with a former competitor.
"It's a once in a generation opportunity for businesses to grow through acquisition. If you are in the fortunate enough position of having cash or access to finance there are some fantastic bargains out there," said Rob Donaldson, Baker Tilly's head of mergers and acquisitions. "You have to be careful as some of the businesses are very cheap for good reason, but there are some great deals."
But 40 per cent of respondents said they planned to exit from their businesses within the next decade, with more than 20 per cent expecting to do so within five years.
Mr Donaldson said "although nobody in their right mind would try to sell a business today unless they have to, it is a good time to be getting ready".
Just over a half predicted a drop in staff headcount in the coming year, while 55 per cent expected a fall in operating profits.
Larger businesses were the most optimistic, with the smallest ones being the next bullish. The mid-tier of respondents were the most pessimistic, with more than half expecting sales to fall.
Baker Tilly said that was because large companies were often better capitalised and in a stronger position to cope with a slowdown, while small companies could be more nimble and quicker at adapting to changing circumstances. Those in the middle needed to consider where they could improve efficiency.
"Funding flexibility in these situations is important. While obtaining finance is clearly difficult, there is funding available provided you understand where to look," Mr Donaldson said.
"Between various government initiatives, the slowly healing banks, and the mountain of private equity funding sitting on the sidelines, money can be found."
Nearly three-quarters of owner-managed businesses plan to make an acquisition or establish a joint venture within the next three years as they take advantage of opportunities for expansion created by the downturn.
A further 21 per cent plan to expand abroad, according to a survey by Baker Tilly, the professional services firm, of more than 300 directors of companies with turnover ranging from £5m to £50m-plus.
But more than half of the respondents predicted more redundancies and expected a further drop in sales in the coming year. The snapshot was taken in December and February, before the signs of economic recovery started to appear.
Thirty-eight per cent said they expected to make an acquisition over the next three years and 35 per cent said they expected to establish a joint venture with a former competitor.
"It's a once in a generation opportunity for businesses to grow through acquisition. If you are in the fortunate enough position of having cash or access to finance there are some fantastic bargains out there," said Rob Donaldson, Baker Tilly's head of mergers and acquisitions. "You have to be careful as some of the businesses are very cheap for good reason, but there are some great deals."
But 40 per cent of respondents said they planned to exit from their businesses within the next decade, with more than 20 per cent expecting to do so within five years.
Mr Donaldson said "although nobody in their right mind would try to sell a business today unless they have to, it is a good time to be getting ready".
Just over a half predicted a drop in staff headcount in the coming year, while 55 per cent expected a fall in operating profits.
Larger businesses were the most optimistic, with the smallest ones being the next bullish. The mid-tier of respondents were the most pessimistic, with more than half expecting sales to fall.
Baker Tilly said that was because large companies were often better capitalised and in a stronger position to cope with a slowdown, while small companies could be more nimble and quicker at adapting to changing circumstances. Those in the middle needed to consider where they could improve efficiency.
"Funding flexibility in these situations is important. While obtaining finance is clearly difficult, there is funding available provided you understand where to look," Mr Donaldson said.
"Between various government initiatives, the slowly healing banks, and the mountain of private equity funding sitting on the sidelines, money can be found."
Asian Stocks Fall on Valuation Concerns; BHP, OZ Minerals Drop
June 15 (Bloomberg) -- Asian stocks declined, dragging the MSCI Asia Pacific Index from an eight-month high, on concern a rally since March had overvalued earnings prospects.
BHP Billiton Ltd., the world’s largest mining company and Australia’s biggest oil producer, sank 1.9 percent in Sydney after oil and metal prices slipped. OZ Minerals Ltd., an Australian mining company, fell 3.4 percent as Citigroup Inc. downgraded the stock. Malaysian Airline System Bhd., the country’s national carrier, slumped 3.1 percent after posting a quarterly loss.
The MSCI Asia Pacific Index lost 0.7 percent to 104.45 as of 12:29 p.m. in Tokyo, after ending last week at its highest level since Oct. 2. Japan’s Nikkei 225 Stock Average fell 0.7 percent to 10,068.03, while South Korea’s Kospi lost 1.2 percent.
“We’re still in the midst of the worst global recession in the post-war period,” said Shane Oliver, a strategist at AMP Capital Investors in Sydney. “It’s inevitable that aftershocks will keep coming through.”
Singapore’s Straits Times Index sank 1.2 percent after the government reported the city’s employers had fired more workers last quarter than initially estimated. China’s Shanghai Composite added 0.2 percent as Premier Wen Jiabao reiterated the need for “proactive” fiscal policies.
Shenzhen Development Bank Co. jumped 8.2 percent after Ping An Insurance (Group) Co. said it plans to buy a stake. Goodman Group, Australia’s biggest industrial real estate investment trust, rose 5.6 percent after the Australian Financial Review reported China Investment Corp. will take a stake in the company. Aeon Co., Japan’s second-largest retailer, climbed 4.1 percent on an upgrade at Bank of America Corp.’s Merrill Lynch & Co.
‘Signs of Stabilization’
MSCI’s Asian gauge has gained 48 percent from a more than five-year low on March 9 amid speculation the global economy is recovering. The Group of Eight finance ministers said after a meeting in Italy at the weekend that they have started pondering how to reverse the emergency steps they took to rescue the global economy as there are “signs of stabilization.”
BHP lost 1.9 percent to A$37.32. Rio Tinto Group, the world’s third-biggest mining company, lost 0.9 percent to A$76.51. Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, sank 1.2 percent to A$42.36.
Gold futures dropped 2.2 percent in New York on June 12, while copper slid 2.9 percent. Oil fell 0.5 percent in after- hours trading, adding to the previous trading day’s 0.9 percent decline.
OZ Minerals declined 3.4 percent to A$1.01 as Citigroup Inc. cut the company’s stock rating to “sell” from “hold.”
Brokerage Downgrades
Malaysian Airline dipped 3.1 percent to 3.16 ringgit after reporting its first quarterly loss in more than two years on lower passenger traffic and wrong-way bets on the price of fuel. The stock was downgraded to “underperform” from “neutral,” Credit Suisse Group AG said in a report today.
Shenzhen Development Bank gained 8.2 percent to 21.63 yuan after Ping An agreed to pay $3.2 billion for a controlling stake. Ping An, China’s second-largest insurer, gained 1.2 percent to 45.64 yuan following a five-day trading halt.
Goodman Group rose 5.6 percent to 47.5 Australian cents. The company may announce China Investment Corp. will take a A$500 million ($404 million) stake, the Australian Financial Review reported, without saying where the information came from.
Aeon climbed 4.1 percent to 1,037 yen after Merrill upgraded the stock to “neutral” from “underperform” amid optimism store earnings will increase.
BHP Billiton Ltd., the world’s largest mining company and Australia’s biggest oil producer, sank 1.9 percent in Sydney after oil and metal prices slipped. OZ Minerals Ltd., an Australian mining company, fell 3.4 percent as Citigroup Inc. downgraded the stock. Malaysian Airline System Bhd., the country’s national carrier, slumped 3.1 percent after posting a quarterly loss.
The MSCI Asia Pacific Index lost 0.7 percent to 104.45 as of 12:29 p.m. in Tokyo, after ending last week at its highest level since Oct. 2. Japan’s Nikkei 225 Stock Average fell 0.7 percent to 10,068.03, while South Korea’s Kospi lost 1.2 percent.
“We’re still in the midst of the worst global recession in the post-war period,” said Shane Oliver, a strategist at AMP Capital Investors in Sydney. “It’s inevitable that aftershocks will keep coming through.”
Singapore’s Straits Times Index sank 1.2 percent after the government reported the city’s employers had fired more workers last quarter than initially estimated. China’s Shanghai Composite added 0.2 percent as Premier Wen Jiabao reiterated the need for “proactive” fiscal policies.
Shenzhen Development Bank Co. jumped 8.2 percent after Ping An Insurance (Group) Co. said it plans to buy a stake. Goodman Group, Australia’s biggest industrial real estate investment trust, rose 5.6 percent after the Australian Financial Review reported China Investment Corp. will take a stake in the company. Aeon Co., Japan’s second-largest retailer, climbed 4.1 percent on an upgrade at Bank of America Corp.’s Merrill Lynch & Co.
‘Signs of Stabilization’
MSCI’s Asian gauge has gained 48 percent from a more than five-year low on March 9 amid speculation the global economy is recovering. The Group of Eight finance ministers said after a meeting in Italy at the weekend that they have started pondering how to reverse the emergency steps they took to rescue the global economy as there are “signs of stabilization.”
BHP lost 1.9 percent to A$37.32. Rio Tinto Group, the world’s third-biggest mining company, lost 0.9 percent to A$76.51. Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, sank 1.2 percent to A$42.36.
Gold futures dropped 2.2 percent in New York on June 12, while copper slid 2.9 percent. Oil fell 0.5 percent in after- hours trading, adding to the previous trading day’s 0.9 percent decline.
OZ Minerals declined 3.4 percent to A$1.01 as Citigroup Inc. cut the company’s stock rating to “sell” from “hold.”
Brokerage Downgrades
Malaysian Airline dipped 3.1 percent to 3.16 ringgit after reporting its first quarterly loss in more than two years on lower passenger traffic and wrong-way bets on the price of fuel. The stock was downgraded to “underperform” from “neutral,” Credit Suisse Group AG said in a report today.
Shenzhen Development Bank gained 8.2 percent to 21.63 yuan after Ping An agreed to pay $3.2 billion for a controlling stake. Ping An, China’s second-largest insurer, gained 1.2 percent to 45.64 yuan following a five-day trading halt.
Goodman Group rose 5.6 percent to 47.5 Australian cents. The company may announce China Investment Corp. will take a A$500 million ($404 million) stake, the Australian Financial Review reported, without saying where the information came from.
Aeon climbed 4.1 percent to 1,037 yen after Merrill upgraded the stock to “neutral” from “underperform” amid optimism store earnings will increase.
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